<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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 -9,243,575 shares outstanding as of November 7,
2000.
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<PAGE>
Alliance Bancorp and Subsidiaries
Form 10-Q
Index
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<TABLE>
<CAPTION>
Part I. Financial Information Page
------- --------------------- ----
<S> <C> <C>
Item 1. Financial Statements (unaudited)
Consolidated Statements of Financial Condition
as of September 30, 2000 and December 31, 1999 1
Consolidated Statements of Income for the Three
and Nine Months Ended September 30, 2000 and 1999 2
Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months Ended September 30, 2000 and 1999 3
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
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" 17
Part II. Other Information
-------- -----------------
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 23
Item 3. Defaults upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signature Page 24
</TABLE>
<PAGE>
Alliance Bancorp and Subsidiaries
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands, except share data) 2000 1999
------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 25,577 48,922
Interest-bearing deposits 3,202 11,598
Investment securities available for sale, at fair value 55,838 64,494
Investment securities at amortized cost (fair value of $19,638) 19,403 -
Mortgage-backed securities available for sale, at fair value 221,986 356,434
Mortgage-backed securities at amortized cost (fair value of $12,840) 12,449 -
Loans, net of allowance for losses of $7,244 at September 30, 2000
and $6,031 at December 31, 1999 1,496,564 1,363,266
Accrued interest receivable 11,064 10,493
Real estate 18,443 20,796
Premises and equipment, net 12,566 12,528
Stock in Federal Home Loan Bank of Chicago, at cost 28,905 27,383
Due from broker - 550
Bank owned life insurance 46,892 20,878
Other assets 18,708 24,966
---------------------------------------------------------------------------------------------------------------------
$ 1,971,597 1,962,308
---------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 1,267,924 1,242,198
Borrowed funds 525,594 538,150
Advances by borrowers for taxes and insurance 4,012 11,358
Accrued expenses and other liabilities 19,170 16,931
---------------------------------------------------------------------------------------------------------------------
Total liabilities 1,816,700 1,808,637
---------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock, $.01 par value; authorized 1,500,000 shares;
none outstanding - -
Common stock, $.01 par value; authorized 21,000,000 shares;
11,702,397 shares issued and 9,243,575 outstanding at September 30, 2000
11,700,010 shares issued and 10,177,188 outstanding at December 31, 1999 117 117
Additional paid-in capital 108,123 108,093
Retained earnings, substantially restricted 102,741 92,337
Treasury stock, at cost; 2,458,822 shares at September 30, 2000 and
1,522,822 at December 31, 1999 (46,440) (29,857)
Accumulated other comprehensive loss (9,644) (17,019)
---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 154,897 153,671
---------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
---------------------------------------------------------------------------------------------------------------------
$ 1,971,597 1,962,308
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</TABLE>
See accompanying notes to unaudited consolidated financial statements.
1
<PAGE>
Alliance Bancorp and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands, except per share amounts) 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Interest Income:
Loans $ 29,723 24,125 84,507 71,437
Mortgage-backed securities 4,320 7,208 13,911 19,792
Investment securities 1,929 1,747 5,092 5,078
Interest-bearing deposits 126 447 422 2,619
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Total interest income 36,098 33,527 103,932 98,926
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Interest Expense:
Deposits 14,846 12,699 41,879 39,381
Borrowed funds 7,780 7,070 20,792 19,803
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Total interest expense 22,626 19,769 62,671 59,184
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Net interest income 13,472 13,758 41,261 39,742
Provision for loan losses 1,200 50 1,600 150
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Net interest income after provision for loan losses 12,272 13,708 39,661 39,592
-----------------------------------------------------------------------------------------------------------------------
Noninterest Income:
Gain on sales of loans held for sale 3 5 38 474
Loss on sales of mortgage-backed securities available for sale - - (6,059) (22)
Gain (loss) on sales of investment securities available for
sale 506 (16) 15 (16)
Income from real estate operations 2,421 1,007 4,531 2,735
Servicing fee income, net 39 16 145 247
ATM fee income 466 463 1,377 1,490
Other fees and commissions 1,775 3,686 4,783 13,200
Other, net 203 23 124 459
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Total noninterest income 5,413 5,184 4,954 18,567
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Noninterest Expense:
Compensation and benefits 5,392 6,599 15,964 20,968
Occupancy expense 2,016 1,912 6,048 5,528
Federal deposit insurance premiums 68 186 206 579
Advertising expense 570 332 1,087 874
ATM expense 279 304 839 984
Computer services 329 289 1,015 953
Other 2,121 2,624 6,823 8,011
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Total noninterest expense 10,775 12,246 31,982 37,897
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Income before income taxes and extraordinary item 6,910 6,646 12,633 20,262
Income tax expense 2,264 2,018 3,964 6,526
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Income before extraordinary item 4,646 4,628 8,669 13,736
Extraordinary item-gain on early extinguishment of debt,
net of tax expense of $3,069 - - 5,700 -
-----------------------------------------------------------------------------------------------------------------------
Net income $ 4,646 4,628 14,369 13,736
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Basic earnings per share
Income before extraordinary item $ 0.50 0.43 0.90 1.24
Extraordinary item, net of tax - - 0.60 -
-----------------------------------------------------------------------------------------------------------------------
Net income 0.50 0.43 1.50 1.24
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Diluted earnings per share
Income before extraordinary item 0.48 0.41 0.87 1.18
Extraordinary item, net of tax - - 0.57 -
-----------------------------------------------------------------------------------------------------------------------
Net income $ 0.48 0.41 1.44 1.18
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
Alliance Bancorp and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
Additional Other
Comprehensive Common Paid-in Retained Treasury Comprehensive
(In thousands, except per share amounts) Income Stock Capital Earnings Stock Income (Loss) Total
-----------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Nine Months Ended September 30, 1999
Balance at December 31, 1998 $ 116 107,130 80,219 (1,511) (17) 185,937
Net income 13,736 - - 13,736 - - 13,736
Other comprehensive income, net of tax
Change in unrealized gain (loss) on securities
available for sale, net of reclassification adjustment (10,404) - - - - (10,404) (10,404)
------------
Total comprehensive income 3,332
Cash dividends declared, $0.42 per share - - (4,575) - - (4,575)
Purchase of treasury stock - - - (20,119) - (20,119)
Proceeds from exercise of stock options 1 301 - - - 302
Tax benefit from stock related compensation - 199 - - - 199
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Balance at September 30, 1999 $ 117 107,630 89,380 (21,630) (10,421) 165,076
===================================================================================================================================
Nine Months Ended September 30, 2000
Balance at December 31, 1999 $ 117 108,093 92,337 (29,857) (17,019) 153,671
Net income 14,369 - - 14,369 - - 14,369
Other comprehensive income, net of tax
Change in minimum pension liability 23 - - - - 23 23
Change in unrealized gain (loss) on securities
available for sale, net of reclassification adjustment 7,352 - - - - 7,352 7,352
------------
Total comprehensive income 21,744
Cash dividends declared, $0.42 per share - - (3,965) - - (3,965)
Purchase of treasury stock - - - (16,583) - (16,583)
Proceeds from exercise of stock options - 25 - - - 25
Tax benefit from stock related compensation - 5 - - - 5
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Balance at September 30, 2000 $ 117 108,123 102,741 (46,440) (9,644) 154,897
===================================================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
Alliance Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(In thousands) 2000 1999
--------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 14,369 13,736
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 2,354 1,982
Provision for loan losses 1,600 150
Federal Home Loan Bank of Chicago stock dividend (1,522) -
Amortization of premiums, discounts, and deferred loan fees 1,056 1,127
Originations of loans held for sale (81,056) (473,637)
Sale of loans originated for resale 73,142 579,962
Gain on sales of loans (38) (474)
Loss on sales of mortgage-backed securities available for sale 6,059 22
(Gain) loss on sales of investment securities available for sale (15) 16
Extraordinary item-gain on early extiguishment of debt, net of tax (5,700) -
(Increase) decrease in accrued interest receivable (571) 592
Increase in other assets (1,446) (4,659)
Increase (decrease) in accrued expenses and other liabilities 2,413 (2,627)
--------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 10,645 116,190
--------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Loans originated or purchased for investment (355,745) (331,638)
Purchases of:
Mortgage-backed securities available for sale - (237,351)
Mortgage-backed securities held to maturity (2,014) -
Investment securities available for sale (12,899) (74,840)
Investment securities held to maturity (19,400) -
Stock in Federal Home Loan Bank of Chicago - (3,560)
Premises and equipment (2,494) (2,037)
Bank owned life insurance (25,000) -
Proceeds from sale or maturity of:
Mortgage-backed securities available for sale 115,180 114,022
Investment securities available for sale 12,505 12,016
Stock in Federal Home Loan Bank of Chicago - 1,451
Premises and equipment 102 -
Loans held for investment 16,619 20,027
Proceeds from maturities of investment securities available for sale - 42,640
Net (increase) decrease in real estate joint ventures 2,259 (389)
Principal collected on loans 211,109 241,621
Principal collected on mortgage-backed securities 23,494 96,952
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Net cash used in investing activities (36,284) (121,086)
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(continued)
4
<PAGE>
Alliance Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
(continued)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(In thousands) 2000 1999
--------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Cash Flows From Financing Activities:
Net increase (decrease) in deposits 25,726 (56,689)
Proceeds from borrowed funds 342,353 134,327
Repayment of borrowed funds (346,181) (71,127)
Net increase (decrease) in advance payments by borrowers for taxes and insurance (7,346) 799
Purchase of treasury stock (16,583) (20,119)
Cash dividends paid (4,096) (4,705)
Proceeds from exercise of stock options 25 302
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Net cash used in financing activities (6,102) (17,212)
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Net decrease in cash and cash equivalents (31,741) (22,108)
Cash and cash equivalents at beginning of period 60,520 80,997
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Cash and cash equivalents at end of period $ 28,779 58,889
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Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 62,295 59,061
Income taxes 3,250 9,935
Supplemental Disclosures of Noncash Activities:
Loans exchanged for mortgage-backed securities $ 1,030 473
Additions to real estate acquired in settlement of loans 770 270
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</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
Alliance Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
Nine Months Ended September 30, 2000 and 1999
(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 other comprehensive
income and 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:
<TABLE>
<CAPTION>
Before Tax Net
Tax (Expense) of Tax
(In thousands) Amount or Benefit Amount
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nine Months Ended September 30, 1999
Disclosure of reclassification amount:
Unrealized holding gain (loss) on securities available for sale
arising during the period $ (16,044) 5,615 (10,429)
Less: reclassification adjustment for gain (loss) included in
net income (38) 13 (25)
---------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on securities $ (16,006) 5,602 (10,404)
---------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 2000
Disclosure of reclassification amount:
Unrealized holding gain (loss) on securities available for sale
arising during the period $ 5,265 (1,841) 3,424
Less: reclassification adjustment for gain (loss) included in
net income (6,044) 2,116 (3,928)
---------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on securities $ 11,309 (3,957) 7,352
Change in minimum pension liability 38 (15) 23
---------------------------------------------------------------------------------------------------------------------
Other comprehensive income $ 11,347 (3,972) 7,375
---------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Alliance Bancorp and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(unaudited)
Nine Months Ended September 30, 2000 and 1999
(3) Earnings per Share
The following table sets forth the computation of basic and diluted earnings
per share for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands, except share data) 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary item $ 4,646 4,628 8,669 13,736
Extraordinary item, net of tax - - 5,700 -
----------------------------------------------
Net income $ 4,646 4,628 14,369 13,736
----------------------------------------------
Denominator:
Basic earnings per share-weighted
average shares 9,267,532 10,846,200 9,589,485 11,092,453
Effect of dilutive securities-stock options 368,361 526,087 374,034 522,981
----------------------------------------------
Diluted earnings per share-adjusted
weighted average shares 9,635,893 11,372,287 9,963,519 11,615,434
----------------------------------------------
Basic earnings per share
Income before extraordinary item $ 0.50 0.43 0.90 1.24
Extraordinary item, net of tax - - 0.60 -
----------------------------------------------
Net income $ 0.50 0.43 1.50 1.24
----------------------------------------------
Diluted earnings per share
Income before extraordinary item $ 0.48 0.41 0.87 1.18
Extraordinary item, net of tax - - 0.57 -
----------------------------------------------
Net income $ 0.48 0.41 1.44 1.18
----------------------------------------------
</TABLE>
(4) Commitments and Contingencies
At September 30, 2000, the Company had outstanding commitments to originate or
purchase loans of $82.1 million and undisbursed balances of construction loans
of $142.7 million. Unused equity lines of credit available to customers were
$111.8 million at September 30, 2000.
7
<PAGE>
Alliance Bancorp and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(unaudited)
Nine Months Ended September 30, 2000 and 1999
(5) Operating Segments
The Company's operations include three primary segments: banking, mortgage
brokerage and joint venture real estate developments. Through its banking
subsidiary's network of 19 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,
Liberty Home Mortgage, include the origination of primarily residential mortgage
loans for sale to various investors as well as to the Bank. Joint venture real
estate activities are primarily conducted through the Company's real estate
subsidiaries. The real estate subsidiaries provide equity financing in various
developments with reputable real estate developers, primarily for the
construction of single family homes. The Company's three 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 are shown as "Other" below and consist of
financial advice and brokerage services 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:
<TABLE>
<CAPTION>
Mortgage Real Estate Inter-segment Consolidated
(In thousands) Banking Brokerage Joint Ventures Other Eliminations Total
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended September 30, 2000
Interest income $ 36,033 200 24 279 (438) 36,098
Interest expense 22,579 192 203 90 (438) 22,626
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income (loss) 13,454 8 (179) 189 - 13,472
Provision for loan losses 1,200 - - - - 1,200
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income (loss) after provision
for loan losses 12,254 8 (179) 189 - 12,272
Other fees and commissions 1,292 466 - 560 (38) 2,280
Other noninterest income 882 - 2,302 2 (53) 3,133
Noninterest expense 8,886 1,388 9 583 (91) 10,775
-----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 5,542 (914) 2,114 168 - 6,910
Income tax expense (benefit) 1,721 (362) 839 66 - 2,264
-----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 3,821 (552) 1,275 102 - 4,646
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Alliance Bancorp and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(unaudited)
Three Months Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
Mortgage Real Estate Inter-segment Consolidated
(In thousands) Banking Brokerage Joint Ventures Other Eliminations Total
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended September 30, 1999
Interest income $ 33,424 697 20 190 (804) 33,527
Interest expense 19,844 602 127 - (804) 19,769
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income (loss) 13,580 95 (107) 190 - 13,758
Provision for loan losses 50 - - - - 50
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income (loss) after provision
for loan losses 13,530 95 (107) 190 - 13,708
Other fees and commissions 1,139 2,785 - 577 (336) 4,165
Other noninterest income 67 - 996 5 (49) 1,019
Noninterest expense 8,621 3,281 - 729 (385) 12,246
-----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 6,115 (401) 889 43 - 6,646
Income tax expense (benefit) 1,801 (156) 351 22 - 2,018
-----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 4,314 (245) 538 21 - 4,628
-----------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 2000
Interest income $ 103,860 486 84 613 (1,111) 103,932
Interest expense 62,739 425 528 90 (1,111) 62,671
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income (loss) 41,121 61 (444) 523 - 41,261
Provision for loan losses 1,600 - - - - 1,600
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income (loss) after provision
for loan losses 39,521 61 (444) 523 - 39,661
Other fees and commissions 3,783 1,199 - 1,737 (414) 6,305
Other noninterest income, net (5,398) - 4,318 (112) (159) (1,351)
Noninterest expense 26,344 4,329 39 1,843 (573) 31,982
-----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and
extraordinary item 11,562 (3,069) 3,835 305 - 12,633
Income tax expense (benefit) 3,539 (1,217) 1,516 126 - 3,964
-----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item 8,023 (1,852) 2,319 179 - 8,669
Extraordinary item-gain on early extinguishment
of debt, net of tax 5,700 - - - - 5,700
-----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 13,723 (1,852) 2,319 179 - 14,369
-----------------------------------------------------------------------------------------------------------------------------------
Assets $1,950,897 15,085 23,866 14,787 (33,038) 1,971,597
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Alliance Bancorp and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(unaudited)
Nine Months Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
Mortgage Real Estate Inter-segment Consolidated
(In thousands) Banking Brokerage Joint Ventures Other Eliminations Total
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nine Months Ended September 30, 1999
Interest income $ 98,602 2,255 24 522 (2,477) 98,926
Interest expense 59,286 2,036 339 - (2,477) 59,184
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income (loss) 39,316 219 (315) 522 - 39,742
Provision for loan losses 150 - - - - 150
-----------------------------------------------------------------------------------------------------------------------------------
Net interest income (loss) after provision
for loan losses 39,166 219 (315) 522 - 39,592
Other fees and commissions 3,785 10,917 - 1,826 (1,591) 14,937
Other noninterest income 712 - 2,867 200 (149) 3,630
Noninterest expense 26,610 10,961 12 2,054 (1,740) 37,897
-----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 17,053 175 2,540 494 - 20,262
Income tax expense 5,250 68 1,003 205 - 6,526
-----------------------------------------------------------------------------------------------------------------------------------
Net income $ 11,803 107 1,537 289 - 13,736
-----------------------------------------------------------------------------------------------------------------------------------
Assets $1,970,997 40,787 27,007 25,474 (98,276) 1,965,989
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(6) Reclassifications
Certain reclassifications of prior year amounts have been made to conform
with the current year presentation.
10
<PAGE>
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
nineteen 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.
The Bank's earnings are also affected by noninterest income, including income
related to loan origination fees contributed by Liberty Home Mortgage 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 and losses from the sale of
various assets, including loans, mortgage-backed securities, investment
securities 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 Liberty
Home Mortgage.
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.
11
<PAGE>
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 15.08% for the quarter ended September 30, 2000.
The Company's most liquid assets are cash and cash equivalents, which include
investments in highly liquid, short-term investments and interest-bearing
deposits. The levels of these assets are dependent on the Company's operating,
financing, lending and investing activities during any given period. At
September 30, 2000, cash and cash equivalents totaled $28.8 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 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, the
origination and sale of loans, the gain on early extinguishment of debt and the
loss on sales of mortgage-backed and investment securities available for sale,
provided $10.6 million for the nine months ended September 30, 2000. Net cash
related to investing activities, consisting primarily of disbursements for loans
originated or purchased for investment, purchases of mortgage-backed securities,
investment securities and bank owned life insurance policies, offset by sales of
mortgage-backed and investment securities available for sale, maturities of
investment securities available for sale, principal collections on loans and
mortgage-backed securities, utilized $36.3 million for the nine months ended
September 30, 2000. Net cash utilized by financing activities, consisting
primarily of net activity in deposit and escrow accounts, net repayment of
borrowed funds, the payment of dividends and the purchase of treasury stock,
totaled $6.1 million for the nine months ended September 30, 2000.
The Bank's tangible capital ratio at September 30, 2000 was 6.79%. This
exceeded the tangible capital requirement of 1.5% of adjusted assets by $103.8
million. The Bank's core capital ratio at September 30, 2000 was 6.79%. This
exceeded the core capital requirement of 3.0% of adjusted assets by $74.3
million. The Bank's risk-based capital ratio was 10.31% at September 30, 2000.
The Bank currently exceeds the risk-based capital requirement of 8.0% of risk-
weighted assets by $31.3 million.
Changes in Financial Condition
The Company had total assets of $1.97 billion at September 30, 2000, an
increase of $9.3 million, or 0.5%, from December 31, 1999.
During the first quarter, the Company auctioned $125 million of FHLB of
Chicago advances to other member banks of the FHLB of Chicago. The Company
recorded a pre-tax gain of $8.8 million on the sale of these advances.
Concurrently, the Company sold $122 million of investment and mortgage-backed
securities, available for sale, recognizing losses of $6.3 million. The gain on
these combined transactions, net of fees and tax was $1.4 million. This de-
leveraging transaction represented approximately 6% of the Company's assets.
12
<PAGE>
Loans totaled $1.5 billion at September 30, 2000, an increase of $133.3
million from December 31, 1999. The composition of the Bank's loan portfolio
has been changing as a result of an emphasis on multi-family, commercial real
estate loans, home equity lines of credit and indirect auto lending in an
attempt to improve the overall yield on loans. At September 30, 2000, 42% of
the loan portfolio consisted of one-to four-family loans, 39% was multi-family,
construction, land and commercial real estate loans, and the remaining 19%
consisted of home equity lines of credit, indirect auto lending, commercial
leases and other loans. Comparatively, at December 31, 1999, 49% of the loan
portfolio consisted of one-to four-family loans, 34% was multi-family,
construction, land and commercial real estate loans, and the remaining 17%
consisted of home equity lines of credit, indirect auto lending, commercial
leases and other loans. Loan originations were $436.8 million for the nine
months ended September 30, 2000, offset by loan sales of $89.8 million and
principal repayments of $211.1 million.
In the current quarter, the Bank purchased $25 million of Bank Owned Life
Insurance ("BOLI") to fund future employee benefit costs of the Bank and its
subsidiaries, financed by general operating funds of the Bank. The BOLI
investment provides the Bank with an attractive investment alternative. The
accounting effect of the BOLI increases noninterest-earning assets and
noninterest income. In addition, the reduction of investable funds resulting
from the BOLI purchase decreases net interest income and the interest rate
spread.
Deposits totaled $1.27 billion at September 30, 2000, an increase of $25.7
million from December 31, 1999. Since September 30, 1999, rates on deposit
accounts have generally increased for financial institutions reflecting the
Federal Reserve Bank's influence in increasing interest rates. Over 70 percent
of the Liberty Federal's certificate of deposit accounts have repriced during
this period of rising interest rates. In an effort to compete with other banks
to retain deposits and improve its interest rate sensitivity position, Liberty
Federal has had to offer longer term, higher yielding certificate of deposit
accounts which have increased the cost of funds. The weighted average deposit
cost at September 30, 2000 was 5.11% compared to 4.52% at December 31, 1999.
Stockholders' equity totaled $154.9 million at September 30, 2000, an increase
of $1.2 million from December 31, 1999. On May 30, 2000, the Company announced
the completion of the stock repurchase program it began in November, 1999, and
also announced the adoption of a new stock repurchase program whereby up to 5
percent, or 468,000 shares of the outstanding common stock, could be repurchased
over a period of twelve months. As of September 30, 2000, 813,200 shares of
stock had been repurchased during the current year for a total of $14,441,287 at
an average price of $17.76 to complete the program announced in November of
1999. Additionally, 122,800 shares of stock had been repurchased for a total of
$1,898,457 at an average price of $15.46 per share under the current share
repurchase program. For the nine months ended September 30, 2000 stockholders'
equity has been reduced by $16.6 million related to shares repurchased. At
September 30, 2000, the number of common shares outstanding was 9,243,575 and
the book value per common share outstanding was $16.76 per share. On September
22, 2000, the Company declared a $0.14 per share cash dividend payable October
13, 2000 to shareholders of record on September 30, 2000.
Recent and Proposed Changes in Accounting Pronouncements
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and 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. 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." This statement defers the effective date for one year.
In June 2000, FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of SFAS No. 133". This
statement addresses various implementation issues relating to SFAS No. 133. The
Company does not believe these statements will have a material impact on its
financial position or results of operations.
13
<PAGE>
Asset Quality
Non-performing Assets
The following table sets forth information as to non-accrual loans and real
estate owned at the dates indicated. The Company discontinues the accrual of
interest on loans ninety days or more past due, at which time all accrued but
uncollected interest is reversed. There were no loans at September 30, 2000 nor
during the quarter ended September 30, 2000, 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.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
(Dollars in thousands) 2000 2000 2000 1999 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage loans
90 days or more past due $ 4,598 3,393 3,143 3,701 3,656
Non-accrual commercial real estate
loans 90 days or more past due 645 643 643 189 -
Non-accrual consumer loans
90 days or more past due 728 720 685 651 302
-------------------------------------------------------------------
Total non-performing loans 5,971 4,756 4,471 4,541 3,958
Total foreclosed real estate 147 629 693 241 78
-------------------------------------------------------------------
Total non-performing assets $ 6,118 5,385 5,164 4,782 4,036
-------------------------------------------------------------------
Total non-performing loans
to total loans 0.40% 0.32 0.32 0.33 0.30
Total non-performing assets
to total assets 0.31% 0.28 0.28 0.24 0.21
</TABLE>
The following table sets forth certain information regarding the Company's
allowance for loan losses at the dates indicated.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
(Dollars in thousands) 2000 2000 2000 1999 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 6,176 6,135 6,031 6,251 6,307
Provision for loan losses 1,200 200 200 50 50
Charge-offs 147 171 115 288 111
Recoveries 15 12 19 18 5
-----------------------------------------------------------------------
Balance at end of period $ 7,244 6,176 6,135 6,031 6,251
-----------------------------------------------------------------------
Ratio of net charge-offs during the
period to average loans outstanding 0.01% 0.01 0.01 0.02 0.01
Ratio of allowance for loan losses
to net loans receivable at
end of period 0.48% 0.42 0.43 0.44 0.48
Ratio of allowance for loan losses
to non-performing loans at
end of period 121.32% 129.87 137.22 132.81 157.93
</TABLE>
Classification of Assets
The Company regularly reviews the assets in its portfolio to determine whether
any assets require classification in accordance with applicable regulations. As
of September 30, 2000 the Company had total classified assets of $5.4 million,
of which $5.0 million were classified "substandard" and $400,000 were classified
as "doubtful." The assets so classified consisted of auto loans, single family
residential loans including equity lines of credit and foreclosed single family
residential loans (real estate owned).
14
<PAGE>
Loan Portfolio Composition
The following table sets forth the composition of the Company's loan portfolio
in dollar amounts and in percentages at the dates indicated.
<TABLE>
<CAPTION>
September 30, June 30, March 31, December 31, September 30,
2000 2000 2000 1999 1999
-------------------- ------------------ ------------------ ------------------ ------------------
Percent Percent Percent Percent Percent
of of of Of of
Amount Total Amount Total Amount Total Amount Total Amount Total
-------------------- ------------------ ------------------ ------------------ ------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to four-family $ 692,707 42.08% 713,377 44.42 724,859 48.02 723,311 49.39 712,290 51.90
Multi-family 210,214 12.77 205,793 12.81 176,778 11.71 172,614 11.79 164,828 12.01
Commercial real estate 149,802 9.10 142,373 8.87 142,794 9.46 140,480 9.59 119,376 8.70
Construction 281,746 17.11 246,811 15.37 191,116 12.66 173,866 11.87 143,229 10.44
Land 6,551 0.40 7,914 0.49 5,680 0.38 2,766 0.19 1,251 0.09
-------------------- ------------------ ------------------ ------------------ ------------------
Total mortgage loans 1,341,020 81.46 1,316,268 81.96 1,241,227 82.23 1,213,037 82.83 1,140,974 83.14
Other loans:
Commercial leases 36,577 2.22 30,263 1.89 25,371 1.68 20,846 1.42 20,396 1.49
Home equity lines of credit 110,714 6.72 107,245 6.68 102,920 6.82 100,077 6.83 93,958 6.85
Automobile loans 138,616 8.42 134,245 8.36 123,354 8.17 115,004 7.85 102,212 7.45
Commercial business loans 4,518 0.27 4,080 0.25 4,012 0.27 4,163 0.28 4,071 0.30
Consumer loans 14,915 0.91 13,830 0.86 12,510 0.83 11,517 0.79 10,566 0.77
-------------------- ------------------ ------------------ ------------------ ------------------
Total loans receivable 1,646,360 100.00% 1,605,931 100.00 1,509,394 100.00 1,464,644 100.00 1,372,177 100.00
------ ------ ------ ------ ------
Add (deduct):
Loans in process (142,684) (135,872) (92,967) (95,726) (69,225)
Premiums and deferred loan
costs, net 132 131 397 379 485
Allowance for loan losses (7,244) (6,176) (6,135) (6,031) (6,251)
----------- ----------- ----------- ----------- ---------
Loans receivable, net $ 1,496,564 1,464,014 1,410,689 1,363,266 1,297,186
----------- ----------- ----------- ----------- ---------
</TABLE>
15
<PAGE>
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, an attempt
is made to structure the balance sheet so that repricing opportunities exist for
both assets and liabilities in approximately equivalent amounts at basically the
same time intervals. 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.
The following table sets forth the amounts of interest-bearing assets and
interest-bearing liabilities outstanding at September 30, 2000, which are
anticipated by the Company to reprice or mature in each of the future time
periods shown. Except as stated below, the amounts of assets and liabilities
shown which reprice or mature during a particular period were based upon the
contractual terms of the asset or liability or certain assumptions concerning
the amortization or prepayment of such assets and liabilities. Savings
accounts, NOW accounts and money market accounts were assumed to be withdrawn at
annual percentage rates of 17%, 17%, 37% and 79%, respectively. FHLB advances
that contain call provisions are assumed to mature on the call date. Management
believes that these assumptions approximate actual experience and considers them
reasonable, although the actual amortization and repayment of assets and
liabilities may vary substantially.
Interest Rate Sensitivity Gap Analysis
<TABLE>
<CAPTION>
At September 30, 2000
---------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Mortgage loans (1) $ 382,075 199,527 198,096 411,397 1,191,095
Equity lines of credit (1) 111,049 - - - 111,049
Consumer loans and leases (1) 8,646 61,155 111,179 14,713 195,693
Mortgage-backed securities (2) 77,295 45,542 36,043 87,436 246,316
Interest-bearing deposits 3,202 - - - 3,202
Investment securities (2) 30,224 - - 76,690 106,914
----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 612,491 306,224 345,318 590,236 1,854,269
Interest-Bearing Liabilities:
Savings accounts 36,048 54,753 35,694 85,551 212,046
NOW interest-bearing accounts 23,745 21,736 5,816 12,879 64,176
Money market accounts 56,602 7,882 3,753 3,411 71,648
Certificate accounts 632,591 212,897 17,735 - 863,223
Borrowed funds 193,200 242,394 90,000 - 525,594
----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 942,186 539,662 152,998 101,841 1,736,687
----------------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap $ (329,695) (233,438) 192,320 488,395 117,582
----------------------------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity gap $ (329,695) (563,133) (370,813) 117,582
----------------------------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity gap as a
percentage of total assets (16.60) % (28.35) (18.67) 5.92
Cumulative net interest-earning assets as a
percentage of interest-bearing liabilities 65.01 % 62.00 77.32 106.77
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
16
<PAGE>
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.
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. 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.
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 FHLB borrowings.
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.
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, 1999 as
reported in the Company's Form 10-K for the year ended December 31, 1999.
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.
17
<PAGE>
Average Balance Sheets
The following table sets forth certain information relating to the Company's
Consolidated Statements of Financial Condition and reflects the average yield on
assets and the average cost of liabilities for the periods indicated. Such
yields and costs are derived by dividing income or expense by the average
balance of assets or liabilities, respectively, for the periods shown. Average
balances are derived from average daily balances and include non-performing
loans. The yields and costs include fees, which are considered adjustments to
yields.
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------------------------------
2000 1999
----------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Cost Balance Interest Cost
------------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans, net $1,183,831 $23,419 7.91% $1,063,287 $19,852 7.47%
Equity lines of credit 112,643 2,572 9.06 95,985 1,812 7.49
Automobile loans 137,732 2,764 7.96 90,571 1,925 8.43
Consumer loans and leases 46,891 968 8.24 31,679 536 6.75
Mortgage-backed securities 250,055 4,320 6.91 447,762 7,208 6.44
Interest-bearing deposits 7,611 126 6.57 34,443 447 5.08
Investment securities 102,292 1,929 7.53 101,327 1,747 6.88
------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,841,055 36,098 7.83 1,865,054 33,527 7.18
Noninterest-earning assets 98,507 96,741
------------------------------------------------------------------------------------------------------
Total assets $1,939,562 $1,961,795
------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits:
Savings accounts $1,063,943 $14,088 5.25% $1,023,140 $11,820 4.58%
NOW interest-bearing accounts 64,659 150 0.92 64,929 152 0.93
Money market accounts 74,559 608 3.24 86,729 727 3.33
------------------------------------------------------------------------------------------------------
Total deposits 1,203,161 14,846 4.90 1,174,798 12,699 4.29
Borrowed funds 495,591 7,780 6.23 521,397 7,070 5.31
------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,698,752 22,626 5.28 1,696,195 19,769 4.60
Noninterest-bearing deposits 55,741 58,975
Other liabilities 34,072 34,944
------------------------------------------------------------------------------------------------------
Total liabilities 1,788,565 1,790,114
Stockholders' equity 150,997 171,681
------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $1,939,562 $1,961,795
------------------------------------------------------------------------------------------------------
Net interest income/
interest rate spread $13,472 2.55% $13,758 2.58%
------------------------------------------------------------------------------------------------------
Net interest-earning assets/
net interest margin $ 142,303 2.93 % $ 168,859 2.95%
------------------------------------------------------------------------------------------------------
Interest-earning assets to
interest-bearing liabilities 1.08X 1.10X
------------------------------------------------------------------------------------------------------
<CAPTION>
Nine Months Ended September 30, At September 30,
----------------------------------------------------------------
2000 1999 2000
---------------------------------------------------------------- ---------------------
Average Average
Average Yield/ Average Yield/ Yield/
(Dollars in thousands) Balance Interest Cost Balance Interest Cost Balance Cost
------------------------------------------------------------------- ------------------------------ ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans, net $1,151,852 $67,275 7.79% $ 1,076,690 $59,793 7.40% $ 1,188,636 7.84%
Equity lines of credit 108,061 7,016 8.65 95,393 5,226 7.32 111,145 9.11
Automobile loans 129,941 7,710 7.90 73,112 4,681 8.56 140,784 8.65
Consumer loans and leases 40,468 2,506 8.25 32,209 1,737 7.20 55,999 8.46
Mortgage-backed securities 276,813 13,911 6.70 417,887 19,792 6.31 234,435 7.02
Interest-bearing deposits 9,063 422 6.20 74,547 2,619 4.63 3,202 6.51
Investment securities 94,914 5,092 7.15 99,462 5,078 6.81 104,146 7.69
------------------------------------------------------------------------------------------------------ --------------------
Total interest-earning assets 1,811,112 103,932 7.65 1,869,300 98,926 7.06 1,838,347 7.97
Noninterest-earning assets 94,655 95,354 133,250
------------------------------------------------------------------------------------------------------ --------------------
Total assets $1,905,767 $ 1,964,654 $1,971,597
====================================================================================================== ====================
Liabilities and Stockholders' Equity:
Interest-bearing
liabilities:
Deposits:
Savings accounts $1,049,902 $39,509 5.01% $1,043,407 $36,828 4.72% $1,075,269 5.48%
NOW interest-bearing accounts 65,494 458 0.93 62,364 464 0.99 64,176 0.95
Money market accounts 78,778 1,912 3.23 85,538 2,089 3.27 71,648 3.33
----------------------------------------------------------------------------------------------------- ---------------------
Total deposits 1,194,174 41,879 4.67 1,191,309 39,381 4.42 1,211,093 5.11
Borrowed funds 468,791 20,792 5.91 494,109 19,803 5.29 525,594 6.21
----------------------------------------------------------------------------------------------------- ---------------------
Total interest-bearing liabilities 1,662,965 62,671 5.02 1,685,418 59,184 4.67 1,736,687 5.44
Noninterest-bearing deposits 56,584 63,899 56,831
Other liabilities 33,218 36,231 23,182
----------------------------------------------------------------------------------------------------- ---------------------
Total liabilities 1,752,767 1,785,548 1,816,700
Stockholders' equity 153,000 179,106 154,897
----------------------------------------------------------------------------------------------------- ---------------------
Total liabilities and
stockholders' equity $1,905,767 $1,964,654 $1,971,597
===================================================================================================== =====================
Net interest income/
interest rate spread $41,261 2.63% $39,742 2.39% 2.53%
===================================================================================================== ====
Net interest-earning assets/
net interest margin $ 148,147 3.04% $ 183,882 2.83%
=====================================================================================================
Interest-earning assets to
interest-bearing liabilities 1.09X 1.11X
============================================================================================
</TABLE>
18
<PAGE>
Rate/Volume Analysis
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000 Nine Months Ended September 30, 2000
Compared To Compared To
Three Months Ended September 30, 1999 Nine Months Ended September 30, 1999
--------------------------------------- -------------------------------------------
Increase (Decrease) Increase (Decrease)
In Net Interest Income In Net Interest Income
Due To Due To
--------------------------------------- -------------------------------------------
(In thousands) Volume Rate Net Volume Rate Net
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Mortgage loans, net $ 2,347 1,220 3,567 4,263 3,219 7,482
Equity lines of credit 344 416 760 755 1,035 1,790
Automobile loans 950 (111) 839 3,414 (385) 3,029
Consumer loans and leases 296 136 432 490 279 769
Mortgage-backed securities (3,381) 493 (2,888) (7,037) 1,156 (5,881)
Interest-bearing deposits (420) 99 (321) (2,852) 655 (2,197)
Investment securities 17 165 182 (236) 250 14
-----------------------------------------------------------------------------------------------------------------------------------
Total 153 2,418 2,571 (1,203) 6,209 5,006
-----------------------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities:
Deposits 311 1,836 2,147 102 2,396 2,498
Funds borrowed (375) 1,085 710 (1,097) 2,086 989
-----------------------------------------------------------------------------------------------------------------------------------
Total (64) 2,921 2,857 (995) 4,482 3,487
-----------------------------------------------------------------------------------------------------------------------------------
Net change in net interest income $ 217 (503) (286) (208) 1,727 1,519
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Comparison of Operating Results for the Three Months Ended
September 30, 2000 and September 30, 1999
General
Net income totaled $4.6 million, or $0.48 per diluted share for the three
months ended September 30, 2000, as compared to $4.6 million, or $0.41 per
diluted share reported for the quarter ended September 30, 1999. Net interest
income for the three months ended September 30, 2000 was $13.5 million, a
decrease of $286,000, or 2.1%, from the September 30, 1999 quarter of $13.8
million.
Interest Income
Interest income for the quarter ended September 30, 2000 totaled $36.1
million, an increase of $2.6 million, or 7.7%, from the prior year's quarter.
Interest income on mortgage loans, the largest component of interest-earning
assets, increased $3.6 million, or 18%, to $23.4 million from the September 1999
quarter. The average balance of the mortgage portfolio increased $120.5 million.
The annualized average yield on the mortgage loan portfolio increased to 7.91%
for the three months ended September 30, 2000 from 7.47% for the 1999 period.
The increase in the annualized average yield reflects an increase in mortgage
yields overall and changes in the mix of the loan portfolio, primarily from an
increase in higher yielding loans such as commercial real estate and
construction loans. Interest income on equity lines of credit increased
$760,000, or 41.9%, to $2.6 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
an average of 9.50% for the current quarter as compared to 8.10% for the
comparable quarter a year ago. The average balance of equity
19
<PAGE>
lines of credit increased $16.7 million, to $112.6 million from $96.0 million
from the September 1999 quarter. Interest income on auto loans increased
$839,000 to $2.8 million for the three months ended September 30, 2000. The
average balance of the auto loan portfolio increased $47.2 million, while the
annualized average yield on the portfolio decreased to 7.96% from 8.43%. This
decrease was a direct result of market conditions for offering competitive
products. The average balance of the combined portfolios of mortgage-backed and
investment securities decreased $196.7 million to $352.3 million as compared to
$549.1 million for the September 30, 1999 quarter. This decrease was primarily
as a result of the de-leveraging security sales in the first quarter of 2000.
Interest income from these portfolios decreased $2.7 million from the prior
year's third quarter.
Interest Expense
Interest expense on deposit accounts increased $2.1 million, or 16.9%, to
$14.8 million, for the quarter ended September 30, 2000 compared to the prior
year's quarter. The increase was due to the increase in the annualized average
cost of deposits from 4.29% to 4.90%. For the quarter ended September 30, 2000,
the Company recorded interest expense on borrowed funds of $7.8 million on an
average balance of $495.6 million at an annualized cost of 6.23% related to FHLB
borrowings. During the current quarter, the Company repaid $77.5 million of
FHLB advances that matured or were called and added $122.5 million at current
market rates, primarily to fund loan growth.
Net Interest Income
Net interest income for the three months ended September 30, 2000 decreased
$286,000 or 2.1%, to $13.5 million from the 1999 period. The annualized average
yield on interest-earning assets increased from 7.18% to 7.83% when comparing
the 1999 and 2000 quarters. The annualized average cost of interest-bearing
liabilities increased from 4.60% to 5.28%. The increase in yields and costs are
generally due to overall increases in interest rates. This resulted in an
annualized average net interest rate spread of 2.55% for the three-month period
ended September 30, 2000 compared to 2.58% for the prior year's period. The
average balance of interest-earning assets decreased while the average balance
of interest-bearing liabilities increased during the quarter ended September 30,
2000 compared to the 1999 quarter.
Provision for Loan Losses
A provision of $1.2 million for loan losses was recorded during the quarter
ended September 30, 2000. The increase in the provision recognizes the increase
in non-performing loans and the change in the loan portfolio mix reflecting the
increased concentration of multi-family, commercial and construction loans. By
the nature of these loans, their size and complexity, they add an inherent
element of risk to the portfolio, which was not there when the Bank was
primarily a single-family lender. The allowance for loan losses represents
0.48% of total loans receivable at September 30, 2000. The amount of non-
performing loans at September 30, 2000, was $6.0 million, or 0.40% of total
loans, compared to $4.0 million or 0.30% of total loans at September 30, 1999.
Noninterest Income
Total noninterest income for the three months ended September 30, 2000 was
$5.4 million, an increase of $229,000 from the third quarter of 1999. Other
fees and commissions decreased $1.9 million, primarily due to a decrease in loan
origination fees contributed by Liberty Home Mortgage. The national market
demand for home mortgage loans changed dramatically from the beginning of 1999
due to increasing mortgage rates. In the third quarter of 1999, mortgages
totaling $147 million were sold, compared to $48 million sold in the current
quarter. The current quarter's income from real estate operations of $2.4
million included a $1.5 million gain from the sale of a real estate investment
by one of the Bank's subsidiaries. The $506,000 gain on the sale of investment
securities in the current quarter relates to the sale of stock the Bank owned in
an ATM network company. Other noninterest income for the current quarter
includes $186,000 related to the BOLI investment.
Noninterest Expense
Noninterest expense for the quarter ended September 30, 2000 totaled $10.8
million, a decrease of $1.5 million, or 12.0% from the prior year's quarter.
The largest component of noninterest expense, compensation and benefits,
20
<PAGE>
decreased $1.2 million, primarily due to the decrease in commissions paid
related to the origination, sale and delivery of loans by Liberty Home Mortgage.
Income Tax Provision
The provision for income taxes for the three months ended September 30, 2000
was $2.3 million. The effective tax rate for the quarter was 32.8% compared to
30.4% for the 1999 quarter.
Comparison of Operating Results for the Nine Months Ended
September 30, 2000 and September 30, 1999
General
Net income totaled $14.4 million, or $1.44 per diluted share for the nine
months ended September 30, 2000, as compared to $13.7 million, or $1.18 per
diluted share reported for the nine months ended September 30, 1999. During the
current period, the Company auctioned $125 million of FHLB of Chicago advances
to other member banks of the FHLB of Chicago and recorded a pre-tax gain of $8.8
million on the sale of these advances. This gain was recorded as an
"Extraordinary item-gain on early extinguishment of debt," net of tax of $5.7
million, or $0.57 per diluted share. Concurrently, the Company sold $122
million of investment and mortgage-backed securities, available for sale,
recognizing losses of $6.3 million. The gain on these combined transactions,
net of fees and tax, was $1.4 million. This de-leveraging transaction
represented approximately 6% of the Company's assets. Net interest income for
the nine months ended September 30, 2000 was $41.3 million, an increase of $1.6
million, or 3.8%, from the September 30, 1999 period of $39.7 million.
Interest Income
Interest income for the nine months ended September 30, 2000 totaled $103.9
million, an increase of $5.0 million, or 5.1%, from the prior year's period.
Interest income on mortgage loans, the largest component of interest-earning
assets, increased $7.5 million, or 12.5%, to $67.3 million from the September
1999 period. The average balance of the mortgage portfolio increased $75.2
million. The annualized average yield on the mortgage loan portfolio increased
to 7.79% for the nine months ended September 30, 2000 from 7.40% for the 1999
period. The increase in the annualized average yield reflects an increase in
mortgage yields overall and changes in the mix of the loan portfolio, primarily
from an increase in higher yielding loans such as commercial real estate.
Interest income on equity lines of credit increased $1.8 million, or 34.3%, to
$7.0 million from the prior year's period. The Bank's home equity line of
credit product is priced based on the prime rate, which was an average of 9.15%
for the current period as compared to 7.87% for the comparable period a year
ago. The average balance of equity lines of credit increased $12.7 million, to
$108.1 million from $95.4 million from the September 1999 period. Interest
income on auto loans increased $3.0 million to $7.7 million for the nine months
ended September 30, 2000. The average balance of the auto loan portfolio
increased $56.8 million, while the annualized average yield on the portfolio
decreased to 7.90%. This decrease was a direct result of market conditions for
offering competitive products. The average balance of the combined portfolios
of mortgage-backed and investment securities decreased $136.5 million to $371.7
million as compared to $517.3 million for the September 30, 1999 period. This
decrease was primarily as a result of the "de-leveraging" security sales in the
first quarter of 2000. Interest income from these portfolios decreased $5.9
million from the prior year's period.
Interest Expense
Interest expense on deposit accounts increased $2.5 million, or 6.3%, to $41.9
million, for the nine months ended September 30, 2000 compared to the prior
year's period. The increase was due to the increase in the annualized average
cost of deposits from 4.42% to 4.67%. For the nine months ended September 30,
2000, the Company recorded interest expense on borrowed funds of $20.8 million
on an average balance of $468.8 million at an annualized cost of 5.91% related
to FHLB borrowings. During the current period, the Company repaid $346.2
million of FHLB advances that matured or were called and added $342.4 million at
current market rates.
21
<PAGE>
Net Interest Income
Net interest income for the nine months ended September 30, 2000 increased
$1.6 million or 3.8%, to $41.3 million from the 1999 period. The annualized
average yield on interest-earning assets increased from 7.06% to 7.65% when
comparing the 1999 and 2000 periods. The annualized average cost of interest-
bearing liabilities increased from 4.67% to 5.02%. This resulted in an
annualized average net interest rate spread of 2.63% for the nine months ended
September 30, 2000 compared to 2.39% for the prior year's period. Both the
average balances of interest-earning assets and interest-bearing liabilities
decreased during the nine months ended September 30, 2000 compared to the 1999
period.
Provision for Loan Losses
A provision of $1.6 million for loan losses was recorded during the nine
months ended September 30, 2000. The increase in the provision recognizes the
increase in non-performing loans and the change in the loan portfolio mix
reflecting the increased concentration of multi-family, commercial and
construction loans. By the nature of these loans, their size and complexity,
they add an inherent element of risk to the portfolio, which was not there when
the Bank was primarily a single-family lender. The allowance for loan losses
represents 0.48% of total loans receivable at September 30, 2000. The amount of
non-performing loans at September 30, 2000, was $6.0 million, or 0.40% of total
loans, compared to $4.0 million or 0.30% of total loans at September 30, 1999.
Noninterest Income
Total noninterest income for the nine months ended September 30, 2000 was $5.0
million. The nine months ended September 30, 2000 included losses on sales of
mortgage-backed and investment securities available for sale of $6.0 million.
As previously mentioned, the Company sold securities concurrently with the
auction of FHLB advances as part of a de-leveraging strategy. The gain on the
sale of the FHLB advances is shown as an extraordinary item-gain on early
extinguishment of debt of $5.7 million, net of tax. Other fees and commissions
decreased $8.4 million, primarily due to a decrease in loan origination fees
contributed by Liberty Home Mortgage. The national market demand for home
mortgage loans changed dramatically from the beginning of 1999 due to increasing
mortgage rates. During the nine months ended September 30, 1999, mortgages
totaling $600 million were sold, compared to $89.8 million sold in the current
nine months. The current nine months income from real estate operations of $4.5
million included a $1.5 million gain from the sale of a real estate investment
by one of the Bank's subsidiaries. Other income for the nine months ended
September 30, 1999, included a gain on the sale of Liberty Financial Services
Inc.'s insurance book of business of $250,000. The current nine months includes
a write-down in value of an equity investment of $112,000, reflecting an other
than temporary impairment in the value of the investment.
Noninterest Expense
Noninterest expense for the nine months ended September 30, 2000 totaled $32
million, a decrease of $5.9 million, or 15.6% from the prior year's period. The
largest component of noninterest expense, compensation and benefits, decreased
$5.0 million, primarily due to the decrease in commissions paid related to the
origination, sale and delivery of loans by Liberty Home Mortgage. Other
noninterest expense decreased $1.2 million from the 1999 period primarily due to
the decrease in loan costs associated with the origination, sale and delivery of
loans by Liberty Home Mortgage.
Income Tax Provision
The provision for income taxes for the nine months ended September 30, 2000
was $4.0 million. The effective tax rate for the nine months was 32.9% compared
to 32.2% for the 1999 period.
Part II - Other Information
Item 1. Legal Proceedings
Not Applicable.
22
<PAGE>
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
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit No. 11 Statement re: Computation of Per Share
Earnings
<TABLE>
<CAPTION>
Three Months Ended September 30,
2000 1999
---------------------------------
<S> <C> <C>
Net income $ 4,646,000 4,628,000
---------------------------------
Basic earnings per share-weighted average shares 9,267,532 10,846,200
Effect of dilutive securities-stock options 368,361 526,087
---------------------------------
Diluted earnings per share-adjusted weighted average shares 9,635,893 11,372,287
---------------------------------
Basic earnings per share $ 0.50 0.43
---------------------------------
Diluted earnings per share $ 0.48 0.41
---------------------------------
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
2000 1999
-------------------------------------
<S> <C> <C>
Net income $ 14,369,000 13,736,000
-------------------------------------
Basic earnings per share-weighted average shares 9,589,485 11,092,453
Effect of dilutive securities-stock options 374,034 522,981
-------------------------------------
Diluted earnings per share-adjusted weighted average shares 9,963,519 11,615,434
-------------------------------------
Basic earnings per share $ 1.50 1.24
-------------------------------------
Diluted earnings per share $ 1.44 1.18
-------------------------------------
</TABLE>
(b) Reports on Form 8-K.
None
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Alliance Bancorp
Dated: November 7, 2000 /s/ Kenne P. Bristol
------------------------ -----------------------------------
Kenne P. Bristol
President and
Chief Executive Officer
Dated: November 7, 2000 /s/ Richard A. Hojnicki
------------------------ -------------------------------
Richard A. Hojnicki
Executive Vice President and
Chief Financial Officer
24
