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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, 1998
/ / 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
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Commission file number 0-22008
MISSISSIPPI VALLEY BANCSHARES, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Missouri 43-1336298
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 Corporate Park Drive, St. Louis, Missouri 63105
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(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
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None None
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Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $1 par value
Floating Rate Cumulative Trust Preferred Securities
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(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
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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 26, 1999, 9,495,912 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
$200,208,000 based upon the closing price of the common stock on the
NASDAQ/NMS on February 26, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
1. Certain portions of Registrant's Annual Report to Shareholders
for the year ended December 31, 1998 are incorporated by reference
in Parts I and II hereof.
2. Certain portions of Registrant's Proxy Statement for its Annual
Meeting of Shareholders to be held April 21, 1999 are incorporated
by reference in Part III hereof.
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PART I
ITEM 1. BUSINESS
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GENERAL
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The Company is a multi-bank holding company headquartered in St.
Louis County, Missouri engaged primarily in commercial lending through
Southwest Bank of St. Louis and Southwest Bank, Belleville (the "Banks").
Southwest Bank of St. Louis has been nationally recognized for its frequent
practice of reducing its prime rate in advance of industry wide prime rate
cuts. The Banks have six 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 Southwest Bank of St. Louis in
1984, the Company has expanded its loan portfolio from $57 million to $926
million at December 31, 1998, or approximately $62 million on average per
year. The Company has earned an average return on equity of 17.78% 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 Banks' lending officers and senior
management maintain close working relationships with their commercial
customers and their businesses; (ii) the Banks are able to react more
quickly to loan requests than the Company's large competitors yet are able
to fund loan amounts which smaller St. Louis area commercial lenders are
unable to fund; (iii) the Banks' management and loan officers have
significant experience within the St. Louis metropolitan area; and (iv)
industry consolidation has resulted in fewer independent banks and fewer
banks addressing the Banks' target market niche.
The Company's historical growth strategy has been asset driven, as
the Company has increased its loan portfolio based on lending opportunities
which meet the Company's underwriting standards. The Company 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
Company's loan to deposit ratio increases significantly past the 85% level
which management targets. The Company opened one new location in each of
1990, 1992, 1995 and 1998. For a discussion of an additional planned
facility, 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 1998 and 1997, the Company reported net interest
margins of 3.86% and 3.73%, respectively.
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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 $202 million as of December 31, 1998, (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 1998 and 1997, the Company
reported efficiency ratios (non interest expense divided by the sum of tax-
equivalent net interest income plus noninterest income) of 40.78% and
43.03%, respectively. These ratios are significantly better than those of
the Company's peers. The Company's ratio of average assets per employee,
which was $5.50 million for 1998, has also been consistently better than
the industry average.
THE COMPANY
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For a description of the Company and its operations, reference is
made to "Financial Review" on pages 9 through 24 of the Company's Annual
Report to Shareholders for the year ended December 31, 1998, which is
incorporated herein by reference.
COMPETITION
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The Company encounters competition primarily in seeking deposits and
in obtaining loan customers. The level of competition for deposits is
quite high. The Company'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 Company's competitors are
generally permitted, subject to regulatory approval, to establish branches
throughout the Company'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 Company also encounters a great deal of competition in its
lending activities, management believes that there is less competition in
the Company's specialty-the middle market niche-than there was a few years
ago. The Company'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
Company's strategy, by contrast, is to maintain close, long-term contacts
between its customers and the Company's loan officers.
The Company 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 Company'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
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Company in providing certain services. Many of the financial institutions
with which the Company competes in both lending and deposit activities are
larger than the Company.
EMPLOYEES
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As of December 31, 1998, the Company had no employees and the Banks
had approximately 249 full-time equivalent employees. None of the
employees of the Banks are subject to a collective bargaining agreement.
The Company considers relationships with employees of the Banks to be good.
FORWARD-LOOKING STATEMENTS
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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
Banks are subject to regulation and supervision by the Federal Deposit
Insurance Corporation (the "FDIC"), the Missouri Division of Finance, and
the Illinois Office of Banks and Real Estate, 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 Banks 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
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loan agreements. Although the Company's percentage of net charge-offs has
historically been lower than industry norms, it has a relatively high
proportion of commercial loans. As of December 31, 1998 the Banks had
12 customers who had outstanding loans and unfunded commitments exceeding
$5 million.
Exposure to Local Economic Conditions. The Company's concentration
of loans in the St. Louis MSA exposes it to risks resulting from changes in
the local economy. While the Company'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, 1998, 39.7% of the Company's loans were secured
by commercial real estate and 11.1% of the Company'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 Company'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. Sometimes the maturities of
the Company's assets are well balanced in relation to maturities of
liabilities (gap management). Gap management is not an exact science. 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.
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 or positive 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 Banks in the
geographic market served involve competition with other banks as well as
with other financial institutions and enterprises, many of which have
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 Banks.
ITEM 2. PROPERTIES
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Southwest Bank of St. Louis' 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
banking drive-ups are modern and parking is adequate. The premises are
owned by the Company and leased to Southwest Bank of St. Louis. The lease
expires in 2006 and provides an option to renew for an additional ten
years.
The 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,
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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.
The 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 Crestwood office occupies a building of approximately 5,200
square feet, which was purchased in December, 1991 and was totally
remodeled before the opening of the office. The land was purchased by
Southwest Bank of St. Louis in February, 1992. The facility has a nearby
ATM, and adjoining drive-up lanes and equipment; adequate parking is
available.
The Southtown office on the corner of Kingshighway and Chippewa,
approximately two miles from the main office, occupies an 1,865 square foot
building on 1.58 acres of land purchased in 1997. This location has one
ATM and the facility will be expanded and renovated in 1999.
Southwest Bank, Belleville owns 1.7 acres of land in Belleville,
Illinois. In 1998 the bank building construction was completed and
Southwest Bank, Belleville opened in September. The building is
approximately 10,000 square feet. The office has one ATM, adjoining drive-
up lanes and equipment; adequate parking is available.
In 1996, Southwest Bank of St. Louis purchased two adjoining parcels
of land of approximately 6.3 acres and 2.3 acres, respectively, in Des
Peres, Missouri. Southwest Bank of St. Louis has obtained approval to
establish a bank branch on the site. Construction began on the Des Peres
bank and office building in 1998. The location will also become the
Company's new headquarters facility.
ITEM 3. LEGAL PROCEEDINGS
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The Company and Banks are from time to time parties 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 Banks,
which, if determined adversely, would have a material effect on the
business or financial position of the Company or the Banks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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There were no matters submitted to a vote of the security holders in
the quarter ended December 31, 1998.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
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STOCKHOLDER MATTERS
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Reference is made to the information contained in the section
entitled "Common Share Data" on page 8 and investor information on page 52
of the Company's Annual Report to Shareholders for the year ended December
31, 1998, which is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
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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, 1998, which is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
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Reference is made to information contained in the section entitled
"Financial Review" on pages 9 through 24 of the Company's Annual Report to
Shareholders for the year ended December 31, 1998, which is incorporated
herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Reference is made to information contained in the section entitled
"Sensitivity to Changes in Interest Rates" on pages 19 and 20 of the
Company's Annual Report to Shareholders for the fiscal year ended December
31, 1998, which is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Reference is made to the Consolidated Financial Statements and
independent auditors' report thereon contained on pages 25 through 49 of
the Company's Annual Report to Shareholders for the year ended December 31,
1998, which are incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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Reference is made to "Election of Directors" on pages 3 through 5 of
the Company's definitive Proxy Statement dated March 19, 1999, which is
incorporated herein by reference.
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Reference is made to "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" on page 12 of the Company's definitive
Proxy Statement dated March 19, 1999, which is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
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Reference is made to "Executive Compensation" on pages 6 through 10
of the Company's definitive Proxy Statement dated March 19, 1999, which is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
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MANAGEMENT
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Reference is made to "Principal Shareholders" on pages 11 and 12 of
the Company's definitive Proxy Statement dated March 19, 1999, which is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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Reference is made to "Certain Transactions" on page 10 of the
Company's definitive Proxy Statement dated March 19, 1999, which is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
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8 - K
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(a) 1. Financial Statements.
Pages in 1998 Annual
Report to Shareholders
incorporated by reference
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Report of Independent Auditors 25
Consolidated Balance Sheets 26
Consolidated Statements of Income 27
Consolidated Statements of Changes
in Shareholders' Equity 28
Consolidated Statements of Cash Flows 29
Notes to Consolidated Financial Statements 30 through 49
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, 1998.
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SIGNATURES
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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 25, 1999
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MISSISSIPPI VALLEY BANCSHARES, INC.
By /s/ Paul M. Strieker
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Paul M. Strieker
Executive Vice President, Controller,
Assistant Secretary and Chief
Financial Officer
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MISSISSIPPI VALLEY BANCSHARES, INC.
Exhibit Index
Form 10-K
1998
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Exhibit
Number Description of Exhibit Page
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<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 Exhibit 4.1 to the Company's Registration
Statement No. 333-22055 on Form S-3.
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Exhibit
Number Description of Exhibit Page
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4.4.2 Form of Subordinated Debenture (included as an Exhibit to Exhibit
4.4.1), incorporated by reference to Exhibit 4.2 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 Exhibit 4.3 to the Company's Registration
Statement No. 333-22055 on Form S-3.
4.4.4 Trust Agreement of MVBI Capital Trust dated February 14, 1997,
incorporated by reference to Exhibit 4.4 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 Exhibit 4.5 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, incorporated by reference to Exhibit 4.7
to the Company's Registration Statement No. 333-22055 on Form S-3.
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 Southwest Bank of St. Louis
(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,
incorporated by reference to Exhibit 10.2.3 to the Company's Annual
Report on Form 10-K for its fiscal year ended December 31, 1995.
10.2.4 Consulting Agreement between the Bank, Company and Linn H. Bealke,
incorporated by reference to Exhibit 10.2.4 to the Company's Annual
Report on Form 10-K for its fiscal year ended December 31, 1995.
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<CAPTION>
Exhibit
Number Description of Exhibit Page
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<C> <S> <C>
10.2.5 Southwest Bank of St. Louis Supplemental Retirement Plan, incorporated
by reference to Exhibit 10.2.5 to the Company's Annual Report on Form
10-K for its fiscal year ended December 31, 1995.
10.2.6 Management Retention Agreement between the Bank and Mary P. Sherrill.
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
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.
incorporated by reference to Exhibit 10.4 to the Company's Annual
Report on Form 10-K for its fiscal year ended December 31, 1997
13. Registrant's Annual Report to Shareholders for the year ended December
31, 1998 (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.
23. Consent of Independent Auditors
24. Power of Attorney is contained on page 10 and 11 hereof
</TABLE>
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POWER OF ATTORNEY
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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
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<S> <C> <C>
/s/ John T. Baumstark Director March 17, 1999
- -----------------------------
John T. Baumstark
/s/ Andrew N. Baur Chairman and Chief Executive March 17, 1999
- ----------------------------- Officer of the Registrant and
Andrew N. Baur Southwest Bank of St. Louis;
Director
/s/ Linn H. Bealke President and Director of the March 22, 1999
- ----------------------------- Registrant; Vice Chairman of
Linn H. Bealke Southwest Bank of St. Louis
Director
- -----------------------------
Alice C. Behan
Director
- -----------------------------
William H. T. Bush
Director
- -----------------------------
Franklin J. Cornwell Jr.
/s/ Theodore P. Desloge, Jr. Director March 17, 1999
- -----------------------------
Theodore P. Desloge, Jr.
/s/ Louis N. Goldring Director March 19, 1999
- -----------------------------
Louis N. Goldring
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/s/ Richard T. Grote Director March 22, 1999
- -----------------------------
Richard T. Grote
Director
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Frederick O. Hanser
Director
- -----------------------------
Donna D. Lambert
Director
- -----------------------------
Michael D. Latta
/s/ Mont S. Levy Director March 17, 1999
- -----------------------------
Mont S. Levy
/s/ Lewis B. Shepley Director March 17, 1999
- -----------------------------
Lewis B. Shepley
/s/ Paul M. Strieker Executive Vice President, March 15, 1999
- ----------------------------- Controller, Assistant Secretary
Paul M. Strieker and Chief Financial Officer of the
Registrant; Executive Vice
President of Southwest Bank of
St. Louis
</TABLE>
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EMPLOYMENT CONTINUATION AGREEMENT
---------------------------------
This Employment Continuation Agreement ("Agreement") is entered
into on January 29, 1993, between Southwest Bank of St. Louis (the
"Bank") and Mary P. Sherrill (the "Employee").
WHEREAS, the Bank and the Employee recognize that the possibility
of a change in control of the Bank or its holding company exists and
that such possibility, and the uncertainty and questions which it may
raise among management during a transition period brought about by such
a change in control, may result in the departure or distraction of
management personnel to the detriment of the Bank and its shareholders,
and
WHEREAS, the Bank had determined that appropriate steps should be
taken to reinforce and encourage the continued attention of the Bank's
management to their assigned duties without distraction resulting from
the possibility of such a change in control, and
WHEREAS, the Employee is currently employed by the Bank in an
executive capacity, and is willing to consider continuing to serve the
Bank during the transaction period preceding a change in control despite
the uncertainty as to future employment opportunities which would be
occasioned by such a change in control, upon the considerations
hereinafter provided;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Bank and the Employee hereby agree as
follows:
1. Definitions. For the purposes of this Agreement, the
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following terms shall have the meanings indicated:
(a) "Change in Control" shall mean any of the following:
(i) A sale, merger or consolidation of Mississippi Valley
Bancshares, Inc. ("MVBI") whereby new ownership controls more than
51% of the outstanding stock; or
(ii) A sale of Southwest Bank of St. Louis to a third party
which is not controlled by Mississippi Valley Bancshares, Inc.
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(b) "Change in Control Notification" shall mean the occurrence of
any of the following after the execution of this Agreement:
(i) The approval by the Board of Directors of the Bank or
MVBI of a Change in Control or of negotiations relating to a
possible Change in Control; or
(ii) The execution by the Bank or MVBI of a letter of
intent (whether binding or non-binding) or contract with respect
to a contemplated Change in Control; or
(iii) The filing by the Bank or MVBI of an application or
notice relating to a Change in Control with any regulatory agency
having the power to approve or disapprove such Change in Control,
or the receipt by the Bank or MVBI of knowledge that any other
person or entity has filed such an application or notice (the Bank
and MVBI shall be deemed to have received such knowledge not later
than the publication date of any notice published pursuant to any
law or regulation relating to the proposed Change in Control).
(c) "Effective Date" shall mean the date, if any, on which the
Change in Control contemplated by any given Change in Control
Notification becomes effective.
(d) "Cause" for termination of employment by either party shall
mean only (i) pursuant to an order of any federal or state regulatory
authority having jurisdiction over the Bank or MVBI, (ii) conviction of
a crime, or (iii) a material breach of this Agreement by the non-
terminating party, or (iv) a breach of the non-terminating party's
duties pursuant to the parties' employment relationship causing material
financial or economic harm to the terminating party.
2. Covenants of the Employee. The Employee hereby covenants to
-------------------------
and with the Bank that if the Employee is an employee of the Bank on the
date of any Change in Control Notification, then during the period
beginning on such date and ending either (A) on the related Effective
Date or (B) on such date, if any, as the proposed Change in Control is
finally abandoned by the parties, the Employee will not without the
consent of the Bank voluntarily resign his employment except (i) for
reasons not within the control of the Employee (such as transfer of a
spouse, or illness of the Employee or a close family member), or (ii)
for Cause.
3. Covenants of the Bank.
---------------------
(a) The Bank hereby covenants to and with the Employee that if
the Employee is an employee on the date of a Change in Control, and if
the Employee's employment is terminated
-2-
<PAGE>
<PAGE>
(i) by the Bank other than for Cause, during the period
beginning on the date of such Change in Control and ending after one
year from that date, or
(ii) due to the Employee's decision to leave for any reason other
than Cause, beginning on the date of Change in Control and ending one
year after such date,
then for a period of one year beginning on the date of termination of
the Employee's employment the Bank will pay to the Employee or the
Employee's personal or legal representative, as the case may be, in the
same amounts and at the same times as it would have been paid had the
Employee's employment continued, compensation at a rate equal to the
Employee's base compensation in effect on either the Effective Date or
the date of termination of the Employee's employment, whichever rate is
greater.
4. Not a Contract of Current Employment. The Bank and the
------------------------------------
Employee mutually agree and acknowledge that nothing in this Agreement
is intended to obligate either party to continue the employment of the
Employee by the Bank until or for any period of time prior to the
Contract Date or the Effective Date.
5. Payment of Expenses. In addition to any other rights of the
-------------------
Employee hereunder, the Bank agrees that if any amounts owing under this
Agreement are not paid when due, and if the Employee retains legal
counsel in connection with the enforcement of the Employee's rights
hereunder, the Bank shall pay or reimburse the Employee for all costs
and expenses, including reasonable attorneys' fees, incurred by the
employee in enforcing such rights.
6. Termination. In the event that the Employee's employment by
-----------
the Bank terminates for any reason prior to the Effective Date, or if
this Agreement is disapproved by any regulatory authority having
jurisdiction over the Bank or MVBI, this Agreement shall thereupon
automatically terminate and neither party shall have any further
liability hereunder.
IN WITNESS WHEREOF, the Bank and the Employee have executed this
Agreement on the date first above written.
THE BANK: SOUTHWEST BANK OF ST. LOUIS
By: /s/ Andrew N. Baur
-------------------------------
Title: Chairman
----------------------------
THE EMPLOYEE: /s/ Mary P. Sherrill
-----------------------------------
Mary P. Sherrill
-3-
<PAGE>
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
1998 High Low Close Period To Book Value Declared
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4th Quarter $ 37 3/8 $ 30 $ 33 3/4 $ 12.43 271.52% $ .09
3rd Quarter 38 34 3/8 36 1/8 12.26 294.66 .08
2nd Quarter 42 1/2 38 39 1/2 11.19 352.99 .08
1st Quarter 45 30 1/4 41 3/4 10.80 386.57 .08
1997
- ----------------------------------------------------------------------------------------------------------------
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
<CAPTION>
December 31
---------------------------------------
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
Average shares outstanding 9,548,127 9,396,320 9,023,638
Year-end shares outstanding 9,491,912 9,519,212 9,033,912
Shareholders of record 534 526 471
Average daily volume <F1> 8,165 5,730 3,922
<FN>
<F1> Per NASDAQ National Market System
</TABLE>
8
<PAGE>
<PAGE>
Financial Review
- -------------------------------------------------------------------------
Selected Consolidated Financial Data
The following table presents selected consolidated financial information
for Mississippi Valley Bancshares, Inc. (the "Company"), and its
wholly-owned subsidiaries, Southwest Bank of St. Louis, Southwest Bank,
Belleville (the "Banks") and MVBI Capital Trust for each of the five
years ended December 31, 1998. 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>
----------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data
Interest income $ 102,836 $ 95,254 $ 79,719 $ 70,402 $ 53,036
Interest expense 53,593 52,243 40,811 38,295 23,883
----------------------------------------------------------------------
Net interest income 49,243 43,011 38,908 32,107 29,153
Provision for possible loan losses 4,450 4,100 3,875 2,560 2,680
----------------------------------------------------------------------
Net interest income after provision
for possible loan losses 44,793 38,911 35,033 29,547 26,473
Noninterest income 8,383 5,596 5,061 4,095 2,736
Noninterest expense 23,610 21,024 18,242 16,438 14,993
----------------------------------------------------------------------
Income before income taxes 29,566 23,483 21,852 17,204 14,216
Income taxes 10,955 8,470 7,756 6,457 5,584
----------------------------------------------------------------------
Net income $ 18,611 $ 15,013 $ 14,096 $ 10,747 $ 8,632
======================================================================
Dividends
Preferred stock $ $ $ 231 $ 231 $ 231
Common stock 3,149 2,631 2,121 1,514 1,192
Ratio of total dividends declared to
net income 16.92% 17.52% 16.69% 16.24% 16.49%
Per Share Data <F1>
Earnings per common share:
Basic $ 1.95 $ 1.60 $ 1.54 $ 1.18 $ .96
Diluted 1.91 1.55 1.46 1.12 .90
Common stock cash dividends .33 .28 .235 .17 .13625
Average common shares and common
share equivalents outstanding 9,747,564 9,700,928 9,582,886 9,517,616 9,488,914
Diluted book value (period end) $ 12.43 $ 10.31 $ 8.45 $ 7.47 $ 5.87
Balance Sheet Data (at period end)
Securities $ 438,902 $ 375,916 $ 287,651 $ 327,652 $ 176,674
Loans, net of unearned discount 925,961 847,091 731,019 623,777 563,477
Total assets 1,430,057 1,299,918 1,065,777 995,048 772,015
Total deposits 1,211,805 1,126,562 918,012 886,565 658,956
Total long-term debt 14,950 14,950 2,700 2,700 3,240
Common shareholders' equity 109,778 93,107 75,949 67,607 52,250
Total shareholders' equity 109,778 93,107 75,949 70,107 54,750
Selected Ratios
Return on average total assets 1.40% 1.25% 1.40% 1.22% 1.21%
Return on average total shareholders' equity 18.09 17.77 19.07 17.34 16.61
Net interest margin 3.86 3.73 4.01 3.80 4.26
Efficiency ratio <F2> 40.78 43.03 41.25 45.06 46.59
Average assets per employee $ 5,504 $ 5,220 $ 4,740 $ 4,426 $ 3,938
Asset Quality Ratios
Allowance for possible loan losses to loans 1.96% 1.76% 1.73% 1.73% 1.70%
Nonperforming loans to loans <F3> .17 .26 .92 .75 .39
Allowance for possible loan losses
to nonperforming loans <F3> 1,156.41 679.69 188.14 230.14 440.64
Nonperforming assets to loans and
foreclosed assets <F4> .19 .43 .99 .75 .40
Net loan charge-offs to average loans .14 .23 .30 .23 .16
Capital Ratios
Average shareholders' equity to
average assets 7.76% 7.04% 7.32% 7.03% 7.29%
Total risk-based capital ratio 13.22 13.23 11.45 11.64 11.45
Leverage ratio 8.56 8.04 7.20 6.70 7.33
<PAGE>
<FN>
- ------------------------------------------------------------------------
<F1> All 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>
<PAGE>
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 1998 was $18,611,000, an increase of
$3,598,000 or 24.0% above 1997 earnings. On a diluted per share basis,
net income for 1998 was $1.91, up 23.2% from $1.55 in the previous year.
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 $4,450,000,
up from $4,100,000 in the prior year as loans increased $79 million
during 1998. Net loan charge-offs in 1998 were $1.2 million, down from
$1.8 million in 1997. Gains on sales of available for sale securities of
$1,539,000 in 1998 compared to $85,000 in 1997, plus greater net trading
profits and commissions were primarily responsible for the increased
noninterest income in 1998. Comparative noninterest expenses were
$23,610,000, up $2,586,000 or 12.3% from the year earlier due in part to
operating costs for the Belleville office which opened in September
1998. Overall operating efficiencies improved from last year as net
interest income and noninterest income growth outpaced the overhead
expense increase.
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 were favorable
compared against peer averages.
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 1998, 1997, 1996 and 1995 and 34% in previous years. The
tax-equivalent adjustments were approximately $263,000, $251,000,
$249,000, $279,000, and $289,000 for each of the five years ended
December 31, 1998, 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 six bank
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>
<PAGE>
Years Ended December 31, 1998 and 1997
Total tax-equivalent interest income for 1998 was $103,099,000, up
$7,594,000 or 8.0% above $95,505,000 in 1997. The increase in interest
income was generated by growth in average loans outstanding of $73
million and securities increases of $49 million above prior year levels.
Offsetting a portion of the benefits of asset growth were the lower
yields earned on all assets. Total loan yields declined to 8.88% in
1998, down from 9.07% in 1997 as loan yields dropped with an average
prime rate of 8.33% in 1998, compared with 8.44% in 1997. Total earning
asset yields fell to 8.05%, down 19 basis points from 8.24% in 1997.
Funding of the 1998 asset growth was accomplished primarily with funds
raised in connection with the money market deposit account promotion
during the last half of 1997. A decline in time deposits was partially
offset with increased short-term borrowings, demand deposits and
shareholders' equity.
Total interest expense increased to $53,593,000 in 1998, up from
$52,243,000 in 1997. The increase was primarily a result of the net
increase in interest bearing deposits, specifically money market
accounts. Offsetting a substantial portion of the increased interest
expense generated by the greater volume of deposits were the lower rates
paid on all interest bearing liabilities except long-term debt. Overall
rates paid on total interest bearing liabilities fell to 4.80% from
5.13% paid in 1997.
Total net interest income increased to $49,506,000, up $6,244,000 from
1997 as greater interest income exceeded the higher interest expense
costs. The Company's net interest margin improved to 3.86% from 3.73%
the previous year as the decline in interest bearing liability rates,
primarily money market accounts, exceeded the drop in earning asset
yields.
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.
Funding the 1997 asset growth was done 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
Company launched an aggressive money market deposit account promotion.
The account offering provided an attractive guaranteed rate and
successfully raised over $200 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%
the previous year as the increase in interest bearing liability rates,
primarily money market accounts, exceeded the lesser increase in asset
yields.
11
<PAGE>
<PAGE>
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
------------------------------ -------------------------------
1998 1997
------------------------------ -------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------------------------------ -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans<F1><F2>
Taxable $ 882,613 $ 78,402 8.88% $ 810,038 $73,447 9.07%
Tax exempt<F3>
Held to maturity securities
Taxable 39,310 2,501 6.36 43,172 2,887 6.69
Tax-exempt<F3> 8,270 853 10.32 7,784 820 10.54
Available for sale securities 322,154 19,755 6.13 270,121 16,779 6.21
Trading account securities 930 60 6.41 914 62 6.80
Federal funds sold and other
short-term investments 28,177 1,528 5.42 27,357 1,510 5.52
------------------------------ -------------------------------
Total interest-earning assets 1,281,454 103,099 8.05 1,159,386 95,505 8.24
------------------------------ -------------------------------
Noninterest-earning assets:
Cash and due from banks 24,543 25,539
Bank premises and equipment 15,928 12,264
Other assets 20,425 16,994
Allowance for possible
loan losses (15,871) (13,658)
------------------------------ -------------------------------
Total assets $1,326,479 $1,200,525
============================== ===============================
Liabilities and
Shareholders' Equity
Interest-bearing liabilities:
NOW accounts $ 25,565 $ 419 1.64% $ 22,438 $ 383 1.71%
Money market accounts 631,451 29,311 4.64 457,914 22,716 4.96
Savings deposits 24,127 713 2.96 22,820 675 2.96
Time deposits of $100,000
or more 35,415 1,860 5.25 37,244 2,008 5.39
Other time deposits 317,377 16,935 5.34 410,766 22,717 5.53
------------------------------ -------------------------------
Total interest-bearing deposits 1,033,935 49,238 4.76 951,182 48,499 5.10
Federal funds purchased,
repurchase agreements and
other short-term borrowings 66,777 3,262 4.88 54,549 2,780 5.10
Convertible debentures 666 54 8.00
Guaranteed preferred
beneficial interests in
subordinated debentures 14,950 1,093 7.31 12,369 910 7.36
------------------------------ -------------------------------
Total interest-bearing liabilities 1,115,662 53,593 4.80 1,018,766 52,243 5.13
------------------------------ -------------------------------
Noninterest-bearing liabilities:
Demand deposits 103,969 93,707
Other liabilities 3,968 3,554
Shareholders' equity 102,880 84,498
------------------------------ -------------------------------
Total liabilities and
shareholders' equity $1,326,479 $1,200,525
============================== ===============================
Net interest income $ 49,506 $43,262
============================== ===============================
Net interest margin 3.86% 3.73%
============================== ===============================
<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%. The tax-equivalent adjustments were approximately
$263,000, $251,000, $249,000, $279,000, and $289,000 for the
years ended December 31, 1998, 1997, 1996, 1995, and 1994,
respectively.
12
<PAGE>
<PAGE>
- ------------------------------------------------------------------------
<CAPTION>
Twelve Months Ended December 31
------------------------------ -----------------------------
1996 1995
------------------------------ -----------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans<F1><F2>
Taxable $ 674,176 $60,678 9.00% $584,790 $53,553 9.16%
Tax exempt<F3> 17 1 5.59 959 84 8.77
Held to maturity securities
Taxable 65,391 4,356 6.66 135,317 8,342 6.16
Tax-exempt<F3> 7,477 811 10.85 7,478 816 10.91
Available for sale securities 214,417 13,301 6.20 103,646 6,725 6.49
Trading account securities 771 47 6.17 743 49 6.65
Federal funds sold and other
short-term investments 14,278 774 5.42 19,017 1,112 5.85
------------------------------ -----------------------------
Total interest-earning assets 976,527 79,968 8.19 851,950 70,681 8.30
------------------------------ -----------------------------
Noninterest-earning assets:
Cash and due from banks 22,696 20,818
Bank premises and equipment 10,579 8,019
Other assets 11,491 10,329
Allowance for possible
loan losses (11,633) (10,304)
------------------------------ -----------------------------
Total assets $1,009,660 $880,812
============================== =============================
Liabilities and
Shareholders' Equity
Interest-bearing liabilities:
NOW accounts $ 20,323 $ 348 1.71% $ 19,213 $ 419 2.18%
Money market accounts 336,586 14,104 4.19 246,558 12,528 5.08
Savings deposits 22,588 671 2.97 22,466 662 2.94
Time deposits of $100,000
or more 34,518 1,820 5.27 38,102 2,098 5.51
Other time deposits 389,427 21,388 5.49 359,896 19,427 5.40
------------------------------ -----------------------------
Total interest-bearing deposits 803,442 38,331 4.77 686,235 35,134 5.12
Federal funds purchased,
repurchase agreements and
other short-term borrowings 44,744 2,264 5.06 50,028 2,918 5.83
Convertible debentures 2,700 216 8.00 2,968 243 8.19
Guaranteed preferred
beneficial interests in
subordinated debentures
------------------------------ -----------------------------
Total interest-bearing liabilities 850,886 40,811 4.80 739,231 38,295 5.18
------------------------------ -----------------------------
Noninterest-bearing liabilities:
Demand deposits 82,258 77,439
Other liabilities 2,602 2,179
Shareholders' equity 73,914 61,963
------------------------------ -----------------------------
Total liabilities and
shareholders' equity $1,009,660 $880,812
============================== =============================
Net interest income $39,157 $32,386
============================== =============================
Net interest margin 4.01% 3.80%
============================== =============================
<PAGE>
- ------------------------------------------------------------------------
<CAPTION>
Twelve Months Ended December 31
----------------------------
1994
----------------------------
Interest
Average Income/ Yield/
Balance Expense Rate
----------------------------
<S> <C> <C> <C>
Assets
Interest-earning assets:
Loans<F1><F2>
Taxable $535,422 $44,315 8.25%
Tax exempt<F3> 1,474 134 9.10
Held to maturity securities
Taxable 95,941 5,079 5.29
Tax-exempt<F3> 7,626 817 10.71
Available for sale securities 44,433 2,706 6.09
Trading account securities 1,410 76 5.38
Federal funds sold and other
short-term investments 4,548 198 4.35
----------------------------
Total interest-earning assets 690,854 53,325 7.72
----------------------------
Noninterest-earning assets:
Cash and due from banks 17,384
Bank premises and equipment 5,949
Other assets 7,234
Allowance for possible
loan losses (8,578)
----------------------------
Total assets $712,843
============================
Liabilities and
Shareholders' Equity
Interest-bearing liabilities:
NOW accounts $ 17,992 $ 328 1.83%
Money market accounts 163,488 4,993 3.05
Savings deposits 24,679 729 2.95
Time deposits of $100,000
or more 26,921 1,187 4.41
Other time deposits 315,659 14,828 4.70
----------------------------
Total interest-bearing deposits 548,739 22,065 4.02
Federal funds purchased,
repurchase agreements and
other short-term borrowings 38,591 1,548 4.01
Convertible debentures 3,240 270 8.33
Guaranteed preferred
beneficial interests in
subordinated debentures
----------------------------
Total interest-bearing liabilities 590,570 23,883 4.04
----------------------------
Noninterest-bearing liabilities:
Demand deposits 69,438
Other liabilities 853
Shareholders' equity 51,982
----------------------------
Total liabilities and
shareholders' equity $712,843
============================
Net interest income $29,442
============================
Net interest margin 4.26%
============================
</TABLE>
13
<PAGE>
<PAGE>
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
December 31, 1998 December 31, 1997
Compared to Compared to
December 31, 1997 December 31, 1996
------------------------------------------- -------------------------------------------
Increase (decrease) attributable to change in:
Yield/ Net Yield/ Net
Volume Rate Change Volume Rate Change
------------------------------------------- -------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans<F1><F2> $ 6,511 $(1,556) $ 4,955 $12,293 $ 475 $12,768
Held to maturity securities
Taxable (249) (137) (386) (1,489) 20 (1,469)
Tax-exempt<F1> 50 (17) 33 32 (23) 9
Available for sale
securities 3,194 (218) 2,976 3,457 21 3,478
Trading account
securities 1 (3) (2) 10 5 15
Federal funds sold
and other short-
term investments 45 (27) 18 722 14 736
------------------------------------------- -------------------------------------------
TOTAL
INTEREST INCOME 9,552 (1,958) 7,594 15,025 512 15,537
------------------------------------------- -------------------------------------------
Interest paid on:
NOW accounts 52 (16) 36 35 35
Money market
accounts 8,140 (1,545) 6,595 5,704 2,908 8,612
Savings 38 38 6 (2) 4
Time deposits of
$100,000 or more (97) (51) (148) 146 42 188
Other time deposits (5,023) (759) (5,782) 1,173 156 1,329
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 554 (72) 482 461 55 516
Long-term
borrowings 64 65 129 374 374 748
------------------------------------------- -------------------------------------------
TOTAL INTEREST
EXPENSE 3,728 (2,378) 1,350 7,899 3,533 11,432
------------------------------------------- -------------------------------------------
NET INTEREST
INCOME $ 5,824 $ 420 $ 6,244 $ 7,126 $(3,021) $ 4,105
=========================================== ===========================================
<PAGE>
<CAPTION>
-------------------------------------------
Year Ended
December 31, 1996
Compared to
December 31, 1995
-------------------------------------------
Increase (decrease) attributable to change in:
Yield/ Net
Volume Rate Change
-------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Interest earned on:
Loans<F1><F2> $ 7,997 $ (955) $ 7,042
Held to maturity securities
Taxable (4,617) 631 (3,986)
Tax-exempt<F1> (5) (5)
Available for sale
securities 6,890 (314) 6,576
Trading account
securities 2 (4) (2)
Federal funds sold
and other short-
term investments (261) (77) (338)
-------------------------------------------
TOTAL
INTEREST INCOME 10,011 (724) 9,287
-------------------------------------------
Interest paid on:
NOW accounts 24 (95) (71)
Money market
accounts 4,039 (2,463) 1,576
Savings 3 6 9
Time deposits of
$100,000 or more (190) (88) (278)
Other time deposits 1,630 331 1,961
Federal funds purchased,
repurchase agreements
and other short-term
borrowings (453) (201) (654)
Long-term
borrowings (14) (13) (27)
-------------------------------------------
TOTAL INTEREST
EXPENSE 5,039 (2,523) 2,516
-------------------------------------------
NET INTEREST
INCOME $ 4,972 $ 1,799 $ 6,771
===========================================
<FN>
- ---------------------------------------------------------------------------
<F1> Information is presented on a tax-equivalent basis assuming a tax
rate of 35%. The approximate tax equivalent adjustments were
$263,000, $251,000, $249,000 and $279,000 for the years ended
December 31, 1998, 1997, 1996, and 1995, 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, 1998, total loans were up
approximately $79 million. Loan growth occurred in all major categories,
except 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>
<PAGE>
Lending And Credit Management-continued
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ ------------------------
Amount % Amount % Amount %
------------------------ ------------------------ ------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial,
agricultural, municipal
and industrial development $434,467 46.9% $369,559 43.6% $339,460 46.4%
Real estate construction 40,019 4.3 37,536 4.4 17,149 2.3
Real estate mortgage:
One to four family
residential loans 103,140 11.1 117,105 13.8 113,035 15.5
Other real estate loans 328,493 35.4 307,624 36.3 251,618 34.4
Lease financing 10,175 1.1 7,199 .8 3,204 .4
Installment and consumer 10,748 1.2 8,912 1.1 6,962 1.0
------------------------ ------------------------ ------------------------
TOTAL LOANS $927,042 100.0% $847,935 100.0% $731,428 100.0%
======================== ======================== ========================
<CAPTION>
1995 1994
------------------------ ------------------------
Amount % Amount %
------------------------ ------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial,
agricultural, municipal
and industrial development $288,318 46.2% $259,401 46.0%
Real estate construction 14,312 2.3 13,010 2.3
Real estate mortgage:
One to four family
residential loans 107,386 17.2 97,922 17.4
Other real estate loans 206,105 33.0 185,805 33.0
Lease financing 941 .2 1,108 .2
Installment and consumer 6,798 1.1 6,352 1.1
------------------------ ------------------------
TOTAL LOANS $623,860 100.0% $563,598 100.0%
======================== ========================
</TABLE>
The following table sets forth the remaining maturities for loans as of
December 31, 1998.
<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 $278,453 $ 61,265 $ 84,012 $ 7,996 $2,741 $434,467
Real estate construction 23,832 5,966 10,221 40,019
Real estate mortgage 107,674 240,753 22,133 59,001 2,072 431,633
Lease financing 2,328 7,847 10,175
Installment and consumer 8,447 2,196 105 10,748
-------- -------- -------- ------- ------ --------
TOTAL LOANS $420,734 $318,027 $116,471 $66,997 $4,813 $927,042
======== ======== ======== ======= ====== ========
</TABLE>
The Company makes the majority 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, 1998, 88% 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.
<PAGE>
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. Management continuously evaluates the
allowance for possible loan losses to ensure its adequacy to absorb loan
losses inherent in the loan portfolio. General reserves are established
based on the loan rating system which focuses on historical loss
experience and trends in delinquencies and nonperforming loans. The
unallocated reserve serves to compensate for the uncertainty in
estimating loan losses, including the possibility of changes in risk
ratings of loans, the overall level of non-performing loans, and current
economic conditions. 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. This review considers items such as a review
of specifically identified loans, current economic conditions, loan
growth and the overall characteristics of the loan portfolio.
During the last half of 1998, the allowance for possible loan losses was
increased to 1.96% of loans. This is above the 1.73% average we have
maintained for the previous four years. Loan growth in 1998 was
concentrated in commercial loans which are generally higher risk than
residential real estate loans. Commercial loans as a percentage of the
total loan portfolio continued to increase in 1998 to 88%, while
residential real estate loans decreased to 11% of the portfolio.
Unfunded loan commitments have also increased as the commercial loan
portfolio has grown. Management believes that there are still
significant risks in the economy with falling commodity prices and a
historically high stock market. In view of these factors, the allowance
for possible loan losses was increased in 1998. Management believes that
the level of allowance for possible loan losses is adequate 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.
15
<PAGE>
<PAGE>
Financial Review (continued)
- ------------------------------------------------------------------------
Lending And Credit Management-continued
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, 1998 was adequate.
The table below 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.
Gross interest income on nonaccrual and restructured loans, which would
have been recorded under the original terms of the loans, was
approximately $278,000 in 1998, $270,000 in 1997, and $298,000 in 1996.
Of this amount, approximately $159,000, $195,000 and $157,000 was
actually recorded as interest income on such loans in 1998, 1997 and
1996, respectively.
As of December 31, 1998, the Company had approximately $1.6 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.
<TABLE>
Summary Of Loan Loss Experience And Related Information
<CAPTION>
------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses
(beginning of period) $ 14,892 $ 12,624 $ 10,789 $ 9,575 $ 7,756
------------------------------------------------------------------------
Loans charged off:
Commercial and industrial (1,958) (2,071) (2,371) (676) (105)
Real estate mortgage (200) (726) (471) (1,022) (1,248)
Installment (74) (34) (16) (10) (66)
------------------------------------------------------------------------
TOTAL LOANS CHARGED OFF (2,232) (2,831) (2,858) (1,708) (1,419)
------------------------------------------------------------------------
Recoveries of loans previously
charged off:
Commercial and industrial 925 705 662 303 371
Real estate mortgage 104 290 142 30 162
Installment 5 4 14 29 9
Other 16
------------------------------------------------------------------------
TOTAL RECOVERIES 1,034 999 818 362 558
------------------------------------------------------------------------
Net loans charged off (1,198) (1,832) (2,040) (1,346) (861)
------------------------------------------------------------------------
Provision for possible loan losses 4,450 4,100 3,875 2,560 2,680
------------------------------------------------------------------------
Allowance for possible loan losses
(end of period) $ 18,144 $ 14,892 $ 12,624 $ 10,789 $ 9,575
========================================================================
Loans outstanding:
Average $882,613 $810,038 $674,193 $585,749 $536,896
End of period 925,961 847,091 731,019 623,777 563,477
Ratio of allowance for possible
loan losses to loans outstanding:
Average 2.06% 1.84% 1.87% 1.84% 1.78%
End of period 1.96 1.76 1.73 1.73 1.70
Ratio of net charge-offs to average
loans outstanding .14 .23 .30 .23 .16
Percent of categories to total loans:
Commercial, industrial and
marketable security loans 46.86% 43.58% 46.41% 46.22% 46.03%
Commercial loans secured by
real estate 35.43 36.28 34.42 33.04 32.97
Construction and land
development loans 4.32 4.43 2.35 2.29 2.31
Real estate mortgage 11.13 13.81 15.46 17.21 17.37
Lease financing 1.10 .85 .41 .15 .19
Consumer loans 1.16 1.05 .95 1.09 1.13
------------------------------------------------------------------------
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00%
========================================================================
<PAGE>
Allocation of allowance for possible
loan losses at end of period:
Commercial and industrial $ 6,431 $ 4,706 $ 4,162 $ 3,435 $ 3,038
Real estate mortgage 4,165 4,502 4,097 3,164 2,772
Installment 90 76 51 49 47
Lease financing 77 54 27 8 9
Unallocated 7,381 5,554 4,287 4,133 3,709
------------------------------------------------------------------------
TOTAL $ 18,144 $ 14,892 $ 12,624 $ 10,789 $ 9,575
========================================================================
</TABLE>
16
<PAGE>
<PAGE>
Nonperforming Assets
The following table summarizes nonperforming assets by category.
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, industrial and marketable
security loans:
Nonaccrual $ 1,118 $ 638 $ 2,251 $ 1,551 $ 877
Past due 90 days or more 11
Restructured terms 101 93 250 212 738
Commercial loans secured by real estate:
Nonaccrual 254 522 1,698 35
Past due 90 days or more 13
Restructured terms
Construction and land development loans:
Nonaccrual 2,320
Past due 90 days or more
Restructured terms
Real estate mortgage:
Nonaccrual 336 1,122 623 523 500
Past due 90 days or more 131 179
Restructured terms 500 500
Consumer loans:
Nonaccrual 3 65 29 6 22
Past due 90 days or more 22 1
Restructured terms 11 19 38 19
------------------------------------------------------------------------
TOTAL NONPERFORMING LOANS 1,569 2,191 6,710 4,688 2,173
Other real estate 160 1,421 569 72
------------------------------------------------------------------------
TOTAL NONPERFORMING ASSETS $ 1,729 $ 3,612 $ 7,279 $ 4,688 $ 2,245
========================================================================
Loans, net of unearned discount $ 925,961 $847,091 $731,019 $623,777 $563,477
Allowance for possible loan losses to loans 1.96% 1.76% 1.73% 1.73% 1.70%
Nonperforming loans to loans .17 .26 .92 .75 .39
Allowance for possible loan losses to
nonperforming loans 1,156.41 679.69 188.14 230.14 440.64
Nonperforming assets to loans and
foreclosed assets .19 .43 .99 .75 .40
</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 Company 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 Company's efforts to
attract quality loans, the Company will invest in securities provided
such investment is consistent with the asset sensitivity objective of
the Company and adds to the Company's earnings. This is consistent with
the Company's objective of maximizing return on equity to a larger
extent than return on assets.
As of December 31, 1998 and 1997, securities held in the Trading Account
were $302,000 and $1,251,000, respectively. Available for Sale
securities were $400,087,000 at the end of 1998 and $317,768,000 at the
end of 1997. Held to maturity securities were $38,815,000 at the end of
1998 and $58,148,000 at the end of 1997.
The Company 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.
With moderate loan demand in early 1998, the Company sold some
investment securities to meet loan funding needs. The sales resulted in
gains of approximately $574,000.
17
<PAGE>
<PAGE>
Financial Review (continued)
- ------------------------------------------------------------------------
Investment Portfolio-continued
Beginning in June 1998, the Company continued to expand the liability
sensitive position it had initiated in 1997. As such, U.S. Treasury and
Agency securities with maturities of five and ten years were purchased.
In the latter half of 1998 interest rates fell to lower levels,
especially in the longer end of the yield curve. As a result, the
Company shortened the duration of the entire portfolio with the sale of
a portion of its long-term U.S. Treasury securities. These sales yielded
an additional profit of $858,000.
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, 1998, 90% 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, 1998, 87% of the Company's
Available for Sale securities were U.S. Government and U.S. Agency
obligations. Nine 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, 1998, the Company owned $4.6 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 Company has a small amount of "bank qualified" tax
exempt securities. The total amount of these issues as of December 31,
1998, was $3.7 million. Southwest Bank of St. Louis became a member of
the Federal Home Loan Bank in 1993, which required an initial equity
investment of $1.8 million. Since that time, Southwest Bank of St.
Louis' borrowings from the Federal Home Loan Bank have required an
increase in that investment and as of December 31, 1998 the Bank's
investment was $3.9 million.
As of December 31, 1998, 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 $35,002 $ 71,416 $ 5,230 $20,689 6.59%
Obligations of United States
Government agencies 121,336 142,306 12,330 5.94
PHA bonds guaranteed by the United
States Government<F1> 1,246 2,575 591 11.25
States and political subdivisions<F1> 1,210 1,426 1,056 8.93
Federal Home Loan Bank stock and other 3,861 9,006 8.91
------------------------------------------------------------------------
TOTAL SECURITIES<F2> $38,863 $195,208 $151,537 $43,672 6.47%
========================================================================
Weighted average yield<F1> 8.30% 5.89% 6.38% 8.32%
========================================================================
<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%.
<F2> Available for sale securities are stated at amortized cost.
</TABLE>
Deposits
Deposits are the principal source of funds for the Company. At December
31, 1998, the Company's total deposits were $1.212 billion. Deposits
consist primarily of core deposits from the local market areas
surrounding each of the Company's offices. The Company 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>
<PAGE>
Deposits-continued
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------------------------
Percent Percent
of of
Amount Deposits Rate Amount Deposits Rate
----------------------------------------- -----------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 125,235 10.33% $ 109,949 9.76%
NOW accounts 28,162 2.32 1.64% 25,067 2.23 1.71%
Money market accounts 700,314 57.79 4.64 581,117 51.58 4.96
Savings deposits 25,125 2.07 2.96 22,999 2.04 2.96
Time deposits of
$100,000 or more 35,744 2.96 5.25 32,898 2.92 5.39
Other time deposits 297,225 24.53 5.34 354,532 31.47 5.53
----------------------------------------- -----------------------------------------
TOTAL DEPOSITS $1,211,805 100.00% $1,126,562 100.00%
========================================= =========================================
<CAPTION>
December 31
---------------------------------------
1996
---------------------------------------
Percent
of
Amount Deposits Rate
---------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Demand deposits $ 98,726 10.75%
NOW accounts 22,823 2.49 1.69%
Money market accounts 308,256 33.58 4.19
Savings deposits 22,954 2.50 2.99
Time deposits of
$100,000 or more 39,228 4.27 5.25
Other time deposits 426,025 46.41 5.53
---------------------------------------
TOTAL DEPOSITS $918,012 100.00%
=======================================
</TABLE>
The aggregate amount of maturities for time deposits for the four years
beginning in 2000 are $54,966,000, $8,806,000, $8,879,000, and
$9,741,000.
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, 1998 and December 31, 1997.
<TABLE>
<CAPTION>
December 31
----------------------
1998 1997
----------------------
(dollars in thousands)
<S> <C> <C>
Three months or less $17,627 $15,340
Over three months through six months 9,206 5,802
Over six months through twelve months 4,874 6,693
Over twelve months 4,037 5,063
------- -------
TOTAL $35,744 $32,898
======= =======
</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.
<PAGE>
The following table represents the Company's interest rate position
based upon contractual maturities only for various time periods, as of
December 31, 1998.
<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 $ 443,363 $ 98,673 $ 318,028 $ 66,978 $ 927,042
Securities 2,008 37,286 197,755 201,853 438,902
Other short-term investments 302 302
-------------------------------------------------------------------------
TOTAL EARNING ASSETS $ 445,673 $ 135,959 $ 515,783 $268,831 $1,366,246
=========================================================================
Funding Sources
Demand accounts $ 125,125 $ $ $ $ 125,125
Money market accounts 700,314 700,314
Time deposits 90,321 160,351 82,407 333,079
Savings accounts 25,125 25,125
NOW accounts 28,162 28,162
Guaranteed preferred beneficial interests
in subordinated debentures 14,950 14,950
Other borrowed funds 78,458 78,458
-------------------------------------------------------------------------
TOTAL FUNDING SOURCES $1,062,455 $ 160,351 $ 82,407 $ $1,305,213
=========================================================================
Off-Balance sheet financial instruments $ 110,000 $ 15,000 $(125,000)
Interest sensitivity gap $ (506,782) $ (9,392) $ 308,376 $268,831
Cumulative gap $ (506,782) $(516,174) $(207,798) $ 61,033
Gap as a percentage of total earning assets (37.1%) (37.8%) (15.2%) 4.5%
</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
volume of transactions and
19
<PAGE>
<PAGE>
Financial Review (continued)
- ------------------------------------------------------------------------
Sensitivity To Changes In Interest Rates-continued
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,
1998 was approximately $2,181,000.
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
1999 2000 2001 2002 2003 after Total 12/31/98
---------------------------------------------------------------------------------------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate sensitive assets:
Fixed interest rate loans $ 135 $ 88 $ 96 $ 65 $ 66 $ 67 $ 517 $524
Average interest rate 8.29% 8.64% 8.41% 8.56% 8.16% 8.16% 8.37%
Variable interest rate loans $ 286 $ 74 $ 17 $ 18 8 $ 6 $ 409 $414
Average interest rate<F1>
Fixed interest rate securities $ 64 $ 67 $ 56 $ 35 $ 44 $ 156 $ 422 $438
Average interest rate 6.57% 5.51% 5.76% 5.44% 5.52% 6.38% 602%
Variable interest rate securities $ $ $ $ $ $ 1 $ 1 $ 1
Average interest rate 6.84% 6.84%
Rate sensitive liabilities:
Noninterest-bearing checking $ 85 $ $ $ $ $ 40 $ 125 $125
Average interest rate
Savings & interest-bearing checking $ 595 $ 1 $ 1 $ 1 $ 1 $ 155 $ 754 $754
Average interest rate<F2> 4.07% 3.00% 3.00% 3.00% 3.00% 3.70% 3.99%
Time-deposits $ 251 $ 55 $ 8 $ 9 $ 10 $ $ 333 $335
Average interest rate 5.18% 5.26% 5.28% 5.65% 5.32% 5.21%
Fixed interest rate borrowings $ 78 $ $ $ $ $ $ 78 $ 78
Average interest rate 4.48% 4.48%
Variable interest rate borrowings $ $ $ $ $ $ 15 $ 15 $ 15
Average interest rate 6.84% 6.84%
Rate sensitive derivative financial
instruments:
Interest rate floors purchased $ 50 $ 125 $ $ $ $ $ 175 $1.9
Average strike rate 5.63% 5.73% 5.70%
Interest rate caps purchased $ 50 $ $ $ $ $ $ 50 $0.0
Average strike rate 5.75% 5.75%
Treasury Bond Futures $ 15 $ $ $ $ $ $ 15 $0.3
Average Settlement Price 129.97 129.97
<PAGE>
<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>
<PAGE>
Noninterest Income
The following table sets forth the Company's noninterest income for the
periods indicated.
<TABLE>
<CAPTION>
Year ended December 31
------------------------------
1998 1997 1996
------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Service charges on deposit accounts $1,937 $1,867 $1,561
Security gains/(losses), net 1,539 85 440
Trading profits and commissions 1,865 1,211 1,378
Merchant credit card fees 1,568 1,419 1,138
Other 1,474 1,014 544
------------------------------
TOTAL NONINTEREST INCOME $8,383 $5,596 $5,061
==============================
</TABLE>
Total noninterest income for 1998 was $8,383,000, up 49.8% from
$5,596,000 in 1997 and $5,061,000 in 1996. Trading profits and
commissions for 1998 were up markedly from 1997 levels. The upturn was
caused by net gains of approximately $300,000 on the Company's trading
activities compared with approximately $300,000 of losses on similar
activities in 1997. Commissions and fees from customer transactions were
up slightly from those of 1997 and 1996. Increased merchant credit card
fees and greater operating lease income accounted for the majority of
the remaining increase in other noninterest income.
Net gains of $1,539,000 were realized on securities sales in 1998,
compared with gains of $85,000 and $440,000 in 1997 and 1996,
respectively. Only available for sale securities were sold in 1998 and
1997. Sales of securities classified as held to maturity generated
losses of $3,000 in 1996. 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
-------------------------------
1998 1997 1996
-------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Employee compensation and benefits $11,725 $10,587 $ 9,313
Net occupancy 1,369 1,283 1,128
Equipment 1,373 1,186 1,227
Advertising 1,139 840 604
Merchant credit card expense 1,419 1,217 979
Other 6,585 5,911 4,991
-------------------------------
TOTAL NONINTEREST EXPENSE $23,610 $21,024 $18,242
===============================
</TABLE>
Noninterest expenses increased to $23,610,000 in 1998, up from
$21,024,000 in 1997 and $18,242,000 in 1996. Overall Company growth,
merit increases and greater benefit costs have been primarily
responsible for the increased total overhead costs in most years.
Increased advertising, occupancy and equipment costs were also due in
part to the operating costs for the Belleville office, which opened in
September of 1998. Additional expenses related to the leasing and credit
card merchant activities combined to further increase noninterest
expense costs for 1998 and 1997.
Overhead costs have grown considerably over the years, however, the
Company's operating efficiency ratios have continued to compare very
favorably against peer group standards. In 1998 the Company improved its
efficiency ratio to 40.78%, best ever in the Company's history, compared
to 43.03% and 41.25% in 1997 and 1996, respectively.
Income Taxes
Income taxes for 1998 increased to $10,955,000 from $8,470,000 in 1997
and $7,756,000 in 1996. Annual increases in income and a declining
percentage of tax-exempt income to total income have contributed to
greater income tax expense.
21
<PAGE>
<PAGE>
Financial Review (continued)
- ------------------------------------------------------------------------
Capital Management And Resources
At the end of 1998, the Company's shareholders' equity had grown to
$109,778,000, up $16.7 million from the end of 1997. Earnings of
$18,611,000 provided the largest portion of the Company's capital
accumulation in 1998. At December 31, 1998, retained earnings were
$79,003,000, or 72% of total shareholders' equity. During 1998, 112,100
shares of common stock were issued as various employee stock options to
purchase common stock were exercised. Also supplementing 1998'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 cash dividends on common stock
of $3,149,000 and the purchase of treasury stock.
During 1998, 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 800,000, or 8.4% of the
Company's outstanding shares on the date of the Plan extension. In 1998,
the Company repurchased 139,400 shares of common stock at an average
price of $34.06. These 1998 repurchases reduced total shareholders'
equity by $4,748,000.
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 1 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 required 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, 1998 and 1997,
the Company's Tier 1 capital was 11.96% and 11.98% of risk-weighted
assets, and total risk-based capital was 13.22% and 13.23%,
respectively. Identical capital standards apply to the Banks. As of
December 31, 1998 and 1997, the Southwest Bank of St. Louis' Tier 1 and
total risk-weighted capital ratios were 10.50% and 10.65%, and 11.75%
and 11.91%, respectively. As of December 31, 1998, the Southwest Bank,
Belleville's Tier 1 and total risk-weighted capital ratios were 36.64%
and 37.04%, 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, 1998 and 1997, the Company's and the Southwest
Bank of St. Louis' leverage ratios were 8.56% and 8.04%, and 7.54% and
7.12%, respectively. As of December 31, 1998, Southwest Bank,
Belleville's leverage ratio was 23.39%.
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. 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>
<PAGE>
Liquidity
The Company 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
Company has been loan driven, which means that as loans have increased
above 85% of deposits, the Company 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 Company. Where possible, the Company 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 Company's
experience that the majority of deposits raised through these promotions
have remained at the Company after the promotion is over and so have
provided a steadily growing base of core deposits at the Company. In
addition, the steady flow of maturing securities provides a source of
liquidity.
In 1993 Southwest Bank of St. Louis 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
Like many financial institutions, the Company and its subsidiaries rely
upon computers for the daily conduct of their business and for data
processing generally. There is concern among industry experts that
commencing on January 1, 2000, computers will be unable to read the new
year and that there may be widespread computer malfunctions. In order
for computer systems to function properly, systems must be Year 2000
compliant or able to accurately identify date information in the 20th
and 21st centuries. The Company has defined Year 2000 compliant as the
ability of software and hardware systems to correctly receive, process,
and provide date data within and between the 20th and 21st centuries.
The inability to accurately process date related information would have
a material impact on the Company's operation and financial condition. To
mitigate the risks of a Year 2000 failure, a Year 2000 action plan has
been developed and implemented.
Company Readiness - A comprehensive plan for addressing Year 2000 issues
was formulated, including allocating sufficient human and financial
resources to insure successful implementation. A detailed inventory was
conducted of all hardware and software products that are utilized by the
Company. An inventory of equipment that uses embedded computer chips
(i.e. facilities) has been completed. Hardware and software systems that
possess date sensitive applications were identified and prioritized
based on their level of importance in maintaining financial integrity
and in delivery of services to the Company's customers. The renovation
phase of the plan included upgrading necessary systems to Year 2000
compliant status, which is 95% complete. The Company does not possess
any internally developed or programmed software or hardware. All
hardware and software has been provided by third parties under licensing
agreements. Upgraded systems that are certified by the vendor as Year
2000 compliant have and will be installed as needed. The testing phase
of the plan includes testing all critical hardware and software systems
to validate the compliant and upgraded systems. In addition, systems
have and will continue to be tested for compatibility with other system
interfaces.
Year 2000 Status - To date, all critical systems have been tested.
Although most of the Company's significant systems, including general
ledger, deposits and loans would be materially impacted by a year 2000
failure, this risk is mitigated by vendor Year 2000 certifications and
comprehensive internal testing. Testing will continue during 1999 on
less significant systems and interfaces with outside parties.
23
<PAGE>
<PAGE>
Financial Review (continued)
- ------------------------------------------------------------------------
Impact of Year 2000-continued
Third Party Exposure - The Company has gathered information about the
Year 2000 compliance status of customers with significant credit
relationships and with providers of certain third party services. To
date, the Company is not aware of any third party service providers or
loan customers that would materially impact the Company's results of
operations, liquidity or capital resources. However, the Company has no
means of ensuring that these entities will be Year 2000 ready. The
inability of third parties to complete their Year 2000 programs in a
timely manner could materially impact the Company.
Contingency Planning - The Company has existing business continuity
plans that address its response to disruption to business due to natural
disasters, utility outages or other occurrences. The Company is
developing business continuity plans specific to Year 2000 issues that
are based on these existing plans. The plans involve, among other
actions, manual workarounds and adjusting staffing strategies. The
Company intends to complete these detailed business continuity plans
during the first and second quarter of 1999. Testing these plans is
scheduled to take place in the third quarter of 1999. In addition,
funding plans are being developed to insure that adequate levels of
liquid assets are available for customers.
Year 2000 Costs - The total cost of the Year 2000 project is estimated
at $200,000 and is funded through operating cash flows. To date, the
Company has incurred approximately $128,000 related to all phases of the
Year 2000 project.
Overall Year 2000 Risks - Management of the Company believes it has a
reasonably effective program in place to resolve any substantial Year
2000 issues which it has identified. Disruptions in the economy
generally resulting from Year 2000 issues could adversely affect the
Company. The Company could be subject to litigation for computer system
failures of its own or a third party with which it does business. If a
major borrower experiences disruption in its own business, it could have
a material impact on the Company. The amount of potential liability
cannot be reasonably estimated at this time.
This is a Year 2000 Readiness Disclosure pursuant to the Year 2000
Readiness Disclosure Act. Forward-looking statements contained in this
Year 2000 discussion should be read in conjunction with the cautionary
statements included below under the caption "Forward-Looking
Statements."
Forward-Looking Statements
Certain statements in this annual report that relate to the plans,
objectives or future performances of Mississippi Valley Bancshares, Inc.
may be deemed to be forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. Such statements are
based on Mississippi Valley Bancshares, Inc.'s current management
expectations. Actual strategies and results in future periods may differ
materially from those currently expected because of various risks and
uncertainties. Additional discussion of factors affecting Mississippi
Valley Bancshares, Inc.'s business and prospects is contained in the
Company's periodic filings with the Securities and Exchange Commission.
24
<PAGE>
<PAGE>
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,
1998 and 1997, 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, 1998. 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,
1998 and 1997, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
St. Louis, Missouri
January 21, 1999
25
<PAGE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
- ----------------------------------------------------------------------------------
Mississippi Valley Bancshares, Inc. And Subsidiaries
<CAPTION>
December 31
----------------------------
1998 1997
----------------------------
Assets (dollars in thousands)
<S> <C> <C>
Cash and due from banks $ 27,017 $ 28,532
Federal funds sold 18,910
Held to maturity securities
(fair value of $40,283 and $59,748,
respectively) 38,815 58,148
Available for sale securities 400,087 317,768
Trading account securities 302 1,251
Loans 927,042 847,935
Less:
Unearned income 1,081 844
Allowance for possible loan losses 18,144 14,892
---------- ----------
Net loans 907,817 832,199
Premises and equipment 20,755 13,482
Other assets 35,264 29,628
---------- ----------
TOTAL ASSETS $1,430,057 $1,299,918
========== ==========
Liabilities
Deposits:
Non-interest bearing $ 125,235 $ 109,949
Interest bearing 1,086,570 1,016,613
---------- ----------
Total deposits 1,211,805 1,126,562
---------- ----------
Securities sold under
agreements to repurchase 41,605 32,700
Other short-term borrowings 36,853 21,495
Guaranteed preferred beneficial
interests in subordinated debentures 14,950 14,950
Other liabilities 15,066 11,104
---------- ----------
TOTAL LIABILITIES 1,320,279 1,206,811
========== ==========
Shareholders' Equity
Preferred stock-par value $1
($100 liquidating value)
Authorized 100,000 shares,
none issued
Common stock-par value $1
Authorized 20,000,000 shares,
issued 9,631,312 in 1998
and 9,519,212 in 1997 9,631 9,519
Capital surplus 19,627 17,561
Retained earnings 79,003 63,541
Unrealized gain, net of tax, on available
for sale securities 6,265 2,486
Treasury stock, at cost, 139,400 shares
at December 31, 1998 (4,748)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 109,778 93,107
========== ==========
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,430,057 $1,299,918
========== ==========
See accompanying notes.
</TABLE>
26
<PAGE>
<PAGE>
Consolidated Statements Of Income
- -------------------------------------------------------------------------
Mississippi Valley Bancshares, Inc. And Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1998 1997 1996
----------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 78,402 $ 73,447 $ 60,679
Held to maturity securities:
Taxable 2,501 2,887 4,356
Tax-exempt 590 569 562
Available for sale securities 19,755 16,779 13,301
----------------------------------------
22,846 20,235 18,219
Other 1,588 1,572 821
----------------------------------------
TOTAL INTEREST INCOME 102,836 95,254 79,719
----------------------------------------
Interest expense:
Deposits 49,238 48,499 38,331
Short-term borrowings 3,262 2,780 2,264
Long-term borrowings 1,093 964 216
----------------------------------------
TOTAL INTEREST EXPENSE 53,593 52,243 40,811
----------------------------------------
NET INTEREST INCOME 49,243 43,011 38,908
Provision for possible loan losses 4,450 4,100 3,875
----------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR POSSIBLE LOAN LOSSES 44,793 38,911 35,033
----------------------------------------
Other income:
Service charges 1,937 1,867 1,561
Security gains/(losses), net on:
Sales of held to maturity securities (3)
Sales of available for sale securities 1,539 85 443
Trading profits and commissions 1,865 1,211 1,378
Merchant credit card fees 1,568 1,419 1,138
Other 1,474 1,014 544
----------------------------------------
8,383 5,596 5,061
----------------------------------------
Other expenses:
Employee compensation and
other benefits 11,725 10,587 9,313
Net occupancy 1,369 1,283 1,128
Equipment 1,373 1,186 1,227
Advertising 1,139 840 604
Merchant credit card expense 1,419 1,217 979
Other 6,585 5,911 4,991
----------------------------------------
23,610 21,024 18,242
----------------------------------------
INCOME BEFORE INCOME TAXES 29,566 23,483 21,852
Income taxes 10,955 8,470 7,756
----------------------------------------
NET INCOME $ 18,611 $ 15,013 $ 14,096
========================================
Average common shares and common
share equivalents outstanding 9,747,564 9,700,928 9,582,886
========================================
Earnings per common share:
Basic $ 1.95 $ 1.60 $ 1.54
Diluted $ 1.91 $ 1.55 $ 1.46
See accompanying notes.
</TABLE>
27
<PAGE>
<PAGE>
Consolidated Statements Of Changes
In Shareholders' Equity
- -------------------------------------------------------------------------
Mississippi Valley Bancshares, Inc. And Subsidiaries
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Capital
Shares Amount Shares Amount Surplus
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1996 25,000 $ 2,500 9,016,012 $9,016 $15,294
Net income
Issuance of
common stock 17,900 18 66
Redemption of
preferred stock (25,000) (2,500) (125)
Cash dividends on:
common stock
preferred stock
Other comprehensive
income (loss), net
of tax, Unrealized loss
on available for
sale securities
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive Income
Balance at
December 31, 1996 9,033,912 9,034 15,235
Net income
Issuance of
common stock 10,100 10 101
1992 debentures
converted to
common stock 475,200 475 2,225
Cash dividends on:
common stock
Other comprehensive
income, net of tax,
Unrealized gain
on available for
sale securities
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive Income
Balance at
December 31,1997 9,519,212 9,519 17,561
Net income
Issuance of
common stock 112,100 112 2,066
Purchase of
treasury stock
Cash dividends on:
common stock
Other comprehensive
income, net of tax,
Unrealized
gain on available for
sale securities
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive Income
Balance at
December 31, 1998 9,631,312 $9,631 $19,627
===========================================================================================================================
See accompanying notes.
<PAGE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Unrealized Total
Gain (Loss) on Share- Compre-
Retained Available for Treasury holders' hensive
Earnings Sale Securities Stock Equity Income
- ---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1996 $39,415 $ 3,882 $ $ 70,107
Net income 14,096 14,096 $14,096
Issuance of
common stock 84
Redemption of
preferred stock (2,625)
Cash dividends on:
common stock (2,121) (2,121)
preferred stock (231) (231)
Other comprehensive
income (loss), net
of tax, Unrealized loss
on available for
sale securities (3,361) (3,361) (3,361)
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive Income $10,735
=======
Balance at
December 31, 1996 51,159 521 75,949
Net income 15,013 15,013 $15,013
Issuance of
common stock 111
1992 debentures
converted to
common stock 2,700
Cash dividends on:
common stock (2,631) (2,631)
Other comprehensive
income, net of tax,
Unrealized gain
on available for
sale securities 1,965 1,965 1,965
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive Income $16,978
=======
Balance at
December 31,1997 63,541 2,486 93,107
Net income 18,611 18,611 $18,611
Issuance of
common stock 2,178
Purchase of
treasury stock (4,748) (4,748)
Cash dividends on:
common stock (3,149) (3,149)
Other comprehensive
income, net of tax,
Unrealized
gain on available for
sale securities 3,779 3,779 3,779
- ---------------------------------------------------------------------------------------------------------------------------
Comprehensive Income $22,390
=======
Balance at
December 31, 1998 $79,003 $6,265 $(4,748) $109,778
===========================================================================================================================
See accompanying notes.
</TABLE>
28
<PAGE>
<PAGE>
Consolidated Statements Of Cash Flows
- ------------------------------------------------------------------------
Mississippi Valley Bancshares, Inc. And Subsidiaries
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------
1998 1997 1996
---------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Operating activities
Net income $ 18,611 $ 15,013 $ 14,096
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 4,450 4,100 3,875
Provision for depreciation and amortization 1,867 1,033 1,069
Accretion of discounts and amortization
of premiums on investment securities 197 (3,185) (1,576)
Realized investment securities gains, net (1,539) (85) (440)
Net decrease (increase) in trading account securities 949 (1,231) 79
Decrease (increase) in interest receivable (913) (3,377) 1,120
Increase (decrease) in interest payable (504) 202 95
Other, net (2,040) (5,853) (972)
---------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 21,078 6,617 17,346
---------------------------------------
Investing activities
Proceeds from maturities of held to maturity securities 19,525 26,000 33,545
Proceeds from sales of held to maturity securities 2,011
Purchases of held to maturity securities (25,613) (19,299)
Purchases of available for sale securities (272,174) (573,610) (216,971)
Proceeds from maturities of available for sale securities 54,000 414,000 162,000
Proceeds from sales and paydowns of
available for sale securities 142,818 77,251 75,541
Purchases of premises and equipment (8,370) (2,811) (3,943)
Net increase in loans outstanding (80,068) (117,904) (109,282)
---------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES (144,269) (202,687) (76,398)
---------------------------------------
Financing activities
Net increase in deposits 85,243 208,550 31,448
Net increase (decrease) in repurchase agreements
and other short-term borrowings 24,263 (8,419) 35,874
Proceeds from sale of common stock 1,157 111 84
Purchase of treasury stock (4,748)
Proceeds from sale of guaranteed preferred
beneficial interests in subordinated debentures 14,950
Redemption of preferred stock (2,625)
Cash dividends (3,149) (2,631) (2,352)
---------------------------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 102,766 212,561 62,429
---------------------------------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (20,425) 16,491 3,377
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 47,442 30,951 27,574
---------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 27,017 $ 47,442 $ 30,951
=======================================
See accompanying notes.
</TABLE>
29
<PAGE>
<PAGE>
Notes To Consolidated
Financial Statements
- ------------------------------------------------------------------------
Mississippi Valley Bancshares, Inc. And Subsidiaries-December 31,1998
Note A-Accounting Policies
Business-Mississippi Valley Bancshares, Inc. ("Company"), is a bank
holding company, headquartered in St. Louis, Missouri. The Company owns
all of the capital stock of Southwest Bank of St. Louis and Southwest
Bank, Belleville which provide commercial, retail and correspondent
banking services from six banking offices in Missouri and Illinois. At
December 31, 1998, the Company had consolidated assets of $1.4 billion.
The Company, through its bank subsidiaries, has traditionally emphasized
commercial lending and at December 31, 1998, 88% 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 of St. Louis, Southwest Bank, Belleville 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 require 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.
30
<PAGE>
<PAGE>
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 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 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,
cap, 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 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.
31
<PAGE>
<PAGE>
Notes To Consolidated
Financial Statements (continued)
- ------------------------------------------------------------------------
Note A-Accounting Policies-continued
Earnings per share-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
$54,097,000 in 1998, $52,042,000 in 1997, and $40,715,000 in 1996 and
made income tax payments of $10,441,000, $9,426,000, and $8,288,000 in
1998, 1997 and 1996, respectively.
Reclassifications-Certain amounts presented in prior years have been
reclassified to conform to the current year presentation.
Impact of Recently Issued Accounting Standards - Effective January 1,
1998, the Company adopted the Financial Accounting Standards Board's
(FASB) Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," that established standards for the reporting of
comprehensive income and its components. This Statement requires that
the Company classify items of other comprehensive income by their nature
in a financial statement and display the accumulated balance of the
other comprehensive income separately in the equity section of the
balance sheet. This statement was effective for 1998 and required
reclassification of financial statements for prior periods.
Effective January 1, 1998, the Company adopted the FASB's Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of
an Enterprise and Related Information." Statement 131 superseded FASB
Statement No. 14, "Financial Reporting for Segments of a Business
Enterprise." Statement 131 establishes standards for the way that public
business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. The adoption of Statement 131 did not affect results of
operations or financial position for the Company and had no affect on
the required disclosures of the Company.
Effective January 1, 1998, the Company adopted the FASB's Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This Statement revises
employers' disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans.
This Statement was effective for 1998 and required reclassification of
financial statements for prior periods.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The Company expects to adopt the new Statement effective
January 1, 2000. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. The Company does not
anticipate that the adoption of this Statement will have a material
effect on its results of operations or financial position.
32
<PAGE>
<PAGE>
Note B-Restrictions On Cash And Due From Bank Accounts
Southwest Bank of St. Louis 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, 1998 and 1997 were approximately $25,000 and $2,745,000,
respectively.
Note C-Held To Maturity Securities
The amortized cost and estimated fair values of held to maturity
securities at the end of 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
-------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
United States Treasury securities $ 8,007 $ 172 $ 8,179
PHA bonds guaranteed by the
United States Government 4,570 773 5,343
U.S. Agency Securities 22,704 403 23,107
Other debt securities 3,534 120 3,654
-------------------------------------------------------
$38,815 $1,468 $40,283
=======================================================
<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 $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
=======================================================
</TABLE>
The amortized cost and estimated fair value of held to maturity
securities at December 31, 1998 and 1997, 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.
<TABLE>
<CAPTION>
December 31
-------------------------------------------------------
1998 1997
-------------------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
-------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $11,008 $11,204 $18,915 $18,996
Due after one year through
five years 22,280 22,773 31,731 32,227
Due after five years through
ten years 4,069 4,491 5,344 5,912
Due after ten years 1,458 1,815 2,158 2,613
-------------------------------------------------------
$38,815 $40,283 $58,148 $59,748
=======================================================
</TABLE>
In 1998 and 1997 there were no sales of held to maturity securities. In
1996, proceeds from sales of held to maturity securities was $2,011,000.
A gross loss of $3,000 was realized in 1996. In all cases, sales of held
to maturity securities were within 90 days of each specific security's
maturity date.
33
<PAGE>
<PAGE>
Notes To Consolidated
Financial Statements (continued)
- ------------------------------------------------------------------------
Note D-Available For Sale Securities
The amortized cost and estimated fair values of available for sale
securities at the end of 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
-------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
United States Treasury Securities $124,329 $3,809 $ $128,138
U.S. Agency Securities 216,220 5,301 221,521
Collateralized mortgage obligations 37,049 (131) 36,918
Federal Home Loan Bank stock 3,861 3,861
Other equity securities 9,006 643 9,649
-------------------------------------------------------
$390,465 $9,753 $(131) $400,087
=======================================================
<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
=======================================================
</TABLE>
The amortized cost and estimated fair value of available for sale
securities at December 31, 1998 and 1997, 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>
<CAPTION>
December 31
-------------------------------------------------------
1998 1997
-------------------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
-------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 26,995 $ 27,425 $ 3,976 $ 3,984
Due after one year through
five years 170,048 172,595 100,722 102,600
Due after five years through
ten years 122,817 128,159 97,883 98,802
Due after ten years 20,689 21,480 34,700 35,688
Collateralized mortgage obligations 37,049 36,918 57,834 57,484
-------------------------------------------------------
Total debt securities 377,598 386,577 295,115 298,558
Equity securities 12,867 13,510 18,827 19,210
-------------------------------------------------------
Total available for sale securities $390,465 $400,087 $313,942 $317,768
=======================================================
</TABLE>
In 1998, proceeds from sales of available for sale securities were
$116,347,000 which resulted in net gains of $1,539,000. 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.
Held to maturity and available for sale securities with a carrying value
of $132,183,000 and $123,353,000 at December 31, 1998 and 1997,
respectively, were pledged to secure public deposits, short-term
borrowings and for other purposes required by law.
34
<PAGE>
<PAGE>
Note E-Loans
Loans were comprised of the following:
<TABLE>
<CAPTION>
December 31
-------------------------
1998 1997
-------------------------
(dollars in thousands)
<S> <C> <C>
Commercial, industrial and
marketable security loans $434,467 $369,559
Commercial loans secured
by real estate 368,512 345,160
Real estate-1-4 family 103,140 117,105
Lease financing 10,175 7,199
Consumer loans 10,748 8,912
-------------------------
$927,042 $847,935
=========================
</TABLE>
Certain directors, officers and employees of the Company, the Banks and
their associates are loan customers of the Banks. 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 $37,319,000 and $31,505,000
at December 31, 1998 and 1997, respectively. During 1998, $12,782,000 of
new loans were made to these persons; repayments totalled $6,968,000.
Included in the aggregate balance at December 31, 1998 are loans to two
directors and their associates amounting to $12,966,000 ($5,983,000 at
December 31, 1997 for one director and his associates).
At December 31, 1998 the Company had $1,734,000 of impaired loans which
had an associated specific allowance for possible loan losses of
$216,000. 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. The average recorded investment in
impaired loans during the year ended December 31, 1998 and 1997, was
approximately $2,470,000 and $5,216,000, respectively. For the year
ended December 31, 1998 and 1997, gross interest income on impaired
loans, which would have been recorded under the original terms of the
loans, was approximately $278,000 and $270,000, respectively. The
Company actually recorded cash basis interest income on impaired loans
of $159,000 in 1998 and $195,000 in 1997. The effect of impaired loans
was immaterial to the financial statements at December 31, 1998 and
1997.
35
<PAGE>
<PAGE>
Notes To Consolidated
Financial Statements (continued)
- ------------------------------------------------------------------------
Note F-Allowance For Possible Loan Losses
Changes in the allowance for possible loan losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
1998 1997
------------------------
(dollars in thousands)
<S> <C> <C>
Balance at beginning of year $14,892 $12,624
Loans charged off (2,232) (2,831)
Recoveries 1,034 999
------------------------
Net loans charged off (1,198) (1,832)
Provision 4,450 4,100
------------------------
Balance at end of year $18,144 $14,892
========================
</TABLE>
Note G-Premises And Equipment
Premises and equipment were as follows:
<TABLE>
<CAPTION>
December 31
------------------------
1998 1997
------------------------
(dollars in thousands)
<S> <C> <C>
Land $ 3,718 $ 3,967
Buildings and improvements 6,505 6,505
Furniture and equipment 5,418 4,622
Construction in progress 9,536 2,178
------------------------
25,177 17,272
Less accumulated depreciation 4,422 3,790
------------------------
$20,755 $13,482
========================
</TABLE>
The Company and its subsidiaries 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, 1998 was $469,710. Minimum rental commitments under these
leases for each of the next two years beginning in 1999 are $439,000 and
$32,000. Rent expense for 1998, 1997 and 1996 amounted to $510,000,
$515,000, and $388,000, respectively.
36
<PAGE>
<PAGE>
Note H-Deposits
Interest-bearing deposits were comprised of the following:
<TABLE>
<CAPTION>
December 31
---------------------------
1998 1997
---------------------------
(dollars in thousands)
<S> <C> <C>
Interest-bearing demand
NOW accounts $ 28,162 $ 25,067
Money market accounts 700,314 581,117
Savings 25,125 22,998
Certificates of deposit,
less than $100,000 297,225 354,532
Certificates of deposit,
$100,000 or more 35,744 32,899
---------------------------
$1,086,570 $1,016,613
===========================
</TABLE>
Certain directors, officers, and employees of the Company and the Banks
are deposit customers of the Banks. 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 $9,815,000 at December 31, 1998.
Note I-Short-Term Borrowings
Short-term borrowings were comprised of the following:
<TABLE>
December 31
------------------------
1998 1997
------------------------
(dollars in thousands)
<S> <C> <C>
Securities sold under agreements
to repurchase $41,605 $32,700
Federal funds purchased 35,550 18,495
Treasury tax and loan notes 1,303 3,000
------------------------
$78,458 $54,195
========================
</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
---------------------------------------
1998 1997 1996
---------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Amount outstanding at year-end $41,605 $32,700 $24,391
Weighted average interest rate at
year-end 4.13% 4.40% 4.75%
Average balance outstanding
for the year $39,646 $28,743 $20,673
Average interest rate for the year 4.58% 4.56% 4.15%
Maximum amount outstanding
at any month-end during the year $79,378 $62,344 $31,793
</TABLE>
Note J-Long-Term Borrowings
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.
37
<PAGE>
<PAGE>
Notes To Consolidated
Financial Statements (continued)
- -------------------------------------------------------------------------
Note K-Restricted Net Assets
Certain restrictions exist regarding the ability of the Banks to
transfer funds to the Company in the form of cash dividends, loans or
advances. At December 31, 1998, under the most restrictive covenants and
regulations, approximately $23,829,000 was the maximum available as
dividends to the Company from Southwest Bank of St. Louis without prior
approval. At December 31, 1998, the maximum amount available for
transfer to the Company in the form of loans and advances was
approximately $11,659,000.
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 15, 1999.
During 1998, 139,400 shares of common stock were repurchased at a total
cost of $4,748,000. No stock was repurchased in 1997.
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
beginning in 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>
1998 1997 1996
------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Numerator:
Net Income $ 18,611 $ 15,013 $ 14,096
Preferred stock dividends (231)
------------------------------------------
Numerator for basic earnings per share-
income available to common stockholders 18,611 15,013 13,865
------------------------------------------
Effect of dilutive securities:
8% Convertible debentures 35 140
------------------------------------------
35 140
------------------------------------------
Numerator for diluted earnings per
share-income available to common
shareholders after assumed conversions $ 18,611 $ 15,048 $ 14,005
==========================================
Denominator:
Weighted average shares outstanding 9,548,127 9,396,320 9,023,638
------------------------------------------
Effect of dilutive securities:
Employee stock options 199,437 187,436 84,048
8% Convertible debentures 117,172 475,200
------------------------------------------
Dilutive potential common shares 199,437 304,608 559,248
------------------------------------------
Denominator for diluted earnings per
share-adjusted weighted average
shares and assumed conversions 9,747,564 9,700,928 9,582,886
==========================================
Basic earnings per share $ 1.95 $ 1.60 $ 1.54
==========================================
Diluted earnings per share $ 1.91 $ 1.55 $ 1.46
==========================================
</TABLE>
38
<PAGE>
<PAGE>
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, 1998
and 1997.
A summary of the Company's stock option activity, and related
information for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------- ---------------------------
Weighted Average Weighted Average
Options Exercise Price Options Exercise Price
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
Options outstanding at
beginning of year 766,500 $19.05 384,600 $12.86
Granted 99,600 41.50 396,000 24.91
Exercised 112,100 10.32 10,100 10.99
Forfeited 9,000 17.33 4,000 21.69
------- -------
Options outstanding at
end of year 745,000 $23.39 766,500 $19.05
======= =======
Options exercisable at
end of year 255,351 $17.94 173,550 $11.03
Weighted average fair
value of options
granted during the year $ 9.86 $ 6.49
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 ranged
from $7.125 to $41.50. The weighted average remaining contractual life
of those options was three years.
Note M-Regulatory Capital
The Company and Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's and
Banks' financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company and Banks
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 Banks' capital
amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulations to ensure capital
adequacy require the Company and Banks 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,
1998 and 1997, that the Company and Banks meet all capital adequacy
requirements to which it is subject.
As of December 31, 1998 and 1997, the Company and the Banks were all
categorized as "well capitalized" under the regulatory framework for
prompt corrective action. To be categorized as "well capitalized" the
Company and Banks 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.
39
<PAGE>
<PAGE>
Notes To Consolidated
Financial Statements (continued)
- --------------------------------------------------------------------------
Note M-Regulatory Capital-continued
The Company's and Banks' 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, 1998:
Total Capital to Risk
Weighted Assets:
Mississippi Valley
Bancshares, Inc. $130,917 13.22% $79,250 8.00% $ N/A N/A%
Southwest Bank
of St. Louis 113,706 11.75 77,393 8.00 96,741 10.00
Southwest Bank,
Belleville 4,662 37.04 1,007 8.00 1,259 10.00
Tier 1 Capital to Risk
Weighted Assets:
Mississippi Valley
Bancshares, Inc. 118,463 11.96 39,625 4.00 N/A N/A
Southwest Bank
of St. Louis 101,539 10.50 38,696 4.00 58,045 6.00
Southwest Bank,
Belleville 4,612 36.64 503 4.00 755 6.00
Tier 1 Capital to
Average Assets:
Mississippi Valley
Bancshares, Inc. 118,463 8.56 55,353 4.00 N/A N/A
Southwest Bank
of St. Louis 101,539 7.54 53,897 4.00 67,372 5.00
Southwest Bank,
Belleville 4,612 23.39 789 4.00 986 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, 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 52,505 4.00 N/A N/A
Southwest Bank
of St. Louis 92,413 7.12 51,927 4.00 64,909 5.00
</TABLE>
40
<PAGE>
<PAGE>
Note N-Pension Plans
The Company maintains two non-contributory defined benefit pension plans
covering substantially all employees. Benefits under the Plans are based
upon the final average monthly compensation reduced by primary Social
Security benefits. The Company's funding policy is to contribute
annually within the limits prescribed for deduction for federal income
tax purposes.
<TABLE>
<CATPION>
December 31
----------------------
1998 1997
----------------------
(dollars in thousands)
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 3,721 $ 2,733
Service cost 293 251
Interest cost 257 224
Actuarial gain (loss) (2) 622
Benefits paid (47) (109)
----------------------
Benefit obligation at end of year $ 4,222 $ 3,721
======================
Change in plan assets
Fair value of plan assets at
beginning of year $ 2,316 $ 1,829
Actual return on plan assets 210 171
Employer contribution 474 425
Benefits paid (47) (109)
----------------------
Fair value of plan assets at
end of year $ 2,953 $ 2,316
======================
Funded status $(1,269) $(1,405)
Unrecognized net actuarial loss 840 897
Unrecognized prior service cost 202 228
Unrecognized transition obligation 30 40
----------------------
Accrued benefit liability $ (197) $ (240)
======================
<CAPTION>
----------------------------------
1998 1997 1996
----------------------------------
<S> <C> <C> <C>
Weighted average assumptions
Discount rate 7.00% 7.50% 7.50%
Expected return on plan assets 8.00 8.00 8.00
Rate of compensation increase 4.50 4.50 4.50
<CAPTION>
Year ended December 31
----------------------------------
1998 1997 1996
----------------------------------
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 293 $ 251 $204
Interest cost 257 224 195
Expected return on plan assets (197) (171) (96)
Amortization of prior service cost 25 25 25
Recognized net actuarial loss 43 42 (60)
Amortization of transition obligation 10 10 10
-----------------------------------
Net periodic benefit cost $ 431 $ 381 $278
===================================
</TABLE>
The prepaid benefit cost of the qualified non-contributory defined
pension plan was $170,000 and $1,000 at December 31, 1998 and 1997,
respectively. The accrued benefit liability of the non-qualified non-
contributory defined benefit pension plan was $241,000 and $367,000 at
December 31, 1998 and 1997, respectively. At December 31, 1998, 100% of
the Plan's assets were invested in a guaranteed fixed income account
with General American Life Insurance Company. The Company does not
provide any post-retirement benefits other than these pension plans.
41
<PAGE>
<PAGE>
Notes To Consolidated
Financial Statements (continued)
- -----------------------------------------------------------------------
Note O-Income Taxes
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------
1998 1997 1996
-------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Current:
Federal $10,942 $7,619 $7,443
State and Local 29 251 242
-------------------------------------
Total current 10,971 7,870 7,685
-------------------------------------
Deferred:
Provision for possible loan losses (1,138) (771) (642)
Mark-to-market security (gain), loss 141 272 596
Other, net 981 1,099 117
-------------------------------------
Total deferred (16) 600 71
-------------------------------------
Income tax expense $10,955 $8,470 $7,756
=====================================
</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
-------------------------------------
1998 1997 1996
-------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Statutory rate applied to income
before taxes $10,348 $8,219 $7,648
Increase (decrease) in income taxes
resulting from:
Tax-exempt income (174) (174) (162)
State and local income taxes,
net of federal income tax benefit 224 228 157
Other, net 557 197 113
-------------------------------------
Total tax expense $10,955 $8,470 $7,756
=====================================
</TABLE>
As of December 31, 1998 and 1997, the Company's deferred tax asset
account was comprised of the following:
<TABLE>
<CAPTION>
December 31
----------------------
1998 1997
----------------------
(dollars in thousands)
<S> <C> <C>
Deferred tax liabilities:
Pension expense $ 56 $ (69)
Fixed and other asset depreciation 481 646
Unrealized net gains on
available for sale securities 3,279 1,588
Accretion of security discounts 120 260
----------------------
Total deferred tax liabilities 3,936 2,425
----------------------
Deferred tax assets:
Provision for possible loan losses (6,622) (5,206)
Other, net 221 177
----------------------
Total deferred tax assets (6,401) (5,029)
----------------------
Net deferred tax assets $(2,465) $(2,604)
======================
</TABLE>
Included in income taxes were $539,000, $30,000, and $154,000 for the years
ended December 31, 1998, 1997 and 1996, respectively, related to realized
net gains on held to maturity securities and available for sale securities.
42
<PAGE>
<PAGE>
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
Company'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, 1998
-------------------------
Carrying
amount Fair value
-------------------------
(dollars in thousands)
<S> <C> <C>
Financial assets:
Cash and due from banks and
short-term investments $ 27,017 $ 27,017
Held to maturity securities 38,815 40,283
Available for sale securities 400,087 400,087
Trading account securities 302 302
Loans, net of unearned income 925,961 938,146
Financial liabilities:
Deposits 1,211,805 1,214,138
Short-term borrowings 78,458 78,458
Long-term borrowings 14,950 14,950
<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>
43
<PAGE>
<PAGE>
Notes To Consolidated
Financial Statements (continued)
- ------------------------------------------------------------------------
Note Q-Financial Instruments With Off-Balance Sheet Risk
In the normal course of business, the Company utilizes various financial
instruments to meet the needs of customers and to manage the Company's
exposure to interest rate and other market risks. These financial
instruments, which consist of derivatives contracts and credit-related
arrangements, involve, to varying degrees, elements of credit and market
risk in excess of the amount recorded on the balance sheet in accordance
with generally accepted accounting principles.
Credit risk represents the potential loss that may occur because a party
to a transaction fails to perform according to the terms of the
contract. Market risk is the possibility that a change in interest rates
will cause the value of a financial instrument to decrease. The
contract/notional amounts of financial instruments, which are not
included in the consolidated balance sheet, do not necessarily represent
credit or market risk. However, they can be used to measure the extent
of involvement in various types of financial 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, 1998 and 1997.
<TABLE>
<CAPTION>
December 31
-----------------------
1998 1997
-----------------------
(dollars in thousands)
<S> <C> <C>
Commitments to extend credit $306,613 $262,312
Standby letters of credit 10,875 9,672
Commercial letters of credit 1,163 1,719
-----------------------
$318,651 $273,703
=======================
</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 derivative contracts primarily
as a part of its asset-liability management strategy to manage interest
rate risk. The notional amounts of these contracts 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, 1998 and 1997 was approximately
$2,181,000 and $515,000, respectively.
Interest rate swaps are contracts in which a series of interest rate
flows, based on a specific notional amount and fixed and floating
interest rates, are exchanged over a prescribed period. Interest rate
options, which include caps and floors, are contracts which transfer,
modify or reduce interest rate risk in exchange for the payment of a
premium when the contract is issued. The true measure of credit risk
is the replacement cost of contracts which have become favorable to the
Company.
44
<PAGE>
<PAGE>
Note Q-Financial Instruments With Off-Balance Sheet Risk - continued
The Company monitors its sensitivity to changes in interest rates and
uses interest rate swap contracts to limit the volatility of net
interest income. At December 31, 1998 and 1997, there were deferred
gains of $270,000 and $739,000, respectively, relating to terminated
interest rate swap contracts. Net interest income was increased by
$469,000 in 1998 and $592,000 in 1997 as a result of interest rate swap
contracts.
Futures and forwards are contracts for the delayed delivery of
securities or money market instruments in which the seller agrees to
deliver on a specified date, a specified instrument, at a specified
price or yield. Futures contracts settle in cash daily, therefore, there
is minimal credit risk to the Company. The credit risk inherent in
forwards arises from the potential inability of counterparties to meet
the terms of their contracts. Both futures and forwards are also subject
to the risk of movements in interest rates or the value of the
underlying securities or instruments.
The amounts disclosed in the following table represent the end-of-period
notional and fair value of derivative financial instruments held or
issued for trading purposes and the average fair value of those
instruments during the year. These interest rate contracts resulted in
trading gains of $441,000 in 1998 and trading losses of $251,000 in
1997.
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------------------------
Average Average
Notional Fair Strike Fair
Amount Value Price/Rate Value
------------------------------------------------------
(dollars in thousands, except strike price)
<S> <C> <C> <C> <C>
Options, caps and floors held $100,000 $192 5.63% $145
Futures contracts 15,000 328 $129.97 150
<CAPTION>
December 31, 1997
------------------------------------------------------
Average Average
Notional Fair Strike Fair
Amount Value Rate Value
------------------------------------------------------
(dollars in thousands, except strike price)
<S> <C> <C> <C> <C>
Options, caps and floors held $50,000 $79 5.63% $74
</TABLE>
The amounts disclosed in the following table represent the end-of-period
notional and fair value of derivative financial instruments held or
issued for purposes other than trading.
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------
Average
Notional Fair Strike
Amount Value Rate
---------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Options, caps and floors held $125,000 $1,661 5.73%
<CAPTION>
December 31, 1997
---------------------------------------
Average
Notional Fair Strike
Amount Value Rate
---------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Options, caps and floors held $75,000 $455 5.75%
</TABLE>
45
<PAGE>
<PAGE>
Notes To Consolidated
Financial Statements (continued)
- ------------------------------------------------------------------------
Note R-Comprehensive Income
In 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
130, Reporting Comprehensive Income, that established standards for the
reporting and display of comprehensive income and its components. This
Statement requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately
in the equity section of the balance sheet. This Statement is effective
for 1998 and requires reclassification of financial statements for prior
periods as well. Following is a summary of other comprehensive income
components and related income tax effects:
<TABLE>
<CAPTION>
Twelve Months Ended December 31, 1998
----------------------------------------
Before Tax Tax Net of Tax
Amount Expense Amount
----------------------------------------
(in thousands)
<S> <C> <C> <C>
Unrealized gains on available
for sale securities $7,352 $2,573 $4,779
Less: reclassification adjustment
for gains realized in net income 1,539 539 1,000
----------------------------------------
Net unrealized gains 5,813 2,034 3,779
----------------------------------------
Other comprehensive income $5,813 $2,034 $3,779
========================================
<CAPTION>
Twelve Months Ended December 31, 1997
----------------------------------------
Before Tax Tax Net of Tax
Amount Expense Amount
----------------------------------------
(in thousands)
<S> <C> <C> <C>
Unrealized gains on available
for sale securities $3,108 $1,088 $2,020
Less: reclassification adjustment
for gains realized in net income 85 30 55
----------------------------------------
Net unrealized gains 3,023 1,058 1,965
----------------------------------------
Other comprehensive income $3,023 $1,058 $1,965
========================================
<CAPTION>
Twelve Months Ended December 31, 1996
----------------------------------------
Before Tax Tax Net of Tax
Amount Expense Amount
----------------------------------------
(in thousands)
<S> <C> <C> <C>
Unrealized gains (losses)on available
for sale securities $(4,728) $(1,655) $(3,073)
Less: reclassification adjustment
for gains realized in net income 443 155 (288)
----------------------------------------
Net unrealized gains (losses) (5,171) (1,810) (3,361)
----------------------------------------
Other comprehensive income (loss) $(5,171) $(1,810) $(3,361)
========================================
</TABLE>
46
<PAGE>
<PAGE>
Note S-Parent Company Condensed Financial Information
Following are the condensed financial statements of Mississippi Valley
Bancshares, Inc. (Parent Company) for the periods indicated.
<TABLE>
BALANCE SHEETS
<CAPTION>
December 31
-----------------------
1998 1997
-----------------------
(dollars in thousands)
<S> <C> <C>
Assets
Cash and due from subsidiary $ 4,015 $ 403
Available for sale securities 5,404 9,529
Investment in subsidiaries 112,050 94,469
Bank premises 1,372 2,760
Other assets 2,365 1,368
-----------------------
TOTAL ASSETS $125,206 $108,529
=======================
Liabilities
Long-term debt $ 15,412 $ 15,412
Other liabilities 10 10
-----------------------
TOTAL LIABILITIES 15,422 15,422
Shareholders' equity 109,784 93,107
-----------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $125,206 $108,529
=======================
<CAPTION>
STATEMENTS OF INCOME
Year Ended December 31
-------------------------------------
1998 1997 1996
-------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Income
Dividends from subsidiary $10,102 $ 5,949 $ 8,929
Rent income 408 408 409
Other 947 831 111
-------------------------------------
TOTAL INCOME 11,457 7,188 9,449
Expense
Interest 1,126 1,017 224
Other 575 461 411
-------------------------------------
TOTAL EXPENSE 1,701 1,478 635
Income before tax benefit and
equity in undistributed income
of subsidiary 9,756 5,710 8,814
Income tax benefit (117) (70) (37)
-------------------------------------
Income before equity in
undistributed income of subsidiary 9,873 5,780 8,851
Equity in undistributed income
of subsidiary 8,738 9,233 5,245
-------------------------------------
Net income $18,611 $15,013 $14,096
=====================================
</TABLE>
47
<PAGE>
<PAGE>
Notes To Consolidated
Financial Statements (continued)
- ------------------------------------------------------------------------
Note S-Parent Company Condensed Financial Information-continued
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------
STATEMENTS OF CASH FLOWS 1998 1997 1996
-------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Operating activities
Net income $18,611 $15,013 $14,096
Equity in undistributed
income of subsidiary (8,738) (9,233) (5,245)
Realized securities gains, net (107) (108)
Other, net (13) (1,196) (935)
-------------------------------------
Net cash provided by
operating activities 9,753 4,476 7,916
Investing activities
Payments for investment in subsidiary (5,000) (7,413) (105)
Purchase of available for sale securities (9,041)
Proceeds from sales of held
to maturity and available
for sale securities 4,282 355
Other, net 1,318 (498)
-------------------------------------
Net cash provided by
(used in) investing activities 600 (16,597) (105)
Financing activities
Proceeds from short-term borrowings 4,400
Repayments of short-term borrowings (4,400) (3,000)
Proceeds from issuance of long-term debt 14,950
Proceeds from sale of common stock 1,157 111 84
Purchase of treasury stock (4,748)
Cash dividends paid (3,150) (2,631) (2,352)
Redemption of preferred stock (2,625)
-------------------------------------
Net cash provided by (used in)
financing activities (6,741) 12,430 (7,893)
-------------------------------------
Increase (decrease) in cash 3,612 309 (82)
Cash at beginning of year 403 94 176
-------------------------------------
Cash at end of year $ 4,015 $ 403 $ 94
=====================================
</TABLE>
48
<PAGE>
<PAGE>
Note T-Summary Of Quarterly Financial Information (Unaudited)
The following is a summary of quarterly operating results for the years
ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $25,152 $25,471 $26,167 $26,046
Interest expense 13,495 13,375 13,550 13,173
----------------------------------------------------
Net interest income 11,657 12,096 12,617 12,873
Provision for possible loan losses 900 1,000 900 1,650
Security gains 172 509 858
Other income 1,547 1,472 1,793 2,032
Other expense 5,557 5,802 5,752 6,499
Income taxes 2,479 2,625 2,823 3,028
----------------------------------------------------
Net income $ 4,440 $ 4,650 $ 4,935 $ 4,586
====================================================
Net income per share:
Basic $ .47 $ .48 $ .52 $ .48
Diluted .45 .47 .50 .49
<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
</TABLE>
49
<PAGE>
<PAGE>
This page was intentionally left
blank for your notes
- ----------------------------------------------------------------------
50
<PAGE>
<PAGE>
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
Private Investor
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
Southwest Bank, Belleville
Board Of Directors
- ------------------------------------------------------------------------
Andrew N. Baur
Chairman - Mississippi Valley
Bancshares, Inc.
Chairman - Southwest Bank
of St. Louis
Vice Chairman - Southwest Bank,
Belleville
Linn H. Bealke
President - Mississippi Valley
Bancshares, Inc.
Vice Chairman - Southwest Bank
of St. Louis
Chairman - Southwest Bank, Belleville
Paul J. Galeski
President and Chief Executive Officer
- Maverick Technologies
<PAGE>
Karen C. Hendrickson
President and Chief Executive Officer
- Southwest Bank, Belleville
Mark A. Hinrichs
Executive Vice President - Holland-
Hinrichs Construction, Inc.
Stephen P. Marsh
Executive Vice President and
Senior Loan Officer - Southwest Bank
of St. Louis and Southwest Bank,
Belleville
Ronald J. Ortyl, Sr.
Chairman - Metro East Industries
Paul M. Strieker
Chief Financial Officer - Mississippi
Valley Bancshares, Inc.
Executive Vice President -
Southwest Bank of St. Louis
51
<PAGE>
<PAGE>
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 21, 1999, at the Offices of KETC (Channel 9), 3655 Olive Street,
St. Louis, Missouri 63108.
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.
52
<PAGE>
<PAGE>
Pictured left to right
- ----------------------
Seated: Alice C. Behan and Donna D. Lambert.
Middle Row: Theodore P. Desloge, Jr., Richard T. Grote, Louis N.
Goldring, Franklin J. Cornwell, Jr., John T. Baumstark.
Back Row: Lewis B. Shepley, Linn H. Bealke, Andrew N. Baur, Michael D.
Latta, Frederick O. Hanser.
Not Pictured: William H.T. Bush and Mont S. Levy
[PHOTO]
Mississippi Valley Bancshares, Inc. Board Of Directors
- -------------------------------------------------------------------------
JOHN T. BAUMSTARK
President-Archway Sales Inc.
Age 54
ANDREW N. BAUR
Chairman-Mississippi Valley
Bancshares, Inc.
Chairman-Southwest Bank of St. Louis
Age 54
LINN H. BEALKE
President-Mississippi Valley
Bancshares, Inc.
Vice Chairman-Southwest Bank of St. Louis
Age 54
ALICE C. BEHAN
Private Investor
Age 53
WILLIAM H. T. BUSH
Chairman-Bush-O'Donnell & Co., Inc.
Age 60
FRANKLIN J. CORNWELL, JR.
Private Investor
Age 56
THEODORE P. DESLOGE, JR.
President-Bloom & Desloge Enterprises, Inc.
Age 59
LOUIS N. GOLDRING
President-AVCORP, inc.
Age 57
RICHARD T. GROTE
Chairman-American Medical Claims, Inc.
Age 53
FREDERICK O. HANSER
Chairman, St. Louis Cardinals, L.P.
Age 56
DONNA D. LAMBERT
Private Investor
Age 59
MICHAEL D. LATTA
Chairman and Chief Executive
Officer-Universe Corporation
Age 57
MONT S. LEVY
Registered Investment Advisor
Principal-Buckingham Asset
Management
Age 47
LEWIS B. SHEPLEY
Senior Vice President and Chief
Financial Officer-Reliable Life
Insurance Company
Age 59
<PAGE>
- -------------------------------------------------------------------------
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 of St. Louis) G. Fred Heimburger, William F. Holekamp,
Charles W. Hrebec, Jr., Charles A. Zone
(Representing SWB, Belleville) Ronald J. Ortyl, Sr.
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 of St. Louis) Zsolt Rumy
53
<PAGE>
<PAGE>
Mississippi Valley Bancshares, Inc.
700 Corporate Park Drive
St. Louis, Missouri 63105
(314) 268-2580
<PAGE>
EXHIBIT 21.
- -----------
SUBSIDIARIES OF THE COMPANY
---------------------------
Subsidiaries State of Organization
- ------------ ---------------------
Southwest Bank of St. Louis Missouri
Louisville Realty Corporation Missouri
RE Holding Company A Missouri
RE Holding Company B Missouri
RE Holding Company C Missouri
SWB Real Estate Investment Trust Missouri
Southwest Bank, Belleville Illinois
MVBI Capital Trust Missouri
12
<PAGE>
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 21, 1999, with respect to the
consolidated financial statements of Mississippi Valley Bancshares, Inc.
in the Annual Report (Form 10-K) for the year ended December 31, 1998,
incorporated by reference.
FORM NO.
- ---- ---
S-8 33-70208 Mississippi Valley Bancshares, Inc. 1991 Stock Option
Plan and Southwest Bank of St. Louis 401(k) Retirement
Savings Plan
S-8 33-88680 Mississippi Valley Bancshares, Inc. 1991 Stock Option Plan
S-8 333-00898 Southwest Bank of St. Louis 401(k) Retirement Savings Plan
S-8 333-21083 Mississippi Valley Bancshares, Inc. 1991 Stock Option Plan
S-8 333-50669 Mississippi Valley Bancshares, Inc. 1991 Stock Option Plan
S-8 333-73361 Mississippi Valley Bancshares, Inc. 1991 Stock Option Plan
March 19, 1999
St. Louis, Missouri
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