-----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, MvBKJQpx6exV06r9mMHvaRzCpJTTw/Xv6YJkKCY9AG/BHjh2Wz5q5/6sfBrlNulJ 3ZXcYn/c3Pe033kA2O2CEQ== 0000943374-99-000176.txt : 19990812 0000943374-99-000176.hdr.sgml : 19990812 ACCESSION NUMBER: 0000943374-99-000176 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990811 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: 99683522 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 BANCORP 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, 1999 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 -11,021,628 shares outstanding as of August 7, 1999. 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, 1999 and December 31, 1998 1 Consolidated Statements of Income for the Three and Six Months Ended June 30, 1999 and 1998 2 Consolidated Statements of Changes in Stockholders' Equity for the Six Months Ended June 30, 1999 and 1998 3 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998 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 20 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 21 Item 6. Exhibits and Reports on Form 8-K 22 Signature Page 23 Alliance Bancorp and Subsidiaries Consolidated Statements of Financial Condition
June 30, December 31, (In thousands, except share data) 1999 1998 - -------------------------------------------------------------------------------------------------------------------- (unaudited) Assets Cash and due from banks $ 9,273 17,195 Interest-bearing deposits 1,262 63,802 Investment securities available for sale, at fair value 84,579 61,516 Mortgage-backed securities available for sale, at fair value 468,869 332,347 Loans, net of allowance for losses of $6,307 at June 30, 1999 and $6,350 at December 31, 1998 1,275,550 1,333,401 Accrued interest receivable 11,026 10,759 Real estate 21,618 20,185 Premises and equipment, net 12,684 12,590 Stock in Federal Home Loan Bank of Chicago, at cost 25,572 24,523 Due from broker - 71,336 Other assets 42,160 34,842 - -------------------------------------------------------------------------------------------------------------------- $ 1,952,593 1,982,496 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Liabilities: Deposits $ 1,231,273 1,298,044 Borrowed funds 516,977 464,450 Advances by borrowers for taxes and insurance 12,418 12,935 Accrued expenses and other liabilities 18,404 21,130 - -------------------------------------------------------------------------------------------------------------------- Total liabilities 1,779,072 1,796,559 - -------------------------------------------------------------------------------------------------------------------- Stockholders' Equity: Preferred stock, $.01 par value; authorized 1,500,000 shares; none outstanding - - Common stock, $.01 par value; authorized 21,000,000 shares; 11,659,211 shares issued and 11,020,628 outstanding at June 30, 1999 11,617,903 shares issued and 11,463,881 outstanding at December 31, 1998 117 116 Additional paid-in capital 107,602 107,130 Retained earnings, substantially restricted 86,227 80,219 Treasury stock, at cost; 638,583 shares at June 30, 1999 and 154,022 at December 31, 1998 (11,202) (1,511) Accumulated other comprehensive loss (9,223) (17) - -------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 173,521 185,937 - -------------------------------------------------------------------------------------------------------------------- Commitments and contingencies - -------------------------------------------------------------------------------------------------------------------- $ 1,952,593 1,982,496 - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements. 1
Alliance Bancorp and Subsidiaries Consolidated Statements of Income Three Months Ended Six Months Ended June 30, June 30, (In thousands, except per share amounts) 1999 1998 1999 1998 - -------------------------------------------------------------------------------------------------------------------- (unaudited) Interest Income: Loans $ 23,437 23,776 47,312 47,293 Mortgage-backed securities 7,182 7,391 12,584 12,568 Investment securities 1,842 2,621 3,331 5,154 Interest-bearing deposits 441 566 2,172 2,011 - -------------------------------------------------------------------------------------------------------------------- Total interest income 32,902 34,354 65,399 67,026 - -------------------------------------------------------------------------------------------------------------------- Interest Expense: Deposits 13,043 15,168 26,682 30,339 Borrowed funds 6,618 6,131 12,733 10,690 Collateralized mortgage obligations - 15 - 38 - -------------------------------------------------------------------------------------------------------------------- Total interest expense 19,661 21,314 39,415 41,067 - -------------------------------------------------------------------------------------------------------------------- Net interest income 13,241 13,040 25,984 25,959 Provision for loan losses 50 56 100 162 - -------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan 13,191 12,984 25,884 25,797 losses - -------------------------------------------------------------------------------------------------------------------- Noninterest Income: Gain on sales of loans 87 113 469 152 Gain (loss) on sales of mortgage-backed securities available for sale (17) - (22) 326 Gain on sales of investment securities available for sale - - - 178 Income from real estate operations 1,217 206 1,728 901 Servicing fee income 83 78 231 152 ATM fee income 547 507 1,027 968 Other fees and commissions 4,710 3,793 9,514 8,060 Other 56 153 436 289 - -------------------------------------------------------------------------------------------------------------------- Total noninterest income 6,683 4,850 13,383 11,026 - -------------------------------------------------------------------------------------------------------------------- Noninterest Expense: Compensation and benefits 6,962 8,420 14,369 14,647 Occupancy expense 1,842 1,556 3,616 3,062 Federal deposit insurance premiums 192 203 393 404 Advertising expense 332 299 542 479 ATM expense 340 443 680 836 Computer services 327 594 664 1,005 Other 2,780 3,196 5,387 5,373 - -------------------------------------------------------------------------------------------------------------------- Total noninterest expense 12,775 14,711 25,651 25,806 - -------------------------------------------------------------------------------------------------------------------- Income before income taxes 7,099 3,123 13,616 11,017 Income tax expense 2,592 1,382 4,508 4,439 - -------------------------------------------------------------------------------------------------------------------- Net income $ 4,507 1,741 9,108 6,578 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Basic earnings per share $ 0.41 0.15 0.81 0.58 Diluted earnings per share $ 0.39 0.14 0.78 0.55 - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements. 2
Alliance Bancorp and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity Common Accumulated Additional Stock Other Comprehensive Common Paid-in Retained Treasury Purchased Comprehensive (In thousands, except per share amounts) Income Stock Capital Earnings Stock By ESOP Income (Loss) Total - ------------------------------------------------------------------------------------------------------------------------------------ (unaudited) Six Months Ended June 30, 1998 Balance at December 31, 1997 $ 114 104,178 70,851 (1,527) (320) 1,630 174,926 Net income 6,578 - - 6,578 - - - 6,578 Other comprehensive income, net of tax Change in unrealized gain (loss) on securities available for sale, net of (962) - - - - - (962) (962) reclassification adjustment ------------ Total comprehensive income 5,616 Cash dividends declared, $0.25 per share - - (2,867) - - - (2,867) Treasury stock distributed under employee benefit plan - (17) - 16 - - (1) Issuance of stock (71,866 shares) 1 1,499 - - - - 1,500 Proceeds from exercise of stock options 1 495 - - - - 496 Tax benefit from stock related compensation - 645 - - - - 645 Principal payment on ESOP loan - - - - 320 - 320 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at June 30, 1998 $ 116 106,800 74,562 (1,511) - 668 180,635 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Six Months Ended June 30, 1999 Balance at December 31, 1998 $ 116 107,130 80,219 (1,511) - (17) 185,937 Net income 9,108 - - 9,108 - - - 9,108 Other comprehensive income, net of tax Change in unrealized gain (loss) on securities available for sale, net of (9,206) - - - - - (9,206) (9,206) reclassification adjustment ---------- Total comprehensive loss (98) Cash dividends declared, $0.28 per share - - (3,100) - - - (3,100) Purchase of treasury stock - - - (9,691) - - (9,691) Proceeds from exercise of stock options 1 278 - - - - 279 Tax benefit from stock related - 194 - - - - 194 compensation - ------------------------------------------------------------------------------------------------------------------------------------ Balance at June 30, 1999 $ 117 107,602 86,227 (11,202) - (9,223) 173,521 - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements. 3
Alliance Bancorp and Subsidiaries Consolidated Statements of Cash Flows Six Months Ended June 30, (In thousands) 1999 1998 - -------------------------------------------------------------------------------------------------------------------- (unaudited) Cash Flows From Operating Activities: Net income $ 9,108 6,578 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,274 898 Provision for loan losses 100 162 Amortization of premiums, discounts, and deferred loan fees 808 620 Originations of loans held for sale (349,470) (393,663) Sale of loans originated for resale 438,411 306,608 Gain on sales of loans (469) (152) (Gain) loss on sales of mortgage-backed securities available for sale 22 (326) Gain on sales of investment securities available for sale - (178) Increase in accrued interest receivable (267) (2,623) Increase in other assets (2,215) (11,323) Increase (decrease) in accrued expenses and other liabilities (2,470) 10,928 - -------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 94,832 (82,471) - -------------------------------------------------------------------------------------------------------------------- Cash Flows From Investing Activities: Loans originated or purchased for investment (223,796) (196,372) Purchases of: Mortgage-backed securities available for sale (237,351) (359,763) Investment securities available for sale (64,655) (66,479) Stock in Federal Home Loan Bank of Chicago (2,500) (10,173) Premises and equipment (1,368) (1,749) Proceeds from sale of: Mortgage-backed securities available for sale 84,665 51,046 Investment securities available for sale - 234 Stock in Federal Home Loan Bank of Chicago 1,451 370 Loans held for investment 14,594 3,286 Proceeds from maturities of investment securities available for sale 39,425 75,487 Net (increase) decrease in real estate joint ventures (1,786) 350 Principal collected on loans 178,170 188,210 Principal collected on mortgage-backed securities available for sale 75,192 44,214 - -------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (137,959) (271,339) - -------------------------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities: Net increase (decrease) in deposits (66,771) 12,635 Proceeds from borrowed funds 59,327 395,287 Repayment of borrowed funds (6,800) (78,500) Repayment of collateralized mortgage obligations - (535) Net increase (decrease) in advance payments by borrowers for taxes and insurance (517) 140 Purchase of treasury stock (9,691) - Proceeds from sale of treasury stock - 1,500 Cash dividends paid (3,162) (2,867) Decrease in ESOP loan - 320 Proceeds from exercise of stock options 279 496 - -------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (27,335) 328,476 - -------------------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (70,462) (25,334) Cash and cash equivalents at beginning of period 80,997 58,513 - -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 10,535 33,179 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 39,270 40,225 Income taxes 6,485 7,343 Supplemental Disclosures of Noncash Activities: Loans exchanged for mortgage-backed securities $ 473 11,527 Additions to real estate acquired in settlement of loans $ 208 740 - --------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements. 4 Alliance Bancorp and Subsidiaries Notes to Consolidated Financial Statements (unaudited) Six Months Ended June 30, 1999 and 1998 (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") and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated. (2) Comprehensive Income The following table sets forth the required disclosures of the reclassification amounts as presented in the statements 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 - -------------------------------------------------------------------- ---- -------------- ------------- ------------- Six Months Ended June 30, 1998 Disclosure of reclassification amount: Unrealized holding gain (loss) on securities arising during the period $ (1,961) 696 (1,265) Less: reclassification adjustment for gain (loss) included in net income 504 (201) 303 - -------------------------------------------------------------------- ---- -------------- ------------- ------------- Net unrealized gain (loss) on securities $ (1,457) 495 (962) - -------------------------------------------------------------------- ---- -------------- ------------- ------------- Six Months Ended June 30, 1999 Disclosure of reclassification amount: Unrealized holding gain (loss) on securities arising during the period $ (14,141) 4,949 (9,192) Less: reclassification adjustment for gain (loss) included in net income (22) 8 (14) - -------------------------------------------------------------------- ---- -------------- ------------- ------------- Net unrealized gain (loss) on securities $ (14,163) 4,957 (9,206) - -------------------------------------------------------------------- ---- -------------- ------------- -------------
5 Alliance Bancorp and Subsidiaries Notes to Consolidated Financial Statements - (Continued) (unaudited) Six Months Ended June 30, 1999 and 1998 (3) Earnings per Share The following table sets forth the computation of basic and diluted earnings per share for the periods indicated:
Three Months Ended Six Months Ended June 30, June 30, ---------------------------- --------------------------- (In thousands, except share data) 1999 1998 1999 1998 - ------------------------------------------------------ ---- ------------- -------------- ------------- ------------- Numerator: Net income $ 4,507 1,741 9,108 6,578 Denominator: Basic earnings per share-weighted average shares 11,042,591 11,364,946 11,217,619 11,327,323 Effect of dilutive securities-stock options 550,956 644,909 521,192 641,812 Diluted earnings per share-adjusted weighted average shares 11,593,547 12,009,855 11,738,811 11,969,135 Basic earnings per share $ 0.41 0.15 0.81 0.58 Diluted earnings per share $ 0.39 0.14 0.78 0.55
(4) Commitments and Contingencies At June 30, 1999, the Company had outstanding commitments to originate or purchase loans of $115.9 million. Unused equity lines of credit available to customers were $102.6 million at June 30, 1999. (5) Operating Segments The Company's operations include two primary segments: banking and mortgage brokerage. Through its banking subsidiary's network of 20 retail banking facilities in Chicago; north, west and southwestern Cook County; and DuPage County in Illinois, the Company provides traditional community banking services such as accepting deposits and making loans. Mortgage brokerage activities conducted through the Bank's subsidiary, Preferred Mortgage Associates, Ltd. ("Preferred") include the origination of primarily residential mortgage loans for sale to various investors as well as to the Bank. The Company's two reportable segments are strategic business units that are separately managed as they offer different products and services and have different marketing strategies. Smaller operating segments are combined and consist of financial advice and brokerage services, insurance, joint venture real estate developments, and holding company investments. Assets and results of operations are based on generally accepted accounting principles, with profit and losses of equity method investees excluded. Inter-segment revenues and expenses are eliminated in reporting consolidated results of operations.
Operating segment information is as follows: Mortgage Inter-segment Consolidated (In thousands) Banking Brokerage Other Eliminations Total - -------------------------------------------------------------------------------------------------------------------- Three Months Ended June 30, 1999 Interest income $ 32,951 486 121 (656) 32,902 Interest expense 19,671 537 109 (656) 19,661 - -------------------------------------------------------------------------------------------------------------------- Net interest income (expense) 13,280 (51) 12 - 13,241 Provision for loan losses 50 - - - 50 - -------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 13,230 (51) 12 - 13,191 Other fees and commissions 1,358 3,696 681 (395) 5,340 Other noninterest income 118 - 1,275 (50) 1,343 Noninterest expense 8,726 3,779 715 (445) 12,775 - -------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 5,980 (134) 1,253 - 7,099 Income tax expense (benefit) 2,148 (53) 497 - 2,592 - -------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 3,832 (81) 756 - 4,507 - -------------------------------------------------------------------------------------------------------------------- Assets $ 1,926,441 58,641 37,485 (69,974) 1,952,593 - -------------------------------------------------------------------------------------------------------------------- Investment in equity method investees $ 9,086 - 164,431 - - - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
6
Alliance Bancorp and Subsidiaries Notes to Consolidated Financial Statements - (Continued) (unaudited) Six Months Ended June 30, 1999 and 1998 Mortgage Inter-segment Consolidated (In thousands) Banking Brokerage Other Eliminations Total - -------------------------------------------------------------------------------------------------------------------- Six Months Ended June 30, 1999 Interest income $ 65,178 1,558 336 (1,673) 65,399 Interest expense 39,442 1,434 212 (1,673) 39,415 - -------------------------------------------------------------------------------------------------------------------- Net interest income 25,736 124 124 - 25,984 Provision for loan losses 100 - - - 100 - -------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 25,636 124 124 - 25,884 Other fees and commissions 2,646 8,132 1,249 (1,255) 10,772 Other noninterest income 645 - 2,066 (100) 2,611 Noninterest expense 17,989 7,680 1,337 (1,355) 25,651 - -------------------------------------------------------------------------------------------------------------------- Income before income taxes 10,938 576 2,102 - 13,616 Income tax expense 3,449 224 835 - 4,508 - -------------------------------------------------------------------------------------------------------------------- Net income $ 7,489 352 1,267 - 9,108 - -------------------------------------------------------------------------------------------------------------------- Assets $ 1,926,441 58,641 37,485 (69,974) 1,952,593 - -------------------------------------------------------------------------------------------------------------------- Investment in equity method investees $ 9,086 - 164,431 - - - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Three Months Ended June 30, 1998 Interest income $ 34,177 1,490 344 (1,657) 34,354 Interest expense 21,366 1,476 124 (1,652) 21,314 - -------------------------------------------------------------------------------------------------------------------- Net interest income 12,811 14 220 (5) 13,040 Provision for loan losses 56 - - - 56 - -------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 12,755 14 220 (5) 12,984 Other fees and commissions 1,293 3,534 619 (1,068) 4,378 Other noninterest income 369 - 189 (86) 472 Noninterest expense 10,949 3,121 1,800 (1,159) 14,711 - -------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 3,468 427 (772) - 3,123 Income tax expense 1,113 167 102 - 1,382 - -------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 2,355 260 (874) - 1,741 - -------------------------------------------------------------------------------------------------------------------- Assets $ 2,004,851 137,580 41,837 (116,071) 2,068,197 - -------------------------------------------------------------------------------------------------------------------- Investment in equity method investees $ 10,497 - 160,463 - - - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Six Months Ended June 30, 1998 Interest income $ 66,663 2,228 738 (2,603) 67,026 Interest expense 41,207 2,198 253 (2,591) 41,067 - -------------------------------------------------------------------------------------------------------------------- Net interest income 25,456 30 485 (12) 25,959 Provision for loan losses 162 - - - 162 - -------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 25,294 30 485 (12) 25,797 Other fees and commissions 2,511 6,751 1,134 (1,216) 9,180 Other noninterest income 985 - 1,033 (172) 1,846 Noninterest expense 18,585 6,064 2,557 (1,400) 25,806 - -------------------------------------------------------------------------------------------------------------------- Income before income taxes 10,205 717 95 - 11,017 Income tax expense 3,716 280 443 - 4,439 - -------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 6,489 437 (348) - 6,578 - -------------------------------------------------------------------------------------------------------------------- Assets $ 2,004,851 137,580 41,837 (116,071) 2,068,197 - -------------------------------------------------------------------------------------------------------------------- Investment in equity method investees $ 10,497 - 160,463 - - - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
(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 Alliance Bancorp ( 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"). 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 twenty full service 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 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 primarily 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 loans, mortgage-backed and investment securities portfolios, and its cost of funds, consisting of the interest paid on its deposits and borrowings. On May 31, 1995, the Company acquired Preferred Mortgage Associates, Ltd. ("Preferred"), one of the largest mortgage brokers in the Chicago metropolitan area. Preferred has four mortgage origination offices including its headquarters in Downers Grove, Illinois. The acquisition of Preferred has resulted in increases in both noninterest income and noninterest expense. The Bank's earnings are also affected by noninterest income, including income related to loan origination fees contributed by 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, investment securities, loan servicing, and real 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. On February 10, 1997, the Company (then named Hinsdale Financial Corporation) and Liberty Bancorp, Inc., the holding company for Liberty Federal Savings Bank, consummated a merger in a stock-for-stock exchange. In connection with that transaction, 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 Alliance Bancorp common stock were exchanged for each share of Liberty Bancorp outstanding common stock. There were 3,930,405 shares of common stock of Alliance Bancorp issued for 3,733,013 shares of Liberty Bancorp common stock. 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. 8 On June 30, 1998, the Company consummated the acquisition of Southwest Bancshares, the holding company for Southwest Federal Savings and Loan Association of Chicago ("the Association"). The transaction was accounted for under the pooling-of-interests method of accounting and 1.1981 shares of Alliance Bancorp common stock were 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. 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. Forward-Looking Statements This Quarterly Report on Form 10-Q may contain certain forward-looking statements consisting of estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company's operations, pricing, products and services, including Year 2000 issues. Liquidity/Capital Resources The Company's primary sources of funds are deposits, borrowings, principal and interest payments on loans and mortgage-backed securities and the sale of loans, mortgage-backed and investment securities. 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 5.29% for the quarter ended June 30, 1999. 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, 1999, cash and cash equivalents totaled $10.5 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, provided $94.8 million for the six months ended June 30, 1999. Net cash related to investing activities, consisting primarily of disbursements for loans originated or purchased for investment, purchases of mortgage-backed and investment securities available for sale, 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 $138.0 million for the six months ended June 30, 1999. Net cash utilized by financing activities, consisting primarily of net activity in deposit and escrow accounts, net proceeds from borrowed funds, the payment of dividends and the purchase of treasury stock, totaled $27.3 million for the six months ended June 30, 1999. 9 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 June 30, 1999 the Company had no forward commitments to sell FNMA mortgage-backed securities. The Bank's tangible capital ratio at June 30, 1999 was 7.70%. This exceeded the tangible capital requirement of 1.5% of adjusted assets by $119.5 million. The Bank's leverage capital ratio at June 30, 1999 was 7.70%. This exceeded the leverage capital requirement of 3.0% of adjusted assets by $90.5 million. The Bank's risk-based capital ratio was 14.02% at June 30, 1999. The Bank currently exceeds the risk-based capital requirement of 8.0% of risk-weighted assets by $65.9 million. Changes in Financial Condition The Company had total assets of $2.0 billion at June 30, 1999, a decrease of $29.9 million, or 1.5%, from December 31, 1998. Mortgage-backed and investment securities increased $159.6 million offset by a decrease in cash and cash equivalents and due from broker of $141.8 million. Loans decreased $57.9 million. Loans held for sale were $52.5 million at June 30, 1999 compared to $110.6 million at December 31, 1998, a decrease of $58.1 million. Loans totaled $1.3 billion at June 30, 1999, a decrease of $57.9 million. Loan originations were $573.3 million for the six months ended June 30, 1999, offset by loan sales of $453.0 million and principal repayments of $178.2 million. Deposits totaled $1.2 billion at June 30, 1999, a decrease of $66.8 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 $173.5 million at June 30, 1999, a decrease of $12.4 million. On February 2, 1999, the Company announced a stock repurchase plan under which the Company is authorized to repurchase up to 1,146,000 shares of its outstanding common stock. At June 30, 1999, 484,561 shares had been repurchased for a total cost of $9.7 million, which is reflected as a reduction in stockholders' equity. In addition, Stockholders' equity was reduced by $9.2 million as a result of changes in the market values of investment securities and mortgage-backed securities available for sale, net of tax. At June 30, 1999, the number of common shares outstanding was 11,020,628 and the book value per common share outstanding was $15.75 per share. On June 17, 1999, the Company declared a $0.14 per share cash dividend payable July 14, 1999 to shareholders of record on June 30, 1999. 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 have been completed as of 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 10 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 June 30, 1999 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. The Company utilizes a national third party provider for the bulk of its data processing needs. As a result, a large part of the Company's mission critical Year 2000 testing is for products and services processed by that service provider. The service provider has completed the remediation and testing of its system and has had its Year 2000 compliant systems in production since June 30, 1998. The Company continues to independently test its activities on that system to verify that the service provider's system functions in the Year 2000 for those services used by the Company. In November 1998, the Company successfully completed the first phase of that testing. Testing of the second phase was successfully completed in April 1999. Costs: The Company has not incurred material costs specifically related to its Year 2000 program and does not expect these costs to have a significant impact on the Company's results of operations, liquidity or capital resources. Direct costs of the Year 2000 issue have been estimated to not exceed $250,000 per year for the years ended December 31, 1998, 1999 and 2000. The primary direct costs include compensation and benefits paid to staff dedicated solely to the Year 2000 issues, direct costs paid to vendors or others related to Year 2000 preparedness and the income statement effect of hardware and software purchased to replace items not Year 2000 compliant. The figure does not include costs considered by the Company to be indirect costs. The primary indirect cost includes the time and effort of many of the Company's employees to prepare for the Year 2000 in addition to performing their normal work routine. The costs of the Year 2000 project are based on the Company's best estimates, which include numerous assumptions about future events. Actual costs may differ due to actual events being different than those assumed at the time the cost estimates were prepared. 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. Contingency Plans: The Company has taken actions to comply with federal regulatory requirements for Year 2000 contingency planning. The Company presently believes that the compliance effort can and will be completed prior to the Year 2000. However, if required product or service upgrades are not complete by that time, the Year 2000 issues could disrupt normal business operations. Although not expected at this time, the most likely worst case scenario includes the Company being unable to process some or all of its transactions on a temporary basis. Because of the nature of this scenario, the Company established contingency plans for all mission critical services. Those contingency plans will also be tested as part of the Company's Year 2000 preparedness, which is scheduled for the fall of 1999. Additionally, a business resumption plan has been developed to mitigate risks associated with the failure of mission critical systems. The Year 2000 business resumption contingency plan is designed to ensure that mission critical core banking processes will continue if one or more supporting systems fail and to allow for limited transaction processing until the Year 2000 problems are fixed. Readers should be cautioned that forward looking statements contained in the Year 2000 disclosure should be read in conjunction with the Company's disclosures regarding "Forward-Looking Statements". Recent and Proposed Changes in Accounting Rules 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 11 financial position. In June 1999, FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB Statement No. 133." This statement defers the effective date for one year. Management, at this time, has not determined the impact of adopting this statement on January 1, 2001. 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, 1999 nor during the quarter ended June 30, 1999, 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) 1999 1999 1998 1998 1998 - -------------------------------------------------------------------------------------------------------------------- Non-accrual mortgage loans 90 days or more past due $ 3,416 4,513 3,117 3,363 2,231 Non-accrual commercial loans 90 days or more past due 250 - - - 3 Non-accrual consumer loans 90 days or more past due 177 157 165 61 110 -------------------------------------------------------------------------------- Total non-performing loans 3,843 4,670 3,282 3,424 2,344 Total foreclosed real estate 164 148 514 212 261 -------------------------------------------------------------------------------- Total non-performing assets $ 4,007 4,818 3,796 3,636 2,605 -------------------------------------------------------------------------------- Total non-performing loans to total loans 0.30 % 0.37 0.25 0.24 0.18 Total non-performing assets to total assets 0.21 % 0.25 0.19 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, 1999 the Company had total classified assets of $3.6 million, of which $3.4 million were classified "substandard" and $200,000 were classified as "doubtful." The assets so classified consisted of auto loans, 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. 12 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, 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 will implement 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 June 30, 1999 ----------------------------------------------------------------- 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) $ 322,684 180,273 164,150 400,414 1,067,521 Equity lines of credit (1) 92,193 - - - 92,193 Consumer loans and leases (1) 8,544 23,839 75,607 10,228 118,218 Mortgage-backed securities (2) 164,489 93,133 69,642 153,613 480,877 Interest-bearing deposits 1,262 - - - 1,262 Investment securities (2) 110,757 70 - 1,250 112,077 - -------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 699,929 297,315 309,399 565,505 1,872,148 Interest-Bearing Liabilities: Savings accounts 35,787 54,356 35,436 84,930 210,509 NOW interest-bearing accounts 22,425 20,528 5,493 12,163 60,609 Money market accounts 67,297 9,372 4,462 4,055 85,186 Certificate accounts 694,959 107,395 14,854 - 817,208 Borrowed funds 135,827 168,650 112,500 100,000 516,977 - -------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 956,295 360,301 172,745 201,148 1,690,489 - -------------------------------------------------------------------------------------------------------------------- Interest sensitivity gap $ (256,366) (62,986) 136,654 364,357 181,659 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Cumulative interest sensitivity gap $ (256,366) (319,352) (182,698) 181,659 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Cumulative interest sensitivity gap as a percentage of total assets (13.04) % (16.24) (9.29) 9.24 Cumulative net interest-earning assets as a percentage of interest-bearing liabilities 73.19 % 75.74 87.73 110.75 - --------------------------------------------------------------------------------------------------------------------
(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 SFAS 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 13 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 an immediate 300 basis point increase to an immediate 300 basis point decrease in market interest rates (measured in 100 basis point increments). The Bank's asset and liability structure results in a decrease in NPV in a rising interest rate scenario and an increase in NPV in a declining interest rate scenario. During periods of rising interest rates, the value of monetary assets declines more rapidly than the value of monetary liabilities rises. Conversely, during periods of falling interest rates, the value of monetary assets rises more rapidly than the value of monetary liabilities declines. However, the amount of change in value of specific assets and liabilities due to changes in interest rates is not the same in a rising rate environment as in a falling interest rate environment (i.e., the amount of value increase under a specific rate decline may not equal the amount of value decrease under an identical upward interest rate movement). There have been no material changes in market risk since December 31, 1998, as reported in the Company's Form 10-K for the year ended December 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 June 30, ---------------------------------------------------------- 1999 1998 ---------------------------------------------------------- Average Average Average Yield/ Average Yield/ (Dollars in thousands) Balance Interest Cost Balance Interest Cost - -------------------------------------------------------- ---------------------------- Assets: Interest-earning assets: Mortgage loans, net $ 1,059,629 $ 19,593 7.40 % $ 1,112,641 $ 20,780 7.47 % Equity lines of credit 95,077 1,719 7.25 93,584 1,856 7.95 Consumer loans and leases 104,799 2,125 8.13 53,529 1,140 8.52 Mortgage-backed securities 464,167 7,182 6.19 448,012 7,391 6.60 Interest-bearing deposits 37,853 441 4.61 40,315 566 5.55 Investment securities 111,099 1,842 6.64 149,269 2,621 7.03 - ---------------------------------------------------------------------------------------- Total interest-earning 1,872,624 32,902 7.03 1,897,350 34,354 7.24 assets Noninterest-earning assets 97,245 91,025 - ---------------------------------------------------------------------------------------- Total assets $ 1,969,869 $ 1,988,375 - ---------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity: Interest-bearing liabilities: Deposits: Savings accounts $ 1,039,348 $ 12,186 4.70 % $ 1,087,984 $ 14,137 5.21 % NOW interest-bearing 63,803 162 1.02 71,045 162 0.91 accounts Money market accounts 85,520 695 3.26 109,694 869 3.18 - ---------------------------------------------------------------------------------------- Total deposits 1,188,671 13,043 4.40 1,268,723 15,168 4.80 Funds borrowed: Borrowed funds 498,802 6,618 5.25 444,990 6,131 5.45 Collateralized mortgage - - - 539 15 11.13 - ---------------------------------------------------------------------------------------- Total funds borrowed 498,802 6,618 5.25 445,529 6,146 5.46 - ---------------------------------------------------------------------------------------- Total interest-bearing 1,687,473 19,661 4.65 1,714,252 21,314 4.97 liabilities Noninterest-bearing 102,712 94,650 liabilities - ---------------------------------------------------------------------------------------- Total liabilities 1,790,185 1,808,902 Stockholders' equity 179,684 179,473 - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 1,969,869 $ 1,988,375 - ---------------------------------------------------------------------------------------- Net interest income/ interest rate spread $ 13,241 2.38 % $ 13,040 2.27 % - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- Net interest-earning assets/ $ 185,151 2.83 % $ 183,098 2.75 % net interest margin - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- Interest-earning assets to interest-bearing 1.11 X 1.11 X liabilities - ---------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------
Average Balance Sheets (Continued) Six Months Ended June 30, ----------------------------------------------------------- At June 30, 1999 1998 1999 ----------------------------------------------------------- ---------------- Average Average Average Yield/ Average Yield/ Yield/ (Dollars in thousands) Balance Interest Cost Balance Interest Cost Balance Cost - -------------------------------------------------------- ----------------------------- ---------------- Assets: Interest-earning assets: Motgage loans, net $ 1,083,393 $ 39,941 7.37 % $ 1,101,284 $ 41,606 7.56 % $ 1,064,479 7.43 % Equity lines of credit 95,097 3,414 7.24 93,498 3,695 7.97 92,426 7.44 Consumer loans and leases 96,858 3,957 8.22 48,026 1,992 8.30 118,645 8.19 Mortgage-backed securities 402,950 12,584 6.25 374,860 12,568 6.71 468,869 6.32 Interest-bearing deposits 94,599 2,172 4.57 70,588 2,011 5.67 1,262 5.53 Investment securities 98,530 3,331 6.78 148,321 5,154 6.96 110,152 6.62 - ---------------------------------------------------------------------------------------- ---------------- Total interest-earning assets 1,871,427 65,399 6.99 1,836,577 67,026 7.30 1,855,833 7.15 Noninterest-earning assets 94,658 85,233 96,760 - ---------------------------------------------------------------------------------------- ---------------- Total assets $ 1,966,085 $ 1,921,810 $ 1,952,593 - ---------------------------------------------------------------------------------------- ---------------- - ---------------------------------------------------------------------------------------- ---------------- Liabilities and Stockholders' Equity: Interest-bearing liabilities: Deposits: Savings Accounts $ 1,053,541 $ 25,008 4.79 % $ 1,088,871 $ 28,216 5.23 % $ 1,027,717 4.74 % NOW interest-bearing accounts 61,081 312 1.03 71,010 370 1.05 60,609 0.95 Money market accounts 84,934 1,362 3.23 111,051 1,753 3.18 85,186 3.31 - ---------------------------------------------------------------------------------------- ---------------- Total deposits 1,199,565 26,682 4.49 1,270,932 30,339 4.81 1,173,512 4.44 Funds borrowed: Borrowed funds 480,465 12,733 5.27 380,158 10,690 5.59 516,977 5.25 Collateralized mortgage - - - 654 38 11.62 - - - ---------------------------------------------------------------------------------------- ---------------- Total funds borrowed 480,465 12,733 5.27 380,812 10,728 5.60 516,977 5.25 - ---------------------------------------------------------------------------------------- ---------------- Total interest-bearing liabilities 1,680,030 39,415 4.71 1,651,744 41,067 5.00 1,690,489 4.69 Noninterest-bearing liabilities 103,237 92,106 88,583 - ---------------------------------------------------------------------------------------- ---------------- Total liabilities 1,783,267 1,743,850 1,779,072 Stockholders' equity 182,818 177,960 173,521 - ---------------------------------------------------------------------------------------- ---------------- Total liabilities and stockholders' equity $ 1,966,085 $ 1,921,810 $ 1,952,593 - ---------------------------------------------------------------------------------------- ---------------- - ---------------------------------------------------------------------------------------- ---------------- Net interest income/ interest rate spread $ 25,984 2.28 % $ 25,959 2.30 % 2.46 % - ---------------------------------------------------------------------------------------- ----- - ---------------------------------------------------------------------------------------- ----- Net interest-earning assets/ net interest margin $ 191,397 2.78 % $ 184,833 2.83 % - ---------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------- Interest-earning assets to interest-bearing liabilities 1.11 X 1.11 X - ---------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------
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 June 30, 1999 Six Months Ended June 30, 1999 Compared To Compared To Three Months Ended June 30, 1998 Six Months Ended June 30, 1998 -------------------------------------- --------------------------------------- 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 $ (992) (195) (1,187) (654) (1,011) (1,665) Equity lines of credit 30 (167) (137) 63 (344) (281) Consumer loans and leases 1,039 (54) 985 1,984 (19) 1,965 Mortgage-backed securities 261 (470) (209) 909 (893) 16 Interest-bearing deposits (33) (92) (125) 597 (436) 161 Investment securities (640) (139) (779) (1,693) (130) (1,823) - -------------------------------------------------------------------------------------------------------------------- Total (335) (1,117) (1,452) 1,206 (2,833) (1,627) - -------------------------------------------------------------------------------------------------------------------- Interest-Bearing Liabilities: Deposits (916) (1,209) (2,125) (1,674) (1,983) (3,657) Funds borrowed 708 (236) 472 2,659 (654) 2,005 - -------------------------------------------------------------------------------------------------------------------- Total (208) (1,445) (1,653) 985 (2,637) (1,652) - -------------------------------------------------------------------------------------------------------------------- Net change in net interest $ (127) 328 201 221 (196) 25 income - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
Comparison of Operating Results for the Three Months Ended June 30, 1999 and June 30, 1998 General Net income totaled $4,507,000, or $0.39 per diluted share for the three months ended June 30, 1999, as compared to $1,741,000, or $0.14 per diluted share reported for the quarter ended June 30, 1998. On June 30, 1998, the Company completed its acquisition of Southwest Bancshares, which was accounted for as a pooling-of-interests. The prior year quarter includes acquisition related costs, totaling $3,550,000, reducing net income by $2,485,000, resulting in a decrease in diluted earnings per share by $0.21. These costs include professional fees, data processing conversion penalties and employee severance. Net interest income for the three months ended June 30, 1999 was $13.2 million, an increase of $201,000, or 1.5%, from the June 30, 1998 quarter of $13.0 million. Interest Income Interest income for the quarter ended June 30, 1999 totaled $32.9 million, a decrease of $1.5 million, or 4.2%, from the prior year's quarter. Interest income on mortgage loans, the largest component of interest-earning assets, decreased $1.2 million, or 5.7%, to $19.6 million from the June 1998 quarter. The average balance of the mortgage portfolio decreased $53 million. The annualized average yield on the mortgage loan portfolio decreased to 7.40% for the three months ended June 30, 1999 from 7.47% for the 1998 period. The Bank's mortgage loan portfolio is being affected by market conditions which prevailed over the last twelve months, whereby, higher yielding loans were repaid and replaced by lower yielding loans. Interest income on equity lines of credit decreased $137,000, or 7.4%, to $1.7 million from the prior year's quarter. The Bank's home equity line of credit product is priced based on the prime rate, which was 7.75% for the current quarter as compared to 8.50% for the comparable quarter a year 16 ago. The average balance of equity lines of credit increased $1.5 million, or 1.6%, to $95.1 million from $93.6 million from the June 1998 quarter. Interest income on consumer loans and leases increased $985,000 to $2.1 million for the three months ended June 30, 1999. The average balance of the consumer loans and leases increased $51.3 million, or 95.8% from the 1998 period, primarily as a result of indirect auto lending. Interest income on mortgage-backed securities for the three months ended June 30, 1999 decreased $209,000 to $7.2 million while the average balance of the mortgage-backed securities portfolio increased $16.2 million from the June 1998 period. The annualized average yield on the mortgage-backed securities portfolio decreased to 6.19% for the three months ended June 30, 1999 from 6.60% for the 1998 period. Interest income on investment securities for the three months ended June 30, 1999 decreased $779,000 to $1.8 million and the average balance of the investment securities portfolio decreased $38.2 million from the June 1998 period. The annualized average yield on the investment securities portfolio decreased to 6.64% for the three months ended June 30, 1999 from 7.03% for the 1998 period. Until recently, market interest rates had been declining, leading to rapid repayment of mortgage-backed securities and the maturity of callable Federal Home Loan Bank notes. The net cash received from these portfolios was reinvested at current market rates resulting in lower yields. Purchases of mortgage-backed and investment securities for the three months ended June 30, 1999 totaled $117.6 million offset by maturities, sales and principal repayments of $62.4 million. Interest Expense Interest expense on deposit accounts decreased $2.1 million, or 14.0%, to $13.0 million, for the quarter ended June 30, 1999 compared to the prior year's quarter. The decrease is related to both a decrease in the average interest-bearing deposit base and the annualized average cost of deposits. The annualized average cost of deposits for the three months ended June 30, 1999 was 4.40%, a decrease from the annualized average cost of 4.80% for the June 1998 period. The average interest-bearing deposit base decreased $80.1 million to $1.2 billion during the 1999 period. For the quarter ended June 30, 1999, the Company recorded interest expense on borrowed funds of $6.6 million on an average balance of $498.8 million at an annualized cost of 5.25% primarily related to FHLB borrowings. Additional net proceeds from FHLB borrowings for the three months ended June 30, 1999 totaled $49.5 million. Net Interest Income Net interest income for the three months ended June 30, 1999 increased $201,000 or 1.5%, to $13.2 million from the 1998 period. The annualized average yield on interest-earning assets decreased from 7.24% to 7.03% when comparing the 1998 and 1999 quarters. The annualized average cost of interest-bearing liabilities decreased from 4.97% to 4.65%. This resulted in an annualized average net interest rate spread of 2.38% for the three-month period ended June 30, 1999 compared to 2.27% for the prior year's period. 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 June 30, 1999 compared to $56,000 for the prior year quarter. The allowance for loan losses represents 0.49% of total loans receivable at June 30, 1999. The amount of non-performing loans at June 30, 1999, was $3.8 million, or 0.30% of total loans, compared to $2.3 million or 0.18% of total loans at June 30, 1998. Noninterest Income Total noninterest income for the three months ended June 30, 1999 was $6.7 million, an increase of $1.8 million from the 1998 period. Income from real estate operations increased $1.0 million from the year ago period, primarily due to income generated from additional investments in joint venture partnerships entered into in 1998. Other fees and commissions increased $917,000, primarily due to loan origination fees contributed by Preferred. 17 Noninterest Expense Noninterest expense for the quarter ended June 30, 1999 totaled $12.8 million, a decrease of $1.9 million, or 13.2% from the prior year's quarter. The June 1998 quarter included acquisition costs including professional fees, data processing conversion penalties and employee severance of $3.6 million. Exclusive of these expenses, noninterest expense increased $1.6 million. Compensation and benefits increased $738,000, or 11.9%, exclusive of year ago acquisition costs. This increase is primarily related to the origination, sale and delivery of loans by Preferred. Occupancy expense increased $286,000 primarily due to depreciation expense on additional equipment. Other noninterest expense increased $688,000, exclusive of year ago acquisition costs. This increase is primarily attributable to consulting fees related to operational efficiency studies and other loan servicing and loan origination costs. Income Tax Provision The provision for income taxes for the three months ended June 30, 1999 was $2.6 million. The effective tax rate for the three months ended June 30, 1999 was 36.5% compared to the effective tax rate of 44.3% for the prior year quarter. The prior year quarter included certain acquisition costs which were not tax deductible. Comparison of Operating Results for the Six Months Ended June 30, 1999 and June 30, 1998 General Net income totaled $9,108,000, or $0.78 per diluted share for the six months ended June 30, 1999, as compared to $6,578,000, or $0.55 per diluted share reported for the six months ended June 30, 1998. On June 30, 1998, the Company completed its acquisition of Southwest Bancshares, which was accounted for as a pooling-of-interests. The prior year period included acquisition related costs, totaling $3,795,000, reducing 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 six months ended June 30, 1999 was $26 million, an increase of $25,000 from the June 30, 1998 period. Interest Income Interest income for the six months ended June 30, 1999 totaled $65.4 million, a decrease of $1.6 million, or 2.4%, from the prior year's period. Interest income on mortgage loans decreased $1.7 million, or 4.0%, to $39.9 million from the June 1998 period. The average balance of the mortgage portfolio decreased $18 million. The annualized average yield on the mortgage loan portfolio decreased to 7.37% for the six months ended June 30, 1999 from 7.56% for the 1998 period. The Bank's mortgage loan portfolio is being affected by market conditions which prevailed over the last twelve months, whereby, higher yielding loans were repaid and replaced by lower yielding loans. Interest income on equity lines of credit decreased $281,000, or 7.6%, to $3.4 million from the prior year's period. The Bank's home equity line of credit is priced based on the prime rate, which was 7.75% for the current six months as compared to 8.50% for the comparable period a year ago. The average balance of equity lines of credit increased $1.6 million, or 1.7%, to $95.1 million from $93.5 million from the June 1998 period. Interest income on consumer loans and leases increased $2.0 million to $4.0 million for the six months ended June 30, 1999. The average balance of the consumer loans and leases increased $48.8 million from the 1998 period, primarily as a result of indirect auto lending. Interest income on mortgage-backed securities for the six months ended June 30, 1999 remained approximately the same and the average balance of the mortgage-backed securities portfolio increased $28.1 million from the June 1998 period. Interest income on investment securities for the six months ended June 30, 1999 decreased $1.8 million to $3.3 million and the average balance of the investment securities portfolio decreased $49.8 million from the June 1998 period. The decreases in the average annualized yields on the mortgage-backed and investment portfolios can be attributed to the market interest rates which had been declining, until recently, leading to rapid repayment of mortgage-backed securities and the maturity of callable Federal Home Loan Bank notes. The net cash received from these portfolios was reinvested at current market rates resulting in lower yields. Purchases of mortgage-backed and investment securities for the six months ended June 30, 1999 totaled $302.0 million offset by maturities, sales 18 and principal repayments of $199.3 million. The average balance of interest-bearing cash increased $24.0 million, to $94.6 million primarily as a result of repositioning the investment portfolios to accommodate the cash flow and liquidity needs of the Bank. Interest Expense Interest expense on deposit accounts decreased $3.7 million, or 12.1%, to $26.7 million, for the six months ended June 30, 1999 compared to the prior year's period. The decrease is related to both a decrease in the average interest-bearing deposit base and the annualized average cost of deposits. The annualized average cost of deposits for the six months ended June 30, 1999 was 4.49%, a decrease from the annualized average cost of 4.81% for the June 1998 period. The average interest-bearing deposit base decreased $71.4 million to $1.2 billion during the 1999 period. For the six months ended June 30, 1999, the Company recorded interest expense on borrowed funds of $12.7 million on an average balance of $480.5 million at an annualized cost of 5.27% primarily related to FHLB borrowings. Additional net proceeds from FHLB borrowings for the six months ended June 30, 1999 totaled $52.5 million. Net Interest Income Net interest income for the six months ended June 30, 1999 increased $25,000. The annualized average yield on interest-earning assets decreased from 7.30% to 6.99% when comparing the 1998 and 1999 periods. The annualized average cost of interest-bearing liabilities decreased from 5.00% to 4.71%. This resulted in an annualized average net interest rate spread of 2.28% for the six-month period ended June 30, 1999 compared to 2.30% 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, 1999 compared to the 1998 period. Provision for Loan Losses Based on management's evaluation of the loan portfolio, a provision of $100,000 for loan losses was recorded during the six months ended June 30, 1999 as compared to $162,000 recorded during the six months ended June 30, 1998. The allowance for loan losses represents 0.49% of total loans receivable at June 30, 1999. The amount of non-performing loans at June 30, 1999, was $3.8 million, or 0.30% of total loans, compared to $2.3 million or 0.18% of total loans at June 30, 1998. Noninterest Income Total noninterest income for the six months ended June 30, 1999 was $13.4 million, an increase of $2.4 million from the 1998 period. Other fees and commissions increased $1.5 million, primarily due to an increase in security brokerage fees contributed by Liberty Financial Services, Inc. of $128,000 and an increase in loan origination fees contributed by Preferred of $1.4 million. The current six months includes gains on sales of loans, mortgage-backed and investment securities of $447,000, compared to $656,000 for the 1998 period. Income from real estate operations for the six months ended June 30, 1999 increased $827,000, primarily due to income generated from additional investments in joint venture partnerships entered into in 1998. Real estate income for the 1998 period included income of $474,000 related to the termination of a real estate venture. Other income for the six months ended June 30, 1999, includes a gain on the sale of Liberty Financial Services Inc.'s insurance book of business of $250,000. Noninterest Expense Noninterest expense for the six months ended June 30, 1999 totaled $25.7 million, a decrease of $155,000 from the prior year's period. The six months ended June 30, 1998 included acquisition costs including professional fees, data processing conversion penalties and employee severance of $3.8 million. Exclusive of these expenses, noninterest expense increased $3.6 million. Compensation and benefits increased $1.9 million, or 15.4%, exclusive of year ago acquisition costs. This increase is primarily related to the origination, sale and delivery of loans by Preferred for a total of $1.5 million. Other noninterest expense increased $1.3 million, exclusive of year ago acquisition costs. This increase is primarily attributable to consulting fees related to operational efficiency studies and other loan servicing and loan origination costs. 19 Income Tax Provision The provision for income taxes for the six months ended June 30, 1999 was $4.5 million. The effective tax rate for the six months ended June 30, 1999 was 33.1% compared to the effective tax rate of 40.3% for the six months ended June 30, 1998. The lower effective tax rate for the current period was due to a reduction in the provision of $700,000 as a result of the completion of a review of the Company's tax liability and the effective tax rate for the prior year's period included certain acquisition costs which were not tax deductible. Part II - Other Information Item 1. Legal Proceedings Not Applicable. 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 (a) The Company held its Annual Meeting of Shareholders on June 23, 1999 (b) The names of each director elected at the Annual Meeting are as follows: Edward J. Burns Whit G. Hughes Edward J. Nusrala William R. Rybak Donald E. Sveen (c) The names of each of the directors whose term of office continued after the Annual Meeting are as follows: Kenne P. Bristol Howard A. Davis H. Verne Loeppert David D. Mill Howard R. Jones Fredric G. Novy William C. O'Donnell Russell F. Stephens, Jr. Vernon B. Thomas, Jr. Richard E. Webber 20 (d) The following matters were voted upon at the Annual Meeting and the number of votes cast with the respect to each matter is as follows: (i) The election of five directors for terms of three years each:
Management Nominees For Withheld - ---------------------------- ------------------------- -------------------------- Edward J. Burns 5,229,122 374,216 Whit G. Hughes 5,227,236 376,102 Edward J. Nusrala 5,487,990 115,348 William R. Rybak 5,249,617 353,721 Donald E. Sveen 5,252,800 350,538
LaSalle Financial Partners, Limited Partnership ran a slate of nominees for election as directors which received the following votes:
Opposition Nominees For Withheld - ---------------------------- ------------------------- -------------------------- Richard J. Nelson 3,039,644 15,122 William D. King 3,039,644 15,122 George L. Barr 3,039,644 15,122
Management's nominees, having received a plurality of votes cast, were elected as directors of the Company. (ii)The ratification of KPMG LLP as independent auditors of Alliance Bancorp for the fiscal year ending December 31, 1999:
For Against Withheld - ---------------------------- ------------------------- -------------------------- 8,447,877 143,365 66,863
Item 5. Other Information Not Applicable. 21 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit No. 11 Statement re: Computation of Per Share Earnings
Three Months Ended June 30, 1999 June 30, 1998 -------------------------------- Net income $ 4,507,000 1,741,000 -------------------------------- Basic earnings per share-weighted average shares 11,042,591 11,364,946 Effect of dilutive securities-stock options 550,956 644,909 -------------------------------- Diluted earnings per share-adjusted weighted average shares 11,593,547 12,009,855 -------------------------------- Basic earnings per share $ 0.41 0.15 -------------------------------- Diluted earnings per share $ 0.39 0.14 -------------------------------- Six Months Ended June 30, 1999 June 30, 1998 -------------------------------- Net income $ 9,108,000 6,578,000 -------------------------------- Basic earnings per share-weighted average shares 11,217,619 11,327,323 Effect of dilutive securities-stock options 521,192 641,812 -------------------------------- Diluted earnings per share-adjusted weighted average shares 11,738,811 11,969,135 -------------------------------- Basic earnings per share $ 0.81 0.58 -------------------------------- Diluted earnings per share $ 0.78 0.55 --------------------------------
(b) Reports on Form 8-K. None. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Alliance Bancorp Dated: August 7, 1999 /s/ Kenne P. Bristol ------------------------ ----------------------------- Kenne P. Bristol President and Chief Executive Officer Dated: August 7, 1999 /s/ Richard A. Hojnicki ------------------------ ----------------------------- Richard A. Hojnicki Executive Vice President and Chief Financial Officer 23 EX-27 2 FDS --
9 (Replace this text with the legend) 0000885638 Alliance Bancorp, Inc. 1,000 6-MOS DEC-31-1999 JUN-30-1999 9,273 1,262 0 0 553,448 0 0 1,281,857 6,307 1,952,593 1,231,273 135,827 411,972 0 0 0 117 173,404 1,952,593 47,312 15,915 2,172 65,399 26,682 39,415 25,984 100 447 25,651 13,616 13,616 0 0 9,108 0.81 0.78 2.78 3,843 0 0 0 6,350 168 25 6,307 3,367 0 2,940
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