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 June 30, 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 JULY 27, 2001: Common Stock, $1.00 par value 9,446,712 ------------------------------------------- --------------------- 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 -- June 30, 2001 and December 31, 2000 3 Condensed Consolidated Statements of Income -- Quarters Ended June 30, 2001 and June 30, 2000 4 Consolidated Statements of Changes in Shareholders' Equity -- Six Months Ended June 30, 2001 and June 30, 2000 5 Condensed Consolidated Statements of Cash Flows -- Six Months Ended June 30, 2001 and June 30, 2000 6 Notes to Condensed Consolidated Financial Statements 7-8 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9-16 PART II. OTHER INFORMATION ----------------- ITEM 4. Submission of Matters to a Vote of Security Holders 17 ITEM 6. Exhibits and Reports on Form 8-K 17 SIGNATURE 18 --------- 2 3 PART I. FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS ------- -------------------- MISSISSIPPI VALLEY BANCSHARES, INC. ----------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS -------------------------------------

6 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:

7 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.

8 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 second quarter of 2001 was $6,771,000, up $1,240,000 or 22.4% from $5,531,000 earned during the second quarter of 2000. On a per share basis, net income was $.71 in the second quarter of 2001, up from $.59 in the same period in 2000. Increased net interest income and greater non-interest income were primarily responsible for the improved performance. Partially offsetting those gains was a larger provision for possible loan losses and greater non-interest expense. Net income for the first half on 2001 was $13,150,000, up $1,706,000 or 14.9% from $11,444,000 for the first half of 2000. On a per share basis, net income was $1.38, up from $1.22 in the first half of 2000. Greater net interest income and higher non-interest income were reduced by a greater provision for loan losses and higher non-interest expense costs. The Company's loan loss provision was $6,639,000, up from $1,330,000 for the first six months of 2000 primarily because of net loan charge-offs of $2,818,000 in 2001, compared with net loan recoveries of $557,000 in 2000. Total non-interest income was $10,026,000 for the first six months of 2001, up from $6,119,000 in the same period in 2000 due primarily to greater gains on sales of investment securities and increased gains on interest rate derivative contract transactions. Total non-interest expenses were $17,527,000 for the first six months of 2001, up from $15,652,000 for the same period in 2000 due to overall Company growth and operating costs for the new Phoenix bank which opened in December, 2000. For the quarter and six months ended June 30, 2001, the Company's return on average assets was 1.35% and 1.33% compared with 1.30% and 1.40% in the same periods in 2000, respectively. At June 30, 2001, total equity capital was $153,910,000, up from $122,511,000 at June 30, 2000. The Company's return on average equity was 17.59% and 17.50% for the quarter and six months ended June 30, 2001, down from 18.35% and 19.30% for the same periods in 2000, respectively. Total assets were $2,021,996,000 with loans up to $1,423,351,000 at the end of June 2001. NET INTEREST INCOME ------------------- The following discussion and tables set forth the composition of average interest-earning assets and interest-earning liabilities along with accompanying interest income, expense, yields and rates, on a tax-equivalent basis. The tax-equivalent adjustments were approximately $68,000, $70,000, $138,000 and $143,000 for the three months and the six months ended June 20, 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. 9 10 THREE MONTHS ENDED JUNE 30, 2001 AND 2000 ------------------------------------------ Total tax-equivalent interest income for the three months ended June 30, 2001 was $36,857,000, up $2,331,000 compared to the same period in 2000. The $201 million increase in the volume of average loans and $72 million increase in investment securities were primarily responsible for the increase in interest earnings for the second quarter. Off-setting the large portion of the interest earnings growth due to greater volume were the lower yields earned on nearly all assets. Overall asset yields were 7.68% in the second quarter of 2001, down 87 basis points from 8.55% earned in the same period in 2000. Funding the Company's loan growth were increased money market deposits and long-term borrowings from the Federal Home Loan Bank. Total interest expense for the second quarter of 2001 was $18,715,000, down $1,333,000 from $20,048,000 in the second three months of 2000. The effects of the increased volume of deposits and long-term debt were more than offset by the lower rates paid on nearly all interest bearing liabilities in the second quarter of 2001. Rates paid on total interest bearing liabilities declined to 4.41% in 2001 compared with 5.59% in the second quarter of 2000. Overall tax-equivalent net interest income increased $3,665,000 due to the combination of greater interest earnings and lower interest expense. The Company's net interest margin rose to 3.78%, up 20 basis points from 3.58% in the same period in 2000. SIX MONTHS ENDED JUNE 30, 2001 AND 2000 --------------------------------------- Total tax-equivalent interest income for the first six months of 2001 was $75,270,000, up $9,646,000 from $65,624,000 in the same period in 2000. The $342 million increase in interest earning assets, 2/3 of which was loans, was primarily responsible for generating the increase in interest earnings from 2000 to 2001. Overall asset yields declined to 7.98% in 2001 from 8.46% in the first half of 2000, primarily as a result of the decline in market interest rates. Funding the asset growth in the first half of 2001 were increased money market accounts and additional long-term borrowings. The majority of the increased money market deposits were raised during the promotion in the second and third quarters of 2000, while the additional long-term debt resulted from advances negotiated with the Federal Home Loan Bank early in the first quarter of 2001. Total interest expense for the first half on 2001 was $40,254,000, up $3,805,000 from $36,449,000 in the same period in 2000. Nearly half of the increase in interest expense, resulting from greater interest bearing liabilities, was offset by the lower rates paid for these funds in 2001. Overall rates paid on total interest bearing liabilities declined to 4.82% from 5.31% in the first six months of 2000. In summary, total tax equivalent net interest income increased $5,841,000 as the increased interest income was partially offset by the interest expense increase. The Company's net interest margin for the first six months of 2001 was 3.71%, down slightly from 3.76% in the same period in 2000. 10 11 AVERAGE BALANCES, INTEREST AND RATES

11 12 AVERAGE BALANCES, INTEREST AND RATES

12 13 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 14 PROVISION FOR POSSIBLE LOAN LOSSES ---------------------------------- The provision for possible loan losses for the second quarter of 2001 was $4,103,000, up from $561,000 last year. For the first half of 2001 the provision for possible loan losses was $6,639,000, up from $1,330,000 for the same period in 2000. A combination of economic uncertainty, net loan recoveries of $557,000 in 2000 and net loan charge-offs of $2,818,000 in 2001 resulted in the increased loan loss provision expense for 2001. The allowance for possible loan losses was $27,837,000 or 1.96% of loans outstanding at June, 30, 2001. This compared to $24,016,000, or 1.75% of loans at the end of 2000, and $23,536,000 or 1.87% of loans outstanding at June 30, 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 15 The following table summarizes nonperforming assets at the dates indicated:

NONINTEREST INCOME ------------------ For the second quarter of 2001 total noninterest income was $5,516,000, up from $2,896,000 in the same period in 2000. The Company had trading profits of $2,864,000 on interest-rate derivative contract transactions in the second quarter of 2001, up from $632,000 on similar activities in the second three months of 2000. Securities sales generated net gains of $157,000 in 2001 while there were no securities sales in the second quarter of 2000. Service charges on deposit accounts, operating lease income and commissions and fees from customer securities activities were also up in 2001 compared with 2000. For the first six months of 2001, total noninterest income was $10,026,000, up from $6,119,000 in the first half of 2000. Net gains on interest-rate derivative trading activities generated profits of $1,516,000 in 2001 compared with $632,000 in 2000. Net gains of $3,561,000 were realized on securities sales in 2001 versus net gains of $919,000 on sales of available for sale securities in the first half of 2000. Other portions of 2001 noninterest income including service charges on deposit accounts, leasing income and fees from customer securities activities were also up from 2000 levels. Offsetting a portion of these advances was a $580,000 write-down of certain investments in our venture capital subsidiary. NONINTEREST EXPENSE ------------------- Total noninterest expense for the second quarter of 2001 was $8,861,000, up $915,000 from $7,946,000 in the second three months of 2000. For the first half of 2001 total noninterest expenses were $17,527,000, up $1,875,000 from the same period in 2000. Overall Company growth and operating costs for the new Phoenix, Arizona bank were primarily responsible for the increase. 15 16 CAPITAL MANAGEMENT AND RESOURCES -------------------------------- As of June 30, 2001, the Company's total shareholders' equity was $153.9 million. New capital was provided by the Company's net earnings and by the exercise of stock options. 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 June 30, 2001 and December 31, 2000 the Company's Tier 1 capital was 10.48% and 10.19% of risk-weighted assets, and total risk-based capital was 11.73% 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 June 30, 2001 and December 31, 2000, the Company's leverage ration was 8.16% 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 17 PART II. OTHER INFORMATION -------------------------- ITEM 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- On April 18, 2001 at the Company's Annual Meeting of Stockholders, stockholders took the following actions: a. Elected or re-elected all Management nominees to the Board of Directors. Vote tallies were as follows: Votes Votes In Favor Abstaining ---------- ---------- John T. Baumstark 7,780,748 332,659 Linn H. Bealke 7,565,881 547,526 Theodore P. Desloge, Jr. 8,052,707 60,700 Donna D. Lambert 8,050,765 62,642 Michael D. Latta 8,052,707 60,700 b. Ratified the selection of Ernst & Young, LLP as independent accountants for 2001 with 8,094,786 shares voted in favor, 15,092 shares voted against and 3,529 shares abstained. ITEM 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: NONE (b) Reports on Form 8-K: NONE 17 18 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: August 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) 18

MISSISSIPPI VALLEY BANCSHARES INC 10-Q