Add
ALNC to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| ALNC > SEC Filings for ALNC > Form 10-Q on 9-Aug-2012 | All Recent SEC Filings |
9-Aug-2012
Quarterly Report
Highlights and Overview
Our results of operations are dependent primarily on net interest income, which is the difference between the income earned on our loans and leases and securities and our cost of funds, consisting of the interest paid on deposits and borrowings. Results of operations are also affected by the provision for credit losses, securities and loan sale activities, loan servicing activities, service charges and fees collected on our deposit accounts, income collected from trust and investment advisory services and the income earned on our investment in bank-owned life insurance. Our expenses primarily consist of salaries and employee benefits, occupancy and equipment expense, marketing expense, professional services, technology expense, amortization of intangible assets, other expense and income tax expense. Results of operations are also significantly affected by general economic and competitive conditions, particularly changes in interest rates, inflation, government policies and the actions of regulatory authorities.
The following is a summary of key financial results for the quarter ended June 30, 2012:
• Total assets were $1.4 billion and total deposits were $1.1 billion at June 30, 2012, compared with $1.4 billion and $1.1 billion at December 31, 2011, respectively.
• Net income was $2.9 million for the three months ended June 30, 2012, compared with $3.5 million for the same period in 2011. For the six months ended June 30, 2012, net income was $5.6 million, compared with $6.8 million for the first half of 2011.
• Net income per diluted share was $0.61 and $0.73 for the three months ending June 30, 2012 and 2011, respectively. Net income per diluted share was $1.16 for the six months ending June 30, 2012 compared with $1.43 per share for the same period in 2011.
• The tax-equivalent net interest margin was 3.26% in the second quarter of 2012 compared with 3.53% in the second quarter of 2011.
• There was a negative provision for credit losses of $300,000 in the quarter and six months ended June 30, 2012, compared with provision expense of $160,000 and $360,000 in the year ago periods, respectively.
• Total non-performing assets were $6.7 million or 0.47% of total assets at June 30, 2012 compared with $9.3 million, or 0.63% at June 30, 2011 and $11.7 million or 0.83% at December 31, 2011.
• Non-interest income was 31.2% of total revenue in the first half of 2012 compared with 28.8% in the year ago period.
• Our efficiency ratio was 75.9% in the six months ended June 30, 2012 compared with 69.6% for the same period in 2011.
The following discussion is intended to assist in understanding our financial condition and results of operations. This discussion should be read in conjunction with our consolidated financial statements and accompanying notes contained elsewhere in this report.
Recent Legislative Updates
In June 2012, the Federal Reserve Board, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation issued three proposals that would amend the existing regulatory risk-based capital adequacy requirements of banks and bank holding companies. The proposed rules implement the "Basel III" regulatory capital reforms and changes required by the Dodd-Frank Act. The Basel III proposal would increase the minimum levels of required capital, narrow the definition of capital, and places much greater emphasis on common equity. The proposed rules will be subject to a comment period through September 7, 2012.
The proposed rules include new risk-based capital and leverage ratios, which would be phased in from 2013 to 2019, and would refine the definition of what constitutes "capital" for purposes of calculating those ratios. The proposed new minimum capital level requirements applicable to us and the Bank under the proposals would be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The proposed rules would also establish a "capital conservation buffer" of 2.5% above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital and would result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement would be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase by that amount each year until fully implemented in January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations would establish a maximum percentage of eligible retained income that could be utilized for such actions.
The proposed rules also implement revisions and clarifications consistent with Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as well as certain instruments that will no longer qualify as Tier 1 capital, such as trust preferred securities, which would be phased out over time. Although the Dodd-Frank Act only required the phase out of such instruments for institutions with total consolidated assets of $15 billion or more, the proposed rules would require almost all institutions to phase out instruments that will no longer qualify as Tier 1 capital, albeit on a longer time frame than for institutions with total consolidated assets of $15 billion or more.
The federal bank regulatory agencies also proposed revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including the Bank, if their capital levels begin to show signs of weakness. These revisions would take effect January 1, 2015. We are still in the process of assessing the impacts of these complex proposals.
Comparison of Operating Results for the Three and Six Months Ended June 30, 2012 and 2011
General
Net income for the quarter ended June 30, 2012 was $2.9 million or $0.61 per diluted share compared to $3.5 million or $0.73 per diluted share in the year-ago quarter. The return on average assets and return on average shareholders' equity were 0.82% and 8.21%, respectively, for the second quarter of 2012, compared to 0.95% and 10.45%, respectively, for the second quarter of 2011.
Net income for the six months ended June 30, 2012 was $5.6 million or $1.16 per diluted share compared with $6.8 million or $1.43 per diluted share in the year ago period. The return on average assets and return on average shareholders' equity were 0.78% and 7.86%, respectively, for the first half of 2012, compared with 0.93% and $10.36%, respectively, for the first half of 2011.
Net interest income decreased $1.3 million and $2.4 million in the three and six month periods ended June 30, 2012, respectively, compared with the year-ago periods due to the continuing pressure on our net interest margin caused by the exceptionally low interest rate environment, which was partially mitigated by higher loan balances.
Net Interest Income
Net interest income totaled $10.0 million in the three months ended June 30, 2012, compared with $11.3 million in the year-ago quarter, and $9.8 million in the first quarter of 2012. The tax-equivalent net interest margin decreased 27 basis points in
The net interest margin on a tax-equivalent basis was 3.26% in the second quarter of 2012, compared with 3.53% in the year-ago quarter and 3.22% in the first quarter of 2012. The net interest margin in the second quarter adjusted for the recovery of non-accrual interest was 3.22%. The decrease in the net interest margin compared with the second quarter of 2011 was the result of a decrease in the tax-equivalent earning asset yield of 54 basis points in the second quarter compared with the year-ago quarter, which was partially offset by a decrease in the cost of interest-bearing liabilities of 29 basis points over the same period. On a linked-quarter basis, the decline in our earning-assets yield was 9 basis points in the second quarter, which was offset by a 15 basis-point drop in the cost of our interest-bearing liabilities. Adjusted for the recovery of non-accrual interest in the second quarter, our tax-equivalent earning asset yield declined 58 basis points and 13 basis points, compared with the year-ago quarter and the first quarter of 2012, respectively.
Average interest-earning assets were $1.3 billion in the second quarter, which was a decrease of $53.9 million or 4.0% from the year-ago quarter but was unchanged from the first quarter of 2012. Most of the decline from the year-ago quarter occurred in our securities portfolio, which was partially offset by a $58.0 million increase in federal funds sold and interest earning deposits. The average balance of our securities portfolio decreased 25% due to our decision to temporarily shrink the portfolio in the second half of 2011 due to the very low yields available on the types of securities in which we invest. Average loans and leases was roughly equal in the second quarter compared with the year-ago quarter as growth in our average commercial loan and consumer loan portfolios offset lower average lease balances. Total average loans and leases were 68.4% of total interest-earning assets in the second quarter of 2012, compared with 65.6% in the year-ago quarter and 67.1% in the first quarter of 2012.
Net interest income for the six months ended June 30, 2012 totaled $19.8 million, which was down $2.4 million or 11.0% compared with the year-ago period. The tax equivalent net interest margin was 3.24% for the six months ended June 30, 2012, compared to 3.49% for the first half of 2011. The tax-equivalent earning asset yield decreased 46 basis points in the first half of 2012 compared with the year-ago period, which was partially offset by a decrease of 22 basis points in the cost of interest-bearing liabilities over the same period.
Average interest-earning assets were $1.3 billion in the first half of 2012, which was a decrease of 3.9% from the first half of 2011. The changes in the average balances of securities and loans for the first half of 2012 compared with the year-ago period were similar to that as discussed above for the second quarter. Total average loans and leases were 67.7% of total interest-earning assets in the first half of 2012, compared with 65.7% in the year-ago period.
Since December 2008 the Federal Reserve has maintained its target fed funds rate between zero and 0.25%, and has carried out a number of policy actions designed to lower long-term interest rates. These monetary policy actions, along with volatility in equity markets, economic recession and federal government economic stimulus efforts, among other factors, have caused yields on U.S. Treasury securities to drop to exceptionally low levels throughout much of the past four years. This persistently low interest rate environment has caused an ongoing decline over the past four years in the returns on our interest-earning assets, consistent with much of the financial industry. The tax-equivalent yield on our securities portfolio decreased 50 basis points in the second quarter of 2012 compared to the year-ago quarter. The yield on our commercial loans, residential loans and consumer (including indirect) loans decreased 10 basis points, 33 basis points and 73 basis points, respectively, in the second quarter of 2012 compared to the second quarter of 2011.
The cost of our interest-bearing liabilities decreased in the second quarter of 2012 compared to the year-ago quarter due to a combination of the low interest rate environment, our deposit pricing strategies and a deposit mix that remains heavily weighted in low-cost interest-bearing transaction accounts (demand, savings and money market) whose rates can be immediately changed at our discretion. Average interest-bearing transaction accounts comprised 57.5% of total average interest-bearing deposits in the second quarter, compared to 55.3% in the year-ago period. The average cost of money market and time deposits dropped 20 basis points and 39 basis points, respectively in the second quarter compared to the year-ago quarter. We also reduced our cost of FHLB advances by 25 basis points in the second quarter compared to the second quarter of 2011 primarily through a restructuring of FHLB advances totaling $50.0 million in June 2012. The restructurings resulted in prepayment penalties of $2.1 million which will be amortized as an adjustment to interest expense over the remaining term of the restructured debt in accordance with U.S. generally accepted accounting principles. The restructuring had the effect of extending the maturities of the restructured borrowings by 3.3 years and lowering the annual average effective cost by 148 basis points.
Our tax-equivalent net interest margin declined over the course of 2011 and into the first quarter of 2012 as decreases in the cost of our interest-bearing liabilities did not keep pace with declines in the yield on our interest-earning assets. The declining trend in our net interest margin that we have experienced in recent quarters is likely to continue in coming quarters as the persistently low interest rate environment continues to negatively affect the return on our loan and investment portfolios, while our ability to further reduce our funding costs is limited. The pressure on our net interest margin along with weak economic conditions, uneven loan demand and competition may result in further declines in net interest income in coming quarters.
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 June 30,
2012 2011
Interest Interest
Average Earned/ Yield Average Earned/ Yield
Balance Paid Rate Balance Paid Rate
(Dollars in thousands)
Assets:
Interest earning assets:
Federal funds sold and interest bearing
deposits $ 60,602 $ 41 0.27 % $ 2,590 $ 1 0.08 %
Taxable investment securities 261,524 1,678 2.57 % 366,959 3,015 3.29 %
Nontaxable investment securities 75,135 1,034 5.50 % 81,453 1,156 5.67 %
FHLB and FRB stock 7,949 98 4.91 % 8,664 95 4.41 %
Residential real estate loans(1) 319,128 3,940 4.94 % 330,713 4,360 5.27 %
Commercial loans and commercial real estate 260,994 3,104 4.76 % 243,601 2,977 4.89 %
Nontaxable commercial loans 12,106 173 5.71 % 9,349 121 5.17 %
Taxable leases (net of unearned discount) 6,429 96 5.94 % 23,323 342 5.87 %
Nontaxable leases (net of unearned
discount) 9,234 147 6.36 % 12,104 192 6.33 %
Indirect auto loans 181,277 1,547 3.41 % 167,679 1,840 4.39 %
Consumer loans 88,124 820 3.72 % 89,923 896 3.98 %
Total interest-earning assets $ 1,282,502 $ 12,678 3.95 % $ 1,336,358 $ 14,995 4.49 %
Non-interest earning assets:
Other assets 134,168 132,827
Less: Allowance for credit losses (9,342 ) (10,759 )
Net unrealized gains on
securities available-for-sale 11,712 8,285
Total assets $ 1,419,040 $ 1,466,711
Liabilities and shareholders' equity:
Interest bearing liabilities:
Demand deposits $ 151,199 $ 28 0.08 % $ 148,821 $ 61 0.17 %
Savings deposits 114,261 24 0.08 % 107,897 55 0.20 %
MMDA deposits 371,722 252 0.27 % 380,558 447 0.47 %
Time deposits 271,898 891 1.31 % 339,578 1,446 1.70 %
Borrowings 127,020 847 2.67 % 139,863 1,021 2.92 %
Junior subordinated obligations issued to
unconsolidated trusts 25,774 170 2.64 % 25,774 158 2.45 %
Total interest-bearing liabilities $ 1,061,874 $ 2,212 0.83 % $ 1,142,491 $ 3,188 1.12 %
Non-interest bearing liabilities:
Demand deposits 198,538 175,565
Other liabilities 16,393 15,490
Shareholders' equity 142,235 133,165
Total liabilities and shareholders' equity $ 1,419,040 $ 1,466,711
Net interest income $ 10,466 $ 11,807
Net interest rate spread 3.12 % 3.37 %
Net interest margin 3.26 % 3.53 %
Federal tax exemption on non-taxable
investment securities, loans and leases
included in interest income (461 ) (501 )
Net interest income $ 10,005 $ 11,306
|
(1) Includes loans held-for-sale
--------------------------------------------------------------------------------
For the six months ended June 30,
2012 2011
Interest Interest
Average Earned/ Yield Average Earned/ Yield
Balance Paid Rate Balance Paid Rate
(Dollars in thousands)
Assets:
Interest earning assets:
Federal funds sold and interest
bearing deposits $ 62,117 $ 75 0.24 % $ 9,243 $ 5 0.09 %
Taxable investment securities 267,229 3,467 2.60 % 360,444 5,746 3.19 %
Nontaxable investment securities 76,118 2,098 5.51 % 80,120 2,269 5.67 %
FHLB and FRB stock 8,152 210 5.16 % 8,559 224 5.24 %
Residential real estate loans(1) 316,761 7,924 5.00 % 331,601 8,666 5.23 %
Commercial loans and commercial real
estate 260,593 6,119 4.70 % 237,151 5,851 4.93 %
Nontaxable commercial loans 11,928 342 5.73 % 9,253 238 5.15 %
Taxable leases (net of unearned
discount) 9,261 266 5.74 % 25,084 737 5.88 %
Nontaxable leases (net of unearned
discount) 9,849 316 6.41 % 12,338 395 6.41 %
Indirect auto loans 171,338 3,122 3.64 % 170,297 3,812 4.48 %
Consumer loans 88,651 1,679 3.79 % 90,347 1,798 3.98 %
Total interest-earning assets $ 1,281,997 $ 25,618 4.00 % $ 1,334,437 $ 29,741 4.46 %
Non-interest earning assets:
Other assets 124,611 134,256
Less: Allowance for credit losses (10,049 ) (10,868 )
Net unrealized gains on securities
available-for-sale 11,647 6,621
Total assets $ 1,418,206 $ 1,464,446
Liabilities and shareholders'
equity:
Interest bearing liabilities:
Demand deposits $ 151,446 $ 66 0.09 % $ 153,228 $ 129 0.17 %
Savings deposits 111,022 55 0.10 % 105,286 112 0.21 %
MMDA deposits 365,279 530 0.29 % 379,797 894 0.47 %
Time deposits 283,258 2,032 1.43 % 340,238 2,934 1.72 %
Borrowings 129,633 1,808 2.79 % 138,246 2,083 3.01 %
Junior subordinated obligations
issued to unconsolidated trusts 25,774 343 2.66 % 25,774 315 2.44 %
Total interest-bearing liabilities $ 1,066,412 $ 4,834 0.91 % $ 1,142,569 $ 6,467 1.13 %
Non-interest bearing liabilities:
Demand deposits 193,583 175,179
Other liabilities 16,777 15,741
Shareholders' equity 141,434 130,957
Total liabilities and shareholders'
equity $ 1,418,206 $ 1,464,446
Net interest income (tax-equivalent) $ 20,784 $ 23,274
Net interest rate spread 3.09 % 3.33 %
Net interest margin (tax-equivalent) 3.24 % 3.47 %
Federal tax exemption on non-taxable
investment securities, loans and
leases included in interest income (938 ) (985 )
Net interest income $ 19,846 $ 22,289
|
(1) Includes loans held-for-sale
The following table sets forth the dollar volume of increase (decrease) in 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 (in thousands).
For the three months ended For the six months ended
June 30, 2012 June 30, 2012
Compared to Compared to
June 30, 2011 June 30, 2011
Increase/(Decrease) Due To Increase/(Decrease) Due To
Net Net
Volume Rate Change Volume Rate Change
Federal funds sold $ 36 $ 4 $ 40 $ 54 $ 16 $ 70
Taxable investment securities (759 ) (578 ) (1,337 ) (1,329 ) (950 ) (2,279 )
Non-taxable investment securities (88 ) (34 ) (122 ) (109 ) (62 ) (171 )
. . .
|
|
|