UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 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
of incorporation or Identification No.)
organization)
2122 KRATKY ROAD
ST. LOUIS, MISSOURI 63114
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(Address of principal executive offices)
(Zip Code)
(314) 692-8200
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. |X| Yes | | No
Number of shares
Title of class outstanding as of August 1, 2002
----------------------------------------- ----------------------------------
Common stock, $0.01 par value 15,881,661
ALLEGIANT BANCORP, INC.
FORM 10-Q
INDEX
Page
PART I. FINANCIAL INFORMATION.............................................................1
ITEM 1. FINANCIAL STATEMENTS.........................................................1
CONDENSED CONSOLIDATED BALANCE SHEETS - JUNE 30, 2002 AND 2001 (UNAUDITED)
AND DECEMBER 31, 2001............................................................1
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - THREE MONTHS
AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001......................................2
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) - SIX MONTHS
ENDED JUNE 30, 2002..............................................................3
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - SIX MONTHS ENDED
JUNE 30, 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 JUNE 30, 2002 AND 2001......................11
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND
INTEREST RATES - SIX MONTHS ENDED JUNE 30, 2002 AND 2001........................12
RATE/VOLUME ANALYSIS - QUARTER ENDED JUNE 30, 2002 AND SIX MONTHS ENDED
JUNE 30, 2002...................................................................13
INVESTMENT SECURITIES PORTFOLIO...................................................15
LENDING AND CREDIT MANAGEMENT.....................................................16
RISK ELEMENTS - NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS......................18
SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION...........................20
DEPOSIT LIABILITY COMPOSITION.....................................................21
LIQUIDITY MANAGEMENT AND CAPITAL RESOURCES........................................22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................24
PART II. OTHER INFORMATION................................................................24
ITEM 4. SUBMISION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................25
SIGNATURES........................................................................26
EXHIBIT INDEX.....................................................................27
EXHIBIT 11.1 COMPUTATION OF EARNINGS PER SHARE..................................28
EXHIBIT 99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER...........................29
EXHIBIT 99.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER...........................30
i
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLEGIANT BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31, June 30,
2002 2001 2001
(Unaudited) (Unaudited)
----------- ------------ -----------
(Dollars in thousands)
ASSETS:
Cash and due from banks................................... $ 41,963 $ 56,992 $ 30,168
Federal funds sold and other investments.................. 9,902 14,642 8,964
Investment securities:
Available-for-sale (at estimated market value)......... 435,408 439,038 157,807
Held-to-maturity (estimated market value of
$19,209, $24,532 and $4,580, respectively)........... 19,040 24,599 4,618
Loans, net of allowance for loan losses of
$18,314, $18,905 and $12,368, respectively........... 1,493,181 1,400,891 872,217
Loans held for sale....................................... 45,611 61,459 16,739
Premises and equipment.................................... 47,084 47,941 19,219
Accrued interest and other assets......................... 72,259 68,506 36,944
Cost in excess of fair value of net assets acquired....... 55,837 56,411 10,300
----------- ----------- -----------
Total assets......................................... $ 2,220,285 $ 2,170,479 $ 1,156,976
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non-interest bearing................................... $ 175,933 $ 201,216 $ 89,571
Interest bearing....................................... 1,262,661 1,291,351 681,498
Certificates of deposit of $100,000 or more............ 164,976 195,048 100,741
----------- ----------- -----------
Total deposits....................................... 1,603,570 1,687,615 871,810
----------- ----------- -----------
Short-term borrowings..................................... 83,586 73,027 34,239
Federal Home Loan Bank advances........................... 305,784 196,191 145,034
Guaranteed preferred beneficial interests in
Subordinated debentures................................ 57,250 57,250 17,250
Accrued expenses and other liabilities.................... 16,414 18,328 4,531
----------- ----------- -----------
Total liabilities.................................... 2,066,604 2,032,411 1,072,864
----------- ----------- -----------
Shareholders' equity:
Common Stock, $0.01 par value - authorized 20,000,000
shares; issued 15,847,511 shares, 15,209,566 shares
and 8,976,306 shares, respectively................... 162 157 95
Capital surplus........................................ 115,326 111,234 61,371
Retained earnings...................................... 35,003 27,223 20,545
Accumulated other comprehensive income (loss).......... 3,190 (546) 2,101
----------- ----------- -----------
Total shareholders' equity........................... 153,681 138,068 84,112
----------- ----------- -----------
Total liabilities and shareholders' equity........... $ 2,220,285 $ 2,170,479 $ 1,156,976
=========== =========== ===========
See Notes to Condensed Consolidated Financial Statements
1
ALLEGIANT BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
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(In thousands, except share and per share data)
2002 2001 2002 2001
----------- ---------- ----------- ----------
Interest income:
Interest and fees on loans......................... $ 25,303 $ 18,693 $ 50,175 $ 38,329
Investment securities.............................. 5,274 2,469 10,345 4,864
Federal funds sold and overnight investments....... 63 359 119 808
----------- ---------- ----------- ----------
Total interest income............................ 30,640 21,521 60,639 44,001
----------- ---------- ----------- ----------
Interest expense:
Deposits........................................... 9,611 9,919 20,258 20,604
Short-term borrowings.............................. 1,098 1,448 1,746 3,020
Federal Home Loan Bank advances.................... 2,490 986 4,955 1,746
Guaranteed preferred beneficial interests in
subordinated debentures.......................... 1,372 442 2,743 885
----------- ---------- ----------- ----------
Total interest expense........................... 14,571 12,795 29,702 26,255
----------- ---------- ----------- ----------
Net interest income................................... 16,069 8,726 30,937 17,746
Provision for loan losses............................. 2,000 850 3,500 1,700
----------- ---------- ----------- ----------
Net interest income after provision
for loan losses.................................... 14,069 7,876 27,437 16,046
----------- ---------- ----------- ----------
Other income:
Service charges on deposits........................ 1,769 992 3,396 1,947
Net gain on sale of securities..................... 1,683 383 1,692 915
Other income....................................... 2,511 1,994 4,936 3,264
----------- ---------- ----------- ----------
Total other income............................... 5,963 3,369 10,024 6,126
----------- ---------- ----------- ----------
Other expenses:
Salaries and employee benefits..................... 6,166 3,903 11,770 7,499
Occupancy and furniture and equipment.............. 1,796 999 3,424 2,040
Other operating expenses........................... 4,095 2,049 7,728 3,945
----------- ---------- ----------- ----------
Total other expenses............................. 12,057 6,951 22,922 13,484
----------- ---------- ----------- ----------
Income before income taxes............................ 7,975 4,294 14,539 8,688
Provision for income taxes............................ 2,895 1,490 4,829 3,323
----------- ---------- ----------- ----------
Net Income....................................... $ 5,080 $ 2,804 $ 9,710 $ 5,365
=========== ========== =========== ==========
Per share data:
Earnings per share:
Basic............................................ $ 0.32 $ 0.31 $ 0.62 $ 0.60
Diluted.......................................... 0.32 0.31 0.61 0.60
Weighted average common shares oustanding:
Basic............................................ 15,698,542 8,912,501 15,538,832 8,868,572
Diluted.......................................... 16,088,947 8,977,700 15,882,188 8,932,375
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 Gain (Loss) Equity Income
--------- ----------- --------- ------------- ------------- -------------
(In thousands)
Balance December 31, 2001...... $ 157 $ 111,234 $ 27,223 $ (546) $ 138,068
Net income..................... - - 9,710 - 9,710 $ 9,710
Change in net unrealized gains
(losses) on available-for-
sale securities............. - - - 3,736 3,736 3,736
-----------
Comprehensive income........... - - - - - $ 13,446
===========
Issuance of common stock....... 5 4,092 - - 4,097
Dividends...................... - - (1,930) - (1,930)
--------- ----------- --------- ----------- ------------
Balance June 30, 2002.......... $ 162 $ 115,326 $ 35,003 $ 3,190 $ 153,681
========= =========== ========= =========== ============
Reclassification adjustments:
Unrealized gains on
available-for-sale securities $ 5,428
Less:
Reclassification adjustment for
gains realized included in net
income.................. 1,692
-----------
Net unrealized gains on
available-for-sale securities $ 3,736
===========
See Notes to Condensed Consolidated Financial Statements.
3
ALLEGIANT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30,
-------------------------
2002 2001
---------- ----------
(In thousands)
OPERATING ACTIVITIES:
Net income.................................................... $ 9,710 $ 5,365
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization............................. 2,520 1,435
Provision for loan losses................................. 3,500 1,700
Net gain on sale of fixed assets.......................... (67) -
Net realized gains on securities available-for-sale....... (1,692) (915)
Net gain on sale of mortgage loans........................ - (20)
Other changes in assets and liabilities:
Accrued interest receivable and other assets............ (4,518) 1,322
Accrued expenses and other liabilities.................. (1,914) (3,102)
---------- ----------
Cash provided by operating activities................. 7,539 5,785
---------- ----------
INVESTING ACTIVITIES:
Merger-related recapitalization related to the acquisition
of Equality Bancorp, Inc.................................... - (922)
Adjustment to cash received in acquisition of branches........ (312) -
Proceeds from maturities of securities held-to-maturity....... 5,559 582
Proceeds from maturities of securities available-for-sale..... 69,854 35,778
Proceeds from sales of securities available-for-sale.......... 81,638 5,127
Purchase of investment securities available-for-sale.......... (140,432) (66,576)
Loans made to customers, net of repayments.................... (79,942) (66,547)
Proceeds from sale of mortgage loans.......................... - 67,432
Purchase of bank-owned life insurance......................... (1,237) (5,506)
Additions to premises and equipment........................... (710) (1,693)
---------- ----------
Cash used in investing activities..................... (65,582) (32,325)
---------- ----------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits........................... (84,045) 13,726
Net increase (decrease) in short-term borrowings.............. 120,533 (30,523)
Increase in long-term debt.................................... - 35,000
Repayment of long-term debt................................... (381) (155)
Proceeds from issuance of common stock........................ 4,097 1,496
Payment of dividends.......................................... (1,930) (1,015)
---------- ----------
Cash provided by financing activities................. 38,274 18,529
---------- ----------
Net decrease in cash and cash equivalents..................... (19,769) (8,011)
Cash and cash equivalents, beginning of period................ 71,634 47,143
---------- ----------
Cash and cash equivalents, end of period...................... $ 51,865 $ 39,132
========== ==========
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 we clearly indicate that it means only
Allegiant Bancorp, Inc. Also, sometimes we refer to Allegiant Bank, Bank of
Ste. Genevieve and State Bank of Jefferson County, our bank subsidiaries, as
the "banks."
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month and six-month period ended
June 30, 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 second quarter of 2002 and 2001, total comprehensive
income amounted to $9.2 million and $2.8 million, respectively. Year-to-date
comprehensive income for the first half of 2002 and 2001 was $13.4 million
and $6.7 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
5
useful life of ten years and none of this amortization is expected to be
deductible for tax purposes. During October 2001 and May 2002, respectively,
we merged Southside National Bank and the Bank of St. Charles County, two of
the four subsidiary banks acquired from Southside, into Allegiant Bank.
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. We expect this amortization will be
deductible for tax purposes. We believe the acquisitions of Southside and
the Guardian branches significantly enhanced the scale of our banking
business and positioned us for further growth and to compete effectively by
offering personalized banking products and services in the St. Louis
community.
Subsequent Event
On July 31, 2002, we announced the signing of a definitive
agreement to acquire Investment Counselors, Incorporated (Investment
Counselors), a privately held investment advisory firm located in St. Louis,
Missouri. Under terms of the agreement, the total consideration to be
received by Investment Counselors' shareholders will be shares of Allegiant
Bancorp common stock. This acquisition is consistent with our strategy of
focusing on the growth of non-interest income. Investment Counselors has
been serving institutional and high net worth individuals in the Midwest
since 1968. Upon completion of this transaction, which is expected to be
completed in the fourth quarter of 2002, our Wealth Management division will
have Trust and Investment Advisory assets in excess of $800 million.
Recently Issued Accounting Standards
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 is
performing 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 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 brokerage, insurance and safe
7
deposit boxes. As of June 30, 2002, we reported, on a consolidated basis,
total assets of $2.2 billion, loans of $1.5 billion, deposits of $1.6
billion and shareholders' equity of $153.7 million.
Since our inception in 1989, we have grown 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, in December 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 June 30, 2002 was $5.08
million, an 81% increase over the $2.80 million earned in the second quarter
of 2001. Basic earnings per share were $0.32 for the second quarter of 2002
compared to $0.31 for the second quarter of 2001. Diluted earnings per share
increased 3.2% to $0.32 for the second quarter of 2002 compared to $0.31 for
the second quarter of 2001. The annualized return on average assets for the
second quarter of 2002 was 0.93%, compared to the 0.98% annualized return on
average assets reported for the second quarter of 2001. The return on
average equity on an annualized basis was 13.65% for the second quarter of
2002 compared to 13.58% for the second quarter of 2001.
Net income for the six-month period ended June 30, 2002 was $9.71
million, an 81% increase over the $5.37 million earned in the six-month
period ended June 30, 2001. Basic earnings per share were $0.62 and $0.60,
respectively, for the six-month periods ended June 30, 2002 and 2001.
Diluted earnings per share were $0.61 and $0.60, respectively, for the
six-
8
month periods ended June 30, 2002 and 2001. The annualized return on average
assets for the first six months of 2002 was 0.89%, compared to the 0.94%
annualized return on average assets reported for the first six months of
2001. The return on average equity on an annualized basis was 13.35% for the
first six months of 2002 compared to 13.18% for the first six months of
2001.
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 amortize 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 $238,000 for the three-month periods ended June 30, 2002 and 2001,
respectively. Intangible asset amortization included as an operating expense
totaled $886,000 (including $294,000 of pre-2002 goodwill related to the
premium paid on the acquisition of thrift deposits) and $474,000 for the
six-month periods ended June 30, 2002 and 2001, respectively.
Total assets at June 30, 2002 were $2.2 billion and reflected a 92%
increase from June 30, 2001. Total loans increased to $1.5 billion and total
deposits increased to $1.6 billion at June 30, 2002.
Net Interest Income. Net interest income for the three months ended
June 30, 2002 was $16.07 million, an 84% increase compared to the $8.73
million reported for the second quarter of 2001. This $7.34 million increase
was attributable to an increase of $929 million in average earning assets
primarily from our September 2001 acquisition of Southside Bancshares Corp.
The $9.12 million increase in interest income was partially offset by a
$1.78 million increase in interest expense. The increase in interest expense
was the result of an $888 million increase in average interest-bearing
liabilities partially offset by a decrease of 215 basis points in the
average interest rate paid between the periods.
Net interest margin for the second quarter of 2002 decreased 6
basis points compared to the second quarter of 2001. The earning assets
yield decreased 195 basis points while the overall interest rate paid on
interest-bearing liabilities decreased 215 basis points. The net interest
spread increased 20 basis points comparing the second quarter 2002 to the
second quarter 2001.
Interest expense on deposits decreased $308,000 due to a $654
million increase in average interest-bearing deposits that was offset by a
decrease in the average rate paid on deposits from 5.07% in the second
quarter of 2001 to 2.68% 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
$2.08 million in the second quarter of 2002 compared to the second quarter
of 2001. Average short- and long-term borrowings also increased $194.4
million in the first three months of 2002 compared to the year earlier
quarter. The average rate on short-term borrowings decreased 309 basis
points while the rate paid on long-term borrowings decreased 95 basis points
in the second quarter of 2002 compared to the second quarter of 2001.
Net interest income for the six months ended June 30, 2002 was
$30.94 million, a 74% increase compared to the $17.75 million reported for
the second quarter of 2001. This $13.19
9
million increase was attributable to an increase of $921 million in average
earning assets primarily from our September 2001 acquisition of Southside
Bancshares Corp. The $16.64 million increase in interest income was
partially offset by a $3.45 million increase in interest expense. The
increase in interest expense was the result of an $878 million increase in
average interest-bearing liabilities partially offset by a decrease of 224
basis points in the average interest rate paid between the periods.
Net interest margin for the first six months of 2002 decreased 23
basis points compared to the first six months of 2001. The earning assets
yield decreased 222 basis points while the overall interest rate paid on
interest-bearing liabilities decreased 224 basis points. The net interest
spread increased 2 basis points comparing the year-to-date 2002 to the
year-to-date 2001.
10
The following table sets forth the condensed average balance sheets
for the quarterly 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 June 30,
---------------------------------------------------------------------
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).............................. $1,512,765 $ 25,303 6.71% $ 883,209 $ 18,693 8.49%
Taxable investment securities............. 438,155 4,908 4.49 145,279 2,386 6.59
Non-taxable investment securities(2)...... 34,887 366 4.21 5,811 83 5.73
Federal funds sold and other
investments............................. 8,149 63 3.10 30,643 359 4.70
---------- --------- ---------- ---------
Total interest earning assets......... 1,993,956 30,640 6.16 1,064,942 21,521 8.11
---------- --------- ---------- ---------
Non-interest earning assets:
Cash and due from banks................... 35,372 25,232
Premises and equipment.................... 47,368 19,366
Other assets.............................. 129,174 47,207
Allowance for loan losses................. (17,430) (12,040)
---------- ----------
Total assets.......................... $2,188,440 $1,144,707
========== ==========
Liabilities and shareholders' equity:
Interest bearing liabilities:
Money market and NOW accounts............. $ 420,983 $ 1,747 1.66% $ 220,367 $ 2,006 3.65%
Savings deposits.......................... 203,649 1,019 2.01 29,339 149 2.04
Certificates of deposit................... 568,737 4,460 3.15 395,830 5,702 5.78
Certificates of deposit over $100,000..... 160,489 1,379 3.45 93,652 1,282 5.49
IRA certificates.......................... 84,839 1,006 4.76 45,845 780 6.82
---------- --------- ---------- ---------
Total interest bearing deposits....... 1,438,697 9,611 2.68 785,033 9,919 5.07
---------- --------- ---------- ---------
Federal funds purchased, repurchase
agreements and other short-term
borrowings.............................. 165,485 1,098 2.66 100,995 1,448 5.75
Other borrowings.......................... 195,068 2,490 5.12 65,196 986 6.07
Guaranteed preferred beneficial
interest in subordinated debentures..... 57,250 1,372 9.61 17,250 442 10.28
---------- --------- ---------- ---------
Total interest bearing liabilities.... 1,856,500 14,571 3.15 968,474 12,795 5.30
---------- --------- ---------- ---------
Non-interest bearing liabilities and equity:
Demand deposits........................... 168,914 85,568
Other liabilities......................... 14,136 8,094
Shareholders' equity...................... 148,890 82,571
---------- ----------
Total liabilities and shareholders'
equity.............................. $2,188,440 $1,144,707
========== ==========
Net interest income................... $ 16,069 $ 8,726
========= =========
Net interest spread................... 3.01% 2.81%
Net interest margin................... 3.23 3.29
(1) Average balances include non-accrual loans.
(2) Presented at actual yield rather than tax-equivalent yield.
(3) Interest income includes loan origination fees.
11
The following table sets forth the condensed average balance sheets
for the year-to-date 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
Six Months Ended June 30,
---------------------------------------------------------------------
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).............................. $1,496,567 $ 50,175 6.76% $ 877,730 $ 38,329 8.81%
Taxable investment securities............. 432,787 9,611 4.48 139,971 4,701 6.77
Non-taxable investment securities(2)...... 35,331 734 4.19 5,729 163 5.74
Federal funds sold and other
investments............................. 11,336 119 2.12 31,923 808 5.10
---------- --------- ---------- ---------
Total interest earning assets......... 1,976,021 60,639 6.19 1,055,353 44,001 8.41
---------- --------- ---------- ---------
Non-interest earning assets:
Cash and due from banks................... 38,763 25,955
Premises and equipment.................... 47,752 19,318
Other assets.............................. 127,536 46,800
Allowance for loan losses................. (18,052) (11,823)
---------- ----------
Total assets.......................... $2,172,020 $1,135,603
========== ==========
Liabilities and shareholders' equity:
Interest bearing liabilities:
Money market and NOW accounts............. $ 420,351 $ 3,440 1.65% $ 213,775 $ 4,158 3.92%
Savings deposits.......................... 203,606 2,538 2.51 28,500 288 2.04
Certificates of deposit................... 578,854 9,096 3.17 410,186 12,199 6.00
Certificates of deposit over $100,000..... 171,172 3,083 3.63 86,929 2,410 5.59
IRA certificates.......................... 88,787 2,101 4.77 45,914 1,549 6.80
---------- --------- ---------- ---------
Total interest bearing deposits....... 1,462,770 20,258 2.79 785,304 20,604 5.29
---------- --------- ---------- ---------
Federal funds purchased, repurchase
agreements and other short-term
borrowings.............................. 126,249 1,746 2.79 104,306 3,020 5.84
Other borrowings.......................... 195,255 4,955 5.12 56,978 1,746 6.18
Guaranteed preferred beneficial
interest in subordinated debentures..... 57,250 2,743 9.66 17,250 885 10.35
---------- --------- ---------- ---------
Total interest bearing liabilities.... 1,841,524 29,702 3.25 963,838 26,255 5.49
---------- --------- ---------- ---------
Non-interest bearing liabilities and equity:
Demand deposits........................... 169,420 82,619
Other liabilities......................... 15,622 7,727
Shareholders' equity...................... 145,454 81,419
---------- ----------
Total liabilities and shareholders'
equity.............................. $2,172,020 $1,135,603
========== ==========
Net interest income................... $ 30,937 $ 17,746
========= =========
Net interest spread................... 2.94% 2.92%
Net interest margin................... 3.16 3.39
------------------------------------------------
(1) Average balances include non-accrual loans.
(2) Presented at actual yield rather than tax-equivalent yield.
(3) Interest income includes loan origination fees.
12
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 June 30, 2002 Six Months Ended June 30, 2002
Compared to the Compared to the
Quarter Ended June 30, 2001 Six Months Ended June 30, 2001
--------------------------------- ----------------------------------
Net Net
Volume Rate Change Volume Rate Change
------ ---- ------ ------ ---- ------
(In thousands)
Interest earned on:
Loans............................... $ 11,166 $ (4,556) $ 6,610 $ 22,325 $ (10,479) $ 11,846
Taxable investment securities....... 3,492 (970) 2,522 6,964 (2,054) 4,910
Non-taxable investment
securities........................ 312 (29) 283 628 (57) 571
Federal funds sold and other
investments....................... (202) (94) (296) (361) (328) (689)
----------- ----------- ---------- ----------- ---------- -----------
Total interest income........... 14,768 (5,649) 9,119 29,556 (12,918) 16,638
----------- ----------- ---------- ----------- ---------- -----------
Interest paid on:
Money market/NOW accounts........... 1,206 (1,465) (259) 2,561 (3,279) (718)
Savings deposits.................... 874 (4) 870 2,170 80 2,250
Certificates of deposit............. 1,934 (3,176) (1,242) 3,917 (7,020) (3,103)
Certificates of deposit
over $100,000..................... 691 (594) 97 1,735 (1,062) 673
IRA Certificates.................... 515 (289) 226 1,119 (567) 552
Federal funds purchased,
repurchase agreements and
other short-term borrowings....... 656 (1,006) (350) 539 (1,813) (1,274)
Other borrowings.................... 1,683 (178) 1,505 3,558 (349) 3,209
Guaranteed preferred beneficial
interests in subordinated
debentures........................ 960 (31) 929 1,922 (64) 1,858
----------- ----------- ---------- ----------- ---------- -----------
Total interest expense.......... 8,519 (6,743) 1,776 17,521 (14,074) 3,447
----------- ----------- ---------- ----------- ---------- -----------
Net interest income............. $ 6,249 $ 1,094 $ 7,343 $ 12,035 $ 1,156 $ 13,191
=========== =========== ========== =========== ========== ===========
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.
13
Other Income. Other income increased 77% to $5.96 million in the
second quarter of 2002 compared to $3.37 million for the three months ended
June 30, 2001.
Service charge income for the three-month period ended June 30,
2002 increased $777,000 or 78%, compared to the second 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 increased to
$1.68 million for the quarter ended June 30, 2002 from $383,000 for the
comparable period in 2001.
For the quarter ended June 30, 2002 mortgage banking revenue was
$969,000 compared to $1.05 million for the quarter ended June 30, 2001.
Income on bank-owned life insurance increased to $416,000 for the three
months ended June 30, 2002 compared to $287,000 for the three months ended
June 30, 2001, primarily due to the Southside acquisition.
Other income increased 64% to $10.02 million for the first six
months of 2002 compared to $6.13 million for the first six months of 2001.
Service charge income for the six-month period ended June 30, 2002
increased $1.45 million or 74%, compared to the six-month period ended June
30, 2001. This increase was attributable to an increased deposit base and
our focus on revenue enhancement programs. Gains on the sales of securities
increased to $1.69 million for the six months ended June 30, 2002 from
$915,000 for the comparable period in 2001.
For the six months ended June 30, 2002 mortgage banking revenue was
$1.80 million compared to $1.54 million for the six-month period ended June
30, 2001. Income on bank-owned life insurance increased to $1.03 million for
the six months ended June 30, 2002 compared to $510,000 for the six months
ended June 30, 2001, primarily due to the Southside acquisition.
Other Expenses. For the three months ended June 30, 2002 compared
to the second quarter of 2001, other expenses increased 73%, to $12.06
million from $6.95 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 58% to $6.17 million for
the three months ended June 30, 2002 compared to $3.90 million for the three
months ended June 30, 2001. We had 543 full-time equivalent employees at
June 30, 2002 compared to 318 full-time equivalent employees at June 30,
2001. Total annualized cost per full-time equivalent employee was $45,422
for the three months ended June 30, 2002 compared to $49,094 for the
corresponding period of 2001.
Expenses associated with occupancy and equipment increased $433,000
and $364,000, respectively, for the three-month period ended June 30, 2002
compared to the second quarter of 2001. These increases were primarily due
to the additional costs associated with operating the Southside and Guardian
branches acquired in 2001.
Our efficiency ratio was 54.7% for the quarter ended June 30, 2002
compared to 57.5% for the second quarter of 2001.
14
For the six-month period ended June 30, 2002, other expenses
increased 70%, to $22.92 million from $13.48 million compared to the
six-month period ended June 30, 2001. 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.
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 June 30, 2002, held-to-maturity securities amounted to $19.0
million representing those securities we intended to hold to maturity.
Securities designated as available-for-sale totaled $435.4 million
representing securities which we may sell to meet liquidity needs or in
response to significant changes in interest rates or prepayment patterns.
For purposes of this discussion, held-to-maturity and
available-for-sale securities are described as the securities portfolio. At
June 30, 2002, the securities portfolio totaled $454.4 million, a decrease
of $9.2 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
June 30, December 31, June 30,
2002 2001 2001
------------ ------------ ------------
(In thousands)
U.S. government and agency securities....... $ 147,933 $ 133,514 $ 42,585
State and municipal securities.............. 38,107 38,458 8,430
Mortgage-backed securities.................. 234,607 259,912 96,720
Federal Home Loan Bank stock................ 17,734 15,228 9,463
Other securities............................ 16,067 16,525 5,227
------------ ------------ ------------
Total investment securities.............. $ 454,448 $ 463,637 $ 162,425
============ ============ ============
15
Loans. Loans historically have been the primary component of
earning assets. At June 30, 2002, loans totaled $1.5 billion, an increase of
6% from year-end 2001. Substantially all of these loans were originated in
our market area. At June 30, 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 $58.3 million during the first six months 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 44.1% of the portfolio at June 30, 2002 compared to 42.8% at
year-end 2001. Real estate construction loans increased $27.4 million during
the first six months of 2002. The increase in construction loans was
primarily related to residential projects to experienced home builders in
the St. Louis market. Consumer loans decreased $11.6 million or 14.5% 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
June 30, December 31, June 30,
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.............. $ 272,486 18.03% $ 255,181 17.97% $ 181,226 20.49%
Real estate - construction............ 192,277 12.72 164,831 11.61 113,147 12.79
Real estate - mortgage:
One- to four-family residential..... 314,145 20.78 313,547 22.08 190,945 21.59
Multi-family and commercial......... 665,825 44.05 607,550 42.79 356,612 40.31
Consumer and other.................... 68,158 4.51 79,749 5.62 43,525 4.92
Less unearned income.................. (1,396) (0.09) (1,062) (0.07) (870) (0.10)
----------- ------ ----------- ------ --------- ------
Total loans(1).................... $ 1,511,495 100.00% $ 1,419,796 100.00% $ 884,585 100.00%
=========== ====== =========== ====== ========= ======
------------------------------------------
(1)We had no outstanding foreign loans at the dates reported.
16
Asset Quality. Non-performing assets consist of the following:
non-accrual loans on which the ultimate collectibility of the full amount of
interest is uncertain; loans which have been renegotiated to provide for a
reduction or deferral of interest or principal because of a deterioration in
the financial condition of the borrower; loans past due 90 days or more as
to principal or interest; and other real estate owned. Non-performing assets
decreased to $15.5 million at June 30, 2002 compared to $17.3 million at
March 31, 2002, and $20.1 million at December 31, 2001. At June 30, 2002,
non-performing assets represented 0.70% of total assets compared to 0.80% at
March 31, 2002, and 0.93% at December 31, 2001. Non-accrual loans totaled
$13.5 million at June 30, 2002 compared to $15.3 million at March 31, 2002,
and $14.5 million at December 31, 2001. During the first six months 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. We have charged off $2.3 million on two of the other non-performing
credits. The three remaining relationships from year-end were acquired from
Southside. During the first six months of 2002, we added one significant
loan relationship totaling $3.5 million to non-performing 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 non-performing
assets.
We continually analyze our loan portfolio to identify potential
risk elements. The loan portfolio is reviewed by lending management and the
banks' internal loan review staff. As an integral part of their examination
process, the various regulatory agencies periodically review our allowance
for loan losses.
The following table summarizes, for the periods presented,
nonperforming assets by category:
17
RISK ELEMENTS - NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
June 30, December 31, June 30,
2002 2001 2001
-------- ------------ --------
(Dollars in thousands)
Commercial, financial, agricultural,
municipal and industrial development:
Past due 90 days or more.................................. $ 1,036 $ 196 $ 278
Non-accrual............................................... 5,421 1,118 1,307
Restructured terms........................................ 52 54 -
Real estate - construction:
Past due 90 days or more.................................. - - 275
Non-accrual............................................... 92 2,622 4,392
Restructured terms........................................ - - -
Real estate - mortgage:
One- to four-family residential:
Past due 90 days or more.................................. 674 1,050 1,635
Non-accrual............................................... 1,392 1,698 1,075
Restructured terms........................................ - - -
Multi-family and commercial:
Past due 90 days or more.................................. - 3,643 -
Non-accrual............................................... 6,186 8,892 -
Restructured terms........................................ - - -
Consumer and other, net of unearned income:
Past due 90 days or more.................................. 87 222 25
Non-accrual............................................... 413 215 101
Restructured terms........................................ - - -
---------- --------- ---------
Total nonperforming loans..................................... 15,353 19,710 9,088
Other real estate............................................. 224 370 164
---------- --------- ---------
Total nonperforming assets.................................... $ 15,577 $ 20,080 $ 9,252
========== ========= =========
Ratios:
Nonperforming loans to total loans.......................... 1.01% 1.39% 1.03%
Nonperforming assets to total assets........................ 0.70 0.93 0.80
Nonperforming loans to shareholders' equity................. 9.99 14.28 10.80
Allowance for loan losses to total loans.................... 1.21 1.33 1.40
Allowance for loan losses to nonperforming loans............ 119.29 95.92 136.09
18
Allowance for Loan Losses. The provision for loan losses was $3.5
million during the first six months of 2002 compared to $1.7 million for the
first six months of 2001. Net charge-offs were $4.1 million for the
six-month period ended June 30, 2002 compared to $765,000 for the first six
months of 2001. Net charge-offs for the first six months of 2002 represented
0.27% of average loans, compared to 0.09% for the first six months of 2001.
The allowance for loan losses totaled $18.3 million at June 30,
2002 compared to $18.9 million at December 31, 2001 and $12.4 million at
June 30, 2001. As a percentage of loans outstanding, the allowance
represented 1.21% of loans at June 30, 2002 compared to 1.33% at December
31, 2001, and 1.40% at June 30, 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 June 30, 2002.
19
The following table summarizes, for the periods indicated, activity
in the allowance for loan losses, including amounts of loans charged off,
amounts of recoveries and additions to the allowance charged to operating
expense.
SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION
Six Months Ended
June 30,
-------------------------
2002 2001
---------- ---------
(In thousands)
Allowance for loan losses (beginning of period)................. $ 18,905 $ 11,433
Loans charged off:
Commercial, financial, agricultural, municipal
and industrial development.................................. (1,065) (246)
Real estate - construction.................................... (1,127) (655)
Real estate - mortgage:
One- to four-family residential............................. (640) (34)
Multi-family and commercial................................. (1,892) (3)
Consumer and other............................................ (382) (61)
---------- ---------
Total loans charged off................................... (5,106) (999)
---------- ---------
Recoveries of loans previously charged off:
Commercial, financial, agricultural, municipal
and industrial development.................................. 929 37
Real estate - construction.................................... - -
Real estate - mortgage:
One- to four-family residential............................. 44 159
Multi-family and commercial................................. 4 31
Consumer and other............................................ 38 7
---------- ---------
Total recoveries.......................................... 1,015 234
---------- ---------
Net loans charged off........................................... (4,091) (765)
---------- ---------
Provision for loan losses....................................... 3,500 1,700
---------- ---------
Allowance for loan losses (end of period)....................... $ 18,314 $ 12,368
========== =========
Loans:
Average....................................................... $1,496,567 $ 877,730
End of period................................................. 1,511,495 884,585
Ratios:
Net charge-offs to average loans ............................. 0.27% 0.09%
Net charge-offs to provision for loans losses................. 116.89 45.00
Provision for loan losses to average loans.................... 0.23 0.19
Allowance for loan loss to total loans........................ 1.21 1.40
20
Deposits. Total deposits increased $731.8 million or 84%, at June
30, 2002 compared to June 30, 2001. The increase in deposits was primarily
the result of the Southside acquisition. Non interest-bearing deposits
totaled $175.9 million at June 30, 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
June 30, December 31, June 30,
2002 2001 2001
------------------- ------------------- ------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in thousands)
Demand deposits....................... $ 175,933 10.97% $ 201,216 11.92% $ 89,571 10.27%
NOW accounts.......................... 127,219 7.93 113,887 6.75 34,147 3.92
Money market accounts................ 287,250 17.91 301,648 17.87 191,573 21.97
Savings deposits...................... 208,070 12.98 185,652 11.00 36,207 4.15
Certificates of deposit............... 555,621 34.65 602,295 35.69 373,828 42.88
Certificates of deposit
over $100,000....................... 164,976 10.29 195,048 11.56 100,741 11.56
IRA certificates...................... 84,501 5.27 87,869 5.21 45,743 5.25
----------- ------ ----------- ------ --------- ------
Total deposits.................... $ 1,603,570 100.00% $ 1,687,615 100.00% $ 871,810 100.00%
=========== ====== =========== ====== ========= ======
21
LIQUIDITY MANAGEMENT AND CAPITAL RESOURCES
Liquidity Management. Long-term liquidity is a function of the core
deposit base and an adequate capital base. We are committed to growth of our
core deposit base and maintenance of our capital base. The growth of the
deposit base 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 $351.3 million secured credit facility with
the Federal Home Loan Bank, under which $300.0 million and $190.2 million
was outstanding at June 30, 2002 and December 31, 2001, respectively. We
continue to utilize Federal Home Loan Bank borrowings to fund loan growth
while systematically seeking to build 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 June 30, 2002. We strive to grow our core deposits while
utilizing Federal Home Loan Bank borrowings, 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 $153.7 million at
June 30, 2002, compared to $138.1 million at year-end 2001. The increase in
total equity was primarily the result of earnings retention, stock options
exercised for our common stock and an increase during the first six months
of 2002 of $3.7 million in net gains on available-for-sale securities.
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 June 30, 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.
22
Dividends paid during the second quarter of 2002 were $0.065 per
share, an increase of 8% compared to the $0.06 per share paid for the second
quarter of 2002. Our dividend payout ratio was 19.9% for the first six
months 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 June
30, 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 June 30, 2002, December 31, 2001 and June 30, 2001,
Allegiant's and Allegiant Bank's capital ratios were as follows:
June 30, 2002 December 31, 2001 June 30, 2001
-------------------------- -------------------------- --------------------------
Allegiant Allegiant Bank Allegiant Allegiant Bank Allegiant Allegiant Bank
--------- -------------- --------- -------------- --------- --------------
Total capital
(to risk-weighted assets)... 10.24% 10.72% 10.01% 10.48% 11.01% 11.80%
Tier 1 capital
(to risk-weighted assets)... 8.70 9.61 8.11 9.62 9.75 10.54
Tier 1 capital
(to average assets)......... 6.77 7.70 6.32 7.62 7.86 8.48
As of June 30, 2002, our two subsidiary banks had the following
capital ratios:
Bank of State Bank of
Ste. Genevieve Jefferson County
-------------- ----------------
Total capital
(to risk-weighted assets)... 21.34% 16.73%
Tier 1 capital
(to risk-weighted assets)... 20.18 15.59
Tier 1 capital
(to average assets)......... 12.34 10.00
23
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our 2002 annual meeting of shareholders was held on April 18, 2002.
Of 15,501,206 shares issued, outstanding and eligible to be voted at the
meeting, holders of 11,926,312 shares, constituting a quorum, were
represented in person or by proxy at the meeting. Three matters were
submitted to a vote of the security holders at the meeting.
1. ELECTION OF CLASS II DIRECTORS. The election of four Class II
director nominees to our board of directors, each to continue in office
until the year 2005. Our Articles of Incorporation, as amended, allow
cumulative voting in all director elections and all shareholders were
accordingly allowed to cumulate their votes for directors if they so
desired. Upon tabulation of the votes cast, it was determined that all four
director nominees had been elected. The voting results are set forth below:
NAME FOR AGAINST WITHHELD
---- --- ------- --------
Robert L. Chambers 11,931,491 0 387,970
Leland B. Curtis 12,014,157 0 305,319
Shaun R. Hayes 11,679,134 0 640,327
John L. Weiss 12,041,476 0 277,985
Because our company has a staggered board, the terms of office of
the following named Class III and Class I directors continued after the
meeting:
CLASS III (TO CONTINUE IN OFFICE UNTIL 2003)
--------------------------------------------
Leon A. Felman
Douglas P Helein
Michael R. Hogan
C. Virginia Kirkpatrick
Marvin S. Wool
CLASS I (TO CONTINUE IN OFFICE UNTIL 2004)
------------------------------------------
Kevin R. Farrell
Richard C. Fellhauer
Thomas M. Teschner
Robert E. Wallace, Jr.
Lee S. Wielansky
24
2. ADOPTION OF THE ALLEGIANT BANCORP, INC. 2002 STOCK INCENTIVE
PLAN. The second matter, a proposal to adopt the Allegiant Bancorp, Inc.
2002 Stock Incentive Plan, was approved by an affirmative vote of holders of
a majority of the shares issued, outstanding and eligible to vote. The
voting results on this matter were as follows:
FOR AGAINST WITHHELD
--- ------- --------
7,647,796 1,327,765 38,625
3. ADOPTION OF THE AMENDMENT TO THE ALLEGIANT BANCORP, INC. 2000
STOCK INCENTIVE PLAN. The third matter, a proposal to adopt the amendment to
the Allegiant Bancorp, Inc. 2000 Stock Incentive Plan, was approved by an
affirmative vote of holders of a majority of the shares issued, outstanding
and eligible to vote. The voting results on this matter were as follows:
FOR AGAINST WITHHELD
--- ------- --------
11,457,817 819,390 42,254
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: See Exhibit Index attached hereto.
b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
June 30, 2002.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized. The undersigned signs this
report in his dual capacities as a duly authorized officer of the registrant
and also as the registrant's Chief Financial Officer.
ALLEGIANT BANCORP, INC.
August 13, 2002 By: /s/ Thomas A. Daiber
------------------------------------------
Thomas A. Daiber, Executive Vice
President and Chief Financial Officer
26
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
11.1 Computation of Earnings Per Share
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
27