<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended September 30, 1996
Commission file number: 0-26350
ALLEGIANT BANCORP, INC.
(Exact name of registrant as specified in its charter)
Missouri 43-1519382
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7801 Forsyth Boulevard
St. Louis, Missouri 63105
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (314) 726-5000
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 [ ]
On October 31, 1996, the registrant had 1,996,522 outstanding shares of
Common Stock, $.01 par value.
<PAGE> 2
ALLEGIANT BANCORP, INC.
FORM 10-QSB
<TABLE>
INDEX
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets - September 30, 1996 and December 31, 1995 3
Statements of Income - Three Months Ended September 30, 1996 and 1995
and Nine Months Ended September 30, 1996 and 1995 4
Statements of Cash Flows - Nine Months Ended September 30, 1996 and 1995 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis 7
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
</TABLE>
- 2 -
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(unaudited)
September 30, December 31,
1996 1995
------------- ------------
(in thousands, except share and per share data)
<S> <C> <C>
ASSETS:
- ------
Cash and due from banks $ 6,528 $ 5,483
Federal funds sold and
other overnight investments 1,550 14,200
Investment securities:
Available for sale (at estimated
market value) 22,605 28,000
Held to maturity (approximate market
value of $39,397 in 1996 and
$45,042 in 1995, respectively) 39,703 45,211
Loans 274,260 181,544
Less allowance for possible loan losses (2,724) (2,130)
-------- --------
Net loans 271,536 179,414
Bank premises and equipment 4,691 4,603
Accrued interest and other assets 4,084 2,906
Cost in excess of fair value of
net assets acquired 507 569
-------- --------
Total $351,204 $280,386
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
- ------------------------------------
Deposits:
Non-interest bearing $ 25,386 $ 21,966
Interest bearing 197,948 176,203
Certificates of deposit of $100,000 or more 44,539 33,140
-------- --------
Total deposits 267,873 231,309
-------- --------
Short-term borrowings 51,060 14,108
Long-term debt 15,580 19,719
Accrued expenses and other liabilities 1,381 1,312
-------- --------
Total liabilities 335,894 266,448
Shareholders' equity:
Common Stock, $.01 par value - shares
authorized, 7,800,000; issued and outstanding,
1,996,522 and 1,989,034, respectively 20 18
Capital surplus 11,453 11,369
Retained earnings 3,899 2,642
Net unrealized depreciation on securities
available for sale (62) (91)
-------- --------
Total shareholders' equity 15,310 13,938
-------- --------
Total liabilities and shareholders' equity $351,204 $280,386
======== ========
See notes to consolidated financial statements.
</TABLE>
- 3 -
<PAGE> 4
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 6,048 $ 4,127 $ 15,646 $ 11,759
Investment securities 838 704 2,580 2,155
Federal funds sold and
overnight investments 4 43 121 120
---------- ---------- ---------- ----------
Total interest income 6,890 4,874 18,347 14,034
---------- ---------- ---------- ----------
Interest Expense:
Interest on deposits 3,035 2,372 8,609 6,400
Interest on short-term debt 514 142 947 522
Interest on long-term debt 335 393 1,083 1,028
---------- ---------- ---------- ----------
Total interest expense 3,884 2,907 10,639 7,950
---------- ---------- ---------- ----------
Net interest income 3,006 1,967 7,708 6,084
Provision for possible loan losses 519 210 950 717
---------- ---------- ---------- ----------
Net interest income after
provision for possible loan losses 2,487 1,757 6,758 5,367
---------- ---------- ---------- ----------
Other Income:
Service charges and other fees 291 245 683 497
Net gain on sale of securities 32 -- 49 --
---------- ---------- ---------- ----------
Total other income 323 245 732 497
---------- ---------- ---------- ----------
Other Expenses:
Salaries and employee benefits 811 723 2,399 2,004
Operating expenses 1,152 631 2,783 2,190
---------- ---------- ---------- ----------
Total other expenses 1,963 1,354 5,182 4,194
---------- ---------- ---------- ----------
Income before income taxes 847 648 2,308 1,670
Provision for income taxes 339 260 905 663
---------- ---------- ---------- ----------
Net income $ 508 $ 388 $ 1,403 $ 1,007
========== ========== ========== ==========
Earnings per share:
Average adjusted common
shares outstanding 2,144,244 2,044,409 2,152,646 1,739,126
Net income $ .24 $ .19 $ .65 $ .58
See notes to consolidated financial statements.
</TABLE>
- 4 -
<PAGE> 5
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(unaudited)
<CAPTION>
Nine Months Ended
September 30,
--------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
- --------------------
Net income $ 1,403 $ 1,007
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 513 244
Provision for loan losses 950 717
Loan recoveries 54 10
Net gain (loss) on sale of securities (49) 4
Changes in assets and liabilities:
Accrued interest and other assets (1,178) (1,180)
Accrued expenses and other liabilities 130 (29)
-------- --------
Cash provided by operating activities 1,823 773
-------- --------
INVESTING ACTIVITIES:
- --------------------
Proceeds from maturities of securities held to maturity 36,923 41,519
Purchase of investment securities held to maturity (31,415) (54,970)
Proceeds from maturities of securities available for sale 42,415 --
Proceeds from sales of securities available for sale 2,085 988
Purchase of investments securities available for sale (39,014) (2,428)
Loans made to customers, net of repayments (93,126) (45,753)
Additions to premises and equipment (539) (755)
-------- --------
Cash used in investing activities (82,671) (61,399)
-------- --------
FINANCING ACTIVITIES:
- --------------------
Net increase in deposits 36,564 54,126
Net increase (decrease) in short-term debt 32,852 (8,767)
Repayment of long-term debt (39) (1,200)
Proceeds from issuance of long-term debt -- 19,315
Proceeds from issuance of Common Stock 4 4,337
Payment of dividends (138) (78)
-------- --------
Cash provided by financing activities 69,243 67,733
-------- --------
Net (decrease) increase in cash and cash equivalents (11,605) 7,107
Cash and cash equivalents, beginning of period 19,683 5,778
-------- --------
Cash and cash equivalents, end of period $ 8,078 $ 12,885
======== ========
See notes to consolidated financial statements.
</TABLE>
- 5 -
<PAGE> 6
ALLEGIANT BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of Allegiant Bancorp, Inc. (the "Company") and its
subsidiaries, Allegiant Bank, Allegiant State Bank (which was
merged into Allegiant Bank on January 27, 1995) (as used
herein the "Bank" refers to Allegiant Bank for periods
subsequent to such merger and to Allegiant Bank and Allegiant
State Bank, collectively, prior to such time) and Allegiant
Mortgage Company (the "Mortgage Company"). The financial
statements have been prepared in conformity with generally
accepted accounting principles and with general practice
within the banking industry. Significant intercompany
transactions and amounts have been eliminated.
The consolidated balance sheet at September 30, 1996, the
consolidated statements of income for the three and nine months
ended September 30, 1996 and 1995, respectively, and the
consolidated statements of cash flows for the nine months ended
September 30, 1996 and 1995, respectively, are unaudited, but,
in the opinion of the Company, reflect all adjustments
(consisting only of normal recurring accruals) necessary for a
fair presentation. Reference is hereby made to the notes to
consolidated financial statements contained in the Company's
Annual Report for the year ended December 31, 1995. The results
of operations for the nine months ended September 30, 1996 are
not necessarily indicative of the results which may be obtained
for the full year ending December 31, 1996.
2. EARNINGS PER SHARE
Primary earnings per share is based on the average number of
common shares and common share equivalents outstanding during
each quarter with the elimination of interest and dividends
paid on the common share equivalents.
- 6 -
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Company is a bank holding company which owns all of the
capital stock of Allegiant Bank. The Bank provides personal and commercial
banking and related financial services from six locations in the St. Louis
Standard Metropolitan Statistical Area ("St. Louis SMSA"), the 16th largest
metropolitan area in the United States, and two locations in Northeast
Missouri. The Mortgage Company is a wholly-owned subsidiary of the Bank and
offers residential loans primarily to customers in the St. Louis market.
The Company was organized in May 1989 and acquired Allegiant
State Bank at that time. The Company acquired Allegiant Bank in 1990. In
November 1994, Allegiant Bank acquired the Mortgage Company. Effective
January 1995, Allegiant State Bank merged into Allegiant Bank.
RESULTS OF OPERATIONS
NET INCOME
Increases in net income for the third quarter and year-to-date
periods resulted primarily from growth in net interest income due to
continuing expansion of interest bearing assets. For the third quarter of
1996, the Company reported net income of $508,000, compared to net income of
$388,000 for the third quarter of 1995. This increase of $120,000
represented a 31% improvement. On a per share basis, net income was $.24
for the three months ended September 30, 1996 and $.19 for the corresponding
quarter of 1995, an increase of 26%.
For the nine-month period ended September 30, 1996, the Company
reported earnings of $1.4 million, compared to $1.0 million, for the period
ended September 30, 1995, an increase of $396,000, or 39%. However, on a
per share basis, net income increased only 12%, from $.58 for the year-to-date
period in 1995 to $.65 for the comparable period in 1996, due to the 24%
increase in average adjusted common shares outstanding. This increase from 1.7
million shares for the nine months ended September 30, 1995 to 2.1 million
shares for the corresponding period in 1996, was the result of the private
placement of 510,000 shares of Common Stock in June 1995.
Net Interest Income
Net interest income before provision for loan losses for the
three months ended September 30, 1996 was $3.0 million, an increase of $1.0
million, or 53%, from $2.0 million for the corresponding quarter in 1995.
This improvement was largely due to an increase in interest and fees earned
on loans which increased $1.9 million from $4.1 million at September 30,
1995 to $6.1 million on September 30, 1996. Interest earned on federal
funds sold decreased 91%, from $43,000 for the third quarter of 1995 to
$4,000 for the same period in 1996 due to the Bank's increased overnight
borrowing during the period. Total interest income for the three-month
period ended September 30, 1996 was $6.9 million, which represented a 41% or
$2.0 million increase compared to $4.9 million for the three months ended
September 30, 1995.
- 7 -
<PAGE> 8
Interest expense in the third quarter of 1996 totaled $3.9
million compared to $2.9 million for the three months ended September 30,
1995, an increase of $977,000 or 34%. Interest paid on deposits increased
28%, from $2.4 million for the three months ended September 30, 1995 to $3.0
million for the same period in 1996. The largest portion of this increase
was attributable to a $581,000 increase in interest paid on money market
accounts and a $126,000 increase in interest paid on certificates of deposit
of over $100,000. The substantial increase in money market account interest
was due to the $40.9 million increase in money market accounts outstanding,
which ended the third quarter of 1996 at $60.8 million compared to $19.9
million at September 30, 1995.
Expenditures for short-term borrowings increased $372,000, from
$142,000 to $514,000 for the three months ended September 30, 1995 and 1996,
respectively. This increase was due to the Bank's utilization of Federal
Home Loan Bank ("FHLB") short-term advances to fund new loan growth, as
opposed to solely relying on funds generated from deposit promotions, which
require paying above market rates. See "--Net Interest Margin" and
"--Liquidity and Capital Resource Management." Payments made on long-term
debt decreased $58,000, from $393,000 for the third quarter of 1995 to $335,000
in the same period in 1996. This decrease was mainly due to the
reclassification of a portion of the debt from long term to short term, as
the FHLB advances mature within twelve months after September 30, 1996.
For the nine-month period ended September 30, 1996, net interest
income before provision for loan losses increased 27% to $7.7 million from
$6.1 million at September 30, 1995. This growth was attributable to the 31%
increase in total interest income, which advanced from $14.0 million for the
first nine months of 1995 to $18.4 million for the same period in 1996. The
largest segment of this growth in interest income was due to the $3.9
million increase in interest and fees earned on loans. For the nine months
ended September 30, 1996, interest and fees earned on loans totaled $15.7
million compared to $11.8 million earned in the corresponding period in
1995. Another factor leading to the improved interest income, was the
increase in interest earned on investment securities, which rose 20% from
$2.2 million for the nine-month period ended September 30, 1995, to $2.6
million for the corresponding period in 1996. This improved performance is
attributable to the addition of higher yielding securities, funded by
maturing securities which had lower coupons.
Total interest expense for the nine months ended September 30,
1996 was $10.6 million, a 34% increase over the total interest expense of
$8.0 million for the corresponding period in 1995. Interest paid to
depositors increased 35%, from $6.4 million at September 30, 1995 to $8.6
million at September 30, 1996. This increase was a result of greater
deposit volume. Total average interest bearing accounts outstanding for the
nine months ended September 30, 1996 was $214.9 million compared to average
balances of $160.4 million for the corresponding period in 1995. Interest
paid on short-term borrowings increased 81% from $522,000 to $947,000 for
the year-to-date periods of 1995 and 1996, respectively, and interest paid
on long-term borrowings increased 5% from $1.0 million during the first nine
months of 1995 to $1.1 million for the same period in 1996. The increased
expense for short-term borrowings was a result of additional FHLB advances
outstanding during the period.
- 8 -
<PAGE> 9
Net Interest Margin
Increases in total interest income for the quarter and nine-month
periods ended September 30, 1996 were offset in part by tightening spreads and
increasing cost of funds. As a result of these trends, along with the growth
in deposits and competitive market pressures, the Company's net interest margin
for the first nine months of 1996 decreased 22 basis points from 3.90% for the
nine months ended September 30, 1995 to 3.68% for the corresponding period in
1996. The tightening spreads experienced by the Company resulted principally
from four factors: (i) an increased concentration in the portfolio of one- to
four-family adjustable rate mortgages; (ii) an extremely competitive market for
retail deposits; (iii) a shift in interest rates; and (iv) increases in total
borrowings outstanding.
The largest component of net income is attributable to interest
earned on the Bank's loan portfolio. For the nine months ended September
30, 1996, the annualized yield on total average loans outstanding was 9.70%
compared to 10.20% for the nine-month period ended September 30, 1995. This
lower yield reflected two downward adjustments in the prime lending rate,
which has decreased from 8.75% on September 30, 1995 to 8.25% on September
30, 1996. The majority of the Bank's commercial loans have repriced in
response to this decrease in interest rates. In addition to lower interest
rates, the Bank's spreads have decreased due to its increased holdings of
one- to four-family mortgage loans, which tend to yield less than commercial
or consumer loans. The Bank has chosen to absorb this decrease in yield to
improve its management of credit risk by increasing its portfolio of one- to
four-family adjustable rate mortgages.
Management prefers to originate one- to four-family adjustable
rate mortgage loans due to the lower credit risk generally associated with
this type of loan, as well as the lower exposure to interest rate risk due
to the frequent periodic adjustments of the mortgage coupon payments. Along
with the reduced credit risk and interest rate protection, the Bank also has
observed a lower level of the non-preforming loans associated with one- to
four-family mortgages compared to the Bank's portfolio of loans as a whole.
Given these attributes of lower risk, the Bank has accepted a lower average
yield compared to loans with a higher level of risk. The Bank anticipates
the continued addition of one- to four-family loans in the Bank's loan
portfolio mix.
Additionally, the origination of one-to four family adjustable
rate mortgages allows the Bank to establish relationship banking with these
new retail customers by offering a complete line of consumer banking
products. One such product is the Bank's new Home Equity Credit Line
("HECL") which was introduced in the second quarter of 1996. As of
September 30, 1996, the Bank had exceeded management's expectations in both
commitments and balances outstanding with commitments of $8.0 million in
HECLs and $4.7 million in balances outstanding. These loans are tied to the
prime lending rate and were originated at a special low introductory rate,
which will subsequently reprice in the first quarter of 1997.
- 9 -
<PAGE> 10
The annualized yield paid for interest bearing deposits and both
long and short-term debt was 5.56% for the nine months ended September 30,
1996. This represented a decrease of 3 basis points when compared to the
corresponding period in 1995, reflecting increased reliance on FHLB
borrowings which were a more cost-effective funding source than retail
deposits during the period. The slight decrease in rates paid on
liabilities relative to the larger 22 basis point decrease for total
interest earning assets was largely attributable to the highly competitive
market for retail deposits. When compared to the Bank's peers in other
geographical regions, the St. Louis SMSA is substantially more competitive
with respect to consumer deposit pricing. The Company does not foresee a
change in this market condition in the near future.
In addition to the competitive deposit market, the Bank ran a
successful money market deposit promotion in the fourth quarter of 1995 and
the first half of 1996. From time to time, the Bank has selectively run
deposit promotions, such as the one described above, in order to augment its
funding and liquidity needs. For the nine months ended September 30, 1996
the yield on money market accounts increased to 4.93%, from 3.75% for the
nine months ended September 30, 1995. This 118 basis point increase
resulted from the higher yield paid in order to attract deposits in the
extremely competitive market. This rate was guaranteed for an initial
six-month period and subsequently, on May 1, 1996, the Bank has lowered the
interest rate paid on the highest tier for the Allegiant Green money market
accounts, allowing the new rate to fall to market averages. This adjustment
was intended to help alleviate the pressures on the net interest margin in
the third and fourth quarters of 1996.
In order to avoid running additional deposit promotions, the
Bank increased its short-term debt as an alternative to paying above market
averages for retail deposits. One bank in the St. Louis SMSA chose to run a
one year certificate of deposit promotion to yield 6.20% in the third
quarter of 1996, whereas the Bank chose to borrow $10 million of shorter-term
funds from the FHLB at a blended cost of 5.80%. The strategy allows the Bank
to access funds, with minimal administrative costs and without increasing the
cost of its existing deposit base, which occurs when lower cost deposits mature
and subsequently reprice at the higher special rate.
The Bank has also utilized these alternative funding sources in
anticipation of the planned opening of an additional branch in first quarter
of 1997, as well as a temporary source of funding until the Bank's two
recently opened branches can attract increased levels of core deposits,
which cost less than promotional monies. The Bank opened its seventh and
eighth branches in November 1995 (West St. Louis County) and in May 1996
(South St. Louis County), respectively. The Company expects that as these
new branches mature, their core deposit base should fund the planned
retirement of a substantial portion of the short-term debt.
- 10 -
<PAGE> 11
The following tables show the condensed average balance sheets
for the periods reported and the average yield for each category used to
calculate the net interest margin:
<TABLE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------------------------------------------
1996 1995
------------------------------------ -----------------------------------
Average Int Earned/ Yield/ Average Int Earned/ Yield/
Balance Expense Rate<F1><F2> Balance Expense Rate<F1><F2>
------------------------------------ -----------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans<F1> $215,124 $15,646 9.70% $153,761 $11,759 10.20%
Taxable investment securities 61,011 2,580 5.64% 51,586 2,155 5.57%
Federal funds sold 2,924 121 5.52% 2,757 120 5.80%
-------- ------- -------- -------
Total interest earning assets 279,059 18,347 8.77% 208,104 14,034 8.99%
-------- ------- -------- -------
Non-interest-earning assets:
Cash and due from banks 6,287 5,516
Bank premises and equipment 4,691 2,792
Other assets 3,872 3,660
Allowance for possible loan losses (2,253) (1,755)
-------- --------
Total assets $291,656 $218,317
======== ========
Liabilities and shareholders' equity:
Interest bearing liabilities:
Money market accounts $ 59,607 $ 2,205 4.93% $ 14,690 $ 413 3.75%
NOW accounts 9,638 174 2.41% 8,184 144 2.35%
Savings deposits 7,204 178 3.29% 5,994 163 3.63%
Certificates of deposit 98,524 4,379 5.93% 96,070 4,199 5.83%
Certificates of deposit over $100,000 32,471 1,335 5.48% 29,702 1,238 5.56%
IRA certificates 7,435 338 6.06% 5,759 243 5.63%
-------- ------- -------- -------
Total interest bearing deposits 214,879 8,609 5.34% 160,399 6,400 5.32%
-------- ------- -------- -------
Federal funds purchased, repurchase
agreements, and other short-term
borrowings 22,322 947 5.66% 12,468 522 5.58%
Long-term borrowings 18,180 1,083 7.94% 16,812 1,028 8.15%
-------- ------- -------- -------
Total interest bearing liabilities 255,381 10,640 5.56% 189,679 7,950 5.59%
-------- ------- -------- -------
Non-interest bearing liabilities:
Demand deposits 20,161 16,310
Other liabilities 1,508 1,650
Shareholders' equity 14,606 10,678
-------- --------
Total liabilities and
shareholders' equity $291,656 $218,317
======== ========
Net interest income $ 7,708 $ 6,084
======= =======
Net interest margin 3.68% 3.90%
<FN>
- ---------------
<F1>Interest on non-accruing loans is not included for purposes of calculating yields which have been annualized.
<F2>All yields are annualized
</TABLE>
- 11 -
<PAGE> 12
Provision for Loan Losses
Consistent with the Bank's loan policy, an allowance is
recognized to provide for possible future loan losses. This reserve is
provided for on a monthly basis at a rate determined by management based
upon its review of the loan portfolio. For the quarter ended September 30,
1996, the Bank provided $519,000 to the loan loss reserve, compared to
$210,000 for the corresponding quarter in 1995. Total charge-offs for the
third quarter of 1996 were $88,000 compared to $78,000 for the same period
in 1995. This amount includes a $64,000 charge off associated with one
specific real estate developer.
For the nine-month period ended September 30, 1996, the
provision for loan losses was $950,000 compared to $717,000 for the nine
months ended September 30, 1995, an increase of 33% or $233,000. These
large percentage increases in the provision for possible loan losses for
both the three month and year-to-date periods, reflect the large increases
in total loans outstanding for the periods presented. Loans charged off
during the first nine months of 1996 were $410,000 compared to $118,000 in
the corresponding period of 1995. This increase includes a $164,000 charge
off associated with the above described real estate developer. Total
recoveries for the nine months ended September 30, 1996 were $54,000
compared to $10,000 in the corresponding period in 1995.
- 12 -
<PAGE> 13
The following table summarizes, for the periods indicated,
activity in the Bank's allowance for possible loan losses, including amounts
of loans charged off, amounts of recoveries and additions to the allowance
charged to operating expenses:
<TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION
<CAPTION>
Nine months ended
September 30,
--------------------------
1996 1995
-------- --------
(dollars in thousands)
<S> <C> <C>
Allowance for possible loan losses
(beginning of period) $ 2,130 $ 1,455
Loans charged off:
Real estate:
construction (64) --
secured by 1-4 family residential properties (172) --
secured by nonfarm nonresidential properties (105) --
Installment (13) (48)
Credit cards and related plans -- --
Commercial and all other loans (56) (70)
Lease financing receivables -- --
-------- --------
Total loans $ (410) $ (118)
-------- --------
Recoveries of loans previously charged off:
Real estate:
construction -- --
secured by 1-4 family residential properties 3 --
secured by nonfarm nonresidential properties -- --
Installment 7 10
Credit cards and related plans -- --
Commercial and all other loans 44 --
Lease financing receivables -- --
-------- --------
Total loans 54 10
-------- --------
Net loans charged off (356) (108)
-------- --------
Provision for possible loan losses 950 717
-------- --------
Allowance for possible loan losses (end of period) $ 2,724 $ 2,064
======== ========
Loans outstanding:
Average $215,123 $153,979
End of period 274,260 167,028
Ratio of allowance for loan losses to total loans outstanding:
Average 1.27% 1.34%
End of period 1.00% 1.24%
Ratio of net charge-offs to average
loans outstanding 0.17% 0.07%
</TABLE>
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<PAGE> 14
Non-interest Income and Expense
Non-interest income for the third quarter of 1996 was $323,000
compared to $245,000 for the third quarter of 1995. This increase of
$78,000, or 32%, was due to both the increased number of deposit accounts
and the expanded base of service chargeable products offered to the
Company's customers. The Company has engaged in a cost improvement program
which includes a revamping of the Bank's fee structure. The largest
improvement attributable to the cost improvement program involved fees
charged on overdrafts, which was estimated to increase non-interest income
by $74,000, on an annual basis for 1996. Other improvements stem from
improved cash management, increases in charges for customer check supplies
and an increase in installment loan fees. Management expects continued
growth in non-interest income as new products are developed and offered to
the Bank's customers. These factors led to similar performance for the
nine-month periods presented, in which non-interest income increased 47%
from $497,000 to $732,000 for the nine months ended September 30, 1995 and
1996, respectively. Net gains on the sale of securities contributed $32,000
to the increase in non-interest income for the quarter ended and $49,000 for
the nine months ended September 30, 1996.
For the quarter ended September 30, 1996, total non-interest
expense was $2.0 million, compared to $1.4 million for the quarter ended
September 30, 1995, an increase of 45%. This amount included an 83%
increase in other operating expenses and a 12% increase in salaries and
employee benefits. A large portion of the increase in other operating
expenses was directly related to the operation of the Des Peres and South
County branches, as well as increases in the depreciation of bank premises
and equipment. The remainder of the increase was attributable to
expenditures for telephone, supplies, accounting fees and business
development. Management believes that these increases are a result of the
Bank's growth and represent the increase in regular business activities.
The increase in salary and employee benefits resulted from a
change in the employee mix. Full-time support staff positions were reduced
while management level employees were hired to increase efficiency and
expand the Company's market coverage. In addition, experienced customer
service representatives were hired to operate the new Des Peres and South
County branches. This change in the personnel profile was reflected in the
increased costs associated with salaries and employee benefits despite only
a nominal increase in the number of full-time equivalent employees. As of
September 30, 1996, Allegiant Bank employed 87 full-time equivalent
employees compared to 85 full-time equivalent employees at September 30,
1995. Despite the increase in non-interest expense, the Bank was able to
improve its operating efficiency as the ratio of total non-interest expense
to total interest income (the efficiency ratio) decreased from 61.21% for
the third quarter of 1995 to 58.97% for the same period in 1996.
- 14 -
<PAGE> 15
For the nine months ended September 30, 1996, total non-interest
expense increased to $5.2 million from $4.2 million at September 30, 1995.
This increase of $988,000 or 24% was due to a 20% increase in salaries and
other employee benefits and a 27% increase in other operating expenses. The
additional costs incurred for salaries and employee benefits was due to the
previously mentioned change in the employee mix. The increase in operating
expenses directly reflected the addition of the Des Peres branch which was
opened in November 1995 and the May 1996 opening of the South County branch.
Despite the additional costs associated with the opening of the
two new branches, the Bank was able to improve its operating efficiency
ratio during the first nine months of 1996. The efficiency ratio decreased
to 61.40% for the nine months ended September 30, 1996, from 63.73% during
the corresponding period in 1995. The Company attributes a substantial
portion of these efficiency gains to the cost improvement program that it
has undertaken. In addition to the Bank's increased efficiency, in 1995,
the Federal Deposit Insurance Corporation ("FDIC") announced that deposit
insurance premiums would be reduced from $.23 per $100 to the base amount of
$2,000 per year. As a result, the Company's deposit insurance premiums
expense decreased $139,000 in the first nine months of 1996, compared to the
corresponding period of 1995.
FINANCIAL CONDITION
At September 30, 1996, the Bank's total assets were $351.2 million,
an increase of $70.8 million or 25% from December 31, 1995. This growth was
primarily attributable to a $92.7 million increase in loans outstanding,
principally the addition of $52.1 million in one- to four-family mortgages.
Fed funds sold decreased 89% during the nine months ended September 30, 1996,
from $14.2 million at December 31, 1995. This decrease was due to the funding
of increased loan production. Investment securities decreased 15% ($10.9
million) from $73.2 million at December 31, 1995 to $62.3 million at September
30, 1996. This decrease was primarily attributable to the maturity of
short-term securities, purchased to maximize the spread to fed funds. The
proceeds from these maturities were used to fund the limited deposit run off
resulting from the second quarter repricing of the deposit promotion offered in
the fourth quarter of 1995 and the increased loan growth experienced in the
first nine months of 1996.
Loans
Loans, the largest component of interest earning assets,
increased 51% during the first nine months of 1996. This growth was
attributable to a 61% increase in consumer loans, a 55% increase in
commercial loans and a 53% increase in real estate loans. The growth in
consumer loans was attributable to the improved management of the consumer
loan portfolio, along with the introduction of the new HECL product. In
the first year of production, 155 HECL loans have been originated with $8.0
million committed and $4.7 million in balances outstanding. Performance in
this area has exceeded management's expectations. These loans were offered
at a low introductory rate and will reprice in the first quarter of 1997.
- 15 -
<PAGE> 16
The increase in commercial loans was largely due to marketing
efforts of the Bank's commercial loan team, strengthened by the recent
additions of personnel recruited from competing banks in the area. Many of
these loan officers were able to transfer business relationships with them.
Commercial loans increased $22.5 million, from $40.5 million on December 31,
1996 to $63.0 million on September 30, 1996. The majority of these loans
are tied to Allegiant's Corporate Market rate (which generally moves with
the national prime lending rate) and tend to be the Bank's most profitable
loans.
Real estate loans increased $65.5 million during the first nine
months of 1996 ending the quarter at $189.6 million compared to $124.1
million at December 31, 1995. The majority of this increase was in one- to
four-family mortgages which tend to be lower risk in nature. This increased
production includes approximately $15.0 million in conforming FNMA loans,
which could be used as an additional source of liquidity. The Mortgage
Company was the key contributor to this increase in mortgage loan
production, posting a record nine-month performance with $55.3 million in
loans originated.
The composition of the loan portfolio is summarized as follows:
<TABLE>
LENDING AND CREDIT MANAGEMENT<F1>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
--------------------- --------------------- ---------------------
Percent Percent Percent
of Total of Total of Total
Amount Loans Amount Loans Amount Loans
-------- -------- -------- ------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial, agricultural
municipal and industrial
development $ 62,989 22.97% $ 40,518 22.32% $ 38,459 23.03%
Real estate construction 8,414 3.07 8,777 4.83 9,089 5.44
Real estate mortgage
one- to four-family 118,645 43.26 71,260 39.25 66,545 39.84
multi-family and commercial 70,918 25.86 52,795 29.08 44,555 26.68
Consumer and other 13,460 4.91 8,379 4.62 8,551 5.12
Less unearned income (166) (.06) (185) (0.10) (171) (0.10)
-------- ------ -------- ------ -------- ------
Total loans $274,260 100.00% $181,544 100.00% $167,028 100.00%
======== ====== ======== ====== ======== ======
<FN>
- ---------------
<F1> The Bank had no outstanding foreign loans at the dates reported.
</TABLE>
- 16 -
<PAGE> 17
Investments
Investment securities decreased $10.9 million during the first
nine months of 1996, from $73.2 million at December 31, 1995 to $62.3
million at September 30, 1996. A substantial portion of this decrease was
due to the maturity of short-term investments, the proceeds of which were
subsequently used to fund the increased loan growth. The Bank generally
invests in short-term (less than 90 days) discount notes in order to
maximize yield versus simply investing the funds in the overnight fed funds
market. Some longer-term securities were called away from the Bank as well,
due to the relative decrease in interest rates during the first quarter of
1996. The Bank will continue to target a laddered investment strategy,
purchasing a mix of fixed rate U.S. Treasury and agency issues as well as
callable agency securities.
The 15% decrease in investment securities for the first nine
months of 1996 occurred despite the addition of $4.6 million in
adjustable-rate mortgage-backed securities. These securities were created
as a result of a mortgage loan swap with FNMA in which the Bank traded $4.6
million in adjustable-rate mortgages for the same amount in mortgage-backed
securities. This type of transaction allows the Bank greater financial
flexibility, liquidity and reduced risk in exchange for decreased yield in the
form of a guarantee fee paid to FNMA. This is the second time the Bank has
entered into this type of transaction, the first was in August 1995 when the
Bank swapped $12.3 million in adjustable-rate mortgage loans. The Bank plans to
swap mortgages for additional securities in 1996 and anticipates similar
transactions in the future as part of its regular course of operations.
The book values, for the periods indicated, are as follows:
<TABLE>
INVESTMENT SECURITIES PORTFOLIO
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(in thousands)
<S> <C> <C>
United States Treasury securities $ 7,938 $ 5,017
Obligations of United States government agencies 48,675 64,697
Federal Home Loan Bank stock 4,412 2,645
States and political subdivisions 1,173 930
Less unrealized loss on securities held
available for sale (95) (136)
Other 205 58
------- -------
Total investment securities $62,308 $73,211
======= =======
</TABLE>
- 17 -
<PAGE> 18
ASSET QUALITY
The Bank's allowance for possible loan losses increased 28%,
from $2.1 million on December 31, 1995 to $2.7 million on September 30,
1996. The majority of this increase was due to the provision of $950,000 to
the reserve for possible loan losses during the first nine months of 1996.
The reserve for loan losses is budgeted by using a risk weighting system
based upon the different risk categories of loans. The allowance for loan
losses to total loans decreased to 1.00% at September 30, 1996 from 1.17% at
December 30, 1995. This level takes into account the increased aggregate
levels of one- to four-family mortgage loans, which tend to exhibit lower
levels of credit risk. The Company believes that the allowance for possible
loan losses at September 30, 1996 was adequate to reflect the credit risk in
the loan portfolio. See "--Provision for Loan Losses."
Non-performing assets increased to $466,000 at September 30,
1996, an increase of $158,000 from $308,000 on December 31, 1995. However,
the ratio of non-performing loans to total loans was unchanged at 0.17% as
of December 31, 1995 and September 30, 1996, respectively. The largest
component of this increase in non-performing loans was a $116,000 increase
in consumer auto loans.
When compared to September 31, 1995, non-performing loans to
total loans decreased 8 basis points from 0.25% at September 31, 1995 to
0.17% at September 30, 1996. This improvement was due to the Bank's
aggressive collection policy and the liquidation in the third quarter of
1996 of problem assets associated with one real estate developer.
The increase in loans past due 30 to 89 days from December 31,
1995 to September 30, 1996 was primarily due to one mortgage loan. Although
the borrower had suspended payment, the property is under contract for sale
and the Bank expects to be repaid principal and all accrued interest and
charges. The following table summarizes, for the periods indicated,
non-performing assets by category:
- 18 -
<PAGE> 19
<TABLE>
RISK ELEMENTS -- NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Real estate construction loans
Past due 30 to 89 days $ 390 $ 60 $ 115
Past due 90 days or more -- -- --
Nonaccrual 38 -- --
Restructured terms -- -- --
Loans secured by 1-4 family residential properties
Past due 30 to 89 days 1,098 340 395
Past due 90 days or more -- 36 --
Nonaccrual 86 20 22
Restructured terms -- 3 3
Loans secured by nonfarm nonresidential properties
Past due 30 to 89 days 120 167 --
Past due 90 days or more -- -- --
Nonaccrual -- -- --
Restructured terms -- -- --
Installment loans
Past due 30 to 89 days 102 99 20
Past due 90 days or more 9 12 --
Nonaccrual 131 15 9
Restructured terms -- -- --
Commercial and all other loans
Past due 30 to 89 days 172 134 515
Past due 90 days or more 79 113 64
Nonaccrual 123 109 312
Restructured terms -- -- --
Other real estate -- 10 25
Total non-performing assets 466 318 438
Loans, net of unearned discount 274,260 181,544 164,964
Allowance for possible loan losses 2,724 2,130 2,064
Allowance for possible loan losses to total loans 1.00% 1.17% 1.25%
Non-performing loans to total loans 0.17% 0.17% 0.25%
Allowance for possible loan losses to non-performing loans 584.55% 691.56% 499.76%
</TABLE>
Potential problem credits are monitored by the lending staff and
senior management. The Bank continually monitors its loan portfolio and
discontinues the accrual of interest on any loan on which payment of
principal or interest on a timely basis in the normal course of business is
doubtful. The discontinuance of interest accrual on a loan occurs at any
time that a significant problem is detected in the normal payment process.
The Bank'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. Interest income on a nonaccrual loan is recognized only as
collected.
- 19 -
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCE MANAGEMENT
Corresponding to the growth in assets for the nine months ended
September 30, 1996, total liabilities increased by $70.8 million. A
substantial portion of this increase was represented by a $37.0 million
increase in short-term borrowings, of which $20.7 million were from the
Federal Home Loan Bank ("FHLB") and a $10.0 million increase in fed funds
purchased. A portion of the increase in short-term FHLB borrowings was due
to a reclassification of longer-term advances which will mature within
twelve months from September 30, 1996 and as such was classified as short
term. The Bank prefers to use these alternative sources of short-term
funding in lieu of higher cost retail deposits gathered with deposit
promotions.
Deposits
During the first nine months of 1996, total deposits increased
16%, or $36.6 million to $267.9 million from $231.3 million at December 31,
1995. This growth was principally attributable to a $14.9 million increase
in certificates of deposit and a $11.4 million increase in certificates of
deposit over $100,000. The Bank also achieved meaningful growth in both
money market and demand deposit accounts, with increases of 13% and 16%,
respectively. Offsetting these increases was a 25% decrease in savings
accounts, most of which was due to the re-pricing of Allegiant Green savings
accounts. The majority of these funds was moved to the higher yielding
money market accounts within the Bank.
The Bank anticipates deposit growth will continue in the fourth
quarter of 1996 and the first quarter of 1997, as the South County branch
matures. In addition to the new branch, the Bank plans to continue offering
new products in its effort to increase core deposits and attract long-term
banking relationships. In 1996, the Bank began offering the following new
products: the Allegiant Bank debit card, the previously discussed HECL and
free checking. The following table summarizes deposit activity:
<TABLE>
DEPOSIT LIABILITY COMPOSITION
<CAPTION>
September 30, December 31,
1996 1995
--------------------- ---------------------
Percent Percent
of Total of Total Dollar Percent
Amount Deposits Amount Deposits Change Change
-------- -------- -------- -------- ------ ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 25,386 9.48% $ 21,966 9.50% $ 3,420 15.57%
NOW accounts 10,206 3.81 9,087 3.93 1,119 12.31
Money market accounts 60,830 22.71 53,905 23.30 6,925 12.85
Savings deposits 6,635 2.48 8,896 3.85 (2,261) (25.42)
Certificates of deposit 112,373 41.95 97,460 42.13 14,913 15.30
Certificates of deposit
over $100,000 44,539 16.63 33,140 14.33 11,399 34.40
IRA certificates 7,904 2.95 6,855 2.96 1,049 15.30
-------- ------ -------- ------ ------- -----
Total Deposits $267,873 100.00% $231,309 100.00% $36,564 15.81%
======== ====== ======== ====== ======= =====
</TABLE>
- 20 -
<PAGE> 21
The Bank seeks to maintain a level of liquidity which will
provide a readily available source of funds for new loans and meet loan
commitments and other obligations on a timely basis. Historically, the Bank
has been loan driven, which means that as loans have increased, the Bank has
taken action to increase the level of core deposits and, depending on market
conditions, access cost effective alternative sources of short-term
funding.
Increasing core deposits generally involves the use of
promotions, paying premium rates coupled with advertising to attract new
customers to the Bank. Where possible, the Bank has timed a deposit
promotion to coincide with the opening of a new branch in order to achieve
maximum growth in deposits. It has been the Bank's experience that the
majority of deposits raised through these promotions have remained at the
Bank after the promotion is over and so have provided a steadily growing
base of core deposits at the Bank. In addition to the above-described
sources, the steady flow of maturing securities provides a source of
liquidity.
Management anticipates continued loan demand in the Bank's
market area as bank consolidation continues and fewer middle market lenders
serve the area. In order to maintain the flexibility to fund this growth,
the Company intends to strengthen its equity capital position through
retained earnings and the issuance of debt and/or equity securities as
deemed advisable. In addition, the Company has entered into an agreement
with the FHLB providing the Bank a credit facility secured by the Bank's
assets with current availability of $71.7 million of which $37.7 million was
outstanding as of September 30, 1996. These capital resources will provide
the Bank the opportunity to further expand the loan portfolio with the
flexibility to increase deposits when conditions best match the Bank's needs
and resources.
The analysis of capital is dependent upon a number of factors
including asset quality, earnings strength, liquidity, economic conditions
and combinations thereof. The Federal Reserve Bank has issued standards for
measuring capital adequacy for bank holding companies. These standards are
designed to provide risk-responsive capital guidelines and to incorporate a
consistent framework for use by financial institutions. At this time, the
two primary criteria in effect are the risk-based capital guidelines and the
minimum capital to total assets or leverage ratio requirement.
In general the standards require banks and bank holding
companies to maintain capital based on "risk adjusted" assets so that
categories of assets with potentially higher credit risk will require more
capital backing than categories with lower credit risk. In addition, banks
and bank holding companies are required to maintain capital to support
off-balance sheet activities such as loan commitments.
The standards also classify total capital for this risk-based
measure into two tiers referred to as Tier 1 and Tier 2. For the Company,
Tier 1 capital includes total shareholders' equity less goodwill. Tier 2
capital is comprised of the reserve for loan and lease losses (within
certain limits), perpetual preferred stock not included in Tier 1, hybrid
capital instruments, term subordinated debt and intermediate-term preferred
stock.
- 21 -
<PAGE> 22
Bank holding companies are required to meet a minimum ratio of
8% of qualifying total capital to risk-adjusted assets and a minimum ratio
of 4% of qualifying Tier 1 capital to risk-adjusted assets. Capital that
qualifies as Tier 2 capital is limited in amount to 100% of Tier 1 capital.
As of September 30, 1996, the Company's risked-based and Tier 1
capital ratios were 8.76% and 6.18%, respectively. Identical capital
standards apply to the Bank. As of September 30, 1996, the Bank's
risked-based capital and Tier 1 capital ratios were 10.90% and 9.75%,
respectively.
The minimum acceptable ratio of Tier 1 capital to tangible
assets, or leverage ratio, has been established by the FRB at 4%. As of
September 30, 1996, the Company's leverage ratio was 4.61%.
Rights Offering
The Company's Board of Directors has authorized the Company to
offer for sale, on a "best efforts" basis, up to 499,130 shares of Common
Stock to provide additional capital to support the Company's anticipated
growth (the "Rights Offering"). Pursuant to the Rights Offering, the
Company's shareholders will have the right, subject to certain conditions,
to subscribe for 0.25 shares of Common Stock, at a price of $10.25 per
share, for each share of Common Stock owned on the record date.
Shareholders who exercise their subscription rights in full may, subject to
certain conditions, purchase additional shares of Common Stock. The Company
anticipates the Rights Offering will be implemented before December 31,
1996.
A registration statement relating to the forgoing securities has
been filed with the Securities and Exchange Commission, but has not yet
become effective. These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes effective.
This communication shall not constitute an offer to sell or the solicitation
of an offer to buy nor shall there be any sale of these securities in any
State in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.
A written prospectus relating to the Rights Offering, when
available, may be obtained from:
Christy Siburt
Investor Relations
Allegiant Bancorp, Inc.
7801 Forsyth Boulevard
St. Louis, Missouri 63105
telephone number (314) 726-5000
- 22 -
<PAGE> 23
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
No. 27 Financial Data Schedule
(b) Reports on Form 8-K
None
- 23 -
<PAGE> 24
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.
ALLEGIANT BANCORP, INC.
(Registrant)
November 5, 1996 By: /s/ Shaun R. Hayes
-------------------------------
Shaun R. Hayes, President and
Principal Accounting Officer
- 24 -
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,528
<INT-BEARING-DEPOSITS> 242,487
<FED-FUNDS-SOLD> 1,550
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,605
<INVESTMENTS-CARRYING> 39,703
<INVESTMENTS-MARKET> 39,397
<LOANS> 274,260
<ALLOWANCE> 2,724
<TOTAL-ASSETS> 351,204
<DEPOSITS> 267,873
<SHORT-TERM> 51,060
<LIABILITIES-OTHER> 1,381
<LONG-TERM> 15,580
0
0
<COMMON> 20
<OTHER-SE> 15,290
<TOTAL-LIABILITIES-AND-EQUITY> 351,204
<INTEREST-LOAN> 15,646
<INTEREST-INVEST> 2,580
<INTEREST-OTHER> 121
<INTEREST-TOTAL> 18,347
<INTEREST-DEPOSIT> 8,609
<INTEREST-EXPENSE> 10,639
<INTEREST-INCOME-NET> 7,708
<LOAN-LOSSES> 950
<SECURITIES-GAINS> 49
<EXPENSE-OTHER> 5,182
<INCOME-PRETAX> 2,308
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,403
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
<YIELD-ACTUAL> 8.77
<LOANS-NON> 378
<LOANS-PAST> 88
<LOANS-TROUBLED> 0<F1>
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 2,130
<CHARGE-OFFS> 410
<RECOVERIES> 54
<ALLOWANCE-CLOSE> 2,724
<ALLOWANCE-DOMESTIC> 2,140
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 584
<FN>
<F1>Only reported at year end.
</TABLE>
