10-Q 2 allegq.txt FORM 10-Q FOR ALLEGIANT BANCORP, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 2001 ------------------------------------------------ Commission file number 0-26350 -------------------------------------------------------- ALLEGIANT BANCORP, INC. ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) MISSOURI 43-1519382 -------------------------------- -------------------------------------------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 2122 KRATKY ROAD ST. LOUIS, MISSOURI 63114 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (314) 692-8200 ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. /X/ Yes / / No Number of shares Title of class outstanding as of May 1, 2001 --------------------------------- ------------------------------------------ Common stock, $0.01 par value 8,850,403 ALLEGIANT BANCORP, INC. FORM 10-Q INDEX

i PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ALLEGIANT BANCORP, INC. CONSOLIDATED BALANCE SHEETS

1 ALLEGIANT BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

2 ALLEGIANT BANCORP, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

3 ALLEGIANT BANCORP, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

4 ALLEGIANT BANCORP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Basis of Presentation The accompanying condensed consolidated financial statements include the accounts of Allegiant Bancorp, Inc. and our subsidiaries. The terms "Allegiant," "company," "we" and "our" as used in this report refer to Allegiant Bancorp, Inc. and our subsidiaries as a consolidated entity, except where it is made clear that it means only the parent holding company. Also, sometimes we refer to Allegiant Bank, our bank subsidiary, as the "bank." The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2000. Comprehensive Income During the first quarter of 2001 and 2000, total comprehensive income amounted to $3.9 million and $1.6 million, respectively. Acquisitions In July 2000, we signed a definitive agreement to acquire Equality Bancorp, Inc. Equality Bancorp was the parent company of Equality Savings Bank, a Missouri state-chartered savings bank headquartered in St. Louis with seven locations, primarily in the Southern half of the greater St. Louis, Missouri metropolitan area. The acquisition closed during November 2000. We exchanged approximately 2.7 million shares of our common stock for all of the outstanding common stock of Equality Bancorp. At closing, Equality Bancorp had assets of $300 million. During the first quarter of 2001, we adjusted capital surplus by $917,000 related to a correction of the termination of Equality's ESOP. Subsequent Event On April 30, 2001, we signed a definitive agreement for a merger with Southside Bancshares Corp. Southside is a bank holding company with four subsidiary banks in and around St. Louis, Missouri and at December 31, 2000, reported consolidated assets of $737 million. The merger, which is subject to shareholder and regulatory approval, is expected to close in the fourth quarter of this year. Under the terms of the agreement, Southside 5 shareholders will receive 50% of the merger consideration in the form of cash at $14 per share and 50% in the form of 1.39 shares of the surviving company for each share of Southside stock. Each Southside shareholder will be entitled to elect the form of consideration to be received, subject to pro ration of the oversubscribed pool of consideration. Under the terms of the agreement, we expect to exchange a total of approximately 5.8 million shares of the surviving company common stock plus $59 million in cash for all of the outstanding common stock of Southside. In order to finance the cash consideration to be paid in the merger and related costs of approximately $6 million, we intend, immediately prior to the effective time of the merger, to conduct an offering of approximately $35 million of trust preferred securities and to borrow approximately $30 million from LaSalle National Bank. Derivative Financial Instruments Our Company uses off-balance sheet derivatives as part of the overall asset and liability management process and to manage risk related to changes in interest rates. These financial derivatives consist of interest rate swaps. As of January 1, 2001, we adopted Financial Accounting Standards Board Statement No. 133, Accounting for Derivative Instruments and Hedging Activities which was issued in June, 1998 and its amendments, Statement 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 and Statement 138, Accounting for Derivative Instruments and Certain Hedging Activities issued in June 1999 and June 2000, respectively (collectively referred to as Statement 133). The adoption of Statement 133 is applicable to our derivative financial instruments which include five interest rate swap contracts. The interest rate swaps hedge certificates of deposit (CD's) and are matched with the CD's as to final maturity, interest payment dates and call features. The interest rate swaps are a floating pay-fixed instrument and as such, they convert the fixed rate payment on the CD's to a floating rate and thus hedge the fair value of the CD's from changes in interest rates. Upon adoption of Statement 133, the cumulative effect of an accounting change in an amount equal to the accounting effects of the statement as of the beginning of the fiscal year was immaterial. During the quarter ended March 31, 2001, our Company recorded the effects of the ineffectiveness of all hedge transactions as part of the income statement line pertaining to each item. The after-tax effect of the changes was a decrease in net income of $1,900. 6 Recently Issued Accounting Standard Statement of Financial Accounting Standards No. 140 ("SFAS 140"), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," was issued September 2000 and provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. SFAS 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities after March 31, 2001. Also, it is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. Management has not yet quantified the effect, if any, of this new standard on the consolidated financial statements. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains certain forward-looking statements with respect to the financial condition, results of operations and business of Allegiant and our subsidiaries. These forward-looking statements involve certain risks and uncertainties. For example, by accepting deposits at fixed rates, at different times and for different terms, and lending funds at fixed rates for fixed periods, we accept the risk that the cost of funds may rise and interest on loans and investment securities may be at a fixed rate. Similarly, the cost of funds may fall, but we may have committed by virtue of the term of a deposit to pay what becomes an above-market rate. Investments may decline in value in a rising interest rate environment. Loans have the risk that the borrower will not repay all funds in a timely manner, as well as the risk of total loss. Collateral may or may not have the value attributed to it. The loan loss reserve, while believed adequate, may prove inadequate if one or more large borrowers, or numerous smaller borrowers, or a combination of both, experience financial difficulty for individual, national or international reasons. Because the business of banking is highly regulated, decisions of governmental authorities, such as the rate of deposit insurance, can have a major effect on operating results. All of these uncertainties, as well as others, are present in a banking operation and shareholders are cautioned that management's view of the future on which it prices our products, evaluates collateral, sets loan reserves and estimates costs of operation and regulation may prove to be other than anticipated. OVERVIEW The profitability of our operations depends on our net interest income, provision for loan losses, non-interest income and non-interest expense. Net interest income is the difference between the income we receive on our loan and investment portfolios and our cost of funds, which consists of interest paid on deposits and borrowings. The provision for loan losses reflects the cost of credit risk in our loan portfolio. Non-interest income consists primarily of service charges on deposit accounts and fees for ancillary banking services and, to a lesser extent, revenues generated from our mortgage banking, securities brokerage, insurance brokerage and trust operations. Non-interest expense includes salaries and employee benefits as well as occupancy, data processing, marketing, professional fees, insurance and other expenses. Net interest income is dependent on the amounts and yields of interest earning assets compared to the amounts and rates on interest bearing liabilities. Net interest income is sensitive to changes in market rates of interest and our asset/liability management procedures in managing those changes. The provision for loan losses is dependent on increases in the loan portfolio, management's assessment of the collectibility of the loan portfolio and loss experience, as well as economic and market factors. In order to improve the profitability of our banking operations, we have reduced the amount of one- to four-family mortgages we hold in our loan portfolio, while increasing the amount of higher yielding commercial loans. We also have hired several experienced banking professionals with experience in the St. Louis metropolitan area. We have concentrated our focus exclusively on opportunities in the higher-growth St. Louis metropolitan area and, accordingly, have opened new branches, acquired Equality and have entered into an agreement of merger with Southside. We also have implemented company-wide cost-control efforts to enhance efficiencies at our entire operations. 8 Our primary financial objectives are to continue to grow our loan portfolio while maintaining high asset quality, expand our core deposit base to provide a cost-effective and stable source of funding our loan portfolio and increase non-interest income while maintaining strong expense controls. We believe we have maintained high asset quality while managing growth both internally and by acquisition. We also believe our history of strong credit quality has resulted from sound credit practices. RESULTS OF OPERATIONS Net income for the three months ended March 31, 2001 was $2.56 million, a 56% increase over the $1.64 million earned for the first quarter of 2000. Basic earnings per share were $0.29 for the first quarter of 2001 compared to $0.27 for the first quarter of 2000. Diluted earnings per share increased 12% to $0.29 for the first quarter of 2001 compared to $0.26 for the first quarter of 2000. The annualized return on average assets for the first quarter of 2001 was 0.91%, an improvement over the 0.87% annualized return on average assets reported for the first quarter of 2000. The return on average equity on an annualized basis was 12.8% for the first quarter of 2001 compared to 13.5% for the first quarter of 2000. We have utilized the purchase method of accounting to reflect our business combinations. The purchase method results in the recording of goodwill that is amortized as a non-cash charge to operating expenses. Goodwill amortization included as an operating expense totaled $237,000 for both of the three-month periods ended March 31, 2001 and 2000. Cash net income, which adjusts earnings to exclude goodwill amortization, was $2.8 million and $1.9 million for the quarters ended March 31, 2001 and 2000, respectively. Basic cash earnings per share increased to $0.32 in the first quarter of 2001 compared to $0.31 in the first quarter of 2000. Diluted cash earnings per share increased 7% to $0.32 in the recently completed quarter compared to $0.30 in the 2000 period. Total assets at March 31, 2001 and December 31, 2000 totaled $1.14 billion. Asset growth during the period included a $41.0 million increase in loans and a $45.0 million increase in investment securities and fed funds sold and overnight investments and was offset by a $78.0 million decrease in loans held for sale. Deposit balances increased $35.0 million, or 4%, during the first quarter of 2001. Net Interest Income. Net interest income for the three months ended March 31, 2001 was $9.0 million, a 25% increase compared to the $7.2 million reported for the first quarter of 2000. This $1.8 million increase was attributable to an increase of $340 million in average earning assets, offset by a 15 basis point decrease in the yield on average earning assets. The $6.9 million increase in interest income was partially offset by a $5.1 million increase in interest expense. The increase in interest expense was the result of a $320 million increase in average interest bearing liabilities and an increase of 40 basis points in the average interest rate paid between the periods. Net interest margin for the first quarter of 2001 decreased 58 basis points compared to the first quarter of 2000. The earning assets yield decreased 15 basis points while the overall interest rate paid on interest bearing liabilities increased 40 basis points. The net interest spread decreased 55 basis points comparing the first quarter 2001 to the first quarter 2000. The decreases in the net interest margin and spread were the result of the sharp drop in general interest rates in the beginning of 2001 and the yields on assets decreasing more rapidly than the interest rates on liabilities. During the first quarter of 2001, our average federal funds sold position was $33.2 million which was significantly higher than the first quarter 2000 average 9 balance of $2.5 million. The Equality acquisition helped to improve our liquidity position but contributed to our decrease in net interest margin in the three-month period ended March 31, 2001. Interest expense on deposits increased $4.2 million due to a $274 million increase in average interest bearing deposits and due to an increase in the rate paid on deposits from 5.06% in the first quarter of 2000 to 5.52% for the comparable period in 2001. The growth in our deposit base included the acquisition of Equality Bancorp in November 2000, as well as strong internal growth. Interest expense on other interest bearing liabilities increased $817,000 in the first quarter of 2001 compared to the first quarter of 2000. Average short- and long-term borrowings also increased $46.4 million in the first three months of 2001 compared to the year earlier quarter. The average rate on short-term borrowings increased 62 basis points while the rate paid on long-term borrowings increased 14 basis points in the first quarter of 2001 compared to the first quarter of 2000. 10 The following table sets forth the condensed average balance sheets for the periods reported. Also shown is the average yield on each category of interest earning assets and the average rate paid on interest bearing liabilities for each of the periods reported. DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY AND INTEREST RATES

11 The following table sets forth for the periods indicated the changes in interest income and interest expense which were attributable to change in average volume and changes in average rates. Volume variances are computed using the change in volume multiplied by the previous year's rate. Rate variances are computed using the changes in rate multiplied by the previous year's volume. The change in interest due to both rate and volume has been allocated between the factors in proportion to the relationship of the absolute dollar amounts of the change in each. RATE/VOLUME ANALYSIS

Note: The change in interest due to the combined rate-volume variance has been allocated to rate and volume changes in proportion to the absolute dollar amount of the changes in each. 12 Other Income. Other income increased 121% to $2.8 million in the first quarter of 2001 compared to $1.2 million for the three months ended March 31, 2000. Service charge income for the three-month period ended March 31, 2001 increased $249,000 or 35%, compared to the first quarter of 2000. This increase was attributable to an increased deposit base and our focus on revenue enhancement programs. Gains on the sales of securities increased to $531,000 for the quarter ended March 31, 2001 from $36,000 for the comparable period in 2000. The securities gains included a $221,000 gain on the sale of a non-governmental investment which allowed us to reinvest the funds in bank qualified investments. For the quarter ended March 31, 2001 mortgage banking revenue was $490,000 compared to $53,000 for the quarter ended March 31, 2000. The change was the result of a significant increase in mortgage refinancings and the November 2000 acquisition of Equality's mortgage subsidiary. Other Expenses. For the three months ended March 31, 2001 compared to the first quarter of 2000, other expenses increased 33%, to $6.5 million from $4.9 million. The increase in other expenses was a direct result of our acquisition of the six branches of Equality Bancorp. Salaries and employee benefits increased 44% to $3.6 million for the three months ended March 31, 2001 compared to $2.5 million for the three months ended March 31, 2000. We had 300 full-time equivalent employees at March 31, 2001 compared to 215 full-time equivalent employees at March 31, 2000. Total annualized cost per full-time equivalent employee was $47,947 for the three months ended March 31, 2001 compared to $46,697 for the corresponding period of 2000. Expenses associated with premises and equipment increased $237,000 for the three-month period ended March 31, 2001 compared to the first quarter of 2000, with occupancy expense increasing $187,000 and furniture and equipment increasing $60,000. Our efficiency ratio was 55% for the quarter ended March 31, 2001 compared to 59% for the first quarter of 2000. This improvement reflected our commitment to improving our overall efficiency by continuing to emphasize revenue growth while maintaining control over our operating costs. 13 Securities Portfolio. Our securities portfolio consists of securities classified as held-to-maturity and available-for-sale. We designate these securities at the time of purchase into one of these two categories. At March 31, 2001, held-to-maturity securities amounted to $4.9 million representing those securities we intended to hold to maturity. Securities designated as available-for-sale totaled $144.2 million representing securities which we may sell to meet liquidity needs or in response to significant changes in interest rates or prepayment patterns. For purposes of this discussion, held-to-maturity and available- for-sale securities are described as the securities portfolio. At March 31, 2001, the securities portfolio totaled $149.0 million, an increase of $14.7 million from December 31, 2000. We maintain a conventional short-term laddered portfolio investment strategy to provide adequate liquidity while minimizing interest rate risk. The carrying values of the securities portfolio at the dates indicated were as follows: INVESTMENT SECURITIES PORTFOLIO

14 Loans. Loans historically have been the primary component of earning assets. At March 31, 2001, loans totaled $855.1 million, an increase of 5% from year-end 2000. Substantially all of these loans were originated in our market area. At March 31, 2001, we had no foreign loans and only a minimal amount of participations purchased. During the first quarter of 2001, we decreased loans held for sale by $78.3 million through the sale of the majority of the one- to four-family mortgage loans acquired from Equality. Multi-family and commercial real estate mortgage loans showed the largest increase of $16.1 million during the first quarter of 2001. The second largest increase in loans involved commercial loans, which increased $13.2 million. The increase in these loans reflected our efforts to grow our commercial loan portfolio, including loans originated by our expanded commercial lending staff. Multi-family and commercial real estate mortgage loans comprised 36% of the portfolio at March 31, 2001 and at year-end 2000. Commercial loans represented 21% and 20% of the loan portfolio, respectively, at March 31, 2001 and December 31, 2000. Real estate construction loans comprised 15% of the loan portfolio at March 31, 2001 and December 31, 2000. The following table summarizes the composition of our loan portfolio at the dates indicated: LENDING AND CREDIT MANAGEMENT

Asset Quality. Non-performing assets consist of the following: non- accrual loans on which the ultimate collectibility of the full amount of interest is uncertain; loans which have been renegotiated to provide for a reduction or deferral of interest or principal because of a deterioration in the financial condition of the borrower; loans past due 90 days or more as to principal or interest; and other real estate owned. Non-performing assets increased to $7.8 million at March 31, 2001 compared to $3.3 million at December 31, 2000. At March 31, 2001, non-performing assets represented 0.69% of total assets compared to 0.29% at December 31, 2000. Non-accrual loans totaled $5.9 million at March 31, 2001 compared to $0.8 million at December 31, 2000. The increase was attributable to two real estate development loans which have been transferred into non-performing loans during the first quarter of 2001. The bank is working with the two borrowers to liquidate the loans and does not anticipate any loss beyond the specific losses already charged against earnings in addition to the specific reserves of $1.2 15 million already established. Excluding these two credits, our ratio of non- performing assets to total assets would have been 0.19%, an improvement from 0.29% at December 31, 2000. We continually analyze our loan portfolio to identify potential risk elements. The loan portfolio is reviewed by lending management and the bank's internal loan review staff. As an integral part of their examination process, the various regulatory agencies periodically review our allowance for loan losses. The following table summarizes, at the date presented, non-performing assets by category: RISK ELEMENTS - NON-ACCRUAL, PAST DUE AND RESTRUCTURED LOANS

16 Allowance for Loan Losses. The provision for loan losses was $850,000 during the first three months of 2001 compared to $715,000 for the first quarter of 2000. Net charge-offs were $263,000 for the three months ended March 31, 2001 compared to $24,000 for the first quarter of 2000. Net charge-offs for the first three months of 2001 represented 0.03% of average loans, compared to less than 0.01% of average loans for the first three months of 2000. The allowance for loan losses increased to $12.0 million at March 31, 2001 compared to $11.4 million at December 31, 2000 and to $9.0 million at March 31, 2000. As a percentage of loans outstanding, the allowance represented 1.40% of loans at March 31, 2001 and December 31, 2000, and 1.35% at March 31, 2000. The higher expense provision and the higher allowance percentage were the result of the change in the composition of the loan portfolio and the shift in our lending focus to higher yielding commercial relationships. This shift, while providing higher earnings potential, does entail greater risk than traditional residential mortgage loans. Additional weight has been given to the increased risks associated with the commercial real estate portfolio. Specific allowances have been increased on certain commercial real estate loans based on individual revenues of these borrowers and an estimate of the borrower's ability to repay the loan given the availability of collateral, other sources of cash flow and collection options available to us. The specific review of these commercial real estate loans resulted in the increase in the percentage of the total allowance allocated to this loan category. The allowance for loan losses is provided at a level considered adequate to provide for potential losses and, among other things, is based on management's evaluation of the anticipated impact on the loan portfolio of current economic conditions, changes in the character and size of the loan portfolio and evaluation of potential problem loans identified based on existing circumstances known to management. We continually monitor the quality of the loan portfolio to ensure the timely charge-off of problem loans and to determine the adequacy of the level of the allowance for loan losses. We presently believe that our asset quality, as measured by the statistics in the following table, continues to be very high and that our allowance is adequate to absorb potential losses inherent in the portfolio at March 31, 2001. 17 The following table summarizes, for the periods indicated, activity in the allowance for loan losses, including amounts of loans charged off, amounts of recoveries and additions to the allowance charged to operating expense. SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION

18 Deposits. Total deposits increased $35.4 million, or 4%, during the first quarter of 2001 compared to December 31, 2000. The increase in deposits consisted primarily of a $21.9 million increase in certificates of deposit. Much of this growth was the result of certificate of deposit promotions during the first quarter of 2001. Non-interest bearing deposits increased by $8.0 million, or 9%, to $94.0 million at March 31, 2001. We have been successful in expanding our deposit base while maintaining our focus on personal service. Our lending officers have increased commercial deposits while our retail banking staff continues efforts to increase our core deposits. The following table summarizes deposits as of the dates indicated: DEPOSIT LIABILITY COMPOSITION

19 LIQUIDITY MANAGEMENT AND CAPITAL RESOURCES Liquidity Management. Long-term liquidity is a function of the core deposit base and an adequate capital base. We are committed to growth of our core deposit base and maintenance of our capital base. The growth of the deposit base has been attributable to acquisitions, as well as internally generated through product pricing and product development. During the three months ended March 31, 2001 and the year ended December 31, 2000, both of these elements contributed to developing and maintaining long-term liquidity. Our capital position has been maintained through earnings retention and raising of capital. See "- Capital Resources." Short-term liquidity needs arise from continuous fluctuations in the flow of funds on both sides of the balance sheet resulting from growth and seasonal and cyclical customer demands. The securities portfolio provides stable long-term earnings, as well as serves as 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 enter into repurchase agreements using those securities. We anticipate continued loan demand in our market area as banking industry consolidation continues. We have utilized, and expect to continue to utilize, Federal Home Loan Bank borrowings to fund a portion of future loan growth. We have a $165 million secured credit facility with the Federal Home Loan Bank, under which $118 million and $143 million was outstanding at March 31, 2001 and December 31, 2000, respectively. Short-term borrowings decreased $31 million during the first quarter of 2001 while long-term borrowings remained virtually unchanged. Funds received from loans held for sale were used to reduce short-term borrowings. We continue to utilize Federal Home Loan Bank borrowings to fund loan growth while systematically building our deposit base. We anticipate similar use of the Federal Home Loan Bank facility in the foreseeable future. We experienced net growth in assets of 0.7% during the first three months of 2001, while deposits increased 4% during the same period. We continue to emphasize growth in stable core deposits while utilizing the Federal Home Loan Bank, federal funds purchased and brokered certificates of deposit as necessary to balance liquidity and cost effectiveness. We closely monitor our level of liquidity in view of expected future needs. Capital Resources. Total shareholders' equity was $81 million at March 31, 2001, compared to $78 million at year-end 2000. The increase in total equity was the result of earnings retention and an increase of $1.4 million in net unrealized gains on available-for-sale securities. Our capital requirements historically have been financed through offerings of debt and equity securities, retained earnings and borrowings from a commercial bank. The principal amount of our term loan was $12.6 million as of March 31, 2001, and matures in November 2001. Allegiant Bank also utilizes its borrowing capacity with the Federal Home Loan Bank. We have purchased brokered certificates of deposit in order to fund loan growth and meet other liquidity needs. At March 31, 2001, we had $14 million outstanding which matures on various dates through May 3, 2001. We may use brokered deposits in the future as a source of liquidity. 20 Dividends paid during the first quarter of 2001 were $0.055 per share, an increase of 10% compared to the $0.05 per share paid in April 2000 for the first quarter of 2000. Our dividend payout ratio was 19% in the first quarter of 2001. We also analyze our capital and the capital position of our bank in terms of regulatory risked-based capital guidelines. This analysis of capital is dependent upon a number of factors, including asset quality, earnings strength, liquidity, economic conditions and combinations thereof. The Federal Reserve Board has issued standards for measuring capital adequacy for bank holding companies. These standards are designed to provide risk-responsive capital guidelines and to incorporate a consistent framework for use by financial institutions. Our management believes that, as of March 31, 2001, we and our subsidiaries met all capital adequacy requirements. We will seek to maintain a strong equity base while executing our controlled expansion plans. As of March 31, 2001, December 31, 2000 and March 31, 2000, Allegiant's and Allegiant Bank's capital ratios were as follows:

In order to finance the cash consideration to be paid in the merger and related costs of approximately $6 million, we intend, immediately prior to the effective time of the merger, to conduct an offering of approximately $35 million of trust preferred securities and to borrow approximately $30 million from LaSalle National Bank. 21 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes from the information provided in our Annual Report on Form 10-K for the year ended December 31, 2000. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: See Exhibit Index attached hereto. b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended March 31, 2001. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The undersigned signs this report in his dual capacities as a duly authorized officer of the registrant and also as the registrant's Chief Financial Officer. ALLEGIANT BANCORP, INC. May 10, 2001 By: /s/ Thomas A. Daiber --------------------------------------- Thomas A. Daiber, Senior Vice President and Chief Financial Officer 23 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION ----------- ----------- 11.1 Computation of Earnings Per Share 24

ALLEGIANT BANCORP INC 10-Q