-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JwN/7tfU3CBGMJaIX6t0orKsPXsdMBHmp6wXZBkPZoSvIM3+f0CNjIoEHpi0qoYD Rc8hAokZaYvm0VdEyMQzzQ== 0000928385-98-002265.txt : 19981113 0000928385-98-002265.hdr.sgml : 19981113 ACCESSION NUMBER: 0000928385-98-002265 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE BANCORP CENTRAL INDEX KEY: 0000885638 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 363811768 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20082 FILM NUMBER: 98744267 BUSINESS ADDRESS: STREET 1: ONE GRANT SQUARE CITY: HINSDALE STATE: IL ZIP: 60521 BUSINESS PHONE: 7083231780 MAIL ADDRESS: STREET 1: ONE GRANT SQUARE CITY: HINSDALE STATE: IL ZIP: 60522 FORMER COMPANY: FORMER CONFORMED NAME: HINSDALE FINANCIAL CORPORATION DATE OF NAME CHANGE: 19930328 10-Q 1 FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to COMMISSION FILE NUMBER 0-20082 ALLIANCE BANCORP (Exact name of registrant as specified in its charter) DELAWARE 36-3811768 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE GRANT SQUARE, HINSDALE, ILLINOIS 60521 (Address of principal executive offices) (Zip Code) (630) 323-1776 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all the 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. YES __X__ NO______ Indicate the number of shares outstanding of each of the issuer's classes of stock, as of the latest practicable date. Common Stock, $0.01 par value -11,457,035 shares outstanding as of November 7, 1998. ================================================================================ ALLIANCE BANCORP AND SUBSIDIARIES FORM 10-Q Index -----
PART I. FINANCIAL INFORMATION Page - ------- --------------------- ---- Item 1. Financial Statements (unaudited) Consolidated Statements of Financial Condition as of September 30, 1998 and December 31, 1997 1 Consolidated Statements of Income for the Three and Nine Months Ended September 30, 1998 and 1997 2 Consolidated Statements of Changes in Stockholders' Equity for the Nine Months Ended September 30, 1998 and 1997 3 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998 and 1997 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Asset/Liability Management" 14 PART II. OTHER INFORMATION - -------- ----------------- Item 1. Legal Proceedings 19 Item 2. Changes in Securities and Use of Proceeds 20 Item 3. Defaults upon Senior Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 20 Signature Page 21
ALLIANCE BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31, (In thousands, except share data) 1998 1997 - -------------------------------------------------------------------------------------------------------------------- (unaudited) Assets Cash and due from banks $ 16,236 18,238 Interest-bearing deposits 15,057 40,275 Investment securities available for sale, at fair value 96,408 133,447 Mortgage-backed securities available for sale, at fair value 470,836 234,869 Loans, net of allowance for losses of $6,317 at September 30, 1998 and $6,170 at December 31, 1997 1,403,320 1,226,253 Accrued interest receivable 12,287 10,272 Real estate 15,703 12,361 Premises and equipment, net 12,199 10,635 Stock in Federal Home Loan Bank of Chicago, at cost 26,491 15,589 Other assets 31,022 20,886 - -------------------------------------------------------------------------------------------------------------------- $ 2,099,559 1,722,825 - -------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Liabilities: Deposits $ 1,304,112 1,305,667 Borrowed funds 572,385 207,381 Collateralized mortgage obligations 208 1,065 Advances by borrowers for taxes and insurance 16,708 14,359 Accrued expenses and other liabilities 20,544 19,427 - -------------------------------------------------------------------------------------------------------------------- Total liabilities 1,913,957 1,547,899 - -------------------------------------------------------------------------------------------------------------------- Stockholders' Equity: Preferred stock, $.01 par value; authorized 1,500,000 shares; none outstanding - - Common stock, $.01 par value; authorized 21,000,000 shares; 11,611,057 shares issued and 11,457,035 outstanding at September 30, 1998 11,428,662 shares issued and 11,272,994 outstanding at December 31, 1997 116 114 Additional paid-in capital 107,042 104,178 Retained earnings, substantially restricted 77,141 70,851 Treasury stock, at cost; 154,022 shares at September 30, 1998 and 155,668 at December 31, 1997 (1,511) (1,527) Common stock purchased by Employee Stock Ownership Plan - (320) Accumulated other comprehensive income 2,814 1,630 - -------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 185,602 174,926 - -------------------------------------------------------------------------------------------------------------------- Commitments and contingencies - -------------------------------------------------------------------------------------------------------------------- $ 2,099,559 1,722,825 - --------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements. 1 ALLIANCE BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended September 30, September 30, (In thousands, except per share amounts) 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------------- (unaudited) Interest Income: Loans $ 25,011 26,469 72,304 73,084 Mortgage-backed securities 8,012 3,869 20,580 9,544 Investment securities 2,391 2,845 7,545 6,180 Interest-bearing deposits 152 380 2,163 964 Commercial paper - - - 37 Federal funds sold - - - 15 - ------------------------------------------------------------------------------------------------------------------------- Total interest income 35,566 33,563 102,592 89,824 - ------------------------------------------------------------------------------------------------------------------------- Interest Expense: Deposits 15,292 15,319 45,631 42,332 Borrowed funds 7,136 4,210 17,826 10,885 Collateralized mortgage obligations 6 43 44 154 - ------------------------------------------------------------------------------------------------------------------------- Total interest expense 22,434 19,572 63,501 53,371 - ------------------------------------------------------------------------------------------------------------------------- Net interest income 13,132 13,991 39,091 36,453 Provision for loan losses 50 6 212 18 - ------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 13,082 13,985 38,879 36,435 - ------------------------------------------------------------------------------------------------------------------------- Noninterest Income: Gain (loss) on sales of loans and mortgage-backed securities available for sale 339 60 817 (286) Gain on sales of investment securities available for sale - 97 178 222 Income from real estate operations 384 12 1,285 274 Servicing fee income (69) 113 83 327 ATM fee income 489 488 1,457 1,308 Other fees and commissions 3,623 3,991 11,683 10,246 Other (81) 116 208 330 - ------------------------------------------------------------------------------------------------------------------------- Total noninterest income 4,685 4,877 15,711 12,421 - ------------------------------------------------------------------------------------------------------------------------- Noninterest Expense: Compensation and benefits 6,138 6,680 20,785 18,152 Occupancy expense 1,757 1,462 4,819 4,178 Federal deposit insurance premiums 204 202 608 581 Advertising expense 275 242 754 845 ATM expense 309 373 1,145 987 Computer services 345 364 1,350 1,200 Other 2,272 2,460 7,645 6,138 - ------------------------------------------------------------------------------------------------------------------------- Total noninterest expense 11,300 11,783 37,106 32,081 - ------------------------------------------------------------------------------------------------------------------------- Income before income taxes 6,467 7,079 17,484 16,775 Income tax expense 2,623 2,680 7,062 6,304 - ------------------------------------------------------------------------------------------------------------------------- Net income $ 3,844 4,399 10,422 10,471 - ------------------------------------------------------------------------------------------------------------------------- Basic earnings per share $ 0.34 0.39 0.92 0.99 Diluted earnings per share $ 0.32 0.37 0.87 0.93 - -------------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements. 2 ALLIANCE BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Additional Comprehensive Common Paid-in Retained (In thousands, except share and per share amounts) Income Stock Capital Earnings - ----------------------------------------------------------------------------------------------------------- (unaudited) Balance at December 31, 1996 $ 60 37,771 61,733 Comprehensive income: Net income 10,471 - - 10,471 Other comprehensive income, net of tax Change in unrealized gain (loss) on securities, net of reclassification adjustment 2,171 - - - --------- Comprehensive income 12,642 Issuance of 3,930,405 shares for merger of Liberty Bancorp 26 65,106 - Cash dividends declared, $0.34 per share - - (3,792) Stock split effected in the form of a stock dividend 27 - (27) Cash paid in lieu of fractional shares - - (5) Purchase of treasury stock - (125) - Proceeds from exercise of stock options 1 498 - Tax benefit from stock related compensation - 211 - Principal payment on ESOP loan - - - Amortization of award of RRP stock - - - - ----------------------------------------------------------------------------------------------------------- Balance at September 30, 1997 $ 114 103,461 68,380 - ----------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 $ 114 104,178 70,851 Comprehensive income: Net income 10,422 - - 10,422 Other comprehensive income, net of tax Change in unrealized gain (loss) on securities, net of reclassification adjustment 1,184 - - - --------- Comprehensive income 11,606 Cash dividends declared, $0.36 per share - - (4,127) Cash paid in lieu of fractional shares - - (5) Treasury stock distributed under employee benefit plan - (17) - Issuance of stock (71,866 shares) 1 1,499 - Proceeds from exercise of stock options 1 639 - Tax benefit from stock related compensation - 743 - Principal payment on ESOP loan - - - - ----------------------------------------------------------------------------------------------------------- Balance at September 30, 1998 $ 116 107,042 77,141 - ----------------------------------------------------------------------------------------------------------- See accompanying notes to unaudited consolidated financial statements. Common Common Accumulated Stock Stock Other Treasury Purchased Purchased Comprehensive (In thousands, except share and per share amounts) Stock By ESOP By RRPs Income Total - ------------------------------------------------------------------------------------------------------------------------- (unaudited) Balance at December 31, 1996 $ (1,310) $ (1,069) (122) (604) 96,459 Comprehensive income: Net income - - - - 10,471 Other comprehensive income, net of tax Change in unrealized gain (loss) on securities, net of reclassification adjustment - - - 2,171 2,171 Comprehensive income Issuance of 3,930,405 shares for merger of Liberty Bancorp - (555) - - 64,577 Cash dividends declared, $0.34 per share - - - - (3,792) Stock split effected in the form of a stock dividend - - - - - Cash paid in lieu of fractional shares - - - - (5) Purchase of treasury stock (217) - - - (342) Proceeds from exercise of stock options - - - - 499 Tax benefit from stock related compensation - - - - 211 Principal payment on ESOP loan - 1,224 - - 1,224 Amortization of award of RRP stock - - 122 - 122 - ------------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1997 $ (1,527) (400) - 1,567 171,595 - ------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 $ (1,527) (320) - 1,630 174,926 Comprehensive income: Net income - - - - 10,422 Other comprehensive income, net of tax Change in unrealized gain (loss) on securities, net of reclassification adjustment - - - 1,184 1,184 Comprehensive income Cash dividends declared, $0.36 per share - - - - (4,127) Cash paid in lieu of fractional shares - - - - (5) Treasury stock distributed under employee benefit plan 16 - - - (1) Issuance of stock (71,866 shares) - - - - 1,500 Proceeds from exercise of stock options - - - - 640 Tax benefit from stock related compensation - - - - 743 Principal payment on ESOP loan - 320 - - 320 - ------------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1998 $ (1,511) - - 2,814 185,602 - -------------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements. 3 ALLIANCE BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, (In thousands) 1998 1997 - -------------------------------------------------------------------------------------------------------------------- (unaudited) Cash Flows From Operating Activities: Net income $ 10,422 10,471 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 1,440 1,217 Provision for loan losses 212 18 Amortization of cost of stock benefit plans - 122 Amortization of premiums, discounts, and deferred loan fees 545 1,258 Originations of loans held for sale (542,269) (390,905) Sale of loans originated for resale 467,016 368,484 (Gain) loss on sales of loans and mortgage-backed securities available for sale (817) 286 Gain on sales of investment securities available for sale (178) (222) Increase in accrued interest receivable (2,015) (2,369) (Increase) decrease in other assets (12,804) 2,761 Increase (decrease) in accrued expenses and other liabilities 739 (2,801) - -------------------------------------------------------------------------------------------------------------------- Net cash used in operating activities (77,709) (11,680) - -------------------------------------------------------------------------------------------------------------------- Cash Flows From Investing Activities: Loans originated or purchased for investment (383,127) (143,230) Purchases of: Mortgage-backed securities available for sale (359,763) (90,354) Investment securities available for sale (66,569) (93,040) Stock in Federal Home Loan Bank of Chicago (10,902) (171) Premises and equipment (3,004) (1,919) Proceeds from sale of: Mortgage-backed securities available for sale 51,046 3,996 Investment securities available for sale 234 6,995 Stock in Federal Home Loan Bank of Chicago - 545 Loans held for investment 3,491 63,046 Proceeds from maturities of investment securities available for sale 104,025 28,500 Net assets acquired through merger, net of cash acquired - 16,417 Principal collected on loans 276,760 199,617 Principal collected on mortgage-backed securities 74,370 20,295 - -------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (313,439) 10,697 - -------------------------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities: Net increase (decrease) in deposits (1,245) 15,081 Proceeds from borrowed funds 481,187 257,853 Repayment of borrowed funds (116,200) (254,708) Repayment of collateralized mortgage obligations (869) (899) Net increase (decrease) in advance payments by borrowers for taxes and insurance 2,349 (10,108) Purchase of treasury stock - (342) Proceeds from sale of treasury stock 1,500 - Cash dividends paid (3,749) (2,910) Cash paid in lieu of fractional shares (5) (5) Decrease in ESOP loan 320 1,224 Proceeds from exercise of stock options 640 499 - -------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 363,928 5,685 - -------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (27,220) 4,702 Cash and cash equivalents at beginning of period 58,513 38,921 - -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 31,293 43,623 - -------------------------------------------------------------------------------------------------------------------- Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 62,346 53,249 Income taxes 10,203 4,269 Supplemental Disclosures of Noncash Activities: Loans exchanged for mortgage-backed securities $ 39,037 54,589 Additions to real estate acquired in settlement of loans $ 878 272 - --------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements. 4 ALLIANCE BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Nine Months Ended September 30,1998 and 1997 (1) Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") 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 GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals) necessary for a fair presentation have been included. The unaudited consolidated financial statements include the accounts of Alliance Bancorp ("the Company"), its wholly-owned subsidiaries: Liberty Lincoln Service Corporation II, Liberty Wexford LLC, Liberty Title Company, Southwest Bancshares Development Corporation and Liberty Federal Bank ("the Bank"), and the Bank's wholly-owned subsidiaries: Preferred Mortgage Associates, Ltd. ("Preferred"), Liberty Financial Services, Inc., Liberty Lincoln Service Corporation, Southwest Service Corporation and NASCOR II Corporation. All material intercompany balances and transactions have been eliminated. (2) Acquisition On June 30, 1998, Alliance Bancorp consummated the acquisition of Southwest Bancshares. The transaction was accounted for under the pooling-of-interests method of accounting and 1.1981 shares of Alliance Bancorp common stock was exchanged for each share of Southwest Bancshares outstanding common stock. There were 3,411,500 shares of Alliance Bancorp shares issued for 2,847,585 shares of Southwest Bancshares. Southwest Bancshares had total assets of $391 million and deposits of $308 million at the date of acquisition. The consolidated financial statements of Alliance Bancorp for periods prior to the combination have been restated to include the accounts and the results of operations of Southwest Bancshares for all periods presented. There were no material intercompany transactions prior to the acquisition and no material differences in the accounting and reporting policies of Alliance Bancorp and Southwest Bancshares. Certain operating financial data previously reported by Alliance Bancorp and Southwest Bancshares on a separate basis and the combined amounts presented in the accompanying consolidated financial statements are summarized as follows:
Three Months Ended Nine Months Ended ------------------------------------------------------------------- March 31, June 30, September 30, September 30, (In thousands, except per share amounts) 1998 1997 1997 1997 - --------------------------------------------------------------------------------------------------------------------- Interest income Alliance Bancorp $ 25,637 23,329 26,507 68,697 Southwest Bancshares 7,035 7,016 7,056 21,127 ------------------------------------------------------------------- Combined $ 32,672 30,345 33,563 89,824 Net interest income Alliance Bancorp $ 9,879 8,890 10,993 27,403 Southwest Bancshares 3,040 3,009 2,998 9,050 ------------------------------------------------------------------- Combined $ 12,919 11,899 13,991 36,453 Noninterest income Alliance Bancorp $ 5,571 4,210 4,507 11,414 Southwest Bancshares 605 355 370 1,007 ------------------------------------------------------------------- Combined $ 6,176 4,565 4,877 12,421 Net income Alliance Bancorp $ 3,652 2,636 3,340 7,405 Southwest Bancshares 1,185 1,011 1,059 3,066 ------------------------------------------------------------------- Combined $ 4,837 3,647 4,399 10,471 Diluted earnings per share Alliance Bancorp $ 0.42 0.31 0.39 0.53 Southwest Bancshares 0.36 0.31 0.38 0.61 ------------------------------------------------------------------- Combined $ 0.41 0.31 0.37 0.93
5 (3) Comprehensive Income In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." The Company adopted this statement effective January 1, 1998. The following table sets forth the required disclosures of the reclassification amounts as presented on the statement of changes in stockholders' equity and the related tax effects allocated to each component of other comprehensive income for the periods indicated:
Before Tax Net Tax (Expense) of Tax (In thousands) Amount or Benefit Amount - -------------------------------------------------------------------------------------------------------------------- Three Months Ended September 30, 1997 Disclosure of reclassification amount: Unrealized holding gain (loss) on securities arising during the period $ 2,933 (1,075) 1,858 Less: reclassification adjustment for gain (loss) included in net income 81 (32) 49 - -------------------------------------------------------------------------------------------------------------------- Net unrealized gain (loss) on securities $ 2,852 (1,043) 1,809 - -------------------------------------------------------------------------------------------------------------------- Three Months Ended September 30, 1998 Disclosure of reclassification amount: Unrealized holding gain (loss) on securities arising during the period $ 3,276 (1,130) 2,146 Less: reclassification adjustment for gain (loss) included in net income - - - - -------------------------------------------------------------------------------------------------------------------- Net unrealized gain (loss) on securities $ 3,276 (1,130) 2,146 - -------------------------------------------------------------------------------------------------------------------- Nine Months Ended September 30, 1997 Disclosure of reclassification amount: Unrealized holding gain (loss) on securities arising during the period $ 3,565 (1,296) 2,269 Less: reclassification adjustment for gain (loss) included in net income 162 (64) 98 - -------------------------------------------------------------------------------------------------------------------- Net unrealized gain (loss) on securities $ 3,403 (1,232) 2,171 - -------------------------------------------------------------------------------------------------------------------- Nine Months Ended September 30, 1998 Disclosure of reclassification amount: Unrealized holding gain (loss) on securities arising during the period $ 2,324 (837) 1,487 Less: reclassification adjustment for gain (loss) included in net income 504 (201) 303 - -------------------------------------------------------------------------------------------------------------------- Net unrealized gain (loss) on securities $ 1,820 (636) 1,184 - --------------------------------------------------------------------------------------------------------------------
6 (4) Earnings per Share In 1997, FASB issued SFAS No. 128, "Earnings per Share." Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. Earnings per share amounts for the quarter and nine months ended September 30, 1997 have been restated to conform to the Statement 128 requirements. The following table sets forth the computation of basic and diluted earnings per share for the periods indicated:
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------------------------------ (In thousands, except share data) 1998 1997 1998 1997 - --------------------------------------------------------------------------------------------------------------------- Numerator: Net income $ 3,844 4,399 10,422 10,471 Denominator: Basic earnings per share-weighted average shares 11,441,186 11,197,655 11,366,104 10,585,384 Effect of dilutive securities-stock options 537,904 668,768 607,592 650,375 Diluted earnings per share-adjusted weighted average shares 11,979,090 11,866,423 11,973,696 11,235,759 Basic earnings per share $ 0.34 0.39 0.92 0.99 Diluted earnings per share $ 0.32 0.37 0.87 0.93
(5) Commitments and Contingencies At September 30, 1998 the Company had outstanding commitments to originate and purchase loans of $123 million. Unused equity lines of credit available to customers were $94 million at September 30, 1998. (6) Reclassifications Certain reclassifications of prior year amounts have been made to conform with the current year presentation. 7 ALLIANCE BANCORP AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL On June 30, 1998, Alliance Bancorp consummated the acquisition of Southwest Bancshares. The transaction was accounted for under the pooling-of-interests method of accounting and 1.1981 shares of Alliance Bancorp common stock was exchanged for each share of Southwest Bancshares outstanding common stock. There were 3,411,500 shares of Alliance Bancorp shares issued for 2,847,585 shares of Southwest Bancshares. Southwest Bancshares had total assets of $391 million and deposits of $308 million at the date of acquisition. On February 10, 1997, Hinsdale Financial Corporation ("Hinsdale Financial") completed a merger of equals with Liberty Bancorp Inc. of Chicago, Illinois ("Liberty Bancorp"). Liberty Bancorp was merged with and into Hinsdale Financial. Concurrent with the merger, Hinsdale Financial changed its name to Alliance Bancorp ("the Company"), and 3,930,405 shares of the Company's common stock were exchanged for all of the outstanding shares of Liberty Bancorp. Additionally in connection with the merger, the wholly-owned subsidiary of Liberty Bancorp, Liberty Federal Savings Bank ("Liberty Federal Savings"), was merged with and into the wholly-owned subsidiary of Hinsdale Financial, Hinsdale Federal Bank for Savings ("Hinsdale Federal"), which then changed its name to Liberty Federal Bank ("Liberty Federal", the "Bank"). The merger of Liberty Bancorp with and into the Company was recorded as a purchase accounting transaction, in which all of Liberty Bancorp's assets and liabilities were recorded at fair value at the closing date. The fair value of net assets acquired approximated the purchase price; accordingly, no goodwill was recorded. Liberty Bancorp had total assets of $680 million and deposits of $516 million at the date of the merger. The Company is a registered savings and loan holding company incorporated under the laws of the state of Delaware and is engaged in the business of providing financial service products to the public through its wholly-owned subsidiary, Liberty Federal Bank. The Bank, a Federal savings bank chartered under the authority of the Office of Thrift Supervision ("OTS"), originally was organized in 1934, and changed its charter from a federal savings and loan association to a federal savings bank in 1991. The Bank is a member of the Federal Home Loan Bank ("FHLB") System and its deposit accounts are insured to the maximum allowable amount by the Federal Deposit Insurance Corporation ("FDIC"). The Bank is regulated by the OTS and the FDIC and is further regulated by the Board of Governors of the Federal Reserve System as to reserves required to be maintained against deposits and certain other matters. The Bank is a community-oriented company providing financial services through 20 retail banking facilities in Chicago; north, west and southwestern Cook County; and DuPage County in Illinois. The Bank offers a variety of deposit products in an attempt to attract funds from the general public in the highly competitive market areas surrounding its offices. In addition to deposit products, the Bank also offers its customers financial advice and security brokerage services through INVEST Financial Corporation ("INVEST"). The Bank invests its retail deposits in mortgage and consumer loans, investment securities and mortgage-backed securities, secured primarily by one-to four- family residential loans. The earnings of the Bank are primarily dependent on its net interest income, which is the difference between the interest income earned on its loan, mortgage-backed securities, and investment portfolios, and its cost of funds, consisting of the interest paid on its deposits and borrowings. The Bank has determined to place additional emphasis on expanding its portfolio of home equity lines of credit, the interest rates on which adjust with the prime rate, multi-family mortgage loans and commercial real estate loans. The Bank's earnings are also affected by noninterest income, including income related to loan origination fees contributed by the Bank's wholly-owned subsidiary, Preferred Mortgage Associates, Ltd. ("Preferred") and the noncredit consumer related financial services offered by the Bank, such as net commissions received by the Bank from securities brokerage services, commissions from the sale of insurance products, loan servicing income, fee income on transaction accounts, and interchange fees from its shared ATMs. The Bank's noninterest income has also been affected by gains from the sale of various assets, including loans, mortgage-backed securities, and real 8 estate. Noninterest expense consists principally of employee compensation and benefits, occupancy expense, federal deposit insurance premiums, and other general and administrative expenses of the Bank and Preferred. The Bank's results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies and actions of regulatory authorities. LIQUIDITY/CAPITAL RESOURCES The Company's primary sources of funds are deposits, borrowings, proceeds from principal and interest payments on loans and mortgage-backed securities and the sale of securitized loans. While maturities and scheduled amortization of loans and mortgage-backed securities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by interest rate cycles and economic conditions. The Bank is required by regulation to maintain specific minimum levels of liquid investments. Regulations currently in effect require the Bank to maintain liquid assets at least equal to 4.0% of the sum of its average daily balance of net withdrawable accounts and short-term borrowed funds. This regulatory requirement may be changed from time to time by the OTS to reflect current economic conditions and deposit flows. The Bank's average liquidity ratio was 4.40% for the quarter ended September 30, 1998. The Company's most liquid assets are cash and cash equivalents, which include investments in highly liquid, short-term investments and interest-bearing deposits. The levels of these assets are dependent on the Company's operating, financing, lending and investing activities during any given period. At September 30, 1998, cash and cash equivalents totaled $31.3 million. Liquidity management for the Company is both a daily and long-term function of the Company's management strategy. Excess funds are generally invested in short-term investments and interest-bearing deposits. In the event that the Company should require funds beyond its ability to generate them internally, additional sources of funds are available through the use of Federal Home Loan Bank of Chicago ("FHLB") advances. The Company's cash flows are comprised of three classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Net cash related to operating activities, consisting primarily of interest and dividends received less interest paid on deposits, and the origination and sale of loans, utilized $77.7 million for the nine months ended September 30, 1998. Net cash related to investing activities, consisting primarily of disbursements for loans originated or purchased for investment, purchases of mortgage-backed and investment securities, offset by sales of mortgage-backed securities available for sale, maturities of investment securities available for sale, principal collections on loans and mortgage- backed securities, utilized $313.4 million for the nine months ended September 30, 1998. Net cash provided by financing activities, consisting primarily of net activity in deposit and escrow accounts, net proceeds from borrowed funds and the payment of dividends, totaled $363.9 million for the nine months ended September 30, 1998. In connection with the Company's loan origination activities, the Company's interest rate risk management policy specifies the use of certain hedging activities in an attempt to reduce exposure to changes in loan market prices from the time of commitment until securitization. The Company may engage in hedging transactions as a method of reducing its exposure to interest rate risk present in the secondary market. The Company's hedging transactions are generally forward commitments to sell fixed-rate mortgage-backed securities at a specified future date. The loans securitized through the Federal National Mortgage Association ("FNMA") are generally used to satisfy these forward commitments. The sale of fixed-rate mortgage-backed securities for future delivery presents a risk to the Company that, if the Company is not able to deliver the mortgage-backed securities on the specified delivery date, it may be required to repurchase the forward commitment to sell at the then current market price. At September 30, 1998 the Company had no forward commitments to sell FNMA mortgage-backed securities. The Bank's tangible capital ratio at September 30, 1998 was 7.29%. This exceeded the tangible capital requirement of 1.5% of adjusted assets by $119.9 million. The Bank's leverage capital ratio at September 30, 1998 was 7.29%. This exceeded the leverage capital requirement of 3.0% of adjusted assets by $88.8 million. The Bank's risk-based capital ratio was 13.99% at September 30, 1998. The Bank currently exceeds the risk-based capital requirement of 8.0% of risk-weighted assets by $66.9 million. 9 CHANGES IN FINANCIAL CONDITION The Company had total assets of $2.1 billion at September 30, 1998, an increase of $377 million, or 21.9%, from December 31, 1997. Mortgage-backed and investment securities increased $199 million, loans increased $177 million, offset by an increase in borrowings of $365 million. One of the Bank's business strategies is to leverage its capital with increased securities investments, funded by FHLB borrowings. Loans totaled $1.4 billion at September 30, 1998, an increase of $177 million. Loan originations were $925 million for the nine months ended September 30, 1998, offset by loan sales of $471 million and principal repayments of $277 million. Deposits totaled $1.3 billion at September 30, 1998, a decrease of $1.6 million. The deposit base and the interest paid on deposits continues to be affected by alternative investment products and competition within the Company's market areas. Stockholders' equity totaled $186 million at September 30, 1998, an increase of $10.7 million. At September 30, 1998, the number of common shares outstanding was 11,457,035 and the book value per common share outstanding was $16.20 per share. On September 18, 1998, the Company declared a $0.11 per share cash dividend payable October 14, 1998 to shareholders of record on September 30, 1998. On June 30, 1998, Alliance Bancorp consummated the acquisition of Southwest Bancshares. The transaction was accounted for under the pooling-of-interests method of accounting and 1.1981 shares of Alliance Bancorp common stock was exchanged for each share of Southwest Bancshares outstanding common stock. There were 3,411,500 shares of Alliance Bancorp shares issued for 2,847,585 shares of Southwest Bancshares. Southwest Bancshares had total assets of $391 million and deposits of $308 million at the date of acquisition. YEAR 2000 The Company has established a Year 2000 Project plan to address systems and facilities changes necessary to properly recognize dates after 1999, has assigned implementation responsibilities, and has established management and Board reporting processes. All of the Company's significant financial accounting systems are provided under contract with major national banking systems providers who are progressing under their own Year 2000 plans. Most significant systems changes are scheduled to be completed by December 31, 1998. The Company's plan follows the five step approach required by its regulators: Awareness, Assessment, Modification, Verification, and Implementation. The Company's project also addresses its other suppliers, customers, and other constituents, as well as remediation and business resumption contingency plans. The costs of the project, and the date on which the Company plans to complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. The primary uncertainty facing the Company is the ability of third party systems providers to identify and modify software as planned. Specific factors that might cause material differences from plans include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. Additional information about the Company's Year 2000 status at September 30, 1998 was as follows: Readiness: The Company's plan includes both information technology ("IT") and non-IT systems. Most of the Company's primary Year 2000 exposures relate to IT systems, primarily to the vendor of its account processing systems. This is a large national banking systems vendor which as of June 30, 1998 reported that it had completed the remediation and implementation steps on the account processing systems used by the Company. This vendor is continuing to perform internal testing, and the Company is scheduled to perform its own tests in the fourth quarter. Costs: The Company has not incurred material costs specifically related to its Year 2000 program. The Company is being charged approximately $45,000 by its account processing vendor for testing arrangements, which is being billed over twelve months. 10 Risks: The most significant risk anticipated by the Company is the possibility of interruptions to its account processing systems. Due to the progress described above, the Company does not presently foresee any material interruptions to these systems. The next most significant risk relates to interruptions in the payment processing systems, which are integrated with the Company's account processing systems. The Company is working with its payment processing vendors, the most significant of which are reported to be making satisfactory progress in complying with federal regulatory guidelines for Year 2000 readiness. These guidelines include the completion of remediation and the initiation of testing in 1998. Contingency Plans: The Company has taken actions to comply with federal regulatory requirements for Year 2000 contingency planning. The Company has established a contingency planning committee representing all of its major functional areas. The Company has established a contingency plan timetable and is currently developing risk analyses for its high priority business functions. RECENT AND PROPOSED CHANGES IN ACCOUNTING RULES In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which is effective for fiscal years beginning after December 15, 1997. This statement establishes standards for the way that public business enterprises report information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. This Statement need not be applied to interim financial statements in the initial year of application, but comparative information for interim periods in the initial year of application shall be reported in financial statements for interim periods in the second year of application. It is not expected that adoption of this statement will have a material impact on the consolidated financial statements. In June 1998, FASB issued SFAS No. 133, "Accounting for Derivatives and Similar Financial Instruments and for Hedging Activities," which is effective for fiscal years beginning after June 15, 1999. The statement requires all derivatives to be measured at fair value and to be recognized as either assets or liabilities in the statement of financial position. Management, at this time, has not determined the impact of adopting this statement on January 1, 2000. In October 1998, FASB issued SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise" which is effective the first fiscal quarter after December 15, 1998. This statement amends SFAS No. 65 "Accounting for Certain Mortgage Banking Activities." This statement revises the accounting for retained securities and beneficial interests along with the classification of the retained securities and beneficial interests. Management of the Company does not expect that the adoption of SFAS No. 134 will have a material effect on the consolidated financial statements of the Company. 11 ASSET QUALITY NON-PERFORMING ASSETS The following table sets forth information as to non-accrual loans and real estate owned at the dates indicated. The Company discontinues the accrual of interest on loans ninety days or more past due, at which time all accrued but uncollected interest is reversed. There were no loans at September 30, 1998 nor during the quarter ended September 30, 1998, which met the definition of an impaired loan. A loan is considered impaired when it is probable that a creditor will be unable to collect contractual principal and interest due according to the contractual terms of the loan agreement. Loans considered for impairment do not include residential mortgage and consumer installment loans.
Quarter Ended --------------------------------------------------------------------- September 30, June 30, March 31, December 31, September 30, (Dollars in thousands) 1998 1998 1998 1997 1997 - -------------------------------------------------------------------------------------------------------------- Non-accrual mortgage loans 90 days or more past due $ 3,363 2,231 3,120 3,576 2,979 Non-accrual commercial loans 90 days or more past due - 3 79 8 - Non-accrual consumer loans 90 days or more past due 61 110 104 109 39 --------------------------------------------------------------------- Total non-performing loans 3,424 2,344 3,303 3,693 3,018 Total foreclosed real estate 212 261 792 634 687 --------------------------------------------------------------------- Total non-performing assets $ 3,636 2,605 4,095 4,327 3,705 --------------------------------------------------------------------- Total non-performing loans to total loans 0.24% 0.18 0.26 0.30 0.24 Total non-performing assets to total assets 0.17% 0.13 0.21 0.25 0.21
CLASSIFICATION OF ASSETS The Company regularly reviews the assets in its portfolio to determine whether any assets require classification in accordance with applicable regulations. As of September 30, 1998 the Company had total classified assets of $803,600, of which $667,600 were classified "substandard" and $136,000 were classified as "doubtful." The assets so classified consisted of single family residential loans and foreclosed single family residential loans (real estate owned). ASSET/LIABILITY MANAGEMENT The Company's asset and liability management strategy attempts to minimize the risk of a significant decrease in net interest income caused by changes in the interest rate environment without penalizing current income. Net interest income, the primary source of the Company's earnings, is affected by interest rate movements. To mitigate the impact of changes in interest rates, a balance sheet must be structured so that repricing opportunities exist for both assets and liabilities in approximately equivalent amounts at basically the same time intervals. The Company seeks to reduce the volatility of its net interest income by managing the relationship of interest rate sensitive assets to interest rate sensitive liabilities. To accomplish this, the Company has attempted to increase the percentage of assets, whose interest rates adjust more frequently, and to reduce the average maturity of such assets. A principal focus in recent years, has been the origination of adjustable-rate residential real estate loans and consumer loans, which generally have shorter maturities than fixed-rate residential real estate loans. The Company also originates shorter maturity fixed-rate commercial real estate loans and purchases commercial leases, which generally mature or reprice more quickly than fixed-rate residential real estate loans. However, adjustable-rate loans are nearly as likely to refinance in low interest rate environments as fixed-rate loans. Often, interest rate cycles allow for these refinancings before the adjustable-rate loans can adjust to fully indexed market rates. In such declining interest rate environments, that result in high levels of loan refinancings, 12 the Company may decide to acquire longer fixed-rate mortgage loans or mortgage- backed securities. To provide an acceptable level of interest rate risk, the Company has implemented a funding strategy using long-term Federal Home Loan Bank borrowings. Imbalances in repricing opportunities at any point in time constitute an interest sensitivity gap, which is the difference between interest sensitive assets and interest sensitive liabilities. These static measurements do not reflect the results of any potential activity and are best used as early indicators of potential interest rate exposures. As part of its asset/liability strategy, the Company has implemented a policy to maintain its cumulative one-year interest sensitivity gap ratio within a range of (15%) to 15% of total assets, which reflects the current interest rate environment and allows the Company to maintain an acceptable net interest rate spread. The gap ratio will fluctuate as a result of market conditions and management's expectation of future interest rate trends. INTEREST RATE SENSITIVITY GAP ANALYSIS
At September 30, 1998 --------------------------------------------------------------- More Than More Than 1 Year 1 Year 3 Years More Than (Dollars in thousands) Or Less To 3 Years To 5 Years 5 Years Total - --------------------------------------------------------------------------------------------------------------------- Interest-Earning Assets: Mortgage loans (1) $ 472,353 234,558 162,560 366,206 1,235,677 Equity lines of credit (1) 93,696 - - - 93,696 Consumer loans and leases (1) 10,753 22,546 36,329 7,212 76,840 Mortgage-backed securities (2) 212,509 74,546 49,362 130,737 467,154 Interest-bearing deposits 15,057 - - - 15,057 Investment securities (2) 107,427 10,512 1,620 2,506 122,065 - --------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 911,795 342,162 249,871 506,661 2,010,489 Interest-Bearing Liabilities: Regular savings accounts 24,775 36,047 24,277 90,393 175,492 NOW interest-bearing accounts 26,756 24,007 6,419 9,665 66,847 Money market accounts 60,821 12,760 7,979 25,219 106,779 Certificate accounts 723,100 161,667 18,632 - 903,399 Borrowed funds 257,235 102,650 112,500 100,000 572,385 Collateralized mortgage obligations 208 - - - 208 - --------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 1,092,895 337,131 169,807 225,277 1,825,110 - --------------------------------------------------------------------------------------------------------------------- Interest sensitivity gap $ (181,100) 5,031 80,064 281,384 185,379 - --------------------------------------------------------------------------------------------------------------------- Cumulative interest sensitivity gap $ (181,100) (176,069) (96,005) 185,379 - --------------------------------------------------------------------------------------------------------------------- Cumulative interest sensitivity gap as a percentage of total assets (8.64)% (8.40) (4.58) 8.85 Cumulative net interest-earning assets as a percentage of interest-bearing liabilities 83.43 % 87.69 94.00 110.16 - ---------------------------------------------------------------------------------------------------------------------
(1) For purposes of the gap analysis, mortgage, equity and consumer loans and leases are not reduced by the allowance for loan losses and are reduced for non-performing loans. (2) Mortgage-backed and investment securities are not increased (decreased) by unrealized gains (losses) resulting from the accounting for available for sale securities under FASB No. 115. 13 Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as ARM loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Finally, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As its primary interest rate risk planning tool, the Bank utilizes a market value model. The model measures the Bank's interest rate risk by approximating the Bank's net portfolio value ("NPV"), which is the net present value of expected cash flows from assets, liabilities and any off-balance sheet contracts, under a range of interest rate scenarios, which range from a 400 basis point increase to a 400 basis point decrease in market interest rates (measured in 100 basis point increments). The assumptions used in this model should not be relied upon as indicative of actual results due to the inherent shortcomings of the NPV analysis. These shortcomings include (i) the possibility that actual market conditions could vary from the assumptions used in the computation of NPV, (ii) certain assets, including adjustable-rate loans, have features which affect the potential repricing of such instruments, which may vary from the assumptions used, and (iii) the likelihood that as interest rates are changing, management would more likely be changing strategies to limit the indicated changes in NPV as part of its management process. There have been no material changes in market risk since March 31, 1998, as reported in the Company's Form 10-Q for quarter ended March 31, 1998. ANALYSIS OF NET INTEREST INCOME Net interest income represents the difference between income on interest- earning assets and expense on interest-bearing liabilities. Net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them. 14 AVERAGE BALANCE SHEETS The following table sets forth certain information relating to the Company's Consolidated Statements of Financial Condition and reflects the average yield on assets and the average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. Average balances are derived from average daily balances and include non-performing loans. The yields and costs include fees which are considered adjustments to yields.
Three Months Ended September 30, Nine Months Ended September 30, ----------------------------------------------------------------- ------------------------------ 1998 1997 1998 ---------------------------------- ---------------------------- -------------------------------- Average Average Average Average Yield/ Average Yield/ Average Yield/ (Dollars in thousands) Balance Interest Cost Balance Interest Cost Balance Interest Cost - ------------------------------------------------------------------------------------------------- -------------------------------- Assets: Interest-earning assets: Mortgage loans, net $ 1,182,781 $ 21,685 7.33% $ 1,156,749 $ 23,949 8.28% $ 1,128,450 $ 63,291 7.48% Equity lines of credit 95,410 1,915 7.96 87,217 1,765 8.03 94,135 5,610 7.97 Consumer loans and leases 67,376 1,411 8.38 35,469 755 8.51 54,476 3,403 8.33 Mortgage-backed securities 489,178 8,012 6.55 229,321 3,869 6.75 412,966 20,580 6.64 Interest-bearing deposits 10,779 152 5.52 26,989 380 5.51 50,652 2,163 5.63 Federal funds sold - - - - - - - - Commercial paper - - - - - - - - Investment securities 134,851 2,391 7.09 162,389 2,845 7.01 143,831 7,545 6.99 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest-earning assets 1,980,375 35,566 7.18 1,698,134 33,563 7.90 1,884,510 102,592 7.26 Noninterest-earning assets 60,087 80,152 76,851 - ------------------------------------------------------------------------------------------------------------------------------------ Total assets $ 2,040,462 $ 1,778,286 $ 1,961,361 - ------------------------------------------------------------------------------------------------------------------------------------ Liabilities and Stockholders' Equity: Interest-bearing liabilities: Deposits: Savings accounts 1,085,204 $ 14,210 5.20% $ 1,056,489 $ 14,023 5.27% $ 1,087,649 $ 42,426 5.22% NOW interest-bearing accounts 70,707 181 1.02 71,980 324 1.79 70,909 551 1.04 Money market accounts 109,479 901 3.27 116,536 972 3.31 110,527 2,654 3.21 - ------------------------------------------------------------------------------------------------------------------------------------ Total deposits 1,265,390 15,292 4.79 1,245,005 15,319 4.88 1,269,085 45,631 4.81 Funds borrowed: Borrowed funds 503,380 7,136 5.55 276,325 4,210 5.96 421,232 17,826 5.58 Collateralized mortgage obligations 208 6 11.54 1,388 43 12.39 505 44 11.68 - ------------------------------------------------------------------------------------------------------------------------------------ Total funds borrowed 503,588 7,142 5.55 277,713 4,253 5.99 421,737 17,870 5.59 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities 1,768,978 22,434 5.01 1,522,718 19,572 5.08 1,690,822 63,501 5.00 Other liabilities 88,698 87,292 90,970 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities 1,857,676 1,610,010 1,781,792 Stockholders' equity 182,786 168,276 179,569 - ----------------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 2,040,462 $ 1,778,286 $ 1,961,361 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income/ interest rate spread $ 13,132 2.17% $ 13,991 2.82% $ 39,091 2.26% - ----------------------------------------------------------------------------------------------------------------------------------- Net interest-earning assets/ net interest margin $ 211,397 2.65% $ 175,416 3.30% $ 193,688 2.77% - ------------------------------------------------------------------------------------------------------------------------------------ Interest-earning assets to interest-bearing liabilities 1.12X 1.12X 1.11X - ------------------------------------------------------------------------------------------------------------------------------------ Nine Months Ended September 30, ------------------------------------- At September 30, 1997 1998 ------------------------------------- ----------------------- Average Average Yield/ Yield/ (Dollars in thousands) Balance Interest Cost Balance Cost - ---------------------------------------------------------------------------------------------------------- Assets: Interest-earning assets: Mortgage loans, net $ 1,139,208 $ 66,406 7.77% $ 1,232,482 7.52% Equity lines of credit 79,871 4,832 8.09 93,919 8.18 Consumer loans and leases 32,079 1,846 7.67 76,919 8.35 Mortgage-backed securities 185,853 9,544 6.85 470,836 6.80 Interest-bearing deposits 22,881 964 5.55 15,057 5.60 Federal funds sold 356 15 5.56 - - Commercial paper 892 37 5.47 - - Investment securities 123,080 6,180 6.69 122,899 6.94 - ----------------------------------------------------------------------------------------------------------- Total interest-earning assets 1,584,220 89,824 7.56 2,012,112 7.36 Noninterest-earning assets 74,465 87,447 - ----------------------------------------------------------------------------------------------------------- Total assets $ 1,658,685 $ 2,099,559 - ----------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equit Interest-bearing liabilities: Deposits: Savings accounts $ 994,192 $ 38,477 5.17% 1,078,891 5.30% NOW interest-bearing accounts 67,032 991 1.98 66,847 1.06 Money market accounts 117,845 2,864 3.25 106,779 3.20 - ----------------------------------------------------------------------------------------------------------- Total deposits 1,179,069 42,332 4.80 1,252,517 4.89 Funds borrowed: Borrowed funds 238,285 10,885 6.02 572,385 5.49 Collateralized mortgage obligations 1,684 154 12.19 208 7.90 - ----------------------------------------------------------------------------------------------------------- Total funds borrowed 239,969 11,039 6.07 572,593 5.49 - ----------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 1,419,038 53,371 5.01 1,825,110 5.08 Other liabilities 82,037 88,847 - ----------------------------------------------------------------------------------------------------------- Total liabilities 1,501,075 1,913,957 Stockholders' equity 157,610 185,602 - ----------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 1,658,685 $ 2,099,559 - ----------------------------------------------------------------------------------------------------------- Net interest income/ interest rate spread $ 36,453 2.55% 2.28% - ----------------------------------------------------------------------------------------------------------- Net interest-earning assets/ net interest margin $ 165,182 3.06% - ----------------------------------------------------------------------------------------------------------- Interest-earning assets to interest-bearing liabilities 1.12X - -----------------------------------------------------------------------------------------------------------
15 RATE/VOLUME ANALYSIS The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate), (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume), and (iii) the net change. The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
Three Months Ended September 30, 1998 Compared To Three Months Ended September 30, 1997 --------------------------------------------------- Increase (Decrease) In Net Interest Income Due To --------------------------------------------------- (In thousands) Volume Rate Net - ------------------------------------------------------------------------------------------- Interest-Earning Assets: Mortgage loans, net $ 530 (2,794) (2,264) Equity lines of credit 165 (15) 150 Consumer loans and leases 668 (12) 656 Mortgage-backed securities 4,261 (118) 4,143 Interest-bearing deposits (229) 1 (228) Federal funds sold - - - Commercial paper - - - Investment securities (486) 32 (454) - ------------------------------------------------------------------------------------------- Total 4,909 (2,906) 2,003 - ------------------------------------------------------------------------------------------- Interest-Bearing Liabilities: Deposits 251 (278) (27) Funds borrowed 3,188 (299) 2,889 - ------------------------------------------------------------------------------------------- Total 3,439 (577) 2,862 - ------------------------------------------------------------------------------------------- Net change in net interest income $ 1,470 (2,329) (859) - ------------------------------------------------------------------------------------------- Nine Months Ended September 30, 1998 Compared To Nine Months Ended September 30, 1997 --------------------------------------------------- Increase (Decrease) In Net Interest Income Due To --------------------------------------------------- (In thousands) Volume Rate Net - --------------------------------------------------------------------------------------------- Interest-Earning Assets: Mortgage loans, net (629) (2,486) (3,115) Equity lines of credit 851 (73) 778 Consumer loans and leases 1,386 171 1,557 Mortgage-backed securities 11,337 (301) 11,036 Interest-bearing deposits 1,185 14 1,199 Federal funds sold (15) - (15) Commercial paper (37) - (37) Investment securities 1,078 287 1,365 - --------------------------------------------------------------------------------------------- Total 15,156 (2,388) 12,768 - --------------------------------------------------------------------------------------------- Interest-Bearing Liabilities: Deposits 3,212 87 3,299 Funds borrowed 7,669 (838) 6,831 - --------------------------------------------------------------------------------------------- Total 10,881 (751) 10,130 - --------------------------------------------------------------------------------------------- Net change in net interest income 4,275 (1,637) 2,638 - ---------------------------------------------------------------------------------------------
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 GENERAL Net income totaled $3,844,000, or $0.32 per diluted share for the three months ended September 30, 1998, as compared to $4,399,000, or $0.37 per diluted share reported for the quarter ended September 30, 1997. The quarter ended September 30, 1997 included additional interest income received of $1.7 million on two large loans that were settled and paid off. The effect of this additional income approximated $0.09 per diluted share. Net interest income for the three months ended September 30, 1998 was $13.1 million, a decrease of $859,000, or 6.1%, from the September 30, 1997 quarter of $14.0 million. On June 30, 1998, the Company completed its acquisition of Southwest Bancshares, which was accounted for as a pooling-of-interests. INTEREST INCOME Interest income for the quarter ended September 30, 1998 totaled $35.6 million, an increase of $2.0 million, or 6.0%, from the prior year's quarter. Interest income on mortgage loans decreased $2.3 million, or 9.5%, to $21.7 million from the September 1997 quarter. The decrease in interest income is primarily related to two large loans that that were settled and paid off in the amount of $1.7 million received in the September 1997 quarter. The annualized average yield on the mortgage loan portfolio decreased to 7.33% for the three months ended September 30, 1998 from 8.28% for the 1997 period. The yield on the mortgage portfolio for the September 1997 quarter, exclusive of the additional $1.7 million of interest received, would have been 7.69%. The average balance of the mortgage portfolio increased $26 million. Interest income on equity lines of credit increased $150,000, or 8.5%, to 16 $1.9 million from the prior year's quarter, primarily as a result of the Bank's promotion of this product. The average balance of equity lines of credit increased $8.2 million, or 9.4%, to $95.4 million from $87.2 million from the September 1997 quarter. Interest income on consumer loans and leases increased $656,000 to $1.4 million for the three months ended September 30, 1998. The average balance of the consumer loans and leases increased $31.9 million from the 1997 period, primarily as a result of indirect auto lending. Interest income on mortgage-backed securities for the three months ended September 30, 1998 increased $4.1 million to $8.0 million and the average balance of the mortgage- backed securities portfolio increased $259.9 million from the September 1997 period. The increases in both interest income and the average balances of the mortgage-backed securities portfolio is primarily the result of the Bank's strategy to increase income and leverage capital through additional purchases of mortgage-backed securities funded by Federal Home Loan Bank borrowings. Interest income on investment securities for the three months ended September 30, 1998 decreased $454,000 to $2.4 million and the average balance of the investment securities portfolio decreased $27.5 million from the September 1997 period. This was primarily the result of certain investments being called due to the changing rate environment. INTEREST EXPENSE Interest expense on deposit accounts decreased slightly by $27,000 for the quarter ended September 30, 1998 compared to the prior year's quarter. The annualized average cost of deposits for the three months ended September 30, 1998 was 4.79%, a decrease from the annualized average cost of 4.88% for the September 1997 period. The average interest-bearing deposit base increased $20.4 million to $1.3 billion during the 1998 period. For the quarter ended September 30, 1998, the Company recorded interest expense on borrowed funds of $7.1 million on an average balance of $503 million at an annualized cost of 5.55% primarily related to FHLB borrowings. Additional net proceeds from FHLB borrowings for the three months ended September 30, 1998 totaled $48 million. NET INTEREST INCOME Net interest income for the three months ended September 30, 1998 decreased $859,000 or 6.1%, to $13.1 million from the 1997 period. The annualized average yield on interest-earning assets decreased from 7.90% to 7.18% when comparing the 1997 and 1998 quarters. As previously stated, the September 1997 quarter included additional interest income of $1.7 million which had an effect of approximately 0.40% on the 1997 annualized average yield on interest-earning assets. The annualized average cost of interest-bearing liabilities decreased from 5.08% to 5.01%. This resulted in an annualized average net interest rate spread of 2.17% for the three-month period ended September 30, 1998 compared to 2.82% for the prior year's period. Both the average balance of interest-earning assets and interest-bearing liabilities increased during the quarter ended September 30, 1998 compared to the 1997 quarter. PROVISION FOR LOAN LOSSES Based on management's evaluation of the loan portfolio, a provision of $50,000 for loan losses was recorded during the quarter ended September 30, 1998. The amount of non-performing loans at September 30, 1998, was $3.4 million, or 0.24% of total loans, compared to $3.0 million or 0.24% of total loans at September 30, 1997. NONINTEREST INCOME Total noninterest income for the three months ended September 30, 1998 was $4.7 million, a decrease of $192,000 from the 1997 period. Other fees and commissions decreased $368,000, primarily due to a reduction in loan origination fees contributed by Preferred. During the September 1998 quarter, the Bank retained approximately 50% of the loans originated by Preferred, which requires the fees generated on these loans to be deferred and amortized over the life of the loans. The current quarter includes a valuation reserve of $108,000 related to mortgage servicing rights and a write-down of $83,500 in value of various equity securities, reflecting decreases in their respective market values. Offsetting these decreases were gains on sales of loans of $339,000 and real estate income of $384,000. 17 NONINTEREST EXPENSE Noninterest expense for the quarter ended September 30, 1998 totaled $11.3 million, a decrease of $483,000, or 4.1% from the prior year's quarter. The September 1997 quarter included a charge of $806,000 of non-recurring expenses, that included employment expense, retirement costs and additional costs pertaining to the Liberty Bancorp merger. Excluding the non-recurring expense charged in 1997, noninterest expense increased $323,000. INCOME TAX PROVISION The provision for income taxes for the three months ended September 30, 1998 was $2.6 million. The effective tax rate for the three months ended September 30, 1998 was 40.6% compared to the effective tax rate of 37.9% for the prior year quarter. COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 GENERAL Net income totaled $10,422,000, or $0.87 per diluted share for the nine months ended September 30, 1998, as compared to $10,471,000, or $0.93 per diluted share reported for the nine months ended September 30, 1997. On June 30, 1998, the Company completed its acquisition of Southwest Bancshares, which was accounted for as a pooling-of-interests. The current period includes acquisition related costs, totaling $3,795,000, reducing after-tax net income by $2,679,000, resulting in a decrease in diluted earnings per share by $0.22. These costs include professional fees, data processing conversion penalties and employee severance. Net interest income for the nine months ended September 30, 1998 was $39.1 million, an increase of $2.6 million, or 7.2%, from the September 30, 1997 period of $36.5 million. The operating results for the nine months ended September 30, 1997 include Liberty Bancorp from the date of merger, February 10, 1997. INTEREST INCOME Interest income for the nine months ended September 30, 1998 totaled $102.6 million, an increase of $12.8 million, or 14.2%, from the prior year's period. Interest income on mortgage loans decreased $3.1 million, or 4.7%, to $63.3 million from the September 1997 period. The average balance of the mortgage portfolio decreased $10.8 million. The annualized average yield on the mortgage loan portfolio decreased to 7.48% for the nine months ended September 30, 1998 from 7.77% for the 1997 period. The Bank's mortgage loan portfolio is being affected by the current market conditions for refinancing single family residences. The overall loan portfolio increased $177 million from December 31, 1997. Interest income on equity lines of credit increased $778,000, or 16.1%, to $5.6 million from the prior year's period, primarily as a result of the Bank's promotion of this product. The average balance of equity lines of credit increased $14.3 million, or 17.9%, to $94.1 million from $79.9 million from the September 1997 period. Interest income on consumer loans and leases increased $1.6 million to $3.4 million for the nine months ended September 30, 1998. The average balance of the consumer loans and leases increased $22.4 million from the 1997 period, primarily as a result of indirect auto lending. Interest income on mortgage-backed securities for the nine months ended September 30, 1998 increased $11.0 million to $20.6 million and the average balance of the mortgage-backed securities portfolio increased $227.1 million from the September 1997 period. Interest income on investment securities for the nine months ended September 30, 1998 increased $1.4 million to $7.5 million and the average balance of the investment securities portfolio increased $20.8 million from the September 1997 period. The increases in both interest income and the average balances of the securities portfolios are primarily the result of the Bank's strategy to increase income and leverage capital through additional purchases of investments and mortgage-backed securities funded by Federal Home Loan Bank borrowings. Purchases of mortgage-backed and investment securities for the nine months ended September 30, 1998 totaled $437 million. INTEREST EXPENSE Interest expense on deposit accounts increased $3.3 million, or 7.8%, to $45.6 million, for the nine months ended September 30, 1998 compared to the prior year's period. The annualized average cost of deposits for the nine months ended September 30, 1998 was 4.81%, an increase from the annualized average cost of 4.80% for the 18 September 1997 period. The average interest-bearing deposit base increased $90.0 million to $1.3 billion during the 1998 period. For the nine months ended September 30, 1998, the Company recorded interest expense on borrowed funds of $17.8 million on an average balance of $421 million at an annualized cost of 5.58% primarily related to FHLB borrowings. Additional net proceeds from FHLB borrowings for the nine months ended September 30, 1998 totaled $365 million. NET INTEREST INCOME Net interest income for the nine months ended September 30, 1998 increased $2.6 million or 7.2%, to $39.1 million from the 1997 period. The annualized average yield on interest-earning assets decreased from 7.56% to 7.26% when comparing the 1997 and 1998 periods. The annualized average cost of interest- bearing liabilities decreased from 5.01% to 5.00%. This resulted in an annualized average net interest rate spread of 2.26% for the nine-month period ended September 30, 1998 compared to 2.55% for the prior year's period. Both the average balance of interest-earning assets and interest-bearing liabilities increased during the nine months ended September 30, 1998 compared to the 1997 period. PROVISION FOR LOAN LOSSES Based on management's evaluation of the loan portfolio, a provision of $212,000 for loan losses was recorded during the nine months ended September 30, 1998. The amount of non-performing loans at September 30, 1998, was $3.4 million, or 0.24% of total loans, compared to $3.0 million or 0.24% of total loans at September 30, 1997. NONINTEREST INCOME Total noninterest income for the nine months ended September 30, 1998 was $15.7 million, an increase of $3.3 million from the 1997 period. Other fees and commissions increased $1.4 million, primarily due to an increase in security brokerage fees contributed by Liberty Financial Services, Inc. of $619,000 and an increase in loan origination fees contributed by Preferred of $352,000. The current nine months includes gains on sales of loans and mortgage-backed securities of $817,000, compared to a net loss of $286,000 for the 1997 period. The current period includes a gain of $326,000 on the sale of $51 million of mortgage-backed securities compared to a loss of $396,000 on the sale of $59 million in adjustable-rate mortgage loans recorded in the 1997 period. The sales of both the mortgage-backed securities and the loans and the subsequent reinvestment of the proceeds was completed to enhance the Bank's asset and liability mix. Income from real estate operations for the nine months ended September 30, 1998 included income of $474,000 related to the termination of a real estate venture. NONINTEREST EXPENSE Noninterest expense for the nine months ended September 30, 1998 totaled $37.1 million, an increase of $5.0 million, or 15.7% from the prior year's period. This increase is primarily related to acquisition costs including professional fees, data processing conversion penalties and employee severance of $3.8 million recorded during the current period related to the Southwest Bancshares' acquisition. The 1997 nine months ended included $1.4 million in non-recurring expenses related to the merger of Liberty Bancorp, which was consummated on February 10, 1997. INCOME TAX PROVISION The provision for income taxes for the nine months ended September 30, 1998 was $7.1 million. The effective tax rate for the nine months ended September 30, 1998 was 40.4% compared to the effective tax rate of 37.6% for the prior year period. The current period included certain acquisition costs which were not tax deductible. PART II - OTHER INFORMATION Item 1. Legal Proceedings Not Applicable. 19 Item 2. Changes in Securities and Use of Proceeds Not Applicable. Item 3. Defaults Upon Senior Securities Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders Not Applicable. Item 5. Other Information Not Applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit No. 11 Statement re: Computation of Per Share Earnings
Three Months Ended Sept. 30, 1998 Sept. 30, 1997 ---------------------------------------- Net income $ 3,844,000 4,399,000 ---------------------------------------- Basic earnings per share-weighted average shares 11,441,186 11,197,655 Effect of dilutive securities-stock options 537,904 668,768 ---------------------------------------- Diluted earnings per share-adjusted weighted average shares 11,979,090 11,866,423 ---------------------------------------- Basic earnings per share $ 0.34 0.39 ---------------------------------------- Diluted earnings per share $ 0.32 0.37 ----------------------------------------
Nine Months Ended Sept. 30, 1998 Sept. 30, 1997 ------------------------------------------ Net income $ 10,422,000 10,471,000 ------------------------------------------ Basic earnings per share-weighted average shares 11,366,104 10,585,384 Effect of dilutive securities-stock options 607,592 650,375 ------------------------------------------ Diluted earnings per share-adjusted weighted average shares 11,973,696 11,235,759 ------------------------------------------ Basic earnings per share $ 0.92 0.99 ------------------------------------------ Diluted earnings per share $ 0.87 0.93 ------------------------------------------
(b) Reports on Form 8-K A report on Form 8-K was filed by the Company on August 26, 1998 for the purposes of reporting, pursuant to Item 5 of the Form 8-K, the financial results for the 31 day period ended July 31, 1998 for the combined operations of Alliance Bancorp, taking into account the merger of Southwest Bancshares, Inc. with and into Alliance Bancorp. 20 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. Alliance Bancorp Dated: November 7, 1998 /s/ Kenne P. Bristol ---------------- ----------------------- Kenne P. Bristol President and Chief Executive Officer Dated: November 7, 1998 /s/ Richard A. Hojnicki ---------------- ------------------------ Richard A. Hojnicki Executive Vice President Chief Financial Officer 21 EX-27 2 EXHIBIT 27
9 1,000 9-MOS DEC-31-1998 SEP-30-1998 16,236 15,057 0 0 567,244 0 0 1,409,637 6,317 2,099,559 1,304,112 257,443 352,402 0 0 0 116 185,486 2,099,559 72,304 28,125 2,163 102,592 45,631 63,501 39,091 212 995 37,106 17,484 17,484 0 0 10,422 0.92 0.87 2.77 3,424 0 0 0 6,170 128 63 6,317 3,285 0 3,032
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