-----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, PFB6z4HYnOaMIteFyjCiu9TCwo9QdQRM/+wEyOhjcH6+POCMqup2gNvfh6WcBTCD 4HC3QjFvTPtAdO8LCPQyHQ== 0000950109-99-001731.txt : 19990512 0000950109-99-001731.hdr.sgml : 19990512 ACCESSION NUMBER: 0000950109-99-001731 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990511 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: 99616530 BUSINESS ADDRESS: STREET 1: ONE GRANT SQUARE CITY: HINSDALE STATE: IL ZIP: 60521 BUSINESS PHONE: 7083231780 MAIL ADDRESS: STREET 1: ONE GRANT SQUARE CITY: HINSDALE STATE: IL ZIP: 60522 FORMER COMPANY: FORMER CONFORMED NAME: HINSDALE FINANCIAL CORPORATION DATE OF NAME CHANGE: 19930328 10-Q 1 FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 -11,035,320 shares outstanding as of May 5, 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 March 31, 1999 and December 31, 1998 1 Consolidated Statements of Income for the Three Months Ended March 31, 1999 and 1998 2 Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended March 31, 1999 and 1998 3 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 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 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 18 Item 6. Exhibits and Reports on Form 8-K 18 Signature Page 19
ALLIANCE BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31, (In thousands, except share data) 1999 1998 - -------------------------------------------------------------------------------------------------------------------- (unaudited) Assets Cash and due from banks $ 30,670 17,195 Interest-bearing deposits 32,531 63,802 Investment securities available for sale, at fair value 87,161 61,516 Mortgage-backed securities available for sale, at fair value 412,799 332,347 Loans, net of allowance for losses of $6,346 at March 31, 1999 and $6,350 at December 31, 1998 1,266,612 1,333,401 Accrued interest receivable 10,452 10,759 Real estate 17,492 20,185 Premises and equipment, net 12,493 12,590 Stock in Federal Home Loan Bank of Chicago, at cost 24,523 24,523 Due from broker 10,890 71,336 Other assets 37,013 34,842 - -------------------------------------------------------------------------------------------------------------------- $ 1,942,636 1,982,496 - -------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Liabilities: Deposits $ 1,267,402 1,298,044 Borrowed funds 461,450 464,450 Advances by borrowers for taxes and insurance 11,055 12,935 Accrued expenses and other liabilities 21,677 21,130 - -------------------------------------------------------------------------------------------------------------------- Total liabilities 1,761,584 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; 11,618,903 shares issued and 11,121,820 outstanding at March 31, 1999 11,617,903 shares issued and 11,463,881 outstanding at December 31, 1998 116 116 Additional paid-in capital 107,141 107,130 Retained earnings, substantially restricted 83,263 80,219 Treasury stock, at cost; 497,083 shares at March 31, 1999 and 154,022 at December 31, 1998 (8,307) (1,511) Accumulated other comprehensive loss (1,161) (17) - -------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 181,052 185,937 - -------------------------------------------------------------------------------------------------------------------- Commitments and contingencies - -------------------------------------------------------------------------------------------------------------------- $ 1,942,636 1,982,496 - --------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements. 1 ALLIANCE BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, (In thousands, except per share amounts) 1999 1998 - --------------------------------------------------------------------------------------------------------------------- (unaudited) Interest Income: Loans $ 23,875 23,517 Mortgage-backed securities 5,402 5,177 Investment securities 1,489 2,533 Interest-bearing deposits 1,731 1,445 - --------------------------------------------------------------------------------------------------------------------- Total interest income 32,497 32,672 - --------------------------------------------------------------------------------------------------------------------- Interest Expense: Deposits 13,639 15,171 Borrowed funds 6,115 4,559 Collateralized mortgage obligations - 23 - --------------------------------------------------------------------------------------------------------------------- Total interest expense 19,754 19,753 - --------------------------------------------------------------------------------------------------------------------- Net interest income 12,743 12,919 Provision for loan losses 50 106 - --------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 12,693 12,813 - --------------------------------------------------------------------------------------------------------------------- Noninterest Income: Gain on sales of loans 382 39 Gain (loss) on sales of mortgage-backed securities available for sale (5) 326 Gain on sales of investment securities available for sale - 178 Income from real estate operations 511 695 Servicing fee income 148 74 ATM fee income 480 461 Other fees and commissions 4,804 4,267 Other 380 136 - --------------------------------------------------------------------------------------------------------------------- Total noninterest income 6,700 6,176 - --------------------------------------------------------------------------------------------------------------------- Noninterest Expense: Compensation and benefits 7,407 6,227 Occupancy expense 1,774 1,506 Federal deposit insurance premiums 201 201 Advertising expense 210 180 ATM expense 340 393 Computer services 337 411 Other 2,607 2,177 - --------------------------------------------------------------------------------------------------------------------- Total noninterest expense 12,876 11,095 - --------------------------------------------------------------------------------------------------------------------- Income before income taxes 6,517 7,894 Income tax expense 1,916 3,057 - --------------------------------------------------------------------------------------------------------------------- Net income $ 4,601 4,837 - --------------------------------------------------------------------------------------------------------------------- Basic earnings per share $ 0.40 0.43 Diluted earnings per share $ 0.39 0.41 - ---------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements. 2 ALLIANCE BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Additional Comprehensive Common Paid-in Retained Treasury (In thousands, except per share amounts) Income Stock Capital Earnings Stock - ------------------------------------------------------------------------------------------------------------------------------------ (unaudited) Three Months Ended March 31, 1998 Balance at December 31, 1997 $ 114 104,178 70,851 (1,527) Net income 4,837 - - 4,837 - Other comprehensive income, net of tax Change in unrealized gain (loss) on securities available for sale, net of reclassification adjustment (1,855) - - - - -------- Total comprehensive income 2,982 Cash dividends declared, $0.13 per share - - (1,426) - Treasury stock distributed under employee benefit plan - (17) - 16 Proceed from exercise of stock options 1 492 - - Tax benefit from stock related compensation - 633 - - Principal payment on ESOP loan - - - - - ------------------------------------------------------------------------------------------------------------------------------ Balance at March 31, 1998 $ 115 105,286 74,262 (1,511) ============================================================================================================================== Three Months Ended March 31, 1999 Balance at December 31, 1998 $ 116 107,130 80,219 (1,511) Net income 4,601 - - 4,601 - Other comprehensive income, net of tax Change in unrealized gain (loss) on securities available for sale, net of reclassification adjustment (1,144) - - - - -------- Total comprehensive income 3,457 Cash dividends declared, $0.14 per share - - (1,557) - Purchase of treasury stock - - - (6,796) Proceeds from exercise of stock options - 5 - - Tax benefit from stock related compensation - 6 - - - ------------------------------------------------------------------------------------------------------------------------------ Balance at March 31, 1999 $ 116 107,141 83,263 (8,307) ============================================================================================================================== Common Accumulated Stock Other Purchased Comprehensive (In thousands, except per share amounts) By ESOP Income (Loss) Total - --------------------------------------------------------------------------------------------------------- Three Months Ended March 31, 1998 Balance at December 31, 1997 (320) 1,630 174,926 Net income - - 4,837 Other comprehensive income, net of tax Change in unrealized gain (loss) on securities available for sale, net of reclassification adjustment - (1,855) (1,855) Total comprehensive income Cash dividends declared, $0.13 per share - - (1,426) Treasury stock distributed under employee benefit plan - - (1) Proceed from exercise of stock options - - 493 Tax benefit from stock related compensation - - 633 Principal payment on ESOP loan 80 - 80 - --------------------------------------------------------------------------------------------------------- Balance at March 31, 1998 (240) (225) 177,687 ========================================================================================================= Three Months Ended March 31, 1999 Balance at December 31, 1998 - (17) 185,937 Net income - - 4,601 Other comprehensive income, net of tax Change in unrealized gain (loss) on securities available for sale, net of reclassification adjustment - (1,144) (1,144) Total comprehensive income Cash dividends declared, $0.14 per share - - (1,557) Purchase of treasury stock - - (6,796) Proceeds from exercise of stock options - - 5 Tax benefit from stock related compensation - - 6 - --------------------------------------------------------------------------------------------------------- Balance at March 31, 1999 - (1,161) 181,052 =========================================================================================================
See accompanying notes to unaudited consolidated financial statements. 3 ALLIANCE BANCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, (In thousands) 1999 1998 - ---------------------------------------------------------------------------------------------------------------------- (unaudited) Cash Flows From Operating Activities: Net income $ 4,601 4,837 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 621 433 Provision for loan losses 50 106 Amortization of premiums, discounts, and deferred loan fees 356 179 Originations of loans held for sale (204,243) (203,107) Sale of loans originated for resale 251,995 169,949 Gain on sale of loans (382) (39) (Gain) loss on sale of mortgage-backed securities available for sale 5 (326) Gain on sale of investment securities available for sale - (178) (Increase) decrease in accrued interest receivable 307 (2,228) Increase in other assets (1,277) (7,033) Increase in accrued expenses and other liabilities 601 796 - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 52,634 (36,611) - ---------------------------------------------------------------------------------------------------------------------- Cash Flows From Investing Activities: Loans originated or purchased for investment (79,528) (70,140) Purchases of: Mortgage-backed securities available for sale (139,816) (268,590) Investment securities available for sale (44,630) (21,742) Stock in Federal Home Loan Bank of Chicago - (5,322) Premises and equipment (524) (1,050) Proceeds from sale of: Mortgage-backed securities available for sale 74,308 51,046 Investment securities available for sale - 234 Loans held for investment 6,155 1,234 Proceeds from maturities of investment securities available for sale 18,400 30,441 Net decrease in real estate joint ventures 2,325 267 Principal collected on loans 92,583 89,103 Principal collected on mortgage-backed securities available for sale 44,215 17,420 - ---------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (26,512) (177,099) - ---------------------------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities: Net increase (decrease) in deposits (30,642) 22,050 Proceeds from borrowed funds - 209,000 Repayment of borrowed funds (3,000) (25,000) Repayment of collateralized mortgage obligations - (301) Net decrease in advance payments by borrowers for taxes and insurance (1,880) (1,925) Purchase of treasury stock (6,796) - Cash dividends paid (1,605) (1,426) Decrease in ESOP loan - 80 Proceeds from exercise of stock options 5 493 - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (43,918) 202,971 - ---------------------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (17,796) (10,739) Cash and cash equivalents at beginning of period 80,997 58,513 - ---------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 63,201 47,774 - ---------------------------------------------------------------------------------------------------------------------- Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest $ 19,762 19,096 Income taxes 1,000 2,232 Supplemental Disclosures of Noncash Activities: Loans exchanged for mortgage-backed securities $ 473 1,507 Additions to real estate acquired in settlement of loans $ 52 497 - ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements. 4 ALLIANCE BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 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 In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." The Company adopted this statement effective January 1, 1998. The following table sets forth the required disclosures of the reclassification amounts as presented 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 - ----------------------------------------------------------------------------------------------------------------------- Three Months Ended March 31, 1998 Disclosure of reclassification amount: Unrealized holding gain (loss) on securities arising during the period $ (3,347) 1,189 (2,158) Less: reclassification adjustment for gain (loss) included in net income 504 (201) 303 - ----------------------------------------------------------------------------------------------------------------------- Net unrealized gain (loss) on securities $ (2,843) 988 (1,855) - ----------------------------------------------------------------------------------------------------------------------- Three Months Ended March 31, 1999 Disclosure of reclassification amount: Unrealized holding gain (loss) on securities arising during the period $ (1,755) 614 (1,141) Less: reclassification adjustment for gain (loss) included in net income (5) 2 (3) - ----------------------------------------------------------------------------------------------------------------------- Net unrealized gain (loss) on securities $ (1,760) 616 (1,144) - -----------------------------------------------------------------------------------------------------------------------
5 ALLIANCE BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) THREE MONTHS ENDED MARCH 31, 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 March 31, ------------------------ (In thousands, except share data) 1999 1998 - ----------------------------------------------------------------------------------------------------------- Numerator: Net income $ 4,601 4,837 Denominator: Basic earnings per share-weighted average shares 11,394,593 11,288,824 Effect of dilutive securities-stock options 488,674 634,871 Diluted earnings per share-adjusted weighted average shares 11,883,267 11,923,695 Basic earnings per share $ 0.40 0.43 Diluted earnings per share $ 0.39 0.41
(4) Commitments and Contingencies At March 31, 1999, the Company had outstanding commitments to originate or purchase loans of $135.7 million. Unused equity lines of credit available to customers were $103.7 million at March 31, 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 MARCH 31, 1999 Interest income $ 32,227 1,072 215 (1,017) 32,497 Interest expense 19,771 897 103 (1,017) 19,754 - --------------------------------------------------------------------------------------------------------------------------- Net interest income 12,456 175 112 - 12,743 Provision for loan losses 50 - - - 50 - --------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 12,406 175 112 - 12,693 Other fees and commissions 1,288 4,436 568 (860) 5,432 Other noninterest income 527 - 791 (50) 1,268 Noninterest expense 9,263 3,901 622 (910) 12,876 - --------------------------------------------------------------------------------------------------------------------------- Income before income taxes 4,958 710 849 - 6,517 Income tax expense 1,301 277 338 - 1,916 - --------------------------------------------------------------------------------------------------------------------------- Net income $ 3,657 433 511 - 4,601 - --------------------------------------------------------------------------------------------------------------------------- Assets $ 1,922,003 61,800 44,030 (85,197) 1,942,636 - --------------------------------------------------------------------------------------------------------------------------- Investment in equity method investees $ 8,829 - 160,795 - - ===========================================================================================================================
6 ALLIANCE BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Mortgage Inter-segment Consolidated (In thousands) Banking Brokerage Other Eliminations Total - --------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, 1998 Interest income $ 32,486 738 394 (946) 32,672 Interest expense 19,841 722 129 (939) 19,753 - --------------------------------------------------------------------------------------------------------------------------- Net interest income 12,645 16 265 (7) 12,919 Provision for loan losses 106 - - - 106 - --------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 12,539 16 265 (7) 12,813 Other fees and commissions 1,218 3,217 515 (148) 4,802 Other noninterest income 616 - 844 (86) 1,374 Noninterest expense 7,636 2,943 757 (241) 11,095 - --------------------------------------------------------------------------------------------------------------------------- Income before income taxes 6,737 290 867 - 7,894 Income tax expense 2,603 113 341 - 3,057 - --------------------------------------------------------------------------------------------------------------------------- Net income $ 4,134 177 526 - 4,837 - --------------------------------------------------------------------------------------------------------------------------- Assets $ 1,903,769 84,509 42,410 (100,659) 1,930,029 - --------------------------------------------------------------------------------------------------------------------------- Investment in equity method investees $ 9,961 - 156,181 - - ===========================================================================================================================
(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 and Liberty Bancorp, Inc., the holding company for Liberty Federal Savings Bank, consummated their merger in a stock- for-stock exchange. 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 13.63% for the quarter ended March 31, 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 March 31, 1999, cash and cash equivalents totaled $63.2 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 $52.6 million for the three months ended March 31, 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 $26.5 million for the three months ended March 31, 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 $43.9 million for the three months ended March 31, 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 March 31, 1999 the Company had no forward commitments to sell FNMA mortgage-backed securities. The Bank's tangible capital ratio at March 31, 1999 was 7.53%. This exceeded the tangible capital requirement of 1.5% of adjusted assets by $115.8 million. The Bank's leverage capital ratio at March 31, 1999 was 7.53%. This exceeded the leverage capital requirement of 3.0% of adjusted assets by $87.0 million. The Bank's risk-based capital ratio was 14.05% at March 31, 1999. The Bank currently exceeds the risk-based capital requirement of 8.0% of risk-weighted assets by $64.6 million. CHANGES IN FINANCIAL CONDITION The Company had total assets of $1.9 billion at March 31, 1999, a decrease of $39.9 million, or 2.0%, from December 31, 1998. Mortgage-backed and investment securities increased $106.1 million offset by a decrease in cash and cash equivalents and due from broker of $78.2 million. Loans decreased $66.8 million. Loans held for sale were $110.6 million at December 31, 1998 compared to $54.4 million at March 31, 1999, a decrease of $56.2 million. Loans totaled $1.3 billion at March 31, 1999, a decrease of $66.8 million. Loan originations were $283.7 million for the three months ended March 31, 1999, offset by loan sales of $258.1 million and principal repayments of $92.6 million. Deposits totaled $1.3 billion at March 31, 1999, a decrease of $30.6 million. The deposit base and the interest paid on deposits continues to be affected by alternative investment products and competition within the Company's market areas. Stockholders' equity totaled $181.1 million at March 31, 1999, a decrease of $4.9 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 March 31, 1999, 343,061 shares had been repurchased for a total cost of $6.8 million, which is reflected as a reduction in stockholders' equity. At March 31, 1999, the number of common shares outstanding was 11,121,820 and the book value per common share outstanding was $16.28 per share. On March 19, 1999, the Company declared a $0.14 per share cash dividend payable April 20, 1999 to shareholders of record on March 31, 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 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 10 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 March 31, 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 is in the process of independently testing 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 and is scheduled to complete testing by the spring of 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 is in the process of establishing contingency plans for all mission critical services. Those contingency plans will also be tested as part of the Company's Year 2000 preparedness. Additionally, a business resumption plan is being developed to mitigate risks associated with the failure of mission critical systems. The Year 2000 business resumption contingency plan will be 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 financial position. Management, at this time, has not determined the impact of adopting this statement on January 1, 2000. 11 ASSET QUALITY Non-performing Assets The following table sets forth information as to non-accrual loans and real estate owned at the dates indicated. The Company discontinues the accrual of interest on loans ninety days or more past due, at which time all accrued but uncollected interest is reversed. There were no loans at March 31, 1999 nor during the quarter ended March 31, 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 ---------------------------------------------------------------- March 31, December 31, September 30, June 30, March 31, (Dollars in thousands) 1999 1998 1998 1998 1998 - ---------------------------------------------------------------------------------------------------------- Non-accrual mortgage loans 90 days or more past due $ 4,513 3,117 3,363 2,231 3,120 Non-accrual commercial loans 90 days or more past due - - - 3 79 Non-accrual consumer loans 90 days or more past due 157 165 61 110 104 ----------------------------------------------------------------- Total non-performing loans 4,670 3,282 3,424 2,344 3,303 Total foreclosed real estate 148 514 212 261 792 ----------------------------------------------------------------- Total non-performing assets $ 4,818 3,796 3,636 2,605 4,095 ----------------------------------------------------------------- Total non-performing loans to total loans 0.37% 0.25 0.24 0.18 0.26 Total non-performing assets to total assets 0.25% 0.19 0.17 0.13 0.21
CLASSIFICATION OF ASSETS The Company regularly reviews the assets in its portfolio to determine whether any assets require classification in accordance with applicable regulations. As of March 31, 1999 the Company had total classified assets of $723,000, of which $586,000 were classified "substandard" and $137,000 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 focus in recent years, had been the origination of adjustable-rate residential real estate loans. The Company currently originates shorter maturity fixed-rate commercial real estate loans, home equity lines of credit and consumer loans, which generally mature or reprice more quickly than fixed-rate residential real estate loans. However, adjustable-rate loans are nearly as likely to refinance in low interest rate environments as fixed-rate loans. Often, interest rate cycles allow for these refinancings before the adjustable-rate loans can adjust to fully indexed market rates. In such declining interest rate environments, that result in high levels of loan refinancings, 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 12 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 March 31, 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) $ 345,221 192,138 149,973 390,045 1,077,377 Equity lines of credit (1) 91,393 - - - 91,393 Consumer loans and leases (1) 9,341 21,352 59,985 8,840 99,518 Mortgage-backed securities (2) 188,624 84,301 50,000 91,237 414,162 Interest-bearing deposits 32,531 - - - 32,531 Investment securities (2) 100,619 9,982 - 1,250 111,851 - -------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 767,729 307,773 259,958 491,372 1,826,832 Interest-Bearing Liabilities: Savings accounts 35,446 53,840 35,099 84,123 208,508 NOW interest-bearing accounts 22,276 20,390 5,457 12,082 60,205 Money market accounts 66,016 9,193 4,377 3,978 83,564 Certificate accounts 726,685 110,795 14,865 - 852,345 Borrowed funds 123,300 125,650 112,500 100,000 461,450 - -------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 973,723 319,868 172,298 200,183 1,666,072 - -------------------------------------------------------------------------------------------------------------------- Interest sensitivity gap $ (205,994) (12,095) 87,660 291,189 160,760 - -------------------------------------------------------------------------------------------------------------------- Cumulative interest sensitivity gap $ (205,994) (218,089) (130,429) 160,760 - -------------------------------------------------------------------------------------------------------------------- Cumulative interest sensitivity gap as a percentage of total assets (10.60)% (11.22) (6.71) 8.27 Cumulative net interest-earning assets as a percentage of interest-bearing liabilities 78.84 % 83.14 91.10 109.65 - --------------------------------------------------------------------------------------------------------------------
(1) For purposes of the gap analysis, mortgage, equity and consumer loans and leases are not reduced by the allowance for loan losses and are reduced for non-performing loans. (2) Mortgage-backed and investment securities are not increased (decreased) by unrealized gains (losses) resulting from the accounting for available for sale securities under FASB No. 115. 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. 13 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As its primary interest rate risk planning tool, the Bank utilizes a market value model prepared by the OTS (the "OTS NPV model"), which is prepared quarterly, based on the Bank's quarterly Thrift Financial Reports filed with the OTS. The OTS NPV model measures the Bank's interest rate risk by approximating the Bank's net portfolio value ("NPV"), which is the net present value of expected cash flows from assets, liabilities and any off-balance sheet contracts, under a range of interest rate scenarios, which range from a 300 basis point increase to a 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 March 31, ----------------------------------------------------------------------- 1999 1998 ----------------------------------------------------------------------- Average Average Average Yield/ Average Yield/ (Dollars in thousands) Balance Interest Cost Balance Interest Cost - ------------------------------------------------------------------------------------------------------------------- Assets: Interest-earning assets: Mortgage loans, net $ 1,107,156 $ 20,348 7.35% $ 1,090,237 $ 20,824 7.64% Equity lines of credit 95,117 1,695 7.23 93,431 1,839 7.98 Consumer loans and leases 88,916 1,832 8.33 42,600 854 8.04 Mortgage-backed securities 341,732 5,402 6.32 300,816 5,177 6.88 Interest-bearing deposits 151,345 1,731 4.57 103,640 1,445 5.58 Investment securities 85,960 1,489 6.95 146,794 2,533 6.91 - ------------------------------------------------------------------------------------------------------------------ Total interest-earning assets 1,870,226 32,497 6.96 1,777,518 32,672 7.36 Noninterest-earning assets 92,073 77,955 - ------------------------------------------------------------------------------------------------------------------ Total assets $ 1,962,299 $ 1,855,473 - ------------------------------------------------------------------------------------------------------------------ Liabilities and Stockholders' Equity: Interest-bearing liabilities: Deposits: Savings accounts $ 1,067,734 $ 12,822 4.87% $ 1,091,056 $ 14,079 5.23% NOW interest-bearing accounts 58,359 150 1.04 67,090 168 1.02 Money market accounts 84,366 667 3.21 116,149 924 3.23 - ------------------------------------------------------------------------------------------------------------------ Total deposits 1,210,459 13,639 4.57 1,274,295 15,171 4.83 Funds borrowed: Borrowed funds 462,127 6,115 5.29 315,701 4,559 5.78 Collateralized mortgage obligations - - - 768 23 11.98 - ------------------------------------------------------------------------------------------------------------------ Total funds borrowed 462,127 6,115 5.29 316,469 4,582 5.79 - ------------------------------------------------------------------------------------------------------------------ Total interest-bearing liabilities 1,672,586 19,754 4.77 1,590,764 19,753 5.02 Noninterest-bearing liabilities 103,761 88,263 - ------------------------------------------------------------------------------------------------------------------ Total liabilities 1,776,347 1,679,027 Stockholders' equity 185,952 176,446 - ------------------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $ 1,962,299 $ 1,855,473 - ------------------------------------------------------------------------------------------------------------------ Net interest income/ interest rate spread $ 12,743 2.19% $ 12,919 2.34% - ------------------------------------------------------------------------------------------------------------------ Net interest-earning assets/ net interest margin $ 197,640 2.73% $ 186,754 2.91% - ------------------------------------------------------------------------------------------------------------------ Interest-earning assets to interest-bearing liabilities 1.12 X 1.12 X - -------------------------------------------------------------------------------------------------------------------- At March 31, ------------------------- 1999 ------------------------- Yield/ (Dollars in thousands) Balance Cost - ------------------------------------------------------------------------- Assets: Interest-earning assets: Mortgage loans, net $ 1,075,252 7.44% Equity lines of credit 91,673 7.41 Consumer loans and leases 99,688 8.22 Mortgage-backed securities 412,799 6.51 Interest-bearing deposits 32,531 4.94 Investment securities 111,684 6.85 - ------------------------------------------------------------------------- Total interest-earning assets 1,823,627 7.19 Noninterest-earning assets 119,009 - ------------------------------------------------------------------------- Total assets $ 1,942,636 - ------------------------------------------------------------------------- Liabilities and Stockholders' Equity: Interest-bearing liabilities: Deposits: Savings accounts $ 1,060,853 4.91% NOW interest-bearing accounts 60,205 0.96 Money market accounts 83,564 3.30 - ------------------------------------------------------------------------- Total deposits 1,204,622 4.60 Funds borrowed: Borrowed funds 461,450 5.28 Collateralized mortgage obligations - - - ------------------------------------------------------------------------- Total funds borrowed 461,450 5.28 - ------------------------------------------------------------------------- Total interest-bearing liabilities 1,666,072 4.79 Noninterest-bearing liabilities 95,512 - ------------------------------------------------------------------------- Total liabilities 1,761,584 Stockholders' equity 181,052 - ------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 1,942,636 - ------------------------------------------------------------------------- Net interest income/ interest rate spread 2.40% - ------------------------------------------------------------------------- Net interest-earning assets/ net interest margin - ------------------------------------------------------------------------- Interest-earning assets to interest-bearing liabilities - -------------------------------------------------------------------------
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 March 31, 1999 Compared To Three Months Ended March 31, 1998 --------------------------------------------------- Increase (Decrease) In Net Interest Income Due To --------------------------------------------------- (In thousands) Volume Rate Net - ------------------------------------------------------------------------------------------------------------------ Interest-Earning Assets: Mortgage loans, net $ 320 (796) (476) Equity lines of credit 34 (178) (144) Consumer loans and leases 946 32 978 Mortgage-backed securities 668 (443) 225 Interest-bearing deposits 581 (295) 286 Investment securities (1,059) 15 (1,044) - ------------------------------------------------------------------------------------------------------------------ Total 1,490 (1,665) (175) - ------------------------------------------------------------------------------------------------------------------ Interest-Bearing Liabilities: Deposits (739) (793) (1,532) Funds borrowed 1,957 (424) 1,533 - ------------------------------------------------------------------------------------------------------------------ Total 1,218 (1,217) 1 - ------------------------------------------------------------------------------------------------------------------ Net change in net interest income $ 272 (448) (176) - ------------------------------------------------------------------------------------------------------------------
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998 GENERAL Net income totaled $4,601,000, or $0.39 per diluted share for the three months ended March 31, 1999, as compared to $4,837,000, or $0.41 per diluted share reported for the quarter ended March 31, 1998. Net interest income for the three months ended March 31, 1999 was $12.7 million, a decrease of $176,000, or 1.4%, from the March 31, 1998 quarter of $12.9 million. INTEREST INCOME Interest income for the quarter ended March 31, 1999 totaled $32.5 million, a decrease of $175,000, or 0.5%, from the prior year's quarter. Interest income on mortgage loans, the largest component of interest-earning assets, decreased $476,000, or 2.3%, to $20.3 million from the March 1998 quarter. The average balance of the mortgage portfolio increased $16.9 million. The annualized average yield on the mortgage loan portfolio decreased to 7.35% for the three months ended March 31, 1999 from 7.64% for the 1998 period. The Bank's mortgage loan portfolio is being affected by the current market conditions for refinancing single family residences, whereby higher yielding loans are repaid and replaced by lower yielding loans. Interest income on equity lines of credit decreased $144,000, or 7.8%, 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 ago. The average balance of equity lines of credit increased $1.7 million, to $95.1 million from $93.4 million from the March 1998 quarter. Interest income on consumer loans and leases increased $978,000 to $1.8 million for 16 the three months ended March 31, 1999. The average balance of the consumer loans and leases increased $46.3 million, or 108.7% from the 1998 period, primarily as a result of the indirect auto portfolio, which began operations in 1998. Interest income on mortgage-backed securities for the three months ended March 31, 1999 increased $225,000 to $5.4 million and the average balance of the mortgage-backed securities portfolio increased $40.9 million from the March 1998 period. The annualized average yield on the mortgage-backed securities portfolio decreased to 6.32% for the three months ended March 31, 1999 from 6.88% for the 1998 period, primarily as a result of the overall reduction in market rates. Interest income on investment securities for the three months ended March 31, 1999 decreased $1.0 million to $1.5 million and the average balance of the investment securities portfolio decreased $60.8 million from the March 1998 period. Purchases of mortgage-backed and investment securities for the three months ended March 31, 1999 totaled $184 million offset by sales and maturities of $92.7 million. The average balance of interest-bearing cash increased $47.7 million, to $151.3 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 $1.5 million, or 10.1%, to $13.6 million, for the quarter ended March 31, 1999 compared to the prior year's quarter. The decrease is related to both a decrease in the average deposit base and the annualized average cost of deposits. The average deposit base decreased $63.8 million to $1.2 billion during the 1999 period. The annualized average cost of deposits for the three months ended March 31, 1999 was 4.57%, a decrease from the annualized average cost of 4.83% for the March 1998 period. For the quarter ended March 31, 1999, the Company recorded interest expense on borrowed funds of $6.1 million on an average balance of $462.1 million at an annualized cost of 5.29% related to FHLB borrowings. NET INTEREST INCOME Net interest income for the three months ended March 31, 1999 decreased $176,000 or 1.4%, to $12.7 million from the 1998 period. The annualized average yield on interest-earning assets decreased from 7.36% to 6.96% when comparing the 1998 and 1999 quarters. The annualized average cost of interest-bearing liabilities decreased from 5.02% to 4.77%. This resulted in an annualized average net interest rate spread of 2.19% for the three-month period ended March 31, 1999 compared to 2.34% for the prior year's period. Both the average balance of interest-earning assets and interest-bearing liabilities increased during the quarter ended March 31, 1999 compared to the 1998 quarter. PROVISION FOR LOAN LOSSES Based on management's evaluation of the loan portfolio, a provision of $50,000 for loan losses was recorded during the quarter ended March 31, 1999. The allowance for loan losses represents 0.50% of total loans receivable at March 31, 1999. The amount of non-performing loans at March 31, 1999, was $4.7 million, or 0.37% of total loans, compared to $3.3 million or 0.26% of total loans at March 31, 1998. NONINTEREST INCOME Total noninterest income for the three months ended March 31, 1999 was $6.7 million, an increase of $524,000 from the 1998 period. The quarter ended March 31, 1999 included gains on sales of loans of $382,000 compared to $39,000 recorded in the year ago quarter. The prior year's period included a gain of $504,000 on the sales of mortgage-backed and investment securities compared to a loss of $5,000 in the current year's quarter. Other fees and commissions increased $537,000, primarily due to loan origination fees contributed by Preferred. Other income for the quarter ended March 31, 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 quarter ended March 31, 1999 totaled $12.9 million, an increase of $1.8 million, or 16.1% from the prior year's quarter. Compensation and benefits increased $1.2 million, of which $900,000 is related to the origination, sale and delivery of loans by Preferred. The remaining increase of $300,000 is primarily attributable to additional severance cost for employee terminations related to the Southwest Bancshares merger. 17 Occupancy expense increased $268,000 over the prior year's quarter primarily due to depreciation expense on additional data processing and communication equipment. Other operating expense increased $430,000, primarily due to costs related to technology improvements and increases in other outside vendor service costs. INCOME TAX PROVISION The provision for income taxes for the three months ended March 31, 1999 was $1.9 million. The effective tax rate for the quarter was 29.4% compared to 38.7% for the 1998 quarter. The lower effective tax rate for the current quarter was due to a reduction in the provision of $600,000 as a result of the completion of a review of the Company's tax liability. 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 Not Applicable. Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit No. 11 Statement re: Computation of Per Share Earnings
Three Months Ended March 31, 1999 1998 ------------------------------------------ Net income $ 4,601,000 4,837,000 ------------------------------------------ Basic earnings per share-weighted average shares 11,394,593 11,288,824 Effect of dilutive securities-stock options 488,674 634,871 ------------------------------------------ Diluted earnings per share-adjusted weighted average shares 11,883,267 11,923,695 ------------------------------------------ Basic earnings per share $ 0.40 0.43 ------------------------------------------ Diluted earnings per share $ 0.39 0.41 ------------------------------------------
(b) Reports on Form 8-K. none. 18 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: May 5, 1999 /s/ Kenne P. Bristol ------------------------ ------------------------------ Kenne P. Bristol President and Chief Executive Officer Dated: May 5, 1999 /s/ Richard A. Hojnicki ------------------------ ------------------------------ Richard A. Hojnicki Executive Vice President and Chief Financial Officer 19 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 3-MOS DEC-31-1999 MAR-31-1999 30,670 32,531 0 0 499,960 0 0 1,272,958 6,346 1,942,636 1,267,402 123,300 370,882 0 0 0 116 180,936 1,942,636 23,875 6,891 1,731 32,497 13,639 19,754 12,743 50 377 12,876 6,517 6,517 0 0 4,601 0.40 0.39 2.73 4,670 0 0 0 6,350 59 5 6,346 3,406 0 2,940
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