<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
/X/ Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Quarterly Period Ended June 30, 1997.
/ / Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Transition Period from ---------- to -----------.
Commission file number: 0-26350
ALLEGIANT BANCORP, INC.
(Exact name of the registrant as specified in its charter)
Missouri 43-1519382
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7801 Forsyth Boulevard
St. Louis, Missouri 63105
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (314) 726-5000
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /.
On July 31, 1997, the registrant had 2,846,757 outstanding shares of Common
Stock, $.01 par value.
Transitional Small Business Disclosure Format (Mark one): Yes / / No /X/.
<PAGE> 2
ALLEGIANT BANCORP, INC.
FORM 10-QSB
<TABLE>
INDEX
<CAPTION>
Page
----
<S> <C>
PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets -- June 30, 1997 and December 31, 1996 3
Consolidated Statements of Income -- Three Months Ended June 30, 1997 and
1996 and Six Months Ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -- Six Months Ended
June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURE 24
</TABLE>
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<PAGE> 3
PART I. CONSOLIDATED FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 9,144 $ 7,554
Federal funds sold and
other overnight investments 1,000 10,775
Investment securities:
Available for sale (at estimated market value) 22,649 22,073
Held to maturity (approximate market value of
$39,482 and $38,540, respectively) 39,749 38,487
Loans, net of allowance for possible loan losses of
$3,976 and $3,100, respectively 343,658 288,826
Premises and equipment, net accumulated depreciation 5,883 5,514
Accrued interest and other assets 4,936 3,844
Cost in excess of fair value of net assets acquired 462 491
-------- --------
Total assets $427,481 $377,564
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non-interest bearing $ 34,928 $ 29,406
Interest bearing 235,235 228,439
Certificates of deposit of $100,000 or more 44,854 50,825
-------- --------
Total deposits 315,017 308,670
-------- --------
Short-term borrowings 74,214 36,137
Long-term debt 13,663 14,663
Accrued expenses and other liabilities 1,729 1,708
-------- --------
Total liabilities 404,623 361,178
Commitments and contingencies
Shareholders' equity:
Common Stock, $.01 par value -- shares
authorized, 7,800,000; issued and outstanding,
2,845,815 and 2,271,000, respectively 30 23
Capital surplus 21,279 15,983
Retained earnings 1,579 357
Net unrealized (depreciation) appreciation
on securities available for sale (30) 23
-------- --------
Total shareholders' equity 22,858 16,386
-------- --------
Total liabilities and shareholders' equity $427,481 $377,564
======== ========
- -------------------------------------
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 7,629 $ 4,878 $ 14,513 $ 9,598
Investment securities 926 804 1,840 1,742
Federal funds sold and
overnight investments 10 49 66 117
---------- ---------- ----------- ----------
Total interest income 8,565 5,731 16,419 11,457
---------- ---------- ----------- ----------
INTEREST EXPENSE:
Interest on deposits 3,619 2,749 7,184 5,574
Interest on short-term debt 642 221 1,169 433
Interest on long-term debt 364 360 646 748
---------- ---------- ----------- ----------
Total interest expense 4,625 3,330 8,999 6,755
---------- ---------- ----------- ----------
Net interest income 3,940 2,401 7,420 4,702
Provision for possible loan losses 628 251 1,121 431
---------- ---------- ----------- ----------
Net interest income after
provision for possible loan losses 3,312 2,150 6,299 4,271
---------- ---------- ----------- ----------
OTHER INCOME:
Service charges and other fees 328 218 646 392
Net gain on sale of securities -- 17 -- 17
---------- ---------- ----------- ----------
Total other income 328 235 646 409
---------- ---------- ----------- ----------
OTHER EXPENSES:
Salaries and employee benefits 1,335 783 2,329 1,588
Operating expenses 1,140 924 2,449 1,631
---------- ---------- ----------- ----------
Total other expenses 2,475 1,707 4,778 3,219
---------- ---------- ----------- ----------
Income before income taxes 1,165 678 2,167 1,461
Provision for income taxes 465 253 866 566
---------- ---------- ----------- ----------
Net income $ 700 $ 425 $ 1,301 $ 895
========== ========== =========== ==========
Primary earnings per share:
Average common shares outstanding 3,106,404 2,372,630 2,870,483 2,371,391
Net income $ .23 $ .18 $ .45 $ .38
Fully diluted earnings per share:
Average common shares outstanding 3,106,404 2,372,630 2,870,483 2,371,391
Net income $ .23 $ .18 $ .45 $ .38
- ------------------------------
See notes to consolidated financial statements.
</TABLE>
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<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,301 $ 895
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 692 348
Provision for loan losses 1,121 431
Loan recoveries 14 52
Net gain on sale of securities (3) (17)
Changes in assets and liabilities:
Accrued interest receivable and
other assets (1,132) (106)
Other liabilities 21 (288)
-------- --------
Cash provided by operating activities 2,014 1,315
-------- --------
INVESTING ACTIVITIES:
Proceeds from maturities of securities held to maturity 8,451 35,871
Purchase of investment securities held to maturity (9,613) (26,191)
Proceeds from maturities of securities available for sale 7,691 42,255
Proceeds from sales of securities available for sale 2,196 1,763
Purchase of investment securities available for sale (10,446) (37,334)
Loans made to customers, net of repayments (55,966) (41,584)
Additions to premises and equipment (1,100) (414)
-------- --------
Cash used in investing activities (58,787) (25,634)
-------- --------
FINANCING ACTIVITIES:
Net increase in deposits 6,347 6,170
Net increase in short-term debt 12,301 8,449
Repayment of long-term debt (1,000) (3,039)
Proceeds from issuance of long-term debt 25,776 --
Proceeds from issuance of Common Stock 5,272 --
Proceeds from exercise of warrants 31 --
Payment of dividends (139) (88)
-------- --------
Cash provided by financing activities 48,588 11,492
-------- --------
Net decrease in cash and cash equivalents (8,185) (12,827)
Cash and cash equivalents, beginning of period 18,329 19,683
-------- --------
Cash and cash equivalents, end of period $ 10,144 $ 6,856
======== ========
- ------------------------------------
See notes to consolidated financial statements.
</TABLE>
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<PAGE> 6
ALLEGIANT BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of Allegiant Bancorp, Inc. (the "Company") and its
subsidiaries, Allegiant Bank, Allegiant Mortgage Company, and Edge
Mortgage Services, Inc. Unless the context otherwise indicates,
references to the "Company" include Allegiant Bancorp, Inc. and
its subsidiaries.
The consolidated balance sheet at June 30, 1997, the consolidated
statements of income for the three- and six-month periods ended
June 30, 1997 and 1996, respectively, and the consolidated
statements of cash flows for the six-month periods ended June 30,
1997 and 1996, respectively, are unaudited, but, in the opinion of
the Company, reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation. Reference
is hereby made to the consolidated financial statements, including
the notes thereto, contained in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1996. The results of
operations for the six-month period ended June 30, 1997 are not
necessarily indicative of the results which may be obtained for
the full year ending December 31, 1997.
2. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board
("FASB") issued its Statement of Financial Accounting Standards
No. 128, Earnings per Share ("SFAS No. 128"). SFAS No. 128
simplifies the standards for computing earnings per share and
requires presentation of two new amounts, basic and diluted
earnings per share. The Company will be required to adopt
retroactively this standard when it reports its operating results
for the fiscal quarter and year ending December 31, 1997. When
the Company adopts SFAS No. 128, the following restated
presentation is expected:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic per share earnings $0.25 $0.19 $0.50 $0.41
Diluted per share earnings $0.23 $0.18 $0.45 $0.38
</TABLE>
3. PROPOSED ACQUISITIONS
On March 20, 1997, Allegiant executed an Agreement and Plan of
Merger (the "Merger Agreement") with Reliance Financial, Inc.
("Reliance"), a Delaware corporation and parent of Reliance
Financial Savings and Loans Association of St. Louis County,
whereby Allegiant will acquire Reliance through the merger of
Reliance with and into Allegiant (the "Merger"). Under the Merger
Agreement, Allegiant will acquire all of the outstanding capital
stock of Reliance in exchange for consideration of 1.6741 shares
of Allegiant common stock per share of Reliance common stock,
subject to adjustment. Allegiant currently anticipates issuing
approximately 608,353 shares of Allegiant common stock in
connection with the acquisition, which is anticipated to be
completed on or about August 29, 1997, pending approval of the
shareholders of Allegiant and the stockholders of Reliance. As of
June 30, 1997, Reliance reported, on a consolidated
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<PAGE> 7
basis, total assets of $30.3 million, total deposits of $23.1 million,
total loans of $19.1 million, and stockholders' equity of $6.9 million.
On May 8, 1997, Allegiant entered into separate Deposit Transfer and
Asset Purchase Agreements with Roosevelt Bank ("Roosevelt"), a
federal stock savings bank, to purchase Roosevelt's branch offices
in Warrenton, Missouri and Union, Missouri. The transactions,
which are subject to appropriate regulatory approvals, include the
branch buildings, safe deposit, loan and deposit relationships.
Upon consummation of the transactions, Allegiant expects to assume
approximately $100.0 million of deposit liabilities, acquire
approximately $1.0 million of real property and the related ATMs,
furniture fixtures, equipment and other operating assets, and
acquire approximately $2.8 million of consumer loans. The transactions
are anticipated to be completed on or about September 5, 1997.
As of June 30, 1997, the combined branches had total deposits of
approximately $100.0 million and total loans of approximately $2.8
million.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Company is a bank holding company that owns all of the capital
stock of Allegiant Bank (the "Bank"), a Missouri state-chartered bank. The
Bank provides personal and commercial banking and related financial services
from seven locations in the St. Louis Standard Metropolitan Statistical Area
("St. Louis SMSA"), the 16th largest metropolitan area in the United States,
and two locations in Northeast Missouri. Allegiant Mortgage Company (the
"Mortgage Company"), a wholly-owned subsidiary of the Bank, offers residential
loans primarily to customers in the St. Louis SMSA. Edge Mortgage Services,
Inc. ("Edge"), a wholly-owned subsidiary of the Company, offers residential
loans primarily to customers in the St. Louis SMSA who do not qualify under
standard mortgage loan criteria.
The Company was organized in May 1989 and acquired Allegiant State
Bank at that time. The Company acquired Allegiant Bank in 1990. In November
1994, Allegiant Bank acquired the Mortgage Company. Effective January 1995,
Allegiant State Bank merged into Allegiant Bank. Edge was organized in
October 1996. Unless the context indicates otherwise, references herein to
the "Company" or "Allegiant" refer to Allegiant Bancorp, Inc. and its
subsidiaries.
On March 20, 1997, Allegiant executed an Agreement and Plan of Merger
(the "Merger Agreement") with Reliance Financial, Inc. ("Reliance"), a
Delaware corporation and parent of Reliance Financial Savings and Loans
Association of St. Louis County, whereby Allegiant will acquire Reliance
through the merger of Reliance with and into Allegiant (the "Merger"). Under
the Merger Agreement, Allegiant will acquire all of the outstanding capital
stock of Reliance in exchange for consideration of 1.6741 shares of Allegiant
common stock per share of Reliance common stock, subject to adjustment.
Allegiant currently anticipates issuing approximately 608,353 shares of
Allegiant common stock in connection with the acquisition, which is
anticipated to be completed on or about August 29, 1997, subject to the
approval of the shareholders of Allegiant and the stockholders of Reliance.
As of June 30, 1997, Reliance reported, on a consolidated basis, total assets
of $30.3 million, total deposits of $23.1 million, total loans of $19.1
million, and stockholders' equity of $6.9 million.
On May 8, 1997, Allegiant entered into separate Deposit Transfer and
Asset Purchase Agreements with Roosevelt Bank ("Roosevelt"), a federal stock
savings bank, to purchase Roosevelt's branch offices in Warrenton, Missouri
and Union, Missouri. The transactions, which are subject to appropriate
regulatory approvals, include the branch buildings, safe deposit, loan, and
deposit relationships. Upon consummation of the transactions, Allegiant
expects to assume approximately $100.0 million of deposit liabilities, acquire
approximately $1.0 million of real property and the related
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<PAGE> 8
ATMs, furniture fixtures, equipment and other operating assets, and acquire
approximately $2.8 million of consumer loans. The transactions are
anticipated to be completed on or about September 5, 1997.
As of June 30, 1997, the combined branches had total deposits of
approximately $100.0 million and total loans of approximately $2.8
million.
RESULTS OF OPERATIONS
NET INCOME
For the second quarter of 1997, the Company reported net income of
$700,000, compared to net income of $425,000 for the second quarter of 1996,
an increase of $275,000, or 65%. On a per share basis, net income increased
28%, from $.18 for the second quarter of 1996 to $.23 for the comparable
period in 1997, despite the 31% increase in average primary common shares
outstanding. This increase from 2.4 million shares for the second quarter of
1996 to 3.1 million shares for the corresponding period in 1997, was primarily
attributable to the Company's rights offering (the "Rights Offering") to
shareholders of Common Stock in February 1997. For every one share of common
stock held of record, each shareholder was given the non-transferable right to
subscribe for 0.25 of a share of common stock at $9.375 per share. The
Company issued 567,750 shares of Common Stock in the Rights Offering.
For the six-month period ended June 30, 1997, the Company reported
net income of $1.3 million compared to $895,000 for the period ended June 30,
1996, an increase of $406,000, or 45%. On a per share basis, net income
increased 18%, from $.38 in the 1996 period to $.45 for the six months ended
June 30, 1997. This increase was achieved despite the 21% increase in
weighted average common shares outstanding from 2.4 million to 2.9 million
during the respective periods. This increase in weighted average common
shares outstanding was primarily attributable to the Rights Offering.
Net Interest Income
For the quarter ended June 30, 1997, net interest income before
provision for loan losses increased 64% to $3.9 million from $2.4 million at
June 30, 1996. This increase was primarily attributable to a 56% increase in
interest and fees on loans. Interest and fees on loans totaled $7.6 million
during the second quarter of 1997 compared to $4.9 million during the second
quarter of 1996. The increase in interest and fees on loans was primarily
attributable to the $124.8 million increase in total loans outstanding from
$222.8 million at June 30, 1996 to $347.6 million at June 30, 1997.
Total interest expense for the three months ended June 30, 1997 was
$4.6 million, a 39% increase over total interest expense of $3.3 million for
the same period in 1996. Interest paid to depositors increased 32%, from $2.7
million during the second quarter of 1996 to $3.6 million during the second
quarter of 1997. This increase was primarily attributable to greater deposit
volume. In addition, interest paid on short-term borrowings increased 191%
from $221,000 during the second quarter of 1996 to $642,000 during the second
quarter of 1997. Interest expense on short-term borrowings increased due to
the Bank's use of short-term advances from the Federal Home Loan Bank ("FHLB")
to fund new loan growth, which management believes to be a more advantageous
funding source than deposit promotions, which require paying above market
rates. See "--Net Interest Margin" and "--Liquidity and Capital Resource
Management."
For the six-month period ended June 30, 1997, net interest income
before provision for loan losses increased 58% to $7.4 million from $4.7
million during the six-month period ended June 30, 1996. This increase was
primarily attributable to a 51% increase in interest and fees on loans.
Interest
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<PAGE> 9
and fees on loans totaled $14.5 million for first six months of 1997
as compared to $9.6 million for the first six months of 1996.
Total interest expense for the six-month period ended June 30, 1997
increased 33% to $9.0 million compared to $6.8 million for the six-month
period ended June 30, 1996. This increase was primarily attributable to a 29%
increase in interest paid to depositors during the period. Interest expense
increased to $7.2 million for the first six months of 1997 from $5.6 million
for the first six months of 1996 as deposit volume increased. In addition,
interest on short-term borrowings increased 170% to $1.2 million for the first
six months of 1997 from $433,000 for the first six months of 1996 as the Bank
used short-term FHLB advances to partially fund loan growth.
Net Interest Margin
The Company's net interest margin for the second quarter of 1997
improved by 45 basis points to 4.07% from 3.62% for the three months ended
June 30, 1996. The improvement was primarily attributable to an increase in
interest-earning assets and a decrease in the cost of funds. Average
interest-earning assets increased $122.4 million from $265.2 million during
the three months ended 1996 to $387.6 million during the three months ended
June 30, 1997, while the average cost of funds declined 20 basis points from
5.51% during the three months ended June 30, 1996 to 5.31% for the three
months ended June 30, 1997.
The yield on interest-earning assets increased 20 basis points from
8.64% for the three months ended June 30, 1996 to 8.84% for the comparable
period in 1997. This increase was primarily attributable to increased loan
volume, despite a decrease in loan yield. The yield on loans declined 19
basis points from 9.59% for the three months ended June 30, 1996 to 9.40% for
the three months ended June 30, 1997. Average loans outstanding for the three
months ended June 30, 1997 comprised 84% of interest-earning assets compared
to 76% for the six months ended June 30, 1996, thereby causing total yield on
interest-earning assets to increase despite the decrease in the yield on
loans. The 19 basis point decline in loan yield was primarily due to two
factors: (1) an increased concentration in the portfolio of one- to
four-family adjustable-rate mortgages; and (2) a competitive market for retail
and commercial lending.
The Bank's loan spreads decreased partially due to its increased
holdings of one- to four-family adjustable-rate mortgage loans, which tend to
yield less than commercial or consumer loans. Management prefers to originate
one- to four-family adjustable-rate mortgage loans due to the lower credit
risk generally associated with this type of loan, as well as the lower
exposure to interest rate risk due to the frequent periodic adjustments of the
mortgage coupon payments. Along with the reduced credit risk and interest
rate protection, the Bank also has observed a lower level of non-performing
loans associated with one- to four-family adjustable-rate mortgages compared
proportionately to the other types of loans in the Bank's portfolio. Given
these attributes of lower risk, the Bank has accepted a lower average yield
compared to loans with higher levels of risk. The Bank anticipates the
continued addition of one- to four-family adjustable-rate mortgage loans to
the Bank's loan portfolio.
Another benefit in originating one- to four-family adjustable-rate
mortgages is that it presents an opportunity for the Bank to establish
relationship banking with these new retail customers by offering a complete
line of consumer banking products, which should increase non-interest income
to help mitigate the lower spreads associated with these types of loans.
Examples of consumer banking products offered by the Bank include: Home
Equity Credit Lines ("HECL") --introduced in the second quarter of 1996,
investment services offered through INVEST Financial Group --introduced in
February 1997 and PC home banking and cash management services --to be offered
in the second half of 1997. Management believes that relationship banking
will be a key to success in the consolidating banking industry and will
enhance performance despite lower yields associated with the one- to
four-family adjustable-rate mortgage loans by supporting relationship-oriented
marketing.
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<PAGE> 10
In addition to changes in the credit portfolio mix, the Bank is also
operating in an aggressive and competitive market for both commercial and
consumer loans. Not only has the Bank experienced increased competition from
within the banking industry, but non-bank financial institutions are
attracting customers who have traditionally dealt primarily with commercial
banks. These trends have resulted in tighter spreads on the Bank's commercial
loans, the Bank's second largest holding in the credit portfolio. In the
past, the Bank was able to originate high quality loans at a positive spread
to the prime lending rate. In the current market, these spreads have
diminished and the market has dictated that many of these same loans are now
originated at prime, or at a negative spread to prime. Management does not
anticipate that this trend will reverse in the foreseeable future.
The Bank was able to improve the yield on its investment securities
portfolio due to the increase in interest rates. The average yield earned on
investment securities increased 41 basis points to 5.94% for the three months
ended June 30, 1997, compared to 5.53% for the three months ended June 30,
1996. This increased performance was attributable to management of the
investment securities portfolio, along with the addition of higher yielding
securities which were funded with maturing securities with lower interest
rates.
The aggregate yield paid for interest bearing deposits and both long-
and short-term debt decreased 20 basis points to 5.31% for the three months
ended June 30, 1997, compared to 5.51% for the three months ended June 30,
1996. A large portion of this decrease in the Bank's cost of funds was due to
the re-pricing of a money market deposit promotion that was run in the first
half of 1996. In addition, the yields on certificates of deposit and savings
accounts decreased to 5.77% and 2.89%, respectively, for the three months
ended June 30, 1997, from 5.88% and 3.24%, respectively for the three months
ended June 30, 1996. This decrease was largely attributable to higher
yielding certificate of deposits renewing at prevailing interest rates.
As an alternative to running additional deposit promotions, the Bank
has increasingly relied upon FHLB short-term borrowings, which were a more
cost-effective funding source than paying above market rates for retail
deposits during the period. One bank in the St. Louis SMSA chose to run a
money market deposit promotion to yield 6.02% in the first part of 1997,
whereas the Bank chose to borrow $10.0 million of short-term funds from the
FHLB at a blended cost of 5.86%. The strategy allowed the Bank to access
funds, with minimal administrative costs and without increasing the cost of
its existing deposit base, which can occur when lower cost deposits mature and
subsequently reprice at the higher promotional rate.
The Bank used these alternative funding sources in anticipation of
new branch openings in 1997, as well as a temporary source of funding until
recently opened branches can attract increased levels of core deposits, which
cost less than promotional monies. The Bank opened its ninth branch on April
1, 1997 (St. Charles County) and also moved the existing Palmyra branch from a
grocery store into its own building. In addition, the Bank plans to open a
branch in Northeast Missouri and one in St. Louis County in the third quarter
of 1997. In addition to the opening of new branches, the third quarter
acquisitions of Reliance and the two Roosevelt Bank branches in Warrenton and
Union, Missouri will add approximately $123.0 million in deposits. The
Company expects that after the acquisitions are completed and the new branches
mature, their core deposit base should fund the planned retirement of a
substantial portion of the short-term debt.
The following tables show the condensed average balance sheets for
the periods reported and the percentage of each principal category of assets,
liabilities, and shareholders' equity to total assets. Also shown is the
average yield on each category of interest-earning assets and the average rate
paid on interest-bearing liabilities for each of the periods reported:
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<TABLE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
<CAPTION>
THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------------
1997 1996
---------------------------------- ----------------------------------
AVERAGE INT. EARNED/ YIELD/ AVERAGE INT. EARNED/ YIELD/
BALANCE EXPENSE RATE<F1> BALANCE EXPENSE RATE<F1>
------- ------------ -------- ------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
INTEREST-EARNING ASSETS:
Loans<F1> $324,594 $7,629 9.40% $203,493 $4,878 9.59%
Taxable investment securities 61,143 910 5.95% 57,274 791 5.52%
Non-taxable investment securities 1,189 16 5.38% 932 13 5.58%
Federal funds sold 723 10 5.53% 3,537 49 5.54%
-------- ------ -------- ------
Total interest earning assets 387,649 8,565 8.84% 265,236 5,731 8.64%
-------- ------ -------- ------
NON-INTEREST-EARNING ASSETS:
Cash and due from banks 6,742 6,545
Premises and equipment 5,811 4,713
Other assets 4,872 3,843
Allowance for possible loan losses (3,817) (2,181)
-------- --------
Total assets $401,257 $278,156
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST BEARING LIABILITIES:
Money market accounts $ 72,861 $ 831 4.56% $ 59,005 $ 720 4.88%
NOW accounts 11,864 68 2.29% 9,603 57 2.37%
Savings deposits 6,237 45 2.89% 7,169 58 3.24%
Certificates of deposit 131,597 1,898 5.77% 95,722 1,408 5.88%
Certificates of deposit over $100,000 45,974 632 5.50% 28,855 394 5.46%
IRA certificates 9,838 145 5.90% 7,479 112 5.99%
-------- ------ -------- ------
Total interest bearing deposits 278,371 3,619 5.20% 207,833 2,749 5.29%
-------- ------ -------- ------
Federal funds purchased, repurchase
agreements, and other short-term
borrowings 50,314 642 5.10% 15,686 221 5.64%
Long-term borrowings 19,683 364 7.40% 18,174 360 7.92%
-------- ------ -------- ------
Total interest bearing liabilities 348,368 4,625 5.31% 241,693 3,330 5.51%
-------- ------ -------- ------
NON-INTEREST BEARING LIABILITIES:
Demand deposits 28,398 20,480
Other liabilities 2,204 1,477
Shareholders' equity 20,287 14,506
-------- --------
Total liabilities and
shareholders' equity $399,257 $278,156
======== ========
Net interest income $3,940 $2,401
====== ======
Net interest margin 4.07% 3.62%
- ------------------------------------
<F1> Interest on non-accruing loans is not included for purposes of calculating
yields which have been annualized.
</TABLE>
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<PAGE> 12
The Company's net interest margin for the six months ended June 30,
1997 improved 38 basis points to 3.95% from 3.57% for the six months ended
June 30, 1996. The increase was primarily attributable to the increase in
average interest-earning assets and a decrease in the Bank's cost of funds.
Average interest-earning assets increased $111.7 million from $263.5 million
for the six months ended June 30, 1996 to $375.3 million for the six months
ended June 30, 1997. The average cost of funds declined 29 basis points from
5.60% from the six months ended June 30, 1996 to 5.31% for the six months
ended June 30, 1997.
The yield on interest-earning assets increased 6 basis points from
8.69% for the six months ended June 30, 1996 to 8.75% for the six months ended
June 30, 1997. This increase was primarily attributable to increased loan
volume, despite a decrease in loan yield. The yield on loans declined 46
basis points from 9.77% for the six months ended June 30, 1996 to 9.31% for
the six months ended June 30, 1997. Average loans outstanding for the six
months ended June 30, 1997 comprised 83% of interest-earning assets compared
to 75% for the same period ended June 30, 1996, thereby causing total yield to
increase despite the decrease in the yield on loans. The 46 basis point
decline in loan yield was largely due to two factors: (1) an increased
concentration in the portfolio of one- to four-family adjustable-rate
mortgages; and (2) a competitive market for retail and commercial lending.
The average yield on investment securities increased 47 basis points
to 6.02% for the six months ended June 30, 1997 compared to 5.55 for the six
months ended June 30, 1996. This increase was attributable to the improved
management of the investment securities portfolio, along with the addition of
higher yielding securities which were funded with maturing securities with
lower interest rates.
The aggregate yield paid for interest bearing deposits and both long-
and short-term debt decreased 29 basis points to 5.31% for the six months
ended June 30, 1997, compared to 5.60% for the six months ended June 30, 1996.
A large portion of this decrease in the Bank's cost of funds was due to the
re-pricing of a money market deposit promotion that was run in the first half
of 1996. In addition, the yields on certificates of deposit and savings
accounts decreased to 5.75% and 2.89%, respectively, for the three months
ended June 30, 1997 from 5.93% and 3.43%, respectively, for the three months
ended June 30, 1996. This decrease was largely attributable to higher
yielding certificates of deposits which renewed at prevailing interest rates.
The following table shows the condensed average balance sheets for
the periods 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:
- 12 -
<PAGE> 13
<TABLE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
AVERAGE INT. EARNED/ YIELD/ AVERAGE INT. EARNED/ YIELD/
BALANCE EXPENSE RATE<F1> BALANCE EXPENSE RATE<F1>
------- ------------ -------- ------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
INTEREST-EARNING ASSETS:
Loans<F1> $311,707 $14,513 9.31% $196,571 $ 9,598 9.77%
Taxable investment securities 59,992 1,810 6.03% 61,793 1,719 5.56%
Non-taxable investment securities 1,181 30 5.08% 931 23 4.94%
Federal funds sold 2,385 66 5.53% 4,236 117 5.52%
-------- ------- -------- -------
Total interest earning assets 375,265 16,419 8.75% 263,531 11,457 8.69%
-------- ------- -------- -------
NON-INTEREST-EARNING ASSETS:
Cash and due from banks 7,563 6,829
Premises and equipment 5,573 4,669
Other assets 5,031 3,850
Allowance for possible loan losses (3,497) (2,188)
-------- --------
Total assets $389,935 $276,691
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Interest bearing liabilities:
Money market accounts $ 72,674 $ 1,650 4.54% $ 58,358 $ 1,463 5.01%
NOW accounts 11,521 135 2.34% 9,359 113 2.41%
Savings deposits 6,093 88 2.89% 7,474 128 3.43%
Certificates of deposit 130,715 3,758 5.75% 96,299 2,855 5.93%
Certificates of deposit over $100,000 47,021 1,272 5.41% 28,795 796 5.53%
IRA certificates 9,522 281 5.90% 7,242 219 6.05%
-------- ------- -------- -------
Total interest bearing deposits 277,546 7,184 5.18% 207,527 5,574 5.37%
-------- ------- -------- -------
Federal funds purchased, repurchase
agreements, and other short-term
borrowings 44,407 1,169 5.26% 14,941 433 5.80%
Long-term borrowings 16,834 646 7.67% 18,944 748 7.90%
-------- ------- -------- -------
Total interest bearing liabilities 338,787 8,999 5.31% 241,412 6,755 5.60%
-------- ------- -------- -------
NON-INTEREST BEARING LIABILITIES:
Demand deposits 28,282 19,357
Other liabilities 2,101 1,578
Shareholders' equity 19,765 14,344
-------- --------
Total liabilities and
shareholders' equity $388,935 $276,691
======== ========
Net interest income $ 7,420 $ 4,702
======= =======
Net interest margin 3.95% 3.57%
<FN>
- ------------------------------------
<F1> Interest on non-accruing loans is not included for purposes of calculating
yields which have been annualized.
</TABLE>
- 13 -
<PAGE> 14
Provision for Loan Losses
Consistent with the Bank's written loan policy, an allowance is set
aside to offset possible future loan losses. This allowance is evaluated on a
monthly basis at a rate determined by management based upon its review of the
loan portfolio. The allowance for loan losses is increased by these
provisions which are charged against income, and reduced by loans charged off,
net of recoveries. The allowance is maintained at a level considered adequate
to provide for potential loan losses based on management's evaluation of the
anticipated impact on the loan portfolio of current economic conditions,
changes in the character and size of the portfolio, past loan loss experience,
potential future loan losses on loans to specific customers and/or industries,
and other pertinent factors that management believes require current
recognition in estimating possible loan losses.
For the quarter ended June 30, 1997, the provision for loan losses
was $628,000 compared to $251,000 for the corresponding quarter in 1996, an
increase of $377,000 or 150%. For the six month period ended June 30, 1997,
the provision for loan losses was $1.1 million compared to $431,000 for the
six months ended June 30, 1996, an increase of $690,000 or 160%. The
increases in the provision for possible loan losses for the three- and
six-month periods ended June 30, 1997 reflect the increase in total loans
outstanding. Total loans outstanding increased from $222.8 million at June 30,
1996 to $347.6 million at June 30, 1997.
Net loans charged off in the second quarter of 1997 totaled $118,000
compared to $233,000 for the same period in 1996. Net loans charged off
during the six months ended June 30, 1997 totaled $259,000 compared to
$323,000 for the same period in 1996. A large portion of the 1997 charge-off
totals was comprised of three commercial loans totaling $153,000, of which,
$111,000 was charged-off in the second quarter. Net charge-offs decreased
primarily because the 1996 totals included a charge-off of one commercial loan
totaling $165,000.
Non-interest Income and Expense
Non-interest income for the second quarter of 1997 was $328,000
compared to $218,000 for the second quarter of 1996. This increase of
$110,000, or 50%, was due to the increased number of deposit accounts, the
expanded base of service chargeable products offered to the Company's
customers, and the addition of non-deposit investments offered through INVEST
Financial Group. In addition, the Company was engaged in a cost improvement
program that included a revamping of the Bank's fee structure. The largest
improvement attributable to the cost improvement program involved fees charged
on overdrafts, which are estimated to increase non-interest income by
approximately $100,000 on an annual basis for 1997. Other improvements are
expected from improved cash management, increases in charges for customer
check supplies and an increase in installment loan fees. Management expects
continued growth in non-interest income as new products are developed and
offered to the Bank's customers.
For the six months ended June 30, 1997, non-interest income was
$646,000, an increase of $254,000 from $392,000 for the corresponding period
of 1996. This 65% increase was attributable to increased service charges
stemming from an expanded product base and an increase in service chargeable
deposits. Newly adopted service charge policies, previously mentioned, also
contributed to the increase in non-interest income.
For the quarter ended June 30, 1997, total non-interest expense
increased $768,000, or 45%, to $2.5 million from $1.7 million for the quarter
ended June 30, 1996. This increase included a 71% increase in salaries and
employee benefits and a 23% increase in other operating expenses. 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 added. In addition, experienced customer service
representatives were hired to operate the new South County and St. Peters
branches.
- 14 -
<PAGE> 15
This change in the personnel profile was reflected in the increased
costs associated with salaries and employee benefits. Additionally, as the
banking industry continues to consolidate, the Bank plans to hire additional
qualified employees in 1997 from the pool of experienced workers expected to
become available as local branches of other financial institutions are closed.
As of June 30, 1997, the Bank employed 137 full-time equivalent employees
compared to 92 full-time equivalent employees at June 30, 1996, representing a
49% increase.
A large portion of the increase in operating expenses was directly
related to the operation of the newly opened South County and St. Peters
branches, as well as the development of the Allegiant Bank Operations Center
which also serves as the home to the Mortgage Company and Edge. The remainder
of the increase in operating expenses was attributable to expenditures for
telephone, supplies, professional fees and business development. Management
believes that these increases are attributable to the Bank's recent growth and
represent the normal increases in regular business activities. Also included
in the increase in non-interest expense are expenditures associated with the
Bank's newest investments in computer technology, including: an on-line teller
system, a PC network and a sophisticated retail cash-management system.
Management believes that investment in computer technology will yield future
benefits in the form of increased efficiency and profitability, as the Bank
will be able to offer new service chargeable products to match more closely
its customers' needs.
For the six months ended June 30, 1997, total non-interest expense
increased 48% to $4.8 million from $3.2 million at June 30, 1996. This
increase included a 47% increase in salaries and other employee benefits. The
additional costs incurred for salaries and employee benefits were due to the
previously mentioned change in the employee mix. Depreciation expense
increased 43% from $214,000 during the six months ended June 30, 1996 to
$307,000 during the same period ended June 30, 1997. The increase was
primarily attributable to the furniture and equipment purchased in conjunction
with new branch openings. Business development expense increased 138% from
$33,000 during the six months ended June 30, 1996 to $80,000 during the same
period ended June 30, 1997. This increase was primarily attributable to the
Bank's continuing efforts to attract and develop business relationships.
Commission expense increased 76% from $125,000 during the six months ended
June 30, 1996 to $221,000 during the same period ended June 30, 1997. This
increase was primarily attributable to the sale of non-deposit investments
which the Bank began selling through INVEST Financial Group in early 1997. In
addition, the Bank recorded $67,000 in depreciation of assets related to
capital leases, the majority of which was attributable to one capital lease.
FINANCIAL CONDITION
At June 30 , 1997, the Company's total assets were $427.5 million, an
increase of $49.9 million or 13% from December 31, 1996. This increase was
primarily attributable to a $55.7 million increase in loans outstanding from
$291.9 million at December 31, 1996 to $347.6 million at June 30, 1997. A
substantial portion of these loans were in the form of one- to four-family and
other real estate mortgages. Fed funds sold decreased 91% during the six
months ended June 30, 1997 to $1.0 million from $10.8 million at December 31,
1996. This decrease was due to increased loan production. Investment
securities increased 3%, or $1.8 million, from $60.6 million at December 31,
1996 to $62.4 million at June 30, 1997.
Loans
Loans, the largest component of interest earning assets, increased
19% during the first six months of 1997. This increase was attributable to a
59% increase in construction loans, a 22% increase in one- to four-family
mortgage loans, and a 14% increase in commercial loans. The growth in
construction loans was partially attributable to new business relationships
introduced to the Bank by
- 15 -
<PAGE> 16
newly hired additions to the commercial lending staff, allowing real estate
construction loans to increase $5.2 million from $8.8 million at December 31,
1996 to $14.0 million at June 30, 1997.
Real estate mortgage loans increased $26.2 million during the first
six months of 1997, totaling $147.6 compared to $121.4 million at December 31,
1996. This increased production includes approximately $5.2 million in
conforming Federal National Mortgage Association ("FNMA") loans, which could
be used as an additional source of liquidity. The Mortgage Company was the
key contributor to this increase in mortgage loan production, with $35.6
million in loans originated.
The increase in commercial loans was largely due to marketing efforts
of the Bank's commercial loan team, strengthened by the recent additions of
personnel recruited from competing banks in the area. Many of these loan
officers were able to transfer business relationships with them. Commercial
loans increased $10.8 million, from $75.1 million at December 31, 1996 to
$85.9 million on June 30, 1997. The majority of these loans are tied to the
Bank's Corporate Market rate (which generally moves with the national prime
lending rate) and tend to be the Bank's most profitable loans.
The composition of the loan portfolio is summarized as follows:
<TABLE>
LENDING AND CREDIT MANAGEMENT<F1>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1997 1996 1996
--------------------- -------------------- ---------------------
PERCENT PERCENT PERCENT
OF TOTAL OF TOTAL OF TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ -------- ------ -------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial, agricultural,
municipal and industrial
development $ 85,888 24.71% $ 75,129 25.74% $ 50,090 22.48%
Real estate--construction 13,963 4.02 8,763 3.00 9,091 4.08
Real estate--mortgage:
One- to four-family 147,583 42.45 121,386 41.58 85,598 38.42
Multi-family and commercial 87,265 25.10 74,721 25.60 63,302 28.41
Consumer and other 13,124 3.78 12,084 4.14 14,884 6.68
Less unearned income (189) (.05) (157) (0.05) (160) (0.07)
-------- ------ -------- ------ -------- ------
Total loans $347,634 100.00% $291,926 100.00% $222,805 100.00%
======== ====== ======== ====== ======== ======
<FN>
- ------------------------------------
<F1> The Bank had no outstanding foreign loans at the dates reported.
</TABLE>
- 16 -
<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>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Allowance for possible loan losses
(beginning of period) $ 3,100 $ 2,130
Loans charged off:
Commercial, financial, agricultural,
municipal and industrial development (124) (41)
Real estate--mortgage (56) (277)
Installment and consumer (79) (5)
Other loans -- --
-------- --------
Total loans (259) (323)
-------- --------
Recoveries of loans previously charged off:
Commercial, financial, agricultural,
Municipal and industrial development 6 47
Real estate--mortgage -- 3
Installment and consumer 7 2
Other loans -- --
-------- --------
Total recoveries 13 52
-------- --------
Net loans charged off (246) (271)
-------- --------
Provision for possible loan losses 1,121 431
-------- --------
Allowance for possible loan losses (end of period) $ 3,976 $ 2,290
-------- --------
Loans outstanding:
Average $311,707 $196,571
End of period $347,634 $222,805
Ratios:
Net charge offs to average loans outstanding 0.08% 0.14%
Net charge offs to provision for loan losses 21.94% 62.88%
Provision for loan losses to average loans outstanding 0.36% 0.22%
Allowance for loan loss to total loans outstanding 1.14% 1.03%
Allocation for possible loan losses at end of period:
Commercial, financial, agricultural,
municipal and industrial development $ 1,864 $ 615
Real estate--construction 159 92
Residential real estate loans, first deeds of trust 667 852
Installment loans to individuals 134 105
All other loans -- --
Unallocated 1,152 626
-------- --------
Total $ 3,976 $ 2,290
======== ========
</TABLE>
- 17 -
<PAGE> 18
Investments
Investment securities increased $1.8 million in the first six months
of 1997, from $60.6 million at December 31, 1996 to $62.4 million at June 30,
1997. The increase was primarily attributable to a $1.1 million increase in
United State Treasury securities from $7.9 million at December 31, 1996 to
$9.0 million at June 30, 1997. In addition, there was a $1.4 million increase
FHLB stock due to purchases required under the Bank's borrowing agreement with
the FHLB. FHLB stock increased from $4.5 million at December 31, 1996 to $5.9
million at June 30, 1997.
The book values of the investment securities for the periods
indicated are as follows:
<TABLE>
INVESTMENT SECURITIES PORTFOLIO
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
United States Treasury securities $ 8,963 $ 7,941
Obligations of United States government agencies 46,079 46,718
Federal Home Loan Bank stock 5,898 4,462
States and political subdivisions 1,158 1,199
Plus unrealized gain on securities held
available for sale 45 35
Other 255 205
------- -------
Total investment securities $62,398 $60,560
======= =======
</TABLE>
ASSET QUALITY
The Company's allowance for possible loan losses increased 28%, from
$3.1 million on December 31, 1996 to $4.0 million on June 30, 1997. This
increase was primarily due to the provision of $1.1 million to the reserve for
possible loan losses during the first six months of 1997. The reserve for
loan losses is budgeted by using a risk weighting system based upon the
different risk categories of loans. The allowance for loan losses to total
loans increased to 1.14% at June 30, 1997 from 1.06% at December 31, 1996.
Management believes that the allowance for possible loan losses at June 30,
1997 was adequate to reflect the credit risk in the loan portfolio. See
"--Provision for Loan Losses."
Non-performing loans increased to $872,000 at June 30, 1997, an
increase of $180,000 from $692,000 at December 31, 1996. The ratio of
non-performing loans to total loans increased to 0.25% at June 30, 1997,
compared to 0.24% at December 31, 1996. The increase in non-performing loans
was primarily attributable to one residential real estate loan which was
characterized as a non-accrual loan. Management believes that the Bank is
adequately reserved for these specific problem loans and that the increase in
non-performing loans does not reflect an overall trend in the asset quality of
the loan portfolio.
Potential problem credits are monitored by the lending staff and
senior management. The Bank continually monitors its loan portfolio and
discontinues the accrual of interest on any loan on which payment of principal
or interest on a timely basis in the normal course of business is doubtful.
The discontinuance of interest accrual on a loan occurs at any time that a
significant problem is detected in the normal payment process. The Bank's
policy is to automatically place a loan on non-accrual status when it becomes
90 days past due, unless it is well secured and in the process of collection.
Interest income on a non-accrual loan is recognized only as collected.
- 18 -
<PAGE> 19
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 June 30, 1997 were
adequate. The following table summarizes, for the periods presented,
non-performing assets by category:
- 19 -
<PAGE> 20
<TABLE>
RISK ELEMENTS--NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1997 1996 1996
-------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Commercial, financial, agricultural and all other loans:
Past due 90 days or more $ 119 $ 5 $ 79
Non-accrual 288 207 171
Restructured terms -- -- --
Real estate--construction:
Past due 90 days or more -- 264 --
Non-accrual 130 84 340
Restructured terms -- -- --
Real estate--mortgage:
Past due 90 days or more -- -- --
Non-accrual 312 -- --
Restructured terms -- -- --
Installment loans to individuals:
Past due 90 days or more -- 23 --
Non-accrual 23 109 48
Restructured terms -- -- --
-------- -------- --------
Total non-performing loans: $ 872 $ 692 $ 638
======== ======== ========
Balance sheet information:
Total assets $427,481 $377,564 $292,421
Loans outstanding 347,634 291,926 222,805
Shareholders' equity 22,858 16,386 14,688
Allowance for possible loan loss 3,976 3,100 2,290
Ratios:
Non-performing loans to total loans outstanding 0.25% 0.24% 0.29%
Non-performing assets to total assets 0.20% 0.18% 0.22%
Non-performing loans to shareholders' equity 3.81% 4.22% 4.34%
Reserve for possible loan losses to total loans 1.14% 1.06% 1.03%
Reserve for possible loan losses
to non-performing loans 455.96% 447.98% 358.93%
Percent of categories to total end of period loans:
Commercial, financial, agricultural,
municipal and industrial development 24.71% 25.74% 22.48%
Real estate--construction 4.02% 3.00% 4.08%
Real estate--mortgage:
One- to four-family residential 42.45% 41.58% 38.42%
Multi-family and commercial 25.10% 25.60% 28.41%
Installment and consumer 3.78% 4.14% 6.68%
Less unearned income (0.05)% (0.05)% (0.07)%
-------- -------- --------
Total loans 100.00% 100.00% 100.00%
======== ======== ========
</TABLE>
- 20 -
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCE MANAGEMENT
Corresponding to the growth in assets for the first six months of
1997, total liabilities and shareholders' equity increased by $49.9 million.
A substantial portion of this increase was represented by a $38.1 million
increase in short-term borrowings. Long-term borrowing decreased by $1.0
million during the first six months of 1997 due to a partial repayment. The
Bank used these borrowings primarily to fund loan growth in anticipation of
recently opened branches attracting core deposits and until the planned
acquisitions of Reliance Financial, Inc. and the Warrenton and Union, Missouri
branches of Roosevelt Bank close in the third quarter of 1997. As of June 30,
1997, combined deposits from the planned acquisitions totaled approximately
$123.0 million. The addition of these deposits is expected to be partially
used for the planned retirement of current outstanding debt.
Deposits
During the six months ended June 30, 1997, total deposits increased
2.1%, or $6.3 million, to $315.0 million from $308.7 million at December 31,
1996. The Bank anticipates deposit growth will increase in the second half of
1997, as the South County branch matures and the newly opened St. Peters
branch begins to attract core deposits. As mentioned above, the planned
acquisitions of Reliance Financial, Inc. and the Warrenton and Union, Missouri
branches of Roosevelt Bank which are scheduled to close in the third quarter
of 1997 will substantially increase core deposits. As of June 30, 1997,
combined deposits from the planned acquisitions totaled approximately $123.0
million. In addition to the new branch, the Bank plans to continue offering
new products to increase core deposits and attract long-term banking
relationships. In 1997, the Bank introduced investment services through
INVEST Financial Group and plans to offer PC home banking and sophisticated
cash management services to commercial customers.
The following table summarizes deposit activity:
<TABLE>
DEPOSIT LIABILITY COMPOSITION
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------------------- ---------------------
PERCENT PERCENT
OF TOTAL OF TOTAL DOLLAR PERCENT
AMOUNT DEPOSITS AMOUNT DEPOSITS CHANGE CHANGE
------ -------- ------ -------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 34,928 11.09% $ 29,406 9.53% $ 5,522 18.78%
NOW accounts 11,627 3.69 10,711 3.47 916 8.55
Money market accounts 74,357 23.60 74,490 24.13 (133) (0.18)
Savings deposits 6,323 2.01 6,083 1.97 240 3.95
Certificates of deposit 132,885 42.18 128,407 41.60 4,478 3.49
Certificates of deposit
over $100,000 44,854 14.24 50,825 16.47 (5,971) (11.75)
IRA certificates 10,043 3.19 8,748 2.83 1,295 14.80
-------- ------- -------- ------ ------- ------
Total deposits $315,017 100.00% $308,670 100.00% $ 6,347 2.06%
======== ====== ======== ====== ======= ======
</TABLE>
The Bank seeks to maintain a level of liquidity that 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, meaning 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.
- 21 -
<PAGE> 22
Increasing core deposits generally involves the use of promotions,
paying premium rates coupled with advertising to attract new customers to the
Bank. When possible, the Bank has timed a deposit promotion to coincide with
the opening of a new branch to achieve maximum growth in deposits. It has
been the Bank's experience that the majority of deposits raised through these
promotions have remained at the Bank after the promotion is over and so have
provided a steadily growing base of core deposits at the Bank. In addition to
the above-described sources, the steady flow of maturing securities provides a
source of liquidity.
Capital Resources
Management anticipates continued loan demand in the Bank's market
area as bank consolidation continues and fewer middle market lenders serve the
area. In order to maintain the flexibility to fund this growth, the Company
intends to strengthen its equity capital position through retained earnings
and the issuance of debt and/or equity securities as deemed advisable. In
addition, the Company has entered into an agreement with the FHLB to provide
the Bank a credit facility secured by the Bank's assets with current
availability of $96.4 million of which $59.6 million was outstanding as of
June 30, 1997. These capital resources will provide the Bank the opportunity
to further expand the loan portfolio with the flexibility to increase deposits
when conditions best match the Bank's needs and resources.
The analysis of capital is dependent upon a number of factors
including asset quality, earnings strength, liquidity, economic conditions and
combinations thereof. The Federal Reserve Bank has issued standards for
measuring capital adequacy for bank holding companies. These standards are
designed to provide risk-responsive capital guidelines and to incorporate a
consistent framework for use by financial institutions. At this time, the two
primary criteria in effect are the risk-based capital guidelines and the
minimum capital to total assets or leverage ratio requirement.
In general the standards require banks and bank holding companies to
maintain capital based on "risk adjusted" assets so that categories of assets
with potentially higher credit risk will require more capital backing than
categories with lower credit risk. In addition, banks and bank holding
companies are required to maintain capital to support off-balance sheet
activities such as loan commitments.
The standards also classify total capital for this risk-based measure
into two tiers referred to as Tier 1 and Tier 2. For the Company, Tier 1
capital includes total shareholders' equity less goodwill. Tier 2 capital is
comprised of the reserve for loan and lease losses (within certain limits),
perpetual preferred stock not included in Tier 1, hybrid capital instruments,
term subordinated debt and intermediate-term preferred stock.
Bank holding companies are required to meet a minimum ratio of 8% of
qualifying total capital to risk-adjusted assets and a minimum ratio of 4% of
qualifying Tier 1 capital to risk-adjusted assets. Capital that qualifies as
Tier 2 capital is limited in amount to 100% of Tier 1 capital.
As of June 30, 1997, the Company's risked-based and Tier 1 capital
ratios were 9.63% and 7.31%, respectively. Identical capital standards apply
to the Bank. For the first six months of 1997, the Bank's risked-based
capital and Tier 1 capital ratios were 10.36% and 9.11%, respectively.
The minimum acceptable ratio of Tier 1 capital to tangible assets, or
leverage ratio, has been established by the FRB at 4%. As of June 30, 1997,
the Company's leverage ratio was 5.53%.
The Company currently believes that its business will require up to
$4.0 million of additional capital prior to the end of 1997, which capital
likely would be obtained in the form of a private placement or public offering
of equity securities, including possibly another rights offering. The
- 22 -
<PAGE> 23
Company's management will continue to monitor the Company's actual and
forecasted position in light of operating results and planned operations and
growth.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
No. 27 Financial Data Schedule
(b) Reports on Form 8-K
On April 1, 1997, the Company filed a report on Form 8-K to report,
pursuant to Item 5 thereof, the execution of an Agreement and Plan of Merger,
dated March 20, 1997, with Reliance Financial, Inc., a Delaware corporation
("Reliance"), whereby the Company agreed to acquire Reliance through the
merger of Reliance with and into the Company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 23 -
<PAGE> 24
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
ALLEGIANT BANCORP, INC.
(Registrant)
August 14, 1997 By: /s/ Shaun R. Hayes
--------------------------------------------
Shaun R. Hayes, President
and Principal Accounting Officer
- 24 -
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<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ALLEGIANT BANCORP, INC. QUARTERLY REPORT ON FORM 10-QSB FOR THE
QUARTER ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH REPORT.
</LEGEND>
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