<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal period from ---------- to ---------
Commission file number 0-22008
MISSISSIPPI VALLEY BANCSHARES, INC.
- ------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Missouri 43-1336298
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 Corporate Park Drive, St. Louis, Missouri 63105
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 314-268-2580
Securities registered pursuant to Section 12 (b) of the Act:
Title of each Class Name of each exchange on which registered
- ------------------- -----------------------------------------
None None
---- ----
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $1 par value
Floating Rate Cumulative Trust Preferred Securities
- ------------------------------------------------------------------------------
(Title of Class)
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 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. -----
As of February 27, 1998, 9,547,812 shares of common stock of the
registrant were outstanding; the aggregate market value of the shares of
common stock of the registrant held by non-affiliates was approximately
$283,510,000 based upon the closing price of the common stock on the
NASDAQ/NMS on February 27, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
1. Certain portions of Registrant's Annual Report to Shareholders for
the year ended December 31, 1997 are incorporated by reference in Parts
I and II hereof.
2. Registrant's Proxy Statement for its Annual Meeting of Shareholders to
be held April 15, 1998 is incorporated by reference in Part III hereof.
<PAGE> 2
PART I
ITEM 1. BUSINESS
- ------- --------
GENERAL
- -------
The Company is a one-bank holding company headquartered in St. Louis
County, Missouri engaged primarily in commercial lending through Southwest
Bank of St. Louis (the "Bank"), which is the Company's sole active bank
subsidiary. The Bank has been nationally recognized for its frequent
practice of reducing its prime rate in advance of industry wide prime rate
cuts. The Bank has five banking offices, all of which are located in the St.
Louis metropolitan area ("St. Louis MSA"), the seventeenth largest
metropolitan statistical area in the United States, with a population of
approximately 2.5 million. Since acquiring the Bank in 1984, the Company has
expanded the Bank's loan portfolio from $57 million to $847 million at
December 31, 1997, or approximately $61 million per year. The Company has
earned an average return on equity of 17.39% over the past five years.
The Company's strategy is to act primarily as a lender to middle market
companies located within 200 miles of St. Louis. These companies tend to be
privately-held and owner-operated, with annual sales of less than $100
million and with typical borrowing requirements of $500,000 to $3 million.
Management believes that the Company is able to compete effectively in
its market because: (i) the Bank's lending officers and senior management
maintain close working relationships with their commercial customers and
their businesses; (ii) the Bank is able to react more quickly to loan
requests than the Company's large competitors yet is able to fund loan
amounts which smaller St. Louis area commercial lenders are unable to fund;
(iii) the Bank's management and loan officers have significant experience
within the St. Louis community; and (iv) industry consolidation has resulted
in fewer independent banks and fewer banks addressing the Bank's target
market niche.
The Bank's historical growth strategy has been asset driven, as the
Bank has increased its loan portfolio based on lending opportunities which
meet the Bank's underwriting standards. The Bank has expanded its retail
deposit base to meet lending growth demands through opening new locations and
offering promotional deposit rates, often concurrently. These deposit
promotional activities are usually implemented as the Bank's loan to deposit
ratio increases significantly past the 85% level which management targets.
The Bank opened one new location in each of 1990, 1992 and 1995. For a
discussion of two additional planned facilities, see "Item 2. Properties."
The Company's operating strategy has resulted in a higher cost of funds
(and, consequently, a lower net interest margin) than other institutions
within its market, due to its rate driven retail deposit gathering
activities. For 1997 and 1996, the Company reported net interest margins of
3.73% and 4.01%, respectively.
2
<PAGE> 3
On the other hand, this operating strategy has also permitted the
Company to achieve consistently lower overhead ratios than other comparable
institutions by (i) operating a small number of offices with a per-office
deposit base averaging $225 million as of December 31, 1997, (ii) emphasizing
commercial loans, which tend to be larger in size than retail loans, (iii)
employing an experienced staff, (iv) improving data processing and
operational systems in order to increase productivity, and (v) outsourcing
services where possible. For 1997 and 1996, the Company reported efficiency
ratios (non interest expense divided by the sum of tax-equivalent net
interest income plus noninterest income) of 43.03% and 41.25%, respectively.
These ratios are significantly better than those of the Company's peers. The
Company's ratio of average assets per employee, which was $5.22 million for
1997, has also been consistently better than the industry average.
THE BANK
- --------
For a description of the Bank and its operations, reference is made to
"Financial Review" on pages 9 through 23 of the Company's Annual Report to
Shareholders for the year ended December 31, 1997, which is incorporated
herein by reference.
COMPETITION
- -----------
The Bank encounters competition primarily in seeking deposits and in
obtaining loan customers. The level of competition for deposits is quite
high. The Bank's principal competitors for deposits are other financial
institutions within a few miles of its offices, including other banks,
savings and loan institutions, and credit unions. Competition among these
institutions is based primarily on interest rates offered, service charges
imposed on deposit accounts, the quality of services rendered, and the
convenience of banking facilities. The Bank's competitors are generally
permitted, subject to regulatory approval, to establish branches throughout
the Bank's market area. Additional competition for depositors' funds comes
from United States Government securities, private issuers of debt obligations
and suppliers of other investment alternatives for depositors, such as
securities firms.
While the Bank also encounters a great deal of competition in its
lending activities, management believes that there is less competition in the
Bank's specialty-the middle market niche-than there was up to a few years
ago. The Bank's competitive position has been strengthened by the advent of
branch banking in Missouri, which has resulted in consolidations of bank
subsidiaries of several large bank holding companies. The Bank's strategy,
by contrast, is to maintain close, long-term contacts between its customers
and the Bank's loan officers.
The Bank also competes in its lending activities with other financial
institutions such as savings and loan institutions, credit unions, securities
firms, insurance companies, small loan companies, finance companies, mortgage
companies and other sources of funds. Many of the Bank's non-bank
competitors are not subject to the same extensive Federal regulations that
govern bank holding companies and Federally insured banks and state
regulations governing state chartered banks. As a result, such non-bank
competitors have advantages over the Bank in providing certain services.
Many of the financial institutions with which the Bank competes in both
lending and deposit activities are larger than the Bank.
3
<PAGE> 4
EMPLOYEES
- ---------
As of December 31, 1997, the Company had no employees and the Bank had
approximately 242 full-time equivalent employees. None of the employees of
the Bank is subject to a collective bargaining agreement. The Company
considers relationships with employees of the Bank to be good.
FORWARD-LOOKING STATEMENTS
- --------------------------
This Report contains forward-looking statements. These forward-looking
statements are based largely on the Company's expectations and are subject to
a number of risks and uncertainties, certain of which are beyond the
Company's control. Actual results could differ materially from these
forward-looking statements as a result of the factors described below. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks and uncertainties, there can be
no assurance that the forward-looking information contained in this Report
will in fact transpire.
Regulatory Risk. The banking industry is heavily regulated. These
regulations are intended to protect depositors, not shareholders. The Bank
is subject to regulation and supervision by the Federal Deposit Insurance
Corporation (the "FDIC") and the Missouri Division of Finance (the "Division
of Finance"), while the Company is subject to regulation and supervision by
the Board of Governors of the Federal Reserve System (the "FRB"). The burden
imposed by Federal and state regulations puts banks at a competitive
disadvantage compared to less regulated competitors such as finance
companies, mortgage banking companies and leasing companies. The banking
industry continues to lose market share to competitors. In addition,
legislative reactions to the problems of the thrift industry have increased
the regulatory and supervisory requirements for financial institutions, which
have resulted and will continue to result in increased operating expenses.
Legislation. Because of concerns relating to the competitiveness and
the safety and soundness of the industry, Congress continues to consider a
number of wide-ranging proposals for altering the structure, regulation, and
competitive relationships of the nation's financial institutions. Among such
bills are proposals to combine banks and thrifts into a unified charter, to
combine regulatory agencies, to alter the statutory separation of commercial
and investment banking, and to further expand the powers of depository
institutions, bank holding companies, and competitors of depository
institutions. It cannot be predicted whether or in what form any of these
proposals will be adopted or the extent to which the business of the Company
or the Bank may be affected thereby.
Credit Risk. The greatest risk facing lenders is generally credit
risk, that is, the risk of losing principal and interest due to a borrower's
failure to perform according to the terms of the loan agreements. Although
the Bank's net percentage of charge-offs have historically been lower than
industry norms, it has a relatively high proportion of commercial loans. As
of
4
<PAGE> 5
December 31, 1997 the Bank had 19 customers who had outstanding loans and
unfunded commitments exceeding $5 million.
Exposure to Local Economic Conditions. The Bank's concentration of
loans in the St. Louis MSA exposes it to risks resulting from changes in the
local economy. While the Bank's market area for loans extends throughout
most of eastern Missouri and southern Illinois, its lending operations are
concentrated in the St. Louis MSA.
As of December 31, 1997, 40.71% of the Bank's loans were secured by
commercial real estate and 13.81% of the Bank's loans were secured by
residential real estate. The percentage of loans secured by St. Louis MSA
real estate is significant. A dramatic drop in St. Louis area real estate
values would adversely affect the quality of loan portfolio.
Interest Rate Risk. The Bank's earnings depend to a great extent upon
the level of net interest income, which is the difference between interest
income earned on loans and investments and the interest expense paid on
deposits and other borrowings. Although the maturities of the Bank's assets
are well balanced in relation to maturities of liabilities (gap management),
gap management is not an exact science. Rather, it involves estimates as to
how changes in the general level of interest rates will impact the yields
earned on assets and the rates paid on liabilities. Moreover, rate changes
can vary depending upon the level of rates and competitive factors. From
time to time, maturities of assets and liabilities are not balanced, and a
rapid increase or decrease in interest rates could have an adverse effect on
net interest margins and results of operations of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Sensitivity to Changes in Interest Rates" in the Company's
Annual Report to Shareholders, incorporated by reference herein.
Competition. The activities of the Company and the Bank in the
geographic market served involve competition with other banks as well as with
other financial institutions and enterprises, many of which have been
substantially greater resources than those available to the Company. In
addition, non-bank competitors are generally not subject to the extensive
regulation applicable to the Company and the Bank.
ITEM 2. PROPERTIES
- -------- ----------
The Bank's principal office occupies approximately 2.7 acres of ground
on the corner of Kingshighway and Southwest, in the City of St. Louis. The
building was totally renovated in 1987 and has one ATM. It has approximately
36,000 square feet and room for expansion. The Bank's drive-ins are modern
and parking is adequate. The premises are owned by the Company and leased to
the Bank. The lease expires in 2006 and provides the Bank with an option to
renew for an additional ten years.
The Bank's Clayton office, which opened in 1990, is located in one-half
of the first floor (approximately 12,000 square feet) of a five-story office
building in the Clayton Corporate Park, and includes two ATM's. The space is
leased for ten years with options to renew for up to 35 years. Adequate
parking is available and drive-up facilities are provided in the Clayton
Corporate Park near the Clayton banking office.
5
<PAGE> 6
The Bank's Concord Village office occupies a building of approximately
10,000 square feet built in 1995 on approximately one acre of land purchased
in 1994. The office has an ATM, and adjoining drive-up lanes and equipment;
adequate parking is available.
The Bank's Crestwood office occupies a building of approximately 5,200
square feet, which was purchased by the Bank in December, 1991 and was
totally remodeled before the opening of the office. The land was purchased
by the Bank in February, 1992. The facility has a nearby ATM, and adjoining
drive-up lanes and equipment; adequate parking is available.
The Bank's office on the corner of Kingshighway and Chippewa,
approximately two miles from the main office, occupies an 1,865 square foot
building on 2.83 acres of land purchased in 1997. This facility was entirely
renovated in 1986 and has one ATM.
In January, 1996 the Company purchased approximately 1.7 acres of land
in Belleville, Illinois. The Company has obtained regulatory approval to
establish a new Illinois bank and office on this site, which is located in
the St. Louis MSA; the Belleville office would be the Company's first
location outside Missouri. Construction began on the Belleville office in
1997 and is expected to be completed in the summer of 1998 with an opening
and business operations beginning shortly thereafter. In 1996 the Bank also
purchased two adjoining parcels of land of approximately 6.3 acres and 2.3
acres, respectively, in St. Louis County, Missouri. It is the Bank's
intention to establish a new banking office at this location. It is also
expected that the location will become the Company's new headquarters
facility.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
The Bank is from time to time a party to various legal actions arising
in the normal course of business. Management believes that there is no
proceeding threatened or pending against the Company or Bank, which, if
determined adversely, would have a material effect on the business or
financial position of the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
There were no matters submitted to a vote of the security holders in
the quarter ended December 31, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- ------- -----------------------------------------------------------------
MATTERS
-------
Reference is made to the information contained in the section entitled
"Common Share Data" on page 8 and investor information on page 49 of the
Company's Annual Report to Shareholders for the year ended December 31, 1997,
which is incorporated herein by reference.
6
<PAGE> 7
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
Reference is made to the information contained in the section entitled
"Financial Review -- Selected Consolidated Financial Data" on page 9 of the
Company's Annual Report to Shareholders for the year ended December 31, 1997,
which is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Reference is made to information contained in the section entitled
"Financial Review" on pages 9 through 23 of the Company's Annual Report to
Shareholders for the year ended December 31, 1997, which is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
Reference is made to the Consolidated Financial Statements and
independent auditors report thereon contained on pages 24 through 46 of the
Company's Annual Report to Shareholders for the year ended December 31, 1997,
which are incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- ------- ----------------------------------------------------
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
Reference is made to "Election of Directors" on pages 4 and 5 of the
Company's definitive Proxy Statement dated March 10, 1998, which is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
Reference is made to "Executive Compensation" on pages 6 through 10 of the
Company's definitive Proxy Statement dated March 10, 1998, which is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
Reference is made to "Principal Shareholders" on pages 11 and 12 of the
Company's definitive Proxy Statement dated March 10, 1998, which is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------- ----------------------------------------------
Reference is made to "Certain Transactions" on page 10 of the Company's
definitive Proxy Statement dated March 10, 1998, which is incorporated herein
by reference.
7
<PAGE> 8
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8 - K
- -------- -----------------------------------------------------------------
<TABLE>
<S> <C>
(a) 1. Financial Statements.
<CAPTION>
Pages in 1997 Annual
Report to Shareholders
incorporated by reference
-------------------------
<S> <C>
Report of Independent Auditors 24
Consolidated Balance Sheets 25
Consolidated Statements of Income 26
Consolidated Statements of Changes
in Shareholders' Equity 27
Consolidated Statements of Cash Flows 28
Notes to Consolidated Financial Statements 29 through 46
2. Financial Statement Schedules.
None.
3. Exhibits.
References made to "Exhibit Index," which is attached hereto
and incorporated herein by reference.
(b) Registrant did not file any reports on Form 8-K during the quarter ended
December 31, 1997.
</TABLE>
8
<PAGE> 9
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: MARCH 20, 1998
--------------
MISSISSIPPI VALLEY BANCSHARES, INC.
By /s/ Paul M. Strieker
-----------------------------------------------
Paul M. Strieker
Executive Vice President, Controller,
Assistant Secretary and Chief Financial Officer
9
<PAGE> 10
POWER OF ATTORNEY
-----------------
Each person whose signature appears below constitutes and appoints
Andrew N. Baur and Linn H. Bealke his true and lawful attorneys-in-fact and
agents, each acting alone, with full powers of substitution and
re-substitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments to this Report, and to
file the same with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to
do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John T. Baumstark Director March 17, 1998
- --------------------------------
John T. Baumstark
/s/ Andrew N. Baur Chairman and Chief Executive March 13, 1998
- -------------------------------- Officer of the Registrant and
Andrew N. Baur the Bank; Director
/s/ Linn H. Bealke President and Director of the March 13, 1998
- -------------------------------- Registrant; Vice Chairman of
Linn H. Bealke the Bank
- -------------------------------- Director
Alice C. Behan
/s/ William H. T. Bush March 17, 1998
- -------------------------------- Director
William H. T. Bush
/s/ Franklin J. Cornwell Jr. March 17, 1998
- -------------------------------- Director
Franklin J. Cornwell Jr.
/s/ Theodore P. Desloge, Jr. March 16, 1998
- -------------------------------- Director
Theodore P. Desloge, Jr.
/s/ Louis N. Goldring March 19, 1998
- -------------------------------- Director
Louis N. Goldring
10
<PAGE> 11
- -------------------------------- Director
Richard T. Grote
/s/ Frederick O. Hanser March 13, 1998
- -------------------------------- Director
Frederick O. Hanser
/s/ Donna D. Lambert March 13, 1998
- -------------------------------- Director
Donna D. Lambert
/s/ Michael D. Latta March 17, 1998
- -------------------------------- Director
Michael D. Latta
/s/ Mont S. Levy March 16, 1998
- -------------------------------- Director
Mont S. Levy
/s/ Lewis B. Shepley March 16, 1998
- -------------------------------- Director
Lewis B. Shepley
/s/ Paul M. Strieker Executive Vice President, March 13, 1998
- -------------------------------- Controller, Assistant Secretary
Paul M. Strieker and Chief Financial Officer of the
Registrant; Executive Vice
President of the Bank
</TABLE>
11
<PAGE> 12
MISSISSIPPI VALLEY BANCSHARES, INC.
Exhibit Index
Form 10-K
1997
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Page
------ ---------------------- ----
<C> <S> <C>
3.1 Restated Articles of Incorporation of Registrant and all amendments
thereto, incorporated by reference to Exhibit 3.2 to the Company's
Annual Report on Form 10-K for its fiscal year ended December 31, 1993.
3.2 By-Laws of Registrant, incorporated by reference to Exhibit 3.2 to the Company's
Annual Report on Form 10-K for its fiscal year ended December 31, 1993
4.1 Certificate of Designations for Perpetual Preferred Stock, Series 1993,
incorporated by reference to Exhibit 4.1 to Registration Statement No. 33-61692
4.2 Form of 8% Subordinated Convertible Debenture Due 1997, incorporated
by reference to Exhibit 4.2 to Registration Statement No. 33-61692
4.3.1 Mississippi Valley Bancshares, Inc. 1988 Stock Option Plan (Five-Year Options),
incorporated by reference to Exhibit 4.6.1 to Registration Statement No. 33-61692
4.3.2 Mississippi Valley Bancshares, Inc. 1991 Stock Option Plan (Five-Year Options),
incorporated by reference to Exhibit 4.6.2 to Registration Statement No. 33-71760
4.3.2a Amendment dated January 18, 1995 to the Mississippi Valley Bancshares,
Inc. 1991 Stock Option Plan (Five-Year Options), incorporated by
reference to Exhibit 4.4.2a to the Company's Annual Report on
Form 10-K for its fiscal year ended December 31, 1994
4.3.3 Form of Five-Year Option Agreement, incorporated by reference to
Exhibit 4.6.3 to Registration Statement No. 33-71760
4.4.1 Indenture dated March 5, 1997 between the Company and State Street Bank and Trust
Company relating to Floating Rate Debentures due 2027; incorporated by reference
to the Company's Registration Statement No. 333-22055 on Form S-3.
<PAGE> 13
<CAPTION>
Exhibit
Number Description of Exhibit Page
------ ---------------------- ----
<C> <S> <C>
4.4.2 Form of Subordinated Debenture (included as an Exhibit to Exhibit 4.4.1),
incorporated by reference to the Company's Registration Statement No. 333-22055
on Form S-3.
4.4.3 Certificate of Trust of MVBI Capital Trust dated February 14, 1997, incorporated
by reference to the Company's Registration Statement No. 333-22055 on Form S-3.
4.4.4 Trust Agreement dated February 14, 1997 between the Company, Wilmington Trust
Company and the Trustees, incorporated by reference to the Company's Registration
Statement No. 333-22055 on Form S-3.
4.4.5 MVBI Capital Trust Amended and Restated Trust Agreement, incorporated by
reference to the Company's Registration Statement No. 333-22055 on Form S-3.
4.4.6 Preferred Securities Guarantee Agreement between the Company and State Street
Bank and Trust Company.
10.1 Purchase Agreement Dated March 31, 1993 for Series 1993 Preferred Stock,
incorporated by reference to Exhibit 10.1 to Registration Statement No. 33-61692
10.2.1 Management Retention Agreement between the Bank and Stephen P. Marsh,
incorporated by reference to Exhibit 10.2.1 to Registration Statement No. 33-61692
10.2.2 Management Retention Agreement between the Bank and Paul M. Strieker, incorporated
by reference to Exhibit 10.2.2 to the Company's Annual Report on Form 10-K for
its fiscal year ended December 31, 1993.
10.2.3 Consulting Agreement between the Bank, Company and Andrew N. Baur
10.2.4 Consulting Agreement between the Bank, Company and Linn H. Bealke
10.2.5 Southwest Bank of St. Louis Supplemental Retirement Plan
10.3.1 Clayton Corporate Park Standard Office Lease dated December 23, 1988, between the
Forsythe Group, Inc. and the Bank, incorporated by reference to Exhibit 10.3.1 to
Registration Statement No. 33-61692
<PAGE> 14
<CAPTION>
Exhibit
Number Description of Exhibit Page
------ ---------------------- ----
<C> <S> <C>
10.3.2 First Amendment to Clayton Corporate Park Standard Office Lease dated August 31,
1989, between The Forsythe Group, Inc. and the Bank, incorporated by reference to
Exhibit 10.3.2 to Registration Statement No. 33-61692
10.4 Promissory Note dated June 5, 1997, in the principal amount of $10,000,000, by
Registrant in favor of Norwest Bank Minnesota, N.A.
13. Registrant's Annual Report to Shareholders for the year ended December 31, 1997
(only those portions of such Annual Report as are incorporated by reference in
Parts I and II hereof shall be deemed a part of this Report)
21. Subsidiaries of the Registrant, incorporated by reference to Exhibit 22.1 to
Registration Statement No. 33-61692
23. Consent of Independent Accountants
24. Power of Attorney is contained on page 10 and 11 hereof
</TABLE>
<PAGE> 1
REVOLVING NOTE
$10,000,000.00 June 5, 1997
FOR VALUE RECEIVED, the undersigned, MISSISSIPPI VALLEY BANCSHARES, INC.,
a Missouri corporation with offices in St. Louis, Missouri, promises to pay
on June 30, 1998 to the order of Norwest Bank Minnesota, National Association
(the "Bank") at the Bank's Norwest Center Office, or at any other place
designated at any time by the holder hereof, in lawful money of the United
States of America, the principal sum of TEN MILLION AND NO/100 DOLLARS
($10,000,000.00), or so much thereof as is disbursed and remains outstanding
hereunder as shown by the Bank's liability record on the date payment is due
hereunder, together with interest on the unpaid balance hereof from the date
hereof until this Note is fully paid at an annual rate equal to ONE HUNDRED
SEVENTY-FIVE basis points (1.75%) in excess of the Federal Funds Rate in
effect from time to time. As used herein, the Federal Funds Rate shall mean the
daily market rate quoted to the Bank at approximately 12:00 Noon each business
day by dealers in the Federal Funds market for the offering of dollars to
the Bank for deposit, as such rate may increase or decrease from time to time.
The interest rate of this Note shall change simultaneously with each change
in the Federal Funds Rate. Interest shall be calculated on the basis of
actual number of days elapsed in a 360-day year.
Interest on this Note shall be payable quarterly, commencing September 15,
1997, and upon maturity.
This Revolving Note constitutes the Revolving Note issued pursuant to
the provisions of that certain letter loan agreement of even date herewith
(the "Loan Agreement") made between the undersigned and the Bank. The Loan
Agreement and any amendments or substitutions thereto, contain additional
terms and conditions including default provisions, and statements of the
terms pursuant to which the indebtedness evidenced hereby was created, may
be prepaid voluntarily, may be reborrowed and may be accelerated. Capitalized
terms not expressly defined herein shall have the meaning given them in the
Loan Agreement.
This Revolving Note shall be unsecured; PROVIDED, HOWEVER, that Borrower
is prohibited from granting or allowing a lien or encumbrance of any type
upon or with respect to certain property pursuant to the provisions of a
negative pledge agreement (the "Negative Pledge") of even date herewith.
Unless prohibited by law, the undersigned agrees to pay all costs of
collection, including reasonable attorneys' fees and legal expenses, incurred
by the holder hereof in the event this Revolving Note is not duly paid. The
holder hereof may change any terms of payment of this Revolving Note, including
extensions of time and renewals, and release any security for, or any party
to, this Revolving Note, without notifying or releasing any accommodation
maker, endorser or guarantor from liability in connection with this
Revolving Note. Presentment or other demand for payment, notice of dishonor
and protest are hereby waived by the undersigned and each endorser or
guarantor. This Revolving Note shall be governed by the substantive laws
of the State of Minnesota.
MISSISSIPPI VALLEY BANCSHARES, INC.
By: /s/ Linn H. Bealke By: /s/ Carol B. Dolenz
------------------------------- --------------------------------
Its: President Its: Secretary/Treasurer
----------------------------- ------------------------------
MississippiValleyBancsharesPromissoryNote.doc
<PAGE> 1
COMMON SHARE DATA
- -------------------------------------------------------------------------------
Mississippi Valley Bancshares, Inc. (MVBI) is traded on the National
Association of Securities Dealers, Inc. ("NASD") National Market. The
following bar graph and table sets forth the high, low and closing trade
prices of the common stock, cash dividends and certain other information for
the last three years, as reported by the NASD:
[GRAPH]
<TABLE>
<CAPTION>
Book
Value At
End Of Market Price Dividends
1997 High Low Close Period To Book Value Declared
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4th Quarter $ 34 1/4 $ 24 7/8 $ 32 1/4 $ 10.31 312.80% $ .07
3rd Quarter 25 3/8 23 1/2 24 1/2 9.80 250.00 .07
2nd Quarter 24 1/4 20 7/8 24 1/4 9.10 266.48 .07
1st Quarter 23 1/2 20 7/8 21 1/4 8.55 248.54 .07
1996
- -----------------------------------------------------------------------------------------------------------------
4th Quarter $ 21 1/2 $ 18 1/8 $ 21 1/4 $ 8.45 251.48% $ .0625
3rd Quarter 18 1/4 15 5/8 18 1/4 8.08 225.87 .0625
2nd Quarter 16 1/4 13 3/4 16 7.75 206.45 .055
1st Quarter 14 1/4 12 5/8 14 1/4 7.42 192.05 .055
1995
- -----------------------------------------------------------------------------------------------------------------
4th Quarter $ 13 1/2 $ 12 $ 13 3/8 $ 7.47 179.05% $ .045
3rd Quarter 13 1/4 10 1/2 13 1/4 6.92 191.47 .045
2nd Quarter 11 1/4 8 7/8 11 6.58 167.17 .04
1st Quarter 9 1/4 8 1/2 8 7/8 5.39 164.66 .04
<CAPTION>
December 31
---------------------------------------
1997 1996 1995
---------------------------------------
<S> <C> <C> <C>
Average shares outstanding 9,396,320 9,023,638 8,892,152
Year-end shares outstanding 9,519,212 9,033,912 9,016,012
Shareholders of record 526 471 492
Average daily volume <F1> 5,730 3,922 3,782
<FN>
<F1> Per NASDAQ National Market System
</TABLE>
8
<PAGE> 2
FINANCIAL REVIEW
- -------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial information for
Mississippi Valley Bancshares, Inc. (the "Company"), parent company of
Southwest Bank of St. Louis (the "Bank") for each of the five years ended
December 31, 1997. The selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements of the Company,
including the accompanying Notes, presented elsewhere herein.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Interest income $ 95,254 $ 79,719 $ 70,402 $ 53,036 $ 42,756
Interest expense 52,243 40,811 38,295 23,883 19,428
----------------------------------------------------------------------
Net interest income 43,011 38,908 32,107 29,153 23,328
Provision for possible loan losses 4,100 3,875 2,560 2,680 2,570
----------------------------------------------------------------------
Net interest income after provision
for possible loan losses 38,911 35,033 29,547 26,473 20,758
Noninterest income 5,596 5,061 4,095 2,736 2,735
Noninterest expense 21,024 18,242 16,438 14,993 13,502
----------------------------------------------------------------------
Income before income taxes 23,483 21,852 17,204 14,216 9,991
Income taxes 8,470 7,756 6,457 5,584 3,644
----------------------------------------------------------------------
Net income $ 15,013 $ 14,096 $ 10,747 $ 8,632 $ 6,347
======================================================================
DIVIDENDS
Preferred stock $ $ 231 $ 231 $ 231 $ 173
Common stock 2,631 2,121 1,514 1,192 885
Ratio of total dividends declared to
net income 17.52% 16.69% 16.24% 16.49% 16.67%
PER SHARE DATA <F1>
Earnings per common share:
Basic $ 1.60 $ 1.54 $ 1.18 $ .96 $ .84
Diluted 1.55 1.46 1.12 .90 .78
Common stock cash dividends .28 .235 .17 .13625 .11625
Average common shares and common
share equivalents outstanding 9,700,928 9,582,886 9,517,616 9,488,914 8,111,000
Diluted book value (period end) $ 10.31 $ 8.45 $ 7.47 $ 5.87 $ 5.28
BALANCE SHEET DATA (AT PERIOD END)
Securities $ 375,916 $ 287,651 $ 327,652 $ 176,674 $ 130,362
Loans, net of unearned discount 847,091 731,019 623,777 563,477 498,650
Total assets 1,299,918 1,065,777 995,048 772,015 653,518
Total deposits 1,126,562 918,012 886,565 658,956 546,445
Total long-term debt 14,950 2,700 2,700 3,240 3,240
Common shareholders' equity 93,107 75,949 67,607 52,250 46,537
Total shareholders' equity 93,107 75,949 70,107 54,750 49,037
SELECTED RATIOS
Return on average total assets 1.25% 1.40% 1.22% 1.21% 1.05%
Return on average total shareholders'
equity 17.77 19.07 17.34 16.61 16.18
Net interest margin 3.73 4.01 3.80 4.26 4.06
Efficiency ratio <F2> 43.03 41.25 45.06 46.59 51.16
Average assets per employee $ 5,220 $ 4,740 $ 4,426 $ 3,938 $ 3,486
ASSET QUALITY RATIOS
Allowance for possible loan losses to loans 1.76% 1.73% 1.73% 1.70% 1.56%
Nonperforming loans to loans <F3> .26 .92 .75 .39 .88
Allowance for possible loan losses
to nonperforming loans <F3> 679.69 188.14 230.14 440.64 176.67
Nonperforming assets to loans and
foreclosed assets <F4> .43 .99 .75 .40 .92
Net loan charge-offs to average loans .23 .30 .23 .16 .29
CAPITAL RATIOS
Average shareholders' equity to
average assets 7.04% 7.32% 7.03% 7.29% 6.50%
Total risk-based capital ratio 13.23 11.45 11.64 11.45 11.21
Leverage ratio 8.04 7.20 6.70 7.33 7.40
- ---------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Share and per Share information has been restated to reflect the 1998
two-for-one stock split.
<F2> The efficiency ratio = noninterest expense divided by (tax-equivalent net
interest income + noninterest income)
<F3> Nonperforming loans consist of nonaccrual loans, loans contractually
past due 90 days or more and loans with restructured terms.
<F4> Nonperforming assets consist of nonperforming loans and foreclosed
assets.
</TABLE>
9
<PAGE> 3
FINANCIAL REVIEW (continued)
- ------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The following presents management's discussion and analysis of the Company's
consolidated financial condition and results of operations as of the dates
and for the periods indicated. This discussion should be read in conjunction
with "Selected Consolidated Financial Data," the Company's Consolidated
Financial Statements and accompanying Notes, and other financial data appearing
elsewhere in this Report.
SUMMARY OF EARNINGS
Consolidated net income for 1997 was $15,013,000, an increase of $917,000 or
6.5% above 1996 earnings. On a diluted per share basis, net income for 1997
was $1.55, up 6.2% from $1.46 in the previous year. Greater net earnings were
primarily attributable to the 10.5% increase in net interest income generated
by increased loans outstanding and to a lesser extent additional investment
securities. Reflecting 16% loan growth, the Company's loan loss provision was
$4,100,000, up from $3,875,000 the prior year. Loan net charge-offs in 1997
were down slightly from 1996 levels. Total noninterest income rose from the
previous year primarily due to increased service charges, greater merchant
credit card fees and additional operating lease income. Comparative
noninterest expenses were up $2,782,000, or 15.3% from 1996 due in large part
to increased salaries and benefits. Cost increases were also experienced in
most other overhead expense categories. Even considering higher overhead
costs, operating efficiencies continued to be favorable against peer
averages.
Net income for 1996 was $14,096,000, a 31.2% increase over the $10,747,000
earned in 1995. On a diluted per share basis, net income for 1996 was $1.46
compared to $1.12 in 1995, an increase of $.34 per share or 30.4%. Greater
net interest income, the principal contributor to the improved earnings
performance, was generated by increased loans outstanding and investment
securities. The Company's loan loss provision was up from prior year levels
because of sharp loan growth and greater net loan charge-offs in 1996 than in
1995. Noninterest income for 1996 rose from the previous year due to
increased service charges, additional trading profits and commissions and
greater income on most other fee generating bank activities. Comparative
noninterest expenses were $18,242,000, up $1,804,000 or 11.0% from the year
earlier due in large part to increased salaries and benefits.
NET INTEREST INCOME
The following discussion and table sets forth the composition of average
interest-earning assets and interest-bearing liabilities along with
accompanying interest income, expense, yields, and rates, on a tax-equivalent
basis assuming a marginal statutory federal income tax rate of 35% in 1997,
1996 and 1995 and 34% in previous years. The tax-equivalent adjustments were
approximately $251,000, $249,000, $279,000 $289,000 and $329,000 for each of
the five years ended December 31, 1997, respectively.
Net interest income is the difference between income earned on assets and
interest expense paid on deposits and borrowings used to fund them. Net
interest income, the primary component of net income, has increased in each
of the last five years. Continued growth in earning assets has been
responsible for the consistent increases in net interest income. Net interest
income on a tax-equivalent basis, divided by average interest-earning assets,
represents the Company's net interest margin.
During the years presented, the Company's net interest margins have been
below comparable ratios for its peers. Consumer loans generally provide
higher total yields than do commercial loans. With only five branch
locations, the Company cannot effectively compete for consumer loans against
other area financial institutions having dozens of locations each. The
Company also does not have a credit card lending operation. Deposit growth
has been partially attained through rate promotional activities. Such actions
have generally placed the Company's total funding costs above those of its
peers. The combination of slightly lower overall loan yields, and higher
deposit rates, has generally resulted in the Company's net interest margins
being below those of its peers.
10
<PAGE> 4
YEARS ENDED DECEMBER 31, 1997 AND 1996
Total tax-equivalent interest income for 1997 was $95,505,000, up $15,537,000
or 19.4% above $79,968,000 in 1996. The increase in interest income was
generated from the growth of the Company's earning asset base. Average loans
outstanding were up $136 million and total securities increased $34 million
above prior year levels. Slightly higher overall asset yields also
supplemented 1997's interest earnings. Total loan yields rose to 9.07% in
1997, up from 9.00% in 1996 as loan yields increased with an average prime
rate of 8.44% in 1997, compared with 8.27% in 1996. Total earning asset
yields rose to 8.24%, up 5 basis points from 8.19% in 1996.
The 1997 asset growth was funded in two phases. During the first half of
1997, loan growth and security purchases were funded with short-term
borrowings and increased time deposits. In May 1997, the Bank launched an
aggressive money market deposit account promotion. The account offering
provided an attractive guaranteed rate and successfully raised over $250
million during the promotion period. As money market deposits grew, the
Company reduced its short-term borrowings. The Company also invested a large
portion of the new deposits in U.S. Treasury and U.S. Agency securities.
Total interest expense increased to $52,243,000 in 1997, up from $40,811,000
in the prior year. Approximately three-fourths of the $11,432,000 increase
was a result of the increased money market deposit accounts and the higher
rates paid thereon. The remainder of the increased interest expense was
generated primarily by the higher average volume of short and long-term
borrowings and time deposits. Overall rates paid on total interest bearing
liabilities rose to 5.13%, up 33 basis points from 4.80% in 1996.
Total net interest income increased to $43,262,000, up $4,105,000 from 1996
as greater interest income exceeded the higher interest expense costs. The
Company's net interest margin declined to 3.73% from 4.01% in the previous
year as the increase in interest bearing liability rates, primarily money
market accounts, exceeded the increase in asset yields.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Total tax-equivalent interest income for 1996 was $79,968,000, up $9,287,000
or 13.1% above $70,681,000 in 1995. The increase in interest income was
generated by growth in average loans outstanding of $88 million and
securities increases of $41 million above prior year levels. Offsetting a
portion of the benefits of asset growth were the lower yields on most assets.
Total loan yields declined to 9.00% in 1996, down from 9.16% in 1995 as loan
yields dropped with an average prime rate of 8.27% in 1996, compared with
8.67% in 1995. Total earning asset yields fell to 8.19%, down 11 basis points
from 8.30% in 1995.
Funding the 1996 asset growth was accomplished primarily with funds
originally raised in connection with the money market deposit account
promotion begun in the last half of 1995. Also supporting 1996 asset
expansion were increased certificates of deposit of less than $100,000. These
"core" deposits were raised in 1996 through a combination of promotional
rates and various focused marketing techniques employed at all five bank
locations.
Total interest expense increased to $40,811,000 in 1996, up from $38,295,000
in the prior year. The increase was primarily a result of the increased money
market deposit accounts and increased time deposits. Offsetting a large
portion of the increased interest expense generated by the higher volume of
deposits were the lower rates paid on money market deposit accounts. Overall
rates paid on total interest bearing liabilities fell to 4.80%, down 38 basis
points from 5.18% paid in 1995.
Total net interest income increased to $39,157,000, up $6,771,000 from 1995
as greater interest income exceeded the higher interest expense costs. The
Company's net interest margin improved to 4.01% from 3.80% the previous year
as the decline in interest bearing liability rates, primarily money market
accounts, exceeded the drop in earning asset yields.
11
<PAGE> 5
FINANCIAL REVIEW (continued)
- ------------------------------------------------------------------------------
FIVE YEAR COMPARISON OF CONSOLIDATED AVERAGE BALANCE SHEETS, INTEREST, YIELDS
AND RATES (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Twelve Months Ended December 31
-------------------------------------- --------------------------------------
1997 1996
-------------------------------------- --------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------------------------------------- --------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans<F1><F2>
Taxable $ 810,038 $ 73,447 9.07% $ 674,176 $ 60,678 9.00%
Tax exempt<F3> 17 1 5.59
Held to maturity securities
Taxable 43,172 2,887 6.69 65,391 4,356 6.66
Tax-exempt<F3> 7,784 820 10.54 7,477 811 10.85
Available for sale securities 270,121 16,779 6.21 214,417 13,301 6.20
Trading account securities 914 62 6.80 771 47 6.17
Federal funds sold and other
short-term investments 27,357 1,510 5.52 14,278 774 5.42
Interest-bearing bank deposits
-------------------------------------- --------------------------------------
Total interest-earning assets 1,159,386 95,505 8.24 976,527 79,968 8.19
-------------------------------------- --------------------------------------
Noninterest-earning assets:
Cash and due from banks 25,539 22,696
Bank premises and equipment 12,264 10,579
Other assets 16,994 11,491
Allowance for possible
loan losses (13,658) (11,633)
-------------------------------------- --------------------------------------
Total assets $ 1,200,525 $ 1,009,660
====================================== ======================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts $ 22,438 $ 383 1.71% $ 20,323 $ 348 1.71%
Money market accounts 457,914 22,716 4.96 336,586 14,104 4.19
Savings deposits 22,820 675 2.96 22,588 671 2.97
Time deposits of $100,000
or more 37,244 2,008 5.39 34,518 1,820 5.27
Other time deposits 410,766 22,717 5.53 389,427 21,388 5.49
-------------------------------------- --------------------------------------
Total interest-bearing deposits 951,182 48,499 5.10 803,442 38,331 4.77
Federal funds purchased,
repurchase agreements and
other short-term borrowings 54,549 2,780 5.10 44,744 2,264 5.06
Convertible debentures 666 54 8.00 2,700 216 8.00
Subordinated notes
Guaranteed preferred
beneficial interests in
subordinated debentures 12,369 910 7.36
Mortgage note
-------------------------------------- --------------------------------------
Total interest-bearing
liabilities 1,018,766 52,243 5.13 850,886 40,811 4.80
-------------------------------------- --------------------------------------
Noninterest-bearing liabilities:
Demand deposits 93,707 82,258
Other liabilities 3,554 2,602
Shareholders' equity 84,498 73,914
-------------------------------------- --------------------------------------
Total liabilities and
shareholders' equity $ 1,200,525 $ 1,009,660
====================================== ======================================
Net interest income $ 43,262 $ 39,157
====================================== ======================================
Net interest margin 3.73% 4.01%
====================================== ======================================
- -------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> For purposes of these computations, nonaccrual loans are included in the
average loan amounts outstanding. Interest on nonaccrual loans is
recorded when received.
<F2> Interest income on loans includes loan fees, which were not material to
any period presented.
<F3> Information is presented on a tax-equivalent basis assuming a tax rate of
35% in 1997, 1996 and 1995 and 34% in previous years. The tax-equivalent
adjustments were approximately $251,000, $249,000, $279,000, $289,000 and
$329,000 for the years ended December 31, 1997, 1996, 1995, 1994, and
1993, respectively.
12
<PAGE> 6
<CAPTION>
Twelve Months Ended December 31
----------------------------- ------------------------------ -----------------------------
1995 1994 1993
----------------------------- ------------------------------ -----------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
----------------------------- ------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans<F1><F2>
Taxable $ 584,790 $ 53,553 9.16% $ 535,422 $ 44,315 8.28% $ 473,415 $ 37,347 7.89%
Tax exempt<F3> 959 84 8.77 1,474 134 9.10 2,169 242 11.16
Held to maturity securities
Taxable 135,317 8,342 6.16 95,941 5,079 5.29 68,669 3,261 4.75
Tax-exempt<F3> 7,478 816 10.91 7,626 817 10.71 7,670 824 10.74
Available for sale securities 103,646 6,725 6.49 44,433 2,706 6.09 24,307 1,195 4.92
Trading account securities 743 49 6.65 1,410 76 5.38 678 38 5.60
Federal funds sold and other
short-term investments 19,017 1,112 5.85 4,548 198 4.35 5,605 169 3.02
Interest-bearing bank deposits 329 9 2.74
----------------------------- ------------------------------ -----------------------------
Total interest-earning
assets 851,950 70,681 8.30 690,854 53,325 7.72 582,842 43,085 7.39
----------------------------- ------------------------------ -----------------------------
Noninterest-earning assets:
Cash and due from banks 20,818 17,384 14,396
Bank premises and equipment 8,019 5,949 5,567
Other assets 10,329 7,234 7,441
Allowance for possible
loan losses (10,304) (8,578) (7,159)
----------------------------- ------------------------------ -----------------------------
Total assets $ 880,812 $ 712,843 $ 603,087
============================= ============================== =============================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts $ 19,213 $ 419 2.18% $ 17,992 $ 328 1.83% $ 17,635 $ 350 1.98%
Money market accounts 246,558 12,528 5.08 163,488 4,993 3.05 175,580 4,919 2.80
Savings deposits 22,466 662 2.94 24,679 729 2.95 18,028 536 2.97
Time deposits of $100,000
or more 38,102 2,098 5.51 26,921 1,187 4.41 18,078 618 3.42
Other time deposits 359,896 19,427 5.40 315,659 14,828 4.70 240,865 11,718 4.86
----------------------------- ------------------------------ -----------------------------
Total interest-bearing
deposits 686,235 35,134 5.12 548,739 22,065 4.02 470,186 18,141 3.86
Federal funds purchased,
repurchase agreements and 50,028 2,918 5.83 38,591 1,548 4.01 27,633 834 3.02
other short-term borrowings 2,968 243 8.19 3,240 270 8.33 3,240 270 8.33
Convertible debentures 1,473 97 6.59
Subordinated notes
Guaranteed preferred
beneficial interests in
subordinated debentures
Mortgage note 801 86 10.74
----------------------------- ------------------------------ -----------------------------
Total interest-bearing
liabilities 739,231 38,295 5.18 590,570 23,883 4.04 503,333 19,428 3.86
----------------------------- ------------------------------ -----------------------------
Noninterest-bearing liabilities:
Demand deposits 77,439 69,438 58,095
Other liabilities 2,179 853 2,440
Shareholders' equity 61,963 51,982 39,219
----------------------------- ------------------------------ -----------------------------
Total liabilities and
shareholders' equity $ 880,812 $ 712,843 $ 603,087
============================= ============================== =============================
Net interest income $ 32,386 $ 29,442 $ 23,657
============================= ============================== =============================
Net interest margin 3.80% 4.26% 4.06%
============================= ============================== =============================
<FN>
<F1> For purposes of these computations, nonaccrual loans are included in the
average loan amounts outstanding. Interest on nonaccrual loans is
recorded when received.
<F2> Interest income on loans includes loan fees, which were not material to
any period presented.
<F3> Information is presented on a tax-equivalent basis assuming a tax rate of
35% in 1997, 1996 and 1995 and 34% in previous years. The tax-equivalent
adjustments were approximately $251,000, $249,000, $279,000, $289,000 and
$329,000 for the years ended December 31, 1997, 1996, 1995, 1994, and
1993, respectively.
</TABLE>
13
<PAGE> 7
FINANCIAL REVIEW (continued)
- ------------------------------------------------------------------------------
CHANGES IN INTEREST INCOME AND EXPENSE/VOLUME AND RATE VARIANCES
The following table indicates, on a tax-equivalent basis, the changes in
interest income and interest expense which are attributable to changes in
average volume and average rates, in comparison with the same period in the
preceding year. The change in interest due to the combined rate-volume
variance has been allocated to rate and volume changes in proportion to the
absolute dollar amounts of the changes in each.
<TABLE>
<CAPTION>
---------------------------- ----------------------------- ----------------------------
Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
Compared to Compared to Compared to
December 31, 1996 December 31, 1995 December 31, 1994
---------------------------- ----------------------------- ----------------------------
Increase (decrease) attributable to change in:
Yield/ Net Yield/ Net Yield/ Net
Volume Rate Change Volume Rate Change Volume Rate Change
---------------------------- ----------------------------- ----------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Loans<F1><F2> $12,293 $ 475 $12,768 $ 7,997 $ (955) $ 7,042 $ 4,238 $ 4,950 $ 9,188
Held to maturity securities
Taxable (1,489) 20 (1,469) (4,617) 631 (3,986) 2,329 934 3,263
Tax-exempt<F1> 32 (23) 9 (5) (5) (16) 15 (1)
Available for sale
securities 3,457 21 3,478 6,890 (314) 6,576 3,830 189 4,019
Trading account
securities 10 5 15 2 (4) (2) (42) 15 (27)
Federal funds sold
and other short-
term investments 722 14 736 (261) (77) (338) 825 89 914
---------------------------- ----------------------------- ----------------------------
TOTAL
INTEREST INCOME 15,025 512 15,537 10,011 (724) 9,287 11,164 6,192 17,356
---------------------------- ----------------------------- ----------------------------
INTEREST PAID ON:
NOW accounts 35 35 24 (95) (71) 24 67 91
Money market
accounts 5,704 2,908 8,612 4,039 (2,463) 1,576 3,262 4,273 7,535
Savings 6 (2) 4 3 6 9 (65) (2) (67)
Time deposits of
$100,000 or more 146 42 188 (190) (88) (278) 569 342 911
Other time deposits 1,173 156 1,329 1,630 331 1,961 2,229 2,370 4,599
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 461 55 516 (453) (201) (654) 503 867 1,370
Long-term
borrowings 374 374 748 (14) (13) (27) (14) (13) (27)
---------------------------- ----------------------------- ----------------------------
TOTAL INTEREST
EXPENSE 7,899 3,533 11,432 5,039 (2,523) 2,516 6,508 7,904 14,412
---------------------------- ----------------------------- ----------------------------
NET INTEREST
INCOME $ 7,126 $(3,021) $ 4,105 $ 4,972 $ 1,799 $ 6,771 $ 4,656 $(1,712) $ 2,944
============================ ============================= ============================
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Information is presented on a tax-equivalent basis assuming a tax rate of
35% in 1997, 1996 and 1995 and 34% in previous years. The approximate tax
equivalent adjustments were $251,000, $249,000, $279,000, and $289,000
for the years ended December 31, 1997, 1996, 1995, and 1994,
respectively.
<F2> Average balances included nonaccrual loans.
</TABLE>
LENDING AND CREDIT MANAGEMENT
Interest earned on the loan portfolio is the primary source of income for the
Company. The loan portfolio represents 65% of the Company's total assets and
for the year ended December 31, 1997, total loans were up approximately $116
million. Loan growth occurred in all major categories: commercial and
industrial, commercial real estate and residential real estate. The table on
the following page shows the composition of the loan portfolio at the end of
each of the periods indicated.
14
<PAGE> 8
LENDING AND CREDIT MANAGEMENT-CONTINUED
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------------ ----------------- ------------------ ----------------- ------------------
Amount % Amount % Amount % Amount % Amount %
------------------ ----------------- ------------------ ----------------- ------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial,
agricultural, municipal
and industrial development $ 376,758 44.4% $ 342,664 46.8% $ 289,259 46.4% $ 260,509 46.2% $ 223,554 44.8%
Real estate construction 37,536 4.4 17,149 2.3 14,312 2.3 13,010 2.3 13,032 2.6
Real estate mortgage:
One to four family
residential loans 117,105 13.8 113,035 15.5 107,386 17.2 97,922 17.4 87,753 17.6
Other real estate loans 307,624 36.3 251,618 34.4 206,105 33.0 185,805 33.0 167,986 33.7
Installment and consumer 8,912 1.1 6,962 1.0 6,798 1.1 6,352 1.1 6,326 1.3
------------------ ----------------- ------------------ ----------------- ------------------
Total loans $ 847,935 100.0% $ 731,428 100.0% $ 623,860 100.0% $ 563,598 100.0% $ 498,651 100.0%
================== ================= ================== ================= ==================
</TABLE>
The following table sets forth the remaining maturities for loans as of
December 31, 1997.
<TABLE>
<CAPTION>
Over one year
through five years Over five years
----------------------- --------------------
One year Fixed Floating Fixed Floating
or less rate rate rate rate Total
--------- ----------------------- -------------------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial,
agricultural, municipal
and industrial development $ 231,771 $ 57,845 $ 66,979 $ 12,580 $ 7,583 $ 376,758
Real estate construction 21,144 8,375 8,017 -- 37,536
Real estate mortgage 116,202 208,398 38,250 59,571 2,308 424,729
Installment and consumer 6,258 2,106 548 -- -- 8,912
--------- ----------------------- -------------------- ---------
Total loans $ 375,375 $ 276,724 $ 113,794 $ 72,151 $ 9,891 $ 847,935
========= ======================= ==================== =========
</TABLE>
The Company makes substantially all of its loans to customers located within
the St. Louis metropolitan area. The Company has no foreign loans nor any
loans regarded by the Federal Reserve Board as highly leveraged transactions.
The Company has no significant agricultural loans. The Company has
traditionally emphasized commercial lending and at December 31, 1997, 85% of
the loan portfolio was in commercial, industrial and commercial real estate
loans.
An economic downturn and management's ability to deal with changing
economic conditions would affect the quality of the portfolio. The Company
strives to mitigate these risks by following written loan policies and
procedures. These loan policies and procedures are designed to ensure prudent
loan underwriting standards. The loan policy provides that each lending
officer has a defined lending authority. New loans in excess of $250,000 are
reviewed by the Senior Loan Committee.
The existing loan portfolio is monitored via the Company's loan rating
system. Generally, all existing loans in excess of $150,000, other than
residential mortgages, are reviewed on an annual basis. The Company assigns a
reserve amount consistent with each loan rating category. The loan rating
system is used to determine the adequacy of the allowance for possible loan
losses. Each month the allowance for possible loan losses is reviewed
relative to the loan rating system and results are reported to the Board of
Directors. Management believes that the level of allowance for possible loan
losses is appropriate given the Company's loan portfolio.
The loan review process is designed to identify problem credits. Potential
problem loans are monitored by the lending staff and by senior management. It
is the policy of the Company to discontinue the accrual of interest on any
loan where the payment of principal or interest on a timely basis in the
normal course of business is in doubt. The discontinuance of interest accrual
on a loan occurs at any time that a significant problem is detected in the
normal payment process. The Company's policy is to automatically place a loan
on nonaccrual status when it becomes 90 days past due, unless it is well
secured and in the process of collection.
As a part of their examination process various regulatory agencies review the
Company's allowance for possible loan losses. These agencies have the
authority to require the Company to recognize additions to the allowance
based upon their judgment. Management believes that the allowance for
possible loan losses at December 31, 1997 was adequate. The table on the next
page summarizes for the periods indicated activity in the Company's allowance
for possible loan losses, including loans charged off, loan recoveries and
additions to the allowance charged to operating expenses.
15
<PAGE> 9
FINANCIAL REVIEW (continued)
- ------------------------------------------------------------------------------
LENDING AND CREDIT MANAGEMENT-CONTINUED
Gross interest income on nonaccrual and restructured loans, which would have
been recorded under the original terms of the loans, was approximately
$270,000 in 1997, $298,000 in 1996, and $390,000 in 1995. Of this amount,
approximately $195,000, $157,000, and $293,000 was actually recorded as
interest income on such loans in 1997, 1996 and 1995, respectively.
As of December 31, 1997, the Company had approximately $1 million in loans
which were not included in nonaccrual, past due 90 days or more or
restructured categories, but where the borrowers were currently experiencing
potential credit problems that raised doubts as to the ability of the
borrowers to comply with the present loan repayment terms.
SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION
<TABLE>
<CAPTION>
---------------------------------------------------------
1997 1996 1995 1994 1993
---------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
(beginning of period) $ 12,624 $ 10,789 $ 9,575 $ 7,756 $ 6,542
---------------------------------------------------------
Loans charged off:
Commercial and industrial (2,071) (2,371) (676) (105) (1,562)
Real estate mortgage (726) (471) (1,022) (1,248) (39)
Installment (34) (16) (10) (66) (52)
---------------------------------------------------------
TOTAL LOANS CHARGED OFF (2,831) (2,858) (1,708) (1,419) (1,653)
---------------------------------------------------------
RECOVERIES OF LOANS PREVIOUSLY
CHARGED OFF:
Commercial and industrial 705 662 303 371 260
Real estate mortgage 290 142 30 162 17
Installment 4 14 29 9 16
Other 16 4
---------------------------------------------------------
TOTAL RECOVERIES 999 818 362 558 297
---------------------------------------------------------
Net loans charged off (1,832) (2,040) (1,346) (861) (1,356)
---------------------------------------------------------
Provision for possible loan losses 4,100 3,875 2,560 2,680 2,570
---------------------------------------------------------
ALLOWANCE FOR POSSIBLE LOAN LOSSES
(end of period) $ 14,892 $ 12,624 $ 10,789 $ 9,575 $ 7,756
=========================================================
LOANS OUTSTANDING:
Average $810,038 $674,193 $585,749 $536,896 $475,585
End of period 847,091 731,019 623,777 563,477 498,650
Ratio of allowance for possible
loan losses to loans outstanding
Average 1.84% 1.87% 1.84% 1.78% 1.63%
End of period 1.76 1.73 1.73 1.70 1.56
Ratio of net charge-offs to average
loans outstanding .23 .30 .23 .16 .29
PERCENT OF CATEGORIES TO TOTAL LOANS:
Commercial, industrial and
marketable security loans 44.43% 46.82% 46.37% 46.22% 44.83%
Commercial loans secured by
real estate 36.28 34.42 33.04 32.97 33.69
Construction and land
development loans 4.43 2.35 2.29 2.31 2.61
Real estate mortgage 13.81 15.46 17.21 17.37 17.60
Consumer loans 1.05 .95 1.09 1.13 1.27
---------------------------------------------------------
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00%
=========================================================
Allocation of allowance for possible
loan losses at end of period
Commercial and industrial $ 4,760 $ 4,189 $ 3,443 $ 3,047 $ 2,476
Real estate mortgage 4,502 4,097 3,164 2,772 3,502
Installment 76 51 49 47 46
Unallocated 5,554 4,287 4,133 3,709 1,732
---------------------------------------------------------
TOTAL $ 14,892 $ 12,624 $ 10,789 $ 9,575 $ 7,756
=========================================================
</TABLE>
16
<PAGE> 10
NONPERFORMING ASSETS
The following table summarizes nonperforming assets by category.
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------
1997 1996 1995 1994 1993
---------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, industrial and marketable
security loans:
Nonaccrual $ 638 $ 2,251 $ 1,551 $ 877 $ 883
Past due 90 days or more 11 6
Restructured terms 93 250 212 738
Commercial loans secured by real estate:
Nonaccrual 254 522 1,698 35 28
Past due 90 days or more 13
Restructured terms 2,374
Construction and land development loans:
Nonaccrual 2,320 700
Past due 90 days or more
Restructured terms
Real estate mortgage:
Nonaccrual 1,122 623 523 500 193
Past due 90 days or more 131 179
Restructured terms 500 500 130
Consumer loans:
Nonaccrual 65 29 6 22 51
Past due 90 days or more 22 1 4
Restructured terms 19 38 19 21
---------------------------------------------------------
TOTAL NONPERFORMING LOANS 2,191 6,710 4,688 2,173 4,390
Other real estate 1,421 569 72 223
---------------------------------------------------------
TOTAL NONPERFORMING ASSETS $ 3,612 $ 7,279 $ 4,688 $ 2,245 $ 4,613
=========================================================
Loans, net of unearned discount $ 847,091 $ 731,019 $ 623,777 $ 563,477 $ 498,650
Allowance for possible loan losses to loans 1.76% 1.73% 1.73% 1.70% 1.56%
Nonperforming loans to loans .26 .92 .75 .39 .88
Allowance for possible loan losses to
nonperforming loans 679.69 188.14 230.14 440.64 176.67
Nonperforming assets to loans and
foreclosed assets .43 .99 .75 .40 .92
</TABLE>
INVESTMENT PORTFOLIO
The securities portfolio of the Company meets a number of objectives
including providing a stable source of income with little credit risk,
providing a source of liquidity as securities mature, providing collateral
for pledging, and helping balance the Company's asset-liability position.
Securities in the Available for Sale category meet the above needs and
additionally provide a source of liquidity through their ability to be sold
to fund loan growth. Securities might be purchased for the Available for Sale
account when the level of interest rates or the shape of the yield curve
favors investing in longer term securities, even though the Company does not
expect to hold such securities to maturity. In addition, securities may need
to be purchased and, at a later date, sold in order to help balance the
asset-liability position. Finally, the Bank attempts to fully utilize its
equity at all times. When the level of equity is adequate to support greater
assets than can be achieved by the Bank's efforts to attract quality loans,
the Bank will invest in securities provided such investment is consistent
with the asset sensitivity objective of the Bank and adds to the Bank's
earnings. This is consistent with the Bank's objective of maximizing return
on equity to a larger extent than return on assets.
As of December 31, 1997 and 1996, securities held in the Trading Account were
$1,251,000 and $20,000, respectively. Available for Sale securities were
$317,768,000 at the end of 1997 and $229,453,000 at the end of 1996. Held to
maturity securities were $58,148,000 at the end of 1997 and $58,198,000 at
the end of 1996.
The Bank regularly reviews its asset-liability position based upon its
internal rate sensitivity analysis, which includes adjustments to reflect
management's best estimates of probable maturities and pricing of various
deposit accounts in response to changes in the level of interest rates.
During much of the first half of 1997, the Bank remained relatively liquid
using proceeds from securities sales and maturities to fund loan growth. As
funds from the money market deposit promotion were received, the Bank reduced
its short-term borrowings and began acquiring mostly short-term U.S. Agency
securities.
17
<PAGE> 11
FINANCIAL REVIEW (continued)
- ------------------------------------------------------------------------------
INVESTMENT PORTFOLIO-CONTINUED
In the fourth quarter of 1997, management began to reposition the
asset-liability sensitivity position of the Bank by moving to a more
liability-sensitive position. As such, the Bank acquired U.S. Treasury and
U.S Agency securities with significantly longer maturities than the maturing
U.S. Agency securities which had been acquired with money market deposit
funds earlier in the year.
Because the Company has historically maintained high loan to deposit ratios
and a great percentage of those loans are in commercial loans, the Company's
policy has been to minimize credit risk in the securities portfolio. As of
December 31, 1997, 93% of Held to Maturity securities were U.S. Government
or obligations guaranteed by the U.S. Government and U.S. Agencies. As of
December 31, 1997, 76% of the Company's Available for Sale securities were
U.S. Government and U.S. Agency obligations. Eighteen percent of securities
in the Available for Sale account consisted of Collateralized Mortgage
Obligation (CMOs) collateralized by mortgage obligations issued by the
Federal Home Loan Mortgage Corporation or the Federal National Mortgage
Association. The remaining balance in the Available for Sale account was
invested in Federal Home Loan Bank stock and other debt and equity
securities.
As of December 31, 1997, the Company owned $4.5 million in Public Housing
Authority bonds (PHAs). These PHAs were purchased prior to the Tax Reform Act
of 1986 and are therefore 100% exempt from Federal income taxes. PHAs are
backed by the "full faith and credit" of the U.S. Government.
In addition, the Bank has a small amount of "bank qualified" tax exempt
securities. The total amount of these issues as of December 31, 1997, was
$4.1 million. The Bank became a member of the Federal Home Loan Bank in 1993,
which required an initial equity investment of $1.8 million. Since that time,
the Bank's borrowings from the Federal Home Loan Bank have required an
increase in that investment and as of December 31, 1997 the Bank's investment
was $9.7 million.
As of December 31, 1997, the contractual maturities of securities and their
weighted average yield in the held to maturity and available for sale
portfolios were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------
Over One Over Five
Through Through Over Weighted
One Year Five Ten 10 Average
or Less Years Years Years Yields
----------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
United States Treasury securities $22,900 $ 95,565 $ 18,466 $35,687 6.47%
Obligations of United States
Government agencies 37,743 112,560 25,260 6.25
PHA bonds guaranteed by the United
States Government<F1> 3,348 1,120 11.11
States and political subdivisions<F1> 1,023 1,843 1,191 9.40
Federal Home Loan Bank stock and other 9,957 9,253 6.71
----------------------------------------------------------------
TOTAL SECURITIES $32,857 $134,331 $136,217 $72,511 6.37%
==================================================================
Weighted average yield<F1> 5.89% 6.59% 6.33% 6.24%
==================================================================
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Rates on PHA bonds and states and political subdivisions have been
adjusted to tax equivalent yields using the marginal statutory Federal
income tax rate of 35%.
</TABLE>
DEPOSITS
Deposits are the principal source of funds for the Bank. At December 31,
1997, the Company's total deposits were $1.127 billion. Deposits consist
primarily of core deposits from the local market areas surrounding each of
the Bank's offices. The Bank has not used brokered deposits as a source of
funds, although its capitalization would permit such activity on an
unrestricted basis under current regulations. The following table sets forth
the distribution of the Company's deposit accounts at the dates indicated and
the weighted average nominal interest rates for each category of deposit.
18
<PAGE> 12
DEPOSITS-CONTINUED
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- -------------------------- ----------------------------
Percent Percent Percent
of of of
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
--------------------------- ------------------------- --------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits $ 109,949 9.76% $ 98,726 10.75% $ 85,748 9.67%
NOW accounts 25,067 2.23 1.71% 22,823 2.49 1.69% 21,315 2.40 1.70%
Money market accounts 581,117 51.58 4.96 308,256 33.58 4.19 382,629 43.17 4.49
Savings deposits 22,999 2.04 2.96 22,954 2.50 2.99 21,461 2.42 2.99
Time deposits of
$100,000 or more 32,898 2.92 5.39 39,228 4.27 5.25 30,765 3.47 5.51
Other time deposits 354,532 31.47 5.53 426,025 46.41 5.53 344,647 38.87 5.60
--------------------------- ------------------------ --------------------------
TOTAL DEPOSITS $1,126,562 100.00% $918,012 100.00% $886,565 100.00%
=========================== ======================== ==========================
</TABLE>
The aggregate amount of maturities for time deposits for the four years
beginning in 1999 are $98,252,000, $11,325,000, $3,579,000, and $7,816,000.
AMOUNTS AND MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
The following table sets forth the amount and maturities of time deposits of
$100,000 or more at December 31, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
December 31
--------------------------
1997 1996
--------------------------
(dollars in thousands)
<S> <C> <C>
Three months or less $15,340 $15,092
Over three months through six months 5,802 8,348
Over six months through twelve months 6,693 10,296
Over twelve months 5,063 5,492
------- -------
Total $32,898 $39,228
======= =======
</TABLE>
SENSITIVITY TO CHANGES IN INTEREST RATES
The Company monitors its interest rate sensitivity position and attempts to
limit the exposure to interest rate risk but not always eliminate it. Subject
to management's best estimates of probable maturities the Company's policy is
that the ratio of maturing assets to maturing liabilities repricing in the
one year or less time period shall be no less than 75% or no greater than
125%. The Company also uses various interest rate related contracts to manage
its overall interest rate risk exposure for asset-liability management
purposes.
The following table represents the Company's interest rate position based
upon contractual maturities only for various time periods, as of December 31,
1997.
<TABLE>
<CAPTION>
----------------------------------------------------------------
0 to 3 4 to 12 1 to 5 Over 5
months months years years Total
---------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Earning Assets
Loans $ 436,660 $ 62,795 $ 278,746 $ 69,734 $ 847,935
Securities 5,990 26,867 134,330 208,729 375,916
Other short-term investments 20,161 20,161
Effect of interest rate floor contract 125,000 (125,000)
---------------------------------------------------------------
TOTAL EARNING ASSETS $ 587,811 $ 89,662 $ 288,076 $278,463 $1,244,012
===============================================================
Funding Sources
Demand accounts $ 109,949 $ $ $ $ 109,949
Money market accounts 581,117 581,117
Time deposits 105,911 160,546 120,973 387,430
Savings accounts 22,999 22,999
NOW accounts 25,067 25,067
Guaranteed preferred beneficial interests
in subordinated debentures 14,950 14,950
Other borrowed funds 54,195 54,195
---------------------------------------------------------------
TOTAL FUNDING SOURCES $ 914,188 $ 160,546 $ 120,973 $ $1,195,707
===============================================================
Interest sensitivity gap $(326,377) $ (70,884) $ 167,103 $278,463
Cumulative gap $(326,377) $(397,261) $(230,158) $ 48,305
Gap as a percentage of total earning assets (26.2%) (31.9%) (18.5%) (3.9%)
</TABLE>
The Company enters into off-balance sheet transactions primarily as part of
its asset-liability management strategy to manage interest rate risk. These
transactions involve the exchange of interest payments based on a notional
amount. The notional amounts of these transactions express the
19
<PAGE> 13
FINANCIAL REVIEW (continued)
- ------------------------------------------------------------------------------
SENSITIVITY TO CHANGES IN INTEREST RATES-CONTINUED
volume of transactions and are not an appropriate indicator of the off-balance
sheet market risk or credit risk. The credit risk associated with these
transactions arises from the counterparties' failure to meet the terms of the
agreements and is limited to the fair value of contracts in a gain position.
The Company manages this risk by maintaining positions with highly rated
counterparties. The credit risk exposure of the Company at December 31, 1997
was approximately $515,000.
The operations of the Company are subject to risk resulting from interest
rate fluctuations to the extent that there is a difference between the amount
of the Company's interest-earning assets and the amount of interest-bearing
liabilities that are prepaid/withdrawn, mature or reprice in specified
periods. The principal objective of the Company's asset-liability management
activities is to provide maximum levels of net interest income while
maintaining acceptable levels of interest rate and liquidity risk and
facilitating the funding needs of the Company. The Company utilizes gap
analysis as the primary quantitative tool in measuring the amount of interest
rate risk that is present at the end of each quarter. This tool quantifies
the effects of various interest rate scenarios on the projected net interest
margin over each of the ensuing five years. The Company uses derivative
financial instruments, including interest rate swaps, futures, and options,
with indices that correlate to on-balance sheet instruments to modify its
indicated net interest sensitivity to levels deemed to be appropriate based
on the Company's current economic outlook.
The following table provides information about the Company's derivative
financial instruments and other financial instruments used for purposes other
than trading that are sensitive to changes in interest rates. For loans,
securities, and liabilities with contractual maturities, the table presents
principal cash flow and related weighted-average interest rates by
contractual maturities. For core deposits (e.g., DDA, interest checking,
savings and money market deposits) that have no contractual maturity, the
table presents principal cash flows and, as applicable, related
weighted-average interest rates based on the Company's historical experience
and management's judgment concerning their most likely withdrawal behaviors.
No table is presented for the Company's use of derivative financial
instruments and other financial instruments used for trading purposes as
these activities were immaterial for the periods presented.
For interest rate floors the table presents notional amounts and
weighted-average interest rates by contractual maturity date. Notional
amounts are used to calculate the contractual payments to be exchanged under
the contracts.
<TABLE>
<CAPTION>
Year Of Contractual Maturity
-----------------------------------------------------------------------
Fair
There- Value
1998 1999 2000 2001 2002 after Total 12/31/97
-----------------------------------------------------------------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS:
Fixed interest rate loans $ 105 $ 90 $ 79 $ 52 $ 56 $ 71 $ 453 $ 455
Average interest rate 8.59% 8.52% 8.72% 8.47% 8.64% 8.30% 8.55%
Variable interest rate loans $ 270 $ 59 $ 31 $ 10 $ 13 $ 11 $ 394 $ 395
Average interest rate<F1>
Fixed interest rate securities $ 42 $ 64 $ 49 $ 34 $ 23 $ 154 $ 366 $ 377
Average interest rate 6.05% 6.57% 6.17% 6.54% 6.17% 6.73% 6.50%
Variable interest rate securities $ $ $ $ $ $ 1 $ 1 $ 1
Average interest rate 7.25% 7.25%
Other interest-bearing assets $ 19 $ $ $ $ $ $ 19 $ 19
Average interest rate 6.00% 6.00%
RATE SENSITIVE LIABILITIES:
Non interest-bearing checking $ 80 $ $ $ $ $ 30 $ 110 $ 110
Average interest rate
Savings & interest-bearing checking $ 455 $ 1 $ 1 $ 1 $ 1 $ 170 $ 629 $ 629
Average interest rate<F2> 4.76%
Time-deposits $ 267 $ 98 $ 11 $ 4 $ 8 $ $ 388 $ 389
Average interest rate 5.31% 5.65% 5.79% 5.63% 5.66% 5.42%
Fixed interest rate borrowings $ 54 $ $ $ $ $ $ 54 $ 54
Average interest rate 4.99% 4.99%
Variable interest rate borrowings $ $ $ $ $ $ 15 $ 15 $ 15
Average interest rate 7.70% 7.70%
RATE SENSITIVE DERIVATIVE FINANCIAL INSTRUMENTS:
Interest rate floors purchased $ $ 50 $ 25 $ $ $ $ 75 $ 0.5
Average strike rate 5.63% 5.50% 5.59%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> The average interest rate for variable interest rate loans should
approximate the Company's internal prime rate plus 60 basis points.
<F2> The average interest rate for savings and interest-bearing checking
deposits may change as market rates change, however, there is no
correlation between these rates and any market rate index. These rates
are more competitive driven than market driven.
</TABLE>
20
<PAGE> 14
NONINTEREST INCOME
The following table sets forth the Company's noninterest income for the
periods indicated.
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------
1997 1996 1995
-------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Service charges on deposit accounts $1,867 $1,561 $1,339
Security gains/(losses), net 85 440 734
Trading profits and commissions 1,211 1,378 905
Merchant credit card fees 1,419 1,138 706
Other 1,014 544 411
------------------------------------
TOTAL NONINTEREST INCOME $5,596 $5,061 $4,095
====================================
</TABLE>
Total noninterest income for 1997 was $5,596,000, up 10.6% from $5,061,000 in
1996 and $4,095,000 in 1995. Increases in average deposit balances have been
primarily responsible for the increased service charges. Trading profits and
commissions for 1997 were down from prior year levels. The downturn was
caused by losses on the Bank's trading activities as overall commissions from
customer transactions were up slightly from those of 1996. Commissions from
customer actitivities were up sharply in 1996 over 1995 due to increased
customer accounts. An increase in credit card merchant fees accounted for the
majority of the increase in other noninterest income.
Net gains of $85,000 were realized on securities sales in 1997, compared with
gains of $440,000 and $734,000 in 1996 and 1995, respectively. Only available
for sale securities were sold in 1997. Sales of securities classified as held
to maturity generated losses of $3,000 in 1996, compared with losses of
$85,000 in 1995. These sales are sometimes effected to fund the purchase of
other securities to meet various other liquidity needs, but in all cases
sales of held to maturity securities are done only within 90 days of each
security's maturity date.
NONINTEREST EXPENSE
The following table sets forth the Company's noninterest expense for the
periods indicated.
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------
1997 1996 1995
--------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Employee compensation and benefits $10,587 $ 9,313 $ 8,130
Net occupancy 1,283 1,128 1,069
Equipment 1,186 1,227 1,009
Advertising 840 604 720
FDIC insurance expense 120 2 770
Merchant credit card expense 1,217 979 587
Other 5,791 4,989 4,153
-------------------------------------
TOTAL NONINTEREST EXPENSE $21,024 $18,242 $16,438
=====================================
</TABLE>
Noninterest expenses increased to $21,024,000 in 1997, up from $18,242,000 in
1996 and $16,438,000 in 1995. Overall Company growth, merit increases and
greater benefit costs were primarily responsible for the increased total
overhead costs in 1997 and 1996. Noninterest expenses also rose due to
increased advertising costs associated with the 1997 money market deposit
promotion. Additional expenses related to the leasing and credit card
merchant activities combined to further increase noninterest expense costs
for 1997 and 1996.
Even though overhead costs have grown considerably over the years, the
Company's operating efficiency ratios have compared very favorably against
peer group standards. In 1997, the Company's efficiency ratio was 43.03%, up
slightly from the Company's best ever of 41.25% in 1996 and 45.06% in 1995.
INCOME TAXES
Income taxes for 1997 increased to $8,470,000 from $7,756,000 in 1996 and
$6,457,000 in 1995. Annual increases in income and a declining percentage of
tax-exempt income to total income have contributed to greater income tax
expense.
21
<PAGE> 15
FINANCIAL REVIEW (continued)
- ------------------------------------------------------------------------------
CAPITAL MANAGEMENT AND RESOURCES
At the end of 1997, the Company's shareholders' equity had grown to
$93,107,000, up $17.2 million from the end of 1996. Earnings of $15,013,000
provided the largest portion of the Company's capital accumulation in 1997.
At December 31, 1997, retained earnings were $63,541,000, or 68% of total
shareholders' equity. During 1997, 10,100 shares of common stock were issued
as various employee options to purchase common stock were exercised. On April
1, 1997 the Company's 1992, 8% convertible debentures matured. Prior to
maturity, all debenture holders elected to convert their debentures into
475,200 shares of the Company's common stock. Also supplementing 1997's
shareholders' equity growth was the increase in the unrealized gains, net of
tax, on available for sale securities. Offsetting a portion of the Company's
capital accumulation were the payments of cash dividends on common stock.
During 1997, the Company's Board of Directors authorized the extension of the
1996 Common Stock Repurchase Plan. The maximum number of shares which may be
purchased under this Plan was increased to 800,000, or 8.4% of the Company's
outstanding shares on the date of the Plan extension. At December 31, 1997 no
stock had been purchased in connection with the Repurchase Plan.
During the first quarter of 1997, the Company formed MVBI Capital Trust
("MVBI Capital"), a statutory business trust. The Company owns all the common
stock of MVBI Capital. MVBI Capital sold 598,000 preferred securities, having
a liquidation amount of $25 per security, for a total of $14,950,000. The
distributions payable on the preferred securities will float with the 3-Month
Treasury plus 2.25%. The preferred securities are considered long-term
borrowings and entitled "Guaranteed preferred beneficial interests in
subordinated debentures" for financial reporting purposes. For risk-based
capital guidelines the amount is considered to be Tier I capital.
The analysis of capital is dependent upon a number of factors including asset
quality, earnings strength, liquidity, economic conditions and combinations
thereof. Capital adequacy guidelines adopted by the Federal Reserve Board
provide two primary criteria for examining capital. The measurements include
the risk-based capital guidelines and the capital to total assets or leverage
ratio minimum requirement.
The risk-based capital guidelines require the assignment of a risk-weighting
factor to all Company assets and various off-balance sheet exposures. The
risk-based capital ratio is calculated by dividing qualifying capital by the
sum of risk-weighted assets and risk-weighted off-balance sheet items.
Qualifying capital is classified into two tiers. For the Company, Tier 1
capital equals total shareholders' equity and the Guaranteed preferred
beneficial interests in subordinated debentures. Tier 2 capital is comprised
mostly of the allowance for possible loan losses. As required by the
risk-based capital guidelines no asset or equity adjustments related to
Statement of Financial Accounting Standard No. 115 are recognized for these
equity analysis purposes.
The Federal Reserve guidelines require that Tier 1 capital equal or exceed
4.00% of risk-weighted assets, and that the risk-based total capital ratio
equal or exceed 8.00%. As of December 31, 1997 and 1996, the Company's Tier 1
capital was 11.98% and 10.20% of risk-weighted assets, and total risk-based
capital was 13.23% and 11.45%, respectively. Identical capital standards
apply to the Bank. As of December 31, 1997 and 1996, the Bank's Tier 1 and
total risk-weighted capital ratios were 10.65% and 10.29%, and 11.91% and
11.54%, respectively.
The minimum acceptable ratio of Tier 1 capital to total assets, or leverage
ratio, has been established by the Federal Reserve Board at 3.00%. As of
December 31, 1997 and 1996, the Company's and the Bank's leverage ratios were
8.04% and 7.20%, and 7.12% and 7.25%, respectively.
Management believes that a strong capital position provided by a mix of
equity and qualifying long-term debt is essential. Changing economic
conditions and the regulatory environment also continue to emphasize the
importance of capital strength and depth. Capital provides safety and
security for depositors, and it enhances Company value for shareholders by
providing opportunities for growth with the selective use of leverage. In a
move to enhance its capital position, the Company raised additional equity
capital through its initial public offering in 1993. Various leverage options
are also available to the Company including negotiated long-term bank
borrowings, short-term revolving lines of credit or other qualifying
long-term debt.
22
<PAGE> 16
LIQUIDITY
The Bank needs to maintain a level of liquidity which will provide a readily
available source of funds for new loans and to meet loan commitments and
other obligations on a timely basis. Historically, the Bank has been loan
driven, which means that as loans have increased above 85% of deposits, the
Bank has taken action to increase the level of core deposits. This action
generally involves the use of deposit promotions, paying premium rates
coupled with advertising to attract new customers to the Bank. Where
possible, the Bank has timed a deposit promotion to coincide with the opening
of a new office so as to achieve maximum growth in deposits. It has been the
Bank's experience that the majority of deposits raised through these
promotions have remained at the Bank after the promotion is over and so have
provided a steadily growing base of core deposits at the Bank. In addition,
the steady flow of maturing securities provides a source of liquidity.
In 1993 the Bank became a shareholder and member of the Federal Home Loan
Bank. One of the benefits of this membership is access to funds as a source
of liquidity. Other sources of liquidity include bank Federal funds lines,
securities repurchase agreements, Treasury tax and loan options and
negotiated bank lines of credit.
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in similar
normal business activities.
The Company has completed an assessment and will have to modify or replace
portions of its software so that its computer systems will function properly
with respect to dates in the Year 2000 and thereafter. The total Year 2000
project cost is estimated to be immaterial, primarily because the core system
is believed to properly handle these dates.
The project is estimated to be completed not later than December 31, 1998,
which is prior to any anticipated impact on its operating systems. The
Company does not write or develop its own software. The Company believes that
with modifications to existing software and conversions to new software, the
Year 2000 issue will not pose significant operational problems for its
computer systems. However, if such modifications and conversions are not
made, or are not completed timely, the Year 2000 issue could have a material
impact on the operations of the Company.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future
events, including the continued availability of certain resources and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are
not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
23
<PAGE> 17
REPORT OF ERNST & YOUNG LLP
- ------------------------------------------------------------------------------
INDEPENDENT AUDITORS
SHAREHOLDERS AND BOARD OF DIRECTORS
MISSISSIPPI VALLEY BANCSHARES, INC.
We have audited the accompanying consolidated balance sheets of Mississippi
Valley Bancshares, Inc. and subsidiaries as of December 31, 1997 and 1996,
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, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Mississippi
Valley Bancshares, Inc. and subsidiaries at December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
St. Louis, Missouri
January 15, 1998
24
<PAGE> 18
<TABLE>
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------
MISSISSIPPI VALLEY BANCSHARES, INC. AND SUBSIDIARIES
<CAPTION>
December 31
------------------------------------
1997 1996
------------------------------------
(dollars in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 28,532 $ 30,951
Federal funds sold 18,910
Held to maturity securities
(fair value of $59,748 and $59,649,
respectively) 58,148 58,198
Available for sale securities 317,768 229,453
Trading account securities 1,251 20
Loans 847,935 731,428
Less:
Unearned income 844 409
Allowance for possible loan losses 14,892 12,624
---------- ----------
Net loans 832,199 718,395
Premises and equipment 13,482 11,700
Other assets 29,628 17,060
---------- ----------
TOTAL ASSETS $1,299,918 $1,065,777
========== ==========
LIABILITIES
Deposits:
Non-interest bearing $ 109,949 $ 98,726
Interest bearing 1,016,613 819,286
---------- ----------
Total deposits 1,126,562 918,012
---------- ----------
Securities sold under
agreements to repurchase 32,700 24,391
Other short-term borrowings 21,495 38,223
8% convertible debentures 2,700
Guaranteed preferred beneficial
interests in subordinated debentures 14,950
Other liabilities 11,104 6,502
---------- ----------
TOTAL LIABILITIES 1,206,811 989,828
========== ==========
SHAREHOLDERS' EQUITY
Preferred stock-par value $1
($100 liquidating value)
Authorized 100,000 shares,
none issued
Common stock-par value $1
Authorized 15,000,000 shares,
issued 9,519,212 in 1997 and
9,033,912 in 1996 9,519 9,034
Capital surplus 17,561 15,235
Retained earnings 63,541 51,159
Unrealized gain, net of tax, on available
for sale securities 2,486 521
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 93,107 75,949
========== ==========
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,299,918 $1,065,777
========== ==========
See accompanying notes.
</TABLE>
25
<PAGE> 19
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------------------------------------------------------------------
MISSISSIPPI VALLEY BANCSHARES, INC. AND SUBSIDIARIES
<CAPTION>
Year Ended December 31
-----------------------------------------
1997 1996 1995
-----------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 73,447 $ 60,679 $ 53,608
Held to maturity securities:
Taxable 2,887 4,356 8,342
Tax-exempt 569 562 566
Available for sale securities 16,779 13,301 6,724
----------------------------------------
20,235 18,219 15,632
Other 1,572 821 1,162
----------------------------------------
TOTAL INTEREST INCOME 95,254 79,719 70,402
----------------------------------------
Interest expense:
Deposits 48,499 38,331 35,134
Short-term borrowings 2,780 2,264 2,918
Long-term borrowings 964 216 243
----------------------------------------
TOTAL INTEREST EXPENSE 52,243 40,811 38,295
----------------------------------------
NET INTEREST INCOME 43,011 38,908 32,107
Provision for possible loan losses 4,100 3,875 2,560
----------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 38,911 35,033 29,547
----------------------------------------
Other income:
Service charges 1,867 1,561 1,339
Security gains/(losses) net on:
Sales of held to maturity securities (3) (85)
Sales of available for sale securities 85 443 819
Trading profits and commissions 1,211 1,378 905
Merchant credit card fees 1,419 1,138 706
Other 1,014 544 411
----------------------------------------
5,596 5,061 4,095
----------------------------------------
Other expenses:
Employee compensation and
other benefits 10,587 9,313 8,130
Net occupancy 1,283 1,128 1,069
Equipment 1,186 1,227 1,009
Advertising 840 604 720
FDIC insurance expense 120 2 770
Merchant credit card expense 1,217 979 587
Other 5,791 4,989 4,153
----------------------------------------
21,024 18,242 16,438
----------------------------------------
INCOME BEFORE INCOME TAXES 23,483 21,852 17,204
Income taxes 8,470 7,756 6,457
----------------------------------------
NET INCOME $ 15,013 $ 14,096 $ 10,747
========================================
Average common shares and common
share equivalents outstanding 9,700,928 9,582,886 9,517,616
========================================
Earnings per common share:
Basic $ 1.60 $ 1.54 $ 1.18
Diluted $ 1.55 $ 1.46 $ 1.12
See accompanying notes.
</TABLE>
26
<PAGE> 20
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------
MISSISSIPPI VALLEY BANCSHARES, INC. AND SUBSIDIARIES
<CAPTION>
--------------------------------------------------------------------------------------------
Unrealized
Gain
(Loss)
on Total
Available Share-
Preferred Stock Common Stock Capital Retained for Sale holders'
Shares Amount Shares Amount Surplus Earnings Securities Equity
--------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1995 25,000 $ 2,500 8,762,212 $8,762 $14,934 $30,413 $(1,859) $ 54,750
Net income 10,747 10,747
Issuance of
common stock 16,200 16 58 74
1985 debentures
converted to
common stock 237,600 238 302 540
Cash dividends on:
common stock (1,514) (1,514)
preferred stock (231) (231)
Change in the unrealized gain,
net of tax, on
available for sale
securities 5,741 5,741
-------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1995 25,000 2,500 9,016,012 9,016 15,294 39,415 3,882 70,107
Net income 14,096 14,096
Issuance of
common stock 17,900 18 66 84
Redemption of
preferred stock (25,000) (2,500) (125) (2,625)
Cash dividends on:
common stock (2,121) (2,121)
preferred stock (231) (231)
Change in the unrealized loss,
net of tax, on
available for sale
securities (3,361) (3,361)
-------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31,1996 9,033,912 9,034 15,235 51,159 521 75,949
Net income 15,013 15,013
Issuance of
common stock 10,100 10 101 111
1992 debentures
converted to
common stock 475,200 475 2,225 2,700
Cash dividends on:
common stock (2,631) (2,631)
Change in the unrealized gain,
net of tax, on
available for sale
securities 1,965 1,965
-------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1997 9,519,212 $9,519 $17,561 $63,541 $ 2,486 $ 93,107
===========================================================================================
See accompanying notes.
</TABLE>
27
<PAGE> 21
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
MISSISSIPPI VALLEY BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1997 1996 1995
------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 15,013 $ 14,096 $ 10,747
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 4,100 3,875 2,560
Provision for depreciation and amortization 1,033 1,069 825
Accretion of discounts and amortization
of premiums on investment securities (3,185) (1,576) (226)
Realized investment securities gains, net (85) (440) (734)
Net decrease (increase) in trading account securities (1,231) 79 651
Decrease (increase) in interest receivable (3,377) 1,120 (3,180)
Increase in interest payable 202 95 738
Other, net (5,853) (972) (1,097)
------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 6,617 17,346 10,284
------------------------------------------
INVESTING ACTIVITIES
Proceeds from maturities of held to maturity securities 26,000 33,545 5,250
Proceeds from sales of held to maturity securities 2,011 27,995
Purchases of held to maturity securities (25,613) (19,299) (31,420)
Purchases of available for sale securities (573,610) (216,971) (187,146)
Proceeds from maturities of available for sale securities 414,000 162,000 10,000
Proceeds from sales and paydowns of
available for sale securities 77,251 75,541 34,056
Purchases of premises and equipment (2,811) (3,943) (3,309)
Net increase in loans outstanding (117,904) (109,282) (61,645)
------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES (202,687) (76,398) (206,219)
------------------------------------------
FINANCING ACTIVITIES
Net increase in deposits 208,550 31,448 227,609
Net increase (decrease) in repurchase agreements
and other short-term borrowings (8,419) 35,874 (22,427)
Proceeds from sale of common stock 111 84 74
Proceeds from sale of guaranteed preferred
beneficial interests in subordinated debentures 14,950
Redemption of preferred stock (2,625)
Cash dividends (2,631) (2,352) (1,745)
------------------------------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 212,561 62,429 203,511
------------------------------------------
INCREASE IN CASH
AND CASH EQUIVALENTS 16,491 3,377 7,576
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 30,951 27,574 19,998
------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 47,442 $ 30,951 $ 27,574
==========================================
See accompanying notes.
</TABLE>
28
<PAGE> 22
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
MISSISSIPPI VALLEY BANCSHARES, INC. AND SUBSIDIARIES-DECEMBER 31,1997
NOTE A-ACCOUNTING POLICIES
Business-Mississippi Valley Bancshares, Inc. ("Company"), is a one-bank
holding company, headquartered in St. Louis, Missouri. The Company owns all
of the capital stock of Southwest Bank of St. Louis which provides
commercial, retail and correspondent banking services from five banking
offices in Missouri. At December 31, 1997, the Company had consolidated
assets of $1.3 billion. The Company, through its subsidiary, Southwest Bank,
has traditionally emphasized commercial lending and at December 31, 1997, 85%
of the loan portfolio was in commercial, industrial and commercial real
estate loans. The Company makes substantially all of its loans to customers
located within the St. Louis metropolitan area.
Basis of Presentation-The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, Southwest Bank and
MVBI Capital Trust. Significant intercompany accounts and transactions have
been eliminated in consolidation.
The accounting and reporting policies of the Company and its subsidiaries
conform to generally accepted accounting principles. The preparation of
financial statements requires management of the Company to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. While the financial statements reflect management's best
estimates and judgement, actual results could differ from estimates. The
following is a description of the Company's more significant policies.
Held to maturity securities-Held to maturity securities are stated at cost,
adjusted for amortization of premiums and accretion of discounts. Premium
amortization and discount accretion are computed by a method which
approximates the interest method. The adjusted cost of the specific security
is used to compute gains or losses on sales or redemptions. Held to maturity
securities are used for the investment of available funds in order to provide
stable earnings, to provide collateral for public funds and as a means of
diversifying risks. The Company has the intent and ability to hold these
securities to maturity. Securities that are neither held to maturity or
trading are designated as available for sale.
Trading account securities-The trading account consists of securities valued
at estimated current market prices. When investment transactions are entered
into in anticipation of taking gains on short-term price movements, they are
accounted for in the trading account. Obligations resulting from trade
receivables and payables that have not yet settled are included in other
assets and other liabilities, respectively. Trading account interest income
is included in other interest income in the consolidated statements of
income. Included within other income are gains and losses on the sales of
trading account securities along with any adjustments to the market value of
such securities.
Available for sale securities-Available for sale securities are valued at
estimated market prices and consist of securities that might not be held to
maturity. Unrealized holding gains and losses are excluded from the
determination of earnings and are reported as an amount, net of tax, in a
separate component of shareholders' equity until the holding gains or losses
are realized. These securities can be held for indefinite periods of time and
may be sold in response to changes in interest rates, prepayment risks, the
need to raise funds, or as a part of the Company's overall asset-liability
strategy. Gains and losses on sales are included in other income.
Interest-Rate Risk Management-The Company sometimes uses various interest
rate related contracts, such as futures, swaps, and options, to manage its
overall interest rate risk exposure for asset-liability management purposes.
Although the notional amounts of contracts which are used as hedges are not
reflected in the financial statements, the interest differentials are
recognized on an accrual basis over the terms of the agreements as an
adjustment to interest income or interest expense of the related asset or
liability. Contracts which are not matched against a specifically designated
group of assets or liabilities are held for trading purposes and are
accounted for on a mark to market basis. Accordingly, realized and unrealized
gains and losses associated with this activity are reflected as trading
profits and commissions, a component of other income.
29
<PAGE> 23
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
NOTE A-ACCOUNTING POLICIES-CONTINUED
The Company's objective in managing interest rate exposure is to maintain a
balanced mix of assets and liabilities that will mature or reprice over a
designated time horizon. The extent of rate sensitivity can vary within
intervening time periods, depending on current business conditions and
management's interest rate outlook. The principal objective of the Bank's
asset-liability management activities is to provide maximum levels of net
interest income while maintaining acceptable levels of interest rate and
liquidity risk while facilitating the funding needs of the Company. To
achieve that objective, the Company may use a combination of various
derivative financial instruments.
Derivative Financial Instruments-The Company uses interest rate swap and
floor agreements to synthetically manage the interest rate characteristics of
its interest rate sensitive assets to a more desirable fixed or variable rate
basis or to limit the Company's exposure to changing interest rates. Interest
rate differentials to be paid or received as a result of interest rate swap
or floor agreements are accrued and recognized as an adjustment of interest
income related to the asset. Interest rate floor premiums paid are amortized
to interest income ratably over the life of the agreement. Recorded amounts
related to these derivative contracts are included in other assets or
liabilities. The fair values of interest rate swap and floor agreements,
entered into for purposes other than trading, are not recognized in the
financial statements. These instruments are recorded using the accrual method
of accounting. If it is determined that the accrual method of accounting is
no longer appropriate for these instruments, they are recorded using the fair
value method of accounting. Changes in the instruments fair value are then
reflected as trading profits and commissions, a component of other income.
Realized and unrealized gains or losses at the time of maturity, termination,
sale or repayment of a derivative contract or designated item are recorded in
a manner consistent with the original designation of the derivative in view
of the nature of the termination, sale, or repayment transaction. Amounts
related to interest rate swaps and the intrinsic value of terminated floor
agreements are deferred and amortized as an adjustment to interest income
over the original period of interest exposure, provided the designated asset
continues to exist. Realized and unrealized changes in fair value of
derivatives designated with items that no longer exist are recorded as a
component of the gain or loss arising from the disposition of the designated
item.
Loans and Loan Impairment-Interest income on loans is accrued and credited to
income based on the principal amount outstanding. The recognition of interest
income is discontinued when, in management's judgment, the interest will not
be collectible in the normal course of business. The Company's policy is to
automatically place a loan on nonaccrual status when it becomes 90 days past
due unless it is well secured and in process of collection. As such, income
on impaired loans is normally recognized only on a cash basis. Generally,
loans are restored to accrual status when the obligation is brought current,
has performed in accordance with the contractual terms for a reasonable
period of time and the ultimate collectibility of the contractual principal
and interest is no longer in doubt.
The allowance for credit losses related to loans that are identified for
valuation in accordance with FAS 114 is based on discounted cash flows using
the loans initial effective interest rate or the fair value of the collateral
for certain collateral dependent loans.
Allowance for possible loan losses-The allowance for possible loan losses is
increased by provisions charged to expense and reduced by loans charged off,
net of recoveries. The allowance is maintained at a level considered adequate
to provide for potential loan losses based on management's evaluation of the
anticipated impact on the loan portfolio of current economic conditions,
changes in the character and size of the portfolio, past loan loss
experience, and other pertinent factors.
Premises and equipment-Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed over the estimated useful
lives of the assets using principally the straight-line method for buildings
and a combination of straight-line and accelerated methods for furniture and
equipment.
Income taxes-The Company accounts for income taxes under the asset and
liability method. Income tax expense is reported as the total of current
income taxes payable and the net change in
30
<PAGE> 24
NOTE A-ACCOUNTING POLICIES-CONTINUED
deferred income taxes provided for temporary differences. Deferred income
taxes reflect the net tax effects of temporary differences between the
carrying values of assets and liabilities for financial reporting purposes
and the values used for income tax purposes. Deferred income taxes are
recorded at the statutory federal tax rate expected to be in effect at the
time that the temporary differences are expected to reverse.
Earnings per share-In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share."
For the Company, Statement 128 was effective for 1997 and all prior period
earnings per share amounts are restated to conform to the provisions of
Statement 128. Basic earnings per share is computed by dividing net income,
less dividends on preferred stock, by the weighted average number of common
shares outstanding. Diluted earnings per share gives effect to the increase
in the weighted average number of dilutive common share equivalents and
weighted average shares outstanding which would have resulted from conversion
of the outstanding convertible debentures and to the related reduction in
interest expense on an after-tax basis.
Statement of Cash Flows-Included in the statements of cash flows are cash
equivalents which include amounts due from banks and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods. The
Company paid interest on deposits and other borrowings of $52,042,000 in
1997, $40,715,000 in 1996 and $37,575,000 in 1995 and made income tax
payments of $9,426,000, $8,288,000 and $6,967,000 in 1997, 1996 and 1995,
respectively.
Reclassifications-Certain amounts presented in prior years have been
reclassified to conform to the current year presentation.
NOTE B-RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank or in the form of vault cash. The average amounts of those
reserve balances for the years ended December 31, 1997 and 1996 were
approximately $2,745,000 and $3,342,000, respectively.
NOTE C-HELD TO MATURITY SECURITIES
The amortized cost and estimated fair values of held to maturity securities
at the end of 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
----------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
United States Treasury securities $26,938 $ 308 $27,246
PHA bonds guaranteed by the
United States Government 4,468 813 5,281
U.S. Agency Securities 22,685 171 22,856
Other debt securities 4,057 308 4,365
---------------------------------------------------
$58,148 $1,600 $59,748
===================================================
<CAPTION>
December 31, 1996
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
---------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
United States Treasury securities $50,670 $ 514 $51,184
PHA bonds guaranteed by the
United States Government 4,369 663 5,032
Other debt securities 3,159 274 3,433
---------------------------------------------------
$58,198 $1,451 $59,649
===================================================
</TABLE>
The amortized cost and estimated fair value of held to maturity securities at
December 31, 1997 and 1996, by contractual maturity are as follows. Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
31
<PAGE> 25
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
NOTE C-HELD TO MATURITY SECURITIES-CONTINUED
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------
1997 1996
-----------------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
----------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $18,915 $18,996 $25,896 $26,023
Due after one year through
five years 31,731 32,227 25,174 25,601
Due after five years through
ten years 5,344 5,912 5,586 6,101
Due after ten years 2,158 2,613 1,542 1,924
---------------------------------------------------
$58,148 $59,748 $58,198 $59,649
===================================================
</TABLE>
In 1997 there were no sales of held to maturity securities. In 1996 and
1995, proceeds from sales of held to maturity securities were $2,011,000 and
$27,995,000 respectively. Gross losses of $3,000 and $85,000 were realized
in 1996 and 1995, respectively. In all cases, sales of held to maturity
securities were within 90 days of each specific security's maturity date.
NOTE D-AVAILABLE FOR SALE SECURITIES
The amortized cost and estimated fair values of available for sale securities
at the end of 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
United States Treasury Securities $142,506 $3,175 $ $145,681
U.S. Agency Securities 94,775 618 95,393
Collateralized mortgage obligations 57,834 (350) 57,484
Federal Home Loan Bank stock 9,681 9,681
Other equity securities 9,146 383 9,529
-----------------------------------------------------
$313,942 $4,176 $(350) $317,768
=====================================================
<CAPTION>
December 31, 1996
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
United States Treasury Securities $107,553 $ $ $108,906
U.S. Agency Securities 44,895 1,353 (66) 44,829
Collateralized mortgage obligations 66,169 (600) 65,569
Federal Home Loan Bank stock 9,681 9,681
Other equity securities 351 117 468
-----------------------------------------------------
$228,649 $1,470 $(666) $229,453
=====================================================
32
<PAGE> 26
NOTE D-AVAILABLE FOR SALE SECURITIES-CONTINUED
The amortized cost and estimated fair value of available for sale securities
at December 31, 1997 and 1996, by contractual maturity, are shown below.
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
</TABLE>
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------
1997 1996
-----------------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
-----------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 3,976 $ 3,984 $ 52,864 $ 52,902
Due after one year through
five years 100,722 102,600 84,389 85,755
Due after five years through
ten years 97,883 98,802 15,195 15,078
Due after ten years 34,700 35,688
Collateralized mortgage obligations 57,834 57,484 66,169 65,569
-----------------------------------------------------
Total debt securities 295,115 298,558 218,617 219,304
Equity securities 18,827 19,210 10,032 10,149
-----------------------------------------------------
Total available for sale securities $313,942 $317,768 $228,649 $229,453
=====================================================
</TABLE>
In 1997, proceeds from sales of available for sale securities were
$69,039,000 which resulted in net gains of $85,000. In 1996, proceeds from
sales of available for sale securities were $72,835,000 and net gains of
$443,000 were realized thereon. In 1995, proceeds from sales of available for
sale securities were $32,566,000 which resulted in net gains of $819,000.
Held to maturity and available for sale securities with a carrying value of
$123,353,000 and $91,517,000 at December 31, 1997 and 1996, respectively,
were pledged to secure public deposits, short-term borrowings and for other
purposes required by law.
NOTE E-LOANS
Loans were comprised of the following:
<TABLE>
<CAPTION>
December 31
-------------------------
1997 1996
-------------------------
(dollars in thousands)
<S> <C> <C>
Commercial, industrial and
marketable security loans $376,758 $342,664
Commercial loans secured
by real estate 345,160 268,767
Real estate-1-4 family 117,105 113,035
Consumer loans 8,912 6,962
-------------------------
$847,935 $731,428
=========================
</TABLE>
Certain directors, officers and employees of the Company and the Bank and
their associates are loan customers of the Bank. Such loans are made in the
ordinary course of business at normal credit terms, including interest rates
and collateral, prevailing at the time for comparable transactions with
unrelated parties, and do not involve more than normal risk of collection.
These loans aggregated $31,505,000 and $29,761,000 at December 31, 1997 and
1996, respectively. During 1997, $6,907,000 of new loans were made to these
persons; repayments totalled $5,162,000. Included in the aggregate balance at
December 31, 1997 are loans to one director and his associates amounting to
$5,983,000 ($8,184,000 at December 31, 1996 for two directors and their
associates).
33
<PAGE> 27
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
NOTE E-LOANS-CONTINUED
At December 31, 1997 the Company had $2,540,000 of impaired loans of which
$1,284,000 had an associated specific allowance for possible loan losses of
$709,000. At December 31, 1996 the Company had $6,534,000 of impaired loans
of which $3,934,000 had an associated specific allowance for possible loan
losses of $367,000. The average recorded investment in impaired loans during
the year ended December 31, 1997 and 1996, was approximately $5,216,000 and
$3,703,000, respectively. For the year ended December 31, 1997 and 1996,
gross interest income on impaired loans, which would have been recorded under
the original terms of the loans, was approximately $270,000 and $298,000,
respectively. The Company actually recorded cash basis interest income on
impaired loans of $195,000 in 1997 and $157,000 in 1996. The effect of
impaired loans was immaterial to the financial statements at December 31,
1997 and 1996.
NOTE F-ALLOWANCE FOR POSSIBLE LOAN LOSSES
Changes in the allowance for possible loan losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------
1997 1996
-------------------------
(dollars in thousands)
<S> <C> <C>
Balance at beginning of year $12,624 $10,789
Loans charged off (2,831) (2,858)
Recoveries 999 818
-------------------------
Net loans charged off (1,832) (2,040)
Provision 4,100 3,875
-------------------------
Balance at end of year $14,892 $12,624
=========================
</TABLE>
NOTE G-PREMISES AND EQUIPMENT
Premises and equipment were as follows:
<TABLE>
<CAPTION>
December 31
-------------------------
1997 1996
-------------------------
(dollars in thousands)
<S> <C> <C>
Land $ 3,967 $ 3,967
Buildings and improvements 6,505 6,476
Furniture and equipment 4,622 4,496
Construction in progress 2,178 326
-------------------------
17,272 15,265
Less accumulated depreciation 3,790 3,565
-------------------------
$13,482 $11,700
=========================
</TABLE>
The Company and its subsidiary lease certain premises and equipment under
agreements which expire at various dates through 2000. The aggregate amount
of minimum rental commitments under all noncancelable leases, all of which
are considered to be operating leases, as of December 31, 1997 was $889,092.
Minimum rental commitments under these leases for each of the next three
years beginning in 1998 are $449,000, $419,000, and $32,000. Rent expense for
1997, 1996 and 1995 amounted to $515,000, $388,000 and $394,000,
respectively.
34
<PAGE> 28
NOTE H-DEPOSITS
Interest-bearing deposits were comprised of the following:
<TABLE>
<CAPTION>
December 31
----------------------------
1997 1996
----------------------------
(dollars in thousands)
<S> <C> <C>
Interest-bearing demand
NOW accounts $ 25,067 $ 22,823
Money market accounts 581,117 308,256
Savings 22,998 22,954
Certificates of deposit,
less than $100,000 354,532 426,025
Certificates of deposit,
$100,000 or more 32,899 39,228
----------------------------
$1,016,613 $819,286
============================
</TABLE>
Certain directors, officers, and employees of the Company and the Bank are
deposit customers of the Bank. Such deposits are made in the ordinary course
of business with normal terms and interest rates prevailing at the time for
comparable transactions with unrelated parties. These deposits aggregated
$9,342,000 at December 31, 1997.
NOTE I-SHORT-TERM BORROWINGS
Short-term borrowings were comprised of the following:
<TABLE>
<CAPTION>
December 31
-------------------------
1997 1996
-------------------------
(dollars in thousands)
<S> <C> <C>
Securities sold under agreements
to repurchase $32,700 $24,391
Federal funds purchased 18,495 17,200
Treasury tax and loan notes 3,000 1,023
Short-term notes payable 20,000
-------------------------
$54,195 $62,614
=========================
</TABLE>
Securities sold under agreements to repurchase generally mature in less than
30 days. The securities underlying these agreements are held in safekeeping
at a third party. Information relating to these agreements is summarized as
follows:
<TABLE>
<CAPTION>
December 31
--------------------------------------------
1997 1996 1995
--------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Amount outstanding at year-end $32,700 $24,391 $11,254
Weighted average interest rate at
year-end 4.40% 4.75% 4.65%
Average balance outstanding
for the year $28,743 $20,673 $39,469
Average interest rate for the year 4.56% 4.15% 5.74%
Maximum amount outstanding
at any month-end during the year $62,344 $31,793 $85,956
</TABLE>
NOTE J-LONG-TERM BORROWINGS
In 1992, the Company issued $2,700,000 of 8% subordinated convertible
debentures due April 1, 1997. Prior to maturity, all debenture holders
elected to convert their debentures into 475,200 shares of the Company's
common stock.
During 1997 the Company formed MVBI Capital Trust ("MVBI Capital"), a
statutory business trust. The Company purchased all the common stock of MVBI
Capital for $462,000. MVBI Capital sold 598,000 preferred securities, having
a liquidation amount of $25 per security, for a total of $14,950,000. The
sole assets of MVBI Capital are subordinated debentures of the Company for
$15,412,000 which are due in the year 2027. The distributions payable on the
preferred securities will float with the 3-Month Treasury plus 2.25%. All
accounts of MVBI Capital are included in the consolidated financial
statements of the Company. The preferred securities are considered long-term
borrowings and entitled "Guaranteed preferred beneficial interests in
subordinated debentures" for financial reporting purposes. For risk-based
capital guidelines the amount is considered to be Tier I capital.
35
<PAGE> 29
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
NOTE K-RESTRICTED NET ASSETS
Certain restrictions exist regarding the ability of the Bank to transfer
funds to the Company in the form of cash dividends, loans or advances. At
December 31, 1997, under the most restrictive covenants and regulations,
approximately $4,568,000 was the maximum available as dividends to the
Company from the Bank without prior approval. At December 31, 1997, the
maximum amount available for transfer to the Company in the form of loans and
advances was approximately $10,210,000.
NOTE L-SHAREHOLDERS' EQUITY
On October 15, 1997, the Company's Board of Directors approved a two-for-one
stock split effected in the form of a 100 percent stock dividend, effective
January 1, 1998. All applicable share and per share data have been adjusted
for the stock split.
During 1996, the Company's Board of Directors authorized the 1996 Common
Stock Repurchase Plan which provided for the reacquisition of up to 451,090
shares of the Company's common stock. The maximum number of shares which may
be purchased under this Plan was increased to 800,000, or 8.4% of the
Company's outstanding shares on the date of Plan extension. The Plan will
expire, unless extended, on April 16, 1998. At December 31, 1997 and 1996, no
stock had been purchased in connection with the Repurchase Plan.
On December 31, 1996, the Company redeemed 25,000 shares of perpetual
preferred stock, Series 1993 at a cost of $2,625,000. The stock had a $100
liquidation preference per share and cumulative dividends at the rate of
9.25% until March 31, 2000. The stock was not convertible and had limited
voting rights except under various conditions of default with respect to
preferred dividends.
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. The overall objective of Statement 128 is to simplify the
calculation of earnings per share and was effective for the year ended
December 31, 1997. All prior period EPS amounts are restated to conform with
the requirements of the Statement.
The following table sets forth the computation of basic and diluted earnings
per share for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Numerator:
Net Income $ 15,013 $ 14,096 $ 10,747
Preferred stock dividends (231) (231)
----------------------------------------------
Numerator for basic earnings per share-
income available to common stockholders 15,013 13,865 10,516
----------------------------------------------
Effect of dilutive securities:
8% Convertible debentures 35 140 142
10% Convertible debentures 18
----------------------------------------------
35 140 160
----------------------------------------------
Numerator for diluted earnings per
share-income available to common
shareholders after assumed conversions $ 15,048 $ 14,005 $ 10,676
==============================================
Denominator:
Weighted average shares outstanding 9,396,320 9,023,638 8,892,152
----------------------------------------------
Effect of dilutive securities:
Employee stock options 187,436 84,048 32,440
8% Convertible debentures 117,172 475,200 475,200
10% Convertible debentures 117,824
----------------------------------------------
Dilutive potential common shares 304,608 559,248 625,464
----------------------------------------------
Denominator for diluted earnings per
share-adjusted weighted average
shares and assumed conversions 9,700,928 9,582,886 9,517,616
==============================================
Basic earnings per share $ 1.60 $ 1.54 $ 1.18
==============================================
Diluted earnings per share $ 1.55 $ 1.46 $ 1.12
==============================================
</TABLE>
36
<PAGE> 30
NOTE L-SHAREHOLDERS' EQUITY-CONTINUED
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires
use of option valuation models that were not developed for use in valuing
employee stock. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
The Company's 1991 Stock Option Plan (Five-Year Options) has authorized the
grant of options to management personnel for up to 1,140,000 shares of the
Company's common stock. All options granted have 5 year terms and vest
ratably over their respective terms.
The effect of applying FASB Statement No. 123 to the results of operations
for the Company result in net earnings and earnings per share that are not
materially different than reported at December 31, 1997 and 1996.
A summary of the Company's stock option activity, and related information for
the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------------- --------------------------------
Weighted Average Weighted Average
Options Exercise Price Options Exercise Price
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Options outstanding at
beginning of year 384,600 $12.86 242,500 $ 9.69
Granted 396,000 24.91 170,000 16.37
Exercised 10,100 10.99 17,900 4.69
Forfeited 4,000 21.69 10,000 11.25
------- -------
Options outstanding at
end of year 766,500 $19.05 384,600 $12.86
======= =======
Options exercisable at
end of year 173,550 $11.03 88,050 $ 9.09
Weighted average fair
value of options
granted during the year $ 6.49 $ 3.98
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 ranged from
$7.125 to $30.00. The weighted average remaining contractual life of those
options was 3 1/2 years.
NOTE M-REGULATORY CAPITAL
The Company and Bank 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 and Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and Bank 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 Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulations to ensure capital adequacy
require the Company and Bank to maintain minimum amounts and ratios (set
forth in the following table) of total and Tier 1 capital to risk-weighted
assets, and of Tier 1 capital to average assets (as defined in the regulations).
Management believes, as of December 31, 1997 and 1996, that the Company and Bank
meet all capital adequacy requirements to which it is subject.
As of December 31, 1997 and 1996, the Company and the Bank were both
categorized as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as "well capitalized" the Company and
Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios as set forth in the table. There are no conditions or events
that management believes have changed the institutions' categories.
37
<PAGE> 31
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
NOTE M-REGULATORY CAPITAL-CONTINUED
The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- -------- ------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital to Risk
Weighted Assets:
Mississippi Valley
Bancshares, Inc. $116,637 13.23% $70,524 8.00% $ N/A N/A%
Southwest Bank
of St. Louis 103,309 11.91 69,417 8.00 86,772 10.00
Tier 1 Capital to Risk
Weighted Assets:
Mississippi Valley
Bancshares, Inc. 105,570 11.98 35,262 4.00 N/A N/A
Southwest Bank
of St. Louis 92,413 10.65 34,709 4.00 52,063 6.00
Tier 1 Capital to
Average Assets:
Mississippi Valley
Bancshares, Inc. 105,570 8.04 39,397 3.00 N/A N/A
Southwest Bank
of St. Louis 92,413 7.12 38,945 3.00 64,909 5.00
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- -------- ------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital to Risk
Weighted Assets:
Mississippi Valley
Bancshares, Inc. $84,716 11.45% $59,180 8.00% $ N/A N/A%
Southwest Bank
of St. Louis 85,015 11.54 58,921 8.00 73,652 10.00
Tier 1 Capital to Risk
Weighted Assets:
Mississippi Valley
Bancshares, Inc. 75,427 10.20 29,590 4.00 N/A N/A
Southwest Bank
of St. Louis 75,766 10.29 29,461 4.00 44,191 6.00
Tier 1 Capital to
Average Assets:
Mississippi Valley
Bancshares, Inc. 75,427 7.20 31,428 3.00 N/A N/A
Southwest Bank
of St. Louis 75,766 7.25 31,351 3.00 52,238 5.00
</TABLE>
38
<PAGE> 32
NOTE N-PENSION PLAN
The Bank maintains a non-contributory defined benefit pension plan covering
substantially all employees. Benefits under the Plan are based upon the final
average monthly compensation reduced by primary Social Security benefits. The
Bank's funding policy is to contribute annually within the limits prescribed
for deduction for federal income tax purposes.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------
1997 1996 1995
-----------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 201 $177 $ 136
Interest cost on projected
benefit obligations 183 173 150
Actual return on plan assets (171) (96) (210)
Net amortization and deferral 43 (43) 82
-----------------------------------------
$ 256 $211 $ 158
=========================================
</TABLE>
The following table sets forth the Plan's funded status and amounts
recognized in the Company's balance sheets:
<TABLE>
<CAPTION>
December 31
------------------------------------------
1997 1996 1995
------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Actuarial present value of:
Accumulated benefit obligation,
including vested benefits of $2,033,
$1,665 and $1,572, respectively $2,236 $1,833 $1,806
==========================================
Projected benefit obligation $3,028 $2,401 $2,130
Plan assets at fair value 2,316 1,829 2,025
------------------------------------------
Projected benefit obligation
in excess of plan assets (712) (572) (105)
Unrecognized net loss 583 254 90
Unrecognized prior service cost 90 100 8
Unrecognized net obligation
at December 31 41 51 61
------------------------------------------
Net pension asset (liability) recognized
in the balance sheet $ 2 $ (167) $ 54
==========================================
</TABLE>
Assumptions used in the above determinations were as follows:
<TABLE>
<CAPTION>
----------------------------------------
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
Discount rate in determining benefit
obligation and pension expense 7.00% 7.50% 7.50%
Rate of increase in compensation levels 4.50% 4.50% 4.50%
Expected long-term rate on assets 8.00% 8.00% 8.00%
</TABLE>
At December 31, 1997, 100% of the Plan's assets were invested in a guaranteed
fixed income account with General American Life Insurance Company. During
1995 the Bank established a non-qualified non-contributory defined benefit
pension plan covering executives with compensation in excess of $150,000. The
plan was immaterial at December 31, 1997, 1996 and 1995. The Company does not
provide any post-retirement benefits other than these pension plans.
39
<PAGE> 33
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
NOTE O-INCOME TAXES
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1997 1996 1995
------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Current:
Federal $7,619 $7,443 $ 6,638
State and Local 251 242 950
------------------------------------------
Total current 7,870 7,685 7,588
------------------------------------------
Deferred:
Provision for possible loan losses (771) (642) (773)
Mark-to-market security (gain), loss 272 596 (375)
Other, net 1,099 117 17
------------------------------------------
Total deferred 600 71 (1,131)
------------------------------------------
Income tax expense $8,470 $7,756 $ 6,457
==========================================
</TABLE>
The reconciliation between income taxes and the amount computed by applying
the statutory federal tax rates to income before income taxes follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1997 1996 1995
------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Statutory rate applied to income
before taxes $8,219 $7,648 $6,021
Increase (decrease) in income taxes
resulting from:
Tax-exempt income (174) (162) (182)
State and local income taxes,
net of federal income tax benefit 228 157 481
Other, net 197 113 137
------------------------------------------
Total tax expense $8,470 $7,756 $6,457
==========================================
</TABLE>
As of December 31, 1997 and 1996, the Company's deferred tax asset account
was comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------
1997 1996
-------------------------------
(dollars in thousands)
<S> <C> <C>
Deferred tax liabilities:
Pension expense $ (69) $ (53)
Fixed and other asset depreciation 646
Unrealized net gains on
available for sale securities 1,588 3
Accretion of security discounts 260 349
-------------------------------
Total deferred tax liabilities 2,425 299
-------------------------------
Deferred tax assets:
Provision for possible loan losses (5,206) (4,429)
Other, net 177 (49)
-------------------------------
Total deferred tax assets (5,029) (4,478)
-------------------------------
Net deferred tax assets $(2,604) $(4,179)
===============================
</TABLE>
Included in income taxes were $30,000, $154,000 and $257,000 for the years
ended December 31, 1997, 1996 and 1995, respectively, related to realized net
gains on held to maturity securities and available for sale securities.
40
<PAGE> 34
NOTE P-FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The reported fair values of financial instruments are based upon a variety of
methods and assumptions used by the Company in estimating its fair value
disclosures. The carrying value of cash, due from banks, Federal funds sold,
available for sale securities and trading account securities approximate
those assets' fair values. Fair values for held to maturity securities are
based on quoted market prices. For variable rate loans that reprice with
market rates of interest, fair values are based on carrying values. The fair
values for all other loans (i.e. fixed rate loans) are estimated using
discounted cash flow analyses and using interest rates currently offered for
loans with similar terms to borrowers of similar credit quality. The fair
value of accrued interest approximates its carrying amount. The fair values
of non-performing loans are based on estimates of collectibility in
conjunction with the Bank's historical loss experience.
The fair values disclosed for demand deposits (e.g., interest and noninterest
bearing checking, passbook savings and money market accounts) are, by
definition, equal to the amount payable on demand at the reporting date
(i.e., their carrying amounts). Fair values for fixed-rate certificates of
deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits. The carrying amounts
of Federal funds purchased, borrowings under repurchase agreements and other
short-term borrowings approximate their fair values. The fair value of
long-term borrowings are estimated using discounted cash flow analyses, based
on the Company's borrowing rates for similar types of borrowing arrangements.
The estimated fair values of the Company's financial instruments were as
follows:
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------
Carrying
amount Fair value
----------------------------------
(dollars in thousands)
<S> <C> <C>
Financial assets:
Cash and due from banks and
short-term investments $ 28,532 $ 28,532
Held to maturity securities 58,148 59,748
Available for sale securities 317,768 317,768
Trading account securities 1,251 1,251
Loans, net of unearned income 847,091 849,855
Financial liabilities:
Deposits 1,126,562 1,127,802
Short-term borrowings 54,195 54,195
Long-term borrowings 14,950 14,950
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------
Carrying
amount Fair value
----------------------------------
(dollars in thousands)
<S> <C> <C>
Financial assets:
Cash and due from banks and
short-term investments $ 30,951 $ 30,951
Held to maturity securities 58,198 59,649
Available for sale securities 229,453 229,453
Trading account securities 20 20
Loans, net of unearned income 731,019 730,332
Financial liabilities:
Deposits 918,012 919,654
Short-term borrowings 62,614 62,614
Long-term borrowings 2,700 2,700
</TABLE>
41
<PAGE> 35
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
NOTE Q-FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Company makes use of a number of
different financial instruments to help meet the financial needs of its
customers. Certain of these instruments, in accordance with generally
accepted accounting principles, are not reflected on the balance sheet and
are referred to as off-balance sheet instruments. These instruments and
activities include commitments to extend lines of credit and standby and
commercial letters of credit. The following table provides a summary of the
Company's off-balance sheet financial instruments at December 31, 1997 and
1996.
<TABLE>
<CAPTION>
December 31
--------------------------------
1997 1996
--------------------------------
(dollars in thousands)
<S> <C> <C>
Commitments to extend credit $262,312 $232,608
Standby letters of credit 9,672 9,728
Commercial letters of credit 1,719 1,568
--------------------------------
$273,703 $243,904
================================
</TABLE>
A loan commitment is a binding contract to lend up to a maximum amount for a
specified period of time provided there is no violation of any financial,
economic or other terms of the contract. A standby letter of credit obligates
the Company to honor a financial commitment by issuing a guarantee to a third
party should the Company's customer fail to perform. Many loan commitments
and most standby letters of credit expire unfunded, and therefore total
commitments do not represent future funding obligations of the Company. Loan
commitments and letters of credit are made under normal credit terms,
including interest rates and collateral prevailing at the time, and usually
require the payment of a fee by the customer. Commercial letters of credit
are commitments issued to finance the movement of goods between buyers and
sellers normally transacting business in international markets.
The Company enters into off-balance sheet transactions primarily as part of
its asset-liability management strategy to manage interest rate risk. These
transactions involve the exchange of interest payments based on a notional
amount. The notional amounts of these transactions express the volume of
transactions and are not an appropriate indicator of the off-balance sheet
market risk or credit risk. The credit risk associated with these
transactions arises from the counterparties' failure to meet the terms of the
agreements and is limited to the fair value of contracts in a gain position
and any interest receivable under the contract. The Company manages this risk
by maintaining positions with highly rated counterparties. The credit risk
exposure of the Company for these interest rate contracts at December 31,
1997 and 1996 was approximately $515,000 and $330,000, respectively.
The Bank enters into interest rate swap transactions primarily as part of its
asset-liability management strategy to manage interest rate risk. These
transactions involve the exchange of interest payments based on a notional
amount. Although the notional amounts of these transactions are not reflected
in the financial statements, the interest differentials are recognized on an
accrual basis over the terms of the agreements as an adjustment to the
interest income of the related asset. The credit risk associated with
interest rate swaps arises from the counterparties' failure to meet the terms
of the agreements. The Bank manages this risk by maintaining positions with
highly rated counterparties.
During the first quarter of 1997, the Company purchased a three-year interest
rate floor agreement as a hedge against reduced yields on its floating rate
commercial loan portfolio in anticipation of a declining interest rate
environment. For a fixed premium payment of $215,000 the floor contract
requires the seller to pay the Company at specified future dates the amount,
if any, by which the 90 day LIBOR rate falls below the fixed floor rate of
5.50%, applied to a notional amount of $25 million. Income or expense on the
instrument is recorded on an accrual basis as an adjustment to the yield of
the related interest earning assets over the period covered by the contract.
42
<PAGE> 36
NOTE Q-FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK-CONTINUED
During the fourth quarter of 1997, the Company purchased an additional
two-year interest rate floor agreement as a hedge against reduced yields on
its floating rate commercial loan portfolio in anticipation of a declining
interest rate environment. For a fixed premium payment of $333,000 the floor
contract requires the seller to pay the Company at specified future dates the
amount, if any, by which the 90 day LIBOR rate falls below the fixed floor
rate of 5.875%, applied to a notional amount of $50 million. Income or
expense on the instrument is recorded on an accrual basis as an adjustment to
the yield of the related interest earning assets over the period covered by
the contract.
During the first quarter of 1996, the Bank purchased interest rate swap
contracts with notional amounts totaling $145 million. They were purchased as
a hedge based on management's judgment at that time that interest rates would
fall no further. The contracts, which require the Bank to pay a fixed rate of
interest and receive a variable rate of interest from the seller of the
contract, are accounted for as modifications of the interest rate
characteristics of certain bank assets. All of these swap contracts were sold
in the fourth quarter of 1996 resulting in a net pre-tax gain of $1,354,000.
This gain is being amortized over the contractual period remaining for the
respective swap contracts. The last contractual maturity is January 2000. Net
interest income was increased by $592,000 in 1997 and $248,000 in 1996 as a
result of these swap contracts.
In the fourth quarter of 1996, management began to reposition the
asset-liability sensitivity by moving to a somewhat liability-sensitive
position in anticipation of a declining interest rate environment. As stated
above, the interest rate swaps purchased in the first quarter were sold. In
addition, on December 30, 1996, a $50 million notional amount interest rate
floor contract was purchased, for a premium of $345,000, to protect against
the possibility of a decrease in interest rates. The contract requires the
seller to pay the Bank at specified future dates the amount, if any, by which
the 90 day LIBOR rate falls below the fixed floor rate of 5.625%, applied to
a notional amount of $50 million. This contract is reported at fair value and
changes in its fair value are reflected in trading revenues. This transaction
decreased trading revenues by $251,000 in 1997 and had an immaterial effect
in the income statement for 1996.
During the first quarter of 1995, the Bank purchased a two-year interest rate
floor contract to change the interest rate characteristics on its floating
rate loan portfolio in anticipation of a declining interest rate environment.
For the fixed premium payment of $285,000 the contract required the seller to
pay the Bank at specified future dates the amount, if any, by which the 90
day LIBOR rate falls below the fixed floor rate, applied to a notional amount
of $50 million. Income or expense on the instrument is recorded on an accrual
basis as an adjustment to the yield of the related interest-earning assets of
the yield over the period covered by the contract. In January 1996, the Bank
sold this floor contract which resulted in a pre-tax gain of $821,000. This
gain was deferred and amortized over the remaining life of the contract. This
transaction increased net interest income by $202,000 in 1997, $405,000 in
1996 and had an immaterial effect on income in 1995.
43
<PAGE> 37
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
NOTE R-PARENT COMPANY CONDENSED FINANCIAL INFORMATION
Following are the condensed financial statements of Mississippi Valley
Bancshares, Inc. (Parent Company) for the periods indicated.
<TABLE>
<CAPTION>
BALANCE SHEETS December 31
--------------------------------
1997 1996
--------------------------------
ASSETS (dollars in thousands)
<S> <C> <C>
Cash and due from subsidiary $ 403 $ 94
Available for sale securities 9,529 469
Investment in subsidiary 94,469 75,472
Bank premises 2,760 2,331
Other assets 1,368 347
--------------------------------
TOTAL ASSETS $108,529 $78,713
================================
LIABILITIES
Long-term debt $ 15,412 $ 2,700
Other liabilities 10 64
--------------------------------
TOTAL LIABILITIES 15,422 2,764
SHAREHOLDERS' EQUITY 93,107 75,949
--------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $108,529 $78,713
================================
</TABLE>
44
<PAGE> 38
NOTE R-PARENT COMPANY CONDENSED FINANCIAL INFORMATION-CONTINUED
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------
STATEMENTS OF INCOME 1997 1996 1995
-------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
INCOME
Dividends from subsidiary $ 5,949 $ 8,929 $ 2,657
Rent income 408 409 409
Other 831 111 120
-------------------------------------------
TOTAL INCOME 7,188 9,449 3,186
EXPENSE
Interest 1,017 224 347
Other 461 411 357
-------------------------------------------
TOTAL EXPENSE 1,478 635 704
Income before tax benefit and
equity in undistributed income
of subsidiary 5,710 8,814 2,482
Income tax benefit (70) (37) (58)
-------------------------------------------
Income before equity in
undistributed income of subsidiary 5,780 8,851 2,540
Equity in undistributed income
of subsidiary 9,233 5,245 8,207
-------------------------------------------
Net income $15,013 $14,096 $10,747
===========================================
<CAPTION>
Year Ended December 31
--------------------------------------------
STATEMENTS OF CASH FLOWS 1997 1996 1995
--------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 15,013 $14,096 $10,747
Equity in undistributed
income of subsidiary (9,233) (5,245) (8,207)
Realized securities gains, net (108)
Other, net (1,196) (935) (51)
--------------------------------------------
Net cash provided by
operating activities 4,476 7,916 2,489
INVESTING ACTIVITIES
Payments for investment in subsidiary (7,413) (105) (4,500)
Purchase of available for sale securities (9,041)
Proceeds from sales of held
to maturity securities 355
Other, net (498)
--------------------------------------------
Net cash used in investing activities (16,597) (105) (4,500)
FINANCING ACTIVITIES
Proceeds from short-term borrowings 4,400 5,000
Repayments of short-term borrowings (4,400) (3,000) (2,000)
Proceeds from issuance of long-term debt 14,950
Proceeds from sale of common stock 111 84 74
Cash dividends paid (2,631) (2,352) (1,745)
Redemption of preferred stock (2,625)
--------------------------------------------
Net cash provided by (used in)
financing activities 12,430 (7,893) 1,329
--------------------------------------------
Increase (decrease) in cash 309 (82) (682)
Cash at beginning of year 94 176 858
--------------------------------------------
Cash at end of year $ 403 $ 94 $ 176
============================================
</TABLE>
45
<PAGE> 39
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
NOTE S-SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of quarterly operating results for the years ended
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $20,500 $23,101 $25,599 $26,054
Interest expense 10,751 12,490 14,978 14,024
----------------------------------------------------
Net interest income 9,749 10,611 10,621 12,030
Provision for possible loan losses 900 1,200 1,100 900
Security gains (losses) 108 (20) (3)
Other income 1,156 1,303 1,471 1,581
Other expense 4,882 5,238 5,102 5,802
Income taxes 1,888 1,959 2,113 2,510
----------------------------------------------------
Net income $ 3,343 $ 3,497 $ 3,777 $ 4,396
====================================================
Net income per share:
Basic $ .37 $ .37 $ .40 $ .46
Diluted .35 .36 .39 .45
<CAPTION>
1996
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $19,065 $19,494 $20,534 $20,626
Interest expense 9,652 9,851 10,599 10,709
----------------------------------------------------
Net interest income 9,413 9,643 9,935 9,917
Provision for possible loan losses 1,100 850 950 975
Security gains (losses 309 132 (1)
Other income 1,024 1,082 1,131 1,384
Other expense 4,448 4,595 4,491 4,708
Income taxes 1,935 1,878 1,958 1,985
----------------------------------------------------
Net income $ 3,263 $ 3,534 $ 3,667 $ 3,632
====================================================
Net income per share:
Basic $ .36 $ .38 $ .40 $ .40
Diluted .34 .37 .38 .37
</TABLE>
46
<PAGE> 40
THIS PAGE WAS INTENTIONALLY LEFT
BLANK FOR YOUR NOTES
- --------------------------------------------------------------------------------
47
<PAGE> 41
MISSISSIPPI VALLEY BANCSHARES, INC.
BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
JOHN T. BAUMSTARK
President-Archway Sales Inc.
Age 53
ANDREW N. BAUR
Chairman-Mississippi Valley
Bancshares, Inc.
Chairman-Southwest Bank
of St. Louis
Age 53
LINN H. BEALKE
President-Mississippi Valley
Bancshares, Inc.
Vice Chairman-Southwest Bank
of St. Louis
Age 53
ALICE C. BEHAN
Private Investor
Age 52
WILLIAM H. T. BUSH
Chairman-Bush-O'Donnell
& Co., Inc.
Age 59
FRANKLIN J. CORNWELL, JR.
Private Investor
Age 55
THEODORE P. DESLOGE, JR.
President-Bloom & Desloge
Enterprises, Inc.
Age 58
LOUIS N. GOLDRING
Vice Chairman-Franklin Equity
Leasing Company
Age 56
RICHARD T. GROTE
President-Grote Financial Futures
Chairman-American Medical
Claims, Inc.
Age 52
FREDERICK O. HANSER
Chairman, St. Louis Cardinals, L.P.
Age 55
DONNA D. LAMBERT
Private Investor
Age 58
MICHAEL D. LATTA
Chairman and Chief Executive
Officer-Dunmon, Inc.
Age 56
MONT S. LEVY
Registered Investment Advisor
Principal-Buckingham Asset
Management
Age 46
LEWIS B. SHEPLEY
Executive Vice President and Chief
Financial Officer-Reliable Life
Insurance Company
Age 58
- --------------------------------------------------------------------------------
MVBI AUDIT COMMITTEE
(Representing MVBI)
John T. Baumstark
William H.T. Bush
Franklin J. Cornwell, Jr.
Donna D. Lambert
Michael D. Latta
Mont S. Levy
(Representing SWB)
G. Fred Heimburger
William F. Holekamp
Charles W. Hrebec, Jr.
Charles A. Zone
MVBI EXECUTIVE COMMITTEE
Andrew N. Baur
Linn H. Bealke
Louis N. Goldring
Richard T. Grote
Frederick O. Hanser
MVBI COMPENSATION AND
EMPLOYEE BENEFITS COMMITTEE
(Representing MVBI)
Alice C. Behan
William H.T. Bush
Franklin J. Cornwell, Jr.
Theodore P. Desloge, Jr.
Louis N. Goldring
Lewis B. Shepley
(Representing SWB)
Zolt Rumy
SOUTHWEST BANK OF ST. LOUIS
BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
JOHN T. BAUMSTARK
President-Archway Sales Inc.
ANDREW N. BAUR
Chairman-Mississippi Valley
Bancshares, Inc.
Chairman-Southwest Bank
of St. Louis
LINN H. BEALKE
President-Mississippi Valley
Bancshares, Inc.
Vice Chairman-Southwest Bank
of St. Louis
EDWARD C. BERRA
President-Southwest Bank
of St. Louis
DONALD L. BOLAZINA
Partner, Business Matters
WILLIAM H. T. BUSH
Chairman-Bush-O'Donnell
& Co., Inc.
FRANCIS C. CUNETTO
President-Cunetto House of Pasta
ROBERT E. FLYNN, III
President-Berry Grant Company
G. FRED HEIMBURGER
Chairman-Heimburger, Inc.
WILLIAM F. HOLEKAMP
Corporate Executive Vice
President-Enterprise Rent-A
Car/Leasing Co.
CHARLES W. HREBEC, JR.
President-Colt Industries, Inc.
HENRY O. JOHNSTON
President-Sante Travel Agency, Inc.
RICHARD G. MILLMAN
President-Millman Lumber Co.
ZSOLT RUMY
President, Zoltek Corporation
ALMIRA BALDWIN SANT
Private Investor
CHARLES A. ZONE
President-C.J. Zone
Manufacturing Co., Inc.
ADVISORY DIRECTOR
- -----------------------------------
WILLIAM J. FRESCHI
Retired Food Executive
48
<PAGE> 42
MISSISSIPPI VALLEY BANCSHARES, INC.
- --------------------------------------------------------------------------------
EXECUTIVE OFFICERS
ANDREW N. BAUR, Chairman
LINN H. BEALKE, President
PAUL M. STRIEKER, Executive Vice President, Controller and Chief Financial
Officer
CAROL B. DOLENZ, Secretary/Treasurer
STOCK LISTING
NASDAQ-NMS symbol: MVBI Appears as MissVly or Ms ValyBcsh in newspaper stock
tables.
TRANSFER AGENT
ChaseMellon Shareholder Services, L.L.C.
Stock Transfer Department
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
(888) 213-0965 (toll free)
Website Address: www.chasemellon.com
DIVIDEND INFORMATION
Dividends are normally paid the first day of January, April, July and
October.
ANNUAL MEETING
The Annual Meeting of Shareholders will be at 9:00 a.m., Wednesday, April 15,
1998, at the Tower Grove Park Palm House, 4255 Arsenal Street, St. Louis,
Missouri 63110.
INVESTOR RELATIONS AND FORM 10-K
Analysts, investors and others seeking financial data about Mississippi
Valley Bancshares, Inc. are invited to contact:
Paul M. Strieker
Executive Vice President, Controller and Chief Financial Officer
Mississippi Valley Bancshares, Inc.
700 Corporate Park Drive
St. Louis, MO 63105
A copy of the Company's Form 10-K (Annual Report, without exhibits) filed
with the Securities and Exchange Commission may be obtained without charge
upon written request.
49
<PAGE> 43
Mississippi Valley Bancshares, Inc.
700 Corporate Park Drive
St. Louis, Missouri 63105
(314) 268-2580
<PAGE> 1
[letterhead of Ernst & Young LLP]
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statements
listed below of our report dated January 15, 1998, with respect to the
consolidated financial statements of Mississippi Valley Bancshares, Inc.,
incorporated by reference in the Annual Report (Form 10-K) for the year
ended December 31, 1997.
<TABLE>
<CAPTION>
FORM NO.
- ---- ---
<C> <C> <S>
S-8 33-70208 Mississippi Valley Bancshares, Inc. 1988 Stock Option Plan
S-8 333-21083 Mississippi Valley Bancshares, Inc. 1991 Stock Option Plan
S-8 333-00898 401(k) Retirement Savings Plan of Mississippi Valley
Bancshares, Inc.
</TABLE>
/s/ Ernst & Young LLP
March 16, 1998
St. Louis, Missouri
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 28,532
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 18,910
<TRADING-ASSETS> 1,251
<INVESTMENTS-HELD-FOR-SALE> 317,768
<INVESTMENTS-CARRYING> 58,148
<INVESTMENTS-MARKET> 59,748
<LOANS> 847,091
<ALLOWANCE> 14,892
<TOTAL-ASSETS> 1,299,918
<DEPOSITS> 1,126,562
<SHORT-TERM> 54,195
<LIABILITIES-OTHER> 11,104
<LONG-TERM> 14,950
0
0
<COMMON> 9,519
<OTHER-SE> 83,588
<TOTAL-LIABILITIES-AND-EQUITY> 1,299,918
<INTEREST-LOAN> 73,447
<INTEREST-INVEST> 20,235
<INTEREST-OTHER> 1,572
<INTEREST-TOTAL> 95,254
<INTEREST-DEPOSIT> 48,499
<INTEREST-EXPENSE> 52,243
<INTEREST-INCOME-NET> 43,011
<LOAN-LOSSES> 4,100
<SECURITIES-GAINS> 85
<EXPENSE-OTHER> 21,024
<INCOME-PRETAX> 23,483
<INCOME-PRE-EXTRAORDINARY> 15,013
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,013
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.55
<YIELD-ACTUAL> 3.73
<LOANS-NON> 2,079
<LOANS-PAST> 0
<LOANS-TROUBLED> 112
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,624
<CHARGE-OFFS> 2,831
<RECOVERIES> 999
<ALLOWANCE-CLOSE> 14,892
<ALLOWANCE-DOMESTIC> 9,338
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,554
</TABLE>
