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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1999
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Commission file number 0-26350
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ALLEGIANT BANCORP, INC.
- ------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1519382
- --------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
2122 KRATKY ROAD
ST. LOUIS, MISSOURI 63114
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(Address of principal executive offices)
(Zip Code)
(314) 692-8200
- ------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
/x/ Yes / / No
Number of shares
Title of class outstanding as of November 5, 1999
- ----------------------------------- -----------------------------------
Common stock, $0.01 par value 6,272,508
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ALLEGIANT BANCORP, INC.
FORM 10-Q
<TABLE>
INDEX
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION 1
ITEM 1. FINANCIAL STATEMENTS 1
Consolidated Balance Sheets - September 30, 1999 and 1998 (Unaudited) and
December 31, 1998 1
Consolidated Statements of Income (Unaudited) - Three Months Ended
September 30, 1999 and 1998, and Nine Months Ended September 30, 1999 and 1998 2
Consolidated Statement of Shareholders' Equity (Unaudited) - Nine Months Ended
September 30, 1999 3
Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended
September 30, 1999 and 1998 4
Notes to Condensed Consolidated Financial Statements (Unaudited) 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 7
Distribution of Average Assets, Liabilities and Shareholders' Equity and
Interest Rates - Three Months Ended September 30, 1999 and 1998 10
Distribution of Average Assets, Liabilities and Shareholders' Equity and
Interest Rates - Nine Months Ended September 30, 1999 and 1998 11
Rate/Volume Analysis - Quarter Ended September 30, 1999 and Nine Months Ended
September 30, 1999 12
Securities Portfolio - June 30, 1999 and 1998 and December 31, 1998 15
Lending and Credit Management - September 30, 1999 and 1998 and December 31,
1998 16
Risk Elements - Nonaccrual, Past Due and Restructured Loans - September 30, 1999
and 1998 and December 31, 1998 17
Summary of Loan Loss Experience and Related Information - Nine Months Ended
September 30, 1999 and 1998 19
Deposit Liability Composition - June 30, 1999 and 1998 and December 31, 1998 20
Liquidity Management and Capital Resources 21
Year 2000 23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 25
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 25
SIGNATURES 26
EXHIBIT INDEX 27
</TABLE>
ii
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
(Unaudited) (Unaudited)
------------- ------------ -------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 11,497 $ 13,693 $ 12,678
Federal funds sold and other overnight investments 765 3,430 33,409
Investment securities:
Available-for-sale (at estimated market value) 47,220 42,740 56,927
Held-to-maturity (approximate market value of $11,869,
$12,132 and $16,445, respectively) 11,862 12,040 16,276
Loans, net of allowance for possible loan losses, of $7,482
$6,442 and $5,942, respectively 564,551 489,227 462,824
Bank premises and equipment, net of accumulated
depreciation 10,128 11,010 11,103
Accrued interest and other assets 12,030 11,438 10,297
Cost in excess of fair value of net assets acquired 11,951 12,696 13,041
-------- -------- --------
Total assets $670,004 $596,274 $616,555
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits:
Non-interest-bearing $ 50,050 $ 55,417 $ 48,413
Interest-bearing 434,320 364,176 387,833
Certificates of deposit of $100,000 or more 27,296 31,173 31,818
-------- -------- --------
Total deposits 511,666 450,766 468,064
-------- -------- --------
Short-term borrowings 52,946 53,542 59,286
Long-term borrowings 37,275 40,275 40,775
Guaranteed preferred beneficial interests in
subordinated debentures 17,250 - -
Accrued expenses and other liabilities 2,236 3,587 2,657
-------- -------- --------
Total liabilities 621,373 548,170 570,782
-------- -------- --------
Shareholders' equity:
Common Stock, $0.01 par value - shares
authorized, 20,000,000; issued 6,378,955 shares,
6,536,164 shares and 6,376,685 shares, respectively 66 65 53
Capital surplus 42,355 41,898 40,799
Retained earnings 9,163 6,058 4,699
Accumulated other comprehensive income (loss) (567) 82 222
Treasury stock, at cost, 238,915 shares (2,386) - -
-------- -------- --------
Total shareholders' equity 48,631 48,104 45,773
-------- -------- --------
Total liabilities and shareholders' equity $670,004 $596,274 $616,555
======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 12,374 $ 11,190 $ 34,918 $ 33,509
Investment securities 865 1,120 2,452 3,175
Federal funds sold and overnight investments 11 142 112 326
---------- ---------- ---------- ----------
Total interest income 13,250 12,452 37,482 37,010
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 5,099 5,486 14,893 16,747
Interest on short-term borrowings 831 669 2,118 1,926
Interest on long-term debt 578 680 1,736 2,055
Interest on guaranteed preferred beneficial
interests in subordinated debentures 290 - 290 -
---------- ---------- ---------- ----------
Total interest expense 6,798 6,835 19,037 20,728
---------- ---------- ---------- ----------
Net interest income 6,452 5,617 18,445 16,282
Provision for loan losses 580 465 1,592 1,180
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 5,872 5,152 16,853 15,102
---------- ---------- ---------- ----------
Other income:
Service charges and other fees 1,207 1,946 3,650 5,173
Net gain on sale of securities - 4 - 62
---------- ---------- ---------- ----------
Total other income 1,207 1950 3,650 5,235
Other expenses:
Salaries and employee benefits 2,470 2,257 7,316 6,832
Occupancy and other operating expenses 2,235 2,855 6,900 8,693
---------- ---------- ---------- ----------
Total other expenses 4,705 5,112 14,216 15,525
Income before income taxes 2,374 1,990 6,287 4,812
Provision for income taxes 945 783 2,511 1,901
---------- ---------- ---------- ----------
Net income $ 1,429 $ 1,207 $ 3,776 $ 2,911
========== ========== ========== ==========
Per share data:
Basic:
Weighted average basic
common shares outstanding 6,396,462 6,269,394 6,509,916 6,199,775
Net income $ 0.22 $ 0.19 $ 0.58 $ 0.47
Diluted:
Weighted average diluted
common shares outstanding 6,433,476 6,589,901 6,579,908 6,645,776
Net income $ 0.22 $ 0.18 $ 0.57 $ 0.44
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<CAPTION>
Accumulated
Other
Common Capital Retained Comprehensive Treasury Total Share- Comprehensive
Stock Surplus Earnings Income (Loss) Stock holders' Equity Income
------ ------- -------- ------------- -------- ----------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998 $65 $41,898 $6,058 $ 83 $ - $48,104
Net income - - 3,776 - 3,776 $3,776
Unrealized gains (losses)
on available-for-sale
securities, net of
reclassification adjustment
(see below) - - - (650) (650) (650)
------
Comprehensive income - - - - $3,126
======
Warrants exercised 1 281 - 282
New shares issued - 52 - 52
Options exercised - 115 - 115
Repurchase of common stock (2,386) (2,386)
Dividends - - (662) (662)
--- ------- ------ ----- ------- -------
Balance September 30, 1999 $66 $42,346 $9,172 $(567) $(2,386) $48,631
=== ======= ====== ===== ======= =======
Reclassification adjustments:
Unrealized gains (losses) on
available-for-sale
securities $ (650)
Less:
Reclassification adjustment
for gains realized,
included in net income -
-------
Net unrealized gains (losses)
on available-for-sale $ (650)
=======
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
- ---------------------
Net income $ 3,776 $ 2,911
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,983 3,111
Provision for loan losses 1,592 1,180
Gain on sale of fixed assets (3) -
Gain on sale of mortgage loans - (1,012)
Gain on sale of securities available-for-sale - (62)
Changes in assets and liabilities:
Accrued interest receivable and
other assets (220) 2,215
Other liabilities (1,351) (1,949)
-------- --------
Cash provided by operating activities 5,777 6,394
-------- --------
INVESTING ACTIVITIES:
- ---------------------
Proceeds from maturities of securities held-to-maturity 3,846 15,675
Purchase of investment securities held-to-maturity (3,668) -
Proceeds from maturities of securities available-for-sale 13,886 60,822
Proceeds from sales of securities available-for-sale - 5,473
Purchase of investment securities available-for-sale (19,388) (78,433)
Loans made to customers, net of repayments (76,916) (61,378)
Proceeds from sale of mortgage loans - 78,374
Purchase of assets held for operating leases - (3,049)
Additions to premises and equipment (353) (1,759)
-------- --------
Cash provided by (used in) investing activities (82,593) 15,725
-------- --------
FINANCING ACTIVITIES:
- ---------------------
Net increase (decrease) in deposits 60,900 (16,577)
Net increase (decrease) in short-term borrowings (596) 5,707
Proceeds from issuance of long-term debt - 17,500
Retirement of long-term debt (3,000) -
Proceeds from issuance of guaranteed preferred
beneficial interests in subordinated debentures 17,250 -
Proceeds from issuance of common stock 449 1,297
Payments on repurchase of common stock (2,386) -
Payment of dividends (662) (431)
-------- --------
Cash provided by financing activities 71,995 7,496
-------- --------
Net increase (decrease) in cash and cash equivalents (4,861) 29,615
Cash and cash equivalents, beginning of period 17,123 16,472
-------- --------
Cash and cash equivalents, end of period $ 12,262 $ 46,087
======== ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
4
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ALLEGIANT BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999
Basis of Presentation
The accompanying condensed consolidated financial statements
include the accounts of Allegiant Bancorp, Inc. and its subsidiaries:
Allegiant Bank, Edge Mortgage Services, Inc. ("Edge"), and Allegiant
Capital Trust I. The results of operations of Edge are included through
March 19, 1999, the date Edge was sold to a former officer of the
Company. The sale had no material effect on the consolidated financial
statements of the Company. The terms "Allegiant," "company," "we" and
"our" as used in this report refer to Allegiant Bancorp, Inc. and our
subsidiaries as a consolidated entity, except where it is make clear
that it means only Allegiant. Also, sometimes we refer to our bank
subsidiaries as the "bank."
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three-
month and nine-month periods ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial
statements and footnotes thereto included in our Annual Report on Form
10-K/A for the year ended December 31, 1998.
Comprehensive Income
During the third quarter of 1999 and 1998, total comprehensive
income amounted to $1.36 million and $1.37 million, respectively.
Through September 30, year-to-date total comprehensive income for 1999
and 1998, was $3.13 million and $3.05 million, respectively.
Trust Preferred Securities
On August 2, 1999, we completed a public offering of 1,500,000
9.875% Cumulative Trust Preferred Securities. On August 17, 1999, we
issued an additional 225,000 Securities under an overallotment option
exercised by our underwriters. The Trust Preferred Securities were
issued by our subsidiary, Allegiant Capital Trust I, a Delaware
statutory business trust. The Trust Preferred Securities have a
liquidation amount of $10 per security and represent preferred undivided
interests in the assets of the Trust which consist solely of the
debentures described below, and payments in respect thereof.
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The Trust utilized the proceeds from the sale of the Trust
Preferred Securities, including the overallotment securities, to
purchase at par approximately $17.23 million aggregate principal amount
of 9.875% Junior Subordinated Debentures issued by us. The Junior
Subordinated Debentures bear interest at the rate of 9.875% per annum,
payable quarterly, and mature in August 2029, subject to earlier
repayment at our option at a date no earlier than August 2004. In
addition, we may redeem the Junior Subordinated Debentures prior to such
date within 90 days after: the occurrence of certain tax events; the
Trust being deemed to be an investment company; or there being an
adverse change in the treatment of the Trust Preferred Securities as
Tier 1 capital for bank regulatory purposes. We have the right to defer
payments of interest on the Junior Subordinated Debentures for up to 20
consecutive quarters, but not beyond their stated maturity date. During
any period of interest deferral, we may not declare or pay cash
dividends on, or redeem our capital stock or repay any debt securities
which rank junior to the Junior Subordinated Debentures.
We used the proceeds from the sale of the Junior Subordinated
Debentures, after payment of expenses of approximately $1.00 million, to
infuse approximately $8.00 million of capital into the bank and to repay
approximately $2.50 million of corporate indebtedness, including $2.00
million which was used to repurchase shares of our common stock. The
balance of the proceeds will be used for general corporate purchases,
including possible future repurchases of our common stock.
Common Stock Repurchase
In July 1999, we repurchased 233,219 shares of our common stock in
a privately negotiated transaction. The aggregate purchase price was
$2.33 million, which was funded by a $2.00 million borrowing under our
revolving line of credit and by cash on hand. We repaid the revolving
line of credit in August 1999 with the proceeds of our trust preferred
securities offering and also prepaid $500,000 of our term loan with such
proceeds.
On September 15, 1999, we announced a share repurchase program of
up to 5%, or approximately 319,000 shares, of our outstanding common
stock. We intend to utilize shares repurchased under the plan to meet
obligations under our stock option plans and other stock based plans
while minimizing dilution of shareholders. Through November 5, 1999,
under this program, we have repurchased approximately 109,647 shares or
1.7% of our outstanding common stock.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains certain forward-looking statements with
respect to the financial condition, results of operations and business
of us and our subsidiaries. These forward-looking statements involve
certain risks and uncertainties. For example, by accepting deposits at
fixed rates, at different times and for different terms, and lending
funds at fixed rates for fixed periods, a bank accepts the risk that the
cost of funds may rise and interest on loans and investment securities
may be at a fixed rate. Similarly, the cost of funds may fall, but a
bank may have committed by virtue of the term of a deposit to pay what
becomes an above-market rate. Investments may decline in value in a
rising interest rate environment. Loans have the risk that the borrower
will not repay all funds in a timely manner as well as the risk of total
loss. Collateral may or may not have the value attributed to it. The
loan loss reserve, while believed adequate, may prove inadequate if one
or more large borrowers, or numerous smaller borrowers, or a combination
of both, experience financial difficulty for individual, national or
international reasons. Because the business of banking is highly
regulated, decisions of governmental authorities, such as the rate of
deposit insurance, can have a major effect on operating results.
Unanticipated events associated with Year 2000 compliance, relating to
work on developments or modifications to computer systems and to
software, including work performed by suppliers or vendors, could affect
our future financial condition and operating results. All of these
uncertainties, as well as others, are present in a banking operation and
shareholders are cautioned that management's view of the future on which
it prices its products, evaluates collateral, sets loan reserves and
estimates costs of operation and regulation may prove to be other than
anticipated.
Overview
The profitability of our operations depends on our net interest
income, provision for loan losses, non-interest income and non-interest
expense. Net interest income is the difference between the income we
receive on our loan and investment portfolios and our cost of funds,
which consists of interest paid on deposits and borrowings. The
provision for loan losses reflects the cost of credit risk in our loan
portfolio. Non-interest income consists primarily of service charges on
deposit accounts and fees for ancillary banking services and, to a
lesser extent, revenues generated from our mortgage banking, securities
brokerage, insurance brokerage and trust operations. Non-interest
expense includes salaries and employee benefits as well as occupancy,
data processing, marketing, professional fees, insurance and other
expenses.
Net interest income is dependent on the amounts and yields of
interest earning assets compared to the amounts and rates on interest
bearing liabilities. Net interest income is sensitive to changes in
market rates of interest and our asset/liability management procedures
in managing those changes. The provision for loan losses is dependent on
increases in the loan portfolio, management's assessment of the
collectibility of the loan portfolio and loss experience, as well as
economic and market factors.
Since the beginning of 1998, we have focused primarily upon
improving the profitability of our banking operations. As a result we
have reduced the amount of one- to four-family mortgages we hold in our
loan portfolio, while increasing the amount of higher yielding
commercial loans. We also have hired several experienced banking
professionals with experience in the St. Louis metropolitan area. We
have refined our market focus to concentrate exclusively on
opportunities in the higher-growth St. Louis metropolitan area and,
accordingly, we sold three retail banking offices in northeastern
Missouri in December 1998. We also have implemented company-wide cost-
control efforts to enhance efficiencies at our entire operations.
Our primary financial objectives are to continue to grow our loan
portfolio while maintaining high asset quality, expand our core deposit
base to provide a cost-effective and stable source of funding
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our loan portfolio and increase non-interest income while maintaining
strong expense controls. We believe we have maintained high asset
quality while managing growth both internally and by acquisition. We
also believe our history of strong credit quality has resulted from
sound credit practices.
Results of Operations
Net income for the three months ended September 30, 1999 was $1.43
million, a 18.18% increase over the $1.21 million earned for the third
quarter of 1998. Both basic earnings per share and diluted earnings per
share were $0.22 for the third quarter of 1999 compared to basic and
diluted earnings per share for the second quarter of 1998 of $0.19 and
$0.18, respectively. The annualized return on average assets for the
third quarter of 1999 was 0.86% compared to an annualized return on
average assets of 0.78% for the third quarter of 1999. The return on
average equity on an annualized basis was 11.51% for the third quarter
of 1999 compared to 10.70% for the third quarter of 1998.
Net income for the nine-month periods ended September 30, 1999 and
1998, was $3.78 million and $2.91 million, respectively. Net income
increased 29.90% for the comparable periods. Basic earnings per share
increased by 23.40% to $0.58 from $0.47 and diluted earnings per share
increased 29.55% to $0.57 from $0.44 in the respective nine-month
periods. The annualized return on average assets was 0.80% and the
annualized return on average equity was 10.29% for the nine months ended
September 30, 1999. This compares to, on an annualized basis, a return
on average assets of 0.63% and a return on average equity of 8.93% for
the corresponding period in 1998.
Period-end total assets of $670.00 million represented an increase
of $73.73 million, or 12.37%, from December 31, 1998. This asset growth
was primarily in loans which before allowance for loan losses, increased
$76.36 million, or 15.41%. Deposit balances increased $60.90 million,
or 13.51%, from December 31, 1998 to September 30, 1999. Money market
accounts increased $49.55 million. This growth was a result of promotion
of a new money market product. Certificates of deposit also increased
$16.31 million during the first nine months of 1999. The net increase
in certificates of deposit included a $28.00 million increase in
brokered CD's and a net decrease in all other certificates of deposit of
$11.69 million.
Net Interest Income
Net interest income for the three months ended September 30, 1999
was $6.45 million, a 14.77% increase compared to the $5.62 million
reported for the third quarter of 1998. Interest income increased $798
thousand in the third quarter of 1999 compared to the third quarter of
1998 as a result of a $49.82 million increase in average earnings assets
offset by a decrease in the average yield on earning assets of 18 basis
points. Interest expense in the third quarter of 1999 decreased $37
thousand compared to the third quarter of 1998 as a result of a $40.61
million increase in average interest bearing liabilities and a 41 basis
point decrease in the average rate paid on interest bearing liabilities.
Net interest margin for the third quarter of 1999 increased 22
basis points compared to the third quarter of 1998. The earning assets
yield declined 18 basis points while our efforts to lower the interest
paid on deposit accounts resulted in a 41 basis point reduction in the
overall interest rate paid on interest bearing deposits. The net
interest spread increased 22 basis points in the third quarter 1999
compared to the third quarter of 1998.
Interest expense on deposits declined $387 thousand despite a
$21.05 million increase in average interest bearing deposits due to a
decline in the rate paid on deposits from 5.12% in the third quarter of
1998 to 4.54% for the third quarter of 1999. The decrease in interest
expense on deposits consisted
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primarily of a $999 thousand decline in interest expense on certificates
of deposit, offset by a $650 thousand increase in interest expense on
money market and NOW accounts. The average balance in certificates of
deposit decreased by $44.38 million from the third quarter of 1998 to
the third quarter of 1999 while the average balances on money market and
NOW accounts increased by $68.09 million during the same period. The
change in deposits was the result of efforts to shift maturing
certificates of deposit into lower cost deposit accounts. The increase
in average deposits was also net of the $39.99 million reduction from
the December 1998 sale of the bank's branches located outside the St.
Louis metropolitan area.
The average balances on other interest bearing liabilities
increased $19.56 million in the third quarter of 1999 compared to the
third quarter of 1998 and included the effect of the $17.23 million
Trust Preferred Securities offering closed in August 1999. The rate paid
on short-term borrowings increased 95 basis points and the rate paid on
long-term borrowings declined from 6.62% for the third quarter of 1998
to 6.15% for the third quarter of 1999. During October 1998, we
refinanced a portion of our long-term debt and redeemed all our
outstanding subordinated debentures with a $13.65 million, 7.00% fixed
rate, three-year loan.
Net interest income for the nine months ended September 30, 1999
was $18.45 million, a 11.76% increase compared to the $16.28 million
reported for the corresponding period in 1998. Interest income
increased $472 thousand in the first nine months of 1999 compared to
1998 as a result of a $18.18 million increase in average earning assets
which was partially offset by a decrease in the average yield on earning
assets of 16 basis points. Interest expense in the first nine months of
1999 decreased $1.69 million compared to the corresponding period of
1998 despite a $7.59 million increase in average interest bearing
liabilities due to a 50 basis point decrease in the average rate paid on
interest bearing liabilities.
Net interest margin for the first nine months of 1999 increased 38
basis points compared to the corresponding period in 1998. The earning
assets yield declined 16 basis points while our efforts to shift
maturing certificates of deposit into other deposit accounts at lower
rates resulted in a 57 basis point reduction in the overall interest
rate paid on interest bearing deposits. The net interest spread
increased 34 basis points comparing the first nine months of 1999 to the
first nine months of 1998.
Interest expense on deposits declined $1.85 million due to a $557
thousand decline in average interest bearing deposits and a decline in
the rate paid on deposits from 5.18% for the first nine months of 1998
to 4.61% for the comparable period in 1999. The decrease in interest
expense on deposits consisted primarily of a $3.24 million decline in
interest expense on certificates of deposit, offset by a $1.49 million
increase in interest expense on money market and NOW accounts. The
average balance in certificates of deposit decreased by $52.02 million
from the first nine months of 1998 compared to the same period in 1999.
The decrease in average deposits included the $39.99 million reduction
from the December 1998 sale of the bank's branches located outside the
St. Louis metropolitan area.
The average balances on other interest bearing liabilities
increased $8.15 million during the first nine months of 1999 compared to
the corresponding period in 1998 and included the effect of the $17.23
million trust preferred security offering closed in August 1999. The
rate paid on short-term borrowings increased 2 basis points while the
rate paid on long-term borrowings declined from 7.07% for the first nine
months of 1998 to 6.03% for the first nine months of 1999. During
October 1998, we refinanced a portion of our long-term debt and redeemed
all our outstanding subordinated debentures with a $13.65 million, 7.00%
fixed rate, three-year loan.
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The following table sets forth the condensed average balance
sheets for the periods reported. 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>
Three months ended September 30,
1999 1998
---------------------------------------- ----------------------------------------
Average Int. earned/ Yield/ Average Int. earned/ Yield/
Balance Expense Rate<F1> Balance Expense Rate<F1>
-------- ------------ -------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Loans<F2> $561,334 $12,374 8.75% $483,306 $11,190 9.19%
Taxable investment securities 56,332 835 5.93 76,127 1,100 5.73
Non-taxable investment securities<F3> 2,415 30 4.97 1,479 20 5.36
Federal funds sold 901 11 4.84 10,247 142 5.50
-------- ------- -------- -------
Total interest-earning assets 620,982 13,250 8.47 571,159 12,452 8.65
-------- ------- -------- -------
Non-interest earning assets:
Cash and due from banks 11,702 12,232
Bank premises and equipment 10,304 11,224
Other assets 23,640 27,487
Allowance for loan losses (7,223) (5,695)
-------- --------
Total assets $659,405 $616,407
======== ========
Liabilities and shareholder's equity:
Interest bearing liabilities:
Money market/NOW accounts 193,370 1,946 3.99 125,276 1,296 4.10
Savings deposits 14,440 77 2.12 17,105 115 2.67
Certificates of deposit 185,922 2,410 5.14 226,201 3,259 5.72
Certificates of deposit
over $100,000 30,566 366 4.75 34,551 498 5.72
IRA certificates 21,562 300 5.52 21,677 318 5.82
-------- ------- -------- -------
Total interest bearing deposits 445,860 5,099 4.54 424,810 5,486 5.12
-------- ------- -------- -------
Federal funds purchased, repurchase
agreements, and other short-term
borrowings 65,441 831 5.04 53,217 669 4.99
Long-term borrowings 37,275 578 6.15 40,775 680 6.62
Guaranteed preferred beneficial interest
in subordinated debentures 10,834 290 10.62 - - -
-------- ------- -------- -------
Total interest bearing liabilities 559,410 6,798 4.82 518,802 6,835 5.23
-------- ------- -------- -------
Non-interest bearing liabilities:
Demand deposits 47,979 46,835
Other liabilities 2,780 6,018
Shareholders' equity 49,236 44,752
-------- --------
Total liabilities and
shareholders' equity $659,405 $616,407
======== ========
Net interest income $ 6,452 $ 5,617
======= =======
Net interest spread 3.64 3.42
Net interest margin 4.12 3.90
<FN>
- --------------
<F1> All yields are annualized.
<F2> Average balances include non-accrual loans.
<F3> Presented at actual yield rather than the tax-equivalent yield.
</TABLE>
10
<PAGE>
<PAGE>
The following table sets forth 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.
<TABLE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
<CAPTION>
Nine months ended September 30,
1999 1998
---------------------------------------- ----------------------------------------
Average Int. earned/ Yield/ Average Int. earned/ Yield/
Balance Expense Rate<F1> Balance Expense Rate<F1>
-------- ------------ -------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Loans<F2> $532,966 $34,918 8.76% $497,112 $33,509 9.01%
Taxable investment securities 54,065 2,384 5.88 67,810 3,123 6.16
Non-taxable investment securities<F3> 1,863 68 4.87 1,507 52 4.61
Federal funds sold 3,165 112 4.73 7,451 326 5.85
-------- ------- -------- -------
Total interest-earning assets 592,059 37,482 8.46 573,880 37,010 8.62
-------- ------- -------- -------
Non-interest earning assets:
Cash and due from banks 12,834 11,735
Bank premises and equipment 10,710 11,013
Other assets 22,714 28,170
Allowance for loan losses (6,810) (5,511)
-------- --------
Total assets $631,507 $619,287
======== ========
Liabilities and shareholder's equity:
Interest bearing liabilities:
Money market/NOW accounts 176,160 5,284 4.01 122,662 3,798 4.14
Savings deposits 14,752 236 2.14 16,791 340 2.71
Certificates of deposit 189,533 7,415 5.23 229,621 9,907 5.77
Certificates of deposit
over $100,000 31,177 1,112 4.77 42,140 1,771 5.62
IRA certificates 19,944 846 5.67 20,909 931 5.95
-------- ------- -------- -------
Total interest bearing deposits 431,566 14,893 4.61 432,123 16,747 5.18
-------- ------- -------- -------
Federal funds purchased, repurchase
agreements, and other short-term
borrowings 56,428 2,118 5.02 51,523 1,926 5.00
Long-term borrowings 38,465 1,736 6.03 38,870 2,055 7.07
Guaranteed preferred beneficial interest
in subordinated debentures 3,651 290 10.62 - - -
-------- ------- -------- -------
Total interest bearing liabilities 530,110 19,037 4.80 522,519 20,728 5.30
-------- ------- -------- -------
Non-interest bearing liabilities:
Demand deposits 49,840 46,122
Other liabilities 2,473 7,087
Shareholders' equity 49,084 43,559
-------- --------
Total liabilities and
shareholders' equity $631,507 $619,287
======== ========
Net interest income $18,445 $16,282
======= =======
Net interest spread 3.66 3.32
Net interest margin 4.17 3.79
<FN>
- --------------
<F1> All yields are annualized.
<F2> Average balances include non-accrual loans.
<F3> Presented at actual yield rather than the tax-equivalent yield.
</TABLE>
11
<PAGE>
<PAGE>
The following table sets forth for the periods indicated the changes
in interest income and interest expense which were attributable to
change in average volume and changes in average rates. Volume variances
are computed using the change in volume multiplied by the previous
year's rate. Rate variances are computed using the changes in rate
multiplied by the previous year's volume. The change in interest due to
both rate and volume has been allocated between the factors in
proportion to the relationship of the absolute dollar amounts of the
change in each.
<TABLE>
RATE/VOLUME ANALYSIS
<CAPTION>
Quarter ended September 30, 1999 Nine months ended September 30, 1999
Compared to the Compared to the
Quarter ended September 30, 1998 Nine months ended September 30, 1998
------------------------------------ ------------------------------------
Net Net
Volume Rate Change Volume Rate Change
------ ---- ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans $1,741 $(557) $1,184 $ 2,360 $ (951) $ 1,409
Taxable investment securities (301) 36 (265) (603) (136) (739)
Non-taxable securities 13 3 10 14 2 16
Federal funds sold and
other investments (114) (17) (131) (160) (54) (214)
------ ----- ------ ------- ------- -------
Total interest income 1,339 (541) 798 1,611 (1,139) 472
Interest paid on:
Money market and NOW accounts 686 (36) 650 1,610 (124) 1,486
Savings deposits (16) (22) (38) (39) (65) (104)
Certificates of deposit (541) (308) (849) (1,622) (870) (2,492)
Certificates of deposit over $100,000 (54) (78) (132) (417) (242) (659)
IRA certificates (2) (16) (18) (43) (42) (85)
Federal funds purchased and other
short-term borrowings 156 6 162 185 7 192
Long-term borrowings (55) (47) (102) (22) (297) (319)
Guaranteed preferred beneficial interest
in subordinated debentures 290 - 290 290 - 290
------ ----- ------ ------- ------- -------
Total interest expense 464 (501) (37) (58) (1,633) (1,691)
------ ----- ------ ------- ------- -------
Net interest income $ 875 $ 40 $ 835 $ 1,669 $ 494 $ 2,163
====== ===== ====== ======= ======= =======
</TABLE>
12
<PAGE>
<PAGE>
Other Income
Other income decreased by $739 thousand to $1.21 million for the
third quarter ended September 30, 1999 compared to $1.95 million for the
third quarter in 1998. The decrease was primarily related to a $448
thousand gain on the sale of mortgage loans recognized in September
1998.
For the quarter ended September 30, 1999 mortgage banking revenue was
$182 thousand compared to $564 thousand for the quarter ended September
30, 1998. The change occurred primarily as a result of the sale of Edge
in March 1999. Edge realized $293 thousand in fee income in the third
quarter of 1998. The sale of Edge was consistent with our strategic
focus to concentrate our resources on increasing our commercial loan
portfolio.
Operating lease income decreased 31.21% to $302 thousand for the
quarter ended September 30, 1999 from $439 thousand for the comparable
quarter in 1998. The decrease in income was related to the decision to
terminate production of operating leases in the latter half of 1998.
Service charge income for the three-month period ended September 30,
1999 increased $72 thousand, or 71.29%, compared to the third quarter of
1998. Overdraft fees increased $59 thousand, or 29.21%, compared to the
third quarter of 1998. These increases were attributable to our focus
on targeted revenue enhancement programs.
All other non-interest income increased 47.45% for the quarter ended
September 30, 1999 to $289 thousand, compared to $196 thousand for the
third quarter of 1998.
Other income decreased by $1.59 million to $3.65 million for the
first nine months of 1999 compared to $5.24 million for the
corresponding period in 1998. During the first nine months of 1999,
gains of $1.06 million were recognized on the sale of mortgage loans.
The sale of Edge in March 1999 also contributed to the decrease in other
income from 1998 to 1999.
Other Expenses
For the three months ended September 30, 1999 other expenses
decreased $407 thousand or 7.96%, to $4.71 million from $5.11 million
for the third quarter of 1998 due primarily to our sale in December 1998
of the three branches in Northeast Missouri and our efforts to control
operating costs.
Salaries and employee benefits increased $213 thousand, or 9.42%, to
$2.47 million for the three months ended September 30, 1999 compared to
$2.26 million for the three months ended September 30, 1998. Additional
expenses were incurred due to management and support staff additions
during 1999 in our St. Louis locations which was partially offset by a
reduction of employees upon the December 1998 sale of the bank branches
in Northeast Missouri. We had 229 full-time equivalent ("FTE")
employees at September 30, 1999 compared to 230 at September 30, 1998.
Total annualized cost per FTE employee was $42,792 for the three months
ended September 30, 1999 compared to $38,932 for the corresponding
period of 1998.
Occupancy expense decreased by $44 thousand for the quarter ended
September 30, 1999 compared to the third quarter of 1998, while
furniture and equipment increased $20 thousand. Operating lease
depreciation decreased by $153 thousand to $251 thousand for the three
months ended September 30, 1999 from $404 thousand for the three months
ended September 30, 1998. This decrease was reflective of the bank's
decision to decrease production of operating leases in the latter half
of 1998.
13
<PAGE>
<PAGE>
Other non-interest expense decreased $381 thousand, or 33.07%, from
$1.15 million for the quarter ended September 30, 1998 to $771 thousand
for the third quarter of 1999. The decline in other expenses was a
direct result of fewer offices due to our sale in December 1998 of the
three branches and our efforts to control operating costs.
For the nine months ended September 30, 1999 total non-interest
expense decreased $1.31 million, or 8.43%, to $14.22 million from $15.53
million for the same period in 1998. The variances in expense
categories discussed above for the three-month periods showed similar
trends for the year-to-date amounts.
Our efficiency ratio was 61.43% for the quarter and 64.34% for the
nine months ended September 30, 1999 compared to 67.56% for the quarter
and 72.15% for the nine months ended September 30, 1998. This
improvement in the efficiency ratio was a direct result of our
commitment to enhancing overall efficiency by continuing to emphasize
revenue growth while controlling the current level of operating
expenses.
14
<PAGE>
<PAGE>
Securities Portfolio
Our securities portfolio consists of securities classified as held-
to-maturity and available-for-sale. We designate these securities upon
purchase into one of these two categories. At September 30, 1999, held-
to-maturity securities amounted to $11.86 million, representing those
securities we intended to hold to maturity. Securities designated as
available-for-sale totaled $47.22 million representing securities which
we may sell to meet liquidity needs or in response to significant
changes in interest rates or prepayment patterns.
At September 30, 1999, our securities portfolio totaled $59.08
million, an increase of $4.30 million, or 7.85% from December 31, 1998.
We maintain a traditional short-term laddered portfolio investment
strategy to insure adequate liquidity while minimizing interest rate
risk.
The carrying values of the securities portfolio at the dates
indicated were as follows:
<TABLE>
SECURITIES PORTFOLIO
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
------------- ------------ -------------
(in thousands)
<S> <C> <C> <C>
U.S. Government and agency securities $41,272 $37,021 $60,491
State and municipal securities 4,967 1,464 1,461
Mortgage-backed securities 8,764 11,930 6,509
Federal Home Loan Bank stock 3,656 3,574 3,574
Other securities 423 791 1,168
------- ------- -------
Total investment securities $59,082 $54,780 $73,203
======= ======= =======
</TABLE>
Loans
Loans have historically been the primary component of earning assets.
At September 30, 1999, loans totaled $572.03 million, an increase of
$76.36 million, or 15.41%, from December 31, 1998. Substantially all of
these loans were originated in our market area. At September 30, 1999,
we had no foreign loans and only a minimal amount of participations
purchased.
The increase in loans during the first nine months of 1999 consisted
primarily of growth in multi-family and commercial real estate, real
estate construction and commercial loans. Multi-family and commercial
real estate loans, increased $24.27 million, or 12.35%, to $220.82
million at September 30, 1999. Real estate construction loans increased
$11.46 million, or 31.31%, to $48.05 million at September 30, 1999.
Commercial and other industrial loans increased $19.43 million, or
12.35%, to $145.67 million at September 30, 1999. The increases in
these loan categories reflect our efforts to grow our commercial loan
portfolio, including loans originated by our expanded commercial lending
staff.
15
<PAGE>
<PAGE>
The following table summarizes the composition of our loan portfolio
at the dates indicated:
<TABLE>
LENDING AND CREDIT MANAGEMENT<F1>
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
------------------------ ------------------------ -------------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial,
agricultural, municipal and
industrial development $145,667 25.46% 126,239 25.47 134,365 28.66
Real estate - construction 48,046 8.40 36,590 7.38 29,731 6.34
Real estate - mortgage
One- to four-family 136,629 23.89 116,291 23.46 112,889 24.08
Multi-family and commercial 220,819 38.60 196,545 39.65 175,211 37.38
Consumer and other 21,664 3.79 20,908 4.22 17,454 3.72
Less unearned income (792) (0.14) (904) (0.18) (884) (0.19)
-------- ------ -------- ------ -------- ------
Total loans<F1> $572,033 100.00% $495,669 100.00% $468,766 100.00%
======== ====== ======== ====== ======== ======
<FN>
- --------------
<F1> The Company had no outstanding foreign loans at the dates reported.
</TABLE>
Asset Quality
Non-performing assets consist of the following: nonaccrual loans on
which the ultimate collectibility of the full amount of interest is
uncertain; loans which have been renegotiated to provide for a reduction
or deferral of interest or principal because of a deterioration in the
financial condition of the borrower; and loans past due 90 days or more
as to principal or interest and other real estate owned. Non-performing
assets decreased 34.27% to $1.17 million at September 30, 1999 compared
to $1.78 million at December 31, 1998. At September 30, 1999, non-
performing assets represented 0.17% of total assets compared to 0.30% at
December 31, 1998. Non-accrual loans totaled $722 thousand at September
30, 1999 compared to $1.71 million at December 31, 1998.
We continually analyze our loan portfolio to identify potential risk
elements. The loan portfolio is reviewed by lending management and the
bank's internal loan review staff. As an integral part of their
examination process, the various regulatory agencies periodically review
our allowance for loan losses.
16
<PAGE>
<PAGE>
The following table summarizes, at the dates presented, non-
performing assets by category:
<TABLE>
RISK ELEMENTS - NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<CAPTION>
September 30, December 31, September 30,
1999 1998 1999
------------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C>
Commercial, financial, agricultural, municipal and
industrial development:
Past due 90 days or more $ - $ - $ -
Nonaccrual 426 962 458
Restructured terms - - -
Real estate - construction:
Past due 90 days or more - - -
Nonaccrual - - -
Restructured terms - - -
Real estate - mortgage:
One- to four-family residential:
Past due 90 days or more - 69 191
Nonaccrual 213 378 209
Restructured terms - - -
Multi-family and commercial
Past due 90 days or more 136 - -
Nonaccrual - 307 293
Restructured terms - - -
Consumer and other, net of unearned income:
Past due 90 days or more 1 - -
Nonaccrual 83 62 41
Restructured terms - - -
------ ------ ------
Total non-performing loans 859 1,778 1,192
Other real estate 309 - -
------ ------ ------
Total non-performing assets $1,168 $1,778 $1,192
====== ====== ======
Ratios:
Non-performing loans to total loans outstanding 0.15% 0.36% 0.25%
Non-performing assets to total assets 0.17 0.30 0.19
Non-performing loans to shareholders' equity 1.76 3.70 2.58
Allowance for loan losses to total loans 1.31 1.30 1.27
Allowance for loan losses to non-performing loans 871.01 362.32 498.57
</TABLE>
Interest income that would have been recorded during the three months
and nine months ended September 30, 1999 had all non-accrual, past due
and restructured loans been current in accordance with their original
terms was immaterial.
17
<PAGE>
<PAGE>
Allowance for Loan Losses
The provision for loan losses was $1.59 million during the first nine
months of 1999 compared to $1.18 million for the corresponding period in
1998. Net charge-offs were $720 thousand for the nine months ended
September 30, 1999 compared to $488 thousand for the first nine months
of 1998. Net charge-offs for the first nine months of 1999 represented
0.10% of average loans, compared to 0.09% of average loans for the first
nine months of 1998.
The allowance for loan losses increased to $7.48 million at September
30, 1999 compared to $6.44 and $5.94 million at December 31, 1998 and
September 30, 1998, respectively. As a percentage of loans outstanding,
the allowance represented 1.31% of loans at September 30, 1999, 1.30% at
December 31, 1998 and 1.16% at September 30, 1998.
The higher expense provision and the higher allowance percentage were
the result of the change in the composition of the loan portfolio at
September 30, 1999 compared to September 30, 1998. Since early 1998, we
have been focused on generating higher yielding loans from the
commercial and industrial underwriting areas rather than lower yielding
residential mortgage loans. The increase in risk as a result of the
change in loan mix was reflected in the higher provision and higher
allowance as a percentage of loans outstanding.
The allowance for loan losses is provided at a level considered
adequate to provide for potential losses and, among other things, is
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 loan portfolio, evaluation of potential problem loans
identified based on existing circumstances known to management,
potential future loan losses on loans to specific customers or
industries and recent loan loss experience. We continually monitor the
quality of the loan portfolio to ensure the timely charge-off of problem
loans and to determine the adequacy of the level of the allowance for
loan losses. We presently believe that our asset quality, as measured by
the statistics in the following table, continues to be very high and
that our allowance is adequate to absorb potential losses inherent in
the portfolio at September 30, 1999.
18
<PAGE>
<PAGE>
The following table summarizes, for the periods indicated, activity
in the allowance for loan losses, including amounts of loans charged
off, amounts of recoveries and additions to the allowance charged to
operating expense.
<TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1999 1998
-------- --------
<S> <C> <C>
Allowance for loan losses
(beginning of period) $ 6,442 $ 5,194
Loans charged off:
Commercial, financial, agricultural,
municipal and industrial development (428) (220)
Real estate - construction - (7)
Real estate - mortgage
One- to four-family residential (149) (145)
Multi-family and commercial (23) (40)
Consumer and other (120) (77)
-------- --------
Total loans charged off (720) (489)
-------- --------
Recoveries of loans previously charged off:
Commercial, financial, agricultural,
municipal and industrial development 63 3
Real estate - construction - 6
Real estate - mortgage
One- to four-family residential 95 17
Multi-family and commercial - 20
Consumer and other 10 11
-------- --------
Total recoveries 168 57
-------- --------
Net loans charged off (552) (432)
-------- --------
Provision for loan losses 1,592 1,180
-------- --------
Allowance for loan losses (end of period) $ 7,482 $ 5,942
======== ========
Loans outstanding:
Average 532,966 497,112
End of period 572,033 468,766
Ratios:
Net charge-offs to average loans outstanding 0.10% 0.09%
Net charge-offs to provisions for loans losses 34.67 36.78
Provision for loan losses to average loans outstanding 0.30 0.24
Allowance for loan loss to total loans outstanding 1.31 1.27
</TABLE>
19
<PAGE>
<PAGE>
Deposits
Total deposits increased $60.90 million, or 13.51%, during the first
nine months of 1999. The increase was primarily a result of a $49.55
million, or 40.01%, increase in money market accounts. Certificates of
deposit also increased $16.31 million or 6.87% which included $28
million of brokered CD's originated in 1999. Demand deposits decreased
by $5.37 million, or 9.69%, from December 31, 1998 to September 30,
1999, but the average demand deposit balances during the first nine
months of 1999 were $49.84 million compared to $46.12 million for the
corresponding period in 1998. The shift in deposits was a result of
management's efforts to replace higher yielding deposits with lower cost
deposits.
The following table summarizes deposits as of the dates indicated:
<TABLE>
DEPOSIT LIABILITY COMPOSITION
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
------------------------- ------------------------ ------------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
Deposits Deposits Deposits Deposits Deposits Deposits
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 50,050 9.78% $ 55,417 12.29% $ 48,413 10.34%
NOW accounts 20,336 3.97 19,075 4.23 19,744 4.22
Money market accounts 173,372 33.88 123,827 27.47 107,054 22.87
Savings deposits 14,065 2.75 14,917 3.31 16,355 3.50
Certificates of deposit 204,861 40.04 187,886 41.68 223,279 47.70
Certificates of deposit
over $100,000 27,296 5.34 31,173 6.92 31,818 6.80
IRA certificates 21,686 4.24 18,471 4.10 21,401 4.57
-------- ------ -------- ------ -------- ------
Total deposits $511,666 100.00% $450,766 100.00% $468,064 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
20
<PAGE>
<PAGE>
LIQUIDITY MANAGEMENT AND CAPITAL RESOURCES
Liquidity Management
Long-term liquidity is a function of the core deposit base and an
adequate capital base. We are committed to growth of our core deposit
base. This growth is both internally generated through product pricing
and product development and externally generated. During the nine
months ended September 30, 1999 and the year ended December 31, 1998,
both of these elements contributed heavily to developing and maintaining
long-term liquidity. Our capital position has been maintained through
earnings and raising of capital. See - Capital Resources.
Short-term liquidity needs arise from continuous fluctuations in the
flow of funds on both sides of the balance sheet resulting from growth
and seasonal and cyclical customer demands. The securities portfolio
provides stable long-term earnings as well as being a primary source of
liquidity. The designation of securities as available-for-sale and
held-to-maturity does not impact the portfolio as a source of liquidity
due to the ability to enter into repurchase agreements using those
securities.
We anticipate continued loan demand in our market areas as banking
industry consolidation continues. We have utilized, and expect to
continue to utilize, Federal Home Loan Bank borrowings to fund a portion
of future loan growth. We have a $70.25 million secured credit facility
with the Federal Home Loan Bank, of which $64.13 million and $66.13
million was outstanding at September 30, 1999 and December 31, 1998,
respectively.
Average short-term borrowings increased $4.90 million, or 9.51%,
during the first nine months of 1999 following an increase of 0.29 % in
the year ended December 31, 1998. The increases reflected the above-
mentioned strategy of utilizing Federal Home Loan Bank borrowings to
fund loan growth while continuing to systematically build our deposit
base. We anticipate similar use of the Federal Home Loan Bank facility
in the foreseeable future.
We experienced net growth in assets of 12.37% during the first nine
months of 1999 and 8.67% from September 30, 1998. Deposits increased
13.51% during the first nine months of 1999 and 9.32% from September 30,
1998. The increase in assets and deposits from September 30, 1998 was
net of the results of the sale of the three northeast Missouri branches
in December 1998. The branch sale resulted in a reduction of $13.52
million in loans and $39.99 million in deposits. We continue to
emphasize growth in stable core deposits while utilizing the Federal
Home Loan Bank as necessary to balance liquidity and cost effectiveness.
We closely monitor our level of liquidity to meet expected future needs.
Capital Resources
We maintain a capital base that provides a foundation that promotes
both depositor and investor confidence. We monitor our capital position
to ensure that we have adequate capital for both current needs and
anticipated growth. This strategy has enabled us to profitably expand
our balance sheet, while maintaining capital ratios that exceed minimum
regulatory capital requirements.
Our capital requirements have been historically financed through
offerings of debt and equity securities, earnings retention and
borrowings from a commercial bank. The bank also utilized its borrowing
capacity with the Federal Home Loan Bank. The principal amount of our
term loan was $13.15 million and $13.65 million at of September 30, 1999
and December 31, 1998, respectively. This term loan matures in November
2001.
21
<PAGE>
<PAGE>
Total shareholders' equity increased 1.10% to $48.63 million at
September 30, 1999 compared to $48.10 million at year-end 1998. For the
nine months to date in 1999, changes in shareholders' equity included an
increase in retained earnings of $3.11 million, a decrease of $650
thousand from an unfavorable FAS 115 adjustment and a decrease in
shareholders' equity due to the cost of treasury stock acquired during
the third quarter of 1999 of $2.39 million.
As of September 30, 1999, we had repurchased 238,915 shares of our
common stock at a cost of $2.39 million. The majority of shares were
repurchased in a private transaction closed in July 1999 and 5,696
shares were repurchased under our stock repurchase plan approved by our
Board of Directors on September 15, 1999. This plan authorizes the
repurchase of approximately 5%, or 319,000 shares, of our outstanding
common stock.
As of September 30, 1999 we had approximately $28.00 million of
brokered deposits which have been used to fund loan growth and to
provide for other liquidity needs which have been used. These
certificates of deposit mature in December 1999 through February 2000.
We may use brokered deposits in the future as a source of liquidity.
In August 1999, we completed a public offering of 1,725,000
Cumulative Trust Preferred Securities which are entitled to receive
cumulative cash distributions at an annual rate of 9.875%. The Trust
Preferred Securities have a liquidation amount of $10 per security and
represent preferred undivided interests in the assets of the Trust which
consist solely of the Junior Subordinated Debentures, and payments in
respect thereof.
We also analyze our capital and the capital position of our bank in
terms of regulatory risk-based capital guidelines. This 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.
Federal Reserve Board guidelines for the calculation of Tier 1 capital
limit the aggregate amount of trust preferred securities, including
securities similar to the trust preferred securities, which can be
included in Tier 1 capital to 25% of total Tier 1 capital. As of
September 30, 1999, $12.42 million of the aggregate amount of Trust
Preferred Securities would have qualified as Tier 1 capital, and the
remaining amount would have qualified as Tier 2 capital. We believe
that, as of September 30, 1999, we and the bank met all capital adequacy
requirements to which we were subject and we exceeded the minimum "well
capitalized" regulatory standard for each capital ratio.
Allegiant's and the bank's capital ratios were as follows as of the
dates indicated:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------------------ -----------------------------
Allegiant Allegiant Bank Allegiant Allegiant Bank
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Total risk-based capital ratio 11.15% 12.14% 8.14% 9.35%
Tier 1 risk-based capital ratio 9.01 10.88 6.39 8.27
Tier 1 leverage capital ratio 7.66 9.28 6.15 7.76
</TABLE>
Our commitment to maintaining adequate capital is evidenced by the
significant increase in our capital ratios as detailed above. We will
seek to maintain a strong equity base while executing our controlled
expansion plans.
22
<PAGE>
<PAGE>
YEAR 2000
General Description of the Year 2000 Issue and the Readiness of
Allegiant
The Year 2000 issue is a result of computer programs being written
using two digits rather than four digits to define the applicable year.
Any of our computer programs or hardware that have date-sensitive
software or embedded chips may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations including, among
other things, a temporary inability to process transactions, or engage
in similar normal business activities. To mitigate the risk of
disruption, a Year 2000 plan has been developed and implemented. The
plan is comprised of five phases, with completion of all five necessary
to protect us against potential Year 2000 failures.
Our plan to resolve the Year 2000 issue involves the following five
phases: awareness, assessment, remediation, testing and implementation.
During the awareness phase, a comprehensive strategy for addressing the
Year 2000 issue was formulated. We have fully completed our assessment
of all systems that could be significantly affected by the Year 2000.
The completed assessment indicated that most of the significant
information technology systems could be affected, including the loan,
deposit, general ledger and billing systems. All software and hardware
systems have been provided by third party vendors; therefore, the
remediation of systems primarily involves the installation of upgraded
systems that have been certified by the vendors as Year 2000 compliant.
We continue to test all hardware and software systems to validate that
systems have been renovated. In addition, testing will validate the
compatibility of system interfaces. After all testing is completed, all
systems will be implemented, which will include certification that all
systems are Year 2000 compliant.
Year 2000 Status, Including Timetable for Completion
As of the date of this report, the awareness and assessment phases
are 100% complete. The remediation phase is substantially complete,
with only two lesser significant software systems requiring additional
testing. Testing of our systems is accomplished after upgrades are
provided by and certified as Year 2000 compliant by a third party
vendor. As of the date of this report, 100% of mission critical systems
and approximately 95% of all other systems have been tested. The
testing of mission critical systems was substantially complete by
December 31, 1998. Testing of the two systems identified above is
anticipated to be substantially completed by November 30, 1999.
Importance of Third Parties and Their Exposure to the Year 2000
We have some systems that interface directly with significant third
party vendors. These include the Electronic Fund Transfer (EFT) systems
related to wire transfers, automated teller machine and debit card
transactions, in addition to trust system software. These third parties
have made, or are in the process of making, their systems Year 2000
compliant. We are working with these third party vendors to ensure that
the third party systems interface properly with our systems. Testing
for these systems will be accomplished using actual and proxy testing.
Proxy testing is testing that takes place in a controlled environment
using similar software/hardware that we and the third party vendors
utilize. These tests have been completed.
We also have gathered information about the Year 2000 compliance
status of customers with significant credit relationships. In addition,
significant suppliers and other third parties that do not share
information with our systems (external agents) have been queried to
assess their Year 2000 status. As of the date of this report, there is
no evidence of any significant customers or external agents that would
materially impact our operations, liquidity or capital resources.
However, we have has no means
23
<PAGE>
<PAGE>
of ensuring that these entities will be Year 2000 compliant. The
inability of third parties and external agents to complete their Year
2000 resolution process in a timely fashion could materially impact us.
The effect of non-compliant third parties and external agents is not
determinable.
Year 2000 Costs
We have utilized and will continue to utilize both internal and
external resources to reprogram, replace, test and implement the
software and operating equipment for Year 2000 modifications. The total
cost of the Year 2000 project is estimated at $0.23 million and is being
funded through operating cash flows. As of September 30, 1999, we had
incurred approximately $0.21 million ($0.12 million expensed and $0.09
million capitalized for new systems and equipment), related to all
phases of the Year 2000 project. The total remaining project costs,
which we approximate will be $0.03 million, are attributable to the
testing and validation phases of the project and will be expensed as
incurred.
Overall Year 2000 Risks
Management believes it has an effective program in place to resolve
the Year 2000 issue in a timely manner. As noted above, all necessary
phases of the Year 2000 program have not yet been completed. In the
event that such phases are not completed in a timely fashion, we could
experience system failures that may have a significant impact on our
financial condition. In addition, disruptions in the economy generally
resulting from Year 2000 issues also could materially adversely affect
us. We could be subject to litigation for computer system product
failures. The amount of potential liability and lost revenue cannot be
reasonably estimated at this time.
Contingency Planning
We have contingency plans for certain mission critical applications
and are working on plans for all other systems. These contingency plans
involve, among other actions, manual workarounds and adjusting staffing
strategies. In addition, funding plans are being developed to assure
adequate levels of liquid assets are available in the event of
significant customer withdrawals of cash items as a result of concerns
regarding Year 2000 issues.
24
<PAGE>
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information provided in
our Annual Report on Form 10-K/A for the year ended December 31, 1998.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Exhibit Index attached hereto.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
September 30, 1999.
25
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized. The undersigned signs this
report in his dual capacities as a duly authorized officer of the
registrant and also as the registrant's Chief Financial Officer.
ALLEGIANT BANCORP, INC. (Registrant)
November 10, 1999 By: /s/ Thomas A. Daiber
---------------------------------------
Thomas A. Daiber, Senior Vice President
and Chief Financial Officer
26
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11.1 Computation of Earnings Per Share.
27 Financial Data Schedule for the nine months ended
September 30, 1999.
27
<PAGE>
Exhibit 11.1
<TABLE>
COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C>
Average common shares outstanding 6,396,462 6,269,394 6,509,916 6,199,775
Average common stock equivalents of
warrants and options outstanding -
based on the treasury stock method
using market price 37,014 320,507 69,992 446,001
---------- ---------- ---------- ----------
Average diluted common shares
outstanding 6,433,476 6,589,901 6,579,908 6,645,776
========== ========== ========== ==========
Net income $ 1,429 $ 1,207 $ 3,776 $ 2,911
Basic earnings per common share 0.22 0.19 0.58 0.47
Diluted earnings per common share 0.22 0.18 0.57 0.44
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains information extracted from Allegiant Bancorp, Inc.'s
quarterly report on Form 10-Q for the quarter ended September 30, 1999 and is
qualified in its entirety by reference to such report.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,497
<INT-BEARING-DEPOSITS> 461,616
<FED-FUNDS-SOLD> 765
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,220
<INVESTMENTS-CARRYING> 11,862
<INVESTMENTS-MARKET> 11,869
<LOANS> 572,033
<ALLOWANCE> 7,482
<TOTAL-ASSETS> 670,004
<DEPOSITS> 511,666
<SHORT-TERM> 52,946
<LIABILITIES-OTHER> 2,236
<LONG-TERM> 37,275
0
17,250
<COMMON> 66
<OTHER-SE> 48,565
<TOTAL-LIABILITIES-AND-EQUITY> 670,004
<INTEREST-LOAN> 34,918
<INTEREST-INVEST> 2,452
<INTEREST-OTHER> 112
<INTEREST-TOTAL> 37,482
<INTEREST-DEPOSIT> 14,893
<INTEREST-EXPENSE> 19,037
<INTEREST-INCOME-NET> 18,445
<LOAN-LOSSES> 1,592
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 14,216
<INCOME-PRETAX> 6,287
<INCOME-PRE-EXTRAORDINARY> 3,776
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,776
<EPS-BASIC> 0.580
<EPS-DILUTED> 0.574
<YIELD-ACTUAL> 8.46
<LOANS-NON> 722
<LOANS-PAST> 137
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,442
<CHARGE-OFFS> 720
<RECOVERIES> 168
<ALLOWANCE-CLOSE> 7,482
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
