<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1997
Registration No. 333-36211
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------------
ALLEGIANT BANCORP, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-519382
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7801 Forsyth Boulevard
St. Louis, Missouri 63105
(314) 726-5000
(Address and telephone number of principal executive offices)
-----------------
Shaun R. Hayes
President
7801 Forsyth Boulevard
St. Louis, Missouri 63105
(314) 726-5000
(Name, address, and telephone number of agent for service)
-----------------
Copy to:
Thomas A. Litz, Esq.
Thompson Coburn
Suite 3400
One Mercantile Center
St. Louis, Missouri 63101
(314) 552-6000
-----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering: / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: /x/
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
<TABLE>
CALCULATION OF REGISTRATION FEE
====================================================================================================================
<CAPTION>
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered offering price aggregate offering registration fee
per unit price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value... 446,414 shares $13.50 $6,026,589 $1,826.24<F1>
====================================================================================================================
<FN>
<F1> The Company paid a registration fee of $1,812.41 on September 23, 1997. Since September 23, 1997, the
proposed aggregate offering price increased from $5,980,946 to $6,026,589 and the registration fee
increase from $1,812.41 to $1,826.24 due to issuance of additional shares. The Company is paying an
additional $13.83 with the filing of this Amendment No. 1.
</TABLE>
-----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT
TO SAID SECTION 8(a), MAY DETERMINE.
===============================================================================
<PAGE> 2
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 31, 1997
********************************************************************************
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed with the *
* Securities and Exchange Commission. These securities may not be sold nor *
* may offers to buy be accepted prior to the time the registration statement *
* becomes effective. This prospectus shall not constitute an offer to sell *
* or the solicitation of an offer to buy nor shall there be any sale of these *
* securities in any State in which such offer, solicitation or sale would *
* be unlawful prior to registration or qualification under the securities *
* laws of any such State. *
********************************************************************************
PROSPECTUS
446,414 SHARES
ALLEGIANT BANCORP, INC.
COMMON STOCK
Allegiant Bancorp, Inc., a Missouri corporation (the "Company"), is
offering for sale, on a "best efforts" basis, up to 446,414 shares of its
common stock, $0.01 par value ("Common Stock"), to its shareholders of record
at the close of business on October 15, 1997 (the "Record Date"). The
offering consists of the issuance of a nontransferable right to subscribe
("Subscription Right") for the purchase of 0.125 additional shares of Common
Stock, at $13.50 per share (the "Subscription Price"), for every one share
held on the Record Date. Fractional shares will not be issued. Shareholders
who exercise their Subscription Rights in full may purchase additional shares
of Common Stock, at the Subscription Price, pursuant to a nontransferable
oversubscription privilege ("Oversubscription Privilege"). See "The
Offering." On the Record Date, there were 3,571,314 shares of Common
Stock outstanding. The Subscription Rights give each shareholder of the
Company the opportunity to at least maintain his or her proportionate
interest in the equity of the Company.
All subscriptions are irrevocable. No minimum sale of shares of Common
Stock by the Company is required. If at the Offering Termination Date (as
defined below) fewer than all of the shares of Common Stock offered hereby
shall have been subscribed for, subscriptions which have been accepted by the
Company shall remain effective, and this offering shall terminate with
respect to the unsubscribed shares of Common Stock.
The officers and directors of the Company and members of their
immediate families or entities which they control have indicated their
intention to purchase in the offering an aggregate of at least 183,469 shares
of Common Stock or shares of Common Stock having an aggregate purchase price
of at least $2,476,832, subject to proration to the extent of any
oversubscription. See "Security Ownership by Management."
The Common Stock is traded on the Nasdaq National Market (the "Nasdaq")
under the symbol "ALLE." On October 28, 1997, the last sale price of the
Common Stock as reported on the Nasdaq was $17.50 per share. See "Price
Range of Common Stock and Dividends." See "The Offering" for factors that
were considered in determining the Subscription Price.
THE SUBSCRIPTION RIGHTS AND THIS OFFERING EXPIRE AT 5:00 P.M., CENTRAL
TIME, ON DECEMBER 3, 1997, UNLESS FURTHER EXTENDED OR EARLIER TERMINATED BY THE
COMPANY, IN ITS SOLE DISCRETION, WITHOUT NOTICE TO SHAREHOLDERS ("OFFERING
TERMINATION DATE").
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF COMMON STOCK OFFERED
HEREBY.
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES ADMINISTRATION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES ADMINISTRATION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
--------------------
(Cover page continued on next page)
<PAGE> 3
<TABLE>
<CAPTION>
============================================================================================
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
SUBSCRIPTION PRICE COMMISSIONS<F1> COMPANY<F2>
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE $13.50 None $13.50
- --------------------------------------------------------------------------------------------
TOTAL<F3> $6,026,589 None $6,026,589
============================================================================================
<FN>
<F1> The Common Stock will be sold by the Company and no underwriting
discounts or commissions will be paid in connection with such sales.
No special or other compensation will be paid to directors, officers
and employees of the Company in connection with this offering. See
"The Offering."
<F2> Before deducting expenses payable by the Company estimated to be
$90,000.
<F3> Assumes the purchase of all 446,414 shares of Common Stock offered
hereby.
</TABLE>
--------------------
Funds received upon exercise of Subscription Rights will not be
held in escrow pending conclusion of the offering. Funds received upon
exercise of Oversubscription Privileges will be held in escrow until the
Offering Termination Date. See "The Offering." Payments for subscriptions
that are not accepted will be returned without interest. Delivery of stock
certificates will be made within approximately three weeks after the Offering
Termination Date.
--------------------
The date of this Prospectus is October 31, 1997.
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549; Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade
Center, New York, New York 10048. Copies of such material can also be
obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company's Common Stock is quoted and traded on the Nasdaq National
Market. Reports, proxy statements and other information concerning the
Company may also be inspected at the offices of The Nasdaq Stock Market,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed a Registration Statement (the "Registration
Statement") with the Commission under the Securities Act of 1933 (the
"Securities Act"), with respect to the securities covered by this Prospectus.
This Prospectus does not contain all of the information set forth in the
Registration Statement. The Registration Statement may be inspected without
charge at the office of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549 or obtained from such office upon payment of the fees prescribed
by the Commission. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants (including the Company) that file electronically with the
Commission. The address of the Commission's Web site is http://www.sec.gov.
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT. When used
in this Prospectus, the words "estimate," "project," "intend," "expect" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. For a discussion of such risks, see "Risk Factors." Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. Documents relating to the Company,
excluding exhibits unless specifically incorporated therein, are available,
without charge, upon written or oral request to Christy Siburt, Investor
Relations, Allegiant Bancorp, Inc., 7801 Forsyth Boulevard, St. Louis,
Missouri 63105; telephone number (314) 726-5000.
The following documents filed with the Commission by the Company under
the Exchange Act are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996.
(b) The Company's Quarterly Reports on Form 10-QSB for the quarters
ended March 31, 1997 and June 30, 1997.
- 3 -
<PAGE> 5
(c) The Company's Current Reports on Form 8-K dated (i) April 1, 1997
and (ii) September 10, 1997, as amended by Form 8-K/A dated
October 29, 1997.
(d) The description of the Common Stock set forth in Item 11 of the
Company's Registration Statement on Form 10-SB (Reg. No.
0-26350), filed with the Commission on June 30, 1995 and any
amendment or report filed for the purpose of updating such
description.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Exchange Act after the date hereof and through the
Offering Termination Date shall be deemed to be incorporated by reference
herein and made a part hereof from the date any such document is filed. The
information relating to the Company contained in this Prospectus does not
purport to be complete and should be read together with the information in
the documents incorporated by reference herein. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
- 4 -
<PAGE> 6
PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus. This summary is provided for convenience and is qualified in its
entirety by the detailed information and financial statements, including the
notes hereto, appearing elsewhere in this Prospectus. All share and per
share information in this Prospectus has been adjusted to reflect: a
six-for-five stock split (in the form of a stock dividend) paid January 1994;
a three-for-two stock split (in the form of a stock dividend) paid January
1995; a 10% stock dividend paid January 1996; and a 10% stock dividend paid
January 1997. See "Price Range of Common Stock and Dividends."
THE COMPANY
Allegiant Bancorp, Inc. (the "Company") is a bank holding company that
owns all of the capital stock of Allegiant Bank, a Missouri state-chartered
bank (the "Bank"), and Allegiant Bank, FSB, a federal savings bank (the
"Savings Bank"). The Company's banking subsidiaries provide personal and
commercial banking and related financial services from eleven locations in
the St. Louis Standard Metropolitan Statistical Area ("St. Louis SMSA"), the
16th largest metropolitan area in the United States and three 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 the Bank in 1990. In November 1994, the
Bank acquired the Mortgage Company. Effective January 1995, Allegiant State
Bank merged into the Bank. Edge was organized in October 1996 and began
operations in January 1997. The Savings Bank was acquired in August 1997.
Unless the context indicates otherwise, references herein to the "Company" or
"Allegiant" refer to Allegiant Bancorp, Inc. and its subsidiaries, and
references to the "Operating Subsidiaries" refer collectively to the Bank,
the Savings Bank and Edge. The address of the Company's principal executive
offices is 7801 Forsyth Boulevard, St. Louis, Missouri 63105 and its
telephone number is: (314) 726-5000.
As of June 30, 1997, the Company reported, on a consolidated basis,
total assets of $427.5 million, net loans of $343.7 million, total deposits
of $315.0 million and shareholders' equity of $22.9 million.
FINANCIAL RESULTS
For the nine-month period ended September 30, 1997, the Company reported,
on a consolidated basis, net income of $2.1 million, compared to $1.4 million
for the nine-month period ended September 30, 1996, an increase of $700,000,
or 53%. On a per share basis, net income increased from $.59 during the nine-
month period ended September 30, 1996 to $.70 during the corresponding period
in 1997.
As of September 30, 1997, the Company reported, on a consolidated
basis, total assets of $578.7 million, net loans of $434.7 million, total
deposits of $473.4 million and shareholders' equity of $34.9 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Results of Operations."
- 5 -
<PAGE> 7
RECENT ACQUISITIONS
Pursuant to an Agreement and Plan of Merger (the "Merger Agreement"),
dated March 20, 1997, by and between the Company and Reliance Financial, Inc.
("Reliance"), a Delaware corporation and parent of Reliance Financial Savings
and Loan Association of St. Louis County ("RFSLA"), the Company acquired
Reliance through the merger of Reliance with and into the Company (the
"Reliance Acquisition"). RFSLA was renamed Allegiant Bank, FSB upon
consummation of the Reliance Acquisition. Under the Merger Agreement, the
Company acquired all of the outstanding capital stock of Reliance in exchange
for 599,126 shares of the Company's Common Stock. The transaction was
completed on August 29, 1997. As of June 30, 1997, Reliance reported, on a
consolidated basis, total assets of $30.3 million, total deposits of $23.1
million, net loans of $19.1 million and stockholders' equity of $6.9 million.
The Company recorded goodwill of $3.9 million in connection with the Reliance
Acquisition. The Company currently operates the Savings Bank as a
wholly-owned subsidiary of the Company.
Pursuant to separate Deposit Transfer and Asset Purchase Agreements,
dated May 8, 1997, by and between the Company and Roosevelt Bank
("Roosevelt"), a Missouri state-chartered bank, the Bank assumed the deposits
and acquired the loans and real property of Roosevelt's branch offices in
Warrenton, Missouri and Union, Missouri (collectively, the "Branch
Acquisition"). The Branch Acquisition was completed on September 4, 1997.
The Bank assumed approximately $95.7 million of deposit liabilities, acquired
real property and related automated teller machines ("ATMs"), furniture,
fixtures, equipment and other operating assets with an aggregate value of
$0.9 million, and approximately $2.9 million of consumer loans. The Company
recorded goodwill of $8.7 million in connection with the Branch Acquisition.
<TABLE>
<CAPTION>
THE OFFERING
<C> <S>
Securities Offered 446,414 shares of Common Stock. As of the Record
Date, there were 3,571,314 shares of Common Stock
outstanding<F1>.
Subscription Right For every one share of Common Stock held of record as
of the Record Date, a shareholder will have the
nontransferable Subscription Right to subscribe for
0.125 of a share of Common Stock. No fractional
shares will be issued.
Subscription Price $13.50 per share.
Oversubscription
Privilege Any shareholder who has exercised his or her
Subscription Rights in full may also subscribe, at the
Subscription Price, for shares not purchased through
the exercise of Subscription Rights of others, subject
to allotment of available shares. See "The Offering--
Oversubscription Privilege."
<FN>
- -----------------------
<F1> Does not include: (i) 515,464 shares of Common Stock reserved for issuance
upon exercise of outstanding stock options; and (ii) 88,482 shares of
Common Stock reserved for issuance upon exercise of outstanding warrants.
</TABLE>
- 6 -
<PAGE> 8
<TABLE>
<C> <S>
Offering
Termination Date 5:00 p.m., Central Time, on December 3, 1997, unless
further extended or earlier terminated by the Company
in its sole discretion without notice to shareholders.
Conditions Consummation of the sale of shares of Common Stock
pursuant to this offering is not conditioned upon the
sale of any minimum number of shares. Therefore, if
at the Offering Termination Date fewer than all shares
offered hereby shall have been subscribed for,
subscriptions which shall have been accepted by the
Company shall remain effective, and this offering
shall terminate with respect to the unsubscribed
shares. All subscriptions in this offering are
irrevocable by subscribers.
Release of Funds and
Share Certificates All funds received by the Company upon exercise of the
Subscription Rights will not be held in escrow and
will be immediately available for use by the Company.
All funds received by the Company in connection with
the Oversubscription Privilege will be deposited at
the Bank, as agent, in a segregated account. The
subscription funds deposited in the segregated account
will be released: (i) to any subscriber, without
interest, at the time his or her oversubscription is
rejected by the Company (or a portion of such funds,
if any oversubscription is rejected in part by the
Company); or (ii) to the Company after the Offering
Termination Date.
Certificates for shares subscribed for and accepted by
the Offering Termination Date will be delivered as
soon as practicable thereafter, which the Company
expects will be within approximately three weeks after
such date.
Risk Factors Investment in the shares involves certain risks.
Investors are advised to review carefully this
Prospectus in its entirety, especially the "Risk
Factors" section.
Dividends Since 1993, the Board of Directors has declared stock
dividends each year in varying amounts. The Company's
current policy is to pay cash dividends on the Common
Stock at the rate of $0.03 per share quarterly in
January, April, July and October of each year. In
September 1997, the Board of Directors announced its
intention to effect a five-for-four stock split (in
the form of a stock dividend) on January 21, 1998 to
holders of record at the close of business on January
7, 1998. Although the Board of Directors anticipates
paying cash and/or stock dividends in the future, no
assurance can be given that such dividends will be
paid. The Company's dividend policy will be reviewed
periodically. See "Price Range of Common Stock and
Dividends."
- 7 -
<PAGE> 9
Use of Proceeds The proceeds of the offering are anticipated to be
used for working capital and general corporate
purposes, including contributing all or a substantial
portion of such proceeds to the Operating Subsidiaries
to support continued growth of the Operating
Subsidiaries. See "Use Of Proceeds."
</TABLE>
- 8 -
<PAGE> 10
<TABLE>
ALLEGIANT BANCORP, INC.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<CAPTION>
AS OF OR FOR THE
SIX MONTHS ENDED AS OF OR FOR THE
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net primary earnings <F1> $ 0.45 $ 0.38 $ 0.76 $ 0.62 $ 0.53 $ 0.23 $ 0.14
Cash dividends declared <F1> 0.06 0.05 0.09 0.07 0.04 0.02 --
Book value at period-end 8.03 7.36 7.22 6.37 5.40 4.99 4.60
Shares outstanding (in thousands) <F1> 2,846 1,996 2,271 2,188 1,566 1,500 847
Average common shares
outstanding (in thousands) <F1> 2,870 2,371 2,386 2,056 1,520 1,077 852
EARNINGS (IN THOUSANDS):
Interest income $ 16,419 $ 11,457 $ 25,368 $ 19,252 $ 9,994 $ 5,585 $ 4,203
Interest expense 8,999 6,755 14,999 11,206 4,584 2,675 2,133
-------- -------- -------- -------- -------- --------- ---------
Net interest income 7,420 4,702 10,369 8,046 5,410 2,910 2,070
Provision for possible loan losses 1,121 431 1,448 977 849 233 108
Other income 646 409 1,081 654 513 282 247
Other expense 4,778 3,219 7,019 5,625 3,764 2,546 2,011
Income taxes 866 566 1,175 823 509 161 78
-------- -------- -------- -------- -------- --------- ---------
Net income $ 1,301 $ 895 $ 1,808 $ 1,275 $ 801 $ 252 $ 120
======== ======== ======== ======== ======== ========= =========
ENDING BALANCE SHEET (IN THOUSANDS):
Total assets $427,481 $292,421 $377,564 $280,386 $171,927 $ 104,416 $ 68,782
Investment securities 62,398 56,800 60,559 73,211 40,888 23,063 14,434
Total loans 347,634 222,805 291,926 181,544 121,393 69,773 45,600
Total deposits 315,017 237,479 308,670 231,309 134,884 90,686 61,624
Long-term debt 13,663 16,680 14,663 19,719 9,804 2,200 2,400
Shareholders' equity 22,858 14,688 16,386 13,938 8,453 7,487 3,894
Average assets 389,935 276,691 308,984 228,130 133,466 84,361 56,925
Average shareholders' equity 19,765 14,344 14,851 11,737 8,080 4,611 3,771
SELECTED RATIOS:
Return on average assets 0.33% 0.32% 0.59% 0.56% 0.60% 0.30% 0.21%
Return on average equity 6.58 6.24 12.17 10.86 9.91 5.47 3.18
Net interest margin <F2> 1.98 1.79 3.50 3.71 4.27 3.71 3.64
Average equity to average assets 5.07 5.18 4.81 5.14 6.05 5.47 6.62
Efficiency ratio <F3> 59.24 62.98 61.30 64.66 63.55 79.76 86.79
Reserve for possible loan losses to:
Outstanding loans 1.14 1.03 1.06 1.17 1.20 1.11 1.21
Non-performing loans 455.96 358.93 447.98 691.56 841.04 5,535.71 2,391.30
<FN>
- -----------------------------------------------
<F1> Based on weighted-average common shares outstanding. All share and per
share amounts have been restated to reflect: (i) a six-for-five stock
split (in the form of a stock dividend) paid in January 1994; (ii) a
three-for-two stock split (in the form of a stock dividend) paid in
January 1995; (iii) a 10% stock dividend paid in January 1996; and (iv)
a 10% stock dividend paid in January 1997.
<F2> Net interest margin equals net interest income divided by average
interest earning for the periods indicated.
<F3> Efficiency ratio equals other operating expense divided by the sum of
net interest income and other operating income.
</TABLE>
See "Unaudited Pro Forma Financial Information" for additional
information as to the effect of the Reliance Acquisition and the Branch
Acquisition on the Company's consolidated financial condition and results of
operations.
- 9 -
<PAGE> 11
RISK FACTORS
Prospective purchasers of Common Stock offered hereby should consider
carefully the risk factors set forth below, as well as the other information
set forth in this Prospectus, in determining whether to purchase the Common
Stock. This Prospectus contains forward-looking statements which are
inherently subject to risks and uncertainties. Cautionary statements made
herein should be read as being applicable to all related forward-looking
statements wherever they appear in this Prospectus or the documents
incorporated by reference herein. The Company's actual results could differ
materially from those currently anticipated due to a number of factors,
including, without limitation, the following: (i) possible adverse effects
of Federal and state laws and regulations applicable to the Company's
financial services operations; (ii) credit risk inherent in the Operating
Subsidiaries' loan portfolios; (iii) dependence upon economic conditions in
the Company's markets; (iv) interest rate risk inherent in the Company's
investment and loan portfolios; and (v) risks associated with the Company's
growth strategy, including the Branch Acquisition and the Reliance
Acquisition, as well as the other factors discussed in this Prospectus and
the documents incorporated by reference herein.
REGULATORY RISK
The banking industry is heavily regulated. These regulations are
intended to protect depositors, not shareholders. The Bank is subject to
regulation and supervision by the Federal Deposit Insurance Corporation (the
"FDIC") and the Missouri Division of Finance (the "Division of Finance"), the
Savings Bank is subject to regulation and supervision by the Office of Thrift
Supervision (the "OTS") and the Company is subject to regulation and
supervision by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"). The burden imposed by Federal and state
regulations puts banks and federal savings associations at a competitive
disadvantage compared to less regulated competitors such as finance
companies, mortgage banking companies and leasing companies. The banking and
thrift industries continue to lose market share to their competitors. In
addition, legislative reactions to the problems of the thrift industry during
the 1980s have added to the regulatory burden on banks and thrifts.
In December 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was signed into law. FDICIA amended numerous Federal
banking and thrift statutes and has required the bank and thrift regulatory
agencies to adopt regulations for implementing many provisions of FDICIA.
Regulators have been given substantially more power over banks and thrifts,
including the ability to move quickly without interference to remove
management or directors. FDICIA also directs regulators to close or transfer
troubled institutions before they become insolvent. FDICIA and the
regulations thereunder have increased the regulatory and supervisory
requirements for financial institutions, which have resulted and will
continue to result in increased operating expenses. See "Supervision and
Regulation."
CREDIT RISK
The greatest risk facing lenders generally is credit risk, that is, the
risk of losing principal and interest due to a borrower's failure to perform
according to the terms of a loan agreement. There can be no assurance that
the Company's future results of operations or financial condition will not be
adversely affected by failure of borrowers to pay principal and interest
obligations on loans. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Years Ended December 31, 1995 and
1996--Risk Management--Credit Risk."
- 10 -
<PAGE> 12
EXPOSURE TO LOCAL ECONOMIC CONDITIONS
The Operating Subsidiaries' concentration of loans in the State of
Missouri exposes them to risks resulting from changes in the local economy.
The business of the Operating Subsidiaries could be adversely affected by
recessionary and economic conditions in their markets or by a significant
decrease in real estate values therein. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Years Ended
December 31, 1995 and 1996--Risk Management--Exposure to Local Economic
Conditions."
INTEREST RATE RISK
The Company'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 maturities of the Operating
Subsidiaries' assets are well balanced in relation to maturities of their
liabilities (gap management), gap management is not an exact science.
Rather, it involves estimates as to how changes in the general level of
interest rates will impact the yields earned on assets and the rates paid on
liabilities. Moreover, rate changes can vary depending upon the level of
rates and competitive factors. From time to time, maturities of assets and
liabilities may not be balanced, and a rapid increase or decrease in interest
rates could have an adverse effect on net interest margins and results of
operations of the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Years Ended December 31, 1995
and 1996--Risk Management--Interest Rate Risk."
DEPOSIT MIX
Certificates of deposit accounted for approximately 62% of the
Operating Subsidiaries' total deposits as of September 30, 1997. Many of
such certificates of deposit were purchased by customers in response to
promotions offering above-market interest rates. Payment of premium interest
rates by the Operating Subsidiaries adversely affects the Operating
Subsidiaries' interest rate spread. Moreover, the Operating Subsidiaries'
concentration of deposits in certificates of deposit could have a negative
impact on the stability of their 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 Operating
Subsidiaries then are not offering promotional rates. There can be no
assurance the concentration of the Operating Subsidiaries' deposits in
certificates of deposit will not have a material adverse effect on the
Operating Subsidiaries' future results of operation or liquidity.
NO ASSURANCE OF FUTURE GROWTH
There can be no assurance that the Company will continue to achieve
growth in assets and earnings. The Company's ability to achieve such growth
will be dependent upon numerous factors, including the intensity of
competition for deposits and loans with other bank and non-bank financial
institutions, the availability of suitable opportunities to make loans,
selection of suitable branch sites on favorable terms, avoidance of credit
losses, hiring and training of personnel, depth in management and adequate
financing.
- 11 -
<PAGE> 13
RECENT ACQUISITIONS
The Reliance Acquisition was completed on August 29, 1997 and
represents the first acquisition by the Company of a publicly held financial
institution and of a federal savings bank. The Branch Acquisition was
completed on September 4, 1997 and represents the Company's largest
acquisition to date in terms of the dollar amount of assets acquired. The
success of these acquisitions will depend on a number of factors, including
(but not limited to), the Company's ability to: (i) integrate the newly
acquired operations into its current operations; (ii) maintain existing
relationships with depositors in the newly acquired operations to minimize
withdrawals of deposits subsequent to the acquisitions; (iii) maintain and
enhance existing relationships with borrowers to limit unanticipated losses
from the acquired loans; (iv) control the incremental non-interest expense
from the newly acquired facilities to maintain overall operating
efficiencies; (v) retain and attract qualified personnel to staff the newly
acquired facilities; and (vi) compete in the communities served by the newly
acquired facilities and in nearby communities. There can be no assurance
that the Company will be able to integrate the newly acquired operations
successfully, that the future operating profit contribution (if any) from the
Branch Acquisition and the Reliance Acquisition will exceed charges for
amortization of the deposit premium paid in respect of the Branch Acquisition
or the goodwill recorded in the Reliance Acquisition or that the Company will
be able to manage effectively its growth resulting from the acquisitions.
COMPETITION
The Company encounters substantial competition for deposits and loan
customers in the markets in which it competes. The Company'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 Company's non-bank competitors
are not subject to the extensive Federal and state regulations that govern
the Company and, as a result, have a competitive advantage over the Company
in providing certain services. Many of the financial institutions with which
the Company competes are larger and have substantially greater financial
resources than the Company.
CONTROL BY MANAGEMENT
As of October 15, 1997, the Company's directors and executive
officers beneficially owned approximately 1,724,919 shares of Common Stock
(approximately 39% of the shares of Common Stock outstanding) including
shares of Common Stock subject to options and warrants that may be acquired
upon exercise or conversion within the next 60 days. This controlling
ownership will enable such persons to continue to possess voting control on
corporate matters for the foreseeable future. The Company's officers and
directors or members of their immediate families or entities which they
control have indicated their intention to purchase 183,469 shares of Common
Stock in the offering, which could materially increase their respective
beneficial ownership of Common Stock. See "Security Ownership by
Management."
NO ASSURANCE OF CASH OR STOCK DIVIDENDS
There is no assurance that the Company will have sufficient cash
available to declare cash dividends to its shareholders in the future. The
payment of cash dividends is subject to the discretion of the Company's Board
of Directors and will be dependent upon many factors, including the Company's
earnings and the earnings of the Operating Subsidiaries, their capital needs,
regulatory restrictions and
- 12 -
<PAGE> 14
other financial considerations. In addition, the Company is presently limited
in its ability to pay cash dividends on the Common Stock without the consent of
its lender. Management anticipates that for the foreseeable future, the Company
will follow a policy of retaining a substantial portion of its earnings to meet
capital and loan loss reserve requirements and to finance the expansion and
development of its business. Although the Company has paid stock dividends over
the past five years and has announced a proposed stock dividend to be paid in
January 1998, there can be no assurance that it will pay stock dividends in the
future. See "Price Range of Common Stock and Dividends."
RELIANCE ON MANAGEMENT
The success of the Company will depend to a large extent on the quality
of management provided by the senior management of the Company and the
Operating Subsidiaries, the loss of certain of whom would adversely affect
the Company. Other than a $2.0 million policy on the life of Shaun R. Hayes,
the President of the Company, the Company does not presently own, or intend
to purchase, insurance covering the lives of the senior management of the
Company and the Operating Subsidiaries. There can be no assurance that the
services of the senior management of the Company will continue to be
available.
BEST EFFORTS OFFERING
The shares of Common Stock are being offered by the Company on a "best
efforts" basis. Accordingly, there can be no assurance that all of the
shares will be sold. No minimum number of shares is required to be sold
under the terms of this offering. Upon the Company's acceptance of a
subscription other than pursuant to the Oversubscription Privilege, the funds
will be available for use by the Company. All subscriptions will be
irrevocable by subscribers. Those subscriptions accepted by the Company as
of the Offering Termination Date will constitute the shares sold in this
offering.
SHARES ELIGIBLE FOR FUTURE RESALE
Upon consummation of the offering, the Company will have outstanding an
aggregate of approximately 4,017,728 shares of Common Stock (assuming the
Subscription Rights are fully exercised). Future sales of substantial
amounts of Common Stock (including shares issued upon the exercise of stock
options and warrants) by the Company's current shareholders after the
offering, or the perception that such sales could occur, could adversely
affect the market price of the Common Stock. One hundred eight thousand nine
hundred shares of Common Stock, which were privately placed in May 1995,
became eligible for resale in May 1997, subject to compliance with the terms
and conditions of Rule 144. No prediction can be made as to the effect, if
any, that future sales of shares, or the availability of shares for future
sale, will have on the market price of the Common Stock. See "Shares
Eligible for Future Sale."
MARKET FOR COMMON STOCK
Although the Common Stock is listed on the Nasdaq, there has been only
limited trading in the Common Stock. There can be no assurance that an
active market for the Common Stock will develop in the foreseeable future.
Investors in the shares of Common Stock must, therefore, be prepared to
assume the risk of their investment for an indefinite period of time.
- 13 -
<PAGE> 15
STOCK NOT AN INSURED DEPOSIT
Investments in the shares of Common Stock are not deposits insured
against loss by the FDIC or any other entity.
DETERMINATION OF OFFERING PRICE
The Subscription Price of the shares of Common Stock in this offering
has been determined by the Board of Directors of the Company. The
Subscription Price of the Common Stock does not necessarily reflect the price
at which the Common Stock would sell in the market following this offering.
See "The Offering--Determination of Subscription Price."
THE OFFERING
SUBSCRIPTION RIGHTS
The Company, through its officers and directors, is offering to the
holders of its Common Stock of record at the close of business on October
15, 1997 (the "Record Date"), the nontransferable right to subscribe (the
"Subscription Right"), at $13.50 per share (the "Subscription Price"), for
0.125 shares of Common Stock of the Company for every one share held on the
Record Date.
THE DIRECTORS AND OFFICERS OF THE COMPANY AND MEMBERS OF THEIR IMMEDIATE
FAMILIES OR ENTITIES WHICH THEY CONTROL HAVE INDICATED THEIR INTENTION TO
PURCHASE IN THIS OFFERING AN AGGREGATE OF AT LEAST 183,469 SHARES HAVING AN
AGGREGATE PURCHASE PRICE OF AT LEAST $2,476,832, SUBJECT TO PRORATION TO THE
EXTENT OF ANY OVERSUBSCRIPTION.
No director or officer will be entitled to receive any commissions or
other compensation in connection with selling such shares, but any of them
may be reimbursed by the Company for reasonable expenses, if any, incurred in
connection with the sale of the shares.
OVERSUBSCRIPTION PRIVILEGE
Any shareholder who has exercised his or her Subscription Rights in
full will have the nontransferable right to subscribe ("Oversubscription
Privilege"), at the Subscription Price, for additional shares not purchased
through the exercise of Subscription Rights of others, subject to allotment
as more fully described below.
Oversubscriptions must be accompanied by payment in full for the number
of shares requested thereunder, as more fully described in the Subscription
Certificate. If the shares available are not sufficient to satisfy all
subscriptions pursuant to the Oversubscription Privilege, the available
shares ("Available Shares") will be allotted in accordance with the following
formula (with fractional shares being rounded to the next lowest whole
share):
(i) First, each shareholder exercising an Oversubscription
Privilege will be allocated that number of shares which equals the
lesser of: (a) the number of shares as to which the Oversubscription
Privilege is proposed to be exercised; or (b) the shareholder's
Ownership Percentage multiplied by the number of Available Shares. As
used herein, a shareholder's "Ownership Percentage" shall mean the
percentage determined by dividing the number of
- 14 -
<PAGE> 16
Subscription Rights issued to such shareholder by the total number of all
Subscription Rights issued to all shareholders; and
(ii) Second, each shareholder exercising an Oversubscription
Privilege will be allocated an additional amount of Available Shares
which are not allocated pursuant to clause (i) above (such unallocated
shares being referred to as "Remaining Shares"), which equals the
lesser of: (y) the number of Available Shares as to which the
Oversubscription Privilege is proposed to be exercised, less the number
of Available Shares allocated to such shareholder pursuant to clause
(i) above; or (z) the number of Remaining Shares multiplied by a
fraction, the numerator of which is the number of shares as to which
the Oversubscription Privilege is proposed to be exercised by such
shareholder, less the number of Available Shares allocated to such
shareholder pursuant to clause (i) above, and the denominator of which
is the aggregate number of shares as to which Oversubscription
Privileges are proposed to be exercised by all shareholders, less the
aggregate number of Available Shares allocated pursuant to clause (i)
above.
An example of the operation of the foregoing formula is included as
Exhibit B to this Prospectus. The Bank, the "Subscription Agent," will
- ---------
refund, without interest, payments received in excess of the amount required
to pay for the shares allotted for purchase.
SUBSCRIPTION CERTIFICATES
The Subscription Rights and Oversubscription Privilege are represented
by a nontransferable subscription certificate the form of which is included
as Exhibit A to this Prospectus (the "Subscription Certificate") which sets
---------
forth the total number of Subscription Rights to which each shareholder is
entitled. Subscription Rights may be exercised in whole or in part. No
subscriber may subscribe for fractional shares of Common Stock. All
fractional shares will be rounded to the next lowest whole share.
OFFERING EXPIRATION DATE
This offering will expire at 5:00 p.m., Central Time, on December 3,
1997 (the "Offering Termination Date"), unless further extended or earlier
terminated by the Company, in its sole discretion, without notice to
shareholders. Any rights to purchase shares of Common Stock evidenced by the
Subscription Certificates will thereafter be void.
SUBSCRIPTION PROCEDURE
To subscribe for shares of Common Stock, a shareholder must complete
the Subscription Certificate and deliver the Subscription Certificate,
together with full payment of the Subscription Price for all shares
subscribed for, to the Subscription Agent, at the following address:
Allegiant Bank
2550 Schuetz Road
Maryland Heights, Missouri 63043
Attention: Rights Offering
When using the United States mail, sufficient time must be allowed for
the Subscription Certificate to be delivered to the Subscription Agent prior
to the Offering Termination Date. Late delivery will not be accepted unless
the Company, in its sole discretion, otherwise determines. The
- 15 -
<PAGE> 17
Subscription Price must be paid in full in United States currency by check, bank
draft, money order or wire transfer (as provided in the Subscription Exercise
Form) payable to Allegiant Bancorp, Inc. SUBSCRIPTIONS ARE IRREVOCABLE
FOLLOWING RECEIPT BY THE SUBSCRIPTION AGENT. It is suggested that a
copy of the completed Subscription Certificate be retained by each subscriber
for his or her records. Certificates representing the Common Stock issued
in this offering will be delivered as soon as practicable after the Offering
Termination Date, which is expected to be within three weeks after such date.
All executed Subscription Certificates must be in a form satisfactory
to the Company. Once made, subscriptions are irrevocable, and no
alternative, conditional or contingent subscriptions will be accepted. The
Company reserves the right to waive any irregularities or conditions, and the
Company's interpretations of the terms and conditions of this offering shall
be final and binding. Any irregularities in connection with subscriptions
must be cured within such time as the Company shall determine, unless waived.
The Company is not under any duty to give notification of defects in
subscriptions and it will not have any liability for failure to give
notifications. Subscriptions will not be deemed to have been made until such
irregularities have been cured or waived. Defective subscriptions and
subscriptions not accepted by the Company will be promptly returned, without
interest, to the subscriber.
SUBSCRIPTION RIGHTS NOT TRANSFERABLE
The Subscription Rights granted to shareholders are not transferable
other than by will or the laws of descent and distribution. Accordingly,
there will be no market for such rights.
Notwithstanding the foregoing and except as prohibited by the terms of
certain savings and retirement plan accounts, shareholders may exercise
Subscription Rights in respect of shares beneficially owned by them in any
form of ownership they choose, so long as they beneficially own the
subscribed for shares. For example, a shareholder who owns shares jointly
with a spouse may exercise the related Subscription Rights and direct that
the shares subscribed for be registered in that individual's name only.
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price of the shares of Common Stock in this offering
has been determined by the Board of Directors of the Company after taking
into account prevailing market conditions and a number of other factors,
including, but not limited to: (i) the Company's earnings; (ii) the current
financial position of the Company; (iii) the experience of the Company's
management; (iv) the recent trading history of the Common Stock; (v) the
current shareholders' equity per share; (vi) the value of similar securities;
and (vii) the Company's position in its industry and its prospects. The
Subscription Price of the Common Stock does not necessarily reflect the price
at which the Common Stock would sell in the market following this offering.
PURCHASE LIMITATIONS
The Company reserves the right not to accept any subscriptions under
this offering, which due to the number of existing shares held by the
subscriber or the number of shares subscribed for, would require prior
clearance or approval by regulatory authorities if, at the Offering
Termination Date, such clearance or approval has not been obtained. If the
Company elects not to issue shares subscribed for in this offering for the
above reason, such shares will become available to satisfy subscriptions
pursuant to the Oversubscription Privilege.
- 16 -
<PAGE> 18
Federal law requires that any person who directly or indirectly, or
through or in concert with one or more persons, acquires "control" of the
Company (defined to include ownership, control or the power to vote 10% or
more of a class of voting securities of the Company if no other person will
own a greater proportion of that class of voting securities) to provide at
least 60 days' prior written notice to the Federal Reserve Board. A person
is deemed to have acquired shares which he or she has the right to acquire
through the exercise of options, warrants and rights. See "Supervision and
Regulation." Therefore, any subscriptions pursuant to this offering which
would be subject to such Federal laws may, in the Company's discretion, be
deemed void in their entirety or in part, and not accepted by the Company.
ESCROW OF SUBSCRIPTION FUNDS
Funds received upon exercise of Subscription Rights will not be held in
escrow pending conclusion of this offering and will be immediately available
to the Company. Funds received upon exercise of the Oversubscription
Privilege will be held in a segregated, non-interest bearing, escrow account
at the Bank. The subscription funds deposited in the segregated account will
be released: (i) to any subscriber, without interest, promptly after his or
her oversubscription is rejected by the Company (or a portion of such funds,
if any oversubscription is rejected in part by the Company); or (ii) to the
Company after the Offering Termination Date.
Certificates for shares subscribed for and accepted are expected to be
issued within approximately three weeks after the Offering Termination Date.
OFFEREES IN NON-QUALIFIED STATES AND FOREIGN JURISDICTIONS
The Company will make reasonable efforts to comply with the securities
laws of all states in the United States in which persons entitled to
subscribe for shares of Common Stock reside. Notwithstanding the foregoing,
no person will be offered or receive shares of Common Stock if such person
resides in a foreign country or resides in a state of the United States with
respect to which any of the following apply: (i) the granting of
Subscription Rights or the offer or sale of the shares of Common Stock to
such persons would require the Company or its officers or directors, under
the securities laws of such state, to register as a broker, dealer, salesman
or selling agent, or to register or otherwise qualify the shares of Common
Stock for sale in such state; or (ii) such registration or qualification
would be impracticable for reasons of cost or otherwise.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material United
States federal income tax ("federal income tax") consequences of the
distribution (the "Distribution"), receipt, exercise and/or lapse of the
Subscription Rights and Oversubscription Privileges (collectively, the
"Rights") to the Company and to certain Company shareholders. The discussion
does not address all aspects of federal income taxation that may be
applicable to Company shareholders in light of their status or personal
investment circumstances, nor does it address the federal income tax
consequences of the Distribution that may be applicable to Company
shareholders subject to special federal income tax treatment including
(without limitation) foreign persons, insurance companies, tax-exempt
entities, retirement plans, dealers in securities, persons who acquired their
Common Stock pursuant to the exercise of employee stock options or otherwise
as compensation, and persons who hold their Common Stock as
- 17 -
<PAGE> 19
part of a "straddle", "hedge" or "conversion transaction." In addition, the
discussion does not address the effect of any applicable state, local or
foreign tax laws, or the effect of any federal tax laws other than those
pertaining to the federal income tax. As a result each Company shareholder
should consult his or her own tax advisor to determine the specific tax
consequences of the receipt, exercise or lapse of the Rights to such
shareholder. The discussion is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), regulations proposed or promulgated thereunder,
judicial precedent relating thereto, and current administrative rulings and
practice, all of which are subject to change. Any such change, which may or
may not be retroactive, could alter tax consequences discussed herein. The
discussion assumes that shares of Common Stock are held as capital assets
(within the meaning of Section 1221 of the Code).
Federal Income Tax Consequences to Company. The Company will not
recognize gain or loss upon the Distribution, or upon the receipt, exercise
and/or lapse of the Rights.
Federal Income Tax Consequences to Shareholders. Shareholders who
receive their Rights in the Distribution will have the following federal
income tax consequences:
Receipt of the Rights--No gain or loss will be recognized by
shareholders upon the receipt of Rights in the Distribution.
Basis of the Rights--The basis of Rights received in the
Distribution and subsequently allowed to lapse will be zero. Except as
provided in the following sentence, the basis of the Rights received in the
Distribution and subsequently exercised also will be zero. If, however,
either (i) the fair market value of the Rights on the date of the
Distribution is 15% or more of the fair market value (on the date of the
Distribution) of the Common Stock with respect to which they are received or
(ii) the shareholder properly elects, in accordance with procedures set forth
in Treasury Regulation Section 1.307-2, to allocate part of the basis of such
Common Stock to the Rights (the "Basis Election"), then the shareholder's
basis in such Common Stock will be allocated between the Common Stock and the
Rights in proportion to the fair market values of each on the date of
Distribution. The Company is unsure whether the value of a right on the
proposed date of issuance will be more or less than 15% of the fair market
value of the Common Stock in question. As a result, shareholders desiring to
allocate a portion of their Common Stock basis to Rights that will be
exercised may wish to consider making a Basis Election.
Exercise of the Rights; Basis and Holding Period of Common
Stock-No gain or loss will be recognized by shareholders upon the exercise of
Rights received in the Distribution. The basis of Common Stock acquired
through exercise of the Rights will be equal to the sum of the Subscription
Price therefor and the shareholder's basis in such Rights (if any). The
holding period for the Common Stock acquired through exercise of the Rights
will begin on the date the Rights are exercised.
Lapse of the Rights--No gain or loss will be recognized by
shareholders upon the lapse of Rights received in the Distribution, and no
adjustment in respect of Rights allowed to lapse will be made to the basis of
Common Stock owned by such shareholders.
THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE RIGHTS OFFERING TO CERTAIN COMPANY
SHAREHOLDERS AND DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS
AND CIRCUMSTANCES OF EACH COMPANY SHAREHOLDER'S TAX STATUS AND
ATTRIBUTES. AS A RESULT, THE
- 18 -
<PAGE> 20
FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT
APPLY TO EACH COMPANY SHAREHOLDER. ACCORDINGLY, EACH COMPANY SHAREHOLDER
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES OF THE RIGHTS OFFERING, INCLUDING THE APPLICATION AND EFFECT OF
FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
FEDERAL AND OTHER TAX LAWS.
USE OF PROCEEDS
The net proceeds from the sale of 446,414 shares of Common Stock
offered hereby, estimated at approximately $5.9 million if all of the shares
of Common Stock offered hereby are purchased, will be added to the Company's
working capital and used for general corporate purposes, including, without
limitation, contributing all or a substantial portion of such proceeds to the
Operating Subsidiaries to support their continued growth. Pending
application of the net proceeds, the Company may invest such net proceeds
primarily in short-term liquid investments.
The following table sets forth the amount of net proceeds from the
offering that would be available to the Company if fewer than all of the
shares offered hereby are sold. If fewer than all of the shares offered
hereby are sold, the net proceeds will also be used as set forth above.
<TABLE>
<CAPTION>
ASSUMED NUMBER NET PROCEEDS TO
OF SHARES SOLD THE COMPANY
-------------- ---------------
<C> <C>
223,207 shares $2.9 million
334,810 shares $4.4 million
446,414 shares $5.9 million
</TABLE>
Expenses payable by the Company in connection with the offering are
estimated at $90,000 and include printing, mailing, legal, accounting and
other related costs of this offering. See "The Offering."
The following table reflects certain capital ratios of the Company at
June 30, 1997, and as adjusted to give effect to the sale of approximately
50% and 100% of the shares of Common Stock offered hereby:
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED <F1><F2><F3>
----------------------------
223,207 446,414
ACTUAL PRO FORMA <F1> SHARES SOLD SHARES SOLD
------ -------------- ----------- -----------
<S> <C> <C> <C> <C>
Shareholders' equity to total assets 5.35% 6.26% 6.77% 7.29%
Tier 1 capital to risk-weighted assets 7.31 6.09 6.94 7.78
Total capital to risk-weighted assets 9.63 8.27 9.11 9.93
Leverage capital ratio 5.53 4.43 5.08 5.74
<FN>
- --------------------
<F1> Pro forma information gives effect to: (i) the Reliance Acquisition;
and (ii) the Branch Acquisition, as if each had occurred as of June 30,
1997. See "Unaudited Pro Forma Financial Information--Pro Forma
Condensed Combined Consolidated Balance Sheet."
<F2> For purposes of the pro forma as adjusted information, it is assumed
that the Company's total assets will increase by the amount of the
estimated net proceeds from the offering.
<F3> Pro forma as adjusted information assumes a risk-weighting factor of
71% (the average risk-weighting factor for the Company's total assets
at June 30, 1997) for the net proceeds from the offering. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Capital Management and Resources."
</TABLE>
- 19 -
<PAGE> 21
While the additional capital raised by this offering is intended to
support the future growth of the Company, there is no assurance that such
additional capital will result in such growth or profitability.
The Company intends to be receptive to opportunities to acquire other
financial institutions, or branches of other financial institutions, if such
actions are deemed to be consistent with the Company's objectives. If such
opportunities arise in the future, a portion of the proceeds of this offering
may be used to fund the acquisitions.
PRICE RANGE OF COMMON STOCK
AND DIVIDENDS
The Common Stock (symbol: "ALLE") has been traded on the Nasdaq
National Market (the "Nasdaq") since May 15, 1996. From September 30, 1995
to such date it was traded on the Nasdaq Small Cap Market. As of October
15, 1997, the number of shareholders of record of the Common Stock was
approximately 900. The following table sets forth the high and low trading
prices, as well as dividends declared per share, as reported by the 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
---- --- ------------------
<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
1997
First Quarter $13.115 $12.178 $0.030
Second Quarter 14.401 14.089 0.030
Third Quarter 19.000 15.625 0.030
Fourth Quarter (through
October 28, 1997) 18.500 16.500 0.030
</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 six-for-five
stock split (in the form of a stock dividend) in January 1994, a
three-for-two stock split (in the form of a stock dividend) in January 1995,
a 10% stock dividend in January 1996 and a 10% stock dividend in January
1997.
- 20 -
<PAGE> 22
In September 1997, the Board of Directors announced its intention to
effect a five-for-four stock split (in the form of a stock dividend) on
January 21, 1998 to holders of record at the close of business on January 7,
1998.
Cash available for dividend distribution to the holders of Common Stock
must initially come from dividends paid to the Company by the Operating
Subsidiaries. Accordingly, restrictions on the Operating Subsidiaries' 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 and the OTS has the authority to
prohibit the payment of cash dividends by the Savings Bank when they
determine 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 loan agreement
also restricts the amount of dividends the Company may pay. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Deposits."
- 21 -
<PAGE> 23
CAPITALIZATION
The following table sets forth: (i) the actual capitalization of the
Company as of June 30, 1997; (ii) the pro forma capitalization as if the
Reliance Acquisition and the Branch Acquisition had been completed as of such
date; and (iii) pro forma capitalization as adjusted to reflect the issuance
and sale of 223,207 shares (approximately one-half of those offered hereby)
and 446,414 shares (all of those shares offered hereby) at an offering price
of $13.50 per share, and the application of the anticipated net proceeds
therefrom. This table should be read in conjunction with the Company's
consolidated financial statements and the notes thereto and "Unaudited Pro
Forma Financial Information" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------------------------
ACTUAL PRO FORMA<F1> PRO FORMA AS ADJUSTED
------- ------------- ----------------------
223,207 446,414
SHARES<F2> SHARES<F2>
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
LONG-TERM DEBT:
Note to bank $ 4,400 $ 4,400 $ 4,400 $ 4,400
Note to FHLB 6,000 6,000 6,000 6,000
Junior debentures 3,263 3,263 3,263 3,263
------- ------- ------- -------
Total long-term debt 13,663 13,663 13,663 13,663
------- ------- ------- -------
SHAREHOLDERS' EQUITY:
Common Stock, $0.01 par value;
7,800,000 shares authorized; issued and outstanding
actual 2,845,815 shares; pro forma 3,444,941 shares as
adjusted 3,668,148 and 3,891,355 shares, respectively 30 36 38 40
Capital surplus 21,279 31,982 34,903 37,913
Retained earnings 1,519 1,519 1,519 1,519
Net unrealized depreciation on
securities available for sale 30 30 30 30
------- ------- ------- -------
Total shareholders' equity 22,858 33,567 36,490 39,503
------- ------- ------- -------
Total capitalization $36,521 $47,230 $50,153 $53,166
======= ======= ======= =======
<FN>
-------------------------
<F1> Pro forma information gives effect to: (i) the Reliance
Acquisition; and (ii) the Branch Acquisition, as if each had
occurred on June 30, 1997. See "Unaudited Pro Forma Financial
Information--Pro Forma Condensed Combined Consolidated Balance
Sheet."
<F2> Amounts do not include an aggregate of 603,946 shares of
Common Stock issuable: (i) upon exercise of outstanding stock
options; (ii) upon exercise of outstanding warrants; and (iii)
pursuant to options which may be granted under the Company's
stock option plans.
</TABLE>
- 22 -
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of December
31, 1992, 1993, 1994, 1995 and 1996 and for the years then ended are derived
from the consolidated financial statements of the Company, which have been
audited by BDO Seidman, LLP, independent certified public accountants. The
selected consolidated financial data set forth below as of June 30, 1996 and
1997 and for the six-month periods then ended are derived from unaudited
financial statements, but in the opinion of management reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial condition and results of operations as of such
dates and for such interim periods. The results of operations for the six
months ended June 30, 1997 are not necessarily indicative of the results to
be expected for the entire year. The consolidated balance sheet as of
December 31, 1996 and the consolidated income statements for the years ended
December 31, 1995 and 1996 are included elsewhere in this Prospectus. The
accompanying selected financial data does not reflect the Reliance
Acquisition or the Branch Acquisition which occurred in August 1997 and
September 1997, respectively. The selected consolidated financial data
should be read in conjunction with the consolidated financial statements and
notes thereto, the information set forth under "Unaudited Pro Forma Financial
Information" and the other information included in this Prospectus.
- 23 -
<PAGE> 25
<TABLE>
ALLEGIANT BANCORP, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
<CAPTION>
AS OF OR FOR THE
SIX MONTHS ENDED AS OF OR FOR THE
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net primary earnings<F1> $ 0.45 $ 0.38 $ 0.76 $ 0.62 $ 0.53 $ 0.23 $ 0.14
Cash dividends declared<F1> 0.06 0.05 0.09 0.07 0.04 0.02 --
Book value at period-end 8.03 7.36 7.22 6.37 5.40 4.99 4.60
Shares outstanding (in thousands)<F1> 2,846 1,996 2,271 2,188 1,566 1,500 847
Average common shares
outstanding (in thousands)<F1> 2,870 2,371 2,386 2,056 1,520 1,077 852
EARNINGS (IN THOUSANDS):
Interest income $ 16,419 $ 11,457 $ 25,368 $ 19,252 $ 9,994 $ 5,585 $ 4,203
Interest expense 8,999 6,755 14,999 11,206 4,584 2,675 2,133
-------- -------- -------- -------- -------- --------- ---------
Net interest income 7,420 4,702 10,369 8,046 5,410 2,910 2,070
Provision for possible loan losses 1,121 431 1,448 977 849 233 108
Other income 646 409 1,081 654 513 282 247
Other expense 4,778 3,219 7,019 5,625 3,764 2,546 2,011
Income taxes 886 566 1,175 823 509 161 78
-------- -------- -------- -------- -------- --------- ---------
Net income $ 1,301 $ 895 $ 1,808 $ 1,275 $ 801 $ 252 $ 120
======== ======== ======== ======== ======== ========= =========
ENDING BALANCE SHEET (IN THOUSANDS):
Total assets $427,481 $292,421 $377,564 $280,386 $171,927 $ 104,416 $ 68,782
Investment securities 62,398 56,800 60,559 73,211 40,888 23,063 14,434
Total loans 347,634 222,805 291,926 181,544 121,393 69,773 45,600
Total deposits 315,017 237,479 308,670 231,309 134,884 90,686 61,624
Long-term debt 13,663 16,680 14,663 19,719 9,804 2,200 2,400
Shareholders' equity 22,858 14,688 16,386 13,938 8,453 7,487 3,894
Average assets 389,935 276,691 308,984 228,130 133,466 84,361 56,925
Average shareholders' equity 19,765 14,344 14,851 11,737 8,080 4,611 3,771
SELECTED RATIOS:
Return on average assets 0.33% 0.32% 0.59% 0.56% 0.60% 0.30% 0.21%
Return on average equity 6.58 6.24 12.17 10.86 9.91 5.47 3.18
Net interest margin<F2> 1.98 1.79 3.50 3.71 4.27 3.71 3.64
Average equity to average assets 5.07 5.18 4.81 5.14 6.05 5.47 6.62
Efficiency ratio<F3> 59.24 62.98 61.30 64.66 63.55 79.76 86.79
Reserve for possible loan losses to:
Outstanding loans 1.14 1.03 1.06 1.17 1.20 1.11 1.21
Non-performing loans 455.96 358.93 447.98 691.56 841.04 5,535.71 2,391.30
<FN>
- -------------------------------
<F1> Based on weighted-average common shares outstanding. All share and per
share amounts have been restated to reflect: (i) a six-for-five stock
split (in the form of a stock dividend) paid in January 1994; (ii) a
three-for-two stock split (in the form of a stock dividend) paid in
January 1995; (iii) a 10% stock dividend paid in January 1996; and (iv)
a 10% stock dividend paid in January 1997.
<F2> Net interest margin equals net interest income divided by average
interest earning assets for the periods indicated.
<F3> Efficiency ratio equals other operating expense divided by the sum of
net interest income and other operating income.
</TABLE>
See "Unaudited Pro Forma Financial Information" for additional
information as to the effect of the Reliance Acquisition and the Branch
Acquisition on the Company's consolidated financial condition and results of
operations.
- 24 -
<PAGE> 26
UNAUDITED PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
The following unaudited pro forma condensed combined consolidated balance
sheet has been derived from the historical unaudited consolidated balance sheet
of the Company, adjusted to give effect to the Branch Acquisition and the
Reliance Acquisition as though such transactions had occurred on June 30, 1997.
The financial information relating to the assets that were acquired and the
liabilities that were assumed in connection with the Branch Acquisition is
based on the carrying values of such assets and liabilities on the books of
Roosevelt Bank at June 30, 1997. The Branch Acquisition was accounted for
under the purchase method of accounting and actual purchase accounting
adjustments are based on the amounts and values of the assets acquired and
liabilities assumed as of June 30, 1997.
The pro forma condensed combined consolidated balance sheet is not
necessarily indicative of the financial position that would have been
reported had both the Branch Acquisition and the Reliance Acquisition been
consummated as of the date indicated and should not be construed as
representative of the Company's financial position as of any future date.
The unaudited pro forma condensed combined consolidated balance sheet should
be read in conjunction with the accompanying notes to the pro forma condensed
combined consolidated balance sheet and with the historical financial
statements of the Company and Reliance.
- 25 -
<PAGE> 27
<TABLE>
ALLEGIANT BANCORP, INC.
PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
<CAPTION>
ALLEGIANT,
RELIANCE,
ALLEGIANT ACQUIRED
RELIANCE BRANCHES
PRO FORMA ACQUIRED PRO FORMA
RELIANCE COMBINED ACQUIRED BRANCHES COMBINED
ALLEGIANT RELIANCE ADJUSTMENTS CONSOLIDATED BRANCHES<F1> ADJUSTMENTS CONSOLIDATED
--------- -------- ----------- ------------ ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and fed funds $ 10,144 $ 3,474 $ -- $ 13,618 $87,072<F2> $(33,369)<F3><F4><F5><F6> $ 67,321
Investment securities 62,398 7,101 -- 69,499 -- 7,709 <F3> 77,208
Total loans 347,634 19,273 -- 366,907 2,827<F5> 131 <F5> 369,865
Reserve for loan losses (3,976) (206) -- (4,182) -- -- (4,182)
Premises and other assets 10,819 658 -- 11,477 801 480 <F7> 12,758
Goodwill 462 -- 3,856<F8> 4,318 9,175 (480)<F9> 13,013
-------- ------- ------ -------- ------- -------- --------
Total assets $427,481 $30,300 $3,856 $461,637 $99,875 $(25,529) $535,983
======== ======= ====== ======== ======= ======== ========
LIABILITIES AND CAPITAL:
Deposits $315,017 $23,105 $ -- $338,122 $99,875<F6> $ (3,551)<F6> $434,446
Short-term borrowings 74,214 214 -- 74,428 -- (21,978)<F3><F4> 52,450
Long-term borrowings 13,663 -- -- 13,663 -- -- 13,663
Other liabilities 1,729 128 -- 1,857 -- -- 1,857
Shareholders' equity 22,858 6,853 3,856<F8> 33,567 -- -- 33,567
-------- ------- ------ -------- ------- -------- --------
Total liabilities and capital $427,481 $30,300 $3,856 $461,637 $99,875 $(25,529) $535,983
======== ======= ====== ======== ======= ======== ========
<FN>
See notes to pro forma condensed combined consolidated balance sheet.
- 26 -
<PAGE> 28
ALLEGIANT BANCORP, INC.
NOTES TO PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<F1> Tangible assets acquired and liabilities assumed are shown at their
carrying values on the books of Roosevelt Bank as of June 30, 1997.
<F2> Represents cash acquired in the Branch Acquisition on September 4,
1997. Prior to the acquisition, the branches were operated by
Roosevelt Bank which did not maintain separate cash balances on a
historical basis.
<F3> The cash proceeds from the Branch Acquisition were used to purchase:
(i) $50.4 million of fed funds sold; (ii) $4.2 million of short-term
discount notes; and (iii) $3.5 million of U.S. Government or Agency
securities. The remaining cash proceeds were used to retire $25.0
million of short-term FHLB borrowings.
<F4> On September 4, 1997, the Company borrowed $3.0 million pursuant to
its bank stock loan, the proceeds of which were contributed to the Bank
to improve its capital ratios in light of the Branch Acquisition and
internal growth.
<F5> The following table sets forth certain information regarding the
loans acquired in the Branch Acquisition as of June 30, 1997, and
the loans actually acquired on September 4, 1997 in the Branch
Acquisition:
<CAPTION>
At June 30, 1997 At September 4, 1997
-------------------------------------------- ----------------------------------------------
AVERAGE AVERAGE
WEIGHTED- REMAINING WEIGHTED- REMAINING
AMOUNT AVERAGE TERM AMOUNT AVERAGE TERM
BRANCH (IN THOUSANDS) YIELD (IN MONTHS) (IN THOUSANDS) YIELD (IN MONTHS)
--------- -------------- --------- ----------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Warrenton $1,500 10.39% 92 $1,554 10.37% 90
Union 1,327 10.24% 88 1,404 10.08% 86
------ ------
$2,827 10.32% 90 $2,958 10.23% 88
====== ======
At June 30, 1997, none of the loans was more than 90 days delinquent.
<F6> The following table sets forth the composition and certain other
information regarding the deposits acquired in the Branch Acquisition
as of June 30, 1997 and the deposits (including accrued interest payable)
actually acquired on September 4, 1997 in the Branch Acquisition:
<CAPTION>
At June 30, 1997 At September 4, 1997
-------------------------------------------- --------------------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AMOUNT AVERAGE AVERAGE AMOUNT AVERAGE AVERAGE
TYPE OF ACCOUNT (IN THOUSANDS) RATE MATURITY (IN THOUSANDS) RATE MATURITY
--------------- -------------- -------- -------- -------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Now/checking $ 7,839 0.86% -- $ 7,820 0.86% --
Savings 5,992 2.33% -- 5,183 2.33% --
Money market 15,543 4.20% -- 14,526 4.20% --
Certificates of deposit 70,501 5.69% 20 68,795 5.69% 19
------- -------
$99,875 4.88% $96,324 4.88%
======= =======
<F7> The fair value adjustment to the fixed assets relates primarily to
real property and will be amortized over the expected useful life of
the property.
- 27 -
<PAGE> 29
<F8> Calculated with the following assumptions:
<S> <C>
Purchase price (599,126 shares of
Common Stock @ $16.75 per share) $10,035
Acquisition costs 300
Marked to market adjustment of assets 196
Capital of Reliance (6,675)
-------
$ 3,856
=======
<F9> Consists of adjustments related to the operating assets acquired in
the Branch Acquisition.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENTS
The following unaudited pro forma condensed combined consolidated
income statements for the year ended December 31, 1996 and the six months ended
June 30, 1997 set forth the results of operations of the Company combined with
the results of operations of Reliance as if the Reliance Acquisition had
occurred as of January 1, 1996.
The unaudited pro forma condensed combined consolidated income
statements should be read in conjunction with the accompanying notes to the pro
forma condensed combined consolidated income statements and with the historical
consolidated financial statements of the Company and Reliance. The historical
interim financial information for the six months ended June 30, 1997, used as a
basis for the pro forma condensed combined consolidated income statement,
include all adjustments, which, in management's opinion, are necessary to
present the data fairly. These pro forma condensed combined consolidated
income statements may not be indicative of the results of operations that
actually would have occurred if the Reliance Acquisition had been consummated
on the date assumed above or of the results of operations that may be achieved
in the future.
- 28 -
<PAGE> 30
</TABLE>
<TABLE>
ALLEGIANT BANCORP, INC.
PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<CAPTION>
PRO FORMA
COMBINED
ALLEGIANT<F1> RELIANCE<F2> ADJUSTMENTS CONSOLIDATED
------------- ------------ ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C>
Interest income $ 25,368 $ 2,496 $ -- $ 27,864
Interest expense 14,999 1,136 -- 16,135
---------- -------- -------- ----------
Net interest income 10,369 1,360 -- 11,729
Provision (credit) for possible loan losses 1,448 (109) -- 1,339
---------- -------- -------- ----------
Net interest income after provision
for possible loan losses 8,921 1,469 -- 10,390
---------- -------- -------- ----------
Other income
Service charges on deposits and other fees 1,032 52 -- 1,084
Net gain on sale of securities 49 -- -- 49
---------- -------- -------- ----------
Total other income 1,081 52 -- 1,133
Other expense
Salaries and employee benefits 3,455 574 -- 4,029
Operating expenses 3,564 596 257 <F4> 4,417
---------- -------- -------- ----------
Total other expense 7,019 1,170 257 <F4> 8,446
---------- -------- -------- ----------
Income before income taxes 2,983 351 -- 3,077
Income taxes 1,175 193 -- 1,368
---------- -------- -------- ----------
Net income $ 1,808 $ 158 $ (257)<F4> $ 1,709
========== ======== ======== ==========
Per share data:
Primary:
Average adjusted common shares outstanding 2,386,042 398,562 200,564 <F3> 2,985,168
Net income $ 0.76 $ 0.40 $ -- $ 0.57
Fully diluted:
Average adjusted common shares outstanding 2,416,445 398,562 200,564 <F3> 3,015,571
Net income $ 0.75 $ 0.40 $ -- $ 0.57
<FN>
- ---------------
See notes to pro forma condensed combined consolidated income statements.
</TABLE>
- 29 -
<PAGE> 31
<TABLE>
ALLEGIANT BANCORP, INC.
PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<CAPTION>
PRO FORMA
COMBINED
ALLEGIANT<F1> RELIANCE<F2> ADJUSTMENTS CONSOLIDATED
------------- ------------ ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE)
<S> <C> <C> <C> <C>
Interest income $ 16,419 $ 1,181 $ -- $ 17,600
Interest expense 8,999 530 -- 9,529
---------- -------- -------- ----------
Net interest income 7,420 651 -- 8,071
Provision for possible loan losses 1,121 -- -- 1,121
---------- -------- -------- ----------
Net interest income after provision
for possible loan losses 6,299 651 -- 6,950
---------- -------- -------- ----------
Other income
Service charges on deposits and other fees 646 22 -- 668
---------- -------- -------- ----------
Total other income 646 22 -- 668
Other expense
Salaries and employee benefits 2,329 307 -- 2,636
Operating expenses 2,449 231 129 <F4> 2,809
---------- -------- -------- ----------
Total other expense 4,778 538 129 <F4> 5,445
---------- -------- -------- ----------
Income before income taxes 2,167 135 -- 2,173
Income taxes 866 70 -- 936
---------- -------- -------- ----------
Net income $ 1,301 $ 65 $ (129)<F4> $ 1,237
========== ======== ======== ==========
Per share data:
Primary:
Average adjusted common shares outstanding 2,870,483 392,974 206,152 <F3> 3,469,609
Net income $ 0.45 $ 0.16 $ -- $ 0.36
Fully-diluted:
Average adjusted common shares outstanding 2,870,483 392,974 206,152 <F3> 3,469,609
Net income $ 0.45 $ 0.16 $ -- $ 0.36
<FN>
- ---------------
See notes to pro forma condensed combined consolidated income statements.
- 30 -
<PAGE> 32
ALLEGIANT BANCORP, INC.
NOTES TO PRO FORMA CONDENSED COMBINED CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
<F1> Six month and year-end amounts for the Company reflect the periods
ended June 30, 1997 and December 31, 1996, respectively, based on a
calendar fiscal year.
<F2> Six month and year-end amounts for Reliance reflect the periods ended
March 31, 1997 and September 30, 1996, respectively, based on a
fiscal year end of September 30.
<F3> Reflects average common shares of Reliance outstanding during the
fiscal year ended September 30, 1996 and the six months ended March
31, 1997, respectively, adjusted for the Company's acquisition of all
of the outstanding capital stock of Reliance in exchange for
consideration of 1.407 shares of Allegiant Common Stock per share of
Reliance Common Stock.
<F4> In connection with the acquisition of Reliance, the Company recorded
goodwill of approximately $3.9 million, which will be amortized over
a period of 15 years.
</TABLE>
- 31 -
<PAGE> 33
IMPACT OF THE BRANCH ACQUISITION ON OPERATING PERFORMANCE
The following discussion reflects the Company's current assessment of
the incremental impact of the Branch Acquisition on the operating performance
of the Company. Numerous factors, including factors outside the Company's
control (such as the general level of interest rates and both national and
regional economic conditions), may significantly alter the effects described
below. As a result, there can be no assurance that the effects of the Branch
Acquisition will be as anticipated by the Company. See "Risk Factors --
Recent Acquisitions."
SIGNIFICANT ASSUMPTIONS. In addition to the other assumptions
stated below, the Company made the following assumptions in arriving at its
assessment of the incremental impact of the Branch Acquisition on the
operating performance of the Company: (i) regional and national economic
conditions and interest rates will remain stable with no material improvement
or slowdown in the economy; and (ii) the acquired branches are in markets
similar to the Bank's current markets and, therefore, the Bank's experience
in generating loans and fee income and in maintaining core deposits is a
reasonable basis for making further assumptions about the future impact of
the Branch Acquisition. Although the Company believes that the assumptions
stated throughout this section are reasonable, there can be no assurance that
actual results will be consistent with these assumptions.
NET INTEREST INCOME. In connection with the Branch Acquisition,
the Bank assumed deposits of approximately $95.7 million ("Acquired
Deposits") and acquired loans of approximately $2.9 million ("Acquired
Loans") and cash of approximately $83.1 million. A portion of the cash from
the Branch Acquisition was used to purchase: (i) $3.5 million of U.S.
Government or Agency securities; (ii) $4.2 million of short-term discount
notes; and (iii) $50.4 million of fed funds sold. In addition, the Bank used
$25.0 million of the cash proceeds to repay short-term borrowings. The
Company expects to use the proceeds currently invested in fed funds sold to
fund loans and make purchases of mortgage-backed securities, U.S. Government
or Agency securities and short-term discount notes in the future. Thus, the
impact of the Branch Acquisition on interest income will include interest
income from: (i) U.S. Government or Agency securities, short-term discounts
notes and fed funds sold; and (ii) the Acquired Loans. In addition, it is
expected that interest income will be impacted by additional purchases of
mortgage-backed securities, U.S. Government or Agency securities and
short-term discount notes and the funding of loans. The impact of the Branch
Acquisition on interest expense is expected to be the interest expense of the
Acquired Deposits, which had a weighted-average rate of 4.88% as of September
4, 1997 and the reduction of $25.0 million in short-term debt which had a
weighted-average rate of 6.15% as of September 4, 1997.
The Acquired Loans had a weighted-average yield of 10.23% at September
4, 1997. The Company has assumed that amortization, prepayment and repayment of
loans will be replaced by new loan originations yielding equivalent interest
income, although there can be no assurance that this will be the amount
forecasted. Because the Acquired Loans appear to be representative of the
consumers served by the acquired branches, new loans are expected to be added
to the Bank's loan portfolio in a similar mix as the Acquired Loans.
The Bank received approximately $83.1 million in cash from Roosevelt
Bank at the closing of the Branch Acquisition. A portion of the cash
proceeds from the Branch Acquisition initially was invested as follows: (i)
$50.4 million was applied to purchase fed funds sold with a market rate of
5.35%; (ii) $4.2 million was applied to purchase short-term discounts notes
with a market rate of 5.55%; and (iii) $3.5 million was applied to purchase
U.S. Government or Agency securities (maturing from
- 32 -
<PAGE> 34
September 1998 to June 2002) with a weighted-average rate of 6.20%. The Bank
applied $25.0 million of the cash proceeds to repay short-term debt with an
average rate 6.15%. The Bank expects to use the funds currently invested in fed
funds sold to purchase U.S. Government or Agency securities and short-term
discount notes and to also fund loans. The Company expects to use the cash
proceeds from the Branch Acquisition currently invested in fed funds sold to
purchase approximately $10.0 million of U.S. Government or Agency securities
with an anticipated market rate of 6.20% and $12.0 million of short-term
discount notes with an anticipated market rate of 5.55%. The remaining $28.4
million of the cash proceeds from the Branch Acquisition which are currently
invested in fed funds sold are expected to be invested in loans at an average
rate of 8.75%, which is a blended yield of the Bank's loans as of September 4,
1997. Based upon its experience with the Bank's existing investment securities
and loan portfolios, management of the Company believes that such yields will be
obtainable.
Given the preceding assumptions, the Company estimates that the
Acquired Loans, purchased securities and deposits will yield an additional
$2.0 million in net interest income on an annualized basis. It should be
noted in this regard that the Company will retain the ability to leverage
capital further while still maintaining the Bank's classification as an
"adequately capitalized" institution under applicable laws and regulations
and that, in the absence of additional credit risk, such capital leveraging
will have the effect of increasing pre-tax income.
The foregoing analysis assumes no significant variations in interest
rates or asset/liability mix because the Company is unable to predict future
interest rates. Interest rate movements may occur at different times and in
different amounts from those assumed by the Company and, therefore, no
assurance can be made that these estimates will be indicative of actual
results.
PROVISION FOR LOAN LOSSES. The Bank expects periodically to add
to its allowance for loan losses and estimates that the Branch Acquisition
will add approximately $535,000 (representing 50 basis points of the amount
of the Acquired Loans and 110 basis points of the amount of the loans
assumed to be funded with the cash proceeds) to the Bank's provision for loan
losses in the first full year following consummation of the Branch
Acquisition. Actual provisions for loan losses will be based on numerous
factors, including the state of regional and national economies and the
performance of both the Acquired Loans and new loans generated by the Bank at
the acquired branches. Accordingly, there can be no assurance that the
provision relative to the Acquired Loans will not exceed the forecasted
amount.
NONINTEREST INCOME. The Bank expects to earn non-interest income
primarily through deposit service charges. Based on Roosevelt's historical
experience, which management of the Bank believes is comparable to the Bank's
historical deposit fees, the Bank estimates that deposit fees and related
income will increase by approximately $325,000 on an annual basis as a result
of the Branch Acquisition. The Bank expects that most of this non-interest
income will be derived from fees earned on deposit accounts through service
charges and overdraft fees.
NONINTEREST EXPENSE. The Bank has estimated the cost of
operating the acquired branches within the Bank's existing infrastructure.
The Bank expects additional non-interest expenses of approximately $1.5
million during the first full year of operations following the Branch
Acquisition, consisting of compensation and employee benefits of
approximately $540,000, occupancy and office operations expense of approximately
$240,000, BIF premium expense of approximately $40,000, amortization of
intangible assets of approximately $580,000, advertising and promotion expense
of approximately $37,000 and other expense of approximately $36,000.
- 33 -
<PAGE> 35
The estimate of compensation and employee benefits includes expenses
for approximately 15 full-time equivalent employees at the acquired branches
and approximately three full-time equivalent employees expected to be hired,
primarily in the Bank's operations center, in the near future.
The estimate of occupancy and office operations expense includes the
existing costs of operating the acquired branches, as well as estimated costs
of refurbishment and other non-capitalizable expenditures that the Company
expects to incur as a result of the Branch Acquisition. Occupancy and office
operations expense reflects the depreciation on the fixed assets estimated to
be recorded in connection with the Branch Acquisition over the estimated
useful life of the assets acquired.
The estimate of FDIC premium expense reflects the minimum annual
deposit premium for BIF-insured institutions, which the Bank expects to pay
given its current status as an "adequately capitalized," healthy institution
under applicable laws and regulations.
Amortization of intangible assets reflects amortization of the
goodwill estimated to be recorded in connection with the Branch Acquisition,
which results in estimated expense of approximately $580,000 per year for the
next 15 years.
The estimate of advertising and promotion expense reflects costs
associated with entrance into new communities, and the estimate of other
expenses includes other support costs needed to operate the acquired
branches, such as supplies, postage, delivery and other expenses.
INCOME TAXES. Taxes are calculated at an effective rate of 40%.
SUMMARY OF EFFECT OF BRANCH ACQUISITION ON OPERATING
PERFORMANCE. The following table summarizes the expected effect of the
Branch Acquisition on the operating performance of Allegiant for the one-year
period following the Closing of the Branch Acquisition:
<TABLE>
<S> <C>
Net interest income $1,963,000
Provision for loan losses (535,000)
----------
Net interest income after provision for loan losses 1,428,000
Noninterest income 325,000
Noninterest expense:
Compensation and employee benefits 540,000
Occupancy and office operations 240,000
BIF premium 40,000
Amortization of intangible assets 580,000
Advertising and promotion 37,000
Other 36,000
----------
Total noninterest expense 1,437,000
----------
Income before income taxes 280,000
Income tax provision 112,000
----------
Net income $ 168,000
==========
</TABLE>
As discussed above, the foregoing summary is based upon numerous
assumptions. There can be no assurance that actual results will be
consistent with expectations and variations from the forecasted amounts
could be material.
- 34 -
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT RESULTS OF OPERATIONS
For the third quarter of 1997, the Company reported, on a consolidated
basis, net income of $838,000, compared to net income of $508,000 for the
third quarter of 1996, an increase of $330,000, or 65%. On a per share basis,
net income increased from $.22 for the third quarter of 1996 to $.25 for the
comparable quarter in 1997. The increase was achieved despite additional
expenses related to the Reliance Acquisition, the Branch Acquisition and
costs associated with a planned conversion to a new computer system
scheduled for the fourth quarter of 1997.
For the nine-month period ended September 30, 1997, the Company reported,
on a consolidated basis, net income of $2.1 million, compared to $1.4 million
for the nine-month period ended September 30, 1996, an increase of $700,000,
or 53%. On a per share basis, net income increased from $.59 during the nine-
month period ended September 30, 1996 to $.70 during the corresponding period
in 1997.
As a result of the additional expenses described above, the Company's
efficiency ratio (other operating expense divided by the sum of net interest
income and other operating income) for the three and nine months ended
September 30, 1997 was 63.6% and 61.0%, respectively, compared to 60.0% and
61.4%, respectively, for the corresponding periods ended September 30, 1996.
The Company anticipates that additional costs relating to the integration
of the Reliance Acquisition and the Branch Acquisition, and the planned
computer system conversion will continue during the fourth quarter of 1997
and the first quarter of 1998.
The Company's allowance for possible loan losses increased 56%, from
$3.1 million on December 31, 1996 to $4.8 million on September 30, 1997.
Non-performing loans as a percentage of total loans decreased to 0.20% at
September 30, 1997, compared to 0.24% at December 31, 1996. The Company's
reserve for possible credit loss increased to 1.10% of total loans outstanding
at September 30, 1997 compared to 1.06% of total loans outstanding at
December 31, 1996.
As of September 30, 1997, the Company reported, on a consolidated
basis, total assets of $578.7 million, net loans of $434.7 million, total
deposits of $473.4 million and shareholders' equity of $34.9 million. The
Company attributed the record third quarter results to strong mortgage demand
experienced by both the Mortgage Company and Edge, continued growth in existing
markets, leasing business expansion, stable interest rates, and overall
favorable economic conditions.
YEARS ENDED DECEMBER 31, 1995 AND 1996
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,
- 35 -
<PAGE> 37
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% N/A
Equity to assets ratio 4.81% 5.14% 6.05% 5.47% 6.62%
</TABLE>
Net Interest Income. For the year ended December 31, 1996, net
interest income before provision for loan losses increased 29% to $10.4
million from $8.0 million in 1995. This growth was attributable to the 32%
increase in total interest income, which increased from $19.3 million for the
year ended 1995 to $25.4 million in 1996. The largest component of growth in
interest income was the $5.7 million increase in interest and fees earned on
loans. For the year ended December 31, 1996, interest and fees earned on
loans totaled $21.7 million compared to $16.0 million earned in 1995.
Another factor contributing to the improved interest income was interest
earned on investment securities, which increased 17% from $3.0 million in
1995, to $3.5 million in 1996.
Total interest expense for 1996 was $15.0 million, a 34% increase
over the total interest expense of $11.2 million in 1995. Interest paid to
depositors increased 33%, from $9.0 million in 1995 to $12.1 million in 1996.
This increase was largely attributable to greater deposit volume. Interest
paid on short-term borrowings increased 119% from $703,000 to $1.5 million
for 1995 and 1996, respectively, and interest paid on long-term borrowings
decreased 4% from $1.5 million for 1995 to $1.4 million for 1996. The
increased expense for short-term borrowings resulted from additional FHLB
advances outstanding during the period. See "--Liquidity and Capital
Resource Management."
Net Interest Margin. The increase in total interest income in 1996
was offset in part by tightening spreads and increasing cost of funds. As a
result of these trends, along with the growth in deposits and competitive
market pressures, 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.
- 36 -
<PAGE> 38
Management has elected to originate one- to four-family
adjustable-rate mortgage loans due to the lower credit risk generally
associated with this type of loan, as well as the lower exposure to interest
rate risk due to the frequent periodic adjustments of the mortgage coupon
payments. Along with the reduced credit risk and interest rate protection,
the Bank also has observed a lower level of the non-performing loans
associated with one- to four-family mortgages compared proportionately to the
other types of loans in the Bank's portfolio. Given these attributes of
lower risk, the Bank has accepted a lower average yield compared to loans
with a higher level of risk. The Bank anticipates the continued addition of
one- to four-family mortgage loans to the Bank's loan portfolio.
Additionally, the origination of one- to four-family adjustable-rate
mortgages allows the Bank to establish relationship banking with these new
retail customers by offering a complete line of consumer banking products.
One such product is the Bank's new Home Equity Credit Line ("HECL") which was
introduced in the second quarter of 1996. Management believes that
relationship banking, along with the ability to cross-sell additional
products to the customer, will be the key to success in the consolidating
banking industry and will sustain the lower yields associated with these one-
to four-family mortgage loans in order to build relationships with this new
customer base.
In addition to changes in the credit portfolio mix, the Bank is also
operating in a competitive market for both commercial and consumer loans. In
addition to increased competition from within the banking industry, non-bank
financial institutions are competing for customers who have traditionally
dealt primarily with commercial banks. These trends have forced the Bank to
realize tighter spreads on commercial loans, the second largest component of
the credit portfolio. In the past, the Bank was able to originate high
quality loans at a positive spread to its prime lending rate. In the current
market, these spreads have diminished and the market has dictated that many
of these same loans are now originated at or below the prime rate.
Management anticipates that these conditions will continue in the foreseeable
future.
Despite the lower interest rate environment, the Bank was able to
improve the yield on its investment security portfolio. The average yield
earned on investment securities was 5.70% in 1996 compared to 5.57% in 1995,
an increase of 13 basis points. The increase was attributable to the
improved management of the investment securities portfolio, along with the
addition of higher yielding securities which were funded with maturing
securities with lower interest rates.
The aggregate yield paid for interest bearing deposits and both
long- and short-term debt was 5.53% in 1996, a decrease of 12 basis points
compared to 1995. In 1996, the Bank relied increasingly on FHLB borrowings,
which were a more cost-effective funding source than retail deposits. The
slight decrease in rates paid on liabilities relative to the larger decrease
in rates earned on total interest bearing assets also was attributable to the
highly competitive market for retail deposits. When compared to other market
areas, the St. Louis SMSA is substantially more competitive with respect to
consumer deposit pricing. 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
- 37 -
<PAGE> 39
$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.
- 38 -
<PAGE> 40
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
--------------------------------- ---------------------------------
AVERAGE INT. EARNED/ AVERAGE AVERAGE INT. EARNED/ AVERAGE
BALANCE PAID YIELD<F1> BALANCE PAID YIELD<F1>
--------------------------------- ---------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Loans<F1> $232,314 $21,740 9.36% $158,503 $15,995 10.09%
Taxable investment securities 59,882 3,428 5.72 52,695 2,933 5.57
Non-taxable investment securities 1,115 49 4.39 848 32 3.77
Federal funds sold 3,079 151 4.90 5,109 292 5.72
-------- ------- -------- -------
Total interest earning assets $296,390 $25,368 8.56% $217,155 $19,252 8.87%
======== ======= ======== =======
NON-INTEREST EARNING ASSETS:
Cash and due from banks $ 6,382 $ 5,791
Premises and equipment 4,698 3,207
Other assets 3,915 4,021
Reserve for possible loan losses (2,401) (2,044)
-------- --------
Total assets $308,984 $228,130
======== ========
Liabilities and shareholders' equity
INTEREST BEARING LIABILITIES:
Money market accounts $ 61,144 $ 2,986 4.88% $ 20,095 $ 851 4.23%
NOW accounts 9,804 232 2.37 8,257 194 2.35
Savings deposit 6,985 227 3.25 6,751 262 3.88
Certificates of deposit 104,283 6,149 5.90 97,115 5,737 5.91
Certificates of deposit over $100,000 36,387 2,001 5.50 29,481 1,655 5.61
IRA certificates 7,673 465 6.06 6,022 348 5.78
-------- ------- -------- -------
Total interest bearing deposits 226,276 12,060 5.33 167,721 9,047 5.39
Federal funds purchased, repurchase
agreements, and other short-term
borrowings 27,481 1,542 5.61 12,175 703 5.77
Long-term borrowings 17,482 1,397 7.99 18,336 1,456 7.94
-------- ------- -------- -------
Total interest bearing liabilities $271,239 $14,999 5.53% $198,232 $11,206 5.65%
-------- ------- -------- -------
NON-INTEREST BEARING LIABILITIES AND EQUITY:
Demand deposits $ 21,312 $ 16,589
Other liabilities 1,582 1,572
Shareholders' equity 14,851 11,737
-------- --------
Total liabilities and
shareholders' equity $308,984 $228,130
======== ========
Net interest income $10,369 $ 8,046
======= =======
Net interest margin 3.50% 3.71%
<CAPTION>
1994
-----------------------------------------
AVERAGE INT. EARNED/ AVERAGE
BALANCE PAID YIELD<F1>
-----------------------------------------
<S> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Loans<F1> $ 88,654 $8,213 9.26%
Taxable investment securities 36,169 1,713 4.74
Non-taxable investment securities 282 13 4.61
Federal funds sold 1,503 55 3.66
-------- ------
Total interest earning assets $126,608 $9,994 7.89%
======== ======
NON-INTEREST EARNING ASSETS:
Cash and due from banks $ 3,592
Premises and equipment 2,264
Other assets 2,022
Reserve for possible loan losses (1,020)
--------
Total assets $133,466
========
Liabilities and shareholders' equity
INTEREST BEARING LIABILITIES:
Money market accounts $ 16,592 $ 498 3.00%
NOW accounts 8,656 203 2.35
Savings deposit 3,497 87 2.49
Certificates of deposit 57,211 2,512 4.39
Certificates of deposit over $100,000 8,749 360 4.11
IRA certificates 3,425 164 4.79
-------- ------
Total interest bearing deposits 98,130 3,824 3.90
Federal funds purchased, repurchase
agreements, and other short-term
borrowings 7,534 447 5.93
Long-term borrowings 7,477 313 4.19
-------- ------
Total interest bearing liabilities $113,141 $4,584 4.05%
-------- ------
NON-INTEREST BEARING LIABILITIES AND EQUITY:
Demand deposits $ 11,240
Other liabilities 1,005
Shareholders' equity 8,080
--------
Total liabilities and
shareholders' equity $133,466
========
Net interest income $5,410
======
Net interest margin 4.27%
<FN>
- -------------------------
<F1>Interest on non-accruing loans is not included for purposes of calculating yields.
</TABLE>
- 39 -
<PAGE> 41
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
---------------------------------------------- -------------------------------------------
VOLUME<F1> YIELD<F2> VOL<F*>RATE NET CHANGE VOLUME<F1> YIELD<F2> VOL<F*>RATE NET CHANGE
---------- --------- ----------- ---------- ---------- --------- ----------- ----------
INTEREST EARNED ON: (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
-------------------------------------------------------
VOLUME<F1> YIELD<F2> VOL*RATE NET CHANGE
---------- --------- -------- ----------
INTEREST EARNED ON: (IN THOUSANDS)
<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 table above.
</TABLE>
- 40 -
<PAGE> 42
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.
- 41 -
<PAGE> 43
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>
- 42 -
<PAGE> 44
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 Bank's 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, the 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.
- 43 -
<PAGE> 45
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 period of time. The
- 44 -
<PAGE> 46
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.
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:
- 45 -
<PAGE> 47
<TABLE>
<CAPTION>
0 TO 3 4 TO 12 1 TO 5 OVER
MONTHS MONTHS YEARS 5 YEARS TOTAL
-------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans $161,606 $ 56,894 $67,380 $ 6,046 $291,926
Investment securities<F1> 25,715 13,428 19,682 500 59,325
Non-taxable investment securities 25 205 542 427 1,199
Other short-term investments 10,775 -- -- -- 10,775
-------- -------- ------- ------- --------
Total earning assets $196,121 $ 70,527 $87,604 $ 6,973 $363,225
======== ======== ======= ======= ========
FUNDING SOURCES:
Money market accounts 74,490 -- -- -- 74,490
NOW accounts 10,711 -- -- -- 10,711
Savings 6,083 -- -- -- 6,083
Time deposits 21,979 68,538 37,166 66 127,749
Time deposits over $100,000 31,349 15,306 4,170 -- 50,825
IRAs 1,828 3,963 2,935 21 8,748
Repurchase agreements 7,278 523 536 -- 8,337
Short-term FHLB borrowings 10,150 17,650 -- -- 27,800
Long-term FHLB borrowings -- -- 7,000 -- 7,000
Long-term borrowings--other -- -- 4,400 3,263 7,663
-------- -------- ------- ------- --------
Total funding sources $163,869 $105,980 $56,207 $ 3,350 $329,406
======== ======== ======= ======= ========
Interest sensitivity gap--$ $ 34,252 $(35,453) $31,397 $ 3,623 $ 33,819
Interest sensitivity gap--% 120.90% 66.55% 155.86% 208.15% 110.27%
Cumulative gap--$ $ 34,252 $ (1,201) $30,196 $33,819
Cumulative gap--% 120.90% 99.55% 109.26% 110.27%
Gap as a percentage of total
earning assets 9.43% (0.33)% 8.31% 9.31%
<FN>
- ----------------------------
<F1> Investment securities include mortgage-backed securities which
have effective maturities based upon current market conditions. This
stratification is based on management's estimates in relation to the
historical trends of these types of securities.
</TABLE>
Risk Management. 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
Division of Finance, the Savings Bank is subject to regulation and
supervision by the OTS and the Company is subject to regulation and
supervision by the Federal Reserve Board. The burden imposed by Federal
and state regulations puts banks and federal savings associations 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 and thrifts.
- 46 -
<PAGE> 48
Credit Risk. The greatest risk facing lenders is
generally credit risk, that is, the risk of losing principal and
interest due to a borrower's failure to perform according to the terms
of the loan agreements. The Bank historically has experienced
relatively low levels of loan losses. Management attributes these loan
loss rates to the Bank's emphasis on tangible asset lending, generally
securing loans with real estate. Pursuant to its loan monitoring
policy, the Bank reported net loan chargeoffs of $478,000 during 1996,
or 0.21% of average loans outstanding, an increase from 0.19% of
average loans charged off in 1995. As of December 31, 1996, the ratio
of non-performing loans to total loans was .24%, an increase from .17%
at December 31, 1995.
Exposure to Local Economic Conditions. The Bank's
concentration of loans in the St. Louis SMSA exposes it to risks
resulting from changes in the local economy. While the Bank's market
area for loans extends throughout most of Eastern and Northeastern
Missouri and Southern Illinois, its lending operations are concentrated
in the St. Louis SMSA. The percentage of loans secured by St. Louis
SMSA real estate is significant. A significant 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.
- 47 -
<PAGE> 49
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 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 repriced 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>
- 48 -
<PAGE> 50
The following table summarizes the composition of the Bank's loan
portfolio at the dates indicated:
<TABLE>
LOAN PORTFOLIO--TYPES OF LOANS
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------
1996 1995 1994
-------------------------- ------------------------ -----------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------- ----------- -------- ----------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <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%
Real estate--construction 8,763 3.00 8,777 4.83 5,504 4.53
Real estate--mortgage:
One- to four-family residential 121,386 41.58 71,260 39.25 47,109 38.81
Multi-family and commercial 74,721 25.60 52,795 29.08 31,813 26.21
Consumer and other 12,084 4.14 8,379 4.62 6,881 5.67
Less unearned income (157) (0.05) (185) (0.10) (267) (0.22)
-------- ------ -------- ------ -------- ------
Total loans<F1> $291,926 100.00% $181,544 100.00% $121,393 100.00%
======== ====== ======== ====== ======== ======
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1993 1992
----------------------------- ----------------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------- ----------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial, agricultural,
municipal and industrial
development $19,954 28.60% $13,198 28.94%
Real estate--construction 1,403 2.01 806 1.77
Real estate--mortgage:
One- to four-family residential 126,699 38.27 16,877 37.01
Multi-family and commercial 16,899 24.22 10,702 23.47
Consumer and other 4,959 7.11 4,119 9.03
Less unearned income (141) (0.20) (102) (0.22)
------- ------ ------- ------
Total loans<F1> $69,773 100.00% $45,600 100.00%
======= ====== ======= ======
<FN>
- --------------------
<F1> The Bank had no outstanding foreign loans at the dates reported.
</TABLE>
- 49 -
<PAGE> 51
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 Federal National Mortgage Association ("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 continue to swap mortgages for additional securities in the
future as part of its regular course of operations.
- 50 -
<PAGE> 52
The book value of investment securities at the dates indicated were
as follows:
<TABLE>
INVESTMENT PORTFOLIO
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States Treasury securities $ 7,941 $ 5,017 $ 7,025
Obligations of other United States
government agencies 46,717 64,697 31,232
FHLB 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
FHLB stock 4,462 7.00 -- -- --
States and political subdivisions 230 4.49 542 5.59 400 5.31 27 5.00
Less unrealized loss on securities
held available-for-sale 35 -- -- -- -- -- -- --
Other -- -- 205 -- -- -- -- --
------- ------- ---- -------
Total investment securities $15,431 5.29% $26,070 5.62% $900 6.08% $18,158 6.24%
======= ======= ==== =======
Total portfolio $60,559 5.70%
=======
<FN>
- -----------------------
<F1> Securities are adjustable-rate mortgages tied to the one-year
Constant Maturity Treasury index. Due to principal prepayments,
management estimates these securities will have an estimated life of
five to seven years during normal market conditions.
</TABLE>
Asset Quality. The Bank's allowance for possible loan losses
increased 46%, from $2.1 million on December 31, 1995 to $3.1 million on
December 31, 1996. The majority of this increase was due to the provision of
$1.4 million to the reserve for possible loan losses during 1996. The
reserve for loan losses is budgeted by using a risk weighting system based
upon the different risk categories of loans. The allowance for loan losses
to total loans decreased to 1.06% at December 31, 1996 from 1.17% at December
31, 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
- 51 -
<PAGE> 53
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.
- 52 -
<PAGE> 54
The following table summarizes, at the dates indicated, 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)
- 53 -
<PAGE> 55
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) (0.10) (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 became 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:
- 54 -
<PAGE> 56
<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 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, 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.
- 55 -
<PAGE> 57
Certificates of deposit accounted for approximately 58% of the
Bank's total deposits as of December 31, 1996. Many of such certificates of
deposit were purchased by customers in response to promotions offering
above-market interest rates. Payment of premium interest rates by the Bank
adversely affects the Bank's interest rate spread. Moreover, the Bank's
concentration of deposits in certificates of deposit could have a negative
impact on the stability of its deposits as purchasers of certificates of
deposit may not redeposit the proceeds of their certificates of deposit after
the certificates of deposit mature, particularly if the Bank then is not
offering promotional rates. There can be no assurance the concentration of
the Bank's deposits in certificates of deposit will not have a material
adverse effect on the Bank's future results of operation or liquidity.
Management anticipates continued loan demand in the Bank's market
area as bank consolidation continues and fewer middle market lenders serve
the area. In order to maintain the flexibility to fund this growth, the Bank
has entered into an agreement with the FHLB providing the Bank a credit
facility secured by the Bank's assets with current availability of $71.8
million of which $34.8 million was outstanding as of December 31, 1996. This
resource should provide the Bank the opportunity to expand further the loan
portfolio with the flexibility to increase deposits when conditions best
match the Bank's needs and resources.
The following table summarizes short-term borrowings for the periods
indicated:
<TABLE>
AVERAGE SHORT-TERM BORROWINGS
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1996 1995 1994
------------------- ------------------- -------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Federal funds purchased $ 2,737 5.33% $ 679 6.27% $ 1,110 4.13%
Securities sold under agreement
to repurchase and other
short-term borrowings 24,744 5.65% 11,496 5.75% 6,424 4.33%
------- ------- -------
Total $27,481 5.61% $12,175 5.77% $ 7,534 5.93%
======= ======= =======
Total maximum short-term borrowings
outstanding at any month-end
during the year $51,060 $14,108 $17,406
</TABLE>
The Bank experienced a period of strong loan demand during the third
quarter of 1996, which affected its short-term liquidity. A large portion of
the loan demand was in the form of one- to four-family real estate loans,
some of which were swapped for mortgage-backed securities during the fourth
quarter of 1996. The Bank's Asset/Liability Committee monitors its liquidity
position daily and seeks consistently to guard against an inadequate
liquidity position.
From December 31, 1995 to December 31, 1996, short-term borrowings
increased substantially. The rates paid for these borrowings are
significantly less than those required to increase the deposit base. This
strategy benefited earnings, as well as improved efficiency by bringing in a
large block of funding at one time. The Bank expected that borrowings
maturing in 1997 would 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
- 56 -
<PAGE> 58
now eligible for additionally discounted funds from the FHLB due to its
"Outstanding" Community Reinvestment Act rating.
Capital Resources. From December 31, 1995 to December 31, 1996, 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 as of December 31,
1996, 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
- 57 -
<PAGE> 59
of $9.375 per share. The Company believes that the proceeds of this offering
and the February 1997 rights offering, together with the above-described
resources, will be sufficient to finance its capital requirements for planned
operations and growth through at least the end of 1997. The Company may seek to
raise additional capital subsequent to 1997, if deemed necessary or advisable by
its Board of Directors after consideration of those factors deemed relevant
by the board.
The capitalization of the Company as of December 31, 1996 was as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
(IN THOUSANDS)
<S> <C>
Long-term debt:
Note payable to financial institution, interest
payable at prime (8.25% on December 31, 1996),
due December 31, 1999. The note is secured by Bank stock $ 4,400
Notes payable to FHLB, various interest rates from
5.62% to 7.87% principal balance due from
January 12, 1998 to September 12, 2000.
Secured by FHLB stock and certain loans 7,000
Subordinated debentures with certain shareholders,
interest payable at prime plus 3% (with a minimum
floor of 10%), maturing on May 31, 2002 . 3,263
-------
Total long-term debt $14,663
-------
Shareholders' equity:
Common Stock, $.01 par value; 7,800,000 shares
authorized; issued and outstanding 2,270,530(1) $ 23
Capital surplus 15,983
Retained earnings 357
Net unrealized depreciation on securities held
available-for-sale 23
-------
Total shareholders' equity 16,386<F1>
-------
Total capitalization $31,049
=======
<FN>
- --------------
<F1> Subsequent to December 31, 1996, the Company completed a rights
offering pursuant to which it received net proceeds of approximately
$5.2 million and issued 567,750 shares of Common Stock.
</TABLE>
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 No. 123 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 No.
25"), but encourages the adoption of a new accounting method based on the
estimated fair value of employee
- 58 -
<PAGE> 60
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
No. 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.
In February 1997, the FASB issued SFAS No. 128, Earnings per Share.
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.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
SFAS No. 130 is effective for financial statements for periods
beginning after December 15, 1997 and requires comparative information for
earlier years to be restated. Because of the recent issuance of this
standard, management has been unable to fully evaluate the impact, if any,
the standard may have on future financial statement disclosures. Results of
operations and financial position, however, will be unaffected by
implementation of this standard.
In June 1997, the FASB issued SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, which supersedes SFAS No.
14, Financial Reporting for Segments of a Business Enterprise. SFAS No. 131
establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997 and requires comparative information for
earlier years to be restated. Because of the recent issuance of this
standard, management has been unable to fully evaluate the impact, if any, it
may have on future financial statement disclosures. Results of operations
and financial position, however, will be unaffected by implementation of this
standard.
- 59 -
<PAGE> 61
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
Results of Operations
Net Income. 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 approximately 2.4 million to
approximately 2.9 million during the respective periods. This increase in
weighted average common shares outstanding was primarily attributable to the
Company's rights offering (the "1997 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 1997 Rights Offering.
Net Interest Income. 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 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 advances from the FHLB to partially fund
loan growth, which management of the Company believed to be a more
advantageous funding source than deposit promotions. See "--Net Interest
Margin" and "--Liquidity and Capital Resource Management."
Net Interest Margin. 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.
- 60 -
<PAGE> 62
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 -- 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 introduced 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.
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 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.
As an alternative to running additional deposit promotions, the Bank has
increasingly relied upon short-term borrowings from the FHLB, 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
- 61 -
<PAGE> 63
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 could attract increased levels of core deposits,
which cost less than promotional monies. The Bank opened its ninth, tenth
and eleventh branches in St. Peters, Crestwood, and Monroe City,
respectively, in 1997. In addition, the Bank moved the existing Palmyra
branch from a grocery store into its own building. The opening of the new
branches, the third quarter acquisitions of Reliance and the acquired
branches in Warrenton, Missouri and Union, Missouri added approximately
$123.0 million in deposits. The Company applied $25.0 million of the cash
acquired in the Branch Acquisition to retire all of its short-term debt.
However, management expects to continue to utilize short-term borrowings in
the future if and when deemed advisable as a source of liquidity.
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:
- 62 -
<PAGE> 64
<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 4,031 3,850
Allowance for possible loan losses (3,497) (2,188)
-------- --------
Total assets $388,935 $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>
- 63 -
<PAGE> 65
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 six months 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 increase in the provision for possible
loan losses for the six-month period ended June 30, 1997 reflects 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 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 and real
estate 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. 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
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, total non-interest expense
increased 48% to $4.8 million from $3.2 million during the corresponding
period of 1996. This increase included a 47% increase in salaries and other
employee benefits. 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. 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.
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
- 64 -
<PAGE> 66
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.
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 Bank's 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.
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 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 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.
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<PAGE> 67
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) (0.05) (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>
- 66 -
<PAGE> 68
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>
- 67 -
<PAGE> 69
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.
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<PAGE> 70
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:
<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>
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<PAGE> 71
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 acquisition
of Reliance Financial, Inc. and the Warrenton and Union, Missouri branches of
Roosevelt Bank in the third quarter of 1997. The addition of these deposits
was used partially for the retirement of outstanding short-term debt. See
"Unaudited Pro Forma Financial Information."
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
acquisition of Reliance Financial, Inc. and the Warrenton and Union, Missouri
branches of Roosevelt Bank in the third quarter of 1997 substantially
increased core deposits. As of June 30, 1997, combined deposits from the
planned acquisitions totaled approximately $123.0 million. In addition to
the newly added branches, 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.
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
- 70 -
<PAGE> 72
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. On September 4, 1997, the Company borrowed $3.0 million
pursuant to its bank stock loan, the proceeds of which were contributed to
the capital of the Bank to improve its capital ratios in light of the Branch
Acquisition and internal growth. 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 Federal Reserve Board at 4%. As
of June 30, 1997, the Company's leverage ratio was 5.53%.
- 71 -
<PAGE> 73
The Company currently believes that its business will require up to $4.0
million of additional capital prior to the end of 1997. Accordingly, the
Company has undertaken this offering to finance such capital requirements.
The Company's management will continue to monitor the Company's actual and
forecasted position in light of operating results and planned operations and
growth. The Company may seek to raise additional capital subsequent to 1997,
if deemed necessary or advisable by its Board of Directors after
consideration of those factors deemed relevant by the board.
BUSINESS
GENERAL
The Company is a bank holding company that owns all of the capital stock
of the Bank and the Savings Bank. The Bank and Savings Bank provide personal
and commercial banking and related financial services from eleven locations
in the St. Louis SMSA and three locations in Northeast Missouri. The
Mortgage Company offers residential loans primarily to customers in the St.
Louis SMSA. Edge 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 the Bank in 1990. In November 1994, the
Bank acquired the Mortgage Company. Effective January 1995, Allegiant State
Bank merged into the Bank. Edge was organized in October 1996 and began
operations in January 1997. The Savings Bank was acquired in August 1997.
The address of the Company's principal executive offices is 7801 Forsyth
Boulevard, St. Louis, Missouri 63105 and its telephone number is: (314)
726-5000.
THE BANK AND SAVINGS BANK
The Bank's main office is located in the City of St. Louis, Missouri at
4323 North Grand Boulevard. The Bank's other nine locations in the St. Louis
SMSA are in Hazelwood, Maryland Heights, Clayton, Des Peres, Mehlville, St.
Peters, Union, Warrenton and Crestwood. In addition, the Bank's operations
center is located in Maryland Heights. The Northeast Missouri locations
consist of full-service facilities located in Kahoka, Missouri and Palmyra,
Missouri and a predominantly retail-oriented facility operating from leased
space in a supermarket located in Monroe City, Missouri.
The Savings Bank's main office is located in St. Louis County, Missouri
at 8930 Gravois Avenue.
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
- 72 -
<PAGE> 74
its mortgage lending activities will be a key element in its strategy for
increasing the level of its earning assets.
MARKET AREAS
ST. LOUIS SMSA. The Company's primary service area is located in St.
Louis County which has a population of approximately 1.0 million and
the City of St. Louis which has a population of approximately 400,000. A key
to market coverage is accessibility. With the addition of the Mehlville and
St. Peters retail banking offices in 1996 and 1997, respectively, management
believes that the Bank's retail banking offices are within a 20 minute drive
from all principal sectors of the St. Louis SMSA. Upon consummation of the
Branch Acquisition, the Bank added retail banking offices in Warrenton,
Missouri and Union, Missouri. The Warrenton banking office is located in
Warren County, which has a population of approximately 23,000. With
the addition of the Warrenton branch, the Bank is believed to have the
largest deposit market share in Warren County. The Union banking office is
located in Franklin County, which has a population of approximately
87,000. Both the Warrenton and Union banking offices are within a 45 minute
drive from St. Louis County.
NORTHEASTERN MISSOURI. The City of Kahoka is located in Clark
County and has a population of approximately 2,200. The City of Palmyra is
located in Marian County and has a population of approximately 3,400. Monroe
City is located in Pike County and has a population of approximately 2,600.
The Company intends to continue to expand its Northeastern Missouri
operations into additional markets not currently served by its existing
facilities. It is anticipated that new locations will be centered along U.S.
Highway 61.
PRODUCTS AND SERVICES
Through the Bank and Savings Bank, the Company offers a complete line of
banking services to the communities that it serves. In conjunction with the
growth of its branch facilities, the Bank has introduced new products and
services in order to attract new business and increase current customer
satisfaction. These products will also be offered to customers of the
Savings Bank. New products the Bank and Savings Bank intend 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 and Savings Bank also offer 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.
- 73 -
<PAGE> 75
MARKETING
The Company's marketing approach entails a word-of-mouth, referral-based
strategy utilizing the 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 Board of Directors and Banking Center directors
primarily include local business people from the Bank's market area. The
Company currently has nine directors and the Bank currently has 19 directors
and 105 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 and the first three quarters of 1997 was
attributable in large measure to its strategy of providing quality,
personalized service in a community banking environment. Management believes
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 SMSA. This activity has created an environment of
instability among the larger financial institutions in the market.
Management believes that by offering a personalized, relationship oriented
approach in a friendly neighborhood atmosphere, the Bank will be able to
increase its customer base substantially, due to this market consolidation.
COMPETITION
The Operating Subsidiaries encounter substantial competition for
deposits and loans in their markets. The Operating Subsidiaries' 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 Operating Subsidiaries'
non-bank competitors are not subject to the extensive federal and state
regulations which govern the Company and the Operating Subsidiaries and, as a
result, have a competitive advantage over the Operating Subsidiaries in
providing certain services. Many of the financial institutions with which
the Operating Subsidiaries compete are larger and have substantially greater
financial resources than the Operating Subsidiaries.
While the Operating Subsidiaries also encounter a great deal of
competition in their lending activities, management believes that there is
less competition in the Operating Subsidiaries' specialty middle-market and
neighborhood bank niche than there was up to a few years ago. The Operating
Subsidiaries believe that their competitive positions have 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 Operating Subsidiaries' strategy, by contrast, is to remain middle market
lenders which maintain close, long-term contacts with their customers.
EMPLOYEES
As of October 28, 1997, the Company and the Operating Subsidiaries had
approximately 192 full-time equivalent employees. None of these employees of
the Company or the Operating Subsidiaries
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<PAGE> 76
are subject to a collective bargaining agreement. The Company considers its
relationships with its employees and those of the Operating Subsidiaries to be
good.
EFFECT OF GOVERNMENTAL POLICY
One of the most significant factors affecting the Operating
Subsidiaries' earnings is the difference between the interest rates paid by
the Operating Subsidiaries on their deposits and their other borrowings and
the interest rates earned by the Operating Subsidiaries on loans to their
customers and securities owned by the Operating Subsidiaries. The yields of
their assets and the rates paid on their liabilities are sensitive to changes
in prevailing interest rates. Thus, the earnings and growth of the Operating
Subsidiaries 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 Board 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 U.S. government
securities and changes in reserve requirements of banks and in the cost of
short-term bank borrowings. These techniques influence overall growth and
distribution of credit, bank loans, investments and deposits, and may also
affect interest rates charged on loans or paid on deposits. The nature and
impact of any future changes in monetary policies cannot be predicted.
From time to time, legislation has been enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities, or affecting the competitive balance between banks and other
financial institutions. Legislative proposals which could affect 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.
LEGAL PROCEEDINGS
Various claims and lawsuits, incidental to the 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.
SUPERVISION AND REGULATION
GENERAL
As a bank holding company, the Company is subject to regulation under
the Bank Holding Company Act of 1956 ("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 also
subject to supervision and examination by
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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 OTS and various 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 and thrift subsidiaries. In general,
these restrictions require that any such extensions of credit must be on
non-preferential terms and secured by designated amounts of specified
collateral and be limited, as to the holding company or any one of such
nonbank subsidiaries, to 10% of the lending institution's capital stock and
surplus, and as to the holding company and all such nonbank subsidiaries in
the aggregate, to 20% of such capital stock and surplus.
PAYMENT OF DIVIDENDS
The Company is a legal entity separate and distinct from its financial
institutions and other subsidiaries. The principal source of the Company's
revenues is dividends from the Bank and the Savings Bank. Various federal
and state statutory provisions limit the amount of dividends an affiliate
financial institution can pay to the Company without regulatory approval.
The approval of federal and state bank regulatory agencies, as appropriate,
is required for any dividend if the total of all dividends declared in any
calendar year would exceed the total of the institution's net profits, as
defined by regulatory agencies, for such year combined with its retained net
profits for the preceding two years. In addition, a state member bank may
not pay a dividend in an amount greater than its net profits then on hand.
The payment of dividends by the Bank and the Savings Bank may also be
affected by other factors, such as the maintenance of adequate capital. In
addition, payment of dividends from the Savings Bank to the Company may be
prohibited by the OTS and/or OTS regulations. The Company is presently
limited in its ability to pay cash dividends on the Common Stock without the
consent of its lender, however, the Company does not believe that its bank
stock loan covenants will materially constrain its ability to pay dividends
in accordance with its announced dividend policy.
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 and thrift regulators have issued standards for banks
that are similar to, but not identical with, the standards for bank holding
companies.
In general, the risk-related standards require financial institutions
and financial institution holding companies to maintain certain capital
levels based on "risk-adjusted" assets, so that categories of assets with
potentially higher credit risk will require more capital backing than
categories with lower credit risk. In addition, banks, thrifts and bank
holding companies are required to maintain capital to support off-balance
sheet activities such as loan commitments. The Company, Bank and Savings
Bank exceed all applicable capital adequacy standards.
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<PAGE> 78
SUPPORT OF SUBSIDIARIES
Under Federal Reserve Board policy, the Company is expected to act as a
source of financial strength to its subsidiaries and to commit resources to
support its subsidiaries 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 any of its subsidiaries would also be subordinate in right of
payment to deposits and certain other indebtedness of such subsidiary.
Consistent with this policy regarding bank holding companies serving as
a source of financial strength for their subsidiaries, 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 that 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.
FDICIA made extensive changes to the federal banking laws. FDICIA
instituted certain changes to the supervisory process, including provisions
that mandate certain regulatory agency actions against undercapitalized
institutions within specified time limits. FDICIA contains various other
provisions that may affect the operations of banks and savings institutions.
The prompt corrective action provision of FDICIA requires the federal
banking regulators to assign each insured institution to one of five capital
categories ("well capitalized," "adequately capitalized" or one of three
"undercapitalized" categories) and to take progressively more restrictive
actions based on the capital categorization, as specified below. Under
FDICIA, capital requirements would include a leverage limit, a risk-based
capital requirement and any other measure of capital deemed appropriate by
the federal banking regulators for measuring the capital adequacy of an
insured depository institution. All institutions, regardless of their
capital levels, are restricted from making any capital distribution or paying
any management fees that would cause the institution to fail to satisfy the
minimum levels for any relevant capital measure.
FDICIA, through its prompt correct action system, imposes significant
operational and management restrictions on institutions that are not
considered at least "adequately capitalized." Under FDICIA's prompt
corrective action system, institutions in the "undercapitalized" category
must submit a capital restoration plan guaranteed by its parent company. The
liability of the parent company under any such guarantee is limited to the
lesser of 5% of a financial institution's assets at the time it became
"undercapitalized," or the amount needed to comply with the plan. A
financial institution in the "undercapitalized" category also is subject to
limitations in numerous areas including, but not limited to:
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<PAGE> 79
asset growth; acquisitions; branching; new business lines; and acceptance of
brokered deposits. Progressively more burdensome restrictions are applied to a
financial institution in the "undercapitalized" category that fails to submit
or implement a capital plan and to a financial institution that is in the
"significantly undercapitalized" or "critically undercapitalized" categories. A
financial institution's primary federal banking agency is authorized to
downgrade a financial institution's capital category to the next lower category
upon a determination that the financial institution is in an unsafe or unsound
condition or is engaged in an unsafe or unsound practice. An unsafe or unsound
practice can include receipt by the institution of a rating on its most recent
examination of three or worse (on a scale of 1 (best) to 5 (worst)), with
respect to its asset quality, management, earnings or liquidity. The capital
category assigned to a depository institution also affects its deposit insurance
assessment rate.
The FDIC, the OTS and the Federal Reserve Board adopted capital-related
regulations under FDICIA. Under those regulations, a financial institution
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. A financial institution will
be adequately capitalized if it was not "well capitalized" and: (i) had a
risk-based capital ratio of 8% or greater; (ii) had a ratio of Tier 1 capital
to risk-adjusted assets of 4% or greater; and (iii) had a ratio of Tier 1
capital to adjusted total assets of 4% or greater (except that certain
associations rated "Composite 1" under the federal banking agencies' CAMEL
rating system may be adequately capitalized if their ratios of core capital
to adjusted total assets were 3% or greater).
FDICIA makes extensive changes in existing rules regarding audits,
examinations and accounting. It generally requires annual on-site, full
scope examinations by each financial institution's primary federal regulator.
It also imposed new responsibilities on management, the independent audit
committee and outside accountants to develop or approve reports regarding the
effectiveness of internal controls, legal compliance and off-balance sheet
liabilities and assets.
DEPOSITOR PREFERENCE STATUTE
Legislation enacted in August 1993 provides a preference for deposits
and certain claims for administrative expenses and employee compensation
against an insured depository institution in the liquidation or other
resolution of such an institution by any receiver. Such obligations would be
afforded priority over other general unsecured claims against such an
institution, including federal funds and letters of credit, as well as any
obligation to shareholders of such an institution in their capacity as such.
FDIC INSURANCE ASSESSMENTS
The Bank and the Savings Bank are subject to FDIC deposit insurance
assessments. The FDIC has adopted a risk-based premium schedule pursuant to
which each financial institution is assigned to one of three capital
groups--well capitalized, adequately capitalized or undercapitalized--and
further assigned to one of three subgroups within a capital group, on the basis
of supervisory evaluations by the institution's federal and state supervisor,
and on the basis of other information relevant to the institution's financial
condition and the risk posed to the applicable insurance fund. The actual
assessment rate applicable to a particular institution will, therefore,
depend in part upon the risk assessment classification so assigned to the
institution by the FDIC. See "--FIRREA and FDICIA."
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<PAGE> 80
FIRREA, adopted in August 1989 to provide for the resolution of
insolvent savings associations, required the FDIC to establish separate
deposit insurance funds--the Bank Insurance Fund (the "BIF") for banks and
the Savings Association Insurance Fund (the "SAIF") for savings associations.
FIRREA also required the FDIC to set deposit insurance assessments at such
levels as would cause the BIF and the SAIF to reach their "designated reserve
ratios" of 1.25 percent of the deposits insured by them within a reasonable
period of time. Due to low costs of resolving bank insolvencies in the last
few years, the BIF reach its designated reserve ratio in May 1995. As a
result, effective January 1, 1996, the FDIC eliminated deposit insurance
assessments (except for the minimum $2,000 payment required by law) for banks
that are well capitalized and well managed and reduced the deposit insurance
assessments for all other banks. As of January 1, 1996, the SAIF had not
reached the designated reserve ratio.
The Deposit Insurance Funds Act of 1996 (the "Funds Act"), enacted as
part of the Omnibus Appropriations Bill on September 30, 1996, required the
FDIC to take immediate steps to recapitalize the SAIF and to change the basis
on which funds are raised to make the scheduled payments on the FICO bonds
issued in 1987 to replenish the Federal Savings and Loan Insurance
Corporation. The new legislation, combined with regulations issued by the
FDIC immediately after enactment of the Funds Act, provided for a special
assessment in the amount of 65.7 basis points per $100 in insured deposits on
SAIF-insured deposits held by depository institutions on March 31, 1995 (the
special assessment was required by the Funds Act to recapitalize the SAIF to
the designated reserve ratio of 1.25 percent of the deposits insured by
SAIF). Payments of this assessment were made in November 1996, but were
accrued by financial institutions in the third calendar quarter of 1996.
Commencing January 1, 1997, BIF-insured institutions will be responsible for
a portion of the annual carrying costs of the FICO bonds. Such institutions
will be assessed at 80% of the rate applicable to SAIF-insured institutions
until December 31, 1999. Effective January 1, 1997, the Funds Act also
reduced ongoing SAIF deposit insurance assessment rates to a range from 6.4
cents to 23 cents (from previous rates of 23 cents to 31 cents) per $100 of
insured deposits and increased ongoing BIF deposit insurance assessment rates
to a range from zero to 1.3 cents per $100 of insured deposits.
Additionally, pursuant to the Funds Act, if the reserves in the BIF at the
end of any semiannual assessment period exceed 1.25 percent of insured
deposits, the FDIC is required to refund the excess to the BIF-insured
institutions.
The Funds Act contemplates the merger of the SAIF and BIF by 1999,
provided the consolidation/merger of federal bank and thrift charters under
applicable law and regulation has been achieved by that time. Until such
time, however, depository institutions will continue to be prohibited from
shifting deposits from SAIF insurance coverage to BIF insurance coverage in
an attempt to avoid the higher SAIF assessments.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The Articles of Incorporation of the Company provide that the Board of
Directors is to consist of not less than six and not more than 24 directors,
each holding office for three years and until his or her respective successor
shall have been duly elected and qualified. The Articles of Incorporation
further provide that the exact number of directors to be elected will be
determined from time to time by the Board of Directors. The Board of
Directors has fixed the number of persons serving on the Company's Board of
Directors at nine.
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<PAGE> 81
The following individuals currently serve as members of the Board of
Directors and/or executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Marvin S. Wool 68 Chairman and Chief Executive Officer of the Company;
Chairman of the Bank
Shaun R. Hayes 37 President and Director of the Company; President and
Chief Executive Officer of the Bank; President of the
Savings Bank
S. Kay Love 35 Vice President/Chief Financial Officer of the Bank;
Assistant Secretary of the Company; Vice
President/Treasurer of the Savings Bank; Treasurer of
Edge
Charles E. Polk, Jr. 36 Director
Leland B. Curtis 53 Director
Leon A. Felman 62 Director
C. Virginia Kirkpatrick 63 Director
Kevin R. Farrell 46 Director and Secretary of the Company
John T. Straub 48 Director
Lee S. Wielansky 46 Director
</TABLE>
Marvin S. Wool has served as a director of the Company since 1990 and as
the Chairman and Chief Executive Officer of the Company and Chairman of the
Bank since March 1992. Mr. Wool is also a director of the newly acquired
Savings Bank. For more than the past five years, Mr. Wool has served as the
President and Chief Executive Officer of Dash Multi-Corp, Inc., the holding
company for ten subsidiary companies located in Georgia, Mississippi,
Missouri, New Jersey and California which are in the chemical, cloth coating
and carpet industries.
Shaun R. Hayes has served as a director and as the President of the
Company since 1989. Additionally, Mr. Hayes has served as President and
Chief Executive Officer of the Bank since May 1992. From 1989 through 1994,
Mr. Hayes has served as Secretary of the Company. Mr. Hayes is also a director
and the President of the newly acquired Savings Bank.
S. Kay Love has served as Assistant Secretary of the Company and Vice
President/Chief Financial Officer of the Bank since March 1992. Ms. Love is
also Treasurer of Edge and Vice President/ Treasurer of the Savings Bank.
From September 1983 to March 1992, 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.
Charles E. Polk, Jr. has been a director of the Company since 1994. Mr.
Polk has been a partner of Husch & Eppenberger, a law firm located in St.
Louis, Missouri, since 1991. For more than one year
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prior to joining Husch & Eppenberger, he was associated with Peper, Martin,
Jensen, Maichel & Hetlage, a law firm located in St. Louis, Missouri.
Leland B. Curtis has been a director since March 21, 1996. He has also
been a partner in the law firm of Curtis, Oeting, Heinz, Garret & Soule, a
law firm located in St. Louis, Missouri, for more than the past five years.
Leon A. Felman has been a director of the Company since 1992. For more
than the past five years, Mr. Felman has been associated with Sage Systems,
Inc., a franchisee of Arby's restaurants in the St. Louis area, and currently
serves as its President and Chief Executive Officer.
C. Virginia Kirkpatrick has been a director of the Company since 1990.
For more than the past five years, Ms. Kirkpatrick has been President of CVK
Personal Management & Training Specialists, a business consulting and human
resource management firm.
Kevin R. Farrell has served as a director of the Company since 1989 and
as Secretary of the Company since 1994. For more than the past five years,
Mr. Farrell has been President of St. Louis Steel Products, a steel
fabricating company.
John T. Straub has been a director of the Company since 1990. Since
April 1992, Mr. Straub has been self-employed as a certified public
accountant. From December 1989 to April 1992, Mr. Straub served as Chief
Financial Officer of Group Five, Inc.
Lee S. Wielansky has been a director of the Company since 1990. For
more than the past five years, Mr. Wielansky has been the President and Chief
Executive Officer of Midland Development Group, a real estate development
company.
The Board of Directors has a standing Executive Committee, Audit
Committee, Directors' Responsibility Committee, Human Resources Committee and
Executive Compensation Committee.
The members of the Executive Committee are Marvin S. Wool, Shaun R.
Hayes, C. Virginia Kirkpatrick, Kevin R. Farrell and Lee S. Wielansky. The
Executive Committee may exercise all powers of the Board of Directors which
may be lawfully delegated when the Board of Directors is not in session.
The members of the Audit Committee are John T. Straub, Lee S. Wielansky
and Charles E. Polk, Jr. The duties of the Audit Committee include meeting
with the independent auditors, management, internal auditors and credit
review personnel to periodically review the work of each and ensure that each
is properly discharging its responsibilities.
The members of the Directors' Responsibility Committee are Leon A.
Felman, C. Virginia Kirkpatrick and John T. Straub. The Directors'
Responsibility Committee periodically reviews transactions between directors
and the Company to ensure compliance with various regulatory and other
requirements.
The members of the Human Resources Committee are C. Virginia
Kirkpatrick, Marvin S. Wool and Shaun R. Hayes. The Human Resources
Committee reviews the Company's employee training program and participates in
the recruitment and selection of certain key management employees.
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<PAGE> 83
The members of the Executive Compensation Committee are Leland B.
Curtis, Lee S. Wielansky and Charles E. Polk, Jr. The Executive Compensation
Committee reviews and approves salaries and other matters relating to the
compensation and benefits of the executive officers and directors of the
Company.
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<PAGE> 84
SECURITY OWNERSHIP BY MANAGEMENT
The following table indicates, as of October 15, 1997: (i) the
beneficial ownership of the Company's Common Stock by each person who is an
executive officer, director or known by the Company to own beneficially more
than 5% of the Company's Common Stock, and all directors and executive officers
of the Company as a group; (ii) the number of shares that such individual and
group have indicated they intend to subscribe for in this offering (subject to
proration to the extent of any oversubscription); and (iii) the anticipated
beneficial ownership of such individuals after this offering:
<TABLE>
<CAPTION>
NUMBER OF SHARES
PROPOSED TO BE
BEFORE OFFERING<F1> PURCHASED BY AFTER OFFERING<F1>
------------------- DIRECTORS AND ------------------
NAME OF NUMBER OF SHARES PERCENT EXECUTIVE OFFICERS NUMBER OF SHARES PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS IN THE OFFERING<F2> BENEFICIALLY OWNED<F3> OF CLASS
---------------- ------------------ -------- ------------------- ---------------------- --------
<S> <C> <C> <C> <C> <C>
Marvin S. Wool 453,313 <F4> 12.4% 74,000 527,313 12.9%
Shaun R. Hayes 261,107 <F5> 7.1 20,598 281,705 6.9
S. Kay Love 5,405 <F6> <F7> 56 5,461 <F7>
Leon A. Felman 275,176 7.7 40,000 315,176 7.9
Kevin R. Farrell 165,639 <F8> 4.6 23,105 188,744 4.7
Lee S. Wielansky 145,442 <F9> 4.0 12,628 158,070 3.9
C. Virginia Kirkpatrick 98,298 <F10> 2.7 5,592 103,890 2.6
John Straub 61,500 <F11> 1.7 5,488 66,988 1.7
Charles E. Polk, Jr. 37,947 <F12> 1.1 930 38,877 <F7>
Leland B. Curtis 14,054 <F13> <F7> 1,069 15,123 <F7>
James R. Gibson 207,038 <F14> 5.8 <F14> 207,038 <F15> 5.1
All directors and executive
officers as a group
(11 persons) 1,724,919 <F15> 47.7
<FN>
- -----------------------
<F1> Except as otherwise indicated, each individual has sole voting and
investment power over the shares listed beside his or her name. The
percentage calculations for beneficial ownership are based upon
3,571,314 shares of the Company's Common Stock that were issued and
outstanding as of October 15, 1997, plus, with respect to each
individual and for all directors and executive officers as a group, the
number of shares subject to options and warrants that may be acquired
upon exercise or conversion within 60 days.
<F2> Based upon number of shares of Common Stock which such individual and
group has indicated an intention to purchase pursuant to this offering,
subject to proration in the event of oversubscription.
<F3> Amounts include the number of shares beneficially owned by each
individual before the offering and the number of shares as to which each
individual has given a preliminary indication of interest in purchasing
in the offering.
<F4> Total includes: 44,587 shares held by the Dash Industries Pension Plan;
37,713 shares held in trusts for the benefit of Mr. Wool's children; and
79,267 shares subject to presently exercisable stock options.
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<PAGE> 85
<F5> Total includes: 3,025 shares held of record by Mr. Hayes' spouse, as to
which shares Mr. Hayes has shared voting and investment power; 92,080
shares subject to presently exercisable stock options; and 4,239 shares
issuable upon exercise of warrants.
<F6> Total includes: 4,950 shares subject to presently exercisable stock
options.
<F7> Less than one percent.
<F8> Total includes: 48,851 shares held of record by Pentastar Family
Holdings, Inc.; 30,663 shares held by Mr. Farrell as custodian for his
four children; 1,210 shares held by United Missouri Bank of Kansas City
as Trustee for the IRA of Mr. Farrell's spouse.
<F9> Total includes: 14,486 shares held by Mr. Wielansky as custodian for his
three children; 38,276 shares held jointly with Mr. Wielansky's spouse;
2,299 shares held by Shearson Lehman Brothers for the IRA of Mr.
Wielansky's spouse; 43,000 shares issuable upon exercise of stock
options; and 1,413 shares issuable upon exercise of warrants.
<F10> Total includes: 16,033 shares held jointly with Ms. Kirkpatrick's
spouse; 16,094 shares held by Paine Webber as Trustee for the IRA of Ms.
Kirkpatrick's spouse; 1,983 shares held jointly with Ms. Kirkpatrick's
son; 53,087 shares issuable upon exercise of stock options; and 471
shares issuable upon exercise of warrants.
<F11> Total includes: 4,406 shares held by Mr. Straub's spouse's Trust
Agreement; and 17,600 shares issuable upon exercise of stock options.
<F12> Total includes: 30,500 shares issuable upon exercise of stock options.
<F13> Total includes: 5,500 shares issuable upon exercise of stock options.
<F14> Total includes: 12,100 shares issuable upon exercise of stock options.
Mr. Gibson no longer serves as a director of the Company and has not
advised the Company of any amount of shares, if any, he proposes to
purchase in this offering.
<F15> Total includes: 338,084 shares issuable upon exercise of stock options;
and 6,123 shares issuable upon exercise of warrants.
</TABLE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the offering, the Company will have outstanding an
aggregate of approximately 4,017,728 shares of Common Stock (assuming the
Subscription Rights are fully exercised). Most of the shares outstanding
prior to the offering were originally issued in private placements in
reliance upon exemptions from the registration requirements of the Securities
Act. All of the shares sold in this offering will be freely tradable by
persons other than affiliates of the Company who will be subject to the
resale limitations of Rule 144 adopted under the Securities Act.
In general, Rule 144, provides that a person (or persons whose sales are
aggregated) who is an affiliate of the Company or who has beneficially owned
shares that were issued and sold in reliance upon
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<PAGE> 86
exemptions from registration under the Securities Act ("Restricted Shares") for
at least one year is entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent (1%) of the then
outstanding shares of Common Stock of the average weekly trading volume in the
Common Stock during the four calendar weeks preceding the filing of a notice of
intent to sell. Sales under Rule 144 are also subject to certain manner-of-
sale provisions, notice requirements and the availability of current public
information about the Company. However, a person who is not deemed to be an
"affiliate" of the Company at any time during the three months preceding a
sale, and who has beneficially owned Restricted Shares for at least two years,
would be entitled to sell such shares under Rule 144(k) without regard to
volume limitations, manner-of-sale provisions, notice requirements or the
availability of public information about the Company.
No prediction can be made as to the effect, if any, that sales of Common
Stock under Rule 144, pursuant to a registration statement or otherwise, or
the availability of shares of Common Stock for sale, will have on the market
price prevailing from time to time. Nevertheless, sales of substantial
amounts of Common Stock (including shares issued upon the exercise of stock
options and warrants) in the public market, or the perception that such sales
could occur, could adversely affect the prevailing market price and could
impair the Company's future ability to raise capital through an offering of its
equity securities.
DESCRIPTION OF COMMON STOCK
GENERAL
The Company has authorized 7,800,000 shares of Common Stock, $0.01 par
value. At October 15, 1997, 3,571,314 shares of Common Stock were outstanding.
Under Missouri law, the Company's Board of Directors may generally approve the
issuance of authorized shares of Common Stock without shareholder approval.
The existence of a substantial number of unissued and unreserved shares
of Common Stock may enable the Board of Directors of the Company to issue
shares to such persons and in such manner as may be deemed to have an
anti-takeover effect.
The following summary of the terms of the Company's Common Stock does
not purport to be complete and is qualified in its entirety by reference to
the applicable provisions of the Company's Articles of Incorporation, as
amended, and By-Laws, as amended, and Missouri law.
DIVIDENDS. The Company's dividend policy 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 share ratably in
dividends as and when declared by the Board of Directors out of funds legally
available for that purpose. The Company effected a three-for-two stock split
(in the form of a stock dividend) in January 1995, a 10% stock dividend in
January 1996 and a 10% stock dividend in January 1997. In September 1996,
the 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. In September 1997, the
Board of Directors announced its intention to effect a five-for-four stock
split (in the form of a stock dividend) on January 21, 1998 to holders of
record at the close of business on January 7, 1998. See "Price Range of Common
Stock and Dividends."
- 85 -
<PAGE> 87
Cash available for dividend distribution to the holders of Common Stock
must initially come from dividends paid to the Company by the Operating
Subsidiaries. Accordingly, restrictions on the Operating Subsidiaries' 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 and the OTS has the authority to
prohibit the payment of cash dividends by the Savings Bank when they
determine 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.
VOTING RIGHTS. Each holder of Common Stock has one vote for each share
held on matters presented for consideration by the shareholders, except
that, in the election of directors, each shareholder has cumulative voting
rights which entitle such shareholder to the number of votes which equals the
number of shares held by the shareholder multiplied by the number of
directors to be elected. All such votes may be cast for one candidate for
election as a director or may be distributed among two or more candidates.
PREEMPTIVE RIGHTS. The holders of Common Stock have no preemptive
right to acquire any additional unissued shares or treasury shares of the
Company.
LIQUIDATION RIGHTS. In the event of liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holders of
Common Stock will be entitled to share ratably in any of its assets or funds
that are available for distribution to its shareholders after the
satisfaction of its liabilities (or after adequate provision is made
therefor).
ASSESSMENT AND REDEMPTION. Shares of Common Stock are and will be,
when issued, fully paid and nonassessable. Such shares do not have any
redemption provisions.
CLASSIFICATION OF BOARD OF DIRECTORS. The Board of Directors is
divided into three classes, and the directors are elected by classes to
three-year terms, so that one of the three classes of the directors of the
Company will be elected at each annual meeting of the shareholders. While
this provision promotes stability and continuity of the Board of Directors,
classification of the Board of Directors may also have the effect of
decreasing the number of directors that could otherwise be elected at each
annual meeting of shareholders by a person who obtains a controlling interest
in the Common Stock and thereby could impede a change in control of the
Company. Because fewer directors will be elected at each annual meeting,
such classification also will reduce the effectiveness of cumulative voting
as a means of establishing or increasing minority representation on the Board
of Directors.
TRANSFER AGENT
The transfer agent and registrar of the Common Stock is UMB Bank, N.A.,
Kansas City, Missouri.
- 86 -
<PAGE> 88
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon by Thompson Coburn, St. Louis, Missouri.
EXPERTS
The consolidated financial statements of the Company included in this
Prospectus have been audited by BDO Seidman, LLP, independent certified
public accountants, to the extent and for the periods set forth in their
report included in this Prospectus, and are included herein in reliance upon
such report, given upon the authority of said firm as experts in auditing and
accounting.
- 87 -
<PAGE> 89
<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEX
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1996
and June 30, 1997 (unaudited) F-2
Consolidated Statements of Income for the Years
Ended December 31, 1995 and 1996
and for the Six Months Ended June 30,
1996 (unaudited) and 1997 (unaudited) F-3
Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 1995 and 1996
and for the Six Months Ended June 30, 1997 (unaudited) F-4
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1995 and 1996
and for the Six Months Ended June 30,
1996 (unaudited) and 1997 (unaudited) F-5
Summary of Accounting Policies F-6
Notes to Consolidated Financial Statements F-9
</TABLE>
- 88 -
<PAGE> 90
[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 sheet of Allegiant
Bancorp, Inc. (a Missouri corporation) and subsidiaries as of December 31,
1996, and the related consolidated statements of income, shareholders' equity
and cash flows for the years ended December 31, 1996 and 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express and 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 be present fairly,
in all material respects, the financial position of Allegiant Bancorp, Inc.
and subsidiaries as of December 31, 1996, and the results of their operations
and their cash flows for the years ended December 31, 1996 and 1995, in
conformity with generally accepted accounting principles.
/s/ BDO Seidman LLP
St. Louis, Missouri
January 24, 1997
except for Note 15
which is as of
February 24, 1997
F-1
<PAGE> 91
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31, JUNE 30,
------------ --------
1996 1997
------------ --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 7,554 $ 9,144
Federal funds sold and other overnight investments 10,775 1,000
Investment securities (Notes 1, 6 and 7)
Available-for-sale (at estimated market value) 22,073 22,649
Held-to-maturity (approximate market value of
$38,540 and $39,482, respectively) 38,487 39,749
Loans, net of allowance for possible loan losses
of $3,100 and $3,976 (Notes 2, 6, 7 and 9) 288,826 343,658
Premises and equipment (Note 3) 5,514 5,883
Accrued interest and other assets (Notes 4 and 5) 3,844 4,936
Cost in excess of fair value of net assets acquired 491 462
-------- --------
Total assets $377,564 $427,481
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non-interest bearing $ 29,406 $ 34,928
Interest bearing 228,439 235,235
Certificates of deposit of $100,000 or more 50,825 44,854
-------- --------
Total deposits 308,670 315,017
-------- --------
Short-term borrowings (Notes 1, 6 and 9) 36,137 74,214
Long-term debt (Notes 1, 7 and 9) 14,663 13,663
Accrued expenses and other liabilities 1,708 1,729
-------- --------
Total liabilities $361,178 $404,623
-------- --------
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 and 2,845,815, respectively 23 30
Capital surplus 15,983 21,279
Retained earnings 357 1,519
Net unrealized appreciation (depreciation) on securities available-for-sale 23 30
-------- --------
Total shareholders' equity 16,386 22,858
-------- --------
Total liabilities and shareholders' equity $377,564 $427,481
======== ========
<FN>
- -------------------------
See accompanying summary of accounting policies and notes to consolidated financial statements.
</TABLE>
F-2
<PAGE> 92
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- ----------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 15,995 $ 21,740 $ 9,598 $ 14,513
Investment securities 2,965 3,477 1,742 1,840
Federal funds sold and overnight investments 292 151 117 66
---------- ---------- ---------- ----------
Total interest income 19,252 25,368 11,457 16,419
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits 9,047 12,060 5,574 7,184
Interest on short-term borrowings 703 1,542 433 1,169
Interest on long-term debt 1,456 1,397 748 646
---------- ---------- ---------- ----------
Total interest expense 11,206 14,999 6,755 8,999
---------- ---------- ---------- ----------
Net interest income 8,046 10,369 4,702 7,420
Provision for possible loan losses (Note 2) 977 1,448 431 1,121
---------- ---------- ---------- ----------
Net interest income after provision for possible
loan losses 7,069 8,921 4,271 6,299
---------- ---------- ---------- ----------
OTHER INCOME:
Service charges on deposits and other fees 658 1,032 392 646
Net gain (loss) loss on sale of securities (Note 1) (4) 49 17 --
---------- ---------- ---------- ----------
Total other income 654 1,081 409 646
---------- ---------- ---------- ----------
OTHER EXPENSES:
Salaries and employee benefits (Note 10) 2,809 3,455 1,588 2,329
Operating expenses 2,816 3,564 1,631 2,449
---------- ---------- ---------- ----------
Total other expenses 5,625 7,019 3,219 4,778
---------- ---------- ---------- ----------
Income before income taxes 2,098 2,983 1,461 2,167
Provision for income taxes (Note 5) 823 1,175 566 866
---------- ---------- ---------- ----------
Net income $ 1,275 $ 1,808 $ 895 $ 1,301
========== ========== ========== ==========
PER SHARE DATA:
Primary:
Average adjusted Common Shares outstanding 2,056,431 2,386,042 2,371,391 2,870,483
Net income $ 0.62 $ 0.76 $ 0.38 $ 0.45
Fully diluted:
Average adjusted Common Shares outstanding 2,152,869 2,416,445 2,371,391 2,870,483
Net income $ 0.61 $ 0.75 $ 0.38 $ 0.45
<FN>
- -------------------------
See accompanying summary of accounting policies and notes to consolidated financial statements.
</TABLE>
F-3
<PAGE> 93
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
NET
UNREALIZED
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:
Three-for-two 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 held 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 subordinated 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 held available for sale
(Note 1) -- -- -- 114 114
------- ------- ------- ------- -------
Balance, December 31, 1996 $ 23 $15,983 $ 357 $ 23 $16,386
------- ------- ------- ------- -------
Net income -- -- 1,301 -- 1,301
Cash dividends declared -- -- (139) -- (139)
Issuance of Common Stock coinciding with:
Exercise of Common Stock warrants -- 31 -- -- 31
Various stock issuance plans 7 5,265 -- -- 5,270
Change in net unrealized gains (losses)
on securities held available for sale
(Note 1) -- -- -- 7 7
------- ------- ------- ------- -------
Balance, June 30, 1997 (unaudited) $ 30 $21,279 $ 1,519 $ 30 $22,858
======= ======= ======= ======= =======
<FN>
- -------------------------
See accompanying summary of accounting policies and notes to consolidated financial statements.
</TABLE>
F-4
<PAGE> 94
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------- --------------------
1995 1996 1996 1997
-------- --------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,275 $ 1,808 $ 895 $ 1,301
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 520 536 348 692
Provision for loan losses 977 1,448 431 1,121
Loan recoveries -- -- 52 14
Net realized (gains) losses on securities
available-for-sale 4 (49) (17) (3)
(Gain) on sale of fixed assets (6) -- -- --
Deferred tax provision (176) (282) -- --
Changes in assets and liabilities:
Accrued interest receivable and other assets (727) (938) (106) (1,132)
Accrued expenses and other liabilities (24) 768 (288) 21
-------- --------- -------- --------
Cash provided by operating activities 1,891 3,291 1,315 2,014
-------- --------- -------- --------
INVESTING ACTIVITIES:
Proceeds from maturities of securities held-to-maturity 57,705 41,343 35,871 8,451
Purchase of investment securities held-to-maturity (57,367) (25,279) (26,191) (9,613)
Proceeds from maturities of securities available-for-sale 75 36,797 42,255 7,691
Proceeds from sales of securities available-for-sale 996 3,882 1,763 2,196
Purchase of investments securities available-for-sale (21,420) (34,457) (37,334) (10,446)
Loans made to customers, net of repayments (72,753) (120,070) (41,584) (55,966)
Additions to premises and equipment (2,382) (1,574) 414 (1,100)
Proceeds from sale of fixed assets 8 -- -- --
-------- --------- -------- --------
Cash provided by operating activities (95,138) (99,358) (25,634) (58,787)
-------- --------- -------- --------
FINANCING ACTIVITIES:
Net increase in deposits 96,425 77,362 6,170 6,347
Net increase in short-term debt (3,298) 22,029 8,449 12,301
Proceeds from issuance of long-term debt 19,315 -- -- 25,776
Repayments of long-term debt (9,400) (4,552) (3,039) (1,000)
Proceeds from issuance of Common Stock 4,223 61 -- 5,272
Payment of dividends (113) (187) (88) (139)
Exercise of warrants -- -- -- 31
-------- --------- -------- --------
Cash provided by financing activities 107,152 94,713 11,492 46,588
-------- --------- -------- --------
Net increase (decrease) in cash and cash equivalents 13,905 (1,354) (12,827) (8,185)
Cash and cash equivalents, beginning of year 5,778 19,683 19,683 18,329
-------- --------- -------- --------
Cash and cash equivalents, end of year $ 19,683 $ 18,329 $ 6,856 $ 10,144
======== ========= ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest on deposits and borrowings $ 10,346 $ 14,750
Income taxes 1,392 1,393
======== =========
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 12,300 9,209
Conversion of Subordinate Debt to Common Stock -- 504
Conversion of Directors' fees to Common Stock 46 148
======== =========
<FN>
- -------------------------
See accompanying summary of accounting policies and notes to consolidated financial statements.
</TABLE>
F-5
<PAGE> 95
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Accounting. The accompanying consolidated financial statements
include the accounts of Allegiant Bancorp, Inc. (the "Company") and its
subsidiaries, Allegiant Bank (the "Bank"), Allegiant Mortgage Company and
Edge Mortgage Services, Inc. The financial statements have been prepared in
conformity with generally accepted accounting principles and reporting
practices applicable to the banking industry. All significant intercompany
transactions and balances have been eliminated.
Business. The Bank provides a full range of banking services to
individual and corporate customers in the St. Louis SMSA as well as Northeast
Missouri. The Bank is subject to intense competition from other financial
institutions. The Bank is also subject to the regulations of certain federal
and state agencies and undergoes periodic examination by those regulatory
authorities.
Investment Securities. At the time of purchase, Allegiant categorizes
each security within its portfolio into one of the following three permitted
classifications:
Held-to-maturity securities are securities which Allegiant has the
ability and positive intent to hold to maturity. Such securities are carried
at cost, adjusted for amortization of premiums and accretion of discounts.
The adjusted cost of specific securities is used to compute gains and losses
on sales and redemptions.
Trading securities, including options used in trading activities, are
purchased with the intent for resale within a short period of time in
anticipation of short-term market movements, and are stated at estimated
market value. Gains and losses, both realized and unrealized, on trading
securities are included in other non-interest income.
Available-for-sale securities include all debt securities not classified
as held-to-maturity or trading and marketable equity securities not
classified as trading. Available-for-sale securities are stated at estimated
market value. Unrealized holding gains and losses are reported net of taxes
as a separate component of shareholders' equity until realized. Realized
gains and losses are computed based on cost adjusted for amortization of
premiums and accretion of discounts and included in other non-interest
income.
Dividends and interest income on all securities are included in interest
income.
Loans. Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Discounts and premiums on purchased residential real estate loans are
amortized to income using the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments. Discounts and
premiums on purchased consumer loans are recognized over the expected lives
of the loans using methods that approximate the interest method.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related loan.
F-6
<PAGE> 96
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
Allegiant adopted effective January 1, 1996. SFAS No. 122 amended SFAS No.
65, Accounting for Certain Mortgage Banking Activities. The overall impact
on Allegiant's financial statements of adopting SFAS No. 122 in 1996 was not
significant.
SFAS No. 122 requires the recognition of originated mortgage servicing
rights ("OMSRs"), as well as purchased mortgage servicing rights ("PMSRs"),
as assets by allocating total costs incurred between the loan and the
servicing rights based on their relative fair values. Under SFAS No. 65, the
cost of OMSRs was not recognized as an asset and was charged to earnings when
the related loan was sold.
Amortization of mortgage servicing rights is based on the ratio of net
servicing income received in the current period to total net servicing income
projected to be realized from the mortgage servicing rights. Projected net
servicing income is in turn determined on the basis of the estimated future
balance of the underlying mortgage loan portfolio, which declines over time
from prepayments and scheduled loan amortization. Allegiant estimates future
prepayment rates based on current interest rate levels, other economic
conditions and market forecasts, as well as relevant characteristics of the
servicing portfolio, such as loan types, interest rate stratification and
recent prepayment experience.
SFAS No. 122 also requires that all capitalized mortgage servicing
rights ("MSRs") be evaluated for impairment based on the excess of the
carrying amount of the MSRs over their fair value. For purposes of measuring
impairment, MSRs are stratified on the basis of interest rate and type of
interest rate (fixed or adjustable).
Real Estate Owned. Real estate acquired in settlement of loans is
initially recorded at the lower of fair market value of the assets received
(less estimated selling costs) or the recorded investment in the loan at date
of foreclosure. Any adjustment to fair market value is charged against the
allowance for real estate. Subsequent write-downs are charged against
operating expense including charges relating to operating, holding or
disposing of the property. Real estate owned was approximately $-0- and
$10,000 at December 31, 1996 and 1995, respectively.
F-7
<PAGE> 97
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cost in Excess of Fair Value of Net Assets Acquired. Goodwill, which
represents the excess of the cost of purchased assets over the fair value of
their net assets at date of acquisition, is being amortized on the
straight-line method over 15 years.
Income Taxes. Income taxes are accounted for under the asset and
liability method in which deferred income taxes are recognized as a result of
temporary differences between the financial reporting basis and the tax basis
of the assets and liabilities of Allegiant.
Earnings Per Share. Primary per share information is determined using
the weighted-average number of common and dilutive common equivalent shares
outstanding. Fully diluted per share information assumes full conversion of
all dilutive convertible securities into Common Stock at the later of the
beginning of the year or the date of issuance of the dilutive convertible
securities.
Consolidated Statements of Cash Flows. For purposes of reporting cash
flows, Allegiant considers cash and due from banks, federal funds sold and
other overnight investments to be cash equivalents.
Stock-Based Compensation. Allegiant grants stock options for a fixed
number of shares to employees with an exercise price greater than or equal to
the fair value of the shares at the date of grant. Allegiant continues to
account for stock option grants in accordance with Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25").
That Opinion requires that compensation cost related to fixed stock options
plans be recognized only to the extent that the fair value of the shares at
the grant date exceeds the exercise price. Accordingly, Allegiant recognizes
no compensation expense for its stock option grants.
In October 1995, the FASB issued its SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No. 123 allows companies to continue to
account for their stock option plans in accordance with APB 25 but encourages
the adoption of a new accounting method based on the estimated fair value of
employee stock options. Pro forma net income and earnings per share,
determined as if Allegiant had applied the new method, are disclosed within
Note 11.
Reclassifications. Certain reclassifications have been made to the 1995
financial statements to conform to the 1996 presentation. These
reclassifications had no effect on net income.
Accounting Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
estimates.
Accounting Changes. In June 1996, the FASB issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities. SFAS No. 125 establishes, among other things, new criteria
for determining whether a transfer of financial assets in exchange for cash
or other consideration should be accounted for as a sale or as a pledge of
collateral in a secured borrowing. It also establishes new accounting
requirements for pledged collateral. As issued, SFAS No. 125 is effective
for all transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31,
F-8
<PAGE> 98
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1996 except for certain provisions, which were deferred for one year. The
application of this pronouncement did not have a material effect on the
financial statements of Allegiant.
Interim Financial Information. The interim financial information at
June 30, 1997 and for the six-month periods ended June 30, 1996 and 1997 is
unaudited. However, in the opinion of management, such information has been
prepared on the same basis as the audited financial statements and includes
all adjustments, consisting solely of normal recurring adjustments necessary
for a fair presentation of the financial position and results of operations
for the periods presented. The interim results are not necessarily
indicative of results of any future period.
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>
FHLB 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 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.
F-9
<PAGE> 99
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1995, the Bank securitized one pool of adjustable-rate mortgages
aggregating $12,300,000 into two FNMA mortgage-backed securities. Of this
aggregating amount, $10,300,000 was categorized as held-to-maturity and
$2,000,000 was categorized as available-for-sale. The Bank retained the
servicing of these loans. There was no gain or loss on the sale of these
loans.
At December 31, 1996 and 1995, the Bank did not have any loans for sale.
In accordance with the transition provisions of A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities, issued by the Financial Accounting Standards Board in
November 1995, the Bank transferred securities with an amortized cost of
approximately $7,707,000 from the held-to-maturity to the available-for-sale
category on December 28, 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-10
<PAGE> 100
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>
YEARS 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>
YEARS 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
----------- --------------- -------------- ------------- ---------------
<C> <C> <C> <C> <C>
$147,000 $ -- $147,000 $41,000 $ --
======== ======= ======== ======= =======
</TABLE>
The average balance of impaired loans during 1996 was $196,000. Loans
listed as impaired have been considered by Bank management in the loan loss
reserve calculation.
A summary of interest income on non-accrual and other impaired loans for
the year ended December 31, 1996, follows:
<TABLE>
<CAPTION>
IMPAIRED LOANS
NON-ACCRUAL CONTINUING TO
LOANS ACCRUE INTEREST TOTAL
----------- --------------- -----
<S> <C> <C> <C>
Income recognized $ -- $ -- $ --
======= ======= =======
Interest income had interest accrued $18,000 $ -- $18,000
======= ======= =======
</TABLE>
F-11
<PAGE> 101
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Allegiant's
capitalized mortgage servicing rights was in excess of its carrying value.
Fair value is determined by discounting estimated not future cash flows from
mortgage servicing activities using discount rates that approximate current
market rates and estimated prepayments, among other assumptions.
NOTE 5. INCOME TAXES:
Allegiant's results include income tax expense as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995
------ -----
<S> <C> <C>
Current $1,457 $ 999
Deferred (282) (176)
------ -----
Total $1,175 $ 823
====== =====
</TABLE>
F-12
<PAGE> 102
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that gave rise to the deferred
tax assets and liabilities are presented below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995
------ ------
<S> <C> <C>
Deferred tax assets:
Reserve for possible loan losses $ 852 $ 594
Deferred loan fees 52 60
Deferred compensation 32 19
Mark-to-market securities adjustments 12 --
Other, net $ 69 53
------ -----
Total deferred tax assets $1,017 726
------ -----
Deferred tax liabilities:
Depreciation (226) $(241)
Mark-to-market securities adjustments -- (45)
Other (15) (4)
------ -----
Total deferred tax liabilities (241) (290)
------ -----
Net deferred tax assets $ 776 $ 436
====== =====
</TABLE>
A valuation allowance would be provided on deferred tax assets when it
is more likely than not that some portion of the assets will not be realized.
Allegiant has not established a valuation allowance as of December 31, 1996
or 1995, due to management's belief that all criteria for recognition 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>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995
------ ------
<S> <C> <C>
Computed "expected" tax expense $1,014 $713
Tax-exempt income (19) (24)
State and local income taxes, net of federal tax benefits 143 104
Goodwill amortization 23 23
Other, net 14 7
------ ----
Total tax expense $1,175 $823
====== ====
</TABLE>
NOTE 6. SHORT-TERM BORROWINGS:
Short-term borrowings were as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------
1996 1995
------- -------
<S> <C> <C>
Customer repurchase agreements $ 8,337 $ 4,108
FHLB repurchase agreement 3,300 --
FHLB advances 24,500 10,000
------- -------
Total short-term borrowings $36,137 $14,108
======= =======
</TABLE>
As collateral for the FHLB advances, the Bank has entered into a blanket
agreement which pledges first mortgage loans with principal balances aggregating
150% of the outstanding advances.
F-13
<PAGE> 103
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
Allegiant or its subsidiaries are required to maintain certain financial
ratios and are limited with respect to cash dividends, capital expenditures
and the incurrence of additional indebtedness without prior approval.
In 1996, the Convertible Subordinated Debentures were converted into
shares of Allegiant's Common Stock at a conversion price of $8.73 per share.
The prime plus 3% Debentures are redeemable, in whole or in part, at the
option of Allegiant, subject to certain conditions, and are subordinate to
all senior debt of Allegiant.
A summary of annual principal reductions of long-term debt as of
December 31, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
ANNUAL
PRINCIPAL
YEAR REDUCTIONS
---- ----------
<S> <C>
1997 $ 400
1998 3,400
1999 4,100
2000 2,000
2001 --
Thereafter 4,763
-------
Total $14,663
=======
</TABLE>
F-14
<PAGE> 104
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. STOCK DIVIDEND:
On September 19, 1996, Allegiant's Board of Directors declared a 10%
stock dividend to shareholders of record on January 2, 1997, payable on
January 15, 1997. The transaction was valued based on the closing market
price of Allegiant's stock at the date of declaration. Retained earnings
were charged to the extent available as a result of the increase of 206,346
shares of Allegiant's Common Stock.
On October 19, 1995, Allegiant's Board of Directors declared a 10% stock
dividend to shareholders of record on January 2, 1996, paid on January 15,
1996. Retained earnings were charged $2,170,000 as a result of the increase
of 180,821 shares of Allegiant's Common Stock.
On October 20, 1994, Allegiant's Board of Directors approved a
three-for-two stock split of Allegiant's Common Stock in the form of a stock
dividend for shareholders of record as of December 15, 1994, subsequently
paid on January 15, 1995. Common Stock was credited and capital surplus was
charged for the aggregate par value of the shares that were issued. The
stated par value of each share was not changed from $.01.
All share and earnings per share disclosures have been restated to
retroactively reflect the aforementioned stock dividends and stock split.
NOTE 9. RELATED PARTIES:
Allegiant and the Bank have entered into transactions with its
directors, significant shareholders and their affiliates (related parties).
Such transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management, involve more
than normal credit risk or present other unfavorable features. The aggregate
amount of loans to such related parties at December 31, 1996 and 1995 was
$15,488,000 and $13,840,000, respectively. During 1996, new loans to such
related parties amounted to $3,344,000 and repayments amounted to $1,696,000.
Additionally, Allegiant issued subordinated debentures to certain
shareholders in aggregate principal amount of $3,819,000 in 1995. See Note 7
for terms of the agreement.
During 1995, Allegiant borrowed $1,200,000 from an affiliate of a
company director and shareholder. The loan plus $12,000 in interest were
repaid after one month.
NOTE 10. EMPLOYEE BENEFITS:
Allegiant has a defined contribution pension plan in effect for
substantially all full-time employees. Salaries and employee benefits
expense include $29,977 in 1996 and $27,663 in 1995, for such plans.
Contributions under the defined contribution plan are made at the discretion
of Company management.
F-15
<PAGE> 105
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. INCENTIVE PLANS:
Incentive Stock Options. At December 31, 1996, Allegiant had four
stock-based compensation plans which are described below. As discussed in
the Summary of Accounting Policies, Allegiant applies APB Opinion No. 25 and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its incentive stock option plans.
Had compensation cost for Allegiant's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS No. 123, Allegiant's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below (in thousands, except per share data):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1996 1995
-------- ---------
<S> <C> <C> <C>
Net income As reported $1,808 $1,275
Pro forma 1,534 1,275
Primary earnings per share As reported .76 .68
Pro forma .64 .68
Fully diluted earnings
per share As reported .75 .67
Pro forma .63 .67
</TABLE>
As mentioned above, Allegiant has four fixed stock option plans. Under
these plans, Allegiant may grant options to its directors and employees, in
the aggregate, of up to 1,240,000 shares of common stock. The exercise price
of each option equals or exceeds the market price of Allegiant's stock on the
date of the grant. An option's maximum term is ten years.
The fair value of each option granted in 1996 is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used: dividend yield of .93 percent; risk-free
interest rate of 6.41 percent; and expected lives of 5 years.
A summary of the status of Allegiant's fixed stock option plans as of
December 31, 1996 and 1995, and changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
1996 1995
--------------------------- --------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Outstanding, beginning of period 339,958 $ 5.72 347,017 $5.73
Granted 126,830 12.81 -- --
Exercised (5,243) 5.72 -- --
Canceled (220) 12.00 (7,059) 6.16
------- -------
Outstanding, end of period 461,325 7.66 339,958 5.72
======= =======
Options exercisable at year-end 434,540 308,497
Weighted-average fair value of
options granted during the year $3.77 --
</TABLE>
F-16
<PAGE> 106
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE
EXERCISE PRICES AT 12/31/96 CONTRACTUAL LIFE EXERCISE PRICE
--------------- ----------- ---------------- --------------
<S> <C> <C> <C>
$ 4.13 -- $ 4.96 61,456 2.9 years $ 4.53
5.95 -- 6.45 273,259 2.0 5.98
11.75 -- 15.00 126,610 4.5 12.81
-------
461,325 2.8 7.66
=======
</TABLE>
Phantom Stock Plan. In December 1994, Allegiant's Board of Directors
approved a Phantom Stock Plan for the President, under which Allegiant agreed
to pay a cash award to the President of Allegiant based on the increase in
book value on shares of Common Stock, from December 31, 1994 until the
earlier of December 31, 1998 or the year immediately preceding the year the
President's employment terminates. The annual provision under this plan for
the years ended December 31, 1996 and 1995 was approximately $38,000 and
$55,000, respectively. These amounts are included in other liabilities in
the accompanying balance sheets.
NOTE 12. COMMITMENTS AND CONTINGENCIES:
Leases. The Bank leases various banking facilities under operating
leases expiring at various dates through December 31, 2005. These operating
leases have options to renew. Future 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>
YEARS 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.
F-17
<PAGE> 107
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. FINANCIAL INSTRUMENTS:
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit,
standby letters of credit and financial guarantees. Those instruments
involve, to varying degrees, elements of credit and interest-rate risk in
excess of the amount recognized in the consolidated balance sheets. The
contract or notional amounts of those instruments reflect the extent of the
Bank's involvement in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit,
standby letters of credit, and financial guarantees written is represented by
the contractual or notional amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
A summary of the notional amounts of the Bank's financial instruments
with off-balance-sheet risk at December 31, 1996 and 1995, follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Commitments to extend credit $73,522,000 $51,953,000
Standby letters of credit 1,310,000 1,246,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if it is deemed necessary by the Bank upon extension of credit, is
based on management's credit evaluation of the counterparts. Collateral held
varies but may include accounts receivable; inventory, property, plant,
equipment; and real estate.
Standby letters of credit and financial guarantees written are
conditional commitments issued by the Bank to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to support
contractual obligations of Bank customers. The credit risk involved in
issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers.
At December 31, 1995, Allegiant adopted the provisions of SFAS No. 107,
Disclosures About Fair Value of Financial Instruments. SFAS No. 107 requires
disclosure of fair value information about financial instruments, whether or
not recognized in the balance sheet, for which it is practicable to estimate
that value.
F-18
<PAGE> 108
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The carrying amount and estimated fair values of Allegiant's financial
instruments were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks, federal
funds sold and other
overnight investments $ 18,329 $ 18,329 $ 19,683 $ 19,683
Securities available-for-sale 22,073 22,073 28,136 28,000
Securities held-to-maturity 38,487 38,540 45,211 45,042
Loans 288,826 291,483 179,414 179,333
Financial liabilities:
Deposits $308,670 $309,028 $231,309 $231,227
Short-term borrowings 36,137 36,137 14,108 14,108
Long-term debt 14,663 14,785 19,719 18,691
</TABLE>
The following methods and assumptions were used by Allegiant in
estimating fair values of financial instruments as disclosed herein:
Cash and Short-Term Instruments: The carrying amounts of cash and due
from banks and federal funds sold approximate their fair value.
Securities: Fair values for held-to-maturity and available-for-sale
securities are based on quoted market prices or dealer quotes, where
available. If quoted market prices are not available for a specific
security, fair values are based on quoted market prices of comparable
instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for fixed-rate loans are estimated using discounted cash flow
analyses, applying interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. The fair values for
non-performing loans are estimated using assumptions regarding current
assessments of collectibility and historical loss experience.
Deposits: The fair values disclosed for deposits generally payable on
demand, such as non-interest bearing checking accounts, savings accounts, NOW
accounts and market rate deposit accounts, are by definition, equal to the
amount payable on demand at the reporting date. The carrying amounts for
variable-rate, fixed-term market rate deposit accounts and certificates of
deposit approximate their fair values at the reporting date. Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates of similar remaining maturities to a schedule of aggregated
monthly maturities on time deposits.
Short-Term Borrowings: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements and other short-term borrowings
approximate their fair values at the reporting date.
Long-Term Debt: The fair value of Allegiant's long-term debt is based on
quoted market prices for similar issues or estimates using discounted cash
flow analyses, based on Allegiant's current incremental borrowing rates for
similar types of debt instruments.
F-19
<PAGE> 109
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Off-Balance Sheet Financial Instruments: The fair value of commitments
to extend credit and standby letters of credit are estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements, the likelihood of the counterparties
drawing on such financial instruments, and the present credit worthiness of
such counterparties. Allegiant believes such commitments have been made on
terms which are competitive in the markets in which it operates; however, no
premium or discount is offered thereon and accordingly, Allegiant has not
assigned a value to such instruments for the purposes of this disclosure.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time Allegiant's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of
Allegiant's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment, and therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not
considered financial instruments. In addition; the tax ramifications related
to the realization of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in many of the
estimates.
NOTE 15. SUBSEQUENT EVENT:
In January of 1997, Allegiant offered to shareholders of record the
right to purchase additional Common Stock. For every one share of Common
Stock held of record, a shareholder was given the nontransferable
subscription right to subscribe for 0.25 of a share of Common Stock at $9.375
per share.
As of February 24, 1997, the termination date of the offering, Allegiant
had raised approximately $5,223,000 for 567,750 shares of Common Stock
related to this offering.
NOTE 16. REGULATORY MATTERS:
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material 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
F-20
<PAGE> 110
ALLEGIANT BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1996, that the Bank meets all capital adequacy requirements to which it
is subject.
As of December 31, 1996, the most recent notification from the Office of
the Comptroller of the Currency categorized the Bank as adequately
capitalized under the regulatory framework for prompt corrective action. To
be categorized as adequately capitalized the Bank must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS
---------------- ------------------ -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total capital
(to risk-weighted assets) $26,118 10.1% >$20,767 >8.0% >$25,959 >10.0%
- - - -
Tier 1 capital
(to risk-weighted assets) $23,018 8.9% >$10,384 >4.0% >$15,575 > 6.0%
Tier 1 capital - - - -
(to average assets) $23,018 6.4% >$14,449 >4.0% >$18,061 > 5.0%
- - - -
As of December 31, 1995:
Total capital
(to risk-weighted assets) $24,230 14.4% >$13,462 >8.0% >$16,828 >10.0%
- - - -
Tier 1 capital
(to risk-weighted assets) $22,100 13.1% > $6,731 >4.0% >$10,097 > 6.0%
- - - -
Tier 1 capital
(to average assets) $22,100 8.6% >$10,244 >4.0% >$12,805 > 5.0%
- - - -
</TABLE>
Various Federal and state statutory provisions limit the amount of
dividends the Bank can pay to Allegiant without regulatory approval. The
approval of appropriate Federal or state bank regulatory agencies is required
for any dividend if the total of all dividends declared by the Bank in any
calendar year would exceed the total of the institution's net profits, as
defined by regulatory agencies, for such year combined with its retained net
profits for the preceding two years. The payment of dividends by the Bank
may also be affected by other factors, such as the maintenance of adequate
capital.
F-21
<PAGE> 111
EXHIBIT A
---------
ALLEGIANT BANCORP, INC.
SUBSCRIPTION RIGHTS CERTIFICATE
SUBSCRIPTION NUMBER OF
NUMBER RIGHTS
- ------ ------
SUBSCRIPTION RIGHT FOR SHARES OF COMMON STOCK
This Certifies that
Is the Owner of
EXPIRATION DATE: December 3, 1997, unless extended
SUBSCRIPTION PRICE: $13.50
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE
PROSPECTUS (THE "PROSPECTUS"), DATED OCTOBER 31, 1997, OF ALLEGIANT
BANCORP, INC. (THE "COMPANY") AND ARE INCORPORATED HEREIN BY REFERENCE.
COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE COMPANY AT 7801
FORSYTH BOULEVARD, ST. LOUIS, MISSOURI 63105 (314-726-5000). CAPITALIZED
TERMS USED HEREIN AND NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS
ASCRIBED TO SUCH TERMS IN THE PROSPECTUS.
THIS SUBSCRIPTION RIGHTS CERTIFICATE (THE "SUBSCRIPTION CERTIFICATE") OR A
NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY ALLEGIANT BANK (THE
"SUBSCRIPTION AGENT") WITH PAYMENT, IN FULL, BY 5:00 P.M., CENTRAL TIME, ON
DECEMBER 3, 1997, UNLESS EXTENDED BY THE COMPANY (THE "EXPIRATION DATE").
THE RIGHTS PRESENTED BY THIS SUBSCRIPTION CERTIFICATE, IN WHOLE OR IN PART,
MAY BE EXERCISED BY DULY COMPLETING AND SIGNING THE EXERCISE FORM. RIGHTS
HOLDERS ARE URGED TO READ CAREFULLY AND IN THEIR ENTIRETY THE PROSPECTUS AND
INSTRUCTIONS FOR COMPLETING SUBSCRIPTION RIGHTS CERTIFICATES, ADDITIONAL COPIES
OF WHICH ARE AVAILABLE FROM THE COMPANY. AN EXERCISE OF RIGHTS EVIDENCED HEREBY
IS IRREVOCABLE.
A-1
<PAGE> 112
This nontransferable Subscription Certificate represents the number of Rights
set forth above. The registered holder whose name is inscribed hereon (the
"Holder") is entitled to subscribe for and purchase from the Company at the
Subscription Price, 0.125 shares of common stock, $0.01 par value (the
"Common Stock"), of the Company for each whole Right evidenced hereby upon
the terms and subject to the conditions set forth in the Prospectus and the
Instructions for Completing Subscription Rights Certificates. Common Stock
subscribed for pursuant to exercise of the Subscription Right shall be
delivered within approximately three weeks after the subscriptions have been
accepted by the Subscription Agent. This Subscription Certificate also
evidences the right of the Holder to subscribe for additional shares of
Common Stock, subject to allotment and to the conditions set forth in the
Prospectus and the Instructions for Completing Subscription Rights
Certificates. Common Stock subscribed for pursuant to the Oversubscription
Privilege shall be delivered within approximately three weeks after the
Expiration Date and after all prorations have been effected.
Dated: October 31, 1997.
ALLEGIANT BANCORP, INC. (SEAL)
By: By:
------------------------------- -----------------------------------
Kevin R. Farrell, Secretary Marvin S. Wool, Chairman and Chief
Executive Officer
A-2
<PAGE> 113
FORM OF INSTRUCTIONS FOR COMPLETING SUBSCRIPTION RIGHTS CERTIFICATES
IMPORTANT: PLEASE READ ALL INSTRUCTIONS CAREFULLY.
SUBSCRIPTION EXERCISE FORM
The undersigned hereby irrevocably exercises one or more Rights to
subscribe for shares of Common Stock of Allegiant Bancorp, Inc., as indicated
below, on the terms and subject to the conditions specified in the
Prospectus, receipt of which is hereby acknowledged.
SUBSCRIPTION RIGHT
(a) Number of shares subscribed for pursuant to the Subscription Right:
-------------------------------------------------------------------------
(b) Price of shares subscribed for pursuant to the Subscription Right (total
number of shares subscribed for pursuant to the Subscription Right
multiplied by the Subscription Price of $13.50):
-------------------------------------------------------------------------
(c) Method of Payment (check and complete appropriate box):
Uncertified, certified or cashier's check, bank draft
---------
or money order in the amount of $ payable
---------
to Allegiant Bancorp, Inc.
Wire transfer in the amount of $ directed to
--------- -----------
Allegiant Bank, Subscription Agent, ABA No. 081000728,
Allegiant Bancorp, Inc., Rights Offering DDA No.
100010061, Attention: S. Kay Love. Indicate name of
institution wire transferring funds and name of
registered owner.
OVERSUBSCRIPTION PRIVILEGE
(a) Number of shares subscribed for pursuant to the Oversubscription
Privilege:
-------------------------------------------------------------------------
(b) Price of shares subscribed for pursuant to the Oversubscription Privilege
(total number of shares subscribed for pursuant to the Oversubscription
Privilege multiplied by the Subscription Price of $13.50):
-------------------------------------------------------------------------
A-3
<PAGE> 114
(c) Method of Payment (check and complete appropriate box):
------- Uncertified, certified or cashier's check, bank draft or
money order in the amount of $ payable to
--------------
Allegiant Bancorp, Inc.
------- Wire transfer in the amount of $
--------------------------
directed to Allegiant Bank, Subscription Agent, ABA No.
081000728, Allegiant Bancorp, Inc., Rights Offering DDA No.
100010061, Attention: S. Kay Love. Indicate name of institution
wire transferring funds and name of registered owner.
- -------------------------------------------------------------------------------
SHAREHOLDERS SEEKING TO EXERCISE BOTH THEIR SUBSCRIPTION RIGHT AND
OVERSUBSCRIPTION PRIVILEGE MUST SUBMIT SEPARATE PAYMENTS FOR EACH OF THE
SUBSCRIPTION RIGHT AND OVERSUBSCRIPTION PRIVILEGE.
- -------------------------------------------------------------------------------
Name in which shares subscribed for are to be registered if a name other
than the name of the record owner. (Note: Rights are non-transferable, but
(except as prohibited by the terms of certain savings and retirement plan
accounts) may be exercised by the beneficial owner of the shares in any form of
ownership pursuant to which such person has beneficial ownership):
Name:
--------------------------------------------------------------------
Address:
-----------------------------------------------------------------
Taxpayer identification number (Note: For most individual taxpayers,
the taxpayer identification number is such person's social security
number):
-----------------------------------------------------------------
Under penalties of perjury, I hereby certify that: (i) the number provided
on the line above is my correct taxpayer identification number; and (ii) I am
not subject to backup withholding.
IMPORTANT: RIGHTS HOLDERS SIGN BELOW. THE EXERCISE OF YOUR RIGHTS
WILL NOT BE VALID UNLESS YOU SIGN BELOW.
Dated:
----------------------- ------------------------------------------------
(Signature(s) of Registered Holder(s))
This Subscription Rights Certificate must be signed by the registered
holder(s) as the name(s) appear(s) on this Subscription Rights Certificate. If
signature is by trustee(s), executor(s), administrator(s), guardian(s),
attorney(s)-in-fact, agent(s), officer(s) of a corporation or another acting in
a fiduciary or representative capacity, please provide the following
information. See Instructions for Completing Subscription Rights Certificates.
Please Print.
A-4
<PAGE> 115
Name:
--------------------------------------------------------------------------
Capacity (full title):
---------------------------------------------------------
Address (including zip code):
--------------------------------------------------
Home telephone number Business telephone number
(including area code): (including area code):
---------------- -----------------
Taxpayer identification number or social security number:
----------------------
1. To exercise the Oversubscription Privilege, the undersigned must fully
exercise the Subscription Right.
2. If the aggregate Subscription Price paid by an exercising Rights holder
is insufficient to purchase the number of shares of Common Stock that
such holder indicates are being subscribed for, or if any exercising
Rights holder does not specify the number of shares of Common Stock to be
purchased, then such Rights holder will be deemed to have exercised first
the Subscription Right in full and second the Oversubscription Privilege
to purchase shares of Common Stock to the full extent of the payment
rendered (subject to the limitation on the maximum number of shares
permitted and to allotment under certain circumstances as described in
the Prospectus). If the aggregate Subscription Price paid by an
exercising Rights holder exceeds the amount necessary to purchase the
number of shares of Common Stock for which the Rights holder will be
deemed to have exercised first the Subscription Right (if not already
fully exercised) and second the Oversubscription Privilege to the full
extent of the excess payment tendered (subject to the restrictions
described above). Any excess funds received in payment of the
Subscription Price for shares that are subscribed for by a Rights holder
but not allocated to such Rights holder pursuant to the Oversubscription
Privilege will be mailed by the Subscription Agent within approximately
three weeks after the Expiration Date and after all allocations and
adjustments as described in the Prospectus have been effected.
A-5
<PAGE> 116
EXHIBIT B
---------
EXAMPLE OF OPERATION OF OVERSUBSCRIPTION PRIVILEGE
ALLOTMENT FORMULA
Assumptions:
Subscription Rights rate = 0.125 shares for each share held
Total number of shares outstanding = 3,571,314
Number of Subscription Rights issued to all shareholders =
446,414 (3,571,314 total number of shares outstanding
multiplied by 0.125 Subscription Rights rate)
Number of shares held by Shareholder A = 10,000
Number of Subscription Rights issued to Shareholder A =
1,250 (10,000 shares held by Shareholder A multiplied
by 0.125 Subscription Rights rate)
Number of shares for which Shareholder A desires to exercise
Oversubscription Privilege = 4,000
Aggregate number of shares subscribed for pursuant to
Subscription Rights = 250,000
Aggregate number of shares which all shareholders desire to
exercise Oversubscription Privileges = 300,000
Number of Available Shares = 196,414 (446,414 Subscription
Rights issued to all shareholders less 250,000 aggregate
number of shares subscribed for pursuant to
Subscription Rights)
Number of Available Shares allocated to all shareholders
based on Ownership Percentage = 62,500
Number of Remaining Shares = 133,914 (196,414 Available
Shares less 62,500 Available Shares allocated to all
shareholders based on Ownership Percentage)
Oversubscription Allotment
1) First, Shareholder A would receive Available Shares which
equal the lesser of the following:
a) 4,000 (shares which Shareholder A desires to exercise
Oversubscription Privilege); or
B-1
<PAGE> 117
b) 549 (Shareholder A's Ownership Percentage of 0.2800%
(1,250 Subscription Rights issued to Shareholder A
divided by 446,414 Subscription Rights issued to all
shareholders) multiplied by 196,414 Available Shares).
2) Second, Shareholder A would receive Remaining Shares, which
equal the lesser of the following:
a) 3,451 (4,000 shares which Shareholder A desires to
exercise Oversubscription Privilege less 549 shares
allocated to Shareholder A as described in Step 1
above); or
b) 1,945 (133,914 Remaining Shares multiplied by a
fraction, the numerator of which is 4,000 shares which
Shareholder A desires to exercise Oversubscription
Privilege less 549 shares allocated to Shareholder A
based on Ownership Percentage in Step 1, or 3,451, and
the denominator of which is 300,000 Aggregate shares
which all shareholders desire to exercise
Oversubscription Privileges less 62,500 shares
allocated to all shareholders based on Ownership
Percentage, or 237,500).
In sum, Shareholder A would receive a total of 3,744 shares
(1,250 shares pursuant to Subscription Rights, 549 Available
Shares and 1,945 Remaining Shares).
B-2
<PAGE> 118
==============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY ALLEGIANT BANCORP, INC. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF ALLEGIANT BANCORP, INC. SINCE THE
DATE HEREOF.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE 3
PROSPECTUS SUMMARY 5
RISK FACTORS 10
THE OFFERING 14
USE OF PROCEEDS 19
PRICE RANGE OF COMMON STOCK AND DIVIDENDS 20
CAPITALIZATION 22
SELECTED CONSOLIDATED FINANCIAL DATA 23
UNAUDITED PRO FORMA FINANCIAL INFORMATION 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 35
BUSINESS 72
SUPERVISION AND REGULATION 75
MANAGEMENT 79
SECURITY OWNERSHIP BY MANAGEMENT 83
SHARES ELIGIBLE FOR FUTURE SALE 85
DESCRIPTION OF COMMON STOCK 85
LEGAL MATTERS 87
EXPERTS 87
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 88
FORM OF SUBSCRIPTION RIGHTS CERTIFICATE A-1
EXAMPLE OF OPERATION OF OVERSUBSCRIPTION
PRIVILEGE ALLOTMENT FORMULA B-1
</TABLE>
===============================================================================
===============================================================================
Allegiant
Bancorp, Inc. [LOGO]
446,414 SHARES
ALLEGIANT
BANCORP, INC.
COMMON STOCK
- -------------------------------------------------------------------------------
PROSPECTUS
- -------------------------------------------------------------------------------
THE OFFERING COVERED BY THIS
PROSPECTUS WILL EXPIRE ON
DECEMBER 3, 1997 UNLESS
ALLEGIANT BANCORP, INC., IN ITS
SOLE DISCRETION, SHALL EXTEND
THIS OFFER.
===============================================================================
<PAGE> 119
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
- -----------------------------------------------------
It is expected that the following expenses, all of which will be paid by
the Company, will be incurred in connection with the registration and
distribution of the securities being offered (all such fees except the
Securities and Exchange Commission filing fee are estimated):
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee $ 1,826
Nasdaq listing fee 8,929
Legal fees and expenses 40,000
Accounting fees and expenses 25,000
Printing and engraving 3,000
Miscellaneous 11,245
-------
Total $90,000
=======
</TABLE>
Item 15. Indemnification of Officers and Directors
- ---------------------------------------------------
Sections 351.355(1) and (2) of The General and Business Corporation Law
of the State of Missouri provide that a corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, except that, in the
case of an action or suit by or in the right of the corporation, the
corporation may not indemnify such persons against judgments and fines and no
person shall be indemnified as to any claim, issue or matter as to which such
person shall have been adjudged to be liable for negligence or misconduct in
the performance of his duty to the corporation, unless and only to the extent
that the court in which the action or suit was brought determines upon
application that such person is fairly and reasonably entitled to indemnity
for proper expenses. Section 351.355(3) provides that, to the extent that a
director, officer, employee or agent of the corporation has been successful
in the defense of any such action, suit or proceeding or any claim, issue or
matter therein, he shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred in connection with such
action, suit or proceeding. Section 351.355(7) provides that a corporation
may provide additional indemnification to any person indemnifiable under
subsection (1) or (2), provided such additional indemnification is authorized
by the corporation's articles of incorporation or an amendment thereto or by
a shareholder-approved bylaw or agreement, and provided further that no
person shall thereby be indemnified against conduct which was finally
adjudged to have been knowingly fraudulent, deliberately dishonest or willful
misconduct or which involved an accounting for profits pursuant to Section
16(b) of the Securities Exchange Act of 1934.
<PAGE> 120
Article XII of the By-Laws of the Company provides that the Company
shall extend to its directors and officers the indemnification specified in
subsections (1) and (2) and the additional indemnification authorized in
subsection (7).
Pursuant to directors' and officers' liability insurance policies, with
total annual limits of $2.0 million, the Company's directors and officers are
insured, subject to the limits, retention, exceptions and other terms and
conditions of such policy, against liability for any actual or alleged error,
misstatement, misleading statement, act or omission, or neglect or breach of
duty by the directors or officers of the Company, individually or
collectively, or any matter claimed against them solely by reason of their
being directors or officers of the Company.
Item 16. Exhibits
- ------------------
See Exhibit Index.
Item 17. Undertakings
- ----------------------
(1) The undersigned Company hereby undertakes:
(a) To file during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement.
(i) To include any prospectus required by section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in the
information in the Registration Statement;
(iii) To include any additional or changed material
information with respect to the plan of distribution not previously disclosed
in the Registration Statement.
(b) That, for the purpose of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(c) To file a post-effective amendment to remove from
registration any of the securities being registered which remain unsold at
the end of the offering.
(2) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
<PAGE> 121
(3) The undersigned Registrant hereby undertakes to deliver or
cause to be delivered with the prospectus, to each person to whom the
prospectus has been sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under
the Securities Exchange Act of 1934.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(5) The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the
Securities Act, the information omitted from the form prospectus filed as a
part of this registration statement in reliance upon Rule 430A and contain in
the form prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(b) For purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
<PAGE> 122
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Clayton, State of Missouri, on
October 30, 1997.
ALLEGIANT BANCORP, INC.
By: /s/ Shaun R. Hayes
--------------------------------
Shaun R. Hayes, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Marvin S. Wool Chairman of the Board, October 30, 1997
- ----------------------------- Chief Executive Officer
Marvin S. Wool
Principal Executive Officer
/s/ Shaun R. Hayes President and Director October 30, 1997
- -----------------------------
Shaun R. Hayes
Principal Financial Officer
/s/ S. Kay Love Assistant Secretary October 30, 1997
- -----------------------------
S. Kay Love
Principal Accounting Officer
<F*> Secretary and Director October 30, 1997
- -----------------------------
Kevin R. Farrell
<F*> Director October 30, 1997
- -----------------------------
C. Virginia Kirkpatrick
<F*> Director October 30, 1997
- -----------------------------
Lee S. Wielansky
<PAGE> 123
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
<F*> Director October 30, 1997
- -----------------------------
Leon A. Felman
<F*> Director October 30, 1997
- -----------------------------
Charles E. Polk, Jr.
<F*> Director October 30, 1997
- -----------------------------
John T. Straub
<F*> Director October 30, 1997
- -----------------------------
Leland B. Curtis
<FN>
<F*>By: /s/ Shaun R. Hayes
--------------------------------
Shaun R. Hayes, attorney-in-fact
</TABLE>
Shaun R. Hayes, by signing his name hereto, does sign this document on
behalf of the persons named above pursuant to a power of attorney duly
exercised by such persons.
<PAGE> 124
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit
Number Description
- ------ -----------
<C> <S>
2.1 Agreement and Plan of Merger between the Company and Reliance
dated as of March 20, 1997 filed as Exhibit 2.1 to the Company's
Registration Statement on Form S-4 (Reg. No. 333-26433) is hereby
incorporated by reference.
4.1 Form of Stock Certificate for Common Stock, filed as Exhibit 4.2
to the Company'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 the Company'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 the
Company's Registration Statement on Form 10-SB (Reg. No. 0-26350)
is hereby incorporated by reference.
4.4 Subscription Rights Certificate <F1>
5.1 Legal Opinion of Thompson Coburn
12.1 Statements re: Computation of Ratios <F1>
23.1 Consent of BDO Seidman, L.L.P.
23.2 Consent of Thompson Coburn (included on Exhibit 5.1)
24.1 Power of Attorney <F1>
<FN>
- --------------
<F1> Previously filed.
</TABLE>
<PAGE> 1
Exhibit 5.1
- -----------
October 31, 1997
Allegiant Bancorp, Inc.
7801 Forsyth Boulevard
St. Louis, Missouri 63105
Re: Amendment No. 1 to Registration Statement on Form S-3
446,414 Shares of Common Stock, $.01 par value
Ladies and Gentlemen:
With reference to Amendment No. 1 to the Registration Statement on Form S-3
(the "Registration Statement") to be filed by Allegiant Bancorp, Inc., a
Missouri corporation (the "Company"), on October 31, 1997 with the Securities
and Exchange Commission under the Securities Act of 1933, as amended,
pertaining to the proposed sale by the Company of up to 446,414 shares of the
Company's Common Stock, $.01 par value (the "Shares"), to its shareholders
pursuant to a rights offering, we have examined such corporate records of the
Company, such laws and such other information as we have deemed relevant,
including the Company's Amended and Restated Articles of Incorporation,
By-Laws, resolutions adopted by the Board of Directors relating to the
issuance of the Shares, certificates received from state officials and
statements we have received from officers and representatives of the Company.
In delivering this opinion, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to the originals of all documents submitted to us as certified, photostatic
or conformed copies, the authenticity of originals of all such latter
documents, and the correctness of statements submitted to us by officers
and representatives of the Company.
Based solely on the foregoing, we are of the opinion that:
1. The Company is duly incorporated and is validly existing under
the laws of the State of Missouri; and
2. The Shares to be sold by the Company pursuant to the Registration
Statement have been duly authorized and are validly issued.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to this firm in the Prospectus under the
caption "Legal Matters." We further consent to the filing of copies of this
opinion with agencies of such states and other jurisdictions as you deem
necessary in the course of complying with the laws of the states and
jurisdictions regarding the sale and issuance of the Shares in accordance
with the Registration Statement.
Very truly yours,
/s/ Thompson Coburn
<PAGE> 1
[letterhead of BDO Seldman, LLP]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Allegiant Bancorp, Inc.
St. Louis, Missouri
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement (Reg. No. 333-36211),
as amended, of: (1) our report dated January 24, 1997, except for Note 15
which is as of February 24, 1997, relating to the consolidated financial
statements of Allegiant Bancorp, Inc. (the Company) appearing in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996;
and (2) our report, dated October 27, 1997, relating to the statement of
assets purchased and liabilities assumed appearing in the Company's Current
Report on Form 8-K/A filed with Securities and Exchange Commission on October
29, 1997.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
St. Louis, Missouri
October 27, 1997
