UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2002
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Commission file number 0-10849
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ALLEGIANT BANCORP, INC.
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(Exact name of registrant as specified in its charter)
MISSOURI 43-1262037
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
2122 KRATKY ROAD
ST. LOUIS, MISSOURI 63114
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(Address of principal executive offices)
(Zip Code)
(314) 692-8200
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. /X/ Yes / / No
Number of shares
Title of class outstanding as of May 1, 2002
----------------------------------- ----------------------------------------
Common stock, $0.01 par value 15,607,251
ALLEGIANT BANCORP, INC.
FORM 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION.....................................................................................1
ITEM 1. FINANCIAL STATEMENTS.................................................................................1
CONSOLIDATED BALANCE SHEETS - MARCH 31, 2002 AND 2001 (UNAUDITED) AND DECEMBER 31, 2001..................1
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - THREE MONTHS ENDED MARCH 31, 2002 AND 2001...............2
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) - THREE MONTHS ENDED MARCH 31, 2002...........3
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - THREE MONTHS ENDED MARCH 31, 2002 AND 2001...........4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.....................................................5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................7
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES -
THREE MONTHS ENDED MARCH 31, 2002 AND 2001............................................................10
RATE/VOLUME ANALYSIS - THREE MONTHS ENDED MARCH 31, 2002................................................11
INVESTMENT SECURITIES PORTFOLIO.........................................................................13
LENDING AND CREDIT MANAGEMENT...........................................................................14
RISK ELEMENTS - NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS.............................................15
SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION.................................................17
DEPOSIT LIABILITY COMPOSITION - MARCH 31, 2002 AND 2001, AND DECEMBER 31, 2001..........................18
LIQUIDITY MANAGEMENT AND CAPITAL RESOURCES..............................................................19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........................................21
PART II. OTHER INFORMATION.......................................................................................21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................................................21
SIGNATURES..............................................................................................22
EXHIBIT INDEX...........................................................................................23
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLEGIANT BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
March 31, March 31,
2002 December 31, 2001
(Unaudited) 2001 (Unaudited)
----------- ------------ -----------
(Dollars in thousands)
ASSETS:
Cash and due from banks................................... $ 38,174 $ 56,992 $ 32,922
Federal funds sold and other investments.................. 9,952 14,642 45,960
Investment securities:
Available-for-sale (at estimated market value)......... 429,965 439,038 144,154
Held-to-maturity (estimated market value of
$20,931, $24,532 and $4,930, respectively)........... 22,023 24,599 4,864
Loans, net of allowance for loan losses of
$17,530, $18,905 and $12,020, respectively.............. 1,432,257 1,400,891 843,125
Loans held for sale....................................... 49,501 61,459 10,685
Premises and equipment ................................... 47,553 47,941 19,705
Accrued interest and other assets ........................ 72,292 68,506 31,200
Cost in excess of fair value of net assets acquired....... 56,280 56,411 10,537
---------- ---------- ----------
Total assets......................................... $2,157,997 $2,170,479 $1,143,152
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non interest-bearing................................... $ 177,635 $ 201,216 $ 94,070
Interest-bearing....................................... 1,292,866 1,291,351 720,811
Certificates of deposit over $100,000.................. 165,511 195,048 78,625
---------- ---------- ----------
Total deposits............................................ 1,636,012 1,687,615 893,506
---------- ---------- ----------
Short-term borrowings..................................... 72,180 73,027 95,507
Federal Home Loan Bank advances........................... 235,850 196,191 48,626
Guaranteed preferred beneficial interests in
subordinated debentures................................. 57,250 57,250 17,250
Accrued expenses and other liabilities.................... 12,886 18,328 7,679
---------- ---------- ----------
Total liabilities.................................... 2,014,178 2,032,411 1,062,568
---------- ---------- ----------
Shareholders' equity:
Common Stock, $0.01 par value - authorized 20,000,000
shares; issued 15,541,085 shares, 15,209,566 shares
and 8,843,449 shares, respectively................... 160 157 94
Capital surplus........................................ 113,727 111,234 60,155
Retained earnings...................................... 30,941 27,223 18,266
Accumulated other comprehensive income (loss).......... (1,009) (546) 2,069
---------- ---------- ----------
Total shareholders' equity........................... 143,819 138,068 80,584
---------- ---------- ----------
Total liabilities and shareholders' equity........... $2,157,997 $2,170,479 $1,143,152
========== ========== ==========
See Notes to Condensed Consolidated Financial Statements.
1
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31,
------------------------------
2002 2001
----------- -----------
(In thousands, except share and per share data)
Interest income:
Interest and fees on loans................................. $ 24,873 $ 19,636
Investment securities...................................... 5,071 2,395
Federal funds sold and overnight investments............... 56 449
----------- -----------
Total interest income......................................... 30,000 22,480
----------- -----------
Interest expense:
Deposits................................................... 10,646 10,686
Short-term borrowings...................................... 648 1,572
Federal Home Loan Bank advances............................ 2,466 760
Guaranteed preferred beneficial interests
in subordinated debentures............................... 1,372 442
----------- -----------
Total interest expense........................................ 15,132 13,460
----------- -----------
Net interest income........................................... 14,868 9,020
Provision for loan losses..................................... 1,500 850
----------- -----------
Net interest income after provision for loan losses........... 13,368 8,170
----------- -----------
Other income:
Service charges on deposits................................ 1,627 956
Net gain on sale of securities............................. 10 531
Other income............................................... 2,425 1,270
----------- -----------
Total other income............................................ 4,062 2,757
----------- -----------
Other expenses:
Salaries and employee benefits ............................ 5,604 3,596
Occupancy and furniture and equipment...................... 1,628 1,041
Other operating expenses................................... 3,633 1,896
----------- -----------
Total other expenses.......................................... 10,865 6,533
----------- -----------
Income before income taxes.................................... 6,565 4,394
Provision for income taxes ................................... 1,934 1,833
----------- -----------
Net income.................................................... $ 4,631 $ 2,561
=========== ===========
Per share data:
Earnings per share:
Basic................................................... $ 0.30 $ 0.29
Diluted................................................. 0.30 0.29
Weighted average common shares outstanding:
Basic................................................... 15,380,960 8,824,643
Diluted................................................. 15,675,429 8,887,050
See Notes to Condensed Consolidated Financial Statements.
2
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
Accumulated
Other Total
Common Capital Retained Comprehensive Shareholders' Comprehensive
Stock Surplus Earnings Loss Equity Income
------- -------- -------- ------------- ------------- -------------
(In thousands)
Balance December 31, 2001.................... $157 $111,234 $27,223 $ (546) $138,068
Net income................................... - - 4,631 - 4,631 $4,631
Change in net unrealized losses
on available-for-sale securities........... - - - (463) (463) (463)
------
Comprehensive income......................... - - - - - $4,168
======
Issuance of common stock..................... 3 2,493 - - 2,496
Dividends.................................... - - (913) - (913)
---- -------- ------- ------- --------
Balance March 31, 2002....................... $160 $113,727 $30,941 $(1,009) $143,819
==== ======== ======= ======= ========
Reclassification adjustments:
Unrealized losses on
available-for-sale securities........... $(453)
Less:
Reclassification adjustment for gains
realized included in net income......... 10
-----
Net unrealized losses on
available-for-sale securities........... $(463)
=====
See Notes to Condensed Consolidated Financial Statements.
3
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
----------------------
2002 2001
-------- --------
(In thousands)
OPERATING ACTIVITIES:
Net income..................................................... $ 4,631 $ 2,561
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization.............................. 1,224 707
Provision for loan losses.................................. 1,500 850
Net realized gains on securities available-for-sale........ (10) (531)
Net gain on sale of mortgage loans......................... - (29)
Other changes in assets and liabilities:
Accrued interest receivable and other assets............. (2,904) 1,794
Accrued expenses and other liabilities................... (5,442) 46
-------- --------
Cash provided by (used in) operating activities.......... (1,001) 5,398
-------- --------
INVESTING ACTIVITIES:
Merger related recapitalization related to the
acquisition of Equality Bancorp, Inc......................... - (917)
Adjustment to cash received in acquisition of branches......... (312) -
Proceeds from maturities of securities held-to-maturity........ 2,576 336
Proceeds from maturities of securities available-for-sale...... 42,928 21,338
Proceeds from sales of securities available-for-sale........... 112 3,618
Purchase of investment securities available-for-sale........... (34,667) (37,406)
Loans made to customers, net of repayments..................... (20,908) (31,660)
Proceeds from sale of mortgage loans........................... - 68,550
Purchase of bank-owned life insurance.......................... (664) (218)
Additions to premises and equipment............................ (364) (1,688)
-------- --------
Cash provided by (used in) investing activities.......... (11,299) 21,953
-------- --------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits............................ (51,603) 35,422
Net increase (decrease) in short-term borrowings............... 39,147 (30,755)
Repayment of long-term debt.................................... (335) (63)
Proceeds from issuance of common stock......................... 2,496 274
Payment of dividends........................................... (913) (490)
-------- --------
Cash provided by (used in) financing activities.......... (11,208) 4,388
-------- --------
Net increase (decrease) in cash and cash equivalents........... (23,508) 31,739
Cash and cash equivalents, beginning of period................. 71,634 47,143
-------- --------
Cash and cash equivalents, end of period....................... $ 48,126 $ 78,882
======== ========
See Notes to Condensed Consolidated Financial Statements.
4
ALLEGIANT BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Basis of Presentation
The accompanying condensed consolidated financial statements
include the accounts of Allegiant Bancorp, Inc. and its subsidiaries. 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 Bancorp, Inc. Also, sometimes we refer to Allegiant Bank, Bank of
Ste. Genevieve, Bank of St. Charles County and State Bank of Jefferson
County, our bank subsidiaries, as the "banks."
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31, 2002
are not necessarily indicative of the results that may be expected for the
year ending December 31, 2002.
The balance sheet at December 31, 2001 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial
statements and footnotes thereto included in our Annual Report on Form 10-K
for the year ended December 31, 2001.
Comprehensive Income
During the first quarter of 2002 and 2001, total comprehensive
income amounted to $4.2 million and $3.9 million, respectively.
Acquisitions
On September 28, 2001, we acquired Southside Bancshares Corp.
("Southside"). Before the acquisition, Southside was a bank holding company
with four subsidiary banks in and around St. Louis, Missouri, which at
closing reported consolidated total assets of approximately $804.9 million.
Under the terms of the agreement, one-half of the Southside shares were
converted into the right to receive cash in the amount of $14 per share and
the other half into the right to receive 1.39 shares of Allegiant stock per
share. Under the terms of the agreement, we exchanged a total of
approximately 5.9 million shares of Allegiant common stock plus $59 million
in cash for all of the outstanding common stock of Southside. The issuance
of Allegiant shares and cash to the former Southside shareholders was
completed on November 2, 2001. We financed the cash portion of the purchase
price through the issuance of trust preferred securities and bank
borrowings. We accounted for the acquisition under the purchase method and
recorded goodwill and a core deposit intangible of $33.6 million and $11.0
million, respectively. The core deposit intangible is being amortized over
an estimated useful life of 10 years and none of this amortization is
expected to be deductible for tax purposes.
5
On December 12, 2001, we acquired five St. Louis County branches
from Guardian Savings Bank ("Guardian") which is headquartered in Houston,
Texas. In addition to the branch facilities, we assumed $109.3 million in
related deposit liabilities. As a result of the Guardian branch acquisition,
we recorded $2.2 million of goodwill. In accordance with current accounting
standards, we will amortize this premium paid for these branches over an
estimated useful life of ten years. This amortization is expected to be
deductible for tax purposes. We believe the acquisition of Southside and the
Guardian branches helped us to create a strategically, operationally and
financially strong company that is positioned for further growth and will be
able to compete effectively and offer personalized banking products and
services in the St. Louis community.
Recently Issued Accounting Standards
SFAS No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, was issued in September 2000 and
provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. SFAS No. 140
is effective for transfers and servicing of financial assets and
extinguishments of liabilities after March 31, 2001. Also, it is effective
for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years
ending after December 15, 2000. Management has not yet quantified the
effect, if any, of this new standard on the consolidated financial
statements.
Effective January 1, 2002, the Company adopted Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets. In accordance with this
statement, goodwill and intangible assets deemed to have indefinite lives
will no longer be amortized but will be subject to impairment tests in
accordance with the Statement. Other intangible assets will continue to be
amortized over their estimated useful lives. During 2002, the Company will
perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002 and has not yet
determined what the effect of those tests will be on the future consolidated
earnings and financial position of the Company. If for any future period we
determine that there has been impairment in the carrying value of our
goodwill balances, we will record a charge to our earnings, which could have
a material adverse effect on our net income.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains certain forward-looking statements with
respect to the financial condition, results of operations and business of
Allegiant and our subsidiaries. These forward-looking statements involve
certain risks and uncertainties. For example, by accepting deposits at fixed
rates, at different times and for different terms, and lending funds at
fixed rates for fixed periods, we accept the risk that the cost of funds may
rise and interest on loans and investment securities may be at a fixed rate.
Similarly, the cost of funds may fall, but we may have committed by virtue
of the term of a deposit to pay what becomes an above-market rate.
Investments may decline in value in a rising interest rate environment.
Loans have the risk that the borrower will not repay all funds in a timely
manner, as well as the risk of total loss. Collateral may or may not have
the value attributed to it. The loan loss reserve, while believed adequate,
may prove inadequate if one or more large borrowers, or numerous smaller
borrowers, or a combination of both, experience financial difficulty for
individual, national or international reasons. Because the business of
banking is highly regulated, decisions of governmental authorities, such as
the rate of deposit insurance, can have a major effect on operating results.
All of these uncertainties, as well as others, are present in a banking
operation and we caution shareholders that management's view of the future
on which it prices our products, evaluates collateral, sets loan loss
reserves and estimates costs of operation and regulation may prove to be
other than anticipated.
The profitability of our operations depends on our net interest
income, provision for loan losses, non-interest income and non-interest
expense. Net interest income is the difference between the income we receive
on our loan and investment portfolios and our cost of funds, which consists
of interest paid on deposits and borrowings. The provision for loan losses
reflects the cost of credit risk in our loan portfolio. Non-interest income
consists primarily of service charges on deposit accounts and fees for
ancillary banking services and, to a lesser extent, revenues generated from
our mortgage banking, securities brokerage, insurance brokerage and trust
operations. Non-interest expense includes salaries and employee benefits as
well as occupancy, data processing, marketing, professional fees, insurance
and other expenses. Under recently adopted accounting rules, we will be
required to periodically evaluate the carrying values of our goodwill
balances to determine whether the values have been impaired. If we determine
that there has been an impairment, we will recognize a charge to our
earnings, which could be material.
Our net interest income depends on the amounts and yields of
interest-earning assets compared to the amounts and rates on
interest-bearing liabilities. Net interest income is sensitive to changes in
market rates of interest and our asset/liability management procedures in
managing those changes. The provision for loan losses is dependent on
increases in the loan portfolio, management's assessment of the
collectibility of the loan portfolio and loss experience, as well as
economic and market factors.
OVERVIEW
We are a bank holding company headquartered in St. Louis, Missouri.
Our bank subsidiaries, Allegiant Bank, Bank of Ste. Genevieve, Bank of
St. Charles County and State Bank of Jefferson County, offer full-service
banking and personal trust services to individuals, commercial business and
municipalities in the St. Louis metropolitan area. Our services include
commercial, real estate and installment loans, checking, savings and time
deposit accounts, personal trust and other fiduciary services and other
financial services such as securities
7
brokerage, insurance and safe deposit boxes. As of March 31, 2002, we
reported, on a consolidated basis, total assets of $2.2 billion, loans
of $1.4 billion, deposits of $1.6 billion and shareholders' equity of
$143.8 million.
Since our inception in 1989, we have grown rapidly through a
combination of internal growth and acquisitions of other financial
institutions. Our internal growth has been achieved by positioning Allegiant
as one of the leading St. Louis community banking operations. We have
supplemented our growth by acquiring 31 branch locations in our community
from four different thrifts and another banking organization. Our primary
goals have been to expand our branch network in the St. Louis market while
increasing our earnings per share. We have also acquired a mortgage company
and an asset management firm. In December 1998, we sold four branches
located in more rural markets in northeast Missouri, in order to focus our
operations exclusively in the St. Louis metropolitan area. In November 2000,
we acquired Equality Bancorp, Inc. a community-based thrift holding company
with seven branches in the St. Louis area and total assets of approximately
$300.4 million. As a continuation of our acquisition and growth strategies,
in September 2001, we acquired Southside Bancshares Corp., another
community-based bank holding company serving the St. Louis area, with total
assets of approximately $804.9 million. In addition, on December 12, 2001,
we acquired five St. Louis branch facilities from Guardian Savings Bank and
assumed approximately $109.3 million in related deposit liabilities.
Since the beginning of 1998, we have focused on improving the
profitability of our banking operations. As a result, we have reduced the
amount of one- to four-family mortgages we hold in our loan portfolio and
have increased our amount of higher yielding commercial loans. We have hired
more than 20 banking professionals averaging more than 10 years of
experience in the St. Louis metropolitan area to help grow our commercial
loans and deposits. We have also implemented company-wide cost-control
efforts to enhance efficiencies throughout our operations. These steps taken
since the beginning of 1998 have improved our efficiency, return on average
assets, return of average equity and earnings per share.
Our primary financial objectives are to continue to grow our loan
portfolio while maintaining high asset quality, expand our core deposit base
to provide a cost-effective and stable source of funding our loan portfolio
and increase non-interest income while maintaining strong expense controls.
We have sought to maintain high asset quality while managing growth both
internally and by acquisition.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 2002 was $4.63
million, a 81% increase over the $2.56 million earned for the first quarter
of 2001. Basic earnings per share were $0.30 for the first quarter of 2002
compared to $0.29 for the first quarter of 2001. Diluted earnings per share
increased 3.5% to $0.30 for the first quarter of 2002 compared to $0.29 for
the first quarter of 2001. The annualized return on average assets for the
first quarter of 2002 was 0.86%, compared to the 0.91% annualized return on
average assets reported for the first quarter of 2001. The return on average
equity on an annualized basis was 13.1% for the first quarter of 2002
compared to 12.8% for the first quarter of 2001.
8
As a result of newly effective accounting pronouncements, we have
discontinued the amortization of goodwill in 2002 and will periodically
determine whether the carrying value of our goodwill is impaired. As
required by these pronouncements, we continue to amoritze core deposit
premiums and other identifiable intangibles as a noncash charge that
increases our operating expenses. Intangible asset amortization included as
an operating expense totaled $443,000 (including $147,000 of pre-2002
goodwill related to the premium paid on the acquisition of thrift deposits)
and $237,000 for the three-month periods ended March 31, 2002 and 2001,
respectively. Cash net income, which adjusts earnings to exclude
amortization, was $5.1 million and $2.8 million for the quarters ended March
31, 2002 and 2001, respectively. Basic cash earnings per share increased to
$0.33 in the first quarter of 2002 compared to $0.32 in the first quarter of
2001. Diluted cash earnings per share increased to $0.32 in the recently
completed quarter compared to $0.31 in the 2001 period.
Total assets at March 31, 2002 were $2.16 billion and reflected an
89% increase from March 31, 2001. Total loans increased to $1.4 billion and
total deposits increased to $1.6 billion at March 31, 2002.
Net Interest Income. Net interest income for the three months ended
March 31, 2002 was $14.9 million, a 65% increase compared to the $9.0
million reported for the first quarter of 2001. This $5.9 million increase
was attributable to an increase of $912 million in average earning assets
primarily from our September 2001 acquisition of Southside Bancshares Corp.
The $7.5 million increase in interest income was partially offset by a $1.7
million increase in interest expense. The increase in interest expense was
the result of an $865 million increase in average interest-bearing
liabilities partially offset by a decrease of 233 basis points in the
average interest rate paid between the periods.
Net interest margin for the first quarter of 2002 decreased 42
basis points compared to the first quarter of 2001. The earning assets yield
decreased 251 basis points while the overall interest rate paid on
interest-bearing liabilities decreased 233 basis points. The net interest
spread decreased 18 basis points comparing the first quarter 2002 to the
first quarter 2001. The decreases in the net interest margin and spread were
the result of the sharp drop in general interest rates in the beginning of
2001 and the yields on assets decreasing more rapidly than the interest
rates on liabilities.
Interest expense on deposits decreased $40,000 due to a $700
million increase in average interest-bearing deposits that was offset by a
decrease in the rate paid on deposits from 5.52% in the first quarter of
2001 to 2.91% for the comparable period in 2002. The growth in our deposit
base was primarily the result of the Southside acquisition.
Interest expense on other interest-bearing liabilities increased
$1.7 million in the first quarter of 2002 compared to the first quarter of
2001. Average short- and long-term borrowings also increased $165.7 million
in the first three months of 2002 compared to the year earlier quarter. The
average rate on short-term borrowings decreased 288 basis points while the
rate paid on long-term borrowings decreased 121 basis points in the first
quarter of 2002 compared to the first quarter of 2001.
9
The following table sets forth the condensed average balance sheets
for the periods reported. Also shown is the average yield on each category
of interest-earning assets and the average rate paid on interest-bearing
liabilities for each of the periods reported.
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
Three Months Ended March 31,
--------------------------------------------------------------------
2002 2001
------------------------------- ---------------------------------
Average Int. Earned/ Yield/ Average Int. Earned/ Yield/
Balance Paid Rate Balance Paid Rate
---------- ------------ ------ ------------ ----------- ------
Assets (Dollars in thousands)
Interest-earning assets:
Loans (1) (3)............................. $1,480,520 $24,873 6.81% $ 872,191 $19,636 9.13%
Taxable investment securities............. 427,296 4,703 4.46 134,709 2,315 6.97
Non-taxable investment securities (2)..... 35,780 368 4.17 5,541 80 5.86
Federal funds sold and other
investments............................. 14,528 56 1.56 33,218 449 5.48
---------- ------- ---------- -------
Total interest-earning assets.......... 1,958,124 30,000 6.21 1,045,659 22,480 8.72
---------- ------- ---------- -------
Non interest-earning assets:
Cash and due from banks................... 41,763 30,509
Premises and equipment.................... 48,107 19,358
Other assets.............................. 126,014 42,728
Allowance for loan losses................. (18,709) (11,604)
---------- ---------
Total assets........................... $2,155,299 $1,126,650
========== ==========
Liabilities and shareholders' equity
Interest-bearing liabilities:
Money market/NOW accounts................. $ 417,694 $ 1,693 1.64% $ 207,110 $ 2,152 4.21%
Savings deposits.......................... 203,563 1,518 3.02 27,653 139 2.04
Certificates of deposit................... 594,610 4,636 3.16 424,700 6,498 6.21
Certificates of deposit over $100,000..... 181,972 1,704 3.80 80,132 1,128 5.71
IRA certificates.......................... 87,242 1,095 5.09 45,984 769 6.78
---------- ------- ---------- -------
Total interest-bearing deposits........ 1,485,081 10,646 2.91 785,579 10,686 5.52
---------- ------- ---------- -------
Federal funds purchased, repurchase
agreements and other short-term
borrowings.............................. 86,578 648 3.04 107,653 1,572 5.92
Other borrowings.......................... 195,437 2,466 5.12 48,669 760 6.33
Guaranteed preferred beneficial
interests in subordinated debentures.... 57,250 1,372 9.72 17,250 442 10.39
---------- ------- ---------- -------
Total interest-bearing liabilities..... 1,824,346 15,132 3.36 959,151 13,460 5.69
---------- ------- ---------- -------
Non interest-bearing liabilities and equity:
Demand deposits........................... 171,624 79,540
Other liabilities......................... 17,479 8,052
Shareholders' equity...................... 141,850 79,907
---------- ----------
Total liabilities and shareholders'
equity................................ $2,155,299 $1,126,650
========== ==========
Net interest income....................... $14,868 $ 9,020
======= =======
Net interest spread.......................... 2.85% 3.03%
Net interest margin.......................... 3.08 3.50
----------------------
(1) Average balances include non-accrual loans.
(2) Presented at actual yield rather than tax-equivalent yield.
(3) Interest income includes loan origination fees.
10
The following table sets forth for the periods indicated the
changes in interest income and interest expense which were attributable to
change in average volume and changes in average rates. Volume variances are
computed using the change in volume multiplied by the previous year's rate.
Rate variances are computed using the changes in rate multiplied by the
previous year's volume. The change in interest due to both rate and volume
has been allocated between the factors in proportion to the relationship of
the absolute dollar amounts of the change in each.
RATE/VOLUME ANALYSIS
Quarter Ended March 31, 2002
Compared to the
Quarter Ended March 31, 2001
--------------------------------------------
Volume Rate Net Change
------- ------- ----------
(In thousands)
Interest earned on:
Loans..................................................... $11,152 $(5,915) $ 5,237
Taxable investment securities............................. 3,479 (1,091) 2,388
Non-taxable investment securities......................... 319 (31) 288
Federal funds sold and other investments.................. (173) (220) (393)
------- ------- -------
Total interest income................................ 14,777 (7,257) 7,520
------- ------- -------
Interest paid on:
Money market/NOW accounts................................. 1,353 (1,812) (459)
Savings deposits.......................................... 1,284 95 1,379
Certificates of deposit................................... 2,030 (3,892) (1,862)
Certificates of deposit over $100,000..................... 1,054 (478) 576
IRA certificates.......................................... 555 (229) 326
Federal funds purchased, repurchase agreements and
other short-term borrowings............................. (266) (658) (924)
Other borrowings.......................................... 1,879 (173) 1,706
Guaranteed preferred beneficial interests
in subordinated debentures.............................. 961 (31) 930
------- ------- -------
Total interest expense............................... 8,850 (7,178) 1,672
------- ------- -------
Net interest income.................................. $ 5,927 $ (79) $ 5,848
======= ======= =======
Note: The change in interest due to the combined rate-volume variance has been
allocated to rate and volume changes in proportion to the absolute dollar amount
of the changes in each.
11
Other Income. Other income increased 47% to $4.1 million in the
first quarter of 2002 compared to $2.8 million for the three months ended
March 31, 2001.
Service charge income for the three-month period ended March 31,
2002 increased $671,000 or 70%, compared to the first quarter of 2001. This
increase was attributable to an increased deposit base and our focus on
revenue enhancement programs. Gains on the sales of securities decreased to
$10,000 for the quarter ended March 31, 2002 from $531,000 for the
comparable period in 2001.
For the quarter ended March 31, 2002 mortgage banking revenue was
$829,000 compared to $490,000 for the quarter ended March 31, 2001. The
change was the result of a significant increase in mortgage refinancings and
the November 2000 acquisition of Equality's mortgage subsidiary. Income on
bank owned life insurance increased to $612,000 for the three months ended
March 31, 2002 compared to $223,000 for the three months ended March 31,
2001, primarily due to the Southside acquisition.
Other Expenses. For the three months ended March 31, 2002 compared
to the first quarter of 2001, other expenses increased 68%, to $10.9 million
from $6.5 million. The increased expenses reflected the expenses related to
operating the branches acquired in our business combination with Southside
in September 2001, as well as the five St. Louis branches acquired from
Guardian Savings in December 2001.
Salaries and employee benefits increased 56% to $5.6 million for
the three months ended March 31, 2002 compared to $3.6 million for the three
months ended March 31, 2001. We had 571 full-time equivalent employees at
March 31, 2002 compared to 300 full-time equivalent employees at March 31,
2001. Total annualized cost per full-time equivalent employee was $39,257
for the three months ended March 31, 2002 compared to $47,947 for the
corresponding period of 2001.
Expenses associated with premises and equipment increased $272,000
for the three-month period ended March 31, 2002 compared to the first
quarter of 2001, with occupancy expense increasing $315,000. These increases
were primarily due to the additional costs associated with operating the
Southside and Guardian branches acquired in 2001.
Our efficiency ratio was 57% for the quarter ended March 31, 2002
compared to 56% for the first quarter of 2001.
12
Securities Portfolio. Our securities portfolio consists of
securities classified as held-to-maturity and available-for-sale. We
designate these securities at the time of purchase into one of these two
categories. At March 31, 2002, held-to-maturity securities amounted to
$22.0 million representing those securities we intended to hold to maturity.
Securities designated as available-for-sale totaled $430.0 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
March 31, 2002, the securities portfolio totaled $452.0 million, a decrease
of $11.6 million from December 31, 2001. We maintain a conventional
short-term laddered portfolio investment strategy to provide adequate
liquidity while minimizing interest rate risk.
The carrying values of the securities portfolio at the dates
indicated were as follows:
INVESTMENT SECURITIES PORTFOLIO
March 31, December 31, March 31,
2002 2001 2001
-------- ------------ --------
(In thousands)
U.S. government and agency securities............. $141,096 $133,514 $ 38,800
State and municipal securities.................... 36,759 38,458 8,557
Mortgage-backed securities........................ 242,145 259,912 87,545
Federal Home Loan Bank stock...................... 15,287 15,228 9,463
Other securities.................................. 16,701 16,525 4,653
-------- -------- --------
Total investment securities....................... $451,988 $463,637 $149,018
======== ======== ========
13
Loans. Loans historically have been the primary component of
earning assets. At March 31, 2002, loans totaled $1.45 billion, an increase
of 2% from year-end 2001. Substantially all of these loans were originated
in our market area. At March 31, 2002, we had no foreign loans and only a
minimal amount of participations purchased.
Multi-family and commercial real estate mortgage loans showed the
largest increase of $41.7 million during the first quarter of 2002. The
increase in these loans reflected our efforts to grow our commercial real
estate loan portfolio, including loans originated by our expanded commercial
lending staff. Multi-family and commercial real estate mortgage loans
comprised 44.8% of the portfolio at March 31, 2002 and at year-end 2001.
Consumer loans decreased $13.4 million or 16.8% as our lending focus
continues to be weighted more toward commercial loans.
The following table summarizes the composition of our loan
portfolio at the dates indicated:
LENDING AND CREDIT MANAGEMENT
March 31, December 31, March 31,
2002 2001 2001
--------------------- --------------------- -------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
---------- -------- ---------- -------- -------- --------
(Dollars in thousands)
Commercial, financial,
agricultural, municipal and
industrial development............. $ 257,312 17.75% $ 255,181 17.97% $178,301 20.85%
Real estate - construction........... 168,974 11.66 164,831 11.61 129,823 15.18
Real estate - mortgage:
One- to four-family residential... 309,083 21.32 313,547 22.08 199,104 23.28
Multi-family and commercial....... 649,241 44.77 607,550 42.79 311,814 36.46
Consumer and other................... 66,377 4.58 79,749 5.62 36,836 4.31
Less unearned income................. (1,200) (0.08) (1,062) (0.07) (733) (0.08)
---------- ------ ---------- ------ -------- ------
Total loans(1).................. $1,449,787 100.00% $1,419,796 100.00% $855,145 100.00%
========== ====== ========== ====== ======== ======
----------------------
(1) We had no outstanding foreign loans at the dates reported.
Asset Quality. Nonperforming assets consist of the following:
non-accrual loans on which the ultimate collectibility of the full amount of
interest is uncertain; loans which have been renegotiated to provide for a
reduction or deferral of interest or principal because of a deterioration in
the financial condition of the borrower; loans past due 90 days or more as
to principal or interest; and other real estate owned. Nonperforming assets
decreased to $17.3 million at March 31, 2002 compared to $20.1 million at
December 31, 2001. At March 31, 2002, nonperforming assets represented 0.80%
of total assets compared to 0.93% at December 31, 2001. Non-accrual loans
totaled $15.3 million at March 31, 2002 compared to $14.5 million at
December 31, 2001. During the first quarter of 2002, we received principal
reductions totaling $2.1 million on two of these credits and their remaining
balance of $3.2 million returned to performing assets. A third credit
totaling $1.1 million was charged off in March 2002, but we expect that a
significant portion of this credit will be recovered during 2002. Three of
the remaining four relationships from year-end were acquired from Southside.
During the first quarter of 2002, we added one significant loan relationship
totaling $3.5 million to nonperforming assets. We expect the deficiencies in
this loan relationship to be addressed prior to the end of 2002. We continue
to work aggressively to collect all nonperforming assets.
14
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.
The following table summarizes, at the date presented,
nonperforming assets by category:
RISK ELEMENTS - NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
March 31, December 31, March 31,
2002 2001 2001
--------- ------------ ---------
(Dollars in thousands)
Commercial, financial, agricultural, municipal and
industrial development:
Past due 90 days or more................................... $ 1,095 $ 196 $ 636
Non-accrual................................................ 5,518 1,118 220
Restructured terms......................................... - 54 -
Real estate - construction
Past due 90 days or more................................... - - 302
Non-accrual................................................ 90 2,622 4,438
Restructured terms......................................... - - -
Real estate - mortgage
One- to four-family residential
Past due 90 days or more................................... 460 1,050 473
Non-accrual................................................ 1,669 1,698 982
Restructured terms......................................... - - -
Multi-family and commercial
Past due 90 days or more................................... - 3,643 28
Non-accrual................................................ 7,689 8,892 221
Restructured terms......................................... - - -
Consumer and other, net of unearned income:
Past due 90 days or more................................... 171 222 93
Non-accrual................................................ 309 215 20
Restructured terms......................................... - - 125
------- ------- ------
Total nonperforming loans....................................... 17,001 19,710 7,538
Other real estate............................................... 280 370 301
------- ------- ------
Total nonperforming assets...................................... $17,281 $20,080 $7,839
======= ======= ======
Ratios:
Nonperforming loans to total loans outstanding............... 1.17% 1.39% 0.88%
Nonperforming assets to total assets......................... 0.80 0.93 0.69
Nonperforming loans to shareholders' equity.................. 11.82 14.28 9.35
Allowance for loan losses to total loans..................... 1.22 1.33 1.40
Allowance for loan losses to nonperforming loans............. 103.11 95.92 159.46
15
Allowance for Loan Losses. The provision for loan losses was $1.5
million during the first three months of 2002 compared to $850,000 for the
first quarter of 2001. Net charge-offs were $2.9 million for the three
months ended March 31, 2002 compared to $263,000 for the first quarter of
2001. Net charge-offs for the first three months of 2002 represented 0.19%
of average loans, compared to 0.03% for the first three months of 2001.
The allowance for loan losses totaled $17.5 million at March 31,
2002 compared to $18.9 million at December 31, 2001 and to $12.0 million at
March 31, 2001. As a percentage of loans outstanding, the allowance
represented 1.22% of loans at March 31, 2002 compared to 1.33% at December
31, 2001, and 1.40% at March 31, 2001.
The higher provision and net charge-offs were the result of our
efforts to identify and recognize potential losses in our loan portfolio.
Since 1998, we have changed the composition of the loan portfolio and
shifted our lending focus to higher yielding commercial relationships. This
shift, while providing higher earnings potential, does entail greater risk
than traditional residential mortgage loans. Specific allowances have been
increased on certain commercial real estate loans based on individual
reviews of these loans and our estimate of the borrower's ability to repay
the loan given the availability of collateral, other sources of cash flow
and collection options available to us.
The allowance for loan losses is provided at a level considered
adequate to provide for potential losses and, among other things, is based
on management's evaluation of the anticipated impact on the loan portfolio
of current economic conditions, changes in the character and size of the
loan portfolio, evaluation of potential problem loans identified based on
existing circumstances known to management and recent loan loss experience.
We continually monitor the quality of the loan portfolio to ensure the
timely charge-off of problem loans and to determine the adequacy of the
level of the allowance for loan losses. We presently believe that our asset
quality, as measured by the statistics in the following table, continues to
be very high and that our allowance is adequate to absorb potential losses
inherent in the portfolio at March 31, 2002.
16
The following table summarizes, for the periods indicated, activity
in the allowance for loan losses, including amounts of loans charged off,
amounts of recoveries and additions to the allowance charged to operating
expense.
SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION
Three Months Ended
March 31,
----------------------
2002 2001
---------- --------
(Dollars in thousands)
Allowance for loan losses (beginning of period)................. $ 18,905 $ 11,433
Loans charged off:
Commercial, financial, agricultural,
municipal and industrial development....................... (976) (96)
Real estate - construction................................... (1,127) (400)
Real estate - mortgage:
One- to four-family residential........................... (403) -
Multi-family and commercial............................... (121) 38
Consumer and other........................................... (365) (15)
---------- --------
Total loans charged off......................................... (2,992) (473)
---------- --------
Recoveries of loans previously charged off:
Commercial, financial, agricultural,
municipal and industrial development....................... 34 19
Real estate - construction................................... - -
Real estate - mortgage:
One- to four-family residential........................... - 157
Multi-family and commercial............................... - 31
Consumer and other........................................... 83 3
---------- --------
Total recoveries................................................ 117 210
---------- --------
Net loans charged off........................................... (2,875) (263)
---------- --------
Provision for loan losses....................................... 1,500 850
---------- --------
Allowance for loan losses (end of period)....................... $ 17,530 $ 12,020
========== ========
Loans outstanding:
Average..................................................... $1,480,520 $872,191
End of period............................................... 1,432,257 843,125
Ratios:
Net charge-offs to average loans............................ 0.19% 0.03%
Net charge-offs to provision for loan losses................ 191.67 30.94
Provision for loan losses to average loans ................. 0.10 0.10
Allowance for loan loss to total loans...................... 1.22 1.40
17
Deposits. Total deposits increased $742.5 million or 83%, at March
31, 2002 compared to March 31, 2001. The increase in deposits was primarily
the result of the Southside acquisition. Non interest-bearing deposits
totaled $177.6 million at March 31, 2002. We have been successful in
expanding our deposit base while maintaining our focus on personal service.
Our lending officers have increased commercial deposits while our retail
banking staff continues efforts to increase our core deposits.
The following table summarizes deposits as of the dates indicated:
DEPOSIT LIABILITY COMPOSITION
March 31, December 31, March 31,
2002 2001 2001
---------------------- --------------------- --------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
---------- -------- ---------- -------- -------- --------
(Dollars in thousands)
Demand deposits.......... $ 177,635 10.86% $ 201,216 11.92% $ 94,070 10.53%
NOW accounts............. 124,364 7.60 113,887 6.75 36,458 4.08
Money market accounts.... 295,642 18.07 301,648 17.87 175,280 19.62
Savings deposits......... 220,424 13.47 185,652 11.00 28,340 3.17
Certificates of deposit.. 566,421 34.62 602,295 35.69 433,880 48.56
Certificates of deposit
over $100,000.......... 165,511 10.12 195,048 11.56 78,625 8.80
IRA certificates......... 86,015 5.26 87,869 5.21 46,853 5.24
---------- ------ ---------- ------ -------- ------
Total deposits $1,636,012 100.00% $1,687,615 100.00% $893,506 100.00%
========== ====== ========== ====== ======== ======
18
LIQUIDITY MANAGEMENT AND CAPITAL RESOURCES
Liquidity Management. Long-term liquidity is a function of the core
deposit base and an adequate capital base. We are committed to growth of our
core deposit base and maintenance of our capital base. The growth of the
deposit base is internally generated through product pricing and product
development. In addition, we periodically raise funds through brokered
certificates of deposit. Both of these elements contributed to developing
and maintaining our long-term liquidity. Our capital position has been
maintained through earnings retention and raising of capital. See "Capital
Resources."
Short-term liquidity needs arise from continuous fluctuations in
the flow of funds on both sides of the balance sheet resulting from growth
and seasonal and cyclical customer demands. The securities portfolio
provides stable long-term earnings as well as being a primary source of
liquidity. The designation of securities as available-for-sale and
held-to-maturity does not impact the portfolio as a source of liquidity due
to the ability to transact repurchase agreements using those securities.
We anticipate continued loan demand in our market area as the
banking industry consolidation continues. We have utilized, and expect to
continue to utilize, Federal Home Loan Bank borrowings to fund a portion of
future loan growth. We have a $411.0 million secured credit facility with
the Federal Home Loan Bank, under which $235.9 million and $196.2 million
was outstanding at March 31, 2002 and December 31, 2001, respectively. We
continue to utilize Federal Home Loan Bank borrowings to fund loan growth
while systematically building our deposit base. We anticipate similar use of
the Federal Home Loan Bank credit facility in the foreseeable future.
Our assets and deposits remained relatively the same from December
31, 2001 to March 31, 2002. We strive to grow our core deposits while
utilizing the Federal Home Loan Bank, federal funds purchased and brokered
certificates of deposit as necessary to balance liquidity and cost
effectiveness. We closely monitor our level of liquidity in view of expected
future needs.
Capital Resources. Total shareholders' equity was $143.8 million at
March 31, 2002, compared to $138.1 million at year-end 2001. The increase in
total equity was primarily the result of earnings retention and $2.5 million
in options exercised for our common stock.
Our capital requirements historically have been financed through
offerings of debt and equity securities, retained earnings and borrowings
from a commercial bank. Our subsidiary banks also utilize their borrowing
capacity with the Federal Home Loan Bank. The principal amount of our term
loan was $36.5 million as of March 31, 2002, and matures in September 2002
at which time we expect to renew this term loan. Allegiant Bank also
utilizes its borrowing capacity with the Federal Home Loan Bank.
From time to time, we have purchased brokered certificates of
deposit in order to fund loan growth and meet other liquidity needs. We have
not had any brokered deposits since May 2001, but we may use brokered
deposits in the future as a source of liquidity.
19
Dividends paid during the first quarter of 2002 were $0.065 per
share, an increase of 8% compared to the $0.06 per share paid in April 2001
for the first quarter of 2001. Our dividend payout ratio was 19.7% in the
first quarter of 2002.
We also analyze our capital and the capital position of our banks
in terms of regulatory risked-based capital guidelines. This analysis of
capital is dependent upon a number of factors including asset quality,
earnings strength, liquidity, economic conditions and combinations thereof.
The Federal Reserve Board has issued standards for measuring capital
adequacy for bank holding companies. These standards are designed to provide
risk-responsive capital guidelines and to incorporate a consistent framework
for use by financial institutions. Our management believes that, as of March
31, 2002, we and our subsidiaries met all capital adequacy requirements. We
will seek to maintain a strong equity base while executing our controlled
expansion plans.
As of March 31, 2002, December 31, 2001 and March 31, 2001,
Allegiant's and Allegiant Bank's capital ratios were as follows:
March 31, 2002 December 31, 2001 March 31, 2001
-------------------------- -------------------------- --------------------------
Allegiant Allegiant Bank Allegiant Allegiant Bank Allegiant Allegiant Bank
--------- -------------- --------- -------------- --------- --------------
Total capital
(to risk-weighted assets)... 10.15% 10.49% 10.01% 10.48% 10.97% 11.92%
Tier 1 capital
(to risk-weighted assets)... 8.50 9.39 8.11 9.62 9.71 10.67
Tier 1 capital
(to average assets)......... 6.51 7.29 6.32 7.62 7.66 8.39
As of March 31, 2002, our other three subsidiary banks had the
following capital ratios:
Bank of State Bank of Bank of
Ste. Genevieve Jefferson County St. Charles County
-------------- ---------------- ------------------
Total capital
(to risk-weighted assets)... 21.82% 15.76% 14.03%
Tier 1 capital
(to risk-weighted assets)... 20.59 14.75 13.05
Tier 1 capital
(to average assets)......... 12.41 9.71 10.70
20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information provided in
our Annual Report on Form 10-K for the year ended December 31, 2001.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: See Exhibit Index attached hereto.
b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
March 31, 2002.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized. The undersigned signs this
report in his dual capacities as a duly authorized officer of the registrant
and also as the registrant's Chief Financial Officer.
ALLEGIANT BANCORP, INC.
May 14, 2002 By:/s/ Thomas A. Daiber
----------------------------------------
Thomas A. Daiber, Executive Vice
President and Chief Financial Officer
22
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
11.1 Computation of Earnings Per Share
23