-----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, DMlawZRvU3+Iy7fiBojgBtOvOP/oxEbn7WA+hAEm60xL2Y9b2zVxlaGw2k7h3Q3C jPOeYFBJCklG2rFEvFIveg== 0000943374-97-000090.txt : 19970815 0000943374-97-000090.hdr.sgml : 19970815 ACCESSION NUMBER: 0000943374-97-000090 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD 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: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20082 FILM NUMBER: 97662083 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 10-Q FOR ALLIANCE 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 June 30, 1997 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 -5,346,008 shares outstanding as of August 9, 1997. 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 June 30, 1997 and December 31, 1996 1 Consolidated Statements of Income for the Three and Six Months Ended June 30, 1997 and 1996 2 Consolidated Statements of Changes in Stockholders' Equity for the Three and Six Months Ended June 30, 1997 and 1996 3 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. Other Information Item 1. Legal Proceedings 18 Item 2. Changes in Securities 18 Item 3. Defaults upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19 Signature Page 20 Alliance Bancorp and Subsidiaries Consolidated Statements of Financial Condition June 30, December 31, (In thousands, except share data) 1997 1996 (unaudited) Assets Cash and due from banks $ 12,410 7,645 Interest-bearing deposits 23,858 19,596 Investment securities available for sale, at fair value 97,835 1,998 Mortgage-backed securities available for sale, at fair value 204,477 5,140 Loans, net of allowance for losses of $5,458 at June 30, 1997 and $2,272 at December 31, 1996 1,017,641 609,371 Accrued interest receivable 8,620 3,522 Real estate 2,424 1,586 Premises and equipment, net 7,269 6,592 Stock in Federal Home Loan Bank of Chicago, at cost 12,855 7,445 Other assets 16,874 5,069 ---------- ------- $1,404,263 667,964 ---------- ------- Liabilities and Stockholders' Equity Liabilities: Deposits $1,020,923 462,869 Borrowed funds 228,684 131,900 Collateralized mortgage obligations 1,684 2,243 Advances by borrowers for taxes and insurance 12,461 7,919 Accrued expenses and other liabilities 15,417 6,407 ---------- ------- Total liabilities 1,279,169 611,338 ---------- ------- Stockholders' Equity: Preferred stock, $.01 par value; authorized 1,500,000 shares; none outstanding - - Common stock, $.01 par value; authorized 11,000,000 shares; 5,447,625 shares issued and 5,344,900 outstanding at June 30, 1997 2,790,085 shares issued and 2,695,085 outstanding at December 31, 1996 54 27 Additional paid-in capital 86,481 21,066 Retained earnings, substantially restricted 39,780 37,117 Treasury stock, at cost; 102,725 shares at June 30, 1997 and 95,000 at December 31, 1996 (1,502) (1,284) Common stock purchased by Employee Stock Ownership Plan - (428) Unrealized gain on securities available for sale, net of tax 281 128 ---------- ------- Total stockholders' equity 125,094 56,626 ---------- ------- Commitments and contingencies $1,404,263 667,964 ---------- -------
See accompanying notes to unaudited consolidated financial statements. Alliance Bancorp and Subsidiaries Consolidated Statements of Income Three Months Ended Six Months Ended June 30, June 30, (In thousands, except per share amounts) 1997 1996 1997 1996 (unaudited) Interest Income: Loans $18,542 10,669 35,250 21,591 Mortgage-backed securities 3,132 158 4,629 311 Investment securities 1,345 147 1,818 320 Interest-bearing deposits 304 328 441 576 Commercial paper 6 - 37 - Federal funds sold - - 15 - ------- ------ ------ ------ Total interest income 23,329 11,302 42,190 22,798 ------- ------ ------ ------ Interest Expense: Deposits 11,654 4,902 20,587 9,835 Borrowed funds 2,734 2,051 5,082 4,313 Collateralized mortgage obligations 51 103 111 220 ------- ------ ------ ------ Total interest expense 14,439 7,056 25,780 14,368 ------- ------ ------ ------ Net interest income 8,890 4,246 16,410 8,430 Provision for loan losses - - - - Net interest income after provision for loan losses 8,890 4,246 16,410 8,430 ------- ------ ------ ------ Noninterest Income: Gain (loss) on sales of loans and mortgage-backed securities 82 (8) (314) 202 Income from real estate operations - 77 59 174 Servicing fee income 109 114 214 228 Fees and commissions 3,985 2,822 6,895 5,807 Other 34 15 53 180 ------- ------ ------ ------ Total noninterest income 4,210 3,020 6,907 6,591 ------- ------ ------ ------ Noninterest Expense: Compensation and benefits 4,913 3,286 9,295 6,620 Occupancy expense 1,059 742 2,104 1,486 Federal deposit insurance premiums 160 268 288 526 Computer services 338 129 701 262 Other 2,332 1,434 4,303 2,757 ------- ------ ------ ------ Total noninterest expense 8,802 5,859 16,691 11,651 ------- ------ ------ ------ Income before income taxes 4,298 1,407 6,626 3,370 Income tax expense 1,662 275 2,561 1,037 ------- ------ ------ ------ Net income $ 2,636 1,132 4,065 2,333 ------- ------ ------ ------ Primary earnings per share $ 0.46 0.40 0.80 0.83 Fully diluted earnings per share $ 0.46 0.40 0.80 0.83 ------- ------ ------ ------
See accompanying notes to unaudited consolidated financial statements. PAGE Alliance Bancorp and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity Unrealized Common Common Gain (Loss) Additional Stock Stock on Securities Common Paid-in Retained Treasury Purchased Purchased Available (In thousands) Stock Capital Earnings Stock By ESOP By BRPs for Sale Total - --------------------------------------------------------------------------------------------------------------------------------- (unaudited) Six Months Ended June 30, 1996 Balance at December 31, 1995 $27 20,881 33,986 (1,284) (643) (86) 227 53,108 Net income - - 2,333 - - - - 2,333 Proceeds from exercise of stock options - 69 - - - - - 69 Principal payment on ESOP loan - - - - 86 - - 86 Change in net unrealized gain (loss) on securities available for sale, net of tax - - - - - - (133) (133) - ---------------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1996 $27 20,950 36,319 (1,284) (557) (86) 94 55,463 - ---------------------------------------------------------------------------------------------------------------------------------- Six Months ended June 30, 1997 Balance at December 31, 1996 $27 21,066 37,117 (1,284) (428) - 128 56,626 Net income - - 4,065 - - - - 4,065 Issuance of 2,620,270 shares for merger of Liberty Bancorp 26 65,106 - - - - - 65,132 Cash dividends declared, $0.2625 per share - - (1,402) - - - - (1,402) Purchase of treasury stock - - - (218) - - - (218) Proceeds from exercise of stock options 1 309 - - - - - 310 Principal payment on ESOP loan - - - - 428 - - 428 Change in net unrealized gain (loss) on securities available for sale, net of tax - - - - - - 153 153 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at June 30, 1997 $54 86,481 39,780 (1,502) - - 281 125,094 - ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements. PAGE Alliance Bancorp and Subsidiaries Consolidated Statements of Cash Flows Six Months Ended June 30, (In thousands) 1997 1996 (unaudited) Cash Flows From Operating Activities: Net income $ 4,065 2,333 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 600 579 Amortization of premiums, discounts, and deferred loan fees 615 224 Additions to deferred loan fees (55) (272) Amortization of collateralized mortgage obligations discount 34 81 Originations of loans held for sale (231,219) (255,183) Sale of loans originated for sale 226,749 256,541 (Gain) loss on sales of loans and mortgage-backed securities 314 (202) Decrease in Stock in Federal Home Loan Bank of Chicago - 2,220 Increase in accrued interest receivable (988) (285) (Increase) decrease in other assets 2,180 (40) Decrease in accrued expenses and other liabilities (2,369) (1,064) ---------- -------- Net cash provided by (used in) operating activities (74) 4,932 ---------- -------- Cash Flows From Investing Activities: Proceeds from sales of loans 58,227 4,803 Loans originated or purchased for investment (57,492) (34,165) Purchases of: Mortgage-backed securities available for sale (90,354) - Investment securities available for sale (80,042) - Purchase of premises and equipment (1,281) (1,100) Net assets acquired through merger, net of cash acquired 16,417 - Maturities of investment securities available for sale 7,500 - Principal collected on loans 91,328 50,811 Principal collected on mortgage-backed securities 9,536 881 ---------- -------- Net cash provided by (used in) investing activities (46,161) 21,230 ---------- -------- Cash Flows From Financing Activities: Net increase in deposits 42,802 6,922 Proceeds from borrowed funds 177,822 - Repayment of borrowed funds (164,400) (28,506) Repayment of collateralized mortgage obligations (593) (1,040) Net decrease in advance payments by borrowers for taxes and insurance (430) (427) Purchase of treasury stock (143) - Cash dividends paid (534) - Payment on ESOP loan 428 86 Proceeds from options exercised 310 69 ---------- -------- Net cash provided by (used in) financing activities 55,262 (22,896) ---------- -------- Net increase in cash and cash equivalents 9,027 3,266 Cash and cash equivalents at beginning of period 27,241 29,030 ---------- -------- Cash and cash equivalents at end of period $ 36,268 32,296 ---------- -------- Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 24,656 14,465 Income taxes 2,208 1,663 Supplemental Disclosures of Noncash Activities: Loans exchanged for mortgage-backed securities $ 50,148 22,989 Additions to real estate acquired in settlement of loans 82 159 ---------- --------
See accompanying notes to unaudited consolidated financial statements. Alliance Bancorp and Subsidiaries Notes to Consolidated Financial Statements Three and Six Months Ended June 30, 1997 and 1996 (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 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 and NASCOR II Corporation. All material intercompany balances and transactions have been eliminated. (2) Acquisition On February 10, 1997, Hinsdale Financial Corporation, the holding company for Hinsdale Federal Bank for Savings, and Liberty Bancorp, Inc., the holding company for Liberty Federal Savings Bank, consummated their merger in a stock-for-stock exchange. The resulting organization was renamed Alliance Bancorp. Liberty Federal Savings Bank was merged into Hinsdale Federal Bank for Savings, and the resulting Bank operates under the name Liberty Federal Bank. The transaction was accounted for under the purchase method of accounting and 1.054 shares of Hinsdale Financial Corporation common stock was exchanged for each share of Liberty Bancorp outstanding common stock. There were 2,620,270 shares of Hinsdale Financial Corporation shares issued for 2,488,675 shares of Liberty Bancorp. Liberty Bancorp had total assets of $680 million and deposits of $516 million at the date of the merger. The fair value of the net assets acquired approximated the purchase price, accordingly; no goodwill was recorded. The six- month period ended June 30, 1997 includes the earnings of Liberty Bancorp from the date of merger. The following unaudited pro forma financial information presents the combined results of operations of Hinsdale Financial Corporation and Liberty Bancorp, Inc. as if the acquisition had occurred as of the beginning of 1997 and 1996. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the companies constituted a single entity during such periods. Three Months Ended Six months Ended June 30, June 30, (In thousands, except per share amounts) 1997 1996 1997 1996 Net Interest Income $8,890 8,588 17,843 17,216 Net Income $2,636 1,959 4,087 4,220 Primary Earnings Per Share $ 0.46 0.35 0.80 0.75 Fully Diluted Earnings Per Share $ 0.46 0.35 0.80 0.75
(3) Change in Fiscal Year As a result of the merger with Liberty Bancorp, Inc., the Company has changed its fiscal year end from September 30 to December 31. Therefore, the current quarter ended June 30, 1997 represents the second quarter for the year ending December 31, 1997. Alliance Bancorp and Subsidiaries Notes to Consolidated Financial Statements Three and Six Months Ended June 30, 1997 and 1996 (4) Earnings per Share Earnings per share of common stock have been determined by dividing net income for the period by the weighted average number of common and common equivalent shares outstanding. Stock options are regarded as common share equivalents and are therefore considered in both primary and fully diluted earnings per share calculations. Common stock equivalents are computed using the treasury stock method. (5) Commitments and Contingencies At June 30, 1997, the Company had outstanding commitments to originate and purchase loans of $57.2 million, of which $23.9 million were fixed-rate and $33.3 million were adjustable-rate commitments. Unused equity lines of credit available to customers were $77.6 million at June 30, 1997. As a result of the merger, the Bank assumed two credit enhancement agreements with local municipalities to guarantee the repayment of an aggregate of $4.0 million on municipal revenue bonds ( the "Bonds"), which are secured by first mortgages on apartment building projects. To secure the guarantees of the Bonds, the Bank has pledged mortgage-backed securities issued by the Government National Mortgage Association ("GNMA"). The Bank's obligations on these Bonds expire in the year 1998 or the dates the Bonds are repaid, if earlier. In the event of default on the Bonds, the Bank's maximum liability would be its pro rata amount of the credit guaranty and if the Bank does not act to meet its agreed upon obligations, the collateral pledged as security for the Bank's guarantee may be liquidated and the proceeds used to repay the defaulted Bonds. The Bank's position in such case would be secured by a first mortgage lien on the underlying apartment properties and a lien against all income derived therefrom. At June 30, 1997, there remains one credit enhancement agreement outstanding in the amount of $2.0 million. The Bank's obligation on this Bond expires in the year 1998 or the date the Bond is repaid, if earlier. (6) Reclassifications Certain reclassifications of prior year amounts have been made to conform with current year presentation. Alliance Bancorp and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations General 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 2,620,270 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", or the "Bank"). The merger of Liberty Bancorp with and into the Company was recorded as a purchase, 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 14 retail banking facilities in Chicago, north and western 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 and mortgage-backed securities. Noninterest expense consists principally of employee compensation, 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 5.0% 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 5.95% for the quarter ended June 30, 1997. 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 June 30, 1997, cash and cash equivalents totaled $36.3 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. Cash flows used in operating activities, consisting primarily of interest and dividends received less interest paid on deposits, and the origination and sale of loans, were $74,000 for the six months ended June 30, 1997. Net cash used in investing activities, consisting primarily of disbursements for loans originated or purchased for investment, purchases of mortgage-backed and investment securities, offset by principal collections on loans and mortgage-backed securities was $46.2 million for the six months ended June 30, 1997. Net cash provided by financing activities, consisting primarily of net activity in deposit and escrow accounts, net proceeds from borrowed funds and the repayment of collateralized mortgage obligations, totaled $55.3 million for the six months ended June 30, 1997. 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 will 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 June 30, 1997 the Company had $1.5 million forward commitments to sell FNMA mortgage-backed securities. The Bank's tangible capital ratio at June 30, 1997 was 7.67%. This exceeded the tangible capital requirement of 1.5% of adjusted assets by $86.1 million. The Bank's leverage capital ratio at June 30, 1997 was 7.77%. This exceeded the leverage capital requirement of 3.0% of adjusted assets by $66.7 million. The Bank's risk-based capital ratio was 15.15% at June 30, 1997. The Bank currently exceeds the risk-based capital requirement of 8.0% of risk-weighted assets by $53.4 million. Changes in Financial Condition The Company had total assets of $1.4 billion at June 30, 1997, an increase of $736 million, or 110.2%, from December 31, 1996, primarily as a result of the merger. Liberty Bancorp's assets at date of merger were comprised of: commercial paper, $1.7 million; investment securities, $22.6 million; mortgage-backed securities, $118.7 million; and loans, $497.4 million. Deposits totaled $1.0 billion at June 30, 1997, an increase of $558.1 million, or 120.6%, of which $515.6 million was due to the merger. Borrowed funds totaled $228.7 million at June 30, 1997, an increase of $96.8 million, or 73.4% from December 31, 1996, of which $83.3 million was due to the merger. Borrowed funds primarily consist of $188.1 million in FHLB advances and $28.9 million in reverse repurchase agreements collateralized by mortgage-backed securities. Stockholders' equity totaled $125.1 million at June 30, 1997, an increase of $68.5 million, or 120.9%. As a result of the merger, 2,620,270 additional shares of common stock were issued and exchanged for Liberty Bancorp common stock. At June 30, 1997, the number of common shares outstanding was 5,344,900 and the book value per common share outstanding was $23.40 per share. On May 30, 1997, the Company declared a $0.1625 per share cash dividend payable July 18, 1997 to shareholders of record on June 30, 1997. Recent and Proposed Changes in Accounting Rules In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income," which is effective for fiscal years beginning after December 15, 1997. This statement establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. 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 annual financial statements and requires that those enterprises report selected 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. In February 1997, FASB issued SFAS No. 128, "Earnings Per Share." SFAS 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997. Statement 128 supersedes APB Opinion No. 15, Earnings Per Share and specifies the computation, presentation and disclosure requirements for earnings per share ("EPS") for entities with publicly held common stock or potential common stock. Statement 128 was issued to simplify the computation of EPS and to make the U.S. standard more compatible with the EPS standards of other countries and that of the International Accounting Standards Committee. It replaces Primary EPS and Fully Diluted EPS with Basic EPS and Diluted EPS, respectively. It also requires dual presentation of Basic EPS and Diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the Basic EPS computation to the numerator and denominator of the Diluted EPS computation. Basic EPS, unlike Primary EPS, excludes all dilution while Diluted EPS, like Fully Diluted EPS, reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in earnings of the entity. For many entities Basic EPS will be higher than Primary EPS and Diluted EPS will be approximately the same as Fully Diluted EPS. Management believes that the result of adopting this statement will result in higher Basic EPS and will remain approximately the same for Fully Diluted EPS. 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 June 30, 1997 nor during the six months ended June 30, 1997, 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 ---------------------------------------------------------------------- June 30, March 31, December 31, September 30, June 30, (Dollars in thousands) 1997 1997 1996 1996 1996 Non-accrual mortgage loans 90 days or more past due $1,601 1,761 1,163 932 731 Non-accrual consumer loans 90 days or more past due 26 - - - - ------ ----- ----- ----- ---- Total non-performing loans 1,627 1,761 1,163 932 731 Total foreclosed real estate 496 553 545 207 160 ------ ----- ----- ----- ---- Total non-performing assets $2,123 2,314 1,708 1,139 891 ------ ----- ----- ----- ---- Total non-performing loans to total loans 0.16% 0.16 0.18 0.15 0.12 Total non-performing assets to total assets 0.15% 0.18 0.26 0.17 0.13
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 June 30, 1997, the Company had total classified assets of $496,000, all of which were classified "substandard". Substandard assets consisted of foreclosed single family residential loans (real estate owned). Asset/Liability Management The Company manages its exposure to interest rate risk by emphasizing the origination and purchase of adjustable-rate mortgage ("ARM") loans. Management believes that investing in ARM loans, short-term profits are possibly sacrificed compared to the yields obtainable through investment in fixed-rate loans, however, the Company's exposure to the risk of interest rate fluctuations is reduced, thereby enhancing long-term profitability. The fixed-rate mortgage loans the Bank originates are securitized and sold into the secondary market, with servicing retained, as part of its operation and interest rate risk management strategy. More recently, the Company has placed additional emphasis on origination of home equity lines of credit, the interest rates on which adjust with the prime rate. An increase in home equity lines of credit should enhance the Bank's interest rate spread and its interest rate risk management. The Bank seeks to lengthen the maturities of its deposits by emphasizing savings certificates with maturities of three months or more. At June 30, 1997, savings certificates with original maturities of three months or more totaled $712.7 million, or 69.8%, of total deposits. The Bank seeks to reduce its risk of early withdrawals from its longer term savings certificates by requiring early withdrawal penalties on all certificates. The Bank does not actively solicit high-rate jumbo certificates of deposit or brokered funds. Matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are interest rate sensitive by monitoring an institution's interest rate sensitivity gap. An asset or liability is considered interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets anticipated, based upon certain assumptions, to mature or reprice within a specific time period and the amount of interest-bearing liabilities anticipated, based upon certain assumptions, to mature or reprice within that time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to adversely affect net interest income. The Company's one-year interest sensitivity gap as a percent of total assets was a negative 6.6% at June 30, 1997. The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at June 30, 1997, which are anticipated by the Company to reprice or mature in each of the future time periods shown. Except as stated below, the amounts of assets and liabilities shown which reprice or mature during a particular period were based upon the contractual terms of the asset or liability or certain assumptions concerning the amortization and prepayment of such assets and liabilities. Regular savings accounts, NOW accounts and money market accounts, which collectively totaled $267 million at June 30, 1997, were assumed to be withdrawn at annual percentage rates of 17%, 37% and 79%, respectively. The collateralized mortgage obligations were assumed to prepay at the same rate used for the mortgage-backed securities collateralizing these obligations. Management believes that these assumptions approximate actual experience and considers them reasonable, although the actual amortization and repayment of assets and liabilities may vary substantially. Interest Rate Sensitivity Gap Analysis At June 30, 1997 ------------------------------------------------------------- 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) $406,039 317,461 86,531 101,661 911,692 Equity lines of credit (1) 75,587 - - - 75,587 Consumer loans and leases (1) 9,328 16,572 5,706 2,594 34,200 Mortgage-backed securities (2) 90,975 22,640 17,696 72,883 204,194 Interest-bearing deposits 23,858 - - - 23,858 Investment securities (2) 79,532 21,697 1,406 7,914 110,549 - ---------------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 685,319 378,370 111,339 185,052 1,360,080 Interest-Bearing Liabilities Regular savings accounts 23,450 35,618 23,220 55,653 137,941 NOW interest-bearing accounts 19,051 17,439 4,666 10,333 51,489 Money market accounts 61,059 8,504 4,048 3,679 77,290 Certificate accounts 541,021 143,170 28,260 226 712,677 Borrowed funds 132,164 96,520 - - 228,684 Collateralized mortgage obligations 1,555 129 - - 1,684 - ---------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 778,300 301,380 60,194 69,891 1,209,765 - ---------------------------------------------------------------------------------------------------------------------------------- Interest sensitivity gap $(92,981) 76,990 51,145 115,161 150,315 - ---------------------------------------------------------------------------------------------------------------------------------- Cumulative interest sensitivity gap $(92,981) (15,991) 35,154 150,315 - ---------------------------------------------------------------------------------------------------------------------------------- Cumulative interest sensitivity gap as a percentage of total assets (6.62)% (1.14) 2.50 10.71 Cumulative net interest-earning assets as a percentage of interest-bearing liabilities 88.05% 98.52 103.08 112.43 - ---------------------------------------------------------------------------------------------------------------------------------- (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 adoption of FASB No. 115.
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. 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. PAGE 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 June 30, 1997 1996 Average Average Average Yield/ Average Yield/ (Dollars in thousands) Balance Interest Cost Balance Interest Cost Assets: Interest-earning assets: Mortgage loans, net $ 912,993 $16,485 7.22% $554,496 $ 9,827 7.09% Equity lines of credit 72,974 1,503 8.26 36,636 739 8.09 Consumer loans and leases 34,055 554 6.51 5,390 103 7.64 Mortgage-backed securities 177,785 3,132 7.05 7,820 158 8.08 Interest-bearing deposits 22,645 304 5.31 35,295 328 3.68 Federal funds sold - - - - - - Commercial paper 493 6 4.81 - - - Investment securities 76,224 1,345 7.06 8,997 147 6.55 Total interest-earning assets 1,297,169 23,329 7.19 648,634 11,302 6.97 Noninterest-earning assets 50,189 21,278 Total assets $1,347,358 $669,912 Liabilities and Stockholders' Equity: Interest-bearing liabilities: Deposits: Savings accounts $ 833,869 $10,772 5.18% $349,375 $ 4,375 5.03% NOW noninterest-bearing accounts 37,523 - - 36,691 - - NOW interest-bearing accounts 52,568 262 2.00 23,175 90 1.56 Money market accounts 82,720 620 3.01 54,613 437 3.21 Total deposits 1,006,680 11,654 4.64 463,854 4,902 4.24 Funds borrowed: Borrwoed funds 180,753 2,734 5.98 127,571 2,051 6.36 Collateralized mortgage obligations 1,679 51 12.15 2,990 103 13.78 Total funds borrowed 182,432 2,785 6.04 130,561 2,154 6.53 Total interest-bearing liabilities 1,189,112 14,439 4.86 594,415 7,056 4.74 Other liabilities 34,535 20,765 Total liabilities 1,223,647 615,180 Stockholders' equity 123,711 54,732 Total liabilities and stockholders equity $1,347,358 $669,912 Net interest income/ interest rate spread $ 8,890 2.33% $ 4,246 2.23% Net interest-earning assets/ net interest margin $ 108,057 2.74% $ 54,219 2.62% Interest-earning assets to interest-bearing liabilities 1.09X 1.09X Six Months Ended June 30, At June 30, 1997 1996 1997 Average Average Average Yield/ Average Yield/ Yield/ (Dollars in thousands) Balance Interest Cost Balance Interest Cost Balance Cost Assets: Interest-earning assets: Mortgage loans, net $ 870,560 $31,431 7.22% $562,443 $ 19,917 7.08% $ 907,828 7.57% Equity lines of credit 68,548 2,733 8.04 33,222 1,377 8.31 75,587 8.18 Consumer loans and leases 30,282 1,086 7.17 7,258 297 8.18 34,226 7.86 Mortgage-backed securities 132,721 4,629 6.98 7,659 311 8.12 204,477 7.33 Interest-bearing deposits 16,042 441 5.47 33,114 576 3.44 23,858 6.29 Federal funds sold 535 15 5.58 - - - - - Commercial paper 1,338 37 5.50 - - - - - Investment securities 51,811 1,818 7.03 9,988 320 6.41 110,690 7.35 Total interest-earning assets 1,171,837 42,190 7.20 653,684 22,798 6.97 1,356,666 7.53 Noninterest-earning assets 48,832 21,267 47,597 Total assets $1,220,669 $674,951 1,404,263 Liabilities and Stockholders' Equity: Interest-bearing liabilities: Deposits: Savings accounts $ 743,840 $18,966 5.14% $347,858 $ 8,774 5.06% 850,618 5.39% NOW noninterest-bearing accounts 38,996 - - 36,722 - - 41,526 - NOW interest-bearing accounts 46,190 410 1.79 22,934 179 1.57 51,489 1.47 Money market accounts 79,607 1,211 3.07 54,816 882 3.23 77,290 3.31 Total deposits 908,633 20,587 4.57 462,330 9,835 4.27 1,020,923 4.82 Funds borrowed: Borrwoed funds 168,578 5,082 6.00 134,680 4,313 6.33 228,684 5.92 Collateralized mortgage obligations 1,832 111 12.12 3,207 220 13.72 1,684 12.80 Total funds borrowed 170,410 5,193 6.06 137,887 4,533 6.51 230,368 5.97 Total interest-bearing liabilities 1,079,043 25,780 4.80 600,217 14,368 4.78 1,251,291 5.03 Other liabilities 29,943 20,637 27,878 Total liabilities 1,108,986 620,854 1,279,169 Stockholders' equity 111,683 54,097 125,094 Total liabilities and stockholders equity $1,220,669 $674,951 1,404,263 Net interest income/ interest rate spread $16,410 2.40% $ 8,430 2.19% 2.50% Net interest-earning assets/ net interest margin $ 92,794 2.80% $ 53,467 2.58% Interest-earning assets to interest-bearing liabilities 1.09X 1.09X
PAGE 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 June 30, 1997 Six Months Ended June 30, 1997 Compared To Compared To Three Months Ended June 30, 1996 Six Months Ended June 30, 1996 Increase (Decrease) Increase (Decrease) In Net Interest Income In Net Interest Income Due To Due To (In thousands) Volume Rate Net Volume Rate Net Interest-Earning Assets: Mortgage loans, net $ 6,475 183 6,658 11,113 401 11,514 Equity lines of credit 748 16 764 1,403 (47) 1,356 Consumer loans and leases 468 (17) 451 830 (41) 789 Mortgage-backed securities 2,997 (23) 2,974 4,368 (50) 4,318 Interest-bearing deposits (139) 115 (24) (377) 242 (135) Federal funds sold - - - 15 - 15 Commercial paper - 6 6 37 - 37 Investment securities 1,186 12 1,198 1,464 34 1,498 Total 11,735 292 12,027 18,853 539 19,392 Interest-Bearing Liabilities: Deposits 6,248 504 6,752 10,023 729 10,752 Funds borrowed 800 (169) 631 990 (330) 660 Total 7,048 335 7,383 11,013 399 11,412 Net change in net interest income $ 4,687 (43) 4,644 7,840 140 7,980
Comparison of Operating Results for the Three Months Ended June 30, 1997 and June 30, 1996 General Net income totaled $2,636,000, or $0.46 per fully diluted share for the three months ended June 30, 1997, as compared to $1,132,000, or $0.40 per fully diluted share reported for the quarter ended June 30, 1996. Net interest income for the three months ended June 30, 1997 was $8.9 million, an increase of $4.6 million from the June 30, 1996 quarter of $4.2 million. Interest Income Interest income for the quarter ended June 30, 1997 totaled $23.3 million, an increase of $12.0 million, or 106.4%, from the prior year's quarter. Interest income on mortgage loans increased $6.7 million, or 67.8%, to $16.5 million from the June 1996 quarter. The average balance of the mortgage portfolio increased $358.5 million, or 64.7%, primarily as a result of the merger. The annualized average yield on the mortgage loan portfolio increased to 7.22% for the three months ended June 30, 1997 from 7.09% for the 1996 period. Interest income on equity lines of credit increased $764,000, or 103.4%, to $1.5 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 $36.3 million, or 99.2%, to $73.0 million from $36.6 million from the June 1996 quarter. Interest income on consumer loans and commercial leases increased $451,000 to $554,000 for the three months ended June 30, 1997. The average balance of the consumer loans and commercial leases increased $28.7 million from the 1996 period, primarily as a result of the merger. Interest income on mortgage-backed securities for the three months ended June 30, 1997 increased $3.0 million to $3.1 million from the June 1996 quarter. The average balance of the mortgage-backed securities portfolio increased $170.0 million from the 1996 period, primarily as a result of the merger. The average balance of the investment securities portfolio increased $67.2 million from the 1996 period, due to the merger and additional purchases. Interest Expense Interest expense on deposit accounts increased $6.8 million, or 137.7%, to $11.7 million, for the quarter ended June 30, 1997 compared to the prior year's quarter. The annualized average cost of deposits for the three months ended June 30, 1997 was 4.64%, an increase from the annualized average cost of 4.24% for the June 1996 period. The average deposit base increased $542.8 million to $1.0 billion during the 1997 period, primarily as a result of the merger. For the quarter ended June 30, 1997, the Company recorded interest expense on borrowed funds of $2.7 million on an average balance of $180.8 million at an annualized cost of 5.98% primarily related to FHLB advances and reverse repurchase agreements. The average balance of the Collateralized Mortgage Obligations ("CMO") bonds outstanding decreased $1.3 million, or 43.9%, to $1.7 million for the three months ended June 30, 1997 compared to the 1996 period, due to payments and prepayments of the mortgage-backed securities held as collateral for the bonds. The interest expense on the CMO bonds for the 1997 period decreased $52,000 to $51,000 compared to the three months ended June 30, 1996. The annualized average cost on the CMO bonds decreased to 12.15% for the 1997 quarter from 13.78% for the three months ended June 30, 1996, due to adjustments to the discount on the bonds for changes in the estimated average maturities of the collateral. Net Interest Income Net interest income for the three months ended June 30, 1997 increased $4.6 million or 109.4%, to $8.9 million from the 1996 period. The annualized average yield on interest-earning assets increased from 6.97% to 7.19% when comparing the 1996 and 1997 quarters. The annualized average cost of interest-bearing liabilities increased to 4.86% from 4.74%. This resulted in an annualized average net interest rate spread of 2.33% for the three-month period ended June 30, 1997 compared to 2.23% for the prior year's period. Both the average balance of interest- earning assets and interest-bearing liabilities increased during the quarter ended June 30, 1997 compared to the 1996 quarter primarily as a result of the merger. Provision for Loan Losses Based on management's evaluation of the loan portfolio, no provision for loan losses was recorded during the quarter ended June 30, 1997. The amount of non-performing loans at June 30, 1997, was $1,627,000, or 0.16% of total loans, compared to $731,000 or 0.12% of total loans at June 30, 1996. The ratio of the allowance for loan losses to non-performing loans was 335.5% and 329.3% at June 30, 1997 and 1996, respectively. Noninterest Income Total noninterest income for the three months ended June 30, 1997 was $4.2 million, an increase of $1.2 million over the 1996 period. Fees and commissions for the quarter ended June 30, 1997 increased $1.2 million to $4.0 million over the comparable 1996 quarter. Included in the current quarter are ATM transaction fees of $494,000. This is an increase of $332,000 over the prior year's quarter, primarily related to charging non-customers using the Bank's shared ATM network. Also included in fees and commissions for the current quarter are additional fees on deposit accounts of $217,000, primarily related to the additional accounts added in the merger. Noninterest Expense Noninterest expense for the quarter ended June 30, 1997 totaled $8.8 million, an increase of $2.9 million, or 50.2% from the prior year's quarter. The increase is primarily related to the combination of the operations of the two companies. Income Tax Provision The provision for income taxes for the three months ended June 30, 1997 was $1.7 million. The effective tax rate for the three months ended June 30, 1997 was 38.8% compared to 19.5% for the three months ended June 30, 1996. The effective tax rate for the 1996 period was a result of the reversal of the SFAS 109 valuation allowance which was no longer deemed necessary. Comparison of Operating Results for the Six Months Ended June 30, 1997 and June 30, 1996 General The operating results for the six months ended June 30, 1997 include the combined entities from the date of merger (February 10, 1997). Net income totaled $4,065,000, or $0.80 per fully diluted share for the six months ended June 30, 1997, as compared to $2,333,000, or $0.83 per fully diluted share reported for the comparable six months ended June 30, 1996. Net interest income for the six months ended June 30, 1997 was $16.4 million, an increase of $8.0 million from the comparable 1996 period of $8.4 million. Interest Income Interest income for the six months ended June 30, 1997 totaled $42.2 million, an increase of $19.4 million, or 85.1%, from the prior year's six months. Interest income on mortgage loans increased $11.5 million, or 57.8%, to $31.4 million from the comparable six months of 1996. The average balance of the mortgage portfolio increased $308.1 million, or 54.8%, primarily as a result of the merger. The annualized average yield on the mortgage loan portfolio increased to 7.22% for the six months ended June 30, 1997 from 7.08% for the 1996 period. Interest income on equity lines of credit increased $1.4 million, or 98.5%, to $2.7 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 $35.3 million, or 106.3%, to $68.5 million from $33.2 million from the comparable period of 1996. Interest income on consumer loans and commercial leases increased $789,000 to $1.1 million for the six months ended June 30, 1997. The average balance of the consumer loans and commercial leases increased $23.0 million from the 1996 period, primarily as a result of the merger. Interest income on mortgage-backed securities for the six months ended June 30, 1997 increased $4.3 million to $4.6 million from the comparable six months of 1996. The average balance of the mortgage-backed securities portfolio increased $125.1 million from the 1996 period, primarily as a result of the merger. The average balance of the investment securities portfolio increased $41.8 million from the 1996 period, due to the merger and additional purchases. Interest Expense Interest expense on deposit accounts increased $10.8 million, or 109.3%, to $20.6 million, for the six months ended June 30, 1997 compared to the prior year's period. The annualized average cost of deposits for the six months ended June 30, 1997 was 4.57%, an increase from the annualized average cost of 4.27% for the comparable 1996 period. The average deposit base increased $446.3 million to $908.6 million during the 1997 period, primarily as a result of the merger. For the six months ended June 30, 1997, the Company recorded interest expense on borrowed funds of $5.1 million on an average balance of $168.6 million at an annualized cost of 6.00% primarily related to FHLB advances and reverse repurchase agreements. The average balance of the Collateralized Mortgage Obligations ("CMO") bonds outstanding decreased $1.4 million, or 42.9%, to $1.8 million for the six months ended June 30, 1997 compared to the 1996 period, due to payments and prepayments of the mortgage-backed securities held as collateral for the bonds. The interest expense on the CMO bonds for the 1997 period decreased $109,000 to $111,000 compared to the six months ended June 30, 1996. The annualized average cost on the CMO bonds decreased to 12.12% for the 1997 period from 13.72% for the six months ended June 30, 1996, due to adjustments to the discount on the bonds for changes in the estimated average maturities of the collateral. Net Interest Income Net interest income for the six months ended June 30, 1997 increased $8.0 million or 94.7%, to $16.4 million from the 1996 period. The annualized average yield on interest-earning assets for six months increased from 6.97% to 7.20% when comparing the 1996 and 1997 periods. The annualized average cost of interest-bearing liabilities for six months increased to 4.80% from 4.78%. This resulted in an annualized average net interest rate spread of 2.40% for the six- month period ended June 30, 1997 compared to 2.19% for the prior year's period. Both the average balance of interest-earning assets and interest-bearing liabilities increased during the six months ended June 30, 1997 compared to the 1996 period primarily as a result of the merger. Provision for Loan Losses Based on management's evaluation of the loan portfolio, no provision for loan losses was recorded during the six months ended June 30, 1997. The amount of non-performing loans at June 30, 1997, was $1,627,000, or 0.16% of total loans, compared to $731,000 or 0.12% of total loans at June 30, 1996. The ratio of the allowance for loan losses to non-performing loans was 335.5% and 329.3% at June 30, 1997 and 1996, respectively. Noninterest Income Total noninterest income for the six months ended June 30, 1997 was $6.9 million, an increase of $316,000 from the 1996 period. The six month period ended June 30, 1997 included losses of $314,000 on mortgage loan sales compared to gains of $202,000 recorded for the 1996 period. The current period included a loss of $391,000 on sales of $59 million of adjustable rate mortgage loans. The loan sale loss and subsequent reinvestment of the proceeds was completed to enhance the Bank's asset and liability mix. Fees and commissions for the six months ended June 30, 1997 increased $1,088,000 to $6.9 million over the comparable 1996 period. Included in the current six-month period are ATM transaction fees of $765,000. This is an increase of $447,000 over the prior year's period, primarily related to charging non- customers using the Bank's shared ATM network. Also included in fees and commissions for the current six-month period are additional fees on deposit accounts of $229,000, primarily related to the additional accounts added in the merger. Other noninterest income for the six months ended June 30, 1997 decreased $127,000 to $53,000 primarily related to a $104,000 tax refund and $53,000 from the redemption of an equity investment included in the 1996 period. Noninterest Expense Noninterest expense for the six months ended June 30, 1997 totaled $16.7 million, an increase of $5.0 million, or 43.3% from the prior year's comparable period. The current year's period includes $553,000 in non-recurring merger related expenses, which occurred in the first quarter. The remaining increases are primarily related to the combination of the operations of the two companies. Income Tax Provision The provision for income taxes for the six months ended June 30, 1997 was $2.6 million. The effective tax rate for the six months ended June 30, 1997 was 38.7% compared to 30.8% for the six months ended June 30, 1996. The effective tax rate for the 1996 period was a result of the reversal of the SFAS 109 valuation allowance which was no longer deemed necessary. Part II - Other Information Item 1. Legal Proceedings Not Applicable. Item 2. Changes in Securities Not Applicable. Item 3. Defaults Upon Senior Securities Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders (a) The Company held its Annual Meeting of Shareholders on May 28, 1997. (b) The names of each director elected at the Annual Meeting are as follows: Howard R. Jones Fredric G. Novy William C. O'Donnell Russell F. Stephens, Jr. Vernon B. Thomas, Jr. The names of each of the directors whose term of office continued after the Annual Meeting are as follows: Kenne P. Bristol Edward J. Burns Howard A. Davis Whit G. Hughes H. Verne Loeppert David D. Mill Edward J. Nusrala William R. Rybak Donald E. Sveen (c) The following matters were voted upon at the Annual Meeting and the number of affirmative votes and negative votes cast with the respect to each matter is as follows: (i) The election of five directors for terms of three years each: For Withheld Howard R. Jones 3,934,535 672,861 Fredric G. Novy 3,930,052 677,344 William C. O'Donnell 3,927,617 679,779 Russell F. Stephens, Jr. 3,937,660 669,736 Vernon B. Thomas, Jr. 3,935,072 672,324
(ii) Approval of the Alliance Bancorp 1997 Long-Term Incentive Compensation Plan: For Against Withheld 2,347,141 1,142,225 49,250 (iii) Ratification of the appointment of KPMG Peat Marwick, LLP as the Company's independent auditors for the year ending December 31, 1997: For Against Withheld 4,509,142 35,814 62,440 (d) None. 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 Six Months Ended June 30, 1997 June 30, 1997 Net income $2,636,000 4,065,000 Weighted average common shares outstanding 5,337,428 4,741,077 Common stock equivalents due to dilutive effect of stock options 332,290 335,760 Total weighted average common shares and equivalents outstanding 5,669,718 5,076,837 Primary earnings per share $ 0.46 0.80 Total weighted average common shares and equivalents outstanding 5,337,428 4,741,077 Additional dilutive shares using end of period market value versus average market value for the period when utilizing the treasury stock method regarding stock options 346,112 351,002 Total weighted average common shares and equivalents outstanding for fully diluted computation 5,683,540 5,092,790 Fully diluted earnings per share $ 0.46 0.80
(b) Reports on Form 8-K. none. 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: August 9, 1997 /s/ Kenne P. Bristol ----------------------------------- Kenne P. Bristol President and Chief Executive Officer Dated: August 9, 1997 /s/ Richard A. Hojnicki ----------------------------------- Richard A. Hojnicki Executive Vice President and Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE FOR ALLIANCE
9 1000
6-MOS DEC-31-1997 JUN-30-1997 12410 23858 0 0 302312 0 0 1017641 5458 1404263 1020923 132164 27878 0 54 0 0 125040 1404263 35250 6447 493 42190 20587 25780 16410 0 0 16691 6626 0 0 0 4065 0.80 0.80 2.33 1627 0 0 0 5478 22 2 5458 525 0 4933
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