JOSEPH H. ROSSI – Deposits exceeded goals

A minor fourth-quarter loss for Alliance Bancorp can be chalked up to merger expenses as the institution gears up to become part of the NewAlliance Bank, according to Alliance officials.

Alliance Bancorp of New England, the holding company for Tolland Bank, reported a net loss of $135,000 in the fourth quarter of 2003, compared to net income of $882,000 in the fourth quarter of 2002. The loss equals approximately 5 cents per share.

During the fourth quarter, Alliance racked up $723,000 in charges for merger-related expenses, mostly professional fees, pertaining to its agreement to merge with NewAlliance Bancshares, holding company for NewAlliance Bank.

Tolland is about to become a part of NewAlliance Bank, which was formerly New Haven Savings Bank.

President and Chief Executive Officer Joseph H. Rossi noted, “Tolland Bank had its most successful branch opening with its new Enfield office located on Hazard Avenue in November. During its first two months of operation, this branch received $19 million in new deposits – far exceeding our goals, and demonstrating the benefit of this attractive new location.”

‘Rapid Integration’

Rossi said total assets increased by 6 percent to a record $438 million in 2003. The bank has continued to expand its market presence while maintaining a focus on loan quality, resulting in a third consecutive year with negligible net-loan losses.

“Our 2003 earnings benefited from our very strong residential lending program, which significantly contributed to asset and fee-income growth. While our net-interest margin continued to reflect the low interest-rate environment, the bank expects to benefit from improved spreads based on anticipated future interest rate increases,” said Rossi.

For 2003, Alliance reported net income of $1.47 million, which compares to net income of $3.46 million for the year 2002. Alliance recorded $1.54 million in expenses related to the pending merger throughout the entire year. The bank also announced a quarterly dividend of 7.5 cents per share payable on Feb. 24, 2004, to shareholders of record at the close of Feb. 10, 2004.

“For most of the last six months, our staff has worked very hard to plan a rapid integration with NewAlliance Bank. NewAlliance represents the strong alliance with our customers and communities that we will forge together with New Haven Savings Bank and Savings Bank of Manchester,” said Rossi. “The planned merger signals our commitment to providing great financial products, trusted advice and the most personalized banking experience possible. By combining our institutions, we believe that our expanded resources and market presence, together with our shared culture and core beliefs, will increase shareholder value and are in the best interests of our employees, customers, and the communities we serve.”

He added, “We are pleased to report that on Jan. 26, 2004, it was announced that the Connecticut Department of Banking approved the planned conversion of New Haven Savings Bank to a public company. NewAlliance Bancshares expects that other required approvals will be received with an expected merger closing at or about the end of the first quarter of 2004.”

On July 16, 2003, Alliance announced that it had entered into a definitive agreement to merge with NewAlliance Bancshares, a new holding company formed as part of a planned conversion of New Haven Savings to a public company simultaneous with a planned merger with Connecticut Bancshares, the holding company for Savings Bank of Manchester. Those transactions are conditional on regulatory and shareholder approvals and are expected to be complete at or about the end of the first quarter of 2004.

Despite major protesting from community leaders and depositors at New Haven Savings, the bank has received most of its approvals to convert to a public stock company from a mutual savings bank. The conversion will give the bank the necessary capital to merge with Alliance Bancorp and Connecticut Bancshares.

According to statements from Alliance, quarterly results in 2003 were adversely affected by the charges related to the merger, as well as by a tighter net-interest margin resulting from continuing low interest rates.

Net-interest income decreased to $2.99 million in the fourth quarter of 2003 vs. $3.19 million in the fourth quarter of 2002. That reportedly was caused by a decline in the net-interest margin to 3.11 percent in the fourth quarter of 2003, compared to 3.37 percent in the same period of 2002, due to lower interest rates. Net-interest income in the fourth quarter benefited from a $93,000 payment of previously delinquent interest on a non-accruing commercial loan that was paid in full.

The provision for loan losses was $38,000 in the fourth quarter of 2003 vs. $47,000 in the fourth quarter of 2002. Non-interest income was $683,000 in the fourth quarter of 2003 vs. $754,000 for the fourth quarter of 2002.

According to Alliance’s statements, the decline in service charges and other income was primarily due to lower secondary-market income, reflecting lower demand for residential mortgage loans after interest rates increased in the second half of 2003 from record lows around mid-year.

Total assets increased by $23.9 million to $438.4 million as of Dec. 31, 2003, vs. $414.5 million as of Dec. 31, 2002.

Deposits in the new Enfield office primarily funded what growth did occur in 2003, and proceeds were primarily held in short-term investments, which increased to $21 million at year-end. According to the statements from the bank, those holdings will be reinvested primarily in higher yielding investment securities in 2004.

Total deposits increased by $8.1 million to $339 million as of December 2003, vs. $330.8 million at the end of the 2002 fiscal year. Deposit growth included $18.6 million in balances opened in the new Enfield office.

Total merger-related expenses were $723,000 in the fourth quarter of 2003, consisting principally of legal and investment banking services. There were no merger-related expenses in the fourth quarter of 2002. All other expenses increased by $195,000, principally due to a $180,000 increase in compensation and benefits expense related primarily to bonus expense and payroll tax expense. Principally due to the non-deductibility of certain merger related expenses, the effective income tax rate increased to 44.9 percent in 2003 from 29.5 percent in 2002.