<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
/X/ Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Quarterly Period Ended September 30, 1997.
/ / Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period from ----------- to ------------.
Commission file number: 0-26350
ALLEGIANT BANCORP, INC.
(Exact name of the 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 past 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 November 10, 1997, the registrant had 3,573,125 outstanding shares
of Common Stock, $0.01 par value.
Transitional Small Business Disclosure Format (Mark one): Yes / / No /X/.
<PAGE> 2
ALLEGIANT BANCORP, INC.
FORM 10-QSB
<TABLE>
INDEX
<CAPTION>
Page
----
<S> <C>
PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets -- September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income -- Three Months Ended September 30, 1997
and 1996 and Nine Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -- Nine Months Ended September 30,
1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURE 28
</TABLE>
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<PAGE> 3
PART I. CONSOLIDATED FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 17,242 $ 7,554
Federal funds sold and
other overnight investments 20,360 10,775
Investment securities:
Available for sale (at estimated market value) 41,091 22,073
Held to maturity (approximate market value of
$35,500 and $38,540, respectively) 35,266 38,487
Loans, net of allowance for possible loan losses of
$4,842 and $3,100, respectively 434,668 288,826
Premises and equipment, net of accumulated depreciation 8,996 5,514
Cost in excess of fair value of net assets acquired 13,429 491
Accrued interest receivable 4,461 2,830
Other real estate owned 81 --
Other assets 3,106 1,014
-------- --------
Total assets $578,700 $377,564
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non-interest bearing $ 46,134 $ 29,406
Interest bearing 375,572 228,439
Certificates of deposit of $100,000 or more 51,678 50,825
-------- --------
Total deposits 473,384 308,670
-------- --------
Short-term borrowings 52,486 36,137
Long-term debt 15,663 14,663
Accrued interest payable 2,034 1,681
Accrued and other liabilities 271 27
-------- --------
Total liabilities 543,838 361,178
Shareholders' equity:
Common Stock, $.01 par value -- shares
authorized, 7,800,000; issued and outstanding,
3,567,769 and 2,271,000, respectively 37 23
Capital surplus 32,453 15,983
Retained earnings 2,273 357
Net unrealized appreciation on
securities available for sale 99 23
-------- --------
Total shareholders' equity 34,862 16,386
-------- --------
Total liabilities and shareholders' equity $578,700 $377,564
======== ========
- ------------------------------------
See notes to consolidated financial statements.
</TABLE>
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<PAGE> 4
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 9,342 $ 6,048 $ 23,855 $ 15,646
Investment securities 1,007 838 2,827 2,580
Federal funds sold and
overnight investments 160 4 246 121
---------- ---------- ---------- ----------
Total interest income 10,509 6,890 26,928 18,347
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits 4,403 3,035 11,587 8,609
Interest on short-term debt 993 514 2,162 947
Interest on long-term debt 333 335 979 1,083
---------- ---------- ---------- ----------
Total interest expense 5,729 3,884 14,728 10,639
---------- ---------- ---------- ----------
Net interest income 4,780 3,006 12,200 7,708
Provision for possible loan and lease losses 556 519 1,677 950
---------- ---------- ---------- ----------
Net interest income after
provision for possible loan and lease losses 4,224 2,487 10,523 6,758
---------- ---------- ---------- ----------
OTHER INCOME:
Service charges and other fees 553 291 1,219 683
Net gain on sale of securities 25 32 25 49
---------- ---------- ---------- ----------
Total other income 578 323 1,224 732
---------- ---------- ---------- ----------
OTHER EXPENSES:
Salaries and employee benefits 1,695 811 4,024 2,399
Operating expenses 1,713 1,152 4,162 2,783
---------- ---------- ---------- ----------
Total other expenses 3,408 1,963 8,186 5,182
---------- ---------- ---------- ----------
Income before income taxes 1,394 847 3,561 2,308
Provision for income taxes 556 339 1,422 905
---------- ---------- ---------- ----------
Net income $ 838 $ 508 $ 2,139 $ 1,403
========== ========== ========== ==========
Primary earnings per share:
Average common shares outstanding 3,368,728 2,358,668 3,036,569 2,367,911
Net income $ .25 $ .22 $ .70 $ .59
Fully diluted earnings per share:
Average common shares outstanding 3,368,728 2,358,668 3,036,569 2,367,911
Net income $ .25 $ .22 $ .70 $ .59
- ----------------------------------
See notes to consolidated financial statements.
</TABLE>
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<PAGE> 5
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1997 1996
--------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,139 $ 1,403
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,259 513
Provision for loan and lease losses 1,677 950
Loan recoveries 32 54
Net loss on sale of securities (28) (49)
Changes in assets and liabilities:
Accrued interest receivable and
other assets (2,067) (1,178)
Other liabilities 301 130
--------- --------
Cash provided by operating activities $ 3,313 $ 1,823
--------- --------
INVESTING ACTIVITIES:
Cash and cash equivalents of acquired entities $ 84,368 $ --
Proceeds from maturities of securities held to maturity 17,700 36,923
Purchase of investment securities held to maturity (13,068) (31,415)
Proceeds from maturities of securities available for sale 11,482 42,415
Proceeds from sales of securities available for sale 2,196 2,085
Proceeds from sales of securities of acquired entities 4,286 --
Purchase of investment securities available for sale (30,001) (39,014)
Loans made to customers, net of repayments (127,552) (93,126)
Additions to premises and equipment (3,155) (539)
Other investing activities 30 --
--------- --------
Cash used in investing activities $ (53,714) $(82,671)
--------- --------
FINANCING ACTIVITIES:
Net increase in deposits $ 46,213 $ 36,564
Net increase in short-term debt 14,348 32,852
Repayment of long-term debt -- (39)
Proceeds from issuance of long-term debt 3,000 --
Proceeds from issuance of Common Stock 5,285 4
Proceeds from exercise of warrants 229 --
Proceeds from exercise of stock options 820 --
Payment of dividends (221) (138)
--------- --------
Cash provided by financing activities $ 69,674 $ 69,243
--------- --------
Net increase (decrease) in cash and cash equivalents $ 19,273 $(11,605)
Cash and cash equivalents, beginning of period 18,329 19,683
--------- --------
Cash and cash equivalents, end of period $ 37,602 $ 8,078
========= ========
- ------------------------------------
See notes to consolidated financial statements.
</TABLE>
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<PAGE> 6
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED 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 (the "Bank"), Allegiant Bank, FSB (the "Savings Bank"), Allegiant
Mortgage Company (the "Mortgage Company") and Edge Mortgage Services, Inc.
("Edge"). Unless the context otherwise indicates, references to the
"Company" include Allegiant Bancorp, Inc. and its subsidiaries.
The consolidated balance sheet at September 30, 1997, the consolidated
statements of income for the three- and nine-month periods ended September
30, 1997 and 1996, respectively, and the consolidated statements of cash
flows for the nine-month periods ended September 30, 1997 and 1996,
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 consolidated financial
statements, including the notes thereto, contained in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996. The results of
operations for the nine-month period ended September 30, 1997 are not
necessarily indicative of the results that may be obtained for the full year
ending December 31, 1997.
2. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB")
issued its Statement of Financial Accounting Standards No. 128, Earnings per
Share ("SFAS No. 128"). SFAS No. 128 simplifies the standards for computing
earnings per share and requires presentation of two new amounts, basic and
diluted earnings per share. The Company will be required to adopt
retroactively this standard when it reports its operating results for the
fiscal quarter and year ending December 31, 1997. When the Company adopts
SFAS No. 128, the following restated presentation is expected:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic per share earnings $0.27 $0.25 $0.77 $0.64
Diluted per share earnings $0.25 $0.22 $0.70 $0.59
</TABLE>
3. RECENT ACQUISITIONS
Pursuant to an Agreement and Plan of Merger (the "Merger Agreement"),
dated March 20, 1997, by and between the Company and Reliance Financial, Inc.
("Reliance"), a Delaware corporation and parent of Reliance Financial Savings
and Loan Association of St. Louis County ("RFSLA"), the Company acquired
Reliance through the merger of Reliance with and into the Company (the
"Reliance Acquisition"). RFSLA was renamed Allegiant Bank, FSB upon
consummation of the Reliance Acquisition. Under the Merger Agreement, the
Company acquired all of the outstanding capital stock of Reliance in exchange
for 599,126 shares of the Company's Common Stock. The transaction was
completed August 29, 1997. As of June 30, 1997, Reliance reported, on a
consolidated basis, total assets of $30.3 million, total deposits of $23.1
million, net loans of $19.1 million and stockholders' equity of $6.9 million.
The Company recorded goodwill of $3.9 million in connection with the Reliance
Acquisition. The Company currently operates the Savings Bank as a
wholly-owned subsidiary of the Company.
- 6 -
<PAGE> 7
Pursuant to separate Deposit Transfer and Asset Purchase Agreements,
dated May 8, 1997, by and between the Company and Roosevelt Bank
("Roosevelt"), a Missouri state-chartered bank, the Bank assumed the deposits
and acquired the loans and real property of Roosevelt's branch offices in
Warrenton, Missouri and Union, Missouri (collectively, the "Branch
Acquisition"). The Branch Acquisition was completed September 4, 1997. The
Bank assumed approximately $95.7 million of deposit liabilities, acquired
real property and related automated teller machines, furniture, fixtures,
equipment and other operating assets with an aggregate value of $0.9 million,
and approximately $2.9 million of consumer loans. The Bank recorded goodwill
of $8.7 million in connection with the Branch Acquisition. The acquisition
was accounted for under the purchase method.
4. PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENTS
The following unaudited pro forma condensed combined consolidated
income statements for the nine months ended September 30, 1997 and September 30,
1996 set forth the results of operations of the Company combined with the
results of operations of Reliance as if the Reliance Acquisition had occurred
at the beginning of each of the respective periods. The unaudited pro forma
condensed combined consolidated income statements should be read in
conjunction with the accompanying notes and with the historical consolidated
financial statements of the Company. The interim financial information for
the nine months ended September 30, 1997 and September 30, 1996 include all
adjustments which, in the Company's opinion, are necessary to present the
data fairly. These pro forma condensed combined consolidated income
statements may not be indicative of the results of operations that actually
would have occurred if the Reliance Acquisition had been consummated on the
dates assumed above or the results of operations that may be achieved in the
future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
-----------------------------------------------------------------------------
PRO FORMA
COMBINED
ALLEGIANT<F1> RELIANCE<F2> ADJUSTMENTS CONSOLIDATED
------------- ------------ ----------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Net interest income $ 12,099<F3> $ 962 $ -- $ 13,061
Net income $ 2,111<F3> $ 90 $ (195)<F4> $ 2,006
Average adjusted common shares
outstanding 3,192,362<F3> 399,943 162,777 <F5> 3,755,082
Net income $ 0.66 $ 0.22 $ -- $ 0.53
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
-----------------------------------------------------------------------------
PRO FORMA
COMBINED
ALLEGIANT<F1> RELIANCE<F2> ADJUSTMENTS CONSOLIDATED
------------- ------------ ----------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Net interest income $ 7,708 $ 1,025 $ -- $ 8,733
Net income 1,403 $ 224 $ (195)<F4> $ 1,432
Average adjusted common shares
outstanding 2,367,911 401,341 163,346 <F5> 2,932,598
Net income $ 0.59 $ 0.56 $ -- $ 0.49
- 7 -
<PAGE> 8
<FN>
ALLEGIANT BANCORP, INC.
Notes To Pro Forma Condensed Combined Consolidated Income Statements
(Unaudited)
<F1> Amounts reflect the periods ended September 30, 1997 and September 30,
1996, respectively, based on a calendar fiscal year.
<F2> Amounts reflect the periods ended June 30, 1997 and June 30, 1996,
respectively, based on a fiscal year end of September 30.
<F3> The Company's September 30, 1997 results of operations do not reflect
the Savings Bank's amounts from August 31, 1997 to September 30, 1997.
<F4> In connection with the acquisition of Reliance, the Company recorded
goodwill of approximately $3.9 million, which will be amortized over a
period of 15 years.
<F5> Reflects average common shares of Reliance outstanding during the nine
months ended September 30, 1996 and the nine months ended September
30, 1997, respectively, adjusted for the Company's acquisition of all
the outstanding capital stock of Reliance in exchange for consideration
of 1.407 shares of Allegiant Common Stock per share of Reliance Common
Stock.
</TABLE>
5. NONCASH INVESTING AND FINANCING ACTIVITIES
As a result of the Reliance Acquisition, the Company acquired $27.8
million in assets (net of cash and cash equivalents) and assumed $23.9
million in liabilities in exchange for 599,126 shares of Common Stock. The
Company recorded $3.9 million in goodwill in connection with the Reliance
Acquisition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Company is a bank holding company that owns all of the capital stock
of Allegiant Bank (the "Bank"), a Missouri state-chartered bank, and
Allegiant Bank, FSB (the "Savings Bank), a federal savings bank. The Bank
and Savings Bank provide personal and commercial banking and related
financial services from eleven locations in the St. Louis Standard
Metropolitan Statistical Area ("St. Louis SMSA"), the 16th largest
metropolitan area in the United States, and three locations in Northeast
Missouri. Allegiant Mortgage Company (the "Mortgage Company"), a
wholly-owned subsidiary of the Bank, offers residential loans primarily to
customers in the St. Louis SMSA. Edge Mortgage Services, Inc. ("Edge"), a
wholly-owned subsidiary of the Company, offers residential loans primarily to
customers in the St. Louis SMSA who do not qualify under standard mortgage
loan criteria.
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. Edge was organized in
October 1996 and began operations in January 1997. The Savings Bank was
acquired in August 1997. Unless the context indicates otherwise, references
herein to the "Company" or "Allegiant" refer to Allegiant Bancorp, Inc. and
its subsidiaries, and references to the "Operating Subsidiaries" refer
collectively to the Bank, the Savings Bank, the Mortgage Company and Edge.
Pursuant to an Agreement and Plan of Merger (the "Merger Agreement"),
dated March 20, 1997, by and between the Company and Reliance Financial, Inc.
("Reliance"), a Delaware corporation and parent of Reliance Financial Savings
and Loan Association of St. Louis County ("RFSLA"), the Company acquired
Reliance through the merger of Reliance with and into the Company (the
"Reliance Acquisition"). RFSLA was renamed Allegiant Bank, FSB upon
consummation of the Reliance Acquisition. Under the Merger
- 8 -
<PAGE> 9
Agreement, the Company acquired all of the outstanding capital stock of
Reliance in exchange for 599,126 shares of the Company's Common Stock. The
transaction was completed August 29, 1997. As of June 30, 1997, Reliance
reported, on a consolidated basis, total assets of $30.3 million, total
deposits of $23.1 million, net loans of $19.1 million and stockholders'
equity of $6.9 million. The Company recorded goodwill of $3.9 million in
connection with the Reliance Acquisition. The Company currently operates the
Savings Bank as a wholly-owned subsidiary of the Company.
Pursuant to separate Deposit Transfer and Asset Purchase Agreements,
dated May 8, 1997, by and between the Company and Roosevelt Bank
("Roosevelt"), a Missouri state-chartered bank, the Bank assumed the deposits
and acquired the loans and real property of Roosevelt's branch offices in
Warrenton, Missouri and Union, Missouri (collectively, the "Branch
Acquisition"). The Branch Acquisition was completed September 4, 1997. The
Bank assumed approximately $95.7 million of deposit liabilities, acquired
real property and related automated teller machines, furniture, fixtures,
equipment and other operating assets with an aggregate value of $0.9 million,
and approximately $2.9 million of consumer loans. The Bank recorded goodwill
of $8.7 million in connection with the Branch Acquisition.
The Company's primary service area is located in St. Louis County which
has a population of approximately 1.0 million and the City of St. Louis which
has a population of approximately 400,000. A key to market coverage is
accessibility. With the addition of the Mehlville retail banking office in
1996 and the St. Peters, Affton (the Savings Bank) and Crestwood retail
banking offices in 1997, management believes that the Company's retail
banking offices are within a 20 minute drive from all principal sectors of
the St. Louis SMSA. Upon consummation of the Branch Acquisition, the Bank
added retail banking offices in Warrenton, Missouri and Union, Missouri. The
Warrenton banking office is located in Warren County, which has a population
of approximately 23,000. With the addition of the Warrenton branch, the Bank
is believed to have the largest deposit market share in Warren County. The
Union banking office is located in Franklin County, which has a population of
approximately 87,000. Both the Warrenton and Union banking offices are
within a 45 minute drive from St. Louis County. The recent branch openings,
the Reliance Acquisition and the Branch Acquisition are part of the Company's
plan to expand into markets in St. Louis County and contiguous counties to
provide accessibility to its customers.
The Bank also has three retail banking offices in Northeastern Missouri,
including the City of Kahoka, the City of Palmyra and Monroe City. The Company
intends to continue to expand its Northeastern Missouri operations into
additional markets not currently served by existing facilities.
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<PAGE> 10
RESULTS OF OPERATIONS
NET INCOME
The Company reported net income of $838,000 for the third quarter of
1997, compared to net income of $508,000 for the third quarter of 1996, an
increase of $330,000, or 65%. Earnings per share increased to $0.25 for the
third quarter of 1997 compared to $0.22 for the third quarter of 1996, an
increase of 14%. Net income for the nine months ended September 30, 1997 was
$2.1 million compared to $1.4 million for the nine months ended September 30,
1996, an increase of $736,000, or 52%. Earnings per share increased to $0.70
for the nine months ended September 30, 1997 compared to $0.59 for the nine
months ended September 30, 1996, an increase of 19%. Average common shares
outstanding increased to 3.4 million for the third quarter of 1997 compared
to 2.4 million for the third quarter of 1996, an increase of 43%. Average
common shares outstanding increased to 3.0 million for the nine months ended
September 30, 1997 compared to 2.4 million for the nine months ended
September 30, 1996, an increase of 28%. The increase in average common
shares outstanding for the three and nine months ended September 30, 1997 was
primarily attributable to the Company's rights offering (the "Rights
Offering") to shareholders of Common Stock in February 1997 and the Reliance
Acquisition in August 1997. The Company issued 567,750 shares of Common
Stock in the Rights Offering and 599,126 shares of Common Stock in the
Reliance Acquisition.
Net Interest Income
Net interest income increased $1.8 million, or 59%, to $4.8 million for
the third quarter of 1997 compared to $3.0 million for the third quarter of
1996. Net interest income as a percentage of average interest-bearing assets
during such periods increased to 4.11% from 3.88%. Net interest income
increased $4.5 million to $12.2 million for the nine months ended September
30, 1997 compared to $7.7 million for the nine months ended September 30,
1996. Net interest income as a percentage of average interest-bearing assets
during such periods increased to 4.01% from 3.68%.
The increase in net interest income for the three and nine months ended
September 30, 1997, was primarily attributable to the increase in average
interest-earning assets. For the third quarter of 1997, average interest-earning
assets increased $156.0 million to $465.6 million compared to $309.6 million for
the third quarter of 1996. For the nine months ended September 30, 1997, average
interest-earning assets increased $126.7 million to $405.8 million compared to
$279.1 million for the nine months ended September 30, 1996. The increase in
average interest-earning assets was attributable primarily to an increase in
loans. For the third quarter of 1997, average loans increased $134.4 million to
$386.7 million compared to $252.2 million for the third quarter of 1996. For
the nine months ended September 30, 1997, average loans increased $121.8 million
to $336.9 million compared to $215.1 million for the corresponding period of
1996. Average loans outstanding for the three and nine months ended September
30, 1997 increased 53% and 57%, respectively, compared to the corresponding
periods in 1996. The increase in average loans outstanding resulted in an
increase in interest and fees associated with the loans, despite the decrease in
yield from 9.70% to 9.44% for the nine months ended 1997 compared to the
corresponding period in 1996. Interest and fees on loans for the three and nine
months ended September 30, 1997 was $9.3 million and $23.9 million,
respectively, compared to $6.0 million and $15.6 million, respectively, for the
corresponding periods in 1996. The increase in average loans was partially
offset by the interest expense related to the increase in average
interest-bearing liabilities. Interest-bearing deposits for the three and
nine months ended September 30, 1997 increased 48% and 38%, respectively,
compared to the corresponding periods in 1996. In addition, short-term debt
for the three and nine months ended September 30, 1997 increased 84% and
135%, respectively, compared to the corresponding periods in 1996.
Short-term debt increased due to the Company's use of short-term advances
from the Federal Home Loan Bank ("FHLB") to fund new loan growth. Management
believes these short-term advances from the FHLB currently are a more
advantageous funding source than deposit promotions, which require paying
above market rates. In the third quarter of 1997, the Bank applied $25.0
million of cash proceeds received pursuant to the Branch Acquisition to repay
short-term advances from the FHLB with an average rate of 6.14%. See "--Net
Interest Margin" and "--Liquidity and Capital Resource Management." Interest
expense associated with interest-bearing liabilities for the three and nine
months ended September 30, 1997 was $5.7 million and $14.7 million,
respectively, compared to $3.9 million and $10.6 million for the
corresponding periods in 1996.
- 10 -
<PAGE> 11
Net Interest Margin
Net interest margin increased 23 basis points to 4.11% for the third
quarter of 1997 compared to 3.88% for the third quarter of 1996. The net
interest margin increased 33 basis points to 4.01% for the nine months ended
September 30, 1997 compared to 3.68% for the nine months ended September 30,
1996.
The increase in net interest margin for the three and nine months ended
September 30, 1997 compared to the corresponding periods of 1996 was
attributable to the increase in average interest-earning assets and the
decrease in the cost of funds. Cost of funds for the third quarter of 1997
decreased 10 basis points to 5.45% compared to 5.55% for the third quarter of
1996. Cost of funds for the nine months ended September 30, 1997 decreased 19
basis points to 5.36% compared to 5.55% for the nine months ended September
30, 1996. The decrease in cost of funds was primarily due to decreases in
yields on certificates of deposit that matured and were renewed at lower
rates.
The yield on loans in the third quarter of 1997 increased 7 basis
points to 9.66% compared to 9.59% for the third quarter of 1996. The yield
on loans for the nine months ended September 30, 1997 decreased 26 basis
points to 9.44% compared to 9.70% for the nine months ended September 30,
1996. The decrease in loan yield was primarily due to an increase in the
proportion of one- to four-family adjustable-rate mortgages in the loan
portfolio and a competitive market for retail and commercial lending.
The Bank's and Savings Bank's loan spreads decreased partially due to
their increased holdings of one- to four-family adjustable-rate mortgage
loans, which tend to yield less than commercial or consumer loans.
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 and Savings Bank also have
observed a lower level of non-performing loans associated with one- to
four-family adjustable-rate mortgages compared proportionately to the other
types of loans in their portfolios. Given these attributes of lower risk,
the Bank and Savings Bank have accepted a lower average yield compared to
loans with higher levels of risk. The Bank and Savings Bank anticipate the
continued addition of one- to four-family adjustable-rate mortgage loans to
their loan portfolios.
Another benefit to originating one- to four-family adjustable-rate
mortgages is that it presents an opportunity for the Bank and Savings Bank to
establish relationship banking with these new retail customers by offering a
complete line of consumer banking products, which should increase
non-interest income to help mitigate the lower spreads associated with these
types of loans. Examples of consumer banking products offered include: Home
Equity Credit Lines ("HECL") --introduced in the second quarter of 1996,
investment services offered through INVEST Financial Group --introduced in
February 1997, and PC home banking and cash management services --to be
offered in the fourth quarter of 1997. Management believes that relationship
banking will be a key to success in the consolidating banking industry and
will enhance performance despite lower yields associated with the one- to
four-family adjustable-rate mortgage loans by supporting
relationship-oriented marketing.
- 11 -
<PAGE> 12
In addition to changes in the credit portfolio mix, the Bank and Savings
Bank are also operating in an aggressive and competitive market for both
commercial and consumer loans. Not only have the Bank and Savings Bank
experienced increased competition from within the banking industry, but
non-bank financial institutions are attracting customers who have
traditionally dealt primarily with commercial banks. These trends have
resulted in tighter spreads on the Bank's and Savings Bank's commercial
loans, the second largest holding in the Bank's and Savings Bank's credit
portfolios. In the past, the Bank and Savings Bank were able to originate
high quality loans at a positive spread to the prime lending rate. In the
current market, these spreads have diminished and the market has dictated
that many of these same loans are now originated at prime, or at a negative
spread to prime. Management does not anticipate that this trend will reverse
in the foreseeable future. As a result of the increased competition for
loans, the Company entered into the commercial and retail leasing businesses
in 1997. Management believes that leasing will increase the Company's
consumer portfolio and will provide yields that are generally higher than
those on loans.
The Bank and Savings Bank were able to increase the yield on their
investment securities portfolios due to the increase in interest rates. The
average yield earned on investment securities increased 19 basis points to
6.07% for the third quarter of 1997 compared to 5.88% for the third quarter
of 1996. The average yield earned on investment securities increased 35
basis points to 5.99% for the nine months ended September 30, 1997 compared
to 5.64% for the nine months ended September 30, 1996. This increased
performance was attributable to the management of the investment securities
portfolios, along with the addition of higher yielding securities which were
funded with maturing securities that had lower interest rates.
Average interest-bearing deposits increased $107.7 million to $333.9
million in the third quarter of 1997 compared to $226.3 million for the third
quarter of 1996. The yield on average interest-bearing deposits decreased
ten basis points to 5.27% for the third quarter of 1997 compared to 5.37% for
the third quarter of 1996. Average interest-bearing deposits increased $81.6
million to $296.5 million for the nine months ended September 30, 1997
compared to $215.0 million for the nine months ended September 30, 1996. The
yield on average interest-bearing deposits decreased 13 basis points to 5.21%
for the nine months ended September 30, 1997 compared to 5.34% for the nine
months ended September 30, 1996. The decrease in the yield on average
interest-bearing deposits was primarily attributable to the decrease in
yields on certificates of deposit that matured and were renewed at lower
prevailing interest rates. The yield on average certificates of deposits
decreased nine basis points to 5.79% for the third quarter of 1997 compared
to 5.88% for the third quarter of 1996. The yield on average certificates of
deposit decreased 11 basis points to 5.72% for the nine months ended
September 30, 1997 compared to 5.83% for the nine months ended September 30,
1996.
The Company's cost of funds decreased primarily as a result of the
Reliance Acquisition and the Branch Acquisition which provided deposits with
yields generally lower than those being paid by the Bank. The Branch
Acquisition also provided an increase in the amount of lower-yielding demand
deposits, particularly free-checking accounts which do not earn interest.
Also, during the third quarter of 1997, the Operating Subsidiaries began a new
retail banking strategy designed to increase core deposits, lower the cost of
funds and build customer relationships through the cross-selling of multiple
products. Management believes that it can build long-term relationships with
customers when those customers use multiple products offered by the Operating
Subsidiaries. To build this cross-selling culture, the Company hired a new
head of its Retail Division from an area competitor in mid-1997.
The Company has increasingly relied upon FHLB short-term borrowings as
an alternative to running additional deposit promotions, which were a more
cost-effective funding source than paying premium market rates for retail
deposits during the period.
- 12 -
<PAGE> 13
This strategy allowed the Bank to access funds, with minimal administrative
costs and without increasing the cost of its existing deposit base, which can
occur when lower cost deposits mature and subsequently reprice at the higher
promotional rate. As a result of the Reliance Acquisition and the Branch
Acquisition which added combined deposits of approximately $123.0 million, the
Company does not believe it will need to access short-term FHLB borrowings as
frequently in the future. After the close of the Branch Acquisition, the
Company repaid $25.0 million of the Bank's short-term debt and plans to rely
more on its lower-yielding deposits for liquidity.
Average debt outstanding increased 62% to $86.8 million for the third
quarter of 1997 compared to $53.7 million for the third quarter of 1996.
Average debt outstanding increased $29.5 million to $70.0 million for the
nine months ended September 30, 1997 compared to $40.5 million for the nine
months ended September 30, 1996. The increase in debt was primarily
attributable to the increase in average short-term borrowings which increased
84% to $68.1 million for the third quarter of 1997 compared to $37.1 million
for the third quarter of 1996. Average short-term borrowings increased 135%
to $52.4 million for the nine months ended September 30, 1997 compared to
$22.3 million for the nine months ended September 30, 1996.
The Company also used these alternative funding sources in anticipation
of new branch openings in 1997, as well as a temporary source of funding
until recently opened branches can attract increased levels of core deposits,
which cost less than promotional monies. The Bank opened its ninth branch in
April, 1997 (St. Charles County) and also moved the existing Palmyra branch
from a grocery store into its own building. In addition, the Bank opened new
branches in Northeastern Missouri and St. Louis County in September 1997. In
addition to the opening of the new branches, the Reliance Acquisition and the
Branch Acquisition increased the Bank's deposits by approximately $123.0
million. The Company used $25.0 million of cash from the Branch Acquisition
to reduce short-term borrowings. In addition, the Company expects that after
the new branches mature, their core deposit base should fund the planned
retirement of a substantial portion of the short-term debt.
The following tables show the condensed consolidated average balance
sheet and reflect the average yield earned on interest-earning assets, the
average cost of interest-bearing liabilities and the resulting net interest
income for the three and nine months ended September 30, 1997 and 1996:
- 13 -
<PAGE> 14
<TABLE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------
1997 1996
--------------------------------- --------------------------------
AVERAGE INT.EARNED/ YIELD/ AVERAGE INT.EARNED/ YIELD/
BALANCE EXPENSE RATE<F1> BALANCE EXPENSE RATE<F1>
------- ------- -------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
INTEREST-EARNING ASSETS:
Loans<F1> $386,657 $ 9,342 9.66% $252,230 $6,048 9.59%
Taxable investment securities 65,292 993 6.08% 55,994 824 5.89%
Non-taxable investment securities 1,093 14 5.12% 1,046 14 5.35%
Federal funds sold 12,538 160 5.10% 300 4 5.33%
-------- ------- -------- ------
Total interest-earning assets 465,580 10,509 9.03% 309,570 6,890 8.90%
-------- ------- -------- ------
NON-INTEREST-EARNING ASSETS:
Cash and due from banks 7,129 5,203
Premises and equipment 7,153 3,535
Other assets 11,055 3,916
Allowance for possible loan losses (4,269) (2,383)
-------- --------
Total assets $486,648 $319,841
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
Money market accounts $ 84,028 $ 989 4.71% $ 61,144 $ 742 4.85%
NOW accounts 13,645 70 2.05% 9,804 61 2.49%
Savings deposits 9,939 67 2.70% 6,984 51 2.92%
Certificates of deposit 165,846 2,420 5.84% 104,283 1,523 5.84%
Certificates of deposit over $100,000 47,601 667 5.60% 36,387 539 5.93%
IRA certificates 12,887 190 5.90% 7,673 119 6.20%
-------- ------- -------- ------
Total interest-bearing deposits 333,946 4,403 5.27% 226,275 3,035 5.37%
-------- ------- -------- ------
Federal funds purchased, repurchase
agreements and other short-term
borrowings 68,122 993 5.83% 37,084 514 5.54%
Long-term borrowings 18,674 333 7.13% 16,652 335 8.05%
-------- ------- -------- ------
Total interest-bearing liabilities 420,742 5,729 5.45% 280,011 3,884 5.55%
-------- ------- -------- ------
NON-INTEREST-BEARING LIABILITIES:
Demand deposits 37,124 24,292
Other liabilities 2,350 1,718
Shareholders' equity 26,432 13,820
-------- --------
Total liabilities and
shareholders' equity $486,648 $319,841
======== ========
Net interest income $ 4,780 $3,006
======= ======
Net interest margin 4.11% 3.88%
<FN>
- ------------------------------------
<F1> Interest on non-accruing loans is not included for purposes of
calculating yields which have been annualized.
</TABLE>
- 14 -
<PAGE> 15
<TABLE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------
1997 1996
--------------------------------- --------------------------------
AVERAGE INT.EARNED/ YIELD/ AVERAGE INT.EARNED/ YIELD/
BALANCE EXPENSE RATE<F1> BALANCE EXPENSE RATE<F1>
------- ------- -------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
INTEREST-EARNING ASSETS:
Loans<F1> $336,943 $23,855 9.44% $215,124 $15,646 9.70%
Taxable investment securities 61,943 2,783 5.99% 59,860 2,536 5.65%
Non-taxable investment securities 977 44 6.00% 1,151 44 5.10%
Federal funds sold 5,865 246 5.59% 2,924 121 5.52%
-------- ------- -------- -------
Total interest-earning assets 405,728 26,928 8.85% 279,059 18,347 8.77%
-------- ------- -------- -------
NON-INTEREST-EARNING ASSETS:
Cash and due from banks 6,429 6,287
Premises and equipment 6,106 4,291
Other assets 8,453 3,872
Allowance for possible loan losses (3,786) (2,253)
-------- --------
Total assets $422,930 $291,256
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest-bearing liabilities:
Money market accounts $ 76,498 $ 2,635 4.59% $ 59,607 $ 2,205 4.93%
NOW accounts 12,236 207 2.26% 9,638 174 2.41%
Savings deposits 7,582 156 2.74% 7,204 178 3.29%
Certificates of deposit 142,337 6,179 5.79% 98,524 4,379 5.93%
Certificates of deposit over $100,000 47,216 1,940 5.48% 32,471 1,335 5.48%
IRA certificates 10,656 470 5.88% 7,435 338 6.06%
-------- ------- -------- -------
Total interest-bearing deposits 296,525 11,587 5.21% 214,879 8,609 5.34%
-------- ------- -------- -------
Federal funds purchased, repurchase
agreements and other short-term
borrowings 52,399 2,162 5.50% 22,322 947 5.66%
Long-term borrowings 17,454 979 7.48% 18,180 1,083 7.94%
-------- ------- -------- -------
Total interest-bearing liabilities 366,378 14,728 5.36% 255,381 10,639 5.55%
-------- ------- -------- -------
NON-INTEREST-BEARING LIABILITIES:
Demand deposits 31,651 20,161
Other liabilities 2,227 1,508
Shareholders' equity 22,674 14,606
-------- --------
Total liabilities and
shareholders' equity $422,930 $291,656
======== ========
Net interest income $12,200 $ 7,708
======= =======
Net interest margin 4.01% 3.68%
<FN>
- ------------------------------------
<F1> Interest on non-accruing loans is not included for purposes of
calculating yields which have been annualized.
</TABLE>
- 15 -
<PAGE> 16
Provision for Loan and Lease Losses
The provision for possible loan and lease losses increased $37,000 to
$556,000 for the third quarter of 1997 compared to $519,000 for the third
quarter of 1996. The provision for possible loans and lease losses increased
$727,000 to $1.7 million for the nine months ended September 30, 1997 compared
to $950,000 for the nine months ended September 30, 1996. The increase in the
provision for possible loan and lease losses was primarily attributable to
internal loan growth within corporate banking. Total loans increased $147.6
million to $439.5 million at September 30, 1997 compared to $291.9 million at
December 31, 1996.
Net loans charged off were $96,000 and $342,000 for the three and nine
months ended September 30, 1997, respectively, compared to $85,000 and
$356,000, respectively, for the corresponding periods in 1996. A large
portion of the 1997 charge-off totals was comprised of three commercial loans
totaling $153,000. Net charge-offs decreased primarily because the 1996
totals included a charge-off of one commercial real estate loan totaling
$165,000. Tables summarizing non-performing assets and past-due loans are
presented under "--Financial Condition" and "--Asset Quality," and charge-off
experience is presented under "--Lending and Credit Management."
Non-interest Income
Non-interest income increased $255,000 to $578,000 for the third quarter
of 1997 compared to $323,000 for the third quarter of 1996. Non-interest
income increased $492,000 to $1.2 million for the nine months ended September
30, 1997 compared to $732,000 for the nine months ended September 30, 1996.
The increase in non-interest income was primarily attributable to the
increased number of deposit accounts, the expanded base of service chargeable
products offered to the Company's customers and the addition of non-deposit
investments offered through INVEST Financial Group beginning in March 1997.
In addition, the increases reflect the benefits of a cost improvement program
implemented by the Company that included a revamping of the Bank's fee
structure. The largest improvement attributable to the cost improvement
program involved fees charged on overdrafts. Other improvements include
enhanced cash management, increases in charges for customer check
supplies and increases in installment loan fees. Management expects
continued growth in non-interest income as new products are developed and
offered to the Bank's and the Savings Bank's customers.
Overdraft fees increased $64,000 to $149,000 for the third quarter of
1997 compared to $85,000 for the third quarter of 1996. Overdraft fees
increased $114,000 to $373,000 for the nine months ended September 30, 1997
compared to $259,000 for the nine months ended September 30, 1996. The
increase in overdraft fees was primarily attributable to the aforementioned
increase in the number of deposit accounts and the cost improvement program
for overdraft fees.
Income from the retail sale of non-deposit investments increased $77,000
to $79,000 for the third quarter of 1997 compared to $2,000 for the third
quarter of 1996. Income from the retail sale of non-deposit investments
increased $107,000 to $110,000 for the nine months ended September 30, 1997
compared to the nine months ended September 30, 1996. The increase in income
from the retail sale of non-deposit investments was attributable to the
aforementioned offering of INVEST products to the Company's customers.
Non-interest income also increased due to a $69,000 increase in
automated teller machine ("ATM") fee income and a $146,000 increase in income
attributable to retail leases. The increase in ATM fees was primarily
attributable to the aforementioned increase in deposit accounts. The retail
lease income was the result of the Company entering into the retail leasing
business in 1997.
- 16 -
<PAGE> 17
Non-interest Expense
Non-interest expense increased $1.4 million to $3.4 million for the
third quarter of 1997 compared to $2.0 million for the third quarter of 1996.
Non-interest expense increased $3.0 million to $8.2 million for the nine
months ended September 30, 1997 compared to $5.2 million for the nine months
ended September 30, 1996. The increase in non-interest income was primarily
attributable to the increase in employees and the resulting increase in
salaries and benefits and other operating expenses related to the opening of
three additional branches in the past six months, the Reliance Acquisition,
the Branch Acquisition and a planned conversion to a new computer system in
the fourth quarter of 1997.
Salaries and employee benefits increased $884,000 to $1.7 million for
the third quarter of 1997 compared to $811,000 for the third quarter of 1996.
Salaries and employee benefits increased $1.6 million to $4.0 million for the
nine months ended September 30, 1997 compared to $2.4 million for the nine
months ended September 30, 1996. The increase in salary and employee
benefits resulted from an increase in the number of employees and a change in
the employee mix. Full-time support staff positions were reduced while
management level employees were added. In addition, experienced customer
service representatives were hired to operate the new South County, St.
Peters, Crestwood and Monroe City branches. Many of the employees hired to
staff the recently opened branches were hired before branches opened so that
they could receive training. As a result of the Reliance Acquisition in
August 1997 and the Branch Acquisition in September 1997, approximately 25
employees were hired. This increase in the number of employees and change in
the personnel profile was reflected in the increased costs associated with
salaries and employee benefits. Additionally, as the banking industry
continues to consolidate, the Company plans to hire additional qualified
employees from the pool of experienced workers expected to become available
as local branches of other financial institutions are closed. As of
September 30, 1997, the Company employed 180 full-time equivalent employees
compared to 87 full-time equivalent employees at September 30, 1996.
Occupancy and furniture and equipment expenses increased $152,000 to
$466,000 for the third quarter of 1997 compared to $314,000 for the third
quarter of 1996. Occupancy and furniture and equipment expenses increased
$297,000 to $1.2 million for the nine months ended September 30, 1997
compared to $901,000 for the nine months ended September 30, 1996. The
increase in occupancy and furniture and equipment expenses was primarily
attributable to the opening of three branches in 1997, the construction of
the Palmyra branch, the Reliance Acquisition and the Branch Acquisition. In
addition, the Company made investments in computer technology, including: an
on-line teller system, a PC network, a sophisticated retail cash-management
system and a conversion to a new banking and check imaging system scheduled
to be implemented in the fourth quarter of 1997. The expenses associated
with the system conversion are expected to continue into the first quarter of
1998. Although the investment in computer technology will increase
short-term costs, management believes such investment will yield future
benefits in the form of increased efficiency and profitability, as the
Operating Subsidiaries will be able to offer new service chargeable products
to match more closely their customers' needs.
As a result of entering into the leasing business in 1997, the Company
recorded depreciation expense on operating leases of $213,000 for the nine
months ended September 30, 1997. Management believes leasing will become
more prominent in the consumer banking area and will provide yields
comparable to other products.
Supplies, postage and telephone expenses increased $68,000 to $218,000
for the third quarter of 1997 compared to $150,000 for the third quarter of
1996. Supplies, postage and telephone expenses increased $115,000 to
$515,000 for the nine months ended September 30, 1997 compared to $400,000
for the nine months ended September 30, 1996. The increase in supplies,
postage and telephone expenses was
- 17 -
<PAGE> 18
primarily attributable to the opening of three branches in 1997, the Reliance
Acquisition and the Branch Acquisition.
Legal, accounting and professional fees increased $29,000 to $148,000
for the third quarter of 1997 compared to $119,000 for the third quarter of
1996. Legal, accounting and professional fees increased $375,000 to $595,000
for the nine months ended September 30, 1997 compared to $220,000 for the
nine months ended September 30, 1996. The increase in legal, accounting and
professional fees was primarily attributable to growth of the Company's
business. See "--Liquidity and Capital Resource Management--Capital Resources."
FINANCIAL CONDITION
At September 30, 1997, the Company's total assets were $578.7 million,
an increase of $201.1 million or 53% from December 31, 1996. This increase
was primarily attributable to a $147.6 million increase in loans outstanding
to $439.5 million at September 30, 1997 from $291.9 million at December 31,
1996. A substantial portion of these loans were in the form of one- to
four-family mortgage loans and other real estate mortgages. In addition, the
Reliance Acquisition and Branch Acquisition added approximately $21.7 million
to loans. Cash and due from banks increased 128% to $17.2 million at
September 30, 1997 from $7.6 million at December 31, 1996. Fed funds sold
increased 89% to $20.4 million at September 30, 1997 from $10.8 million at
December 31, 1996. Investment securities increased 26% to $76.4 million at
September 30, 1997 from $60.6 million at December 31, 1996.
Lending and Credit Management
Loans, the largest component of interest-earning assets, increased 51%
during the first nine months of 1997. This increase was primarily
attributable to a 61% increase in commercial and multi-family real estate
loans, a 52% increase in one- to four-family mortgage loans, and a 31%
increase in commercial and industrial loans.
Real estate mortgage loans increased $63.4 million to $184.8 million at
September 30, 1997 from $121.4 million at December 31, 1996. This increased
production includes approximately $8.0 million in conforming Federal National
Mortgage Association ("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, with $59.3 million in loans originated.
The increase in commercial loans was largely due to marketing efforts of
the Bank's commercial loan team, strengthened by the second quarter additions
of personnel recruited from competing banks in the area. Many of these loan
officers were able to transfer business relationships with them. Commercial
and multi-family real estate loans increased $45.6 million to $120.3 million
at September 30, 1997 from $74.7 million at December 31, 1996. Commercial
and industrial loans increased $23.0 million to $98.1 million at September
30, 1997 from $75.1 million at December 31, 1996. The majority of these
loans are tied to the Bank's Corporate Market rate (which generally moves
with the national prime lending rate) and tend to be the Bank's most
profitable loans.
Also, real estate construction loans increased $12.8 million to $21.6
million at September 30, 1997 from $8.8 million at December 31, 1996. The
growth in construction loans was partially attributable to new business
relationships introduced to the Company by newly hired members of the
commercial lending staff.
- 18 -
<PAGE> 19
The composition of the loan portfolio is summarized as follows:
<TABLE>
LOAN PORTFOLIO<F1>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1997 1996 1996
--------------------- --------------------- ---------------------
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 $ 98,082 22.32% $ 75,129 25.74% $ 62,989 22.97%
Real estate--construction 21,628 4.92 8,763 3.00 8,414 3.07
Real estate--mortgage:
One- to four-family 184,842 42.06 121,386 41.58 118,645 43.26
Multi-family and commercial 120,326 27.38 74,721 25.60 70,918 25.86
Consumer and other 14,874 3.38 12,084 4.14 13,460 4.91
Less unearned income (242) (0.06) (157) (0.05) (166) (0.07)
-------- ------ -------- ------ -------- ------
Total loans $439,510 100.00% $291,926 100.00% $274,260 100.00%
======== ====== ======== ====== ======== ======
<FN>
- ------------------------------------
<F1> The Bank had no outstanding foreign loans at the dates reported.
</TABLE>
- 19 -
<PAGE> 20
The following table summarizes the loan and lease loss experience for
the nine months ended September 30, 1997 and 1996:
<TABLE>
SUMMARY OF LOAN AND LEASE LOSS EXPERIENCE AND RELATED INFORMATION--ALLOCATION
OF THE ALLOWANCE FOR LOAN AND LEASE LOSSES
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------
1997 1996
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Allowance for possible loan and lease losses
(beginning of period) $ 3,100 $ 2,130
Acquired allowances for loan and lease losses 407 --
-------- --------
Loans charged off:
Commercial, financial, agricultural,
municipal and industrial development (201) (56)
Real estate--mortgage (79) (341)
Installment and consumer (94) (13)
Other loans -- --
-------- --------
Total loans (374) (410)
-------- --------
Recoveries of loans previously charged off:
Commercial, financial, agricultural,
municipal and industrial development 21 47
Real estate--mortgage -- 3
Installment and consumer 11 4
Other loans -- --
-------- --------
Total recoveries 32 54
-------- --------
Net loans charged off (342) (356)
-------- --------
Provision for possible loan and lease losses 1,677 950
-------- --------
Allowance for possible loan and lease losses (end of period) $ 4,842 $ 2,724
-------- --------
Loans outstanding:
Average $336,943 $215,124
End of period $439,510 $274,260
Ratios:
Net charge-offs to average loans outstanding 0.10% 0.17%
Net charge-offs to provision for loan losses 20.39% 37.47%
Provision for loan losses to average loans outstanding 0.50% 0.44%
Allowance for loan loss to total loans outstanding 1.10% 1.00%
Allocation for possible loan losses at end of period:
Commercial, financial, agricultural,
municipal and industrial development $ 2,276 $ 341
Real estate--construction 194 48
Residential real estate loans, first deeds of trust 823 1,073
Installment loans to individuals 145 253
All other loans -- --
Unallocated 1,404 1,009
-------- --------
Total $ 4,842 $ 2,724
======== ========
</TABLE>
- 20 -
<PAGE> 21
The allowance for possible loan and lease losses is maintained at a
level considered adequate to provide for potential loan and lease 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, potential future loan and lease
losses to specific customers and/or industries, and other pertinent factors
that management believes require current recognition in estimating possible
loan and lease losses. Each month, the allowance for possible loan and lease
losses is revised relative to the Company's internal watch list and other
data utilized to determine its adequacy. The provision for possible loan and
lease losses is management's estimate of the amount necessary to maintain the
allowance at a level consistent with this evaluation. As adjustments to the
allowance for possible loan and lease losses are considered necessary, they
are reflected in the results of operations. See "--Asset Quality."
Investments
Investment securities increased $15.8 million to $76.4 million at
September 30, 1997 from $60.6 million at December 31, 1996. The increase was
primarily attributable to a $10.7 million increase in United State Government
Agency securities to $57.4 million at September 30, 1997 from $46.7 million
at December 31, 1996. In addition, there was a $2.6 million increase in FHLB
stock due to purchases required under the Bank's borrowing agreement with the
FHLB. FHLB stock increased to $7.0 million at September 30, 1997 from $4.5
million at December 31, 1996. The increase in investment securities was
attributable, in part, to the Company's investment of a portion of the
proceeds from the Branch Acquisition as follows: (i) $50.4 million was
applied to purchase fed funds sold with a market rate of 5.35%; (ii) $4.2
million was applied to purchase short-term discount notes with a market rate
of 5.55%; and (iii) $3.5 million was applied to purchase U.S. Government or
Agency securities (maturing from September 1998 to June 2002) with a
weighted-average rate of 6.20%.
The book values of the investment securities for the periods indicated
are as follows:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES PORTFOLIO
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
United States Treasury securities $ 9,469 $ 7,941
Obligations of United States government agencies 57,414 46,718
FHLB stock 7,033 4,462
States and political subdivisions 977 1,199
Deposits with other banks 1,089 --
Other 247 205
Plus unrealized gain on securities held
available for sale 128 35
------- -------
Total investment securities $76,357 $60,560
======= =======
</TABLE>
ASSET QUALITY
The Company's allowance for possible loan and lease losses increased
$1.7 million to $4.8 million at September 30, 1997 from $3.1 million on
December 31, 1996. This 56% increase was primarily due to provisions of $1.7
million to the allowance for possible loan and lease losses during the first
nine months of
- 21 -
<PAGE> 22
1997. The allowance for possible loan and lease losses is budgeted by using a
risk weighting system based upon the different risk categories of loans. The
unallocated portion of the allowance for possible loan and lease losses
increased $400,000 to $1.4 million at September 30, 1997 compared to $1.0
million at September 30, 1996. See "--Lending and Credit Management." The
allowance for possible loan and lease losses to total loans increased to 1.10%
at September 30, 1997 from 1.06% at December 31, 1996. Management believes that
the allowance for possible loan and lease losses at September 30, 1997 was
adequate to reflect the credit risk in the loan portfolio. See "--Results of
Operations--Provision for Loan Losses" and "--Lending and Credit Management."
Non-performing assets increased $166,000 to $858,000 at September 30,
1997 from $692,000 at December 31, 1996. The ratio of non-performing loans
to total loans decreased to 0.18% at September 30, 1997, compared to 0.24% at
December 31, 1996. The decrease in non-performing loans as a percentage of
total loans was primarily attributable to the rate of loan growth while
maintaining the level of credit quality.
Potential problem loans are monitored by the lending staff and senior
management. The Bank and the Savings Bank continually monitor their loan
portfolios and discontinue the accrual of interest on any loan on which the
timely payment of principal or interest in the normal course of business is
doubtful. The discontinuance of interest accrual on a loan occurs when a
significant problem is detected in the normal payment process. The Bank's
and the Savings Bank's policy is to automatically place a loan on non-accrual
status when it becomes 90 days past due, unless it is well secured and in the
process of collection. Interest income on a non-accrual loan is recognized
only as collected.
The Company's credit review department regularly evaluates and rates all
outstanding loans over a specified dollar amount. The credit review
department prepares the internal watch list and discusses any potential
problems with management. The credit review department also analyzes the
allowance for loan and lease losses on a monthly basis with a view to
maintaining its adequacy.
The following table summarizes non-performing assets by category:
<TABLE>
RISK ELEMENTS--NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1997 1996 1996
------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial, financial, agricultural and all other loans:
Past due 90 days or more $ 14 $ 5 $ 79
Non-accrual 278 207 123
Restructured terms -- -- --
Real estate--construction:
Past due 90 days or more -- 264 --
Non-accrual 26 84 38
Restructured terms -- -- --
Real estate--mortgage:
Past due 90 days or more 166 -- --
Non-accrual 275 -- 86
Restructured terms -- -- --
(table continued on next page)
- 22 -
<PAGE> 23
<S> <C> <C> <C>
Installment loans to individuals:
Past due 90 days or more -- 23 9
Non-accrual 18 109 131
Restructured terms -- -- --
-------- -------- --------
Total non-performing loans 777 692 466
Other real estate owned 81 -- --
-------- -------- --------
Total non-performing assets $ 858 $ 692 $ 466
======== ======== ========
Balance sheet information:
Total assets $578,700 $377,564 $351,204
Loans outstanding 439,510 291,926 274,260
Shareholders' equity 34,862 16,386 15,310
Allowance for possible loan and lease losses 4,842 3,100 2,724
Ratios:
Non-performing loans to total loans outstanding 0.18% 0.24% 0.17%
Non-performing assets to total assets 0.15% 0.18% 0.13%
Non-performing loans to shareholders' equity 2.23% 4.22% 3.04%
Reserve for possible loan and lease losses to total loans 1.10% 1.06% 1.00%
Reserve for possible loan and lease losses
to non-performing loans 623.17% 447.98% 584.55%
Percent of categories to total end of period loans:
Commercial, financial, agricultural,
municipal and industrial development 22.32% 25.74% 22.97%
Real estate--construction 4.92% 3.00% 3.07%
Real estate--mortgage:
One- to four-family residential 42.06% 41.58% 43.26%
Multi-family and commercial 27.38% 25.60% 25.86%
Installment and consumer 3.38% 4.14% 4.91%
Less unearned income (0.06)% (0.05)% (0.07)%
-------- -------- --------
Total loans 100.00% 100.00% 100.00%
======== ======== ========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCE MANAGEMENT
Corresponding to the growth in assets for the first nine months of 1997,
total liabilities and shareholders' equity increased $201.1 million. The
increase in total liabilities and shareholders' equity was primarily
attributable to an increase of $164.7 million in total deposits to $473.4
million at September 30, 1997 from $308.7 million at December 31, 1996. In
addition, short-term debt increased $16.4 million to $52.5 million at
September 30, 1997 from $36.1 million at December 31, 1996. Long-term debt
increased $1.0 million to $15.7 million at September 30, 1997 from $14.7
million at December 31, 1996. The Company used these borrowings primarily to
fund loan growth in anticipation of recently opened branches attracting core
deposits and until the Reliance Acquisition and Branch Acquisition were
completed in the third quarter of 1997. Combined deposits from the Reliance
Acquisition and Branch Acquisition totaled approximately $123.0 million. The
additional deposits from the Reliance Acquisition and Branch Acquisition were
partially used for the planned retirement of $25.0 million of short-term
debt.
- 23 -
<PAGE> 24
Deposits
Total deposits increased $164.7 million to $473.4 million at September
30, 1997 from $308.7 million at December 31, 1996. The 53% increase in total
deposits was primarily attributable to the Reliance Acquisition and Branch
Acquisition in the third quarter of 1997 which added combined deposits
totaling approximately $123.0 million. The Bank and Savings Bank anticipate
deposit growth will increase in the last quarter of 1997 as the South County
branch matures and the newly opened St. Peters, Crestwood and Monroe City
branches attract core deposits. The Bank and Savings Bank plan to continue
offering new products to increase core deposits and attract long-term banking
relationships. In 1997, the Bank introduced investment services through
INVEST Financial Group and plans to offer PC home banking and sophisticated
cash management services to commercial customers.
The following table summarizes deposit activity:
<TABLE>
DEPOSIT LIABILITY COMPOSITION
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------------------ -----------------------
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 $ 46,134 9.75% $ 29,406 9.53% $ 16,728 56.89%
NOW accounts 18,643 3.94 10,711 3.47 7,932 74.05
Money market accounts 98,411 20.79 74,490 24.13 23,921 32.11
Savings deposits 19,241 4.06 6,083 1.97 13,158 216.31
Certificates of deposit 219,980 46.47 128,407 41.60 91,573 71.31
Certificates of deposit
over $100,000 51,678 10.92 50,825 16.47 853 1.68
IRA certificates 19,297 4.07 8,748 2.83 10,549 120.59
-------- ------ -------- ------ -------- ------
Total deposits $473,384 100.00% $308,670 100.00% $164,714 53.36%
======== ======= ======== ======= ======== ======
</TABLE>
The Bank and Savings Bank seek to maintain a level of liquidity that
will provide a readily available source of funds for new loans, allowing them
to meet loan commitments and other obligations on a timely basis.
Historically, the Company has been loan driven, meaning that as loans have
increased, the Company 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, i.e.,
paying premium rates coupled with advertising to attract new customers. When
possible, the Bank has timed a deposit promotion to coincide with the opening
of a new branch 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. Also, the Company entered into an
agreement with the FHLB to provide the Bank a credit facility secured by the
Bank's assets with current availability of $95.5 million of which $49.3
million was outstanding as of September 30, 1997. These capital resources
will provide the Bank the opportunity to expand the loan portfolio while
allowing it the flexibility to increase deposits when conditions best match
the Bank's needs and resources.
- 24 -
<PAGE> 25
Capital Resources
Management anticipates continued loan demand in the Bank's and Savings
Bank's market areas 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. On November 3, 1997, the Company initiated a rights offering
pursuant to which shareholders of record as of the close of business on
October 15, 1997 were granted nontransferable rights to purchase 0.125
additional shares of the Company's Common Stock, at $13.50 per share, for
each share held on the record date. The rights offering terminates on
December 3, 1997, unless extended by the Company in its sole discretion. The
Company estimates it will receive net proceeds of approximately $5.9 million
if all of the shares of Common Stock offered pursuant to the rights offering
are purchased. In addition, the Company has entered into an agreement with
the FHLB to provide the Bank a credit facility secured by the Bank's assets
with current availability of $95.5 million of which $49.3 million was
outstanding as of September 30, 1997. 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.
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. In addition,
a minimum leverage ratio of Tier 1 capital to tangible assets of 4% is
required.
- 25 -
<PAGE> 26
At September 30, 1997 and December 31, 1996, the Company's and the
subsidiary banks' capital ratios were as follows:
<TABLE>
RISK BASED CAPITAL RATIOS
<CAPTION>
TOTAL TIER 1 LEVERAGE RATIO
---------------------------- ----------------------------- -----------------------------
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1997 1996 1997 1996 1997 1996
------------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Allegiant Bancorp, Inc. 7.64% 8.55% 5.53% 6.10% 4.79% 4.38%
Allegiant Bank 7.38% 10.06% 6.33% 8.87% 5.33% 6.37%
Allegiant Bank, FSB 26.28% -- 25.00% -- 11.65% --
</TABLE>
The Company planned to meet its targeted fourth quarter 1997 and first
quarter 1998 capital levels through the fourth quarter rights offering.
However, contrary to historical seasonal loan demand patterns, the Bank
has experienced strong loan growth through the third quarter of 1997 that has
exceeded the Bank's expectations. The loan growth has increased due to the
aforementioned additions to the Bank's commercial loan team and continued bank
consolidation. See "Financial Condition--Lending and Credit Management." As
bank consolidations continue, fewer middle market lenders are available to
serve the market area, which has increased the Bank's market presence. As a
result of the stronger than expected loan growth, the Bank may not be able
to meet the fourth quarter 1997 and first quarter 1998 capital level goals
submitted to the Federal Deposit Insurance Corporation solely through the
fourth quarter 1997 rights offering. In order to meet the fourth quarter
1997 and first quarter 1998 target capital levels, the Company may increase
its borrowings under its current bank stock loan or borrow from other sources,
including individuals who currently serve on its Board of Directors at rates
that are no less favorable to the Company than could be obtained from
unrelated parties. The borrowed funds would, in turn, be injected into the
Bank's capital which should allow the Bank to meets its targeted capital
levels.
- 26 -
<PAGE> 27
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
On September 10, 1997, the Company filed a report on Form 8-K
to report, pursuant to Item 2 thereof, the Branch Acquisition and,
pursuant to Item 5 thereof, the Reliance Acquisition. On October
29, 1997, the Company filed a report on Form 8-K/A to report, pursuant
to Item 7 thereof, an audited statement of assets acquired and liabilities
assumed in connection with the Branch Acquisition.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 27 -
<PAGE> 28
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 14, 1997 By: /s/ Shaun R. Hayes
----------------------------------------
Shaun R. Hayes, President and
Principal Accounting Officer
- 28 -
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ALLEGIANT BANCORP, INC. QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTER
ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1997
<PERIOD-END> Sep-30-1997
<CASH> 17,242
<INT-BEARING-DEPOSITS> 375,572
<FED-FUNDS-SOLD> 20,360
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 41,091
<INVESTMENTS-CARRYING> 35,266
<INVESTMENTS-MARKET> 35,500
<LOANS> 439,510
<ALLOWANCE> 4,842
<TOTAL-ASSETS> 578,700
<DEPOSITS> 473,384
<SHORT-TERM> 52,486
<LIABILITIES-OTHER> 2,305
<LONG-TERM> 15,663
0
0
<COMMON> 37
<OTHER-SE> 34,825
<TOTAL-LIABILITIES-AND-EQUITY> 578,700
<INTEREST-LOAN> 23,855
<INTEREST-INVEST> 2,827
<INTEREST-OTHER> 246
<INTEREST-TOTAL> 26,928
<INTEREST-DEPOSIT> 11,587
<INTEREST-EXPENSE> 14,728
<INTEREST-INCOME-NET> 12,200
<LOAN-LOSSES> 1,677
<SECURITIES-GAINS> 25
<EXPENSE-OTHER> 8,186
<INCOME-PRETAX> 3,561
<INCOME-PRE-EXTRAORDINARY> 2,139
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,139
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.70
<YIELD-ACTUAL> 8.85
<LOANS-NON> 597
<LOANS-PAST> 180
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,100
<CHARGE-OFFS> 374
<RECOVERIES> 32
<ALLOWANCE-CLOSE> 4,842
<ALLOWANCE-DOMESTIC> 4,842
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,404
</TABLE>
