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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 Commission file number 0-26350
ALLEGIANT BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Missouri 43-1519382
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7801 Forsyth Boulevard, St. Louis, Missouri 63105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 726-5000
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ X ]
For the fiscal year ended December 31, 1996, revenues totaled:
$26,449,000
As of February 28, 1997, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately $23,596,000.
As of February 28, 1997, there were 2,838,685 shares of the
Registrant's Common Stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated by reference into the indicated
Part of this Report:
Document Part of Form 10-KSB
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Proxy Statement for the 1997
Annual Meeting of Shareholders III
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
-----------------------
GENERAL
The Company is a bank holding company which owns all of the
capital stock of Allegiant Bank, a Missouri state-chartered bank (the
"Bank"). The Bank provides personal and commercial banking and related
financial services from six locations in the St. Louis Standard Metropolitan
Statistical Area ("St. Louis SMSA"), the 16th largest metropolitan area in
the United States, and two locations in Northeast Missouri. 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 the
Company, offers residential loans to customers in the St. Louis SMSA who do
not qualify under standard mortgage loan criteria.
The Company was organized in May 1989 and acquired Allegiant
State Bank at that time. The Company acquired Allegiant Bank in 1990.
Effective January 1995, Allegiant State Bank merged into Allegiant Bank.
Unless the context indicates otherwise, references herein to the "Company" or
"Allegiant" refer to Allegiant Bancorp, Inc. and its subsidiaries. The
address of the Company's principal executive office is 7801 Forsyth
Boulevard, St. Louis, Missouri 63105; telephone: (314) 726-5000.
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, the Company has
focused on controlled growth by meeting customers' needs for responsive
service. The Company 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. The Company has sought to increase its earning assets
by expanding its mortgage lending activities. The Company anticipates that
its mortgage lending activities will be a key element in its strategy for
increasing the level of its earning assets.
MARKETING
The Company's marketing approach entails a word-of-mouth,
referral-based strategy utilizing Company, 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 and Company's Board of Directors and Banking
Center Directors
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primarily include local business people from the Bank's market area. The
Company 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.
The Company 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 feels that the Company as a whole
is favorably positioned in a market preparing for a potentially turbulent
wave of consolidation resulting from the 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, the Company 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. The Company 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. The Company'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. The
Company 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.
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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. The Company 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 the Company and the Bank and, as a
result, have a competitive advantage over the Bank in providing certain
services. Many 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
The Company and the Bank currently have approximately 98 full-time
equivalent employees. None of these employees of the Company or the Bank are
subject to a collective bargaining agreement. The Company 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
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between banks and other financial institutions. Legislative proposals which
could affect the Company 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 the Company'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 the Company would be affected thereby.
SUPERVISION AND REGULATION
General. As a bank holding company, the Company is subject to
regulation under the Bank Holding Company Act of 1956, as amended (the
"BHCA"), and its examination and reporting requirements. Under the BHCA, a
bank holding company may not directly or indirectly acquire the ownership or
control of more than 5% of the voting shares or substantially all of the
assets of any company, including a bank or savings and loan association,
without the prior approval of the Federal Reserve Board. In addition, bank
holding companies are generally prohibited under the BHCA from engaging in
nonbanking activities, subject to certain exceptions.
The Company and its subsidiaries are subject to supervision and
examination by applicable federal and state banking agencies. The earnings
of the Company's subsidiaries, and therefore the earnings of the Company, 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, the Division of Finance and
various other state financial institution regulatory agencies. In addition,
there are numerous governmental requirements and regulations that affect the
activities of the Company and its subsidiaries.
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 any one of
the holding company or such nonbank subsidiaries, to 10% of the lending
bank'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. The Company is a legal entity separate and
distinct from the Bank, the Mortgage Company and Edge. The principal source
of the Company's revenues is dividends from the Bank. Various Federal and
state statutory provisions limit the amount of dividends the Bank can pay to
the Company 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.
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.
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In general, the risk-related standards require financial
institutions and financial institution holding companies to maintain 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, financial institutions and
financial institution holding companies are required to maintain capital to
support off-balance sheet activities such as loan commitments.
FDIC Insurance Assessments. The subsidiary depository
institutions of the Company are subject to FDIC deposit insurance
assessments. The FDIC has adopted a risk-based premium schedule. 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 primary federal and, if applicable, state
supervisors, 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."
The Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("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
Savings Association Insurance Fund ("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, BIF
reached 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.
Support of Subsidiary Bank. Under Federal Reserve Board policy,
the Company is expected to act as a source of financial strength to the Bank
and to commit resources to support the Bank in circumstances where it might
not choose to do so absent such a policy. This support may be required at
times when the Company may not find itself able to provide it. In addition,
any capital loans by the Company to the Bank 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.
FIRREA and FDICIA. FIRREA contains a cross-guarantee provision
which could result in insured depository institutions owned by the Company
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 the Company. 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.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") made extensive changes to the federal banking laws. FDICIA
instituted certain changes to the supervisory
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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.
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 1 capital to risk-adjusted assets of 6% or greater;
(iii) had a ratio of Tier 1 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 also 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
imposes 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.
The Interstate Banking and Community Development Legislation. In
September 1994, legislation was enacted that is expected to have a
significant effect in restructuring the banking industry in the United
States. The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 ("Riegle-Neal") facilitates the interstate expansion and consolidation
of banking organizations by permitting (i) bank holding companies that are
adequately capitalized and managed, one year after enactment of the
legislation, to acquire banks located in states outside their home states
regardless of whether such acquisitions are authorized under the law of the
host state, (ii) the interstate merger of banks after June 1, 1997, subject
to the right of individual states to "opt in" or to "opt out" of this
authority before that date, (iii) banks to establish new branches on an
interstate basis provided that such action is specifically authorized by the
law of the host state, (iv) foreign banks to establish, with approval of the
regulators in the United States, branches outside their home states to the
same extent that national or state banks
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located in the home state would be authorized to do so, and (v) banks to
receive deposits, renew time deposits, close loans, service loans and receive
payments on loans and other obligations as agent for any bank or thrift
affiliate, whether the affiliate is located in the same state or a different
state. One effect of Riegle-Neal is to permit the Company to acquire banks
located in any state and to permit bank holding companies located in any state
to acquire banks and bank holding companies in Missouri. Overall, Riegle-Neal
is likely to have the effects of increasing competition and promoting
geographic diversification in the banking industry.
STATISTICAL INFORMATION
The information required by Industry Guide 3 is set forth under
Item 6--"Management's Discussion and Analysis of Financial Condition and
Results of Operations" of this report which is incorporated herein by this
reference.
ITEM 2. DESCRIPTION OF PROPERTY
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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 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. The Company 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
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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.
ITEM 3. LEGAL PROCEEDINGS
-----------------
Various claims and lawsuits, incidental to its ordinary course of
business, are pending against the Company 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 the Company's
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
There were no matters submitted during the quarter ended
December 31, 1996 to a vote of the Company's shareholders, through the
solicitation of proxies or otherwise.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The name, age and position with respect to each of the executive
officers of the Company are set forth below:
Marvin S. Wool, 68, has served as a Director of the Company since
1990 and as the Chairman and Chief Executive Officer of the Company and
Chairman of Allegiant 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, 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 the Company since 1989 and President and Chief Executive Officer of the
Bank since May 1992. From 1989 through 1994, Mr. Hayes served as Secretary
of the Company.
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.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
---------------------------------------------------------------------
The Common Stock (symbol: "ALLE") has been traded on the Nasdaq
National Market since May 15, 1996. From September 30, 1995 to such date it
was traded on the Nasdaq Small Cap Market. As of February 28, 1997, the
number of shareholders of the Common Stock was approximately 765. The
following table sets forth the high and low average trading prices as well as
dividends per share for the periods shown, as reported by Nasdaq since the
third quarter of 1995. Such prices reflected interdealer prices, without
retail mark-up, mark-down or commission. Prior to the third quarter of 1995,
there was no established public trading market for the Common Stock.
Accordingly, for periods prior to the third quarter of 1995, the sales prices
of actual individual trades of Common Stock have been included in the table
below to the extent known to the Company's management.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS DECLARED
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<S> <C> <C> <C>
1995
First Quarter $ 7.027 $ 7.027 $ 0.017
Second Quarter 7.027 7.027 0.017
Third Quarter 7.855 7.855 0.017
Fourth Quarter 10.227 8.055 0.017
1996
First Quarter $ 11.023 $ 11.023 $ 0.023
Second Quarter 11.023 9.773 0.023
Third Quarter 11.364 9.773 0.023
Fourth Quarter 12.343 12.159 0.023
</TABLE>
The future dividend policy of the Company is subject to the
discretion of the Board of Directors and will depend upon a number of
factors, including future earnings, financial condition, cash needs and
general business conditions. Holders of Common Stock will be entitled to
receive dividends as and when declared by the Board of Directors of the
Company out of funds legally available for that purpose. The Company
effected a two-for-three 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 Company's Board of Directors 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 Common
Stock must initially come from dividends paid to the Company by the Bank.
Accordingly, restrictions on the Bank's cash dividend payments directly
affect the payment of cash dividends by the Company. 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. The Company's bank stock loan agreement also
restricts the amount of dividends the Company may pay. See
Item 6--"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resource Management--Capital
Resources."
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
RESULTS OF OPERATIONS
Net Income
For the year ended December 31, 1996, the Company 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 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 the Company 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."
- 10 -
<PAGE> 12
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,
the Company'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 the Company 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 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.
- 11 -
<PAGE> 13
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. The Company 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 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. The Company expects that as these new branches mature, their
core deposit base should fund the planned retirement of a substantial portion
of the short-term debt. FHLB advances, when used in conjunction with deposit
promotions and regular retail operations, offer flexibility and an attractive
method to increase funding for loan growth. The Bank expects to utilize FHLB
advances in the future, as the need arises.
- 12 -
<PAGE> 14
The following table sets forth the condensed average balance
sheets for the years reported and the percentage of each principal category
of assets, liabilities and shareholders' equity to total assets. Also shown
is the average yield on each category of interest-earning assets and the
average rate paid on interest-bearing liabilities for each of the periods
reported:
<TABLE>
Distribution of Average Assets, Liabilities and Shareholders' Equity and Interest Rates
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------- --------------------------------- -------------------------------
Average Int. Earned/ Average Average Int. Earned/ Average Average Int. Earned/ Average
Balance Paid Yield<F1> Balance Paid Yield<F1> Balance Paid Yield<F1>
------------------------------- --------------------------------- -------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans<F1> $ 232,314 $ 21,740 9.36% $ 158,503 $ 15,995 10.09% $ 88,654 $ 8,213 9.26%
Taxable investment
securities 59,882 3,428 5.72 52,695 2,933 5.57 36,169 1,713 4.74
Non-taxable investment
securities 1,115 49 4.39 848 32 3.77 282 13 4.61
Federal funds sold 3,079 151 4.90 5,109 292 5.72 1,503 55 3.66
--------- -------- --------- -------- --------- -------
Total interest earning
assets $ 296,390 $ 25,368 8.56% $ 217,155 $ 19,252 8.87% $ 126,608 $ 9,994 7.89%
========= ======== ========= ======== ========= =======
Non-interest earning
assets:
Cash and due from banks $ 6,382 $ 5,791 $ 3,592
Premises and equipment 4,698 3,207 2,264
Other assets 3,915 4,021 2,022
Reserve for possible loan
losses (2,401) (2,044) (1,020)
--------- --------- ---------
Total assets $ 308,984 $ 228,130 $ 133,466
========= ========= =========
Liabilities and
shareholders' equity
Interest bearing
liabilities:
Money market accounts $ 61,144 $ 2,986 4.88% $ 20,095 $ 851 4.23% $ 16,592 $ 498 3.00%
NOW accounts 9,804 232 2.37 8,257 194 2.35 8,656 203 2.35
Savings deposits 6,985 227 3.25 6,751 262 3.88 3,497 87 2.49
Certificates of deposit 104,283 6,149 5.90 97,115 5,737 5.91 57,211 2,512 4.39
Certificates of deposit
over $100,000 36,387 2,001 5.50 29,481 1,655 5.61 8,749 360 4.11
IRA certificates 7,673 465 6.06 6,022 348 5.78 3,425 164 4.79
--------- -------- --------- -------- --------- -------
Total interest bearing
deposits 226,276 12,060 5.33 167,721 9,047 5.39 98,130 3,824 3.90
Federal funds purchased,
repurchase agreements,
and other short-term
borrowings 27,481 1,542 5.61 12,175 703 5.77 7,534 447 5.93
Long-term borrowings 17,482 1,397 7.99 18,336 1,456 7.94 7,477 313 4.19
--------- -------- --------- -------- --------- -------
Total interest bearing
liabilities $ 271,239 $ 14,999 5.53% $ 198,232 $ 11,206 5.65% $ 113,141 $ 4,584 4.05%
--------- -------- --------- -------- --------- -------
Non-interest bearing
liabilities and equity:
Demand deposits $ 21,312 $ 16,589 $ 11,240
Other liabilities 1,582 1,572 1,005
Shareholders' equity 14,851 11,737 8,080
--------- --------- ---------
Total liabilities and
shareholders' equity $ 308,984 $ 228,130 $ 133,466
========= ========= =========
Net interest income $ 10,369 $ 8,046 $ 5,410
======== ======== =======
Net interest margin 3.50% 3.71% 4.27%
<FN>
- -----------------------------
<F1> Interest on non-accruing loans is not included for purposes of
calculating yields.
</TABLE>
- 13 -
<PAGE> 15
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
Compared to Compared to
1995 1994
----------------------------------------------- --------------------------------------------
Vol<F*> Vol<F*>
Volume<F1> Yield<F2> Rate Net Change Volume<F1> Yield<F2> Rate Net Change
---------- --------- -------- ---------- ---------- --------- -------- ----------
Interest earned on: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $ 7,448 $ (1,162) $ (541) $ 5,745 $ 6,471 $ 733 $ 578 $ 7,782
Taxable investment securities 399 85 12 496 783 300 137 1,220
Non-taxable securities 12 3 1 16 26 (2) (5) 19
Federal funds sold and
other investments (116) (41) 16 (141) 132 31 74 237
-------- --------- ------- -------- -------- ------- ------- --------
Total interest income 7,743 (1,115) (512) 6,116 7,412 1,062 784 9,258
-------- --------- ------- -------- -------- ------- ------- --------
Interest paid on:
Money market accounts 1,738 130 266 2,134 105 205 43 353
NOW accounts 36 2 -- 38 (9) -- -- (9)
Savings deposits 9 (43) (1) (35) 81 49 45 175
Certificates of deposit 423 (11) (1) 411 1,752 868 605 3,225
Certificates of deposit
over $100,000 388 (34) (8) 346 853 131 311 1,295
IRA certificates 95 17 5 117 124 34 26 184
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 884 (19) (24) 841 216 85 52 353
Long-term borrowings (68) 9 -- (59) 595 184 267 1,046
-------- --------- ------- -------- -------- ------- ------- --------
Total interest expense 3,506 51 236 3,793 3,717 1,556 1,349 6,622
-------- --------- ------- -------- -------- ------- ------- --------
Net interest income $ 4,237 $ (1,166) $ (748) $ 2,323 $ 3,695 $ (493) $ 565 $ 2,636
======== ========= ======= ======== ======== ======= ======= ========
<CAPTION>
1994
Compared to
1993
-----------------------------------------------
Vol<F*>
Volume<F1> Yield<F2> Rate Net Change
---------- --------- -------- ----------
Interest earned on:
<S> <C> <C> <C> <C>
Loans $ 2,802 $ 449 $ 268 $ 3,519
Taxable investment securities 703 124 112 939
Non-taxable securities 13 -- -- 13
Federal funds sold and
other investments (73) 29 (18) (62)
-------- --------- ------- --------
Total interest income 3,445 602 362 4,409
-------- --------- ------- --------
Interest paid on:
Money market accounts 115 10 3 128
NOW accounts 32 (6) 1 27
Savings deposits 6 (2) -- 4
Certificates of deposit 632 82 34 748
Certificates of deposit
over $100,000 325 14 18 357
IRA certificates 77 -- -- 77
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 264 18 129 411
Long-term borrowings 301 (49) (95) 157
-------- --------- ------- --------
Total interest expense 1,752 67 90 1,909
-------- --------- ------- --------
Net interest income $ 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 tables
above.
</TABLE>
- 14 -
<PAGE> 16
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.
- 15 -
<PAGE> 17
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>
- 16 -
<PAGE> 18
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 the Company's customers. Additionally, the
Company 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
the Company'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, the Company 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 the Company 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. The Company attributes a substantial portion of these
efficiency gains to the cost improvement program that it has undertaken. In
addition to the Bank's increased efficiency, in 1995, the FDIC announced that
deposit insurance premiums would be reduced from $.23 per $100 to the base
amount of $2,000 per year. As a result, the Company's deposit insurance
premiums expense decreased $148,000 in 1996, compared to 1995.
- 17 -
<PAGE> 19
The following table sets forth the Company'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 Company's Board of Directors approved the
Phantom Stock Plan (the "Plan") for the President of the Company, under which
the Company agreed to pay a cash award to the President based upon the
increase in book value of 48,400 shares of the Company's 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 the Company terminates. The Company 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
- 18 -
<PAGE> 20
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 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. The Company'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 the Company's market area.
The objective of the committee is to minimize the Company's earnings
sensitivity when subjected to volatile interest rate movements, while
maintaining a net interest margin to support the Company'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.
- 19 -
<PAGE> 21
The following table presents the Company'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 Months 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
The Company'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 the Company'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 Missouri
Division of Finance (the "Division of Finance"), while the Company is subject
to regulation and supervision by the Federal Reserve Bank ("FRB"). 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.
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
- 20 -
<PAGE> 22
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 the Company 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 the Company.
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 the Company with additional collateral protection.
While the Company traditionally has focused on small- to
mid-sized commercial lending, the Mortgage Company has enabled the Company 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
- 21 -
<PAGE> 23
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>
- 22 -
<PAGE> 24
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.
</TABLE>
- 23 -
<PAGE> 25
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 the Company'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 the Company'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.
- 24 -
<PAGE> 26
The book value of investment securities for the periods indicated
were as follows:
<TABLE>
<CAPTION>
Investment Portfolio
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>
Weighted Over One Weighted Over Five Weighted Weighted
One Year Average Through Average Through Average Over Ten Average
or Less Yield Five Years Yield Ten Years Yield Years Yield
-------- -------- ---------- -------- --------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States Treasury securities $ 1,505 4.96% $ 6,436 6.10% $ -- --% $ -- --%
Obligations of United States
government agencies 9,199 4.54 18,887 5.52 500 6.69 18,131<F1> 6.24
Federal Home Loan Bank stock 4,462 7.00 -- -- --
States and political subdivisions 230 4.49 542 5.59 400 5.31 27 5.00
Less unrealized loss on securities
held available-for-sale 35 -- -- -- -- -- -- --
Other -- -- 205 -- -- -- -- --
-------- -------- -------- ---------
- --
Total investment securities $ 15,431 5.29% $ 26,070 5.62% $ 900 6.08% $ 18,158 6.24%
======== ======== ======== =========
Total portfolio $ 60,559 5.70%
=========
<FN>
- -------------------------------------
<F1> Securities are adjustable-rate mortgages tied to the one-year Constant
Maturity Treasury index. Due to principal prepayments, management
estimates these securities will have an estimated life of five to seven
years during normal market conditions.
</TABLE>
Asset Quality
The Bank's allowance for possible loan losses increased 46%, from
$2.1 million on December 31, 1995 to $3.1 million on December 31, 1996. The
majority of this increase was due to the provision of $1.4 million to the
reserve for possible loan losses during 1996. The reserve for loan losses is
budgeted by using a risk weighting system based upon the different risk
categories of loans. The
- 25 -
<PAGE> 27
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. The
Company 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. The Company
believes that the allowances for possible loan losses at December 31, 1996
were consistent with applicable regulatory requirements.
- 26 -
<PAGE> 28
The following table summarizes, for the periods presented,
non-performing assets by category:
<TABLE>
Risk Elements--Nonaccrual, Past Due and Restructured Loans
<CAPTION>
December 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial, agricultural and all other loans:
Past due 90 days or more $ 5 $ 113 $ -- $ -- $ --
Non-accrual 207 109 40 -- --
Restructured terms -- -- -- -- --
Real estate--construction:
Past due 90 days or more 264 36 90 -- 20
Non-accrual 84 20 35 11 --
Restructured terms -- 3 -- -- --
Real estate--mortgage:
Past due 90 days or more -- -- -- -- --
Non-accrual -- -- -- -- --
Restructured terms -- -- -- -- --
Installment loans to individuals:
Past due 90 days or more 23 12 8 -- 3
Non-accrual 109 15 -- 3 --
Restructured terms -- -- -- -- --
--------- --------- --------- --------- ---------
Total non-performing loans: $ 692 $ 308 $ 173 $ 14 $ 23
========= ========= ========= ========= =========
Other real estate -- 10 25 -- --
--------- --------- --------- --------- ---------
Total non-performing assets: $ 692 $ 318 $ 198 $ 14 $ 23
========= ========= ========= ========= =========
Gross interest income that would have been recorded
in the period if the loans had been current in
accordance with the original terms and had been
outstanding throughout the period or since
origination:
Loans accounted for on
a non-accrual basis $ 57 $ 30 $ 16 $ 1 $ 1
Loans with restructured terms -- -- -- -- --
Balance sheet information (at year-end):
Total assets $ 377,564 $ 280,386 $ 171,927 $ 104,416 $ 68,782
Loans outstanding 291,926 181,544 121,393 69,733 45,600
Shareholders' equity 16,386 13,938 8,453 7,487 3,894
Allowance for possible loan loss 3,100 2,130 1,455 775 550
Ratios:
Non-performing loans to total loans outstanding 0.24% 0.17% 0.14% 0.02% 0.05%
Non-performing assets to total assets 0.18 0.11 0.12 0.01 0.03
Non-performing loans to shareholders' equity 4.22 2.28 2.34 0.19 0.59
Reserve for possible loan losses to total loans 1.06 1.17 1.20 1.11 1.21
Reserve for possible loan losses
to non-performing loans 447.98 691.56 841.04 5,535.71 2,391.30
(Table continued on following page)
- 27 -
<PAGE> 29
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 FHLB of
Des Moines. 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:
- 28 -
<PAGE> 30
<TABLE>
Deposits
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ------------------------------- ---------------------------------
Percent Percent Percent
of Total of Total of Total
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- ---- ------ -------- ---- ------ -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits $ 29,406 9.53% --% $ 21,966 9.50% --% $ 15,785 11.70% --%
NOW accounts 10,711 3.47 2.37 9,087 3.93 2.35 8,394 6.22 2.37
Money market
accounts 74,490 24.13 4.88 53,905 23.30 4.23 18,771 13.92 3.00
Savings deposits 6,083 1.97 3.25 8,896 3.85 3.88 3,736 2.77 2.49
Certificates of deposit 128,407 41.60 5.90 97,460 42.13 5.91 69,688 51.67 4.39
Certificates of deposit
over $100,000 50,825 16.47 5.50 33,140 14.33 5.61 14,453 10.72 4.11
IRA certificates 8,748 2.83 6.06 6,855 2.96 5.78 4,057 3.01 4.79
--------- ------ --------- ------ --------- ------
Total deposits $ 308,670 100.00% 5.33% $ 231,309 100.00% 5.39% $ 134,884 100.00% 3.90%
========= ====== ========= ====== ========= ======
</TABLE>
<TABLE>
Amounts and Maturities of Time Deposits of $100,000 or More <F1>
<CAPTION>
December 31, 1996
-----------------
(In thousands)
<S> <C>
Three months or less $ 30,526
Over three months through six months 8,772
Over six through twelve months 7,357
Over twelve months 4,170
---------
Total $ 50,825
=========
<FN>
- ----------------------
<F1> As of December 31, 1996 the Bank had no outstanding time certificates of
deposit or time deposits in amount of $100,000 or more issued by foreign
banking offices.
</TABLE>
Liquidity Management
The Bank seeks to maintain a level of liquidity which will
provide a readily available source of funds for new loans, allowing it to
meet loan commitments and other obligations on a timely basis. Historically,
the Bank has been loan driven, which means that as loans have increased, the
Bank has taken action to increase the level of core deposits and, depending
on market conditions, access cost effective alternative sources of short-term
funding.
Increasing core deposits generally involves the use of
promotions, paying premium rates coupled with advertising to attract new
customers to the Bank. Where possible, the Bank has timed a deposit
promotion to coincide with the opening of a new branch in order to achieve
maximum growth in deposits. It has been the Bank's experience that the
majority of deposits raised through these promotions have remained at the
Bank after the promotion is over and so have provided a steadily growing base
of core deposits at the Bank. In addition to the above-described sources,
the steady flow of maturing securities provides a source of liquidity.
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
- 29 -
<PAGE> 31
to promotions offering above-market interest rates. Payment of premium
interest rates by the Bank adversely affects the Bank's interest rate spread.
Moreover, the Bank's concentration of deposits in certificates of deposit
could have a negative impact on the stability of its deposits as purchasers of
certificates of deposit may not redeposit the proceeds of their certificates
of deposit after the certificates of deposit mature, particularly if the Bank
then is not offering promotional rates. There can be no assurance the
concentration of the Bank's deposits in certificates of deposit will not have
a material adverse effect on the Bank's future results of operation or
liquidity.
Management anticipates continued loan demand in the Bank's market
area as bank consolidation continues and fewer middle market lenders serve
the area. In order to maintain the flexibility to fund this growth, the Bank
has entered into an agreement with the FHLB providing the Bank a credit
facility secured by the Bank's assets with current availability of $71.8
million of which $34.8 million was outstanding as of December 31, 1996. This
resource should provide the Bank the opportunity to expand further the loan
portfolio with the flexibility to increase deposits when conditions best
match the Bank's needs and resources.
The following table summarizes short-term borrowings for the
periods indicated:
<TABLE>
Average Short-Term Borrowings
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1996 1995 1994
-------------------- ------------------- --------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
-------------------- ------------------- --------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal funds purchased $ 2,737 5.33% $ 679 6.27% $ 1,110 4.13%
Securities sold under agreement
to repurchase and other
short-term borrowings 24,744 5.65% 11,496 5.75% 6,424 4.33%
-------- -------- --------
Total $ 27,481 5.61% $ 12,175 5.77% $ 7,534 5.93%
======== ======== ========
Total maximum short-term borrowings
outstanding at any month-end
during the year $ 51,060 $ 14,108 $ 17,406
</TABLE>
The Bank experienced a period of strong loan demand during the
third quarter of 1996, which affected its short-term liquidity. A large
portion of the loan demand was in the form of one- to four-family real estate
loans, some of which were swapped for mortgage-backed securities during the
fourth quarter of 1996. The Bank's Asset/Liability Committee monitors its
liquidity position daily and seeks consistently to guard against an
inadequate liquidity position.
From December 31, 1995 to December 31, 1996, short-term
borrowings increased substantially. The rates paid for these borrowings are
significantly less than those required to increase the deposit base. This
strategy benefited earnings, as well as improved efficiency by bringing in a
large block of funding at one time. The Bank expects that borrowings
maturing in 1997 will be replaced by similar borrowings if the rate advantage
is still in existence. As of December 31, 1996, the Bank had approximately
$58.3 million in availability from several borrowing sources, including
commercial banks and the FHLB, and is now eligible for additionally
discounted funds from the FHLB due to its "Outstanding" Community
Reinvestment Act rating.
- 30 -
<PAGE> 32
Capital Resources
From December 31, 1995 to December 31, 1996, the Company's
shareholders' equity increased from $13.9 million to $16.4 million, primarily
due to net income of $1.8 million less dividends paid of $187,000 and the
conversion of 504,000 in subordinated debentures into 57,728 shares of Common
Stock in the fourth quarter of 1996. Over the years, issuance of Common
Stock and net income has provided the majority of the Company'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 the Company,
Tier 1 capital includes total shareholders' equity less goodwill. Tier 2
capital is comprised of the reserve for loan and lease losses (within certain
limits), perpetual preferred stock not included in Tier 1, hybrid capital
instruments, term subordinated debt and intermediate-term preferred stock.
Bank holding companies are required to meet a minimum ratio of 8% of
qualifying total capital to risk-adjusted assets and a minimum ratio of 4% of
qualifying Tier 1 capital to risk-adjusted assets. Capital that qualifies as
Tier 2 capital is limited in amount to 100% of Tier 1 capital.
As of December 31, 1996, the Company's and Bank's capital ratios
were as follows:
<TABLE>
<CAPTION>
Company 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 the
Company's long-term objectives. It provides safety and security for
depositors, and it enhances the potential for increases in Company value for
shareholders by providing opportunities for growth with the selective use of
leverage.
The Company'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 the Company's bank stock loan was $4.4 million and matures in
December 1999. The loan agreement contains certain restrictions on the
Company's ability to pay cash dividends. Although there can be no assurance
regarding the payment of future dividends, the Company believes the loan
agreement will not inhibit its ability to pay regular dividends at the
current rate. Additionally, the Company has $3.3 million of outstanding
subordinated debentures due in 2002.
In February 1997, the Company 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. The Company believes that the proceeds of the rights
- 31 -
<PAGE> 33
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.
The capitalization of the Company as of December 31, 1996 was as
follows:
<TABLE>
<CAPTION>
December 31, 1996
-----------------
(In thousands)
<S>
Long-term debt: <C>
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, the Company completed a rights offering
pursuant to which it received net proceeds of $5.2 million and issued
567,750 shares of Common Stock.
</TABLE>
- 32 -
<PAGE> 34
ACCOUNTING CHANGES
In May 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 122,
Accounting for Mortgage Servicing Rights, an amendment to SFAS No. 65,
Accounting for Certain Mortgage Banking Activities. SFAS No. 122 requires
entities to allocate the cost of acquiring or originating mortgage loans
between the mortgage servicing rights and the loans, based on their relative
fair values, if the entities sell or securitize the loans and retain the
mortgage servicing rights. In addition, SFAS No. 122 requires entities to
assess their capitalized mortgage servicing rights for impairment based on
the fair value of those rights. SFAS No. 122 is effective for fiscal years
beginning after December 15, 1995. The application of this pronouncement did
not have a material effect on the financial statements of the Company.
In October 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS allows companies to continue to account for
their stock option plans in accordance with Accounting Principals Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), but
encourages the adoption of a new accounting method based on the estimated
fair value of employee stock options. Companies electing not to follow the
new fair value based method are required to provide expanded footnote
disclosures, including pro forma net income and earnings per share,
determined as if they had applied the new method. SFAS No. 123 is required
to be adopted prospectively beginning January 1, 1996. The Company continues
to account for stock option grants in accordance with APB 25 and,
accordingly, recognizes no compensation expense for its stock option grants.
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 the Company.
- 33 -
<PAGE> 35
ITEM 7. FINANCIAL STATEMENTS
[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 the Company'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
<PAGE> 36
<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> 37
<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> 38
<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> 39
<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> 40
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, Missouri metropolitan
area 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, the Company
categorizes each security within its portfolio into one of the following
three permitted classifications:
Held-to-maturity securities are securities which the Company 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.
F-6
<PAGE> 41
ALLEGIANT BANCORP, INC.
SUMMARY OF ACCOUNTING POLICIES
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.
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
the Company adopted effective January 1, 1996. SFAS No. 122 amended SFAS
No. 65, Accounting for Certain Mortgage Banking Activities. The overall
impact on the Company'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. The Company 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
F-7
<PAGE> 42
ALLEGIANT BANCORP, INC.
SUMMARY OF ACCOUNTING POLICIES
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 the Company.
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, the Company considers cash and due from banks, federal funds sold and
other overnight investments to be cash equivalents.
Stock-Based Compensation. The Company 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. The Company 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, the Company
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 the Company 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.
F-8
<PAGE> 43
ALLEGIANT BANCORP, INC.
SUMMARY OF ACCOUNTING POLICIES
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 the Company.
F-9
<PAGE> 44
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
======== ====== ====== ======== ======== ====== ====== ========
<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.
F-10
<PAGE> 45
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 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.
F-11
<PAGE> 46
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
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.
F-12
<PAGE> 47
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
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 the
Company'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.
F-13
<PAGE> 48
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INCOME TAXES:
The Company's results include income tax expense as follows (in
thousands):
<TABLE>
<CAPTION>
Year 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. The Company has not established a valuation allowance as of
December 31, 1996 or 1995, due to management's belief that all criteria for
recognition 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>
F-14
<PAGE> 49
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
Under the terms of the note payable to the financial institution,
the Company 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 the Company'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 the Company, subject to certain conditions, and are
subordinate to all senior debt of the Company.
F-15
<PAGE> 50
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, the Company'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 the Company'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 the Company's Common Stock.
On October 19, 1995, the Company'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 the Company's Common Stock.
On October 20, 1994, the Company's Board of Directors approved a
two-for-three stock split of the Company'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:
The Company 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 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.
F-16
<PAGE> 51
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Additionally, the Company 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, the Company 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:
The Company 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, the Company had
four stock-based compensation plans which are described below. As discussed
in the Summary of Accounting Policies, the Company 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 the Company'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, the Company'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, the Company has four fixed stock option
plans. Under these plans, the Company 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 the
Company'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-17
<PAGE> 52
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company'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, the Company's Board of
Directors approved a Phantom Stock Plan for the President, under which the
Company agreed to pay a cash award to the President of the Company 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-18
<PAGE> 53
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>
F-19
<PAGE> 54
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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, the Company 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 the Company'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 the Company 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.
F-20
<PAGE> 55
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 the Company's long-term debt is
based on quoted market prices for similar issues or estimates using
discounted cash flow analyses, based on the Company'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. The Company 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,
the Company 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 the Company's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of the Company'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.
F-21
<PAGE> 56
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. SUBSEQUENT EVENT:
In January of 1997, the Company 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,
the Company 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 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.
F-22
<PAGE> 57
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
$ 20,767 8.0% $ 25,959 10.0%
Tier 1 Capital
(to Risk-Weighted Assets) $ 23,018 8.9% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
$ 10,384 4.0% $ 15,575 6.0%
Tier 1 Capital
(to Average Assets) $ 23,018 6.4% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
$ 14,449 4.0% $ 18,061 5.0%
As of December 31, 1995:
Total Capital
(to Risk-Weighted Assets) $ 24,230 14.4% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
$ 13,462 8.0% $ 16,828 10.0%
Tier 1 Capital
(to Risk-Weighted Assets) $ 22,100 13.1% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
$ 6,731 4.0% $ 10,097 6.0%
Tier 1 Capital
(to Average Assets) $ 22,100 8.6% greater than greater than greater than greater than
or equal to or equal to or equal to or equal to
$ 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 the Company 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-23
<PAGE> 58
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
Not applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
---------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
-------------------------------------------------
Information regarding the Company's directors is contained in the
Company's Proxy Statement for the 1997 Annual Meeting of Shareholders under
the caption "Item 1. Election of Directors" and is incorporated herein by
reference. Information regarding the Company's executive officers is
contained in this report under Item 4A--"Executive Officers of the
Registrant" and is incorporated herein by reference.
Information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934 is included in the Company's Proxy Statement
for the 1997 Annual Meeting of Shareholders under the caption "Compliance
with Section 16(a) of the Securities Exchange Act of 1934," and is
incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
Information regarding executive compensation is contained in the
Company's Proxy Statement for the 1997 Annual Meeting of Shareholders under
the captions "Board of Directors and Committees," "Directors' Fees" and
"Compensation of Executive Officers," and is incorporated herein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Information regarding security ownership of certain beneficial
owners and management is contained in the Company's Proxy Statement for the
1997 Annual Meeting of Shareholders under the caption "Security Ownership of
Certain Beneficial Owners and Management," and is incorporated herein by
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information regarding certain relationships and related
transactions is contained in Company's Proxy Statement for the 1997 Annual
Meeting of Shareholders under the captions "Certain Relationships and Related
Transactions" and "Board of Directors and Committees," and is incorporated
herein by reference.
- 35 -
<PAGE> 59
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
<TABLE>
<CAPTION>
Ex. No. Description
- ------- -----------
<C> <S>
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.
10.1 Term Loan Agreement, dated as of August 31, 1990, by and
between Mercantile Bank of St. Louis National Association
and the Company, filed as Exhibit 10.1 to Registrant's
Registration Statement on Form 10-SB (Reg. No. 0-26350) is
hereby incorporated by reference.
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 the Company, 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 the Company, 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 the Company is filed herewith.
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.
- 36 -
<PAGE> 60
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 is filed herewith.
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.
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.
11.1 Statement re: Computation of Per Share Earnings is filed
herewith.
21.1 Subsidiaries of the Registrant is filed herewith.
24.1 Consent of BDO Seidman, L.L.P. is filed herewith.
27.1 Financial Data Schedule is filed herewith.
</TABLE>
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the three months
ended December 31, 1996.
- 37 -
<PAGE> 61
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized.
ALLEGIANT BANCORP, INC.
(Registrant)
By /s/ Marvin S. Wool
-------------------------------------
Marvin S. Wool, Chairman of the Board
and Chief Executive Officer
By /s/ S. Kay Love
-------------------------------------
S. Kay Love, Vice President and Chief
Financial Officer
In accordance with the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Marvin S. Wool Chairman of the Board March 14, 1997
- ------------------------------ and Chief Executive Officer
Marvin S. Wool
/s/ Shaun R. Hayes President and Director March 14, 1997
- ------------------------------
Shaun R. Hayes
/s/ Leland B. Curtis Director March 14, 1997
- ------------------------------
Leland B. Curtis
/s/ Kevin R. Farrell Director March 14, 1997
- ------------------------------
Kevin R. Farrell
/s/ Leon A. Felman Director March 14, 1997
- ------------------------------
Leon A. Felman
/s/ C. Virginia Kirkpatrick Director March 14, 1997
- ------------------------------
C. Virginia Kirkpatrick
/s/ Charles E. Polk Director March 14, 1997
- ------------------------------
Charles E. Polk
/s/ John T. Straub Director March 14, 1997
- ------------------------------
John T. Straub
/s/ Lee S. Wielansky Director March 14, 1997
- ------------------------------
Lee S. Wielansky
</TABLE>
- 38 -
<PAGE> 1
MODIFICATION AND EXTENSION AGREEMENT
------------------------------------
THIS MODIFICATION AND EXTENSION AGREEMENT (this "Agreement") is made
as of November 26, 1996, by and between ALLEGIANT BANCORP, INC., a Missouri
corporation ("Borrower"), and MERCANTILE BANK NATIONAL ASSOCIATION, formerly
known as Mercantile Bank of St. Louis National Association, a national banking
association ("Lender").
W I T N E S S E T H:
WHEREAS pursuant to a certain Amended and Restated Term Loan Agreement
executed by Borrower and Lender on May 31, 1995 (the "Loan Agreement"),
Borrower executed a certain Amended and Restated Term Loan Promissory Note
payable to Lender dated May 31, 1995, in the original principal amount of
$5,000,000.00 (the "Note");
WHEREAS, the Loan Agreement and Note are described in and secured by a
certain Amended and Restated General Pledge and Security Agreement, executed
by Borrower in favor of Lender on May 31, 1995, and covering the property as
more particularly described therein (the "Pledge");
WHEREAS, the Loan Agreement and Note are further described and secured
by a certain Assignment of Life Insurance Policy as Collateral executed by
Borrower in favor of Lender on December 29, 1993, on the life of Shaun R.
Hayes (the "Assignment");
WHEREAS, Borrower desires to modify and extend the terms of the Loan
Agreement and the Note in the manner set forth herein and Lender is willing
to agree to said modification and extension on the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the premises, and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Borrower and Lender hereby agree as follows:
1. The Loan Agreement is hereby amended and modified as follows:
a) The first sentence of Section 1 (Term) of the Loan Agreement
is deleted and substituted with the following:
"The "Term" of this Agreement shall commence on August 31,
1990, and shall end on December 31, 1999."
b) The fifth sentence of Section 3.01 (Term Loan) of the Loan
Agreement is deleted and substituted with the following:
"The Note matures on December 31, 1999 on which date all unpaid
principal and all accrued and
<PAGE> 2
unpaid interest thereon shall become due and payable."
c) Section 3.02 (Interest Rates) of the Loan Agreement is deleted
and substituted with the following:
"3.02 Interest Rates. The Note shall bear interest prior to
--------------
maturity at a rate per annum equal to the Prime Rate of Lender
in effect from time to time during the period when the Note is
outstanding, with changes in the interest rate taking effect on
the date a change in the Prime Rate is made effective generally
be Lender. From and after the maturity of the Note, whether by
reason of acceleration or otherwise, the entire unpaid principal
balance of the Note shall bear interest payable on demand until
paid at a rate per annum equal to Two Percent (2%) over and above
the Prime Rate, fluctuating as aforesaid. Interest shall be
computed with respect to the Note on an actual day, 360-day
year basis."
d) Section 5.09 (Equity Capital Floor) is deleted and substituted
with the following:
"5.09 Equity Capital Floor. Cause the Subsidiary Bank to maintain
--------------------
Equity Capital at all times in an amount which equals or exceeds
the greater of: (a) $23,000,000.00; or (b) the amount of Equity
Capital required, directly or indirectly, of the Subsidiary
Bank by or by reason of any law, regulation, rule or order of any
Regulatory Agency having jurisdiction over Borrower or the
Subsidiary Bank (whether such law, regulation, rule or order
deals with Equity Capital as herein defined or with some other
capital definition), all as determined in accordance with
generally accepted accounting principles consistently applied."
e) The first sentence of Section 5.10 (Ratio of Total Equity
Capital to Total Tangible Assets) is deleted and substituted
with the following:
"5.10 Ratio of Total Equity Capital to Total Tangible Assets.
------------------------------------------------------
Cause the Subsidiary Bank to maintain at all times during the
Term of this Agreement a ratio of total Equity Capital divided
by total tangible assets, determined in accordance with generally
accepted accounting principles consistently applied, which equals
or exceeds the greater of: (a) Six and One-Half Percent (6.5%);
or (b) the percentage required to be maintained by the
Subsidiary Bank by or reason of any law,
2
<PAGE> 3
regulation, rule or order of any Regulatory Agency having
jurisdiction over Borrower or the Subsidiary Bank."
f) Section 5.13 (Minimum Net Income) is deleted and substituted
with the following:
"5.13 Minimum Net Income. Cause the Subsidiary Bank to have a Net
------------------
Income of at least $1,750,000.00 during each calendar year
commencing with the calendar year ending December 31, 1996."
g) Section 6.04 (Distributions) is deleted and substituted with
the following:
"6.04 Distributions. Declare or incur any liability to make any
-------------
Distribution in respect of the capital stock of Borrower or the
capital stock of the Subsidiary Bank, except that: (a) the
Subsidiary Bank shall be permitted to pay cash dividends to
Borrower to the extent necessary to pay Borrower's Obligations
then due and payable to Lender and which are actually applied
toward payment of Borrower's Obligations; and (b) so long as (i)
no Default or Event of Default under this Agreement has occurred
and is continuing or would be created by or result from the
payment of such dividends, and (ii) Lender has consented in
writing to the payment of such dividends, (A) Borrower shall be
permitted to declare and pay cash dividends on its capital stock
in an aggregate amount of up to Two Hundred Fifty Thousand
Dollars ($250,000.00) during each calendar year ending during
the Term of this Agreement, and (B) the Subsidiary Bank shall
be permitted to declare and pay cash dividends on its capital
stock in an aggregate amount of up to Two Hundred Fifty Thousand
Dollars ($250,000.00) during each calendar year during the Term
of this Agreement."
2. The first paragraph of the Note is deleted and substituted with
the following:
"FOR VALUE RECEIVED, the undersigned, ALLEGIANT BANCORP, INC., a
Missouri corporation ("Borrower"), hereby promises to pay to the
order of MERCANTILE BANK NATIONAL ASSOCIATION, formerly known as
Mercantile Bank of St. Louis National Association, a national
banking association ("Lender"), the principal sum of Four Million
Four Hundred Thousand Dollars ($4,400,000.00) in four (4)
installments as follows:
3
<PAGE> 4
<TABLE>
<CAPTION>
Date Principal Amount of
Payment is Due Principal Payment
-------------- -----------------
<S> <C>
November 30, 1997 $400,000.00
November 30, 1998 $400,000.00
November 30, 1999 $400,000.00
December 31, 1999 Entire Outstanding
Principal Balance
</TABLE>
Borrower further promises to pay to the order of lender interest
on the unpaid principal balance from time to time outstanding
under this Note prior to maturity at a rate per annum equal to
the interest rate announced from time to time by Lender as its
"prime rate" on commercial loans (which rate shall fluctuate as
and when said prime rate shall change). Said interest shall be
payable quarterly on the first (1st) day of each February, May,
August and November commencing February 1, 1997, and at the
maturity of this Note, whether by reason of acceleration or
otherwise. From and after the maturity of this Note, whether by
reason of acceleration or otherwise, interest shall accrue and
be payable on demand on the entire outstanding principal balance
of this Note at a rate per annum equal to Two Percent (2%) over
and above the Prime Rate, fluctuating as aforesaid. All
payments hereunder shall be applied first to the payment of all
accrued and unpaid interest, with the balance, if any, to be
applied to the payment of principal."
3. The Loan Agreement and Note, as hereby modified and extended, is, and
shall continue to be, secured by the Pledge and the Assignment, and any
reference to the Loan Agreement and Note in such documents shall hereafter
be deemed to include the Loan Agreement and Note as hereby modified and
extended.
4. The Loan Agreement, Note, Pledge and Assignment are, and shall remain,
the binding obligations of Borrower, and all of the provisions, terms,
stipulations, conditions, covenants and powers contained therein shall stand
and remain in full force and effect, except only as the same are herein and
hereby expressly and specifically varied or amended, and the same are hereby
ratified and confirmed, and Lender reserves unto itself all rights and
privileges granted thereunder.
5. Borrower hereby reaffirms all representations, warranties, covenants
and agreements recited in the Loan Agreement, Note, Pledge and Assignment as of
the date hereof, and the same are hereby adopted as representations, warranties,
covenants and agreements of Borrower herein. Borrower further represents
and warrants that it is not in default under any of its obligations under the
Loan Agreement, Note, Pledge and
4
<PAGE> 5
Assignment and that it has full power and authority to execute and deliver
this Agreement, and that the execution and delivery hereof has been duly
authorized, and that all necessary and proper acts have been performed or
taken.
6. Borrower agrees to pay all expenses incurred by Lender in
connection with this Agreement, including, but not limited to, Lender's legal
fees. Said sums are payable on demand and are secured by the Pledge and
Assignment.
7. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR
RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT BORROWER AND LENDER FROM
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS BORROWER AND LENDER REACH
COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE
AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN BORROWER AND LENDER, EXCEPT
AS BORROWER AND LENDER MAY LATER AGREE IN WRITING TO MODIFY IT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BORROWER:
ALLEGIANT BANCORP, INC.
By: /s/ Shaun R. Hayes
----------------------------------
Shaun R. Hayes,
President
LENDER:
MERCANTILE BANK
NATIONAL ASSOCIATION
BY: /s/ Keith A. Francis
-----------------------------------
Keith A. Francis,
Vice President
5
<PAGE> 1
LEASE
This Lease made and entered into as of this 7th day of August, 1995,
by and between Hilvin Investment Corporation ("Lessor"), a Missouri
corporation with its principal office at 12301 Ronnie Lane, St. Louis,
Missouri 63127, and Allegiant Bank, a Missouri corporation with its principal
office at 4323 North Grand, St. Louis, Missouri 63107 ("Lessee"). For and in
consideration of the rents, covenants and agreements contained herein and
hereby agreed to be paid, the Lessor hereby leases to the Lessee, and the
Lessee hereby leases from the Lessor the premises hereinafter described, upon
the terms and conditions contained herein.
1. The Premises. The building and improvements located at 7421 South
------------
Lindbergh Boulevard, St. Louis County, Missouri, including the exclusive use
of not less than 11 parking spaces, and the non-exclusive use of all other
parking spaces, driveways and access roads in the "Ritz Center" strip shopping
center ("Strip Center") all as shown on the drawing attached hereto as
Exhibit A, and incorporated herein by this reference ("Premises"). The
location of the ATM and all signage shall be in accordance with that shown on
Exhibit A, subject to applicable laws and regulations.
2. Possession and Use. The Premises may be used for a commercial or
------------------
retail bank and all related purposes, including without limitation the
operation of a bank with drive-up window and drive-up ATM.
3. Term. The term of this Lease shall be for ten (10) years commencing
----
on the 1st day of January, 1996, and ending on the 31st day of December, 2005
("Initial Term"); provided however, that Lessee shall have immediate possession
of the building on August 2, 1995, and all rights and obligations of the
Lessor and Lessee applicable during the Lease term shall be equally applicable
from such date, except Lessee's obligations to pay Base Rent, real estate taxes
and common area costs, which obligations are specifically not imposed on
Lessee during this period; provided further, that if Lessee is not in default
under this Lease at the expiration of the Initial Term, Lessee shall have the
right to extend the term of this Lease for two (2) additional, consecutive
five (5) year terms ("Additional Term(s)"), upon the same terms and conditions
contained herein, except that the Annual Rental (as hereinafter defined) shall
be adjusted as set forth in Paragraph 4 herein (the Initial Term and any
Additional Terms are collectively referred to herein as "Term"). If Lessee
does not wish to extend the Initial Term or any Additional Term for an
Additional Term, Lessee shall provide Lessor with written notice thereof at
least six (6) months prior to expiration of the Initial or Additional Term,
as the case may be. In the absence of Lessee providing such notice, the Term
shall be deemed extended automatically.
<PAGE> 2
Notwithstanding the foregoing, Lessee shall have the absolute right to
terminate this Lease effective as of December 31, 2000, provided that Lessee
is not in default under this Lease at the time Lessee provides written notice
of termination to Lessor. Lessee shall provide Lessor with such written notice
on or before April 1, 2000, together with Ten Thousand Dollars ($10,000.00)
as a termination fee and shall continue to make required rental payments
through and including that due on December 1, 2000.
4. Annual Rental. During years one through five of the Initial Term,
-------------
Lessee shall pay to Lessor, beginning on the first day of January, 1996
("Rent Commencement Date") and continuing thereafter on the first day of each
month during years one through five of the Initial Term, monthly rent of
Two Thousand Three Hundred and no/100 Dollars ($2,300.00) ("Base Rent") in
advance, on the first day of each month thereafter. During years six through
ten of the Initial Term, the Base Rent shall be Three Thousand One Hundred and
no/100 Dollars ($3,100.00). During the Additional Terms, the Base Rent shall be
increased on the first day of such Additional Term (the "Adjustment Date") by
an amount equal to the Base Rent in the immediately preceding Initial or
Additional Term (as such Base Rent may have been increased or decreased in
accordance with this Paragraph) multiplied by the CPI Adjustment. The CPI
Adjustment is a fraction, the numerator of which is the "CPI" (as defined
herein) as reported three (3) months prior to the Adjustment Date, and the
denominator of which is determined as follows:
(i) As to the increase to be determined on the Adjustment Date for the
first Additional Term, the denominator is the CPI, as last reported for the
month of the Rent Commencement Date,
(ii) As to the increase to be determined on the Adjustment Date for the
second Additional Term, the denominator is the CPI as last reported for the
month of the Adjustment Date for the First additional Term.
The term "CPI" is the Consumer Price Index for All Urban Consumers for
All Cities for All Items (1982 - 1984 = 100) which is published monthly by the
Bureau of Labor Statistics of the U.S. Department of Labor.
5. Assignment. This Lease may not be assigned, subleased or transferred
----------
without the Lessor's written consent, which consent shall not be unreasonably
withheld. If this Lease is assigned or the Premises or any part thereof sublet
without the written consent of the Lessor, or if the Lessee shall become the
subject of a court proceeding in bankruptcy or liquidating receivership or
shall make an assignment for the benefit of creditors, this lease may by such
fact or unauthorized act be cancelled at the option of the Lessor. Any
assignment of this
2
<PAGE> 3
lease or subletting of said Premises or any part thereof with the written
consent of the Lessor shall not operate to release the Lessee from the
fulfillment on Lessee's part of the covenants and agreements herein contained
to be by said Lessee performed, nor authorize any subsequent assignment or
subletting without the written consent of the Lessor.
6. Alterations & Additions by Lessee. Lessee shall not make any
---------------------------------
alterations or additions to the Premises nor make any contract therefor,
without first procuring Lessor's written consent, which shall not be
unreasonably withheld or delayed. All alterations, additions and improvements
made by Lessee to or upon the Premises except signs, cases, counters, or other
removable trade fixtures, shall at once, when made or installed, be deemed to
have attached to the freehold and to have become the property of Lessor. Any
trade fixtures or other personal property of the Lessee not permanently
affixed to the Premises shall remain the property of the Lessee and, provided
that Lessee is not in default under the terms of this lease, Lessee shall have
the right to remove the same from the Premises at any time during the lease
term. Lessee, at its expense, shall immediately repair any damage occasioned
to the Premises by reason of removal of any such trade fixtures or other
personal property.
Any penetration of the roof membrane made on the account of Lessee shall
be made only by roofers approved by Lessor, which shall not be unreasonably
withheld or delayed, and at Lessee's sole expense. Any repairs to the roof
required as a result of any acts of Lessee or its contractors shall be made by
Lessee at Lessee's sole expense. Lessee agrees to pay when due all sums of
money that become due for, or purporting to be due for, any labor, services,
materials, supplies or equipment alleged to have been furnished or to be
furnished to or for Lessee or its account, in, upon or about the Premises and
which may be secured by any mechanic's or other lien against the Premises
and/or Lessor's interest therein ("Lessee's Lien"). Lessor shall have the
right,but not the obligation (i) to demand that Lessee cause each such
Lessee's Lien to be fully discharged and released, (ii) to require Lessee to
promptly deposit with Lessor a surety bond in an amount sufficient, as
reasonably determined by Lessor, to protect and indemnify Lessor from any
and all loss or liability for any Lessee's Lien.
7. Lessee's Free Standing ATM Facility. Lessor hereby agrees that the
-----------------------------------
Lessee may install a free standing ATM facility on the single parking space
shown on the site plan attached hereto as Exhibit "A", with said parking space
being marked "ATM" on site plan. Said ATM facility shall not occupy any more
space than that of the said designated parking space, and further shall be
accessible or usable from one side only, that being the Strip Center driveway
aisle of said parking space. It shall be the Lessee's sole cost, expense and
responsibility to install,
3
<PAGE> 4
maintain and provide security for said ATM facility. Lessee does not believe
that approval of St. Louis County is necessary to construct the ATM facility,
but if Lessee learns that such approval is required, Lessee agrees to notify
Lessor that Lessee has applied to St. Louis County for approval to construct
and operate the ATM facility at the time Lessee submits such application.
8. Repairs. Lessor shall keep the foundations and structural supporting
-------
members of the Premises in good order, condition and repair. Lessee agrees to
keep clean, repair and maintain in good order and condition and to replace
whenever necessary all portions of the Premises not enumerated in paragraph 11
including but not limited to the nonstructural interior portions of the
Premises, the show windows and moldings, doors, closures, windows, plate and
window glass, the floors, and to assume and pay for the general maintenance,
cleaning, repair and replacement where necessary of the plumbing, electric and
sewage systems, facilities, and appliances which are located within the
interior of the Premises, and the entire heating and air conditioning system.
Lessee shall, at its expense in the spring and fall of each year, have a
preventative maintenance service call made by a reputable contractor acceptable
to Lessor for the purpose of inspecting, cleaning, maintaining and servicing
the heating and air conditioning system. Lessee shall make available upon the
request of Lessor a copy of the service report or paid invoice by June 1st and
November 1st respectively. Lessor, at its option, may have said spring and fall
service calls performed, the cost of which shall be paid by Lessee. Lessee will
keep the inside and outside of all glass in the doors and windows of the
Premises clean. Should Lessee fail to maintain and repair Premises as deemed
necessary by Lessor, Lessor may make such repairs at Lessee's expense and
Lessee shall promptly reimburse Lessor for the cost thereof. The Lessor or its
legal representatives may, at all reasonable hours, enter upon said Premises
for the purpose of examining the condition thereof and making such repairs as
Lessor deems necessary and to exhibit Premises to prospective purchasers or
lessees. Lessor shall not interrupt or interfere with Lessee's use of the
Premises in connection with such inspections or repairs except as may be
reasonably necessary under the circumstances.
9. Damage to Premises. If the Premises shall be damaged by fire or
------------------
other casualty so as to render the premises partially or totally untenantable
for 90 days, Lessor or Lessee may elect to cancel this Lease by written notice
of cancellation given within 30 days after the date of such damage or other
casualty and thereupon this Lease shall cease and terminate, and Lessee
shall vacate and surrender the Premises to Lessor. Upon termination of this
Lease as aforesaid, Lessee's liability for the rents reserved hereunder shall
cease as of the effective date of the termination of this Lease. Unless this
Lease is
4
<PAGE> 5
terminated as aforesaid, this Lease shall remain in full force and effect and
Lessor shall repair and restore, as expeditiously as reasonable possible, the
Premises to a condition at least as good as prior to the fire or other
casualty. Lessee shall replace its trade fixtures, decorations, and contents
in the Premises in a manner and to at least a condition equal to that existing
prior to the damage or destruction. The proceeds of all insurance carried by
Lessor or Lessee on the Premises shall be used for the purpose of such repair,
restoration or replacement of the Premises, trade fixtures, decorations and
content. If this Lease is not terminated as aforesaid, rent shall be
reasonably abated during any time period after such damage or casualty in which
the Premises are partially or totally untenantable.
10. Real Estate Taxes. As additional fixed minimum rental for each
-----------------
calendar year of the term of this lease and any renewal thereof, Lessee
covenants and agrees to pay its pro-rata share of all real estate taxes
(including assessments for local improvements) levied or assessed upon the
Strip Center or any part thereof, for each calendar year during the term
hereof. Lessee's pro-rata share of real estate taxes shall be Eleven &
Three-Fourths Per Cent (11.75%) which is based on the real estate taxes
allocable to the Premises herein for 1994 = $3,427.36 as a per cent of the
total 1994 real estate taxes on the Strip Center = $29,182.99. If after the
commencement of the lease hereof, any land, buildings and/or structures are
added to or removed from the Strip Center, equitable adjustments shall be made
to Lessee's pro-rata share of real estate taxes effective forward from the
date of said addition or removal. The charge required hereunder shall be paid
by Lessee to Lessor in monthly installments in such amounts as are reasonably
estimated by Lessor at the beginning of a calendar year or as designated by
Lessor, each such installment being due on the first day of each month. Within
120 days after each calendar year, Lessor shall make available for Lessee's
inspection Lessor's tax records for such preceding year, and the balance (or
refund) shall be paid promptly thereafter within 10 days. Lessee's pro-rata
share of real estate taxes shall be equitably adjusted for fractional lease
years, if any, hereunder.
11. Common Areas. In addition to the Premises hereinabove mentioned,
------------
Lessee and its agents, employees, successors, assigns, licensees, invitees,
sublessees, concessionaires, customers, suppliers and patrons shall have the
non-exclusive right, subject to the reasonable regulations of the Lessor, in
common with others entitled thereto to use and enjoy throughout the term of
this lease, the "Common Areas" of the Strip Center, to wit: such areas,
improvements, space, equipment, and special services in or at the Strip Center
as determined by Lessor from time to time to be devoted to the general use of
all of the tenants of the Strip Center and their employees, customers, and
other invitees, including without limitations, parking areas, driveways,
entrances, exits, landscaped areas, lighting facilities, curbs,
5
<PAGE> 6
retaining walls, exteriors of outside walls of the building(s), roofs,
canopies, and downspouts of building(s), hallways, stairs, washrooms, water
and sewerage systems, sidewalks, and the like as applicable. The Lessor may
from time to time designate appropriate portions of the parking area as areas
for the parking of motor vehicles of employees, agents, customers, patrons, and
concessionaires of certain tenants and occupants of the Strip Center. Lessee
shall comply with such designations and shall require its employees, agents,
customers, patrons and concessionaries to comply with such designations made
by the Lessor from time to time, and authorizes Lessor to have towed, at
Lessee's expense, those cars that fail to comply with such designations.
Lessor will use its best efforts to require the employees, agents, customers,
patrons and concessionaries of other tenants and occupants of the Strip Center
to comply therewith. The common areas shall be subject to the exclusive
control and management of Lessor, and Lessor shall have the right to establish
and modify, change and enforce reasonable rules and regulations with respect
to the common areas, and Lessee agrees to abide by and conform with such rules
and regulations.
12. Common Area Costs. As additional fixed minimum rental for each
-----------------
calendar year of the term of this lease and any renewal thereof, Lessee
covenants and agrees to pay its pro-rata share of the common area costs. Common
area costs shall include all of the Lessor's costs and expenses of every kind
and nature, whether directly incurred or through an independent contractor(s),
of operating, managing, equipping, lighting, cleaning, replacing,
reconstructing, insuring, maintaining, securing, and protecting the common
areas. Lessee's pro-rata share of common area costs shall be determined by
multiplying the total of the common area costs for the calendar year such costs
are incurred by the same percentage as cited above in the paragraph entitled
"Real Estate Taxes" as equitably adjusted. The charge required hereunder shall
be paid by Lessee to Lessor in monthly installments in such amounts as are
reasonably estimated and billed by Lessor commencing and ending on the dates
designated by Lessor, each such installment being due on the 1st day of each
month and shall be added to the monthly rental payment. Within 120 days after
the end of the calendar year, Lessor shall make available for Lessee's
inspection Lessor's records of expenses for such common areas for such
preceding period, and the balance (or refund) due shall be paid promptly
thereafter within 10 days.
13. Rules & Regulations. Lessee shall comply with all the rules and
-------------------
regulations for the use and occupancy of the Strip Center as such rules and
regulations may from time to time be reasonably promulgated by the Lessor for
the best interests of the Strip Center. Lessor shall have no liability for
violation by any tenant of any rules or regulations, nor shall such violation
by any other tenant excuse the Lessee from compliance with said rules and
regulations. Such rules and regulations
6
<PAGE> 7
established by Lessor shall not be inconsistent with the terms of this lease,
and no rule or regulation shall be enforced or imposed against Lessee which
would result in Lessee being unable to use the premises for its intended
purpose or which would otherwise prevent lessee from conducting and carrying
on its ordinary business in the Premises. Any violation of any such rules or
regulations by Lessee shall constitute a breach of this lease.
14. Default. (a) Failure on the part of Lessee to pay any sum due under
-------
this lease,or (b) failure to remedy any default with respect to any of the
other provisions, covenants or conditions of this lease to be kept or
performed by Lessee within 30 days after written notice, or (c) abandonment of
the Premises or breach of any obligation under this lease which cannot be
cured, shall at the option of the Lessor cause the forfeiture of this lease
and the Lessor shall have the following remedy:
Ten days after notice, Lessee will quit and deliver up possession of said
Premises, and all additions, alterations and improvements thereof to Lessor.
Should Lessee not surrender said Premises, Lessor may re-enter and take
possession of said Premises and all additions, alterations and improvements
thereon, with or without due process of law, and eject all parties in
possession thereof therefrom using such force for that purpose as may be
necessary without being liable to any prosecution for said re-entry or the use
of such force. It is hereby understood, and Lessee hereby covenants with the
Lessor, that such or any forfeiture, annulment or voidance shall not relieve
the Lessee from the obligation of the Lessee to make the monthly payments of
rent hereinbefore reserved, at the times and in the manner aforesaid; and in
case of any such default of the Lessee, the Lessor may re-let the said Premises
as the agent for and in the name of the Lessee at any rental readily
obtainable, applying the proceeds and avails thereof, first to the payment of
any such expense as the Lessor may be put to in re-entering and re-letting
and then to the payment of said rent as the same may from time to time become
due, and toward the fulfillment of the other covenants and agreements of the
Lessee herein contained, and the balance, if any, shall be paid to the Lessee;
and the Lessee hereby covenants and agrees that if the Lessor shall recover or
take possession of said Premises as aforesaid, and be unable to re-let and rent
the same so as to realize a sum equal to the rent hereby reserved, the Lessee
shall and will pay to the Lessor any and all loss of difference of rent for the
residue of the term hereof. Any amounts due Lessor by Lessee that are not paid
by Lessee within 30 days of the date due shall bear interest from the due date
at the rate of twelve percent (12%) per annum from the due date until the date
said amount is paid. Should Lessor or Lessee be required to take action to
collect any amounts due hereunder, or to enforce any covenant of this lease or
for the breach of any covenant herein, the prevailing party shall be
7
<PAGE> 8
entitled to recover reasonable attorney's fees, court and other costs to cure
said breach or default.
15. Surrender Upon Termination. Lessee will quit and deliver up the
--------------------------
possession of the Premises to the Lessor or Lessor's heirs, successors, agents
or assigns, when this lease terminates by limitation or forfeiture in good
order and repair with all replacements thereto, with all window glass replaced,
if broken, and with all keys, locks, bolts, plumbing fixtures, elevator,
sprinkler, heating and air cooling appliances in as good order and condition
as the same are now, or may hereafter be made by repair in compliance with all
the covenants of this lease, save only the wear thereof from reasonable and
careful use. The Lessee agrees to pay double rent for each day the Lessee, or
anyone holding under the Lessee, shall retain the demised Premises after the
termination of this lease, whether by limitation or forfeiture. The Lessee
hereby gives to the Lessor the right to place and maintain its usual "For
Lease/Rent" signs upon the demised Premises, in a place that the same are
usually displayed for the last 180 days of this lease.
16. Abandoned Property. Any property of the Lessee or of any occupant
------------------
of the Premises not removed from the Premises upon the termination of this
lease, whether by expiration or otherwise, shall be deemed abandoned and may be
handled, removed and disposed of by Lessor at the risk, cost, and expense of
Lessee, and Lessor shall in no event be responsible for any property so left in
or about the Premises, or for the value, preservation, or safekeeping thereof.
17. Condemnation. In the event the Premises or any part thereof be taken
by condemnation or otherwise, the following provisions shall be controlling:
(a) If the whole of the Premises shall be acquired or condemned by
eminent domain for any public or quasi-public use or purpose, then the term of
this Lease shall cease and terminate from the date that Lessee's use is
adversely affected by such condemnation or the date of title vesting in such
proceeding, which ever occurs first, and Lessee shall have no claim against
Lessor for the value of any unexpired term of this Lease;
(b) If any part of the Premises shall be acquired or condemned by
eminent domain for any public or quasi-public use or purpose, and such partial
taking or condemnation shall render the Premises unsuitable for the business
of the Lessee, in Lessee's reasonable judgment, then the term of this Lease
shall cease and terminate from the date that Lessee's use is adversely affected
by such condemnation or the date of title vesting in such proceeding, which
ever occurs first, and lessee shall have no claim against Lessor for the value
of any unexpired term of this Lease. In the event the partial taking or
condemnation is not
8
<PAGE> 9
extensive enough to render the Premises unsuitable, in Lessee's reasonable
judgment, for the business of Lessee, then the Lessor shall promptly restore
the Premises to a condition comparable to its condition at the time of such
condemnation, less the portion taken in such condemnation, and the Lease shall
thereafter continue in full force and effect and the parties shall agree upon
an abatement of the rental amount provided for herein.
(c) In the event of any condemnation or taking, either whole or partial,
the Lessee shall not be entitled to any part of the award as damages for such
condemnation, and the Lessor is to receive the full amount of such award, the
Lessee hereby expressly waiving any right or claim to any part thereof; except
that Lessee shall be entitled to receive and retain any amounts which may be
specifically awarded to it in such condemnation proceedings.
For the purposes of this paragraph, a voluntary sale or conveyance in
lieu of condemnation, but under threat of condemnation, shall be deemed an
appropriation or taking under the power of eminent domain, and covered by the
terms of this Paragraph 12.
18. Subordination. This lease is subject and subordinate to all ground
-------------
and underlying leases and to all deeds of trust or mortgages which may now or
hereafter affect the real property of which the Premises form a part, and to
all renewals, modifications and extensions thereof; provided however, that such
subordination contemplates that so long as Lessee shall not be in default in
payment of rents or any other terms and conditions of this lease, its occupancy
of the demised Premises shall not be disturbed. This clause shall be
self-operative and no further instrument of subordination shall be required by
any mortgagee but shall be provided by Lessee if demanded by any such
mortgagees.
19. Attornment. Lessee agrees that in the event of a sale, transfer or
----------
assignment of Lessor's interest in the Premises, or in the event of any
proceedings brought for the foreclosure or for the exercise of any power of
sale under any mortgage made by Lessor covering the Premises, to attorn to and
to recognize such transferee, purchaser,or mortgagee as Lessor under this
Lease.
20. Utilities. Lessee shall be responsible and pay for all utilities
---------
used for the Premises, including as applicable but not limited to gas,
electric, water, air conditioning refrigerant and sewer charges. If any
utilities are not separately metered, Lessee shall separately meter the
Premises for its use unless an alternate equitable basis is agreed upon to
allocate Lessee's share of the utility cost.
9
<PAGE> 10
21. Indemnities.
-----------
(a) Lessee agrees to protect and save Lessor forever harmless and
indemnified against and from any penalty, damage or charges imposed for any
violation of any laws or ordinances occasioned by the neglect of Lessee.
Lessee further agrees to defend, pay, indemnify and save free and harmless
Lessor, from and against any and all claims, demands, fines, suits, actions,
proceedings, orders, decrees and judgments of any kind or nature and from and
against any and all costs and expenses, including reasonable attorney's fees,
resulting from or in connection with loss of life, bodily or personal injury
or property damages arising out of or on account of the negligence of Lessee,
its employees, agents, contractors, or invitees in or upon the Premises,
except claims arising out of the negligence of the persons seeking to be
indemnified against loss hereunder.
(b) Lessor agrees to defend, pay, indemnify and save free and harmless
Lessee, from and against any and all claims, demands, fines, suits, actions,
proceedings, orders, decrees and judgments of any kind or nature and from and
against any and all costs and expenses, including reasonable attorney's fees,
resulting from or in connection with loss of life, bodily or personal property
injury or property damages arising out of or on account the negligence of
Lessor, its employees, agents, contractors, or invitees in or upon the
Premises, except claims arising out of the negligence of the persons seeking
to be indemnified against loss hereunder.
22. Insurance. Lessee shall, at its own cost and expense, procure,
maintain and continue in force, in the names of Lessor and Lessee, from the
date of execution hereof and during the full term of this lease, fire and
extended coverage insurance (or other special broad form coverage), together
with insurance against vandalism and malicious mischief covering the building
and Premises herein for its full replacement cost, but in no event for any
amount less than $250,000. Lessee agrees that, at its own cost and expense, it
shall procure and continue in force, in the names of the Lessor and Lessee,
plate glass insurance as well as general liability insurance against any and
all claims for injuries to persons occurring in, upon or about the demised
Premises, including all damage from glass, fixtures or other appurtenances,
now, or hereafter erected upon the demised Premises, during the term of this
lease, such insurance, at all times to be in an amount not less than
One Million Dollars ($1,000,000) for injury to any one person and comprehensive
property damage insurance covering liability for damage to all property in the
amount of Two Hundred Thousand Dollars ($200,000). Lessor shall be entitled
to any proceeds or payments received from such insurance to the extent Lessor
incurred a loss to the Premises. Lessee shall provide Lessor with a certificate
of insurance evidencing said coverage. Lessee shall also
10
<PAGE> 11
maintain insurance covering its trade fixtures, merchandise, personal
property, furnishings and leasehold improvements and such proceeds shall
be used to repair or replace the property damaged unless this lease shall
cease and terminate under the terms hereinbefore provided. The insurance
limits in this paragraph shall be adjusted from time to time as agreed by
the parties to reflect customary increases on policy amounts for similar
strip center properties.
23. Signs. The Strip Center presently has a "Directory Sign"
-----
facing Lindbergh Blvd. on which there is a pylon reading "Wings & Things"
and also has a 6ft. wide x 8ft. high pylon sign facing Lemay Ferry Rd.
reading "Ritz Center". Lessor hereby agrees that the Lessee may have the
exclusive use of the pylon sign space reading "Wings & Things" on the
Lindbergh Directory Sign and the exclusive use of the lower 6ft. width x
5ft. height portion of the Lemay Ferry Rd. pylon sign. In compensation
and reimbursement for Lessor's cost of said signage, Lessee agrees to pay
Lessor the sum of Eight Thousand Three Hundred Fifty Dollars ($8,350.00)
for the exclusive use of said signage during the term hereof. This amount
shall be payable in three monthly installments of $2,783.33 each on the
1st day of October, November and December 1995. Said signage shall remain
the property of the Lessor and with the Strip Center. Further the Lessee
shall bear the full cost to replace or change the panels on said signs
for Lessee's signage. In addition to the aforementioned signage, Lessee
shall have the right to use any additional signage that complies with
applicable law or any duly granted variance.
24. Delivery of Premises. The Premises are delivered to and
--------------------
accepted by Lessee in its "as is" existing condition, it being
understood that the rental established herein has been predicated
upon Lessee making such improvements, alterations and repairs as are
necessary, provided that, at the onset of this lease, the structural
portions and roof of the demised Premises be in good order and condition,
and the heating and air-conditioning system (HVAC) be in good working
condition. If Lessee shall not have notified Lessor that (i) the
structural portions and roof are not in good order and condition within
90 days of the date hereof, and (ii) the HVAC of the demised Premises
are not in good order and condition within 180 days of the date hereof,
Lessee shall have acknowledged and deemed the adequacy of its condition
and shall be responsible for them, as otherwise provided in this lease.
25. Quiet Enjoyment. The Lessee, subject to keeping and performing
---------------
all the terms and provisions of this lease, shall lawfully, peaceably
and quietly have, hold and enjoy the Premises during the term hereof
without hindrance or ejection by any persons lawfully claiming under
Lessor.
11
<PAGE> 12
26. Notice. Any notice to be given hereunder by the parties may
------
be given in person or in writing by registered or certified mail, return
receipt requested, at the addresses of the parties hereinabove given
or at such address as is later designated in writing by the parties
hereto.
27. No Constructive Waiver. No waiver of any forfeiture, by
----------------------
acceptance of rent or otherwise, shall waive any subsequent cause of
forfeiture, or breach of any condition of this lease; nor shall
consent by the Lessor to any assignment or subletting of said Premises,
or any part thereof, be held to waive or release any assignee or
sub-lessee from any of the foregoing conditions or covenants as against
him or them; but every such assignee and sub-lessee shall be expressly
subject hereto. Whenever the word "Lessor" is used herein it shall be
construed to include the heirs, executors, administrators, successors,
assigns or legal representatives of the Lessor; and the word "Lessee"
shall include the heirs, executors, administrators, successors, assigns
or legal representatives of the Lessee and the words Lessor and Lessee
shall include single and plural, individual or corporation, subject
always to the restrictions herein contained, as to sub-letting or
assignment of this lease. This lease is governed by the laws of the State
of Missouri. The invalidity or unenforceability of any provision herein
shall not affect or impair the validity of any other.
28. Security Deposit. Lessee, contemporaneously with the execution
----------------
of this lease, has deposited with Lessor the sum of Two Thousand Three
Hundred & no/100 Dollars ($2,300.00), receipt of which is hereby
acknowledged by Lessor. Said deposit shall be held by Lessor, without
liability for interest, as security for the faithful performance by Lessee
of all the terms, covenants and conditions of the lease by said lessee
to be kept and performed during the term hereof. If at any time during the
term of this Lease, any of the rent herein reserved shall be in default
and unpaid, or any other sum payable by Lessee to Lessor or otherwise
required to be expended by Lessee hereunder shall be in default and
unpaid, then the Lessor may at its option, appropriate and apply any
portion of said deposit to the payment of any such defaulted rent or other
sum. In the event of the termination of this lease, by the expiration
of time or otherwise, then at the option of Lessor, Lessor may appropriate
and apply said entire deposit, or so much thereof as may be necessary
to reimburse the Lessor for loss or damage sustained by Lessor due to
any breach of this lease by Lessee. Lessor's election to so utilize all
or a portion of said deposit shall not relieve Lessee of any obligation
in excess of the amount so applied. In the event the lease is not
terminated, but the entire deposit, or any portion thereof, be
appropriated and applied by Lessor under the terms and provisions hereof,
the Lessee shall, upon the written demand of Lessor, forthwith remit
to Lessor a sufficient amount in cash to restore said security to
12
<PAGE> 13
the original sum deposited, and Lessee's failure to do so within
ten (10) days of such written demand shall constitute a breach of this
lease. Should Lessee comply with all of said terms, covenants and
conditions hereof and promptly pay all of the rental herein and all
other sums payable by Lessee to Lessor or otherwise hereunder when due,
the said deposit, or the balance remaining therein, shall be returned
to Lessee at the termination of this lease by expiration of time or
otherwise, after Lessee has vacated the Premises.
29. Lessee's Cancellation Option. Through June 30, 1996, the
----------------------------
Lessee shall have a one-time option, provided it is current on all Lease
payments, to cancel this Lease if Lessee does not receive regulatory
approval from the Federal Deposit Insurance Corporation ("FDIC") and
the State of Missouri to operate a bank on the Premises. To exercise this
cancellation option, Lessee must give written notice to Lessor within
thirty (30) days after the date of the denial, attaching to such notice
the written denial of the FDIC or State of Missouri, or a certification
of an officer of Lessee indicating that such denial was received.
In the event of any cancellation, the Lessor shall be entitled to
retain all sums paid by Lessee except that Lessee's Security Deposit
shall in the event of cancellation be returned by Lessor to Lessee in
accordance with the terms of paragraph 28 above. Further, this
commercial lease shall become null and void upon receipt of said
cancellation notice by Lessor and return by Lessor of Lessee's security
deposit.
30. Banking Authority. Notwithstanding any other provisions
-----------------
contained in this lease, in the event the Lessee is permanently closed
or taken over by the banking authority of the State of Missouri, or other
bank supervisory authority, the Lessor may terminate the lease only with
the concurrence of such banking authority or other bank supervisory
authority, and any such authority shall in any event have the election
either to continue, to assign, or to terminate the lease; provided, that in
the event this lease is terminated, the maximum claim of Lessor for
damages or indemnity for injury resulting from the rejection or abandonment
of the unexpired term of the lease shall in no event be in an amount
exceeding the rent reserved by the lease, without acceleration, for the
year next succeeding the date of the surrender of the Premises to the
Lessor, or the date of re-entry of the Lessor, whichever first occurs,
whether before or after the closing of the bank, plus an amount equal to
the unpaid rent accrued, without acceleration up to such date.
13
<PAGE> 14
IN WITNESS WHEREOF, the said parties aforesaid have duly executed
the foregoing instrument or caused the same to be executed the day and
year first above written.
LESSOR LESSEE
/s/ Stanley E. Erb /s/ Shaun R. Hayes
- ---------------------------------- -----------------------------------
HILVIN INVESTMENT CORPORATION ALLEGIANT BANK
Stanley E. Erb, President Shaun R. Hayes, President
14
<PAGE> 1
<TABLE>
Exhibit 11.1
Computation of Earnings Per Common Share
<CAPTION>
For the Year Ended December 31,
-------------------------------
1996 1995
---------- ----------
<S> <C> <C>
PRIMARY SHARES:
- --------------
Weighted average number of
common shares outstanding 2,198,675 1,965,586
Effect of shares issuable under
all stock option plans as
determined by the treasury
stock method 187,367 90,845
---------- ----------
Weighted average number of
primary common shares
outstanding as adjusted 2,386,042 2,056,431
========== ==========
Per primary common share computations:
Net income $1,808,000 $1,275,000
========== ==========
Per primary common share $0.76 $0.62
========== ==========
FULLY DILUTED SHARES:
- --------------------
Weighted average number of
common shares outstanding 2,198,675 1,965,586
Effect of shares issuable under
all stock option plans as
determined by the treasury
stock method 217,770 187,283
---------- ----------
Weighted average number of
fully diluted common shares
outstanding as adjusted 2,416,445 2,152,869
========== ==========
Per fully diluted common share computations:
Net income $1,808,000 $1,275,000
Add interest on debentures,
net of tax effect -- 28,000
---------- ----------
Net income, as adjusted $1,808,000 $1,303,000
========== ==========
Per fully diluted common share $0.75 $0.61
========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
------------
Subsidiaries of the Registrant
------------------------------
1. Allegiant Bank, a Missouri state-chartered bank
2. Allegiant Mortgage Company, a Missouri corporation
3. Edge Mortgage Services, Inc., a Missouri corporation
<PAGE> 1
[Letterhead of BDO Seidman, LLP]
EXHIBIT 24.1
- ------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Allegiant Bancorp, Inc.
St. Louis, Missouri
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-13451) of Allegiant Bancorp, Inc. (the
Company) of our report dated January 24, 1997, relating to the consolidated
financial statements of the Company appearing in the Company's Annual
Report on Form 10-KSB as of and for the year ended December 31, 1996.
/s/ BDO Seidman, LLP
St. Louis, Missouri
March 17, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 7,554
<INT-BEARING-DEPOSITS> 29,406
<FED-FUNDS-SOLD> 10,775
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,073
<INVESTMENTS-CARRYING> 38,487
<INVESTMENTS-MARKET> 38,540
<LOANS> 291,926
<ALLOWANCE> 3,100
<TOTAL-ASSETS> 377,564
<DEPOSITS> 308,670
<SHORT-TERM> 36,137
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<LONG-TERM> 14,663
0
0
<COMMON> 23
<OTHER-SE> 16,363
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<INTEREST-LOAN> 21,740
<INTEREST-INVEST> 3,477
<INTEREST-OTHER> 151
<INTEREST-TOTAL> 25,368
<INTEREST-DEPOSIT> 12,060
<INTEREST-EXPENSE> 14,999
<INTEREST-INCOME-NET> 10,369
<LOAN-LOSSES> 1,448
<SECURITIES-GAINS> 49
<EXPENSE-OTHER> 7,019
<INCOME-PRETAX> 2,983
<INCOME-PRE-EXTRAORDINARY> 2,983
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,808
<EPS-PRIMARY> .76
<EPS-DILUTED> .75
<YIELD-ACTUAL> 3.50
<LOANS-NON> 400
<LOANS-PAST> 292
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 2,130
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<ALLOWANCE-CLOSE> 3,100
<ALLOWANCE-DOMESTIC> 2,252
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 848
</TABLE>
