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, 2001
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Commission file number 0-10849
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ALLEGIANT BANCORP, INC.
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(Exact name of registrant as specified in its charter)
MISSOURI 43-1262037
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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)
SOUTHSIDE BANCSHARES CORP.
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(Former Name)
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 1, 2001
--------------------------------- --------------------------------------------
Common stock, $0.01 par value 14,961,075
ALLEGIANT BANCORP, INC.
FORM 10-Q
On September 28, 2001, Allegiant Bancorp, Inc., a Missouri
corporation ("Allegiant"), acquired Southside Bancshares Corp., a Missouri
corporation ("Southside"). Under the Agreement and Plan of Merger, dated
April 30, 2001, as amended July 31, 2001, by and between Allegiant and
Southside (the "Merger Agreement"), the form of the transaction required
Allegiant to merge with and into Southside. However, Allegiant was, in all
practical respects, the entity surviving the Merger and immediately after
the Merger, Southside changed its name to "Allegiant Bancorp, Inc." As such,
for purposes of the financial information and other information set forth
herein, Allegiant is treated as the acquiror of Southside and the entity
surviving the merger.
INDEX
Page
PART 1. FINANCIAL INFORMATION.............................................1
ITEM 1. FINANCIAL STATEMENTS...........................................1
CONSOLIDATED BALANCE SHEETS - SEPTEMBER 30, 2001 AND 2000
(UNAUDITED) AND DECEMBER 31, 2000....................................1
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - THREE MONTHS AND
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000........................2
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) - NINE
MONTHS ENDED SEPTEMBER 30, 2001......................................3
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - NINE MONTHS
ENDED SEPTEMBER 30, 2001 AND 2000....................................4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS...................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..............................................8
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
AND INTEREST RATES - THREE MONTHS ENDED SEPTEMBER 30, 2001..........12
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS'
EQUITY AND INTEREST RATES - NINE MONTHS ENDED SEPTEMBER 30, 2001....13
RATE/VOLUME ANALYSIS - QUARTER AND NINE MONTHS ENDED SEPTEMBER 30,
2001 AND 2000.......................................................14
INVESTMENT SECURITIES PORTFOLIO.......................................16
LENDING AND CREDIT MANAGEMENT.........................................17
RISK ELEMENTS - NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS..........18
SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION...............20
DEPOSIT LIABILITY COMPOSITION - SEPTEMBER 30, 2001 AND 2000, AND
DECEMBER 31, 2000...................................................21
LIQUIDITY MANAGEMENT AND CAPITAL RESOURCES............................22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........25
PART II. OTHER INFORMATION..................................................25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................25
SIGNATURES............................................................26
EXHIBIT INDEX.........................................................27
i
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLEGIANT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
September 30, September 30,
2001 December 31, 2000
(Unaudited) 2000 (Unaudited)
-------------- ------------- -------------
(Dollars in thousands, except per share amounts)
ASSETS:
Cash and due from banks................................... $ 59,783 $ 30,942 $ 17,422
Federal funds sold and overnight investments.............. 47,735 16,201 15,632
Investment securities:
Available-for-sale (at estimated market value)......... 385,348 129,096 58,365
Held-to-maturity (estimated market value of
$28,854, $5,207 and $5,232, respectively)............ 28,852 5,200 5,410
Loans, net of allowance for loan losses of
$19,692, $11,433 and $10,013, respectively............. 1,410,755 802,538 730,657
Loans held for sale....................................... 14,000 88,983 -
Premises and equipment ................................... 42,408 18,487 9,827
Accrued interest and other assets ........................ 72,594 33,446 27,923
Cost in excess of fair value and net assets acquired...... 66,081 10,831 11,012
-------------- ------------- ------------
Total assets......................................... $ 2,127,556 $ 1,135,724 $ 876,248
============== ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non-interest bearing................................... $ 177,999 $ 86,012 $ 68,918
Interest bearing....................................... 1,205,695 693,362 517,690
Certificates of deposit of $100,000 or more............ 178,303 78,710 71,100
-------------- ------------- ------------
Total deposits............................................ 1,561,997 858,084 657,708
-------------- ------------- ------------
Federal Home Loan Bank advances........................... 288,123 143,596 65,200
Short-term borrowings..................................... 52,116 31,355 65,538
Long-term debt............................................ - - 12,650
Guaranteed preferred beneficial interests in
subordinated debentures................................ 57,250 17,250 17,250
Accrued expenses and other liabilities.................... 21,917 7,633 5,502
-------------- ------------- ------------
Total liabilities.................................... 1,981,403 1,057,918 823,848
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Shareholders' equity:
Common Stock, $0.01 par value - authorized
20,000,000 shares; issued and outstanding
14,881,581 shares, 8,897,111 shares and
6,211,348 shares, respectively....................... 154 94 67
Capital surplus........................................ 121,002 60,798 43,686
Retained earnings...................................... 22,903 16,195 14,427
Accumulated other comprehensive income (loss).......... 2,094 719 (165)
Treasury stock, at cost, 0 shares, 0 shares
and 554,775 shares, respectively..................... - - (5,615)
-------------- ------------- ------------
Total shareholders' equity............................. 146,153 77,806 52,400
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Total liabilities and shareholders' equity........... $ 2,127,556 $ 1,135,724 $ 876,248
============== ============= ============
See Notes to Condensed Consolidated Financial Statements.
1
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
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2001 2000 2001 2000
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(In thousands, except share and per share data)
Interest income:
Interest and fees on loans........................ $ 18,723 $ 17,265 $ 57,052 $ 47,948
Investment securities............................. 2,920 1,008 7,784 2,881
Federal funds sold and
overnight investments........................... 52 31 860 73
----------- ----------- ----------- ------------
Total interest income................................ 21,695 18,304 65,696 50,902
----------- ----------- ----------- ------------
Interest expense:
Interest on deposits.............................. 9,433 8,126 30,037 21,803
Interest on short-term borrowings................. 1,500 1,424 4,520 3,950
Interest on long-term debt........................ 1,224 491 2,970 1,349
Interest on guaranteed preferred beneficial
interests in subordinated debentures............ 442 443 1,327 1,327
----------- ----------- ----------- ------------
Total interest expense............................... 12,599 10,484 38,854 28,429
----------- ----------- ----------- ------------
Net interest income.................................. 9,096 7,820 26,842 22,473
Provision for loan losses............................ 2,000 735 3,700 2,300
----------- ----------- ----------- ------------
Net interest income after provision
for loan losses................................... 7,096 7,085 23,142 20,173
----------- ----------- ----------- ------------
Other income:
Service charges and other fees.................... 986 807 2,932 2,187
Net gain on sale of securities.................... 1,810 32 2,725 205
Other income...................................... 1,408 747 4,672 2,054
----------- ----------- ----------- ------------
Total other income................................... 4,204 1,586 10,329 4,446
----------- ----------- ----------- ------------
Other expenses:
Salaries and employee benefits.................... 3,940 2,696 11,439 8,075
Occupancy and furniture and equipment............. 1,022 807 3,062 2,429
Other operating expenses.......................... 2,147 2,291 6,091 5,796
----------- ----------- ----------- ------------
Total other expenses................................. 7,109 5,794 20,592 16,300
----------- ----------- ----------- ------------
Income before income taxes........................... 4,191 2,877 12,879 8,319
Provision for income taxes........................... 1,294 1,173 4,617 3,394
----------- ----------- ----------- ------------
Net income........................................... $ 2,897 $ 1,704 $ 8,262 $ 4,925
=========== =========== =========== ============
Per share data:
Net income
Basic........................................... $ 0.32 $ 0.28 $ 0.93 $ 0.81
Diluted......................................... 0.32 0.28 0.92 0.80
Weighted average common shares outstanding:
Basic........................................... 8,955,753 6,105,124 8,910,966 6,105,821
Diluted......................................... 9,141,781 6,124,764 9,002,177 6,133,655
See Notes to Condensed Consolidated Financial Statements.
2
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
Accumulated
Other Total
Common Capital Retained Comprehensive Shareholders' Comprehensive
Stock Surplus Earnings Income Equity Income
------ ---------- --------- -------------- ------------- -------------
(In thousands)
Balance December 31, 2000............. $ 94 $ 60,798 $ 16,195 $ 719 $ 77,806
Net income............................ - - 8,262 - 8,262 $ 8,262
Change in net unrealized gains
on available-for-sale securities... - - - 1,375 1,375 1,375
---------
Comprehensive income.................. - - - - - $ 9,637
=========
Issuance of common stock.............. 2 1,907 - - 1,909
Merger related recapitalization....... (1) (921) - - (922)
Acquisition of Southside Bancshares,
Corp. ............................. 59 59,218 - - 59,277
Dividends............................. - - (1,554) - (1,544)
------ ---------- --------- ----------- -----------
Balance September 30, 2001............ $ 154 $ 121,002 $ 22,903 $ 2,094 $ 146,153
====== ========== ========= =========== ===========
Reclassification adjustments:
Unrealized gains on
available-for-sale securities.... $ 4,100
Less:
Reclassification adjustment for
gains realized included in net
income......................... 2,725
-----------
Net unrealized gains on
available-for-sale securities.... $ 1,375
===========
3
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
--------------------------------
2001 2000
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(In thousands)
OPERATING ACTIVITIES:
Net income..................................................... $ 8,262 $ 4,925
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization.............................. 2,192 1,949
Provision for loan losses.................................. 3,700 2,300
Net gain on sale of fixed assets........................... (41) (10)
Net realized gains on securities held-to-maturity.......... - (6)
Net realized gains on securities available-for-sale........ (2,724) (199)
Net gain on sale of mortgage loans......................... (20) -
Other changes in assets and liabilities:
Accrued interest receivable and other assets............. (11,310) (346)
Accrued expenses and other liabilities................... 9,663 2,438
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Cash provided by operating activities.................. 9,722 11,051
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INVESTING ACTIVITIES:
Net cash received in acquisition of Equality Bancorp, Inc...... (922) -
Net cash received in acquisition of Southside Bancshares Corp.. (4,129) -
Proceeds from maturities of securities held-to-maturity........ 917 5,594
Proceeds from sales of securities held-to-maturity............. - 1,083
Purchase of investment securities held-to-maturity............. - (500)
Proceeds from maturities of securities available-for-sale...... 46,160 3,997
Proceeds from sales of securities available-for-sale........... 60,480 13,267
Purchase of investment securities available-for-sale........... (172,036) (25,395)
Loans made to customers, net of repayments..................... (155,779) (126,081)
Proceeds from sale of mortgage loans........................... 67,432 -
Purchase of bank-owned life insurance.......................... (5,803) (15,464)
Additions to premises and equipment............................ (2,476) (1,158)
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Cash used in investing activities...................... (166,156) (144,570)
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FINANCING ACTIVITIES:
Net increase in deposits....................................... 94,771 109,242
Net increase in short-term borrowings.......................... 46,354 26,668
Net increase of long-term debt................................. 35,000 4,999
Repayment of long-term debt.................................... 329 -
Proceeds from issuance of guaranteed preferred
beneficial interest in subordinated debentures............... 40,000 -
Proceeds from issuance of common stock......................... 1,909 1,314
Repurchase of common stock..................................... - (1,439)
Payment of dividends........................................... (1,554) (980)
------------- -------------
Cash provided by financing activities.................. 216,809 139,804
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Net increase in cash and cash equivalents...................... 60,375 6,285
Cash and cash equivalents, beginning of period................. 47,143 26,769
------------- -------------
Cash and cash equivalents, end of period....................... $ 107,518 $ 33,054
============= =============
See Notes to Condensed Consolidated Financial Statements.
4
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 our subsidiaries. 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 we state specifically that it means only the parent holding
company. Also, sometimes we refer to Allegiant Bank, Bank of Ste. Genevieve,
Bank of St. Charles County and State Bank of Jefferson County, our bank
subsidiaries, as the "banks."
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, 2001 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2001.
The balance sheet at December 31, 2000 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, 2000 and the consolidated financial
statements and footnotes thereto included in the final joint proxy
statement/prospectus on Form S-4 filed August 7, 2001.
Under the Merger Agreement, the form of the transaction required
Allegiant to merge with and into Southside. However, Allegiant was, in all
practical respects, the entity surviving the Merger and immediately after
the Merger, Southside changed its name to "Allegiant Bancorp, Inc." As such,
for purposes of the financial information and other information set forth
herein, Allegiant is treated as the acquiror of Southside and the entity
surviving the merger.
Comprehensive Income
During the third quarter of 2001 and 2000, total comprehensive
income amounted to $2.9 million and $2.3 million, respectively. Year-to-date
comprehensive income for the first nine months of 2001 and 2000 was $9.6
million and $5.5 million, respectively.
Acquisitions
In November 2000, we acquired Equality Bancorp, Inc. Equality
Bancorp was the parent company of Equality Savings Bank, a Missouri
state-chartered savings bank headquartered in St. Louis with seven
locations, primarily in the Southern half of the greater St. Louis, Missouri
metropolitan area. We exchanged approximately 2.7 million shares of our
common stock for all
5
of the outstanding common stock of Equality Bancorp. At closing, Equality
Bancorp reported total assets of $300 million.
On September 28, 2001, we acquired Southside Bancshares Corp.
("Southside"). Before the acquisition, Southside was a bank holding company
with four subsidiary banks in and around St. Louis, Missouri, which at
closing reported consolidated total assets of approximately $763 million.
Under the terms of the agreement, one half of the Southside shares were
converted into the right to receive cash in the amount of $14 per share and
the other half into the right to receive 1.39 shares of Allegiant stock per
share. Under the terms of the agreement, we exchanged a total of
approximately 5.9 million shares of Allegiant common stock plus $59 million
in cash for all of the outstanding common stock of Southside. The form of
merger consideration receivable by the Southside shareholders was allocated
by the exchange agent as outlined in the Merger Agreement. The issuance of
Allegiant shares and cash to the former Southside Shareholders was completed
on November 2, 2001. We financed the cash portion of the purchase price
through the issuance of trust preferred securities and bank borrowings.
The merger with Southside has been accounted for in accordance with
Statements of Accounting Standards No. 141, Business Combinations and No.
142, Goodwill and Other Intangible Assets, which are discussed under
"Recently Issued Accounting Standards."
As previously reported, on August 22, 2001, we signed an agreement
with Guardian Savings Bank, headquartered in Houston, Texas, to purchase
Guardian's five branch offices in St. Louis County, Missouri. We will
acquire the branch facilities and assume approximately $101.3 million in
related deposit liabilities. We expect to close on this transaction in
December 2001.
Derivative Financial Instruments
We use off-balance sheet derivatives as part of the overall asset
and liability management process and to manage risk related to changes in
interest rates. These financial derivatives consist of interest rate swaps.
As of January 1, 2001, we adopted Financial Accounting Standards
Board Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, which was issued in September 1998, and its amendments,
Statement 137, Accounting for Derivative Instruments and Hedging Activities
- Deferral of the Effective Date of FASB Statement No. 133 and Statement
138, Accounting for Derivative Instruments and Certain Hedging Activities
issued in September 1999 and September 2000, respectively (collectively
referred to as "Statement 133"). The adoption of Statement 133 applies to
our derivative financial instruments which include four interest rate swap
contracts. The interest rate swaps hedge certificate of deposits (CD's) and
are matched with the CD's as to final maturity, interest payment dates and
call features. The interest rate swaps are a floating pay-fixed instrument
and as such, they convert the fixed rate payment on the CD's to a floating
rate and thus hedge the fair value of the CD's from changes in interest
rates.
Upon adoption of Statement 133, the cumulative effect of an
accounting change in an amount equal to the accounting effects of the
statement as of the beginning of the fiscal year was immaterial.
6
During the three-month and nine-month periods ended September 30,
2001, our Company recorded the effects of the ineffectiveness of all hedge
transactions as part of the income statement line pertaining to each item.
The after-tax effect of the changes was immaterial to our consolidated
financial statements as of September 30, 2001 and for the period then ended.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 140 ("SFAS 140"),
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, was issued September 2000 and provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. SFAS 140 is effective for
transfers and servicing of financial assets and extinguishments of
liabilities after March 31, 2001. Also, it is effective for recognition and
reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. Management has not yet quantified the effect, if any, of
this new standard on the consolidated financial statements.
In 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to impairments tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
estimated useful lives.
The Company will apply the new rules on accounting for goodwill and
other intangible assets beginning in the first quarter of 2002. Application
of the nonamortization provisions of the Statement is expected to result in
an increase in pre tax net income of $948,000 ($0.06 per share) per year
which represents the annual amount of goodwill from previous acquisitions
that was being amortized. The intangible assets from the Southside
acquisition included $45.5 million in goodwill that will not be amortized
and $10.5 million in core deposit intangible assets that will be amortized
over their estimated useful lives. During 2002, the Company will perform the
first of the required impairment tests of goodwill and indefinite lived
intangible assets as of January 1, 2002 and has not yet determined what the
effect of those tests will be on the future consolidated earnings and
financial position of the Company. If for any future period we determine
that there have been impairment in the carrying value of our goodwill
balances, we will record a charge to our earnings, which could have a
material adverse effect on our net income.
7
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
Allegiant 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, we accept 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 we 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 we caution shareholders that management's view of the future
on which it prices our products, evaluates collateral, sets loan reserves
and estimates costs of operation and regulation may prove to be other than
anticipated.
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. Under recently adopted accounting rules, we will be
required to periodically evaluate the carrying value of our goodwill
balances to determine whether the value has been impaired. If we determine
that there has been an impairment, we recognize a charge to our earnings,
which could be material.
Our net interest income depends 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.
OVERVIEW
We are a bank holding company headquartered in St. Louis,
Missouri. Our bank subsidiaries, Allegiant Bank, Bank of Ste. Genevieve, Bank
of St. Charles County and State Bank of Jefferson County, offer full-service
banking and personal trust services to individuals, commercial business and
municipalities in the St. Louis metropolitan area. Our services include
commercial, real estate and installment loans, checking, savings and time
deposit accounts, personal trust and other fiduciary services and other
financial services such as securities
8
brokerage, insurance and safe deposit boxes. As of September 30, 2001, we
reported, on a consolidated basis, total assets of $2.1 billion, loans of
$1.4 billion, deposits of $1.6 billion and shareholders' equity of $146.2
million.
Since our inception in 1989, we have grown rapidly through a
combination of internal growth and acquisitions of other financial
institutions. Our internal growth has been achieved by positioning Allegiant
as one of the leading St. Louis community banking operations. We have
supplemented our growth by acquiring 10 branch locations in our community
from three different thrifts, with the primary goals of expanding our branch
network in the St. Louis market and increasing our earnings per share. We
have also acquired a mortgage company and an asset management firm. In
December 1998, we sold four branches located in more rural markets in
northeast Missouri, in order to focus our operations exclusively in the
St. Louis metropolitan area. In November 2000, we acquired Equality Bancorp,
Inc. a community-based thrift holding company with seven branches in the
St. Louis area and total assets of approximately $300.4 million. While this
transaction significantly improved our market coverage, the consolidation of
the branch networks also allowed us to increase our average deposits per
branch, which we believe to be key to improving efficiency. As a
continuation of our acquisition strategy, we acquired Southside Bancshares
Corp., another community-based bank holding company serving the St. Louis
area, with total assets at September 28, 2001 of approximately $763.0
million. In addition, we have agreed to acquire five branch facilities in
the St. Louis area from Guardian Savings Bank and assume approximately
$101.3 million in related deposit liabilities.
Since the beginning of 1998, we have focused on 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 and
have increased our amount of higher yielding commercial loans. We have hired
approximately 22 banking professionals averaging more than 10 years of
experience in the St. Louis metropolitan area to help grow our commercial
loans and deposits. We have concentrated our focus exclusively on
opportunities in the higher-growth St. Louis metropolitan area and,
accordingly, have opened new branches, acquired Equality and Southside and
have entered into an agreement to purchase Guardian's five branch offices in
St. Louis County, Missouri. We also have implemented company-wide cost-control
efforts to enhance efficiencies at our entire operations. These steps taken
since the beginning of 1998 have improved our efficiency, return on average
assets, return of average equity and earnings per share.
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 have sought to maintain high asset quality while managing growth both
internally and by acquisition.
RESULTS OF OPERATIONS
Net income for the three months ended September 30, 2001 was $2.9
million, a 71% increase over the $1.7 million earned for the third quarter
of 2000. Basic and diluted earnings per share increased 14% to $0.32 for the
third quarter of 2001 compared to $0.28 for the third quarter of 2000. The
annualized return on average assets for the third quarter of 2001 was 0.94%
compared to 0.81% reported for the third quarter of 2000. The return on
average equity on an annualized basis was 13% for both the third quarter of
2001 and the third quarter of 2000.
9
Net income for the nine-month period ended September 30, 2001 was
$8.3 million, a 69% increase over the $4.9 million earned for the nine-month
period ended September 30, 2000. Basic earnings per share increased 15% to
$0.93 from $0.81, and diluted earnings per share increased 15% to $0.92 from
$0.80 in the respective nine-month periods. The annualized return on average
assets was 0.94% and the annualized return on average equity was 13% for the
nine months ended September 30, 2001. This compares to, on an annualized
basis, a return on average assets of 0.82% and a return on average equity of
13% for the corresponding period in 2000.
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 $712,000, respectively, for both of the three- and nine-month
periods ended September 30, 2001 and 2000. Cash net income, which adjusts
earnings to exclude goodwill amortization, was $3.1 million and $9.0
million, respectively, for the three and nine months ended September 30,
2001, and $1.9 million and $5.6 million, respectively, for the three and
nine months ended September 30, 2000, respectively. Diluted cash earnings
per share increased 6% to $0.34 in the third quarter of 2001 from $0.32 in
the third quarter of 2000. Diluted cash earnings per share increased 9% to
$1.00 for the nine months ended September 30, 2001 from $0.92 in the 2000
period. Under recently adopted accounting rules, we will be required to
periodically evaluate the carrying value of our goodwill balances to
determine whether the value has been impaired. If we determine that there
has been an impairment, we will recognize a charge to our earnings, which
could be material.
Total assets at September 30, 2001 increased to $2.1 billion from
$1.1 billion at December 31, 2000 as a result of the Southside acquisition
and continued internal growth. Loans increased $616 million and investment
securities increased $280 million. Deposit balances increased $704 million
during the first nine months of 2001.
Net Interest Income. Net interest income for the three months ended
September 30, 2001 was $9.1 million, a 17% increase compared to $7.8 million
reported for the third quarter of 2000. This $1.3 million increase was
attributable to an increase of $361.0 million in average earning assets
partially offset by an 176 basis point decrease in the yield on earning
assets. The $3.4 million increase in interest income was partially offset by
a $2.1 million increase in interest expense. The increase in interest
expense was the result of a $330.6 million increase in average interest
bearing liabilities offset by a decrease of 104 basis points in the average
interest rate paid between the periods.
Net interest margin for the third quarter of 2001 decreased 81
basis points compared to the third quarter of 2000. The earning assets yield
decreased 176 basis points and the overall interest rate paid on interest
bearing deposits decreased 104 basis points. Accordingly, the net interest
spread decreased 72 basis points in the third quarter of 2001 compared to
the third quarter of 2000.
Interest expense on deposits increased $1.3 million due to a $242.7
million increase in average interest bearing deposits, offset by a decrease
in the rate paid on deposits from 5.60% in the third quarter of 2000 to
4.56% for the comparable quarter in 2001. The increase in interest expense
on deposits consisted primarily of a $1.1 million increase in interest
expense on certificates of deposit. The average balance of our certificate
of deposit liability increased by $136.7 million from the third quarter of
2001 to the third quarter of 2000. We have continued to build our deposit
base while maintaining our focus on personal service. The growth in average
10
balance of certificates of deposit was the result of special promotions of
these products during 2000 and these higher cost deposits began to be
repriced in the third quarter of 2001.
Interest expense on other interest bearing liabilities increased
$0.8 million in the third quarter of 2001 compared to the third quarter of
2000. Average short- and long-term borrowings also increased $87.8 million
in the third quarter of 2001 compared to the third quarter of the prior
year. The average rate on short-term borrowings decreased 138 basis points,
while the rate paid on long-term borrowings in the third quarter of 2001
decreased 52 basis points compared to the third quarter of 2000.
Net interest income for the nine months ended September 30, 2001
was $26.8 million, a 19% increase compared to the $22.5 million reported for
the corresponding period in 2000. This $4.3 million increase was
attributable to an increase of $338.5 million in average earning assets and
a 101 basis point decrease in the yield on earning assets. The $14.8 million
increase in interest income was partially offset by a $10.4 million increase
in interest expense. The increase in interest expense was the result of a
$309.6 million increase in average interest bearing liabilities and
partially offset by a decrease of 33 basis points in the average interest
rate paid. The growth in income was primarily attributable to the acquisition
of Equality in November 2000, as well as internally generated growth.
Net interest margin for the first nine months of 2001 decreased
71 basis points compared to the corresponding period in 2000. The earning
assets yield decreased 101 basis points primarily due to the effect of a
decrease in the yield on floating interest rate loans. The overall interest
rate paid on interest bearing deposits decreased 29 basis points primarily
due to the lower deposit rates being paid on deposits in 2001. Accordingly,
the net interest spread decreased 68 basis points comparing the first nine
months of 2001 to the first nine months of 2000.
11
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.
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
Three Months Ended September 30,
---------------------------------------------------------------------
2001 2000
--------------------------------- --------------------------------
Average Int. Earned/ Yield/ Average Int. Earned/ Yield/
Balance Paid Rate Balance Paid Rate
----------- ------------ ------ ----------- ------------ ------
(Dollars in thousands)
Assets:
Interest earning assets:
Loans (1)................................. $ 945,153 $ 18,723 7.86% $ 721,734 $ 17,265 9.52%
Taxable investment securities............. 191,222 2,836 5.88 57,342 929 6.45
Non-taxable investment securities (2)..... 5,963 84 5.59 5,263 79 5.97
Federal funds sold and overnight
investments............................ 5,427 52 3.80 2,416 31 5.10
----------- ---------- ----------- ----------
Total interest earning assets........ 1,147,765 21,695 7.50 786,755 18,304 9.26
----------- ---------- ----------- ----------
Non-interest earning assets:
Cash and due from banks................... 24,495 16,339
Premises and equipment.................... 19,432 9,885
Other assets.............................. 51,044 39,918
Allowance for loan losses................. (12,216) (9,805)
----------- -----------
Total assets......................... $ 1,230,520 $ 843,092
=========== ===========
Liabilities and shareholders' equity:
Interest bearing liabilities:
Money market and NOW accounts............. $ 231,976 $ 1,821 3.11% $ 172,822 $ 2,018 4.65%
Savings deposits.......................... 59,367 502 3.35 12,466 65 2.07
Certificates of deposit................... 370,879 4,927 5.27 303,191 4,718 6.19
Certificates of deposit over $100,000..... 112,037 1,398 4.95 65,136 935 5.71
IRA certificates.......................... 46,133 785 6.75 24,034 390 6.46
----------- ---------- ----------- ----------
Total interest bearing deposits...... 820,392 9,433 4.56 577,649 8,126 5.60
----------- ---------- ----------- ----------
Federal funds purchased, repurchase
agreements and other short-term
borrowings............................. 127,510 1,500 4.67 93,653 1,424 6.05
Other borrowings.......................... 83,529 1,224 5.81 30,860 491 6.33
Guaranteed preferred beneficial
interests in subordinated debentures... 18,554 442 9.45 17,250 443 10.22
----------- ---------- ----------- ----------
Total interest bearing liabilities... 1,049,985 12,599 4.76 719,412 10,484 5.80
----------- ---------- ----------- ----------
Non-interest bearing liabilities and
equity:
Demand deposits........................... 86,214 67,222
Other liabilities......................... 6,664 5,423
Shareholders' equity...................... 87,657 51,035
----------- -----------
Total liabilities and shareholders'
equity............................. $ 1,230,520 $ 843,092
=========== ===========
Net interest income...................... $ 9,096 $ 7,820
========== ==========
Net interest spread......................... 2.74% 3.46%
Net interest margin......................... 3.14 3.95
--------------
(1) Average balances include non-accrual loans.
(2) Presented at actual yield rather than tax equivalent yield.
12
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.
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
Nine Months Ended September 30,
---------------------------------------------------------------------
2001 2000
--------------------------------- --------------------------------
Average Int. Earned/ Yield/ Average Int. Earned/ Yield/
Balance Paid Rate Balance Paid Rate
----------- ------------ ------ ----------- ------------ ------
(Dollars in thousands)
Assets:
Interest earning assets:
Loans (1).................................. $ 900,451 $ 57,052 8.47% $ 685,331 $ 47,948 9.35%
Taxable investment securities.............. 157,110 7,537 6.41 57,249 2,719 6.34
Non-taxable investment securities (2)...... 5,941 247 5.56 3,670 162 5.90
Federal funds sold and overnight
investments............................. 22,994 860 5.00 1,751 73 5.57
----------- ---------- ----------- ----------
Total interest earning assets......... 1,086,496 65,696 8.08 748,001 50,902 9.09
----------- ---------- ----------- ----------
Non-interest earning assets:
Cash and due from banks.................... 25,463 15,368
Premises and equipment..................... 19,356 9,868
Other assets............................... 48,230 35,679
Allowance for loan losses.................. (11,955) (9,192)
----------- -----------
Total assets.......................... $ 1,167,590 $ 799,724
=========== ===========
Liabilities and shareholders' equity:
Interest bearing liabilities:
Money market and NOW accounts.............. $ 219,909 $ 5,979 3.64% $ 175,236 $ 5,929 4.52%
Savings deposits........................... 38,903 790 2.72 12,920 202 2.09
Certificates of deposit.................... 396,939 17,127 5.77 276,094 12,190 5.90
Certificates of deposit over $100,000...... 95,390 3,808 5.34 58,685 2,400 5.46
IRA certificates........................... 45,988 2,333 6.78 23,242 1,082 6.22
----------- ---------- ----------- ----------
Total interest bearing deposits....... 797,129 30,037 5.04 546,177 21,803 5.33
----------- ---------- ----------- ----------
Federal funds purchased, repurchase
agreements and other short-term
borrowings.............................. 112,125 4,520 5.39 91,151 3,950 5.79
Other borrowings........................... 65,926 2,970 6.02 28,688 1,349 6.28
Guaranteed preferred beneficial
interests in subordinated debentures.... 17,690 1,327 10.03 17,250 1,327 10.28
----------- ---------- ----------- ----------
Total interest bearing liabilities.... 992,870 38,854 5.23 683,266 28,429 5.56
----------- ---------- ----------- ----------
Non-interest bearing liabilities and
equity:
Demand deposits............................ 83,831 62,430
Other liabilities.......................... 7,368 4,727
Shareholders' equity....................... 83,521 49,301
----------- -----------
Total liabilities and shareholders'
equity.............................. $ 1,167,590 $ 799,724
=========== ===========
Net interest income..................... $ 26,842 $ 22,473
========== ==========
Net interest spread......................... 2.85% 3.53%
Net interest margin......................... 3.30 4.01
---------------
(1) Average balances include non-accrual loans.
(2) Presented at actual yield rather than tax equivalent yield.
13
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.
RATE/VOLUME ANALYSIS
Quarter Ended September 30, 2001 Nine Months Ended September 30, 2001
Compared to the Compared to the
Quarter Ended September 30, 2000 Nine Months Ended September 30, 2000
------------------------------------ ------------------------------------
Net Net
Volume Rate Change Volume Rate Change
------ ---- ------ ------ ---- ------
(In thousands)
Interest earned on:
Loans............................... $ 4,801 $ (3,343) $ 1,458 $ 13,957 $ (4,853) $ 9,104
Taxable investment securities....... 2,000 (91) 1,909 4,789 29 4,818
Non-taxable securities.............. 10 (7) 3 96 (11) 85
Federal funds sold and
other investments................ 31 (10) 21 796 (9) 787
--------- -------- --------- -------- -------- ---------
Total interest income............... 6,842 (3,451) 3,391 19,638 (4,844) 14,794
--------- -------- --------- -------- -------- ---------
Interest paid on:
Money market and
NOW accounts..................... 579 (781) (202) 1,340 (1,284) 56
Savings deposits.................... 375 61 436 514 75 589
Certificates of deposit............. 981 (767) 214 5,206 (277) 4,929
Certificates of deposit
over $100,000.................... 603 (140) 463 1,465 (55) 1,410
IRA certificates.................... 379 17 396 1,146 104 1,250
Federal funds purchased and
other short-term borrowings...... 444 (368) 76 859 (289) 570
Long-term borrowings................ 778 (45) 733 1,680 (59) 1,621
Guaranteed preferred beneficial
interests in subordinated
debentures....................... 31 (32) (1) 35 (35) -
--------- -------- --------- -------- -------- ---------
Total interest expense.............. 4,170 (2,055) 2,115 12,245 (1,820) 10,425
--------- -------- --------- -------- -------- ---------
Net interest income................. $ 2,672 $ (1,396) $ 1,276 $ 7,393 $ (3,024) $ 4,369
========= ======== ========= ======== ======== =========
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.
14
Other Income. Other income increased $2.6 million, or 165%, to $4.2
million for the three months ended September 30, 2001 compared to the third
quarter of 2000. Included in other income was $1.8 million from gains on the
sale of securities as we repositioned our investment securities portfolio in
anticipation of the Southside acquisition. Service charge income for the
three-month period ended September 30, 2001 increased $179,000, or 22.2%,
compared to the third quarter of 2000. This increase was 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 $217,000 of income for the third quarter of 2000 and $298,000 in the
third quarter of 2001. For the quarter ended September 30, 2001, mortgage
banking revenue was $681,000 compared to $136,000 for the quarter ended
September 30, 2000. The change was the result of an increase in mortgage
refinancings as a result of lower overall market interest rates and from the
acquisition of Equality's mortgage operations in November 2000.
Other income increased $5.9 million, or 134%, from $4.4 million to
$10.3 million for the nine months ended September 30, 2000 and 2001,
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 September 30, 2001
compared to the third quarter of 2000, other expenses increased $1.3
million, or 22%, to $7.1 million from $5.8 million. The increase in other
expenses was primarily due to increased salaries and benefit expense and the
costs associated with operating the branches acquired from Equality in
November 2000.
Salaries and employee benefits increased 46% to $3.9 million for
the three months ended September 30, 2001 compared to $2.7 million for the
three months ended September 30, 2000. We had 319 full-time equivalent
employees at September 30, 2001 compared to 214 full-time equivalent
employees at September 30, 2000. Total annualized cost per full-time
equivalent employee was $49,404 for the three months ended September 30,
2001 compared to $50,311 for the corresponding period of 2000.
Expenses associated with premises and equipment increased by
$215,000 or 27%, for the quarter ended September 30, 2001 compared to the
third quarter of 2000. The increases in these expense categories were
directly related to additional costs associated with the former Equality
branches.
Our efficiency ratio was 53.5% for the quarter ended September 30,
2001 compared to 61.6% for the third quarter of 2000. 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 nine months ended September 30, 2001, other expenses
increased $4.3 million or 26%, to $20.6 million from $16.3 million for the
corresponding period in 2000. The variances in expense categories discussed
above for the three-month periods also applicable to the year-to-date
amounts. Our efficiency ratio was 55.4% for the first nine months of 2001
compared to 60.6% for the nine months ended September 30, 2000.
15
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, 2001, held-to-maturity securities amounted to $28.9
million, representing those securities we intend to hold to maturity.
Securities designated as available-for-sale totaled $385.3 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, we refer to held-to-maturity and
available-for-sale securities as the securities portfolio. At September 30,
2001, the securities portfolio totaled $414.2 million representing an
increase of $279.9 million from December 31, 2000 primarily due to the
Southside acquisition. 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:
INVESTMENT SECURITIES PORTFOLIO
September 30, December 31, September 30,
2001 2000 2000
------------- ------------- -------------
(In thousands)
U.S. government and agency securities............ $ 159,897 $ 49,591 $ 44,242
State and municipal securities................... 38,012 8,276 8,284
Mortgage-backed securities....................... 194,643 64,584 5,721
Federal Home Loan Bank stock..................... 15,228 9,463 4,936
Other securities................................. 6,420 2,382 592
------------- ------------- -------------
Total investment securities...................... $ 414,200 $ 134,296 $ 63,775
============= ============= =============
Loans. Loans historically have been the primary component of
our earning assets. At September 30, 2001, loans totaled $1.4 billion, an
increase of 76% from year-end 2000. The majority of this increase was a
result of the Southside acquisition. Substantially all of our loans were
originated in our market area. At September 30, 2001, we had no foreign
loans and only a minimal amount of participations purchased.
Multi-family and commercial real estate mortgage loans increased
93% during the first nine months of 2001 to $571.9 million and commercial
loans increased 61% to $266.3 million. In addition to the Southside
acquisition, the internal loan growth reflected our continued efforts to
grow our commercial loan portfolio. Real estate construction loans increased
$39.4 million, or 32%, at September 30, 2001 compared to December 31, 2000.
Real estate construction loans comprised 13% of the loan portfolio at
September 30, 2001, compared to 15% at December 31, 2000. Multi-family and
commercial real estate mortgage loans comprised 40% of the portfolio at
September 30, 2001 and 36% at year-end 2000.
16
The following table summarizes the composition of our loan
portfolio at the dates indicated:
LENDING AND CREDIT MANAGEMENT
September 30, December 31, September 30,
2001 2000 2000
---------------------- ---------------------- ----------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------------ -------- ----------- -------- ----------- --------
(Dollars in thousands)
Commercial, financial,
agricultural, municipal and
industrial development............ $ 266,254 20.49% $ 165,107 20.28% $ 133,387 18.01%
Real estate - construction........... 163,902 12.79 124,517 15.30 119,898 16.19
Real estate - mortgage
One- to four-family residential... 351,889 21.59 193,490 23.77 171,904 23.21
Multi-family and commercial....... 571,859 40.31 295,678 36.33 287,845 38.86
Consumer and other................... 77,398 4.92 35,975 4.42 28,481 3.84
Less unearned income................. (855) (0.10) (796) (0.10) (845) (0.11)
------------ ------- ----------- ------- ----------- -------
Total loans(1).................. $ 1,430,447 100.00% $ 813,971 100.00% $ 740,670 100.00%
============ ======= =========== ======= =========== =======
--------------
(1) We had no outstanding foreign loans at the dates reported.
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; loans past due 90 days or more as
to principal or interest; and other real estate owned. Non-performing assets
increased to $17.9 million at September 30, 2001 compared to $9.3 million at
June 30, 2001 and $3.3 million at December 31, 2000. At September 30, 2001,
non-performing assets represented 0.84% of total assets compared to 0.80% at
June 30, 2001 and 0.29% at December 31, 2000. The non-performing assets
include $5.3 million added due to the Southside acquisition. Non-accrual
loans totaled $15.9 million at September 30, 2001 compared to $6.9 million
at June 30, 2001 and $814,000 at December 31, 2000. Two loan relationships
account for $7.5 million or 42% of the non-performing loans at September 30,
2001. Allegiant Bank is working with these two borrowers to liquidate the
loans and is aggressively working to collect all non-performing assets.
We continually analyze our loan portfolio to identify potential
risk elements. The loan portfolio is reviewed by lending management and the
banks' internal loan review staff. As an integral part of their examination
process, the various regulatory agencies periodically review our allowance
for loan losses.
17
The following table summarizes, at the date presented, non-performing
assets by category:
RISK ELEMENTS - NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
September 30, December 31, September 30,
2001 2000 2000
------------- ------------ -------------
(Dollars in thousands)
Commercial, financial, agricultural, municipal and industrial
development:
Past due 90 days or more................................. $ 83 $ 752 $ 274
Non-accrual.............................................. 6,132 222 683
Restructured terms....................................... 55 - -
Real estate - construction
Past due 90 days or more................................. 173 15 -
Non-accrual.............................................. 2,800 - 250
Restructured terms....................................... - - -
Real estate - mortgage
One- to four-family residential
Past due 90 days or more................................. 410 1,179 63
Non-accrual.............................................. 1,558 414 100
Restructured terms....................................... - - -
Multi-family and commercial
Past due 90 days or more................................. 95 304 80
Non-accrual.............................................. 5,275 - -
Restructured terms....................................... 99 - -
Consumer and other, net of unearned income:
Past due 90 days or more................................. 68 59 15
Non-accrual.............................................. 172 178 187
Restructured terms....................................... - - -
------------- ------------ -------------
Total non-performing loans.................................... 16,920 3,123 1,652
Other real estate............................................. 1,018 191 235
------------- ------------ -------------
Total non-performing assets................................... $ 17,938 $ 3,314 $ 1,887
============= ============ =============
Ratios:
Non-performing loans to total loans outstanding.......... 1.18% 0.38% 0.22%
Non-performing assets to total assets.................... 0.84 0.29 0.22
Non-performing loans to shareholders' equity............. 11.58 4.01 3.15
Allowance for loan losses to total loans................. 1.38 1.40 1.35
Allowance for loan losses to non-performing loans........ 116.38 366.09 606.11
18
Allowance for Loan Losses. The provision for loan losses was $3.7
million during the first nine months of 2001 compared to $2.3 million for
the first nine months of 2000. Net charge-offs were $2.9 million for the
nine months ended September 30, 2001 compared to $602,000 for the first nine
months of 2000. Net charge-offs for the first nine months of 2001
represented 0.33% of average loans, compared to 0.09% of average loans for
the first nine months of 2000.
The allowance for loan losses increased to $19.7 million at
September 30, 2001 compared to $10.0 million at September 30, 2000 and
included the balance of the allowance of $7.5 million transferred from
Southside. As a percentage of loans outstanding, the allowance represented
1.38% of loans at September 30, 2001 and 1.35% at September 30, 2000.
We increased our loan loss provision to $2.0 million for the
quarter ended September 30, 2001 compared to $735,000 in third quarter of
2000. In 2001, we continue to recognize a higher expense provision and a
higher allowance percentage than prior years as a result of the continuing
change in the composition of the loan portfolio, the shift in our lending
focus to higher yielding commercial relationships and the current economic
situation. The shift to a higher concentration of commercial loans, 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, is high and that our allowance was
adequate to absorb potential losses inherent in the portfolio at September
30, 2001.
19
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.
SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION
Nine Months Ended
September 30,
--------------------------------
2001 2000
------------- -------------
(In thousands)
Allowance for loan losses
(beginning of period)........................................ $ 11,433 $ 8,315
Loans charged off:
Commercial, financial, agricultural,
municipal and industrial development....................... (1,698) (332)
Real estate - construction................................... (1,092) (29)
Real estate - mortgage
One- to four-family residential............................ (150) (49)
Multi-family and commercial................................ (410) -
Consumer and other........................................... 117 (232)
------------- -------------
Total loans charged off......................................... (3,233) (642)
------------- -------------
Recoveries of loans previously charged off:
Commercial, financial, agricultural,
municipal and industrial development....................... 392 9
Real estate - construction................................... - -
Real estate - mortgage
One- to four-family residential............................ 163 12
Multi-family and commercial................................ 32 -
Consumer and other........................................... 11 19
------------- -------------
Total recoveries................................................ 298 40
------------- -------------
Net loans charged off........................................... (2,935) (602)
Acquired subsidiaries balances.................................. 7,494 -
Provision for loan losses....................................... 3,700 2,300
------------- -------------
Allowance for loan losses (end of period)....................... $ 19,692 $ 10,013
============= =============
Loans outstanding:
Average..................................................... $ 900,451 $ 685,331
End of period............................................... 1,430,447 740,670
Ratios:
Net charge-offs to average loans outstanding................. 0.33% 0.09%
Net charge-offs to provision for loan losses................. 79.32 26.17
Provision for loan losses to average loans outstanding....... 0.41 0.34
Allowance for loan losses to total loans outstanding......... 1.38 1.35
20
Deposits. Total deposits increased $703.9 million, or 82%, during
the first nine months of 2001 primarily due to the Southside acquisition as
supplemented by internal deposit growth of approximately $102.4 million.
Non-interest bearing deposits increased by $92.0 million, or 107%, to $178.0
million at September 30, 2001. NOW, savings and money market accounts
increased by $302.1 million or 129%. Certificates of deposit increased
$309.8 million. We have been able to internally grow our deposits by
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:
DEPOSIT LIABILITY COMPOSITION
September 30, December 31, September 30,
2001 2000 2000
------------------------ ------------------------ ------------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------------- -------- ------------- -------- ------------- --------
(Dollars in thousands)
Demand deposits.............. $ 177,999 11.40% $ 86,012 10.02% $ 68,918 10.48%
NOW accounts................. 101,959 6.53 32,802 3.83 18,819 2.86
Money market accounts........ 297,184 19.03 173,602 20.23 156,761 23.83
Savings deposits............. 137,635 8.81 28,238 3.29 12,209 1.86
Certificates of deposit...... 580,116 37.14 413,163 48.15 306,455 46.59
Certificates of deposit
over $100,000............. 178,303 11.41 78,710 9.17 71,100 10.81
IRA certificates............. 88,801 5.68 45,557 5.31 23,446 3.57
------------- ------- ------------- ------- ------------- -------
Total deposits.......... $ 1,561,997 100.00% $ 858,084 100.00% $ 657,708 100.00%
============= ======= ============= ======= ============= =======
21
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 has been attributable to acquisitions, as well as internally
generated through marketing, product pricing and product development. During
the nine months ended September 30, 2001 and the year ended December 31,
2000, 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 serves as 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 area 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 $308 million secured credit facility with the Federal
Home Loan Bank, under which $288 million was outstanding at September 30,
2001. At December 31, 2000, we had $143 million outstanding with the Federal
Home Loan Bank.
Short-term borrowings increased to $180 million at September 30,
2001 while long-term borrowings increased to $160 million. The increases
include the effect of the Southside acquisition and we continue to utilize
Federal Home Loan Bank borrowings to fund loan growth while systematically
building our deposit base. We anticipate similar use of the Federal Home
Loan Bank facility in the foreseeable future.
We experienced a growth in assets of 87% during the first nine
months of 2001 primarily due to the Southside acquisition. We also
experienced internal growth as we continue to emphasize growth in stable
core deposits while utilizing 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
in view of expected future needs.
Capital Resources. Total shareholders' equity was $146 million at
September 30, 2001, compared to $78 million at year-end 2000. The increase
in total equity primarily was the result of 5.9 million shares of common
stock issued in the Southside acquisition plus earnings retention and
increases in net unrealized gains on available-for-sale securities.
Our capital requirements historically have been financed through
offerings of debt and equity securities, retained earnings and a bank term
loan. We refinanced and increased the principal amount of our term loan by
$25.3 million in connection with the Southside acquisition. The balance of
the loan was $38.0 million as of September 30, 2001, and matures in
September 2002. Allegiant Bank also utilizes its borrowing capacity with the
Federal Home Loan Bank.
We previously have purchased brokered certificates of deposit in
order to fund loan growth and meet other liquidity needs. At September 30,
2001, we had no brokered deposits outstanding. We may use brokered deposits
in the future as a source of liquidity.
22
In September 2001, we completed a public offering of 1,600,000 9.0%
Cumulative Trust Preferred Securities. We used the proceeds from the sale of
the junior subordinated debentures, after payment of expenses of
approximately $1.7 million, toward our acquisition of Southside. The Trust
Preferred Securities were issued by our subsidiary, Allegiant Capital Trust
II, a Delaware statutory business trust. The Trust Preferred Securities have
a liquidation amount of $25 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.
The trust utilized the proceeds from the sale of the trust
preferred securities to purchase at par approximately $41.3 million
aggregate principal amount of 9.0% junior subordinated debentures issued by
us. The junior subordinated debentures bear interest at the rate of 9.0% per
annum, payable quarterly, and mature in September 2031, subject to earlier
repayment at our option at a date no earlier than September 2006. 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 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.
Dividends paid during the third quarter of 2001 were $0.06 per
share, an increase of 9% compared to the $0.055 per share paid for the third
quarter of 2000. Our dividend payout ratio was 18.8% for the first nine
months of 2001.
We also analyze our capital and the capital position of our banks
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
September 30, 2001, 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 September 30, 2001, December 31, 2000 and September 30, 2000,
Allegiant's and Allegiant Bank's capital ratios were as follows:
September 30, 2001 December 31, 2000 September 30, 2000
-------------------------- ------------------------- -------------------------
Allegiant Allegiant Bank Allegiant Allegiant Bank Allegiant Allegiant Bank
--------- -------------- --------- -------------- --------- --------------
Total capital
(to risk-weighted assets).. 10.07% 10.98% 10.79% 11.65% 9.41% 10.78%
Tier 1 capital
(to risk-weighted assets).. 8.82 9.78 9.53 10.40 8.16 9.53
Tier 1 capital
(to average assets)........ 11.64 8.16 8.71 9.50 7.06 8.27
23
As of September 30, 2001, the capital ratios of the four subsidiary
banks acquired from Southside were as follows:
Southside Bank of State Bank of Bank of
National Bank Ste. Genevieve Jefferson County St. Charles County
------------- -------------- ---------------- ------------------
Total capital
(to risk-weighted assets)........ 11.23% 19.42% 15.34% 13.59%
Tier 1 capital
(to risk-weighted assets)........ 9.98 18.17 14.46 12.58
Tier 1 capital
(to average assets).............. 7.90 12.07 10.65 11.15
24
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, 2000.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting held on September 12, 2001, the shareholders
of our company approved a proposal to issue shares of our common stock in
connection with the consummation of the transactions contemplated by the
Merger Agreement including, among other things, our acquisition of Southside
Bancshares Corp. and its subsidiary banks, Southside National Bank, Bank Of
Ste. Genevieve, Bank of St. Charles County and State Bank of Jefferson County.
The proposal was approved by the affirmative vote of the holders of more than
two-thirds of the shares of our common stock that were present at such meeting
and received the requisit shareholder approval under Missouri law. The
voting results on this matter were as follows:
For Against Abstain
--- ------- -------
6,418,978 82,706 21,455
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: See Exhibit Index attached hereto.
b) Reports on Form 8-K:
We filed a current report on Form 8-K, dated August 24,
2001, to report the financial statements of Southside Bancshares Corp.
We filed a current report on Form 8-K, dated
September 28, 2001, to report the acquisition of Southside Bancshares Corp.
25
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 14, 2001 By: /s/ Thomas A. Daiber
--------------------------------------
Thomas A. Daiber, Senior Vice President
and Chief Financial Officer
26
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
11.1 Computation of Earnings Per Share
27