<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended 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.
<PAGE> 2
<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 3
Consolidated Statements of Income -- Three Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows -- Three Months Ended March 31, 1997 and 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis:
Overview 7
Results of Operations 8
Financial Condition 16
Asset Quality 18
Liquidity and Capital Resource Management 20
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 22
SIGNATURES
</TABLE>
- 2 -
<PAGE> 3
<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>
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<PAGE> 4
<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>
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<PAGE> 5
<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>
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<PAGE> 6
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of Allegiant Bancorp, Inc. and its subsidiaries:
Allegiant Bank, Allegiant Mortgage Company and Edge Mortgage
Services, Inc. Unless the context otherwise indicates.
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.
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Company is a bank holding company which owns all of the capital
stock of Allegiant Bank, 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.
- 7 -
<PAGE> 8
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.
- 8 -
<PAGE> 9
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.
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<PAGE> 10
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.
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<PAGE> 11
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>
- 11 -
<PAGE> 12
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.
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<PAGE> 13
The following table summarizes, for the periods indicated, activity in
the Bank's allowance for possible loan losses, including amounts of loans
charged off, amounts of recoveries and additions to the allowance charged to
operating expenses:
<TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORAMTION--ALLOCATION
OF THE ALLOWANCE FOR LOAN LOSSES
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
------------ ------------
<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>
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<PAGE> 14
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.
- 14 -
<PAGE> 15
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>
- 15 -
<PAGE> 16
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.
- 16 -
<PAGE> 17
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>
- 17 -
<PAGE> 18
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:
- 18 -
<PAGE> 19
<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>
- 19 -
<PAGE> 20
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.
- 20 -
<PAGE> 21
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%.
- 21 -
<PAGE> 22
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.
- 22 -
<PAGE> 23
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
- 23 -
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 10,692
<INT-BEARING-DEPOSITS> 231,024
<FED-FUNDS-SOLD> 25
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,851
<INVESTMENTS-CARRYING> 39,572
<INVESTMENTS-MARKET> 39,419
<LOANS> 314,267
<ALLOWANCE> 3,456
<TOTAL-ASSETS> 390,101
<DEPOSITS> 310,823
<SHORT-TERM> 41,275
<LIABILITIES-OTHER> 2,204
<LONG-TERM> 13,663
0
0
<COMMON> 28
<OTHER-SE> 22,108
<TOTAL-LIABILITIES-AND-EQUITY> 22,136
<INTEREST-LOAN> 6,884
<INTEREST-INVEST> 913
<INTEREST-OTHER> 57
<INTEREST-TOTAL> 7,854
<INTEREST-DEPOSIT> 3,565
<INTEREST-EXPENSE> 4,374
<INTEREST-INCOME-NET> 3,480
<LOAN-LOSSES> 493
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,303
<INCOME-PRETAX> 1,002
<INCOME-PRE-EXTRAORDINARY> 1,002
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 601
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
<YIELD-ACTUAL> 8.66
<LOANS-NON> 625
<LOANS-PAST> 268
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 3,100
<CHARGE-OFFS> 141
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 3,456
<ALLOWANCE-DOMESTIC> 2,489
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 967
<FN>
<F1>Only reported at year end.
</TABLE>
