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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 JUNE 30, 2000
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Commission file number 0-26350
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ALLEGIANT BANCORP, INC.
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(Exact name of registrant as specified in its charter)
MISSOURI 43-1519382
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(State or other jurisdiction (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
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(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 August 1, 2000
----------------------------------- --------------------------------------
Common stock, $0.01 par value 6,072,587
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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 - JUNE 30, 2000 AND 1999 (UNAUDITED)
AND DECEMBER 31, 1999 1
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - THREE MONTHS
AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 2
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) - SIX
MONTHS ENDED JUNE 30, 2000 3
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - SIX MONTHS
ENDED JUNE 30, 2000 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 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 JUNE 30, 2000 10
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
AND INTEREST RATES - SIX MONTHS ENDED JUNE 30, 2000 11
RATE/VOLUME ANALYSIS - QUARTER AND SIX MONTHS ENDED
JUNE 30, 2000 AND 1999 12
SECURITIES PORTFOLIO 14
LENDING AND CREDIT MANAGEMENT 15
RISK ELEMENTS - NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS 16
SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION 18
DEPOSIT LIABILITY COMPOSITION - JUNE 30, 2000 AND 1999,
AND DECEMBER 31, 1999 19
LIQUIDITY MANAGEMENT AND CAPITAL RESOURCES 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 22
PART II. OTHER INFORMATION 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 23
SIGNATURES 24
EXHIBIT INDEX 25
COMPUTATION OF EARNINGS PER SHARE 26
</TABLE>
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, June 30,
2000 December 31, 1999
(Unaudited) 1999 (Unaudited)
----------- ------------ -----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 22,042 $ 16,842 $ 11,012
Federal funds sold and overnight investments 320 9,927 4
Investment securities:
Available-for-sale (at estimated market value) 54,394 49,129 46,264
Held-to-maturity (estimated market value of
$6,399, $11,284 and $10,349, respectively) 6,574 11,668 10,310
Loans, net of allowance for loan losses of
$9,580, $8,315 and $7,085, respectively 694,185 606,876 536,542
Premises and equipment 9,809 9,896 10,707
Accrued interest and other assets 28,609 12,430 11,127
Cost in excess of fair value and net assets acquired 11,249 11,724 12,200
-------- -------- --------
Total assets $827,182 $728,492 $638,166
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non-interest bearing $ 65,925 $ 51,845 $ 49,997
Interest bearing 510,958 449,071 406,587
Certificates of deposit of $100,000 or more 62,523 47,550 33,232
-------- -------- --------
Total deposits 639,406 548,466 489,816
-------- -------- --------
Short-term borrowings 86,490 75,861 58,664
Long-term debt 30,860 35,860 37,275
Guaranteed preferred beneficial interest in
subordinated debentures 17,250 17,250 -
Accrued expenses and other liabilities 4,084 3,064 2,460
-------- -------- --------
Total liabilities 778,090 680,501 588,215
-------- -------- --------
Shareholders' equity:
Common Stock, $0.01 par value - authorized
20,000,000 shares; issued and outstanding
6,072,587 shares, 6,208,102 shares and
6,611,160 shares, respectively 66 66 66
Capital surplus 42,373 42,373 42,324
Retained earnings 13,058 10,482 8,064
Accumulated other comprehensive loss (790) (754) (503)
Treasury stock, at cost, 554,775 shares,
419,260 shares and 0 shares, respectively (5,615) (4,176) -
-------- -------- --------
Total shareholders' equity 49,092 47,991 49,951
-------- -------- --------
Total liabilities and shareholders' equity $827,182 $728,492 $638,166
======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
1
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<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED))
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 16,085 $ 11,470 $ 30,683 $ 22,543
Investment securities 938 815 1,874 1,588
Federal funds sold and overnight investments 6 23 41 102
---------- ---------- ---------- ----------
Total interest income 17,029 12,308 32,598 24,233
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 7,233 4,938 13,677 9,794
Interest on short-term borrowings 1,462 647 2,526 1,286
Interest on long-term debt 407 565 857 1,158
Interest on guaranteed preferred beneficial
interest in subordinated debentures 442 - 885 -
---------- ---------- ---------- ----------
Total interest expense 9,544 6,150 17,945 12,238
---------- ---------- ---------- ----------
Net interest income 7,485 6,158 14,653 11,995
Provision for loan losses 850 450 1,565 1,012
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 6,635 5,708 13,088 10,983
---------- ---------- ---------- ----------
Other income:
Service charges and other fees 336 161 564 309
Net gain on sale of securities 137 - 173 -
Other income 1,138 1,027 2,123 2,133
---------- ---------- ---------- ----------
Total other income 1,611 1,188 2,860 2,442
---------- ---------- ---------- ----------
Other expenses:
Salaries and employee benefits 2,868 2,401 5,379 4,846
Occupancy and furniture and equipment 700 741 1,604 1,508
Other operating expenses 2,008 1,512 3,523 3,158
---------- ---------- ---------- ----------
Total other expenses 5,576 4,654 10,506 9,512
---------- ---------- ---------- ----------
Income before income taxes 2,670 2,242 5,442 3,913
Provision for income taxes 1,084 897 2,221 1,566
---------- ---------- ---------- ----------
Net income $ 1,586 $ 1,345 $ 3,221 $ 2,347
========== ========== ========== ==========
Per share data:
Net Income
Basic $ 0.26 $ 0.20 $ 0.53 $ 0.36
Diluted 0.26 0.20 0.52 0.35
Weighted average common shares outstanding:
Basic 6,072,588 6,581,451 6,106,169 6,566,643
Diluted 6,094,261 6,625,764 6,138,101 6,653,125
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
2
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<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<CAPTION>
Accumulated
Other Total
Common Capital Retained Comprehensive Treasury Shareholders' Comprehensive
Stock Surplus Earnings Loss Stock Equity Income (Loss)
------ ------- -------- ------------- -------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1999 $ 66 $42,373 $10,482 $ (754) $(4,176) $47,991
Net income - - 3,221 - - 3,221 $3,221
Change in net unrealized losses
on available-for-sale securities - - - (36) - (36) (36)
------
Comprehensive income - - - - - - $3,185
======
Repurchase of common stock - - - - (1,439) (1,439)
Dividends - - (645) - - (645)
----- ------- ------- ------- ------- -------
Balance June 30, 2000 $ 66 $42,373 $13,058 $ (790) $(5,615) $49,092
===== ======= ======= ======= ======= =======
Reclassification adjustments:
Unrealized gains on
available-for-sale securities $ 173
Less:
Reclassification adjustment for
gains realized included in
net income 209
-------
Net unrealized losses on
available-for-sale securities $ (36)
=======
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
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<TABLE>
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<CAPTION>
Six Months Ended
June 30,
---------------------------
2000 1999
--------- --------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,221 $ 2,347
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,298 1,743
Provision for loan losses 1,565 1,012
Net realized losses on securities available-for-sale (173) -
Other changes in assets and liabilities:
Accrued interest receivable and other assets (911) 230
Accrued expenses and other liabilities 1,020 (1,127)
--------- --------
Cash provided by operating activities 6,020 4,205
--------- --------
INVESTING ACTIVITIES:
Proceeds from maturities of securities held-to-maturity 5,594 2,648
Purchase of investment securities held-to-maturity (500) (918)
Proceeds from maturities of securities available-for-sale 2,590 11,859
Proceeds from sales of securities available-for-sale 8,066 -
Purchase of investment securities available-for-sale (15,803) (16,306)
Loans made to customers, net of repayments (88,874) (48,327)
Purchase of bank-owned life insurance (15,249) -
Additions to premises and equipment (736) (525)
--------- --------
Cash used in investing activities (104,912) (51,569)
--------- --------
FINANCING ACTIVITIES:
Net increase in deposits 90,940 39,050
Net increase in short-term borrowings 629 5,122
Net increase (decrease) of long-term debt 5,000 (3,000)
Proceeds from issuance of common stock - 417
Repurchase of common stock (1,439) -
Payment of dividends (645) (331)
--------- --------
Cash provided by financing activities 94,485 41,258
--------- --------
Net decrease in cash and cash equivalents (4,407) (6,106)
Cash and cash equivalents, beginning of period 26,769 17,123
--------- --------
Cash and cash equivalents, end of period $ 22,362 $ 11,017
========= ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
4
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ALLEGIANT BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying condensed consolidated financial statements
include the accounts of Allegiant Bancorp, Inc. and its subsidiaries:
Allegiant Bank and Edge Mortgage Services, Inc. ("Edge"). The results
of operations of Edge are included through March 19, 1999, the date Edge
was sold to a former officer of our company. The sale had no material
effect on the consolidated financial statements of our 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 made clear that it means only Allegiant.
Also, sometimes we refer to our bank subsidiary 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 six-month periods ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2000.
The balance sheet at December 31, 1999 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 for the year ended December 31, 1999.
Comprehensive Income
During the second quarter of 2000 and 1999, total comprehensive
income amounted to $1.6 million and $931,000, respectively. Year-to-date
total comprehensive income for the first half of 2000 and 1999 was $3.2
million and $1.8 million, respectively.
Trust Preferred Securities
In August 1999, we completed a public offering of 1,725,000 9.875%
Cumulative Trust Preferred Securities. 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.
Allegiant Capital Trust utilized the proceeds from the sale of
the trust preferred securities to purchase at par approximately $17.3
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
5
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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 if there is 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 a portion of the proceeds from the sale of the junior
subordinated debentures, after payment of expenses of approximately $1.0
million, to infuse approximately $8.0 million of capital into the bank
and to repay approximately $2.5 million of corporate indebtedness,
including $2.0 million which was used to repurchase shares of our common
stock. The balance of the proceeds is being used for general corporate
purposes, 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
$2.3 million, which was funded by a $2.0 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 we 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 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. By March 31, 2000, we had
purchased all 319,000 shares authorized under the repurchase program.
Subsequent Events
On July 26, 2000, we signed a definitive agreement to acquire
Equality Bancorp, Inc. Equality Bancorp, Inc. is the parent company
of Equality Savings Bank, a Missouri state-chartered savings bank
headquartered in St. Louis with seven locations (including a facility
in Fenton that has not yet been opened), primarily in the Southern half
of the greater St. Louis, Missouri metropolitan area. The acquisition,
which is subject to shareholder and regulatory approval, is expected to
close in the second half of this year. Under the terms of the agreement,
we will exchange a total of approximately 2.7 million shares of our
common stock for all of the outstanding common stock of Equality Bancorp.
Subject to adjustment in certain circumstances, each share of Equality
Bancorp is to be exchanged for 1.118 shares of our common stock.
Equality Bancorp reported assets of $329.0 million at June 30,
2000. Following the merger, we expect to have consolidated total assets
exceeding $1.1 billion, more than $800.0 million of both loans and
deposits and total equity and loan loss allowance in excess of $100.0
million. Equality Bancorp recently entered into a memorandum of
understanding with its banking regulators, but we do not believe that
the issues raised therein will have a material adverse effect on the
combined company after the acquisition is complete.
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. 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
changes in the size and composition of 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.
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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 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 June 30, 2000 was $1.6
million, an 18% increase over the $1.3 million earned for the second
quarter of 1999. Basic and diluted earnings per share increased 30% to
$0.26 for the second quarter of 2000 compared to $0.20 for the second
quarter of 1999. The annualized return on average assets for the second
quarter of 2000 was 0.79% compared to 0.86% reported for the second
quarter of 1999. The return on average equity on an annualized basis
was 13% for the second quarter of 2000 compared to 11% for the second
quarter of 1999.
Net income for the six-month period ended June 30, 2000 was $3.2
million, a 37% increase over the $2.3 million earned for the six-month
period ended June 30, 1999. Basic earnings per share increased 47% to
$0.53 from $0.36, and diluted earnings per share increased 49% to $0.52
from $0.35 in the respective six-month periods. The annualized return on
average assets was 0.83% and the annualized return on average equity was
13% for the six months ended June 30, 2000. This compares to, on an
annualized basis, a return on average assets of 0.77% and a return on
average equity of 10% for the corresponding period in 1999.
We have utilized the purchase method of accounting to reflect our
business combinations. The purchase method results in the recording of
goodwill that is amortized as a non-cash charge included in operating
expenses. Goodwill amortization included as an operating expense totaled
$237,000 and $475,000, respectively, for the three and six months ended
June 30, 2000 and $250,000 and $501,000, respectively, for the three and
six months ended June 30, 1999. Cash net income, which adjusts earnings
to exclude goodwill amortization, was $1.8 million and $3.7 million,
respectively, for the three and six months ended June 30, 2000 and $1.6
million and $2.8 million, respectively, for the three and six months
ended June 30, 1999, respectively. Diluted cash earnings per share
increased 25% to $0.30 in the second quarter of 2000 compared to $0.24
in the second quarter of 1999. Diluted cash earnings per share
increased 40% to $0.60 for the six months ended June 30, 2000 compared
to $0.43 in the 1999 period.
Total assets at June 30, 2000 increased to $827.2 million from
$728.5 million at December 31, 1999. Asset growth during the period was
primarily in loans which, before the allowance for loan losses,
increased $88.6 million, or 14%. Deposit balances increased $90.9
million, or 17%, during the first six months of 2000. Certificates of
deposit increased $90.7 million representing the majority of the net
deposit growth during the period. This growth was a result of
certificate of deposit promotions during the first six months of 2000.
Non-interest bearing deposits also increased $14.1 million during the
first six months of 2000, while NOW accounts decreased $6.6 million and
money market accounts decreased $7.4 million during the period.
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Net Interest Income. Net interest income for the three months
ended June 30, 2000 was $7.5 million, a 22% increase compared to $6.2
million reported for the second quarter of 1999. This $1.3 million
increase was attributable to an increase of $163.7 million in average
earning assets and a 71 basis point increase in the yield on earning
assets. The $4.7 million increase in interest income was partially
offset by a $3.4 million increase in interest expense. The increase in
interest expense was the result of a $167.6 million increase in average
interest bearing liabilities and an increase of 84 basis points in the
average interest rate paid between the periods.
Net interest margin for the second quarter of 2000 decreased 20
basis points compared to the second quarter of 1999. The earning assets
yield increased 71 basis points while the overall interest rate paid on
interest bearing deposits increased 84 basis points. The net interest
spread decreased 12 basis points in the second quarter of 2000 compared
to the second quarter of 1999.
Interest expense on deposits increased $2.3 million due to a
$115.0 million increase in average interest bearing deposits and due to
an increase in the rate paid on deposits from 4.57% in the second
quarter of 1999 to 5.30% for the comparable period in 2000. The
increase in interest expense on deposits consisted primarily of a $2.1
million increase in interest expense on certificates of deposit and a
$207,000 increase in interest expense on money market and NOW accounts.
The average balance of certificates of deposit increased by $118.0
million from the second quarter of 2000 compared to the second quarter
of 1999 and average money market and NOW accounts decreased $1.2
million. We have continued to build our deposit base while maintaining
our focus on personal service. The growth in certificates of deposit
was the result of special promotions of these products during the first
half of 2000.
Interest expense on other interest bearing liabilities increased
$1.1 million in the second quarter of 2000 compared to the same quarter
of 1999. We issued $17.2 million of trust preferred securities in
August 1999 and the interest expense in the second quarter of 2000 on
these securities totaled $442,000. Average short- and long-term
borrowings also increased $35 million in the second quarter of 2000
compared to the second quarter of the prior year. The average rate on
short-term borrowings increased 93 basis points, while the rate paid on
long-term borrowings in the second quarter of 2000 compared to the
second quarter of 1999 increased 34 basis points.
Net interest income for the six months ended June 30, 2000 was
$17.9 million, a 47% increase compared to the $12.2 million reported for
the corresponding period in 1999. This $5.7 million increase was
attributable to an increase of $151.1 million in average earning assets
and a 54 basis point increase in the yield on earning assets. The $8.4
million increase in interest income was partially offset by a $5.7
million increase in interest expense. The increase in interest expense
was the result of a $149.8 million increase in average interest bearing
liabilities and an increase of 64 basis points in the average interest
rate paid.
Net interest margin for the first six months of 2000 decreased 14
basis points compared to the corresponding period in 1999. The earning
assets yield increased 54 basis points while the overall interest rate
paid on interest bearing deposits increased 54 basis points. The net
interest spread decreased 10 basis points comparing the first six months
of 2000 to the first six months of 1999.
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The following tables set 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 June 30,
------------------------------------------------------------------------------------
2000 1999
--------------------------------------- ---------------------------------------
Average Int.Earned/ Yield/ Average Int.Earned/ Yield/
Balance Paid Rate Balance Paid Rate
-------- ----------- ------ -------- ----------- ------
Assets: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans<F1> $691,452 $16,085 9.36% $529,146 $11,471 8.70%
Taxable investment securities 55,250 882 6.42 54,588 793 5.81
Non-taxable investment securities<F2> 3,940 56 5.72 1,750 21 4.80
Federal funds sold and overnight
investments 350 6 6.89 1,851 23 4.98
-------- ------- -------- -------
Total interest earning assets 750,992 17,029 9.12 587,335 12,308 8.41
-------- ------- -------- -------
Non-interest earning assets:
Cash and due from banks 15,751 11,365
Premises and equipment 9,878 10,867
Other assets 39,722 20,834
Allowance for loan losses (9,230) (6,874)
-------- --------
Total assets $807,113 $623,527
======== ========
Liabilities and shareholders' equity:
Interest bearing liabilities:
Money market and NOW accounts $178,399 $ 2,015 4.54% $179,635 $ 1,808 4.04%
Savings deposits 13,219 69 2.10 14,942 80 2.15
Certificates of deposit 277,543 4,036 5.85 190,086 2,431 5.13
Certificates of deposit over $100,000 55,338 738 5.36 29,525 347 4.71
IRA certificates 24,305 375 6.21 19,567 272 5.58
-------- ------- -------- -------
Total interest bearing deposits 548,804 7,233 5.30 433,755 4,938 4.57
-------- ------- -------- -------
Federal funds purchased, repurchase
agreements and other short-term
borrowings 99,068 1,462 5.94 51,760 647 5.01
Other borrowings 25,915 407 6.32 37,879 565 5.98
Guaranteed preferred beneficial
interest in subordinated debentures 17,250 442 10.31 - - -
-------- ------- -------- -------
Total interest bearing liabilities 691,037 9,544 5.55 523,394 6,150 4.71
-------- ------- -------- -------
Non-interest bearing liabilities and
equity:
Demand deposits 62,629 49,786
Other liabilities 4,568 654
Shareholders' equity 48,879 49,693
-------- --------
Total liabilities and shareholders'
equity $807,113 $623,527
======== ========
Net interest income $ 7,485 $ 6,158
======= =======
Net interest spread 3.57% 3.69%
Net interest margin 4.01 4.21
<FN>
-----------------
<F1> Average balances include non-accrual loans.
<F2> Presented at actual yield rather than tax-equivalent yield.
</TABLE>
10
<PAGE>
<PAGE>
<TABLE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
<CAPTION>
Six Months Ended June 30,
------------------------------------------------------------------------------------
2000 1999
--------------------------------------- ---------------------------------------
Average Int.Earned/ Yield/ Average Int.Earned/ Yield/
Balance Paid Rate Balance Paid Rate
-------- ----------- ------ -------- ----------- ------
Assets: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans<F1> $666,929 $30,683 9.25% $518,547 $22,545 8.77%
Taxable investment securities 56,953 1,790 6.32 52,912 1,548 5.85
Non-taxable investment securities<F2> 3,115 84 5.42 1,583 38 4.80
Federal funds sold and overnight
investments 1,415 41 5.83 4,316 102 4.77
-------- ------- -------- -------
Total interest earning assets 728,412 32,598 9.00 577,358 24,233 8.46
-------- ------- -------- -------
Non-interest earning assets:
Cash and due from banks 14,877 13,409
Premises and equipment 9,859 10,917
Other assets 33,543 22,243
Allowance for loan losses (8,883) (6,601)
-------- --------
Total assets $777,808 $617,326
======== ========
Liabilities and shareholders' equity:
Interest bearing liabilities:
Money market and NOW accounts $176,456 $ 3,911 4.46% $167,413 $ 3,339 4.02%
Savings deposits 13,150 137 2.10 14,910 159 2.15
Certificates of deposit 262,396 7,473 5.73 191,368 5,005 5.27
Certificates of deposit over $100,000 55,424 1,465 5.32 31,488 746 4.78
IRA certificates 22,841 691 6.08 19,121 545 5.75
-------- ------- -------- -------
Total interest bearing deposits 530,267 13,677 5.19 424,300 9,794 4.65
-------- ------- -------- -------
Federal funds purchased, repurchase
agreements and other short-term
borrowings 89,886 2,526 5.65 51,847 1,286 5.00
Other borrowings 27,591 857 6.25 39,070 1,158 5.98
Guaranteed preferred beneficial
interest in subordinated debentures 17,250 885 10.32 - - -
-------- ------- -------- -------
Total interest bearing liabilities 664,994 17,945 5.43 515,217 12,238 4.79
-------- ------- -------- -------
Non-interest bearing liabilities and
equity:
Demand deposits 60,009 50,786
Other liabilities 4,380 2,316
Shareholders' equity 48,425 49,007
-------- --------
Total liabilities and shareholders'
equity $777,808 $617,326
======== ========
Net interest income $14,653 $11,995
======= =======
Net interest spread 3.57% 3.67%
Net interest margin 4.05 4.19
<FN>
----------------
<F1> Average balances include non-accrual loans.
<F2> Presented at actual yield rather than 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 changes 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 June 30, 2000 Six Months Ended June 30, 2000
Compared to the Compared to the
Quarter Ended June 30, 1999 Six Months Ended June 30, 1999
------------------------------------ ------------------------------------
Net Net
Volume Rate Change Volume Rate Change
------ ------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans $3,700 $ 914 $4,614 $6,832 $1,360 $8,138
Taxable investment securities 9 80 89 118 124 242
Non-taxable securities 31 4 35 42 4 46
Federal funds sold and
other investments (22) 5 (17) (80) 19 (61)
------ ------ ------ ------ ------ ------
Total interest income 3,718 1,003 4,721 6,912 1,453 8,365
------ ------ ------ ------ ------ ------
Interest paid on:
Money market and
NOW accounts (14) 221 207 189 383 572
Savings deposits (9) (2) (11) (18) (4) (22)
Certificates of deposit 1,230 375 1,605 1,994 474 2,468
Certificates of deposit
over $100,000 339 52 391 626 93 719
IRA certificates 70 33 103 113 33 146
Federal funds purchased and
other short-term borrowings 678 137 815 1,054 186 1,240
Long-term borrowings (188) 30 (158) (351) 50 (301)
Guaranteed preferred beneficial
interests in subordinated
debentures 442 - 442 885 - 885
------ ------ ------ ------ ------ ------
Total interest expense 2,548 846 3,394 4,492 1,215 5,707
------ ------ ------ ------ ------ ------
Net interest income $1,170 $ 157 $1,327 $2,420 $ 238 $2,658
====== ====== ====== ====== ====== ======
<FN>
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 amount of the changes in each.
</TABLE>
12
<PAGE>
<PAGE>
Other Income. Other income increased $423,000, or 36%, to $1.6
million for the three months ended June 30, 2000 compared to the second
quarter of 1999. Service charge income for the three-month period ended
June 30, 2000 increased $175,000, or 109%, compared to the second
quarter of 1999. Overdraft fee income for the three-month period ended
June 30, 2000 increased $134,000, or 57%, compared to the second quarter
of 1999. The increases in these two categories were attributable to an
increased deposit base and our focus on revenue enhancement programs.
In March 2000, we made an investment in bank-owned life insurance that
resulted in $213,000 of income for the second quarter of 2000. For the
quarter ended June 30, 2000, mortgage banking revenue was $57,000
compared to $278,000 for the quarter ended June 30, 1999. The change
was the result of a general slow-down in mortgage refinancings.
Other income increased by $418,000, or 17%, from $2.4 million to
$2.9 million for the six months ended June 30, 1999 and 2000,
respectively. The reasons underlying the variations in other income
categories discussed above for the three-month periods also were
applicable to the year-to-date amounts.
Other Expenses. For the three months ended June 30, 2000 compared
to the second quarter of 1999, other expenses increased $922,000, or
20%, to $5.6 million from $4.7 million. The increase in other expenses
includes increased salaries and benefit expense and the costs associated
with opening of our new branches in Ballwin and Chesterfield, Missouri.
Salaries and employee benefits increased 19% to $2.9 million for
the three months ended June 30, 2000 compared to $2.4 million for the
three months ended June 30, 1999. We had 219 full-time equivalent
employees at June 30, 2000 compared to 223 full-time equivalent
employees at June 30, 1999. Total annualized cost per full-time
equivalent employee was $52,384 for the three months ended June 30, 2000
compared to $43,186 for the corresponding period of 1999.
Expenses associated with premises and equipment also increased for
the quarter ended June 30, 2000 compared to the second quarter of 1999,
with occupancy expense increasing $44,000, or 13%, and furniture and
equipment increasing $12,000, or 3%. The increases in these expense
categories were directly related to additional costs associated with our
Ballwin and Chesterfield branches. Advertising and business development
expenses increased by $172,000 for the second quarter of 2000 compared
to the second quarter of 1999 as we increased our efforts to attract new
business.
Our efficiency ratio was 61% for the quarter ended June 30, 2000
compared to 63% for the second quarter of 1999. This improvement
reflected our commitment to improving our overall efficiency by
continuing to emphasize revenue growth, while maintaining control over
our operating costs as we continue to expand our banking franchise.
For the six months ended June 30, 2000, other expenses increased
$1.0 million, or 11%, to $10.5 million from $9.5 million for the
corresponding period in 1999. The variance in expense categories
discussed above for the six-month periods also were applicable to the
year-to-date amounts. Our efficiency ratio was 60% for the first six
months of 2000 compared to 66% for the six months ended June 30, 1999.
13
<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 June 30, 2000, held-to-maturity securities amounted to
$6.6 million, representing those securities we intended to hold to
maturity. Securities designated as available-for-sale totaled $54.4
million, representing securities which we may sell to meet liquidity
needs or in response to significant changes in interest rates or
prepayment patterns.
For purposes of this discussion, held-to-maturity and available-
for-sale securities are described as the securities portfolio. At June
30, 2000, the securities portfolio totaled $61.0 million, an increase of
$171,000 from December 31, 1999. We maintain a conventional short-term
laddered portfolio investment strategy to afford adequate liquidity
while minimizing interest rate risk.
The carrying values of the securities portfolio at the dates
indicated were as follows:
<TABLE>
INVESTMENT SECURITIES PORTFOLIO
<CAPTION>
June 30, December 31, June 30,
2000 1999 1999
-------- ------------ --------
(In thousands)
<S> <C> <C> <C>
U.S. government and agency securities $38,001 $39,024 $40,392
State and municipal securities 8,338 4,794 2,224
Mortgage-backed securities 9,257 9,397 9,889
Federal Home Loan Bank stock 4,936 7,124 3,574
Other securities 436 458 494
------- ------- -------
Total investment securities $60,968 $60,797 $56,573
======= ======= =======
</TABLE>
14
<PAGE>
<PAGE>
Loans. Loans historically have been the primary component of
earning assets. At June 30, 2000, loans totaled $703.8 million, an
increase of 14% from year-end 1999. Substantially all of these loans
were originated in our market area. At June 30, 2000, we had no foreign
loans and only a minimal amount of participations purchased.
Multi-family and commercial real estate mortgage loans increased
$31.1 million, or 13%, during the first six months of 2000. The increase
in these loans reflects our continued efforts to grow our commercial
loan portfolio, including loans originated by our expanded commercial
lending staff. The second largest increase in loans involved real estate
construction loans, which increased $26.8 million, or 41% at June 30,
2000 as compared to December 31, 1999. The increase was primarily due to
loans made to home builders. As a result of this emphasis, real estate
construction loans comprised 13% of the loan portfolio at June 30, 2000,
compared to 11% at December 31, 1999. Multi-family and commercial real
estate mortgage loans comprised 38% of the portfolio at both June 30,
2000 and year-end 1999.
The following table summarizes the composition of our loan
portfolio at the dates indicated:
<TABLE>
LENDING AND CREDIT MANAGEMENT
<CAPTION>
June 30, December 31, June 30,
2000 1999 1999
------------------------ ------------------------ ------------------------
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 $154,699 21.98% $150,259 24.42% $138,802 25.53%
Real estate - construction 92,070 13.08 65,310 10.62 50,508 9.29
Real estate - mortgage
One- to four-family residential 163,107 23.18 141,264 22.96 117,604 21.63
Multi-family and commercial 266,219 37.83 235,158 38.22 216,984 39.92
Consumer and other 28,540 4.06 24,152 3.93 20,460 3.76
Less unearned income (870) (0.12) (952) (0.15) 731 (0.13)
-------- ------ -------- ------ -------- ------
Total loans<F1> $703,765 100.00% $615,191 100.00% $543,627 100.00%
======== ====== ======== ====== ======== ======
<FN>
---------------
<F1> We had no outstanding foreign loans at the dates reported.
</TABLE>
Asset Quality. Non-performing assets consist of the following:
non-accrual 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 increased to $1.2 million at June
30, 2000 compared to $1.0 million at December 31, 1999. At June 30,
2000, non-performing assets represented 0.15% of total assets compared
to 0.14% at December 31, 1999. Non-accrual loans totaled $744,000 at
June 30, 2000 compared to $606,000 at December 31, 1999.
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.
15
<PAGE>
<PAGE>
The following table summarizes, at the date presented, non-
performing assets by category:
<TABLE>
RISK ELEMENTS - NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<CAPTION>
June 30, December 31, June 30,
2000 1999 1999
-------- ------------ --------
(Dollars in thousands)
<S> <C> <C> <C>
Commercial, financial, agricultural,
municipal and industrial development:
Past due 90 days or more $ - $ - $ 116
Non-accrual 399 379 483
Restructured terms - - -
Real estate - construction
Past due 90 days or more - - -
Non-accrual - - -
Restructured terms - - -
Real estate - mortgage
One- to four-family residential
Past due 90 days or more 81 22 51
Non-accrual 113 178 146
Restructured terms - - -
Multi-family and commercial
Past due 90 days or more - - -
Non-accrual - - 18
Restructured terms - - -
Consumer and other, net of unearned
income:
Past due 90 days or more 4 - -
Non-accrual 232 49 19
Restructured terms - - -
-------- -------- ------
Total non-performing loans 829 628 833
Other real estate 392 402 40
-------- -------- ------
Total non-performing assets $ 1,221 $ 1,030 $ 873
======== ======== ======
Ratios:
Non-performing loans to total loans outstanding 0.12% 0.10% 0.15%
Non-performing assets to total assets 0.15 0.14 0.14
Non-performing loans to shareholders' equity 1.69 1.31 1.60
Allowance for loan losses to total loans 1.36 1.35 1.30
Allowance for loan losses to non-performing loans 1,155.61 1,324.20 850.54
</TABLE>
16
<PAGE>
<PAGE>
Allowance for Loan Losses. The provision for loan losses was $1.6
million during the first six months of 2000 compared to $1.0 million for
the first six months of 1999. Net charge-offs were $300,000 for the six
months ended June 30, 2000 compared to $369,000 for the first six months
of 1999. Net charge-offs for the first six months of 2000 represented
0.05% of average loans, compared to 0.07% of average loans for the first
six months of 1999.
The allowance for loan losses increased to $9.6 million at June
30, 2000 compared to $7.1 million at June 30, 1999. As a percentage of
loans outstanding, the allowance represented 1.36% of loans at June 30,
2000, 1.35% at December 31, 1999 and 1.30% at June 30, 1999.
The higher expense provision and the higher allowance percentage
were the result of the continuing change in the composition of the loan
portfolio and the shift in our lending focus to higher yielding
commercial relationships. This shift, while providing higher earnings
potential, does entail greater risk than traditional residential
mortgage loans. Additional weight has been given to the increased risks
associated with the commercial real estate portfolio. Specific
allowances have been increased on certain commercial real estate loans
based on individual reviews of these loans and an estimate of the
borrower's ability to repay the loan given the availability of
collateral, other sources of cash flow and collection options available
to us. The specific review of these commercial real estate loans
resulted in the increase in the percentage of allowances allocated to
this loan category.
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 and the evaluation of potential problem loans
identified based on existing circumstances known to management. 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 was adequate to absorb
potential losses inherent in the portfolio at June 30, 2000.
17
<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>
Six Months Ended
June 30,
-----------------------
2000 1999
-------- --------
(In thousands)
<S> <C> <C>
Allowance for loan losses
(beginning of period) $ 8,315 $ 6,442
Loans charged off:
Commercial, financial, agricultural,
municipal and industrial development (189) (243)
Real estate - construction - -
Real estate - mortgage
One- to four-family residential (27) (112)
Multi-family and commercial - -
Consumer and other (116) (71)
-------- --------
Total loans charged off (332) (426)
-------- --------
Recoveries of loans previously charged off:
Commercial, financial, agricultural,
municipal and industrial development 7 7
Real estate - construction - -
Real estate - mortgage
One- to four-family residential 12 42
Multi-family and commercial - -
Consumer and other 13 8
-------- --------
Total recoveries 32 57
-------- --------
Net loans charged off (300) (369)
-------- --------
Provision for loan losses 1,565 1,012
-------- --------
Allowance for loan losses (end of period) $ 9,580 $ 7,085
======== ========
Loans outstanding:
Average $666,929 $518,547
End of period 703,765 543,628
Ratios:
Net charge-offs to average loans outstanding 0.05% 0.07%
Net charge-offs to provision for loans losses 19.23 36.36
Provision for loan losses to average loans outstanding 0.23 0.20
Allowance for loan loss to total loans outstanding 1.36 1.30
</TABLE>
18
<PAGE>
<PAGE>
Deposits. Total deposits increased $90.9 million, or 17%, during
the first six months of 2000. The increase in deposits consisted
primarily of a $90.7 million increase in certificates of deposit. Much
of this growth was the result of certificate of deposit promotions
during the first six months of 2000. Non-interest bearing deposits
increased by $14.1 million, or 27%, to $66 million at June 30, 2000
while our NOW and money market accounts decreased by $14.0 million, or
8%, during the first six months of 2000. We have been successful in
expanding our deposit base while maintaining our focus on personal
service. Our lending officers have increased commercial deposits while
our retail banking staff continues efforts to increase our core
deposits.
The following table summarizes deposits as of the dates indicated:
<TABLE>
DEPOSIT LIABILITY COMPOSITION
<CAPTION>
June 30, December 31, June 30,
2000 1999 1999
------------------------ ------------------------ ------------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 65,925 10.31% $ 51,845 9.45% $ 49,997 10.21%
NOW accounts 17,831 2.79 24,492 4.47 20,614 4.21
Money market accounts 153,292 23.97 160,701 29.30 171,535 35.02
Savings deposits 13,264 2.07 13,052 2.38 14,706 3.00
Certificates of deposit 302,273 47.28 229,700 41.88 178,379 36.42
Certificates of deposit
over $100,000 62,523 9.78 47,550 8.67 33,232 6.78
IRA certificates 24,298 3.80 21,126 3.85 21,353 4.36
-------- ------ -------- ------ -------- ------
Total deposits $639,406 100.00% $548,466 100.00% $489,816 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
19
<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 and maintenance of our capital base.
The growth of the deposit base is internally generated through product
pricing and product development. During the first six months of 2000
and the year ended December 31, 1999, both of these elements contributed
to developing and maintaining long-term liquidity. Our capital position
has been maintained through earnings retention 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 $99.0 million secured credit facility
with the Federal Home Loan Bank, of which $89.2 million and $80.4
million were outstanding at June 30, 2000 and December 31, 1999,
respectively.
Average short-term borrowings increased $38.0 million during the
first six months of 2000 while average long term borrowings decreased
$11.5 million. The net increase in borrowings reflected our 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 14% during the first six
months of 2000, while deposits increased 17% during the same period. We
continue to emphasize growth in stable core deposits and utilized the
Federal Home Loan Bank, federal funds purchased and brokered
certificates of deposit as necessary to balance liquidity and cost-
effectiveness. We closely monitor our level of liquidity to meet
expected future needs.
Capital Resources. Total shareholders' equity was $49.1 million at
June 30, 2000, compared to $48.0 million at year-end 1999. The increase
in total equity was the result of earnings retention, partially offset
by treasury stock purchased and dividends paid.
By March 31, 2000, we had completed our previously announced share
repurchase program and had repurchased a total of 554,715 shares of our
common stock at a cost of $5.6 million. The shares repurchased included
235,715 shares in a privately negotiated transaction and all of the
319,000 shares approved in September 1999 under the repurchase program.
Our capital requirements historically have been financed through
offerings of debt and equity securities, retained earnings and
borrowings from a commercial bank. Allegiant Bank also utilizes its
borrowing capacity with the Federal Home Loan Bank. The principal
amount of our term loan was $13.2 million as of June 30, 2000, and
matures in November 2001.
20
<PAGE>
<PAGE>
During 1999 we purchased brokered certificates of deposit in order
to fund loan growth and meet other liquidity needs. At June 30, 2000,
we had $54.0 million outstanding which matures on various dates through
December 1, 2000. We may use brokered deposits in the future as a
source of liquidity.
In August 1999, we and our wholly-owned subsidiary, Allegiant
Capital Trust I, a Delaware statutory business trust, issued $17.2
million of trust preferred securities. Allegiant Capital Trust invested
all the proceeds from the sale of the trust preferred securities in our
junior subordinated debentures. We used a portion of the net proceeds
of $16.2 million from the sale of the junior subordinated debentures to
infuse $8.0 million of capital into Allegiant Bank, to repay
approximately $2.5 million of corporate indebtedness consisting of $2.0
million under a revolving line of credit and a $0.5 million principal
repayment on term debt. We also are using the proceeds for general
corporate purposes, and may use them in the future to repurchase shares
of our common stock.
We also analyze our capital and the capital position of our bank
in terms of regulatory risked-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.
Our management believes that, as of June 30, 2000, we and our
subsidiaries met all capital adequacy requirements. We will seek to
maintain a strong equity base while executing our controlled expansion
plans.
As of June 30, 2000, December 31, 1999 and June 30, 1999,
Allegiant's and Allegiant Bank's capital ratios were as follows:
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999 June 30, 1999
-------------------------- --------------------------- ---------------------------
Allegiant Allegiant Bank Allegiant Allegiant Bank Allegiant Allegiant Bank
--------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to risk-weighted assets) 9.47% 11.00% 10.23% 11.52% 8.37% 10.50%
Tier 1 capital
(to risk-weighted assets) 8.12 9.74 8.80 10.27 7.12 9.25
Tier 1 capital
(to average assets) 6.93 8.33 7.47 8.89 6.26 8.11
</TABLE>
21
<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 for the year ended December 31, 1999.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our 2000 annual meeting of shareholders was held on April 20, 2000.
Of 6,121,851 shares issued, outstanding and eligible to be voted at
the meeting, holders of 5,213,203 shares, constituting a quorum, were
represented in person or by proxy at the meeting. Two matters were
submitted to a vote of the security holders at the meeting.
1. ELECTION OF CLASS III DIRECTORS. The first matter submitted was
the election of three Class III director nominees to our board of
directors, each to continue in office until the year 2003. Our
Articles of Incorporation, as amended, allow cumulative voting in all
director elections and all shareholders were accordingly allowed to
cumulate their votes for directors if they so desired. Upon tabulation
of the votes cast, it was determined that all three director nominees
had been elected. The voting results are set forth below:
NAME FOR WITHHELD
---- --- --------
Marvin S. Wool 5,155,931 57,271
C. Virginia Kirkpatrick 5,132,506 80,697
Leon A. Felman 5,091,239 121,964
Because our company has a staggered board, the term of office of
the following named Class I and Class II directors, who were not up for
election at the 2000 annual meeting, continued after the meeting:
CLASS I (TO CONTINUE IN OFFICE UNTIL 2001)
------------------------------------------
Kevin R. Farrell
Jack K. Krause
Lee S. Wielansky
CLASS II (TO CONTINUE IN OFFICE UNTIL 2002)
-------------------------------------------
Leland B. Curtis
Shaun R. Hayes
John L. Weiss
2. ADOPTION OF THE ALLEGIANT BANCORP, INC. 2000 STOCK INCENTIVE PLAN.
The second matter, a proposal to adopt the Allegiant Bancorp, Inc. 2000
Stock Incentive Plan, was approved by an affirmative vote of a majority
of the shares that were issued, outstanding and eligible to vote. The
voting results on this matter were as follows:
FOR AGAINST ABSTAIN
--- ------- -------
3,485,219 261,495 58,871
22
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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 June 30, 2000. We did file a Form 8-K on August 1,
2000 to report our execution of a definitive agreement to
acquire Equality Bancorp, Inc.
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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)
August 8, 2000 By: /s/ Thomas A. Daiber
----------------------------------------
Thomas A. Daiber, Senior Vice President
and Chief Financial Officer
24
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
10.1 Option Agreement, dated as of July 26, 2000, by and
between Allegiant Bancorp, Inc. and Equality Bancorp,
Inc., filed as Exhibit 1.2 to Allegiant Bancorp,
Inc.'s Current Report on Form 8-K dated August 1,
2000, is incorporated herein by reference.
10.2 Agreement and Plan of Merger, dated as of July 26,
2000, by and among Allegiant Bancorp, Inc., Allegiant
Acquisition Corporation and Equality Bancorp, Inc.,
filed as Exhibit 1.2 to Allegiant Bancorp, Inc.'s
Current Report on Form 8-K dated August 1, 2000, is
incorporated herein by reference.
10.3 Form of Voting Agreements, dated July 26, 2000, included
as Exhibit B to the Agreement and Plan of Merger, filed
as Exhibit 1.2 to Allegiant Bancorp, Inc.'s Current
Report on Form 8-K dated August 1, 2000, is incorporated
herein by reference.
11.1 Computation of Earnings Per Share
27 Financial Data Schedule for the six months ended June
30, 2000
25
