Add
ALNC to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| ALNC > SEC Filings for ALNC > Form 10-Q on 30-Oct-2009 | All Recent SEC Filings |
30-Oct-2009
Quarterly Report
General
Throughout this discussion, the term "the Company" or "Alliance" refers to the consolidated entity of Alliance Financial Corporation, its wholly-owned subsidiaries Ladd's Agency, Inc. and Alliance Bank, N.A. (the "Bank"), and the Bank's subsidiaries, Alliance Preferred Funding Corp. and Alliance Leasing, Inc. The Company is a New York corporation which was formed in November 1998 as a result of the merger of Cortland First Financial Corporation and Oneida Valley Bancshares, Inc.
The following discussion presents material changes in the Company's results of operations and financial condition during the nine months ended September 30, 2009, which are not otherwise apparent from the consolidated financial statements included in this report.
This discussion and analysis contains certain forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) with respect to the financial condition, results of operations and business of the Company. These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities:
• an increase in competitive pressures in the banking industry;
• changes in the interest rate environment that reduce margins;
• changes in the regulatory environment;
• general economic conditions, either nationally or regionally, resulting in, among other things, a deterioration in credit quality;
• changes in business conditions and inflation;
• changes in credit market conditions;
• changes in the securities markets which affect investment management revenues;
• increases in FDIC deposit insurance premiums and assessments could adversely affect our financial condition;
• changes in technology used in the banking business;
• our ability to maintain and increase market share and control expenses;
• the soundness of other financial services institutions may adversely affect our credit risk;
• certain of our intangible assets may become impaired in the future;
• the Company's controls and procedures may fail or be circumvented;
• new line of business or new products and services may subject the Company to additional risks;
• changes in key management personnel may adversely impact our operations;
• severe weather, natural disasters, acts of war or terrorism and other external events could significantly impact the Company's business; and
• other factors detailed from time to time in the Company's Securities and Exchange Commission filings
Operating results for the three and nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.
Comparison of Operating Results for the Three and Nine Months Ended September 30, 2009 and 2008
General
Net income available to common shareholders for the quarter ended September 30, 2009 was $3.0 million, or $0.64 per diluted share, compared to $3.0 million, or $0.65 per diluted share in the year-ago quarter. The return on average assets and return on average common shareholders' equity were 0.82% and 9.68%, respectively, for the quarter ended September 30, 2009 compared with 0.92% and 10.42%, respectively, for the third quarter of 2008.
Net income was $8.0 million for the nine months ended September 30, 2009 and 2008, respectively. Net income available to common shareholders for the nine months ended September 30, 2009 was $6.9 million or $1.49 per diluted share, compared with $8.0 million or $1.69 per diluted share in the year-ago period. Preferred dividends and accretion on the preferred stock discount associated with Alliance's participation in and withdrawal from the U.S. Treasury's Capital Purchase Program ("CPP") were $1.1 million for the nine months ended September 30, 2009.
There was no preferred stock outstanding for the nine months ended September 30, 2008. The return on average assets and return on average common shareholders' equity were 0.65% and 7.92%, respectively, for the nine months ended September 30, 2009 compared with 0.81% and 9.17%, respectively, for the same period in 2008.
The results for the third quarter and year-to-date reflect continued growth in net interest income, which offset higher credit costs and a decrease in investment management income compared to the year-ago periods. In addition to the impact of the Company's CPP participation and withdrawal, third quarter and year-to-date earnings were impacted by a significant increase in the premiums assessed by the Federal Deposit Insurance Corporation ("FDIC") to all FDIC-insured banks. FDIC insurance premium expense for the three and nine month periods in 2009 increased $384,000 and $1.7 million, respectively, compared with the same periods in 2008. A large portion of the FDIC's insurance premium increase in 2009 was in the form of a special assessment charged to all FDIC-insured banks in the second quarter which totaled $676,000 before tax or $0.09 per diluted common share after tax.
Net Interest Income
Net interest income totaled $11.2 million in the third quarter, representing an increase of $1.7 million or 17.2% compared with the third quarter of 2008. The increase in net interest income was driven by a higher net interest margin combined with earning asset growth. Average earning assets increased $118.0 million in the third quarter compared with the year-ago quarter, due in large part to increases in the average balance of residential mortgages and the securities portfolio. On a linked-quarter basis, net interest income increased $608,000 or 5.7% as a result of a higher net interest margin and a $17.7 million increase in average earning assets.
The Company's tax-equivalent net interest margin increased 19 basis points in the third quarter compared with the year-ago quarter, and was up 12 basis points compared to the second quarter of 2009. The net interest margin on a tax-equivalent basis was 3.62% in the third quarter of 2009, compared with 3.43% in the third quarter of 2008 and 3.50% in the second quarter of 2009. The increase in the net interest margin was the result of a decrease in the tax-equivalent earning asset yield of 73 basis points in the third quarter compared with the year-ago quarter, which was offset by a decrease in the cost of funds of 103 basis points over the same period. The Company's yield on earning assets decreased one basis point in the third quarter of 2009 compared with the second quarter of 2009, which was more than offset by a decrease in its cost of funds of 16 basis points during the same period.
The overall net interest margin growth since the first quarter of 2008 is primarily the result of the Company's ongoing active balance sheet management and deposit pricing strategies and the positive effects of those strategies in the interest rate environment of the past two years. Since September 2007, the Federal Reserve has reduced its target fed funds rate from 5.25% to between zero and 0.25%. Over this same time period, a drop in equity markets, economic recession and federal government monetary and economic stimulus efforts have contributed to a decline in the yields on U.S. Treasury securities. As a result of these factors, the yields on two-year, five-year and ten-year treasury securities dropped 320 basis points, 200 basis points and 120 basis points, respectively from August 31, 2007 to September 30, 2009. Yields on commercial loans and consumer loans were most affected by these conditions, with yields on these assets down 116 basis points and 188 basis points, respectively, in the third quarter of 2009 compared with the year-ago quarter. Other earning-asset classes have also experienced declines in yields, though not to the same magnitude. The commercial and consumer loan portfolios are more sensitive than the Company's other interest-bearing assets to changes in market interest rates due to the variable rate characteristics of a segment of these portfolios and to the high levels of annual amortization in the portfolios as a result of their relatively shorter duration.
Average interest-earning assets increased $118.0 million or 10.0% in the third quarter compared with the year-ago period, due primarily to growth in investment securities and the residential mortgage portfolio which offset declines in the commercial loan and lease portfolios. Loans and leases comprised 71.2% of average interest-earning assets in the third quarter, compared with 76.1% in the third quarter of 2008.
The Company's cost of funds declined throughout 2008 and into the third quarter of 2009 in all interest-bearing liability categories except savings accounts. The average cost of money market and time deposit accounts dropped 96 basis points and 142 basis points, respectively in the third quarter of 2009 compared with the year-ago quarter as a result of the lower rate environment and the Company's actively managed deposit pricing strategies. The rate of decline in the Company's cost of interest bearing liabilities in the third quarter of 2009 was less that that experienced in 2008 as our ability to further reduce already low offering rates has diminished. On a linked-quarter basis, the average cost of money market and time accounts decreased 12 basis points and 26 basis points, respectively, in the third quarter of 2009. Wholesale funding costs also dropped significantly, with the average cost of borrowings
down 50 basis points in the third quarter compared with the year-ago quarter. At the same time the Company was lowering its borrowing costs due to the lower market rates over the past two years, it took the opportunity to lower its sensitivity to rising rates by extending the maturity on new or renewed borrowings.
The average cost of the Company's junior subordinated obligations decreased 226 basis points in the third quarter of 2009 compared with the third quarter of 2008 due to the decline in the three-month Libor index to which these variable rate obligations are tied.
The Company's liability mix changed favorably during 2008 and into the first nine months of 2009 as the Company continued to focus on growing lower cost savings, demand and money market accounts (transaction accounts) and relied less on higher promotional rates to attract or retain retail time accounts. The growth in money market accounts has also been enhanced by the low interest rate environment, which has caused some depositors to favor money market accounts over fixed term time accounts. The aggregate average balance of transaction accounts was $683.1 million in the third quarter of 2009, which was an increase of $123.8 million or 22.1% from the aggregate average balances of $559.4 million in the third quarter of 2008. Average time account balances in the third quarter of 2009 were 43.6% of total average deposits, compared with 46.8% in the year-ago period.
Net interest income for the nine months ended September 30, 2009 totaled $31.9 million, an increase of $4.0 million or 14.5% compared with $27.9 million in the year-ago period. Average earning assets increased $89.4 million in the first nine months of 2009 compared with the year-ago period. The tax-equivalent net interest margin was 3.51% in the first nine months of 2009, compared with 3.32% in the first nine months of 2008. A decrease of 77 basis points in the Company's tax-equivalent earning assets yield in the first nine months of 2009 compared with the same period in 2008 was offset by a 104 basis point decrease in its cost of funds over the same period.
Changes in net interest income and net interest margin for the first nine months of 2009 compared with the same period in 2008 were driven largely by the same factors in the analysis of the third quarter of 2009 to the third quarter of 2008 discussed above.
Average Balance Sheet and Net Interest Analysis
The following table sets forth information concerning average interest-earning assets and interest-bearing liabilities and the average yields and rates thereon for the periods indicated. Interest income and yield information is adjusted for items exempt from federal income taxes ("nontaxable") and assumes a 34% tax rate. Non-accrual loans have been included in the average balances. Securities are shown at average amortized cost.
For the three months ended September 30,
2009 2008
Interest Interest
Average Earned/ Yield Average Earned/ Yield
Balance Paid Rate Balance Paid Rate
(Dollars in thousands)
Assets:
Interest earning assets:
Federal funds sold $ - $ - - % $ 1,596 $ 9 2.26 %
Taxable investment securities 281,587 2,722 3.87 % 181,093 2,076 4.59 %
Nontaxable investment securities 82,223 1,215 5.91 % 89,053 1,347 6.05 %
FHLB and FRB stock 10,907 187 6.87 % 11,002 174 6.33 %
Real estate loans(1) 350,798 4,823 5.50 % 301,338 4,452 5.91 %
Commercial loans 201,051 2,742 5.46 % 203,933 3,377 6.62 %
Nontaxable commercial loans 9,578 145 6.05 % 8,386 139 6.65 %
Taxable leases (net of unearned
discount) (1) 63,834 917 5.75 % 100,782 1,546 6.14 %
Nontaxable leases (net of unearned
discount) 15,695 254 6.47 % 15,696 245 6.26 %
Indirect auto loans 195,244 2,689 5.51 % 181,747 2,566 5.65 %
Consumer loans 92,109 983 4.27 % 90,406 1,390 6.15 %
Total interest-earning assets $ 1,303,026 $ 16,677 5.12 % $ 1,185,032 $ 17,321 5.85 %
Non-interest earning assets:
Other assets 135,516 134,588
Less: Allowance for credit losses (10,193 ) (8,884 )
Net unrealized gains (losses) on
securities available-for-sale 6,346 356
Total assets $ 1,434,695 $ 1,311,092
Liabilities and shareholders'
equity:
Interest bearing liabilities:
Demand deposits $ 116,665 $ 120 0.41 % $ 107,410 $ 177 0.66 %
Savings deposits 95,048 105 0.44 % 88,843 124 0.56 %
MMDA deposits 311,788 766 0.98 % 226,134 1,099 1.94 %
Time deposits 404,397 2,347 2.32 % 372,010 3,480 3.74 %
Borrowings 182,905 1,382 3.02 % 221,855 1,950 3.52 %
Junior subordinated obligations
issued to unconsolidated trusts 25,774 179 2.78 % 25,774 325 5.04 %
Total interest-bearing liabilities $ 1,136,577 $ 4,899 1.72 % $ 1,042,026 $ 7,155 2.75 %
Non-interest bearing liabilities:
Demand deposits 159,616 136,968
Other liabilities 16,214 16,501
Shareholders' equity 122,288 115,597
Total liabilities and shareholders'
equity $ 1,434,695 $ 1,311,092
Net interest income (tax equivalent) $ 11,778 $ 10,166
Net interest rate spread 3.40 % 3.10 %
Net interest margin (tax equivalent) 3.62 % 3.43 %
Federal tax exemption on non-taxable
investment securities, loans and
leases included in interest income (548 ) (587 )
Net interest income $ 11,230 $ 9,579
|
(1) Includes loans and leases held-for-sale
For the nine months ended September 30,
2009 2008
Interest Interest
Average Earned/ Yield Average Earned/ Yield
Balance Paid Rate Balance Paid Rate
(Dollars in thousands)
Assets:
Interest earning assets:
Federal funds sold $ 17,176 $ 15 0.11 % $ 5,184 $ 99 2.55 %
Taxable investment securities 242,226 7,271 4.00 % 186,483 6,522 4.66 %
Nontaxable investment securities 86,275 3,941 6.09 % 87,590 4,033 6.14 %
FHLB and FRB stock 10,965 401 4.88 % 10,740 561 6.96 %
Real estate loans(1) 340,632 14,218 5.57 % 289,730 12,863 5.92 %
Commercial loans 203,432 8,491 5.57 % 208,629 10,781 6.89 %
Nontaxable commercial loans 9,645 437 6.04 % 8,315 418 6.70 %
Taxable leases (net of unearned
discount) (1) 72,422 3,242 5.97 % 107,108 5,033 6.26 %
Nontaxable leases (net of unearned
discount) 16,891 822 6.49 % 16,504 774 6.25 %
Indirect auto loans 187,415 7,759 5.52 % 177,648 7,543 5.66 %
Consumer loans 90,939 3,065 4.49 % 90,686 4,414 6.49 %
Total interest-earning assets $ 1,278,018 $ 49,662 5.18 % $ 1,188,617 $ 53,041 5.95 %
Non-interest earning assets:
Other assets 136,604 132,833
Less: Allowance for credit losses (9,850 ) (8,648 )
Net unrealized gains (losses) on
securities available-for-sale 6,151 2,431
Total assets $ 1,410,923 $ 1,315,233
Liabilities and shareholders'
equity:
Interest bearing liabilities:
Demand deposits $ 116,097 $ 404 0.46 % $ 106,920 $ 564 0.70 %
Savings deposits 91,671 339 0.49 % 85,935 361 0.56 %
MMDA deposits 295,551 2,573 1.16 % 221,721 3,615 2.17 %
Time deposits 381,566 7,523 2.63 % 393,349 12,030 4.08 %
Borrowings 194,951 4,510 3.08 % 216,349 5,776 3.56 %
Junior subordinated obligations
issued to unconsolidated trusts 25,774 647 3.35 % 25,774 1,066 5.51 %
Total interest-bearing liabilities $ 1,105,610 $ 15,996 1.93 % $ 1,050,048 $ 23,412 2.97 %
Non-interest bearing liabilities:
Demand deposits 154,561 131,665
Other liabilities 16,832 17,542
Shareholders' equity 133,920 115,978
Total liabilities and shareholders'
equity $ 1,410,923 $ 1,315,233
Net interest income (tax equivalent) $ 33,666 $ 29,629
Net interest rate spread 3.25 % 2.98 %
Net interest margin (tax equivalent) 3.51 % 3.32 %
Federal tax exemption on non-taxable
investment securities, loans and
leases included in interest income (1,769 ) (1,776 )
Net interest income $ 31,897 $ 27,853
|
(1) Includes loans and leases held-for-sale
The following table sets forth the dollar volume of increase or (decrease) in tax equivalent interest income and interest expense resulting from changes in the volume of earning assets and interest-bearing liabilities, and from changes in rates for the periods indicated. Volume changes are computed by multiplying the volume difference by the prior period's rate. Rate changes are computed by multiplying the rate difference by the prior period's balance. The change in interest income and expense due to both rate and volume has been allocated proportionally between the volume and rate variances.
For the three months ended For the nine months ended
September 30, 2009 September 30, 2009
Compared to Compared to
September 30, 2008 September 30, 2008
Increase/(Decrease) Due To Increase/(Decrease) Due To
Net Net
Volume Rate Change Volume Rate Change
Federal funds sold $ (5 ) $ (4 ) $ (9 ) $ 120 $ (204 ) $ (84 )
Taxable investment securities 2,537 (1,891 ) 646 2,178 (1,429 ) 749
Non-taxable investment securities (101 ) (31 ) (132 ) (60 ) (32 ) (92 )
FHLB and FRB stock (10 ) 23 13 19 (179 ) (160 )
Real estate loans 1,998 (1,627 ) 371 2,531 (1,176 ) 1,355
Commercial loans (47 ) (588 ) (635 ) (263 ) (2,027 ) (2,290 )
Non-taxable commercial loans 65 (59 ) 6 80 (61 ) 19
Taxable leases (net of unearned
income) (536 ) (93 ) (629 ) (1,567 ) (224 ) (1,791 )
Non-taxable leases (net of unearned
income) - 9 9 18 30 48
Indirect loans 474 (351 ) 123 492 (276 ) 216
Consumer loans 174 (581 ) (407 ) 20 (1,369 ) (1,349 )
Total interest-earning assets 4,549 (5,193 ) (644 ) 3,568 (6,947 ) (3,379 )
Interest-bearing demand
deposits 89 (146 ) (57 ) 71 (231 ) (160 )
Savings deposits 48 (67 ) (19 ) 34 (56 ) (22 )
MMDA deposits 1,738 (2,071 ) (333 ) 1,433 (2,475 ) (1,042 )
Time deposits 1,759 (2,892 ) (1,133 ) (350 ) (4,157 ) (4,507 )
Borrowings (315 ) (253 ) (568 ) (536 ) (730 ) (1,266 )
Junior subordinated obligations
issued to unconsolidated subsidiary
trusts - (146 ) (146 ) - (419 ) (419 )
Total interest-bearing liabilities 3,319 (5,575 ) (2,256 ) 652 (8,068 ) (7,416 )
Net interest income tax equivalent $ 1,230 $ 382 $ 1,612 $ 2,916 $ 1,121 $ 4,037
|
Asset Quality and the Allowance for Credit Losses
The following table represents a summary of delinquent loans and leases grouped
by the number of days delinquent at the dates indicated:
Delinquent loans and leases September 30, 2009 June 30, 2009 December 31, 2008
$ %(1) $ %(1) $ %(1)
(Dollars in thousands)
30 days past due $ 9,993 1.08 % $ 8,990 0.97 % $ 11,124 1.22 %
60 days past due 2,141 0.23 % 3,788 0.41 % 4,736 0.52 %
90 days past due and still accruing 127 0.01 % 23 - % 126 0.01 %
Non-accrual 10,084 1.10 % 7,588 0.81 % 4,352 0.48 %
Total $ 22,345 2.42 % $ 20,389 2.19 % $ 20,338 2.23 %
|
(1) As a percentage of total loans and leases, excluding deferred costs
Continuing weakness in the local, state and national economies contributed to an increase in delinquencies and nonperforming loans and leases in the third quarter. Loans and leases past due 30 days or more totaled $22.3 million or 2.4% of total loans and leases at September 30, 2009, compared with $20.4 million or 2.2% at June 30, 2009 and $20.3 million or 2.2% of total loans and leases at . . .
|
|