Back to GetFilings.com
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 2003
COMMISSION FILE NO. 000-10849
ALLEGIANT BANCORP, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1262037
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
10401 CLAYTON ROAD, ST. LOUIS, MISSOURI 63131
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 314-692-8800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TRUST PREFERRED
SECURITIES, $10 LIQUIDATION VALUE, ISSUED BY ALLEGIANT CAPITAL TRUST I
NAME OF EXCHANGE ON WHICH REGISTERED: AMERICAN STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: TRUST PREFERRED
SECURITIES, $25 LIQUIDATION VALUE, ISSUED BY ALLEGIANT CAPITAL TRUST II; AND
COMMON STOCK, $0.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ X ] No [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 30, 2003: Common Stock, $0.01 par value, $274,925,353.
Number of shares outstanding of each of the registrant's classes of common
stock, as of January 15, 2004: Common Stock, $0.01 par value, 17,556,921
shares outstanding.
DOCUMENT INCORPORATED BY REFERENCE PART OF FORM 10-K
---------------------------------- -----------------
None N/A
==============================================================================
ANNUAL REPORT ON FORM 10-K
PART I
The terms "Allegiant," "company," "we," "our" and "corporation" as
used in this report refer to Allegiant Bancorp, Inc. and its subsidiaries as
a consolidated entity, except where it is made clear that it means only
Allegiant. Also, sometimes we refer to our bank subsidiary, Allegiant Bank,
as the "bank."
ITEM 1. BUSINESS
GENERAL
We are the largest publicly-held bank holding company headquartered
in the St. Louis metropolitan area. Our principal subsidiary, Allegiant
Bank, offers full-service banking and personal trust services to
individuals, businesses and municipalities in our market area. These
services include commercial real estate, commercial business and consumer
loans, checking, savings and time deposit accounts and wealth management and
other fiduciary services, as well as other financial services, including
mortgage banking, securities brokerage and insurance products. As of
December 31, 2003, we reported, on a consolidated basis, total assets of
$2.5 billion, loans of $1.8 billion and shareholders' equity of $198.6
million.
On November 20, 2003, we reported that we had entered into an
Agreement and Plan of Merger with National City Corporation (National City).
Under the merger agreement and subject to its terms and conditions, we will
merge with and into National City, with National City being the surviving
corporation. In connection with the merger, at the election of the holder,
each outstanding share of our common stock will be converted into the right
to receive: (1) $27.25 in cash; (2) 0.833 shares of National City common
stock; or (3) a combination of the two, subject to a reallocation of cash
elections if Allegiant shareholders elect to receive more than 49% of the
aggregate value of the merger consideration in cash. We currently anticipate
the merger will close in late first quarter or early second quarter of 2004.
Our primary goal has been to expand our branch network in the St.
Louis market while increasing our earnings per share. Since our inception in
1989, we have grown through a combination of internal growth and
acquisitions. We have sought to maximize our internal growth opportunities
by positioning Allegiant as one of the leading St. Louis community banks.
We have supplemented our internal growth with several acquisitions
within our market area. Since 2000, we have completed a number of
significant acquisitions, including: Equality Bancorp, Inc., a
community-based thrift holding company with total assets of approximately
$300.4 million, in November 2000; Southside Bancshares Corp., a
community-based bank holding company with total assets of approximately
$804.9 million, in September 2001; and five branches from Guardian Savings
Bank with total deposits of $109.3 million, in December 2001. Additionally,
in order to diversify our operations and sources of income, in October 2002,
we acquired Investment Counselors, Incorporated, an investment advisory
firm.
Consistent with our focus on establishing and maintaining a strong
presence in the most attractive areas in the St. Louis market, in March
2003, we sold Bank of Ste. Genevieve, one of our two subsidiary banks, to
First Banks, Inc. Bank of Ste. Genevieve operates two branches located
outside of the St. Louis metropolitan area and had total assets of
approximately $110.0 million at the time of the sale. Under the sale
agreement, First Banks acquired Bank of Ste. Genevieve in exchange for
974,150 shares of our common stock held by First Banks. The net assets of
Bank of Ste. Genevieve were approximately $17.9 million, which approximated
the value of consideration we received. Accordingly, we did not recognize
any gain or loss as a result of the transaction. After this transaction,
First Banks' ownership of our outstanding common stock was reduced from
approximately 7.4% to approximately 1.5%.
2
In order to improve the profitability of our banking operations,
over the past several years we have reduced the number of residential
mortgages that we hold in our portfolio and have increased the amount of
higher yielding commercial loans. Since the beginning of 1998, and in part
as a result of opportunities that resulted from the consolidation of the St.
Louis banking market, we have hired 23 commercial lending professionals,
including a senior credit officer, who average more than 15 years of
commercial lending experience in the St. Louis metropolitan area. As these
local loan officers have joined our banking team, we have benefited from
their existing customer relationships, as well as their local banking
expertise. In addition, we have implemented a company-wide cost control
initiative intended to enhance efficiencies throughout our organization that
we refer to as "Project 2004" and we consolidated our banking operations,
other than those of Bank of Ste. Genevieve, into one primary subsidiary,
Allegiant Bank, during 2002.
The St. Louis metropolitan area is the 18th largest metropolitan
market in the United States with a population of approximately 2.6 million.
The St. Louis area is home to 15 Fortune 1000 companies, including
Anheuser-Busch Companies, Inc., Emerson Electric Co. and The May Department
Stores Company. Over the past several years, a number of financial
institutions in our market area have been acquired by larger regional or
national out-of-town financial institutions. These acquisitions have
included: Marshall & Ilsley Corporation's 2002 acquisition of Mississippi
Valley Bancshares, Inc.; Firstar Corporation's (now operating as U.S.
Bancorp) 1999 acquisition of Mercantile Bancorporation Inc.; Union Planters
Corporation's 1998 acquisition of Magna Group, Inc.; and NationsBank
Corporation's (now operating as Bank of America Corporation) 1997
acquisition of Boatmen's Bancshares, Inc. We believe we have capitalized on
opportunities created by this market consolidation and have built a strong,
customer-friendly, community-focused banking franchise.
We seek to effectively meet the convenience and financial needs of
customers through our extensive branch network that provides our customers
at least one branch located within a 20-minute drive from all principal
sectors of the St. Louis metropolitan area. Our 38 locations and 59 ATMs
throughout the St. Louis metropolitan area also serve to increase
recognition of the Allegiant name. In addition, we have sought to further
enhance our name recognition by serving as the official bank of the St.
Louis Rams football team since July 2000.
FINANCIAL SUMMARY OF THE COMPANY
A consolidated financial summary of our company and subsidiaries is
included on page A-1.
SUBSIDIARIES
The table setting forth the names and states of incorporation or
organization, as the case may be, of our subsidiaries is included as Exhibit
21 hereto.
COMPETITION
We operate in a competitive environment. In the St. Louis
metropolitan area, other commercial banks, savings and loan associations,
credit unions, finance companies, mutual funds, insurance companies,
brokerage and investment banking firms, investment advisers, financial
planners and other financial intermediaries offer similar services. Many of
these competitors have substantially greater resources and lending limits
and may offer certain services that we do not currently provide. In
addition, the extensive regulations that govern us and our banks may not
apply to some of our non-bank competitors. Our profitability depends upon
the ability of our banks to compete in our market area.
3
SUPERVISION AND REGULATION
As a bank holding company, we are primarily regulated by the Board
of Governors of the Federal Reserve System under the Bank Holding Company
Act of 1956 (BHC Act). Under the BHC Act the Federal Reserve Board's prior
approval is required if we propose to acquire all or substantially all of
the assets of any bank, acquire direct or indirect ownership or control of
more than 5% of the voting shares of any bank, or merge or consolidate with
any other bank holding company. The BHC Act also prohibits, with certain
exceptions, us from acquiring direct or indirect ownership or control of
more than 5% of any class of voting shares of any nonbanking company. Under
the BHC Act, we may not engage in any business other than managing and
controlling banks or furnishing certain specified services to subsidiaries
and may not acquire voting control of nonbanking companies unless the
Federal Reserve Board determines such businesses and services to be closely
related to banking. When reviewing bank acquisition applications for
approval, the Federal Reserve Board considers, among other things, each
subsidiary bank's record in meeting the credit needs of the communities it
serves in accordance with the Community Reinvestment Act of 1977, as amended
(CRA).
We are required to file with the Federal Reserve Board various
reports and such additional information as the Federal Reserve Board may
require. Allegiant Bank is organized as a Missouri state trust company and
is subject to regulation, supervision and examination by the Division of
Finance of the State of Missouri. Allegiant Bank is also subject to
regulation by the Federal Deposit Insurance Corporation. In addition, there
are numerous other federal and state laws and regulations which control the
activities of us and our banking subsidiaries and non-banking subsidiaries,
including requirements and limitations relating to capital and reserve
requirements, permissible investments and lines of business, transactions
with affiliates, loan limits, mergers and acquisitions, issuance of
securities, dividend payments and extensions of credit. This regulatory
framework is intended primarily for the protection of depositors and the
preservation of the federal deposit insurance funds, and not for the
protection of security holders. Statutory and regulatory controls increase a
bank holding company's cost of doing business and limit the options of its
management to employ assets and maximize income.
Under Federal Reserve policy, we are expected to act as a source of
financial strength to our bank subsidiary and to commit resources to support
our bank subsidiary in circumstances when it might not otherwise do so. The
Federal Reserve Board may prohibit the payment of dividends by bank holding
companies if their actions constitute unsafe or unsound practices. The
payment of dividends by the bank subsidiary also may be affected by factors
such as the maintenance of adequate capital. At December 31, 2003, our
subsidiary bank was "well-capitalized" under regulatory capital adequacy
standards.
These laws and regulations are under constant review by various
agencies and legislatures, and are subject to frequent change. The
Gramm-Leach-Bliley Financial Modernization Act of 1999 (GLB Act) contained
major changes in laws that previously kept the banking industry largely
separate from the securities and insurance industries. The GLB Act
authorized the creation of a new kind of financial institution, known as a
"financial holding company" and a new kind of bank subsidiary called a
"financial subsidiary," which may engage in a broader range of investment
banking, insurance agency, brokerage, and underwriting activities. The GLB
Act also included privacy provisions that limit banks' abilities to disclose
non-public information about customers to non-affiliated entities. Banking
organizations are not required to become financial holding companies, but
instead may continue to operate as bank holding companies, providing the
same services they were authorized to provide prior to the enactment of the
GLB Act.
4
In addition to its regulatory powers, the Federal Reserve impacts
the conditions under which we operate by its influence over the national
supply of bank credit. The Federal Reserve Board employs open market
operations in U.S. Government securities, changes in the discount rate on
bank borrowings, changes in the federal funds rate on overnight inter-bank
borrowings, and changes in reserve requirements on bank deposits in
implementing its monetary policy objectives. These instruments are used in
varying combinations to influence the overall level of the interest rates
charged on loans and paid for deposits, the price of the dollar in foreign
exchange markets and the level of inflation. The monetary policies of the
Federal Reserve have had a significant effect on the operating results of
financial institutions in the past, most notably the strong decrease in
interest rates which occurred in 2001 and the low rate environment in 2002
and 2003. In view of changing conditions in the national economy and in the
money markets, as well as the effect of credit policies of monetary and
fiscal authorities, no prediction can be made as to possible future changes
in interest rates, deposit levels or loan demand, or their effect on our
financial performance.
The Federal Reserve Board must also approve our proposed merger
with National City prior to the merger becoming effective. Application was
made to the Board of Governors of the Federal Reserve System for approval of
the merger. At this time, the Federal Reserve Board has not approved the
merger. Under the BHC Act, the Federal Reserve Board can withhold approval
of the merger if, among other things, it determines that the effect of the
merger would be to substantially lessen the competition in the relevant
markets. After the Federal Reserve Board approves a merger, 30 days must
pass before the merger can be completed. During that time, the United States
Department of Justice may challenge the merger.
In addition, our bank is regulated and examined by the Missouri
Department of Economic Development, Division of Finance. As a result, the
merger also requires the approval of the Missouri Department of Economic
Development, Division of Finance. At this time, the Missouri Department of
Economic Development, Division of Finance, has not approved the merger.
This summary of the material elements of this regulatory framework
does not describe all applicable statutes, regulations and regulatory
policies, nor does it restate all of the requirements of the statutes,
regulations and regulatory policies that are described. You should review
the applicable statutes, regulations and regulatory policies. Any changes in
applicable law, regulations or regulatory policies may have a material
effect on our business.
EMPLOYEES
At December 31, 2003, we had 527 full-time equivalent employees.
None of our employees are covered by a collective bargaining agreement. We
consider our relationship with our employees and those of our subsidiary
bank to be good.
WEB SITE ADDRESS
Our web site address is "www.allegiantbank.com." We make available
free of charge on our web site our annual report on Form 10-K, our quarterly
reports on Form 10-Q, our current reports on Form 8-K, and amendments
thereto, as soon as reasonably practicable after we file such reports with
the SEC. The reference to our web site does not constitute incorporation by
reference of the information contained in the web site and should not be
considered part of this document.
5
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements. We have based
these forward-looking statements on our current expectations and projections
about future events. These forward-looking statements are subject to risks,
uncertainties and assumptions, including, among other things:
o our ability to complete our proposed merger with National
City, including our ability to satisfy the conditions to
National City's obligations to complete the merger, many of
which are outside of our control;
o because the exchange ratio of National City common stock that
Allegiant shareholders will receive for shares of Allegiant
common stock in the merger is fixed and because the market
price of National City common stock will fluctuate, the market
value of the National City stock Allegiant shareholders will
receive in the merger is not fixed;
o adverse changes in the bank's loan portfolio and the resulting
credit risk-related losses and expenses;
o our ability to manage our growth, including the successful
expansion of the customer support, administrative
infrastructure and internal management systems necessary to
manage that growth;
o our ability to attract core deposits;
o adverse changes in the economy of our market area that could
increase credit-related losses and expenses;
o adverse changes in real estate market conditions that could
negatively affect credit risk;
o the consequences of continued bank acquisitions and mergers in
our market area, resulting in fewer but much larger and
financially stronger competitors, which could increase
competition for financial services to our detriment;
o fluctuations in interest rates and market prices, which could
negatively affect net interest margins, asset valuations and
expense expectations;
o changes in regulatory requirements of federal and state
agencies applicable to bank holding companies and our present
and future bank subsidiaries;
o changes in accounting principles;
o general economic conditions; and
o other risks and uncertainties detailed from time to time in
our filings with the Securities and Exchange Commission.
We undertake no obligation to publicly update or otherwise revise
any forward-looking statements, whether as a result of new information,
future events or otherwise. In light of these risks, uncertainties and
assumptions, the events discussed in any forward-looking statements in this
report might not occur.
ITEM 2. PROPERTIES
Our principal executive and administrative offices are located at
10401 Clayton Road in St. Louis, Missouri. Our operational offices are
located at 2122 Kratky Road in St. Louis, Missouri. As of December 31, 2003,
Allegiant Bank conducted its business and operations out of 38 locations in
the St. Louis metropolitan area. Management believes that our physical
properties, of which 30 are owned and eight are leased, are in satisfactory
condition, adequately insured and suitable and adequate for present
operations.
6
ITEM 3. LEGAL PROCEEDINGS
Various claims and lawsuits, incidental to our ordinary course of
business, are pending against us, Allegiant Bank or our subsidiaries. In the
opinion of management, after consultation with legal counsel, resolution of
these matters is not expected to have a material effect on our consolidated
financial condition or results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no submission of matters to a vote of securities holders
during the quarter ended December 31, 2003.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Our common stock is traded on the Nasdaq National Market ("Nasdaq")
under the symbol "ALLE." As of December 31, 2003, the number of shareholders
of our common stock was approximately 5,274. The quotations shown reflect
for the periods indicated the high and low closing sales prices for our
common stock as reported by Nasdaq. Such prices reflect inter-dealer prices
without retail mark-up, markdowns or commissions.
Dividend
Declared
High Low and Paid
--------------------------------------------------------------------------------
2003
First Quarter $ 18.49 $ 16.50 $ 0.070
Second Quarter 20.26 16.74 0.090
Third Quarter 22.50 19.06 0.090
Fourth Quarter 28.71 20.21 0.090
2002
First Quarter $ 17.50 $ 13.45 $ 0.065
Second Quarter 19.00 15.72 0.065
Third Quarter 18.80 15.02 0.065
Fourth Quarter 18.24 15.99 0.065
ITEM 6. SELECTED FINANCIAL INFORMATION
Information regarding selected financial data appears on page A-1
under the caption "Selected Financial Information."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information regarding Management's Discussion and Analysis of
Financial Condition and Results of Operations appears on pages A-2 through
A-23 under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
7
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information regarding Quantitative and Qualitative Disclosures
About Market Risk appears on pages A-17 through A-23 under the caption
"Balance Sheet Analysis - Interest Rate Sensitivity."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information regarding Financial Statements and Supplementary Data
appears on pages A-24 through A-54 under the caption "Consolidated Balance
Sheets," "Consolidated Statements of Income," "Consolidated Statements of
Shareholders' Equity," "Consolidated Statements of Cash Flows" and "Notes to
Consolidated Financial Statements."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we carried out
an evaluation under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Rule 13a-15(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure of controls and procedures are effective.
There have been no significant changes in our internal controls or
in other factors that could significantly affect these controls subsequent
to the date of our evaluation.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
The name, age, principal occupation or position, other
directorships and term of office as a director with respect to our directors
are set forth below. Each of these individuals will cease to serve as a
director of the Company at the effective time of the proposed merger with
National City Corporation which we expect will occur late in the first
quarter or early in the second quarter of 2004.
Robert L. Chambers, 42, has served as a director since December
2000. Mr. Chambers has been President of Huntleigh Securities Corp., a
securities brokerage company, since September 2000. Prior to that time, he
was Chief Executive Officer of K.W. Chambers & Co., a regional, full-service
broker/dealer, for more than five years.
Leland B. Curtis, 60, has served as a director since April 1996 and
was a director of Allegiant Bank from May 2000 to November 2001. Mr. Curtis
has been a partner in the St. Louis, Missouri law firm of Curtis, Oetting,
Heinz, Garrett & O'Keefe, P.C. for more than the past five years.
Kevin R. Farrell, 52, has served as a director since June 1989, as
our Secretary since 1994 and as a director of Allegiant Bank since 1990. Mr.
Farrell has been President of Great Ledge Development, formerly St. Louis
Steel Products, a metal forming company, since its founding in 1990.
8
Richard C. Fellhauer, 61, has served as a director since December
2000. Mr. Fellhauer has been a Senior Vice President of Allegiant Bank since
November 2000. Prior to that time, he was the President, Chief Executive
Officer and Chairman of the Board of Equality Bancorp, Inc., the holding
company for Equality Savings Bank, from 1982 to November 2000.
Leon A. Felman, 68, has served as a director since April 1992 and
as a director of Allegiant Bank since May 2000. Mr. Felman's business
activities have been private investment in financial institutions since
1999. For more than 30 years before that time, he was associated with Sage
Systems, Inc., a franchisee of Arby's restaurants in the St. Louis area, and
served as its President and Chief Executive Officer. Mr. Felman serves on
the board of directors of Dynex, Inc., a Richmond, Virginia-based mortgage
real estate investment trust listed on the New York Stock Exchange.
Shaun R. Hayes, 44, has served as a director and our President
since June 1989 and became our Chief Executive Officer in January 1999.
Additionally, Mr. Hayes has served as a director of Allegiant Bank since
1990 and as its President and Chief Executive Officer since May 1992.
Douglas P. Helein, 52, has served as a director since October 2001.
Mr. Helein has been an insurance broker for Welsch, Flatness & Lutz, Inc.,
an insurance agency, for more than the past five years.
Michael R. Hogan, 50, has served as a director since October 2000.
Mr. Hogan has been Chief Administrative Officer, Chief Financial Officer and
Vice President of Sigma-Aldrich Corporation, a life science company, since
April 1999. Prior to that time, he served three years as Corporate Vice
President and Controller for Monsanto Company, a manufacturer of
agricultural and biotechnology products and other consumer products.
C. Virginia Kirkpatrick, 69, has served as a director since March
1990 and as a director of Allegiant Bank since March 1990. Ms. Kirkpatrick
has been President of CVK Personnel Management & Training Specialists, a
business consulting and human resource management firm, since 1982.
Nancy C. Pechloff, 51, has served as a director since November
2002. Ms. Pechloff has been an Adjunct Professor of Accounting at the Olin
School of Business at Washington University in St. Louis since September
2002. Prior to that time, she was a Senior Audit Partner for 29 years at
Arthur Andersen LLP.
Robert E. Wallace, Jr., 47, has served as a director since October
2000. Mr. Wallace has been the Senior Vice President of
Administration/General Counsel of the St. Louis Rams, a professional
football team, since 1995.
John L. Weiss, 48, has served as a director since March 1999 and as
a director of Allegiant Bank since May 1997. Mr. Weiss has been President of
Brentwood Volvo, an automobile dealership in St. Louis, Missouri, for more
than 15 years and has been the General Manager of Feld Toyota, an automobile
dealership in St. Louis, Missouri, since February 2000.
Lee S. Wielansky, 51, has served a director since March 1990, was a
director of Allegiant Bank from January 1999 to November 2001 and served as
Vice Chairman of Allegiant Bank from February 1999 through November 2001.
Mr. Wielansky has been Chairman and Chief Executive Officer of Midland
Development Group since March 2003. Prior to that time, he served as
President and Chief Executive Officer of JDN Development Company from
November 2000 to February 2003. Prior to that time, he was Managing Director
of Investments and a member of the board of directors of Regency Realty
Corporation, a publicly-held real estate investment trust, for more than
three years. He also serves as director of Acadia Realty, a real estate
investment trust listed on the New York Stock Exchange, since June 2000.
9
Marvin S. Wool, 75, has served as a director since March 1990 and
as our Chairman and the Chairman of Allegiant Bank since March 1992. From
March 1992 through December 1998, Mr. Wool served as our Chief Executive
Officer. For more than the past five years, Mr. Wool has served as the
President and Chief Executive Officer of Dash Multi-Corp, the holding
company for subsidiary companies that are in the chemical, cloth coating,
carpet and rubber products industries.
Since the date of our proxy statement for our 2003 annual meeting,
there has not been any material change to the procedures by which security
holders may recommend nominees to our board of directors.
The following is a list, as of January 26, 2004, of the names and
ages of our executive officers and all positions and offices with us
presently held by the person named. There is no family relationship between
any of the named persons.
Shaun R. Hayes, 44, has served as a director and our President
since 1989 and became our Chief Executive Officer in January 1999.
Additionally, Mr. Hayes has served as a director of Allegiant Bank since
1990, and as its President and Chief Executive Officer since May 1992.
Jeffrey S. Schatz, 46, has served as one of our Executive Vice
Presidents and our Chief Financial Officer since February 2003. Before
becoming our Chief Financial Officer, Mr. Schatz served as our Chief
Operations Officer since January 2000. Prior to joining us, Mr. Schatz
served as Senior Vice President - Funds Management of Sky Financial Group,
Inc., a Bowling Green, Ohio bank holding company, for more than nine years.
Paul F. Glarner, 55, has served as one of our Executive Vice
Presidents and our Chief Lending Officer since 1997. Prior to joining us,
Mr. Glarner served as an officer of Mercantile Bank, now U.S. Bank, for more
than five years.
James, L. Schaller, 57, has served as our Senior Vice President of
Retail Banking since 1997. Prior to joining us, Mr. Schaller was employed
for four years by Roosevelt Bank, five years by First Nationwide Bank, five
years by St. Louis Federal Savings and Loan and 12 years by Community
Federal Savings and Loan.
Arthur E. Weiss, 44, has served as our Executive Vice President of
Wealth Management since 2000. Prior to joining us, Mr. Weiss served as the
President of the Weiss Group, Inc., an accounting and consulting firm. He
founded the firm in 1991 and sold it to a publicly-traded company in 1998.
From 1982 to 1991 Mr. Weiss was a tax manager with a Big Five public
accounting firm.
The executive officers were appointed by and serve at the pleasure
of our board of directors.
AUDIT COMMITTEE
We have a separate standing audit committee in accordance with
Section 3(a)(58)(A) of the Exchange Act. The members of the audit committee
are C. Virginia Kirkpatrick (Chairperson), Robert L. Chambers, Leon A.
Felman, Douglas P. Helein, Nancy C. Pechloff, John L. Weiss and Marvin S.
Wool. The board of directors has determined that Nancy C. Pechloff is an
"audit committee financial expert," as that term is defined in Item
401(h)(2) of Regulation S-K, as amended, promulgated by the SEC. Each of the
current members of the committee is "independent," as that term is defined
in Item 7(3)(d)(iv) of Schedule 14A under the Exchange Act.
10
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, requires our directors,
executive officers and persons who own more than 10% of our outstanding
stock to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. To our knowledge, based solely on our
review of such reports furnished to us and written representations that no
other reports were required, all Section 16(a) filing requirements
applicable to our directors, executive officers and greater-than-ten percent
shareholders were complied with during the year ended December 31, 2003,
except for the following: Mr. Felman filed one late Form 4 reporting one
exercise of a derivative security and Ms. Kirkpatrick filed one Form 4 late
reporting one exercise of a derivative security.
CODE OF ETHICS
We have adopted a code of ethics applicable to our principal
executive officer, principal financial officer, principal accounting officer
and persons performing similar functions. The text of this code of ethics
may be found on our web site at "www.allegiantbank.com." We intend to post
notice of any waiver from, or amendment to, any provision of our code of
ethics on our web site.
In April, 2003, a complaint was filed with the consumer affairs
division of the Missouri Division of Finance by a former director and
borrower of the bank. The complaint alleged various violations of law and
regulations by the Chief Executive Officer of the bank and the bank itself.
The Audit Committee hired independent, outside counsel to assist in the
investigation of the allegations, and on October 7, 2003, submitted a
response to the Division of Finance. After reviewing the Audit Committee's
response, on October 17, 2003, the Division of Finance responded to the
complainant, indicating its intent not to undertake any further action on
behalf of the complainant, and indicating that the Division may review
certain matters (which they did not identify) presented by the complaint, as
a part of the Division's examination and supervision of the bank.
As a result of this investigation, the Board of Directors approved
the Audit Committee's recommendations to amend the bank's Code of Conduct
and Conflict of Interest policies to expand the disclosure requirements with
respect to outside investments by bank officers and directors, and to refine
the parameters of when and under what circumstances bank officers can make
outside investments or engage in outside business activity. As part of this
effort, the bank's Chief Executive Officer has agreed to take certain
actions concerning his non-public outside investments.
11
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation of our Chief
Executive Officer and President and the four other most highly compensated
executive officers during 2003, as well as the total compensation paid to
each individual during the last three years.
SUMMARY COMPENSATION TABLE
================================================================================================================================
Annual Compensation Long-Term Compensation
- --------------------------------------------------------------------------------------------------------------------------------
Restricted
Stock Securities LTIP All Other
Payout Salary Bonus Awards Underlying Payouts Compensation
Name and Principal Position Year ($) ($) ($) Options/SARs ($) ($)
- --------------------------------------------------------------------------------------------------------------------------------
Shaun R. Hayes
President and Chief Executive 2003 385,000 150,000 - 50,000 137,608 24,475(2)
Officer of each of Allegiant 2002 370,000 148,000 420,000(1) 10,000 126,826 19,380
Bancorp, Inc. and Allegiant Bank 2001 370,000 110,000 - 30,000 81,428 15,630
Jeffrey S. Schatz
Executive Vice President and 2003 219,231 50,000 - 12,000 33,261 23,791(4)
Chief Financial Officer of each of 2002 180,000 50,000 210,000(3) 7,500 33,985 18,859
Allegiant Bancorp, Inc. and 2001 162,500 40,000 - 7,500 17,138 13,829
Allegiant Bank
Paul F. Glarner
Executive Vice President and 2003 230,000 60,000 - 12,000 39,894 22,053(6)
Chief Lending Officer of each of 2002 220,000 60,000 210,000(5) 7,500 42,481 17,105
Allegiant Bancorp, Inc. and 2001 208,466 50,000 - 7,500 34,425 14,199
Allegiant Bank
Arthur E. Weiss
Executive Vice President, Wealth 2003 183,834 40,000 - 10,000 25,273 12,076(8)
Management of each of Allegiant 2002 127,500 40,000 140,000(7) 7,500 - 11,471
Bancorp, Inc. and Allegiant Bank 2001 125,000 75,000 - 5,000 - 10,250
James L. Schaller
Senior Vice President of Retail 2003 95,000 30,000 - 4,000 25,273 12,345(10)
Banking of each of Allegiant 2002 81,500 30,000 84,000(9) 4,000 27,188 9,416
Bancorp, Inc. and Allegiant Bank 2001 78,000 27,000 - 4,000 23,554 7,129
- --------------------------------------
(1) On December 31, 2003 Mr. Hayes held 18,000 shares of restricted stock
with a value of $504,900. Of the 30,000 shares of restricted stock
granted to Mr. Hayes on February 8, 2002, 9,000 shares vested
immediately, 3,000 shares vested on the day following the 2003 annual
meeting of shareholders, and 3,000 shares will vest on the day
following each subsequent annual meeting of shareholders; provided,
however, all unvested options will vest upon completion of the merger
with National City. We pay dividends on the shares of restricted stock
granted.
(2) Consists of matching contributions to our qualified and unqualified
plans of $24,000 and a taxable fringe benefit for the personal use of
a company-owned vehicle of $475.
(3) On December 31, 2003 Mr. Schatz held 10,500 shares of restricted stock
with a value of $294,525. Of the 15,000 shares of restricted stock
granted to Mr. Schatz on February 8, 2002, 3,000 shares vested
immediately, 1,500 shares vested on the day following the 2003 annual
meeting of shareholders, and 1,500 shares will vest on the day
following each subsequent annual meeting of shareholders; provided,
however, all unvested options will vest upon completion of the merger
with National City. We pay dividends on the shares of restricted stock
granted.
(4) Consists of matching contributions to our qualified and unqualified
plans of $21,000 and a taxable fringe benefit for the personal use of
a company-owned vehicle of $2,791. Mr. Schatz became our Chief
Financial Officer in February 2003.
12
(5) On December 31, 2003 Mr. Glarner held 10,500 shares of restricted
stock with a value of $294,525. Of the 15,000 shares of restricted
stock granted to Mr. Glarner on February 8, 2002, 3,000 shares vested
immediately, 1,500 shares vested on the day following the 2003 annual
meeting of shareholders, and 1,500 shares will vest on the day
following each subsequent annual meeting of shareholders; provided,
however, all unvested options will vest upon completion of the merger
with National City. We pay dividends on the shares of restricted stock
granted.
(6) Consists of matching contributions to our qualified and unqualified
plans of $21,000 and a taxable fringe benefit for the personal use of
a company-owned vehicle of $1,053.
(7) On December 31, 2003 Mr. Weiss held 6,000 shares of restricted stock
with a value of $168,300. Of the 10,000 shares of restricted stock
granted to Mr. Weiss on February 8, 2002, 3,000 shares vested
immediately, 1,000 shares vested on the day following the 2003 annual
meeting of shareholders, and 1,000 shares will vest on the day
following each subsequent annual meeting of shareholders; provided,
however, all unvested options will vest upon completion of the merger
with National City. We pay dividends on the shares of restricted stock
granted.
(8) Consists of matching contributions to our qualified and unqualified
plans of $11,152 and a taxable fringe benefit for the personal use of
a company-owned vehicle of $924.
(9) On December 31, 2003 Mr. Schaller held 4,200 shares of restricted
stock with a value of $117,810. Of the 6,000 shares of restricted
stock granted to Mr. Schaller on February 8, 2002, 1,200 shares vested
immediately, 600 shares vested on the day following the 2003 annual
meeting of shareholders, and 600 shares will vest on the day following
each subsequent annual meeting of shareholders; provided, however, all
unvested options will vest upon completion of the merger with National
City. We pay dividends on the shares of restricted stock granted.
(10) Consists of matching contributions to our qualified and unqualified
plans of $9,937 and a taxable fringe benefit for the personal use of a
company-owned vehicle of $2,407.
REPORT OF DIRECTORS' AND EXECUTIVES' COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Directors' and Executives' Compensation Committee approves and
recommends to our board of directors the compensation program for our
directors, chief executive officer and other executive officers. The
committee is composed entirely of independent directors as defined under
Nasdaq rules.
The committee has the following goals for the compensation programs
relating to the executives of our company: (1) to provide motivation for the
executives to enhance shareholder value by linking a portion of their
compensation to the company's financial performance; (2) to provide
motivation for the executives to enhance shareholder value by linking a
portion of the compensation to the future appreciation in the value of the
company's common stock; (3) to retain the executive officers who have led
the company to high performance levels and allow the company to attract high
quality executives in the future by providing total compensation
opportunities which exceed competitive norms of the industry when superior
company performance merits that compensation; (4) to maintain reasonable
"fixed" compensation costs by targeting base salaries at competitive average
to moderately below average levels, relying on competitively high bonus
payments for superior performance; and (5) to reserve the right of the
compensation committee to reward and recognize an executive's superior
performance which goes above and beyond annual goals and expectations,
through additional cash or company stock incentives.
Annual compensation of our executive officers consists of base
salaries and, when appropriate, bonus compensation. Base salaries generally
represent a large portion of the executive officers' total cash
compensation. The committee believes that basing a portion of an executive
officer's compensation on both our performance and that of the individual
motivates the executive to perform at the highest possible level. Bonuses
make up a smaller portion of the executive officers' total cash
compensation. Bonuses are determined based upon our performance and that of
the individual executive during the year. In evaluating performance,
financial, non-financial and long-term strategic objectives are considered.
13
As a central component of our executive officers' compensation
program, the committee annually considers awarding executive officers
options to acquire shares of our common stock. The committee believes that
stock options provide a highly efficient form of compensation from both a
cost and an accounting perspective, and that such awards provide an
incentive to achieve our longer-term strategic goals by aligning the
long-term financial interests of the executive officers with those of our
shareholders. The committee also believes that significant levels of stock
ownership and ownership potential assist in retaining the services of the
executive officers.
In determining total compensation of our executive officers for
2003, the committee compared our financial performance against the
objectives set by management and the board of directors at the beginning of
the year. Based on this information, the committee determined a compensation
range it believed fairly reflected our overall and relative financial
performance and was reasonably competitive with other comparable companies
in the commercial banking industry. The committee then reviewed the specific
non-financial objectives established for each executive officer by our board
of directors at the beginning of the year and evaluated each executive
officer's performance with respect to such objectives.
The committee recommended and the board approved the 2003
compensation of Mr. Hayes, the President and Chief Executive Officer of
Allegiant Bancorp, Inc. and Allegiant Bank, in accordance with the policies
described above for executive officers. The committee considered the
following factors in determining the base salary for 2003 for Mr. Hayes: our
company's success in attaining our financial goals for 2002 and comparative
data for executive officers in similar positions with comparable bank
holding companies. Based on these factors, Mr. Hayes' base salary increased
from $370,000 to $385,000.
For 2003, Mr. Hayes's was eligible to earn a cash bonus ranging up
to 38% of his base salary. The financial objective for Mr. Hayes was
attaining a 9% increase in diluted earnings per share in 2003 over 2002. The
committee also considered specific operational and strategic objectives and
assessed his ability to demonstrate the leadership and vision to achieve the
long-term growth and profitability for the company. The committee assigned a
priority weight of 90% of the annual bonus for the attainment of
profitability goals. Based upon the results, Mr. Hayes earned a bonus of
$150,000 in 2003 which represented approximately 38% of his base salary for
2003. Mr. Hayes was paid an additional $137,608 cash bonus in 2003 as part
of the executive incentive bonus plan which provides a cash bonus pool for
executive officers for the achievement of targeted growth in earnings per
share for two consecutive years.
On January 6, 2003, Mr. Hayes was granted an option to purchase
50,000 shares of our common stock. That grant was made in accordance with
annual option grants outlined in our Incentive Stock Option Plan. In
determining the amount of restricted stock and stock options granted to Mr.
Hayes and other executives, the committee took into account its goal of
aligning the interests of management with those of the shareholders through
stock ownership, Allegiant's recent growth and the compensation packages
received by executives at comparable financial institutions.
As noted in the program described above, a significant portion of
executive compensation is linked directly to individual and corporate
performance, earnings per share and stock price appreciation. The committee
intends to continue the policy of linking executive compensation to
individual and corporate objectives and returns to shareholders, recognizing
that the business cycle from time to time may result in an imbalance for a
particular period.
Allegiant has maintained an annual bonus award program to provide
an appropriate incentive to Allegiant's management to grow shareholder
value. Under the bonus plan, the award payable to each eligible employee is
based upon two components: (1) individual and/or workgroup goals for the
year; and (2) Allegiant's earnings per share target for the year which is
based upon the budget approved by the Board of Directors before the
beginning of the each year.
14
Because certain developments were not then foreseeable, Allegiant's
budget for 2003 did not take into account the process that ultimately
resulted in the merger agreement with National City. In fact, Allegiant's
2003 results were affected by: merger-related expenses; curtailment of
certain business strategies to reposition the balance sheet; and the general
diversion of management's time and attention for due diligence and other
merger-related activities.
Allegiant's Executive Committee recently considered the
advisability of paying the bonus as if the 2003 earnings per share target
had been achieved. The Executive Committee concluded that payment of the
incentive bonus based upon achievement of the earnings per share goal was
advisable and in the best interest of Allegiant and its shareholders. The
Executive Committee noted the extraordinary nature of the reasons why the
target was not met and the importance to the morale of Allegiant's key
employees to successfully complete the merger with National City.
Under the Agreement and Plan of Merger, dated as of November 19,
2003, by and between National City and Allegiant, National City has
consented to Allegiant's proposed change in the administration of the bonus
plan for the reasons set forth above.
January 30, 2004 Submitted by the Directors' and
Executives' Compensation Committee
Lee S. Wielansky (Chairperson)
Leland B. Curtis
Michael R. Hogan
Robert E. Wallace, Jr.
COMPENSATION OF DIRECTORS
There are six regular meetings scheduled for the board during 2004;
however, if the merger with National City is completed, no board meeting
will be held after the merger. Non-employee directors are paid a $20,000
annual retainer plus $1,500 per board meeting attended or $750 per board
meeting attendance via conference call. Directors who also are employed by
us are not eligible to receive directors' or committee fees. Directors
serving on our Audit Committee are paid $250 per committee meeting attended,
the chairperson of the Audit Committee is paid $1,000 per committee meeting
attended, or in each case, one-half of committee meeting fee if meeting
attendance is via conference call. Directors serving on our Directors' And
Executives' Compensation Committee receive $250 per committee meeting
attended, the chairperson of the Directors' And Executives' Compensation
Committee is paid $500 per committee meeting attended, or in each case
one-half of committee meeting fee if meeting attendance is via conference
call. Directors serving on our Nominating and Corporate Governance Committee
receive $250 per committee meeting attended, the chairperson of the
Nominating and Corporate Governance Committee is paid $500 per committee
meeting attended, or in each case, one-half of committee meeting fee if
meeting attendance is via conference call. Directors serving on our
Executive Committee receive $250 per committee meeting attended, directors
Kevin R. Farrell, John L. Weiss and Marvin S. Wool, who are not employees
and who serve on the Allegiant Bank loan committee, receive $100 per
committee meeting attended and director Douglas P. Helein, who is not an
employee and who serves on the Allegiant Bank trust committee, receives $500
per year. Under our 1996 Directors' Stock Option Plan, non-employee
directors who have served on our board of directors for at least two years
receive options to purchase 5,000 shares of our common stock on the day
after the annual meeting each year a director remains on our board of
directors. Our chairman receives options to purchase a minimum of 9,899
shares per year. Options granted under the 1996 Directors' Stock Option Plan
have a term of five years and have an exercise price of 110% of the fair
market value at the time of grant.
15
In 2003, our directors participated in our fee conversion plan for
directors and committee members. That plan provides for the conversion of
directors' fees into shares of our common stock. Under the plan, the fees
each director earns during a quarter are credited to an account established
for the director. At the end of each calendar quarter, we determine the
number of shares such director is entitled to receive based on the amount of
fees credited to the account and the closing price of our common stock as of
that date. The shares of our common stock are then purchased for directors
by contributing their fees to our dividend reinvestment and stock purchase
plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Directors' and Executives' Compensation Committee is composed
entirely of the four outside directors named as signatories to the
Directors' and Executives' Compensation Committee report above. Members of
the committee do not have relationships with us, our Chief Executive Officer
or other executive officers which could be deemed to be interlocks.
EXECUTIVE RETENTION AGREEMENTS
We have entered into an Executive Retention Agreement with our
chief executive officer and president, Shaun R. Hayes, providing for certain
benefits, in the event of a "change in control" (as defined in the Executive
Retention Agreement) of our company, for termination of his employment by
us, or the successor corporation to us, without "cause" (as defined in the
Executive Retention Agreement) or if Mr. Hayes terminates his employment
with "good reason" (as defined in the Executive Retention Agreement) within
three years after a change in control. Benefits include that we or the
successor corporation will be required to pay severance benefits consisting
of a lump-sum cash amount equal to 2.99 times Mr. Hayes's annual base
salary. The cash payment to Mr. Hayes will be increased to cover any Federal
excise tax to which his cash payment is subject under the Internal Revenue
Code of 1986, as amended. In addition, all options held by Mr. Hayes will
become fully exercisable as of his date of termination and remain fully
exercisable, except for incentive stock options, for six months following
the date of termination. The agreement continues until the earlier of
January 1, 2005 or the date Mr. Hayes's employment terminates.
At the time the merger agreement with National City was signed and
at National City's request, Mr. Hayes entered into an employment agreement
with National City which will replace the Executive Retention Agreement and
become effective on the date of the merger. Under the agreement, Mr. Hayes
will serve as an Area President of National City Bank, directing the
day-to-day management of the business and affairs of National City's
operations in Missouri. Mr. Hayes will receive a base salary of at least
$400,000 a year, will be eligible to receive an annual performance bonus of
no more than 75% of Mr. Hayes's base salary, and will be eligible to receive
a long-term bonus at the end of a three-year plan cycle of no more than 40%
of Mr. Hayes's average base salary over that period or part thereof. In
addition, at the effective date of the merger, Mr. Hayes will be granted
restricted shares of National City common stock valued at $1.8 million
subject to the terms of the National City standard restricted stock
agreement. Mr. Hayes also will be eligible for stock options, vacation and
insurance benefits equivalent to those provided to similarly situated
employees of National City.
16
The term of the agreement is three years, however, either party may
terminate the agreement at any time. If Mr. Hayes's employment is terminated
for cause (as defined in the agreement) or he resigns for any reason other
than good reason (as defined in the agreement) he is entitled to his base
salary earned through the termination date and any expense reimbursement
then owed. If Mr. Hayes's employment is terminated due to his death or
disability, he is entitled to his base salary earned through the termination
date, expense reimbursement then owed and his long- and short-term bonuses
prorated to the date of termination. If Mr. Hayes's employment is terminated
without cause or he resigns for good reason, he is entitled to: (1) payment
of any expense reimbursement then owed him; (2) a payment equal to his base
salary and short-term bonus on 35% of his salary, which he would have earned
over the longer of one year or the remainder of the term of the agreement;
and (3) his vacation and insurance benefits, or the cash value thereof, for
the longer of one year or the remainder of the term of the agreement.
The agreement includes non-competition and non-solicitation
provisions prohibiting Mr. Hayes from competing with National City or
soliciting its employees or customers in the greater St. Louis area for the
longer of the term of the agreement or one year following the termination of
Mr. Hayes's employment. The agreement also includes covenants regarding
confidentiality.
In addition, upon the closing of the merger, National City has
agreed to offer, and Mr. Hayes has agreed to execute, a National City
severance agreement that will provide Mr. Hayes severance benefits in the
event of a change in control of National City, as will be defined in such
agreement. The agreement will provide for salary continuation for three
years upon termination as a result of change in control.
We have entered into Executive Retention Agreements with our
executive officers, Messrs. Glarner, Schatz, Schaller and Weiss, providing
for certain benefits, in the event of a "change in control" (as defined in
the Executive Retention Agreement) of our company, for termination of their
employment by us, or the successor corporation to us, without "cause" (as
defined in the Executive Retention Agreement) or if they terminate their
employment with "good reason" (as defined in the Executive Retention
Agreement) within three years after a change in control. Benefits include
that we or the successor corporation will be required to pay severance
benefits consisting of a lump-sum cash amount equal to: (a) 2.25 times the
officer's highest annual compensation paid by the company in any one of the
three most recent years for Messrs. Glarner and Schatz; (b) 1.75 times the
officer's highest annual compensation paid by the company in any one of the
three most recent years for Mr. Weiss; and (c) 1.00 times the officer's
highest annual compensation paid by the company in any one of the three most
recent years for Mr. Schaller. The cash payment to Messrs. Glarner and
Schatz will be increased to cover any Federal excise tax to which his cash
payment is subject under the Internal Revenue Code of 1986, as amended. The
cash payment to each of Messrs. Schaller and Weiss is subject to reduction
to the extent that such payment would require them to pay a Federal excise
tax under the Internal Revenue Code of 1986, as amended. In addition, all
options held by each of Messrs. Glarner, Schatz, Schaller and Weiss will
become fully exercisable as of their respective dates of termination and,
except for incentive stock options, remain fully exercisable for six months
following the date of termination.
National City is currently discussing with Mr. Glarner terms for a
potential employment agreement between National City and Mr. Glarner.
17
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning stock
option grants made in 2003 to the named executives. No SARs were granted in
2003.
Individual Grants
---------------------------------------------------------------
Percent Potential Realizable
Number of of Total Value at Assumed Annual
Securities Options/SARs Rates of Stock Price
Underlying Granted to Exercise or Appreciation for Option
Options/SARs Employees in Base Price Expiration Term(3)
Name Granted Fiscal Year ($/SH)(1) Date(2) 5%($) 10%($)
- --------------------- --------------- -------------- ------------- ------------------ -------------------------
Shaun R. Hayes 50,000(4) 13.79% $18.00 December 5, 2012 $1,155,035 $1,457,512
Paul F. Glarner 12,000(4) 3.31 18.00 December 5, 2012 277,208 349,803
Jeffrey S. Schatz 12,000(5) 3.31 18.00 December 5, 2012 277,208 349,803
Arthur E. Weiss 10,000(6) 2.76 18.00 December 5, 2012 231,007 291,502
James L. Schaller 5,000(4) 1.38 18.00 December 5, 2012 115,503 145,751
- --------------------
(1) The exercise price may be paid in cash or, at the discretion of the
committee, by shares of common stock already owned, valued at fair
market value on the date of exercise, or a combination of cash and our
common stock.
(2) The options terminate nine years and eleven months after the date of
grant; 12 months from termination for disability; three months from
termination of employment for reasons other than retirement,
disability or death; or immediately on termination for cause.
(3) The indicated 5% and 10% rates of appreciation are provided to comply
with Securities and Exchange Commission regulations and do not
necessarily reflect our views as to the likely trend in our common
stock price. There can be no assurance that the amounts reflected
herein will be achieved. Additionally, these values do not take into
consideration the provisions of the options providing for
nontransferability or delayed exercisability.
(4) The entire option grant became immediately exercisable on the date of
grant. These options were granted to Messrs. Hayes, Glarner and
Schaller under our employee stock option plan.
(5) Sixty percent of the entire option grant became immediately
exercisable on the date of grant and 20% of the options granted become
exercisable on each anniversary during the two-year period following
their issuance; provided, however, all unvested options will vest upon
completion of the merger with National City.
(6) Forty percent of the entire option grant became immediately
exercisable on the date of grant and 20% of the options granted become
exercisable on each anniversary during the three-year period following
their issuance; provided, however, all unvested options will vest upon
completion of the merger with National City.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTIONS/SAR VALUES
The following table presents certain information concerning stock
options exercised in the year ended December 31, 2003, and options remaining
unexercised at December 31, 2003 by the named executives.
Number of Securities Underlying Value of Unexercised
Unexercised Options/SARs at In-The-Money Options/SARs
Shares Value Fiscal Year-End at Fiscal Year-End(1)($)
Acquired on Realized -------------------------------- ---------------------------------
Name Exercise ($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- ------------- ----------- -------------------------------- ---------------------------------
Shaun R. Hayes 8,249 10,641 109,798 - 1,474,207 -
Paul F. Glarner 6,000 15,548 27,000 4,500 757,350 77,775
Jeffrey S. Schatz - - 22,200 12,300 312,810 169,665
Arthur E. Weiss - - 11,000 11,500 157,823 144,268
James L. Schaller 404 1,961 11,400 2,400 311,850 41,480
- -----------------------
(1) Based on our common stock closing price of $28.05 on December 31, 2003.
18
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG ALLEGIANT
BANCORP, INC., THE NASDAQ NATIONAL MARKET AND THE NASDAQ BANK INDEX
The following graph compares an annual cumulative shareholder
return over the period from December 31, 1998 through December 31, 2003
(including reinvestment of dividends) on an indexed basis with the Nasdaq
index and the Nasdaq Bank Index. The Nasdaq Bank Index is a broad-based
capitalization-weighted index of domestic and foreign common stocks of banks
that are traded on the Nasdaq National Market (Nasdaq/NMS) as well as the
SmallCap Market.
TOTAL RETURN PERFORMANCE
[graph]
- -----------------------------------------------------------------------------------------
ALLE NASDAQ BANK INDEX NASDAQ COMPOSITE
12/31/98 100.0000 100.0000 100.0000
12/31/99 105.5500 94.2800 185.9500
12/31/00 99.1300 115.5000 113.1900
12/31/01 155.1700 124.3400 89.6400
12/31/02 208.6600 133.0200 61.6700
12/31/03 324.9600 176.3700 92.9000
- -----------------------------------------------------------------------------------------
Source: Bloomberg L.P.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table summarizes information as of December 31, 2003
relating to equity compensation plans of Allegiant Bancorp pursuant to which
grants of options, restricted stock, or other rights to acquire shares may
be granted from time to time.
EQUITY COMPENSATION PLANS
=======================================================================================================================
Number of securities
remaining available for
Number of securities to Weighted-average future issuance under equity
be issued upon exercise exercise price of compensation plans
of outstanding options, outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column (a)
Plan Category (a) (b) (c)
- -----------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 1,051,539 $ 13.34 1,156,812
Equity compensation plans not
approved by security holders - - -
- -----------------------------------------------------------------------------------------------------------------------
Total 1,051,539 $ 13.34 1,156,812
=======================================================================================================================
19
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding the amount of
our common stock and trust preferred securities of our subsidiaries
beneficially owned, as of December 31, 2003, by each person who is a named
executive officer, director or known by us to own beneficially more than 5%
of our common stock, and all of our directors and executive officers as a
group:
=============================================================================================================
Capital Trust I Capital Trust II
Trust Preferred Trust Preferred
Common Stock(1) Securities(2) Securities(3)
-------------------------------------------------------------------------------------------------------------
Number of Number of Number of
Shares Shares Shares
Name of Beneficially Percent Beneficially Percent Beneficially Percent
Beneficial Owner Owned of Class Owned of Class Owned of Class
-------------------------------------------------------------------------------------------------------------
Robert L. Chambers 41,386(4) * - - - -
Leland B. Curtis 61,315(5) * - - - -
Kevin R. Farrell 382,572(6) 2.2 700 * - -
Richard C. Fellhauer 158,906(7) * - - - -
Leon A. Felman 1,406,005(8) 8.0 32,525 1.9 - -
Shaun R. Hayes 555,862(9) 3.1 - - - -
Douglas P. Helein 317,130(10) 1.8 - - - -
Michael R. Hogan 27,125(11) * - - - -
C. Virginia Kirkpatrick 159,926(12) 1.0 1,000 * - -
Nancy C. Pechloff 9,097(13) * - - - -
Robert E. Wallace, Jr. 19,491(14) * - - - -
John L. Weiss 55,746(15) * - - 2,000 *
Lee S. Wielansky 110,094(16) * 10,000 * - -
Marvin S. Wool 843,284(17) 4.8 - - 24,000 1.5
Jeffrey S. Schatz 45,972(18) * - - - -
Paul F. Glarner 64,343(19) * - - - -
Arthur E. Weiss 28,341(20) * - - - -
James L. Schaller 20,955(21) * - - - -
All directors and
executive officers
as a group (18 persons) 4,307,550(22) 23.9% 44,225 2.6% 26,000 1.6%
--------------------------
* less than 1%.
(1) Except as otherwise indicated, each individual has sole voting and
investment power over the shares listed beside his or her name and is
deemed to own shares issuable upon exercise of stock options which
were exercisable at December 31, 2003 or which were to become
exercisable within 60 days thereafter. The percentage calculations for
beneficial ownership are based upon 17,529,229 shares of our common
stock that were issued and outstanding as of December 31, 2003, plus,
with respect to each individual and for all directors and executive
officers as a group, the number of shares subject to options that may
be acquired upon exercise within 60 days after December 31, 2003.
(2) The percentage calculations for beneficial ownership are based upon
1,725,000 shares of non-voting trust preferred securities of Allegiant
Capital Trust I that were issued and outstanding as of December 31,
2003. We own all of the common securities of Allegiant Capital Trust
I.
(3) The percentage calculations for beneficial ownership are based upon
1,600,000 shares of non-voting trust preferred securities of Allegiant
Capital Trust II that were issued and outstanding as of December 31,
2003. We own all of the common securities of Allegiant Capital Trust
II.
(4) Total includes 24,757 shares subject to stock options exercisable within
60 days.
20
(5) Total includes 15,938 shares held jointly with Mr. Curtis's spouse;
13,464 shares held in Mr. Curtis's IRA plan; 5,971 shares held in the
Curtis Oetting, et al. profit sharing plan; and 24,900 shares subject
to stock options exercisable within 60 days.
(6) Total includes 198,908 shares held of record by Pentastar Family
Holdings, Inc.; 107,084 shares held of record by Cuttyhunk
Investments, LLC; 3,283 shares held by Fidelity Investments as Trustee
for the IRA of Mr. Farrell's spouse; 54,011 shares held by Fidelity
Investments in Mr. Farrell's IRA plans; and 10,000 shares subject to
stock options exercisable within 60 days.
(7) Total includes 25,552 shares held jointly with Mr. Fellhauer's spouse;
1,839 shares held by Mr. Fellhauer as custodian for his two children;
3,661 shares held in the IRA account of Mr. Fellhauer's spouse; 79,075
shares held subject to our section 401(k) plan; 23,035 shares held in
Mr. Fellhauer's IRA plan; 383 shares held jointly with another
individual; and 24,811 shares subject to stock options exercisable
within 60 days.
(8) Total includes 63,400 shares held in the Leon A. Felman Family Trust
of which Mr. Felman is the voting trustee; 1,277,442 shares held in
the Felman Family Partnership, LP of which Mr. Felman is the voting
partner; and no shares subject to stock options exercisable within 60
days. Mr. Felman's address is c/o Allegiant Bancorp, Inc., 10401
Clayton Road, St. Louis, MO 63131.
(9) Total includes 5,223 shares held for the benefit of Mr. Hayes's
children as to which he has voting rights; 2 shares held of record by
Mr. Hayes's spouse; 5,066 shares held subject to our section 401(k)
plan; 18,000 shares of restricted stock; and 109,798 shares subject to
stock options exercisable within 60 days.
(10) Total includes 10,000 shares subject to stock options exercisable
within 60 days.
(11) Total includes 17,500 shares subject to stock options exercisable
within 60 days.
(12) Total includes 2,500 shares held jointly with Ms. Kirkpatrick's
spouse; 3,015 shares held of record by Ms. Kirkpatrick's spouse;
24,427 shares held in the IRA plan of Ms. Kirkpatrick's spouse; 7,170
shares held jointly with Ms. Kirkpatrick's children; 9,550 shares held
in Ms. Kirkpatrick's SEP account; and 15,000 shares subject to stock
options exercisable within 60 days.
(13) Total includes 4,097 shares held as tenants by entirety with Ms.
Pechloff's spouse; and 5,000 shares subject to stock options
exercisable within 60 days.
(14) Total includes 9,491 shares held jointly with Mr. Wallace's spouse;
and 10,000 shares subject to stock options exercisable within 60 days.
(15) Total includes 3,256 shares held in the IRA account of Mr. Weiss's
spouse; 723 shares held jointly with Mr. Weiss's spouse; 750 shares
held jointly with Mr. Weiss's mother; 5,967 shares held in Mr. Weiss's
IRA plan; 10,000 shares held by a corporation of which Mr. Weiss is a
director, executive officer and principal shareholder; and 18,094
shares subject to stock options exercisable within 60 days.
(16) Total includes 24,900 shares subject to stock options exercisable
within 60 days.
(17) Total includes 76,005 shares held by the Dash Industries Pension Plan;
63,636 shares held in trusts for the benefit of Mr. Wool's children;
11,216 shares held jointly with Mr. Wool's spouse; and 49,495 shares
subject to stock options exercisable within 60 days.
(18) Total includes 1,873 shares held subject to our section 401(k) plan;
3,000 shares held jointly with Mr. Schatz's spouse; 10,500 shares of
restricted stock; and 29,100 shares subject to stock options
exercisable within 60 days.
(19) Total includes 5,515 shares held subject to our section 401(k) plan;
111 shares held by Mr. Glarner as custodian for his daughter; 1,074
shares held jointly with Mr. Glarner's spouse; 10,500 shares of
restricted stock; and 42,000 shares subject to stock options
exercisable within 60 days.
(20) Total includes 4,000 shares held jointly with Mr. Weiss's spouse,
2,318 shares held subject to our section 401(k) plan; 524 shares held
in Mr. Weiss's IRA plan; 6,000 shares of restricted stock; and 14,500
shares subject to stock options exercisable within 60 days.
21
(21) Total includes 645 shares held jointly with Mr. Schaller's spouse; 803
shares held subject to our section 401(k) plan; 4,200 shares of
restricted stock; and 11,400 shares subject to stock options
exercisable within 60 days.
(22) Total includes 45,000 shares of restricted stock and 434,891 shares
subject to stock options exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Certain of our officers and directors and their affiliates are
customers of Allegiant Bank. All those customer transactions were made in
the ordinary course of business, on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons, and did not involve more than
normal risk of collectibility or present other unfavorable or unusual
features.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Ernst & Young LLP served as our independent public auditors for
2003. We have not yet appointed our independent public auditors for 2004. We
expect to do so by the end of the second quarter of fiscal year 2003, unless
the merger with National City is completed by then.
The following fees were paid to Ernst & Young LLP for services
rendered during the years ended December 31, 2002 and 2003:
AUDIT FEES: $155,708 and $231,000 for 2002 and 2003, respectively,
for services rendered for the audit of our financial statements and reviews
of the financial statements included in our Forms 10-Q and 10-K.
AUDIT-RELATED FEES: $24,068 and $379,097 for 2002 and 2003,
respectively, for services rendered for assurance and related services
reasonably related to the performance of the audit of our financial
statements not reported under the caption "Audit Fees" above.
TAX FEES: $273,083 and $134,581 for 2002 and 2003, respectively,
for services rendered for tax compliance, tax advice and tax planning.
ALL OTHER FEES: None.
Consistent with the Securities and Exchange Commission requirements
regarding auditor independence, the Audit Committee has adopted a policy to
pre-approve all audit and permissable non-audit services provided by the
independent auditor. Under the policy, the Committee must pre-approve
services prior to the commencement of the specified service.
All services provided by Ernst & Young, LLP subsequent to May 6,
2003, have been preapproved by the Audit Committee.
22
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS:
The following documents are filed as part of this report:
Consolidated Balance Sheets at December 31, 2003 and 2002 A-25
Consolidated Statements of Income for each of the years in
the three-year period ended December 31, 2003 A-26
Consolidated Statements of Shareholders' Equity for each of the
years in the three-year period ended December 31, 2003 A-27
Consolidated Statements of Cash Flows for each of the years in
the three-year period ended December 31, 2003 A-28
Notes to the Consolidated Financial Statements A-29
Report of Independent Auditors A-24
2. FINANCIAL STATEMENT SCHEDULES
Not applicable.
3. EXHIBITS
See Item 15 (c) below.
(b) REPORTS ON FORM 8-K
We filed a Form 8-K with the Securities and Exchange
Commission on November 21, 2003, under "Item 5. Other Events and Regulation
FD Disclosure," reporting the execution of the Agreement and Plan of Merger
by and between National City and us; and, on January 22, 2004 under "Item
12. Results of Operation and Financial Condition," reporting our full year
of fourth quarter 2003 earnings.
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
Reference is made to the Exhibit Index on pages 26 through 27 for
exhibits filed as part of this report.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Company has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized as of the 30th day of January, 2004.
ALLEGIANT BANCORP, INC.
(Registrant)
By: /s/ Shaun R. Hayes
------------------------------------------
Shaun R. Hayes
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the following persons
on behalf of the Company and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Marvin S. Wool Chairman of the Board January 30, 2004
- ----------------------------------------
Marvin S. Wool
/s/ Shaun R. Hayes President, Chief Executive Officer January 30, 2004
- ---------------------------------------- and Director
Shaun R. Hayes
/s/ Jeffrey S. Schatz Executive Vice President and Chief January 30, 2004
- ---------------------------------------- Operations/Financial Officer (Principal
Jeffrey S. Schatz Financial and Accounting Officer)
/s/ Robert L. Chambers Director January 30, 2004
- ----------------------------------------
Robert L. Chambers
/s/ Leland B. Curtis Director January 30, 2004
- ----------------------------------------
Leland B. Curtis
/s/ Kevin R. Farrell Secretary and Director January 30, 2004
- ----------------------------------------
Kevin R. Farrell
/s/ Richard C. Fellhauer Director January 30, 2004
- ----------------------------------------
Richard C. Fellhauer
24
/s/ Leon A. Felman Director January 30, 2004
- ----------------------------------------
Leon A. Felman
/s/ Douglas P. Helein Director January 30, 2004
- ----------------------------------------
Douglas P. Helein
/s/ Michael Hogan Director January 30, 2004
- ----------------------------------------
Michael Hogan
/s/ C. Virginia Kirkpatrick Director January 30, 2004
- ----------------------------------------
C. Virginia Kirkpatrick
/s/ Nancy C. Pechloff Director January 30, 2004
- ----------------------------------------
Nancy C. Pechloff
Director January 30, 2004
- ----------------------------------------
Robert E. Wallace, Jr.
/s/ John L. Weiss Director January 30, 2004
- ----------------------------------------
John L. Weiss
Director January 30, 2004
- ----------------------------------------
Lee S. Wielansky
25
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Agreement and Plan of Merger, dated as of November 19, 2003,
by and between the Company and National City Corporation,
filed as Exhibit 2.1 to the Company's current report on Form
8-K on November 21, 2003, is hereby incorporated by
reference.
3.1 Amended and Restated Articles of Incorporation of the
Company, filed as Annex E to the Company's Registration
Statement on Form S-4 (Reg. No. 333-63212) is hereby
incorporated by reference.
3.2 Amended and Restated By-laws of the Company, as currently in
effect, filed as Annex F to the Company's Registration
Statement on Form S-4 (Reg. No. 333-63212) is hereby
incorporated by reference.
4.1 Form of Stock Certificate for Common Stock, filed as Exhibit
4.2 to the Company's Registration Statement on Form 10-SB
(Reg. No. 0-26350) is hereby incorporated by reference.
4.2 Form of Junior Subordinated Indenture concerning Allegiant
Capital Trust II, filed as Exhibit 4.4 to Amendment No. 1 to
Allegiant Bancorp's and Allegiant Capital Trust II's
Registration Statement on Form S-3 (Reg. Nos. 333-62684 and
333-62684-01), is hereby incorporated by reference.
4.3 Certificate of Trust of Allegiant Capital Trust II, filed as
Exhibit 4.6 to Allegiant Bancorp's and Allegiant Capital
Trust's Registration Statement on Form S-3 (Reg. Nos.
333-62684 and 333-62684-01), is hereby incorporated by
reference.
4.4 Trust Agreement of Allegiant Capital Trust II, filed as
Exhibit 4.7 to Allegiant Bancorp's and Allegiant Capital
Trust II's Registration Statement on Form S-3 (Reg. Nos.
333-62684 and 333-62684-01), is hereby incorporated by
reference.
4.5 Form of Guarantee Agreement, filed as Exhibit 4.10 to
Amendment No. 1 to Allegiant Bancorp's and Allegiant Capital
Trust II's Registration Statement on Form S-3 (Reg. Nos.
333-62684 and 333-62684-01), is hereby incorporated by
reference.
4.6 Form of Amended and Restated Trust Agreement of Allegiant
Capital Trust II, filed as Exhibit 4.8 to Amendment No. 1 to
Allegiant Bancorp's and Allegiant Capital Trust II's
Registration Statement on Form S-3 (Reg. Nos. 333-62684 and
333-62684-01), is hereby incorporated by reference.
4.7 Junior Subordinated Indenture concerning Allegiant Capital
Trust I, dated as of August 2, 1999, by and between the
Company and Bankers Trust Company, as Trustee, filed as
Exhibit 4.1 to the Company's quarterly report on Form 10-Q
for the quarter ended June 30, 1999, is hereby incorporated
by reference.
4.8 Guarantee Agreement concerning Allegiant Capital Trust I,
dated as of August 2, 1999, between the Company, as
guarantor, and Bankers Trust Company, as guarantee trustee,
filed as Exhibit 10.2 to the Company's quarterly report on
Form 10-Q for the quarter ended June 30, 1999, is hereby
incorporated by reference.
4.9 Amended and Restated Trust Agreement of Allegiant Capital
Trust I, dated as of August 2, 1999, among the Company, as
depositor, Bankers Trust Company, as property trustee, and
Shaun R. Hayes and Jeffrey S. Schatz, as administrators,
filed as Exhibit 10.3 to the Company's quarterly report on
Form 10-Q for the quarter ended June 30, 1999, is hereby
incorporated by reference.
10.1 Agreement and Plan of Exchange, dated September 17, 2002,
between First Banks, Inc. and the Company, filed as Exhibit
2 to Company's current report on Form 8-K, dated September
17, 2002, is hereby incorporated by reference.
26
10.2 Loan Agreement, dated September 28, 2001, by and between
U.S. National Bank Association and the Company, is filed as
Exhibit 10.1 to the Company's annual report on Form 10-K for
the year ended December 31, 2001, is hereby incorporated by
reference.
10.3 Pledge Agreement, dated September 28, 2001, by and between
U.S. National Bank Association and the Company, is filed as
Exhibit 10.1 to the Company's annual report on Form 10-K for
the year ended December 31, 2001, is hereby incorporated by
reference.
10.4 Allegiant Bancorp, Inc. 1994 Stock Option Plan, filed as
Exhibit 10.7 to Company's Registration Statement on Form
10-SB (Reg. No. 0-26350) is hereby incorporated by
reference.*
10.5 Allegiant Bancorp, Inc. 1996 Stock Option Plan, filed as
Exhibit 4.4 to Company's Form S-8 (Reg. No. 333-13451), is
hereby incorporated by reference.*
10.6 Allegiant Bancorp, Inc. Directors Stock Option Plan, filed
as Exhibit 4.5 to Company's Form S-8 (Reg. No. 333-13451),
is hereby incorporated by reference.*
10.7 Allegiant Bancorp, Inc. 1989 Stock Option Plan, filed as
Exhibit 4.6 to Company's Form S-8 (Reg. No. 333-13451), is
hereby incorporated by reference.*
10.8 Executive Retention Agreement, dated July 2003, by and
between the Company and Shaun R. Hayes is filed herewith.
10.9 Form of Executive Retention Agreement, dated July 2003,
entered into by and between the Company and each of Messrs.
Schatz, Glarner, Weiss and Schaller, is filed herewith.
10.10 Agreement and Plan of Merger, dated April 30, 2001, by and
between the Company and Southside Bancshares Corp., filed as
Exhibit 2 to the Company's current report on Form 8-K filed
May 7, 2001, is hereby incorporated by reference.
10.11 Equality Bancorp, Inc. 1993 Stock Option and Incentive Plan,
filed as Exhibit 99.1 to the Company's Registration
Statement on Form S-8 (Reg. No. 333-44758), is incorporated
herein by reference.*
10.12 Equality Bancorp, Inc. 1997 Stock Option and Incentive Plan,
filed as Exhibit 99.2 to the Company's Registration
Statement on Form S-8 (Reg. No. 333-44758), is incorporated
herein by reference.*
21 List of subsidiaries of the Company is filed herewith.
23 Consent of Ernst & Young LLP is filed herewith.
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, is filed herewith.
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, is filed herewith.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is
filed herewith.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is
filed herewith.
- --------------------------
*Management contract or compensatory plan or arrangement.
27
SELECTED FINANCIAL INFORMATION
Years Ended December 31,
============================================================================================================================
(Dollars in thousands, except per share data) 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
CONDENSED STATEMENT OF INCOME:
Interest income $ 118,081 $ 123,205 $ 96,423 $ 71,973 $ 52,112
Interest expense 49,833 58,307 55,481 40,521 26,601
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income 68,248 64,898 40,942 31,452 25,511
Provision for loan losses 8,274 8,599 5,000 3,500 2,546
Other non-interest income 26,901 23,321 14,803 6,462 4,843
Other non-interest expense 53,465 47,671 30,070 22,582 18,762
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 33,410 31,949 20,675 11,832 9,046
Provision for income taxes 10,550 10,552 7,553 4,797 3,644
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 22,860 $ 21,397 $ 13,122 $ 7,035 $ 5,402
============================================================================================================================
PER SHARE DATA:
Basic earnings per share(1) $ 1.34 $ 1.36 $ 1.26 $ 1.09 $ 0.84
Diluted earnings per share(1) 1.32 1.33 1.24 1.08 0.83
Dividends declared 0.34 0.26 0.24 0.22 0.20
Book value at period end 11.33 10.36 9.08 8.75 7.73
Weighted average basic shares
outstanding 17,045,432 15,767,619 10,447,845 6,460,250 6,450,639
CONDENSED BALANCE SHEET:
Total assets $ 2,452,830 $ 2,404,316 $ 2,170,479 $ 1,135,724 $ 728,492
Investment securities 366,497 455,082 463,637 134,296 60,797
Loans 1,839,463 1,702,909 1,419,796 813,971 615,191
Deposits 1,708,556 1,768,032 1,687,615 858,084 548,466
Borrowed funds 481,513 399,735 269,218 174,951 112,221
Guaranteed preferred beneficial interests
in subordinated debentures 57,250 57,250 57,250 17,250 17,250
Shareholders' equity 198,560 167,242 138,068 77,806 47,991
Allowance for loan losses 19,718 19,567 18,905 11,433 8,315
SELECTED RATIOS:
Performance Ratios:
Return on average assets 0.95% 0.96% 0.94% 0.83% 0.83%
Return on average equity 12.11 13.88 13.59 13.21 10.60
Net interest margin 3.10 3.19 3.17 3.99 4.17
Efficiency ratio 56.19 54.04 53.94 59.56 61.81
Total loans to total assets 74.99 70.83 65.41 71.67 84.45
Asset Quality Ratios:
Nonperforming loans to total loans 0.98% 0.92% 1.39% 0.38% 0.10%
Nonperforming assets to total assets 0.79 0.68 0.93 0.29 0.14
Allowance for loan losses to total loans 1.07 1.15 1.33 1.40 1.35
Allowance for loan losses to
nonperforming assets 101.89 120.41 94.15 344.99 807.28
Allowance for loan losses to
nonperforming loans 109.58 125.12 95.92 366.09 1,324.20
Net charge-offs to average loans 0.42 0.51 0.48 0.19 0.12
ALLEGIANT BANCORP CAPITAL RATIOS:
Total risk-based capital 10.98% 9.97% 10.01% 10.79% 10.23%
Tier risk-based capital 10.00 8.75 8.11 9.53 8.80
Tier 1 leverage capital 8.47 7.07 6.32 8.71 7.47
Equity to assets ratio 8.10 6.96 6.36 6.85 6.59
Tangible equity to tangible assets 5.99 4.66 3.86 5.95 5.06
ALLEGIANT BANK CAPITAL RATIOS:
Total risk-based capital 12.03 10.63 10.48 11.65 11.52
Tier 1 risk-based capital 11.05 9.56 9.26 10.40 10.27
Tier 1 leverage capital 9.37 7.78 7.62 9.50 8.89
(1) Based on weighted-average common shares outstanding.
A-1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CRITICAL ACCOUNTING POLICIES
Allegiant has established various accounting policies which govern
the application of accounting principles generally accepted in the United
States in the preparation of our financial statements. Our significant
accounting policies are described in the Notes to the consolidated financial
statements. Certain accounting policies involve significant judgments and
assumptions by management which have a material impact on the carrying value
of certain assets and liabilities; management considers these accounting
policies to be critical accounting policies. The judgments and assumptions
used by management are based on historical experience and other factors,
which are believed to be reasonable under the circumstances. Because of the
nature of the judgments and assumptions made by management, actual results
could differ from these judgments and estimates which could have a material
impact on the carrying values of assets and liabilities and the results of
operations of Allegiant.
Allegiant believes the allowance for loan losses is a critical
accounting policy that requires the most significant judgments and estimates
used in the preparation of its consolidated financial statements. The
allowance for loan losses represents management's estimate of probable loan
losses inherent in the loan portfolio. Calculation of the allowance for loan
losses is a critical accounting estimate due to the significant judgment,
assumptions and estimates related to the amount and timing of estimated
losses, consideration of current and historical trends and the amount and
timing of cash flows related to impaired loans. Please refer to the section
of this report entitled "Balance Sheet Analysis - Allowance for Loan Losses"
and Note 1 and Note 4 to the Company's consolidated financial statements for
a detailed description of our estimation processes and methodology related
to the allowance for loan losses.
Allegiant also believes the valuation of derivative instruments is
another critical accounting policy because these instruments are valued
using discounted cash flow models which require the use of estimates
regarding the timing and amount of future cash flows. The instruments are
carried at fair value with changes in value recorded in the income
statement. Please refer to Note 1 and Note 17 to the Company's consolidated
financial statements for further discussion of derivative instruments.
OVERVIEW
On November 20, 2003, we reported that we had entered into an
Agreement and Plan of Merger with National City Corporation. Under the
Merger Agreement and subject to its terms and conditions, we will be merged
with and into National City, with National City being the surviving
corporation. In connection with the merger, at the election of the holder,
each outstanding share of our common stock will be converted into the right
to receive: (1) $27.25 in cash; (2) 0.833 shares of National City common
stock, or (3) a combination of the two, subject to reallocation of cash
elections if Allegiant shareholders elect to receive more than 49% of the
aggregate value of the merger consideration in cash. We currently anticipate
the merger will close in late first quarter or early second quarter of 2004.
Our primary goal has been to expand our branch network in the St.
Louis market while increasing our earnings per share. Since our inception in
1989, we have grown through a combination of internal growth and
acquisitions. We have sought to maximize our internal growth opportunities
by positioning Allegiant as one of the leading St. Louis community banks.
RESULTS OF OPERATIONS
EARNINGS SUMMARY
We reported earnings of $22.9 million for 2003, marking our twelfth
consecutive year of earnings growth. These earnings represent an increase of
6.8% compared to the $21.4 million we reported for 2002. Diluted earnings
per share in 2003 were $1.32 compared to $1.33 per share in 2002. Diluted
earnings per share in 2003 reflected the impact of 2.1 million shares of
common stock issued in our secondary public stock offering in April 2003,
partially offset by 974,150 shares of treasury stock acquired in connection
with the
A-2
divestiture of our former Ste. Genevieve bank in March 2003. Net income in
2003 included merger-related expenses totaling $0.9 million associated with
our pending merger with National City Corporation. On an after-tax basis,
these expenses approximated $0.6 million, or $0.03 per share. Net income in
2001 was $13.1 million, with basic and diluted earnings per share of $1.26
and $1.24, respectively. The return on average assets was 0.95% in 2003,
0.96% in 2002 and 0.94% in 2001. The return on average equity was 12.1% in
2003, compared to 13.9% in 2002 and 13.6% in 2001.
As a result of accounting changes, we discontinued the amortization
of goodwill in 2002 and will periodically determine whether the carrying
value of our goodwill is impaired. We continue to amortize core deposit
premiums and other identifiable intangibles as a non-cash charge that
increases our operating expenses. Intangible asset amortization included as
an operating expense totaled $1.0 million, $1.1 million and $1.2 million in
2003, 2002 and 2001, respectively.
Net interest income in 2003 increased 5.2%, to $68.2 million from
$64.9 million in 2002 and $40.9 million in 2001. The net interest margin
decreased slightly by 9 basis points to 3.10% for 2003 compared to 3.19% for
2002. The net interest margin in 2001 was 3.17%. Over the past three years,
the net interest margin has been impacted by changes in balance sheet mix
and fair market purchase accounting adjustments stemming from recent
purchase acquisitions which has affected the yields earned and rates paid on
the underlying assets and liabilities. These factors, coupled with the
decrease in general interest rates as a result of action undertaken by the
Federal Reserve, have resulted in net interest margin compression over the
past three years.
The provision for loan losses totaled $8.3 million in 2003,
compared to $8.6 million in 2002 and $5.0 million in 2001. The allowance for
loan losses represented 1.07% of total loans outstanding at December 31,
2003, compared to 1.15% and 1.33% of total loans at December 31, 2002 and
2001, respectively. The allowance is discussed in more detail under "-
Balance Sheet Analysis - Allowance for Loan Losses."
Non-interest income increased by 15.4% to $26.9 million in 2003
compared to $23.3 million in 2002. Non-interest income in 2002 increased
57.5% from 2001. The increase in non-interest income in 2003 reflected
increases in mortgage banking revenue, wealth management fees and securities
gains of 17.7%, 74.1% and 24.7%, respectively. The increase in non-interest
income in 2002 compared to 2001 was primarily a result of the acquisitions
completed in 2001 and 2000, coupled with higher mortgage banking revenues
and increases in gains on sales of securities. See "- Non-Interest Income."
Non-interest expense increased $5.8 million in 2003, to $53.5
million, an increase of 12.2%. This compared to non-interest expense of
$47.7 million in 2002 and $30.1 million in 2001. The increased expense in
2003 primarily reflected the ongoing expenses related to the acquisition of
Investment Counselors, Incorporated in the fourth quarter of 2002, increased
professional fees associated with the roll-out of our Project 2004 profit
improvement and cost containment initiative, increased insurance expense,
increased foreclosed property costs and merger-related expenses associated
with the pending merger with National City Corporation. In addition,
non-interest expense for 2003 reflected increased expense associated with
the Company's investment in a community reinvestment fund, higher
commissions expense related to mortgage banking activities and a severance
charge recognized in the first quarter of 2003. See "- Non-Interest
Expense."
NET INTEREST INCOME
Net interest income totaled $68.2 million, an increase of $3.4
million, or 5.2%, over 2002. Net interest income in 2002 totaled $64.9
million and increased 58.5% over 2001. The increase in net interest income
in 2003 and 2002 was primarily attributable to an increase in average
earning assets of 8.1% and 57.7%, respectively. The increase in earning
assets in 2003 was largely due to internal growth whereas the increase in
2002 was primarily the result of acquisitions completed in 2001,
supplemented by internal growth. In 2003, the net interest spread declined 7
basis points resulting in a net interest margin decline of 9 basis points
from 2002. In 2002, the net interest spread increased 18 basis points and
the net interest margin improved by 2 basis points from 2001. Net interest
income in 2003 reflected a decrease in the average yield
A-3
on earning assets of 68 basis points, while the average cost of
interest-bearing liabilities declined 61 basis points. In 2002, net interest
income reflected a decrease in the average yield on earning assets of 142
basis points, while the average cost of interest-bearing liabilities
declined 160 basis points. Over the past three years, the net interest
margin has been impacted by changes in balance sheet mix and fair market
purchase accounting adjustments stemming from acquisitions which has
affected the yields earned and rates paid on the underlying assets and
liabilities. These factors, coupled with the decrease in general interest
rates as a result of action undertaken by the Federal Reserve, compressed
our net interest margin. As part of our overall interest rate risk
management strategy, we have also entered into interest rate swap
transactions. The interest rate swap portfolio reduced interest expense by
$2.1 million in 2003, $1.6 million in 2002 and $1.4 million in 2001.
The yield on loans decreased 69 basis points in 2003, 135 basis
points in 2002 and 139 basis points in 2001, as a significant portion of our
loan portfolio repriced as interest rates fell throughout 2003, 2002 and
2001. The cost of interest-bearing deposits decreased by 58 basis points in
2003 and 177 basis points in 2002 as deposits repriced as interest rates
declined. Average borrowings increased $50.1 million in 2003 as an
alternative funding source as loan growth exceeded deposit growth. The
average rate paid on borrowings in 2003 decreased 83 basis points to 3.90%.
The effects of changes in rates and average volumes is set forth in the
table titled "Rate/Volume Analysis."
Average earning assets increased $164.9 million, or 8.1%, in 2003
compared to an increase of $745.1 million, or 57.7%, in 2002 and an increase
of $502.7 million, or 64%, in 2001. Average loans increased $199.6 million
in 2003, or 12.7%, following increases of $531.3 million, or 51.3%, in 2002
as loan growth in our market has remained strong. The growth in average
loans in 2002 also reflected the impact of acquisitions. The average balance
of our securities portfolio (held-to-maturity and available-for-sale)
decreased $34.1 million, or 7.6%, during 2003 which was primarily
attributable to the disposition of the securities portfolio associated with
the divestiture of Bank of Ste. Genevieve. Average investment securities
represented 19% of earning assets in 2003 compared to 22% during 2002 and
18% in 2001. Average earning assets as a percentage of total assets was
91.5% in 2003 compared to 91.2% in 2002 and 92.3% in 2001.
Average interest-bearing liabilities increased $120.9 million, or
6%, in 2003 compared to an increase of $701.6 million, or 59%, in 2002 and
an increase of $463.3 million, or 64%, in 2001. Average interest-bearing
deposits increased $70.8 million, or 5%, in 2003 compared to an increase of
$528.3 million, or 56%, in 2002. In 2003, average certificates of deposit
increased $70.4 million, or 8%, while average non interest-bearing demand
deposit accounts increased $18.8 million, or 11%. Average savings deposits
increased $1.4 million in 2003 and the average rate paid on these deposits
decreased 96 basis points in 2003 compared to 2002 as a result of the
continued decline in interest rates. In 2002, average certificates of
deposit increased $235.9 million, or 39%, while average non interest-bearing
demand deposit accounts increased $70.2 million, or 65%. The increases in
average interest-bearing liabilities in 2003 was attributable to internal
deposit growth from deposit promotions supplemented by greater utilization
of short-term borrowings and Federal Home Loan Bank advances to fund loan
growth. The increase in average interest-bearing liabilities in 2002 was the
result of the business combination with Southside Bancshares and, to a
lesser extent, the acquisition of five branches from Guardian Savings,
supplemented by internal deposit growth.
Average short-term borrowings increased $5.9 million in 2003 and
$54.8 million in 2002. Average long-term borrowings increased to $286.6
million in 2003 from $242.4 million in 2002. During 2001, we issued $40.0
million in trust preferred securities, the majority of which is considered
Tier 1 capital for regulatory purposes. The business combination with
Southside Bancshares also increased our borrowings with the Federal Home
Loan Bank by $76.0 million in 2001. See "- Liquidity Management."
A-4
The following table presents the net interest income, net interest
margin and net interest spread for the years 2003 through 2001. The table
compares interest income and average interest-earning assets with interest
expense and average interest-bearing liabilities.
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES
Years Ended December 31,
=================================================================================================================================
2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------------- --------
Interest Interest Interest
Average Earned/ Average Average Earned/ Average Average Earned/ Average
(Dollars in thousands) Balance Paid Yield Balance Paid Yield Balance Paid Yield
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Loans (1) $1,767,118 $104,982 5.94% $1,567,549 $103,853 6.63% $1,036,299 $82,735 7.98%
Taxable investment securities 384,335 11,524 3.00 415,935 17,591 4.23 215,780 12,049 5.58
Non-taxable investment
securities (2) 33,042 1,387 4.20 35,536 1,485 4.18 13,182 614 4.66
Federal funds sold and other
investments 15,914 188 1.18 16,475 276 1.68 25,143 1,025 4.08
- -------------------------------------------------------- --------------------- ---------------------
Total interest-earning assets 2,200,409 118,081 5.37 2,035,495 123,205 6.05 1,290,404 96,423 7.47
Non interest-earning assets:
Cash and due from banks 48,619 39,283 29,128
Premises and equipment 45,198 47,374 25,150
Other assets 129,561 127,815 67,755
Allowance for loan losses (19,656) (18,121) (14,002)
- --------------------------------------------- ---------- ----------
Total assets $2,404,131 $2,231,846 $1,398,435
============================================= ========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Money market/NOW accounts $ 413,086 $ 3,835 0.93% $ 414,057 $ 6,327 1.53% $ 264,663 $ 7,836 2.96%
Savings deposits 213,903 2,828 1.32 212,474 4,836 2.28 69,495 1,984 2.85
Certificates of deposit 563,558 14,721 2.61 566,591 17,364 3.06 431,279 22,074 5.12
Certificates of deposit over
$100,000 204,836 5,269 2.57 175,201 5,764 3.29 115,319 5,705 4.95
IRA certificates 77,644 3,401 4.38 85,825 4,038 4.70 56,087 3,591 6.40
Brokered deposits 70,117 1,759 2.51 18,164 487 2.68 7,167 459 6.40
- -------------------------------------------------------- --------------------- ---------------------
Total interest-bearing
deposits 1,543,144 31,813 2.06 1,472,312 38,816 2.64 944,010 41,649 4.41
Federal funds purchased,
repurchase agreements and
other short-term borrowings 175,663 3,859 2.20 169,755 4,615 2.72 114,931 5,978 5.20
Other borrowings 229,382 8,674 3.78 185,198 9,389 5.07 96,339 5,124 5.32
Guaranteed preferred beneficial
interests in subordinated
debentures 57,250 5,487 9.58 57,250 5,487 9.58 27,661 2,730 9.87
- -------------------------------------------------------- --------------------- ---------------------
Total interest-bearing
liabilities 2,005,439 49,833 2.48 1,884,515 58,307 3.09 1,182,941 55,481 4.69
- -------------------------------------------------------- --------------------- ---------------------
Non interest-bearing liabilities
and equity:
Demand deposits 196,604 177,813 107,642
Other liabilities 13,319 15,395 11,278
Shareholders' equity 188,769 154,123 96,574
- -------------------------------------------------------- --------------------- ---------------------
Total liabilities and
shareholders' equity $2,404,131 $2,231,846 $1,398,435
======================================================== ===================== =====================
Net interest income $ 68,248 $ 64,898 $40,942
======================================================== ===================== =====================
Net interest spread 2.89% 2.96% 2.78%
Net interest margin 3.10 3.19 3.17
(1) Average balances include non-accrual loans. Interest income includes
loan origination fees.
(2) Presented at actual yield rather than tax-equivalent yield.
A-5
The following table sets forth for the years indicated the changes
in interest income and interest expense which were attributable to changes
in average volume and changes in average rates:
RATE/VOLUME ANALYSIS
Year Ended December 31, 2003 Year Ended December 31, 2002
Compared to the Compared to the
Year Ended December 31, 2002 Year Ended December 31, 2001
===========================================================================================================================
Net Net
(In thousands) Volume Rate Change Volume Rate Change
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST EARNED ON:
Loans $ 12,524 $ (11,395) $ 1,129 $ 36,917 $ (15,799) $ 21,118
Taxable investment securities (1,257) (4,810) (6,067) 9,018 (3,476) 5,542
Non-taxable investment securities (104) 6 (98) 942 (71) 871
Federal funds sold and other
investments (9) (79) (88) (277) (472) (749)
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 11,154 (16,278) (5,124) 46,600 (19,818) 26,782
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST PAID ON:
Money market/NOW accounts (15) (2,477) (2,492) 3,266 (4,775) (1,509)
Savings deposits 31 (2,039) (2,008) 3,323 (471) 2,852
Certificates of deposit (93) (2,550) (2,643) 5,721 (10,431) (4,710)
Certificates of deposit over $100,000 884 (1,379) (495) 2,363 (2,304) 59
IRA certificates (371) (266) (637) 1,568 (1,121) 447
Brokered deposits 1,303 (31) 1,272 405 (377) 28
Federal funds purchased, repurchase
agreements and other short-term
borrowings 155 (911) (756) 2,169 (3,532) (1,363)
Other borrowings 1,967 (2,682) (715) 4,517 (252) 4,265
Guaranteed preferred beneficial
interests in subordinated debentures - - - 2,841 (84) 2,757
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 3,861 (12,335) (8,474) 26,173 (23,347) 2,826
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income $ 7,293 $ (3,943) $ 3,350 $ 20,427 $ 3,529 $ 23,956
===========================================================================================================================
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 amounts of the changes in each. Interest on non-accruing loans is not
included for purposes of the table above.
A-6
NON-INTEREST INCOME
Non-interest income totaled $26.9 million in 2003 compared to $23.3
million in 2002 and $14.8 million in 2001. The growth in non-interest income
in 2003 was primarily attributable to a 17.7% increase in mortgage banking
revenues as loan originations were at record levels, an increase in wealth
management fees of 74.1%, and an increase in securities gains of $1.1
million, or 24.7%. In addition, non-interest income in 2003 included gains
of approximately $765,000 related to the sale of branch real estate and
settlement of a claim from a prior acquisition. The increase in non-interest
income in 2002 was the result of a $1.0 million increase in mortgage banking
revenue, a $1.5 million increase in gains on the sale of securities and a
$2.4 million increase in service charges on deposit accounts. Non-interest
income in 2002 included a $600,000 gain on the sale of a pool of mortgage
loans acquired in the Southside acquisition in September 2001.
Mortgage banking revenues totaled $5.4 million in 2003, $4.6
million in 2002 and $3.6 million in 2001. Mortgage banking revenues in 2003
and 2002 benefited from lower market interest rates, which led to record
levels of mortgage refinancings in 2003 and 2002.
Service charges on deposit accounts totaled $7.1 million in 2003
compared to $7.0 million in 2002 and $4.6 million in 2001. The increase in
2002 was primarily due to additional branch locations generating a larger
base of transaction deposits, as well as ongoing enhancements in our deposit
account fee structure.
Wealth management fees increased 74.1% in 2003, to $4.7 million and
119.0% in 2002 reflecting the acquisition of Allegiant Investment Counselors
in the fourth quarter of 2002. Wealth management fees in 2003 also benefited
from favorable market conditions resulting in increases in the market value
of assets under administration on which some fees are based.
In 2003, we realized $5.3 million in gains on the sale of
securities compared to $4.3 million in 2002 and $2.7 million in 2001.
Securities gains recognized in 2003 and 2002 reflected a continuation of our
strategy to increase the duration of our securities portfolio in response to
changes in market interest rates and to provide a funding source for loan
growth. These transactions consisted primarily of selling mortgage-backed
securities of which the durations had shortened and the value of which had
appreciated due to the decline in overall interest rates, and buying longer
duration securities. The investment portfolio is a primary tool we use to
manage interest rate risk exposure. We designate most securities purchased
as available-for-sale, which we may sell to meet liquidity needs or in
response to significant changes in interest rates or prepayment patterns.
NON-INTEREST EXPENSE
Non-interest expense totaled $53.5 million in 2003 compared to
$47.7 million in 2002 and $30.1 million in 2001. The increase in
non-interest expense in 2003 primarily reflected the ongoing expenses
related to the acquisition of Investment Counselors, Incorporated in the
fourth quarter of 2002, increased professional fees associated with the
roll-out of our Project 2004 profit improvement and cost containment
initiative, increased insurance expense, increased foreclosed property costs
and merger-related expenses associated with the pending merger with National
City Corporation. In addition, non-interest expense in 2003 reflected
increased expense associated with our investment in a community reinvestment
fund, higher commission expense related to mortgage banking activities and a
severance charge recognized in the first quarter of 2003. The increase in
non-interest expense in 2002 was primarily the result of a full year of
operating costs associated with branch network acquired in our business
combination with Southside in September 2001, as well as the five branches
acquired from Guardian Savings in December 2001. Our efficiency ratio for
2003 was 56.2%, compared to 54.0% in 2002.
Salaries and employee benefits increased to $26.3 million in 2003
compared to $25.4 million in 2002 and $16.5 million in 2001. Average
full-time equivalent employees for 2003 were 512 compared to 551 in 2002 and
369 in 2001. At December 31, 2003, we had 527 full-time equivalent
employees.
A-7
Furniture and equipment expenses totaled $3.4 million in 2003
compared to $3.3 million in 2002 and $2.1 million in 2001. Occupancy
expenses totaled $4.4 million in 2003 compared to $3.9 million in 2002 and
$2.4 million in 2001. Increases in occupancy and furniture and equipment
expenses in 2003 were primarily due to the centralization of our new wealth
management division at one location, which has enabled us to more
effectively serve our customers, and the relocation of our headquarters
facility. The increase in 2002 reflected additional costs associated with
operating the Southside and Guardian Savings branches acquired in 2001.
Other real estate owned expense totaled $2.5 million in 2003
compared to $1.2 million in 2002 and $0.2 million in 2001, primarily
reflecting costs and write downs associated with maintaining four
properties, one of which was sold prior to December 31, 2002 and another
which was sold in the third quarter of 2003.
Expense for the amortization of intangible assets totaled $1.0
million in 2003, $1.1 million in 2002 and $1.2 million in 2001. See Note 1
to our consolidated financial statements.
Other non-interest expense totaled $14.0 million in 2003 compared
to $11.6 million in 2002 and $7.1 million in 2001. The increase in other
non-interest expense in 2003 reflected increased professional fees
associated with the roll-out of our Project 2004 profit improvement and cost
containment initiative, higher insurance expense and increased expense
associated with the Company's investment in a community reinvestment fund.
The increase in 2002 was associated with our acquisitions in late 2001 which
resulted in an increase in employees, an increase in the number of deposit
and loan accounts, and an increase in physical locations compared to prior
years.
The following table sets forth our summary of non-interest income
and non-interest expense for the years indicated:
Years Ended December 31,
==================================================================================================
(In thousands) 2003 2002 2001
--------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charges on deposits $ 7,148 $ 7,048 $ 4,629
Mortgage banking revenues 5,410 4,595 3,552
Net gain on sale of securities 5,329 4,272 2,725
Wealth management fees 4,705 2,702 1,234
Bank-owned life insurance 1,829 1,908 1,182
Gain on sale of mortgage loans - 701 -
Other non-interest income 2,480 2,095 1,481
--------------------------------------------------------------------------------------------------
Total non-interest income $ 26,901 $ 23,321 $ 14,803
==================================================================================================
NON-INTEREST EXPENSE:
Salaries and employee benefits $ 26,335 $ 25,389 $ 16,455
Occupancy 4,362 3,862 2,361
Furniture and equipment 3,398 3,338 2,113
Other real estate owned 2,489 1,236 161
Telecommunications 1,004 1,129 706
Amortization of intangibles 1,041 1,083 1,182
Merger-related expense 874 - -
Other non-interest expense 13,962 11,634 7,092
--------------------------------------------------------------------------------------------------
Total non-interest expense $ 53,465 $ 47,671 $ 30,070
==================================================================================================
A-8
INCOME TAXES
Income taxes for each year ended December 31, 2003 and 2002 totaled
$10.6 million, and $7.6 million in 2001. The effective tax rate in 2003 was
32% compared to 33% in 2002 and 37% in 2001. The decrease in the effective
tax rate from 2001 was primarily due to the increased utilization of tax
credits coupled with a tax benefit associated with the charitable donation
of a building acquired in the Southside transaction.
BALANCE SHEET ANALYSIS
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 December 31, 2003,
held-to-maturity securities totaled $9.3 million, representing those
securities we intend to hold to maturity. Securities designated as
available-for-sale totaled $357.2 million, representing securities which we
may sell to meet liquidity needs or in response to significant changes in
interest rates or prepayment patterns. At December 31, 2003, the net
unrealized loss in the available-for-sale securities portfolio totaled $2.2
million compared to a net unrealized gain of $3.9 million at December 31,
2002.
For purposes of this discussion, held-to-maturity and
available-for-sale securities are referred to as the securities portfolio.
At December 31, 2003, the securities portfolio totaled $366.5 million, a
decrease of 19.5% from the preceding year. As a percentage of earning
assets, securities were 16.7% at December 31, 2003 compared to 20.9% in 2002
and 23.9% in 2001. This decrease from 2002 was primarily attributable to the
disposition of the securities portfolio associated with the divestiture of
Bank of Ste. Genevieve.
The carrying value and approximate fair value of investment
securities at December 31, 2003, 2002 and 2001, were as follows:
Securities Available-for-Sale Securities Held-to-Maturity
December 31, 2003 December 31, 2003
============================================================================================================================
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------
U.S. government and
agency securities $ 150,200 $ 345 $ (2,335) $ 148,210 $ - $ - $ - $ -
State and municipal
securities 20,264 351 (63) 20,552 9,236 183 (1) 9,418
Mortgage-backed
securities 153,360 231 (918) 152,673 66 2 - 68
Federal Home Loan Bank
stock 19,153 - - 19,153 - - - -
Other securities 16,419 202 (14) 16,607 - - - -
- ----------------------------------------------------------------------------------------------------------------------------
Total $ 359,396 $ 1,129 $ (3,330) $ 357,195 $ 9,302 $ 185 $ (1) $ 9,486
============================================================================================================================
A-9
Securities Available-for-Sale Securities Held-to-Maturity
December 31, 2002 December 31, 2002
============================================================================================================================
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------
U.S. government and
agency securities $ 191,225 $ 1,653 $ (424) $ 192,454 $ - $ - $ - $ -
State and municipal
securities 22,917 467 - 23,384 16,578 268 (3) 16,843
Mortgage-backed
securities 185,647 2,140 - 187,787 455 2 - 457
Federal Home Loan Bank
stock 17,734 - - 17,734 - - - -
Other securities 16,671 210 (191) 16,690 - - - -
- ----------------------------------------------------------------------------------------------------------------------------
Total $ 434,194 $ 4,470 $ (615) $ 438,049 $ 17,033 $ 270 $ (3) $ 17,300
============================================================================================================================
Securities Available-for-Sale Securities Held-to-Maturity
December 31, 2001 December 31, 2001
============================================================================================================================
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------
U.S. government and
agency securities $ 131,263 $ 656 $ (429) $ 131,490 $ 2,024 $ 7 $ - $ 2,031
State and municipal
securities 17,429 99 (213) 17,315 21,143 49 (138) 21,054
Mortgage-backed
securities 259,472 2,132 (3,124) 258,480 1,432 15 - 1,447
Federal Home Loan Bank
stock 15,228 - - 15,228 - - - -
Other securities 16,484 184 (143) 16,525 - - - -
- ----------------------------------------------------------------------------------------------------------------------------
Total $ 439,876 $ 3,071 $ (3,909) $ 439,038 $ 24,599 $ 71 $ (138) $ 24,532
============================================================================================================================
Maturities and yield information of the investment securities
portfolio as of December 31, 2003 were as follows:
SECURITIES PORTFOLIO--MATURITIES AND YIELDS(1)
============================================================================================================================
Weighted Over One Weighted Over Five Weighted Weighted
One Year Average Through Average Through Average Over Ten Average
(Dollars in thousands) or Less Yield Five Years Yield Ten Years Yield Years Yield
- ----------------------------------------------------------------------------------------------------------------------------
U.S. government and
agency securities $ 25,727 3.22% $ 122,483 3.27% $ - -% $ - -%
State and municipal
securities 4,535 4.79 19,359 4.61 5,894 4.08 - -
Mortgage-backed securities 22,722 4.60 130,017 4.13 - - - -
Other securities 10,448 3.24 2,575 7.23 - - 2,122 10.01
- ----------------------------------------------------------------------------------------------------------------------------
Total $ 63,432 3.56 $ 274,434 3.81 $ 5,894 4.08 $ 2,122 10.01
============================================================================================================================
Federal Home Loan Bank
stock $ 19,153
=========
Other securities with no
stated maturities $ 1,462
=========
Total securities portfolio $ 366,497 3.62%
=========
- ---------
(1) Maturities are shown in this table by expected maturity. Expected
maturities may differ from contractual maturities due to the right to call
or prepay obligations. Presented at actual yield rather than tax equivalent
yield.
A-10
LOANS
Loans historically have been the primary component of our earning
assets. At December 31, 2003, loans totaled $1.8 billion, an increase of
8.0% from year-end 2002 as loan growth in our market remained strong. At
December 31, 2002, loans totaled $1.7 billion, an increase of 19.9% from
year-end 2001. The increase in loans from December 31, 2002 was partially
offset by the March 31, 2003 divestiture of Bank of Ste. Genevieve, which at
the time of disposition reported total loans of $43.5 million. Average loans
increased 12.7% during 2003 compared to a 51.3% increase in 2002. Much of
the increase in average loan balances in 2002 was due to acquisitions
completed in 2001. Substantially all of our loans were originated in our
primary market areas. We have no foreign loans and a minor amount of
participations purchased.
In 2003, commercial real estate loans increased $135.8 million, or
19.5%, to $833.3 million and one- to four-family residential loans decreased
$24.2 million, or 6.9%, to $327.9 million. Commercial loans decreased $30.9
million, or 9.8%, in 2003, and real estate construction loans increased
$43.2 million, or 15.6%.
Management has continued to emphasize growth in commercial and
commercial real estate categories in order to focus on the more profitable
commercial relationships. In addition to the commercial and commercial real
estate loans added from the Southside Bancshares acquisition in 2001, the
growth in the commercial sector was accomplished by hiring additional
commercial lending personnel and directing existing staff toward commercial
relationship procurement. Since the beginning of 1998, and in part as a
result of opportunities that resulted from the consolidation of the St.
Louis banking market, we have hired several commercial lending
professionals, including a senior credit officer, who average more than 15
years of commercial lending experience in the St. Louis metropolitan area.
This has enabled us to achieve our objective of diversifying our commercial
loan portfolio by adding customers in a wide variety of businesses. As these
local loan officers have joined our banking team, we have benefited from
their existing customer relationships, as well as their local banking
expertise. Our target lending customers are closely-held small to midsize
businesses requiring credit ranging in size from $1.0 million to $3.0
million, although we make larger loans based upon the needs of our business
customers and consistent with our loan policy and applicable laws and
regulations.
Commercial real estate loans comprised 45.3% of the loan portfolio
at year-end 2003, 41.0% at year-end 2002 and 42.8% at year-end 2001.
Traditional commercial loans comprised 15.4% of the portfolio at year-end
2003, 18.5% at year-end 2002 and 18.0% at year-end 2001. Real estate
construction loans comprised 17.4% of the portfolio at year-end 2003, 16.3%
at year-end 2002 and 11.6% at year-end 2001. One- to four-family residential
loans represented 17.8% of total loans, including held-for-sale loans of
$8.8 million at year-end 2003 and 20.7% at year-end 2002 compared to 22.1%
of total loans at year-end 2001.
An increase in the commercial sector contributed to the majority of
our loan growth in 2002 compared to 2001. Commercial real estate loans
increased $89.9 million, or 14.8%, to $697.4 million at year-end 2002
compared to $607.6 million at year-end 2001. Construction loans increased
$112.2 million, or 68.1%, in 2002, totaling $277.0 million at year-end 2002
compared to $164.8 million at year-end 2001. The increases in construction
loans were primarily due to increases in loans to St. Louis area home
builders. Traditional commercial loans increased $59.5 million, or 23.3%, in
2002 and $90.1 million, or 54.6%, in 2001.
Consumer loans totaled $75.4 million at December 31, 2003 compared
to $63.2 million and $79.7 million at December 31, 2002 and 2001,
respectively. Consumer loans do not comprise a large percentage of our loan
portfolio (4.1% at December 31, 2003), but are an important product which
allows us to meet the lending needs of individuals within the St. Louis
community and will be an area of major focus in 2004 as we expand our
emphasis in the retail sector.
A-11
The following table summarizes the composition of our loan
portfolio at the dates indicated:
LOAN PORTFOLIO - TYPES OF LOANS
December 31,
=====================================================================================================================
(In thousands) 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Commercial, financial, agricultural,
municipal and industrial development $ 283,790 $ 314,703 $ 255,181 $ 165,107 $ 150,259
Real estate - construction 320,235 277,018 164,831 124,517 65,310
Real estate - mortgage:
One- to four-family residential 327,942 352,136 313,547 193,490 141,264
Multi-family and commercial 833,252 697,430 607,550 295,678 235,158
Consumer and other 75,362 63,231 79,749 35,975 24,152
Less unearned income (1,118) (1,609) (1,062) (796) (952)
- ---------------------------------------------------------------------------------------------------------------------
Total loans (1) $ 1,839,463 $ 1,702,909 $ 1,419,796 $ 813,971 $ 615,191
=====================================================================================================================
(1) We had no outstanding foreign loans at the dates reported.
LOAN PORTFOLIO - MATURITIES AND SENSITIVITIES OF LOANS
December 31, 2003
=====================================================================================================================
Maturing in
One Year Maturing After One Year Maturing After
or Less through Five Years Five Years
- ---------------------------------------------------------------------------------------------------------------------
(In thousands) Fixed Rate Variable Fixed Rate Variable Total
- ---------------------------------------------------------------------------------------------------------------------
Commercial, financial,
agricultural, municipal and
industrial development $ 157,610 $ 51,794 $ 68,417 $ 4,094 $ 1,875 $ 283,790
Real estate - construction 233,218 5,551 81,274 51 141 320,235
Real estate - mortgage:
One- to four-family residential 153,691 67,249 32,508 13,213 61,281 327,942
Multi-family and commercial 342,883 246,895 228,944 12,033 2,497 833,252
Consumer and other 20,246 38,603 5,105 11,355 53 75,362
Less unearned income (551) (249) (253) (25) (40) (1,118)
- ---------------------------------------------------------------------------------------------------------------------
Total loans $ 907,097 $ 409,843 $ 415,995 $ 40,721 $ 65,807 $ 1,839,463
=====================================================================================================================
ASSET QUALITY
Nonperforming assets, consisting of loans past due 90 days or
greater, non-accrual loans, restructured loans and other real estate owned,
totaled $19.4 million at December 31, 2003 compared to $16.3 million at
December 31, 2002 and $20.1 million at December 31, 2001. At December 31,
2003, nonperforming assets represented 0.79% of total assets compared to
0.68% of total assets at December 31, 2002 and 0.93% of total assets at
December 31, 2001. Non-accrual loans were $15.7 million at December 31, 2003
compared to $12.9 million at December 31, 2002 and $14.5 million at December
31, 2001. As of December 31, 2003, 68%, or $10.6 million, of our non-accrual
loans were comprised of six relationships. Loans delinquent 90 days or more
but still accruing, were $2.3 million at year-end 2003 compared to $2.3
million and $5.1 million at December 31, 2002 and 2001, respectively. Other
real estate owned at December 31, 2003 totaled $1.4 million compared to
$611,000 and $370,000 at December 31, 2002 and 2001, respectively. At
December 31, 2003 other real estate owned was primarily comprised of two
hotel properties pending sale.
A-12
We continually analyze our loan portfolio to identify potential
risk elements. The loan portfolio is reviewed by lending management and our
internal loan review staff. Various regulatory agencies also periodically
review, as an integral part of their examination process, our allowance for
loan losses. We believe that our allowance for loan losses at December 31,
2003 was adequate to absorb losses inherent in the loan portfolio.
The following table summarizes, for the periods presented,
nonperforming assets by category:
RISK ELEMENTS--NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS
December 31,
========================================================================================================================
(Dollars in thousands) 2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
Commercial, financial, agricultural,
municipal and industrial development:
Past due 90 days or more $ 701 $ 674 $ 196 $ 752 $ -
Non-accrual 6,567 4,521 1,118 222 379
Restructured terms - 40 54 - -
Real estate - construction:
Past due 90 days or more 174 540 - 15 -
Non-accrual 2,841 287 2,622 - -
Restructured terms - - - - -
Real estate - mortgage:
One- to four-family residential:
Past due 90 days or more 1,102 820 1,050 1,179 22
Non-accrual 1,871 3,608 1,698 414 178
Restructured terms - 324 - - -
Multi-family and commercial:
Past due 90 days or more 177 151 3,643 304 -
Non-accrual 4,142 4,205 8,892 - -
Restructured terms - - - - -
Consumer and other, net of unearned
income:
Past due 90 days or more 106 152 222 59 -
Non-accrual 313 317 215 178 49
Restructured terms - - - - -
- ------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 17,994 15,639 19,710 3,123 628
- ------------------------------------------------------------------------------------------------------------------------
Other real estate owned 1,358 611 370 191 402
- ------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 19,352 $ 16,250 $ 20,080 $ 3,314 $ 1,030
========================================================================================================================
Balance sheet information (at year-end):
Total assets $ 2,452,830 $ 2,404,316 $ 2,170,479 $ 1,135,724 $ 728,492
Loans outstanding 1,839,463 1,702,909 1,419,796 813,971 615,191
Shareholders' equity 198,560 167,242 138,068 77,806 47,991
Allowance for loan losses 19,718 19,567 18,905 11,433 8,315
Ratios:
Nonperforming loans to total loans 0.98% 0.92% 1.39% 0.38% 0.10%
Nonperforming assets to total assets 0.79 0.68 0.93 0.29 0.14
Nonperforming loans to shareholders'
equity 9.06 9.35 14.28 4.01 1.31
Allowance for loan losses to total
loans 1.07 1.15 1.33 1.40 1.35
Allowance for loan losses to
nonperforming loans 109.58 125.12 95.92 366.09 1,324.20
A-13
ALLOWANCE FOR LOAN LOSSES
Our allowance for loan losses totaled $19.7 million at December 31,
2003, $19.6 million at December 31, 2002 and $18.9 million at December 31,
2001. The provision for loan losses was $8.3 million in 2003 compared to
$8.6 million in 2002 and $5.0 million in 2001. The allowance for loan losses
equaled 1.07% of total loans at December 31, 2003 compared to 1.15% at
December 31, 2002 and 1.33% at December 31, 2001. Net charge-offs in 2003
totaled $7.4 million compared to $7.9 million in 2002 and $5.0 million in
2001. As a percentage of average loans, net charge-offs were 0.42% in 2003
compared to 0.51% in 2002 and 0.48% in 2001.
Net charge-offs in 2003 were primarily isolated within seven
relationships that comprised approximately 70% of total net charge-offs and
we believe that they are not reflective of an overall deterioration in
credit quality or underwriting standards. Action taken during the year to
resolve these problem credits coupled with strong loan growth, lowered our
ratio of allowance for loan losses to total loans from 1.15% at December 31,
2002 to 1.07% at December 31, 2003 in light of our assessment of credit risk
within the remaining portfolio. At December 31, 2003, our allowance for loan
losses represented 110% of nonperforming loans compared to 125% at December
31, 2002.
Our allowance for loan losses, 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.
In analyzing our allowance for loan losses, additional weight has been given
to the increased risks associated with the commercial and commercial real
estate portfolio. Specific allowances have been increased on certain
commercial and 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 inherent loan losses. We continually monitor the
quality of our loan portfolio to ensure timely charge-off of problem loans
and to determine the adequacy of the level of the allowance for loan losses.
As mentioned previously, six relationships comprised $10.6 million, or 68%,
of our non-accrual loans as of December 31, 2003. We believe that our
allowance was adequate to absorb losses inherent in the loan portfolio as of
that date.
The following table summarizes the allocation of the allowance for
loan losses by major category and identifies the percentage of each loan
category to the total loan portfolio balance:
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
December 31,
=============================================================================================================================
2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Loans Loans Loans Loans Loans
as % of as % of as % of as % of as % of
Allocated Total Allocated Total Allocated Total Allocated Total Allocated Total
(Dollars in thousands) Reserves Loans Reserves Loans Reserves Loans Reserves Loans Reserves Loans
- -----------------------------------------------------------------------------------------------------------------------------
Commercial, financial,
agricultural, municipal
and industrial
development $ 5,502 15.4% $ 4,768 18.5% $ 4,038 18.0% $ 1,943 20.3% $ 2,082 24.4%
Real estate - construction 2,171 17.4 2,819 16.2 2,734 11.6 2,091 15.3 649 10.6
Real estate - mortgage:
One- to four-family
residential 3,258 17.8 3,721 20.7 3,040 22.1 1,923 23.8 1,712 22.9
Multi-family and
commercial 8,431 45.3 7,927 40.9 7,437 42.7 4,749 36.2 3,208 38.2
Consumer and other 356 4.1 332 3.7 463 5.6 258 4.4 239 3.9
Unallocated - - - - 1,193 - 469 - 425 -
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 19,718 100.0% $ 19,567 100.0% $ 18,905 100.0% $ 11,433 100.0% $ 8,315 100.0%
=============================================================================================================================
A-14
The following table summarizes, for the periods indicated, activity
in the allowance for loan losses, including amounts of loans charged off,
amounts of recoveries and additions to the allowance charged to operating
expenses:
SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION
Years Ended December 31,
===========================================================================================================================
(Dollars in thousands) 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (beginning of year) $ 19,567 $ 18,905 $ 11,433 $ 8,315 $ 6,442
Loans charged off:
Commercial, financial, agricultural
municipal and industrial development (5,997) (2,746) (3,353) (315) (504)
Real estate - construction (359) (1,223) (1,480) (75) -
Real estate - mortgage:
One- to four-family residential (1,613) (1,690) (149) (722) (160)
Multi-family and commercial (474) (2,996) (685) (45) (23)
Consumer and other (473) (454) (81) (272) (173)
- ---------------------------------------------------------------------------------------------------------------------------
Total loans charged off (8,916) (9,109) (5,748) (1,429) (860)
- ---------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial, financial, agricultural
municipal and industrial development 805 992 314 31 67
Real estate - construction 2 10 - - -
Real estate - mortgage:
One- to four-family residential 54 57 163 12 95
Multi-family and commercial 523 4 32 - 10
Consumer and other 165 109 217 24 15
- ---------------------------------------------------------------------------------------------------------------------------
Total recoveries 1,549 1,172 726 67 187
- ---------------------------------------------------------------------------------------------------------------------------
Net loans charged off (7,367) (7,937) (5,022) (1,362) (673)
- ---------------------------------------------------------------------------------------------------------------------------
Acquired subsidiary balance - - 7,494 980 -
Divested subsidiary balance (756) - - - -
Provision for loan losses 8,274 8,599 5,000 3,500 2,546
- ---------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (end of year) $ 19,718 $ 19,567 $ 18,905 $ 11,433 $ 8,315
===========================================================================================================================
Loans outstanding:
Average $ 1,767,118 $ 1,567,549 $ 1,036,299 $ 712,884 $ 551,189
End of year 1,839,463 1,702,909 1,419,796 813,971 615,191
Ratios:
Net charge-offs to average loans 0.42% 0.51% 0.48% 0.19% 0.12%
Net charge-offs to provision for loan losses 89.04 92.30 100.44 38.91 26.43
Provision for loan losses to average loans 0.47 0.55 0.48 0.49 0.46
Allowance for loan losses to total loans 1.07 1.15 1.33 1.40 1.35
A-15
DEPOSITS
Total deposits decreased $59.5 million, or 3.4%, to $1.7 billion in
2003 compared to $1.8 billion in 2002. While total deposits reflected a
decrease from December 31, 2002, these deposit comparisons were affected by
the March 31, 2003 divestiture of Bank of Ste. Genevieve which at the time
of disposition reported deposits of approximately $93.9 million. Brokered
certificates of deposit increased $34.9 million from December 31, 2002 as an
alternative low cost means to fund loan growth. On July 11, 2003 we
supplemented our deposit base when we completed the acquisition of a branch
office of Heartland Bank, a federal savings association, which reported
deposits approximating $20.0 million at that date. Average deposits for 2003
increased 5.4% to $1.7 billion compared to an increase of 57% in 2002. The
increase in average deposits in 2003 was a result of efforts to grow
commercial demand deposit balances and as part of our relationship expansion
effort. Deposit growth in 2002 and 2001 was primarily the result of
acquisitions coupled with internal growth as we offered several certificate
of deposit promotions which were utilized as a cost-effective method of
funding a portion of our loan growth.
DEPOSIT LIABILITY COMPOSITION
December 31,
================================================================================================================================
2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
Percent Average Percent Average Percent Average
(Dollars in thousands) Amount of Total Rate Amount of Total Rate Amount of Total Rate
- --------------------------------------------------------------------------------------------------------------------------------
Demand deposits $ 193,450 11.3% -% $ 215,529 12.2% -% $ 201,216 11.9% -%
Money market and
NOW accounts 407,928 23.9 0.9 408,261 23.1 1.5 415,535 24.6 3.0
Savings deposits 207,270 12.1 1.3 228,397 12.9 2.3 185,652 11.0 2.9
Certificates of deposit 549,192 32.1 2.6 570,915 32.3 3.1 602,295 35.7 5.1
Certificates of deposit
over $100,000 180,431 10.6 2.6 202,086 11.4 3.3 195,048 11.6 5.0
IRA certificates 75,099 4.4 4.4 82,600 4.7 4.7 87,869 5.2 6.4
Brokered deposits over
$100,000 95,186 5.6 2.5 60,244 3.4 2.7 - - -
- -------------------------------------------------- ----------------------- -----------------------
Total deposits $1,708,556 100.0% 2.1 $ 1,768,032 100.0% 2.6 $ 1,687,615 100.0% 4.4
================================================== ======================= =======================
AMOUNTS AND MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
=============================================================================
December 31,
(In thousands) 2003
- -----------------------------------------------------------------------------
Three months or less $ 85,484
Over three months through six months 40,095
Over six months through twelve months 69,939
Over twelve months 80,099
- -----------------------------------------------------------------------------
Total $ 275,617
=============================================================================
A-16
INTEREST RATE SENSITIVITY
Our asset/liability strategy is to minimize the sensitivity of
earnings to changes in interest rates while maintaining an acceptable net
interest margin. Our asset/liability committee monitors the interest rate
sensitivity of the balance sheet on a monthly basis. The committee reviews
asset and liability repricing in the context of current and future interest
rate scenarios affecting the economic climate in our market areas.
Our pricing policy is that most earning assets and interest-bearing
liabilities either be based on floating rates or have a fixed rate not
exceeding five years. The real estate mortgage loans we hold, while having
longer maturities, are comprised of one-, two- or three-year adjustable rate
loans. The adjustable rate feature of these loans significantly reduces
interest rate risk.
The following table illustrates our estimated interest rate
sensitivity and periodic and cumulative gap positions calculated as of
December 31, 2003:
Time to Maturity or Repricing
======================================================================================================================
0 to 3 4 to 12 1 to 5 Over
(Dollars in thousands) Months Months Years 5 Years Total
- ----------------------------------------------------------------------------------------------------------------------
Rate Sensitive Assets (RSA):
Federal funds sold $ 405 $ - $ - $ - $ 405
Total securities 33,331 34,138 255,278 43,750 366,497
Total loans held for sale 8,825 - - - 8,825
Total loans 1,167,635 272,477 392,781 6,570 1,839,463
Bank-owned life insurance - 38,082 - - 38,082
- ----------------------------------------------------------------------------------------------------------------------
Total RSA $ 1,210,196 $ 344,697 $ 648,059 $ 50,320 $ 2,253,272
======================================================================================================================
Rate Sensitive Liabilities (RSL):
Money market accounts $ 271,663 $ - $ - $ - $ 271,663
NOW accounts 6,756 20,301 109,208 - 136,265
Savings 10,070 30,391 166,809 - 207,270
Time deposits 152,451 235,537 235,991 312 624,291
Time deposits over $100,000 73,901 54,331 52,199 - 180,431
Brokered certificates of deposit 21,293 45,994 27,899 - 95,186
Fed funds purchased 80,000 - - - 80,000
Repurchase agreements 61,897 - - - 61,897
Bank debt - 32,000 - - 32,000
Federal Home Loan Bank advances 110,008 55,031 79,690 62,887 307,616
Guaranteed preferred beneficial
interests in subordinated
debentures - - - 57,250 57,250
- ----------------------------------------------------------------------------------------------------------------------
Total RSL 788,039 473,585 671,796 120,449 2,053,869
Interest rate swaps (90,000) 18,000 72,000 - -
- ----------------------------------------------------------------------------------------------------------------------
Net RSL $ 878,039 $ 455,585 $ 599,796 $ 120,449 $ 2,053,869
======================================================================================================================
Periodic Information:
Gap (RSA-RSL) $ 332,157 $ (110,888) $ 48,263 $ (70,129)
RSA/RSL 137.83% 75.66% 108.05% 41.78%
RSA/total assets 49.34 14.05 26.42 2.05
RSL/total assets 35.80 18.57 24.45 4.91
Gap/total assets 13.54 (4.52) 1.97 (2.86)
Gap/RSA 27.45 (32.17) 7.45 (139.37)
Cumulative Information:
Cumulative RSA $ 1,210,196 $ 1,554,893 $ 2,202,952 $ 2,253,272
Cumulative RSL 878,039 1,333,624 1,933,420 2,053,869
Gap (RSA-RSL) 332,157 221,269 269,532 199,403
RSA/RSL 137.83% 116.59% 113.94% 109.71%
RSA/total assets 49.34 63.39 89.81 91.86
RSL/total assets 35.80 54.37 78.82 83.73
Gap/total assets 13.54 9.02 10.99 8.13
Gap/RSA 27.45 14.23 12.24 8.85
A-17
One method we use to manage our interest rate risk is a rate
sensitivity gap analysis. The gap represents the net position of assets and
liabilities subject to repricing in specified time periods. The analysis
utilizes the interest rate repricing characteristics of the investment
securities, loans, deposits and borrowings. Additionally, the impact of
off-balance sheet interest rate swaps is considered. During any given time
period, if the amount of rate sensitive liabilities exceeds the amount of
rate sensitive assets, a company would generally be considered negatively
gapped and would benefit from falling rates over that period of time.
Conversely, a positively gapped company would generally benefit from rising
rates. We were positively gapped during most of 2003 which contributed to
decreased interest spreads and margins as the Federal Reserve Board lowered
market interest rates and our assets repriced faster than our liabilities.
We have structured our assets and liabilities to mitigate the risk
of either a rising or falling interest rate environment. Depending upon our
assessment of economic factors such as the magnitude and direction of
projected interest rates over the short and long term, we generally operate
within guidelines set by our asset/liability policy and attempt to maximize
our returns within an acceptable degree of risk. Our intention is to
maintain a rate sensitive assets to rate sensitive liabilities ratio at the
one-year time horizon of between 75% and 125%. Our position at December 31,
2003 was 117% compared to 121% at year-end 2002. We manage our gap position
at the one-year horizon as well as monitor the cumulative gap position for
succeeding time frames. Management has maintained the asset sensitive
interest rate risk position based on expectations that future increases to
interest rates are more likely than further interest rate cuts. This
expectation is due primarily to the historically low level of interest rates
experienced in 2003.
Interest rate changes do not affect all categories of assets and
liabilities equally or simultaneously. There are other factors that are
difficult to measure and predict that would influence the effect of interest
rate fluctuations on our income statement. For example, a rapid drop in
interest rates might cause our borrowers to repay their loans at a more
rapid pace and certain mortgage-related investments to be prepaid earlier
than projected. This could mitigate some of the expected benefits of falling
rates when negatively gapped. Conversely, a rapid rise in rates could
provide an opportunity to increase our margins and reduce the rate of
repayment on our mortgage-related loans and investments, which would
increase our returns. We apply hypothetical interest "rate shocks" up and
down 100 and 200 basis points to our investment securities, loans, deposits,
borrowings and off-balance sheet financial instruments based on the assumed
cash flows. The earnings simulation model includes estimates related to how
certain fee income, mortgage banking revenue in particular, may be affected
by changes in interest rates. This revenue is generated from originating and
selling residential mortgage loans and is highly sensitive to changes in
interest rates. In general, low or declining interest rates typically lead
to increased origination and sales income. Conversely, high or rising
interest rates typically reduce mortgage loan demand.
Financial instruments used to manage interest rate risk include
investment securities, wholesale funding sources and interest rate swaps.
The characteristics, such as maturities and repricing, of the investment
securities portfolio and wholesale borrowings can be modified to manage our
overall interest rate risk exposure. Interest rate swaps have
characteristics similar to securities but possess the advantages of
customization of the risk-reward profile of the instrument, minimization of
balance sheet leverage, and improvement of the liquidity position.
The following table shows the "rate shock" results of a simulation
model as of December 31, 2003 that attempts to measure the effect of rising
and falling interest rates over a two-year horizon in a rapidly changing
rate environment.
+200 Basis Points + 100 Basis Points - 100 Basis Points
=========================================================================================================================
2003 2002 2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
Percentage change in net income due to an
immediate change in interest rates over a
two-year time horizon +15.44 +8.13 +8.13% -3.92% -18.84% -3.44%
A-18
We use a sensitivity model that simulates these interest rate
changes on our earning assets and interest-bearing liabilities. This process
allows us to explore the complex relationships among the financial
instruments in various interest rate environments.
The preceding sensitivity analysis is based on numerous
assumptions, including the nature and timing of interest rate levels
including the shape of the yield curve, prepayments on loans and securities,
changes in deposit levels, pricing decisions on loans and deposits, and
reinvestment/replacement of asset and liability cash flows. While
assumptions are developed based upon current economic and local market
conditions, we cannot assure you as to the predictive nature of these
assumptions including how customer preferences or competitor influences
might change.
Interest rate exposure is measured by the potential impact on our
income statement of changes in interest rates. We use information from our
gap analysis and rate shock calculations as input to help manage our
exposure to changing interest rates.
We use our rate shock information to determine how much exposure we
have to rapidly changing rates. Based on historical information and our
assessment of future interest rate trends, we believe it is likely that
rapidly rising rates would have a moderate positive impact on our results of
operations. We also believe while rapidly falling rates could have a more
significant negative impact on our results of operations, that the
likelihood of a significant drop in rates is remote given the current low
level of interest rates based on historical measures.
We believe that more likely scenarios include gradual changes in
interest rate levels. We continue to monitor our gap and rate shock analyses
to detect changes to our exposure to fluctuating rates. We have the ability
to shorten or lengthen maturities on newly acquired assets, sell investment
securities, enter into derivative financial instruments, or seek funding
sources with different maturities in order to change our asset and liability
structure for the purpose of mitigating the effect of interest rate risk.
A-19
The following table summarizes our rate sensitivity position at
December 31, 2003 by year of contractual maturity.
YEAR OF CONTRACTUAL MATURITY
================================================================================================================================
(Dollars in thousands) 2004 2005 2006 2007 2008 Thereafter Total
- --------------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVE ASSETS:
Fixed rate loans $ 307,995 $ 190,210 $ 124,429 $ 8,941 $ 7,653 $ 6,546 $ 645,774
Average interest rate 6.71% 6.61% 6.36% 7.54% 6.51% 8.74% 6.64%
Variable rate loans $ 767,934 $ 281,709 $ 71,555 $ 27,776 $ 21,591 $ 23,124 $1,193,689
Average interest rate 5.12% 4.75% 4.82% 5.55% 5.22% 5.89% 5.04%
Loans held for sale $ 8,825 $ - $ - $ - $ - $ - $ 8,825
Average interest rate 3.00% -% -% -% -% -% 3.00%
Fixed rate securities $ 48,526 $ 83,255 $ 114,340 $ 39,979 $ 16,704 $ 24,597 $ 327,401
Average interest rate 2.98% 3.27% 2.73% 3.30% 3.60% 4.55% 3.15%
Variable rate securities $ 597 $ 1,568 $ 647 $ 601 $ 465 $ 35,218 $ 39,096
Average interest rate 3.37% 4.42% 2.13% 1.78% 1.87% 3.89% 3.84%
Federal funds sold and
other investments $ 405 $ - $ - $ - $ - $ - $ 405
Average interest rate 1.00% -% -% -% -% -% 1.00%
Bank-owned life insurance $ 38,082 $ - $ - $ - $ - $ - $ 38,082
Average interest rate 4.47% -% -% -% -% -% 4.47%
RATE SENSITIVE LIABILITIES:
Non-interest bearing
deposits $ 193,450 $ - $ - $ - $ - $ - $ 193,450
Savings and interest
bearing checking $ 339,181 $ 68,104 $ 68,699 $ 69,302 $ 69,912 $ - $ 615,198
Average interest rate 0.99% 0.87% 0.87% 0.88% 0.88% -% 0.94%
Time deposits $ 515,866 $ 149,380 $ 52,565 $ 62,247 $ 24,352 $ 312 $ 804,722
Average interest rate 2.55% 3.32% 4.20% 4.51% 3.49% 3.79% 2.98%
Brokered certificates of
deposit $ 67,287 $ 18,000 $ 9,899 $ - $ - $ - $ 95,186
Average interest rate 2.15% 2.41% 2.86% -% -% -% 2.27%
Fixed interest rate
borrowings $ 90,417 $ 43 $ 46 $ 49 $ 79,552 $ 59,509 $ 229,616
Average interest rate 2.58% 6.18% 6.19% 6.19% 5.29% 5.34% 4.24%
Floating rate borrowings $ 61,897 $ 110,000 $ - $ - $ - $ - $ 171,897
Average interest rate 0.79% 1.15% -% -% -% -% 1.33%
Federal funds purchased $ 80,000 $ - $ - $ - $ - $ - $ 80,000
Average interest rate 1.25% -% -% -% -% -% 1.25%
Guaranteed preferred
beneficial interests in
subordinated debentures $ - $ - $ - $ - $ - $ 57,250 $ 57,250
-% -% -% -% -% 9.26% 9.26%
RATE SENSITIVE DERIVATIVE
FINANCIAL INSTRUMENTS:
Pay variable/received
fixed interest rate swaps $ 60,000 $ 30,000 $ - $ 42,000 $ - $ - $ 132,000
Average pay rate 2.59% 4.00% -% 1.22% -% -% 2.47%
Average receive rate 4.80% 5.11% -% 3.13% -% -% 4.34%
A-20
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. During 2003, we relied on internally generated deposit growth,
deposits assumed in our acquisition of the Heartland Savings Branch and
brokered certificates of deposit. At December 31, 2003 brokered certificates
comprised 5.6% of our deposit base. 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
also utilize borrrowing lines with various banks to meet short-term
liquidity needs. Borrowing availability under these lines ranged from $10
million to $50 million. At December 31, 2003 we had established and fully
utilized a $50 million line with National City.
Net cash flows provided by operating activities totaled $5.6
million in 2003, $20.1 million in 2002 and $16.4 million in 2001. The
critical elements of our net operating cash flows include net income,
provision for loan losses, and depreciation and amortization. Cash provided
by operating activities declined in 2003 primarily due to an increase in
other assets which was directly related to a large purchase of state tax
credits late in 2003.
Net cash used in investing activities totaled $115.2 million in
2003, $257.1 million in 2002 and $155.3 million in 2001. Critical elements
of these activities are loans and investment securities. Our loan portfolio
growth in 2003 and 2002 was attributable to internal growth whereas loan
growth in 2001 was largely due to acquisitions. Our securities portfolio, as
a percentage of earning assets, has increased from 12.9% at December 31,
2001 to 16.7% at December 31, 2003, due primarily to acquisitions and
management's decision to increase the securities portfolio to enhance our
liquidity position.
Net cash flows provided by financing activities totaled $128.3
million in 2003, $212.5 million in 2002 and $163.4 million in 2001. The
critical elements of our financing activities are proceeds from stock
issuances, Federal Home Loan Bank borrowings, deposits, short-term
borrowings and guaranteed preferred beneficial interests in subordinated
debentures (trust preferred securities). We have increased our use of
Federal Home Loan Bank advances to fund asset growth because of their lower
cost compared to deposits. Deposits, which are also used as a primary
funding source, have grown due to our acquisitions and internal growth. We
used trust preferred securities and bank borrowings to fund a portion of the
purchase price of the Southside acquisition.
We anticipate continued loan demand in our market area as the
banking industry continues to consolidate. We have utilized, and expect to
continue to utilize, Federal Home Loan Bank borrowings to fund a portion of
future loan growth. We had a $406.3 million secured credit facility with the
Federal Home Loan Bank as of December 31, 2003, of which $307.6 million was
outstanding at year-end 2003.
Average short-term borrowings increased to $175.7 million in 2003
compared to $169.8 million in 2002. The increase reflected our strategy of
utilizing Federal Home Loan Bank borrowings, as well as federal funds
purchased for short periods of time, to fund loan growth while continuing to
systematically build our deposit base. Average short-term borrowings
increased 3.5% from 2002 to 2003. We experienced strong loan demand during
2003 and 2002 and anticipate the continuation of this demand during 2004.
A-21
The following table summarizes short-term borrowings for the
periods indicated:
AVERAGE SHORT-TERM BORROWINGS
Years Ended December 31,
===================================================================================================================
2003 2002 2001
- -------------------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
(Dollars in thousands) Balance Rate Balance Rate Balance Rate
- -------------------------------------------------------------------------------------------------------------------
Federal funds purchased $ 15,279 1.28% $ 13,826 2.18% $ 1,516 3.20%
Securities sold under agreement
to repurchase and other short-
term borrowings 160,384 2.28 155,929 2.77 113,415 5.23
- ---------------------------------------------------- ------------ -------------
Total $ 175,663 2.20 $ 169,755 2.72 $ 114,931 5.20
==================================================== ============ =============
Total maximum short-term
borrowings outstanding at any
month-end during the year $ 228,897 $ 248,008 $ 180,205
The following table summarizes the Company's fixed and determinable
contractual obligations by payment date as of December 31, 2003.
=====================================================================================================================
Payments Due In
----------------------------------------------------------
One Year One to Three to Over Five
(In thousands) Total or Less Three Years Five Years Years
- ---------------------------------------------------------------------------------------------------------------------
Deposits without a stated maturity $ 808,648 $ 808,648 $ - $ - $ -
Time and brokered certificates
of deposit 899,908 583,153 229,844 86,599 312
Short-term borrowings 173,897 173,897 - - -
Federal Home Loan Bank advances 307,616 55,000 110,831 80,830 60,955
Guaranteed preferred beneficial
interests in subordinated debentures 57,250 - - - 57,250
Operating leases 6,561 1,271 2,111 1,242 1,937
- ---------------------------------------------------------------------------------------------------------------------
Total $ 2,253,880 $ 1,621,969 $ 342,786 $ 168,671 $ 120,454
=====================================================================================================================
CAPITAL RESOURCES
Total shareholders' equity was $198.6 million at December 31, 2003
compared to $167.2 million at year-end 2002. The increase in total equity
was primarily the result of the common shares issued in connection with our
secondary public stock offering completed in the second quarter of 2003,
partially offset by the cost of treasury stock acquired in connection with
the divestiture of Bank of Ste. Genevieve. In addition, the increase in
shareholders' equity reflected earnings retention and issuance of common
stock under various stock option and dividend reinvestment plans, offset by
dividends paid during the year. On April 14, 2003, we completed a secondary
public offering and issued 2.1 million shares of common stock at a public
offering price of $16.50 per share. Net proceeds from the offering totaled
$31.9 million. We contributed substantially all of the net proceeds to our
wholly-owned subsidiary bank, Allegiant Bank, to strengthen the bank's
capital position, to support the bank's anticipated loan growth and for
other general corporate purposes. The bank used a portion of the capital
contributed to temporarily reduce short-term indebtedness, which may be
reborrowed, if necessary, to fund loan growth. We added the remaining
proceeds that were not contributed to the bank to the funds we use for
general corporate and working capital purposes of Allegiant Bancorp. On
March 31, 2003, we divested Bank of Ste. Genevieve in exchange for
approximately 974,150 shares of our common stock under our agreement with
First Banks, Inc. As a result, we held treasury stock totaling $17.9 million
at December 31, 2003. In 2002 the shareholders' equity also included $3.2
million related to the shares issued to acquire Investment Counselors in
October 2002.
A-22
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 $32.0 million as of December 31, 2003.
In recent years, we have issued brokered certificates of deposit in
order to fund loan growth and meet other liquidity needs. At December 31,
2003, we had brokered certificates of deposit totaling $95.2 million. We had
$60.2 million outstanding at December 31, 2002 and no brokered certificates
of deposit at December 31, 2001. We may use brokered deposits in the future
as a source of liquidity.
In September 2001, our subsidiary Allegiant Capital Trust II, a
Delaware statutory business trust, issued $40.0 million of trust preferred
securities. Allegiant Capital Trust II invested all the proceeds from the
sale of the trust preferred securities in our junior subordinated
debentures. We used the net proceeds of $38.2 million from the sale of the
junior subordinated debentures to fund a portion of the purchase price of
Southside Bancshares.
Dividends paid during 2003 were $0.34 per share, an increase of
30.8% compared to the $0.26 per share paid during 2002, which was an 8.3%
increase over the $0.24 per share paid in 2001. Our dividend payout ratio
was 21.1% in 2003 compared to 18.7% during 2002 and 16.0% in 2001. On
October 13, 2003, the Company declared a regular quarterly dividend of $0.09
per share, which is payable January 15, 2004 to shareholders of record as of
January 1, 2004. Because substantially all of the funds available for the
payment of cash dividends are derived from Allegiant Bank, future cash
dividends will depend primarily upon the bank's earnings, financial
condition and need for funds, as well as government policies and regulations
applicable to our subsidiary bank and us.
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
December 31, 2003, we and our subsidiary bank exceeded all capital adequacy
requirements. As of December 31, 2003 and 2002, Allegiant's and our
subsidiaries' capital ratios were as follows:
December 31, 2003 December 31, 2002
======================================================================================================================
Allegiant Allegiant
Allegiant Bank Allegiant Bank
- ----------------------------------------------------------------------------------------------------------------------
Total capital (to risk-weighted assets) 10.98% 12.03% 9.97% 10.63%
Tier 1 capital (to risk-weighted assets) 10.00 11.05 8.75 9.56
Tier 1 capital (to average assets) 8.47 9.37 7.07 7.78
A-23
STATEMENT BY MANAGEMENT
The financial statements and related financial information
presented herein were prepared by management in accordance with accounting
principles generally accepted in the United States and include amounts that
are based on management's best estimates and judgments. We maintain an
accounting system and related controls that are sufficient to provide
reasonable assurance that assets are safeguarded and that transactions are
properly authorized and recorded. The concept of reasonable assurance is
based on the recognition that the cost of an accounting and control system
must be related to the benefits derived. The accounting system and related
controls are monitored by an internal audit program and by our independent
auditors in accordance with auditing standards generally accepted in the
United States. Our internal auditor and independent auditors meet regularly
with the Audit Committee of our Board of Directors to ensure that respective
responsibilities are being properly discharged and to discuss the results of
examinations.
REPORT OF INDEPENDENT AUDITORS
The Shareholders and Board of Directors
Allegiant Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of
Allegiant Bancorp, Inc. as of December 31, 2003 and 2002, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Allegiant Bancorp, Inc. at December 31, 2003 and 2002, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
St. Louis, Missouri
January 21, 2004
A-24
CONSOLIDATED BALANCE SHEETS
December 31,
=============================================================================================================
(Dollars in thousands) 2003 2002
- -------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and due from banks $ 65,371 $ 41,890
Federal funds sold and other investments 405 5,241
Investment securities:
Available-for-sale (at estimated market value) 357,195 438,049
Held-to-maturity (estimated market value of $9,486
and $17,300, respectively) 9,302 17,033
Loans, net of allowance for loan losses of $19,718
and $19,567, respectively 1,819,745 1,683,342
Loans held for sale 8,825 40,666
Premises and equipment 43,732 47,663
Goodwill 46,029 47,884
Other intangible assets 8,834 10,132
Accrued interest and other assets 93,392 72,416
- -------------------------------------------------------------------------------------------------------------
Total assets $ 2,452,830 $ 2,404,316
=============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Non-interest bearing $ 193,450 $ 215,529
Interest bearing 1,239,489 1,290,173
Certificates of deposit over $100,000 275,617 262,330
- -------------------------------------------------------------------------------------------------------------
Total deposits 1,708,556 1,768,032
- -------------------------------------------------------------------------------------------------------------
Short-term borrowings 173,897 94,882
Federal Home Loan Bank advances 307,616 304,853
Guaranteed preferred beneficial interests in
subordinated debentures 57,250 57,250
Accrued expenses and other liabilities 6,951 12,057
- -------------------------------------------------------------------------------------------------------------
Total liabilities 2,254,270 2,237,074
- -------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common Stock, $0.01 par value - authorized
30,000,000 shares; issued 18,503,379 shares and
16,146,804 shares, respectively 185 161
Capital surplus 156,624 119,933
Retained earnings 61,083 44,614
Accumulated other comprehensive income (loss) (1,432) 2,534
Treasury stock, at cost, 974,150 shares (17,900) -
- -------------------------------------------------------------------------------------------------------------
Total shareholders' equity 198,560 167,242
- -------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,452,830 $ 2,404,316
=============================================================================================================
See accompanying notes to consolidated financial statements.
A-25
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
===============================================================================================================
(In thousands, except per share data) 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $ 104,982 $ 103,853 $ 82,735
Investment securities 12,911 19,076 12,663
Federal funds sold and overnight investments 188 276 1,025
- ---------------------------------------------------------------------------------------------------------------
Total interest income 118,081 123,205 96,423
- ---------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 31,813 38,816 41,649
Short-term borrowings 3,859 4,615 5,978
Federal Home Loan Bank advances 8,674 9,389 5,124
Guaranteed preferred beneficial interests in
subordinated debentures 5,487 5,487 2,730
- ---------------------------------------------------------------------------------------------------------------
Total interest expense 49,833 58,307 55,481
- ---------------------------------------------------------------------------------------------------------------
Net interest income 68,248 64,898 40,942
Provision for loan losses 8,274 8,599 5,000
- ---------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 59,974 56,299 35,942
- ---------------------------------------------------------------------------------------------------------------
Non-interest income:
Service charges on deposits 7,148 7,048 4,629
Net gain on sale of securities 5,329 4,272 2,725
Other income 14,424 12,001 7,449
- ---------------------------------------------------------------------------------------------------------------
Total non-interest income 26,901 23,321 14,803
- ---------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 26,335 25,389 16,455
Occupancy and furniture and equipment 7,760 7,200 4,474
Other operating expenses 19,370 15,082 9,141
- ---------------------------------------------------------------------------------------------------------------
Total non-interest expense 53,465 47,671 30,070
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 33,410 31,949 20,675
Provision for income taxes 10,550 10,552 7,553
- ---------------------------------------------------------------------------------------------------------------
Net income $ 22,860 $ 21,397 $ 13,122
===============================================================================================================
Per share data:
Basic earnings per share $ 1.34 $ 1.36 $ 1.26
Diluted earnings per share 1.32 1.33 1.24
See accompanying notes to consolidated financial statements.
A-26
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
=================================================================================================================================
Accu-
mulated
Other
Compre- Total
Common Stock Treasury Stock hensive Share- Compre-
-------------------- --------------------- Capital Retained Income holders' hensive
(Dollars in thousands) Shares Par Shares Cost Surplus Earnings (Loss) Equity Income
- ---------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 2001 8,897,111 $ 89 - $ - $ 60,803 $ 16,195 $ 719 $ 77,806
Net income - - - - - 13,122 - 13,122 $ 13,122
Change in net unrealized
losses on available-for-sale
securities, net of tax - - - - - - (1,265) (1,265) (1,265)
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 11,857
=================================================================================================================================
Issuance of common stock:
Acquisition of Equality
Bancorp, Inc. (103,857) (1) - - (921) - - (922)
Acquisition of Southside
Bancshares Corp. 5,868,727 58 - - 47,678 - - 47,736
Exercise of stock options 472,295 5 - - 2,792 - - 2,797
Various stock issuance plans 75,290 1 - - 887 - - 888
Cash dividends declared - - - - - (2,094) - (2,094)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 15,209,566 $ 152 - - $ 111,239 $ 27,223 $ (546) $ 138,068
=================================================================================================================================
Net income - - - - - 21,397 - 21,397 $ 21,397
Change in net unrealized
gains on available-for-sale
securities, net of tax - - - - - - 3,080 3,080 3,080
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 24,477
=================================================================================================================================
Issuance of common stock:
Acquisition of Investment
Counselors, Inc. 194,610 2 - - 3,160 - - 3,162
Exercise of stock options 570,620 5 - - 4,499 - - 4,504
Various stock issuance plans 172,008 2 - - 1,035 - - 1,037
Cash dividends declared - - - - - (4,006) - (4,006)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 16,146,804 $ 161 - - $ 119,933 $ 44,614 $ 2,534 $ 167,242
=================================================================================================================================
Net income - - - - - 22,860 - 22,860 $ 22,860
Change in net unrealized
gains on available-for-sale
securities, net of tax - - - - - - (3,966) (3,966) (3,966)
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income - - $ 18,894
=================================================================================================================================
Issuance of common stock:
Stock offering 2,070,000 21 - - 31,910 - - 31,931
Exercise of stock options 228,281 2 - - 3,330 - - 3,332
Various stock issuance plans 58,294 1 - - 723 - - 724
Repurchase of common stock - - (974,150) (17,900) - - - (17,900)
Other - - - - 728 - - 728
Cash dividends declared - - - - - (6,391) - (6,391)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 18,503,379 $ 185 (974,150) $(17,900) $ 156,624 $ 61,083 $ (1,432) $ 198,560
=================================================================================================================================
See accompanying notes to consolidated financial statements.
A-27
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
========================================================================================================================
(In thousands) 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 22,860 $ 21,397 $ 13,122
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,519 4,494 3,338
Provision for loan losses 8,274 8,599 5,000
Net realized gains on securities available-for-sale (5,329) (4,272) (2,725)
Other changes in assets and liabilities:
Accrued interest receivable and other assets (20,304) (4,036) (4,530)
Accrued expenses and other liabilities (5,441) (6,075) 2,190
- ------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 5,579 20,107 16,395
- ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Decrease in cash resulting from divestiture of subsidiary (14,870) - -
Net cash received (paid) in acquisition of acquired
branches 19,260 (312) 100,015
Proceeds from maturities of securities held-to-maturity 4,400 7,566 5,677
Purchases of investment securities held-to-maturity - - (507)
Proceeds from maturities of securities available-for-sale 413,849 210,824 11,420
Proceeds from sales of securities available-for-sale 327,686 207,338 60,480
Purchase of investment securities available-for-sale (706,263) (408,208) (195,044)
Loans made to customers, net of repayments (155,569) (269,556) (127,242)
Purchase of bank-owned life insurance, net (615) (2,242) (6,380)
Operating leases made to customers, net of repayments - 485 1,123
Additions to premises and equipment, net (3,087) (2,974) (4,804)
- ------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (115,209) (257,079) (155,262)
- ------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase in deposits 13,746 80,417 111,105
Net increase in short-term borrowings 80,600 21,855 32,676
Net increase (decrease) in Federal Home Loan
Bank advances 2,763 108,662 (22,014)
Proceeds from issuance of guaranteed preferred
beneficial interests in subordinated debentures - - 40,000
Proceeds from issuance of common stock 35,987 5,541 3,685
Payment of dividends (4,821) (4,006) (2,094)
- ------------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 128,275 212,469 163,358
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 18,645 (24,503) 24,491
Cash and cash equivalents, beginning of period 47,131 71,634 47,143
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 65,776 $ 47,131 $ 71,634
========================================================================================================================
See accompanying notes to consolidated financial statements.
A-28
NOTE 1. ACCOUNTING POLICIES:
Basis of Presentation. The accompanying consolidated financial
statements include the accounts of Allegiant Bancorp, Inc. and its
subsidiaries. The financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and reporting
practices applicable to the banking industry. All significant inter-company
transactions and balances have been eliminated. The significant accounting
policies are summarized below.
Business. Our bank subsidiary, Allegiant Bank operates within one
segment, the banking industry, and provides a full range of banking services
to individual and corporate customers in the St. Louis, Missouri,
metropolitan area. Our bank is subject to intense competition from other
financial institutions. Our bank also is subject to the regulations of
certain federal and state agencies and undergoes periodic examinations by
those regulatory authorities.
Accounting Estimates. The preparation of financial statements in
accordance with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications. Certain amounts presented in prior years have
been reclassified to conform to the current year presentation. These
reclassifications had no effect on net income.
Investment Securities. Securities are classified as
held-to-maturity or available-for-sale. Only those securities which
management has the intent and ability to hold to maturity are classified as
held-to-maturity and are reported at amortized cost. Securities that are
purchased with the intent to hold for an indefinite period of time,
including securities that management intends to use as part of its
asset/liability strategy or that may be sold to meet liquidity needs, are
classified as available-for-sale securities. Available-for-sale securities
are reported at fair value with unrealized gains and losses, net of related
deferred income taxes, reported in accumulated other comprehensive income
(loss), a component of shareholders' equity. Interest and dividends on
securities, including amortization of premium and accretion of discounts,
are reported in interest income using the effective yield method. Realized
securities gains or losses are reported in the consolidated statements of
income. Gains and losses on securities are determined based on the specific
identification method.
Loans Held-for-Sale. In our lending activities, we originate
residential mortgage loans intended for sale in the secondary market. Loans
held-for-sale are carried at the lower of cost or fair value, which is
determined on an aggregate basis. Fair value is determined on the basis of
purchase commitment prices quoted in the respective secondary market for the
type of loan held-for-sale. Gains or losses on the sale of loans
held-for-sale are determined on a specific identification method.
Loans. Interest income on loans is generally accrued on a simple
interest basis. Loan fees and direct costs of loan originations are deferred
and amortized over the estimated life of the loans under methods
approximating the effective yield method.
A-29
When, in management's opinion, interest on a loan will not be
collected in the normal course of business or when either principal or
interest is past due over 90 days, that loan is generally placed on
non-accrual status. Past due status is determined based on the contractual
terms of the loan. When a loan is placed on non-accrual status, accrued
interest for the current year is reversed and charged against current
earnings, and accrued interest from prior years is charged against the
allowance for loan losses. Interest payments received on non-accrual loans
are applied to principal if there is doubt as to the collectibility of such
principal; otherwise, these receipts are recorded as interest income. A loan
remains on non-accrual status until the loan is current as to payment of
both principal and interest and/or the borrower demonstrates the ability to
pay and remain current.
Allowance for Loan Losses. We maintain an allowance to absorb
losses inherent in the loan portfolio. Credit losses are charged and
recoveries are credited to the allowance. Provisions for credit losses are
credited to the allowance in an amount that we consider necessary to
maintain an appropriate allowance given the risk identified in the
portfolio. The allowance is based on ongoing monthly assessments of the
estimated losses inherent in the loan portfolio. Our monthly evaluation of
the adequacy of the allowance is comprised of the following elements.
Larger commercial and commercial real estate loans and any
additional loans that exhibit potential or observed credit weaknesses are
subject to individual review. Where appropriate, specific allowances are
made for individual loans based on our estimate of the borrower's ability to
repay the loan given the availability of collateral, other sources of cash
flow and collection options available to us. Commercial and commercial real
estate loans are generally charged off to the extent principal and interest
due exceeds anticipated cash flow to be collected with primary consideration
given to the net realizable value of the collateral.
Included in the review of individual loans are those that are
impaired and we consider all non-accrual and renegotiated loans to be
impaired. Any reserves for impaired loans are measured based on the present
value of expected future cash flows discounted at the loans' effective
interest rates or fair value of the underlying collateral, if the loans are
collateral-dependent. We evaluate the collectibility of both principal and
interest when assessing the need for loss accrual.
Loans are graded on a risk-rating system that encompasses ten
categories. Collateral protection and the borrower's ability to repay loan
obligations define each category. Historic loss rates and observed industry
standards are utilized to determine the appropriate reserve allocation
percentage for each loan grade.
Homogenous loans, such as consumer installment or home equity
credit, are given a standard risk rating that is adjusted on a delinquency
basis. These loans are charged off when they become 120 days past due.
Residential mortgage loans are not individually risk-rated, but are
identified as a "pool" of loans. Delinquent mortgage loans are segregated
and allowance allocations are determined based on the same factors utilized
for risk-rated loans. Residential mortgage loans are placed on non-accrual
status when they become 90 days past due and are charged off, as necessary,
upon foreclosure.
Historical loss rates for commercial and consumer loans may be
adjusted for significant factors that, in our judgment, reflect the impact
of any current conditions on loss recognition. Factors that we consider in
the analysis include the effects of the national and local economies, trends
in the nature and volume of loans (delinquencies, charge-offs, non-accrual
and problem loans), changes in the internal lending policies and credit
standards, collection practices and examination results from bank regulatory
agencies and our internal loan reviews.
Allowances for individual loans are reviewed monthly and adjusted
as necessary based on changing borrower and/or collateral conditions and
actual collection and charge-off experience.
A-30
Premises and Equipment. Premises and equipment are stated at cost
less accumulated depreciation. The provision for depreciation is computed
using the straight-line method over the estimated useful lives of the
individual assets for book purposes and accelerated methods for tax
purposes. Ordinary maintenance and repairs are charged to expense as
incurred.
Real Estate Owned. Real estate acquired in foreclosure or other
settlement of loans is initially recorded at the lower of fair market value
of the assets received (less estimated selling costs) or the recorded
investment in the loan at the date of transfer. Any adjustment to fair
market value at the date of transfer is charged against the allowance for
loan losses. Subsequent write-downs are charged to operating expense
including charges relating to operating, holding, or disposing of the
property.
Intangible Assets. Effective January 1, 2002, the Company adopted
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 no longer are being
amortized but will be subject to impairment tests in accordance with the
pronouncement. Other intangible assets, primarily core deposits, will
continue to be amortized over their estimated useful lives. In 2003, the
Company performed the required impairment tests of goodwill and no
impairment existed as of the valuation date, as the fair value of the
Company's net assets exceeded their carrying value. 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.
In the third quarter of 2002, the Company adopted SFAS No. 147,
Acquisitions of Certain Financial Institutions. As permitted by the new
accounting standard issued on October 1, 2002, we reclassified previously
recorded intangible assets associated with branch acquisitions totaling $7.3
million to non-amortizable goodwill. These intangible assets were previously
recognized as a component of goodwill subject to amortization. As required
by SFAS No. 147, we restated previously reported earnings for the six months
ended June 30, 2002 to reflect the non-amortization of goodwill related to
our branch acquisitions. For the six months ended June 30, 2002, the impact
related to implementation of SFAS No. 147 was an increase in net income of
$345,000 and an increase in diluted earnings per share of $0.02 per share.
The intangible assets from the Investment Counselors, Incorporated
("Investment Counselors") acquisition in 2002 included $2.7 million in
goodwill that will not be amortized and $0.5 million of other identifiable
intangible assets that will be amortized over their estimated average life
of fourteen years. The intangible assets from the Southside acquisition in
2001 included $33.6 million in goodwill that will not be amortized and $11.0
million in core deposit intangible assets that will continue to be amortized
over their estimated useful lives. The $2.2 million of goodwill recognized
from the Guardian Savings branch acquisition will not be amortized.
Income Taxes. Income taxes are accounted for under the liability
method, in which deferred income taxes are recognized as a result of
temporary differences between the financial reporting basis and the tax
basis of our assets and liabilities.
Cash Equivalents. For purposes of the consolidated statements of
cash flows, we consider cash and due from banks, federal funds sold and
other overnight investments to be cash equivalents.
Derivative Financial Instruments. We use financial derivatives as
part of our overall asset and liability management process and to manage
risk related to changes in interest rates. These financial derivatives
consist of interest rate swaps.
A-31
Under the guidelines of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, we recognize all derivative
financial instruments, such as interest rate swap contracts, in the
consolidated financial statements at fair value regardless of the purpose or
intent for holding the instrument. Changes in the fair value of derivative
financial instruments are either recognized periodically in income or
shareholders' equity as a component of other comprehensive income depending
on whether the derivative financial instrument qualifies for hedge
accounting and, if so, whether it qualifies as a fair value hedge or cash
flow hedge. Generally, changes in fair values of derivatives designated and
accounted for as fair value hedges are accounted for in income along with
the portion of the changes in fair value of the hedged item that relate to
the hedged risk. Changes in fair value of derivatives designated and
accounted for as cash flow hedges, to the extent they are effective as
hedges, are recorded in other comprehensive income net of deferred taxes. We
have entered into interest rate swap contracts for interest rate risk
exposure management purposes which are designated and accounted for as fair
value hedges. The interest rate swaps hedge certificates of deposit (CDs)
and Federal Home Loan Bank borrowings and are matched with the underlying
financial instrument as to final maturity, interest payment dates and call
features. The interest rate swaps are a pay floating receiving fixed
instruments and as such, they convert the fixed rate payment on the CDs and
Federal Home Loan Bank borrowings to a floating rate. These interest rate
swaps hedge the fair value of the CDs and Federal Home Loan Bank borrowings
from changes in interest rates.
During the years ended December 31, 2003, 2002 and 2001, we
recorded the effects of the ineffectiveness of all hedge transactions as
part of the income statement line pertaining to the hedged item. The effect
of the ineffectiveness was immaterial to our consolidated financial
statements as of December 31, 2003 and 2002, and for the years ended
December 31, 2003, 2002 and 2001, respectively.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS.
In January 2003 the Financial Accounting Standards Board (FASB)
issued Interpretation No. 46, Consolidation of Variable Interest Entities
(FIN 46). In accordance with FIN 46, business enterprises that represent the
primary beneficiary of another entity by retaining a controlling interest in
that entity's assets, liabilities and results of operations must consolidate
that entity in its financial statements. Prior to the issuance of FIN 46,
consolidation generally occurred when an enterprise controlled another
entity through voting interests. If applicable, transition rules allow the
restatement of financial statements or prospective application with a
cumulative effect adjustment. The Company has determined that the provisions
of FIN 46 may require de-consolidation of subsidiary trusts which issued
guaranteed preferred beneficial interests in subordinated debentures (Trust
Preferred Securities). Prior to the adoption of FIN 46, the Company
consolidated the trusts and the balance sheet included the guaranteed
beneficial interests in the subordinated debentures of the trusts. At the
adoption of FIN 46, the trusts may be de-consolidated and the junior
subordinated debentures of the Company owned by the trusts would be
disclosed. The Trust Preferred Securities currently qualify as Tier 1
capital of the Company for regulatory purposes. The banking regulatory
agencies have not issued any guidance which would change the regulatory
capital treatment for the Trust Preferred Securities based on the adoption
of FIN 46. Subsequent to the issuance of FIN 46, the FASB issued a revised
interpretation, the provisions of which must be applied to certain variable
interest entities by March 31, 2004. The Company plans to adopt the
provisions under the revised interpretation in the first quarter of 2004.
The adoption of FIN 46 and related revisions is not expected to have a
material impact on the Company's financial statements.
A-32
In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity (SFAS 150). SFAS 150 modifies
the accounting for certain financial instruments that issuers previously
could account for as equity. Under SFAS 150, certain instruments with
characteristics of both liabilities and equity must be classified as
liabilities in the balance sheets, with the corresponding payment to holders
of the instruments recognized as a component of interest expense. The
adoption of this standard had no impact on the financial position or results
of operations of the Company as the Company's Trust Preferred Securities
(referred to as "guaranteed preferred beneficial interests in subordinated
debentures") were previously classified as liabilities within the balance
sheets and recorded as interest expense within the statements of income.
Guarantees. In November 2002, the Financial Accounting Standards
Board (FASB) issued Interpretation No. 45, Guarantor's Accounting and
Disclosure for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (FIN 45). FIN 45 requires certain guarantees to be recorded at fair
value and applies to contracts or indemnification agreements that
contingently require the guarantor to make payments to the guaranteed party
based on changes related to an underlying asset, liability or equity
security of the guaranteed party. The recognition requirements of FIN 45 are
to be applied prospectively to guarantees issued or modified subsequent to
December 31, 2002. The requirements of FIN 45 were immaterial to the
Company's results of operations, financial position and liquidity. FIN 45
also expands the disclosures to be made by guarantors, effective as of
December 31, 2002, to include the nature of the guarantee, the maximum
potential amount of future payments that the guarantor could be required to
make under the guarantee, and the current amount of the liability, if any,
for the guarantor's obligation under the guarantee. Guarantees for standby
letters of credit entered into by the Company are disclosed in Note 17.
Accounting for Stock-Based Compensation. In December 2002, the FASB
issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition
and Disclosure, which provides transition guidance from accounting under APB
Opinion No. 25, Accounting for Stock Issued to Employees, to SFAS No. 123's,
Accounting for Stock-Based Compensation, which provides for a fair value
method of accounting, if a company elects. We have elected to continue to
account for stock-based employee compensation under APB Opinion No. 25.
At December 31, 2003, the Company had various stock-based employee
compensation plans, which are described more in Note 15. The Company
accounts for those plans under the recognition and measurement principles of
APB Opinion No. 25 and related interpretations. No stock option based
employee compensation cost is reflected in net income, as all options
granted under those plans had an exercise price equal to or greater than the
market value of the underlying common stock on the date of the grant. The
following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS No.
123 to stock option based employee compensation.
Years Ended December 31,
================================================================================================================
(In thousands, except per share data) 2003 2002 2001
----------------------------------------------------------------------------------------------------------------
Net income, as reported $ 22,860 $ 21,397 $ 13,122
Add: Stock-based employee compensation expense included
in reported net income, net of related tax effects 473 - -
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (1,460) (1,012) (474)
----------------------------------------------------------------------------------------------------------------
Pro forma net income $ 21,873 $ 20,385 $ 12,648
================================================================================================================
Earnings per share:
Basic - as reported $ 1.34 $ 1.36 $ 1.26
Basic - pro forma 1.28 1.29 1.21
Diluted - as reported 1.32 1.33 1.24
Diluted - pro forma 1.26 1.26 1.19
A-33
The fair value of each option granted is estimated on the date of
the grant using the Black-Scholes option-pricing model using the following
weighted average assumptions:
Years Ended December 31,
=======================================================================================
2003 2002 2001
---------------------------------------------------------------------------------------
Dividend yield 2.00% 2.00% 2.00%
Volatility 29.20 30.90 31.50
Risk-free interest rate 3.49% 4.67% 4.26%
Expected life 5 years 5 years 5 years
NOTE 2. ACQUISITIONS AND DIVESTITURES:
On November 20, 2003, Allegiant announced that it had entered into
an Agreement and Plan of Merger with National City Corporation. Under the
Merger Agreement and subject to its terms and conditions, we will be merged
with and into National City, with National City being the surviving
corporation. In connection with the merger, at the election of the holder,
each outstanding share of our common stock will be converted into the right
to receive: (1) $27.25 in cash; (2) 0.833 shares of National City common
stock; or (3) a combination of the two, subject to reallocation of cash
elections if Allegiant shareholders elect to receive more than 49% of the
aggregate value of the merger consideration in cash. We currently anticipate
the merger will close in late first quarter or early second quarter of 2004.
On July 11, 2003, we completed the acquisition of a branch office
of Heartland Bank, a federal savings association, which reported deposits
approximating $20 million at that date. Under the terms of the purchase and
assumption agreement, we acquired the Heartland branch facility and assumed
its deposit liabilities, net of a deposit premium of 5.05% recorded to the
core deposit premium account.
On March 31, 2003, we disposed of Bank of Ste. Genevieve, one of
our two subsidiary banks, to First Banks, Inc. Bank of Ste. Genevieve
operates two branches located outside of the St. Louis metropolitan area and
reported total assets of approximately $114.6 million at the time of the
disposition. First Banks acquired Bank of Ste. Genevieve in exchange for
transferring to us 974,150 shares of our common stock held by First Banks.
The net assets of Bank of Ste. Genevieve as of the closing were
approximately $17.9 million which approximated the value of consideration we
received. Accordingly, we did not recognize any gain or loss as a result of
the transaction.
On October 1, 2002, we completed the acquisition of Investment
Counselors, Incorporated, a privately held investment advisory firm located
in St. Louis, Missouri. Under the terms of the agreement, we exchanged
194,610 shares of our common stock for all of the common shares of
Investment Counselors. We recorded goodwill and other identifiable
intangibles of $2.7 million and $0.5 million, respectively. The other
identifiable intangibles are being amortized over an estimated average life
of approximately 14 years. This acquisition was consistent with our strategy
of focusing on the growth of non-interest income and has allowed us to offer
a more comprehensive selection of wealth management products and services.
A-34
NOTE 3. INVESTMENT SECURITIES:
Debt and equity securities have been classified in the consolidated
balance sheets according to management's intent to dispose of the security.
The following is a summary of securities available-for-sale and
held-to-maturity:
Securities Available-for-Sale Securities Held-to-Maturity
December 31, 2003 December 31, 2003
============================================================================================================================
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------
U.S. government and
agency securities $ 150,200 $ 345 $ (2,335) $ 148,210 $ - $ - $ - $ -
State and municipal
securities 20,264 351 (63) 20,552 9,236 183 (1) 9,418
Mortgage-backed
securities 153,360 231 (918) 152,673 66 2 - 68
Federal Home Loan Bank
stock 19,153 - - 19,153 - - - -
Other securities 16,419 202 (14) 16,607 - - - -
- ----------------------------------------------------------------------------------------------------------------------------
Total $ 359,396 $ 1,129 $ (3,330) $ 357,195 $ 9,302 $ 185 $ (1) $ 9,486
============================================================================================================================
Securities Available-for-Sale Securities Held-to-Maturity
December 31, 2002 December 31, 2002
============================================================================================================================
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------------------
U.S. government and
agency securities $ 191,225 $ 1,653 $ (424) $ 192,454 $ - $ - $ - $ -
State and municipal
securities 22,917 467 - 23,384 16,578 268 (3) 16,843
Mortgage-backed
securities 185,647 2,140 - 187,787 455 2 - 457
Federal Home Loan Bank
stock 17,734 - - 17,734 - - - -
Other securities 16,671 210 (191) 16,690 - - - -
- ----------------------------------------------------------------------------------------------------------------------------
Total $ 434,194 $ 4,470 $ (615) $ 438,049 $ 17,033 $ 270 $ (3) $ 17,300
============================================================================================================================
Provided below is a summary of securities available-for-sale which
were in an unrealized loss position at December 31, 2003. Approximately
25.9% of the unrealized loss was comprised of securities in a continuous
loss position for twelve months or more which consisted primarily of U.S.
government and agency securities with maturities or repricings of less than
five years. The Company has the ability and intent to hold these securities
until such time as the value recovers or the securities mature. Further, the
Company believes the deterioration in value is attributable to changes in
market interest rates and not credit quality of the issuer.
Securities Available-for-Sale
====================================================================================================================
Less than 12 Months 12 Months or More Total
- --------------------------------------------------------------------------------------------------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
(In thousands) Value Losses Value Losses Value Losses
- --------------------------------------------------------------------------------------------------------------------
U. S. government and
agency securities $ 99,385 $ (1,507) $ 4,173 $ (828) $ 103,558 $ (2,335)
State and municipal securities 2,716 (63) - - 2,716 (63)
Mortgage-backed securities 111,454 (883) 4,697 (35) 116,151 (918)
Other securities 2,440 (14) - - 2,440 (14)
- --------------------------------------------------------------------------------------------------------------------
Total $ 215,995 $ (2,467) $ 8,870 $ (863) $ 224,865 $ (3,330)
====================================================================================================================
A-35
Proceeds from the sale of securities totaled $327.7 million in 2003
and $207.3 million in 2002. There were gross realized gains and losses on
the sale of available-for-sale securities of $5.4 million and $0.1 million,
respectively, in 2003. There were gross realized gains and losses on the
sale of available-for-sale securities of $5.4 million and $1.1 million,
respectively, in 2002.
Held-to-maturity and available-for-sale securities with a carrying
value of $294.4 million and $349.6 million at December 31, 2003 and 2002,
respectively, were pledged to secure public deposits and short-term
borrowings.
The contractual maturities of securities (other than Federal Home
Loan Bank stock and other securities with no defined maturity)
available-for-sale and securities held-to-maturity at December 31, 2003 were
as follows:
December 31, 2003
=============================================================================================================
Securities Securities
Available-for-Sale Held-to-Maturity
- -------------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------
Due in one year or less $ 19,541 $ 19,637 $ 721 $ 721
Due from one year to five years 130,010 128,864 3,214 3,293
Due from five years to ten years 10,543 10,662 3,464 3,537
Due after ten years 25,334 24,744 1,837 1,867
- -------------------------------------------------------------------------------------------------------------
Subtotal 185,428 183,907 9,236 9,418
Mortgage backed securities 153,360 152,673 66 68
Federal Home Loan Bank stock 19,153 19,153 - -
Other securities with no stated maturities 1,455 1,462 - -
- -------------------------------------------------------------------------------------------------------------
Total $ 359,396 $ 357,195 $ 9,302 $ 9,486
=============================================================================================================
NOTE 4. LOANS:
The components of loans in the consolidated balance sheets were as
follows:
December 31,
===========================================================================================
(In thousands) 2003 2002
-------------------------------------------------------------------------------------------
Commercial $ 283,790 $ 314,703
Real estate - construction 320,235 277,018
Real estate - mortgage:
One- to four-family residential 327,942 352,136
Multi-family and commercial 833,252 697,430
Consumer and other 75,362 63,231
Net deferred loan fees, premiums and discounts (1,118) (1,609)
-------------------------------------------------------------------------------------------
Total loans 1,839,463 1,702,909
Allowance for loan losses (19,718) (19,567)
-------------------------------------------------------------------------------------------
Net loans $ 1,819,745 $ 1,683,342
===========================================================================================
A-36
An analysis of the change in the allowance for loan losses follows:
December 31,
===========================================================================================
(In thousands) 2003 2002 2001
-------------------------------------------------------------------------------------------
Balance, beginning of year $ 19,567 $ 18,905 $ 11,433
Acquired subsidiary balance - - 7,494
Divested subsidiary balance (756) - -
Loans charged off (8,916) (9,109) (5,748)
Recoveries 1,549 1,172 726
-------------------------------------------------------------------------------------------
Net loans charged off (7,367) (7,937) (5,022)
Provision for loan losses 8,274 8,599 5,000
-------------------------------------------------------------------------------------------
Balance, end of year $ 19,718 $ 19,567 $ 18,905
===========================================================================================
The recorded investment in loans that were considered to be
impaired was $15.7 million at December 31, 2003 and $12.9 million at
December 31, 2002 (these impaired loans were all classified as non-accrual
loans). The related allowance for these impaired loans was $5.9 million at
December 31, 2003 and $3.2 million at December 31, 2002. Interest income
that would have been recognized for non-accrual loans, if the loans had been
current in accordance with their original terms, was $0.8 million in 2003
and $0.7 million in 2002. Cash basis income on non-accrual loans was not
significant for 2003 or 2002. Other real estate owned and foreclosed assets
were approximately $1.4 million and $0.6 million at December 31, 2003 and
2002, respectively.
We and our subsidiary bank have entered into transactions with our
directors, significant shareholders and affiliates (related parties). Such
transactions were made in the ordinary course of business on substantially
the same terms and conditions, including interest rates and collateral, as
those prevailing at the same time for comparable transactions with other
customers and did not, in the opinion of management, involve more than
normal credit risk or present other unfavorable features. The aggregate
amount of loans to such related parties at December 31, 2003, 2002 and 2001
was $60.8 million, $54.8 million, and $71.1 million, respectively. During
2003, $18.9 million of new loans and $10.8 million of repayments were made
on related party loans, and the net reduction due to changes in director
status totaled $2.1 million. As of December 31, 2003 and 2002, no related
party loans were past due 90 days or more.
NOTE 5. PREMISES AND EQUIPMENT:
Components of premises and equipment as of December 31, 2003 and
2002, were as follows:
December 31,
===================================================================================
(In thousands) 2003 2002
-----------------------------------------------------------------------------------
Land $ 9,202 $ 9,217
Bank premises 34,393 36,487
Furniture, equipment and automobiles 16,518 14,791
-----------------------------------------------------------------------------------
Total cost 60,113 60,495
Less: accumulated depreciation (16,381) (12,832)
-----------------------------------------------------------------------------------
Net book value $ 43,732 $ 47,663
===================================================================================
A-37
Our subsidiary banks lease various banking facilities and equipment
under agreements which expire at various dates through September 2017.
Future minimum lease payments required under operating leases which have
initial or remaining non-cancelable terms in excess of one year as of
December 31, 2003, were as follows:
Years Ended December 31,
============================================
Minimum
(In thousands) Rental
--------------------------------------------
2004 $ 1,271
2005 1,109
2006 1,002
2007 808
2008 434
2009 and later 1,937
--------------------------------------------
Total $ 6,561
============================================
Rental expense for all operating leases was $1.4 million in 2003,
$1.0 million in 2002 and $0.7 million in 2001.
NOTE 6. INTANGIBLE ASSETS:
The following summarizes the components of our intangible assets:
December 31,
==============================================================================
(In thousands) 2003 2002
------------------------------------------------------------------------------
Goodwill $ 46,029 $ 47,884
==============================================================================
Core deposit premium and other:
Total assigned $ 11,191 $ 11,448
Accumulated amortization (2,357) (1,316)
------------------------------------------------------------------------------
Carrying amount $ 8,834 $ 10,132
==============================================================================
A-38
The following summarizes the activity of our intangible assets
during the past three years:
December 31,
================================================================================================================================
2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
Core Core Core
Deposit Deposit Deposit
Premium Premium Premium
Goodwill and Other Total Goodwill and Other Total Goodwill and Other Total
- --------------------------------------------------------------------------------------------------------------------------------
Beginning balance $ 47,884 $ 10,132 $ 58,016 $ 45,671 $ 10,740 $ 56,411 $ 10,831 $ - $ 10,831
Acquisition of
Southside - - - (789) - (789) 33,557 10,973 44,530
Acquisition of
Guardian - - - 312 - 312 2,232 - 2,232
Acquisition of
Investment Counselors 83 - 83 2,690 475 3,165 - - -
Acquisition of
Heartland branch - 1,400 1,400 - - - - - -
Divested subsidiary
balance (1,938) (1,657) (3,595) - - - - - -
Amortization - (1,041) (1,041) - (1,083) (1,083) (949) (233) (1,182)
- --------------------------------------------------------------------------------------------------------------------------------
Ending balance $ 46,029 $ 8,834 $ 54,863 $ 47,884 $ 10,132 $ 58,016 $ 45,671 $ 10,740 $ 56,411
================================================================================================================================
Amortization of core deposit premiums and other identifiable
intangibles included as an operating expense totaled $1.0 million, $1.1
million and $1.2 million for the years ended December 31, 2003, 2002 and
2001, respectively. We estimate that the aggregate amortization expense of
our intangible assets over the next five years will be $1.0 million
annually. The weighted average remaining amortization period of the
intangibles is approximately eight years. Net income and earnings per share
adjusted to exclude goodwill amortization is summarized as follows:
Years Ended December 31,
================================================================================================
(In thousands, except per share data) 2003 2002 2001
------------------------------------------------------------------------------------------------
NET INCOME:
Reported $ 22,860 $ 21,397 $ 13,122
Add back: after-tax goodwill
amortization - - 949
------------------------------------------------------------------------------------------------
Adjusted $ 22,860 $ 21,397 $ 14,071
================================================================================================
BASIC NET INCOME PER COMMON SHARE:
Reported $ 1.34 $ 1.36 $ 1.26
Add back: goodwill amortization
per share - - 0.09
------------------------------------------------------------------------------------------------
Adjusted $ 1.34 $ 1.36 $ 1.35
================================================================================================
DILUTED NET INCOME PER COMMON SHARE:
Reported $ 1.32 $ 1.33 $ 1.24
Add back: goodwill amortization
per share - - 0.09
------------------------------------------------------------------------------------------------
Adjusted $ 1.32 $ 1.33 $ 1.33
================================================================================================
A-39
NOTE 7. DEPOSITS:
Deposits consisted of the following:
December 31,
=========================================================================================
(In thousands) 2003 2002
-----------------------------------------------------------------------------------------
Non-interest bearing $ 193,450 $ 215,529
Interest bearing demand 136,265 132,883
Money market accounts 271,663 275,378
Savings 207,270 228,397
Time and IRA certificates under $100,000 624,291 653,515
-----------------------------------------------------------------------------------------
Total core deposits 1,432,939 1,505,702
Time and IRA certificates over $100,000 180,431 202,086
Brokered deposits over $100,000 95,186 60,244
-----------------------------------------------------------------------------------------
Total deposits $ 1,708,556 $ 1,768,032
=========================================================================================
AMOUNTS AND SCHEDULED MATURITIES OF TIME DEPOSITS
December 31,
=========================================================================
(In thousands) 2003
-------------------------------------------------------------------------
2004 $ 583,153
2005 167,380
2006 62,464
2007 62,247
2008 24,352
2009 and later 312
-------------------------------------------------------------------------
Total $ 899,908
=========================================================================
A-40
NOTE 8. INCOME TAXES:
Our results include income tax expense (benefit) as follows:
December 31,
===================================================================================
(In thousands) 2003 2002 2001
-----------------------------------------------------------------------------------
Current:
Federal $ 3,219 $ 7,256 $ 9,026
State and local 1,258 680 730
Deferred 6,073 2,616 (2,203)
-----------------------------------------------------------------------------------
Total $ 10,550 $ 10,552 $ 7,553
===================================================================================
The tax effects of temporary differences that gave rise to the
deferred tax assets and liabilities are presented below:
December 31,
===================================================================================
(In thousands) 2003 2002
-----------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Allowance for loan losses $ 7,394 $ 7,460
Net unrealized loss on available
for sale securities 769 -
Other 2,098 2,012
-----------------------------------------------------------------------------------
Total deferred tax assets 10,261 9,472
-----------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Fixed assets (3,928) (939)
Net unrealized gain on available
for sale securities - (1,321)
Other (3,355) (251)
-----------------------------------------------------------------------------------
Total deferred tax liabilities (7,283) (2,511)
-----------------------------------------------------------------------------------
Net deferred tax assets $ 2,978 $ 6,961
===================================================================================
A valuation allowance would be provided on deferred tax assets when
it is more likely than not that some portion of the assets will not be
realized. We have not established a valuation allowance as of December 31,
2003 or 2002, based on the existence of a history of taxes paid sufficient
to support the realization of the deferred tax assets.
Income tax expense as reported differs from the amounts computed by
applying the statutory federal income tax rate to pretax income as follows:
Years Ended December 31,
===================================================================================
(In thousands) 2003 2002 2001
-----------------------------------------------------------------------------------
Computed expected tax expense $ 11,693 $ 10,863 $ 7,029
Tax-exempt income (706) (661) (275)
State and local income taxed,
net of federal tax benefits 818 717 482
Amortization of intangibles 10 45 202
Bank-owned life insurance (640) (649) (402)
Other, net (625) 237 517
-----------------------------------------------------------------------------------
Total income tax expense $ 10,550 $ 10,552 $ 7,553
===================================================================================
A-41
NOTE 9. SHORT-TERM BORROWINGS:
Short-term borrowings were as follows at year-end:
December 31,
=======================================================================================
(In thousands) 2003 2002
---------------------------------------------------------------------------------------
Securities sold under agreements to repurchase $ 61,897 $ 37,312
Federal funds purchased 80,000 22,570
Other short-term borrowings 32,000 35,000
---------------------------------------------------------------------------------------
Total short-term borrowings $ 173,897 $ 94,882
=======================================================================================
At December 31, 2003, the weighted average interest rates for
securities sold under agreements to repurchase, federal funds purchased and
other short-term borrowings were 0.8%, 1.1% and 2.9%, respectively.
Under the terms of the $32.0 million note payable to banks (other
short-term borrowings), we and/or our subsidiaries are required to maintain
certain financial ratios and are limited with respect to cash dividends,
capital expenditures and the incurrence of additional indebtedness without
prior approval. Principal payments of $750,000 are due January, April and
July 2004, and the balance outstanding is due in September 26, 2004. At
December 31, 2003, the Company met all financial covenants under the note
agreement.
NOTE 10. FEDERAL HOME LOAN BANK ADVANCES:
Federal Home Loan Bank (FHLB) advances consisted of the following
at year-end:
December 31,
=======================================================================================================
(In thousands) 2003 2002
-------------------------------------------------------------------------------------------------------
Notes payable to FHLB, interest payable monthly at rates varying
from 1.15% to 6.24%, principal balance due at maturity ranging
from March 21, 2005 to December 29, 2010, secured by stock in
FHLB and certain loans $ 250,878 $ 152,500
Notes payable to FHLB, amortized principal and interest payable
monthly at rates varying from 5.37% to 6.95%, maturity ranging
from December 31, 2019 to August 28, 2023, secured by stock in
FHLB and certain loans 1,738 14,840
-------------------------------------------------------------------------------------------------------
Total long-term advances 252,616 167,340
Short-term advances 55,000 137,513
-------------------------------------------------------------------------------------------------------
Total FHLB advances $ 307,616 $ 304,853
=======================================================================================================
As collateral for the Federal Home Loan Bank advances, Allegiant
Bank has entered into a blanket agreement that pledges first mortgage loans,
commercial real estate loans and specific investment securities with advance
rates of 74%, 57% and 95%, respectively, of the collateral. At December 31,
2003 we had approximately $98.7 million of additional availability under
FHLB facility.
A summary of annual principal reductions of Federal Home Loan Bank
advances as of December 31, 2003 was as follows:
=====================================================
Annual
Principal
Year (in thousands) Reductions
-----------------------------------------------------
2004 $ 55,000
2005 110,392
2006 439
2007 685
2008 80,145
2009 and later 60,955
-----------------------------------------------------
Total $ 307,616
=====================================================
A-42
NOTE 11. CAPITAL SECURITIES OF SUBSIDIARY TRUSTS:
During 2001, we formed Allegiant Capital Trust II, a statutory
business trust. We purchased all the common securities of Allegiant Capital
Trust II for $1.3 million. Allegiant Capital Trust II sold 1,600,000
preferred securities, having a liquidation value of $25 per security, for
$40.0 million. The sole assets of Allegiant Capital Trust II are our
subordinated debentures totaling $41.3 million which are due September 30,
2031. The distributions payable on the preferred securities are fixed at
9.00%. All accounts of Allegiant Capital Trust II are included in our
consolidated financial statements. The preferred securities are titled
"Guaranteed preferred beneficial interests in subordinated debentures" for
financial reporting purposes. The preferred securities are traded on the
Nasdaq National Market under the symbol ALLEP. Cash distributions on the
securities are made to the extent interest on the debentures is received by
Allegiant Capital Trust II. The securities are redeemable in whole at any
time on or after September 30, 2006, or earlier in the event of certain
changes or amendments to regulatory requirements or federal tax rules.
During 1999, we formed Allegiant Capital Trust I, a statutory
business trust. We purchased all the common securities of Allegiant Capital
Trust I for $672,080. Allegiant Capital Trust I sold 1,725,000 preferred
securities, having a liquidation value of $10 per security, for $17.3
million. The sole assets of Allegiant Capital Trust I are our subordinated
debentures totaling $17.9 million which are due August 2, 2029. The
distributions payable on the preferred securities are fixed at 9.875%. All
accounts of Allegiant Capital Trust I are included in our consolidated
financial statements. The preferred securities are titled "Guaranteed
preferred beneficial interests in subordinated debentures" for financial
reporting purposes. The preferred securities are traded on the American
Stock Exchange under the symbol ACT.Pr. Cash distributions on the securities
are made to the extent interest on the debentures is received by Allegiant
Capital Trust I. The securities are redeemable in whole at any time on or
after August 2, 2004, or earlier in the event of certain changes or
amendments to regulatory requirements or federal tax rules.
The Company fully guarantees the obligations of Allegiant Capital
Trust I and Allegiant Capital Trust II. The Company plans to de-consolidate
Capital Trust I and II in accordance with FIN 46 and related revised
interpretations in the first quarter of 2004. The adoption of FIN 46 is not
expected to have a material effect on the Company's financial condition or
results of operations of the Company.
NOTE 12. COMMON STOCK AND EARNINGS PER SHARE:
Basic earnings per share are computed by dividing income available
to common shareholders by the weighted average number of common shares
outstanding during the year. Diluted earnings per share give effect to all
dilutive potential common shares that were outstanding during the year. The
components of basic and diluted earnings per share were as follows:
Years Ended December 31,
============================================================================================================
(In thousands, except share and per share data) 2003 2002 2001
------------------------------------------------------------------------------------------------------------
Net income $ 22,860 $ 21,397 $ 13,122
============================================================================================================
Denominator:
Weighted average shares outstanding 17,045,432 15,767,619 10,447,845
Effect of dilutive securities:
Stock options 250,483 350,428 145,747
------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share-
adjusted weighted average shares 17,295,915 16,118,047 10,593,592
============================================================================================================
Basic earnings per share $ 1.34 $ 1.36 $ 1.26
Diluted earnings per share 1.32 1.33 1.24
Cash dividends declared per share 0.34 0.26 0.24
A-43
NOTE 13. OTHER COMPREHENSIVE INCOME:
Provided below is a summary of other comprehensive income (loss)
components and related income tax effects:
Year Ended December 31, 2003
==========================================================================================================
Before Tax Tax Expense Net of Tax
(In thousands) Amount (Benefit) Amount
----------------------------------------------------------------------------------------------------------
Unrealized loss on available-for-sale securities $ (11,385) $ (3,929) $ (7,456)
Less: reclassification adjustment for gains
realized in net income 5,329 1,839 3,490
----------------------------------------------------------------------------------------------------------
Net unrealized losses (6,056) (2,090) (3,966)
----------------------------------------------------------------------------------------------------------
Other comprehensive loss $ (6,056) $ (2,090) $ (3,966)
==========================================================================================================
Year Ended December 31, 2002
==========================================================================================================
Before Tax Tax Net of Tax
(In thousands) Amount Expense Amount
----------------------------------------------------------------------------------------------------------
Unrealized gains on available-for-sale securities $ 9,010 $ 3,153 $ 5,857
Less: reclassification adjustment for gains
realized in net income 4,272 1,495 2,777
----------------------------------------------------------------------------------------------------------
Net unrealized gains 4,738 1,658 3,080
----------------------------------------------------------------------------------------------------------
Other comprehensive income $ 4,738 $ 1,658 $ 3,080
==========================================================================================================
Year Ended December 31, 2001
==========================================================================================================
Before Tax Tax Expense Net of Tax
(In thousands) Amount (Benefit) Amount
----------------------------------------------------------------------------------------------------------
Unrealized gains on available-for-sale securities $ 778 $ 272 $ 506
Less: reclassification adjustment for gains
realized in net income 2,725 954 1,771
----------------------------------------------------------------------------------------------------------
Net unrealized losses (1,947) (682) (1,265)
----------------------------------------------------------------------------------------------------------
Other comprehensive loss $ (1,947) $ (682) $ (1,265)
==========================================================================================================
NOTE 14. EMPLOYEE BENEFITS:
We have a defined contribution plan in effect for substantially all
full-time employees. Salaries and employee benefits expense included
$802,000 in 2003, $419,000 in 2002 and $346,000 in 2001 for the plans.
Contributions under the defined contribution plan are made at the discretion
of our management and Board of Directors.
A-44
NOTE 15. STOCK COMPENSATION PLANS:
We offer various stock compensation plans to our directors and
certain of our key employees. Options are granted, by action of our Board of
Directors, to acquire stock at no less than 100% of fair market value at the
date of the grant, for a term of up to ten years. Under terms of the merger
agreement with National City, all unvested options will vest upon completion
of the merger.
At December 31, 2003, approximately 1,156,812 shares remained
available for option grants under these programs. The following tables
summarize option activity over the past three years and the current options
outstanding and exercisable:
Years Ended December 31,
====================================================================================================================
2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Option Option Option
Shares Price Shares Price Shares Price
- --------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of year 877,711 $ 12.21 1,199,202 $ 9.53 860,977 $ 10.65
Granted 362,549 18.52 261,533 15.23 839,969 6.42
Exercised (228,281) 13.07 (570,620) 7.89 (467,543) 5.87
Canceled (27,490) 15.51 (12,404) 11.87 (34,201) 10.87
- -------------------------------------------------- ------------- -------------
Outstanding, end of year 984,489 14.25 877,711 12.21 1,199,202 9.53
================================================== ============= =============
Weighted average fair value
of options granted during
the year $ 4.74 $ 4.13 $ 5.86
========= ========= =========
Options Outstanding Options Exercisable
===================================================================================================================
Number Weighted Weighted Number Weighted
Outstanding at Average Average Exercisable at Average
Range of December 31, Remaining Exercise December 31, Exercise
Exercise Price 2003 Contractual Life Price 2003 Price
- -------------------------------------------------------------------------------------------------------------------
$3.91 - $10.75 185,099 2.1 years $ 8.25 152,159 $ 7.90
11.00 - 14.84 370,352 4.1 years 12.36 271,755 12.18
15.07 - 21.69 429,038 7.4 years 18.46 270,658 18.70
- -------------------------------------------- ------------------
3.91 - 21.69 984,489 5.2 years $ 14.25 694,572 $ 13.78
We have a directors stock purchase plan whereby our outside
directors may elect to use their directors' fees to purchase shares of our
common stock at market value. In 2003, 18,372 shares were purchased at an
average price of $20.62. In 2002, 25,651 shares were purchased at an average
price of $17.46 and in 2001, 17,922 shares were purchased at an average
price of $12.37.
In 2002, the Company granted 109,000 shares of restricted common
stock to certain executives of the Company. The shares vest over a ten-year
period; provided, however, that all unvested options will vest upon
completion of the merger with National City. Salaries and employee benefits
expense included $728,000 in 2003 for restricted stock plans.
A-45
NOTE 16. CONTINGENCIES AND CONCENTRATIONS OF CREDIT:
Various claims and lawsuits are pending against us, Allegiant Bank
or our subsidiaries. In the opinion of management, after consultation with
legal counsel, resolution of these matters is not expected to have a
material effect on our consolidated financial condition or results of
operation.
Substantially all of our loans, commitments and commercial and
standby letters of credit have been granted to customers that are customers
of our subsidiary bank in our market area and we are thereby subject to this
significant concentration of credit risk. The concentrations of credit by
type of loan are set forth in Note 4. The distribution of commitments to
extend credit approximates the distribution of loans outstanding. Commercial
and standby letters of credit were granted primarily to commercial
borrowers. Investments in state and municipal securities also involve
governmental entities within our market area.
NOTE 17. FINANCIAL INSTRUMENTS:
We are a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of our
customers. These financial instruments include commitments to extend credit
and standby letters of credit. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated balance sheets. The contract or notional
amounts of these instruments reflect the extent of our involvement in
particular classes of financial instruments.
Our exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual or notional
amount of those instruments. We use the same credit policies in making
commitments and conditional obligations as we do for on-balance sheet
instruments.
A summary of the notional amounts of our financial instruments with
off-balance sheet risk at December 31, 2003 and 2002 follows:
December 31,
========================================================================
(In thousands) 2003 2002
------------------------------------------------------------------------
Commitments to extend credit $ 406,575 $ 315,452
Standby letters of credit 17,951 14,206
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. We
evaluate each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if it is deemed necessary by the bank upon
extension of credit, is based on management's credit evaluation of the
counterparties. Collateral held varies but may include accounts receivable,
inventory, property, plant, equipment and real estate.
A-46
Standby letters of credit are conditional commitments issued by our
banks to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support contractual obligations of our
customers. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The fair values of commitments to extend credit and standby
letters of credit are estimated using the fees currently charged to enter
into similar agreements, taking into account the remaining terms of the
agreements, the likelihood of the counterparties drawing on such financial
instruments and the present creditworthiness of such counterparties. We
believe such commitments have been made on terms which are competitive in
the markets in which we operate; however, no premium or discount is offered
thereon and accordingly, we have assigned a fair value of such instruments
which equals carrying value for the purposes of this disclosure. The maximum
potential amount of future payments that the Company could be required to
make under the guarantees totaled $18.0 million at December 31, 2003.
We use derivative financial instruments as part of our overall
interest rate risk management process. These derivative instruments involve,
to varying degrees, interest rate risk in excess of the amount recognized on
the balance sheet but less than the notional amount of the contract. For
interest rate swaps, only periodic cash payments are exchanged. Therefore,
cash requirements and exposure to credit risk are substantially less than
the notional value. We manage these risks and seek to minimize these risks
as part of our asset and liability management process.
We have entered into interest rate swap agreements for interest
rate risk exposure management purposes. The interest rate swap agreements
utilized effectively modify our exposure to interest risk by converting a
portion of our fixed rate certificates of deposit and fixed-rate Federal
Home Loan Bank borrowings to a floating-rate based on LIBOR or the Prime
Rate. The notional amount of the swaps as of December 31, 2003 was $132.0
million and they are scheduled to mature as these deposits and advances
mature. These agreements involve the receipt of fixed-rate amounts in
exchange for floating-rate interest payments over the life of the agreements
without an exchange of the underlying principal amount. The rate of the
fixed-rate interest payments that we receive on the $132.0 million of
interest rate swaps ranges from 2.23% to 6.74% and have variable maturity
dates through December 2007.
The carrying amount and estimated fair values of our financial
instruments were as follows:
December 31, 2003 December 31, 2002
============================================================================================================
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS:
Cash and due from banks, federal
funds sold and other overnight
investments $ 65,776 $ 65,776 $ 47,131 $ 47,131
Securities available-for-sale 357,195 357,195 438,049 438,049
Securities held-to-maturity 9,302 9,486 17,033 17,300
Loans held for sale 8,825 8,858 40,666 40,942
Loans, net of allowance 1,819,745 1,830,375 1,683,342 1,701,114
FINANCIAL LIABILITIES:
Deposits $ 1,708,556 $ 1,700,124 $ 1,768,032 $ 1,784,202
Short-term borrowings 173,897 173,897 94,882 94,882
Federal Home Loan Bank advances 307,616 318,539 304,853 323,533
Guaranteed preferred beneficial
interests in subordinated debentures 57,250 62,383 57,250 60,675
DERIVATIVES:
Fixed to floating interest rate swaps $ 662 $ 662 $ 1,703 $ 1,703
A-47
We used the following methods and assumptions in estimating fair
values of financial instruments as disclosed herein:
Cash and Short-Term Instruments: The carrying amounts of cash and
due from banks and federal funds sold approximate their fair value.
Securities: Fair values for held-to-maturity and available-for-sale
securities are based on quoted market prices or dealer quotes, where
available. If quoted market prices are not available for a specific
security, fair values are based on quoted market prices of comparable
instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
The fair values for fixed-rate loans are estimated using discounted cash
flow analyses and applying interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. The fair values
for nonperforming loans are estimated using assumptions regarding current
assessments of collectibility and historical loss experience.
Deposits: The fair values disclosed for deposits generally payable
on demand, such as non interest-bearing checking accounts, savings accounts,
NOW accounts and market rate deposit accounts, are by definition, equal to
the amount payable on demand at the reporting date. The carrying amounts for
variable-rate, fixed-term market rate deposit accounts and certificates of
deposit approximate their fair values at the reporting date. Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates of similar remaining maturities to a schedule of aggregated
monthly maturities on time deposits.
Short-Term Borrowings: The carrying amounts of federal funds
purchased, borrowings under repurchase agreements and other short-term
borrowings approximate their fair values at the reporting date.
Long-Term Debt: The fair values of our Federal Home Loan Bank
advances and guaranteed preferred beneficial interests in subordinated
debentures are based on quoted market prices for similar issues or estimates
using discounted cash flow analyses, based on our current incremental
borrowing rates for similar types of debt instruments.
Derivative Financial Instruments: The fair values of these
instruments are based on quoted market prices or dealer quotes.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result
from offering for sale at one time our entire holdings of a particular
financial instrument. Because no market exists for a significant portion of
our financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance
sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are
not considered financial instruments. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in
many of the estimates.
A-48
NOTE 18. REGULATORY MATTERS:
We and our subsidiary bank are subject to various regulatory
capital requirements administered by federal and state banking agencies.
Failure to meet minimum capital requirements can result in mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct, material effect on our financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, we and our subsidiary bank must meet specific capital
guidelines that involve quantitative measures of our and the bank's assets,
liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. We and our subsidiary bank's capital
amounts and classifications also are subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulators to ensure capital
adequacy require us and our subsidiary bank to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets (as defined) and of Tier
1 capital (as defined) to average assets (as defined). Management believes
that, as of December 31, 2003, we met all applicable capital adequacy
requirements.
As of December 31, 2003, our subsidiary bank was categorized as
well capitalized under the regulatory framework as of the most recent
notification from the regulatory agencies.
The actual and required capital amounts and ratios as of December
31, 2003 and 2002, for the Company and our subsidiary banks are listed in
the following table:
=======================================================================================================================
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Actions Provisions
- -----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 2003:
Total Capital (to Risk-Weighted Assets)
Allegiant Bancorp, Inc. $ 221,571 10.98% $ 160,648 8.00% $ N/A N/A
Allegiant Bank 241,597 12.03 159,621 8.00 199,527 10.00%
Tier 1 Capital (to Risk-Weighted Assets)
Allegiant Bancorp, Inc. 201,853 10.00 80,324 4.00 120,486 6.00
Allegiant Bank 221,879 11.05 79,811 4.00 119,716 6.00
Tier 1 Capital (to Average Assets)
Allegiant Bancorp, Inc. 201,853 8.47 95,330 4.00 119,163 5.00
Allegiant Bank 221,879 9.37 94,671 4.00 118,338 5.00
AS OF DECEMBER 31, 2002:
Total Capital (to Risk-Weighted Assets)
Allegiant Bancorp, Inc. $ 182,474 9.97% $ 146,358 8.00% $ N/A N/A
Allegiant Bank 185,910 10.63 139,922 8.00 174,903 10.00%
Bank of Ste. Genevieve 15,097 23.97 5,038 8.00 6,298 10.00
Tier 1 Capital (to Risk-Weighted Assets)
Allegiant Bancorp, Inc. 160,159 8.75 73,179 4.00 N/A N/A
Allegiant Bank 167,132 9.56 69,961 4.00 104,942 6.00
Bank of Ste. Genevieve 14,310 22.72 2,519 4.00 3,779 6.00
Tier 1 Capital (to Average Assets)
Allegiant Bancorp, Inc. 160,159 7.07 90,611 4.00 N/A N/A
Allegiant Bank 167,132 7.78 85,933 4.00 107,416 5.00
Bank of Ste. Genevieve 14,310 13.42 4,265 4.00 5,331 5.00
A-49
NOTE 19. RESTRICTIONS ON CASH AND DUE FROM BANKS:
At December 31, 2003, $20.2 million in cash and due from bank
balances were maintained in accordance with the guidelines set forth by the
Federal Reserve Bank to maintain certain average reserve balances.
NOTE 20. NON-INTEREST INCOME AND EXPENSE:
A summary of the components of other non-interest income and other
non-interest expense exceeding 1% of revenues in each of the years presented
is as follows:
Years Ended December 31,
==============================================================================================
(In thousands) 2003 2002 2001
----------------------------------------------------------------------------------------------
Non-interest income:
Mortgage banking revenue $ 5,410 $ 4,595 $ 3,552
Bank-owned life insurance 1,829 1,908 1,182
Non-interest expense:
Occupancy 4,362 3,862 2,361
Furniture and equipment 3,398 3,338 2,113
Amortization of intangibles 1,041 1,083 1,182
Other real estate owned expense 2,489 1,236 161
A-50
NOTE 21. PARENT COMPANY CONDENSED FINANCIAL INFORMATION:
Following are our condensed financial statements (parent company
only) as of the dates and for the periods indicated:
BALANCE SHEETS
December 31,
=========================================================================================
(In thousands) 2003 2002
-----------------------------------------------------------------------------------------
ASSETS:
Cash and cash equivalents $ 3,684 $ 1,035
Investment securities 462 1,743
Loans and lease financing receivables 49 49
Advances to subsidiaries 300 -
Investment in subsidiaries 278,766 244,566
Other assets 8,627 15,648
-----------------------------------------------------------------------------------------
Total assets $ 291,888 $ 263,041
=========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term borrowings $ 32,000 $ 35,000
Other liabilities 2,106 1,577
Balances due to non-bank subsidiaries 59,222 59,222
-----------------------------------------------------------------------------------------
Total liabilities 93,328 95,799
Total shareholders' equity 198,560 167,242
-----------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 291,888 $ 263,041
=========================================================================================
STATEMENTS OF INCOME
Years Ended December 31,
=========================================================================================
(In thousands) 2003 2002 2001
-----------------------------------------------------------------------------------------
INCOME:
Management and service fees
from subsidiaries $ 1,216 $ 1,205 $ 3,847
Dividends from subsidiaries 3,788 2,000 1,000
Interest income from advances
to subsidiaries 3 - -
Other operating income 676 1,057 886
-----------------------------------------------------------------------------------------
Total income 5,683 4,262 5,733
-----------------------------------------------------------------------------------------
EXPENSES:
Interest on long-term debt 5,487 5,487 2,730
Salaries and employee benefits 1,785 960 1,013
Other operating expenses 3,613 2,873 1,700
-----------------------------------------------------------------------------------------
Total expenses 10,885 9,320 5,443
-----------------------------------------------------------------------------------------
Income (loss) before income tax
benefit and equity in undistributed
income of subsidiaries (5,202) (5,058) 290
Income tax benefit 3,146 3,057 209
-----------------------------------------------------------------------------------------
Income (loss) before equity in
undistributed income of subsidiaries (2,056) (2,001) 499
Equity in undistributed income
of subsidiaries 24,916 23,398 12,623
-----------------------------------------------------------------------------------------
Net income $ 22,860 $ 21,397 $ 13,122
=========================================================================================
A-51
STATEMENTS OF CASH FLOWS
Years Ended December 31,
===========================================================================================
(In thousands) 2003 2002 2001
-------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 22,860 $ 21,397 $ 13,122
Adjustment to reconcile net income to
net cash provided by (used in) operating
activities:
Net income of subsidiaries (28,704) (25,398) (13,623)
Dividends from subsidiaries 3,788 2,000 1,000
Net realized gains on securities
available-for-sale (153) (343) (343)
Other, net 5,484 (656) (6,156)
-------------------------------------------------------------------------------------------
Cash provided by (used in)
operating activities 3,275 (3,000) (6,000)
-------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Net cash paid in acquisition of Southside
Bancshares Corp. - - (58,846)
Contributions of capital to subsidiaries (30,400) (100) (874)
Proceeds from sales of securities
available-for-sale 1,978 2,118 2,550
Purchase of investment securities
available-for-sale (370) (1,528) (3,545)
Additions to premises and equipment, net - - 929
Other, net - - 1,335
-------------------------------------------------------------------------------------------
Cash (used in) provided by
investing activities (28,792) 490 (58,451)
-------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Payment of dividends (4,821) (4,006) (2,094)
Proceeds from issuance of common stock 35,987 5,541 3,685
Net increase (decrease) in short-term
borrowings (3,000) (3,000) 25,350
Proceeds from issuance of guaranteed
preferred beneficial interests in
subordinated debentures - - 40,000
-------------------------------------------------------------------------------------------
Cash provided by (used in)
financing activities 28,166 (1,465) 66,941
-------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 2,649 (3,975) 2,490
Cash and cash equivalents,
beginning of year 1,035 5,010 2,520
-------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 3,684 $ 1,035 $ 5,010
===========================================================================================
A-52
NOTE 22. RESTRICTIONS ON SUBSIDIARY DIVIDENDS:
Dividends from our subsidiary bank are the principal source of
funds for payment of dividends by us to our shareholders. The payment of
dividends by our subsidiary bank is subject to regulation by the Federal
Deposit Insurance Corporation and the Missouri Division of Finance. These
payments are not restricted as to the amount of dividends that can be paid,
other than what prudent and sound banking principles permit and what must be
retained to meet minimum legal capital requirements. Accordingly,
approximately $85.6 million at December 31, 2003, in addition to net income
in 2004, could be paid without prior regulatory approval.
Extensions of credit by subsidiaries to us are permitted by
regulatory authorities but are limited in amount and subject to collateral
requirement. At December 31, 2003, approximately $18.8 million would have
been available under Federal Reserve guidelines.
NOTE 23. SUPPLEMENTAL DISCLOSURE FOR THE CONSOLIDATED STATEMENT OF CASH FLOWS:
Supplemental disclosures of non-cash investing and financing
activities and additional disclosures, including details of cash and cash
equivalents from acquisitions accounted for as purchases and dispositions of
branches, were as follows:
Years Ended December 31,
============================================================================================
(In thousands) 2003 2002 2001
--------------------------------------------------------------------------------------------
Fair value of assets purchased $ 1,419 $ 3,360 $ 811,684
Liabilities assumed 20,679 85 808,313
Issuance of common stock - 3,162 47,736
--------------------------------------------------------------------------------------------
Net cash (paid) received from
acquisitions 19,260 (113) 44,365
Cash and cash equivalents acquired - - 56,572
--------------------------------------------------------------------------------------------
Total $ 19,260 $ (113) $ 100,937
============================================================================================
Cash paid during the year for:
Interest on deposits and borrowings $ 50,510 $ 61,897 $ 54,547
Income taxes 9,127 9,200 11,347
Non-cash transactions:
Common stock of divested
subsidiary exchanged for common
stock of Allegiant $ 17,900 $ - $ -
Transfers to other real estate owned
in settlement of loans 2,373 1,227 1,444
Conversion of directors' fees
to common stock 379 387 222
A-53
NOTE 24. SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following is a summary of quarterly operating results for the
years ended December 31, 2003 and 2002:
2003
===================================================================================================
(In thousands, except First Second Third Fourth
per share data) Quarter Quarter Quarter Quarter
---------------------------------------------------------------------------------------------------
Interest income $ 29,841 $ 29,499 $ 29,407 $ 29,334
Interest expense 13,501 12,575 11,990 11,767
---------------------------------------------------------------------------------------------------
Net interest income 16,340 16,924 17,417 17,567
Provision for loan losses 1,660 1,675 2,355 2,584
Other income 7,022 6,655 6,632 6,592
Other expenses 13,486 12,994 12,610 14,375
Income taxes 2,663 2,831 2,844 2,212
---------------------------------------------------------------------------------------------------
Net income $ 5,553 $ 6,079 $ 6,240 $ 4,988
===================================================================================================
Earnings per share:
Basic $ 0.34 $ 0.36 $ 0.36 $ 0.28
Diluted 0.34 0.35 0.35 0.28
2002
===================================================================================================
(In thousands, except First Second Third Fourth
per share data) Quarter Quarter Quarter Quarter
---------------------------------------------------------------------------------------------------
Interest income $ 30,234 $ 30,875 $ 31,457 $ 30,639
Interest expense 15,132 14,571 14,321 14,283
---------------------------------------------------------------------------------------------------
Net interest income 15,102 16,304 17,136 16,356
Provision for loan losses 1,500 2,000 2,010 3,089
Other income 4,062 5,963 5,183 8,113
Other expenses 10,693 11,885 12,043 13,050
Income taxes 2,023 2,984 2,933 2,612
---------------------------------------------------------------------------------------------------
Net income $ 4,948 $ 5,398 $ 5,333 $ 5,718
===================================================================================================
Earnings per share:
Basic $ 0.33 $ 0.34 $ 0.33 $ 0.36
Diluted 0.32 0.33 0.33 0.35
A-54
APPENDIX
A Total Return Performance graph appears on page 19. The information presented
in the graph is represented in a tabular format immediately following the graph.