10-Q 1 eomissq.txt MISSISSIPPI VALLEY BANCSHARES FORM 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 --------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------------- -------------------- Commission file number 0-22008 ------------ MISSISSIPPI VALLEY BANCSHARES, INC. ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) MISSOURI 43-1336298 ------------------------------------------------------ --------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13205 Manchester Road, St. Louis, Missouri 63131 ------------------------------------------------------ --------------------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (314) 543-3512 ------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF APRIL 25, 2001: Common Stock, $1.00 par value 9,448,462 ----------------------------- --------------------- Class Number of Shares 2 THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. MISSISSIPPI VALLEY BANCSHARES, INC. ----------------------------------- INDEX ----- Page No. ------------ PART I. FINANCIAL INFORMATION ---------------------------- ITEM 1. Financial Statements Condensed Consolidated Balance Sheets -- March 31, 2001 and December 31, 2000 3 Condensed Consolidated Statements of Income -- Quarters Ended March 31, 2001 and March 31, 2000 4 Consolidated Statements of Changes in Shareholders' Equity -- Three Months Ended March 31, 2001 and March 31, 2000 5 Condensed Consolidated Statements of Cash Flows -- Three Months Ended March 31, 2001 and March 31, 2000 6 Notes to Condensed Consolidated Financial Statements 7-8 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9-15 PART II. OTHER INFORMATION ---------------------------- ITEM 6. Exhibits and Reports on Form 8-K 16 SIGNATURE 17 --------- 3 PART I. FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS -------------------- -------------------- MISSISSIPPI VALLEY BANCSHARES, INC. ----------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS -------------------------------------

4 MISSISSIPPI VALLEY BANCSHARES, INC. ----------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF INCOME ------------------------------------------- (UNAUDITED)

5 MISSISSIPPI VALLEY BANCSHARES, INC. ----------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY ---------------------------------------------------------- YEAR TO DATE MARCH 31, 2001 AND 2000 (UNAUDITED)

6 MISSISSIPPI VALLEY BANCSHARES, INC. ----------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (UNAUDITED)

7 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- 1. Basis of Presentation The condensed consolidated financial statements include the accounts of Mississippi Valley Bancshares, Inc. (the "Company") and its wholly-owned subsidiaries, Southwest Bank of St. Louis, Southwest Bank, Belleville, Southwest Bank of Phoenix (the "Banks"), MVBI Capital Trust and Mississippi Valley Capital Company, a venture capital subsidiary. Significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the entire year. In the opinion of management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," and as amended by FASB Statements No. 137 and 138. The Company adopted the new Statement effective January 1, 2001. The Statement requires the Company to recognize all derivatives on the balance sheet at fair value. The adoption of this Statement did not have a material effect on its results of operations or financial position. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2000. 2. Comprehensive Income Following is a summary of other comprehensive income components and related income tax effects:

8 3. Earnings per Share Basic earnings per share is computed by dividing net income by the weighted average common shares outstanding.

Diluted earnings per share gives effect to the weighted average shares outstanding and average dilutive common share equivalents outstanding.

9 ITEM 2. ------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS ----------------------------------------------- OF OPERATIONS AND FINANCIAL CONDITION ------------------------------------- The following discussion should be read in conjunction with the attached condensed consolidated financial statements and notes thereto, and with the Company's audited financial statements and notes thereto for the year ended December 31, 2000. SUMMARY OF EARNINGS ------------------- Consolidated net income for the first quarter of 2001 was $6,379,000, up $466,000 or 7.9% from the $5,913,000 earned during the first quarter of 2000. On a per share basis, net income was $.67, up 6.3% from $.63 in the same period of the prior year. The improved performance was generated primarily by increased net interest income. Loan growth of $22 million and net loan charge offs of $1,393,000 in the first three months of 2001 compared with net loan recoveries of $152,000 in the first quarter of 2000. As a result, the provision for possible loan losses was increased to $2,536,000 from $769,000 in the first three months of 2000. Increased noninterest income was largely offset by greater noninterest expenses. For the quarter, the Company's return on average assets was 1.30%, down from 1.50% in the first quarter of 2000. The Company's return on equity was 17.41%, down from 20.28% in the first three months of 2000. Total assets at March 31, 2001 were $2.001 billion, total loans were $1.396 billion and deposits were $1.672 billion at the Company's eight bank locations. At March 31, 2001, total equity capital was $149.0 million or 7.45% of assets. NET INTEREST INCOME ------------------- The following discussion and tables set 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. The tax-equivalent adjustments were approximately $69,000 and $73,000, for the three months ended March 31, 2001 and 2000, respectively. Net interest income on a tax-equivalent basis, divided by average interest- earning assets, represents the Company's net interest margin. Three months ended March 31, 2001 and 2000 ------------------------------------------ Total tax-equivalent interest income for the three months ended March 31, 2001 was $38,412,000, up $7,314,000 compared to the same period in 2000. The $257 million increase in the volume of average loans outstanding was primarily responsible for the increased interest earnings. Overall asset yields were 8.29% in the first quarter of 2001, down from 8.37% in the same period in 2000. Funding the Company's asset growth were 10 increased deposits, primarily money market accounts raised during the promotion in the second and third quarters of 2000. Total interest expense for the first quarter of 2001 was $21,539,000, up $5,139,000 from $16,400,000 in the first quarter of 2000. Higher rates were paid on nearly all interest bearing liabilities in the first quarter of 2001 compared to 2000. Overall rates paid on total interest bearing liabilities rose to 5.25% from 5.00% in the first quarter of 2000. Total tax-equivalent net interest income increased $2,175,000 as the effects of the increased volume of interest earning assets exceeded the effects of greater interest bearing liabilities and the higher rates paid on those funds. The Company's net interest margin declined to 3.63% from 3.95% in the first quarter of 2000 as overall asset yields declined and liability rates paid increased. 11 AVERAGE BALANCES, INTEREST AND RATES

12 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 changes in 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. CHANGES IN INTEREST INCOME AND EXPENSE, VOLUME AND RATE VARIANCES

13 PROVISION FOR POSSIBLE LOAN LOSSES ---------------------------------- The provision for possible loan losses for the first quarter of 2001 was $2,536,000, up from $769,000 for the same period in 2000. Loan growth and net loan charge offs of $1,393,000 in the first quarter of 2001 compared with net loan recoveries of $152,000 in the first three months of 2000 necessitated the greater provision expense. The allowance for possible loan losses was $25,159,000 or 1.80% of loans outstanding at March 31, 2001. This compared to $24,016,000 at the end of 2000 and $22,570,000 at March 31, 2000. In management's judgement, the allowance for possible loan losses is considered adequate to absorb potential losses in the loan portfolio. The following table summarizes, for the periods indicated, activity in the allowance for possible loan losses: Summary of Loan Loss Experience and Related Information -------------------------------------------------------

14 The following table summarizes nonperforming assets at the dates indicated:

NONINTEREST INCOME ------------------ For the first quarter of 2001 total noninterest income was $4,510,000, up from $3,223,000 in the same period in 2000. Significant fluctuations in the components included gains on sales of securities of $3,404,000 in 2001 compared with gains of $919,000 in the first quarter of 2000. In early January, 2001, the Company hedged investment securities to protect approximately $10 million of unrealized gains within its investment portfolio. Changes in the unrealized value of these securities have not been reflected in the income statement. However, changes in the values of the offsetting derivatives have been included in noninterest income, resulting in a loss on the hedging activities of $1,348,000 in the first quarter of 2001. There were no hedging profits or losses in the first three months of 2000. All other trading profits and commissions relate to sales commission activity of the Investment Department and were comparable with prior year results. NONINTEREST EXPENSE ------------------- Total noninterest expense for the first quarter of 2001 was $8,666,000, up $960,000 from $7,706,000 in the first three months of 2000. Overall Company growth, merit increases and greater benefit costs were largely responsible for the increased overhead costs. Increased advertising, occupancy and equipment costs and other operating expenses, due in large part to the operating costs for the new Phoenix, AZ bank which opened in late December, 2000, also advanced total noninterest expenses for 2001 above prior year levels. 15 CAPITAL MANAGEMENT AND RESOURCES -------------------------------- As of March 31, 2001, the Company's total shareholders' equity was $149.0 million. New capital was provided by the Company's first quarter net earnings and by the exercise of stock options. Also adding to 2001's shareholder's equity growth were unrealized gains, net of tax, on available for sale securities. Offsetting the Company's capital accumulation were the payments of cash dividends on common stock and the repurchase of 35,800 shares of common stock in connection with the Company's stock repurchase plan. The Company formed MVBI Capital Trust ("MVBI Capital"), a statutory business trust in 1997. 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. The two primary criteria currently in effect are the risk-based capital guidelines and the minimum capital to total assets or leverage ratio requirement. These regulatory guidelines require that Tier 1 capital equal or exceed 4.00% of risk-weighted assets, and that the risk-based capital ratio equal or exceed 8.00%. As of March 31, 2001 and December 31, 2000 the Company's Tier 1 capital was 10.15% and 10.19% of risk-weighted assets, and total risk-based capital was 11.40% and 11.44% of risk-weighted assets, respectively. The minimum acceptable ratio of Tier 1 capital to total assets, or leverage ratio, has been established at 3.00%. As of March 31, 2001 and December 31, 2000, the Company's leverage ratio was 8.01% and 8.11%, respectively. Management believes that a strong capital position provided by a mix of equity and long-term debt is essential. It provides safety and security for depositors, and enhances Company value for shareholders by providing opportunities for growth with the selective use of leverage. 16 PART II. OTHER INFORMATION --------------------------- ITEM 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: NONE (b) Reports on Form 8-K: NONE 17 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MISSISSIPPI VALLEY BANCSHARES, INC. ------------------------------------------- (Registrant) Date: May 11, 2001 /s/ Paul M. Strieker ------------ ----------------------------------- Paul M. Strieker, Executive Vice President, Controller and Chief Financial Officer (on behalf of the Registrant and as Principal Financial and Accounting Officer)

MISSISSIPPI VALLEY BANCSHARES INC 10-Q