Back to GetFilings.com
FORM 10-K
United States Securities and Exchange Commission
Washington, DC 20549
Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 31, 1999
Commission File Number 001-13405
ALLIANCE BANCORP OF NEW ENGLAND, INC.
Incorporated in the State of Delaware
IRS Employer Identification Number 06-1495617
Address and Telephone:
348 Hartford Turnpike, Vernon, Connecticut 06066, (860) 875-2500
Securities registered pursuant to Section 12(b) of the Act: Common Stock -- $.01
par value, which is registered on the American Stock Exchange.
Alliance Bancorp of New England (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days.
There were no delinquent filers subject to disclosure pursuant to Item 405 of
Regulation S-K as contained in the definitive Proxy Statement incorporated by
reference in Part III of this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the closing sale price of February 14, 2000, as reported by
American Stock Exchange, was approximately $20,784,000.
The number of shares outstanding of common stock was 2,309,283 as of February
14, 2000.
Documents Incorporated by Reference
The Alliance Bancorp of New England, Inc. Proxy Statement for the Annual Meeting
of Stockholders to be held on April 12, 2000 is incorporated by reference into
Part III of this Form 10-K.
Table of Contents
PAGE
----
PART I Item 1 - Business 2
Item 2 - Properties 6
Item 3 - Legal Proceedings 6
Item 4 - Submission of Matters to a Vote of Security Holders 6
PART II Item 5 - Market for Registrants Common Equity and Related Shareholder Matters 6
Item 6 - Selected Consolidated Financial Data 7
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 7A- Quantitative and Qualitative Disclosures about Market Risk 21
Item 8 - Consolidated Financial Statements and Supplementary Data 22
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 22
PART III Item 10 - Directors And Executive Officers Of The Registrant 22
Item 11 - Executive Compensation 22
Item 12 - Security Ownership Of Certain Beneficial Owners And Management 22
Item 13 - Certain Relationships And Related Transactions 22
PART IV Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 23
1
PART I
Special Note Regarding Forward-Looking Statements
This report contains certain "forward-looking statements." These forward-looking
statements, which are included in Management's Discussion and Analysis, describe
future plans or strategies and include the Company's expectations of future
financial results. The words "believe," "expect," "anticipate," "estimate,"
"project" and similar expressions identify forward-looking statements. The
Company's ability to predict results or the effect of future plans or strategies
or qualitative or quantitative changes based on market risk exposure is
inherently uncertain. Factors which could affect actual results include but are
not limited to change in general market interest rates, general economic
conditions, legislative/regulatory changes, fluctuations of interest rates,
changes in the quality or composition of the Company's loan and investment
portfolios, deposit flows, competition, demand for financial services in the
Company's markets, and changes in the accounting principles, policies, and
guidelines. These factors should be considered in evaluating the forward-looking
statements, and undue reliance should not be placed on such statements.
ITEM 1. BUSINESS
--------
General. Alliance Bancorp of New England, Inc. ("Alliance" or the "Company") is
a Delaware corporation that was organized in 1997. Alliance's primary activity
is to act as the holding company for Tolland Bank (the "Bank"), which is its
sole subsidiary and principal asset.
The Bank is a Connecticut chartered savings bank which was founded in 1841 and
is headquartered in Vernon, as is Alliance. In 1986, Tolland Bank converted from
mutual to stock form. The Bank's deposits are insured up to applicable limits by
the Federal Deposit Insurance Corporation ("FDIC").
The Bank operates nine offices in Tolland County, Connecticut, and provides
retail and commercial banking products and services in Tolland County and
surrounding towns. Retail activities consist of branch deposit services, home
mortgage and consumer lending, and mortgage banking. Commercial activities
include merchant deposit services, business cash management, and construction
mortgages, permanent mortgages, and working capital and equipment loans. Through
third party relationships, the Bank also provides investment products, insurance
products, and electronic payment services to retail and commercial customers.
At December 31, 1999, Tolland Bank had total deposits of $251.4 million, total
loans of $191.6 million, and total assets of $306.9 million. There are no
material concentrations of loans or deposits with one customer, a group of
related customers, or in a single industry.
Market Area. The Bank's market area is centered in Tolland County, Connecticut,
a suburban and rural area east of Hartford. The Bank operates nine offices and
its wider market area extends throughout much of northeastern Connecticut and
into Massachusetts. Much of the market is part of the Greater Hartford
metropolitan area.
Lending Activities. The Bank actively solicits retail and commercial loans in
and around its market area. Retail lending consists primarily of the origination
of residential first mortgages and home equity lines of credit, which are
generally secured by second mortgages. Commercial lending focuses primarily on
owner occupied first mortgage loans, along with general commercial and
industrial loans and subdivision development and construction loans.
Additionally, the Bank has a portfolio of 100% Government guaranteed loans
purchased in the secondary market to supplement local loan originations. The
Bank's business strategy is to cross-sell other loan and deposit products to
build multiple sales to its customer base.
Most of the Bank's residential mortgage originations are underwritten to
secondary market standards and are sold on a non-recourse, servicing released
basis. The Bank offers an extensive list of mortgage types, including FHA and VA
loans, land loans, and subprime loans (which are also sold to investors).
Consumer loans primarily consist of home equity lines and loans and are normally
secured by second mortgages. These loans are subject to the same general
underwriting standards as residential mortgage loans, and the bank retains
ownership and servicing of all home equity lines and loans that it originates.
Consumer loans also include secured installment loans, which are primarily well
seasoned mobile home loans and indirect loans.
Commercial mortgages are primarily first mortgage loans on a variety of owner
occupied commercial properties. The Bank also provides commercial mortgages on
investor owned properties, including retail, office, and light manufacturing.
Commercial mortgages normally amortize over 15 - 20 years and typically mature
in 5-10 years. Commercial mortgages are normally guaranteed by the principals
and by owner occupant businesses. Other commercial loans include commercial and
industrial loans, and real estate secured loans, as well as subdivision
development and construction loans.
2
Government guaranteed loans are purchased in the secondary market and are 100%
guaranteed by either the Small Business Administration (SBA) or the U.S.
Department of Agriculture (USDA). These are business term loans and mortgages,
and are primarily loan certificates registered with and serviced by a national
service corporation.
All loan originations are governed by a Board approved credit policy, which
requires that all policy exceptions be reported to the Board. Loan approval
limits are based on loan and relationship size, and most commercial loans are
approved either by the Chief Lending Officer, the Company's Credit Committee,
and/or the Board. The loan policy sets certain limits on concentrations of
credit related to one borrower. The Bank's policy is to assign a risk rating to
all commercial loans. The Bank conducts an ongoing program of commercial loan
reviews and quality control sample inspections of residential and consumer loan
originations.
The loan loss allowance is determined based on a methodology described in the
Company's policies. This methodology evaluates commercial loans based on their
risk ratings, and residential mortgages and consumer loans are evaluated in
aggregate pools. Allowance percentages are applied to loan pools to calculate
allocations of the allowance. These factors are evaluated at least annually
based on trends in the Company's credit experience, and on peer group and other
industry information. The unallocated portion of the loan loss allowance is
based on management's assessment of the overall level of the allowance, of
trends in the growth of the portfolio, of long term objectives for loan
portfolio coverage, and of subjective considerations of economic and credit
conditions and outlooks. The Company does not prepare formal projections of loan
losses. The allowance is evaluated quarterly by management and the Board and
changes are compared to prior period and historic data. The assessment of the
allowance also includes an analysis of the coverage ratios of loan outstandings,
non-performing loans, and annualized charge-offs. The detailed methodology and a
summary narrative analysis are approved by the Credit Committee and the Board.
The narrative analysis includes consideration of trends in the performance and
mix of the components of the loan portfolio. At least annually an analysis is
made of the charge-off and allowance trends with peer group comparison. Adverse
developments in credit performance in the Company's markets can develop quickly,
and the determination of the allowance is based on management's assessment of
both short and long term risk factors.
Total real estate secured loans were $155.5 million (81.1% of total loans) at
year-end 1999. Aided by favorable interest rates and a modest recovery in the
Connecticut economy, real estate markets and prices have improved in most
sectors over the last three years. The Bank conducts an overall review of real
estate market trends periodically, and real estate lending activities are
governed by real estate lending and appraisal policies. New construction has
remained active in certain residential markets, along with commercial retail,
medical office, and lodging properties.
Investment Activities. Securities investments are a source of interest and
dividend income, provide for diversification, are a tool for asset/liability
management, and are a source of liquidity. The Company's investment portfolio
consists of high grade investment securities, and is primarily composed of
publicly traded U.S. corporate securities. Investment activities are governed by
a Board approved investment policy, and the Board reviews all investment
activities on a monthly basis. Alliance uses the services of an investment
advisor in managing its portfolio. In 1999, Alliance established an Investment
Committee of the Board. This committee meets quarterly to review detailed
information on the ratings, yields and values of securities, as well as
Management's plans for investment security transactions.
Deposits and Other Sources of Funds. The Banks' major sources of funds are
deposits, borrowings, principal payments on loans and securities, and maturities
of investments. Borrowings are generally used to fund long-term assets and
short-term liquidity requirements or to manage interest rate risk. The Bank is a
member of the Federal Home Loan Bank of Boston ("FHLBB") and may borrow from the
FHLBB subject to certain limitations. The Bank also has available lines of
credit for federal funds purchases and reverse repurchase agreements, and is
also eligible for short term borrowings from the Federal Reserve Bank of Boston.
Competition. The Company's market area is highly competitive with a wide range
of financial institutions including commercial banks, both mutual and stock
owned savings banks, savings and loan associations, and credit unions. The Bank
also competes with insurance and finance companies, investment companies, and
brokers. Factors affecting competition include ongoing mergers and acquisitions
(including expansion of regional and national banks), the introduction of new
product types and rate structures, and the development of new delivery channels
(including supermarket banking and internet banking). The Bank competes through
pricing, product development, focused marketing, and providing more convenience
through technology and business hours. The Bank strives to provide the personal
service advantage of a community bank and to take advantage of potential market
changes following consolidations by the large regional banks. During the last
two years, several local competitors merged with or announced mergers with
larger institutions. Also, during 1999, Fleet and Bank Boston merged,
consolidating the two largest banks in New England. Additionally, two local
mutual competitors announced conversions to stock ownership. In these changing
competitive markets, loan and deposit pricing spreads have tightened. Also,
several competitors have announced plans to expand their branch networks.
3
Technology. The development of internet e-commerce has been prominent throughout
the economy, including the banking industry. Most of the Company's competitors
offer some level of internet and electronic banking services. While the local
demand for these technologies has been modest, the level of demand is increasing
rapidly. The most significant impact has been in offerings from non-bank
competitors. Alliance has a goal to be an active user of proven new
technologies, both in its product offerings and in its purchases of processing
and related services. A significant effect of technological change has been to
enable community banks to more easily access emerging technologies previously
available principally to larger competitors.
Employees. As of year-end 1999, the Company had 98.5 full-time equivalent
employees. None of the employees are represented by a collective bargaining
group, and manage-ment considers relations with its employees to be good.
Estimated average full-time equivalent staff increased by about 6% from 89.4
persons in 1998 to 94.7 persons in 1999.
Regulation and Supervision. The Company and the Bank are heavily regulated. As a
bank holding company, Alliance is supervised by the Board of Governors of the
Federal Reserve System ("FRB") and it is also subject to the jurisdiction of the
Connecticut Department of Banking. As a Connecticut-chartered savings bank, the
Bank is subject to regulation and supervision by the FDIC and the Connecticut
Department of Banking.
The FDIC insures the Bank's deposit accounts to the $100,000 maximum per
separately insured account. The Bank is subject to regulation, examination, and
supervision by the FDIC and to reporting requirements of the FDIC. The FDIC has
adopted requirements setting minimum standards for capital adequacy and imposing
minimum leverage capital ratios. The Company and Bank exceeded all applicable
requirements at December 31, 1999. Connecticut statutes and regulations govern,
among other things, investment powers, lending powers, deposit activities,
maintenance of surplus and reserve accounts, the distribution of earnings, the
payments of dividends, issuance of capital stock, branching, acquisitions and
mergers and consolidations. Connecticut banks that do not operate in accordance
with the regulations, policies and directives of the Banking Commissioner may be
subject to sanctions for noncompliance. The Commissioner may, under certain
circumstances, suspend or remove officers or directors who have violated the
law, conducted the Bank's business in a manner which is unsafe, unsound or
contrary to the depositor's interest, or been negligent in the performance of
their duties.
Year 2000 Considerations. The Company uses computer systems extensively in its
operations. The Company established a Year 2000 project plan to address systems
and facilities changes necessary to properly recognize dates after 1999. The
Company's Year 2000 Considerations are discussed in Management's Discussion and
Analysis of Financial Condition and Results of Operation.
Interstate Banking. In general, subject to certain limitations, nationwide
interstate acquisitions are now permissible. In 1999, Fleet Boston was required
to divest of many Bank Boston branches, and Sovereign Bank (headquartered in
Pennsylvania) plans to acquire those offices in 2000. Other regional Northeast
banks have also acquired smaller banks in Connecticut in the last two years.
Financial Modernization. In 1999, Congress enacted the Financial Modernization
Act, which fundamentally removes barriers between banking, insurance and
securities brokerage which have existed since the Glass Stegall Act in the
1930's. It is anticipated that there will be increased consolidation in these
industries among national competitors. At the community bank level, banks have
already been combining the distribution of these products through joint ventures
and acquisitions of insurance agencies.
4
Supplementary Information
- -------------------------
The following supplementary information, some of which is required under Guide 3
(Statistical Disclosure by Bank Holding Companies) of the regulations
promulgated pursuant to the Securities Act of 1933, as amended, is found in this
report on the pages indicated below, and should be read in conjunction with the
related financial statements and notes thereto.
Selected Consolidated Financial Data 7
Average Balance Sheet, Net Interest Income
and Interest Rates 9
Loan Portfolio 13
Nonaccruing Loans 14
Provision and Allowance for Loan Losses 14
Interest Rate Sensitivity 14
Maturity of Securities Exhibit 99
Foreclosed Properties Exhibit 99
Time Deposits of $100 Thousand or More Exhibit 99
Deposits Exhibit 99
Short-term Borrowings Exhibit 99
Volume and Rate Analysis-FTE Basis Exhibit 99
Selected Quarterly Financial Data Exhibit 99
Construction and Commercial Loans Exhibit 99
Securities Cost and Fair Value Exhibit 99
5
ITEM 2. PROPERTIES
----------
The premises of Alliance are located in Connecticut as follows (see the notes
"Premises and Equipment, Net" and "Commitments and Contingencies" in Item 8 for
additional information about the Company's premises):
Year Lease
Location - Town (Street) Owned / Leased Expires
- --------------------------------------------------------------------------
o Tolland - (215 Merrow Road) Leased 2023
o Vernon - (348 Hartford Turnpike) Owned
o Vernon - (62 Hyde Avenue) Owned
o Coventry - (Routes 31 and 44) Owned
o Ellington - (287 Somers Road) Owned
o Stafford Springs - (34 West Stafford Road) Leased 1999
o Willington - (Routes 74 and 32) Leased 2005
o Hebron - (31 Main Street) Leased 2003
o South Windsor - (1665 Ellington Road) Owned
o A commercial property leased to a child care operation adjacent to the
Company's former office on Olde Tolland Common in Tolland.
o Approximately 10 acres of land adjacent to the Company's office in Coventry,
Connecticut.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is not involved in any material legal proceedings other than
ordinary routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY & RELATED SHAREHOLDER MATTERS
- ---------------------------------------------------------------------------
The Company's common stock is listed on the American Stock Exchange (AMEX) under
the symbol "ANE." A total of 804,900 shares of the Company's stock, or 34.9% of
year-end outstanding shares, were traded on AMEX in 1999. As of February 14,
2000, the Company had 499 holders of record of its common stock. This does not
reflect the number of persons or entities who hold their stock in nominee or
"street" name. The closing sale price of the stock on February 14, 2000 was
$9.00. Dividends declared and paid in 1999 and 1998 totaled $0.23 and $0.17 per
share, respectively. Dividends are subject to the restrictions of applicable
regulations. See the "Shareholders' Equity" note in Item 8 for additional
information. See also the information contained in Item 6. The following table
presents quarterly information on the range of high and low prices for the past
two years, together with dividends declared per share.
Quarter Ended High Low Dividends Declared Per Share
- ------------------------------------------------ --------------------- -------------------- -----------------------------------
March 31, 1998 14.25 10.92 .03
June 30, 1998 16.67 14.00 .03
September 30, 1998 15.75 9.75 .05
December 31, 1998 13.00 9.00 .05
March 31, 1999 12.38 9.62 .05
June 30, 1999 12.38 9.13 .06
September 30, 1999 12.75 9.50 .06
December 31, 1999 10.00 8.75 .06
6
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
December 31 1999 1998 1997 1996 1995
- ------------------------------------------------- -------------- -------------- -------------- -------------- --------------
For the Year (in thousands)
Net interest income $ 10,346 $ 9,028 $ 7,960 $ 7,663 $ 7,364
Provision for loan losses 237 179 829 978 1,975
Service charges and fees 1,492 1,226 1,148 1,115 1,005
Net gain (loss) on securities and other assets 190 1,193 813 160 (945)
Non-interest expense 7,765 7,347 6,411 6,640 6,582
Income (loss) before income taxes 4,026 3,921 2,681 1,320 (1,133)
Income tax expense (benefit) 1,104 1,363 664 (118) 12
Net income (loss) $ 2,922 $ 2,558 $ 2,017 $ 1,438 $(1,145)
- ------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Per Share
Basic earnings (loss) $ 1.27 $ 1.07 $ 0.85 $ .62 $ (.49)
Diluted earnings (loss) 1.23 1.03 0.82 .61 (.49)
Dividends declared 0.23 0.17 .12 .01 -
Book value 6.21 7.94 7.66 6.65 5.73
Common stock price:
High 12.75 16.67 12.17 6.69 5.19
Low 8.75 9.00 5.75 4.63 3.50
Close 8.88 11.75 11.00 6.00 4.75
- ------------------------------------------------- -------------- -------------- -------------- -------------- --------------
At Year End (in millions)
Total assets $ 306.9 $ 283.6 $ 247.1 $ 232.3 $ 214.1
Total loans 191.6 184.7 157.5 147.8 152.9
Other earning assets 85.0 87.4 78.4 71.2 47.8
Deposits 251.4 240.0 221.7 205.6 193.4
Borrowings 39.6 23.6 5.7 10.4 6.9
Shareholders' equity (a) 14.3 18.2 18.8 15.6 13.3
- ------------------------------------------------- -------------- -------------- -------------- -------------- --------------
Operating Ratios (in percent)
Return (loss) on average assets 0.99% 1.02% .86% .65% (.54)%
Return (loss) on average equity 17.68 14.24 12.29 9.84 (8.37)
Equity % total assets (period end) 4.67 6.42 7.61 6.71 6.20
Net interest spread (fully taxable equivalent) 3.42 3.48 3.30 3.34 3.35
Net interest margin (fully taxable equivalent) 3.88 4.02 3.80 3.78 3.71
Dividend payout ratio 18.08 15.46 13.78 2.43 -
- ------------------------------------------------- -------------- -------------- -------------- -------------- --------------
(a) Shareholders' equity includes accumulated other comprehensive income (loss),
which consists of unrealized gains (losses) on investment securities, net of
taxes.
7
ITEM 7.
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
- -------------------------------------------------------------------------------
1999 Summary
Alliance Bancorp of New England, Inc., ("Alliance" or the "Company") reported
record net income of $2.92 million for the year 1999 ($1.23 per diluted share),
up 14.2% from 1998 earnings of $2.56 million ($1.03 per diluted share). 1999
marked the fourth consecutive year of record earnings. Diluted earnings per
share increased by 19.4% in 1999 compared to 1998, including the benefit of a
stock repurchase in 1998. Dividends declared in 1999 totaled $0.23 per share, a
35.3% increase over the $0.17 per share total in 1998. Alliance is the holding
company for Tolland Bank (the "Bank").
Accomplishments in 1999 included the successful opening of four new offices
serving Tolland, Vernon, Hebron, and South Windsor. During 1999, Alliance
recorded growth of $13.8 million (8.5%) in total regular loans (excluding
purchased government guaranteed loans). This was primarily due to growth of
$15.8 million in total commercial loans, representing a 22.0% increase in the
commercial loan portfolio. Alliance has expanded its commercial lending division
and actively solicits business throughout its primary market and the central
Connecticut area.
During 1999, total assets grew by 8.2% to $306.9 million. This reflected growth
in loans and deposits, and resulted in a 14.6% increase in the Company's net
interest income. Net interest income in the second half of 1999 increased at an
annualized rate of 21.7% compared to the first half of the year, due to stronger
market conditions and the impact of new branch openings. The average balance of
deposit accounts excluding time accounts increased by 22.8% in 1999. Together
with the 22.0% increase in commercial loans noted above, these increases
contributed to a substantial improvement in the Company's earnings fundamentals.
During the year, Alliance recorded growth of $11.4 million (4.8%) in deposits.
This was due to an increase of $12.7 million in savings and money market
deposits. 1999 results also included the benefit of a $5.4 million (12.5%)
increase in average transaction account balances. Deposit growth resulted both
from promotions and account growth in new branches. By emphasizing lower cost
accounts, Alliance achieved deposit growth while decreasing deposit interest
expense by $153 thousand (1.7%).
During the last two years, several peer competitors in central Connecticut were
acquired and/or announced mergers with larger institutions. Additionally, the
market was impacted by the merger of New England's two largest banks, and the
subsequent planned divestiture of branches by Fleet Boston. Additionally, after
the end of 1999, a very public battle over ATM surcharges resulted in the
first-time imposition of ATM surcharges by large banks in Connecticut, which was
one of only two states with remaining surcharge bans. The effects of
consolidation and fee increases continue to provide opportunities for Alliance
to pursue market share growth and expansion of its branch market.
Alliance recorded an increase of $266 thousand (21.7%) in service charges and
fees in 1999 compared to 1998. This was primarily due to an increase in
commercial loan prepayment fees. Net gains on securities and other assets
totaled $190 thousand in 1999 compared to $1.19 million in 1998. Gains recorded
in 1998 resulted from securities gains, realizing the benefits of strongly
improving market valuations and active portfolio management. Total non-interest
expense increased by $418 thousand (5.7%) in 1999, compared to 1998. Increases
were recorded in most categories, due to the addition of new offices and other
growth in the Company. The efficiency ratio (non-interest expense as a
percentage of tax equivalent interest and fee income) decreased to 62.7% in
1999, compared to 67.5% in 1998. This reflected the lower growth rate of
expenses compared to revenues, in keeping with the Company's strategy to enhance
profitability through growth. Income tax expense decreased by $259 thousand
(19.0%) in 1999 compared to 1998. This reflected the benefit of the formation of
a passive investment corporation in 1999.
Total assets grew by $23.4 million (8.2%) in 1999. In addition to growth in
regular loans, Alliance also recorded growth of $7.0 million in total investment
securities, $2.4 million in cash and equivalents, and $5.9 million in other
assets (including $2.5 million in bank owned life insurance and growth of $3.0
million in net deferred tax assets). Purchased government guaranteed loans
decreased by $6.9 million due to runoff. Total borrowings increased by $16.0
million, including medium term borrowings from the Federal Home Loan Bank of
Boston and a $3.5 million trust preferred debenture. Shareholders' equity
totaled $14.3 million at year-end 1999, compared to $18.2 million at year-end
1998. This decrease was due to net unrealized losses on securities as a result
of declines in the market value of investment securities available for sale.
Excluding these changes, return on equity measured 15.5% for the most recent
quarter and 15.9% for the year 1999. The Company's capital remains in excess of
all regulatory requirements. The $3.5 million trust preferred debenture provided
additional Tier 1 equity capital at an after tax rate of 6.2% which compared
favorably with other sources of regulatory capital and without diluting common
equity.
8
Results Of Operations - 1999 Versus 1998
Net Interest Income - Fully Taxable Equivalent (FTE) Basis
(dollars in thousands) Average Balance Rate (FTE Basis)
- --------------------------------------------- --------- ------------------------- -------- -- ----------------------- --------
Years ended December 31 1999 1998 1997 1999 1998 1997
- --------------------------------------------- --------------- -------------- -------------- ----------- ---------- -----------
Loans $ 185,851 $ 166,908 $ 148,601 7.88% 8.33% 8.17%
Securities available for sale 66,768 43,131 48,159 7.90 7.74 7.39
Securities held to maturity 17,020 18,336 20,634 6.40 5.87 5.85
Short term investments 11,103 11,944 5,618 5.02 5.79 5.70
- --------------------------------------------- --------------- -------------- -------------- ----------- ---------- -----------
Total earning assets 280,742 240,319 223,012 7.67 7.91 7.72
Other assets 14,373 10,751 10,965
- --------------------------------------------- --------------- -------------- -------------- ----------- ---------- -----------
Total assets $ 295,115 $ 251,070 $ 233,977
- --------------------------------------------- --------------- -------------- -------------- ----------- ---------- -----------
Interest bearing deposits $ 218,370 $ 204,869 $ 193,371 4.04 4.39 4.39
Borrowings 32,462 6,190 4,244 5.66 5.80 6.22
- --------------------------------------------- --------------- -------------- -------------- ----------- ---------- -----------
Interest bearing liabilities 250,832 211,059 197,615 4.25 4.43 4.43
Other liabilities 27,756 23,068 19,947
Shareholder's equity 16,527 16,943 16,415
- --------------------------------------------- --------------- -------------- -------------- ----------- ---------- -----------
Total liabilities and equity $ 295,115 $ 251,070 $ 233,977
- --------------------------------------------- --------------- -------------- -------------- ----------- ---------- -----------
Net Interest Spread 3.42% 3.48% 3.30%
Net Interest Margin 3.88% 4.02% 3.80%
Note: The average balance of loans included nonaccruing loans and deferred costs. Also, the balance and yield on all debt securities
is based on amortized original cost and not on fair value.
Net Interest Income FTE (in thousands) 1999 1998 1997
- ------------------------------------------------------ ----------------------- ----------------------- ----------------------
Loan interest $ 14,637 $ 13,896 $ 12,138
Securities available for sale (FTE) 5,276 3,340 3,561
Securities held to maturity 1,090 1,076 1,207
Other earning assets interest (FTE) 557 691 320
- ------------------------------------------------------ ----------------------- ----------------------- ----------------------
Total interest income (FTE) 21,560 19,003 17,226
Total interest expense 10,668 9,343 8,751
- ------------------------------------------------------ ----------------------- ----------------------- ----------------------
Net interest income (FTE) 10,892 9,660 8,475
Less tax equivalent adjustment (546) (632) (515)
- ------------------------------------------------------ ----------------------- ----------------------- ----------------------
Net interest income (Financial Statement) $ 10,346 $ 9,028 $ 7,960
- ------------------------------------------------------ ----------------------- ----------------------- ----------------------
Net interest income on an FTE basis increased in 1999 by $1.23 million (12.8%)
due to a $40.4 million (16.8%) increase in average earning assets, which was
partially offset by a decrease in the net interest margin to 3.88% in 1999 from
4.02% in 1998.
The one year interest rate gap stood at $11 million at year-end 1999. During the
second half of 1999, the Federal Reserve Bank increased the fed funds rate by
0.75%, reversing a similar decrease in the second half of the prior year. The
prime rate changed by an equal amount. Long term interest rates increased even
more during the year, with the yield on the 10 year treasury bond increasing
from 4.65% at the end of 1998 to 6.39% at the end of 1999. Due to the positive
interest rate gap, and the balance sheet growth, net interest income increased
at a 21.7% annualized rate in the second half of 1999, compared to the first
half of the year.
Earning asset growth was due to both loan growth and to purchases of debt
securities. Average balances increased in all categories of regular loans
(excluding purchased government guaranteed loans). Loan origination is a
strategic focus of the Company, particularly in the commercial loan market. 1999
lending results also benefited from the generally favorable conditions in the
Connecticut economy. Average regular loans increased by $22.4 million (15.6%) in
1999, and included the benefit of strong growth recorded in the second half of
1998. Securities purchases were concentrated in early spring of 1999, and
reflected higher yields in the corporate bond sector, which compared favorably
to loan yields and to borrowing costs.
The decrease in the net interest margin was due to the reliance on interest
bearing liabilities to fund nearly all of the growth in earning assets. Average
non-interest bearing funds sources increased by $4.3 million in 1999, and were
used primarily to fund the $3.6 million increase in non-interest earning assets.
These assets included new branch premises, bank owned life insurance, due from
banks, and the deferred tax asset.
9
Due to the reliance on interest bearing liabilities, managing the net interest
spread was important in order to minimize the decline in the net interest
margin. During 1999, loan and deposit spreads narrowed, reflecting more
competitive market pricing for both loans and deposits. As a result, the net
interest spread decreased to 3.42% in 1999 from 3.48% in 1998. However, the
spread in the fourth quarter of 1999 measured 3.63%, compared to 3.62% in the
fourth quarter of 1998. During 1999, the Company increased commercial loans and
long term debt securities in order to offset the impact of more competitive
pricing. These two asset classes generally provided higher yields. In 1999, the
commercial loan yield measured 8.75% and the yield on securities available for
sale measured 7.90%. The yield on total earning assets measured 7.67% in 1999,
decreasing from 7.91% in 1998; this included the impact of run-off and
refinancings in the second half of 1998 and first half of 1999.
Managing the cost of interest bearing liabilities was also an important aspect
of the Company's efforts to offset more competitive market pricing conditions.
As noted earlier, the total interest cost of deposits decreased in 1999, despite
a $16.3 million (7.2%) increase in average total deposits. In part, this was
accomplished due to a $5.4 million (12.5%) average increase in lower cost
transaction accounts, offsetting a $6.4 million (5.1%) average decrease in
higher cost time accounts. Contributing to transaction account growth were new
account openings in new branches opened by the Company in 1999. Additionally,
transaction account promotions and ATM fee changes further contributed to
transaction account growth. Lower time account costs also contributed to the
decrease in overall deposit costs. The average cost of time accounts decreased
to 5.66% in 1999 from 5.79% in 1998. This primarily reflected the impact of
maturing deposits which had been booked at higher promotional rates in earlier
years, and which renewed at shorter maturities and lower rates in 1999.
The $40.4 million increase in average earning assets was primarily funded by the
$26.3 million increase in average borrowings. The rate on average borrowings
decreased to 5.66% in 1999 from 5.80% in 1998. Alliance utilized medium term
callable borrowings from the Federal Home Loan Bank of Boston in the second half
of 1998 and the first half of 1999. The average rate on borrowings in 1999 was
equal to the average rate on time accounts, but borrowings provided the
additional benefit of a longer term funding source, and the marginal cost of
callable borrowings was significantly lower than time account costs for
equivalent maturities at the time the borrowings were booked. Borrowing costs in
1999 also included interest expense at 9.40% on $3.5 million in trust preferred
securities issued on June 30, 1999 to supplement regulatory capital.
Provision for Loan Losses
The provision for loan losses is made to establish the allowance for loan losses
at a level estimated to be adequate by management and the Board. The provision
for loan losses in 1999 totaled $237 thousand, compared to $179 thousand in
1998. The loan loss allowance increased to $3.20 million at year-end 1999,
compared to $3.06 million at year-end 1998. Please see the later discussion on
the Allowance for Loan Losses and the Summary of Significant Policies in the
Notes to the Consolidated Financial Statements.
Non-Interest Income
Years ended December 31 (in thousands) 1999 1998 Change %
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Loan related income $ 669 $ 500 $ 169 33.7%
Deposit related income 606 541 65 12.0
Miscellaneous charges and other income 217 185 32 17.3
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Total service charges and fees 1,492 1,226 266 21.7
Gross gains on securities 215 1,264 (1,049) (83.0)
Gross losses on securities (140) (60) (80) (133.3)
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Net gains on securities 75 1,204 (1,129) (93.8)
Gross gains on assets 139 34 105 301.6
Gross losses on assets (24) (45) 21 (45.8)
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Net gains (losses) on assets 115 (11) 126 -
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Total non-interest income $ 1,682 $ 2,419 $ 737 (30.5%)
- ------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Alliance recorded an increase of $266 thousand (21.7%) in service charges and
fees in 1999 compared to 1998. This was primarily due to an increase in
commercial loan prepayment fees. Two large commercial loan relationships chose
to pay prepayment fees in order to take advantage of lower fixed interest rates
at the beginning of the year. These fees totaled $250 thousand. Excluding these
fees, total fee income increased by $16 thousand (1.3%), including a $97
thousand (13.3%) increase in deposit and miscellaneous fees and an $81 thousand
(16.2%) decrease in other loan fees.
10
The increase in deposit fees was primarily due to a $73 thousand increase in
insufficient funds fees. The increase in miscellaneous fees included a $35
thousand increase in the cash surrender value of a bank owned life insurance
policy related to a supplemental employee retirement plan. All other deposit and
other non-loan fees decreased by a total of $11 thousand in 1999. In the
competitive local market, Alliance has generally maintained an unchanged price
schedule, and has lowered certain transaction fees (including ATM fees) on
designated accounts. Alliance has focused on increasing market share in existing
markets, and promoting account growth in new offices, by continuing to
distinguish itself from the larger banks which charge higher fees.
The decrease in other loan fees included lower late fees, secondary market fees,
and miscellaneous loan fees. Total loan accounts originated decreased by about
21.3% in 1999. Loan bookings in 1998 benefited from a surge of refinancings as
rates declined throughout the year. The volume of refinancings declined in 1999
as interest rates moved higher through much of the year. Additionally, loan
pricing margins tightened in 1999 and Alliance had fewer loan promotions than in
the prior year.
Net gains on securities and other assets totaled $190 thousand in 1999 compared
to $1.19 million in 1998. Gains recorded in 1998 resulted from securities gains,
realizing the benefits of strongly improving market valuations and active
portfolio management. Gains on assets related primarily to the sale of bank
premises due to branch relocations in 1999.
Non-Interest Expense
Years ended December 31 (in thousands) 1999 1998 Change %
- ------------------------------------------------------ ----------------- ---------------- ----------------- ------------------
Compensation and benefits $ 4,008 $ 3,632 $ 376 10.4%
Occupancy 658 618 40 6.5
Data processing and equipment 970 829 141 8.9
Office and insurance 543 524 19 3.7
Purchased services 923 980 (57) (5.8)
Other 663 764 (101) 13.2
- ------------------------------------------------------ ----------------- ---------------- ----------------- ------------------
Total non-interest expense $ 7,765 $ 7,347 $ 418 5.7%
- ------------------------------------------------------ ----------------- ---------------- ----------------- ------------------
Non-interest expense increased primarily in the staff, occupancy, and data
processing categories due to the addition of new offices and other growth in the
Company. Higher staff expenses resulted from $310 thousand in higher salaries
due to staff growth and compensation increases, and a $122 thousand reduction in
salary deferrals due to lower loan originations. Full time equivalent employees
totaled 98.5 at the end of 1999, a 7.1% increase compared to the 92 employee
total at the prior year-end. Salary increases were partially offset by a $49
thousand reduction in retirement plan expense, due to plan restructurings in
1998. Occupancy expense growth was due to the addition of new branches. Data
processing costs increased due to higher account and transactions volumes, as
well as a $54 thousand increase in computer equipment depreciation due to the
replacement of obsolete computers in 1998 and 1999. The $57 thousand decrease in
purchased services included lower legal and consulting fees. Changes in other
expenses included: a $90 thousand reduction in problem asset expense recoveries;
a $62 thousand reduction in charges related to the formation of the passive
investment corporation and branch relocations; and a $53 thousand increase in
premiums and promotions.
Income Tax Expense
Income tax expense decreased by $259 thousand (19.0%) in 1999 compared to 1998.
This reflected the benefit of the formation of a passive investment corporation
in 1999. New Connecticut tax statutes in 1998 permitted the formation of passive
investment corporations beginning in 1999 for the purpose of servicing real
estate related loans. As a result, the Company created Tolland Investment
Corporation in 1999 as a subsidiary of Tolland Bank. The impact of state income
taxes on income tax expense decreased by $252 thousand in 1999 compared to 1998.
Additionally, 1998 income tax expense included a $106 thousand charge related to
an increase in the deferred tax valuation allowance. The effective tax rate
declined to 27.4% in 1999 from 34.8% in the prior year. The effective tax rate
in 1999 was nearly all attributable to federal income taxes, including the
benefit of the dividends received deduction on all of the Company's marketable
equity securities.
Comprehensive Income
In addition to net income recorded in the Income Statement, comprehensive income
includes unrealized gains (losses) on securities available for sale, net of
income tax expense. In 1999, Alliance recorded a comprehensive loss of $3.44
million, compared to comprehensive income of $2.67 million in 1998. 1999 results
included unrealized securities holding losses of $6.32 million, net of $3.21
million of income tax benefit. Further information about securities holding
losses is contained in the "Securities" section later in this discussion.
11
Financial Condition - Fiscal Year-End 1999 Versus 1998
Cash and Cash Equivalents
At year-end 1999, Alliance had an unusually high balance of cash and due from
banks, totaling $18.6 million, due to its Year 2000 liquidity contingency plan.
These excess balances were not needed for Year 2000 contingency purposes, and
were reduced shortly after year-end. The balance of cash and due from banks
averaged $7.15 million in 1999, compared to $5.83 million in the prior year. The
remainder of cash and cash equivalents during the year was held in short term
investments. These investments are normally in overnight federal funds brokered
through a program offered by the Bankers Bank Northeast, along with balances
held in Federated Investors money market mutual funds. Short term investments
averaged $11.1 million in 1999. These balances included funds raised in new
branches which are expected to be reinvested in future loan and investment
growth.
Securities
Alliance invests in securities primarily to produce income, in conjunction with
the loan portfolio. The primary market in which Alliance operates produces
higher levels of deposits than of loans, and these excess deposits are most
frequently invested in commercial loans originated by Alliance in central
Connecticut and in investment securities. Securities purchases are made as an
alternative to loan originations, depending on loan demand, market interest
rates, and borrowing options. Investment securities also play a role in other
aspects of asset liability management, including liquidity, interest rate
sensitivity, and capital adequacy.
During 1999, the total portfolio of investment securities increased to $81.0
million, an increase of $7.0 million (9.5%) from the prior year-end. The
portfolio primarily consists of publicly traded corporate securities, which
totaled $60.7 million, or 75% of the total portfolio as of December 31, 1999.
The remaining securities included $18.0 million of government agency and
mortgage backed securities, and $2.0 million of non-marketable common stock
(invested in the Federal Home Loan Bank of Boston and the Bankers Bank
Northeast, recorded at cost).
The corporate security portfolio includes debt securities (including trust
preferred securities) totaling $47.1 million, and equity securities totaling
$13.6 million. The equity securities were all purchased with a focus on dividend
yield, and are also eligible for the dividends received deduction, which
provides an advantaged tax equivalent yield. The corporate debt securities are
primarily invested in the following industries: banks, insurance companies, real
estate investment trusts, and securities brokers. The equity securities
portfolio includes electric utility common stocks and preferred stocks issued by
banks and securities brokers. The Company's policy is to generally invest in
corporate securities in the four highest rating/ranking categories of major
rating agencies, and at year-end 1999 the average corporate security rating was
BBB+. The Company's policy limits exposure to any one industry to 6% of assets,
and to any corporate issuer to $1.5 million (excluding government agencies).
Investments in government agency and mortagage backed securities are all rated
AAA or AA. The Company works with an investment advisor in managing the
investment portfolio. During 1999, Alliance established an Investment Committee
of the Board, which meets quarterly to review the portfolio and investment
strategies.
Securities purchased are normally classified as Available for Sale (AFS). On
occasion, AFS securities are transferred to Held to Maturity (HTM) based on
Management's judgment that it has the intent and ability to hold the securities
to maturity. Securities purchases in 1999 totaled $39.1 million, securities
calls and sales totaled $8.4 million, and amortizations and maturities totaled
$14.2 million. Securities purchases were mostly corporate debt securities that
were purchased earlier in the year based on attractive yield and spread
characteristics. Subsequently, interest rates increased and the value of AFS
securities decreased. Management made the determination that some of the debt
securities with unrealized losses would not be sold, and in the third quarter of
1999, Alliance transferred approximately $21.0 million of securities from AFS to
HTM. The unrealized loss at date of transfer included in other comprehensive
income was $2.3 million. This determination included consideration of the
attractive yield and quality of these securities, the unrealized loss, and the
anticipation that future unrealized losses might be higher due to potential
increases in market interest rates. At year-end 1999, the balance of HTM
securities also included $6.8 million in securities that had been transferred
from AFS to HTM in 1994.
During 1999, the average yield on the total investment portfolio increased to
7.60% from 7.28% in 1998. The weighted average maturity of the portfolio was
23.4 years at year-end 1999, compared to 16.3 years at the prior year-end.
Callable securities totaled $35.4 million at year-end 1999 compared to $24.9
million at year-end 1998. Callable securities are primarily trust preferred
issues with ten year calls.
12
At year-end 1999, comprehensive income included $7.4 million in net unrealized
losses (pre-tax) on investment securities, compared to $1.4 million in net
unrealized gains at the prior year-end. This $8.7 million holding loss measured
about 10.4% of the average portfolio balance in 1999. This loss was principally
due to the rise in long term interest rates during 1999, and the resulting
decrease in prices of fixed rate investments. Spreads on corporate debt
securities were also affected by increased debt issuance prior to the Year 2000
date. Additionally, unrealized equity losses included declines in utility common
stock prices related to unfavorable market sentiment for certain value related
sectors. Management has evaluated the portfolio and has determined that there
were no situations involving other-than-temporary impairment of the carrying
value of the securities at December 31, 1999.
Management believes that the unrealized losses substantially relate to changes
in capital markets rather than changes in the ongoing earnings and financial
condition fundamentals of the securities issuers. Additional unrealized gains or
losses may result if there are further capital markets changes. Management
anticipates that the securities portfolio will continue to contribute
satisfactorily to the Company's earnings and risk management objectives. The
securities portfolio is closely monitored. The Company also monitors the effect
of unrealized equities losses in regulatory capital (see later Capital Resources
section).
Lending Activities
December 31 (dollars in millions) 1999 1998 1997 1996 1995
- -------------------------------------- ------------- ------------------ ------------------ ----------------- -----------------
Residential mortgages $ 54.2 28.3% $ 57.6 31.2% $ 39.3 25.0% $ 41.7 28.2% $ 44.0 28.8%
Commercial mortgages 52.7 27.5 46.7 25.3 45.5 28.9 40.5 27.4 40.7 26.6
Other commercial loans 35.0 18.2 25.1 13.6 18.3 11.6 15.3 10.4 18.8 12.3
Consumer loans 33.8 17.7 32.5 17.6 29.5 18.7 26.1 17.7 22.4 14.7
- --------------------------------- -------- --------- -------- -------- --------- --------- -------- -------- -------- --------
Total regular loans 175.7 91.7 161.9 87.7 132.6 84.2 123.6 83.7 125.9 82.4
Government guaranteed loans 15.9 8.3 22.8 12.3 24.9 15.8 24.2 16.3 27.0 17.6
- --------------------------------- -------- --------- -------- -------- --------- --------- -------- -------- -------- --------
Total loans $ 191.6 100.0 $ 184.7 100.0 $ 157.5 100.0 $ 147.8 100.0 $ 152.9 100.0
- --------------------------------- -------- --------- -------- -------- --------- --------- -------- -------- -------- --------
Alliance places primary emphasis on the origination of good quality loans as the
basis of its strategy for growth and profitability. The chief focus is on
originating commercial loans, which have higher balances and higher yields, and
which provide the opportunity for cross sales of deposits and other banking
products. Alliance originates commercial loans within its primary market and as
well as throughout Connecticut (excluding Fairfield County) and in south-central
Massachusetts. Alliance also actively promotes consumer loans, chiefly home
equity loans and lines of credit, to households in and around its primary
market. Alliance additionally originates residential mortgages, but these are
primarily sold on a servicing released basis at origination to secondary market
investors. The residential mortgage market is highly competitive and cyclical,
with the narrowest loan spreads. In addition to the above types of loans, which
are referred to as "regular loans," Alliance also owns 100% government
guaranteed (SBA and USDA) loans which were purchased in earlier years as an
alternative to investment securities, at a time when yields on these loans were
more favorable.
During 1999, Alliance recorded growth of $13.8 million (8.5%) in total regular
loans (excluding purchased government guaranteed loans). This was primarily due
to growth of $15.8 million in total commercial loans, representing a 22.0%
increase in the commercial loan portfolio. The Bank has expanded its commercial
lending division and actively solicits business throughout its primary market
and the central Connecticut area. Alliance also recorded a 4.1% increase in its
consumer loan portfolio, and a 2.3% increase in its residential mortgage
portfolio (excluding residential mortgages held for sale, which declined by $4.6
million from an unusually high $5.4 million at year-end 1998). Loan growth in
1998 had been primarily in residential mortgages, fueled by high refinancing
demand due to comparatively low interest rates. Commercial loan growth in 1999
benefited from strong real estate market conditions. Most of the Company's loans
are real estate secured. These loans totaled $155.7 million (81.1% of the total
loan portfolio) at year-end 1999, compared to $133.9 million (72.5% of the total
loan portfolio) at the prior year-end.
Alliance continues to be selective in pursuing commercial loan originations. The
Company utilizes a return on equity model in pricing new commercial loans.
Additionally, in 1999, the Company amended its commercial loan policy to lower
the maximum loan-to-value ratio and to increase the minimum debt service
coverage ratio. These changes were made as an ongoing component of the Company's
risk management process. While current market conditions are strong, Management
continues to evaluate risk carefully as the current economic expansion is
reaching a record duration, with the potential that conditions may soften due to
regular cyclical economic factors. In its residential and consumer lending
areas, nearly all of the Company's loan originations are at a loan-to-value of
80% or less, and the Company has no significant lending based on "sub-prime"
underwriting guidelines.
13
During 1999, Alliance originated $42.9 million in commercial mortgages and
commercial loans, an increase of $4.7 million (12.3%) over the $38.3 million
originated in 1998. Commercial mortgage growth included both construction and
permanent loans, and a mix of variable rate loans and loans with fixed rates in
the five to ten year range. Residential mortgage originations declined from
$50.9 million in 1998 to $27.0 million in 1999. Residential mortgage
originations in 1999 included $16.0 million in loans sold to the secondary
market, $6.6 million in loans held for portfolio, and $4.4 million of
"Free-Refi" mortgages originated through a streamlined documentation process to
be held in portfolio. Consumer loan originations also declined in 1999, totaling
approximately $10.1 million, compared to $13.2 million in the prior year.
Purchased government guaranteed loans declined by $6.9 million to $15.9 million
in 1999, due to run-off as a result of declining interest rates over the past
few years. The overall yield on loans decreased to 7.88% in 1999 from 8.33% in
the prior year. The impact of the 0.75% prime rate decrease in the second half
of 1998 carried over into the first half of 1999 for one year adjustable rate
mortgages, and the impact of lower rates on refinancings also reduced yields
through the first half of the year. The yield on loans increased to 8.09% in the
fourth quarter of 1999, reflecting the increase in interest rates in the second
half of the year. At year-end 1999, outstanding commitments to originate new
loans totaled $12.6 million, compared to $21.2 million at the prior year-end.
Nonperforming Assets
December 31 (dollars in millions) 1999 1998 1997 1996 1995
- --------------------------------------- ---------------- ---------------- ---------------- --------------- ----------------
Nonaccruing loans $ 1.2 $ 0.6 $ 2.1 $ 3.4 $ 4.4
Foreclosed assets 0.1 0.1 0.6 1.0 2.0
- --------------------------------------- ---------------- ---------------- ---------------- --------------- ----------------
Total nonperforming assets $ 1.3 $ 0.7 $ 2.7 $ 4.4 $ 6.4
- --------------------------------------- ---------------- ---------------- ---------------- --------------- ----------------
Nonperforming assets as a 0.4% 0.2% 1.1% 1.9% 3.0%
percentage of total assets
Total nonperforming assets remained at comparatively low levels throughout 1999.
Nonperforming assets measured 0.4% of assets at year-end 1999, compared to an
unusually low 0.2% of assets at the prior year-end. Nonperforming assets at
year-end 1999 primarily consisted of $1.1 million of nonaccruing residential
mortgages, due to an increase in mortgage delinquencies in the fourth quarter.
Accruing loans delinquent more than 30 days totaled $1.9 million at year-end
1999, down from $2.7 million at the prior year-end. At year-end 1999, accruing
loans included $1.8 million of classified loans with a potential to become
nonperforming based on identified credit weaknesses. This total increased from
$1.2 million at year-end 1998.
Allowance for Loan Losses
December 31 (in thousands) 1999 1998 1997 1996 1995
- -------------------------------------------------- -------------- -------------- -------------- ------------- --------------
Beginning balance $ 3,060 $ 3,000 $ 2,850 $ 2,340 $ 2,090
Charge-offs:
Residential mortgages (28) (150) (108) (74) (102)
Consumer (114) (200) (366) (273) (252)
Commercial (4) (51) (294) (220) (1,438)
- -------------------------------------------------- -------------- -------------- -------------- ------------- --------------
Total Charge-offs (146) (401) (768) (567) (1,792)
- -------------------------------------------------- -------------- -------------- -------------- ------------- --------------
Recoveries:
Residential mortgages 0 1 11 12 8
Consumer 31 101 45 61 53
Commercial 18 180 33 26 6
- -------------------------------------------------- -------------- -------------- -------------- ------------- --------------
Total Recoveries 49 282 89 99 67
- -------------------------------------------------- -------------- -------------- -------------- ------------- --------------
Net Charge-offs (97) (119) (679) (468) (1,725)
Provision for losses 237 179 829 978 1,975
- -------------------------------------------------- -------------- -------------- -------------- ------------- --------------
Ending balance $ 3,200 $ 3,060 $ 3,000 $ 2,850 $ 2,340
- -------------------------------------------------- -------------- -------------- -------------- ------------- --------------
The total allowance for loan losses increased to $3.20 million at year-end 1999,
compared to $3.06 million a year earlier. For the past two years, loan
chargeoffs and nonperforming loans have been at comparatively low levels. While
the allowance has increased each year, the ratio of the allowance to regular
loans has declined in each of the last three years in recognition of the
improving composition of the portfolio.
The methodology for the determination of the allowance for loan losses is
described in Item 1 Part I of this report. The allowance is primarily determined
based on an analysis of loans pools. In allocating the allowance for loan
losses, amounts allocated to the individual categories of loans include (1)
allowances for specific impaired loans, (2) an allocation of remaining allowance
amounts based on the experience of management and the Company, (3) the overall
risk characteristics of the individual loan category and (4) the current
economic conditions that could affect the individual loan categories.
14
December 31 (dollars in thousands) 1999 1998 1997 1996 1995
- ---------------------------------------- ------------- ----------------- ---------------- ----------------- ----------------
Allowance for loan losses
by type of loan:
Residential mortgage $ 442 13.8% $ 334 10.9% $ 202 6.7% $ 304 10.7% $ 173 7.4%
Consumer 449 14.0 426 13.9 399 13.3 416 14.6 276 11.8
Commercial 1,842 57.6 1,340 43.9 1,749 58.3 1,860 65.3 1,743 74.5
Unallocated 467 14.6 960 31.3 650 21.7 270 9.4 148 6.3
- ------------------------------------- ------- -------- -------- -------- -------- ------- -------- -------- -------- -------
Total $ 3,200 100.0 $ 3,060 100.0 $ 3,000 100.0 $ 2,850 100.0 $ 2,340 100.0
- ------------------------------------- ------- -------- -------- -------- -------- ------- -------- -------- -------- -------
The allowance absorbs net loan chargeoffs, which totaled $97 thousand in 1999.
The allowance is increased by the provision for loan losses, which totaled $237
thousand in 1999. Major changes in the components of the allowance included
increases in the residential mortgage and commercial allowances, and a decrease
in the unallocated portion of the allowance. The residential mortgage allowance
increased due to the higher level of nonaccruing loans at year-end. The
commercial allowance increased due to commercial loan growth and to an increase
in the valuation allowance on impaired loans. The unallocated portion of the
allowance remained within a reasonable range based on peer group data. No
reserves are assigned to purchased government guaranteed loans, which are 100%
backed by guarantees from the SBA (Small Business Administration) or the USDA
(United States Department of Agriculture).
Net loan chargeoffs were a comparatively low .05% of average loans in 1999. The
allowance provided adequate coverage of chargeoffs based on historic experience.
The ratio of the allowance to total nonperforming loans was 263% at year-end
1999 and the allowance was deemed to have acceptable coverage of the risks
inherent in the nonperforming loan portfolio, which was comprised primarily of
residential mortgages adequately secured by first liens.
Net charge-offs as a percentage of
average loans by type: 1999 1998 1997 1996 1995
------------------------------------------------- -------------- -------------- -------------- -------------- -------------
Residential mortgage 0.05% 0.32% 0.24% 0.15% 0.21%
Consumer 0.25 0.32 1.21 0.84 0.88
Commercial (0.02) (0.20) 0.46 0.34 1.77
Total 0.05 0.07 0.46 0.31 1.16
Allowance as a percentage of
outstanding loans by type:
Residential mortgage 0.82% 0.58% 0.51% 0.75% 0.39%
Consumer 1.33 1.31 1.35 1.59 1.23
Commercial 2.10 1.86 2.74 3.33 2.93
Unallocated - - - - -
Subtotal Regular Loans 1.82 1.89 2.26 2.33 1.86
Government guaranteed loans - - - - -
Total 1.67 1.66 1.91 1.95 1.53
Deposits and Borrowings
December 31 (dollars in millions) 1999 1998 % change
- ------------------------------------------------------ ----------------------- ----------------------- ---------------------
Demand deposits $ 25.7 $ 25.3 1.5%
NOW deposits 26.1 25.2 3.8
Money market deposits 35.3 29.6 19.4
Savings deposits 44.2 37.2 18.7
Time deposits < $100 thousand 102.1 106.5 (4.2)
Time deposits > $100 thousand 18.0 16.2 11.0
__
- ------------------------------------------------------ ----------------------- ----------------------- ---------------------
Total deposits $ 251.4 $ 240.0 4.8
- ------------------------------------------------------ ----------------------- ----------------------- ---------------------
Personal $ 211.4 $ 202.1 4.6
Commercial 36.4 32.5 12.1
Municipal 3.6 5.4 (32.6)
- ------------------------------------------------------ ----------------------- ----------------------- ---------------------
Total deposits $ 251.4 $ 240.0 4.8%
- ------------------------------------------------------ ----------------------- ----------------------- ---------------------
15
Total deposits increased by $11.4 million (4.8%) during 1999. The growth of
total deposits was attributable to new branches, which recorded deposit
increases of about $13.3 million during the year in the towns of Hebron and
South Windsor. The other significant accomplishment was the shift towards lower
cost non-time accounts. The average balance of these accounts increased by $22.8
million (22.8%) in 1999 compared to 1998. In addition to being lower cost, these
accounts are more central to customer relationships and allow more opportunities
for the Bank to distinguish itself through customer service and to offer cross
sales of other products.
The average balance of transactions accounts increased by 12.5%, the average
balance of savings accounts increased by 17.0%, and the average balance of money
market deposits increased by 52.2% in 1999 compared to 1998. In addition to
deposit promotions in new offices, Alliance also offered travel package
incentives and ATM fee reductions during 1999 in transaction account promotions.
Alliance also widened its advertising to include radio promotions during the
year. Alliance has continued to enjoy strong growth in its money market account,
which offers competitive tiered interest rates.
In addition to its on-balance sheet offerings, Alliance also offers a commercial
sweep product which automatically sweeps excess deposit balances into money
market mutual funds. This allows the Company to provide higher rate overnight
investments as part of its overall business transaction account product mix. At
December 31, 1999, sweep balances totaled $18.4 million, a $4.6 million (34%)
increase over a year earlier.
During 1999, Alliance added $12.5 million in medium term borrowings from the
Federal Home Loan Bank of Boston (FHLBB). At year-end 1999, these borrowings
totaled $32.5 million, with an average interest cost of 5.26%. These borrowings
are generally callable by the FHLBB over a 2 - 9 year period. Alliance used
these borrowings as a lower cost alternative to time deposit accounts to provide
funding for growth in the loan and deposit portfolios. In June, 1999 Alliance
issued a $3.5 million trust preferred security at a rate of 9.40%. This
obligation has a thirty year maturity and is callable after ten years. This
security is included in Tier 1 Capital for Alliance, and the proceeds were
downstreamed to provide equity capital to the Bank.
Interest Rate Sensitivity
Alliance manages its assets and liabilities to maximize net interest income,
while also giving consideration to interest rate risk, liquidity, capital
adequacy, customer demand, and other market factors. Interest rate risk is the
sensitivity of net interest income to fluctuations in interest rates over both
the short-term and long-term horizons. Alliance has an Asset Liability Committee
(ALCO) which meets weekly. ALCO establishes policy, sets interest rates and
product prices, monitors the balance sheet, and establishes goals and
strategies. On a monthly basis, the Board of Directors reviews key Asset
Liability ratios and ALCO minutes, and on a quarterly basis the Board reviews
interest rate sensitivity reports, related assumptions, and ALCO strategies.
The following table presents a breakdown of the Company's interest rate
sensitive assets and liabilities on December 31, 1999 by specific timeframes and
cumulatively, based on the assumptions used in the dynamic model. This table is
used to assess the overall repricing sensitivity of the portfolio, which is
primarily measured by the interest rate gap for each timeframe. The Company's
policy limits the one year interest rate gap as a percentage of earning assets,
establishing an acceptable range for this ratio of (15%) - 10%. Maintaining a
one year gap within this range is generally consistent with the 10% earnings at
risk limit discussed above. As the table shows, the one year gap measured $11
million, or 4% of earning assets, at December 31, 1999. Per the Company's Year
2000 liquidity plan, the Company had accumulated excess liquidity in
non-interest sensitive asset accounts at December 31, 1999. Without this
reallocation of liquid funds, the one year gap would have measured $18 million
or 6% of earning assets, at December 31, 1999.
16
Total
Interest Rate Sensitivity - Repricing Horizon Within 1-5 Over 5
(dollars in millions) One Year Years Years
- ------------------------------------------------------- ----------------------- ----------------------- ----------------------
December 31, 1999
Earning Assets:
Loans $ 92 $ 59 $ 41
Securities available for sale 10 4 39
Securities held to maturity 4 5 19
Other assets 4 - -
- ------------------------------------------------------- ----------------------- ----------------------- ----------------------
Total earning assets $ 110 $ 68 $ 99
- ------------------------------------------------------- ----------------------- ----------------------- ----------------------
Interest Rate Swap 10 (10) -
Funds Supporting Earning Assets:
NOW deposits $ - $ 5 $ 21
Savings & Money Market 35 9 35
Time deposits < $100,000 59 43 -
Time deposits > $100,000 11 7 -
-
Borrowings 4 28 8
Non-interest bearing funds - - 12
- ------------------------------------------------------- ----------------------- ----------------------- ----------------------
Total funds supporting earning assets $ 109 $ 92 $ 76
- ------------------------------------------------------- ----------------------- ----------------------- ----------------------
December 31, 1999
- ------------------------------------------------------- ----------------------- ----------------------- ----------------------
Gap for period $ 11 $ (34) $ 23
Cumulative gap 11 (23) -
Cumulative gap as percent of total earning assets 4% (8%) -
- ------------------------------------------------------- ----------------------- ----------------------- ----------------------
Maintaining a relatively predictable twelve month forward stream of earnings is
the main priority of the planning process. Within this framework, the gap will
be adjusted to maximize income based on expected increases or decreases in
interest rates. In recent years, interest rates have decreased to the lowest
levels in several decades. The Company has primarily focused on the risk of
short term upward spikes in interest rates, although the long term prospect
continues to generally favor comparatively low rates. Accordingly, the Company
generally prefers a positive one year interest rate gap, which will allow it to
increase earnings in an upward rate environment such as the one pre-vailing at
year-end 1999. The Company manages optionality in both its assets and
liabilities. Due to this optionality, the economic value of equity decreases in
the event of large interest rate changes in either direction; this scenario is
viewed by the Company as unlikely over the long term.
Based on the model previously used by the Company, the cumulative gaps at
year-end 1998 were ($22) million and ($63) million in the one year and 1-5 year
time frames, measuring (8%) and (23%) of total earning assets, respectively.
Based on the current model and assumptions, the cumulative gaps at that date
were $6 million and $19 million, respectively, measuring 2% and 7% of total
earning assets.
The primary strategies utilized by the Company in managing its interest rate
risk include adjusting the pricing of loans and deposits, timing the execution
of securities purchases and borrowings, and varying the amount of cash and
equivalents. At year-end 1999, Alliance maintained a comparatively high level of
cash and equivalents, and was promoting medium term time accounts in order to
lengthen its funding sources. Also, during 1999, Alliance entered into an
interest rate swap maturing in June 2001 which had the effect of increasing
short term asset sensitivity.
See also Item 7A.
Liquidity and Cash Flows
The Company's primary source of funds is dividends from the Bank, and its
primary use of funds is dividends to shareholders and semi-annual interest
payments on its capital trust preferred obligation. Dividends from the Bank are
primarily paid from current period cash earnings of the Bank, and secondarily
from other liquid assets of the Bank. Dividends from the Bank to the Company are
subject to restrictions as is further described in the Shareholder's Equity note
to the consolidated financial statements. In 1999, the issuance of a $3.5
million trust preferred obligation was an additional source of funds to
Alliance. These proceeds were used to provide an additional equity investment in
the Bank.
17
Liquidity is also needed by the Bank to fund loan originations and the use of
credit commitments, along with deposit withdrawals and maturing borrowings. The
Bank manages its day-to-day liquidity by maintaining short term investments
and/or utilizing short term borrowings. In addition to its FHLBB relationship,
the Bank maintains $27 million in credit facilities for short term borrowings
and repurchase agreements. Additionally, in 1999, the Bank became eligible to
obtain short term advances from the Federal Reserve Bank of Boston. Over the
year, loan originations and asset purchases are funded by amortization of loans
and investments, as well as by deposit growth and FHLBB borrowings. In 1999, the
primary use of funds were the origination of loans and the purchase of
investment securities, and the primary sources of funds were growth in savings
and money market deposits, and new FHLBB borrowings. In the event of additional
funds needs, the Bank could choose to liquidate short term investments or to
obtain funds from the investment portfolio either by selling securities
available for sale or obtaining loans backed by investment securities.
Additionally, the portfolio of government guaranteed loan certificates
represents a readily marketable pool of assets.
During 1999, the Bank maintained comparatively high levels of short term
investments, which averaged $11.1 million for the year. This provided the Bank
with ample liquidity for day to day operations, and there was accordingly
minimal use of short term borrowings. The transfer of securities to held to
maturity did not affect planned use of liquidity sources. Because deposit growth
outpaced loan growth through much of the year, excess funds were accumulated in
anticipation of additional future loan growth. Additionally, the Bank's Year
2000 liquidity plan called for the accumulation of additional excess liquidity
at year-end. There was no significant need that developed for these funds as a
result of Year 2000 related events, although the Bank did not receive an extra
influx of cash balances as it sometimes has on the last day of the year.
Capital Resources
Total shareholders' equity decreased by $3.8 million, with net income of $2.9
million offset by a $6.4 million reduction in accumulated other comprehensive
income due to unrealized securities losses (see additional information in
"Securities" section of this discussion). Capital ratios for the Company and the
Bank exceeded all applicable regulatory requirements for all periods presented.
At December 31, 1999, the Risk Based Capital Ratios for the Company and the Bank
were 10.3% and 9.7%, respectively, compared to the Company's minimum objective
of 10.0% and to the regulatory minimum requirement of 8.0%. Book value per share
declined to $6.21 at the end of 1999, compared to $7.94 at the previous
year-end, including ($2.43) per share in accumulated other compehensive income
at year-end 1999. The ratio of equity to assets declined to 4.67% at year-end
1999. The Company does not place primary reliance on this ratio in assessing its
overall capital adequacy. As discussed in the "Interest Rate Sensitivity"
section, the Company evaluates the overall sensitivity of its portfolio to
interest rate risk and manages the economic value of equity at risk within
policy guidelines, and in conjunction with goals for the level of earnings and
the amount of earnings at risk.
In recognition of continued earnings growth, the Company increased the quarterly
cash dividend to six cents per share, from five cents per share, beginning in
the second quarter of 1999. The dividend payout ratio increased to 18.1% in 1999
from 15.5% in the prior year. Additionally, in 1999, Alliance issued a $3.5
million trust preferred obligation which contributed a like amount to Tier 1
regulatory capital for the Company and the Bank, but which is accounted for as
long term debt, and which pays interest at 9.4%, which is tax deductible. This
form of financing allowed the Company to improve regulatory capital levels using
an instrument with the lower costs associated with debt financing, as compared
to equity financing.
Impact of New Accounting Standards
Certain new accounting standards apply to future period reporting, as is more
fully discussed in the Recent Accounting Developments section of the Summary of
Significant Accounting Policies in the notes to the Consolidated Financial
Statements.
Year 2000 Considerations
All disclosure concerning Year 2000 Considerations should be considered "Year
2000 Readiness Disclosure" pursuant to the Year 2000 Information and Readiness
Disclosure Act. The Year 2000 modification information provided herein should be
read in connection with the Year 2000 Information and Readiness Disclosure Act
which, among other things, mandates that certain Year 2000 readiness disclosures
may not be used in litigation.
The Company implemented a Year 2000 project plan to address systems and
facilities changes necessary to properly recognize dates after 1999, assigned
implementation responsibilities and established management and Board reporting
processes. All of the Company's significant information technology systems are
provided under contract with major national banking systems providers who
implemented their own Year 2000 plans. The Company's project also addressed its
other suppliers, customers, and other constituents, as well as remediation and
business resumption contingency plans.
The Company has not encountered any significant Year 2000 related events and
currently does not anticipate that any such events will be encountered. The
Company's plan continues through December 31, 2001 and is focused on sensitive
dates established by its regulators. The Company has not been informed of any
significant Year 2000 related events among its customers and major
counterparties and currently does not anticipate that any such events will be
encountered. News releases by regulators and industry sources support this view
of the Company's environment.
18
The primary uncertainty remaining is the ability of third party systems
providers to have identified and modified software as planned. Specific factors
that might cause material differences from plans include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties. The
Company's plans included both information technology ("IT") and non-IT systems.
Most of the Company's primary Year 2000 exposures related to IT systems,
primarily to the vendor of its account processing systems. This is a large
national banking systems vendor. This vendor has reported that there were no
significant Year 2000 related failures in its systems. The total expenses
incurred by the Company in conducting its Year 2000 program were about $50
thousand, including consulting and contingency related expenses. The Company
accelerated about $350 thousand in capital expenditures in 1998 and 1999 related
to computer systems and disaster recovery systems during the execution of its
Year 2000 plan. Virtually all of the computer systems located in the Company
were replaced during this period.
19
Comparison of 1998 VERSUS 1997
Alliance recorded net profit of $2.56 million for the year 1998 ($1.03 per
diluted share), up 26.8% from 1997 earnings of $2.02 million ($.82 per diluted
share). For the year 1998, the Company achieved a return on average assets of
1.02% and a return on average equity of 14.2%. Return on average equity
increased to 15.6% in the last quarter of the year. 1998 results reflect growth
in the marketplace. The Company's loans grew by 17.3% and deposits grew by 8.2%
over the year.
Earnings growth in 1998 was primarily due to growth in the Bank's business
volume and to improved loan quality. This strong growth in business volume
produced a $1.07 million (13.4%) increase in net interest income for the year.
Higher net interest income resulted from $36.3 million (15.3%) of growth in
earning assets to $272.2 million. Interest income also benefited from an
improvement in the tax equivalent net interest margin to 4.02% in 1998 compared
to 3.80% in the previous year.
The resolution of problem assets resulted in a $2.0 million reduction in
nonperforming assets to $0.7 million at year-end 1998 from $2.7 million at
year-end 1997. In conjunction with this improvement, the provision for loan
losses declined by $650 thousand compared to 1997. Problem asset reductions also
resulted in $175 thousand in additional interest income recognition. At year-end
1998, nonperforming assets measured 0.2% of total assets, compared to 1.1% a
year ago.
Total non-interest income increased by $458 thousand and non-interest expense
increased by $936 thousand in the year 1998 compared to 1997. Non-interest
income benefited from growth of $78 thousand (6.9%) in service charges and fees
due to higher account volumes. Additionally, net gains on securities contributed
$243 thousand in increased earnings for 1998, realizing the benefits of
improving market valuations and active portfolio management. Compensation
expense in 1998 included staff additions related to growth in commercial lending
and to branch expansion. Growth in other expense in 1998 included expenses
related to increased business volume, computer system upgrades, and branch
expansion. Non-interest expense was flat across most other categories from year
to year.
The effective tax rate increased due to a $106 thousand second quarter charge
related to an increase in the deferred tax asset valuation allowance. The
Company initiated steps toward the formation of a passive investment subsidiary
in accordance with changes in Connecticut tax statutes, which reduced the
effective tax rate beginning in 1999. Additionally, 1997 results included the
benefit of a reduction in the valuation allowance on the deferred tax asset
totaling $150 thousand.
Total assets at year-end 1998 were $283.6 million, an increase of $36.4 million
(14.8%) over the prior year-end. During the last quarter, the Company took
advantage of favorable market conditions to increase its debt security portfolio
by about $20 million, funded by medium term borrowings. Year-end shareholders'
equity totaled $18.2 million, representing a book value of $7.94 per share, and
measuring 6.42% of assets.
Diluted earnings per share of $1.03 in 1998 benefited from a treasury stock
repurchase of 200,599 shares in the amount of $3.1 million, which was announced
on July 2, 1998. Additionally, the quarterly cash dividend to shareholders
increased by 50% as a result of a three-for-two common stock split effected as a
stock dividend which was paid on May 26, 1998. Prior period earnings, dividends,
and book value per share were restated for this change. The Company had
completed a four-for-three common stock split in 1997 which, together with the
1998 split, accomplished a cumulative two-for-one split over the last two years.
20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
During 1999, Alliance improved its interest rate risk measurement, adopting the
use of a quarterly dynamic simulation model, and performing a detailed analysis
of assumptions and model output. Assumptions are made for each major category of
interest bearing assets and liabilities regarding their expected average lives,
their repricing frequencies and characteristics (including the optionality of
prepayment speeds and call provisions), and reinvestment expectations. In
adopting the new simulation model, Alliance updated and changed its modeling
assumptions, drawing more on secondary market information, peer group
comparisons, and a review of actual product behaviors over the last ten years.
The most significant impact of assumption changes was a lengthening of the
economic lives of non-time deposit accounts, and a shortening of the economic
lives of most loan categories. Modeling assumptions involve significant
estimations and uncertainties, and actual results may differ from estimated
results. Factors which could cause such differences include economic conditions,
banking industry profitability and competitive factors, changing consumer
preferences, and changes in capital markets behavior.
The simulation model evaluates changes in income which might result from
different levels of rate shocks. Policy limits are set with a primary focus on
the simulated impact of a 2.0% sudden rate shock on annualized net interest
income (earnings at risk) and on the economic value of financial instruments
(equity at risk). The Company's policy establishes a 10% limit on a decrease in
net interest income as a result of either a positive or negative 2.0% rate
shock, and the Company was within this limit at December 31, 1999. The economic
value of financial instruments is based on a net present value calculation of
long term simulated interest income and expense. The Company's policy
establishes a limit on the economic value of equity at risk equal to 2.5% of
total assets, and the Company was within this limit at December 31, 1999. The
Company was also within the above income and equity at risk limits at December
31, 1998 based on the current model and assumptions. The value of equity at risk
in 1999 averaged 1.4% of total assets, with a high of 2.1% and a low of 0.8%.
See also Interest Rate Sensitivity section in Item 7.
21
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Exhibit 99.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
------------------------------------------------------------------------
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Incorporated by reference from Alliance's Proxy Statement for the 2000 Annual
Meeting of the Shareholders to be filed with the Securities and Exchange
Commission.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Incorporated by reference from Alliance's Proxy Statement for the 2000 Annual
Meeting of the Shareholders to be filed with the Securities and Exchange
Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Incorporated by reference from Alliance's Proxy Statement for the 2000 Annual
Meeting of the Shareholders to be filed with the Securities and Exchange
Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Incorporated by reference from Alliance's Proxy Statement for the 2000 Annual
Meeting of the Shareholders to be filed with the Securities and Exchange
Commission.
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) All schedules have been omitted as the required information is either
included herein or in the Proxy Statement, or is inapplicable.
(b) Reports on Form 8-K for Fourth Quarter
--------------------------------------
(i) On October 4, 1999, the Company filed a Form 8-K reporting, under Item
5, an appointment to the Board of Directors.
(ii) On October 27,1999, the Company filed a Form 8-K reporting, under Item
5, the appointment of a new shareholder services agent.
(c) Exhibit Index
The exhibits listed below are included in this report or are incorporated herein
by reference to the identified document previously filed with the Securities and
Exchange Commission as set forth parenthetically.
3(i) Certificate of Incorporation of Registrant (Exhibit 99.1 to the
Registration Statement on Form 8-A filed September 23, 1997).
3(ii) Bylaws of Registrant (Exhibit 99.2 to the Registration Statement on
Form 8-A filed September 23, 1997).
10(i) Change in Control Agreement between Tolland Bank and
Joseph H. Rossi, dated January 5, 1996 (Exhibit 10(i) to the Report
on Form 10-K filed March 27, 1998).
10(ii) 1997 Stock Incentive Plan for Directors, Officers and Key employees
(Exhibit 4.3 to the Registration Statement on Form S-8 filed
November 6, 1997).
10(iii) Supplemental Executive Retirement Plan and Agreement between
Tolland Bank and Joseph H. Rossi, dated December 14, 1999.
10(iv) Directors' Deferred Compensation Plan (Exhibit
10(iv) to the Report on Form 10-K filed on March 27, 1998).
10(v) 1999 Stock Option Plan for Non-Employee Directors (Exhibit 4.3 to
the Registration Statement on Form S-8 filed October 28, 1999).
10(vi) Cash Bonus Plan (Exhibit 10(vi) to the Report on Form 10-K filed on
March 27, 1998).
21. Subsidiaries of Registrant.
23. Independent Auditors' Consent
27. Financial Data Schedule.
99. Consolidated Financial Statements of the Registrant.
23
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on February 22, 2000.
ALLIANCE BANCORP OF NEW ENGLAND, INC.
by
/s/ Joseph H. Rossi
- --------------------
Joseph H. Rossi
President/CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following directors and officers on behalf of the
Company on February 22, 2000:
/s/ Robert C. Boardman /s/ Patricia A. Noblet
- ------------------------- -------------------------
Robert C. Boardman Patricia A. Noblet
Director Director
/s/ Joseph P. Capossela /s/ Kenneth R. Peterson
- ------------------------- -------------------------
Joseph P. Capossela Kenneth R. Peterson
Director Vice Chairman
/s/ William E. Dowty, Jr. /s/ Mark L. Summers
- ------------------------- -------------------------
William E. Dowty, Jr. Mark L. Summers
Director Director
/s/ D. Anthony Guglielmo /s/ Joseph H. Rossi
- ------------------------- -------------------------
D. Anthony Guglielmo Joseph H. Rossi
Chairman Director/President/CEO
/s/ Reginald U. Martin /s/ David H. Gonci
- ------------------------- -------------------------------------
Reginald U. Martin David H. Gonci
Director Senior Vice President/Chief Financial
Officer/Treasurer
/s/ Douglas J. Moser
- -------------------------
Douglas J. Moser
Director
24