<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 11, 1997
Registration No. 333-26433
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------------------------------
ALLEGIANT BANCORP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MISSOURI 6712 43-1519382
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
7801 Forsyth Boulevard
St. Louis, Missouri 63105
(314) 726-5000
(Address and telephone number of principal executive office)
-----------------------------------
Shaun R. Hayes
President
7801 Forsyth Boulevard
St. Louis, Missouri 63105
(314) 726-5000
(Name, address, and telephone number of agent for service)
-----------------------------------
Copies to:
Thomas A. Litz, Esq. Robert B. Pomerenk, Esq.
Thompson Coburn Luse Lehman Gorman Pomerenk & Schick
One Mercantile Center 5335 Wisconsin Avenue, N.W.
Suite 3400 Suite 400
St. Louis, Missouri 63101 Washington, D.C. 20015
telephone: (314) 552-6000 telephone: (202) 274-2000
facsimile: (314) 552-7000 facsimile: (202) 362-2902
-----------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: / /
<TABLE>
CALCULATION OF REGISTRATION FEE
====================================================================================================================
<CAPTION>
Proposed maximum Proposed maximum Amount of
Title of each class of Amount to be offering price aggregate offering registration
securities to be registered registered per unit<F1> price<F1> fee<F1>
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value... 784,650 shares $18.75 $8,788,125 $2,663.07
====================================================================================================================
<FN>
<F1> Estimated solely for purposes of computing the Registration Fee,
pursuant to the provisions of Rule 457(f), and based upon the
average of the bid and asked prices of the Common Stock, $.10
par value, of Reliance Financial, Inc. as reported by the
National Quotation Bureau, Inc. on April 30, 1997, of which
468,700 shares will be cancelled or received by the Registrant
in the exchange. The Registrant paid the registration fee of
$2,663.07 with the original filing on May 2, 1997.
</TABLE>
-----------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT
TO SAID SECTION 8(a), MAY DETERMINE.
==============================================================================
<PAGE> 2
[ALLEGIANT BANCORP, INC. LETTERHEAD]
July --, 1997
Dear Fellow Shareholder:
The Board of Directors cordially invites you to attend a Special
Meeting of Shareholders of Allegiant Bancorp, Inc. ("Allegiant") to be held
at : p.m. Central Time, on , 1997, at the offices of Dash
Multi-Corp, Inc., 2500 Adie Road, Maryland Heights, Missouri 63043 (the
"Special Meeting"). At the Special Meeting, you will be asked to consider and
vote upon a proposal to approve the Agreement and Plan of Merger dated March
20, 1997 (the "Merger Agreement") and the transactions contemplated thereby,
pursuant to which Reliance Financial, Inc. ("Reliance") will be merged with
and into Allegiant.
I have enclosed the following items relating to the Special Meeting
and the proposed merger:
1. Joint Proxy Statement/Prospectus;
2. Proxy card; and
3. A pre-addressed return envelope to Allegiant for the proxy card.
The Joint Proxy Statement/Prospectus and related proxy materials
set forth financial data and other important information relating to Reliance
and Allegiant and describe the terms and conditions of the proposed merger
and related transactions. Allegiant's Board of Directors requests that you
carefully review these materials before completing the enclosed proxy card or
attending the Special Meeting.
THE BOARD OF DIRECTORS OF ALLEGIANT CAREFULLY CONSIDERED AND
APPROVED THE TERMS OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY AS BEING FAIR TO AND IN THE BEST INTEREST OF ALLEGIANT AND ITS
SHAREHOLDERS. THE ALLEGIANT BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" THE PROPOSAL TO APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
APPROVAL OF THE MERGER AGREEMENT BY THE ALLEGIANT SHAREHOLDERS IS A
CONDITION TO THE CONSUMMATION OF THE MERGER. Accordingly, it is important that
your shares be represented at the Special Meeting, whether or not you plan to
attend the Special Meeting in person. Please complete, date and sign the
enclosed proxy card and return it to Allegiant in the enclosed pre-addressed
if mailed within the United States. If you later decide to attend the
Special Meeting and vote in person, or if you wish to revoke your proxy for
any reason prior to the vote at the Special Meeting, you may do so and your
proxy will have no further effect. You may revoke your proxy by delivering
to the Secretary of Allegiant a written notice of revocation or another proxy
relating to the same shares bearing a later date than the proxy being revoked
or by attending the Special Meeting and voting in person. Attendance at the
Special Meeting will not in itself constitute a revocation of an earlier
dated proxy.
If you need assistance in completing your proxy card or if you have
any questions about the Joint Proxy Statement/Prospectus, please call (314)
726-5000 and ask for Investor Relations.
Sincerely,
Marvin S. Wool
Chairman and Chief Executive Officer
<PAGE> 3
ALLEGIANT BANCORP, INC.
7801 FORSYTH BOULEVARD
ST. LOUIS, MISSOURI 63105
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD
, 1997
TO THE SHAREHOLDERS OF ALLEGIANT BANCORP, INC.:
Notice is hereby given that a special meeting (the "Special
Meeting") of Shareholders of ALLEGIANT BANCORP, INC., a Missouri corporation
("Allegiant"), will be held at the offices of Dash Multi-Corp, Inc., 2500
Adie Road, Maryland Heights, Missouri 63043 on , 1997, at :
p.m. Central Time, for the following purposes:
1. To consider and vote upon a proposal to approve the
Agreement and Plan of Merger dated March 20, 1997, between Reliance
Financial, Inc. ("Reliance") and Allegiant (the "Merger Agreement") and the
transactions contemplated thereby, pursuant to which Reliance will be merged
(the "Merger") with and into Allegiant, in a transaction that would result
in the business and operations of Reliance being continued through Allegiant,
and whereby, upon the consummation of the Merger, each outstanding share of
Reliance common stock, par value $.10, will be converted into the right to
receive 1.6741 shares of Allegiant common stock, par value $.01 ("Allegiant
Common Stock"), subject to adjustment as set forth in the accompanying Joint
Proxy Statement/Prospectus which is incorporated by reference in this Notice.
2. To transact such other business as may properly come before
the Special Meeting or any adjournments or postponements thereof.
The record date for determining the shareholders entitled to
receive notice of, and to vote at, the Special Meeting or any adjournments or
postponements thereof has been fixed as of the close of business on
[ ], 1997. On the record date, there were [ ] shares of
Allegiant Common Stock issued, outstanding and entitled to vote. Such shares
were held by approximately [ ] holders. Each share will be entitled one
vote on each matter submitted to a vote at the Special Meeting.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST TWO-THIRDS OF THE
OUTSTANDING SHARES OF ALLEGIANT COMMON STOCK IS REQUIRED FOR APPROVAL OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. YOUR VOTE IS
IMPORTANT.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ACCOMPANYING ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE
VOTE AT THE SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE
ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS. FAILURE TO RETURN THE
ENCLOSED PROXY CARD OR TO VOTE AT THE MEETING WILL HAVE THE SAME EFFECT AS A
VOTE AGAINST THE MERGER.
BY ORDER OF THE BOARD OF DIRECTORS
St. Louis, Missouri Marvin S. Wool
[ , 1997] Chairman and Chief Executive Officer
<PAGE> 4
[RELIANCE FINANCIAL, INC. LETTERHEAD]
July --, 1997
Dear Fellow Stockholder:
The Board of Directors cordially invites you to attend the 1997
Annual Meeting of Stockholders of Reliance Financial, Inc. ("Reliance") to be
held at : p.m. Central Time, on , 1997, at the
offices of Reliance, 8930 Gravois Avenue, St. Louis, Missouri 63123 (the
"Annual Meeting"). At the Annual Meeting, you will be asked to consider and
vote upon (i) a proposal to adopt the Agreement and Plan of Merger dated
March 20, 1997 (the "Merger Agreement") and the transactions contemplated
thereby, pursuant to which Reliance will be merged with and into Allegiant
Bancorp, Inc. ("Allegiant"), (ii) the election of two directors for a term of
three years or until their successors shall have been duly elected and
qualified and (iii) the ratification of the appointment of Michael Trokey &
Company, P.C. as independent auditors for the fiscal year ending September 30,
1997.
I have enclosed the following items relating to the Annual
Meeting and the proposed merger:
1. Joint Proxy Statement/Prospectus;
2. Proxy card; and
3. A pre-addressed return envelope to Reliance for the proxy
card.
The Joint Proxy Statement/Prospectus and related proxy materials
set forth financial data and other important information relating to Reliance
and Allegiant and describe the terms and conditions of the proposed merger
and related transactions. Reliance's Board of Directors requests that you
carefully review these materials before completing the enclosed proxy card or
attending the Annual Meeting.
THE BOARD OF DIRECTORS OF RELIANCE CAREFULLY CONSIDERED
AND ADOPTED THE TERMS OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AS BEING FAIR TO AND IN THE BEST INTEREST OF
RELIANCE AND ITS STOCKHOLDERS. THE RELIANCE BOARD UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO ADOPT THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY. THE BOARD OF DIRECTORS
OF RELIANCE ALSO UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
PROPOSED SLATE OF DIRECTORS AND "FOR" THE RATIFICATION OF THE
INDEPENDENT AUDITORS.
It is important that your shares be represented at the Annual
Meeting, whether or not you plan to attend the Annual Meeting in person.
ADOPTION OF THE MERGER AGREEMENT BY THE RELIANCE STOCKHOLDERS IS A
CONDITION TO THE CONSUMMATION OF THE MERGER. Please complete, date
and sign the enclosed proxy card and return it to Reliance in the enclosed
pre-addressed envelope, which requires no postage if mailed within the United
States. If you later decide to attend the Annual Meeting and vote in person,
or if you wish to revoke your proxy for any reason prior to the vote at the
Annual Meeting, you may do so and your proxy will have no further effect.
You may revoke your proxy by delivering to the Secretary of Reliance a
written notice of revocation or another proxy relating to the same shares
bearing a later date than the proxy being revoked or by attending the Annual
Meeting and voting in person. Attendance at the Annual Meeting will not in
itself constitute a revocation of an earlier dated proxy.
If you need assistance in completing your proxy card or if you
have any questions about the Joint Proxy Statement/Prospectus, please call
(314) 631-7500 and ask for Investor Relations.
Sincerely,
John E. Bowman
President and Chief Executive Officer
<PAGE> 5
RELIANCE FINANCIAL, INC.
8930 GRAVOIS AVENUE
ST. LOUIS, MISSOURI 63123
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD
[ , 1997]
TO THE STOCKHOLDERS OF RELIANCE FINANCIAL, INC.:
Notice is hereby given that the 1997 Annual Meeting (the "Annual
Meeting") of Stockholders of RELIANCE FINANCIAL, INC., a Delaware corporation
("Reliance"), will be held at the offices of Reliance, 8930 Gravois Avenue,
St. Louis, Missouri 63123 on [ , 1997], at [ : p.m.] Central
Time, for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement
and Plan of Merger dated March 20, 1997, between Allegiant Bancorp, Inc.
("Allegiant") and Reliance (the "Merger Agreement") and the transactions
contemplated thereby, pursuant to which Reliance will be merged (the
"Merger") with and into Allegiant, in a transaction that would result in the
business and operations of Reliance being continued through Allegiant, and
whereby, upon the consummation of the Merger, each outstanding share of
Reliance common stock, $.10 par value ("Reliance Common Stock"), will be
converted into the right to receive 1.6741 shares of Allegiant common stock,
$.01 par value ("Allegiant Common Stock"), subject to adjustment as set forth
in the accompanying Joint Proxy Statement/Prospectus which is incorporated by
reference in this Notice.
2. To elect two directors for a term of three years or until
their successors shall have been duly elected and qualified;
3. To ratify the appointment of Michael Trokey & Company, P.C.
as independent auditors for the fiscal year ending September 30, 1997; and
4. To transact such other business as may properly come before
the Annual Meeting or any adjournments or postponements thereof.
The record date for determining the stockholders entitled to
receive notice of, and to vote at, the Annual Meeting or any adjournments or
postponements thereof has been fixed as of the close of business on [
, 1997]. On the record date, there were [ ] shares of
Reliance Common Stock issued, outstanding and entitled to vote. Such shares
were held by approximately [ ] holders. Each share will be entitled to one
vote on each matter submitted to a vote at the Annual Meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ACCOMPANYING ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE
VOTE AT THE ANNUAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE
ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS. FAILURE TO RETURN THE
ENCLOSED PROXY CARD OR TO VOTE AT THE ANNUAL MEETING WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST THE MERGER.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. If
the Merger Agreement is adopted, you will be sent instructions regarding the
procedures for exchanging your existing Reliance Common Stock certificates
for new certificates representing shares of Allegiant Common Stock.
BY ORDER OF THE BOARD OF DIRECTORS
St. Louis, Missouri Jeannette Larson
[ , 1997] Secretary
<PAGE> 6
********************************************************************************
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed with the *
* Securities and Exchange Commission. These securities may not be sold nor may *
* offers to buy be accepted prior to the time the registration statement *
* becomes effective. This prospectus 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. *
********************************************************************************
SUBJECT TO COMPLETION, DATED JULY 11, 1997
JOINT PROXY STATEMENT
ALLEGIANT BANCORP, INC. RELIANCE FINANCIAL, INC.
SPECIAL MEETING OF SHAREHOLDERS ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON [ , 1997] TO BE HELD ON [ , 1997]
-----------------------
ALLEGIANT BANCORP, INC.
PROSPECTUS
-----------------------
This Prospectus of Allegiant Bancorp, Inc. ("Allegiant") relates
to up to 784,650 shares of Common Stock, $.01 par value, of Allegiant (the
"Allegiant Common Stock"), to be issued to the stockholders of Reliance
Financial, Inc., a Delaware corporation ("Reliance"), upon consummation of the
proposed merger (the "Merger") of Reliance with and into Allegiant. The
Merger will be consummated pursuant to the terms of the Agreement and Plan of
Merger dated March 20, 1997 (the "Merger Agreement"), between Allegiant and
Reliance, upon the terms and subject to the conditions thereof. This
Prospectus also serves as the Joint Proxy Statement of Allegiant and Reliance
for use in connection with the solicitation of proxies by the Board of
Directors of Allegiant (the "Allegiant Board") and the Board of Directors of
Reliance (the "Reliance Board") to be used at the Special Meeting of
Shareholders of Allegiant (the "Allegiant Special Meeting") and at the Annual
Meeting of Stockholders of Reliance (the "Reliance Annual Meeting"),
respectively, to approve and adopt, respectively, the Merger Agreement and the
transactions contemplated thereby and, with respect to Reliance, the election
of two directors for a term of three years and the ratification of Michael
Trokey & Company, P.C. as Reliance's independent auditors for the fiscal year
ending September 30, 1997.
Upon consummation of the Merger, the business and operations of
Reliance will be continued through Allegiant and each share of Reliance common
stock, $.10 par value ("Reliance Common Stock"), will be converted into the
right to receive 1.6741 shares of Allegiant Common Stock, subject to
adjustment as set forth in the Merger Agreement. The fair market value of
Allegiant Common Stock to be received pursuant to the Merger may fluctuate and
at the consummation of the Merger may be more or less than the current fair
market value of such shares. See "Terms of the Proposed Merger--General
Description of the Merger." No fractional shares of Allegiant Common Stock
will be issued in the Merger, but cash will be paid in lieu of such fractional
shares. See "Terms of the Proposed Merger--Fractional Shares."
The transaction is intended to qualify as a reorganization under
the Internal Revenue Code of 1986, as amended (the "Code"). The Merger
generally is intended to achieve certain tax-deferral benefits for federal
income tax purposes for Reliance stockholders. See "Summary
Information--Certain Federal Income Tax Consequences" and "Certain Federal
Income Tax Consequences of the Merger."
Allegiant Common Stock is traded on the Nasdaq National Market
(the "Nasdaq") under the symbol "ALLE" and Reliance Common Stock is traded
over-the-counter with quotes published by the National Quotation Bureau, Inc.
Daily Quotation System under the symbol "RLFN." On July 10, 1997, the
closing sale price for Allegiant Common Stock as reported on the Nasdaq was
$17.00 per share and the last bid price for Reliance Common Stock as reported
by the National Quotation Bureau, Inc. was $21.00 per share.
This Joint Proxy Statement/Prospectus does not cover any resales
of Allegiant Common Stock offered hereby to be received by any stockholder
deemed to be an affiliate of Allegiant upon consummation of the Merger. No
person is authorized to make use of this Joint Proxy Statement/Prospectus in
connection with such resale, although such securities may be traded without
the use of this Joint Proxy Statement/Prospectus by those stockholders of
Reliance not deemed to be affiliates of Reliance or Allegiant.
<PAGE> 7
(continued from previous page)
This Joint Proxy Statement/Prospectus, the Notice of Special
Meeting of Shareholders of Allegiant and the form of proxy were first mailed
to the shareholders of Allegiant on or about [ ,
1997]. This Joint Proxy Statement/Prospectus, the Notice of Annual Meeting of
Stockholders of Reliance and the form of proxy were first mailed to the
stockholders of Reliance on or about [ , 1997].
SEE "RISK FACTORS" ON PAGE 22 FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY THE STOCKHOLDERS OF
RELIANCE WITH RESPECT TO THE ALLEGIANT COMMON STOCK TO BE RECEIVED
IN THE MERGER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SHARES OF ALLEGIANT COMMON STOCK OFFERED HEREBY ARE NOT
SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR
SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS
ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
The date of this Joint Proxy Statement/Prospectus is [ , 1997].
- 2 -
<PAGE> 8
AVAILABLE INFORMATION
Allegiant and Reliance are each subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information filed by Allegiant and
Reliance can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at Suite 1300,
Seven World Trade Center, New York, New York 10048 and Suite 1400, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661. The Commission
maintains a Web site that contains reports, proxy and information statements
and other information regarding issuers (including Allegiant and Reliance)
that file electronically with the Commission. The address of the Commission's
Web site is http://www.sec.gov.
Allegiant Common Stock is listed on the Nasdaq, and such reports,
proxy statements and other information concerning Allegiant is available for
inspection at 1735 K Street, N.W., Washington, D.C. 20006-1500. Reliance
Common Stock is not listed on a national securities exchange or quoted on the
Nasdaq.
This Joint Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement on Form S-4 (File No.
333-26433) and exhibits thereto (the "Registration Statement") covering the
securities offered hereby which has been filed by Allegiant with the
Commission. As permitted by the rules and regulations of the Commission, this
Joint Proxy Statement/Prospectus omits certain information contained or
incorporated by reference in the Registration Statement. Statements contained
in this Joint Proxy Statement/Prospectus provide a summary of the contents of
certain contracts or other documents referenced herein but are not necessarily
complete and in each instance reference is made to the copy of each such
contract or other document filed as an exhibit to the Registration Statement.
For such further information, reference is made to the Registration Statement.
All information contained in this Joint Proxy Statement/Prospectus
with respect to Allegiant has been supplied by Allegiant, and all information
with respect to Reliance has been supplied by Reliance.
Any statements contained in this Joint Proxy Statement/Prospectus
involving matters of opinion, whether or not expressly so stated, are intended
as such and not as representations of fact.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY
STATEMENT/ PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY ALLEGIANT OR RELIANCE. THIS JOINT PROXY STATEMENT/PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE SHARES OF ALLEGIANT COMMON
STOCK TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES PURSUANT HERETO SHALL IMPLY OR CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
ALLEGIANT OR RELIANCE OR ANY OF THEIR SUBSIDIARIES OR IN THE
INFORMATION SET FORTH HEREIN SUBSEQUENT TO THE DATE HEREOF.
- 3 -
<PAGE> 9
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
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<S> <C>
AVAILABLE INFORMATION 3
SUMMARY INFORMATION 9
Business of Allegiant 9
Recent Developments 9
Business of Reliance 9
The Proposed Merger 10
Other Agreements 11
Interests of Certain Persons in the Merger 11
Special Meeting of Allegiant Shareholders 12
Annual Meeting of Reliance Stockholders 13
Reasons for the Merger 14
Opinion of Financial Advisor to Allegiant 14
Opinion of Financial Advisor to Reliance 14
Fractional Shares 14
Expenses 15
Waiver and Amendment; Termination 15
Certain Federal Income Tax Consequences 15
Regulatory Approvals 15
Accounting Treatment 16
Covenants Pending Closing 16
Appraisal Rights 16
Markets, Market Prices and Dividend Information 17
Comparative Unaudited Per Share Data 18
Summary Financial Data 19
RISK FACTORS 22
Regulatory Risk 22
Credit Risk 22
Exposure to Local Economic Conditions 22
Interest Rate Risk 23
Deposit Mix 23
No Assurance of Future Growth 23
First Acquisition 23
Risks of the Branch Acquisition 23
Competition 24
Control by Management 24
No Assurance of Cash or Stock Dividends 24
Reliance on Management 24
Shares Eligible for Future Resale 24
Market for Allegiant Common Stock 25
Stock Not an Insured Deposit 25
THE ALLEGIANT SPECIAL MEETING 26
General 26
Date, Time and Place 26
Allegiant Record Date; Vote Required 26
Voting and Revocation of Proxies 26
Solicitation of Proxies 27
- 4 -
<PAGE> 10
<CAPTION>
Page
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<S> <C>
THE RELIANCE ANNUAL MEETING 28
General 28
Date, Time and Place 28
Reliance Record Date; Vote Required 28
Voting and Revocation of Proxies 29
Solicitation of Proxies 29
TERMS OF THE PROPOSED MERGER 30
General Description of the Merger 30
Other Agreements 31
Interests of Certain Persons in the Merger 33
Background of and Reasons for the Merger; Board Recommendations 35
Opinion of Financial Advisor to Allegiant 39
Opinion of Financial Advisor to Reliance 42
Conditions of the Merger 46
Representations and Warranties 49
Termination, Waiver and Amendment of the Merger Agreement 49
Indemnification 50
Closing Date 50
Surrender of Reliance Stock Certificates and Receipt of Allegiant Common Stock 51
Fractional Shares 51
Regulatory Approvals 51
Business Pending the Merger 52
Accounting Treatment 55
Effect on Stock Option and Employee Benefit Plans 55
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER 56
APPRAISAL RIGHTS OF STOCKHOLDERS OF RELIANCE 58
COMPARATIVE UNAUDITED PER SHARE DATA 61
INFORMATION REGARDING ALLEGIANT 62
General 62
The Bank 62
Marketing 62
Products and Services 63
Market Area 63
Competition 63
Employees 64
Effect of Governmental Policy 64
Description of Property 64
Legal Proceedings 65
Management's Discussion and Analysis of Financial Condition and Results of Operations 66
Financial Condition 74
Asset/Liability Management 75
Risk Management 76
Loans 77
Investments 80
Asset Quality 81
- 5 -
<PAGE> 11
<CAPTION>
Page
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<S> <C>
Liquidity and Capital Resource Management 84
Deposits 84
Liquidity Management 85
Capital Resources 87
Directors and Executive Officers of Allegiant 89
Certain Relationships and Related Transactions 89
Security Ownership of Management 90
Compensation of Executive Officers 92
THE BRANCH ACQUISITION 94
General 94
Reasons for the Branch Acquisition 94
Description of the Branch Acquisition 95
Roosevelt Closing 96
Regulatory Approvals 97
Roosevelt Branch Employees 98
Accounting Treatment 98
Unaudited Pro Forma Financial Information 98
Impact of the Branch Acquisition on Operating Performance 101
INFORMATION REGARDING RELIANCE 104
Reliance Financial, Inc. 104
Reliance Federal Savings and Loan Association of St. Louis County 104
Market Area and Competition 105
Lending Activities 105
Delinquencies and Classified Assets 112
Delinquent Loans and Troubled Assets 113
Investment Activities 116
Investment Portfolio Maturities 119
Sources of Funds 119
Personnel 123
Executive Officers of Reliance 123
Properties 124
Legal Proceedings 124
Selected Consolidated Financial and Other Data 124
Management's Discussion and Analysis of Financial Condition and Results of Operations 126
Asset/Liability Management 126
Average Balances, Interest and Average Yields and Rates 127
Rate/Volume Analysis 128
Liquidity and Capital Resources 128
Financial Condition 129
Results of Operations (Comparison of the Year Ended September 30, 1996 to the Year
Ended September 30, 1995) 129
Comparison of the Year Ended September 30, 1995 to the Year Ended September 30, 1994 131
Liquidity And Capital Resources 134
Impact of Recent Accounting Pronouncements 135
Section 16(a) Beneficial Ownership Reporting Compliance 136
Meetings and Committees of the Board of Directors 136
Employment and Severance Arrangements 137
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<CAPTION>
Page
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<S> <C>
Directors' Compensation 137
Compensation Committee Interlocks and Insider Participation 138
Report of the Compensation Committee on Executive Compensation 138
Executive Compensation 139
Benefits 140
Security Ownership of Certain Beneficial Holders 142
Certain Transactions 143
Performance Graph 143
ELECTION OF RELIANCE DIRECTORS 144
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS OF RELIANCE 145
DESCRIPTION OF ALLEGIANT COMMON STOCK 145
Restrictions on Resale of Allegiant Common Stock by Affiliates 146
Comparison of the Rights of Shareholders of Allegiant and Stockholders of Reliance 147
SUPERVISION AND REGULATION 150
General 150
Certain Transactions with Affiliates 150
Payment of Dividends 151
Capital Adequacy 151
Support of Subsidiary Bank 151
Federal Regulation of Savings Institutions 152
FIRREA and FDICIA 155
Depositor Preference Statute 156
FDIC Insurance Assessments 156
Federal Home Loan Bank System 157
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS 158
LEGAL MATTERS 158
EXPERTS 158
OTHER MATTERS 159
SHAREHOLDER PROPOSALS 159
CONSOLIDATED FINANCIAL STATEMENTS 160
ANNEXES
Annex A -- Opinion of Stifel, Nicolaus & Company, Incorporated A-1
Annex B -- Opinion of RP Financial, LC. B-1
Annex C -- Appraisal Rights Provisions of the General Corporation Law of the State
of Delaware C-1
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<PAGE> 13
<CAPTION>
Page
----
<S> <C>
Annex D -- Quarterly Report on Form 10-QSB of Allegiant Bancorp, Inc. for
the Quarter Ended March 31, 1997 D-1
Annex E -- Quarterly Report on Form 10-Q of Reliance Financial, Inc. for the
Quarter Ended March 31, 1997 E-1
</TABLE>
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<PAGE> 14
SUMMARY INFORMATION
The following is a summary of the important terms of the proposed
Merger and related information discussed elsewhere in this Joint Proxy
Statement/Prospectus but does not purport to be complete and is qualified in
its entirety by reference to the more detailed information that appears
elsewhere in this Joint Proxy Statement/Prospectus and the documents
incorporated by reference herein. Shareholders of Allegiant and stockholders
of Reliance are urged to read this Joint Proxy Statement/Prospectus in its
entirety.
BUSINESS OF ALLEGIANT
Allegiant is a bank holding company that owns all of the capital
stock of Allegiant Bank, a Missouri state-chartered bank (the "Bank"). The
Bank provides personal and commercial banking and related financial services
from eight 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. 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 recently organized subsidiary of Allegiant, offers
residential loans to customers in the St. Louis SMSA who do not qualify under
standard mortgage loan criteria. As of March 31, 1997, Allegiant reported, on
a consolidated basis, total assets of $390.1 million, total deposits of $310.8
million, total loans of $314.3 million and shareholders' equity of $22.1
million.
Allegiant was organized in May 1989 and acquired Allegiant State
Bank at that time. Allegiant acquired Allegiant Bank in 1990. Effective
January 1995, Allegiant State Bank merged into Allegiant Bank. Unless the
context indicates otherwise, references herein to "Allegiant" refer to
Allegiant Bancorp, Inc. and its subsidiaries.
The address of Allegiant's principal executive offices is 7801
Forsyth Boulevard, St. Louis, Missouri 63105 and its telephone number is (314)
726-5000.
RECENT DEVELOPMENTS
In March 1997, Allegiant completed a rights offering in which it
raised net proceeds of approximately $5.2 million and issued 567,750 shares of
Allegiant Common Stock to existing shareholders at a price of $9.375 per
share.
On May 8, 1997, Allegiant entered into two substantially similar
Deposit Transfer and Asset Purchase Agreements (collectively, the "Roosevelt
Agreements") with Roosevelt Bank, a federal stock savings bank and wholly-owned
subsidiary of Roosevelt Financial Group, Inc. ("Roosevelt Financial"), to
purchase Roosevelt Bank's branch offices in Warrenton, Missouri ("Warrenton")
and Union, Missouri ("Union")(collectively, the "Roosevelt Branches"). The
acquisition, which is subject to appropriate regulatory approvals, includes
the branch buildings and the safe deposit and deposit relationships and
certain loans. For a discussion of the anticipated effect of the acquisition
see "The Branch Acquisition."
BUSINESS OF RELIANCE
Reliance is a Delaware corporation that was organized in
December 1994. On April 7, 1995, Reliance acquired all of the capital stock
of Reliance Federal Savings and Loan Association of St. Louis County
("RFSLA"), and sold 430,000 shares of Reliance Common Stock in a subscription
and community offering for a purchase price of $10.00 per share (the
"Offering"). Net proceeds from the Offering were $3.6 million. Reliance
retained 50% of the net Offering proceeds, used a portion of the proceeds to
originate a loan to RFSLA's Employee Stock Ownership Plan (the "ESOP") and
used the
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<PAGE> 15
balance of the net proceeds to purchase all of the common stock of
RFSLA. Immediately following the Offering, the only significant assets of
Reliance were the common stock of RFSLA, the loan to the ESOP and $1.6 million
in cash, cash equivalents and certificates of deposit. Reliance is registered
as a savings and loan holding company with the Office of Thrift Supervision
(the "OTS"). As of March 31, 1997, Reliance reported, on a consolidated
basis, total assets of $31.0 million, total deposits of $23.6 million, total
loans of $19.9 million and stockholders' equity of $6.8 million.
The address of Reliance's principal executive offices is 8930
Gravois Avenue, St. Louis, Missouri 63123 and its telephone number is (314)
631-7500.
THE PROPOSED MERGER
Subject to the satisfaction of the terms and conditions set forth
in the Merger Agreement described below, Reliance will be merged with and into
Allegiant. Upon consummation of the Merger, Reliance's corporate existence
will terminate and Allegiant will continue as the surviving entity. RFSLA,
however, will continue to operate as a wholly-owned subsidiary of Allegiant.
Simultaneously with the effectiveness of the Merger and subject to the terms,
conditions and procedures set forth in the Merger Agreement, each share of
Reliance Common Stock will be converted into the right to receive 1.6741
shares of Allegiant Common Stock, subject to adjustment as set forth in the
Merger Agreement (the "Exchange Ratio;" the consideration to be received by
the stockholders of Reliance in the Merger shall hereinafter be referred to as
the "Merger Consideration"). In the event the Average Allegiant Price (as
hereinafter defined) exceeds $14.50, the Exchange Ratio will be calculated by
multiplying 1.6741 by a fraction, the numerator of which is $14.50 and the
denominator of which is the Average Allegiant Price. The Average Allegiant
Price shall be the average of the daily averages of the high and low
transaction prices of Allegiant Common Stock, as reported in The Wall Street
Journal, Midwest Edition, for the twenty (20) trading days on which trades are
reported, immediately prior to the second business day immediately prior to
the Closing Date. No fractional shares of Allegiant Common Stock will be
issued in the Merger, but cash will be paid in lieu of such fractional shares.
Such consideration is also subject to certain anti-dilution protections but is
not adjustable based upon the operating results, financial condition or other
factors affecting either Allegiant or Reliance prior to the consummation of
the Merger. The fair market value of Allegiant Common Stock to be received
pursuant to the Merger may fluctuate and at the consummation of the Merger may
be more or less than the current fair market value of such shares.
Based on the assumption that the Average Allegiant Price was equal
to the last reported sale price of Allegiant Common Stock on the Nasdaq on
July 11, 1997 ($17.00), each share of Reliance Common Stock would have been
converted into shares of Allegiant Common Stock with a value of approximately
$24.27. The last reported bid price of Reliance Common Stock on that date was
$21.00 per share. As of March 20, 1997, the last trading day preceding
public announcement of the proposed merger, the last reported sale price for
Allegiant Common Stock was $12.50 and the last reported bid price of Reliance
Common Stock was $15.75.
The Merger Agreement provides that the consummation of the Merger
is subject to certain terms and conditions, including the adoption of the
Merger Agreement by the affirmative vote of the holders of a majority of the
outstanding shares of Reliance Common Stock, the approval of the Merger
Agreement by the holders of at least two-thirds of the outstanding shares of
Allegiant Common Stock, the receipt of the requisite regulatory approvals and
an opinion of counsel for Allegiant regarding certain federal income tax
aspects of the transaction. For a discussion of each of the conditions to the
Merger, see "Terms of the Proposed Merger--Conditions of the Merger." The
Merger will be consummated and become effective (the "Effective Time") upon
the later of: (i) the issuance of the certificate of merger by the Office of
the Secretary of State of the State of Missouri; and (ii) the filing of a
certificate of merger with the Office of the Secretary of State of the State
of Delaware.
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<PAGE> 16
The closing (the "Closing") of the Merger will take place at 10:00
a.m. Central Time, on the date that the Effective Time occurs at the offices
of Thompson Coburn, St. Louis, Missouri, or at such other time and place as
Allegiant and Reliance agree (the "Closing Date"). The Merger Agreement may
be terminated at any time prior to the Closing Date by the mutual consent of
the parties or, unilaterally, by either party upon the occurrence of certain
events or if the Merger is not consummated by December 31, 1997. See "Terms
of the Proposed Merger--Conditions of the Merger" and "--Termination, Waiver
and Amendment of the Merger Agreement."
OTHER AGREEMENTS
In addition to and contemporaneously with the Merger Agreement,
Allegiant and Reliance executed a Stock Option Agreement (the "Option
Agreement"), and Allegiant and each of the directors of Reliance and Reliance
and each of the directors of Allegiant executed separate Voting Agreements
(the "Voting Agreements"). The following is a summary of the material terms
of the Option Agreement and the Voting Agreements.
Option Agreement. Pursuant to the Option Agreement, Reliance
issued to Allegiant an option (the "Option") to purchase up to 46,775 shares
of Reliance Common Stock at a price of $16.00 per share (the "Option Price").
The Option is exercisable upon the occurrence of certain events generally
relating to the failure of Reliance to consummate the Merger because of a
material change or potential material change in the ownership of Reliance, all
as set forth in the Option Agreement. None of such events has occurred as of
the date hereof. Reliance granted the Option as a condition of and in
consideration for Allegiant's entering into the Merger Agreement. The Option
is intended to increase the likelihood that the Merger will be consummated in
accordance with the terms of the Merger Agreement. Consequently, the Option
may have the effect of discouraging a person who might now or prior to the
consummation of the Merger consider or propose the acquisition of Reliance (or
a significant interest in Reliance), even if such person were prepared to pay
a higher price per share for Reliance Common Stock than the price per share
implicit in the Merger Consideration. In the event Allegiant acquires shares
of Reliance Common Stock pursuant to the Option, it could vote those shares in
the election of Reliance directors and other matters requiring a stockholder
vote, thereby potentially having a material impact on the outcome of such
matters. For additional information regarding the Option Agreement, see
"Terms of the Proposed Merger--Other Agreements--Option Agreement."
Voting Agreements. Pursuant to the Voting Agreements each
director agreed that he or she will vote all of the shares of Reliance Common
Stock or the shares of Allegiant Common Stock, as the case may be, then owned
or subsequently acquired in favor of the approval of the Merger Agreement at
their Annual or Special Meeting, as the case may be. In addition, until the
earlier to occur of the Effective Time, the termination of the Voting
Agreement or the termination of the Merger Agreement, each such Reliance
director further agreed that he or she will not vote any such shares in favor
of the approval of any other competing acquisition proposal involving Reliance
and a third party. Each such director also agreed that he or she will not
transfer shares of Reliance Common Stock or the shares of Allegiant Common
Stock, as the case may be, unless, prior to such transfer, the transferee
executes an agreement in substantially the same form as the Voting Agreement.
As of the Record Date (as defined below), the directors of Allegiant who
signed Voting Agreements owned beneficially an aggregate of [ ]
shares of Allegiant Common Stock, or approximately [ . %] of the issued and
outstanding shares. As of the Record Date, the directors of Reliance who
signed Voting Agreements owned beneficially an aggregate of [ ]
shares of Reliance Common Stock, or approximately [ . %] of the issued and
outstanding shares.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Reliance's management and the Reliance Board of
Directors may be deemed to have interests in the Merger in addition to their
interests as Reliance stockholders generally.
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<PAGE> 17
These interests include, among other things: (i) the accelerated vesting of all
awards under the Reliance Financial, Inc. 1996 Recognition and Retention Plan;
(ii) the conversion of Reliance employee stock options into the right to
purchase Allegiant Common Stock; (iii) the extension of the period in which such
options may be exercised; (iv) the payment of separation benefits under certain
employment agreements; (v) the continuation of the members of the Board of
Directors of RFSLA in such capacity following consummation of the Merger; and
(vi) provisions in the Merger Agreement relating to indemnification, directors'
and officers' liability insurance and certain other benefits. See "Terms of the
Proposed Merger -- Interests of Certain Persons in the Merger."
SPECIAL MEETING OF ALLEGIANT SHAREHOLDERS
The Allegiant Special Meeting will be held on [ ,
1997], at [ : p.m.] Central Time, at the offices of Dash Multi-Corp, Inc.,
2500 Adie Road, Maryland Heights, Missouri 63043. Approval by the Allegiant
shareholders of the Merger Agreement requires the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Allegiant Common
Stock. Only holders of record of Allegiant Common Stock at the close of
business on [ ], 1997 (the "Allegiant Record Date") will be entitled
to notice of, and to vote at, the Allegiant Special Meeting. At such date,
there were [ ] shares of Allegiant Common Stock outstanding.
Each share of Allegiant Common Stock is entitled to one vote on each matter
submitted to a vote at the Allegiant Special Meeting.
At the Allegiant Special Meeting, holders of shares of Allegiant
Common Stock will vote on approval of the Merger Agreement and the
transactions contemplated thereby (the "Allegiant Proposal"), including the
merger of Reliance with and into Allegiant. The Allegiant Board unanimously
recommends that Allegiant shareholders vote "FOR" the Allegiant Proposal.
Allegiant shareholders may also consider and vote upon such other matters as
are properly brought before the Allegiant Special Meeting, including proposals
to adjourn the Allegiant Special Meeting to permit further solicitation of
proxies by the Allegiant Board in the event that there are not sufficient
votes to approve any proposal at the time of the Allegiant Special Meeting;
provided, however, that any proxy which is voted against the Allegiant
Proposal will not be voted in favor of adjournment to solicit further proxies
for such proposal.
As of the Allegiant Record Date, directors and executive officers
of Allegiant and their affiliates owned beneficially, or controlled the voting
of, an aggregate of [ ] shares of Allegiant Common Stock, or
approximately [ . %] of the shares entitled to vote at the Allegiant Special
Meeting. All of Allegiant's directors and executive officers have indicated
their intention to vote their shares for the approval of the Merger Agreement.
Additionally, each of the directors of Allegiant, pursuant to the terms of his
or her respective Voting Agreement, has committed to vote his or her shares of
Allegiant Common Stock for the approval of the Merger Agreement. As of the
Allegiant Record Date, such persons who had executed Voting Agreements or
otherwise indicated they would vote for approval of the Merger Agreement owned
beneficially an aggregate of [ ] shares of Allegiant
Common Stock, or approximately [ . %] of the issued and outstanding shares.
Any proxy given pursuant to this solicitation or otherwise may be
revoked by the person giving it at any time before it is voted either by
delivering to the Secretary of Allegiant at 7801 Forsyth Boulevard, St. Louis,
Missouri 63105 on or before the taking of the vote at the Allegiant Special
Meeting, a written notice of revocation bearing a later date than the date of
the proxy or a later dated proxy relating to the same shares, or by attending
the Allegiant Special Meeting and voting in person. Attendance at the
Allegiant Special Meeting will not in itself constitute the revocation of a
proxy. Moreover, if you are a shareholder whose shares are not registered in
your name, you will need appropriate documentation from your record holder to
vote personally at the Allegiant Special Meeting.
THE ALLEGIANT BOARD CAREFULLY CONSIDERED AND UNANIMOUSLY APPROVED
THE TERMS OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AS
BEING FAIR TO AND IN THE BEST INTEREST OF
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<PAGE> 18
ALLEGIANT AND ITS SHAREHOLDERS. THE ALLEGIANT BOARD UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
ANNUAL MEETING OF RELIANCE STOCKHOLDERS
The Reliance Annual Meeting will be held on [ ,
1997], at [ : a.m.] Central Time, at the offices of Reliance, 8930 Gravois
Avenue, St. Louis, Missouri 63123. Adoption by the Reliance stockholders of
the Merger Agreement requires the affirmative vote of the holders of a
majority of the outstanding shares of Reliance Common Stock. Only holders of
record of Reliance Common Stock at the close of business on [ ,
1997] (the "Reliance Record Date") will be entitled to notice of, and to vote
at, the Reliance Annual Meeting. At such date, there were [ ]
shares of Reliance Common Stock outstanding. Each share of Reliance Common
Stock is entitled to one vote on each matter submitted to a vote at the
Reliance Annual Meeting.
At the Reliance Annual Meeting, holders of shares of Reliance
Common Stock will vote on the following proposals (the "Reliance Proposals"):
(i) the adoption of the Merger Agreement and the transactions contemplated
thereby, including the merger of Reliance with and into Allegiant; (ii) the
election of two directors for a term of three years or until their successors
shall have been duly elected and qualified; and (iii) the ratification of the
appointment of Michael Trokey & Company, P.C. as independent auditors for the
fiscal year ending September 30, 1997. The Reliance Board unanimously
recommends that Reliance stockholders vote "FOR" each of the Reliance
Proposals. Reliance stockholders may also consider and vote upon such other
matters as are properly brought before the Reliance Annual Meeting, including
proposals to adjourn the Reliance Annual Meeting to permit further
solicitation of proxies by the Reliance Board in the event that there are not
sufficient votes to approve any proposal at the time of the Reliance Annual
Meeting; provided, however, that any proxy which is voted against any of the
Reliance Proposals will not be voted in favor of adjournment to solicit
further proxies for such proposal.
As of the Reliance Record Date, directors and executive officers
of Reliance and their affiliates owned beneficially, or controlled the voting
of, an aggregate of [ ] shares of Reliance Common Stock, or
approximately [ . %] of the shares entitled to vote at the Reliance Annual
Meeting. All of Reliance's directors and executive officers have indicated
their intention to vote their shares for each of the Reliance Proposals.
Additionally, each of the directors of Reliance, pursuant to the terms of his
or her respective Voting Agreement, has committed to vote his or her shares of
Reliance Common Stock for the adoption of the Merger Agreement. As of the
Reliance Record Date, such persons who had executed Voting Agreements or
otherwise indicated they would vote for adoption of the Merger Agreement owned
beneficially an aggregate of [ ] shares of Reliance
Common Stock, or approximately [ . %] of the issued and outstanding shares.
Any proxy given pursuant to this solicitation or otherwise may be
revoked by the person giving it at any time before it is voted either by
delivering to the Secretary of Reliance at 8930 Gravois Avenue, St. Louis,
Missouri 63123 on or before the taking of the vote at the Reliance Annual
Meeting, a written notice of revocation bearing a later date than the date of
the proxy or a later dated proxy relating to the same shares, or by attending
the Reliance Annual Meeting and voting in person. Attendance at the Reliance
Annual Meeting will not in itself constitute the revocation of a proxy.
Moreover, if you are a stockholder whose shares are not registered in your
name, you will need appropriate documentation from your record holder to vote
personally at the Reliance Annual Meeting.
THE RELIANCE BOARD CAREFULLY CONSIDERED AND UNANIMOUSLY ADOPTED
THE TERMS OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AS
BEING FAIR TO AND IN THE BEST INTEREST OF RELIANCE AND ITS STOCKHOLDERS. THE
RELIANCE BOARD UNANIMOUSLY RECOMMENDS THAT
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<PAGE> 19
STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO ADOPT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY. THE RELIANCE BOARD ALSO UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSED SLATE OF DIRECTORS AND
"FOR" THE RATIFICATION OF MICHAEL TROKEY & COMPANY, P.C. AS RELIANCE'S
INDEPENDENT AUDITORS.
REASONS FOR THE MERGER
Reliance. The Reliance Board believes that the Merger is fair
to and in the best interests of Reliance and its stockholders. In reaching
the decision to recommend the adoption of the Merger Agreement to the
stockholders, the Reliance Board, without assigning any relative or specific
weights, considered a number of factors. For a discussion of such factors,
see "Terms of the Proposed Merger--Background of and Reasons for the Merger;
Board Recommendations."
Allegiant. The Allegiant Board believes that the Merger will
enable Allegiant to (i) increase its presence in the St. Louis SMSA through
the acquisition of an established financial institution and (ii) enhance
Allegiant's ability to compete in the increasingly competitive banking and
financial services industry. See "Terms of the Proposed Merger--Background of
and Reasons for the Merger; Board Recommendations."
OPINION OF FINANCIAL ADVISOR TO ALLEGIANT
On March 20, 1997, Stifel, Nicolaus & Company, Incorporated
("Stifel"), Allegiant's financial advisor, rendered to the Allegiant Board its
oral opinion, which was subsequently confirmed by a written opinion dated as
of the date of this Joint Proxy Statement/Prospectus, to the effect that, as
of the date of each such opinion, the consideration to be paid to the holders
of Reliance Common Stock in the Merger was fair to Allegiant from a financial
point of view. Attached to this Joint Proxy Statement/Prospectus as Annex A
-------
is a copy of the opinion of Stifel, dated [ , 1997], setting forth
the procedures followed, assumptions made, matters considered and
qualifications and limitations of the review undertaken by Stifel in
connection with rendering its opinion. Holders of Allegiant Common Stock are
urged to read Stifel's opinion in its entirety. See "Terms of the Proposed
Merger--Background of and Reasons for the Merger; Board Recommendations" and
"--Opinion of Financial Advisor to Allegiant."
OPINION OF FINANCIAL ADVISOR TO RELIANCE
On March 20, 1997, RP Financial, LC. ("RP Financial"), Reliance's
financial advisor, rendered to the Reliance Board its oral and written
opinion, which was subsequently confirmed by a written opinion dated as of the
date of this Joint Proxy Statement/Prospectus, to the effect that, as of the
date of each such opinion, the consideration to be received by the holders of
Reliance Common Stock in the Merger was fair to the stockholders of Reliance
from a financial point of view. Attached to this Joint Proxy
Statement/Prospectus as Annex B is a copy of the opinion of RP Financial,
-------
dated [ , 1997], setting forth the procedures followed, assumptions
made, matters considered and qualifications and limitations of the review
undertaken by RP Financial in connection with rendering its opinion. Holders
of Reliance Common Stock are urged to read RP Financial's opinion in its
entirety. See "Terms of the Proposed Merger--Background of and Reasons for
the Merger; Board Recommendations" and "--Opinion of Financial Advisor to
Reliance."
FRACTIONAL SHARES
No fractional shares of Allegiant Common Stock will be issued to
the stockholders of Reliance in connection with the Merger. Each holder of
Reliance Common Stock who otherwise would have been entitled to receive a
fraction of a share of Allegiant Common Stock will receive in lieu thereof
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<PAGE> 20
cash, without interest, in an amount equal to the holder's fractional share
interest multiplied by the closing stock price of Allegiant Common Stock on
the Nasdaq as reported in The Wall Street Journal on the Closing Date. Cash
received by Reliance stockholders in lieu of fractional shares may give rise
to taxable income. See "Certain Federal Income Tax Consequences of the
Merger."
EXPENSES
All expenses incurred by or on behalf of the parties in connection
with the Merger Agreement and the transactions contemplated thereby shall be
borne by the party incurring the same, except that printing and mailing
expenses will be paid by Allegiant.
WAIVER AND AMENDMENT; TERMINATION
Any provision of the Merger Agreement, including, without
limitation, the conditions to the consummation of the Merger and the
restrictions described under the caption "Terms of the Proposed
Merger--Business Pending the Merger," may be (i) waived in writing at any time
by the party that is, or whose shareholders or stockholders, as the case may be,
are, entitled to the benefits thereof or (ii) amended at any time by written
agreement of the parties approved by or on behalf of their respective Boards
of Directors, whether before or after the Allegiant Special Meeting or the
Reliance Annual Meeting; provided, however, that after adoption of the Merger
Agreement by the stockholders of Reliance at the Reliance Annual Meeting no
such modification may (a) alter or change the amount or kind of the
consideration to be received by the Reliance stockholders in the Merger, (b)
adversely affect any representation, warranty or covenant of Allegiant
contained in the Merger Agreement, (c) adversely affect the tax treatment to
the Reliance stockholders as a result of receiving shares of Allegiant Common
Stock in the Merger, (d) otherwise adversely affect the rights of Reliance or
any stockholders of Reliance under the Merger Agreement or (e) impede or delay
receipt of any approvals required for consummation of the Merger or the
consummation of the transactions contemplated by the Merger Agreement.
The Merger Agreement may be terminated by mutual agreement of the
Allegiant Board and the Reliance Board. The Merger Agreement may also be
terminated by the Board of Directors of either Allegiant or Reliance if
certain conditions set forth in the Merger Agreement are not met.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Thompson Coburn, Allegiant's legal counsel, has delivered its
opinion to the effect that, assuming the Merger occurs in accordance with the
Merger Agreement and conditioned on the accuracy of certain representations
made by Allegiant, Reliance and certain stockholders of Reliance, the Merger
will constitute a "reorganization" for federal income tax purposes and that,
accordingly, no gain or loss will be recognized by Reliance stockholders who
exchange their shares of Reliance Common Stock solely for shares of Allegiant
Common Stock in the Merger. However, cash received in lieu of fractional
shares may give rise to taxable income. Reliance stockholders who dissent and
receive cash in exchange for all of their Reliance Common Stock may recognize
taxable income, but not in excess of the amount of cash received. EACH
RELIANCE STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER
TO SUCH STOCKHOLDER, INCLUDING THE APPLICABILITY OF VARIOUS STATE,
LOCAL AND FOREIGN TAX LAWS. See "Certain Federal Income Tax Consequences
of the Merger."
REGULATORY APPROVALS
The Merger is subject to prior approval of the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board") and the
acquisition by Allegiant of control of RFSLA is subject to prior approval of
the OTS (the Federal Reserve Board and the OTS are collectively referred to
herein as the "Regulatory Authorities"). The Federal Reserve Board and the
OTS granted their approvals of
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<PAGE> 21
the Merger on June 12, 1997 and June 2, 1997, respectively. See "Terms of the
Proposed Merger--Regulatory Approvals" and "Supervision and Regulation."
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for under the
purchase method of accounting. See "Terms of the Proposed Merger--Accounting
Treatment."
COVENANTS PENDING CLOSING
Each of Allegiant and Reliance has agreed to certain covenants
with respect to the conduct of its business and other matters pending the
closing of the Merger. See "The Merger--Business Pending the Merger."
EFFECTS OF THE MERGER ON RELIANCE STOCKHOLDERS
As a result of the Merger, holders of Reliance Common Stock who
receive shares of Allegiant Common Stock in the Merger will become
shareholders of Allegiant. The law applicable to, and the corporate charters
and bylaws of, Allegiant and Reliance are similar. See "Comparison of the
Rights of Shareholders of Allegiant and Stockholders of Reliance."
APPRAISAL RIGHTS
Under the Delaware General Corporation Law (the "DGCL") each
holder of Reliance Common Stock may, in lieu of receiving shares of Allegiant
Common Stock in the Merger, seek appraisal of the fair value of his or her
shares and, if the Merger is consummated, receive payment of such fair value
in cash by following certain procedures set forth in Section 262 of the DGCL,
the text of which is attached hereto as Annex C. Failure to follow such
-------
procedures may result in a loss of such stockholder's appraisal rights. Any
Reliance stockholder returning a blank executed proxy card will be deemed to
have adopted the Merger Agreement, thereby waiving any such appraisal rights.
See "Appraisal Rights of Stockholders of Reliance."
- 16 -
<PAGE> 22
MARKETS, MARKET PRICES AND DIVIDEND INFORMATION
Allegiant Common Stock has been traded on the Nasdaq under the
symbol "ALLE" since May 15, 1996. From September 30, 1995 to such date
Allegiant Common Stock was traded on the Nasdaq Small Cap Market. The closing
per share sale price reported for Allegiant Common Stock on March 20, 1997,
the last trading date preceding the public announcement of the Merger, was
$12.50. All Allegiant data reflect a three-for-two stock split (in the form
of a stock dividend) in January 1995, a 10% stock dividend in January 1996 and
a 10% stock dividend in January 1997. As of March 31, 1997, Allegiant had
2,842,989 shares of Allegiant Common Stock issued and outstanding and
approximately 795 shareholders of record.
Reliance Common Stock is traded over-the-counter through the
National Daily Quotation System published by the National Quotation Bureau,
Inc. under the symbol "RLFN." The closing per share sale price reported for
Reliance Common Stock on March 20, 1997, the last trading date preceding the
public announcement of the Merger, was $15.75. As of April 30, 1997, Reliance
had 425,725 shares of Reliance Common Stock issued and outstanding and
approximately 164 stockholders of record.
The following table sets forth the high and low average trading prices
as well as the dividends per share for the periods shown. Such prices reflect
interdealer prices, without retail mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
ALLEGIANT COMMON STOCK<F1> CASH RELIANCE COMMON STOCK<F1> CASH
-------------------------- DIVIDEND ------------------------- DIVIDEND
HIGH LOW DECLARED<F2> HIGH LOW DECLARED
---- --- ------------ ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter $7.027 $7.027 $ .017 $ <F3> $ <F3> $ --
Second Quarter 7.027 7.027 .017 14.000 11.500 --
Third Quarter 7.855 7.855 .017 14.000 13.250 .15
Fourth Quarter 10.227 8.055 .017 14.625 13.625 .15
1996
First Quarter $11.023 $11.023 $ .023 $15.000 $14.000 $.15
Second Quarter 11.023 9.773 .023 17.000 14.750 .15
Third Quarter 11.364 9.773 .023 16.750 15.000 .15
Fourth Quarter 12.343 12.159 .023 17.500 15.000 .15
1997
First Quarter $13.115 $12.178 $ .030 $18.750 $15.750 $.15
Second Quarter 14.401 14.089 .030 20.063 20.038 .15
Third Quarter
(through July 10, 1997) 16.875 16.563 -- 21.000 21.000 --
<FN>
- -------------
<F1> For a recent sale price of Allegiant Common Stock and Reliance Common
Stock, respectively, see the cover of this Joint Proxy
Statement/Prospectus.
<F2> Although Allegiant has paid cash and/or stock dividends over the past
five years, there can be no assurance that it will pay any such
dividends in the future. See "Risk Factors--No Assurance of Cash or
Stock Dividends."
<F3> On April 7, 1995, RFSLA converted from mutual-form to stock-form.
Consequently, there were no sales prices for Reliance Common Stock prior
to such date.
</TABLE>
- 17 -
<PAGE> 23
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated unaudited
comparative selected historical per share data of Allegiant and Reliance and
the corresponding pro forma and pro forma equivalent per share amounts giving
effect to the proposed Merger. Pro forma financial information has been
prepared giving effect to the Merger using purchase accounting. The data
presented is based upon the consolidated financial statements and related
notes of Allegiant and the consolidated financial statements and related notes
of Reliance included in this Joint Proxy Statement/Prospectus. This
information should be read in conjunction with such historical and pro forma
financial statements and related notes thereto. This data is not necessarily
indicative of the results of the future operations of the combined
organization or the actual results that would have occurred if the Merger had
been consummated prior to the periods indicated.
<TABLE>
<CAPTION>
ALLEGIANT/ ALLEGIANT/
RELIANCE RELIANCE
ALLEGIANT RELIANCE PRO FORMA PRO FORMA
REPORTED REPORTED<F1> COMBINED<F2> EQUIVALENT<F3>
--------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
BOOK VALUE PER SHARE:
At March 31, 1997 $ 7.79 $16.05 $10.28 $14.68
At December 31, 1996 7.22 16.00 12.46 17.80
CASH DIVIDENDS DECLARED PER SHARE:
Three months ended March 31, 1997 $ 0.03 $ 0.15 $ 0.03 $ 0.03
Year ended December 31, 1996 0.09 0.60 0.09 0.09
EARNINGS PER SHARE BEFORE CHANGE
IN ACCOUNTING PRINCIPLE:
Three months ended March 31, 1997 $ 0.23 $ 0.09 $ 0.21 $ 0.30
Year ended December 31, 1996 0.76 0.40 0.71 1.01
MARKET PRICE PER SHARE:
At March 20, 1997<F4> $12.50 $15.75 $ n/a $17.85
At July 10, 1997<F4> 17.00 21.00 n/a 24.27
<FN>
- ------------------------
<F1> Reliance has a September 30 fiscal year end. For purposes of this
table, Reliance information at or for the year ended September 30, 1996
and the three months ended December 31, 1996 is reported as December 31,
1996 and March 31, 1997 data, respectively.
<F2> Includes the effect of pro forma adjustments for Reliance.
<F3> Based on the pro forma combined per share amounts multiplied by the
Exchange Ratio and assuming that all issued and outstanding Reliance
Common Stock is converted into Allegiant Common Stock and that no cash
is paid for fractional shares. For purposes of this table, the Exchange
Ratio is deemed to be 1.4279, based on the assumption that the Average
Allegiant Price is equal to the market price per share of Allegiant
Common Stock on July 11, 1997 ($17.00).
<F4> The market price of Allegiant Common Stock reported as of March 20,
1997, the last trading day preceding the public announcement of the
Merger, and as of July 11, 1997, the latest available date prior to the
distribution of this Joint Proxy Statement/Prospectus, is based on the
last sale price as reported on the Nasdaq. The market price of Reliance
Common Stock reported as of March 20, 1997, the last trading day
preceding the public announcement of the Merger, and as of July 11,
1997, the latest available date prior to the distribution of this Joint
Proxy Statement/Prospectus, is based on the last bid price as reported
by the National Quotation Bureau, Inc. Equivalent pro forma market
values per share of Reliance Common Stock represent the historical
market values per share of Allegiant Common Stock multiplied by the
Exchange Ratio, rounded down to the nearest one-sixteenth.
</TABLE>
- 18 -
<PAGE> 24
SUMMARY FINANCIAL DATA
The following tables set forth for the periods indicated certain
summary historical consolidated financial information for Allegiant and
Reliance. The balance sheet data and income statement data included in the
summary financial data for Allegiant as of and for the years ended
December 31, 1996, 1995, 1994, 1993 and 1992 are taken from the audited
consolidated financial statements of Allegiant as of the end of and for such
years. The balance sheet data and income statement data included in the
summary financial data as of and for the three months ended March 31, 1997 and
1996 are taken from the unaudited financial statements of Allegiant as of and
for the three months ended March 31, 1997 and 1996. The balance sheet data
and income statement data for Reliance included in the summary financial data
as of and for the years ended September 30, 1996, 1995, 1994, 1993 and 1992
are taken from the audited consolidated financial statements of Reliance as of
the end of and for such years. The balance sheet data and income statement
data included in the summary financial data as of and for the six months ended
March 31, 1997 and 1996 are taken from the unaudited financial statements of
Reliance as of and for the six months ended March 31, 1997 and 1996. The
foregoing data includes all adjustments which are, in the opinion of the
management of Reliance, necessary to present a fair statement of these periods
and are of a normal recurring nature. The following information should be read
in conjunction with the consolidated financial statements of Allegiant and
Reliance, and the related notes thereto, included herein, and in conjunction
with the unaudited pro forma condensed combined consolidated financial
information, including the notes thereto, appearing elsewhere in this Joint
Proxy Statement/Prospectus. See "The Branch Acquisitions -- Unaudited Pro
Forma Financial Information."
- 19 -
<PAGE> 25
<TABLE>
ALLEGIANT BANCORP, INC.
SUMMARY FINANCIAL DATA
<CAPTION>
AS OF OR FOR THE
THREE MONTHS ENDED AS OF OR FOR THE
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net earnings<F1> $ 0.23 $ 0.20 $ 0.76 $ 0.62 $ 0.53 $ 0.23 $ 0.14
Cash dividends declared<F1> 0.03 0.02 0.09 0.07 0.04 0.02 --
Book value at period-end<F1> 7.79 6.57 7.22 6.37 5.40 4.99 4.60
Average common shares
outstanding (in thousands)<F1> 2,635 2,372 2,386 2,056 1,520 1,077 852
EARNINGS (IN THOUSANDS):
Interest income $ 7,854 $ 5,726 $ 25,368 $ 19,252 $ 9,994 $ 5,585 $ 4,203
Interest expense 4,374 3,425 14,999 11,206 4,584 2,675 2,133
-------- -------- -------- -------- -------- -------- ---------
Net interest income 3,480 2,301 10,369 8,046 5,410 2,910 2,070
Provision for possible loan losses 493 180 1,448 977 849 233 108
Other income 318 174 1,081 654 513 282 247
Other expense 2,303 1,512 7,019 5,625 3,764 2,546 2,011
Income taxes 401 313 1,175 823 509 161 78
-------- -------- -------- -------- -------- -------- ---------
Net earnings $ 601 $ 470 $ 1,808 $ 1,275 $ 801 $ 252 $ 120
======== ======== ======== ======== ======== ======== =========
ENDING BALANCE SHEET
(IN THOUSANDS):
Total assets $390,101 $275,266 $377,564 $280,386 $171,927 $104,416 $ 68,782
Investment securities 60,423 55,463 60,559 73,211 40,888 23,063 14,434
Total loans 314,267 193,825 291,926 181,544 121,393 69,773 45,600
Total deposits 310,823 227,034 308,670 231,309 134,884 90,686 61,624
Long-term debt 13,663 19,693 14,663 19,719 9,804 2,200 2,400
Shareholders' equity 22,136 14,375 16,386 13,938 8,453 7,487 3,894
SELECTED RATIOS:
Return on average assets 0.63%<F2> 0.68%<F2> 0.59% 0.56% 0.60% 0.30% 0.21%
Return on average equity 12.49 <F2> 13.26 <F2> 12.17 10.86 9.91 5.47 3.18
Net interest margin<F3> 3.84 <F2> 3.52 <F2> 3.50 3.71 4.27 3.71 3.64
Equity to assets 5.08 5.15 4.81 5.14 6.05 5.47 6.62
Reserve for possible loan losses to:
Outstanding loans 1.10 1.16 1.06 1.17 1.20 1.11 1.21
Non-performing loans 450.59 502.67 447.98 691.56 841.04 5,535.71 2,391.30
<FN>
- --------------
<F1> Based on weighted-average common shares outstanding. All share and per
share amounts have been restated to reflect: (i) a six-for-five stock
split paid in January 1994; (ii) a three-for-two stock split paid in
January 1995; (iii) a 10% stock dividend paid in January 1996; and (iv)
a 10% stock dividend paid in January 1997.
<F2> Annualized.
<F3> Net interest margin equals net interest income divided by total interest
earning assets as of the end of the periods indicated.
</TABLE>
- 20 -
<PAGE> 26
<TABLE>
RELIANCE FINANCIAL, INC.
SUMMARY FINANCIAL DATA
<CAPTION>
AS OF OR FOR THE
SIX MONTHS ENDED AS OF OR FOR THE
MARCH 31, YEAR ENDED SEPTEMBER 30,
------------------- -------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net earnings<F1> $ 0.16 $ 0.41 $ 0.40 $ 0.97 $ -- $ -- $ --
Dividends declared 0.30 0.30 0.60 0.15 -- -- --
Book value at period end 16.05 16.73 16.00 16.51 -- -- --
EARNINGS (IN THOUSANDS)
Interest income $ 1,181 $ 1,268 $ 2,496 $ 2,344 $ 2,304 $ 2,549 $ 3,135
Interest expense (530) (573) (1,136) (1,084) (1,146) (1,357) (1,984)
------- ------- ------- ------- ------- ------- -------
Net interest income 651 695 1,360 1,260 1,158 1,192 1,151
(Provision) credit for loan losses -- 1 108 87 115 71 (196)
Other income 22 20 53 71 75 111 279
Other expense (538) (460) (1,170) (830) (675) (817) (925)
Income taxes (70) (91) (193) (222) (215) (109) (105)
Cumulative effect of change in
accounting principle -- -- -- -- 201 -- --
------- ------- ------- ------- ------- ------- -------
Net earnings $ 65 $ 165 $ 158 $ 366 $ 659 $ 448 $ 204
======= ======= ======= ======= ======= ======= =======
ENDING BALANCE SHEET (IN THOUSANDS):
Total assets $31,041 $33,731 $32,663 $32,844 $32,259 $33,351 $36,549
Investment and mortgage-backed
securities<F2> 9,296 9,762 9,585 10,015 10,141 7,228 4,219
Loans and leases, net of
unearned income 19,925 21,246 21,144 20,031 19,839 22,438 24,553
Deposits 23,583 25,253 24,234 25,253 28,687 30,415 34,009
Borrowings 350 1,000 1,000 -- -- -- --
Stockholders' equity 6,834 7,193 6,807 7,099 3,131 2,498 2,051
Allowance for loan losses 205 306 204 305 388 434 569
SELECTED RATIOS:
Return on average assets 0.41%<F3> 0.99%<F3> 0.48% 1.13% 1.97% 1.29% 0.53%
Return on average equity 1.90 <F3> 4.61 <F3> 2.22 7.35 22.87 20.03 10.03
Net interest rate margin 4.17 <F3> 4.30 <F3> 4.22 4.02 3.57 3.61 3.12
Equity to assets 21.41 21.47 20.57 21.84 9.34 7.17 5.33
Allowance for loan losses to:
Outstanding loans 1.03 1.44 0.93 1.49 1.90 1.85 2.23
Non-performing loans -- <F4> 368.67 304.48 709.30 135.66 112.14 77.31
Cash dividend payout 187.50 73.17 152.31 16.14 -- -- --
<FN>
- --------------
<F1> Based on weighted-average common shares outstanding.
<F2> Includes certificates of deposit.
<F3> Annualized.
<F4> There were no nonperforming loans at March 31, 1997.
</TABLE>
- 21 -
<PAGE> 27
RISK FACTORS
This Joint Proxy Statement/Prospectus contains forward-looking
statements which are inherently subject to risks and uncertainties.
Cautionary statements made herein should be read as being applicable to all
related forward-looking statements wherever they appear in this Joint Proxy
Statement/Prospectus or the documents incorporated by reference herein.
Allegiant's actual results could differ materially from those currently
anticipated due to a number of factors, including, without limitation, the
following: possible adverse effects of federal and state laws and regulations
applicable to Allegiant's financial services operations; credit risk inherent
in the Bank's loan portfolio; dependence upon economic conditions in
Allegiant's markets; interest rate risk inherent in Allegiant's investment and
loan portfolios; and risks associated with Allegiant's growth strategy, as
well as the other factors discussed in this Joint Proxy Statement/Prospectus
and the documents incorporated by reference herein.
REGULATORY RISK
The banking industry is heavily regulated. These regulations are
intended to protect depositors, not shareholders. The Bank is subject to
regulation and supervision by the Federal Deposit Insurance Corporation (the
"FDIC") and the Missouri Division of Finance (the "Division of Finance"),
while Allegiant is subject to regulation and supervision by the Federal
Reserve Board. The burden imposed by federal and state regulations puts banks
at a competitive disadvantage compared to less regulated competitors such as
finance companies, mortgage banking companies and leasing companies. The
banking industry continues to lose market share to its competitors. In
addition, legislative reaction to the problems of the thrift industry during
the 1980s have added to the regulatory burden on banks.
In December 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was signed into law. FDICIA amended
numerous federal banking statutes and has required the bank regulatory
agencies to adopt regulations for implementing many provisions of FDICIA.
Regulators have been given substantially more power over banks, including the
ability to move quickly without interference to remove management or
directors. FDICIA also directs regulators to close or transfer troubled
institutions before they become insolvent. FDICIA and the regulations
thereunder have increased the regulatory and supervisory requirements for
financial institutions, which have resulted and will continue to result in
increased operating expenses. See "Supervision and Regulation."
CREDIT RISK
The greatest risk facing lenders generally is credit risk, that
is, the risk of losing principal and interest due to a borrower's failure to
perform according to the terms of a loan agreement. There can be no assurance
that Allegiant's future results of operations or financial condition will not
be adversely affected by failure of borrowers to pay principal and interest
obligations on loans. See "Information Regarding Allegiant--Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Years Ended December 31, 1996 and 1995--Risk Management--Credit Risk."
EXPOSURE TO LOCAL ECONOMIC CONDITIONS
The Bank's concentration of loans in the State of Missouri exposes
it to risks resulting from changes in the local economy. The business of the
Bank could be adversely affected by recessionary and economic conditions in
its markets or by a dramatic decrease in real estate values therein. See
"Information Regarding Allegiant--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Years Ended December 31, 1996
and 1995--Risk Management--Exposure to Local Economic Conditions."
- 22 -
<PAGE> 28
INTEREST RATE RISK
Allegiant's earnings depend to a great extent upon the level of
net interest income, which is the difference between interest income earned on
loans and investments and the interest expense paid on deposits and other
borrowings. Although Allegiant believes that maturities of the Bank's assets
are well balanced in relation to maturities of liabilities (gap management),
gap management is not an exact science. Rather, it involves estimates as to
how changes in the general level of interest rates will impact the yields
earned on assets and the rates paid on liabilities. Moreover, rate changes
can vary depending upon the level of rates and competitive factors. From time
to time, maturities of assets and liabilities may not be balanced, and a rapid
increase or decrease in interest rates could have an adverse effect on net
interest margins and results of operations of Allegiant. See "Information
Regarding Allegiant--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Years Ended December 31, 1996 and
1995--Risk Management--Interest Rate Risk."
DEPOSIT MIX
Certificates of deposit accounted for approximately 57% of the
Bank's total deposits as of March 31, 1997. Many of such certificates of
deposit were purchased by customers in response to promotions offering
above-market interest rates. Payment of premium interest rates by the Bank
adversely affects the Bank's interest rate spread. Moreover, the Bank's
concentration of deposits in certificates of deposit could have a negative
impact on the stability of its deposits as purchasers of certificates of
deposit may not redeposit the proceeds of their certificates of deposit after
the certificates of deposit mature, particularly if the Bank then is not
offering promotional rates. There can be no assurance that the concentration
of the Bank's deposits in certificates of deposit will not have a material
adverse effect on the Bank's future results of operation or liquidity.
NO ASSURANCE OF FUTURE GROWTH
There can be no assurance that Allegiant will continue to achieve
growth in assets and earnings. Allegiant's ability to achieve such growth
will be dependent upon numerous factors, including the intensity of
competition for deposits and loans with other bank and non-bank financial
institutions, the availability of suitable opportunities to make loans,
selection of suitable branch sites on favorable terms, avoidance of credit
losses, hiring and training of personnel, depth in management and adequate
financing.
FIRST ACQUISITION
The proposed acquisition of Reliance represents the first
acquisition by Allegiant of a publicly held financial institution and of a
savings and loan association. There can be no assurance that Allegiant will
successfully operate Reliance subsequent to the acquisition or that Reliance's
operations and personnel will be profitably integrated into Allegiant's
business.
RISKS OF THE BRANCH ACQUISITION
Although Allegiant has acquired or organized other financial
services businesses in the past, including two mortgage companies, it has not
effected an acquisition as large as the Branch Acquisition (as defined in "The
Branch Acquisition.") The success of the Branch Acquisition will depend on a
number of factors, including (but not limited to), the Bank's ability to: (1)
integrate the Roosevelt Branches into its current operations; (2) maintain
existing relationships with depositors in the Roosevelt Branches to minimize
withdrawals of deposits subsequent to the Branch Acquisition; (3) maintain and
enhance existing relationships with borrowers to limit unanticipated losses
from the Roosevelt Loans; (4) control the incremental non-interest expense
from the Roosevelt Branches to maintain overall operating efficiencies; (5)
retain and attract qualified personnel to staff the Roosevelt Branches; and
(6) compete
- 23 -
<PAGE> 29
in the communities served by the Roosevelt Branches and in nearby
communities. There can be no assurance that the Bank will be able to
integrate the Roosevelt Branches successfully, that the operating profit
contribution (if any) from the Roosevelt Branches subsequent to the Branch
Acquisition will exceed charges for amortization of the deposit premium to be
paid by Allegiant or that the Bank will be able to manage effectively its
growth resulting from the Branch Acquisition. See "The Branch Acquisition."
COMPETITION
Allegiant encounters substantial competition for deposits and loan
customers in the markets in which it competes. Allegiant's principal
competitors include other financial institutions such as banks, savings and
loan institutions and credit unions, and a number of other non-bank
competitors such as insurance companies, small loan companies, finance
companies and mortgage companies. Many of Allegiant's non-bank competitors
are not subject to the same extensive federal and state regulations that
govern Allegiant and, as a result, have a competitive advantage over Allegiant
in providing certain services. Many of the financial institutions with which
Allegiant competes are larger and have substantially greater financial
resources than Allegiant.
CONTROL BY MANAGEMENT
Allegiant's directors and executive officers currently
beneficially own approximately 1,468,670 shares of Allegiant Common Stock
(approximately 50.6% of the shares of Allegiant Common Stock outstanding)
including shares of Allegiant Common Stock subject to options and warrants
that may be acquired upon exercise or conversion within the next 60 days.
This controlling ownership will enable such persons to continue to possess
voting control on corporate matters for the foreseeable future.
NO ASSURANCE OF CASH OR STOCK DIVIDENDS
There is no assurance that Allegiant will have sufficient cash
available to declare cash dividends to its shareholders in the future. The
payment of cash dividends is subject to the discretion of the Allegiant Board
and will be dependent upon many factors, including Allegiant's earnings and
the earnings of the Bank, their capital needs and other financial
considerations. In addition, Allegiant is presently limited in its ability to
pay cash dividends on the Allegiant Common Stock without the consent of its
lender. Management of Allegiant anticipates that for the foreseeable future,
Allegiant will follow a policy of retaining earnings in order to meet capital
and loan loss reserve requirements and to finance the expansion and
development of its business. Although Allegiant has paid stock dividends over
the past five years, there can be no assurance that it will pay stock
dividends in the future.
RELIANCE ON MANAGEMENT
The success of Allegiant will depend to a large extent on the
quality of management provided by the senior management of Allegiant and the
Bank, the loss of certain of whom would adversely affect Allegiant. Other
than a $2.0 million policy on the life of Shaun R. Hayes, the President of
Allegiant, Allegiant does not presently own, or intend to purchase, insurance
covering the lives of the senior management of Allegiant and/or the Bank.
There can be no assurance that the services of the senior management of
Allegiant will continue to be available.
SHARES ELIGIBLE FOR FUTURE RESALE
Upon consummation of the Merger, Allegiant will have outstanding
an aggregate of approximately [ ] shares of Allegiant Common Stock.
Future sales of substantial amounts of Allegiant Common Stock (including
shares issued upon the exercise of stock options and warrants) by Allegiant's
current shareholders, or the perception that such sales could occur, could
adversely affect the market price of the Common Stock. One hundred eight
thousand nine hundred shares of Common Stock, which were privately placed in
May 1995, became eligible for resale in May 1997, subject to compliance with
the terms and conditions of Rule 144 as promulgated by the Commission. No
prediction can be
- 24 -
<PAGE> 30
made as to the effect, if any, that future sales of shares, or the availability
of shares for future sale, will have on the market price of the Allegiant Common
Stock.
MARKET FOR ALLEGIANT COMMON STOCK
Although Allegiant Common Stock is listed on the Nasdaq, there has
been only limited trading in Allegiant Common Stock. There can be no
assurance that an active market for Allegiant Common Stock will develop in the
foreseeable future. Investors in the shares of Allegiant Common Stock must,
therefore, be prepared to assume the risk of their investment for an
indefinite period of time.
STOCK NOT AN INSURED DEPOSIT
Investments in the shares of Allegiant Common Stock are not
deposits insured against loss by the FDIC or any other entity.
- 25 -
<PAGE> 31
THE ALLEGIANT SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to
holders of Allegiant Common Stock in connection with the solicitation of
proxies by the Allegiant Board for use at the Allegiant Special Meeting and
any adjournments or postponements thereof at which the shareholders of
Allegiant will consider and vote upon a proposal to approve the Merger
Agreement and the transactions contemplated thereby and consider and vote upon
any other business that may properly be brought before the Allegiant Special
Meeting or any adjournments or postponements thereof. Each copy of this Joint
Proxy Statement/Prospectus is accompanied by the Notice of Special Meeting of
Shareholders of Allegiant, a proxy card and related instructions and a return
envelope to Allegiant for the proxy card.
This Joint Proxy Statement/Prospectus and the Notice of Special
Meeting, proxy card and related materials are being first mailed to
shareholders of Allegiant on [ , 1997].
DATE, TIME AND PLACE
The Allegiant Special Meeting will be held at the offices of Dash
Multi-Corp, Inc., 2500 Adie Road, Maryland Heights, Missouri 63043 on
[ , 1997], at [ : p.m.] Central Time.
ALLEGIANT RECORD DATE; VOTE REQUIRED
On the Allegiant Record Date, there were [ ] shares of
Allegiant Common Stock outstanding and entitled to vote at the Allegiant
Special Meeting. The holders of each share are entitled to one vote per share
on each matter properly brought before the Allegiant Special Meeting. The
affirmative vote of the holders of at least two-thirds of the outstanding
shares of Allegiant Common Stock is required to approve the Merger Agreement
and the transactions contemplated thereby. The presence in person or by proxy
of a majority of the outstanding shares of Allegiant Common Stock entitled to
vote is necessary to constitute a quorum at the meeting.
As of the Allegiant Record Date, directors and executive officers
of Allegiant and their affiliates owned beneficially, or controlled the voting
of, an aggregate of [ ] shares of Allegiant Common Stock, or
approximately [ . ]% of the outstanding shares of Allegiant Common Stock
entitled to vote at the Allegiant Special Meeting. All directors and
executive officers of Allegiant have indicated their intention to vote their
shares for the approval of the Merger Agreement and the transactions
contemplated thereby at the Allegiant Special Meeting. Additionally, each of
the directors of Allegiant, pursuant to the terms of his or her respective
Voting Agreement, has committed to vote his or her shares of Allegiant Common
Stock for approval of the Merger Agreement. As of the Allegiant Record Date,
such persons who had executed Voting Agreements or otherwise indicated they
would vote for approval of the Merger Agreement and the transactions
contemplated thereby owned beneficially an aggregate of [ ] shares of
Allegiant Common Stock, or approximately [ . ]% of the issued and
outstanding shares. See "Terms of the Proposed Merger--Other Agreements."
VOTING AND REVOCATION OF PROXIES
Shares of Allegiant Common Stock that are represented by a
properly executed proxy received prior to the vote at the Allegiant Special
Meeting will be voted at the Allegiant Special Meeting in the manner directed
on the proxy card, unless such proxy is revoked in the manner set forth herein
in advance of such vote. ANY ALLEGIANT SHAREHOLDER RETURNING AN
EXECUTED PROXY CARD THAT DOES NOT PROVIDE INSTRUCTIONS TO VOTE
AGAINST THE APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY WILL BE DEEMED TO HAVE APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. Failure to
return a properly executed proxy card or to vote in person at the
- 26 -
<PAGE> 32
Allegiant Special Meeting will have the practical effect of a vote against the
approval of the Merger Agreement and the transactions contemplated thereby.
Shares subject to abstentions will be treated as shares that are
present and voting at the Allegiant Special Meeting for purposes of
determining the presence of a quorum. Such votes will have the effect of
votes against the approval of the Merger Agreement. Broker "non-votes" (i.e.,
proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owners or other persons entitled to
vote shares with respect to which the brokers or nominees do not have
discretionary power to vote without such instructions) will be considered as
present for the purpose of determining the presence of a quorum but will not
be considered as voting at the Allegiant Special Meeting. Broker non-votes
will have the effect of votes against the approval of the Merger Agreement and
the transactions contemplated thereby.
Any shareholder of Allegiant giving a proxy may revoke it at any
time prior to the vote at the Allegiant Special Meeting. Shareholders of
Allegiant wishing to revoke a proxy prior to the vote may do so by delivering
to the Secretary of Allegiant at 7801 Forsyth Boulevard, St. Louis, Missouri
63105 a written notice of revocation bearing a later date than the proxy or a
later dated proxy relating to the same shares, or by attending the Allegiant
Special Meeting and voting such shares in person. Attendance at the Allegiant
Special Meeting will not in itself constitute the revocation of a proxy.
The Allegiant Board is not currently aware of any business to be
brought before the Allegiant Special Meeting other than that described herein.
If, however, other matters are properly brought before such Allegiant Special
Meeting, or any adjournments or postponements thereof, the persons appointed
as proxies will have discretionary authority to vote the shares represented by
duly executed proxies in accordance with their discretion and judgment as to
the best interest of Allegiant.
SOLICITATION OF PROXIES
Allegiant will bear its own costs of soliciting proxies and will
pay printing and mailing expenses and registration fees incurred in connection
with preparing this Joint Proxy Statement/Prospectus. Proxies will initially
be solicited by mail, but directors, officers and selected other employees of
Allegiant may also solicit proxies in person or by telephone. Directors,
executive officers and any other employees of Allegiant who solicit proxies
will not be specially compensated for such services. Brokerage houses,
nominees, fiduciaries and other custodians will be requested to forward proxy
materials to beneficial owners and will be reimbursed for their reasonable
expenses incurred in sending proxy materials to beneficial owners.
HOLDERS OF ALLEGIANT COMMON STOCK ARE REQUESTED TO COMPLETE, DATE
AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
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<PAGE> 33
THE RELIANCE ANNUAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to
holders of Reliance Common Stock in connection with the solicitation of
proxies by the Reliance Board for use at the Reliance Annual Meeting and any
adjournments or postponements thereof at which the stockholders of Reliance
will consider and vote upon proposals to: (i) adopt the Merger Agreement and
the transactions contemplated thereby; (ii) elect two directors for terms of
three years or until their successors shall have been duly elected and
qualified; (iii) ratify the appointment of Michael Trokey & Company, P.C. as
Reliance's independent auditors for the fiscal year ending September 30, 1997;
and (iv) consider and vote upon any other business that may properly be
brought before the Reliance Annual Meeting or any adjournments or
postponements thereof. Each copy of this Joint Proxy Statement/Prospectus is
accompanied by the Notice of Annual Meeting of Stockholders of Reliance, a
proxy card and related instructions and a return envelope to Reliance for the
proxy card.
This Joint Proxy Statement/Prospectus is also furnished by
Allegiant to each holder of Reliance Common Stock as a prospectus in
connection with the issuance by Allegiant of shares of Allegiant Common Stock
upon the consummation of the Merger. This Joint Proxy Statement/Prospectus
and the Notice of Annual Meeting, proxy card and related materials are being
first mailed to stockholders of Reliance on [ , 1997].
DATE, TIME AND PLACE
The Reliance Annual Meeting will be held at the offices of
Reliance, 8930 Gravois Avenue, St. Louis, Missouri 63123, on
[ , 1997], at [ : a.m.] Central Time.
RELIANCE RECORD DATE; VOTE REQUIRED
On the Reliance Record Date, there were [ ] shares of
Reliance Common Stock outstanding and entitled to vote at the Reliance Annual
Meeting. Holders of each share are entitled to one vote on each matter
properly brought before the Reliance Annual Meeting. The affirmative vote of
the holders of a majority of the outstanding shares of Reliance Common Stock
is required to adopt the Merger Agreement and the transactions contemplated
thereby. Directors are elected by a plurality of votes cast. The affirmative
vote of a majority of the vote present at the Reliance Annual Meeting in
person or by proxy is required for ratification of the independent auditors.
The presence in person or by proxy of a majority of the outstanding shares of
Reliance Common Stock entitled to vote is necessary to constitute a quorum at
the meeting.
As of the Reliance Record Date, directors and executive officers
of Reliance and their affiliates owned beneficially, or controlled the voting
of, an aggregate of [ ] shares of Reliance Common Stock, or
approximately [ %] of the outstanding shares of Reliance Common Stock
entitled to vote at the Reliance Annual Meeting. All directors and executive
officers of Reliance have indicated their intention to vote their shares for
the adoption of the Reliance Proposals at the Reliance Annual Meeting.
Additionally, each of the directors of Reliance, pursuant to the terms of his
or her respective Voting Agreement, has committed to vote his or her shares of
Reliance Common Stock for approval of the Merger Agreement and the
transactions contemplated thereby. As of the Reliance Record Date, such
persons who had executed Voting Agreements or otherwise indicated they would
vote for adoption of the Merger Agreement and the transactions contemplated
thereby owned beneficially an aggregate of [ ] shares of
Reliance Common Stock, or approximately [ %] of the issued and outstanding
shares. See "Terms of the Proposed Merger--Other Agreements."
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<PAGE> 34
VOTING AND REVOCATION OF PROXIES
Shares of Reliance Common Stock that are represented by a properly
executed proxy received prior to the vote at the Reliance Annual Meeting will
be voted at such Reliance Annual Meeting in the manner directed on the proxy
card, unless such proxy is revoked in the manner set forth herein in advance
of such vote. ANY RELIANCE STOCKHOLDER RETURNING AN EXECUTED PROXY
CARD THAT DOES NOT PROVIDE INSTRUCTIONS TO VOTE AGAINST ANY
RELIANCE PROPOSAL WILL BE DEEMED TO HAVE ADOPTED SUCH RELIANCE
PROPOSAL. Failure to return a properly executed proxy card or to vote in
person at the Reliance Annual Meeting will have the practical effect of a vote
against the adoption of the Merger Agreement and the transactions contemplated
thereby.
Shares subject to abstentions will be treated as shares that are
present and voting at the Reliance Annual Meeting for purposes of determining
the presence of a quorum. Such votes will have the effect of votes against
the adoption of the Merger Agreement. Broker "non-vote" (i.e., proxies from
brokers or nominees indicating that such persons have not received
instructions from the beneficial owners or other persons entitled to vote
shares with respect to which the brokers or nominees do not have discretionary
power to vote without such instructions) will be considered as present for the
purpose of determining the presence of a quorum but will not be considered as
voting at the Reliance Annual Meeting. Broker non-votes will have the effect
of votes against the adoption of the Merger Agreement and the transactions
contemplated thereby.
Any stockholder of Reliance giving a proxy may revoke it at any
time prior to the vote at the Reliance Annual Meeting. Stockholders of
Reliance wishing to revoke a proxy prior to the vote may do so by delivering
to the Secretary of Reliance at 8930 Gravois Avenue, St. Louis, Missouri
63123 a written notice of revocation bearing a later date than the proxy or a
later dated proxy relating to the same shares, or by attending the Reliance
Annual Meeting and voting such shares in person. Attendance at the Reliance
Annual Meeting will not in itself constitute the revocation of a proxy.
The Reliance Board is not currently aware of any business to be
brought before the Reliance Annual Meeting other than that described herein.
If, however, other matters are properly brought before such Reliance Annual
Meeting, or any adjournments or postponements thereof, the persons appointed
as proxies will have discretionary authority to vote the shares represented by
duly executed proxies in accordance with their discretion and judgment as to
the best interest of Reliance.
SOLICITATION OF PROXIES
Reliance will bear its own costs of soliciting proxies, except
that Allegiant will pay printing and mailing expenses and registration fees
incurred in connection with preparing this Joint Proxy Statement/Prospectus.
Proxies will initially be solicited by mail, but directors, officers and
selected other employees of Reliance may also solicit proxies in person or by
telephone. Directors, executive officers and any other employees of Reliance
who solicit proxies will not be specially compensated for such services.
Brokerage houses, nominees, fiduciaries and other custodians will be requested
to forward proxy materials to beneficial owners and will be reimbursed for
their reasonable expenses incurred in sending proxy materials to beneficial
owners.
HOLDERS OF RELIANCE COMMON STOCK ARE REQUESTED TO COMPLETE, DATE
AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
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<PAGE> 35
TERMS OF THE PROPOSED MERGER
The following is a summary of the material terms and conditions of
the Merger Agreement, which document is incorporated by reference herein.
This summary is qualified in its entirety by the full text of the Merger
Agreement. Allegiant, upon written or oral request, will furnish a copy of
the Merger Agreement, without charge, to any person who receives a copy of
this Joint Proxy Statement/Prospectus. Such requests should be directed to
Christy Siburt, Investor Relations, Allegiant Bancorp, Inc., 7801 Forsyth
Boulevard, St. Louis, Missouri 63105, telephone (314) 726-5000.
GENERAL DESCRIPTION OF THE MERGER
Pursuant to the Merger Agreement, subject to satisfaction or
waiver of certain conditions precedent, Reliance will be merged on the Closing
Date with and into Allegiant. Upon consummation of the Merger, Reliance's
corporate existence will terminate and Allegiant will continue as the
surviving entity. RFSLA will continue to operate as a wholly-owned savings
association subsidiary of Allegiant for a period of at least one year after
the Closing Date.
Simultaneously with the effectiveness of the Merger, each share of
Reliance Common Stock will be converted into the right to receive 1.6741
shares of Allegiant Common Stock, subject to downward adjustment. In the
event the Average Allegiant Price exceeds $14.50, the Exchange Ratio will be
calculated by multiplying 1.6741 by a fraction, the numerator of which is
$14.50 and the denominator of which is the Average Allegiant Price. Such
consideration is also subject to certain anti-dilution protections but is not
adjustable based upon the operating results, financial condition or other
factors affecting either Allegiant or Reliance prior to the consummation of
the Merger. The fair market value of Allegiant Common Stock received pursuant
to the Merger may fluctuate and at the consummation of the Merger may be more
or less than the current fair market value of such shares. Based on the
assumption that the Average Allegiant Price was equal to the last reported
sale price of Allegiant Common Stock on the Nasdaq on July 10, 1997 ($17.00
per share), each share of Reliance Common Stock would have been converted into
shares of Allegiant Common Stock with a value of approximately $24.27. The
last reported bid price of Reliance Common Stock on that date was $21.00 per
share. As of March 20, 1997, the last trading day preceding public
announcement of the Merger, the last reported sale price for Allegiant Common
Stock was $12.50 and the last reported bid price for Reliance Common Stock was
$15.75.
The amount and nature of the consideration was established through
arm's-length negotiations between Allegiant and Reliance and their respective
advisors, and reflects the balancing of a number of countervailing factors.
The total amount of the consideration reflects a price both parties concluded
was appropriate. See "--Background of and Reasons for the Merger; Board
Recommendations." The fact that the consideration is payable in shares of
Allegiant Common Stock reflects the potential for change in the value of the
Allegiant Common Stock and the desire of the parties to the Merger to have the
favorable tax attributes of a "reorganization" for federal income tax
purposes. See "Certain Federal Income Tax Consequences of the Merger."
NO ASSURANCE CAN BE GIVEN THAT THE CURRENT FAIR MARKET VALUE OF
ALLEGIANT COMMON STOCK WILL BE EQUIVALENT TO THE FAIR MARKET VALUE OF
ALLEGIANT COMMON STOCK ON THE DATE SUCH STOCK IS RECEIVED BY A RELIANCE
STOCKHOLDER OR AT ANY OTHER TIME. THE FAIR MARKET VALUE OF ALLEGIANT COMMON
STOCK RECEIVED BY A RELIANCE STOCKHOLDER MAY BE GREATER OR LESS THAN THE
CURRENT FAIR MARKET VALUE OF ALLEGIANT COMMON STOCK DUE TO NUMEROUS MARKET
FACTORS.
- 30 -
<PAGE> 36
UMB Bank, N.A., the transfer agent for Allegiant Common Stock, has
been selected as the Exchange Agent (the "Exchange Agent") for purposes of
effecting the conversion of Reliance Common Stock into Allegiant Common Stock
upon consummation of the Merger.
Following the Closing Date, each stockholder of Reliance will be
required to submit to the Exchange Agent a properly executed letter of
transmittal and surrender to the Exchange Agent the stock certificate(s)
formerly representing the shares of Reliance Common Stock in order to receive
a new stock certificate(s) evidencing the shares of Allegiant Common Stock to
which such stockholder is entitled. As soon as practicable after consummation
of the Merger, the Exchange Agent will mail to each Reliance stockholder a
notice of consummation of the Merger and a form of letter of transmittal,
together with instructions and a return envelope to facilitate the exchange of
such holder's certificate(s) formerly representing Reliance Common Stock for
certificate(s) evidencing Allegiant Common Stock. No dividends or other
distributions will be paid to a former Reliance stockholder with respect to
shares of Allegiant Common Stock until such stockholder's letter of
transmittal and stock certificate(s) formerly representing Reliance Common
Stock, or documentation reasonably acceptable to the Exchange Agent in lieu of
lost or destroyed certificates, is delivered to the Exchange Agent. See
"Terms of the Proposed Merger--Surrender of Reliance Stock Certificates and
Receipt of Allegiant Common Stock." No fractional shares of Allegiant Common
Stock will be issued in the Merger, but cash will be paid in lieu of such
fractional shares, such cash being calculated by multiplying the holder's
fractional share interest by the closing stock price of Allegiant Common Stock
on the Nasdaq as reported in The Wall Street Journal on the Closing Date of
the Merger. See "--Fractional Shares." The shares of Allegiant Common Stock
to be issued pursuant to the Merger will be freely transferable except by
certain stockholders of Reliance who are deemed to be "affiliates" of
Reliance. The shares of Allegiant Common Stock issued to such affiliates will
be restricted in their transferability in accordance with the rules and
regulations promulgated by the Commission. See "Information Regarding
Allegiant Stock--Restrictions on Resale of Allegiant Stock by Affiliates."
OTHER AGREEMENTS
Contemporaneously with the execution of the Merger Agreement,
Allegiant and Reliance entered into a certain Option Agreement (the "Option
Agreement"). Under the terms of the Option Agreement, Reliance issued to
Allegiant the option to purchase up to 46,775 shares of Reliance Common Stock
at a price per share equal to $16.00 (the "Option"). The Option was granted
by Reliance as a condition of and in consideration for Allegiant's entering
into the Merger Agreement. The following description does not purport
to be complete and is qualified in its entirety by reference to
the Option Agreement, which is attached as an exhibit to the
Registration Statement and is incorporated herein by reference.
Option Agreement. The Option Agreement is intended to increase
the likelihood that the Merger will be consummated in accordance with the
terms of the Merger Agreement. The occurrence of certain events described
below could cause the Option to become exercisable and thereby significantly
increase the cost of the acquisition of Reliance. Consequently, the Option
Agreement may: (i) have the effect of discouraging a person who might now or
prior to the consummation of the Merger consider or propose the acquisition of
Reliance (or a significant interest in Reliance), even if such a person were
prepared to pay a higher price per share for Reliance Common Stock than the
price per share implicit in the Merger Consideration; (ii) result in the
proposal by a potential acquiror of a lower per share price than such acquiror
might otherwise have been willing to pay; or (iii) prevent a potential
acquiror from accounting for the acquisition of Reliance through the
pooling-of-interests method for a period of two years and thereby discourage
or preclude the acquisition of Reliance.
As of the Reliance Record Date, the maximum number of shares
issuable pursuant to the Option Agreement (the "Allegiant Option Shares")
represented [ %] of the issued and outstanding shares of Reliance Common
Stock after giving effect to the exercise of the Option. The Option exercise
price
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<PAGE> 37
is $16.00 per share. In the event Allegiant acquires the Allegiant
Option Shares, Allegiant could vote such shares in the election of Reliance
directors and other matters requiring a stockholder vote, thereby potentially
having a material impact on the outcome of such matters.
If not then in material breach of the Merger Agreement, Allegiant
may exercise the Option, in whole or in part, at any time or from time to time
if a Purchase Event (as defined below) has occurred; provided, however, that:
(i) to the extent the Option has not been exercised, it will terminate and be
of no further force and effect upon the earlier to occur of (A) the Effective
Time and (B) the termination of the Merger Agreement in accordance with its
terms, provided that in the case of certain terminations of the Merger
Agreement, as specified in the Option Agreement, the Option will not terminate
until the date that is twelve months following such termination; (ii) if the
Option cannot be exercised on such day because of any injunction, order or
similar restraint issued by a court of competent jurisdiction, the Option will
expire on the thirtieth business day after such injunction, order or restraint
has been dissolved or when such injunction, order or restraint has become
permanent and is no longer subject to appeal, as the case may be; and (iii)
any such exercise will be subject to compliance with applicable law, including
the Bank Holding Company Act of 1956, as amended (the "BHCA") and the Home
Owners' Loan Act, as amended (the "HOLA").
A "Purchase Event" means any of the following events: (i)
Reliance or any of its subsidiaries, without having received prior written
consent from Allegiant, has entered into, authorized, recommended, proposed or
publicly announced its intention to enter into, authorize, recommend or
propose an agreement, arrangement or understanding with any person (other than
Allegiant or any of its subsidiaries) to (A) effect a merger, consolidation or
similar transaction involving Reliance or any of its subsidiaries, (B)
purchase, lease or otherwise acquire 15% or more of the assets or earning
power of Reliance or any of its subsidiaries or (C) purchase or otherwise
acquire (including by way of merger, consolidation, share exchange or similar
transaction) beneficial ownership of securities representing 20% or more of
the voting power of Reliance or any of its subsidiaries; (ii) any person
(other than Allegiant or any subsidiary of Allegiant, or Reliance or any
subsidiary of Reliance in a fiduciary capacity) has acquired beneficial
ownership or the right to acquire beneficial ownership of 20% or more of the
voting power of Reliance; or (iii) the holders of Reliance Common Stock have
not adopted the Merger Agreement at the Reliance Annual Meeting, the Reliance
Annual Meeting has not been held or is cancelled prior to termination of the
Merger Agreement in accordance with its terms or the Reliance Board of
Directors has withdrawn or modified in a manner adverse to Allegiant the
recommendation of Reliance's Board of Directors with respect to the Merger
Agreement, in each case after an Extension Event.
An "Extension Event" means any of the following events: (i) a
Purchase Event; (ii) any person (other than Allegiant or any of its
subsidiaries) has "commenced" (as such term is defined in Rule 14d-2 under the
Exchange Act) or has filed a registration statement under the Securities Act
with respect to a tender offer or exchange offer to purchase shares of
Reliance Common Stock such that, upon consummation of such offer, such person
would have beneficial ownership or the right to acquire beneficial ownership
of 20% or more of the voting power of Reliance for a value per share of
Allegiant Common Stock in excess of $16.00; or (iii) any person (other than
Allegiant or any subsidiary of Allegiant, or Reliance or any subsidiary of
Reliance in a fiduciary capacity) has publicly announced its willingness, a
proposal or an intention to make a proposal, (x) to make an offer described in
clause (ii) above or (y) to engage in a transaction described in clause (i)
above at a price per share of Reliance Common Stock in excess of $16.00.
Subject to the giving of any notices and any approvals, upon the
occurrence of a Purchase Event and until 13 months thereafter, Reliance shall
be required, upon Allegiant's request, to repurchase any shares of Reliance
Common Stock purchased by Allegiant, at a price based on the market price or
the highest price per share at which a tender or exchange offer has been made
for shares of Reliance
- 32 -
<PAGE> 38
Common Stock (the "Market Price"), or to purchase the Option for the amount by
which the Market Price exceeds the Option Price.
At the request of Reliance during the first six-month period
commencing 13 months following the first occurrence of a Purchase Event,
Reliance may repurchase from Allegiant, and Allegiant shall sell to Reliance,
all (but not less than all) of the Reliance Common Stock acquired by Allegiant
pursuant to the Option at a price per share equal to the greater of (i) the
Market Price or (ii) the sum of (A) the aggregate purchase price of such
shares plus (B) interest on the aggregate purchase price paid for such shares
from the date of purchase to the date of repurchase, less any dividends
received on such shares.
To the best of Allegiant's and Reliance knowledge, no Purchase
Event or Extension Event has occurred as of the date of this Joint Proxy
Statement/Prospectus.
Voting Agreements. Concurrent with the execution of the Merger
Agreement, Allegiant and each of the directors of Reliance executed a separate
Voting Agreement by which each such person agreed that he or she will vote all
of the shares of Reliance Common Stock that he or she then owned or
subsequently acquires in favor of the adoption of the Merger Agreement at the
Reliance Annual Meeting. Each such person also agreed that he or she will not
transfer shares of Reliance Common Stock owned by him or her unless, prior to
such transfer, the transferee executes an agreement in substantially the same
form as the Voting Agreement. In addition, until the earlier to occur of the
Effective Time, the termination of the Voting Agreement or the termination of
the Merger Agreement, each such Reliance director further agreed he or she
will not vote any such shares in favor of the approval of any other competing
acquisition proposal involving Reliance and a third party. As of the Reliance
Record Date, persons who had executed Voting Agreements owned beneficially an
aggregate of [ ] shares of Reliance Common Stock, or
approximately [ %] of the issued and outstanding shares.
In addition, Reliance and each of the directors of Allegiant
executed a separate Voting Agreement by which each such person agreed that he
or she will vote all of the shares of Allegiant Common Stock that he or she
then owned or subsequently acquires in favor of the approval of the Merger
Agreement at the Allegiant Special Meeting. Each such person also agreed that
he or she will not transfer shares of Allegiant Common Stock owned by him or
her unless, prior to such transfer, the transferee executes an agreement in
substantially the same form as the Voting Agreement. As of the Allegiant
Record Date, persons who had executed Voting Agreements owned beneficially an
aggregate of [ ] shares of Allegiant Common Stock, or approximately
[ %] of the issued and outstanding shares.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. Set forth below are descriptions of interests of
directors and officers of Reliance in the Merger in addition to their
interests as stockholders of Reliance and shareholders of Allegiant generally.
The Reliance Board and the Allegiant Board were aware of these interests and
considered them in adopting and approving the Merger Agreement and the
transactions contemplated thereby.
Reliance Employment Agreements. Upon consummation of the
Merger and in the event of their termination of employment following the
Merger, John E. Bowman, President and Chief Executive Officer of Reliance, and
Jeannette Larson, Executive Vice President and Secretary of Reliance, will be
entitled to receive certain benefits and estimated payments of approximately
$478,500 and $274,300, respectively, pursuant to their respective employment
agreements. Such benefits and payments are comprised of: (i) a sum equal to the
greater of the payments due under the remaining term of his or her employment
agreement, as the case may be, or 2.99 times the average of his or her Base
Salary (as defined in the employment agreements), as the case may be, for the
preceding five years; (ii) a continuation of insurance coverage for a period of
36 months; (iii) any benefits granted to him or her
- 33 -
<PAGE> 39
pursuant to Reliance's and RFSLA's stock option plans; and (iv) any benefits
awarded to him or her pursuant to Reliance's Recognition and Retention Plan. As
provided in their supplemental employment agreements, all of the foregoing
respective amounts or benefits will be provided to Mr. Bowman and Ms. Larson
without any reduction because of tax code "penalties" or excise taxes relating
to a change in control of Reliance or RFSLA.
Reliance Employee Stock Ownership Plan. In connection with
the execution of the Merger Agreement the parties agreed that prior to the
consummation of the Merger, the ESOP may be terminated. The ESOP provides
that upon termination of the ESOP and repayment of any outstanding ESOP loan,
the excess assets remaining in the ESOP suspense account will be allocated
among the accounts of ESOP participants as earnings based on the ratio of each
participant's account balance to that of all participants in the ESOP. Under
such circumstances, Mr. Bowman and Ms. Larson would receive approximately
$190,156 and $137,829, respectively. The ESOP has requested from the Internal
Revenue Service (the "Service") a favorable determination letter with respect
to the qualification of the ESOP on termination. During the review by the
Service of the determination letter application, the Service may object to the
characterization of the excess assets as earnings of the ESOP and may deem a
portion of the excess assets to be subject to certain annual limitations on
allocations to participants. In such event, Reliance will proceed with the
termination of the ESOP and the participants in the ESOP have acknowledged
that the disqualification of the ESOP will cause the amounts allocated to the
participants' accounts to become fully taxable and may subject the
participants to an excise tax for an early distribution.
Reliance Stock Options. Pursuant to the Merger Agreement,
upon consummation of the Merger, Allegiant has agreed to assume all
outstanding options to purchase shares of Reliance Common Stock ("Reliance
Options") granted pursuant to the Reliance 1996 Stock Option Plan (the
"Reliance Option Plan") in accordance with the terms of the Reliance Option
Plan, except that the shares acquired upon exercise shall be shares of
Allegiant Common Stock. The number of shares covered by each option
outstanding under the Reliance Option Plan would be equal to the number of
shares of Reliance Common Stock covered thereby multiplied by the Exchange
Ratio and rounded to the nearest whole share, and the option exercise price
would be adjusted by dividing such price by the Exchange Ratio and rounding up
to the nearest cent. Pursuant to the Merger Agreement, Allegiant has agreed
to allow Reliance to amend certain existing stock options granted to Mr.
Bowman and Ms. Larson to permit their exercisability up to ten years from the
original date of grant.
<TABLE>
<CAPTION>
DIRECTOR AND/OR OPTIONS
EXECUTIVE OFFICER GRANTED EXERCISE PRICE EXPIRATION DATE
----------------- ------- -------------- ---------------
<S> <C> <C> <C>
John E. Bowman <F1> 12,900 $14.625 4/18/2006
<F2> 272 15.625 4/18/2006
Jeannette Larson <F1> 8,600 14.625 4/18/2006
<F2> 180 15.625 4/18/2006
Directors as a group <F3> 13,760 14.625 4/18/2006
<FN>
- -------------
<F1> Options awarded April 18, 1996.
<F2> Options reallocated from forfeiture on December 16, 1996.
<F3> Does not include options of Mr. Bowman and Ms. Larson.
</TABLE>
Certain Other Matters Relating to the Mergers. Allegiant
has agreed to pay severance benefits to any employee of RFSLA who is
terminated without cause within one year following the Closing Date. Such
employees (other than employees covered by employment agreements) would be
- 34 -
<PAGE> 40
entitled to severance benefits in an amount equal to one month's salary for
each full year that such individual was employed by RFSLA, up to a maximum of
twelve months. Any employee of Reliance or RFSLA who becomes employed by
Allegiant following the Merger will generally be entitled to participate in
Allegiant's pension, benefit and similar plans on substantially the same terms
and conditions as employees of Allegiant, giving effect for eligibility and
vesting of benefits (but not for accrual of benefits), to years of service
with Reliance or RFSLA as if such service were with Allegiant.
Indemnification; Directors' and Officers' Insurance. For
five years after the Closing Date, Allegiant will indemnify and defend
employees, agents, directors or officers of Reliance or any of Reliance's
subsidiaries, against all liabilities arising out of actions or omission
occurring at or prior to the Effective Time to the extent such persons are
indemnified under the DGCL or by virtue of Reliance's Certificate of
Incorporation or Bylaws in the form in effect as of March 20, 1997. Further,
Allegiant will assume all duties and obligations of indemnification of
Reliance or any of Reliance's subsidiaries existing as of the Effective Time
with respect to any act or omission of any of their respective employees,
agents, directors or officers occurring prior to the Effective Time; provided,
however, that to the extent that Reliance's directors' and officers' liability
insurance would provide coverage for any such act or omission, Reliance agrees
to give proper notice to the insurance carrier and to Allegiant of a potential
claim thereunder so as to preserve the rights to such insurance coverage. In
addition, Reliance may purchase up to three years' tail coverage under its
existing directors' and officers' liability insurance policy on such terms and
provisions as Reliance deems appropriate provided that the total cost thereof
does not exceed $15,000.
Reliance Recognition and Retention Plan. Reliance will
ensure that all awards under the Reliance Financial, Inc. 1996 Recognition and
Retention Plan will accelerate and become vested in the award recipient
immediately prior to the Effective Time, and such awards will be converted
into the right to receive shares of Allegiant Common Stock based on the
Exchange Ratio.
RFSLA Board of Directors. Pursuant to the Merger Agreement,
Allegiant has agreed to operate RFSLA as a stand-alone entity for a period of
at least one year following the Effective Time. In connection therewith, each
current member of the Board of Directors of RFSLA will continue to serve as
such following the Effective Time unless removed for cause or unless such
member resigns. For their services, such members will be entitled to Board of
Directors' fees in the amount and with the frequency currently paid by RFSLA.
BACKGROUND OF AND REASONS FOR THE MERGER; BOARD RECOMMENDATIONS
Background of the Merger. In April 1995, RFSLA converted
from mutual-to-stock form. Pursuant to this transaction, Reliance was
established as the holding company for RFSLA and net proceeds of $3.6 million
were raised. Following the mutual-to-stock conversion, Reliance was contacted
from time to time by several institutions that expressed an interest in
discussing possible business combinations. During this period, several merger
transactions were announced and several more were completed involving
financial institutions located in Reliance's market area. Also during this
period, Reliance's management and the Reliance Board had several discussions
with counsel relating to regulatory requirements and the general fiduciary
duties of the Reliance Board in connection with a possible business
combination involving Reliance, as well as the possible retention of an
investment banking firm to provide financial advice regarding strategic
alternatives available to Reliance.
In July 1996, the Reliance Board retained RP Financial to assist
Reliance in evaluating its existing operations, the strategic alternatives
available to Reliance and the most appropriate strategy for the maximization
of stockholder returns. The possible combination of Reliance with another
financial institution was discussed as one of the options available to
Reliance.
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<PAGE> 41
In August 1996, RP Financial presented to the Reliance Board an
analysis of various strategic alternatives for enhancing stockholder value,
both on a stand-alone basis, as well as under a sale-of-control scenario. The
analysis included the ability of various local and regional financial
institutions to consummate an acquisition of Reliance, including those
institutions that previously had expressed an interest in a business
combination involving Reliance. The analysis: (i) assessed the strengths and
weaknesses of Reliance and its current operating environment; (ii) projected
Reliance's future financial condition and results of operations; (iii)
compared the current acquisition value of Reliance with the present value of
the estimated future acquisition value of Reliance, assuming Reliance
continued to operate independently for a period of time; and (iv) analyzed
potential acquisition partners.
Based on this presentation, the Reliance Board concluded that it
would be appropriate to consider alternatives to remaining independent and
determined to solicit indications of interest in a possible affiliation with
Reliance. The Reliance Board directed RP Financial to prepare a confidential
memorandum describing background, market area, products and services offered,
organizational information, and various public and non-public financial data
(the "Memorandum") for distribution to potential acquirors. In
September 1996, RP Financial contacted a total of ten local and regional
financial institutions that had either expressed interest in discussing an
affiliation with Reliance or had been identified by RP Financial as
potentially interested parties. Nine of such financial institutions executed
confidentiality agreements and were provided copies of the Memorandum. After
review of the Memorandum, three financial institutions expressed indications
of interest in a combination involving Reliance.
In October 1996, after reviewing these indications of interest,
the Reliance Board directed RP Financial to contact twelve additional local
and regional financial institutions identified by RP Financial that were
believed to be potentially interested in pursuing a combination with Reliance.
Five of these institutions executed confidentiality agreements with Reliance
and were provided copies of the Memorandum. Indications of interest were
received from two of such financial institutions.
In October 1996, the Reliance Board reviewed the indications of
interest from all parties, including an informal verbal acquisition proposal
received from one such institution, and directed RP Financial to request
certain additional information from the interested parties.
On October 30, 1996, the Reliance Board met with the Chairman of
the Board and the President of Allegiant, one such interested party. At this
meeting, Allegiant's executive management described Allegiant's history,
operating strategy and business philosophy. Following this meeting, in early
November 1996, the Reliance Board agreed to provide Allegiant with the
opportunity to conduct due diligence of Reliance with the objective of
confirming the value set forth in Allegiant's preliminary indication of
interest. The Reliance Board requested, and was granted, the opportunity to
conduct due diligence on Allegiant. From November 13 through November 15,
1996, management of Allegiant and Reliance, along with their legal and
financial advisors, conducted mutual due diligence.
Following such due diligence, and after considering, among other
things, the amount of the proposed consideration from Allegiant, the
organizational and operational aspects of a business combination with
Allegiant, the perceived financial and regulatory ability of Allegiant to
complete an acquisition, as well as the stockholder returns that could be
generated by Reliance under alternative strategies, the Reliance Board, on
November 21, 1996, directed management, RP Financial and legal counsel to
negotiate the terms of a merger agreement with Allegiant.
On December 18, 1996, after additional consultation with its
financial advisors, Allegiant revised its offer for Reliance by reducing the
proposed exchange ratio by which shares of Reliance Common Stock would be
exchanged for shares of Allegiant Common Stock. In response to this reduced
exchange ratio, the Reliance Board directed RP Financial to discontinue
negotiations with Allegiant, and
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<PAGE> 42
to contact again each of the financial institutions that had indicated interest
in Reliance during the months of September and October. By year end, all such
parties had been contacted.
In January 1997, these contacts resulted in proposals from three
institutions, including a proposal from a local financial institution
("Interested Party") to acquire Reliance in a cash transaction, subject to due
diligence. In late January 1997, the Interested Party conducted a due
diligence review of Reliance and conducted management interviews. In
February 1997, the Interested Party submitted a written proposal for the
acquisition of Reliance for cash consideration. Also in February 1997,
Allegiant resubmitted its written proposal for the acquisition of Reliance at
the revised exchange ratio, and with all other terms substantially unchanged
from those set forth in the negotiated merger agreement from December 1996.
On March 7, 1997, the Reliance Board met to analyze the offers
from Allegiant and the Interested Party. Following such analysis, the
Reliance Board authorized and directed RP Financial to pursue further
negotiations with Allegiant. These negotiations resulted in an increase to
the lower collar of the revised exchange ratio. On March 20, 1997, the
Reliance Board convened a special meeting with its legal counsel and RP
Financial. During this meeting, the Reliance Board considered the final
negotiated merger agreement with Allegiant as well as the offer submitted by
the Interested Party. Reliance's legal counsel and RP Financial responded to
various questions from the directors. RP Financial rendered its oral and
written opinion that the Merger Consideration was fair to Reliance's
stockholders from a financial point of view. In addition, counsel reviewed
the Merger Agreement, together with all exhibits, in detail and responded to
questions from directors. Following the presentations, the Reliance Board
unanimously voted to enter into the Merger Agreement with Allegiant, which was
executed on March 20, 1997. Prior to the stock market opening on March 21,
1997, a joint press release was issued on behalf of Reliance and Allegiant.
Subsequent to the announcement of the Merger Agreement, a registered
representative of a St. Louis-based brokerage firm asserted a claim against
Allegiant, alleging that such individual was owed a fee from Allegiant
arising out of a purported oral agreement. Allegiant denied such liability
and initiated an arbitration pursuant to the rules of the National Association
of Securities Dealers, Inc. seeking a determination that Allegiant was not
liable. Without admitting liability, in July 1997, Allegiant attained an
agreement in principle to settle the claim for $100,000 payable upon
completion of the Merger, in order to avoid the cost, distraction and
uncertainty of arbitrating the claim on the merits. Such amount would be
added to Allegiant's cost of the acquisition under purchase accounting.
Reliance's Reasons and Board Recommendation. The Reliance
Board believes that the Merger is fair to, and in the best interest of,
Reliance and its stockholders. Accordingly, the Reliance Board has approved
and adopted the Merger Agreement. The Reliance Board therefore recommends
that stockholders vote "FOR" the approval and adoption of the Merger Agreement
and the transactions contemplated thereby.
In reaching its determination that the Merger is in the best
interest of Reliance, the Reliance Board considered a number of factors,
including, without limitation, the following:
(i) The Reliance Board's familiarity with and review of
Reliance's business, operations, financial condition,
earnings and prospects, and a comparison of such
factors with the business, operations, financial
condition, earnings and prospects of Allegiant. In
comparing the respective businesses of Allegiant and
Reliance, the Reliance Board noted the following:
* The Merger will result in Reliance stockholders
receiving stock in a substantially more diversified
financial institution that the Reliance Board
believed to be less exposed to downward trends in
the local economy;
* Over the last several years, Allegiant has shown a
substantially greater ability to increase its asset
base than has Reliance;
* Due in large part to the proceeds of the mutual-to-
stock conversion of RFSLA and the resulting
overcapitalization of Reliance, its return on equity
of 2.22% for the twelve months ended September 30,
1996 was substantially less than Allegiant's return
on equity of 12.17% for the twelve months ended
December 31, 1996; and
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<PAGE> 43
* The revised exchange ratio would permit Reliance
stockholders to participate to the extent of the
upper collar in the appreciation, if any, in the
trading price of Allegiant Common Stock prior to the
Effective Date, which was an important consideration
to the Reliance Board in light of their belief that
Allegiant's operations, financial condition,
earnings and prospects compared favorably to
Reliance's business, operations, financial
condition, earnings and prospects.
(ii) The current and prospective economic environment and
competitive and regulatory constraints facing financial
institutions, including Reliance. In this regard, the
Reliance Board noted that Allegiant's financial
resources give it the ability to invest in technology at
a rate that provides Allegiant a competitive advantage
over smaller institutions like Reliance. In addition,
the Reliance Board considered certain of the risks of
remaining independent, including, among other things,
the limited potential to engage in acquisitions to
further enhance stockholder value, as well as the costs
and operational risks associated with systems upgrades
that would be necessary for Reliance to maintain its
competitiveness.
(iii) Potential issues of management succession. In this
regard, the Reliance Board considered, that upon the
imminent retirement of Mr. Bowman, a suitable Chief
Executive Officer would have to be recruited.
(iv) The opinion of RP Financial that the Merger Consideration
is fair, from a financial point of view, to the holders
of Reliance Common Stock.
(v) The presentation to the Reliance Board by RP Financial
with respect to the relationship of the consideration to
be paid pursuant to the Merger Agreement to the recent
and then-current market values, book value, tangible
book value and earnings per share of Reliance Common
Stock, and the prices and premiums paid in certain other
similar transactions involving financial institutions.
(vi) The Reliance Board's review of the alternative of
continuing to remain independent in the analysis
provided by RP Financial as to the future amount and
growth of earnings necessary to provide Reliance
stockholders with the same value, on a present value
basis, as presented by the revised exchange ratio.
(vii) The compatibility of the respective business,
branches and operations of Allegiant and Reliance.
(viii) The effect of the Merger on the employees and
customers of Reliance and RFSLA and the communities in
which they operate.
(ix) The tax-deferred nature of the transaction to Reliance
stockholders, who generally will be able to defer
recognition of any gain or loss for income tax purposes
until such time as they sell the shares of Allegiant
Common Stock received upon the consummation of the
Merger.
THE RELIANCE BOARD UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS OF RELIANCE VOTE "FOR" THE PROPOSAL TO ADOPT THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
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<PAGE> 44
Allegiant's Reasons and Board Recommendations. The
Allegiant Board considered a number of factors, including, among other things,
the financial condition of Reliance and projected synergies which are
anticipated to result from the Merger. The Allegiant Board concluded that the
Merger presents an unique opportunity for Allegiant to increase its presence
in the St. Louis SMSA through the acquisition of an established banking
organization having operations in the targeted area. Allegiant's decision to
pursue discussions with Reliance was primarily a result of Allegiant's
assessment of the value of Reliance's strong capital position and franchise,
its asset base within its area and the compatibility of the businesses of the
two organizations.
OPINION OF FINANCIAL ADVISOR TO ALLEGIANT
Allegiant has retained Stifel to act as its financial advisor in
connection with rendering a fairness opinion with respect to the Merger.
Stifel is an investment banking and securities firm with membership on all
principal U.S. securities exchanges. As part of its investment banking
activities, Stifel is regularly engaged in the valuation of businesses and
their securities in connection with merger transactions and other types of
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. Stifel has rendered its opinion that, based upon and subject to the
various considerations set forth therein, as of March 20, 1997 and the date of
this Joint Proxy Statement/Prospectus, the Merger Consideration to be paid for
each share of Reliance Common Stock resulted in consideration that was fair,
from a financial point of view, to the holders of Allegiant Common Stock.
Stifel is familiar with Allegiant, having acted as its financial advisor in
connection with, and having participated in, the negotiations leading to the
Merger Agreement. Representatives of Stifel participated in certain portions
of the meeting of the Allegiant Board on March 20, 1997 where the proposed
Merger was considered and certain officers of Allegiant were authorized to
enter into the Merger Agreement.
The full text of Stifel's opinion as of the date hereof, which
sets forth the assumptions made, matters considered and limitations of the
review undertaken, is attached as Annex A to this Joint Proxy
-------
Statement/Prospectus and is incorporated herein by reference, and should be
read in its entirety in connection with this Joint Proxy Statement/Prospectus.
The summary of the opinion of Stifel set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the full
text of such opinion. The March 20, 1997 oral opinion was substantially
identical to the written opinion attached hereto. In connection with its
written opinion dated as of the date of this Joint Proxy Statement/Prospectus,
Stifel performed procedures to update certain of its analyses and reviewed the
assumptions on which such analyses were based and the factors considered in
connection therewith. In updating its opinion, Stifel did not utilize any
methods of analysis in addition to those described.
STIFEL'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE
MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDERS OF ALLEGIANT COMMON
STOCK AS TO HOW SUCH HOLDERS OF ALLEGIANT COMMON STOCK SHOULD VOTE
AT THE ALLEGIANT SPECIAL MEETING OR AS TO ANY OTHER MATTER.
In connection with its opinion dated the date hereof, Stifel
reviewed and analyzed material bearing upon the financial and operating
condition of Allegiant and Reliance and material prepared in connection with
the Merger, including among other things: (a) the Merger Agreement and the
Stock Option Agreement; (b) publicly available reports filed with the
Commission by Allegiant and by Reliance; (c) certain other publicly available
financial and other information concerning Allegiant and Reliance and the
trading markets for the publicly traded securities of Allegiant and Reliance;
(d) certain other internal information, including projections for Allegiant
and Reliance, relating to Allegiant and Reliance prepared by the management of
Allegiant and Reliance and furnished to Stifel for purposes of its analysis;
and (e) publicly available information concerning certain other banks and bank
holding companies, savings banks and savings and loan associations, savings
and loan holding companies, the trading markets for their securities and the
nature and terms of certain other merger and acquisition transactions believed
relevant
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<PAGE> 45
to its inquiry. Stifel also met with certain officers and representatives of
Allegiant and Reliance to discuss the foregoing as well as other matters
relevant to its inquiry, including the past and current business operations,
results of regulatory examinations, financial condition and future prospects of
Allegiant and Reliance, both separately and on a combined basis. In addition,
Stifel reviewed the reported price and trading activity for Allegiant Common
Stock and Reliance Common Stock, compared certain financial and stock market
information for Allegiant and Reliance with similar information for certain
other companies, the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in the commercial
banking and thrift industries, and performed such other studies and analyses as
it considered appropriate. Stifel also took into account its assessment of
general economic, market and financial conditions and its experience in other
transactions, as well as its experience in securities valuations and knowledge
of the commercial banking and thrift industries generally.
In conducting its review and arriving at its opinion, Stifel
relied upon and assumed the accuracy and completeness of the financial and
other information provided to it or publicly available and did not attempt
independently to verify the same. Stifel has relied upon the managements of
Allegiant and Reliance as to the reasonableness and achievability of the
projections (and the assumptions and basis therefor) provided to Stifel, and
assumed that such projections, including, without limitation, projected cost
savings and operating synergies resulting from the Merger, reflected the best
currently available estimates and judgments of such Allegiant management and
Reliance representatives and that such projections would be realized in the
amounts and time periods estimated. Stifel also assumed, without independent
verification, that the aggregate allowances for loan losses for Allegiant and
Reliance were adequate to cover such losses. Stifel did not conduct physical
inspections of any of the properties or assets of Allegiant or Reliance, and
Stifel did not make or obtain, and was not furnished with, any evaluations or
appraisals of any properties, assets or liabilities of Allegiant and Reliance.
Stifel was retained by the Allegiant Board to express an opinion as to the
fairness, from a financial point of view, to the holders of Allegiant Common
Stock of the Merger Consideration.
In connection with rendering its opinion to the Allegiant Board,
Stifel performed a variety of financial analyses that are summarized below.
The summary of the presentations by Stifel to the Allegiant Board as set forth
herein does not purport to be a complete description of such presentations.
Stifel believes that its analysis and the summary set forth herein must be
considered as a whole and that selecting portions of such analyses and the
facts considered therein, without considering all factors and analyses, could
create an incomplete view of the analyses and processes underlying its
opinions. The preparation of a fairness opinion is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analysis or summary description. In its analyses, Stifel made numerous
assumptions with respect to industry performance, business and economic
conditions, and other matters, many of which are beyond the control of
Allegiant or Reliance. Any estimates contained in Stifel's analyses are not
necessarily indicative of actual future values or results, which may be
significantly more or less favorable than suggested by such estimates.
Estimates of values of companies do not purport to be appraisals or necessarily
reflect the actual prices at which companies or their securities actually may
be sold. No company or transaction utilized in Stifel's analyses was identical
to Allegiant or Reliance or the Merger. Accordingly, such analyses are not
based solely on arithmetic calculations; rather, they involve complex
considerations and judgments concerning differences in financial and operating
characteristics of the relevant companies, the timing of the relevant
transactions, and prospective buyer interest, as well as other factors that
could affect the public trading values of the company or companies to which
they are being compared. None of the analyses performed by Stifel was assigned
a greater significance by Stifel than any other.
The following is a summary of the financial analyses performed by
Stifel in connection with providing its oral opinion to the Allegiant Board on
March 20, 1997, which was updated by a written opinion dated as of July ,
1997.
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<PAGE> 46
Contribution Analysis. Stifel reviewed certain projected
financial information for the estimated twelve month period ending
December 31, 1997 including total assets, loans and total deposits and
compared the percentage contribution of Reliance to the pro forma combined
figures for Allegiant and Reliance and to the percentage of total outstanding
Allegiant Common Stock that would be owned by the Reliance stockholders as a
result of the Merger. The contribution analysis showed, among other things,
that Reliance would contribute 6.6% of combined total assets, 5.7% of combined
loans and 6.1% of combined total deposits, while receiving 21.7% of the
outstanding shares in the combined institution. Ownership figures are based
on an exchange ratio of 1.6741 shares of Allegiant Common Stock for each share
of Reliance Common Stock outstanding.
Accretion/Dilution Summary. Stifel reviewed certain
estimated future operating and financial information developed by both
Allegiant and Reliance for the pro forma combined entity resulting from the
Merger for the projected twelve month period ending December 31, 1998. Based
on this analysis, Stifel compared Allegiant's estimated future stand-alone per
share earnings with such projected figures for the pro forma combined entity
for this twelve month period. The Merger is projected to be dilutive on a
projected pro forma basis with respect to earnings per share. Stifel also
reviewed certain estimated future financial information developed by both
Allegiant and Reliance for the pro forma combined entity resulting from the
Merger for the period ending December 31, 1997. Based on this analysis,
Stifel compared Allegiant's stand-alone book value per share and tangible book
value with such calculated figures for the pro forma combined entity at
December 31, 1997. The Merger is accretive on a pro forma basis with respect
to book value per share, and tangible book value per share is not materially
changed as a result of the Merger.
Pro Forma Effect on Financial Condition. Stifel reviewed
certain estimated future operating and financial information developed by both
Allegiant and Reliance for the pro forma combined entity resulting from the
Merger for the projected twelve month period ending December 31, 1997. Based
on this analysis, Stifel compared certain of Allegiant's estimated future
stand-alone capital ratios with such projected figures for the pro forma
combined entity for this twelve month period. The Merger is projected to
improve certain of Allegiant's capital ratios, including: total equity to
total assets; tangible total equity to total assets; and parent company
long-term debt to equity.
Present Value Analysis. Applying discounted cash flow
analysis to the theoretical future earnings and dividends of Allegiant and
Reliance, Stifel compared the calculated value of a share of Allegiant Common
Stock to the calculated value of a share of the combined entity. The analysis
was based upon a range of assumed returns on assets, an assumed annual asset
growth rate, current dividend rates, a range of assumed price/earnings ratios
and a 15% discount rate. Stifel selected the range of terminal price/earnings
ratios on the basis of past and current trading multiples for Allegiant and
other commercial banks. Based on this analysis, Stifel concluded that the
Merger increases the calculated value of a share of Allegiant Common Stock if
the combined entity achieves returns on assets approximately twelve basis
points above the level achieved by Allegiant on a stand-alone basis.
Discounted Cash Flow Analysis. Based upon estimates provided
by management of the future earnings and the range of profit improvements for
the pro forma combined entity, Stifel estimated the present value of future
dividends available to be paid to Allegiant under various scenarios assuming
Reliance maintains a capital level of approximately 6.5% of assets. Based
upon management's estimated profitability ranges and a range of discount
rates, under Allegiant ownership, Reliance could theoretically produce future
cash flows to Allegiant with a present value ranging from $7.5 million to
$11.8 million.
Summary Analysis of Thrift Merger Transactions. Stifel
analyzed certain information relating to transactions in the thrift industry,
including median information for 88 acquisitions announced in the United
States between March 14, 1996 and March 14, 1997, as well as for 27 thrift
acquisitions announced in the Midwest Region of the United States during the
same time period. Stifel also analyzed 14 thrift acquisitions announced in
the Midwest Region of the United States between January 1, 1996 and March 14,
1997 involving sellers with total assets of less than $100 million. Stifel
also analyzed 38 thrift acquisitions announced in the United States between
January 1, 1995 and
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<PAGE> 47
March 14, 1997 involving sellers with equity to assets ratios in excess of 12%
and total assets of less than $500 million (the "Selected Transactions").
Stifel calculated the following ratios with respect to the Merger and the
Selected Transactions:
<TABLE>
<CAPTION>
Allegiant/ Selected Transactions
Reliance ---------------------
Ratios Merger Mean Median Minimum Maximum
- ------ ---------- ---- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Deal price per share/Book value 134.23% 134.41% 127.93% 104.29% 198.34%
Deal price per share/Tangible
book value 134.23 143.37% 128.40% 104.29% 381.86%
Adjusted deal price/6.50% equity 221.40 197.01% 189.06% 106.05% 317.41%
Deal price per share/Last 12
months earnings per share<F*> 23.98x 26.92x 23.17x 11.32x 65.50x
Deal price/Assets 30.94% 24.07% 23.62% 13.47% 39.05%
Premium over tangible book
value deposits 10.67% 8.83% 7.25% 1.25% 24.70%
Deal price/deposits 41.85% 32.15% 29.51% 19.24% 54.82%
<FN>
- ------------
<F*>Excludes non-recurring SAIF assessment
</TABLE>
No company or transaction used in the above analyses as a
comparison is identical to Reliance, Allegiant or the Merger. Accordingly, an
analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other facts that
could affect the public trading of the companies to which they are being
compared.
As described above, Stifel's opinion and presentation to the
Allegiant Board were among the many factors taken into consideration by the
Allegiant Board in making its determination to approve the Merger.
For Stifel's services in connection with the Merger, Allegiant has
agreed to pay Stifel $150,000 pursuant to the terms of an engagement letter
and has agreed to reimburse Stifel for certain out-of-pocket expenses.
Pursuant to the engagement letter, Allegiant has agreed to indemnify Stifel,
its affiliates and their respective partners, directors, officers, agents,
consultants, employees and controlling persons against certain liabilities,
including liabilities under the federal securities laws.
In the ordinary course of business, Stifel actively trades equity
securities of Allegiant and Reliance for its own account and for the accounts
of its customers and, accordingly, may at any time hold a long or short
position in such securities.
OPINION OF FINANCIAL ADVISOR TO RELIANCE
The Reliance Board retained RP Financial in July 1996 as its
financial advisor to evaluate strategic alternatives. Subsequently, if
appropriate, RP Financial would ascertain the interest in an acquisition of
Reliance by regional financial institutions, including those that previously
expressed interest in acquiring Reliance, negotiate financial terms with
prospective acquirors and render its opinion with respect to the Merger
Consideration from a financial point of view to Reliance's stockholders in the
event Reliance entered into an agreement to be acquired. In requesting RP
Financial's advice and opinion, the Reliance Board did not give any special
instructions to RP Financial, nor did it impose any limitations upon the scope
of the investigation that RP Financial might wish to conduct to enable it to
give its opinion. RP Financial has delivered to Reliance its written opinion
dated March 20, 1997, and its
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<PAGE> 48
updated opinion as of July --, 1997, to the effect that, based upon and subject
to the matters set forth therein, as of the date thereof, the Merger
Consideration is fair to the holders of Reliance Common Stock from a financial
point of view. The opinion of RP Financial is directed toward the consideration
to be received by Reliance stockholders and does not constitute a recommendation
to any Reliance stockholder to vote in favor of approval of the Merger
Agreement. A copy of the RP Financial opinion is set forth as Annex B to this
-------
Joint Proxy Statement/Prospectus and should be read in its entirety by
stockholders of Reliance. RP Financial has consented to the inclusion and
description of its written opinion in this Joint Proxy Statement/Prospectus.
RP Financial was selected by Reliance to act as its financial
advisor because of RP Financial's expertise in the valuation of businesses and
their securities for a variety of purposes, including its expertise in
connection with mergers and acquisitions of savings and loan associations,
savings banks, savings and loan holding companies, commercial banks and bank
holding companies. RP Financial had also previously provided the analysis as
to Reliance's pro forma market value in connection with RFSLA's conversion
from mutual to stock form. Pursuant to a letter agreement dated July 15,
1996, and executed by Reliance on July 30, 1996 (the "Engagement Letter"), RP
Financial estimates that it will receive from Reliance total professional fees
of approximately $50,000, of which $35,000 has been paid to date, plus
reimbursement of certain out-of-pocket expenses, for its services in
connection with the Merger. In addition, Reliance has agreed to indemnify and
hold harmless RP Financial, any affiliates of RP Financial, and the respective
members, managers, officers, agents and employees of RP Financial or their
successors and assigns who act for or on behalf of RP Financial in connection
with the services called for under this agreement from and against any and all
losses, claims, damages and liabilities (including, but not limited to, all
losses and expenses in connection with claims under the federal securities
laws) attributable to: (i) any untrue statement or alleged untrue statement
of a material fact contained in the financial statements or other information
furnished or otherwise provided by Reliance to RP Financial, either orally or
in writing; (ii) the omission or alleged omission of a material fact from the
financial statements or other information furnished or otherwise made
available by Reliance to RP Financial; or (iii) any action or omission to act
by Reliance, or Reliance's respective officers, directors, employees or agents
which action or omission is willful or negligent. Reliance will be under no
obligation to indemnify RP Financial hereunder if a court determines that RP
Financial was negligent or acted in bad faith with respect to any actions or
omissions of RP Financial related to a matter for which indemnification is
sought hereunder. In addition, if RP Financial is entitled to indemnification
from Reliance under the agreement and in connection therewith incurs legal
expenses in defending any legal action challenging the opinion of RP Financial
where RP Financial is not negligent or otherwise at fault or is found by a
court of law to be not negligent or otherwise at fault, Reliance will
indemnify RP Financial for all reasonable expenses.
In rendering its fairness opinion, RP Financial reviewed and
analyzed the following material, the most recent of which includes: (i) the
Merger Agreement including exhibits; (ii) financial and other information for
Reliance, all with regard to balance and off-balance sheet composition,
profitability, interest rates, volumes, maturities, trends, credit risk,
interest rate risk, liquidity risk and operations including (a) audited
financial statements for the fiscal years ended September 30, 1992 through
1996, (b) stockholder, regulatory and internal financial and other reports
through March 31, 1997, (c) the conversion prospectus, dated February 13,
1995, (d) the most recent proxy statement for Reliance and (e) Reliance's
management and Board comments regarding past and current business, operations,
financial condition and future prospects; and (iii) financial and other
information for Allegiant including (a) audited financial statements for the
fiscal years ended December 31, 1995 and 1996, incorporated in Allegiant's
Annual Report to Shareholders, (b) Quarterly Report on Form 10-Q for the three
months ended March 31, 1997, (c) regulatory and internal financial and other
reports through December 31, 1996, (d) Allegiant's Registration Statement on
Form S-3 as filed with the Commission on January 22, 1997 in conjunction with
Allegiant's rights offering and (e) Allegiant's management comments regarding
past and current business, operations, financial condition and future
prospects. Additionally, RP Financial reviewed certain information pertaining
to Allegiant's proposed branch
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acquisition and considered the resulting pro forma capital position and earnings
per share estimated by Allegiant.
In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning
Reliance as furnished by Reliance to RP Financial for review for purposes of
its opinion, as well as publicly-available information regarding other
financial institutions and economic data. Reliance did not restrict RP
Financial as to the material it was permitted to review. RP Financial did not
perform or obtain any independent appraisals or evaluations of the assets and
liabilities and potential and/or contingent liabilities of Reliance.
RP Financial expresses no opinion on matters of a legal,
regulatory, tax or accounting nature or the ability of the Merger as set forth
in the Merger Agreement to be consummated. In rendering its opinion, RP
Financial assumed that in the course of obtaining the necessary regulatory and
governmental approvals for the Merger, no restriction will be imposed on
Allegiant that would have a material adverse effect on the ability of the
Merger to be consummated as set forth in the Merger Agreement.
RP Financial's opinion was based solely upon the information
available to it and the economic, market and other circumstances as they
existed as of March 20, 1997 and July ---, 1997; events occurring after the
most recent date could materially affect the assumptions used in preparing the
opinion.
In connection with rendering its opinion dated March 20, 1997, and
updated as of July ---, 1997, RP Financial performed a variety of financial
analyses that are summarized below. Although the evaluation of the fairness,
from a financial point of view, of the Merger Consideration was to some extent
subjective based on the experience and judgment of RP Financial, and not
merely the result of mathematical analyses of financial data, RP Financial
relied, in part, on the financial analyses summarized below in its
determinations. Additionally, RP Financial considered the lower indications
of interest from regional financial institutions with the perceived ability to
consummate an acquisition of Reliance, and the potential tax impact of such
indicated consideration. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial analyses or summary
description. RP Financial believes its analyses must be considered as a whole
and that selecting portions of such analyses and factors considered by RP
Financial without considering all such analyses and factors could create an
incomplete view of the process underlying RP Financial's opinion. In its
analyses, RP Financial took into account its assessment of general business,
market, monetary, financial and economic conditions, industry performance and
other matters, many of which are beyond the control of Reliance and Allegiant,
as well as RP Financial's experience in securities valuation, its knowledge of
financial institutions and its experience in similar transactions. With
respect to the comparable transactions analysis described below, no public
company utilized as a comparison is identical to Reliance and such analyses
necessarily involve complex considerations and judgments concerning the
differences in financial and operating characteristics of the companies and
other factors that could affect the acquisition values of the companies
concerned. The analyses were prepared solely for purposes of RP Financial
providing its opinion as to the fairness of the Merger Consideration and do
not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Any estimates contained in RP
Financial's analyses are not necessarily indicative of future results of
values, which may be significantly more or less favorable than such estimates.
None of the analyses performed by RP Financial was assigned a greater
significance by RP Financial than any other.
Comparable Transactions Analysis. RP Financial compared the
Merger on the basis of stated multiples of reported earnings, tangible book
value, assets and core deposit premium of Reliance implied by the Merger
Consideration to be paid to the holders of Reliance Common Stock with the same
ratios in pending and completed acquisitions of: (a) financially comparable
publicly traded savings and loan associations, savings banks and savings and
loan holding companies; (b) financially comparable non-
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publicly traded savings and loan associations, savings banks and savings and
loan holding companies; and (c) Missouri savings and loan associations, savings
banks and savings and loan holding companies.
The financially comparable acquisitions of publicly traded
institutions completed from 1995 to date included 22 institutions with assets
up to $500 million. The acquisition pricing ratios of this group were:
(i) price/earnings ratios ranging from 12.79 to 38.53 times, with a median of
22.64 times; (ii) price/tangible book ratios ranging from 111 to 184 percent,
with a median of 129 percent; (iii) price/assets ratios ranging from 10.09 to
37.18 percent, with a median of 22.44 percent; and (iv) core deposit premiums
of 2.91 to 20.17 percent, with a median of 7.17 percent. The financially
comparable acquisitions of publicly traded institutions that are currently
pending included 2 institutions with assets of less than $100 million. The
acquisition pricing ratios of this group were: (i) price/earnings ratios
ranging from 24.56 to 43.62 times, with a median of 34.09 times;
(ii) price/tangible book ratios ranging from 115 to 161 percent, with a median
of 138 percent; (iii) price/assets ratios ranging from 19.49 to 26.83 percent,
with a median of 23.16 percent; and (iv) core deposit premiums of 4.22 to
13.84 percent, with a median of 9.03 percent.
The non-publicly-traded financially comparable acquisitions
currently pending or completed since 1995 included 20 institutions with assets
less than $140 million. The acquisition pricing ratios of this group were:
(i) price/earnings ratios ranging from 14.50 to 35.79 times, with a median of
24.07 times; (ii) price/tangible book ratios ranging from 96 to 170 percent,
with a median of 132 percent; (iii) price/assets ratios ranging from 10.52 to
35.63 percent, with a median of 20.44 percent; and (iv) core deposit premiums
of negative 2.35 to positive 16.14 percent, with a median of 7.12 percent.
The Missouri acquisitions currently pending or completed since
1995 included nine institutions with assets ranging from $41 million to $9.0
billion. The acquisition pricing ratios of this group were:
(i) price/earnings ratios ranging from 12.79 to 35.79 times, with a median of
23.17 times; (ii) price/tangible book ratios ranging from 117 to 210 percent,
with a median of 133 percent; (iii) price/assets ratios ranging from 8.90 to
27.61 percent, with a median of 14.56 percent; and (iv) core deposit premiums
of 2.07 to 18.49 percent, with a median of 8.12 percent.
In comparison to all four groups, Reliance was generally smaller,
better capitalized and possessed a comparable to stronger level of core
profitability as measured by core return on average assets and lower core
return on equity. Further, Reliance's acquisition pricing ratios for
price/earnings, price/tangible book, price/assets and core deposits premium
exceeds the median ratios of these four groups assuming the Average Allegiant
Price was equal to the last reported sale price of Allegiant Common Stock on the
Nasdaq on July 10, 1997 ($17.00). Specifically, the Merger Consideration of
$24.27, based on the Exchange Ratio and the Average Allegiant Price as of July
10, 1997 indicated the following pricing ratios for shares of Reliance Common
Stock, based on financial statements as of or for the 12 months ended
March 31, 1997: 43.34 times core earnings; 151.21 percent of reported tangible
book value; 33.29 percent of assets; and 14.84 percent premium on core
deposits.
No company or transaction used in this composite is identical to
Reliance or the Merger. Accordingly, an analysis of the results of the
foregoing is not mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies involved and other factors that could affect the public trading
values of the securities of the company or companies to which they are being
compared.
Discounted Cash Flow Analysis. Using a discounted cash flow
analysis, RP Financial estimated the present value of future dividends based
on Reliance's current payout ratio and potential growth in the payout ratio
and the present value of the sale-of-control value at the end of the fifth
year under alternative strategies, reflecting a range of multiples to tangible
book value. Alternative strategies analyzed included a base case scenario, a
stock repurchase scenario, a rapid growth scenario, a profit improvement
scenario, an earnings improvement scenario, an aggressive growth scenario and
a special dividend scenario. The price/tangible book multiples incorporated
in RP Financial's analysis were
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derived from the comparable transaction analysis discussed above. The dividend
streams and sale-of-control values were then discounted to present values based
on discount rates selected after examining the earnings capitalization rate of
publicly-traded thrifts, the Treasury yield curve (i.e., the risk-free rate) and
perceived investment risks in the Reliance Common Stock. The Merger
Consideration exceeds the upper end of the range of present values of the future
dividends and range of sale-of-control values derived from the individual
strategic scenarios. For example, the present values derived from the
individual strategic scenarios using a 12 percent discount rate and
price/tangible book value multiples of 1.15 times to 1.45 times implies a range
of values from roughly $13.00 to $16.50 per share.
Pro Forma Impact Analysis. RP Financial evaluated the
estimated financial impact of the Merger on the potential for increased
liquidity of Allegiant Common Stock, the enhanced ability to pursue growth
(including through acquisitions) and expanded market coverage. RP Financial's
analysis considered the financial condition and operations of Allegiant on a
stand-alone basis at March 31, 1997 versus the pro forma impact of the Merger.
RP Financial considered that the Merger is estimated to be accretive to
Allegiant's pro forma tangible book value per share and initially dilutive to
reported earnings per share before incorporating anticipated merger synergies
and leveraging Allegiant's increased tangible capital level. RP Financial
also considered Allegiant's pro forma cash earnings per share. RP Financial
considered the impact of the Merger on Allegiant's key financial
characteristics, per share data and resulting pricing ratios, as well as
Allegiant's longer run strategic objectives.
As described above, RP Financial's opinion and presentation to the
Reliance Board was one of many factors taken into consideration by the
Reliance Board in making its determination to approve the Merger Agreement.
Although the foregoing summary describes the material components of the
analyses presented by RP Financial to the Reliance Board on March 20, 1997 and
updated as of July __, 1997, in connection with its opinion as of those dates,
it does not purport to be a complete description of all the analyses performed
by RP Financial and is qualified by reference to the written opinion of RP
Financial set forth as Annex B hereto, which Reliance's stockholders are
-------
urged to read in its entirety.
CONDITIONS OF THE MERGER
The respective obligations of Allegiant and Reliance to consummate the
Merger are subject to the satisfaction of certain mutual conditions, including
the following:
(1) The Merger Agreement shall be adopted by the holders
of a majority of the outstanding shares of Reliance Common Stock
at the Reliance Annual Meeting and approved by the holders
of at least two-thirds of the outstanding shares of
Allegiant Common Stock at the Allegiant Special Meeting.
(2) The Merger Agreement and the transactions contemplated
therein shall have been approved by the Federal Reserve
Board, the OTS and any other federal and/or state
regulatory agency whose approval is required for the
consummation of the transactions contemplated therein, and
all waiting periods after such approvals required by law or
regulation shall have been satisfied.
(3) The Registration Statement of which this Joint
Proxy Statement/Prospectus is a part, registering shares of
Allegiant Common Stock to be issued in the Merger, shall
have been declared effective and not be subject to a stop
order or any threatened stop order.
(4) Neither Reliance nor Allegiant shall be subject
to any order, decree or injunction of a court or agency of
competent jurisdiction that enjoins or prohibits the
consummation of the Merger.
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<PAGE> 52
(5) At the time of filing the Registration Statement and
at the Closing Date, Reliance and Allegiant each shall have
received from Thompson Coburn an opinion reasonably
satisfactory in form and substance to them, to the effect
that the Merger will constitute a reorganization within the
meaning of Section 368 of the Code and to the effect that,
as a result of the Merger, except with respect to
fractional share interests and assuming that such Reliance
Common Stock is a capital asset in the hands of the holder
thereof at the Effective Time: (i) holders of Reliance
Common Stock who receive Allegiant Common Stock in the
Merger will not recognize gain or loss for federal income
tax purposes upon receipt of such stock; (ii) the basis of
such Allegiant Common Stock will equal the basis of the
Reliance Common Stock for which it is exchanged; and (iii)
the holding period of such Allegiant Common Stock will
include the holding period of the Reliance Common Stock for
which it is exchanged.
The obligation of Allegiant to consummate the Merger is subject to the
satisfaction, unless waived, of certain other conditions, including the
following:
(1) The representations and warranties of Reliance made
in the Merger Agreement shall be true and correct in all material
respects as of March 20, 1997 and as of the Effective Time
(as though made on and as of the Effective Time, except:
(i) to the extent such representations and warranties are
by their express provisions made as of a specific date;
(ii) where the facts which caused the failure of any
representations or warranty to be so true and correct have
not resulted, and are not likely to result, in a material
adverse effect on Reliance and its subsidiaries, taken as a
whole; and (iii) for the effect of transactions
contemplated by the Merger Agreement) and Allegiant shall
have received a certificate of the President of Reliance to
that effect.
(2) Reliance shall have performed in all material respects
all obligations required to be performed by Reliance under the
Merger Agreement prior to the Effective Time, and Allegiant
shall have received a certificate of the President of
Reliance to that effect.
(3) Reliance shall have obtained any and all material
permits, authorizations, consents, waivers and approvals required
for the lawful consummation by it of the Merger.
(4) Since March 20, 1997, there shall not have been any
event that would constitute or result in a material adverse
effect on Reliance and it subsidiaries, taken as a whole.
(5) Reliance shall have delivered to Allegiant an opinion
of Luse Lehman Gorman Pomerenk & Schick, counsel to Reliance,
dated as of the Closing Date, regarding certain legal
matters.
(6) Immediately prior to the Closing, the total stockholders'
equity account of Reliance, determined in accordance with generally
accepted accounting principles on a basis consistent with Reliance's
financial statements, shall be not less than $6,500,000, as reasonably
determined by BDO Seidman, LLP, Allegiant's independent public
accountant, in consultation with Michael Trokey & Company, P.C.,
Reliance's independent public accountant; provided, however, that for
purposes of calculating total stockholders' equity, Reliance's
expenses associated with the payout of severance payments to
Reliance's employees as a result of the Merger will not be counted.
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<PAGE> 53
(7) Allegiant shall have received an opinion of Stifel,
dated as of the date of the mailing of this Joint Proxy
Statement/Prospectus, to the effect that the consideration
to be paid by Allegiant to Reliance's stockholders as a
result of the Merger is fair from a financial point of
view, which opinion shall not have been withdrawn at or
prior to the Closing.
(8) Reliance shall have taken, and caused RFSLA to have
taken, all actions required by the Merger Agreement to (i) amend
the Charter of RFSLA to eliminate the ten percent ownership
limitation and (ii) to change the name of RFSLA to
Allegiant Bank, FSB.
(9) Reliance shall have taken, and caused RFSLA to have
taken, all actions required by the Merger Agreement to amend the
Bylaws of RFSLA to increase the size of the Board of
Directors of RFSLA by two members.
(10) Reliance shall have taken, and caused RFSLA to have
taken, all actions required by the Merger Agreement to withdraw
RFSLA from the Financial Institutions Retirement Plan (the
"Retirement Plan") prior to the Effective Time, including,
but not limited to, paying any and all amounts due to the
Retirement Plan upon such withdrawal, which amounts shall
not exceed $50,000 in the aggregate.
Reliance's obligation to consummate the Merger is subject to the
satisfaction, unless waived, of certain other conditions, including the
following:
(1) The representations and warranties of Allegiant made
in the Merger Agreement shall be true and correct in all material
respects as of March 20, 1997 and as of the Effective Time
(as though made on and as of the Effective Time, except:
(i) to the extent such representations and warranties are
by their express provisions made as of a specific date;
(ii) where the facts which caused the failure of any
representation or warranty to be so true and correct have
not resulted, and are not likely to result, in a material
adverse effect on Allegiant and its subsidiaries, taken as
a whole; and (iii) for the effect of transactions
contemplated by the Merger Agreement) and Reliance shall
have received a certificate of the President of Allegiant
to that effect.
(2) Allegiant shall have performed in all material respects
all obligations required to be performed by it under the Merger
Agreement prior to the Effective Time, and Reliance shall
have received a certificate from the President of Allegiant
to that effect.
(3) Allegiant shall have obtained any and all material
permits, authorizations, consents, waivers and approvals required
for the lawful consummation of the Merger.
(4) Since March 20, 1997, there shall not have been any
event that would constitute or result in a material adverse
effect on Allegiant and its subsidiaries, taken as a whole.
(5) Allegiant shall have delivered to Reliance an opinion
of Thompson Coburn, counsel to Allegiant, dated as of the
Closing Date regarding certain legal matters.
(6) The Average Allegiant Price shall be greater than or equal
to $11.35 per share.
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<PAGE> 54
(7) Reliance shall have received an opinion of RP
Financial, dated as of the date of the mailing of this Proxy
Statement, to the effect that the consideration to be
received by Reliance's stockholders in the Merger is fair
from a financial point of view, which opinion shall not
have been withdrawn at or prior to the Closing.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains extensive representations and warranties
by Reliance and Allegiant. These include, among other things, representations
and warranties of Reliance as to: (i) the organization and good standing of
it and its subsidiaries; (ii) its capital structure; (iii) its authority
relative to the execution and delivery of, and performance of its obligations
under, the Merger Agreement; (iv) the documents, including financial
statements and other reports, filed by Reliance with the applicable regulatory
authorities; (v) title to and condition of assets; (vi) real property; (vii)
taxes; (viii) the absence of material adverse changes since December 31, 1996;
(ix) loans, commitments and contracts; (x) the absence of material conflicts
between its obligations under the Merger Agreement and its charter documents
and material contracts to which it is a party or by which it is bound; (xi)
litigation and other proceedings; (xii) directors' and officers' insurance;
(xiii) compliance with laws; (xiv) labor; (xv) the existence of certain
material interests of certain persons; (xvi) allowance for loan and lease
losses and nonperforming assets; (xvii) employee benefit plans and related
matters; (xviii) the absence of undisclosed liabilities; (xix) the accuracy of
the information supplied by Reliance for inclusion in this Joint Proxy
Statement/Prospectus and related documents; (xx) the absence of registration
obligations with respect to Reliance Common Stock; (xxi) the absence of
actions that would prevent the contemplated transactions from qualifying as a
reorganization within the meaning of Section 368 of the Code; (xxii)
obligations to brokers and finders; and (xxiii) the absence of interest rate
management instruments.
Allegiant's representations and warranties include, among other things,
those as to: (i) its organization and good standing; (ii) its capital
structure; (iii) its authority relative to the execution and delivery of, and
performance of its obligations under, the Merger Agreement; (iv) the
documents, including financial statements and other reports, filed by
Allegiant with applicable regulatory authorities, (v) the absence of material
adverse changes since December 31, 1996; (vi) litigation; (vii) the accuracy
of the information supplied by Allegiant for inclusion in this Joint Proxy
Statement/Prospectus and related documents; (viii) the absence of obligations
to brokers and finders; (ix) the absence of actions that would prevent the
contemplated transactions from qualifying as a reorganization within the
meaning of Section 368 of the Code; and (x) obligations to brokers and
finders.
TERMINATION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after adoption by Reliance's stockholders,
(i) by mutual consent of the Allegiant Board and the Reliance Board, or (ii)
unilaterally by the Allegiant Board or the Reliance Board: (A) at any time
after December 31, 1997, if the Merger has not been consummated by such date
(provided that the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained in the Merger
Agreement); (B) if the Federal Reserve Board or any other federal and/or state
regulatory authority whose approval is required for consummation of the
transactions contemplated by the Merger Agreement shall have issued a final
nonappealable denial of such approval; (C) if the stockholders of Reliance
shall not have adopted the Merger Agreement at the Reliance Annual Meeting or
at any adjournment thereof; or (D) if the shareholders of Allegiant shall not
have approved the Merger Agreement at the Allegiant Special Meeting or at any
adjournment thereof; or (E) in the event of a material volitional breach by
the other party of any representation, warranty or agreement contained in the
Merger Agreement, which breach is not cured within 30 days after written
notice thereof is given to the breaching party by the nonbreaching party or is
not waived by the nonbreaching party during such period. The Allegiant Board
may terminate the Agreement in certain circumstances if the cost of taking
remedial or other corrective actions with respect to certain environmental
matters exceeds the sum of
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<PAGE> 55
$50,000, or if the cost of such actions cannot be reasonably estimated with any
reasonable degree of certainty. The Reliance Board may terminate the Agreement
if, due to an unsolicited acquisition proposal, it would be a breach of its
fiduciary duties to hold the Reliance Annual Meeting and to recommend that
Reliance's stockholders adopt the Merger Agreement or present the Merger
Agreement at the Reliance Annual Meeting. No assurance can be given that the
Merger will be consummated on or before December 31, 1997 or that Allegiant or
Reliance will not elect to terminate the Merger Agreement if the Merger has not
been consummated on or before such date.
In the event of termination of the Merger Agreement, it shall become
void and there shall be no liability on the part of any party or their
respective officers and directors except, that: (i) confidentiality and
indemnification obligations shall survive termination; (ii) Allegiant shall
pay all printing and mailing expenses and filing fees associated with the
Registration Statement, this Joint Proxy Statement/Prospectus and regulatory
applications; and (iii) in the case of termination due to continued material
breach after notice and opportunity to cure, the breaching party shall not be
relieved of liability to the nonbreaching party arising from the willful
nonperformance of any covenant in the Merger Agreement.
Any term, condition or provision of the Merger Agreement, including,
without limitation, the conditions to the consummation of the Merger and the
restrictions described under "--Business Pending the Merger," may be (i)
waived in writing at any time by the party that is, or whose shareholders or
stockholders, as the case may be, are, entitled to the benefits thereof, or
(ii) amended at any time by written agreement of the parties approved by or on
behalf of their respective Boards of Directors, whether before or after the
Allegiant Special Meeting or the Reliance Annual Meeting; provided, however,
that after adoption of the Merger Agreement by the stockholders of Reliance at
the Reliance Annual Meeting no such modification may (y) alter or change the
amount or kind of consideration to be received by the Reliance stockholders in
the Merger, or (z) adversely affect the tax treatment to Reliance stockholders
as a result of receiving the shares of Allegiant Common Stock in the Merger.
INDEMNIFICATION
Reliance and Allegiant have agreed to indemnify each other and the
officers, directors and controlling persons of each other against any losses,
claims, damages or liabilities to which any such party may become subject
under federal or state laws or regulations, to the extent that such loss,
claim, damage or liability is based primarily upon information furnished to
the party subject to such liability by the other party, or out of an omission
by such other party to state a necessary or material fact in the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part.
CLOSING DATE
The Merger shall become effective upon the later of (i) the issuance of
the certificate of merger by the Office of the Secretary of State of the State
of Missouri and (ii) the filing of a certificate of merger with the Office of
the Secretary of State of the State of Delaware. Unless otherwise mutually
agreed in writing by the parties, subject to the terms and conditions of the
Merger Agreement, the Effective Time shall occur on such date as Allegiant
shall notify Reliance in writing (such notice to be at least five business
days in advance of the Effective Time) but (i) not earlier than the
satisfaction of all conditions set forth in the Merger Agreement (the
"Approval Date") and (ii) not later than the first business day of the first
full calendar month commencing at least five business days after the Approval
Date.
The Closing shall take place at 10:00 a.m. Central Time, on the date
that the Effective Time occurs at the offices of Thompson Coburn, St. Louis,
Missouri, or at such other time and place as Allegiant and Reliance shall
agree.
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SURRENDER OF RELIANCE STOCK CERTIFICATES AND RECEIPT OF ALLEGIANT
COMMON STOCK
At the Effective Time, each outstanding share of Reliance Common Stock
will be converted into the right to receive 1.6741 shares of Allegiant Common
Stock, subject to possible adjustment. See "--General Description of the
Merger." Each holder of Reliance Common Stock, upon submission to the
Exchange Agent of a properly executed letter of transmittal and surrender to
the Exchange Agent of the stock certificate(s) formerly representing shares of
Reliance Common Stock, will be entitled to receive a stock certificate(s)
evidencing the shares of Allegiant Common Stock to which such stockholder is
entitled.
As soon as practicable following the Effective Time, the Exchange Agent
will mail to each Reliance stockholder of record as of the Effective Time
notification of the consummation of the Merger. The Exchange Agent will also
provide a letter of transmittal and instructions as to the procedure for the
surrender of the stock certificates evidencing the Reliance Common Stock and
the receipt of shares of Allegiant Common Stock. It will be the
responsibility of each holder of Reliance Common Stock to submit all
certificates formerly evidencing such holder's shares of Reliance Common Stock
to the Exchange Agent. No dividends or other distribution will be paid to a
former Reliance stockholder with respect to shares of Allegiant Common Stock
until such stockholder's properly completed letter of transmittal and stock
certificates formerly representing Reliance Common Stock, or, in lieu thereof,
such evidence of a lost, stolen or destroyed certificate and/or such insurance
bond as the Exchange Agent may reasonably require in accordance with customary
exchange practices, are delivered to the Exchange Agent. All dividends or
other distributions on the Allegiant Common Stock declared between the Closing
Date and the date of the surrender of a Reliance stock certificate will be
held for the benefit of the stockholder and will be paid to the stockholder,
without interest thereon, upon the surrender of such stock certificate(s) or
documentation and/or insurance bond in lieu thereof.
FRACTIONAL SHARES
No fractional shares of Allegiant Common Stock will be issued to the
former stockholders of Reliance in connection with the Merger. Each holder of
Reliance Common Stock who otherwise would have been entitled to receive a
fraction of a share of Allegiant Common Stock shall receive in lieu thereof
cash, without interest, in an amount equal to the holder's fractional share
interest multiplied by the closing stock price of Allegiant Common Stock on
the Nasdaq as reported in The Wall Street Journal, Midwest Edition, on the
Closing Date or if no closing stock price is reported on such date, then on
the immediately preceding date on which a closing price is so reported. No
such holder shall be entitled to dividends, voting rights or any other rights
in respect of any fractional share. Cash received by Reliance stockholders in
lieu of fractional shares may give rise to taxable income. See "Certain
Federal Income Tax Consequences of the Merger."
REGULATORY APPROVALS
In addition to the approval of the Merger Agreement by the Allegiant
shareholders and the Reliance stockholders, the obligations of the parties to
effect the Merger are subject to prior approval of the Federal Reserve Board
and the OTS. The Federal Reserve Board and the OTS granted their approvals on
June 12, 1997 and June 2, 1997, respectively.
Allegiant and Reliance are not aware of any other governmental approvals
or actions that are required for consummation of the Merger. Should any other
approval or action be required, it is presently contemplated that such
approval or action would be sought. There can be no assurance that any
necessary regulatory approvals or actions will be timely received or taken,
that no action will be brought challenging such approval or action or, if such
a challenge is brought, as to the result thereof, or that any
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<PAGE> 57
such approval or action will not be conditioned in a manner that would cause
the parties to abandon the Merger. See "Supervision and Regulation."
BUSINESS PENDING THE MERGER
The Merger Agreement provides that, during the period from March 20,
1997 to the Effective Time, Reliance will, and will cause its subsidiaries to,
conduct its business according to the ordinary and usual course consistent
with past practices and use its best efforts to maintain and preserve its
business organization, employees and advantageous business relationships and
retain the services of its officers and key employees.
Furthermore, from March 20, 1997 to the Effective Time, except as
provided in the Merger Agreement and to the extent required by law, regulation
or any Regulatory Authority, Reliance will not, and will not permit any of its
subsidiaries to, without the prior written consent of Allegiant:
(1) declare, set aside or pay any dividends or other
distributions, directly or indirectly, in respect of its capital stock
(other than dividends from any of Reliance's subsidiaries to Reliance),
except that Reliance may declare and pay regular quarterly dividends of
not more than $0.15 per share on the Reliance Common Stock; provided
however, that Reliance shall not declare or pay a quarterly dividend for
any quarter in which Reliance stockholders will be entitled to receive a
regular quarterly dividend on the shares of Allegiant Common Stock to be
issued in the Merger;
(2) except as specifically contemplated or required by the
Merger Agreement, enter into or amend any employment, severance or
similar agreement or arrangement with any director, officer or employee,
or materially modify any of Reliance's employee plans or grant any
salary or wage increase or materially increase any employee benefit
(including incentive or bonus payments), except: (i) normal individual
increases in compensation to employees consistent with past practice;
(ii) as required by law or contract; and (iii) such increases of which
Reliance notifies Allegiant in writing and which Allegiant does not
reasonably disapprove (in writing) within 10 days of the receipt of such
notice;
(3) authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into an agreement in principle
with respect to, any merger, consolidation or business combination
(other than the Merger), any acquisition of a material amount of assets
or securities, any disposition of a material amount of assets or
securities or any release or relinquishment of any material contract
rights; provided however, that the foregoing shall not apply to the
consideration of any inquiry, offer or proposal not solicited by
Reliance or any Reliance subsidiary, or any of their respective
officers, directors, stockholders, agents or affiliates which relates to
the possible sale or other disposition of Reliance Common Stock or the
common stock of any Reliance subsidiary or the possible sale or other
disposition of substantially all of Reliance's or any Reliance
subsidiary's assets to, or merger or consolidation with, another
corporation or association (an "Unsolicited Acquisition Proposal") if
and to the extent that the Reliance Board reasonably determines in good
faith, after consultation with its financial advisor and counsel to
Reliance, that failure to consider such Unsolicited Acquisition Proposal
could reasonably be expected to constitute a breach of its fiduciary
duties to the stockholders of Reliance; provided, further, however, that
Reliance shall give Allegiant prompt notice of any Unsolicited
Acquisition Proposal and keep Allegiant continually and promptly
informed regarding the substance thereof and the response of the
Reliance Board thereto;
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<PAGE> 58
(4) propose or adopt any amendments to its Certificate or
Articles of Incorporation or other charter document or Bylaws, other
than as set forth in the Merger Agreement;
(5) issue, sell, grant, confer or award any of its Equity
Securities (as defined in the Merger Agreement)(except shares of
Reliance Common Stock issued upon exercise of Reliance stock options
outstanding as of March 20, 1997) or effect any stock split or adjust,
combine, reclassify or otherwise change its capitalization as it existed
on March 20, 1997;
(6) purchase, redeem, retire, repurchase or exchange, or
otherwise acquire or dispose of, directly or indirectly, any Equity
Securities, whether pursuant to the terms of such Equity Securities or
otherwise;
(7) (i) without first consulting with and obtaining the written
consent of Allegiant (which consent shall not be unreasonably withheld),
cause or permit RFSLA to enter into, renew or increase any loan or
credit commitment (including stand-by letters of credit) to, or invest
or agree to invest in any person or entity or modify any of the material
provisions or renew or otherwise extend the maturity date of any
existing loan or credit commitment (collectively, "Lend to") in an
amount equal to or in excess of $75,000 or in any amount which, when
aggregated with any and all loans or credit commitments of Reliance and
Reliance's subsidiaries to such person or entity, would be equal to or
in excess of $100,000; provided, however, that Reliance or any of
Reliance's subsidiaries may make any such loan or credit commitment in
the event (A) Reliance or any Reliance subsidiary has delivered to
Allegiant or its designated representative a notice of its intention to
make such loan and such information as Allegiant or its designated
representative may reasonably require in respect thereof and (B)
Allegiant or its designated representative shall not have reasonably
objected to such loan by giving written or facsimile notice of such
objection within five (5) business days following the delivery to
Allegiant or its designated representative of the notice of intention
and information as aforesaid;
(8) directly or indirectly (including through its officers,
directors, employees or other representatives) (i) initiate, solicit or
encourage any discussions, inquiries or proposals with any third party
(other than Allegiant) relating to the disposition of any significant
portion of the business or assets of Reliance or any of Reliance's
subsidiaries or the acquisition of Equity Securities of Reliance or any
of Reliance's subsidiaries or the merger of Reliance or any of
Reliance's subsidiaries with any person (other than Allegiant) or any
similar transaction (each such transaction being referred to herein as
an "Acquisition Transaction"), or (ii) provide any such person with
nonpublic information or assistance or negotiate with any such person
with respect to an Acquisition Transaction, and Reliance shall promptly
notify Allegiant orally of all the relevant details, including, without
limitation, the identities of inquiring parties, relating to all
inquiries, indications of interest and proposals which it may receive
with respect to any Acquisition Transaction; provided, however, the
foregoing forbearances shall not apply to the consideration of an
Unsolicited Acquisition Proposal if and to the extent that the Reliance
Board reasonably determines in good faith, after consultation with its
financial advisors and counsel to Reliance, that failure to consider
such Unsolicited Acquisition Proposal could reasonably be expected to
constitute a breach of its fiduciary duties to the stockholders of
Reliance;
(9) take any action that would (A) materially impede or delay
the consummation of the transactions contemplated by the Merger
Agreement or the ability
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<PAGE> 59
of Allegiant or Reliance to obtain any approval of any Regulatory
Authority required for the transactions contemplated by the Merger
Agreement or to perform its covenants and agreements under the Merger
Agreement or (B) prevent or impede the transactions contemplated by the
Merger Agreement from qualifying as a reorganization within the meaning
of Section 368 of the Code; provided, however, that the foregoing shall
not apply to the consideration of an Unsolicited Acquisition Proposal if
and to the extent that the Reliance Board reasonably determines in good
faith, after consultation with its financial advisors and counsel to
Reliance, that failure to consider such Unsolicited Acquisition Proposal
could reasonably be expected to constitute a breach of its fiduciary
duties to the stockholders of Reliance;
(10) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money or assume,
guarantee, endorse or otherwise as an accommodation become responsible
or liable for the obligations of any other individual, corporation or
other entity;
(11) materially restructure or change its investment securities
portfolio, through purchases, sales or otherwise, or the manner in which
the portfolio is classified or reported, or execute individual
investment transactions of greater than $250,000 for U.S. Treasury or
Federal Agency Securities and $100,000 for all other investment
instruments;
(12) agree in writing or otherwise to take any of the foregoing
actions or engage in any activity, enter into any transaction or
intentionally take or omit to take any other action which would make any
of the representations and warranties of Reliance in the Merger
Agreement untrue or incorrect in any material respect if made anew after
engaging in such activity, entering into such transaction, or taking or
omitting such other act; or
(13) enter into, increase or renew any loan or credit commitment
(including standby letters of credit) to any executive officer or
director of Reliance or any of Reliance's subsidiaries, any holder of
10% or more of the outstanding shares of Reliance Common Stock, or any
entity controlled, directly or indirectly, by any of the foregoing or
engage in any transaction with any of the foregoing which is of the type
or nature sought to be regulated in 12 U.S.C. Section 371c and 12 U.S.C.
Section 371c-1, without first obtaining the prior written consent of
Allegiant, which consent shall not be unreasonably withheld. For
purposes of this subsection (m), "control" shall have the meaning
associated with that term under 12 U.S.C. Section 371c.
The Merger Agreement also provides that during the period from March 20,
1997 to the Effective Time, Allegiant shall not, and shall not permit any of
its subsidiaries to, without the prior written consent of Reliance, agree in
writing or otherwise engage in any activity, enter into any transaction or
take or omit to take any other action:
(1) that would (i) materially impede or delay the consummation
of the transactions contemplated by the Merger Agreement or the ability
of Allegiant or Reliance to obtain any approval of any Regulatory
Authority required for the transactions contemplated by the Merger
Agreement or to perform its covenants and agreements under the Merger
Agreement or (ii) prevent or impede the transactions contemplated hereby
from qualifying as a reorganization within the meaning of Section 368 of
the Code; or
(2) which would make any of the representations and warranties
of Allegiant in the Merger Agreement untrue or incorrect in any material
respect if made anew after
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<PAGE> 60
engaging in such activity, entering into such transaction, or taking or
omitting such other action.
ACCOUNTING TREATMENT
It is expected that the purchase method of accounting will be used to
reflect the Merger upon consummation. As required by generally accepted
accounting principles, under purchase accounting, the assets and liabilities
of Reliance as of the Closing Date will be recorded at their respective fair
market values and added to those of Allegiant. Financial statements of
Allegiant issued after consummation of the Merger would reflect such values.
Financial statements of Allegiant issued before consummation of the Merger
would not be restated to reflect the acquired company's historical financial
position or results of operations. The unaudited pro forma financial
information contained in this Joint Prospectus/Proxy Statement has been
prepared using the purchase accounting basis to account for the Merger. See
"The Branch Acquisition -- Unaudited Pro Forma Financial Information."
EFFECT ON STOCK OPTION AND EMPLOYEE BENEFIT PLANS
At the Effective Time, all rights with respect to Reliance Common Stock
pursuant to Reliance employee stock options that are outstanding at the
Effective Time, whether or not then exercisable, will be converted into and
become rights with respect to Allegiant Common Stock, and Allegiant will
assume all Reliance employee stock options in accordance with the terms of the
Reliance Stock Plan under which it was issued and the Reliance Employee Stock
Option Agreement by which it is evidenced. From and after the Effective Time:
(i) each Reliance employee stock option assumed by Allegiant will be exercised
solely for shares of Allegiant Common Stock; (ii) the number of shares of
Allegiant Common Stock subject to each Reliance employee stock option will be
equal to the number of shares of Reliance Common Stock subject to such
Reliance employee stock option immediately prior to the Effective Time
multiplied by the Exchange Ratio; and (iii) the per share exercise price under
each Reliance employee stock option will be adjusted by dividing the per share
exercise price under such Reliance employee stock option by the Exchange Ratio
and rounding up to the nearest cent; provided, however, that the terms of each
Reliance employee stock option shall, in accordance with its terms, be subject
to further adjustment as appropriate to reflect any stock split, stock
dividend, recapitalization, exchange of shares or other similar transaction
subsequent to the Effective Time. It is intended that the foregoing will be
undertaken in a manner that will not constitute a "modification" as defined in
the Code, as to any Reliance employee stock option that is an "incentive stock
option" as defined under the Code.
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<PAGE> 61
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is based upon an opinion of Thompson Coburn,
counsel to Allegiant ("Counsel"), and except as otherwise indicated, reflects
Counsel's opinion. The discussion is a general summary of the material United
States federal income tax ("federal income tax") consequences of the Merger to
certain Reliance stockholders and does not purport to be a complete analysis
or listing of all potential tax considerations or consequences relevant to a
decision whether to vote for adoption of the Merger. The discussion does not
address all aspects of federal income taxation that may be applicable to
Reliance stockholders in light of their status or personal investment
circumstances, nor does it address the federal income tax consequences of the
Merger that are applicable to Reliance stockholders subject to special federal
income tax treatment including (without limitation) foreign persons, insurance
companies, tax-exempt entities, retirement plans, dealers in securities,
persons who acquired their Reliance Common Stock pursuant to the exercise of
employee stock options or otherwise as compensation, and persons who hold
their Reliance Common Stock as part of a "straddle", "hedge" or "conversion
transaction." In addition, the discussion does not address the effect of any
applicable state, local or foreign tax laws, or the effect of any federal tax
laws other than those pertaining to the federal income tax. AS A RESULT,
EACH RELIANCE STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER
TO SUCH STOCKHOLDER. The discussion assumes that shares of Reliance
Common Stock are held as capital assets (within the meaning of Section 1221 of
the Code) at the Effective Time.
Reliance has received an opinion from Counsel to the effect that,
assuming the Merger occurs in accordance with the Merger Agreement, the Merger
will constitute a "reorganization" for federal income tax purposes under
Section 368(a)(1) of the Code, with the following federal income tax
consequences:
(1) Reliance stockholders will recognize no gain or loss as a
result of the exchange of their Reliance Common Stock solely for shares
of Allegiant Common Stock pursuant to the Merger, except with respect to
cash received in lieu of fractional shares, if any, as described in
paragraph (4) below.
(2) The aggregate adjusted tax basis of the shares of Allegiant
Common Stock received by each Reliance stockholder in the Merger
(including any fractional share of Allegiant Common Stock deemed to be
received, as described in paragraph (4) below) will be equal to the
aggregate adjusted tax basis of the shares of Reliance Common Stock
surrendered.
(3) The holding period of the shares of Allegiant Common Stock
received by each Reliance stockholder in the Merger (including any
fractional share of Allegiant Common Stock deemed to be received, as
described in paragraph (4) below) will include the holding period of the
shares of Reliance Common Stock exchanged therefor.
(4) A Reliance stockholder who receives cash in the Merger in
lieu of a fractional share of Allegiant Common Stock will be treated as
if the fractional share had been received by the stockholder in the
Merger and then redeemed by Allegiant in return for the cash. The
receipt of such cash will cause the recipient to recognize capital gain
or loss equal to the difference between the amount of cash received and
the portion of such holder's adjusted tax basis in the shares of
Allegiant Common Stock allocable to the fractional share.
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<PAGE> 62
Each Reliance stockholder should consult his or her own tax advisor as
to the determination of basis and holding period in any one share of Allegiant
Common Stock, because several methods of determination may be available. In
this regard, the transmittal letter to be received by each Reliance
stockholder from the Exchange Agent after the Closing Date permits each
Reliance stockholder to designate the number of Allegiant Common Stock
certificates he or she wishes to receive, in order to permit tracing of basis
and holding period. See "Terms of the Proposed Merger -- General Description
of the Merger."
Counsel's opinion is subject to the conditions and assumptions stated
therein and relies upon various representations made by Allegiant, Reliance
and certain stockholders of Reliance. If any of these representations or
assumptions is inaccurate, the tax consequences of the Merger could differ
from those described herein. Counsel's opinion is also based upon the Code,
regulations proposed or promulgated thereunder, judicial precedent relating
thereto and current administrative rulings and practice, all of which are
subject to change. Any such change, which may or may not be retroactive,
could alter the tax consequences discussed herein. The opinion is available
without charge upon written request to Christy Siburt, Investor Relations,
Allegiant Bancorp, Inc., 7801 Forsyth Boulevard, St. Louis, Missouri 63105.
The receipt of Counsel's opinion again as of the Closing Date is a condition
to the consummation of the Merger. An opinion of counsel, unlike a private
letter ruling from the Service, has no binding effect on the Service. The
Service could take a position contrary to Counsel's opinion and, if the matter
were litigated, a court may reach a decision contrary to the opinion. Neither
Allegiant nor Reliance has requested an advance ruling as to the federal
income tax consequences of the Merger, and the Service is not expected to
issue such a ruling.
THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER TO CERTAIN RELIANCE STOCKHOLDERS AND IS INCLUDED
FOR GENERAL INFORMATION ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE INTO
ACCOUNT THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH RELIANCE STOCKHOLDER'S
TAX STATUS AND ATTRIBUTES. AS A RESULT, THE FEDERAL INCOME TAX CONSEQUENCES
ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT APPLY TO EACH RELIANCE
STOCKHOLDER. ACCORDINGLY, EACH RELIANCE STOCKHOLDER SHOULD CONSULT HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX
LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND OTHER TAX LAWS.
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<PAGE> 63
APPRAISAL RIGHTS OF STOCKHOLDERS OF RELIANCE
Each stockholder of Reliance has the right to demand the appraised value
of his or her shares of Reliance Common Stock in cash if the stockholder
follows the procedures set forth under Section 262 of the DGCL (the text of
which is reprinted in Annex C to this Joint Proxy Statement/Prospectus).
-------
Under the DGCL, a stockholder of Reliance may demand an appraisal of the
fair value (as determined pursuant to Section 262 of the DGCL) of his or her
shares of Reliance Common Stock and payment of such fair value to the
stockholder in cash if the Merger is consummated. Allegiant, as the surviving
corporation, will pay to such stockholder the fair value of such stockholder's
shares of Reliance Common Stock if such Reliance stockholder: (a) files with
Reliance, prior to the vote at the Reliance Annual Meeting, a written demand
for an appraisal of the fair value of his or her shares; (b) does not vote in
favor of the Merger; (c) continues to hold his or her shares through the
Effective Time; and (d) does not withdraw the demand for appraisal within a
---
period of 60 days after the Closing Date. Such demand shall be sufficient if
it reasonably informs Reliance of the identity of the stockholder and that the
stockholder intends thereby to demand an appraisal of his or her shares. A
VOTE AGAINST THE ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY WILL NOT, BY ITSELF, BE REGARDED
AS A WRITTEN OBJECTION FOR PURPOSES OF ASSERTING APPRAISAL RIGHTS.
A VOTE IN FAVOR OF THE ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY WILL CONSTITUTE A WAIVER OF A
STOCKHOLDER'S APPRAISAL RIGHTS.
All written demands for appraisal should be addressed to: Reliance
Financial, Inc., 8930 Gravois Avenue, St. Louis, Missouri 63123, Attention:
John E. Bowman, before the taking of the vote concerning the Merger Agreement
at the Reliance Annual Meeting, and should be executed by, or on behalf of,
the holder of record.
To be effective, a demand for appraisal must be executed by or for the
stockholder of record who held such shares on the date of making such demand,
and who continuously holds such shares through the Effective Time, fully and
correctly, as such stockholder's name appears on his or her stock
certificate(s) and cannot be made by the beneficial owner if he or she does
not also hold the shares of record. The beneficial holder must, in such case,
have the registered owner submit the required demand in respect of such
shares.
If Reliance Common Stock is owned of record in a fiduciary capacity, as
by a trustee, guardian or custodian, execution of a demand for appraisal
should be made in such capacity. If Reliance Common Stock is owned of record
by more than one person, as in a joint tenancy or tenancy in common, such
demand must be executed by or for all joint owners. An authorized agent,
including one of two or more joint owners may execute the demand for appraisal
for a stockholder of record; however, the agent must identify the record owner
or owners and expressly disclose the fact that, in executing the demand, he or
she is acting as agent for the record owner. A record owner, such as a
broker, who holds Reliance Common Stock as nominee for others may exercise his
or her right of appraisal with respect to the shares held for one or more
beneficial owners, while not exercising such right for other beneficial
owners. In such case, the written demand should set forth the number of
shares as to which the record owner dissents. Where no number of shares is
expressly mentioned, the demand will be presumed to cover all shares of
Reliance Common Stock in the name of such record owner.
If at any time within the 60-day period after the Effective Time, a
stockholder of Reliance withdraws his or her demand for appraisal, then he or
she will be deemed to have accepted the terms offered pursuant to the Merger.
After the 60-day withdrawal period, a Reliance stockholder may withdraw only
with the consent of Allegiant. Within 10 days after the Effective Time,
Allegiant (as the
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<PAGE> 64
surviving corporation in the Merger) must give written notice that the Merger
has become effective to each stockholder who so filed a written demand for
appraisal and who did not vote in favor of the Merger Agreement. Within 120
days after the Effective Time, any stockholder of Reliance who has validly
perfected appraisal rights shall be entitled, upon written request, to receive
from Allegiant a statement setting forth the aggregate number of shares of
Reliance Common Stock not voted in favor of the Merger with respect to which
demands for appraisal have been received and the aggregate number of holders of
such shares. Allegiant shall respond to such request within 10 days after
receipt or within 10 days after the date of the Reliance Annual Meeting,
whichever is later. Within 120 days after the Effective Time, Allegiant or any
such stockholder seeking appraisal may file a petition in the Delaware Court of
Chancery demanding a determination of the value of the Reliance Common Stock
held by all stockholders seeking appraisal. The DGCL contemplates a single
proceeding in the Delaware Court of Chancery that will apply to all
stockholders of Reliance who have perfected their appraisal rights, whether or
not such stockholders have individually filed a petition seeking appraisal with
the Court of Chancery. If neither Allegiant nor any of the stockholders of
Reliance who have perfected their appraisal rights have filed a petition in the
Court Chancery within the 120-day period following the Effective Time, such
appraisal rights will be waived, and the stockholders will be entitled to
receive, upon surrender of the certificates evidencing their shares of Reliance
Common Stock, 1.6741 shares of Allegiant Common Stock, subject to adjustment as
set forth in the Merger Agreement. Allegiant has no present intention to file
such a petition with the Delaware Court of Chancery.
If a petition for appraisal is filed by a stockholder, a copy of the
petition shall be served on Allegiant, which then will have 20 days after such
service to file with the Register of the Delaware Court of Chancery a verified
list of Reliance stockholders who have perfected appraisal rights but have not
yet reached agreement as to value with Allegiant. If the petition is filed by
Allegiant, such verified list must accompany the filing. The Register, if so
ordered by the Court, will give notice of the time and place fixed for hearing
of the petition, by registered or certified mail, to Allegiant and each
stockholder named on the verified list. Such notice shall also be published
at least one week prior to the hearing in one or more newspapers of general
circulation in Wilmington, Delaware and in such other publications as directed
by the Court.
The Court of Chancery shall conduct a hearing on the petition for
appraisal at which the Court will determine the stockholders of Reliance who
have properly perfected appraisal rights with respect to their shares and may
require such stockholders to submit the certificates evidencing their Reliance
Common Stock to the Register of the Court for notation of the pendency of the
appraisal proceeding thereon. Failure to comply with such direction may
result in dismissal of the proceeding as to such non-complying stockholder.
After determining the stockholders entitled to appraisal, the Court, after
taking into account all relevant factors, will appraise the shares,
determining their fair value exclusive of any element of value arising from
the accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
Upon application of either Allegiant or any of the stockholders entitled to
appraisal, the Court may permit discovery or other pretrial proceedings and
may proceed to trial prior to a final determination of the stockholders
entitled to appraisal. Any stockholder whose name appears on the verified
list submitted by Allegiant may participate in the appraisal proceedings until
it is finally determined by the Court that such stockholder is not entitled to
appraisal rights. The judgment shall be payable only upon and simultaneously
with the surrender to Allegiant of the certificate(s) representing such shares
of Reliance Common Stock. Upon payment of the judgment, the stockholder who
sought appraisal shall cease to have any interest in such shares or in
Reliance and will have no right to receive dividends in such stock or exercise
other rights of stock ownership.
Section 262 provides fair value is to be "exclusive of any element of
value arising from the accomplishment or expectation of the merger." The
Delaware Supreme Court has construed Section 262 to mean that "elements of
future value, including the nature of the enterprise, which are known or
susceptible of proof as of the date of the merger and are not the product of
speculation, may be
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<PAGE> 65
considered." Stockholders who are considering seeking an appraisal should bear
in mind that the fair value of their shares of Reliance Common Stock determined
under Section 262 could be more than, the same as or less than the
consideration they are to receive pursuant to the Merger Agreement if they do
not seek appraisal of their shares of Reliance Common Stock, and that an
opinion of an investment banking firm as to fairness is not an opinion as to
fair value under Section 262.
Costs of the appraisal proceeding may be assessed against the parties
thereto (i.e., Allegiant and the stockholders participating in the appraisal
proceeding) by the Court as the Court deems equitable in the circumstances.
Upon the application of any stockholder, the Court may determine the amount of
interest, if any, to be paid upon the value of the stock of stockholders
entitled thereto. Upon application of a stockholder, the Court may order all
or a portion of the expenses incurred by any stockholder in connection with
the appraisal proceeding, including, without limitation, reasonable attorneys'
fees and the fees and expenses of experts, to be charged pro rata against the
value of all shares entitled to appraisal. Any stockholder who has demanded
appraisal rights will not, after the Effective Time, be entitled to vote the
stock subject to such demand for any purpose or to receive payment of
dividends or any other distribution with respect to such shares (other than
dividends or distributions, if any, payable to holders of record as of a
record date prior to the Effective Time) or to receive the payment of the
consideration provided for in the Merger Agreement. However, if no petition
for an appraisal is filed within 120 days after the Effective Time or if such
stockholder delivers to Allegiant a written withdrawal of his demand for an
appraisal and an acceptance of the Merger, either within 60 days after the
Effective Time or thereafter with the written approval of Allegiant, then the
right of such stockholder to an appraisal will cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery will be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just.
FAILURE TO COMPLY STRICTLY WITH THESE PROCEDURES WILL CAUSE
THE STOCKHOLDER TO LOSE HIS OR HER APPRAISAL RIGHTS.
CONSEQUENTLY, ANY STOCKHOLDER WHO DESIRES TO EXERCISE HIS OR HER
APPRAISAL RIGHTS IS URGED TO CONSULT A LEGAL ADVISOR BEFORE
ATTEMPTING TO EXERCISE SUCH RIGHTS.
THE PRECEDING DISCUSSION IS A SUMMARY OF THE PROVISIONS
REGARDING APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS
ENTIRETY BY THE TEXT OF SECTION 262 OF THE DGCL WHICH IS ATTACHED
HERETO AS ANNEX C. RELIANCE STOCKHOLDERS WHO ARE INTERESTED IN
-------
PERFECTING APPRAISAL RIGHTS PURSUANT TO THE DGCL IN CONNECTION
WITH THE MERGER SHOULD CONSULT WITH THEIR COUNSEL FOR ADVICE AS TO
THE PROCEDURES REQUIRED TO BE FOLLOWED.
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<PAGE> 66
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of Allegiant and Reliance and the corresponding pro
forma and pro forma equivalent per share amounts giving effect to the proposed
Merger. Pro forma financial information has been prepared giving effect to
the Merger using purchase accounting. The data presented is based upon the
consolidated financial statements and related notes of Allegiant and the
consolidated financial statements and related notes of Reliance included in
this Joint Proxy Statement/Prospectus. This information should be read in
conjunction with such historical and pro forma financial statements and
related notes thereto. This data is not necessarily indicative of the results
of the future operations of the combined organization or the actual results
that would have occurred if the Merger had been consummated prior to the
periods indicated.
<TABLE>
<CAPTION>
ALLEGIANT/
RELIANCE RELIANCE
ALLEGIANT RELIANCE PRO FORMA PRO FORMA
REPORTED REPORTED<F1> COMBINED<F2> EQUIVALENT<F3>
--------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
BOOK VALUE PER SHARE:
At March 31, 1997 $ 7.79 $16.05 $10.28 $14.68
At December 31, 1996 7.22 16.00 12.46 17.80
CASH DIVIDENDS DECLARED PER SHARE:
Three months ended March 31, 1997 $ 0.03 $ 0.15 $ 0.03 $ 0.03
Year ended December 31, 1996 0.09 0.60 0.09 0.09
EARNINGS PER SHARE BEFORE CHANGE
IN ACCOUNTING PRINCIPLE:
Three months ended March 31, 1997 $ 0.23 $ 0.09 $ 0.21 $ 0.30
Year ended December 31, 1996 0.76 0.40 0.71 1.01
MARKET PRICE PER SHARE:
At March 20, 1997<F4> $12.50 $15.75 $ n/a $17.85
At July 10, 1997<F4> 17.00 21.00 n/a 24.27
<FN>
- ------------
<F1> Reliance has a September 30 fiscal year end. For purposes of this
table, Reliance information at or for the year ended September 30, 1996
and the three months ended December 31, 1996 is reported as
December 31, 1996 and March 31, 1997 data, respectively.
<F2> Includes the effect of pro forma adjustments for Reliance.
<F3> Based on the pro forma combined per share amounts multiplied by the
Exchange Ratio and assuming that all issued and outstanding Reliance
Common Stock is converted into Allegiant Common Stock and that no cash
is paid for fractional shares. For purposes of this table, the
Exchange Ratio is deemed to be 1.4279, based on the assumption that the
Average Allegiant Price is equal to the market price per share of
Allegiant Common Stock on July 10, 1997 ($17.00).
<F4> The market price of Allegiant Common Stock as of March 20, 1997, the
last trading day preceding the public announcement of the Merger, and
as of July 10, 1997, the latest available date prior to the
distribution of the this Joint Proxy Statement/Prospectus, is based on
the last sale price as reported by Nasdaq. The market price of
Reliance Common Stock disclosed as of March 20, 1997, the last trading
day preceding the public announcement of the Merger, and as of July 10,
1997, the latest available date prior to the distribution of the this
Joint Proxy Statement/Prospectus, is based on the last sale price as
reported by the National Quotation Bureau, Inc. Equivalent pro forma
market values per share of Reliance Common Stock represent the
historical market values per share of Allegiant Common Stock multiplied
by the Exchange Ratio, rounded down to the nearest one-sixteenth.
</TABLE>
- 61 -
<PAGE> 67
INFORMATION REGARDING ALLEGIANT
GENERAL
Allegiant is a bank holding company that owns all of the capital
stock of the Bank. The Bank provides personal and commercial banking and
related financial services from seven locations in the St. Louis SMSA, the
16th largest metropolitan area in the United States, and two locations in
Northeast Missouri. Allegiant Mortgage Company, a wholly-owned subsidiary of
the Bank, offers residential loans primarily to customers in the St. Louis
SMSA. Edge Mortgage Services, Inc., a recently organized subsidiary of
Allegiant, offers residential loans to customers in the St. Louis SMSA who do
not qualify under standard mortgage loan criteria.
Allegiant was organized in May 1989 and acquired Allegiant State
Bank at that time. Allegiant acquired Allegiant Bank in 1990. Effective
January 1995, Allegiant State Bank merged into Allegiant Bank.
THE BANK
The Bank's main office is located in the City of St. Louis,
Missouri at 4323 North Grand Boulevard. The Bank's other six locations in the
St. Louis SMSA are in Hazelwood, Maryland Heights, Clayton, Des Peres,
Mehlville and St. Peters. In addition, the Bank's Operations Center is
located in Maryland Heights. The Northeast Missouri locations consist of a
full-service facility located in Kahoka, Missouri and a predominantly
retail-oriented facility located in a supermarket in Palmyra, Missouri.
Since acquiring Allegiant State Bank in 1989, Allegiant has
focused on controlled growth by meeting customers' needs for responsive
service. Allegiant has sought to operate a limited number of offices with
relatively large deposit bases, make commercial loans (which tend to be larger
in size than retail loans), employ a capable staff and implement modern data
processing and operational systems to increase productivity.
The Bank's core deposit base generally has been enhanced through
advertising and deposit promotions. The Bank has not used brokered deposits
as a source of funds. Allegiant has sought to increase its earning assets by
expanding its mortgage lending activities. Allegiant anticipates that its
mortgage lending activities will be a key element in its strategy for
increasing the level of its earning assets.
MARKETING
Allegiant's marketing approach entails a word-of-mouth,
referral-based strategy utilizing Allegiant, Bank and Banking Center
directors' personal contacts and networks. Most of the Bank's new commercial
banking business consists of referrals generated from existing customers and
this "Allegiant" network. The Bank's Board of Directors and Banking Center
directors primarily include local business people from the Bank's market area.
Allegiant currently has nine directors and the Bank currently has 16 directors
and 57 Banking Center directors. This group of individuals, along with the
senior management of the Bank, seeks to maintain close personal contact with
the Bank's commercial customers and their businesses, and strives to create a
personalized banking relationship that differentiates the Bank from other
larger competitors within the market.
Allegiant believes that the growth in earning assets, total
deposits and net income achieved during 1996 was attributable in large measure
to its strategy of providing quality, personalized service in a community
banking environment. Management believes that Allegiant as a whole is
favorably positioned in a market preparing for a potentially turbulent wave of
consolidation resulting from the
- 62 -
<PAGE> 68
passage of the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994. Numerous mergers and acquisitions of banks and thrifts recently have
occurred in the St. Louis market. This activity has created an environment of
instability among the larger financial institutions in the market. Management
believes that by offering a personalized, relationship oriented approach in a
friendly neighborhood atmosphere, the Bank will be able to increase its customer
base substantially, due to this market consolidation.
PRODUCTS AND SERVICES
Through the Bank, Allegiant offers a complete line of banking
services to the communities that it serves. In conjunction with the growth of
its branch facilities, the Bank has introduced new products and services in
order to attract new business and increase current customer satisfaction. New
products the Bank intends to offer in 1997 include: PC home banking; check
imaging; an enhanced Internet "home page;" an on-line teller system; a cash
management system geared toward commercial customers; an expanded line of
mortgage loan products offered through the Mortgage Company; and a complete
line of investment programs offered through the Bank's brokerage
correspondent. Products introduced in 1996 include: home equity lines of
credit; investment annuities; debit cards; free checking; and overdraft lines
of credit. Allegiant believes that by offering a broad-based line of
financial products, current customer retention is achieved while new banking
relationships can be developed.
The Bank also offers a wide range of traditional commercial and
retail banking products and services to its customers. Deposit accounts
include certificates of deposit, individual retirement accounts and other time
deposits, checking and other demand deposit accounts, interest-bearing
checking accounts, savings accounts and money market accounts. Loans include
residential real estate, commercial, financial, municipal and industrial
development, real estate construction and development, installment and
consumer loans.
MARKET AREA
Metropolitan St. Louis. Allegiant's primary service area is
located in St. Louis County which has a total 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 and St. Peters retail banking offices in 1996 and 1997, respectively,
management believes that the Bank's retail banking offices are strategically
placed so that it has a retail banking office within a 20 minute drive from all
principal sectors of the St. Louis SMSA.
Northeastern Missouri. The market areas for the Kahoka and
Palmyra banking offices are Clark County and Marion County, respectively. The
City of Kahoka has a population of approximately 2,200 and Palmyra has a
population of approximately 3,400. Allegiant intends to expand its
Northeastern operations into additional markets not currently served by its
facilities in Kahoka and Palmyra. It is anticipated that these new locations
would be centered along U.S. Highway 61.
COMPETITION
The Bank encounters substantial competition for deposits and loans
in its markets. The Bank's principal competitors include other financial
institutions, such as banks, savings and loan institutions and credit unions,
and a number of other non-bank competitors, such as insurance companies, small
loan companies, finance companies and mortgage companies. Many of the Bank's
non-bank competitors are not subject to the extensive federal and state
regulations that govern Allegiant and the Bank and, as a result, have a
competitive advantage over the Bank in providing certain services. Many
- 63 -
<PAGE> 69
of the financial institutions with which the Bank competes are larger and have
substantially greater financial resources than the Bank.
While the Bank also encounters a great deal of competition in its
lending activities, management believes that there is less competition in the
Bank's specialty-middle market and neighborhood bank niche than there was up
to a few years ago. The Bank believes that its competitive position has been
strengthened by the advent of branch banking in Missouri, which has resulted
in consolidations of bank subsidiaries of several large bank holding
companies. The Bank's strategy, by contrast, is to remain a middle market
lender which maintains close, long-term contacts with its customers.
EMPLOYEES
Allegiant and the Bank currently have approximately 119 full-time
equivalent employees. None of these employees of Allegiant or the Bank are
subject to a collective bargaining agreement. Allegiant considers its
relationships with its employees and those of the Bank to be good.
EFFECT OF GOVERNMENTAL POLICY
One of the most significant factors affecting the Bank's earnings
is the difference between the interest rates paid by the Bank on its deposits
and its other borrowings and the interest rates earned by the Bank on loans to
its customers and securities owned by the Bank. The yields of its assets and
the rates paid on its liabilities are sensitive to changes in prevailing
interest rates. Thus, the earnings and growth of the Bank will be influenced
by general economic conditions, the monetary and fiscal policies of the
federal government, and the policies of regulatory agencies, particularly the
Federal Reserve Board, which implements national monetary policy. An
important function of the Federal Reserve System is to regulate the money
supply and credit conditions in order to mitigate recessionary and
inflationary pressures. Among the techniques used to implement these
objectives are open market operations in United States government securities
and changes in reserve requirements of banks and in the cost of short-term
bank borrowings. These techniques influence overall growth and distribution
of credit, bank loans, investments and deposits, and may also affect interest
rates charged on loans or paid on deposits. The nature and impact of any
future changes in monetary policies cannot be predicted.
From time to time, legislation has been enacted that has the
effect of increasing the cost of doing business, limiting or expanding
permissible activities, or affecting the competitive balance between banks and
other financial institutions. Legislative proposals that could affect
Allegiant and the banking business in general have been proposed and may be
introduced before the United States Congress and other governmental bodies.
These proposals may alter Allegiant's structure, regulation, disclosure and
reporting requirements. In addition, various banking regulatory agencies
frequently propose rules and regulations to implement and enforce existing
legislation. It cannot be predicted whether or in what form any such
legislation or regulations will be enacted or the extent to which the business
of Allegiant would be affected thereby.
DESCRIPTION OF PROPERTY
The Bank's charter and main office is located in the City of
St. Louis, Missouri at the corner of Grand Boulevard and West Florissant
Avenue. This facility occupies approximately 10,000 square feet in a
single-story, retail/office building with a lower level. The facility has
four drive-up lanes and an enclosed ATM.
The Bank's Hazelwood branch is located in the City of Hazelwood,
Missouri near the intersection of North Lindbergh Boulevard and Highway 270.
The branch occupies approximately 5,000
- 64 -
<PAGE> 70
square feet in a single-story, retail/office building with a lower level. The
facility has two drive-up lanes and a drive-up ATM.
The Bank's West Port branch is located in the City of Maryland
Heights, Missouri near the intersection of Page Avenue and Highway 270 in the
eastern tract of West Port Plaza. The branch occupies approximately 2,500
square feet in a single-story, retail/office building. The facility has a
walk-up ATM. Allegiant leases this property subject to a lease that has more
than ten years until expiration, including options.
The Bank's Clayton branch is located in the City of Clayton,
Missouri at the intersection of Forsyth Boulevard and Bemiston Avenue. The
branch occupies approximately 3,200 square feet in the first floor of a
three-story, retail/office building. The facility has one drive-up window and
a walk-up ATM. The Bank leases this property subject to a lease that has more
than two years until expiration.
The Bank's Kahoka branch is located in the City of Kahoka,
Missouri at the intersection of North Morgan and Chestnut. The branch
occupies approximately 7,000 square feet in a single-story, retail/office
building with a finished lower level. The facility has two drive-up lanes.
The Bank's Palmyra branch is located in the City of Palmyra,
Missouri near the intersection of Ross Street and Highway 61/24 in the C&R
grocery store. The branch occupies approximately 150 square feet in a
single-story, retail building. The facility has a walk-up ATM. The Bank
leases this property subject to a lease that has more than twenty years until
expiration, including options.
The Bank's Des Peres branch is located in the City of Des Peres,
Missouri near the intersection of Manchester Road and Highway 270. The branch
occupies approximately 2,300 square feet in a single-story, retail/office
building. The facility has four drive-up lanes and a drive-up ATM.
The Bank's South County branch is located in the City of
Mehlville, Missouri at the intersection of South Lindbergh Boulevard and Lemay
Ferry Road. The branch occupies approximately 1,900 square feet in a
free-standing, single-story, retail/office building. The facility has one
drive-up lane and a drive-up ATM. The Bank leases this property subject to a
lease that has more than nine years until expiration.
The Bank's St. Peters branch is located in the City of St. Peters,
Missouri near the intersection of Harvester Road and Highway 94. The branch
occupies approximately 3,000 square feet in a single-story, retail/office
building. The facility has one drive-up lane and a drive-up ATM.
The Bank's Operations center is located in the City of Maryland
Heights, Missouri at the intersection of Schuetz Road and Fee Fee Road. The
Operations center occupies approximately 7,200 square feet in a single-story,
commercial/office building. This facility houses the Mortgage Company, Edge
and the Bank's bookkeeping, loan and mortgage processing, accounting and human
resources departments. Additionally, the Bank holds the majority of its board
and employee meetings and conducts all training at this facility.
All of the foregoing properties that are not leased by the Bank
are owned by the Bank free of any mortgages.
LEGAL PROCEEDINGS
Various claims and lawsuits, incidental to its ordinary course of
business, are pending against Allegiant and its subsidiaries. In the opinion
of management, after consultation with legal
- 65 -
<PAGE> 71
counsel, resolution of these matters is not expected to have a material effect
on Allegiant's financial condition or results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net Income. For the year ended December 31, 1996, Allegiant
reported earnings of $1.8 million, compared to $1.3 million, for 1995, an
increase of $533,000, or 42%. On a per share basis, net income increased 23%,
from $.62 for the twelve months ended in 1995 to $.76 in 1996, despite the 16%
increase in weighted-average primary common shares outstanding. This increase
from 2.1 million primary shares for the year ended December 31, 1995 to 2.4
million primary shares in 1996, was largely attributable to the private
placement of 617,000 shares of Allegiant Common Stock in April through
June 1995. This newly issued stock was outstanding for approximately one-half
of the year in 1995 and the entire year in 1996, thus contributing to a
majority of the 329,611 increase in weighted-average primary common shares
outstanding for the respective periods.
The following ratios applicable to Allegiant are among those
commonly used in analyzing bank holding companies:
<TABLE>
RETURN ON EQUITY AND ASSETS
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Return on average assets 0.59% 0.56% 0.60% 0.30% 0.21%
Return on average equity 12.17 10.86 9.91 5.47 3.18
Dividend payout ratio 12.00 11.73 7.59 10.49 --
Equity to assets ratio 4.81 5.14 6.05 5.47 6.62
</TABLE>
NET INTEREST INCOME. For the year ended December 31, 1996, net
interest income before provision for loan losses increased 29% to $10.4
million from $8.0 million in 1995. This growth was attributable to the 32%
increase in total interest income, which increased from $19.3 million for 1995
to $25.4 million in 1996. The largest component of growth in interest income
was the $5.7 million increase in interest and fees earned on loans. For the
year ended December 31, 1996, interest and fees earned on loans totaled $21.7
million compared to $16.0 million earned in 1995. Another factor contributing
to the improved interest income was interest earned on investment securities,
which increased 17% from $3.0 million in 1995, to $3.5 million in 1996.
Total interest expense for 1996 was $15.0 million, a 34% increase
over the total interest expense of $11.2 million in 1995. Interest paid to
depositors increased 33%, from $9.0 million in 1995 to $12.1 million in 1996.
This increase was largely attributable to greater deposit volume. Interest
paid on short-term borrowings increased 119% from $703,000 to $1.5 million for
1995 and 1996, respectively, and interest paid on long-term borrowings
decreased 4% from $1.5 million for 1995 to $1.4 million for 1996. The
increased expense for short-term borrowings resulted from additional FHLB
advances outstanding during the period. See "--Liquidity and Capital Resource
Management."
Net Interest Margin. The increase in total interest income in
1996 was 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, Allegiant's net interest margin for 1996 decreased 21 basis
points from 3.71% for the twelve months ended December 31, 1995 to 3.50% in
1996. The tightening spreads experienced by Allegiant resulted principally
from four factors: (i) an increased concentration in the loan portfolio of
one- to four-family adjustable-rate mortgages; (ii) an extremely competitive
market
- 66 -
<PAGE> 72
for retail deposits and both retail and commercial lending; (iii) a
shift in interest rates; and (iv) increases in total borrowings outstanding.
For 1996, the annualized yield on total average loans outstanding
was 9.36% compared to 10.09% in 1995. This lower yield reflected a downward
adjustment in the prime lending rate, which decreased from 8.50% on
December 31, 1995 to 8.25% on December 31, 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.
Management has elected 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-performing loans
associated with one- to four-family mortgages compared proportionately to the
other types of loans in the Bank's portfolio. 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 mortgage loans to the Bank's loan portfolio.
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. Management believes that
relationship banking, along with the ability to cross-sell additional products
to the customer, will be the key to success in the consolidating banking
industry and will sustain the lower yields associated with these one- to
four-family mortgage loans in order to build relationships with this new
customer base.
In addition to changes in the credit portfolio mix, the Bank is
also operating in a competitive market for both commercial and consumer loans.
In addition to increased competition from within the banking industry,
non-bank financial institutions are competing for customers who have
traditionally dealt primarily with commercial banks. These trends have forced
the Bank to realize tighter spreads on commercial loans, the second largest
component of the credit portfolio. In the past, the Bank was able to originate
high quality loans at a positive spread to its 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 or below the prime rate.
Management anticipates that these conditions will continue in the foreseeable
future.
Despite the lower interest rate environment, the Bank was able to
improve the yield on its investment security portfolio. The average yield
earned on investment securities was 5.70% in 1996 compared to 5.57% in 1995,
an increase of 13 basis points. The increase was attributable to the improved
management of the investment securities portfolio, along with the addition of
higher yielding securities which were funded with maturing securities with
lower interest rates.
The aggregate yield paid for interest bearing deposits and both
long- and short-term debt was 5.53% in 1996, a decrease of 12 basis points
compared to 1995. In 1996, the Bank relied increasingly on FHLB borrowings,
which were a more cost-effective funding source than retail deposits. The
slight decrease in rates paid on liabilities relative to the larger decrease
in rates earned on total interest bearing assets also was attributable to the
highly competitive market for retail deposits. When compared to other market
areas, the St. Louis SMSA is substantially more competitive with respect to
consumer deposit pricing. Allegiant believes this market condition will
continue in the foreseeable future.
- 67 -
<PAGE> 73
In addition to the competitive deposit market, the Bank offered a
money market deposit promotion through the first four months of 1996, which
management considered to be successful. From time to time, the Bank has
selectively run deposit promotions in order to augment its funding and
liquidity needs. During 1996, the average yield on money market accounts
increased to 4.88% from 4.23% in 1995. This 65 basis point increase resulted
from the higher yield paid in order to attract deposits in the extremely
competitive deposit market and accounted for 71% of the total increase in
interest paid to depositors in 1996 compared to 1995. The average balance of
money market accounts increased $40.0 million during this period, from
$20.1 million in 1995, to $61.1 million in 1996, consequently increasing
interest paid on money market accounts $2.1 million from $851,000 in 1995 to
$3.0 million in 1996. The introductory rate on these accounts was guaranteed
for an initial six-month period and subsequently, on May 1, 1996, the Bank
lowered the interest rate paid on the highest tier for the Allegiant Green
Money Market Accounts. This rate adjustment allowed the new yield to fall
within the market average range and was intended to help alleviate some of the
negative pressure 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 $10.0 million of shorter-term funds
from the FHLB at a blended cost of 5.80%. The strategy allowed 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. However, one of
the disadvantages of this strategy is that it increases the Bank's
loan-to-deposit ratio, resulting in a ratio higher than that of its peers.
The Bank also has utilized FHLB borrowings as a funding source in
anticipation of the planned opening of an additional branch in second 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 deposits. The Bank opened its seventh and eighth
branches in November 1995 (Des Peres) and in May 1996 (Mehlville),
respectively. Allegiant 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. FHLB advances, when used in conjunction with deposit
promotions and regular retail operations, offer flexibility and an attractive
method to increase funding for loan growth. The Bank expects to utilize FHLB
advances in the future, as the need arises.
The following table sets forth the condensed average balance
sheets for the years reported and the percentage of each principal category of
assets, liabilities and shareholders' equity to total assets. Also shown is
the average yield on each category of interest-earning assets and the average
rate paid on interest-bearing liabilities for each of the periods reported:
- 68 -
<PAGE> 74
<TABLE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------- ------------------------------ -----------------------------
AVERAGE INT. EARNED/ AVERAGE AVERAGE INT. EARNED/ AVERAGE AVERAGE INT.EARNED/ AVERAGE
BALANCE PAID YIELD<F1> BALANCE PAID YIELD<F1> BALANCE PAID YIELD<F1>
------------------------------- ------------------------------ -----------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans<F1> $232,314 $21,740 9.36% $158,503 $15,995 10.09% $ 88,654 $8,213 9.26%
Taxable investment securities 59,882 3,428 5.72 52,695 2,933 5.57 36,169 1,713 4.74
Non-taxable investment securities 1,115 49 4.39 848 32 3.77 282 13 4.61
Federal funds sold 3,079 151 4.90 5,109 292 5.72 1,503 55 3.66
-------- ------- -------- ------- -------- ------
Total interest earning assets $296,390 $25,368 8.56% $217,155 $19,252 8.87% $126,608 $9,994 7.89%
======== ======= ======== ======= ======== ======
Non-interest earning assets:
Cash and due from banks $ 6,382 $ 5,791 $ 3,592
Premises and equipment 4,698 3,207 2,264
Other assets 3,915 4,021 2,022
Reserve for possible loan losses (2,401) (2,044) (1,020)
-------- -------- --------
Total assets $308,984 $228,130 $133,466
======== ======== ========
Liabilities and shareholders' equity
Interest bearing liabilities:
Money market accounts $ 61,144 $ 2,986 4.88% $ 20,095 $ 851 4.23% $ 16,592 $ 498 3.00%
NOW accounts 9,804 232 2.37 8,257 194 2.35 8,656 203 2.35
Savings deposits 6,985 227 3.25 6,751 262 3.88 3,497 87 2.49
Certificates of deposit 104,283 6,149 5.90 97,115 5,737 5.91 57,211 2,512 4.39
Certificates of deposit over $100,000 36,387 2,001 5.50 29,481 1,655 5.61 8,749 360 4.11
IRA certificates 7,673 465 6.06 6,022 348 5.78 3,425 164 4.79
-------- ------- -------- ------- -------- ------
Total interest bearing deposits 226,276 12,060 5.33 167,721 9,047 5.39 98,130 3,824 3.90
Federal funds purchased, repurchase
agreements, and other short-term
borrowings 27,481 1,542 5.61 12,175 703 5.77 7,534 447 5.93
Long-term borrowings 17,482 1,397 7.99 18,336 1,456 7.94 7,477 313 4.19
-------- ------- -------- ------- -------- ------
Total interest bearing liabilities $271,239 $14,999 5.53% $198,232 $11,206 5.65% $113,141 $4,584 4.05%
-------- ------- -------- ------- -------- ------
Non-interest bearing liabilities and
equity:
Demand deposits $21,312 $ 16,589 $ 11,240
Other liabilities 1,582 1,572 1,005
Shareholders' equity 14,851 11,737 8,080
-------- -------- --------
Total liabilities and
shareholders' equity $308,984 $228,130 $133,466
======== ======== ========
Net interest income $10,369 $ 8,046 $5,410
======= ======= ======
Net interest margin 3.50% 3.71% 4.27%
<FN>
- -----------------------------
<F1>Interest on non-accruing loans is not included for purposes of calculating
yields.
</TABLE>
- 69 -
<PAGE> 75
The following table sets forth for the periods indicated, the
changes in interest income and interest expense which were attributable to
changes in average volume and changes in average rates:
<TABLE>
CHANGES IN INTEREST INCOME AND EXPENSE--VOLUME AND RATE VARIANCES
<CAPTION>
1996 1995 1994
COMPARED TO COMPARED TO COMPARED TO
1995 1994 1993
------------------------------------ ------------------------------------ ------------------------------------
NET NET NET
VOLUME<F1> YIELD<F2> VOL*RATE CHANGE VOLUME<F1> YIELD<F2> VOL*RATE CHANGE VOLUME<F1> YIELD<F2> VOL*RATE CHANGE
---------- --------- -------- ------ ---------- --------- -------- ------ ---------- --------- -------- ------
Interest earned on: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $7,448 $(1,162) $(541) $5,745 $6,471 $ 733 $ 578 $7,782 $2,802 $449 $268 $3,519
Taxable investment
securities 399 85 12 496 783 300 137 1,220 703 124 112 939
Non-taxable securities 12 3 1 16 26 (2) (5) 19 13 -- -- 13
Federal funds sold and
other investments (116) (41) 16 (141) 132 31 74 237 (73) 29 (18) (62)
------ ------- ----- ------ ------ ------ ------ ------ ------ ---- ---- ------
Total interest
income 7,743 (1,115) (512) 6,116 7,412 1,062 784 9,258 3,445 602 362 4,409
------ ------- ----- ------ ------ ------ ------ ------ ------ ---- ---- ------
Interest paid on:
Money market accounts 1,738 130 266 2,134 105 205 43 353 115 10 3 128
NOW accounts 36 2 -- 38 (9) -- -- (9) 32 (6) 1 27
Savings deposits 9 (43) (1) (35) 81 49 45 175 6 (2) -- 4
Certificates of deposit 423 (11) (1) 411 1,752 868 605 3,225 632 82 34 748
Certificates of deposit
over $100,000 388 (34) (8) 346 853 131 311 1,295 325 14 18 357
IRA certificates 95 17 5 117 124 34 26 184 77 -- -- 77
Federal funds
purchased, repurchase
agreements and other
short-term borrowings 884 (19) (24) 841 216 85 52 353 264 18 129 411
Long-term borrowings (68) 9 -- (59) 595 184 267 1,046 301 (49) (95) 157
------ ------- ----- ------ ------ ------ ------ ------ ------ ---- ---- ------
Total interest
expense 3,506 51 236 3,793 3,717 1,556 1,349 6,622 1,752 67 90 1,909
------ ------- ----- ------ ------ ------ ------ ------ ------ ---- ---- ------
Net interest income $4,237 $(1,166) $(748) $2,323 $3,695 $ (493) $ 565 $2,636 $1,693 $535 $272 $2,500
====== ======= ===== ====== ====== ====== ====== ====== ====== ==== ==== ======
<FN>
- -----------------------------
<F1> Change in volume multiplied by yield/rate of prior period.
<F2> Change in yield/rate multiplied by volume of prior period.
Note: The change in interest due to the combined rate-volume variance has
been allocated to rate and volume changes in proportion to the
absolute dollar amounts of the changes in each. Interest on non-
accruing loans is not included for purposes of the table above.
</TABLE>
- 70 -
<PAGE> 76
Provision For Loan Losses. Consistent with the Bank's
written loan policy, a reserve is set aside to offset possible future loan
losses. This reserve is provided on a monthly basis at a rate determined by
management based upon its review of the loan portfolio. The reserve for loan
losses is increased by these provisions which are charged against income, and
reduced by loans charged off, net of recoveries. The reserve is maintained at
a level considered adequate to provide for potential loan losses based on
management's evaluation of the anticipated impact on the loan portfolio of
current economic conditions, changes in the character and size of the
portfolio, past loan loss experience, potential future loan losses on loans to
specific customers and/or industries, and other pertinent factors that
management believes require current recognition in estimating possible loan
losses.
For the year ended December 31, 1996, the provision for loan
losses was $1.4 million compared to $977,000 for 1995, an increase of $471,000
or 48%. This increase in the annual provision for possible loan losses,
reflects the increases in total loans outstanding. Net loans charged off
during 1996 were $478,000 compared to $302,000 during 1995. This increase
includes a $252,000 charge off associated with the third quarter liquidation
of problem assets associated with the failure of a certain borrower's real
estate developments. Total recoveries for the twelve months ended
December 31, 1996 were $67,000 compared to $21,000 in the corresponding period
in 1995.
- 71 -
<PAGE> 77
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--ALLOCATION
OF THE ALLOWANCE FOR LOAN LOSSES
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses
(beginning of period) $ 2,130 $ 1,455 $ 775 $ 550 $ 438
Loans charged off:
Commercial, financial, agricultural,
municipal and industrial development (113) (183) (165) (3) --
Real estate--mortgage (364) (82) (31) -- (15)
Installment and consumer (68) (58) (10) (7) (7)
Other loans -- -- -- -- --
-------- -------- -------- -------- --------
Total loans charged off (545) (323) (206) (10) (22)
-------- -------- -------- -------- --------
Recoveries of loans previously charged off:
Commercial, financial, agricultural,
municipal and industrial development 54 11 35 -- 3
Real estate--mortgage 3 -- -- -- 23
Installment and consumer 10 10 2 2 --
Other loans -- -- -- -- --
-------- -------- -------- -------- --------
Total recoveries 67 21 37 2 26
-------- -------- -------- -------- --------
Net loans charged off (478) (302) (169) (8) 4
-------- -------- -------- -------- --------
Provision for possible loan losses 1,448 977 849 233 108
-------- -------- -------- -------- --------
Allowance for possible loan losses (end of period) $ 3,100 $ 2,130 $ 1,455 $ 775 $ 550
======== ======== ======== ======== ========
Loans outstanding:
Average $232,314 $158,503 $ 88,654 $ 55,517 $ 39,987
End of period 291,926 181,544 121,393 69,773 45,600
Ratios:
Net charge-offs to average loans outstanding 0.21% 0.19% 0.19% 0.01% (0.01)%
Net charge-offs to provision for loan losses 33.01 30.91 19.91 3.43 (3.70)
Provision for loan losses to average
loans outstanding 0.62 0.62 0.96 0.42 0.27
Allowance for loan loss to total loans outstanding 1.06 1.17 1.20 1.11 1.21
Allocation for possible loan losses at end of period:
Commercial, financial, agricultural,
municipal and industrial development $ 833 $ 467 $ 315 $ 218 $ 154
Real estate--construction 124 281 74 55 32
Real estate--mortgage 1,153 818 471 341 226
Installment loans to individuals 142 90 93 60 50
Lease financing -- -- -- -- --
Unallocated 848 474 502 101 88
-------- -------- -------- -------- --------
Total $ 3,100 $ 2,130 $ 1,455 $ 775 $ 550
======== ======== ======== ======== ========
</TABLE>
- 72 -
<PAGE> 78
Non-interest Income and Expense. Non-interest income for
1996 and 1995, was $1.1 million and $654,000, respectively. This increase of
$427,000, or 65%, was due to both the increased number of deposit accounts and
the expanded base of service chargeable products offered to Allegiant's
customers. Additionally, Allegiant has engaged in a cost improvement program
which includes a revamping of the Bank's fee structure. The largest item
attributable to the cost improvement program involved fees charged on
overdrafts, which contributed approximately $74,000, or 7.0%, of the Bank's
non-interest income during 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. Net
gains on the sale of securities contributed $49,000 to the increase in
non-interest income for the twelve months ended December 31, 1996.
For 1996, total non-interest expense was $7.0 million, compared to
$5.6 million for 1995, an increase of 25%. This amount included an 27%
increase in operating expenses and a 23% increase in salaries and employee
benefits. A large portion of the increase in operating expenses was directly
related to the operation of the newly opened Des Peres and Mehlville branches,
as well as the development of the Allegiant Bank Operations Center. The
remainder of the increase in operating expenses was attributable to
expenditures for telephone, supplies, accounting fees and business
development. These increases were attributable to the Bank's recent growth
and represent the normal increases in regular business activities. Also
included in this increase in non-interest expense is an investment in
technology. Management believes that investment in information technology
will yield future benefits in the form of increased efficiency and
profitability, as the Bank will be able to offer new service chargeable
products to more closely match its customers' needs.
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
Allegiant's market coverage. In addition, experienced customer service
representatives were hired to operate the new Des Peres and Mehlville
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 December 31,
1996, Allegiant Bank employed 98 full-time equivalent employees compared to 92
full-time equivalent employees at December 31, 1995. Additionally, as the
banking industry continues to consolidate, the Bank plans to hire additional
qualified employees in 1997 from the pool of experienced workers expected to
become available as local branches are closed in the wake of consolidation of
larger institutions.
Despite the additional costs associated with the opening of the
two new branches and the Operations Center in 1996, Allegiant was able to
improve its operating expense and operating efficiency ratios during 1996.
The percentage of total operating expenses to total average assets improved to
2.27% in 1996, from 2.47% for 1995. The efficiency ratio decreased to 61.30%
in 1996, from 64.66% during 1995. The efficiency ratio is considered a
measure of the degree to which Allegiant leverages overhead expenses. Another
overhead management ratio, average assets per full-time equivalent employee,
improved from $2.4 million per employee in 1995 to $3.2 million per employee
in 1996. Allegiant 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 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, Allegiant's deposit insurance premiums expense
decreased $148,000 in 1996, compared to 1995.
- 73 -
<PAGE> 79
The following table sets forth Allegiant's summary consolidated
non-interest income and expense for the years indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
Non-interest income:
Other non-interest income 455 265
Overdraft fees 363 231
Service charges 214 162
Gain (loss) on the sale of securities 49 (4)
------ ------
Total non-interest income $1,081 $ 654
====== ======
Non-interest expense:
Salaries and employee benefits $3,455 $2,809
Other non-interest expense 2,033 1,523
Depreciation of buildings and fixed assets 604 426
Expense on premises and fixed assets 338 270
Supplies 202 157
Rent expense 149 121
Directors' fees 122 73
Advertising 106 88
FDIC assessment 10 158
------ ------
Total non-interest expense $7,019 $5,625
====== ======
</TABLE>
In December 1994, the Allegiant Board approved the Phantom Stock
Plan (the "Plan") for the President of Allegiant, under which Allegiant agreed
to pay a cash award to the President based upon the increase in book value of
48,400 shares of Allegiant Common Stock, from December 31, 1994 until the
earlier of: (i) December 31, 1998; or (ii) the end of the year immediately
preceding the year that the President's employment with Allegiant terminates.
Allegiant has accrued approximately $93,000 of the amount payable under the
Plan as non-interest expense for salaries and employee benefits (including
$38,000 in 1996).
FINANCIAL CONDITION
At December 31, 1996, the Bank's total assets rose to $377.6
million, an increase of $97.2 million or 35% from December 31, 1995. This
growth was primarily attributable to the $110.4 million increase in loans
outstanding, comprised principally of $50.1 million in one- to four-family
mortgages. Fed funds sold decreased 24% to $10.8 million at December 31,
1996, from $14.2 million at December 31, 1995. This decrease was due to the
funding of increased loan production. Investment securities decreased 17%
from $73.2 million at December 31, 1995 to $60.6 million at December 31, 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 first
half of 1996 along with the increased loan growth experienced in 1996.
Short-term investments held at December 31, 1995 included a match
funding of an unusually large money market deposit account which was to be
held at the Bank for an undetermined period of time. The investments were
laddered so that a large withdrawal from the account would not
- 74 -
<PAGE> 80
threaten the Bank's liquidity position, as well as to maximize return on the
funds while they where held at the Bank. The customer withdrew the funds in
early 1996 and the short-term investments were not replaced as they matured.
ASSET/LIABILITY MANAGEMENT
The main objective of the Bank's asset/liability management
strategy is the effective monitoring and control of interest rate sensitivity,
both on and off the Bank's balance sheet. Allegiant's Asset/Liability
Committee monitors the interest rate sensitivity of the balance sheet on a
bi-weekly basis. The committee reviews asset and liability repricing in the
context of current and possible future interest rate scenarios affecting the
economic climate in Allegiant's market area. The objective of the committee
is to minimize Allegiant's earnings sensitivity when subjected to volatile
interest rate movements, while maintaining a net interest margin to support
Allegiant's strategic objectives.
Management's strategy toward positioning the Bank for interest
rate movements is three-fold. First, policies for non-real estate lending,
deposit and investment functions call for all significant investments and/or
fundings to be less than five years in maturity. Most non-real estate loans
originated at the Bank are three years or less in maturity. The real estate
mortgage loans held in the portfolio are made up of one-, two- and three-year
adjustable-rate loans which have a reduced exposure to interest rate risk due
to their periodic interest rate adjustments. Second, management seeks to
adapt to a changing interest rate environment by altering the mix of floating-
and fixed-rate commercial loans and investment securities, subject to
prevailing market conditions. Third, management offers promotional deposit
rates for certain maturity tranches in order to attain its targeted maturity
schedule for time deposits. In addition, the continual systematic renewal of
a portion of the deposit base allows for the mitigation of a segment of the
interest rate risk associated with deposit re-pricing. This also has been
accomplished in the investment portfolio with the implementation of the
"laddered" maturity schedule, targeting an average duration of three years.
Several tools are utilized in the measurement of the Bank's
balance sheet rate sensitivity. The Bank's mainframe system produces several
asset and liability management reports, such as the gap analysis of periodic
interest rate adjustments, modeled by final maturity and repricing frequency
for both assets and liabilities. Another system involves a simulation model
which is used to forecast changes to the balance sheet under four different
rate scenarios. The model shows changes to shareholders' equity and net
income under rising, falling, stable and management's forecast of likely rate
scenarios. The results of these models are reviewed by the Bank's
Asset/Liability Committee and considered when adjusting the Bank's relative
asset and liability position.
Historically, interest rates on a large percentage of the Bank's
loans have adjusted with the prime lending rate or comparable indices.
Additionally, a large amount of the investment securities in the portfolio are
variable-rate in nature, and are subject to quarterly or more frequent
interest rate adjustments. The implications of a positive gap vary according
to trends in short- and long-term interest rates. In a rising rate
environment, assets tend to reprice more quickly than liabilities, resulting
in an increased spread to the Bank. In a falling rate environment, assets
tend to reprice downward more quickly than liabilities, causing a tightening
of the spread. The Bank's target gap range is 80% to 135% in the zero- to
three-month category, and 75% to 125% in the one-year category. The gap as of
December 31, 1996 was within the guidelines of the policy.
- 75 -
<PAGE> 81
The following table presents Allegiant's interest rate position
for various time bands, as of December 31, 1996. This model does not take
into consideration interest rate caps or floors:
<TABLE>
<CAPTION>
0 TO 3 4 TO 12 1 TO 5 OVER
MONTHS MONTHS YEARS 5 YEARS TOTAL
-------- -------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Earning Assets:
Loans $161,606 $ 56,894 $67,380 $ 6,046 $291,926
Investment securities<F1> 25,715 13,428 19,682 500 59,325
Non-taxable investment securities 25 205 542 427 1,199
Other short-term investments 10,775 -- -- -- 10,775
-------- -------- ------- ------- --------
Total earning assets $196,121 $ 70,527 $87,604 $ 6,973 $363,225
======== ======== ======= ======= ========
Funding Sources:
Money market accounts 74,490 -- -- -- 74,490
NOW accounts 10,711 -- -- -- 10,711
Savings 6,083 -- -- -- 6,083
Time deposits 21,979 68,538 37,166 66 127,749
Time deposits over $100,000 31,349 15,306 4,170 -- 50,825
IRAs 1,828 3,963 2,935 21 8,748
Repurchase agreements 7,278 523 536 -- 8,337
Short-term FHLB borrowings 10,150 17,650 -- -- 27,800
Long-term FHLB borrowings -- -- 7,000 -- 7,000
Long-term borrowings--other -- -- 4,400 3,263 7,663
-------- -------- ------- ------- --------
Total funding sources $163,869 $105,980 $56,207 $ 3,350 $329,406
======== ======== ======= ======= ========
Interest sensitivity gap--$ $ 34,252 $(35,453) $31,397 $ 3,623 $ 33,819
Interest sensitivity gap--% 120.90% 66.55% 155.86% 208.15% 110.27%
Cumulative gap--$ $ 34,252 $ (1,201) $30,196 $33,819
Cumulative gap--% 120.90% 99.55% 109.26% 110.27%
Gap as a percentage of total
earning assets 9.43% (0.33)% 8.31% 9.31%
<FN>
- -----------------------------
<F1> Investment securities include mortgage-backed securities which have
effective maturities based upon current market conditions. This
stratification is based on management's estimates in relation to the
historical trends of these types of securities.
</TABLE>
RISK MANAGEMENT
Allegiant's objective in structuring the balance sheet is to
maximize the return on shareholders' equity while prudently managing the
associated risks. The principal risks involved in the banking industry are
regulatory, credit, exposure to local economic conditions and interest rate
risks. The following is a discussion of Allegiant's management of these
risks.
Regulatory Risk. The banking industry is heavily regulated.
These regulations are intended to protect depositors, not shareholders. The
Bank is subject to regulation and supervision by the FDIC and the Division of
Finance, while Allegiant is subject to regulation and supervision by the
Federal Reserve Board. The burden imposed by federal and state regulations
puts banks at a competitive disadvantage compared to less regulated
competitors such as finance companies, mortgage banking companies and leasing
companies. In addition, legislative reactions to the problems of the thrift
industry have added to the regulatory burden on banks.
- 76 -
<PAGE> 82
Credit Risk. The greatest risk facing lenders is generally
credit risk, that is, the risk of losing principal and interest due to a
borrower's failure to perform according to the terms of the loan agreements.
The Bank historically has experienced relatively low levels of loan losses.
Management attributes these loan loss rates to the Bank's emphasis on tangible
asset lending, generally securing loans with real estate. Pursuant to its
loan monitoring policy, the Bank reported net loan chargeoffs of $478,000
during 1996, or 0.21% of average loans outstanding, an increase from 0.19% of
average loans charged off in 1995. As of December 31, 1996, the ratio of
non-performing loans to total loans was .24%, an increase from .17% at
December 31, 1995.
Exposure to Local Economic Conditions. The Bank's
concentration of loans in the St. Louis SMSA exposes it to risks resulting
from changes in the local economy. While the Bank's market area for loans
extends throughout most of Eastern and Northeastern Missouri and Southern
Illinois, its lending operations are concentrated in the St. Louis SMSA. The
percentage of loans secured by St. Louis SMSA real estate is significant. A
dramatic drop in St. Louis area real estate values would adversely affect the
quality of the loan portfolio. Of the amount of commercial real estate loans,
a majority is to businesses that occupy and use the real estate. The risk of
default with users of the property normally has been lower than with other
segments of the commercial real estate market.
Interest Rate Risk. The Bank's earnings depend to a great
extent upon the level of net interest income, which is the difference between
interest income earned on loans and investments and the interest expense paid
on deposits and other borrowings. Although Allegiant believes that the
maturities of the Bank's assets are appropriately balanced in relation to
maturities of liabilities ("gap management"), gap management is not an exact
science. Rather, it involves estimating how changes in the general level of
interest rates will impact the yields earned on assets and the rates paid on
liabilities. Moreover, rate changes can vary depending upon the level of
rates and competitive factors. From time to time, maturities of assets and
liabilities are not balanced, and a rapid increase or decrease in interest
rates could have an adverse effect on net interest margins and results of
operations of Allegiant.
LOANS
Loans, the largest component of interest earning assets, increased
61% from year-end 1995 to December 31, 1996. This growth was attributable to
a 85% increase in commercial loans, a 58% increase in real estate loans and a
44% increase in consumer loans. 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 $34.6 million, from $40.5 million on
December 31, 1995 to $75.1 million on December 31, 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.
The commercial loan portfolio is diversified from an industry
standpoint and includes businesses engaged in manufacturing, wholesaling,
retailing, agribusiness, financial services and other service business.
Emphasis is upon middle-market and community businesses with known local
management and financial stability. Consistent with the Bank's strategy and
emphasis upon relationship banking, most borrowing customers also maintain
deposit accounts and utilize other banking services. Real estate is often a
material component of collateral for the commercial and industrial loans even
though cash flows are unrelated to the real estate. This real estate provides
Allegiant with additional collateral protection.
While Allegiant traditionally has focused on small- to mid-sized
commercial lending, the Mortgage Company has enabled Allegiant to increase its
earning assets by expanding its mortgage lending activities. The largest
component of the Bank's loan portfolio consists of real estate mortgage loans,
- 77 -
<PAGE> 83
which increased $72.1 million from $124.1 million at December 31, 1995 to
$196.1 million at December 31, 1996. The majority of this increase was in
one- to four-family adjustable-rate mortgages, which tend to be lower risk in
nature. The Mortgage Company was the key contributor to this increase in
mortgage loan production, posting a record twelve-month performance in 1996
with $72.2 million in loans originated.
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, 180 HECL loans were
originated with $9.1 million committed and $5.4 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.
<TABLE>
LOAN PORTFOLIO--MATURITIES AND SENSITIVITIES OF LOANS
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------------------------------
MATURING AFTER ONE YEAR MATURING AFTER
MATURING IN THROUGH FIVE YEARS FIVE YEARS
ONE YEAR ----------------------- -----------------------
OR LESS FIXED-RATE VARIABLE FIXED-RATE VARIABLE TOTAL
----------- ---------- -------- ---------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial,
agricultural, municipal
and industrial
development $ 55,384 $ 7,703 $ 6,417 $ 287 $ 5,338 $ 75,129
Real estate 84,064 47,465 13,326 2,522 57,493 204,870
Installment 8,691 2,916 2 17 -- 11,626
Other 50 251 -- -- -- 301
-------- ------- ------- ------ ------- --------
Total loans $148,189 $58,335 $19,745 $2,826 $62,831 $291,926
======== ======= ======= ====== ======= ========
</TABLE>
- 78 -
<PAGE> 84
The following table summarizes the composition of the Bank's loan
portfolio for the periods indicated:
<TABLE>
LOAN PORTFOLIO--TYPES OF LOANS
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------ ------------------ ----------------- ---------------- -----------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF TOTAL OF TOTAL OF TOTAL OF TOTAL OF TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
-------- -------- -------- -------- -------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial,
agricultural, municipal
and industrial development $ 75,129 25.75% $ 40,518 22.32% $ 30,353 25.00% $19,954 28.60% $13,198 28.94%
Real estate--construction 8,763 3.00 8,777 4.83 5,504 4.53 1,403 2.01 806 1.77
Real estate--mortgage:
One- to four-family
residential 121,386 41.58 71,260 39.25 47,109 38.81 26,699 38.27 16,877 37.01
Multi-family and commercial 74,721 25.60 52,795 29.08 31,813 26.21 16,899 24.22 10,702 23.47
Consumer and other 12,084 4.14 8,379 4.62 6,881 5.67 4,959 7.11 4,119 9.03
Less unearned income (157) (.05) (185) (0.10) (267) (0.22) (141) (0.20) (102) (0.22)
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
Total loans<F1> $291,926 100.00% $181,544 100.00% $121,393 100.00% $69,773 100.00% $45,600 100.00%
======== ====== ======== ====== ======== ====== ======= ====== ======= ======
<FN>
- -----------------------------
<F1> The Bank had no outstanding foreign loans at the dates reported.
</TABLE>
- 79 -
<PAGE> 85
INVESTMENTS
Investment securities decreased $12.7 million during 1996 to $60.6
million at December 31, 1996. A substantial portion of this decrease was due
to the run-off of an unusually large money market deposit account which was
match-funded with short-term securities. The remainder of the decrease in
investment securities was used to fund increased loan growth in 1996. These
short-term debt instruments, or discount notes, are typically held in larger
denominations and mature within 90 days from the date of purchase. The Bank
generally invests in discount notes in order to maximize yield versus simply
investing the funds in the overnight Fed Funds market. The increase in the
aggregate amount of short-term securities at the beginning of the year
reflected Allegiant's assessment of opportunities available given the shape of
the existing yield curve and the yield pick up associated with this investment
strategy at the time of the purchase. In addition, some longer-term
securities were called away from the Bank, due to the relative decrease in
interest rates during the first quarter of 1996.
Management has implemented an investment strategy which places
relatively less emphasis on marginal yield, and relatively more emphasis on
stable average market yield. This investment approach minimizes the
portfolio's exposure to interest rate risk by diluting the effects of a
volatile market, which in turn offers a more balanced total return. In 1995,
the Bank implemented this investment strategy involving a three-year laddered
portfolio. The goal of a laddered portfolio is to minimize reinvestment risk,
or the risk of investing large amounts at the same interest rate. The ladder
allows for a uniform portion of the portfolio to mature each month to be
reinvested three years out in million dollar segments. Because the Bank is
not investing the funds all at once, the portfolio generally yields the normal
average market rate, where the high rates match off with the low rates to
arrive at a stable blended average. Another advantage of the three-year
ladder is the relatively low volatility associated with the purchase of
shorter term securities due to the lower level of duration. This strategy has
resulted in less unrealized loss that reduces shareholders' equity. 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. Remaining investments include mostly municipal securities from
primarily local issuers. Consequently, there has been minimal credit risk
related to Allegiant's investment portfolio.
The Bank generally holds investment securities for three reasons:
(i) as a secondary source of liquidity to fund additional loans as well as
manage deposit run-off as such situations arise; (ii) as instruments to pledge
against public deposits and repurchase agreements; and (iii) to generate a
yield of return that outperforms the yield of merely holding excess cash in
the overnight Fed Funds market. A strategy implemented in 1995 that allows
the Bank to achieve all three of these goals is the creation of
mortgage-backed securities. This strategy allows the Bank to move previously
booked loans to the securities section of the balance sheet, achieving an
attractive yield for the Bank's bond portfolio and more importantly, increases
the liquidity of those earning assets while virtually eliminating credit risk
with a FNMA guarantee. However, the Bank sustains some loss in yield when
securitizing these assets in the form of a guarantee fee paid to FNMA. The 17%
decrease in investment securities for the year ended December 31, 1996,
occurred despite the addition of $9.2 million in adjustable-rate
mortgage-backed securities described above. These securities were created as
a result of a mortgage loan swap with FNMA in which the Bank traded $9.2
million in adjustable-rate mortgages for the same amount in mortgage-backed
securities. The Bank plans to swap mortgages for additional securities in 1997
and thereafter as part of its regular course of operations.
- 80 -
<PAGE> 86
The book value of investment securities for the periods indicated
were as follows:
<TABLE>
INVESTMENT PORTFOLIO
<CAPTION>
DECEMBER 31,
-------------------------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States Treasury securities $ 7,941 $ 5,017 $ 7,025
Obligations of other United States
government agencies 46,717 64,697 31,232
Federal Home Loan Bank stock 4,462 2,645 2,278
States and political subdivisions 1,199 930 503
Less unrealized gain (loss) on securities
available-for-sale 35 (136) (150)
Other 205 58 --
------- ------- -------
Total $60,559 $73,211 $40,888
======= ======= =======
</TABLE>
The maturities and yield information of the investment securities
portfolio as of December 31, 1996 was as follows:
<TABLE>
INVESTMENT PORTFOLIO--MATURITIES AND YIELDS
<CAPTION>
OVER
WEIGHTED OVER ONE WEIGHTED FIVE WEIGHTED WEIGHTED
ONE YEAR AVERAGE THROUGH AVERAGE THROUGH AVERAGE OVER TEN AVERAGE
OR LESS YIELD FIVE YEARS YIELD TEN YEARS YIELD YEARS YIELD
-------- -------- ---------- -------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States Treasury securities $ 1,505 4.96% $ 6,436 6.10% $ -- --% $ -- --%
Obligations of United States
government agencies 9,199 4.54 18,887 5.52 500 6.69 18,131<F1> 6.24
Federal Home Loan Bank stock 4,462 7.00 -- -- --
States and political subdivisions 230 4.49 542 5.59 400 5.31 27 5.00
Less unrealized loss on securities
held available-for-sale 35 -- -- -- -- -- -- --
Other -- -- 205 -- -- -- -- --
------- ------- ---- -------
Total investment securities $15,431 5.29% $26,070 5.62% $900 6.08% $18,158 6.24%
======= ======= ==== =======
Total portfolio $60,559 5.70%
=======
<FN>
- -----------------
<F1> Securities are adjustable-rate mortgages tied to the one-year Constant
Maturity Treasury index. Due to principal prepayments, management
estimates these securities will have an estimated life of five to seven
years during normal market conditions.
</TABLE>
ASSET QUALITY
The Bank's allowance for possible loan losses increased 46%, from
$2.1 million on December 31, 1995 to $3.1 million on December 31, 1996. The
majority of this increase was due to the provision of $1.4 million to the
reserve for possible loan losses during 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 1.06% at December 31, 1996 from 1.17% at December 30, 1995. This decrease
takes into account the increased percentage of the loan portfolio
- 81 -
<PAGE> 87
represented by one- to four-family mortgage loans, which tend to exhibit lower
levels of credit risk. Allegiant believes that the allowance for possible loan
losses at December 31, 1996 was adequate to reflect the credit risk in the loan
portfolio. See "Results of Operations--Provision for Loan Losses."
Non-performing assets increased to $692,000 at December 31, 1996,
an increase of $384,000 from $318,000 as of December 31, 1995. The ratio of
non-performing loans to total loans was 0.24% at December 31, 1996, compared
to 0.17% as of December 31, 1995. The largest component of this increase in
non-performing loans was a $228,000 increase in non-performing real estate
construction loans.
As an integral part of their examination process, the various
regulatory agencies periodically review the Bank's allowances for possible
loan losses. Such agencies have the authority to require the Bank to
recognize additions to the reserve based upon their judgment. Allegiant
believes that the allowances for possible loan losses at December 31, 1996
were consistent with applicable regulatory requirements.
- 82 -
<PAGE> 88
The following table summarizes, for the periods presented,
non-performing assets by category:
<TABLE>
RISK ELEMENTS--NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural and all other loans:
Past due 90 days or more $ 5 $ 113 $ -- $ -- $ --
Non-accrual 207 109 40 -- --
Restructured terms -- -- -- -- --
Real estate--construction:
Past due 90 days or more 264 36 90 -- 20
Non-accrual 84 20 35 11 --
Restructured terms -- 3 -- -- --
Real estate--mortgage:
Past due 90 days or more -- -- -- -- --
Non-accrual -- -- -- -- --
Restructured terms -- -- -- -- --
Installment loans to individuals:
Past due 90 days or more 23 12 8 -- 3
Non-accrual 109 15 -- 3 --
Restructured terms -- -- -- -- --
-------- -------- -------- -------- ---------
Total non-performing loans: $ 692 $ 308 $ 173 $ 14 $ 23
======== ======== ======== ======== =========
Other real estate -- 10 25 -- --
-------- -------- -------- -------- ---------
Total non-performing assets: $ 692 $ 318 $ 198 $ 14 $ 23
======== ======== ======== ======== =========
Gross interest income that would have been recorded
in the period if the loans had been current in
accordance with the original terms and had been
outstanding throughout the period or since
origination:
Loans accounted for on
a non-accrual basis $ 57 $ 30 $ 16 $ 1 $ 1
Loans with restructured terms -- -- -- -- --
Balance sheet information (at year-end):
Total assets $377,564 $280,386 $171,927 $104,416 $ 68,782
Loans outstanding 291,926 181,544 121,393 69,733 45,600
Shareholders' equity 16,386 13,938 8,453 7,487 3,894
Allowance for possible loan loss 3,100 2,130 1,455 775 550
Ratios:
Non-performing loans to total loans outstanding 0.24% 0.17% 0.14% 0.02% 0.05%
Non-performing assets to total assets 0.18 0.11 0.12 0.01 0.03
Non-performing loans to shareholders' equity 4.22 2.28 2.34 0.19 0.59
Reserve for possible loan losses to total loans 1.06 1.17 1.20 1.11 1.21
Reserve for possible loan losses
to non-performing loans 447.98 691.56 841.04 5,535.71 2,391.30
(Table continued on following page)
- 83 -
<PAGE> 89
<S> <C> <C> <C> <C> <C>
Percent of categories to total end-of-period loans:
Commercial, financial, agricultural,
municipal and industrial development 25.74 22.32 25.00 28.60 28.94
Real estate--construction 3.00 4.83 4.53 2.01 1.77
Real estate--mortgage:
One- to four-family residential 41.58 39.25 38.81 38.27 37.01
Multi-family and commercial 25.60 29.08 26.21 24.22 23.47
Installment and consumer 4.11 4.62 5.67 7.11 9.03
Less unearned income (0.05) (.10) (0.22) (0.20) (0.22)
-------- -------- -------- -------- -------
Total loans 100.00% 100.00% 100.00% 100.00% 100.00%
======== ======== ======== ======== =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCE MANAGEMENT
Corresponding to the growth in assets for the year ended
December 31, 1996, total liabilities increased by $97.2 million. This
increase included a $22.0 million increase in short-term borrowings. The
majority of this funding was achieved with short-term advances secured from
the Federal Home Loan Bank of Des Moines (the "FHLB"). In addition, a small
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 December 31, 1996 and as such was re-classified as short-term. In
the current interest rate environment, the Bank prefers to use these
alternative sources of short-term funding in lieu of higher cost retail
deposits gathered with deposit promotions.
DEPOSITS
As of December 31, 1996, aggregate deposits totaled $308.7
million, an increase of 33% or $77.4 million from $231.3 million as of
December 31, 1995. This growth was principally attributable to a $31.0
million increase in certificates of deposit and a $20.6 million increase in
money market accounts. In addition, certificates of deposit over $100,000
increased $17.7 million, while significant growth was achieved in demand
deposit accounts, with an increase of $7.4 million or 34%. Slightly
offsetting these increases was a 32% 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 continued deposit growth in 1997, as the
Mehlville and Des Peres branches mature, along with the addition of the new
St. Peters branch which is expected to become operational in the first half of
1997. In addition to the new branch, the Bank plans to continue offering new
products, such as the ones previously mentioned, in its effort to increase
core deposits and attract long-term banking relationships. The following
table summarizes deposit activity, along with the weighted-average breakdown
of each deposit type and the average yield paid on those deposits for the
periods indicated:
- 84 -
<PAGE> 90
<TABLE>
DEPOSITS
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------------
1996 1995 1994
--------------------------- -------------------------- ---------------------------
PERCENT PERCENT PERCENT
OF TOTAL OF TOTAL OF TOTAL
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
------ -------- ---- ------ -------- ---- ------ -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits $ 29,406 9.53% --% $ 21,966 9.50% --% $ 15,785 11.70% --%
NOW accounts 10,711 3.47 2.37 9,087 3.93 2.35 8,394 6.22 2.37
Money market
accounts 74,490 24.13 4.88 53,905 23.30 4.23 18,771 13.92 3.00
Savings deposits 6,083 1.97 3.25 8,896 3.85 3.88 3,736 2.77 2.49
Certificates of deposit 128,407 41.60 5.90 97,460 42.13 5.91 69,688 51.67 4.39
Certificates of deposit
over $100,000 50,825 16.47 5.50 33,140 14.33 5.61 14,453 10.72 4.11
IRA certificates 8,748 2.83 6.06 6,855 2.96 5.78 4,057 3.01 4.79
-------- ------ -------- ------ -------- ------
Total deposits $308,670 100.00% 5.33% $231,309 100.00% 5.39% $134,884 100.00% 3.90%
======== ====== ======== ====== ======== ======
</TABLE>
<TABLE>
AMOUNTS AND MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE<F1>
<CAPTION>
DECEMBER 31, 1996
-----------------
(IN THOUSANDS)
<S> <C>
Three months or less $30,526
Over three months through six months 8,772
Over six through twelve months 7,357
Over twelve months 4,170
-------
Total $50,825
-------
<FN>
- -----------------
<F1> As of December 31, 1996 the Bank had no outstanding time certificates of
deposit or time deposits in amount of $100,000 or more issued by foreign
banking offices.
</TABLE>
LIQUIDITY MANAGEMENT
The Bank seeks to maintain a level of liquidity which will provide
a readily available source of funds for new loans, allowing it to 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.
- 85 -
<PAGE> 91
Certificates of deposit accounted for approximately 58% of the
Bank's total deposits as of December 31, 1996. Many of such certificates of
deposit were purchased by customers in response to promotions offering
above-market interest rates. Payment of premium interest rates by the Bank
adversely affects the Bank's interest rate spread. Moreover, the Bank's
concentration of deposits in certificates of deposit could have a negative
impact on the stability of its deposits as purchasers of certificates of
deposit may not redeposit the proceeds of their certificates of deposit after
the certificates of deposit mature, particularly if the Bank then is not
offering promotional rates. There can be no assurance the concentration of
the Bank's deposits in certificates of deposit will not have a material
adverse effect on the Bank's future results of operation or 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 Bank has
entered into an agreement with the FHLB providing the Bank a credit facility
secured by the Bank's assets with current availability of $71.8 million of
which $34.8 million was outstanding as of December 31, 1996. This resource
should provide the Bank the opportunity to expand further the loan portfolio
with the flexibility to increase deposits when conditions best match the
Bank's needs and resources.
The following table summarizes short-term borrowings for the
periods indicated:
<TABLE>
AVERAGE SHORT-TERM BORROWINGS
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1995 1994
-------------------- ------------------- -------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
-------------------- ------------------ -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Federal funds purchased $ 2,737 5.33% $ 679 6.27% $ 1,110 4.13%
Securities sold under agreement
to repurchase and other
short-term borrowings 24,744 5.65% 11,496 5.75% 6,424 4.33%
------- ------- -------
Total $27,481 5.61% $12,175 5.77% $ 7,534 5.93%
======= ======= =======
Total maximum short-term borrowings
outstanding at any month-end
during the year $51,060 $14,108 $17,406
</TABLE>
The Bank experienced a period of strong loan demand during the
third quarter of 1996, which affected its short-term liquidity. A large
portion of the loan demand was in the form of one- to four-family real estate
loans, some of which were swapped for mortgage-backed securities during the
fourth quarter of 1996. The Bank's Asset/Liability Committee monitors its
liquidity position daily and seeks consistently to guard against an inadequate
liquidity position.
From December 31, 1995 to December 31, 1996, short-term borrowings
increased substantially. The rates paid for these borrowings are
significantly less than those required to increase the deposit base. This
strategy benefited earnings, as well as improved efficiency by bringing in a
large block of funding at one time. The Bank expects that borrowings maturing
in 1997 will be replaced by similar borrowings if the rate advantage is still
in existence. As of December 31, 1996, the Bank had approximately $58.3
million in availability from several borrowing sources, including commercial
banks and the FHLB, and is now eligible for additionally discounted funds from
the FHLB due to its "Outstanding" Community Reinvestment Act rating.
- 86 -
<PAGE> 92
CAPITAL RESOURCES
From December 31, 1995 to December 31, 1996, Allegiant's
shareholders' equity increased from $13.9 million to $16.4 million, primarily
due to net income of $1.8 million less dividends paid of $187,000 and the
conversion of 504,000 in subordinated debentures into 57,728 shares of
Allegiant Common Stock in the fourth quarter of 1996. Over the years,
issuance of Allegiant Common Stock and net income has provided the majority of
Allegiant's capital accumulation.
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 Board 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 used in such analysis 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 Allegiant, 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.
As of December 31, 1996, Allegiant's and Bank's capital ratios
were as follows:
<TABLE>
<CAPTION>
ALLEGIANT BANK
--------- ----
<S> <C> <C>
Risk-based capital ratio 8.55% 10.06%
Tier 1 capital ratio 6.10% 8.87%
Leverage ratio 4.38% 6.37%
</TABLE>
Management believes that a strong capital position provided by a
mix of equity and qualifying long-term debt is essential to achieving
Allegiant's long-term objectives. It provides safety and security for
depositors, and it enhances the potential for increases in Allegiant's value
for shareholders by providing opportunities for growth with the selective use
of leverage.
Allegiant's capital requirements have been financed through
private offerings of debt and equity securities, retention of earnings after
payment of dividends and borrowings from a commercial bank. The principal
amount of Allegiant's bank stock loan was $4.4 million as of December 31, 1996
and matures in December 1999. The loan agreement contains certain
restrictions on Allegiant's ability to pay cash dividends. Although there can
be no assurance regarding the payment of future dividends, Allegiant believes
the loan agreement will not inhibit its ability to pay regular dividends at
the current rate. Additionally, Allegiant has $3.3 million of outstanding
subordinated debentures due in 2002.
In February 1997, Allegiant completed a rights offering in which
it raised net proceeds of approximately $5.2 million and issued 567,750 shares
of Allegiant Common Stock to existing shareholders at a price of $9.375 per
share. Allegiant's management will continue to monitor Allegiant's actual
and forecasted capital
- 87 -
<PAGE> 93
position in light of operating results and planned operations and growth.
Allegiant currently believes that its business will require up to $4.0 million
of additional capital prior to the end of 1997, which capital likely would be
obtained in the form of a private placement or public offering of equity
securities, including possibly another rights offering.
The capitalization of Allegiant as of December 31, 1996 was as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
(IN THOUSANDS)
<S> <C>
Long-term debt:
Note payable to financial institution, interest
payable at prime (8.25% on December 31, 1996),
due December 31, 1999. The note is secured by Bank stock $ 4,400
Notes payable to FHLB, various interest rates from
5.62% to 7.87% principal balance due from
January 12, 1998 to September 12, 2000.
Secured by FHLB stock and certain loans 7,000
Subordinated debentures with certain shareholders,
interest payable at prime plus 3% (with a minimum
floor of 10%), maturing on May 31, 2002 3,263
-------
Total long-term debt $14,663
-------
Shareholders' equity:
Common Stock, $.01 par value; 7,800,000 shares
authorized; issued and outstanding 2,270,530(1) $ 23
Capital surplus 15,983
Retained earnings 357
Net unrealized depreciation on securities held
available-for-sale 23
-------
Total shareholders' equity 16,386<F1>
-------
Total capitalization $31,049
-------
<FN>
- ------------
<F1> Subsequent to December 31, 1996, Allegiant completed a rights offering
pursuant to which it received net proceeds of $5.2 million and issued
567,750 shares of Allegiant Common Stock.
</TABLE>
- 88 -
<PAGE> 94
DIRECTORS AND EXECUTIVE OFFICERS OF ALLEGIANT
Marvin S. Wool, 68, has served as a director of Allegiant since
1990 and as the Chairman and Chief Executive Officer of Allegiant and Chairman
of the Bank since March 1992. For more than the past five years, Mr. Wool has
served as the President and Chief Executive Officer of Dash Multi-Corp, Inc.,
the holding company for ten subsidiary companies located in Georgia,
Mississippi, Missouri, New Jersey and California which are in the chemical,
cloth coating and carpet industries.
Shaun R. Hayes, 37, has served as a director and as the
President of Allegiant since 1989. Additionally, Mr. Hayes has served as
President and Chief Executive Officer of the Bank since May 1992. From 1989
through 1994, Mr. Hayes served as Secretary of Allegiant.
Leon A. Felman, 62, has been a director of Allegiant since
1992. For more than the past five years, Mr. Felman has been associated with
Sage Systems, Inc., a franchisee of Arby's restaurants in the St. Louis area,
and currently serves as its President and Chief Executive Officer.
C. Virginia Kirkpatrick, 63, has been a director of Allegiant
since 1990. Ms. Kirkpatrick has been President of CVK Personal Management &
Training Specialists, a business consulting and human resource management
firm, for more than the past five years.
Kevin R. Farrell, 46, has served as a director of Allegiant
since 1989 and as Secretary of Allegiant since 1994. Mr. Farrell has been
President of St. Louis Steel Products, a steel fabricating company, for more
than the past five years.
John T. Straub, 48, has been a director of Allegiant since
1990. Since April 1992, Mr. Straub has been self-employed as a certified
public accountant. From December 1989 to April 1992, Mr. Straub served as
Chief Financial Officer of Group Five, Inc.
Lee S. Wielansky, 46, has been a director of Allegiant since
1990. Mr. Wielansky has been the President and Chief Executive Officer of
Midland Development Group, a real estate development company, for more than
the past five years.
Charles E. Polk, 36, has been a director of Allegiant since
1994. Mr. Polk has been a partner of Husch & Eppenberger, a law firm located
in St. Louis, Missouri, for more than the past five years.
Leland B. Curtis, 53, has been a director since March 21, 1996.
He has also been a partner in the law firm of Curtis, Oetting, Heinz, Garrett
& Soule, a law firm located in St. Louis, Missouri for more than the past five
years.
S. Kay Love, 35, has served as Assistant Secretary of Allegiant
and Vice President/Chief Financial Officer of Allegiant Bank since March 1992.
For more than three years prior to joining Allegiant, Ms. Love served in
various positions at Mercantile Bank of St. Louis, N.A. including Staff
Auditor, Assistant Controller, Financial Systems Accountant, Personal Banking
Officer/Branch Operations Manager and Mortgage Banking Officer.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain of the directors and officers of Allegiant and of the
Bank, and members of their immediate families and firms and corporations with
which they are associated, have had transactions with the Bank, including
borrowing and investing in certificates of deposit and repurchase agreements.
All such loans and investments have been made in the ordinary course of
business, have been made on
- 89 -
<PAGE> 95
substantially the same terms, including interest rates paid or charged and
collateral required, as those prevailing at the time for comparable transactions
with unaffiliated persons, and did not involve more than the normal risk of
collectibility or present other unfavorable features. As of March 31, 1997,
the aggregate outstanding amount of all loans to officers and directors of
Allegiant and to firms and corporations in which they have at least a 10%
beneficial interest was approximately $4.0 million, which represented
approximately 18.5% of Allegiant's consolidated shareholders' equity at that
date.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the amount of
Allegiant Common Stock beneficially owned, as of March 31, 1997, by each
person who is an executive officer, director or known by Allegiant to own
beneficially more than 5% of Allegiant Common Stock, and all directors and
executive officers of Allegiant as a group:
<TABLE>
<CAPTION>
NAME OF NUMBER OF SHARES PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED<F1> OF CLASS
---------------- ---------------------- --------
<S> <C> <C>
Marvin S. Wool 443,446 <F2> 15.2%
Shaun R. Hayes 254,349 <F3> 8.7%
S. Kay Love 5,405 <F4> <F5>
Leon A. Felman 271,439 <F6> 9.4%
Kevin R. Farrell 160,530 <F7> 5.6%
Lee S. Wielansky 140,488 <F8> 4.9%
C. Virginia Kirkpatrick 93,427 <F9> 3.2%
John Straub 57,739 <F10> 2.0%
Charles E. Polk 31,486 <F11> 1.1%
Leland B. Curtis 10,361 <F12> <F5>
James R. Gibson 207,036 <F13> 7.3%
All directors and executive
officers as a group 1,468,670 <F14> 50.6%
(10 persons)
<FN>
- ----------------------
<F1> Except as otherwise indicated, each individual has sole voting and
investment power over the shares listed beside his or her name. The
percentage calculations for beneficial ownership are based upon
2,842,989 shares of Allegiant Common Stock that were issued and
outstanding as of March 31, 1997, plus, with respect to each individual
and for all directors and executive officers as a group, the number of
shares subject to options and warrants that may be acquired upon
exercise or conversion within 60 days.
<F2> Total includes: 44,587 shares held by the Dash Industries Pension Plan;
36,300 shares held in trusts for the benefit of Mr. Wool's children;
59,727 shares held in trusts for the benefit of Mr. Wool and his spouse;
72,967 shares subject to presently exercisable stock options; and 9,909
shares subject to issuance upon exercise of warrants. Mr. Wool's
address is 2500 Adie Road, Maryland Heights, Missouri 63043.
<F3> Total includes: 3,025 shares held of record by Mr. Hayes' spouse, as to
which shares Mr. Hayes has shared voting and investment power; 85,781
shares subject to presently exercisable stock options; and 4,247 shares
issuable upon exercise of warrants. Mr. Hayes' address is 7801 Forsyth
Boulevard, St. Louis, Missouri 63105.
- 90 -
<PAGE> 96
<F4> Total includes: 4,950 shares subject to presently exercisable stock
options.
<F5> Less than one percent.
<F6> Total includes: 26,400 shares subject to presently exercisable stock
options and 7,078 shares issuable upon exercise of warrants.
Mr. Felman's address is 8860 Ladue Road, St. Louis, Missouri 63124.
<F7> Total includes: 48,210 shares held of record by Pentastar Family
Holdings, Inc.; 28,779 shares held by Mr. Farrell as custodian for his
four children; 1,210 shares held by United Missouri Bank of Kansas City
as Trustee for the IRA of Mr. Farrell's spouse; 2,750 shares held by
Everen Clearing Corporation as custodian for Mr. Farrell's family;
46,567 shares subject to presently exercisable stock options; and 1,887
shares issuable upon exercise of warrants. Mr. Farrell's address is 191
Rock Industrial Park, St. Louis, Missouri 63044.
<F8> Total includes: 14,486 shares held by Mr. Wielansky as custodian for his
three children; 38,276 shares held jointly with Mr. Wielansky's spouse;
2,299 shares held by Shearson Lehman Brothers for the IRA of
Mr. Wielansky's spouse; 38,500 shares issuable upon exercise of stock
options; and 1,415 shares issuable upon exercise of warrants.
<F9> Total includes: 16,033 shares held jointly with Ms. Kirkpatrick's
spouse; 20,117 shares held by Paine Webber as Trustee for the IRA of
Ms. Kirkpatrick's spouse; 2,273 shares held jointly with
Ms. Kirkpatrick's son; 48,987 shares issuable upon exercise of stock
options; and 471 shares issuable upon exercise of warrants.
<F10> Total includes 22,595 shares held by Mr. Straub's spouse's Trust
Agreement; 4,406 shares held in trust for the benefit of Mr. Straub's
spouse; 26,400 shares issuable upon exercise of stock options; and 471
shares issuable upon exercise of warrants.
<F11> Total includes: 3,981 shares held jointly with Mr. Polk's spouse; and
26,400 shares issuable upon exercise of stock options.
<F12> Total includes: 428 shares held jointly with Mr. Curtis' spouse; and
2,200 shares issuable upon exercise of stock options.
<F13> Total includes: 12,100 shares issuable upon exercise of stock options.
Mr. Gibson no longer serves as director of Allegiant. Mr. Gibson's
address is 67 Signal Hill Road, Belleville, Illinois 62223.
<F14> Total includes: 379,152 shares issuable upon exercise of stock options;
and 25,478 shares issuable upon exercise of warrants.
</TABLE>
- 91 -
<PAGE> 97
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation of Allegiant's
Chief Executive Officer and President. Allegiant's President was the only
executive officer whose aggregate salary and bonus exceeded $100,000 during
1996.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- -----------------------
SECURITIES
RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS/ ALL OTHER
SALARY BONUS COMPENSATION AWARDS SARs COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)
- --------------------------- ---- ------ ----- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Marvin S. Wool 1996 39,039 13,500 9,800<F1> -- -- --
Chairman and Chief 1995 30,000 10,000 6,418<F1> -- -- --
Executive Officer of 1994 -- -- 4,933<F1> -- -- --
Allegiant and Chairman of
Allegiant Bank
Shaun R. Hayes 1996 175,634<F2> 13,500 10,450<F5> -- -- --
President of Allegiant 1995 165,332<F2> 30,000 4,620<F4> -- -- --
and President and Chief 1994 146,529<F2> -- 2,989<F4> -- 48,400<F3> --
Executive Officer of
Allegiant Bank
<FN>
- --------------
<F1> Amounts reported consist only of directors' fees.
<F2> Mr. Hayes' salary includes $240, $332 and $364 paid in 1996, 1995 and
1994, respectively, for the private use of an automobile supplied by
Allegiant.
<F3> In December 1994, the Board of Directors approved the Plan for the
President of Allegiant, under which Allegiant agreed to pay a cash award
to the President based upon the increase in book value of 40,000 shares
of Allegiant Common Stock from December 31, 1994, until the earlier of:
(i) December 31, 1998; or (ii) the end of the year immediately preceding
the year that the President's employment with Allegiant terminates. Due
to the 10% stock dividend effective January 1996 and the 10% stock
dividend effective January 1997, the award now relates to 48,400 shares.
<F4> Amounts reported consist only of matching contributions by Allegiant to
Mr. Hayes' 401(k) plan.
<F5> Amounts reported consist only of directors' fees of $5,700 and matching
contributions by Allegiant of $4,750 to Mr. Hayes' 401(k) plan.
</TABLE>
The following presents certain information concerning stock
options granted to the named executive officers during the year ended
December 31, 1996, and year-end stock option values. No stock options were
exercised by the named executive officers during the year ended December 31,
1996.
- 92 -
<PAGE> 98
OPTION/SAR GRANTS IN LAST YEAR
The following table sets forth information concerning stock option
grants made in 1996 to the individuals named in the Summary Compensation
Table. No SARs were granted to the named individuals in 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SARs
OPTIONS/SARs GRANTED TO EXERCISE OR BASE
GRANTED EMPLOYEES IN PRICE EXPIRATION
NAME (#) YEAR ($/SH) DATE
---- ------------ ---------------- ---------------- ----------
<S> <C> <C> <C> <C>
Marvin S. Wool 11,000<F1> $13.18 4/15/01
5,500<F1> 11.69% $11.75 4/15/01
Shaun R. Hayes 11,000<F1> $13.18 4/15/01
5,500<F1> 11.69% $11.75 4/15/01
<FN>
- ------------------
<F1> Options granted to the recipient pursuant to Allegiant's Directors'
Stock Option Plan.
</TABLE>
<TABLE>
AGGREGATED OPTION/SAR EXERCISES AND YEAR-END OPTION/SAR VALUES IN LAST YEAR
<CAPTION>
VALUE OF UNEXERCISED,
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS/SARs AT
OPTIONS/SARs AT YEAR-END
YEAR-END (#) ($)
--------------------- ----------------------------
SHARES ACQUIRED
ON
EXERCISE VALUE REALIZED
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marvin S. Wool -- -- 72,967 -- 382,467 --
Shaun R. Hayes -- -- 84,167 53,241 487,609 123,829
<FN>
- -----------
<F1> Based on Allegiant Common Stock closing price on December 31, 1996 of
$12.25.
</TABLE>
- 93 -
<PAGE> 99
THE BRANCH ACQUISITION
GENERAL
On May 8, 1997, Allegiant entered into the Roosevelt Agreements
with Roosevelt Bank. The Roosevelt Agreements provide for: (1) the assumption
by the Bank of approximately $100.0 million of deposit liabilities (the
"Deposits") relating to the Roosevelt Branches; (2) the acquisition of
approximately $1.0 million of real property owned by Roosevelt Bank for
operation of the Roosevelt Branches and the related ATMs, furniture,
fixtures, equipment and other operating assets (the "Roosevelt Operating
Assets"); and (3) the acquisition of approximately $3.0 million of consumer
loans of Roosevelt (the "Roosevelt Loans") (the transactions described in the
foregoing clauses (1), (2) and (3) are collectively referred to hereinafter
as the "Branch Acquisition"). In addition, Allegiant will receive
approximately $87.0 million in cash, net of a premium of approximately $9.2
million (the difference in the value of the assets acquired and the
liabilities assumed, which may be deemed to be the purchase price), in
connection with the Branch Acquisition.
On December 22, 1996, Mercantile Bancorporation Inc. ("MBI") and
Roosevelt Financial entered into an Agreement and Plan of Reorganization,
that provided for the Merger of Roosevelt Financial with and into a
wholly-owned subsidiary of MBI (the "MBI/Roosevelt Merger"). The
MBI/Roosevelt Merger was consummated on July 1, 1997. As a condition of
regulatory approval of the MBI/Roosevelt Merger, MBI is required to divest
certain MBI and Roosevelt branches in Missouri to avoid anti-competitive
effects that could result from the MBI/Roosevelt Merger.
In March 1997, MBI announced guidelines with respect to the
divestiture of certain of the branches of MBI and Roosevelt Bank, and
subsequently solicited preliminary bids from potential acquirors. On April
4, 1997, Allegiant submitted a preliminary bid to acquire the Roosevelt
Branches, which Roosevelt bank accepted. Allegiant submitted a final bid on
April 25, 1997. Thereafter, Allegiant and Roosevelt Bank entered into the
Roosevelt Agreements. Pursuant to the Roosevelt Agreements, Allegiant will
acquire the Roosevelt Branches and assume related deposits of approximately
$100.0 million, as well as acquire approximately $3.0 million of Roosevelt
Loans and $1.0 million of Roosevelt Operating Assets.
REASONS FOR THE BRANCH ACQUISITION
Set forth below is a summary of the principal reasons for
Allegiant's decision to effect the Branch Acquisition.
* The acquisition of the Roosevelt Branches will extend the
Bank's network into contiguous market areas that are
similar to the Bank's existing market areas. Management of
the Bank believes that the Warrenton and Union franchises
are significant and could not be established in as timely
or as effective of a manner in the absence of the Branch
Acquisition. Upon consummation of the Branch Acquisition,
it is anticipated that the Bank will have approximately 33%
of the total deposits held by FDIC-institutions in the
Warrenton area and 5% of the total deposits held by FDIC-
institutions in the Union area. In terms of market share
(measured by total deposits), the Bank will be ranked first
in the Warrenton area and ninth in the Union area.
- 94 -
<PAGE> 100
* The Branch Acquisition will significantly increase the
Bank's deposit base, particularly non-interest bearing
demand accounts. Management of Allegiant believes that the
Deposits are largely stable, relatively low-cost core
deposits that are similar to the Bank's existing deposit
base. The Deposits bore interest at a weighted-average
rate of 4.94% at March 31, 1997, compared to the 4.66%
weighted-average rate on the Bank's deposits at the same
date, and are expected to improve the Bank's liquidity.
* The Branch Acquisition is anticipated by management to
expand the Bank's commercial lending opportunities in the
Warrenton and Union market areas because it will have
better access to the small businesses located there. The
Bank is not acquiring any commercial loans through the
Branch Acquisition and, upon consummation of the Branch
Acquisition, intends to offer these services in the
Warrenton and Union market areas.
* Allegiant will acquire a limited amount of consumer loans
that have been made to residents of the Warrenton and Union
market areas. The Bank expects that customer relationships
associated with these loans will further enhance the Bank's
ability to penetrate these market areas. The weighted-
average yield on the Roosevelt Loans was 11.78% at March
31, 1997.
The foregoing discussion of the factors considered by the
Allegiant Board is not meant to be exhaustive but reflects the primary
factors considered by the Board in approving the Roosevelt Agreements. The
Allegiant Board did not quantify or attach any particular weight to the
various factors that it considered in reaching its determination that the
Branch Acquisition is in the best interests of Allegiant and its
shareholders.
DESCRIPTION OF THE BRANCH ACQUISITION
The Warrenton branch is located in Warren County, Missouri, and
the Union branch is located in Franklin County, Missouri. Pursuant to the
Roosevelt Agreements, the Bank will acquire the real property and related
leasehold improvements related to the Roosevelt Branches.
Upon consummation of the Branch Acquisition, the Bank will assume
the Deposits and pay a premium estimated to be approximately $9.2 million in
connection therewith. As of March 31, 1997, the Deposits were approximately
$100.0 million, which is subject to change as a result of deposits and
withdrawals in the ordinary course of business prior to the Roosevelt Closing
Date (as defined under "-- Roosevelt Closing" below). As discussed under "--
Accounting Treatment" below, the Bank expects that a portion of the deposit
premium will be allocated to the Roosevelt Operating Assets, thus reducing
the goodwill resulting from the Branch Acquisition and effectively lowering
the deposit premium to an estimated $8.7 million.
The deposit premium was calculated based on the amount of the
Deposits as of March 31, 1997. For purposes of the pro forma data presented
herein, management of the Bank has assumed that approximately 10% of all
categories of Deposits, other than certificates of deposit with scheduled
maturities after the Roosevelt Closing Date, will be withdrawn from the
Roosevelt Branches prior to the Roosevelt Closing Date for various reasons,
including customer preference to choose another financial services provider.
Based on such assumption and current balances for the Roosevelt Loans and the
Roosevelt Operating Assets, which also are subject to change prior to the
Roosevelt Closing Date, Allegiant will receive approximately $82.0 million in
cash from Roosevelt Bank in consideration for the Bank's assumption of
approximately $94.9 million of Deposits, after deduction of: (i) the deposit
- 95 -
<PAGE> 101
premium of approximately $9.2 million; (ii) Roosevelt Loans of approximately
$2.7 million; and (iii) Roosevelt Operating Assets of approximately $1.0
million.
In connection with the Branch Acquisition, the Bank will acquire
the Roosevelt Loans at a purchase price equal to their value as reported on
Roosevelt Bank's books on the Roosevelt Closing Date. Substantially all of
the Roosevelt Loans consist of consumer loans made to residents of the
Warrenton and Union market areas. As of March 31, 1997, the Roosevelt Loans
aggregated approximately $2.7 million and had a weighted-average yield of
11.78%. The Roosevelt Loans consist primarily of car loans, home equity
credit loans and overdraft protection lines of credit. In the Roosevelt
Agreements, Roosevelt Bank made limited representations and warranties
regarding the Roosevelt Loans and, as a result, Allegiant will have limited
recourse against Roosevelt Bank for credit losses incurred in connection
therewith.
As part of its due diligence in connection with the Branch
Acquisition, the Bank conducted a review of the Roosevelt Loans using
substantially the same underwriting criteria that the Bank has traditionally
used in the ordinary course of its business. Most of the Roosevelt Loans were
performing in accordance with their terms and possessed "acceptable" or better
risk ratings under the Bank's internal loan rating system.
In connection with the Branch Acquisition, Allegiant will acquire
the Roosevelt Operating Assets at a purchase price equal to their book value
as reported on Roosevelt Bank's books on the Roosevelt Closing Date. The
Roosevelt Operating Assets include the real property and related
improvements, as well as the furniture, fixtures and equipment related to the
Roosevelt Branches.
Each party to the Roosevelt Agreements agreed to pay all costs,
fees and expenses that it incurs in connection with or incidental to the
matters contained in the Roosevelt Agreements, including, without limitation,
any fees and disbursements to its accountants and counsel.
ROOSEVELT CLOSING
The closing of the Branch Acquisition will take place on a date
determined by Roosevelt Bank, but no earlier than the first day (and no later
than the 90th day) following the date on which all conditions set forth in
the Roosevelt Agreements have been satisfied (the "Roosevelt Closing Date").
Subject to the satisfaction of all conditions precedent, Allegiant and
Roosevelt Bank currently anticipate that the Branch Acquisition will be
completed on August 22, 1997.
The respective obligations of Allegiant and Roosevelt Bank under
the Roosevelt Agreements are subject to the satisfaction at or prior to the
Roosevelt Closing Date of certain mutual conditions, including the following:
(1) consummation of the transactions contemplated by the Roosevelt Agreements
shall not violate any order or decree of any court or governmental body
having competent jurisdiction or any applicable law or regulation; (2)
Allegiant shall have received, and all required waiting periods shall have
expired with respect to, any and all authorizations, consents, approvals,
licenses, charters and exemptions by any governmental authority or regulatory
or administrative body required for the execution, delivery and performance
of the Roosevelt Agreements by Allegiant and Roosevelt Bank and the
consummation of the transactions contemplated by the Roosevelt Agreements,
including, without limitation, approval from the Division of Finance and the
FDIC; (3) no other action by or notice to or registration or filing with any
such authority or body shall be required for the consummation of the
transactions contemplated thereby; and (4) no state or federal agency having
jurisdiction over Allegiant or any affiliate thereof shall have objected
thereto or imposed any onerous requirements on Allegiant in respect thereof.
- 96 -
<PAGE> 102
The obligation of Allegiant to consummate the Branch Acquisition
is subject to the satisfaction, unless waived, of certain other conditions
including, the following: (1) Roosevelt Bank shall have complied in all
material respects with each of its covenants and agreements contained in the
Roosevelt Agreements that are required to be performed or complied with by
Roosevelt Bank on or prior to the Roosevelt Closing Date; (2) each of the
representations and warranties of Roosevelt Bank contained in the Roosevelt
Agreements shall be true and correct in all material respects at and as of
the Roosevelt Closing Date as if made at and as of the Roosevelt Closing
Date; and (3) there shall have been no material adverse change to the
physical condition of the assets to be acquired, including the real property
and related improvements, furniture and equipment.
The obligation of Roosevelt Bank to consummate the Branch
Acquisition is subject to the satisfaction, unless waived, of certain other
conditions including, the following: (1) Allegiant shall have complied in
all material respects with each of its covenants and agreements contained in
the Roosevelt Agreements that are required to be performed or complied with
by it on or prior to the Roosevelt Closing Date; and (2) each of the
representations and warranties of Allegiant contained in the Roosevelt
Agreements shall be true and correct in all material respects at and as of
the Roosevelt Closing Date as if made at and as of Roosevelt Closing Date.
Neither the Branch Acquisition nor the Merger are contingent upon the
consummation of the other.
The Roosevelt Agreements may be terminated: (1) upon written
notice from Roosevelt Bank to Allegiant in the event that on the Roosevelt
Closing Date the conditions precedent to the obligations of Roosevelt Bank
set forth in the Roosevelt Agreements have not been satisfied or waived by
Roosevelt Bank; (2) upon written notice from Allegiant to Roosevelt Bank in
the event that on the Roosevelt Closing Date the conditions precedent to the
obligations of Allegiant set forth in the Roosevelt Agreements have not been
satisfied or waived by Allegiant; (3) upon written agreement by both parties
thereto; or (4) on December 28, 1997, if the transactions contemplated by the
Roosevelt Agreements shall not have been consummated before such date, unless
otherwise agreed to by the parties.
REGULATORY APPROVALS
The Branch Acquisition is subject to the prior approval of the
FDIC and the Division of Finance. Allegiant filed applications seeking such
approvals on June 20, 1997. The FDIC and the Division of Finance are
required to evaluate the applications by taking into consideration, among
other things, the financial and managerial resources and future prospects of
the institutions involved, the insurance risk to the FDIC and the convenience
and needs of the communities to be served. In addition, the FDIC may not
approve any proposed acquisition if it would result in certain
anti-competitive effects, unless the FDIC finds that such anti-competitive
effects are clearly outweighed in the public interest by the probable effect
of the acquisition in meeting the convenience and needs of the communities to
be served. Under the Community Reinvestment Act of 1977 ("CRA"), the FDIC
must take into account the record of performance of the existing institutions
in meeting the credit needs of the entire communities, including low- and
moderate-income neighborhoods. The Bank's current rating under the CRA is
"outstanding."
A transaction approved by the applicable federal banking agency
(which in the case of the Branch Acquisition is the FDIC) generally may not
be consummated until 30 days after approval by such agency. If the U.S.
Department of Justice (the "DOJ") and the relevant agency otherwise agree,
this 30-day period may be reduced to as few as 15 days. During such period,
the DOJ may commence a legal action challenging the transaction under the
antitrust laws. The commencement of an action would stay the effectiveness
of the approval of the federal banking agency unless a court specifically
orders otherwise. If, however, the DOJ does not commence a legal action
during such waiting period, it may not thereafter challenge the transaction,
except in an action commenced under Section 2 of the Sherman Antitrust Act.
- 97 -
<PAGE> 103
ROOSEVELT BRANCH EMPLOYEES
Pursuant to the Roosevelt Agreements, if Allegiant offers
employment to any of the employees of the Roosevelt Branches, such employees
may be treated by Allegiant as "new hires" for all purposes; provided,
however, that: (1) such employees shall participate in the medical plan of
Allegiant beginning on the Roosevelt Closing Date and continuing through such
employees' employment with the Buyer; and (2) such employees, if terminated
within 180 days from the Roosevelt Closing Date for any reason other than for
cause, shall be entitled to no less than four weeks of such employees'
compensation as severance pay. Other than as provided herein, Allegiant
shall not be obligated to make any contribution to any plan or program on
behalf of such employees, with respect to any period prior to the Roosevelt
Closing Date.
ACCOUNTING TREATMENT
The purchase method of accounting will be used to record the
Branch Acquisition upon its consummation. As required by generally accepted
accounting principles, under purchase accounting, the acquired assets and
assumed liabilities as of the Roosevelt Closing Date are recorded at their
respective fair market values and added to those of the Bank. Financial
statements of the Bank issued after consummation of the Branch Acquisition
will reflect such values. Financial statements of the Bank issued before
consummation of the Branch Acquisition are not restated retroactively to
reflect the historical financial position or results of operations of the
acquired assets and assumed liabilities. The unaudited pro forma financial
information contained herein has been prepared using the purchase method to
account for the Branch Acquisition. See "-- Unaudited Pro Forma Financial
Information."
Management of Allegiant believes that the Roosevelt Operating
Assets will have a fair market value as of the Roosevelt Closing Date that
will exceed its net book value as of such date, which is the purchase price
under the Roosevelt Agreements. Accordingly, the Bank anticipates that a
portion of the deposit premium paid to Roosevelt Bank will be allocated to
the Roosevelt Operating Assets, thus reducing the goodwill resulting from the
Branch Acquisition. This allocated deposit premium will be depreciated on a
straight-line basis over the estimated useful life of the assets. The
remaining premium from the Branch Acquisition currently is estimated to be $8.7
million and will consist of a core deposit intangible which will be amortized on
a straight-line basis over 15 years.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined consolidated
balance sheet has been derived from the historical unaudited consolidated
balance sheet of the Bank, adjusted to give effect to the Branch Acquisition
and the Merger as though such transactions had occurred on March 31, 1997.
Pro forma adjustments related to the Merger have been prepared assuming that
607,861 shares of Allegiant Common Stock are issued at $17.00 per share,
resulting in an estimated capital increase of $4.6 million. The financial
information relating to the assets to be acquired and the liabilities to be
assumed in connection with the Branch Acquisition is based on the current
carrying values of such assets and assumed liabilities on the books of Roosevelt
Bank, which are subject to change prior to consummation in accordance with the
terms of the Roosevelt Agreements. The Branch Acquisition will be accounted for
under the purchase method of accounting and actual purchase accounting
adjustments will be based on the amounts and values of the assets acquired and
liabilities assumed as of the date of consummation of the Branch Acquisition.
See "-- Accounting Treatment."
The pro forma condensed combined consolidated balance sheet is
not necessarily indicative of the financial position that would have been
reported had both the Branch Acquisition and the Merger been consummated as
of the date indicated and should not be construed as representative of
Allegiant's financial position as of any future date.
- 98 -
<PAGE> 104
<TABLE>
ALLEGIANT BANCORP, INC.
PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Allegiant,
Allegiant, Reliance,
Reliance Roosevelt Branches
Pro Forma Roosevelt Pro Forma
Reliance Combined Roosevelt Branches Combined
Allegiant Reliance Adjustments Consolidated Branches<F1> Adjustment Consolidated
--------- -------- ----------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and fed funds $10,717 $2,625 $ -- $ 13,342 $82,225 $ -- <F2> $ 95,567
Investment securities 60,423 7,818 -- 68,241 -- -- <F2> 68,241
Total loans 314,267 20,130 -- 334,397 2,677<F2>,<F3> -- 337,074
Reserve for loan losses (3,456) (205) -- (3,661) -- -- (3,661)
Premises and other assets 7,674 673 -- 8,347 805 480 <F4> 9,632
Goodwill 476 -- 4,640<F5> 5,116 9,175 (480)<F6> 13,811
-------- ------- ------ -------- ------- ---- --------
Total assets $390,101 $31,041 $4,640 $425,782 $94,882 $ -- $520,664
======== ======= ====== ======== ======= ==== ========
LIABILITIES & CAPITAL:
Deposits $310,823 $23,586 $ -- $334,409 $94,882<F7> $ -- $429,291
Short-term borrowings 41,275 166 -- 41,441 -- -- 41,441
Long-term borrowings 13,663 350 -- 14,013 -- -- 14,013
Other liabilities 2,204 105 -- 2,309 -- -- 2,309
Shareholders' equity 22,136 6,834 4,640 33,610 -- -- 33,610
-------- ------- ------ -------- ------- ---- --------
Total liabilities & capital $390,101 $31,041 $4,640 $425,782 $94,882 $ -- $520,664
======== ======= ====== ======== ======= ==== ========
See Notes to Pro Forma Condensed Combined Consolidated Financial Statements.
- 99 -
<PAGE> 105
<FN>
ALLEGIANT BANCORP, INC.
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
<F1> Tangible assets to be acquired and liabilities to be assumed are shown at
their carrying values on the books of Roosevelt Bank as of March 31, 1997,
except as discussed in Note 7 hereto.
<F2> Does not reflect any reinvestment of the cash to be received in the
Branch Acquisition. It is anticipated that the cash proceeds from the
Branch Acquisition will be invested in loans, mortgage-backed securities,
U.S. Government or Agency securities and short-term discount notes.
<F3> The following table sets forth certain information regarding the
Roosevelt Loans as of March 31, 1997:
<CAPTION>
Weighted- Average
Amount Average Remaining Term
Branch (In thousands) Yield (In months)
- --------------------- ----------------------- ---------------- ------------------
<S> <C> <C> <C>
Warrenton $1,378 11.92% 121
Union 1,299 11.64% 119
------ ------ ---
$2,677 11.78% 120
======
<CAPTION>
At March 31, 1997, none of the loans was more than 90 days delinquent.
<F4> The fair value adjustment to the fixed assets relates primarily to real
property and will be depreciated over the expected useful life of the
property.
<F5> Calculated with the following assumptions:
<S> <C>
Purchase price (607,861 shares of Common
Stock @ $17.00 per share) $10,334
Acquisition costs 300
Severance agreement payments to be exercised 840
Capital of Reliance (6,834)
------
$4,640
======
<F6> Consists of adjustments related to the Roosevelt Operating Assets.
<F7> Assumes 10% deposit run-off, prior to the Roosevelt Closing Date, in all
categories of Deposits other than certificates of deposit with scheduled
maturities after the Roosevelt Closing Date, which is based on
management's review of similar transactions and the Bank's analysis of
the composition of the Deposits. The following table sets forth the
composition and certain other information regarding the Deposits as of
March 31, 1997, as adjusted for assumed run-off.
<CAPTION>
Weighted- Weighted-
Average Average
Type of Account Amount Rate Maturity
- ----------------------- ------ --------- ---------
<S> <C> <C> <C>
Now/Checking $ 6,663 0.82%
Savings 4,989 2.30%
Money market 13,548 4.29%
Certificates of deposit 69,683 5.64% 23 months
------- -----
$94,882 4.94%
=======
</TABLE>
- 100 -
<PAGE> 106
IMPACT OF THE BRANCH ACQUISITION ON OPERATING PERFORMANCE
The following discussion reflects Allegiant's current assessment
of the incremental impact of the Branch Acquisition on the operating
performance of Allegiant. Numerous factors, including factors outside
Allegiant's control (such as the general level of interest rates and both
national and regional economic conditions), may significantly alter the
effects described below. As a result, there can be no assurance that the
effects of the Branch Acquisition will be as anticipated by Allegiant. See
"Risk Factors -- Risks of the Branch Acquisition."
SIGNIFICANT ASSUMPTIONS. In addition to the assumptions
stated below, Allegiant made the following assumptions in arriving at its
assessment of the incremental impact of the Branch Acquisition on the
operating performance of Allegiant: (i) regional and national economic
conditions and interest rates will remain stable with no material improvement
or slowdown in the economy; (ii) the Roosevelt Branches are in markets
similar to the Bank's current markets and, therefore, the Bank's experience
in generating loans and fee income and in maintaining core deposits is a
reasonable basis for making further assumptions about the future impact of
the Branch Acquisition; and (iii) prior to consummation of the Branch
Acquisition, there will be a 10% run-off in all categories of deposits, other
than certificates of deposit with scheduled maturities after the Roosevelt
Closing Date, because of various factors, including, but not limited to,
customer preference to find another financial services provider. Although
Allegiant believes that the assumptions stated throughout this section are
reasonable, there can be no assurance that actual results will be consistent
with these assumptions.
NET INTEREST INCOME. Upon consummation of the Branch
Acquisition, the Bank is expected to assume Deposits of approximately $94.9
million and acquire Roosevelt Loans of approximately $2.7 million and cash of
approximately $82.0 million. The cash from the Branch Acquisition will be
used to fund loans and make purchases of mortgage-backed securities, U.S.
Government or Agency securities and short-term discount notes. Thus, the
impact of the Branch Acquisition on interest income is expected to include
interest income from: (i) loans, mortgage-backed securities, U.S. Government
or Agency securities and short-term discount notes purchased with cash
proceeds; and (ii) the Roosevelt Loans. The impact of the Branch Acquisition
on interest expense is expected to be the interest expense of the Deposits,
after pre-acquisition deposit run-off assumed by the Bank (as discussed
above), which had a weighted-average rate of 4.94% as of March 31, 1997.
The Roosevelt Loans had a weighted-average yield of 11.78% at
March 31, 1997. Allegiant has assumed that amortization, prepayment and
repayment of loans will be replaced by new loan originations yielding
equivalent interest income, although there can be no assurance that this will
be the case. If such assumption proves to be invalid, the actual yield on
the Roosevelt Loans will be less than the amount forecasted. Because the
Roosevelt Loans appear to be representative of the consumers served by the
Roosevelt Branches, new loans are expected to be added to the Bank's loan
portfolio in a similar mix as the Roosevelt Loans.
Allegiant estimates that it will receive approximately $82.0
million in cash from Roosevelt Bank at the closing of the Branch Acquisition.
Allegiant expects to invest this cash primarily in AAA rated mortgage-backed
securities secured by single-family residential loans, short-term U.S.
Government or Agency securities, short-term discount notes and to fund loans.
For purposes of estimating the incremental impact of the Branch Acquisition
on the Company's operating performance, it is assumed that $20.0 million of
the cash proceeds from the Branch Acquisition was invested in such
mortgage-backed securities with a market rate of 7.30% at March 31, 1997,
$10.0 million of the cash proceeds from the Branch Acquisition was invested
in one-year U.S. Government or Agency securities with a market rate of 6.20%
at March 31, 1997, and $10.0 million of the cash proceeds from the Branch
Acquisition was invested in short-term discount notes with a market rate of
5.60% at March 31, 1997. The remaining $42.0 million of the cash proceeds
from the Branch Acquisition is assumed to be invested
- 101 -
<PAGE> 107
in loans at an average rate of 8.75%, which is a blended yield of the Bank's
loans as of March 31, 1997. Based upon its experience with the Bank's existing
investment securities and loan portfolios, management of Allegiant believes that
such yields were obtainable at March 31, 1997.
Given the preceding assumptions, Allegiant estimates that the
Roosevelt Loans, purchased securities and Deposits would yield an additional
$2.0 million in net interest income on an annualized basis. It should be
noted in this regard that Allegiant would retain the ability to leverage
capital further while still maintaining the Bank's classification as an
"adequately capitalized" institution under applicable laws and regulations
and that, in the absence of additional credit risk, such capital leveraging
would have the effect of increasing pre-tax income.
The foregoing analysis assumes no significant variations in
interest rates or asset/liability mix because Allegiant is unable to predict
future interest rates. Interest rate movements may occur at different times
and in different amounts from those assumed by Allegiant and, therefore, no
assurance can be made that these estimates will be indicative of actual
results.
PROVISION FOR LOAN LOSSES. The Bank expects periodically to add to
its allowance for loan losses and estimates that the Branch Acquisition will
add approximately $535,000 (representing 50 basis points of the amount of the
Roosevelt Loans, and 1.1% of the loans to be funded with the cash proceeds) to
the Bank's provision for loan losses in the first full year following
consummation of the Branch Acquisition. Actual provisions for loan losses will
be based on numerous factors, including the state of regional and national
economies and the performance of both the Roosevelt Loans and new loans
generated by the Bank at the Roosevelt Branches. Accordingly, there can be no
assurance that the provision relative to the Roosevelt Loans will not exceed
the forecasted amount.
NONINTEREST INCOME. The Bank expects to earn non-interest
income primarily through deposit service charges. Based on Roosevelt's
historical experience, which management of the Bank believes is comparable to
the Bank's historical deposit fees, the Bank estimates that deposit fees and
related income will increase by approximately $325,000 on an annual basis as
a result of the Branch Acquisition. The Bank expects that most of this
non-interest income will be derived from fees earned on deposit accounts
through service charges and overdraft fees.
NONINTEREST EXPENSE. The Bank has estimated the cost of
operating the Roosevelt Branches within the Bank's existing infrastructure.
The Bank expects additional non-interest expenses of approximately $1.5
million during the first full year of operations following the Branch
Acquisition, consisting of compensation and employee benefits of
approximately $467,000, occupancy and office operations expense of $180,000,
SAIF premium expense of $176,000, amortization of intangible assets of
$612,000, advertising and promotion expense of approximately $32,000 and
other expense of approximately $31,000.
The estimate of compensation and employee benefits includes
expenses for approximately 15 full-time equivalent employees at the Roosevelt
Branches and approximately three full-time equivalent employees expected to
be hired, primarily in the Bank's operations center, over a period of time
shortly following the Branch Acquisition.
The estimate of occupancy and office operations expense includes
the existing costs of operating the Roosevelt Branches, as well as estimated
costs of refurbishment and other non-capitalizable
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<PAGE> 108
expenditures that Allegiant expects to incur after consummation of the Branch
Acquisition. Occupancy and office operations expense reflects the depreciation
on the fixed assets estimated to be recorded in connection with the Branch
Acquisition over the estimated use life of the assets acquired.
The estimate of FDIC premium expense reflects the minimum annual
deposit premium for SAIF-insured institutions, which the Bank expects to pay
given its current status as an "adequately capitalized," healthy institution
under applicable laws and regulations. Upon consummation of the Branch
Acquisition, all of the Deposits will remain SAIF-insured deposits, to the
extent permitted by law.
Amortization of intangible assets reflects amortization of the
goodwill estimated to be recorded in connection with the Branch Acquisition,
which results in estimated expense of approximately $612,000 per year for 15
years following consummation of the Branch Acquisition.
The estimate of advertising and promotion expense reflects costs
associated with entrance into new communities, and the estimate of other
expenses includes other support costs needed to operate the Roosevelt
Branches, such as supplies, postage, delivery and other expenses.
INCOME TAXES. Taxes are calculated at an effective rate of 40%.
SUMMARY OF EFFECT OF BRANCH ACQUISITION ON OPERATING
PERFORMANCE. The following table summarizes the expected effect of the
Branch Acquisition on the operating performance of Allegiant for the one-year
period following the Closing of the Branch Acquisition:
<TABLE>
<S> <C>
Net interest income $1,963,000
Provision for loan losses (535,000)
----------
Net interest income after provision for loan losses 1,428,000
Noninterest income 325,000
Noninterest expense:
Compensation and employee benefits 540,000
Occupancy and office operations 208,000
SAIF premium 65,000
Amortization of intangible assets 612,000
Advertising and promotion 37,000
Other 36,000
----------
Total noninterest expense 1,498,000
----------
Income (loss) before income taxes 255,000
Income tax provision (102,000)
----------
Net income $ 153,000
==========
</TABLE>
As discussed above, the foregoing summary is based upon numerous
assumptions. There can be no assurance that actual results will be
consistent with expectations and variations from the forecasted amounts could
be material.
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<PAGE> 109
INFORMATION REGARDING RELIANCE
RELIANCE FINANCIAL, INC.
Reliance was organized in December 1994. On April 7, 1995,
Reliance acquired 100% of the capital stock of RFSLA and sold 430,000 shares
of common stock in the Offering for a purchase price of $10.00 per share. Net
proceeds from the Offering were $3.6 million. Reliance retained 50% of the
net Offering proceeds and used a portion of the proceeds to originate a loan
to the ESOP, and used the balance of the net proceeds to purchase all of the
common stock of RFSLA. Immediately following the Offering, the only
significant assets of Reliance were the common stock of RFSLA, the loan to the
ESOP, and $1.6 million in cash, cash equivalents, and certificates of deposit.
Reliance is registered as a savings and loan holding company with the OTS.
The business of Reliance and its subsidiaries will be discussed
herein as activities of Reliance (on a consolidated basis), and references to
Reliance's historical investment activities include the activities of RFSLA
prior to April 7, 1995 unless otherwise noted.
Reliance employs executive officers and a support staff if and as
the need arises. Such personnel are provided by RFSLA and are paid separate
remuneration for such services. At March 31, 1997, Reliance had total
consolidated assets of $31.0 million, total consolidated deposits of $23.6
million, and consolidated stockholders' equity of $6.8 million. Reliance's
executive office is located at 8930 Gravois Avenue, St. Louis, Missouri 63123
and its telephone number is (314) 631-7500.
RELIANCE FEDERAL SAVINGS AND LOAN ASSOCIATION OF ST. LOUIS COUNTY
RFSLA is a federally chartered stock savings institution
headquartered in St. Louis, Missouri, engaged primarily in the business of
originating one- to four-family residential mortgage loans in its market area.
RFSLA's policy is to originate for retention in its loan portfolio fixed-rate
mortgage loans with maturities of 15 years or less. At September 30, 1996,
42.5% of RFSLA's one- to four-family residential mortgage loan portfolio
consisted of fixed-rate loans, a majority of which were originated for terms
of 15 years or less. In addition to fixed-rate loans, RFSLA also originates
for retention in its one- to four-family residential mortgage loan portfolio,
adjustable-rate mortgage ("ARM") loans and three-, five- and seven-year
"balloon" loans. At September 30, 1996, 51.4% and 6.1% of RFSLA's one- to
four-family residential mortgage loan portfolio was comprised of ARM loans and
three-, five- and seven-year balloon loans, respectively. In the past, RFSLA
originated a significant number of consumer loans (primarily boat loans) and a
limited number of multi-family and commercial loans. However, in recent
years, RFSLA generally has not originated such loans.
RFSLA also invests in various types of securities and assets that
are permissible investments for federal savings associations, including money
market mutual funds, interest-earning deposits in other financial
institutions, mortgage-backed securities, and securities issued or guaranteed
by the United States Government or agencies thereof. RFSLA funds its lending
and investment activities primarily from deposits received, repayment of
principal and interest on its mortgage loans, and borrowings from the FHLB.
At September 30, 1996, core deposits, consisting of passbook accounts, NOW
accounts and money market deposits totaled $9.1 million, or 37.5% of total
deposits, and certificates of deposit totaled $15.1 million, or 62.5%, of
total deposits.
At September 30, 1996, RFSLA's net loan portfolio totaled
$21.1 million, or 64.7%, of total assets. At September 30, 1996,
$18.5 million, or 87.7%, of RFSLA's loan portfolio consisted of one- to four-
family residential mortgage loans.
- 104 -
<PAGE> 110
MARKET AREA AND COMPETITION
RFSLA is a community-oriented savings institution offering a
variety of financial products and services to the community it serves.
RFSLA's market area is St. Louis County, located in East-Central Missouri, in
the incorporated area generally known as Affton. Affton is primarily a mature
and fully developed residential area, with very little manufacturing and only
modest commercial activity. The vast majority of RFSLA's lending is in the
area surrounding its office. To a lesser extent, RFSLA also originates loans
in counties in Missouri contiguous to St. Louis County, such as Jefferson
County and St. Charles County. To supplement mortgage loan origination in its
market area, RFSLA purchases loans secured by properties within the State of
Missouri originated by other financial institutions. To reduce the credit-risk
associated with the purchase of these loans, RFSLA will continue its
present policy of re-underwriting loans using its own underwriting standards
which includes a review of the borrower's payment history and the on-site
inspection of the properties collateralizing the loans. RFSLA's principal
market for deposits is concentrated in the neighborhood surrounding its full
service office in St. Louis County, Missouri.
St. Louis, Missouri's largest city, is located adjacent to
St. Louis County in East-Central Missouri and is served by Lambert
International Airport. The population of St. Louis County has increased to an
estimated 1.0 million in 1994 from 994,000 in 1990. The area's economy is
affected primarily by the manufacturing, construction, transportation and
communication industries. Major non-governmental employers in the area
include McDonnell Douglas Corp., Barnes Jewish Christian Health System,
Ralston Purina, Anheuser-Busch, Monsanto, Chrysler, Ford, SBC Communications,
Inc. and Trans World Airlines.
RFSLA faces significant competition in the origination of loans
from other savings associations, mortgage banking companies, credit unions,
insurance companies, and commercial banks, many of which have greater
financial and marketing resources. RFSLA also faces significant competition
in attracting deposits. Historically, most direct competition for deposits
has been from other savings banks, savings associations, commercial banks and
credit unions. RFSLA faces additional competition for deposits from short-term
money market funds and other corporate and government securities funds
and from other financial institutions such as brokerage firms and insurance
companies. Competition has also increased as a result of the lifting of
restrictions on the interstate operations of financial institutions.
LENDING ACTIVITIES
Loan Portfolio Composition. RFSLA's loan portfolio consists
primarily of conventional first mortgage loans secured by one- to four-family
residences and, to a lesser extent, construction loans, multi-family loans,
and commercial real estate loans. RFSLA also originates a limited amount of
consumer loans. At September 30, 1996, RFSLA's gross loan portfolio totaled
$21.9 million, of which $18.5 million, or 87.7% of loans receivable, net, were
one- to four-family residential mortgage loans held for investment. The
remainder of RFSLA's mortgage loans at September 30, 1996 consisted of $1.0
million of multi-family loans, $1.5 million of real estate construction loans
and $785,000 of commercial real estate loans. RFSLA's consumer loans consist
primarily of boat loans. Consumer loans totaled $87,000 at September 30,
1996.
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<PAGE> 111
Analysis of Loan Portfolio. The following table sets forth
the composition of RFSLA's loan portfolio in dollar amounts and in percentages
at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
--------------------------------------------------------------------
1996 1995 1994
-------------------- ------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family residential<F1> $18,546 87.71% $18,083 90.27% $16,840 84.88%
Multi-family, five or more units 984 4.65 1,214 6.06 1,316 6.63
Construction 1,526 7.22 -- -- 366 1.84
Commercial 785 3.71 832 4.15 1,278 6.44
------- ------ ------- ------ ------- ------
Total real estate loans $21,841 103.29% $20,129 100.48% $19,800 99.79%
------- ------ ------- ------ ------- ------
Consumer and other loans:
Boat loans $ 87 0.41 $ 260 1.30 $ 554 2.79
Savings account loans -- -- 19 0.10 35 0.18
Consumer loans -- -- -- -- 3 0.02
------- ------ ------- ------ ------- ------
Total consumer and other loans 87 0.41 279 1.40 592 2.99
------- ------ ------- ------ ------- ------
Total gross loans receivable $21,928 103.70 $20,408 101.88 $20,392 102.78
Less:
Loans in process $ 560 2.65 $ -- -- $ 129 0.65
Allowance for losses 204 0.96 305 1.53 388 1.95
Unearned discount 8 0.04 65 0.32 21 0.10
Deferred loan fees, net 12 0.05 7 0.03 15 0.08
------- ------ ------- ------ ------- ------
Loans receivable, net $21,144 100.00% $20,031 100.00% $19,839 100.00%
======= ====== ======= ====== ======= ======
Type of Security:
Residential:
One- to four-family dwelling units<F1> $18,546 87.71% $18,083 90.27% $16,840 84.88%
Five or more dwelling units 984 4.65 1,214 6.06 1,316 6.63
Construction 1,526 7.22 -- -- 366 1.84
Commercial 785 3.71 832 4.15 1,278 6.44
Savings accounts -- -- 260 1.30 554 2.79
Boat loans 87 0.41 19 0.10 35 0.18
Other loans -- -- -- -- 3 0.02
------- ------ ------- ------ ------- ------
Subtotal 21,928 103.70 20,408 101.88 20,392 102.78
Less:
Loans in process 560 2.65 -- -- 129 0.65
Allowance for losses 204 0.96 305 1.53 388 1.95
Unearned discount 8 0.04 65 0.32 21 0.10
Deferred loan fees, net 12 0.05 7 0.03 15 0.08
------- ------ ------- ------ ------- ------
Total $21,144 100.00% $20,031 100.00% $19,839 100.00%
======= ====== ======= ====== ======= ======
<FN>
- --------------------
<F1> Includes construction loans converted to permanent loans and FHA/VA
loans.
</TABLE>
Loan Maturity Schedule. The following table sets forth
certain information as of September 30, 1996, regarding the dollar amount of
gross loans maturing in RFSLA's portfolio based on their contractual principal
payments.
<TABLE>
<CAPTION>
DUE DURING THE TEN
YEARS ENDED SEPTEMBER 30, THREE FIVE THROUGH FIFTEEN
---------------------------------- THROUGH THROUGH FIFTEEN YEARS
1997 1998 1999 FIVE YEARS TEN YEARS YEARS OR MORE TOTAL
---- ---- ---- ---------- --------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family
residential $ 899,334 $ 977,819 $1,063,183 $2,412,877 $7,437,903 $3,458,037 $3,823,041 $20,072,194
Multi-family, five or
more units 62,459 68,335 74,763 171,286 457,268 149,615 -- 983,726
Commercial loans 44,399 48,780 53,598 68,172 205,253 310,694 53,924 784,820
Consumer loans 34,557 38,938 13,976 -- -- -- -- 87,471
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
Total $1,040,749 $1,133,872 $1,205,520 $2,652,335 $8,100,424 $3,918,346 $3,876,965 $21,928,211
========== ========== ========== ========== ========== ========== ========== ===========
</TABLE>
- 106 -
<PAGE> 112
The following table sets forth the dollar amount of all gross
loans at September 30, 1996 that have fixed interest rates and have floating
or adjustable interest rates and which are due after September 30, 1997.
<TABLE>
<CAPTION>
FLOATING OR
FIXED RATES ADJUSTABLE RATES<F1> TOTAL
----------- -------------------- -----
<S> <C> <C> <C>
Real estate loans:
One- to four-family residential $8,231,191 $10,941,669 $19,172,860
Multi-family, five or more units 271,607 649,660 921,267
Commercial loans 57,772 682,649 740,421
Consumer loans 52,914 -- 52,914
---------- ----------- -----------
Total $8,613,484 $12,273,978 $20,887,462
========== =========== ===========
<FN>
- ---------------
<F1> Includes three-, five- and seven-year balloon mortgage loans.
</TABLE>
One- to Four-Family Residential Real Estate Loans.
RFSLA's primary lending activity consists of the origination of one- to four-
family owner-occupied residential mortgage loans, substantially all of which
are collateralized by properties located in RFSLA's market area. At
September 30, 1996, $7.3 million, or 39.5%, of RFSLA's one- to four-family
mortgage loans had fixed rates, generally of intermediate (five- to seven-
year) terms, with a limited amount of longer-term fixed-rate loans, not to
exceed 15 years in maturity. The remainder of RFSLA's one- to four-family
mortgage loans ($11.2 million, or 60.5% at September 30, 1996) had variable
rates. Of RFSLA's variable-rate loans at September 30, 1996, $10.0 million,
or 89.4%, were one- and three-year ARM loans and $1.2 million, or 10.6%, were
three-, five- or seven-year balloon loans.
RFSLA originates ARM loans to reduce interest rate risk.
Currently, RFSLA's ARM loans adjust at 250-275 basis points above the one-year
Treasury Bill rate or the Eighth District Quarterly Cost of Funds Index. Such
loans are originated with terms ranging 15 to 30 years depending on customer
preference. Currently, ARM loans originated by RFSLA provide for maximum
adjustments of 2% per adjustment, with overall adjustments of 6.5%.
RFSLA currently offers fixed-rate one- to four-family residential
mortgage loans with terms ranging from five to 15 years. One- to four-family
residential real estate loans often remain outstanding for significantly
shorter periods than their contractual terms because borrowers may refinance
or prepay loans at their option. The average length of time that RFSLA's one-
to four-family residential mortgage loans remain outstanding varies
significantly depending upon trends in market interest rates and other
factors. Accordingly, estimates of the average length of one- to four-family
loans that remain outstanding cannot be made with any degree of accuracy. At
September 30, 1996, the average weighted life of RFSLA's one- to four-family
residential mortgage loans was approximately 14.9 years.
Originations of fixed-rate mortgage loans are monitored on an
ongoing basis and are affected significantly by the level of market interest
rates, RFSLA's interest rate gap position, and loan products offered by
RFSLA's competitors. RFSLA's fixed-rate mortgage loans amortize on a monthly
basis with principal and interest due each month. To make RFSLA's loan
portfolio more interest rate sensitive, RFSLA currently emphasizes the
origination of loans with terms of 15 years or less. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Interest Rate Sensitivity Analysis."
RFSLA is a portfolio lender. It has not sold loans in the
secondary mortgage market since 1989 and does not intend to conduct secondary
market sales in the foreseeable future. One- to four-family loans are
underwritten and originated according to policies approved by the board of
directors. In the current lending environment, loan repayments have exceeded
demand for loans.
- 107 -
<PAGE> 113
RFSLA also originates a number of one- to four-family construction
loans that convert to permanent loans after the initial construction period,
which generally is six months but which may not exceed 12 months. RFSLA makes
a limited number of loans to builders for houses built on "spec." At
September 30, 1996, RFSLA had $1.5 million of construction loans outstanding.
Commercial Real Estate and Multi-Family Lending. RFSLA
originates commercial real estate and multi-family loans on a limited basis.
At September 30, 1996, such loans represented $1.8 million, or 8.4%, of
RFSLA's gross loan portfolio. RFSLA generally does not solicit such loans,
and originates such loans selectively and on a case-by-case basis. Because of
the increased credit risk associated with such loans and the low level of
demand for such loans in RFSLA's market area, RFSLA anticipates its commercial
real estate and multi-family loan portfolio to decrease in the foreseeable
future. The largest such loan at September 30, 1996 was $339,000.
RFSLA's commercial real estate loans typically are secured by
free-standing retail outlets. RFSLA generally makes such loans in amounts up
to 75% of the appraised value of the property.
RFSLA's multi-family loans are typically secured by residential
properties containing six, eight or 12 dwelling units located in its market
area. RFSLA makes such loans in amounts up to 75% of the appraised value of
the property. Currently, RFSLA requires cash flow analysis on the properties,
which is updated each year. RFSLA generally requires a positive cash flow on
all multi-family properties. Multi-family loans are offered with fixed or
adjustable interest rates. Fixed-rate loans generally bear interest of 300 to
400 basis points over the equivalent term U.S. Treasury issue and adjustable-
rate loans generally bear initial rates of 350 basis points over the
equivalent term U.S. Treasury issue and adjust periodically to 350 basis
points over the equivalent term U.S. Treasury issue.
Multi-family and commercial real estate loans generally are for
larger loan amounts and involve greater risks than one- to- four family
residential mortgage loans. Because payments on loans secured by such
properties are often dependent on the successful operation or management of
the properties, repayment of such loans may be subject to a greater extent to
adverse conditions in the real estate market or the economy. RFSLA seeks to
minimize these risks in a variety of ways, including limiting the size of such
loans and strictly scrutinizing the financial condition of the borrower, the
quality of the collateral and the management of the property securing the
loan. RFSLA obtains appraisals on each property in accordance with applicable
regulations.
Consumer and Other Lending. RFSLA also offers consumer loans
which consist primarily of savings account loans.
Between 1985 and 1990, RFSLA made a substantial number of loans on
new and used boats. Management of RFSLA at that time was attracted by the
relatively high interest rates and short amortization schedules offered by
these loans compared to alternative investments. RFSLA has virtually
eliminated its origination of boat loans due, in part, to increased levels of
delinquencies and repossessions on boat loans originated directly by RFSLA.
While boat loans still constitute $87,000, or 0.41%, of RFSLA's loan portfolio
at September 30, 1996, management of RFSLA does not currently anticipate that
the origination of boat loans will constitute a significant part of its
consumer loan portfolio in the future.
Consumer loans entail greater risks than do one- to four-family
residential mortgage loans, particularly in the case of consumer loans which
are unsecured or secured by rapidly depreciable assets such as boats. In such
cases, any repossessed collateral for a defaulted consumer loan may not
provide an adequate source of repayment of the outstanding loan balance, since
there is a greater likelihood of damage, loss or depreciation of the
underlying collateral. Further, the remaining deficiency often does not
warrant further substantial collection efforts against the borrower. In
addition, consumer loan collections are dependent on the borrower's continuing
financial stability, and thus are more likely to be adversely affected by job
loss, divorce, illness or personal bankruptcy. Furthermore, the
- 108 -
<PAGE> 114
application of various federal and state laws, including federal and state
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. While RFSLA has greatly reduced its portfolio of non-performing
consumer loans, no assurance can be given that RFSLA's delinquency rate on
consumer loans will remain low in the future.
RFSLA's one- to four-family residential first mortgage loans
customarily include due-on-sale clauses, which are provisions giving RFSLA the
right to declare a loan immediately due and payable in the event, among other
things, that the borrower sells or otherwise disposes of the underlying real
property serving as security for the loan. Due-on-sale clauses are an
important means of adjusting the rates on RFSLA's fixed-rate mortgage loan
portfolio, and RFSLA has generally exercised its rights under these clauses.
Regulations limit the amount that a savings association may lend
relative to the appraised value of the real estate securing the loan, as
determined by an appraisal at the time of loan origination. Such regulations
permit a maximum loan-to-value ratio of 100% for residential property and 90%
for all other real estate loans. RFSLA's lending policies limit the maximum
loan-to-value ratio on fixed-rate loans without private mortgage insurance to
80% of the lesser of the appraised value or the purchase price of the property
to serve as collateral for the loan.
RFSLA makes one- to four-family real estate loans with loan-to-value
ratios of up to 80%. RFSLA requires fire and casualty insurance,
appraisals by an independent certified appraiser, and a certificate of title,
on all properties securing real estate loans made by RFSLA.
Loan Originations, Solicitation, Processing and
Commitments. Loan originations are derived from a number of sources such as
real estate agent referrals, existing customers, borrowers, builders,
attorneys, and walk-in customers. Upon receiving a loan application, RFSLA
obtains a credit report and employment verification to verify specific
information relating to the applicant's employment, income, and credit
standing. In the case of a real estate loan, an appraiser approved by RFSLA
appraises the real estate intended to collateralize the proposed loan. An
underwriter in RFSLA's loan department checks the loan application file for
accuracy and completeness, and verifies the information provided. Pursuant to
RFSLA's written loan policies, all loans over $300,000 must be approved by the
board of directors, which meets monthly. However, RFSLA's Chief Executive
Officer and Executive Vice President have authority to approve loans up to
$175,000 and loans from $175,000 to $300,000 must be approved by three members
of the RFSLA Loan Committee. After the loan is approved, a loan commitment
letter is promptly issued to the borrower.
To supplement mortgage loan origination in its market area, RFSLA
anticipates purchasing loans secured by properties within the State of
Missouri originated by other financial institutions, to the extent attractive
purchases are available. To reduce the credit-risk associated with the
purchase of these loans, RFSLA will continue its present policy of
re-underwriting loans using its own underwriting standards which includes a
review of the borrower's payment history and the on-site inspection of the
properties collateralizing the loans.
If the loan is approved, the commitment letter specifies the terms
and conditions of the proposed loan including the amount of the loan, interest
rate, amortization term, a brief description of the required collateral, and
required insurance coverage. Commitments are typically issued for 45-day
periods in the case of loans to refinance, 45-day periods in the case of loans
to purchase existing real estate, and 45-day periods for construction loans.
The borrower must provide proof of fire and casualty insurance on the property
serving as collateral, which insurance must be maintained during the full term
of the loan. A certificate of title, based on a title search of the property,
is required on all loans secured by real property. There was $93,000 in
commitments for one-to-four family loans and $560,000 of loans in process for
one-to-four family construction loans as of September 30, 1996.
- 109 -
<PAGE> 115
Origination of Loans. The table below summarizes RFSLA's loan
and mortgage-backed securities activity for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Total gross loans receivable at
beginning of year $20,408 $20,392 $23,406
------- ------- -------
Loan originations:
Real estate:
One- to four-family residential 1,250 802 993
Multi-family, five or more units 13 -- 86
Construction 1,678 509 658
Commercial -- -- 192
Consumer and other loans:
Boat loans -- -- --
Savings account loans -- -- 21
Consumer loans -- -- --
------- ------- -------
Total loans originated 2,941 1,311 1,950
Loans purchased 3,387 3,212 1,372
Loans sold -- -- --
Loans transferred to REO (41) (21) --
Loans transferred to Repo assets -- -- (65)
Loan repayments (4,735) (4,412) (6,044)
Other loan activity, net (32) (74) (227)
------- ------- -------
Total gross loans receivable at
end of year $21,928 $20,408 $20,392
======= ======= =======
Mortgage-backed securities at beginning
of year $ 5,650 $ 6,299 $ 3,197
Purchases -- -- 3,860
Sales -- -- --
Repayments, net (149) (649) (758)
------- ------- -------
Mortgage-backed securities at end
of year $ 5,501 $ 5,650 $ 6,299
======= ======= =======
</TABLE>
Loan Service Charges and Other Income. In addition to
interest earned on loans, RFSLA receives fees in connection with loan
originations, loan modifications, late payments and for miscellaneous services
related to its loans, including loan servicing. Income from these activities
varies from period to period with the volume and type of loans originated.
In connection with the origination of mortgage loans, RFSLA
charges points for origination, commitment and discounts, and fees for
processing and closing in addition to requiring borrower reimbursement for
out-of-pocket fees for costs associated with obtaining independent appraisals,
credit reports, title insurance, private mortgage insurance and other items.
Because of the highly competitive mortgage market in which RFSLA originates
loans, the point structure varies considerably, depending upon the type of
mortgage loan being made, its interest rate and other competitive factors.
Origination fees ranging from zero to two points generally are quoted on
mortgage loan originations. The amount of the origination fee is typically
higher with a lower interest rate quoted and lower if a higher interest rate
is established for the loan. Since the availability of zero point mortgage
loans in recent years, most borrowers typically accept a slightly higher
interest rate and pay zero points. Commitment fees are paid by the applicant
at the time of loan commitment, whereas the origination and discount fees are
paid at time of closing. Accounting standards adopted under Statement of
Financial Standards No. 91 prescribe the accounting treatment for origination
and commitment fees. Loan
- 110 -
<PAGE> 116
origination and commitment fees and certain direct loan origination costs are
deferred and the net amounts amortized as an adjustment of the related loan's
yield. These amounts are amortized to interest income using the level yield
method over the contractual life of the related loans. Deferred loan fees
totaled $12,000, $7,000 and $16,000 at September 30, 1996, 1995 and 1994,
respectively.
Loan Concentration. The Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") amended the HOLA to limit the
amount of credit a savings association could extend to any single borrower or
related group of borrowers generally to 15% of the savings association's
unimpaired capital and surplus. The applicable regulations also provide that
additional amounts of credit may be extended to such borrowers, in certain
circumstances, in amounts up to 10% of the savings association's unimpaired
capital and surplus, if such credit is secured by readily marketable
collateral, which generally does not include real estate. Loans originated
prior to the enactment of the FIRREA, however, are deemed to comply with the
limits imposed by FIRREA if made in accordance with the then applicable
lending limits. At September 30, 1996, RFSLA had one borrower that had a
concentration in excess of the loans-to-one-borrower limitation. At
September 30, 1996, the maximum dollar amount of loans to one borrower that
RFSLA was authorized to make was $809,000. At that date, the largest
concentration of loans to any one borrower totaled $960,000. All of these
loans were originated prior to the enactment of FIRREA.
Mortgage-Backed Securities. RFSLA also invests in mortgage-
backed securities. At September 30, 1996, mortgage-backed securities totaled
$5.5 million, or 16.8%, of total assets. At September 30, 1996, $2.0 million,
or 35.5%, of RFSLA's portfolio of mortgage-backed securities had fixed-rates.
All mortgage-backed securities at September 30, 1996 were guaranteed by the
GNMA or insured by either the FNMA or the FHLMC. At that date, the market
value of RFSLA's net mortgage-backed securities portfolio totaled
approximately $5.3 million. At September 30, 1996, 1995 and 1994, the book
value of RFSLA's mortgage-backed securities portfolio totaled $5.5 million,
$5.6 million and $6.3 million, respectively.
Mortgage-backed securities typically are issued with stated
principal amounts, and the securities are backed by pools of mortgage loans
with varying interest rates and maturities. The mortgage loans backing the
mortgage-backed securities are variable- or fixed-rate loans. The interest
rate risk characteristics of the underlying pool of mortgages as well as the
prepayment risk are passed on to the holder of the mortgage-backed securities.
Consequently, in a declining interest rate environment there is a risk that
mortgage-backed securities will prepay faster than anticipated thereby
adversely affecting the yield to maturity and the related market value of the
mortgage-backed securities. Moreover, there can be no assurance that RFSLA
would be able to reinvest the cash flow from prepaid mortgage-backed
securities into comparable yielding investments. In a rising interest rate
environment the value of the mortgage-backed securities may be impaired since
mortgage-backed securities with fixed-rate underlying mortgage loans will be
worth less as investors seek higher yielding investments.
RFSLA's mortgage-backed securities portfolio includes
collateralized mortgage obligations ("CMO"). RFSLA invests in mortgage-backed
securities to supplement local loan originations as well as to reduce interest
rate risk exposure, because mortgage-backed securities are more liquid than
mortgage loans.
CMOs are securities created by segregating or partitioning cash
flows from mortgage pass-through securities or from pools of mortgage loans.
CMOs provide a broad range of mortgage investment vehicles by tailoring cash
flows from mortgages to meet the varied risk and return preferences of
investors. These securities enable the issuer to "carve up" the cash flow
from the underlying securities and thereby create multiple classes of
securities with different maturity and risk characteristics. CMOs are
typically issued by a special-purpose entity (the "issuer") that may be
organized in a variety of legal forms, such as a trust, a corporation, or a
partnership. Accordingly, a CMO instrument may be purchased in equity form
(e.g., trust interests, stock and partnership interests) or nonequity
form (e.g.,
- 111 -
<PAGE> 117
participating debt securities). All of RFSLA's CMOs are nonequity
interests. CMOs are collateralized by mortgage loans or mortgage-backed
securities that are transferred to the CMO trust or pool by a sponsor. The
issue is structured so that collections from the underlying collateral provide
a cash flow to make principal and interest payments on the obligations, or
"tranches," of the issuer.
CMOs totaled $3.5 million, or 64.5%, of RFSLA's total mortgage-
backed securities portfolio on September 30, 1996, all of which were backed by
federal agency collateral and all of which had floating rates. The margin
ranged from 100 to 150 basis points over the 11th District Cost of Funds
Index, and adjusts monthly.
Effective February 1992, the OTS adopted Thrift Bulletin 52 ("TB
52"). Among other things, TB 52 sets forth certain guidelines with respect to
depository institutions' investment in certain "high-risk mortgage
securities." "High-risk mortgage securities" are defined as any mortgage
derivative product that at the time of purchase, or at any subsequent date,
meets any of three tests that are set forth in TB 52. High-risk mortgage
securities may be purchased only in limited circumstances, and if held in a
portfolio, must be reported as trading assets at market value, or as
available-for-sale assets at the lower of cost or market value. In certain
circumstances, OTS examiners may seek the orderly divestiture of high-risk
mortgage securities. Prior to purchasing a mortgage derivative security the
Loan/Investment Committee obtains an analysis of whether the mortgage security
meets any one of the three TB 52 tests, and falls into the category of "high-
risk mortgage security." The committee thereafter presents such analysis to
the Board. RFSLA documents no less frequently than annually whether a change
in the characteristics of any mortgage derivative security in its portfolio
causes such security to become a "high-risk mortgage security." As of
September 30, 1996, RFSLA does not hold any "high-risk mortgage securities" in
its portfolio.
Set forth below is a table showing RFSLA's purchases and
repayments of mortgage-backed securities for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage-backed securities at beginning
of year $5,650 $6,299 $3,197
Purchases -- -- 3,860
Sales -- -- --
Repayments, net (149) (649) (758)
------ ------ ------
Mortgage-backed securities at end
of year $5,501 $5,650 $6,299
====== ====== ======
</TABLE>
DELINQUENCIES AND CLASSIFIED ASSETS
Delinquent Loans. Management performs a monthly review of all
delinquent loans, which is then presented monthly to the Board of Directors.
The procedures taken by RFSLA with respect to delinquencies vary depending on
the nature of the loan and period of delinquency.
RFSLA's policies generally provide that delinquent mortgage loans
be reviewed and that a written late charge notice be mailed no later than the
30th day of delinquency. A delinquency letter is sent if the loan continues
to be delinquent after 60 days. After 90 days, RFSLA sends a letter demanding
the loan be brought current within 30 days. After 120 days, RFSLA accelerates
the loan and begins foreclosure efforts.
RFSLA's general policy is not to accrue interest on all loans 90
days past due. RFSLA will discontinue the accrual of interest on loans and
establish a reserve upon a determination that the loan may result in a loss.
Interest on loans contractually delinquent 90 days or more is excluded from
earnings in all cases. Property acquired by RFSLA as a result of a foreclosure
on a mortgage loan is classified as
- 112 -
<PAGE> 118
foreclosed real estate and is recorded at the lower of the investment on the
related loan or fair value at the date of acquisition and carried at the lower
of cost or fair value, less anticipated selling costs. At September 30, 1996,
1995, and 1994, RFSLA had $67,000, $43,000 and $286,000, respectively, in loans
that were 90 days or more delinquent. Such delinquent loans represented 0.32%,
0.21% and 1.44% of net loans receivable at September 30, 1996, 1995 and 1994,
respectively.
DELINQUENT LOANS AND TROUBLED ASSETS
The following table sets forth information with respect to RFSLA's
delinquent loans and other problem assets at September 30, 1996.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
---------------------
BALANCE NUMBER
------- ------
(IN THOUSANDS)
<S> <C> <C>
Residential real estate:
Loans 60 to 89 days delinquent $354 $ 5
Loans 90 days or more delinquent<F1> 67 2
Commercial real estate:
Loans 60 to 89 days delinquent -- --
Loans 90 days or more delinquent<F1> -- --
Consumer loans (60 days delinquent) -- --
Foreclosed real estate and repossessions -- --
Other non-performing assets -- --
Restructured loans within the meaning of
Statement of Financial Accounting
Standards No. 15 (not included in other
non-performing categories above) -- --
Total non-performing assets $ 67 $ 2
<FN>
- ---------------
<F1> Interest accruals on loans are generally discontinued when the payment
of principal or interest is contractually more than 90 days past due.
</TABLE>
The following table sets forth information with respect to
nonperforming assets in RFSLA's portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Delinquent loans:<F1>
One- to four-family residential $ 67 $ 43 $ 110
All other mortgages -- -- --
Commercial non-real estate -- -- 174
Consumer loans, other -- -- 2
----- ----- -----
Total delinquent loans 67 43 286
----- ----- -----
Total foreclosed real estate -- 6 --
----- ----- -----
Total repossessed assets -- -- --
----- ----- -----
Troubled debt restructurings before
the effective date of SFAS No. 114
and 118 -- 299 320
----- ----- -----
Total nonperforming assets $ 67 $ 348 $ 606
===== ===== =====
Total loans delinquent 90 days or more
to net loans receivable 0.32% 0.21% 1.44%
Total loans delinquent 90 days or more
to total assets 0.21 0.13 0.89
Total nonperforming assets to total assets 0.21 1.06 1.88
<FN>
- ------------------
<F1> Represents loans delinquent 90 days or more.
</TABLE>
Classified Assets. Federal regulations require the
classification of loans and other assets such as debt and equity securities,
considered by the OTS to be of lesser quality, as "substandard", "doubtful" or
"loss" assets. RFSLA's classification policies provide that assets will be
classified according to OTS regulations. An asset is considered "substandard"
if it is inadequately protected by the current net worth and paying capacity
of the obligor or of the collateral pledged, if any. "Substandard" assets
include those characterized by the "distinct possibility" that the insured
institution will sustain "some loss" if the deficiencies are not corrected.
Assets classified as "doubtful" have all of the weaknesses inherent in those
classified as "substandard," with the added characteristic that the weaknesses
present make "collection or liquidation in full," on the basis of currently
existing facts, conditions, and values, "highly questionable and improbable."
Assets classified as "loss" are those considered "uncollectible" and of such
little value that their continuance as assets without the establishment of a
specific loss reserve is not warranted. Assets which do not currently expose
the institution to sufficient risk to warrant classification in one of the
aforementioned categories but possess weaknesses are required to be designated
"special mention" by management.
The following table sets forth the aggregate amount of RFSLA's
classified assets at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
--------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Special mention assets $ -- $ -- $ 4
Substandard assets 67 85 743
Doubtful assets -- -- 17
Loss assets -- -- --
----- ----- -----
Total classified assets $ 67 $ 85 $ 764
===== ===== =====
</TABLE>
RFSLA's policies provide that the Board of Directors review a
report of all classified assets on a monthly basis and that such classified
asset reports be provided to the OTS on a quarterly
- 114 -
<PAGE> 119
basis. When RFSLA determines that an asset should be classified, it generally
does not establish a specific allowance for such asset unless it determines that
a loss on such asset is evident. RFSLA may increase, however, its general
valuation allowance in an amount deemed prudent. General valuation allowances
represent loss allowances which have been established to recognize the inherent
risk associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. RFSLA's policies
provide for the establishment of a specific allowance equal to 100% of each
asset classified as "loss" or to charge-off such amount. A savings
institution's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the OTS which can
order the establishment of additional general or specific loss allowances.
RFSLA reviews the problem loans in its portfolio on a monthly basis to
determine whether any loans require classification in accordance with
applicable regulations and believes its classification policies are consistent
with OTS policies.
Allowance for Loan Losses. An allowance for loan losses is
maintained at a level considered adequate to absorb future loan losses.
Management of RFSLA, in determining the provision for loan losses, considers
the risks inherent in its loan portfolio and changes in the nature and volume
of its loan activities, along with the general economic and real estate market
conditions. RFSLA utilizes a two tier approach: (i) identification of problem
loans and the establishment of specific loss allowances on such loans; and
(ii) establishment of general valuation allowances on the remainder of its
loan portfolio. RFSLA maintains a loan review system which allows for a
periodic review of its loan portfolio and the early identification of
potential problem loans. Such system takes into consideration, among other
things, delinquency status, size of loans, type of collateral and financial
condition of the borrowers. Specific loan loss allowances are established for
identified loans based on a review of such information and/or appraisals of
the underlying collateral. Although RFSLA maintains its allowance for losses
on loans at a level which it considers to be adequate to provide for losses,
there can be no assurance that such losses will not exceed the estimated
amounts or that RFSLA will not be required to make additions to the allowance
for losses on loans in the future. Future additions to RFSLA's allowance for
loan losses and any changes in the related ratio of the allowance for loan
losses to non-performing loans are dependent upon the economy, changes in real
estate values and interest rates, the view of the regulatory authorities
toward adequate reserve levels, and inflation.
- 115 -
<PAGE> 120
Analysis of the Allowance for Loan Losses. The following
table sets forth information with respect to RFSLA's allowance for loan losses
at or for the dates indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total gross loans receivable $21,928 $20,408 $20,392
======= ======= =======
Average net loans receivable 21,143 19,904 20,795
======= ======= =======
Allowance balances at beginning of year 305 388 434
Provision charged (credited) to expense (108) (87) (115)
Charge-offs:
Real estate -- (20) --
Consumer -- (1) --
Recoveries:
Real estate 5 19 30
Consumer 2 6 39
------- ------- -------
Allowance balances at end of year $ 204 $ 305 $ 388
======= ======= =======
Allowance for loan losses as a percent of
total gross loans outstanding at end of year 0.93% 1.49% 1.90%
Net loans charged off (recovered) as a percent
of average loans outstanding (0.03) (0.02) (0.33)
Ratio of allowance for loan losses to total
nonperforming loans at end of year 304.48 709.30 135.66
Ratio of allowance for loan losses to
non-performing assets at end of year 304.48 87.64 64.03
</TABLE>
Allocation of Allowance for Loan Losses. The following
table sets forth the allocation of the allowance for loan losses by loan
category for the periods indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------- ------------------------------- ------------------------------
% OF % OF % OF
LOANS IN % OF LOANS IN % OF LOANS IN % OF
EACH ALLOWANCE EACH ALLOWANCE EACH ALLOWANCE
CATEGORY TO GROSS CATEGORY TO GROSS CATEGORY TO GROSS
TO TOTAL LOANS IN TO TOTAL LOANS IN TO TOTAL LOANS IN
NET EACH NET EACH NET EACH
AMOUNT LOANS CATEGORY AMOUNT LOANS CATEGORY AMOUNT LOANS CATEGORY
------ -------- -------- ------ -------- -------- ------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of
period applicable to:
One- to four-family
and multi-family $ 36 92.36% 0.18% $ 37 96.33% 0.19% $109 91.51% 0.60%
Real estate construction 2 7.22 0.13 -- -- -- 1 1.84 0.15
Commercial real estate 15 3.71 1.91 16 4.15 1.92 26 6.44 2.03
Consumer 2 0.41 2.29 5 1.40 1.79 11 2.99 1.86
Unallocated 149 -- -- 247 -- -- 241 -- --
---- ---- ----
Total allowance for
loan losses $204 0.93% $305 1.49% $388 1.90%
==== ==== ====
</TABLE>
INVESTMENT ACTIVITIES
Federally chartered savings institutions have the authority to
invest in various types of liquid assets, including U.S. Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured associations and savings institutions, certain bankers' acceptances,
repurchase agreements and federal funds. Subject to various restrictions,
federally chartered savings institutions may also invest their assets in
commercial paper, investment grade corporate debt securities and mutual funds
whose assets conform to the investments that a federally chartered savings
institution
- 116 -
<PAGE> 121
is otherwise authorized to make directly. Additionally, RFSLA must maintain
minimum levels of investments that qualify as liquid assets under OTS
regulations. Historically, RFSLA has maintained liquid assets above
the minimum OTS requirements, and its average liquidity ratio of 18.3% for
September 1996 exceeded the 5% regulatory liquidity requirement. RFSLA
believes that its average level of liquid assets is adequate to meet its
normal daily activities.
The investment policy of RFSLA established by the Board of
Directors attempts to provide and maintain liquidity, generate a favorable
return on investments without incurring undue interest rate and credit risk,
and complement RFSLA's lending activities. RFSLA's policies generally limit
investment securities to investments qualifying as eligible investments under
OTS regulations. Investments are made with the intent and ability to hold
them to maturity. Day-to-day management of RFSLA's investment activities is
supervised by the Chief Executive Officer. The Chief Executive Officer
reports monthly on all investment activities to the full Board of Directors of
RFSLA.
At September 30, 1996, RFSLA had securities in the aggregate
carrying amount of $2.5 million with a market value of $2.5 million. At
September 30, 1996, RFSLA's securities portfolio included $1.7 million of U.S.
Government and federal agency obligations, and $336,000 investment in common
stock of the FHLB. RFSLA also invests in mutual funds which invest in FNMA,
FHLMC and other federal agency obligations. At September 30, 1996, RFSLA had
a carrying value of $473,000 in mutual funds. The value of the mutual funds
fluctuates with changes in the value of the underlying securities. However,
RFSLA believes that the risk of loss on this investment is limited given the
type of securities underlying the mutual funds. Such investments are liquid
and therefore allow RFSLA to respond to changing market conditions. The
securities portfolio is accounted for on an amortized cost basis, excluding
equity securities (mutual funds and FHLB common stock) which are carried at
market value. Finally, at September 30, 1996, RFSLA and Reliance had $1.6
million in certificates of deposit at other financial institutions and $1.0
million in other interest-earning assets, consisting principally of FHLB
deposits.
- 117 -
<PAGE> 122
Investment Portfolio. The following table sets forth the
carrying value of RFSLA's investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Held-to-maturity:<F1>
U.S. Government and agency obligations $1,689 $ 486 $ 484
------ ------ ------
Available for sale:<F2>
Short-term U.S. Government
Securities Portfolio<F3> 238 242 239
Mortgage Securities Portfolio 235 241 234
------ ------ ------
473 483 473
------ ------ ------
FHLB stock 336 329 329
------ ------ ------
Total securities 2,498 1,298 1,286
Interest-earning deposits in other institutions<F4> 2,546 4,656 3,710
------ ------ ------
Total investments $5,044 $5,954 $4,996
====== ====== ======
<FN>
- -------------------
<F1> Recorded at cost, adjusted for amortization of premiums and accretion of
discounts over the life of the security using the interest method.
<F2> Equity securities, consisting of mutual funds at market value. See
Note 1 and 3 of Notes to Reliance's Consolidated Financial Statements.
The Short-term U.S. Government Securities Portfolio consists primarily
of U.S. Treasury, agency obligations and other debt securities maturing
in five years or less. The Intermediate-term Mortgage Securities
Portfolio consists primarily of collateralized mortgage obligations
(which are derivatives of mortgage-backed securities) issued by FHLMC,
FNMA and commercial enterprises. The Portfolio also invests in FHLMC
and FNMA pass-through certificates and, to a lesser extent, U.S.
Treasury instruments and certificates of deposit. The average maturity
of the Portfolio is approximately 7.6 years.
<F3> Formerly known as Intermediate-Term Liquidity Portfolio.
<F4> Includes certificates of deposit and FHLB deposits.
</TABLE>
- 118 -
<PAGE> 123
INVESTMENT PORTFOLIO MATURITIES
The following table sets forth the scheduled maturities, carrying
values, market values, average lives, and average yields for Reliance's
investments at September 30, 1996.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
------------------------------------------------------------------------------------------------
ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS TOTAL INVESTMENTS
------------------ ------------------ ------------------ -------------------------------------
WEIGHTED WEIGHTED WEIGHTED AVERAGE WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING MARKET LIFE IN AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE VALUE YEARS<F1> YIELD
-------- -------- -------- -------- -------- -------- -------- ------ --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities:<F1>
U.S. Government and
agency obligations $ -- --% $1,689 6.25% $ -- --% $1,689 $1,670 3.39 6.25%
------ ------ ------ ------ ------
Equity securities:
Mutual funds<F3> 473 6.36 -- -- -- -- $ 473 $ 473 -- 6.36%
FHLB stock 336 7.25 -- -- -- -- 336 336 -- 7.25
------ ------ ------ ------ ------
Total $ 809 6.73 $1,689 6.25 $ -- -- $2,498 $2,479 2.29 6.41%
------ ------ ------ ------ ------
Interest-earning deposits:
Certificates of deposit 695 6.37 891 6.51 -- -- 1,586 1,586 -- 6.45
Other<F2> 960 5.17 -- -- -- -- 960 960 -- 5.17
------ ------ ------ ------ ------
Total 1,655 5.68 891 6.51 -- -- 2,546 2,546 1.14 5.98
------ ------ ------ ------ ------
Total investments $2,464 6.03% $2,580 6.34% $ -- --% $5,044 $5,025 1.72 6.19%
====== ====== ====== ====== ======
<FN>
- --------------------
<F1> Excludes equity securities, FHLB stock and mutual funds.
<F2> Consists primarily of interest-bearing deposits in the FHLB, which are
repriced daily.
<F3> Invested in Asset Management Funds.
</TABLE>
SOURCES OF FUNDS
General. Deposits are the major source of RFSLA's funds for
investment and lending purposes. In addition to deposits, RFSLA derives funds
from the amortization and prepayment of mortgage-backed securities and loans,
the maturity of investment securities, operations and, if needed, advances
from the FHLB. Scheduled principal repayments on mortgage-backed securities
and loans are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and market conditions. Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds from other sources or
on a longer term basis for general business purposes, although RFSLA has not
relied heavily on other borrowing sources in recent years.
Deposits. RFSLA's deposits consist of passbook savings and
certificate accounts having a range of interest rates and terms, NOW accounts
and money market deposit accounts. The flow of deposits is influenced
significantly by general economic conditions, changes in money market rates,
prevailing interest rates and competition. RFSLA's deposits are obtained
primarily from the area in which its office is located. RFSLA relies
primarily on customer service and long-standing relationships with customers
to attract and retain these deposits. Certificate accounts in excess of
$100,000 are not actively solicited by RFSLA nor does RFSLA use brokers to
obtain deposits. Further, RFSLA has not emphasized the solicitation of
deposit accounts by increasing the rates of interest paid as quickly as some
of its competitors nor has it emphasized offering higher dollar amount deposit
accounts with higher yields to replace deposit account runoff. Management
constantly monitors RFSLA's deposit accounts, for activity, type of account
and total balances, competition rates, and RFSLA's cost of funds, adjusting
- 119 -
<PAGE> 124
accordingly. Based on historical experience, management believes it will
retain a large portion of such accounts upon maturity.
Deposit Activity. The following table sets forth the dollar
change in deposit accounts of RFSLA for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net withdrawals $(1,859,840) $(4,292,956) $(2,620,381)
Interest credited 840,945 858,966 892,157
----------- ----------- -----------
Net decrease in deposits $(1,018,895) $(3,433,990) $(1,728,224)
=========== =========== ===========
</TABLE>
- 120 -
<PAGE> 125
Deposit Flow. The following table sets forth the change in
dollar amount of deposit accounts in the various types offered by RFSLA
between the dates indicated.
<TABLE>
<CAPTION>
BALANCE BALANCE BALANCE
AT AT AT
SEPTEMBER % SEPTEMBER % SEPTEMBER %
30, OF TOTAL INCREASE/ 30, OF TOTAL INCREASE/ 30, OF TOTAL
1996 DEPOSITS (DECREASE) 1995 DEPOSITS (DECREASE) 1994 DEPOSITS
----------- -------- ---------- ----------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook savings $ 6,227,050 25.7% $ (380,782) $ 6,607,832 26.2% $(1,333,714) $ 7,941,546 27.7%
NOW accounts 1,533,669 6.3 73,849 1,459,820 5.8 95,595 1,364,225 4.8
Super NOW accounts 125,232 0.5 (30,223) 155,455 0.6 15,736 139,719 0.5
Money market deposit accounts 1,221,855 5.0 (205,976) 1,427,831 5.7 (881,719) 2,309,550 8.1
Certificates:
3 months 42,238 0.2 (37,110) 79,348 0.3 22,685 56,663 0.2
6 months 1,221,557 5.0 (92,135) 1,313,692 5.2 (994,114) 2,307,806 8.0
9 months 1,633,632 6.8 (73,696) 1,707,328 6.8 1,086,395 620,933 2.2
12 months 4,416,884 18.2 758,764 3,658,120 14.5 (727,058) 4,385,178 15.2
18 months 624,966 2.6 (62,728) 687,694 2.7 (227,548) 915,242 3.2
24 months 1,089,320 4.5 135,984 953,336 3.8 357,881 595,455 2.1
30 months 1,446,940 6.0 (208,159) 1,655,099 6.5 (473,820) 2,128,919 7.4
36 months 508,100 2.1 (55,594) 563,694 2.2 65,675 498,019 1.7
48 months 771,516 3.2 17,646 753,870 3.0 (335,535) 1,089,405 3.8
5 years 2,881,034 11.9 (355,245) 3,236,279 12.8 105,025 3,131,254 10.9
6-8 years 489,966 2.0 (503,490) 993,456 3.9 (209,474) 1,202,930 4.2
----------- ----- ----------- ----------- ----- ----------- ----------- -----
Total deposits $24,233,959 100.0% $(1,018,895) $25,252,854 100.0% $(3,433,990) $28,686,844 100.0%
=========== ===== =========== =========== ===== =========== =========== =====
</TABLE>
- 121 -
<PAGE> 126
Deposit Programs. Deposit accounts in RFSLA as of
September 30, 1996, were represented by the various types of deposit programs
described below.
<TABLE>
<CAPTION>
WEIGHTED PERCENTAGE
AVERAGE MINIMUM OF TOTAL
INTEREST RATE TERM DEPOSIT TYPE BALANCE BALANCE DEPOSITS
------------- ---- ------------ ------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
2.00% None NOW accounts $ 200 $ 1,534 6.33%
2.25 None Super NOW accounts 1,000 125 0.52
3.10 None Money market deposit accounts<F1> 1,000 1,222 5.04
2.75 None Passbook<F2> 100 6,227 25.70
<CAPTION>
5.29% CERTIFICATES OF DEPOSIT
---- -----------------------
<S> <C> <C> <C> <C> <C>
3 months Three Month<F3> 1,000 42 0.17
6 months Six Month<F3> 1,000 1,222 5.04
9 months Nine Month<F3> 1,000 1,634 6.74
1 year Deregulated<F4> 500 4,417 18.23
1.5 years Deregulated<F4> 500 625 2.58
2 years Deregulated<F4> 500 1,089 4.50
2.5 years Deregulated<F4> 500 1,447 5.97
3 years Deregulated<F4> 500 508 2.10
4 years Deregulated<F4> 500 771 3.17
5 years Deregulated<F4> 500 2,881 11.89
6 to 8 years Deregulated<F5> 500 490 2.02
------- ------
4.31% Total Deposits $24,234 100.00%
==== ======= ======
<FN>
- --------------
<F1> $1,000 required to open account; $1,000 average monthly balance
thereafter.
<F2> $100 required to open account; $100 average monthly balance thereafter.
<F3> Includes retirement accounts; $1,000 required to open account.
<F4> Includes retirement accounts; $500 required to open account.
<F5> Includes retirement accounts; $500 required to open account; no longer
offered, rollovers only.
</TABLE>
Certificates of Deposit by Rates. The following table sets
forth the certificates of deposit classified by rates as of the dates
indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
RATE
- ----
2.65-2.99% $ -- $ -- $ 89,439
3.00-3.99% 200,738 1,429,076 8,229,659
4.00-4.99% 2,733,312 3,527,685 3,814,160
5.00-5.99% 10,396,312 7,183,614 2,069,308
6.00-6.99% 1,503,566 2,000,802 205,049
7.00-7.99% 5,000 606,147 876,867
8.00-8.99% 3,453 319,153 1,132,800
9.00-9.99% 283,772 535,439 514,522
----------- ----------- -----------
$15,126,153 $15,601,916 $16,931,804
=========== =========== ===========
</TABLE>
- 122 -
<PAGE> 127
Certificates of Deposit Maturity Schedule. The following
table sets forth the amount and maturities of certificates of deposit at
September 30, 1996.
<TABLE>
<CAPTION>
AMOUNT DUE
---------------------------------------------------------------------------------------
LESS THAN 1-2 2-3 3-4 4-5 OVER
ONE YEAR YEARS YEARS YEARS YEARS 5 YEARS TOTAL
--------- ----- ----- ----- ----- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Rate
- ----
3.15% - 3.99% $ 201 $ -- $ -- $ -- $ -- $-- $ 201
4.00% - 4.99% 2,460 177 96 -- -- -- 2,733
5.00% - 5.99% 6,199 2,019 1,346 244 512 76 10,396
6.00% - 6.99% 525 306 142 514 -- 17 1,504
7.00% - 7.99% 5 -- -- -- -- -- 5
8.00% - 8.99% -- 3 -- -- -- -- 3
9.00% - 9.99% 284 -- -- -- -- -- 284
------ ------ ------ ---- ---- --- -------
Total $9,674 $2,505 $1,584 $758 $512 $93 $15,126
====== ====== ====== ==== ==== === =======
</TABLE>
Large Certificates of Deposit. At September 30, 1996, RFSLA
had five certificates of deposit of $100,000 or more, amounting to $509,000 or
3.4% of RFSLA's aggregate time deposits.
<TABLE>
<CAPTION>
CERTIFICATES
OF DEPOSITS
--------------
(IN THOUSANDS)
<S> <C>
Three months or less $100
Over three through six months 103
Over six through nine months 106
Over nine through twelve months --
Over twelve months 200
----
Total $509
====
</TABLE>
Borrowings. Deposits are RFSLA's primary source of funds.
RFSLA also occasionally obtains advances from the FHLB. Such advances are
made pursuant to several different credit programs, each of which has its own
interest rate, range of maturities and collateral requirements. The maximum
amount that the FHLB will advance to member institutions, including RFSLA, for
purposes other than meeting withdrawals, fluctuates from time to time in
accordance with the policies of the OTS and the Federal Housing Finance Board.
The maximum amount of FHLB advances to a member institution generally is
reduced by borrowings from any other source. At September 30, 1996, RFSLA had
$1.0 million in advances from the FHLB at a rate of 5.81% and maturing on
December 18, 1996.
PERSONNEL
As of March 31, 1997, RFSLA had nine full-time employees and one
part-time employee. The employees are not represented by a collective
bargaining unit, and RFSLA considers its relationship with its employees to be
good.
EXECUTIVE OFFICERS OF RELIANCE
Listed below is information, as of March 31, 1997, concerning
Reliance's executive officers. Such executive officers also serve in the same
positions with RFSLA. There are no arrangements or understandings between
Reliance and any of persons named below with respect to which he or she was or
is to be selected as an officer.
- 123 -
<PAGE> 128
The following individuals hold positions as executive officers of
Reliance as is set forth below opposite their names.
<TABLE>
<CAPTION>
NAME POSITION WITH RELIANCE
---- ----------------------
<S> <C>
John E. Bowman President and Chief Executive Officer
Jeannette Larson Executive Vice President and Secretary
William Schliebe Senior Vice President
Adolph G. Kraus Treasurer
</TABLE>
The executive officers of Reliance are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation or removal by the Reliance Board.
Since the formation of Reliance, none of the executive officers,
directors or other personnel has received remuneration from Reliance.
PROPERTIES
RFSLA conducts its business through its one full service office
located in St. Louis, Missouri. The following table sets forth certain
information concerning this office at September 30, 1996. RFSLA believes that
its current facilities are adequate to meet the present and immediately
foreseeable needs of RFSLA.
<TABLE>
<CAPTION>
NET BOOK
VALUE OF
PROPERTY AT
LEASED OR YEAR ORIGINALLY SEPTEMBER 30,
LOCATION OWNED ACQUIRED 1997
- -------- --------- --------------- -------------
<S> <C> <C> <C>
Full Service Office
8930 Gravois Avenue
St. Louis, Missouri Owned 1956 $ 410,284
</TABLE>
LEGAL PROCEEDINGS
Reliance is not involved in any pending legal proceedings other
than routine legal proceedings occurring in the ordinary course of business.
Such proceedings in the aggregate are believed by management to be immaterial
to Reliance's financial condition and results of operations.
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
FINANCIAL CONDITION DATA:
<CAPTION>
AT SEPTEMBER 30,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assets $32,663 $32,844 $32,259 $33,351 $36,549
Cash and cash equivalents 1,211 2,036 1,481 1,852 6,006
Certificates of deposit and securities 4,084 4,365 3,842 4,031 4,032
Mortgage-backed securities 5,501 5,650 6,299 3,197 187
Loans receivable, net 21,144 20,031 19,839 22,438 24,553
Deposits 24,234 25,253 28,687 30,415 34,009
Stockholders' equity<F1> $ 6,807 $ 7,099 $ 3,131 $ 2,498 $ 2,051
Full service offices open 1 1 1 1 1
- 124 -
<PAGE> 129
<CAPTION>
OPERATING DATA:
AT SEPTEMBER 30,
----------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest Income $ 2,496 $ 2,344 $ 2,304 $ 2,549 $ 3,135
Interest expense (1,136) (1,084) (1,146) (1,357) (1,984)
------- ------- ------- ------- -------
Net interest income 1,360 1,260 1,158 1,192 1,151
(Provision) credit for loan losses 108 87 115 78 (204)
------- ------- ------- ------- -------
Net interest income after provision for loan losses 1,468 1,347 1,273 1,270 947
Noninterest income 53 71 75 111 279
Noninterest expense (1,170) (830) (675) (824) (917)
------- ------- ------- ------- -------
Earnings before income taxes and cumulative
effect of change in accounting principle 351 588 673 557 309
Income taxes (193) (222) (215) (109) (105)
------- ------- ------- ------- -------
Earnings (loss) before cumulative effect of change
in accounting principle 158 366 458 448 204
Cumulative effect of change in accounting principle -- -- (201) -- --
------- ------- ------- ------- -------
Net earnings $ 158 $ 366 $ 659 $ 448 $ 204
======= ======= ======= ======= =======
Earnings per share<F2> $ .40 $ .97 $ -- $ -- $ --
======= ======= ======= ======= =======
Dividends per share $ .60 $ .15 $ -- $ -- $ --
======= ======= ======= ======= =======
<FN>
- --------------
<F1> Stockholders' equity at September 30, 1996 and 1995 includes $3.6
million from the net proceeds of the sale of Reliance Common Stock in
connection with the Offering.
<F2> Earnings per share are based upon the weighted-average shares
outstanding during the period. Earnings for the period October 1, 1994
to March 31, 1995 have been excluded from the calculation of earnings
per share for the year ended September 30, 1995. Earnings for the
period April 1, 1995 to April 7, 1995 (conversion date) were not
significant.
</TABLE>
<TABLE>
KEY FINANCIAL RATIOS AND OTHER DATA
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Stockholders' equity to total assets 20.84% 21.61% 9.70%
Net interest spread 3.30 3.47 3.31
Net interest margin 4.22 4.02 3.57
Return on average assets 0.48 1.13 1.97
Return on average stockholders' equity 2.22 7.35 22.87
Stockholders' equity to average assets ratio 20.57 21.84 9.34
Noninterest income to average assets ratio 0.16 0.22 0.22
Noninterest expense to average assets ratio 3.54 2.55 2.01
Nonperforming loans to total loans, net 0.32 0.21 1.44
Nonperforming assets to total assets 0.21 1.06 1.88
Average interest-earning assets to
average interest-bearing liabilities 126.13 115.90 107.47
Allowance for loan losses to
nonperforming loans 304.48 709.30 135.66
Allowance for loan losses to
nonperforming assets 304.48 87.64 64.03
Allowance for loan losses to total gross loans 0.93 1.49 1.90
Net interest income to noninterest expense 116.25 151.89 171.74
Net interest income after provision for
loan losses to noninterest expense 125.50 162.33 188.69
Regulatory capital ratios:
Tangible 16.95 16.21 9.29
Core 16.95 16.21 9.29
Risk-based 38.77% 39.29% 22.38%
Number of full service offices 1 1 1
</TABLE>
- 125 -
<PAGE> 130
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The business of RFSLA is that of a financial intermediary
consisting primarily of attracting deposits from the general public and using
such deposits to originate loans secured by one-to-four family residences and,
to a lesser extent, multi-family and commercial real estate loans, and
consumer loans. RFSLA's revenues are derived principally from interest earned
on loans and, to a lesser extent, from interest earned on mortgage-backed
securities (MBS), other interest-earning assets and securities. The
operations of RFSLA are influenced significantly by general economic
conditions and by policies of financial institution regulatory agencies,
including the OTS and the FDIC. RFSLA's cost of funds is influenced by
interest rates on competing investments and general market interest rates.
Lending activities are affected by the demand for financing of real estate and
other types of loans, which in turn is affected by the interest rates at which
such financing may be offered.
Net interest income is dependent primarily upon the difference or
spread between the average yield earned on loans, MBS, other interest-earning
assets and securities and the average rate paid on deposits and advances from
the FHLB, as well as the relative amounts of such assets and liabilities.
RFSLA, as other financial institutions, is subject to interest rate risk to
the degree that its interest-bearing liabilities mature or reprice at
different times, or on a different basis, than its interest-earning assets.
Certain statements in this report which relate to Reliance's
plans, objectives or future performance may be deemed to be forward-looking
statements within the meaning of Private Securities Litigation Act of 1995.
Such statements are based on management's current expectations. Actual
strategies and results in future periods may differ materially from those
currently expected because of various risks and uncertainties. Additional
discussion of factors affecting Reliance's business and prospects is contained
in periodic filings with the Commission.
ASSET/LIABILITY MANAGEMENT
Key components of a successful asset/liability management strategy
are the monitoring and managing of interest rate sensitivity of both the
interest-earning asset and interest-bearing liability portfolios.
RFSLA has employed various strategies intended to minimize the
adverse effect of interest rate risk on future operations by providing a
better match between the interest rate sensitivity of its assets and
liabilities. In particular, RFSLA's strategies are intended to stabilize net
interest income for the long-term by protecting its interest rate spread
against increases in interest rates. Such strategies include the origination
for portfolio of one-year, adjustable-rate loans (AMLs) and the origination of
other types of adjustable-rate and short-term loans with greater interest rate
sensitivities than long-term, fixed-rate loans.
Asset/liability management in the form of structuring cash
instruments provides greater flexibility to adjust exposure to interest rates.
During periods of high interest rates, management believes it is prudent to
offer competitive rates on short-term deposits and less competitive rates for
long-term liabilities. This posture allows RFSLA to benefit quickly from
declines in interest rates. Likewise, offering more competitive rates on
long-term deposits during the low interest rate periods allows RFSLA to extend
the repricing and/or maturity of its liabilities thus reducing its exposure to
rising interest rates.
- 126 -
<PAGE> 131
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS AND RATES
The following table presents for the periods indicated the total
dollar amount of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. All average balances are
monthly average balances. Nonaccruing loans have been included in the table
as loans carrying a zero yield.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------ ----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $21,143 1,819 8.60% $19,904 1,661 8.35% $20,795 1,744 8.38%
Mortgage-backed securities 5,571 341 6.11 5,936 346 5.83 5,136 268 5.22
Securities and FHLB stock 1,987 125 6.30 1,381 90 6.55 1,060 67 6.33
Other interest-earning assets 3,553 211 5.94 4,106 247 6.01 5,469 225 4.11
------- ------ ------- ----- ------- -----
Total interest-earning assets 32,254 2,496 7.74 31,327 2,344 7.48 32,460 2,304 7.10
------- ------ ------- ----- ------- -----
Interest-bearing liabilities:
NOW, super NOW, passbook
and money market deposits 9,232 246 2.67 11,091 290 2.62 11,973 322 2.69
Certificate accounts 15,542 843 5.42 15,939 794 4.98 18,232 824 4.52
Advances from FHLB 799 47 5.81 -- -- -- -- -- --
------- ------ ------- ----- ------- -----
Total interest-bearing
liabilities $25,573 1,136 4.44% $27,030 1,084 4.01% $30,205 1,146 3.79%
------- ------ ---- ------- ----- ------- -----
Net interest income before
provision for loan losses $1,360 1,260 1,158
====== ===== =====
Interest rate spread 3.30% 3.47% 3.31%
==== ==== ====
Net earning assets $ 6,681 $ 4,297 $ 2,255
======= ======= =======
Net yield on average
interest-earning assets 4.22% 4.02% 3.57%
==== ==== ====
Ratio of average interest-earning
assets to average interest-
bearing liabilities 126.13% 115.90% 107.47%
====== ====== ======
</TABLE>
- 127 -
<PAGE> 132
RATE/VOLUME ANALYSIS
The following table sets forth certain information regarding
changes in interest income and interest expense of Reliance for the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes in volume (changes in volume
multiplied by prior year's rate), rates (changes in rate multiplied by prior
year's volume) and rate/volume (changes in rate multiplied by the changes in
volume).
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------
1996 VS. 1995 1995 VS. 1994
------------------------------------- -----------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
------------------------------------- -----------------------------------
RATE/ RATE/
VOLUME RATE VOLUME TOTAL VOLUME RATE VOLUME TOTAL
------ ---- ------ ----- ------ ---- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable $104 $51 $ 3 $158 $(76) $ (7) $ -- $ (83)
Mortgage-backed securities (21) 17 (1) (5) 42 31 5 78
Securities and FHLB stock 40 (3) (2) 35 20 2 1 23
Other interest-earning assets (34) (3) -- (37) (56) 104 (26) 22
---- --- --- ---- ---- ---- ---- -----
Total interest-
earning assets 89 62 -- 151 (70) 130 (20) 40
---- --- --- ---- ---- ---- ---- -----
Interest expense:
Deposits (90) 104 (9) 5 (121) 66 (7) (62)
Advances from FHLB -- -- 46 46 -- -- -- --
---- --- --- ---- ---- ---- ---- -----
Total interest-
bearing liabilities (90) 104 37 51 (121) 66 (7) (62)
---- --- --- ---- ---- ---- ---- -----
Net interest income $100 $ 102
==== =====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
RFSLA's principal sources of funds are cash receipts from
deposits, loan repayments by borrowers, advances from the FHLB and net
earnings. RFSLA has an agreement with the FHLB to provide cash advances,
should the need for additional funds be required.
For regulatory purposes, liquidity is measured as a ratio of cash
and certain investments to withdrawable deposits and short-term borrowings.
The minimum level of liquidity required by regulation is presently 5%.
RFSLA's liquidity ratio at September 30, 1996, was approximately 18.3%. RFSLA
maintains a higher level of liquidity than required by regulation as a matter
of management philosophy in order to more closely match interest-sensitive
assets with interest-sensitive liabilities. RFSLA has $9.7 million in
certificates due within one year and $9.1 million in other deposits without
specific maturity at September 30, 1996. Management estimates that most of
the deposits will be retained or replaced by new deposits.
FIRREA requires that savings institutions maintain "core capital"
of at least 3% of adjusted total assets. Under proposals currently being
evaluated by the OTS, a savings institution's core capital requirement could
be increased to between 4% and 5% of adjusted total assets. Core capital is
defined to include stockholders' equity among other components. Savings
institutions also must maintain "tangible capital" of not less than 1.5% of
the association's adjusted total assets. "Tangible capital" is defined,
generally, as core capital minus any "intangible assets." All of RFSLA's
capital is tangible.
In addition to requiring compliance with the core and tangible
capital standards, FIRREA and the OTS regulations also require that savings
institutions satisfy a risk-based capital standard. The minimum level of such
capital is based on a credit risk component and calculated by multiplying the
value of each asset (including off-balance sheet commitments) by one of four
risk factors. The four risk categories range from zero for cash to 100% for
certain delinquent loans and repossessed property. Savings institutions must
maintain an 8.0% risk-based capital level.
- 128 -
<PAGE> 133
Other laws and OTS regulations affect the computation of
regulatory capital. As of September 30, 1996, RFSLA met all capital
requirements.
The following table presents RFSLA's capital position relative to
its regulatory capital requirements under FIRREA at September 30, 1996:
<TABLE>
<CAPTION>
REGULATORY CAPITAL
-----------------------------------------------
TANGIBLE CORE RISK-BASED
----------- ----------- ----------
<S> <C> <C> <C>
Stockholders' equity per consolidated
financial statements $ 6,807,129 $ 6,807,129 $ 6,807,129
Stockholders' equity of Reliance not available
for regulatory capital purposes (1,409,684) (1,409,684) (1,409,684)
----------- ----------- -----------
GAAP capital, as adjusted 5,397,445 5,397,445 5,397,445
Deferred tax asset (76,000) (76,000) (76,000)
General valuation allowances - limited -- -- 177,618
----------- ----------- -----------
Regulatory capital 5,321,445 5,321,445 5,499,063
Regulatory capital requirement (471,043) (942,087) (1,134,681)
----------- ----------- -----------
Regulatory capital - excess $ 4,850,402 $ 4,379,358 $ 4,364,382
=========== =========== ===========
Regulatory capital ratio 16.95% 16.95% 38.77%
Regulatory capital requirement (1.50) (3.00) (8.00)
----------- ----------- -----------
Regulatory capital ratio - excess 15.45% 13.95% 30.77%
=========== =========== ===========
</TABLE>
FINANCIAL CONDITION
Total assets decreased from $32.8 million at September 30, 1995 to
$32.7 million at September 30, 1996. Loans receivable, net, increased by $1.1
million from $20.0 million at September 30, 1995 to $21.1 million at
September 30, 1996 due to loan originations and purchased loans of $2.9
million and $3.4 million, respectively. Stockholders' equity decreased from
$7.1 million at September 30, 1995 to $6.8 million at September 30, 1996 due
primarily to Reliance repurchasing 21,500 shares of its common stock.
RESULTS OF OPERATIONS (COMPARISON OF THE YEAR ENDED SEPTEMBER 30,
1996 TO THE YEAR ENDED SEPTEMBER 30, 1995)
Net Earnings. Net earnings decreased from $366,000 for the
fiscal year ended September 30, 1995 (1995) to $158,000 for the fiscal year
ended September 30, 1996 (1996). The year ended September 30, 1996 includes
several sources of non-recurring income and expense, including a charge for
special assessment to recapitalize the Savings Association Insurance Fund
("SAIF") of $216,000, and credit to the provision for loan losses of $108,000,
a provision for recapture of excess bad debt reserves of $74,000, credit for
loss on foreclosed real estate and repossessed assets of $17,000. The year
ended September 30, 1995 included a credit of $87,000 to the provision for
loan losses. Noninterest expense, excluding non-recurring income and expense
increased due to higher compensation and benefits. Net interest income
increased from $1.3 million for 1995 to $1.4 million for 1996.
Interest Income. Average interest earning assets increased
from $31.3 million in 1995 to $32.3 million in 1996. The average yield
increased from 7.48% in 1995 to 7.74% in 1996. Average
- 129 -
<PAGE> 134
loans receivable increased from $20.0 million in 1995 to $21.1 million in 1996.
Components of interest-earning assets change from time to time based on interest
rates and availability of loans, securities, and mortgage-backed securities.
Interest Expense. Interest expense increased due to higher
interest rates, offset by a decrease in average interest bearing liabilities.
The average balance of interest bearing liabilities decreased from $27.0
million in 1995 to $25.6 million in 1996. RFSLA continues to experience
deposit outflow as customers invest in other financial instruments, such as
money market funds, mutual funds, and the stock market.
Net Interest Income. Net interest income increased from $1.3
million for 1995 to $1.4 million for 1996. Net interest income reflects an
increase in average interest-earning assets and a decrease in average
interest-bearing liabilities in 1996. The conversion to capital stock form in
April, 1995 affected both averages. The interest rate spread (difference
between the average yield on interest-earning assets and average cost of
interest-bearing liabilities) decreased from 3.47% for 1995 to 3.30% for 1996.
Reliance's net yield on average interest-earning assets (net interest income
before provision for loan losses as a percentage of average interest earning
assets) increased from 4.02% for 1995 to 4.22% for 1996. The increase in net
interest income and net interest yield resulted primarily from the full year
effect in 1996 of the conversion to stock form compared to a half year effect
in 1995. The decrease in the interest rate spread was due to higher interest
on deposits and FHLB advances.
Provision (Credit) for Loan Losses. The credit for loan
losses was $87,000 for 1995 and $108,000 for 1996. These credits were based
on management's assessment of its loan portfolio in consideration of the
condition of the local and national economies, trends in the real estate
market in RFSLA's primary lending area and trends in the level of RFSLA's
nonperforming loans and assets. The allowance for loan losses at
September 30, 1992 reflected the effects of economic conditions, as well as
deterioration of the quality of the loan portfolio. During the year ended
September 30, 1993, a commercial real estate loan which had been written down
to estimated fair market value was repaid in full. The loan balance at the
date of payoff was $708,000 and the related allowance was $177,000. Economic
conditions improved during the year ended September 30, 1993 and RFSLA's asset
quality stabilized. Accordingly, a portion of the allowance was credited to
income in 1996 and 1995 to adjust the allowance to the level deemed adequate
based on present economic conditions and asset quality. At September 30, 1996
loans delinquent 90 days or more amounted to $67,000 (.32% of net loans
receivable) compared to $43,000 (.21% of net loans receivable) at
September 30, 1995.
Noninterest Income. Noninterest income decreased from $71,000
for 1995 to $53,000 for 1996. Loan service charges decreased from $18,000 in
1995 to $12,000 in 1996 due to lower prepayment penalties. Prepayment
penalties are expected to decline in the future since only older fixed-rate
loans contain prepayment agreements. Other noninterest income for 1995
includes a non-recurring patronage dividend of $19,000 from RFSLA's data
processing service bureau, while 1996 includes a gain on sale of RFSLA's share
of the data processor's assets of $15,000.
Noninterest Expense. Noninterest expense increased from
$829,000 in 1995 to $1.2 million in 1996 due to several factors. The SAIF
special assessment amounted to $215,500 in 1996. Compensation and benefits
increased due to allocation of shares under the ESOP established in connection
with the sale of common stock. RFSLA also implemented, with stockholder
approval, a management recognition plan similar to plans of other publicly
traded thrift institutions. ESOP expense increased from $50,000 for 1995 to
$109,000 for 1996, since 1995 reflects a partial year of expense. ESOP
expense is also affected by changes in the market price of Reliance's stock,
which increased during 1996. Supervisory and professional fees, as well as
other expenses, increased as a result of operating as a public company.
Management expects that recurring supervisory fees, professional fees as well
as other noninterest expenses for Delaware franchise fees, annual report
printing and registration fees will stabilize in the future.
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Income Taxes. Income taxes decreased due to lower earnings
which was substantially offset by a $74,000 provision for income taxes for the
recapture of excess tax bad debt reserves. See note 10 Notes to Reliance's
Consolidated Financial Statements for additional information.
COMPARISON OF THE YEAR ENDED SEPTEMBER 30, 1995 TO THE YEAR ENDED
SEPTEMBER 30, 1994
Net Earnings. Net earnings decreased from $659,000 for the
fiscal year ended September 30, 1994 (1994) to $366,000 for the fiscal year
ended September 30, 1995 (1995). The year ended September 30, 1994 included
several sources of non-recurring income including cumulative effect of change
in accounting principle for income taxes of $201,000, credit to the provision
for loan losses of $115,000, credit for loss on foreclosed real estate and
repossessed assets of $54,000, and rental income from foreclosed real estate
of $37,000. The year ended September 30, 1995 included a credit of $87,000
for such items. Noninterest expense, excluding non-recurring income items,
increased due to higher compensation and benefits. Net interest income
increased from $1.2 million for 1994 to $1.3 million for 1995.
Interest Income. Average interest earning assets decreased
from $32.5 million in 1994 to $31.3 million in 1995. The average yield
increased from 7.10% in 1994 to 7.48% in 1995. Average loans receivable
decreased from $20.8 million in 1994 to $19.9 million in 1995. Prepayments of
loans were substantially lower in 1995 than in prior years as rising interest
rates reduced borrower refinances. Components of interest-earning assets
change from time to time based on interest rates and availability of loans,
securities, and mortgage-backed securities.
Interest Expense. Interest expense decreased due to a lower
average balance of deposits, offset by an increase in average rate. The
average balance of deposits decreased from $30.2 million in 1994 to $27.0
million in 1995 due, in part, to withdrawals by depositors to purchase common
stock. The average interest rate in deposits increased from 3.79% in 1994 to
4.01% in 1995.
Net Interest Income. Net interest income increased from $1.2
million for 1994 to $1.3 million for 1995. The increase in net interest
income reflects the increase in RFSLA's interest rate spread from 3.31% for
1994 to 3.47% for 1995. In addition, the net interest yield increased from
3.57% for 1994 to 4.02% for 1995. The increase in net interest income,
interest rate spread and net interest yield resulted primarily from RFSLA's
interest-earning assets repricing upward more rapidly than its interest-
bearing deposit liabilities during 1995.
Provision (Credit) for Loan Losses. The credit for loan
losses was $115,000 for 1994 and $87,000 for 1995. These credits were based
on management's assessment of its loan portfolio in consideration of the
condition of the local and national economies, trends in the real estate
market in RFSLA's primary lending area and trends in the level of RFSLA's
nonperforming loans and assets. The allowance for loan losses at
September 30, 1992 reflected the effects of economic conditions, as well as
deterioration of the quality of the loan portfolio. During the year ended
September 30, 1993, a commercial real estate loan which had been written down
to estimated fair market value was repaid in full. The loan balance at the
date of payoff was $708,000 and the related allowance was $177,000. Economic
conditions improved during the year ended September 30, 1993 and RFSLA's asset
quality stabilized. Accordingly, a portion of the allowance was credited to
income in 1995 and 1994 to adjust the allowance to the level deemed adequate
based on present economic conditions and asset quality. At September 30,
1995, loans delinquent 90 days or more amounted to $43,000 (.21% of net loans
receivable) compared to $286,000 (1.44% of net loans receivable) at
September 30, 1994.
Noninterest Income. Noninterest income decreased from $75,000
for 1994 to $71,000 for 1995. Loan service charges decreased from $24,000 in
1994 to $18,000 in 1995 due to lower prepayment penalties. RFSLA experienced
significant loan prepayments in 1994 due to the relatively low interest rate
environment in the early part of the year. Prepayment penalties are expected
to decline in the future since only fixed-rate loans contain prepayment
agreements. Refund of intangible tax was
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$14,000 for 1994 and zero for 1995 as RFSLA received the balance of refunds due.
See note 13 of notes to consolidated financial statements. Other noninterest
income increased due to a $19,000 patronage dividend recognized by RFSLA from
its investment in a data processing service bureau. While RFSLA received
nominal patronage dividends in the past, the 1995 dividend reflects
non-recurring income of the service bureau.
Noninterest Expense. Noninterest expense increased from
$675,000 in 1994 to $830,000 in 1995 due to several factors. Compensation and
benefits increased due to allocation of shares under the ESOP established in
connection with the sale of common stock. ESOP expense for 1995 was $49,917.
RFSLA expects, subject to stockholder approval, to implement a management
recognition plan and stock option plan similar to plans of other publicly
traded thrift institutions. Management expects that compensation and benefits
expense will increase in the future for stock benefit plans. ESOP expense is
affected by changes in the market price of Reliance's stock, which increased
substantially during the year. Rental income from foreclosed real estate
decreased as a result of sales of foreclosed real estate. Supervisory and
professional fees, as well as other expenses, increased as a result of
operating as a public company during 1995. Management expects that
supervisory fees, professional fees as well as other noninterest expenses for
Delaware franchise fees and annual report printing and registration fees will
increase in the future as a result of operating as a public company.
Income Taxes. Income taxes increased due to a higher effective
tax rate. The effective tax rate increased from 31.0% for 1994 to 37.7% for
1995 due to the reduction in the valuation allowance of deferred tax assets
during 1994.
Cumulative Effect of Change in Accounting Principle.
Effective October 1, 1993, RFSLA adopted SFAS No. 109, "Accounting for Income
Taxes," which requires an asset and liability approach to financial accounting
and reporting for income taxes. The cumulative effect of the change in
accounting principle on years prior to October 1, 1993, of $200,691 is
included as a credit in net earnings for 1994.
Impact of Inflation. The financial statements and related
data presented herein have been prepared in accordance with generally accepted
accounting principles which require the measurement of financial position and
operating results in terms of historical dollars without considering changes
in the relative purchasing power of money over time due to inflation. The
primary impact of inflation on the operations of RFSLA is reflected in
increased operating costs. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature.
As a result, interest rates, generally, have a more significant impact on a
financial institution's performance than does inflation. Interest rates do
not necessarily move in the same direction or to the same extent as the prices
of goods and services. In the current interest rate environment, liquidity
and the maturity structure of RFSLA's assets and liabilities are critical to
the maintenance of acceptable performance levels.
Interest Rate Sensitivity Analysis. The matching of assets
and liabilities may be analyzed by examining the extent to which such assets
and liabilities are "interest rate sensitive" and by monitoring an
institution's interest rate sensitivity "gap." An asset or liability is said
to be interest rate sensitive within a specific time period if it will mature
or reprice within that time period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that same time
period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. During a
period of rising interest rates, a negative gap would tend to adversely affect
net interest income while a positive gap would tend to positively affect net
interest income. Similarly, during a period of falling interest rates, a
negative gap would tend to positively affect net interest income while a
positive gap would tend to adversely affect net interest income.
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RFSLA's policy in recent years has been to reduce its exposure to
interest rate risk by better matching the maturities and interest rates of its
interest rate sensitive assets and liabilities by emphasizing the origination
of balloon mortgage loans with three-, five- and seven-year terms, the
origination of ARM loans and the origination of construction loans and
intermediate-term fixed-rate one- to four-family loans. In addition, RFSLA
offers competitive rates on deposit accounts and prices certificates of
deposit to provide customers with incentives to choose certificates of deposit
with longer terms.
RFSLA supplements its origination of mortgage loans by purchasing
intermediate-term and adjustable-rate mortgage-backed securities, as well as
short-term interest-earning deposits at other financial institutions. At
September 30, 1996, RFSLA's mortgage-backed securities portfolio included $3.5
million of adjustable-rate CMOs, $1.8 million of five-year balloon mortgage-
backed securities and $210,000 in long-term, fixed-rate mortgage-backed
securities. Long-term, fixed-rate mortgage-backed securities carry
significant interest rate risk, but constitute a relatively small part (3.8%)
of RFSLA's mortgage-backed securities portfolio. RFSLA's five-year balloon
mortgage-backed securities, which have an average remaining contractual life
of approximately three years, bear less interest rate risk than RFSLA's long-
term, fixed-rate mortgage-backed securities. RFSLA's portfolio of CMOs
adjusts monthly based on the Eleventh District Cost of Funds Index. Since
this index generally adjusts more slowly than general market interest rates,
RFSLA's CMOs can be expected to adversely affect RFSLA's interest rate spread
during periods of rapidly rising market interest rates.
RFSLA's mortgage-backed securities portfolio presents prepayment
risks in a declining interest rate environment, as borrowers refinance the
loans underlying such instruments. While management has attempted to limit
this risk by purchasing mortgage-backed securities that have no significant
premiums over par value, there can be no assurance that RFSLA will be
successful and RFSLA may be unable to reinvest the cash proceeds in prepaid
mortgage-backed securities into comparably yielding investments.
At September 30, 1996, total interest-earning assets maturing or
repricing within one year exceeded total interest-bearing liabilities maturing
or repricing in the same period by $6.3 million, representing a cumulative
one-year gap ratio of 19.2%. In a rising interest rate environment, RFSLA's
net interest income could be adversely affected as liabilities would reprice
to higher market rates more quickly than assets. Management reports quarterly
to the Reliance Board on interest rate risks and trends.
Net Portfolio Value. The OTS adopted a final rule in
August of 1993 incorporating an interest rate risk ("IRR") component into the
risk-based capital rules. The IRR component is a dollar amount that will be
deducted from total capital for the purpose of calculating an institution's
risk-based capital requirement and is measured in terms of the sensitivity of
its net portfolio value ("NPV") to changes in interest rates. NPV is the
difference between incoming and outgoing discounted cash flows from assets,
liabilities, and off-balance sheet contracts. An institution's IRR is
measured as the change to its NPV as a result of a hypothetical 200 basis
point change in market interest rates. A resulting change in NPV of more than
2% of the estimated market value of its assets will require the institution to
deduct from its capital 50% of that excess change.
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The following table presents RFSLA's NPV as of September 30, 1996,
based on information provided to the Bank by the FHLB and based on
calculations set forth in the final rule referred to above.
<TABLE>
<CAPTION>
CHANGE IN
INTEREST RATES NET PORTFOLIO VALUE
IN BASIS POINTS -------------------------------------------
(RATE SHOCK) AMOUNT $ CHANGE % CHANGE
--------------- ------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
400 $6,497 $(269) (4.0)%
300 6,595 (171) (2.5)
200 6,686 (80) (1.2)
100 6,758 (8) (0.1)
Static 6,766 -- --
(100) 6,686 (80) (1.2)
(200) 6,542 (224) (3.3)
(300) 6,364 (402) (5.9)
(400) 6,186 (580) (8.6)
</TABLE>
As indicated in the table above, management has structured its assets
and liabilities to limit its exposure to interest rate risk. In the event of
a 200 basis point change in interest rates, RFSLA would experience a 3.3%
decrease in NPV in a declining rate environment and a 1.2% decrease in a
rising rate environment.
In evaluating RFSLA's exposure to interest rate risk, certain
shortcomings inherent in the method of analysis presented in the foregoing
table must be considered. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may
react in different degrees to changes in market interest rates. Also, the
interest rates on certain types of assets and liabilities may fluctuate in
advance of changes in market interest rates, while interest rates on other
types may lag behind changes in market rates. Further, in the event of a
change in interest rates, prepayments and early withdrawal levels would likely
deviate significantly from those assumed in calculating the table. Finally,
the ability of many borrowers to service their debt may decrease in the event
of an interest rate increase. As a result, the actual effect of changing
interest rates may differ from that presented in the foregoing table.
LIQUIDITY AND CAPITAL RESOURCES
RFSLA's primary sources of funds are deposits, principal and interest
payments on loans and mortgage-backed securities, securities, and, to a lesser
extent, advances from the FHLB. While maturities and scheduled amortization
of loans and mortgage-backed securities and maturities of securities are
predictable sources of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions, competition
and most recently the restructuring of the thrift industry.
RFSLA is required to maintain an average daily balance of liquid assets
(cash, certain time deposits, bankers' acceptances, specified United States
Government securities, state or federal agency obligations, shares of certain
mutual funds and certain corporate debt securities and commercial paper) equal
to a monthly average of not less than a specified percentage of its net
withdrawable deposit accounts plus short-term borrowings. This liquidity
requirement may be changed from time to time by the OTS to any amount within
the range of 4% to 10% depending upon economic conditions and the savings
flows of member institutions, and is currently 5%. OTS regulations also
require each member savings institution to maintain an average daily balance
of short-term liquid assets at a specified percentage (currently 1%) of the
total of its net withdrawable deposit accounts and borrowings payable in one
year or less. Monetary penalties may be imposed for failure to meet these
liquidity requirements. RFSLA's monthly average liquidity ratios at
September 30, 1996, 1995 and 1994 were 18.3%, 17.1% and 17.8%,
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respectively. RFSLA's high liquidity ratio as of September 30, 1996 reflects
RFSLA's investment in intermediate term assets (Freddie Mac Gold) considered by
the OTS to be liquid assets, and management's determination to refrain from
investing excess liquidity in assets with longer terms in the current interest
rate environment. Shorter term investments generally have lower yields than
longer term investments and, consequently, such strategy has resulted in
reduced interest income.
RFSLA's most liquid assets are cash and cash equivalents, which include
investments in highly liquid, short-term investments. The level of these
assets is dependent on RFSLA's operating, financing, lending and investing
activities during any given period. RFSLA has an agreement with the FHLB to
draw advances should it require additional liquidity. At September 30, 1996,
cash and cash equivalents totaled $1.2 million. Until proceeds from the
Offering are fully deployed in accordance with management's business strategy,
management anticipates maintaining a higher liquidity ratio.
The primary investing activity of RFSLA is the origination and purchase
of mortgage loans. RFSLA's mortgage loan originations totaled $2.9 million,
$1.3 million, and $1.9 million for fiscal 1996, 1995, and 1994, respectively.
Purchases of mortgage-backed securities totaled $0, $0 , and $3.9 million for
fiscal 1996, 1995, and 1994, respectively. RFSLA also purchased mortgage
loans amounting to $3.4 million, $3.2 million, and $1.4 million in fiscal
1996, 1995, and 1994, respectively. These activities were funded primarily by
principal payments of loans and mortgage-backed securities totalling
$4.9 million, $5.1 million, and $6.8 million in fiscal 1996, 1995 and 1994,
respectively, and maturities of securities and certificates of deposit
totalling $3.1 million, $2.2 million, and $2.7 million in fiscal 1996, 1995
and 1994, respectively.
Deposits are a primary source of funds supporting RFSLA's lending and
investing activities. Deposit balances decreased by $1.0 million, or 4.0%,
from fiscal 1995 to fiscal 1996, by $3.4 million, or 12.0%, from fiscal 1994
to fiscal 1995, and by $1.7 million, or 5.7%, from fiscal 1993 to fiscal 1994.
Notwithstanding the decreases in deposit balances, RFSLA anticipates that it
will have sufficient funds available to meet its current loan origination
commitments. At September 30, 1996, RFSLA had $93,000 in commitments for one-
to-four-family loans and $560,000 in loans in process for one- to-four-family
construction loans. Certificates of deposit which are scheduled to mature in
one year or less as of September 30, 1996 totaled $9.7 million. Based on
historical experience and the long-term relationship between RFSLA and holders
of the certificates of deposit accounts, management believes that a
significant portion of such deposits will remain with RFSLA.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In May 1995, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 122, "Accounting for Mortgage Servicing Rights." SFAS No. 122
requires mortgage banking enterprises to recognize the rights to service
mortgage loans for others as a separate asset regardless of whether such
rights were purchased or originated. SFAS No. 122 is effective prospectively
for transactions entered into in fiscal years that begin after December 15,
1995. SFAS No. 122 is not expected to have a significant effect on Reliance's
financial position or results of operations. SFAS No. 122 will be superseded
by SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," described below, effective January 1,
1997.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-
Based Compensation." SFAS No. 123 suggests that compensation cost for stock-
based employee compensation plans be measured at the grant date based on the
fair value of the award and recognized over the service period, which is
usually the vesting period. However, SFAS No. 123 also allows an institution
to use the intrinsic value based method under APB Opinion No. 25. Stock-based
employee compensation plans include stock purchase plans, stock options,
restricted stock and stock appreciation rights. Employee stock ownership
plans are not covered by this Statement. SFAS No. 123 is effective for
transactions entered into in fiscal years which begin after December 15, 1995,
with earlier application permitted. SFAS No. 123 is not expected to affect
Reliance financial position or results of operations.
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In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." The
statement focuses on the issues of accounting for transfers and servicing of
financial assets, extinguishments of liabilities and financial assets subject
to prepayment. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after
December 31, 1996. The provisions of this statement for financial assets
subject to prepayment is effective for financial assets held on or acquired
after January 1, 1997. SFAS No. 125 is not expected to have a material impact
on the financial position or results of operations of Reliance.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Reliance Common Stock is registered pursuant to Section 12(g) of the
Exchange Act. The officers and directors of Reliance and beneficial owners of
greater than 10% of Reliance Common Stock (10% beneficial owners) are required
to file reports on Forms 3, 4, and 5 with the Commission disclosing changes in
beneficial ownership of Reliance Common Stock. Rules of the Commission
require disclosure in Reliance's Proxy Statement and Annual Report on Form
10-K of the failure of an officer, director or 10% beneficial owner of Reliance
Common Stock to file a Form 3, 4 or 5 on a timely basis. Reliance believes
that, during the fiscal year ended September 30, 1996, all filing requirements
under Commission rules applicable to the Reliance officers, directors and 10%
beneficial owners were complied with on a timely basis.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Reliance Board is conducted through meetings and
activities of the Board and its committees. The Reliance Board held 15
regular and special meetings during fiscal 1996. During that period, no
director attended fewer than 75 percent of the total meetings of the Reliance
Board and committees on which such director served.
Reliance operates through the work of committees of the Board of
Directors of RFSLA, and members of the Reliance Board serve as members of
committees of RFSLA.
The Executive Committee is comprised of Directors Bowman, Larson and
Lubbes. The Executive Committee met 12 times during the past fiscal year.
The Committee may act on behalf of the Reliance Board in between meetings of
the Board.
The Loan Committee is comprised of Directors Bowman, Larson, Lubbes and
Schliebe. The Loan Committee meets on an as needed basis and reviews loan
applications for approval or denial.
The Audit Committee is comprised of Directors Kraus, Lubbes and
Schliebe. The Audit Committee meets on a semi-annual basis with RFSLA's
Compliance Officer. The Audit Committee reviews RFSLA's Internal
Audit/Compliance Program. The Audit Committee met 2 times during the past
fiscal year.
The Salary Committee is comprised of Directors Bowman, Larson, Kraus and
Svoboda. The Salary Committee meets on an annual basis and provides the
Reliance Board with recommendations for annual raises and bonuses, if any.
The Salary Committee met once during the last fiscal year.
The Appraisal Committee is comprised of Directors Larson, Svoboda,
Schliebe and employee Cliff Wildeisen. The Appraisal Committee meets on an
annual basis to review independent fee appraisers on the approved appraiser
list. The Committee met once during the last fiscal year.
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EMPLOYMENT AND SEVERANCE ARRANGEMENTS
Employment Agreements. RFSLA has entered into an employment
agreement with each of Mr. Bowman, the President and Chief Executive Officer
of RFSLA, and Ms. Jeannette Larson, Executive Vice President and Secretary of
RFSLA. The employment agreements are intended to ensure that RFSLA will be
able to maintain a stable and competent management base. The continued
success of RFSLA depends to a significant degree on the skill and competence
of its executive officers.
Each employment agreement provides for a three-year term. Commencing on
the first anniversary date and continuing each anniversary date thereafter,
the Board of Directors of RFSLA may extend the agreement for an additional
year such that the remaining term shall be three years unless written notice
of non-renewal is given by the Board of Directors after conducting a
performance evaluation of the executive. In addition to the base salary, the
agreement provides that the executive is to receive all benefits provided to
permanent full time employees of RFSLA, including among other things,
retirement plans, pension plans, profit-sharing plans, medical coverage,
participation in stock benefit plans and other fringe benefits applicable to
executive personnel. The agreement provides for termination by RFSLA for
cause at any time. In the event RFSLA chooses to terminate the executive's
employment for reasons other than for cause, or upon the termination of the
executive's employment for reasons other than a change in control, as defined,
or in the event of the executive's resignation from RFSLA upon (i) failure to
re-elect the executive to his or her current office, (ii) a material reduction
in the executive's functions, duties or responsibilities, (iii) relocation of
his or her principal place of employment, (iv) the liquidation or dissolution
of RFSLA, or (v) a breach of the agreement by RFSLA the executive or, in the
event of death, his or her beneficiary would be entitled to receive an amount
equal to the greater of the remaining payments, including base salary, bonuses
and other payments due under the remaining term of the agreement or three
times the average of the executive's three preceding years' base salary,
including bonuses and other cash compensation paid, and the amount of any
benefits received pursuant to any employee benefit plans maintained by RFSLA.
If termination, voluntary or involuntary, follows a "change in control"
of RFSLA or Reliance, as defined in the agreement, the executive or, in the
event of death, his or her beneficiary, would be entitled to a payment equal
to the greater of (i) the payments due under the remaining term of the
agreement or (ii) 2.99 times the average annual compensation paid to the
executive over the five years preceding termination. RFSLA would also
continue for thirty-six months the executive's life, health, and disability
coverage. Payments to the executive under the agreement will be guaranteed by
Reliance in the event that payments or benefits are not paid by RFSLA.
Supplemental Executive Agreement. Reliance has entered into
Supplemental Executive Agreements with Mr. Bowman and Ms. Larson. These
agreements, commonly known as "gross up agreements," supplement these
executives' employment agreements, and are designed to compensate the
executives for any reduction in benefits due them under their employment
agreements in the context of a change in control of Reliance because of
cutbacks necessitated by the "excess parachute payments" of the golden
parachute rules of Section 280G of the Code. The Supplemental Executive
Agreements also require Reliance to pay any excise tax to which the executives
become subject due to the "excess parachute payments" provisions.
DIRECTORS' COMPENSATION
For fiscal 1996, each director received an aggregate of $6,000 in
director's fees. In addition, in fiscal 1996, each member of the Executive
Committee received an aggregate of $1,200.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
RFSLA retains the principal responsibility for the compensation of the
officers, directors and employees of Reliance and RFSLA. The Salary Committee
consists of John E. Bowman, President and Chief Executive Officer of RFSLA and
Reliance, Jeannette Larson, Executive Vice President and Secretary of RFSLA
and Reliance, and Directors Michael Svoboda and Adolph G. Kraus. The Salary
Committee meets on an annual basis and provides the full Reliance Board with
recommendations for annual raises and bonuses, if any. During the fiscal year
ended September 30, 1996, the Salary Committee met once.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Under rules established by the Commission, Reliance is required to
provide certain data and information in regard to the compensation and
benefits provided to its Chief Executive Officer and other executive officers.
The disclosure requirements for the Chief Executive Officer and other
executive officers include the use of tables and a report explaining the
rationale and considerations that led to fundamental executive compensation
decisions affecting those individuals. In fulfillment of this requirement,
the Salary Committee of RFSLA's Board of Directors has prepared the following
report for inclusion in this proxy statement.
The Salary Committee annually reviews the performance of the Chief
Executive Officer and other executive officers and recommends changes to base
compensation as well as the level of bonus, if any, to be awarded. The Salary
Committee also approves any perquisites payable to the executive officers. In
determining whether to recommend an increase to the base salary of the Chief
Executive Officer and other executive officers, the Salary Committee takes
into account individual performance, performance of RFSLA and Reliance, the
size of RFSLA and the complexity of its operations, and information regarding
compensation paid to executives performing similar duties for financial
institutions in RFSLA's market area. In evaluating changes to compensation,
the Salary Committee uses an annual survey of executive compensation for peer
institutions developed by America's Community Bankers, RFSLA's trade
association, as well as information on compensation paid by employers in
RFSLA's market area developed from local publications.
While the Salary Committee does not use strict numerical formulas to
determine recommendations for changes in compensation for the Chief Executive
Officer, and while it weighs a variety of different factors in its
deliberations, it has emphasized and will continue to emphasize earnings,
profitability, capital position and income level, and return on average assets
as factors in setting the compensation of the Chief Executive Officer. Other
non-quantitative factors considered by the Salary Committee in fiscal 1996
included general management oversight of RFSLA, the quality of communication
with the Board of Directors, the productivity of employees and improvement in
RFSLA's record of compliance with regulatory requirements. Finally, the
Salary Committee considered the standing of RFSLA with customers and the
community, as evidenced by the level of customer/community complaints and
compliments. While each of the quantitative and non-quantitative factors
described above was considered by the Salary Committee, such factors were not
assigned a specific weight in evaluating the performance of the Chief
Executive Officer. Rather, all factors were considered, and based upon the
effectiveness of such officers in addressing each of the factors, and the
range of compensation paid to officers of peer institutions, the Salary
Committee approved an increase in the base salary of the Chief Executive
Officer.
This report has been provided by the Salary Committee:
John E. Bowman, Jeannette Larson, Adolph G. Kraus and Michael Svoboda
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EXECUTIVE COMPENSATION
Cash Compensation. The following table sets forth the cash
compensation paid by RFSLA for services during the fiscal years ended
September 30, 1996, 1995 and 1994 to the Chief Executive Officer of RFSLA.
Other than Mr. Bowman, no executive officer of RFSLA received compensation
during such years in excess of $100,000.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
RESTRICTED
STOCK OPTIONS/ ALL OTHER
AWARDS SARs COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)<F3> (#) ($)<F2>
- --------------------------- ---- ---------- --------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
John E. Bowman<F1> 1996 $83,333 $32,675 75,465 12,900 $53,522
President and Chief Executive Officer 1995 $79,367 $37,393 -- -- $26,200
1994 $75,587 $30,890 -- -- $12,164
<FN>
- -----------------------------
<F1> RFSLA also provides its Chief Executive Officer with membership dues to
certain organizations and an auto allowance, which dues and allowance
are not included in the cash compensation table. The aggregate amount
of such benefits for any individual executive officer did not exceed the
lesser of $50,000 or 10% of such officers' cash compensation.
<F2> Includes Board of Director fees of $8,075, $7,050 and $6,200, and
payments for health and disability insurance of $4,960, $5,610 and
$5,964, made on behalf of the Chief Executive Officer for the years
ended September 30, 1996, 1995 and 1994, respectively. Also includes
the contributions or allocations pursuant to the ESOP.
<F3> Represents awards made on April 18, 1996 pursuant to Reliance's 1996
Recognition and Retention Plan, which awards vest at the rate of 20% of
the amount initially awarded commencing one year from the date of the
award. Dividends on such shares accrue and are paid to the recipient.
The value of such shares was determined by multiplying the number of
shares awarded by the market price of Reliance's common stock on
April 18, 1996, the date of the award. At September 30, 1996,
Mr. Bowman held 5,160 shares of common stock that remained subject to
restrictions under the Plan. The fair market value of such restricted
stock on September 30, 1996 (based on the market price of the common
stock on such date) was $77,400.
</TABLE>
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
POTENTIAL REALIZED VALUE
AT ASSUMED ANNUAL RATES
NUMBER OF OF STOCK PRICE APPRECIATION
SECURITIES % OF TOTAL FOR OPTION TERM
UNDERLYING OPTIONS GRANTED EXERCISE EXPIRATION
NAME OPTIONS GRANTED IN FISCAL YEAR PRICE/SHARE DATE 5% 10%
- ---- --------------- --------------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
John E. Bowman 12,900 30% $14.625 4/19/06 9,449.25 18,898.50
</TABLE>
- 139 -
<PAGE> 144
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF UNEXERCISED
SHARES OPTIONS AT VALUE OF UNEXERCISED IN-THE-
ACQUIRED FISCAL YEAR-END MONEY OPTIONS AT FISCAL YEAR-END
UPON VALUE
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
John E. Bowman -- -- 0/12,900 0/4,838
</TABLE>
BENEFITS
Group Health Benefits. RFSLA's full time employees are
provided with a comprehensive medical and hospitalization plan at no cost to
the employee. Employees hired prior to 1981 are provided with family coverage
at no cost to the employee. Mr. Bowman, hired in 1990, is also provided with
family coverage. The cost of the family coverage for an employee in fiscal
1996 averaged $4,982; the cost of individual coverage in fiscal 1996 was
$2,138.
Incentive Bonus Plan. RFSLA maintains an incentive bonus plan
covering substantially all employees. Criteria, such as achieving certain
levels for return on assets, return on equity, and core and risk-based capital
levels, are assigned numerical percentage factors. Maintenance of troubled
assets below a certain percentage, and interest-earning assets to interest-
bearing liabilities above a certain percentage, are also assigned percentage
factors. The total of all percentage factors is applied to a range of
earnings before income taxes, bonus and certain extraordinary items (as
determined by the Board of Directors) and is presently at the maximum of 10%
where such income exceeds $310,000. The bonus is allocated 48% to the
President, 23% to the Executive Vice President, and the remainder is allocated
to other employees and directors.
Retirement Plan. RFSLA is a participant in the Retirement
Plan, a multi-employer, non-contributory defined benefit retirement plan. The
Retirement Plan provides for monthly payments to, or on behalf of, each
covered employee. All employees are eligible to participate in the Retirement
Plan after completion of one year of service to RFSLA (at least 1,000 hours of
service in twelve consecutive months) and the attainment of age 21. The
regular form of normal retirement benefits provides a retirement allowance
upon termination of employment at or after age 65, plus a retirement death
benefit. The formula for determining the normal annual retirement allowance
is 2.5% multiplied by years of benefit service and the high three year average
salary. If a participant dies in active service, his beneficiary would be
entitled to a lump sum death benefit equal to 100% of the participant's last
12 months salary, plus an additional 10% of such salary for each year of
benefit service, until a maximum of 300% of such salary is reached for 20 or
more years.
If a participant dies after retirement, his beneficiary would be
entitled to a lump sum death benefit which is 12 times the annual retirement
allowance, less the sum of such allowance payments made before death.
- 140 -
<PAGE> 145
The following table illustrates the vesting schedule under
RFSLA's Plan:
<TABLE>
<CAPTION>
COMPLETED YEARS VESTED
OF EMPLOYMENT PERCENTAGE
--------------- ----------
<S> <C>
Less than 2 0%
2 20
3 40
4 60
5 80
6 100
</TABLE>
The following table indicates the annual retirement benefit that
would be payable under the Plan upon retirement at age 65 in calendar year
1995 expressed in the form of a single life annuity for the final average
salary and benefit service classification specified below.
<TABLE>
<CAPTION>
YEARS OF BENEFIT SERVICE AT RETIREMENT
FINAL AVERAGE ----------------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35 40
------------
<S> <C> <C> <C> <C> <C> <C>
$ 20,000 $ 7,500 $10,000 $12,500 $ 15,000 $ 17,500 $ 20,000
40,000 15,000 20,000 25,000 30,000 35,000 40,000
60,000 22,500 30,000 37,500 45,000 52,500 60,000
80,000 30,000 40,000 50,000 60,000 70,000 80,000
100,000 37,500 50,000 62,500 75,000 87,500 100,000
125,000 46,875 62,500 78,125 93,750 109,375 125,000
150,000 56,250 75,000 93,750 112,500 131,250 150,000
</TABLE>
As of September 30, 1996, Mr. Bowman had 6 years and 7 months of
credited service under the Plan.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. RFSLA has
established the ESOP for eligible employees. Employees with a twelve-month
period of employment with RFSLA during which they worked at least 1,000 hours
and who have attained age 21 are eligible to participate.
Benefits generally vest at the rate of 25% per year beginning in
the second year of credited service, until a participant is 100% vested in his
account balance after five years of credited service. Service with RFSLA in
mutual form is counted towards a participant's credited service. Prior to the
completion of five years of credited service, a participant who terminates
employment for reasons other than death, retirement (or early retirement), a
change in control of RFSLA or disability will not be fully vested in his ESOP
account at the time of termination. All unvested accounts will be forfeited.
Forfeitures will be reallocated among remaining participating employees, in
the same proportion as contributions. Benefits may be payable upon death,
retirement, early retirement, disability or separation from service. RFSLA's
contributions to the ESOP are not fixed, so benefits payable under the ESOP
cannot be estimated. Mr. Bowman's account received an allocation of 2,644
shares for the plan year ended September 30, 1996.
- 141 -
<PAGE> 146
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
Persons and groups owning in excess of five percent of the common
stock of Reliance are required to file certain reports with the Commission
regarding such ownership pursuant to the Exchange Act. The following table
sets forth, as of March 7, 1997, the shares of Reliance Common Stock
beneficially owned by all directors and executive officers as a group and by
each person who was the beneficial owner of more than five percent of Reliance
shares of Common Stock. This information is based solely upon information
supplied to Reliance and the filings required pursuant to the Exchange Act.
<TABLE>
<CAPTION>
AMOUNT OF SHARES PERCENT OF SHARES
OWNED AND NATURE OF RELIANCE
NAME AND ADDRESS OF OF BENEFICIAL COMMON STOCK
BENEFICIAL OWNER OWNERSHIP<F1> OUTSTANDING
------------------- ---------------- -----------------
<S> <C> <C>
Directors and Officers<F2>
Gerhard F. Lubbes 6,651 1.56%
John E. Bowman 19,253 4.52
Jeannette Larson 11,520 2.71
William Schliebe 6,001 1.41
Michael Svoboda 4,876 1.15
Adolph G. Kraus 6,689 1.57
All executive officers and directors 54,990 12.92
as a group (6 persons)
Reliance Federal Savings and Loan
Association of St. Louis County 34,400
Employee Stock Ownership Plan<F3> 8.08
8930 Gravois Avenue
St. Louis, Missouri 63123
Tidal Insurance Limited 39,502 9.28
Kramer Spellman L.P. 39,426 9.28
<FN>
- -----------------------------
<F1> In accordance with Rule 13d-3 under the Exchange Act, a person is deemed
to be the beneficial owner for purposes of this table, of any shares of
Reliance Common Stock if he has shared voting or investment power with
respect to such security, or has a right to acquire beneficial ownership
at any time within 60 days from March 7, 1997. As used herein, "voting
power" is the power to vote or direct the voting of shares, and
"investment power" is the power to dispose or direct the disposition of
shares. Includes all shares held directly as well as by spouses and
minor children, in trust and other indirect ownership, over which shares
the named individuals effectively exercise sole or shared voting and
investment power.
<F2> Unless otherwise indicated, includes shares held directly by the
individuals as well as by spouses, in trust and other indirect forms of
ownership over which shares the individuals effectively exercise sole or
shared voting and investment power.
<F3> Under the ESOP, shares allocated to participants' accounts are voted in
accordance with the participants' directions. Unallocated shares held
by the ESOP are voted by the ESOP Trustee in the manner calculated to
most accurately reflect the instructions it has received from the
participants regarding the allocated shares. As of June 30, 1997,
16,826 shares of Reliance Common Stock were allocated under the ESOP.
</TABLE>
- 142 -
<PAGE> 147
CERTAIN TRANSACTIONS
FIRREA amended federal law by requiring that all loans or
extensions of credit to executive officers and directors of a savings
institution be made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions
with the general public and must not involve more than the normal risk of
repayment or present other unfavorable features. In addition, loans made to a
director or executive officer in excess of the greater of $500,000, or 15%, of
RFSLA's capital and surplus (up to a maximum of $500,000) must be approved in
advance by a majority of the disinterested members of the Reliance Board.
RFSLA's policy is that all loans made by RFSLA to its directors
and executive officers be made in the ordinary course of business, on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons
and do not involve more than the normal risk of collectibility or present
other unfavorable features. Prior to the enactment of FIRREA officers,
directors and employees who received loans from RFSLA were eligible for
certain reductions in loan interest rates. This practice was eliminated in
1989 as to directors and executive officers in accordance with the provisions
of FIRREA.
The aggregate principal balance of loans made by RFSLA to
directors, executive officers (and associated persons) as of September 30,
1996, equalled 2.9% of stockholders' equity of RFSLA.
PERFORMANCE GRAPH
Set forth hereunder is a performance graph comparing (a) the total
return on Reliance Common Stock for the period beginning on April 7, 1995
through September 30, 1996, (b) the cumulative total return on stocks included
in the Nasdaq Composite Index over such period and (c) the cumulative total
return on stocks included in the SNL Thrift Index over such period. The
cumulative total return on Reliance Common Stock was computed assuming the
reinvestment of cash dividends and the repurchase of stock by Reliance during
the fiscal year.
There can be no assurance that Reliance's stock performance will
continue in the future with the same or similar trend depicted in the graph.
Reliance will not make or endorse any predictions as to future stock
performance.
RELIANCE FINANCIAL, INC.
Cumulative Return on Common Stock
[PERFORMANCE GRAPH]
[Graph of cumulative return on Reliance Common Stock as
compared to the Nasdaq Composite Index and the SNL Thrift
Index. For the period from April 7, 1995 to September 30,
1995, the cumulative returns for Reliance Common Stock, the
Nasdaq Composite Index and the SNL Thrift Index were 40.2%,
28.2% and 25.8%, respectively. For the period from April 7,
1995 to September 30, 1996, the cumulative returns for
Reliance Common Stock, the Nasdaq Composite Index and the
SNL Thrift Index were 57.7%, 50.6% and 49.1%, respectively.]
- 143 -
<PAGE> 148
ELECTION OF RELIANCE DIRECTORS
The Reliance Board is composed of six members. Reliance's bylaws
provide that approximately one-third of the directors are to be elected
annually. Directors of Reliance are generally elected to serve for a three-
year period or until their respective successors shall have been elected and
qualified. Two directors will be elected at the Reliance Annual Meeting to
serve for a term of three years or until their respective successors shall
have been elected and qualified. The Reliance Board has nominated to serve as
directors Messrs. Michael Svoboda and Adolph S. Kraus, both of whom are
currently members of the Reliance Board. There is no cumulative voting in the
election of directors; therefore, proxies cannot be voted for more than two
nominees.
The table below sets forth certain information regarding the
composition of the Reliance Board, including the terms of office of Board
members. It is intended that the proxies solicited on behalf of the Reliance
Board (other than proxies in which the vote is withheld as to one or more
nominees) will be voted at the Reliance Annual Meeting for the election of the
nominees identified below. If a nominee is unable to serve, the shares
represented by all such proxies will be voted for the election of such
substitute as the Reliance Board may recommend. At this time, the Reliance
Board knows of no reason why the nominees might be unable to serve, if
elected. Except as indicated herein, there are no arrangements or
understandings between the nominees and any other person pursuant to which the
nominees were selected.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY
POSITIONS HELD DIRECTOR CURRENT TERM OWNED ON THE PERCENT
NAME AGE<F1> WITH RELIANCE SINCE<F2> TO EXPIRE RECORD DATE OF CLASS
- ---- ------- -------------- --------- ------------ ------------ --------
NOMINEES
<S> <C> <C> <C> <C> <C> <C>
Adolph G. Kraus 59 Treasurer and Director 1990 1997 6,689 1.57%
Michael Svoboda 48 Director 1995 1997 4,876 1.15
<CAPTION>
DIRECTORS CONTINUING IN OFFICE
<S> <C> <C> <C> <C> <C> <C>
John E. Bowman 64 President, Chief Executive 1990 1999 19,253 4.52
Officer and Director
Jeannette Larson 41 Executive Vice President, 1990 1999 11,520 2.71
Secretary and Director
Gerhard F. Lubbes 74 Chairman of the Board 1948 1998 6,651 1.56
William Schliebe 84 Senior Vice President 1951 1998 6,001 1.41
and Director
<FN>
- -----------------------------
<F1> As of December 31, 1996.
<F2> With the exception of Mr. Svoboda, who was appointed by the Reliance
Board on September 21, 1995 to fill the unexpired term of retiring
director Rudolph M. Steib, the year of initial appointment refers to
appointment to the Board of Directors of RFSLA, Reliance's mutual
predecessor.
</TABLE>
The principal occupation during the past five years of each
director and named executive officer of Reliance is set forth below.
References to Reliance include Reliance's mutual predecessor. All directors
and executive officers have held their present positions for five years unless
otherwise stated.
- 144 -
<PAGE> 149
Gerhard F. Lubbes is retired. He has been associated with
RFSLA in various capacities for over 45 years, and has been Chairman of the
Board since 1980.
John E. Bowman has been President and Chief Executive Officer
of RFSLA since 1990. Prior to that, Mr. Bowman served as Executive Vice
President of another financial institution.
Jeannette Larson has been Executive Vice President and
Secretary of RFSLA since 1990. Ms. Larson joined RFSLA in 1973 and has been
an officer of RFSLA since 1980.
William Schliebe is part owner, President of Forder-Schliebe
Realty, a general real estate agency in St. Louis, Missouri.
Michael Svoboda was appointed to the Board of Directors on
September 21, 1995. Mr. Svoboda is the owner and operator of Valcour
Printing, Inc., in St. Louis County, Missouri.
Adolph G. Kraus is Senior Vice President of Land Title
Insurance of St. Louis, a real estate title insurance company.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS OF RELIANCE
The Reliance Board has approved the engagement of Michael Trokey &
Company, P.C. to be Reliance's auditors for the fiscal year ending
September 30, 1997, subject to the ratification of the engagement by
Reliance's stockholders. At the Reliance Annual Meeting, stockholders will
consider and vote on the ratification of the engagement of Michael Trokey &
Company, P.C. for Reliance's fiscal year ending September 30, 1997. A
representative of Michael Trokey & Company, P.C. is expected to attend the
Reliance Annual Meeting to respond to appropriate questions and to make a
statement if he so desires.
In order to ratify the selection of Michael Trokey & Company, P.C.
as the auditors for the fiscal year ending September 30, 1997, the proposal
must receive at least a majority of the votes cast, either in person or by
proxy, in favor of such ratification. The Reliance Board recommends a vote
"FOR" the ratification of Michael Trokey & Company, P.C. as auditors for the
1997 fiscal year.
DESCRIPTION OF ALLEGIANT COMMON STOCK
General. Allegiant has authorized 7,800,000 shares of Allegiant
Common Stock, $.01 par value. At March 31, 1997, Allegiant had 2,842,989
shares of Allegiant Common Stock issued and outstanding. Under Missouri law,
the Allegiant Board may generally approve the issuance of authorized shares of
Common Stock without shareholder approval.
The existence of a substantial number of unissued and unreserved
shares of Allegiant Common Stock may enable the Allegiant Board to issue
shares to such persons and in such manner as may be deemed to have an
anti-takeover effect.
The following summary of the terms of Allegiant's capital stock
does not purport to be complete and is qualified in its entirety by reference
to the applicable provisions of Allegiant's Articles of Incorporation, as
amended, and By-Laws, as amended, and Missouri law.
Dividends. Allegiant's dividend policy is subject to the
discretion of the Allegiant Board and will depend upon a number of factors,
including future earnings, financial condition, cash needs and general
business conditions. Holders of Allegiant Common Stock will be entitled to
share ratably in dividends as and when declared by the Allegiant Board out of
funds legally available for that purpose.
- 145 -
<PAGE> 150
Allegiant effected a three-for-two stock split (in the form of a stock
dividend) in January 1995, a 10% stock dividend in January 1996 and a 10% stock
dividend in January 1997. In September 1996, the Allegiant Board voted to
increase the dividend policy to a rate of $0.03 per share payable quarterly
beginning with the regular quarterly dividend scheduled for the first quarter
of 1997.
Cash available for dividend distribution to the holders of
Allegiant Common Stock must initially come from dividends paid to Allegiant by
the Bank. Accordingly, restrictions on the Bank's cash dividend payments
directly affect the payment of cash dividends by Allegiant. There can be no
assurance that the Board of Directors will declare any stock splits or stock
dividends in the future.
The FDIC and/or the Division of Finance has the authority to
prohibit the payment of cash dividends by the Bank when it determines such
payment to be an "unsafe or unsound banking practice" under the then existing
circumstances. The Federal Deposit Insurance Corporation Act generally
prohibits all payments of dividends by any bank which is in default of any
assessment to the FDIC. Allegiant's bank stock loan agreement also restricts
the amount of dividends Allegiant may pay.
Voting Rights. Each holder of Allegiant Common Stock has one
vote for each share held on matters presented for consideration by the
shareholders, except that, in the election of directors, each shareholder has
cumulative voting rights which entitle such shareholder to the number of votes
which equals the number of shares held by the shareholder multiplied by the
number of directors to be elected. All such votes may be cast for one
candidate for election as a director or may be distributed among two or more
candidates.
Preemptive Rights. The holders of Allegiant Common Stock have
no preemptive right to acquire any additional unissued shares or treasury
shares of Allegiant.
Liquidation Rights. In the event of liquidation, dissolution
or winding up of Allegiant, whether voluntary or involuntary, the holders of
Allegiant Common Stock will be entitled to share ratably in any of its assets
or funds that are available for distribution to its shareholders after the
satisfaction of its liabilities (or after adequate provision is made
therefor).
Assessment and Redemption. Shares of Allegiant Common Stock
are and will be, when issued, fully paid and nonassessable. Such shares do
not have any redemption provisions.
Classification of Board of Directors. The Allegiant Board
is divided into three classes, and the directors are elected by classes to
three-year terms, so that one of the three classes of the directors of
Allegiant will be elected at each annual meeting of the shareholders. While
this provision promotes stability and continuity of the Allegiant Board,
classification of the Allegiant Board may also have the effect of decreasing
the number of directors that could otherwise be elected at each annual meeting
of shareholders by a person who obtains a controlling interest in the
Allegiant Common Stock and thereby could impede a change in control of
Allegiant. Because fewer directors will be elected at each annual meeting,
such classification also will reduce the effectiveness of cumulative voting as
a means of establishing or increasing minority representation on the Allegiant
Board.
RESTRICTIONS ON RESALE OF ALLEGIANT COMMON STOCK BY AFFILIATES
Under Rule 145 of the Securities Act, certain persons who receive
Allegiant Common Stock pursuant to the Merger and who are deemed to be
"affiliates" of Reliance will be limited in their right to resell the stock so
received. The term "affiliate" is defined to include any person who, directly
or indirectly, controls, or is controlled by, or is under common control with
Reliance at the time the Merger is submitted to a vote of the stockholders of
Reliance. Each affiliate of Reliance (generally any director or executive
officer or stockholder of Reliance who beneficially owns a substantial number
of outstanding shares of Reliance Common Stock) who desires to resell the
Allegiant Common Stock
- 146 -
<PAGE> 151
received in the Merger must sell such stock either pursuant to an effective
registration statement or in accordance with an applicable exemption, such as
the applicable provisions of Rule 145(d) under the Securities Act.
Rule 145(d) provides that persons deemed to be affiliates may
resell their stock received in the Merger pursuant to certain of the
requirements of Rule 144 under the Securities Act if such stock is sold within
the first year after the receipt thereof. After one year if such person is
not an affiliate of Allegiant and if Allegiant is current with respect to its
required public filings, a former affiliate of Reliance may resell the stock
received in the Merger without limitation. After two years from the issuance
of the stock, if such person is not an affiliate of Allegiant at the time of
sale and for at least three months prior to such sale, such person may resell
such stock, without limitation, regardless of the status of Allegiant's
required public filings. The shares of Allegiant Common Stock to be received
by affiliates of Reliance in the Merger will be legended as to the
restrictions imposed upon resale of such stock.
Reliance has agreed to provide Allegiant with a list of those
persons who may be deemed to be affiliates at the time of the Special Meeting.
Reliance has agreed to use all reasonable efforts to cause each such person to
deliver to Allegiant prior to the Effective Time a written agreement to the
effect that no sale will be made of any shares of Allegiant Common Stock
received in the Merger by an affiliate of Allegiant except in accordance with
the Securities Act. The certificates of Allegiant Common Stock issued to
affiliates of Reliance in the Merger may contain an appropriate restrictive
legend, and appropriate stop transfer orders may be given to the transfer
agent for such certificates.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF ALLEGIANT AND STOCKHOLDERS OF
RELIANCE
Allegiant is incorporated under the laws of the State of Missouri.
Reliance is organized under the laws of the State of Delaware. The rights of
Allegiant's shareholders are governed by Allegiant's Articles of Incorporation
and By-Laws, as amended, and the Missouri Act. The rights of Reliance's
stockholders are governed by the Certificate of Incorporation and By-Laws of
Reliance and by the DGCL. The rights of Reliance's stockholders who receive
shares of Allegiant Common Stock in the Merger will thereafter be governed by
Allegiant's Articles of Incorporation and By-Laws, as amended, and by the
Missouri Act. The material rights of such stockholders, and, where
applicable, the differences between the rights of Allegiant shareholders and
Reliance stockholders, are summarized below. The summary is qualified in its
entirety by reference to the Missouri Act, the DGCL, the Articles of
Incorporation and By-Laws of Allegiant, as amended, and the Certificate of
Incorporation and By-laws of Reliance.
Voting for Directors. Cumulative voting is applicable to the
election of Allegiant's directors. Cumulative voting entitles each
shareholder to cast an aggregate number of votes equal to the number of voting
shares held, multiplied by the number of directors to be elected. Each
shareholder may cast all such votes for one nominee or distribute them among
two or more nominees, thus permitting holders of less than a majority of the
outstanding shares of voting stock to achieve board representation. The
Certification of Incorporation and By-Laws of Reliance do not provide for
cumulative voting. In contrast to cumulative voting, under noncumulative
voting, the holders of a majority of outstanding shares of voting stock may
elect the entire Board of Directors, thereby precluding the election of any
directors by the holders of less than a majority of the outstanding shares of
voting stock.
Classified Board. As described under "Description of Allegiant
Common Stock--Classification of Board of Directors," the Allegiant Board is
divided into three classes of directors, with each class being elected to a
staggered three-year term. By reducing the number of directors to be elected
in any given year, the existence of a classified Board diminishes the benefits
of the cumulative voting rights to minority shareholders. Reliance also has a
classified Board of Directors with three classes of directors.
- 147 -
<PAGE> 152
Action by Shareholders or Stockholders Without a Meeting. Under
the Missouri Act and the DGCL, written action of stockholders is permitted
unless the Articles or Certificate of Incorporation or By-Laws of the
corporation provide otherwise. Allegiant's By-Laws provide that any action
required to be taken at a meeting of the shareholders, or any action which may
be taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the shareholders. The By-Laws of Reliance
provide that any action of the stockholders may not be effected by any consent
in writing by the stockholders.
Anti-takeover Statutes. The Missouri Act contains certain
provisions applicable to Missouri corporations such as Allegiant which may be
deemed to have an anti-takeover effect. Such provisions include Missouri's
business combination statute and the control share acquisition statute.
The Missouri business combination statute protects domestic
corporations after hostile takeovers by prohibiting certain transactions once
an acquiror has gained control. The statute restricts certain "Business
Combinations" between a corporation and an "Interested Shareholder" or
affiliates of the Interested Shareholder for a period of five years unless
certain conditions are met. A "Business Combination" includes a merger or
consolidation, certain sales, leases, exchanges, pledges and similar
dispositions of corporate assets or stock and certain reclassifications and
recapitalizations. An "Interested Shareholder" includes any person or entity
which beneficially owns or controls 20% or more of the outstanding voting
shares of the corporation.
During the initial five-year restricted period, no Business
Combination may occur unless such Business Combination or the transaction in
which an Interested Shareholder becomes "interested" is approved by the board
of directors of the corporation. Business Combinations may occur during such
five-year period if: (i) prior to the stock acquisition by the Interested
Shareholder, the board of directors approves the transaction in which the
Interested Shareholder became an Interested Shareholder or approves the
Business Combination in question; (ii) the holders of a majority of the
outstanding voting stock, other than stock owned by the Interested
Shareholder, approve the Business Combination; or (iii) the Business
Combination satisfies certain detailed fairness and procedural requirements.
The Missouri Act exempts from its provisions: (i) corporations
not having a class of voting stock registered under Section 12 of the Exchange
Act; (ii) corporations which adopt provisions in their articles of
incorporation or bylaws expressly electing not to be covered by the statute;
and (iii) certain circumstances in which a shareholder inadvertently becomes
an Interested Shareholder. Allegiant's Restated Articles of Incorporation and
By-Laws do not "opt out" of the Missouri business combination statute.
The Missouri Act also contains a "Control Share Acquisition
Statute" which provides that an "Acquiring Person" who after any acquisition
of shares of a publicly traded corporation has the voting power, when added to
all shares of the same corporation previously owned or controlled by the
Acquiring Person, to exercise or direct the exercise of: (i) 20% but less
than 33-1/3%; (ii) 33-1/3% or more but less than a majority; or (iii) a
majority, of the voting power of outstanding stock of such corporation, must
obtain shareholder approval for the purchase of the "Control Shares." If
approval is not given, the Acquiring Person's shares lose the right to vote.
The statute prohibits an Acquiring Person from voting its shares unless
certain disclosure requirements are met and the retention or restoration of
voting rights is approved by both: (i) a majority of the outstanding voting
stock, and (ii) a majority of the outstanding voting stock after exclusion of
"Interested Shares." Interested Shares are defined as shares owned by the
Acquiring Person, by directors who are also employees, and by officers of the
corporation. Shareholders are given dissenters' rights with respect to the
vote on Control Share Acquisitions and may demand payment of the fair value of
their shares.
A number of acquisitions of shares are deemed not to constitute
Control Share Acquisitions, including good faith gifts, transfers pursuant to
wills, purchases pursuant to an issuance by
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the corporation, mergers involving the corporation which satisfy the other
requirements of the Missouri Act, transactions with a person who owned a
majority of the voting power of the corporation within the prior year, or
purchases from a person who has previously satisfied the provisions of the
Control Share Acquisition Statute so long as the transaction does not result in
the purchasing party having voting power after the purchase in a percentage
range (such ranges are as set forth in the immediately preceding paragraph)
beyond the range for which the selling party previously satisfied the
provisions of the statute. Additionally, a corporation may exempt itself from
application of the statute by inserting a provision in its articles of
incorporation or bylaws expressly electing not to be covered by the statute.
Allegiant's Restated Articles of Incorporation and By-Laws do not "opt out" of
the Control Share Acquisition Statute.
The DGCL applicable to Reliance contains a business combination
statute similar to that contained in the Missouri Act. Like the Missouri
business combination statute, the Delaware business combination statute
generally prohibits a domestic corporation from engaging in mergers or other
business combinations with Interested Persons (as defined in the DGCL) for a
statutory time period. The prohibition can be avoided if the business
combination is approved by the board of directors prior to the date on which
the Interested Person acquires the requisite percentage of stock. The
Missouri Act imposes a longer prohibition period on transactions with
Interested Persons (five years) than the DGCL (three years), thereby
potentially increasing the period during which a hostile takeover may be
frustrated. In addition, the DGCL, unlike its Missouri counterpart, does not
apply if the Interested Person obtains at least 85% of the corporation's
voting stock upon consummation of the transactions which resulted in the
stockholder becoming an Interested Person. Thus, a person acquiring at least
85% of the corporation's voting stock could circumvent the defensive
provisions of the DGCL while being unable to do so under the Missouri Act.
The DGCL does not contain a control share acquisition statute similar to that
contained in the Missouri Act.
Appraisal Rights. Under Section 351.455 of the Missouri Act, a
shareholder of any corporation which is a party to a merger or consolidation,
or which sells all or substantially all of its assets, has the right to
dissent from such corporate action and to demand payment of the value of such
shares. Under the DGCL, stockholders of Reliance are entitled to appraisal
rights upon the consolidation or merger of Reliance which are similar but not
identical to those under the Missouri Act. Specifically, the dissenters'
rights provisions of the Missouri Act do not have an exception from the
dissenters' rights provisions in circumstances in which the shareholder
seeking to exercise such rights owns shares in a widely held, publicly traded
corporation and is to receive, or continue to hold after the transaction under
which such shareholder is seeking to exercise dissenters' rights, shares of a
widely held, publicly traded corporation. In addition, the procedures and the
filing deadlines applicable to dissenters' rights under the Missouri Act are
somewhat different than those applicable in appraisal rights proceedings under
the DGCL.
Shareholders' and Stockholders' Right to Inspect. Under
the DGCL, any stockholder may inspect the corporation's stock ledger,
stockholder list and other books and records for any proper purpose. A
"proper purpose" is defined as a purpose reasonably related to such person's
interest as a stockholder. The DGCL specifically provides that a stockholder
may appoint an agent for the purpose of examining the stock ledger, list of
stockholders or other books and records of the corporation. A stockholder may
apply to the Delaware Court of Chancery to compel inspection in the event the
stockholder's request to examine the books and records is refused. In
general, the stockholder has the burden of proving an improper purpose where a
stockholder requests to examine the stockholder ledger or stockholder list.
The right of shareholders to inspect under the Missouri Act is generally
similar to that of stockholders under the DGCL. Neither the Missouri Act nor
Missouri case law, however, provides any specific guidance as to whether a
shareholder may appoint an agent for the purpose of examining books and
records or the extent to which a shareholder must have a "proper purpose."
Accordingly, in comparison with the DGCL, in a given situation a Missouri
shareholder may be provided with less guidance as to the scope of his or her
ability to inspect the books and records of the corporation.
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Size of Board of Directors. As permitted under the Missouri
Act, the number of directors on the Board of Directors of Allegiant is set
forth in Allegiant's By-Laws, which provide that the number of directors may
be fixed from time to time at not less than 12 nor more than 24 by an
amendment of the By-Laws or by a resolution of the Board of Directors, in
either case, adopted by the vote or consent of at least two-thirds of the
number of directors then authorized under the By-Laws. Similarly to the
Missouri Act, the DGCL provides that a corporation may fix the number of
directors in its Certificate of Incorporation or By-Laws. The number of
directors on the Board of Directors of Reliance is fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Board of Directors.
SUPERVISION AND REGULATION
GENERAL
As a bank holding company, Allegiant is subject to regulation
under the BHCA, and its examination and reporting requirements. Under the
BHCA, a bank holding company may not directly or indirectly acquire the
ownership or control of more than 5% of the voting shares or substantially all
of the assets of any company, including a bank or savings and loan
association, without the prior approval of the Federal Reserve Board. In
addition, bank holding companies are generally prohibited under the BHCA from
engaging in nonbanking activities, subject to certain exceptions. Allegiant
and its subsidiaries are also subject to supervision and examination by
applicable federal and state banking agencies. The earnings of Allegiant's
subsidiaries, and therefore the earnings of Allegiant, are affected by general
economic conditions, management policies and the legislative and governmental
actions of various regulatory authorities, including the Federal Reserve
Board, the FDIC and various state financial institution regulatory agencies.
In addition, there are numerous governmental requirements and regulations that
affect the activities of Allegiant and its subsidiaries.
RFSLA, as a savings and loan holding company, and Reliance are
subject to extensive regulation, examination and supervision by the OTS, and
the FDIC as the deposit insurer. RFSLA is a member of the Federal Home Loan
Bank System and its deposit accounts are insured up to applicable limits by
the SAIF, which is managed by the FDIC. RFSLA must file reports with the OTS
and the FDIC concerning its activities and financial condition in addition to
obtaining regulatory approvals prior to entering into certain transactions
such as mergers with, or acquisitions of, other financial institutions. There
are periodic examinations by the OTS and the FDIC to test RFSLA's compliance
with various regulatory requirements. This regulation and supervision
establishes a comprehensive framework of activities in which an institution
can engage and is intended primarily for the protection of the insurance fund
and depositors. The regulatory structure also gives the regulatory
authorities extensive discretion in connection with their supervisory and
enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such policies, whether
by the OTS, the FDIC or Congress, could have a material adverse impact on
Reliance, RFSLA and their operations. Reliance as a savings and loan holding
company, is also required to file certain reports with, and otherwise comply
with the rules and regulations of the OTS.
CERTAIN TRANSACTIONS WITH AFFILIATES
There are various legal restrictions on the extent to which a bank
holding company and certain of its nonbank subsidiaries can borrow or otherwise
obtain credit from its bank subsidiaries. In general, these restrictions
require that any such extensions of credit must be on non-preferential terms
and secured by designated amounts of specified collateral and be limited, as to
the holding company or any one of such nonbank subsidiaries, to 10% of the
lending institution's capital stock and surplus, and
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as to the holding company and all such nonbank subsidiaries in the aggregate,
to 20% of such capital stock and surplus.
PAYMENT OF DIVIDENDS
Allegiant is a legal entity separate and distinct from its
financial institutions and other subsidiaries. The principal source of
Allegiant's revenues is dividends from its subsidiary bank. Various federal
and state statutory provisions limit the amount of dividends an affiliate
financial institution can pay to Allegiant without regulatory approval. The
approval of federal and state bank regulatory agencies, as appropriate, is
required for any dividend if the total of all dividends declared in any
calendar year would exceed the total of the institution's net profits, as
defined by regulatory agencies, for such year combined with its retained net
profits for the preceding two years. In addition, a state member bank may not
pay a dividend in an amount greater than its net profits then on hand. The
payment of dividends by Allegiant Bank may also be affected by other factors,
such as the maintenance of adequate capital. In addition, upon consummation
of the Merger, payment of dividends from RFSLA to Allegiant may be prohibited
by the OTC and/or OTC regulations. See "Federal Regulation of Savings
Institutions--Limitation on Capital Distributions."
CAPITAL ADEQUACY
The Federal Reserve Board 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 operating in major international
financial markets. The banking regulators have issued standards for banks
that are similar to, but not identical with, the standards for bank holding
companies.
In general, the risk-related standards require financial
institutions and financial institution holding companies to maintain certain
capital levels 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. Allegiant and Allegiant Bank exceed all
applicable capital adequacy standards.
SUPPORT OF SUBSIDIARY BANK
Under Federal Reserve Board policy, Allegiant is expected to act
as a source of financial strength to its subsidiary bank and to commit
resources to support its subsidiary bank in circumstances where it might not
choose to do so absent such a policy. This support may be required at times
when Allegiant may not find itself able to provide it. In addition, any
capital loans by Allegiant to any of its subsidiaries would also be
subordinate in right of payment to deposits and certain other indebtedness of
such subsidiary.
Consistent with this policy regarding bank holding companies
serving as a source of financial strength for their subsidiary banks, the
Federal Reserve Board has stated that, as a matter of prudent banking, a bank
holding company generally should not maintain a rate of cash dividends unless
its net income available to common shareholders has been sufficient to fully
fund the dividends, and the prospective rate of earnings retention appears
consistent with the bank holding company's capital needs, asset quality and
overall financial condition.
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FEDERAL REGULATION OF SAVINGS INSTITUTIONS
Business Activities. The activities of savings institutions
are governed by the HOLA and, in certain respects, the Federal Deposit
Insurance Act (the "FDI Act"). The federal banking statutes, as amended by
FIRREA and FDICIA, (1) restrict the solicitation of brokered deposits by
savings institutions that are troubled or not well-capitalized, (2) prohibit
the acquisition of any corporate debt security that is not rated in one of the
four highest rating categories, (3) restrict the aggregate amount of loans
secured by non-residential real estate property to 400% of capital, (4) permit
savings and loan holding companies to acquire up to 5% of the voting shares of
non-subsidiary savings institutions or savings and loan holding companies
without prior approval, and (5) permit bank holding companies to acquire
healthy savings institutions.
Loans to One Borrower. Under the HOLA, savings institutions
are generally subject to the national bank limits on loans to one borrower.
Generally, savings institutions may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of RFSLA's unimpaired
capital and surplus. An additional amount may be lent, equal to 10% of
unimpaired capital and surplus, if such loan is secured by readily marketable
collateral, which is defined to include certain securities and bullion, but
generally does not included real estate.
Qualified Thrift Lender Test. The HOLA requires savings
institutions to meet a qualified thrift lender ("QTL") test. Under the QTL
test, a savings association is required to maintain at least 65% of its
"portfolio assets" (total assets less (i) specified liquid assets up to 20% of
total assets, (ii) intangibles, including goodwill, and (iii) the value of
property used to conduct business) in certain "qualified thrift investments,"
primarily residential mortgages and related investments, including certain
mortgage-backed and related securities on a monthly basis in 9 out of every 12
months. A savings association that fails the QTL test must either convert to
a bank charter or operate under certain restrictions.
Limitation on Capital Distributions. OTS regulations impose
limitations upon all capital distributions by savings institutions, such as
cash dividends, payments to repurchase or otherwise acquire its shares,
payments to stockholders of another institution in a cash-out merger and other
distributions charged against capital. The rule establishes three tiers of
institutions, which are based primarily on an institution's capital level. An
institution that exceeds all fully phased-in capital requirements before and
after a proposed capital distribution ("Tier 1 Association") and has not been
advised by the OTS that it is in need of more than normal supervision, could,
after prior notice but with the approval of the OTS, make capital
distributions during a calendar year equal to the greater of: (i) 100% of its
net earnings to date during the calendar year plus the amount that would
reduce by one-half its "surplus capital ratio" (the excess capital over its
fully phased-in capital requirements) at the beginning of the calendar year;
or (ii) 75% of its net earnings for the previous four quarters; provided that
the institution would not be undercapitalized, as that term is defined in the
OTS Prompt Corrective Action regulations, following the capital distribution.
In addition, the OTS could prohibit a proposed capital distribution by any
institution, which would otherwise be permitted by the regulation, if the OTS
determines that such distribution would constitute an unsafe or unsound
practice.
Liquidity. RFSLA is required to maintain an average daily
balance of liquid assets (cash, certain time deposits, bankers' acceptances,
specified U.S. Government, state or federal agency obligations, shares of
certain mutual funds and certain corporate debt securities and commercial
paper) equal to a monthly average of not less than a specified percentage of
its net withdrawable deposit accounts plus short-term borrowings. This
liquidity requirement which is currently 5%, may be changed from time to time
by the OTS to any amount within the range of 4% to 10% depending upon economic
conditions and the savings flow of member institutions. OTS regulations also
require each savings institution to maintain an average daily balance of
short-term liquid assets at a specified percentage
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(currently 1%) of the total of its net withdrawable deposit accounts and
borrowing payable in one year or less. Monetary penalties may be imposed for
failure to meet these liquidity requirements.
Assessments. Savings institutions are required by OTS
regulation to pay assessments to the OTS to fund the operations of the OTS.
The general assessment, paid on a semi-annual basis, is computed upon the
savings institution's total assets, including consolidated subsidiaries, as
reported in the institution's latest quarterly thrift financial report.
Community Reinvestment. Under the Community Reinvestment Act
(the "CRA"), as implemented by OTS regulations, a savings institution has a
continuing and affirmative obligation, consistent with its safe and sound
operation, to help meet the credit needs of its entire community, including
low and moderate income neighborhoods. The CRA does not establish specific
lending requirements or programs for financial institutions, nor does it limit
an institution's discretion to develop the types of products and services that
it believes are best suited to its particular institution, to assess the
institution's record of meeting the credit needs of its community and to take
such record into account in its evaluation of certain applications by such
institution. The CRA rating system identifies four levels of performance that
may describe an institution's record of meeting community needs: outstanding,
satisfactory, needs to improve and substantial non-compliance. The CRA also
requires all institutions to make public disclosure of their CRA ratings. The
CRA regulations were recently revised. Effective July 1, 1997, the OTS will
assess the CRA performance of a savings institution under lending, service and
investments tests, and based on such assessment, will assign an institution in
one of the four above-referenced ratings.
Transactions with Related Parties. RFSLA's authority to
engage in transactions with related parties or "affiliates" (i.e., any company
that controls or is under common control with an institution, including
Reliance and its non-savings institution subsidiaries) or to make loans to
certain insiders, is limited by Sections 23A and 23B of the Federal Reserve
Act ("FRA"). Section 23A limits the aggregate amount of transactions with any
individual affiliate to 10% of the capital and surplus of the savings
institution and also limits the aggregate amount of transactions with all
affiliates to 20% of the savings institution's capital and surplus. Certain
transactions with affiliates are required to be secured by collateral in an
amount and of a type described in Section 23A and the purchase of low quality
assets from affiliates is generally prohibited. Section 23B provides that
certain transactions with affiliates, including loans and asset purchases,
must be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, savings institutions are prohibited from lending to
any affiliate that is engaged in activities that are not permissible for bank
holding companies, and no savings institution may purchase the securities of
any affiliate other than a subsidiary.
RFSLA's authority to extend credit to executive officers,
directors and 10% stockholders, as well as entities controlled by such
persons, is currently governed by Sections 22(g) and 22(h) of the FRA, and
Regulation O thereunder. Among other things, these regulations require such
loans to be made on terms substantially the same as those offered to
unaffiliated individuals and no not involve more than the normal risk of
repayment. Regulation O also places individual and aggregate limits on the
amount of loans RFSLA may make to such persons based, in part, on RFSLA's
capital position, and requires certain approval procedures to be followed.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring
enforcement action against all "institution-related parties," including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on
an insured institution. Formal enforcement action may range from the issuance
of a capital directive or cease and desist order to removal of officers and/or
directors of the institutions, receivership, conservatorship or the termination
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of deposit insurance. Civil penalties cover a wide range of violations and
actions, and range up to $25,000 per day, unless a finding of reckless
disregard is made, in which case penalties may be as high as $1 million per
day. Criminal penalties for most financial institution crimes include fines of
up to $1 million and imprisonment for up to 30 years. Under the FDI Act, the
FDIC has the authority to recommend to the Director of the OTS that enforcement
action be taken with respect to a particular savings institution. If action is
not taken by the Director, the FDIC has authority to take such action under
certain circumstances.
The federal banking agencies recently adopted a final regulation
and Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") to implement the safety and soundness standards required under
the FDI Act. The Guidelines set forth the safety and soundness standards that
the federal banking agencies use to identify and address problems at insured
depository institutions before capital becomes impaired. The standards set
forth in the Guidelines address internal controls and information systems;
internal audit system; credit underwriting; loan documentation; interest rate
risk exposure; asset growth; and compensation, fees and benefits. The
agencies also adopted a proposed rule which proposes asset quality and
earnings standards which, if adopted, would be added to the Guidelines. If
the appropriate federal banking agency determines that an institution fails to
meet any standard prescribed by the Guidelines, the agency may require the
institution to submit to the agency an acceptable plan to achieve compliance
with the standard, as required by the FDI Act. The final regulations
establish deadlines for the submission and review of such safety and soundness
compliance plans.
Capital Requirements. The OTS capital regulations require
savings institutions to meet three capital standards: a 1.5% tangible capital
standard, a 3.0% leverage ratio (or core capital ratio) and an 8.0% risk-based
capital standard. Core capital is defined as common stockholders' equity
(including retained earnings), certain non-cumulative perpetual preferred
stock and related surplus, minority interests in equity accounts of
consolidated subsidiaries less intangibles other than certain qualifying
supervisory goodwill and certain purchased mortgage servicing rights
("PMSRs"). The OTS regulations also require that, in meeting the tangible
ratio, leverage and risk-based capital standards, institutions must deduct
investments in and loans to subsidiaries engaged in activities not permissible
for a national bank.
The risk-based capital standard for savings institutions requires
the maintenance of Tier 2 (core) and total capital (which is defined as core
capital and supplementary capital) to risk-weighted assets of 4.0% and 8.0%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight of
0% to 100%, as assigned by the OTS capital regulation based on the risks the
OTS believes are inherent in the type of asset. The components of Tier 1
(core) capital are equivalent to those discussed earlier under the 3.0%
leverage ratio standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock and allowance for loan and lease losses. Allowance for loan and lease
losses includable in supplementary capital is limited to a maximum of 1.25%.
Overall, the amount of supplementary capital included as part of total capital
cannot exceed 100% of core capital.
OTS regulatory capital rules also incorporate an interest rate
risk component. Savings associations with "above normal" interest rate risk
exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. A savings association's
interest rate risk is measured by the decline in the net portfolio value of
its assets (i.e., the difference between incoming and outgoing discounted cash
flows from assets, liabilities and off-balance sheet contracts) that would
result from a hypothetical 200-basis point increase or decrease in market
interest rates, divided by the estimated economic value of the association's
assets. In calculating its total capital under the risk-based rule, a savings
association whose measured interest rate risk exposure exceeds 2%, must deduct
an interest rate component equal to one-half of the difference between the
institution's measured interest rate
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risk and 2%, multiplied by the estimated economic value of the institution's
assets. The OTS has deferred for the present time, the date on which the
interest rate component is to be deducted from total capital. A savings
association with assets of less than $300 million and risk-based capital ratios
in excess of 12% is not subject to the interest rate risk component, unless the
OTS determines otherwise. The rule also provides that the Director of the OTS
may waive or defer an institution's interest rate risk component on a
case-by-case basis.
FIRREA AND FDICIA
FIRREA contains a cross-guarantee provision which could result in
insured depository institutions owned by Allegiant or Reliance being assessed
for losses incurred by the FDIC in connection with assistance provided to, or
the failure of, any other insured depository institution owned by Allegiant or
Reliance. Under FIRREA, failure to meet the capital guidelines could subject
a banking institution to a variety of enforcement remedies available to
federal regulatory authorities, including the termination of deposit insurance
by the FDIC.
FDICIA made extensive changes to the federal banking laws. FDICIA
instituted certain changes to the supervisory process, including provisions
that mandate certain regulatory agency actions against undercapitalized
institutions within specified time limits. FDICIA contains various other
provisions that may affect the operations of banks and savings institutions.
The prompt corrective action provision of FDICIA requires the
federal banking regulators to assign each insured institution to one of five
capital categories ("well capitalized," "adequately capitalized" or one of
three "undercapitalized" categories) and to take progressively more
restrictive actions based on the capital categorization, as specified below.
Under FDICIA, capital requirements would include a leverage limit, a risk-
based capital requirement and any other measure of capital deemed appropriate
by the federal banking regulators for measuring the capital adequacy of an
insured depository institution. All institutions, regardless of their capital
levels, are restricted from making any capital distribution or paying any
management fees that would cause the institution to fail to satisfy the
minimum levels for any relevant capital measure.
FDICIA, through its prompt correct action system, imposes
significant operational and management restrictions on institutions that are
not considered at least "adequately capitalized." Under FDICIA's prompt
corrective action system, institutions in the "undercapitalized" category must
submit a capital restoration plan guaranteed by its parent company. The
liability of the parent company under any such guarantee is limited to the
lesser of 5% of a financial institution's assets at the time it become
"undercapitalized," or the amount needed to comply with the plan. A financial
institution in the "undercapitalized" category also is subject to limitations
in numerous areas including, but not limited to: asset growth; acquisitions;
branching; new business lines; and acceptance of brokered deposits.
Progressively more burdensome restrictions are applied to a financial
institution in the "undercapitalized" category that fails to submit or
implement a capital plan and to a financial institution that is in the
"significantly undercapitalized" or "critically undercapitalized" categories.
A financial institution primary federal banking agency is authorized to
downgrade a financial institution's capital category to the next lower
category upon a determination that the financial institution is in an unsafe
or unsound condition or is engaged in an unsafe or unsound practice. An
unsafe or unsound practice can include receipt by the institution of a rating
on its most recent examination of three or worse (on a scale of 1 (best) to 5
(worst)), with respect to its asset quality, management, earnings or
liquidity. The capital category assigned to a depository institution also
affects its deposit insurance assessment rate.
The FDIC and the Federal Reserve Board adopted capital-related
regulations under FDICIA. Under those regulations, a bank will be well
capitalized if it: (i) had a risk-based capital ratio of 10% or greater; (ii)
had a ratio of Tier I capital to risk-adjusted assets of 6% or greater; (iii)
had a ratio of Tier I capital to adjusted total assets of 5% or greater; and
(iv) was not subject to an order,
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written agreement, capital directive, or prompt corrective action directive to
meet and maintain a specific capital level for any capital measure. An
association will be adequately capitalized if it was not "well capitalized"
and: (i) had a risk-based capital ratio of 8% or greater; (ii) had a ratio of
Tier 1 capital to risk-adjusted assets of 4% or greater; and (iii) had a ratio
of Tier 1 capital to adjusted total assets of 4% or greater (except that
certain associations rated "Composite 1" under the federal banking agencies'
CAMEL rating system may be adequately capitalized if their ratios of core
capital to adjusted total assets were 3% or greater).
FDICIA makes extensive changes in existing rules regarding audits,
examinations and accounting. It generally requires annual on-site, full scope
examinations by each bank's primary federal regulator. It also imposed new
responsibilities on management, the independent audit committee and outside
accountants to develop or approve reports regarding the effectiveness of
internal controls, legal compliance and off-balance sheet liabilities and
assets.
DEPOSITOR PREFERENCE STATUTE
Legislation enacted in August 1993 provides a preference for
deposits and certain claims for administrative expenses and employee
compensation against an insured depository institution in the liquidation or
other resolution of such an institution by any receiver. Such obligations
would be afforded priority over other general unsecured claims against such an
institution, including federal funds and letters of credit, as well as any
obligation to shareholders of such an institution in their capacity as such.
FDIC INSURANCE ASSESSMENTS
The Bank and RFSLA are subject to FDIC deposit insurance
assessments. The FDIC has adopted a risk-based premium schedule pursuant to
which each financial institution is assigned to one of three capital
groups--well capitalized, adequately capitalized or undercapitalized--and
further assigned to one of three subgroups within a capital group, on the basis
of supervisory evaluations by the institution's federal and state supervisor,
and on the basis of other information relevant to the institution's financial
condition and the risk posed to the applicable insurance fund. The actual
assessment rate applicable to a particular institution will, therefore, depend
in part upon the risk assessment classification so assigned to the institution
by the FDIC. See "--FIRREA and FDICIA."
FIRREA, adopted in August 1989 to provide for the resolution of
insolvent savings associations, required the FDIC to establish separate
deposit insurance funds--the Bank Insurance Fund (the "BIF") for banks and the
SAIF for savings associations. FIRREA also required the FDIC to set deposit
insurance assessments at such levels as would cause the BIF and the SAIF to
reach their "designated reserve ratios" of 1.25 percent of the deposits
insured by them within a reasonable period of time. Due to low costs of
resolving bank insolvencies in the last few years, the BIF reach its
designated reserve ratio in May 1995. As a result, effective January 1, 1996,
the FDIC eliminated deposit insurance assessments (except for the minimum
$2,000 payment required by law) for banks that are well capitalized and well
managed and reduced the deposit insurance assessments for all other banks. As
of January 1, 1996, the SAIF had not reached the designated reserve ratio.
The Deposit Insurance Funds Act of 1996 (the "Funds Act"), enacted
as part of the Omnibus Appropriations Bill on September 30, 1996, required the
FDIC to take immediate steps to recapitalize the SAIF and to change the basis
on which funds are raised to make the scheduled payments on the FICO bonds
issued in 1987 to replenish the Federal Savings and Loan Insurance
Corporation. The new legislation, combined with regulations issued by the
FDIC immediately after enactment of the Funds Act, provided for a special
assessment in the amount of 65.7 basis points per $100 in insured deposits on
SAIF-insured deposits held by depository institutions on March 31, 1995 (the
special assessment was required by the Funds Act to recapitalize the SAIF to
the designated reserve ratio of 1.25 percent of the deposits insured by SAIF).
Payments of this assessment were made in November 1996, but were accrued
- 156 -
<PAGE> 161
by financial institutions in the third calendar quarter of 1996. Commencing
January 1, 1997, BIF-insured institutions will be responsible for a portion of
the annual carrying costs of the FICO bonds. Such institutions will be
assessed at 80% of the rate applicable to SAIF-insured institutions until
December 31, 1999. Effective January 1, 1997, the Funds Act also reduced
ongoing SAIF deposit insurance assessment rates to a range from 6.4 cents to
23 cents (from previous rates of 23 cents to 31 cents) per $100 of insured
deposits and increased ongoing BIF deposit insurance assessment rates to a
range from zero to 1.3 cents per $100 of insured deposits. Additionally,
pursuant to the Funds Act, if the reserves in the BIF at the end of any
semiannual assessment period exceed 1.25 percent of insured deposits, the FDIC
is required to refund the excess to the BIF-insured institutions.
The Funds Act contemplates the merger of the SAIF and BIF by 1999,
provided the consolidation/merger of federal bank and thrift charters under
applicable law and regulation has been achieved by that time. Until such
time, however, depository institutions will continue to be prohibited from
shifting deposits from SAIF insurance coverage to BIF insurance coverage in an
attempt to avoid the higher SAIF assessments.
FEDERAL HOME LOAN BANK SYSTEM
RFSLA is a member of the FHLB System, which consists of 12
regional FHLBs. The FHLB provides a central credit facility primarily for
member institutions. RFSLA, as a member of the FHLB, is required to acquire
and hold shares of capital stock in that FHLB in an amount at least equal to
1% of the aggregate principal amount of its unpaid residential mortgage loans
and similar obligations at the beginning of each year, or 1/20 of its advances
(borrowings) from the FHLB, whichever is greater. The FHLBs are required to
provide funds for the resolution of insolvent thrifts and to contribute funds
for affordable housing programs. These requirements could reduce the amount
of dividends that the FHLBs pay to their members and could also result in the
FHLBs imposing a higher rate of interest on advances to their members.
Reliance is a non-diversified savings and loan holding company
within the meaning of the HOLA, as amended. As such, Reliance is registered
with the OTS and is subject to OTS regulations, examinations, supervision and
reporting requirements. In addition, the OTS has enforcement authority over
Reliance and its non-savings institution subsidiaries. Among other things,
this authority permits the OTS to restrict or prohibit activities that are
determined to be a serious risk to the subsidiary savings institution. RFSLA
is required to notify the OTS 30 days before declaring any dividend to
Reliance.
As a unitary savings and loan holding company, Reliance generally
is not restricted under existing laws as to the types of business activities
in which it may engage, provided that RFSLA continues to be a QTL. Upon any
nonsupervisory acquisition by Reliance of another savings association or
savings bank that meets the QTL test and is deemed to be a savings institution
by the OTS, Reliance would become a multiple savings and loan holding company
(if the acquired institution is held as a separate subsidiary) and would be
subject to extensive limitations on the types of business activities in which
it could engage. The HOLA limits the activities of a multiple savings and
loan holding company and its non-insured institution subsidiaries primarily to
activities permissible for bank holding companies under Section 4(c)(8) of the
BHCA, subject to the prior approval of the OTS, and activities authorized by
OTS regulation. The OTS is prohibited from approving any acquisition that
would result in a multiple savings and loan holding company controlling
savings institutions in more than one state, subject to two exceptions: (i)
the approval of interstate supervisory acquisitions by savings and loan
holding companies, and (ii) the acquisition of a savings institution in
another state of the laws of the state of the target savings institution
specifically permit such acquisitions.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring another
savings institution or holding company thereof, without prior written approval
of the OTS. It also prohibits the acquisition or retention of, with certain
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<PAGE> 162
exceptions, more than 5% of a non-subsidiary savings institution, a non-
subsidiary holding company, or a non-subsidiary company engaged in activities
other than those permitted by the HOLA; or acquiring or retaining control of
an institution that is not federally insured. In evaluating applications by
holding companies to acquire savings institutions, the OTS must consider the
financial and managerial resources, future prospects of the company and
institution involved, the effect of the acquisition on the risk to the
insurance fund, the convenience and needs of the community and competitive
factors.
Federal law generally provides that no "person," acting directly
or indirectly or through or in concert with one or more other persons, may
acquire "control," as that term is defined in OTS regulations, of a federally
insured savings institution without giving at least 60 days written notice to
the OTS and providing the OTS an opportunity to disapprove of the proposed
acquisition. Such acquisitions of control may be disapproved if it is
determined, among other things, that (i) the acquisition would substantially
lessen competition; (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the savings institution or prejudice the
interests of its depositors; or (iii) the competency, experience or integrity
of the acquiring person or the proposed management personnel indicates that it
would not be in the interest of the depositors or the public to permit the
acquisition of control by such person.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
BDO Seidman, LLP served as Allegiant's independent accountants for
the year ended December 31, 1996 and continues to serve in such capacity.
Services provided in connection with the audit function included examination
of the annual consolidated financial statements, consultation regarding
filings with the Commission and other regulatory authorities and consultation
on financial accounting and reporting matters.
Michael Trokey & Company, P.C. served as Reliance's independent
accountants for the year ended September 30, 1996 and continues to serve in
such capacity. Services provided in connection with the audit function
included examination of the annual consolidated financial statements,
consultation regarding filings with the Commission and consultation on
financial accounting and reporting matters.
LEGAL MATTERS
Certain legal matters will be passed upon for Allegiant by
Thompson Coburn, St. Louis, Missouri, and for Reliance by Luse Lehman Gorman
Pomerenk & Schick, Washington, D.C.
EXPERTS
The consolidated financial statements of Allegiant for the year
ended December 31, 1996 have been included herein in reliance upon the report
of BDO Seidman, LLP, independent certified public accountants, whose report is
included herein, and upon the authority of such firm as experts in accounting
and auditing.
The consolidated financial statements of Reliance for the year
ended September 30, 1996 have been included herein in reliance upon the report
of Michael Trokey & Company, P.C., independent certified public accountants,
whose report is included herein, and upon the authority of such firm as
experts in accounting and auditing.
- 158 -
<PAGE> 163
OTHER MATTERS
The Board of Directors of Allegiant, at the date hereof, is not
aware of any business to be presented at Allegiant's Special Meeting other
than that referred to in the Notice of Special Meeting of Shareholders of
Allegiant and discussed herein. If any other matter should properly come
before Allegiant's Special Meeting, the persons named as proxies will have
discretionary authority to vote the shares represented by proxies in
accordance with their discretion and judgment as to the best interests of
Allegiant.
The Board of Directors of Reliance, at the date hereof, is not
aware of any business to be presented at Reliance's Annual Meeting other than
that referred to in the Notice of Annual Meeting of Stockholders of Reliance
and discussed herein. If any other matter should properly come before
Reliance's Annual Meeting, the persons named as proxies will have
discretionary authority to vote the shares represented by proxies in
accordance with their discretion and judgment as to the best interests of
Reliance.
SHAREHOLDER PROPOSALS
If the Merger is adopted and approved, the other conditions to the
Merger are satisfied and the Merger is consummated, stockholders of Reliance
will become shareholders of Allegiant at the Effective Time. Allegiant
shareholders may submit to Allegiant proposals for formal consideration at the
1997 annual meeting of Allegiant's shareholders and inclusion in Allegiant's
proxy statement for such meeting. All such proposals must have been received
in writing by the Corporate Secretary at Allegiant Bancorp, Inc., 7801
Forsyth, St. Louis, Missouri 63105 by November 20, 1997.
- 159 -
<PAGE> 164
<TABLE>
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
-----
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
CONSOLIDATED BALANCE SHEETS OF ALLEGIANT AS OF
DECEMBER 31, 1996 AND 1995 F-2
CONSOLIDATED STATEMENTS OF INCOME OF ALLEGIANT FOR
THE YEARS ENDED DECEMBER 31, 1996 AND 1995 F-3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
OF ALLEGIANT FOR THE YEARS ENDED
DECEMBER 31, 1996 AND 1995 F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS OF ALLEGIANT
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 to F-20
REPORT OF INDEPENDENT AUDITORS F-21
CONSOLIDATED BALANCE SHEETS OF RELIANCE AS OF
SEPTEMBER 30, 1996 AND 1995 F-22
CONSOLIDATED STATEMENTS OF EARNINGS OF RELIANCE
FOR THE YEARS ENDED SEPTEMBER 30, 1996,
1995 AND 1994 F-23
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 1996,
1995 AND 1994 F-24
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE YEARS ENDED SEPTEMBER 30, 1996,
1995 AND 1994 F-25 to F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-27 to F-43
</TABLE>
- 160 -
<PAGE> 165
[Letterhead of BDO Seidman, LLP]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Allegiant Bancorp, Inc.
St. Louis, Missouri
We have audited the accompanying consolidated balance sheets of Allegiant
Bancorp, Inc. (a Missouri corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of Allegiant's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Allegiant Bancorp, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ BDO Seidman, LLP
St. Louis, Missouri
January 24, 1997,
except for Note 15
which is as of
February 24, 1997
F-1
<PAGE> 166
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS:
- ------
Cash and due from banks $ 7,554 $ 5,483
Federal funds sold and other overnight investments 10,775 14,200
Investment securities (Notes 1, 6 and 7)
Available-for-sale (at estimated market value) 22,073 28,000
Held-to-maturity (approximate market value of
$38,540,000 in 1996 and $45,042,000 in 1995) 38,487 45,211
Loans, net of allowance for possible loan losses of
$3,100,000 in 1996 and $2,130,000 in 1995 (Notes 2, 6, 7 and 9) 288,826 179,414
Premises and equipment (Note 3) 5,514 4,603
Accrued interest and other assets (Notes 4 and 5) 3,844 2,906
Cost in excess of fair value of net assets acquired 491 569
----------- -----------
Total assets $ 377,564 $ 280,386
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
- ------------------------------------
Deposits:
Non-interest bearing $ 29,406 $ 21,966
Interest bearing 228,439 176,203
Certificates of deposit of $100,000 or more 50,825 33,140
----------- -----------
Total deposits 308,670 231,309
----------- -----------
Short-term borrowings (Notes 1, 6 and 9) 36,137 14,108
Long-term debt (Notes 1, 7 and 9) 14,663 19,719
Accrued expenses and other liabilities 1,708 1,312
----------- -----------
Total liabilities 361,178 266,448
Commitments and contingencies (Notes 10, 11, 12, 13 and 14)
Shareholders' equity (Notes 7, 8, 11, 15 and 16):
Common Stock, $.01 par value - shares
authorized, 7,800,000; issued and outstanding
2,271,000 in 1996 and 2,187,937 in 1995 23 18
Capital surplus 15,983 11,369
Retained earnings 357 2,642
Net unrealized appreciation (depreciation) on securities available
for sale 23 (91)
----------- -----------
Total shareholders' equity 16,386 13,938
----------- -----------
Total liabilities and shareholders' equity $ 377,564 $ 280,386
=========== ===========
See accompanying summary of accounting policies and notes to consolidated financial statements.
</TABLE>
F-2
<PAGE> 167
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995
----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 21,740 $ 15,995
Investment securities 3,477 2,965
Federal funds sold and overnight investments 151 292
----------- -----------
Total interest income 25,368 19,252
----------- -----------
INTEREST EXPENSE:
Interest on deposits 12,060 9,047
Interest on short-term borrowings 1,542 703
Interest on long-term debt 1,397 1,456
----------- -----------
Total interest expense 14,999 11,206
----------- -----------
Net interest income 10,369 8,046
Provision for possible loan losses (Note 2) 1,448 977
----------- -----------
Net interest income after provision for possible loan losses 8,921 7,069
----------- -----------
OTHER INCOME:
Service charges on deposits and other fees 1,032 658
Net gain (loss) on sale of securities (Note 1) 49 (4)
----------- -----------
Total other income 1,081 654
----------- -----------
OTHER EXPENSES:
Salaries and employee benefits (Note 10) 3,455 2,809
Occupancy and other operating expenses 3,564 2,816
----------- -----------
Total other expenses 7,019 5,625
----------- -----------
Income before income taxes 2,983 2,098
Provision for income taxes (Note 5) 1,175 823
----------- -----------
Net income $ 1,808 $ 1,275
=========== ===========
PER SHARE DATA:
Primary:
Average adjusted Common Shares outstanding 2,386,042 2,056,431
Net income $ .76 $ .62
Fully diluted:
Average adjusted Common Shares outstanding 2,416,445 2,152,869
Net income $ .75 $ .61
See accompanying summary of accounting policies and notes to consolidated financial statements.
</TABLE>
F-3
<PAGE> 168
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
NET
UNREALIZED
APPRECIATION
(DEPRECIATION)
ON AVAILABLE- TOTAL
COMMON CAPITAL RETAINED FOR-SALE SHAREHOLDERS'
STOCK SURPLUS EARNINGS SECURITIES EQUITY
------ -------- -------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $ 8 $ 7,064 $ 1,480 $ (99) $ 8,453
Net income -- -- 1,275 -- 1,275
Cash dividends declared -- -- (113) -- (113)
Issuance of Common Stock coinciding with:
Two-for-three stock split (Note 8) 5 -- (5) -- --
Private placement 5 4,256 -- -- 4,261
Exercise of Common Stock Warrants -- 8 -- -- 8
Various stock issuance plans -- 46 -- -- 46
Change in net unrealized gains (losses)
on securities available-for-sale (Note 1) -- -- -- 8 8
------ -------- -------- --------- --------
Balance, December 31, 1995 18 11,374 2,637 (91) 13,938
------ -------- -------- --------- --------
Net income -- -- 1,808 -- 1,808
Cash dividends declared -- -- (187) -- (187)
Issuance of Common Stock coinciding with:
Stock dividends (Note 8) 4 3,897 (3,901) -- --
Conversion of Subordinate Debentures (Note 7) 1 503 -- -- 504
Exercise of Common Stock Warrants -- 25 -- -- 25
Various stock issuance plans -- 184 -- -- 184
Change in net unrealized gains (losses)
on securities available-for-sale (Note 1) -- -- -- 114 114
------ -------- -------- --------- --------
Balance, December 31, 1996 $ 23 $ 15,983 $ 357 $ 23 $ 16,386
====== ======== ======== ========= ========
See accompanying summary of accounting policies and notes to consolidated financial statements.
</TABLE>
F-4
<PAGE> 169
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,808 $ 1,275
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 536 520
Provision for loan losses 1,448 977
Net realized (gains) losses on securities available-for-sale (49) 4
Gain on sale of fixed assets -- (6)
Deferred tax provision (282) (176)
Changes in assets and liabilities:
Accrued interest receivable and
other assets (938) (727)
Accrued expenses and other liabilities 768 (24)
---------- ----------
Cash provided by operating activities 3,291 1,891
---------- ----------
INVESTING ACTIVITIES:
Proceeds from maturities of securities held-to-maturity 41,343 57,705
Purchase of investment securities held-to-maturity (25,279) (57,367)
Proceeds from maturities of securities available-for-sale 36,797 75
Proceeds from sales of securities available-for-sale 3,882 996
Purchase of investments securities available-for-sale (34,457) (21,420)
Loans made to customers, net of repayments (120,070) (72,753)
Additions to premises and equipment (1,574) (2,382)
Proceeds from sale of fixed assets -- 8
---------- ----------
Cash used in investing activities (99,358) (95,138)
---------- ----------
FINANCING ACTIVITIES:
Net increase in deposits 77,362 96,425
Net increase (decrease) in short-term borrowings 22,029 (3,298)
Proceeds from issuance of long-term debt -- 19,315
Repayment of long-term debt (4,552) (9,400)
Proceeds from issuance of Common Stock 61 4,223
Payment of dividends (187) (113)
---------- ----------
Cash provided by financing activities 94,713 107,152
---------- ----------
Net (decrease) increase in cash and cash equivalents (1,354) 13,905
Cash and cash equivalents, beginning of year 19,683 5,778
---------- ----------
Cash and cash equivalents, end of year $ 18,329 $ 19,683
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest on deposits and borrowings $ 14,750 $ 10,346
Income taxes 1,393 1,392
========== ==========
Noncash transactions:
Transfers to other real estate owned in settlement of loans $ -- $ 10
Transfer from securities held-to-maturity to securities
available-for-sale, net of tax effect -- 7,707
Loans securitized 9,209 12,300
Conversion of Subordinate Debt to Common Stock 504 --
Conversion of Directors' fees to Common Stock 148 46
========== ==========
See accompanying summary of accounting policies and notes to consolidated financial statements.
</TABLE>
F-5
<PAGE> 170
ALLEGIANT BANCORP, INC.
SUMMARY OF ACCOUNTING POLICIES
Basis of Accounting. The accompanying consolidated financial
statements include the accounts of Allegiant Bancorp, Inc. (the "Company")
and its subsidiaries, Allegiant Bank (the "Bank"), Allegiant Mortgage Company
and Edge Mortgage Services, Inc. The financial statements have been prepared
in conformity with generally accepted accounting principles and reporting
practices applicable to the banking industry. All significant intercompany
transactions and balances have been eliminated.
Business. The Bank provides a full range of banking services to
individual and corporate customers in the St. Louis SMSA as well as Northeast
Missouri. The Bank is subject to intense competition from other financial
institutions. The Bank is also subject to the regulations of certain federal
and state agencies and undergoes periodic examination by those regulatory
authorities.
Investment Securities. At the time of purchase, Allegiant categorizes
each security within its portfolio into one of the following three permitted
classifications:
Held-to-maturity securities are securities which Allegiant has the
ability and positive intent to hold to maturity. Such securities are carried
at cost, adjusted for amortization of premiums and accretion of discounts.
The adjusted cost of specific securities is used to compute gains and losses
on sales and redemptions.
Trading securities, including options used in trading activities, are
purchased with the intent for resale within a short period of time in
anticipation of short-term market movements, and are stated at estimated
market value. Gains and losses, both realized and unrealized, on trading
securities are included in other non-interest income.
Available-for-sale securities include all debt securities not
classified as held-to-maturity or trading and marketable equity securities
not classified as trading. Available-for-sale securities are stated at
estimated market value. Unrealized holding gains and losses are reported net
of taxes as a separate component of shareholders' equity until realized.
Realized gains and losses are computed based on cost adjusted for
amortization of premiums and accretion of discounts and included in other
non-interest income.
Dividends and interest income on all securities are included in
interest income.
Loans. Loans that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Discounts and premiums on purchased residential real estate loans are
amortized to income using the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments. Discounts and
premiums on purchased consumer loans are recognized over the expected lives
of the loans using methods that approximate the interest method.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related loan.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to the
extent cash payments are received.
F-6
<PAGE> 171
ALLEGIANT BANCORP, INC.
SUMMARY OF ACCOUNTING POLICIES
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past loan
loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic conditions.
Bank Premises and Equipment. Premises and equipment are stated at cost
less accumulated depreciation. The provision for depreciation is computed
using the straight-line method over the estimated useful lives of the
individual assets for book purposes and accelerated methods for tax purposes.
Ordinary maintenance and repairs are charged to operations as incurred.
Mortgage Servicing Rights and Amortization. In May 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 122, Accounting for Mortgage Servicing Rights, which
Allegiant adopted effective January 1, 1996. SFAS No. 122 amended SFAS
No. 65, Accounting for Certain Mortgage Banking Activities. The overall
impact on Allegiant's financial statements of adopting SFAS No. 122 in 1996
was not significant.
SFAS No. 122 requires the recognition of originated mortgage servicing
rights ("OMSRs"), as well as purchased mortgage servicing rights ("PMSRs"),
as assets by allocating total costs incurred between the loan and the
servicing rights based on their relative fair values. Under SFAS No. 65, the
cost of OMSRs was not recognized as an asset and was charged to earnings when
the related loan was sold.
Amortization of mortgage servicing rights is based on the ratio of net
servicing income received in the current period to total net servicing income
projected to be realized from the mortgage servicing rights. Projected net
servicing income is in turn determined on the basis of the estimated future
balance of the underlying mortgage loan portfolio, which declines over time
from prepayments and scheduled loan amortization. Allegiant estimates future
prepayment rates based on current interest rate levels, other economic
conditions and market forecasts, as well as relevant characteristics of the
servicing portfolio, such as loan types, interest rate stratification and
recent prepayment experience.
SFAS No. 122 also requires that all capitalized mortgage servicing
rights ("MSRs") be evaluated for impairment based on the excess of the
carrying amount of the MSRs over their fair value. For purposes of measuring
impairment, MSRs are stratified on the basis of interest rate and type of
interest rate (fixed or adjustable).
Real Estate Owned. Real estate acquired in settlement of loans is
initially recorded at the lower of fair market value of the assets received
(less estimated selling costs) or the recorded investment in the loan at date
of foreclosure. Any adjustment to fair market value is charged against the
allowance for real estate. Subsequent write-downs are charged against
operating expense including charges relating to operating, holding or
disposing of the property. Real estate owned was approximately $-0- and
$10,000 at December 31, 1996 and 1995, respectively.
Cost in Excess of Fair Value of Net Assets Acquired. Goodwill, which
represents the excess of the cost of purchased assets over the fair value of
their net assets at date of acquisition, is being amortized on the
straight-line method over 15 years.
Income Taxes. Income taxes are accounted for under the asset and
liability method in which deferred income taxes are recognized as a result of
temporary differences between the financial reporting basis and the tax basis
of the assets and liabilities of Allegiant.
F-7
<PAGE> 172
ALLEGIANT BANCORP, INC.
SUMMARY OF ACCOUNTING POLICIES
Earnings Per Share. Primary per share information is determined using
the weighted-average number of common and dilutive common equivalent shares
outstanding. Fully diluted per share information assumes full conversion of
all dilutive convertible securities into Common Stock at the later of the
beginning of the year or the date of issuance of the dilutive convertible
securities.
Consolidated Statements of Cash Flows. For purposes of reporting cash
flows, Allegiant considers cash and due from banks, federal funds sold and
other overnight investments to be cash equivalents.
Stock-Based Compensation. Allegiant grants stock options for a fixed
number of shares to employees with an exercise price greater than or equal to
the fair value of the shares at the date of grant. Allegiant continues to
account for stock option grants in accordance with Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25").
That Opinion requires that compensation cost related to fixed stock options
plans be recognized only to the extent that the fair value of the shares at
the grant date exceeds the exercise price. Accordingly, Allegiant recognizes
no compensation expense for its stock option grants.
In October 1995, the FASB issued its SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No. 123 allows companies to continue to
account for their stock option plans in accordance with APB 25 but encourages
the adoption of a new accounting method based on the estimated fair value of
employee stock options. Pro forma net income and earnings per share,
determined as if Allegiant had applied the new method, are disclosed within
Note 11.
Reclassifications. Certain reclassifications have been made to the
1995 financial statements to conform to the 1996 presentation. These
reclassifications had no effect on net income.
Accounting Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
estimates.
Accounting Changes. In June 1996, the FASB issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities. SFAS No. 125 establishes, among other things, new criteria
for determining whether a transfer of financial assets in exchange for cash
or other consideration should be accounted for as a sale or as a pledge of
collateral in a secured borrowing. It also establishes new accounting
requirements for pledged collateral. As issued, SFAS No. 125 is effective
for all transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996 except for certain provisions,
which were deferred for one year. Management does not expect the application
of this pronouncement to have a material effect on the financial statements
of Allegiant.
F-8
<PAGE> 173
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INVESTMENT SECURITIES:
Debt and equity securities have been classified in the consolidated
balance sheets according to management's intent. The carrying amount of
securities and their approximate fair values at December 31 were as follows
(in thousands):
<TABLE>
<CAPTION>
SECURITIES AVAILABLE-FOR-SALE
DECEMBER 31,
--------------------------------------------------------------------------------------------------
1996 1995
---------------------------------------------- ----------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
-------- ------ ------ -------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal Home Loan Bank
stock $ 4,462 $ -- $ -- $ 4,462 $ 2,645 $ -- $ -- $ 2,645
U.S. government and
agency securities 15,432 28 (64) 15,396 23,456 -- (188) 23,268
Mortgage-backed securities 1,939 71 -- 2,010 1,977 52 -- 2,029
Other equity securities 205 -- -- 205 58 -- -- 58
-------- ------ ------ -------- -------- ------ ------- --------
Total $ 22,038 $ 99 ($ 64) $ 22,073 $ 28,136 $ 52 ($ 188) $ 28,000
======== ====== ====== ======== ======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
SECURITIES TO BE HELD-TO-MATURITY
DECEMBER 31,
--------------------------------------------------------------------------------------------------
1996 1995
---------------------------------------------- ----------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
-------- ------ ------ -------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government and
agency securities $ 21,096 $ 35 ($ 229) $ 20,902 $ 33,527 $ 47 ($ 496) $ 33,078
State and municipal
securities 1,199 20 -- 1,219 930 15 -- 945
Mortgage-backed securities 16,192 227 -- 16,419 10,754 265 -- 11,019
-------- ------ ------ -------- -------- ------ ------- --------
Total $ 38,487 $ 282 ($ 229) $ 38,540 $ 45,211 $ 327 ($ 496) $ 45,042
======== ====== ====== ======== ======== ====== ======= ========
</TABLE>
Gross realized gains and gross realized losses on sale of
securities available-for-sale were $56,000 and $7,000, respectively, in 1996
and $-0- and $4,000, respectively, in 1995.
In 1996, the Bank securitized seven separate pools of
adjustable-rate mortgages aggregating $9,209,000 into an equivalent number of
Federal National Mortgage Association ("FNMA") mortgage-backed securities.
These securities were recorded within the held-to-maturity category at the
same amount. The Bank retained the servicing of these loans. There was no
gain or loss on the sale of these loans.
In 1995, the Bank securitized one pool of adjustable-rate
mortgages aggregating $12,300,000 into two FNMA mortgage-backed securities.
Of this aggregating amount, $10,300,000 was categorized as held-to-maturity
and $2,000,000 was categorized as available-for-sale. The Bank retained the
servicing of these loans. There was no gain or loss on the sale of these
loans.
At December 31, 1996 and 1995, the Bank did not have any loans
for sale.
In accordance with the transition provisions of A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities, issued by the Financial Accounting Standards Board in
November 1995, the Bank transferred securities with an amortized cost of
approximately $7,707,000 from the held-to-maturity to the available-for-sale
category on December 28,
F-9
<PAGE> 174
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1995. The net unrealized loss on the securities transferred amounted to
approximately $157,000. There were no securities transferred between
categories for the year ended December 31, 1996.
The scheduled maturities of securities held-to-maturity and
securities (other than equity securities) available-for-sale at December 31,
1996, were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------
SECURITIES TO BE HELD- SECURITIES
TO-MATURITY AVAILABLE-FOR-SALE
--------------------------- ---------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less $ 4,230 $ 4,219 $ 6,704 $ 6,668
Due from one year to five years 17,638 17,463 8,228 8,232
Due from five years to ten years 400 412 500 496
Due after ten years 27 27 -- --
--------- --------- --------- ---------
Subtotal 22,295 22,121 15,432 15,396
Mortgage-backed securities 16,192 16,419 1,939 2,010
--------- --------- --------- ---------
Total $ 38,487 $ 38,540 $ 17,371 $ 17,406
========= ========= ========= =========
</TABLE>
Expected maturities may differ from contractual maturities
because issuers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Investment securities with a carrying value of approximately
$52,121,000 at December 31, 1996 and $24,518,000 at December 31, 1995 were
pledged to secure public deposits, securities sold under the agreements to
repurchase (Note 6) and for other purposes as required by law.
As a member of the Federal Home Loan Bank system administered by
the Federal Housing Finance Board, the Bank is required to maintain an
investment in the capital stock of the Federal Home Loan Bank of Des Moines
(FHLB). The amount of capital stock must be equal to at least five percent
of the Bank's total outstanding advances from the FHLB, divided by its
mortgage-to-asset ratio, as defined. The stock is recorded at cost which
represents redemption value.
NOTE 2. LOANS:
The components of loans in the consolidated balance sheets were
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
Commercial $ 75,129 $ 40,518
Real estate 196,107 124,055
Real estate construction 8,763 8,777
Installment and other 12,084 8,379
---------- ----------
Total loans 292,083 181,729
Net deferred loan fees, premiums and discounts (157) (185)
Allowance for possible loan losses (3,100) (2,130)
---------- ----------
Net loans $ 288,826 $ 179,414
========== ==========
</TABLE>
F-10
<PAGE> 175
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An analysis of the change in the allowance for possible loan
losses follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
Balance, beginning of period $ 2,130 $ 1,455
Loans charged off (545) (323)
Recoveries 67 21
---------- ----------
Net loans charged off (478) (302)
Provision for possible loan losses 1,448 977
---------- ----------
Balance, end of year $ 3,100 $ 2,130
========== ==========
</TABLE>
A summary of impaired loans, which include non-accrual loans, at
December 31, 1996, follows:
<TABLE>
<CAPTION>
ALLOWANCE FOR IMPAIRED LOANS
IMPAIRED LOANS LOSSES ON WITH NO RELATED
NON-ACCRUAL CONTINUING TO TOTAL IMPAIRED IMPAIRED ALLOWANCE FOR
LOANS ACCRUE INTEREST LOANS LOANS LOAN LOSSES
----------- --------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
$ 147,000 $ -- $ 147,000 $ 41,000 $ --
=========== =============== ============== ============= ===============
</TABLE>
The average balance of impaired loans during 1996 was $196,000.
Loans listed as impaired have been considered by Bank management in the loan
loss reserve calculation.
A summary of interest income on non-accrual and other impaired
loans for the year ended December 31, 1996, follows:
<TABLE>
<CAPTION>
IMPAIRED LOANS
NON-ACCRUAL CONTINUING TO
LOANS ACCRUE INTEREST TOTAL
----------- --------------- -----
<S> <C> <C> <C>
Income recognized $ -- $ -- $ --
=========== =============== ==========
Interest income had interest accrued $ 18,000 $ -- $ 18,000
=========== =============== ==========
</TABLE>
NOTE 3. PREMISES AND EQUIPMENT:
Components of premises and equipment included in the consolidated
balance sheets at December 31, 1996 and 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
--------- ---------
<S> <C> <C>
Land $ 1,515 $ 1,171
Bank premises 2,542 2,106
Furniture, equipment and automobiles 3,379 2,584
--------- ---------
Total cost 7,436 5,861
Less accumulated depreciation (1,922) (1,258)
--------- ---------
Net book value $ 5,514 $ 4,603
========= =========
</TABLE>
F-11
<PAGE> 176
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. MORTGAGE SERVICING RIGHTS:
The components of mortgage servicing rights were as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995
--------- --------
<S> <C> <C>
Balance, beginning of period $ 212 $ 243
Additions 103 --
Amortization
Scheduled (35) (31)
Unscheduled -- --
------ ------
Balance, end of period $ 280 $ 212
====== ======
</TABLE>
As of December 31, 1996, the estimated fair value of Allegiant's
capitalized mortgage servicing rights was in excess of its carrying value.
Fair value is determined by discounting estimated not future cash flows from
mortgage servicing activities using discount rates that approximate current
market rates and estimated prepayments, among other assumptions.
NOTE 5. INCOME TAXES:
Allegiant's results include income tax expense as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995
--------- --------
<S> <C> <C>
Current $ 1,457 $ 999
Deferred (282) (176)
-------- ------
Total $ 1,175 $ 823
======== ======
</TABLE>
The tax effects of temporary differences that gave rise to the
deferred tax assets and liabilities are presented below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
--------- ----------
<S> <C> <C>
Deferred Tax Assets:
Reserve for possible loan losses $ 852 $ 594
Deferred loan fees 52 60
Deferred compensation 32 19
Mark-to-market securities adjustments 12 --
Other, net 69 53
-------- --------
Total deferred tax assets 1,017 726
-------- --------
Deferred tax liabilities:
Depreciation (226) (241)
Mark-to-market securities adjustments -- (45)
Other (15) (4)
-------- --------
Total deferred tax liabilities (241) (290)
-------- --------
Net deferred tax assets $ 776 $ 436
======== ========
</TABLE>
A valuation allowance would be provided on deferred tax assets
when it is more likely than not that some portion of the assets will not be
realized. Allegiant has not established a valuation allowance as of
December 31, 1996 or 1995, due to management's belief that all criteria for
recognition
F-12
<PAGE> 177
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
have been met, including the existence of a history of taxes paid
sufficient to support the realization of the deferred tax assets.
Income tax expense as reported differs from the amounts computed
by applying the statutory federal income tax rate to pre-tax income as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995
--------- -------
<S> <C> <C>
Computed "expected" tax expense $ 1,014 $ 713
Tax-exempt income (19) (24)
State and local income taxes, net of federal tax benefits 143 104
Goodwill amortization 23 23
Other, net 14 7
--------- -------
Total tax expense $ 1,175 $ 823
========= =======
</TABLE>
NOTE 6. SHORT-TERM BORROWINGS:
Short-term borrowings were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
--------- ---------
<S> <C> <C>
Customer repurchase agreements $ 8,337 $ 4,108
FHLB repurchase agreement 3,300 --
FHLB advances 24,500 10,000
--------- ---------
Total short-term borrowings $ 36,137 $ 14,108
========= =========
</TABLE>
As collateral for the FHLB advances, the Bank has entered into a
blanket agreement which pledges first mortgage loans with principal balances
aggregating 150% of the outstanding advances.
NOTE 7. LONG-TERM DEBT:
Long-term debt consisted of the following at year-end (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
--------- ---------
<S> <C> <C>
Note payable to financial institution, interest
payable quarterly at prime (8.25% on December 31, 1996),
principal payments of $400,000 payable annually
with the remaining balance due on December 31, 1999,
secured by Bank stock $ 4,400 $ 4,800
Notes payable to FHLB, interest payable monthly at rates varying
from 5.62% to 7.87%, principal balance due at maturity ranging
from January 12, 1998 to September 12, 2000,
secured by stock in FHLB and certain loans (Note 6) 7,000 11,100
Convertible subordinated debentures with certain
shareholders, interest payable quarterly at prime plus 2%
(with a minimum floor of 10%), maturing on
September 30, 1999 -- 504
Subordinated debentures with certain shareholders,
interest payable quarterly at prime plus 3% (with a minimum
floor of 10%), maturing on May 31, 2002 3,263 3,315
--------- ---------
Total long-term debt $ 14,663 $ 19,719
========= =========
</TABLE>
F-13
<PAGE> 178
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the terms of the note payable to the financial institution,
Allegiant or its subsidiaries are required to maintain certain financial
ratios and are limited with respect to cash dividends, capital expenditures
and the incurrence of additional indebtedness without prior approval.
In 1996, the Convertible Subordinated Debentures were converted
into shares of Allegiant's Common Stock at a conversion price of $ 8.73 per
share.
The prime plus 3% Debentures are redeemable, in whole or in part,
at the option of Allegiant, subject to certain conditions, and are
subordinate to all senior debt of Allegiant.
A summary of annual principal reductions of long-term debt as of
December 31, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
ANNUAL
PRINCIPAL
YEAR REDUCTIONS
---- ----------
<S> <C>
1997 $ 400
1998 3,400
1999 4,100
2000 2,000
2001 --
Thereafter 4,763
---------
Total $ 14,663
=========
</TABLE>
NOTE 8. STOCK DIVIDEND:
On September 19, 1996, Allegiant's Board of Directors declared a
10% stock dividend to shareholders of record on January 2, 1997, payable on
January 15, 1997. The transaction was valued based on the closing market
price of Allegiant's stock at the date of declaration. Retained earnings
were charged to the extent available as a result of the increase of 206,346
shares of Allegiant's Common Stock.
On October 19, 1995, Allegiant's Board of Directors declared a
10% stock dividend to shareholders of record on January 2, 1996, paid on
January 15, 1996. Retained earnings were charged $2,170,000 as a result of
the increase of 180,821 shares of Allegiant's Common Stock.
On October 20, 1994, Allegiant's Board of Directors approved a
two-for-three stock split of Allegiant's Common Stock in the form of a stock
dividend for shareholders of record as of December 15, 1994, subsequently
paid on January 15, 1995. Common Stock was credited and capital surplus was
charged for the aggregate par value of the shares that were issued. The
stated par value of each share was not changed from $.01.
All share and earnings per share disclosures have been restated
to retroactively reflect the aforementioned stock dividends and stock split.
NOTE 9. RELATED PARTIES:
Allegiant and the Bank have entered into transactions with its
directors, significant shareholders and their affiliates (related parties).
Such transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion
F-14
<PAGE> 179
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of management, involve more than normal credit risk or present other
unfavorable features. The aggregate amount of loans to such related parties
at December 31, 1996 and 1995 was $15,488,000 and $13,840,000, respectively.
During 1996, new loans to such related parties amounted to $3,344,000 and
repayments amounted to $1,696,000.
Additionally, Allegiant issued subordinated debentures to certain
shareholders in aggregate principal amount of $3,819,000 in 1995. See Note 7
for terms of the agreement.
During 1995, Allegiant borrowed $1,200,000 from an affiliate of a
company director and shareholder. The loan plus $12,000 in interest were
repaid after one month.
NOTE 10. EMPLOYEE BENEFITS:
Allegiant has a defined contribution pension plan in effect for
substantially all full-time employees. Salaries and employee benefits
expense include $29,977 in 1996 and $27,663 in 1995, for such plans.
Contributions under the defined contribution plan are made at the discretion
of Company management.
NOTE 11. INCENTIVE PLANS:
Incentive Stock Options. At December 31, 1996, Allegiant had four
stock-based compensation plans which are described below. As discussed in
the Summary of Accounting Policies, Allegiant applies APB Opinion No. 25 and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its incentive stock option plans.
Had compensation cost for Allegiant's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS No. 123, Allegiant's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below (in thousands, except per share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995
---------- ----------
<S> <C> <C> <C>
Net income As reported $ 1,808 $ 1,275
Pro forma 1,534 1,275
Primary earnings per share As reported .76 .68
Pro forma .64 .68
Fully diluted earnings
per share As reported .75 .67
Pro forma .63 .67
</TABLE>
As mentioned above, Allegiant has four fixed stock option plans.
Under these plans, Allegiant may grant options to its directors and
employees, in the aggregate, of up to 1,240,000 shares of common stock. The
exercise price of each option equals or exceeds the market price of
Allegiant's stock on the date of the grant. An option's maximum term is ten
years.
The fair value of each option granted in 1996 is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used: dividend yield of .93 percent; risk-free
interest rate of 6.41 percent; and expected lives of 5 years.
F-15
<PAGE> 180
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of Allegiant's fixed stock option plans
as of December 31, 1996 and 1995, and changes during the years ending on
those dates is presented below:
<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Outstanding, beginning of period 339,958 $ 5.72 347,017 $ 5.73
Granted 126,830 12.81 -- --
Exercised (5,243) 5.72 -- --
Canceled (220) 12.00 (7,059) 6.16
---------- ----------
Outstanding, end of period 461,325 7.66 339,958 5.72
========== ==========
Options exercisable at year-end 434,540 308,497
Weighted-average fair value of
options granted during the year $3.77 --
</TABLE>
The following table summarizes information about fixed stock
options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE
--------------- ----------- ---------------- --------------
<S> <C> <C> <C>
$ 4.13 - $ 4.96 61,456 2.9 years $ 4.53
5.95 - 6.45 273,259 2.0 5.98
11.75 - 15.00 126,610 4.5 12.81
---------
461,325 2.8 7.66
=========
</TABLE>
Phantom Stock Plan. In December 1994, Allegiant's Board of
Directors approved a Phantom Stock Plan for the President, under which
Allegiant agreed to pay a cash award to the President of Allegiant based on
the increase in book value on shares of Common Stock, from December 31, 1994
until the earlier of December 31, 1998 or the year immediately preceding the
year the President's employment terminates. The annual provision under this
plan for the years ended December 31, 1996 and 1995 was approximately $38,000
and $55,000, respectively. These amounts are included in other liabilities
in the accompanying balance sheets.
NOTE 12. COMMITMENTS AND CONTINGENCIES:
Leases. The Bank leases various banking facilities under
operating leases expiring at various dates through December 31, 2005. These
operating leases have options to renew. Future
F-16
<PAGE> 181
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
minimum lease payments required under operating leases which have initial or
remaining non-cancelable terms in excess of one year as of December 31, 1996
are approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, (IN THOUSANDS)
------------ --------------
<S> <C>
1997 $ 143
1998 139
1999 128
2000 28
2001 37
Thereafter 149
------
Total minimum lease payments $ 624
======
</TABLE>
Total rent expense amounted to approximately $149,000 in 1996 and
$121,000 in 1995.
NOTE 13. CONCENTRATIONS OF CREDIT:
Substantially all of the Bank's loans, commitments and commercial
and standby letters of credit have been granted to customers in the Bank's
market area. All such customers are depositors of the Bank. Investments in
state and municipal securities also involve governmental entities within the
Bank's market area. The concentrations of credit by type of loan are set
forth in Note 2. The distribution of commitments to extend credit
approximates the distribution of loans outstanding. Commercial and standby
letters of credit were granted primarily to commercial borrowers.
NOTE 14. FINANCIAL INSTRUMENTS:
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit, standby letters of credit and financial guarantees. Those
instruments involve, to varying degrees, elements of credit and interest-rate
risk in excess of the amount recognized in the consolidated balance sheets.
The contract or notional amounts of those instruments reflect the extent of
the Bank's involvement in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to extend
credit, standby letters of credit, and financial guarantees written is
represented by the contractual or notional amount of those instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
A summary of the notional amounts of the Bank's financial
instruments with off-balance-sheet risk at December 31, 1996 and 1995,
follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Commitments to extend credit $ 73,522,000 $ 51,953,000
Standby letters of credit 1,310,000 1,246,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if it is deemed necessary by the Bank upon
extension of credit, is
F-17
<PAGE> 182
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
based on management's credit evaluation of the counterparts. Collateral held
varies but may include accounts receivable; inventory, property, plant,
equipment; and real estate.
Standby letters of credit and financial guarantees written are
conditional commitments issued by the Bank to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to support
contractual obligations of Bank customers. The credit risk involved in
issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers.
At December 31, 1995, Allegiant adopted the provisions of SFAS
No. 107, Disclosures About Fair Value of Financial Instruments. SFAS No. 107
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable
to estimate that value.
The carrying amount and estimated fair values of Allegiant's
financial instruments were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks, federal
funds sold and other
overnight investments $ 18,329 $ 18,329 $ 19,683 $ 19,683
Securities available-for-sale 22,073 22,073 28,136 28,000
Securities held-to-maturity 38,487 38,540 45,211 45,042
Loans 288,826 291,483 179,414 179,333
Financial Liabilities:
Deposits $ 308,670 $ 309,028 $ 231,309 $ 231,227
Short-term borrowings 36,137 36,137 14,108 14,108
Long-term debt 14,663 14,785 19,719 18,691
</TABLE>
The following methods and assumptions were used by Allegiant in
estimating fair values of financial instruments as disclosed herein:
Cash and Short-Term Instruments: The carrying amounts of cash and
due from banks and federal funds sold approximate their fair value.
Securities: Fair values for held-to-maturity and
available-for-sale securities are based on quoted market prices or dealer
quotes, where available. If quoted market prices are not available for a
specific security, fair values are based on quoted market prices of comparable
instruments.
Loans: For variable-rate loans that reprice frequently and with
no significant change in credit risk, fair values are based on carrying
values. The fair values for fixed-rate loans are estimated using discounted
cash flow analyses, applying interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. The fair values
for non-performing loans are estimated using assumptions regarding current
assessments of collectibility and historical loss experience.
Deposits: The fair values disclosed for deposits generally
payable on demand, such as non-interest bearing checking accounts, savings
accounts, NOW accounts and market rate deposit accounts, are by definition,
equal to the amount payable on demand at the reporting date. The carrying
amounts for variable-rate, fixed-term market rate deposit accounts and
certificates of deposit approximate their fair values at the reporting date.
Fair values for fixed-rate certificates of deposit are estimated using
F-18
<PAGE> 183
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
a discounted cash flow calculation that applies interest rates currently being
offered on certificates of similar remaining maturities to a schedule of
aggregated monthly maturities on time deposits.
Short-Term Borrowings: The carrying amounts of federal funds
purchased, borrowings under repurchase agreements and other short-term
borrowings approximate their fair values at the reporting date.
Long-Term Debt: The fair value of Allegiant's long-term debt is
based on quoted market prices for similar issues or estimates using
discounted cash flow analyses, based on Allegiant's current incremental
borrowing rates for similar types of debt instruments.
Off-Balance Sheet Financial Instruments: The fair value of
commitments to extend credit and standby letters of credit are estimated
using the fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements, the likelihood of the
counterparties drawing on such financial instruments, and the present credit
worthiness of such counterparties. Allegiant believes such commitments have
been made on terms which are competitive in the markets in which it operates;
however, no premium or discount is offered thereon and accordingly, Allegiant
has not assigned a value to such instruments for the purposes of this
disclosure.
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could
result from offering for sale at one time Allegiant's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of Allegiant's financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment, and therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off balance
sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are
not considered financial instruments. In addition; the tax ramifications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in
many of the estimates.
NOTE 15. SUBSEQUENT EVENT:
In January of 1997, Allegiant offered to shareholders of record
the right to purchase additional Common Stock. For every one share of Common
Stock held of record, a shareholder was given the nontransferable
subscription right to subscribe for 0.25 of a share of Common Stock at $9.375
per share.
As of February 24, 1997, the termination date of the offering,
Allegiant had raised approximately $5,223,000 for 567,750 shares of Common
Stock related to this offering.
NOTE 16. REGULATORY MATTERS:
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material
F-19
<PAGE> 184
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Bank must meet specific capital guidelines that involve quantitative measures
of the Bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulations to ensure
capital adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of
December 31, 1996, that the Bank meets all capital adequacy requirements to
which it is subject.
As of December 31, 1996, the most recent notification from the
Office of the Comptroller of the Currency categorized the Bank as adequately
capitalized under the regulatory framework for prompt corrective action. To
be categorized as adequately capitalized the Bank must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented
in the table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
----------------------- -------------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- --------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk-Weighted Assets) $ 26,118 10.1% > $ 20,767 > 8.0% > $ 25,959 >10.0%
- - - -
Tier 1 Capital
(to Risk-Weighted Assets) $ 23,018 8.9% > $ 10,384 > 4.0% > $ 15,575 > 6.0%
- - - -
Tier 1 Capital
(to Average Assets) $ 23,018 6.4% > $ 14,449 > 4.0% > $ 18,061 > 5.0%
- - - -
As of December 31, 1995:
Total Capital
(to Risk-Weighted Assets) $ 24,230 14.4% > $ 13,462 > 8.0% > $ 16,828 >10.0%
- - - -
Tier 1 Capital
(to Risk-Weighted Assets) $ 22,100 13.1% > $ 6,731 > 4.0% > $ 10,097 > 6.0%
- - - -
Tier 1 Capital
(to Average Assets) $ 22,100 8.6% > $ 10,244 > 4.0% > $ 12,805 > 5.0%
- - - -
</TABLE>
Various Federal and state statutory provisions limit the amount
of dividends the Bank can pay to Allegiant without regulatory approval. The
approval of appropriate Federal or state bank regulatory agencies is required
for any dividend if the total of all dividends declared by the Bank in any
calendar year would exceed the total of the institution's net profits, as
defined by regulatory agencies, for such year combined with its retained net
profits for the preceding two years. The payment of dividends by the Bank
may also be affected by other factors, such as the maintenance of adequate
capital.
F-20
<PAGE> 185
MICHAEL TROKEY & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
10411 CLAYTON ROAD
ST. LOUIS, MISSOURI 63131
(314) 432-0996
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Reliance Financial Inc.
St. Louis, Missouri
We have audited the accompanying consolidated balance sheets of Reliance
Financial Inc. and subsidiary (Reliance) as of September 30, 1996 and 1995,
and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the three years in the period ended September 30,
1996. These consolidated financial statements are the responsibility of
Reliance's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Reliance Financial
Inc. and subsidiary as of September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 1996 in conformity with generally accepted accounting
principles.
As discussed in notes 1 and 10 to the consolidated financial statements,
Reliance changed its method of accounting for income taxes in 1994.
St. Louis, Missouri MICHAEL TROKEY & COMPANY, P.C.
November 1, 1996 /s/ Michael Trokey & Company, P.C.
F-21
<PAGE> 186
<TABLE>
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
SEPTEMBER 30,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,211,033 $ 2,036,111
Certificates of deposit 1,586,000 3,066,000
Securities:
Available-for-sale, at market value (amortized cost
of $500,000 at September 30, 1996 and 1995) 473,399 483,038
Held-to-maturity, at amortized cost (market value of
$1,670,000 and $473,125 at September 30, 1996 and
1995, respectively) 1,689,069 486,460
Stock in Federal Home Loan Bank of Des Moines 336,000 329,400
Mortgage-backed securities held-to-maturity, at amortized cost
(market value of $5,314,126 and $5,518,077 at
September 30, 1996 and 1995, respectively) 5,500,595 5,649,890
Loans receivable, net 21,144,237 20,030,892
Premises and equipment, net 410,284 430,670
Foreclosed real estate held for sale, net -- 6,300
Accrued interest receivable:
Securities and certificates of deposit 27,929 18,287
Mortgage-backed securities 26,930 28,624
Loans receivable 136,370 114,298
Other assets 39,956 57,252
Deferred tax asset 81,000 107,000
----------- -----------
Total assets $32,662,802 $32,844,222
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $24,233,959 $25,252,854
Accrued interest on deposits 3,238 3,878
Advances from FHLB of Des Moines 1,000,000 --
Advances from borrowers for taxes and insurance 237,093 265,508
Other liabilities 330,590 154,857
Accrued income taxes 50,793 68,100
----------- -----------
Total liabilities 25,855,673 25,745,197
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 250,000 shares
authorized; shares issued and outstanding -- none -- --
Common stock, $.10 par value; 1,500,000 shares
authorized; 446,993 and 430,000 shares
issued 44,699 43,000
Additional paid-in capital 4,190,038 3,913,004
Common stock acquired by ESOP (229,096) (304,849)
Common stock acquired by RRP (226,042) --
Unrealized loss on securities available-for-sale, net (26,601) (16,962)
Retained earnings -- substantially restricted 3,382,186 3,464,832
Treasury stock, at cost, 21,500 shares (328,055) --
----------- -----------
Total stockholders' equity 6,807,129 7,099,025
----------- -----------
Total liabilities and stockholders' equity $32,662,802 $32,844,222
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
F-22
<PAGE> 187
<TABLE>
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Interest income:
Loans receivable $ 1,819,024 $ 1,661,126 $ 1,743,394
Mortgage-backed securities 340,513 345,862 268,285
Securities 125,159 90,487 67,068
Other interest-earning assets 211,073 246,640 224,845
------------ ------------ ------------
Total interest income 2,495,769 2,344,115 2,303,592
------------ ------------ ------------
Interest expense:
Deposits 1,089,125 1,084,266 1,145,856
Advances from Federal Home Loan Bank 46,319 -- --
------------ ------------ ------------
Total interest expense 1,135,444 1,084,266 1,145,856
------------ ------------ ------------
Net interest income 1,360,325 1,259,849 1,157,736
Provision (credit) for loan losses (108,220) (86,604) (115,582)
------------ ------------ ------------
Net interest income after provision
for loan losses 1,468,545 1,346,453 1,273,318
------------ ------------ ------------
Noninterest income:
Loan service charges 12,100 17,736 23,959
Refund of intangible taxes -- -- 14,081
Other 40,554 53,553 37,113
------------ ------------ ------------
Total noninterest income 52,654 71,289 75,153
------------ ------------ ------------
Noninterest expense:
Compensation and benefits 574,471 470,199 413,915
Occupancy expense 53,575 51,511 51,864
Equipment and data processing expense 67,521 70,254 76,444
Provision (credit) for loss on foreclosed real estate
and repossessed assets (16,979) 650 (54,069)
Rental (income) expense from foreclosed real estate, net 4,993 -- (37,277)
SAIF deposit insurance premium 57,926 70,675 79,652
SAIF special assessment 215,500 -- --
Supervisory and professional fees 91,701 51,143 42,041
Other 121,428 115,009 102,834
------------ ------------ ------------
Total noninterest expense 1,170,136 829,441 675,404
------------ ------------ ------------
Earnings before income taxes and cumulative
effect of change in accounting principle 351,063 588,301 673,067
------------ ------------ ------------
Income taxes:
Current 167,100 188,000 176,000
Deferred 26,000 34,000 39,000
------------ ------------ ------------
Total income taxes 193,100 222,000 215,000
------------ ------------ ------------
Earnings before cumulative effect of change
in accounting principle 157,963 366,301 458,067
Cumulative effect of change in accounting principle for
income taxes -- -- 200,691
------------ ------------ ------------
Net earnings $ 157,963 $ 366,301 $ 658,758
============ ============ ============
Net earnings per common share (see note 1) $ .40 $ .97 <F*>
============ ============ ============
<FN>
<F*> Not applicable
See accompanying notes to consolidated financial statements.
</TABLE>
F-23
<PAGE> 188
<TABLE>
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<CAPTION>
COMMON COMMON
ADDITIONAL STOCK STOCK UNREALIZED TOTAL
COMMON PAID-IN ACQUIRED ACQUIRED GAIN (LOSS) RETAINED TREASURY STOCKHOLDERS'
STOCK CAPITAL BY ESOP BY RRP ON SECURITIES EARNINGS STOCK EQUITY
------- ---------- --------- --------- -------------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
September 30, 1993 $ -- $ -- $ -- $ -- $ (1,320) $2,499,113 $ -- $2,497,793
Unrealized loss on
securities available-for-
sale, net -- -- -- -- (26,032) -- -- (26,032)
Net earnings -- -- -- -- -- 658,758 -- 658,758
------- ---------- --------- --------- -------- ---------- --------- ----------
Balance at
September 30, 1994 -- -- -- -- (27,352) 3,157,871 -- 3,130,519
Proceeds from sale of
common stock 43,000 3,908,238 (344,000) -- -- -- -- 3,607,238
Unrealized gain on
securities available-for-
sale, net -- -- -- -- 10,390 -- -- 10,390
Amortization of ESOP
awards -- 4,766 39,151 -- -- -- -- 43,917
Cash dividends of $.15
per share -- -- -- -- -- (59,340) -- (59,340)
Net earnings -- -- -- -- -- 366,301 -- 366,301
------- ---------- --------- --------- -------- ---------- --------- ----------
Balance at
September 30, 1995 43,000 3,913,004 (304,849) -- (16,962) 3,464,832 -- 7,099,025
Purchase of treasury stock -- -- -- -- -- -- (328,055) (328,055)
Issuance of common
stock for RRP 1,720 249,830 -- (251,550) -- -- -- --
Stock forfeited under RRP (21) (3,007) -- 3,028 -- -- -- --
Unrealized loss on securities
available-for-sale, net -- -- -- -- (9,639) -- -- (9,639)
Amortization of ESOP awards -- 30,211 75,753 -- -- -- -- 105,964
Amortization of RRP awards -- -- -- 22,480 -- -- -- 22,480
Cash dividends of $.60
per share -- -- -- -- -- (240,609) -- (240,609)
Net earnings -- -- -- -- -- 157,963 -- 157,963
------- ---------- --------- --------- -------- ---------- --------- ----------
Balance at
September 30, 1996 $44,699 $4,190,038 $(229,096) $(226,042) $(26,601) $3,382,186 $(328,055) $6,807,129
======= ========== ========= ========= ======== ========== ========= ==========
See accompanying notes to consolidated financial statements.
</TABLE>
F-24
<PAGE> 189
<TABLE>
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 157,963 $ 366,301 $ 658,758
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 24,748 30,331 34,656
Provision (credit) for loan losses (108,220) (86,604) (115,582)
ESOP expense 108,964 49,917 --
RRP expense 22,480 -- --
FHLB stock dividends (6,600) -- --
Provision (credit) for loss on foreclosed real estate and
repossessed assets (16,979) 650 (54,069)
Decrease (increase) in:
Accrued interest receivable (30,020) (17,048) 13,683
Other assets 17,296 (6,340) 23,850
Deferred tax asset 26,000 34,000 (147,000)
Increase (decrease) in:
Accrued interest on deposits (640) (1,317) 23
Accrued income taxes (20,307) (7,397) 75,497
Deferred tax liability -- -- (14,691)
Other liabilities 175,733 44,632 (40,761)
----------- ----------- -----------
Net cash provided by (used for)
operating activities 350,418 407,125 434,364
----------- ----------- -----------
Cash flows from investing activities:
Loans:
Purchased (3,386,690) (3,211,601) (1,371,776)
Originated (2,380,695) (1,311,054) (1,949,802)
Principal collections 4,734,466 4,411,913 6,043,651
Mortgage-backed securities held-to-maturity or
for investment:
Purchased -- -- (3,860,025)
Principal collections 149,295 648,981 758,224
Securities held-to-maturity or for investment and
certificates of deposit:
Purchased (2,793,000) (2,678,000) (2,559,813)
Proceeds from maturity 3,070,391 2,165,498 2,722,761
Purchase of premises and equipment (4,362) (4,701) (27,501)
Proceeds from sale of (additions to) foreclosed
real estate, net 51,073 (1,545) 1,183,363
----------- ----------- -----------
Net cash provided by (used for) investing
activities (559,522) 19,491 939,082
----------- ----------- -----------
Cash flows from financing activities:
Net increase (decrease) in:
Deposits (1,018,895) (3,433,990) (1,728,224)
Advances from borrowers for taxes and insurance (28,415) 14,325 (16,351)
Proceeds from sale of common stock -- 3,607,238 --
Proceeds from advances from FHLB of Des Moines 1,000,000 -- --
Purchase of treasury stock (328,055) -- --
Cash dividends (240,609) (59,340) --
----------- ----------- -----------
Net cash provided by (used for)
financing activities (615,974) 128,233 (1,744,575)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (825,078) 554,849 (371,129)
Cash and cash equivalents at beginning of year 2,036,111 1,481,262 1,852,391
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,211,033 $ 2,036,111 $ 1,481,262
=========== =========== ===========
(Continued on next page)
F-25
<PAGE> 190
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(continued from previous page)
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest on deposits $ 1,089,765 $ 1,085,583 $ 1,145,833
Interest on advances from FHLB 46,319 -- --
Federal income taxes 168,681 163,188 70,143
State income taxes 24,002 32,209 (14,081)
Repossessed assets acquired in settlement of loans -- -- 65,024
Foreclosed real estate acquired in settlement of loans 40,894 5,405 --
Noncash investment activity -- transfer from held for investment
to available-for-sale $ -- $ -- $ 472,648
See accompanying notes to consolidated financial statements.
</TABLE>
F-26
<PAGE> 191
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995 AND
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On April 7, 1995, Reliance Federal Savings and Loan Association of
St. Louis County (RFSLA) completed its conversion from mutual to stock form
and became a wholly-owned subsidiary of a newly formed Delaware holding
company, Reliance Financial Inc. (Reliance). The following comprise the
significant accounting policies which Reliance and RFSLA follow in
preparing and presenting their consolidated financial statements:
a. The consolidated financial statements include the accounts
of Reliance and its wholly-owned subsidiary, Reliance Federal
Savings and Loan Association of St. Louis County. Reliance has no
significant assets other than common stock of RFSLA, and the loan to
the ESOP, and net proceeds retained by Reliance following the
conversion. Reliance's principal business is the business of RFSLA.
All significant intercompany accounts and transactions have been
eliminated.
b. For purposes of reporting cash flows, cash and cash
equivalents include cash and due from depository institutions and
interest-bearing deposits in other depository institutions with
original maturities of three months or less. Interest-bearing
deposits in other depository institutions were $959,946 and
$1,589,759 at September 30, 1996 and 1995, respectively.
c. Certificates of deposit are carried at cost with original
maturities of more than three months.
d. Securities and mortgage-backed securities which RFSLA has
the positive intent and ability to hold to maturity are classified
as held-to-maturity securities and reported at cost, adjusted for
amortization of premiums and accretion of discounts over the life
of the security using the interest method. Securities and
mortgage-backed securities not classified as held-to-maturity
securities are classified as available-for-sale securities and
reported at fair value, with unrealized gains and losses excluded
from net earnings and reported in a separate component of
stockholders' equity. RFSLA does not purchase securities and
mortgage-backed securities for trading purposes. Prior to
September 30, 1994, debt and equity securities were considered held
for investment.
Collateralized mortgage obligations (CMOs) are mortgage
derivatives. The type owned by RFSLA are classified as "low-risk"
under regulatory guidelines. CMOs are subject to normal effects of
interest rate risk. RFSLA does not purchase CMOs at any significant
premium over par value to limit certain prepayment risks, and
purchases only CMOs issued by U.S. government agencies in order to
minimize credit risk.
e. Loans receivable, net are carried at unpaid principal
balances, less loans in process, net deferred loan fees, unearned
discount on loans and allowance for losses. Loan origination and
commitment fees and certain direct origination costs are deferred
and amortized to interest income over the contractual life of the
loan using the interest method.
f. Effective June 30, 1995, RFSLA adopted the provisions of
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" and
SFAS No. 118, "Accounting by
F-27
<PAGE> 192
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Creditors for Impairment of a Loan - Income Recognition and Disclosures."
Specific valuation allowances are established for impaired loans for the
difference between the loan amount and either the present value of
expected future cash flows discounted at the loan's effective interest
rate or the fair value of collateral less estimated selling costs. RFSLA
considers a loan to be impaired when, based on current information and
events, it is probable that RFSLA will be unable to collect all amounts
due according to the contractual terms of the loan agreement on a timely
basis. The types of loans for which impairment is measured under SFAS
Nos. 114 and 118 include nonaccrual income property loans (excluding those
loans included in the homogeneous portfolio which are collectively
reviewed for impairment), large, nonaccrual residential real estate loans
and troubled debt restructurings. Such loans are placed on nonaccrual
status at the point deemed uncollectible. Impairment losses are
recognized through an increase in the allowance for loan losses. There
were no impaired loans under SFAS Nos. 114 and 118 at September 30, 1996
and 1995. Certain loans were restructured in a troubled debt
restructuring involving a modification of terms before the effective date
of SFAS No. 114 and 118. Estimated future cash receipts in excess of the
carrying amount of the loans (unearned discounts) are being amortized over
the remaining life of the loans. During the year ended September 30, 1996
RFSLA recognized $62,000 to interest income on such loans which were paid
off.
g. Allowances for losses are available to absorb losses
incurred on loans receivable and foreclosed real estate held for
sale and represent additions charged to expense, less net
charge-offs. In determining the allowances for losses to be
maintained, management evaluates current economic conditions, past loss
and collection experience, fair value of the underlying collateral and
risk characteristics of the loan portfolio and foreclosed real
estate held for sale. Management believes that allowances for
losses on loans receivable and foreclosed real estate are adequate.
h. Premises and equipment, net are carried at cost, less
accumulated depreciation. Depreciation of premises and equipment is
computed using the straight-line and the accelerated cost recovery
methods based on the estimated useful lives of the related assets.
Estimated lives are generally ten to forty-five years for building
and improvements, and three to seven years for furniture and
equipment.
i. Foreclosed real estate held for sale, net is carried at the
lower of cost or fair value less estimated selling costs. Costs
related to holding and maintaining the property are charged to
expense and costs related to improvement of the property are
capitalized.
j. Interest on securities, certificates of deposit, mortgage-
backed securities and loans receivable is accrued as earned.
Interest on loans receivable contractually delinquent and impaired
loans is excluded from income when deemed uncollectible.
k. RFSLA files its income tax returns using the modified cash
basis of accounting. Effective October 1, 1993, RFSLA changed its
method of accounting for income taxes to conform with SFAS No. 109.
See note 10.
l. Earnings per share are based upon the weighted-average
shares outstanding during the period. ESOP shares which have been
committed to be released are considered outstanding. Earnings for
the period October 1, 1994 to March 31, 1995 have been excluded from
the calculation of earnings per share for the year ended September 30,
1995. Earnings for the period
F-28
<PAGE> 193
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 1, 1995 to April 7, 1995 (conversion date) were not significant.
The weighted-average shares outstanding during the years ended September
30, 1996 and 1995 were 398,562 and 191,699, respectively.
m. The following paragraphs summarize the impact of new
accounting pronouncements:
In May 1995, the FASB issued SFAS No. 122, "Accounting for
Mortgage Servicing Rights." SFAS No. 122 requires mortgage banking
enterprises to recognize the rights to service mortgage loans for
others as a separate asset regardless of whether such rights were
purchased or originated. SFAS No. 122 is effective prospectively
for transactions entered into in fiscal years that begin after
December 15, 1995. SFAS No. 122 is not expected to have a
significant effect on Reliance's financial position or results of
operations. SFAS No. 122 will be superseded by SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," described below, effective
January 1, 1997.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 suggests that compensation
cost for stock-based employee compensation plans be measured at the
grant date based on the fair value of the award and recognized over
the service period, which is usually the vesting period. However,
SFAS No. 123 also allows an institution to use the intrinsic value
based method under APB Opinion No. 25. Stock-based employee
compensation plans include stock purchase plans, stock options,
restricted stock and stock appreciation rights. Employee stock
ownership plans are not covered by this Statement. SFAS No. 123 is
effective for transactions entered into in fiscal years which begin
after December 15, 1995, with earlier application permitted. SFAS
No. 123 is not expected to affect Reliance's financial position or
results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." The statement focuses on the issues of accounting for
transfers and servicing of financial assets, extinguishments of
liabilities and financial assets subject to prepayment. SFAS
No. 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31,
1996. The provisions of this statement for financial assets subject
to prepayment are effective for financial assets held on or acquired
after January 1, 1997. SFAS No. 125 is not expected to have a
material impact on the financial position or results of operations
of Reliance.
(2) RISKS AND UNCERTAINTIES
RFSLA is a community oriented financial institution which provides
traditional financial services within the areas it serves. RFSLA is engaged
primarily in the business of attracting deposits from the general public and
using these funds to originate one- to four-family residential mortgage and
other loans located in St. Louis County and the City of St. Louis, Missouri.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and
assumptions which affect the reported amounts of assets and liabilities as of
the balance sheet dates and income and expenses for the periods covered. Actual
results could differ significantly from these estimates and assumptions.
F-29
<PAGE> 194
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RFSLA's operations are affected by interest rate risk, credit risk,
market risk and regulations by the OTS. RFSLA is subject to interest rate
risk to the degree that its interest-bearing liabilities mature or reprice
more rapidly, or on a different basis, than its interest-earning assets. To
better control the impact of changes in interest rates, RFSLA has sought to
improve the match between asset and liability maturities or repricing periods
and rates by emphasizing the origination of adjustable-rate mortgage loans,
balloon mortgage loans with three-, five- and seven-year terms, offering
certificates of deposit with terms of up to five years and maintaining a
securities portfolio with maturities of up to five years. RFSLA uses a net
market value methodology provided by the OTS to measure its interest rate
risk exposure. This exposure is a measure of the potential decline in the
net portfolio value of RFSLA based upon the effect of an assumed 200 basis
point increase or decrease in interest rates. Net portfolio value is the
expected discounted cash flows from the institution's assets, liabilities and
off-balance-sheet contracts. Credit risk is the risk of default on RFSLA's
loan portfolio that results from the borrowers' inability or unwillingness to
make contractually required payments. Market risk reflects changes in the
value of collateral underlying loans receivable and the valuation of real
estate held by RFSLA. RFSLA is subject to periodic examination by regulatory
agencies which may require RFSLA to record increases in the allowances based
on their evaluation of available information. There can be no assurance that
RFSLA's regulators will not require further increases to the allowances.
(3) SECURITIES
Securities are summarized as follows:
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available-for-sale -- equity securities:
Asset Management Funds, Inc.:
Short U.S. Government securities $ 250,000 $ -- $ (11,601) $ 238,399
Intermediate mortgage securities 250,000 -- (15,000) 235,000
---------- ---------- ----------- -----------
$ 500,000 $ -- $ (26,601) 473,399
========== ========== =========== ===========
Weighted-average rate 6.36%
==========
</TABLE>
F-30
<PAGE> 195
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Held-to-maturity -- debt securities:
Federal agency obligations due after
one through five years $1,689,069 $ 656 $ (19,725) $ 1,670,000
========== ========== ========== ===========
Weighted-average rate 6.25%
==========
<CAPTION>
1995
----------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available-for-sale -- equity securities:
Asset Management Funds, Inc.:
Short U.S. Government securities $ 250,000 $ -- $ (7,962) $ 242,038
Intermediate mortgage securities 250,000 -- (9,000) 241,000
---------- ---------- --------- -----------
$ 500,000 $ -- $ (16,962) $ 483,038
========== ========== ========= ==========
Weighted-average rate 6.33%
==========
<CAPTION>
1995
----------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Held-to-maturity -- debt securities:
Federal agency obligations due after
one through five years $ 486,460 $ -- $ (13,335) $ 473,125
========== ========== ========== ==========
Weighted-average rate 5.66%
==========
</TABLE>
The short U.S. Government securities fund consists primarily of U.S.
Government and investment grade debt securities with remaining maturities of
five years or less. The intermediate mortgage securities fund consists
primarily of collateralized mortgage obligations and mortgage-backed
securities with an expected average life of less than ten years.
(4) MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are summarized as follows:
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Held-to-maturity:
GNMA $ 210,314 $ 5,082 $ (754) $ 214,642
FHLMC 1,749,955 -- (67,515) 1,682,440
Collateralized mortgage obligations --
FHLMC and FNMA 3,540,326 -- (123,282) 3,417,044
----------- --------- ----------- ------------
$ 5,500,595 $ 5,082 $ (191,551) $ 5,314,126
=========== ========= =========== ============
Weighted-average rate 6.00%
===========
</TABLE>
F-31
<PAGE> 196
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Held-to-maturity:
GNMA $ 232,696 $ 8,802 $ -- $ 241,498
FHLMC 1,879,763 -- (40,026) 1,839,737
Collateralized mortgage obligations --
FHLMC and FNMA 3,537,431 -- (100,589) 3,436,842
------------ --------- ----------- -----------
$ 5,649,890 $ 8,802 $ (140,615) $ 5,518,077
============ ========= =========== ===========
Weighted-average rate 6.21%
============
</TABLE>
Adjustable-rate mortgage-backed securities included in the portfolio at
September 30, 1996 and 1995 amounted to $3,540,326 and $3,537,431,
respectively.
(5) LOANS RECEIVABLE, NET
Loans receivable, net are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Real estate loans:
Single-family, 1-4 units $ 18,545,694 $ 18,082,836
Multi-family, 5 or more units 983,726 1,213,616
Construction 1,526,500 --
Commercial 784,820 831,736
Consumer loans:
Boat loans 87,471 260,127
Loans secured by deposits -- 19,352
------------- -------------
21,928,211 20,407,667
Loans in process (560,261) --
Deferred loan fees, net (11,918) (6,989)
Unearned discount on loans (8,280) (64,726)
Allowance for losses (203,515) (305,060)
------------- -------------
$ 21,144,237 $ 20,030,892
============= =============
Weighted-average rate 8.23% 8.24%
============= =============
</TABLE>
Adjustable-rate loans included in the portfolio amounted to $12,601,297
and $13,231,909 at September 30, 1996 and 1995, respectively.
F-32
<PAGE> 197
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of activity in allowance for losses:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of year $ 305,060 $ 387,573 $ 434,193
Recoveries:
Real estate 5,062 18,745 30,323
Boats 1,613 6,151 38,639
Charge-offs:
Real estate -- (20,135) --
Boats -- (670) --
Provision charged (credited) to expense (108,220) (86,604) (115,582)
---------- ---------- ----------
Balance, end of year $ 203,515 $ 305,060 $ 387,573
========== ========== ==========
</TABLE>
Commercial real estate loans consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Office buildings $ 79,353 $ 98,143
Retail stores 626,894 645,283
Other 78,573 88,310
---------- ----------
$ 784,820 $ 831,736
========== ==========
</TABLE>
Following is a summary of loans to directors, executive officers and
employees for the year ended September 30, 1996:
<TABLE>
<S> <C>
Balance, beginning of year $ 215,535
Additions 96,851
Repayments (117,531)
------------
Balance, end of year $ 194,855
============
</TABLE>
These loans were made on substantially the same terms as those
prevailing at the time for comparable transactions with unaffiliated persons,
except for reduced interest rates for loans originated prior to enactment of
FIRREA.
(6) PREMISES AND EQUIPMENT, NET
Premises and equipment, net are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land $ 112,024 $ 112,024
Office building 575,934 571,984
Furniture and equipment 252,610 254,304
Automobile 34,020 34,020
---------- ----------
974,588 972,332
Less accumulated depreciation 564,304 541,662
---------- ----------
$ 410,284 $ 430,670
========== ==========
</TABLE>
Depreciation expense for 1996, 1995 and 1994 was $24,748, $30,331, and
$34,656, respectively.
F-33
<PAGE> 198
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) FORECLOSED REAL ESTATE HELD FOR SALE, NET
Foreclosed real estate held for sale, net is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ------------
<S> <C> <C>
Foreclosed real estate held for sale $ -- $ 7,000
Allowance for losses -- (700)
---------- ------------
$ -- $ 6,300
========== ============
</TABLE>
Following is a summary of activity in allowance for losses:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Balance, beginning of year $ 700 $ -- $ 34,667
Recoveries:
Foreclosed real estate 16,279 -- 45,817
Boats -- 50 15,700
Charge-offs:
Foreclosed real estate -- -- (33,413)
Boats -- -- (8,702)
Provision charged (credited) to expense $ (16,979) $ 650 (54,069)
------------ ------------ ------------
Balance, end of year $ -- $ 700 $ --
============ ============ ============
</TABLE>
(8) DEPOSITS
Deposits are summarized as follows:
Description and interest rate
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
NOW accounts, 2.00% $ 1,533,669 $ 1,459,820
Super NOW accounts, 2.25% 125,232 155,455
Passbook accounts, 2.75% 6,227,050 6,607,832
Money market deposit accounts, 3.10% and 2.86%, respectively 1,221,855 1,427,831
------------- -------------
Total transaction accounts 9,107,806 9,650,938
------------- -------------
Certificates:
3.00 - 3.99% 200,738 1,429,076
4.00 - 4.99% 2,733,312 3,527,685
5.00 - 5.99% 10,396,312 7,183,614
6.00 - 6.99% 1,503,566 2,000,802
7.00 - 7.99% 5,000 606,147
8.00 - 8.99% 3,453 319,153
9.00 - 9.99% 283,772 535,439
------------- -------------
Total certificates, 5.29% and 5.53%, respectively 15,126,153 15,601,916
------------- -------------
Total deposits $ 24,233,959 $ 25,252,854
============= =============
Weighted-average rate -- deposits 4.31% 4.43%
============= =============
</TABLE>
F-34
<PAGE> 199
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certificate maturities are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Due within one year $ 9,673,815 $10,144,509
Second year 2,505,872 2,006,788
Third year 1,583,705 1,439,272
Fourth year 757,619 1,405,057
Fifth year 512,326 536,865
After fifth year 92,816 69,425
----------- -----------
$15,126,153 $15,601,916
=========== ===========
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
NOW, Super NOW, passbook and money
market deposit accounts $ 246,092 $ 290,294 $ 321,753
Certificates 843,033 793,972 824,103
---------- ---------- ----------
$1,089,125 $1,084,266 $1,145,856
========== ========== ==========
</TABLE>
(9) ADVANCES FROM FHLB OF DES MOINES
Advances from the Federal Home Loan Bank of Des Moines at September 30,
1996 amounted to $1,000,000. The advance, which carries an interest rate of
5.81% and matures December 18, 1996, is secured by FHLB stock and
single-family mortgage loans of $1,500,000.
(10) INCOME TAXES
In computing Federal income tax, savings institutions are allowed a
statutory bad debt deduction of otherwise taxable income of 8%, subject to
limitations based on aggregate loans and savings balances. Due to
limitations based on the level of loans and deposits outstanding and retained
earnings, no bad debt deduction was allowed under either the percentage of
taxable income method or experience method for 1996 and 1995. The percentage
of taxable income method was used for income tax purposes for 1994.
On August 20, 1996 the Small Business Job Protection Act of 1996 was
signed into law. Under the Act any tax bad debt reserves in excess of the
1987 tax year level will be subject to recapture and payable in equal amounts
over six years in tax years beginning January 1, 1996 and thereafter. Since
RFSLA's loans outstanding at September 30, 1996 were less than its loans
outstanding at the end of the 1987 tax year (December 31, 1987) the tax bad
debt reserves at December 31, 1987 were reduced by the ratio of RFSLA's loans
outstanding at September 30, 1996 to the balance of the loans outstanding at
December 31, 1987. As a result of excess tax bad debt reserves RFSLA
recognized an additional tax liability of $74,000 as a charge to earnings.
Savings institutions may defer the recapture of their applicable excess tax
bad debt reserves for two years if they meet a residential loan requirement.
For tax years beginning January 1, 1996 and thereafter the recapture
provision will eliminate the percentage of taxable income method. Savings
institutions with $500 million or less in assets will be permitted to make
additions to the tax bad debt reserve using the experience method.
F-35
<PAGE> 200
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective October 1, 1993, RFSLA adopted SFAS No. 109, "Accounting for
Income Taxes," which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed for differences between the financial statement and
tax bases of assets and liabilities which will result in taxable or
deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount which will more likely than not be
realized. Income tax expense is the tax payable or refundable for the period
plus or minus the net change in the deferred tax assets and liabilities. The
cumulative effect of the change in accounting principle on years prior to
October 1, 1993, of $200,691 is included as an addition to net earnings for
the year ended September 30, 1994.
The components of the net deferred tax asset are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Deferred tax assets:
Accrued expense, net $ 95,122 $ 24,616
Deferred loan fees, net 4,028 2,298
Imputed loss on loans -- 1,548
Deferred gain on real estate 1,993 --
Book over tax ESOP expense 3,956 1,536
Book over tax RRP expense 7,598 --
Excess of base year over current tax bad debt reserve -- 24,984
Allowance for losses on loans and foreclosed real estate 68,788 100,524
--------- --------
Gross deferred tax assets 181,485 155,506
Valuation allowance -- (24,984)
--------- -------
Total deferred tax assets 181,485 130,522
--------- --------
Deferred tax liabilities:
Excess tax bad debt reserve (74,249) --
FHLB stock dividends (26,236) (23,522)
--------- --------
Total deferred tax liabilities (100,485) (23,522)
--------- --------
Net deferred tax asset $ 81,000 $107,000
========= ========
</TABLE>
The valuation allowance on deferred tax assets was reduced by $24,984
and $1,462 during 1996 and 1995, respectively. The provisions of SFAS
No. 109 require RFSLA to establish a deferred tax asset or liability for the
tax effect of the tax bad debt reserves under or over the December 31, 1987
amounts. RFSLA's tax bad debt reserves are approximately $752,000. The
estimated deferred tax liability on such amount is approximately $256,000,
which has not been recorded in the accompanying consolidated financial
statements. If these tax bad debt reserves are used for other than loan
losses, the amount used will be subject to Federal income taxes at the then
prevailing corporate rate.
F-36
<PAGE> 201
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income taxes are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $144,100 $166,000 $145,000
State 23,000 22,000 31,000
-------- -------- --------
167,100 188,000 176,000
-------- -------- --------
Deferred:
Federal 29,000 29,000 36,000
State (3,000) 5,000 3,000
-------- -------- --------
26,000 34,000 39,000
-------- -------- --------
$193,100 $222,000 $215,000
======== ======== ========
</TABLE>
RFSLA is subject to state taxes based on 7% of state taxable income.
See note 13.
Deferred income tax expense represents the tax effects of reporting
income and expense in different periods for financial reporting purposes than
tax purposes as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Allowance for losses on loans and foreclosed real estate $115,991 $28,052 $27,152
Accrual to modified cash basis for tax purposes (78,641) 4,956 4,711
Imputed loss on loans 1,727 1,010 986
Book over tax ESOP expense (2,699) (1,536) --
Book over tax RRP expense (8,475) -- --
FHLB stock dividends 3,027 -- --
Deferred loan fees, net (1,930) 2,518 3,151
Deferred state income taxes (3,000) 5,000 3,000
Other -- (6,000) --
-------- ------- -------
$ 26,000 $34,000 $39,000
======== ======= =======
</TABLE>
The provision for income taxes differs from the Federal statutory
corporate tax rate as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF EARNINGS BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE
------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax at Federal statutory rate 34.0% 34.0% 34.0%
Increases (decreases) in taxes:
Change in valuation allowance on deferred tax assets (2.8) (.2) (6.2)
State taxes, net of Federal income tax benefit 3.8 3.2 3.4
Excess tax bad debt reserve recapture 21.1 -- --
Average fair value versus cost of ESOP shares 3.2 .6 --
Surtax exemption (2.9) -- --
Other, net (1.4) .1 .7
---- ---- ----
Effective tax rate 55.0% 37.7% 31.9%
==== ==== ====
</TABLE>
F-37
<PAGE> 202
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) EMPLOYEE BENEFITS
RFSLA participates in an industry-wide retirement plan which covers
substantially all employees. Prior service costs have been fully funded.
Since this is a multiemployer plan, the plan's administrators are unable to
determine the actuarial present value of benefits attributable to RFSLA's
participants in the plan. The plan's administrators have indicated that the
fund's assets exceed the actuarially computed value of vested benefits at
June 30, 1996, the most recent actuarial report available, and at June 30,
1995 and 1994. No contributions or pension expense were required for 1996,
1995 or 1994.
In connection with the conversion from mutual to stock form, RFSLA
established an employee stock ownership plan (ESOP) for the benefit of
participating employees. Employees are eligible to participate upon
attaining age twenty-one and completing one year of service.
The ESOP borrowed $344,000 from Reliance to fund the purchase of 34,400
shares of Reliance's common stock. The purchase of shares of the ESOP was
recorded in the consolidated financial statements through a credit to common
stock and additional paid-in capital with a corresponding charge to a contra
equity account for the unreleased shares. The loan is secured solely by the
common stock and is to be repaid in equal quarterly installments of principal
payable through March, 2000 at an 8% interest rate. The intercompany ESOP
note and related interest were eliminated in consolidation.
RFSLA makes quarterly contributions to the ESOP which are equal to the
ESOP's debt service less dividends on unallocated ESOP shares used to repay
the loan. Dividends on allocated shares will be paid to participants of the
ESOP. The ESOP shares are pledged as collateral on the ESOP loan. Shares
are released from collateral and allocated to participating employees, based
on the proportion of loan principal and interest repaid and compensation of
the participants. Forfeitures will be reallocated to participants on the
same basis as other contributions in the plan year. Benefits are payable
upon a participant's retirement, death, disability or separation from
service.
Effective with the reorganization date RFSLA adopted SOP 93-6. As
shares are committed to be released from collateral, RFSLA reports
compensation expense equal to the average fair value of the ESOP shares
committed to be released. Dividends on allocated ESOP shares are charged to
stockholders' equity. Dividends on unallocated ESOP shares are recorded as a
reduction to the ESOP loan. ESOP expense for 1996 and 1995 was $108,964 and
$49,917, respectively. The fair value of unreleased ESOP shares based on
market price of Reliance's stock was $343,650 at September 30, 1996.
The number of ESOP shares at September 30, 1996 were as follows:
<TABLE>
<S> <C>
Allocated shares 3,915
Shares released for allocation 7,575
Unreleased shares 22,910
------
Total ESOP shares 34,400
======
</TABLE>
On April 18, 1996, the stockholders of Reliance ratified the 1996
Recognition and Retention Plan (RRP). All 17,200 shares under the RRP were
awarded in April, 1996 to directors, executive officers and employees.
During June, 1996, 207 shares under the RRP were forfeited. The 207 shares
will be available for future grants. The shares granted are in the form of
restricted stock payable over a five-year period at the rate of 20% per year
of such shares following the date of grant of the award. Compensation
F-38
<PAGE> 203
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
expense equal to the market value of the shares at the date of grant will be
recognized on a pro rata basis over five years from the date of grant. RRP
expense for 1996 was $22,480.
On April 18, 1996, the stockholders of Reliance also ratified the
Reliance Financial, Inc. 1996 Stock Option Plan. All 43,000 shares under
the Plan were awarded in April, 1996 to directors, executive officers and
employees. During June, 1996, 619 shares under the Plan were forfeited. The
stock options were awarded at $14.625 per share which was equal to the market
value of Reliance's common stock at the date of grant. Stock options granted
under the Plan vest at the rate of 20% per year following the date of the
award. At September 30, 1996 there were no shares exercisable.
(12) STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL
Reliance issued 430,000 shares of common stock at $10 per share in
conjunction with an initial public offering completed on April 7, 1995. Net
proceeds from the sale of common stock in the offering were $3,607,238, after
deduction of conversion costs of $348,762, and unearned compensation related
to shares issued to the Employee Stock Ownership Plan. Reliance retained 50%
of the net conversion proceeds, less the funds used to originate a loan to
the ESOP for the purchase of shares of common stock, and used the balance of
the net proceeds to purchase all of the stock of RFSLA in the conversion.
During 1996 Reliance initiated a stock repurchase program upon approval
by the OTS of up to 21,500 shares, or 5% of common stock issued in Reliance's
initial common stock offering. During May and July, 1996 Reliance
repurchased 6,700 and 14,800 shares of common stock at a price of $15 and
$15.375 per share, respectively.
Deposit account holders and borrowers do not have voting rights in
RFSLA. Voting rights were vested exclusively with the stockholders of the
holding company. Deposit account holders continue to be insured by the SAIF.
A liquidation account was established at the time of conversion in an amount
equal to the capital of RFSLA as of the date of the latest balance sheet
contained in the final prospectus. Each eligible account holder or
supplemental eligible account holder is entitled to a proportionate share of
this account in the event of a complete liquidation of RFSLA, and only in
such event. This share will be reduced if the account holder's or
supplemental eligible account holder's deposit balance falls below the
amounts on the date of record and will cease to exist if the account is
closed. The liquidation account will never be increased despite any increase
in the related deposit balance.
An OTS regulation restricts RFSLA's ability to make capital
distributions, including paying dividends. The regulation provides that an
institution meeting its capital requirements, both before and after its
proposed capital distribution, may generally distribute the greater of
(1) 75% of its net earnings for the prior four quarters or (2) 100% of its
net earnings to date during the calendar year, plus the amount that would
reduce by one-half its surplus capital ratio (defined as the percentage by
which the institution's capital-to-asset ratio exceeds the ratio of its
capital requirements to its assets) at the beginning of the calendar year
without prior supervisory approval. The regulation provides more significant
restrictions on payment of dividends in the event that the capital
requirements are not met.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) requires that savings institutions maintain "core capital" of at
least 3% of adjusted total assets. Under proposals currently being evaluated
by the OTS, a savings institution's core capital requirement could be
increased to between 4% and 5% of adjusted total assets. Core capital is
defined to include stockholders' equity among other components. Savings
institutions also must maintain "tangible capital" of not less than 1.5%
F-39
<PAGE> 204
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of RFSLA's adjusted total assets. "Tangible capital" is defined, generally, as
core capital minus any "intangible assets." All of RFSLA's capital is
tangible.
In addition to requiring compliance with the core and tangible capital
standards, FIRREA and the OTS regulations also require that savings
institutions satisfy a risk-based capital standard. The minimum level of
such capital is based on a credit risk component and calculated by
multiplying the value of each asset (including off-balance sheet
commitments) by one of four risk factors. The four risk categories range
from zero for cash to 100% for certain delinquent loans and repossessed
property. Savings institutions must maintain an 8.0% risk-based capital
level.
The following table presents RFSLA's capital position relative to its
regulatory capital requirements under FIRREA at September 30, 1996:
<TABLE>
<CAPTION>
REGULATORY CAPITAL
-----------------------------------------------
TANGIBLE CORE RISK-BASED
----------- ----------- -----------
<S> <C> <C> <C>
Stockholders' equity per consolidated financial statements $ 6,807,129 $ 6,807,129 $ 6,807,129
Stockholders' equity of Reliance not available for regulatory
capital purposes (1,409,684) (1,409,684) (1,409,684)
----------- ----------- -----------
RFSLA's GAAP capital 5,397,445 5,397,445 5,397,445
Deferred tax asset (76,000) (76,000) (76,000)
General valuation allowances -- limited -- -- 177,618
----------- ----------- -----------
Regulatory capital 5,321,445 5,321,445 5,499,063
Regulatory capital requirement (471,043) (942,087) (1,134,681)
----------- ----------- -----------
Regulatory capital -- excess $ 4,850,402 $ 4,379,358 $ 4,364,382
=========== =========== ===========
Regulatory capital ratio 16.95% 16.95% 38.77%
Regulatory capital requirement (1.50) (3.00) (8.00)
----------- ----------- -----------
Regulatory capital ratio -- excess 15.45% 13.95% 30.77%
=========== =========== ===========
</TABLE>
(13) INTANGIBLE TAX SETTLEMENT
The Supreme Court of the State of Missouri declared the intangible tax
applied to savings institutions unconstitutional in February, 1982.
Legislation was enacted May 25, 1982 to tax institutions based on 7% of state
taxable income. As a result of a court ruling, RFSLA was allowed a credit
against the state income taxes due for calendar years 1982 through 1988.
RFSLA also received a refund of $14,081 in 1994. At September 30, 1994, RFSLA
had fully utilized the intangible tax credit.
(14) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
RFSLA is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments generally include commitments to
originate mortgage loans. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized
in the balance sheet. RFSLA's maximum exposure to credit loss in the event
of nonperformance by the borrower is represented by the contractual amount
and related accrued interest receivable of those instruments. RFSLA
minimizes this risk by evaluating each borrower's creditworthiness on a
case-by-case basis. Collateral held by RFSLA consists of a first or second
mortgage on the borrower's property. The amount of collateral obtained is
based upon an appraisal of the property.
F-40
<PAGE> 205
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commitments at September 30, 1996 to originate fixed-rate mortgage
loans (including related loans in process) were $653,000, expiring in
generally 180 days or less.
(15) CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed balance sheets and condensed statements of
earnings and cash flows for Reliance Financial Inc. should be read in
conjunction with the consolidated financial statements and the notes thereto.
<TABLE>
BALANCE SHEETS
<CAPTION>
SEPTEMBER 30,
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 180,870 $ 365,859
Certificates of deposit 695,000 1,288,000
ESOP note receivable 240,800 309,600
Accrued interest receivable 2,635 4,966
Securities held-to-maturity 300,000 --
Investment in subsidiary 5,397,445 5,157,402
Other assets 5,408 5,746
Deferred tax asset 5,000 5,000
---------- ----------
Total assets $6,827,158 $7,136,573
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $ 14,004 $ 16,548
Accrued income taxes 6,025 21,000
---------- ----------
Total liabilities 20,029 37,548
Stockholders' equity 6,807,129 7,099,025
---------- ----------
Total liabilities and stockholders' equity $6,827,158 $7,136,573
========== ==========
</TABLE>
F-41
<PAGE> 206
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
STATEMENTS OF EARNINGS
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 7, 1995 TO
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- ----------------
<S> <C> <C>
Equity in earnings of RFSLA $121,238 $340,948
Interest income 114,447 64,105
Other expenses (68,222) (22,752)
Income taxes (9,500) (16,000)
-------- --------
Net earnings $157,963 $366,301
======== ========
</TABLE>
<TABLE>
STATEMENTS OF CASH FLOWS
<CAPTION>
PERIOD FROM
YEAR ENDED APRIL 7, 1995 TO
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 157,963 $ 366,301
Adjustments to reconcile net earnings to net cash provided by
(used for) operating activities:
Equity in earnings of RFSLA (121,238) (340,948)
Decrease (increase) in:
Accrued interest receivable 2,331 (4,966)
Other assets 338 (5,746)
Deferred tax asset -- (5,000)
Increase (decrease) in:
Other liabilities (2,544) 16,548
Accrued income taxes (14,975) 21,000
---------- -----------
Net cash provided by (used for) operating activities 21,875 47,189
---------- -----------
Cash flows from investing activities:
Loan to ESOP -- (344,000)
Principal collected on loan to ESOP 68,800 34,400
Purchase of common stock of RFSLA -- (1,975,628)
Purchase of certificates of deposit (497,000) (1,288,000)
Proceeds from maturity of certificates of deposit 1,090,000 --
Purchase of held-to-maturity securities (300,000) --
---------- -----------
Net cash provided by (used for) investing activities 361,800 (3,573,228)
---------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock -- 3,951,238
Purchase of treasury stock (328,055) --
Cash dividends (240,609) (59,340)
---------- -----------
Net cash provided by (used for) financing activities (568,664) 3,891,898
---------- -----------
Net increase (decrease) in cash and cash equivalents (184,989) 365,859
Cash and cash equivalents at beginning of period 365,859 --
---------- -----------
Cash and cash equivalents at end of period $ 180,870 $ 365,859
========== ===========
</TABLE>
F-42
<PAGE> 207
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of financial instruments
at September 30, 1996, are summarized as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
----------- -----------
<S> <C> <C>
Non-trading instruments and nonderivatives:
Cash and cash equivalents $ 1,211,033 $ 1,211,033
Certificates of deposit 1,586,000 1,586,000
Securities available-for-sale 473,399 473,399
Securities held-to-maturity 1,689,069 1,670,000
Stock in FHLB of Des Moines 336,000 336,000
Mortgage-backed securities held-to-maturity 5,500,595 5,314,126
Loans receivable, net 21,144,237 21,454,072
Deposits 24,233,959 24,146,227
Advances from FHLB of Des Moines $ 1,000,000 $ 1,000,000
</TABLE>
The following methods and assumptions were used in estimating the fair
values:
Cash and cash equivalents and certificates of deposit are valued at
their carrying amounts due to the relatively short period to maturity of the
instruments.
Fair values of securities and mortgage-backed securities are based on
quoted market prices or, if unavailable, quoted market prices of similar
securities.
Stock in FHLB of Des Moines is valued at cost, which represents
redemption value and approximates fair value.
Fair values are computed for each loan category using market spreads to
treasury securities for similar existing loans in the portfolio and
management's estimates of prepayments.
Deposits with no defined maturities, such as NOW and Super NOW
accounts, passbook accounts and money market deposit accounts, are valued at
the amount payable on demand at the reporting date.
The fair values of certificates of deposit and advances from FHLB of
Des Moines are computed at fixed spreads to treasury securities with similar
maturities.
(17) SAIF SPECIAL ASSESSMENT
On September 30, 1996 the Deposit Insurance Funds Act of 1996 was
signed into law. Under the Act, the FDIC will collect from savings
institutions in November, 1996 a special assessment of 65.7 basis points of
SAIF assessable deposits at March 31, 1995. The SAIF special assessment of
$215,500 was charged to earnings during the year ended September 30, 1996.
The statute provides that the assessment is deductible for tax purposes in
the year when paid. Accordingly, the SAIF special assessment will be
deductible for tax return purposes during the year ended September 30, 1997.
The FDIC has issued a proposed rule on revised risk-based assessment
schedules for SAIF members. Under this rule, RFSLA anticipates for the
fiscal year ended September 30, 1997, a regular SAIF premium of 4.5 basis
points of SAIF assessable deposits for the period October 1, 1996 through
December 31, 1996 and an annualized 6.4 basis points thereafter.
F-43
<PAGE> 208
ANNEX A
[Letterhead of Stifel, Nicolaus & Company, Incorporated]
[Date]
Board of Directors
Allegiant Bancorp, Inc.
7801 Forsyth Boulevard
St. Louis, Missouri 63105
Members of the Board:
You have requested our opinion as to the fairness from a
financial point of view to the shareholders of Allegiant Bancorp, Inc.
("Allegiant") of the consideration to be paid to the stockholders of Reliance
Financial, Inc. ("Reliance") by Allegiant pursuant to the terms of the
Agreement and Plan of Merger by and between Reliance and Allegiant dated as
of March 20, 1997 (the "Agreement"). Pursuant to the Agreement, the holder
of each share of common stock of Reliance would be entitled to receive 1.6741
shares of common stock of Allegiant, subject to adjustment as set forth in the
Agreement. For the purposes of our opinion, we have assumed that the
transaction will constitute a tax-free reorganization as contemplated by the
Agreement. We have also assumed that no securities will be issued under the
option agreement entered into between Allegiant and Reliance.
Stifel, Nicolaus & Company, Incorporated ("Stifel"), as part of
its investment banking services, is regularly engaged in the independent
valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. We are familiar with Allegiant and Reliance and have completed our
financial analysis of this transaction.
In rendering our opinion, we have reviewed the Agreement as well
as financial and other information that was publicly available or furnished
to us by Allegiant and Reliance including information provided during
Stifel's discussions with their respective management. We have conducted
conversations with Allegiant's senior management regarding recent
developments and management's financial projections for Allegiant and
Reliance. In addition, we have spoken to members of Allegiant's management
and Reliance's management regarding factors which affect each entity's
business. We have also compared certain financial and securities data (as
appropriate) of Allegiant and Reliance with various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of the common stock of Allegiant and Reliance, reviewed
prices and premiums paid in other business combinations and conducted such
other financial studies, analyses and investigations as we deemed appropriate
for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed,
without independent verification, the accuracy and completeness of all of the
financial and other information that was provided to us or that was otherwise
reviewed by us. With respect to the financial projections supplied to us, we
have assumed that they were reasonably prepared on the basis reflecting the
best currently available estimates and judgments of the management of
Allegiant and Reliance as to the future operating and financial performance
of Allegiant and Reliance and that they provided a reasonable basis upon
which we could form our opinion. We also assumed that there were no material
changes in the assets, liabilities, financial condition, results of
operations, business or prospects of either Allegiant or Reliance since the
date of the last financial statements made available to us. We did not make
or obtain any independent evaluation, appraisal or physical inspection of
Allegiant's or Reliance's assets or liabilities nor did we review loan files
of Allegiant or Reliance. We relied on advice of counsel to Allegiant as to
A - 1
<PAGE> 209
all legal matters with respect to Allegiant, the Agreement and the
transactions and other matters contained or contemplated therein.
Our opinion is necessarily based on economic, market, financial
and other conditions as they exist on, and on the information made available
to us as of, the date of this letter. Our opinion is directed to the Board
of Directors of Allegiant and does not constitute a recommendation to any
shareholder as to how such shareholder should vote on the proposed
transaction, nor have we expressed any opinion as to the prices at which any
securities of Allegiant or Reliance might trade in the future. Except as
required by applicable law, including without limitation federal securities
laws, our opinion may not be published or otherwise used or referred to, nor
shall any public reference to Stifel be made, without our prior consent.
Based upon the foregoing and such other factors as we deem
relevant, we are of the opinion, as of the date hereof, that the
consideration to be paid to the stockholders of Reliance pursuant to the
Agreement is fair to the shareholders of Allegiant from a financial point of
view.
Very truly yours,
STIFEL, NICOLAUS & COMPANY, INCORPORATED
A - 2
<PAGE> 210
ANNEX B
[Letterhead of RP Financial, LC.]
[Date]
Board of Directors
Reliance Financial, Inc.
8930 Gravois Avenue
St. Louis, Missouri 63123
Members of the Board:
You have requested RP Financial, LC. ("RP Financial") to provide
you with its opinion as to the fairness from a financial point of view to the
stockholders of Reliance Financial, Inc., St. Louis, Missouri ("Reliance
Financial"), of the Agreement and Plan of Merger (the "Agreement"), by and
between Allegiant Bancorp, Inc., a Missouri Corporation ("Allegiant"),
and Reliance Financial. The Agreement is incorporated herein by reference.
Unless otherwise defined, all capitalized terms incorporated herein have the
meanings ascribed to them in the Agreement.
Summary Description of Consideration
- ------------------------------------
At the Effective Time, each share of common stock of Reliance
Financial, $0.10 par value per share, issued and outstanding immediately
prior to the Effective Time (except for Dissenting Shares) shall cease to be
outstanding and shall be converted into and become the right to receive
1.6741 shares of Allegiant Common Stock (the "Merger Consideration") subject
to certain adjustments as set forth in the Agreement. Such Merger Consideration
will be paid provided that Allegiant's average price is greater than or equal
to $11.35 but not more than $14.50, where Allegiant's average price is computed
as the average of the daily averages of the high and low transaction prices, as
reported in the Wall Street Journal, Midwest Edition, for the 20 days on which
trades are reported, immediately prior to the second day immediately prior to
closing. In the event that Allegiant's average price exceeds $14.50, the
number of Allegiant shares received by Reliance stockholders shall be equal to
1.6741 times a fraction, the numerator of which is $14.50 and the denominator
of which is the Average Buyer Price. If the Average Buyer Price falls below
$11.35, Reliance may terminate the transaction at the discretion of the Board
of Directors. Additionally, each Reliance stock option outstanding at the
Effective Time shall be converted into and become the right to receive an
option to purchase Allegiant Common Stock. The number of shares of Allegiant
Common Stock subject to each Reliance stock option shall be equal to the number
of shares subject to such option multiplied by the Exchange Ratio and the
exercise price for each Reliance stock option will be adjusted by dividing the
per share exercise price by the Exchange Ratio. As of the date hereof,
Reliance had 425,700 shares of common stock issued and outstanding and 43,000
stock options outstanding. Cash will be paid in lieu of fractional shares.
RP Financial Background and Experience
- --------------------------------------
RP Financial, as part of its financial institution valuation and
consulting practice, is regularly engaged in the valuation of financial
institution securities in connection with mergers and acquisitions of
commercial banks and thrift institutions, initial and secondary offerings,
mutual-to-stock conversions of thrift institutions, and business valuations
for other corporate purposes for financial institutions. As specialists in
the securities of financial institutions, RP Financial has experience in, and
knowledge of, the Missouri and Midwest markets for thrift and bank securities
and financial institutions operating in Missouri.
B - 1
<PAGE> 211
Materials Reviewed
- ------------------
In rendering this fairness opinion, RP Financial reviewed the
following material: (1) the Agreement including exhibits; (2) financial and
other information for Reliance Financial, all with regard to balance and
off-balance sheet composition, profitability, interest rates, volumes,
maturities, trends, credit risk, interest rate risk, liquidity risk and
operations: (a) audited financial statements for the fiscal years ended
September 30, 1992 through 1996, (b) stockholder, regulatory and internal
financial and other reports through December 31, 1996, (c) the conversion
prospectus, dated February 13, 1995, (d) the most recent proxy statement for
Reliance Financial, and (e) Reliance Financial's management and Board
comments regarding past and current business, operations, financial
condition, and future prospects; and (3) financial and other information for
Allegiant including: (a) audited financial statements for the fiscal years
ended December 31, 1995 and 1996, incorporated in Allegiant's Annual Reports
to Shareholders, (b) Allegiant's Annual Report on Form 10-KSB for the year ended
December 31, 1996, (c) regulatory and internal financial and other reports
through December 31, 1996, (d) registration statement on Form S-3 as filed with
the Securities and Exchange Commission on January 22, 1997 in conjunction with
the rights offering, (e) Allegiant's management comments regarding past and
current business, operations, financial condition, and future prospects, and
(f) certain historical and pro forma information pertaining to Allegiant's
pending branch acquisition.
RP Financial reviewed financial, operational, market area and
stock price and trading characteristics for Reliance Financial and Allegiant
relative to publicly-traded savings institutions and banking institutions,
respectively, with comparable resources, financial condition, earnings,
operations and markets. RP Financial also considered the economic and
demographic characteristics in the local market area, and the potential
impact of the regulatory, legislative and economic environments on operations
for Reliance Financial and Allegiant and the public perception of the savings
institution and banking industries. RP Financial also considered: (a) the
financial terms, financial and operating condition and market area of other
recently completed acquisitions of comparable savings institutions both
regionally and nationally; (b) discounted cash flow analyses for Reliance
Financial incorporating future prospects; (c) expressions of interest by
third party financial institutions seeking a business combination with
Reliance Financial; and (d) the pro forma impact on Allegiant of the
acquisition of Reliance Financial, which is expected to be accounted for as a
purchase.
In rendering its opinion, RP Financial relied, without
independent verification, on the accuracy and completeness of the information
concerning Reliance Financial and Allegiant furnished by the respective
institutions to RP Financial for review, as well as publicly-available
information regarding other financial institutions and economic and
demographic data. Reliance Financial and Allegiant did not restrict RP
Financial as to the material it was permitted to review. RP Financial did
not perform or obtain any independent appraisals or evaluations of the assets
and liabilities and potential and/or contingent liabilities of Reliance
Financial or Allegiant.
RP Financial expresses no opinion on matters of a legal,
regulatory, tax or accounting nature or the ability of the merger as set
forth in the Agreement to be consummated. In rendering its opinion, RP
Financial assumed that, in the course of obtaining the necessary regulatory
and governmental approvals for the proposed Merger, no restriction will be
imposed on Allegiant that would have a material adverse effect on the ability
of the Merger to be consummated as set forth in the Agreement.
Opinion
- -------
It is understood that this letter is directed to the Board of
Directors of Reliance Financial in its consideration of the Agreement, and
does not constitute a recommendation to any stockholder of Reliance Financial
as to any action that such stockholder should take in connection with the
Agreement, or otherwise.
B - 2
<PAGE> 212
It is understood that this opinion is based on market conditions
and other circumstances existing on the date hereof.
It is understood that this opinion may be included in its
entirety in any communication by Reliance Financial or its Board of Directors
to the stockholders of Reliance Financial. It is also understood that this
opinion may be included in its entirety in any regulatory filing by Reliance
Financial or Allegiant, and that RP Financial consents to the summary of the
opinion in the proxy materials of Reliance Financial, and any amendments
thereto. Except as described above, this opinion may not be summarized,
excerpted from or otherwise publicly referred to without RP Financial's prior
written consent.
Based upon and subject to the foregoing, and other such matters
considered relevant, it is RP Financial's opinion that, as of the date
hereof, the Merger Consideration to be received by Reliance Financial's
stockholders, as described in the Agreement, is fair to such stockholders
from a financial point of view.
Respectfully submitted,
RP FINANCIAL, LC.
B - 3
<PAGE> 213
ANNEX C
The following is the text of the statutory appraisal right as set
forth in Section 262 of The General Corporation Law of the State of Delaware:
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to subsection
(d) of this section with respect to such shares, who continuously holds such
shares through the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to Section 228 of this title shall be entitled to an appraisal
by the Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in
a stock corporation and also a member of record of a non-stock corporation;
the words "stock" and "share" mean and include what is ordinarily meant by
those words and also membership or membership interest of a member of a
non-stock corporation; and the words "depository receipt" mean a receipt or
other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock
is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to Sections 251 (other than a merger
effected pursuant to subsection (g) of Section 251), 252, 254, 257, 258, 263
or 264 of this title:
(1) Provided, however, that no appraisal rights under
this section shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system on an interdealer quotation system by
the National Association of Securities Dealers, Inc., or (ii) held of record
by more than 2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the vote of
the holders of the surviving corporation as provided in subsection (f) of
Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares of any
class or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation pursuant
to Sections 251, 252, 254, 257, 258 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation
surviving or resulting from such merger or consolidation,
or depository receipts in respect thereof;
b. Shares of stock of any other
corporation, or depository receipts in respect thereof,
which shares of stock or depository receipts at the
effective date of the merger or consolidation will be
either listed on a national securities exchange or
designated as a national market system security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc., or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares
or fractional depository receipts described in the
foregoing subparagraphs a. and b. of this paragraph; or
C - 1
<PAGE> 214
d. Any combination of the shares of
stock, depository receipts and cash in lieu of fractional
shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary
Delaware corporation party to a merger effected under Section 253 of this title
is not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be available for
the shares of any class or series of its stock as a result of an amendment to
its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially
all of the assets of the corporation. If the certificate of incorporation
contains such a provision, the procedures of this section, including those
set forth in subsections (d) and (e) of this section, shall apply as nearly
as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be submitted for
approval at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was such on
the record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that appraisal
rights are available for any or all of the shares of the constituent
corporations, and shall include in such notice a copy of this section. Each
stockholder electing to demand the appraisal of his shares shall deliver to
the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of his shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such
action must do so by a separate written demand as herein provided. Within 10
days after the effective date of such merger or consolidation, the surviving
or resulting corporation shall notify each stockholder of each constituent
corporation who has complied with the provisions of this subsection and has
not voted in favor of or consented to the merger or consolidation of the date
that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant
to Section 228 or Section 253 of this title, the surviving or resulting
corporation, either before the effective date of the merger or consolidation
or within 10 days thereafter, shall notify each of the stockholders entitled
to appraisal rights of the effective date of the merger or consolidation and
that appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it appears
on the records of the corporation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of the notice, demand in
writing from the surviving or resulting corporation the appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall
be entitled to receive from the corporation surviving the merger or resulting
C - 2
<PAGE> 215
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or resulting
corporation, which shall within 20 days after such service file in the office
of the Register in Chancery in which the petition was filed a duly verified
list containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the list
at the addresses therein stated. Such notice shall also be given by one or
more publications at least 1 week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington,
Delaware or such publication as the Court deems advisable. The forms of the
notices by mail and by publication shall be approved by the Court, and the
costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine
the stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining their fair value
exclusive of any element of value arising from the accomplishment or
expectation of the merger or consolidation, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
In determining such fair value, the Court shall take into account all
relevant factors. In determining the fair rate of interest, the Court may
consider all relevant factors, including the rate of interest which the
surviving or resulting corporation would have had to pay to borrow money
during the pendency of the proceeding. Upon application by the surviving or
resulting corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit discovery or
other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or
resulting corporation pursuant to subsection (f) of this section and who has
submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and
the case of holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock. The Court's
decree may be enforced as other decrees in the Court of Chancery may be
enforced, whether such surviving or resulting corporation be a corporation of
this State or of any other state.
(j) The costs of the proceeding may be determined by the Court
and taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
C - 3
<PAGE> 216
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
of the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as
provided in subsection (d) of this section shall be entitled to vote such
stock for any purpose or to receive payment of dividends or other
distributions on the stock (except dividends or other distributions payable
to stockholders of record at a date which is prior to the effective date of
the merger or consolidation); provided, however, that if no petition for an
appraisal shall be filed within the time provided in subsection (e) of this
section, or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of his demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e)
of this section or thereafter with the written approval of the corporation,
then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been converted had
they assented to the merger or consolidation shall have the status of
authorized and unissued shares of the surviving or resulting corporation.
C - 4
<PAGE> 217
Annex D
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 March 31, 1997
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 March 31, 1997, the registrant had 2,842,989 outstanding shares of Common
Stock, $.01 par value.
D-1
<PAGE> 218
<TABLE>
ALLEGIANT BANCORP, INC.
FORM 10-QSB
INDEX
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets -- March 31, 1997 and December 31, 1996 D-3
Consolidated Statements of Income -- Three Months Ended March 31, 1997 and 1996 D-4
Consolidated Statements of Cash Flows -- Three Months Ended March 31, 1997 and 1996 D-5
Notes to Financial Statements D-6
Item 2. Management's Discussion and Analysis:
Overview D-7
Results of Operations D-8
Financial Condition D-16
Asset Quality D-18
Liquidity and Capital Resource Management D-20
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K D-22
SIGNATURES
</TABLE>
D-2
<PAGE> 219
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLEGIANT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
(In thousands, except share and per share data)
<S> <C> <C>
ASSETS:
------
Cash and due from banks $ 10,692 $ 7,554
Federal funds sold and other overnight investments 25 10,775
Investment securities:
Available-for-sale (at estimated market value) 20,851 22,073
Held-to-maturity (approximate market value of
$39,419,000 and $38,540,000, respectively) 39,572 38,487
Loans, net of allowance for possible loan losses of
$3,456,000 and $3,100,000, respectively 310,811 288,826
Bank premises and equipment, net of accumulated depreciation 5,842 5,514
Accrued interest and other assets 1,832 3,844
Cost in excess of fair value of net assets acquired 476 491
-------- --------
Total assets $390,101 $377,564
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
------------------------------------
Deposits:
Non-interest bearing $ 31,294 $ 29,406
Interest bearing 231,024 228,439
Certificates of deposit of $100,000 or more 48,505 50,825
-------- --------
Total deposits 310,823 308,670
-------- --------
Short-term borrowings 41,275 36,137
Long-term borrowings 13,663 14,663
Accrued expenses and other liabilities 2,204 1,708
-------- --------
Total liabilities 367,965 361,178
-------- --------
Commitments and contingencies
Shareholders' equity:
Common Stock, $.01 par value - shares
authorized, 7,800,000; issued and outstanding,
2,842,989 and 2,271,000, respectively 28 23
Capital surplus 21,248 15,983
Retained earnings 906 357
Net unrealized (depreciation) appreciation
on securities available-for-sale (46) 23
-------- --------
Total shareholders' equity 22,136 16,386
-------- --------
Total liabilities and shareholders' equity $390,101 $377,564
======== ========
See notes to consolidated financial statements.
</TABLE>
D-3
<PAGE> 220
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1997 1996
---- ----
(In thousands, except per share data)
<S> <C> <C>
Interest income:
Interest and fees on loans $ 6,884 $ 4,720
Investment securities 913 938
Federal funds sold and overnight investments 57 68
---------- ----------
Total interest income 7,854 5,726
---------- ----------
Interest expense:
Interest on deposits 3,565 2,825
Interest on short-term borrowings 527 212
Interest on long-term debt 282 388
---------- ----------
Total interest expense 4,374 3,425
---------- ----------
Net interest income 3,480 2,301
Provision for possible loan losses 493 180
---------- ----------
Net interest income after
provision for possible loan losses 2,987 2,121
---------- ----------
Other income:
Service charges and other fees 318 174
---------- ----------
Total other income 318 174
---------- ----------
Other expenses:
Salaries and employee benefits 994 805
Occupancy and other operating expenses 1,309 707
---------- ----------
Total other expenses 2,303 1,512
---------- ----------
Income before income taxes 1,002 783
Provision for income taxes 401 313
---------- ----------
Net income $ 601 $ 470
========== ==========
Per share data:
Primary:
Weighted average primary
common shares outstanding 2,634,563 2,372,434
Net income $ .23 $ .20
Fully diluted:
Weighted average fully diluted
common shares outstanding 2,634,563 2,372,434
Net income $ .23 $ .20
See notes to consolidated financial statements.
</TABLE>
D-4
<PAGE> 221
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
- --------------------
Net income $ 601 $ 470
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 184 163
Provision for loan losses 493 180
Loan recoveries 4 37
Deferred tax provision (118) (92)
Changes in assets and liabilities:
Accrued interest receivable and
Other assets 2,130 (106)
Other liabilities 497 188
------- -------
Cash provided by operating activities 3,791 840
------- -------
INVESTING ACTIVITIES:
- --------------------
Proceeds from maturities of securities held to maturity 3,525 27,031
Purchase of investment securities held to maturity (4,610) (17,150)
Proceeds from maturities of securities available for sale 3,500 38,089
Proceeds from sales of securities held available for sale 496 --
Purchase of investments securities available for sale (2,843) (30,224)
Loans made to customers, net of repayments (22,482) (12,371)
Additions to premises and equipment (497) (169)
------- -------
Cash provided by (used in) investing activities (22,911) 5,206
------- -------
FINANCING ACTIVITIES:
- --------------------
Net increase (decrease) in deposits 2,153 (4,275)
Net proceeds from issuance of short-term debt 5,138 (1,444)
Proceeds from issuance of long-term debt -- --
Retirement of long-term debt (1,000) (26)
Proceeds from issuance of Common Stock 5,269 7
Payment of dividends (52) (38)
------- -------
Cash provided by (used in) financing activities 11,508 (5,776)
------- -------
Net (decrease) increase in cash and cash equivalents (7,612) 270
Cash and cash equivalents, beginning of period 18,329 19,683
------- -------
Cash and cash equivalents, end of period $10,717 $19,953
======= =======
See notes to consolidated financial statements.
</TABLE>
D-5
<PAGE> 222
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of Allegiant Bancorp, Inc. and its subsidiaries:
Allegiant Bank, Allegiant Mortgage Company and Edge Mortgage
Services, Inc. Unless the context otherwise indicates, references
to the "Company" include Allegiant Bancorp, Inc. and its
subsidiaries.
The consolidated balance sheet at March 31, 1997, the consolidated
statements of income for the three months ended March 31, 1997 and
1996 and the consolidated statements of cash flows for the three months
ended March 31, 1997 and 1996 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 three
months ended March 31, 1997 are not necessarily indicative of the
results which may be obtained for the full year ending December 31,
1997.
2. EARNINGS PER SHARE
In February 1997, the FASB issued its Statement of Financial
Accounting Standards No. 128, Earnings per Share ("SFAS 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>
Quarter ended Quarter ended
March 31, March 31,
1997 1996
------------- -------------
<S> <C> <C>
Basic per share earnings $0.25 $0.21
Diluted per share earnings $0.23 $0.20
</TABLE>
3. PROPOSED ACQUISITIONS
On March 20, 1997, Allegiant executed an Agreement and Plan of Merger
(the "Merger Agreement") with Reliance Financial, Inc., a Delaware
corporation ("Reliance"), whereby Allegiant will acquire Reliance
through the merger of Reliance with and into Allegiant (the "Merger").
Under the Merger Agreement, Allegiant will acquire all of the outstanding
capital stock of Reliance in exchange for consideration of 1.6741 shares of
Allegiant common stock per share of Reliance common stock, subject to
adjustment. The acquisition is anticipated to be completed on or about
September 30, 1997 and is subject to, among other things, regulatory
approval and the approval of the shareholders of Allegiant and the
stockholders of Reliance. As of March 31, 1997, Reliance reported, on a
consolidated basis, total assets of $31.0 million, total deposits of $23.6
million, total loans of $19.9 million and stockholders' equity of $6.8
million.
On May 8, 1997, Allegiant entered into Deposit Transfer and Asset
Purchase Agreements with Roosevelt Bank, a federal stock savings bank
("Roosevelt"), to purchase Roosevelt's branch offices in Warrenton,
Missouri and Union, Missouri. The transactions, which are subject to
appropriate regulatory approvals, include the branch buildings and the
safe deposit, loan and deposit relationships. As of March 31, 1997,
the combined branches had total deposits of $100,786,000 and total
loans of $2,778,000. In connection with the acquisitions, the Company
will assume no additional debt.
D-6
<PAGE> 223
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, a Missouri state-chartered bank (the "Bank"). The
Bank provides personal and commercial banking and related financial services
from seven 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. 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 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. Unless the context
indicates otherwise, references herein to the "Company" or "Allegiant" refer
to Allegiant Bancorp, Inc. and its subsidiaries.
On March 20, 1997, Allegiant executed an Agreement and Plan of Merger
(the "Merger Agreement") with Reliance Financial, Inc., a Delaware
corporation ("Reliance"), whereby Allegiant will acquire Reliance
through the merger of Reliance with and into Allegiant (the "Merger").
Under the Merger Agreement, Allegiant will acquire all of the outstanding
capital stock of Reliance in exchange for consideration of 1.6741 shares of
Allegiant common stock per share of Reliance common stock, subject to
adjustment. The acquisition is anticipated to be completed on or about
September 30, 1997 and is subject to, among other things, regulatory
approval and the approval of the shareholders of Allegiant and the
stockholders of Reliance. As of March 31, 1997, Reliance reported, on a
consolidated basis, total assets of $31.0 million, total deposits of $23.6
million, total loans of $19.9 million and stockholders' equity of $6.8 million.
On May 8, 1997, Allegiant entered into Deposit Transfer and Asset
Purchase Agreements with Roosevelt Bank, a federal stock savings bank
("Roosevelt"), to purchase Roosevelt's branch offices in Warrenton,
Missouri and Union, Missouri. The transactions, which are subject to
appropriate regulatory approvals, include the branch buildings and the
safe deposit, loan and deposit relationships. As of March 31, 1997,
the combined branches had total deposits of $100,786,000 and total
loans of $2,778,000. In connection with the acquisitions, the Company
will assume no additional debt.
RESULTS OF OPERATIONS
NET INCOME
For the quarter ended March 31, 1997, the Company reported earnings of
$601,000 compared to $470,000 for the first quarter of 1996, an increase of
$131,000, or 28%. On a per share basis, net income increased 15%, from $.20
for the first quarter of 1996 to $.23 for the comparable period in 1997,
despite the 11% increase in average primary common shares outstanding. This
increase from 2.4 million shares for the quarter ended March 31, 1996 to 2.6
million shares for the corresponding period in 1997, was largely
attributable to the Company's rights offering to shareholders pursuant to
which the Company issued 567,750 shares of Common Stock in February 1997.
For every one share of Common Stock held of record, a shareholder was given
the nontransferable right to subscribe for 0.25 of a share of Common Stock
at $9.375 per share.
Net Interest Income
For the quarter ended March 31, 1997, net interest income before
provision for loan losses increased 51% to $3.5 million from $2.3 million at
March 31, 1996. This growth was attributable to the 37% increase in total
interest income, which increased from $5.7 million in the first quarter of
1996 to $7.9 million for the first quarter of 1997. The largest component of
this growth was a $2.2 million increase in interest and fees earned on
loans. For the quarter ended March 31, 1997, interest and fees earned on
loans totaled $6.9 million compared to $4.7 million earned in the corresponding
period of 1996.
D-7
<PAGE> 224
Total interest expense for the three months ended March 31, 1997 was
$4.4 million, a 28% increase over total interest expense of $3.4 million
for the corresponding period in 1996. Interest paid to depositors increased
26%, from $2.8 million for the first three months of 1996 to $3.6 million
for the same period in 1997. This increase was largely attributable to
greater deposit volume.
Interest paid on short-term borrowings increased 149% from $212,000 to
$527,000 for the first quarter periods of 1996 and 1997, respectively.
Expenditures for short-term borrowings increased due to the Bank's
utilization of Federal Home Loan Bank ("FHLB") short-term advances to fund
new loan growth, as opposed to relying solely 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 borrowings decreased 27% from $388,000 for the first
quarter of 1996 to $282,000 for the first quarter of 1997. This decrease
was due primarily to the reclassification of a portion of the debt from
long-term to short-term, as the FHLB advances mature within twelve months
after March 31, 1997.
Net Interest Margin
The Company's net interest margin for the first quarter of 1997
improved by 32 basis points, from 3.52% for the first quarter of 1996 to 3.84%
for the quarter ended March 31, 1997. This increase was principally due to an
increase in average earnings assets and a decrease in the Bank's cost of
funds. Average earning assets increased $101.1 million from $261.8 million
in the first quarter of 1996 to $362.9 million for the same period in 1997,
while the average cost of funds declined 37 basis points from 5.68% for the
first quarter of 1996 to 5.31% during the corresponding quarter of 1997.
The yield on interest earning assets decreased 9 basis points from
8.75% for the three months ended March 31, 1996 to 8.66% for the corresponding
period in 1996. This decline was largely due to the decrease in average
loan yield, which declined from 9.95% for the first quarter of 1996 to 9.21%
for the first quarter of 1997. This 74 basis point decrease in loan yield
was largely due to three factors: (i) an increased concentration in the
portfolio of one- to four-family adjustable rate mortgages; (ii) an
extremely competitive market for retail and commercial lending; and (iii) a
slight shift in interest rates.
The Bank's loan spreads have decreased partially due to its increased
holdings of one- to four-family 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 also has observed a lower level of non-performing
loans associated with one- to four-family mortgages compared proportionately
to the other types of loans in the Bank's portfolio. Given these attributes
of lower risk, the Bank has accepted a lower average yield compared to loans
with higher levels of risk. The Bank anticipates the continued addition of
one- to four-family mortgage loans to the Bank's loan portfolio.
D-8
<PAGE> 225
Another benefit in originating one- to four-family adjustable rate
mortgages, is that it presents an opportunity for the 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 by Allegiant include: Home
Equity Credit Lines ("HECL") --introduced in the second quarter of 1996,
investment services offered through INVEST Financial Group --introduced in
February 1997, PC home banking and cash management services --to be offered
in the second half of 1997. Management believes that relationship banking
will be a key to success in the consolidating banking industry and will
sustain the lower yields associated with the these one- to four-family
mortgage loans in order to gain access to this new relationship-oriented
customer base.
In addition to changes in the credit portfolio mix, the Bank is also
operating in a highly aggressive and competitive market for both commercial
and consumer loans. Not only has the Bank seen increased competition from
within the banking industry, but non-bank financial institutions are
attracting customers which have traditionally dealt primarily with
commercial banks. These trends have forced the Bank to realize tighter
spreads on commercial loans, the second largest holding in the credit
portfolio. In the past, the Bank was 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.
Another factor leading to the lower first quarter 1997 average loan
yield was a slightly lower weighted average prime lending rate during this
period when compared to the first quarter of 1996. Even though the prime
rate was higher at March 31, 1997 than March 31, 1996 --8.50% compared to
8.25%, respectively, the weighted average prime rate during these periods
was lower in 1997 due to the timing of the raise in interest rates dictated
by the Federal Reserve's Federal Open Market Committee. The majority of the
Bank's commercial loans have repriced in response to the relative decrease in
interest rates during this period.
Despite the lower interest rate environment, the Bank was able to
improve the yield on its investment securities portfolio. The average yield
earned on investment securities was 6.08% for the quarter ended March 31,
1997 compared to 5.58% for the corresponding period in 1996, an increase of
50 basis points. This increased performance is attributable to the improved
management of the investment securities portfolio, along with addition of
higher yielding securities which were funded with maturing securities with
lower interest rates.
On the liability side of the balance sheet, the aggregate yield paid
for interest bearing deposits and both long- and short-term debt was 5.31% for
the three months ended March 31, 1997. This represented a decrease of 37
basis points compared to the 5.68% average yield paid for total interest
bearing liabilities in the first quarter of 1996. A large portion of this
decrease in the Bank's cost of funds was due to the re-pricing of a money
market deposit promotion that was run in the first half of 1996. The
average yield on money market accounts decreased from 5.15% in the first
quarter of 1996 to 4.52% in the corresponding quarter of 1997. Another
factor contributing to the decrease in the cost of funds was a decrease in
the average rate paid on certificates of deposit, which decreased 25 basis
points from 5.97% for the first quarter of 1996 to 5.73% in the first
quarter of 1997.
D-9
<PAGE> 226
In order to avoid running additional deposit promotions, the Bank has
increasingly relied upon FHLB short-term borrowings, which were a more
cost-effective funding source than paying above market rates for retail
deposits during the period. One bank in the St. Louis SMSA has chosen to
run a money market deposit promotion to yield 6.02% in the first part of
1997, whereas the Bank chose to borrow $10 million of short-term funds from
the FHLB at a blended cost of 5.86%. 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 promotional rate.
Additionally, the Bank has utilized FHLB short-term advances in
anticipation of the planned opening of a new branch in second quarter of
1997, as well as a temporary source of funding until the Bank's recently
opened St. Peters branch can attract increased levels of core deposits,
which cost less than promotional monies. The Bank opened its ninth branch
on April 1, 1997 (St. Charles County) and plans to open two additional
branches in Northeastern Missouri in the third and fourth quarters of 1997
- --pending regulatory approval. 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. FHLB advances, when used
in conjunction with deposit promotions and regular retail operations, offer
flexibility and an attractive method to increase funding for loan growth.
The Bank expects to utilize FHLB advances in the future, to the extent it
offers cost-effective sources of funding.
D-10
<PAGE> 227
The following table sets forth the condensed average balance sheets for
the years reported and the percentage of each principal category of assets,
liabilities and shareholders' equity to total assets. Also shown is the
average yield on each category of interest-earning assets and the average
rate paid on interest-bearing liabilities for each of the periods reported:
<TABLE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTERST RATES
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------------
1997 1996
---------------------------------- ---------------------------------
Average Int. Earned/ Yield/ Average Int. Earned/ Yield/
Balance Expense Rate<F1><F2> Balance Expense Rate<F1><F2>
---------------------------------- ---------------------------------
(Dollars in thousands)
Assets:
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans<F1> $298,820 $27,536 9.21% $189,649 $18,876 9.95%
Taxable investment securities 58,841 3,590 6.10% 66,312 3,708 5.59%
Non-taxable investment securities 1,173 60 5.12% 930 44 4.73%
Federal funds sold 4,047 230 5.68% 4,935 272 5.51%
-------- ------- -------- -------
Total interest earning assets 362,881 31,416 8.66% 261,826 22,900 8.75%
-------- ------- -------- -------
Non-interest-earning assets:
Cash and due from banks 8,384 7,113
Bank premises and equipment 5,335 4,625
Other assets 5,190 3,857
Reserve for possible loan losses (3,177) (2,195)
-------- --------
Total assets $378,613 $275,226
======== ========
Liabilities and shareholders' equity:
Interest bearing liabilities:
Money market accounts $ 72,487 $ 3,276 4.52% $ 57,711 $ 2,972 5.15%
NOW accounts 11,178 268 2.40% 9,115 224 2.46%
Savings deposits 5,949 176 2.96% 7,779 280 3.60%
Certificates of deposit 129,833 7,436 5.73% 96,876 5,784 5.97%
Certificates of deposit over $100,000 48,068 2,560 5.33% 28,735 1,608 5.60%
IRA certificates 9,206 544 5.91% 7,005 428 6.11%
-------- ------- -------- -------
Total interest bearing deposits 276,721 14,260 5.15% 207,221 11,296 5.45%
-------- ------- -------- -------
Federal funds purchased, repurchase
agreements, and other short-term
borrowings 38,500 2,108 5.48% 14,196 848 5.97%
Long-term borrowings 13,985 1,128 8.07% 19,714 1,552 7.87%
-------- ------- -------- -------
Total interest bearing liabilities 329,206 17,496 5.31% 241,131 13,696 5.68%
-------- ------- -------- -------
Non-interest bearing liabilities:
Demand deposits 28,166 18,234
Other liabilities 1,998 1,679
Shareholders' equity 19,243 14,182
-------- --------
Total liabilities and
shareholders' equity $378,613 $275,226
======== ========
Net interest income $13,920 $ 9,204
======= =======
Net interest margin 3.84% 3.52%
<FN>
- -------------------------
<F1> Interest on non-accruing loans is not included for purposes of
calculating yields.
<F2> All yields are annualized.
</TABLE>
D-11
<PAGE> 228
Provision for Loan Losses
Consistent with the Bank's written loan policy, an allowance is set
aside to offset possible future loan losses. This allowance is evaluated on
a monthly basis at a rate determined by management based upon its review of
the loan portfolio. The allowance for loan losses is increased by
provisions which are charged against income, and reduced by loans charged
off, net of recoveries. The allowance is maintained at a level considered
adequate to provide for potential loan losses based on management's
evaluation of the anticipated impact on the loan portfolio of current
economic conditions, changes in the character and size of the portfolio,
past loan loss experience, potential future loan losses on loans to specific
customers and/or industries, and other pertinent factors that management
believes require current recognition in estimating possible loan losses.
For the quarter ended March 31, 1997, the provision for loan losses was
$493,000 compared to $180,000 for the corresponding period in 1996, an
increase of $313,000 or 174%. This large percentage increase in the
quarterly provision for possible loan loss, reflects the large increase
in total loans outstanding. Net loans charged off in the first quarter of
1997 were $141,000 compared to $90,000 for the same period in 1996. This
increase includes a $42,000 charge off associated with a single commercial
loan customer whose accounts are presently in liquidation status.
D-12
<PAGE> 229
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 INFORAMTION--ALLOCATION
OF THE ALLOWANCE FOR LOAN LOSSES
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
------------ ------------
(In thousands)
<S> <C> <C>
Allowance for possible loan losses
(beginning of period) $ 3,100 $ 2,130
Loans charged off:
Commercial, financial, agricultural,
municipal and industrial development (78) (8)
Real estate--mortgage (12) --
Installment--and consumer (51) (82)
Other loans -- --
-------- --------
Total loans (141) (90)
-------- --------
Recoveries of loans previously charged off:
Commercial, financial, agricultural,
municipal and industrial development -- 35
Real estate--mortgage -- --
Installment--and consumer 4 2
Other loans -- --
-------- --------
Total recoveries 4 37
-------- --------
Net loans charged off (137) (53)
-------- --------
Provision for possible loan losses 493 180
-------- --------
Allowance for possible loan losses (end of period) $ 3,456 $ 2,257
======== ========
Loans outstanding:
Average $298,820 $189,649
End of period $314,267 $193,825
Ratios:
Net charge offs to average loans outstanding 0.05% 0.03%
Net charge offs to provision for loan losses 27.79% 29.44%
Provision for loan losses
to average loans outstanding 0.16% 0.09%
Allowance for loan loss to total loans outstanding 1.10% 1.16%
Allocation for possible loan losses at end of period:
Commercial, financial, agricultural,
municipal and industrial development $ 1,402 $ 873
Real estate--construction 125 90
Residential real estate loans, first deeds of trust 817 552
Installment loans to individuals 145 101
All other loans -- --
Unallocated 967 541
-------- --------
Total $ 3,456 $ 2,157
======== ========
</TABLE>
D-13
<PAGE> 230
Non-interest Income and Expense
Non-interest income for the first quarter of 1997 was $318,000 compared
to $174,000 for the first quarter of 1996. This increase of $144,000, or
83%, was due to the increased number of deposit accounts and the expanded
base of service chargeable products offered to the Company's customers. The
Company has pursued 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 is estimated
to increase non-interest income by approximately $68,000, on an annual basis
for 1997. Other improvements are expected from improved cash management,
increases in charges for customer check supplies and an increase installment
loan fees. Management expects continued growth in non-interest income as
new products are developed and offered to the Bank's customers.
For the quarter ended March 31, 1997, total non-interest expense was
$2.3 million, compared to $1.5 million for the same period ended March 31,
1997, an increase of 52%. This amount included an 85% increase in operating
expenses and a 23% increase in salaries and employee benefits. A large
portion of the increase in operating expenses was directly related to the
operation of the newly opened South County and St. Peters branches, as well
as the development of the Allegiant Bank Operations Center which also houses
the Mortgage Company and Edge. The remainder of the increase in operating
expenses was attributable to expenditures for communication, supplies,
professional fees and business development. Management believes that these
increases are attributable to the Bank's recent growth and represent the
normal increases in regular business activities. Also included in this
increase in non-interest expense are expenditures associated with the Bank's
newest investments in computer technology, including: an on-line teller
system, a PC-network and a sophisticated retail cash-management system.
Management believes that investment in computer technology will yield future
benefits in the form of increased efficiency and profitability, as the Bank
will now be able to offer new service chargeable products to match more
closely its customers' needs.
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 South County and St. Peters
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.
Additionally, as the banking industry continues to consolidate, the Bank
plans to hire additional qualified employees in 1997 by taking advantage of
the pool of experienced workers expected to become available as local branches
of large institutions are closed. As of March 31, 1997, Allegiant Bank
employed 119 full-time equivalent employees compared to 95 full-time
equivalent employees at March 31, 1996.
D-14
<PAGE> 231
Despite the additional costs associated with the opening of the two new
branches and the Operations Center, the Company was able to improve its
operating efficiency ratio during the first quarter of 1997. The efficiency
ratio decreased to 60.64% for the three months ended March 31, 1997, a
decrease from 61.09% during the corresponding period in 1996. This ratio is
considered to be a measure of the Company's leveraging of overhead expenses.
Another overhead management ratio, average assets per full-time equivalent
employee, improved from $2.9 million per employee in the first quarter of
1996 to $3.2 million per employee in the same period of 1997. The Company
attributes a substantial portion of these efficiency gains to the cost
improvement program that it has undertaken as well as the relative increase
in total assets.
The following table sets forth the Company's summary consolidated
non-interest income and expense for the periods indicated:
<TABLE>
NON-INTEREST INCOME AND NON-INTEREST EXPENSE
Three Months Ended March 31,
----------------------------
1997 1996
----------------------------
(In thousands)
<S> <C> <C>
Non-interest income:
Overdraft fees $ 94 $ 78
Service charges and commissions 54 50
Other non-interest income 170 46
------ ------
Total non-interest income $ 318 $ 174
====== ======
Non-interest expense:
Salaries and employee benefits $ 994 $ 805
Depreciation of buildings and fixed assets 169 82
Rent expense 69 46
Expense on premises and fixed assets 207 168
Supplies 58 50
Advertising 36 18
Directors' fees 39 17
Other non-interest expense 731 326
------ ------
Total non-interest expense $2,303 $1,512
====== ======
</TABLE>
D-15
<PAGE> 232
FINANCIAL CONDITION
At March 31, 1997, the Company's total assets were $390.1 million, an
increase of $12.5 million or 3% from December 31, 1996. This growth was
primarily attributable to a $23.6 million increase in loans outstanding,
principally the addition of $11.3 million in one- to four-family mortgages.
Partially offsetting this increase was a substantial decrease in Fed funds sold
which decreased from $10.8 million at December 31, 1996 to $25,000 at March
31, 1997. This decrease was due to the funding of increased loan production.
Investment securities remained relatively unchanged during the first quarter of
1997, decreasing from $60.6 million at December 31, 1996 to $60.4 million at
March 31, 1997.
Loans
Loans, the largest component of interest earning assets, increased 8%
during the first three months of 1997. This growth was attributable to a
24% increase in construction loans, a 9% increase in one- to four-family
mortgage loans and a 8% increase in commercial loans. The growth in
construction loans was partially attributable to new business relationships
introduced to the Bank by newly hired additions to the commercial lending
staff, allowing real estate construction loans to increase $2.2 million from
$8.8 million at December 31, 1996 to $10.9 million at March 31, 1997.
Real estate mortgage loans increased $11.4 million during the first
three months of 1997, ending the quarter at $132.7 million compared to
$121.4 million at December 31, 1996. This increased production includes
approximately $1.7 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, with $9.3
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 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 $6.1 million, from $75.1 million at December 31, 1996 to
$81.2 million on March 31, 1997. 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.
D-16
<PAGE> 233
The composition of the loan portfolio is summarized as follows:
<TABLE>
LENDING AND CREDIT MANAGEMENT<F1>
<CAPTION>
March 31, Decemmber 31, March 31,
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 $ 81,162 25.83% $ 75,129 25.74% $ 44,968 23.20%
Real estate--construction 10,938 3.48 8,763 3.00 9,222 4.76
Real estate--mortgage
one- to four-family 132,730 42.23 121,386 41.58 73,305 37.82
multi-family and commercial 76,810 24.44 74,721 25.60 57,464 29.65
Consumer and other 12,789 4.07 12,084 4.14 9,035 4.66
Less unearned income (162) (.05) (157) (0.05) (169) (0.09)
-------- ------ -------- ------ -------- ------
Total loans<F1> $314,267 100.00% $291,926 100.00% $193,825 100.00%
======== ====== ======== ====== ======== ======
<FN>
- ---------------------
<F1> The Bank had no outstanding foreign loans at the dates reported.
</TABLE>
Investments
Investment securities decreased $136,000 during the first three months
of 1997, ending the quarter at $60.4 million, compared to $60.6 million at
December 31, 1996. A $1.0 million increase in United States Government
securities was offset by a $1.1 million decrease in United States government
agency securities. The Bank targets a laddered investment strategy,
purchasing a mix of fixed-rate U.S. Treasury and agency issues as well as
callable agency securities and places them within an average maturity range
of three to five years. The book values, for the periods indicated, are as
follows:
<TABLE>
INVESTMENT SECURITIES PORTFOLIO
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
(In thousands)
<S> <C> <C>
United States Treasury securities $ 8,955 $ 7,941
Obligations of United States government agencies 45,663 46,717
Federal Home Loan Bank stock 4,462 4,462
States and political subdivisions 1,173 1,199
Less unrealized (loss) gain on securities held
available for sale (69) 35
Other 239 205
------- -------
Total investment securities $60,423 $60,559
======= =======
</TABLE>
D-17
<PAGE> 234
ASSET QUALITY
The Bank's allowance for possible loan losses increased 11%, from $3.1
million on December 31, 1996 to $3.5 million on March 31, 1997. This
increase was primarily due to the provision of $493,000 to the reserve for
possible loan losses during the first three months of 1997. 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 increased to 1.10% at March 31, 1997 from 1.06% at December 31, 1996.
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
March 31, 1997 was adequate to reflect the credit risk in the loan
portfolio. See "--Provision for Loan Losses."
Non-performing loans increased to $767,000 at March 31, 1997, an
increase of $75,000 from $692,000 at December 31, 1996. The ratio of
non-performing loans to total loans was 0.24% at March 31, 1997, unchanged
as a percentage from December 31, 1996. The largest component of
non-performing loans was attributable to $386,000 in non-accruing commercial
loans.
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.
As an integral part of their examination process, the various
regulatory agencies periodically review the Bank's allowances for possible loan
losses. Such agencies have the authority to require the Bank to recognize
additions to the reserve based upon their judgment. The following table
summarizes, for the periods presented, non-performing assets by category:
D-18
<PAGE> 235
<TABLE>
RISK ELEMENTS--NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
--------- ------------ ---------
(Dollars in thousands)
<S> <C> <C> <C>
Commercial, financial, agricultural and all other loans:
Past due 90 days or more $ 12 $ 5 $ 51
Nonaccrual 386 207 166
Restructured terms -- -- --
Real estate--construction:
Past due 90 days or more 114 264 --
Nonaccrual 71 84 225
Restructured terms -- -- --
Real estate--mortgage:
Past due 90 days or more 71 -- --
Nonaccrual 55 -- --
Restructured terms -- -- --
Installment loans to individuals:
Past due 90 days or more -- 23 --
Nonaccrual 58 109 7
Restructured terms -- -- --
-------- -------- --------
Total non-performing loans: $ 767 $ 692 $ 449
======== ======== ========
Balance sheet information:
Total assets $390,101 $377,564 $275,266
Loans outstanding 314,267 291,926 193,825
Shareholders' equity 22,136 16,386 14,375
Allowance for possible loan loss 3,456 3,100 2,257
Ratios:
Non-performing loans to total loans outstanding 0.24% 0.24% 0.23%
Non-performing assets to total assets 0.20% 0.18% 0.16%
Non-performing loans to shareholders' equity 3.46% 4.22% 3.12%
Reserve for possible loan losses to total loans 1.10% 1.06% 1.16%
Reserve for possible loan losses
to non-performing loans 450.59% 447.98% 502.67%
Percent of categories to total end-of-period loans:
Commercial, financial, agricultural,
municipal and industrial development 25.83% 25.74% 23.20%
Real estate--construction 3.48% 3.00% 4.76%
Real estate--mortgage:
one- to four-family residential 42.23% 41.58% 37.82%
multi-family and commercial 24.44% 25.60% 29.65%
Installment and consumer 4.07% 4.14% 4.66%
Less unearned income (0.05)% (0.05)% (0.09)%
-------- -------- --------
Total loans 100.00% 100.00% 100.00%
======== ======== ========
</TABLE>
D-19
<PAGE> 236
LIQUIDITY AND CAPITAL RESOURCE MANAGEMENT
Corresponding to the growth in assets for the first quarter ended March
31, 1997, total liabilities increased by $12.5 million. A substantial
portion of this increase was represented by a $5.1 million increase in
short-term borrowings, and a $5.8 million increase in shareholders' equity
- -- resulting from the rights offering of 567,750 shares of Common Stock. A
portion of the increase in short-term borrowings was due to a reclassification
of longer-term advances which will mature within twelve months after March 31,
1997, 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 quarter of 1997, total deposits increased less than
1%, or $2.2 million to $310.8 million from $308.7 million at December 31, 1996.
The Bank anticipates deposit growth will increase in the first quarter of
1997, as the South County branch matures and the newly opened St. Peters
branch begins to attract core deposits. 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 Home Equity Credit Line (HECL) and free checking. In 1997, the Bank has
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>
March 31, 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 $ 31,294 10.07% $ 29,406 9.53% $ 1,888 6.42%
NOW accounts 11,957 3.85 10,711 3.47 1,246 11.63
Money market accounts 73,269 23.57 74,490 24.13 (1.221) (1.64)
Savings deposits 6,152 1.98 6,083 1.97 69 1.13
Certificates of deposit 130,024 41.83 128,407 41.60 1,617 1.26
Certificates of deposit
over $100,000 48,505 15.61 50,825 16.47 (2,320) (4.56)
IRA certificates 9,622 3.10 8,748 2.83 874 9.99
-------- ------ -------- ------ ------- -----
Total Deposits $310,823 100.00% $308,670 100.00% $ 2,153 0.70%
======== ====== ======== ====== ======= =====
</TABLE>
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.
D-20
<PAGE> 237
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.
Capital Resources
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 $71.8 million of which $34.0 million was outstanding as
of March 31, 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.
As of March 31, 1997, the Company's risked-based and Tier 1 capital
ratios were 11.33% and 10.09%, respectively. Identical capital standards
apply to the Bank. For the first quarter of 1997, the Bank's risked-based
capital and Tier 1 capital ratios were 10.29% and 7.66%, 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 March 31,
1997, the Company's leverage ratio was 7.36%.
D-21
<PAGE> 238
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
No. 2.1 Agreement and Plan of Merger dated March 20, 1997,
between Allegiant Bancorp, Inc. and Reliance
Financial, Inc., filed as Exhibit 2.1 to the
Registrant's Registration Statement on Form S-4
(Reg. No. 333-26433), is hereby incorporated
herein by reference.
No. 27.1 Financial Data Schedule
(b) Reports on Form 8-K
On April 1, 1997, the Registrant filed a Form 8-K with the
Securities and Exchange Commission to report, pursuant to Item 5
thereof, the execution of an Agreement and Plan of Merger with
Reliance Financial, Inc. which provides for Reliance to be merged
with and into Allegiant.
D-22
<PAGE> 239
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)
May 15, 1997 By: /s/ Shaun R. Hayes
---------------------------------------
Shaun R. Hayes, President and Principal
Accounting Officer
D-23
<PAGE> 240
Annex E
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
450 5TH STREET, N.W.
WASHINGTON, D. C. 20549
-----------------------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ----------- to -------------
Commission File No. 0-25768
RELIANCE FINANCIAL INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1703958
- -----------------------------------------------------------------
(State or other jurisdiction of++++++I.R.S. Employer
incorporation or organization) Identification No.)
8930 Gravois, St. Louis Missouri 63123
- -----------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (314) 631-7500
Not applicable
- -----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of the latest practicable date.
Class Outstanding April 30, 1997
- -----------------------------------------------------------------
Common Stock, par value 425,725
$.10 per share
E-1
<PAGE> 241
RELIANCE FINANCIAL INC. AND SUBSIDIARY
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
<TABLE>
INDEX
<CAPTION>
PAGE NO.
<S> <C>
PART I - Financial Information
Consolidated Balance Sheets E-3
Consolidated Statements of Earnings E-4
Consolidated Statements of Cash Flows E-5
Notes to Consolidated Financial Statements E-6
Management's Discussion and Analysis of
Financial Condition and Results of Operations E-7
PART II - Other Information E-12
</TABLE>
E-2
<PAGE> 242
<TABLE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
March 31, September 30,
Assets 1997 1996
------ --------- -------------
<S> <C> <C>
Cash and cash equivalents $ 1,146,698 1,211,033
Certificates of deposit 1,478,000 1,586,000
Securities:
Available for sale, at market value (amortized cost of$500,000) 470,306 473,399
Held to maturity, at amortized cost (market value
of $1,668,230 and $1,670,000, respectively) 1,690,429 1,689,069
Stock in Federal Home Loan Bank of Des Moines 336,000 336,000
Mortgage-backed securities held to maturity, at amortized cost
(market value of $5,103,061 and $5,314,126, respectively) 5,321,087 5,500,595
Loans receivable, net 19,925,344 21,144,237
Premises and equipment, net 399,138 410,284
Accrued interest receivable:
Securities and certificates of deposit 26,622 27,929
Mortgage-backed securities 26,138 26,930
Loans receivable 114,315 136,370
Other assets 106,519 120,956
----------- ----------
Total assets $31,040,596 32,662,802
=========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Deposits $23,582,851 24,233,959
Accrued interest on deposits 3,502 3,238
Advances from FHLB of Des Moines 350,000 1,000,000
Advances from borrowers for taxes and insurance 165,701 237,093
Other liabilities 48,580 330,590
Accrued income taxes 56,005 50,793
----------- ----------
Total liabilities 24,206,639 25,855,673
----------- ----------
Commitments and contingencies
Preferred stock, $.01 par value, 250,000 shares
authorized; none issued and outstanding - -
Common stock, $.10 par value; 1,500,000 shares authorized;
shares issued 447,200 and 446,993, respectively 44,720 44,699
Additional paid-in capital 4,215,687 4,190,038
Common stock acquired by ESOP (193,523) (229,096)
Common stock acquired by RRP (201,244) (226,042)
Unrealized loss on securities available for sale, net (29,694) (26,601)
Retained earnings - substantially restricted 3,326,066 3,382,186
Treasury stock, at cost, 21,500 shares (328,055) (328,055)
----------- ----------
Total stockholders' equity 6,833,957 6,807,129
----------- ----------
Total liabilities and stockholders' equity $31,040,596 32,662,802
=========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
E-3
<PAGE> 243
<TABLE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Consolidated Statements of Earnings
(Unaudited)
<CAPTION>
Three Months Ended Six months ended
March 31, March 31,
---------------------- --------------------
1997 1996 1997 1996
-------- ------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $431,567 493,564 871,602 924,473
Mortgage-backed securities 80,528 85,623 161,866 172,156
Securities 39,433 23,251 79,342 49,562
Other interest-earning assets 32,438 61,130 68,289 121,675
------- ------- --------- ---------
Total interest income 583,966 663,568 1,181,099 1,267,866
------- ------- --------- ---------
Interest expense:
Deposits 247,480 275,509 506,481 555,949
Advances from FHLB of Des Moines 9,821 14,686 24,108 16,785
------- ------- --------- ---------
Total interest expense 257,301 290,195 530,589 572,734
------- ------- --------- ---------
Net interest income 326,665 373,373 650,510 695,132
Provision (credit) for loan losses - - - (700)
------- ------- --------- ---------
Net interest income after provision
for loan losses 326,665 373,373 650,510 695,832
------- ------- --------- ---------
Noninterest income:
Loan service charges 3,172 3,806 6,496 6,804
Other 8,318 5,842 15,505 12,656
------- ------- --------- ---------
Total noninterest income 11,490 9,648 22,001 19,460
------- ------- --------- ---------
Noninterest expense:
Compensation and benefits 160,709 141,414 306,653 271,801
Occupancy expense 12,997 13,044 25,504 24,576
Equipment and data processing expense 15,134 16,623 30,935 32,966
SAIF deposit insurance premium 824 14,532 14,880 29,212
Supervisory and professional fees 41,434 22,026 98,576 40,471
Other 31,669 27,779 61,277 60,626
------- ------- --------- ---------
Total noninterest expense 262,767 235,418 537,825 459,652
------- ------- --------- ---------
Earnings before income taxes 75,388 147,603 134,686 255,640
Income taxes 41,600 57,700 70,000 90,800
------- ------- --------- ---------
Net earnings $ 33,788 89,903 64,686 164,840
======= ======= ========= =========
Net earnings per share $ .09 .22 .16 .41
======= ======= ========= =========
Weighted-average shares outstanding 397,145 402,356 392,974 401,409
======= ======= ========= =========
Dividends per share $ .15 .15 .30 .30
======= ======= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
E-4
<PAGE> 244
<TABLE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six Months Ended
March 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 64,686 164,840
Adjustments to reconcile net earnings
to net cash provided by (used for) operating activities:
Depreciation expense 11,147 11,943
Provision (credit) for loan losses - (700)
Amortization of premiums and discounts on securities, net (1,360) (1,286)
ESOP expense 58,008 53,089
RRP expense 28,033 -
FHLB stock dividends - (6,600)
Decrease (increase) in:
Accrued interest receivable 24,154 (17,628)
Other assets 14,437 7,979
Increase (decrease) in:
Accrued interest on deposits 264 (168)
Other liabilities (282,010) (68,419)
Accrued income taxes 5,212 (24,554)
---------- ----------
Net cash provided by (used for) operating activities (77,429) 118,496
---------- ----------
Cash flows from investing activities:
Loans:
Purchased (158,900) (2,194,504)
Originated (291,991) (1,449,142)
Principal collections 1,669,784 2,435,278
Principal collections on mortgage-backed securities
held to maturity 179,508 66,642
Securities held to maturity and certificates of deposit:
Purchased (90,000) (1,496,000)
Proceeds from maturity 197,999 1,685,000
---------- ----------
Net cash provided by (used for) investing activities 1,506,400 (952,726)
---------- ----------
Cash flows from financing activities:
Net increase (decrease) in:
Deposits (651,108) (271)
Advances from borrowers for taxes and insurance (71,392) (112,867)
Proceeds from advances from FHLB of Des Moines - 1,000,000
Repayment of notes payable (650,000) -
Cash dividends (120,806) (119,855)
---------- ----------
Net cash provided by (used for) financing activities (1,493,306) 767,007
---------- ----------
Net increase (decrease) in cash and cash equivalents (64,335) (67,223)
Cash and cash equivalents at beginning of period 1,211,033 2,036,111
---------- ----------
Cash and cash equivalents at end of period $1,146,698 1,968,888
========== ==========
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest on deposits $ 506,217 556,118
Interest on advances from FHLB 24,108 16,785
Federal income taxes 49,770 111,891
State income taxes $ 20,918 3,463
See accompanying notes to consolidated financial statements.
</TABLE>
E-5
<PAGE> 245
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1) The information contained in the accompanying consolidated financial
statements is unaudited. In the opinion of management, the financial
statements contain all adjustments (none of which were other than normal
recurring entries) necessary for a fair statement of the results of
operations for the interim periods. The results of operations for the
interim periods are not necessarily indicative of the results which may
be expected for the entire fiscal year. The accompanying consolidated
financial statements should be read in conjunction with the consolidated
financial statements for the year ended September 30, 1996 contained in
Form 10-K.
(2) On March 20, 1997, Allegiant Bancorp, Inc., St. Louis, Missouri
("Allegiant"), and Reliance Financial Inc. ("Reliance"), jointly
announced that they have entered into a definitive agreement that
provides for the merger of Allegiant and Reliance. After the merger,
Reliance Federal Savings and Loan Association of St. Louis County,
Reliance's wholly owned subsidiary, will maintain its thrift charter and
continue to operate as a separate subsidiary with its current management
and staff.
The agreement provides for the acquisition by Allegiant of all of the
capital stock of Reliance in exchange for consideration of 1.6741 shares
of Allegiant common stock per share of Reliance common stock, subject to
adjustment. The acquisition is expected to be completed on or about
September 30, 1997 and is subject to, among other things, regulatory
approval and the approval of the shareholders of Allegiant and the
stockholders of Reliance.
E-6
<PAGE> 246
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
- -------
The Company has no significant assets other than common stock of the
Association, the loan to the Employee Stock Ownership Plan (ESOP) and net
proceeds retained by the Company following its initial public offering in
April, 1996. The Company's principal business is the business of the
Association. Therefore, the discussion in the Management's Discussion and
Analysis of Financial Condition and Results of Operations relates to the
Association and its operations.
Certain statements in this report which relate to the Company's plans,
objectives or performance may be deemed to be forward-looking statements
within the meaning of the Private Securities Litigation Act of 1995. Such
statements are based on management's current expectations. Actual strategies
and results in future periods may differ materially from those currently
expected because of various risks and uncertainties. Additional discussion of
factors affecting the Company's business and prospects is contained in periodic
filings with the Securities and Exchange Commission.
Liquidity and Capital Resources
- -------------------------------
The Association's principal sources of funds are cash receipts from deposits,
loan repayments by borrowers and net earnings. The Association has an
agreement with the Federal Home Loan Bank of Des Moines to provide cash
advances, should the Association need additional funds.
For regulatory purposes, liquidity is measured as a ratio of cash and certain
investments to withdrawable deposits. The minimum level of liquidity
required by regulation is presently 5%. The Association's regulatory
liquidity ratio was approximately 18% at March 31, 1997. The Association
maintains a high level of liquidity as a matter of management philosophy in
order to more closely match interest-sensitive assets with interest-sensitive
liabilities.
The savings and loan industry historically has accepted interest rate risk as
a part of its operating philosophy. Long-term, fixed-rate loans were funded
with deposits which adjust to market interest rates more frequently. In
recent years, the Association has originated primarily mortgage loans which
permit adjustment of the interest rate after an initial term of one to three
years in order to reduce inherent interest rate risk.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) requires that the Association maintain core capital equal to 3% of
adjusted total assets and maintain tangible capital equal to 1.5% of adjusted
total assets. The Association must maintain an 8% risk-based capital ratio.
E-7
<PAGE> 247
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Management's Discussion and analysis of
Financial Condition and Results of Operations
The following table presents the Association's capital position relative to
its regulatory capital requirements under FIRREA at March 31, 1997:
<TABLE>
<CAPTION>
Unaudited Regulatory Capital
--------------------------------------
Tangible Core Risk-Based
---------- ---------- ----------
<S> <C> <C> <C>
Stockholders' equity per consolidated
financial statements $6,833,957 6,833,957 6,833,957
Stockholders' equity of Reliance Financial Inc.
not available for regulatory capital purposes (1,253,268) (1,253,268) (1,253,268)
---------- ---------- ----------
GAAP capital 5,580,689 5,580,689 5,580,689
General valuation allowances - - 168,579
Non-includable deferred tax assets (76,000) (76,000) (76,000)
---------- ---------- ----------
Regulatory capital 5,504,689 5,504,689 5,673,268
Regulatory capital requirement (448,758) (897,515) (1,075,983)
---------- ---------- ----------
Regulatory capital - excess $5,055,931 4,607,174 4,597,285
========== ========== ==========
Regulatory capital ratio 18.40% 18.40% 42.18%
Regulatory capital requirement (1.50) (3.00) (8.00)
---------- ---------- ----------
Regulatory capital ratio - excess 16.90% 15.40% 34.18%
========== ========== ==========
</TABLE>
The Association is also required to maintain core, tier 1 risk-based capital
(core capital to risk-weighted assets) and risk based capital of 5%, 6%, and
10%, respectively in order to be classified as "well capitalized" for
regulatory purposes. Such requirements have been met.
Commitments to originate mortgage loans amounted to $17,000 at March 31, 1997.
Financial Condition
- -------------------
Assets decreased from $32.7 million at September 30, 1996 to $31.0 million at
March 31, 1997. Loans receivable, net decreased from $21.1 million at
September 30, 1996 to $19.9 million at March 31, 1997 due to normal loan
repayment activity and substantially lower loan originations and purchases
during the six month period. Cash flows from loan repayments were used
primarily to fund withdrawals from deposit accounts and repayment of $650,000
of FHLB advances. Management may utilize FHLB advances in the future where
the overall cost is less than retail deposits or to meet short-term liquidity
needs. Accrued interest receivable on loans decreased due to a lower average
balance. Advances from borrowers for taxes and insurance decreased due to
payment of real estate taxes on behalf of borrowers in December of each year.
Other liabilities decreased due primarily to payment of a one-time special
assessment of $215,500 for recapitalization of the Savings Association
Insurance Fund. The assessment was recorded as of September 30, 1996 and
paid in November, 1996.
Asset Quality
- -------------
The Association's general policy is to exclude from earnings, interest on
loans contractually delinquent 90 days or more. At March 31, 1997 the
Association had no loans which were 90 days or more delinquent compared to
$35,000 at September 30, 1996. Such delinquent loans represented 0% and .17%
of net loans receivable at March 31, 1997 and September 30, 1996,
respectively.
E-8
<PAGE> 248
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Management's Discussion and analysis of
Financial Condition and Results of Operations
Following is a summary of activity in the allowance for loan losses:
<TABLE>
<S> <C>
Balance at September 30, 1996 $203,515
Charge-offs (1,574)
Recoveries 3,146
Provision for loan loss -
--------
Balance at March 31, 1997 $205,087
========
</TABLE>
Results of Operations
---------------------
Net Earnings
- ------------
Net earnings for the three months ended March 31, 1997 and 1996 were $34,000
and $90,000, respectively. Net earnings for the six months ended March 31,
1997 and 1996 were $65,000 and $165,000, respectively. The decrease in net
earnings for the three and six month periods ended March 31, 1997, reflected
lower net interest income and higher noninterest expense, partially offset by
higher noninterest income and lower income taxes.
Net Interest Income
- -------------------
Net interest income decreased by $47,000, or 12.5%, for the three months
ended March 31, 1997 from the same period of the prior year and decreased by
$45,000, or 6.4%, for the six months ended March 31, 1997 as compared to the
same period of 1996. During the three and six months ended March 31, 1996,
the Association recognized amortization of unearned discount of $52,000 to
interest income on certain loans which were paid off. The loans were
classified as troubled debt restructurings prior to the effective date of
SFAS No. 114 and No. 118 and unearned discount was recognized for cash
receipts in excess of the carrying amount of the loans.
Interest Income
- ---------------
Interest on loans receivable decreased in both the three and six months ended
March 31, 1997 compared to the 1996 periods due to a lower average balance
and yield. The average yield on loans was 8.77% for the six months ended
March 31, 1996 compared to 8.38% for the six months ended March 31, 1997.
The yield on loans receivable for the six months ended March 31, 1996
increased by approximately 50 basis points as a result of the amortization of
unearned discount to interest income on certain loans paid off as discussed
in the previous paragraph. The interest rate spread for the six months ended
March 31, 1997 was 3.29% compared to 3.37% for the six months ended March 31,
1996. The net yield on interest-bearing assets was 4.17% for the six months
ended March 31, 1997 compared to 4.30% for the six months ended March 31,
1996.
Interest on securities increased due to higher average balances for both the
three and six months ended March 31, 1997 compared to the 1996 periods.
Interest income on mortgage-backed securities (MBSs) and other interest-
earning assets decreased due to lower average balances for both the three and
six months ended March 31, 1997 compared to the 1996 periods. Components of
interest income change from time to time based on the availability, quality
and interest rates on securities, MBSs and other interest-earning assets.
E-9
<PAGE> 249
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Management's Discussion and analysis of
Financial Condition and Results of Operations
Interest Expense
- ----------------
Interest on deposits decreased due to lower interest rates and a lower
average balance for both the three and six months ended March 31, 1997
compared to the 1996 periods. The lower average balance resulted from
deposit outflows. Interest on advances from the Federal Home Loan Bank of
Des Moines reflected changes in average balances. The average rate on
interest-bearing liabilities decreased to 4.29% for the six months ended
March 31, 1997 from 4.46% for the six months ended March 31, 1996. Average
interest- bearing liabilities decreased to $24.7 million for the six months
ended March 31, 1997, from $26.0 million for the six months ended March 31,
1996.
Provision for Loan Losses
- -------------------------
Reliance had no loss provision or credit for loan losses for the three and
six months ended March 31, 1997 and three months ended March 31, 1996, and a
$700 net credit for the six month period ended March 31, 1996. The allowance
for losses on loans is based on management's periodic evaluation of the loan
portfolio and reflects an amount which, in management's opinion, is adequate
to absorb losses existing in the portfolio. In evaluating the portfolio,
management takes into consideration numerous factors, including current
economic conditions, prior loan loss experience, the composition of the loan
portfolio, and risk characteristics of the loan portfolio.
Noninterest Income
- -------------------
Total noninterest income increased to $11,000 for the three months ended
March 31, 1997 from $10,000 for the three months ended March 31, 1996. Total
noninterest income increased to $22,000 for the six months ended March 31,
1997 from $19,000 for the six months ended March 31, 1996. The increase was
due to $2,400 of nonrecurring income related to the sale of Reliance
Federal's interest in a data processing service bureau.
Noninterest Expense
- -------------------
Noninterest expense increased to $263,000 and $538,000 for the three and six
months ended March 31, 1997, respectively, from $235,000 and $460,000 for the
three and six months ended March 31, 1996, respectively. Compensation and
benefit costs increased by $19,000 to $161,000 for the three months ended
March 31, 1997 from $142,000 for the three months ended March 31, 1996.
Compensation and benefit costs increased by $35,000 to $307,000 for the six
months ended March 31, 1997 from $272,000 for the six months ended March 31,
1996. In April 1996, the Association implemented a recognition and retention
plan similar to plans of other publicly traded thrift holding companies.
Expenses under this plan for the three and six months ended March 31, 1997
were $14,000 and $28,000, respectively. Compensation and benefits for the
three and six months ended March 31, 1997 included $29,000 and $58,000,
respectively related to the Employee Stock Ownership Plan (ESOP).
Compensation and benefits for the three and six months ended March 31, 1996
included $27,000 and $53,000, respectively, related to the ESOP. Under
generally accepted accounting principles, expense of the ESOP is affected by
changes in the market price of the Company's common stock. Management
expects ESOP expense will increase in future quarters due to the recent
increase in the price of common stock of Reliance Financial Inc. SAIF
deposit insurance premium decreased as a result of a substantially lower
assessment rate. The special assessment recorded at September 30, 1996
recapitalized the fund. Recurring SAIF premiums are expected to be
assessable based on an annual revised rate of 6.48 basis points of deposits.
Supervisory and professional fees for the three and six months ended March
31, 1997, increased as a result of additional costs of reviewing the
strategic options of the Company, and evaluating the proposed
E-10
<PAGE> 250
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Management's Discussion and analysis of
Financial Condition and Results of Operations
merger of the Company.
Income Taxes
- ------------
Income tax expense for the three and six months ended March 31, 1997
decreased compared to prior periods due to lower earnings before income
taxes, partially offset by a higher effective tax rate. The higher tax rate
is related to the tax effects of the ESOP, differences in tax rates of the
Company and the Association based on filing of separate tax returns, and
other factors.
E-11
<PAGE> 251
RELIANCE FINANCIAL INC. AND SUBSIDIARY
PART II - Other Information
Item 1 - Legal Proceeding
There are no material legal proceedings to which the Company or the
Association is a party or of which any of their property is subject. From
time to time, the Association is a party to various legal proceedings
incident to its business.
Item 2 - Changes in Securities
None.
Item 3 - Defaults upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
None.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits: none
(b) Reports on Form 8-K: none
SIGNATURES
----------
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.
RELIANCE FINANCIAL INC.
-----------------------
(Registrant)
DATE: May 7, 1997 BY: /s/ John Bowman
----------- --------------------
John Bowman, President,
Principal Financial Officer and
Duly Authorized Officer
E-12
<PAGE> 252
PROXY ALLEGIANT BANCORP, INC.
7801 FORSYTH BOULEVARD
ST. LOUIS, MISSOURI 63105
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD [ , 1997]
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder(s) of ALLEGIANT BANCORP, INC., a
Missouri corporation ("Allegiant"), does hereby nominate, constitute and
appoint Marvin S. Wool and Shaun R. Hayes or each of them (with full power to
act alone), true and lawful proxies and attorneys-in-fact, with full power of
substitution, for the undersigned and in the name, place and stead of the
undersigned to vote all of the shares of Common Stock, $.01 par value, of
Allegiant standing in the name of the undersigned on its books at the close
of business on [ ], 1997 at the Special Meeting of Shareholders
to be held at the offices of Dash Multi-Corp, Inc., 2500 Adie Road, Maryland
Heights, Missouri 63043, on [ , 1997], at [ : p.m.]
Central Time, and at any adjournments or postponements thereof, with all the
powers the undersigned would possess if personally present, as follows:
1. To consider and vote upon the approval of the Agreement and
Plan of Merger dated March 20, 1997 (the "Merger Agreement") and the
transactions contemplated thereby, pursuant to which Reliance Financial,
Inc., a Delaware corporation ("Reliance"), will be merged with and into
Allegiant, in a transaction that would result in the business and operations
of Reliance being continued through Allegiant, and whereby, upon consummation
of the merger, each share of Reliance Common Stock will be converted into the
right to receive 1.6741 shares of Allegiant Common Stock, subject to
adjustment as set forth in the Merger Agreement.
/ / FOR / / AGAINST / / ABSTAIN
2. In their direction, the Proxies are authorized to vote upon
such other business as may properly come before the meeting and any
adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
The undersigned hereby revokes any other proxies to vote at such meeting and
hereby ratifies and confirms all that the proxies and attorneys-in-fact, or
each of them, appointed hereunder may lawfully do by virtue hereof. Said
proxies and attorneys-in-fact, without limiting their general authority, are
specifically authorized to vote in accordance with their best judgment with
respect to all matters incident to the conduct of the Special Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO
DIRECTION IS GIVEN HEREIN, THIS PROXY WILL BE VOTED "FOR" THE
PROPOSAL LISTED ABOVE.
Dated: , 1997
------------------------------------
Signature of Shareholder
------------------------------------
Signature of Shareholder
When signing as an attorney, executor, administrator, trustee or guardian,
please give full title. If more than one person holds the power to vote the
same shares, all must sign. All joint owners must sign. The undersigned
hereby acknowledges receipt of the Notice of Special Meeting and the Joint
Proxy Statement/Prospectus (with all enclosures and attachments) dated
[ , 1997], relating to the Special Meeting.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY USING THE
ENCLOSED ENVELOPE.
<PAGE> 253
/X/ PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE RELIANCE FINANCIAL, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
_________________, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder(s) of RELIANCE FINANCIAL, INC., a Delaware
corporation ("Reliance"), does hereby nominate, constitute and appoint John
E. Bowman and Jeannette Larson or each of them (with full power to act alone),
true and lawful proxies and attorneys-in-fact, with full power of substitution,
for the undersigned and in the name, place and stead of the undersigned to vote
all of the shares of Common Stock, $.10 par value, of Reliance standing in the
name of the undersigned on its books at the close of business on July __, 1997
at the Annual Meeting of Stockholders to be held at the offices of Reliance,
8930 Gravois Avenue, St. Louis, Missouri 63123, on ______________, 1997, at
________ a.m., Central Time, and at any adjournments or postponements thereof,
with all the powers the undersigned would possess if personally present, as
follows:
----------------------------------------
Please be sure to sign and date Date
this Proxy in the box below.
- -------------------------------------------------------------------------------
Stockholder sign above Co-holder (if any) sign above
- -------------------------------------------------------------------------------
For Against Abstain
1. To consider and vote upon the adop-
tion of the Agreement and Plan of / / / / / /
Merger dated March 20, 1997 (the
"Merger Agreement") and the transactions contemplated thereby, pursuant
to which Reliance will be merged with and into Allegiant Bancorp, Inc.,
a Missouri corporation ("Allegiant"), in a transaction that would result
in the business and operations of Reliance being continued through
Allegiant, and whereby, upon consummation of the merger, each share of
Reliance Common Stock will be converted into the right to receive 1.6741
shares of Allegiant Common Stock, subject to adjustment as set forth in
the Merger Agreement.
2. ELECTION OF DIRECTORS: For Withhold Except
Michael Svoboda / / / / / /
Adolph G. Kraus
INSTRUCTION: To withhold authority to vote for any individual nominee,
mark "Except" and write that nominee's name in the space provided below.
----------------------------------------------------------------------------
3. PROPOSAL TO RATIFY THE For Against Abstain
APPOINTMENT OF MICHAEL
TROKEY & COMPANY, P.C., as / / / / / /
independent certified public
accounants of the Company.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
* ----------------------------------------------------------------------- *
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
RELIANCE FINANCIAL, INC.
8930 GRAVOIS AVENUE, ST. LOUIS, MISSOURI 63123
- -------------------------------------------------------------------------------
The above signed hereby revokes any other proxies to vote at such meeting
and hereby ratifies and confirms all that the proxies and attorneys-in-fact,
or each of them, appointed hereunder may lawfully do by virtue hereof. Said
proxies and attorneys-in-fact, without limiting their general authority, are
specifically authorized to vote in accordance with their best judgment with
respect to all matters incident to the conduct of the Annual Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE ABOVE SIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN
HEREIN, THIS PROXY WILL BE VOTED "FOR" ALL OF THE NAMED NOMINEES AND FOR
PROPOSALS 1 AND 3.
When signing as an attorney, executor, administrator, trustee or
guardian, please give full title. If more than one person holds the power to
vote the same shares, all must sign. All joint owners must sign. The undersigned
hereby acknowledges receipt of the Notice of the Annual Meeting and the Joint
Proxy Statement/Prospectus (with all enclosures and attachments) dated July __,
1997, relating to the Annual Meeting.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
- -------------------------------------------------------------------------------
<PAGE> 254
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 351.355(1) and (2) of The General and Business
Corporation Law of the State of Missouri provide that a corporation may
indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding by
reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful,
except that, in the case of an action or suit by or in the right of the
corporation, the corporation may not indemnify such persons against judgments
and fines and no person shall be indemnified as to any claim, issue or matter
as to which such person shall have been adjudged to be liable for negligence
or misconduct in the performance of his duty to the corporation, unless and
only to the extent that the court in which the action or suit was brought
determines upon application that such person is fairly and reasonably
entitled to indemnity for proper expenses. Section 351.355(3) provides that,
to the extent that a director, officer, employee or agent of the corporation
has been successful in the defense of any such action, suit or proceeding or
any claim, issue or matter therein, he shall be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred in connection
with such action, suit or proceeding. Section 351.355(7) provides that a
corporation may provide additional indemnification to any person
indemnifiable under subsection (1) or (2), provided such additional
indemnification is authorized by the corporation's articles of incorporation
or an amendment thereto or by a shareholder-approved bylaw or agreement, and
provided further that no person shall thereby be indemnified against conduct
which was finally adjudged to have been knowingly fraudulent, deliberately
dishonest or willful misconduct or which involved an accounting for profits
pursuant to Section 16(b) of the Securities Exchange Act of 1934.
Article XII of the By-Laws of Allegiant provides that Allegiant
shall extend to its directors and officers the indemnification specified in
subsections (1) and (2) and the additional indemnification authorized in
subsection (7).
Pursuant to directors' and officers' liability insurance
policies, with total annual limits of $2,000,000, Allegiant's directors and
officers are insured, subject to the limits, retention, exceptions and other
terms and conditions of such policy, against liability for any actual or
alleged error, misstatement, misleading statement, act or omission, or
neglect or breach of duty by the directors or officers of Allegiant,
individually or collectively, or any matter claimed against them solely by
reason of their being directors or officers of Allegiant.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. Exhibits. See Exhibit Index.
---------
B. Financial Statement Schedules. Not Applicable.
-----------------------------
II-1
<PAGE> 255
ITEM 22. UNDERTAKINGS
(1) The Registrant hereby undertakes:
(a) To file during any period in which offers or sales
are being made, a post-effective amendment to this Registration Statement.
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or
together, represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any additional or changed material
information with respect to the plan of distribution.
(b) That, for determining liability under the Securities
Act, each post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) To file a post-effective amendment to remove from
registration any of the securities being registered which remain unsold at
the end of the offering.
(2) The Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) The Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus has been
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934.
(4) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(5) The Registrant hereby undertakes that:
(a) For determining any liability under the Securities
Act, the information omitted from the form prospectus filed as a part of this
registration statement in reliance upon Rule 430A and contained in the form
prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h) under
II-2
<PAGE> 256
the Securities Act shall be deemed to be a part of this Registration Statement
as of the time the Commission declared it effective.
(b) For determining any liability under the Securities
Act, each post-effective amendment that contains a form prospectus shall be
deemed to be a new registration statement for the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(6) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form, within one
business day of receipt of such request and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in the documents filed subsequent to the effective date
of the Registration Statement through the date of responding to the request.
(7) The undersigned Registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of
and included in the Registration Statement when it became effective.
II-3
<PAGE> 257
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
Allegiant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Clayton, State of Missouri, on July 11, 1997.
ALLEGIANT BANCORP, INC.
By: /s/ Shaun R. Hayes
----------------------------------------
Shaun R. Hayes, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Marvin S. Wool Chairman of the Board, July 11, 1997
- ----------------------------- Chief Executive Officer
Marvin S. Wool and Director
Principal Executive Officer
/s/ Shaun R. Hayes President and Director July 11, 1997
- -----------------------------
Shaun R. Hayes
Principal Financial Officer
/s/ S. Kay Love
- ----------------------------- Assistant Secretary July 11, 1997
S. Kay Love
Principal Accounting Officer
<F*>
- ----------------------------- Director July 11, 1997
Kevin R. Farrell
<F*>
- ------------------------------ Director July 11, 1997
C. Virginia Kirkpatrick
<F*>
- ----------------------------- Director July 11, 1997
Lee S. Wielansky
<F*>
- ----------------------------- Director July 11, 1997
Leon A. Felman
<F*>
- ----------------------------- Director July 11, 1997
Charles E. Polk, Jr.
II-4
<PAGE> 258
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
<F*>
- ----------------------------- Director July 11, 1997
John T. Straub
<F*>
- ----------------------------- Director July 11, 1997
Leland B. Curtis
<FN>
<F*>By: /s/ Shaun R. Hayes
---------------------------------
Shaun R. Hayes, attorney-in-fact
</TABLE>
Shaun R. Hayes, by signing his name hereto, does sign this document
on behalf of the persons named above pursuant to a power of attorney duly
executed by such persons.
II-5
<PAGE> 259
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
2.1 Agreement and Plan of Merger between Allegiant and Reliance
dated as of March 20, 1997.<F*>
2.2 Stock Option Agreement dated March 20, 1997, by and between
Allegiant and Reliance.<F*>
2.3 Form of Voting Agreement dated March 20, 1997, between
Allegiant and the directors of Reliance.<F*>
2.4 Form of Voting Agreement dated March 20, 1997, between
Reliance and the directors of Allegiant.<F*>
3.1 Articles of Incorporation, as amended, of the Registrant,
filed as Exhibit 3.1 to Registrant's Registration Statement on
Form 10-SB (Reg. No. 0-26350) is hereby incorporated by
reference.
3.2 By-laws of the Registrant, as currently in effect, filed as
Exhibit 3.2 to Registrant's Registration Statement on Form
10-SB (Reg. No. 0-26350) is hereby incorporated by reference.
4.1 Form of Stock Certificate for Common Stock, filed as Exhibit
4.2 to Registrant's Registration Statement on Form 10-SB
(Reg. No. 0-26350) is hereby incorporated by reference.
4.2 Form of Warrant Agreement, filed as Exhibit 4.3 to
Registrant's Registration Statement on Form 10-SB (Reg. No.
0-26350) is hereby incorporated by reference.
4.3 Form of Junior Subordinated Debenture, filed as Exhibit 4.4 to
Registrant's Registration Statement on Form 10-SB (Reg.
No. 0-26350) is hereby incorporated by reference.
5.1 Opinion of Thompson Coburn as to the legality of the securities
being issued.
8.1 Opinion of Thompson Coburn as to certain tax matters related
to the Merger.
10.1 Term Loan Agreement, dated as of August 31, 1990, by and
between Mercantile Bank of St. Louis National Association
and Allegiant, filed as Exhibit 10.1 to Registrant's
Registration Statement on Form 10-SB (Reg. No. 0-26350) is
hereby incorporated by reference.
II-6
<PAGE> 260
10.2 First Amendment to Term Loan Agreement, dated as of
November 30, 1993, by and between Mercantile Bank of
St. Louis National Association and Allegiant, filed as
Exhibit 10.2 to Registrant's Registration Statement on
Form 10-SB (Reg. No. 0-26350) is hereby incorporated by
reference.
10.3 Second Amendment to Term Loan Agreement, dated as of July 27,
1994, by and between Mercantile Bank of St. Louis National
Association and Allegiant, filed as Exhibit 10.3 to
Registrant's Registration Statement on Form 10-SB (Reg.
No. 0-26350) is hereby incorporated by reference.
10.4 Third Amendment to Term Loan Agreement, dated as of
November 26, 1996, by and between Mercantile Bank of
St. Louis National Association and Allegiant filed as
Exhibit 10.4 to Registrant's Annual Report on Form 10-KSB
(Reg. No. 0-26350) is hereby incorporated by reference.
10.5 Lease, dated June 26, 1991, between Thos. J. White Company and
Allegiant Bank, filed as Exhibit 10.4 to Registrant's
Registration Statement on Form 10-SB (Reg. No. 0-26350) is
hereby incorporated by reference.
10.6 Lease, dated January 1, 1994, by and between C and R Markets
and Allegiant State Bank, filed as Exhibit 10.5 to
Registrant's Registration Statement on Form 10-SB (Reg.
No. 0-26350) is hereby incorporated by reference.
10.7 Lease Agreement, dated February 7, 1994, by and between
Clayton Land Company L.P. and Allegiant Bank, filed as Exhibit
10.6 to Registrant's Registration Statement on Form 10-SB (Reg.
No. 0-26350) is hereby incorporated by reference.
10.8 Lease Agreement, dated August 7, 1995, by and between Hilvin
Investment Corporation and Allegiant Bank filed as
Exhibit 10.8 to Registrant's Annual Report on Form 10-KSB
(Reg. No. 0-26350) is hereby incorporated by reference.
10.9 Allegiant Bancorp, Inc. 1994 Stock Option Plan, filed as
Exhibit 10.7 to Registrant's Registration Statement on Form
10-SB (Reg. No. 0-26350) is hereby incorporated by
reference.
10.10 Allegiant Bancorp, Inc. 1996 Stock Option Plan, filed as
Exhibit 4.4 to Registrant's Form S-8 (Reg. No. 0-26350) is
hereby incorporated by reference.
10.11 Allegiant Bancorp, Inc. Directors Stock Option Plan, filed as
Exhibit 4.5 to Registrant's Form S-8 (Reg. No. 0-26350) is
hereby incorporated by reference.
10.12 Allegiant Bancorp, Inc. 1989 Stock Option Plan, filed as
Exhibit 4.6 to Registrant's Form S-8 (Reg. No. 0-26350) is
hereby incorporated by reference.
II-7
<PAGE> 261
10.13 Convertible Subordinated Debenture Purchase Agreement, filed
as Exhibit 10.8 to Registrant's Registration Statement on Form
10-SB (Reg. No. 0-26350) is hereby incorporated by
reference.
10.14 Form of Subordinated Convertible Debenture, filed as Exhibit
4.1 to Registrant's Registration Statement on Form 10-SB
(Reg. No. 0-26350) is hereby incorporated by reference.
10.15 Deposit Transfer and Asset Purchase Agreement, dated May 8,
1997, between Roosevelt Bank and Allegiant Bancorp, Inc. is
filed herewith.
10.16 Deposit Transfer and Asset Purchase Agreement, dated May 8,
1997, between Roosevelt Bank and Allegiant Bancorp, Inc. is
filed herewith.
21.1 Subsidiaries of the Registrant filed as Exhibit 21.1 to
Registrant's Form 10-KSB for the year ended December 31,
1996 (Reg. No. 0-26350) is hereby incorporated by
reference.
23.1 Consent of BDO Seidman, L.L.P. with regard to the use of its
reports on Allegiant's Financial Statements.
23.2 Consent of Michael Trokey & Company, P.C. with regard to the
use of its reports on Reliance's Financial Statements.
23.3 Consent of Stifel, Nicolaus & Company, Incorporated.<F*>
23.4 Consent of RP Financial, LC.<F*>
23.5 Consent of Thompson Coburn (included in Exhibit 5.1 and 8.1).
24.1 Power of Attorney.<F*>
<FN>
- ------------------
<F*> Filed with original filing on May 2, 1997.
</TABLE>
II-8
<PAGE> 1
[letterhead of Thompson Coburn]
July 11, 1997
Allegiant Bancorp, Inc.
7801 Forsyth Boulevard
St. Louis, Missouri 63105
Re: Registration Statement on Form S-4
784,650 Shares of Common Stock, $.01 par value
Ladies and Gentlemen:
We refer you to the Registration Statement (No. 333-26433) on Form S-4
filed by Allegiant Bancorp, Inc. (the "Company") on May 2, 1997 (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended, pertaining to the proposed
issuance by the Company of up to 784,650 shares of the Company's common stock,
$.01 par value (the "Shares"), in connection with the acquisition by merger of
Reliance Financial, Inc. ("Reliance") pursuant to the Agreement and Plan of
Merger dated March 20, 1997 (the "Merger Agreement"), by and among the Company
and Reliance, all as provided in the Registration Statement. In rendering the
opinions set forth herein, we have examined such corporate records of the
Company, such laws and such other information as we have deemed relevant,
including the Company's Amended and Restated Articles of Incorporation and
Bylaws, as amended and currently in effect, the resolutions adopted by the
Board of Directors of the Company relating to the merger transaction,
certificates received from state officials and statements we have received
from officers and representatives of the Company. In delivering this opinion,
the undersigned assumed the genuineness of all signatures; the authenticity of
all documents submitted to us as originals; the conformity to the originals of
all documents submitted to us as certified, photostatic or conformed copies;
the authenticity of the originals of all such latter documents; and the
correctness of statements submitted to us by officers and representatives of
the Company.
Based only on the foregoing, the undersigned is of the opinion that:
1. The Company has been duly incorporated and is validly existing
under the laws of the State of Missouri; and
2. The Shares to be sold by the Company, when issued as provided in
the Merger Agreement, will be duly authorized and duly and validly issued.
<PAGE> 2
Allegiant Bancorp, Inc.
July 11, 1997
Page 2
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm in the section of the
Joint Proxy Statement/Prospectus entitled "Legal Matters."
Very truly yours,
/s/ Thompson Coburn
<PAGE> 1
July 11, 1997
Board of Directors
Reliance Financial, Inc.
8930 Gravois Avenue
St. Louis, Missouri 63123
Ladies and Gentlemen:
You have requested our opinion with regard to certain federal
income tax consequences of the proposed merger (the "Merger") of Reliance
Financial, Inc. ("Reliance") with and into Allegiant Bancorp, Inc.
("Allegiant").
In connection with the preparation of our opinion, we have
examined and have relied upon the following:
(i) The Agreement and Plan of Merger between Allegiant and
Reliance dated as of March 20, 1997, including the schedules and
exhibits thereto (the "Merger Agreement");
(ii) Allegiant's Registration Statement on Form S-4, including
the Joint Proxy Statement/Prospectus contained therein, filed with
the Securities and Exchange Commission on May 2, 1997, as amended
(the "Registration Statement");
(iii) The representations and undertaking of Allegiant
substantially in the form of Exhibit A hereto; and
(iv) The representations and undertakings of Reliance and
certain holders of Reliance common stock, par value $0.10 per
share ("Reliance Common Stock"), substantially in the forms of
Exhibit B and Exhibit C hereto.
Our opinion is based solely upon applicable law and the factual
information and undertakings contained in the above-mentioned documents. In
rendering our opinion, we have assumed the accuracy of all information and
the performance of all undertakings contained in each of such documents. We
also have assumed the authenticity of all original documents, the conformity
of all copies to the original documents, and the genuineness of all
signatures. We have not attempted to verify independently the accuracy of
any information in any such document, and we have assumed that such documents
accurately and completely set forth all material facts relevant to this
opinion. All of our assumptions were made with your consent. If any fact or
assumption described herein or
<PAGE> 2
Reliance Financial, Inc.
July 11, 1997
Page 2
below is incorrect, any or all of the federal income tax consequences described
herein may be inapplicable.
OPINION
Subject to the foregoing, to the conditions and limitations
expressed elsewhere herein, and assuming that the Merger is consummated in
accordance with the Merger Agreement, we are of the opinion that for federal
income tax purposes:
1. The Merger will constitute a reorganization within the
meaning of sections 368(a)(1) of the Internal Revenue Code of 1986, as
amended to the date hereof (the "Code").
2. Each shareholder of Reliance who exchanges, in the Merger,
shares of Reliance Common Stock solely for shares of Allegiant common stock,
par value $0.01 per share ("Allegiant Common Stock"):
a) will recognize no gain or loss as a result of the
exchange, except with regard to cash received in lieu of a
fractional share, as discussed below (Code section 354(a)(1));
b) will have an aggregate basis for the shares of
Allegiant Common Stock received (including any fractional share
of Allegiant Common Stock deemed to be received, as described in
paragraph 3, below) equal to the aggregate adjusted tax basis of
the shares of Reliance Common Stock surrendered (Code section
358(a)(1)); and
c) will have a holding period for the shares of
Allegiant Common Stock received (including any fractional share
of Allegiant Common Stock deemed to be received, as described in
paragraph 3, below) which includes the period during which the
shares of Reliance Common Stock surrendered were held, provided
that the shares of Reliance Common Stock surrendered were capital
assets in the hands of such holder at the time of the Merger
(Code section 1223(1)).
3. Each shareholder of Reliance who receives, in the Merger,
cash in lieu of a fractional share of Allegiant Common Stock will be treated
as if the fractional share had been received in the Merger and then redeemed
by Allegiant. Provided that the shares of Reliance Common Stock surrendered
were capital assets in the hands of such holder at the time of the Merger,
the receipt of such cash will cause the recipient to recognize capital gain
or loss, equal to the difference between the amount of cash received and the
portion of such holder's basis in the shares of Allegiant Common Stock
allocable to the fractional share (Code sections 1001 and 1222; Rev. Rul.
66-365, 1966-2 C.B. 116; Rev. Proc. 77-41, 1977-2 C.B. 574).
* * * * * * * * * * * *
<PAGE> 3
Reliance Financial, Inc.
July 11, 1997
Page 3
We express no opinion with regard to: (1) the federal income tax
consequences of the Merger not addressed expressly by this opinion, including
without limitation, (i) the tax consequences, if any, to those shareholders
of Reliance who acquired shares of Reliance Common Stock pursuant to the
exercise of employee stock options or otherwise as compensation, and (ii) the
tax consequences to special classes of shareholders, if any, including
without limitation, foreign persons, insurance companies, tax-exempt
entities, retirement plans, and dealers in securities; and (2) federal,
state, local, or foreign taxes (or any other federal, state, local, or
foreign laws) not specifically referred to and discussed herein. Further,
our opinion is based upon the Code, Treasury Regulations proposed or
promulgated thereunder, and administrative interpretations and judicial
precedents relating thereto, all of which are subject to change at any time,
possibly with retroactive effect, and we assume no obligation to advise you
of any subsequent change thereto. If there is any change in the applicable
law or regulations, or if there is any new administrative or judicial
interpretation of the applicable law or regulations, any or all of the
federal income tax consequences described herein may become inapplicable.
The foregoing opinion reflects our legal judgment solely on the
issues presented and discussed herein. This opinion has no official status
or binding effect of any kind. Accordingly, we cannot assure you that the
Internal Revenue Service or any court of competent jurisdiction will agree
with this opinion.
We hereby consent to the filing of this letter as an exhibit to
the Registration Statement and to all references made to this letter and all
corresponding references to this firm in the Registration Statement.
Very truly yours,
/s/ Thompson Coburn
<PAGE> 4
Exhibit A
CERTIFICATE
-----------
The undersigned, * , [Undersigned's Title] of Allegiant
------------
Bancorp, Inc., a Missouri corporation ("Allegiant"), HEREBY CERTIFIES that
(a) I am familiar with the terms and conditions of the Agreement and Plan of
Merger between Allegiant and Reliance Financial, Inc., a Delaware corporation
("Reliance"), dated as of March 20, 1997, including the schedules and
exhibits thereto (the "Merger Agreement"), and (b) I am aware that (i) this
Certificate will be relied on by Thompson Coburn, counsel for Allegiant, in
rendering its opinion to Reliance that the merger of Reliance with and into
Allegiant (the "Merger") will constitute a reorganization within the meaning
of section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"), and (ii) the representations and undertaking recited herein will
survive the Merger.
The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF Allegiant,
that:
(1) The terms of the exchange of Reliance common stock, par
value $0.10 per share ("Reliance Common Stock") in return for Allegiant
common stock, par value $0.01 per share ("Allegiant Common Stock"), including
cash to be received in lieu of fractional shares of Allegiant Common Stock,
if any, in the Merger were arrived at in arm's length negotiations between
Reliance and Allegiant.
(2) Except as otherwise set forth by the undersigned on an
attachment hereto, Allegiant is aware of no plan, intention or arrangement
(including any option or pledge) on the part of any holder of Reliance Common
Stock to sell, exchange or otherwise dispose of any of the Allegiant Common
Stock to be received in the Merger, with the exception of fractional shares
of Allegiant Common Stock to be exchanged for cash pursuant to the Merger.
(3) In the Merger, Allegiant will tender no consideration for
Reliance Common Stock other than Allegiant Common Stock and cash in lieu of
fractional shares of Allegiant Common Stock.
<PAGE> 5
(4) Neither Allegiant nor any other member of Allegiant's
"affiliated group" (as the quoted term is defined in Code section 1504, the
"Allegiant Affiliated Group") has any plan, intention or arrangement to
redeem or otherwise reacquire any of the Allegiant Common Stock issued to the
shareholders of Reliance in the Merger.
(5) With the exception of transfers described in section
368(a)(2)(C) of the Code, dispositions made in the ordinary course of
business or dispositions approved in writing by Thompson Coburn, neither
Allegiant nor any other member of the Allegiant Affiliated Group has any plan
or intention (i) to sell or otherwise dispose of (whether by dividend,
distribution or otherwise) any assets of Reliance acquired in the Merger, or
(ii) to cause, suffer, or permit the sale or other disposition of any assets
of any other member of Reliance's "affiliated group" (as the quoted term is
defined in Code section 1504, the "Reliance Affiliated Group").
(6) After the Merger, the Allegiant Affiliated Group will
continue the historic businesses of Reliance and the other members of the
Reliance Affiliated Group, or will use a significant portion of the historic
business assets of the members of the Reliance Affiliated Group in a business
(no stock of any member of the Reliance Affiliated Group shall be treated as
a business asset for purposes of this representation).
(7) Allegiant, Reliance, and the shareholders of Reliance will
each pay their respective expenses, if any, incurred in connection with the
Merger; provided, however, that Allegiant may pay and assume those expenses
of Reliance that are solely and directly related to the Merger in accordance
with the guidelines established in Rev. Rul. 73-54, 1973-1 C.B. 187,
including those printing expenses and filing fees described in Section 5.08
of the Merger Agreement.
(8) Except with regard to Transaction Costs (as defined below),
neither Allegiant nor any other member of the Allegiant Affiliated Group will
pay any amount or incur any liability to or for the benefit of, or assume or
cancel any liability of, any shareholder of Reliance in connection with the
Merger, and no liability to which Reliance Common Stock is subject will be
extinguished as a result of the Merger. For purposes of this representation,
(a) the term "liability" shall include any undertaking to pay or to cause the
reduction, release, or extinguishment of any obligation, without regard to
whether any such undertaking or obligation is contingent or legally
enforceable (for example and without limitation, the term "liability"
includes an unenforceable agreement to cause the
<PAGE> 6
repayment of an obligation guaranteed by a Reliance shareholder or to cause by
other means the release of such guaranty), and (b) the term "Transaction Costs"
shall mean amounts paid or liabilities incurred in connection with the Merger
(i) to Reliance shareholders with respect to the Allegiant Common Stock
(including cash in lieu of fractional shares thereof) to be delivered in the
Merger, (ii) for legal, accounting, and investment banking and/or advisor
services rendered to Allegiant, if any, (iii) for those expenses payable or
assumable by Allegiant in accordance with representation above, and (iv) as
compensation to any employee of Allegiant or Reliance or of any other member of
the Allegiant Affiliated Group or the Reliance Affiliated Group for services
rendered in the ordinary course of his or her employment.
(9) No indebtedness between Reliance or any other member of the
Reliance Affiliated Group, on the one hand, and Allegiant or any other member
of the Allegiant Affiliated Group, on the other hand, exists or will exist
prior to the Merger that (a) was issued or acquired at a discount, (b) will
be settled, as a result of the Merger, at a discount, or (c) will result in
the recognition of gain under Treasury Regulation Sec. 1.1502-13. No
"installment obligation" (as the quoted term is defined for purposes of Code
section 453B), between Reliance, on the one hand, and Allegiant, on the other
hand, exists or will exist prior to the Merger that will be extinguished as a
result of the Merger.
(10) The payment of cash in lieu of fractional shares of
Allegiant Common Stock in the Merger will be solely for the purpose of
avoiding the expense and inconvenience to Allegiant of issuing fractional
shares and will not represent separately bargained-for consideration. The
fractional share interests of each Reliance shareholder will be aggregated,
and no Reliance shareholder will receive cash in lieu of fractional share
interests in an amount equal to or greater than the value of one full share
of Allegiant Common Stock.
(11) None of the compensation to be paid or accrued after the
Merger to or for the benefit of any shareholder-employee of Reliance will be
separate consideration for, or allocable to, any of his or her shares of
Reliance Common Stock; none of the shares of Allegiant Common Stock received
in the Merger by any Reliance shareholder-employee will be separate
consideration for, or allocable to, any employment agreement; and all
compensation to be paid or accrued after the Merger to or for the benefit of
any Reliance shareholder-employee will be for services actually rendered in
<PAGE> 7
the ordinary course of his or her employment and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar
services.
(12) Neither Allegiant nor any other member of the Allegiant
Affiliated Group has owned, directly or indirectly, or had any option or
other right to acquire, more than 10% (by value) of any class of Reliance
stock within the last five years, with the exception of that certain Stock
Option Agreement by and between Allegiant and Reliance dated as of March 20,
1997.
(13) No material terms or conditions of the Merger Agreement
(including the schedules and exhibits thereto) have been waived or modified,
except for the waiver by Allegiant in connection with the sale of certain
shares of Reliance Common Stock by William Schliebe, and neither Allegiant
nor any other member of the Allegiant Affiliated Group has any plan or
intention to waive or modify any other such material terms or conditions.
The undersigned HEREBY AGREES to immediately communicate in
writing to Thompson Coburn at One Mercantile Center, St. Louis, Missouri
63101, to the attention of Charles H. Binger, any information that could
indicate (i) any of the foregoing representations was inaccurate when made,
or (ii) any of the foregoing representations would be inaccurate if it were
made again immediately before the Merger.
IN WITNESS WHEREOF, I have hereunto signed my name and affixed
the seal of Allegiant this ----- day of ------------, 1997.
---------------------------------
<PAGE> 8
Exhibit B
CERTIFICATE
-----------
The undersigned, * , [Undersigned's Title] of Reliance
--------------
Financial, Inc., a Delaware corporation ("Reliance"), HEREBY CERTIFIES that
(a) I am familiar with the terms and conditions of the Agreement and Plan of
Merger between Allegiant Bancorp, Inc., a Missouri corporation ("Allegiant"),
and Reliance dated as of March 20, 1997, including the schedules and exhibits
thereto (the "Merger Agreement"), and (b) I am aware that (i) this
Certificate will be relied on by Thompson Coburn, counsel for Allegiant, in
rendering its opinion to Reliance that the merger of Reliance with and into
Allegiant (the "Merger") will constitute a reorganization within the meaning
of section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"), and (ii) the representations and undertaking recited herein will
survive the Merger.
The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF Reliance,
that:
(1) The terms of the exchange of Reliance common stock, par
value $0.10 per share ("Reliance Common Stock") in return for Allegiant
common stock, par value $0.01 per share ("Allegiant Common Stock"), including
cash to be received in lieu of fractional shares of Allegiant Common Stock,
if any, in the Merger were arrived at in arm's length negotiations between
Reliance and Allegiant.
(2) To the best knowledge of the undersigned, based upon due
inquiry, there is no plan, intention or other arrangement (including any
option or pledge) on the part of the holders of 5% or more of the Reliance
Common Stock and, to the best knowledge of the undersigned, there is no plan,
intention or other arrangement (including any option or pledge) on the part
of the other holders of Reliance Common Stock to sell, exchange or otherwise
dispose of a number of shares of Allegiant Common Stock received by such
holders in the Merger that would reduce such holders' aggregate ownership of
Allegiant Common Stock to a number of shares having a value, as of the date
on which the Merger is consummated (the "Effective Date"), of less than 50
percent of the value of all of the formerly outstanding Reliance Common Stock
as of the Effective Date. For purposes of this representation, all shares of
Reliance Common Stock and shares of Allegiant Common Stock held by
<PAGE> 9
Reliance shareholders and otherwise sold, redeemed, or disposed of before or
after the Effective Date will be taken into account in making this
representation.
(3) During the past three years, Reliance has made no material
distributions to its shareholders or option holders (whether in the form of
dividends, redemptions, repurchases, liquidating or nonliquidating
distributions or otherwise) other than regular, ordinary dividends.
(4) At the time of the Merger and except with regard to
Transaction Costs (as defined below), each liability of Reliance and each
liability to which an asset of Reliance is subject will have been incurred by
Reliance in the ordinary course of business and no such liability will have
been incurred in anticipation of the Merger. In addition, at the time of the
Merger and except with regard to Transaction Costs, Reliance will not,
directly or indirectly, have paid (or loaned) any amount or incurred any
liability to or for the benefit of, or assumed or cancelled any liability of,
any Reliance shareholder in connection with the Merger. For purposes of this
representation, (a) the term "Reliance" shall be deemed to refer also to each
other member of Reliance's "affiliated group" (as the quoted term is defined
in Code section 1504, the "Reliance Affiliated Group"), (b) the term
"liability" shall include any undertaking to pay or to cause the reduction,
release, or extinguishment of, any obligation, without regard to whether any
such undertaking or obligation is contingent or legally enforceable (for
example and without limitation, the term "liability" includes an
unenforceable agreement to cause the repayment of an obligation guaranteed by
a Reliance shareholder or to cause by other means the release of such
guaranty), and (c) the term "Transaction Costs" shall mean amounts paid or
liabilities incurred in connection with the Merger (i) for legal, accounting,
and investment banking and/or advisor services rendered to Reliance or to any
other member of the Reliance Affiliated Group, if any, (ii) as compensation
to any employee of Reliance or of any other member of the Reliance Affiliated
Group for services rendered in the ordinary course of his or her employment,
and (iii) pursuant to the Merger Agreement.
(5) Expenses, if any, that are incurred in connection with the
Merger and are properly attributable to Reliance shareholders will be paid by
those shareholders and not by Reliance With the exception of those printing
expenses and filing fees described in Section 5.08 of the Merger Agreement,
Reliance will pay its own expenses that are incurred in connection with the
Merger.
<PAGE> 10
(6) No indebtedness between Reliance or any other member of the
Reliance Affiliated Group, on the one hand, and Allegiant or any other member
of Allegiant's "affiliated group" (as the quoted term is defined in Code
section 1504), on the other hand, exists or will exist prior to the Merger
that (a) was issued or acquired at a discount, (b) will be settled, as a
result of the Merger, at a discount, or (c) will result in the recognition of
gain under Treasury Regulation Sec. 1.1502-13. No "installment obligation"
(as the quoted term is defined for purposes of Code section 453B), between
Reliance, on the one hand, and Allegiant, on the other hand, exists or will
exist prior to the Merger that will be extinguished as a result of the
Merger.
(7) The fair market value of the assets of Reliance to be
transferred to Allegiant will exceed the sum of the amount of liabilities to
be assumed by Allegiant, plus the amount of liabilities, if any, to which the
assets to be transferred are subject.
(8) The payment of cash in lieu of fractional shares of
Allegiant Common Stock will be solely for the purpose of avoiding the expense
and inconvenience to Allegiant of issuing fractional shares and will not
represent separately bargained-for consideration. To the best knowledge of
the undersigned, the total cash consideration that will be paid in the Merger
to the Reliance shareholders in lieu of fractional shares of Allegiant Common
Stock will not exceed one percent of the total consideration that will be
issued in the transaction to the Reliance shareholders in exchange for their
shares of Reliance Common Stock. The fractional share interests of each
Reliance shareholder will be aggregated, and no Reliance shareholder will
receive cash in lieu of fractional share interests in an amount equal to or
greater than the value of one full share of Allegiant Common Stock.
(9) None of the compensation paid or accrued before the Merger
to or for the benefit of any Reliance shareholder-employee will be separate
consideration for, or allocable to, any of his or her shares of Reliance
Common Stock; none of the shares of Allegiant Common Stock received in the
Merger by any Reliance shareholder-employee will be separate consideration
for, or allocable to, any employment agreement; and all compensation paid or
accrued before the Merger to or for the benefit of any Reliance
shareholder-employee will be for services actually rendered in the ordinary
course of his or her employment and will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
<PAGE> 11
(10) Reliance is not under the jurisdiction of a court in a
Title 11 case or similar case within the meaning of section 368(a)(3)(A) of
the Code. Reliance is not an investment company as defined in section
368(a)(2)(F)(iii) and (iv) of the Code.
(11) No material terms or conditions of the Merger Agreement
(including the schedules and exhibits thereto) have been waived or modified,
except for the waiver by Allegiant in connection with the sale of certain
shares of Reliance Common Stock by William Schliebe, and neither Reliance nor
any other member of the Reliance Affiliated Group has any plan or intention
to waive or modify any other such material terms or conditions. The Merger
Agreement represents the complete agreement between Allegiant and Reliance
regarding the Merger.
The undersigned HEREBY AGREES to immediately communicate in
writing to Thompson Coburn at One Mercantile Center, St. Louis, Missouri
63101, to the attention of Charles H. Binger, any information that could
indicate (i) any of the foregoing representations was inaccurate when made,
or (ii) any of the foregoing representations would be inaccurate if it were
made again immediately before the Merger.
IN WITNESS WHEREOF, I have hereunto signed my name and affixed
the seal of Reliance this ----- day of ---------------, 1997.
---------------------------------
<PAGE> 12
Exhibit C
SHAREHOLDER CERTIFICATE
-----------------------
The undersigned shareholder of Reliance Financial, Inc., a
Delaware corporation ("Reliance"), HEREBY CERTIFIES that (a) I own or have
the sole right to make investment decisions with regard to * shares
---------
of Reliance common stock, par value $0.10 per share, (b) I am familiar with
the terms and conditions of the Agreement and Plan of Merger between
Allegiant Bancorp, Inc., a Missouri corporation ("Allegiant"), and Reliance
dated as of March 20, 1997, and (c) I am aware that (i) this Certificate will
be relied on by Thompson Coburn, counsel for Allegiant, in rendering its
opinion to Reliance that the merger of Reliance with and into Allegiant (the
"Merger") will constitute a reorganization within the meaning of section
368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), and
(ii) the representations and undertaking recited herein will survive the
Merger.
The undersigned HEREBY FURTHER CERTIFIES that (i) the undersigned
has no plan, intention or arrangement to sell, exchange or otherwise dispose
of (including any option and any pledge intended to result in a disposition)
any of the Allegiant common stock, par value $0.01 per share ("Allegiant
Common Stock"), to be received in connection with the Merger, with the
exception of any fractional share of Allegiant Common Stock to be exchanged
for cash pursuant to the Merger, and (ii) the undersigned has no plan,
intention or arrangement to enter into any transaction that will reduce the
risk of loss with respect to (whether by short sale, hedging or otherwise)
any of the Allegiant Common Stock to be received in connection with the
Merger.
If, on or before the closing date of the Merger, the undersigned
forms any plan, intention or arrangement or enters into any transaction
described in the preceding paragraph, the undersigned HEREBY AGREES to
immediately communicate the same in writing to Thompson Coburn at One
Mercantile Center, St. Louis, Missouri 63101, to the attention of Charles H.
Binger.
IN WITNESS WHEREOF, the undersigned has executed this certificate
this ----- day of ---------------, 1997.
-----------------------------------
Shareholder's Signature
<PAGE> 1
Exhibit 10.15
DEPOSIT TRANSFER
AND ASSET PURCHASE AGREEMENT
between
ROOSEVELT BANK
and
ALLEGIANT BANCORP, INC.
Dated: May 8, 1997
<PAGE> 2
DEPOSIT TRANSFER AND ASSET PURCHASE AGREEMENT
---------------------------------------------
THIS DEPOSIT TRANSFER AND ASSET PURCHASE AGREEMENT, dated as of May 8,
1997 (this "Agreement"), is made by and between ROOSEVELT BANK, a federal
stock savings bank having its principal place of business at 900 Roosevelt
Parkway, Chesterfield, Missouri 63017 (the "Seller") and Allegiant Bancorp,
Inc., A Missouri corporation having its principal place of business at 7801
Forsyth Boulevard, St. Louis, Missouri 63105 (the "Buyer").
RECITALS
A. The Seller operates a branch office at 236 East Booneslick Road,
Warrenton, Missouri 63383 (the "Branch Office").
B. The Seller desires to transfer to the Buyer, and the Buyer desires
to accept the transfer from the Seller of, certain assets, liabilities,
duties, responsibilities and obligations of the Seller directly attributable
to the Branch Office.
NOW, THEREFORE, in consideration of the mutual promises herein set forth
and other valuable consideration, the receipt, sufficiency and mutuality of
which are hereby acknowledged, the Seller and the Buyer hereby agree as
follows:
ARTICLE I
DEFINITIONS
Certain Defined Terms. As used in this Agreement, the following terms
----------------------
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
1.1 "Agreement" shall mean this Deposit Transfer and Asset Purchase
-----------
Agreement by and between the Buyer and the Seller and any amendments hereto.
References to Articles, Sections, Schedules and the like refer to the
Articles, Sections, Schedules and the like of this Agreement unless otherwise
indicated.
1.2 "Book Value" with respect to any Seller liability or asset shall
------------
mean the dollar amount of such liability or asset reflected on the financial
records of the Seller as of the Closing Date on an unconsolidated basis
(exclusive of any reserves). These dollar amounts shall be further adjusted
for any differences in accounts, suspense items, unposted debits and credits
and other similar adjustments and corrections, all as reflected on the Records
of the Seller as of the Closing Date.
1.3 "Business Day" shall mean a day on which the Buyer is open for
--------------
business and which is not a Sunday or legal bank holiday.
2
<PAGE> 3
1.4 "Closing" shall mean the consummation of the transactions
---------
contemplated by this Agreement on the Closing Date.
1.5 "Closing Date" unless otherwise agreed to by the Parties in
--------------
writing, shall mean the date advised by the Seller to the Buyer, but not
earlier than the first day (and no later than the 90th day) following the date
on which all conditions set forth in Article XI hereof have been satisfied and
no later than December 31, 1997.
1.6 "Deposit" shall mean a deposit as defined in and within the meaning
---------
of Section 3(1) of the FDI Act, as amended, 12 U.S.C. Section 1813(l),
including, without limitation, (a) accrued interest, fees and charges payable
to the holders thereof; and (b) all uncollected items included in the
depositors' balances and credited on the Records of the Seller; provided that
-------- ----
the term "Deposit" shall not include all or any portion of those deposit
balances (a) that may be required, in the discretion of the Seller, to satisfy
it for any liquidated or contingent liability of a depositor arising from an
unauthorized or unlawful transaction, or (b) of any Person obligated on any
loan of the Seller which (1) has been charged off, in whole or in part, the
Records of the Seller as of the Closing Date, (2) is required to be charged
off, in whole or in part, the Records of the Seller on or before the Closing
Date in accordance with written instructions of the appropriate regulatory
authority, whether or not any such assets have been charged off the Records of
the Seller as of the Closing Date, or (3) is past due as of the Closing Date.
1.7 "Fixtures" shall mean those improvements, additions, alterations
----------
and installments constituting all or a part of the Owned Branch Premises as of
the Closing Date.
1.8 "Furniture and Equipment" shall mean all furniture and equipment
-------------------------
(except as noted on Schedule 1.8) that is owned or leased by the Seller and
------------
located on the Owned Branch Premises including, without limitation, those
items listed on Schedule 1.8.
------------
1.9 "Owned Branch Premises" shall mean the real property described on
------------------------
Schedule 1.9 together with the buildings and improvements thereon.
- ------------
1.10 "Party" shall mean either the Buyer or the Seller, and "Parties"
------- ---------
shall mean the Buyer and the Seller.
1.11 "Person" shall mean any individual, corporation, partnership,
--------
joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
1.12 "Record" or "Records" shall mean any and all records of the
-------- ---------
Seller, including, without limitation, all papers, microfiche, microfilm and
computer records (including, but not limited to, magnetic tape, disc storage,
card forms and printed copy), generated or maintained by the Seller in respect
of and relating solely to the Branch Office and in the possession of the
Seller on the Closing Date.
3
<PAGE> 4
ARTICLE II
DEPOSITS
2.1 Payment; Availability of Deposits. On the Closing Date, the Seller
---------------------------------
hereby agrees to transfer to the Buyer, and the Buyer hereby agrees to assume,
pay, discharge and perform all liabilities, duties, responsibilities and
obligations of the Seller in respect of, the Deposits of the Seller directly
attributable to the Branch Office (collectively, the "Transferred Deposits"),
which Transferred Deposits shall include those Deposits listed on Schedule 2.1
------------
and all Deposits made at the Branch Office from the date of such Schedule 2.1
------------
to and including the Closing Date. The Buyer agrees to open an account in the
name of each respective depositor in an amount equal to the Transferred
Deposit of such depositor and containing terms and conditions which are the
same as were applicable to the Transferred Deposit prior to the assumption
thereof by the Buyer pursuant hereto. From and after the Closing Date, the
Buyer agrees to commence payment of or otherwise make available to each such
depositor such Transferred Deposit in accordance with the terms and conditions
applicable to such Transferred Deposit.
2.2 Interest on Transferred Deposits. From and after the Closing Date,
--------------------------------
the Buyer hereby agrees to pay interest that has accrued and/or will accrue
from and after the Closing Date on all Transferred Deposits in accordance with
the terms and conditions of each written agreement relating to each such
Deposit (the "Deposit Agreement") or, if not otherwise prescribed in writing,
at the rate, if any, in effect at the Branch Office for such Deposit as of the
Closing Date. This Section 2.2 is not intended to be construed as a
limitation of the Buyer's ability to change the terms and conditions of the
Deposit Agreement so long as such change (a) is not in violation of the terms
and conditions of the Deposit Agreement, (b) is not effective until after the
Closing Date and (c) is in accordance with all applicable federal and state
laws, rules and regulations, including, without limitation, those governing
advance customer notification.
2.3 Secured Deposits. Transferred Deposits constituting public monies
----------------
secured and perfected by a pledge of securities or other assets of the Seller,
if any, shall be transferred to the Buyer on the Closing Date, and the Buyer
shall substitute securities or other assets of the Buyer to secure such
Deposits in the manner required by law and/or any agreement, instrument or
other document entered into between the Seller and the depositor thereof. The
Seller shall retain, and the Buyer shall cooperate with the Seller in securing
the release of, all securities and other assets of the Seller securing such
Transferred Deposits.
ARTICLE III
ASSETS
3.1 Assets Purchased. On the Closing Date, the Buyer shall purchase
----------------
from the Seller, and the Seller shall sell, assign, transfer, convey and
deliver to the Buyer, except as otherwise provided in Section 3.2 hereof, all
right, title and interest of the Seller in and to each of the following assets
of the Seller directly attributable to the Branch Office and appearing on the
4
<PAGE> 5
Records of the Seller as of the Closing Date (collectively, the "Transferred
Assets"):
(a) All Owned Branch Premises, Fixtures, Furniture and Equipment
described in Schedule 1.8. and Schedule 1.9, excepting those certain items of
------------ ------------
Furniture and Equipment, if any, which are expressly noted on Schedule 1.8 to
------------
be retained by the Seller;
(b) All overdrafts (including overdrafts made pursuant to any
overdraft protection plan of the Seller) on the accounts associated with the
Transferred Deposits identified in Section 2.1;
(c) Safekeeping business, if any, attributable to the Branch
Office on the terms and conditions set forth in Section 5.3.
(d) Safe Deposit Boxes and Safe Deposit Box business attributable
to the Branch Office, on the terms and conditions set forth in Section 5.4.
(e) (i) those direct consumer and commercial loans (including
interest, fees, and charges payable by the obligors thereon) directly
attributable to the Branch Office the application for which are made at the
Branch Office (the "Branch Office Loans") listed on Schedule 3.1(e) hereto,
---------------
(ii) any Branch Office Loans (including interest, fees, and charges payable by
the obligors thereon) made between the date of such Schedule 3.1(e) and the
---------------
Closing Date and (iii) any reserves for unearned credit insurance premiums
with respect to the Branch Office Loans (hereinafter, collectively, the
"Transferred Loans").
3.2 Assets Excluded. Except as expressly set forth herein, the Buyer
---------------
shall not acquire any of the following assets, duties, responsibilities or
obligations of the Seller:
(a) All assets of the Seller not directly attributable to the
Branch Office;
(b) Any computer software or programs of the Seller;
(c) All Branch Office loans, if any, (including interest, fees,
and charges payable by the obligors thereon) directly attributable to the
Branch Office that are listed on Schedules 3.2(c); and
(d) All items of Furniture and Equipment, if any, expressly noted
on Schedule 1.8 to be retained by the Seller.
------------
3.3 Title, Other Warranties.
-----------------------
(a) The Seller represents and warrants that on the Closing Date
it will be the owner of the Transferred Assets and that such Transferred
Assets will be conveyed to the Buyer free and clear of all liens and
encumbrances which would materially interfere with the use of the Owned Branch
Premises as they are currently being used.
5
<PAGE> 6
(b) Except as specifically set forth herein, the Seller makes no
representations whatsoever, whether express or implied, as to the condition,
use, safety or fitness of the Owned Branch Premises, Fixtures, Furniture and
Equipment. The Owned Branch Premises, Fixtures, Furniture and Equipment shall
be sold "as is, where is."
3.4 Title Insurance. The Seller shall obtain and deliver to the Buyer
---------------
on the Closing Date or within a reasonable time thereafter a policy of owner's
title insurance covering the Owned Branch Premises.
3.5 Risk of Loss. If the Owned Branch Premises are damaged or
------------
destroyed prior to the Closing Date, and if such damage is not fully repaired
to the reasonable satisfaction of the Buyer and the Seller by the Closing
Date, then the Buyer shall have the option to either consummate or terminate
this transaction. The Buyer shall make such election in writing within 15
days after receipt of written notice of damage or destruction from the Seller.
If the Buyer elects to terminate this transaction, then this Agreement shall
become null and void and neither party shall have any further liability or
obligations hereunder. If the Buyer does not elect to terminate, then the
Seller shall assign and transfer to the Buyer on the Closing Date all of the
Seller's right, title and interest in and to all insurance proceeds paid or
payable to the Seller on account of such damage and the Seller shall have no
obligation to repair or restore the Owned Branch Premises.
ARTICLE IV
INDEMNIFICATION
4.1 Buyer's Indemnity.
-----------------
(a) The Buyer hereby agrees to indemnify, save and hold harmless
the Seller from and against any and all claims, liabilities, costs, expenses
and obligations (including, without limitation, reasonable costs and expenses
of counsel) arising out of or relating to (1) the Transferred Assets and the
Transferred Deposits and any and all liabilities, obligations, requirements
and duties with respect thereto arising on and after the Closing Date, (2) the
conduct of business by the Buyer at the Branch Office on and after the Closing
Date or (3) the failure of the Buyer to comply with any of the terms of this
Agreement.
(b) In the event that the Seller shall receive notice of a claim
subject to indemnification pursuant to the preceding Section 4.1(a), the
Seller shall notify the Buyer of such claim within 30 business days, and the
Buyer shall defend, discharge, satisfy and/or settle such claim at the Buyer's
sole cost and expense. In the event that the Buyer shall fail or refuse to
defend, discharge, satisfy or settle such claim, the Seller may defend,
discharge, satisfy or settle such claim and shall be reimbursed by the Buyer
for any and all costs and expenses (including, without limitation, reasonable
attorneys' fees) incurred by the Seller in respect of such matter.
6
<PAGE> 7
4.2 Seller's Indemnity.
------------------
(a) The Seller hereby agrees to indemnify, save and hold harmless
the Buyer from and against any and all claims, liabilities, costs, expenses
and obligations (including, without limitation, reasonable costs and expenses
of counsel) arising out of or relating to (1) the Transferred Assets and the
Transferred Deposits and any and all liabilities, obligations, requirements
and duties of the Seller with respect thereto arising prior to the Closing
Date, (2) the conduct of business by the Seller at the Branch Office prior to
the Closing Date (including failure to perfect collateral as is done by the
Seller in the normal course) or (3) the failure of the Seller to comply with
any of the terms of this Agreement.
(b) In the event that the Buyer shall receive notice of a claim
subject to indemnification pursuant to the preceding Section 4.2(a), the Buyer
shall notify the Seller of such claim within 30 business days, and the Seller
shall defend, discharge, satisfy and/or settle such claim at the Seller's sole
cost and expense. In the event that the Seller shall fail or refuse to
defend, discharge, satisfy or settle such claim, the Buyer may defend,
discharge, satisfy or settle such claim and shall be reimbursed by the Seller
for any and all costs and expenses (including, without limitation, reasonable
attorneys' fees) incurred by the Buyer in respect of such matter.
ARTICLE V
OTHER AGREEMENTS
5.1 Agreement with Respect to Data Processing Conversion. The Parties
----------------------------------------------------
agree that each shall use its best efforts to convert the Transferred Deposits
and Transferred Assets on the Seller's data processing system to the Buyer's
data processing system, such conversion to be effective on the first Business
Day following the Closing Date.
5.2 Agreement with Respect to Buyer's Right to Accept the Transferred
-----------------------------------------------------------------
Loans. The Buyer and the Seller agree that up to the Closing Date the Buyer
- -----
shall have a continuing right to review all Branch Office loans (except those
identified on Schedule 3.2(c)) to determine whether such loans are to be
included in the Transferred Loans. The Buyer shall have the right to reject
any of such loans so reviewed up to the Closing Date. Such review(s) shall be
conducted at a time or times mutually agreeable to the Buyer and the Seller.
Up to the Closing Date, the Seller shall advise the Buyer of any new loans or
renewed loans made at the Branch Office and shall keep the Buyer advised as to
credit issues with respect to any loans.
5.3 Agreement with Respect to Safekeeping Business.
----------------------------------------------
(a) On the Closing Date, the Seller shall sell, assign, transfer,
convey and deliver to the Buyer, and the Buyer shall accept (1) all right,
title and interest of the Seller in and to the safekeeping business of the
Seller at the Branch Office including, without limitation, custody of all
securities and other items, if any, held by the Seller in safekeeping as the
Closing Date, together with all of the Records relating thereto, and (2) any
right or benefit with respect thereto from and after the Closing Date.
7
<PAGE> 8
(b) On the Closing Date, the Buyer shall assume and agree to pay,
perform and discharge all of the duties and obligations of the Seller with
respect to such securities and other items held in safekeeping.
5.4 Agreement with Respect to Safe Deposit Business.
-----------------------------------------------
(a) On the Closing Date, the Seller shall sell assign, transfer,
convey and deliver to the Buyer, and the Buyer shall accept, all right, title
and interest of the Seller in and to the Safe Deposit Boxes and related
business of the Seller at the Branch Office and any right or benefit with
respect thereto from and after the Closing Date.
(b) On the Closing Date, the Buyer shall assume and agree to
discharge, in the usual course of conducting a banking business, all of the
duties and obligations of the Seller with respect to all Safe Deposit Boxes
and the Safe Deposit Box business of the Seller and to maintain all of the
necessary facilities for the use of such boxes by the renters thereof during
the period for which such boxes have been rented, subject to the provisions of
the rental agreements between the Seller and the respective renters of such
boxes.
(c) Safe Deposit Box rental payments and safe keeping payments
(not including late payment fees) collected in advance by the Seller shall be
prorated with the Buyer as of the Closing Date. At the Closing Date, the
Seller shall pay to the Buyer an amount equal to all key and other deposits
paid by customers of the Safe Deposit Boxes, and the Buyer shall be obligated
to pay such key deposits to such customers in accordance with their respect
Safe Deposit Box agreements.
5.5 Agreement with Respect to Employee Benefits. If the Buyer offers
-------------------------------------------
employment to any of the employees of the Branch Office, such employees may be
treated by the Buyer as "New Hires" for all purposes; provided, however, that
(a) such employees shall participate in the medical plan of the Buyer
beginning on the Closing Date and continuing through such employees'
employment with the Buyer; and (b) such employees, if terminated within 180
days from the Closing Date for any reasons other than for cause, shall be
entitled to no less than four week's of such employees' compensation as
severance pay. Other than as provided herein, the Buyer shall not be
obligated to make any contribution to any plan or program on behalf of such
employees, with respect to any period prior to the Closing. Nothing in this
Section is intended, nor shall it be construed, to confer any rights or
benefits upon any person other than the Buyer and the Seller.
5.6 Agreement with Respect to Failure to Obtain Approval of
-------------------------------------------------------
Regulators. If any regulatory approval required for the execution and
- ----------
delivery of, and the performance of all transactions contemplated under, this
Agreement is not obtained due to (i) the financial condition of the Buyer or
(ii) the ability of the Buyer to manage the Branch Office; then the Buyer
shall pay to the Seller an amount equal to 10% of the Premium within 15 days
from the date the Seller is notified by the regulator(s) that approval of the
transaction will not be given. Such payment shall be made in accordance with
instructions given by the Seller to the Buyer.
8
<PAGE> 9
ARTICLE VI
DUTIES WITH RESPECT TO CUSTOMERS OF THE SELLER
6.1 Payment of Checks, Drafts and Orders. The Buyer hereby agrees to
------------------------------------
pay all properly drawn checks, drafts and withdrawal orders presented in
respect of the Transferred Deposits to the Buyer by mail, over its counters or
through clearing, whether drawn on the check or draft forms provided by the
Seller or by the Buyer, to the extent that the Transferred Deposit balances
standing to the credit of the respective makers or drawers thereof are
sufficient to permit the payment thereof, and in all other respects to
discharge, in the usual course of conducting a banking business, the duties
and obligations of the Seller with respect to the Transferred Deposits.
6.2 Notice to Customers. In accordance with all applicable laws, the
-------------------
Buyer and/or the Seller, as the case may be, shall give notice to customers of
the Seller who hold or own one or more of the Transferred Deposits,
Transferred Assets, Transferred Loans, or who otherwise may be affected by the
transaction described herein, of the transaction described herein. Such
notice shall be given by posting such notice, by advertising in a newspaper of
general circulation in the county in which the Seller is located, and by mail
directed to the last address shown on the Seller's records for each such
customer and shall be in form and substance reasonably acceptable to the
Seller. Any additional notices including, but not limited to mailings,
advertisements and press releases, that may be given by the Buyer in
connection with this transaction shall be in form and substance reasonably
acceptable to the Seller.
ARTICLE VII
CONSIDERATION AND PAYMENTS
7.1 Payment Amount. On the Closing Date, the Seller shall deliver to
--------------
the Buyer, by wire transfer of immediately available funds, an amount equal to
the Payment Amount calculated in accordance with Schedule 7.1. All amounts
------------
shown on Schedule 7.1 are taken from the books and records of the Branch
------------
Office as of March 31, 1997, and the Buyer acknowledges and agrees that except
for the amount of premium for Transferred Deposits as shown on Schedule 7.1,
------------
such other amounts shall be adjusted on the Closing Date (i) in accordance
with Sections 8.1 and/or 8.2 hereof and (ii) to reflect the actual amounts
indicated on the books and records of the Branch Office as of the Closing
Date. The Buyer further acknowledges and agrees that the amount of premium
for Transferred Deposits and Transferred Assets (the "Premium") shall be fixed
at an amount equal to $5,529,540.
7.2 Prorations. Real estate taxes, special assessments, personal
----------
property taxes, utilities, utility deposits, and all other such sums with
respect to the Transferred Assets shall be prorated as of the Closing Date.
To the extent that such sums are not known on the Closing Date, such proration
shall be based upon the amount of such items for the prior year and, when such
items are known, the Buyer shall pay to the Seller, or the Seller shall pay to
the Buyer, as
9
<PAGE> 10
the case may be, such amounts as may be necessary to adjust the actual
proration.
ARTICLE VIII
ADJUSTMENTS
8.1 Adjustments. It is understood that the Records of the Seller may
-----------
not be complete as of the Closing Date due to lack of complete information
concerning the Seller's operations through the Closing Date and that certain
assets and liabilities of the type specified in Sections 2.1 and 3.1 may not
have been included therein because they occurred on the Closing Date, were not
posted on the Closing Date or are carried in the Seller's suspense accounts as
of the Closing Date, and for other reasons. The Buyer and the Seller, as soon
as practicable after the Closing Date, in accordance with the best information
then available, shall prepare a revised pro forma statement reflecting any
adjustments to such Records. Such pro forma statement shall take into
account, among other things, assets and liabilities of the type specified in
Sections 2.1 and 3.1 and transactions occurring through the Closing Date. In
the event any omissions or errors are discovered in preparing the revised pro
forma statement or in completing the transfers and assumptions contemplated
hereby, the Parties agree to make any adjustments therefor in accordance with
Sections 7.1 and 7.2 with all such adjustments to be made on or before the
30th day following the Closing Date.
8.2 Unknown Claims and Assets. If the Seller discovers:
-------------------------
(a) that any liability or claim exists against the Seller which
is of the type that would have been included in the liabilities assumed under
Section 2.1 hereof, had the existence of such liability or claim or the facts
giving rise to such claim been known as of the Closing Date; or
(b) that any asset or claim exists in favor of the Seller which
is of the type that would have been included in the assets transferred under
Section 3.1 hereof, had the existence of such asset or claim or the facts
giving rise to such claim regarding such asset been known as of the Closing
Date;
then the Seller may, in its discretion, require that such claim, asset or
liability be transferred to or assumed by the Buyer, as the case may be, in a
manner consistent with the intent of this Agreement. The Seller and the Buyer
shall take any actions necessary to effect any such transfer of assets to or
assumption of liabilities by the Buyer and an appropriate adjustment to the
Payment Amount shall be made.
ARTICLE IX
RECORDS
9.1 Assignment of Records to Buyer. On the Closing Date, the Seller
------------------------------
shall assign, transfer, convey and deliver to the Buyer all of the Seller's
right, title and interest in and to Records pertaining to the Transferred
Deposits, including but not limited to all signature cards,
10
<PAGE> 11
orders, contracts between the Seller and its depositors and Records of similar
character, deposit slips, cancelled checks and withdrawal orders representing
charges to accounts of depositors. On the Closing Date, the Seller shall
assign, transfer, convey and deliver to the Buyer all of the Seller's right,
title and interest in and to Records pertaining to the Transferred Assets to
the Buyer pursuant to this Agreement, including but not limited to, Records of
securities, certificates and other items in safekeeping and title documents to
personalty, instruments or Records of title pertaining to the Owned Branch
Premises (including but not limited to, deeds, mortgages, abstracts and
surveys), and signature cards, agreements and Records pertaining to the
Transferred Loans.
9.2 Preservation of Records. From and after the Closing Date, the
-----------------------
Buyer and the Seller each hereby agrees to preserve and maintain for their
joint benefit all Records of which it has custody for the period prescribed by
applicable law for the retention of such Records by the Seller.
9.3 Access to Records; Copies.
-------------------------
(a) From and after the Closing Date, the Buyer and the Seller each
hereby agrees, at reasonable times, intervals and locations without other
qualification or limitation, to permit the other Party (1) access to all
Records of which it has custody; (2) to use or inspect such Records; and (3)
to make extracts from or request copies of any such Records; provided,
however, that any such access shall be permitted after the Closing Date only
for good cause, which shall include, but shall not be limited to, responding
to the inquiry of any state and/or federal regulatory agency.
(b) The Buyer hereby agrees that the Seller shall have the right
to duplicate, from and after the Closing Date, in the Seller's discretion, and
at the Seller's expense, any Record in the form of microfilm or microfiche
pertaining to the Transferred Deposits and the Transferred Assets.
(c) The Party requesting a copy of any Record pursuant to this
Agreement shall bear the cost of duplication thereof. The cost of duplication
of any Record in the form of microfilm or microfiche or computer records shall
be determined based on accepted industry charges, to the extent applicable. A
copy of each Record requested shall be provided as soon as practicable by the
Party having custody thereof.
(d) Seller hereby agrees to make available to Buyer and its
employees, advisors, accountants, attorneys and agents such internal financial
reports, information and accounting work papers as are reasonably necessary
for Buyer's accountants to prepare audited financial statements with respect
to the assets purchased and the liabilities assumed hereby, as required by
Regulation S-X as promulgated by the Securities and Exchange Commission.
11
<PAGE> 12
ARTICLE X
CONTINUING COOPERATION
10.1 Additional Title Documents. The Seller hereby agrees at any time,
--------------------------
and from time to time from and after the Closing Date, upon the request of the
Buyer on and after the date of transfer to the Buyer, to execute and deliver
such further instruments and documents of conveyance as shall be reasonably
necessary to vest in the Buyer the full legal or equitable title of the Seller
in and to the Transferred Assets.
10.2 Payment of Deposits by Seller. In the event any depositor does
-----------------------------
not accept the obligation of the Buyer to pay any Transferred Deposit
liability of the Seller assumed by the Buyer pursuant to this Agreement and
asserts a claim against the Seller for all or any portion of any such
Transferred Deposit liability, the Buyer agrees on demand to provide to the
Seller funds sufficient to pay such claim in an amount not in excess of the
Transferred Deposit.
ARTICLE XI
CONDITIONS PRECEDENT
11.1 Conditions Precedent to the Obligations of the Parties. The
-------------------------------------------------------
respective obligations of each of the Parties under this Agreement are subject
to the satisfaction at or prior to the Closing Date of each of the conditions
precedent set forth in this Section 11.1.
(a) No Orders, Etc. Consummation of the transactions
---------------
contemplated hereby shall not violate any order or decree of any court or
governmental body having competent jurisdiction or any applicable law or
regulation.
(b) Buyer Regulatory Approvals. (i) The Buyer shall have
--------------------------
received, and all required waiting periods shall have expired with respect to,
any and all authorizations, consents, approvals, licenses, charters and
exemptions by any governmental authority or regulatory or administrative body
required for the execution, delivery and performance of the Agreement by the
Buyer and the Seller and the consummation of the transactions contemplated
hereby including, without limitation, approval from the Missouri Division of
Finance and the Federal Deposit Insurance Corporation, (ii) no other action by
or notice to or registration or filing with any such authority or body shall
be required for the consummation of the transactions contemplated hereby or
thereby, and (iii) no state or federal agency having jurisdiction over the
Buyer or any affiliate thereof shall have objected thereto or imposed any
onerous requirements on the Buyer in respect thereof.
(c) Consummation of Holding Company Acquisition. Consummation of
-------------------------------------------
the acquisition by Mercantile Bancorporation Inc. ("MBI") of Roosevelt
Financial Group, Inc. ("RFG") pursuant to that certain Agreement and Plan of
Reorganization by and between MBI and RFG dated December 22, 1996 (the
"MBI/RFG Agreement").
11.2 Conditions Precedent to the Obligations of the Buyer. The
----------------------------------------------------
obligations of the
12
<PAGE> 13
Buyer under this Agreement are subject to the satisfaction at or prior to the
Closing Date of each of the conditions precedent set forth in this Section
11.2, any one or more of which may be waived, in whole or in part, by the
Buyer.
(a) Compliance. The Seller shall have complied in all material
----------
respects with each of its covenants and agreements contained herein which are
required to be performed or complied with by the Seller on or prior to the
Closing Date.
(b) Accuracy of Representations. Each of the representations and
---------------------------
warranties of the Seller contained in Article XIII hereof shall be true and
correct in all material respects at and as of the Closing Date as if made at
and as of the Closing Date.
(c) Change in Condition of Transferred Assets. There shall have
-----------------------------------------
been no material adverse changes to the physical condition of the Owned Branch
Premises, Fixtures, Furniture and Equipment.
11.3 Conditions Precedent to the Obligations of the Seller. The
-----------------------------------------------------
obligations of the Seller under this Agreement are subject to the satisfaction
at or prior to the Closing Date of each of the conditions precedent set forth
in this Section 11.3, any one or more of which may be waived, in whole or in
part, by the Seller.
(a) Compliance. The Buyer shall have complied in all material
----------
respects with each of its covenants and agreements contained herein which are
required to be performed or complied with by it on or prior to the Closing
Date.
(b) Accuracy of Representations. Each of the representations and
---------------------------
warranties of the Buyer contained in Article XII hereof, shall be true and
correct in all material respects at and as of the Closing Date as if made at
and as of the Closing Date.
ARTICLE XII
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
The Buyer represents and warrants to, and covenants and agrees with, the
Seller the following as of the date of this Agreement, the Closing Date and
during the period of time between the date of this Agreement and the Closing
Date:
12.1 Existence, Etc. The Buyer represents and warrants that it (a) is
---------------
duly organized, validly existing and in good standing under the laws of the
State of Missouri and (b) has full power and authority (1) to own and operate
its properties and conduct its business as presently conducted by it, and (2)
to execute and deliver this Agreement and perform its obligations hereunder.
12.2 Authorization. The Buyer represents and warrants that the
-------------
execution and delivery of this Agreement and performance by the Buyer of its
obligations hereunder, and the consummation of the transactions contemplated
hereby, have been or will be duly authorized by
13
<PAGE> 14
all necessary corporate action on the part of the Buyer. The Buyer represents
and warrants that this Agreement has been duly executed and delivered and,
upon receipt of the regulatory approvals or waivers contemplated by this
Agreement, will constitute a legal, valid and binding obligation of the Buyer,
enforceable in accordance with its terms subject to bankruptcy, insolvency,
reorganization or similar laws affecting the enforcement of creditors' rights
generally and to general principles of equity.
12.3 No Conflict. The Buyer represents and warrants that except as
-----------
previously disclosed to the Seller in writing, the execution, delivery and
performance of this Agreement by the Buyer, and the consummation of the
transactions contemplated hereby, will not:
(a) violate or conflict with any provision of the charter or
bylaws of the Buyer or any law, rule, regulation, order, judgment, award,
administrative interpretation, injunction, writ, decree or the like affecting
the Buyer or by which the Buyer is bound, the violation of which is likely to
have a material adverse effect on the operations or financial condition of the
Buyer taken as a whole, or
(b) result in a breach of or constitute a default under any
indenture or other material agreement to which the Buyer is a party or by
which the Buyer or any material portion of its respective properties is bound,
which breach or default is likely to have a material adverse effect on the
operations or financial condition of the Buyer taken as a whole.
12.4 Regulatory Approvals. The Buyer represents and warrants that no
--------------------
authorization, consent, approval, license, exemption or other action by or
notice to or registration or filing with any governmental authority or
administrative or regulatory body is required for either the execution,
delivery or performance of this Agreement by the Buyer, or the consummation of
the transactions contemplated hereby, except such as shall have been made or
obtained prior to the Closing Date.
12.5 Absence of Litigation. The Buyer represents and warrants that
---------------------
except as previously disclosed to the Seller in writing, there are no pending
or threatened actions, suits or proceedings before any court, governmental
agency, arbitrator or instrumentality affecting the Buyer which purport to
affect the legality, validity or enforceability of this Agreement.
12.6 Review of Seller Information. The Buyer represents and warrants
----------------------------
that it, its counsel and its other representatives have been provided full
access to all Records and other information reasonably requested by it in
respect of the Transferred Deposits and Transferred Assets and that no
situation, event, circumstance or other matter came to its attention during
the review that it conducted in respect of such Records and other information
which it believes to be inconsistent in any material and adverse respect with
any of the representations of the Seller hereunder or to be of such
significance as to materially and adversely affect the financial condition,
business and/or prospects of the Branch Office.
12.7 Other Information and Instruments. The Buyer covenants and agrees
---------------------------------
that the Buyer will promptly provide to the Seller such other information,
including financial statements and computations, relating to the performance
of the provisions of this Agreement as the Seller
14
<PAGE> 15
may from time to time reasonably request in writing.
12.8 Satisfaction of Conditions. The Buyer covenants and agrees that
--------------------------
the Buyer will use its best efforts to cause the conditions set forth in
Article XI, over which it has control, to be satisfied as soon as practicable
after the date hereof and in any event no later than the Closing Date.
Without limiting the generality of the foregoing, and to the extent it has not
previously done so, the Buyer covenants and agrees that Buyer will promptly
prepare, file, and pay all fees related to all applications and other notices
required in connection with, and will use its best efforts to obtain promptly,
all authorizations, consents, approvals, licenses, charters, exemptions or
other action by any governmental authority or administrative agency required
to be obtained by the Buyer in connection with the performance of this
Agreement by the Buyer and the consummation of the transactions contemplated
hereby.
ARTICLE XIII
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
The Seller represents and warrants to, and covenants and agrees with,
the Buyer the following as of the date of this Agreement, the Closing Date and
during the period of time between the date of this Agreement and the Closing
Date:
13.1 Existence, Etc. The Seller represents and warrants that it (a) is
---------------
duly organized, validly existing and in good standing under the laws of the
State of Missouri and (b) has full power and authority (1) to own and operate
its properties and conduct its business as presently conducted by it, and (2)
to execute and deliver this Agreement and perform its obligations hereunder.
13.2 Authorization. The Seller represents and warrants that the
-------------
execution and delivery of this Agreement and performance by the Seller of its
obligations hereunder, and the consummation of the transactions contemplated
hereby, have been or will be duly authorized by all necessary corporate action
on the part of the Seller. The Seller represents and warrants that this
Agreement has been duly executed and delivered and, upon receipt of the
regulatory approvals or waivers contemplated by this Agreement, will
constitute a legal, valid and binding obligation of the Seller, enforceable in
accordance with its terms subject to bankruptcy, insolvency, reorganization or
similar laws affecting the enforcement of creditors' rights generally and to
general principles of equity.
13.3 No Conflict. The Seller represents and warrants that except as
-----------
previously disclosed to the Seller in writing, the execution, delivery and
performance of this Agreement by the Seller and the consummation of the
transactions contemplated hereby, will not:
(a) violate or conflict with any provision of the charter or
bylaws of the Seller or any law, rule, regulation, order, judgment, award,
administrative interpretation, injunction, writ, decree or the like affecting
the Seller or by which the Seller is bound, the violation of which is likely
to have a material adverse effect on the operations or financial condition of
the Seller taken as a whole; or
15
<PAGE> 16
(b) result in a breach of or constitute a default under any
indenture or other material agreement to which the Seller is a party or by
which the Seller or any material portion of its respective properties is
bound, which breach or default is likely to have a material adverse effect on
the operations or financial condition of the Seller taken as a whole.
13.4 Regulatory Approvals. The Seller represents and warrants that no
--------------------
authorization, consent, approval, license, exemption or other action by or
notice to or registration or filing with any governmental authority or
administrative or regulatory body is required for either the execution,
delivery or performance of this Agreement by the Seller or the consummation of
the transactions contemplated hereby, except such as shall have been made or
obtained prior to the Closing Date.
13.5 Absence of Litigation. The Seller represents and warrants that
---------------------
there are no pending or threatened actions, suits or proceedings before any
court, governmental agency, arbitrator or instrumentality affecting the Seller
which purport to affect the legality, validity or enforceability of this
Agreement.
13.6 Satisfaction of Conditions. The Seller covenants and agrees that
--------------------------
the Seller will use its best efforts to cause the conditions set forth in
Article XI, over which it has control, to be satisfied as soon as practicable
after the date hereof and in any event no later than the Closing Date.
Without limiting the generality of the foregoing, and to the extent it has not
previously done so, the Seller will promptly prepare and file all applications
and other notices required in connection with, and will use its best efforts
to obtain promptly, all authorizations, consents, approvals, licenses,
charters, exemptions or other action by any governmental authority or
administrative agency required to be obtained by the Seller in connection with
the performance of this Agreement by the Seller and the consummation of the
transactions contemplated hereby.
13.7 Operation of Branch Office. The Seller covenants and agrees that
--------------------------
from the date hereof through and including the Closing Date, the Seller will
use its best efforts to cause the Branch Office to be operated in a manner
consistent with the Branch Office's present business practices.
13.8 Solicitation by Seller. The Seller covenants and agrees that
----------------------
commencing on the date hereof and for a period of twelve (12) months after the
Closing Date, the Seller shall not directly solicit any customer of the Branch
Office whose deposits and/or loans are transferred to the Buyer pursuant
hereto with respect to any of such deposits and/or loans. The Parties hereto
acknowledge that the foregoing shall not in any way limit the Seller from (i)
directly soliciting such customers with respect to any deposits and/or loans
that are transferred to the Buyer pursuant hereto after the expiration of the
aforementioned period; (ii) indirectly soliciting such customers, through
media, mail, or otherwise, with respect to any deposits and/or loans that are
transferred to the Buyer pursuant hereto; provided, however, that any
solicitation conducted pursuant to this subsection 13.8(ii) is not directed
solely at such customers; or (iii) directly or indirectly soliciting such
customers with respect to any deposits and/or loans that are not specifically
transferred to the Buyer pursuant hereto (it being understood that renewals of
existing loans are considered to have been transferred to the Buyer);
provided, however, that any solicitation conducted pursuant to this subsection
13.8(iii) is not conducted as part of an effort
16
<PAGE> 17
directed primarily at the customers of the Branch Office.
ARTICLE XIV
CLOSING
14.1 Closing. Unless this Agreement shall have been terminated or
-------
abandoned pursuant to the provision of Section 15.1 hereof, the Closing shall
be held at the Seller's offices, or such place as the Buyer and the Seller
shall mutually designate.
14.2 Deliveries at the Closing.
-------------------------
(a) At the Closing, the Seller shall transfer and assign to the
Buyer all of the assets, duties, responsibilities and obligations as referred
to herein, and the other agreements to be executed and delivered hereunder
shall be duly and validly executed and delivered by the Seller and the Buyer.
At the Closing, the Seller also shall deliver to the Buyer, in cash by wire
transfer of immediately available funds at the Buyer's direction, an amount
equal to the Payment Amount referenced in Section 7.1 hereof and calculated in
accordance with Schedule 7.1 attached hereto.
------------
(b) At the Closing, or within a reasonable time thereafter, the
Seller shall deliver to the Buyer, in a form reasonably satisfactory to
counsel for the Seller and the Buyer:
(1) a warranty deed for the Owned Branch Premises;
(2) a policy of owner's title insurance for the Owned
Branch Premises or an abstract of title in respect of the
Owned Branch Premises;
(3) a bill of sale with respect to the Fixtures, Furniture
and Equipment;
(4) such other assignments or other conveyances as may be
appropriate or necessary to effect the transfer to the Buyer
of the assets, duties, responsibilities and obligations as
referred to herein; and
(5) a list of those items which are directly attributable
to the Branch Office and are uncollected as of the Closing
Date.
(c) From time to time after the Closing Date, at the Buyer's
reasonable written request and without further consideration from the Buyer,
the Seller shall execute and deliver such other instruments of conveyance and
transfer and take such other action as the Buyer reasonably may require to
convey, transfer to and vest in the Buyer and to put the Buyer in possession
of any of the assets, duties, responsibilities and obligations referred to
herein.
17
<PAGE> 18
ARTICLE XV
MISCELLANEOUS
15.1 Termination. This Agreement shall terminate:
-----------
(a) upon written notice from the Seller to the Buyer in the event
that on the Closing Date the conditions set forth in Section 11.3 have not
been satisfied or waived by the Seller (in which event all rights of one
Party against the other Party for breach of this Agreement due to
nonperformance shall be preserved);
(b) upon written notice from the Buyer to the Seller in the event
that on the Closing Date the conditions set forth in Section 11.2 have not
been satisfied or waived by the Buyer (in which event all rights of one Party
against the other Party for breach of this Agreement due to nonperformance
shall be preserved);
(c) upon written agreement by both Parties (in which event
neither Party shall be liable to the other Party); or
(d) on the 180th day following the date of consummation of the
acquisition by MBI of RFG pursuant to the MBI/RFG Agreement, if the
transactions contemplated by this Agreement shall not have been consummated
before such date (in which event neither Party shall be liable to the other
Party), unless otherwise agreed to by the Parties.
15.2 Entire Agreement. This Agreement embodies the entire agreement of
----------------
the Parties in relation to the subject matter herein and supersedes all prior
understandings or agreements, oral or written, between the Parties hereto.
15.3 Headings. The headings and subheadings of the Articles and
--------
Sections contained in this Agreement, except the terms identified for
definition in Article I and elsewhere in this Agreement, are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provision hereof.
15.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by a duly authorized representative of a Party hereto on
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the
same Agreement.
15.5 Governing Law. This Agreement and the rights and obligations
-------------
hereunder shall be governed by and construed in accordance with laws of the
State of Missouri.
15.6 Successors; No Third Party Beneficiaries. All terms and
----------------------------------------
conditions of this Agreement shall be binding upon, and all benefits hereunder
shall inure to, the respective successors and assigns of the Seller and the
Buyer. It is understood and agreed to by the Parties that the Buyer may
assign all of its rights and liabilities hereunder to any of its direct or
indirect subsidiaries.
18
<PAGE> 19
15.7 Modification; Amendment. No amendment or other modification,
-----------------------
rescission, release or annulment of any part of this Agreement shall be
effective except pursuant to a written agreement subscribed by the duly
authorized representatives of the Parties hereto.
15.8 Notice. Any notice, request, demand, consent, approval or other
------
communication to any Party hereto shall be effective when received and shall
be given in writing, and delivered in person against receipt therefor, or sent
by certified mail, postage prepaid or courier service at its address set forth
below or at such other address as it shall hereafter furnish in writing to the
others. All such notices and other communications shall be deemed given on
the date received by the addressee:
19
<PAGE> 20
Seller: Buyer:
- ------- ------
Roosevelt Bank Allegiant Bancorp, Inc.
900 Parkway 7801 Forsyth Boulevard
Chesterfield, Missouri 63017 St. Louis, Missouri 63105
Attention: Gary W. Douglass, Attention: Kay Love
Chief Financial Officer Assistant Secretary
With a Copy to: With a Copy to:
- --------------- ---------------
Roosevelt Bank Thompson Coburn
900 Parkway One Mercantile Center
Chesterfield, Missouri 63017 Suite 3400
Attention: Mark A. Ellebrecht, St. Louis, Missouri 63101
General Counsel Attention: Jan R. Alonzo, Esq.
With a Copy to:
- ---------------
William A. Hayter
Senior Vice President
Mercantile Bancorporation Inc.
P.O. Box 524, Tram 19-6
St. Louis, Missouri 63166-0524
Telephone: (314) 425-8209
Facsimile: (314) 425-2752
With a Copy to:
- ---------------
Janet M. Varley
Senior Attorney
Mercantile Bancorporation Inc.
P.O. Box 524, Tram 10-7
St. Louis, Missouri 63166-0524
Telephone: (314) 425-8187
Facsimile: (314) 425-1386
15.9 Waiver. The Seller and the Buyer may waive their respective
------
rights, powers or privileges under this Agreement; provided, that, such
-------- ----
waiver shall be in writing; and further provided, that, no failure or delay on
---------------- ----
the part of the Seller or the Buyer to exercise any right, power or privilege
under this Agreement will operate as a waiver thereof, nor will any single or
partial exercise of any right, power or privilege under this Agreement
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege by the Seller or the Buyer under the terms of this
Agreement, nor will any such waiver operate or be construed as a future waiver
of such right, power or privilege under this Agreement.
15.10 Costs, Fees and Expenses. Each Party hereto agrees to pay all
------------------------
costs, fees and expenses which it has incurred in connection with or
incidental to the matters contained in this Agreement, including without
limitation any fees and disbursements to its accountants and counsel.
15.11 Severability. If any provision of this Agreement is invalid or
------------
unenforceable then, to the extent possible, all of the remaining provisions of
this Agreement shall remain in full force and effect and shall be binding upon
the Parties hereto.
20
<PAGE> 21
15.12 Determination of Assets and Liabilities Attributable to Seller.
--------------------------------------------------------------
The Seller shall have in its sole and absolute discretion, the right to
determine which assets and which liabilities are directly attributable to, are
associated with, are located at, or pertain to the Branch Office.
15.13 Non-Survival. Any and all representations, warranties, covenants
------------
and agreements contained herein or in any other document or instrument
delivered by the Buyer or the Seller pursuant to or in connection with this
Agreement shall expire on the Closing Date or upon earlier termination of this
Agreement in accordance with its terms, or, in the case of any other such
documents or instruments, in accordance with their respective terms.
21
<PAGE> 22
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the date first above
written.
SELLER:
ROOSEVELT BANK
By: /s/ Gary W. Douglass
----------------------------------
Name: Gary W. Douglass
Title: Chief Financial Officer
BUYER:
ALLEGIANT BANCORP, INC.
By: /s/ Shaun R. Hayes
----------------------------------
Name: Shaun R. Hayes
Title: President
196N97.JMV/TRH
22
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EXHIBIT 10.16
DEPOSIT TRANSFER
AND ASSET PURCHASE AGREEMENT
between
ROOSEVELT BANK
and
ALLEGIANT BANCORP, INC.
Dated: May 8, 1997
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DEPOSIT TRANSFER AND ASSET PURCHASE AGREEMENT
---------------------------------------------
THIS DEPOSIT TRANSFER AND ASSET PURCHASE AGREEMENT, dated as of May 8,
1997 (this "Agreement"), is made by and between ROOSEVELT BANK, a federal
stock savings bank having its principal place of business at 900 Roosevelt
Parkway, Chesterfield, Missouri 63017 (the "Seller") and Allegiant Bancorp,
Inc., a Missouri corporation having its principal place of business at 7801
Forsyth Boulevard, St. Louis, Missouri 63105 (the "Buyer").
RECITALS
A. The Seller operates a branch office at 509 West Highway 50, Union,
Missouri 63084 (the "Branch Office").
B. The Seller desires to transfer to the Buyer, and the Buyer desires
to accept the transfer from the Seller of, certain assets, liabilities,
duties, responsibilities and obligations of the Seller directly attributable
to the Branch Office.
NOW, THEREFORE, in consideration of the mutual promises herein set forth
and other valuable consideration, the receipt, sufficiency and mutuality of
which are hereby acknowledged, the Seller and the Buyer hereby agree as
follows:
ARTICLE I
DEFINITIONS
Certain Defined Terms. As used in this Agreement, the following terms
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shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
1.1 "Agreement" shall mean this Deposit Transfer and Asset Purchase
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Agreement by and between the Buyer and the Seller and any amendments hereto.
References to Articles, Sections, Schedules and the like refer to the
Articles, Sections, Schedules and the like of this Agreement unless otherwise
indicated.
1.2 "Book Value" with respect to any Seller liability or asset shall
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mean the dollar amount of such liability or asset reflected on the financial
records of the Seller as of the Closing Date on an unconsolidated basis
(exclusive of any reserves). These dollar amounts shall be further adjusted
for any differences in accounts, suspense items, unposted debits and credits
and other similar adjustments and corrections, all as reflected on the Records
of the Seller as of the Closing Date.
1.3 "Business Day" shall mean a day on which the Buyer is open for
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business and which is not a Sunday or legal bank holiday.
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1.4 "Closing" shall mean the consummation of the transactions
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contemplated by this Agreement on the Closing Date.
1.5 "Closing Date" unless otherwise agreed to by the Parties in
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writing, shall mean the date advised by the Seller to the Buyer, but not
earlier than the first day (and no later than the 90th day) following the date
on which all conditions set forth in Article XI hereof have been satisfied and
no later than December 31, 1997.
1.6 "Deposit" shall mean a deposit as defined in and within the
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meaning of Section 3(1) of the FDI Act, as amended, 12 U.S.C. Section 1813(l),
including, without limitation, (a) accrued interest, fees and charges payable
to the holders thereof; and (b) all uncollected items included in the
depositors' balances and credited on the Records of the Seller; provided
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that the term "Deposit" shall not include all or any portion of thos deposit
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balances (a) that may be required, in the discretion of the Seller, to satisfy
it for any liquidated or contingent liability of a depositor arising from an
unauthorized or unlawful transaction, or (b) of any Person obligated on any
loan of the Seller which (1) has been charged off, in whole or in part, the
Records of the Seller as of the Closing Date, (2) is required to be charged
off, in whole or in part, the Records of the Seller on or before the Closing
Date in accordance with written instructions of the appropriate regulatory
authority, whether or not any such assets have been charged off the Records of
the Seller as of the Closing Date, or (3) is past due as of the Closing Date.
1.7 "Fixtures" shall mean those improvements, additions, alterations
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and installments constituting all or a part of the Owned Branch Premises as of
the Closing Date.
1.8 "Furniture and Equipment" shall mean all furniture and equipment
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(except as noted on Schedule 1.8) that is owned or leased by the Seller and
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located on the Owned Branch Premises including, without limitation, those
items listed on Schedule 1.8.
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1.9 "Owned Branch Premises" shall mean the real property described on
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Schedule 1.9 together with the buildings and improvements thereon.
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1.10 "Party" shall mean either the Buyer or the Seller, and
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"Parties" shall mean the Buyer and the Seller.
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1.11 "Person" shall mean any individual, corporation, partnership,
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joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
1.12 "Record" or "Records" shall mean any and all records of the
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Seller, including, without limitation, all papers, microfiche, microfilm and
computer records (including, but not limited to, magnetic tape, disc storage,
card forms and printed copy), generated or maintained by the Seller in respect
of and relating solely to the Branch Office and in the possession of the
Seller on the Closing Date.
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ARTICLE II
DEPOSITS
2.1 Payment; Availability of Deposits. On the Closing Date, the
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Seller hereby agrees to transfer to the Buyer, and the Buyer hereby agrees to
assume, pay, discharge and perform all liabilities, duties, responsibilities and
obligations of the Seller in respect of, the Deposits of the Seller directly
attributable to the Branch Office (collectively, the "Transferred Deposits"),
which Transferred Deposits shall include those Deposits listed on Schedule 2.1
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and all Deposits made at the Branch Office from the date of such Schedule 2.1
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to and including the Closing Date. The Buyer agrees to open an account in the
name of each respective depositor in an amount equal to the Transferred
Deposit of such depositor and containing terms and conditions which are the
same as were applicable to the Transferred Deposit prior to the assumption
thereof by the Buyer pursuant hereto. From and after the Closing Date, the
Buyer agrees to commence payment of or otherwise make available to each such
depositor such Transferred Deposit in accordance with the terms and conditions
applicable to such Transferred Deposit.
2.2 Interest on Transferred Deposits. From and after the Closing
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Date, the Buyer hereby agrees to pay interest that has accrued and/or will
accrue from and after the Closing Date on all Transferred Deposits in accordance
with the terms and conditions of each written agreement relating to each such
Deposit (the "Deposit Agreement") or, if not otherwise prescribed in writing,
at the rate, if any, in effect at the Branch Office for such Deposit as of the
Closing Date. This Section 2.2 is not intended to be construed as a
limitation of the Buyer's ability to change the terms and conditions of the
Deposit Agreement so long as such change (a) is not in violation of the terms
and conditions of the Deposit Agreement, (b) is not effective until after the
Closing Date and (c) is in accordance with all applicable federal and state
laws, rules and regulations, including, without limitation, those governing
advance customer notification.
2.3 Secured Deposits. Transferred Deposits constituting public
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monies secured and perfected by a pledge of securities or other assets of the
Seller, if any, shall be transferred to the Buyer on the Closing Date, and the
Buyer shall substitute securities or other assets of the Buyer to secure such
Deposits in the manner required by law and/or any agreement, instrument or
other document entered into between the Seller and the depositor thereof. The
Seller shall retain, and the Buyer shall cooperate with the Seller in securing
the release of, all securities and other assets of the Seller securing such
Transferred Deposits.
ARTICLE III
ASSETS
3.1 Assets Purchased. On the Closing Date, the Buyer shall purchase
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from the Seller, and the Seller shall sell, assign, transfer, convey and
deliver to the Buyer, except as otherwise provided in Section 3.2 hereof, all
right, title and interest of the Seller in and to each of the following assets
of the Seller directly attributable to the Branch Office and appearing on the
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Records of the Seller as of the Closing Date (collectively, the "Transferred
Assets"):
(a) All Owned Branch Premises, Fixtures, Furniture and Equipment
described in Schedule 1.8. and Schedule 1.9, excepting those certain items
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of Furniture and Equipment, if any, which are expressly noted on Schedule 1.8
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to be retained by the Seller;
(b) All overdrafts (including overdrafts made pursuant to any
overdraft protection plan of the Seller) on the accounts associated with the
Transferred Deposits identified in Section 2.1;
(c) Safekeeping business, if any, attributable to the Branch
Office on the terms and conditions set forth in Section 5.3.
(d) Safe Deposit Boxes and Safe Deposit Box business attributable
to the Branch Office, on the terms and conditions set forth in Section 5.4.
(e) (i) those direct consumer and commercial loans (including
interest, fees, and charges payable by the obligors thereon) directly
attributable to the Branch Office the application for which are made at the
Branch Office (the "Branch Office Loans") listed on Schedule 3.1(e) hereto,
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(ii) any Branch Office Loans (including interest, fees, and charges payable by
the obligors thereon) made between the date of such Schedule 3.1(e) and the
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Closing Date and (iii) any reserves for unearned credit insurance premiums
with respect to the Branch Office Loans (hereinafter, collectively, the
"Transferred Loans").
3.2 Assets Excluded. Except as expressly set forth herein, the
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Buyer shall not acquire any of the following assets, duties, responsibilities or
obligations of the Seller:
(a) All assets of the Seller not directly attributable to the
Branch Office;
(b) Any computer software or programs of the Seller;
(c) All Branch Office loans, if any, (including interest, fees,
and charges payable by the obligors thereon) directly attributable to the
Branch Office that are listed on Schedules 3.2(c); and
(d) All items of Furniture and Equipment, if any, expressly noted
on Schedule 1.8 to be retained by the Seller.
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3.3 Title, Other Warranties.
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(a) The Seller represents and warrants that on the Closing Date
it will be the owner of the Transferred Assets and that such Transferred
Assets will be conveyed to the Buyer free and clear of all liens and
encumbrances which would materially interfere with the use of the Owned Branch
Premises as they are currently being used.
(b) Except as specifically set forth herein, the Seller makes no
representations
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whatsoever, whether express or implied, as to the condition, use, safety or
fitness of the Owned Branch Premises, Fixtures, Furniture and Equipment. The
Owned Branch Premises, Fixtures, Furniture and Equipment shall be sold "as is,
where is."
3.4 Title Insurance. The Seller shall obtain and deliver to the
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Buyer on the Closing Date or within a reasonable time thereafter a policy of
owner's title insurance covering the Owned Branch Premises.
3.5 Risk of Loss. If the Owned Branch Premises are damaged or
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destroyed prior to the Closing Date, and if such damage is not fully repaired
to the reasonable satisfaction of the Buyer and the Seller by the Closing
Date, then the Buyer shall have the option to either consummate or terminate
this transaction. The Buyer shall make such election in writing within 15
days after receipt of written notice of damage or destruction from the Seller.
If the Buyer elects to terminate this transaction, then this Agreement shall
become null and void and neither party shall have any further liability or
obligations hereunder. If the Buyer does not elect to terminate, then the
Seller shall assign and transfer to the Buyer on the Closing Date all of the
Seller's right, title and interest in and to all insurance proceeds paid or
payable to the Seller on account of such damage and the Seller shall have no
obligation to repair or restore the Owned Branch Premises.
ARTICLE IV
INDEMNIFICATION
4.1 Buyer's Indemnity.
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(a) The Buyer hereby agrees to indemnify, save and hold harmless
the Seller from and against any and all claims, liabilities, costs, expenses
and obligations (including, without limitation, reasonable costs and expenses
of counsel) arising out of or relating to (1) the Transferred Assets and the
Transferred Deposits and any and all liabilities, obligations, requirements
and duties with respect thereto arising on and after the Closing Date, (2) the
conduct of business by the Buyer at the Branch Office on and after the Closing
Date or (3) the failure of the Buyer to comply with any of the terms of this
Agreement.
(b) In the event that the Seller shall receive notice of a claim
subject to indemnification pursuant to the preceding Section 4.1(a), the
Seller shall notify the Buyer of such claim within 30 business days, and the
Buyer shall defend, discharge, satisfy and/or settle such claim at the Buyer's
sole cost and expense. In the event that the Buyer shall fail or refuse to
defend, discharge, satisfy or settle such claim, the Seller may defend,
discharge, satisfy or settle such claim and shall be reimbursed by the Buyer
for any and all costs and expenses (including, without limitation, reasonable
attorneys' fees) incurred by the Seller in respect of such matter.
4.2 Seller's Indemnity.
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(a) The Seller hereby agrees to indemnify, save and hold harmless
the Buyer
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from and against any and all claims, liabilities, costs, expenses
and obligations (including, without limitation, reasonable costs and expenses
of counsel) arising out of or relating to (1) the Transferred Assets and the
Transferred Deposits and any and all liabilities, obligations, requirements
and duties of the Seller with respect thereto arising prior to the Closing
Date, (2) the conduct of business by the Seller at the Branch Office prior to
the Closing Date (including failure to perfect collateral as is done by the
Seller in the normal course) or (3) the failure of the Seller to comply with
any of the terms of this Agreement.
(b) In the event that the Buyer shall receive notice of a claim
subject to indemnification pursuant to the preceding Section 4.2(a), the Buyer
shall notify the Seller of such claim within 30 business days, and the Seller
shall defend, discharge, satisfy and/or settle such claim at the Seller's sole
cost and expense. In the event that the Seller shall fail or refuse to
defend, discharge, satisfy or settle such claim, the Buyer may defend,
discharge, satisfy or settle such claim and shall be reimbursed by the Seller
for any and all costs and expenses (including, without limitation, reasonable
attorneys' fees) incurred by the Buyer in respect of such matter.
ARTICLE V
OTHER AGREEMENTS
5.1 Agreement with Respect to Data Processing Conversion. The
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Parties agree that each shall use its best efforts to convert the Transferred
Deposits and Transferred Assets on the Seller's data processing system to the
Buyer's data processing system, such conversion to be effective on the first
Business Day following the Closing Date.
5.2 Agreement with Respect to Buyer's Right to Accept the Transferred
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Loans. The Buyer and the Seller agree that up to the Closing Date the Buyer
shall have a continuing right to review all Branch Office loans (except those
identified on Schedule 3.2(c)) to determine whether such loans are to be
included in the Transferred Loans. The Buyer shall have the right to reject
any of such loans so reviewed up to the Closing Date. Such review(s) shall be
conducted at a time or times mutually agreeable to the Buyer and the Seller.
Up to the Closing Date, the Seller shall advise the Buyer of any new loans or
renewed loans made at the Branch Office and shall keep the Buyer advised as to
credit issues with respect to any loans.
5.3 Agreement with Respect to Safekeeping Business.
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(a) On the Closing Date, the Seller shall sell, assign, transfer,
convey and deliver to the Buyer, and the Buyer shall accept (1) all right,
title and interest of the Seller in and to the safekeeping business of the
Seller at the Branch Office including, without limitation, custody of all
securities and other items, if any, held by the Seller in safekeeping as the
Closing Date, together with all of the Records relating thereto, and (2) any
right or benefit with respect thereto from and after the Closing Date.
(b) On the Closing Date, the Buyer shall assume and agree to pay,
perform and discharge all of the duties and obligations of the Seller with
respect to such securities and other
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items held in safekeeping.
5.4 Agreement with Respect to Safe Deposit Business.
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(a) On the Closing Date, the Seller shall sell assign, transfer,
convey and deliver to the Buyer, and the Buyer shall accept, all right, title
and interest of the Seller in and to the Safe Deposit Boxes and related
business of the Seller at the Branch Office and any right or benefit with
respect thereto from and after the Closing Date.
(b) On the Closing Date, the Buyer shall assume and agree to
discharge, in the usual course of conducting a banking business, all of the
duties and obligations of the Seller with respect to all Safe Deposit Boxes
and the Safe Deposit Box business of the Seller and to maintain all of the
necessary facilities for the use of such boxes by the renters thereof during
the period for which such boxes have been rented, subject to the provisions of
the rental agreements between the Seller and the respective renters of such
boxes.
(c) Safe Deposit Box rental payments and safe keeping payments
(not including late payment fees) collected in advance by the Seller shall be
prorated with the Buyer as of the Closing Date. At the Closing Date, the
Seller shall pay to the Buyer an amount equal to all key and other deposits
paid by customers of the Safe Deposit Boxes, and the Buyer shall be obligated
to pay such key deposits to such customers in accordance with their respect
Safe Deposit Box agreements.
5.5 Agreement with Respect to Employee Benefits. If the Buyer
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offers employment to any of the employees of the Branch Office, such employees
may be treated by the Buyer as "New Hires" for all purposes; provided, however,
that (a) such employees shall participate in the medical plan of the Buyer
beginning on the Closing Date and continuing through such employees'
employment with the Buyer; and (b) such employees, if terminated within 180
days from the Closing Date for any reasons other than for cause, shall be
entitled to no less than four week's of such employees' compensation as
severance pay. Other than as provided herein, the Buyer shall not be
obligated to make any contribution to any plan or program on behalf of such
employees, with respect to any period prior to the Closing. Nothing in this
Section is intended, nor shall it be construed, to confer any rights or
benefits upon any person other than the Buyer and the Seller.
5.6 Agreement with Respect to Failure to Obtain Approval of
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Regulators. If any regulatory approval required for the execution and
delivery of, and the performance of all transactions contemplated under, this
Agreement is not obtained due to (i) the financial condition of the Buyer or
(ii) the ability of the Buyer to manage the Branch Office; then the Buyer
shall pay to the Seller an amount equal to 10% of the Premium within 15 days
from the date the Seller is notified by the regulator(s) that approval of the
transaction will not be given. Such payment shall be made in accordance with
instructions given by the Seller to the Buyer.
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ARTICLE VI
DUTIES WITH RESPECT TO CUSTOMERS OF THE SELLER
6.1 Payment of Checks, Drafts and Orders. The Buyer hereby agrees
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to pay all properly drawn checks, drafts and withdrawal orders presented in
respect of the Transferred Deposits to the Buyer by mail, over its counters or
through clearing, whether drawn on the check or draft forms provided by the
Seller or by the Buyer, to the extent that the Transferred Deposit balances
standing to the credit of the respective makers or drawers thereof are
sufficient to permit the payment thereof, and in all other respects to
discharge, in the usual course of conducting a banking business, the duties
and obligations of the Seller with respect to the Transferred Deposits.
6.2 Notice to Customers. In accordance with all applicable laws,
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the Buyer and/or the Seller, as the case may be, shall give notice to customers
of the Seller who hold or own one or more of the Transferred Deposits,
Transferred Assets, Transferred Loans, or who otherwise may be affected by the
transaction described herein, of the transaction described herein. Such
notice shall be given by posting such notice, by advertising in a newspaper of
general circulation in the county in which the Seller is located, and by mail
directed to the last address shown on the Seller's records for each such
customer and shall be in form and substance reasonably acceptable to the
Seller. Any additional notices including, but not limited to mailings,
advertisements and press releases, that may be given by the Buyer in
connection with this transaction shall be in form and substance reasonably
acceptable to the Seller.
ARTICLE VII
CONSIDERATION AND PAYMENTS
7.1 Payment Amount. On the Closing Date, the Seller shall deliver
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to the Buyer, by wire transfer of immediately available funds, an amount equal
the Payment Amount calculated in accordance with Schedule 7.1. All amounts
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shown on Schedule 7.1 are taken from the books and records of the Branch
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Office as of March 31, 1997 and the Buyer acknowledges and agrees that except
for the amount of premium for Transferred Deposits as shown on Schedule 7.1,
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such other amounts shall be adjusted on the Closing Date (i) in accordance
with Sections 8.1 and/or 8.2 hereof and (ii) to reflect the actual amounts
indicated on the books and records of the Branch Office as of the Closing
Date. The Buyer further acknowledges and agrees that the amount of premium
for Transferred Deposits and Transferred Assets (the "Premium") shall be fixed
at an amount equal to $3,645,594.
7.2 Prorations. Real estate taxes, special assessments, personal
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property taxes, utilities, utility deposits, and all other such sums with
respect to the Transferred Assets shall be prorated as of the Closing Date.
To the extent that such sums are not known on the Closing Date, such proration
shall be based upon the amount of such items for the prior year and, when such
items are known, the Buyer shall pay to the Seller, or the Seller shall pay to
the Buyer, as the case may be, such amounts as may be necessary to adjust the
actual proration.
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ARTICLE VIII
ADJUSTMENTS
8.1 Adjustments. It is understood that the Records of the Seller
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may not be complete as of the Closing Date due to lack of complete information
concerning the Seller's operations through the Closing Date and that certain
assets and liabilities of the type specified in Sections 2.1 and 3.1 may not
have been included therein because they occurred on the Closing Date, were not
posted on the Closing Date or are carried in the Seller's suspense accounts as
of the Closing Date, and for other reasons. The Buyer and the Seller, as soon
as practicable after the Closing Date, in accordance with the best information
then available, shall prepare a revised pro forma statement reflecting any
adjustments to such Records. Such pro forma statement shall take into
account, among other things, assets and liabilities of the type specified in
Sections 2.1 and 3.1 and transactions occurring through the Closing Date. In
the event any omissions or errors are discovered in preparing the revised pro
forma statement or in completing the transfers and assumptions contemplated
hereby, the Parties agree to make any adjustments therefor in accordance with
Sections 7.1 and 7.2 with all such adjustments to be made on or before the
30th day following the Closing Date.
8.2 Unknown Claims and Assets. If the Seller discovers:
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(a) that any liability or claim exists against the Seller which
is of the type that would have been included in the liabilities assumed under
Section 2.1 hereof, had the existence of such liability or claim or the facts
giving rise to such claim been known as of the Closing Date; or
(b) that any asset or claim exists in favor of the Seller which
is of the type that would have been included in the assets transferred under
Section 3.1 hereof, had the existence of such asset or claim or the facts
giving rise to such claim regarding such asset been known as of the Closing
Date;
then the Seller may, in its discretion, require that such claim, asset or
liability be transferred to or assumed by the Buyer, as the case may be, in a
manner consistent with the intent of this Agreement. The Seller and the Buyer
shall take any actions necessary to effect any such transfer of assets to or
assumption of liabilities by the Buyer and an appropriate adjustment to the
Payment Amount shall be made.
ARTICLE IX
RECORDS
9.1 Assignment of Records to Buyer. On the Closing Date, the Seller
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shall assign, transfer, convey and deliver to the Buyer all of the Seller's
right, title and interest in and to Records pertaining to the Transferred
Deposits, including but not limited to all signature cards, orders, contracts
between the Seller and its depositors and Records of similar character,
deposit slips, cancelled checks and withdrawal orders representing charges to
accounts of depositors. On
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the Closing Date, the Seller shall assign, transfer, convey and deliver to the
Buyer all of the Seller's right, title and interest in and to Records pertaining
to the Transferred Assets to the Buyer pursuant to this Agreement, including but
not limited to, Records of securities, certificates and other items in
safekeeping and title documents to personalty, instruments or Records of title
pertaining to the Owned Branch Premises (including but not limited to, deeds,
mortgages, abstracts and surveys), and signature cards, agreements and Records
pertaining to the Transferred Loans.
9.2 Preservation of Records. From and after the Closing Date, the
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Buyer and the Seller each hereby agrees to preserve and maintain for their
joint benefit all Records of which it has custody for the period prescribed by
applicable law for the retention of such Records by the Seller.
9.3 Access to Records; Copies.
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(a) From and after the Closing Date, the Buyer and the Seller each
hereby agrees, at reasonable times, intervals and locations without other
qualification or limitation, to permit the other Party (1) access to all
Records of which it has custody; (2) to use or inspect such Records; and (3)
to make extracts from or request copies of any such Records; provided,
however, that any such access shall be permitted after the Closing Date only
for good cause, which shall include, but shall not be limited to, responding
to the inquiry of any state and/or federal regulatory agency.
(b) The Buyer hereby agrees that the Seller shall have the right
to duplicate, from and after the Closing Date, in the Seller's discretion, and
at the Seller's expense, any Record in the form of microfilm or microfiche
pertaining to the Transferred Deposits and the Transferred Assets.
(c) The Party requesting a copy of any Record pursuant to this
Agreement shall bear the cost of duplication thereof. The cost of duplication
of any Record in the form of microfilm or microfiche or computer records shall
be determined based on accepted industry charges, to the extent applicable. A
copy of each Record requested shall be provided as soon as practicable by the
Party having custody thereof.
(d) Seller hereby agrees to make available to Buyer and its
employees, advisors, accountants, attorneys and agents such internal financial
reports, information and accounting work papers as are reasonably necessary
for Buyer's accountants to prepare audited financial statements with respect
to the assets purchased and the liabilities assumed hereby, as required by
Regulation S-X as promulgated by the Securities and Exchange Commission.
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ARTICLE X
CONTINUING COOPERATION
10.1 Additional Title Documents. The Seller hereby agrees at any
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time, and from time to time from and after the Closing Date, upon the request of
the Buyer on and after the date of transfer to the Buyer, to execute and deliver
such further instruments and documents of conveyance as shall be reasonably
necessary to vest in the Buyer the full legal or equitable title of the Seller
in and to the Transferred Assets.
10.2 Payment of Deposits by Seller. In the event any depositor does
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not accept the obligation of the Buyer to pay any Transferred Deposit
liability of the Seller assumed by the Buyer pursuant to this Agreement and
asserts a claim against the Seller for all or any portion of any such
Transferred Deposit liability, the Buyer agrees on demand to provide to the
Seller funds sufficient to pay such claim in an amount not in excess of the
Transferred Deposit.
ARTICLE XI
CONDITIONS PRECEDENT
11.1 Conditions Precedent to the Obligations of the Parties. The
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respective obligations of each of the Parties under this Agreement are subject
to the satisfaction at or prior to the Closing Date of each of the conditions
precedent set forth in this Section 11.1.
(a) No Orders, Etc. Consummation of the transactions
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contemplated hereby shall not violate any order or decree of any court or
governmental body having competent jurisdiction or any applicable law or
regulation.
(b) Buyer Regulatory Approvals. (i) The Buyer shall have
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received, and all required waiting periods shall have expired with respect to,
any and all authorizations, consents, approvals, licenses, charters and
exemptions by any governmental authority or regulatory or administrative body
required for the execution, delivery and performance of the Agreement by the
Buyer and the Seller and the consummation of the transactions contemplated
hereby including, without limitation, approval from the Missouri Division of
Finance and the Federal Deposit Insurance Corporation, (ii) no other action by
or notice to or registration or filing with any such authority or body shall
be required for the consummation of the transactions contemplated hereby or
thereby, and (iii) no state or federal agency having jurisdiction over the
Buyer or any affiliate thereof shall have objected thereto or imposed any
onerous requirements on the Buyer in respect thereof.
(c) Consummation of Holding Company Acquisition. Consummation
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of the acquisition by Mercantile Bancorporation Inc. ("MBI") of Roosevelt
Financial Group, Inc. ("RFG") pursuant to that certain Agreement and Plan of
Reorganization by and between MBI and RFG dated December 22, 1996 (the
"MBI/RFG Agreement").
11.2 Conditions Precedent to the Obligations of the Buyer. The
----------------------------------------------------
obligations of the
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<PAGE> 13
Buyer under this Agreement are subject to the satisfaction at or prior to the
Closing Date of each of the conditions precedent set forth in this Section 11.2,
any one or more of which may be waived, in whole or in part, by the Buyer.
(a) Compliance. The Seller shall have complied in all material
----------
respects with each of its covenants and agreements contained herein which are
required to be performed or complied with by the Seller on or prior to the
Closing Date.
(b) Accuracy of Representations. Each of the representations
---------------------------
and warranties of the Seller contained in Article XIII hereof shall be true and
correct in all material respects at and as of the Closing Date as if made at
and as of the Closing Date.
(c) Change in Condition of Transferred Assets. There shall
-----------------------------------------
have been no material adverse changes to the physical condition of the Owned
Branch Premises, Fixtures, Furniture and Equipment.
11.3 Conditions Precedent to the Obligations of the Seller. The
-----------------------------------------------------
obligations of the Seller under this Agreement are subject to the satisfaction
at or prior to the Closing Date of each of the conditions precedent set forth
in this Section 11.3, any one or more of which may be waived, in whole or in
part, by the Seller.
(a) Compliance. The Buyer shall have complied in all material
----------
respects with each of its covenants and agreements contained herein which are
required to be performed or complied with by it on or prior to the Closing
Date.
(b) Accuracy of Representations. Each of the representations
---------------------------
and warranties of the Buyer contained in Article XII hereof, shall be true and
correct in all material respects at and as of the Closing Date as if made at
and as of the Closing Date.
ARTICLE XII
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
The Buyer represents and warrants to, and covenants and agrees with, the
Seller the following as of the date of this Agreement, the Closing Date and
during the period of time between the date of this Agreement and the Closing
Date:
12.1 Existence, Etc. The Buyer represents and warrants that it (a)
---------------
is duly organized, validly existing and in good standing under the laws of the
State of Missouri and (b) has full power and authority (1) to own and operate
its properties and conduct its business as presently conducted by it, and (2)
to execute and deliver this Agreement and perform its obligations hereunder.
12.2 Authorization. The Buyer represents and warrants that the
-------------
execution and delivery of this Agreement and performance by the Buyer of its
obligations hereunder, and the consummation of the transactions contemplated
hereby, have been or will be duly authorized by
13
<PAGE> 14
all necessary corporate action on the part of the Buyer. The Buyer represents
and warrants that this Agreement has been duly executed and delivered and, upon
receipt of the regulatory approvals or waivers contemplated by this Agreement,
will constitute a legal, valid and binding obligation of the Buyer, enforceable
in accordance with its terms subject to bankruptcy, insolvency, reorganization
or similar laws affecting the enforcement of creditors' rights generally and to
general principles of equity.
12.3 No Conflict. The Buyer represents and warrants that except as
-----------
previously disclosed to the Seller in writing, the execution, delivery and
performance of this Agreement by the Buyer, and the consummation of the
transactions contemplated hereby, will not:
(a) violate or conflict with any provision of the charter or
bylaws of the Buyer or any law, rule, regulation, order, judgment, award,
administrative interpretation, injunction, writ, decree or the like affecting
the Buyer or by which the Buyer is bound, the violation of which is likely to
have a material adverse effect on the operations or financial condition of the
Buyer taken as a whole, or
(b) result in a breach of or constitute a default under any
indenture or other material agreement to which the Buyer is a party or by
which the Buyer or any material portion of its respective properties is bound,
which breach or default is likely to have a material adverse effect on the
operations or financial condition of the Buyer taken as a whole.
12.4 Regulatory Approvals. The Buyer represents and warrants that no
--------------------
authorization, consent, approval, license, exemption or other action by or
notice to or registration or filing with any governmental authority or
administrative or regulatory body is required for either the execution,
delivery or performance of this Agreement by the Buyer, or the consummation of
the transactions contemplated hereby, except such as shall have been made or
obtained prior to the Closing Date.
12.5 Absence of Litigation. The Buyer represents and warrants that
---------------------
except as previously disclosed to the Seller in writing, there are no pending
or threatened actions, suits or proceedings before any court, governmental
agency, arbitrator or instrumentality affecting the Buyer which purport to
affect the legality, validity or enforceability of this Agreement.
12.6 Review of Seller Information. The Buyer represents and warrants
----------------------------
that it, its counsel and its other representatives have been provided full
access to all Records and other information reasonably requested by it in
respect of the Transferred Deposits and Transferred Assets and that no
situation, event, circumstance or other matter came to its attention during
the review that it conducted in respect of such Records and other information
which it believes to be inconsistent in any material and adverse respect with
any of the representations of the Seller hereunder or to be of such
significance as to materially and adversely affect the financial condition,
business and/or prospects of the Branch Office.
12.7 Other Information and Instruments. The Buyer covenants and
---------------------------------
agrees that the Buyer will promptly provide to the Seller such other
information, including financial statements and computations, relating to the
performance of the provisions of this Agreement as the Seller
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<PAGE> 15
may from time to time reasonably request in writing.
12.8 Satisfaction of Conditions. The Buyer covenants and agrees that
--------------------------
the Buyer will use its best efforts to cause the conditions set forth in
Article XI, over which it has control, to be satisfied as soon as practicable
after the date hereof and in any event no later than the Closing Date.
Without limiting the generality of the foregoing, and to the extent it has not
previously done so, the Buyer covenants and agrees that Buyer will promptly
prepare, file, and pay all fees related to all applications and other notices
required in connection with, and will use its best efforts to obtain promptly,
all authorizations, consents, approvals, licenses, charters, exemptions or
other action by any governmental authority or administrative agency required
to be obtained by the Buyer in connection with the performance of this
Agreement by the Buyer and the consummation of the transactions contemplated
hereby.
ARTICLE XIII
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
The Seller represents and warrants to, and covenants and agrees with,
the Buyer the following as of the date of this Agreement, the Closing Date and
during the period of time between the date of this Agreement and the Closing
Date:
13.1 Existence, Etc. The Seller represents and warrants that it (a)
---------------
is duly organized, validly existing and in good standing under the laws of the
State of Missouri and (b) has full power and authority (1) to own and operate
its properties and conduct its business as presently conducted by it, and (2)
to execute and deliver this Agreement and perform its obligations hereunder.
13.2 Authorization. The Seller represents and warrants that the
-------------
execution and delivery of this Agreement and performance by the Seller of its
obligations hereunder, and the consummation of the transactions contemplated
hereby, have been or will be duly authorized by all necessary corporate action
on the part of the Seller. The Seller represents and warrants that this
Agreement has been duly executed and delivered and, upon receipt of the
regulatory approvals or waivers contemplated by this Agreement, will
constitute a legal, valid and binding obligation of the Seller, enforceable in
accordance with its terms subject to bankruptcy, insolvency, reorganization or
similar laws affecting the enforcement of creditors' rights generally and to
general principles of equity.
13.3 No Conflict. The Seller represents and warrants that except as
-----------
previously disclosed to the Seller in writing, the execution, delivery and
performance of this Agreement by the Seller and the consummation of the
transactions contemplated hereby, will not:
(a) violate or conflict with any provision of the charter or
bylaws of the Seller or any law, rule, regulation, order, judgment, award,
administrative interpretation, injunction, writ, decree or the like affecting
the Seller or by which the Seller is bound, the violation of which is likely
to have a material adverse effect on the operations or financial condition of
the Seller taken as a whole; or
15
<PAGE> 16
(b) result in a breach of or constitute a default under any
indenture or other material agreement to which the Seller is a party or by
which the Seller or any material portion of its respective properties is
bound, which breach or default is likely to have a material adverse effect on
the operations or financial condition of the Seller taken as a whole.
13.4 Regulatory Approvals. The Seller represents and warrants that
--------------------
no authorization, consent, approval, license, exemption or other action by or
notice to or registration or filing with any governmental authority or
administrative or regulatory body is required for either the execution,
delivery or performance of this Agreement by the Seller or the consummation of
the transactions contemplated hereby, except such as shall have been made or
obtained prior to the Closing Date.
13.5 Absence of Litigation. The Seller represents and warrants that
---------------------
there are no pending or threatened actions, suits or proceedings before any
court, governmental agency, arbitrator or instrumentality affecting the Seller
which purport to affect the legality, validity or enforceability of this
Agreement.
13.6 Satisfaction of Conditions. The Seller covenants and agrees
--------------------------
that the Seller will use its best efforts to cause the conditions set forth in
Article XI, over which it has control, to be satisfied as soon as practicable
after the date hereof and in any event no later than the Closing Date.
Without limiting the generality of the foregoing, and to the extent it has not
previously done so, the Seller will promptly prepare and file all applications
and other notices required in connection with, and will use its best efforts
to obtain promptly, all authorizations, consents, approvals, licenses,
charters, exemptions or other action by any governmental authority or
administrative agency required to be obtained by the Seller in connection with
the performance of this Agreement by the Seller and the consummation of the
transactions contemplated hereby.
13.7 Operation of Branch Office. The Seller covenants and agrees
--------------------------
that from the date hereof through and including the Closing Date, the Seller
will use its best efforts to cause the Branch Office to be operated in a manner
consistent with the Branch Office's present business practices.
13.8 Solicitation by Seller. The Seller covenants and agrees that
----------------------
commencing on the date hereof and for a period of twelve (12) months after the
Closing Date, the Seller shall not directly solicit any customer of the Branch
Office whose deposits and/or loans are transferred to the Buyer pursuant
hereto with respect to any of such deposits and/or loans. The Parties hereto
acknowledge that the foregoing shall not in any way limit the Seller from (i)
directly soliciting such customers with respect to any deposits and/or loans
that are transferred to the Buyer pursuant hereto after the expiration of the
aforementioned period; (ii) indirectly soliciting such customers, through
media, mail, or otherwise, with respect to any deposits and/or loans that are
transferred to the Buyer pursuant hereto; provided, however, that any
solicitation conducted pursuant to this subsection 13.8(ii) is not directed
solely at such customers; or (iii) directly or indirectly soliciting such
customers with respect to any deposits and/or loans that are not specifically
transferred to the Buyer pursuant hereto (it being understood that renewals of
existing loans are considered to have been transferred to the Buyer);
provided, however, that any solicitation conducted pursuant to this subsection
13.8(iii) is not conducted as part of an effort
16
<PAGE> 17
directed primarily at the customers of the Branch Office.
ARTICLE XIV
CLOSING
14.1 Closing. Unless this Agreement shall have been terminated or
-------
abandoned pursuant to the provision of Section 15.1 hereof, the Closing shall
be held at the Seller's offices, or such place as the Buyer and the Seller
shall mutually designate.
14.2 Deliveries at the Closing.
-------------------------
(a) At the Closing, the Seller shall transfer and assign to the
Buyer all of the assets, duties, responsibilities and obligations as referred
to herein, and the other agreements to be executed and delivered hereunder
shall be duly and validly executed and delivered by the Seller and the Buyer.
At the Closing, the Seller also shall deliver to the Buyer, in cash by wire
transfer of immediately available funds at the Buyer's direction, an amount
equal to the Payment Amount referenced in Section 7.1 hereof and calculated in
accordance with Schedule 7.1 attached hereto.
------------
(b) At the Closing, or within a reasonable time thereafter, the
Seller shall deliver to the Buyer, in a form reasonably satisfactory to
counsel for the Seller and the Buyer:
(1) a warranty deed for the Owned Branch Premises;
(2) a policy of owner's title insurance for the Owned
Branch Premises or an abstract of title in respect of
the Owned Branch Premises;
(3) a bill of sale with respect to the Fixtures, Furniture
and Equipment;
(4) such other assignments or other conveyances as may be
appropriate or necessary to effect the transfer to the Buyer
of the assets, duties, responsibilities and obligations as
referred to herein; and
(5) a list of those items which are directly attributable
to the Branch Office and are uncollected as of the Closing
Date.
(c) From time to time after the Closing Date, at the Buyer's
reasonable written request and without further consideration from the Buyer,
the Seller shall execute and deliver such other instruments of conveyance and
transfer and take such other action as the Buyer reasonably may require to
convey, transfer to and vest in the Buyer and to put the Buyer in possession
of any of the assets, duties, responsibilities and obligations referred to
herein.
17
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ARTICLE XV
MISCELLANEOUS
15.1 Termination. This Agreement shall terminate:
-----------
(a) upon written notice from the Seller to the Buyer in the event
that on the Closing Date the conditions set forth in Section 11.3 have not
been satisfied or waived by the Seller (in which event all rights of one
Party against the other Party for breach of this Agreement due to
nonperformance shall be preserved);
(b) upon written notice from the Buyer to the Seller in the event
that on the Closing Date the conditions set forth in Section 11.2 have not
been satisfied or waived by the Buyer (in which event all rights of one Party
against the other Party for breach of this Agreement due to nonperformance
shall be preserved);
(c) upon written agreement by both Parties (in which event
neither Party shall be liable to the other Party); or
(d) on the 180th day following the date of consummation of the
acquisition by MBI of RFG pursuant to the MBI/RFG Agreement, if the
transactions contemplated by this Agreement shall not have been consummated
before such date (in which event neither Party shall be liable to the other
Party), unless otherwise agreed to by the Parties.
15.2 Entire Agreement. This Agreement embodies the entire agreement
----------------
of the Parties in relation to the subject matter herein and supersedes all prior
understandings or agreements, oral or written, between the Parties hereto.
15.3 Headings. The headings and subheadings of the Articles and
--------
Sections contained in this Agreement, except the terms identified for
definition in Article I and elsewhere in this Agreement, are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provision hereof.
15.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by a duly authorized representative of a Party hereto on
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the
same Agreement.
15.5 Governing Law. This Agreement and the rights and obligations
-------------
hereunder shall be governed by and construed in accordance with laws of the
State of Missouri.
15.6 Successors; No Third Party Beneficiaries. All terms and
----------------------------------------
conditions of this Agreement shall be binding upon, and all benefits hereunder
shall inure to, the respective successors and assigns of the Seller and the
Buyer. It is understood and agreed to by the Parties that the Buyer may
assign all of its rights and liabilities hereunder to any of its direct or
indirect subsidiaries.
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15.7 Modification; Amendment. No amendment or other modification,
-----------------------
rescission, release or annulment of any part of this Agreement shall be
effective except pursuant to a written agreement subscribed by the duly
authorized representatives of the Parties hereto.
15.8 Notice. Any notice, request, demand, consent, approval or other
------
communication to any Party hereto shall be effective when received and shall
be given in writing, and delivered in person against receipt therefor, or sent
by certified mail, postage prepaid or courier service at its address set forth
below or at such other address as it shall hereafter furnish in writing to the
others. All such notices and other communications shall be deemed given on
the date received by the addressee:
19
<PAGE> 20
Seller: Buyer:
- ------- ------
Roosevelt Bank Allegiant Bancorp, Inc.
900 Parkway 7801 Forsyth Boulevard
Chesterfield, Missouri 63017 St. Louis, Missouri 63105
Attention: Gary W. Douglass, Attention: Kay Love
Chief Financial Officer Assistant Secretary
With a Copy to: With a Copy to:
- --------------- ---------------
Roosevelt Bank Thompson Coburn
900 Parkway One Mercantile Center
Chesterfield, Missouri 63017 Suite 3400
Attention: Mark A. Ellebrecht, St. Louis, Missouri 63101
General Counsel Attention: Jan R. Alonzo, Esq.
With a Copy to:
- ---------------
William A. Hayter
Senior Vice President
Mercantile Bancorporation Inc.
P.O. Box 524, Tram 19-6
St. Louis, Missouri 63166-0524
Telephone: (314) 425-8209
Facsimile: (314) 425-2752
With a Copy to:
- --------------
Janet M. Varley
Senior Attorney
Mercantile Bancorporation Inc.
P.O. Box 524, Tram 10-7
St. Louis, Missouri 63166-0524
Telephone: (314) 425-8187
Facsimile: (314) 425-1386
15.9 Waiver. The Seller and the Buyer may waive their respective
------
rights, powers or privileges under this Agreement; provided, that, such
-------- ----
waiver shall be in writing; and further provided, that, no failure or delay on
------- -------- ----
the part of the Seller or the Buyer to exercise any right, power or privilege
under this Agreement will operate as a waiver thereof, nor will any single or
partial exercise of any right, power or privilege under this Agreement
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege by the Seller or the Buyer under the terms of this
Agreement, nor will any such waiver operate or be construed as a future waiver
of such right, power or privilege under this Agreement.
15.10 Costs, Fees and Expenses. Each Party hereto agrees to pay all
------------------------
costs, fees and expenses which it has incurred in connection with or
incidental to the matters contained in this Agreement, including without
limitation any fees and disbursements to its accountants and counsel.
15.11 Severability. If any provision of this Agreement is invalid or
------------
unenforceable then, to the extent possible, all of the remaining provisions of
this Agreement shall remain in full force and effect and shall be binding upon
the Parties hereto.
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15.12 Determination of Assets and Liabilities Attributable to Seller.
--------------------------------------------------------------
The Seller shall have in its sole and absolute discretion, the right to
determine which assets and which liabilities are directly attributable to, are
associated with, are located at, or pertain to the Branch Office.
15.13 Non-Survival. Any and all representations, warranties, covenants
------------
and agreements contained herein or in any other document or instrument
delivered by the Buyer or the Seller pursuant to or in connection with this
Agreement shall expire on the Closing Date or upon earlier termination of this
Agreement in accordance with its terms, or, in the case of any other such
documents or instruments, in accordance with their respective terms.
21
<PAGE> 22
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the date first above
written.
SELLER:
ROOSEVELT BANK
By: /s/ Gary W. Douglass
-----------------------------------
Name: Gary W. Douglass
Title: Chief Financial Officer
BUYER:
ALLEGIANT BANCORP, INC.
By: /s/ Shaun R. Hayes
-----------------------------------
Name: Shaun R. Hayes
Title: President
22
<PAGE> 1
[letterhead of BDO Seidman, LLP]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Allegiant Bancorp, Inc.
St. Louis, Missouri
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated
January 24, 1997, except for Note 15 which is as of February 24, 1997,
relating to the consolidated financial statements of Allegiant Bancorp,
Inc. appearing in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1996.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
St. Louis, Missouri
July 10, 1997
<PAGE> 1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Reliance Financial, Inc.
We hereby consent to the use of our report on the consolidated financial
statements of Reliance Financial, Inc. included in this Amendment Number 1
to the Registration Statement on Form S-4 and to the reference to our Firm
under the caption "Experts" in this Registration Statement.
MICHAEL TROKEY & COMPANY, P.C.
/s/ Michael Trokey & Company, P.C.
St. Louis, Missouri
July 11, 1997
