<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 2, 1997
Registration No. 333-
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
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
--------------------------------------------------------------------------------------------------------------------
<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.
</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]
May --, 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 : a.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 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 :
a.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 which 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 REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
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]
May --, 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 : a.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 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 [ : a.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 which 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 MAY 2, 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 April 30, 1997, the closing
sale price for Allegiant Common Stock as reported on the Nasdaq was $13.00 per
share and the last bid price for Reliance Common Stock as reported by the
National Quotation Bureau, Inc. was $18.25 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 20 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 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- ---------) 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 8
Business of Allegiant 8
Recent Developments 8
Business of Reliance 8
The Proposed Merger 9
Other Agreements 10
Interests of Certain Persons in the Merger 10
Special Meeting of Allegiant Shareholders 11
Annual Meeting of Reliance Stockholders 12
Reasons for the Merger 13
Opinion of Financial Advisor to Allegiant 13
Opinion of Financial Advisor to Reliance 13
Fractional Shares 13
Expenses 14
Waiver and Amendment; Termination 14
Certain Federal Income Tax Consequences 14
Regulatory Approvals 14
Accounting Treatment 15
Covenants Pending Closing 15
Appraisal Rights 15
Markets, Market Prices and Dividend Information 16
Comparative Unaudited Per Share Data 17
Summary Financial Data 18
RISK FACTORS 21
Regulatory Risk 21
Credit Risk 21
Exposure to Local Economic Conditions 21
Interest Rate Risk 22
Deposit Mix 22
No Assurance of Future Growth 22
First Acquisition 22
Competition 22
Control by Management 23
No Assurance of Cash or Stock Dividends 23
Reliance on Management 23
Shares Eligible for Future Resale 23
Market for Allegiant Common Stock 23
Stock Not an Insured Deposit 23
THE ALLEGIANT SPECIAL MEETING 24
General 24
Date, Time and Place 24
Allegiant Record Date; Vote Required 24
Voting and Revocation of Proxies 24
Solicitation of Proxies 25
- 4 -
<PAGE> 10
<CAPTION>
Page
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<S> <C>
THE RELIANCE ANNUAL MEETING 26
General 26
Date, Time and Place 26
Reliance Record Date; Vote Required 26
Voting and Revocation of Proxies 27
Solicitation of Proxies 27
TERMS OF THE PROPOSED MERGER 28
General Description of the Merger 28
Other Agreements 29
Interests of Certain Persons in the Merger 31
Background of and Reasons for the Merger; Board Recommendations 33
Opinion of Financial Advisor to Allegiant 37
Opinion of Financial Advisor to Reliance 40
Conditions of the Merger 44
Representations and Warranties 47
Termination, Waiver and Amendment of the Merger Agreement 47
Indemnification 48
Closing Date 48
Surrender of Reliance Stock Certificates and Receipt of Allegiant Common Stock 49
Fractional Shares 49
Regulatory Approvals 49
Business Pending the Merger 50
Accounting Treatment 53
Effect on Stock Option and Employee Benefit Plans 53
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER 54
APPRAISAL RIGHTS OF STOCKHOLDERS OF RELIANCE 56
PRO FORMA FINANCIAL INFORMATION 59
Comparative Unaudited Per Share Data 59
INFORMATION REGARDING ALLEGIANT 60
General 60
The Bank 60
Marketing 60
Products and Services 61
Market Area 61
Competition 61
Employees 62
Effect of Governmental Policy 62
Description of Property 62
Legal Proceedings 63
Management's Discussion and Analysis of Financial Condition and Results of Operations 64
Financial Condition 72
Asset/Liability Management 73
Risk Management 74
Loans 75
Investments 78
- 5 -
<PAGE> 11
<CAPTION>
Page
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<S> <C>
Asset Quality 79
Liquidity and Capital Resource Management 82
Deposits 82
Liquidity Management 83
Capital Resources 84
Directors and Executive Officers of Allegiant 87
Certain Relationships and Related Transactions 87
Security Ownership of Management 88
Compensation of Executive Officers 90
INFORMATION REGARDING RELIANCE 92
Reliance Financial, Inc. 92
Reliance Federal Savings and Loan Association of St. Louis County 92
Market Area and Competition 93
Lending Activities 93
Delinquencies and Classified Assets 100
Delinquent Loans and Troubled Assets 101
Investment Activities 104
Investment Portfolio Maturities 107
Sources of Funds 107
Personnel 111
Executive Officers of Reliance 111
Properties 112
Legal Proceedings 112
Selected Consolidated Financial and Other Data 112
Management's Discussion and Analysis of Financial Condition and Results of Operations 114
Asset/Liability Management 114
Average Balances, Interest and Average Yields and Rates 115
Rate/Volume Analysis 116
Liquidity and Capital Resources 116
Financial Condition 117
Results of Operations (Comparison of the Year Ended September 30, 1996 to the Year Ended September 30, 1995) 117
Comparison of the Year Ended September 30, 1995 to the Year Ended September 30, 1994 119
Liquidity And Capital Resources 122
Impact of Recent Accounting Pronouncements 123
Section 16(a) Beneficial Ownership Reporting Compliance 125
Meetings and Committees of the Board of Directors 125
Employment and Severance Arrangements 126
Directors' Compensation 127
Compensation Committee Interlocks and Insider Participation 127
Report of the Compensation Committee on Executive Compensation 127
Executive Compensation 128
Benefits 129
Security Ownership of Certain Beneficial Holders 131
Certain Transactions 132
Performance Graph 132
ELECTION OF RELIANCE DIRECTORS 124
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<S> <C>
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS OF RELIANCE 133
DESCRIPTION OF ALLEGIANT COMMON STOCK 133
Restrictions on Resale of Allegiant Stock by Affiliates 134
Comparison of the Rights of Shareholders of Allegiant and Stockholders of Reliance 135
SUPERVISION AND REGULATION 137
General 137
Certain Transactions with Affiliates 138
Payment of Dividends 138
Capital Adequacy 139
Support of Subsidiary Bank 139
Federal Regulation of Savings Institutions 139
FIRREA and FDICIA 143
Depositor Preference Statute 144
FDIC Insurance Assessments 144
Federal Home Loan Bank System 145
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS 146
LEGAL MATTERS 146
EXPERTS 146
OTHER MATTERS 147
SHAREHOLDER PROPOSALS 147
CONSOLIDATED FINANCIAL STATEMENTS 148
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
Annex D -- Quarterly Report on Form 10-Q of Reliance Financial, Inc. for the
Quarter Ended December 31, 1996 D-1
</TABLE>
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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 which 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 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 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 December 31, 1996,
Allegiant reported, on a consolidated basis, total assets of $377.6 million,
total deposits of $308.7 million, total loans of $291.9 million and
shareholders' equity of $16.4 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
Common Stock to existing shareholders at a price of $9.375 per share.
Allegiant reported that net income for the quarter ended March 31,
1997 increased 27.9% to $601,000 or $.23 per share, from $470,000, or $.20 per
share, in 1996. Allegiant also reported that as of March 31, 1997, total
assets increased 41.7% to $390.1 million from $275.3 million at the end of
the first quarter in 1996. Total deposits as of March 31, 1997 increased
36.9% to $310.8 million from $227.0 million at the end of the first quarter
of 1996, while loans outstanding increased 61.1% to $312.3 million from
$227.0 million for the same period of 1996.
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 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 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
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<PAGE> 14
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 December 31, 1996, Reliance reported, on a
consolidated basis, total assets of $31.7 million, total deposits of $23.9
million, total loans of $20.8 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 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 last reported sale price of Allegiant Common Stock on
the Nasdaq on April 30, 1997 ($13.00 per share), the value of 1.6741 shares
of Allegiant Common Stock as of that date would have been approximately
$21.76. The last reported bid price of Reliance Common Stock on that date
was $18.25 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 and Reliance Common Stock was $12.50 and $15.75,
respectively.
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.
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
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<PAGE> 15
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. 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;
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<PAGE> 16
(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 [ : a.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 ALLEGIANT AND ITS SHAREHOLDERS. THE
ALLEGIANT BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
PROPOSAL TO APPROVE THE MERGER AGREEMENT.
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<PAGE> 17
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 within 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 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.
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<PAGE> 18
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 dates of such opinions, 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 dates of such opinions, 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
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."
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<PAGE> 19
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
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." On [ , 1997], Allegiant filed
applications regarding the Merger with the Federal Reserve Board and the OTS.
No assurance can be given that the approval of the Federal Reserve Board and
the OTS will be obtained or the timing or conditions of such approvals. See
"Terms of the Proposed Merger--Regulatory Approvals" and "Supervision and
Regulation."
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<PAGE> 20
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." For information
regarding the financial impact of the Merger to the shareholders of Allegiant
and the stockholders of Reliance, see the unaudited pro forma combined
financial information regarding Allegiant and Reliance upon the consummation
of the Merger, including unaudited pro forma per share data, in
"--Comparative Unaudited Per Share Data."
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."
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<PAGE> 21
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 CASH
-------------------------- DIVIDEND --------------------- DIVIDEND
HIGH LOW DECLARED<F3> HIGH LOW DECLARED
---- --- ------------ ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter $7.027 $7.027 $ .017 $ <F2> $ <F2> $ --
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 13.023 12.773 -- 19.000 18.250 .15
(through April 30, 1997)
<FN>
- ------------------------
<F1> For a recent sale price of Allegiant Common Stock, see the cover of
this Joint Proxy Statement/Prospectus.
<F2> Reliance was incorporated on April 7, 1995. Consequently, there are no
sales prices for Reliance Common Stock prior to such date.
<F3> 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."
</TABLE>
- 16 -
<PAGE> 22
COMPARATIVE UNAUDITED PER SHARE DATA
The following tables set 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:
December 31, 1996 $ 7.22 $ 16.03 $ 8.60 $ 8.85
CASH DIVIDENDS DECLARED PER SHARE:
Year ended December 31, 1996 $ 0.09 $ .60 $ 0.09 $ 0.09
EARNINGS PER SHARE BEFORE CHANGE
IN ACCOUNTING PRINCIPLE:
Year ended December 31, 1996 $ 0.76 $ .29 $ 0.62 $ 0.64
MARKET PRICE PER SHARE:
At March 20, 1997 <F4> $ 12.50 $ 15.75 $ 20.93 N/A
At April 30, 1997 <F4> 13.00 18.25 21.76 N/A
<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
is reported as December 31, 1996 data.
<F2> Based on the pro forma combined per share amounts multiplied by 1.6741,
the conversion ratio applicable to one share of Reliance Common Stock
in the Merger (subject to adjustment), 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.
<F3> Includes the effect of pro forma adjustments for Reliance.
<F4> The market value of Allegiant Common Stock reported as of March 20,
1997, the last trading day preceding the public announcement of the
Merger, and as of April 30, 1997, the latest available date prior to the
distribution of the Proxy Statement/Prospectus, is based on the last sale
price as reported on the Nasdaq. The market value of Reliance Common
Stock reported as of March 20, 1997, the last trading day preceding the
public announcement of the Merger, and as of April 30, 1997, the latest
available date prior to the filing of the 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 1.6741 Exchange Ratio, rounded
down to the nearest one-eighth.
</TABLE>
- 17 -
<PAGE> 23
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 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 three months ended December 31, 1996 and 1995 are taken from the
unaudited financial statements of Reliance as of and for the three months ended
December 31, 1996 and 1995. These data include 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.
- 18 -
<PAGE> 24
<TABLE>
ALLEGIANT BANCORP, INC.
SUMMARY FINANCIAL DATA
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net earnings <F1> $ 0.76 $ 0.62 $ 0.53 $ 0.23 $ 0.14
Cash dividends declared <F1> 0.09 0.07 0.04 0.02 --
Book value at period-end <F1> 7.22 6.37 5.40 4.99 4.60
Average common shares outstanding
(in thousands) <F1> 2,386 2,056 1,520 1,077 852
EARNINGS (IN THOUSANDS):
Interest income $ 25,368 $ 19,252 $ 9,994 $ 5,585 $ 4,203
Interest expense 14,999 11,206 4,584 2,675 2,133
--------- --------- --------- --------- ---------
Net interest income 10,369 8,046 5,410 2,910 2,070
Provision for possible loan losses 1,448 977 849 233 108
Other income 1,081 654 513 282 247
Other expense 7,019 5,625 3,764 2,546 2,011
Income taxes 1,175 823 509 161 78
--------- --------- --------- --------- ---------
Net earnings $ 1,808 $ 1,275 $ 801 $ 252 $ 120
========= ========= ========= ========= =========
ENDING BALANCE SHEET (IN THOUSANDS):
Total assets $ 377,564 $ 280,386 $ 171,927 $ 104,416 $ 68,782
Investment securities 60,559 73,211 40,888 23,063 14,434
Total loans 291,926 181,544 121,393 69,773 45,600
Total deposits 308,670 231,309 134,884 90,686 61,624
Long-term debt 14,663 19,719 9,804 2,200 2,400
Shareholders' equity 16,386 13,938 8,453 7,487 3,894
SELECTED RATIOS:
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
Net interest rate margin <F2> 3.50 3.71 4.27 3.71 3.64
Equity to assets 4.81 5.14 6.05 5.47 6.62
Reserve for possible loan losses to:
Outstanding loans 1.06 1.17 1.20 1.11 1.21
Non-performing loans 447.98 691.56 841.04 553.57 239.13
<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 five-for-three 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> Net interest margin equals net interest income divided by total
interest earning assets as of the end of the periods indicated.
</TABLE>
- 19 -
<PAGE> 25
<TABLE>
RELIANCE FINANCIAL, INC.
SUMMARY FINANCIAL DATA
<CAPTION>
AS OF OR FOR THE
THREE MONTHS ENDED AS OF OR FOR THE
DECEMBER 31, YEAR ENDED SEPTEMBER 30,
--------------------- --------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net earnings<F1> $ .08 $ .19 $ .40 $ .97 $ -- $ -- $ --
Dividends declared .15 .15 .60 .15 -- -- --
Book value at period end 16.03 16.62 16.00 16.51 -- -- --
EARNINGS (IN THOUSANDS):
Interest income $ 597 $ 604 $ 2,496 $ 2,344 $ 2,304 $ 2,549 $ 3,135
Interest expense (273) (283) (1,136) (1,084) (1,146) (1,357) (1,984)
-------- -------- -------- -------- -------- -------- --------
Net interest income 324 321 1,360 1,260 1,158 1,192 1,151
(Provision) credit for loan losses -- 1 108 87 115 78 (204)
Other income 10 10 53 71 75 111 279
Other expense (275) (224) (1,170) (830) (675) (824) (917)
Income taxes (28) (33) (193) (222) (215) (109) (105)
Cumulative effect of change in
accounting principle -- -- -- -- 201 -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings $ 31 $ 75 $ 158 $ 366 $ 659 $ 448 $ 204
======== ======== ======== ======== ======== ======== ========
ENDING BALANCE SHEET (IN THOUSANDS):
Total assets $ 31,705 $ 33,301 $ 32,663 $ 32,844 $ 32,259 $ 33,351 $ 36,549
Investment and mortgage-backed
securities<F3> 4,079 4,483 9,585 10,015 10,141 7,228 4,219
Loans and leases, net of
unearned income 20,777 20,990 21,144 20,031 19,839 22,438 24,553
Deposits 23,907 24,940 24,234 25,253 28,687 30,415 34,009
Borrowings 750 1,000 1,000 -- -- -- --
Stockholders' equity 6,824 7,148 6,807 7,099 3,131 2,498 2,051
Allowance for loan losses 203 303 204 305 388 434 525
SELECTED RATIOS:
Return on average assets .38%<F2> .91%<F2> .48% 1.13% 1.97% 1.29% .53%
Return on average equity 1.81 <F2> 4.21 <F2> 2.22 7.35 22.87 20.03 10.03
Net interest rate margin 3.99 <F2> 4.02 <F2> 4.22 4.02 3.57 3.61 3.12
Equity to assets 21.52 21.46 20.57 21.84 9.34 7.17 5.33
Allowance for loan losses to:
Outstanding loans .98 1.44 .93 1.49 1.90 1.85 2.09
Non-performing loans .82 <F2> .94 <F2> 87.64 64.03 26.64 26.19 27.59
Cash dividend payout 195.44 79.97 152.31 16.14 -- -- --
<FN>
- ------------------------
<F1> Based on weighted-average common shares outstanding.
<F2> Annualized.
<F3> Includes certificates of deposit.
</TABLE>
- 20 -
<PAGE> 26
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 reactions 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 the loan agreements. 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."
- 21 -
<PAGE> 27
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 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 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.
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.
- 22 -
<PAGE> 28
CONTROL BY MANAGEMENT
Allegiant's directors and executive officers currently
beneficially own approximately 1,468,670 shares of Common Stock
(approximately 50.58% 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 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 [ ] 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, will become eligible for resale in May 1997, subject to compliance
with the terms and conditions of Rule 144. No prediction can be 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.
- 23 -
<PAGE> 29
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 which 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 [ : a.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 which 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
- 24 -
<PAGE> 30
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 purposes 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.
- 25 -
<PAGE> 31
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 which 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 approval 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> 32
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 WHICH 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 purposes 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> 33
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, including receipt of all applicable
regulatory approvals, 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 Effective Time.
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 last reported sale price of Allegiant Common Stock on the Nasdaq on
April 30, 1997 ($13.00 per share), the value of 1.6741 shares of Allegiant
Common Stock as of that date would have been approximately $21.76. The last
reported bid price of Reliance Common Stock on that date was $18.25 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 and Reliance Common Stock was $12.50 and $15.75, respectively.
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.
Boatmen's Trust Company, 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. As soon as practicable after
consummation of the Merger, a letter of transmittal (including instructions
setting forth
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<PAGE> 34
the procedures for exchanging certificates representing shares of Reliance
Common Stock for the Allegiant Common Stock payable to each holder thereof
pursuant to the Merger Agreement) will be sent to each record holder of
Reliance Common Stock as of the Effective Time. Upon surrender to the Exchange
Agent of such certificate(s), together with a duly completed and executed
letter of transmittal, such holder will receive the shares of Allegiant Common
Stock to which such holder is entitled under the Merger Agreement. See "Terms
of the Proposed Merger--Surrender of Reliance Stock Certificates and Receipt of
Allegiant Common Stock."
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. Following the Closing Date, 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 OPINION
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.
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<PAGE> 35
As of the 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 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
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<PAGE> 36
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 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, Mr. Bowman and Ms. Larson will be entitled to receive certain
benefits and estimated payments of $478,451 and $274,296, 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
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<PAGE> 37
for a period of 36 months; (iii) any benefits granted to him or her 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
$---------- and $---------, 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
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.
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<PAGE> 38
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.
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 which 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
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<PAGE> 39
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 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 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
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<PAGE> 40
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.
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
* 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.
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<PAGE> 41
(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 community-oriented 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.
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
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<PAGE> 42
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 opinion was substantially identical to the 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 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
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<PAGE> 43
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 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 opinion to the Allegiant Board on
March 20, 1997, which was dated as of March 20, 1997.
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
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<PAGE> 44
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 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:
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<PAGE> 45
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.
<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 updated opinion as of
- ----------, 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
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<PAGE> 46
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 December 31, 1996, (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) Annual Report on Form 10-K for
the year ended December 31, 1996, (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.
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.
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<PAGE> 47
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 -----------------, 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 ------------, 1997, RP Financial performed a variety of
financial analyses which 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-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 18 institutions with assets
up to $500 million. The acquisition pricing ratios of this group were:
(i) price/earnings ratios ranging from 12.79 to 34.04 times, with a median of
19.24 times; (ii) price/tangible book ratios ranging from 111 to 149 percent,
with a median of 128 percent; (iii) price/assets ratios ranging from 10.09 to
37.18 percent, with a median of 23.51 percent; and (iv) core deposit premiums
of 2.91 to 20.17 percent, with a median of 7.03 percent. The financially
comparable acquisitions of publicly traded institutions which are currently
pending included 5 institutions
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<PAGE> 48
with assets up to $350 million. The acquisition pricing ratios of this group
were: (i) price/earnings ratios ranging from 16.67 to 29.67 times, with a
median of 24.56 times; (ii) price/tangible book ratios ranging from 115 to 181
percent, with a median of 126 percent; (iii) price/assets ratios ranging from
16.66 to 28.08 percent, with a median of 22.08 percent; and (iv) core deposit
premiums of 4.22 to 14.72 percent, with a median of 8.67 percent.
The non-publicly-traded financially comparable acquisitions
currently pending or completed since 1995 included 17 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 23.85 times; (ii) price/tangible book ratios ranging from 96 to 170
percent, with a median of 126 percent; (iii) price/assets ratios ranging from
10.52 to 32.16 percent, with a median of 19.50 percent; and (iv) core deposit
premiums of negative 2.35 to positive 12.82 percent, with a median of 6.38
percent.
The Missouri acquisitions currently pending or completed since
1995 included eight 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
22.60 times; (ii) price/tangible book ratios ranging from 117 to 209 percent,
with a median of 129 percent; (iii) price/assets ratios ranging from 8.90 to
27.61 percent, with a median of 13.76 percent; and (iv) core deposit premiums
of 2.07 to 12.79 percent, with a median of 7.17 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 based on the Average Allegiant
Price as of March 20, 1997, and ------------, 1997. Specifically, the Merger
Consideration of $--------, based on the Exchange Ratio and the Average
Allegiant Price as of -------- indicated the following pricing ratios for
shares of Reliance Common Stock, based on financial statements as of or for
the 12 months ended December 31, 1996: ------- times earnings; ------
percent of reported tangible book value; ------ percent of assets; and ------
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 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.
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<PAGE> 49
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 ------------, 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 it its entirety.
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 December 31, 1997, adjusted for the
effect of a ten percent stock dividend paid in January 1997 and a rights
offering completed in March 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.
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 which enjoins or prohibits the
consummation of the Merger.
(5) At the time of filing this 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
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<PAGE> 50
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.
(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.
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<PAGE> 51
(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.
(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.
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<PAGE> 52
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 exceed the sum of $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
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<PAGE> 53
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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<PAGE> 54
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. As a bank holding company, Allegiant is subject
to regulation under the BHCA.
Under the BHCA, the Federal Reserve Board may withhold approval
of the Merger if, among other things, it determines that the effect of the
Merger would be to substantially lessen competition in the relevant market.
In addition, the Federal Reserve Board is required to consider whether the
combined organization meets the requirements of the Community Reinvestment
Act of 1977, as amended, by assessing the involved entities' respective
records of meeting the credit needs of the local communities in which they
are chartered, consistent with the safe and sound operation of such
institutions.
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<PAGE> 55
In its review, the Federal Reserve Board is also required to examine the
financial and managerial resources and future prospects of the combined
organization and analyze the capital structure and soundness of the
resulting entity. The Federal Reserve Board has the authority to deny the
application if it concludes that the combined organization will have
inadequate capital. Allegiant has also filed an application with the OTS
under 12 C.F.R. Section 563b.3(i), for approval to acquire stock of a
recently converted thrift, which would include RFSLA.
The Merger cannot be consummated prior to receipt of all required
approvals. There can be no assurance that required regulatory approvals for
the Merger will be obtained, and, if the Merger is approved, as to the date
of such approvals or whether the approvals will contain any unacceptable
conditions. There can likewise be no assurance that the United States
Department of Justice will not challenge the Merger during the waiting period
set aside for such challenges after receipt of approval from the Federal
Reserve Board. See "Supervision and Regulation."
Allegiant and Reliance are not aware of any governmental
approvals or actions that may be required for consummation of the Merger
other than as described above. 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 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;
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(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, consolida
tion 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;
(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;
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<PAGE> 57
(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 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
- 52 -
<PAGE> 58
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. Sec. 371c and 12 U.S.C. Sec. 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. Sec. 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 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.
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 down 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
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<PAGE> 59
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.
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> 60
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> 61
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> 62
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> 63
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> 64
PRO FORMA FINANCIAL INFORMATION
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/ 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:
December 31, 1996 $ 7.22 $16.03 $ 8.60 $8.85
CASH DIVIDENDS DECLARED PER SHARE:
Year ended December 31, 1996 $ .092 $ .60 $ 0.09 $0.09
EARNINGS PER SHARE BEFORE CHANGE
IN ACCOUNTING PRINCIPLE:
Year ended December 31, 1996 $ .76 $ 0.40 $ 0.62 $0.64
MARKET PRICE PER SHARE:
At March 20, 1997<F4> $12.50 $15.75 $20.93 N/A
At April 30, 1997<F4> 13.00 18.25 21.76 N/A
<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
is reported as December 31, 1996 data.
<F2> Based on the pro forma combined per share amounts multiplied by 1.6741,
the conversion ratio applicable to one share of Reliance Common Stock in
the Merger (subject to adjustment), 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.
<F3> Includes the effect of pro forma adjustments for Reliance.
<F4> The market value of Allegiant Common Stock as of March 20, 1997, the
last trading day preceding the public announcement of the Merger, and as
of [ ], 1997, the latest available date prior to the
distribution of the Joint Proxy Statement/Prospectus, is based on the
last sale price as reported by Nasdaq. The market value of Reliance
Common Stock disclosed as of March 20, 1997, the last trading day
preceding the public announcement of the Merger, and as of [ ],
1997, the latest available date prior to the distribution of the Joint
Proxy Statement/Prospectus, is based on the last sale price as reported
by the National Quotation Bureau, Inc.
</TABLE>
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<PAGE> 65
INFORMATION REGARDING ALLEGIANT
GENERAL
Allegiant is a bank holding company which 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 five locations in
the St. Louis SMSA are in Hazelwood, Maryland Heights, Clayton, Des Peres and
Mehlville. 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. The Bank presently plans to
open a facility in St. Charles County in April 1997.
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
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<PAGE> 66
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
feels 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 which 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 Des Peres and Mehlville retail banking offices in 1995 and 1996,
respectively, and a planned new location in St. Peters in 1997, management
believes that the Bank will have access to the entire St. Louis market.
Allegiant believes that after such expansion its retail banking offices will
be strategically placed so that it will have 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 Marian 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 which govern Allegiant and the Bank and, as a
result, have a competitive advantage over the Bank in providing certain
services. Many
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<PAGE> 67
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 98 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 which 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 which 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 principal branch is located in the City of
St. Louis, Missouri at the corner of Grand Boulevard and West Florissant
Avenue. The branch 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
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<PAGE> 68
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 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 which are owned by the Bank are
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 counsel, resolution of these
matters is not expected to have a material effect on Allegiant's financial
condition or results of operations.
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<PAGE> 69
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 the
year ended 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 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
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<PAGE> 70
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.
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
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<PAGE> 71
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:
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<PAGE> 72
<TABLE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ----------------------------- ---------------------------
INT. INT. INT.
AVERAGE EARNED/ AVERAGE AVERAGE EARNED/ AVERAGE AVERAGE 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>
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<PAGE> 73
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
--------------------------- -------------------------------- --------------------------------------
VOLUME YIELD VOL* NET VOLUME YIELD VOL* NET VOLUME YIELD VOL* NET
<F1> <F2> RATE CHANGE <F1> <F2> RATE CHANGE <F1> <F2> RATE CHANGE
------ ----- ------- ------ ------ ----- ------- ------ ------ ----- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earned on:
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>
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<PAGE> 74
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.
- 69 -
<PAGE> 75
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>
- 70 -
<PAGE> 76
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.
- 71 -
<PAGE> 77
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 threaten the
Bank's liquidity position, as well as to maximize return on the funds while
they where held
- 72 -
<PAGE> 78
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.
- 73 -
<PAGE> 79
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.
- 74 -
<PAGE> 80
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, which increased $72.1 million from $124.1 million at December 31, 1995
to $196.1 million at
- 75 -
<PAGE> 81
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>
- 76 -
<PAGE> 82
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 OF OF OF OF
TOTAL TOTAL TOTAL TOTAL 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.
- 77 -
<PAGE> 83
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
managing 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.
- 78 -
<PAGE> 84
The book value of investment securities for the periods indicated
were as follows:
</TABLE>
<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
OVER ONE FIVE
WEIGHTED THROUGH WEIGHTED THROUGH WEIGHTED OVER WEIGHTED
ONE YEAR AVERAGE FIVE AVERAGE TEN AVERAGE TEN AVERAGE
OR LESS YIELD YEARS YIELD 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 represented
by one- to four-family mortgage loans, which tend to exhibit lower levels of
credit risk.
- 79 -
<PAGE> 85
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.
- 80 -
<PAGE> 86
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>
Commercial, financial, agricultural and all other loans: <C> <C> <C> <C> <C>
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).
- 81 -
<PAGE> 87
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:
- 82 -
<PAGE> 88
<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
-------- -------- ---- ------ -------- ---- ------ -------- ----
<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.
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
- 83 -
<PAGE> 89
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.
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
- 84 -
<PAGE> 90
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 believes that the proceeds of the rights
offering, together with the above-described resources, will be sufficient to
finance its capital requirements for planned operations and growth through at
least the end of 1997.
- 85 -
<PAGE> 91
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<F1> $ 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>
- 86 -
<PAGE> 92
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 the Company
and Vice President/Chief Financial Officer of Allegiant Bank since March 1992.
For more than three years prior to joining the Company, 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 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 February 28, 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.
- 87 -
<PAGE> 93
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> 15.16%
Shaun R. Hayes 254,349 <F3> 8.67%
S. Kay Love 5,405 <F4> <F5>
Leon A. Felman 271,439 <F6> 9.44%
Kevin R. Farrell 160,530 <F7> 5.55%
Lee S. Wielansky 140,488 <F8> 4.87%
C. Virginia Kirkpatrick 93,427 <F9> 3.23%
John Straub 57,739 <F10> 2.01%
Charles E. Polk 31,486 <F11> 1.10%
Leland B. Curtis 10,361 <F12> <F5>
James R. Gibson 207,036 <F13> 7.25%
All directors and executive
officers as a group 1,468,670 <F14> 50.58%
(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.
<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.
- 88 -
<PAGE> 94
<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>
- 89 -
<PAGE> 95
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 $4,750 to Mr. Hayes' 401(k) plan.
</TABLE>
The following presents certain information concerning stock
options granted to the named executive officers during the year ended
December 31, 1996, and year-end stock option values. No stock options were
exercised by the named executive officers during the year ended December 31,
1996.
- 90 -
<PAGE> 96
OPTION/SAR GRANTS IN LAST YEAR
The following table sets forth information concerning stock
option grants made in 1996 to the individuals named in the Summary
Compensation Table. No SARs were granted to the named individuals in 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------------
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE OR BASE
GRANTED EMPLOYEES IN PRICE EXPIRATION
NAME (#) YEAR ($/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>
- 91 -
<PAGE> 97
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 RFSLA's Employee Stock Ownership Plan, 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 September 30, 1996, Reliance had total
consolidated assets of $32.7 million, total consolidated deposits of $24.2
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.
- 92 -
<PAGE> 98
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, Southwestern Bell
Corp. and Trans World Airlines. As of October 1994, the unemployment rate
was 4.8% in St. Louis County, compared to 3.1% nationally.
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.
- 93 -
<PAGE> 99
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>
- 94 -
<PAGE> 100
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.
- 95 -
<PAGE> 101
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
- 96 -
<PAGE> 102
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.
- 97 -
<PAGE> 103
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
- 98 -
<PAGE> 104
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.,
- 99 -
<PAGE> 105
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
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<PAGE> 106
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>
- 101 -
<PAGE> 107
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 basis. When RFSLA
determines that an asset should be classified, it generally does not
establish a
- 102 -
<PAGE> 108
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.
- 103 -
<PAGE> 109
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 is otherwise authorized to make directly.
Additionally, RFSLA must maintain minimum levels of
- 104 -
<PAGE> 110
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.
- 105 -
<PAGE> 111
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>
- 106 -
<PAGE> 112
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
- 107 -
<PAGE> 113
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>
- 108 -
<PAGE> 114
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 30, OF TOTAL INCREASE/ SEPTEMBER 30, OF TOTAL INCREASE/ SEPTEMBER 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>
- 109 -
<PAGE> 115
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
5.29% CERTIFICATES OF DEPOSIT
---- -----------------------
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 <F3> 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>
- 110 -
<PAGE> 116
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 September 30, 1996, 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.
- 111 -
<PAGE> 117
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
LEASED OR YEAR ORIGINALLY AT 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
- 112 -
<PAGE> 118
OPERATING DATA:
<CAPTION>
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>
- 113 -
<PAGE> 119
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.
- 114 -
<PAGE> 120
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 YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST 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 46 5.81 -- -- -- -- -- --
------- ------ ------- ----- ------- -----
Total interest-bearing
liabilities $25,573 1,135 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>
- 115 -
<PAGE> 121
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.
- 116 -
<PAGE> 122
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 loans receivable
increased from $20.0 million in 1995 to $21.1 million in 1996. Components of
interest-
- 117 -
<PAGE> 123
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.
- 118 -
<PAGE> 124
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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<PAGE> 125
$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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<PAGE> 126
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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<PAGE> 127
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%, respectively. RFSLA's high liquidity ratio as of September 30, 1996
reflects RFSLA's investment in
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<PAGE> 128
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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<PAGE> 129
In June 1996, the FASB issued SFAS No. 123, "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
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<PAGE> 130
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.
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
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<PAGE> 131
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.
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
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<PAGE> 132
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
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>
- 127 -
<PAGE> 133
<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.
- 128 -
<PAGE> 134
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.
- 129 -
<PAGE> 135
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 March 7, 1997, 11,490 shares of Reliance Common Stock were
allocated under the ESOP.
</TABLE>
- 130 -
<PAGE> 136
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.
[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.]
- 131 -
<PAGE> 137
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.
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.
- 132 -
<PAGE> 138
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. 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.
- 133 -
<PAGE> 139
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 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 two years after the receipt thereof. After two years 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 three
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 and until such time as Allegiant shall
first publish the financial results of at least 30 days of post-merger
combined operations of Reliance and
- 134 -
<PAGE> 140
Allegiant. 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.
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
- 135 -
<PAGE> 141
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%; (ii) 33% 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 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
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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.
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
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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 and Reliance, as a savings and loan holding company, 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 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."
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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.
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)
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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
(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.
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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 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)
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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 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.
At December 31, 1996, RFSLA met each of its capital requirements
on a fully phased-in basis. Set forth below is a summary of RFSLA's
compliance with OTS regulatory capital requirements.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
PERCENT OF
AMOUNT ASSETS<F1>
------ ----------
<S> <C> <C>
Tangible capital:
Capital level $5,419,657 17.77%
Requirement (457,604) (1.50)
---------- -----
Excess $4,962,053 16.27%
========== =====
Core capital:
Capital level $5,419,657 17.77%
Requirement<F2> (915,208) (3.00)
---------- -----
Excess $4,504,449 14.77%
========== =====
Risk-based capital:
Capital Level $5,593,998 40.19%
Requirement (1,113,454) (8.00)
---------- -----
Excess $4,480,544 32.19%
========== =====
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<FN>
- --------------
<F1> Tangible and core capital levels are shown as a percentage of total
adjusted assets. Risk-based capital levels are shown as a percentage
of risk-weighted assets.
<F2> The current OTS core capital requirement for savings banks is 3% of
total adjusted assets. The OTS has proposed core capital requirements
which would require a core capital ratio of 3% of total adjusted assets
for savings banks that receive the highest supervisory rating for safety
and soundness, and a 4% to 5% core capital ratio requirement for all
other savings banks.
</TABLE>
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
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ratio of Tier I capital to adjusted total assets of 5% or greater; and (iv) was
not subject to an order, 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
Allegiant Bank is 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 ("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 BIF and 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, BID 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
- 144 -
<PAGE> 150
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 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. The FDIC is required to
issue regulations to guard against the shifting of deposits from SAIF to BIF.
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
- 145 -
<PAGE> 151
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.
- 146 -
<PAGE> 152
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.
- 147 -
<PAGE> 153
<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
CONSOLIDATED BALANCE SHEET (UNAUDITED) OF RELIANCE
AS OF DECEMBER 31, 1996 F-44
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) OF
RELIANCE FOR THE THREE MONTHS ENDED
DECEMBER 31, 1996 AND 1995 F-45
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED DECEMBER 31,
1996 AND 1995 F-46
</TABLE>
- 148 -
<PAGE> 154
[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> 155
<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> 156
<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> 157
<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> 158
<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> 159
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> 160
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> 161
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> 162
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> 163
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> 164
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> 165
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> 166
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> 167
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> 168
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> 169
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> 170
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> 171
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> 172
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> 173
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> 174
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
F-21
<PAGE> 175
<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> 176
<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> 177
<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> 178
<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> 179
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> 180
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> 181
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
F-28
<PAGE> 182
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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
F-29
<PAGE> 183
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
balance sheet dates and income and expenses for the periods covered.
Actual results could differ significantly from these estimates and
assumptions.
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> 184
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> 185
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> 186
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> 187
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> 188
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> 189
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> 190
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> 191
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> 192
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> 193
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> 194
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> 195
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> 196
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> 197
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED BALANCE SHEET
<CAPTION>
DECEMBER 31, 1996
-----------------
(UNAUDITED)
<S> <C>
ASSETS
Cash and cash equivalents $ 777,746
Certificates of deposit 1,577,000
Securities:
Available-for-sale, at market value (amortized cost
of $500,000) 476,308
Held-to-maturity, at amortized cost (market value of
$1,678,438) 1,689,744
Stock in Federal Home Loan Bank of Des Moines 336,000
Mortgage-backed securities held-to-maturity, at amortized cost
(market value of $5,176,963) 5,397,221
Loans receivable, net 20,776,836
Premises and equipment, net 404,656
Accrued interest receivable:
Securities and certificates of deposit 26,089
Mortgage-backed securities 26,542
Loans receivable 118,970
Other assets 98,110
-----------
Total assets $31,705,222
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $23,907,491
Accrued interest on deposits 3,727
Advances from FHLB of Des Moines 750,000
Advances from borrowers for taxes and insurance 99,909
Other liabilities 49,789
Accrued income taxes 70,793
-----------
Total liabilities 24,881,709
-----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 250,000 shares
authorized; none issued and outstanding --
Common stock, $.10 par value; 1,500,000 shares
authorized; 447,200 issued 44,720
Additional paid-in capital 4,204,440
Common stock acquired by ESOP (211,310)
Common stock acquired by RRP (215,287)
Treasury stock, at cost, 21,500 shares (328,055)
Unrealized loss on securities available-for-sale, net (23,691)
Retained earnings -- substantially restricted 3,352,696
-----------
Total stockholders' equity 6,823,513
-----------
Total liabilities and stockholders' equity $31,705,222
===========
</TABLE>
F-44
<PAGE> 198
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------------------
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Interest income:
Loans receivable $440,035 $430,910
Mortgage-backed securities 81,337 86,532
Securities 39,910 26,310
Other interest-earning assets 35,851 60,545
-------- --------
Total interest income 597,133 604,297
-------- --------
Interest expense:
Deposits 259,001 280,441
Advances from FHLB of Des Moines 14,287 2,098
-------- --------
Total interest expense 273,288 282,539
-------- --------
Net interest income 323,845 321,758
Provision (credit) for loan losses -- (700)
-------- --------
Net interest income after provision
for loan losses 323,845 322,458
-------- --------
Noninterest income:
Loan service charges 3,324 2,998
Other 7,186 6,814
-------- --------
Total noninterest income 10,510 9,812
-------- --------
Noninterest expense:
Compensation and benefits 145,944 130,387
Occupancy expense 12,508 11,532
Equipment and data processing expense 15,801 16,343
Rental (income) expense from foreclosed real estate, net -- 182
SAIF deposit insurance premium 14,055 14,680
Supervisory and professional fees 57,141 18,445
Other 29,608 32,665
-------- --------
Total noninterest expense 275,057 224,234
-------- --------
Earnings before income taxes 59,298 108,036
Income taxes 28,400 33,100
-------- --------
Net earnings $ 30,898 $ 74,936
======== ========
Net earnings per share $ .08 $ .19
======== ========
Weighted-average shares outstanding 387,369 400,462
======== ========
Dividends per share $ .15 $ .15
======== ========
</TABLE>
F-45
<PAGE> 199
RELIANCE FINANCIAL, INC. AND SUBSIDIARY
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
----------------------------------
1996 1995
---------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 30,898 $ 74,936
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation expense 5,629 6,073
Provision (credit) for loan losses -- (700)
Amortization of premiums and discounts on
securities, net (675) (638)
ESOP expense 28,975 26,088
RRP expense 13,989 --
FHLB stock dividends -- (6,600)
Decrease (increase) in:
Accrued interest receivable 19,627 (20,556)
Other assets 22,847 14,398
Increase (decrease) in:
Accrued interest on deposits 489 64
Other liabilities (280,801) (85,064)
Accrued income taxes 20,000 (900)
---------- -----------
Net cash provided by (used for)
operating activities (139,022) 7,101
---------- -----------
Cash flows from investing activities:
Loans:
Purchased (158,900) (1,195,706)
Originated (53,545) (1,170,699)
Principal collections 579,846 1,414,032
Principal collections on mortgage-backed securities
held-to-maturity 103,374 35,852
Securities held-to-maturity and certificates of deposit:
Purchased (90,000) (599,000)
Proceeds from maturity 99,000 496,000
Purchase of premises and equipment, net -- --
---------- -----------
Net cash provided by (used for) investing
activities 479,775 (1,019,521)
---------- -----------
Cash flows from financing activities:
Net increase (decrease) in:
Deposits (326,468) (312,925)
Advances from borrowers for taxes and insurance (137,184) (192,964)
Proceeds from advances from FHLB -- 1,000,000
Repayment of advances from FHLB (250,000) --
Cash dividends (60,388) (59,927)
---------- -----------
Net cash provided by (used for)
financing activities (774,040) 434,184
---------- -----------
Net increase (decrease) in cash and cash equivalents (433,287) (578,236)
Cash and cash equivalents at beginning of period 1,211,033 2,036,111
---------- -----------
Cash and cash equivalents at end of period $ 777,746 $ 1,457,875
========== ===========
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest on deposits $ 258,512 $ 280,376
Interest on advances from FHLB 14,287 2,098
Federal income taxes $ 14,000 $ 34,000
</TABLE>
F-46
<PAGE> 200
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. 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 being 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> 201
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 shareholders 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> 202
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
shareholders 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"),
Reliance Financial and Reliance Federal Savings and Loan Association of St.
Louis County (the "Association"), a wholly-owned subsidiary of 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"). 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 shareholders 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> 203
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) shareholder, 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 Annual Reports to
shareholders, (b) Form 10-K as of 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, and (e) Allegiant's management comments regarding past and current
business, operations, financial condition, and future prospects.
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 shareholder of Reliance Financial
as to any action that such shareholder should take in connection with the
Agreement, or otherwise.
It is understood that this opinion is based on market conditions
and other circumstances existing on the date hereof.
B - 2
<PAGE> 204
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
shareholders, as described in the Agreement, is fair to such shareholders
from a financial point of view.
Respectfully submitted,
RP FINANCIAL, LC.
B - 3
<PAGE> 205
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> 206
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> 207
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> 208
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> 209
ANNEX D
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 December 31, 1996
-----------------
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 (I.R.S. Employer
jurisdiction of incorporation Identification No.)
or organization)
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 December 31, 1996
- ------------------------- -----------------------------
Common Stock, par value 425,700 Shares
$.10 per share
<PAGE> 210
RELIANCE FINANCIAL INC. AND SUBSIDIARY
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1996
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I - Financial Information
Consolidated Balance Sheets 1
Consolidated Statements of Earnings 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II - Other Information 9
</TABLE>
<PAGE> 211
<TABLE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
December 31, September 30,
Assets 1996 1996
------ ------------ -------------
<S> <C> <C>
Cash and cash equivalents $ 777,746 1,211,033
Certificates of deposit 1,577,000 1,586,000
Securities:
Available for sale, at market value
(amortized cost of $500,000) 476,308 473,399
Held to maturity, at amortized cost
(market value of $1,678,438 and
$1,670,000, respectively) 1,689,744 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 $5,176,963 and
$5,314,126, respectively) 5,397,221 5,500,595
Loans receivable, net 20,776,836 21,144,237
Premises and equipment, net 404,656 410,284
Accrued interest receivable:
Securities and certificates of
deposit 26,089 27,929
Mortgage-backed securities 26,542 26,930
Loans receivable 118,970 136,370
Other assets 98,110 120,956
----------- ----------
Total assets $31,705,222 32,662,802
=========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Deposits $23,907,491 24,233,959
Accrued interest on deposits 3,727 3,238
Advances from FHLB of Des Moines 750,000 1,000,000
Advances from borrowers for taxes
and insurance 99,909 237,093
Other liabilities 49,789 330,590
Accrued income taxes 70,793 50,793
----------- ----------
Total liabilities 24,881,709 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; 447,200
and 446,993 shares, respectively,
issued and outstanding 44,720 44,699
Additional paid-in capital 4,204,440 4,190,038
Common stock acquired by ESOP (211,310) (229,096)
Common stock acquired by RRP (215,287) (226,042)
Treasury stock, at cost, 21,500 shares (328,055) (328,055)
Unrealized loss on securities
available for sale, net (23,691) (26,601)
Retained earnings-substantially
restricted 3,352,696 3,382,186
----------- ----------
Total stockholders' equity 6,823,513 6,807,129
----------- ----------
Total liabilities and
stockholders' equity $31,705,222 32,662,802
=========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
1
<PAGE> 212
<TABLE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Consolidated Statements of Earnings
(Unaudited)
<CAPTION>
Three Months Ended
December 31,
---------------------
1996 1995
-------- -------
<S> <C> <C>
Interest income:
Loans receivable $440,035 430,910
Mortgage-backed securities 81,337 86,532
Securities 39,910 26,310
Other interest-earning assets 35,851 60,545
-------- -------
Total interest income 597,133 604,297
-------- -------
Interest expense:
Deposits 259,001 280,441
Advances from FHLB of Des Moines 14,287 2,098
-------- -------
Total interest expense 273,288 282,539
-------- -------
Net interest income 323,845 321,758
Provision (credit) for loan losses - (700)
-------- -------
Net interest income after
provision for loan losses 323,845 322,458
-------- -------
Noninterest income:
Loan service charges 3,324 2,998
Other 7,186 6,814
-------- -------
Total noninterest income 10,510 9,812
-------- -------
Noninterest expense:
Compensation and benefits 145,944 130,387
Occupancy expense 12,508 11,532
Equipment and data processing
expense 15,801 16,343
Rental (income) expense from
foreclosed real estate, net - 182
SAIF deposit insurance premium 14,055 14,680
Supervisory and professional fees 57,141 18,445
Other 29,608 32,665
-------- -------
Total noninterest expense 275,057 224,234
-------- -------
Earnings before income taxes 59,298 108,036
Income taxes 28,400 33,100
-------- -------
Net earnings $ 30,898 74,936
======== =======
Net earnings per share $ .08 .19
======== =======
Weighted-average shares outstanding 387,369 400,462
======== =======
Dividends per share $ .15 .15
======== =======
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE> 213
<TABLE>
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended
December 31,
-----------------------
1996 1995
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 30,898 74,936
Adjustments to reconcile net earnings
to net cash provided by (used for)
operating activities:
Depreciation expense 5,629 6,073
Provision (credit) for loan losses - (700)
Amortization of premiums and
discounts on securities, net (675) (638)
ESOP expense 28,975 26,088
RRP expense 13,989 -
FHLB stock dividends - (6,600)
Decrease (increase) in:
Accrued interest receivable 19,627 (20,556)
Other assets 22,847 14,398
Increase (decrease) in:
Accrued interest on deposits 489 64
Other liabilities (280,801) (85,064)
Accrued income taxes 20,000 (900)
---------- ----------
Net cash provided by (used for)
operating activities (139,022) 7,101
---------- ----------
Cash flows from investing activities:
Loans:
Purchased (158,900) (1,195,706)
Originated (53,545) (1,170,699)
Principal collections 579,846 1,414,032
Principal collections on mortgage-
backed securities held to maturity 103,374 35,852
Securities held to maturity and
certificates of deposit:
Purchased (90,000) (599,000)
Proceeds from maturity 99,000 496,000
Purchase of premises and equipment,
net - -
---------- ----------
Net cash provided by (used for)
investing activities 479,775 (1,019,521)
---------- ----------
Cash flows from financing activities:
Net increase (decrease) in:
Deposits (326,468) (312,925)
Advances from borrowers for taxes
and insurance (137,184) (192,964)
Proceeds from advances from FHLB - 1,000,000
Repayment of advances from FHLB (250,000) -
Cash dividends (60,388) (59,927)
---------- ----------
Net cash provided by (used for)
financing activities (774,040) 434,184
---------- ----------
Net increase (decrease) in cash
and cash equivalents (433,287) (578,236)
Cash and cash equivalents at
beginning of period 1,211,033 2,036,111
---------- ----------
Cash and cash equivalents at end
of period $ 777,746 1,457,875
========== ==========
Supplemental disclosures of cash
flow information:
Cash paid (received) during the
year for:
Interest on deposits $ 258,512 280,376
Interest on advances from FHLB 14,287 2,098
Federal income taxes $ 14,000 34,000
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE> 214
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 the Annual Report to
Stockholders and as an exhibit filed with Form 10-K.
4
<PAGE> 215
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
Reliance Federal Savings and Loan Association of St. Louis
County, a federal savings association (the "Association"), the
loan to the ESOP and net proceeds retained by the Company
following the mutual-to-stock conversion of the Association in
April, 1995. 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 future 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 16% at
December 31, 1996. 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 8% of risk-based capital.
5
<PAGE> 216
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
December 31, 1996:
<TABLE>
<CAPTION>
Unaudited Regulatory Capital
-------------------------------------
Tangible Core Risk-Based
----------- --------- ----------
<S> <C> <C> <C>
Stockholders' equity per
consolidated financial
statements $ 6,823,513 6,823,513 6,823,513
Stockholders' equity of
Reliance Financial Inc.
not available for regulatory
capital purposes (1,327,856) (1,327,856) (1,327,856)
----------- ---------- ----------
GAAP capital 5,495,657 5,495,657 5,495,657
General valuation allowances - 174,341
Non-includable deferred tax
assets (76,000) (76,000) (76,000)
----------- ---------- ----------
Regulatory capital 5,419,657 5,419,657 5,593,998
Regulatory capital requirement (457,604) (915,208) (1,113,454)
----------- ---------- ----------
Regulatory capital - excess $ 4,962,053 4,504,449 4,480,544
=========== ========== ==========
Regulatory capital ratio 17.77% 17.77% 40.19%
Regulatory capital requirement (1.50) (3.00) (8.00)
----------- ---------- ----------
Regulatory capital ratio -
excess 16.27% 14.77% 32.19%
=========== ========== ==========
</TABLE>
Commitments to originate adjustable-rate loans at December 31,
1996 were $487,500.
Financial Condition
- -------------------
Assets decreased from $32.7 million at September 30, 1996 to
$31.7 million at December 31, 1996. Deposit accounts decreased
from $24.2 million at September 30, 1996 to $23.9 million at
December 31, 1996. Cash and cash equivalents, as well as
certificates of deposit, decreased as such funds were used to
fund withdrawals from customer deposit accounts. The components
of interest-bearing assets change from time to time based on the
availability and interest rates of loans, securities, mortgage-
backed securities and other interest-bearing assets meeting the
Association's risk guidelines. Loans receivable, net decreased
due to continued loan repayments in excess of loans originated
and purchased. The Association purchased $159,000 in mortgage
loans during the 1996 quarter.
Accrued interest receivable on loans decreased due a lower
average balance of loans receivable. The Association repaid
$250,000 of its advance from the Federal Home Loan Bank of Des
Moines during the quarter. Management may utilize FHLB advances
in the future where the overall cost is less than retail deposits
or to meet short-term liquidity needs. Advances by borrowers for
taxes and insurance decreased due to seasonal factors. Real
estate taxes are paid on behalf of borrowers in December of each
year. Other liabilities decreased due to the payment of a SAIF
special assessment of $216,000 and payment of bonuses during the
quarter which were accrued at September 30, 1996.
Asset Quality
- -------------
The Association's general policy is to exclude from earnings,
interest on loans contractually delinquent 90 days or more. At
December 31, 1996 and September 30, 1996, the Association had
$35,000 and $67,000, respectively in loans that were 90 days or
more delinquent. Such delinquent loans represented .17% and .32%
of net loans receivable at December 31, 1996 and September 30,
1996, respectively.
6
<PAGE> 217
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
---------------------
Net Earnings
- ------------
Net earnings were $31,000 for the three months ended December 31,
1996 compared to $75,000 for the three months ended December 31,
1995. Net earnings was lower for the 1996 period due primarily
to higher noninterest expense.
Net Interest Income
- -------------------
Net interest income for the three months ended December 31, 1996
and 1995 was $324,000 and $322,000, respectively. The interest
rate spread (the difference between the weighted-average rate on
all interest-earning assets and interest-bearing liabilities)
improved slightly for the current period. The interest rate
spread increased from 3.10% for the three months ended December
31, 1995 to 3.20% for the three months ended December 31, 1996.
Interest on loans receivable increased by $9,000 for the three
months ended December 31, 1996 compared to the three months ended
December 31, 1995 due to an increase in average loan balance and
an increase in the average yield on loans. The average yield was
8.33% for the three months ended December 31, 1996 compared to
8.24% for the three months ended December 31, 1995.
Interest on mortgage-backed securities decreased by $5,000 for
the three months ended December 31, 1996 compared to the three
month period ended December 31, 1995 due to decreases in the
average balances and yield. Yields on mortgage-backed securities
decreased to 5.99% for the three months ended December 31, 1996
from 6.15% for the three months ended December 31, 1995 as the
adjustable mortgages underlying these securities continued to
reprice.
Interest on securities and other interest-earning assets in the
1996 period compared to the 1995 period reflect changes in
average balances. Components of interest-earning assets vary
from time to time based on the availability and interest rates of
loans, investment securities, and other interest-bearing assets.
Interest Expense
- ----------------
Interest on deposits decreased due to a lower average balance and
slightly lower interest rates. The retail deposit market remains
very competitive. The average rate decreased to 4.31% for the
three months ended December 31, 1996 from 4.49% for the three
months ended December 31, 1995.
Provision for Loan Losses
- -------------------------
Provision for loan losses was a credit of $700 for the three
month periods ended December 31, 1995. There was no provision
for the three months ended December 31, 1996. The allowance for
losses on loans is based on management's periodic evaluation of
the loan portfolio and reflects an amount that, in management's
opinion, is adequate to absorb losses on existing loans 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 characteristic of the loan portfolio.
7
<PAGE> 218
RELIANCE FINANCIAL INC. AND SUBSIDIARY
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Noninterest Income
- ------------------
Noninterest income increased by $1,000 to $11,000 for the three
months ended December 31, 1996 from $10,000 for the three months
ended December 31, 1995. The increase was due to a slight
increase in loan service charges and deposit account service
charges.
Noninterest Expense
- -------------------
Noninterest expense increased to $275,000 for the three months
ended December 31, 1996, from $224,000 for the three months ended
December 31, 1995. Compensation and benefit costs increased by
$16,000 to $146,000 for the three months ended December 31, 1996
from $130,000 for the three months ended December 31, 1995 due
primarily to the cost of stock benefit plans. The Company
adopted a Recognition and Retention Plan (RRP) in April, 1996,
which was approved by stockholders. RRP expense was $14,000 for
the three months ended December 31, 1996 compared to none in the
1995 quarter. In addition, Employee Stock Ownership Plan (ESOP)
expense increased from $26,000 for the three months ended
December 31, 1995 to $29,000 for the three months ended December
31, 1996. Under generally accepted accounting principles,
expense of the ESOP is affected by changes in the market price of
the Company's common stock, which increased during the quarter
ended December 31, 1996. SAIF deposit insurance premium was
slightly lower during the 1996 quarter compared with the 1995
quarter due to a decrease in the average balance of deposits.
SAIF deposit insurance premium is expected to be lower beginning
January 1, 1997 since the SAIF has now been recapitalized.
Supervisory and professional fees increased due to consulting and
professional services related to review of the Company's business
plans and related matters.
Income Taxes
- ------------
Income tax expense for the three months ended December 31, 1996
reflects lower earnings before income taxes than in the 1995
period.
8
<PAGE> 219
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: No reports on Form 8-K have been
filed during the quarter for which this report is filed.
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: February 13, 1997 BY: /s/ John Bowman
----------------- ----------------------------------
John Bowman, President,
Principal Financial Officer and
Duly Authorized Officer
9
<PAGE> 220
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 [ : a.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 which 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 Joint Proxy Statement/Prospectus.
/ / 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.
(PLEASE SIGN AND DATE ON REVERSE SIDE) (Continued on Reverse Side)
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> 221
PROXY RELIANCE FINANCIAL, INC.
8930 GRAVOIS AVENUE
ST. LOUIS, MISSOURI 63123
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 [ , 1997] at the Special 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:
1. To consider and vote upon the adoption 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 which 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 Joint Proxy Statement/Prospectus.
/ / FOR / / AGAINST / / ABSTAIN
2. ELECTION OF DIRECTORS:
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY to vote
(except as marked below) for all nominees listed below
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.
Michael Svoboda
Adolph G. Kraus
3. PROPOSAL TO RATIFY THE APPOINTMENT OF MICHAEL TROKEY & COMPANY
P.C., as certified independent public accountants of the Company:
/ / FOR / / AGAINST / / ABSTAIN
4. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION
OF PROPOSALS 1 AND 3 AND "FOR" THE ELECTION OF MICHAEL SVOBODA AND
ADOLF G. KRAUS AS DIRECTORS AS SET FORTH IN ITEM 2 ABOVE.
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.
(PLEASE SIGN AND DATE ON REVERSE SIDE) (Continued on Reverse Side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED 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.
Dated: , 1997
------------------------------------
Signature of Stockholder
------------------------------------
Signature of Stockholder
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> 222
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.
-----------------------------
ITEM 22. UNDERTAKINGS
(1) The Registrant hereby undertakes:
II-1
<PAGE> 223
(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 the Securities Act shall be deemed to be a part of this Registration
Statement as of the time the Commission declared it effective.
II-2
<PAGE> 224
(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> 225
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
Allegiant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Clayton,
State of Missouri, on May 2, 1997.
ALLEGIANT BANCORP, INC.
By: /s/ Shaun R. Hayes
----------------------------------------
Shaun R. Hayes, President
POWER OF ATTORNEY
We, the undersigned officers and directors of Allegiant Bancorp,
Inc., hereby severally and individually constitute and appoint Marvin S. Wool
and Shaun R. Hayes, and each of them, the true and lawful attorneys and
agents of each of us to execute in the name, place and stead of each of us
(individually and in any capacity stated below) any and all amendments to
this Registration Statement on Form S-4 and all instruments necessary or
advisable in connection therewith and to file the same with the Securities
and Exchange Commission, each of said attorneys and agents to have the power
to act with or without the others and to have full power and authority to do
and perform in the name and on behalf of each of the undersigned every act
whatsoever necessary or advisable to be done in the premises as fully and to
all intents and purposes as any of the undersigned might or could do in
person, and we hereby ratify and confirm our signatures as they may be signed
by our said attorneys and agents or each of them to any and all such
amendments and instruments.
Pursuant to the requirements of the Securities Act of 1933, this
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, May 2, 1997
- ----------------------------- Chief Executive Officer
Marvin S. Wool and Director
Principal Executive Officer
/s/ Shaun R. Hayes President and Director May 2, 1997
- -----------------------------
Shaun R. Hayes
Principal Financial Officer
/s/ S. Kay Love
- ----------------------------- Assistant Secretary May 2, 1997
S. Kay Love
Principal Accounting Officer
/s/ Kevin R. Farrell
- ----------------------------- Director May 2, 1997
Kevin R. Farrell
/s/ C. Virginia Kirkpatrick
- ------------------------------ Director May 2, 1997
C. Virginia Kirkpatrick
II-4
<PAGE> 226
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Lee S. Wielansky
- ----------------------------- Director May 2, 1997
Lee S. Wielansky
/s/ Leon A. Felman
- ----------------------------- Director May 2, 1997
Leon A. Felman
/s/ Charles E. Polk, Jr.
- ----------------------------- Director May 2, 1997
Charles E. Polk, Jr.
/s/ John T. Straub
- ----------------------------- Director May 2, 1997
John T. Straub
/s/ Leland B. Curtis
- ----------------------------- Director May 2, 1997
Leland B. Curtis
</TABLE>
II-5
<PAGE> 227
<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.
2.2 Stock Option Agreement dated March 20, 1997, by and between
Allegiant and Reliance.
2.3 Form of Voting Agreement dated March 20, 1997, between
Allegiant and the directors of Reliance.
2.4 Form of Voting Agreement dated March 20, 1997, between
Reliance and the directors of Allegiant.
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 <F*>
8.1 Form of 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> 228
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> 229
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.
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.
23.4 Consent of RP Financial, LC.
24.1 Power of Attorney (included on the Signature Page).
<FN>
- ------------------
<F*> To be filed by amendment
</TABLE>
II-8
<PAGE> 1
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
between
ALLEGIANT BANCORP, INC.,
a Missouri corporation, as Buyer
and
RELIANCE FINANCIAL, INC.,
a Delaware corporation, as Seller
Dated as of March 20, 1997
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
<C> <S> <C>
ARTICLE I THE MERGER. . . . . . . . . . . . . . . . . . . . . . 1
1.01. The Merger. . . . . . . . . . . . . . . . . . . . . . 1
1.02. Closing . . . . . . . . . . . . . . . . . . . . . . . 1
1.03. Effective Time. . . . . . . . . . . . . . . . . . . . 1
1.04. Additional Actions. . . . . . . . . . . . . . . . . . 2
1.05. Articles of Incorporation and Bylaws. . . . . . . . . 2
1.06. Boards of Directors and Officers. . . . . . . . . . . 2
1.07. Conversion of Securities. . . . . . . . . . . . . . . 2
1.08. Exchange Procedures . . . . . . . . . . . . . . . . . 3
1.09. Dissenting Shares . . . . . . . . . . . . . . . . . . 4
1.10. No Fractional Shares. . . . . . . . . . . . . . . . . 4
1.11. Closing of Stock Transfer Books . . . . . . . . . . . 4
1.12. Anti-Dilution . . . . . . . . . . . . . . . . . . . . 4
1.13. Reservation of Right to Revise Transaction. . . . . . 5
1.14. Material Adverse Effect . . . . . . . . . . . . . . . 5
ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS OF
SELLER. . . . . . . . . . . . . . . . . . . . . . . . 5
2.01. Organization and Authority. . . . . . . . . . . . . . 5
2.02. Subsidiaries. . . . . . . . . . . . . . . . . . . . . 6
2.03. Capitalization. . . . . . . . . . . . . . . . . . . . 6
2.04. Authorization . . . . . . . . . . . . . . . . . . . . 7
2.05. Seller Financial Statements.. . . . . . . . . . . . . 8
2.06. Seller Reports. . . . . . . . . . . . . . . . . . . . 8
2.07. Title to and Condition of Assets. . . . . . . . . . . 9
2.08. Real Property . . . . . . . . . . . . . . . . . . . . 9
2.09. Taxes . . . . . . . . . . . . . . . . . . . . . . . . 10
2.10. Material Adverse Effect . . . . . . . . . . . . . . . 11
2.11. Loans, Commitments and Contracts. . . . . . . . . . . 11
2.12. Absence of Defaults . . . . . . . . . . . . . . . . . 13
2.13. Litigation and Other Proceedings. . . . . . . . . . . 13
2.14. Directors' and Officers' Insurance. . . . . . . . . . 14
2.15. Compliance with Laws. . . . . . . . . . . . . . . . . 14
2.16. Labor . . . . . . . . . . . . . . . . . . . . . . . . 16
2.17. Material Interests of Certain Persons . . . . . . . . 16
2.18. Allowance for Loan and Lease Losses; Non-
Performing Assets . . . . . . . . . . . . . . . . . . 16
2.19. Employee Benefit Plans. . . . . . . . . . . . . . . . 17
2.20. Conduct of Seller to Date . . . . . . . . . . . . . . 18
2.21. Absence of Undisclosed Liabilities. . . . . . . . . . 19
2.22. Proxy Statement, Etc. . . . . . . . . . . . . . . . . 19
2.23. Registration Obligations. . . . . . . . . . . . . . . 20
2.24. Tax and Regulatory Matters. . . . . . . . . . . . . . 20
2.25. Brokers and Finders . . . . . . . . . . . . . . . . . 20
2.26. Interest Rate Risk Management Instruments . . . . . . 20
2.27. Accuracy of Information . . . . . . . . . . . . . . . 20
<PAGE> 3
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF
BUYER . . . . . . . . . . . . . . . . . . . . . . . . 21
3.01. Organization and Authority. . . . . . . . . . . . . . 21
3.02. Capitalization of Buyer . . . . . . . . . . . . . . . 21
3.03. Authorization . . . . . . . . . . . . . . . . . . . . 21
3.04. Buyer Financial Statements. . . . . . . . . . . . . . 22
3.05. Buyer Reports . . . . . . . . . . . . . . . . . . . . 22
3.06. Material Adverse Effect . . . . . . . . . . . . . . . 23
3.07. Legal Proceedings or Other Adverse Facts. . . . . . . 23
3.08. Registration Statement, Etc.. . . . . . . . . . . . . 23
3.09. Brokers and Finders . . . . . . . . . . . . . . . . . 23
3.10. Accuracy of Information . . . . . . . . . . . . . . . 23
3.11. Compliance with Laws. . . . . . . . . . . . . . . . . 24
3.12. Tax and Regulatory Matters. . . . . . . . . . . . . . 24
ARTICLE IV CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE
TIME. . . . . . . . . . . . . . . . . . . . . . . . . 24
4.01. Conduct of Businesses Prior to the Effective
Time. . . . . . . . . . . . . . . . . . . . . . . . . 24
4.02. Forbearances of Seller. . . . . . . . . . . . . . . . 24
4.03. Forbearances of Buyer . . . . . . . . . . . . . . . . 27
4.04. Charter Amendment . . . . . . . . . . . . . . . . . . 27
ARTICLE V ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . 27
5.01. Access and Information. . . . . . . . . . . . . . . . 27
5.02. Registration Statement; Regulatory Matters. . . . . . 28
5.03. Shareholder and Stockholder Approval. . . . . . . . . 28
5.04. Current Information . . . . . . . . . . . . . . . . . 29
5.05. Conforming Entries. . . . . . . . . . . . . . . . . . 29
5.06. Environmental Reports . . . . . . . . . . . . . . . . 30
5.07. Agreements of Affiliates. . . . . . . . . . . . . . . 30
5.08. Expenses. . . . . . . . . . . . . . . . . . . . . . . 31
5.09. Miscellaneous Agreements. . . . . . . . . . . . . . . 31
5.10. Employee Agreements and Benefits. . . . . . . . . . . 31
5.11. Press Releases. . . . . . . . . . . . . . . . . . . . 33
5.12. State Takeover Statutes . . . . . . . . . . . . . . . 33
5.13. Directors' and Officers' Indemnification. . . . . . . 33
5.14. Tax Opinion Certificates. . . . . . . . . . . . . . . 34
5.15. Employee Stock Options. . . . . . . . . . . . . . . . 34
ARTICLE VI CONDITIONS. . . . . . . . . . . . . . . . . . . . . . 35
6.01. Conditions to Each Party's Obligation to Effect
the Merger. . . . . . . . . . . . . . . . . . . . . . 35
6.02. Conditions to Obligations of Seller to Effect
the Merger. . . . . . . . . . . . . . . . . . . . . . 36
6.03. Conditions to Obligations of Buyer to Effect the
Merger. . . . . . . . . . . . . . . . . . . . . . . . 37
- ii -
<PAGE> 4
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . 38
7.01. Termination . . . . . . . . . . . . . . . . . . . . . 38
7.02. Effect of Termination . . . . . . . . . . . . . . . . 39
7.03. Amendment . . . . . . . . . . . . . . . . . . . . . . 39
7.04. Waiver. . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VIII GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . 39
8.01. Non-Survival of Representations, Warranties and
Agreements. . . . . . . . . . . . . . . . . . . . . . 39
8.02. Indemnification . . . . . . . . . . . . . . . . . . . 39
8.03. No Assignment; Successors and Assigns . . . . . . . . 40
8.04. No Implied Waiver . . . . . . . . . . . . . . . . . . 40
8.05. Headings. . . . . . . . . . . . . . . . . . . . . . . 40
8.06. Entire Agreement. . . . . . . . . . . . . . . . . . . 40
8.07. Counterparts. . . . . . . . . . . . . . . . . . . . . 40
8.08. Notices . . . . . . . . . . . . . . . . . . . . . . . 40
8.09. Severability. . . . . . . . . . . . . . . . . . . . . 41
<CAPTION>
LIST OF EXHIBITS
<C> <S>
Exhibit A Form of Affiliate Agreement
Exhibit B Stockholder Tax Certificate
Exhibit C Officer/Director Tax Certificate
Exhibit D Form of Opinion of Counsel of Buyer
Exhibit E Form of Opinion of Counsel of Seller
</TABLE>
- iii -
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is
made and entered into as of March 20, 1997, by and among ALLEGIANT
BANCORP, INC., a Missouri corporation ("Buyer"), and RELIANCE
FINANCIAL, INC., a Delaware corporation ("Seller").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Buyer is a registered bank holding company under
the Bank Holding Company Act of 1956, as amended (the "BHCA"); and
WHEREAS, Seller is a registered savings and loan holding
company under the Home Owners' Loan Act, as amended (the "HOLA");
and
WHEREAS, the respective Boards of Directors of Buyer and
Seller have approved the merger (the "Merger") of Seller with and
into Buyer pursuant to the terms and subject to the conditions of
this Agreement; and
WHEREAS, the parties desire to provide for certain
undertakings, conditions, representations, warranties and covenants
in connection with the transactions contemplated by this Agreement.
NOW THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the
parties agree as follows:
ARTICLE I
---------
THE MERGER
1.01. The Merger. Subject to the terms and
----------
conditions of this Agreement, Seller shall be merged with and into
Buyer in accordance with Chapter 351 of the Missouri Revised
Statutes (the "Missouri Statute") and the Delaware General
Corporation Law (the "DGCL"), and the separate corporate existence
of Seller shall cease. Buyer shall be the surviving corporation of
the Merger (sometimes referred to herein as the "Surviving
Corporation") and shall continue to be governed by the laws of the
State of Missouri.
1.02. Closing. The closing (the "Closing") of the
-------
Merger shall take place at 10:00 a.m., local time, on the date that
the Effective Time (as defined in Section 1.03) occurs (the
"Closing Date") at the offices of Thompson Coburn, St. Louis,
Missouri, or at such other time and place as Buyer and Seller shall
agree.
1.03. Effective Time. The Merger shall 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 of the Office of the Secretary of State of the State of
Delaware. Unless otherwise mutually agreed in writing by Buyer and
Seller, subject to the terms and conditions of this Agreement, the
Effective Time shall occur on such date as Buyer shall notify
Seller 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 Sections 6.01(a) and
6.01(b) (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.
<PAGE> 6
1.04. Additional Actions. If, at any time after the
------------------
Effective Time, Buyer or the Surviving Corporation shall consider
or be advised that any further deeds, assignments or assurances or
any other acts are necessary or desirable to (a) vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation, all
right, title or interest in, to or under any of the rights,
properties or assets of Seller or (b) otherwise carry out the
purposes of this Agreement, Seller and each of its officers and
directors, shall be deemed to have granted to the Surviving
Corporation an irrevocable power of attorney to execute and deliver
all such deeds, assignments or assurances and to do all acts
necessary or desirable to vest, perfect or confirm title and
possession to such rights, properties or assets in the Surviving
Corporation and otherwise to carry out the purposes of this
Agreement, and the officers and directors of the Surviving
Corporation are authorized in the name of Seller or otherwise to
take any and all such action. Without limiting the generality of
the foregoing, the parties hereto agree to take all reasonable
steps to assure that the Merger and the transactions contemplated
hereby will be accounted for under the purchase method of
accounting.
1.05. Articles of Incorporation and Bylaws. The
------------------------------------
Articles of Incorporation and Bylaws of Buyer in effect immediately
prior to the Effective Time shall be the Articles of Incorporation
and Bylaws of the Surviving Corporation following the Merger, until
otherwise amended or repealed.
1.06. Boards of Directors and Officers. At the
--------------------------------
Effective Time, the directors and officers of Buyer immediately
prior to the Effective Time shall be the directors and officers,
respectively, of the Surviving Corporation following the Merger,
and such directors and officers shall hold office in accordance
with the Surviving Corporation's Bylaws and applicable law.
1.07. Conversion of Securities. At the Effective
------------------------
Time, by virtue of the Merger and without any action on the part of
Buyer, Seller or the holder of any of the following securities:
(a) Each share of the common stock, $0.01 par
value, of Buyer ("Buyer Common Stock") that is issued and
outstanding immediately prior to the Effective Time shall
remain outstanding and shall be unchanged after the
Merger; and
(b) Subject to Sections 1.09, 1.10 and 1.12
hereof, each share of common stock, $0.10 par value, of
Seller ("Seller Common Stock") issued and outstanding at
the Effective Time shall cease to be outstanding and
shall be converted into and become the right to receive
1.6741 shares of Buyer Common Stock (the "Merger
Consideration"); provided, however, that if the Average
Buyer Price (as defined in Section 6.02(f)) exceeds
$14.50, each share of Seller Common Stock issued and
outstanding at the Effective Time shall cease to be
outstanding and shall be converted into and become the
right to receive a number of shares of Buyer Common Stock
(rounded to four decimal places) equal to 1.6741 times a
fraction, the numerator of which is $14.50 and the
denominator of which is the Average Buyer Price. The
ratio determined pursuant to this Section 1.07(b) is
hereinafter referred to as the "Exchange Ratio."
Shares of Seller Common Stock held by Seller or any of its wholly
owned "Subsidiaries" (as defined in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission (the "SEC")),
or by Buyer or any of its wholly owned Subsidiaries, in each case
other than in a fiduciary capacity or as a result of debts
previously contracted, shall be cancelled and shall not be
exchanged after the Effective Time for the Merger Consideration.
In addition, no Dissenting Shares (as defined in Section 1.09 of
this Agreement) shall be converted pursuant to this Section 1.07
but shall be treated in accordance with the procedures set forth in
Section 1.09 of this Agreement.
- 2 -
<PAGE> 7
1.08. Exchange Procedures.
-------------------
(a) Prior to the Closing Date, Buyer shall
appoint Boatmen's Trust Company, or such other bank or trust
company selected by Buyer and reasonably acceptable to Seller, as
the exchange agent (the "Exchange Agent") to effect the exchange of
certificates evidencing shares of Seller Common Stock for shares of
Buyer Common Stock to be received in the Merger. At the Effective
Time, Buyer shall have granted the Exchange Agent the requisite
power and authority to effect for and on behalf of Buyer the
issuance of the number of shares of Buyer Common Stock issuable in
the Merger.
(b) As soon as practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of
Seller Common Stock as of the Closing Date a notice of consummation
of the Merger and a form of letter of transmittal, which shall be
in a form reasonably acceptable to Seller, pursuant to which each
such stockholder shall transmit the certificate or certificates
formerly representing shares of the Seller Common Stock, or, in
lieu thereof, such evidence of lost, stolen or mutilated
certificate or certificates and such surety bond as the Board of
Directors of Buyer may reasonably require in accordance with
customary exchange practices. Seller stockholders who satisfy such
requirements for lost, stolen or mutilated certificates shall for
purposes of the exchange procedures set forth herein be deemed to
have submitted certificates for Seller Common Stock. As soon as
practicable after surrender of such certificate to the Exchange
Agent with a properly completed letter of transmittal, the Exchange
Agent will promptly mail by first-class mail to such stockholder a
certificate or certificates representing the number of full shares
of Buyer Common Stock into which the shares of Seller Common Stock
evidenced by the certificate surrendered shall have been converted
pursuant to this Agreement.
(c) The Exchange Agent shall accept such
certificates upon compliance with such reasonable terms and
conditions as the Exchange Agent may impose to effect an orderly
exchange thereof in accordance with customary exchange practices.
Each outstanding certificate that, prior to the Effective Time,
represented Seller Common Stock shall, except as otherwise provided
in this Agreement, until duly surrendered to the Exchange Agent, be
deemed to evidence ownership of the number of shares of Buyer
Common Stock into which such Seller Common Stock shall have been
converted in the Merger. After the Effective Time, there shall be
no further transfer on the records of Seller of certificates
representing shares of capital stock of Seller, and if such
certificates are presented to Seller for transfer, they shall be
cancelled against delivery of the consideration provided therefor
in this Agreement. If the record date for any dividend or other
distribution in respect of Buyer Common Stock shall occur on or
after the Closing Date, the holders of Seller Common Stock shall be
entitled to such dividend or other distribution, but no dividends
declared on or other distributions in respect of Buyer Common Stock
will be remitted to any person entitled to receive Buyer Common
Stock under this Agreement until such person surrenders the
certificate or certificates representing Seller Common Stock, at
which time such dividends or other distributions shall be remitted
to such person, without interest and less any amounts in respect of
taxes that may have been imposed thereon and which are required to
be withheld by Buyer. Neither the Exchange Agent, Buyer nor Seller
shall be liable to any holder of Seller Common Stock for any
consideration paid to a public official pursuant to applicable
abandoned property, escheat or similar laws. The Exchange Agent
shall not be entitled to vote or exercise any rights of ownership
with respect to shares of Buyer Common Stock held by it from time
to time hereunder.
(d) No transfer taxes shall be payable by any
stockholder of Seller in respect of the issuance of certificates
for Buyer Common Stock and no expenses shall be imposed on any
stockholder of Seller in connection with the conversion of shares
of Seller Common Stock into shares of Buyer Common Stock and the
delivery of such shares to the former holder of Seller Common Stock
entitled thereto, except that (i) if any certificate for shares of
Buyer Common Stock is to be issued in a name other than that in
which a certificate or certificates for shares of Seller Common
Stock surrendered
- 3 -
<PAGE> 8
shall have been registered, it shall be a condition to such issuance that
the person requesting such issuance shall pay to Buyer any transfer
taxes payable by reason thereof or of any prior transfer of such
surrendered certificate or certificates or establish to the reasonable
satisfaction of Buyer that such taxes have been paid or are not
payable, and (ii) nothing herein shall relieve a stockholder of Seller
of any expenses associated with surrendering such holder's
certificates evidencing Seller Common Stock to the Exchange Agent.
1.09. Dissenting Shares.
-----------------
(a) "Dissenting Shares" means any shares held
by any holder who becomes entitled to payment of the fair value of
such shares under Section 262 of the DGCL. Any holders of
Dissenting Shares shall be entitled to payment for such shares only
to the extent permitted by and in accordance with the provisions of
such law, with funds provided by Buyer.
(b) Each party hereto shall give the other
prompt notice of any written demands for the payment of the fair
value of any shares, withdrawals of such demands, and any other
instruments, served pursuant to the DGCL received by such party and
Seller shall give Buyer the opportunity to participate in all
negotiations and proceedings with respect to such demands. Seller
shall not voluntarily make any payment with respect to any demands
for payment of fair value and shall not, except with the prior
written consent of Buyer, which consent shall not be unreasonably
withheld, settle or offer to settle any such demands.
1.10. No Fractional Shares. Notwithstanding any
--------------------
other provision of this Agreement, neither certificates nor scrip
for fractional shares of Buyer Common Stock shall be issued in the
Merger. Each holder of shares of Seller Common Stock who otherwise
would have been entitled to a fraction of a share of Buyer Common
Stock shall receive (by check from the Exchange Agent, mailed to
the stockholder with the certificate(s) for Buyer Common Stock
which such holder is to receive pursuant to the Merger) in lieu
thereof, and at the time such holder receives the shares of Buyer
Common Stock to which the holder is entitled, cash (without
interest) in an amount determined by multiplying the fractional
share interest to which such holder would otherwise be entitled by
the closing stock price of Buyer Common Stock on the Nasdaq
National Market (the "Nasdaq") as reported in The Wall Street
Journal, Midwest Edition, on the Closing Date of the Merger 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.
1.11. Closing of Stock Transfer Books. The stock
-------------------------------
transfer books of Seller shall be closed at the close of business
on the Business Day immediately preceding the Closing Date. In the
event of a transfer of ownership of Seller Common Stock which is
not registered in the transfer records of Seller, the consideration
to be distributed pursuant to this Agreement may be delivered to a
transferee, if the certificate representing such shares is
presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and all applicable
stock transfer taxes are paid. Buyer and the Exchange Agent shall
be entitled to rely upon the stock transfer books of Seller to
establish the identity of those persons entitled to receive the
consideration specified in this Agreement for their shares of
Seller Common Stock, which books shall be conclusive with respect
to the ownership of such shares. In the event of a dispute with
respect to the ownership of any such shares, Buyer and the Exchange
Agent shall be entitled to deposit any consideration represented
thereby in escrow with an independent party and thereafter be
relieved with respect to any claims to such consideration.
1.12. Anti-Dilution. If between the date of this
-------------
Agreement and the Effective Time a share of Buyer Common Stock
shall be changed into a different number of shares of Buyer Common
- 4 -
<PAGE> 9
Stock or a different class of shares by reason of reclassification,
recapitalization, split-up, exchange of shares (including, without
limitation, as a result of a merger, acquisition, reorganization or
other transaction involving Buyer) or readjustment, or if a stock
dividend thereon shall be declared with a record date within such
period, then the number of shares of Buyer Common Stock into which
a share of Seller Common Stock shall be converted pursuant to
Section 1.07 of this Agreement will be appropriately and
proportionately adjusted so that each stockholder of Seller shall
be entitled to receive such number of shares of Buyer Common Stock
or other securities as such stockholder would have received
pursuant to such reclassification, recapitalization, split-up,
exchange of shares or readjustment or as a result of such stock
dividend had the record date therefor been immediately following
the Effective Time.
1.13. Reservation of Right to Revise Transaction.
------------------------------------------
Buyer may at any time change the method of effecting the
acquisition of Seller by Buyer (including, without limitation, the
provisions of this Article I) if and to the extent Buyer deems such
change to be desirable; provided, however, that no such change
shall (A) alter or change the amount or kind of the Merger
Consideration to be received by the stockholders of Seller in the
Merger, (B) adversely affect the tax treatment to Seller
stockholders, as generally described in Section 6.01(e) hereof or
(C) materially impede or delay receipt of any approvals, referred
to in Section 6.01(b) or the consummation of the transactions
contemplated by this Agreement. For purposes of this Section 1.13,
a material delay shall mean a delay in excess of 30 days.
1.14. Material Adverse Effect. As used in this
-----------------------
Agreement, the term "Material Adverse Effect" with respect to an
entity means any condition, event, change or occurrence that has or
may reasonably be expected to have a material adverse effect on the
condition (financial or otherwise), properties, business or results
of operations, of such entity and its Subsidiaries, taken as a
whole as reflected in the Seller Financial Statements (as defined
in Section 2.05(b)) or the Buyer Financial Statements (as defined
in Section 3.04), as the case may be; it being understood that a
Material Adverse Effect shall not include: (i) a change with
respect to, or effect on, such entity and its Subsidiaries
resulting from a change in law, rule, regulation, generally
accepted accounting principles or regulatory accounting principles,
including, but not limited to, changes resulting from amendments to
or modifications of any law, rule, regulation or policy relating to
the bad debt reserve of or deduction taken by thrift institutions,
as such would apply to the financial statements of such entity on
a consolidated basis; (ii) a change with respect to, or effect on,
such entity and its Subsidiaries resulting from any other matter
affecting depository institutions generally including, without
limitation, changes in general economic conditions and changes in
prevailing interest and deposit rates; (iii) the one-time special
insurance premium assessed by the Federal Deposit Insurance
Corporation ("FDIC") on deposits insured by the Savings Association
Insurance Fund ("SAIF"); (iv) in the case of Seller, any financial
change resulting from adjustments taken pursuant to Section 5.05
hereof; or (v) a change disclosed in the Seller Financial
Statements or the Buyer Financial Statements, as the case may be.
ARTICLE II
----------
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
As an inducement to Buyer to enter into and perform its
obligations under this Agreement, and notwithstanding any
examination, inspection, audit or any other investigation made by
Buyer, Seller represents and warrants to and covenants with Buyer
as follows:
2.01. Organization and Authority. Seller is a
--------------------------
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, is duly qualified to do
business and is in good standing in all jurisdictions where its
ownership or leasing of property or the conduct of
- 5 -
<PAGE> 10
its business requires it to be so qualified and has corporate power
and authority to own its properties and assets and to carry on its
business as it is now being conducted. Seller is registered as a
savings and loan holding company with the Office of Thrift
Supervision (the "OTS") under the HOLA. True and complete copies
of the Certificate of Incorporation and Bylaws of Seller and the
Charter and Bylaws of Reliance Federal Savings and Loan Association
of St. Louis County, a wholly owned subsidiary of Seller ("RFSLA"),
each as in effect on the date of this Agreement, are attached
hereto as Schedule 2.01. Also attached hereto as Schedule 2.01 are
------------- -------------
true and complete lists of the stockholders of each of the Seller
and RFSLA, as of the close of business on December 13, 1996.
2.02. Subsidiaries.
------------
(a) Schedule 2.02 sets forth, a complete and
-------------
correct list of all of Seller's Subsidiaries (each a
"Seller Subsidiary" and, collectively, the "Seller
Subsidiaries"), all outstanding Equity Securities (as
defined in Section 2.03) of each, all of which are owned
directly or indirectly by Seller. Except as disclosed in
Schedule 2.02, all of the outstanding shares of capital
-------------
stock of the Seller Subsidiaries owned directly or
indirectly by Seller are validly issued, fully paid and
nonassessable and are owned free and clear of any lien,
claim, charge, option, encumbrance, agreement, mortgage,
pledge, security interest or restriction (a "Lien") with
respect thereto. Each of the Seller Subsidiaries is a
corporation or federal savings and loan association
incorporated or organized and validly existing under the
laws of its jurisdiction of incorporation or
organization, and has corporate power and authority to
own or lease its properties and assets and to carry on
its business as it is now being conducted. Each of the
Seller Subsidiaries is duly qualified to do business in
each jurisdiction where its ownership or leasing of
property or the conduct of its business requires it so to
be qualified, except where the failure to so qualify
would not have a Material Adverse Effect on Seller and
the Seller Subsidiaries, taken as a whole. Neither
Seller nor any Seller Subsidiary owns beneficially,
directly or indirectly, any shares of any class of Equity
Securities or similar interests of any corporation, bank,
business trust, association or organization, or any
interest in a partnership or joint venture of any kind,
other than those identified in Schedule 2.02 hereof.
-------------
(b) RFSLA is a federally-chartered savings and
loan association duly organized and validly existing
under the laws of the United States of America. The
deposits of RFSLA are insured by the Federal Deposit
Insurance Corporation (the "FDIC") under the Federal
Deposit Insurance Act of 1950, as amended (the "FDI
Act").
2.03. Capitalization. The authorized capital stock
--------------
of Seller consists of (i) 1,500,000 shares of Seller Common Stock,
of which, as of the date hereof, 447,200 shares are issued and
425,700 shares are outstanding and (ii) 250,000 shares of preferred
stock, $0.01 par value, of which, as of the date hereof, no shares
were issued and outstanding. As of the date hereof, Seller had
reserved 60,200 shares of Seller Common Stock for issuance under
Seller's stock option and incentive plans, a list of which is set
forth on Schedule 2.03 (the "Seller Stock Plans"), pursuant to
-------------
which options ("Seller Employee Stock Options") covering 43,000
shares of Seller Common Stock were outstanding as of the date
hereof. "Equity Securities" of an issuer means capital stock or
other equity securities of such issuer, options, warrants, scrip,
rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into,
shares of any capital stock or other equity securities of such
issuer, or contracts, commitments, understandings or arrangements
by which such issuer is or may become bound to issue additional
shares of its capital stock or other equity securities of such
issuer, or options, warrants, scrip or rights to purchase, acquire,
subscribe to, calls on or commitments for any
- 6 -
<PAGE> 11
shares of its capital stock or other equity securities. Except as set
forth above, there are no other Equity Securities of Seller
outstanding. All of the issued and outstanding shares of Seller
Common Stock are validly issued, fully paid and nonassessable, and
have not been issued in violation of any preemptive right of any
stockholder of Seller. Attached hereto as Schedule 2.03 is a list of
-------------
the holders of the Seller Employee Stock Options, the exercise price
of such options and the number of shares of Seller Common Stock
subject thereto.
2.04. Authorization.
-------------
(a) Seller has the corporate power and
authority to enter into this Agreement and, subject to
the approval of this Agreement by the stockholders of
Seller and Regulatory Authorities (as defined in Section
2.06), to carry out its obligations hereunder. The only
stockholder vote required for Seller to approve this
Agreement is the affirmative vote of the holders of a
majority of the outstanding shares of Seller Common Stock
entitled to vote at a meeting called for such purpose.
The execution, delivery and performance of this Agreement
by Seller and the consummation by Seller of the
transactions contemplated hereby in accordance with and
subject to the terms of this Agreement have been duly
authorized by the Board of Directors of Seller. Subject
to the approval of Seller's stockholders and subject to
the receipt of such approvals of the Regulatory
Authorities as may be required by statute or regulation,
this Agreement is a valid and binding obligation of
Seller (subject to the valid execution by Buyer)
enforceable against Seller in accordance with its terms.
(b) Except as disclosed in Schedule 2.04(b),
----------------
neither the execution nor delivery nor performance by
Seller of this Agreement, nor the consummation by Seller
of the transactions contemplated hereby, nor compliance
by Seller with any of the provisions hereof, will (i)
violate, conflict with, or result in a breach of any
provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result
in a right of termination or acceleration of, or result
in the creation of, any Lien upon any of the properties
or assets of Seller or any of the Seller Subsidiaries
under any of the terms, conditions or provisions of (x)
its Certificate or Articles of Incorporation, as the case
may be, charter or Bylaws or (y) any note, bond,
mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which
Seller or any of the Seller Subsidiaries is a party or by
which it may be bound, or to which Seller or any of the
Seller Subsidiaries or any of the properties or assets of
Seller or any of the Seller Subsidiaries may be subject,
or (ii) subject to compliance with the statutes and
regulations referred to in subsection (c) of this Section
2.04 and, to the best of Seller's knowledge, violate any
judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to Seller or any
of the Seller Subsidiaries or any of their respective
properties or assets; other than violations, conflicts,
breaches, defaults, terminations, accelerations or Liens
which would not have a Material Adverse Effect on Seller
and Seller Subsidiaries, taken as a whole.
(c) Other than in connection or in compliance
with the provisions of the Missouri Statute, the DGCL,
the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act"), the
Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (the "Exchange Act"),
the securities or blue sky laws of the various states or
filings, consents, reviews, authorizations, approvals or
exemptions required under the BHCA, the Hart-Scott-Rodino
Antitrust
- 7 -
<PAGE> 12
Improvement Act of 1976 or any required
approvals of the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") and the OTS
or other governmental agencies or governing boards having
regulatory authority over Seller or any Seller
Subsidiary, no notice to, filing with, exemption or
review by, or authorization, consent or approval of, any
public body or authority is necessary for the
consummation by Seller of the transactions contemplated
by this Agreement.
2.05. Seller Financial Statements.
---------------------------
(a) Attached hereto as Schedule 2.05(a) are
----------------
copies of the following documents:
(i) Annual Report on Form 10-K for the
year ended September 30, 1996;
(ii) Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996; and
(iii) OTS Thrift Financial Report for RFSLA
for the years ended December 31, 1994, 1995 and 1996.
(b) The financial statements contained in the
documents referenced in Schedule 2.05(a) are referred to
----------------
collectively as the "Seller Financial Statements." The Seller
Financial Statements referenced in Sections 2.05(a)(i) and (ii)
have been prepared in accordance with the books and records of
Seller in accordance with generally accepted accounting principles
and present fairly the consolidated financial positions of Seller
and the Seller Subsidiaries, at the dates thereof and the
consolidated results of operations and cash flows of Seller and the
Seller Subsidiaries for the periods stated therein.
(c) Seller and the Seller Subsidiaries have each
prepared, kept and maintained through the date hereof true, correct
and complete financial and other books and records of their affairs
which fairly reflect their respective financial conditions, results
of operations, businesses, assets, prospects and operations.
2.06. Seller Reports. Since January 1, 1993, each of
--------------
Seller and the Seller Subsidiaries has timely filed all material
reports, registrations and statements, together with any required
amendments thereto, that it was required to file with (i) the SEC,
including, but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K
and proxy statements, (ii) the OTS, (iii) the FDIC and (iv) any
federal, state, municipal or local government, securities, banking,
savings and loan, insurance and other governmental or regulatory
authority, and the agencies and staffs thereof (the entities in the
foregoing clauses (i) through (v) being referred to herein
collectively as the "Regulatory Authorities" and, individually, as
a "Regulatory Authority"), having jurisdiction over the affairs of
it. All such reports and statements filed with any such Regulatory
Authority are collectively referred to herein as the "Seller
Reports." As of each of their respective dates, the Seller Reports
complied in all material respects with all the rules and
regulations promulgated by the applicable Regulatory Authority.
With respect to Seller Reports filed with the Regulatory
Authorities, there is no unresolved violation, criticism or
exception by any Regulatory Authority with respect to any report or
statement filed by, or any examinations of, Seller or any of the
Seller Subsidiaries that, if unresolved, would result in a Material
Adverse Effect on the Seller and Seller Subsidiaries, taken as a
whole.
- 8 -
<PAGE> 13
2.07. Title to and Condition of Assets.
--------------------------------
(a) Except as may be reflected in the Seller
Financial Statements and with the exception of all "Real
Property" (which is the subject of Section 2.08 hereof)
Seller and the Seller Subsidiaries have, and at the
Closing Date will have, good and marketable title to
their owned properties and assets, including, without
limitation, those reflected in the Seller Financial
Statements (except those disposed of in the ordinary
course of business since the date thereof), free and
clear of any Lien, except for Liens for (i) taxes,
assessments or other governmental charges not yet
delinquent, (ii) non-monetary encumbrances that do not
interfere with the use of the property for the business
conducted thereon and (iii) as set forth or described in
the Seller Financial Statements or any subsequent Seller
Financial Statements delivered to Buyer prior to the
Effective Time.
(b) No material properties or assets that are
reflected as owned by Seller or any of the Seller
Subsidiaries in the Seller Financial Statements as of
December 31, 1996 have been sold, leased, transferred,
assigned or otherwise disposed of since such date, except
in the ordinary course of business.
(c) All furniture, fixtures, vehicles, machinery
and equipment and computer software owned or used by
Seller or the Seller Subsidiaries, including any such
items leased as a lessee (taken as a whole as to each of
the foregoing with no single item deemed to be of
material importance) are in good working order and free
of known defects, subject only to normal wear and tear.
The operation by Seller or the Seller Subsidiaries of
such properties and assets is in compliance in all
material respects with all applicable laws, ordinances
and rules and regulations of any governmental authority
having jurisdiction over such use.
2.08. Real Property.
-------------
(a) The legal description of each parcel of real
property owned by Seller or any of the Seller
Subsidiaries (other than real property acquired in
foreclosure or in lieu of foreclosure in the course of
the collection of loans and being held by Seller or a
Seller Subsidiary for disposition as required by law) is
set forth in Schedule 2.08(a) under the heading "Owned
----------------
Real Property" (such real property being herein referred
to as the "Owned Real Property"). The legal description
of each parcel of real property leased by Seller or any
of the Seller Subsidiaries is also set forth in Schedule
--------
2.08(a) under the heading "Leased Real Property" (such
-------
real property being herein referred to as the "Leased
Real Property"). Collectively, the Owned Real Property
and the Leased Real Property is herein referred to as the
"Real Property."
(b) There is no pending action involving Seller
or any of the Seller Subsidiaries as to the title of or
the right to use any of the Real Property.
(c) Neither Seller nor any of the Seller
Subsidiaries has any interest in any other real property
not listed on Schedule 2.08(a), except interests as a
----------------
mortgagee, and except for any real property acquired in
foreclosure or in lieu of foreclosure and being held for
disposition as required by law.
- 9 -
<PAGE> 14
(d) None of the buildings, structures or other
improvements located on the Real Property encroaches upon
or over any adjoining parcel of real estate or any
easement or right-of-way or "setback" line in any
material respect and all such buildings, structures and
improvements are in all material respects located and
constructed in conformity with all applicable zoning
ordinances and building codes.
(e) None of the buildings, structures or
improvements located on the Owned Real Property are the
subject of any official complaint or notice by any
governmental authority of violation of any applicable
zoning ordinance or building code, and there is no zoning
ordinance, building code, use or occupancy restriction or
condemnation action or proceeding pending, or, to the
best knowledge of Seller, threatened, with respect to any
such building, structure or improvement which, if
resolved against Seller, would result in a Material
Adverse Effect on the Seller and the Seller Subsidiaries
taken as a whole. The Owned Real Property is in
generally good condition for its intended purpose,
ordinary wear and tear excepted, and has been maintained
in accordance with reasonable and prudent business
practices applicable to like facilities.
(f) Except as may be reflected in the Seller
Financial Statements or with respect to such easements,
Liens, defects or encumbrances as do not individually or
in the aggregate materially adversely affect the use or
value of the parcel of Owned Real Property, Seller and
the Seller Subsidiaries have, and at the Closing Date
will have, good and marketable title to their respective
Owned Real Properties.
(g) Neither Seller nor any of the Seller
Subsidiaries has received any notice of any past, pending
or threatened investigation, proceeding, claim, action or
lawsuit, whether by a third party or Regulatory
Authority, arising out of the ownership of or the
operations at the Real Property or environmental
conditions that exist or allegedly exist at the Real
Property or at any Real Property previously owned, leased
or operated by Seller or any of the Seller Subsidiaries.
(h) Neither Seller nor any of the Seller
Subsidiaries has caused or allowed the generation,
treatment, storage, disposal or release at the Real
Property of any toxic or hazardous materials regulated
under federal, state or local law.
(i) To the best of Seller's knowledge, there are
no underground storage tanks located on, in or under the
Real Property.
2.09. Taxes. Seller and each Seller Subsidiary have
-----
timely filed or will timely file (including extensions) all
material tax returns required to be filed at or prior to the
Closing Date ("Seller Returns"). Each of Seller and the Seller
Subsidiaries has paid, or set up adequate reserves on the Seller
Financial Statements for the payment of, all taxes required to be
paid in respect of the periods covered by such Seller Returns and
has set up adequate reserves on the most recent Seller Financial
Statements for the payment of all taxes anticipated to be payable
in respect of all periods up to and including the latest period
covered by such Seller Financial Statements. Except as set forth
in Schedule 2.09, neither Seller nor any Seller Subsidiary has any
-------------
liability material to the condition of Seller and the Seller
Subsidiaries, taken as a whole, for any such taxes in excess of the
amounts so paid or reserves so established, and no material
deficiencies for any tax, assessment or governmental charge have
been proposed, asserted or assessed (tentatively or definitely)
against Seller or any of the Seller Subsidiaries which would not be
covered by existing reserves. Neither Seller nor any of the Seller
Subsidiaries is delinquent in the payment of any tax, assessment or
governmental charge, nor has it requested any
- 10 -
<PAGE> 15
extension of time within which to file any tax returns in respect of
any fiscal year which have not since been filed and no requests for
waivers of the time to assess any tax are pending. No federal or
state income tax return of Seller or any Seller Subsidiaries has been
audited by the Internal Revenue Service (the "IRS") or any state tax
authority for the seven (7) most recent full fiscal years. There is
no deficiency or refund litigation or, to the best knowledge of
Seller, matter in controversy with respect to Seller Returns.
Neither Seller nor any of the Seller Subsidiaries has extended or
waived any statute of limitations on the assessment of any tax due
that is currently in effect.
2.10. Material Adverse Effect. Since December 31,
-----------------------
1996, there have been no events or circumstances, which
individually or in the aggregate, have had or are reasonably likely
to have a Material Adverse Effect on Seller and the Seller
Subsidiaries, taken as a whole.
2.11. Loans, Commitments and Contracts.
--------------------------------
(a) Schedule 2.11(a) contains a complete and
----------------
accurate listing as of the date hereof of all contracts
entered into with respect to deposits of $100,000 or
more, by account, and all loan agreements and
commitments, notes, security agreements, repurchase
agreements, bankers' acceptances, outstanding letters of
credit and commitments to issue letters of credit,
participation agreements, and other documents relating to
or involving extensions of credit and other commitments
to extend credit by Seller or any of the Seller
Subsidiaries with respect to any one entity or related
group of entities in excess of $75,000 to which Seller or
any of the Seller Subsidiaries is a party or by which it
is bound, by account, and, where applicable, such other
information as shall be necessary to identify any related
group of entities.
(b) Except for the contracts and agreements
required to be listed on Schedule 2.11(a) and the loans
----------------
required to be listed on Schedule 2.11(f), and except as
----------------
otherwise listed on Schedule 2.11(b), as of the date
----------------
hereof neither Seller nor any of the Seller Subsidiaries
is a party to or is bound by any:
(i) agreement, contract, arrangement,
understanding or commitment with any labor
union;
(ii) franchise or license agreement;
(iii) written employment, severance,
termination pay, agency, consulting or similar
agreement or commitment in respect of personal
services;
(iv) material agreement, arrangement or
commitment (A) not made in the ordinary course
of business, and (B) pursuant to which Seller or
any of the Seller Subsidiaries is or may become
obligated to invest in or contribute to any
Seller Subsidiary other than pursuant to Seller
Employee Plans (as that term is defined in
Section 2.19 hereof) and agreements relating to
joint ventures or partnerships set forth in
Schedule 2.02, true and complete copies of which
-------------
have been furnished to Buyer;
(v) agreement, indenture or other
instrument not disclosed in the Seller Financial
Statements relating to the borrowing of money by
Seller or any of the Seller Subsidiaries or the
guarantee by Seller or any of the Seller
Subsidiaries of any such obligation (other than
trade payables or instruments related to
- 11 -
<PAGE> 16
transactions entered into in the ordinary course
of business by Seller or any of the Seller
Subsidiaries, such as deposits, Federal Funds
borrowings and repurchase and reverse repurchase
agreements), other than such agreements,
indentures or instruments providing for annual
payments of less than $5,000;
(vi) contract containing covenants which
limit the ability of Seller or any of the Seller
Subsidiaries to compete in any line of business
or with any person or which involves any
restrictions on the geographical area in which,
or method by which, Seller or any of the Seller
Subsidiaries may carry on their respective
businesses (other that as may be required by law
or any applicable Regulatory Authority);
(vii) contract or agreement which is a
"material contract" within the meaning of Item
601(b)(10) of Regulation S-K as promulgated by
the SEC to be performed after the date of this
Agreement;
(viii) lease with annual rental payments
aggregating $5,000 or more;
(ix) loans or other obligations payable
or owing to any officer, director or employee
except (A) salaries, wages and directors' fees
or other compensation incurred and accrued in
the ordinary course of business and (B)
obligations due in respect of any depository
accounts maintained by any of the foregoing at
Seller or any of the Seller Subsidiaries in the
ordinary course of business; or
(x) other agreement, contract, arrange-
ment, understanding or commitment involving an
obligation by Seller or any of the Seller
Subsidiaries of more than $5,000 and extending
beyond six months from the date hereof that
cannot be cancelled without cost or penalty upon
notice of 30 days or less, other than contracts
entered into in respect of deposits, loan
agreements and commitments, notes, security
agreements, repurchase and reverse repurchase
agreements, bankers' acceptances, outstanding
letters of credit and commitments to issue
letters of credit, participation agreements and
other documents relating to transactions entered
into by Seller or any of the Seller Subsidiaries
in the ordinary course of business and not
involving extensions of credit with respect to
any one entity or related group of entities in
excess of $5,000.
(c) Seller and/or the Seller Subsidiaries
carry property, liability, director and officer errors
and omissions, products liability and other insurance
coverage as set forth in Schedule 2.11(c) under the
----------------
heading "Insurance."
(d) True, correct and complete copies of the
agreements, contracts, leases, insurance policies and
other documents referred to in Section 2.11(b) have been
included with Schedule 2.11(b) hereto. True, correct and
----------------
complete copies of the agreements, contracts, leases,
insurance policies and other documents referred to in
Sections 2.11(a) and (c) have been or shall be furnished
or made available to Buyer.
(e) To the best knowledge of Seller, each of
the agreements, contracts, leases, insurance policies and
other documents referred to in Schedules 2.11 (a), (b)
-----------------------
and (c) is a valid, binding and enforceable obligation of
-------
the parties sought to be bound thereby, except as the
enforceability thereof against the parties thereto (other
than Seller or any
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<PAGE> 17
of the Seller Subsidiaries) may be limited by bankruptcy,
insolvency, reorganization, moratorium and other laws now
or hereafter in effect relating to the enforcement of
creditors' rights generally, and except that equitable
principles may limit the right to obtain specific
performance or other equitable remedies.
(f) Schedule 2.11(f) under the heading "Loans"
----------------
contains a true, correct and complete listing, as of the
date of this Agreement, by account, of: (i) all loans in
excess of $10,000 of Seller or any of the Seller
Subsidiaries which have been accelerated during the past
twelve months; (ii) all loan commitments or lines of
credit of Seller or any of the Seller Subsidiaries in
excess of $10,000 which have been terminated by Seller or
any of the Seller Subsidiaries during the past twelve
months by reason of default or adverse developments in
the condition of the borrower or other events or
circumstances affecting the credit of the borrower; (iii)
all loans, lines of credit and loan commitments in excess
of $10,000, as to which Seller or any of the Seller
Subsidiaries has given written notice of its intent to
terminate during the past twelve months; (iv) with
respect to all loans in excess of $10,000, all "demand"
letters and other written communications from Seller or
any of the Seller Subsidiaries to any of their respective
borrowers, customers or other parties during the past
twelve months wherein Seller or any of the Seller
Subsidiaries has requested or demanded that actions be
taken to correct existing defaults or facts or circum-
stances which may become defaults; (v) each borrower,
customer or other party which has notified Seller or any
of the Seller Subsidiaries during the past twelve months
of, or has asserted against Seller or any of the Seller
Subsidiaries, in each case in writing, any "lender
liability" or similar claim, and, to the best knowledge
of Seller, each borrower, customer or other party which
has given Seller or any of the Seller Subsidiaries any
oral notification of, or orally asserted to or against
Seller or any of the Seller Subsidiaries, any such claim;
(vi) all loans in excess of $10,000 (A) that are
contractually past due 90 days or more in the payment of
principal and/or interest, (B) that are on non-accrual
status, (C) that have been classified "doubtful," "loss"
or the equivalent thereof by any Regulatory Authority,
(D) where a reasonable doubt exists as to the timely
future collectibility of principal and/or interest,
whether or not interest is still accruing or the loan is
less than 90 days past due, (E) the interest rate terms
have been reduced and/or the maturity dates have been
extended subsequent to the agreement under which the loan
was originally created due to concerns regarding the
borrower's ability to pay in accordance with such initial
terms, or (F) where a specific reserve allocation exists
in connection therewith; and (vii) all loans or debts
payable or owing by any executive officer or director of
Seller or any of the Seller Subsidiaries or any other
person or entity deemed an "executive officer" or a
"related interest" of any of the foregoing, as such terms
are defined in Regulation O of the Federal Reserve Board.
2.12. Absence of Defaults. Neither Seller nor any of
-------------------
the Seller Subsidiaries is in violation of its charter documents or
Bylaws or in default under any material agreement, commitment,
arrangement, lease, insurance policy or other instrument, whether
entered into in the ordinary course of business or otherwise and
whether written or oral, and there has not occurred any event that,
with the lapse of time or giving of notice or both, would consti-
tute such a default, except, in all cases, where such violation or
default would not have a Material Adverse Effect on Seller and the
Seller Subsidiaries, taken as a whole.
2.13. Litigation and Other Proceedings. Except as set
--------------------------------
forth on Schedule 2.13 or otherwise disclosed in the Seller
-------------
Financial Statements, neither Seller nor any of the Seller
Subsidiaries is a party to any pending or, to the best knowledge of
Seller, threatened claim, action, suit, investigation
- 13 -
<PAGE> 18
or proceeding, or is subject to any order, judgment or decree,
except for matters which, in the aggregate, will not have, or
reasonably could not be expected to have, a Material Adverse Effect on
Seller and the Seller Subsidiaries, taken as a whole. Without
limiting the generality of the foregoing, there are no actions, suits
or proceedings pending or, to the best knowledge of Seller, threatened
against Seller or any of the Seller Subsidiaries or any of their
respective officers or directors by any stockholder of Seller or
any of the Seller Subsidiaries (or any former stockholder of Seller
or any of the Seller Subsidiaries) or involving claims under the
Community Reinvestment Act of 1977, as amended, the Bank Secrecy
Act or the fair lending and fair credit laws.
2.14. Directors' and Officers' Insurance. Each of
----------------------------------
Seller and the Seller Subsidiaries has taken or will take all
requisite action (including, without limitation, the making of
claims and the giving of notices) pursuant to its directors' and
officers' liability insurance policy or policies in order to
preserve all rights thereunder with respect to all matters (other
than matters arising in connection with this Agreement and the
transactions contemplated hereby) occurring prior to the Effective
Time that are known to Seller, except for such matters which,
individually or in the aggregate, will not have and reasonably
could not be expected to have a Material Adverse Effect on Seller
and the Seller Subsidiaries, taken as a whole.
2.15. Compliance with Laws.
--------------------
(a) To the best knowledge of Seller, Seller
and each of the Seller Subsidiaries have all permits,
licenses, authorizations, orders and approvals of, and
have made all filings, applications and registrations
with, all Regulatory Authorities that are required in
order to permit them to own or lease their respective
properties and assets and to carry on their respective
businesses as presently conducted; all such permits,
licenses, certificates of authority, orders and approvals
are in full force and effect and no suspension or
cancellation of any of them is, to the best of Seller's
knowledge, threatened; and all such filings, applications
and registrations are current; in each case except for
permits, licenses, authorizations, orders, approvals,
filings, applications and registrations the failure to
have (or have made) would not have a Material Adverse
Effect on Seller and the Seller Subsidiaries, taken as a
whole.
(b) (i) Each of Seller and the Seller
Subsidiaries has complied with all laws, regulations and
orders (including, without limitation, zoning ordinances,
building codes, the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and securities, tax,
environmental, civil rights, and occupational health and
safety laws and regulations including, without
limitation, in the case of Seller or any Seller
Subsidiary that is a bank or savings association, banking
organization, banking corporation or trust company, all
statutes, rules, regulations and policy statements
pertaining to the conduct of a banking, deposit-taking,
lending or related business, or to the exercise of trust
powers) and governing instruments applicable to it and to
the conduct of its business, except where such failure to
comply would not have a Material Adverse Effect on Seller
and the Seller Subsidiaries, taken as a whole, and (ii)
neither Seller nor any of the Seller Subsidiaries is in
default under, and no event has occurred which, with the
lapse of time or notice or both, could result in the
default under, the terms of any judgment, order, writ,
decree, permit, or license of any Regulatory Authority or
court, whether federal, state, municipal or local, and
whether at law or in equity, except where such default
would not have a Material Adverse Effect on Seller and
the Seller Subsidiaries, taken as a whole.
- 14 -
<PAGE> 19
(c) Neither Seller nor any of the Seller
Subsidiaries is subject to or reasonably likely to incur
a liability as a result of its ownership, operation, or
use of any Property (as defined below) of Seller (whether
directly or, to the best knowledge of Seller, as a
consequence of such Property being acquired in
foreclosure or in lieu of foreclosure and held for
disposition or being part of the investment portfolio of
Seller or any of the Seller Subsidiaries) (A) that is
contaminated by or contains any hazardous waste, toxic
substance or related materials, including, without
limitation, petroleum, asbestos, PCBs, pesticides, herbi-
cides and any other substance or waste that is hazardous
to human health or the environment (collectively, a
"Toxic Substance"), or (B) on which any Toxic Substance
has been stored, disposed of, placed or used in the
construction thereof; and which, in each case, reasonably
could be expected to have a Material Adverse Effect on
Seller and the Seller Subsidiaries, taken as a whole.
"Property" shall include all property (real or personal,
tangible or intangible) owned or controlled by Seller or
any of the Seller Subsidiaries, including, without
limitation, property acquired under foreclosure or in
lieu of foreclosure, property in which any venture
capital or similar unit of Seller or any of the Seller
Subsidiaries has an interest and, to the best knowledge
of Seller, property held by Seller or any of the Seller
Subsidiaries in its capacity as a trustee. No claim,
action, suit or proceeding is pending and no material
claim has been asserted against Seller or any of the
Seller Subsidiaries relating to Property of Seller or any
of the Seller Subsidiaries before any court or other
Regulatory Authority or arbitration tribunal relating to
Toxic Substances, pollution or the environment, and there
is no outstanding judgment, order, writ, injunction,
decree or award against or affecting Seller or any of the
Seller Subsidiaries with respect to the same. Except for
statutory or regulatory restrictions of general
application, no Regulatory Authority has placed any
restriction on the business of Seller or any of the
Seller Subsidiaries which reasonably could be expected to
have a Material Adverse Effect on Seller and the Seller
Subsidiaries, taken as a whole.
(d) Since December 31, 1993, neither Seller
nor any of the Seller Subsidiaries has received any
notification or communication which has not been resolved
from any Regulatory Authority (i) asserting that any
Seller or any of the Seller Subsidiaries is not in
substantial compliance with any of the statutes,
regulations or ordinances that such Regulatory Authority
enforces, except with respect to matters which reasonably
could not be expected to have a Material Adverse Effect
on Seller and the Seller Subsidiaries, taken as a whole,
(ii) threatening to revoke any license, franchise, permit
or governmental authorization that is material to the
condition of Seller and the Seller Subsidiaries, taken as
a whole, including, without limitation, RFSLA's status as
an insured depository institution under the FDI Act,
(iii) requiring or threatening to require Seller or any
of the Seller Subsidiaries, or indicating that Seller or
any of the Seller Subsidiaries may be required, to enter
into a cease and desist order, agreement or memorandum of
understanding or any other agreement restricting or
limiting or purporting to direct, restrict or limit in
any manner the operations of Seller or any of the Seller
Subsidiaries, including, without limitation, any
restriction on the payment of dividends. No such cease
and desist order, agreement or memorandum of
understanding or other agreement is currently in effect.
(e) Neither Seller nor any of the Seller
Subsidiaries is required by Section 32 of the FDI Act to
give prior notice to any federal banking agency of the
proposed addition of an individual to its board of
directors or the employment of an individual as a senior
executive officer.
- 15 -
<PAGE> 20
2.16. Labor. No work stoppage involving Seller or any
-----
of the Seller Subsidiaries is pending or, to the best knowledge of
Seller, threatened. Neither Seller nor any of the Seller Subsid-
iaries is involved in, or, to the best knowledge of Seller,
threatened with or affected by, any labor dispute, arbitration,
lawsuit or administrative proceeding which reasonably could be
expected to have a Material Adverse Effect on Seller and the Seller
Subsidiaries, taken as a whole. None of the employees of Seller or
the Seller Subsidiaries are represented by any labor union or any
collective bargaining organization.
2.17. Material Interests of Certain Persons. No
-------------------------------------
officer or director of Seller or any of the Seller Subsidiaries, or
any "associate" (as such term is defined in Rule 14a-1 under the
Exchange Act) of any such officer or director, has any interest in
any contract or property (real or personal, tangible or
intangible), used in, or pertaining to the business of, Seller or
any of the Seller Subsidiaries, which in the case of Seller and
each of the Seller Subsidiaries would be required to be disclosed
by Item 404 of Regulation S-K promulgated by the SEC.
2.18. Allowance for Loan and Lease Losses; Non-
-----------------------------------------
Performing Assets.
- -----------------
(a) All of the accounts, notes, and other
receivables which are reflected in the Seller Financial
Statements as of December 31, 1996 were acquired in the
ordinary course of business and were collectible in full
in the ordinary course of business, except for possible
loan and lease losses which are adequately provided for
in the allowance for loan and lease losses reflected in
such Seller Financial Statements, and the collection
experience of Seller and the Seller Subsidiaries since
December 31, 1996 to the date hereof, has not deviated in
any material and adverse manner from the credit and
collection experience of Seller and the Seller
Subsidiaries, taken as a whole, for the three-months
ended December 31, 1996.
(b) The allowances for loan losses contained
in the Seller Financial Statements were established in
accordance with the past practices and experiences of
Seller and the Seller Subsidiaries, and the allowance for
loan and lease losses shown on the consolidated balance
sheet of Seller and the Seller Subsidiaries as of
December 31, 1996, were adequate in all material respects
under the requirements of generally accepted accounting
principles, or regulatory accounting principles, as the
case may be, to provide for possible losses on loans and
leases (including, without limitation, accrued interest
receivable) and credit commitments (including, without
limitation, stand-by letters of credit) as of the date of
such balance sheet.
(c) Schedule 2.18(c) sets forth as of the date
----------------
of this Agreement all assets classified by Seller as real
estate acquired through foreclosure or repossession,
including in-substance foreclosure.
(d) The aggregate amount of all Non-Performing
Assets (as defined below) on the books of Seller and the
Seller Subsidiaries does not exceed $75,000. "Non-
Performing Assets" shall mean (i) all loans (A) that are
contractually past due 90 days or more in the payment of
principal and/or interest, (B) that are on nonaccrual
status, (C) that have been classified "doubtful," "loss"
or the equivalent thereof by any Regulatory Agency or (D)
where the interest rate terms have been reduced and/or
the maturity dates have been extended subsequent to the
agreement under which the loan was originally created due
to concerns regarding the borrower's ability to pay in
accordance with such initial terms, and (ii) all assets
classified by Seller as real estate acquired through
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<PAGE> 21
foreclosure or in lieu of foreclosure, including in-
substance foreclosures, and all other assets acquired
through foreclosure or in lieu of foreclosure.
2.19. Employee Benefit Plans.
----------------------
(a) Schedule 2.19(a) lists all pension,
----------------
retirement, supplemental retirement, stock option, stock
purchase, stock ownership, savings, stock appreciation
right, profit sharing, deferred compensation, consulting,
bonus, medical, disability, workers' compensation,
vacation, group insurance, severance and other employee
benefit, incentive and welfare policies, contracts, plans
and arrangements, and all trust agreements related
thereto, maintained by or contributed to by Seller or any
of the Seller Subsidiaries in respect of any of the
present or former directors, officers, or other employees
of and/or consultants to Seller or any of the Seller
Subsidiaries (collectively, "Seller Employee Plans").
Seller has furnished Buyer with the following documents
with respect to each Seller Employee Plan: (i) a true and
complete copy of all written documents comprising such
Seller Employee Plan (including amendments and individual
agreements relating thereto) or, if there is no such
written document, an accurate and complete description of
the Seller Employee Plan; (ii) the most recently filed
Form 5500 or Form 5500-C/R (including all schedules
thereto), if applicable; (iii) the most recent financial
statements and actuarial reports, if any; (iv) the
summary plan description currently in effect and all
material modifications thereof, if any; and (v) the most
recent IRS determination letter, if any.
(b) All Seller Employee Plans have been
maintained and operated in all material respects in
accordance with their terms and the requirements of all
applicable statutes, orders, rules and final regulations,
including, without limitation, to the extent applicable,
ERISA and the Internal Revenue Code of 1986, as amended
(the "Code"), or as reflected in the applicable statutes,
the underlying Department of Labor or Internal Revenue
Service regulations, and any Department of Labor Advisory
Opinions or Internal Revenue Service Revenue Rulings.
All contributions required to be made to Seller Employee
Plans have been made or reserved.
(c) With respect to each of the Seller
Employee Plans which is a pension plan (as defined in
Section 3(2) of ERISA) (the "Pension Plans"), to the best
knowledge of Seller: (i) each Pension Plan which is
intended to be "qualified" within the meaning of Section
401(a) of the Code has been determined to be so qualified
by the IRS and such determination letter may still be
relied upon, and each related trust is exempt from
taxation under Section 501(a) of the Code; (ii) the
present value of all benefits vested and all benefits
accrued under each Pension Plan which is subject to Title
IV of ERISA did not, in each case, as of the last
applicable annual valuation date (as indicated on
Schedule 2.19(a)), exceed the value of the assets of the
----------------
Pension Plan allocable to such vested or accrued
benefits; (iii) there has been no "prohibited
transaction," as such term is defined in Section 4975 of
the Code or Section 406 of ERISA, which could subject any
Pension Plan or associated trust, or Seller or any of the
Seller Subsidiaries, to any material tax or penalty; (iv)
no Pension Plan or any trust created thereunder has been
terminated as of the date hereof, nor has there been any
"reportable events" with respect to any Pension Plan, as
that term is defined in Section 4043 of ERISA since
January 1, 1989; and (v) no Pension Plan or any trust
created thereunder has incurred any "accumulated funding
deficiency", as such term is defined in Section 302 of
ERISA (whether or not waived). Except as disclosed on
Schedule 2.19(a), no Pension Plan is a "multiemployer
----------------
plan" as that term is defined in Section 3(37) of ERISA.
- 17 -
<PAGE> 22
(d) Neither Seller nor any of the Seller
Subsidiaries has any liability for any post-retirement
health, medical or similar benefit of any kind
whatsoever, except as required by statute or regulation.
(e) Neither Seller nor any of the Seller
Subsidiaries has any material liability under ERISA or
the Code as a result of its being a member of a group
described in Sections 414(b), (c), (m) or (o) of the
Code.
(f) Except as disclosed in Schedule 2.19(f),
----------------
neither the execution nor delivery of this Agreement, nor
the consummation of any of the transactions contemplated
hereby, will (i) result in any payment (including,
without limitation, severance, unemployment compensation
or golden parachute payment) becoming due to any director
or employee of Seller or any of the Seller Subsidiaries
from any of such entities, (ii) increase any benefit
otherwise payable under any of the Seller Employee Plans
or (iii) result in the acceleration of the time of
payment of any such benefit.
(g) The withdrawal of RFSLA from the Financial
Institutions Retirement Plan adopted by RFSLA (the
"Retirement Plan") will not result in the payment by
either RFSLA or Seller, after the date hereof, of
contributions, assessments, fees or expenses, including,
but not limited to, fees with respect to the withdrawal
by RFSLA from the Retirement Plan and the payment of any
contributions due by RFSLA, in excess of $50,000 in the
aggregate.
2.20. Conduct of Seller to Date. Except as set forth
-------------------------
on Schedule 2.20, from and after December 31, 1996 through the date
-------------
of this Agreement, and except as set forth in the Seller Financial
Statements or specifically contemplated by this Agreement: (i)
Seller and the Seller Subsidiaries have conducted their respective
businesses in the ordinary and usual course consistent with past
practices; (ii) neither Seller nor any of the Seller Subsidiaries
has issued, sold, granted, conferred or awarded any of its Equity
Securities (except shares of Seller Common Stock upon exercise of
Seller Employee Stock Options and awards made pursuant to the
Seller's Recognition and Retention Plan), or any corporate debt
securities which would be classified under generally accepted
accounting principles as long-term debt on the balance sheets of
Seller or the Seller Subsidiaries; (iii) Seller has not effected
any stock split or adjusted, combined, reclassified or otherwise
changed its capitalization; (iv) Seller has not declared, set aside
or paid any dividend (other than its regular quarterly dividends)
or other distribution in respect of its capital stock, or
purchased, redeemed, retired, repurchased or exchanged, or
otherwise acquired or disposed of, directly or indirectly, any of
its Equity Securities, whether pursuant to the terms of such Equity
Securities or otherwise; (v) neither Seller nor any of the Seller
Subsidiaries has incurred any obligation or liability (absolute or
contingent), except liabilities incurred in the ordinary course of
business, or subjected to Lien any of its assets or properties
other than in the ordinary course of business consistent with past
practice; (vi) neither Seller nor any of the Seller Subsidiaries
has discharged or satisfied any Lien or paid any obligation or
liability (absolute or contingent), other than in the ordinary
course of business; (vii) neither Seller nor any of the Seller
Subsidiaries has sold, assigned, transferred, leased, exchanged or
otherwise disposed of any of its properties or assets other than
for (in the reasonable opinion of management of Seller) a fair
consideration in the ordinary course of business; (viii) except as
required by contract or law, neither Seller nor any of the Seller
Subsidiaries has (A) increased the rate of compensation of, or paid
any bonus to, any of its directors, officers or other employees,
except in accordance with existing policy, (B) entered into any
new, or amended or supplemented any existing, employment,
management, consulting, deferred compensation, severance or other
similar contract, (C) entered into, terminated or substantially
modified any of the Seller Employee Plans or (D) agreed to do any
of the foregoing; (ix) neither Seller nor any Seller Subsidiary has
suffered any material damage,
- 18 -
<PAGE> 23
destruction or loss, whether as the result of fire, explosion,
earthquake, accident, casualty, labor trouble, requisition or taking
of property by any Regulatory Authority, flood, windstorm, embargo,
riot, act of God or the enemy, or other casualty or event, and whether
or not covered by insurance; (x) neither Seller nor any of the Seller
Subsidiaries has cancelled or compromised any debt, except for debts
charged off or compromised in accordance with the past practice of
Seller and the Seller Subsidiaries; and (xi) neither Seller nor any of
the Seller Subsidiaries has entered into any material transaction,
contract or commitment outside the ordinary course of its business.
2.21. Absence of Undisclosed Liabilities.
----------------------------------
(a) As of the date of this Agreement, neither
Seller nor any of the Seller Subsidiaries has any debts,
liabilities or obligations equal to or exceeding $5,000,
individually or $10,000 in the aggregate, whether
accrued, absolute, contingent or otherwise and whether
due or to become due, which are required to be reflected
in the Seller Financial Statements or the notes thereto
in accordance with generally accepted accounting
principles except:
(i) liabilities and obligations
reflected on the Seller Financial Statements;
(ii) operating leases reflected on
Schedule 2.11; and
-------------
(iii) debts, liabilities or obligations
incurred since December 31, 1996 in the ordinary
and usual course of their respective businesses,
none of which are for breach of contract, breach
of warranty, tort, infringement or lawsuits and
none of which have a Material Adverse Effect on
Seller and the Seller Subsidiaries, taken as a
whole.
(b) Neither Seller nor any of the Seller
Subsidiaries was as of December 31, 1996, and since such
date to the date hereof, has become a party to, any
contract or agreement, excluding deposits, loan
agreements and commitments, notes, security agreements,
repurchase and reverse repurchase agreements, bankers'
acceptances, outstanding letters of credit and
commitments to issue letters of credit, participation
agreements and other documents relating to transactions
entered into by Seller or any of the Seller Subsidiaries
in the ordinary course of business, which had, has or may
be reasonably expected to have a Material Adverse Effect
on Seller and the Seller Subsidiaries, taken as a whole.
2.22. Proxy Statement, Etc. None of the information
--------------------
regarding Seller or any of the Seller Subsidiaries to be supplied
by Seller for inclusion or included, with Seller's consent (which
shall not be unreasonably withheld), in (i) the Registration
Statement on Form S-4 to be filed with the SEC by Buyer for the
purpose of registering the shares of Buyer Common Stock to be
exchanged for shares of Seller Common Stock pursuant to the
provisions of this Agreement (the "Registration Statement"), (ii)
the Proxy Statement to be mailed to Seller's stockholders in
connection with the meeting to be called to consider this Agreement
and the Merger (the "Seller Proxy Statement"), (iii) the Proxy
Statement to be mailed to Buyer's shareholders in connection with
the meeting to be called to consider this Agreement and the Merger
(the "Buyer Proxy Statement" and, collectively with the Seller
Proxy Statement, the "Proxy Statements") or (iv) any other
documents to be filed with any Regulatory Authority in connection
with the transactions contemplated hereby will, at the respective
times such documents are filed with any Regulatory Authority and,
in the case of the Registration Statement, when it becomes
effective and, with
- 19 -
<PAGE> 24
respect to the Proxy Statements, when mailed, be false or misleading
with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not misleading or,
in the case of the Proxy Statements or any amendment thereof or
supplement thereto, at the time of the meeting of Seller's
stockholders referred to in Section 5.03, be false or misleading with
respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with
respect to the solicitation of any proxy for such meeting. All
documents which Seller or any of the Seller Subsidiaries is
responsible for filing with any Regulatory Authority in connection
with the Merger will comply as to form in all material respects with
the provisions of applicable law.
2.23. Registration Obligations. Neither Seller nor
------------------------
any of the Seller Subsidiaries is under any obligation, contingent
or otherwise, which will survive the Effective Time by reason of
any agreement to register any transaction involving any of its
securities under the Securities Act.
2.24. Tax and Regulatory Matters. Neither Seller nor
--------------------------
any of the Seller Subsidiaries has taken or agreed to take any
action or has any knowledge of any fact or circumstance that would
(i) prevent the transactions contemplated hereby from qualifying as
a reorganization within the meaning of Section 368 of the Code or
(ii) materially impede or delay receipt of any approval referred to
in Section 6.01(b) or the consummation of the transactions
contemplated by this Agreement.
2.25. Brokers and Finders. Except as set forth on
-------------------
Schedule 2.25, neither Seller nor any of the Seller Subsidiaries
- -------------
nor any of their respective officers, directors or employees has
employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finder's
fees, and no broker or finder has acted directly or indirectly for
Seller or any of the Seller Subsidiaries in connection with this
Agreement or the transactions contemplated hereby.
2.26. Interest Rate Risk Management Instruments.
-----------------------------------------
(a) Set forth on Schedule 2.26(a) is a list as
----------------
of the date hereof of all interest rate swaps, caps, floors and
option agreements and other interest rate risk management
arrangements to which Seller or any of the Seller Subsidiaries is
a party or by which any of their properties or assets may be bound.
(b) All such interest rate swaps, caps, floors
and option agreements and other interest rate risk management
arrangements to which Seller or any of the Seller Subsidiaries is
a party or by which any of their properties or assets may be bound
were entered into in the ordinary course of business and, to the
best knowledge of Seller, in accordance with prudent banking
practice and applicable rules, regulations and policies of
Regulatory Authorities and with counterparties believed to be
financially responsible at the time and are legal, valid and
binding obligations of Seller or a Seller Subsidiary and are in
full force and effect. Seller and each of the Seller Subsidiaries
has duly performed in all material respects all of its obligations
thereunder to the extent that such obligations to perform have
accrued, and to the best knowledge of Seller, there are no material
breaches, violations or defaults or allegations or assertions of
such by any party thereunder.
2.27. Accuracy of Information. The statements
-----------------------
contained in this Agreement, the Schedules and any other written
document executed and delivered by or on behalf of Seller pursuant
to the terms of this Agreement are true and correct as of the date
hereof or as of the date delivered in all material respects, and
such statements and documents do not omit any material fact
necessary to make the statements contained therein not misleading
in all material respects.
- 20 -
<PAGE> 25
ARTICLE III
-----------
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
As an inducement to Seller to enter into and perform its
obligations under this Agreement, and notwithstanding any examina-
tion, inspection, audit or other investigation made by Seller,
Buyer represents and warrants to and covenant with Seller as
follows:
3.01. Organization and Authority. Buyer is a
--------------------------
corporation duly organized, validly existing and in good standing
under the laws of the State of Missouri, is qualified to do
business and is in good standing in all jurisdictions where its
ownership or leasing of property or the conduct of its business
requires it to be so qualified and has corporate power and
authority to own its properties and assets and to carry on its
business as it is now being conducted, except where the failure to
be so qualified would not have a Material Adverse Effect on Buyer
and its Subsidiaries, taken as a whole. Buyer is registered as a
bank holding company with the Federal Reserve Board under the BHCA.
3.02. Capitalization of Buyer. The authorized capital
-----------------------
stock of Buyer consists of 7,800,000 shares of Buyer Common Stock,
of which, as of February 28, 1997, 2,838,685 shares were issued and
outstanding. As of February 28, 1997, Buyer had reserved:
(a) 809,628 shares of Buyer Common Stock for issuance under various
Buyer employee and/or director stock option, incentive and/or
benefit plans ("Buyer Employee/Director Stock Grants"); and
(b) 115,851 shares of Buyer Common Stock for issuance pursuant to
outstanding warrants. From February 28, 1997 through the date of
this Agreement, no shares of Buyer Common Stock have been issued,
excluding any such shares which may have been issued in connection
with Buyer Employee/Director Stock Grants.
Buyer continually evaluates possible
acquisitions and may prior to the Effective Time enter into one or
more agreements providing for, and may consummate, the acquisition
by it of another bank, association, bank holding company, savings
and loan holding company or other company (or the assets thereof)
for consideration that may include Equity Securities. In addition,
prior to the Effective Time, Buyer may, depending on market
conditions and other factors, otherwise determine to issue equity,
equity-linked or other securities for financing purposes or
repurchase its outstanding Equity Securities. Notwithstanding the
foregoing, neither Buyer nor any Buyer Subsidiary has taken or
agreed to take any action or has any knowledge of any fact or
circumstance and Buyer will not take any action that would (i)
prevent the transactions contemplated hereby from qualifying as a
reorganization within the meaning of Section 368 of the Code or
(ii) materially impede or delay receipt of any approval referred to
in Section 6.01(b) or the consummation of the transactions
contemplated by this Agreement. Except as set forth above, there
are no other Equity Securities of Buyer outstanding. All of the
issued and outstanding shares of Buyer Common Stock are validly
issued, fully paid and nonassessable, and have not been issued in
violation of any preemptive right of any shareholder of Buyer. At
the Effective Time, the Buyer Common Stock to be issued in the
Merger or reserved for issuance pursuant to Seller Employee Stock
Options that are to be converted into and become rights with
respect to Buyer Common Stock will be duly authorized, validly
issued, fully paid and nonassessable, will not be issued in
violation of any preemptive right of any shareholder of Buyer and
will be listed for trading on the Nasdaq.
3.03. Authorization.
-------------
(a) Buyer has the corporate power and
authority to enter into this Agreement and, subject to
the approval of this Agreement by the shareholders of
Buyer and the Regulatory Authorities, to carry out its
obligations hereunder. The only shareholder vote
required for Buyer to approve this Agreement is an
affirmative vote of the holders of at
- 21 -
<PAGE> 26
least two-thirds of the outstanding shares of Buyer Common
Stock entitled to vote at a meeting called for such
purpose. The execution, delivery and performance of this
Agreement by Buyer and the consummation by Buyer of the
transactions contemplated hereby have been duly authorized
by all requisite corporate action of Buyer. Subject to the
receipt of such approvals of the Regulatory Authorities
as may be required by statute or regulation, this
Agreement is a valid and binding obligation of Buyer
enforceable against it in accordance with its terms.
(b) Neither the execution, delivery and
performance by Buyer of this Agreement, nor the
consummation by Buyer of the transactions contemplated
hereby, nor compliance by Buyer with any of the
provisions hereof, will (i) violate, conflict with or
result in a breach of any provisions of, or constitute a
default (or an event which, with notice or lapse of time
or both, would constitute a default) or result in the
termination of, or accelerate the performance required
by, or result in a right of termination or acceleration
of, or result in the creation of, any Lien upon any of
the properties or assets of Buyer under any of the terms,
conditions or provisions of (x) its Articles of
Incorporation or Bylaws, or (y) any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which Buyer is a party
or by which it may be bound, or to which Buyer or any of
its properties or assets may be subject, or (ii) subject
to compliance with the statutes and regulations referred
to in subsection (c) of this Section 3.03, violate any
judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to Buyer or any of
its properties or assets; other than violations,
conflicts, breaches, defaults, terminations,
accelerations or Liens which would not have a Material
Adverse Effect on Buyer and its Subsidiaries, taken as a
whole.
(c) Other than in connection with or in
compliance with the provisions of the Missouri Statute,
the DGCL, the Securities Act, the Exchange Act, the
securities or blue sky laws of the various states or
filings, consents, reviews, authorizations, approvals or
exemptions required under the BHCA, the FDI Act or any
required approvals of any other Regulatory Authority, no
notice to, filing with, exemption or review by, or
authorization, consent or approval of, any public body or
authority is necessary for the consummation by Buyer of
the transactions contemplated by this Agreement.
3.04. Buyer Financial Statements. The consolidated
--------------------------
balance sheets of Buyer and its Subsidiaries as of December 31,
1995 and 1996 and related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the two
years in the period ended December 31, 1996, together with the
notes thereto, audited by BDO Seidman, LLP, as filed with the SEC
on Form 10-K (the "Buyer Financial Statements"), have been prepared
in accordance with generally accepted accounting principles,
present fairly the consolidated financial position of Buyer and its
Subsidiaries at the dates thereof and the consolidated results of
operations, changes in shareholders' equity and cash flows of Buyer
and its Subsidiaries for the periods stated therein and are derived
from the books and records of Buyer and its Subsidiaries, which are
complete and accurate in all material respects and have been
maintained in accordance with good business practices, and as of
each of their respective dates, the Buyer Financial Statements were
materially true and correct and not misleading and did not omit any
material fact necessary to make the contents thereof not
misleading. Neither Buyer nor any of its Subsidiaries has any
material contingent liabilities that are not described in the Buyer
Financial Statements.
3.05. Buyer Reports. Since January 1, 1993, each of
-------------
Buyer and its Subsidiaries has filed all reports, registrations and
statements, together with any required amendments thereto, that it was
- 22 -
<PAGE> 27
required to file with any Regulatory Authority. All such reports and
statements filed with any such Regulatory Authority are collectively
referred to herein as the "Buyer Reports." As of its respective date,
each Buyer Report complied in all material respects with all the rules
and regulations promulgated by the applicable Regulatory Authority and
did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading. With respect to Buyer
Reports filed with the Regulatory Authorities, there is no material
unresolved violation, criticism or exception by any Regulatory
Authority with respect to any report or statement filed by, or any
examination of, Buyer or any of the Buyer Subsidiaries.
3.06. Material Adverse Effect. Since December 31,
-----------------------
1996, there has been no events or circumstances, which individually
or in the aggregate, have had or are reasonably likely to have a
Material Adverse Effect on Buyer and its Subsidiaries, taken as a
whole.
3.07. Legal Proceedings or Other Adverse Facts.
----------------------------------------
Except as otherwise disclosed in the Buyer Financial Statements,
neither Buyer nor any of its Subsidiaries is a party to any pending
or, to the best knowledge of Buyer, threatened claim, action, suit,
investigation or proceeding, or is subject to any order, judgment
or decree, except for matters which, in the aggregate, will not
have, or reasonably could not be expected to have, a Material
Adverse Effect on Buyer and its Subsidiaries, taken as a whole.
Without limiting the generality of the foregoing, there are no
actions, suits or proceedings pending or, to the best knowledge of
Buyer, threatened against Buyer or any of its Subsidiaries or any
of their respective officers or directors by any shareholder of
Buyer or any of its Subsidiaries (or any former shareholder of
Buyer or any of its Subsidiaries) or involving claims under the
Community Reinvestment Act of 1977, as amended, the Bank Secrecy
Act, the fair lending laws or any other similar laws.
3.08. Registration Statement, Etc. None of the
---------------------------
information regarding Buyer or any of its Subsidiaries to be
supplied by Buyer for inclusion or included in (i) the Registration
Statement, (ii) the Proxy Statements or (iii) any other documents
to be filed with any Regulatory Authority in connection with the
transactions contemplated hereby will, at the respective times such
documents are filed with any Regulatory Authority and, in the case
of the Registration Statement, when it becomes effective and, with
respect to the Proxy Statements, when mailed, be false or
misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein not
misleading or, in the case of the Proxy Statements or any amendment
thereof or supplement thereto, at the time of the meeting of
stockholders referred to in Section 5.03, be false or misleading
with respect to any material fact, or omit to state any material
fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for
such meeting. All documents which Buyer is responsible for filing
with any Regulatory Authority in connection with the Merger will
comply as to form in all material respects with the provisions of
applicable law.
3.09. Brokers and Finders. Except as set forth on
-------------------
Schedule 3.09, neither Buyer nor any of its respective officers,
- -------------
directors or employees has employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has
acted directly or indirectly for Buyer in connection with this
Agreement or the transactions contemplated hereby.
3.10. Accuracy of Information. The statements
-----------------------
contained in this Agreement, the Schedules and in any other written
document executed and delivered by or on behalf of Buyer pursuant
to the terms of this Agreement are true and correct in all material
respects, and such statements and documents do not omit any
material fact necessary to make the statements contained herein or
therein not misleading.
- 23 -
<PAGE> 28
3.11. Compliance with Laws. To the best knowledge of
--------------------
Buyer, Buyer and each of its Subsidiaries have (i) complied with
all laws, regulations and orders (including, without limitation,
zoning ordinances, building codes, ERISA and securities, tax,
environmental, civil rights and occupational health and safety laws
and regulations including, without limitation, in the case of Buyer
or any Buyer Subsidiary that is a bank or savings association,
banking organization, banking corporation or trust company, all
statutes, rules, regulations and policy statements pertaining to
the conduct of a banking, deposit-taking, lending or related
business, or to the exercise of trust powers) and governing
instruments applicable to it and to the conduct of its business,
except where the failure to comply would not have a Material
Adverse Effect on Buyer and its Subsidiaries, taken as a whole, and
(ii) all permits, licenses, authorizations, orders and approvals
of, and have made all filings, applications and registrations with,
all Regulatory Authorities that are required in order to permit
them to own or lease their respective properties and assets and to
carry on their respective businesses as presently conducted; all
such permits, licenses, certificates of authority, orders and
approvals are in full force and effect, and no suspensions or
cancellation of any of them is threatened; and all such filings,
applications and registrations are current; in each case except for
permits, licenses, authorizations, orders, approvals, filings,
applications and registrations the failure to have (or have made)
would have a Material Adverse Effect on Buyer and its Subsidiaries,
taken as a whole.
3.12. Tax and Regulatory Matters. Neither Buyer nor
--------------------------
any of the Buyer Subsidiaries has taken or agreed to take any
action or has any knowledge of any fact or circumstance that would
(i) prevent the transactions contemplated hereby from qualifying as
a reorganization within the meaning of Section 368 of the Code or
(ii) materially impede or delay receipt of any approval referred to
in Section 6.01(b) or the consummation of the transactions
contemplated by this Agreement.
ARTICLE IV
----------
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
4.01. Conduct of Businesses Prior to the Effective
--------------------------------------------
Time. During the period from the date of this Agreement to the
- ----
Effective Time, Seller shall, and shall cause each of the Seller
Subsidiaries to, conduct their respective businesses according to
the ordinary and usual course consistent with past practices and
shall, and shall cause each such Seller Subsidiary to, 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.
4.02. Forbearances of Seller. Except as set forth in
----------------------
Schedule 4.02 and except to the extent required by law, regulation
- -------------
or any Regulatory Authority, or with the prior written consent of
Buyer (which consent shall not be unreasonably withheld), or unless
otherwise specifically noted in this Section 4.02), during the
period from the date of this Agreement to the Effective Time,
Seller shall not and shall not permit any of the Seller
Subsidiaries to:
(a) 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
the Seller Subsidiaries to Seller or to another of the
Seller Subsidiaries), except that Seller may declare and
pay regular quarterly cash dividends of not more than
$0.15 per share on the Seller Common Stock; provided,
however, that Seller shall not declare or pay a quarterly
dividend for any quarter in which Seller stockholders
will be entitled to receive a regular quarterly dividend
on the shares of Buyer Common Stock to be issued in the
Merger;
- 24 -
<PAGE> 29
(b) except as specifically contemplated or
required by this Agreement, enter into or amend any
employment, severance or similar agreement or arrangement
with any director, officer or employee, or materially
modify any of the Seller 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
Seller notifies Buyer in writing and which Buyer does not
reasonably disapprove (in writing) within 10 days of the
receipt of such notice;
(c) 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 Seller or any Seller Subsidiary, or any of
their respective officers, directors, stockholders,
agents or affiliates which relates to the possible sale
or other disposition of Seller Common Stock or the common
stock of any Seller Subsidiary or the possible sale or
other disposition of substantially all of Seller's or any
Seller Subsidiary's assets to, or merger or consolidation
with, another corporation or association (an "Unsolicited
Acquisition Proposal") if and to the extent that the
Board of Directors of Seller reasonably determines in
good faith, after consultation with its financial advisor
and counsel to Seller, that failure to consider such
Unsolicited Acquisition Proposal could reasonably be
expected to constitute a breach of its fiduciary duties
to the stockholders of Seller; provided, further,
however, that Seller shall give Buyer prompt notice of
any Unsolicited Acquisition Proposal and keep Buyer
continually and promptly informed regarding the substance
thereof and the response of the Board of Directors of
Seller thereto;
(d) propose or adopt any amendments to its
Certificate or Articles of Incorporation or other charter
document or Bylaws, other than as set forth in Section
4.04 hereof;
(e) issue, sell, grant, confer or award any of
its Equity Securities (except shares of Seller Common
Stock issued upon exercise of Seller Employee Stock
Options outstanding on the date of this Agreement) or
effect any stock split or adjust, combine, reclassify or
otherwise change its capitalization as it existed on the
date of this Agreement;
(f) purchase, redeem, retire, repurchase or
exchange, or otherwise acquire or dispose of, directly or
indirectly, any of its Equity Securities, whether
pursuant to the terms of such Equity Securities or
otherwise;
(g) (i) without first consulting with and
obtaining the written consent of Buyer (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
- 25 -
<PAGE> 30
Seller and the Seller Subsidiaries to such person or
entity, would be equal to or in excess of $100,000;
provided, however, that Seller or any of the Seller
Subsidiaries may make any such loan or credit
commitment in the event (A) Seller or any Seller
Subsidiary has delivered to Buyer or its designated
representative a notice of its intention to make such
loan and such information as Buyer or its designated
representative may reasonably require in respect thereof
and (B) Buyer 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 Buyer or its
designated representative of the notice of intention and
information as aforesaid;
(h) 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 Buyer) relating to the disposition of any
significant portion of the business or assets of Seller
or any of the Seller Subsidiaries or the acquisition of
Equity Securities of Seller or any of the Seller
Subsidiaries or the merger of Seller or any of the Seller
Subsidiaries with any person (other than Buyer) or any
similar transaction (each such transaction being referred
to herein as an "Acquisition Transaction"), or (ii)
provide any such person with non-public information or
assistance or negotiate with any such person with respect
to an Acquisition Transaction, and Seller shall promptly
notify Buyer 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 forbearances set forth in this subparagraph
(h) shall not apply to the consideration of an
Unsolicited Acquisition Proposal if and to the extent
that the Board of Directors of Seller reasonably
determines in good faith, after consultation with its
financial advisors and counsel to Seller, that failure to
consider such Unsolicited Acquisition Proposal could
reasonably be expected to constitute a breach of its
fiduciary duties to the stockholders of Seller;
(i) take any action that would (A) materially
impede or delay the consummation of the transactions
contemplated by this Agreement or the ability of Buyer or
Seller to obtain any approval of any Regulatory Authority
required for the transactions contemplated by this
Agreement or to perform its covenants and agreements
under this Agreement or (B) prevent or impede the
transactions contemplated hereby 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 Board of Directors
of Seller reasonably determines in good faith, after
consultation with its financial advisors and counsel to
Seller, that failure to consider such Unsolicited
Acquisition Proposal could reasonably be expected to
constitute a breach of its fiduciary duties to the
stockholders of Seller;
(j) 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;
(k) 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;
- 26 -
<PAGE> 31
(l) 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 act which would make any of the
representations and warranties in Article II of this
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
(m) enter into, increase or renew any loan or
credit commitment (including standby letters of credit)
to any executive officer or director of Seller or any of
the Seller Subsidiaries, any holder of 10% or more of the
outstanding shares of Seller 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
Buyer, 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.
4.03. Forbearances of Buyer. During the period from
---------------------
the date of this Agreement to the Effective Time, Buyer shall not,
and shall not permit any of its respective Subsidiaries to, without
the prior written consent of Seller, agree in writing or otherwise
engage in any activity, enter into any transaction or take or omit
to take any other action:
(a) that would (i) materially impede or delay
the consummation of the transactions contemplated by this
Agreement or the ability of Buyer or Seller to obtain any
approval of any Regulatory Authority required for the
transactions contemplated by this Agreement or to perform
its covenants and agreements under this 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
(b) which would make any of the representa-
tions and warranties of Article III of this 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 action.
4.04. Charter Amendment. As soon as practicable after
-----------------
the date hereof, but prior to the Closing Date, Seller shall take
any and all actions, and shall direct the Board of Directors of
RFSLA to take any and all actions, that are required to (i) amend
Section 8 of the Charter of RFSLA to eliminate the requirement that
no person can acquire more than 10% of the common stock of RFSLA
and (ii) change the name of RFSLA to Allegiant Bank, FSB, which
name change shall be effective as of the Effective Time. Such
actions shall include, but be not limited to, obtaining the prior
approval of the OTS.
ARTICLE V
---------
ADDITIONAL AGREEMENTS
5.01. Access and Information. Buyer and Seller shall
----------------------
each afford to the other, and to the other's accountants, counsel
and other representatives, reasonable access during normal business
hours, during the period prior to the Effective Time, to all their
respective properties, books, contracts, commitments and records
and, during such period, each shall furnish promptly to the other
(i) a copy of each report, schedule and other document filed or
received by it during such period pursuant to the requirements of
federal and state securities laws and (ii) all other information
concerning its business,
- 27 -
<PAGE> 32
properties and personnel as the other may reasonably request. Each
party shall, and shall cause its advisors and representatives to, (A)
hold confidential all information obtained in connection with any
transaction contemplated hereby with respect to the other party and
its Subsidiaries which is not otherwise public knowledge, (B) in the
event of a termination of this Agreement, return all documents
(including copies thereof) obtained hereunder from the other party or
any of its Subsidiaries to it and (C) use their respective best
efforts to cause all of such party's confidential information obtained
pursuant to this Agreement or in connection with the negotiation of
this Agreement to be treated as confidential and not use, or knowingly
permit others to use, any such information unless such information
becomes generally available to the public.
5.02. Registration Statement; Regulatory Matters.
------------------------------------------
(a) Buyer shall prepare and, subject to the
review, comment and consent of Seller with respect to
matters relating to Seller, file with the SEC as soon as
is reasonably practicable the Registration Statement (or
the equivalent in the form of preliminary proxy
materials) with respect to the shares of Buyer Common
Stock to be issued in the Merger. Buyer shall prepare
and, subject to the review, comment and consent of Seller
with respect to matters relating to Seller, use its best
efforts to file as soon as is reasonably practicable an
application for approval of the Merger with the Federal
Reserve Board, and such additional regulatory authorities
as may require an application, and shall use its best
efforts to cause the Registration Statement to become
effective. Buyer shall also take any action required to
be taken under any applicable state blue sky or
securities laws in connection with the issuance of such
shares, and Seller and the Seller Subsidiaries shall
furnish Buyer all information concerning Seller and the
Seller Subsidiaries and the stockholders thereof as Buyer
may reasonably request in connection with any such
action.
(b) Seller and Buyer shall cooperate and use
their respective best efforts to prepare all
documentation, to effect all filings and to obtain all
permits, consents, approvals and authorizations of all
third parties and Regulatory Authorities necessary to
consummate the transactions contemplated by this
Agreement and, as and if directed by Buyer, to consummate
such other transactions by and among Buyer's Subsidiaries
and the Seller Subsidiaries concurrently with or
following the Effective Time, provided that such actions
do not: (i) materially impede or delay the receipt of
any approval referred to in Section 6.01(b); (ii) prevent
or impede the transactions contemplated hereby from
qualifying as a reorganization within the meaning of
Section 368 of the Code; or (iii) the consummation of the
transactions contemplated by this Agreement.
5.03. Shareholder and Stockholder Approval. Each of
------------------------------------
Buyer and Seller shall call a meeting of its shareholders and
stockholders, as the case may be, to be held as soon as practicable
after the date the Registration Statement is declared effective by
the SEC for the purpose of voting upon this Agreement and the
transactions contemplated hereby. In connection with such meeting,
Buyer shall prepare, subject to the review, comment and consent of
Seller, the Proxy Statements (which shall be part of the
Registration Statement to be filed with the SEC by Buyer), which
Registration Statement shall conform in all material respects to
all applicable legal requirements, and mail the Buyer Proxy
Statement to the shareholders of Buyer and the Seller Proxy
Statement to the stockholders of Seller. The Board of Directors of
Seller shall submit for approval of Seller's stockholders the
matters to be voted upon at such meeting. The board of directors
of each party hereby does and will recommend this Agreement and the
transactions contemplated hereby to the shareholders or
stockholders, as the case may be, of such party and will use its
best efforts to obtain any vote of its shareholders or stockholders,
as the case may be, necessary for the approval and adoption of this
Agreement; provided, however, that the foregoing shall
- 28 -
<PAGE> 33
not apply to Seller in the event of an Unsolicited Acquisition
Proposal if and to the extent that the Board of Directors of Seller
reasonably determines in good faith, after consultation with its
financial advisors and counsel to Seller, that failure to consider
such Unsolicited Acquisition Proposal could reasonably be expected to
constitute a breach of its fiduciary duties to the stockholders of
Seller. Buyer will advise Seller, promptly after Buyer receives
notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment thereto has been filed (after
providing drafts in advance to Seller and its counsel for review and
comment), of the issuance of any stop order or the suspension of
the qualification of Buyer Common Stock for offering or sale in any
jurisdiction or the initiation or threat of any proceeding for any
such purpose, or of any request by the SEC for the amendment or
supplement of the Registration Statement or for additional
information.
5.04. Current Information. During the period from the
-------------------
date of this Agreement to the Effective Time, each party shall
promptly furnish the other with copies of all interim financial
statements as the same become available and shall cause one or more
of its designated representatives to confer on a regular and
frequent basis with representatives of the other party. Each party
shall promptly notify the other party of the following events
immediately upon learning of the occurrence thereof, describing the
same and, if applicable, the steps being taken by the affected
party with respect thereto: (a) an event which would cause any
representation or warranty of such party or any Schedule,
statement, report, notice, certificate or other writing furnished
by such party to be untrue or misleading in any material respect;
(b) any Material Adverse Effect with respect to it; (c) the
issuance or commencement of any governmental complaint,
investigation or hearing (or any communication indicating that the
same may be contemplated); or (d) the institution or threat of
material litigation involving such party, and shall keep the other
party fully informed of such events.
5.05. Conforming Entries.
------------------
(a) Notwithstanding that Seller believes that
Seller and Seller Subsidiaries have established all
reserves and taken all provisions for possible loan
losses required by generally accepted accounting
principles and applicable laws, rules and regulations,
Seller recognizes that Buyer may have adopted different
loan, accrual and reserve policies (including loan
classifications and levels of reserves for possible loan
losses). From and after the date of this Agreement to
the Effective Time, Seller and Buyer shall consult and
cooperate with each other with respect to conforming the
loan, accrual and reserve policies of Seller and the
Seller Subsidiaries to those policies of Buyer, as
specified in each case in writing to Seller, based upon
such consultation and as hereinafter provided.
(b) In addition, from and after the date of
this Agreement to the Effective Time, Seller and Buyer
shall consult and cooperate with each other with respect
to determining appropriate Seller accruals, reserves and
charges to establish and take in respect of excess
equipment write-off or write-down of various assets and
other appropriate charges and accounting adjustments
taking into account the parties' business plans following
the Merger, as specified in each case in writing to
Seller, based upon such consultation and as hereinafter
provided.
(c) Seller and Buyer shall consult and
cooperate with each other with respect to determining the
amount and the timing for recognizing for financial
accounting purposes Seller's expenses of the Merger and
the restructuring charges related to or to be incurred in
connection with the Merger.
- 29 -
<PAGE> 34
(d) Subject to subsection (e) hereof, at the
request of Buyer, Seller shall (i) establish and take
such reserves and accruals to conform Seller's loan,
accrual and reserve policies to Buyer's policies, (ii)
establish and take such accruals, reserves and charges in
order to implement such policies in respect of excess
facilities and equipment capacity, severance costs,
litigation matters, write-off or write-down of various
assets and other appropriate accounting adjustments, and
to recognize for various accounting purposes such
expenses of the Merger and restructuring charges related
to or to be incurred in connection with the Merger, and
(iii) effect such divestitures or otherwise implement
such restructuring in respect of its investment
securities portfolio to conform Seller's investment
securities portfolio policies to Buyer's policies, in the
case of each of the foregoing at such times as are
requested by Buyer in a written notice to Seller.
(e) With respect to clauses (a) through (d) of
this Section 5.05, such reserves, accruals, charges and
divestitures, if any, to be taken shall be consistent
with generally accepted accounting principles and taken
(i) only after the Seller shall be reasonably satisfied
that the conditions to the obligations of the parties to
consummate the transactions contemplated herein will be
satisfied or waived on or before the Closing Date and
(ii) no sooner than 10 days prior to the Closing Date.
(f) No reserves, accruals or charges taken in
accordance with Section 5.05(d) above may be a basis to
assert a violation of a breach of a representation,
warranty or covenant of Seller herein.
5.06. Environmental Reports. Within 75 days after the
---------------------
date hereof, Buyer, with the cooperation of Seller and at Buyer's
expense, may perform, through an environmental consulting firm
selected by Buyer, a phase one environmental investigation and an
asbestos survey on all real property owned, leased or operated by
Seller or any of Seller Subsidiaries as of the date hereof (but
excluding space in retail and similar establishments leased by
Seller for automatic teller machines or bank branch facilities
where the space leased comprises less than 20% of the total space
leased to all tenants of such property) and within ten (10) days
after the acquisition or lease of any real property acquired or
leased by Seller or any of Seller Subsidiaries after the date
hereof (but excluding space in retail and similar establishments
leased by Seller for automatic teller machines or bank branch
facilities where the space leased comprises less that 20% of the
total space leased to all tenants of such property). If the
results of the phase one investigation so recommend or warrant
additional investigation, in Buyer's sole discretion, Buyer, during
such 75-day period, and with the cooperation of Seller, may
perform, through an environmental consulting firm selected by
Buyer, at Buyer's expense, a phase two investigation on properties
warranting such additional study. Buyer shall have fifteen (15)
business days from the receipt of any such phase two investigation
report to notify Seller of any dissatisfaction with the contents of
such report. Should the cost of taking all remedial or other
corrective actions and measures (i) required by applicable law, or
(ii) recommended or suggested by such report or reports or prudent
in light of serious life, health or safety concerns, in the
aggregate, exceed the sum of $50,000, as reasonably estimated by
the environmental consulting firm, or if the cost of such actions
and measures cannot be so reasonably estimated by such firm to be
such amount or less with any reasonable degree of certainty, Buyer
shall have the right pursuant to Section 7.01(e) hereof, for a
period of fifteen (15) business days following receipt of such
estimate or indication that the cost of such actions and measures
can not be so reasonably estimated, to terminate this Agreement.
5.07. Agreements of Affiliates. Set forth as Schedule
------------------------ --------
5.07 is a list (which includes individual and beneficial ownership)
- ----
of all persons whom Seller believes to be "affiliates" of Seller
for purposes of Rule 145 under the Securities Act. Seller shall
use its best efforts to cause each person who
- 30 -
<PAGE> 35
is identified as an "affiliate" to deliver to Buyer, as of the date
hereof, or as soon as practicable hereafter, a written agreement in
substantially the form set forth as Exhibit A to this Agreement
---------
providing that each such person will agree not to sell, pledge,
transfer or otherwise dispose of any shares of Buyer Common Stock to
be received by such person in the Merger except in compliance with the
applicable provisions of the Securities Act. Prior to the Effective
Time, and via letter, Seller shall amend and supplement Schedule 5.07
and use its best efforts to cause each additional person who is
identified as an "affiliate" to execute a written agreement as set
forth in this Section 5.07. In the event any individual designated as
------------
an "affiliate" fails to deliver the written agreement in the form set
forth in Exhibit A, Buyer shall issue a stop order letter to
---------
Buyer's transfer agent with respect to any shares of Buyer Common
Stock received by such individual in the Merger.
5.08. Expenses. Each party hereto shall bear its own
--------
expenses incident to preparing, entering into and carrying out this
Agreement and to consummating the Merger; provided, however, that
Buyer shall pay all printing and mailing expenses and filing fees
associated with the Registration Statement, the Proxy Statements
and regulatory applications.
5.09. Miscellaneous Agreements.
------------------------
(a) Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its
respective best efforts to take, or cause to be taken,
all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the
transactions contemplated by this Agreement as
expeditiously as possible, including, without limitation,
using its respective best efforts to lift or rescind any
injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the
transactions contemplated hereby. Each party shall, and
shall cause each of its respective Subsidiaries to, use
its best efforts to obtain consents of all third parties
and Regulatory Authorities necessary or, in the
reasonable opinion of Buyer, desirable for the consum-
mation of the Merger.
(b) Seller, prior to the Effective Time, shall
(i) consult and cooperate with Buyer regarding the
implementation of those policies and procedures
established by Buyer for its governance and that of its
Subsidiaries and not otherwise referenced in Section 5.05
hereof, including, without limitation, policies and
procedures pertaining to the accounting, asset/liability
management, audit, credit, human resources, treasury and
legal functions, and (ii) at the reasonable request of
Buyer, conform Seller's existing policies and procedures
in respect of such matters to Buyer' policies and
procedures or, in the absence of any existing Seller
policy or procedure regarding any such function,
introduce Buyer' policies or procedures in respect
thereof, unless to do so would cause Seller or any of the
Seller Subsidiaries to be in violation of any law, rule
or regulation of any Regulatory Authority having
jurisdiction over Seller and/or the Seller Subsidiary
affected thereby.
5.10. Employee Agreements and Benefits.
--------------------------------
(a) Following the Effective Time, Buyer shall
honor in accordance with their terms all employment,
severance and other compensation contracts set forth on
Schedule 2.11(b) between Seller, any of the Seller
----------------
Subsidiaries, and any current or former director,
officer, employee or agent thereof, and all provisions
for vested benefits or other vested amounts earned or
accrued through the Effective Time under the Seller
Employee Plans.
- 31 -
<PAGE> 36
(b) Notwithstanding anything to the contrary
herein, Seller shall by amendment or resolution, as
appropriate, ensure that all awards under the Reliance
Financial, Inc. 1996 Recognition and Retention Plan shall
accelerate and become vested in the award recipient
immediately prior to the Effective Time.
(c) As soon as practicable after the date
hereof, Seller shall file with the IRS an Application for
Determination for Terminating Plan (IRS Form 5310) with
respect to the Reliance Federal Savings and Loan
Association of St. Louis County Employee Stock Ownership
Plan (the "ESOP") seeking a favorable determination from
the IRS of the qualified status of the ESOP upon
termination (the "Determination Letter"). In the event
the Seller receives the Determination Letter prior to the
Effective Time, Seller shall take all steps necessary or
required to terminate the ESOP, including the repayment
of the outstanding ESOP loan and the allocation of
unallocated shares and other assets to ESOP participants
followed by the distribution of all account balances to
ESOP participants all in accordance with the plan
document approved by the IRS. Following such termination
and allocation of unallocated shares and other assets,
the account balances of the ESOP shall be distributed to
the Participants. In the event the IRS notifies RFSLA
prior to the Effective Time that it will not issue the
Determination Letter, RFSLA may take all steps necessary
to terminate the ESOP but only if RFSLA shall have first
received a waiver from each of the participants in the
ESOP, in form reasonably acceptable to Buyer, whereby
each such participant waives any and all claims against
RFSLA, Seller and Buyer, and any successors thereto, with
respect to the termination of the ESOP (the "Waiver").
In the event that, prior to the Effective Time, RFSLA
does not receive either (i) the Determination Letter or
(ii) a notice from the IRS that it will not issue the
Determination Letter, Buyer hereby agrees that it will
take all steps necessary or required to terminate the
ESOP, including the repayment of the outstanding ESOP
loan, the allocation of unallocated shares and any other
assets to ESOP participants, the distribution of account
balances to participants and the allocation of
unallocated shares to ESOP participants, but only after
either (i) RFSLA receives the Determination Letter or
(ii) (A) the IRS notifies RFSLA that it will not issue
the Determination Letter and (B) the Waiver of each
participant in the ESOP is delivered to Buyer.
(d) Seller shall take any and all actions
necessary to withdraw RFSLA from the Retirement Plan
prior to the Effective Time, including, but not limited
to, paying any and all amounts due (subject to the
limitations of Section 2.19(g) hereof) to the Retirement
Plan upon such withdrawal.
(e) Except as set forth in Sections 5.10(b),
(c) and (d) hereof, the Seller Employee Plans shall not
be terminated by reason of the Merger but shall continue
thereafter as plans of the Surviving Corporation until
such time as the employees of Seller and the Seller
Subsidiaries are integrated into Buyer's employee benefit
plans that are available to other employees of Buyer and
its Subsidiaries, subject to the terms and conditions
specified in such plans and to such changes therein as
may be necessary to reflect the consummation of the
Merger. Buyer shall take such steps as are necessary or
required to integrate the employees of Seller and the
Seller Subsidiaries into Buyer's employee benefit plans
available to other employees of Buyer and its
Subsidiaries as soon as practicable after the Effective
Time, with (i) full credit for prior service with Seller
or any of the Seller Subsidiaries for purposes of vesting
and eligibility for participation (but not benefit
accruals under any defined benefit plan), and co-payments
and deductibles, and (ii) waiver of all waiting periods
and pre-existing condition exclusions
- 32 -
<PAGE> 37
or penalties; provided, however, Seller must notify Buyer
of any pre-existing condition with respect to any employee
or dependent of an employee prior to the Closing and
coverage must be approved by the applicable insurers at
a cost that is reasonably acceptable to Buyer. If any
employee or dependent of an employee presently receiving
coverage under any Seller health plan has a pre-existing
condition that is covered by Seller's health plan but
cannot be covered by Buyer's health plan at a cost that
is reasonably acceptable to Buyer, Buyer agrees to
reimburse such employee the cost of such coverage that
such employee or dependent obtains in accordance with the
continued health care coverage provisions of the
Consolidated Omnibus Budget Reconciliation Act, as
amended ("COBRA"), or otherwise, until the sooner to
occur of (i) such employee or dependent becoming fully
covered, including such pre-existing condition, under
Seller's health plan or (ii) the end of the applicable
COBRA continued healthcare coverage period.
5.11. Press Releases. Except as may be required by
--------------
law, Seller and Buyer shall consult and agree with each other as to
the form and substance of any proposed press release relating to
this Agreement or any of the transactions contemplated hereby.
5.12. State Takeover Statutes. Seller will take all
-----------------------
steps necessary to exempt the transactions contemplated by this
Agreement and any agreement contemplated hereby from, and if
necessary challenge the validity of, any applicable state takeover
law.
5.13. Directors' and Officers' Indemnification. For
----------------------------------------
five years after the Closing Date, Buyer shall, and shall cause the
Surviving Corporation to, indemnify, defend and hold harmless the
present and former directors, officers, employees and agents of
Seller or any Seller Subsidiary (each, an "Indemnified Party")
against all liabilities arising out of actions or omissions
occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement) to the
extent such persons are indemnified under the DGCL or by virtue of
the Certificate or Articles of Incorporation, as the case may be,
Charter or Bylaws in the form in effect at the date of this
Agreement for Seller or any Seller Subsidiary, including provisions
relating to advances of expenses incurred in the defense of any
such litigation. If Buyer or the Surviving Corporation or any of
its successors or assigns shall consolidate with or merge into any
other entity and shall not be the continuing or surviving entity of
such consolidation or merger or shall transfer all or substantially
all of its assets to any entity, then and in each case, proper
provisions shall be made so that the successors and assigns of
Buyer or the Surviving Corporation shall assume the obligations set
forth in this Section. To the extent that Seller's existing
directors' and officers' liability insurance policy would provide
coverage for any action or omission occurring prior to the
Effective Time, Seller agrees to give proper notice to the
insurance carrier and to Buyer of a potential claim thereunder so
as to preserve Seller's rights to such insurance coverage. Seller
may purchase up to three years' tail coverage under its existing
directors' and officers' liability insurance policy on such terms
and provisions as Seller deems appropriate provided that the total
cost thereof shall not exceed $15,000.
5.14. Tax Opinion Certificates. Seller shall use its
------------------------
reasonable best efforts to cause such of its executive officers,
directors and/or holders of one percent (1%) or more of the Seller
Common Stock (including shares beneficially or constructively (for
purposes of Code Section 318) held) as may be requested by Thompson
Coburn to timely execute and deliver to Thompson Coburn
certificates substantially in the form of Exhibit B or Exhibit C
--------- ---------
hereto, as the case may be (in each case conformed, to the extent
necessary, to render such certificate accurate).
- 33 -
<PAGE> 38
5.15. Employee Stock Options.
----------------------
(a) At the Effective Time, all rights with
respect to Seller Common Stock pursuant to Seller Employee Stock
Options that are outstanding at the Effective Time, whether or not
then exercisable, shall be converted into and become rights with
respect to Buyer Common Stock, and Buyer shall assume all Seller
Employee Stock Options in accordance with the terms of the Seller
Stock Plan under which it was issued and the Seller Employee Stock
Option Agreement by which it is evidenced. From and after the
Effective Time, (i) each Seller Employee Stock Option assumed by
Buyer shall be exercised solely for shares of Buyer Common Stock,
(ii) the number of shares of Buyer Common Stock subject to each
Seller Employee Stock Option shall be equal to the number of shares
of Seller Common Stock subject to such Seller Employee Stock Option
immediately prior to the Effective Time multiplied by the Exchange
Ratio (subject to adjustment pursuant to Section 1.12 hereof) and
(iii) the per share exercise price under each Seller Employee Stock
Option shall be adjusted by dividing the per share exercise price
under such Seller Employee Stock Option by the Exchange Ratio
(subject to adjustment pursuant to Section 1.12 hereof) and
rounding down to the nearest cent; provided, however, that the
terms of each Seller 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 shall be undertaken in a
manner that will not constitute a "modification" as defined in the
Code, as to any Seller Employee Stock Option that is an "incentive
stock option" as defined under the Code. In addition to the above,
Seller shall enter into an Amended and Restated Option Agreement
with John E. Bowman, President and Chief Executive Officer of
Seller, and Jeannette Larson, Executive Vice President of Seller,
to permit them to exercise their options until the expiration of
ten years from the original date of grant of such options, and
Buyer acknowledges that Seller may cause the Seller Stock Option
Plan to be amended as necessary, consistent with the foregoing.
(b) The shares of Buyer Common Stock covered
by the stock options to be issued pursuant to Section 5.15(a) shall
be covered by an effective registration statement filed on Form S-8
with the SEC, which shall be filed by Buyer as soon as practicable
after the Closing Date and shall be duly authorized, validly issued
and in compliance with all applicable federal and state securities
laws, fully paid and nonassessable and not subject to or in
violation of any preemptive rights. Buyer shall at and after the
Effective Time have reserved sufficient shares of Buyer Common
Stock for issuance with respect to such options. Buyer shall also
take any action reasonably required to be taken under any
applicable state blue sky or securities laws in connection with the
issuance of such shares.
5.16 RFSLA Board. Buyer shall operate RFSLA as a
-----------
separate savings and loan association subsidiary for at least one
year following the Effective Time. At the Effective Time, Buyer
shall cause the addition of two individuals to the Board of
Directors of RFSLA (the "RFSLA Board"), who shall serve along with
the current members of the RFSLA Board. Seller shall take, and
shall direct that RFSLA take, any and all actions necessary,
including filing a notice with the OTS, to amend Article III,
Section 2 of the Bylaws of RFSLA to increase, as of the Effective
Time, the number of members of the Board of Directors of RFSLA to
eight. Each member of the Board of Directors of RFSLA following
the Closing Date shall continue to serve as such unless removed for
cause or unless such member resigns from the Board of Directors.
During such service, such members shall be entitled to Board of
Directors' fees in the amount and with the frequency currently paid
by RFSLA. If RFSLA shall be merged or otherwise consolidated with
and into Allegiant Bank, Allegiant Bank shall establish an advisory
board (which shall be subject to annual review and renewal by
Allegiant Bank's Board of Directors) to be comprised of the current
members of the RFSLA Board. Allegiant Bank recognizes the need for
an advisory board in order for Allegiant Bank to realize its full
potential in the market area now served by RFSLA, to maintain close
personal and business relationships and to assist in the transition
of RFSLA
- 34 -
<PAGE> 39
to Allegiant Bank's system of operations. The parties believe that
the advisory board members, through their continued identification
with Allegiant Bank and active support, will ensure an ongoing program
of interest and commitment in the current RFSLA market area. The
advisory board will provide Allegiant Bank's management and Board of
Directors with advice and counsel with respect to the following: (i)
loan originations from the current RFSLA markets; (ii) savings
programs to be offered in the RFSLA markets; (iii) advertising
programs; (iv) community activities and involvement; and (v) such
other business and financial matters as the advisory board believes
may further contribute to Allegiant Bank's successful operation in the
current RFSLA market area. The advisory board shall meet as
designated by the Board of Directors of Allegiant Bank and each member
of the advisory board shall receive fees commensurate with the fees
paid to other members of the advisory boards of Allegiant Bank.
ARTICLE VI
----------
CONDITIONS
6.01. Conditions to Each Party's Obligation to Effect
-----------------------------------------------
the Merger. The respective obligations of each party to effect the
- ----------
Merger shall be subject to the fulfillment or waiver at or prior to
the Effective Time of the following conditions:
(a) This Agreement shall have received the
requisite approval of the shareholders of Buyer and the
stockholders of Seller at the meeting of shareholders of
Buyer and the meeting of stockholders of Seller called
pursuant to Section 5.03 of this Agreement.
(b) All requisite approvals of this Agreement
and the transactions contemplated hereby shall have been
received from the Regulatory Authorities, and all waiting
periods after such approvals required by law or
regulation have been satisfied.
(c) The Registration Statement shall have been
declared effective and shall not be subject to a stop
order or any threatened stop order.
(d) Neither Seller nor Buyer shall be subject
to any order, decree or injunction of a court or agency
of competent jurisdiction which enjoins or prohibits the
consummation of the Merger.
(e) At the time of filing of the Registration
Statement and at the Closing Date, each of Buyer and
Seller 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 Seller Common Stock is a capital asset
in the hands of the holder thereof at the Effective Time,
(i) holders of Seller Common Stock who receive solely
Buyer Common Stock in the Merger will not recognize gain
or loss for federal income tax purposes upon the receipt
of such stock, (ii) the basis of such Buyer Common Stock
will equal the basis of the Seller Common Stock for which
it is exchanged, and (iii) the holding period of such
Buyer Common Stock will include the holding period of the
Seller Common Stock for which it is exchanged.
- 35 -
<PAGE> 40
6.02. Conditions to Obligations of Seller to Effect the
-------------------------------------------------
Merger. The obligations of Seller to effect the Merger shall be
- ------
subject to the fulfillment or waiver at or prior to the Effective
Time of the following additional conditions:
(a) Representations and Warranties. The
------------------------------
representations and warranties of Buyer set forth in
Article III of this Agreement shall be true and correct
in all material respects as of the date of this Agreement
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 specified 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
Buyer and its Subsidiaries, taken as a whole, and (iii)
for the effect of transactions contemplated by this
Agreement, and Seller shall have received a certificate
of the President of Buyer, signing solely in his capacity
as an officer of Buyer, to such effect.
(b) Performance of Obligations. Buyer shall
--------------------------
have performed in all material respects all obligations
required to be performed by it under this Agreement prior
to the Effective Time, and Seller shall have received a
certificate of the President of Buyer, signing solely in
his capacity as an officer of Buyer, to that effect.
(c) Permits, Authorizations, Etc. Buyer shall
----------------------------
have obtained any and all material permits,
authorizations, consents, waivers and approvals required
for the lawful consummation of the Merger.
(d) No Material Adverse Effect. Since the
--------------------------
date of this Agreement, there shall not have been any
event that would constitute or result in a Material
Adverse Effect on Buyer and its Subsidiaries, taken as a
whole.
(e) Opinion of Counsel. Buyer shall have
------------------
delivered to Seller an opinion of Buyer's counsel dated
as of the Closing Date or a mutually agreeable earlier
date in substantially the form set forth as Exhibit D to
---------
this Agreement.
(f) Average Buyer Price. The Average Buyer
-------------------
Price (as hereinafter defined) shall be greater than or
equal to $11.35 per share. "Average Buyer Price" shall
be the average of the daily averages of the high and low
transaction prices of Buyer 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.
(g) Opinion of Financial Advisor. Seller
----------------------------
shall have received an opinion of RP Financial, L.C.,
dated as of the date of the mailing of the Seller Proxy
Statement, to the effect that the consideration to be
received by the Seller 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.
6.03. Conditions to Obligations of Buyer to Effect the
------------------------------------------------
Merger. The obligations of Buyer to effect the Merger shall be
- ------
subject to the fulfillment or waiver at or prior to the Effective
Time of the following additional conditions:
- 36 -
<PAGE> 41
(a) Representations and Warranties. The
------------------------------
representations and warranties of Seller set forth in
Article II of this Agreement shall be true and correct in
all material respects as of the date of this Agreement
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
Seller and its Subsidiaries, taken as a whole, and (iii)
for the effect of transactions contemplated by this
Agreement) and Buyer shall have received a certificate of
the President of Seller, signing solely in his capacity
as an officer of Seller, to such effect.
(b) Performance of Obligations. Seller shall
--------------------------
have performed in all material respects all obligations
required to be performed by it under this Agreement prior
to the Effective Time, and Buyer shall have received a
certificate of the President of Seller signing solely in
his capacity as an officer of Seller, to that effect.
(c) Permits, Authorizations, Etc. Seller
----------------------------
shall have obtained any and all material permits,
authorizations, consents, waivers and approvals required
for the lawful consummation by it of the Merger.
(d) No Material Adverse Effect. Since the
--------------------------
date of this Agreement, there shall not have been any
event that would constitute or result in a Material
Adverse Effect on Seller and the Seller Subsidiaries,
taken as a whole.
(e) Opinion of Counsel. Seller shall have
------------------
delivered to Buyer an opinion of Seller's counsel dated
as of the Closing Date or a mutually agreeable earlier
date in substantially the form set forth as Exhibit E to
---------
this Agreement.
(f) Closing Book Value. Immediately prior to
------------------
the Closing, the total stockholders' equity account
determined in accordance with generally accepted
accounting principles on a basis consistent with the
Seller Financial Statements, of Seller shall be not less
than $6,500,000, as reasonably determined by Buyer's
independent public accountant, in consultation with
Seller's independent public accountant; provided,
however, that for purposes of calculating total
stockholders' equity, the Seller's expenses associated
with the payout of severance payments to Seller's
employees as a result of the Merger will not be counted.
(g) Opinion of Financial Advisor. Buyer shall
----------------------------
have received an opinion of Stifel, Nicolaus & Company,
Incorporated, dated as of the date of the mailing of the
Buyer Proxy Statement, to the effect that the
consideration to be paid by the Buyer to the Seller
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.
(h) Charter Amendment. Seller shall have
-----------------
taken, and caused RFSLA to have taken, all actions
required by Section 4.04 hereof to (i) amend Section 8 of
the Charter of RFSLA and (ii) to change the name of RFSLA
to Allegiant Bank, FSB.
(i) Bylaws Amendment. Seller shall have
----------------
taken, and caused RFSLA to have taken, all actions
required by Section 5.16 hereof to amend Article III,
Section 2 of the Bylaws of RFSLA.
- 37 -
<PAGE> 42
(j) Termination of Retirement Plan. Seller
------------------------------
shall have taken, and caused RFSLA to have taken, all
actions required by Section 5.10(c) hereof to withdraw
RFSLA from 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.
ARTICLE VII
-----------
TERMINATION, AMENDMENT AND WAIVER
7.01. Termination. This Agreement may be terminated at
-----------
any time prior to the Effective Time, whether before or after
approval by Seller's stockholders:
(a) by mutual consent of the Board of
Directors of Buyer and the Board of Directors of Seller;
(b) by the Board of Directors of Buyer or the
Board of Directors of Seller at any time after December
31, 1997 if the Merger shall not theretofore have been
consummated (provided that the terminating party is not
then in material breach of any representation, warranty,
covenant or other agreement contained herein);
(c) by the Board of Directors of Buyer or the
Board of Directors of Seller if (i) the Federal Reserve
Board or any other federal and/or state regulatory agency
whose approval is required for the consummation of the
transactions contemplated hereby has denied approval of
the Merger and such denial has become final and
nonappealable, (ii) the stockholders of Seller shall not
have approved this Agreement at the meeting referred to
in Section 5.03 or at any adjournment thereof or (iii)
the shareholders of Buyer shall not have approved this
Agreement at the meeting referred to in Section 5.03 or
at any adjournment thereof;
(d) by the Board of Directors of Buyer, on the
one hand, or by the Board of Directors of Seller, on the
other hand, in the event of a material volitional breach
by the other party to this Agreement of any
representation, warranty or agreement contained herein,
which breach is not cured within 30 days after written
notice thereof is given to the breaching party by the
non-breaching party or is not waived by the non-breaching
party during such period;
(e) by the Board of Directors of Buyer
pursuant to and in accordance with the provisions of
Section 5.06 hereof; or
(f) by the Board of Directors of Seller if
Seller's Board of Directors is excused pursuant to
Section 5.03 hereof, from its obligations to hold the
Seller's stockholder meeting referred to in Section 5.03
hereof and to recommend that Seller's stockholders
approve this Agreement or present this Agreement at such
meeting for approval.
7.02. Effect of Termination. In the event of termin-
---------------------
ation of this Agreement as provided in Section 7.01 hereof, this
Agreement shall forthwith become void and there shall be no
liability on the part of Buyer or Seller or their respective
officers or directors except as set forth in the second sentence of
Section 5.01 and in Sections 5.08 and 8.02, and except that no
termination of this Agreement pursuant to Section 7.01(e) shall
relieve the breaching party of any liability to the non-breaching
party hereto
- 38 -
<PAGE> 43
arising from the intentional, deliberate and willful
non-performance of any covenant contained herein, after giving
notice to such breaching party and an opportunity to cure as set
forth in Section 7.01(e).
7.03. Amendment. This Agreement, the Exhibits and the
---------
Schedules hereto may be amended by the parties hereto, by action
taken by or on behalf of the Board of Directors of Buyer and the
Director of Directors of Seller, at any time before or after
approval of this Agreement by the stockholders of Seller; provided,
however, that after any such approval by the stockholders of Seller
no such modification shall (A) alter or change the amount or kind
of Merger Consideration to be received by holders of Seller Common
Stock as provided in this Agreement or (B) adversely affect the tax
treatment to Seller stockholders as a result of the receipt of the
Merger Consideration. This Agreement, the Exhibits and the
Schedules hereto may not be amended except by an instrument in
writing signed on behalf of each of Buyer and Seller.
7.04. Waiver. Any term, condition or provision of this
------
Agreement may be waived in writing at any time by the party which
is, or whose shareholders or stockholders, as the case may be, are,
entitled to the benefits thereof.
ARTICLE VIII
------------
GENERAL PROVISIONS
8.01. Non-Survival of Representations, Warranties and
-----------------------------------------------
Agreements. No investigation by the parties hereto made heretofore
- ----------
or hereafter shall affect the representations and warranties of the
parties which are contained herein and each such representation and
warranty shall survive such investigation. Except as set forth
below in this Section 8.01, all representations, warranties and
agreements in this Agreement of Buyer and Seller or in any
instrument delivered by Buyer or Seller pursuant to or in
connection with this Agreement shall expire at the Effective Time
or upon termination of this Agreement in accordance with its terms.
In the event of consummation of the Merger, the agreements
contained in or referred to in Sections 1.07 through 1.12, 5.02(b),
5.07, 5.08, 5.10, 5.13, 5.14 and 5.15 shall survive the Effective
Time. In the event of termination of this Agreement in accordance
with its terms, the agreements contained in or referred to in the
second sentence of Section 5.01 and Sections 5.08, 7.02 and 8.02
shall survive such termination.
8.02. Indemnification. Buyer and Seller (hereinafter,
---------------
in such capacity being referred to as the "Indemnifying Party")
agree to indemnify and hold harmless each other and their officers,
directors and controlling persons (each such other party being
hereinafter referred to, individually and/or collectively, as the
"Indemnified Party") against any and all losses, claims, damages or
liabilities, joint or several, to which the Indemnified Party may
become subject under the Securities Act, the Exchange Act or other
federal or state law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions
in respect thereof): (a) arise primarily out of any information
furnished to the Indemnified Party by the Indemnifying Party and
included in the Registration Statement as originally filed or in
any amendment thereof, or in the Proxy Statements, or in any
amendment therefor or supplement thereof, or are based primarily
upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement as originally filed or
in any amendment thereof, or in the Proxy Statements, or in any
amendment thereof or supplement thereto, and provided for inclusion
thereof by the Indemnifying Party or (b) arise primarily out of or
are based primarily upon the omission or alleged omission by the
Indemnifying Party to state in the Registration Statement as
originally filed or in any amendment thereof, or in the Proxy
Statements, or in any amendment thereof, a material fact required
to be stated therein or necessary to make the statements made
therein not misleading, and agrees to reimburse each such
Indemnified Party, as incurred, for any legal
- 39 -
<PAGE> 44
or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action.
8.03. No Assignment; Successors and Assigns. This
-------------------------------------
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, but
neither this Agreement nor any right or obligation set forth in any
provision hereof may be transferred or assigned by any party hereto
without the prior written consent of the other party, and any
purported transfer or assignment in violation of this Section 8.03
shall be void and of no effect. There shall not be any third party
beneficiaries of any provisions hereof except for Sections 1.08,
1.09, 5.08, 5.10, 5.13, 5.15 and 8.02, which may be enforced
against Buyer or Seller by the parties therein identified.
8.04. No Implied Waiver. No failure or delay on the
-----------------
part of either party hereto to exercise any right, power or
privilege hereunder or under any instrument executed pursuant
hereto shall operate as a waiver nor shall any single or partial
exercise of any right, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, power
or privilege.
8.05. Headings. Article, section, subsection and
--------
paragraph titles, captions and headings herein are inserted only as
a matter of convenience and for reference, and in no way define,
limit, extend or describe the scope of this Agreement or the intent
or meaning of any provision hereof.
8.06. Entire Agreement. This Agreement, the Exhibits
----------------
and the Schedules hereto and that certain letter agreement dated as
of the date hereof by and between Buyer and Seller constitute the
entire agreement between the parties with respect to the subject
matter hereof, supersede all prior negotiations, representations,
warranties, commitments, offers, letters of interest or intent,
proposal letters, contracts, writings or other agreements or
understandings, whether written or oral, with respect thereto.
8.07. Counterparts. This Agreement may be executed in
------------
one or more counterparts, and any party to this Agreement may
execute and deliver this Agreement by executing and delivering any
of such counterparts, each of which when executed and delivered
shall be deemed to be an original and all of which taken together
shall constitute one and the same instrument.
8.08. Notices. All notices and other communications
-------
hereunder shall be in writing and shall be deemed to be duly
received (i) on the date given if delivered personally or (ii) upon
confirmation of receipt, if by facsimile transmission or (iii) on
the date received if mailed by registered or certified mail (return
receipt requested), to the parties at the following addresses (or
at such other address for a party as shall be specified by like
notice):
(i) if to Buyer:
Allegiant Bancorp, Inc.
7801 Forsyth Boulevard
Clayton, Missouri 63105
Attention: Shaun R. Hayes
President
Telecopy: (314) 726-5700
- 40 -
<PAGE> 45
Copy to:
Thompson Coburn
One Mercantile Center
St. Louis, Missouri 63101
Attention: Jan Robey Alonzo, Esq.
Telecopy: (314) 552-7000
(ii) if to Seller:
Reliance Financial, Inc.
8930 Gravois Street
St. Louis, Missouri 63123
Attention: John E. Bowman
President and Chief Executive Officer
Telecopy: (314) 631-3067
Copies to:
Luse Lehman Gorman Pomerenk & Schick
5335 Wisconsin Avenue, N.W., Suite 400
Washington, D.C. 20015
Attention: Robert B. Pomerenk, Esq.
Telecopy: (202) 362-2902
8.09. Severability. Any term, provision, covenant or
------------
restriction contained in this Agreement held by a court or a
Regulatory Authority of competent jurisdiction to be invalid, void
or unenforceable, shall be ineffective to the extent of such
invalidity, voidness or unenforceability, but neither the remaining
terms, provisions, covenants or restrictions contained in this
Agreement nor the validity or enforceability thereof in any other
jurisdiction shall be affected or impaired thereby. Any term,
provision, covenant or restriction contained in this Agreement that
is so found to be so broad as to be unenforceable shall be
interpreted to be as broad as is enforceable.
8.10. Governing Law. This Agreement shall be governed
-------------
by and controlled as to validity, enforcement, interpretation,
effect and in all other respects by the internal laws of the State
of Missouri, without regards to its conflict of laws principles.
[remainder of this page intentionally left blank]
- 41 -
<PAGE> 46
IN WITNESS WHEREOF, Buyer and Seller have caused this
Agreement to be signed and, by such signature, acknowledged by
their respective officers thereunto duly authorized, and such
signatures to be attested to by their respective officers thereunto
duly authorized, all as of the date first above written.
"Buyer"
ALLEGIANT BANCORP, INC.
ATTEST:
/s/ Shaun R. Hayes By: /s/ Marvin S. Wool
- ---------------------------------- ------------------------------------
Marvin S. Wool
Chairman and Chief Executive
Officer
"Seller"
RELIANCE FINANCIAL, INC.
ATTEST:
/s/ Jeannette Larson By: /s/ John E. Bowman
- ---------------------------------- ------------------------------------
John E. Bowman
President and
Chief Executive Officer
- 42 -
<PAGE> 1
STOCK OPTION AGREEMENT
----------------------
STOCK OPTION AGREEMENT ("Option Agreement") dated March
20, 1997, by and between ALLEGIANT BANCORP, INC. ("Buyer"), a
Missouri corporation registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended (the "Holding Company
Act"), and RELIANCE FINANCIAL, INC. ("Seller"), a Delaware
corporation registered as a savings and loan holding company under
the Home Owners' Loan Act, as amended (the "HOLA").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Board of Directors of Buyer and the Board of
Directors of Seller have approved an Agreement and Plan of Merger
dated as of even date herewith (the "Merger Agreement") providing
for the merger of Seller with and into Buyer; and
WHEREAS, as a condition to Buyer's entering into the
Merger Agreement, Buyer has required that Seller agree, and Seller
has agreed, to grant to Buyer the option set forth herein to
purchase authorized but unissued shares of the common stock, $0.10
par value, of Seller ("Seller Common Stock").
NOW, THEREFORE, in consideration of the premises herein
contained, the parties agree as follows:
1. Definitions.
-----------
Capitalized terms used but not defined herein shall have
the same meanings as in the Merger Agreement.
2. Grant of Option.
---------------
Subject to the terms and conditions set forth herein,
Seller hereby grants to Buyer an option (the "Option") to purchase
up to 46,775 shares of Seller Common Stock at a price per share
equal to $16.00 (such price, as adjusted if applicable, the
"Purchase Price") payable in cash as provided in Section 4 hereof.
3. Exercise of Option.
------------------
(a) If not then in material breach of the Merger
Agreement, Buyer may exercise the Option, in whole or in part, at
any time or from time to time if a Purchase Event (as defined
below) shall have occurred; provided, however, that (i) to the
extent the Option shall not have been exercised, it shall terminate
and be of no further force and effect upon the earlier to occur of
(A) the Effective Time of the Merger and (B) the termination of the
Merger Agreement in accordance with Article VII thereof, provided
that in the case of a termination by Buyer pursuant to Section
7.01(d) arising from the volitional breach by Seller of any of its
representations, warranties or covenants in the Merger Agreement,
a termination by Seller or Buyer pursuant to Section 7.01(c)(ii) or
a termination by Seller pursuant to Section 7.01(f), the Option
shall not terminate until the date that is 12 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 shall expire on the
30th business day after such injunction, order or restraint shall
have been dissolved or when such injunction, order or restraint
shall have become permanent and no longer subject to appeal, as the
case may be; and (iii) that any such exercise shall be subject to
compliance with applicable law, including the Holding Company Act
and the HOLA.
<PAGE> 2
(b) As used herein, a "Purchase Event" shall mean
any of the following events:
(i) Seller or any of its Subsidiaries, without
having received prior written consent from Buyer, shall
have 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
Buyer or any of its Subsidiaries) to (A) effect a merger
or consolidation or similar transaction involving Seller
or any of its Subsidiaries, (B) purchase, lease or
otherwise acquire 15% or more of the assets or earning
power of Seller or any of its Subsidiaries or (C)
purchase or otherwise acquire (including by way of
merger, consolidation, share exchange or similar
transaction) Beneficial Ownership (as defined in Section
3(d) hereof) of securities representing 20% or more of
the voting power of Seller or any of its Subsidiaries;
(ii) any person (other than Buyer or any
Subsidiary of Buyer, or Seller or any Subsidiary of
Seller in a fiduciary capacity) shall have acquired
Beneficial Ownership or the right to acquire Beneficial
Ownership of 20% or more of the voting power of Seller;
or
(iii) the holders of Seller Common Stock shall
not have approved the Merger Agreement at the meeting of
such stockholders held for the purpose of voting on the
Merger Agreement, such meeting shall not have been held
or shall have been cancelled prior to termination of the
Merger Agreement in accordance with its terms or Seller's
Board of Directors shall have withdrawn or modified in a
manner adverse to Buyer the recommendation of Seller's
Board of Directors with respect to the Merger Agreement,
in each case after an Extension Event.
(c) As used herein, the term "Extension Event"
shall mean any of the following events:
(i) a Purchase Event;
(ii) any person (other than Buyer or any of
its Subsidiaries) shall have "commenced" (as such term is
defined in Rule 14d-2 under the Exchange Act), or shall
have filed a registration statement under the Securities
Act with respect to, a tender offer or exchange offer to
purchase shares of Seller 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 Sellers
for a value per share of Seller Common Stock in excess of
$16.00; or
(iii) any person (other than Buyer or any
Subsidiary of Buyer, or Seller or any Subsidiary of
Seller in a fiduciary capacity) shall have publicly
announced its willingness, or shall have publicly
announced a proposal, or publicly disclosed 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 Section 3(b) hereof at a price per share of
Seller Common Stock in excess of $16.00.
(d) As used herein, the terms "Beneficial
Ownership" and "Beneficially Own" shall have the meanings ascribed
to them in Rule 13d-3 under the Exchange Act.
- 2 -
<PAGE> 3
(e) As used herein, the term "person" shall have
the meaning ascribed to it in the Exchange Act.
(f) In the event Buyer wishes to exercise the
Option, it shall deliver to Seller a written notice (the date of
which being herein referred to as the "Notice Date") specifying (i)
the total number of shares it intends to purchase pursuant to such
exercise and (ii) a place and date not earlier than ten business
days nor later than 30 calendar days from the Notice Date for the
closing of such purchase (the "Closing Date").
4. Payment and Delivery of Certificates.
------------------------------------
(a) At the closing referred to in Section 3 hereof,
Buyer shall pay to Seller the aggregate Purchase Price for the
shares of Seller Common Stock purchased pursuant to the exercise of
the Option in immediately available funds by wire transfer to a
bank account designated by Seller.
(b) At such closing, simultaneously with the
delivery of cash as provided in Section 4(a), Seller shall deliver
to Buyer a certificate or certificates representing the number of
shares of Seller Common Stock purchased by Buyer, registered in the
name of Buyer or a nominee designated in writing by Buyer, and
Buyer shall deliver to Seller a letter in customary form agreeing
that Buyer shall not offer to sell, pledge or otherwise dispose of
such shares in violation of applicable law or the provisions of
this Option Agreement.
(c) If at the time of issuance of any Seller Common
Stock pursuant to any exercise of the Option, Seller shall have
issued any share purchase rights or similar securities to holders
of Seller Common Stock, then each such share of Seller Common Stock
shall also represent rights with terms substantially the same as
and at least as favorable to Buyer as those issued to other holders
of Seller Common Stock.
(d) Certificates for Seller Common Stock delivered
at any closing hereunder shall be endorsed with a restrictive
legend which shall read substantially as follows:
The transfer of the shares represented by this
certificate is subject to certain provisions of an
agreement between the registered holder hereof and
Reliance Financial, Inc., a copy of which is on file at
the principal office of Reliance Financial, Inc., and to
resale restrictions arising under the Securities Act of
1933, as amended, and any applicable state securities
laws. A copy of such agreement will be provided to the
holder hereof without charge upon receipt by Reliance
Financial, Inc. of a written request therefor.
It is understood and agreed that the above legend shall be removed
by delivery of substitute certificates without such legend if Buyer
shall have delivered to Seller an opinion of counsel, in form and
substance reasonably satisfactory to Seller and its counsel, to the
effect that such legend is not required for purposes of the
Securities Act and any applicable state securities laws and this
Option Agreement.
5. Authorization, etc.
------------------
(a) Seller hereby represents and warrants to Buyer
that:
(i) Seller has full corporate authority to
execute and deliver this Option Agreement and, subject to
Section 11(i), to consummate the transactions
contemplated hereby;
- 3 -
<PAGE> 4
(ii) such execution, delivery and consummation
have been authorized by the Board of Directors of Seller,
and no other corporate proceedings are necessary
therefor;
(iii) this Option Agreement has been duly and
validly executed and delivered and represents a valid and
legally binding obligation of Seller, enforceable against
Seller in accordance with its terms; and
(iv) Seller has taken all necessary corporate
action to authorize and reserve and, subject to Section
11(i), permit it to issue and, at all times from the date
hereof through the date of the exercise in full or the
expiration or termination of the Option, shall have
reserved for issuance upon exercise of the Option, 46,775
shares of Seller Common Stock, all of which, upon
issuance pursuant hereto, shall be duly authorized,
validly issued, fully paid and nonassessable (upon full
payment for such shares in accordance with Section 4
hereof), and shall be delivered free and clear of all
claims, liens, encumbrances, restrictions (other than
federal and state securities restrictions) and security
interests and not subject to any preemptive rights.
(b) Buyer hereby represents and warrants to Seller
that:
(i) Buyer has full corporate authority to
execute and deliver this Option Agreement and, subject to
Section 11(i), to consummate the transactions
contemplated hereby;
(ii) such execution, delivery and consummation
have been authorized by all requisite corporate action by
Buyer, and no other corporate proceedings are necessary
therefor;
(iii) this Option Agreement has been duly and
validly executed and delivered and represents a valid and
legally binding obligation of Buyer, enforceable against
Buyer in accordance with its terms; and
(iv) any Seller Common Stock or other
securities acquired by Buyer upon exercise of the Option
will not be taken with a view to the public distribution
thereof and will not be transferred or otherwise disposed
of except in compliance with the Securities Act and
applicable state law.
6. Adjustment Upon Changes in Capitalization.
-----------------------------------------
In the event of any change in Seller Common Stock by
reason of stock dividends, split-ups, recapitalizations or the
like, the type and number of shares subject to the Option, and the
Purchase Price per share, as the case may be, shall be adjusted
appropriately. In the event that any additional shares of Seller
Common Stock are issued after the date of this Option Agreement
(other than pursuant to an event described in the preceding
sentence or pursuant to this Option Agreement), the number of
shares of Seller Common Stock subject to the Option shall be
adjusted so that, after such issuance, it equals at least 9.9% of
the number of shares of Seller Common Stock then issued and
outstanding (taking into account the shares to be issued pursuant
to the Option).
- 4 -
<PAGE> 5
7. Repurchase.
----------
(a) Subject to the giving of any notices and the
receipt of any approvals as contemplated by Section 11(i), at the
request of Buyer at any time commencing upon the first occurrence
of a Purchase Event described in Section 3(b) hereof and ending 13
months immediately thereafter but not later than the termination of
the Option pursuant to Section 3(a) hereof (the "Repurchase
Period"), Seller (or any successor entity thereof) shall repurchase
the Option from Buyer together with all (but not less than all,
subject to Section 10) shares of Seller Common Stock purchased by
Buyer pursuant to the exercise of the Option with respect to which
Buyer then has Beneficial Ownership, at a price (per share, the
"Per Share Repurchase Price") equal to the sum of:
(i) The exercise price paid by Buyer for any
shares of Seller Common Stock acquired pursuant to
exercise of the Option;
(ii) The difference between (A) the
"Market/Tender Offer Price" for shares of Seller Common
Stock (defined as the greatest of: (w) of the highest
price per share at which a tender or exchange offer has
been made for shares of Seller Common Stock, (x) the
price per share of Seller Common Stock paid or to be paid
by any third party pursuant to an agreement with Seller
(whether by way of a merger, consolidation or otherwise),
(y) the highest closing mean of the "bid" and the "ask"
prices per share of Seller Common Stock reported in the
over-the-counter market or (z) in the event of a sale of
all or substantially all of Seller's or any Seller
Subsidiary's assets, the sum of the price per share paid
in such sale for such assets and the current fair market
value per share of the remaining assets of Seller as
determined by an investment banking firm selected by
Buyer and reasonably acceptable to Seller, in each case
for any day within that portion of the Repurchase Period
which precedes the date Buyer gives notice of the
required repurchase under this Section 7) and (B) the
exercise price as determined pursuant to Section 2 hereof
(subject to adjustment as provided in Section 6),
multiplied by the number of shares of Seller Common Stock
with respect to which the Option has not been exercised,
but only if the Market/Tender Offer Price is greater than
such exercise price; and
(iii) The difference between the Market/Tender
Offer Price and the exercise price paid by Buyer for any
shares of Seller Common Stock purchased pursuant to the
exercise of the Option, multiplied by the number of
shares so purchased, but only if the Market/Tender Offer
Price is greater than such exercise price.
(b) In the event Buyer exercises its rights under
this Section 7, Seller shall, within 10 business days thereafter,
pay the required amount to Buyer by wire transfer of immediately
available funds to an account designated by Buyer and Buyer shall
surrender to Seller the Option and the certificates evidencing the
shares of Seller Common Stock purchased thereunder with respect to
which Buyer then has Beneficial Ownership, and Buyer shall warrant
that it has sole record and Beneficial Ownership of such shares and
that the same are free and clear of all liens, claims, charges,
restrictions and encumbrances of any kind whatsoever.
(c) In determining the Market/Tender Offer Price,
the value of any consideration other than cash shall be determined
by an independent investment banking firm selected by Buyer and
reasonably acceptable to Seller.
- 5 -
<PAGE> 6
8. Repurchase at Option of Seller and First Refusal.
------------------------------------------------
(a) Except to the extent that Buyer shall have
previously exercised its rights under Section 7, at the request of
Seller during the six-month period commencing 13 months following
the first occurrence of a Purchase Event, Seller may repurchase
from Buyer, and Buyer shall sell to Seller, all (but not less than
all, subject to Section 10) of the Seller Common Stock acquired by
Buyer pursuant hereto and with respect to which Buyer has
Beneficial Ownership at the time of such repurchase at a price per
share equal to the greater of (i) the Per Share Repurchase Price or
(ii) the sum of (A) the aggregate Purchase Price of the shares so
repurchased plus (B) interest on the aggregate Purchase Price paid
for the shares so repurchased from the date of purchase to the date
of repurchase at the highest rate of interest announced by Buyer as
its prime or base lending or reference rate during such period,
less any dividends received on the shares so repurchased. Any
repurchase under this Section 8(a) shall be consummated in
accordance with Section 7(b).
(b) If, at any time after the occurrence of a
Purchase Event and prior to the earlier of (i) the expiration of 18
months immediately following such Purchase Event or (ii) the
expiration or termination of the Option, Buyer shall desire to
sell, assign, transfer or otherwise dispose of the Option or all or
any of the shares of Seller Common Stock acquired by it pursuant to
the Option, it shall give Seller written notice of the proposed
transaction (an "Offeror's Notice"), identifying the proposed
transferee, and setting forth the terms of the proposed
transaction. An Offeror's Notice shall be deemed an offer by Buyer
to Seller, which may be accepted within 10 business days of the
receipt of such Offeror's Notice, on the same terms and conditions
and at the same price at which Buyer is proposing to transfer the
Option or such shares to a third party. The purchase of the Option
or any such shares by Seller shall be closed within 10 business
days of the date of the acceptance of the offer and the purchase
price shall be paid to Buyer by wire transfer of immediately
available funds to an account designated by Buyer. In the event of
the failure or refusal of Seller to purchase the Option or all the
shares covered by the Offeror's Notice or if the Office of Thrift
Supervision or any other Regulatory Authority disapproves Seller's
proposed purchase of the Option or such shares, Buyer may, within
60 days from the date of the Offeror's Notice, sell all, but not
less than all, of the Option or such shares to such third party at
no less than the price specified and on terms no more favorable to
the purchaser than those set forth in the Offeror's Notice. The
requirements of this Section 8(b) shall not apply to (i) any
disposition as a result of which the proposed transferee would
Beneficially Own not more than 2% of the voting power of Seller or
(ii) any disposition of Seller Common Stock by a person to whom
Buyer has sold shares of Seller Common Stock issued upon exercise
of the Option.
9. Registration Rights.
-------------------
At any time after the exercise of the Option by Buyer for
an aggregate of at least 50% of the shares subject thereto, Seller
shall, if requested by Buyer, as expeditiously as practicable file
a registration statement on a form for general use under the
Securities Act if necessary in order to permit the sale or other
disposition of the shares of Seller Common Stock that have been
acquired upon exercise of the Option in accordance with the
intended method of sale or other disposition requested by Buyer (it
being understood and agreed that any such sale or other disposition
shall be effected on a widely distributed basis so that, upon
consummation thereof, no purchaser or transferee shall Beneficially
Own more than 2% of the shares of Seller Common Stock then
outstanding). Buyer shall provide all information reasonably
requested by Seller for inclusion in any registration statement to
be filed hereunder. Seller shall use its reasonable best efforts
to cause such registration statement first to become effective and
then to remain effective for such period not in excess of 90 days
from the day such registration statement first becomes effective as
may be reasonably necessary to effect such sales or other
dispositions. The registration effected under this Section 9 shall
be at Seller's expense except for
- 6 -
<PAGE> 7
underwriting discounts and commissions and the fees and disbursements
of Buyer's counsel attributable to the registration of such Seller
Common Stock. In no event shall Seller be required to effect more
than one registration hereunder. The filing of the registration
statement hereunder may be delayed for such period of time as may
reasonably be required to facilitate any public distribution by Seller
of Seller Common Stock or if a special audit of Seller would otherwise
be required in connection therewith. If requested by Buyer in
connection with such registration, Seller shall become a party to
any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of
representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements for parties
similarly situated.
10. Severability.
------------
Any term, provision, covenant or restriction contained in
this Option Agreement held by a court or a Regulatory Authority of
competent jurisdiction to be invalid, void or unenforceable, shall
be ineffective to the extent of such invalidity, voidness or
unenforceability, but neither the remaining terms, provisions,
covenants or restrictions contained in this Option Agreement nor
the validity or enforceability thereof in any other jurisdiction
shall be affected or impaired thereby. Any term, provision,
covenant or restriction contained in this Option Agreement that is
so found to be so broad as to be unenforceable shall be interpreted
to be as broad as is enforceable. If for any reason such court or
Regulatory Authority determines that applicable law will not permit
Buyer or any other person to acquire, or Seller to repurchase or
purchase, the full number of shares of Seller Common Stock provided
in Section 2 hereof (as adjusted pursuant to Section 6 hereof), it
is the express intention of the parties hereto to allow Buyer or
such other person to acquire, or Seller to repurchase or purchase,
such lesser number of shares as may be permissible, without any
amendment or modification hereof.
11. Miscellaneous.
-------------
(a) Expenses. Each of the parties hereto shall pay
--------
all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment
bankers, accountants and counsel, except as otherwise provided
herein.
(b) Entire Agreement. Except as otherwise
----------------
expressly provided herein, this Option Agreement and the Merger
Agreement contain the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereto,
written or oral.
(c) Successors; No Third Party Beneficiaries. The
----------------------------------------
terms and conditions of this Option Agreement shall inure to the
benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Nothing in this
Option Agreement, expressed or implied, is intended to confer upon
any party, other than the parties hereto, and their respective
successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Option Agreement, except as
expressly provided herein.
(d) Assignment. Other than as provided in Section
----------
8 hereof, neither of the parties hereto may sell, transfer, assign
or otherwise dispose of any of its rights or obligations under this
Option Agreement or the Option created hereunder to any other
person (whether by operation of law or otherwise), without the
express written consent of the other party.
- 7 -
<PAGE> 8
(e) Notices. All notices or other communications
-------
which are required or permitted hereunder shall be in writing and
sufficient if delivered in accordance with Section 8.08 of the
Merger Agreement (which is incorporated herein by reference).
(f) Counterparts. This Option Agreement may be
------------
executed in counterparts, and each such counterpart shall be deemed
to be an original instrument, but both such counterparts together
shall constitute but one agreement.
(g) Specific Performance. The parties hereto agree
--------------------
that if for any reason Buyer or Seller shall have failed to perform
its obligations under this Option Agreement, then either party
hereto seeking to enforce this Option Agreement against such non-
performing party shall be entitled to specific performance and
injunctive and other equitable relief, and the parties hereto
further agree to waive any requirement for the securing or posting
of any bond in connection with the obtaining of any such injunctive
or other equitable relief. This provision is without prejudice to
any other rights that either party hereto may have against the
other party hereto for any failure to perform its obligations under
this Option Agreement.
(h) Governing Law. This Option Agreement shall be
-------------
governed by and construed in accordance with the laws of the State
of Missouri applicable to agreements made and entirely to be
performed within such state, without regard to its conflict of laws
principles.
(i) Regulatory Approvals; Section 16(b). If, in
-----------------------------------
connection with (A) the exercise of the Option under Section 3 or
a sale by Buyer to a third party under Section 8, (B) a repurchase
by Seller under Section 7 or a repurchase or purchase by Seller
under Section 8, prior notification to or approval of the Federal
Reserve Board, the OTS or any other Regulatory Authority is
required, then the required notice or application for approval
shall be promptly filed and expeditiously processed and periods of
time that otherwise would run pursuant to such Sections shall run
instead from the date on which any such required notification
period has expired or been terminated or such approval has been
obtained, and in either event, any requisite waiting period shall
have passed. In the case of clause (A) of this subsection (i),
such filing shall be made by Buyer, and in the case of clause (B)
of this subsection (i), such filing shall be made by Seller,
provided that each of Buyer and Seller shall use its best efforts
to make all filings with, and to obtain consents of, all third
parties and Regulatory Authorities necessary to the consummation of
the transactions contemplated hereby, including without limitation
applying to the Federal Reserve Board under the Holding Company Act
and to the OTS under the HOLA for approval to acquire the shares
issuable hereunder. Periods of time that otherwise would run
pursuant to Sections 3, 7 or 8 shall also be extended to the extent
necessary to avoid liability under Section 16(b) of the Exchange
Act.
(j) Waiver and Amendment. Any provision of this
--------------------
Option Agreement may be waived at any time by the party that is
entitled to the benefits of such provision. This Option Agreement
may not be modified, amended, altered or supplemented except upon
the execution and delivery of a written agreement executed by the
parties hereto.
[remainder of this page intentionally left blank]
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, each of the parties hereto has
executed this Option Agreement as of the date first written above.
ALLEGIANT BANCORP, INC.
By: /s/ Marvin S. Wool
------------------------------------------
Marvin S. Wool
Chairman and Chief Executive Officer
RELIANCE FINANCIAL, INC.
By: /s/ John E. Bowman
------------------------------------------
John E. Bowman
President and Chief Executive Officer
- 9 -
<PAGE> 1
VOTING AGREEMENT
This Voting Agreement dated as of March 20, 1997 is entered
into between ALLEGIANT BANCORP, INC. ("Allegiant"), and the
undersigned stockholder ("Stockholder") of RELIANCE FINANCIAL, INC.
("Reliance").
WHEREAS, Reliance and Allegiant have proposed to enter into an
Agreement and Plan of Merger (the "Agreement"), dated as of the
date hereof, which contemplates the acquisition by Allegiant of
100% of the common stock of Reliance (the "Reliance Stock") by
means of a merger of Reliance with and into Allegiant (the
"Merger"); and
WHEREAS, Allegiant is willing to expend the substantial time,
effort and expense necessary to implement the Merger, only if
Stockholder enters into this Voting Agreement; and
WHEREAS, the Stockholder believes that the Merger is in his
best interest and the best interest of Reliance;
NOW, THEREFORE, in consideration of the premises, Stockholder
hereby agrees as follows:
1. Voting Agreement. Stockholder shall vote, or cause
----------------
to be voted, all of the shares of Reliance Stock he now or
hereafter owns and over which he now has, or prior to the record
date for voting at the Meeting (as hereinafter defined) acquires,
voting control in favor of approving the Agreement and the
transactions contemplated thereby at the meeting of stockholders of
Reliance to be called for such purpose (the "Meeting").
2. No Competing Transaction. Stockholder shall not
------------------------
vote any of his shares of Reliance Stock in favor of any other
merger or sale of all or substantially all the assets of Reliance
to any person other than Allegiant or its affiliates until closing
of the Merger, termination of the Agreement or abandonment of the
Merger by the mutual agreement of Reliance and Allegiant, whichever
comes first.
3. Transfers Subject to Agreement. Stockholder shall
------------------------------
not transfer his shares of Reliance Stock unless the transferee,
prior to such transfer, executes a voting agreement with respect to
the transferred shares substantially to the effect of this Voting
Agreement and reasonably satisfactory to Allegiant.
4. No Ownership Interest. Nothing contained in this
---------------------
Voting Agreement shall be deemed to vest in Allegiant any direct or
indirect ownership or incidence of ownership of or with respect to
any shares of Reliance Stock. All rights, ownership and economic
benefits of and relating to the shares of Reliance Stock shall
remain and belong to Stockholder and Allegiant shall have no
authority to manage, direct, superintend, restrict, regulate,
govern or administer any of the policies or operations of Reliance
or exercise any power or authority to direct Stockholder in the
voting of any of his shares of Reliance Stock, except as otherwise
expressly provided herein, or the performance of his duties or
responsibilities as a director of Reliance.
5. Evaluation of Investment. Stockholder, by reason of
------------------------
his knowledge and experience in financial and business matters and
in his capacity as a director and/or executive officer of a
financial institution, believes himself capable of evaluating the
merits and risks of the potential investment in common stock of
Allegiant, $0.01 par value ("Allegiant Common Stock"), contemplated
by the Agreement.
<PAGE> 2
6. Documents Delivered. Stockholder acknowledges
-------------------
having reviewed the Agreement and its attachments and that reports,
proxy statements and other information with respect to Allegiant
filed with the Securities and Exchange Commission (the
"Commission") were, prior to his execution of this Voting
Agreement, available for inspection and copying at the Offices of
the Commission and that Allegiant delivered the following such
documents to Reliance:
(a) Allegiant's Annual Report on Form 10-K
for the year ended December 31, 1996; and
(b) Allegiant's Annual Report to Shareholders
for the year ended December 31, 1996.
7. Amendment and Modification. This Voting Agreement
--------------------------
may be amended, modified or supplemented at any time by the written
approval of such amendment, modification or supplement by
Stockholder and Allegiant.
8. Entire Agreement. This Voting Agreement evidences
----------------
the entire agreement among the parties hereto with respect to the
matters provided for herein and there are no agreements,
representations or warranties with respect to the matters provided
for herein other than those set forth herein and in the Agreement.
This Voting Agreement supersedes any agreements among Reliance and
the Stockholder concerning the Agreement, disposition or control of
the stock of Reliance.
9. Severability. The parties agree that if any
------------
provision of this Voting Agreement shall under any circumstances be
deemed invalid or inoperative, this Voting Agreement shall be
construed with the invalid or inoperative provisions deleted and
the rights and obligations of the parties shall be construed and
enforced accordingly.
10. Specific Performance. The parties hereto agree that
--------------------
if for any reason the Stockholder shall have failed to perform his
obligations under this Voting Agreement, then Allegiant shall be
entitled to specific performance and injunctive and other equitable
relief, and the Stockholder further agrees to waive any requirement
for the securing or posting of any bond in connection with the
obtaining of any such injunctive or other equitable relief. This
provision is without prejudice to any other rights that Allegiant
may have against the Stockholder for any failure to perform his
obligations under this Voting Agreement.
11. Counterparts. This Voting Agreement may be executed
------------
in two counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
12. Governing Law. The validity, construction,
-------------
enforcement and effect of this Voting Agreement shall be governed
by the internal laws of the State of Missouri, without regard to
its conflicts of law principles.
13. Headings. The headings for the paragraphs of this
--------
Voting Agreement are inserted for convenience only and shall not
constitute a part hereof or affect the meaning or interpretation of
this Voting Agreement.
14. Termination. This Voting Agreement shall terminate
-----------
upon the consummation of the Merger, termination of the Agreement
or abandonment of the Merger by the mutual agreement of Reliance
and Allegiant, whichever comes first.
2
<PAGE> 3
15. Successors. This Voting Agreement shall be binding
----------
upon and inure to the benefit of Allegiant and its successors, and
Stockholder, such Stockholder's respective executors, personal
representatives, administrators, heirs, legatees, guardians and
other legal representatives. This Voting Agreement shall survive
the death or incapacity of Stockholder. This Voting Agreement may
be assigned by Allegiant only to an affiliate of Allegiant.
ALLEGIANT BANCORP, INC.
By: _______________________________________________
Marvin S. Wool
Chairman and Chief Executive Officer
STOCKHOLDER
___________________________________________________
Name (printed):____________________________________
3
<PAGE> 1
VOTING AGREEMENT
This Voting Agreement dated as of March 20, 1997 is entered
into between RELIANCE FINANCIAL, INC. ("Reliance"), and the
undersigned shareholder ("Shareholder") of ALLEGIANT BANCORP, INC.
("Allegiant").
WHEREAS, Reliance and Allegiant have proposed to enter into an
Agreement and Plan of Merger (the "Agreement"), dated as of the
date hereof, which contemplates the acquisition by Allegiant of
100% of the common stock of Reliance by means of a merger of
Reliance with and into Allegiant (the "Merger"); and
WHEREAS, Reliance is willing to execute the Agreement, only if
Shareholder enters into this Voting Agreement; and
WHEREAS, the Shareholder believes that the Merger is in his
best interest and the best interest of Allegiant.
NOW, THEREFORE, in consideration of the premises, Shareholder
hereby agrees as follows:
1. Voting Agreement. Shareholder shall vote, or cause
----------------
to be voted, all of the shares of common stock, $0.01 par value, of
Allegiant ("Allegiant Common Stock") he now or hereafter owns and
over which he now has, or prior to the record date for voting at
the Meeting (as hereinafter defined) acquires, voting control in
favor of approving the Agreement and the transactions contemplated
thereby at the meeting of shareholders of Allegiant to be called
for such purpose (the "Meeting").
2. Transfers Subject to Agreement. Shareholder shall
------------------------------
not transfer his shares of Allegiant Common Stock unless the
transferee, prior to such transfer, executes a voting agreement
with respect to the transferred shares substantially to the effect
of this Voting Agreement and reasonably satisfactory to Reliance.
3. No Ownership Interest. Nothing contained in this
---------------------
Voting Agreement shall be deemed to vest in Reliance any direct or
indirect ownership or incidence of ownership of or with respect to
any shares of Allegiant Common Stock. All rights, ownership and
economic benefits of and relating to the shares of Allegiant Common
Stock shall remain and belong to Shareholder and Reliance shall
have no authority to manage, direct, superintend, restrict,
regulate, govern or administer any of the policies or operations of
Allegiant or exercise any power or authority to direct Shareholder
in the voting of any of his shares of Allegiant Common Stock,
except as otherwise expressly provided herein, or the performance
of his duties or responsibilities as a director of Allegiant.
4. Amendment and Modification. This Voting Agreement
--------------------------
may be amended, modified or supplemented at any time by the written
approval of such amendment, modification or supplement by
Shareholder and Reliance.
5. Entire Agreement. This Voting Agreement evidences
----------------
the entire agreement among the parties hereto with respect to the
matters provided for herein and there are no agreements,
representations or warranties with respect to the matters provided
for herein other than those set forth herein and in the Agreement.
This Voting Agreement supersedes any agreements between Allegiant
and the Shareholder concerning the Agreement.
<PAGE> 2
6. Severability. The parties agree that if any
------------
provision of this Voting Agreement shall under any circumstances be
deemed invalid or inoperative, this Voting Agreement shall be
construed with the invalid or inoperative provisions deleted and
the rights and obligations of the parties shall be construed and
enforced accordingly.
7. Specific Performance. The parties hereto agree that
--------------------
if for any reason the Shareholder shall have failed to perform his
obligations under this Voting Agreement, then Reliance shall be
entitled to specific performance and injunctive and other equitable
relief, and the Shareholder further agrees to waive any requirement
for the securing or posting of any bond in connection with the
obtaining of any such injunctive or other equitable relief. This
provision is without prejudice to any other rights that Reliance
may have against the Shareholder for any failure to perform his
obligations under this Voting Agreement.
8. Counterparts. This Voting Agreement may be executed
------------
in two counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
9. Governing Law. The validity, construction,
-------------
enforcement and effect of this Voting Agreement shall be governed
by the internal laws of the State of Missouri, without regard to
its conflicts of law principles.
10. Headings. The headings for the paragraphs of this
--------
Voting Agreement are inserted for convenience only and shall not
constitute a part hereof or affect the meaning or interpretation of
this Voting Agreement.
11. Termination. This Voting Agreement shall terminate
-----------
upon the consummation of the Merger, termination of the Agreement
or abandonment of the Merger by the mutual agreement of Reliance
and Allegiant, whichever comes first.
12. Successors. This Voting Agreement shall be binding
----------
upon and inure to the benefit of Reliance and its successors, and
Shareholder, the Shareholder's executors, personal representatives,
administrators, heirs, legatees, guardians or other legal
representatives. This Voting Agreement shall survive the death or
incapacity of Shareholder. This Voting Agreement may be assigned
by Reliance only to an affiliate of Reliance.
RELIANCE FINANCIAL, INC.
By: _________________________________________
John E. Bowman
President and Chief Executive Officer
SHAREHOLDER
_____________________________________________
Name (printed):______________________________
2
<PAGE> 1
* , 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 Proxy Statement/Prospectus contained therein, filed with the
Securities and Exchange Commission on April 17, 1997 (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.
* , 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.
* , 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,
<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
[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
May 2, 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 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
May 2, 1997
<PAGE> 1
[letterhead of Stifel, Nicolaus & Company, Incorporated]
Exhibit 23.3
CONSENT
We do hereby consent to the inclusion in this Registration Statement
on Form S-4 of our opinion and to the references to our firm in the Proxy
Statement/Prospectus. In giving such consent, we do not thereby admit that
we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the Rules and
Regulations of the Securities and Exchange Commission thereunder.
STIFEL, NICOLAUS & COMPANY, INCORPORATED
By: /s/ Mark J. Ross
------------------------------
Mark J. Ross
Vice President
St. Louis, Missouri
May 2, 1997
<PAGE> 1
[letterhead of RP Financial, LC.]
May 2, 1997
Board of Directors
Reliance Financial, Inc.
8930 Gravois Avenue
St. Louis, Missouri 63123-4695
Members of the Board:
We hereby consent to the use of our firm's name in the Form S-4
Registration Statement of Allegiant Bancorp, Inc. and any amendments thereto,
and the inclusion of, summary of and references to our fairness opinion in
such filings including the combined Proxy Statement and Prospectus of
Allegiant Bancorp, Inc.
Very truly yours,
RP FINANCIAL, LC.
/s/ James P. Hennessey
James P. Hennessey
Senior Vice President
