-----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, HqENg3uM74NeK3H037Lzrq89dkHgJX2Ze/J3flUNS3FOVr56waupOl/miOkgtDLO /cj2nMWO3kkN/4jQKzSyfA== 0001068800-99-000316.txt : 19990726 0001068800-99-000316.hdr.sgml : 19990726 ACCESSION NUMBER: 0001068800-99-000316 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990716 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLEGIANT BANCORP INC CENTRAL INDEX KEY: 0000852642 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 431519382 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-26350 FILM NUMBER: 99665676 BUSINESS ADDRESS: STREET 1: 2122 KRATKY ROAD 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/A 1 ALLEGIANT BANCORP, INC. FORM 10-K/A =========================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (AMENDMENT NO. 1 TO 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, 1998 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: NONE NAME OF EXCHANGE ON WHICH REGISTERED: NONE 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. [X] AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF JUNE 24, 1999: COMMON STOCK, $0.01 PAR VALUE, $56,194,860. NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK, AS OF JUNE 24, 1999: COMMON STOCK, $0.01 PAR VALUE, 6,611,160 SHARES OUTSTANDING DOCUMENTS INCORPORATED BY REFERENCE AS PROVIDED HEREIN, PORTIONS OF THE DOCUMENTS BELOW ARE INCORPORATED BY REFERENCE: NOT APPLICABLE =========================================================================== This Amendment to the registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 is being provided to amend and restate Item 7. 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 II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains certain forward-looking statements with respect to the financial condition, results of operations and business of Allegiant Bancorp, Inc. and its subsidiaries. These forward-looking statements involve certain risks and uncertainties. For example, by accepting deposits fixed rates, at different times and for different terms, and lending funds at fixed rates for fixed periods, a bank accepts the risk that the cost of funds may rise and 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-range borrowers, or a combination of both experience financial difficulty for individual, national or international reasons. Because the business of banking is highly regulated, decisions of governmental authorities, such as the rate of deposit insurance, can have a major effect on operating results. Unanticipated events associated with Year 2000 compliance, relating to work on computer systems and software, including work performed by suppliers or vendors, could affect our future financial condition and 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. RESULTS OF OPERATIONS COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998 AND 1997. We reported record earnings for 1998. Consolidated net income was $4.53 million, an increase of 87.74% over the 1997 level of $2.42 million. The 1998 results represented our seventh consecutive year of record earnings. Net income has increased at a compound rate of 78.24% over the past five years. Basic earnings per share were $0.72 compared to $0.54 in 1997, an increase of 33.33%. A similar increase was achieved in diluted earnings per share with 1998 results of $0.68 increasing 38.78% compared to the $0.49 recorded for 1997. Diluted earnings per share have grown at a compound rate of 33.56% during the last five years. Return on average assets for 1998 was 0.73%, an improvement from 0.52% recorded for 1997. The improvement in return on assets was the result of lower asset growth, improved net interest income, improved mix of earning assets and a considerable increase in shareholders' equity. Return on average shareholders' equity was 10.14% in 1998 compared to 9.55% in 1997. The improvement in 1998 was achieved despite a 76.82% increase in average equity between 1998 and 1997. Net Interest Income. Net interest income totaled $21.95 million, ------------------- an increase of $5.65 million in 1998 compared to an increase of $6.24 million in 1997. The net interest spread increased by 13 basis points and the net interest margin increased by 11 basis points from the prior year. All of these increases were the result of a relatively stable rate environment, the shifting of earning assets into higher yielding loans and overall growth in average earning assets and interest bearing liabilities. Partially offsetting these positive factors were the declines in the prime lending rate which affected our floating rate loans, the decline in the ratio of earning assets to total assets and a decline in non-interest bearing demand -2- deposits to total deposits. Net interest margin and net interest spread were fairly stable throughout the year, with only minor quarterly fluctuations. The increase in net interest spread was due to the yields on earning assets declining only 2 basis points year-to-year compared to a decline of 15 basis points on interest bearing liabilities. In 1997, the spread increased 28 basis points as a result of similar changes on both sides of the balance sheet, earning assets increasing 14 basis points and interest bearing liabilities decreasing 14 basis points. In 1998, the yield on loans declined by 16 basis points. However, this decline was offset by an increase in the ratio of loans to total earning assets improving to 85.96% in 1998 compared to 83.17% in 1997. Generally flat or lower rates were paid on all categories of interest bearing liabilities. Total cost of deposits declined 11 basis points due to a reduction of rates paid on money market and NOW accounts, savings deposits and retail certificates of deposit. Further reduction in the costs of short-term and long-term borrowings also helped lower the overall costs of funds, despite the substantial increase in long- term debt. Average earning assets increased $134.61 million, or 30.62%, during 1998 compared to an increase of $143.23 million, or 48.33%, in 1997. Average loans increased 35.01%, or $128.00 million, compared to growth of 57.35%, or $133.30 million, in 1997. The growth in average loans includes the bulk sale of mortgage loans that occurred during the second and third quarters of 1998. These sales, which aggregated $77.04 million, decreased average loans outstanding for the year by approximately $34.32 million. Our securities portfolio (held-to- maturity and available-for sale) increased 9.25% during 1998 compared to an increase of 7.41% in 1997. Average investment securities represented 12.46% of earning assets during 1998 compared to 14.91% during 1997. This decline in the relative amount of investment securities was directly correlated to the increase in the percentage of loans to earning assets mentioned above. In essence, strong loan growth necessitated the reduction in the growth of the securities portfolio. Earning assets as a percentage of total assets declined again in 1998 to 92.76% from 94.94% in 1997. The increase in non-earning assets was the result of opening additional branch locations as well as acquisitions, which increased the number of branches and intangible assets. This growth was somewhat mitigated by the sale of three branch offices of the bank located outside the St. Louis metropolitan area, which occurred in December of 1998. The impact of this change to average balances was minimal due to the timing of the consummation of our branch sales. Average interest bearing liabilities increased 30.61%, or $121.97 million, for 1998 compared to an increase of $127.23 million, or 46.91%, in 1997. Average deposits increased 29.96% to $475.74 million compared to $366.07 million in 1997. As was the case in 1997, only moderate changes occurred in the mix of deposits. During 1998, certificates of deposit over $100,000 declined as a percent 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 were flat during the year averaging $52.86 million during 1998 compared to $52.70 million during 1997. The level of short-term borrowings during 1998 was consistent throughout the year with only minor fluctuations between quarters. Average long-term debt for 1998 increased 136.54%, or $22.75 million. The majority of this increase was due to long-term borrowings from the Federal Home Loan Bank of $26.63 million at December 31, 1998, a $17.00 million change from December 31, 1997. We use 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 $13.65 million, 7.00% fixed rate, three-year note. -3- The following table sets forth the condensed average balance sheets for the periods reported and the percentage of each principal category of assets, liabilities and shareholders' equity to total assets. Also shown is the average yield on each category of interest earning assets and the average rate paid on interest-bearing liabilities for each of the periods reported. DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
YEARS ENDED DECEMBER 31, -------------------------------------------------------------------------------------- 1998 1997 ----------------------------------------- ----------------------------------------- AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE BALANCE EARNED/PAID YIELD/RATE BALANCE EARNED/PAID YIELD/RATE -------- ----------- ---------- -------- ----------- ---------- (DOLLARS IN THOUSANDS) ASSETS: Interest earning assets: Loans $493,619 $44,411 9.00% $365,615 $33,473 9.16% Taxable investment securities 70,079 4,223 6.03 64,384 3,910 6.07 Non-taxable investment securities 1,494 73 4.89 1,130 56 4.96 Federal funds sold and other investments 9,036 511 5.66 8,492 326 3.84 -------- ------- -------- ------- Total interest earning assets 574,228 49,218 8.57 439,621 37,765 8.59 Non-interest earning assets: Cash and due from banks 12,230 9,341 Bank premises and equipment 10,994 6,869 Other assets 27,238 11,065 Allowance for loan losses (5,674) (3,867) -------- -------- Total assets $619,016 $463,029 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: Interest bearing liabilities: Money market and NOW accounts $126,829 5,221 4.12% $ 95,431 4,092 4.29% Savings deposits 16,524 425 2.57 9,665 279 2.89 Certificates of deposit 224,661 12,878 5.73 162,870 9,436 5.79 Certificates of deposit over $100,000 39,581 2,198 5.55 48,358 2,686 5.55 IRA certificates 20,584 1,227 5.96 12,780 760 5.95 -------- ------- -------- ------- Total interest bearing deposits 428,179 21,949 5.13 329,104 17,253 5.24 -------- ------- -------- ------- Federal funds purchased, repurchase agreements and other short-term borrowings 52,855 2,624 4.96 52,702 2,895 5.49 Other borrowings 39,403 2,694 6.84 16,658 1,318 7.91 -------- ------- -------- ------- Total interest bearing liabilities 520,437 27,267 5.24 398,464 21,466 5.39 -------- ------- -------- ------- Non-interest bearing liabilities and equity: Demand deposits 47,560 36,966 Other liabilities 6,298 2,307 Shareholders' equity 44,721 25,292 -------- -------- Total liabilities and shareholders' equity $619,016 $463,029 ======== ======== Net interest income $21,951 $16,299 ======= ======= Net interest spread 3.33% 3.20% Net interest margin 3.82% 3.71% - - ------------- Average balances include non-accrual loans. Presented at actual yield rather than tax-equivalent yield.
-4- The following table sets forth for the periods indicated, the changes in interest income and interest expense which were attributable to changes in average volume and changes in average rates. Volume variances are computed using the change in volume multiplied by the previous year's rate. Rate variances are computed using the changes in rate multiplied by the previous year's volume. The change in interest due to both rate and volume has been allocated between the factors in proportion to the relationship of the absolute dollar amounts of the change in each. RATE/VOLUME ANALYSIS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997 --------------------------------------- VOLUME RATE NET CHANGE ------ ---- ---------- INTEREST EARNED ON: (IN THOUSANDS) Loans $11,533 $(595) $10,938 Taxable investment securities 340 (27) 313 Non-taxable investment securities 17 -- 17 Federal funds sold and other investments 24 161 185 ------- ----- ------- Total interest income 11,914 (461) 11,453 ------- ----- ------- INTEREST PAID ON: Money market and NOW accounts 1,298 (169) 1,129 Savings deposits 180 (34) 146 Certificates of deposit 3,539 (97) 3,442 Certificates of deposit over $100,000 (488) -- (488) IRA certificates 465 2 467 Federal funds purchased, repurchase agreements and other short-term borrowings 8 (279) (271) Other borrowings 1,577 (201) 1,376 ------- ----- ------- Total interest expense 6,579 (778) 5,801 ------- ----- ------- Net interest income $ 5,335 $ 317 $ 5,652 ======= ===== =======
Other Income. Other income increased 182.72% totaling $9.32 ------------ million in 1998 compared to $3.30 million in 1997. Included in other income in 1998 were $3.55 million of non-recurring gains, specifically: $2.37 million from the sale of branches; $1.11 million from the sale of mortgage loans; and $0.07 million from securities transactions. Eliminating all one-time or discretionary gains, 1998 other income was $5.77 million compared to $3.27 million in 1997. The increase in 1998 was due to substantial growth in mortgage banking revenues, leasing revenues, deposit service charges and brokerage revenues. Other income, excluding non-recurring gains, has increased at a compound growth rate of 82.93% over the last five years. In December 1998, we completed the sale of three branch offices of the bank located outside the St. Louis metropolitan area in order to focus on, and expand our market share in, our market area. This sale generated a reduction in loans of $13.52 million, a reduction in deposits of $39.99 million and a pre-tax gain of $2.37 million. Also during the year, 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 $1.11 million. While we previously had sold some of our mortgage loans, the 1998 bulk sales reflect a shift in our strategy from originating and holding mortgage loans to increasing our lending emphasis on more profitable -5- commercial loan relationships. During 1998, we also hired several experienced commercial loan officers in order to implement our strategy. Mortgage banking revenues increased 76.85% in 1998 to $2.30 million. This compares to $1.30 million in 1997. The increase was attributable to a continued favorable economic environment of low unemployment and stable, low long-term interest rates. We benefited from these macro economic trends as well as a larger customer base. Leasing revenues totaled $1.53 million, an increase of 252.66% compared to 1997's level of $0.44 million. We entered the retail leasing business during 1997 and the 1998 results reflect a full year of business operation compared to a partial year in 1997. During the latter part of 1998, a decision was made to curtail this line of business because of declining profit margins. Service charges on deposit accounts increased 51.92% to $1.39 million in 1998 compared to $0.91 million in 1997. The increase in 1998 was due to a larger customer base generating an increased number of transaction deposits as well as the benefit of a full year of the bank's revised fee structure. Brokerage revenues increased 84.62% to $0.31 million compared to $0.17 million in 1997. Part of this increase reflects a full year of operation in 1998 compared to nine months of operation in 1997 and higher transaction volumes. Other Expenses. Total other expenses increased 62.94%, or $8.23 -------------- million, during 1998, totaling $21.30 million compared to $13.07 million in 1997. Operating expenses have increased at a 52.93% five year annual compound growth rate. Our efficiency ratio for 1998 was 68.09%, up slightly from 66.69% in 1997. The increase in this ratio was the result of acquisitions, deposit purchases, start-up costs associated with new lines of business and costs resulting from additional banking locations. Salaries and employee benefits showed the largest dollar increase year to year, increasing $3.47 million to $9.66 million compared to $6.19 million in 1997. The percentage increase for 1998 was 56.06%. The increase in 1998 was due to additional staffing resulting from acquisitions and new locations. Also included in this caption was a payout related to a phantom stock plan for our president. Amounts expensed under this plan, which has expired, were $0.05 million in 1998 and $0.23 million in 1997. Average full-time equivalent employees for 1998 were 237 compared to 146 in 1997, a 62.33% increase. At December 31, 1998 we had 215 full-time equivalent employees compared to 209 at year-end 1997. Furniture and equipment expenses increased $0.81 million to $1.75 million in 1998. The increase in 1998 was the result of acquisitions in 1997 and branch openings in 1998 and 1997. Additionally, investments in computer resources in both years also contributed to the large increase. Occupancy expenses totaled $1.52 million, an increase of $0.79 million, or 106.37%, during 1998. The increase was attributable to acquisitions and branch openings, as mentioned above. Depreciation of the assets held for operating leases increased $0.95 million in 1998 compared to 1997. As previously discussed, the retail leasing business was started in late 1997 so that 1998 reflects a full year of operations. Expense for the amortization of goodwill increased 154.19% during 1998 or $0.55 million, totaling $0.91 million compared to $0.39 million in 1997. This increase was the result of acquisitions and deposit purchases undertaken during 1997 and reflected a full year of amortization during 1998. In 1998, operating losses totaled $0.72 million, as compared to $0.94 million in 1997. Of the amount in 1997, $0.75 million was considered systemic and non-recurring due to integration of two -6- branch acquisitions and difficulties associated with upgrading our computer systems to an entirely new operating system. Excluding non- recurring items in 1997, the increase in operating losses in 1998 was $0.53 million. The 1998 operating losses relate to inconsistent operating procedures as a result of expanding the number of branches and number of employees. Throughout 1998, we reengineered several operational processes in an effort to improve quality and control. Additionally, training was a focus for 1998 and we believe that these types of losses will be substantially reduced in 1999. Other non-interest expense increased $1.82 million in 1998 compared to 1997. This growth in expenses was associated with increases in the number of employees, deposit and loan accounts and physical locations as compared to prior years. The following table sets forth a summary of our other income and expense for the years indicated:
YEARS ENDED DECEMBER 31, ------------------------ 1998 1997 -------- --------- (IN THOUSANDS) OTHER INCOME: Gain on sale of branches $ 2,370 $ -- Mortgage banking revenues 2,299 1,300 Leasing revenues 1,527 433 Service charges on deposits 1,387 913 Gain on sale of mortgage loans 1,112 27 Brokerage division revenues 312 169 Gain on the sale of securities 68 2 Other non-interest income 249 454 ------- ------- Total other income $ 9,324 $ 3,298 ======= ======= OTHER EXPENSES: Salaries and employee benefits $ 9,663 $ 6,192 Furniture and equipment 1,752 943 Occupancy 1,523 738 Depreciation of operating leases 1,340 394 Goodwill amortization 910 358 Operating losses 722 938 Supplies 489 428 Other non-interest expense 4,896 3,078 ------- ------- Total other expenses $21,295 $13,069 ======= =======
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, 1998, held-to-maturity securities amounted to $12.04 million representing those securities we intended to hold to maturity. Securities designated as available-for-sale totaled $42.74 million representing securities which we may sell to meet liquidity needs or in response to significant changes in interest rates or prepayment patterns. For purposes of this discussion, held-to-maturity and available- for-sale securities are described as the securities portfolio. At December 31, 1998, the securities portfolio totaled $54.78 million, a decline of 28.74% from the preceding year. The decline in the securities portfolio occurred in the fourth quarter of 1998, as maturities were not rolled over in order to fund the previously mentioned branch sales. While average balances for 1998 were higher than 1997, the relative percentage of securities to earning assets declined to 12.46% in 1998 compared to 14.91% in 1997. This decline reflected management's decision to allow maturing securities to be reinvested in higher yielding commercial loans. We maintain a -7- traditional short-term laddered portfolio investment strategy to insure adequate liquidity while minimizing interest rate risk. The carrying values of the securities portfolio at the dates indicated were as follows: SECURITIES PORTFOLIO
DECEMBER 31, ---------------------- 1998 1997 ------- ------- (IN THOUSANDS) U.S. governmental and agency securities $37,021 $48,354 Mortgage-backed securities 11,930 18,548 Federal Home Loan Bank stock 3,574 7,033 State and municipal securities 1,464 1,563 Other securities 791 1,371 ------- ------- Total securities $54,780 $76,869 ======= =======
Maturities and yield information of the securities portfolio as of December 31, 1998 were as follows: SECURITIES--MATURITIES AND YIELDS
WEIGHTED OVER ONE WEIGHTED OVER FIVE WEIGHTED WEIGHTED ONE YEAR AVERAGE THROUGH AVERAGE THROUGH AVERAGE OVER TEN AVERAGE OR LESS YIELD FIVE YEARS YIELD TEN YEARS YIELD YEARS YIELD -------- -------- ---------- -------- --------- -------- ------- -------- (DOLLARS IN THOUSANDS) U.S. governmental and agency securities $24,549 5.89% $12,472 5.94% $ -- --% $ -- --% Mortgage-backed securities 6,579 6.42 5,294 5.86 57 9.68 Federal Home Loan Bank stock 3,574 6.55 -- -- -- -- -- -- States and municipal securities 324 4.87 281 5.08 859 4.87 -- -- Other securities -- -- 791 6.21 -- -- -- -- ------- ------- ---- ------- Total securities $35,026 6.05% $18,838 5.91% $916 5.17% $ -- -- ======= ======= ==== ======= Total securities portfolio $54,780 5.99% ======= - - ----------- Maturities are shown in this table by expected maturity. Expected maturities differ from contractual maturities due to the right to call or prepay obligations. Yields on tax-exempt obligations have been presented on an actual basis rather than a tax-equivalent basis.
Loans. Loans have historically been the primary component of ----- earning assets. At December 31, 1998 loans totaled $495.67 million, an increase of 2.23% from year-end 1997. This small increase included the sale of $78.4 million of mortgage loans. Without this sale, year-end 1998 loans would have increased 18.31% compared to year-end 1997. Average loans increased 35.01% during 1998 compared to a 57.38% increase in 1997. Loans have increased at a 48.01% compound average growth rate over the last five years. Substantially all of these loans were originated in our primary market areas. At December 31, 1998, we had no foreign loans and only a minimal amount of participations purchased. The largest increase in loans involved commercial real estate loans, which increased $61.09 million, or 45.10%, in 1998. Traditional commercial loans showed the second largest increase of $16.30 million, or 14.83%. Growth in both of these categories reflected management's decision to focus on the more profitable commercial relationships instead of emphasizing one- to four-family mortgage loans. The growth in the commercial sectors was accomplished by hiring several additional commercial lending personnel and directing existing staff toward developing commercial banking relationships. As a result of this emphasis, commercial real estate loans comprised 39.65% of the loan portfolio at December 31, 1998 compared to 27.94% at December 31, 1997. Traditional commercial loans comprised 25.47% of -8- the portfolio at December 31, 1998 versus 22.67% in 1997. Additionally, construction loans, which can be viewed as commercially oriented, increased 34.62%, totaling $36.59 million at year-end 1998 compared to $27.18 million at year-end 1997. Finally, consumer loans increased $4.09 million, or 24.30%, during 1998, reaching $20.91 million at December 31, 1998 compared to $16.82 million at December 31, 1997. Offsetting the substantial loan growth mentioned above was the decline in one- to four-family residential loans. This category of loans declined $79.67 million during 1998. This decline was accomplished by the bulk sale of loans mentioned before as well as normal pay-offs and amortization. This category represented 23.46% of total loans at year- end 1998 compared to 40.42% of total loans at year-end 1997. The following table summarizes the composition of our loan portfolio at the dates indicated: LOAN PORTFOLIO--TYPES OF LOANS
DECEMBER 31, ------------------------------------------------------------------------------------ 1998 1997 1996 ------------------------ ------------------------ ------------------------ PERCENT PERCENT PERCENT OF OF OF AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL -------- ----- -------- ----- -------- ------ (DOLLARS IN THOUSANDS) Commercial, financial, agricultural, municipal and industrial development $126,239 25.47% $109,937 22.67% $ 75,129 25.74% Real estate -- construction 36,590 7.38 27,181 5.61 8,763 3.00 Real estate -- mortgage One- to four-family residential 116,291 23.46 195,964 40.42 121,386 41.58 Multi-family and commercial 196,545 39.65 135,452 27.94 74,721 25.60 Consumer and other, net of unearned income 20,004 4.04 16,328 3.36 11,927 4.08 -------- ------ -------- ------ -------- ------ Total loans $495,669 100.00% $484,862 100.00% $291,926 100.00% ======== ====== ======== ====== ======== ====== DECEMBER 31, ----------------------------------------------------- 1995 1994 ----------------------- ----------------------- PERCENT PERCENT OF OF AMOUNT TOTAL AMOUNT TOTAL -------- ------- -------- ------- (DOLLARS IN THOUSANDS) Commercial, financial, agricultural, municipal and industrial development $ 40,518 22.32% $ 28,212 23.24% Real estate -- construction 8,777 4.83 5,504 4.53 Real estate -- mortgage One- to four-family residential 71,260 39.25 47,109 38.81 Multi-family and commercial 52,795 29.08 31,813 26.21 Consumer and other, net of unearned income 8,194 4.52 8,755 7.21 -------- ------ -------- ------ Total loans $181,544 100.00% $121,393 100.00% ======== ====== ======== ======
LOAN PORTFOLIO - MATURITIES AND SENSITIVITIES OF LOANS
DECEMBER 31, 1998 ----------------------------------------------------------------------------------- MATURING AFTER ONE YEAR MATURING AFTER MATURING IN THROUGH FIVE YEARS FIVE YEARS ONE YEAR ------------------------- -------------------------- OR LESS FIXED-RATE VARIABLE FIXED-RATE VARIABLE TOTAL ----------- ---------- -------- ---------- -------- ----- (IN THOUSANDS) Commercial, financial, agricultural, Municipal and industrial development $ 99,942 $ 24,180 $ 500 $ 1,617 $ -- $126,239 Real estate-construction 33,661 2,222 -- 707 36,590 Real estate-mortgage One- to four-family residential 81,815 29,313 28 5,135 -- 116,291 Multi-family and commercial 92,411 98,141 1,556 4,437 -- 196,545 Consumer and other, net of unearned income 10,966 8,870 -- 168 -- 20,004 -------- -------- ------ ------- ----- -------- Total loans $318,795 $162,726 $2,084 $12,064 $ -- $495,669 ======== ======== ====== ======= ===== ========
Asset Quality. Non-performing assets consist of the following: -------------- nonaccrual loans on which the ultimate collectibility of the full amount of interest is uncertain; loans which have been renegotiated to provide for a reduction or deferral of interest or principal because of a deterioration in the financial condition of the borrower; and loans past due 90 days or more as to principal or interest and other real estate owned. Non-performing assets increased slightly to $1.78 million at December 31, 1998 compared to $1.71 million at December 31, 1997. At December 31, 1998 non-performing assets represented 0.30% -9- of total assets compared to 0.28% of total assets at December 31, 1997. Non-accrual loans were $1.50 million at December 31, 1998 compared to $0.56 million at December 31, 1997. This increase was offset by declines in loans delinquent 90 days or more, reflecting migration to non-accrual status, and by the elimination of other real estate owned. At December 31, 1998, the bank had one loan relationship, not included in the past-due, restructured or non-accrual categories, where known information about possible credit problems caused management to be uncertain as to the ability of the borrower to comply with the present loan repayment terms over the next six months. This loan relationship totaled $2.51 million at December 31, 1998. Principal and interest payments were current at December 31, 1998. We continually analyze our loan portfolio to identify potential risk elements. The loan portfolio is reviewed by lending management and the bank's internal loan review staff. As an integral part of their examination process, the various regulatory agencies periodically review our allowance for loan losses. We believe that our allowance for loan losses at December 31, 1998 was consistent with applicable regulatory requirements. -10- The following table summarizes, at the dates presented, non- performing assets by category: RISK ELEMENTS--NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
DECEMBER 31, ------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS) COMMERCIAL, FINANCIAL, AGRICULTURAL, MUNICIPAL AND INDUSTRIAL DEVELOPMENT: Past due 90 days or more $ -- $ 341 $ 5 $ 113 $ -- Non-accrual 962 360 207 109 40 Restructured terms -- -- -- -- -- REAL ESTATE--CONSTRUCTION: Past due 90 days or more -- -- 264 36 90 Non-accrual -- 108 84 20 35 Restructured terms -- -- -- 3 -- REAL ESTATE--MORTGAGE: One- to four-family residential: Past due 90 days or more 69 456 -- -- -- Non-accrual 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 8 Non-accrual 62 21 109 15 -- Restructured terms -- -- -- -- -- ------- ------- ------- ------- ------- Total non-performing loans 1,778 1,377 692 308 173 ------- ------- ------- ------- ------- Other real estate -- 330 -- 10 25 ------- ------- ------- ------- ------- Total non-performing assets $ 1,778 1,707 $ 692 $ 318 $ 198 ======= ======= ======= ======= ======= RATIOS: Non-performing loans to total loans 0.36% 0.28% 0.24% 0.17% 0.14% Non-performing assets to total assets 0.30 0.28 0.18 0.11 0.12 Non-performing loans to shareholders' equity 3.70 3.27 4.22 2.21 2.05 Allowance for loan losses to total loans 1.30 1.07 1.06 1.17 1.20 Allowance for loan losses to non- performing loans 362.32 377.12 447.98 691.56 841.04
Interest income that would have been recorded during the year ended December 31, 1998 had all non-accrual, past due and restructured loans been current in accordance with their original terms was immaterial. Allowance for Loan Losses. Our allowance for loan losses -------------------------- increased 24.05% from $5.19 million on December 31, 1997 to $6.44 million on December 31, 1998. The provision charged to expense was $2.42 million in 1998. This level, coupled with the bulk sale of loans previously mentioned, allowed the level of the allowance to increase to 1.30% of total loans at December 31, 1998 compared to 1.07% at December 31, 1997. As mentioned above in the loan discussion, we shifted our lending focus in 1998 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 -11- the allowance for loan losses was increased. Additionally, as can be seen from the allocation of the allowance, additional weight was given to the increased risks associated with the commercial real estate portfolio that was reflected in the real estate -- mortgage category. Net charge-offs for 1998 were 24 basis points of average loans outstanding. Although up from 1997's level of 19 basis points, net charge-offs in 1998 were low and consistent with our historically low charge-off ratio. At year-end 1998, our allowance represented 362.32% of non-performing loans compared to 377.12% 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, potential future loan losses on loans to specific customers or industries and recent loan loss experience. We continually monitor the quality of our loan portfolio to ensure the timely charge-off of problem loans and to determine the adequacy of the level of the allowance for loan losses. We presently believe that our asset quality, as measured by the statistics in the following table, continues to be very high and that our allowance is adequate to absorb potential losses in the portfolio at December 31, 1998. 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, ----------------------------------------------------------------------------------- 1998 1997 1996 ----------------------- ----------------------- ---------------------- PERCENT PERCENT PERCENT ALLOCATED OF ALLOCATED OF ALLOCATED OF ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS --------- ----- --------- ----- --------- ----- (DOLLARS IN THOUSANDS) Commercial, financial, agricultural, municipal and industrial development $1,327 25.47% $1,352 22.67% $ 833 25.74% Real estate -- construction 347 7.38 303 5.61 124 3.00 Real estate -- mortgage One- to four-family residential 1,222 23.46 637 40.42 440 41.58 Multi-family and commercial 2,849 39.65 1,573 27.94 715 25.60 Consumer and others 196 4.04 180 3.36 142 4.08 Unallocated 501 -- 1,151 -- 848 -- ------ ------ ------ ------ ------ ------ Total $6,442 100.00% $5,193 100.00% $3,100 100.00% ====== ====== ====== ====== ====== ====== DECEMBER 31, ----------------------------------------------------- 1995 1994 ----------------------- ----------------------- PERCENT PERCENT ALLOCATED OF ALLOCATED OF ALLOWANCE LOANS ALLOWANCE LOANS --------- ----- --------- ----- (DOLLARS IN THOUSANDS) Commercial, financial, agricultural, municipal and industrial development $ 467 22.32% $ 315 23.24% Real estate -- construction 281 4.83 74 4.53 Real estate -- mortgage One- to four-family residential 305 39.25 128 38.81 Multi-family and commercial 513 29.08 343 26.21 Consumer and others 90 4.52 93 7.21 Unallocated 474 -- 502 -- ------ ------ ------ ------ Total $2,130 100.00% $1,455 100.00% ====== ====== ====== ======
-12- 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, -------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) ALLOWANCE FOR LOAN LOSSES (BEGINNING OF YEAR) $ 5,193 $ 3,100 $ 2,130 $ 1,455 $ 775 Loans charged off: Commercial, financial, agricultural, municipal and industrial development (632) (536) (113) (183) (165) Real estate--construction (7) (22) (252) (82) -- Real estate--mortgage One- to four-family residential (307) (88) (37) -- (31) Multi-family and commercial (133) -- (75) -- -- Consumer and other (147) (113) (68) (58) (10) -------- -------- -------- -------- -------- Total loans charged off (1,226) (759) (545) (323) (206) -------- -------- -------- -------- -------- Recoveries of loans previously charged off: Commercial, financial, agricultural, municipal and industrial development 4 12 54 11 35 Real estate--construction 6 -- -- -- -- Real estate--mortgage One- to four-family residential 14 10 3 -- -- Multi-family and commercial 20 -- -- -- -- Installment and consumer 11 30 10 10 2 -------- -------- -------- -------- -------- Total recoveries 55 52 67 21 37 -------- -------- -------- -------- -------- Net loans charged off (1,171) (707) (478) (302) (169) -------- -------- -------- -------- -------- Acquired subsidiary balance -- 403 -- -- -- Provision for loan losses 2,420 2,397 1,448 977 849 -------- -------- -------- -------- -------- Allowance for loan losses (end of year) $ 6,442 $ 5,193 $ 3,100 $ 2,130 $ 1,455 ======== ======== ======== ======== ======== LOANS OUTSTANDING: Average $493,619 $365,615 $232,314 $158,503 $ 88,654 End of year 495,669 484,862 291,926 181,544 121,393 RATIOS: Net charge-offs to average loans 0.24% 0.19% 0.21% 0.19% 0.19% Net charge-offs to provision for loan losses 48.39 29.50 33.01 30.91 19.91 Provision for loan losses to average loans 0.49 0.66 0.62 0.62 0.96 Allowance for loan losses to total loans 1.30 1.07 1.06 1.17 1.20
Deposits. Total deposits declined $33.88 million, or 6.99%, in -------- 1998 compared to 1997. As previously mentioned, this decline in year- end numbers was the result of the sale of three branch offices of the bank. This sale reduced total deposits at December 31, 1998 by $39.99 million. The majority of deposits sold were in the certificate of deposit category, hence the decline in certificates of deposit as a percent of total deposits to 41.55% at December 31, 1998 from 47.79% at December 31, 1997. Absent the sale, deposits would have increased slightly during 1998. -13- Average deposits for 1998 were $475.74 million compared to $366.07 million in 1997. The increase in average deposits was the result of acquisitions and deposit purchases that occurred during the third quarter of 1997. The effect of these 1997 acquisitions increased averages for the full year of 1998. Changes in the mix of average deposits were concentrated in both categories of certificates of deposit. On average, retail certificates of deposit increased as a percentage of total deposits to 47.22% in 1998 from 44.49% in 1997. Certificates of deposit over $100,000 declined to 8.32% of total deposits in 1998 from 13.21% of total deposits in 1997. The reduction in large certificates of deposit was the result of management's efforts to replace these rate sensitive funds with core deposits. The following tables summarize deposits as of the dates indicated: DEPOSIT LIABILITY COMPOSITION
DECEMBER 31, ----------------------------------------------------------------------------------- 1998 1997 -------------------------------------- -------------------------------------- PERCENT AVG. PERCENT AVG. AMOUNT OF TOTAL RATE AMOUNT OF TOTAL RATE -------- -------- ---- -------- -------- ---- (DOLLARS IN THOUSANDS) Demand deposits $ 55,417 12.29% --% $ 50,060 10.33% --% Money market and NOW accounts 142,902 31.70 4.12 115,856 23.91 4.29 Savings deposits 14,917 3.31 2.57 16,157 3.33 2.89 Certificates of deposit 187,886 41.68 5.73 231,601 47.79 5.79 Certificates of deposit over $100,000 31,173 6.92 5.55 52,211 10.77 5.55 IRA certificates 18,471 4.10 5.96 18,756 3.87 5.95 -------- ------ -------- ------ Total deposits $450,766 100.00% 5.13 $484,641 100.00% 5.24 ======== ====== ======== ======
AMOUNTS AND MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
DECEMBER 31, 1998 ----------------- (IN THOUSANDS) Three months or less $14,387 Over three months through six months 5,658 Over six through twelve months 5,905 Over twelve months 5,223 ------- Total $31,173 =======
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND 1996. We reported then-record earnings for 1997 with consolidated net income of $2.42 million, an increase of 33.70% over 1996 earnings of $1.81 million. Basic earnings per share were $0.65 compared to $0.66 in 1996. Diluted earnings per share were $0.49, a 2.08% increase over the $0.48 earned in 1996. Average shares outstanding increased substantially in 1997 as we continued to increase our equity base to keep pace with asset growth. Return on average assets for 1997 was 0.52%, compared to 0.59% in 1996. Return on average shareholders' equity was 9.55% for the year compared to 12.17% for 1996. The decline in the return on average shareholders' equity was attributable to our issuance of shares of common stock in connection with the acquisition of Reliance Financial, Inc. in August 1997 and two rights offerings during 1997. Net Interest Income. Net interest income increased $6.24 million, ------------------- or 62.07%, in 1997 compared to an increase of 24.99% in 1996. Net interest margin was 3.71% in 1997 compared to 3.39% in 1996. The increase in net interest income and net interest margin was due to a relatively stable rate environment, significant increases in loans and deposits, substantial shifting of earning assets into higher -14- yielding loans and proportionately greater non-interest bearing deposits. These improvement factors were partially offset by a decrease in the ratio of earning assets to total assets. Our net interest spread increased by 30 basis points from 2.92% in 1996 to 3.22% in 1997. This followed a decrease of 30 basis points in 1996. The increase in 1997 occurred as a result of an increase on the yields on earning assets of 14 basis points and a 16 basis point decline in rates paid on interest bearing liabilities. The increase of the yields on earning assets of 14 basis points followed a decrease of 42 basis points in 1996. The increase in 1997 was due in large part to average loans comprising 83.17% of earning assets. Despite a 10 basis point decline in loan yields, the increased volume of loans helped raise overall yield on earning assets. Yields on taxable securities also improved 35 basis points as a result of reinvestment opportunities and the additional investment opportunities and the additional investment of $5.0 million resulting from cash received in the third quarter from the acquisition of the branches in Union and Warrenton, Missouri. The lower rates paid on interest bearing liabilities was the result of generally lower rates in all categories with the exception of certificates of deposit over $100,000. The decline in rates on certificates of deposits under $100,000 of 11 basis points had the most impact. -15- The following table sets forth the condensed average balance sheets for the periods reported and the percentage of each principal category of assets, liabilities and shareholders' equity to total assets. Also shown is the average yield on each category of interest earning assets and the average rate paid on interest-bearing liabilities for each of the periods reported. DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------------------------- 1997 1996 ----------------------------------------- ---------------------------------------- AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE BALANCE EARNED/PAID YIELD/RATE BALANCE EARNED/PAID YIELD/RATE -------- ----------- ---------- -------- ----------- ---------- (DOLLARS IN THOUSANDS) ASSETS: Interest-earning assets: Loans $365,615 $33,473 9.16% $232,314 $21,428 9.22% Taxable investment securities 64,384 3,910 6.07 59,882 3,428 5.72 Non-taxable investment securities 1,130 56 4.96 1,115 49 4.39 Federal funds sold and other investments 8,492 326 3.84 3,079 151 4.90 -------- ------- ---- -------- ------- ---- Total interest earning assets 439,621 37,765 8.59 296,390 25,056 8.45 Non-interest earning assets: Cash and due from banks $ 9,341 $ 6,382 Bank premises and equipment 6,869 4,698 Other assets 11,065 3,915 Allowance for loan losses (3,867) (2,401) -------- -------- Total assets $463,029 $308,984 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY: Interest bearing liabilities: Money market and NOW accounts $ 95,431 $ 4,092 4.29% $ 70,948 $ 3,218 4.54% Savings deposits 9,665 279 2.89 6,985 227 3.25 Certificates of deposit 162,870 9,436 5.79 104,283 6,149 5.90 Certificates of deposit over $100,000 48,358 2,686 5.55 36,387 2,001 5.50 IRA certificates 12,780 760 5.95 7,673 465 6.06 -------- ------- -------- ------- Total interest bearing deposits 329,104 17,253 5.24 226,276 12,060 5.33 -------- ------- -------- ------- Federal funds purchased, repurchase agreements and other short-term borrowings 52,702 2,895 5.49 27,481 1,542 5.61 Other borrowings 16,658 1,318 7.91 17,482 1,397 7.99 -------- ------- -------- ------- Total interest bearing liabilities $398,464 $21,466 5.39 $271,239 $14,999 5.53 -------- ------- -------- ------- Non-interest bearing liabilities and equity: Demand deposits $ 36,966 $ 21,312 Other liabilities 2,307 1,582 Shareholders' equity 25,292 14,851 -------- -------- Total liabilities and shareholders' equity $463,029 $308,984 ======== ======== Net interest income $16,299 $10,057 ======= ======= Net interest spread 3.20% 2.92% Net interest margin 3.71% 3.39% - - ----------- Average balances include non-accrual loans. Presented at actual yield rather than tax-equivalent yield.
-16- 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
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996 -------------------------------------- VOLUME RATE NET CHANGE ------ ---- ---------- (IN THOUSANDS) INTEREST EARNED ON: Loans $12,186 $(141) $12,045 Taxable investment securities 267 216 483 Non-taxable investment securities 1 6 7 Federal funds sold and other investments 213 (39) 174 ------- ----- ------- Total interest income 12,667 42 12,709 ------- ----- ------- INTEREST PAID ON: Money market and NOW accounts 1,047 (173) 874 Savings deposits 79 (27) 52 Certificates of deposit 3,404 (117) 3,287 Certificates of deposit over $100,000 666 19 685 IRA certificates 303 (8) 295 Federal funds purchased, repurchase agreements and other short-term borrowings 1,386 (33) 1,353 Other borrowings (65) (14) (79) ------- ----- ------- Total interest expense 6,820 (353) 6,467 ------- ----- ------- Net interest income $ 5,847 $ 395 $ 6,242 ======= ===== =======
Other Income. Other income increased 136.76% for 1997 compared to ------------ 1996, and totaled $3.30 million for 1997. Other income, excluding securities gains and mortgage banking revenues, increased $0.96 million, or 93.41%, in 1997 compared to the prior year. The increase in other income in 1997 resulted primarily from an increase of $0.99 million in mortgage banking gross revenues generated by Allegiant Mortgage Company and the newly formed Edge Mortgage Services. In addition, service charges on deposits grew by $0.30 million due to the increased number of deposit accounts and an expanded base of service chargeable products. Other Expense. Total operating expenses increased $6.05 million, ------------- or 86.19%, to $13.07 million during 1997, compared to an increase of $1.39 million, or 24.78%, to $7.02 million in 1996. A majority of the increase was due to the expansion of our business lines, our two mortgage subsidiaries and an increase in the number of our banking locations. The additions resulted in increased salary and benefit expense, furniture and equipment costs and occupancy expenses. Our efficiency ratio, determined by dividing the total operating expenses by the total tax-equivalent revenue, was 67.69% in 1997 as compared to 61.30% in 1996. -17- The following table sets forth a summary of our other income and expense for the years indicated: YEARS ENDED DECEMBER 31, ------------------------ 1997 1996 -------- ------- (IN THOUSANDS) OTHER INCOME: Mortgage banking revenues $ 1,300 $ 312 Leasing revenues 433 -- Service charges on deposits 913 612 Gain on the sale of mortgage loans 27 -- Brokerage division revenues 169 6 Gain on the sale of securities 2 49 Other non-interest income 454 414 ------- ------ Total other income $ 3,298 $1,393 ======= ====== OTHER EXPENSES: Salaries and employee benefits $ 6,192 $3,455 Furniture and equipment 943 689 Occupancy 738 448 Depreciation of operating leases 394 -- Goodwill amortization 358 67 Operating losses 938 144 Supplies 428 202 Other non-interest expense 3,078 2,014 ------- ------ Total other expenses $13,069 $7,019 ======= ======
Securities Portfolios. At December 31, 1997, held-to-maturity --------------------- securities amounted to $31.95 million and securities designated as available-for-sale totaled $44.92 million. The carrying values of securities portfolio at the dates indicated were as follows: SECURITIES PORTFOLIO
DECEMBER 31, ---------------------- 1997 1996 ------- ------- (IN THOUSANDS) U.S. governmental and agency securities $48,354 $36,492 Mortgage-backed securities 18,548 18,202 Federal Home Loan Bank stock 7,033 4,462 State and municipal securities 1,563 1,199 Other securities 1,371 205 ------- ------- Total securities $76,869 $60,560 ======= =======
Loans. Loans, the largest component of interest earning assets, ----- increased 66.09% for the year ended December 31, 1997 which followed an increase of 60.80% in 1996. Average total loans outstanding for 1997 were $365.62 million, a 57.38% increase over 1996 average outstandings. Average total loans outstanding for 1996 were $232.31 million, an increase of 46.57% over average total outstanding loans in 1995. The loan growth in 1997 consisted of a 46.33% increase in commercial loans, a 69.00% increase in real estate mortgage loans, a 210.18% increase in real estate construction loans and a 39.20% increase in consumer loans. Essentially all of the loans were generated within our primary market area. We had no foreign credits and an insignificant amount of participations were purchased. -18- Commercial loans increased $34.81 million, from $75.13 million on December 31, 1996 to $109.94 million on December 31, 1997. The increase in commercial loans was largely due to marketing efforts of the bank's commercial loan team, strengthened by the additions during 1997 of experienced personnel. The commercial loan portfolio is diversified from an industry standpoint and includes businesses engaged in manufacturing, agribusiness, wholesaling and retailing, financial services and other service businesses. Emphasis is upon middle market and community businesses with known management and financial stability. Consistent with the bank's strategy and emphasis upon relationship banking, most borrowing customers also maintain deposit accounts and utilize other banking services. Real estate is often a material component of collateral for the commercial and industrial loans even though repayment on the loans may not be directly related to the real estate. This real estate provides us with additional collateral protection. Asset Quality. Our allowance for loan losses increased 67.52%, ------------- from $3.10 million on December 31, 1996, to $5.19 million on December 31, 1997. The majority of this increase was due to the provision of $2.40 million to the allowance for loan losses during 1997. The 67.52 % increase in the allowance was directly related to the 66.09% increase during 1997 in our loan balance. The allowance for loan losses to total loans increased slightly to 1.07% at December 1997 from 1.06% at December 31, 1996. The allowance for loan losses represented 377.12% of non-performing loans at December 31, 1997, compared to 447.98% at December 31, 1996. Non-performing assets increased by $0.69 million to $1.38 million at December 31, 1997, from $0.69 million on December 31, 1996. The ratio of non-performing loans to total loans was 0.28% at December 31, 1997 compared to 0.24% as of December 31, 1996. The largest component of this increase in non-performing loans was an increase of $0.04 million in past due commercial loans and $0.46 million in past due real estate loans. Allowance for Loan Losses. The allowance for loan losses equaled ------------------------- 1.07% of loans outstanding at December 31, 1997, essentially the same percentage level as 1996. For the year ended December 31, 1997, the provision for loan losses was $2.40 million compared to $1.45 million for the year ended December 31, 1996, an increase of $0.95 million, or 65.54%. The increase in the annual provision for loan losses was primarily a result of the 66.09% increase in total loans outstanding at December 31, 1997 compared to December 31, 1996. The provision to average loans outstanding as 0.71% in 1997 compared to 0.62% in 1996. Net loans charged off during 1997 was $0.71 million, compared to $0.48 million for the year ended December 31, 1996 representing an increase of 47.91%. Net loans charged off as a percentage of average loans outstanding was 0.19% and 0.21% in 1997 and 1996, respectively. Non- performing loans to total loans remained low at 0.28% at December 31, 1997 compared to 0.24% at year-end 1996. Total recoveries for the twelve months ended December 31, 1997 were $0.05 million compared to $0.07 million in 1996. Deposits. Average deposits increased $118.48 million, or 47.85%, -------- 1997 following an increase of $63.28 million, or 34.33%, in 1996. The increase in 1997 was due to internal growth of approximately $67.5 million primarily from additional branch openings in 1996 and 1997 and growth of approximately $51.0 million due to acquisitions. As shown in the table below, total deposits at year-end 1997 increased by $175.97 million, or 57.01%. This growth rate, which is higher than the average growth rate, was due to the aforementioned acquisitions taking place in the third quarter of 1997, which therefore impacted average balances for the year to a lesser degree. The mix of average deposits changed moderately during the year with non-interest bearing deposits comprising 10.10% of total deposits compared to 8.61% in 1996. This increase also was the result of the previously mentioned deposit acquisition having proportionately more non-interest bearing -19- accounts. Certificates of deposit under $100,000 comprised 44.49% of average deposits compared to 42.12% in 1996. The increase in 1997 was a result of the thrift acquisition having proportionately more of these deposits. The following tables summarize deposits as of the dates indicated: DEPOSIT LIABILITY COMPOSITION
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------------------------- 1997 1996 -------------------------------------- ------------------------------------- PERCENT AVG. PERCENT AVG. AMOUNT OF TOTAL RATE AMOUNT OF TOTAL RATE ------ -------- ---- ------ -------- ---- (DOLLARS IN THOUSANDS) Demand deposits $ 50,060 10.33% --% $ 29,406 9.53% --% Money market and NOW accounts 115,856 23.91 4.29 85,201 27.60 4.54 Savings deposits 16,157 3.33 2.89 6,083 1.97 3.25 Certificates of deposit 231,601 47.79 5.79 128,407 41.60 5.90 Certificates of deposit over $100,000 52,211 10.77 5.55 50,825 16.47 5.50 IRA certificates 18,756 3.87 5.95 8,748 2.83 6.06 -------- ------ -------- ------ Total deposits $484,641 100.00% 5.24 $308,670 100.00% 5.33 ======== ====== ======== ======
AMOUNTS AND MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
DECEMBER 31, 1997 ----------------- (IN THOUSANDS) Three months or less $26,694 Over three months through six months 5,604 Over six through twelve months 11,098 Over twelve months 8,815 ------- Total $52,211 =======
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. The bank's asset/liability committee monitors the interest rate sensitivity of the balance sheet on a bi-weekly basis. The committee reviews asset and liability repricing in the context of current and possible future interest rate scenarios affecting the economic climate in our market area. Our pricing policy is that all earning assets and interest bearing liabilities be either based on floating rates or have a fixed rate for a period 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. -20- As the following table shows, at December 31, 1998 we had a slight bias for falling interest rates in the most immediate time frame. This structure is similar to our positioning at the beginning of 1998; however, the bias to falling rates has been reduced to mitigate the impact of any increases in short-term rates. The cumulative gap positions in all time frames presented are well within our asset/liability guidelines.
TIME TO MATURITY OR REPRICING -------------------------------------------------------------------------------- 0 TO 3 4 TO 12 1 TO 5 OVER MONTHS MONTHS YEARS 5 YEARS TOTAL -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) RATE SENSITIVE ASSETS (RSA): Loans $241,108 $ 77,687 $164,810 $ 12,064 $495,670 Investment securities 11,857 23,169 18,838 916 54,780 Federal funds 3,430 -- -- -- 3,430 -------- -------- -------- -------- -------- Total RSA $256,395 $100,856 $183,648 $ 12,980 $553,880 ======== ======== ======== ======== ======== RATE SENSITIVE LIABILITIES (RSL): Money market and NOW accounts $142,901 $ -- $ -- $ -- $142,901 Savings 14,918 -- -- -- 14,918 Time deposits 67,481 70,638 67,564 674 206,357 Time deposits over $100,000 15,037 11,865 3,929 342 31,173 Repurchase agreements 13,745 297 -- -- 14,042 S/T other -- 500 -- -- 500 S/T FHLB borrowings 27,000 12,500 -- -- 39,500 L/T FHLB borrowings -- -- 15,125 11,500 26,625 L/T borrowings - other -- -- 13,150 -- 13,150 -------- -------- -------- -------- -------- Total RSL $281,082 $ 95,800 $ 99,768 $ 12,516 $489,166 ======== ======== ======== ======== ======== PERIODIC INFORMATION: GAP (RSA - RSL) $(24,687) $ 5,056 $ 83,880 $ 464 RSA/RSL 91.22% 105.28% 184.08% 103.71% RSA/total assets 43.00 16.91 30.80 2.18 RSL/total assets 47.14 16.07 16.73 2.10 GAP/total assets 4.14 0.85 14.07 0.08 GAP/RSA 4.46 0.91 15.14 0.08 CUMULATIVE INFORMATION: Cumulative RSA $256,395 $357,251 $540,899 $553,880 Cumulative RSL 281,082 376,882 476,650 489,166 GAP (RSA - RSL) (24,687) (19,631) 64,249 64,714 RSA/RSL 91.22% 94.79% 113.48% 113.23% RSA/total assets 43.00 59.91 90.71 92.89 RSL/total assets 47.14 63.21 79.94 82.04 GAP/total assets 4.14 3.29 10.78 10.85 GAP/RSA 4.46 3.54 11.60 11.68 - - ----------- Our current asset/liability policy is to maintain RSA/RSL percentage between 80% and 135% for the 0 to 3 month maturity range and between 75% and 125% for the cumulative one-year maturity range.
-21- The following table provides additional information about our financial instruments as of December 31, 1998. 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 ------------------------------------------------------------------------------------------------ 1999 2000 2001 2002 2003 THEREAFTER TOTAL -------- ------- ------- ------- ------- ---------- ----- (DOLLARS IN THOUSANDS) RATE SENSITIVE ASSETS: Fixed rate loans $ 70,498 $63,377 $56,938 $25,309 $24,468 $ 6,845 $247,435 Average interest rate 8.07% 8.48% 8.40% 8.40% 8.29% 8.35% 8.37% Variable rate loans $155,556 $31,913 $15,494 $ 8,594 $16,202 $20,475 $248,234 Average interest rate 8.45% 8.01% 8.24% 8.50% 7.78% 8.40% 8.33% Fixed rate securities $ 7,739 $ 6,450 $ 4,403 $ 5,223 $10,240 $ 8,629 $ 42,684 Average interest rate 6.11% 6.34% 6.00% 6.09% 5.62% 5.98% 5.98% Variable rate securities $ -- $ 4,000 $ -- $ -- $ -- $ 8,096 $ 12,096 Average interest rate -- 4.85% -- -- -- 6.82% 6.17% Federal funds sold $ 3,430 $ -- $ -- $ -- $ -- $ -- $ 3,430 Average interest rate 4.55% -- -- -- -- -- 4.55% RATE SENSITIVE LIABILITIES: Non-interest-bearing deposits $ 55,417 $ -- $ -- $ -- $ -- $ -- $ 55,417 Savings and interest-bearing checking 157,819 -- -- -- -- -- 157,819 Average interest rate 3.89% -- -- -- -- -- 3.89% Time deposits $165,021 $41,452 $18,513 $ 6,126 $ 5,402 $ 1,016 $237,530 Average interest rate 5.48% 5.41% 5.79% 5.96% 5.67% 6.12% 5.51% Fixed interest rate borrowings $ 17,042 $20,000 $12,650 $ 625 $ 1,500 $42,000 $ 93,817 Average interest rate 4.19% 5.70% 7.00% 5.87% 5.62% 5.01% 5.29%
LIQUIDITY MANAGEMENT Long-term liquidity is a function of the core deposit base and an adequate capital base. We are committed to growth of our core deposit base. This growth is both internally generated through product pricing and product development and externally generated through acquisition. During 1998, both of these elements contributed heavily 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. Average short-term borrowings were virtually unchanged in comparing 1998 levels to 1997 levels. The 1998 level also was consistent throughout the year with only small quarterly fluctuations in average balances. Due to favorable rate differentials, slightly more repurchase agreements and borrowings from the Federal Home Loan Bank were utilized instead of Federal Funds being purchased. We experienced strong loan demand during 1998 and anticipate the continuation of this demand during 1999. Based on this demand, we expect to continue to utilize borrowings from the Federal Home Loan Bank as a funding vehicle in advance of the slower growth rate obtainable in core deposits. -22- The following table summarizes short-term borrowings for the periods indicated: AVERAGE SHORT-TERM BORROWINGS
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------------------- 1998 1997 1996 ------------------------ ----------------------- ----------------------- AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE BALANCE RATE BALANCE RATE BALANCE RATE ------- ------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS) Federal funds purchased $ 1,272 5.56% $ 2,851 5.14% $ 2,737 5.33% Securities sold under agreement to repurchase and other short-term borrowings 51,583 4.95 49,851 5.51 24,744 5.65 ------- ------- ------- Total $52,855 4.96 $52,702 5.49 $27,481 5.61 ======= ======= ======= Total maximum short-term borrowings outstanding at any month-end during the year $63,449 $71,496 $51,060
CAPITAL RESOURCES Total shareholders' equity was $48.10 million at December 31, 1998, an increase of 14.34% over 1997's level of $42.07 million which represented an increase of 156.75% compared to year-end 1996. The increase in total equity was the result of earnings retention and the exercise of stock options and warrants. The increase in 1997 was the result of two common stock rights offerings and an acquisition effected by the issuance of common stock. Average shareholders' equity showed a substantial increase of 76.82% during 1998 compared to 1997. Shareholders' equity averaged $44.72 million during 1998 compared to $25.29 million in 1997. The large increase in average equity was related to the timing of the events during 1997 mentioned above. The acquisition occurred during the third quarter of 1997 and one of the rights offerings was completed during December of 1997. The average for 1998 therefore includes a full year's effect of these transactions compared to only a partial effect on 1997 averages. Average shareholders' equity has increased at a five year compound growth rate of 57.52%. Our average equity to asset ratio improved to 7.22% in 1998 from 5.46% in 1997. Dividends paid during 1998 were $0.12 per common share, an increase of 50.00% compared to the $0.08 per common share paid during 1997 which was a 33.33% increase over the $0.06 paid in 1996. Our dividend payout ratio was 20.22% in 1998 compared to 13.77% during 1997 and 10.34% in 1996. We also analyze our capital and the capital position of our subsidiaries 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. Management believes that, as of December 31, 1998, Allegiant and its subsidiaries met all capital adequacy requirements. -23- As of December 31, 1998, Allegiant's and the bank's capital ratios were as follows:
ALLEGIANT ALLEGIANT BANK --------- -------------- Total capital (to risk-weighted assets) 8.68% 10.93% Tier 1 capital (to risk-weighted assets) 7.42 9.68 Tier 1 capital (to average assets) 5.83 7.61
YEAR 2000 GENERAL DESCRIPTION OF THE YEAR 2000 ISSUE AND THE READINESS OF ALLEGIANT. The Year 2000 issue is a result of computer programs being written using two digits rather than four digits to define the applicable year. Any of our computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations including, among other things, a temporary inability to process transactions, or engage in similar normal business activities. To mitigate the risk of disruption, a Year 2000 plan has been developed and implemented. The plan is comprised of five phases, with completion of all five necessary to protect us against potential Year 2000 failures. Our plan to resolve the Year 2000 issue involves the following five phases: awareness, assessment, remediation, testing and implementation. During the awareness phase, a comprehensive strategy for addressing the Year 2000 issue was formulated. We have fully completed our assessment of all systems that could be significantly affected by the Year 2000. The completed assessment indicated that most of the significant information technology systems could be affected, including the loan, deposit, general ledger and billing systems. All software and hardware systems have been provided by third party vendors; therefore, the remediation of systems primarily involves the installation of upgraded systems that have been certified by the vendors as Year 2000 compliant. We are in the process of testing all hardware and software systems to validate that systems have been renovated. In addition, testing will validate the compatibility of system interfaces. After all testing is completed, all systems will be implemented, which will include certification that all systems are Year 2000 compliant. YEAR 2000 STATUS, INCLUDING TIMETABLE FOR COMPLETION. As of June 30, 1999, the awareness and assessment phases are 100% complete. The remediation phase is substantially complete, with only two lesser significant software systems requiring upgrades. It is anticipated that these systems will be upgraded no later than September 30, 1999. Testing of our systems is accomplished after upgrades are provided by and certified as Year 2000 compliant by a third party vendor. As of June 30, 1999, approximately 85% of all internal systems have been tested. The testing of mission critical systems was substantially complete by December 31, 1998. Except for the two systems identified above, it is anticipated that testing of all systems will be substantially completed by July 31, 1999, with the implementation phase to be completed by August 31, 1999. IMPORTANCE OF THIRD PARTIES AND THEIR EXPOSURE TO THE YEAR 2000. We have some systems that interface directly with significant third party vendors. These include the Electronic Fund Transfer (EFT) systems related to wire transfers, automated teller machine and debit card transactions, in addition to trust system software. These third parties have made, or are in the process of making, their systems Year 2000 compliant. We are working with these third party vendors to ensure that the third party systems interface properly with our systems. Testing for these systems will be accomplished using actual and proxy testing. Proxy testing is testing that takes place in a controlled environment using similar software/hardware that we and the third party vendors utilize. These tests have been completed. -24- We also have gathered information about the Year 2000 compliance status of customers with significant credit relationships. In addition, significant suppliers and other third parties that do not share information with our systems (external agents) have been queried to assess their Year 2000 status. As of June 30, 1999, there is no evidence of any significant customers or external agents that would materially impact our operations, liquidity or capital resources. However, we have no means of ensuring that these entities will be Year 2000 compliant. The inability of third parties and external agents to complete their Year 2000 resolution process in a timely fashion could materially impact us. The effect of non-compliant third parties and external agents is not determinable. YEAR 2000 COSTS. We have utilized and will continue to utilize both internal and external resources to reprogram, replace, test and implement the software and operating equipment for Year 2000 modifications. The total cost of the Year 2000 project is estimated at $0.20 million and is being funded through operating cash flows. As of June 30, 1999, we have incurred approximately $0.20 million ($0.11 million expensed and $0.09 million capitalized for new systems and equipment), related to all phases of the Year 2000 project. The total remaining project costs, which we approximate will be $0.03 million, are attributable to the testing and validation phases of the project and will be expensed as incurred. OVERALL YEAR 2000 RISKS. Management believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, all necessary phases of the Year 2000 program have not yet been completed. In the event that such phases are not completed in a timely fashion, we could experience system failures that may have a significant impact on our financial condition. In addition, disruptions in the economy generally resulting from the Year 2000 issue also could materially adversely affect us. We could be subject to litigation for computer system product failures. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. CONTINGENCY PLANNING. We have contingency plans for certain mission critical applications and are working on plans for all other systems. These contingency plans involve, among other actions, manual workarounds and adjusting staffing strategies. In addition, funding plans are being developed to assure adequate levels of liquid assets are available in the event of significant customer withdrawals of cash items as a result of concerns regarding the Year 2000 issue. -25- SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized as of the 12th day of July 1999. ALLEGIANT BANCORP, INC. (Registrant) By /s/ Shaun R. Hayes ------------------------------- Shaun R. Hayes, President and Chief Executive Officer -26- EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - - ----------- ----------- 3.1 Articles of Incorporation, as amended, of the Company, filed as Exhibit 3.1 to Registrant'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 Registrant'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 Annual Report on Form 10-K for the year ended December 31, 1998, are hereby incorporated by reference. 4.1 Form of Stock Certificate for Common Stock, filed as Exhibit 4.2 to the Company's Registration Statement on Form 10-SB (Reg. No. 0-26350), is hereby incorporated by reference. 4.2 Form of Warrant Agreement, filed as Exhibit 4.3 to Company's Registration Statement on Form 10-SB (Reg. No. 0-26350), 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 Registrant's Annual Report on Form 10-K 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 Registrant's Annual Report on Form 10-K 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 Agreement for Advances, Pledge and Security Agreement, dated May 3, 1993, by and between Allegiant Bank and the Federal Home Loan Bank of Des Moines. 13 Portions of the 1998 Annual Report of the Company to its Shareholders, filed as Exhibit 13 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998, are hereby incorporated by reference. 21.1 Subsidiaries of the Company, filed herewith. [FN] - - ------------ Management contract or compensatory plan or arrangement. -27- EX-10.7 2 AGREEMENT FOR ADVANCES, PLEDGE AND SECURITY AGREEMENT FEDERAL HOME LOAN BANK OF DES MOINES Des Moines, Iowa AGREEMENT FOR ADVANCES, PLEDGE AND SECURITY AGREEMENT Blanket Pledge This Agreement for Advances, Pledge and Security Agreement ("Agreement"), effective the 3rd day of May, 1993, is entered between Allegiant Bank ("Member"), with principal offices at 4323 N. Grand, St. Louis, MO 63107 and the Federal Home Loan Bank of Des Moines ("Bank"), with principal offices at 907 Walnut, Des Moines, Iowa 50809. WHEREAS, The Bank in accordance with the Federal Home Loan Bank Act, regulations and directives of the Federal Housing Finance Board, and policies promulgated by its own Board, makes available advances to its members. The available advances are set forth by the Bank in a statement of "Credit Policy," as may be amended from time to time. WHEREAS, The member may, from time to time, apply for an advance or advances which may be available to it. NOW THEREFORE, For valuable consideration and with respect to each and every such advance, the Parties agree as follows: SECTION 1. CONFIRMATION OF ADVANCE. To be bound by the terms and conditions set forth herein, in the confirmation of advance issued with respect to each advance, and in the Bank's Credit Policy as may be amended from time to time. A confirmation of advance shall mean a writing or machine readable electronic transmission in such form or forms as may be determined by the Bank from time to time. SECTION 2. PAYMENT TO THE BANK. To repay each and any advance together with interest thereon according to the confirmation of each such advance communicated to the Member by the Bank, together with any unpaid costs and expenses in connection therewith. Such payment shall be made at the office of the Bank in Des Moines, Iowa, or at such other place as the Bank, or its successors or assigns, may from time to time appoint in writing. The default rate on past due principal and interest may, at the option of the Bank, be at a rate of 1% per annum higher than the then current rate being charged by the Bank for advances. SECTION 3. ASSIGNMENT TO BANK OF SECURITY INTEREST IN BANK STOCK. The Member hereby assigns, transfers and pledges to the Bank, its successors and assigns, all stock of the Federal Home Loan Bank of Des Moines owned by the Member as collateral security for payment of any and all Indebtedness, whether in the nature of an advance or otherwise, of the Member to the Bank, its successors and assigns. SECTION 4. ASSIGNMENT OF SECURITY INTEREST IN OTHER COLLATERAL. As additional collateral security for any and all such advances, Member assigns, transfers, and pledges to the Bank, its successors or assigns, each and every note or other instrument evidencing a debt and any mortgage, deed of trust, title, or document of title securing it; all securities (including, but not limited to mortgage-backed securities issued or guaranteed by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, obligations of or guaranteed by the United States or any agency thereof, share certificates or other participation interests in any securities trust, mortgage loan participation certificates); all contract for deeds; all chattel paper; any chose in action; all general intangibles; all deposit accounts; certificates of deposit; and proceeds from any of the above (hereinafter "Collateral"). With respect to such Collateral, Member undertakes and agrees as follows: A. That such security interest shall extend to after acquired Collateral of a similar nature; B. That the Member shall be at liberty to use, commingle, and dispose of all or part of the Collateral, and to collect, compromise, and dispose of the proceeds of the Collateral without being required to account for the proceeds or replace the Collateral subject only to its obligation to maintain the Collateral as herein provided; C. To keep and maintain such Collateral free and clear of pledges, liens, and encumbrances to others as the required collateral maintenance level. The "required collateral maintenance level" means the amount of collateral the member is required to maintain free and clear of pledge, liens, and encumbrances to others as set forth from time to time in the Credit Policy: D. To assemble and deliver Collateral to the Bank or its authorized agents immediately upon demand of the Bank; and as specified by the Bank in its Credit Policy from time to time, and to pay for the safekeeping collateral as established by the Bank; E. To make, execute, and deliver to the Bank such assignments, endorsements, listings, powers, financing statements or other instruments as the Bank may reasonably request respecting such Collateral. SECTION 5. DUTY TO USE REASONABLE CARE. In the event Member delivers security to Bank or its Agent pursuant to paragraph 4 above, the duty of the Bank with respect to said security shall be solely to use reasonable care in the custody and preservation of the security in its possession. SECTION 6. ADDITIONAL SECURITY. Member shall assign additional or substituted Collateral for such advances at any time the Bank shall deem it necessary for the Bank's protection. SECTION 7. EVENTS OF DEFAULT. The Bank may consider the Member in default hereunder upon the occurrence of any of the following events or conditions: A. Failure of the Member to pay any interest, or repay any principal, or any advances as herein required; or B. Breach or failure to perform by the Member of any covenant, promise, condition, obligation or liability contained or referred to herein, or any other agreement to which the Member and the Bank are parties; or C. Proof being made that any representations, statements or warranty made or furnished in any manner to the Bank by or on behalf of the Member in connection with all or part of any advance was false in any material respect when made or furnished; or D. Loss, theft, damage, destruction, sale or encumbrance to or of any of the Collateral except as herein permitted, or the making of any levy, seizure or attachment thereof or therein; or E. Any tax levy, attachment, garnishment, levy of execution or other process issued against the Member or the Collateral; or F. Any suspension of payment by the Member to any creditor or any events which results in acceleration to the maturity of any indebtedness of the Member to others under any indenture, agreement or undertaking or G. Application for, or appointment of, a receiver of any part of the property of the Member, or in case of adjudication of insolvency, or assignment for benefit of creditors, or general transfer of assets by the Member, of if management of the Member is taken over by any supervisory authority, or in case of any other form of liquidation, merger, sale of assets or voluntary dissolution, or upon termination of the membership of the Member in the Federal Home Loan Bank of Des Moines, or in the case of advances made under the provisions of 12 U.S.C. Section 1431(g)(4), if at any time thereafter the creditor liabilities of the Member, excepting its liabilities to the Bank, are increased in any manner to an amount exceeding 5% of its net assets or; H. Determination by the Bank that a material adverse change has occurred in the financial condition of the Member from that disclosed at the time of the making of any advance, or from the condition of the Member as theretofore most recently disclaimed to the Bank in any manner; or I. If the Bank reasonably and in good faith deems itself insecure even though the Member is not otherwise in default. SECTION 8. BANK REMEDIES IN THE EVENT OF DEFAULT. At any time after any default as herein before provided, the Bank may, at its option, declare the entire amount of any and all advances to be immediately due and payable. The Bank shall have all of the remedies of a secured party under the Uniform Commercial Code of the State of Iowa. In addition thereto, the Bank may take immediate possession of any of the Collateral or any part thereof wherever the name may be found. The Member agrees to pay all the costs and expenses of the Bank in the collection of the secured indebtedness and enforcement of the Bank's rights hereunder including, without limitation, reasonable attorney's fees. The Bank may sell the Collateral or any part thereof in such manner and for such price as the Bank deems appropriate without any liability for any loss due to decrease in the market value of the Collateral during the period held. The Bank shall have the right to purchase all or part of the Collateral at public or private sale. If any notification of intended disposition of any of the Collateral is required by law, such notification shall be deemed reasonable and properly given if mailed, postage prepaid, at least five days before any such disposition to the address of the Member appearing on the records of the Bank. The proceeds of any sale shall be applied in the following order: First, to pay all costs and expenses of every kind for the care, collection, safekeeping, sale, foreclosure, delivery or otherwise respecting the Collateral (including expenses incurred in the protection of the Bank's title to or lien upon or right in any of the Collateral, expenses for legal services of any kind in connection therewith or in making any such sale or sales, insurance, commission for sales and guaranty); then to interest on all indebtedness of the Member to the Bank; then to the principal amount of any such indebtedness whether or not such indebtedness is due or accrued. The Bank, at its discretion, may apply any surplus to indebtedness of Member to third parties claiming a secondary security interest in the Collateral. Any remaining surplus shall be paid to the Member. SECTION 9. APPOINTMENT OF BANK AS ATTORNEY-IN-FACT. In the event of default, and without limiting any other rights the Bank might have as a secured party under the Uniform Commercial Code of Iowa, or the laws of any jurisdiction under which Bank might be exercising rights hereunder, and under this Agreement, Member does hereby make, constitute and appoint Bank its true and lawful attorney-in-fact to deal with the Collateral and, in its name and stand to release, collect, compromise, settle and release or record any mortgage of deed or trust which in a part of such Collateral as fully as the Member could do if acting for itself. The powers herein granted are coupled with an interest, and are irrevocable, and full power of substitution is granted to the Bank in the premises. SECTION 10. AUDIT AND VERIFICATION OF COLLATERAL. In extension and not in limitation of all requirements of law respecting examination of the Member by or on behalf of the Bank, the Member agrees that all Collateral pledged hereunder shall always be subject to audit and verification by or on behalf of the Bank in its corporate capacity. SECTION 11. RESOLUTION TO BE FURNISHED BY MEMBER. Member agrees to furnish to the Bank from time to time a certified copy of resolution of its Board of Directors or other governing body authorizing such of the Member's officers, as the Member shall select, to apply for advances from the Bank. Unless the Bank shall be otherwise notified in writing, the Bank may honor applications made by such officers other than in writing; but, in such event the member shall confirm such application for advance in writing on forms furnished by the Bank. But the Member shall forever be stopped to deny its obligation to repay such advance whether or not an application in writing is ever received by the Bank so long only as the advance is made in good faith by the Bank on the request of an officer or employee so authorized by the Member. SECTION 12. APPLICABILITY OF BANK ACT. In addition to the terms and conditions herein specifically set forth, all advances are subject to the rights, powers, privileges and duties conferred upon the Federal Housing Finance Board, the Federal Home Loan Banks, and on member institutions by the Act of Congress entitled, "Federal Home Loan Bank Act, as amended." SECTION 13. JURISDICTION. In any action or proceeding brought by the Bank or the Member in order to enforce any right or remedy under this Agreement, Member will submit to the jurisdiction of the United States District Court for the Southern District of Iowa, or if such action or proceeding may not be brought in Federal Court, the jurisdiction of the Iowa District Court in Polk County. If any action or proceeding is brought by the Member seeking to obtain relief against the Bank arising out of this Agreement and such relief is not granted by a court of competent jurisdiction, the Member will pay all attorney's fees and court costs incurred by the Bank in connection therewith. SECTION 14. CHOICE OF LAW. This Agreement shall be construed and enforced according to the laws of the State of Iowa, except that the rate of interest on advances hereunder shall be governed by the provisions of 12 U.S.C. Section 1430 (as amended). SECTION 15. AGREEMENT CONSTITUTES ENTIRE AGREEMENT. This Agreement embodies the entire Agreement and understanding between the parties hereto relating to the subject matter hereof and supersedes all prior agreements between such parties that relate to the subject matter except that: The Credit Policy as duly adopted by the Bank's Board of Directors from time to time shall be incorporated herein, unless agreed to in writing by both parties. Advances made by the Bank to Member prior to the execution of this Agreement shall continue to be governed exclusively by the terms of the prior agreements pursuant to which such advances were made, except that (i) any default thereunder shall constitute default hereunder, (ii) Collateral furnished as security hereunder shall also secure such prior advances and (iii) the rights and obligations with respect to such Collateral shall be governed by the terms of this Agreement. SECTION 16. SECTION HEADINGS. Section headings are not to be considered part of this Agreement. Section headings are solely for convenience of reference, and shall not affect the meaning of interpretation of this Agreement or any of its provisions. SECTION 17. SEVERABILITY OF SECTIONS. If any section or portion thereof is deemed void in any legal proceeding, the remainder of the Agreement shall remain in full force and effect. SECTION 18. The person signing this document on behalf of the Member represents that its execution was authorized by appropriate action of the directors of the Member which was completed on the 22nd day of April, 1993, and that such action is duly reflected in the records of the Member. Allegiant Bank FEDERAL HOME LOAN BANK OF DES MOINES - - --------------------------------- (Full Corporate Name of Member) By: /s/ Kay Weber By: /s/ George A. Katterman ------------------------------ --------------------------------- Title: Vice President Title: Senior Vice President --------------------------- ------------------------------ Date: May 3, 1993 Date: May 4, 1993 ---------------------------- ------------------------------- By: /s/ Shaun R. Hayes By: /s/ Jerry R. Ferguson ------------------------------ --------------------------------- Title: President/CEO Title: Vice President --------------------------- ------------------------------ Date: May 3, 1993 Date: May 4, 1993 ---------------------------- ------------------------------- EX-21.1 3 SUBSIDIARIES OF THE COMPANY Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT (as of June 30, 1999) 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 -----END PRIVACY-ENHANCED MESSAGE-----