-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GGTppy0udwdwfTrjTQUbrzhycsexjr1oYGV0kao+ZZOMTx/k2YwUxf0qqO0GYFOe mzlYbBYT9q00m3fVu1qq8Q== 0001068800-00-000080.txt : 20000320 0001068800-00-000080.hdr.sgml : 20000320 ACCESSION NUMBER: 0001068800-00-000080 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLEGIANT BANCORP INC CENTRAL INDEX KEY: 0000852642 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 431519382 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-15173 FILM NUMBER: 572343 BUSINESS ADDRESS: STREET 1: 2122 KRATKY ROAD STREET 2: SUITE 500 CITY: ST LOUIS STATE: MO ZIP: 63114 BUSINESS PHONE: 3146928200 MAIL ADDRESS: STREET 1: 2122 KRATKY ROAD CITY: ST LOUIS STATE: MO ZIP: 63114 10-K 1 ALLEGIANT BANCORP, INC. FORM 10-K ============================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NO. 0-26350 ALLEGIANT BANCORP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MISSOURI 43-1519382 (STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.) 2122 KRATKY ROAD 63114 ST. LOUIS, MISSOURI (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 314-692-8200 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TRUST PREFERRED SECURITIES, $10 LIQUIDATION VALUE, ISSUED BY ALLEGIANT CAPITAL TRUST I NAME OF EXCHANGE ON WHICH REGISTERED: AMERICAN STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $0.01 PAR VALUE 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, AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ----- ----- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ ] AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF MARCH 1, 2000: COMMON STOCK, $0.01 PAR VALUE, $65,809,898. NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK, AS OF MARCH 1, 2000: COMMON STOCK, $0.01 PAR VALUE, 6,121,851 SHARES OUTSTANDING DOCUMENTS INCORPORATED BY REFERENCE AS PROVIDED HEREIN, PORTIONS OF THE DOCUMENTS BELOW ARE INCORPORATED BY REFERENCE: DOCUMENT PART--FORM 10-K -------- --------------- 1999 ANNUAL REPORT OF THE REGISTRANT TO ITS SHAREHOLDERS PARTS I, II, IV REGISTRANT'S PROXY STATEMENT FOR THE 2000 ANNUAL MEETING OF SHAREHOLDERS PART III ============================================================================ The terms "Allegiant," "company," "we," "our," and "corporation" as used in this report refer to Allegiant Bancorp, Inc. and its 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." PART I ITEM 1. BUSINESS GENERAL We are a bank holding company headquartered in St. Louis, Missouri. Our bank subsidiary, Allegiant Bank, offers 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 various other financial services such as securities brokerage, insurance and safe deposit boxes. As of December 31, 1999, we reported, on a consolidated basis, total assets of $728.5 million, loans of $615.2 million, deposits of $548.5 million and shareholders' equity of $48.0 million. Since 1989, when we were organized, we have been committed to building a strong, customer-friendly community bank. As a community bank, we are able to respond quickly to our customers through local decision-making and to tailor products and services to meet their needs. We believe this customer-friendly approach provides us with a competitive advantage over many of the larger financial institutions in the St. Louis metropolitan area. In addition, we believe that we have benefited from recent acquisitions of locally headquartered financial institutions by larger regional or national out-of-town financial institutions. Recent acquisitions of financial institutions in our market area include: Bank America Corporation's acquisition of Boatmen's Bancshares, Inc.; Union Planters' Corporation's acquisition of Magna Group, Inc. and Firstar Corporation's acquisition of Mercantile Bancorporation Inc. We currently are the second largest publicly traded bank holding company headquartered in St. Louis. We have expanded rapidly through internal growth and acquisitions. We believe that market coverage is necessary, and our goal is to have a banking facility within a 20-minute drive from all principal sectors of the St. Louis metropolitan area. In 1989, we acquired Allegiant State Bank located in Northeastern Missouri. We acquired Allegiant Bank in St. Louis, Missouri in 1990. In November 1994, we acquired Allegiant Mortgage Company. In January 1995, Allegiant State Bank was merged into Allegiant Bank. We acquired Reliance Savings and Loan Association of St. Louis County in August 1997 and later merged it with Allegiant Bank. In September 1997, Allegiant Bank acquired two branches in Union and Warrenton, Missouri from Roosevelt Bank. In that transaction, Allegiant Bank assumed approximately $96.1 million of deposit liabilities, acquired real property and related automated teller machines, furniture, fixtures, equipment and other operating assets with an aggregate value of $0.5 million, and approximately $3.0 million of consumer loans. Allegiant Bank recorded goodwill of $8.8 million in connection with this branch acquisition. In January 1999, Allegiant Bank acquired all the assets and liabilities of Allegiant Mortgage Company which then was dissolved. 1 In addition to our acquisitions, we have opened several new branches in Missouri with a view toward covering all sectors of the St. Louis metropolitan area. Branch openings in the past three years include Mehlville in 1996, and St. Peters, Affton and Crestwood in 1997. We also opened a branch in Town & Country in 1998, a downtown St. Louis branch in March 1999 and a branch in Ballwin in August 1999. We currently anticipate opening our 16th location, in Chesterfield, in May 2000. Since the beginning of 1998, we have focused primarily on improving the profitability of our banking operations. As a result, we have reduced the amount of one- to four-family mortgages that we hold in our loan portfolio and increased the amount of higher yielding commercial loans. We also have hired several banking professionals with experience in the St. Louis metropolitan area to help us grow our commercial loans and deposits. 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 outside the St. Louis metropolitan area in December 1998. We also have implemented company-wide, cost-control efforts to enhance efficiencies throughout our entire operation. Our management team is comprised of experienced individuals who average more than 15 years in the banking or financial services industries. As of March 1, 2000, our directors and executive officers owned approximately 42% of our outstanding common stock. The St. Louis metropolitan area is the 17th largest metropolitan area in the United States with a population of approximately 2.45 million. The St. Louis metropolitan area is home to 19 Fortune 1000 companies, such as Anheuser-Busch Companies, Inc., Monsanto Company, Ralston Purina Company and Trans World Airlines, Inc. Also the St. Louis metropolitan area ranks fifth in the United States as a headquarters location for Fortune 500 companies. In 1998, the St. Louis area ranked second in Entrepreneur Magazine's listing of the top places in the United States for small business, marking four straight years on that publication's top ten list, and Inc. magazine placed St. Louis among its top ten areas for growing firms. FINANCIAL SUMMARY OF THE COMPANY A consolidated financial summary of the Company and its subsidiaries, included on page 8 in our 1999 Annual Report to Shareholders, is incorporated herein by reference. SUBSIDIARIES The table setting forth the names and locations of the Company's subsidiaries is included as Exhibit 21.1 hereto. OPERATIONS Allegiant Bank offers complete banking and trust services to individuals, businesses and municipalities in the St. Louis metropolitan area. Services include commercial, real estate, mortgage, and installment loans, checking, savings and time deposit accounts, trust and other fiduciary services and various other customer services such as brokerage, insurance and safe deposit boxes. 2 COMPETITION We operate in a competitive environment. In the St. Louis metropolitan area, other commercial banks, savings and loan associations, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking firms and other financial intermediaries offer similar services. Many of these competitors have substantially greater resources and lending limits and may offer certain services we do not currently provide. In addition, some of our nonbank competitors are not subject to the same extensive regulations that govern us, Allegiant Bank and our subsidiaries. Our profitability depends upon the ability of Allegiant Bank to compete in our market area. SUPERVISION AND REGULATION GENERAL. Financial institutions and their holding companies are extensively regulated under federal and state law. As a result, our growth and earnings performance can be affected not only by management decisions and general economic conditions, but also by the requirements of applicable state and federal statutes and regulations and the policies of various government regulatory authorities, including the Missouri Division of Finance, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Internal Revenue Service, state taxing authorities and the Securities and Exchange Commission. We cannot predict with a high degree of certainty the effect of applicable statutes, regulations and regulatory policies on us, but believe that it could be significant. Federal and state laws and regulations generally applicable to financial institutions regulate, among other things, the scope of business, investments, reserves against deposits, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, mergers, consolidations and dividends. The system of supervision and regulation applicable to us establishes a comprehensive framework for our operations and is intended primarily for the protection of the FDIC's deposit insurance funds and the depositors of the bank rather than our shareholders. This summary of the material elements of this regulatory framework does not describe all applicable statutes, regulations and regulatory policies, nor does it restate all of the requirements of the statutes, regulations and regulatory policies that are described. You should review the applicable statutes, regulations and regulatory policies. Any changes in applicable law, regulations or regulatory policies may have a material effect on our business. RECENT REGULATORY DEVELOPMENTS. Legislation has recently been approved by Congress that allows bank holding companies to engage in a wider range of nonbanking activities, including additional securities and insurance activities. The expanded powers generally would be available to a bank holding company only if the bank holding company and its bank subsidiaries remain well-capitalized and well-managed. At this time, we are unable to predict the full impact that this legislation may have on us. EMPLOYEES As of December 31, 1999, we had approximately 226 full-time equivalent employees. None of our employees are subject to a collective bargaining agreement. We consider our relationship with our employees and those of Allegiant Bank to be good. 3 STATISTICAL DISCLOSURES The following statistical disclosures, except as noted, are included in our 1999 Annual Report to Shareholders, and is incorporated herein by reference.
ANNUAL REPORT SCHEDULE REFERENCE -------- ------------- I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY: INTEREST RATES AND INTEREST DIFFERENTIAL A. Average Balance Sheets p. 11 B. Analysis of Net Interest Earnings p. 10 C. Taxable-Equivalent Rate-Volume Analysis p. 12 II. INVESTMENT PORTFOLIO A. Book Value by Type of Security p. 14 B. Maturity Distribution p. 14 III. LOAN PORTFOLIO A. Types of Loans p. 15 B. Maturities and Sensitivities to Changes in Interest Rates p. 15 C. Risk Elements 1. Non-Accrual, Past Due and Restructured Loans p. 16 2. Potential Problem Loans p. 16 3. Foreign Outstandings n/a IV. SUMMARY OF LOAN LOSS EXPERIENCE A. Reserve for Loan Losses p. 18 B. Allocation of the Reserve for Loan Losses p. 17 V. DEPOSITS A. Average Balances and Rates Paid by Deposit Category p. 11 B. Maturity Distribution of Certain CDs and Time Deposits p. 19 VI. RETURN ON EQUITY AND ASSETS p. 9 VII. SHORT-TERM BORROWINGS p. 22 - -------------------- There were no interest-bearing deposits with foreign banks at December 31, 1999, 1998 or 1997.
4 ITEM 2. PROPERTIES Our principal executive, administrative and operational offices are located at 2122 Kratky Road in St. Louis, Missouri. As of December 31, 1999, Allegiant Bank conducted its business and operations out of 15 locations in the greater St. Louis Metropolitan area. Our physical properties, which are either owned or leased, are in satisfactory condition, adequately insured and suitable and adequate for present operations. ITEM 3. LEGAL PROCEEDINGS Various claims and lawsuits, incidental to our ordinary course of business, are pending against us or Allegiant Bank. In the opinion of management, after consultation with legal counsel, resolution of these matters is not expected to have a material effect on our consolidated financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted during the quarter ended December 31, 1999 to a vote of our shareholders, through the solicitation of proxies or otherwise. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT See Part III, Item 10. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Information concerning our common stock, included on page 44 in our 1999 Annual Report to Shareholders, is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA "Selected Financial Data," included on page 8 in our 1999 Annual Report to Shareholders, is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis of Financial Condition and Results of Operations," included on pages 9 through 23 of our 1999 Annual Report to Shareholders, is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK "Quantitative and Qualitative Disclosures About Market Risk," included under the Section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Sensitivity" on pages 19, 20 and 21 of our 1999 Annual Report to Shareholders, is incorporated herein by reference. 5 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements, included in our 1999 Annual Report to Shareholders, are incorporated herein by reference.
ANNUAL REPORT STATEMENT REFERENCE --------- ------------- Report of Ernst & Young LLP Independent Auditors Page 24 Consolidated Balance Sheets - December 31, 1999 and 1998 Page 25 Consolidated Statements of Income - Years ended December 31, 1999, 1998 and 1997 Page 26 Consolidated Statements of Shareholders' Equity - Years ended December 31, 1999, 1998 and 1997 Page 27 Consolidated Statements of Cash Flows - Years ended December 31, 1999, 1998 and 1997 Page 28 Notes to Consolidated Financial Statements Pages 29-41
Selected Quarterly Financial Data (unaudited), included as Note 22 on page 41 in our 1999 Annual Report to Shareholders is incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Information regarding our change of accountants is contained in "Independent Public Accountants" in our Proxy Statement for the 2000 Annual Meeting of Shareholders, and is incorporated herein by reference. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors is contained under "Election of Directors" and "Voting Securities and Principal Holders Thereof" included in our Proxy Statement for the 2000 Annual Meeting of Shareholders, and is incorporated herein by reference. The following is a list, as of March 1, 2000, of the names and ages of our executive officers and all positions and offices with us presently held by the person named. There is no family relationship between any of the named persons. The name, age and position with respect to each of our executive officers are set forth below: 6 Marvin S. Wool, 71, has served as a director since 1990 and as our chairman and as chairman of Allegiant Bank since March 1992. Mr. Wool served as our chief executive officer from March 1992 through December 1998. For more than the past five years, Mr. Wool has served as the president and chief executive officer of Dash Multi-Corp, the holding company for subsidiary companies located in Georgia, Mississippi, Missouri, New Jersey and California that are in the chemical, cloth coating and carpet industries. Mr. Wool also serves as chairman of R-B Rubber Products, Inc., a publicly-held integrated rubber recycler with headquarters in McMinnville, Oregon. Shaun R. Hayes, 40, has served as a director and as our president since 1989 and president and chief executive officer of Allegiant Bank since May 1992. Mr. Hayes became our chief executive officer in January 1999. Thomas A. Daiber, 42, has served as our senior vice president and chief financial officer and as executive vice president and chief financial officer of Allegiant Bank since May 1999. Mr. Daiber has been employed by us since March 1997 and served as our director of internal auditing prior to being appointed to his current position. Prior to joining us, Mr. Daiber served as an officer of Pioneer Bank and Trust Company or its holding company, Forbes First Financial Corporation, for more than five years. The executive officers were appointed by and serve at the pleasure of our board of directors. Information regarding compliance with Section 16 of the Securities Exchange Act of 1934, as amended, is contained in "Section 16(a) Beneficial Ownership Reporting Compliance," included in our Proxy Statement of the 2000 Annual Meeting of Shareholders, and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is contained in "Compensation of Executive Officers," included in our Proxy Statement for the 2000 Annual Meeting of Shareholders, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management is contained in "Voting Securities and Principal Holders Thereof," included in our Proxy Statement for the 2000 Annual Meeting of Shareholders, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions is contained in "Certain Relationships and Related Transactions," included in our Proxy Statement for the 2000 Annual Meeting of Shareholders, and is incorporated herein by reference. 7 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) Financial Statements: Incorporated herein by reference, are listed in Item 8 hereof. (2) Financial Statement Schedules: Report of BDO Seidman, LLP, relating to our consolidated financial statements for the year ended December 31, 1997, is found following the signature pages hereto. (3) Exhibits: See Exhibit Index at page 13 hereof. (b) Reports on Form 8-K None filed for the quarter ended December 31, 1999. 8 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized as of the 16th day of March 2000. ALLEGIANT BANCORP, INC. (Registrant) By /s/ Shaun R. Hayes --------------------------------------- Shaun R. Hayes, President and Chief Executive Officer In accordance with the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Marvin S. Wool Chairman of the Board March 16, 2000 - --------------------------- Marvin S. Wool /s/ Shaun R. Hayes President, Chief Executive Officer March 16, 2000 - --------------------------- and Director Shaun R. Hayes /s/ Thomas A. Daiber Senior Vice President and Chief March 16, 2000 - --------------------------- Financial Officer Thomas A. Daiber /s/ Leland B. Curtis Director March 16, 2000 - --------------------------- Leland B. Curtis /s/ Kevin R. Farrell Director March 16, 2000 - --------------------------- Kevin R. Farrell 9 /s/ Leon A. Felman Director March 16, 2000 - --------------------------- Leon A. Felman /s/ C. Virginia Kirkpatrick Director March 16, 2000 - --------------------------- C. Virginia Kirkpatrick /s/ Jack K. Krause Director March 16, 2000 - --------------------------- Jack K. Krause /s/ John L. Weiss Director March 16, 2000 - --------------------------- John L. Weiss /s/ Lee S. Wielansky Director March 16, 2000 - --------------------------- Lee S. Wielansky
10 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS (BDO Seidman, LLP letterhead) The Board of Directors Allegiant Bancorp, Inc. St. Louis, Missouri We have audited the consolidated statements of income, shareholders' equity and cash flows for the year ended December 31, 1997, of Allegiant Bancorp, Inc. (a Missouri corporation) and subsidiaries. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of Allegiant Bancorp, Inc.'s operations and Allegiant Bancorp, Inc.'s cash flows for the year then ended, in conformity with generally accepted accounting principles of Allegiant Bancorp, Inc. and subsidiaries as of December 31, 1997. /s/ BDO Seidman, LLP St. Louis, Missouri March 13, 1998 11 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION ----------- ----------- 3.1 Articles of Incorporation, as amended, of the Company, filed as Exhibit 3.1 to the Company's Registration Statement on Form 10-SB (Reg. No. 0-26350) is hereby incorporated by reference. 3.1(a) Amendment to Articles of Incorporation, as amended, of the Company, filed as Exhibit 3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is hereby incorporated by reference. 3.2 By-laws of the Company, as currently in effect, filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10- Q for the quarter ended June 30, 1999, is hereby incorporated by reference. 4.1 Form of Stock Certificate for Common Stock, filed as Exhibit 4.2 to the Company's Registration Statement on Form 10-SB (Reg. No. 0-26350) is hereby incorporated by reference. 4.2 Junior Subordinated Indenture, dated as of August 2, 1999, by and between the Company and Bankers Trust Company, as Trustee, filed as Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, is hereby incorporated by reference. 10.1 Loan Agreement, dated November 12, 1998, by and between LaSalle National Bank and the Company, filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1998, is hereby incorporated by reference. 10.2 Pledge Agreement, dated November 12, 1998, by and between LaSalle National Bank and the Company, filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1998, is hereby incorporated by reference. 10.3 Allegiant Bancorp, Inc. 1994 Stock Option Plan, filed as Exhibit 10.7 to Company's Registration Statement on Form 10-SB (Reg. No. 0-26350) is hereby incorporated by reference. 10.4 Allegiant Bancorp, Inc. 1996 Stock Option Plan, filed as Exhibit 4.4 to Company's Form S-8 (Reg. No. 0-26350) is hereby incorporated by reference. 10.5 Allegiant Bancorp, Inc. Directors Stock Option Plan, filed as Exhibit 4.5 to Company's Form S-8 (Reg. No. 0-26350) is hereby incorporated by reference. 10.6 Allegiant Bancorp, Inc. 1989 Stock Option Plan, filed as Exhibit 4.6 to Company's Form S-8 (Reg. No. 0-26350) is hereby incorporated by reference. 10.7 Executive Retention Agreement, dated May 24, 1999, by and between the Company and Shaun R. Hayes is filed herewith. 10.8 Underwriting Agreement, dated as of July 27, 1999, by and between the Company and Allegiant Capital Trust I and EVEREN Securities, Inc. and Wheat First Securities, as representatives of the several underwriters, filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, is hereby incorporated by reference. 10.9 Guarantee Agreement, dated as of August 2, 1999, between the Company, as guarantor, and Bankers Trust Company, as guarantee trustee, filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, is hereby incorporated by reference. 10.10 Amended and Restated Trust Agreement, dated as of August 2, 1999, among the Company, as depositor, Bankers Trust Company, as property trustee, and Shaun R. Hayes and Thomas A. Daiber, as administrators, filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, is hereby incorporated by reference. 13 Portions of the 1999 Annual Report of the Company to its Shareholders are filed herewith. 21.1 Subsidiaries of the Company is filed herewith. 23.1 Consent of Ernst & Young LLP is filed herewith. 23.2 Consent of BDO Seidman, LLP is filed herewith. 27.1 Financial Data Schedule is filed herewith (December 31, 1999). [FN] - -------------------------- Management contract or compensatory plan or arrangement. 12 EX-10.7 2 EXECUTIVE RETENTION AGREEMENT ALLEGIANT BANCORP, INC. EXECUTIVE RETENTION AGREEMENT This Executive Retention Agreement (this "Agreement") has been entered into as of the 24th day of May, 1999, by and between Allegiant Bancorp, Inc., a Missouri corporation (the "Company"), and Shaun R. Hayes, an individual ("Executive"). RECITALS The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its stockholders to reinforce and encourage the continued attention and dedication of the Executive to the Company as a member of the Company's management and to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Control (as defined below) with respect to the Company. The Board desires to provide for the continued employment of the Executive, and the Executive is willing to commit to continue to serve the Company. Additionally, the Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change in Control, to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change in Control, and to provide the Executive with compensation and benefits arrangements upon a termination of employment after a Change in Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. IT IS AGREED AS FOLLOWS: SECTION 1: DEFINITIONS AND CONSTRUCTION. 1.1 DEFINITIONS. For purposes of this Agreement, the following words and phrases, whether or not capitalized, shall have the meanings specified below, unless the context plainly requires a different meaning. 1.1(a) "ANNUAL BASE SALARY" shall mean the rate of base salary (excluding benefits, bonuses, incentive compensation or other forms of compensation or benefits) at which Executive is being paid as of a particular date. 1.1(b) "BOARD" means the Board of Directors of the Company. 1.1(c) "CHANGE IN CONTROL" means: (i) The acquisition by any individual, entity or group, or (within the meaning of Section 13(d)(3) or 14(d)(2), the Exchange Act), a Person of ownership of 30% or more of either (a) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); or (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that for purposes of the definition of "Incumbent Board," any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, as a member of the Incumbent Board, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule l4a-11 of Regulation l4A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Approval by the stockholders of the Company (and subsequent consummation) of a reorganization, merger or consolidation, in each case, unless, following such reorganization, merger or consolidation, (a) more than fifty percent (50%) of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (b) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such reorganization, merger or consolidation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, twenty percent (20%) or more of the Outstanding Company Common Stock or Outstanding Voting Securities, as the case may be) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation or the combined voting power of the then outstanding voting securities of such corporation, entitled to vote generally in the election of directors and (c) at least a majority of the members of the board of directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (iv) Approval by the stockholders of the Company (and consummation) of (a) a complete liquidation or dissolution of the Company or (b) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, (1) more than fifty percent (50%) of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their - 2 - ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or such corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, twenty percent (20%) or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, twenty percent (20%) or more of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and (3) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale or other disposition of assets of the Company. 1.1(d) "CHANGE IN CONTROL DATE" shall mean the date of the Change in Control; provided, however, that the Change in Control Date shall mean the date immediately prior to the date the Executive's employment with the Company was terminated by the Company if (i) Executive's employment with the Company was terminated by the Company prior to the occurrence of a Change in Control, and (ii) Executive's employment (either in fact or as reasonably demonstrated by Executive) was terminated either at the request of a third party who has taken steps reasonably calculated to effect a Change in Control, or otherwise occurred in connection with or anticipation of a Change in Control. 1.1(e) "CODE" shall mean the Internal Revenue Code of 1986, as amended. 1.1(f) "COMPANY" means Allegiant Bancorp, Inc., a Missouri corporation. 1.1(g) "EFFECTIVE DATE" shall mean February 1, 1999. 1.1(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. 1.1(i) "PERSON" means any "person" within the meaning of Sections 13(d) and 14(d) of the Exchange Act. 1.1(j) "TERM" means the period that begins on the Effective Date and ends on the earlier of: (i) January 1, 2005, or (ii) the date Executive's employment terminates. 1.2 GENDER AND NUMBER. When appropriate, pronouns in this Agreement used in the masculine gender include the feminine gender, words in the singular include the plural, and words in the plural include the singular. 1.3 HEADINGS. All headings in this Agreement are included solely for ease of reference and do not bear on the interpretation of the text. Accordingly, as used in this Agreement, the terms "Article" and "Section" mean the text that accompanies the specified Article or Section of the Agreement. 1.4 APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Missouri, without reference to its conflict of law principles. - 3 - SECTION 2: EMPLOYMENT; EMPLOYMENT TERMINATION. 2.1 EMPLOYMENT BEFORE A CHANGE IN CONTROL. Executive is employed by the Company on an at will basis for no definite term. Either the Company or Executive may terminate Executive's employment at any time with or without cause by giving notice to the other party. Upon termination of Executive's employment with the Company prior to a Change in Control, whether employment is terminated by the Company, by Executive, or otherwise, this Agreement shall terminate and neither party shall have any rights or obligations hereunder except to the extent provided for under Section 3 or otherwise under this Agreement; provided, however, that Executive shall have all rights under this Agreement as if a Change in Control occurred on the date immediately before the date Executive's employment with the Company was terminated by the Company if (i) Executive's employment with the Company was terminated by the Company prior to the occurrence of a Change in Control, and (ii) Executive's employment (either in fact or as reasonably demonstrated by Executive) was terminated either at the request of a third party who has taken steps reasonably calculated to effect a Change in Control, or otherwise occurred in connection with or anticipation of a Change in Control. 2.2 TERMINATION OF EMPLOYMENT AFTER A CHANGE IN CONTROL. After a Change in Control, the following provisions shall apply. 2.21 DEATH. The Executive's employment shall terminate automatically upon the Executive's death. 2.22 DISABILITY. If the Company determines in good faith that the Disability of the Executive has occurred (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 6.1 of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the thirtieth (30th) day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the thirty (30) days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean that the Executive has been unable to perform the services required of the Executive hereunder on a full-time basis (with reasonable accommodation) for a period of one hundred eighty (180) consecutive business days by reason of a physical and/or mental condition. "Disability" shall be deemed to exist when certified by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative (such agreement as to acceptability not to be withheld unreasonably). The Executive will submit to such medical or psychiatric examinations and tests as such physician deems necessary to make any such Disability determination. 2.23 TERMINATION FOR CAUSE. The Company may terminate the Executive's employment after a Change in Control for "Cause," which shall mean termination based upon: (i) the Executive's willful and continued failure to substantially perform Executive's duties with the Company (other than as a result of incapacity due to physical or mental condition), after a demand for substantial performance is delivered to Executive by the Company, which specifically identifies the manner in which the Executive has not substantially performed Executive's duties, (ii) the Executive's commission of an act in connection with Executive's employment constituting a criminal offense involving moral turpitude, dishonesty, or breach of trust, (iii) Executive has engaged in any conduct which would preclude Executive from employment with the Company or any of its subsidiary banks or corporations, or the Executive is disqualified or precluded from being employed by or providing any services to the Company or any of its subsidiary banks or corporations by reason of any federal or state banking law or regulation or any order or written request of any regulatory agency which has jurisdiction over Company or any of its subsidiaries, or (iv) the Executive's material breach of any provision of this Agreement. For purposes of this Section, no act, or failure to act on the Executive's part shall be considered "willful" unless done, or omitted to be done, without good faith and without reasonable belief that the act or omission was in the best interest of the Company. Notwithstanding - 4 - the foregoing, the Executive shall not be deemed to have been terminated for Cause unless and until (i) Executive receives a Notice of Termination (as defined in Section 2.26) from the Company, (ii) Executive is given the opportunity, with counsel, to be heard before the Board, and (iii) the Board finds, in its good faith opinion, the Executive was guilty of the conduct set forth in the Notice of Termination. 2.24 GOOD REASON. After a Change In Control, the Executive may terminate Executive's employment with the Company for "Good Reason," which shall mean termination based upon: (i) Any action by the Company which results in a material diminution in the duties or responsibilities held by Executive as of the Change in Control Date, excluding for this purpose any action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive and any actions which are a necessary incident of a merger or consolidation (e.g., the elimination or consolidation of a position) provided the Executive is assigned duties and responsibilities of an executive nature in lieu thereof; (ii) The Company's reduction in the Annual Base Salary at which the Executive was paid as of the Change in Control Date; (iii) (a) the failure by the Company to continue in effect any benefit or compensation plan, stock ownership plan, life insurance plan, health and accident plan or disability plan to which the Executive was entitled as of the Change in Control Date, (b) the taking of any action by the Company which would adversely affect the Executive's participation in, or materially reduce the Executive's benefits under, any such plan or benefit, or deprive the Executive of any material fringe benefit enjoyed by the Executive as of the Change in Control Date, or (c) the failure by the Company to provide the Executive with the number of paid vacation days which the Executive was entitled to receive on an annual basis as of the Change in Control Date. (iv) the Company's requiring the Executive to be regularly based at any office or location outside the greater metropolitan St. Louis area; (v) a material breach by the Company of any provision of this Agreement; (vi) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; (vii) within a period ending at the close of business on the date three (3) years after the Change in Control Date, if the Company has failed to comply with and satisfy Section 5.2 on or after the Change in Control Date; or (viii) within a period ending at the close of business on the date eighteen (18) months after the Change in Control Date, the Executive, in the Executive's sole and absolute discretion, determines that Executive no longer wishes to be employed by the Company and notifies the Company in writing that the Executive is terminating Executive's employment with the Company as of a date not less than twenty (20) days, and not more than sixty (60) days (unless the Company otherwise agrees to a later termination date), after the date the notice is given. For purposes of this Section any good faith determination of "Good Reason" made by the Executive shall be conclusive. - 5 - 2.25 TERMINATION WITHOUT CAUSE AFTER A CHANGE IN CONTROL. After a Change in Control, the Company shall continue to have the right to terminate Executive's employment without Cause (in which case the provisions of Section 3.2 apply) and for any or no reason, and nothing in this Agreement shall be construed as limiting the Company's right to terminate Executive's employment at any time without cause and for any or no reason. 2.26 NOTICE OF TERMINATION. Any termination by the Company for Cause or Disability, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party, given in accordance with Section 6.1. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice, except as otherwise provided for in Section 2.24(viii)). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. 2.27 DATE OF TERMINATION. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive for Good Reason, the Date of Termination shall be the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be, or (iii) if the Executive's employment is terminated by the Company other than for Cause, death, or Disability, the Date of Termination shall be the date of receipt of the Notice of Termination; provided that if within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected). SECTION 3: CERTAIN BENEFITS UPON TERMINATION. 3.1 TERMINATION OF EMPLOYMENT PRIOR TO A CHANGE IN CONTROL. If, prior to a Change in Control: (i) the Company shall terminate the Executive's employment, or (ii) the Executive shall terminate employment with the Company, then: 3.1(a) "Accrued Obligations": The Company shall pay to the Executive the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid, (2) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and (3) any accrued vacation pay; in each case to the extent not previously paid. 3.1(b) "Other Benefits": To the extent not previously paid or provided, the Company shall timely pay or provide to the Executive and/or the Executive's family any other amounts or benefits required to be paid or provided for which the Executive and/or the Executive's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company as those provided generally to other peer executives and their families during the ninety (90) day period immediately preceding the - 6 - Effective Date or, if more favorable to the Executive, as those provided generally after the Effective Date to other peer executives of the Company and their families. 3.2 BENEFITS UPON TERMINATION OF EMPLOYMENT AFTER A CHANGE IN CONTROL WITHOUT CAUSE OR FOR GOOD REASON. If a Change in Control occurs while Executive is employed by the Company, and within three (3) years after a Change in Control: (i) the Company shall terminate the Executive's employment without Cause, or (ii) the Executive shall terminate employment with the Company for Good Reason, then upon satisfaction of the conditions set forth in Section 3.9 below (with respect to the payments specified in Section 3.2 (b)) the Executive shall be entitled to the benefits provided below: 3.2(a) "Accrued Obligations": Within thirty (30) days after the Date of Termination, the Company shall pay to the Executive the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid, (2) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) and (3) any accrued vacation pay; in each case to the extent not previously paid. 3.2(b) "Severance Amount": Within thirty (30) days after the Date of Termination and satisfaction of the provisions of Section 3.9, and subject to the provisions of Section 3.5, the Company shall pay to the Executive as severance pay in a lump sum, in cash, an amount equal to two and ninety-nine one hundredths (2.99) times Executive's Annual Base Salary; as such amount may be reduced pursuant to the provisions of Section 3.5. 3.2(c) "Stock Options": To the extent not otherwise provided for under the terms of the Company's stock option plan or the Executive's stock option agreements (if any), all such stock options shall become fully exercisable as of the Date of Termination and, except for "incentive stock options" within the meaning of Code Section 422 granted prior to the date hereof, shall remain fully exercisable for six months following the Date of Termination. 3.2(d) "Other Benefits": To the extent not previously paid or provided, the Company shall timely pay or provide to the Executive and/or the Executive's family any other amounts or benefits required to be paid or provided for which the Executive and/or the Executive's family is eligible to receive pursuant to this Agreement and under any plan, program, policy or practice or contract or agreement of the Company as those provided generally to other peer executives and their families during the ninety (90) day period immediately preceding the Effective Date or, if more favorable to the Executive, as those provided generally after the Effective Date to other peer executives of the Company and their families; to the extent permissible under the terms of the applicable plan and applicable law. 3.3 DEATH; DISABILITY. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period (either prior or subsequent to a Change in Control), this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for (i) payment of Accrued Obligations (as defined in Section 3.2(a)) (which shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within thirty (30) days of the Date of Termination) and (ii) the timely payment or provision of Other Benefits (as defined in Section 3.1(b)), including death benefits pursuant to the terms of any plan, policy, or arrangement of the Company. - 7 - If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period (either prior or subsequent to a Change in Control), this Agreement shall terminate without further obligations to the Executive, other than for (i) payment of Accrued Obligations (as defined in Section 3.2(a)) (which shall be paid to the Executive in a lump sum in cash within thirty (30) days of the Date of Termination) and (ii) the timely payment or provision of Other Benefits (as defined in Section 3.1(d)) including disability benefits pursuant to the terms of any plan, policy or arrangement of the Company. 3.4 TERMINATION FOR CAUSE; OTHER THAN GOOD REASON. If the Executive's employment shall be terminated for Cause during the Employment Period (either prior to or subsequent to a Change in Control), this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive the Executive's Accrued Compensation (as defined in this Section). If the Executive terminates employment with the Company during the Employment Period, (excluding a termination for Good Reason), this Agreement shall terminate without further obligations to the Executive, other than for the payment of Accrued Compensation (as defined in this Section) and the timely payment or provision of Other Benefits (as defined in Section 3.1(d)). In such case, all Accrued Compensation shall be paid to the Executive in a lump sum in cash within thirty (30) days of the Date of Termination. For the purpose of this Section, the term "Accrued Compensation" means the sum of (i) the Executive's Annual Base Salary through the Date of Termination to the extent not previously paid, (ii) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon), and (iii) any accrued vacation pay in each case to the extent not previously paid. 3.5 "EXCESS PARACHUTE PAYMENT": Anything in this Agreement to the contrary notwithstanding, in the event that an independent accountant shall determine that any payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be nondeductible by the Company for Federal income tax purposes because of Code Section 280G or would constitute an "excess parachute payment" (as defined in Code Section 280G), then the aggregate present value of amounts payable or distributable to or for the benefit of Executive pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. For purposes of this paragraph, the "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by the Company because of Code Section 280G or without causing any portion of the Payment to be subject to the excise tax imposed by Code Section 4999. If the independent accountant determines that any Payment would be nondeductible by the Company because of Code Section 280G or that any portion of the Payment will be subject to the excise tax imposed by Code Section 4999, the Company shall promptly give Executive notice to that effect and a copy of the detailed calculation thereof and of the Reduced Amount. The Executive may then elect, in Executive's sole discretion, which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Agreement Payments equals the Reduced Amount), and shall advise the Company in writing of Executive's election within ten (10) days of Executive's receipt of such notice. If no such election is made by Executive within such ten-day period, the Company may elect which and how much of the Agreement Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Agreement Payments equals the Reduced Amount) and shall notify the Executive promptly of such election. For purposes of this paragraph, present value shall be determined in accordance with Code Section 280G(d)(4). All determinations made by the independent accountant under this Section shall be binding upon the Company and the Executive and shall be made within sixty (60) days of a termination of employment of the Executive. As promptly as practicable following such determination and the elections hereunder, the Company shall pay to or distribute to or for the benefit of the Executive such amounts as are then due to the Executive under this Agreement and shall - 8 - promptly pay to or distribute for the benefit of the Executive in the future such amounts as become due to the Executive under this Agreement. As a result of the uncertainty in the application of Code Sections 280G and 4999 at the time of the initial determination by the independent accountant hereunder, it is possible that Agreement Payments will be made by the Company which should not have been made ("Overpayment") or that additional Agreement Payments which have not been made by the Company should have been made ("Underpayment"), in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that the independent accountant, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Executive which the independent accountant believes has a high probability of success, determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Executive which the Executive shall repay to the Company together with interest at the applicable Federal rate provided for in Code Section 7872(f)(2); provided, however, that no amount shall be payable by the Executive to the Company if and to the extent such payment would not reduce the amount which is subject to taxation under Code Section 4999 or if the period of limitations for assessment of tax under Code Section 4999 against the Executive shall have expired. In the event that the independent accountant, based upon controlling precedent, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable Federal rate provided for in Code Section 7872(f)(2)(A). 3.6 NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive's entitlement to accrued benefits under any plan, program, policy or practice provided by the Company and for which the Executive may qualify. Amounts which are vested benefits of which the Executive is otherwise entitled to receive under any plan, policy, practice or program of, or any contract or agreement with, the Company at or subsequent to the Date of Termination, shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 3.7 FULL SETTLEMENT. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. 3.8 RESOLUTION OF DISPUTES. If after a Change in Control there shall be any dispute between the Company and the Executive (i) in the event of any termination of the Executive's employment by the Company, whether such termination was for Cause, or (ii) in the event of any termination of employment by the Executive, whether Good Reason existed, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause or that the determination by the Executive of the existence of Good Reason was not made in good faith, the Company shall pay all amounts, and provide all benefits, to the Executive and/or the Executive's family or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to this Agreement as though such termination were by the Company without Cause or by the Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this Section except upon receipt of an undertaking by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled. 3.9 CONDITIONS TO PAYMENTS. To be eligible to receive (and continue to receive) and retain the payments and benefits described in Section 3.2 (b), Executive must execute and deliver to the Company an agreement, in form and substance satisfactory to the Company, effectively releasing and giving up all claims Executive may have against the Company or any of its subsidiaries or affiliates (and each of their - 9 - respective employees, officers, plans or agents) arising out of any facts or conduct occurring prior to that date. The agreement will be prepared by the Company and provided to Executive at the time Executive's employment is terminated or as soon as administratively practicable thereafter. The agreement will require Executive to consult with Company representatives, and voluntarily appear as a witness for trial or deposition (and to prepare for any such testimony) in connection with, any claim which may be asserted by or against the Company, or any business matter concerning the Company or any of its transactions or operations. SECTION 4: NON-COMPETITION. The provisions of this Section 4 and any related provisions survive termination of this Agreement and/or Executive's employment with the Company. 4.1 NON-COMPETE AGREEMENT. 4.1(a) It is agreed that during the period beginning on the date the Executive's employment with the Company terminates and ending one (1) year thereafter, the Executive shall not, without prior written approval of the Board, become an officer, employee, agent, partner, or director of any business enterprise in substantial direct competition (as defined in Section 4.1(b)) with the Company; provided that, if the Executive is terminated by the Company without Cause or if the Executive terminates Executive's employment for Good Reason, then Executive will not be subject to the restrictions of this Section. 4.1(b) For purposes of Section 4.1, a business enterprise with which the Executive becomes associated as an officer, employee, agent, partner, or director shall be considered in substantial direct competition, if such entity competes with the Company in any business in which the Company or any of its direct or indirect subsidiaries is engaged and is within the Company's market area (as defined herein) as of the date the Executive's Company employment terminates. The Company's market area is defined for this purpose, as the greater metropolitan St. Louis area, including without limitation the City of St. Louis and the Counties of St. Louis, St. Charles, and Jefferson, in Missouri and the Counties of Madison and St. Clair in Illinois. 4.1(c) The above constraint shall not prevent the Executive from making passive investments, not to exceed five percent (5%), in any enterprise. 4.2 CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies or direct or indirect subsidiaries, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, or as may otherwise be required by law or legal process, use, or communicate or divulge, any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this Section constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. SECTION 5: SUCCESSORS. 5.1 SUCCESSORS OF EXECUTIVE. This Agreement is personal to the Executive and, without the prior written consent of the Company, the rights (but not the obligations) shall not be assignable by the - 10 - Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. 5.2 SUCCESSORS OF COMPANY. This Agreement is freely assignable by the Company. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to terminate the Agreement at Executive's option on or after the Change in Control Date for Good Reason. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. SECTION 6: MISCELLANEOUS. 6.1 NOTICE. For purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses as set forth below; provided that all notices to the Company shall be directed to the attention of the Chairman of the Board, or to such other address as one party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. Notice to Executive: ------------------- Shaun R. Hayes 34 Glen Eagles Drive St. Louis, MO 63124 Notice to Company: ----------------- Allegiant Bancorp, Inc. 2122 Kratky Road St. Louis, MO 63114 Attn: Chairman of the Board 6.2 VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 6.3 WITHHOLDING. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. If any lawsuit is filed to declare this Agreement invalid in whole or in part, or to enforce any party's rights or obligations under this Agreement, then the party to this Agreement who prevails in such litigation with respect to any such issue (other than by reason of a settlement) shall be entitled to recover from the other party to this Agreement all court costs, litigation expenses and reasonable attorney's fees incurred by that prevailing party in defending against and/or prosecuting that issue (as the case may be). 6.4 WAIVER. The Executive's or the Company's failure to insist upon strict compliance with any provision hereof or any other provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate - 11 - employment for Good Reason pursuant to Section 2.24, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. 6.5 ENTIRE AGREEMENT; NO AMENDMENT. This Agreement contains the entire agreement between the parties respecting the subject matter hereof and supersedes all prior oral or written communications and agreements between the parties relating to employment or payments in the event employment terminates. Neither this Agreement, nor any of its terms, may be changed, added to, amended, waived or varied except in a writing signed by Executive and the Company. 6.6 TERMINATION. This Agreement terminates on January 1, 2005 or the date Executive's employment with the Company terminates, whichever first occurs. Termination does not affect accrued rights or obligations (including but not limited to payment obligations under Section 3), or (if applicable) the provisions of Section 4 or any related provisions. IN WITNESS WHEREOF, the Executive and, the Company, pursuant to the authorization from its Board, have caused this Agreement to be executed in its name on its behalf, all as of the day and year first above written. Date: November 20, 1999 /s/ Shaun R. Hayes ------------------------------------- Shaun R. Hayes ALLEGIANT BANCORP, INC. By: /s/ Marvin S. Wool ---------------------------------- Name: Marvin S. Wool -------------------------------- Date: March 9, 2000 Title: Chairman ------------------------------- - 12 - EX-13 3 PORTIONS OF ANNUAL REPORT FINANCIAL HIGHLIGHTS
Years Ended December 31, - -------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- Income Statement Data: Interest income $ 52,112 $ 49,218 $ 37,765 $ 25,056 $ 19,252 Interest expense 26,601 27,267 21,466 14,999 11,206 - -------------------------------------------------------------------------------------------------------------------------------- Net interest income 25,511 21,951 16,299 10,057 8,046 Provision for loan losses 2,546 2,420 2,397 1,448 977 - -------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision 22,965 19,531 13,902 8,609 7,069 - -------------------------------------------------------------------------------------------------------------------------------- Other income 4,843 9,324 3,298 1,393 654 Other expense 18,762 21,295 13,069 7,019 5,625 - -------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 9,046 7,560 4,131 2,938 2,098 Provision for income taxes 3,644 3,026 1,716 1,175 823 - -------------------------------------------------------------------------------------------------------------------------------- Net income $ 5,402 $ 4,534 $ 2,415 $ 1,808 $ 1,275 ================================================================================================================================ Common Share Data: Book value per share at year-end $ 7.73 $ 7.36 $ 6.88 $ 4.80 $ 4.25 Basic earnings per share 0.84 0.72 0.54 0.55 0.42 Diluted earnings per share 0.83 0.68 0.49 0.48 0.42 Cash dividends declared per share 0.20 0.12 0.08 0.06 0.04 Market value per share at year-end 9.75 9.48 11.25 8.17 7.28 Dividend payout ratio 18.10% 20.22% 13.77% 10.34% 8.86% Shares outstanding at year-end 6,208,102 6,536,164 6,111,743 3,405,696 3,281,905 Average shares outstanding 6,450,639 6,250,910 4,885,303 3,708,821 3,086,215 Balance Sheet Data (at year-end): Total assets $ 728,492 $ 596,274 $ 608,237 $ 377,564 $ 280,386 Investment securities 60,797 54,780 76,869 60,559 73,211 Total loans 615,191 495,668 484,863 291,926 181,544 Total deposits 548,466 450,766 484,641 308,670 231,309 Indebtedness: Short-term borrowings 18,861 14,542 15,729 11,637 4,108 Federal Home Loan Bank advances 80,210 66,125 47,475 31,500 21,100 Other borrowings 12,650 13,150 13,650 7,663 8,619 Guaranteed preferred beneficial interest in subordinated debentures 17,250 - - - - Shareholders' equity 47,991 48,104 42,071 16,386 13,938 Average assets 650,551 619,016 463,029 308,984 228,130 Average shareholders' equity 49,099 44,721 25,292 14,851 11,737 Selected Financial Ratios and Other Data: Performance Ratios: Net interest margin 4.17% 3.82% 3.71% 3.39% 3.71% Net interest spread 3.68 3.33 3.20 2.92 3.22 Other income to average assets 0.75 1.51 0.71 0.45 0.29 Other expense to average assets 2.88 3.44 2.82 2.27 2.47 Return on average total assets 0.83 0.73 0.52 0.59 0.56 Return on average shareholders' equity 10.60 10.14 9.55 12.17 10.86 Total loans to total deposits at year-end 112.17 109.96 100.05 94.58 78.49 Average interest earning assets to average interest bearing liabilities 111.47 110.34 110.33 109.27 109.55 Efficiency ratio 61.81 68.07 66.69 61.30 64.66 Average assets per employee $ 2,904 $ 2,612 $ 2,215 $ 2,835 $ 2,480 Asset Quality Ratios: Allowance for loan loss to total loans 1.35% 1.30% 1.07% 1.06% 1.17% Non-performing loans to total loans 0.10 0.36 0.28 0.24 0.17 Allowance for loan loss to total non-performing loans 1,324.20 362.32 377.12 447.98 691.56 Net charge offs to average loans 0.12 0.25 0.19 0.21 0.19 Non-performing assets to total assets 0.14 0.30 0.28 0.18 0.11 Company Capital Ratios: Equity to assets ratio 7.55 7.22 5.46 4.81 5.14 Risk-based capital ratio 10.23 8.68 8.14 8.55 11.51 Tier 1 capital ratio 8.80 7.42 6.39 6.10 7.98 Leverage ratio 7.47 5.83 6.15 4.38 5.12 Bank Capital Ratios: Risk-based capital ratio 11.52 10.93 9.35 10.06 14.40 Tier 1 capital ratio 10.27 9.68 8.27 8.87 13.13 Leverage ratio 8.89 7.61 7.76 6.37 8.63 All share and per share amounts have been restated to reflect: (i) a 10% stock dividend paid in January 1996; (ii) a 10% stock dividend paid in January 1997; (iii) a five-for-four stock split effected in January 1998; and (iv) a six-for-five stock split effected in January 1999. Information given as of year-end except as otherwise noted.
8\Allegiant Bancorp, Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS The terms "Allegiant," "company," "we," "our," and "corporation" as used in this report refer to Allegiant Bancorp, Inc. and its 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." This report contains certain forward-looking statements with respect to the financial condition, results of operations and business of Allegiant and its subsidiaries. These forward-looking statements involve certain risks and uncertainties. For example, by accepting fixed rate deposits 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 the use of funds 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, and the reserve for loan losses, 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 mid-size 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 these uncertainties, as well as others, are present in a banking operation and shareholders are cautioned that management's view of the future may prove to be other than anticipated. Allegiant undertakes no obligation to release revisions to these forward-looking statements or reflect events or circumstances after the date of this report. The data presented in the following pages should be read in conjunction with the audited consolidated financial statements on pages 24 to 41 of this report. OVERVIEW The profitability of our operations depends on our net interest income, provision for loan losses, other income and other 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. Other 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. Other 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 are intended to manage the risk presented by changes in market interest rates. The provision for loan losses is dependent on changes in the loan portfolio, management's assessment of the collectibility of the loan portfolio and loss experience, as well as economic and market factors. Since the beginning of 1998, we have focused primarily on improving the profitability of our banking operations. As a result, we have reduced the amount of one- to four-family mortgages that we hold in our loan portfolio and increased the amount of higher yielding commercial loans. We also have hired several 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 outside the St. Louis metropolitan area in December 1998. We have also implemented company-wide cost control efforts to enhance efficiencies throughout our entire operation. Our primary financial strategies are to continue to grow our loan portfolio while maintaining high asset quality, expand our core deposit base to provide cost-effective and stable source of funding for our loan portfolio and increase other 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 EARNINGS SUMMARY We reported record earnings of $5.4 million for 1999, marking the eighth consecutive year of earnings growth. Consolidated net income increased 19.1% over the 1998 level of $4.5 million. Basic earnings per share were $0.84 compared to $0.72 in 1998, an increase of 16.7%. Diluted earnings per share in 1999 were $0.83 increasing 22.1% compared to the $0.68 reported for 1998. We 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 noncash charge to operating expenses. Goodwill amortization included as an operating expense totaled $1.0 million in 1999 and $0.9 million in 1998. Cash net income (net income adjusted to exclude the goodwill amortization) was $6.4 million and $5.4 million for the years ended December 31, 1999 and 1998, respectively. Diluted cash earnings per share were $0.98 in 1999 compared to $0.81 in 1998. Return on average assets for 1999 was 0.83%, an improvement from 0.73% recorded for 1998 and 0.52% for 1997. The increase in return on average assets was primarily the result of improved net interest income and an improved mix of earning assets. Return on average shareholders' equity was 10.6% in 1999, compared to 10.1% in 1998 and 9.6% in 1997. The increase in 1999 was achieved as a result of the growth in net income while shareholders' equity remained constant compared with 1998 due to our purchase of treasury stock under our share repurchase program which offset the increase in retained earnings. Net interest income in 1999 increased 15.9% to $25.5 million from $22.0 million in 1998. The net interest margin improved by 35 basis points to 4.17% for 1999 compared to 3.82% for 1998. This improvement in net interest margin, together with strong earning asset growth, resulted in the increase in net interest income. The provision for loan losses totaled $2.5 million in 1999 representing a slight increase compared to the $2.4 million provided in both 1998 and 1997. The level of the allowance for loan losses was increased with the allowance representing 1.35% of total loans outstanding at December 31, 1999, compared to 1.30% and 1.07% of total loans at December 31, 1998 and 1997, respectively. The allowance has been increased to reflect the change in the mix of the loan portfolio toward a greater percentage of commercial loans. This change is discussed in greater depth under -- "Balance Sheet Analysis - Allowance for Loan Losses." 1999 Annual Report\9 MANAGEMENT'S DISCUSSION AND ANALYSIS, CONT'D Non-interest income decreased by 48.0% in 1999 compared to 1998 primarily as a result of gains in 1998 from the sale of mortgage loans and the sale of three branches in Northeast Missouri. Leasing income also decreased in 1999 as no new lease financing was originated. Mortgage banking revenue decreased as a result of the sale of our subsidiary, Edge Mortgage Services, Inc., in March 1999 and a decline in mortgage refinancings as a result of higher market interest rates in 1999. Income from service charges on deposit accounts and overdraft fees increased in 1999 from 1998. See -- "Other Income." Non-interest expense declined $2.5 million in 1999, to $18.8 million, a decrease of 11.7%. This compared to 1998 non-interest expense of $21.3 million and $13.1 million in 1997. Salaries and benefits totaled $9.7 million in 1999 and 1998, while other operating expenses decreased from $11.6 million in 1998 to $9.0 million in 1999. See -- "Other Expense." NET INTEREST INCOME Net interest income totaled $25.5 million, an increase of $3.6 million or 16.2% in 1999 compared to net interest income of $22.0 million in 1998. Net interest income totaled $16.3 million in 1997. The net interest spread and the net interest margin each increased by 35 basis points from 1998 following an 11 basis point increase in net interest margin from 1997 and a 13 basis point increase in net interest spread from 1997. The increase in net interest income reflected the greater percentage of higher yielding loans to earning assets and overall growth in average earning assets and interest bearing liabilities. The 1999 increase in net interest spread was due to the yields on earning assets declining only 4 basis points from 1998 and a decline of 50 basis points on interest bearing liabilities. In 1998, the spread increased 13 basis points as a result of similar changes on both sides of the balance sheet, the yield on earning assets decreased 2 basis points and cost of interest bearing liabilities decreased 15 basis points. The yield on loans declined by 18 basis points in 1999 and 16 basis points in 1998 as market interest rates declined in late 1998 and early 1999. The declines in loan yields were offset by an increase in the ratio of loans to total earning assets growing to 90.2% in 1999 from 86.0% in 1998 and 83.2% in 1997. Lower rates were paid on all categories of interest bearing deposits in 1999 compared to 1998 and rates were generally flat or lower in 1998 compared to 1997. Total cost of deposits declined 50 basis points in 1999 and 11 basis points in 1998 due to a reduction of rates paid on money market/NOW accounts, savings deposits and retail certificates of deposit. Average borrowings increased $11.5 million in 1999 from 1998 and included $17.2 million of trust preferred securities issued in August 1999. The effects of changes in rates and average volumes can been seen in the table titled "Rate/Volume Analysis" below. Average earning assets increased $34.0 million or 5.9% during 1999 compared to an increase of $134.6 million or 30.6% in 1998. Average loans increased 11.1% or $54.5 million compared to growth of $128.0 million or 35.0% in 1998. The growth in average loans was effected by the bulk sale of mortgage loans that occurred during the second and third quarters of 1998. These sales, which amounted to $78.4 million, decreased average loans outstanding for 1998 by approximately $34.3 million compared to 1997. The average of our securities portfolio (held-to-maturity and available-for-sale) decreased $14.6 million or 20.4% during 1999 compared to an increase of 9.3% in 1998. Average investment securities represented 9.3% of earning assets during 1999 compared to 12.5% during 1998. This decline in the actual and relative amounts of investment securities was directly related to the increase in the percentage of loans to earning assets discussed above. In essence, strong loan growth necessitated the reduction in the securities portfolio. Earning assets as a percentage of total assets increased in 1999 to 94.0% from 92.8% in 1998 following a decline from 94.9% in 1997. The 1998 increase in non-earning assets was the result of opening additional branch locations as well as 1997 acquisitions, which increased the number of branches and intangible assets. This increase was somewhat offset by the sale of branches located outside the St. Louis metropolitan area which occurred in December 1998. Average interest bearing liabilities increased $27.9 million or 5.4% in 1999 compared to an increase of $122.0 million or 30.6% in 1998. Average deposits increased $16.4 million or 3.8% in 1999 compared to an increase in 1998 of $99.1 million or 30.1%. During 1999, average money market and NOW accounts increased $52.7 million or 41.6% while certificates of deposit under $100,000 decreased $48.6 million or 21.6%. This shift in deposit mix was the result of management's decision to replace these rate-sensitive certificates of deposit with lower cost money market deposits. The decline in certificates also was partially offset by an increase in average brokered deposits of $21.1 million in 1999. The change in deposit mix contributed to a 50 basis point decrease in the average cost of deposits in 1999 compared to 1998. During 1998, certificates of deposit over $100,000 declined as a percentage of total deposits while retail certificates of deposit increased. Non-interest bearing deposits as a percentage of total deposits declined only 10 basis points to 10.00% from 10.10%. The substantial growth in average deposits and the relatively stable mix allowed for the average cost of interest bearing deposits to decline by 11 basis points. Average short-term borrowings increased $6.0 million in 1999 averaging $58.9 million during 1999 compared to $52.9 million during 1998 after remaining flat in 1998 compared to 1997. See -- "Liquidity Management." Average long-term debt in 1999 decreased by $1.6 million or 4.1% following an increase of $22.5 million or 136.5% in 1998. The majority of the 1998 increase was due to long-term borrowings from the Federal Home Loan Bank of $26.6 million at year-end 1998, a $17.0 million change from year-end 1997. We still continue to utilize the Federal Home Loan Bank as a cost-effective source of funding loans. Additionally, during November 1998, we refinanced a portion of our long-term debt and our entire issue of subordinated debentures with a $13.7 million, 7.00% fixed rate, three-year note. OTHER INCOME Other income totaled $4.8 million in 1999 compared to $9.3 million in 1998 and $3.3 million in 1997. Included in other income in 1998 were $3.6 million of non-recurring gains, specifically: $2.4 million from the sale of branch offices; $1.1 million from the sale of mortgage loans; and $0.1 million from securities transactions. Eliminating all one-time or discretionary gains, 1998 other income was $5.8 million. The decrease in other income also included a $1.4 million or 58.9% decrease in mortgage banking revenue from $2.3 million in 1998 to $0.9 million in 1999. The change included the results of a general slow-down in mortgage refinancings due to higher mortgage rates in the latter half of 1999 and the March 1999 sale of Edge Mortgage, a former subsidiary of the Company. The sale of Edge Mortgage was consistent with our strategic focus to concentrate our resources on increasing our commercial loan portfolio. Leasing revenues decreased by $0.5 million in 1999 from 1998 as we terminated production of operating leases in the latter half of 1998. Service charge income increased $0.5 million or 36.1% from 1998 to 1999 as enhanced service charge programs were implemented. 10\Allegiant Bancorp, Inc. The following table presents the net interest income, net interest margin and net interest spread for the three years 1999 through 1997. The table compares interest income and average interest-earning assets with interest expense and average interest-bearing liabilities. DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
Years Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Average Int. Earned/ Average Average Int. Earned/ Average (Dollars in thousands) Balance Paid Yield Balance Paid Yield - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Interest earning assets: Loans $551,189 $48,604 8.82% $493,619 $44,412 9.00% Taxable investment securities 54,984 3,263 5.93 70,079 4,223 6.03 Non-taxable investment securities 2,026 98 4.83 1,494 72 4.89 Federal funds sold and other investments 3,028 147 4.86 9,036 511 5.66 - ----------------------------------------------------------------------- --------------------------- Total interest earning assets 611,227 52,112 8.53 574,228 49,218 8.57 Non-interest earning assets: Cash and due from banks 12,073 12,230 Premises and equipment 10,537 10,994 Other assets 23,771 27,238 Allowance for loan losses (7,057) (5,674) - ----------------------------------------------------------------------- --------------------------- Total assets $650,551 $619,016 ======================================================================= =========================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities: Money market/NOW accounts $179,484 7,165 3.99 $126,829 5,221 4.12 Savings deposits 14,448 308 2.13 16,524 425 2.57 Certificates of deposit 176,106 9,202 5.23 224,661 12,878 5.73 Certificates of deposit over $100,000 33,105 1,587 4.79 39,581 2,198 5.55 IRA certificates 20,291 1,154 5.69 20,584 1,227 5.96 Brokered deposits 21,135 1,179 5.58 - - - - ----------------------------------------------------------------------- --------------------------- Total interest bearing deposits 444,569 20,595 4.63 428,179 21,949 5.13 Federal funds purchased, repurchase agreements and other short-term borrowings 58,877 3,002 5.10 52,855 2,624 4.96 Other borrowings 37,797 2,271 6.01 39,403 2,694 6.84 Guaranteed preferred beneficial interest in subordinated debentures 7,079 733 10.35 - - - - ----------------------------------------------------------------------- --------------------------- Total interest bearing liabilities 548,322 26,601 4.85 520,437 27,267 5.24 ======================================================================= =========================== Non-interest bearing liabilities and equity: Demand deposits 49,886 47,560 Other liabilities 3,244 6,298 Shareholders' equity 49,099 44,721 - ----------------------------------------------------------------------- --------------------------- Total liabilities and shareholders' equity $650,551 $619,016 ======================================================================= =========================== Net interest income $25,511 $21,951 ======================================================================= =========================== Net interest spread 3.68% 3.33% Net interest margin 4.17% 3.82% Years Ended December 31, - -------------------------------------------------------------------------------------- 1997 - -------------------------------------------------------------------------------------- Average Int.Earned/ Avg. (Dollars in thousands) Balance Paid Yield - -------------------------------------------------------------------------------------- ASSETS Interest earning assets: Loans $365,615 $33,473 9.16% Taxable investment securities 64,384 3,910 6.07 Non-taxable investment securities 1,130 56 4.96 Federal funds sold and other investments 8,492 326 3.84 --------------------------- Total interest earning assets 439,621 37,765 8.59 =========================== Non-interest earning assets: Cash and due from banks 9,341 Premises and equipment 6,869 Other assets 11,065 Allowance for loan losses (3,867) --------------------------- Total assets $463,029 =========================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities: Money market/NOW accounts $ 95,431 4,092 4.29 Savings deposits 9,665 279 2.89 Certificates of deposit 162,870 9,436 5.79 Certificates of deposit over $100,000 48,358 2,686 5.55 IRA certificates 12,780 760 5.95 Brokered deposits - - - --------------------------- Total interest bearing deposits 329,104 17,253 5.24 Federal funds purchased, repurchase agreements and other short-term borrowings 52,702 2,895 5.49 Other borrowings 16,658 1,318 7.91 Guaranteed preferred beneficial interest in subordinated debentures - - - --------------------------- Total interest bearing liabilities 398,464 21,466 5.39 --------------------------- Non-interest bearing liabilities and equity: Demand deposits 36,966 Other liabilities 2,307 Shareholders' equity 25,292 --------------------------- Total liabilities and shareholders' equity $463,029 =========================== Net interest income $16,299 =========================== Net interest spread 3.20% Net interest margin 3.71% Average balances include non-accrual loans. Presented at actual yield rather than tax-equivalent yield.
1999 Annual Report\11 MANAGEMENT'S DISCUSSION AND ANALYSIS, CONT'D 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: RATE/VOLUME ANALYSIS
Twelve Months Ended December 31, 1999 Twelve Months Ended December 31, 1998 Compared to the Compared to the Twelve Months Ended December 31, 1998 Twelve Months Ended December 31, 1997 - ----------------------------------------------------------------------------------------------------------------------------------- (In thousands) Volume Rate Net Change Volume Rate Net Change - ----------------------------------------------------------------------------------------------------------------------------------- INTEREST EARNED ON: Loans $ 5,096 $ (904) $ 4,192 $11,534 $(595) $10,939 Taxable investment securities (891) (69) (960) 340 (27) 313 Non-taxable investment securities 26 - 26 16 - 16 Federal funds sold and other investments (300) (64) (364) 24 161 185 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest income 3,931 (1,037) 2,894 11,914 (461) 11,453 - ----------------------------------------------------------------------------------------------------------------------------------- INTEREST PAID ON: Money market/NOW accounts 2,114 (169) 1,945 1,297 (169) 1,128 Savings deposits (50) (67) (117) 180 (34) 146 Certificates of deposit (2,618) (1,058) (3,676) 3,539 (97) 3,442 Certificates of deposit over $100,000 (333) (278) (611) (488) - (488) IRA certificates (18) (55) (73) 465 2 467 Brokered deposits 1,179 - 1,179 - - - Federal funds purchased, repurchase agreements and other short-term borrowings 307 70 377 8 (278) (270) Other borrowings (106) (317) (423) 1,577 (201) 1,376 Guaranteed preferred beneficial interest in subordinated debentures 733 - 733 - - - - ----------------------------------------------------------------------------------------------------------------------------------- Total interest expense 1,208 (1,874) (666) 6,578 (777) 5,801 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income $ 2,723 $ 837 $ 3,560 $ 5,336 $ 316 $ 5,652 ===================================================================================================================================
OTHER INCOME, CONT'D In December 1998, we sold our branches located outside the greater metropolitan St. Louis area in order to focus on and expand our market share in our principal trade area. This sale generated a reduction in loans of $13.5 million, a reduction in deposits of $40.0 million and a pre-tax gain of $2.4 million. Also during 1998, we completed two significant sales of a large portion of our one- to four-family adjustable rate mortgage loans. These sales generated a pre-tax gain of $1.1 million. While we sold some of our mortgage loans in previous years, the 1998 bulk sales reflected a shift in our strategy from originating and holding mortgage loans to increasing our lending emphasis on more profitable commercial loan relationships. Mortgage banking revenues decreased 58.9% in 1999 to $0.9 million. This compares to $2.3 million in 1998 which represented an increase of 76.9% compared to 1997. The decrease in 1999 reflected a general slow- down in mortgage refinancings and the March 1999 sale of Edge. The increase in 1998 was attributable to a favorable economic environment of low unemployment and stable, low long-term interest rates. Leasing revenues totaled $1.1 million in 1999, a decrease of 29.5% compared to $1.5 million in 1998 and $0.4 million in 1997. We entered the retail leasing business during 1997 and the 1998 results reflected a full year of business operation compared to a partial year in 1997. During the latter part of 1998, we decided to curtail this line of business because of declining profit margins. Service charges on deposit accounts increased to $1.9 million in 1999 compared to $1.4 million in 1998 and $913,000 in 1997. The increases were due to additional branch locations generating a larger base of transaction deposits as well as the benefit of Allegiant Bank's revised fee structure. Brokerage revenues remained flat at $0.3 million in 1999 and 1998, representing an increase of 50.0% compared to $0.2 million in 1997. OTHER EXPENSES Total operating expenses decreased $2.5 million or 11.7% during 1999, totaling $18.8 million compared to $21.3 million in 1998. Our efficiency ratio for 1999 was 61.8%, an improvement from 68.1% in 1998 and 66.7% in 1997. The improvement reflected our commitment to improving our overall efficiency by continuing to emphasize revenue growth while decreasing our current level of operating expense. Salaries and employee benefits remained unchanged at $9.7 million in 1999 and 1998 following an increase from $6.2 million in 1997. The increase from 1997 was due to additional staffing resulting from acquisitions and new locations. Average full-time equivalent employees for 1999 was 224 compared to 237 in 1998 and 146 in 1997. At December 31, 1999, we had 225 full-time equivalent employees compared to 215 at year-end 1998 and 209 at year-end 1997. Furniture and equipment expenses decreased $105,000 to $1.7 12\Allegiant Bancorp, Inc. million in 1999. This followed an increase of $809,000 in 1998. The increase in 1998 was the result of acquisitions in 1997 and branch openings in 1998 and 1997. Occupancy expenses totaled $1.3 million, a decrease of $179,000 or 11.8% during 1999 following an increase of 106.4% in 1998. The 1998 increase in occupancy expenses to $1.5 million from $738,000 in 1997 was attributable to acquisitions and branch openings, as discussed above. Depreciation of the assets held for operating leases decreased $479,000 in 1999 compared to 1998. As discussed under -- "Other Income," the retail leasing business was started in late 1997 so that 1998 reflected a full year of operations. During the latter part of 1998, this line of business was curtailed resulting in lower depreciation expense in 1999. Expense for the amortization of goodwill totaled $980,000 in 1999 and $910,000 in 1998 compared to $552,000 in 1997. This increase was the result of acquisitions and deposit purchases during 1997 and reflected a full year of amortization during 1998 and 1999. In 1999, operating losses totaled $80,000 compared to $450,000 in 1998 and $870,000 in 1997. Of the amount in 1997, $752,000 was considered systemic and non-recurring due to integration of two branch acquisitions and difficulties associated with upgrading our computer systems to an entirely new operating system. Excluding non-recurring items in 1998, the increase in operating losses in 1998 was $332,000. The 1998 operating losses were related to inconsistent operating procedures as a result of the expansion of the number of branches and number of employees. Throughout 1998 and 1999, we have reengineered several operational processes in an effort to improve quality and control. As a result of training and improved operating procedures, we reduced other operating losses to $80,000 in 1999. Other non-interest expense decreased $1.1 million or 22.0% in 1999 compared to 1998. Other non-interest expense increased $1.8 million in 1998 from 1997. The growth in 1998 expenses was associated with an increase in employees, an increase in the number of deposit and loan accounts, and an increase in physical locations compared to prior years. The decrease in 1999 was the result of tighter expense control and implementation of operating efficiencies following the sale of our three Northeast Missouri branches in December 1998. Specific cost savings realized in 1999 compared to 1998 included a decrease in supplies expense of $215,000 as a result of the implementation of a centralized purchasing function. Telephone expense decreased $118,000 as telephone contracts were reviewed and renegotiated. Legal, accounting and professional fee expense decreased $432,000 in 1999 compared to 1998 as expenses in 1998 included costs associated with establishing a real estate investment trust and the costs associated with changing independent accounting firms. The following table sets forth our summary of other income and expenses for the years indicated:
Years Ended December 31, - ------------------------------------------------------------------------------------------ (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------ OTHER INCOME: Service charges on deposits $ 1,888 $ 1,387 $ 913 Leasing revenues 1,077 1,527 433 Mortgage banking revenues 944 2,299 1,300 Brokerage division revenues 306 312 169 Gain on sale of branches - 2,370 - Gain on sale of mortgage loans - 1,112 27 Gain on the sale of securities - 68 2 Other non-interest income 628 249 454 - ------------------------------------------------------------------------------------------ Total other income $ 4,843 $ 9,324 $ 3,298 ========================================================================================== OTHER EXPENSES: Salaries and employee benefits $ 9,717 $ 9,663 $ 6,192 Furniture and equipment 1,650 1,752 943 Occupancy 1,344 1,523 738 Goodwill amortization 980 910 358 Depreciation of operating leases 861 1,340 394 Supplies 274 489 428 Operating losses - other 80 450 870 Operating losses - overdrawn customer accounts 35 272 68 Other non-interest expense 3,821 4,896 3,078 - ------------------------------------------------------------------------------------------ Total other expenses $18,762 $21,295 $13,069 ==========================================================================================
BALANCE SHEET ANALYSIS 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 December 31, 1999 held-to-maturity securities amounted to $11.7 million representing those securities we intend to hold to maturity. Securities designated as available-for-sale totaled $49.1 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 referred to as the securities portfolio. At December 31, 1999 the securities portfolio totaled $60.8 million, an increase of 11.0% from the preceding year. While year-end balances for 1999 were higher than 1998, the percentage of securities to earning assets declined to 9.0% in 1999 compared to 12.5% in 1998. This decline reflected management's decision to allow the proceeds of maturing securities to be reinvested in higher yielding commercial loans. 1999 Annual Report\13 MANAGEMENT'S DISCUSSION AND ANALYSIS, CONT'D The carrying value and approximate fair value of investment securities at December 31, 1999, 1998 and 1997 were as follows:
Securities Available-for-Sale December 31, 1999 - --------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value - --------------------------------------------------------------------------------------------------- U.S. government and agency securities $34,553 $ 3 $(1,032) $33,524 State and municipal securities 598 - (14) 584 Mortgage-backed securities 7,558 13 (132) 7,439 Federal Home Loan Bank stock 7,124 - - 7,124 Other securities 458 - - 458 - --------------------------------------------------------------------------------------------------- Total $50,291 $16 $(1,178) $49,129 =================================================================================================== Securities Held-to-Maturity December 31, 1999 - --------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value - --------------------------------------------------------------------------------------------------- U.S. government and agency securities $ 5,500 $ 1 $ (15) $ 5,486 State and municipal securities 4,210 4 (418) 3,796 Mortgage-backed securities 1,958 44 - 2,002 Federal Home Loan Bank stock - - - - Other securities - - - - - --------------------------------------------------------------------------------------------------- Total $11,668 $49 $(433) $11,284 =================================================================================================== Securities Available-for-Sale December 31, 1998 - --------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value - --------------------------------------------------------------------------------------------------- U.S. government and agency securities $29,269 $217 $ (51) $29,435 State and municipal securities 598 9 - 607 Mortgage-backed securities 8,360 38 (65) 8,333 Federal Home Loan Bank stock 3,574 - - 3,574 Other securities 791 - - 791 - --------------------------------------------------------------------------------------------------- Total $42,592 $264 $(116) $42,740 =================================================================================================== Securities Held-to-Maturity December 31, 1998 - --------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value - --------------------------------------------------------------------------------------------------- U.S. government and agency securities $ 7,585 $ 30 $(21) $ 7,594 State and municipal securities 858 28 - 886 Mortgage-backed securities 3,597 55 - 3,652 Federal Home Loan Bank stock - - - - Other securities - - - - - --------------------------------------------------------------------------------------------------- Total $12,040 $113 $(21) $12,132 =================================================================================================== Securities Available-for-Sale December 31, 1997 - --------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value - --------------------------------------------------------------------------------------------------- U.S. government and agency securities $26,545 $106 $ (9) $26,642 State and municipal securities 597 - - 597 Mortgage-backed securities 9,243 33 (1) 9,275 Federal Home Loan Bank stock 7,033 - - 7,033 Other securities 1,371 - - 1,371 - --------------------------------------------------------------------------------------------------- Total $44,789 $139 $(10) $41,918 =================================================================================================== Securities Held-to-Maturity December 31, 1997 - --------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value - --------------------------------------------------------------------------------------------------- U.S. government and agency securities $21,712 $ 50 $(131) $21,631 State and municipal securities 966 24 - 990 Mortgage-backed securities 9,273 253 (1) 9,525 Federal Home Loan Bank stock - - - - Other securities - - - - - --------------------------------------------------------------------------------------------------- Total $31,951 $327 $(132) $32,146 ===================================================================================================
Maturities and yield information of the investment securities portfolio as of December 31, 1999 were as follows: SECURITIES PORTFOLIO--MATURITIES AND YIELDS
Weighted Over One Weighted One Year Average Through Average (Dollars in thousands) or Less Yield Five Years Yield - ----------------------------------------------------------------------------------------------------- U.S. Governmental securities $ 1,500 6.26% $ - -% U.S. agency securities 9,992 5.76 20,543 5.62 Municipal securities 85 3.41 161 2.06 Mortgage-backed securities 4,328 6.85 4,603 5.94 Federal Home Loan Bank stock - - - - Other securities 458 6.00 - - - -------------------------------------------------------- ----------- Total securities $16,363 6.09 $25,307 5.65 ======================================================== =========== Total securities portfolio Over Five Weighted Weighted Through Average Over Ten Average (Dollars in thousands) Ten Years Yield Years Yield - ------------------------------------------------------------------------------------------------------ U.S. Governmental securities $ - -% $ - -% U.S. agency securities 6,989 6.17 - - Municipal securities 1,128 4.29 3,419 6.20 Mortgage-backed securities 380 7.60 87 7.60 Federal Home Loan Bank stock 7,124 6.35 - - Other securities - - - - - -------------------------------------------------------- ----------- Total securities $15,621 6.15 $ 3,506 6.23 ======================================================== =========== Total securities portfolio $60,797 5.93 Maturities are shown in this table by expected maturity. Expected maturities differ from contractual maturities due to the right to call or prepay obligations.
14\Allegiant Bancorp, Inc. LOANS Loans historically have been the primary component of earning assets. At December 31, 1999 loans totaled $615.2 million, an increase of 24.1% from year-end 1998. Average loans increased 11.1% during 1999 compared to a 35.0% increase in 1998. Substantially all of these loans were originated in our primary market areas. We have no foreign loans and a minor amount of participations purchased. An increase in commercial loans comprised the majority of our loan growth in 1999 and 1998. Commercial real estate loans increased $38.6 million or 19.6% to $235.2 million at year-end 1999 compared to $196.5 million at year-end 1998. Construction loans increased $28.7 million or 78.5% in 1999, totaling $65.3 million at year-end 1999 compared to $36.6 million at year-end 1998. The increase in construction loans in 1999 was primarily due to an increase in loans to St. Louis area home builders. Traditional commercial loans increased $24.0 million or 19.0% in 1999 to $150.3 million at December 31, 1999. Growth in these commercial categories reflected management's decision to focus on the more profitable commercial relationships and reduce the amount of one- to four-family mortgage loans carried on our balance sheet. The growth in the commercial sectors was accomplished by hiring additional commercial lending personnel and directing existing staff toward commercial relationship procurement. As a result of this emphasis, commercial real estate loans comprised 38.2% of the loan portfolio in 1999 and 39.7% in 1998 compared to 27.9% in 1997. Traditional commercial loans comprised 24.4% of the portfolio in 1999 and 25.5% in 1998 compared to 22.7% in 1997. The decline in one- to four-family residential loans since 1997 partially offset the commercial loan growth. Residential loans declined from $196.0 million at December 31, 1997 to $116.3 million at year-end 1998. This decline was primarily the result of the 1998 bulk sale of $78.4 million in loans. One- to four-family residential loans increased 21.5% to $141.3 million at December 31, 1999, as we retained a larger percentage of the adjustable rate mortgages. One- to four-family residential loans represented 23.0% of total loans at year-end 1999 and 23.5% at year-end 1998 compared to 40.4% of total loans at year-end 1997. Consumer loans increased $3.2 million dollars or 10.5% during 1999, reaching $24.2 million at December 31, 1999 compared to $20.9 million and $16.8 million at December 31, 1998 and 1997, respectively. Consumer loans do not comprise a large percentage of our loan portfolio (3.9% at December 31, 1999), but are an important product which allows us to meet the lending needs of individuals within the St. Louis community. The following table summarizes the composition of our loan portfolio at the dates indicated: LOAN PORTFOLIO -- TYPES OF LOANS
December 31, - ----------------------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Commercial, financial, agricultural, municipal and industrial development $150,259 $126,239 $109,937 $ 75,129 $ 40,518 Real estate-construction 65,310 36,590 27,181 8,763 8,777 Real estate-mortgage One- to four-family residential 141,264 116,291 195,964 121,386 71,260 Multi-family and commercial 235,158 196,545 135,452 74,721 52,795 Consumer and other 24,152 20,908 16,821 12,084 8,379 Less unearned income (952) (904) (493) (157) (185) - ----------------------------------------------------------------------------------------------------------------------------------- Total loans $615,191 $495,669 $484,862 $291,926 $181,544 =================================================================================================================================== We had no outstanding foreign loans at the dates reported. LOAN PORTFOLIO -- MATURITIES AND SENSITIVITIES OF LOANS December 31, 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Maturing in Maturing After One Year Maturing After One Year or Less Through Five Years Five Years - ----------------------------------------------------------------------------------------------------------------------------------- (In thousands) Fixed-rate Variable Fixed-rate Variable Total - ----------------------------------------------------------------------------------------------------------------------------------- Commercial, financial, agricultural, municipal and industrial development $ 94,322 $ 34,479 $14,991 $ 1,557 $ 4,910 $150,259 Real estate-construction 43,432 13,192 7,653 700 333 65,310 Real estate-mortgage One- to four-family residential 61,978 30,337 15,719 5,216 28,014 141,264 Multi-family and commercial 88,756 105,222 25,095 5,705 10,380 235,158 Consumer and other 8,381 11,923 3,296 552 - 24,152 Less unearned income (952) - - - - (952) - ----------------------------------------------------------------------------------------------------------------------------------- Total loans $295,917 $195,153 $66,754 $13,730 $43,637 $615,191 ===================================================================================================================================
1999 Annual Report\15 MANAGEMENT'S DISCUSSION AND ANALYSIS, CONT'D ASSET QUALITY Non-performing assets, consisting of loans past due 90 days or greater, non-accrual loans, restructured loans and other real estate owned decreased to $1.0 million at December 31, 1999 compared to $1.8 million at December 31, 1998 and $1.7 million at December 31, 1997. At December 31, 1999 non-performing assets represented 0.14% of total assets compared to 0.30% of total assets at December 31, 1998 and 0.28% of total assets at December 31, 1997. Non-accrual loans were $0.6 million at December 31, 1999 compared to $1.5 million at December 31, 1998 and $0.6 million at December 31, 1997. Loans delinquent 90 days or more decreased from $818,000 at year-end 1997 to $69,000 and $73,000 at December 31, 1998 and 1999, respectively. Other real estate owned at December 31, 1999 totaled $402,000 and consisted primarily of assets repossessed through a loan foreclosure in December 1999. Other real estate was $0 and $330,000 at December 31, 1998 and 1997, respectively. We have two loan relationships, not included in the past-due, restructured or non-accrual categories, where known information about credit problems causes management to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms over the next six months. These two loan relationships totaled $8.7 million at December 31, 1999. Principal and interest payments on such loans were current at December 31, 1999. We continually analyze our loan portfolio to identify potential risk elements. The loan portfolio is reviewed by lending management and our internal loan review staff. As an integral part of their examination process, the various regulatory agencies periodically review our reserve for loan losses. We believe that our allowance for loan losses at December 31, 1999 was adequate to absorb potential losses inherent in the loan portfolio. The following table summarizes, for the periods presented, non- performing assets by category: RISK ELEMENTS -- NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
December 31, - ----------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Commercial, financial, agricultural, municipal and industrial development: Past due 90 days or more $ - $ - $ 341 $ 5 $ 113 Non-accrual 379 962 360 207 109 Restructured terms - - - - - Real estate-construction: Past due 90 days or more - - - 264 36 Non-accrual - - 108 84 20 Restructured terms - - - - 3 Real estate-mortgage: One- to four-family residential: Past due 90 days or more 22 69 456 - - Non-accrual 178 378 70 - - Restructured terms - - - - - Multi-family and commercial: Past due 90 days or more - - - - - Non-accrual - 307 - - - Restructured terms - - - - - Consumer and other, net of unearned income: Past due 90 days or more - - 21 23 12 Non-accrual 49 62 21 109 15 Restructured terms - - - - - - ----------------------------------------------------------------------------------------------------------------------------------- Total non-performing loans 628 1,778 1,377 692 308 - ----------------------------------------------------------------------------------------------------------------------------------- Other real estate 402 - 330 - 10 - ----------------------------------------------------------------------------------------------------------------------------------- Total non-performing assets $ 1,030 $ 1,778 $ 1,707 $ 692 $ 318 =================================================================================================================================== Balance sheet information (at year-end): Total assets $ 728,492 $596,274 $608,237 $377,564 $280,386 Loans outstanding 615,191 495,669 484,862 291,926 181,544 Shareholders' equity 47,991 48,104 42,071 16,386 13,938 Allowance for loan losses 8,315 6,442 5,193 3,100 2,130 Ratios: Non-performing loans to total loans 0.10% 0.36% 0.28% 0.24% 0.17% Non-performing assets to total assets 0.14 0.30 0.28 0.18 0.11 Non-performing loans to shareholders' equity 1.31 3.70 3.27 4.22 2.21 Allowance for loan losses to total loans 1.35 1.30 1.07 1.06 1.17 Allowance for loan losses to non-performing loans 1,324.20 362.32 377.12 447.98 691.56
16\Allegiant Bancorp, Inc. ALLOWANCE FOR LOAN LOSSES Our allowance for loan losses increased 29.1% from $6.4 million at December 31, 1998 to $8.3 million on December 31, 1999. This followed an increase of 24.1% in 1998 compared to 1997. The provision charged to expense was $2.5 million in 1999, similar to the $2.4 million expensed in 1998. The 1999 provision allowed the level of the allowance to increase to 1.35% of total loans at December 31, 1999 compared to 1.30% at December 31, 1998. As previously discussed, we have shifted our lending focus to higher yielding commercial relationships. This shift, while providing higher earnings potential, does entail greater risk than traditional residential mortgage loans. Because of this shift, the overall level of the allowance for loan losses was increased. Further, 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 allowance allocated to this loan category. Net charge- offs for 1999 were 12 basis points of average loans outstanding compared to 25 basis points in 1998 and 19 basis points in 1997. At year-end 1999, our allowance represented 1,324.2% of non-performing loans compared to 362.3% at year-end 1998 and 377.1% at year-end 1997. The allowance for loan losses is provided at a level considered adequate to provide for potential loan losses and, among other things, is based on management's evaluation of the anticipated impact on the loan portfolio of current economic conditions, changes in the character and size of the loan portfolio, evaluation of potential problem loans identified based on existing circumstances known to management and recent loan loss experience. We continually monitor the quality of our loan portfolio to ensure 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 December 31, 1999. The following table summarizes the allocation of the allowance for loan losses by major category and identifies the percentage of each loan category to the total loan portfolio balance: ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Percent Percent Percent Allocated of Allocated of Allocated of (Dollars in thousands) Reserves Total Reserves Total Reserves Total - ------------------------------------------------------------------------------------------------------------------------------------ Commercial, financial, agricultural, municipal and industrial development $2,082 25.04% $1,327 20.60% $1,352 26.04% Real estate-construction 649 7.80 347 5.39 303 5.83 Real estate-mortgage One- to four-family residential 1,712 20.59 1,222 18.97 636 12.25 Multi-family and commercial 3,208 38.58 2,883 44.75 1,572 30.27 Consumer and other 239 2.88 162 2.51 179 3.45 Unallocated 425 5.11 501 7.78 1,151 22.16 - ------------------------------------------------------------------------------------------------------------------------------------ Total $8,315 100.00% $6,442 100.00% $5,193 100.00% ==================================================================================================================================== December 31, - ------------------------------------------------------------------------------------------------------ 1996 1995 - ------------------------------------------------------------------------------------------------------ Percent Percent Allocated of Allocated of (Dollars in thousands) Reserves Total Reserves Total - ------------------------------------------------------------------------------------------------------ Commercial, financial, agricultural, municipal and industrial development $ 833 26.87% $ 467 21.92% Real estate-construction 124 4.00 281 13.19 Real estate-mortgage One- to four-family residential 439 14.16 305 14.32 Multi-family and commercial 714 23.03 513 24.09 Consumer and other 142 4.58 90 4.23 Unallocated 848 27.36 474 22.25 - ------------------------------------------------------------------------------------------------------ Total $3,100 100.00% $2,130 100.00% ======================================================================================================
1999 Annual Report\17 MANAGEMENT'S DISCUSSION AND ANALYSIS, CONT'D 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 expenses: SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION
Years Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Allowance for loan losses (beginning of year) $ 6,442 $ 5,193 $ 3,100 $ 2,130 $ 1,455 Loans charged off: Commercial, financial, agricultural, municipal and industrial development (504) (632) (536) (113) (183) Real estate-construction - (7) (22) (250) (82) Real estate-mortgage One- to four-family residential (160) (307) (88) (37) - Multi-family and commercial (23) (133) - (75) - Consumer and other (173) (147) (113) (68) (58) - ------------------------------------------------------------------------------------------------------------------------------------ Total loans charged off (860) (1,226) (759) (545) (323) - ------------------------------------------------------------------------------------------------------------------------------------ Recoveries of loans previously charged off: Commercial, financial, agricultural, municipal and industrial development 67 4 12 54 11 Real estate-construction - 6 - - - Real estate-mortgage One- to four-family residential 95 14 10 3 - Multi-family and commercial 10 20 20 - - Consumer and other 16 11 30 10 10 - ------------------------------------------------------------------------------------------------------------------------------------ Total recoveries 188 55 52 67 21 - ------------------------------------------------------------------------------------------------------------------------------------ Net loans charged off (672) (1,171) (707) (478) (302) - ------------------------------------------------------------------------------------------------------------------------------------ Acquired subsidiary balance - - 403 - - Provision for loan losses 2,545 2,420 2,397 1,448 977 - ------------------------------------------------------------------------------------------------------------------------------------ Allowance for loan losses (end of year) $ 8,315 $ 6,442 $ 5,193 $ 3,100 $ 2,130 ==================================================================================================================================== Loans outstanding: Average $548,165 $493,619 $365,615 $232,314 $158,503 End of year 615,191 495,669 484,862 291,926 181,544 Ratios: Net charge-offs to average loans 0.12% 0.25% 0.19% 0.21% 0.19% Net charge-offs to provision for loan losses 26.39 48.39 29.50 33.01 30.91 Provision for loan losses to average loans 0.46 0.49 0.66 0.62 0.62 Allowance for loan losses to total loans 1.35 1.30 1.07 1.06 1.17
18\Allegiant Bancorp, Inc. DEPOSITS As shown below, total deposits increased $97.7 million or 21.7% in 1999 compared to 1998. The increase in deposits included $48.0 million in brokered certificates of deposit which were utilized as a cost- effective method of funding a portion of our loan growth in 1999. Money market accounts increased $36.9 million or 29.8% to $160.7 million at December 31, 1999. We continue to attract money market deposits with competitive interest rates and have increased these core deposits to 29.3% of total deposits from 27.5% at December 31, 1998. Average deposits for 1999 were $494.5 million compared to $475.7 million in 1998. The increase in average deposits included a $52.7 million increase in money market accounts and a decrease in certificates of deposit of $34.2 million. Changes in the mix of average deposits were the result of a reduction in emphasis on certificates of deposit under $100,000 along with management's decision to replace these deposits with more cost effective deposits. DEPOSIT LIABILITY COMPOSITIONS
December 31, - ----------------------------------------------------------------------------------------------------------------------------------- 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Percent Avg. Percent Avg. (Dollars in thousands) Amount of Total Rate Amount of Total Rate - ----------------------------------------------------------------------------------------------------------------------------------- Demand deposits $ 51,845 9.45% -% $ 55,417 12.29% -% Money market and NOW accounts 185,193 33.77 3.99 142,902 31.70 4.12 Savings deposits 13,052 2.38 2.13 14,917 3.31 2.57 Certificates of deposit 181,700 33.13 5.23 187,886 41.68 5.73 Certificates of deposit over $100,000 47,550 8.67 4.79 31,173 6.92 5.55 IRA Certificates 21,126 3.85 5.69 18,471 4.10 5.96 Brokered deposits over $100,000 48,000 8.75 5.58 - - - - ------------------------------------------------------------------------ ---------------------------- Total Deposits $548,466 100.00% 4.63 $450,766 100.00% 5.13 ======================================================================== ============================
AMOUNTS AND MATURITIES OF BROKERED DEPOSITS AND TIME DEPOSITS OF $100,000 OR MORE (In thousands) December 31, 1999 - --------------------------------------------------------- Three months or less $36,220 Over three months through six months 33,724 Over six months through twelve months 16,167 Over twelve months 9,439 - --------------------------------------------------------- Total $95,550 ========================================================= INTEREST RATE SENSITIVITY Our asset/liability strategy is to minimize the sensitivity of earnings to changes in interest rates while maintaining an acceptable net interest margin. Allegiant Bank's asset/liability committee monitors the interest rate sensitivity of the balance sheet on a monthly basis. The committee reviews asset and liability repricing in the context of current and future interest rate scenarios affecting the economic climate in our market areas. Our pricing policy is that all earning assets and interest bearing liabilities be either based on floating rates or have a fixed rate not exceeding five years. Real estate mortgage loans held by us, while having long final maturities, are comprised of one-, two- or three-year adjustable rate loans. The adjustable basis of these loans significantly reduces interest rate risk. 1999 Annual Report\19 MANAGEMENT'S DISCUSSION AND ANALYSIS, CONT'D The following table illustrates our estimated interest rate sensitivity and periodic and cumulative gap positions calculated as of December 31, 1999:
Time to Maturity or Repricing - ----------------------------------------------------------------------------------------------------------------------------------- 0 to 3 4 to 12 1 to 5 Over (Dollars in thousands) Months Months Years 5 Years Total - ----------------------------------------------------------------------------------------------------------------------------------- Rate Sensitive Assets (RSA): Loans $312,621 $ 90,225 $210,509 $ 1,836 $615,191 Investment securities 7,036 9,285 25,306 19,170 60,797 Federal funds sold 9,927 - - - 9,927 - ----------------------------------------------------------------------------------------------------------------------------------- Total RSA $329,584 $ 99,510 $235,815 $ 21,006 $685,915 =================================================================================================================================== Rate Sensitive Liabilities (RSL): Money market accounts $160,701 $ - $ - $ - $160,701 NOW accounts 24,492 - - - 24,492 Savings 13,052 - - - 13,052 Time deposits 36,838 100,022 65,688 457 203,006 Time deposits over $100,000 13,064 24,895 9,261 330 47,550 Brokered deposits 23,000 25,000 - - 48,000 Repurchase agreements 17,787 93 480 - 18,361 Short-term borrowings-other - 500 - - 500 Short-term FHLB borrowings 32,500 24,500 - - 57,000 Long-term FHLB borrowings 6 20 22,249 935 23,210 Long-term borrowings-other - - 11,798 17,922 29,720 - ----------------------------------------------------------------------------------------------------------------------------------- Total RSL $321,441 $175,031 $109,476 $ 19,644 $625,592 =================================================================================================================================== Periodic Information: GAP (RSA-RSL) $ 8,143 $(75,520) $126,339 $ 1,362 RSA/RSL 102.53% 56.85% 215.40% 106.94% RSA/total assets 45.24 13.66 32.37 2.88 RSL/total assets 44.12 24.03 15.03 2.70 GAP/total assets 1.12 (10.37) 17.34 0.19 GAP/RSA 2.47 (75.89) 53.58 6.48 Cumulative Information: Cumulative RSA $329,584 $429,094 $664,909 $685,915 Cumulative RSL 321,441 496,472 605,948 625,592 GAP (RSA-RSL) 8,143 (67,378) 58,961 60,323 RSA/RSL 102.53% 86.43% 109.73% 109.64% RSA/total assets 45.24 58.90 91.27 94.16 RSL/total assets 44.12 68.15 83.18 85.87 GAP/total assets 1.12 (9.25) 8.09 8.28 GAP/RSA 2.47 (15.70) 8.87 8.79
We measure the impact of interest rate changes on our income statement through the use of gap analysis. The gap represents the net position of assets and liabilities subject to repricing in specified time periods. During any given time period, if the amount of rate- sensitive liabilities exceeds the amount of rate-sensitive assets, a company would generally be considered negatively gapped and would benefit from falling rates over that period of time. Conversely, a positively gapped company would generally benefit from rising rates. We have structured our assets and liabilities to mitigate the risk of either a rising or falling interest rate environment. Depending upon our assessment of economic factors such as the magnitude and direction of projected interest rates over the short and long term, we generally operate within guidelines set by our asset/liability policy and attempt to maximize our returns within an acceptable degree of risk. Our intention is to maintain a gap position at the one-year horizon of between 0.75% and 1.25%. Our position at December 31, 1999 was 0.86%. We manage our gap position at the one-year horizon as well as monitor the cumulative gap position for succeeding time frames. Interest rate changes do not affect all categories of assets and liabilities equally or simultaneously. There are other factors that are difficult to measure and predict that would influence the effect of interest rate fluctuations on our income statement. For example, a rapid drop in interest rates might cause our borrowers to repay their loans at a more rapid pace and certain mortgage-related investments to be prepaid more quickly than projected. This could mitigate some of the benefits of falling rates as are expected when negatively gapped. Conversely, a rapid rise in rates could give us an opportunity to increase our margins and stifle the rate of repayment on our mortgage- related loans which would increase our returns. 20\Allegiant Bancorp, Inc. The following table shows the "rate shock" results of a simulation model that attempts to measure the effect of rising and falling interest rates over a two-year horizon in a rapidly changing rate environment. +200 Basis -200 Basis Points Points - ------------------------------------------------------------------------ Percentage change in net income due to an immediate 200 basis point change in interest rates over a two-year time horizon +17.5% -21.0% We use a sensitivity model that simulated these interest rate changes on our earning assets and interest-bearing liabilities. This process allows us to explore the complex relationships among the financial instruments in various interest rate environments. The preceding sensitivity analysis is based on numerous assumptions including: the nature and timing of interest rate levels including the shape of the yield curve; prepayments on loans and securities; changes in deposit levels; pricing decisions on loans and deposits; reinvestment/replacement of asset and liability cash flows; and others. While assumptions are developed based upon current economic and local market conditions, we cannot make any assurances as to the predictive nature of these assumptions including how client preferences or competitor influences might change. Interest rate exposure is measured by the potential impact on our income statement of changes in interest rates. We use information from our gap analysis and rate shock calculations as input to help manage our exposure to changing interest rates. We use our rate shock information to tell us how much exposure we have to rapidly changing rates. Based on historical information and our assessment of future interest rate trends, we do not believe it is likely that rapidly rising rates would have a significant positive impact on our results of operations. Conversely, we also believe there is minimal likelihood that rapidly falling rates would have a significant negative impact on our results of operations. We believe that more likely scenarios include gradual changes in interest rate levels. We continue to monitor our gap and rate shock analyses to detect changes to our exposure to fluctuating rates. We have the ability to shorten or lengthen maturities on newly acquired assets, sell investment securities, or seek funding sources with different maturities in order to change our asset and liability structure for the purpose of mitigating the effect of interest rate risk. The following table provides additional information about our financial instruments at December 31, 1999. For loans, securities and liabilities with contractual maturities, the table presents principal cash flow and related weighted-average interest rates by contractual maturities. Core deposits that have no contractual maturity are subject to immediate withdrawal or repricing.
Year of Contractual Maturity - ------------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands) 2000 2001 2002 2003 2004 Thereafter Total - ------------------------------------------------------------------------------------------------------------------------------------ RATE-SENSITIVE ASSETS: Fixed rate loans $ 77,997 $46,728 $101,747 $24,180 $22,497 $13,730 $286,880 Average interest rate 8.57% 8.35% 8.27% 8.34% 8.03% 8.29% 8.35% Variable rate loans $217,921 $21,557 $ 26,837 $ 7,470 $10,889 $43,637 $328,312 Average interest rate 9.04% 8.92% 8.47% 8.79% 8.52% 7.78% 8.79% Fixed rate securities $5,881 $ 7,065 $ 5,484 $ 7,854 $ 4,630 $16,340 $ 47,254 Average interest rate 6.17% 6.65% 6.76% 6.82% 7.17% 6.88% 6.76% Variable rate securities $4,000 - - - - - $ 4,000 Average interest rate 4.86% - - - - - 4.86% Federal funds sold and other overnight investments $ 9,927 - - - - - $ 9,927 Average interest rate 6.17% - - - - - 6.17% RATE-SENSITIVE LIABILITIES: Non interest-bearing deposits $ 51,845 - - - - - $ 51,845 Savings and interest-bearing checking $358,946 - - - - - $358,946 Average interest rate 3.96% - - - - - 3.96% Time deposits $228,382 $56,378 $ 10,390 $ 5,610 $ 2,871 $ 787 $304,419 Average interest rate 5.29% 5.52% 5.68% 5.64% 5.40% 6.51% 5.35% Fixed interest rate borrowings $ 55,861 $12,650 $ 625 $ 1,500 - $41,085 $111,721 Average interest rate 5.20% 7.00% 5.87% 5.62% - 5.27% 5.44%
1999 Annual Report\21 MANAGEMENT'S DISCUSSION AND ANALYSIS, CONT'D 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. In addition, we incrementally generate funds through brokered certificates of deposit. During 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 transact repurchase agreements using those securities. We anticipate continued loan demand in our market area as the banking industry continues to consolidate. We have utilized, and expect to continue to utilize, Federal Home Loan Bank borrowings to fund a portion of future loan growth. We had an $85.2 million secured credit facility with the Federal Home Loan Bank as of December 31, 1999, of which $80.2 million was outstanding at year-end 1999. Average short-term borrowings increased to $58.9 million in 1999 compared to $52.9 million in 1998. The increase reflects our strategy of utilizing Federal Home Loan Bank borrowings, as well as Federal funds purchased for short periods of time, to fund loan growth while continuing to systematically build our deposit base. The average short- term borrowings were virtually unchanged in comparing 1998 levels to 1997 levels. We experienced strong loan demand during 1999 and 1998 and anticipate the continuation of this demand during 2000. We anticipate similar use of the Federal Home Loan Bank credit facility in the foreseeable future. We experienced net growth in assets of 22.2% during 1999, while deposits increased 21.7% during the same period. We The following table summarizes short-term borrowings for the periods indicated: AVERAGE SHORT-TERM BORROWINGS
Years Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Average Average Average Average Average Average (Dollars in thousands) Balance Rate Balance Rate Balance Rate - ------------------------------------------------------------------------------------------------------------------------------------ Federal funds purchased $ 4,167 5.31% $ 1,272 5.56% $ 2,851 5.14% Securities sold under agreement to repurchase and other short-term borrowings 54,710 5.08 51,583 4.95 49,851 5.51 - -------------------------------------------------------- ----------- ----------- Total $58,877 5.10 $52,855 4.96 $52,702 5.49 ======================================================== =========== =========== Total maximum short-term borrowings outstanding at any month-end during the year $77,637 $63,449 $71,496
22\Allegiant Bancorp, Inc. continue to emphasize growth in 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 to meet expected future needs. CAPITAL RESOURCES Total shareholders' equity was $48.0 million at December 31, 1999, compared to $48.1 million at year-end 1998. The increase in total equity as the result of earnings retention was offset by the treasury stock purchased in 1999 and dividends paid of $1.2 million. At December 31, 1999, we had repurchased a total of 419,260 shares of our common stock at a cost of $4.2 million. The shares repurchased included 235,715 shares in a privately negotiated transaction and 183,545 under the open market share repurchase program announced in September 1999. In 2000, we intend to repurchase up to approximately an additional 135,500 shares to reach the 319,000 shares approved under the repurchase program. Our capital requirements have been historically 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 December 31, 1999, and matures in November 2001. During 1999 we purchased brokered certificates of deposit in order to fund loan growth and meet other liquidity needs. At December 31, 1999, we had $48.0 million outstanding which matures on various dates through May 15, 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 may use the proceeds for general corporate purposes, including possible future repurchase of our common stock. Dividends paid during 1999 were $0.20 per share, an increase of 66.7% compared to the $0.12 per share paid during 1998 which was a 50.0% increase over the $0.08 per share paid in 1997. Our dividend payout ratio was 18.1% in 1999 compared to 20.2% during 1998 and 13.8% in 1997. 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 December 31, 1999, 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 December 31, 1999 and 1998, Allegiant's and Allegiant Bank's capital ratios were as follows:
December 31, 1999 December 31, 1998 - --------------------------------------------------------------------------------------------------------------------- Allegiant Allegiant Bank Allegiant Allegiant Bank - --------------------------------------------------------------------------------------------------------------------- Total capital (to risk-weighted assets) 10.23% 11.52% 8.68% 10.93% Tier 1 capital (to risk-weighted assets) 8.80 10.27 7.42 9.68 Tier 1 capital (to average assets) 7.47 8.89 5.83 7.61
IMPACT OF YEAR 2000 In prior years, we discussed the nature and progress of our plans to become Year 2000 ready. In late 1999, we completed out remediation and testing of systems. As a result of those planning and implementation efforts, we experienced no significant disruptions in mission critical information technology and non-information technology systems and believe those systems successfully responded to the Year 2000 date change. We expensed approximately $0.2 million during 1999 in connection with remediating our systems. We are not aware of any material problems resulting from Year 2000 issues, either with our products, our internal systems, or the products and services of third parties. We will continue to monitor our mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. 1999 Annual Report\23 STATEMENT BY MANAGEMENT The financial statements and related financial information presented herein were prepared by management in accordance with accounting principles generally accepted in the United States and include amounts that are based on management's best estimates and judgements. We maintain an accounting system and related controls that are sufficient to provide reasonable assurance that assets are safeguarded and that transactions are properly authorized and recorded. The concept of reasonable assurance is based on the recognition that the cost of an accounting and control system must be related to the benefits derived. The accounting system and related controls are monitored by an internal audit program and by our independent auditors in accordance with auditing standards generally accepted in the United States. Our internal auditor and independent auditors meet regularly with the audit committee of our board of directors to ensure that respective responsibilities are being properly discharged and to discuss the results of examinations. REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors Allegiant Bancorp, Inc. We have audited the accompanying consolidated balance sheets of Allegiant Bancorp, Inc. as of December 31, 1999 and 1998 and the related consolidated statements of income, shareholders' equity and cash flows for both of the years ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated statements of income, shareholders' equity and cash flows for the year ended December 31, 1997 were audited by other auditors whose report dated March 13, 1998 expressed an unqualified opinion on those statements. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Allegiant Bancorp, Inc. at December 31, 1999 and 1998 and the consolidated results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP St. Louis, Missouri January 19, 2000 24/Allegiant Bancorp, Inc. CONSOLIDATED BALANCE SHEETS
December 31, - -------------------------------------------------------------------------------------------------- (Dollars in thousands) 1999 1998 - -------------------------------------------------------------------------------------------------- ASSETS: Cash and due from banks $ 16,842 $ 13,693 Federal funds sold and other overnight investments 9,927 3,430 Investment securities Available-for-sale (at estimated market value) 49,129 42,740 Held-to-maturity (estimated market value of $11,284 and $12,132, respectively) 11,668 12,040 Loans, net of allowance for loan losses of $8,315 and $6,442, respectively 606,876 489,227 Premises and equipment 9,896 11,010 Accrued interest and other assets 12,430 11,438 Cost in excess of fair value of net assets acquired 11,724 12,696 - -------------------------------------------------------------------------------------------------- Total assets $728,492 $596,274 ================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY: Deposits: Non-interest bearing $ 51,845 $ 55,417 Interest bearing 449,071 364,176 Certificates of deposit over $100,000 or more 47,550 31,173 - -------------------------------------------------------------------------------------------------- Total deposits 548,466 450,766 - -------------------------------------------------------------------------------------------------- Short-term borrowings 75,861 53,542 Long-term debt 35,860 40,275 Guaranteed preferred beneficial interest in subordinated debentures 17,250 - Accrued expenses and other liabilities 3,064 3,587 - -------------------------------------------------------------------------------------------------- Total liabilities 680,501 548,170 - -------------------------------------------------------------------------------------------------- Shareholders' equity: Common Stock, $.01 par value -- authorized 20,000,000 shares; issued 6,208,102 shares and 6,536,164 shares, respectively 66 65 Capital surplus 42,373 41,898 Retained earnings 10,482 6,058 Accumulated other comprehensive income (loss) (754) 83 Treasury stock, at cost, 419,260 shares (4,176) - - -------------------------------------------------------------------------------------------------- Total shareholders' equity 47,991 48,104 - -------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $728,492 $596,274 ================================================================================================== See accompanying notes to consolidated financial statements.
1999 Annual Report\25 CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, - ----------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------- Interest income: Interest and fees on loans $48,604 $44,412 $33,473 Investment securities 3,361 4,295 3,966 Federal funds sold and other overnight investments 147 511 326 - ----------------------------------------------------------------------------------------------------------------- Total interest income 52,112 49,218 37,765 - ----------------------------------------------------------------------------------------------------------------- Interest expense: Interest on deposits 20,595 21,948 17,253 Interest on short-term borrowings 3,002 2,625 2,895 Interest on long-term debt 2,271 2,694 1,318 Interest on guaranteed beneficial interest in subordinated debentures 733 - - - ----------------------------------------------------------------------------------------------------------------- Total interest expense 26,601 27,267 21,466 - ----------------------------------------------------------------------------------------------------------------- Net interest income 25,511 21,951 16,299 Provision for loan losses 2,546 2,420 2,397 - ----------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 22,965 19,531 13,902 - ----------------------------------------------------------------------------------------------------------------- Other income: Service charges on deposits 1,888 1,387 913 Net gain on sale of securities - 68 2 Other income 2,955 7,869 2,383 - ----------------------------------------------------------------------------------------------------------------- Total other income 4,843 9,324 3,298 - ----------------------------------------------------------------------------------------------------------------- Other expenses: Salaries and employee benefits 9,717 9,663 6,192 Occupancy and furniture and equipment 2,994 3,275 1,681 Other expense 6,051 8,357 5,196 - ----------------------------------------------------------------------------------------------------------------- Total other expenses 18,762 21,295 13,069 - ----------------------------------------------------------------------------------------------------------------- Income before income taxes 9,046 7,560 4,131 Provision for income taxes 3,644 3,026 1,716 - ----------------------------------------------------------------------------------------------------------------- Net income $ 5,402 $ 4,534 $ 2,415 ================================================================================================================= Basic earnings per share $ 0.84 $ 0.72 $ 0.54 Diluted earnings per share 0.83 0.68 0.49 See accompanying notes to consolidated financial statements.
26\Allegiant Bancorp, Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated Other Total Common Stock Compre- Share- Compre- --------------------- Treasury Capital Retained hensive holders' hensive (Dollars in thousands) Shares Par Stock Surplus Earnings Income Equity Income - ---------------------------------------------------------------------------------------------------------------------------------- Balance January 1, 1997 3,405,696 $34 $ - $15,972 $ 357 $ 23 $16,386 Net income - - - - 2,415 - 2,415 $2,415 Change in net unrealized gains (losses) on available-for-sale securities - - - - - 62 62 62 - ---------------------------------------------------------------------------------------------------------------------------------- Comprehensive income $2,477 ================================================================================================================================== Cash dividends declared - - - - (331) - (331) Issuance of Common Stock for: Rights offerings 1,523,037 15 - 11,226 - - 11,241 Acquisition of Reliance Financial, Inc. 898,689 9 - 10,578 - - 10,587 Exercise of stock warrants/options 260,414 3 - 1,509 - - 1,512 Various stock issuance plans 23,907 - - 199 - - 199 - ---------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1997 6,111,743 61 - 39,484 2,441 85 42,071 - ---------------------------------------------------------------------------------------------------------------------------------- Net income - - - - 4,534 - 4,534 $4,534 Change in net unrealized gains (losses) on available-for-sale securities - - - - - (2) (2) (2) - ---------------------------------------------------------------------------------------------------------------------------------- Comprehensive income $4,532 ================================================================================================================================== Cash dividends declared - - - - (917) - (917) Issuance of Common Stock for: Exercise of stock warrants/options 384,785 4 - 2,112 - - 2,116 Various stock issuance plans 39,636 - - 302 - - 302 - ---------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1998 6,536,164 65 - 41,898 6,058 83 48,104 - ---------------------------------------------------------------------------------------------------------------------------------- Net income - - - 5,402 - 5,402 $5,402 Change in net unrealized gains (losses) on available-for-sale securities - - - - (837) (837) (837) - ---------------------------------------------------------------------------------------------------------------------------------- Comprehensive income $4,565 ================================================================================================================================== Issuance of Common Stock for: Exercise of stock warrants/options 86,703 1 - 423 - - 424 Various stock issuance plans 4,495 - - 52 - - 52 Repurchase of common stock (419,260) - (4,176) - - - (4,176) Cash dividends declared - - - - (978) - (978) - ---------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1999 6,208,102 $66 $(4,176) $42,373 $10,482 $ (754) $47,991 ================================================================================================================================== Years Ended December 31, - ---------------------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------------- Reclassification adjustments: Unrealized gains (losses) on available-for-sale securities $(837) $39 $63 Less: Reclassification adjustment for gains realized included in net income - 41 1 - ---------------------------------------------------------------------------------------------------------------------------------- Net unrealized gains (losses) on available-for-sale securities $(837) $(2) $62 ================================================================================================================================== See accompanying notes to consolidated financial statements.
1999 Annual Report\27 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, - ----------------------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 5,402 $ 4,534 $ 2,415 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,610 4,366 1,057 Provision for loan losses 2,546 2,420 2,397 Net realized gains on securities available-for-sale - (68) (2) Deferred tax benefit (934) (496) (685) Net gain on sale of mortgage loans - (1,112) - Net gain on disposition of branches - (2,370) - Other changes in assets and liabilities: Accrued interest receivable and other assets (999) 811 (1,077) Accrued expenses and other liabilities (523) (745) 623 - ----------------------------------------------------------------------------------------------------------------------------------- Cash provided by operating activities 8,102 7,340 4,728 - ----------------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Net cash received in acquisition of Reliance Financial, Inc. - - 1,533 Net cash received in acquisition of branches - - 83,596 Net cash paid in disposition of branches - (22,662) - Proceeds from maturities of securities held-to-maturity 4,043 22,885 17,019 Purchase of investment securities held-to-maturity (3,671) (2,974) (10,396) Proceeds from maturities of securities available-for-sale 16,225 87,840 25,020 Proceeds from sales of securities available-for-sale - 8,989 2,949 Purchase of investments securities available-for-sale (23,924) (94,586) (39,211) Loans made to customers, net of repayments (120,195) (102,815) (175,387) Proceeds from sale of mortgage loans - 78,374 - Purchases of assets held for operating leases, net 1,414 (2,959) (2,992) Additions to premises and equipment (524) (3,186) (4,710) - ----------------------------------------------------------------------------------------------------------------------------------- Cash used in investing activities (126,632) (31,094) (102,579) - ----------------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Net increase in deposits 97,700 5,201 57,518 Net increase in short-term borrowings 16,819 338 17,442 Proceeds from issuance of long-term debt 1,085 31,150 8,625 Repayment of long-term debt - (13,650) (13) Proceeds from issuance of guaranteed preferred beneficial interest in subordinated debentures 17,250 - - Proceeds from issuance of common stock 476 2,283 12,753 Repurchase of common stock (4,176) - - Payment of dividends (978) (917) (331) - ----------------------------------------------------------------------------------------------------------------------------------- Cash provided by financing activities 128,176 24,405 95,994 - ----------------------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents 9,646 651 (1,857) Cash and cash equivalents, beginning of year 17,123 16,472 18,329 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 26,769 $ 17,123 $ 16,472 =================================================================================================================================== See accompanying notes to consolidated financial statements.
28\Allegiant Bancorp, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ACCOUNTING POLICIES: Basis of Presentation. The accompanying consolidated financial statements include the accounts of Allegiant Bancorp, Inc. and its subsidiaries. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States and reporting practices applicable to the banking industry. All significant intercompany transactions and balances have been eliminated. The significant accounting policies are summarized below. Business. Our bank subsidiary, Allegiant Bank, operates within one segment, the banking industry, and provides a full range of banking services to individual and corporate customers in the St. Louis, Missouri metropolitan area. Our bank is subject to intense competition from other financial institutions. Our bank also is subject to the regulations of certain federal and state agencies and undergoes periodic examination by those regulatory authorities. Accounting Estimates. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates. Reclassifications. Certain reclassifications have been made to the 1997 and 1998 financial statements to conform to the 1999 presentation. These reclassifications had no effect on net income. Investment Securities. Securities are classified as held-to- maturity or available-for-sale. Only those securities which management has the intent and ability to hold to maturity are classified as held- to-maturity and are reported at amortized cost. Securities that are purchased with the intent to hold for an indefinite period of time, including securities that management intends to use as part of its asset/liability strategy or that may be sold to meet liquidity needs, are classified as available-for-sale securities. Available-for-sale securities are reported at fair value with unrealized gains and losses, net of related deferred income taxes, reported in other comprehensive income. Interest and dividends on securities, including amortization of premium and accretion of discounts, are reported in interest income using the interest method. Realized securities gains or losses are reported in the Consolidated Statements of Income. Gains and losses on securities are determined on an identified certificate basis. Loans Held-for-Sale. In our lending activities, we originate residential mortgage loans intended for sale in the secondary market. Loans held-for-sale are carried at the lower of cost or fair value, which is determined on an aggregate basis. Gains or losses on the sale of loans held-for-sale are determined on a specific identification method. Loans. Interest income on loans is generally accrued on a simple interest basis. Loan fees and direct costs of loan originations are deferred and amortized over the estimated life of the loans under methods approximating the interest method. When, in management's opinion, the collection of interest on a loan will not be collected in the normal course of business, or when either principal or interest is past due over 90 days, that loan is generally placed on a non-accrual status. When a loan is placed on non- accrual status, accrued interest for the current year is reversed and charged against current earnings, and accrued interest from prior years is charged against the reserve for loan losses. Interest payments received on non-accrual loans are applied to principal if there is doubt as to the collectibility of such principal; otherwise, these receipts are recorded as interest income. A loan remains on non-accrual status until the loan is current as to payment of both principal and interest, and/or the borrower demonstrates the ability to pay and remain current. All non-accrual and renegotiated loans are considered impaired. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's observable market price, or the fair value of the collateral, if the loan is collateral dependent. Allowance for loan losses. We maintain an allowance to absorb possible loan losses inherent in the portfolio. Credit losses are charged and recoveries are credited to the reserve. Provisions for credit losses are credited to the allowance in an amount that we consider necessary to maintain an appropriate allowance given the risk identified in the portfolio. The allowance is based on ongoing monthly assessments of the possible estimated losses inherent in the loan portfolio. Our monthly evaluation of the adequacy of the allowance is comprised of the following elements. Larger commercial loans and any additional loans that exhibit potential or observed credit weaknesses are subject to individual review. Where appropriate, specific allowances are made for individual loans based on our 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. Included in the review of individual loans are those that are impaired as provided in Statement of Financial Accounting Standards ("SFAS") No. 114, Accounting by Creditors for Impairment of a Loan. Any reserves for impaired loans are measured based on the present value of expected future cash flows discounted at the loans' effective interest rate or fair value of the underlying collateral. We evaluate the collectibility of both principal and interest when assessing the need for loss accrual. Loans are graded on a risk rating system that encompasses ten categories. Collateral protection and the borrower's ability to repay loan obligations define each category. Historic loss rates and observed industry standards are utilized to determine the appropriate allocation percentage for each loan grade. Homogenous loans, such as consumer installment or home equity credit, are given a standard risk rating that is adjusted on a delinquency basis. Residential mortgage loans are not individually risk rated, but are identified as a "pool" of loans. Delinquent mortgage loans are segregated and reserve allocations are determined based on the same factors utilized for risk rated loans. An unallocated allowance is maintained to recognize the imprecision in estimating and measuring loss when evaluating reserves for individual loans or pool of loans. Historical loss rates for commercial and consumer loans may be adjusted for significant factors that, in our judgement, reflect the impact of any current conditions on loss recognition. Factors that we consider in the analysis include the effects of the national and local economies, trends in the nature and volume of loans (delinquencies, charge-offs, nonaccrual and problem loans), changes in the internal lending policies and credit standards, collection practices and examination results from bank regulatory agencies and our internal loan reviews. Allowance for individual loans are reviewed monthly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience. Premises and Equipment. Premises and equipment are stated at cost less accumulated depreciation. The provision for depreciation is computed using the straight-line method over the estimated useful lives of the individual assets for book purposes and accelerated methods for tax purposes. Ordinary maintenance and repairs are charged to expense as incurred. Real Estate Owned. Real estate acquired in foreclosure or other settlement of loans is initially recorded at the lower of fair market 1999 Annual Report\29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D value of the assets received (less estimated selling costs) or the recorded investment in the loan at the date of transfer. Any adjustment to fair market value at the date of transfer is charged against the allowance for loan losses. Subsequent write-downs are charged to operating expense including charges relating to operating, holding or disposing of the property. Cost in Excess of Fair Value of Net Assets Acquired. Intangible assets consist primarily of goodwill. Goodwill, the excess of cost over the fair value of net assets acquired in business combinations accounted for as purchases, is amortized using the straight-line method over the estimated period to be benefited, but not exceeding 15 years. Management reviews goodwill for impairment if there is a significant event that detrimentally affects operations. Impairment is measured using estimates of the undiscounted future earnings potential of the entity or assets acquired. Income Taxes. Income taxes are accounted for under the liability method in which deferred income taxes are recognized as a result of temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. Cash Equivalents. For purposes of the Consolidated Statements of Cash Flows, we consider cash and due from banks, federal funds sold and other overnight investments to be cash equivalents. New Accounting Pronouncements. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which established accounting and reporting standards for derivative instruments and hedging activities and requires recognition of all derivatives as either assets or liabilities measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of SFAS No. 133, amends SFAS No. 133 to be effective for us beginning January 1, 2001. Although we have not completed our analysis of these pronouncements, we do not anticipate that the adoption of SFAS No. 133, as amended by SFAS No. 137, will have a significant effect on our results of operations or financial position. NOTE 2. ACQUISITIONS AND DIVESTITURES: In August 1997, we acquired all the outstanding capital stock of Reliance Financial, Inc. in exchange for 599,126 shares of our common stock. In September 1997, we purchased two bank branch offices from Roosevelt Bank. As part of the agreement, we assumed deposits of $96.1 million in exchange for loans of $3.0 million, premises and equipment of $537,000 and cash of $84.0 million. Total goodwill recorded by us in connection with this acquisition was $8.8 million. Both acquisitions were recorded using the purchase method of accounting. Results of operations of companies and branches acquired in purchase business combinations are included from the date of acquisition. In December 1998, we sold three out-of-market branches to another financial institution. The book value of assets disposed of totaled $17.5 million, the book value of liabilities transferred totaled $40.0 million and the net cash paid for the divestiture was $22.7 million. A $2.4 million gain was recognized from the sale. 30\Allegiant Bancorp, Inc. NOTE 3. INVESTMENT SECURITIES: Debt and equity securities have been classified in the Consolidated Balance Sheets according to management's intent to have these securities available-for-sale or held-to-maturity. The carrying amount of securities and their approximate fair values were as follows:
Securities Available-for-Sale December 31, 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value - ----------------------------------------------------------------------------------------------------------------------------------- U.S. government and agency securities $34,553 $ 3 $(1,032) $33,524 State and municipal securities 598 - (14) 584 Mortgage-backed securities 7,558 13 (132) 7,439 Federal Home Loan Bank stock 7,124 - - 7,124 Other securities 458 - - 458 - ----------------------------------------------------------------------------------------------------------------------------------- Total $50,291 $ 16 $(1,178) $49,129 =================================================================================================================================== Securities Held-to-Maturity December 31, 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value - ----------------------------------------------------------------------------------------------------------------------------------- U.S. government and agency securities $ 5,500 $ 1 $ (15) $ 5,486 State and municipal securities 4,210 4 (418) 3,796 Mortgage-backed securities 1,958 44 - 2,002 Federal Home Loan Bank stock - - - - Other securities - - - - - ----------------------------------------------------------------------------------------------------------------------------------- Total $11,668 $ 49 $(433) $11,284 =================================================================================================================================== Securities Available-for-Sale December 31, 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value - ----------------------------------------------------------------------------------------------------------------------------------- U.S. government and agency securities $29,269 $217 $ (51) $29,435 State and municipal securities 598 9 - 607 Mortgage-backed securities 8,360 38 (65) 8,333 Federal Home Loan Bank stock 3,574 - - 3,574 Other securities 791 - - 791 - ----------------------------------------------------------------------------------------------------------------------------------- Total $42,592 $264 $(116) $42,740 =================================================================================================================================== Securities Held-to-Maturity December 31, 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value - ----------------------------------------------------------------------------------------------------------------------------------- U.S. government and agency securities $ 7,585 $ 30 $(21) $ 7,594 State and municipal securities 858 28 - 886 Mortgage-backed securities 3,597 55 - 3,652 Federal Home Loan Bank stock - - - - Other securities - - - - - ----------------------------------------------------------------------------------------------------------------------------------- Total $12,040 $113 $(21) $12,132 ===================================================================================================================================
1999 Annual Report\31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D Proceeds from the sale of securities totaled $8.9 million in 1998. There were gross realized gains and losses on the sale of securities available-for-sale of $71,000 and $3,000, respectively, in 1998. There were no sales in 1999. Held-to-maturity and available-for-sale securities with a carrying value of $36.6 million and $33.6 million at December 31, 1999 and 1998, respectively, were pledged to secure public deposits and short-term borrowings. The contractual maturities of securities (other than Federal Home Loan Bank stock and other securities), available-for-sale and securities held-to-maturity at December 31, 1999 were as follows:
December 31, 1999 - ----------------------------------------------------------------------------------------------------------------------------------- Securities Available-for-Sale Securities Held-to-Maturity - ----------------------------------------------------------------------------------------------------------------------------------- Amortized Fair Amortized Fair (In thousands) Cost Value Cost Value - ----------------------------------------------------------------------------------------------------------------------------------- Due in one year or less $ 4,294 $ 4,296 $ 5,585 $ 5,571 Due from one year to five years 23,688 23,003 176 163 Due from five years to ten years 7,386 7,034 729 701 Due after ten years 198 190 3,220 2,847 - ----------------------------------------------------------------------------------------------------------------------------------- Subtotal 35,566 34,523 9,710 9,282 Mortgage-backed securities 7,558 7,439 1,958 2,002 - ----------------------------------------------------------------------------------------------------------------------------------- Total $43,124 $41,962 $11,668 $11,284 ===================================================================================================================================
NOTE 4. LOANS: The components of loans in the Consolidated Balance Sheets were as follows:
December 31, - ----------------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------- Commercial $150,259 $126,239 $109,937 Real estate-construction 65,310 36,590 27,181 Real estate-mortgage One- to four-family residential 141,264 116,291 195,964 Multi-family and commercial 235,158 196,545 135,452 Consumer and other 24,152 20,908 16,821 Net deferred loan fees, premiums and discounts (952) (904) (493) - ----------------------------------------------------------------------------------------------------------------- Total loans 615,191 495,669 484,862 Allowance for loan losses (8,315) (6,442) (5,193) - ----------------------------------------------------------------------------------------------------------------- Net loans $606,876 $489,227 $479,669 =================================================================================================================
An analysis of the change in the allowance for loan losses follows:
December 31, - ----------------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------- Balance, beginning of year $6,442 $ 5,193 $3,100 Acquired subsidiary balance - - 403 Loans charged off (860) (1,226) (759) Recoveries 188 55 52 - ----------------------------------------------------------------------------------------------------------------- Net loans charged off (672) (1,171) (707) Provision for loan losses 2,545 2,420 2,397 - ----------------------------------------------------------------------------------------------------------------- Balance, end of year $8,315 $ 6,442 $5,193 =================================================================================================================
The recorded investment in loans that were considered to be impaired under SFAS No. 114, as amended by SFAS No. 118, was $628,000 in 1999, $1.8 million in 1998 and $1.7 million in 1997 (these impaired loans were all classified as non-accrual loans). The related allowance for these impaired loans was $82,000 in 1999, $269,000 in 1998 and $86,000 in 1997. Interest income that would have been recognized for non-accrual loans was $84,000 in 1999, $72,000 in 1998 and $57,000 in 1997. Cash basis income on non-accrual loans was not significant for 1999, 1998 or 1997. Other real estate owned and foreclosed assets were approximately $402,000, $0 and $33,000 at December 31, 1999, 1998 and 1997, respectively. We and Allegiant Bank have entered into transactions with our directors, significant shareholders and affiliates (related parties). Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers, and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features. The aggregate amount of loans to such related parties at December 31, 1999, 1998 and 1997 was $35.5 million, $35.9 million and $16.4 million, respectively. During 1999, $11.5 million of new loans and $11.9 million of repayments were made on related party loans. As of December 31, 1999, no related party loans were past due 90 days or more. At December 31, 1998, our bank had $166,000 in related party loans that were past due more than 90 days. 32\Allegiant Bancorp, Inc. NOTE 5. PREMISES AND EQUIPMENT: Components of premises and equipment as of December 31, 1999 and 1998 were as follows:
December 31, - ----------------------------------------------------------------------------------------------- (In thousands) 1999 1998 - ----------------------------------------------------------------------------------------------- Land $ 2,654 $ 2,546 Bank premises 5,601 5,657 Furniture, equipment and automobiles 6,802 6,537 - ----------------------------------------------------------------------------------------------- Total cost 15,057 14,740 Less accumulated depreciation (5,161) (3,730) - ----------------------------------------------------------------------------------------------- Net book value $ 9,896 $11,010 ===============================================================================================
The bank leases various banking facilities and one piece of equipment under agreements which expire at various dates through September 2012. These agreements have options to renew. Future minimum lease payments required under operating leases which have initial or remaining non-cancelable terms in excess of one year as of December 31, 1999 were approximately as follows:
Years Ended December 31, - ---------------------------------------------------------------------- (In thousands) Minimum Rental - ---------------------------------------------------------------------- 2000 $ 352 2001 372 2002 362 2003 292 2004 292 2005 and later 1,207 - ---------------------------------------------------------------------- Total $2,877 ======================================================================
Rental expense for all operating leases was $352,000 in 1999, $327,000 in 1998 and $210,000 in 1997. NOTE 6. DEPOSITS: Deposits consisted of the following:
December 31, - ----------------------------------------------------------------------------------------------- (In thousands) 1999 1998 - ----------------------------------------------------------------------------------------------- Non-interest bearing $ 51,845 $ 55,417 Interest bearing demand 24,492 19,075 Money market accounts 160,701 123,827 Savings 13,052 14,917 Time and IRA certificates under $100,000 202,826 206,357 - ----------------------------------------------------------------------------------------------- Total core deposits 452,916 419,593 Time certificates over $100,000 47,550 31,173 Brokered deposits over $100,000 48,000 - - ----------------------------------------------------------------------------------------------- Total deposits $548,466 $450,766 ===============================================================================================
AMOUNTS AND MATURITIES OF BROKERED DEPOSITS AND TIME DEPOSITS
(In thousands) December 31, 1999 - ---------------------------------------------------------------------- 2000 $223,510 2001 55,236 2002 10,496 2003 5,477 2004 2,871 2005 and later 787 - ---------------------------------------------------------------------- Total $298,376 ======================================================================
NOTE 7. INCOME TAXES: Our results include income tax expense (benefit) as follows:
Years Ended December 31, - ----------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - ----------------------------------------------------------------------------- Current $4,578 $3,522 $2,401 Deferred (934) (496) (685) - ----------------------------------------------------------------------------- Total $3,644 $3,026 $1,716 =============================================================================
The tax effects of temporary differences that gave rise to the deferred tax assets and liabilities are presented below:
December 31, - ----------------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------- Deferred tax assets: Reserve for loan losses $3,000 $2,217 $1,536 Deferred loan fees 175 - 194 Deferred compensation - - 74 Accrued expenses - - 63 Investments in debt and equity securities - SFAS No. 115 465 (50) 44 Other - 116 72 - ----------------------------------------------------------------------------------------------------------------- Total deferred tax assets 3,640 2,283 1,983 - ----------------------------------------------------------------------------------------------------------------- Deferred tax liabilities: Depreciation (203) (119) (461) Discount accretion (23) (83) - Other (57) (10) (29) - ----------------------------------------------------------------------------------------------------------------- Total deferred tax liabilities (283) (212) (490) - ----------------------------------------------------------------------------------------------------------------- Net deferred tax assets $3,357 $2,071 $1,493 =================================================================================================================
A valuation allowance would be provided on deferred tax assets when it is more likely than not that some portion of the assets will not be realized. We had not established a valuation allowance as of December 31, 1999, 1998 or 1997, due to management's belief that all criteria for recognition had been met, including the existence of a history of taxes paid sufficient to support the realization of the deferred tax assets. 1999 Annual Report\33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D Income tax expense as reported differs from the amounts computed by applying the statutory federal income tax rate to pre-tax income as follows:
Years Ended December 31, - ----------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - ----------------------------------------------------------------------------------------------- Computed expected tax expense $3,166 $2,646 $1,405 Tax-exempt income (93) (157) (38) State and local income taxes, net of federal tax benefits 137 314 258 Goodwill amortization 392 318 24 Other, net 42 (95) 67 - ----------------------------------------------------------------------------------------------- Total tax expense $3,644 $3,026 $1,716 ===============================================================================================
NOTE 8. SHORT-TERM BORROWINGS: Short-term borrowings were as follows at year end:
December 31, - ----------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - ----------------------------------------------------------------------------------------------- Securities sold under agreements to repurchase $18,361 $14,042 $ 8,252 Federal funds purchased - - 6,500 Federal Home Loan Bank advances 57,000 39,500 37,850 Other short-term borrowings 500 - 977 - ----------------------------------------------------------------------------------------------- Total short-term borrowings $75,861 $53,542 $53,579 ===============================================================================================
As collateral for the Federal Home Loan Bank advances, our bank has entered into a blanket agreement that pledges first mortgage loans with principal balances aggregating 130% of the outstanding advances. NOTE 9. LONG-TERM DEBT: Long-term debt consisted of the following at year-end:
December 31, - ----------------------------------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------------- Notes payable to a financial institution, interest payable quarterly (7% on December 31, 1999), matures on November 12, 2001, secured by Bank stock $12,650 $13,650 $ - Note payable to a financial institution - - 10,400 Notes payable to FHLB, interest payable monthly at rates varying from 5.05% to 6.95%, principal balance due at maturity ranging from December 13, 2002 to December 31, 2019, secured by stock in FHLB and certain loans 23,210 26,625 9,625 Subordinated debentures with certain shareholders, interest payable quarterly at prime plus 3% (with a minimum floor of 10%), called in 1998 - - 3,250 - ----------------------------------------------------------------------------------------------------------------------------------- Total long-term debt $35,860 $40,275 $23,275 ===================================================================================================================================
Under the terms of the current notes payable to a financial institution, we and/or our subsidiaries are required to maintain certain financial ratios and are limited with respect to cash dividends, capital expenditures and the incurrence of additional indebtedness without prior approval. Principal payments are required as follows: $500,000 payable on October 1, 2000; $1.0 million payable on October 1, 2001; and the balance outstanding payable on November 12, 2001. A summary of annual principal reductions of long-term debt as of December 31, 1999 was as follows:
Annual Principal Year (In thousands) Reductions - ------------------------------------------------------------------ 2001 $12,650 2002 625 2003 1,500 2004 - 2005 and later 21,085 - ------------------------------------------------------------------ Total $35,860 ==================================================================
34\Allegiant Bancorp, Inc. NOTE 10. CAPITAL SECURITIES OF SUBSIDIARY TRUST: During 1999, we formed Allegiant Capital Trust I, a statutory business trust. We purchased all the common securities of Allegiant Capital Trust for $672,080. Allegiant Capital Trust sold 1,725,000 preferred securities, having a liquidation value of $10 per security, for $17.3 million. The sole assets of Allegiant Capital Trust are our subordinated debentures totaling $17.9 million which are due August 2, 2029. The distributions payable on the preferred securities are fixed at 9.875%. All accounts of Allegiant Capital Trust are included in our consolidated financial statements. The preferred securities are entitled "Guaranteed preferred beneficial interest in subordinated debentures" for financial reporting purposes. The preferred securities are traded on the American Stock Exchange under the symbol ACT.pr. Cash distributions on the securities are made to the extent interest on the debentures is received by Allegiant Capital Trust. The securities are redeemable in whole at any time on or after August 2, 2004, or earlier in the event of certain changes or amendments to regulatory requirements or federal tax rules. NOTE 11. COMMON STOCK AND EARNINGS PER SHARE: On July 1, 1998, our board of directors declared a six-for-five stock split (in the form of a stock dividend) of our common stock to shareholders of record on January 8, 1999, payable January 29, 1999. Common stock was credited and capital surplus was charged for the aggregate par value of shares that were issued. The stated par value of each share was not changed from $.01. On September 19, 1997, our board of directors declared a five-for- four stock split (in the form of a stock dividend) of our common stock to shareholders of record on January 7, 1998, payable on January 21, 1998. Common stock was credited and capital surplus was charged for the aggregate par value of the shares that were issued. The stated par value of each share was not changed from $0.01. On September 19, 1996, our board of directors declared a 10% stock dividend to shareholders of record on January 2, 1997, payable on January 15, 1997. The transaction was valued based on the closing market price of our common stock at the date of declaration. All per share data in this report have been restated to reflect the aforementioned stock splits and stock dividend. Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share gives effect to all dilutive potential common shares that were outstanding during the year. The components of basic and diluted earnings per share as prescribed by SFAS No. 128 were as follows:
Years Ended December 31, - ----------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------- Net income $ 5,402 $ 4,534 $ 2,415 ================================================================================================================= Denominator: Weighted average shares outstanding 6,450,639 6,256,715 4,481,724 Effect of dilutive securities: Stock options and warrants 59,406 390,450 403,579 - ----------------------------------------------------------------------------------------------------------------- Denominator for diluted earnings per share-adjusted weighted average shares 6,510,045 6,647,165 4,885,303 ================================================================================================================= Basic earnings per share $ 0.84 $ 0.72 $ 0.54 Diluted earnings per share 0.83 0.68 0.49
NOTE 12. EMPLOYEE BENEFITS: Pension Plan. We have a defined contribution pension plan in effect for substantially all full-time employees. Salaries and employee benefits expense includes $209,000 in 1999, $124,000 in 1998 and $39,000 in 1997 for such plans. Contributions under the defined contribution plan are made at the discretion of our management and board of directors. Phantom Stock Plan. In December 1994, our board of directors approved a Phantom Stock Plan for our president. All benefits under the Phantom Stock Plan have been paid and the plan terminated in 1999. The annual provision under this plan for the years ended December 31, 1999, 1998 and 1997 were approximately $0, $47,000 and $225,000, respectively. Deferred compensation for this plan included in accrued expenses and other liabilities totaled $0, $365,000 and $318,000 at December 31, 1999, 1998 and 1997, respectively. NOTE 13. STOCK OPTION PLANS AND DIRECTORS STOCK PURCHASE PLAN: We have reserved 1,454,000 shares of our common stock for issuance under various stock option plans offered to our directors and certain of our key employees. Options are granted, by action of our board of directors, to acquire stock at 110% of fair market value at the date of the grant, for a term of up to ten years. 1999 Annual Report\35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D At December 31, 1999, approximately 397,000 shares remained available for option grants under these programs. The following tables summarize option activity over the last three years and the current options outstanding and exercisable:
Years Ended December 31, - --------------------------------------------------------------------------------------------------------------- 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Shares Option Price Shares Option Price Shares Option Price - --------------------------------------------------------------------------------------------------------------- Outstanding, beginning of year 431,336 $10.02 681,726 $ 6.42 605,483 $ 5.11 Granted 120,598 10.99 146,386 14.84 284,273 9.20 Exercised (34,666) 4.13 (378,767) 4.51 (204,580) 5.79 Canceled (6,896) 4.19 (18,009) 11.28 (3,450) 10.00 - --------------------------------------------------------------------------------------------------------------- Outstanding, end of year 510,372 10.59 431,336 10.02 681,726 6.42 =============================================================================================================== Weighted-average fair value of options granted during the year $ 2.51 $ 3.59 $ 2.74 ===============================================================================================================
Options Outstanding Options Exercisable - -------------------------------------------------------------------------------------------------------------------------------- Weighted Number Average Weighted Number Weighted Range of Outstanding at Remaining Average Exercisable at Average Exercise Price December 31, 1999 Contractual Life Exercise Price December 31, 1999 Exercise Price - -------------------------------------------------------------------------------------------------------------------------------- $ 3.30 - $ 7.92 90,142 1.3 years $ 6.95 90,412 $ 6.95 8.78 - 10.45 157,284 1.9 years 8.70 128,914 9.30 10.75 - 18.57 262,946 3.9 years 12.92 141,315 13.49 - -------------------------------------------------------------------------------------------------------------------------------- 3.30 - 18.57 510,372 2.9 years 10.59 360,641 10.35 ================================================================================================================================
We have a directors stock purchase plan whereby our outside directors may elect to use their directors' fees to purchase shares of our common stock at market value. In 1999, 26,000 shares were purchased at an average price of $9.94. In 1998, 12,000 shares were purchased at an average price of $11.50 and in 1997, 13,000 shares were purchased at an average price of $10.74. We apply Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for our plans. Accordingly, no compensation expense has been recognized for our stock-based compensation plans. Had compensation cost for our stock- based compensation plans been determined based upon the fair value of the grant date for the awards under these plans consistent with the methodology prescribed under SFAS No. 123, Accounting for Stock-Based Compensation, our net income and earnings per share would have been reduced to the pro forma amounts indicated below:
Years Ended December 31, - -------------------------------------------------------------------------------- (In thousands, except per share data) 1999 1998 1997 - -------------------------------------------------------------------------------- Net income As reported $5,402 $4,534 $2,415 Pro forma 5,223 4,208 1,988 Basic earnings per share As reported 0.84 0.72 0.54 Pro forma 0.81 0.67 0.44 Diluted earnings per share As reported 0.83 0.68 0.49 Pro forma 0.80 0.63 0.41
The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option-pricing model using the following weighted-average assumptions:
Years ended December 31, - -------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------- Dividend yield 2.00% 1.80% 0.90% Volatility 28.80 30.80 16.38 Risk-free interest rate 5.41% 5.02% 6.44% Expected life 5 years 5 years 5 years
36\Allegiant Bancorp, Inc. NOTE 14. CONCENTRATIONS OF CREDIT: Substantially all of our loans, commitments and commercial and standby letters of credit have been granted to customers that are depositors of Allegiant Bank and in our market area. Investments in state and municipal securities also involve governmental entities within our market area. The concentrations of credit by type of loan are set forth in Note 4. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Commercial and standby letters of credit were granted primarily to commercial borrowers. NOTE 15. FINANCIAL INSTRUMENTS: Allegiant Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. These instruments involve, to varying degrees, elements of credit and interest- rate risk in excess of the amount recognized in the Consolidated Balance Sheets. The contract or notional amounts of these instruments reflect the extent of the bank's involvement in particular classes of financial instruments. Allegiant Bank's exposure to credit loss in the event of non- performance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and financial guarantees written is represented by the contractual or notional amount of those instruments. The bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. A summary of the notional amounts of Allegiant Bank's financial instruments with off-balance sheet risk at December 31, 1999, 1998 and 1997 follows:
December 31, - -------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - -------------------------------------------------------------------------------- Commitments to extend credit $109,913 $82,530 $84,604 Standby letters of credit 4,213 6,496 3,868
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Allegiant Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the bank upon extension of credit, is based on management's credit evaluation of the counterparts. Collateral held varies but may include accounts receivable, inventory, property, plant, equipment and real estate. Standby letters of credit and financial guarantees written are conditional commitments issued by the bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support contractual obligations of Allegiant Bank customers. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The carrying amount and estimated fair values of our financial instruments were as follows:
December 31, 1999 December 31, 1998 - -------------------------------------------------------------------------------------------------------------- Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value - -------------------------------------------------------------------------------------------------------------- FINANCIAL ASSETS: Cash and due from banks, federal funds sold and other overnight investments $ 26,769 $ 26,769 $ 17,123 $ 17,123 Securities available-for-sale 49,129 49,129 42,740 42,740 Securities held-to-maturity 11,668 11,284 12,040 12,132 Loans, net of allowance 606,876 605,751 489,227 492,746 FINANCIAL LIABILITIES: Deposits $548,466 $545,869 $450,766 $452,788 Short-term borrowings 75,861 75,859 53,542 53,566 Long-term debt 35,860 35,368 40,275 40,219 Guaranteed preferred beneficial interest in subordinated debentures 17,250 15,932 - -
The following methods and assumptions were used by us in estimating fair values of financial instruments as disclosed herein: Cash and Short-Term Instruments: The carrying amounts of cash and due from banks and federal funds sold approximate their fair value. Securities: Fair values for held-to-maturity and available-for-sale securities are based on quoted market prices or dealer quotes, where available. If quoted market prices are not available for a specific security, fair values are based on quoted market prices of comparable instruments. Loans: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for fixed-rate loans are estimated using discounted cash flow analyses and applying interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The fair values for non-performing loans are estimated using assumptions regarding current assessments of collectibility and historical loss experience. Deposits: The fair values disclosed for deposits generally payable on demand, such as non-interest bearing checking accounts, savings accounts, NOW accounts and market rate deposit accounts, are by definition, equal to the amount payable on demand at the reporting date. The carrying amounts for variable-rate, fixed-term market rate deposit accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates of similar remaining maturities to a schedule of aggregated monthly maturities on time deposits. 1999 Annual Report\37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D Short-Term Borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements and other short-term borrowings approximate their fair values at the reporting date. Long-Term Debt: The fair values of our long-term debt and guaranteed preferred beneficial interest in subordinated debentures are based on quoted market prices for similar issues or estimates using discounted cash flow analyses, based on our current incremental borrowing rates for similar types of debt instruments. Off-Balance Sheet Financial Instruments: The fair value of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties drawing on such financial instruments and the present creditworthiness of such counterparties. We believe such commitments have been made on terms which are competitive in the markets in which we operate; however, no premium or discount is offered thereon and accordingly, we have not assigned a value to such instruments for the purposes of this disclosure. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument. Because no market exists for a significant portion of our financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates. NOTE 16. REGULATORY MATTERS: We and Allegiant Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we and Allegiant Bank must meet specific capital guidelines that involve quantitative measures of our and the bank's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Our and Allegiant Bank's capital amounts and classifications also are subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulators to ensure capital adequacy require us and Allegiant Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of December 31, 1999 we and Allegiant Bank met all capital adequacy requirements to which they are subject. As of December 31, 1999, the date of the most recent notification from the regulatory agencies, the Bank was categorized as well capitalized under the regulatory framework. The actual and required capital amounts and ratios as of December 31, 1999 and 1998 for Allegiant and Allegiant Bank are listed in the following table:
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions - -------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio - -------------------------------------------------------------------------------------------------------------------------- As of December 31, 1999: Total Capital (to Risk-Weighted Assets) Allegiant Bancorp, Inc. $61,885 10.23% $48,404 8.00% $ N/A N/A Allegiant Bank 69,107 11.52 47,974 8.00 59,967 10.00% Tier 1 Capital (to Risk-Weighted Assets) Allegiant Bancorp, Inc. 53,269 8.80 24,202 4.00 N/A N/A Allegiant Bank 61,601 10.27 23,987 4.00 35,980 6.00 Tier 1 Capital (to Average Assets) Allegiant Bancorp, Inc. 53,269 7.47 28,523 4.00 N/A N/A Allegiant Bank 61,601 8.89 27,716 4.00 34,645 5.00 As of December 31, 1998: Total Capital (to Risk-Weighted Assets) Allegiant Bancorp, Inc. $41,272 8.68% $38,059 8.00% $ N/A N/A Allegiant Bank 51,931 10.93 37,999 8.00 47,499 10.00% Tier 1 Capital (to Risk-Weighted Assets) Allegiant Bancorp, Inc. 35,319 7.42 19,030 4.00 N/A N/A Allegiant Bank 45,991 9.68 18,999 4.00 28,499 6.00 Tier 1 Capital (to Average Assets) Allegiant Bancorp, Inc. 35,319 5.83 24,221 4.00 N/A N/A Allegiant Bank 45,991 7.61 24,185 4.00 30,232 5.00
38\Allegiant Bancorp, Inc. NOTE 17. RESTRICTIONS ON CASH AND DUE FROM BANKS: At December 31, 1999, $6.1 million in cash and due from bank balances were maintained in accordance with the guidelines set forth by the Federal Reserve Bank to maintain certain average reserve balances. NOTE 18. OTHER INCOME AND EXPENSES: A summary of the components of other income and other expenses exceeding 1% of revenues in each of the years presented is as follows:
Years Ended December 31, - ------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - ------------------------------------------------------------------------------------------- Other Income: Leasing revenue $1,077 $1,527 $ 433 Mortgage banking revenue 944 2,299 1,300 Gain on sale of branches - 2,370 - Gain on sale of mortgage loans - 1,112 27 Other Expenses: Furniture and equipment 1,650 1,752 943 Occupancy 1,344 1,523 738 Goodwill amortization 980 910 358 Depreciation of operating leases 861 1,340 394 Supplies 274 489 428 Operating losses - other 80 450 870 Operating losses - overdrawn customer accounts 35 272 68
NOTE 19. PARENT COMPANY CONDENSED FINANCIAL INFORMATION: Following are our condensed financial statements (parent company only) for the periods indicated: BALANCE SHEETS
December 31, - -------------------------------------------------------------------------------- (In thousands) 1999 1998 - -------------------------------------------------------------------------------- ASSETS: Cash $ 4,962 $ 1,044 Investment securities 43 - Loans and lease financing receivables 73 - Investment in subsidiaries 73,201 60,046 Other assets 1,222 1,707 - -------------------------------------------------------------------------------- Total assets $79,501 $62,797 ================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY: Short-term borrowings $ 500 $ - Long-term debt 12,650 13,650 Other liabilities 438 1,043 Balances due to nonbank subsidiaries 17,922 - - -------------------------------------------------------------------------------- Total liabilities 31,510 14,693 Total shareholders' equity: 47,991 48,104 - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity $79,501 $62,797 ================================================================================
STATEMENTS OF INCOME
Years Ended December 31, - -------------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------- INCOME: Management and service fees from subsidiaries $ 1,116 $ - $ - Dividends from subsidiaries - 1,000 1,475 Other operating income 53 - - - -------------------------------------------------------------------------------------------------------------- Total Income 1,169 1,000 1,475 - -------------------------------------------------------------------------------------------------------------- EXPENSE: Interest on long-term debt 1,699 1,183 812 Salaries and employee benefits 800 1,674 350 Other operating expenses 832 799 248 - -------------------------------------------------------------------------------------------------------------- Total Expense 3,331 3,656 1,410 - -------------------------------------------------------------------------------------------------------------- Income (loss) before income tax benefit and equity in undistributed income of subsidiaries (2,162) (2,656) 65 Income tax benefit 866 1,448 490 - -------------------------------------------------------------------------------------------------------------- Income (loss) before equity in undistributed income of subsidiaries (1,296) (1,208) 555 Equity in undistributed income of subsidiaries 6,698 5,742 1,860 - -------------------------------------------------------------------------------------------------------------- Net income $ 5,402 $ 4,534 $2,415 ==============================================================================================================
1999 Annual Report\39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONT'D STATEMENTS OF CASH FLOWS
Years Ended December 31, - -------------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 5,402 $ 4,534 $ 2,415 Adjustment to reconcile net income to net cash used by operating activities Net income of subsidiaries (6,698) (6,742) (3,335) Dividends from subsidiaries - 1,000 1,475 Net loss on disposition of subsidiary 20 - - Other, net (118) 346 (558) - -------------------------------------------------------------------------------------------------------------- Cash used by operating activities (1,394) (862) (3) - -------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Contributions of capital to subsidiaries (8,000) (1,000) (13,979) Net cash received in disposition of subsidiary 1,348 - - Other, net (108) (15) - - -------------------------------------------------------------------------------------------------------------- Cash used in investing activities (6,760) (1,015) (13,979) - -------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Payment of dividends (978) (917) (331) Proceeds from issuance of common stock 476 2,418 12,753 Repurchase of common stock (4,176) - - Net decrease in short-term borrowings (500) - - Proceeds from issuance of long-term debt - 13,650 3,000 Repayment of long-term debt - (13,650) - Proceeds from issuance of guaranteed preferred beneficial interest in subordinated debentures 17,250 - - - -------------------------------------------------------------------------------------------------------------- Cash provided by financing activities 12,072 1,366 15,422 - -------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 3,918 (511) 1,440 Cash and cash equivalents, beginning of year 1,044 1,555 115 - -------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 4,962 $ 1,044 $ 1,555 ==============================================================================================================
NOTE 20. RESTRICTIONS ON SUBSIDIARY DIVIDENDS: Subsidiary bank dividends are the principal source of funds for payment of dividends by us to our shareholders. The payment of dividends by Allegiant Bank is subject to regulation by the Federal Deposit Insurance Corporation. Allegiant Bank is also subject to regulation by the State of Missouri. These payments are not restricted as to the amount of dividends that can be paid, other than what prudent and sound banking principles permit and what must be retained to meet minimum legal capital requirements. Accordingly, approximately $18.6 million at December 31, 1999, in addition to net income in 2000, could be paid without prior regulatory approval. Extensions of credit by subsidiaries to us are permitted by regulatory authorities but are limited in amount and subject to collateral requirement. At December 31, 1999 approximately $5.1 million would have been available under Federal Reserve guidelines. NOTE 21. SUPPLEMENTAL DISCLOSURE FOR THE CONSOLIDATED STATEMENT OF CASH FLOWS: Supplemental disclosures of noncash investing and financing activities, and additional disclosures including details of cash and cash equivalents from acquisitions accounted for as purchases and dispositions of branches, were as follows:
Years Ended December 31, - -------------------------------------------------------------------------------------------------------------- (In thousands) 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------- Fair value of assets purchased $ 473 $ 17,492 $ 46,682 Liabilities assumed (transferred) 99 (40,154) 119,691 Issuance of common stock - - 10,587 - -------------------------------------------------------------------------------------------------------------- Net cash received (paid) for acquisitions and dispositions 374 (22,662) 83,596 Cash and cash equivalents acquired 974 - 1,533 - -------------------------------------------------------------------------------------------------------------- $ 1,348 $(22,662) $ 85,129 ============================================================================================================== Cash paid during the year for: Interest on deposits and borrowings $25,619 $ 28,096 $ 20,930 Income taxes 4,081 3,345 2,768 Noncash transactions: Transfers to other real estate owned in settlement of loans $ 402 $ - $ 330 Loans securitized - - 7,102 Common stock issued in acquisition of Reliance Financial, Inc. - - 10,587 Conversion of directors' fees to common stock 258 135 136 Conversion of employee stock bonus to common stock - - 63
40\Allegiant Bancorp, Inc. NOTE 22. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED): The following is a summary of quarterly operating results for the years ended December 31, 1999 and 1998:
1999 - ----------------------------------------------------------------------------------------------------------------------------- (In thousands, except First Second Third Fourth per share data) Quarter Quarter Quarter Quarter - ----------------------------------------------------------------------------------------------------------------------------- Interest income $11,925 $12,308 $13,250 $14,629 Interest expense 6,088 6,150 6,798 7,565 - ----------------------------------------------------------------------------------------------------------------------------- Net interest income 5,837 6,158 6,452 7,064 Provision for loan losses 562 450 580 954 Other income 1,254 1,188 1,207 1,194 Other expense 4,858 4,654 4,705 4,545 Income taxes 669 897 945 1,133 - ----------------------------------------------------------------------------------------------------------------------------- Net income $ 1,002 $ 1,345 $ 1,429 $ 1,626 ============================================================================================================================= Earnings per share: Basic $ 0.15 $ 0.20 $ 0.22 $ 0.27 Diluted 0.15 0.20 0.22 0.26 1998 - ----------------------------------------------------------------------------------------------------------------------------- (In thousands, except First Second Third Fourth per share data) Quarter Quarter Quarter Quarter - ----------------------------------------------------------------------------------------------------------------------------- Interest income $12,270 $12,288 $12,452 $12,208 Interest expense 6,841 7,052 6,835 6,539 - ----------------------------------------------------------------------------------------------------------------------------- Net interest income 5,429 5,236 5,617 5,669 Provision for loan losses 400 315 465 1,240 Securities transactions 12 46 4 6 Other income 1,097 2,130 1,946 4,083 Other expense 5,118 5,295 5,112 5,770 Income taxes 393 725 783 1,125 - ----------------------------------------------------------------------------------------------------------------------------- Net income $ 627 $ 1,077 $ 1,207 $ 1,623 ============================================================================================================================= Earnings per share: Basic $ 0.10 $ 0.17 $ 0.19 $ 0.26 Diluted 0.09 0.16 0.18 0.25
1999 Annual Report\41 ALLEGIANT BANCORP, INC. OFFICERS Marvin S. Wool Chairman, Chief Executive Officer and President Dash Multi-Corp Chairman Allegiant Bancorp, Inc. and Allegiant Bank Shaun R. Hayes President and Chief Executive Officer Allegiant Bancorp, Inc. and Allegiant Bank Thomas A. Daiber Executive Vice President and Chief Financial Officer Allegiant Bank Senior Vice President and CFO Allegiant Bancorp, Inc. Kevin R. Farrell President and Chief Executive Officer St. Louis Steel Products Corporate Secretary Allegiant Bancorp, Inc. Jeffrey R. Heutel Senior Vice President - Risk Management Karen E. Box Senior Vice President and Director Human Resources Christy M. Siburt Executive Assistant and Secretary Allegiant Bank Vice President, Investor Relations Allegiant Bancorp, Inc. ALLEGIANT BANCORP, INC. BOARD OF DIRECTORS [PHOTO] Kevin R. Farrell President and Chief Executive Officer St. Louis Steel Products [PHOTO] Leland B. Curtis Partner/Principal-Attorney Curtis Oetting Heinz Garrett & Soule [PHOTO] Shaun R. Hayes President and Chief Executive Officer Allegiant Bancorp, Inc. President and Chief Executive Officer Allegiant Bank [PHOTO] Leon A. Felman President and Chief Executive Officer Sage Systems, Inc. Private Investor [PHOTO] C. Virginia Kirkpatrick President and Chief Executive Officer CVK Personnel Management and Training [PHOTO] John K. Krause President Jenkin-Guerin, Inc. [PHOTO] Lee S. Wielansky Director Regency Realty Corporation Vice Chairman Allegiant Bank [PHOTO] John L. Weiss President Brentwood Volvo General Manager Southpoint Toyota [PHOTO] Marvin S. Wool Chairman, Chief Executive Officer and President Dash Multi-Corp Chairman Allegiant Bancorp, Inc. and Allegiant Bank ALLEGIANT BANK SENIOR MANAGEMENT GROUP Karen E. Box Senior Vice President and Director Human Resources Thomas A. Daiber Executive Vice President and Chief Financial Officer Allegiant Bank Senior Vice President and CFO Allegiant Bancorp, Inc. David Franke Vice President - Internal Auditor Paul F. Glarner Executive Vice President and Chief Lending Officer Shaun R. Hayes President and Chief Executive Officer Allegiant Bancorp, Inc. and Allegiant Bank Jeffrey R. Heutel Senior Vice President - Risk Management Michael G. Jung Senior Vice President - Corporate Banking Richard E. Markow President - Trust Division Kimberli A. Palmer Senior Vice President - Information Technology/Operations James L. Schaller Senior Vice President - Retail Banking Craig A. Schriewer Vice President - Real Estate Lending David B. Schroeder Senior Vice President - Corporate Banking Jeffrey S. Schatz Executive Vice President and Chief Operations Officer Christy M. Siburt Executive Assistant and Secretary Allegiant Bank Vice President, Investor Relations Allegiant Bancorp, Inc. [PHOTO] Back Row: Thomas A. Daiber, Shaun R. Hayes, Jeffrey S. Schatz, Karen E. Box. Front Row: Paul F. Glarner, Kimberli A. Palmer, James L. Schaller, Jeffrey R. Heutel, Christy M. Siburt ALLEGIANT BANK EXECUTIVE MANAGEMENT COMMITTEE Karen E. Box Senior Vice President and Director Human Resources Thomas A. Daiber Executive Vice President and Chief Financial Officer Allegiant Bank Senior Vice President and CFO Allegiant Bancorp, Inc. Paul F. Glarner Executive Vice President and Chief Lending Officer Shaun R. Hayes President and Chief Executive Officer Allegiant Bancorp, Inc. and Allegiant Bank Jeffrey R. Heutel Senior Vice President - Risk Management Kimberli A. Palmer Senior Vice President - Information Technology/Operations James L. Schaller Senior Vice President - Retail Banking Jeffrey S. Schatz Executive Vice President and Chief Operations Officer Christy M. Siburt Executive Assistant and Secretary Allegiant Bank Vice President, Investor Relations Allegiant Bancorp, Inc. ALLEGIANT BANK DIRECTORS Keith Barket President Barket Realty Frank J. Cusumano Consultant Kemoll's Restaurant Thomas A. Daiber Executive Vice President and Chief Financial Officer Allegiant Bank Senior Vice President and CFO Allegiant Bancorp, Inc. William Davidson President Davidson & Associates Kevin R. Farrell President and Chief Executive Officer St. Louis Steel Products William H. Gibson, Jr. Retired Chief of Dental Health Care St. Louis County Department of Health Paul F. Glarner Executive Vice President and Chief Lending Officer Sidney H. Guller Chairman Essex Industries, Inc. Shaun R. Hayes President and Chief Executive Officer Allegiant Bancorp, Inc. and Allegiant Bank C. Virginia Kirkpatrick President and Chief Executive Officer CVK Personnel Management and Training Brian Matthews Chief Exeutive Officer CDM/Primary Network William H. Nottke President and CEO Riverdale Packaging and Riverdale Display Jon M. Pyzyk President and Chief Executive Officer Kohner Properties Fr. Richard J. Quirk Basilica of St. Louis, in Residence Jeffrey S. Schatz Executive Vice President and Chief Operations Officer John L. Weiss President Brentwood Volvo General Manager Southpoint Toyota Lee S. Wielansky Director Regency Realty Corporation Vice Chairman Allegiant Bank Marvin S. Wool Chairman, Chief Executive Officer and President Dash Multi-Corp Chairman Allegiant Bancorp, Inc. and Allegiant Bank 42\Allegiant Bancorp, Inc. BANKING CENTER DIRECTORS 2000 ST. LOUIS CITY John Fox Arnold Chairman/Attorney, Lashly & Baer Stephen Bahn Principal, Voss Bahn Commercial RE Services Freeman Bosley, Jr. Attorney, Caldwell, Hughes & Singleton Robert B. Glarner, Jr. Vice President, National Paper & Printing Supplies, Inc. Glenn Heitmann (Chairman) President and CEO, Heitmann & Associates, Inc. Robert J. Lienhop CEO, Hall Technologies, Inc. Yogi Patel, Ph.D. Barnes-Jewish Hospital Robert Wood President, Robert Wood Realty W. Paul Zemitzsch President, Sequel LLC Co-Owner, CompCheck Corporation KRATKY Myron Applebaum President, Applebaum & Associates Patrick Barrett (Chairman) President, Neonatal Division Biomedical Systems Ellen D. Crowley Vice President, Financial Management Partners John Bowman Former President, Reliance Federal Savings Bank John Kuhlman President, Kuhlman Design Group Mark Mehlman President, Mehlman Realty Company Jacque Phillips President, Accu-Care Home Nurses Inc. Milton (Peter) D. Rothschild President, Rothschild Development, Ltd. CENTRAL Steve Adelman President, Adelman Management Corporation Judith L. Brown Broker/Owner, ReMax Associates Ron L. Chitwood President, C-K Plastics, Inc. Lawrence H. Greenberg President, Greenberg & Associates Paul Henderson President, The Henderson Group, Inc. George Hensley, Jr. President, Hensley Construction Inc. Kerry Klarfeld President, Capital Investments Bruce Kupper CEO, Kupper Parker Communications Neal Losse President, Opinions, Inc. Constantine (Gus) Pulos Attorney, Pulos Blankenship & Jianakoplos PC John L. Weiss (Chairman) President, Brentwood Volvo General Manager, Southpoint Toyota David Wright Vice President, Kaplan Real Estate Co. SOUTHWEST Bill Bounds (Chairman) Accountant, Humes & Barrington PC James Bowen Private Investor Philip G. Brumbaugh CPA, Philip G. Brumbaugh, CPA, CVA Deborah Fink, D.M.D. Orthodontist Kenneth Glass (Co-Chairman) President, Safeguard Business Systems Richard Goldberg President, The Goldberg Group John Meek COO, Paramount Environments, Inc. Mark Nelson President, Abrasive Blasting & Coatings David Sabino CPA, Sabino, Stringer & Associates Robert Taylor President, St. Louis Electronics John Van Hoogstraat Owner, Royal Gate Dodge George (Butch) Welsch President, Welsch Heating & Cooling Co. ST. CHARLES Lisa Galli Owner/President, B&L Enterprises Mark Kaufer Owner, Premium Homes Stephen Lundergan (Chairman) President, Richland & Associates Jim Muehling General Contractor, J.R. Muehling Construction R. Tim Short Architect/Developer Carolyn E. Strong Owner, Sundermeier RV Park & Conference Center Owner, Banquet Center of the Little Hills TRUST Daniel Bruntrager Partner, Bruntrager & Billings Stephen B. Daiker Attorney, Byran Cave LLP Bradley Faerber CPA, Lopata Flegel Hoffman & Co. Sheldon Harber Financial Planner, Asset Strategies Inc. Ben Keller Attorney, Rosenblum Goldenhersh Silverstein & Zafft P.C. Charles Lowenhaupt Attorney, Lowenhaupt and Chasnoff LLC Charles McCarter Attorney, McCarter & Greenley Matthew G. Perlow Attorney, Blackwell Sanders Peper Martin Harvey G. Schneider Attorney, Evans & Dixon Bradford L. Stevens (Chairman) Attorney, Dankenbring Greiman Osterholt & Hoffmann WEST H. Bart Baker Producer, Lockton Companies B. Thomas Beattie Broker, Beattie & Hawkins William Benedict Doctor, University Internists of St. Louis Robert Chambers (Chairman) President, KW Chambers Jon Dalton Partner, Bryan Cave LLP Mark Dunham President & CEO, Premier Marketing John Eilerman President, McBride and Son Harry Freeman Vice President, Mayer Homes Steve R. Garner President, Town & Village Properties Michael L. Hammack President, Catco, Inc. Mike Hejna President, Gundaker Commercial Group Jackie Joyner-Kersee President, JJK & Associates Andrew Katzman Owner, ARK Investments Vince Nangle CPA, Nangle & Associates John O'Connell Vice President - Finance, Hayden Homes Gary Parker Director Industrial Services, Sansone Group Tom Shelby CEO, Camie-Campbell International Inc. Kenneth Stricker Vice President and CFO, The Jones Company WARRENTON Susan D. Albers, D.C. Chiropractic Physician Wesley C. Dalton Attorney Karen L. Gregory Principal, Rebecca Boone Elementary Toni Hawley Director of Economic Development, Warrenton Area Economic Development Thomas Nittler (Chairman) Vice President - Finance, Warrenton Products, Inc. T. Eric Pitman Vice President, Pitman-Brown Funeral Homes Gregory Renaud President, Cut-N-Trim Landscaping, Inc. Scott A. Sanders Certified Public Accountant Janet Schamma Retired Allegiant Bank Warren Wobbe Innsbrook Corporation Real Estate Division UNION BOARD Dan Briegel Attorney/Partner, Briegel Davis, Arand & Fischer Jerome Dwyer Co-Owner/Partner, Franklin County Medical Outreach Center Neil Kruel (Chairman) President, A.J. Kruel Corporation Harvey Mefford Retired Rod Schwentker Owner Pro-Body Works Fred Springmeyer Vice President - Sales, CK Plastics Virginia Young Corporate Secretary - Martak Appliance ALLEGIANT BANK OFFICERS James R. Allen AVP - Real Estate Lending Melanie Arnold VP - Loan Administration Bobbie Baker Retail Banking Officer - Downtown Robert Baroni VP - Retail Banking Brian A. Barry AVP - Network Services Karen E. Box Sr. VP - Human Resources Virginia Burdick VP - Retail Operations Milburn Cain VP -Private Banking/ Banking Center Directors Charles A. Callahan Collections Manager Jeff L. Camilleri VP - Business Development Kevin L. Carter VP - Corporate Banking Kendrick Coleman Information Technology Officer Geraldine Cross AVP - Retail Banking Officer - Grand Thomas A. Daiber EVP - Chief Financial Officer Brian M. Davies AVP - Corporate Banking Donald M. Davis Sr. VP - Business Development Officer Alan Denk VP - Corporate Banking Sherri L. Dunsing VP - Mortgage Operations Cynthia L. Eveker VP - Accounting Manager Matthew S. Fagin VP - Corporate Banking Mary E. Fleming President - Real Estate Investment Trust/ Assistant Corporate Secretary Phyllis A. Flowers AVP - Training and Development David Franke VP - Internal Auditor Aaron S. Gardner Corporate Banking Officer Jeffrey Gass VP - Accounting Manager Paul F. Glarner EVP - Chief Lending Officer Marla J. Griffin AVP - Operations Carol Hancock VP - Mortgage Sales D. Mike Harper VP - Consumer Lending Shaun R. Hayes President and Chief Executive Officer Jeffrey R. Heutel Sr. VP - Risk Management Craig Hingle AVP - Corporate Banking Melissa A. Hinton AVP - Retail Banking Officer - Des Peres Carolyn L. Howell AVP - Deposit Application Support Michael G. Jung Sr. VP - Corporate Banking Eric Kappelmann VP - Corporate Banking Jason Koelling Corporate Banking Officer Jeanette Larson VP - Compliance Nora K. Macalady VP - Primetime/Marketing Richard E. Markow President - Trust Division Timothy M. Meyer VP - Loan Review Karen Miller AVP - Retail Banking Officer - Crestwood Tim Millerick AVP - DP/Application Support Herbert W. Morisse VP - Trust Officer Timothy Murphy VP - Real Estate Lending James A. O'Donnell VP - Corporate Banking Kevin Overschmidt Retail Banking Officer - Union Kimberli A. Palmer Sr. VP - Information Technology/Operations Lorrie Phelan AVP - Retail Banking Officer - South County Stacey Ponticello AVP - Retail Banking Officer - Warrenton Lori C. Pugh AVP - Retail Banking Officer - St. Peters Tracy Remillard Call Center Manager Penny Rogers Retail Banking Officer - Westport Deborah Sanguinette AVP - Consumer Lending James L. Schaller Sr. VP - Retail Banking Jeffrey S. Schatz Executive Vice President and Chief Operations Officer Craig A. Schriewer VP - Real Estate Lending David B. Schroeder Sr. VP - Corporate Banking Timothy Shipley AVP - Cash Management Officer Christy M. Siburt Corporate Secretary/ Executive Assistant Ray Sleeth VP - Retail Banking Officer - Affton Diane E. Spal AVP - Retail Banking Officer - Ballwin Preston Smith Loan and E-Commerce Product Manager Joseph M. Thompson AVP - Asset Liability Manager James Valk VP - Corporate Banking Beth A. Weldon AVP - Retail Banking Officer - Hazelwood Frank W. Wohlrab VP - Corporate Banking Marvin S. Wool Chairman 1999 Annual Report\43 SHAREHOLDER INFORMATION CORPORATE HEADQUARTERS Allegiant Bancorp, Inc. 2122 Kratky Road St. Louis, MO 63114 314/692-8200 www.allegiantbank.com ANNUAL MEETING The 2000 annual meeting of shareholders of Allegiant Bancorp, Inc. will be held on April 20, 2000 at 4:00 p.m. at The St. Louis Science Center, 5050 Oakland Ave., St. Louis, MO 63110. INVESTOR RELATIONS Security analyst and other investor inquiries should be directed to: Allegiant Bancorp, Inc. Investor Relations Department 2122 Kratky Road St. Louis, MO 63114 314/216-7446 A copy of the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission is available on request by writing to: Allegiant Bancorp, Inc. Shareholder Information 2122 Kratky Road St. Louis, MO 63114 TRANSFER AGENT Communications regarding share transfer, lost certificates, change of address and dividend inquiries should be directed to: UMB Bank 928 Grand Blvd. P.O. Box 410064 Kansas City, MO 64141 MARKET MAKERS Stifel Nicolaus & Co. Inc. First Union Securities 501 N. Broadway 77 West Wacker Dr. St. Louis, MO 63102 Chicago, IL 60601 314/342-2261 800/527-8222 A.G. Edwards and Sons Knight Securities LLP 1 North Jefferson 525 Washington Blvd. St. Louis, MO 63103 Jersey City, NJ 07130 314/955-3000 Corporate Counsel Auditors Thompson Coburn LLP Ernst & Young LLP DIVIDEND REINVESTMENT The company offers a dividend reinvestment and stock purchase plan to registered shareholders. Information about the plan may be obtained by writing to: Allegiant Bancorp, Inc. Shareholder Information 2122 Kratky Road St. Louis, MO 63114 COMMON STOCK SHARE DATA (SYMBOL: "ALLE") Our common stock (symbol: "ALLE") has been traded on the Nasdaq National Market since May 5, 1996. From January 1, 1996 to such date it was traded on the Nasdaq Small Cap Market. As of March 1, 2000, the number of shareholders of our common stock was approximately 3,500. The following table sets forth the high and low trading prices, as well as dividends per share for the periods shown, as reported by Nasdaq. Such prices reflect interdealer prices, without retail mark-up, markdown or commission, and have adjusted to reflect all stock splits and stock dividends.
Dividends Declared High Low and Paid - ------------------------------------------------------------------------- 1999 First Quarter $12.875 $8.958 $0.050 Second Quarter $12.000 $8.500 $0.050 Third Quarter $11.500 $9.000 $0.050 Fourth Quarter $10.000 $8.500 $0.050 1998 First Quarter $21.042 $11.000 $0.025 Second Quarter $19.167 $13.333 $0.025 Third Quarter $15.000 $10.417 $0.033 Fourth Quarter $10.833 $9.167 $0.042
44\Allegiant Bancorp, Inc. EX-21.1 4 SUBSIDIARIES OF THE REGISTRANT Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT (as of March 1, 2000) Allegiant Bank Missouri Allegiant Investment Company Delaware Allegiant Real Estate Investment Trust Delaware Allegiant Insurance Services Co. Missouri Kratky Road, Inc. Missouri Allegiant Capital Trust I Delaware EX-23.1 5 CONSENT OF EXPERT Exhibit 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Allegiant Bancorp, Inc. St. Louis, Missouri We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-13451 and 333-26433) and on Form S-3 (File No. 333-65699) of Allegiant Bancorp, Inc. (the Company) of our report dated January 19, 2000, relating to the consolidated financial statements of the Company as of and for the years ended December 31, 1999 and 1998, incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 1999. /s/ Ernst & Young, LLP St. Louis, Missouri March 16, 2000 EX-23.2 6 CONSENT OF EXPERT Exhibit 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS (BDO Seidman, LLP letterhead) Allegiant Bancorp, Inc. St. Louis, Missouri We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-13451 and 333-26433) and on Form S-3 (File No. 333-65699) of Allegiant Bancorp, Inc. (the Company) of our report dated March 13, 1998, relating to the consolidated financial statements of the Company as of and for the year ended December 31, 1997, appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. /s/ BDO Seidman, LLP St. Louis, Missouri March 13, 2000 EX-27.1 7 ARTICLE 9 FINANCIAL DATA SCHEDULE
9 This schedule contains information extracted from Allegiant Bancorp, Inc.'s annual report on Form 10-K for the year ended December 31, 1999 and is qualified in its entirety by reference to such report. 1,000 Year DEC-31-1999 JAN-01-1999 DEC-31-1999 16,842 0 9,927 0 49,129 11,668 11,284 615,191 8,315 728,492 548,466 75,861 3,064 35,860 0 17,250 66 47,925 728,492 48,604 3,361 147 52,112 20,595 26,601 25,511 2,546 0 18,762 9,046 5,402 0 0 5,402 0.84 0.83 8.53 606 22 0 0 6,442 860 188 8,315 0 0 0
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