<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 March 31, 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 -9,668,555 shares outstanding as of May 5,
2000.
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<PAGE>
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, 2000 and December 31, 1999 1
Consolidated Statements of Income for the Three
Months Ended March 31, 2000 and 1999 2
Consolidated Statements of Changes in Stockholders' Equity
for the Three Months Ended March 31, 2000 and 1999 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
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" 15
Part II. Other Information
- -------- -----------------
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 20
Signature Page 21
<PAGE>
Alliance Bancorp and Subsidiaries
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands, except share data) 2000 1999
- --------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 22,795 48,922
Interest-bearing deposits 3,299 11,598
Investment securities available for sale, at fair value 52,714 64,494
Mortgage-backed securities available for sale, at fair value 234,276 356,434
Loans, net of allowance for losses of $6,135 at
March 31, 2000 and $6,031 at December 31, 1999 1,410,689 1,363,266
Accrued interest receivable 9,404 10,493
Real estate 23,064 20,796
Premises and equipment, net 12,334 12,528
Stock in Federal Home Loan Bank of Chicago, at cost 27,859 27,383
Due from broker - 550
Other assets 40,598 45,844
- --------------------------------------------------------------------------------------------------------------------
$ 1,837,032 1,962,308
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 1,255,942 1,242,198
Borrowed funds 398,150 538,150
Advances by borrowers for taxes and insurance 10,307 11,358
Accrued expenses and other liabilities 16,826 16,931
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 1,681,225 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;
11,701,010 shares issued and 9,724,055 outstanding at March 31, 2000
11,700,010 shares issued and 10,177,188 outstanding at December 31, 1999 117 117
Additional paid-in capital 108,103 108,093
Retained earnings, substantially restricted 96,127 92,337
Treasury stock, at cost; 1,976,955 shares at March 31, 2000 and
1,522,822 at December 31, 1999 (38,175) (29,857)
Accumulated other comprehensive loss (10,365) (17,019)
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 155,807 153,671
- --------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- --------------------------------------------------------------------------------------------------------------------
$ 1,837,032 1,962,308
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
1
<PAGE>
Alliance Bancorp and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(In thousands, except per share amounts) 2000 1999
- --------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Interest Income:
Loans $ 26,561 23,875
Mortgage-backed securities 5,371 5,402
Investment securities 1,623 1,489
Interest-bearing deposits 100 1,731
- --------------------------------------------------------------------------------------------------------------------
Total interest income 33,655 32,497
- --------------------------------------------------------------------------------------------------------------------
Interest Expense:
Deposits 13,307 13,639
Borrowed funds 6,499 6,115
- --------------------------------------------------------------------------------------------------------------------
Total interest expense 19,806 19,754
- --------------------------------------------------------------------------------------------------------------------
Net interest income 13,849 12,743
Provision for loan losses 200 50
- --------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 13,649 12,693
- --------------------------------------------------------------------------------------------------------------------
Noninterest Income:
Gain on sales of loans held for sale 14 382
Loss on sales of mortgage-backed securities available for sale (6,059) (5)
Loss on sales of investment securities available for sale (491) -
Income from real estate operations 974 511
Servicing fee income 53 148
ATM fee income 421 480
Other fees and commissions 1,275 4,804
Other, net (89) 380
- --------------------------------------------------------------------------------------------------------------------
Total noninterest income (3,902) 6,700
- --------------------------------------------------------------------------------------------------------------------
Noninterest Expense:
Compensation and benefits 5,423 7,407
Occupancy expense 2,004 1,774
Federal deposit insurance premiums 69 201
Advertising expense 197 210
ATM expense 269 340
Computer services 354 337
Other 2,519 2,607
- --------------------------------------------------------------------------------------------------------------------
Total noninterest expense 10,835 12,876
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary item (1,088) 6,517
Income tax expense (benefit) (540) 1,916
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item (548) 4,601
Extraordinary item-gain on early extinguishment of debt,
net of tax expense of $3,069 5,700 -
- --------------------------------------------------------------------------------------------------------------------
Net income $ 5,152 4,601
- --------------------------------------------------------------------------------------------------------------------
Basic earnings per share
Income (loss) before extraordinary item $ (0.05) 0.40
Extraordinary item, net of tax 0.57 -
- --------------------------------------------------------------------------------------------------------------------
Net income 0.52 0.40
- --------------------------------------------------------------------------------------------------------------------
Diluted earnings per share
Income (loss) before extraordinary item (0.05) 0.39
Extraordinary item, net of tax 0.57 -
- --------------------------------------------------------------------------------------------------------------------
Net income $ 0.52 0.39
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
Alliance Bancorp and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Comprehensive Common Paid-in Retained Treasury
(In thousands, except per share amounts) Income Stock Capital Earnings Stock
- ------------------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
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)
- ------------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 2000
Balance at December 31, 1999 $ 117 108,093 92,337 (29,857)
Net income 5,152 - - 5,152 -
Other comprehensive income, net of tax
Change in minimum pension liability 23 - - - -
Change in unrealized gain (loss) on securities
available for sale, net of reclassification adjustment 6,631 - - - -
----------------
Total comprehensive income 11,806
Cash dividends declared, $0.14 per share - - (1,362) -
Purchase of treasury stock - - - (8,318)
Proceeds from exercise of stock options - 5 - -
Tax benefit from stock related compensation - 5 - -
- ------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 $ 117 108,103 96,127 (38,175)
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Accumulated
Other
Comprehensive
(In thousands, except per share amounts) Income (Loss) Total
- -----------------------------------------------------------------------------------------
<S> <C> <C>
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
- -----------------------------------------------------------------------------------------
Three Months Ended March 31, 2000
Balance at December 31, 1999 (17,019) 153,671
Net income - 5,152
Other comprehensive income, net of tax
Change in minimum pension liability 23 23
Change in unrealized gain (loss) on securities
available for sale, net of reclassification adjustment 6,631 6,631
Total comprehensive income
Cash dividends declared, $0.14 per share - (1,362)
Purchase of treasury stock - (8,318)
Proceeds from exercise of stock options - 5
Tax benefit from stock related compensation - 5
- -----------------------------------------------------------------------------------------
Balance at March 31, 2000 (10,365) 155,807
- -----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
Alliance Bancorp and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(In thousands) 2000 1999
- --------------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 5,152 4,601
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 750 621
Provision for loan losses 200 50
Amortization of premiums, discounts, and deferred loan fees 322 356
Originations of loans held for sale (15,637) (204,243)
Sale of loans originated for resale 9,791 251,995
Gain on sales of loans (14) (382)
Loss on sales of mortgage-backed securities available for sale 6,059 5
Loss on sales of investment securities available for sale 491 -
Extraordinary item-gain on early extiguishment of debt, net of tax (5,700) -
Decrease in accrued interest receivable 1,089 307
Increase in other assets (1,745) (1,277)
Increase in accrued expenses and other liabilities 1 601
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 759 52,634
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Loans originated or purchased for investment (102,503) (79,528)
Purchases of:
Mortgage-backed securities available for sale - (139,816)
Investment securities available for sale - (44,630)
Stock in Federal Home Loan Bank of Chicago (476) -
Premises and equipment (556) (524)
Proceeds from sale of:
Mortgage-backed securities available for sale 115,180 74,308
Investment securities available for sale 12,505 -
Loans held for investment 2,374 6,155
Proceeds from maturities of investment securities available for sale - 18,400
Net (increase) decrease in real estate joint ventures (1,815) 2,325
Principal collected on loans 57,870 92,583
Principal collected on mortgage-backed securities available for sale 10,512 44,215
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 93,091 (26,512)
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increase (decrease) in deposits 13,744 (30,642)
Proceeds from borrowed funds 115,000 -
Repayment of borrowed funds (246,231) (3,000)
Net decrease in advance payments by borrowers for taxes and insurance (1,051) (1,880)
Purchase of treasury stock (8,318) (6,796)
Cash dividends paid (1,425) (1,605)
Proceeds from exercise of stock options 5 5
- --------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (128,276) (43,918)
- --------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (34,426) (17,796)
Cash and cash equivalents at beginning of period 60,520 80,997
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 26,094 63,201
- --------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 20,164 19,762
Income taxes - 1,000
Supplemental Disclosures of Noncash Activities:
Loans exchanged for mortgage-backed securities $ - 473
Additions to real estate acquired in settlement of loans $ 496 52
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
Alliance Bancorp and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
Three Months Ended March 31, 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>
Three Months Ended March 31, 1999
Disclosure of reclassification amount:
Unrealized holding gain (loss) on securities available for sale
arising during the period $ (1,765) 618 (1,147)
Less: reclassification adjustment for gain (loss) included in
net income (5) 2 (3)
- --------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on securities $ (1,760) 616 (1,144)
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31, 2000
Disclosure of reclassification amount:
Unrealized holding gain (loss) on securities available for sale
arising during the period $ 3,650 (1,276) 2,374
Less: reclassification adjustment for gain (loss) included in
net income (6,550) 2,293 (4,257)
- --------------------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on securities $ 10,200 (3,569) 6,631
Change in minimum pension liability 38 (15) 23
- --------------------------------------------------------------------------------------------------------------------
Other comprehensive income $ 10,238 (3,584) 6,654
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
Alliance Bancorp and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(unaudited)
Three Months Ended March 31, 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
March 31,
----------------------------------
(In thousands, except share data) 2000 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Numerator:
Income (loss) before extraordinary item $ (548) 4,601
Extraordinary item, net of tax 5,700 -
----------------------------------
Net income $ 5,152 4,601
----------------------------------
Denominator:
Basic earnings per share-weighted average shares 9,961,869 11,394,593
Effect of dilutive securities-stock options - 488,674
----------------------------------
Diluted earnings per share-adjusted weighted average shares 9,961,869 11,883,267
----------------------------------
Basic earnings per share
Income (loss) before extraordinary item $ (0.05) 0.40
Extraordinary item, net of tax 0.57 -
----------------------------------
Net income $ 0.52 0.40
----------------------------------
Diluted earnings per share
Income (loss) before extraordinary item $ (0.05) 0.39
Extraordinary item, net of tax 0.57 -
----------------------------------
Net income $ 0.52 0.39
----------------------------------
</TABLE>
(4) Commitments and Contingencies
At March 31, 2000, the Company had outstanding commitments to originate or
purchase loans of $124.8 million and undisbursed balances of construction loans
of $92.2 million. Unused equity lines of credit available to customers were
$112.6 million at March 31, 2000.
6
<PAGE>
Alliance Bancorp and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(unaudited)
Three Months Ended March 31, 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
(In thousands) Banking Brokerage Joint Ventures Other Eliminations
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Three Months Ended March 31, 2000
Interest income $ 33,636 127 46 166 (320)
Interest expense 19,885 87 154 - (320)
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 13,751 40 (108) 166 -
Provision for loan losses 200 - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 13,551 40 (108) 166 -
Other fees and commissions 1,152 357 - 517 (277)
Other noninterest income, net (6,372) - 888 (114) (53)
Noninterest expense 8,975 1,572 22 596 (330)
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and
extraordinary item (644) (1,175) 758 (27) -
Income tax expense (benefit) (371) (458) 297 (8) -
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item (273) (717) 461 (19) -
- -----------------------------------------------------------------------------------------------------------------------------------
Extraordinary item-gain on early extinguishment
of debt, net of tax expense 5,700 - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 5,427 (717) 461 (19) -
- -----------------------------------------------------------------------------------------------------------------------------------
Assets $ 1,812,085 12,626 24,921 14,920 (27,520)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Consolidated
(In thousands) Total
- --------------------------------------------------------------------
<S> <C>
Three Months Ended March 31, 2000
Interest income 33,655
Interest expense 19,806
- --------------------------------------------------------------------
Net interest income 13,849
Provision for loan losses 200
- --------------------------------------------------------------------
Net interest income after provision for loan losses 13,649
Other fees and commissions 1,749
Other noninterest income, net (5,651)
Noninterest expense 10,835
- ---------------------------------------------------------------------
Income (loss) before income taxes and
extraordinary item (1,088)
Income tax expense (benefit) (540)
- --------------------------------------------------------------------
Income (loss) before extraordinary item (548)
- --------------------------------------------------------------------
Extraordinary item-gain on early extinguishment
of debt, net of tax expense 5,700
- --------------------------------------------------------------------
Net income (loss) 5,152
- --------------------------------------------------------------------
Assets 1,837,032
- --------------------------------------------------------------------
</TABLE>
7
<PAGE>
Alliance Bancorp and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
(unaudited)
Three Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
Mortgage Real Estate Inter-segment
(In thousands) Banking Brokerage Joint Ventures Other Eliminations
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Three Months Ended March 31, 1999
Interest income $ 32,227 1,072 2 213 (1,017)
Interest expense 19,771 897 103 - (1,017)
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 12,456 175 (101) 213 -
Provision for loan losses 50 - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 12,406 175 (101) 213 -
Other fees and commissions 1,288 4,436 - 568 (860)
Other noninterest income 527 - 597 194 (50)
Noninterest expense 9,263 3,901 10 612 (910)
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,958 710 486 363 -
Income tax expense 1,301 277 193 145 -
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,657 433 293 218 -
- -----------------------------------------------------------------------------------------------------------------------------------
Assets $ 1,922,003 61,800 19,091 24,939 (85,197)
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Consolidated
(In thousands) Total
- ----------------------------------------------------------------------
<S> <C>
Three Months Ended March 31, 1999
Interest income 32,497
Interest expense 19,754
- -----------------------------------------------------------------------
Net interest income 12,743
Provision for loan losses 50
- -----------------------------------------------------------------------
Net interest income after provision for loan losses 12,693
Other fees and commissions 5,432
Other noninterest income 1,268
Noninterest expense 12,876
- ----------------------------------------------------------------------
Income before income taxes 6,517
Income tax expense 1,916
- ----------------------------------------------------------------------
Net income 4,601
- ----------------------------------------------------------------------
Assets 1,942,636
- ----------------------------------------------------------------------
</TABLE>
(6) Reclassifications
Certain reclassifications of prior year amounts have been made to conform
with the current year presentation.
8
<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 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 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, including Year 2000
issues.
9
<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
11.66% for the quarter ended March 31, 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 March 31, 2000, cash and cash equivalents totaled $26.1
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 $759,000 for the three months ended March 31, 2000. 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 and investment
securities available for sale, maturities of investment securities available for
sale, principal collections on loans and mortgage-backed securities, provided
$93.1 million for the three months ended March 31, 2000. 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 $128.3 million for the three months ended
March 31, 2000.
The Bank's tangible capital ratio at March 31, 2000 was 7.30%. This
exceeded the tangible capital requirement of 1.5% of adjusted assets by $105.9
million. The Bank's core capital ratio at March 31, 2000 was 7.30%. This
exceeded the core capital requirement of 3.0% of adjusted assets by $78.5
million. The Bank's risk-based capital ratio was 11.51% at March 31, 2000. The
Bank currently exceeds the risk-based capital requirement of 8.0% of
risk-weighted assets by $42.2 million.
Changes in Financial Condition
The Company had total assets of $1.8 billion at March 31, 2000, a decrease
of $125.3 million, or 6.4%, from December 31, 1999.
During this 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. It is
anticipated through re-leveraging that the Company will invest prudently in
commercial and multi-family loan products at increased spreads.
10
<PAGE>
Loans totaled $1.4 billion at March 31, 2000, an increase of $47.4 million.
Loan originations were $118.1 million for the three months ended March 31, 2000,
offset by loan sales of $12.2 million and principal repayments of $57.9 million.
Deposits totaled $1.3 billion at March 31, 2000, an increase of $13.7
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. The weighted average deposit cost at March 31, 2000 was 4.66%
compared to 4.52% at December 31, 1999.
Stockholders' equity totaled $155.8 million at March 31, 2000, an increase
of $2.1 million. On November 3, 1999, the Company announced a stock repurchase
plan under which the Company is authorized to repurchase up to 1,036,000 shares
of its outstanding common stock. At March 31, 2000, 676,933 shares had been
repurchased. A cost of $8.3 million was recorded in the current year, which is
reflected as a reduction in stockholders' equity. At March 31, 2000, the number
of common shares outstanding was 9,724,055 and the book value per common share
outstanding was $16.02 per share. On March 17, 2000, the Company declared a
$0.14 per share cash dividend payable April 14, 2000 to shareholders of record
on March 31, 2000.
Year 2000
The Company had developed and implemented a plan to deal with the issues
associated with programming code within computer systems and related embedded
technology with respect to the rollover of the two digit year value to 00 ("Year
2000"). The issue was whether computer systems would properly recognize date
sensitive information when the year changed to 2000.
The Company has not experienced any significant issues associated with the
Year 2000 problem as a result of the date change to March 31, 2000 or any date
subsequent thereto. The incremental costs related to the Year 2000 compliance
were approximately $250,000 in 1999 and $250,000 in 1998, respectively. Any
additional incremental costs associated with Year 2000 issues are not expected
to exceed $50,000. Management will continue to monitor operations through the
year 2000 and although no assurances can be given, it is not expected that any
future adverse developments will arise with respect to Year 2000.
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 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. Management, at this time, has not determined the impact of
adopting this statement on January 1, 2001.
11
<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 March 31, 2000 nor
during the quarter ended March 31, 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
--------------------------------------------------------------------------------
March 31, December 31, September 30, June 30, March 31,
(Dollars in thousands) 2000 1999 1999 1999 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage loans
90 days or more past due $ 3,143 3,701 3,656 3,416 4,513
Non-accrual commercial real
estate loans 90 days or more
past due 643 189 - 250 -
Non-accrual consumer loans
90 days or more past due 685 651 302 177 157
--------------------------------------------------------------------------------
Total non-performing loans 4,471 4,541 3,958 3,843 4,670
Total foreclosed real estate 693 241 78 164 148
--------------------------------------------------------------------------------
Total non-performing assets $ 5,164 4,782 4,036 4,007 4,818
--------------------------------------------------------------------------------
Total non-performing loans
to total loans 0.32 % 0.33 0.30 0.30 0.37
Total non-performing assets
to total assets 0.28 % 0.24 0.21 0.21 0.25
</TABLE>
The following table sets forth certain information regarding the Company's
allowance for loan losses at the dates indicated.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------
March 31, December 31, September 30, June 30, March 31,
(Dollars in thousands) 2000 1999 1999 1999 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 6,031 6,251 6,307 6,346 6,350
Provision for loan losses 200 50 50 50 50
Charge-offs 115 288 111 109 59
Recoveries 19 18 5 20 5
--------------------------------------------------------------------------------
Balance at end of period $ 6,135 6,031 6,251 6,307 6,346
--------------------------------------------------------------------------------
Ratio of charge-offs during the
period to average loans
outstanding 0.01 % 0.02 0.01 0.01 0.01
Ratio of allowance for loan
losses to net loans recievable at
end of period 0.43 % 0.44 0.48 0.49 0.50
Ratio of allowance for loan
losses to non-performing loans at
end of period 137.22 % 132.81 157.93 164.12 135.89
</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 March 31, 2000 the Company had total classified assets of $4.9
million, of which $4.5 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).
12
<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>
March 31, December 31, September 30, June 30,
2000 1999 1999 1999
----------------------------------------------------------------------------------------------
Percent Percent Percent Percent
of of of of
Amount Total Amount Total Amount Total Amount Total
---------------------- ---------------------- ------------- ---------------------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to four-family 724,859 48.02 % 723,311 49.39 712,290 51.90 736,983 54.70
Multi-family 176,778 11.71 172,614 11.79 164,828 12.01 164,051 12.18
Commercial real estate 142,794 9.46 140,480 9.59 119,376 8.70 123,103 9.14
Construction 191,116 12.66 173,866 11.87 143,229 10.44 111,888 8.30
Land 5,680 0.38 2,766 0.19 1,251 0.09 2,126 0.16
---------------------- ---------------------- ------------- ---------------------- ----------
Total mortgage loans 1,241,227 82.23 1,213,037 82.83 1,140,974 83.14 1,138,151 84.48
Other loans:
Commercial leases 25,371 1.68 20,846 1.42 20,396 1.49 18,755 1.39
Home equity lines of credit 102,920 6.82 100,077 6.83 93,958 6.85 91,979 6.83
Automobile loans 123,354 8.17 115,004 7.85 102,212 7.45 85,082 6.31
Commercial business loans 4,012 0.27 4,163 0.28 4,071 0.30 3,936 0.29
Consumer loans 12,510 0.83 11,517 0.79 10,566 0.77 9,499 0.70
---------------------- ---------------------- ------------- ---------------------- ----------
Total loans receivable 1,509,394 100.00 % 1,464,644 100.00 1,372,177 100.00 1,347,402 100.00
---------- ---------- ---------- ----------
Add (deduct):
Loans in process (92,967) (95,726) (69,225) (65,875)
Premiums and deferred loan
costs, net 397 379 485 330
Allowance for loan losses (6,135) (6,031) (6,251) (6,307)
------------- ------------- ------------- ------------
Loans receivable, net 1,410,689 1,363,266 1,297,186 1,275,550
------------- ------------- ------------- ------------
</TABLE>
March 31,
1999
-----------------------
Percent
of
Amount Total
----------------------
Mortgage loans:
One-to four-family 767,380 57.89
Multi-family 171,485 12.94
Commercial real estate 111,569 8.42
Construction 83,308 6.29
Land 1,885 0.14
----------------------
Total mortgage loans 1,135,627 85.68
Other loans:
Commercial leases 21,030 1.59
Home equity lines of credit 91,234 6.88
Automobile loans 63,811 4.81
Commercial business loans 4,118 0.31
Consumer loans 9,652 0.73
----------------------
Total loans receivable 1,325,472 100.00
----------
Add (deduct):
Loans in process (52,768)
Premiums and deferred loan
costs, net 254
Allowance for loan losses (6,346)
------------
Loans receivable, net 1,266,612
------------
13
<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, 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. 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.
Interest Rate Sensitivity Gap Analysis
<TABLE>
<CAPTION>
At March 31, 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) $ 344,645 200,054 195,906 401,887 1,142,492
Equity lines of credit (1) 103,197 - - - 103,197
Consumer loans and leases (1) 8,258 41,180 104,932 12,267 166,637
Mortgage-backed securities (2) 74,996 28,101 20,829 122,592 246,518
Interest-bearing deposits 3,299 - - - 3,299
Investment securities (2) 29,178 - - 54,908 84,086
- --------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 563,573 269,335 321,667 591,654 1,746,229
Interest-Bearing Liabilities:
Savings accounts 35,867 54,478 35,515 85,120 210,980
NOW interest-bearing accounts 23,991 21,961 5,876 13,012 64,840
Money market accounts 64,150 8,934 4,253 3,865 81,202
Certificate accounts 647,817 178,795 16,198 - 842,810
Borrowed funds 234,450 113,700 50,000 - 398,150
- --------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,006,275 377,868 111,842 101,997 1,597,982
- --------------------------------------------------------------------------------------------------------------------
Interest sensitivity gap $ (442,702) (108,533) 209,825 489,657 148,247
- --------------------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity gap $ (442,702) (551,235) (341,410) 148,247
- --------------------------------------------------------------------------------------------------------------------
Cumulative interest sensitivity gap as a
percentage of total assets (23.89) % (29.75) (18.43) 8.00
Cumulative net interest-earning assets as a
percentage of interest-bearing liabilities 56.01 % 60.17 77.18 109.28
- --------------------------------------------------------------------------------------------------------------------
</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.
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
14
<PAGE>
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.
At March 31, 2000, the cumulative one-year interest sensitivity gap as a
percentage of assets was (23.89%) compared to (14.77%) at December 31, 1999. The
major factor contributing to the change was a shift from the "More Than 1 Year
to 3 Years" category to the "1 Year Or Less" category of over $140 million of
eighteen month certificates of deposit, which were promoted by the Bank in the
fall of 1999. Currently, the Bank is promoting a longer-term certificate of
deposit and is negotiating longer-term advances with the FHLB of Chicago to
improve the interest sensitivity gap.
Quantitative and Qualitative Disclosures About Market Risk
As its primary interest rate risk planning tool, the Bank utilizes a market
value model. The model measures the Bank's interest rate risk by approximating
the Bank's net portfolio value ("NPV"), which is the net present value of
expected cash flows from assets, liabilities and any off-balance sheet
contracts, under a range of interest rate scenarios, which range from a 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, 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.
15
<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 March 31,
-----------------------------------------------------------------------------
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 $ 1,121,652 $ 21,420 7.64 % $ 1,107,156 $ 20,348 7.35 %
Equity lines of credit 103,931 2,114 8.16 95,117 1,695 7.23
Automobile loans 120,560 2,337 7.78 55,380 1,195 8.75
Consumer loans and leases 34,177 690 8.08 33,536 637 7.63
Mortgage-backed securities 331,257 5,371 6.49 341,732 5,402 6.32
Interest-bearing deposits 7,189 100 5.58 151,345 1,731 4.57
Investment securities 94,472 1,623 6.88 85,960 1,489 6.95
- --------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,813,238 33,655 7.43 1,870,226 32,497 6.96
Noninterest-earning assets 91,268 92,073
- --------------------------------------------------------------------------------------------------------------
Total assets $ 1,904,506 $ 1,962,299
==============================================================================================================
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits:
Savings accounts $ 1,042,422 $ 12,483 4.80 % $ 1,067,734 $ 12,822 4.87 %
NOW interest-bearing accounts 65,564 154 0.94 58,359 150 1.04
Money market accounts 83,460 670 3.22 84,366 667 3.21
- --------------------------------------------------------------------------------------------------------------
Total deposits 1,191,446 13,307 4.48 1,210,459 13,639 4.57
Borrowed funds 471,968 6,499 5.52 462,127 6,115 5.29
- --------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 1,663,414 19,806 4.78 1,672,586 19,754 4.77
NOW noninterest-bearing
deposits 56,086 67,553
Other liabilities 31,234 36,208
- --------------------------------------------------------------------------------------------------------------
Total liabilities 1,750,734 1,776,347
Stockholders' equity 153,772 185,952
- --------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 1,904,506 $ 1,962,299
==============================================================================================================
Net interest income/
interest rate spread $ 13,849 2.65 % $ 12,743 2.19 %
==============================================================================================================
Net interest-earning assets/
net interest margin $ 149,824 3.06 % $ 197,640 2.73 %
==============================================================================================================
Interest-earning assets to
interest-bearing
liabilities 1.09 X 1.12 X
==============================================================================================================
<CAPTION>
At March 31,
2000
----------------------------
Yield/
(Dollars in thousands) Balance Cost
- -------------------------------------------------------------
<S> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans, net $ 1,140,171 7.62 %
Equity lines of credit 103,329 8.66
Automobile loans 125,296 8.32
Consumer loans and leases 41,893 8.25
Mortgage-backed securities 234,276 6.72
Interest-bearing deposits 3,299 6.14
Investment securities 80,573 6.89
- -------------------------------------------------------------
Total interest-earning assets 1,728,837 7.59
Noninterest-earning assets 108,195
- -------------------------------------------------------------
Total assets $ 1,837,032
- -------------------------------------------------------------
Liabilities and Stockholders'
Equity:
Interest-bearing liabilities:
Deposits:
Savings accounts $ 1,053,790 4.99 %
NOW interest-bearing accounts 64,840 0.97
Money market accounts 81,202 3.33
- -------------------------------------------------------------
Total deposits 1,199,832 4.66
Borrowed funds 398,150 5.61
- -------------------------------------------------------------
Total interest-bearing
liabilities 1,597,982 4.90
NOW noninterest-bearing
deposits 56,110
Other liabilities 27,133
- -------------------------------------------------------------
Total liabilities 1,681,225
Stockholders' equity 155,807
- -------------------------------------------------------------
Total liabilities and
stockholders' equity $ 1,837,032
- -------------------------------------------------------------
Net interest income/
interest rate spread 2.69 %
============================= ===============
Net interest-earning assets/
net interest margin
=============================
Interest-earning assets to
interest-bearing
liabilities
=============================
</TABLE>
16
<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 March 31, 2000
Compared To
Three Months Ended March 31, 1999
---------------------------------------
Increase (Decrease)
In Net Interest Income
Due To
---------------------------------------
(In thousands) Volume Rate Net
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest-Earning Assets:
Mortgage loans, net $ 267 805 1,072
Equity lines of credit 175 244 419
Automobile loans 1,289 (147) 1,142
Consumer loans and leases 13 40 53
Mortgage-backed securities (171) 140 (31)
Interest-bearing deposits (1,944) 313 (1,631)
Investment securities 149 (15) 134
- --------------------------------------------------------------------------------------------------------
Total (222) 1,380 1,158
- --------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities:
Deposits (147) (185) (332)
Borrowed funds 126 258 384
========================================================================================================
Total (21) 73 52
========================================================================================================
Net change in net interest income $ (201) 1,307 1,106
========================================================================================================
</TABLE>
Comparison of Operating Results for the Three Months Ended
March 31, 2000 and March 31, 1999
General
Net income totaled $5.2 million, or $0.52 per diluted share for the three
months ended March 31, 2000, as compared to $4.6 million, or $0.39 per diluted
share reported for the quarter ended March 31, 1999. During the current quarter,
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 three months ended March 31, 2000
was $13.8 million, an increase of $1.1 million, or 8.7%, from the March 31, 1999
quarter of $12.7 million.
Interest Income
Interest income for the quarter ended March 31, 2000 totaled $33.7 million,
an increase of $1.2 million, or 3.6%, from the prior year's quarter. Interest
income on mortgage loans, the largest component of interest-earning assets,
increased $1.1 million, or 5.3%, to $21.4 million from the March 1999 quarter.
The average balance of the mortgage portfolio increased $14.5 million. The
annualized average yield on the mortgage loan portfolio increased
17
<PAGE>
to 7.64% for the three months ended March 31, 2000 from 7.35% for the 1999
period. Interest income on equity lines of credit increased $419,000, or 24.7%,
to $2.1 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 8.69% for the
current quarter as compared to 7.75% for the comparable quarter a year ago. The
average balance of equity lines of credit increased $8.8 million, to $103.9
million from $95.1 million from the March 1999 quarter. Interest income on auto
loans increased $1.1 million to $2.3 million for the three months ended March
31, 2000. The average balance of the auto loan portfolio increased $65.2
million, while the annualized average yield on the portfolio decreased to 7.78%.
This decrease was a direct result of market conditions for offering competitive
products. The average balance of interest-bearing cash decreased $144.2 million,
to $7.2 million. The March 1999 quarter was unusually high 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 $332,000, or 2.4%, to $13.3
million, for the quarter ended March 31, 2000 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
$19.0 million to $1.2 billion when comparing the quarters. The annualized
average cost of deposits for the three months ended March 31, 2000 was 4.48%, a
decrease from the annualized average cost of 4.57% for the March 1999 period.
For the quarter ended March 31, 2000, the Company recorded interest expense on
borrowed funds of $6.5 million on an average balance of $472 million at an
annualized cost of 5.52% related to FHLB borrowings. During the current quarter,
the Company repaid $130 million of FHLB advances that matured or were called and
added $115 million at current market rates.
Net Interest Income
Net interest income for the three months ended March 31, 2000 increased
$1.1 million or 8.7%, to $13.8 million from the 1999 period. The annualized
average yield on interest-earning assets increased from 6.96% to 7.43% when
comparing the 1999 and 2000 quarters. The annualized average cost of
interest-bearing liabilities increased from 4.77% to 4.78%. This resulted in an
annualized average net interest rate spread of 2.65% for the three-month period
ended March 31, 2000 compared to 2.19% for the prior year's period. Both the
average balance of interest-earning assets and interest-bearing liabilities
decreased during the quarter ended March 31, 2000 compared to the 1999 quarter.
Provision for Loan Losses
Based on management's evaluation of the loan portfolio, a provision of
$200,000 for loan losses was recorded during the quarter ended March 31, 2000.
The allowance for loan losses represents 0.43% of total loans receivable at
March 31, 2000. The amount of non-performing loans at March 31, 2000, was $4.5
million, or 0.32% of total loans, compared to $4.7 million or 0.37% of total
loans at March 31, 1999.
Noninterest Income
Total noninterest income for the three months ended March 31, 2000 was an
expense of $3.9 million. The quarter ended March 31, 2000 included losses on
sales of mortgage-backed and investment securities available for sale of $6.6
million. As previously mentioned, the Company sold these 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 $3.5 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. Liberty Home Mortgage sold mortgages totaling $260 million in
the first quarter of 1999 compared to $30 million sold in the current quarter.
Other income for the quarter ended March 31, 1999, included a gain on the sale
of Liberty Financial Services Inc.'s insurance book of business of $250,000. The
current quarter includes a write-down in value of an equity investment of
$112,000, reflecting a decrease in the respective market value.
18
<PAGE>
Noninterest Expense
Noninterest expense for the quarter ended March 31, 2000 totaled $10.8
million, a decrease of $2.0 million, or 15.9% from the prior year's quarter.
Compensation and benefits decreased $2.0 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 March 31, 2000
was $2.5 million. The effective tax rate for the quarter was 32.9% compared to
29.4% for the 1999 quarter. The lower effective tax rate for the March 1999
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. The current quarter's
income tax provision reflects lower state taxable income as a direct result of
certain structural changes initiated by the Company in July of 1999 in order to
position itself for future business opportunities.
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
Not Applicable.
19
<PAGE>
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 March 31,
2000 1999
------------------------------------------
Net income $ 5,152,000 4,601,000
------------------------------------------
<S> <C> <C>
Basic earnings per share-weighted average shares 9,961,869 11,394,593
Effect of dilutive securities-stock options - 488,674
------------------------------------------
Diluted earnings per share-adjusted weighted average shares 9,961,869 11,883,267
------------------------------------------
Basic earnings per share $ 0.52 0.40
------------------------------------------
Diluted earnings per share $ 0.52 0.39
------------------------------------------
</TABLE>
(b) Reports on Form 8-K.
A report on Form 8-K was filed by the Company on February
28, 2000 for purposes of reporting pursuant to Items 5 and
7 of Form 8-K, the successful completion of an auction of
$100,000,000 of Federal Home Loan Bank advances.
20
<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: May 5, 2000 /s/ Kenne P. Bristol
------------------------ -------------------------------
Kenne P. Bristol
President and
Chief Executive Officer
Dated: May 5, 2000 /s/ Richard A. Hojnicki
------------------------ -------------------------------
Richard A. Hojnicki
Executive Vice President and
Chief Financial Officer
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 22,795
<INT-BEARING-DEPOSITS> 3,299
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 286,990
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,416,824
<ALLOWANCE> 6,135
<TOTAL-ASSETS> 1,837,032
<DEPOSITS> 1,255,942
<SHORT-TERM> 234,450
<LIABILITIES-OTHER> 190,833
<LONG-TERM> 0
0
0
<COMMON> 117
<OTHER-SE> 155,690
<TOTAL-LIABILITIES-AND-EQUITY> 1,837,032
<INTEREST-LOAN> 26,561
<INTEREST-INVEST> 6,994
<INTEREST-OTHER> 100
<INTEREST-TOTAL> 33,655
<INTEREST-DEPOSIT> 13,307
<INTEREST-EXPENSE> 6,499
<INTEREST-INCOME-NET> 13,849
<LOAN-LOSSES> 200
<SECURITIES-GAINS> (6,550)
<EXPENSE-OTHER> 10,835
<INCOME-PRETAX> (1,088)
<INCOME-PRE-EXTRAORDINARY> (548)
<EXTRAORDINARY> 5,700
<CHANGES> 0
<NET-INCOME> 5,152
<EPS-BASIC> 0.52
<EPS-DILUTED> 0.52
<YIELD-ACTUAL> 3.06
<LOANS-NON> 4,471
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,031
<CHARGE-OFFS> 115
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 6,135
<ALLOWANCE-DOMESTIC> 3,684
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,451
</TABLE>
