<PAGE>
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from July 1, 1996 to December 31, 1996
COMMISSION FILE NUMBER 0-18121
----------------
MAF BANCORP, INC.
DELAWARE 36-3664868
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
55TH STREET & HOLMES AVENUE, CLARENDON HILLS, ILLINOIS 60514-1596
TELEPHONE NUMBER (630) 325-7300
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE NASDAQ
(TITLE OF CLASS) (NAME OF EACH EXCHANGE ON WHICH
REGISTERED)
Indicate by check mark whether the registrant (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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
Based upon the closing price of the registrant's common stock as of March 3,
1997, the aggregate market value of the voting stock held by non-affiliates of
the registrant was $332,163,054.*
The number of shares of Common Stock outstanding as of March 3, 1997:
10,460,019
- -------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
PART III--Portions of the Proxy Statement for the Annual Meeting of
Shareholders to be held on April 30, 1997 are incorporated by reference into
Part III hereof.
* Solely for purposes of this calculation, all executive officers and
directors of the registrant are considered to be affiliates. Also included
are shares held by various employee benefit plans where trustees are (i)
directors or executive officers of the registrant or (ii) required to vote a
portion of unallocated shares at the direction of employees.
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<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
MAF Bancorp, Inc. ("Company"), is a registered savings and loan holding
company incorporated under the laws of the state of Delaware and is primarily
engaged in the consumer banking business through its wholly-owned subsidiary,
Mid America Federal Savings Bank ("Bank") and secondarily, in the residential
real estate development business through MAF Developments, Inc. ("MAF
Developments"). As of December 31, 1996, the Company changed its fiscal year
to coincide with the calendar year, compared to the June 30 fiscal year it
followed in the past. As such, this report is the transition report for the
six month period from July 1, 1996 to December 31, 1996.
On May 30, 1996, the Company completed its acquisition of N.S. Bancorp, Inc.
("NSBI"), which was the sole shareholder of Northwestern Savings Bank
("Northwestern"). At acquisition date, Northwestern had $749.7 million in
loans receivable, which were primarily one-to four-family residential mortgage
loans, and $872.0 million in deposits, which were serviced from six branch
locations. All but one of the branches are in markets which the Bank did not
service in the past. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a more detailed review of
the acquisition.
The Bank is a consumer-oriented financial institution offering various
financial services to its customers through 20 retail banking offices. The
Bank's market area is generally defined as the western suburbs of Chicago,
including DuPage County, which has the second highest per capita income in
Illinois, as well as the northwest side of Chicago, due to the acquisition of
NSBI. It is principally engaged in the business of attracting deposits from
the general public and using such deposits, along with other borrowings, to
make loans secured by real estate, primarily one-to four-family residential
mortgage loans. To a lesser extent, the Bank also makes multi-family mortgage,
residential construction, land acquisition and development and a variety of
consumer loans. The Bank also has a small portfolio of commercial real estate.
Through three wholly-owned subsidiaries, MAF Developments, Mid America
Development Services, Inc. ("Mid America Developments"), and NW Financial,
Inc. ("NW Financial"), (which the Company acquired with NSBI), the Company and
the Bank are also engaged in primarily residential real estate development
activities. Additionally, the Bank operates an insurance agency, Mid America
Insurance Agency, Inc., which provides general insurance services, and an
investment brokerage operation through its affiliation with INVEST, a
registered broker-dealer.
As a federally chartered savings bank, the Bank's deposits are insured up to
the applicable limits by the Federal Deposit Insurance Corporation ("FDIC").
The Bank is a member of the Federal Home Loan Bank ("FHLB") of Chicago, which
is one of the twelve regional banks for federally insured savings institutions
comprising the FHLB system. The Bank is regulated by the Office of Thrift
Supervision ("OTS") and the FDIC. The Bank is further regulated by the Board
of Governors of the Federal Reserve System as to reserves required to be
maintained against deposits and certain other matters.
The Company's executive offices are located at 55th Street and Holmes
Avenue, Clarendon Hills, Illinois 60514-1596. The telephone number is (630)
325-7300.
MARKET DATA
Based on total assets at December 31, 1996, the Bank is the one of the
largest financial institutions headquartered in the Chicago metropolitan area,
with its home office located in Clarendon Hills, Illinois in the southeastern
portion of DuPage County. Through its network of 20 retail banking offices,
the Bank serves the residential, commercial and high technology sector west of
Chicago, including western Cook County, northern Will County, eastern Kane
County and DuPage County, as well as the northwest side of the City of
Chicago.
COMPETITION
The Bank is faced with increasing competition in attracting retail customer
business, including deposit accounts and loan originations. Competition for
deposit accounts comes primarily from other savings institutions,
2
<PAGE>
commercial banks, money market mutual funds, and insurance companies
(primarily in the form of annuity products). Factors affecting the attraction
of customers include interest rates offered, convenience of branch locations,
ease of business transactions, and office hours. Competition for loan products
comes primarily from other mortgage brokers, savings institutions, commercial
banks and mortgage banking companies. Factors affecting business include
interest rates, terms, fees, customer service, and more recently, over-
capacity in the loan origination market.
REGULATORY ENVIRONMENT
The Bank is subject to extensive regulation, supervision and examination by
the OTS, as its chartering authority and primary federal regulator, and by the
FDIC, which insures its deposits up to applicable limits. Such regulation and
supervision establish a comprehensive framework of activities in which the
Bank can engage and is designed primarily for the protection of the insurance
fund and depositors. The regulatory structure also gives the regulatory
authorities extensive discretion in connection with their supervisory and
enforcement activities. Any change in such regulation, whether by the OTS, the
FDIC or Congress, could have a material impact on the Bank and its operations.
THRIFT RECAPITALIZATION AND RECHARTERING LEGISLATION. On September 30, 1996,
the President signed the Deposit Insurance Funds Act of 1996 (the "Funds
Act"), which, among other things, imposed a special one-time assessment on
SAIF members, including the Bank, to recapitalize the SAIF. As required by the
Funds Act, the FDIC imposed a special assessment of 65.7 basis points on SAIF
assessable deposits held as of March 31, 1995, payable November 27, 1996. The
special assessment recorded by the Bank amounted to $14.2 million on a pre-tax
basis, and $8.7 million, or $.81 per fully-diluted share on an after-tax
basis, and was reflected in the quarter ended September 30, 1996.
The Funds Act also provides that the BIF and SAIF will merge on January 1,
1999 if there are no more savings associations as of that date. The
legislation also requires that the Department of Treasury submit a report to
Congress by March 31, 1997 that makes recommendations regarding a common
financial institutions charter, including whether the separate charters for
thrifts and banks should be abolished. Various proposals to eliminate the
federal thrift charter, create a uniform financial institutions charter and
abolish the OTS have been introduced in Congress. The bills would require
federal savings institutions to convert to a national bank or some type of
state charter by a specified date (January 1, 1998 in one bill, June 30, 1998
in the other) or they would automatically become national banks. Converted
federal thrifts would generally be required to conform their activities to
those permitted for the charter selected and divestiture of nonconforming
assets would be required over a two year period, subject to two possible one-
year extensions. State chartered thrifts would become subject to the same
federal regulation as applies to state commercial banks. Holding companies for
savings institutions would become subject to the same regulation as holding
companies that control commercial banks, with a limited grandfather provision
for unitary savings and loan holding company activities. The Bank is unable to
predict whether such legislation would be enacted, the extent to which the
legislation would restrict or disrupt its operations or whether the BIF and
SAIF funds will eventually merge.
3
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following executive officers were employed by the Company and the Bank
as of January 1, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
---- --- ----------------
<S> <C> <C>
Allen H. Koranda............ 50 Chairman of the Board and Chief Executive
Officer of the Company and the Bank
Kenneth Koranda............. 47 President and Director of the Company and the
Bank
Jerry A. Weberling.......... 45 Executive Vice President and Chief Financial
Officer of the Company and the Bank
Gerard J. Buccino........... 35 Senior Vice President and Controller of the
Company and the Bank
William Haider.............. 45 Senior Vice President of the Company and the
Bank; President of Mid America Developments and
MAF Developments
Michael J. Janssen.......... 37 Senior Vice President of the Company and the
Bank
David W. Kohlsaat........... 42 Senior Vice President of the Company and the
Bank
Thomas Miers................ 45 Senior Vice President of the Company and the
Bank
Kenneth Rusdal.............. 55 Senior Vice President of the Company and the
Bank
Lois B. Vasto (1)........... 62 Senior Vice President and Director of the
Company and the Bank
Sharon Wheeler.............. 44 Senior Vice President of the Company and the
Bank
Gail Brzostek............... 48 First Vice President of the Bank
Alan W. Schatz.............. 38 First Vice President of the Bank
Diane Stutte................ 48 First Vice President of the Bank
Carolyn Pihera.............. 54 Vice President and Corporate Secretary of the
Company and the Bank
</TABLE>
- --------
(1) Lois B. Vasto retired on January 3, 1997.
BIOGRAPHICAL INFORMATION
Set forth below is certain information with respect to executive officers of
the Company and the Bank. Unless otherwise indicated, the principal occupation
listed for each person below has been his principal occupation for the past
five years.
Allen H. Koranda has been Chairman of the Board and Chief Executive Officer
of the Company since August, 1989, and of the Bank since May, 1984. He joined
the Bank in 1972. He is also Senior Vice President and a director of Mid
America Developments, a wholly-owned subsidiary of the Bank. Mr. Koranda holds
Bachelor of Arts and Juris Doctor degrees from Northwestern University. Mr.
Koranda is the brother of Kenneth Koranda.
Kenneth Koranda has been President of the Company since August, 1989, and of
the Bank since July 1984. He joined the Bank in 1972. He is also Chairman of
Mid America Developments. Mr. Koranda holds a Bachelor of Arts degree from
Stanford University and a Juris Doctor degree from Northwestern University.
Mr. Koranda is the brother of Allen Koranda.
Jerry A. Weberling has been Executive Vice President and Chief Financial
Officer of the Company and the Bank since July 1993. Prior to that, he was
Senior Vice President of the Company since August, 1989, and Senior Vice
President and Chief Financial Officer of the Bank from March 1990 to July
1993. He was Senior Vice President and Controller from 1986 to March 1990. He
joined the Bank in 1984. He is a certified public accountant. Mr. Weberling
holds a Bachelor of Science degree from Northern Illinois University.
Gerard J. Buccino has been Senior Vice President and Controller of the
Company and the Bank since July 1996. Prior to that he was First Vice
President and Controller of the Company and the Bank from July 1993 to
4
<PAGE>
July 1996 and Vice President and Controller of the Company and the Bank from
March 1990 to July 1993. He is a certified public accountant. Mr. Buccino
holds a Bachelor of Science degree from Marquette University and a Master of
Business Administration degree from the University of Chicago Graduate School
of Business.
William Haider has been Senior Vice President of the Company and the Bank
since July 1996. Prior to that he was Vice President of the Company since
April 1993 and of the Bank since 1987. He is President of Mid America
Developments, MAF Developments, and NW Financial, managing the real estate
development activities of the Company. Mr. Haider holds a Bachelor of Science
degree from Southern Illinois University. He joined the Bank in 1984.
Michael J. Janssen has been Senior Vice President--Investor Relations and
Taxation of the Company and the Bank since July 1996. Prior to that he was
First Vice President--Investor Relations and Taxation of the Company and the
Bank from July 1993 to July 1996, and Vice President of the Company from March
1990 to July 1993. He is a certified public accountant. Mr. Janssen holds a
Bachelor of Business Administration degree from the University of Notre Dame,
and a Master of Science of Taxation degree from DePaul University.
David W. Kohlsaat has been Senior Vice President--Administration since July
1996. Prior to that he was First Vice President--Administration of the Company
from July 1993 to July 1996, and is responsible for retail deposit
administration and Human Resources. He has been Vice President of the Company
since April 1993 and of the Bank since 1980. Mr. Kohlsaat holds a Bachelor of
Science degree from Southern Methodist University. He joined the Bank in 1976.
Thomas Miers has been Senior Vice President of the Company since April 1993
and Senior Vice President-Retail Banking of the Bank since January 1992. Prior
to that he was Senior Vice President--Marketing. Mr. Miers holds a Bachelor of
Science degree from George Williams College. He joined the Bank in 1979.
Kenneth Rusdal has been Senior Vice President of the Company since April
1993 and Senior Vice President-Operations and Information System since January
1992. Prior to that he was Senior Vice President-Information Systems from 1987
through 1991. He also served as Vice President of Software Development for
FISERV, Inc., where he was employed from 1983 to 1987.
Lois B. Vasto has been Senior Vice President of the Company since August,
1989, and Senior Vice President--Loan Operations of the Bank since May 1984.
She joined the Bank in 1953. She is also Senior Vice President of Mid America
Developments and Secretary of Mid America Insurance, wholly- owned
subsidiaries of the Bank. She retired from the Company and the Bank on January
3, 1997.
Sharon Wheeler has been Senior Vice President of the Company since April
1993 and has been Senior Vice President--Residential Lending of the Bank since
July 1986. She joined the Bank in 1971.
Gail Brzostek has been First Vice President--Check Operations and VISA
services since July 1996. Prior to that she was Vice President--Check
Operations since 1985. She joined the Bank in 1967.
Alan W. Schatz has been First Vice President--Secondary Marketing of the
Bank since July 1996. Prior to that he was Vice President--Secondary Marketing
of the Bank from September 1992 to July 1996. Prior to that he served as the
Director of Trading and Risk Management at First Illinois Mortgage Corporation
where he was employed from 1987 until 1992. Mr. Schatz holds a Bachelor of
Science degree from the University of Illinois at Chicago and a Master of
Business Administration degree from Rosary College.
Diane Stutte has been First Vice President--Teller Operations since July
1996. Prior to that, she was Vice President--Teller Operations of the Bank
since 1985. She joined the Bank in 1970.
Carolyn Pihera has been Vice President since 1979 and Corporate Secretary to
the Board of Directors of the Company since August 1989, and of the Bank since
1980. She joined the Bank in 1959 and currently is also Office Manager of the
Clarendon Hills office.
Employees
The Bank employs a total of 809 full time equivalent employees as of
December 31, 1996. Management considers its relationship with its employees to
be excellent.
5
<PAGE>
ITEM 2. PROPERTIES
The Company neither owns nor leases any real property. For the time being,
it utilizes the property and equipment of the Bank without payment to the
Bank.
The Bank conducts its business through 20 retail banking offices, including
its executive office location in Clarendon Hills, Illinois. In February 1997,
the Bank moved and centralized its loan processing and servicing operations in
a new 30,000 square foot leased office building in Naperville, Illinois. The
Bank has its own data processing facilities. The data processing equipment
primarily consists of mainframe hardware, network servers, personal computers
and ATMs. At December 31, 1996, the data processing equipment owned has a net
book value of $2.7 million.
The following table sets forth information regarding the Bank's executive
office and its 20 branches. At December 31, 1996, the net book value of the
Bank's premises and related equipment was $32.3 million.
<TABLE>
<CAPTION>
NET BOOK VALUE
DATE LEASED DATE LEASE % OF TOTAL DECEMBER 31,
LOCATION OR ACQUIRED EXPIRES DEPOSITS 1996
-------- ----------- ---------- ---------- --------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C>
EXECUTIVE AND HOME OFFICE
55th Street and Holmes Avenue
Clarendon Hills, Illinois
60514........................ 1975/1986 owned 11.66% $ 4,780
BRANCHES
Chicago, Illinois
2300 North Western Avenue.... 1996(1) owned 5.58 700
3844 West Belmont Avenue..... 1996(1) owned 11.51 538
6333 North Milwaukee Avenue.. 1996(1) 2001 4.86 65
5075 South Archer Avenue..... 1996(1) owned 7.49 801
Norridge, Illinois
4100 North Harlem Avenue..... 1996(1) 1998 5.50 6
Cicero, Illinois
5900/5847 West Cermak Road... 1939/1978 owned 13.97 1,197
4830 West Cermak Road........ 1970 owned 1.77 453
Berwyn, Illinois
6620 West Ogden Avenue....... 1996 owned 0.41 1,300
6650 West Cermak Avenue ..... 1996(1) owned 3.66 557
Riverside, Illinois
40 East Burlington........... 1977 owned 4.41 948
LaGrange Park, Illinois
1921 East 31st Street........ 1981 owned 4.49 874
Western Springs, Illinois
40 West 47th Street.......... 1978 owned 3.55 796
Naperville, Illinois
1001 South Washington........ 1974 owned 7.65 1,870
9 East Ogden Avenue.......... 1982 owned 1.79 953
1308 S. Naperville Blvd. ... 1987 owned 2.63 1,479
3040 Book Road............... 1993 1997 0.76 761
Wheaton, Illinois
250 East Roosevelt Road...... 1977 owned 3.78 951
161 Danada Square East....... 1988 2009 1.57 321
St. Charles, Illinois
2600 East Main Street........ 1979 owned 2.96 2,130
Other fixed assets........... -- 10,822
------ -------
Total...................... 100.00% $32,302
====== =======
</TABLE>
- --------
(1) Acquired in the acquisition of NSBI.
6
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no outstanding legal proceedings against the Company. There are
various actions pending against the Bank but, in the opinion of management,
the probable liability resulting from these suits is unlikely, individually or
in the aggregate, to have a material effect on the Bank's or the Company's
financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS
MATTERS
The Company's common stock is traded over-the-counter and quoted on the
NASDAQ/National Market System under the symbol "MAFB". As of March 3, 1997,
the Company had 1,824 stockholders of record. The table below shows the
reported high and low sales prices of the common stock during the periods
indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 JUNE 30, 1996
----------------- -------------
HIGH LOW HIGH LOW
----------------- -------------
<S> <C> <C> <C> <C>
First Quarter................................ 26.50 22.25 25.50 20.68
Second Quarter............................... 35.25 26.00 26.25 24.00
Third Quarter................................ N/A N/A 25.50 24.50
Fourth Quarter............................... N/A N/A 27.00 24.00
</TABLE>
Such over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent
actual transactions.
The Company declared $0.18 per share in dividends during the six months
ended December 31, 1996, and $0.32 per share in dividends during the year
ended June 30, 1996. The Company's ability to pay cash dividends primarily
depends on cash dividends received from the Bank. Dividend payments from the
Bank are subject to various restrictions. See Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations-Regulation and
Supervision--Federal Savings Institution Regulation--Limitation on Capital
Distributions."
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain summary consolidated financial data
at or for the periods indicated. This information should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included herein. See Item 8. "Financial Statements and Supplementary Data."
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, ---------------------------------------------
1996 1996 1995 1994 1993
---------------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total assets........... $3,230,341 3,117,149 1,783,076 1,586,334 1,544,439
Loans receivable, net.. 2,430,113 2,293,399 1,267,453 1,010,992 963,680
Mortgage-backed securi-
ties.................. 359,587 418,102 307,390 347,902 362,172
Interest-bearing depos-
its................... 55,285 37,496 10,465 29,922 43,312
Federal funds sold..... 24,700 5,700 9,360 17,450 12,625
Investment securities.. 171,818 171,251 90,319 97,260 69,606
Real estate held for
development or sale... 28,112 26,620 11,454 6,404 14,174
Deposits............... 2,262,226 2,254,100 1,313,306 1,292,531 1,290,072
Borrowed funds......... 632,897 537,696 307,024 149,856 117,581
Subordinated capital
notes, net............ 26,709 26,676 20,100 20,027 19,962
Stockholders' equity... 250,625 242,226 105,419 95,150 85,002
Book value per share... 23.89 23.42 19.19 16.77 14.49
Tangible book value per
share................. 20.62 19.98 19.19 16.77 14.49
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, ---------------------------------------------
1996 1996 1995 1994 1993
---------------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income......... $ 112,827 143,095 114,963 103,778 112,854
Interest expense........ 68,631 93,221 73,367 69,694 74,311
---------- ---------- ---------- ---------- ----------
Net interest income.... 44,196 49,874 41,596 34,084 38,543
Provision for loan loss-
es..................... 700 700 475 1,200 2,700
---------- ---------- ---------- ---------- ----------
Net interest income af-
ter provision for loan
losses................ 43,496 49,174 41,121 32,884 35,843
Non-interest income:
Gain (loss) on sale of
loans receivable and
mortgage-backed secu-
rities................ (32) 198 (56) 3,135 5,364
Income from real estate
operations............ 4,133 4,786 7,497 7,719 3,427
Gain (loss) on sale and
writedown of:
Investment securi-
ties................. 251 188 (231) 200 (717)
Foreclosed real es-
tate................. 161 50 181 145 (1,624)
Deposit account service
charges............... 3,219 4,894 3,347 2,414 2,091
Loan servicing fee in-
come.................. 1,249 2,394 2,373 2,456 2,566
Other.................. 2,978 4,590 3,539 3,579 3,206
---------- ---------- ---------- ---------- ----------
Total non-interest in-
come................. 11,959 17,100 16,650 19,648 14,313
Non-interest expense:
Compensation and bene-
fits.................. 14,503 21,209 18,257 16,954 15,138
Office occupancy and
equipment............. 2,652 3,774 3,522 3,569 3,539
Federal deposit insur-
ance premiums......... 2,338 3,255 3,003 2,996 2,430
Special SAIF assess-
ment.................. 14,216 -- -- -- --
Other.................. 7,369 9,548 8,630 7,797 7,136
---------- ---------- ---------- ---------- ----------
Total non-interest ex-
pense................ 41,078 37,786 33,412 31,316 28,243
---------- ---------- ---------- ---------- ----------
Income before income
taxes and other
items................ 14,377 28,488 24,359 21,216 21,913
Income taxes............ 5,602 10,805 9,316 7,766 8,402
---------- ---------- ---------- ---------- ----------
Income before other
items................. 8,775 17,683 15,043 13,450 13,511
Other items (1)......... -- (474) -- -- 435
---------- ---------- ---------- ---------- ----------
Net income............. $ 8,775 17,209 15,043 13,450 13,946
========== ========== ========== ========== ==========
Primary earnings per
share.................. $ .81 2.76 2.54 2.22 2.27
========== ========== ========== ========== ==========
Fully-diluted earnings
per share.............. $ .81 2.76 2.54 2.22 2.26
========== ========== ========== ========== ==========
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, ------------------------------------
1996(2) 1996 1995 1994 1993
---------------- --------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL
RATIOS AND OTHER DATA:
Return on average
assets................. 1.11%(/3/) .85% .90% .85% .91%
Return on average
equity................. 14.18(/3/) 14.21 15.22 14.80 17.80
Average stockholders'
equity to average
assets................. 7.80 6.00 5.91 5.75 5.09
Stockholders' equity to
total assets........... 7.76 7.77 5.91 6.00 5.50
Tangible and core
capital to total assets
(Bank only)............ 6.96 7.02 5.64 5.90 5.71
Risk-based capital ratio
(Bank only)............ 15.05 15.36 12.07 13.24 12.77
Interest rate spread
during period......... 2.64 2.24 2.29 1.99 2.38
Net yield on average
interest-earning
assets................. 2.96 2.62 2.62 2.29 2.66
Average interest-earning
assets to average
interest-bearing
liabilities........... 107.98 107.83 107.22 106.48 105.55
Non-interest expense to
average assets......... 1.70(/3/) 1.87 2.00 1.98 1.83
Non-interest expense to
average assets and
average loans serviced
for others............. 1.27(/3/) 1.27 1.31 1.31 1.18
Efficiency ratio........ 47.79(/3/) 56.58 57.14 58.50 52.72
Ratio of earnings to
fixed charges:
Including interest on
deposits.............. 1.41x(/3/) 1.30x 1.32x 1.30x 1.29x
Excluding interest on
deposits.............. 2.35x(/3/) 1.93x 2.34x 2.24x 2.43x
Non-performing loans to
total loans............ .55 .56 .57 .83 1.37
Non-performing assets to
total assets........... .46 .44 .42 .75 1.26
Cumulative one-year
gap.................... 7.50 5.22 4.89 1.84 4.06
Number of deposit
accounts............... 259,041 255,960 164,592 148,519 149,218
Mortgage loans serviced
for others............. $1,045,740 1,040,260 887,887 823,924 828,776
Loan originations....... 469,452 989,753 585,882 813,689 809,486
Full-service customer
service facilities..... 20 20 13 13 12
STOCK PRICE AND DIVIDEND
INFORMATION:
High.................... $ 35.25 27.00 21.70 22.27 17.42
Low..................... 22.25 20.68 16.36 16.07 8.37
Close................... 34.75 24.50 21.36 20.91 16.36
Cash dividends per
share.................. .18 .32 .291 -- --
Dividend payout ratio... 22.22% 11.59% 11.46% -- --
</TABLE>
- --------
(1) Other items for the year ended June 30, 1996 represents a $474,000
extraordinary charge for the early extinguishment of debt. Other items for
the year ended June 30, 1993 represents a $1.25 million credit for the
cumulative effect of a change in accounting for income taxes, offset by an
$815,000 extraordinary charge incurred on the prepayment of debt.
(2) Ratios for the six months ended December 31, 1996 are annualized.
(3) Excludes the effect of the special SAIF assessment of $14.2 million ($8.7
million after tax) for the six months ended December 31, 1996. Including
the impact of the special SAIF assessment, the Company's actual ratios
were as follows: Return on average assets of .56%; Return on average
equity of 7.12%; Non-interest expense to average assets of 2.60%; Non-
interest expense to average assets and average loans serviced for others
of 1.95%; Efficiency ratio of 73.09%; Ratio of earnings to fixed charges
including interest on deposits of 1.20x; and Ratio of earnings to fixed
charges excluding interest on deposits of 1.67x.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As of December 31, 1996, the Company changed its fiscal year to coincide
with the calendar year, compared to the June 30 fiscal year it followed in the
past. Management's discussion and analysis of financial condition and results
of operations will compare the current six month transition period to the
prior year unaudited six month period, as well as analyze the fiscal year
ended June 30, 1996 compared to June 30, 1995.
OVERVIEW
Net income for the Company was $8.8 million, or $.81 per fully-diluted share
for the six months ended December 31, 1996, compared to $7.8 million or, $1.33
per fully-diluted share for the six months ended December 31, 1995. The
current six month period includes an after-tax charge of $8.7 million, or $.81
per fully-diluted share for the one-time special SAIF assessment, which was
assessed to all SAIF-insured savings institutions. Without this charge,
operating earnings were $17.4 million, or $1.61 per share. For the year ended
June 30, 1996, net income was $17.2 million, or $2.76 per fully-diluted share,
compared to $15.0 million, or $2.54 per fully-diluted share for the year ended
June 30, 1995. On an operating basis, the Company earned $2.84 per fully-
diluted share for the year ended June 30, 1996, before consideration of a
$474,000 or $0.08 per share extraordinary loss on the early repayment of
subordinated capital notes.
The current six month period includes the full impact of the Company's
acquisition of NSBI in May 1996, and includes the following highlights:
. Net interest income improved to $44.2 million, compared to $22.3 million
for the six months ended December 31, 1995, primarily due to the
acquisition of NSBI.
. The Company's average net interest margin improved to 2.96%, compared to
an average net interest margin of 2.52% for the prior six month period,
reflecting the addition of NSBI's low-cost deposit base.
. Income from real estate operations increased 46.6% to $4.1 million, due
to the sale of the 13-acre Ashbury commercial site, sales in the
Company's newest subdivision, Harmony Grove, and the real estate projects
acquired in the merger with NSBI.
. Deposit account service charges increased 35.8% to $3.2 million, due to
continued growth in the Bank's checking account base.
. Non-interest expenses declined as a percentage of average assets, to
1.70%, primarily due to the asset growth from the merger, while
recognizing expense savings due to the merger.
ACQUISITION
On May 30, 1996, the Company completed its acquisition of NSBI, and its
wholly-owned subsidiary, Northwestern, for cash and stock totaling $269.7
million. The Company paid $41.18 per share of NSBI in the form of $20.1799
cash and .8549 shares of the Company's common stock. The Company issued 5.2
million shares in the acquisition, nearly doubling the number of shares
outstanding as a result of the transaction. The cash portion of the purchase
was made from existing cash, as well as funds from Northwestern in the form of
a dividend due to their excess capital position as of the acquisition date.
Additionally, the Company obtained a $35.0 million unsecured term bank loan
with a local commercial bank. The loan has a final maturity date of December
31, 2003, and amortizes on an increasing basis beginning in December 1997. The
transaction was accounted for under the purchase method. As such, on May 30,
1996, the Company valued the assets and liabilities of NSBI at fair value, and
created goodwill and core deposit intangible assets aggregating $35.9 million
as a result of the transaction.
NET INTEREST INCOME
Net interest income is the principal source of earnings for the Company, and
consists of interest income on loans receivable, mortgage-backed and
investment securities, offset by interest expense on deposits and borrowed
funds. Net interest income fluctuates due to a variety of reasons, most
notably due to the size of the balance
10
<PAGE>
sheet, changes in interest rates, and to a lesser extent asset quality. The
Company seeks to increase net interest income without materially mismatching
maturities of the interest-earning assets it invests in compared to the
interest-bearing liabilities which fund such investments.
Net interest income before the provision for loan losses increased to $44.2
million for the six months ended December 31, 1996, compared to $22.3 million
for the six months ended December 31, 1995, due primarily to the merger with
NSBI. The net interest margin (net interest income divided by average
interest-earning assets) for the current six month period was 2.96%, compared
to 2.52% for the prior six month period. The increase in the net interest
margin during the six months ended December 31, 1996 is primarily due to the
addition of NSBI, which helped lower the Bank's average cost of deposits via
its high percentage of low cost core deposits. The average yield on interest-
earning assets increased 1 basis point during the current six month period,
while the average cost of funds declined 45 basis points. Net interest income
was $49.9 million for the year ended June 30, 1996, compared to $41.6 million
for the year ended June 30, 1995. The net interest margin remained constant at
2.62% for the years ended June 30, 1996 and 1995. The stability in the net
interest margin between the years ended June 30, 1996 and 1995 was primarily
due to a 28 basis point increase in the yield on average interest-earning
assets, offset by an increase in the average cost of funds of 33 basis points.
Although the net interest spread declined by 5 basis points, this was offset
by growth in the balance of interest-earning assets over interest-bearing
liabilities, due to the increased capital level of the Bank.
RATE/VOLUME ANALYSIS
The table below describes the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Bank's interest income and interest expense on a
fully taxable equivalent basis during the periods indicated. Information is
provided in each category with respect to (i) changes attributable to changes
in volume (changes in volume multiplied by prior rate), (ii) changes
attributable to changes in rate (changes in rates multiplied by prior volume),
and (iii) the net change. Changes attributable to the combined impact of
volume and rate have been allocated proportionately to the changes due to
volume and the changes due to rate.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, 1996 VS. 1995 JUNE 30, 1996 VS. 1995
--------------------------- ------------------------
DUE TO DUE TO
TOTAL ----------------- TOTAL ---------------
CHANGE VOLUME RATE CHANGE VOLUME RATE
--------- ----------------- -------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable........ $ 38,466 39,293 (827) 28,955 27,454 1,501
Mortgage-backed securi-
ties................... 4,242 3,273 969 (1,456) (1,961) 505
Investment securities... 2,374 2,178 196 1,129 859 270
Interest-bearing depos-
its.................... 890 1,180 (290) (4) (593) 589
Federal funds sold...... 38 197 (159) (475) (771) 296
--------- -------- -------- ------- ------- ------
Total................... 46,010 46,121 (111) 28,149 24,988 3,161
--------- -------- -------- ------- ------- ------
INTEREST-BEARING LIABIL-
ITIES:
Deposits................ 17,516 20,213 (2,697) 7,531 4,699 2,832
Borrowed funds.......... 6,487 7,360 (873) 12,323 12,871 (548)
--------- -------- -------- ------- ------- ------
Total................... 24,003 27,573 (3,570) 19,854 17,570 2,284
--------- -------- -------- ------- ------- ------
Net change in net inter-
est income............. $ 22,007 18,548 3,459 8,295 7,418 877
========= ======== ======== ======= ======= ======
</TABLE>
The average yield on interest-earning assets remained steady for the six
months ended December 31, 1996 at 7.53% compared to 7.52% for the six months
ended December 31, 1995. The average yield on loans receivable decreased 12
basis points between the six month periods, while the average balance of loans
receivable increased $1.02 billion. The increase in average balance is
primarily due to the acquisition of NSBI, which had $749.7 million of loans
receivable, as well as the Bank holding more of its fixed-rate loan
originations for investment.
11
<PAGE>
The average yield on mortgage-backed securities increased 62 basis points,
primarily due to NSBI's predominately fixed-rate mortgage-backed securities
portfolio. The increase in the average balance of mortgage-backed securities
of $97.2 million is solely due to the acquisition of NSBI. The average yield
on investment securities increased 38 basis points, while the average balance
increased $65.6 million, due to the acquisition of NSBI, whose investment
portfolio had a higher yield due to longer duration.
The average cost of deposits decreased 40 basis points to 4.38% for the six
months ended December 31, 1996 compared to the six months ended December 31,
1995. The primary reason for the decrease is due to the acquisition of NSBI,
which had a lower cost of deposits than the Bank. The $907.4 million increase
in average deposit balances is primarily due to the acquisition, as the Bank
acquired $872.0 million of deposits from NSBI. The average cost of borrowed
funds declined 43 basis points to 6.71% for the six months ended December 31,
1996, while the average balance of borrowed funds increased $215.2 million.
The increase in the average balance of borrowed funds is primarily due to
borrowings for the acquisition, as well as funding for the increase in loan
originations held for investment purposes.
The average yield on interest-earning assets improved during the year ended
June 30, 1996 to 7.49% compared to 7.21% for the year ended June 30, 1995. The
improvement was primarily due to a 13 basis point increase in the average
yield on loans receivable and a 16 basis point increase in the average yield
on mortgage-backed securities, due to upward repricing of adjustable-rate
loans and mortgage-backed securities owned by the Bank. Average loans
receivable increased by $352.6 million, or 31.1% for the year ended June 30,
1996, while average mortgage-backed securities decreased $31.3 million, as the
Bank was able to increase earning assets with higher loan originations held
for investment purposes rather than through the purchase of mortgage-backed
securities. The average balance of investment securities, interest-bearing
deposits and federal funds sold was relatively consistent for the year ended
June 30, 1996 compared to 1995.
The average cost of savings deposits increased 22 basis points during the
year ended June 30, 1996, compared to the year ended June 30, 1995, primarily
due to increased rates on certificates of deposits. Because of the inability
to increase savings deposits during the years ended June 30, 1996 and 1995,
the increase in interest-earning assets was funded with borrowed funds,
primarily FHLB of Chicago advances, and a limited amount of reverse repurchase
agreements. Average borrowings increased $183.3 million during the year ended
June 30, 1996. These additional borrowings did lead to a decrease in the
average cost of borrowings by 22 basis points, although this is somewhat
attributable to the shorter duration of adjustable-rate advances from the FHLB
of Chicago, and short-term reverse repurchase agreements. Included in the
increase in borrowed funds for the year ended June 30, 1996 is a $35.0 million
unsecured term bank loan which was obtained for the acquisition of NSBI. The
loan carried an interest rate of the one-month London interbank offering rate
("LIBOR") plus 1%, or 6.47% at June 30, 1996. The loan is convertible all or
in part, with certain limitations at the end of any repricing period into a
fixed-rate loan at the discretion of management at 1.25% over the U.S.
Treasury rate corresponding to the term to the final maturity of the loan,
which is December 31, 2003.
12
<PAGE>
AVERAGE BALANCE SHEETS
The following table sets forth certain information relating to the Company's
consolidated statements of financial condition and reflects the average yield
on assets and average cost of liabilities for the periods indicated. Such
yields and costs are derived by dividing income or expense, on a tax
equivalent basis, by the average balance of assets or liabilities. Average
balances are derived from average daily balances, and include non-performing
loans. The yield/cost at December 31, 1996 includes fees which are considered
adjustments to yield.
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
---------------------------------------------------------
1996 1995
---------------------------- ----------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
---------- -------- ------- ---------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning
assets:
Loans
receivable...... $2,372,072 91,783 7.74% $1,356,409 53,317 7.86%
Mortgage-backed
securities...... 388,237 13,368 6.89 291,067 9,126 6.27
Investment
securities (1).. 161,275 5,390 6.54 95,723 3,016 6.16
Interest-bearing
deposits........ 55,020 1,805 6.42 20,434 915 8.75
Federal funds
sold............ 20,099 659 6.41 14,612 621 8.32
---------- -------- ---------- -------
Total interest-
earning assets.. 2,996,703 113,005 7.53 1,778,245 66,995 7.52
Non-interest
earning assets... 163,984 80,950
---------- ----------
Total assets.... $3,160,687 $1,859,195
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing
liabilities:
Deposits........ 2,170,234 47,967 4.38 1,262,786 30,451 4.78
Borrowed funds
and subordinated
debt............ 605,083 20,664 6.71 389,924 14,177 7.14
---------- -------- ---------- -------
Total interest-
bearing
liabilities..... 2,775,317 68,631 4.89 1,652,710 44,628 5.34
---- ----
Non-interest
bearing
deposits......... 70,462 54,730
Other
liabilities...... 68,378 42,526
---------- ----------
Total
liabilities..... 2,914,157 1,749,966
Stockholders'
equity........... 246,530 109,229
---------- ----------
Liabilities and
stockholders'
equity.......... $3,160,687 $1,859,195
========== ==========
Net interest
income/interest
rate spread...... $ 44,374 2.64% $22,367 2.18%
======== ==== ======= ====
Net earning
assets/net yield
on average
interest-earning
assets........... $ 221,386 2.96% $ 125,535 2.52%
========== ==== ========== ====
Ratio of
interest-earning
assets to
interest-bearing
liabilities..... 107.98% 107.60%
========== ==========
- ----
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------ AT DECEMBER 31,
1996 1995 1996
---------------------------- ------------------------- -------------------
AVERAGE
AVERAGE YIELD/ AVERAGE Yield/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE Cost
---------- -------- ------- ---------- -------- ---- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning
assets:
Loans
receivable...... $1,485,309 115,466 7.77% $1,132,669 86,511 7.64% $2,448,027 7.79%
Mortgage-backed
securities...... 289,759 18,291 6.31 321,074 19,747 6.15 359,587 6.95
Investment
securities (1).. 100,671 6,382 6.34 86,932 5,253 6.04 171,818 6.80
Interest-bearing
deposits........ 24,128 2,064 8.55 32,205 2,068 6.42 55,285 5.22
Federal funds
sold............ 14,088 1,121 7.96 24,389 1,596 6.54 24,700 5.25
---------- -------- ---------- -------- ----------
Total interest-
earning assets.. 1,913,955 143,324 7.49 1,597,269 115,175 7.21 3,059,417 7.56
Non-interest
earning assets... 104,543 75,098 170,924
---------- ---------- ----------
Total assets.... $2,018,498 $1,672,367 $3,230,341
========== ========== ==========
LIABILITIES AND ST
Interest-bearing
liabilities:
Deposits........ 1,350,501 63,325 4.69 1,248,513 55,794 4.47 2,195,885 4.41
Borrowed funds
and subordinated
debt............ 424,461 29,896 7.04 241,141 17,573 7.26 659,606 6.72
---------- -------- ---------- -------- ----------
Total interest-
bearing
liabilities..... 1,774,962 93,221 5.25 1,489,654 73,367 4.92 2,855,491 4.94
---- -------- ---- ----------
Non-interest
bearing
deposits......... 57,665 47,576 66,341
Other
liabilities...... 64,729 36,320 57,884
---------- ---------- ----------
Total
liabilities..... 1,897,356 1,573,550 2,979,716
Stockholders'
equity........... 121,142 98,817 250,625
---------- ---------- ----------
Liabilities and
stockholders'
equity.......... $2,018,498 $1,672,367 $3,230,341
========== ========== ==========
Net interest
income/interest
rate spread...... $ 50,103 2.24% $ 41,808 2.29% 2.62%
======== ==== ======== ====
Net earning
assets/net yield
on average
interest-earning
assets........... $ 138,993 2.62% $ 107,615 2.62% $ 203,926 N/A
========== ==== ========== ==== ========== ====
Ratio of
interest-earning
assets to
interest-bearing
liabilities..... 107.83% 107.22% 107.14%
========== ========== ==========
- ----
</TABLE>
(1) Includes $30.7 million, $16.2 million, $18.7 million, $10.4 million, and
$30.7 million of Stock in Federal Home Loan Bank of Chicago for the six
months ended December 31, 1996 and 1995, years ended June 30, 1996, 1995,
and at December 31, 1996, respectively.
13
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses is recorded to provide coverage for losses on
loans unknown to the Bank at the current time. Over the past three years, the
Bank has maintained consistent and historically low levels of non-performing
loan balances, as well as high coverage percentages of the allowance for loan
losses to non-performing loans. The Company recorded a provision for loan
losses of $700,000 for the six months ended December 31, 1996, compared to
$250,000 for the prior six month period. The increase in the provision is due
to loan portfolio growth. For the year ended June 30, 1996, the Company
recorded a provision of $700,000, compared to $475,000 for the year ended June
30, 1995, primarily due to the growth of the Bank's loan portfolio during the
year. The ratio of the allowance for loan losses to total loans receivable
decreased slightly to .73% at December 31, 1996, compared to .75% at June 30,
1996, and .73% at June 30, 1995. The ratio of the allowance for loan losses to
non-performing loans declined to 133.1% at December 31, 1996, compared to
134.5% at June 30, 1996 and 128.2% at June 30, 1995.
NON-INTEREST INCOME
Non-interest income is another significant source of revenue for the
Company. It consists of fees earned on products and services, gains and losses
from loan sale activity and income from real estate operations. Although
changes in interest rates can have an impact on earnings from these sources,
the impact is generally not nearly as dramatic as the impact on net interest
income. Non-interest income was $12.0 million for the six months ended
December 31, 1996 compared to $8.8 million for the six months ended December
31, 1995, and $17.1 million compared to $16.7 million for the years ended June
30, 1996 and 1995, respectively. The table below shows the composition of non-
interest income for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
------------------- --------------------
1996 1995 1996 1995
--------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Gain (loss) on sale of:
Loans receivable.................. $ 264 178 203 (56)
Mortgage-backed securities........ (296) 57 (5) --
Investment securities............. 251 45 188 (231)
Foreclosed real estate............ 161 21 50 181
Income from real estate operations.. 4,133 2,820 4,786 7,497
Deposit account service charges..... 3,219 2,370 4,894 3,347
Loan servicing fee income........... 1,249 1,164 2,394 2,373
Brokerage commissions............... 924 750 1,711 1,383
Mortgage loan late charges and other
loan fees.......................... 666 459 948 759
Insurance commissions............... 235 211 412 432
Safety deposit box fees............. 143 140 273 271
Loss on real estate owned opera-
tions, net......................... (51) (11) (17) (5)
Other............................... 1,061 550 1,263 699
--------- ------- --------- ---------
$ 11,959 8,754 17,100 16,650
========= ======= ========= =========
</TABLE>
The Bank recorded a net loss on the sale of loans receivable and mortgage-
backed securities for the six months ended December 31, 1996 of $32,000
compared to a net gain of $235,000 for the prior six month period. The loss is
primarily due to the sale of $16.9 million of adjustable-rate and fixed-rate
CMOs, which were classified as available for sale, at a loss of $301,000.
Without the loss, a net gain on sale of $269,000 was recognized from the
Bank's secondary market activity. The Bank sold loans totaling $65.5 million
during the current six month period, compared to $155.2 million in the prior
year period. Although loan sale volume declined during the current six month
period, the average margins on sale improved, primarily due to the adoption of
SFAS No. 122 on July 1, 1996, which requires the Bank to allocate its basis in
a loan to the principal balance of the loan, as well as to the value of the
related loan servicing rights. The Bank recorded a net gain on
14
<PAGE>
the sale of loans receivable and mortgage-backed securities of $198,000 for
the year ended June 30, 1996 compared to a loss of $56,000 for the year ended
June 30, 1995. During the year ended June 30, 1996, due to refinance activity,
loan sale volume increased 68.9%, compared to the prior year period. During
the year ended June 30, 1996, the Bank sold $269.2 million of loans, compared
to $95.2 million in the prior year period. Although loan sale volume
increased, margins on loan sales remained thin due to competitive pricing in
the origination market, which often led to the Bank originating loans at near
break even.
The gains and losses on mortgage-backed securities included in the above
figures represent the sale of loans originated by the Bank and swapped into
mortgage-backed securities prior to sale. The Bank swapped and sold $8.2
million during the six months ended December 31, 1996, compared to $14.3
million for the six months ended December 31, 1995. For the year ended June
30, 1996, the Bank swapped and sold $41.2 million of loans into mortgage-
backed securities. The Bank had no swap activity during the year ended June
30, 1995.
The Company had net gains on the sale of investment securities during the
six months ended December 31, 1996 of $251,000, compared to $45,000 during the
prior six month period, primarily due to the sale of marketable equity
securities. The Company had net gains on the sale of investment securities
during the year ended June 30, 1996 of $188,000, primarily due to the sale of
marketable equity securities, compared to net losses on the sale and writedown
of investment securities during 1995 of $231,000. The losses in 1995 are
primarily from the write-off of a $159,000 equity investment in a local
community housing organization and from the sale of investment securities
available for sale whose values deteriorated in the wake of rising interest
rates. These losses were offset by gains on the sale of marketable equity
securities.
Income from real estate operations increased $1.3 million to $4.1 million
for the six months ended December 31, 1996, compared to the six months ended
December 31, 1995, while decreasing $2.7 million to $4.8 million for the year
ended June 30, 1996 compared to the year ended June 30, 1995. A summary of
income from real estate operations is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, YEAR ENDED JUNE 30,
------------------------------- ------------------------
1996 1995 1996 1995
--------------- --------------- ----------- -----------
LOTS LOTS LOTS INCOME LOTS
SOLD INCOME SOLD INCOME SOLD (LOSS) SOLD INCOME
------ -------- ------ -------- ---- ------ ---- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Clow Creek Farm......... 10 $ 261 75 $ 1,675 145 $3,537 81 $1,711
Harmony Grove........... 75 760 -- -- -- -- -- --
Ashbury................. 23 1,624 24 1,064 34 1,392 134 5,364
Woods of Rivermist...... 3 157 -- -- -- -- 6 374
Scott's Crossing........ -- -- -- -- -- -- 1 39
Creekside of Remington.. -- -- 27 81 27 81 6 9
Woodbridge.............. 26 349 -- -- 10 85 -- --
Reigate Woods........... 15 826 -- -- 2 98 -- --
Fields of Ambria........ 13 156 -- -- 2 17 -- --
Other................... -- -- -- -- -- (424) -- --
----- -------- ----- -------- --- ------ --- ------
165 $ 4,133 126 $ 2,820 220 $4,786 228 $7,497
===== ======== ===== ======== === ====== === ======
</TABLE>
During the six months ended December 31, 1996, the Company sold its first
lots in the 386-lot Harmony Grove subdivision, located in Naperville,
Illinois. At December 31, 1996, an additional 52 lots are under contract.
Sales in the Clow Creek Farm subdivision slowed during the current six month
period, compared to the prior six month period, as well as the prior annual
periods due to the near completion of the project. Income from the Ashbury
subdivision during the current six month period includes $728,000 from the
sale of a 13-acre commercial site adjacent to the subdivision. At December 31,
1996, only 8 of the 1,115 lots in Ashbury remain unsold, all of which are
under contract. The three sales in the Woods of Rivermist subdivision during
the current six month period leave 7 lots remaining in this 31-lot
subdivision, of which 3 are under contract. The Creekside
15
<PAGE>
of Remington project, located in Bolingbrook, Illinois, just east of
Naperville, had strong sales early in 1996, but has since slowed. Margins on
these lots are much lower than previous projects, due to these being smaller,
lower priced lots, as well as sharing the development costs and profits with a
joint venture partner. The Scott's Crossing subdivision was sold out as of
June 30, 1995.
The sales in Woodbridge, Reigate Woods, and Fields of Ambria are results
from NW Financial, the land development subsidiary of Northwestern acquired in
the acquisition of NSBI. These sales represent home sales, as NW Financial's
land development activity consists of land improvement and homesite
construction. Activity in these three projects were within management's
expectations during the six months ended December 31, 1996. The other loss of
$424,000 during the year ended June 30, 1996 represents the write-off of the
Company's investment related to an option it had acquired on two parcels of
land. The Company chose not to exercise its option to purchase the parcels
following a thorough financial and market assessment of the project.
Deposit account service charges increased 35.8% to $3.2 million for the six
months ended December 31, 1996 compared to $2.4 million for the previous six
month period, which followed a 46.2% increase for the year ended June 30, 1996
compared to the year ended June 30, 1995. The results are a function of an
increase in the number of checking accounts due to continued success in the
Bank's direct mail checking campaign which is designed to attract new checking
accounts for potential fee revenue, as well as an increase in the number of
NSF items during the periods.
Loan servicing fee income is generated from loans which the Bank has
originated and sold, or from purchased servicing. Loan servicing fee income
increased 7.30% during the current six month period to $1.2 million when
compared to the prior six month period. For the year ended June 30, 1996, loan
servicing fee income was $2.4 million, consistent with the results for the
year ended June 30, 1995. The average balance of loans serviced for others was
$1.05 billion, $963.8 million, and $881.0 million, for the six months ended
December 31, 1996, and the year ended June 30, 1996 and 1995, respectively.
The increase in average loans serviced during the six months ended December
31, 1996 and the year ended June 30, 1996 is due to sales of loans originated
by the Bank. Despite an increase in the average balance of loans serviced for
others, loan servicing fee income has remained relatively stable due to the
continued reduction in the average loan servicing fee, due to new sales
containing only .25% in servicing fees, as well as the reduction in income
from the amortization of purchased servicing rights, and capitalized servicing
rights from wholesale loan originations. Amortization of mortgage servicing
rights totaled $156,000 for the six months ended December 31, 1996 compared to
$122,000 for the six months ended December 31, 1995, and $253,000 for the year
ended June 30, 1996, compared to $109,000 for the year ended June 30, 1995.
Through the Bank's affiliation with INVEST, the Bank offers non-traditional
investment products to its customers such as mutual funds, annuities and other
brokerage services. Commission revenue improved to $924,000 for the six months
ended December 31, 1996, compared to $750,000 for the prior six month period.
Commissions were $1.7 million for the year ended June 30, 1996, compared to
$1.4 million for the year ended June 30, 1995. The improvement in commissions
is due to increased sales of mutual funds and other non-traditional products.
The Bank has increased the number of locations which provide INVEST services.
In addition, the Bank is sharing in a greater percentage of current commission
revenue and trailer fee income on past mutual fund sales with INVEST.
16
<PAGE>
NON-INTEREST EXPENSE
Non-interest expense increased $23.8 million to $41.1 million for the six
months ended December 31, 1996, compared to the six months ended December 31,
1995. Included in the increase is the impact of the one-time assessment to
recapitalize the SAIF of $14.2 million. The remainder of the increase is
primarily due to the acquisition of NSBI. Non-interest expense for the year
ended June 30, 1996 was $4.4 million, or 13.1% greater than non-interest
expense for the year ended June 30, 1995. The table below shows the
composition of non-interest expense for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
------------------------------------
1996 1995 1996 1995
-------- ----------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Compensation............................. $ 11,657 7,645 16,790 14,474
Employee benefits........................ 2,846 2,052 4,419 3,783
-------- ------- --------- ---------
Total compensation and benefits........ 14,503 9,697 21,209 18,257
Occupancy expense........................ 1,715 1,056 2,469 2,274
Furniture, fixture and equipment ex-
pense................................... 937 699 1,305 1,248
Federal deposit insurance premiums....... 2,338 1,523 3,255 3,003
Special SAIF assessment.................. 14,216 -- -- --
Advertising and promotion................ 1,025 916 1,746 1,760
Data processing.......................... 1,032 760 1,683 1,473
Professional fees........................ 449 362 904 751
Postage.................................. 509 342 872 659
Stationery, brochures and supplies....... 514 425 857 618
ATM network fees......................... 277 266 527 523
Telephone................................ 274 200 413 349
Insurance costs.......................... 254 137 260 298
Amortization of goodwill................. 679 -- 113 --
Amortization of core deposit intangible
709..................................... -- 122 -- --
Other.................................... 1,647 890 2,051 2,199
-------- ------- --------- ---------
$ 41,078 17,273 37,786 33,412
======== ======= ========= =========
</TABLE>
Compensation and benefits increased 49.6% to $14.5 million for the six
months ended December 31, 1996, primarily due to the acquisition of NSBI. The
increase is primarily a function of the increased headcount of the Bank, due
to the addition of the six branches acquired in the merger with NSBI, as well
as a new branch opened by the Bank, and the addition of support staff.
Employee benefits expense increased $794,000, although the ratio of benefit
costs to compensation costs decline slightly to 24.4% for the current six
month period, compared to 26.8% for the prior six month period. The $3.0
million, or 16.2% increase during the year ended June 30, 1996 was primarily
due to an increase in loan related compensation, most notably a $1.0 million
increase in loan officer commissions, as well as the addition of employees,
primarily to staff the new branch and to handle increased loan volume. In
addition, the acquisition of NSBI increased compensation and benefits for one
month in 1996, or approximately $600,000. Benefit costs increased $636,000 in
1996 due to additional FICA tax expense, as well as profit sharing and SERP
benefit expenses.
Occupancy costs increased $659,000 to $1.7 million for the six months ended
December 31, 1996, primarily due to costs related to the six locations
acquired with NSBI and one new branch opened by the Bank in Berwyn, Illinois
in March, 1996. Occupancy costs remained relatively constant between the years
ended June 30, 1996 and 1995.
During the six months ended December 31, 1996, Congress enacted legislation
which recapitalized the SAIF with a one-time special assessment of 65.7 basis
points on deposit balances as of March 31, 1995. This charge
17
<PAGE>
equaled $14.2 million for the Bank. Without this assessment, FDIC insurance
premiums were $2.3 million for the current six month period, compared to $1.5
million for the prior six period. The increase is due to the acquisition of
$872.0 million of deposits from NSBI, offset in part by the partial refund of
the Bank's deposit insurance assessment in the last quarter of the current
period. FDIC insurance premiums increased slightly in 1996, compared to 1995.
The Bank's rate for deposit insurance has been unchanged since June 30, 1995.
Data processing expense increased $272,000, or 35.8% during the six months
ended December 31, 1996. The increase is due to increased depreciation expense
on equipment installed in the Company's new Berwyn branch, as well as the
branches acquired with NSBI. Data processing expense rose $210,000, or 14.3%
in 1996, due to the upgrading of data processing systems during the year ended
June 30, 1996. The Bank utilizes personal computers in many of its operations
as a means of controlling general operating expenses as well as providing the
means to improve the speed of processing transactions and other back office
productivity.
As a result of the merger with NSBI, the Bank established a core deposit
intangible on non-maturity deposit liabilities, and goodwill as required under
the purchase method of accounting. During the six months ended December 31,
1996, the Company amortized $709,000 of core deposit intangible, and $679,000
of goodwill amortization against operations. The Bank is amortizing its core
deposit intangible on an accelerated method over 10 years, while amortizing
goodwill on the straight-line method over a 20 year period. The amounts for
the year ended June 30, 1996 represent one month's amortization.
Other operating expenses increased $1.3 million for the six months ended
December 31, 1996 to $3.9 million. The increase is primarily due to additional
expenses primarily associated with the acquisition of NSBI and its impact on
costs such as postage, stationary and supplies, and insurance expense. The
$487,000 increase during the year ended June 30, 1996 was due to the addition
of operating overhead associated with the acquisition of NSBI (for one month),
as well as the internal growth in the Bank's loan portfolio and checking
account base, which led to an increased amount of overhead expenses.
INCOME TAXES
For the six months ended December 31, 1996, income tax expense totaled $5.6
million, equal to an effective income tax rate of 39.0%, compared to $5.2
million attributable to income from continuing operations for the six months
ended December 31, 1995, or an effective income tax rate of 38.6%. For the
year ended June 30, 1996, income tax expense attributable to income from
continuing operations totaled $10.8 million, equal to an effective income tax
rate of 37.9%, compared to $9.3 million, or an effective income tax rate of
38.2% for the year ended June 30, 1995.
REVIEW OF FINANCIAL CONDITION
Total assets increased $113.2 million, or 3.6% to $3.2 billion at December
31, 1996, compared to $3.1 billion at June 30, 1996. The increase was
primarily due to growth in loans receivable, which were funded primarily with
borrowed funds.
Cash, interest-bearing deposits and federal funds sold increased a combined
$30.9 million to $125.7 million at December 31, 1996. Year-end cash increased
in anticipation of the repayment of $40.0 million of FHLB of Chicago advances
in January, 1997.
Investment securities classified as held to maturity decreased $30.2
million, to $72.0 million as of December 31, 1996. The decrease is due to
maturities of $32.4 million of U.S. Government and agency securities, offset
by $1.5 million of purchases of U.S. Government and agency securities.
Investment securities available for sale increased $30.8 million to $69.0
million at December 31, 1996. Increases due to purchases of $39.3 million of
U.S. Government Agency securities, as well as non-mortgage backed
collateralized assets, were offset by sales of $2.0 million of marketable
equity securities and maturities of $7.2 million. Net unrealized gains in the
available for sale portfolio were $593,000 at December 31, 1996.
18
<PAGE>
Mortgage-backed securities classified as held to maturity decreased $26.7
million to $266.7 million as of December 31, 1996. The decrease is primarily
due to amortization and prepayments. Due to the Bank's ability to originate
sufficient amounts of mortgage loans for its own portfolio, the Bank did not
purchase any mortgage-backed securities during the six months ended December
31, 1996.
Mortgage-backed securities classified as available for sale decreased $31.8
million to $92.9 million at December 31, 1996, from $124.7 at June 30, 1996.
The decrease is primarily due the sale of $16.9 of adjustable and fixed-rate
CMOs, as well as normal amortization and prepayments. At December 31, 1996,
net unrealized losses in the available for sale portfolio were $352,000.
Included in total mortgage-backed securities at December 31, 1996 are $170.0
million of CMO's which have 3-5 year weighted average lives, and are primarily
collateralized by the Federal National Mortgage Association ("FNMA"), the
Federal Home Loan Mortgage Corporation ("FHLMC") and the Government National
Mortgage Association ("GNMA") mortgage-backed securities, and to a lesser
extent by whole loans. Also included in mortgage-backed securities as of
December 31, 1996 are $14.0 million, and $24.1 million of FHLMC securities
with an average yield of 8.39%, and 8.92% which collateralize a similar amount
of CMO bonds issued by the Bank's special purpose finance subsidiaries, Mid
America Finance Corporation ("MAFC") and Northwestern Acceptance Corporation
("NWAC"), respectively. Principal repayments and prepayments on these
securities are available exclusively for the repayment of the CMO bonds which
they collateralize.
Investment securities and mortgage-backed securities acquired and classified
as available-for-sale represent a secondary source of liquidity to the Bank
and the Company. The market value of these securities fluctuates with interest
rate movements. Net interest income in future periods may be adversely
impacted to the extent interest rates increase and these securities are not
sold with the proceeds reinvested at the higher market rates. The decision
whether to sell the available for sale securities or not, is based on a number
of factors, including but not limited to projected funding needs, reinvestment
alternatives and the relative cost of alternative liquidity sources.
Investments and mortgage-backed securities classified as held to maturity
cannot be sold except under extraordinary and very restrictive circumstances.
Generally, these investments are acquired for investment after taking into
account the Bank's cash flow needs, the investment's projected cash flows, the
Bank's overall interest rate and maturity structure of the liability base used
to fund these investment's and the net interest spread obtained. To the extent
the Bank has been able to maintain funding costs below a market rate of
interest, the potential negative impact from rising interest rates on
investments and mortgage-backed securities held to maturity on net interest
income in future periods has been substantially mitigated.
Loans receivable increased 6.0%, or $136.7 million to $2.4 billion at
December 31, 1996. Loan origination and purchase volume (through the Bank's
wholesale loan division) was $469.5 million, offset by amortization and
prepayments of $266.0 million, as well as sales of $65.5 million, during the
six months ended December 31, 1996. The loans sold represent long-term fixed-
rate mortgages, and are sold as an integral part of the Bank's mortgage
banking strategy. During the current six month period, the Bank held for
investment a substantial portion of its retail fixed-rate loan originations,
which led to the increase in the outstanding balance of loans receivable held
for investment purposes.
The allowance for loan losses increased to $17.9 million as of December 31,
1996, due to a current period provision for loan losses of $700,000, offset by
net charge-offs of $40,000. As of December 31, 1996, the Bank's ratio of the
allowance for loan losses to total non-performing loans was 133.1%, compared
to 134.5% as of June 30, 1996. In addition, the ratio of the allowance for
loan losses to total loans was relatively consistent at .73% at December 31,
1996, compared to .75% at June 30, 1996. During the six months ended December
31, 1996, the Bank allocated $1.5 million of its allowance for loan losses to
a specific allowance for loss against a second mortgage on a commercial real
estate loan.
19
<PAGE>
Real estate held for development or sale increased $1.5 million to $28.1
million at December 31, 1996. A summary of real estate held for development or
sale is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ --------
(IN THOUSANDS)
<S> <C> <C>
MAF Developments, Inc.:
Harmony Grove........................................ $ 4,164 5,104
Clow Creek Farm...................................... 717 1,168
Creekside of Remington............................... 1,760 1,807
Other................................................ 4,392 --
------- ------
11,033 8,079
------- ------
Mid America Developments, Inc.:
Ashbury.............................................. 122 1,196
Woods of Rivermist................................... 546 755
------- ------
668 1,951
------- ------
NW Financial, Inc.:
Reigate Woods........................................ 6,263 7,734
Woodbridge........................................... 8,348 6,475
Fields of Ambria..................................... 1,800 2,381
------- ------
16,411 16,590
------- ------
$28,112 26,620
======= ======
</TABLE>
Activity at MAF Developments, which is owned by the Company, was primarily
in the Harmony Grove subdivision, as the Company sold the first 75 lots of the
development, which were offset in part by continued development costs of the
project. At December 31, 1996, development of the first of three units is
substantially complete, with 52 lots under contract. The decline in Clow Creek
Farm is due to the successful sale of a majority of the lots in this project.
At December 31, 1996, there are 24 lots remaining, of which 8 are under
contract. Creekside of Remington's investment decreased slightly due to a
refund of costs. There was no sales activity, and little development costs
incurred during the current six month period. There are 3 lots pending sale in
Creekside at December 31, 1996, with 134 lots remaining which are unsold. The
other category consists of the first payment for land in a proposed joint
venture in Naperville, Illinois. The Company closed on a second parcel of land
for this same joint venture in January 1997, for approximately $7.0 million.
At the current time, this land is expected to be developed near the completion
of the Harmony Grove project sometime in 1998 or 1999.
Mid America Developments is nearing the completion of its operations with
the continued sales in Ashbury and Woods of Rivermist. At December 31, 1996,
all of the remaining 8 lots of Ashbury are under contract, with sales expected
to close in 1997. The Woods of Rivermist development is completely developed,
with 3 of the 7 remaining lots under contract at December 31, 1996.
NW Financial's projects continued to be developed during the six months
ended December 31, 1996, with additional funds disbursed for home construction
offset by sales activity. Sales activity in Reigate Woods and Fields of Ambria
led to a decline in each development's investment balance. Substantially all
underground improvements are complete in these two projects. In Woodbridge,
although there were 26 sales, the investment balance increased due to the
underground development costs disbursed during the current six month period in
the final unit (70 lots) of the subdivision.
Premises and equipment increased $1.1 million to $32.3 million at December
31, 1996, due to purchases of $2.5 million, offset by depreciation of $1.4
million. Costs were directed toward continued upgrading of the Company's data
processing system, building improvements necessary due to the merger with
NSBI, as well as land acquisition for the new permanent Ashbury branch.
20
<PAGE>
Cost in excess of fair value of net assets acquired (goodwill) decreased to
$26.3 million at June 30, 1996, due to amortization of $679,000, offset by
additional acquisition expenses of $125,000. Goodwill is being amortized over
a 20 year period using the straight-line method.
Deposits increased $8.1 million to $2.26 billion as of December 31, 1996.
The increase is due to interest credited on deposits of $45.0 million, offset
by net outflows of deposits of $36.7 million during the six months ended
December 31, 1996, and $257,000 in amortization of purchase accounting
premiums on certificates of deposits.
Borrowed funds, which consist primarily of FHLB of Chicago advances, as well
as CMO bonds payable, and reverse repurchase agreements, increased $95.2
million, to $632.9 million at December 31, 1996. During the current six month
period, the Bank borrowed an additional $60.0 million (net) of FHLB of Chicago
advances, primarily to fund loan volume held for investment purposes. As of
December 31, 1996, the Bank has $480.5 million of FHLB of Chicago advances at
a weighted average rate and term of 6.44%, and 2.7 years, respectively,
compared to $420.5 million of FHLB of Chicago advances at a weighted average
rate and term of 6.40%, and 2.2 years, respectively, as of June 30, 1996. The
Bank also increased its balance of reverse repurchase agreements by $40.0
million to $79.8 million at December 31, 1996. At December 31, 1996, these
borrowings have an average life of 17 months and an average cost of 6.55%.
Offsetting these increases was the repayment of CMO bonds payable issued by
MAFC and NWAC, totaling $5.0 million during the six months ended December 31,
1996.
LENDING ACTIVITIES
General. The Bank's lending activities reflect its focus as a consumer
banking institution serving its local market area by concentrating on
residential mortgage lending. Reflective of this focus, the Bank has been one
of the largest originators of residential mortgages in its market area for
years. In addition to traditional retail originations, the Bank also operates
a wholesale lending operation that purchases loans from brokers and
correspondents. In connection with these activities, the Bank emphasizes the
origination of adjustable-rate or shorter-term loans for its portfolio and
sells the majority of its long-term fixed-rate loans directly into the
secondary market. It is the Bank's general policy that approximately 60-70% of
its loan portfolio have adjustable rates or terms to repricing or maturity of
seven years or less. The Bank originates and purchases long-term fixed-rate
mortgage loans in response to customer demand; however, the Bank sells
selected conforming long-term fixed-rate mortgage loans and a limited amount
of ARM loans in the secondary market, primarily to the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). The volume of current loan originations sold into the secondary
market varies over time based on the Bank's available cash or borrowing
capacity, as well as in response to the Bank's asset/liability management
strategy.
During the six months ended December 31, 1996, the Bank originated and
purchased $213.2 million in fixed-rate one- to four-family residential
mortgage loans, of which $152.0 million, or 71.3%, conformed to the
requirements for sale to FNMA and FHLMC and $61.2 million, or 28.7%, did not
conform to the requirements of these agencies. During the six months ended
December 31, 1996, the Bank sold $65.5 million of these loans in the secondary
market. The Bank's "nonconforming" loans are generally designated as such
because the principal loan balance exceeds $207,000 ($214,600 as of January 1,
1997), which is the FHLMC and FNMA purchase limit, and not because the loans
present increased risk of default to the Bank. Generally, nonconforming loans
are held in the Bank's loan portfolio. Loans with such excess balances carry
interest rates from one-eighth to three-eighths of one percent higher than
similar, conforming fixed-rate loans.
As a result of its acquisition of NSBI, the Bank acquired a $749.7 million
loan portfolio. Included in the portfolio as of the acquisition date was a
$670.5 million nationwide portfolio of single-family residential mortgage
loans which had been purchased through brokers as part of NSBI's loan
strategy. Collateral for this portfolio is spread throughout 45 states, Puerto
Rico and the District of Colombia. Currently, it is not management's intent to
continue the purchase strategy utilized successfully by NSBI, rather
management intends to manage this purchased loan portfolio through its
maturity. Due to normal amortization and prepayments, this portfolio has a
balance of $595.0 million at December 31, 1996.
21
<PAGE>
While the Bank has primarily focused its lending activities on the
origination of loans secured by first mortgages on owner-occupied one- to
four-family residences, the Bank, to a lesser extent, also originates multi-
family mortgage loans, residential construction loans, land acquisition and
development loans, commercial real estate loans and a variety of consumer
loans. At December 31, 1996, the Bank's net loans receivable amounted to $2.4
billion, excluding $359.6 million in mortgage-backed securities.
22
<PAGE>
LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition
of the Bank's loan and mortgage-backed securities portfolio in dollar amounts
and in percentages at the dates indicated:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------------------------------------
DECEMBER 31, 1996 1996 1995 1994 1993
------------------ ------------------ ------------------ ------------------ ----------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
---------- ------- ---------- ------- ---------- ------- ---------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REAL ESTATE LOANS:
One- to four-family:
Held for investment... $2,160,525 87.93% $2,032,102 87.57% $1,032,233 80.25% $ 835,369 81.28% $735,526 74.77%
Held for sale......... 6,495 0.26 9,314 0.40 24,984 1.94 8,739 0.85 68,165 6.93
Multi-family........... 92,968 3.78 94,713 4.08 67,248 5.23 49,864 4.85 46,043 4.68
Commercial............. 46,313 1.89 46,101 1.99 47,273 3.68 52,090 5.07 56,687 5.76
Construction........... 17,263 0.70 16,090 0.69 19,984 1.55 13,860 1.35 12,460 1.27
Land................... 25,685 1.05 26,644 1.15 19,281 1.50 15,453 1.50 17,873 1.82
---------- ------ ---------- ------ ---------- ------ ---------- ------ -------- ------
Total real estate
loans................ 2,349,249 95.61 2,224,964 95.88 1,211,003 94.15 975,375 94.90 936,754 95.23
---------- ------ ---------- ------ ---------- ------ ---------- ------ -------- ------
OTHER LOANS:
Consumer loans:
Equity lines of
credit................ 86,614 3.53 79,193 3.41 66,710 5.19 46,451 4.52 41,164 4.18
Home equity loans..... 14,251 0.58 10,525 0.45 4,335 0.34 1,112 0.11 2,040 0.21
Other................. 5,009 0.20 4,110 0.18 2,652 0.20 2,471 0.24 2,483 0.25
---------- ------ ---------- ------ ---------- ------ ---------- ------ -------- ------
Total consumer
loans................ 105,874 4.31 93,828 4.04 73,697 5.73 50,034 4.87 45,687 4.64
Commercial business
loans.................. 1,871 0.08 1,821 0.08 1,560 0.12 2,341 0.23 1,241 0.13
---------- ------ ---------- ------ ---------- ------ ---------- ------ -------- ------
Total other loans.... 107,745 4.39 95,649 4.12 75,257 5.85 52,375 5.10 46,928 4.77
---------- ------ ---------- ------ ---------- ------ ---------- ------ -------- ------
Total loans
receivable........... 2,456,994 100.00% 2,320,613 100.00% 1,286,260 100.00% 1,027,750 100.00% 983,682 100.00%
====== ====== ====== ====== ======
LESS:
Loans in process....... 7,620 6,715 8,728 5,161 7,592
Unearned discounts,
premiums and deferred
loan fees, net......... 1,347 3,245 882 2,818 4,417
Allowance for loan
losses................. 17,914 17,254 9,197 8,779 7,993
---------- ---------- ---------- ---------- --------
Loans receivable, net... $2,430,113 $2,293,399 $1,267,453 $1,010,992 $963,680
========== ========== ========== ========== ========
MORTGAGE-BACKED
SECURITIES:
GNMA held to maturity.. $ 3,248 3,637 -- -- --
FHLMC held to
maturity............... 138,963 157,468 31,560 38,789 90,444
FHLMC available for
sale................... 7,425 8,052 -- -- --
FNMA held to maturity.. 29,343 32,044 16,296 19,283 40,445
FNMA available for
sale................... 12,029 13,565 -- -- 4,108
CMOs held to maturity.. 95,104 100,232 196,096 289,830 227,175
CMOs available for
sale................... 73,475 103,104 63,438 -- --
---------- ---------- ---------- ---------- --------
Total mortgage-backed
securities.............. $ 359,587 418,102 307,390 347,902 362,172
========== ========== ========== ========== ========
</TABLE>
23
<PAGE>
The following table shows the composition of the Bank's fixed- and
adjustable-rate loan portfolio as well as the Bank's mortgage-backed
securities portfolio as of the dates indicated.
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------
DECEMBER 31, 1996 1996 1995
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ADJUSTABLE-RATE LOANS:
Real estate:
One-to four-family.... $1,534,435 62.45% $1,513,732 65.23% $ 728,383 56.63%
Multi-family.......... 67,762 2.76 68,058 2.93 63,030 4.90
Commercial............ 20,424 .83 20,178 .87 25,245 1.96
Construction.......... 15,749 .64 11,812 .51 5,837 .45
Land.................. 16,430 .67 14,872 .64 6,782 .53
---------- ------ ---------- ------ ---------- ------
Total adjustable-rate
real estate loans... 1,654,800 67.35 1,628,652 70.18 829,277 64.47
Consumer............... 88,368 3.60 79,883 3.44 66,775 5.19
Commercial business.... 1,257 .05 911 .04 829 .07
---------- ------ ---------- ------ ---------- ------
Total adjustable-rate
loans receivable.... 1,744,425 71.00 1,709,446 73.66 896,881 69.73
---------- ------ ---------- ------ ---------- ------
FIXED-RATE LOANS:
Real estate:
One-to four-family.... 626,090 25.48 518,370 22.34 303,850 23.62
One-to four-family
held for sale........ 6,495 .26 9,314 .40 24,984 1.94
Multi-family.......... 25,206 1.03 26,655 1.15 4,218 .33
Commercial............ 25,889 1.05 25,923 1.12 22,028 1.71
Construction.......... 1,514 .06 4,278 .18 14,147 1.10
Land.................. 9,255 .38 11,772 .51 12,499 .97
---------- ------ ---------- ------ ---------- ------
Total fixed-rate real
estate loans........ 694,449 28.26 596,312 25.70 381,726 29.67
Consumer............... 17,506 .71 13,945 .60 6,922 .54
Commercial business.... 614 .03 910 .04 731 .06
---------- ------ ---------- ------ ---------- ------
Total fixed-rate
loans receivable.... 712,569 29.00 611,167 26.34 389,379 30.27
---------- ------ ---------- ------ ---------- ------
Total loans
receivable.......... 2,456,994 100.00% 2,320,613 100.00% 1,286,260 100.00%
====== ====== ======
LESS:
Loans in process....... 7,620 6,715 8,728
Unearned discounts,
premiums and deferred
loan fees, net........ 1,347 3,245 882
Allowance for loan
losses................ 17,914 17,254 9,197
---------- ---------- ----------
Loans receivable,
net................. $2,430,113 $2,293,399 $1,267,453
========== ========== ==========
MORTGAGE-BACKED
SECURITIES:
Adjustable-rate........ 149,919 41.80% $ 165,905 39.77% $ 102,614 33.42%
Fixed-rate held by the
Bank.................. 170,686 47.59 207,032 49.63 183,924 59.91
Fixed-rate held by
finance subsidiaries
(1)................... 38,073 10.61 44,202 10.60 20,470 6.67
---------- ------ ---------- ------ ---------- ------
Total mortgage-backed
securities.......... 358,678 100.00% 417,139 100.00% 307,008 100.00%
====== ====== ====== ===
Plus unamortized
premiums............... 909 963 382
---------- ---------- ----------
Mortgage-backed
securities, net..... $ 359,587 $ 418,102 $ 307,390
========== ========== ==========
SUMMARY:
Adjustable rate loans:
Loans receivable...... $1,744,425 62.80% $1,709,446 63.46% $ 896,881 57.03%
Mortgage-backed
securities........... 149,919 5.40 165,905 6.16 102,614 6.52
---------- ------ ---------- ------ ---------- ------
Total adjustable-rate
loans............... 1,894,344 68.20 1,875,351 69.62 999,495 63.55
Fixed-rate loans:
Loans receivable...... 712,569 25.65 611,167 22.69 389,379 24.76
Mortgage-backed
securities (2)....... 170,686 6.15 207,032 7.69 183,924 11.69
---------- ------ ---------- ------ ---------- ------
Total fixed-rate
loans............... 883,255 31.80 818,199 30.38 573,303 36.45
---------- ------ ---------- ------ ---------- ------
Total loan portfolio
(2)................. $2,777,599 100.00% $2,693,550 100.00% $1,572,798 100.00%
========== ====== ========== ====== ========== ======
</TABLE>
- -------
(1) See "Subsidiary activities--Mid America Finance Corporation and
Northwestern Acceptance Corporation."
(2) Excludes the fixed-rate mortgage-backed securities held by MAFC and NWAC,
which are duration matched.
24
<PAGE>
LOAN MATURITY
The following table shows the contractual maturity of the Bank's loan
portfolio at December 31, 1996. The table does not include principal
repayments. Principal repayments and prepayments on mortgage loans totaled
$266.0 million, $394.3 million and $231.2 million, for the six months ended
December 31, 1996, and the years ended June 30, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-----------------------------------------------------------------------
REAL ESTATE MORTGAGE LOANS OTHER LOANS
----------------------------------------- -----------------
ONE-TO COMM-
FOUR- MULTI- COMM- CON- ERCIAL
FAMILY FAMILY ERCIAL STRUCTION LAND CONSUMER BUSINESS TOTAL
---------- ------ ------ --------- ------ -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amount due:
One year or less....... $ 580 96 721 14,803 1,456 3,276 449 21,381
---------- ------ ------ ------ ------ ------- ----- -----------
After one year:
1 year to 2 years..... 416 645 7,591 2,460 3,238 1,070 647 16,067
2 years to 3 years.... 369 4,331 582 -- 16,308 866 93 22,549
3 years to 5 years.... 24,851 3,470 3,216 -- 101 5,085 190 36,913
5 years to 10 years... 216,716 12,312 10,067 -- 1,061 65,225 492 305,873
10 years to 20 years.. 199,415 29,470 19,224 -- 3,311 30,352 -- 281,772
Over 20 years......... 1,718,178 42,644 4,912 -- 210 -- -- 1,765,944
---------- ------ ------ ------ ------ ------- ----- -----------
Total after 1 year... 2,159,945 92,872 45,592 2,460 24,229 102,598 1,422 2,429,118
---------- ------ ------ ------ ------ ------- ----- -----------
Total amount due..... $2,160,525 92,968 46,313 17,263 25,685 105,874 1,871 2,450,499
========== ====== ====== ====== ====== ======= =====
Less:
Loans in process....... 7,620
Deferred yield
adjustments........... 1,347
Allowance for loan
losses................ 17,914
-----------
Total loans held for
investment............ 2,423,618
Mortgage loans held for
sale................... 6,495
-----------
Total loans, net....... $ 2,430,113
===========
</TABLE>
The following table sets forth at December 31, 1996 the dollar amount of
gross loans receivable held for investment due after December 31, 1997, and
whether such loans have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER DECEMBER 31, 1997
-----------------------------
FIXED ADJUSTABLE TOTAL
-------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Real estate loans:
One-to four-family............................... $625,516 1,534,429 2,159,945
Multi-family..................................... 25,347 67,525 92,872
Commercial....................................... 25,168 20,424 45,592
Construction..................................... 1,090 1,370 2,460
Land............................................. 7,799 16,430 24,229
Consumer.......................................... 15,984 86,614 102,598
Commercial business............................... 613 809 1,422
-------- --------- ---------
Total loans receivable........................... $701,517 1,727,601 2,429,118
======== ========= =========
</TABLE>
25
<PAGE>
Retail Residential Mortgage Lending. The Bank focuses its lending efforts
primarily on the retail origination of loans secured by first mortgages on
owner-occupied, one-to four-family residences. Residential loan originations
are generated by the Bank's marketing efforts, its present customers, walk-in
customers and referrals from real estate brokers and builders. The Bank's loan
officers are compensated primarily through commissions, based on the level of
loans originated in accordance with the Bank's lending standards. At December
31, 1996, the Bank's one-to four-family residential mortgage loans totaled
$2.2 billion, or 88.2% of the Bank's total loans receivable. The Bank
emphasizes the origination of conventional ARM loans and shorter-term to
maturity or repricing and jumbo loans for retention in its portfolio and
fixed-rate conforming loans for both portfolio purposes as well as for sale in
the secondary market. The Bank's retail residential mortgage originations are
predominantly in the Bank's market area. During the six months ended December
31, 1996, the Bank originated $108.5 million of residential ARM loans,
representing 43.0% of the total loans originated by the Bank during that
period. During the same period, the Bank originated $113.8 million of fixed-
rate residential mortgage loans, representing 45.1% of the total mortgage
loans originated by the Bank during that period.
The Bank currently makes adjustable-rate one- to four-family residential
mortgage loans. The Bank also offers FHA and VA guaranteed loans, although at
December 31, 1996, such loans represented less than 1.5% of the Bank's total
loans receivable. The Bank currently offers a number of ARM loan programs
under which the interest rate may be fixed for the initial one-, three-, five-
or seven-year period. Most of the Bank's residential ARM loans adjust on an
annual basis following the initial one-, three- or five-year fixed-rate
period. The Bank also offered, until recently, ARM loans that are fixed for an
initial five- or seven-year period that reprice once at the end of the initial
period for the remaining 25 or 23 year term based on a spread above the weekly
average of U.S. Treasury securities adjusted to a constant maturity of ten
years (the "ten year Treasury constant maturity index"). The Bank's ARM loans
generally carry an initial interest rate which is less than the fully indexed
rate for the loan. The initial discount rate is determined by the Bank in
accordance with market and competitive factors. After the initial fixed-rate
period, the interest rates on the ARM loans that adjust annually reprice based
on a spread above the published weekly average yield on United States Treasury
securities, adjusted to a constant maturity of one year (the "one-year
Treasury constant maturity index"). Interest rates and origination fees on ARM
loans are priced to be competitive in the local market. These loans are
subject to limitations on annual interest rate adjustments of 2%, as well as a
lifetime interest rate cap adjustment of either 6% or 7%, and are originated
for terms of up to 30 years. At December 31, 1996, the weighted average term
to repricing of the Bank's ARM loan portfolio was 1.37 years.
The Bank also offers fixed-rate mortgage loans with terms to maturity of 10,
15, 20 and 30 years and fixed-rate balloon loans that mature after seven
years. The Bank's fixed-rate loan products generally offer a monthly repayment
option. Interest rates charged on fixed-rate loans are competitively priced on
a daily basis based on secondary market prices and market conditions. The Bank
generally originates its fixed-rate and adjustable-rate mortgage loans in a
form consistent with secondary market standards.
The Bank's residential mortgage loans customarily include due-on-sale
clauses giving the Bank the right to declare the loan immediately due and
payable in the event, among other things, the borrower sells or otherwise
disposes of the property subject to the mortgage and the loan is not repaid.
The Bank has enforced due-on-sale clauses in its mortgage contracts for the
purpose of increasing its loan portfolio yield, often through the
authorization of assumptions of existing loans at higher rates of interest and
the imposition of assumption fees. ARM loans may be assumed provided home
buyers meet the Bank's underwriting standards and the applicable fees are
paid.
Loan applications are reviewed in accordance with the underwriting standards
approved by the Bank's Board of Directors and which generally conform to FNMA
standards. Loans in excess of $500,000 must be approved by a senior officer
and loans in excess of $1.0 million must be approved by the Loan Committee of
the Board of Directors. In underwriting residential real estate loans, the
Bank evaluates both the borrower's ability to make monthly payments and the
value of the property securing the loan. Potential borrowers are qualified for
ARM loans and fixed-rate loans based on the initial or stated rate of the
loan, except for one-year ARM loans
26
<PAGE>
with a loan-to-value ratio in excess of 70% and a term greater than 15 years,
in which case the borrower is qualified at 2% above the initial note rate.
Upon receipt of a completed loan application from a prospective borrower,
credit reports are ordered and income, employment and financial information is
verified in accordance with FNMA standards. An appraisal of the real estate
intended to secure the proposed loan is undertaken by a Bank appraiser or an
independent appraiser previously approved by the Bank. It is the Bank's policy
to obtain title insurance on all mortgage loans. Borrowers also must obtain
hazard (including fire) insurance prior to closing. The Bank also requires
flood insurance on a property located in special flood hazard areas. Borrowers
are required to advance funds on a monthly basis together with each payment of
principal and interest through a mortgage escrow account from which the Bank
makes disbursements for items such as real estate taxes and hazard insurance
premiums as they become due. The Bank has adopted a policy of limiting the
loan-to-value ratio on originated loans and refinanced loans to 97% and
requiring that loans exceeding 80% of the appraised value of the property or
its purchase price, whichever is less, be insured by a mortgage insurance
company approved by the FNMA in an amount sufficient to reduce the Bank's
exposure to no greater than the 75% level. Despite the benefits of ARM loans
to the Bank's asset/liability management program, they do pose potential
additional risks, primarily because as interest rates rise, the underlying
payment requirements of the borrower rise, thereby increasing the potential of
default.
Wholesale Residential Lending. In 1994, the Bank commenced a wholesale loan
origination division which purchases loans from brokers and correspondents for
a fee generally ranging from 1.25% to 1.50%. Generally, the Bank offers the
same type of loan products, both fixed-rate and adjustable-rate loans, at
interest rates similar to those it offers on retail originations. The purchase
of these loans does not necessitate the Bank to incur the processing costs
associated with its retail originations. The Bank acts as the supplier of
funds for the mortgage broker who is responsible for the processing and
closing of the loan. The Bank performs its normal underwriting procedures on
wholesale originated loans similar to retail loans, and can refuse to purchase
any loan which does not meet its underwriting criteria. Wholesale originations
were $171.5 million during the six months ended December 31, 1996 compared to
$159.0 million during the six months ended December 31, 1995, and $360.9
million for the year ended June 30, 1996 compared to $156.3 million for the
year ended June 30, 1995.
Purchased Loans. At December 31, 1996, the Bank had $595.0 million, compared
to $664.5 million at June 30, 1996, of purchased residential mortgage loans,
nearly all of which were acquired as part of the acquisition of NSBI. The Bank
does not intend to continue Northwestern's strategy of purchasing out-of-state
loans. The decrease in the balance is primarily due to prepayments and
amortization. The vast majority of purchased loans are secured by properties
which serve as the primary residence of the borrower, and which are located
primarily in metropolitan areas located in 45 states, Puerto Rico and the
District of Columbia. At December 31, 1996, purchased loans were being
serviced by 108 companies, the largest of which serviced $117.0 million, or
19.7% of total purchased loans. The loans in this portfolio were underwritten
with substantially the same underwriting standards as those of the Bank. One
variation from these guidelines is that loans exceeding FNMA and FHLMC limits
could be purchased up to $400,000 with a loan-to-value-ratio of 80% or less,
and up to $300,000 with a loan-to-value ratio of 90% or less with private
mortgage insurance. At December 31, 1996, $346.6 million, or 58.3% of the
loans in the purchased loan portfolio are in excess of the current FNMA limit
of $214,600. In addition to these underwriting guidelines, original executed
promissory notes with proper endorsements are in the possession of the Bank.
Construction and Land Lending. The Bank originates loans to finance the
construction of one-to four-family residences, primarily in its market area.
At December 31, 1996, the Bank had $17.3 million of loans to finance the
construction of one- to four-family residences. The Bank also originates loans
for the acquisition and development of unimproved property to be used
primarily for residential purposes in cases where the Bank is to provide the
construction funds to improve the properties. At December 31, 1996, the Bank's
construction and land loans totaled $42.9 million, or 1.8%, of total loans
receivable.
The Bank finances the construction of primarily individual, owner-occupied
houses where qualified contractors are involved and on the basis of
underwriting and construction loan guidelines. Construction loans
27
<PAGE>
are structured either to be converted to permanent loans at the end of the
construction phase or to be paid off upon receiving financing from another
financial institution. Construction loans are based on the appraised value of
the property, as determined by an independent appraiser, and an analysis of
the potential marketability and profitability of the project. Construction
loans generally have terms of up to 12 months, with extensions as needed. Loan
proceeds are disbursed in increments as construction progresses and as
inspections warrant.
Land loans include loans to developers for the development of residential
subdivisions and loans on improved lots to builders and individuals. At
December 31, 1996, the Bank had land loans to developers totaling $13.5
million. At December 31, 1996, the largest aggregate amount of land
acquisition and development loans to a single developer amounted to $11.4
million. Loans to developers are short-term loans with terms of three to five
years. The loan-to-value ratio may not exceed 80% and generally is less than
75%. The majority of such loans are at fixed interest rates, although the Bank
offers an ARM loan product with interest rates which adjust based on a stated
percentage over the prime rate. Loans generally are made to customers of the
Bank and developers with whom the Bank has had long-standing relationships.
The Bank requires an independent appraisal of the property and feasibility
studies may be required to determine the profit potential of the development
project. All of the Bank's land loans to developers have been made in the
Chicago metropolitan area.
Land loans are also made to local builders for the purchase of improved
lots. At December 31, 1996, the Bank had land loans outstanding to local
builders totaling $7.9 million. Such loans are generally for terms of up to
three years and are made at the prevailing fixed interest rates quoted for 30-
year fixed-rate residential mortgage loans. The loan-to-value ratio on such
loans is limited to 80%. Land loans for the purchase of fully improved lots
are also made to individuals. At December 31, 1996, the Bank had land loans to
individuals totaling $4.3 million. Such loans are made for up to 15-year terms
with adjustable interest rates which are generally higher than those granted
for one- to four-family residential ARM loans. The loans adjust in accordance
with the one-year Treasury constant maturity index and are underwritten in
accordance with the same standards used for residential ARM loans.
Construction and land loans afford the Bank the opportunity to increase the
interest rate sensitivity of its loan portfolio and to receive yields higher
than those obtainable on ARM loans secured by existing residential properties.
These higher yields correspond to the higher risks associated with
construction lending. Construction loans involve additional risks attributable
to the fact that loan funds are advanced upon the security of the project
under construction, which is of uncertain value prior to its completion.
Because of the uncertainties inherent in estimating construction costs as well
as the market value of the completed project and the effects of governmental
regulation of real property, it is relatively difficult to evaluate accurately
the total funds required to complete a project and the related loan-to-value
ratio. As a result of the foregoing, construction lending often involves the
disbursement of substantial funds with repayment dependent, in part, on the
success of the ultimate project rather than the ability of the borrower or
guarantor to repay principal and interest. If the Bank is forced to foreclose
on a project prior to or at completion due to a default, there can be no
assurance that the Bank will be able to recover all of the unpaid balance of,
and accrued interest on, the loan as well as related foreclosure and holding
costs. In addition, the Bank may be required to fund additional amounts to
complete the project and may have to hold the property for an unspecified
period of time. The Bank has attempted to address these risks through its
underwriting procedures and its limited amount of construction lending on
multi-family and commercial real estate properties.
Multi-family Lending. The Bank originates multi-family residential mortgage
loans in its market area. At December 31, 1996, the Bank had multi-family
loans of $93.0 million, including a portfolio of purchased participating
interests of $2.1 million related to low-income housing. Multi-family loans
represent 3.8% of total loans receivable at December 31, 1996. ARM loans
represented 72.9% of the multi-family residential loan portfolio at December
31, 1996. Such loans are offered with initial fixed-rate periods of one,
three, five, seven and ten years. Multi-family residential mortgage loans are
made for terms to maturity of up to 30 years and carry a loan-to-value ratio
not greater than 80%. The Bank requires a positive net operating income to
debt service ratio for loans secured by multi-family residential property.
Loans secured by non-owner occupied properties of
28
<PAGE>
more than six units are qualified on the basis of rental income generated by
the property. On loans secured by owner-occupied properties of six units or
less, the Bank will qualify the borrower on the basis of the borrower's
personal income and rental income generated by the property.
Commercial Real Estate Lending. In connection with the Bank's policy of
maintaining an interest-rate sensitive loan portfolio, the Bank has originated
loans secured by commercial real estate, which generally carry a higher yield
and are made for a shorter term than fixed-rate one- to four-family
residential loans. At December 31, 1996, the Bank had $46.3 million of
commercial real estate loans. The Bank's policy has been to curtail the
origination of additional commercial real estate loans. Commercial real estate
loans are generally granted in amounts up to 80% of the appraised value of the
property, as determined by an independent appraiser previously approved by the
Bank. The Bank's commercial real estate loans are secured by improved
properties located in the Chicago metropolitan area. The Bank often requires
borrowers to provide their personal guarantees on loans made for commercial
real estate.
Loans secured by commercial real estate properties are generally larger and
involve a greater degree of risk than residential mortgage loans. Because
payments on loans secured by commercial real estate properties are often
dependent on the successful operation or management of the properties,
repayment of such loans may be subject to adverse conditions in the real
estate market or the economy. The Bank seeks to minimize these risks by
lending primarily on existing income-producing properties and generally
restricting such loans to properties in the Chicago area. The Bank analyzes
the financial condition of the borrower and the reliability and predictability
of the net income generated by the security property in determining whether to
extend credit. In addition, the Bank generally requires a net operating income
to debt service ratio of at least 1.15 times.
A loan with an outstanding balance of $6.3 million at December 31, 1996
represents the Bank's largest single commercial real estate loan to one
borrower. The loan is on a shopping center located in Carol Stream, Illinois
and is current as to the payment of principal and interest at December 31,
1996. At December 31, 1996, the Bank's ten largest commercial real estate
loans totaled $35.9 million, all but one of which are current and performing
in accordance with their original or restructured terms. See "Asset Quality
and Allowance for Loan Losses".
Other Lending. The Bank's other lending activities consist of consumer
lending, primarily home equity lines of credit, and to a lesser extent,
commercial business lending. On December 31, 1996, outstanding balances on
home equity lines represented $86.6 million or 3.5% of the Bank's total loan
portfolio. Home equity lines of credit are generally extended up to 80% of the
appraised value of the property, less existing liens, at an interest rate of
the designated prime rate plus 1.0% (prime plus .5% for balances in excess of
$50,000), some of which are subject to floors. To a lesser extent, the Bank
offers home equity lines of credit at greater than 80% to 100% of the
appraised value of the property. The interest rate on greater than 80% loan-
to-value lines of credit is the designated prime rate plus 3.5%. The Bank uses
the same underwriting standards for home equity lines of credit as it uses for
residential mortgage loans. Other home equity lending consists of $14.3
million of fixed-rate, second mortgage loans with original maturities of
fifteen years or less.
At December 31, 1996, the Bank's loan portfolio included other loans
amounting to $6.9 million, which consisted of $1.2 million of automobile
loans, $1.2 million of savings account loans, and $4.5 million of commercial
business loans, student loans and other loans. In addition, at December 31,
1996, the Bank had $18.1 million in standby letters of credit, one of which
totals $6.5 million to enhance a developer's industrial revenue bond financing
of commercial real estate located in the Bank's market area. The Bank's second
mortgage on this commercial real estate parcel is in the process of
foreclosure. See "Asset Quality and Allowance for Loan Losses"
Environmental Issues. The Bank encounters certain environmental risks in its
lending activities. Under federal and state environmental laws, lenders may
become liable for the costs of cleaning up hazardous materials found on
security property. Although environmental risks are usually associated with
industrial and commercial loans, risks may be substantial for residential
lenders like the Bank if environmental contamination makes
29
<PAGE>
security property unsuitable for use. This could also have effect on nearby
property values. In accordance with FNMA and FHLMC guidelines, appraisals for
single-family residences on which the Bank lends include comments on
environmental influences. The Bank attempts to control its risk by training
its appraisers and underwriters to be cognizant of signs indicative of
environmental hazards. No assurance can be given, however, that the values of
properties securing loans in the Bank's portfolio will not be adversely
affected by unforeseen environmental risks, although the Bank is unaware of
any environmental issues which would subject it to liability at this time.
Originations, Purchases, Sales, Swaps of Mortgage Loans and Mortgage-Backed
Securities. The Bank originates and purchases both ARM and fixed-rate loans.
Its ability to originate loans is dependent upon the relative customer demand
for fixed-rate or ARM loans in the origination and purchase market, which is
affected by the term structure (short-term compared to long-term) of interest
rates as well as the current and expected future level of interest rates. The
Bank sells selected conforming fixed-rate mortgage loans in the secondary
mortgage market to manage its interest rate risk exposure. Substantially all
of these loans are sold without recourse. These loan sales also allow the Bank
to continue to make loans when deposit flows decline or funds are not
otherwise available for lending. Generally, the loans are sold for cash or
securitized and sold in the secondary mortgage market to investors such as
FNMA and FHLMC, as well as investment banks and other financial institutions.
The Bank has also exchanged or swapped loans out of its portfolio for
mortgage-backed securities primarily with FNMA and FHLMC. Generally, the
mortgage-backed securities are used to collateralize borrowings and deposits
or are sold in the secondary market to raise additional funds. Swap activity
by the Bank is governed by pricing levels in the secondary mortgage market for
whole mortgage loans versus securitized mortgage loans, as well as the level
of rates for collateralized borrowings. During the current six month period,
the Bank swapped and sold $8.2 million of loans originated, compared to $14.3
million for the six months ended December 31, 1995, and $41.2 million during
the year ended June 30, 1996. There was no swap activity during the year ended
June 30, 1995.
The Bank has purchased mortgage-backed securities and collateralized
mortgage obligations from time to time that coincide with its ongoing
asset/liability management objectives. Purchases have been minimal during the
last 2 1/2 years due to the ability to originate and hold adjustable-rate
loans, as well as recently, fixed-rate loans for it portfolio, due to
increased capital levels from the acquisition of NSBI.
All of the mortgage-backed securities and CMOs in the Bank's portfolio are
issued by or have collateral backed by FNMA, FHLMC or GNMA, or are backed with
whole loan collateral and have an investment grade rating. Coupon rates at
December 31, 1996, ranged from 5.25% to 16.25%. At December 31, 1996,
mortgage-backed securities, net, totaled $359.6 million, or 11.1% of total
assets, including $38.1 million which collateralized CMOs issued by the Bank's
special purpose finance subsidiaries. At December 31, 1996, the Bank's
mortgage-backed securities portfolio had a market value of $359.3 million,
including $39.7 million related to the CMO's issued by the Bank's special-
purpose finance subsidiaries.
30
<PAGE>
The following table sets forth the Bank's originations, purchases, sales,
swaps and principal repayments of loans receivable and mortgage-backed
securities for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, ---------------------
1996 1996 1995
---------------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Loans receivable:
Loans originated:
Adjustable-rate:
Real estate:
One-to four-family.................. $108,468 120,747 184,874
Multi-family........................ 1,632 16,061 20,425
Commercial.......................... 300 340 190
Construction........................ 13,632 20,642 9,142
Land................................ 7,628 19,134 12,528
Other loans:
Commercial business................. 898 811 450
Consumer............................ 35,642 63,795 57,803
-------- ---------- --------
Total adjustable-rate............. 168,200 241,530 285,412
Fixed-rate:
Real estate:
One-to four-family................. 113,770 348,629 101,100
Multi-family....................... 1,215 10,847 1,989
Commercial......................... 170 1,052 571
Construction....................... 1,908 6,890 25,171
Land............................... 3,754 7,439 8,433
Other loans--consumer.............. 8,805 10,301 5,861
-------- ---------- --------
Total fixed-rate.................. 129,622 385,158 143,125
-------- ---------- --------
Total loans originated.............. 297,822 626,688 428,537
Loans purchased:
Fixed-rate one-to four-family real
estate............................... 99,438 93,270 31,221
Adjustable-rate one-to four-family
real estate.......................... 72,109 267,645 125,054
Other................................. 83 2,151 1,070
-------- ---------- --------
Total loans purchased.............. 171,630 363,066 157,345
-------- ---------- --------
Total loans originated and
purchased......................... 469,452 989,754 585,882
-------- ---------- --------
Loans acquired through merger.......... -- 749,740 --
Loans sold:
One-to four-family (fixed rate)....... 57,276 267,352 92,725
Consumer loans........................ 82 1,805 2,466
-------- ---------- --------
Total loans sold..................... 57,358 269,157 95,191
FHLMC and FNMA mortgage loan swaps...... 8,213 41,195 --
Transfer to foreclosed real estate...... 1,478 515 1,016
Amortization and prepayments............ 266,022 394,274 231,165
-------- ---------- --------
Total loans sold, loan swaps,
amortization and prepayments........ 333,071 705,141 327,372
-------- ---------- --------
Net increase during period.............. $136,381 1,034,353 258,510
======== ========== ========
Mortgage-backed securities:
Mortgage-backed securities purchased... $ -- -- 10,000
Mortgage-backed securities acquired
through merger........................ -- 181,144 --
Mortgage-backed securities swaps....... 8,213 41,195 --
Mortgage-backed securities sold........ (25,117) (41,195) --
Amortization and prepayments........... (42,808) (69,790) (49,583)
-------- ---------- --------
Net increase (decrease) during period... $(59,712) 111,354 (39,583)
======== ========== ========
</TABLE>
31
<PAGE>
Servicing of Mortgage Loans. Upon sale, the Bank normally retains the
responsibility for collecting and remitting loan payments, inspecting
properties securing the loans, assuring that real estate tax payments are made
on behalf of borrowers, and otherwise servicing the loans. Typically, the Bank
receives a servicing fee for performing the aforementioned services equal to
at least 1/4 of 1% for fixed-rate mortgages and at least 3/8 of 1% for ARM
loans on the outstanding principal balance of the sold loan being serviced.
The following table sets forth information as to the Bank's loan servicing
portfolio, excluding loans owned by the Bank which are serviced by others. The
increase in loans serviced for others for the six months ended December 31,
1996 was small, due to the reduction in sales activity during this period, as
the Bank has been retaining a greater percentage of fixed-rate loan
originations. The increase in loans serviced for others for the year ended
June 30, 1996 was due to the increase in loan sale volume.
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------
DECEMBER 31, 1996 1996 1995
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans owned by the
Bank................... $1,855,505 63.96% $1,646,710 61.28% $1,277,532 59.00%
Loans serviced for oth-
ers.................... 1,045,740 36.04 1,040,260 38.72 887,887 41.00
---------- ------ ---------- ------ ---------- ------ ---
Total loans serviced.... $2,901,245 100.00% $2,686,970 100.00% $2,165,419 100.00%
========== ====== ========== ====== ========== ======
</TABLE>
Information regarding the Bank's servicing fee income from loans serviced
for others is summarized in the following table for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, --------------------
1996 1996 1995
---------------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average balance of loans serviced for
others................................ $1,053,486 $ 963,757 $ 881,050
Loan servicing fee income.............. 1,249 2,394 2,373
Net servicing spread during the period
(1)................................... .24% .25% .27%
</TABLE>
- --------
(1) Loan servicing fee income divided by the average daily balance of loans
serviced for others. Loan servicing fee income includes amortization of
capitalized mortgage servicing rights.
ASSET QUALITY AND ALLOWANCE FOR LOAN LOSSES
When a borrower fails to make a required payment by the end of the month in
which the payment is due, the Bank generally institutes collection procedures.
The Bank will send a late notice, and in most cases, delinquencies are cured
promptly; however, if a loan has been delinquent for more than 60 days, the
Bank contacts the borrower in order to determine the reason for the
delinquency and to effect a cure, and, where appropriate, reviews the
condition of the property and the financial circumstances of the borrower.
Based upon the results of any such investigation, the Bank may: (1) accept a
repayment program for the arrearage from the borrower; (2) seek evidence, in
the form of a listing contract, of efforts by the borrower to sell the
property if the borrower has stated that he is attempting to sell; (3) request
a deed in lieu of foreclosure; or (4) initiate foreclosure proceedings. When a
loan payment is delinquent for three or more monthly installments, the Bank
will initiate foreclosure proceedings. Interest income on loans is reduced by
the full amount of accrued and uncollected interest on loans which are in
process of foreclosure or otherwise determined to be uncollectible.
On July 1, 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a
Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--
Income Recognition and Disclosures," which impose certain requirements on the
identification and measurement of impaired loans. A loan is considered
impaired when, based on current information and events, it is probable that a
creditor will be unable to collect all amounts due according to the
contractual terms of the loan. For loans which are not individually
significant (i.e. loans under $750,000), and
32
<PAGE>
represent a homogeneous population, the Bank evaluates impairment collectively
based on management reports on the level and extent of delinquencies, as well
as historical loss experience for these types of loans. The Bank uses this
criteria on one-to four-family residential loans, consumer loans, multi-family
residential loans, and land loans. Impairment for loans considered
individually significant and commercial real estate loans are measured based
on the present value of expected future cash flows discounted at the loan's
effective interest rate, or the fair value of the collateral if the loan is
collateral dependent. Charge-offs of principal occur when a loss has deemed to
have occurred as a result of the book value exceeding the fair value.
The Company's policy for recognition of interest income on impaired loans is
unchanged as a result of the adoption of SFAS No. 114 and 118. A loan (whether
considered impaired or not) is classified as non- accrual when collectibility
is in doubt, and is normally analyzed upon the borrower becoming 90 days past
due on contractual principal or interest payments. When a loan is placed on
non-accrual status, or in the process of foreclosure, previously accrued but
unpaid interest is reversed against interest income. Income is subsequently
recorded to the extent cash payments are received, or at a time when the loan
is brought current in accordance with its original terms.
Classified Assets. The federal regulators have adopted a classification
system for problem assets of insured institutions which covers all problem
assets. Under this classification system, problem assets of insured
institutions are classified as "substandard," "doubtful" or "loss." An asset
is considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified, "substandard," with the added characteristic
that the weaknesses present make "collection or liquidation in full," on the
basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted.
When an insured institution classifies problem assets as either substandard
or doubtful, it is required to establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk
associated with lending activities, but, unlike specific allowances, have not
been allocated to particular problem assets. When an insured institution
classifies problem assets as "loss," it is required either to establish a
specific allowance for losses equal to 100% of the amount of the asset so
classified or to charge off such an amount. An institution's determination as
to the classification of its assets and the amount of its valuation allowances
is subject to review by the institution's Principal Supervisory Agent of the
OTS, who can order the establishment of additional general or specific loss
allowances.
In connection with the filing of its periodic reports with the OTS, the Bank
regularly reviews the problem loans in its portfolio to determine whether any
loans require classification in accordance with applicable regulations. At
December 31, 1996, the Bank classified $1.5 million of a $2.9 million
commercial real estate loan as "loss" and allocated $1.5 million of its
allowance for loan losses to a specific allowance against the loan. At
December 31, 1996, the remainder of non-performing loans are classified as
substandard. At June 30, 1996 and 1995 all of the Bank's non-performing loans
were classified as substandard.
33
<PAGE>
Delinquent Loans. At December 31,1996, June 30, 1996 and 1995, delinquencies
in the Bank's portfolio were as follows:
<TABLE>
<CAPTION>
61-90 DAYS 91 OR MORE DAYS
-------------------------- --------------------------
PRINCIPAL PRINCIPAL
NUMBER BALANCE OF PERCENT NUMBER BALANCE OF PERCENT
OF DELINQUENT OF OF DELINQUENT OF
LOANS LOANS TOTAL(1) LOANS LOANS TOTAL(1)
------ ---------- -------- ------ ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996......... 48 $6,834 .28% 76 $9,780 .40%
=== ====== === === ====== ===
June 30, 1996............. 24 $3,107 .14% 38 $5,504 .24%
=== ====== === === ====== ===
June 30, 1995............. 10 $1,077 .09% 30 $2,564 .20%
=== ====== === === ====== ===
</TABLE>
- --------
(1) Percentage represents principal balance of delinquent loans to total loans
outstanding.
The following table sets forth information regarding non-accrual loans,
loans which are 91 days or more delinquent but on which the Bank is accruing
interest, non-accrual investment securities, and foreclosed real estate held
by the Bank at the dates indicated.
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, -----------------------------
1996 1996 1995 1994 1993
------------ ------ ----- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
One-to four-family and multi-family
loans:
Non-accrual loans (1)............. $ 7,680 5,415 1,972 2,933 3,796
Accruing loans 91 or more days
overdue.......................... 896 1,940 555 482 702
------- ------ ----- ------ ------
Total............................ 8,576 7,355 2,527 3,415 4,498
------- ------ ----- ------ ------
Commercial real estate, construc-
tion and land loans:
Non-accrual loans (1)............. 3,762 433 -- 312 --
Accruing loans 91 or more days
overdue.......................... 699 459 100 118 659
Restructured or renegotiated...... -- 4,299 4,379 4,464 6,933
------- ------ ----- ------ ------
Total............................ 4,461 5,191 4,479 4,894 7,592
------- ------ ----- ------ ------
Other loans:
Non-accrual loans (1)............. 353 287 168 163 419
Accruing loans 91 or more days
overdue.......................... 74 -- -- 24 15
------- ------ ----- ------ ------
Total............................ 427 287 168 187 434
------- ------ ----- ------ ------
Total non-performing loans:
Non-accrual loans (1)............. 11,795 6,135 2,140 3,408 4,215
Accruing loans 91 or more days
overdue.......................... 1,669 2,399 655 624 1,376
Restructured or renegotiated...... -- 4,299 4,379 4,464 6,933
------- ------ ----- ------ ------
Total............................ $13,464 12,833 7,174 8,496 12,524
======= ====== ===== ====== ======
Non-accrual loans to total loans... .48% .27% .17% .33% .46%
Accruing loans 91 or more days
overdue to total loans............ .07 .10 .05 .06 .15
Restructured or renegotiated to to-
tal loans......................... -- .19 .35 .44 .76
------- ------ ----- ------ ------
Non-performing loans to total
loans........................... .55% .56% .57% .83% 1.37%
======= ====== ===== ====== ======
Foreclosed real estate:
One-to four-family................ $ 1,257 888 311 1,379 386
Commercial real estate............ -- -- 25 2,090 6,544
------- ------ ----- ------ ------
Total foreclosed real estate, net
of related reserves............. $ 1,257 888 336 3,469 6,930
======= ====== ===== ====== ======
Total non-performing assets........ $14,721 13,721 7,510 11,965 19,454
======= ====== ===== ====== ======
Total non-performing assets to to-
tal assets........................ .46% .44% .42% .75% 1.26%
======= ====== ===== ====== ======
</TABLE>
- --------
(1) Consists of loans in the process of foreclosure or for which interest is
otherwise deemed uncollectible.
34
<PAGE>
For the six months ended December 31, 1996, and the years ended June 30,
1996, 1995, 1994 and 1993, the amount of interest income that would have been
recorded on non-accrual loans amounted to $573,000, $631,000, $468,000,
$168,000 and $472,000, respectively, if the loans had been current. For the
six months ended December 31, 1996, interest income on non-accrual loans and
troubled debt restructurings that was included in net income amounted to
$150,000.
Non-performing commercial real estate, construction and land loans declined
to $4.5 million at December 31, 1996, from $5.2 million at June 30, 1996.
Restructured or renegotiated loans decreased to zero. The Bank declassified a
$1.4 million commercial loan, due to cash flow improvements and continued
compliance with its restructured terms. In addition, the Bank transferred a
$2.9 million second mortgage on a commercial real estate property into the
non-accrual category, after commencing foreclosure proceedings.
The Bank's second mortgage of $2.9 million is subordinate to a $6.0 million
industrial revenue bond. The Bank has issued a standby letter of credit
against the industrial revenue bond, and will assume the responsibility for
the bond payments upon obtaining title to the property. This will increase the
Bank's investment in the property by $6.0 million at that time. The industrial
revenue bond is current as to interest payments as of December 31, 1996, and
carries an interest rate of 4.00%. The industrial revenue bond is assumable by
any purchaser of the underlying collateral. In conjunction with the
reclassification of the second mortgage, the Bank allocated $1.5 million of
its general allowance for loan losses into a specific allowance for loss on
this loan. Management believes that the $1.5 million specific allowance is
adequate to absorb any potential loss on the first and second mortgages based
on currently available information.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risk inherent in its loan portfolio and changes in the nature and volume of
its loan activity. Such evaluation, which includes a review of all loans of
which full collectibility may not be reasonably assured, considers among other
matters, the estimated fair value of the underlying collateral, economic
conditions, historical loan loss experience and other factors that warrant
recognition in providing for an adequate loan loss allowance.
35
<PAGE>
The following table sets forth the Bank's allowance for loan losses at the
dates indicated. The balances below represent general loan loss reserves and
are not allocable to any one type of loan in the Bank's loan portfolio, except
for $1.5 million at December 31, 1996, which is allocated as a specific
reserve against a commercial real estate loan.
<TABLE>
<CAPTION>
SIX MONTHS ENDED AT OR FOR THE YEAR ENDED JUNE 30,
DECEMBER 31, --------------------------------------
1996 1996 1995 1994 1993
---------------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period................. $17,254 9,197 8,779 7,993 5,736
Charge-offs:
One-to four-family.... (49) (376) (72) (223) (221)
Commercial............ -- -- (7) -- (196)
Construction.......... -- -- -- (112) --
Land.................. -- -- -- -- --
Consumer.............. (17) -- (31) (82) (30)
------- -------- -------- -------- -------
(66) (376) (110) (417) (447)
------- -------- -------- -------- -------
Recoveries:
One-to four-family.... 25 -- -- -- --
Commercial............ -- 10 -- -- --
Construction.......... -- -- 49 -- --
Consumer.............. 1 1 4 3 4
------- -------- -------- -------- -------
26 11 53 3 4
------- -------- -------- -------- -------
Net charge-offs......... (40) (365) (57) (414) (443)
Provision for loan
losses................. 700 700 475 1,200 2,700
Balance related to
acquisition............ -- 7,722 -- -- --
------- -------- -------- -------- -------
Balance at end of
period................. $17,914 17,254 9,197 8,779 7,993
======= ======== ======== ======== =======
Ratio of net charge-offs
to average loans
outstanding............ -- % .03 .01 .04 .05
Ratio of allowance for
loan losses to total
loans receivable....... .73 .75 .73 .86 .87
Ratio of allowance for
loan losses to total
non-performing loans... 133.05 134.45 128.20 103.33 63.82
Ratio of allowance for
loan losses to total
non-performing assets.. 121.69 125.75 122.46 73.37 41.09
======= ======== ======== ======== =======
</TABLE>
At December 31, 1996, the Bank's allowance for loan losses of $17.9 million
consists of a $1.5 million specific allowance for loss against a commercial
real estate loan, with the remaining $16.4 million maintained as a general
allowance for loan losses. As of December 31, 1996, management is unaware of
any specifically identifiable charge-offs in its loan portfolio. Assuming no
significant adverse changes in existing market conditions, management
anticipates charge-offs in 1997 to increase moderately over historical
amounts, due to an increase in overall delinquencies, and having the out-of-
state purchased loan portfolio acquired in the NSBI merger for a full year in
1997. However, no assurances can be made that charge-offs will not be less
than or exceed this estimate if facts or circumstances change in the future.
At December 31, 1996, the Bank's loan portfolio consists of 88.2% of one-to
four-family real estate loans, with an additional 4.1% being equity lines of
credit or home equity loans on one-to four-family real estate. Based on the
Bank's historical high asset quality, low charge-off experience and
concentration on one-to four-family lending in its market area, management
considers the risk of loss due to these loans as minimal. The remaining 7.7%
of the Bank's portfolio, or $189.1 million, consists of multi-family mortgage,
commercial real estate, construction, land, and other loans. These loans
generally tend to exhibit greater risk of loss than do one-to four-
36
<PAGE>
family loans, primarily because such loans typically carry higher loan
balances and repayment is dependent, in large part, on sufficient income to
cover operating expenses. In addition, economic events and government
regulations, which are outside the control of the Bank and the borrower, could
impact the security of the loan or the future cash flow of affected
properties. Management has addressed these risks through its underwriting
standards.
With respect to multi-family loans, the Bank has traditionally limited its
lending to small apartment buildings, which management believes have lower
risk than larger properties. At December 31, 1996, in the Bank's $93.0 million
multi-family portfolio, only seven loans are on properties greater than 36
units and the average multi-family loan size is $250,000. In addition, almost
all of the Bank's construction and land loans are on one- to four- family
residential property. All of the Bank's multi-family, construction and land
loans are secured by properties located in the Chicago metropolitan area.
INVESTMENT ACTIVITIES
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements and federal funds. Subject to various restrictions,
federally chartered savings institutions may also invest their assets in
commercial paper, investment grade corporate debt securities and mutual funds
whose assets conform to the investments that a federally chartered savings
institution is otherwise authorized to make directly.
Generally, the investment policy of the Bank is to invest funds among
various categories of investments and maturities based upon the Bank's
asset/liability management policies, investment quality and marketability,
liquidity needs and performance objectives.
The Bank is required to maintain liquid assets at minimum levels. See
"Regulation and Supervision--Federal Savings Institution Regulation--
Liquidity." The Bank's liquid investments include interest-bearing deposits,
primarily at the Federal Home Loan Bank of Chicago, federal funds sold and
U.S. Government and federal agency obligations. The Bank invests overnight
federal funds with two large commercial banks in Chicago, based upon periodic
review of these institutions' financial condition. The Bank generally limits
overnight federal funds sold investments to $50.0 million at any one
institution.
37
<PAGE>
The table below sets forth information regarding the carrying value,
weighted average yields and maturities of the Company's investment securities.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
-----------------------------------------------------------------------------------------------------------
ONE YEAR 1 TO 5 TO MORE THAN
OR LESS 5 YEARS 10 YEARS 10 YEARS TOTAL INVESTMENT SECURITIES
----------------- ----------------- ----------------- ----------------- -----------------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED AVERAGE WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE LIFE CARRYING MARKET AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD IN YEARS VALUE VALUE YIELD
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
agency securities:
Held for invest-
ment.............. $17,445 7.25% $10,000 4.25% $19,659 7.40% $24,334 8.12 % 7.10 $ 71,438 $ 72,253 7.17%
Available for
sale.............. 22,899 6.14 12,914 5.37 -- -- -- -- .73 35,813 35,813 5.86
Marketable equity
securities (1):
Common stock...... -- -- -- -- -- -- 2,011 2.45 -- 2,011 2,011 2.45
Preferred stock... -- -- -- -- -- -- 11,893 9.85 -- 11,893 11,893 9.85
Other investment se-
curities:
Held for invest-
ment.............. 601 5.45 -- -- -- -- 1 5.00 .08 602 602 5.44
Available for
sale.............. -- -- -- -- 1,053 9.11 18,279 5.47 25.78 19,332 19,332 5.67
------- ------- ------- ------- -------- --------
Total........... $40,945 6.60% $22,914 4.88% $20,712 7.49% $56,518 7.34% 8.15 $141,089 $141,904 6.78%
======= ==== ======= ==== ======= ==== ======= ===== ===== ======== ======== ====
</TABLE>
- ----
(1) Marketable equity securities with no stated maturity are included in the
"More than 10 Years" category.
38
<PAGE>
The following table sets forth certain information regarding the book value
of the Company's and the Bank's liquidity and investment securities portfolio
at the dates indicated. At December 31, 1996 and June 30, 1996, the fair value
of the investment securities portfolio was $141.9 million and $140.4 million,
respectively.
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, --------------
1996 1996 1995
------------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest-bearing deposits........................... $ 55,285 37,496 10,465
======== ======= ======
Federal funds sold.................................. $ 24,700 5,700 9,360
======== ======= ======
Investment securities:
Available for sale:
U.S. Government and agency securities........... $ 35,813 23,821 9,993
Marketable equity securities.................... 13,904 12,572 8,232
Other investment securities..................... 19,332 1,903 5,863
-------- ------- ------
Total investments available for sale.......... 69,049 38,296 24,088
-------- ------- ------
Held to maturity:
U.S. Government and agency securities........... 71,438 101,268 53,085
Other investment securities..................... 602 958 121
-------- ------- ------
Total investments held to maturity............ 72,040 102,226 53,206
-------- ------- ------
Total investment securities................... $141,089 140,522 77,294
======== ======= ======
</TABLE>
The classification of investments as available for investment, available for
sale, or for trading purposes is made at the time of purchase based upon
management's intent at that time. At December 31, 1996, $69.0 million of
investment securities were classified as available for sale and appropriately
recorded at fair value (cost basis of $68.5 million). At June 30, 1996, $38.3
million were classified as available for sale (cost basis of $38.0 million),
while at June 30, 1995, $24.1 million of investments were categorized as
available for sale, with a cost basis of $23.7 million. All balances exclude
the Bank's required investment of stock in the Federal Home Loan Bank of
Chicago, which was $30.7 million, $30.7 million, and $13.0 million at December
31, 1996, June 30, 1996 and 1995, respectively.
SOURCES OF FUNDS
The Bank's primary sources of funds are deposits, amortization and
prepayment of loan principal (including mortgage-backed securities),
borrowings, sales of mortgage loans, sales or maturities of investment
securities, mortgage-backed securities and short-term investments, and funds
provided from operations.
Deposits. The Bank offers a variety of deposit accounts having a wide range
of interest rates and terms. The Bank's deposits consist of passbook accounts,
NOW and checking accounts, money market and certificate accounts. The Bank
only solicits deposits from its market area and does not use brokers to obtain
deposits. The Bank relies primarily on competitive pricing policies,
advertising, and customer service to attract and retain these deposits. The
flow of deposits is influenced significantly by general economic conditions,
changes in money market and prevailing interest rates and competition.
The net increase in deposits during the six months ended December 31, 1996
is primarily due to interest credited to deposits, as outflows exceeded
inflows during this period, primarily due to competitive pressure for
certificate of deposits. The large increase in deposits during the year ended
June 30, 1996 was primarily due to the acquisition of NSBI, as well as the
Bank generating net deposit inflows of $6.3 million. The increase in deposits
during the year ended June 30, 1995 was primarily due to interest credited to
deposits, which offset savings outflows during that period.
39
<PAGE>
Deposit Portfolio. The following table sets forth the distribution and the
weighted average nominal interest rates of the Bank's average deposit accounts
at the dates indicated.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
SIX MONTHS ENDED ---------------------------------------------------------
DECEMBER 31, 1996 1996 1995
---------------------------- ---------------------------- ----------------------------
PERCENT WEIGHTED PERCENT WEIGHTED PERCENT WEIGHTED
OF AVERAGE OF AVERAGE OF AVERAGE
AVERAGE TOTAL NOMINAL AVERAGE TOTAL NOMINAL AVERAGE TOTAL NOMINAL
BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE BALANCE DEPOSITS RATE
---------- -------- -------- ---------- -------- -------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook accounts....... $ 671,766 29.99% 2.86% $ 288,389 20.48% 3.10% $ 262,691 20.26% 3.13%
Interest bearing NOW
accounts................ 136,748 6.10 1.66 121,187 8.61 1.69 110,222 8.50 1.77
Non-interest bearing
checking................ 40,844 1.82 -- 27,508 1.95 -- 21,914 1.69 --
Commercial checking
accounts................ 26,304 1.17 -- 30,157 2.14 -- 25,662 1.98 --
---------- ------ ---------- ------ ---------- ------
Total passbook, NOW
and checking
accounts.............. 875,662 39.08 2.46 467,241 33.18 2.35 420,489 32.43 2.42
---------- ------ ---------- ------ ---------- ------
Money market accounts... 128,343 5.73 3.63 138,837 9.86 3.09 148,291 11.44 2.95
Jumbo deposits.......... 25,018 1.12 5.37 29,993 2.13 5.55 21,220 1.64 5.01
Certificate accounts
with original maturities
of:
91 days or less....... 15,386 .69 4.78 10,104 .71 4.78 9,531 .74 4.02
6 months.............. 297,089 13.26 5.01 137,525 9.77 5.45 114,833 8.86 4.57
8 months.............. 1,868 .08 5.25 13,890 .99 5.58 -- -- --
9 months.............. 29,464 1.32 5.18 8,020 .57 5.25 -- -- --
10 months............. -- -- -- 6 -- 3.13 4,751 .37 3.78
---------- ------ ---------- ------ ---------- ------
Total jumbo
certificates of
deposits and 7-day
to 10 month
certificate
accounts............ 368,825 16.47 4.68 199,538 14.17 5.43 150,335 11.61 4.58
---------- ------ ---------- ------ ---------- ------
Certificate accounts
with original maturities
of:
12 months............. 234,587 10.46 5.24 120,316 8.54 5.65 96,787 7.47 4.37
13 month.............. 5,648 .25 5.81 -- -- -- -- -- --
18 months............. 91,625 4.09 5.77 92,600 6.58 5.86 61,064 4.71 4.91
19 months............. 86,881 3.88 5.89 4,313 .31 5.89 -- -- --
24 months............. 75,355 3.36 5.82 48,596 3.45 5.96 23,128 1.78 4.66
30 months............. 107,661 4.81 6.09 118,505 8.41 5.89 163,641 12.63 5.37
36 months............. 23,280 1.04 5.17 2,065 .15 5.12 -- -- --
42 months............. 29,198 1.30 5.94 30,713 2.18 5.90 27,763 2.14 5.84
48 months............. -- -- -- -- -- -- 1,629 .13 7.97
60 months............. 141,163 6.30 5.97 101,004 7.17 6.11 90,310 6.97 6.20
61 months to 120
months................ 72,468 3.23 7.60 84,438 6.00 8.04 112,652 8.69 8.81
---------- ------ ---------- ------ ---------- ------
Total 12-month to
120-month
certificate accounts
and other
certificate
accounts............ 867,866 38.72 5.86 602,550 42.79 6.18 576,974 44.52 5.95
---------- ------ ---------- ------ ---------- ------
Total deposits...... $2,240,696 100.00% 4.27% $1,408,166 100.00% 4.50% $1,296,089 100.00% 4.30%
========== ====== ==== ========== ====== ==== ========== ====== ====
</TABLE>
40
<PAGE>
The following table presents the deposit activity of the Bank for the
periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, ----------------------
1996 1996 1995
---------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Deposits............................. $ 4,557,273 4,458,404 3,547,326
Withdrawals.......................... (4,593,918) (4,452,055) (3,577,181)
----------- ---------- ----------
Deposits greater (less) than with-
drawals............................. (36,645) 6,349 (29,855)
Deposits acquired, including acquisi-
tion premium, net................... (257) 872,419 --
Interest credited on deposits........ 45,028 62,026 50,630
----------- ---------- ----------
Net increase in deposits........... $ 8,126 940,794 20,775
=========== ========== ==========
</TABLE>
The following table presents, by various rate categories, the amount of
certificate accounts outstanding at December 31, 1996, June 30, 1996 and 1995,
and the periods to maturity of the certificate accounts outstanding at
December 31, 1996.
<TABLE>
<CAPTION>
JUNE 30, PERIOD TO MATURITY DECEMBER 31, 1996
----------------- --------------------------------------
DECEMBER 31, WITHIN 1 TO 3 OVER
1996 1996 1995 ONE YEAR YEARS 3 YEARS TOTAL
------------ --------- ------- ------------------ -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
3.99% or less......... $ 2,968 1,080 12,814 2,959 7 2 2,968
4.00% to 4.99%........ 47,897 192,338 103,927 44,900 2,951 46 47,897
5.00% to 5.99%........ 886,984 746,819 287,222 677,870 189,782 19,332 886,984
6.00% to 6.99%........ 244,510 217,707 236,593 87,055 115,410 42,045 244,510
7.00% to 7.99%........ 25,918 30,581 33,077 14,541 5,264 6,113 25,918
8.00% to 8.99%........ 39,072 41,779 50,186 12,834 26,196 42 39,072
9.00% to 9.99%........ 1,258 1,191 18,636 61 1,197 -- 1,258
10.00% to 10.99%...... -- -- 4,163 -- -- -- --
---------- --------- ------- -------- -------- ------- ----------
Total............... $1,248,607 1,231,495 746,618 840,220 340,807 67,580 1,248,607
========== ========= ======= ======== ======== ======= ==========
</TABLE>
At December 31, 1996, the Bank had outstanding $142.5 million in certificate
accounts in amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
PERIOD TO MATURITY AMOUNT
------------------ --------------
(IN THOUSANDS)
<S> <C>
Three months or less....................................... $ 31,693
Over three through six months.............................. 33,601
Over six through 12 months................................. 26,739
Over 12 months............................................. 50,504
--------
Total...................................................... $142,537
========
</TABLE>
Borrowings. Although deposits are the Bank's primary source of funds, the
Bank's policy has been to utilize borrowings, such as advances from FHLB of
Chicago, and reverse repurchase agreements, when they are a less costly source
of funds or can be invested at a positive rate of return.
The Bank obtains advances from the FHLB of Chicago upon the security of its
capital stock in the FHLB of Chicago and a blanket pledge of certain of its
mortgage loans. See "Regulation and Supervision--Federal Home Loan Bank
System." Such advances are made pursuant to several different credit programs,
each of which has its own interest rate and range of maturities. The maximum
amount that the FHLB of Chicago will advance to member institutions, including
the Bank, for purposes other than meeting withdrawals, fluctuates from time to
41
<PAGE>
time in accordance with the policies of the OTS and the FHLB of Chicago. The
maximum amount of FHLB of Chicago advances to a member institution generally
is reduced by borrowings from any other source. At December 31, 1996, the
Bank's FHLB of Chicago advances totaled $480.5 million, representing 14.9% of
total assets.
A summary of the Company's borrowed funds at December 31, 1996, June 30,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
INTEREST RATE AMOUNT
-------------------- --------------------------
JUNE 30, JUNE 30,
DEC. 31, ----------- DEC. 31, ----------------
1996 1996 1995 1996 1996 1995
-------- ----- ----- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Fixed rate advances from FHLB
of Chicago due:
Within 12 months............ 6.28% 7.15 9.73 $ 55,000 50,000 25,000
13 to 24 months............. 6.77 6.38 7.15 70,000 50,000 50,000
25 to 36 months ............ 6.30 8.27 6.41 115,000 15,000 25,000
37 to 48 months ............ 6.63 6.64 8.27 105,000 80,000 15,000
49 to 60 months ............ 6.50 6.45 6.64 90,000 65,000 80,000
61 to 72 months............. 6.10 6.13 6.39 5,000 30,000 40,000
73 to 84 months ............ 6.39 6.13 5.62 500 5,500 5,000
Greater than 84 months...... -- -- 6.13 -- -- 5,500
-------- ------- -------
Total fixed rate
advances................. 6.49 6.66 7.06 440,500 295,500 245,500
Adjustable rate advances from
FHLB of Chicago due:
Within 12 months............ 5.86 5.79 -- 40,000 125,000 --
13 to 24 months............. -- -- 7.09 -- -- 15,000
-------- ------- -------
Total adjustable rate
advances................. 5.86 5.79 7.09 40,000 125,000 15,000
-------- ------- -------
Total advances from FHLB
of Chicago............... 6.44 6.40 7.06 480,500 420,500 260,500
-------- ------- -------
Collateralized mortgage
obligations:
Issued by MAFC due 2018
(1)........................ 14,087 15,928 20,470
Unamortized discount........ (1,021) (1,202) (1,621)
-------- ------- -------
10.90 11.42 11.19 13,066 14,726 18,849
Issued by NWAC due 2018
(2)........................ 24,304 27,419 --
Unamortized premium......... 223 247 --
-------- ------- -------
8.30 8.05 -- 24,527 27,666 --
-------- ------- -------
Total collateralized
mortgage obligations,
net...................... 37,593 42,392 18,849
-------- ------- -------
Fixed-rate reverse repurchase
agreements................... 6.55 6.74 5.96 79,804 39,804 27,675
Unsecured term bank loan...... 6.63 6.47 -- 35,000 35,000 --
-------- ------- -------
6.63% 6.65 7.22 $632,897 537,696 307,024
===== ===== ===== ======== ======= =======
</TABLE>
- --------
(1) See "Subsidiary Activites--Mid America Finance Corporation."
(2) See "Subsidiary Activities--Northwestern Acceptance Corporation."
Subordinated Capital Notes. In November, 1995, the Company refinanced its
$20.9 million of 10% Subordinated Capital Notes due June 30, 2002 with $27.6
million of 8.32% Subordinated Notes due September 30, 2005. The payment of
principal and interest on the current notes is subordinated at all times to
any indebtedness or liability of the Company outstanding or incurred after the
date of issuance. Costs incurred in the refinance transaction amounted to $1.0
million and are being accreted over the life of the notes yielding an
effective interest rate of 8.85%. The capital notes are callable at the
discretion of the Company at any time after September 30, 1998, at par plus
any accrued interest. The indenture provides for restrictions on the amounts
of
42
<PAGE>
additional indebtedness the Company may incur as well as the amount of
dividends and other distributions it may pay with respect to its equity
securities, depending on the Company's capital ratio. The refinance
transaction resulted in a $474,000, or $0.08 per share extraordinary charge to
earnings due to the early extinguishment of debt as a result of writing-off
the remaining unamortized transaction costs of $774,000, net of income taxes
of $300,000.
ASSET/LIABILITY MANAGEMENT
The Bank's overall asset/liability management strategy is directed toward
reducing the Bank's exposure to interest rate risk over time in changing
interest rate environments. Asset/liability management is a daily function of
the Bank's management due to continual fluctuations in interest rates and
financial markets.
As part of its asset/liability strategy, the Bank has implemented a policy
to maintain its cumulative one- year interest sensitivity gap ratio within a
range of (15)% to 15% of total assets, which helps the Bank to maintain a more
stable net interest rate spread in various interest rate environments. The gap
ratio fluctuates as a result of market conditions and management's expectation
of future interest rate trends. Under OTS Thrift Bulletin 13, the Bank is
required to measure its interest rate risk assuming various increases and
decreases in general interest rates, and the effect on net interest income and
market value of portfolio equity. An interest rate risk policy has been
approved by the Board of Directors setting the limits to changes in net
interest income and market value of portfolio equity at the various rate
scenarios required. In addition, the OTS has added an interest rate risk
component to its regulatory capital requirements which could require an
additional amount of capital based on the level of adverse change in a savings
institution's market value of portfolio equity, resulting from changes in
interest rates. Management continually reviews its interest rate risk policies
in light of potentially higher capital requirements that could result from the
adoption of an interest rate risk component to the OTS capital requirements.
The Bank's asset/liability management strategy emphasizes the origination of
one- to four-family adjustable-rate loans and other loans which have shorter
terms to maturity or reprice more frequently than fixed-rate mortgage loans,
yet, provide a positive margin over the Bank's cost of funds. In response to
customer demand, the Bank originates fixed-rate mortgage loans, but has
historically generally sold the conforming loans in the secondary market in
order to maintain its interest rate sensitivity levels. During the last six
months, the Bank has been retaining the majority of the retail fixed-rate
originations in portfolio for investment purposes to help utilize the Bank's
higher capital base resulting from the merger with NSBI.
In conjunction with the strategy discussed above, management has also hedged
the Bank's exposure to interest rate risk primarily by committing to sell
fixed-rate mortgage loans for future delivery. Under these commitments, the
Bank agrees to sell fixed-rate loans at a specified price and at a specified
future date. The sale of fixed-rate mortgage loans for future delivery has
enabled the Bank to continue to originate new mortgage loans, and to generate
gains on sale of these loans as well as loan servicing fee income, while
maintaining its gap ratio within the parameters discussed above. Most of these
forward sale commitments are conducted with FNMA and FHLMC with respect to
loans that conform to the requirements of these government agencies. The
forward commitment of mortgage loans presents a risk to the Bank if the Bank
is not able to deliver the mortgage loans by the commitment expiration date.
If this should occur, the Bank would be required to pay a fee to the buyer.
The Bank attempts to mitigate this risk by charging potential retail borrowers
a 1% fee to fix the interest rate, or by requiring the interest rate to float
at market rates until shortly before closing. In its wholesale lending
operation, there is more risk due to the competitive inability to charge a
rate lock fee to the mortgage brokers, which the Bank tries to offset by using
higher assumed fallout rates. In addition, the Bank uses U.S. Treasury bond
futures contracts to hedge some of the mortgage pipeline exposure. These
futures contracts are used to hedge mortgage loan production in those
circumstances where loans are not sold forward as described above.
43
<PAGE>
The table below sets forth the scheduled repricing or maturity of the Bank's
assets and liabilities at December 31, 1996, based on the assumptions used by
the FHLB of Chicago with respect to NOW, checking and passbook account
withdrawals as well as loan and mortgage-backed securities prepayment
percentages. In a departure from the FHLB of Chicago assumptions, which assume
a 0% prepayment for other borrowings, the Bank assumes that the collateralized
mortgage obligations included in other borrowings prepay at the same rate used
for the mortgage-backed securities collateralizing these obligations, while
the NWAC collateralized mortgage obligations are adjustable-rate and included
in the 6 months or less category.
The effect of these assumptions is to quantify the dollar amount of items
that are interest-sensitive and may be repriced within each of the periods
specified. The table does not necessarily indicate the impact of general
interest rate movements on the Bank's net interest yield because the repricing
of certain categories of assets and liabilities is subject to competitive and
other pressures beyond the Bank's control. As a result, certain assets and
liabilities indicated as maturing or otherwise repricing within a stated
period may, in fact, mature or reprice at different times and at different
volumes.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------
1 - 3 -
< 1/2 YR. 1/2 - 1 YR. 3 YRS. 5 YRS. 5+ YRS. TOTAL
---------- ----------- ------- -------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable...... $ 722,948 443,266 697,288 242,813 343,068 2,449,383
Mortgage-backed
securities........... 155,566 30,383 52,408 36,583 83,735 358,675
Investment
securities(1)........ 108,831 -- 17,914 -- 46,026 172,771
Interest-bearing
deposits............. 55,285 -- -- -- -- 55,285
Federal funds sold.... 24,700 -- -- -- -- 24,700
---------- ------- ------- -------- ------- ---------
Total interest-
earning assets..... 1,067,330 473,649 767,610 279,396 472,829 3,060,814
Less yield
adjustments, net..... 368 212 (239) (491) (1,247) (1,397)
Impact of hedging
activities(2)........ 6,495 -- -- -- (6,495) --
---------- ------- ------- -------- ------- ---------
Total net interest-
earning assets,
adjusted for impact
of hedging
activities......... 1,074,193 473,861 767,371 278,905 465,087 3,059,417
Interest-bearing
liabilities:
NOW and checking
accounts............. 12,876 11,780 43,113 26,781 56,907 151,457
Money market
accounts............. 130,200 -- -- -- -- 130,200
Passbook accounts..... 56,567 51,759 189,437 117,674 250,056 665,493
Certificate accounts.. 602,156 245,057 334,191 55,624 11,707 1,248,735
FHLB advances......... 80,000 15,000 185,000 200,000 500 480,500
Other borrowings and
subordinated debt.... 62,979 37,548 51,870 -- 26,709 179,106
---------- ------- ------- -------- ------- ---------
Total interest-
bearing
liabilities........ 944,778 361,144 803,611 400,079 345,879 2,855,491
---------- ------- ------- -------- ------- ---------
Interest sensitivity
gap.................... $ 129,415 112,717 (36,240) (121,174) 119,208 203,926
========== ======= ======= ======== ======= =========
Cumulative gap.......... $ 129,415 242,132 205,892 84,718 203,926
========== ======= ======= ======== =======
Cumulative gap as a
percentage of total
assets................. 4.01% 7.50 6.37 2.62 6.31
Cumulative net interest-
earning assets as a
percentage of interest-
bearing liabilities.... 113.70% 118.54 109.76 103.38 107.14
</TABLE>
- --------
(1) Includes $30.7 million of stock in FHLB of Chicago in 6 months or less.
(2) Represents forward commitments to sell long-term fixed-rate mortgage
loans.
44
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are cash dividends paid by the Bank
and MAF Developments, and liquidity generated by the issuance of common stock,
preferred stock, or borrowings. The Company's principal uses of funds are
interest payments on the Company's borrowed funds, cash dividends to
shareholders, loans to and investments in MAF Developments, stock repurchases,
as well as investment purchases with excess cash flow. In addition, cash has
been used to fund stock buyback programs as a means of reducing the number of
shares outstanding. During the past one and one-half years, the Company has
repurchased 350,000 shares of its common stock for a total of $8.8 million,
including 100,000 shares for $2.5 million which were owned by NSBI at the time
the acquisition closed.
The Company obtained a $35.0 million unsecured term bank loan in conjunction
with its acquisition of NSBI. The loan provides for an interest rate of the
prime rate or 1% over one, two or three-month LIBOR at management's discretion
adjustable and payable at the end of the repricing period. The loan currently
carries an interest rate of 1% over three-month LIBOR. The loan is convertible
all or in part, with certain limitations at the end of any repricing period,
at management's election to a fixed rate at 1.25% over the U.S. Treasury rate
with a maturity corresponding to the remaining term of the loan. The loan
requires increasing annual principal payments starting in December 1997 with
$9.2 million due at the final maturity of the loan on December 31, 2003.
Prepayments of principal are allowed, but fixed-rate portions are subject to
penalty. In conjunction with the term bank loan, the Company also maintains a
$15.0 million one year unsecured revolving line of credit which matured on
January 26, 1997. The line of credit was extended to April 30, 1997, and it is
expected that the lender will extend and renew the line annually thereafter.
The interest rate on the line of credit is the prime rate or 1% over one, two,
or three-month LIBOR, at management's discretion with interest payable at the
end of the repricing period. No amounts have been drawn on the line of credit.
The financing agreements contain covenants that, among other things, requires
the Company to maintain a minimum stockholders' equity balance and to obtain
certain minimum operating results, as well as requiring the Bank to maintain
"well capitalized" regulatory capital levels and certain non-performing asset
ratios. In addition, the Company has agreed not to pledge any stock of the
Bank or MAF Developments for any purpose. At December 31, 1996, the Company
was in compliance with these covenants.
During the six months ended December 31, 1996 and the year ended June 30,
1996, the Company received cash dividends from the Bank totaling $-0- and
$69.0 million, respectively. The large increase in 1996 was due to the
acquisition of NSBI. After the acquisition was complete, the Company received
a $65.0 million special dividend from the Bank due to its overcapitalization
for regulatory purposes from the merger with Northwestern. The Company
declared $.18 per share in cash dividends to common shareholders during the
six months ended December 31, 1996, compared to $.32 per share in the year
ended June 30, 1996.
The Bank's principal sources of funds are deposits, advances from the FHLB
of Chicago, reverse repurchase agreements, principal repayments on loans and
mortgage-backed securities, proceeds from the sale of loans and funds provided
by operations. While scheduled loan and mortgage-backed securities
amortization and maturing interest-bearing deposits are a relatively
predictable source of funds, deposit flows and loan and mortgage-backed
securities prepayments are greatly influenced by economic conditions, the
general level of interest rates and competition. The Bank utilizes particular
sources of funds based on comparative costs and availability. The Bank
generally manages the pricing of its deposits to maintain a steady deposit
balance, but has from time to time decided not to pay rates on deposits as
high as its competition, and when necessary, to supplement deposits with
longer term and/or less expensive alternative sources of funds, such as
advances from the FHLB of Chicago and reverse repurchase agreements. During
the six months ended December 31, 1996, the Bank borrowed $60.0 million (net)
in FHLB of Chicago advances and an additional $40.0 million (net), under
reverse repurchase agreements to primarily fund mortgage loan volume held for
investment by the Bank.
The Bank is required by regulation to maintain specific minimum levels of
liquid investments. Regulations currently require the Bank to maintain liquid
assets at least equal to 5.0% of the sum of its average daily balance of net
withdrawable accounts and borrowed funds due in one year or less. This
regulatory requirement may be
45
<PAGE>
changed from time to time to reflect current economic conditions. During the
six months ended December 31, 1996, the Bank's average liquidity ratio was
6.53%. At December 31, 1996, total liquidity was $169.5 million, or 7.13%,
which was $50.6 million in excess of the 5.0% regulatory requirement. This
excess liquidity has provided the Bank with the flexibility needed to maintain
its short-term gap ratios within strategic limits, as well as most recently,
to fund the increased loan volume.
During the six months ended December 31, 1996, the Bank originated and
purchased loans totaling $469.5 million compared to $487.4 million for the six
months ended December 31, 1995, and $989.8 million during the year ended June
30, 1996. The Bank has outstanding commitments to originate loans of $82.5
million, purchase loans of $42.6 million, and sell loans of $8.7 million at
December 31, 1996. The Company expects to fund current and future loan
commitments using principal repayments on loans and mortgage-backed
securities, as well as outside funding sources.
SUBSIDIARY ACTIVITIES
MID AMERICA DEVELOPMENTS, NW FINANCIAL AND MAF DEVELOPMENTS. The Bank
engages in the business of purchasing unimproved land for development into
residential subdivisions of single family lots through its wholly-owned
subsidiary, Mid America Developments. The Bank has been engaged in this
activity since 1974, and since that time has developed and sold over 4,400
lots in 23 different subdivisions in the western suburbs of Chicago. Mid
America Developments acts as sole principal or as a joint venture partner in
its developments. For those joint ventures it is engaged in, Mid America
Developments has historically provided essentially all of the capital for a
joint venture and receives in exchange an ownership interest in the joint
venture which entitles it to a percentage of the profit or loss generated by
the project. Mid America Developments only invests in real estate development
projects which it believes it can monitor effectively. To date, such projects
have all been located in its market area. Mid America Developments has a
percentage interest in the net profit of each joint venture, generally 50%,
with the exact percentage based upon a number of factors, including
characteristics of the venture, the perceived risks involved, and the time to
completion. The net profits are generally defined in the joint venture
agreement as the gross profits of the joint venture from sales, less all
expenses, loan repayments and capital contributions.
In the acquisition of NSBI, the Bank acquired NW Financial, which is active
in the development of unimproved land for development into residential
subdivisions, as well as the construction of single-family homesites on the
improved lots. NW Financial currently has three projects whereby it and a
developer share in the profits of the projects on a 50/50 basis. NW Financial
also provides the funds, via loans, to the projects. NW Financial was a
borrower from Northwestern, or since acquisition, from the Bank. The projects
are located in the north and northwest suburbs of Chicago.
OTS regulations imposed restrictions on the Bank's participation in real
estate development activities through Mid America Developments. See
"Regulation and Supervision--Federal Savings Institution Regulation--Capital
Requirements." In response to the restrictions imposed by the OTS, Mid America
Developments' activities, since 1989, have been limited to the completion of
then-existing projects. Mid America Developments has not initiated any new
projects since 1989. In 1993, the Company formed a wholly-owned subsidiary,
MAF Developments, to continue its land development activities. As a subsidiary
of the Company, the activities of MAF Developments are not restricted by OTS
regulations as they are for the Bank. The Bank also plans to limit the
activity of NW Financial to the completion of the three existing projects in
process as of the acquisition.
46
<PAGE>
The following is a summary as of December 31, 1996, of the residential real
estate projects Mid America Developments, NW Financial and MAF Developments
currently has an interest in:
<TABLE>
<CAPTION>
LOTS
DATE NUMBER OF NUMBER AVAILABLE FOR
LAND LOTS SOLD BUT DEVELOPMENT TOTAL INVESTMENT
DESCRIPTION OF PROJECT ACQUIRED SOLD NOT CLOSED OR SALE LOTS BALANCE
---------------------- --------- --------- ---------- ------------- ----- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
MID AMERICA
DEVELOPMENTS:
Ashbury................ 1/87-6/87 1,107 8 -- 1,115 $ 122
1,115 residential lots
13-acre commercial
parcel
Woods of Rivermist.... 6/86 24 3 4 31 546
31 residential lots
NW FINANCIAL:
Woodbridge............. 2/90 383 56 92 531 8,348
531 single-family
homes
48-acre commercial
parcel
Reigate Woods.......... 10/93 33 3 49 85 6,263
85 single-family homes
Fields of Ambria....... 9/89-5/91 225 3 12 240 1,800
240 single-family
homes
MAF DEVELOPMENTS:
Clow Creek Farm........ 6/93 236 8 16 260 717
260 residential lots
Creekside of
Remington............. N/A 33 3 134 170 1,760
170 residential lots
Harmony Grove.......... 11/94 75 52 259 386 4,164
386 residential lots
5-acre commercial
parcel
Other.................. 11/96 4,392
-------
90 acres for future
development
$28,112
=======
</TABLE>
The following table is a summary of the Bank's investment in and advances to
Mid America Developments and NW Financial at the dates indicated:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, ------------
1996 1996 1995
------------ ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Common stock....................................... $ 1,657 1,657 1,397
Retained earnings.................................. 10,642 12,308 2,977
Intercompany advances.............................. 7,885 7,729 265
------- ------ -----
$20,184 21,694 4,639
======= ====== =====
</TABLE>
During the six months ended December 31, 1996, and the years ended June 30,
1996 and 1995, Mid America Developments paid dividends of $3.0 million, $2.0
million and $9.2 million, respectively to the Bank. The remaining investment
at December 31, 1996 is a deduction for the Bank in computing its regulatory
capital requirements. The large addition in the total balance in 1996 is due
solely to the acquisition of NW Financial.
47
<PAGE>
The following is a description of the projects at Mid America Developments:
Ashbury
The Ashbury subdivision is located in Naperville, Illinois, and consists of
1,115 lots. A venture partner participates in 50% of the profits on 482 of the
total lots under a joint venture agreement. As of December 31, 1996, eight
lots remain unsold, but are all under contract. The Bank anticipates these
lots to be closed during the first half of 1997.
Mid America Developments also owned a 13-acre commercial site in the Ashbury
development. The Bank opened a temporary branch location on this property in
July 1994 under a land lease with Mid America Developments. The site was sold
in July 1996, at a pre-tax profit of $728,000, with an agreement that the
Bank's temporary branch can remain on the property for a period of two years.
Woods of Rivermist
Mid America Developments is a participant in a joint venture in a 31-lot
development in Naperville, Illinois. Mid America Developments receives 50% of
the profits from the development. At December 31, 1996, Mid America
Development's investment in the Woods of Rivermist joint venture was $546,000.
At December 31, 1996, 24 of the 31 lots of this development were sold with
three lots under contract.
The following is a summary of projects at MAF Developments:
Clow Creek Farm
MAF Developments, Inc. purchased a 103 acre parcel of land in 1993 for the
development of 260 lots in Naperville, Illinois, adjacent to the Ashbury
subdivision. As of December 31, 1996, the Company's investment was $717,000.
The development is substantially complete, and 236 lot sales have been closed
to date. At December 31, 1996, there are eight lots under contract. The
Company expects to be substantially sold out of Clow Creek Farm by the end of
1997.
Creekside of Remington
MAF Developments, Inc. entered into a joint venture agreement to develop 170
lots in Bolingbrook, Illinois. The joint venture partner contributed the land
while MAF Developments contributes development costs. Development commenced in
late fiscal 1994 in the first unit which consists of 91 lots. There were no
sales during the six months ended December 31, 1996, although three lots are
under contract as of December 31, 1996. Due to the slow absorption in this
development, the Company has not begun development of the next phase of the
project. At December 31, 1996, the Company's investment in Creekside of
Remington was $1.8 million.
Harmony Grove
MAF Developments, Inc. entered into a joint venture to develop 386 lots in
Naperville, Illinois by purchasing, from its venture partner, 160 acres of
land, which included a 5-acre commercial parcel. The Company's investment at
December 31, 1996 was $4.2 million. During the six months ended December 31,
1996, the Company sold its first lots in the subdivision, totaling 75 of the
available 128 lots in the first unit. Of the remaining 53 lots of unit 1, 52
lots are under contract as of December 31, 1996. In addition, the commercial
parcel is under contract to a buyer as of December 31, 1996, and closed in
February, 1997, resulting in a pre-tax profit of $228,000.
The following is a summary of projects at NW Financial:
Fields of Ambria
Fields of Ambria consists of approximately 80 acres of land in Mundelein,
Illinois. The subdivision was developed into 240 lots for single-family home
construction in conjunction with a developer, who shares in the profits of the
project. The project was funded solely by funds from NW Financial, which have
all been repaid.
48
<PAGE>
During the six months ended December 31, 1996, a total of 13 homesites were
sold. At December 31, 1996, the Company's investment was $1.8 million,
representing 15 homesites. At December 31, 1996, three of the remaining
homesites are under contract.
Reigate Woods
Reigate Woods consist of approximately 106 acres of land in Green Oaks,
Illinois. The subdivision was developed into 85 lots for single-family home
construction in conjunction with a developer, who shares in the profits of the
project. The project is funded solely by funds from NW Financial. During the
six months ended December 31, 1996, a total of 15 homesites were sold. At
December 31, 1996, the Company has an investment of $6.3 million, representing
52 homesites. At December 31, 1996, three of the remaining homesites are under
contract.
Woodbridge
Woodbridge consists of 341 acres of land in Elgin, Illinois. The project is
being developed with a developer who shares in the projects profits, if any.
The land includes 232 acres for the construction of 531 single-family homes.
During the six months ended December 31, 1996, a total of 26 homesites were
sold. At December 31, 1996, 56 of the remaining 148 homesites are under
contract. The project also includes 55 acres of property zoned for multi-
family use, which has been sold, as well as 48 acres of commercially-zoned
property. At December 31, 1996, the combined investment in the residential and
commercial property is $8.3 million.
MID AMERICA FINANCE CORPORATION. In 1988, the Bank issued CMOs through MAFC,
a wholly-owned special purpose finance subsidiary. The Bank contributed $149.8
million of mortgage-backed securities to MAFC which, in turn, pledged the
securities to an independent trustee as collateral for the CMOs. The issuance
of the CMOs resulted in net proceeds to the Bank of $130.9 million which were
ultimately used to fund loan originations. Substantially all of the payments
of principal and interest on the underlying collateral are paid through to the
holders of the CMOs.
The CMOs were issued in four maturity classes. The actual maturity of each
class of CMO will vary according to the timing of the cash receipts from the
underlying collateral. The CMOs are accounted for as a financing transaction
and are reflected as borrowed funds in the consolidated financial statements
of the Company. At December 31, 1996, the CMOs had an outstanding balance of
$13.1 million. The mortgage-backed securities securing the CMOs had a carrying
value and market value of $14.0 million and $14.5 million, respectively, at
December 31, 1996.
The CMO bonds and the mortgage-backed securities which collateralize them
both carry fixed interest rates, adjusted for amortization of discounts based
upon prepayment assumptions. The mortgage-backed securities yield averaged
8.39% for the six months ended December 31, 1996, compared to 8.60% for the
year ended June 30, 1996. This negative spread led to a $771,000 reduction to
net interest income for the six months ended December 31, 1996.
NORTHWESTERN ACCEPTANCE CORPORATION. In 1986, Northwestern issued $300
million of CMOs through NWAC, a special purpose finance subsidiary. The CMOs
were issued in two classes. Class A-1 CMOs, with an original face of $200
million, have an interest rate that is indexed to LIBOR for three- month
eurodollar deposits, with a maximum rate of 13.5% per year. The Class A-2
CMOs, originally issued for $100 million, have an interest rate that adjusts
in inverse proportion to the LIBOR rate, but in no event may be less than 0%
per year or greater than 23.89% per year. The CMOs have a stated maturity of
February 20, 2018, although actual maturity of each class of CMO will vary due
to prepayments in the underlying mortgage collateral. The CMOs are also
subject to mandatory and optional redemption provisions, depending on the
repayment of the underlying collateral and the amount of CMOs outstanding.
At December 31, 1996, the CMOs had an outstanding balance of $24.5 million.
The CMOs are collateralized by 9.0% FHLMC mortgage-backed securities which had
a carrying value and market value of
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$24.1 million and $25.2 million, respectively at December 31, 1996. In
addition to the mortgage-backed securities, cash and investment securities
totaling $608,000 were held by the trustee to pay principal and interest on
the CMOs. The mortgage-backed securities pledged, as well as the cash and
investment securities held by the trustee are solely for the repayment of the
CMOs.
MID AMERICA INSURANCE AGENCY. Mid America Insurance Agency, Inc. ("Mid
America Insurance") is a wholly-owned subsidiary of the Bank which provides
insurance brokerage services, including personal and commercial insurance
products, to the Bank's customers. For the six months ended December 31, 1996,
and the years ended June 30, 1996 and 1995, Mid America Insurance generated
pre-tax income of $50,000, $97,000 and $102,000, respectively.
INVEST. On June 23, 1983, the Bank, through Mid America Developments,
entered into an agreement with ISFA Corporation ("ISFA") to become a
subscriber to its INVEST program. ISFA is a registered broker-dealer and
provides certain securities brokerage and investment advisory services under
its INVEST service mark to the general public. Through this program and
licensed dual employees, these services are offered to customers of the Bank.
Presently 11 brokers are employed and operate from eight Bank locations.
Revenues are generated from the sales of securities products in the form of
commissions which are apportioned between ISFA and the Bank. For the six
months ended December 31, 1996 and the years ended June 30, 1996 and 1995,
pre-tax income from INVEST operations was $349,000, $711,000 and $460,000,
respectively.
REGULATION AND SUPERVISION
GENERAL
The Company, as a savings and loan holding company, is required to file
certain reports with, and otherwise comply with the rules and regulations of
the OTS under the Home Owners' Loan Act of 1933, as amended (the "HOLA"). In
addition, the activities of savings institutions, such as the Bank, are
governed by the HOLA and the Federal Deposit Insurance Act ("FDI Act").
The Bank is subject to extensive regulation, examination and supervision by
the OTS, as its primary federal regulator, and the FDIC, as the deposit
insurer. The Bank is a member of the Federal Home Loan Bank ("FHLB") System
and its deposit accounts are insured up to applicable limits by the Savings
Association Insurance Fund ("SAIF") managed by the FDIC. The Bank must file
reports with the OTS and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other savings
institutions. The OTS and/or the FDIC conduct periodic examinations to test
the Bank's compliance with various regulatory requirements. This regulation
and supervision establishes a comprehensive framework of activities in which
an institution can engage and is intended primarily for the protection of the
insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
regulatory requirements and policies, whether by the OTS, the FDIC or the
Congress could have a material adverse impact on the Company, the Bank and
their operations. Certain of the regulatory requirements applicable to the
Bank and to the Company are referred to below or elsewhere herein. The
description of statutory provisions and regulations applicable to savings
institutions and their holding companies set forth in this Form 10-K does not
purport to be a complete description of such statutes and regulations and
their effects on the Bank and the Company.
HOLDING COMPANY REGULATION
The Company is a nondiversified unitary savings and loan holding company
within the meaning of the HOLA. As a unitary savings and loan holding company,
the Company generally will not be restricted under existing laws as to the
types of business activities in which it may engage, provided that the Bank
continues to be a qualified thrift lender ("QTL"). See "Federal Savings
Institution Regulation--QTL Test." Upon any non-
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supervisory acquisition by the Company of another savings institution or
savings bank that meets the QTL test and is deemed to be a savings institution
by the OTS, the Company would become a multiple savings and loan holding
company (if the acquired institution is held as a separate subsidiary) and
would be subject to extensive limitations on the types of business activities
in which it could engage. The HOLA limits the activities of a multiple savings
and loan holding company and its non-insured institution subsidiaries
primarily to activities permissible for bank holding companies under Section
4(c)(8) of the Bank Holding Company Act of 1956, as amended ("BHC Act"),
subject to the prior approval of the OTS, and activities authorized by OTS
regulation.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5%
of the voting stock of another savings institution or holding company thereof,
without prior written approval of the OTS; acquiring or retaining, with
certain exceptions, more than 5% of a nonsubsidiary company engaged in
activities other than those permitted by the HOLA; or acquiring or retaining
control of a depository institution that is not insured by the FDIC. In
evaluating applications by holding companies to acquire savings institutions,
the OTS must consider the financial and managerial resources and future
prospects of the company and institution involved, the effect of the
acquisition on the risk to the insurance funds, the convenience and needs of
the community and competitive factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, HOLA does prescribe such restrictions on
subsidiary savings institutions, as described below. The Bank must notify the
OTS 30 days before declaring any dividend to the Company. In addition, the
financial impact of a holding company on its subsidiary institution is a
matter that is evaluated by the OTS and the agency has authority to order
cessation of activities or divestiture of subsidiaries deemed to pose a threat
to the safety and soundness of the institution.
FEDERAL SAVINGS INSTITUTION REGULATION
Capital Requirements. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 3% leverage (core capital) ratio and an 8% risk-based capital ratio.
In addition, the prompt corrective action standards discussed below also
establish, in effect, a minimum 2% tangible capital standard, a 4% leverage
(core) capital ratio (3% for institutions receiving the highest rating on the
CAMEL financial institution rating system), and, together with the risk- based
capital standard itself, a 4% Tier I risk-based capital standard. Core capital
is defined as common stockholder's equity (including retained earnings),
certain noncumulative perpetual preferred stock and related surplus, and
minority interests in equity accounts of consolidated subsidiaries less
intangibles other than certain purchased mortgage servicing rights and credit
card relationships. The OTS regulations also require that, in meeting the
leverage ratio, tangible and risk-based capital standards, institutions must
generally deduct investments in and loans to subsidiaries engaged in
activities as principal that are not permissible for a national bank. For the
Bank, this includes its $20.2 million investment in Mid America Developments
and NW Financial at December 31, 1996, which the Bank must deduct from
regulatory capital for purposes of calculating its capital requirements.
The risk-based capital standard for savings institutions requires the
maintenance of Tier I (core) and total capital (which is defined as core
capital and supplementary capital) to risk-weighted assets of 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight of
0% to 100%, as assigned by the OTS capital regulation based on the risks OTS
believes are inherent in the type of asset. The components of Tier I (core)
capital are equivalent to
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those discussed earlier. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock and the general allowance for loan losses, limited to a maximum of 1.25%
of risk-weighted assets. Overall, the amount of supplementary capital included
as part of total capital cannot exceed 100% of core capital.
The OTS regulatory capital requirements also incorporate an interest rate
risk component. Savings institutions with "above normal" interest rate risk
exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. A savings institution's
interest rate risk is measured by the decline in the net portfolio value of
its assets (i.e., the difference between incoming and outgoing discounted cash
flows from assets, liabilities and off-balance sheet contracts) that would
result from a hypothetical 200 basis point increase or decrease in market
interest rates divided by the estimated economic value of the institution's
assets. In calculating its total capital under the risk-based capital rule, a
savings institution whose measured interest rate risk exposure exceeds 2% must
deduct an amount equal to one-half of the difference between the institution's
measured interest rate risk and 2%, multiplied by the estimated economic value
of the institution's assets. The Director of the OTS may waive or defer a
savings institution's interest rate risk component on a case-by-case basis. A
savings institution with assets of less than $300 million and risk-based
capital ratios in excess of 12% is not subject to the interest rate risk
component, unless the OTS determines otherwise. For the present time, the OTS
has deferred implementation of the interest rate risk component. If the Bank
had been subject to an interest rate risk capital component as of December 31,
1996 and June 30, 1996, the Bank's total risk-weighted capital would not have
been subject to a deduction based on interest rate risk. At December 31, 1996
and June 30, 1996, the Bank met each of its capital requirements on a fully
phased-in basis.
At December 31, 1996 and June 30, 1996, the Bank was in compliance with the
current capital requirements as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1996
---------------------- ----------------------
PERCENT OF PERCENT OF
AMOUNT ASSETS AMOUNT ASSETS
----------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Stockholder's equity of the
Bank........................... $ 273,545 8.52% $ 263,346 8.43%
=========== ===== =========== =====
Tangible capital................ $ 219,080 6.96% $ 215,582 7.02%
Tangible capital requirement.... 47,202 1.50 46,095 1.50
----------- ----- ----------- -----
Excess.......................... $ 171,878 5.46% $ 169,487 5.52%
=========== ===== =========== =====
Core capital.................... 219,080 6.96% $ 215,582 7.02%
Core capital requirement........ 94,404 3.00 92,189 3.00
----------- ----- ----------- -----
Excess.......................... 124,676 3.96% $ 123,393 4.02%
=========== ===== =========== =====
Core and supplementary capital.. $ 235,057 15.05% $ 232,625 15.36%
Risk-based capital requirement.. 124,943 8.00 121,167 8.00
----------- ----- ----------- -----
Excess.......................... $ 110,114 7.05% $ 111,458 7.36%
=========== ===== =========== =====
Total Bank assets............... $ 3,209,058 $ 3,122,790
Adjusted total Bank assets...... 3,146,788 3,072,970
Total risk-weighted assets...... 1,624,489 1,564,618
Adjusted total risk-weighted
assets......................... 1,561,782 1,514,587
Investment in Bank's real estate
subsidiaries................... 20,184 21,694
Goodwill and core deposit
intangible..................... 34,368 35,630
</TABLE>
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The following table reflects the Bank's regulatory capital as of December
31, 1996 as it relates to these three capital requirements:
<TABLE>
<CAPTION>
RISK-
TANGIBLE CORE BASED
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Stockholder's equity of the Bank.................. $273,545 273,545 273,545
Goodwill and core deposit intangible.............. (34,368) (34,368) (34,368)
Non-permissible subsidiary deduction.............. (20,184) (20,184) (20,184)
Non-includible purchased mortgage servicing
rights........................................... (203) (203) (203)
Regulatory capital adjustment for available for
sale securities.................................. 290 290 290
Land loans greater than 80% loan-to-value......... -- -- (437)
General allowance for loan losses................. -- -- 16,414
-------- ------- -------
Regulatory capital.............................. $219,080 219,080 235,057
======== ======= =======
</TABLE>
Prompt Corrective Regulatory Action. Under the OTS prompt corrective action
regulations, the OTS is required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon the
institution's degree of undercapitalization. Generally, a savings institution
is considered "well capitalized" if its ratio of total capital to risk-
weighted assets is at least 10%, its ratio of Tier I (core) capital to risk-
weighted assets is at least 6%, its ratio of core capital to total assets is
at least 5%, and it is not subject to any order or directive by the OTS to
meet a specific capital level. A savings institution generally is considered
"adequately capitalized" if its ratio of total capital to risk-weighted assets
is at least 8%, its ratio of Tier I (core) capital to risk-weighted assets is
at least 4%, and its ratio of core capital to total assets is at least 4% (3%
if the institution receives the highest CAMEL rating). A savings institution
that has a ratio of total capital to weighted assets of less of than 8%, a
ratio of Tier I (core) capital to risk-weighted assets of less than 4% or a
ratio of core capital to total assets of less than 4% (3% or less for
institutions with the highest examination rating) is considered to be
"undercapitalized." A savings institution that has a total risk-based capital
ratio less than 6%, a Tier 1 risk-based capital ratio of less than 3% or a
leverage ratio that is less than 3% is considered to be "significantly
undercapitalized," and a savings institution that has a tangible capital to
assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
"critically undercapitalized." The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date a
savings institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Compliance
with the plan must be guaranteed by any parent holding company. In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
Insurance of Deposit Accounts. The FDIC has adopted a risk-based deposit
insurance system that assesses deposit insurance premiums according to the
level of risk involved in an institution's activities. An institution's risk
category is based upon whether the institution is classified as "well
capitalized," "adequately capitalized" or "undercapitalized" and one of three
supervisory subcategories within each capital group. The supervisory subgroup
to which an institution is assigned is based on a supervisory evaluation and
information which the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance fund. Based on
its capital and supervisory subgroups, each Bank Insurance Fund ("BIF") and
SAIF member institution is assigned an annual FDIC assessment rate, with an
institution in the highest category (i.e., well-capitalized and healthy)
receiving the lowest rates and an institution in the lowest category (i.e.,
undercapitalized and posing substantial supervisory concern) receiving the
highest rates. The FDIC has authority to further raise premiums if deemed
necessary. If such action is taken, it could have an adverse effect on the
earnings of the Bank.
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On September 30, 1996, the President signed the Deposit Insurance Funds Act
of 1996 (the "Funds Act"), which, among other things, imposed a special one-
time assessment on SAIF members, including the Bank, to recapitalize the SAIF.
As required by the Funds Act, the FDIC imposed a special assessment of 65.7
basis points on SAIF assessable deposits held as of March 31, 1995, payable
November 27, 1996. The special assessment recorded by the Bank amounted to
$14.2 million on a pre-tax basis, and $8.7 million on an after-tax basis, and
was reflected in the quarter ended September 30, 1996.
The Funds Act also spreads the obligations for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits
will be assessed for a FICO payment of 1.3 basis points, while SAIF deposits
will pay 6.48 basis points. Full pro rata sharing of the FICO payments between
BIF and SAIF members will occur on the earlier of January 1, 2000 or the date
the BIF and SAIF are merged. The Funds Act specifies that the BIF and SAIF
will be merged on January 1, 1999, provided no savings associations remain as
of that time.
The Bank's assessment rate for the six months ended December 31, 1996 ranged
from 18 to 23 basis points and the premium paid for this period was $2.3
million. A significant increase in SAIF insurance premiums would likely have
an adverse effect on the operating expenses and results of operations of the
Bank.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is
in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or
the OTS. The management of the Bank does not know of any practice, condition
or violation that might lead to termination of deposit insurance.
Loans to One Borrower. Under the HOLA, savings institutions are generally
subject to the limits on loans to one borrower applicable to national banks.
Generally, savings institutions may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired
capital and surplus. An additional amount may be lent, equal to 10% of
unimpaired capital and surplus, if such loan is secured by readily-marketable
collateral, which is defined to include certain financial instruments and
bullion. At December 31, 1996, the Bank's limit on loans to one borrower was
$32.9 million. At December 31, 1996, the Bank's largest aggregate outstanding
balance of loans to any one borrower was $16.2 million.
QTL Test. The HOLA requires savings institutions to meet a QTL test. Under
the QTL test, a savings and loan association is required to maintain at least
65% of its "portfolio assets" (total assets less (i) specified liquid assets
up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the
value of property used to conduct business) in certain "qualified thrift
investments" (primarily residential mortgages and related investments,
including certain mortgage-backed securities) in at least 9 months out of each
12 month period. A savings institution that fails the QTL test is subject to
certain operating restrictions and may be required to convert to a bank
charter. As of December 31, 1996, the Bank maintained 92.0% of its portfolio
assets in qualified thrift investments and, therefore, met the QTL test.
Limitation on Capital Distributions. OTS regulations impose limitations upon
all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to
shareholders of another institution in a cash-out merger and other
distributions charged against capital. The rule establishes three tiers of
institutions, which are based primarily on an institution's capital level. An
institution that exceeds all fully phased-in capital requirements before and
after a proposed capital distribution ("Tier 1 Bank") and has not been advised
by the OTS that it is in need of more than normal supervision, could, after
prior notice but without obtaining approval of the OTS, make capital
distributions during a calendar year equal to the greater of (i) 100% of its
net earnings to date during the calendar year plus the amount that would
reduce by one-half its "surplus capital ratio" (the excess capital over its
fully phased-in capital requirements) at the beginning of the calendar year or
(ii) 75% of its net income for the previous four quarters. Any additional
capital distributions would require prior regulatory approval. In the event
the Bank's capital fell below its regulatory requirements or the OTS notified
it that it was in need of more than normal supervision, the Bank's
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<PAGE>
ability to make capital distributions could be restricted. In addition, the
OTS could prohibit a proposed capital distribution by any institution, which
would otherwise be permitted by the regulation, if the OTS determines that
such distribution would constitute an unsafe or unsound practice. At December
31, 1996, the Bank is considered a Tier 1 Bank.
Liquidity. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 5% but may be changed from
time to time by the OTS to any amount within the range of 4% to 10% depending
upon economic conditions and the savings flows of member institutions. OTS
regulations also require each member savings institution to maintain an
average daily balance of short-term liquid assets at a specified percentage
(currently 1%) of the total of its net withdrawable deposit accounts and
borrowings payable in one year or less. Monetary penalties may be imposed for
failure to meet these liquidity requirements. The Bank's liquidity and short-
term liquidity ratios for December 31, 1996 were 7.13% and 6.62% respectively,
which exceeded the then applicable requirements. The Bank has never been
subject to monetary penalties for failure to meet its liquidity requirements.
Assessments. Savings institutions are required to pay assessments to the OTS
to fund the agency's operations. The general assessment, paid on a semi-annual
basis, is computed upon the savings institution's total assets, including
consolidated subsidiaries, as reported in the Bank's latest quarterly thrift
financial report. The assessments paid by the Bank for the six months ended
December 31, 1996 totaled $164,000.
Branching. OTS regulations permit nationwide branching by federally
chartered savings institutions to the extent allowed by federal statute. This
permits federal savings institutions to establish interstate networks and to
geographically diversify their loan portfolios and lines of business. The OTS
authority preempts any state law purporting to regulate branching by federal
savings institutions.
Transactions with Related Parties. The Bank's authority to engage in
transactions with related parties or "affiliates" (e.g., any company that
controls or is under common control with an institution, including the Company
and its non-savings institution subsidiaries) is limited by Sections 23A and
23B of the Federal Reserve Act ("FRA"). Section 23A limits the aggregate
amount of covered transactions with any individual affiliate to 10% of the
capital and surplus of the savings institution. The aggregate amount of
covered transactions with all affiliates is limited to 20% of the savings
institution's capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
Section 23A, and the purchase of low quality assets from affiliates is
generally prohibited. Section 23B generally provides that certain transactions
with affiliates, including loans and asset purchases, must be on terms and
under circumstances, including credit standards, that are substantially the
same or at least as favorable to the institution as those prevailing at the
time for comparable transactions with non-affiliated companies. In addition,
savings institutions are prohibited from lending to any affiliate that is
engaged in activities that are not permissible for bank holding companies and
no savings institution may purchase the securities of any affiliate other than
a subsidiary.
The Bank's authority to extend credit to executive officers, directors and
10% shareholders, as well as entities such persons control, is governed by
Sections 22(g) and 22(h) of the FRA and Regulation O thereunder. Among other
things, such loans are generally required to be made on terms substantially
the same as those offered to unaffiliated individuals and to not involve more
than the normal risk of repayment. Regulation O also places individual and
aggregate limits on the amount of loans the Bank may make to such persons
based, in part, on the Bank's capital position and requires certain board
approval procedures to be followed.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring
actions against the institution and all "institution-affiliated parties,"
including stockholders, and any attorneys, appraisers and accountants who
knowingly or recklessly participate in wrongful action likely to have an
adverse effect on an insured institution. Formal enforcement action may range
from the issuance of a capital directive or cease and desist order to removal
of officers and/or directors to institution of proceedings for receivership,
conservatorship or termination of deposit insurance. Civil penalties
55
<PAGE>
cover a wide range of violations and may amount to $25,000 per day, or even $1
million per day in especially egregious cases. Under the FDI Act, the FDIC has
the authority to recommend to the Director of the OTS enforcement action to be
taken with respect to a particular savings institution. If action is not taken
by the Director, the FDIC has authority to take such action under certain
circumstances. Federal law also establishes criminal penalties for certain
violations.
Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") and a final rule to implement safety and soundness standards
required under the FDI Act. The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address
problems at insured depository institutions before capital becomes impaired.
The standards set forth in the Guidelines address internal controls and
information systems; internal audit system; credit underwriting; loan
documentation; interest rate risk exposure; asset growth; asset quality;
earnings and compensation, fees and benefits. If the appropriate federal
banking agency determines that an institution fails to meet any standard
prescribed by the Guidelines, the agency may require the institution to submit
to the agency an acceptable plan to achieve compliance with the standard, as
required by the FDI Act. The final rule establishes deadlines for the
submission and review of such safety and soundness compliance plans when such
plans are required.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB System, which consists of 12 regional
FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB of Chicago, is required to
acquire and hold shares of capital stock in that FHLB in an amount at least
equal to 1% of the aggregate principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each year, or 1/20
of its advances (borrowings) from the FHLB-Chicago, whichever is greater. At
December 31, 1996, the Bank was in compliance with this requirement, with an
investment in FHLB of Chicago stock of $30.7 million. FHLB of Chicago advances
must be secured by specified types of collateral and may be obtained primarily
for the purpose of providing funds for residential housing finance.
The FHLBs are required to provide funds to cover certain obligations on
bonds issued to fund the resolution of insolvent thrifts and to contribute
funds for affordable housing programs. These requirements could reduce the
amount of dividends that the FHLBs pay to their members and could also result
in the FHLBs imposing a higher rate of interest on advances to their members.
For the six months ended December 31, 1996, and the years ended June 30, 1996
and 1995, dividends from the FHLB of Chicago to the Bank amounted to $1.1
million, $1.3 million and $656,000, respectively. If FHLB dividends were
reduced, or interest on future FHLB advances increased, the Bank's net
interest income might also be reduced.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for accounts aggregating $54.0 million or
less (subject to adjustment by the Federal Reserve Board) the reserve
requirement is 3%; and for accounts greater than $54.0 million, the reserve
requirement is $1.6 million plus 10% (subject to adjustment by the Federal
Reserve Board between 8% and 14%) against that portion of total transaction
accounts in excess of $54.0 million. The first $4.2 million of otherwise
reservable balances (subject to adjustments by the Federal Reserve Board) are
exempted from the reserve requirements. The Bank is in compliance with the
foregoing requirements. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements imposed by the OTS.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extingushments of Liabilities." This Statement supersedes
56
<PAGE>
FASB Statements No. 76, "Extinguishment of Debt," No. 77, "Reporting by
Transferors for Transfers of Receivables with Recourse," and amends No. 122,
"Accounting for Mortgage Servicing Rights," No. 65, "Accounting for Certain
Mortgage Banking Activities," and No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." SFAS No. 125 provides standards based on the
application of a "financial-components approach" to transfers and servicing of
financial assets and extinguishments of liabilities. The approach is focused
on control of assets and liabilities existing after transfers of financial
assets whereby an entity recognizes the assets it controls and the liabilities
it has incurred and derecognizes the assets it no longer controls and the
liabilities it has extinguished. SFAS No. 125 provides standards to determine
whether transfers of financial assets are to be accounted for as sales or
secured borrowings. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December
31, 1996. In December 1996, the FASB issued SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125," by delaying
for one year the effective date for the following types of transfers of
financial assets: secured borrowings and collateral, repurchase agreements,
dollar-rolls and securities lending. The Company does not expect this
pronouncement to have a significant impact on its consolidated financial
condition or results of operations.
57
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MAF BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks................................ $ 45,732 51,665
Interest-bearing deposits.............................. 55,285 37,496
Federal funds sold..................................... 24,700 5,700
Investment securities, at amortized cost (fair value of
$72,855 at
December 31, 1996 and $102,098 at June 30, 1996)...... 72,040 102,226
Investment securities available for sale, at fair
value................................................. 69,049 38,296
Stock in Federal Home Loan Bank of Chicago, at cost.... 30,729 30,729
Mortgage-backed securities, at amortized cost (fair
value of $266,340 at
December 31, 1996 and $290,249 at June 30, 1996)...... 266,658 293,381
Mortgage-backed securities available for sale, at fair
value................................................. 92,929 124,721
Loans receivable held for sale......................... 6,495 9,314
Loans receivable, net of allowance for loan losses of
$17,914 at
December 31, 1996, and $17,254 at June 30, 1996....... 2,423,618 2,284,085
Accrued interest receivable............................ 20,457 19,974
Foreclosed real estate................................. 1,257 888
Real estate held for development or sale............... 28,112 26,620
Premises and equipment, net............................ 32,302 31,245
Goodwill............................................... 26,347 26,901
Other assets........................................... 34,631 33,908
---------- ---------
$3,230,341 3,117,149
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits............................................. 2,262,226 2,254,100
Borrowed funds....................................... 632,897 537,696
Subordinated capital notes, net...................... 26,709 26,676
Advances by borrowers for taxes and insurance........ 18,442 17,056
Accrued expenses and other liabilities............... 39,442 39,395
---------- ---------
Total liabilities.................................. 2,979,716 2,874,923
Stockholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000
shares; none issued or outstanding.................. -- --
Common stock, $.01 par value; authorized 40,000,000
shares; 11,215,830 shares issued and 10,490,133
outstanding at December 31, 1996; 11,057,498 shares
issued and 10,340,673 outstanding at June 30, 1996.. 112 111
Additional paid-in capital........................... 171,732 170,956
Retained earnings, substantially restricted.......... 95,412 88,524
Unrealized gain (loss) on securities available for
sale, net of tax.................................... 138 (825)
Treasury stock, at cost; 725,697 shares at December
31, 1996 and 716,825 shares at June 30, 1996 and.... (16,769) (16,540)
---------- ---------
Total stockholders' equity......................... 250,625 242,226
Commitments and contingencies..........................
---------- ---------
$3,230,341 3,117,149
========== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
58
<PAGE>
MAF BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, JUNE 30,
-----------------------------------------------------
1996 1995 1996 1995
------------ -------------------------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income:
Loans receivable....... $ 91,783 53,317 115,466 86,511
Mortgage-backed
securities............ 9,830 4,079 11,187 15,705
Mortgage-backed
securities available
for sale.............. 3,538 5,047 7,104 4,042
Investment securities.. 3,772 2,055 4,171 3,674
Investment securities
available for sale.... 1,440 855 1,982 1,367
Interest-bearing
deposits and federal
funds sold............ 2,464 1,536 3,185 3,664
------------ ---------- ----------- -----------
Total interest
income............... 112,827 66,889 143,095 114,963
Interest expense:
Deposits............... 47,967 30,451 63,325 55,794
Borrowed funds and
subordinated capital
notes................. 20,664 14,177 29,896 17,573
------------ ---------- ----------- -----------
Total interest
expense.............. 68,631 44,628 93,221 73,367
------------ ---------- ----------- -----------
Net interest income... 44,196 22,261 49,874 41,596
Provision for loan
losses................. 700 250 700 475
------------ ---------- ----------- -----------
Net interest income
after provision for
loan losses.......... 43,496 22,011 49,174 41,121
Non-interest income:
Gain (loss) on sale of:
Loans receivable....... 264 178 203 (56)
Mortgage-backed
securities............ (296) 57 (5) --
Investment securities.. 251 45 188 (231)
Foreclosed real
estate................ 161 21 50 181
Income from real estate
operations............ 4,133 2,820 4,786 7,497
Deposit account service
charges............... 3,219 2,370 4,894 3,347
Loan servicing fee
income................ 1,249 1,164 2,394 2,373
Brokerage commissions.. 924 750 1,711 1,383
Other.................. 2,054 1,349 2,879 2,156
------------ ---------- ----------- -----------
Total non-interest
income............... 11,959 8,754 17,100 16,650
Non-interest expense:
Compensation and
benefits.............. 14,503 9,697 21,209 18,257
Office occupancy and
equipment............. 2,652 1,755 3,774 3,522
Federal deposit
insurance premiums.... 2,338 1,523 3,255 3,003
Special SAIF
assessment............ 14,216 -- -- --
Advertising and
promotion............. 1,025 916 1,746 1,760
Data processing........ 1,032 760 1,683 1,473
Amortization of
goodwill.............. 679 -- 113 --
Other.................. 4,633 2,622 6,006 5,397
------------ ---------- ----------- -----------
Total non-interest
expense.............. 41,078 17,273 37,786 33,412
------------ ---------- ----------- -----------
Income before income
taxes and
extraordinary item... 14,377 13,492 28,488 24,359
Income taxes............ 5,602 5,203 10,805 9,316
------------ ---------- ----------- -----------
Income before
extraordinary item... 8,775 8,289 17,683 15,043
Extraordinary item-loss
on early extinguishment
of debt,
net of tax benefit of
$300................... -- (474) (474) --
------------ ---------- ----------- -----------
Net income............ $ 8,775 7,815 17,209 15,043
============ ========== =========== ===========
Primary and fully
diluted earnings per
share:
Income before
extraordinary item.... $ .81 1.41 2.84 2.54
Extraordinary item, net
of tax................ -- (.08) (.08) --
------------ ---------- ----------- -----------
Net income............ $ .81 1.33 2.76 2.54
============ ========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
59
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) COMMON COMMON
ON SECURITIES STOCK STOCK
ADDITIONAL AVAILABLE ACQUIRED ACQUIRED
COMMON PAID-IN RETAINED FOR SALE, TREASURY BY BY
STOCK CAPITAL EARNINGS NET OF TAX STOCK ESOP MRPS TOTAL
------ ---------- -------- ------------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1994................... $ 54 27,347 72,117 -- (4,038) (146) (184) 95,150
Net income.............. -- -- 15,043 -- -- -- -- 15,043
Proceeds from exercise
of 14,025 stock
options................ -- 78 -- -- -- -- -- 78
Purchase of treasury
shares................. -- -- -- -- (3,741) -- -- (3,741)
Tax benefits from stock-
related compensation... -- 219 -- -- -- -- -- 219
Principal payment on
ESOP loan.............. -- -- -- -- -- 146 -- 146
Distribution of MRP
stock awards........... -- -- -- -- -- -- 184 184
Cumulative effect of
change in accounting
for securities
available for sale, net
of tax................. -- -- -- (739) -- -- -- (739)
Change in unrealized
gain (loss)
on securities available
for sale,
net of tax............. -- -- -- 691 -- -- -- 691
Cash dividends declared,
$0.291 per share....... -- -- (1,612) -- -- -- -- (1,612)
Special 10% stock
dividend............... 5 12,096 (12,101) -- -- -- -- --
----- ------- ------- ---- ------- ---- ---- -------
Balance at June 30,
1995................... 59 39,740 73,447 (48) (7,779) -- -- 105,419
Net income.............. -- -- 17,209 -- -- -- -- 17,209
Issuance of 5,194,710
shares, including value
of option carryovers,
for acquisition of N.S.
Bancorp................ 52 131,186 -- -- -- -- -- 131,238
Proceeds from exercise
of 3,150 stock
options................ -- 17 -- -- -- -- -- 17
Purchase of treasury
shares................. -- -- -- -- (8,761) -- -- (8,761)
Tax benefits from stock-
related compensation... -- 13 -- -- -- -- -- 13
Change in unrealized
gain (loss) on
securities available
for sale, net of tax... -- -- -- (777) -- -- -- (777)
Cash dividends declared,
$0.32 per share........ -- -- (2,121) -- -- -- -- (2,121)
10% stock dividend
related to fractional
shares................. -- -- (11) -- -- -- -- (11)
----- ------- ------- ---- ------- ---- ---- -------
Balance at June 30,
1996................... 111 170,956 88,524 (825) (16,540) -- -- 242,226
Net income.............. -- -- 8,775 -- -- -- -- 8,775
Proceeds from exercise
of 158,332 stock
options................ 1 763 -- -- (229) -- -- 535
Tax benefits from stock-
related compensation... -- 13 -- -- -- -- -- 13
Change in unrealized
gain (loss) on
securities available
for sale, net of tax... -- -- -- 963 -- -- -- 963
Cash dividends declared,
$0.18 per share........ -- -- (1,887) -- -- -- -- (1,887)
----- ------- ------- ---- ------- ---- ---- -------
Balance at December 31,
1996................... $ 112 171,732 95,412 138 (16,769) -- -- 250,625
===== ======= ======= ==== ======= ==== ==== =======
</TABLE>
See accompanying Notes to Consolidated Financial Staements.
60
<PAGE>
MAF BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ------------------
1996 1996 1995
---------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net income............................... $ 8,775 17,209 15,043
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization............ 1,395 1,996 1,825
Amortization of premiums, discounts,
deferred loan fees, goodwill and core
deposit intangible...................... 398 175 632
Distribution of MRP awards............... -- -- 184
Provision for loan losses................ 700 700 475
FHLB of Chicago stock dividends.......... -- -- (156)
Deferred income tax expense (benefit).... (150) 1,452 1,423
Extraordinary item, net of tax........... -- 474 --
Net gain on sale of loans, mortgage-
backed securities, and real estate held
for development or sale................. (4,101) (4,984) (7,441)
(Gain) loss on sale of investment
securities, net......................... (251) (188) 231
(Increase) decrease in accrued interest
receivable.............................. (483) (1,849) (777)
Net (increase) decrease in other assets
and liabilities, net of effects from
purchase of NSBI........................ (5,649) 5,477 4,898
-------- -------- --------
Net adjustments......................... (8,141) 3,253 1,294
Loans originated for sale................. (40,261) (157,961) (74,841)
Loans purchased for sale.................. (14,195) (93,271) (31,221)
Sale of mortgage-backed securities
available for sale....................... 8,232 41,188 --
Sale of loans originated and purchased for
sale..................................... 57,428 267,394 92,246
-------- -------- --------
Net cash provided by operating
activities............................. 11,838 77,812 2,521
Investing activities:
Loans originated for investment.......... (258,230) (473,622) (348,610)
Principal repayments on loans
receivable.............................. 265,983 394,274 231,165
Principal repayments on mortgage-backed
securities.............................. 42,808 69,790 49,583
Proceeds from maturities of investment
securities available for sale........... 7,211 34,002 137
Proceeds from maturities of investment
securities held to maturity............. 32,360 101,194 27,507
Proceeds from sale of:
Loans receivable......................... 82 1,805 --
Investment securities available for
sale.................................... 1,956 1,155 6,516
Mortgage-backed securities available for
sale.................................... 16,603 -- --
Stock in Federal Home Loan Bank of
Chicago................................. -- 300 --
Real estate held for development or
sale.................................... 25,194 16,184 19,455
Premises and equipment................... 28 1 55
Purchases of:
Loans receivable held for investment..... (157,351) (269,796) (126,124)
Investment securities available for
sale.................................... (39,330) (31,111) (6,960)
Investment securities held to maturity... (1,502) (21,715) (16,938)
Mortgage-backed securities available for
sale.................................... -- -- (10,003)
Stock in Federal Home Loan Bank of
Chicago................................. -- (8,300) (3,122)
Real estate held for development or
sale.................................... (18,137) (7,297) (12,588)
Premises and equipment................... (2,452) (4,282) (2,599)
Payment for purchase of N.S. Bancorp, net
of cash acquired......................... -- (174,730) --
-------- -------- --------
Net cash used in investing activities... (84,777) (372,148) (192,526)
======== ======== ========
</TABLE>
(Continued)
61
<PAGE>
MAF BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ----------------
1996 1996 1995
---------------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Financing activities:
Proceeds from:
FHLB of Chicago advances.................. $ 230,000 205,000 150,000
Unsecured term bank loan.................. -- 35,000 --
Issuance of subordinated capital notes,
net...................................... -- 26,629 --
Repayments of:
FHLB of Chicago advances.................. (170,000) (45,000) --
Subordinated capital notes................ -- (20,900) --
Collateralized mortgage obligations....... (5,566) (6,038) (6,477)
Net increase (decrease) in reverse
repurchase agreements..................... 40,000 (56,910) 15,000
Net decrease in other borrowings........... -- -- (3,518)
Net increase to deposits................... 8,383 68,375 20,775
Increase (decrease) in advances by
borrowers for taxes and insurance......... 1,386 809 2,901
Issuance of common stock in conjunction
with acquisition.......................... -- 131,238 --
Proceeds from exercise of stock options.... 535 17 78
Purchase of treasury stock................. -- (6,299) (3,741)
Cash dividends paid........................ (943) (2,531) (1,213)
--------- ------- -------
Net cash provided by financing
activities.............................. 103,795 329,390 173,805
--------- ------- -------
Increase (decrease) in cash and cash
equivalents............................... 30,856 35,054 (16,200)
Cash and cash equivalents at beginning of
year...................................... 94,861 59,807 76,007
--------- ------- -------
Cash and cash equivalents at end of year... $ 125,717 94,861 59,807
========= ======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest on deposits and borrowed funds... $ 68,986 96,294 72,426
Income taxes.............................. 5,400 9,150 6,450
Summary of non-cash transactions:
Transfer of loans receivable to foreclosed
real estate.............................. 1,478 515 1,016
Loans receivable swapped into mortgage-
backed securities........................ 8,213 41,195 --
Investment securities transferred to
available for sale category.............. -- 17,999 16,004
Mortgage-backed securities transferred to
available for sale category.............. -- 108,743 77,827
Investment securities of N.S. Bancorp
transferred to treasury stock............ -- 2,462 --
Treasury stock received for option
exercises................................ 229 -- --
========= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
62
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, JUNE 30, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include
the accounts of MAF Bancorp, Inc. ("Company") and its two wholly-owned
subsidiaries, Mid America Federal Savings Bank ("Bank") and MAF Developments,
Inc., as well as the Bank's wholly-owned subsidiaries, Mid America Development
Services, Inc. ("Mid America Developments"), Mid America Finance Corporation
("MAFC"), Mid America Insurance Agency, Inc., Mid America Mortgage Securities,
Inc., NW Financial, Inc ("NW Financial"), and Northwestern Acceptance
Corporation ("NWAC"). All significant intercompany balances and transactions
have been eliminated in consolidation. As of December 31, 1996, the Company
changed its year-end to coincide with a calendar year, as opposed to the June
30 year-end it followed in the past.
Use of Estimates. The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
Investment and Mortgage-Backed Securities. All investment securities and
mortgage-backed securities are classified in one of three categories: trading,
held to maturity, or available for sale. Trading securities include investment
and mortgage-backed securities which the Company has purchased and holds for
the purpose of selling in the future. These investments are carried at fair
value, with unrealized gains and losses reflected in income in the current
period. Held to maturity securities include investment and mortgage-backed
securities which the Company has the positive intent and ability to hold to
maturity. These investments are carried at amortized cost, with no recognition
of unrealized gains or losses in the financial statements. All other
investment and mortgage-backed securities are classified as available for
sale. These investments are carried at fair value, with unrealized gains and
losses reflected in stockholders' equity, net of tax.
Amortization of premiums, accretion of discounts, and the amortization of
purchase accounting adjustments for investment and mortgage-backed securities
acquired are recognized in interest income over the period to maturity for
investment securities, or the estimated life of mortgage-backed securities
using the level-yield method. Gains and losses on sales of investment
securities, mortgage-backed securities, and equity securities are determined
using the specific identification method.
The Bank arranges for "swap" transactions with the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC")
which involve the exchange of whole mortgage loans originated by the Bank for
mortgage-backed securities. These securities are generally categorized as
available for sale as they are usually sold in conjunction with the Bank's
mortgage banking strategy.
Upon adoption of Statement of Financial Accounting Standards ("SFAS") No.
115 as of July 1, 1994, the Company transferred $16.0 million of investment
securities and $77.8 million of mortgage-backed securities into the available
for sale category. The unrealized loss at the date of transfer was $1.2
million. In accordance with an implementation guide to SFAS No. 115 issued in
November 1995, the Company transferred $18.0 million of investment securities
and $108.7 million of mortgage-backed securities on December 31, 1995, from
held to maturity to available for sale. The unrealized loss was $267,000 at
the date of transfer. The transfers in both years were made to provide
additional flexibility for the Company in managing its investment and
liquidity positions.
Loans receivable held for sale. The Bank sells, generally without recourse,
whole loans and participation interests in mortgage loans which it originates.
Loans originated are identified as either held for investment or sale upon
origination. Loans which the Bank intends to sell before maturity are
classified as held for sale, and
63
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
are carried at the lower of cost, adjusted for applicable deferred loan fees
or expenses, or estimated market value in the aggregate.
The Bank enters into forward commitments to sell mortgage loans primarily
with FNMA to deliver mortgage loans originated by the Bank at a specific time
and specific price in the future. Loans subject to forward sales are
classified as held for sale. Unrealized losses, if any, on forward commitments
are included in gain (loss) on sale of mortgage loans in the period the loans
are committed.
Loans Receivable. Loans receivable are stated at unpaid principal balances
less unearned discounts, deferred loan origination fees, loans in process and
allowance for loan losses.
Discounts on loans receivable are amortized to interest income using the
level-yield method over the remaining period to contractual maturity, adjusted
for anticipated prepayments. Amortization of purchase accounting discounts are
being amortized over the contractual term of loans receivable acquired,
adjusted for anticipated prepayments, using the level-yield method.
Loan fees and certain direct loan origination costs are deferred, and the
net deferred fee or cost is recognized as an adjustment to yield using the
level-yield method over the contractual life of the loans.
On July 1, 1995, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a
Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of
a Loan--Income Recognition and Disclosures," which impose certain requirements
on the identification and measurement of impaired loans. The Bank considers a
loan impaired when, based on current information and events, it is probable
that a creditor will be unable to collect all amounts due according to the
contractual terms of the loan. For loans which are not individually
significant (i.e. loans under $750,000), and represent a homogeneous
population, the Bank evaluates impairment collectively based on management
reports on the level and extent of delinquencies, as well as historical loss
experience for these types of loans. The Bank uses this criteria on one-to
four-family residential loans, consumer loans, multi-family residential loans,
and land loans. Impairment for loans considered individually significant and
commercial real estate loans are measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate,
or the fair value of the collateral if the loan is collateral dependent.
During the six months ended December 31, 1996, the Company classified one
commercial real estate loan as impaired under its impairment criteria. Charge-
offs of principal occur when a loss has deemed to have occurred as a result of
the book value exceeding the fair value or net realizable value.
A loan (whether considered impaired or not) is classified as non-accrual
when collectibility is in doubt, and is normally analyzed upon the borrower
becoming 90 days past due on contractual principal or interest payments. When
a loan is placed on non-accrual status, or in the process of foreclosure,
previously accrued but unpaid interest is reversed against interest income.
Income is subsequently recorded to the extent cash payments are received, or
at a time when the loan is brought current in accordance with its original
terms.
Allowance for Loan Losses. The allowance for loan losses is increased by
charges to operations and decreased by charge-offs, net of recoveries. The
allowance for loan losses reflects management's estimate of the reserves
needed to cover the risks inherent in the Bank's loan portfolio. In
determining a proper level of loss reserves, management periodically evaluates
the adequacy of the allowance based on the Bank's past loan loss experience,
known and inherent risks in the loan portfolio, adverse situations that may
affect the borrower's ability to repay, estimated value of any underlying
collateral, and current and prospective economic conditions.
Foreclosed Real Estate. Real estate properties acquired through, or in lieu
of, loan foreclosure to be sold and are initially recorded at the lower of
carrying value or fair value less the cost to sell at the date of foreclosure,
64
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
establishing a new cost basis. Valuations are periodically performed by
management and an allowance for loss is established by a charge to operations
if the carrying value of a property exceeds its estimated fair value less cost
to dispose.
Real Estate Held for Development or Sale. Real estate properties held for
development or sale, are carried at the lower of cost, including capitalized
holding costs or net realizable value. Gains and losses on individual lot
sales in a particular development are based on cash received less the
estimated cost of sales per lot. Cost of sales is calculated as the current
investment in the particular development plus anticipated costs to complete
the development, which includes interest capitalized, divided by the remaining
number of lots to be sold. Periodic estimates are made as to a development's
cost to complete. Per unit cost of sales estimates are adjusted on a
prospective basis when, and if, estimated costs to complete change.
Premises and Equipment. Land is carried at cost. Buildings, leasehold
improvements, furniture, fixtures, and equipment are carried at cost, less
accumulated depreciation and amortization. Buildings, furniture, fixtures, and
equipment are depreciated using the straight-line method over the estimated
useful lives of the assets. Useful lives are 20 to 50 years for office
buildings, 10 to 15 years for parking lot improvements, and 3 to 10 years for
furniture, fixtures, and equipment. The cost of leasehold improvements is
being amortized using the straight-line method over the lesser of the life of
the leasehold improvement or the term of the related lease.
Intangibles. Included in other assets is an identifiable core deposit
intangible established in the acquisition of N.S. Bancorp in May 1996, which
was established due to the application of the purchase method of accounting
and is being amortized over a 10 year period on an accelerated method of
amortization. Amortization expense amounted to $709,000 for the six months
ended December 31, 1996, and $122,000 for the year ended June 30, 1996.
The excess of cost over fair value of net assets and identified intangible
assets acquired (goodwill) due to the application of the purchase method of
accounting is being amortized over 20 years using the straight-line method.
Amortization expense amounted to $679,000 for the six months ended December
31, 1996, and $113,000 for the year ended June 30, 1996.
On a periodic basis, the Company reviews its intangible assets for events or
changes in circumstances that may indicate that the carrying amount of the
assets may not be recoverable.
Mortgage Servicing Rights. On July 1, 1996, the Bank adopted SFAS No. 122,
"Accounting for Mortgage Servicing Rights, an amendment to FASB Statement No.
65." SFAS No. 122 provides guidance for the recognition of mortgage servicing
rights as a separate asset, regardless of how these rights are acquired. SFAS
No. 122 also requires the measurement of impairment of servicing rights based
on the difference between carrying value and fair value. Previous to July 1,
1996, the Company recognized mortgage servicing rights for only those rights
which it purchased.
Mortgage servicing rights are initially capitalized upon acquisition, and
are subsequently amortized over the estimated life of the loan servicing
income stream, using the level-yield method. The Bank conducts periodic
impairment analysis by evaluating the present value of the future economic
benefit to be derived from the servicing rights using current information
regarding interest rates, prepayment assumptions, and the cost to service such
loans. For purposes of measuring impairment, the mortgage servicing rights are
stratified based on the predominant risk characteristics of the underlying
loans. The Bank stratifies loans by interest rate, maturity, and whether the
loans are fixed or adjustable rate. An impairment is recognized in the amount
by which the capitalized servicing rights for a specific stratum exceeds its
fair value.
65
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Borrowed Funds. Discounts and premiums on collateralized mortgage
obligations are amortized using the level-yield method over the remaining
contractual maturities of the underlying mortgage-backed security collateral,
adjusted for estimated prepayments. The discount on subordinated capital notes
is amortized using the level-yield method over the life of the notes.
Income Taxes. The Company and its subsidiaries file a consolidated federal
income tax return. Deferred income taxes are provided for all significant
items of income and expense that are recognized in different periods for
financial reporting purposes and income tax reporting purposes. The asset and
liability approach is used for the financial accounting and reporting of
income taxes. This approach requires companies to take into account changes in
the tax rates when valuing the deferred income tax accounts recorded on the
balance sheet. In addition, it provides that a deferred tax liability or asset
shall be recognized for the estimated future tax effects attributable to
"temporary differences" and loss and tax credit carryforwards. Temporary
differences include differences between financial statement income and tax
return income which are expected to reverse in future periods as well as
differences between tax bases of assets and liabilities and their amounts for
financial reporting purposes which are also expected to be settled in future
periods. To the extent a deferred tax asset is established which more likely
than not is not expected to be realized, a valuation allowance shall be
established against such asset.
Derivative Financial Instruments. The Company utilizes forward commitments
to sell mortgage loans and interest rate futures contracts, primarily U.S.
Treasury bond futures, as part of its mortgage loan origination hedging
strategy. Gains and losses on open and closed futures positions are deferred
and recognized as an adjustment to gain (loss) on the sale of loans receivable
when the underlying loan being hedged is sold into the secondary market.
Restrictions on Cash. Based on the types and amounts of deposits received,
the Bank maintains vault cash and non-interest bearing cash balances in
accordance with Federal Reserve Bank reserve requirements. The Bank's reserve
requirement was $2.9 million and $16.5 million at December 31, 1996 and June
30, 1996, respectively.
Earnings Per Share. Earnings per share is determined by dividing net income
for the period by the weighted average number of shares outstanding. Stock
options are regarded as common stock equivalents and are considered in the
earnings per share calculations. Common stock equivalents are computed using
the treasury stock method. Weighted average shares used in calculating
earnings per share are summarized below for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, -------------------
1996 1996 1995
---------------- --------- ---------
<S> <C> <C> <C>
Primary earnings per share............. 10,855,271 6,238,444 5,912,787
Fully-diluted earnings per share....... 10,869,334 6,240,842 5,918,892
========== ========= =========
</TABLE>
Statement of Cash Flows. For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks, interest-bearing deposits and
federal funds sold. Generally, federal funds are sold for one-day periods and
interest-bearing deposits mature within one day to three months.
Reclassifications. Certain reclassifications of prior year amounts have been
made to conform with current year presentation.
66
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITION
On May 30, 1996, the Company acquired N.S. Bancorp, Inc. ("NSBI"), and its
wholly-owned subsidiary Northwestern Savings Bank ("Northwestern") through the
issuance of .8529 shares of MAF Bancorp common stock plus $20.1799 of cash for
each share of NSBI stock as follows (dollars in thousands):
<TABLE>
<S> <C>
Cash paid (including acquisition expenses of $7.6 million)........ $130,545
Common stock issued, including $3.3 million value of option carry-
overs............................................................ 131,238
--------
Total consideration............................................. 261,783
Less: cash acquired from NSBI..................................... 87,053
--------
Purchase of NSBI, net of cash acquired.......................... $174,730
========
</TABLE>
The Company issued 5.2 million shares of its common stock in the
acquisition. The funds used for the purchase were obtained from available cash
and cash equivalents, cash acquired, and short-term borrowings, which were
subsequently repaid with NSBI's maturing investment securities. Additionally,
the Company obtained an unsecured long-term bank borrowing for $35.0 million
(See note 10).
The transaction was accounted for as a purchase. Acquisition expenses
incurred in the transaction include professional fees as well as $4.2 million
of severance costs, net of applicable tax benefits. All assets, liabilities
and identified intangible assets of NSBI, and its wholly-owned subsidiaries,
were adjusted to fair value as of the effective date of the merger creating
goodwill in the amount of $27.0 million, which was pushed-down to the Bank,
and is being amortized on the straight line basis over 20 years. Premiums and
discounts recorded as fair value adjustments amounted to $4.1 million and $8.5
million, respectively.
3. INVESTMENT SECURITIES
Investment securities available for sale and held to maturity are summarized
below:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1996
------------------------------------- --------------------------------------
GROSS GROSS GROSS GROSS
BOOK UNREALIZED UNREALIZED FAIR BOOK UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
------- ---------- ---------- ------ ------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to maturity:
United States government
and agency obligations
due:
Within one year........ $17,445 -- (10) 17,435 47,301 4 (29) 47,276
After one year to five
years................. 10,000 -- (215) 9,785 10,000 -- (323) 9,677
After five years to ten
years................. 19,659 662 -- 20,321 19,646 374 (60) 19,960
Ten or more years...... 24,334 378 -- 24,712 24,321 -- (94) 24,227
Other investment
securities............. 602 -- -- 602 958 -- -- 958
------- ----- ---- ------ ------- --- ---- -------
$72,040 1,040 (225) 72,855 102,226 378 (506) 102,098
======= ===== ==== ====== ======= === ==== =======
Available for sale:
United States government
and agency obligations
due:
Within one year........ $22,983 -- (84) 22,899 10,997 8 (23) 10,982
After one year to five
years................. 12,998 -- (84) 12,914 12,998 -- (159) 12,839
Marketable equity
securities............. 13,140 779 (15) 13,904 12,050 526 (4) 12,572
Other investment
securities............. 19,335 5 (8) 19,332 1,922 -- (19) 1,903
------- ----- ---- ------ ------- --- ---- -------
$68,456 784 (191) 69,049 37,967 534 (205) 38,296
======= ===== ==== ====== ======= === ==== =======
Weighted average yield.. 6.78% 6.89%
==== ====
</TABLE>
67
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Proceeds from the sale of investment securities available for sale were $2.0
million, $1.2 million, and $6.5 million for the six months ended December 31,
1996, and year ended June 30, 1996 and 1995, respectively. For the six months
ended December 31, 1996, gross realized gains were $251,000. For the year
ended June 30, 1996, gross realized gains were $188,000. For the year ended
June 30, 1995, gross realized gains were $199,000, and gross realized losses
were $430,000.
4. MORTGAGE-BACKED SECURITIES
Mortgage-backed securities available for sale and held to maturity are
summarized below:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1996
--------------------------------------- --------------------------------------
GROSS GROSS GROSS GROSS
BOOK UNREALIZED UNREALIZED FAIR BOOK UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
-------- ---------- ---------- ------- ------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to maturity:
GNMA passthrough
certificates........... $ 3,248 156 (11) 3,393 3,637 168 (9) 3,796
FHLMC pass-through
certificates........... 138,963 3,108 (981) 141,090 157,468 2,441 (1,579) 158,330
FNMA pass-through
certificates........... 29,343 645 (307) 29,681 32,044 223 (109) 32,158
Collateralized mortgage
obligations............ 95,104 55 (2,983) 92,176 100,232 30 (4,297) 95,965
-------- ----- ------ ------- ------- ----- ------- -------
$266,658 3,964 (4,282) 266,340 293,381 2,862 (5,994) 290,249
======== ===== ====== ======= ======= ===== ======= =======
Available for sale:
FHLMC pass-through
certificates........... $ 7,336 100 (11) 7,425 8,000 71 (19) 8,052
FNMA pass-through
certificates........... 11,642 393 (6) 12,029 13,232 343 (10) 13,565
Collateralized mortgage
obligations............ 74,303 52 (880) 73,475 105,146 56 (2,098) 103,104
$ 93,281 545 (897) 92,929 126,378 470 (2,127) 124,721
======== ===== ====== ======= ======= ===== ======= =======
Weighted average yield.. 6.95% 6.91%
==== ====
</TABLE>
The Bank swaps certain loans it originates into mortgage-backed securities.
Included in mortgage-backed securities at December 31, 1996 and June 30, 1996,
are $20.0 million, and $22.6 million, respectively, of loans originated by the
Bank. During the six months ended December 31, 1996, and the year ended June
30, 1996, the Bank swapped $8.2 million and $41.2 million, respectively, all
of which were sold in the same period swapped. There was no swap activity for
the year ended June 30, 1995.
Proceeds from the sale of mortgage-backed securities available for sale
(exclusive of the above swap activity) were $16.6 million for the six months
ended December 31, 1996. Gross realized losses were $301,000. There were no
sales of mortgage-backed securities during the years ended June 30, 1996 and
1995.
68
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
Real estate loans:
One-to-four family residential.................... $2,160,525 2,032,102
Multi-family...................................... 92,968 94,713
Commercial........................................ 46,313 46,101
Construction...................................... 17,263 16,090
Land.............................................. 25,685 26,644
---------- ---------
Total real estate loans......................... 2,342,754 2,215,650
Unearned discounts, premiums, and deferred loan
fees, net........................................ (1,347) (3,245)
Loans in process.................................. (7,312) (6,602)
---------- ---------
2,334,095 2,205,803
Other loans:
Consumer loans:
Equity lines of credit........................... 86,614 79,193
Home equity loans................................ 14,251 10,525
Other............................................ 5,009 4,110
---------- ---------
Total consumer loans............................ 105,874 93,828
Commercial business loans......................... 1,871 1,821
---------- ---------
Total other loans............................... 107,745 95,649
Loans in process.................................. (308) (113)
---------- ---------
107,437 95,536
---------- ---------
2,441,532 2,301,339
Allowance for loan losses......................... (17,914) (17,254)
---------- ---------
$2,423,618 2,284,085
========== =========
Weighted average yield............................. 7.79% 7.64%
==== ====
</TABLE>
Adjustable-rate loans totaled $1.7 billion at December 31, 1996, and June 30,
1996.
Activity in the allowance for loan losses is summarized as follows for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 31, -------------
1996 1996 1995
---------------- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period.................. $17,254 9,197 8,779
Provision for loan losses....................... 700 700 475
Balance acquired in merger...................... -- 7,722 --
Charge-offs..................................... (66) (376) (110)
Recoveries...................................... 26 11 53
------- ------ -----
Balance at end of period........................ $17,914 17,254 9,197
======= ====== =====
</TABLE>
69
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1996, June 30, 1996 and 1995, the Bank had $11.8 million,
$6.1 million and $2.1 million, respectively, of loans which were on non-
accrual status. Interest income that would have been recorded on non-accrual
loans amounted to $573,000, $631,000 and $468,000 for the six months ended
December 31, 1996 and the years ended June 30, 1996 and 1995, respectively,
had these loans been accruing under their contractual terms. Interest income
that was included in net income was $150,000, $313,000, and $285,000, for the
six months ended December 31, 1996 and the years ended June 30, 1996 and 1995,
respectively.
At June 30, 1996 and 1995, the Bank had two commercial real estate loans
totaling $4.3 million and $4.4 million, respectively of loans which were
accounted for as troubled debt restructurings. As of December 31, 1996, the
Bank transferred one loan, totaling $1.4 million, to accrual status, and one
loan, totaling $2.9 million, to non-accrual status. The $2.9 million loan is a
second mortgage on a commercial office park, and is considered impaired by the
Bank under the terms of SFAS No. 114, as amended by SFAS No. 118. The specific
allowance for loss related to this impaired loan is $1.5 million as of
December 31, 1996. In addition to the second mortgage, the Bank has issued a
standby letter of credit that collateralizes the first mortgage on this
property, which is a long-term industrial revenue bond, in the amount of $6.5
million. The property is in the process of foreclosure, and upon receipt of
title, the Bank will assume the obligations of the first mortgage.
The Bank services loans for its own account and for the benefit of others
pursuant to loan servicing agreements. Pursuant to these agreements, the Bank
typically collects from the borrower monthly payments of principal and
interest, as well as funds for the payment of real estate taxes and insurance.
The Bank retains its loan servicing fee from these payments and remits the
balance of the principal and interest payments to the various investors.
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances
of these loans were $1.05 billion, $1.04 billion and $887.9 million at
December 31, 1996, June 30, 1996 and 1995, respectively. Non-interest bearing
custodial balances maintained in connection with mortgage loans serviced for
others and included in deposits were $16.0 million and $16.6 million at
December 31, 1996 and June 30, 1996, respectively.
Activity in mortgage servicing rights is as follows for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ------------
1996 1996 1995
---------------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period................ $1,840 1,160 119
Additions..................................... 344 933 1,150
Amortization.................................. (156) (253) (109)
------ ----- -----
Balance at end of period...................... $2,028 1,840 1,160
====== ===== =====
</TABLE>
70
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ --------
(IN THOUSANDS)
<S> <C> <C>
Investment securities.................................. $ 1,975 2,185
Mortgage-backed securities............................. 2,633 3,020
Loans receivable....................................... 16,899 15,558
Reserve for uncollected interest....................... (1,050) (789)
------- ------
$20,457 19,974
======= ======
</TABLE>
7. REAL ESTATE HELD FOR DEVELOPMENT OR SALE
Real estate held for development or sale is summarized by project as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ --------
(IN THOUSANDS)
<S> <C> <C>
Woodbridge............................................ $ 8,348 6,475
Reigate Woods......................................... 6,263 7,734
Harmony Grove......................................... 4,164 5,104
Fields of Ambria...................................... 1,800 2,381
Creekside of Remington................................ 1,760 1,807
Ashbury............................................... 122 1,196
Clow Creek Farm....................................... 717 1,168
Woods of Rivermist.................................... 546 755
Other................................................. 4,392 --
------- ------
$28,112 26,620
======= ======
</TABLE>
Income from real estate operations is summarized by project for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ------------
1996 1996 1995
---------------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Ashbury....................................... $1,624 1,392 5,364
Harmony Grove................................. 760 -- --
Clow Creek Farm............................... 261 3,536 1,711
Woods of Rivermist............................ 157 -- 374
Reigate Woods................................. 826 98 --
Woodbridge.................................... 349 86 --
Fields of Ambria.............................. 156 17 --
Creekside of Remington........................ -- 81 9
Scott's Crossing.............................. -- -- 39
Other......................................... -- (424) --
------ ----- -----
$4,133 4,786 7,497
====== ===== =====
</TABLE>
The loss of $424,000 in the year ended June 30, 1996 represents the write-off
of capitalized costs on a parcel of land which the Company decided not to
exercise its option to purchase.
71
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Information regarding revenues, expenses, and minority interest in earnings
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 31, --------------
1996 1996 1995
---------------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross lot sale revenues..................... $23,885 15,688 15,584
Cost of sales............................... 18,091 10,220 7,584
------- ------ ------
Gross margin from lot sales............... 5,794 5,468 8,000
Other....................................... -- (424) --
Minority interest in gross margin........... (1,661) (258) (503)
------- ------ ------
$ 4,133 4,786 7,497
======= ====== ======
</TABLE>
Non-interest expense related to real estate operations was $306,000,
$446,000, and $325,000, for the six months ended December 31, 1996, and years
ended June 30, 1996 and 1995, respectively. Interest capitalized to real
estate held for development or sale amounted to $271,000, $579,000 and
$665,000, for the six months ended December 31, 1996 and years ended June 30,
1996 and 1995, respectively.
8. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ --------
(IN THOUSANDS)
<S> <C> <C>
Land.................................................. $ 6,458 5,697
Office buildings...................................... 23,712 23,780
Furniture, fixtures and equipment..................... 17,456 15,956
Parking lot improvements.............................. 685 558
Leasehold improvements................................ 816 817
-------- -------
Total office properties and equipment, at cost...... 49,127 46,808
Less: accumulated depreciation and amortization....... (16,825) (15,563)
-------- -------
$ 32,302 31,245
======== =======
</TABLE>
Depreciation and amortization of premises and equipment, included in data
processing expense and office occupancy and equipment expense was $1.4
million, $2.0 million and $1.8 million, for the six months ended December 31,
1996 and years ended June 30, 1996 and 1995, respectively.
72
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. DEPOSITS
Deposit account balances by interest rate are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1996
-------------------------- --------------------------
WEIGHTED WEIGHTED
% OF AVERAGE % OF AVERAGE
AMOUNT TOTAL RATE AMOUNT TOTAL RATE
---------- ----- -------- ---------- ----- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial checking ac-
counts................. $ 30,789 1.4% -- % $ 31,687 1.4% -- %
Non-interest bearing
checking............... 35,552 1.6 -- 33,166 1.5 --
Interest bearing NOW ac-
counts................. 151,457 6.7 1.64 145,947 6.5 1.69
Money market accounts... 130,200 5.8 3.34 128,535 5.7 3.36
Passbook accounts....... 665,493 29.4 2.86 682,885 30.3 2.87
---------- ----- ---------- -----
1,013,491 44.9 2.55 1,022,220 45.4 2.58
---------- ----- ---------- -----
Certificate accounts:
3.00% to 3.99%........ 2,968 0.1 3.00 1,080 0.1 3.01
4.00% to 4.99%........ 47,897 2.1 4.77 192,338 8.5 4.84
5.00% to 5.99%........ 886,984 39.2 5.39 746,819 33.1 5.41
6.00% to 6.99%........ 244,510 10.8 6.35 217,707 9.6 6.44
7.00% to 7.99%........ 25,918 1.1 7.18 30,581 1.4 7.21
8.00% to 8.99%........ 39,072 1.7 8.54 41,779 1.8 8.52
9.00% to 10.99%....... 1,258 0.1 9.03 1,191 0.1 9.03
---------- ----- ---------- -----
1,248,607 55.1 5.69 1,231,495 54.6 5.65
---------- ----- ---------- -----
Unamortized premium..... 128 -- 385 --
---------- ----- ---------- -----
Total deposits...... $2,262,226 100.0% $2,254,100 100.0%
========== ===== ========== =====
Weighted average inter-
est rate at period
end.................... 4.28% 4.26%
==== ====
</TABLE>
Scheduled maturities of certificate accounts at December 31, 1996 are as
follows (in thousands):
<TABLE>
<S> <C>
12 months or less............................................... $ 840,220
13 to 24 months................................................. 263,887
25 to 36 months................................................. 76,920
Over 36 months.................................................. 67,580
----------
$1,248,607
==========
</TABLE>
Interest expense on deposit accounts is summarized as follows for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 31, -------------
1996 1996 1995
---------------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
NOW and money market accounts................ $ 3,286 6,376 6,393
Passbook accounts............................ 9,683 8,967 8,289
Certificate accounts......................... 34,998 47,982 41,112
------- ------ ------
$47,967 63,325 55,794
======= ====== ======
</TABLE>
73
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was $142.5 million, $136.2 million and $90.8 million at December
31, 1996, June 30, 1996 and 1995, respectively.
At December 31, 1996, U.S. Treasury Notes, FHLMC and FNMA mortgage-backed
securities, as well as mortgage loans with an aggregate carrying value and
market value of $19.3 million, were pledged as collateral for certain jumbo
certificates aggregating $17.2 million.
10. BORROWED FUNDS
Borrowed funds are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
INTEREST RATE AMOUNT
--------------------- ---------------------
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
1996 1996 1996 1996
------------ -------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed rate advances from FHLB of
Chicago due:
Within 12 months................. 6.28% 7.15 $ 55,000 50,000
13 to 24 months.................. 6.77 6.38 70,000 50,000
25 to 36 months.................. 6.30 8.27 115,000 15,000
37 to 48 months.................. 6.63 6.64 105,000 80,000
49 to 60 months.................. 6.50 6.45 90,000 65,000
61 to 72 months.................. 6.10 6.13 5,000 30,000
73 to 84 months.................. 6.39 6.13 500 5,500
-------- -------
Total fixed rate advances...... 6.49 6.66 440,500 295,500
Adjustable rate advances from FHLB
of Chicago due:
Within 12 months................. 5.86 5.79 40,000 125,000
-------- -------
Total advances from FHLB of
Chicago....................... 6.44 6.40 480,500 420,500
-------- -------
Collateralized mortgage obliga-
tions:
Issued by MAFC due 2018.......... 14,087 15,928
Unamortized discount............. (1,021) (1,202)
-------- -------
10.90 11.42 13,066 14,726
-------- -------
Issued by NWAC due 2018.......... 24,304 27,419
Unamortized premium.............. 223 247
-------- -------
8.30 8.05 24,527 27,666
-------- -------
Total collateralized mortgage
obligations, net.............. 37,593 42,392
-------- -------
Fixed-rate reverse repurchase
agreements........................ 6.55 6.74 79,804 39,804
Unsecured term bank loan........... 6.63 6.47 35,000 35,000
-------- -------
Total borrowed funds........... 6.63% 6.65 $632,897 537,696
===== ===== ======== =======
</TABLE>
The Bank has adopted a collateral pledge agreement whereby the Bank has
agreed to at all times keep on hand, free of all other pledges, liens, and
encumbrances, first mortgages with unpaid principal balances aggregating no
less than 167% of the outstanding secured advances from the Federal Home Loan
Bank ("FHLB") of Chicago. All stock in the FHLB of Chicago is pledged as
additional collateral for these advances. At December 31, 1996, adjustable
rate advances have interest rates which adjust as follows: $25.0 million at
the London interbank offering rate ("LIBOR") for three months less .03%; and
$15.0 million at the prime rate less 2.01%.
74
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Bank issued collateralized mortgage obligations ("CMOs") in 1988 through
MAFC. The CMOs are collateralized by mortgage-backed securities of the Bank.
Substantially all of the collections of principal and interest from the
underlying collateral are paid through to the holders of the CMOs. The CMOs
were issued in four traunches. The actual maturity of each traunche of the CMO
varies depending upon the timing of cash receipts from the underlying
collateral. At December 31, 1996 and June 30, 1996, the CMOs are secured by
mortgage-backed securities of the Bank with a carrying value of $14.0 million
and $15.8 million and a fair value of $14.5 million and $16.2 million,
respectively. For the six months ended December 31, 1996 and the years ended
June 30, 1996 and 1995, the effective annual cost of the CMOs was
approximately 11.07%, 11.24% and 11.13%, respectively.
Through acquisition, the Bank has CMOs which were issued by NWAC in 1988.
The CMOs were issued in two classes, which have floating interest rates tied
to LIBOR. The CMOs are collateralized by mortgage-backed securities of the
Bank. Substantially all of the collections of principal and interest from the
underlying collateral are paid through to the holders of the CMOs. At December
31, 1996 and June 30, 1996, the CMOs are secured by mortgage-backed securities
of the Bank with a carrying value of $24.1 million and $32.1 million and fair
value of $25.2 million and $30.6 million, respectively. For the six months
ended December 31, 1996 and the year ended June 30, 1996, the effective annual
cost of the CMOs was approximately 8.30% and 8.05%, respectively.
The Bank enters into sales of securities under agreements to repurchase the
identical securities ("reverse repurchase agreements") with nationally
recognized primary securities dealers and are treated as financings. The
securities underlying the agreements are delivered to the dealers who arrange
the transaction and are reflected as assets. The following table presents
certain information regarding reverse repurchase agreements as of and for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 31, -------------
1996 1996 1995
---------------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at end of period..................... $79,804 39,804 27,675
Maximum month-end balance.................... 79,804 78,826 27,675
Average balance.............................. 68,717 18,619 16,626
Weighted average rate at end of period....... 6.55% 6.74 5.96
Weighted average rate on average balance..... 6.50 7.25 5.79
======= ====== ======
</TABLE>
At December 31, 1996 and June 30, 1996, the reverse repurchase agreements
were collateralized by investment and mortgage-backed securities with a
carrying value of $84.1 million and $42.1 million and a market value of $83.6
million and $42.4 million, respectively. At December 31, 1996, the reverse
repurchase agreements have maturities ranging from 6 to 32 months.
The Company obtained a $35.0 million unsecured term bank loan in conjunction
with its acquisition of NSBI. The loan provides for an interest rate of the
prime rate or 1% over one, two or three-month LIBOR at management's discretion
adjustable and payable at the end of the repricing period. The loan currently
carries an interest rate of 1% over three-month LIBOR. The loan is convertible
all or in part, with certain limitations at the end of any repricing period,
at management's election to a fixed rate at 1.25% over the U.S. Treasury rate
with a maturity corresponding to the remaining term of the loan. The loan
requires increasing annual principal payments starting in December 1997 with
$9.2 million due at the final maturity of the loan on December 31, 2003.
Prepayments of principal are allowed, but fixed-rate portions are subject to
penalty. In conjunction with the term bank loan, the Company also maintains a
$15.0 million one year unsecured revolving line of credit which
75
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
matured on January 26, 1997. The line of credit was extended to April 30,
1997, and will be renewable annually thereafter. The interest rate on the line
of credit is the prime rate or 1% over one, two, or three-month LIBOR, at
management's discretion with interest payable at the end of the repricing
period. No amounts have been drawn on the line of credit. The financing
agreements contain covenants that, among other things, requires the Company to
maintain a minimum stockholders' equity balance and to obtain certain minimum
operating results, as well as requiring the Bank to maintain "well
capitalized" regulatory capital levels and certain non-performing asset
ratios. In addition, the Company has agreed not to pledge any stock of the
Bank or MAF Developments for any purpose. At December 31, 1996, the Company
was in compliance with these covenants.
Scheduled principal repayments of the unsecured term bank loan are as
follows as of December 31, 1996 (in thousands):
<TABLE>
<S> <C>
December 31, 1997.................................................. $ 500
December 31, 1998.................................................. 1,500
December 31, 1999.................................................. 3,100
December 31, 2000.................................................. 4,500
December 31, 2001.................................................. 7,000
Thereafter......................................................... 18,400
-------
$35,000
=======
</TABLE>
Interest expense on borrowed funds and subordinated capital notes is
summarized as follows for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 31, -------------
1996 1996 1995
---------------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
FHLB of Chicago advances...................... $14,082 23,741 12,267
Collateralized mortgage obligations........... 1,822 2,058 2,236
Reverse repurchase agreements................. 2,393 1,466 971
Unsecured bank term loan...................... 1,186 163 --
Subordinated capital notes.................... 1,181 2,468 2,099
------- ------ ------
$20,664 29,896 17,573
======= ====== ======
</TABLE>
11. SUBORDINATED CAPITAL NOTES
During the year ended June 30, 1996, the Company refinanced its $20.9
million of 10% Subordinated Capital Notes due June 30, 2002 with $27.6 million
of 8.32% Subordinated Notes due September 30, 2005. The payment of principal
and interest on the current notes is subordinated at all times to any
indebtedness or liability of the Company outstanding or incurred after the
date of issuance. Costs incurred in the refinance transaction amounted to $1.0
million which were deferred and are being accreted over the life of the notes
to yield an effective interest rate of 8.85%. The capital notes are callable
at the discretion of the Company at any time after September 30, 1998, at par
plus any accrued interest. The indenture provides for restrictions on the
amounts of additional indebtedness the Company may incur as well as the amount
of dividends and other distributions it may pay with respect to its equity
securities, depending on the Company's capital ratio. The refinance
transaction resulted in a $474,000, or $0.08 per share extraordinary charge to
earnings due to the early extinguishment of debt as a result of writing-off
the remaining unamortized transaction costs of $774,000, net of income taxes
of $300,000.
76
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. INCOME TAXES
Total income tax expense was allocated as follows for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 31, -------------
1996 1996 1995
---------------- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Income from continuing operations........... $5,602 10,805 9,316
Extraordinary item, for debt
extinguishment............................. -- (300) --
Stockholders' equity, for compensation
expense for tax purposes in excess of
amounts recognized for financial reporting
purposes................................... (13) (13) (219)
Stockholders' equity, for change in
unrealized gain (loss) on marketable
securities................................. 605 (471) (32)
------ ------ -----
$6,194 10,021 9,065
====== ====== =====
</TABLE>
Retained earnings at December 31, 1996, include $53.9 million of "base-year"
tax bad debt reserves for which no provision for income taxes has been made.
If in the future this amount, or a portion thereof, is used for certain
purposes other than to absorb losses on bad debts, an income tax liability
will be imposed on the amount so used at the then current corporate income tax
rate. If deferred taxes were required to be provided on this item, the amount
of this deferred tax liability would be approximately $21.0 million.
Income tax expense (benefit) attributable to income from continuing
operations for periods indicated is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ------------
1996 1996 1995
---------------- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.................................... $5,050 8,218 6,613
State...................................... 702 1,135 1,280
------ ------ -----
5,752 9,353 7,893
Deferred:
Federal.................................... (118) 1,189 1,285
State...................................... (32) 263 138
------ ------ -----
(150) 1,452 1,423
------ ------ -----
Total income tax expense attributed to
income from continuing operations....... $5,602 10,805 9,316
====== ====== =====
</TABLE>
77
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The significant components of income tax expense attributable to income from
continuing operations for the periods indicated are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
SIX MONTHS ENDED
DECEMBER 31,
1996 1996 1995
---------------- ---------------- ----------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
------- -------- ------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income tax expense
(exclusive of the effects
of other components
listed below)............ $5,739 (150) 9,340 1,452 7,674 1,575
Tax expense resulting from
allocating tax benefits
from stock-related
compensation directly to
stockholders' equity..... 13 -- 13 -- 219 --
Decrease in beginning of
period balance of
valuation allowance for
deferred tax assets...... -- -- -- -- -- (152)
------ ---- ----- ----- ----- -----
$5,752 (150) 9,353 1,452 7,893 1,423
====== ==== ===== ===== ===== =====
</TABLE>
The reasons for the differences between the effective income tax rate
attributable to income from continuing operations and the corporate federal
income tax rate are summarized in the following table:
<TABLE>
<CAPTION>
PERCENTAGE OF INCOME
BEFORE INCOME TAXES
-----------------------------
YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 31, ------------
1996 1996 1995
---------------- ----- -----
<S> <C> <C> <C>
Federal income tax rate..................... 35.0% 35.0 35.0
Items affecting effective income tax rate:
State income taxes, net of federal bene-
fit...................................... 3.0 3.2 4.4
Other items, net.......................... 1.0 (0.3) (1.2)
---- ----- -----
Effective income tax rate................... 39.0% 37.9 38.2
==== ===== =====
</TABLE>
78
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 and June 30, 1996 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Loan origination fees............................. $ 593 637
Deferred compensation............................. 2,565 2,406
Book general loan loss reserves................... 6,778 6,931
Book versus tax basis of real estate held for
sale............................................. 1,271 1,410
Book versus tax state income tax expense.......... 810 810
Book versus tax basis of loans receivable......... 2,466 2,367
Book versus tax basis of securities............... 403 847
Other............................................. 211 360
-------- --------
Subtotal........................................ 15,097 15,768
Less: valuation allowance......................... -- (27)
-------- --------
Total deferred tax assets....................... 15,097 15,741
Deferred tax liabilities:
Loan origination fees............................. (1,670) (1,398)
Excess of tax bad debt reserve over base year
amount........................................... (1,959) (2,010)
Book versus tax basis of FHLB stock............... (1,018) (1,020)
Book versus tax state income tax expense.......... (64) (55)
Book versus tax basis of real estate held for
sale............................................. (150) (517)
Book versus tax basis of land and fixed assets.... (1,681) (1,704)
Book versus tax basis of capitalized servicing.... (755) (473)
Book versus tax basis of intangible assets........ (3,208) (3,500)
Book versus tax basis of securities............... (101) -
Other............................................. (265) (393)
-------- --------
Total deferred tax liabilities.................. (10,871) (11,070)
-------- --------
Net deferred tax asset.......................... $ 4,226 4,671
======== ========
</TABLE>
The Company believes that it is more likely than not that the net deferred
tax asset will be realized, based on historical taxable income levels and
anticipated future earnings and taxable income levels. The Company has
reported federal taxable income and pre-tax book income amounts totaling
approximately $50 million and $66 million over the past three fiscal periods,
respectively.
79
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
The Bank is defendant in various legal proceedings arising in the normal
course of business. In the opinion of management, based on the advise of legal
counsel, the ultimate resolution of these matters will not have a material
adverse effect on the Company's financial position.
The Bank is obligated under non-cancelable leases primarily for office
space. Rent expense under these leases for the six months ended December 31,
1996, and the years ended June 30, 1996 and 1995, approximated $265,000,
$260,000 and $226,000, respectively. The projected minimum rentals under
existing leases (excluding lease escalations) as of December 31, 1996, are as
follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 936
1998................................................................ 842
1999................................................................ 686
2000................................................................ 686
2001................................................................ 642
Thereafter.......................................................... 2,502
------
Total............................................................. $6,294
======
</TABLE>
80
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
requires the disclosure of estimated fair values of all asset, liability and
off-balance sheet financial instruments. The estimated fair value amounts
under SFAS No. 107 have been determined as of a specific point in time
utilizing various available market information, assumptions and appropriate
valuation methodologies. Accordingly, the estimated fair values presented
herein are not necessarily representative of the underlying value of the
Company. Rather the disclosures are limited to reasonable estimates of the
fair value of only the Company's financial instruments. The use of assumptions
and various valuation techniques, as well as the absence of secondary markets
for certain financial instruments, will likely reduce the comparability of
fair value disclosures between financial institutions. The Company does not
plan to sell most of its assets or settle most of its liabilities at these
fair values.
The estimated fair values of the Company's financial instruments as of
December 31, 1996 and June 30, 1996 are set forth in the following table
below.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1996
-------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash
equivalents.............. $ 125,717 125,717 94,861 94,861
Investment securities..... 171,818 172,633 171,251 171,123
Mortgage-backed
securities............... 359,587 359,269 418,102 414,970
Loans receivable.......... 2,430,113 2,441,195 2,293,399 2,296,526
Interest receivable....... 20,457 20,457 19,974 19,974
---------- --------- --------- ---------
Total financial assets.. $3,107,692 3,119,271 2,997,587 2,997,454
========== ========= ========= =========
Financial liabilities:
Non-maturity deposits..... $1,013,491 1,013,491 1,022,220 1,022,220
Deposits with stated
maturities............... 1,248,735 1,252,946 1,231,880 1,237,102
Borrowed funds............ 659,606 660,689 564,372 561,330
Interest payable.......... 4,940 4,940 5,293 5,293
---------- --------- --------- ---------
Total financial
liabilities............ $2,926,772 2,932,066 2,823,765 2,825,945
========== ========= ========= =========
</TABLE>
The following methods and assumptions are used by the Company in estimating
the fair value amounts for its financial instruments.
Cash and cash equivalents. The carrying value of cash and cash equivalents
approximates fair value due to the relatively short period of time between the
origination of the instruments and their expected realization.
Investment securities and mortgage-backed securities. The fair value of
these financial instruments were estimated using quoted market prices, when
available. If quoted market prices were not available, fair value was
estimated using quoted market prices for similar assets. The fair value of
FHLB of Chicago stock is based on its redemption value.
Loans receivable. The fair value of loans receivable held for investment is
estimated based on contractual cash flows adjusted for prepayment assumptions,
discounted using the current rate at which similar loans would be made to
borrowers with similar credit ratings and remaining terms to maturity. The
fair value of mortgage loans held for sale are based on estimated values that
could be obtained in the secondary market.
81
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest receivable and payable. The carrying value of interest receivable,
net of the reserve for uncollected interest, and interest payable approximates
fair value due to the relatively short period of time between accrual and
expected realization.
Deposits. The fair value of deposits with no stated maturity, such as demand
deposit, passbook savings, NOW and money market accounts, are disclosed as the
amount payable on demand. The fair value of fixed-maturity deposits is the
present value of the contractual cash flows discounted using interest rates
currently being offered for deposits with similar remaining terms to maturity.
Borrowed funds. The fair value of FHLB of Chicago advances and reverse
repurchase agreements is the present value of the contractual cash flows,
discounted by the current rate offered for similar remaining maturities. The
carrying value of the unsecured term bank loan approximates fair value due to
the short term to repricing and adjustable rate nature of the loan.
The fair values of the subordinated capital notes and CMO bonds payable were
estimated using quoted market prices.
Commitments to extend credit and standby letters of credit. The fair value
of commitments to extend credit is estimated based on current levels of
interest rates versus the committed rates. As of December 31, 1996 and June
30, 1996, the fair value of the Bank's mortgage loan commitments of $125.1
million and $166.0 million, respectively, was $308,000 and $(1.4) million,
respectively, which represents the differential between the committed value
and value at current rates. The fair value of the standby letters of credit
approximate the recorded amounts of related fees and are not material at
December 31, 1996 and June 30, 1996.
Mortgage servicing rights. The fair value of mortgage servicing rights is
estimated based on the contractual terms of the servicing agreements and the
underlying mortgage loans, the current levels of interest rates, and assumed
prepayment rates on the underlying mortgage loans. As of December 31, 1996,
the fair value of the Bank's $2.0 million of purchased mortgage servicing
rights was $2.4 million.
15. REGULATORY CAPITAL
The Bank is subject to regulatory capital requirements under the OTS.
Failure to meet minimum capital requirements can initiate certain mandatory,
and possibly additional discretionary actions by regulators which could have a
material impact on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of
the Bank's assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices.
Quantitative measures established by the OTS to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (as set forth in the
table below) of three capital requirements: a tangible capital (as defined in
the regulations) to adjusted total assets ratio, a core capital (as defined)
to adjusted total assets ratio, and a risk-based capital (as defined) to total
risk-weighted assets ratio. Management believes, as of December 31, 1996, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996 and June 30, 1996, the most recent notification from
the OTS categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Bank must maintain a minimum core capital to adjusted total assets, risk-
based capital to adjusted risk-weighted assets, and core capital to adjusted
risk-weighted assets ratios as set forth in the table below. There are no
conditions or events since that notification that management believes have
changed the Bank's category.
82
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Bank's actual capital amounts and ratios, as well as minimum amounts and
ratios required for capital adequacy and prompt corrective action provisions
are presented below:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------- ------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ------ ---------- ----------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Tangible Capital
(to Total Assets)...... $219,080 6.96% 1$ 47,202 11.50% N/A
Core Capital
(to Total Assets)...... $219,080 6.96% 1$ 94,404 13.00% 1$157,339 1 5.00%
Total Capital
(to Risk-Weighted
Assets)................ $235,057 15.05% 1$124,943 18.00% 1$156,178 110.00%
Core Capital
(to Risk-Weighted
Assets)................ $219,080 14.03% N/A 1$ 93,707 1 6.00%
As of June 30, 1996:
Tangible Capital
(to Total Assets)...... $215,582 7.02% 1$ 46,095 11.50% N/A
Core Capital
(to Total Assets)...... $215,582 7.02% 1$ 92,189 13.00% 1$153,649 1 5.00%
Total Capital
(to Risk-Weighted
Assets)................ $232,625 15.36% 1$121,167 18.00% 1$151,458 110.00%
Core Capital
(to Risk-Weighted
Assets)................ $215,582 14.23% N/A 1$ 90,875 1 6.00%
</TABLE>
OTS regulations require that in meeting the tangible, core and risk-based
capital standards, institutions must generally deduct investments in and loans
to subsidiaries engaged in activities not permissible for a national bank. For
the Bank, this includes its $20.2 million investment in Mid America
Developments and NW Financial at December 31, 1996, all of which the Bank must
deduct from regulatory capital for purposes of calculating its capital
requirements.
The Bank is subject to certain annual restrictions on the amount of
dividends it may declare to the Company without prior regulatory approval,
based on its earnings during the trailing four quarters and its excess capital
over the minimum required for capital adequacy purposes. At December 31, 1996,
none of the Bank's retained earnings were available for dividend declaration
without prior regulatory approval, due to the Bank's $67.0 million of dividend
declarations during the last four quarters. Dividends declared during the last
four quarters included a special $65.0 million payment in conjunction with the
acquisition of NSBI.
16. OFFICER, DIRECTOR AND EMPLOYEE PLANS
Mid America Federal Employee Stock Ownership Plan (ESOP)/Profit Sharing
Plan/401(k) Plan. The Mid America Federal ESOP covers substantially all
employees with more than one year of employment who have attained the age of
21. The ESOP borrowed $1.7 million from an unaffiliated third party bank and
purchased 321,750 common shares of the Company in the initial public offering.
The ESOP loan was paid off during the year ended June 30, 1995. Contributions
to the ESOP by the Bank are made to fund the principal and interest payments
on any debt of the ESOP or to purchase additional common shares of the
Company's stock. For the six months ended December 31, 1996, and the years
ended June 30, 1996 and 1995, total contributions to the
83
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ESOP were $598,000, $360,000, and $146,000, respectively. The Company
purchased 23,000 of its own shares on behalf of the ESOP during the six months
ended December 31, 1996. No purchases of shares were made during the years
ended June 30, 1996 and 1995.
The Company maintains a Profit Sharing/401(k) Plan to which it made
discretionary contributions of $62,000, $360,000 and $450,000 for the six
months ended December 31, 1996, and the years ended June 30, 1996 and 1995,
respectively. Employees are allowed to make pre-tax contributions of up to 15%
of their compensation and after-tax contributions of up to 10% of
compensation, subject to certain limitations.
Stock Option Plans. The Company and its shareholders have adopted an
incentive stock option plan ("Incentive Plan") and a premium price stock
option plan ("Premium Plan") for the benefit of employees of the Bank.
The Company applies APB Opinion 25, "Accounting for Stock Issued to
Employees," and related Interpretations in accounting for its stock option
plans. Accordingly, no compensation cost has been recognized for its Incentive
and Premium stock option plans. Had compensation cost for the Company's stock
option plans been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
in the table below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, JUNE 30,
1996 1996
---------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net income.......................... As reported $8,775 17,209
Pro-forma 8,533 17,144
Primary earnings per share.......... As reported .81 2.76
Pro-forma .78 2.73
Fully-diluted earnings per share.... As reported .81 2.76
Pro-forma .78 2.73
====== ======
</TABLE>
The fair value of each option grant after June 30, 1995 was estimated using
the Black-Scholes option- pricing model with the following weighted-average
assumptions used for grants during the six months ended December 31, 1996 and
the year ended June 30, 1996, respectively: dividend yield of 1.33% and 1.38%;
expected volatility of 18.6% and 27.5%; risk-free interest rates of 6.34% and
6.82%; expected life of 10 years for each period.
84
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The number of shares of common stock authorized under the Incentive Plan is
723,462, including 200,000 options which were approved by shareholders at the
Company's annual meeting held on October 23, 1996. The option exercise price
must be at least 100% of the fair market value of the common stock on the date
of grant, and the option term cannot exceed 10 years. A summary of the stock
option activity and related information in the Incentive Plan follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------
SIX MONTHS ENDED
DECEMBER 31, 1996 1996 1995
----------------------- ----------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning
of period.............. 497,830 $ 5.95 501,050 $5.95 515,075 $5.94
Granted................. 39,500 24.25 -- -- -- --
Exercised............... (4,100) 6.73 (3,220) 5.22 (14,025) 5.57
------- ------- -------
Outstanding--end of
period................. 533,230 $ 7.30 497,830 $5.95 501,050 $5.95
======= ====== ======= ===== ======= =====
Options exercisable at
period-end............. 506,897 $ 6.42 497,830 $5.95 501,050 $5.95
======= ====== ======= ===== ======= =====
Weighted-average fair
value of options
granted during period.. $ 9.78 $ -- $ --
====== ===== =====
</TABLE>
At December 31, 1996, options for 160,581 shares were available for grant
under the Incentive Plan.
The number of shares of common stock authorized under the Premium Plan is
247,500. The option exercise price equals 133% of the fair market value of the
common stock on the date of grant with respect to executive officers, 110%
with respect to directors and 100% with respect to non-executive officers. The
option term cannot exceed 10 years. A summary of the stock option activity and
related information in the Premium Plan follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------
SIX MONTHS ENDED
DECEMBER 31, 1996 1996 1995
---------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning
of period.............. 96,081 $27.05 52,724 $26.23 26,976 $26.30
Granted............... 54,504 32.34 43,357 28.04 25,748 26.15
Exercised............. -- -- -- -- -- --
------- ------ ------
Outstanding--end of pe-
riod................... 150,585 $28.96 96,081 $27.05 52,724 $26.23
======= ====== ====== ====== ====== ======
Options exercisable at
period-end............. 93,963 $27.69 26,567 $26.25 8,993 $26.30
======= ====== ====== ====== ====== ======
Weighted-average fair
value of options
granted during period.. $ 7.75 $ 8.02 $ 9.97
====== ====== ======
</TABLE>
At December 31, 1996, options for 96,915 shares were available for grant
under the Premium Plan.
Pursuant to the terms of the acquisition of NSBI, a total of 100,000 options
previously granted to employees of Northwestern were converted into options to
purchase 167,233 shares of the Company's common stock at an exercise price of
$4.78 per share. The value of these options was included in the purchase price
and added to additional paid-in capital in the consolidated statement of
financial condition. A total of 154,232 of these options
85
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
were exercised during the six months ended December 31, 1996, leaving 13,001
options outstanding at December 31, 1996.
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
RANGE OF OPTIONS REMAINING EXERCISE OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YRS.) PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 4.78 to $ 8.48........ 492,376 3.44 $ 5.64 492,376 $ 5.64
13.79 to 27.96........ 149,069 8.13 25.13 106,072 24.90
32.25 to 33.58........ 55,371 9.55 32.36 15,413 32.30
------- -------
696,816 4.93 $11.93 613,861 $ 9.64
======= ==== ====== ======= ======
</TABLE>
Management Recognition/Retention Plans. In conjunction with the Bank's
conversion, the Company formed two Management Recognition and Retention Plans
and Trusts ("MRPs"), each of which purchased 80,438 common shares of the
Company. The funds used to acquire the MRPs' shares were contributed by the
Bank. These shares are available for issuance to employees in key management
positions with the Bank. At December 31, 1996, there were no plan share awards
outstanding. An additional 147 shares owned by the MRPs have not yet been
awarded. For the six months ended December 31, 1996 and the years ended June
30, 1996 and 1995, -0-, -0-, and 35,517 shares, respectively, were vested and
distributed to employees. For the six months ended December 31, 1996 and the
years ended June 30, 1996 and 1995, $-0-, $-0-, and $59,000, respectively, was
reflected as an expense.
Supplemental Executive Retirement Plan. During the year ended June 30, 1995,
the Bank adopted a supplemental executive retirement plan ("SERP") for the
purpose of providing certain retirement benefits to executive officers and
other corporate officers approved by the Board of Directors. The annual
retirement plan benefit under the SERP is calculated equal to 2% of final
average salary times the years of service after 1994. Ten additional years of
service are credited to participants in the event of a change in control
transaction although in no event may total years of service exceed 20 years.
The maximum annual retirement is equal to 40% of final average salary.
Benefits are payable in various forms in the event of retirement, death,
disability and separation from service, subject to certain conditions defined
in the plan. The SERP also provides for certain death benefits to the extent
such amounts exceed a participant's accrued benefit at the time of death. The
Company has life insurance policies which are intended to be used to satisfy
obligations of the SERP. For the six months ended December 31, 1996 and the
years ended June 30, 1996 and 1995, $147,000, $258,000 and $120,000,
respectively, was reflected as an expense for the SERP. The vested liability
under the SERP was approximately $264,000 and $131,000 as of December 31, 1996
and June 30, 1996, respectively.
17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
The Bank is a party to various financial instruments with off-balance sheet
risk in the normal course of its business. These instruments include
commitments to extend credit, standby letters of credit, and forward
commitments to sell loans. These financial instruments carry varying degrees
of credit and interest-rate risk in excess of amounts recorded in the
financial statements.
Commitments to originate and purchase loans of $125.1 million at December
31, 1996, represent amounts which the Bank plans to fund within the normal
commitment period of 30 to 90 days of which $69.0 million were fixed-rate,
with rates ranging from 6.63% to 9.25%, and $56.1 million were adjustable-
rate loans. Because
86
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the credit worthiness of each customer is reviewed prior to extension of the
commitment, the Bank adequately controls their credit risk on these
commitments, as it does for loans recorded on the balance sheet. As part of
its effort to control interest-rate risk on these commitments, the Bank
generally sells fixed-rate mortgage loan commitments, for future delivery, at
a specified price and at a specified future date. Such commitments for future
delivery present a risk to the Bank, in the event it cannot deliver the loans
during the delivery period. This could lead to the Bank being charged a fee
for non-performance, or being forced to reprice the mortgage loans at a lower
rate, causing a loss to the Bank. The Bank seeks to mitigate this potential
loss by charging potential borrowers, at the time of application, a fee to fix
the interest rate, or by requiring the interest rate to float at market rates
until shortly before closing. At December 31, 1996, forward commitments to
sell mortgage loans for future delivery were $8.7 million, of which $6.5
million are related to loans held for sale, and $2.2 million are unfunded as
of December 31, 1996.
Additionally, the Bank has approved, but unused, home equity lines of credit
of $70.2 million at December 31, 1996. Approval of equity lines is based on
underwriting standards that generally do not allow total borrowings, including
the equity line of credit to exceed 80% of the current appraised value of the
customer's home, which is similar to guidelines used when the Bank originates
first mortgage loans, and are a means of controlling its credit risk on the
loan. However, the Bank offers home equity lines of credit up to 100% of the
homes current appraised value, less existing liens, at a commensurate higher
interest rate.
At December 31, 1996, the Bank had 22 standby letters of credit totaling
$18.1 million, two of which total $13.3 million, which enhance a developer's
industrial revenue bond financings of commercial real estate in the Bank's
market. At December 31, 1996, the Bank had pledged mortgage-backed securities
and investment securities with an aggregate carrying value and market value of
$25.3 million and $25.7 million respectively, as collateral for these two
standby letters of credit. Standby letters of credit are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. The credit risk involved in these transactions is essentially the
same as that involved in extending a loan to a customer, as performance under
the letters of credits creates a first position lien in favor of the Bank.
Additionally, at December 31, 1996, the Company had 11 standby letters of
credit totaling $4.4 million, which insure the completion of land development
improvements on behalf of MAF Developments, Inc.
The contractual amounts of credit-related financial instruments such as
commitments to extend credit, and letters of credit represent the amounts of
potential accounting loss should the contract be fully drawn upon, the
customer default, and the value of any existing collateral become worthless.
87
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In addition to financial instruments with off-balance sheet risk, the Bank
is exposed to varying risks with concentrations of credit. Concentrations of
credit include significant lending activities in specific geographical areas
and large extensions of credit to individual borrowers. During the year ended
June 30, 1996, with the acquisition of N.S. Bancorp, the Bank obtained a
purchased loan portfolio, consisting of primarily single-family, owner-
occupied residential loans located in 45 states, Puerto Rico and the District
of Columbia. The following tables identifies the geographic distribution of
the Bank's collateral on real estate loans at December 31, 1996 and June 30,
1996.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------------
PURCHASED BANK ORIGINATED TOTAL
REAL ESTATE LOANS REAL ESTATE LOANS REAL ESTATE LOANS
-------------------- ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- --------- ---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Alabama.......... $ 37,829 6.4% $ -- -- % $ 37,829 1.6%
California....... 130,636 22.0 493 -- 131,129 5.6
Colorado......... 27,552 4.6 1,376 0.1 28,928 1.2
Georgia.......... 60,584 10.2 1,233 0.1 61,817 2.6
Illinois......... 96,177 16.2 1,718,622 98.3 1,814,799 77.5
Minnesota........ 19,129 3.2 899 0.1 20,028 0.8
New Jersey....... 30,409 5.1 2,907 0.2 33,316 1.4
New York......... 21,038 3.5 1,645 0.1 22,683 1.1
Texas............ 25,242 4.2 1,295 0.1 26,537 1.1
Utah............. 22,833 3.8 -- -- 22,833 1.0
All other........ 123,565 20.8 19,290 1.0 142,855 6.1
---------- ------- ---------- ----- ---------- -----
Total.......... $594,994 100.0% $1,747,760 100.0% $2,342,754 100.0%
========== ======= ========== ===== ========== =====
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------------------------
PURCHASED BANK ORIGINATED TOTAL
REAL ESTATE LOANS REAL ESTATE LOANS REAL ESTATE LOANS
-------------------- ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- --------- ---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Alabama.......... $ 42,198 6.6% $ -- -- % $ 42,198 1.9%
California....... 142,164 21.4 488 0.1 142,652 6.4
Colorado......... 31,099 4.7 1,456 0.1 32,555 1.5
Georgia.......... 68,983 10.4 1,070 0.1 70,053 3.2
Illinois......... 100,494 15.1 1,525,155 98.3 1,625,649 73.4
Minnesota........ 21,244 3.2 872 0.1 22,116 1.0
New Jersey....... 35,397 5.3 1,579 0.1 36,976 1.7
New York......... 22,671 3.4 1,446 0.1 24,117 1.1
Texas............ 27,723 4.2 1,427 0.1 29,150 1.3
Utah............. 27,816 4.2 -- -- 27,816 1.2
All other........ 144,661 21.5 17,707 1.0 162,368 7.3
---------- ------- ---------- ----- ---------- -----
Total.......... $664,450 100.0% $1,551,200 100.0% $2,215,650 100.0%
========== ======= ========== ===== ========== =====
</TABLE>
88
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. DERIVATIVE FINANCIAL INSTRUMENTS
The Bank enters into forward commitments to sell mortgage loans for future
delivery as a means of limiting exposure to changing interest rates between
the date a loan customer commits to a given rate, or closes the loan,
whichever is sooner, and the sale date, which is generally 10 to 60 days after
the closing date. These commitments to sell require the Bank to deliver
mortgage loans at stated coupon rates within the specified forward sale
period, and subject the Bank to risk to the extent the loans do not close. The
Bank attempts to mitigate this risk by collecting a non-refundable commitment
fee, where possible, and by estimating a percentage of fallout when
determining the amount of forward commitments to sell.
The following is a summary of the Bank's forward sales commitment activity
for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 31, -----------------
1996 1996 1995
---------------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year........... $ 39,431 42,100 10,595
New forward commitments to deliver
loans................................. 34,734 305,488 123,638
Loans delivered to satisfy forward
commitments........................... (65,489) (308,157) (92,133)
-------- -------- -------
Balance at end of year................. $ 8,676 39,431 42,100
======== ======== =======
</TABLE>
The Bank also enters into interest rate futures contracts to hedge its
exposure to price fluctuations on firm commitments to originate loans intended
for sale, that have not been covered by forward commitments to sell loans for
future delivery. Included in gain (loss) on sale of mortgage loans for the six
months ended December 31, 1996 and the years ended June 30, 1996 and 1995 are
$22,000 of net futures losses, $75,000 of net futures gains and $437,000 of
net futures losses, respectively, from hedging activities. At December 31,
1996, the Bank had no deferred gains or losses on futures contracts. At June
30, 1996, the Bank had $4,000 of deferred losses, of which $59,000 were
deferred gains on closed positions, and $63,000 were deferred losses on open
positions.
The following is a summary of the notional amount of interest rate futures
contract activity for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JUNE 30,
DECEMBER 31, -----------------
1996 1996 1995
---------------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of
year................... $ 6,500 2,700 5,000
Interest rate futures
contracts sold......... 29,300 116,800 57,500
Interest rate futures
contracts closed....... (34,300) (113,000) (59,800)
-------- -------- -------
Balance at end of year.. $ 1,500 6,500 2,700
======== ======== =======
</TABLE>
89
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. PARENT COMPANY ONLY FINANCIAL INFORMATION
The information as of December 31, 1996 and June 30, 1996, and for the six
month period ended December 31, 1996, and the years ended June 30, 1996 and
1995 presented below should be read in conjunction with the other Notes to
Consolidated Financial Statements.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ --------
(IN THOUSANDS)
<S> <C> <C>
STATEMENTS OF FINANCIAL CONDITION
Assets:
Cash and cash equivalents.............................. $ 19,067 25,495
Investment securities.................................. 6,161 4,761
Loans receivable....................................... -- 514
Equity in net assets of subsidiaries................... 279,356 268,070
Other assets........................................... 10,302 10,346
--------- -------
$ 314,886 309,186
========= =======
Liabilities and Stockholders' Equity:
Unsecured term bank loan............................... 35,000 35,000
Subordinated capital notes, net........................ 26,709 26,676
Accrued expenses....................................... 2,552 5,284
--------- -------
Total liabilities...................................... 64,261 66,960
========= =======
Stockholders' equity:
Common stock........................................... 112 111
Additional paid-in capital............................. 171,732 170,956
Retained earnings...................................... 95,412 88,524
Treasury stock......................................... (16,769) (16,540)
Unrealized gain (loss) on marketable securities, net of
tax................................................... 138 (825)
--------- -------
Total stockholders' equity............................. 250,625 242,226
--------- -------
$ 314,886 309,186
========= =======
</TABLE>
90
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
DECEMBER 31, JUNE 30,
------------------ --------------
1996 1995 1996 1995
-------- -------- ------ ------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
Interest income............................. $ 822 715 1,231 1,056
Interest expense............................ 2,367 1,297 2,641 2,163
-------- ------- ------ ------
Net interest expense...................... (1,545) (582) (1,410) (1,107)
Gain (loss) on sale of investment
securities, net............................ 251 45 188 (72)
Non-interest expense........................ 843 720 1,446 1,256
Extraordinary item, net of tax.............. -- (474) (474) --
-------- ------- ------ ------
Net loss before income tax benefit and
equity in
earnings of subsidiaries................. (2,137) (1,731) (3,142) (2,435)
Income tax benefit.......................... (890) (528) (1,107) (999)
-------- ------- ------ ------
Net loss before equity in earnings of
subsidiaries............................. (1,247) (1,203) (2,035) (1,436)
Equity in earnings of subsidiaries.......... 10,022 9,018 19,244 16,479
-------- ------- ------ ------
Net income................................ $ 8,775 7,815 17,209 15,043
======== ======= ====== ======
</TABLE>
91
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, ---------------------
1996 1996 1995
---------------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENTS OF CASH FLOWS
Operating activities:
Net income............................ $ 8,775 17,209 15,043
Equity in earnings of subsidiaries.... (10,022) (19,244) (16,479)
Dividends received from the Bank...... -- 69,000 10,000
Extraordinary item, net of tax........ -- 474 --
(Gain) loss on sale of investment
securities........................... (251) (188) 72
Amortization of premiums and
discounts............................ 36 (28) 80
Net decrease (increase) in other
assets and liabilities,
net of effects from purchase of
NSBI................................. (4,139) 7,284 (9,156)
Decrease in ESOP loan................. -- -- 146
-------- ---------- ---------
Net cash provided by (used in)
operating activities............... (5,601) 74,507 (294)
Investing activities:
Proceeds from sale of investment
securities........................... 1,956 1,155 6,516
Proceeds from maturity of investment
securities........................... -- 44,000 53
Repayment of loans receivable......... 514 18,432 --
Purchases of investment securities.... (2,798) (26,367) (960)
Investment in and loans to
subsidiary........................... (91) (320) 1,275
Payment for purchase of NSBI, net of
cash acquired........................ -- (257,437) --
-------- ---------- ---------
Net cash provided by (used in)
investing activities............... (419) (220,537) 6,884
Financing activities:
Proceeds from issuance of common
stock................................ 535 131,255 78
Proceeds from borrowings.............. -- 61,629 --
Repayment of borrowings............... -- (20,900) (146)
Purchases of treasury stock........... -- (6,299) (3,741)
Cash dividends paid................... (943) (2,531) (1,213)
-------- ---------- ---------
Net cash provided by (used in)
financing activities................. (408) 163,154 (5,022)
-------- ---------- ---------
Increase (decrease) in cash and cash
equivalents.......................... (6,428) 17,124 1,568
Cash and cash equivalents at beginning
of year................................ 25,495 8,371 6,803
-------- ---------- ---------
Cash and cash equivalents at end of
year................................... $ 19,067 25,495 8,371
======== ========== =========
</TABLE>
92
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following are the consolidated results of operations on a quarterly
basis:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, 1996
---------------------------
FIRST SECOND
QUARTER QUARTER
------------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Interest income.................................... $ 55,592 57,235
Interest expense................................... 33,503 35,128
------------- ------------
Net interest income.............................. 22,089 22,107
Provision for loan losses.......................... 350 350
------------- ------------
Net interest income after provision for loan
losses............................................ 21,739 21,757
Net gain on sale of assets....................... 315 65
Income from real estate operations................. 1,663 2,470
Other income....................................... 3,563 3,883
Non-interest expense............................... 13,599 13,263
Special SAIF assessment............................ 14,216 --
------------- ------------
Income (loss) before income taxes and
extraordinary item.............................. (535) 14,912
Income tax expense (benefit)....................... (197) 5,799
============= ============
Net income (loss)................................ $ (338) 9,113
============= ============
Earnings (loss) per share.......................... $ (.03) .83
============= ============
Cash dividends declared per share.................. $ .09 .09
============= ============
Stock price range:
High............................................. $ 26.50 35.25
Low.............................................. 22.25 26.00
Close............................................ 25.75 34.75
============= ============
</TABLE>
93
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
--------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest income.............................. $32,920 33,969 34,199 42,007
Interest expense............................. 21,751 22,877 22,452 26,141
------- ------ ------ ------
Net interest income........................ 11,169 11,092 11,747 15,866
Provision for loan losses.................... 100 150 200 250
------- ------ ------ ------
Net interest income after provision for loan
losses...................................... 11,069 10,942 11,547 15,616
Net gain on sale of assets................... 143 158 76 59
Income from real estate operations........... 1,513 1,307 1,550 416
Other income................................. 2,784 2,849 2,848 3,397
Non-interest expense......................... 8,638 8,635 9,165 11,348
------- ------ ------ ------
Income before income taxes and
extraordinary item........................ 6,871 6,621 6,856 8,140
Income taxes................................. 2,651 2,552 2,655 2,947
------- ------ ------ ------
Income before extraordinary item........... 4,220 4,069 4,201 5,193
Extraordinary item, net of tax............... -- (474) -- --
------- ------ ------ ------
Net income................................... $ 4,220 3,595 4,201 5,193
======= ====== ====== ======
Earnings per share before extraordinary
item........................................ $ .72 .69 .74 .69
Extraordinary item, net of tax............... -- (.08) -- --
------- ------ ------ ------
Earnings per share........................... $ .72 .61 .74 .69
======= ====== ====== ======
Cash dividends declared per share............ $ .08 .08 .08 .08
======= ====== ====== ======
Stock price range:
High....................................... $ 25.50 26.25 25.50 27.00
Low........................................ 20.68 24.00 24.50 24.00
Close...................................... 25.13 25.00 24.88 24.50
======= ====== ====== ======
</TABLE>
94
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MAF Bancorp, Inc.
We have audited the accompanying consolidated statements of financial
condition of MAF Bancorp, Inc. and subsidiaries as of December 31, 1996 and
June 30, 1996, and the related consolidated statements of operations, changes
in stockholders' equity and cash flows for the six month period ended December
31, 1996 and for each of the years in the two-year period ended June 30, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MAF
Bancorp, Inc. and subsidiaries as of December 31, 1996 and June 30, 1996, and
the results of their operations and their cash flows for the six month period
ended December 31, 1996 and for each of the years in the two-year period ended
June 30, 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 5, 1997
95
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the registrant is included in the
Registrant's proxy statement under the heading "Election of Directors" and the
information included therein is incorporated herein by reference. Information
regarding the executive officers of the registrant and the Bank is included in
Part I. Business.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of executive officers and directors is
included in the registrant's proxy statement under the headings "Directors
Compensation," "Executive Compensation--Summary Compensation Table,"
"Employment and Special Termination Agreements," "Supplemental Executive
Retirement Plan," "Option Plans," and "Long Term Incentive Plan," and the
information included therein is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is included in the registrant's proxy statement under the headings
"Voting Securities" and "Security Ownership of Certain Beneficial Owners," and
"Information With Respect to Nominees, Continuing Directors and Others," and
the information included therein is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
included in the registrant's proxy statement under the heading "Transactions
with Certain Related Persons," and the information included therein is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements of the registrant and its
subsidiaries are filed as a part of this document under Item 8. Financial
Statements and Supplementary Data
Consolidated Statements of Financial Condition at December 31, 1996 and June
30, 1996.
Consolidated Statements of Operations for the six months ended December 31,
1996 and 1995 (unaudited) and the years ended June 30, 1996 and 1995.
Consolidated Statements of Changes in Stockholders' Equity for the six
months ended December 31, 1996 and the years ended June 30, 1996 and 1995.
Consolidated Statements of Cash Flows for the six months ended December 31,
1996 and the years ended June 30, 1996 and 1995.
Notes to Consolidated Financial Statements.
Independent Auditors' Report
96
<PAGE>
(a)(2) Financial Statement Schedules
All schedules are omitted because they are not required or are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
(a)(3) Exhibits
The following exhibits are either filed as part of this report or are
incorporated herein by reference:
Exhibit No. 3. Certificate of Incorporation and By-laws.
(i) Certificate of Incorporation, as amended. (Incorporated herein by
reference to exhibit No. 3 to Registrant's June 30, 1996 Form 10-K).
(ii) Bylaws of Registrant, as amended. (Incorporated herein by reference to
exhibit No. 3 to Registrant's June 30, 1990 Form 10-K).
Exhibit No. 4. Instruments Defining the Rights of Security Holders.
Indenture between MAF Bancorp, Inc. and Harris Trust and Savings Bank
(Trustee) dated as of September 27, 1995, for the 8.32% Subordinated Notes due
September 30, 2005. (Incorporated by reference to Exhibit No. 4 to
Registrant's Form S-3 Registration Statement No. 33-96754).
Exhibit No. 10. Material Contracts
(i) Mid America Federal Savings Bank Employee Stock Ownership Plan; as
amended. (Incorporated herein by reference to Exhibit No. 10 to
Registrant's June 30, 1996 Form 10-K).
(ii) Mid America Federal Savings Bank Employee Stock Ownership Trust Loan
and Security Agreement. (Incorporated herein by reference to Exhibit
No. 10 to Registrant's June 30, 1990 Form 10-K).
(iii) Trust Agreement between Mid America Federal Savings Bank and NBD
Bank, N.A., Trustee (as successor to INB National Bank and Chesterton
State Bank) for the Mid America Federal Savings Bank Employee Stock
Ownership Trust. (Incorporated herein by reference to Exhibit No. 10
to Registrant's June 30, 1990 Form 10-K).
(iv) Mid America Federal Savings Bank Management Recognition and Retention
Plan and Trust Agreement. (Incorporated herein by reference to Exhibit
No. 10 to Registrant's June 30, 1992 Form 10-K).
(v) MAF Bancorp, Inc. 1990 Incentive Stock Option Plan, as amended.
(vi) MAF Bancorp, Inc. 1993 Amended and Restated Premium Price Stock Option
Plan.
(vii) Credit Agreement dated as of May 22, 1996, as amended, between MAF
Bancorp, Inc. and Harris Trust and Savings Bank.
(viii) Mid America Federal Savings Bank Employees' Profit Sharing Plan, as
amended.
(ix) Mid America Federal Savings and Loan Association Deferred Compensation
Trust Agreement. (Incorporated herein by reference to Exhibit No. 10
to Registrant's June 30, 1990 Form 10-K).
(x) Mid America Federal Savings Bank Directors' Deferred Compensation
Plan. (Incorporated herein by reference to Exhibit No. 10 to
Registrant's June 30, 1993 Form 10-K).
(xi) Mid America Federal Savings Bank Executive Deferred Compensation Plan.
(Incorporated herein by reference to Exhibit No. 10 to Registrant's
June 30, 1993 Form 10-K).
(xii) MAF Bancorp, Inc. Executive Annual Incentive Plan. (Incorporated
herein by reference to Exhibit No. 10 to Registrant's June 30, 1994
Form 10-K).
(xiii) MAF Bancorp, Inc. Shareholder Value Long-Term Incentive Plan.
97
<PAGE>
(xiv) Mid America Federal Savings Bank Supplemental Executive Retirement
Plan. (Incorporated herein by reference to Exhibit No. 10 to
Registrant's June 30, 1995 Form 10-K).
(xv) Form of Employment Agreement, as amended, between MAF Bancorp, Inc.
and various officers. (Incorporated herein by reference to exhibit No.
10 to Registrant's June 30, 1996 Form 10-K).
(xvi) Form of Employment Agreement, as amended, between Mid America Federal
Savings Bank and various officers. (Incorporated herein by reference
to exhibit No. 10 to Registrant's June 30, 1996 Form 10-K).
(xvii) Form of Special Termination Agreement, as amended, between MAF
Bancorp, Inc. and various officers. (Incorporated herein by
reference to exhibit No. 10 to Registrant's June 30, 1996 Form
10-K).
(xviii) Form of Special Termination Agreement, as amended, between Mid
America Federal Savings Bank and various officers. (Incorporated
herein by reference to exhibit No. 10 to Registrant's June 30, 1996
Form 10-K).
(xix) Consultant Agreement dated August 27, 1996 between Mid America
Federal Savings Bank and Nicholas J. DiLorenzo, Sr. (Incorporated
herein by reference to exhibit No. 10 to Registrant's June 30, 1996
Form 10-K).
(xx) Consultant Agreement dated January 3, 1997 between Mid America Federal
Savings Bank and Lois B. Vasto.
(xxi) N.S. Bancorp, Inc. 1990 Incentive Stock Option Plan, as amended
(Incorporated by reference to Registrant's Form S-8 Registration
Statement No. 333-06593).
(xxii) Northwestern Savings and Loan Association Employee Stock Ownership
Plan, as amended. (Incorporated herein by reference to exhibit No.
10 to Registrant's June 30, 1996 Form 10-K).
(xxiii) MAF Severance Benefits Program for Northwestern Employees, as
amended.
Exhibit No. 11. Statement re: Computation of Per Share Earnings for the
periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, ---------------------
1996 1996 1995
---------------- ---------- ----------
<S> <C> <C> <C>
Net income.......................... $ 8,775,000 17,209,000 15,043,000
=========== ========== ==========
Weighted average shares outstand-
ing................................ 10,442,333 5,825,501 5,557,334
Common stock equivalents due to
dilutive effect on stock options... 412,938 412,943 355,453
----------- ---------- ----------
Total weighted average common shares
and equivalents outstanding........ 10,855,271 6,238,444 5,912,787
=========== ========== ==========
Primary earnings per share.......... $ .81 2.76 2.54
=========== ========== ==========
Total weighted average common shares
and equivalents outstanding........ 10,855,271 6,238,444 5,912,787
Additional dilutive shares using the
end of period market value versus
the average market value when ap-
plying the treasury stock method... 14,063 2,398 6,105
----------- ---------- ----------
Total weighted average common shares
and equivalents outstanding for
fully diluted computation.......... 10,869,334 6,240,842 5,918,892
=========== ========== ==========
Fully diluted earnings per share.... $ .81 2.76 2.54
=========== ========== ==========
</TABLE>
Exhibit No. 12. Statements re: computation of ratio of earnings to fixed
charges.
98
<PAGE>
Exhibit No. 21. Subsidiaries of the Registrant A list of the Company's and
Mid America Federal Savings Bank's subsidiaries is included as an exhibit to
this report.
Exhibit No. 23. Consent of KPMG Peat Marwick LLP
(b) Reports on Form 8-K
On October 22, 1996, the Board of Directors of the Company approved a change
in the Company's fiscal year end from June 30 to December 31, effective for
the period ending on December 31, 1996.
99
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
MAF Bancorp, Inc.
_____________________________________
(Registrant)
/s/ Allen H. Koranda
By: _________________________________
ALLEN H. KORANDA
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
March 3, 1997
_____________________________________
(Date)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Allen H. Koranda or Kenneth Koranda or either
of them, his true and lawful attorney-in-fact and agents, with full power of
substitution and re-substitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Annual Report
on Form 10-K, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming said attorneys-in-fact and
agents or their substitutes or substitute may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Allen H. Koranda Chairman of the March 3, 1997
By: _________________________________ Board and Chief
ALLEN H. KORANDA Executive Officer
(Principal
Executive Officer)
/s/ Jerry A. Weberling Executive Vice March 3, 1997
By: _________________________________ President and Chief
JERRY A. WEBERLING Financial Officer
(Principal
Financial Officer)
/s/ Gerard J. Buccino Senior Vice March 3, 1997
By: _________________________________ President and
GERARD J. BUCCINO Controller
(Principal
Accounting Officer)
/s/ Robert Bowles, M.D. Director March 3, 1997
By: _________________________________
ROBERT BOWLES, M.D.
/s/ Nicholas J. DiLorenzo, Sr. Director March 3, 1997
By: _________________________________
NICHOLAS J. DILORENZO, SR.
100
<PAGE>
SIGNATURE TITLE DATE
/s/ Terry Ekl Director March 3, 1997
By: _________________________________
TERRY EKL
/s/ Joe F. Hanauer Director March 3, 1997
By: _________________________________
JOE F. HANAUER
/s/ Kenneth Koranda Director March 3, 1997
By: _________________________________
KENNETH KORANDA
/s/ Henry Smogolski Director March 3, 1997
By: _________________________________
HENRY SMOGOLSKI
/s/ F. William Trescott Director March 3, 1997
By: _________________________________
F. WILLIAM TRESCOTT
/s/ Lois B. Vasto Director March 3, 1997
By: _________________________________
LOIS B. VASTO
/s/ Andrew J. Zych Director March 3, 1997
By: _________________________________
ANDREW J. ZYCH
101
<PAGE>
Exhibit No. 10(v) MAF Bancorp, Inc. 1990 Incentive Stock Option Plan, as
amended.
<PAGE>
MAF BANCORP, INC.
1990 INCENTIVE STOCK OPTION PLAN
1. PURPOSE. The purpose of the MAF Bancorp, Inc. (the "Holding Company") 1990
Incentive Stock Option Plan (the "Plan") is to advance the interests of the
Holding Company and its shareholders by providing employees of the Holding
Company and its affiliates, including Mid America Federal Savings Bank (the
"Bank"), upon whose judgment, initiative and efforts the successful conduct of
the business of the Holding Company and its affiliates largely depends, with an
additional incentive to perform in a superior manner as well as to attract
people of experience and ability.
2. DEFINITIONS.
(a) "Board of Directors" means the Board of Directors of the Holding Company.
(b) "Affiliate" means (i) a member of a controlled group of corporations of
which the Holding Company is a member or (ii) an unincorporated trade or
business which is under common control with the Holding Company as determined in
accordance with Section 414(c) of the Internal Revenue Code (the "Code") and the
regulations issued thereunder. For purposes hereof, a "controlled group of
corporations" shall mean a controlled group of corporations as defined in
Section 1563(a) of the Code determined without regard to Sections 1563(a)(4) and
(e)(3)(C).
(c) "Award" means an Award of Non-statutory Stock Options, Incentive Stock
Options, and/or Limited Rights granted under the provisions of the Plan.
(d) "Committee" means the Administrative/Compensation Committee of the Board
of Directors of the Bank, consisting solely of two or more non-employee members
of the Board of Directors, all of whom are "disinterested directors" as such
term is defined under Rule 16(b)-3(b)(3)(i) under the Securities Exchange Act of
1934, as amended, (the "Exchange Act"), as promulgated by the Securities and
Exchange Commission ("SEC").
(e) "Plan Year or Years" means a calendar year or years commencing on or after
January 19, 1990.
(f) "Date of Grant" means the actual date on which an Award is granted by the
Committee.
(g) "Common Stock" means the Common Stock of the Holding Company, par value,
$.01 per share.
(h) "Fair Market Value" means, when used in connection with the Common Stock
on a certain date, the average of the reported closing bid and ask prices of the
Common Stock as reported by the Nasdaq National Market (as published by the Wall
Street Journal, if published) on such date or if the Common Stock was not traded
on such date, on the next preceding day on which the Common Stock was traded
thereon or the last previous date on which a sale is reported.
(i) "Limited Right" means the right to receive an amount of cash based upon
the terms set forth in section 9.
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<PAGE>
(j) "Disability" means the permanent and total inability by reason of mental
or physical infirmity, or both, of an employee to perform the work customarily
assigned to him. Additionally, a medical doctor selected or approved by the
Board of Directors must advise the Committee that it is either not possible to
determine when such Disability will terminate or that it appears probable that
such Disability will be permanent during the remainder of said participant's
lifetime.
(k) "Termination for Cause" means the termination upon an intentional failure
to perform stated duties, breach of a fiduciary duty involving personal
dishonesty, which results in a material loss to the Holding Company or one of
its affiliates or willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or final cease-and-desist order which
results in material loss to the Holding Company or one of its affiliates.
(l) "Participant" means an employee of the Holding Company or its affiliates
chosen by the Committee to participate in the Plan.
(m) "Change in Control" of the Bank or the Holding Company means a Change in
Control of a nature that: (i) would be required to be reported in response to
Item 1 of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change in Control of the Bank or the
Holding Company within the meaning of the Home Owners Loan Act of 1933, as
amended, and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof,
including Section 574 of such regulations; or (iii) without limitation such a
Change in Control shall be deemed to have occurred at such time as (a) any
"person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities or makes an offer to
purchase securities of the Bank or the Holding Company representing 20% or more
of the Bank's or the Holding Company's outstanding securities ordinarily having
the right to vote at the election of directors except for any securities of the
Bank purchased by the Holding Company in connection with the conversion of the
Bank to the stock form and any securities purchased by the Bank's employee stock
ownership plan and trust; or (b) individuals who constitute the Holding
Company's or the Bank's Board of Directors on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors comprising
the Incumbent Board, or whose nomination for election by the shareholders was
approved by the Nominating Committee serving under an Incumbent Board, shall be,
for purposes of this clause (b), considered as though he were a member of the
Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or the Holding Company or
similar transaction occurs; or (d) a proxy statement shall be distributed
soliciting proxies from stockholders of the Holding Company, by someone other
than the current management of the Holding Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Holding Company or
Bank or similar transaction with one or more corporations as a result of which
the outstanding shares of the class of securities then subject to such plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Bank or the Holding Company; or (e) a tender offer is made for
20% or more of the outstanding securities of the Bank or the Holding Company.
However, notwithstanding anything contained in this section to the contrary, a
Change in Control shall not be deemed to have occurred as a result of an event
described in (i), (ii) or (iii) (a), (c) or (e) above which resulted from an
acquisition or proposed acquisition of stock of the Holding Company by a person,
as defined in the OTS' Acquisition of Control Regulations (12 C.F.R. (S) 574)
(the "Control
<PAGE>
Regulations"), who was an executive officer of the Holding Company on January
19, 1990 and who has continued to serve as an executive officer of the Holding
Company as of the date of the event described in (i), (ii) or (iii) (a), (c) or
(e) above (an "incumbent officer"). In the event a group of individuals acting
in concert satisfies the definition of "person" under the Control Regulations,
the requirements of the preceding sentence shall be satisfied and thus a change
in control shall not be deemed to have occurred if at least one individual in
the group is an incumbent officer.
(n) "Normal Retirement" means retirement at the normal or early retirement
date as set forth in any tax qualified plan of the Bank.
3. ADMINISTRATION. The Plan shall be administered by the
Administrative/Compensation Committee of the Board of Directors of the Bank. The
Committee is authorized, subject to the provisions of the Plan, to establish
such rules and regulations as it sees necessary for the proper administration of
the Plan and to make whatever determinations and interpretations in connection
with the Plan it sees as necessary or advisable. All determinations and
interpretations made by the Committee shall be binding and conclusive on all
Participants in the Plan and on their legal representatives and beneficiaries.
4. TYPES OF AWARDS. Awards under the Plan may be granted in any one or a
combination of:
(a) Incentive Stock Options;
(b) Non-statutory Stock Options; and
(c) Limited Rights
as defined below in paragraphs 7 through 9 of the Plan.
5. STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in Section
13, the maximum number of shares reserved for issuance under the Plan is 723,462
shares of Common Stock of the Holding Company, par value $.01 per share (as
adjusted for stock splits and stock dividends in 1993 and 1995, respectively).
These shares of Common Stock may be either authorized but unissued shares or
shares previously issued and reacquired by the Holding Company. To the extent
that options or rights granted under the Plan are exercised, the shares covered
will be unavailable for future grants under the Plan; to the extent that options
together with any related rights granted under the Plan terminate, expire or are
canceled without having been exercised or, in the case of Limited Rights
exercised for cash, new Awards may be made with respect to these shares.
6. ELIGIBILITY. Officers and other employees of the Holding Company or its
affiliates shall be eligible to receive Incentive Stock Options, Non-statutory
Stock Options and/or Limited Rights under the Plan. Directors who are not
employees or officers of the Holding Company or its affiliates shall not be
eligible to receive Awards under the Plan.
7. NON-STATUTORY STOCK OPTIONS.
7.1 Grant of Non-statutory Stock Options. The Committee may, from time to
time, grant Non-statutory Stock Options to eligible employees. Non-statutory
Stock Options granted under this Plan are subject to the following terms and
conditions:
A-3
<PAGE>
(a) Price. The purchase price per share of Common Stock deliverable upon
the exercise of each Non-statutory Stock Option shall not be less than 100% of
the Fair Market Value of the Holding Company's Common Stock on the date the
option is granted. Shares may be purchased only upon full payment of the
purchase price. Payment of the purchase price may be made, in whole or in
part, in cash or through the surrender of shares of the Common Stock of the
Holding Company at the Fair Market Value of such shares determined in the
manner described in Section 2(h).
(b) Terms of Options. The term during which each Non-statutory Stock
Option may be exercised shall be determined by the Committee, but in no event
shall a Non-statutory Stock Option be exercisable in whole or in part more
than 10 years and one day from the Date of Grant. The Committee shall
determine the date on which each Non-statutory Stock Option shall become
exercisable in installments. The shares comprising each installment may be
purchased in whole or in part at any time after such installment becomes
purchasable. The Committee may, in its sole discretion, accelerate the time
at which any Non-statutory Stock Option may be exercised in whole or in part.
Notwithstanding the above, in the event of a Change in Control of the Bank or
the Holding Company, all Non-statutory Stock Options shall become immediately
exercisable.
(c) Termination of Employment. Upon the termination of an employee's
service for any reason other than Disability, Normal Retirement, death or
Termination for Cause, his Non-statutory Stock Options shall be exercisable
only as to those shares which were immediately purchasable by him at the date
of termination and only for a period of three months following termination.
In the event of Termination for Cause, all rights under his Non-statutory
Stock Options shall expire upon the termination. In the event of the death,
Disability or Normal Retirement of any employee, all Non-statutory Stock
Options held by the employee, whether or not exercisable at such time, shall
be exercisable by the employee or his legal representatives or beneficiaries
for three years following the date of his death, Normal Retirement or
cessation of employment due to Disability, provided that in no event shall the
period extend beyond the expiration of the Non-statutory Stock Option term.
8. INCENTIVE STOCK OPTIONS.
8.1 Grant of Incentive Stock Options. The Committee may, from time to time,
grant Incentive Stock Options to eligible employees. Incentive Stock Options
granted pursuant to the Plan shall be subject to the following terms and
conditions:
(a) Price. The purchase price per share of Common Stock deliverable upon
the exercise of each Incentive Stock Option shall be not less than 100% of the
Fair Market Value of the Holding Company's Common Stock on the date the
Incentive Stock Option is granted. However, if an employee owns stock
possessing more than 10% of the total combined voting power of all classes of
Common Stock of the Holding Company (or, under Section 424(d) of the Code, is
deemed to own Common Stock representing more than 10% of the total combined
voting power of all such classes of Common Stock), the purchase price per
share of Common Stock deliverable upon the exercise of each Incentive Stock
Option shall not be less than 110% of the Fair Market Value of the Holding
Company's Common Stock on the date the Incentive Stock Option is granted.
Shares may be purchased only upon payment of the full purchase price. Payment
of the purchase price may be made, in whole or in part, in cash or through the
surrender of shares of the Common Stock of the Holding Company at the Fair
Market Value of such shares determined in the manner described in Section
2(h).
A-4
<PAGE>
(b) Amounts of Options. Incentive Stock Options may be granted to any
eligible employee in such amounts as determined by the Committee; provided
that the amount granted is consistent with the terms of Section 422 of the
Code. In the case of an option intended to qualify as an Incentive Stock
Option, to the extent that the aggregate Fair Market Value (determined as of
the time the option is granted) of the Common Stock with respect to which
Incentive Stock Options (determined without regard to this sentence) granted
are exercisable for the first time by the Participant during any calendar year
(under all plans of the Participant's employer corporation and its parent and
subsidiary corporations) and such Fair Market Value exceeds $100,000, such
options shall be treated as non-statutory stock options. The provisions of
this Section 8.1(b) shall be construed and applied in accordance with Section
422(d) of the Code and the regulations, if any, promulgated thereunder.
(c) Terms of Options. The term during which each Incentive Stock Option
may be exercised shall be determined by the Committee, but in no event shall
an Incentive Stock Option be exercisable in whole or in part more than 10
years from the Date of Grant. If any employee, at the time an Incentive Stock
Option is granted, owns Common Stock representing more than 10% of the total
combined voting power of the Holding Company (or, under Section 424(d) of the
Code, is deemed to own Common Stock representing more than 10% of the total
combined voting power of all such classes of Common Stock, by reason of the
ownership of such classes of Common Stock, directly or indirectly, by or for
any brother, sister, spouse, ancestor or lineal descendent of such employee,
or by or for any corporation, partnership, estate or trust of which such
employee is a shareholder, partner or beneficiary), the Incentive Stock Option
granted shall not be exercisable after the expiration of five years from the
Date of Grant. No Incentive Stock Option granted under this Plan is
transferable except by will or the laws of descent and distribution and is
exercisable in the employee's lifetime only by the employee to whom it is
granted.
The Committee shall determine the date on which each Incentive Stock Option
shall become exercisable and may provide that an Incentive Stock Option shall
become exercisable in installments. The shares comprising each installment
may be purchased in whole or in part at any time after such installment
becomes purchasable, provided that the amount able to be first exercised in a
given year is consistent with the terms of Section 422 of the Code. The
Committee may, in its sole discretion, accelerate the time at which any
Incentive Stock Option may be exercised in whole or in part, provided that it
is consistent with the terms of Section 422 of the Code. Notwithstanding the
above, in the event of a Change in Control of the Bank or the Holding Company,
all Incentive Stock Options shall become immediately exercisable.
(d) Termination of Employment. Upon the termination of an employee's
service for any reason other than Disability, Normal Retirement, death or
Termination for Cause, such employee's Incentive Stock Options shall be
exercisable only as to those shares which were immediately purchasable at the
date of termination and only for a period of three months following
termination. In the event of Termination for Cause of an employee, all rights
under such employee's Incentive Stock Options shall expire upon termination.
In the event of death or Disability of any employee, all Incentive Stock
Options held by such employee, whether or not exercisable at such time, shall
be exercisable by the employee or his or her legal representatives or
beneficiaries for one year following the date of death or cessation of
employment due to Disability. Upon termination of an employee's service due
to Normal Retirement, all Incentive Stock Options held by such employee,
whether or not exercisable at such time, shall be exercisable for a period of
one year following the date of cessation of employment, provided however, that
such option shall not be eligible for treatment as an Incentive Stock Option
in
A-5
<PAGE>
the event such option is exercised more than three months following the date
of his Normal Retirement. In no event shall the period extend beyond the
expiration of the Incentive Stock Option term.
(e) Compliance with the Code. The options granted under this Section 8 of the
Plan are intended to qualify as incentive stock options within the meaning of
Section 422 of the Code, but the Holding Company makes no warranty as to the
qualification of any option as an incentive stock option within the meaning of
Section 422 of the Code.
9. LIMITED RIGHTS.
9.1 Grant of Limited Rights. The Committee may grant a Limited Right
simultaneously with the grant of any option, with respect to all or some of the
shares covered by such option. Limited Rights granted under this Plan are
subject to the following terms and conditions:
(a) Terms of Rights. In no event shall a Limited Right be exercisable in
whole or in part before the expiration of six months from the date of grant of
the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control of the Holding Company.
The Limited Right may be exercised only when the underlying option is
eligible to be exercised, provided that the Fair Market Value of the
underlying shares on the day of exercise is greater than the exercise price of
the related option.
Upon exercise of a Limited Right, the related option shall cease to be
exercisable. Upon exercise or termination of an option, any related Limited
Rights shall terminate. The Limited Rights may be for no more than 100% of
the difference between the exercise price and the Fair Market Value of the
Common Stock subject to the underlying option. The Limited Right is
transferable only when the underlying option is transferable and under the
same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder shall promptly
receive from the Holding Company an amount of cash equal to the difference
between the exercise price of the related option and the Fair Market Value of
the underlying shares on the date the Limited Right is exercised, multiplied
by the number of shares with respect to which such Limited Right is being
exercised.
(c) Termination of Employment. Upon the termination of an employee's
service for any reason other than Disability, Normal Retirement, death or
Termination for Cause, any Limited Rights held by such employee shall be
exercisable only as to those shares of the related option which were
immediately purchasable at the date of termination and for a period of three
months following termination. In the event of Termination for Cause, all
Limited Rights held by him shall expire immediately.
Upon termination of an employee's employment for reason of death or
Disability, all Limited Rights held by such employee shall be exercisable by
the employee or his legal representative or beneficiaries for a period of one
year from the date of such termination with respect to Limited Rights related
to Incentive Stock Options, and for a period of three years from the date of
such termination with respect to Limited Rights related to Non-statutory Stock
Options. Upon termination of an employee's employment for reason of Normal
Retirement, all Limited Rights held
<PAGE>
by such employee shall be exercisable by the employee or his legal
representative or beneficiary for one year with respect to Limited Rights
granted with respect to Incentive Stock Options and three years with respect
to Limited Rights granted with respect to Non-statutory Stock Options. In no
event shall the period extend beyond the expiration of the term of the related
option.
10. RIGHTS OF A SHAREHOLDER: NONTRANSFERABILITY. An optionee shall have no
rights as a shareholder with respect to any shares covered by a Non-statutory
and/or Incentive Stock Option until the date of issuance of a stock certificate
for such shares. Nothing in this Plan or in any Award granted confers on any
person any right to continue in the employ of the Holding Company or its
affiliates or to continue to perform services for the Holding Company or its
affiliates or interferes in any way with the right of the Holding Company or its
affiliates to terminate such person's services as an officer or other employee
at any time.
No Award under the Plan shall be transferable by the optionee other than by
will or the laws of descent and distribution and may only be exercised during
such employee's lifetime by the optionee, or by a guardian or legal
representative.
11. AGREEMENT WITH GRANTEES. Each Award of Options, and/or Limited Rights
will be evidenced by a written agreement, executed by the Participant and the
Holding Company or its affiliates which describes the conditions for receiving
the Awards including the date of Award, the purchase price if any, applicable
periods, and any other terms and conditions as may be required by the Board of
Directors or applicable securities law.
12. DESIGNATION OF BENEFICIARY. A Participant may, with the consent of the
Committee, designate a person or persons to receive, in the event of death, any
stock option or Limited Rights Award to which the Participant would then be
entitled. Such designation will be made upon forms supplied by and delivered to
the Holding Company and may be revoked in writing. If a Participant fails
effectively to designate a beneficiary, then the estate will be deemed to be the
beneficiary.
13. DILUTION AND OTHER ADJUSTMENTS. In the event of any change in the
outstanding shares of Common Stock of the Holding Company by reason of any stock
dividend or split, recapitalization, merger, consolidation, spin-off,
reorganization, combination or exchange of shares, or other similar corporate
change, or other increase or decrease in such shares effected without receipt or
payment of consideration by the Holding Company, the Committee will make such
adjustments to previously granted Awards, to prevent dilution or enlargement of
the rights of the Participant, including any or all of the following:
(a) adjustments in the aggregate number or kind of shares of Common Stock
which may be awarded under the Plan;
(b) adjustments in the aggregate number or kind of shares of Common Stock
covered by Awards already made under the Plan;
(c) adjustments in the purchase price of outstanding Incentive and/or
Non-statutory Stock Options, or any Limited Rights attached to such options.
No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award.
A-7
<PAGE>
14. WITHHOLDING. The Holding Company may withhold, at the election of the
Participant, from each distribution of cash and/or Common Stock under the Plan
the amount of tax required by any governmental authority to be withheld to cover
any applicable withholding and employment taxes and if the amount of such
payment is insufficient, the Holding Company may require the Participant to pay
to the Holding Company the amount required to be withheld. Alternatively, a
Participant may pay to the Holding Company the amount of cash required to be
withheld in lieu of any withholding of distribution under this Plan.
15. AMENDMENT OF THE PLAN. The Board of Directors may at any time, and from
time to time, modify or amend the Plan in any respect, prospectively or
retroactively; provided however, that provisions governing grants of Incentive
Stock Options, unless permitted by the rules and regulations or staff
pronouncements promulgated under the Code, shall be submitted for shareholder
approval to the extent required by such law, regulation or interpretation.
Failure to ratify or approve amendments or modifications by shareholders shall
be effective only as to the specific amendment or modification requiring such
ratification. Other provisions, sections, and subsections of this Plan will
remain in full force and effect.
No such termination, modification or amendment may affect the rights of a
Participant under an outstanding Award without the written permission of such
Participant.
16. EFFECTIVE DATE OF PLAN. The Plan became effective on January 19, 1990
upon the conversion of Mid America Federal Savings Bank from the mutual to
capital stock form of ownership. The Plan was presented to, and approved by
shareholders at the 1990 Annual Shareholders Meeting held on October 31, 1990,
for purposes of: (i) obtaining favorable treatment under Section 16(b) of the
Exchange Act; (ii) obtaining preferential tax treatment for Incentive Stock
Options; and (iii) maintaining listing on the Nasdaq National Market System.
The failure to obtain shareholder approval of the amendments to the Plan being
presented at the 1996 Annual Shareholders' Meeting held on October 23, 1996,
will not affect the validity of the Plan prior to such amendments and the
options thereunder, and the Plan shall remain in full force and effect.
17. TERMINATION OF THE PLAN. The right to grant Awards under the Plan will
terminate upon the earlier of thirteen (13) years after the Effective Date of
the Plan or the issuance of Common Stock or the exercise of options or related
rights equaling the maximum number of shares reserved under the Plan as set
forth in Section 5. Notwithstanding the foregoing, however, the right to grant
Incentive Stock Option Awards under the Plan will terminate upon the earlier of
ten (10) years after the Effective Date of the Plan or the issuance of Common
Stock or the exercise of options or related rights equaling the maximum number
of shares reserved under the Plan as set forth in Section 5. The Board of
Directors has the right to suspend or terminate the Plan at any time, provided
that no such action will, without the consent of a Participant, adversely affect
such Participant's rights under a previously granted Award.
18. APPLICABLE LAW. The Plan will be administered in accordance with the
laws of the State of Delaware.
A-8
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Exhibit 10(vi) MAF Bancorp, Inc. 1993 Amended and Restated Premium Price Stock
Option Plan
1
<PAGE>
MAF BANCORP, INC.
AMENDED AND RESTATED 1993 PREMIUM PRICE STOCK OPTION PLAN
1. PURPOSE. The purpose of the MAF Bancorp, Inc. (the "Holding Company")
-------
Amended and Restated 1993 Premium Price Stock Option Plan (the "Plan") is to
advance the interests of the Holding Company and its shareholders by providing
those directors, officers and employees of the Holding Company and its
affiliates, including Mid America Federal Savings Bank (the "Bank"), upon whose
judgment, initiative and efforts the successful conduct of the business of the
Holding Company and its affiliates largely depends, with additional financial
incentive to act in the long term interest of the Holding Company and its
shareholders.
2. DEFINITIONS.
-----------
(a) "Affiliate" means (i) a member of a controlled group of
corporations of which the Holding Company is a member or (ii) an unincorporated
trade or business which is under common control with the Holding Company as
determined in accordance with Section 414(c) of the Internal Revenue Code of
1986, as amended, (the "Code") and the regulations issued thereunder. For
purposes hereof, a "controlled group of corporations" shall mean a controlled
group of corporations as defined in Section 1563(a) of the Code determined
without regard to Section 1563(a)(4) and (e)(3)(C).
(b) "Award" means a grant of Non-statutory Options, Incentive Options,
and/or Limited Rights under the provisions of this Plan.
(c) "Base Salary," for purposes of this Plan only, means the fixed
portion of the Participant's compensation. It specifically excludes any amount
paid pursuant to any annual or long-term incentive plan of the Holding Company
or the Bank.
(d) "Board of Directors" or "Board" means the board of directors of
MAF Bancorp, Inc.
(e) "Change in Control" of the Bank or the Holding Company means a
Change in Control of a nature that: (i) would be required to be reported in
response to Item 1(a) of the current report on Form 8-K, as in effect on the
date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"); or (ii) results in a Change in Control of the Bank or
the Holding Company within the meaning of the Home Owners' Loan Act of 1933, as
amended, and the Rules and Regulations promulgated by the Office of Thrift
Supervision ("OTS") (or its predecessor agency), as in effect on the Effective
Date, as defined in Section 17 hereof (provided, that in applying the definition
of change in control as set forth under the rules and regulations of the OTS,
the Board shall substitute its judgment judgement for that of the OTS); or (iii)
without limitation such a Change in Control shall be deemed to have occurred at
such time as (a) any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the Bank
or the Holding Company representing 20% or more of the Bank's or the Holding
Company's outstanding securities ordinarily having the right to vote at the
election of directors except for any securities of the Bank purchased by the
Holding Company in connection with the conversion of the Bank to the stock form
and any securities purchased by the Bank's employee stock benefit plans; or (b)
individuals who constitute the Board of Directors of the Holding Company or the
Bank on the date hereof (the "Incumbent Board"), cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director
1
<PAGE>
subsequent to the date hereof whose election was approved by a vote of at least
75% of the directors comprising the Incumbent Board, or whose nomination for
election by the Holding Company's shareholders was approved by the same
Nominating Committee serving under an Incumbent Board, shall be, for purposes of
this clause (b), considered as though he were a member of the Incumbent Board;
(c) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Holding Company or similar
transaction occurs in which the Bank or Holding Company is not the resulting
entity or (d) the approval by shareholders of a proxy statement proposal
soliciting proxies from shareholders of the Holding Company, by someone other
than the current management of the Holding Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Holding Company or
the Bank or similar transaction with one or more corporations as a result of
which the outstanding shares of the class of securities then subject to the plan
or transaction are exchanged for or converted into cash or property or
securities not issued by the Bank or the Holding Company; or (e) a tender offer
is made and completed for 20% or more of the voting securities of the Bank or
the Holding Company.
However, notwithstanding anything contained in this section to the
contrary, a Change in Control shall not be deemed to have occurred as a result
of an event described in (i), (ii), or (iii) (a), (c), or (e) above which
resulted from an acquisition or proposed acquisition of stock of the Holding
Company by a person, as defined in the OTS' Acquisition of Control Regulations
(12 C.F.R. (S)574) (the "Control Regulations"), who was an executive officer of
the Holding Company on January 19, 1990 and who has continued to serve as an
executive officer of the Holding Company as of the date of the event described
in (i), (ii) or (iii) (a), (c) or (e) above (an "incumbent officer"). In the
event a group of individuals acting in concert satisfies the definition of
"person" under the Control Regulations, the requirements of the preceding
sentence shall be satisfied and thus a change in control shall not be deemed to
have occurred if at least one individual in the group is an incumbent officer.
(f) "Committee" means the Administrative/Compensation Committee of the
Board of Directors consisting of non-employee members of the Board of Directors,
all of whom are "disinterested directors" as such term is defined under Rule
16b-3 under the Exchange Act, as amended, as promulgated by the Securities and
Exchange Commission.
(g) "Common Stock" means the Common Stock of MAF Bancorp, Inc., par
value $.01 per share.
(h) "Date of Grant" means the date an Award granted by the Committee
is effective pursuant to the terms hereof.
(i) "Disability" shall have the same meaning as such term is defined
in the Mid America Federal Savings Bank Employees' Profit Sharing Plan.
(j) "Fair Market Value" means, when used in connection with the Common
Stock on a certain date, the average of the reported closing bid and ask prices
of the Common Stock as reported by the Nasdaq National Market (as published by
the Wall Street Journal, if published) on such date or if the Common Stock was
not traded on such date, on the next preceding day on which the Common Stock was
traded thereon or the last previous date on which a sale is reported.
(k) "Incentive Option" means an Option granted by the Committee to a
Participant, which Option is designed as an Incentive Option pursuant to Section
9.
2
<PAGE>
(l) "Limited Right" means the right to receive an amount of cash based
upon the terms set forth in Section 10.
(m) "Non-statutory Premium Option" means an Option granted by the
Committee to a Participant and which is not designated by the Committee as an
Incentive Premium Option, pursuant to Section 8.
(n) "Normal Retirement" means retirement unless otherwise determined
by the Committee, with respect to employees including executive officers,
retirement at the normal retirement date as set forth in the Mid America Federal
Savings Bank Employees' Profit Sharing Plan, unless otherwise determined by the
Committee. Normal Retirement means, with respect to non-employee directors,
retirement at the mandatory retirement age established by the Board of Directors
of the Holding Company or Bank.
(o) "Option" means an Award granted under Section 8 or Section 9.
(p) "Participant" means a director, officer or employee of the Holding
Company or its Affiliates chosen by the Committee to participate in the Plan.
(q) "Plan Year(s)" means a fiscal year or years commencing on or after
June 30, 1995.
(r) "Termination for Cause" means the termination upon an intentional
failure to perform stated duties, breach of a fiduciary duty involving personal
dishonesty, which results in material loss to the Holding Company or one of its
Affiliates or willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or final cease-and-desist order which
results in material loss to the Holding Company or one of its Affiliates.
3. ADMINISTRATION.
--------------
The Plan shall be administered by the Committee. The Committee is
authorized, subject to the provisions of the Plan, to establish such rules and
regulations as it sees necessary for the proper administration of the Plan and
to make whatever determinations and interpretations in connection with the Plan
it sees as necessary or advisable. All determinations and interpretations made
by the Committee shall be binding and conclusive on all Participants in the Plan
and on their legal representatives and beneficiaries.
4. TYPES OF AWARDS.
---------------
Awards under the Plan may be granted in any one or a combination of:
(a) Non-statutory Options;
(b) Incentive Options; and
(c) Limited Rights
as defined below in paragraphs 8 through 10 of the Plan.
5. STOCK SUBJECT TO THE PLAN.
-------------------------
Subject to adjustment as provided in Section 14, the maximum number of
shares reserved for purchase pursuant to the exercise of options granted under
the Plan is 247,500 shares of Common Stock. These shares of Common Stock may be
either authorized but unissued shares or shares previously issued and reacquired
by the Holding Company. To the extent that Options or Limited Rights are granted
under
3
<PAGE>
the Plan, the shares underlying such Options will be unavailable for future
grants under the Plan except that, to the extent that Options together with any
related Limited Rights granted under the Plan terminate, expire or are cancelled
without having been exercised (in the case of Limited Rights, exercised for
cash) new Awards may be made with respect to these shares. Subject to adjustment
as provided in Section 14, no participant under the Plan may receive awards with
respect to shares of Common Stock that in the aggregate exceed 25,000 shares
underlying options in any calendar year.
6. ELIGIBILITY.
-----------
Executive officers and employees of the Holding Company or its
Affiliates shall be eligible to receive Incentive Premium Options, Non-statutory
Options and/or Limited Rights under the Plan. Directors who are not employees of
the Holding Company or its Affiliates shall not be eligible to receive Non-
statutory Options under the Plan.
(a) Executive Officers. Participants who are executive officers of
the Holding Company or its affiliates shall initially be classified into four
groups At the Committee's discretion, the composition of such groups may be
changed. Initially, these four groups shall include:
Group I: The Chairman/Chief Executive Officer and President
Group II: Selected executives with company-wide responsibilities.
Initially this shall include: the Chief Financial Officer
and Senior Vice President of Loan Operations.
Group III: Selected executives with primary accountability for one or
more key functional areas. Initially this shall include:
- Senior Vice President-Operations/Information Systems
- Senior Vice President-Retail Banking
- Senior Vice President-Residential Lending
- First Vice President and Controller
- First Vice President- Administration/Savings
- First Vice President -Investor Relations/Taxation
- Vice President- Secondary Mortgage Marketing
- President of MAF Developments, Inc.
Group IV: Selected executives with accountability for other
functional areas. Initially this shall include:
- Vice President-Check Operations
- Vice President-Teller Operations
(b) Directors. Any non-employee director of the Holding Company who
is serving as a director on the Effective Date (as defined in section 17) shall
become a Participant in the Plan on the Effective Date. Any non-employee
director of the Holding Company who is not serving as a director on the
Effective Date shall become a Participant in the Plan on the date he is first
elected as a director of the Holding Company by the affirmative vote of
shareholders. Notwithstanding the foregoing, former directors of N.S. Bancorp,
Inc. who serve as non-employee directors of the Holding Company following the
merger of N.S. Bancorp, Inc.
4
<PAGE>
with the Holding Company, shall become Participants in the Plan on the date of
the first annual meeting of shareholders following the date of the merger.
(c) Employees other than executive officers. Employees who are not
executive officers of the Holding Company or its Affiliates will be eligible to
be a Participant in the Plan at the discretion of the Committee.
7. OPTION AWARDS.
-------------
(a) Executive Officers. Before the beginning of each fiscal year, the
Committee shall establish award opportunities for each Participant group of
executive officers. As a general guideline, award opportunities shall correspond
to the competitive market practices and the relative priority placed by the
Company on achieving annual versus long-term performance goals. The dollar value
of the initial award levels shall be:
. 25 percent of Base Salaries for Group I Participants;
. 20 percent of Base Salaries for Group II Participants;
and
. 11 percent of Base Salaries for Group III Participants;
and
. 6 percent of Base Salaries for Group IV Participants.
The determination of the number of premium options to be granted will
be equivalent to the dollar value of the Award divided by the value of the
premium options on the Date of Grant, determined based on an appropriate pricing
model or similar computation.
(b) Directors. Non-employee directors of the Holding Company shall
receive an initial grant of 1,000 options on the date they become a Participant
in the Plan except that in the event a non-employee director did not previously
receive a grant of options under the MAF Bancorp Inc. Stock Option Plan for
Outside Directors he shall receive an initial grant of 2,500 options on the date
he becomes a Participant in the Plan. In each year subsequent to the year in
which a non-employee director receives an initial grant of options under the
Plan in accordance with the previous sentence, any non-employee director who is
a Participant in the Plan who is serving as a director of the Holding Company on
the Date of Grant, shall receive an annual grant of 1,000 options on the day
following the day on which the annual meeting of shareholders for such year is
formally adjourned. In the event there are not sufficient options available
under the Plan to satisfy an initial grant or annual grant of options to one or
more non-employee directors, such director or directors shall receive a grant of
such lesser number of shares as remain in the Plan, sharing pro-rata with all
such non-employee directors entitled to receive option awards.
If, pursuant to this section, a non-employee director who is eligible
to be a Participant in the Plan receives an initial grant of options to purchase
fewer than the number of shares of Common Stock to which he is entitled pursuant
to the previous paragraph, and options for shares subsequently become available
under the Plan, such options for shares shall first be allocated as options
granted, as of the date of availability, to any non-employee director who is
eligible to be a Participant in the Plan and who has not previously been granted
an initial grant of options covering the full number of shares of Common Stock
to which he is entitled pursuant to the previous paragraph. Such options shall
be granted to purchase a number of shares of Common Stock no greater than the
number of shares covered by an initial grant of options to other non-employee
directors, but who have received an initial grant of options to purchase fewer
than the number of shares of Common Stock to
5
<PAGE>
which they are entitled pursuant to the previous paragraph. Options for any
remaining shares shall then be granted pro rata among all non-employee directors
who received an initial grant of options to purchase fewer than the number of
shares of Common Stock to which they are entitled pursuant to the previous
paragraph. No non-employee director shall receive an initial grant of options to
purchase more than 2,500 shares of Common Stock. No non-employee director shall
be entitled to receive an annual grant of 1,000 options until all non-employee
directors eligible to be Participants in the Plan have received in full, an
initial grant of options to which such director is entitled pursuant to the
previous paragraph.
If, after making and fully satisfying an initial grant of options to
all non-employee directors eligible to be Participants, options for sufficient
shares are not available under the Plan to fulfill the annual grant of 1,000
options to a non-employee director or directors and thereafter options become
available, such non-employee director shall then receive options to purchase
shares of Common Stock, sharing pro rata among each such non-employee director
in the number of shares then available under the Plan (not to exceed the amount
to which he is entitled under this section).
(c) Employees other than executive officers. The Committee may from
time to time, grant options to employees other than executive officers in
amounts that it, in its sole discretion, may determine.
8. NON-STATUTORY OPTIONS.
---------------------
8.1 Grant of Non-statutory Options.
------------------------------
Upon such terms and conditions as stated herein and as the Committee
may determine, the Committee may grant new Non-statutory options or may grant
Non-statutory options in exchange for and upon surrender of previously granted
Awards under this Plan. All options granted to non-employee directors pursuant
to Section 7(b) shall be Non-statutory options. Non-statutory Options granted
under this Plan are subject to the following terms and conditions:
(a) Price. The purchase price per share of Common Stock deliverable
-----
upon the exercise of each Non-statutory Option shall be (i) 133 percent of the
Fair Market Value of the Common Stock on the Date of Grant of the option with
respect to options granted to executive officers pursuant to Section 7(a), (ii)
110% of the Fair Market Value of the Common Stock on the Date of Grant of the
option with respect to options granted to non-employee directors pursuant to
Section 7(b), and (iii) not less than 100% of the Fair Market Value of the
Common Stock on the Date of Grant of the option with respect to options granted
to employees other than executive officers pursuant to Section 7(c). Shares may
be purchased only upon full payment of the purchase price. Payment of the
purchase price may be made, in whole or in part in cash or through the surrender
of shares of the Common Stock at the Fair Market Value of such shares on the
date of surrender determined in the manner described in Section 2(j).
(b) Terms of Options. With respect to Non-statutory Options granted
----------------
to executive officers and employees, the term during which each Non-statuory
Option may be exercised shall be determined by the Committee, but in no event
shall a Non-statutory Option be exercisable in whole or in part more than 10
years from the Date of Grant. Non-statutory Options granted to non-employee
directors shall have a term of 10 years from the date of Grant. non-statutory
Options shall become exercisable in three equal annual
6
<PAGE>
installments, with the first such installment to become exercisable one year
after the Date of Grant, except that the Committee may determine otherwise the
respect to Non-statutory Options granted to executive officers and employees.
The shares comprising each installment may be purchased in whole or in part at
any time after such installment becomes purchasable. With respect to
Non-statutory Options granted to executive officers and employees, the Committee
may, in its sole discretion, accelerate the time at which any Non-statutory
Option may be exercised in whole or in part. Notwithstanding the above, in the
event of a Change in Control of the Bank or the Holding Company, all
Non-statutory Options shall become immediately exercisable.
(c) Termination of Employment. Upon the termination of a
-------------------------
Participant's service for any reason other than Disability, Normal Retirement,
Change in Control, death or Termination for Cause, the Participant's
Non-statutory Options shall be exercisable only as to those shares which were
immediately purchasable by the Participant at the date of termination and only
for a period of three months following termination. In the event of Termination
for Cause, all rights under the Participant's Non-statutory Options shall expire
upon termination. In the event of the death, Disability, Change in Control or
Normal Retirement of any Participant, all Non-statutory Options held by the
Participant, whether or not exercisable at such time, shall be exercisable by
the Participant or his legal representatives or beneficiaries of the Participant
for three years following the date of the Participant's death, Normal Retirement
or cessation of employment due to Change in Control or Disability, except that
the Committee may designate a longer period for Non-statutory Options granted to
executive officers and employees, provided that in no event shall the period
extend beyond the expiration of the Non-statutory Option term.
9. INCENTIVE OPTIONS.
-----------------
9.1 Grant of Incentive Options.
--------------------------
Incentive Options granted pursuant to the Plan shall be available to be
granted to executive officers and employees and shall be subject to the
following terms and conditions:
(a) Price. The purchase price per share of Common Stock deliverable
-----
upon the exercise of each I Incentive Option shall be (i) 133 percent of the
Fair Market Value of the Common Stock on the Date of Grant of the option with
respect to options granted to executive officers pursuant to Section 7(a); and
(ii) not less than 100% of the Fair Market Value of the Common Stock on the Date
of Grant of the option with respect to options granted to employees other than
executive officers pursuant to Section 7(c). Shares may be purchased only upon
payment of the full purchase price. Payment of the purchase price may be made,
in whole or in part, in cash or through the surrender of shares of the Common
Stock at the Fair Market Value of such shares on the date of surrender
determined in the manner described in Section 2(j).
(b) Amounts of Options. Incentive Options may be granted to any
------------------
Participant (other than non-employee directors) in such amounts stated herein
and as determined by the Committee. In the case of an option intended to qualify
as an Incentive Option, the aggregate Fair Market Value (determined as of the
time the option is granted) of the Common Stock with respect to which Incentive
Options granted are exercisable for the first time by the Participant during any
calendar year (under all plans of the Participant's employer corporation and its
parent and subsidiary corporations) shall not exceed $100,000. The provisions of
this Section 9.1(b) shall be construed and applied in accordance with Section
422(d) of the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations, if any, promulgated thereunder. To the extent an Award under this
Section 9.1 exceeds this $100,000 limit, the portion of the Award in excess of
such limit shall be deemed a Non-statutory Option.
7
<PAGE>
(c) Terms of Options. The term during which each Incentive Option may
----------------
be exercised shall be determined by the Committee, but in no event shall an
Incentive Premium Option be exercisable in whole or in part more than 10 years
from the Date of Grant. If at the time an Incentive Option is granted to an
executive officer or employee, the executive officer or employee owns Common
Stock representing more than 10% of the total combined voting power of the
Holding Company (or, under Section 424(d) of the Code, is deemed to own Common
Stock representing more than 10% of the total combined voting power of all such
classes of Common Stock, by reason of the ownership of such classes of Common
Stock, directly or indirectly, by or for any brother, sister, spouse, ancestor
or lineal descendent of such executive officer, or by or for any corporation,
partnership, estate or trust of which such executive officer is a shareholder,
partner or beneficiary), the Incentive Option granted to such executive officer
shall not be exercisable after the expiration of five years from the Date of
Grant and, with respect to an employee, shall not be exercisable at a price
which is less than 110% of the fair market value of the Common Stock on the Date
of Grant. No Incentive Option granted under this Plan is transferable except by
will or the laws of descent and distribution and is exercisable in his lifetime
only by the executive officer or employee to whom it is granted.
Incentive Options shall become exercisable in three equal annual
installments with the first such installment to become exercisable one year
after the Date of Grant, unless determined otherwise by the Committee. The
shares comprising each installment may be purchased in whole or in part at any
time after such installment becomes purchasable, provided that the amount able
to be first exercised in a given year is consistent with the terms of Section
422 of the Code. The Committee may, in its sole discretion, accelerate the time
at which any Incentive Option may be exercised in whole or in part, provided
that it is consistent with the terms of Section 422 of the Code. Notwithstanding
the above, in the event of a Change in Control of the Bank or the Holding
Company, all Incentive Options shall become immediately exercisable.
(d) Termination of Employment. Upon the termination of a Participant's
-------------------------
service for any reason other than Disability, Normal Retirement, Change in
Control, death or Termination for Cause, the Participant's Incentive Options
shall be exercisable only as to those shares which were immediately purchasable
by the Participant at the date of termination and only for a period of three
months following termination. In the event of Termination for Cause all rights
under the Participant's Incentive Options shall expire upon termination.
In the event of death or Disability of any executive officer, all Incentive
Options held by such Participant, whether or not exercisable at such time, shall
be exercisable by the Participant or the Participant's legal representatives or
beneficiaries for one year following the date of the Participant's death or
cessation of employment due to Disability. Upon termination of the Participant's
service due to Normal Retirement or a Change in Control, all Incentive Options
held by such Participant, whether or not exercisable at such time, shall be
exercisable for a period of one year following the date of Participant's
cessation of employment, provided however, that such option shall not be
eligible for treatment as an Incentive Option in the event such option is
exercised more than three months following the date of the Participant's
termination of employment. In no event shall the exercise period extend beyond
the expiration of the Incentive Option term.
(e) Compliance with Code. The options granted under this Section 9 of the
--------------------
Plan are intended to qualify as incentive stock options within the meaning of
Section 422 of the Code, but the Holding Company makes no warranty as to the
qualification of any option as an incentive stock option within the meaning of
Section 422 of the Code.
8
<PAGE>
10. LIMITED RIGHTS.
--------------
10.1 Grant of Limited Rights.
-----------------------
Simultaneously with the grant of any option, the Committee may grant a
Limited Right to executive officers and employees with respect to all or some of
the shares covered by such option. Limited Rights granted under this Plan are
subject to the following terms and conditions:
(a) Terms of Rights. In no event shall a Limited Right be exercisable
---------------
in whole or in part before the expiration of six months from the Date of Grant
of the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control of the Holding Company.
The Limited Right may be exercised only when the underlying option is
eligible to be exercised, and only when the Fair Market Value of the underlying
shares on the day of exercise is greater than the exercise price of the related
option.
Upon exercise of a Limited Right, the related option shall cease to be
exercisable. Upon exercise or termination of an option, any related Limited
Right shall terminate. The Limited Rights may be for no more than 100% of the
difference between the exercise price and the Fair Market Value of the Common
Stock subject to the underlying option. The Limited Right is transferable only
when the underlying option is transferable and under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the Participant holder
-------
shall promptly receive from the Holding Company an amount of cash equal to the
difference between the exercise price per share on the Date of Grant of the
related option and the Fair Market Value of the underlying shares on the date
the Limited Right is exercised, multiplied by the number of shares with respect
to which such Limited Right is being exercised.
(c) Termination of Employment. Upon the termination of a
-------------------------
Participant's service for any reason other than Termination for Cause, any
Limited Rights held by the Participant shall then be exercisable for a period of
one year following termination. In the event of Termination for Cause, all
Limited Rights held by the Participant shall expire immediately. Upon
termination of the Participant's employment for reason of death, Normal
Retirement or Disability, all Limited Rights held by such Participant shall be
exercisable by the Participant or the Participant's legal representative or
beneficiaries for a period of one year from the date of such termination. In no
event shall the period extend beyond the expiration of the term of the related
option.
11. RIGHTS OF A SHAREHOLDER; NONTRANSFERABILITY.
-------------------------------------------
No Participant shall have any rights as a shareholder with respect to
any shares covered by a Non-statutory and/or Incentive Option until the date of
issuance of a stock certificate for such shares. Nothing in this Plan or in any
Award granted confers on any person any right to continue in the employ of the
Holding Company or its Affiliates or to continue to perform services for the
Holding Company or its Affiliates or interferes in any way with the right of the
Holding Company or its Affiliates to terminate a Participant's services as a
director, executive officer or employee at any time.
9
<PAGE>
No Award under the Plan shall be transferable by the optionee other
than by will or the laws of descent and distribution and may only be exercised
during his lifetime by the optionee, or by a guardian or legal representative.
12. AGREEMENT WITH GRANTEES.
-----------------------
Each Award of Options, and/or Limited Rights will be evidenced by a
written agreement, executed by the Participant and the Holding Company or its
Affiliates which describes the conditions for receiving the Awards including the
date of Award, the purchase price if any, applicable periods, and any other
terms and conditions as may be required by the Board of Directors or applicable
securities law.
13. DESIGNATION OF BENEFICIARY.
--------------------------
A Participant may, with the consent of the Committee, designate a
person or persons to receive, in the event of death, any stock option or Limited
Rights Award to which the Participant would then be entitled. Such designation
will be made upon forms supplied by and delivered to the Holding Company and may
be revoked in writing. If a Participant fails effectively to designate a
beneficiary, then the Participant's estate will be deemed to be the beneficiary.
14. DILUTION AND OTHER ADJUSTMENTS.
------------------------------
In the event of any change in the outstanding shares of Common Stock of
the Holding Company by reason of any stock dividend or split, recapitalization,
merger, consolidation, spin-off, reorganization, combination or exchange of
shares, or other similar corporate change, or other increase or decrease in such
shares effected without receipt or payment of consideration by the Holding
Company, the Committee will make such adjustments to previously granted Awards,
to prevent dilution or enlargement of the rights of the Participant, including
any or all of the following:
(a) adjustments in the aggregate number or kind of shares of Common
Stock which may be awarded under the Plan;
(b) adjustments in the aggregate number or kind of shares of Common
Stock covered by Awards already made under the Plan;
(c) adjustments in the maximum number of shares of Common Stock which
may be awarded under the Plan to a Participant in any one
calendar year; or
(d) adjustments in the purchase price of outstanding Incentive and/or
Non-statutory Premium Options, or any Limited Rights attached to
such options.
No such adjustments may, however, materially change the value of
benefits available to a Participant under a previously granted Award.
15. TAX WITHHOLDING.
---------------
There shall be deducted from each distribution of cash and/or Common
Stock under the Plan the amount required by any governmental authority to be
withheld for income tax purposes.
10
<PAGE>
16. AMENDMENT OF THE PLAN.
---------------------
The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect; provided, however, that Sections 8.1, 9.1 and
-------- -------
10.1 governing grants of options and Limited Rights shall not be amended more
than once every six months other than to comport with the Internal Revenue Code
or the Employee Retirement Income Security Act of 1974, as amended; provided
further that if it has been determined to continue to qualify the Plan under the
Securities and Exchange Commission Rule 16b-3, shareholders' approval shall be
required for any such modification or amendment which:
(a) increases the maximum number of shares for which options may be
granted under the Plan (subject, however, to the provisions of
Section 14 hereof);
(b) reduces the exercise price at which Awards may be granted
(subject, however, to the provisions of Section 14 hereof):
(c) extends the period during which options may be granted or
exercised beyond the times originally prescribed; or
(d) changes the persons eligible to participate in the Plan.
Failure to ratify or approve amendments or modifications to subsections
(a) through (d) of this Section by shareholders shall be effective only as to
the specific amendment or modification requiring such ratification. Other
provisions, sections, and subsections of this Plan will remain in full force and
effect.
No such termination, modification or amendment may affect the rights of
a Participant under an outstanding Award.
17. EFFECTIVE DATE OF PLAN.
----------------------
The Plan, as amended, shall become effective on the date of the 1995
Annual Meeting of Shareholders, October 25, 1995 (the "Effective Date") first
day of the 1994 fiscal year. The Plan shall be presented to shareholders of the
Holding Company for ratification for purposes of: (i) obtaining favorable
treatment under Section 16(b) of the Securities Exchange Act of 1934; (ii)
satisfying one of the requirements of Section 422 of the Code governing the tax
treatment for Incentive Premium Options; and (iii) maintaining listing on the
Nasdaq National Market. The failure to obtain shareholder ratification will
result in termination of the amended Plan by the Board. In such a case, the Plan
approved by shareholders on October 27, 1993 shall remain effective and all
awards previously granted under this Plan shall remain effective for all
purposes.
18. TERMINATION OF THE PLAN.
-----------------------
The right to grant Awards under the Plan will terminate upon the
earlier of (a) failure to obtain shareholder approval (in which case, the plan
approved by shareholders on October 27, 1993 shall remain effective) ; (b) ten
(10) years after the Effective Date of the Plan; or (c) the issuance of Common
Stock or the exercise of options or related Limited Rights equivalent to the
maximum number of shares reserved under the Plan as set forth in Section 5. The
Board of Directors has the right to suspend or terminate the Plan at any time,
provided that no such action will, without the consent of a Participant,
adversely affect his rights under a previously granted Award.
11
<PAGE>
19. APPLICABLE LAW.
--------------
The Plan will be administered in accordance with the laws of the State
of Delaware.
20. COMPLIANCE WITH SECTION 16.
--------------------------
If this Plan is qualified under 17 C.F.R. (S) 240.16b-3 of the Exchange
Act Rules, with respect to persons subject to Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provisions of the Plan or action by the Committee fail to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.
12
<PAGE>
Exhibit 10(Vii) Credit Agreement Dated As Of May 22, 1996, As Amended, Between
MAF Bancorp, Inc. And Harris Trust And Savings Bank
<PAGE>
THIRD AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of May 22,
1996, as amended (the "Credit Agreement"), between the undersigned, MAF Bancorp,
Inc., a Delaware corporation (the "Company") and you (the "Lender"). All
capitalized terms used herein without definition shall have the same meanings
herein as such terms have in the Credit Agreement.
The Company has requested the Lender extend the Revolving Credit Termination
Date from January 25, 1997, to April 30, 1997, and the Lender is willing to do
so under the terms and conditions set forth in this Third Amendment.
1. AMENDMENT.
Upon your acceptance hereof in the space provided for that purpose below, the
definition of "Revolving Credit Termination Date" set forth in Section 4.1 of
the Credit Agreement shall be amended by deleting the date "January 25, 1997"
appearing therein and inserting the date "April 30, 1997" in lieu thereof.
2. CONDITIONS PRECEDENT.
The effectiveness of this Third Amendment is subject to the satisfaction of
all of the following conditions precedent:
(a) The Company and the Lender shall have executed and delivered this
Third Amendment.
(b) Legal matters incident to the execution and delivery of this Third
Amendment shall be satisfactory to the Lender and its counsel.
3. MISCELLANEOUS.
(a) Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this Third Amendment need not be made in the Credit Agreement, the
Notes, or any other instrument or document executed in connection therewith, or
in any certificate, letter or communication issued or made pursuant to or with
respect to the Credit
<PAGE>
Agreement, any reference in any of such items to the Credit Agreement being
sufficient to refer to the Credit Agreement as amended hereby.
(b) The Company agrees to pay on demand all costs and expenses of or
incurred by the Lender in connection with the negotiation, preparation,
execution, and delivery of this Third Amendment, including the fees and expenses
of counsel for the Lender.
(c) This Third Amendment may be executed in any number of counterparts, and
by the different parties on different counterpart signature pages, all of which
taken together shall constitute one and the same agreement. Any of the parties
hereto may execute this Third Amendment by signing any such counterpart and each
of such counterparts shall for all purposes be deemed to be an original. This
Third Amendment shall be governed by the internal laws of the State of Illinois.
Dated as of January 15, 1997.
MAF BANCORP, INC.
By /s/ Jerry A. Weberling
-----------------------------------
Its Executive Vice President
Accepted and agreed to in Chicago, Illinois as of the date and year last
above written.
HARRIS TRUST AND SAVINGS BANK
By /s/ Michael Cameli
-----------------------------------
Its First Vice President
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of May 22,
1996, as amended (the "Credit Agreement"), between the undersigned, MAF Bancorp,
Inc., a Delaware corporation (the "Company") and you (the "Lender"). All
capitalized terms used herein without definition shall have the same meanings
herein as such terms have in the Credit Agreement.
The Company has changed its fiscal year end from June 30 to December 31 and
hereby requests that Section 7.11 of the Credit Agreement (Adjusted Net Income)
be amended to reflect this change, and the Lender is willing to do so under the
terms and conditions set forth in this Second Amendment.
1. AMENDMENT.
Upon your acceptance hereof in the space provided for that purpose below,
Section 7.11 of the Credit Agreement shall be amended and restated in its
entirety to read as follows:
"Section 7.11. Adjusted Net Income. As of December 31, 1996, the
Company shall have Adjusted Net Income for the six-month period then
ended of not less than $7,500,000. Thereafter, as of the last day of
each fiscal year of the Company (commencing with the fiscal year
beginning January 1, 1997), the Company shall have Adjusted Net Income
for the fiscal year then ended of not less than $15,000,000."
2. CONDITIONS PRECEDENT.
The effectiveness of this Second Amendment is subject to the satisfaction of
all of the following conditions precedent:
(a) The Company and the Lender shall have executed and delivered this
Second Amendment.
(b) Legal matters incident to the execution and delivery of this Second
Amendment shall be satisfactory to the Lender and its counsel.
<PAGE>
3. MISCELLANEOUS.
(a) Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this Second Amendment need not be made in the Credit Agreement, the
Notes, or any other instrument or document executed in connection therewith, or
in any certificate, letter or communication issued or made pursuant to or with
respect to the Credit Agreement, any reference in any of such items to the
Credit Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
(b) The Company agrees to pay on demand all costs and expenses of or
incurred by the Lender in connection with the negotiation, preparation,
execution, and delivery of this Second Amendment, including the fees and
expenses of counsel for the Lender.
(c) This Second Amendment may be executed in any number of counterparts,
and by the different parties on different counterpart signature pages, all of
which taken together shall constitute one and the same agreement. Any of the
parties hereto may execute this Second Amendment by signing any such counterpart
and each of such counterparts shall for all purposes be deemed to be an
original. This Second Amendment shall be governed by the internal laws of the
State of Illinois.
Dated as of October 30, 1996.
MAF BANCORP, INC.
By /s/ Jerry A. Weberling
-----------------------------------
Its Executive Vice President
Accepted and agreed to in Chicago, Illinois as of the date and year last
above written.
HARRIS TRUST AND SAVINGS BANK
By /s/ Michael Cameli
-----------------------------------
Its Vice President
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of May
22, 1996 (the "Credit Agreement"), between the undersigned, MAF Bancorp, Inc., a
Delaware corporation (the "Company") and you (the "Lender"). All capitalized
terms used herein without definition shall have the same meanings herein as such
terms have in the Credit Agreement.
The Company has requested that the Term Loan to be made to the Company
under the Term Loan Commitment be in the amount of $35,000,000 and, as a result
thereof, has requested that the Lender increase its Revolving Credit Commitment
from $10,000,000 to $15,000,000, and the Lender is willing to do so under the
terms and conditions set forth in this Amendment.
1. Amendments.
Upon your acceptance hereof in the space provided for that purpose below,
the Credit Agreement shall be and hereby is amended as follows:
(a) The definition of "Revolving Credit Commitment" appearing in Section
4.1 of the Credit Agreement shall be amended by deleting the amount "10,000,000"
appearing therein and inserting the amount "$15,000,000" in lieu thereof.
(b) Exhibit A to the Credit Agreement shall be amended in its entirety, and
as amended shall be restated to read as set forth on Exhibit A attached hereto.
2. Conditions Precedent.
<PAGE>
The effectiveness of this Amendment is subject to the satisfaction of all
of the following conditions precedent:
(a) The Company and the Lender shall have executed and delivered this
Amendment, and the Company shall have executed and delivered to the Lender
a replacement Revolving Credit Note in the form attached hereto as Exhibit
A.
(b) Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Lender and its counsel.
3. Miscellaneous.
(a) Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this specific Amendment need not be made in the Credit Agreement,
the Notes, or any other instrument or document executed in connection therewith,
or in any certificate, letter or communication issued or made pursuant to or
with respect to the Credit Agreement, any reference in any of such items to the
Credit Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
(b) This Amendment may be executed in any number of counterparts, and by
the different parties on different counterpart signature pages, all of which
taken together shall constitute one and the same agreement. Any of the parties
hereto may execute this Amendment by signing any such counterpart and each of
such counterparts shall for all purposes be deemed to be an original. This
Amendment shall be governed by the internal laws of the State of Illinois.
Dated as of June 3, 1996.
MAF Bancorp, Inc.
By /s/ Jerry Weberling
---------------------------------
<PAGE>
------------------------------
Its Executive Vice President
and CFO
------------------------------
Accepted and agreed to in Chicago, Illinois as of the date and year last
above written.
Harris Trust and Savings Bank
By /s/ Richard Loncar
-------------------------------
Its Vice President
-8-
<PAGE>
Exhibit A
MAF Bancorp, Inc.
Revolving Credit Note
Chicago, Illinois
$15,000,000 June 3, 1996
On the Revolving Credit Termination Date, for value received, the
undersigned, MAF Bancorp, Inc., a Delaware corporation (the "Company"), hereby
promises to pay to the order of Harris Trust and Savings Bank (the "Lender"), at
the principal office of the Lender in Chicago, Illinois, the principal sum of
(I) Fifteen Million and no/100 Dollars ($15,000,000), or (ii) such lesser amount
as may at the time of the maturity hereof, whether by acceleration or otherwise,
be the aggregate unpaid principal amount of all Revolving Credit Loans owing
from the Company to the Lender under the Revolving Credit provided for in the
Credit Agreement hereinafter mentioned.
This Note is issued in substitution and replacement for, and evidences the
indebtedness evidenced by, the Revolving Credit Note of the Company dated May
22, 1996, and, in addition, evidences additional loans constituting part of a
"Domestic Rate Portion" and "LIBOR Portions" as such terms are defined in that
certain Credit Agreement dated as of May 22, 1996, between the Company and the
Lender (said Credit Agreement, as the same may be amended, modified or restated
from time to time, being referred to herein as the "Credit Agreement") made and
to be made to the Company by the Lender under the Revolving Credit provided for
under the Credit Agreement, and the Company hereby promises to pay interest at
the office described above on each loan evidenced hereby at the rates and at the
times and in the manner specified therefor in the Credit Agreement.
Each loan made under the Revolving Credit against this Note, any repayment
of principal hereon, the status of each such loan from time to time as part of
the Domestic Rate Portion or a LIBOR
<PAGE>
Portion and, in the case of any LIBOR Portion, the interest rate and Interest
Period applicable thereto shall be endorsed by the holder hereof on a schedule
to this Note or recorded on the books and records of the holder hereof (provided
that such entries shall be endorsed on a schedule to this Note prior to any
negotiation hereof). The Company agrees that in any action or proceeding
instituted to collect or enforce collection of this Note, the entries so
endorsed on a schedule to this Note or recorded on the books and records of the
holder hereof shall be prima facie evidence (absent manifest error) of the
unpaid principal balance of this Note, the status of each such loan from time to
time as part of the Domestic Rate Portion or a LIBOR Portion, and, in the case
of any LIBOR Portion, the interest rate and Interest Period applicable thereto.
This Note is issued by the Company under the terms and provisions of the
Credit Agreement, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred to therin, to which
reference is hereby made for a statement thereof. This Note may be declared to
be, or be and become, due prior to its expressed maturity, voluntary prepayments
may be made hereon, and certain prepayments are required to be made hereon, all
in the events, on the terms and with the effects provided in the Credit
Agreement. All capitalized terms used herein without definition shall have the
same meanings herein as such terms are defined in the Credit Agreement.
The Company hereby promises to pay all costs and expenses (including
attorneys' fees) suffered or incurred by the holder hereof in collecting this
Note or enforcing any rights in any collateral therefor. The Company hereby
waives presentment for payment and demand. THIS NOTE SHALL BE CONSTRUED IN
ACCORDANCE WITH, AND GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF ILLINOIS
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
MAF Bancorp, Inc.
-10-
<PAGE>
By ____________________________________
_____________________, ______________
(Print or Type Name) (Title)
<PAGE>
================================================================================
Credit Agreement
Dated As Of May 22, 1996,
Between
MAF Bancorp, Inc.
And
Harris Trust And Savings Bank
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Description Page
<S> <C> <C>
Section 1. The Credits................................................ 1
Section 1.1. Revolving Credit....................................... 1
Section 1.2. Revolving Credit Loans................................. 1
Section 1.3. Letters of Credit...................................... 2
Section 1.4. Term Credit............................................ 4
Section 1.5. Manner and Disbursement of Loans....................... 5
Section 2. Interest and Change In Circumstances....................... 6
Section 2.1. Interest Rate Options.................................. 6
Section 2.2. Minimum Fixed Rate Portions............................ 7
Section 2.3. Computation of Interest................................ 7
Section 2.4. Manner of Rate Selection............................... 7
Section 2.5. Change of Law.......................................... 8
Section 2.6. Unavailability of Deposits or Inability
to Ascertain Adjusted LIBOR............................ 8
Section 2.7. Taxes and Increased Costs.............................. 8
Section 2.8. Funding Indemnity...................................... 9
Section 2.9. Treasury Rate Portion Prepayment Fee................... 10
Section 2.10. Lending Branch......................................... 11
Section 2.11. Discretion of Lender as to Manner of
Funding................................................ 11
Section 3. Fees, Prepayments, Terminations, and
Applications............................................... 11
Section 3.1. Fees................................................... 11
Section 3.2. Voluntary Prepayments.................................. 12
Section 3.3. Mandatory Termination.................................. 12
Section 3.4. Voluntary Terminations................................. 13
Section 3.5. Place and Application of Payments...................... 13
Section 3.6. Notations.............................................. 13
Section 4. Definitions; Interpretation................................ 14
Section 4.1. Definitions............................................ 14
</TABLE>
-1-
<PAGE>
<TABLE>
<S> <C> <C>
Section 4.2. Interpretation......................................... 21
Section 5... Representations and Warranties............................. 21
Section 5.1. Organization and Qualification......................... 21
Section 5.2. Subsidiaries........................................... 22
Section 5.3. Corporate Authority and Validity of
Obligations............................................ 22
Section 5.4. Use of Proceeds; Margin Stock.......................... 23
Section 5.5. Financial Reports...................................... 23
Section 5.6. No Material Adverse Change............................. 24
Section 5.7. Full Disclosure........................................ 24
Section 5.8. Good Title............................................. 24
Section 5.9. Litigation and Other Controversies..................... 24
Section 5.10. Taxes.................................................. 24
Section 5.11. Approvals.............................................. 24
Section 5.12. Affiliate Transactions................................. 25
Section 5.13. Investment Company; Public Utility
Holding Company........................................ 25
Section 5.14. ERISA.................................................. 25
Section 5.15. Compliance with Laws................................... 25
Section 5.16. Other Agreements....................................... 26
Section 5.17. Merger................................................. 26
Section 5.18. No Default............................................. 26
Section 6. Conditions Precedent....................................... 26
Section 6.1. All Advances........................................... 26
Section 6.2. Initial Advance........................................ 27
Section 7. Covenants.................................................. 29
Section 7.1. Maintenance of Business................................ 29
Section 7.2. Maintenance of Properties.............................. 29
Section 7.3. Taxes and Assessments.................................. 30
Section 7.4. Insurance.............................................. 30
Section 7.5. Financial Reports...................................... 30
Section 7.6. Inspection............................................. 32
Section 7.7. Non-Performing Assets.................................. 32
Section 7.8. Regulatory Capital Requirements........................ 32
Section 7.9. Tangible Capital Ratio................................. 33
Section 7.10. Adjusted Net Worth..................................... 33
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C>
Section 7.11. Adjusted Net Income.................................... 33
Section 7.12. Indebtedness for Borrowed Money........................ 33
Section 7.13. Liens.................................................. 34
Section 7.14. Mergers and Consolidations............................. 34
Section 7.15. Maintenance of Subsidiaries............................ 34
Section 7.16. Dividends and Certain Other Restricted
Payments............................................... 34
Section 7.17. Subordinated Debt...................................... 35
Section 7.18. ERISA.................................................. 35
Section 7.19. Compliance with Laws................................... 35
Section 7.20. Burdensome Contracts With Affiliates................... 35
Section 7.21. Change in the Nature of Business....................... 35
Section 7.22. Regulatory-Mandated Disposition of MAF
Developments........................................... 35
Section 8. Events of Default and Remedies............................. 36
Section 8.1. Events of Default...................................... 36
Section 8.2. Non-Bankruptcy Defaults................................ 38
Section 8.3. Bankruptcy Defaults.................................... 38
Section 8.4. Collateral for Undrawn Letters of Credit............... 39
Section 9. Miscellaneous.......................................... 39
Section 9.1. Non-Business Days...................................... 39
Section 9.2. No Waiver, Cumulative Remedies......................... 39
Section 9.3. Amendments............................................. 40
Section 9.4. Costs and Expenses..................................... 40
Section 9.5. Documentary Taxes...................................... 40
Section 9.6. Survival of Representations............................ 40
Section 9.7. Participations......................................... 40
Section 9.8. Notices................................................ 41
Section 9.9. Confidentiality........................................ 41
Section 9.10. Headings............................................... 42
Section 9.11. Severability of Provisions............................. 42
Section 9.12. Counterparts........................................... 42
Section 9.13. Entire Understanding................................... 42
Section 9.14. Binding Nature, Governing Law, Etc..................... 42
Section 9.15. Submission to Jurisdiction; Waiver of
Jury Trial............................................. 42
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C>
Signature.................................................................. 43
Exhibit A - Revolving Credit Note
Exhibit B - Term Note
Exhibit C - Compliance Certificate
Exhibit D-1 - Opinion of Counsel
Exhibit D-2 - Opinion of Company Counsel/Merger
Schedule 5.2 - Subsidiaries
Schedule 7.12 - Existing Indebtedness
</TABLE>
-4-
<PAGE>
CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
The undersigned, MAF Bancorp, Inc., a Delaware corporation (the "Company"),
applies to you (the "Lender") for your commitment, subject to the terms and
conditions hereof and on the basis of the representations and warranties
hereinafter set forth, to extend credit to the Company, all as more fully
hereinafter set forth.
Section 1. The Credits.
Section 1.1. Revolving Credit. Subject to the terms and conditions hereof,
the Lender agrees to extend a revolving credit (the "Revolving Credit") to the
Company which may be availed of by the Company from time to time during the
period from and including the date hereof to but not including the Revolving
Credit Termination Date, at which time the commitment of the Lender to extend
credit under the Revolving Credit shall expire. The Revolving Credit may be
utilized by the Company in the form of Revolving Credit Loans and Letters of
Credit, all as more fully hereinafter set forth, provided that the aggregate
principal amount of Revolving Credit Loans and Letters of Credit outstanding at
any one time shall not exceed the Revolving Credit Commitment. During the period
from and including the date hereof to but not including the Revolving Credit
Termination Date, the Company may use the Revolving Credit Commitment by
borrowing, repaying and reborrowing Revolving Credit Loans in whole or in part
and/or by having the Lender issue Letters of Credit, having such Letters of
Credit expire or otherwise terminate without having been drawn upon or, if drawn
upon, reimbursing the Lender for each such drawing, and having the Lender issue
new Letters of Credit, all in accordance with the terms and conditions of this
Agreement. For purposes of this Agreement, where a determination of the unused
or available
-5-
<PAGE>
amount of the Revolving Credit Commitment is necessary, the Revolving Credit
Loans and Letters of Credit shall be deemed to utilize the Revolving Credit
Commitment in an amount equal to the outstanding principal amounts thereof.
Section 1.2. Revolving Credit Loans. Subject to the terms and conditions
hereof, the Revolving Credit may be availed of by the Company in the form of
loans (individually a "Revolving Credit Loan" and collectively the "Revolving
Credit Loans"). Each Revolving Credit Loan shall be in an amount of $500,000 or
such greater amount which is an integral multiple of $100,000; provided,
however, that a Revolving Credit Loan, or part thereof, which bears interest
with reference to the Adjusted LIBOR shall be in such greater amount as is
required by Section 2.2 hereof. All Revolving Credit Loans made by the Lender
shall be made against and evidenced by a single Revolving Credit Note of the
Company (the "Revolving Credit Note") payable to the order of the Lender in the
amount of its Revolving Credit Commitment, with the Revolving Credit Note to be
in the form (with appropriate insertions) attached hereto as Exhibit A. The
Revolving Credit Note shall be dated the date of issuance thereof, be expressed
to bear interest as set forth in Section 2 hereof, and be expressed to mature on
the Revolving Credit Termination Date. Without regard to the principal amount of
the Revolving Credit Note stated on its face, the actual principal amount at any
time outstanding and owing by the Company on account thereof shall be the sum of
all advances then or theretofore made thereon less all payments of principal
actually received.
Section 1.3. Letters of Credit.
(a) General Terms. Subject to the terms and conditions hereof, the
Revolving Credit may be availed of by the Company in the form of standby letters
of credit issued by the Lender for the account of the Company or, at the
Company's option, for the account of the Company and MAF Developments, jointly
and severally (individually a "Letter of Credit" and collectively the "Letters
of Credit"), provided that the aggregate amount of Letters of Credit issued and
outstanding hereunder shall not at
-6-
<PAGE>
any time exceed $10,000,000. For purposes of this Agreement, a Letter of Credit
shall be deemed outstanding as of any time in an amount equal to the maximum
amount which could be drawn thereunder under any circumstances and over any
period of time plus any unreimbursed drawings then outstanding with respect
thereto. If and to the extent any Letter of Credit expires or otherwise
terminates without having been drawn upon, the availability under the Revolving
Credit Commitment shall to such extent be reinstated.
(b) Term. Each Letter of Credit issued hereunder shall expire not later
than 18 months from the date of issuance (or be cancelable not later than 18
months from the date of issuance and each renewal); provided, however, that for
any Letter of Credit with an expiry date extending beyond the Revolving Credit
Termination Date, the Company hereby agrees to (i) deposit cash with the Lender
on or before the Revolving Credit Termination Date in an amount equal to the
aggregate amount of such Letter of Credit or (ii) deposit with the Lender on or
before the Revolving Credit Termination Date investments in direct obligations
of the United States of America or of any agency or instrumentality thereof
whose obligations constitute full faith and credit obligations of the United
States of America in amounts and with such maturities as are acceptable to the
Lender, in each case to be held by the Lender in the Account referred to in
Section 8.4 hereof as collateral security for any and all Obligations pursuant
to the terms of Section 8.4 hereof, provided that if the amount of any such
Letter of Credit is thereafter reduced, and so long as no Default or Event of
Default has occurred and is continuing, at the request of the Company, the
Lender will immediately return any cash or investments in the Account, and any
proceeds or earnings on such cash and investments, in excess of the remaining
amount of such Letter of Credit.
(c) General Characteristics. Each Letter of Credit issued hereunder
shall be payable in U.S. Dollars, conform to the general requirements of the
Lender for the issuance of standby letters of credit as to form and substance,
and be a letter of credit which the Lender may lawfully issue.
-7-
<PAGE>
(d) Applications. At the time the Company requests each Letter of
Credit to be issued (or prior to the first issuance of a Letter of Credit in the
case of a continuing application), the Company shall execute and deliver to the
Lender an application for such Letter of Credit in the form then customarily
prescribed by the Lender (individually an "Application" and collectively the
"Applications"). Subject to the other provisions of this subsection, the
obligation of the Company to reimburse the Lender for drawings under a Letter of
Credit shall be governed by the Application for such Letter of Credit. Anything
contained in the Applications to the contrary notwithstanding, (i) in the event
the Lender is not reimbursed by the Company for the amount the Lender pays on
any draft drawn under a Letter of Credit issued hereunder by 2:00 p.m. (Chicago
time) on the date when such drawing is paid, the obligation of the Company to
reimburse the Lender for the amount of such draft paid shall bear interest
(which the Company hereby promises to pay on demand) from and after the date the
draft is paid until payment in full thereof at a fluctuating rate per annum
determined by adding 2% to the Domestic Rate as from time to time in effect
(computed on the basis of a year of 360 days for the actual number of days
elapsed), (ii) the Company shall pay fees in connection with each Letter of
Credit as set forth in Section 3 hereof, (iii) except during the existence of a
Default or an Event of Default, the Lender will not call for additional
collateral security for the obligations of the Company under the Applications
except as otherwise provided in Section 1.3(b) hereof, and (iv) except during
the existence of a Default or an Event of Default, the Lender will not call for
the funding of a Letter of Credit by the Company prior to being presented with a
draft drawn thereunder (or, in the event the draft is a time draft, prior to its
due date) except as otherwise provided in Section 1.3(b) hereof.
(e) Change in Laws. If the Lender shall determine that any change in
any applicable law, regulation or guideline (including, without limitation,
Regulation D of the Board of Governors of the Federal Reserve System) or any new
law, regulation or guideline, or any interpretation of any of the foregoing by
any governmental authority charged with the administration thereof or any
central bank or other fiscal, monetary or other authority having
-8-
<PAGE>
jurisdiction over the Lender (whether or not having the force of law), shall:
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against the Letters of Credit, or the Lender's or the
Company's liability with respect thereto; or
(ii) impose on the Lender any penalty with respect to the foregoing or
any other condition regarding this Agreement, the Applications or the Letters
of Credit;
and the Lender shall determine that the result of any of the foregoing is to
increase the cost (whether by incurring a cost or adding to a cost) to the
Lender of issuing or maintaining the Letters of Credit hereunder (without
benefit of, or credit for, any prorations, exemptions, credits or other offsets
available under any such laws, regulations, guidelines or interpretations
thereof), then the Company shall pay on demand to the Lender from time to time
as specified by the Lender such additional amounts as the Lender shall determine
are sufficient to compensate and indemnify it for such increased cost. If the
Lender makes such a claim for compensation, it shall provide the Company a
certificate setting forth the computation of the increased cost as a result of
any event mentioned herein in reasonable detail and such certificate shall be
conclusive if reasonably determined (absent manifest error).
Section 1.4. Term Credit. Subject to the terms and conditions hereof, the
Lender agrees to make a loan (the "Term Loan") to the Company in an amount up to
the Lender's Term Loan Commitment. There shall be a single borrowing under the
Term Loan Commitment which shall be made, if at all, on or before August 31,
1996, at which time the commitment of the Lender to make a Term Loan under the
Term Loan Commitment shall expire. There shall be one borrowing under the Term
Loan Commitment, and any portion of the Term Loan Commitment not requested by
the Company on the occasion of such borrowing shall thereupon expire. The Term
Loan made by the Lender to the Company shall be evidenced by a Term Note of the
Company (the "Term Note")
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<PAGE>
payable to the order of the Lender in the amount of its Term Loan Commitment,
with the Term Note to be in the form (with appropriate insertions) attached
hereto as Exhibit B. The Term Note shall be dated the date of issuance thereof
and be expressed to bear interest as set forth in Section 2 hereof. The Company
hereby promises to make principal payments on the Term Note in installments on
the dates set forth in column A below each in an amount equal to the amount set
forth in column B below opposite the relevant due date:
If the original principal amount of the Term Loan is $30,000,000, or less,
then principal payments on the Term Note shall be as follows:
<TABLE>
<CAPTION>
A B
Scheduled Principal Payment
Payment Date on Term Note
<S> <C>
12/31/1997 $ 500,000
12/31/1998 $1,500,000
12/31/1999 $2,600,000
12/31/2000 $3,800,000
12/31/2001 $6,000,000
12/31/2002 $7,800,000
12/31/2003 remaining principal balance of Term
Loan
</TABLE>
If the original principal amount of the Term Loan is more than $30,000,000,
but less than or equal to $35,000,000, then principal payments on the Term Note
shall be as follows:
<TABLE>
<CAPTION>
A B
Scheduled Principal Payment
Payment Date on Term Note
<S> <C>
12/31/1997 $ 500,000
12/31/1998 $1,500,000
12/31/1999 $3,100,000
12/31/2000 $4,500,000
12/31/2001 $7,000,000
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
12/31/2002 $9,200,000
12/31/2003 remaining principal balance of Term
Loan
</TABLE>
If the original principal amount of the Term Loan is more than $35,000,000,
but less than or equal to $40,000,000, then principal payments on the Term Note
shall be as follows:
<TABLE>
<CAPTION>
A B
Scheduled Principal Payment
Payment Date on Term Note
<S> <C>
12/31/1997 $ 500,000
12/31/1998 $ 1,500,000
12/31/1999 $ 3,500,000
12/31/2000 $ 5,500,000
12/31/2001 $ 8,000,000
12/31/2002 $10,500,000
12/31/2003 remaining principal balance of Term
Loan
</TABLE>
Section 1.5. Manner and Disbursement of Loans. The Company shall give
written or telephonic notice to the Lender (which notice shall be irrevocable
once given) by no later than 11:00 a.m. (Chicago time) on the date the Company
requests that any Loan be made to it under the Commitments. Each such notice
shall specify the date of the Loan requested (which must be a Business Day), the
type of Loan being requested, and the amount thereof. Each Loan shall initially
constitute part of the applicable Domestic Rate Portion except to the extent the
Company has otherwise timely elected that such Loan, or any part thereof,
constitute part of a Fixed Rate Portion as provided in Section 2 hereof. The
Company agrees that the Lender may rely upon any written or telephonic notice
given by any person the Lender in good faith believes is an Authorized
Representative without the necessity of independent investigation and, in the
event any telephonic notice conflicts with any written confirmation, such
telephonic notice shall govern if the Lender has acted in reliance thereon.
Subject to the provisions of Section 6 hereof, the proceeds of each Loan shall
be made
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<PAGE>
available to the Company at the principal office of the Lender in Chicago,
Illinois, in immediately available funds.
Section 2. Interest and Change In Circumstances.
Section 2.1. Interest Rate Options.
(a) Portions. Subject to the terms and conditions of this Section 2,
portions of the principal indebtedness evidenced by the Notes (all of the
indebtedness evidenced by Notes of the same type bearing interest at the same
rate for the same period of time being hereinafter referred to as a "Portion")
may, at the option of the Company, bear interest with reference to the Domestic
Rate ("Domestic Rate Portions") or with reference to the Adjusted LIBOR ("LIBOR
Portions") or, with respect to indebtedness evidenced by the Term Note, with
reference to the Treasury Rate ("Treasury Rate Portions"). Subject to the terms
and conditions of this Section 2, the Domestic Rate Portion or LIBOR Portions of
Notes of the same type may be converted from time to time from one basis to the
other, and, with reference to the indebtedness evidenced by the Term Note, the
Domestic Rate Portion and any LIBOR Portions thereof may be converted from time
to time during the term of this Agreement into one or more Treasury Rate
Portions. Once a Treasury Rate Portion is selected with respect to all or any
part of the indebtedness evidenced by the Term Note, such Portion shall remain a
Treasury Rate Portion hereunder until paid in full. All of the indebtedness
evidenced by a Note which is not part of a LIBOR Portion or, with reference to
the Term Note, a Treasury Rate Portion shall constitute a single Domestic Rate
Portion applicable to such Note. All of the indebtedness evidenced by a Note
which bears interest with reference to a particular Adjusted LIBOR for a
particular Interest Period shall constitute a single LIBOR Portion applicable to
such Note. There shall not be more than five LIBOR Portions applicable to the
Revolving Credit Note outstanding at any one time. There shall be not more than
seven Fixed Rate Portions applicable to the Term Note outstanding at any one
time, and there shall not be more than five Treasury Rate Portions applicable to
the Term Note during the term of this Agreement. Anything contained herein to
the contrary notwithstanding, the
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<PAGE>
obligation of the Lender to create, continue or effect by conversion any Fixed
Rate Portion shall be conditioned upon the fact that at the time no Default or
Event of Default shall have occurred and be continuing. The Company hereby
promises to pay interest on each Portion at the rates and times specified in
this Section 2.
(b) Domestic Rate Portion. Each Domestic Rate Portion shall bear
interest at the rate per annum determined equal to the Domestic Rate as in
effect from time to time, provided that if a Domestic Rate Portion or any part
thereof is not paid when due (whether by lapse of time, acceleration or
otherwise) such Portion shall bear interest, whether before or after judgment,
until payment in full of the amount then due at the rate per annum determined by
adding 2% to the interest rate which would otherwise be applicable thereto from
time to time. Interest on each Domestic Rate Portion shall be payable quarterly
in arrears on the last day of each March, June, September and December in each
year (commencing September 30, 1996) and at maturity of the applicable Note, and
interest after maturity (whether by lapse of time, acceleration or otherwise)
shall be due and payable upon demand. Any change in the interest rate on the
Domestic Rate Portions resulting from a change in the Domestic Rate shall be
effective on the date of the relevant change in the Domestic Rate.
(c) LIBOR Portions. Each LIBOR Portion shall bear interest for each
Interest Period selected therefor at a rate per annum determined by adding 1% to
the Adjusted LIBOR for such Interest Period, provided that if any LIBOR Portion
is not paid when due (whether by lapse of time, acceleration or otherwise) such
Portion shall bear interest, whether before or after judgment, until payment in
full of the amount then due through the end of the Interest Period then
applicable thereto at the rate per annum determined by adding 2% to the interest
rate which would otherwise be applicable thereto, and effective at the end of
such Interest Period such LIBOR Portion shall automatically be converted into
and added to the applicable Domestic Rate Portion and shall thereafter bear
interest at the interest rate applicable to such Domestic Rate Portion.
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<PAGE>
Interest on each LIBOR Portion shall be due and payable on the last day of each
Interest Period applicable thereto, and interest after maturity (whether by
lapse of time, acceleration or otherwise) shall be due and payable upon demand.
The Company shall notify the Lender on or before 11:00 a.m. (Chicago time) on
the third Business Day preceding the end of an Interest Period applicable to a
LIBOR Portion whether such LIBOR Portion is to continue as a LIBOR Portion, in
which event the Company shall notify the Lender of the new Interest Period
selected therefor, and in the event the Company shall fail to so notify the
Lender, such LIBOR Portion shall automatically be converted into and added to
the applicable Domestic Rate Portion as of and on the last day of such Interest
Period.
(d) Treasury Rate Portion. Each Treasury Rate Portion of the Term Note
shall bear interest at a fixed rate per annum determined by adding 1-1/4% to the
Treasury Rate determined with respect to such Portion, provided that if any
Treasury Rate Portion, or any part thereof, is not paid when due (whether by
lapse of time, acceleration or otherwise), such Portion shall bear interest,
whether before or after judgment, until payment in full of the amount then due
at the rate per annum determined by adding 2% to the interest rate which would
otherwise be applicable thereto. Interest on each Treasury Rate Portion of the
Term Note shall be payable quarterly in arrears on the last day of each March,
June, September and December in each year (commencing on the first such date
occurring after such Treasury Rate Portion is selected by the Company pursuant
to Section 2.4 hereof) and at maturity of the Term Note, and interest after
maturity (whether by lapse of time, acceleration or otherwise) shall be due and
payable upon demand.
Section 2.2. Minimum Fixed Rate Portions. Each LIBOR Portion applicable to
the Revolving Credit Note shall be in an amount equal to $1,000,000 or such
greater amount which is an integral multiple of $1,000,000, and each Fixed Rate
Portion applicable to the Term Note shall be in an amount equal to $5,000,000 or
such greater amount which is an integral multiple of $1,000,000.
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<PAGE>
Section 2.3. Computation of Interest. All interest on the Notes shall be
computed on the basis of a year of 360 days for the actual number of days
elapsed.
Section 2.4. Manner of Rate Selection. The Company shall notify the Lender
by 11:00 a.m. (Chicago time) at least three Business Days prior to the date upon
which the Company requests that (i) any LIBOR Portion be created or that any
part of the applicable Domestic Rate Portion be converted into a LIBOR Portion
and (ii) any Treasury Rate Portion be created or that any part of the Domestic
Rate Portion or any part of a LIBOR Portion applicable to the Term Note be
converted into a Treasury Rate Portion (each such notice to specify in each
instance the amount thereof and the Interest Period selected therefor). If any
request is made to convert a LIBOR Portion into another type of Portion
available hereunder, such conversion shall only be made so as to become
effective as of the last day of the Interest Period applicable thereto. All
requests for the creation, continuance and conversion of Portions under this
Agreement shall be irrevocable. Such requests may be written or oral and the
Lender is hereby authorized to honor telephonic requests for creations,
continuances and conversions received by it from any person the Lender in good
faith believes to be an Authorized Representative without the necessity of
independent investigation, the Company hereby indemnifying the Lender from any
liability or loss ensuing from so acting.
Section 2.5. Change of Law. Notwithstanding any other provisions of this
Agreement or any Note, if at any time the Lender shall determine that any change
in applicable laws, treaties or regulations or in the interpretation thereof
makes it unlawful for the Lender to create or continue to maintain any LIBOR
Portion, it shall promptly so notify the Company and the obligation of the
Lender to create, continue or maintain any such LIBOR Portion under this
Agreement shall terminate until it is no longer unlawful for the Lender to
create, continue or maintain such LIBOR Portion. The Company, on demand, shall,
if the continued maintenance of any such LIBOR Portion is unlawful, thereupon
prepay the outstanding principal amount of the affected LIBOR Portion, together
with all interest accrued
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<PAGE>
thereon and all other amounts payable to the Lender with respect thereto under
this Agreement; provided, however, that the Company may elect to convert the
principal amount of the affected LIBOR Portion into another type of Portion
available hereunder, subject to the terms and conditions of this Agreement.
Section 2.6. Unavailability of Deposits or Inability to Ascertain Note, if
prior to the commencement of any Interest Period, the Lender shall determine
that deposits in the amount of any LIBOR Portion scheduled to be outstanding
during such Interest Period are not readily available to the Lender in the
relevant market or, by reason of circumstances affecting the relevant market,
adequate and reasonable means do not exist for ascertaining Adjusted LIBOR, then
the Lender shall promptly give notice thereof to the Company and the obligation
of the Lender to create, continue or effect by conversion any such LIBOR Portion
in such amount and for such Interest Period shall terminate until deposits in
such amount and for the Interest Period selected by the Company shall again be
readily available in the relevant market and adequate and reasonable means exist
for ascertaining Adjusted LIBOR.
Section 2.7. Taxes and Increased Costs.; With respect to any LIBOR
Portion, if the Lender shall determine that any change in any applicable law,
treaty, regulation or guideline (including, without limitation, Regulation D of
the Board of Governors of the Federal Reserve System) or any new law, treaty,
regulation or guideline, or any interpretation of any of the foregoing by any
governmental authority charged with the administration thereof or any central
bank or other fiscal, monetary or other authority having jurisdiction over the
Lender or its lending branch or the LIBOR Portions contemplated by this
Agreement (whether or not having the force of law), shall:
(i) impose, increase, or deem applicable any reserve, special deposit
or similar requirement against assets held by, or deposits in or for the
account of, or loans by, or any other acquisition of funds or disbursements
by, the
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<PAGE>
Lender which is not in any instance already accounted for in computing the
interest rate applicable to such LIBOR Portion;
(ii) subject the Lender, any LIBOR Portion or a Note to the extent
it evidences any LIBOR Portion to any tax (including, without limitation,
any United States interest equalization tax or similar tax however named
applicable to the acquisition or holding of debt obligations and any
interest or penalties with respect thereto), duty, charge, stamp tax, fee,
deduction or withholding in respect of this Agreement, any LIBOR Portion or
a Note to the extent it evidences any LIBOR Portion, except such taxes as
may be measured by the overall net income or gross receipts of the Lender
or its lending branches and imposed by the jurisdiction, or any political
subdivision or taxing authority thereof, in which the Lender's principal
executive office or its lending branch is located;
(iii) change the basis of taxation of payments of principal and
interest due from the Company to the Lender hereunder or under a Note to
the extent it evidences any LIBOR Portion (other than by a change in
taxation of the overall net income or gross receipts of the Lender or its
lending branches); or
(iv) impose on the Lender any penalty with respect to the foregoing
or any other condition regarding this Agreement, any LIBOR Portion, or a
Note to the extent it evidences any LIBOR Portion;
and the Lender shall determine that the result of any of the foregoing is to
increase the cost (whether by incurring a cost or adding to a cost) to the
Lender of creating or maintaining any LIBOR Portion hereunder or to reduce the
amount of principal or interest received or receivable by the Lender (without
benefit of, or credit for, any prorations, exemption, credits or other offsets
available under any such laws, treaties, regulations, guidelines or
interpretations thereof), then the Company shall pay on demand to the Lender
from time to time as
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<PAGE>
specified by the Lender the additional amounts as the Lender shall reasonably
determine are sufficient to compensate and indemnify it for such increased cost
or reduced amount. If the Lender makes such a claim for compensation, it shall
provide to the Company a certificate setting forth the computation of the
increased cost or reduced amount as a result of any event mentioned herein in
reasonable detail and such certificate shall be conclusive if reasonably
determined.
Section 2.8. Funding Indemnity;. In the event the Lender shall incur any
loss, cost or expense (including, without limitation, any loss (including loss
of profit), cost or expense incurred by reason of the liquidation or re-
employment of deposits or other funds acquired or contracted to be acquired by
the Lender to fund or maintain its part of any LIBOR Portion or the relending or
reinvesting of such deposits or other funds or amounts paid or prepaid to the
Lender) as a result of:
(i) any payment of a LIBOR Portion on a date other than the last day
of the then applicable Interest Period for any reason, whether before or
after default, and whether or not such payment is required by any
provisions of this Agreement; or
(ii) any failure by the Company to create, borrow, continue or effect
by conversion a LIBOR Portion on the date specified in a notice given
pursuant to this Agreement;
then, upon the demand of the Lender, the Company shall pay to the Lender such
amount as will reimburse the Lender for such loss, cost or expense. If the
Lender requests such reimbursement under this Section, it shall provide to the
Company a certificate setting forth the computation of the loss, cost, or
expense giving rise to the request for reimbursement in reasonable detail and
such certificate shall be conclusive if reasonably determined (absent manifest
error).
Section 2.9. Treasury Rate Portion Prepayment Fee.; If the Company
makes any prepayment of principal of any Treasury Rate Portion of the Term Note
(after giving effect to any application
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<PAGE>
direction given by the Company in accordance with Section 3.5 hereof) or is
required to pay any Treasury Rate Portion of the Term Note prior to its stated
maturity for any reason (including, without limitation, payments required after
the occurrence of an Event of Default under Sections 8.2 and 8.3 hereof), the
Company shall pay upon demand by the Lender the amount determined based on this
Section 2.9 in good faith by the Lender by which the Current Value (as
hereinafter defined) of the interest which would have accrued on such Treasury
Rate Portion, or portion thereof, to its next regularly scheduled payment
date(s) (for purposes of this determination, each remaining principal payment of
the Term Loan shall be deemed to consist of a ratable amount of each outstanding
Portion of the Term Loan based upon the principal amounts thereof), exceeds the
Current Value (as hereinafter defined) of the amount which the Lender could earn
on an investment in the principal amount paid or prepaid to the Lender maturing
on such date(s), and yielding interest at the Treasury Yield (as hereinafter
defined). The Company hereby agrees that the amount recoverable under this
Section is a reasonable pre-estimate of loss and is not a penalty, and that such
amount is payable as liquidated damages to the Lender for the loss it suffers as
a result of the occurrence of any of the events specified hereunder. Payment of
the amount specified hereunder is without prejudice to the payment of the
principal of and accrued interest on such Treasury Rate Portion, as specified in
Section 2.1 hereof, together with all other amounts payable under this
Agreement. For purposes hereof, the following terms shall have the following
meanings:
"Current Value" means, with respect to the interest payable on the
relevant Treasury Rate Portion and the amount which the Lender could earn
on the alternative investment referred to above, such amounts discounted on
an annual basis to their current value (computed on the basis of a year of
360 days, as the case may be, and actual days elapsed) from the date such
amounts would have been paid to the date of determination at a discount
rate equal to the Treasury Yield.
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<PAGE>
"Treasury Yield" means the average of the yields to maturity,
expressed on a bond equivalent basis, which two leading United States
government securities dealers of recognized standing selected by the Lender
reasonably estimate to be the highest yield the Lender could have obtained
if it had purchased on the date of determination United States Treasury
Bonds, Notes or Bills in an aggregate principal amount equal to the
principal amount paid or prepaid to the Lender maturing on a date or dates
reasonably close to the next regularly scheduled payment date(s) of the
Term Note (determined as set forth above in the Section 2.9), and being
traded in the secondary market in reasonable volume at a price reasonably
close to par, all in accordance with United States domestic practice
prevailing as of the date of determination.
If the Lender requests such indemnification under this Section, it shall provide
to the Company a certificate setting forth the computation of the loss, cost or
expense giving rise to the request for indemnification in reasonable detail and
such certificate shall be conclusive if reasonably determined (absent manifest
error).
Section 2.10. Lending Branch.; The Lender may, at its option, elect to
make, fund or maintain the Loans hereunder at the branches or offices specified
on the signature pages hereof or at such of its branches or offices as the
Lender may from time to time elect.
Section 2.11. Discretion of Lender as to Manner of Funding.;
Notwithstanding any provision of this Agreement to the contrary, the Lender
shall be entitled to fund and maintain its funding of all or any part of the
Notes in any manner it sees fit (provided the same is in accordance with this
Agreement), it being understood, however, that for purposes of this Agreement
all determinations hereunder with respect to LIBOR Portions (including, without
limitation, determinations under Sections 2.6, 2.7 and 2.8 hereof) shall be made
as if the Lender had actually funded and maintained each LIBOR Portion during
each Interest Period applicable thereto through the purchase of
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<PAGE>
deposits in the relevant market in the amount of such LIBOR Portion, having a
maturity corresponding to such Interest Period, and bearing an interest rate
equal to the LIBOR for such Interest Period.
Section 3. Fees, Prepayments, Terminations, and Applications.
Section 3.1. Fees;. (a) Commitment Fee. For the period from and including
the date hereof to but not including the Revolving Credit Termination Date, the
Company shall pay to the Lender a commitment fee at the rate of 1/4 of 1% per
annum (computed on the basis of a year of 360 days for the actual number of days
elapsed) on the average daily unused portion of the Revolving Credit Commitment.
Such commitment fee shall be payable quarterly in arrears on the last day of
each March, June, September, and December in each year (commencing September 30,
1996) and on the Revolving Credit Termination Date.
(b) Letter of Credit Fees. On the date of issuance of each Letter of
Credit, and as condition thereto, and annually thereafter, the Company shall pay
to the Lender a letter of credit fee computed at the rate of 1% per annum
(computed on the basis of a year of 360 days for the actual number of days
elapsed) on the maximum amount of the related Letter of Credit which is
scheduled to be outstanding during the immediately succeeding twelve (12)
months. In addition to the letter of credit fee called for above, the Company
further agrees to pay to the Lender such processing and transaction fees and
charges as the Lender from time to time customarily imposes in connection with
any amendment, cancellation, negotiation and/or payment of letters of credit and
drafts drawn thereunder.
(c) Arrangement Fee. On the date hereof, the Company shall pay to the
Lender a fee as mutually agreed upon by the Company and the Lender.
Section 3.2. Voluntary Prepayments.; The Company shall have the privilege
of prepaying the Revolving Credit Loans and the Term Loan in whole or in part
(but if in part, then (i) if such Loans constitute part of a Domestic Rate
Portion, in an amount
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not less than $100,000, (ii) if such Loan constitutes part of a LIBOR Portion,
in an amount not less than $1,000,000, (iii) if, in the case of the Term Loan,
such Loan constitutes part of the Treasury Rate Portion, in an amount not less
than $1,000,000, and (iv) in each case, in an amount such that the minimum
amount required for a borrowing of Revolving Credit Loans, for a LIBOR Portion
of the relevant Loans, or for a Treasury Rate Portion of the Term Loan pursuant
to Sections 1.2, 2.2 and 2.4 hereof remains outstanding) at any time upon 1
Business Day prior notice to the Lender (such notice if received subsequent to
2:00 p.m. (Chicago time) on a given day to be treated as though received at the
opening of business on the next Business Day), by paying to the Lender the
principal amount to be prepaid and (i) if such a prepayment prepays the Term
Note in whole or in part, accrued interest thereon to the date of prepayment,
(ii) if such a prepayment prepays the Revolving Credit Note in full and is
accompanied by the termination in whole of the Revolving Credit Commitment,
accrued interest thereon to the date of prepayment, and (iii) any amounts due to
the Lender under Sections 2.8 or 2.9 hereof.
Section 3.3. Mandatory Termination;. After the occurrence of a
Change of Control, the Lender may, by written notice to the Company at any time
on or before the date occurring 120 days after the date the Company notifies the
Lender of such Change of Control, terminate the remaining Commitments and all
other obligations of the Lender hereunder on the date stated in such notice
(which shall in no event be sooner than 120 days after the occurrence of such
Change of Control). On the date the Commitments are so terminated, all
outstanding Obligations (including, without limitation, all principal of and
accrued interest on the Notes) shall forthwith be due and payable without
further demand, presentment, protest, or notice of any kind and the Company
shall immediately pay to the Lender the full amount then available for drawing
under each Letter of Credit, such amount to be held in the Account referred to
in Section 8.4 hereof (the Company agreeing to immediately make such payment on
the date the Commitments are so terminated and acknowledging and agreeing that
the Lender would not have an adequate remedy at law for the failure by the
Company to honor any such demand and that
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the Lender shall have the right to require the Company to specifically perform
such undertaking whether or not any drawings or other demands for payment have
been made under any Letter of Credit).
Section 3.4. Voluntary Terminations.; The Company shall have the right at
any time and from time to time, upon 1 Business Day prior notice to the Lender,
to terminate without premium or penalty and in whole or in part (but if in part,
then in an aggregate amount not less than $1,000,000 or such greater amount
which is an integral multiple of $1,000,000) the Revolving Credit Commitment,
provided that the Revolving Credit Commitment may not be reduced to an amount
less than the aggregate principal amount of the Revolving Credit Loans and
Letters of Credit then outstanding. Any termination of the Revolving Credit
Commitment pursuant to this Section may not be reinstated.
Section 3.5. Place and Application of Payments.; All payments of principal,
interest, fees and all other Obligations payable hereunder and under the other
Loan Documents shall be made to the Lender at its office at 111 West Monroe
Street, Chicago, Illinois (or at such other place as the Lender may specify) on
the date any such payment is due and payable. Payments received by the Lender
after 2:00 p.m. (Chicago time) shall be deemed received as of the opening of
business on the next Business Day. All such payments shall be made in lawful
money of the United States of America, in immediately available funds at the
place of payment, without set-off or counterclaim and without reduction for, and
free from, any and all present or future taxes, levies, imposts, duties, fees,
charges, deductions, withholdings, restrictions and conditions of any nature
imposed by any government or any political subdivision or taxing authority
thereof (but excluding any taxes imposed on or measured by the net income of the
Lender). No amount paid or prepaid on the Term Note may be reborrowed, and
partial prepayments of the Term Note shall be applied in the order of their
scheduled maturities. Prior to the occurrence of a Default or an Event of
Default, the Company may direct the application of all payments and prepayments
of the Term Note to
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the relevant Portions then outstanding. After the occurrence of a Default or an
Event of Default, unless the Company and the Lender agree otherwise, all
payments and prepayments of the Term Note shall be applied ratably to the
outstanding Portions thereof based on the principal amount of each such Portion
at the time of payment. Unless the Company otherwise directs, principal payments
of the Revolving Credit Notes shall be first applied to the applicable Domestic
Rate Portion until payment in full thereof, with any balance applied to the
relevant LIBOR Portions in the order in which their Interest Periods expire.
Section 3.6. Notations.; Each Loan made against a Note, the status of all
amounts evidenced by a Note as constituting part of the Domestic Rate Portion or
a Fixed Rate Portion, and, in the case of any Fixed Rate Portion, the rates of
interest and Interest Periods applicable to such Portions shall be recorded by
the Lender on its books and records or, at its option in any instance, endorsed
on a schedule to its Note and the unpaid principal balance and status, rates and
Interest Periods so recorded or endorsed by the Lender shall, absent manifest
error, be prima facie evidence in any court or other proceeding brought to
enforce such Note of the principal amount remaining unpaid thereon, the status
of the Loan or Loans evidenced thereby and the interest rates and Interest
Periods applicable thereto; provided that the failure of the Lender to record
any of the foregoing shall not limit or otherwise affect the obligation of the
Company to repay the principal amount of each Note together with accrued
interest thereon. Prior to any negotiation of a Note, the Lender shall record on
a schedule thereto the status of all amounts evidenced thereby as constituting
part of the applicable Domestic Rate Portion or a Fixed Rate Portion and, in the
case of any Fixed Rate Portion, the rates of interest and the Interest Periods
applicable thereto.
Section 4. Definitions; Interpretation'.
Section 4.1. Definitions.; The following terms when used herein shall have
the following meanings:
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"Adjusted LIBOR" means a rate per annum determined by the Lender in
accordance with the following formula:
Adjusted LIBOR = LIBOR
-------------------------
100%-Reserve Percentage
"Reserve Percentage" means, for the purpose of computing Adjusted LIBOR, the
maximum rate of all reserve requirements (including, without limitation, any
marginal, emergency, supplemental or other special reserves) imposed by the
Board of Governors of the Federal Reserve System (or any successor) under
Regulation D on Eurocurrency liabilities (as such term is defined in Regulation
D) for the applicable Interest Period as of the first day of such Interest
Period, but subject to any amendments to such reserve requirement by such Board
or its successor, and taking into account any transitional adjustments thereto
becoming effective during such Interest Period. For purposes of this
definition, LIBOR Portions shall be deemed to be Eurocurrency liabilities as
defined in Regulation D without benefit of or credit for prorations, exemptions
or offsets under Regulation D. "LIBOR" means, for each Interest Period, (a) the
LIBOR Index Rate for such Interest Period, if such rate is available, and (b) if
the LIBOR Index Rate cannot be determined, the arithmetic average of the rates
of interest per annum (rounded upward, if necessary, to the nearest 1/100th of
1%) at which deposits in U.S. Dollars in immediately available funds are offered
to the Lender at 11:00 a.m. (London, England time) 2 Business Days before the
beginning of such Interest Period by 3 or more major banks in the interbank
eurodollar market selected by the Lender for a period equal to such Interest
Period and in an amount equal or comparable to the applicable LIBOR Portion
scheduled to be outstanding during such Interest Period. "LIBOR Index Rate"
means, for any Interest Period, the rate per annum (rounded upwards, if
necessary, to the next higher one hundred-thousandth of a percentage point) for
deposits in U.S. Dollars for a period equal to such Interest Period which
appears on the Telerate Page 3750 as of 11:00 a.m. (London, England time) on the
date 2 Business Days before the commencement of such Interest Period. "Telerate
Page 3750" means the display designated as "Page 3750" on the Telerate Service
(or such other page as may replace Page 3750 on that service or
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such other service as may be nominated by the British Bankers' Association as
the information vendor for the purpose of displaying British Banker's
Association Interest Settlement Rates for U.S. Dollar deposits). Each
determination of LIBOR made by the Lender shall be conclusive and binding on the
Company absent manifest error.
"Adjusted Net Income" means, with reference to any period, Net Income,
before extraordinary items (including, without limitation, for purposes of this
definition charges relating to SAIF recapitalization and the recapture of tax
bad debt reserves), of the Company and its Subsidiaries for such period computed
on a consolidated basis.
"Adjusted Net Worth" means, at any time the same is to be determined, Net
Worth of the Company and its Subsidiaries determined on a consolidated basis
minus the sum of (i) investments in, and loans and advances to, MAF Developments
and (ii) goodwill associated with Mid America.
"Affiliate" means any Person directly or indirectly controlling or
controlled by, or under direct or indirect common control with, another Person.
A Person shall be deemed to control another Person for the purposes of this
definition if such Person possesses, directly or indirectly, the power to
direct, or cause the direction of, the management and policies of the other
Person, whether through the ownership of voting securities, common directors,
trustees or officers, by contract or otherwise.
"Agreement" means this Credit Agreement, as the same may be amended,
modified or restated from time to time in accordance with the terms hereof.
"Application" is defined in Section 1.3 hereof.
"Authorized Representative" means those persons shown on the list of
officers provided by the Company pursuant to Section 6.2(a) hereof or on any
update of any such list provided by the Company to the Lender, or any further or
different officer
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of the Company so named by any Authorized Representative of the Company in a
written notice to the Lender.
"Banking Subsidiary" means any Subsidiary of the Company which is a bank or
thrift organized under the laws of the United States of America or any state
thereof.
"Business Day" means any day other than a Saturday or Sunday on which banks
are not authorized or required to close in Chicago, Illinois and, when used with
respect to LIBOR Portions, a day on which banks are also dealing in United
States Dollar deposits in London, England and Nassau, Bahamas.
"Capital Lease" means any lease of Property which in accordance with GAAP
is required to be capitalized on the balance sheet of the lessee.
"Capitalized Lease Obligation" means the amount of the liability shown on
the balance sheet of any Person in respect of a Capital Lease determined in
accordance with GAAP.
"Change of Control" means, during the 12-month period occurring after the
date of this Agreement and each 12-month period occurring thereafter,
individuals who at the beginning of such period were directors of the Company
shall cease for any reason to constitute a majority of the board of directors of
the Company; provided that the two members of the board of directors of the
Company appointed in connection with the N.S. Acquisition at or about the
initial funding of Loans hereunder shall, for purposes hereof, be deemed to have
been members of the Company's board of directors on the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto.
"Commitments" means and includes the Revolving Credit Commitment and the
Term Loan Commitment.
"Company" is defined in the introductory paragraph hereof.
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"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement, take-or-pay contract or application for a letter of credit.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Company or any of its Subsidiaries, are treated as a
single employer under Section 414 of the Code.
"Default" means any event or condition the occurrence of which would, with
the passage of time or the giving of notice, or both, constitute an Event of
Default.
"Domestic Rate" means, for any day, the rate of interest announced by the
Lender from time to time as its prime commercial rate, as in effect on such day
(it being understood and agreed that such rate may not be the Lender's best or
lowest rate).
"Domestic Rate Portions" is defined in Section 2.1(a) hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute thereto.
"Event of Default" means any event or condition identified as such in
Section 8.1 hereof.
"Fixed Rate Portions" means and includes the LIBOR Portions and the
Treasury Rate Portions.
"GAAP" means generally accepted accounting principles as in effect from
time to time, applied by the Company and its
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Subsidiaries on a basis consistent with the preparation of the Company's most
recent financial statements furnished to the Lender pursuant to Section 5.5
hereof.
"Indebtedness for Borrowed Money" means for any Person (without
duplication) (i) all indebtedness created, assumed or incurred in any manner by
such Person representing money borrowed (including by the issuance of debt
securities), (ii) all indebtedness for the deferred purchase price of property
or services (other than trade accounts payable arising in the ordinary course of
business), (iii) all indebtedness secured by any Lien upon Property of such
Person, whether or not such Person has assumed or become liable for the payment
of such indebtedness, (iv) all Capitalized Lease Obligations of such Person,
(v) all Contingent Obligations of such Person, (vi) all obligations of such
Person on or with respect to letters of credit, bankers' acceptances and other
extensions of credit whether or not representing obligations for borrowed money,
and (vii) Permitted Banking Subsidiary Indebtedness of such Person.
"Interest Period" means, with respect to any LIBOR Portion, the period
commencing on, as the case may be, the creation, continuation or conversion date
with respect to such LIBOR Portion and ending 1, 2 or 3 months thereafter as
selected by the Company in its notice as provided herein; provided that, all of
the foregoing provisions relating to Interest Periods are subject to the
following:
(i) if any Interest Period would otherwise end on a day which is not
a Business Day, that Interest Period shall be extended to the next
succeeding Business Day, unless the result of such extension would be to
carry such Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business Day;
(ii) no Interest Period may extend beyond the final maturity date of
the relevant Note;
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(iii) the interest rate to be applicable to each Portion for each
Interest Period shall apply from and including the first day of such
Interest Period to but excluding the last day thereof; and
(iv) no Interest Period may be selected if after giving effect thereto
the Company will be unable to make a principal payment scheduled to be made
during such Interest Period without paying part of a LIBOR Portion on a
date other than the last day of the Interest Period applicable thereto.
For purposes of determining an Interest Period, a month means a period
starting on one day in a calendar month and ending on a numerically
corresponding day in the next calendar month, provided, however, if an
Interest Period begins on the last day of a month or if there is no
numerically corresponding day in the month in which an Interest Period is
to end, then such Interest Period shall end on the last Business Day of
such month.
"Lender" is defined in the introductory paragraph hereof.
"Letter of Credit" is defined in Section 1.3 hereof.
"LIBOR Portions" is defined in Section 2.1(a) hereof.
"Lien" means any mortgage, lien, security interest, pledge, charge or
encumbrance of any kind in respect of any Property, including the interests of a
vendor or lessor under any conditional sale, Capital Lease or other title
retention arrangement.
"Loan Documents" means this Agreement, the Notes, the Applications, and
each other instrument or document to be delivered hereunder or thereunder or
otherwise in connection therewith.
"Loans" means and includes Revolving Credit Loans and the Term Loan.
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"MAF Developments" means MAF Developments, Inc., an Illinois corporation,
and its successors and assigns.
"Merger" means, collectively, the merger of N.S. with and into the Company,
with the Company surviving the merger, and the merger of Northwestern Savings
Bank with and into Mid America, with Mid America surviving the merger.
"Merger Documents" means the Amended and Restated Agreement and Plan of
Reorganization, dated as of November 29, 1995, between the Company and N.S., and
all other instruments and documents executed and delivered in connection
therewith and the consummation of the Merger described therein.
"Mid America" means Mid America Federal Savings Bank, a federally chartered
savings bank.
"N.S." means N.S. Bancorp, Inc., a Delaware corporation.
"N.S. Bancorp Acquisition" means the acquisition by the Company of N.S. and
its subsidiaries pursuant to the Merger Documents.
"Net Income" means, with reference to a Person for any period, the net
income (or net loss) of such Person for such period, computed in accordance with
GAAP.
"Net Worth" means, with reference to any Person at any time the same is to
be determined, the total shareholders' equity (including capital stock,
additional paid-in capital and retained earnings after deducting treasury stock,
but excluding any minority interests in subsidiaries) which would appear on the
balance sheet of such Person determined in accordance with GAAP or, when such
term is used with respect to the Tangible Capital Ratio of a Banking Subsidiary,
regulatory accounting principles of the applicable bank or thrift regulatory
authority.
"Non-Performing Assets" means with reference to any Person, as of any time
the same is to be determined, the sum of all non-performing assets of such
Person as determined in accordance with
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regulatory accounting principles applicable to such Person, but in any event
including, without limitation, (i) loans or other extensions of credit on which
any payment (whether principal or interest or otherwise) is not made within 90
days of its original due date, (ii) loans which have been placed on a non-
accrual basis, (iii) loans restructured so as to not bear interest at a then
market rate or so that other terms thereof have been compromised, and (iv)
property acquired by repossession or foreclosure and, without duplication,
property acquired pursuant to in-substance foreclosure.
"Notes" means and includes the Revolving Credit Note and the Term Note.
"Obligations" means all obligations of the Company to pay principal and
interest on the Loans, all reimbursement obligations owing under the
Applications, all fees and charges payable hereunder, and all other payment
obligations of the Company arising under or in relation to any Loan Document, in
each case whether now existing or hereafter arising, due or to become due,
direct or indirect, absolute or contingent, and howsoever evidenced, held or
acquired.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to any or all of its functions under ERISA.
"Permitted Banking Subsidiary Indebtedness" means obligations incurred by
any Banking Subsidiary in the ordinary course of business in such circumstances
as may be incidental or usual in carrying on the banking or trust business of a
bank, thrift or trust company incurred in accordance with applicable laws and
regulations and safe and sound banking practices.
"Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision thereof.
"Plan" means any employee pension benefit plan covered by Title IV of ERISA
or subject to the minimum funding standards
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under Section 412 of the Code that either (i) is maintained by a member of the
Controlled Group for employees of a member of the Controlled Group, or (ii) is
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five plan years made
contributions.
"Portion" is defined in Section 2.1(a) hereof.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Revolving Credit" is defined in Section 1.1 hereof.
"Revolving Credit Commitment" means $10,000,000, as such amount may be
reduced pursuant hereto.
"Revolving Credit Loan" is defined in Section 1.2 hereof.
"Revolving Credit Note" is defined in Section 1.2 hereof.
"Revolving Credit Termination Date" means January 25, 1997, or such earlier
date on which the Revolving Credit Commitment is terminated in whole pursuant to
Section 3.3, 3.4, 8.2 or 8.3 hereof.
"Subordinated Debt" means indebtedness for borrowed money of the Company
owing pursuant to the terms of that certain Indenture dated as of September 27,
1995, between the Company and Harris Trust and Savings Bank, as trustee, and any
other indebtedness for borrowed money of the Company owing to any other Person
or group of Persons on substantially the same terms and conditions or on such
other terms and conditions which are reasonably acceptable to the Lender, which
is subordinated (subject to applicable standstill provisions) in right of
payment to the prior payment in full of the Obligations.
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"Subsidiary" means any corporation or other Person more than 50% of the
outstanding ordinary voting shares or other equity interests of which is at the
time directly or indirectly owned by the Company, by one or more of its
Subsidiaries, or by the Company and one or more of its Subsidiaries.
"Tangible Capital" means, at any time the same is to be determined, for any
Banking Subsidiary, Net Worth of such Banking Subsidiary minus intangible assets
of such Banking Subsidiary (excluding, however, from the determination of
intangible assets investments of such Banking Subsidiary in any of its real
estate subsidiaries to the extent characterized as an intangible asset).
"Tangible Capital Ratio" means, at any time the same is to be determined,
for any Banking Subsidiary, the ratio of (i) Tangible Capital of such Banking
Subsidiary to (ii) total assets minus intangible assets of such Banking
Subsidiary, all as defined and determined, except as otherwise provided herein,
from time to time by applicable bank or thrift regulatory authorities.
"Term Loan" is defined in Section 1.4 hereof.
"Term Loan Commitment" means $40,000,000.
"Term Note" is defined in Section 1.4 hereof.
"Treasury Rate" means a rate per annum determined by the Lender on the date
on which the Term Loan, or any part thereof, is to be created as, or converted
into, a Treasury Rate Portion to be the average of the yields to maturity,
expressed on a bond equivalent basis, which two leading United States government
securities dealers of recognized standing selected by the Lender reasonably
estimate to be the highest yield the Lender could have obtained if it had
purchased on such day United States Treasury Bonds, Notes or Bills with a
maturity nearest to December 31, 2003, or seven years after the making thereof,
whichever is less, and in an amount comparable to the Treasury Rate Portion
selected by the Company to be outstanding and being traded in the secondary
market in reasonable volume at a price reasonably close to par, all in
accordance with United States domestic practice
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prevailing as of such date. The determination of the Treasury Rate by the Lender
in accordance with this paragraph shall be conclusive and binding on the Company
except in the case of manifest error.
"Treasury Rate Portions" is defined in Section 2.1(a) hereof.
"Unfunded Vested Liabilities" means, for any Plan at any time, the amount
(if any) by which the present value of all vested nonforfeitable accrued
benefits under such Plan exceeds the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents a
potential liability of a member of the Controlled Group to the PBGC or the Plan
under Title IV of ERISA.
"Welfare Plan" means a "welfare plan" as defined in Section 3(1) of ERISA.
"Wholly-Owned Subsidiary" means a Subsidiary of which all of the issued and
outstanding shares of capital stock (other than directors' qualifying shares as
required by law) or other equity interests are owned by the Company and/or one
or more Wholly-Owned Subsidiaries within the meaning of this definition.
Section 4.2. Interpretation. The foregoing definitions are equally
applicable to both the singular and plural forms of the terms defined. The words
"hereof", "herein", and "hereunder" and words of like import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All references to time of day herein are references
to Chicago, Illinois time unless otherwise specifically provided. Where the
character or amount of any asset or liability or item of income or expense is
required to be determined or any consolidation or other accounting computation
is required to be made for the purposes of this Agreement, it shall be done in
accordance with GAAP except where such principles are inconsistent with the
specific provisions of this Agreement.
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Section 5. Representations and Warranties.
At the time the Company requests the initial extension of credit under this
Agreement and at all times thereafter in accordance with Section 6.1 hereof, the
Company represents and warrants to the Lender as follows:
Section 5.1. Organization and Qualification. The Company is duly
organized, validly existing and in good standing as a corporation under the laws
of the State of Delaware, has full and adequate corporate power to own its
Property and conduct its business as now conducted, and is duly licensed or
qualified and in good standing in each jurisdiction in which the nature of the
business conducted by it or the nature of the Property owned or leased by it
requires such licensing or qualifying, except where the failure to so qualify
will not have a material adverse effect on the financial condition, Properties,
business or operations of the Company. Without limiting the generality of the
foregoing, the Company is a savings and loan holding company and, as such, the
Company has received all necessary approvals from, and has filed all necessary
reports with, all applicable federal and state regulatory authorities.
Section 5.2. Subsidiaries. Each Subsidiary is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated or organized, as the case may be, has full and adequate power to
own its Property and conduct its business as now conducted, and is duly licensed
or qualified and in good standing in each jurisdiction in which the nature of
the business conducted by it or the nature of the Property owned or leased by it
requires such licensing or qualifying, except where the failure to so qualify
will not have a material adverse effect on the financial condition, Properties,
business or operations of such Subsidiary. Schedule 5.2 hereto identifies each
Subsidiary, the jurisdiction of its incorporation or organization, as the case
may be, the percentage of issued and outstanding shares of each class of its
capital stock or other equity interests owned by the Company and the
Subsidiaries and, if such percentage is not 100% (excluding directors'
qualifying shares as required by law), a description of each class of its
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authorized capital stock and other equity interests and the number of shares of
each class issued and outstanding, in each case after giving effect to the
Merger. All of the outstanding shares of capital stock and other equity
interests of each Subsidiary are validly issued and outstanding and fully paid
and nonassessable and all such shares and other equity interests indicated on
Schedule 5.2 as owned by the Company or a Subsidiary are or will be owned
immediately after giving effect to the Merger, beneficially and of record, by
the Company or such Subsidiary free and clear of all Liens. There are no
outstanding commitments or other obligations of any Subsidiary to issue, and no
options, warrants or other rights of any Person to acquire, any shares of any
class of capital stock or other equity interests of any Subsidiary, except as
disclosed on Schedule 5.2 hereof.
Section 5.3. Corporate Authority and Validity of Obligations. The
Company has full right and authority to enter into this Agreement and the other
Loan Documents, to make the borrowings herein provided for, to issue its Notes
in evidence thereof, and to perform all of its obligations hereunder and under
the other Loan Documents. The Loan Documents delivered by the Company have been
duly authorized, executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable in accordance with their terms
except as enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance or similar laws affecting creditors' rights generally and general
principles of equity (regardless of whether the application of such principles
is considered in a proceeding in equity or at law); and this Agreement and the
other Loan Documents do not, nor does the performance or observance by the
Company of any of the matters and things herein or therein provided for,
contravene or constitute a default under any provision of law or any judgment,
injunction, order or decree binding upon the Company or any provision of the
charter, articles of incorporation or by-laws of the Company or any covenant,
indenture or agreement of or affecting the Company or any of its Properties, or
result in the creation or imposition of any Lien on any Property of the Company.
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Section 5.4. Use of Proceeds; Margin Stock. The Company shall use the
proceeds of (i) the Revolving Credit Loans and Letters of Credit made available
hereunder for general working capital purposes and (ii) the Term Loan to finance
the N.S. Bancorp Acquisition. No part of the proceeds of any Revolving Credit
Loan or Letter of Credit made hereunder will be used to purchase or carry any
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System), or to extend credit to others for the purpose of
purchasing or carrying any such margin stock. No part of the proceeds of the
Term Loan will be used to purchase or carry any margin stock (as defined above),
or to extend credit to others for the purpose of purchasing or carrying any such
margin stock, in violation of such Regulation U. After giving effect to the
Merger, margin stock (as defined above) constitutes less than 25% of those
assets of the Company and its Subsidiaries which are subject to any limitation
on sale, pledge, or other restriction hereunder.
Section 5.5. Financial Reports. (a) The consolidated balance sheet of the
Company and its Subsidiaries as of June 30, 1995, and the related consolidated
statements of income, retained earnings and cash flows of the Company and its
Subsidiaries for the fiscal year then ended, and accompanying notes thereto,
which financial statements are accompanied by the audit report of KPMG Peat
Marwick, independent public accountants, and the unaudited interim consolidated
balance sheet of the Company and its Subsidiaries as of March 31, 1996, and the
related consolidated statements of income, retained earnings and cash flows of
the Company and its Subsidiaries for the nine (9) months then ended, heretofore
furnished to the Lender, fairly present the consolidated financial condition of
the Company and its Subsidiaries as at said dates and the consolidated results
of their operations and cash flows for the periods then ended in conformity with
generally accepted accounting principles applied on a consistent basis, subject
to year-end audit adjustments in the case of such interim financial statements.
(b) To the best of the Company's knowledge, the financial statements of
N.S. and its subsidiaries referred to in the Joint
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Proxy Statement of the Company and N.S. and Prospectus of the Company dated
April 25, 1996, fairly present the consolidated financial condition of N.S. and
its subsidiaries and the consolidated results of their operations and cash flows
as of the dates of such statements in conformity with generally accepted
accounting principles applied on a consistent basis, subject to year-end audit
adjustments in the case of interim financial statements.
(c) Neither the Company nor any Subsidiary has contingent liabilities
which are material to the Company and its Subsidiaries on a consolidated basis
other than as indicated on the financial statements referred to in clause (a)
above and, to the best of the Company's knowledge, neither N.S. nor any of its
subsidiaries has contingent liabilities which are material to N.S. and its
subsidiaries on a consolidated basis other than as indicated on the financial
statements referred to in clause (b) above or, in all cases, with respect to
future periods, on the financial statements furnished pursuant to Section 7.5
hereof.
Section 5.6. No Material Adverse Change. Since March 31, 1996, there has
been no material adverse change in the condition (financial or otherwise) or
business prospects of the Company and its Subsidiaries taken as a whole and, to
the best of the Company's knowledge, there has been no material adverse change
in the condition (financial or otherwise) or business prospects of N.S. and its
subsidiaries taken as a whole.
Section 5.7. Full Disclosure. The statements and information furnished to
the Lender in connection with the negotiation of this Agreement and the other
Loan Documents and the commitments by the Lender to provide all or part of the
financing contemplated hereby do not contain any untrue statements of a material
fact or omit a material fact necessary to make the material statements contained
herein or therein not misleading, the Lender acknowledging that as to any
projections furnished to the Lender, the Company only represents that the same
were prepared on the basis of information and estimates the Company believed to
be reasonable.
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Section 5.8. Good Title. The Company and its Subsidiaries each have good
and defensible title to their assets as reflected on the most recent
consolidated balance sheet of the Company and its Subsidiaries furnished to the
Lender (except for assets and Properties disposed of in the ordinary course of
business and assets subject to Liens which, individually and in the aggregate,
do not have a material adverse effect on the financial condition, Properties,
business or operations of the Company or any Subsidiary) and, in the case of
assets consisting of stock or other equity interests in Subsidiaries, subject to
no Liens.
Section 5.9. Litigation and Other Controversies. There is no litigation
or governmental proceeding or labor controversy pending, nor to the knowledge of
the Company threatened, against the Company or any Subsidiary which if adversely
determined would (a) impair the validity or enforceability of, or impair the
ability of the Company to perform its obligations under, this Agreement or any
other Loan Document or (b) result in any material adverse change in the
financial condition, Properties, business or operations of the Company or any
Subsidiary.
Section 5.10. Taxes. All tax returns required to be filed by the Company
or any Subsidiary in any jurisdiction have, in fact, been filed, and all taxes,
assessments, fees and other governmental charges upon the Company or any
Subsidiary or upon any of their respective Properties, income or franchises,
which are shown to be due and payable in such returns, have been paid, except
for taxes, assessments, fees and other governmental charges being contested in
good faith and for which adequate reserves therefor have been established on the
books of the Company or any Subsidiary, as applicable. The Company does not know
of any proposed additional tax assessment against it or its Subsidiaries under
applicable tax laws in effect at the time this representation is made or deemed
made for which adequate provision in accordance with GAAP has not been made on
its accounts. Adequate provisions in accordance with GAAP for taxes on the books
of the Company and each Subsidiary have been made for all open years, and for
its current fiscal period.
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Section 5.11. Approvals. No authorization, consent, license, or exemption
from, or filing or registration with, any court or governmental department,
agency or instrumentality, nor any approval or consent of the stockholders of
the Company or any other Person, is or will be necessary to the valid execution,
delivery or performance by the Company of this Agreement or any other Loan
Document, except for such consents and approvals which have been or will be
obtained prior to the initial extension of credit made under this Agreement.
Section 5.12. Affiliate Transactions. Neither the Company nor any
Subsidiary is a party to any contracts or agreements with any of its Affiliates
on terms and conditions which are less favorable to the Company or such
Subsidiary than would be usual and customary in similar contracts or agreements
between Persons not affiliated with each other.
Section 5.13. Investment Company; Public Utility Holding Company. Neither
the Company nor any Subsidiary is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "public utility holding company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 5.14. ERISA. To the best of the Company's knowledge, the Company
and each other member of its Controlled Group has fulfilled its obligations
under the minimum funding standards of and is in compliance in all material
respects with ERISA and the Code to the extent applicable to it and has not
incurred any liability to the PBGC or a Plan under Title IV of ERISA other than
a liability to the PBGC for premiums under Section 4007 of ERISA. Neither the
Company nor any Subsidiary has any material contingent liabilities with respect
to any post-retirement benefits under a Welfare Plan, other than liability for
continuation coverage described in article 6 of Title I of ERISA.
Section 5.15. Compliance with Laws. To the best of the Company's
knowledge, the Company and each of its Subsidiaries are in compliance with the
requirements of all federal, state and
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local laws, rules and regulations applicable to or pertaining to their
Properties or business operations, non-compliance with which could have a
material adverse effect on the financial condition, Properties, business or
operations of the Company or any Subsidiary. Neither the Company (or any of its
directors or officers) nor any Banking Subsidiary (or any of its directors or
officers) is a party to, or subject to, any agreement with, or directive or
order issued by, any federal or state bank or thrift regulatory authority which
imposes restrictions or requirements on it which are not generally applicable to
banks or thrifts, or their holding companies (other than the effect of the
Federal Deposit Insurance Corporation's "needs to improve" rating given to
Northwestern Savings Bank in effect prior to the Merger); and no action or
administrative proceeding is pending or, to the Company's knowledge, threatened
against the Company or any Banking Subsidiary or any of their directors or
officers which seeks to impose any such restriction or requirement. Neither the
Company nor any Subsidiary has received written notice to the effect that its
operations are not in compliance with any of the requirements of applicable
federal, state or local environmental, health and safety statutes and
regulations or are the subject of any governmental investigation evaluating
whether any remedial action is needed to respond to a release of any toxic or
hazardous waste or substance into the environment, which non-compliance or
remedial action could have a material adverse effect on the financial condition,
Properties, business or operations of the Company or any Subsidiary.
Section 5.16. Other Agreements. Neither the Company nor any Subsidiary is
in default under the terms of any covenant, indenture or agreement of or
affecting the Company, any Subsidiary or any of their Properties, which default
if uncured would have a material adverse effect on the financial condition,
Properties, business or operations of the Company or any Subsidiary.
Section 5.17. Merger. The Company and Mid America each have full right
and authority to enter into the Merger Documents executed by it and, prior to
the Company's request for the initial extension of credit to be made under this
Agreement and
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at all times thereafter, to perform its obligations under, and consummate the
transactions described in, the Merger Documents executed by it. The Merger
Documents have been duly authorized, executed, and delivered by the Company and
Mid America and constitute valid and binding obligations of the Company and Mid
America enforceable against them in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance, or similar laws affecting creditors' rights generally and general
principles of equity (regardless of whether the application of such principles
is considered in a proceeding in equity or at law); and the Merger Documents do
not, nor will the performance or observance by the Company or Mid America of any
of the matters or things therein provided for, after giving effect to the
required consents and approvals referred to in Section 5.11 hereof, contravene
or constitute default under any provision of law or any judgment, injunction,
order or decree binding upon the Company or Mid America or any provision of the
charter, articles of incorporation, or by-laws of the Company or Mid America or
any covenant, indenture, or agreement of or affecting the Company or Mid America
or any of their Properties, or result in the creation or imposition of any Lien
on any Property of the Company or Mid America. Prior to or concurrently with the
Company requesting the initial extension of credit under this Agreement, all
conditions to the Merger shall have been satisfied (including, without
limitation, all necessary shareholder and governmental consents), all filings
and other matters necessary to make the Merger effective shall have been done
and performed, and the Merger shall have become effective in accordance with the
terms of the Merger Documents.
Section 5.18. No Default. No Default or Event of Default has occurred and
is continuing.
Section 6. Conditions Precedent.
The obligation of the Lender to make any Loan or to issue any Letter of
Credit under this Agreement is subject to the following conditions precedent:
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Section 6.1. All Advances. As of the time of the making of each extension
of credit (including the initial extension of credit) hereunder:
(a) each of the representations and warranties set forth in Section 5
hereof and in the other Loan Documents shall be true and correct in all
material respects as of such time, except to the extent the same expressly
relate to an earlier date;
(b) no Default or Event of Default shall have occurred and be
continuing or would occur as a result of making such extension of credit;
(c) after giving effect to such extension of credit the aggregate
principal amount of all Revolving Credit Loans and Letters of Credit
outstanding under this Agreement shall not exceed the Revolving Credit
Commitment then in effect;
(d) in the case of the issuance of any Letter of Credit, the Lender
shall have received a properly completed Application therefor together with
the fees called for hereby; and
(e) such extension of credit shall not violate any order, judgment or
decree of any court or other authority or any provision of law or
regulation applicable to the Lender (including, without limitation,
Regulation U of the Board of Governors of the Federal Reserve System) as
then in effect.
The Company's request for any Loan or Letter of Credit shall constitute its
warranty as to the facts specified in subsections (a) through (d), both
inclusive, above.
Section 6.2. Initial Advance. At or prior to the making of the initial
extension of credit hereunder, the following conditions precedent shall also
have been satisfied:
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(a) the Lender shall have received the following (each to be properly
executed and completed) and the same shall have been approved as to form
and substance by the Lender:
(i) the Notes;
(ii) copies (executed or certified, as may be appropriate) of all
legal documents or proceedings taken in connection with the execution
and delivery of this Agreement and the other Loan Documents to the
extent the Lender or its counsel may reasonably request;
(iii) an incumbency certificate containing the name, title and
genuine signatures of each of the Company's Authorized
Representatives; and
(iv) an arrangement fee letter.
(b) the Lender shall have received for itself the initial fees called
for hereby;
(c) the Lender shall have received the favorable written opinion of
counsel for the Company in substantially the form attached hereto as
Exhibit D-1 (which opinion letter shall be addressed to the Lender);
(d) the Lender shall have received the favorable written opinion of
counsel for the Company in substantially the form attached hereto as
Exhibit D-2 (which opinion letter shall either be addressed to the Lender
or which, by its terms, expressly states the Lender is entitled to rely on
the opinion letter in extending credit to the Company);
(e) the Lender shall have been furnished copies, certified as being
true and correct by the Secretary or other officer of the Company
acceptable to the Lender, of (i) the Joint Proxy and Prospectus stated
April 25, 1996, and all amendments and supplements thereto, (ii) the
Amended and Restated Agreement and Plan of Reorganization between
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the Company and N.S., and all amendments and supplements thereto, (iii) the
file-stamped copy of the Certificate of Merger filed with and approved by
the Delaware Secretary of State as to the merger of N.S. with and into the
Company, (iv) the notice letter to NASDAQ effectuating the delisting of
N.S. common stock, (v) approval letters as to the Merger from the Office of
Thrift Supervision and Illinois Commissioner of Savings and Residential
Finance, (vi) waiver letter from the Federal Reserve Board, (vii) a no
action letter from the Federal Deposit Insurance Corporation as to the
Merger, (viii) evidence of shareholder approval of the Merger from the
shareholders of the Company and of N.S., (ix) the file-stamped copy of the
Certificate of Merger filed with and approved by the Illinois Commissioner
of Savings and Residential Finance as to the merger of Northwestern Savings
Bank with and into Mid America, (x) certified copies of the Resolutions
adopted by the Board of Directors of the Company and of N.S. authorizing
the execution, delivery, and performance of the Merger Documents and the
consummation of the transaction contemplated thereby, and (xi) the opinion
letter delivered by counsel to N.S. to the Company with respect to the
Merger;
(f) the Lender shall have received a good standing certificate for
the Company (dated as of the date no earlier than 30 days prior to the date
hereof) from the office of the secretary of state of the state of its
incorporation and each state in which it is qualified to do business as a
foreign corporation, and a certificate from the Office of Thrift
Supervision as to the registration of the Company as a savings and loan
holding company;
(g) the Lender shall have been furnished a statement by the Company
as to the sources and uses of cash required to finance the Merger;
(h) by signing in the space provided for that purpose below, the
parties agree that the $15,000,000 revolving line of credit established
under that certain Credit Agreement dated as of January 26, 1995, between
the Company and the
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Bank, the loans outstanding under which are evidenced by that certain
promissory note of the Company dated January 26, 1995, payable to the order
of the Bank in the principal amount of $15,000,000 (the "Prior Note"), will
be, effective upon the making of the initial extension of credit hereunder,
terminated and no further borrowings may be made thereunder, and any loans
outstanding and evidenced by the Prior Note shall be repaid in full on the
date thereof; and
(i) the Company shall have, as of the date of the initial extension
of credit under this Agreement, Net Worth of the Company and its
Subsidiaries determined on a consolidated basis in an amount not less than
the difference between (x) $220,000,000 minus (y) the difference between
$40,000,000 minus the original Term Loan amount.
Section 7. Covenants.
The Company agrees that, at the time the initial extension of credit is
made to the Company under this Agreement and thereafter so long as any credit is
available to or in use by the Company hereunder, except to the extent compliance
in any case or cases is waived in writing by the Lender:
Section 7.1. Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence; provided, however, that
nothing in this Section shall prevent the Company from dissolving any Subsidiary
(other than a Banking Subsidiary or MAF Developments) if such action is, in the
judgment of the Company, desirable in the conduct of its business and is not
disadvantageous in any material respect to the Lender. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits and franchises necessary to the proper conduct of its
business; provided, however, that nothing in this Section shall prevent the
Company or any Subsidiary (other than a Banking Subsidiary or MAF Developments)
from permitting any license, permit or franchise to lapse if such action is, in
the judgment of the Company, desirable in the conduct of its business and is not
disadvantageous in any material respect to the Lender.
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Section 7.2. Maintenance of Properties. The Company shall maintain,
preserve and keep its property, plant and equipment in good repair, working
order and condition (ordinary wear and tear excepted) and shall from time to
time make all needful and proper repairs, renewals, replacements, additions and
betterments thereto so that at all times the efficiency thereof shall be
preserved and maintained in all material respects, and shall cause each
Subsidiary to do so in respect of Property owned or used by it; provided,
however, that nothing in this Section shall prevent (a) the Company or any
Subsidiary (other than a Banking Subsidiary or MAF Developments) from
discontinuing the operation and maintenance of any of its properties if such
discontinuation is, in the judgment of the Company, desirable in the conduct of
its business and is not disadvantageous in any material respect to the Lender or
(b) any Banking Subsidiary from closing or selling a branch office if such
closing or sale is, in the judgment of the Company, desirable in the conduct of
its business and is not disadvantageous in any material respect to the Lender.
Section 7.3. Taxes and Assessments. The Company shall duly pay and
discharge, and shall cause each Subsidiary to duly pay and discharge, all taxes,
rates, assessments, fees and governmental charges upon or against it or its
Properties, in each case before the same become delinquent and before penalties
accrue thereon, unless and to the extent that the same are being contested in
good faith and by appropriate proceedings which prevent enforcement of the
matter under contest and adequate reserves are provided therefor.
Section 7.4. Insurance. The Company shall insure and keep insured, and
shall cause each Subsidiary to insure and keep insured, with good and
responsible insurance companies, all insurable Property owned by it which is of
a character usually insured by Persons similarly situated and operating like
Properties against loss or damage from such hazards and risks, and in such
amounts, as are insured by Persons similarly situated and operating like
Properties; and the Company shall insure, and shall cause each Subsidiary to
insure, such other hazards and risks (including employers' and public liability
risks) with good and responsible insurance companies as and to the extent
usually
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insured by Persons similarly situated and conducting similar businesses. The
Company shall upon request furnish to the Lender a certificate setting forth in
summary form the nature and extent of the insurance maintained pursuant to this
Section.
Section 7.5. Financial Reports. The Company shall, and shall cause each
Subsidiary to, maintain a standard system of accounting in accordance with GAAP
and shall furnish to the Lender and its duly authorized representatives, subject
to Section 9.9 hereof, such information respecting the business and financial
condition of the Company and its Subsidiaries (including non-financial
information and examination reports and supervisory letters to the extent
permitted by applicable regulatory authorities) as the Lender may reasonably
request; and without any request, shall furnish to the Lender:
(a) as soon as available, and in any event within 50 days after the
close of each fiscal quarter of the Company, a copy of the consolidated
balance sheet of the Company and its Subsidiaries as of the last day of
such period and the consolidated statements of income of the Company and
its Subsidiaries for the quarter and for the fiscal year-to-date period
then ended and the consolidated statements of stockholders' equity and cash
flows for the fiscal year-to-date period then ended, each in reasonable
detail showing in comparative form the figures for the corresponding date
and period in the previous fiscal year, prepared by the Company in
accordance with GAAP (subject to year-end audit adjustments and the absence
of footnote disclosures) and certified to by the President or chief
financial officer of the Company;
(b) as soon as available, and in any event within 120 days after the
close of each fiscal year of the Company, a copy of the consolidated
balance sheet of the Company and its Subsidiaries as of the close of such
fiscal year and the consolidated statements of income, retained earnings
and cash flows of the Company and its Subsidiaries for such fiscal year,
and accompanying notes thereto, each in reasonable detail showing in
comparative form the figures
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for the previous fiscal year, accompanied by an unqualified opinion thereon of
KPMG Peat Marwick or another firm of independent public accountants of
recognized national standing selected by the Company, to the effect that the
financial statements have been prepared in accordance with GAAP and present
fairly in accordance with GAAP the consolidated financial condition of the
Company and its Subsidiaries as of the close of such fiscal year and the
results of their operations and cash flows for the fiscal year then ended and
that an examination of such accounts in connection with such financial
statements has been made in accordance with generally accepted auditing
standards and, accordingly, such examination included such tests of the
accounting records and such other auditing procedures as were considered
necessary in the circumstances;
(c) as soon as available, and in any event within 50 days after the close
of each fiscal quarter of each Banking Subsidiary, all call reports and other
financial statements required to be delivered by such Banking Subsidiary to
any governmental authority or authorities having jurisdiction over such
Banking Subsidiary and all schedules thereto;
(d) promptly after receipt thereof, any additional written reports,
management letters or other detailed information contained in writing
concerning significant aspects of the Company's or any Subsidiary's operations
and financial affairs given to it by its independent public accountants;
(e) promptly upon the furnishing thereof to the shareholders of the
Company, copies of all financial statements, reports and proxy statements so
furnished;
(f) promptly upon the filing thereof, copies of all registration
statements, Form 10-K, Form 10-Q and Form 8-K reports and proxy statements
which the Company or any of its Subsidiaries file with the Securities and
Exchange Commission;
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(g) promptly upon the receipt or execution thereof, (i) notice by the
directive from any federal or state regulatory agency which requires it to
submit a capital maintenance or restoration plan or restricts the payment of
dividends by any Banking Subsidiary to the Company or (2) it has submitted a
capital maintenance or restoration plan to any federal or state regulatory
agency or has entered into a memorandum or agreement with any such agency,
including, without limitation, any agreement which restricts the payment of
dividends by any Banking Subsidiary to the Company or otherwise imposes
restrictions or requirements on it which are not generally applicable to banks
or thrifts or their holding companies, and (ii) copies of any such plan,
memorandum, or agreement, unless disclosure is prohibited by the terms thereof
and, after the Company or such Banking Subsidiary has in good faith attempted
to obtain the consent of such regulatory agency, such agency will not consent
to the disclosure of such plan, memorandum, or agreement to the Lender;
(h) prompt written notice of a Change of Control; and
(i) promptly after knowledge thereof shall have come to the attention of
any responsible officer of the Company, written notice of any threatened or
pending litigation or governmental proceeding or labor controversy against the
Company or any Subsidiary which, if adversely determined, would materially and
adversely effect the financial condition, Properties, business or operations
of the Company or any Subsidiary or of the occurrence of any Default or Event
of Default hereunder.
Each of the financial statements furnished to the Lender pursuant to
subsections (a) and (b) of this Section shall be accompanied by a written
certificate in the form attached hereto as Exhibit C signed by the President or
chief financial officer of the Company to the effect that to the best of such
officer's knowledge and belief no Default or Event of Default has occurred
during the period covered by such statements or, if any such Default or
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Event of Default has occurred during such period, setting forth a description of
such Default or Event of Default and specifying the action, if any, taken by the
Company to remedy the same. Such certificate shall also set forth the
calculations supporting such statements with respect to Sections 7.7, 7.9, 7.10,
and 7.11 of this Agreement.
Section 7.6. Inspection;. Subject to Section 9.9 hereof, the Company shall,
and shall cause each Subsidiary to, permit the Lender and its duly authorized
representatives and agents to visit and inspect any of the Properties, corporate
books and financial records of the Company and each Subsidiary, to examine and
make copies of the books of accounts and other financial records of the Company
and each Subsidiary, and to discuss the affairs, finances and accounts of the
Company and each Subsidiary with, and to be advised as to the same by, its
officers, employees and independent public accountants (and by this provision
the Company hereby authorizes such accountants to discuss with the Lender the
finances and affairs of the Company and of each Subsidiary) at such reasonable
times and reasonable intervals as the Lender may designate; provided, however,
that neither the Company nor any Subsidiary shall be required to make available
to the Lender any customer lists or other proprietary information unless such
information is required by the Lender to determine the financial condition of
the Company or any Subsidiary or to determine the ability of the Company to meet
its obligations hereunder.
Section 7.7. Non-Performing Assets;. The Company shall, as of the last day
of each fiscal quarter, maintain on a consolidated basis with its Subsidiaries,
and shall cause each Banking Subsidiary to maintain as of such day on a
consolidated basis with its subsidiaries, a ratio (a) of Non-Performing Assets
of the Company or such Banking Subsidiary on a consolidated basis, as the case
may be, to (b) the sum of (i) stockholders' equity for the Company or core
capital for such Banking Subsidiary, as the case may be, plus (ii) loan loss
reserves established by the Company or such Banking Subsidiary, as the case may
be, on a consolidated basis in accordance with regulatory accounting
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principles applicable to the Company or such Banking Subsidiary, of not more
than .25 to 1.0.
Section 7.8. Regulatory Capital Requirements;. (a) Each Banking Subsidiary
shall at all times be at least "well capitalized" as defined in the Federal
Deposit Insurance Corporation Improvement Act of 1991 and any regulations to be
issued thereunder, as such statute or regulations may each be amended or
supplemented from time to time.
(b) The requirements described in subsection (a) above shall be computed
and determined in accordance with the rules and regulations as in effect from
time to time established by the rules and regulations as in effect from time to
time established by the appropriate governmental authority having jurisdiction
over the Company or such Banking Subsidiary. In addition to the provisions set
forth above, the Company shall, and shall cause each Banking Subsidiary to,
comply with any and all capital guidelines and requirements as in effect from
time to time established by the relevant governmental authority or authorities
having jurisdiction over the Company or any Banking Subsidiary.
Section 7.9. Tangible Capital Ratio;. If, as of the last day of any fiscal
quarter of Mid America, the Tangible Capital Ratio of Mid America is less than
.07 to 1.0, then in that event the Company agrees to cause Tangible Capital of
Mid America to be increased over the immediately succeeding 12-month period by
an amount not less than 25% of Net Income of Mid America accrued over the same
period unless and until the Tangible Capital Ratio of Mid America increases to
an amount equal to or greater than .07 to 1.0.
Section 7.10. Adjusted Net Worth;. The Company shall, as of the date hereof
and as of the last day of each fiscal quarter of the Company, maintain Adjusted
Net Worth of the Company and its Subsidiaries determined on a consolidated basis
in an amount not less than $150,000,000.
Section 7.11. Adjusted Net Income;. As of the last day of each fiscal year
of the Company (commencing with the fiscal year
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beginning July 1, 1996), the Company shall have Adjusted Net Income for the year
then ended of not less than $15,000,000.
Section 7.12. Indebtedness for Borrowed Money;. The Company shall not, nor
shall it permit any Subsidiary to, issue, incur, assume, create or have
outstanding any Indebtedness for Borrowed Money; provided, however, that the
foregoing shall not restrict nor operate to prevent:
(a) the Obligations of the Company owing to the Lender hereunder and
under the other Loan Documents and any other indebtedness or obligations of
the Company or any Subsidiary owing to the Lender;
(b) Permitted Banking Subsidiary Indebtedness;
(c) indebtedness of the Company or any Subsidiary owing to the
Company or any Subsidiary;
(d) Contingent Obligations incurred with respect to the endorsement
of instruments for deposit or collection in the ordinary course of
business;
(e) Subordinated Debt of the Company in an aggregate principal amount
not to exceed $27,600,000 at any one time outstanding;
(f) obligations of the Company or MAF Developments arising under or
in connection with letters of credit issued by the Company or MAF
Developments relating to land development activities of the Company or MAF
Developments in an aggregate amount not to exceed $10,000,000 at any one
time outstanding;
(g) currently outstanding indebtedness of the Company and of its
Subsidiaries not otherwise permitted under this Section which is disclosed
on Schedule 7.12(g) attached hereto; and
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(h) unsecured indebtedness of the Company or any Subsidiary not
otherwise permitted under this Section in an aggregate amount not to exceed
$5,000,000 at any one time outstanding, except that, in the event the
Revolving Credit Commitment is terminated in whole either at the Revolving
Credit Termination Date or otherwise (except by virtue of an Event of
Default), the limitation on additional indebtedness imposed by this Section
7.12(h) shall be increased to $15,000,000 in the aggregate at any one time
outstanding.
Section 7.13. Liens;. The Company shall not, nor shall it permit any
Subsidiary to, create, incur or permit to exist any Lien of any kind on any
stock or other equity interest of any kind in any Subsidiary, whether now or
hereafter owned, directly or indirectly, by the Company or any other Subsidiary.
Section 7.14. Mergers and Consolidations;. The Company shall not, nor shall
it permit any Banking Subsidiary or MAF Developments to, be a party to any
merger or consolidation in which the Company, the Banking Subsidiary or MAF
Developments is not the surviving entity unless, at or prior to the consummation
of any such event, the Obligations are paid in full and the Commitments are
terminated in full.
Section 7.15. Maintenance of Subsidiaries;. The Company shall not assign,
sell or transfer, or permit any Banking Subsidiary or MAF Developments to issue,
assign, sell or transfer, any shares of capital stock of a Banking Subsidiary or
MAF Developments unless, at or prior to the consummation of any such event, the
Obligations are paid in full and the Commitments are terminated in full;
provided that the foregoing shall not operate to prevent the issuance, sale and
transfer to any person of any shares of capital stock of a Banking Subsidiary or
MAF Developments solely for the purpose of qualifying, and to the extent legally
necessary to qualify, such person as a director of such Banking Subsidiary or
MAF Developments.
Section 7.16. Dividends and Certain Other Restricted Payments;. The Company
shall not during any fiscal year (a) declare or pay any dividends on or make any
other distributions in respect of
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any class or series of its capital stock (other than dividends payable solely in
its capital stock) or (b) directly or indirectly purchase, redeem or otherwise
acquire or retire any of its capital stock (collectively, "Restricted
Payments"); provided, however, that the Company may make any such Restricted
Payment so long as no Default or Event of Default then exists or would arise
after giving effect thereto.
Section 7.17. Subordinated Debt;. The Company shall not amend or modify in
any material respect any of the terms and conditions relating to any
Subordinated Debt nor shall the Company make any voluntary prepayment thereof or
effect any voluntary redemption thereof or make any payment on account of any
Subordinated Debt which is prohibited under the terms of any instrument or
agreement subordinating the same to the Obligations.
Section 7.18. ERISA;. The Company shall, and shall cause each Subsidiary
to, promptly pay and discharge all obligations and liabilities arising under
ERISA of a character which if unpaid or unperformed might result in the
imposition of a Lien against any of its Properties. The Company shall, and shall
cause each Subsidiary to, promptly notify the Lender of (i) the occurrence of
any material adverse reportable event (as defined in ERISA) with respect to a
Plan, (ii) receipt of any notice from the PBGC of its intention to seek
termination of any Plan or appointment of a trustee therefor, (iii) its
intention to terminate or withdraw from any Plan, and (iv) the occurrence of any
event with respect to any Plan which would result in the incurrence by the
Company or any Subsidiary of any material liability, fine or penalty, or any
material increase in the contingent liability of the Company or any Subsidiary
with respect to any post-retirement Welfare Plan benefit.
Section 7.19. Compliance with Laws;. The Company shall, and shall cause
each Subsidiary to, comply in all respects with the requirements of all federal,
state and local laws, rules, regulations, ordinances and orders applicable to or
pertaining to their Properties or business operations, non-compliance with which
could have a material adverse effect on the financial condition, Properties,
business or operations of the Company and
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its Subsidiaries taken as a whole or could result in a Lien upon any material
portion of their Property.
Section 7.20. Burdensome Contracts With Affiliates;. The Company shall not,
nor shall it permit any Subsidiary to, enter into any material contract,
agreement or business arrangement with any of its Affiliates on terms and
conditions which are less favorable to the Company or such Subsidiary than would
be usual and customary in similar contracts, agreements or business arrangements
between Persons not affiliated with each other.
Section 7.21. Change in the Nature of Business;. The Company shall not, and
shall not permit any Subsidiary to, engage in any business or activity if as a
result the general nature of the business of the Company or any Subsidiary would
be changed in any material respect from the general nature of the business
engaged in by the Company or such Subsidiary on the date of this Agreement
(after giving effect to the consummation of the N.S. Bancorp Acquisition and the
Merger).
Section 7.22. Regulatory-Mandated Disposition of MAF Developments;. In the
event the Company is required by applicable bank or thrift regulatory
authorities to dispose of MAF Developments, then in that event 40% of the net
proceeds (i.e., gross proceeds net of out-of-pocket expenses incurred in
effecting the sale or other disposition thereof, including reasonable legal
fees) from such disposition shall be applied as and for a mandatory prepayment
of the Obligations (which shall be applied first to the outstanding principal
balance of the Term Note until payment in full thereof, thereafter to be applied
as a mandatory prepayment of the Revolving Credit Note with the Revolving Credit
Commitment being terminated by a like amount notwithstanding anything contained
in Section 3.4 hereof to the contrary) unless the Company and the Lender agree
otherwise. Any prepayment of the Term Note made pursuant to this Section shall
not, however, be subject to the prepayment fee called for by Section 2.9 hereof.
In the event the Company is so required to dispose of MAF Developments as a
result of the events mentioned above, such disposition shall not constitute a
breach of, or a
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default under, Sections 7.1, 7.2, 7.14, 7.15, 8.1(h), 8.1(j), or 8.1(k) of this
Agreement.
Section 8. Events of Default and Remedies;.
Section 8.1. Events of Default.; Any one or more of the following shall
constitute an "Event of Default" hereunder:
(a) default in the payment when due of all or any part of the
principal of any Note (whether at the stated maturity thereof or at any
other time provided for in this Agreement) or of any reimbursement
obligation owing under any Application, or default for a period of 5 days
in the payment when due of any interest on any Note or of any fee or other
Obligation payable by the Company hereunder or under any other Loan
Document; or
(b) default in the observance or performance of any covenant set
forth in Sections 7.5(i), 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, 7.13, 7.14, or
7.15 hereof; or
(c) default in the observance or performance of any provision of
Section 7.5 hereof (other than Section 7.5(i) referred to in Section 8.1(b)
above) which is not remedied within 5 days after the occurrence thereof, or
default in the observance or performance of any other provision hereof or
of any other Loan Document which is not remedied within 30 days after
written notice thereof is given to the Company by the Lender; or
(d) any representation or warranty made by the Company herein or in
any other Loan Document, or in any statement or certificate furnished by it
pursuant hereto or thereto, or in connection with any extension of credit
made hereunder, proves untrue in any material respect as of the date of the
issuance or making thereof; or
(e) default shall occur under any Indebtedness for Borrowed Money
aggregating more than $5,000,000 issued, assumed or guaranteed by the
Company or any Subsidiary, or
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under any indenture, agreement or other instrument under which the same may
be issued, and such default shall continue for a period of time sufficient
to permit the acceleration of the maturity of any such Indebtedness for
Borrowed Money (whether or not such maturity is in fact accelerated), or
any such Indebtedness for Borrowed Money shall not be paid when due
(whether by lapse of time, acceleration or otherwise); or
(f) any judgment or judgments, writ or writs, or warrant or warrants
of attachment, or any similar process or processes, the aggregate amount of
which (after reduction by the amount covered by insurance) exceeds
$5,000,000, shall be entered or filed against the Company or any Subsidiary
or against any of their Property and which remains unvacated, unbonded,
unstayed or unsatisfied for a period of 45 days; or
(g) the Company or any member of its Controlled Group shall fail to
pay when due an amount or amounts aggregating in excess of $500,000 which
it shall have become liable to pay to the PBGC or to a Plan under Title IV
of ERISA; or notice of intent to terminate a Plan or Plans having aggregate
Unfunded Vested Liabilities in excess of $500,000 (collectively, a
"Material Plan") shall be filed under Title IV of ERISA by the Company or
any other member of its Controlled Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate or to cause a trustee to be appointed to
administer any Material Plan or a proceeding shall be instituted by a
fiduciary of any Material Plan against the Company or any member of its
Controlled Group to enforce Section 515 or 4219(c)(5) of ERISA and such
proceeding shall not have been dismissed within 30 days thereafter; or a
condition shall exist by reason of which the PBGC would be entitled to
obtain a decree adjudicating that any Material Plan must be terminated; or
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(h) dissolution or termination of the existence of the Company or any
Banking Subsidiary or MAF Developments.; or
(i) any conservator or receiver shall be appointed for the Company or
any Banking Subsidiary under applicable federal or state law applicable to
banks, thrifts, or their holding companies, or any Banking Subsidiary shall
suspend payment of any material portion of its obligations, or any Banking
Subsidiary shall cease to be a federally insured depositary institution, or
a cease and desist order shall be issued against the Company or any Banking
Subsidiary pursuant to applicable federal or state law applicable to banks,
thrifts, or their holding companies which has or is reasonably likely to
have a material adverse effect on the condition (financial or otherwise),
Properties or business prospects of such Persons, or the Company or any
Banking Subsidiary shall enter into any commitment to maintain the capital
of an insured depository institution in a required amount with any federal
or state regulator or any such regulator shall require the Company or any
Banking Subsidiary to submit a capital maintenance or restoration plan; or
(j) the Company, any Banking Subsidiary, or MAF Developments shall
(i) have entered involuntarily against it an order for relief under the
United States Bankruptcy Code, as amended, (ii) not pay, or admit in
writing its inability to pay, its debts generally as they become due, (iii)
make an assignment for the benefit of creditors, (iv) apply for, seek,
consent to, or acquiesce in, the appointment of a receiver, custodian,
trustee, examiner, liquidator or similar official for it or any substantial
part of its Property, (v) institute any proceeding seeking to have entered
against it an order for relief under the United States Bankruptcy Code, as
amended, to adjudicate it insolvent, or seeking dissolution, winding up,
liquidation, reorganization, arrangement, adjustment or composition of it
or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors or fail to file an answer or other
pleading denying the material
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allegations of any such proceeding filed against it, (vi) take any
corporate action in furtherance of any matter described in parts (i)
through (v) above, or (vii) fail to contest in good faith any appointment
or proceeding described in Section 8.1(k) hereof; or
(k) a custodian, receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Company, any Banking Subsidiary, or MAF
Developments or any substantial part of any of their Property, or a
proceeding described in Section 8.1(j)(v) shall be instituted against the
Company, any Banking Subsidiary, or MAF Developments, and such appointment
continues undischarged or such proceeding continues undismissed or unstayed
for a period of 60 days.
Section 8.2. Non-Bankruptcy Defaults. When any Event of Default other than
those described in subsection (j) or (k) of Section 8.1 hereof has occurred and
is continuing, the Lender may, by written notice to the Company, do all or any
of the following: (a) terminate the remaining Commitments and all other
obligations of the Lender hereunder on the date stated in such notice (which may
be the date thereof); (b) declare the principal of and the accrued interest on
all outstanding Notes to be forthwith due and payable and thereupon all
outstanding Notes, including both principal and interest thereon, shall be and
become immediately due and payable together with all other amounts payable under
the Loan Documents without further demand, presentment, protest or notice of any
kind; and (c) demand that the Company immediately pay to the Lender the full
amount then available for drawing under each or any Letter of Credit, and the
Company agrees to immediately make such payment and acknowledges and agrees that
the Lender would not have an adequate remedy at law for failure by the Company
to honor any such demand and that the Lender shall have the right to require the
Company to specifically perform such undertaking whether or not any drawings or
other demands for payment have been made under any Letter of Credit.
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Section 8.3. Bankruptcy Defaults;. When any Event of Default described in
subsection (j) or (k) of Section 8.1 hereof has occurred and is continuing, then
all outstanding Notes shall immediately become due and payable together with all
other amounts payable under the Loan Documents without presentment, demand,
protest or notice of any kind, the obligation of the Lender to extend further
credit pursuant to any of the terms hereof shall immediately terminate and the
Company shall immediately pay to the Lender the full amount then available for
drawing under all outstanding Letters of Credit, the Company acknowledging and
agreeing that the Lender would not have an adequate remedy at law for failure by
the Company to honor any such demand and that the Lender shall have the right to
require the Company to specifically perform such undertaking whether or not any
draws or other demands for payment have been made under any of the Letters of
Credit.
Section 8.4. Collateral for Undrawn Letters of Credit;. (a) If the
prepayment of the amount available for drawing under any or all outstanding
Letters of Credit is required under Section 1.3(b), 3.3, 8.2, or 8.3 hereof, the
Company shall forthwith pay the amount required to be so prepaid, to be held by
the Lender as provided in subsection (b) below.
(b) All amounts prepaid pursuant to subsection (a) above shall be held
by the Lender in a separate collateral account (such account, and the credit
balances, properties and any investments from time to time held therein, and any
substitutions for such account, any certificate of deposit or other instrument
evidencing any of the foregoing and all proceeds of and earnings on any of the
foregoing being collectively called the "Account") as security for, and for
application by the Lender (to the extent available) to, the reimbursement of any
payment under any Letter of Credit then or thereafter made by the Lender, and to
the payment, after the occurrence of any Event of Default, of the unpaid balance
of any Loans and all other Obligations. The Account shall be held in the name of
and subject to the exclusive dominion and control of the Lender. If and when
requested by the Company, the Lender shall invest funds held in the Account from
time to time in direct obligations of, or obligations the
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principal of and interest on which are unconditionally guaranteed by, the United
States of America with a remaining maturity of one year or less, provided that
the Lender is irrevocably authorized to sell investments held in the Account
when and as required to make payments out of the Account for application to
amounts due and owing from the Company to the Lender; provided, however, that if
(i) the Company shall have made payment of all such obligations referred to in
subsection (a) above, (ii) all relevant preference or other disgorgement periods
relating to the receipt of such payments have passed, and (iii) no Letters of
Credit, Commitments, or other Obligations then due and owing remain outstanding
hereunder, then the Lender shall release to the Company, at its request, any
remaining amounts held in the Account.
Section 9. Miscellaneous.
Section 9.1. Non-Business Days. ; If any payment hereunder becomes due and
payable on a day which is not a Business Day, the due date of such payment shall
be extended to the next succeeding Business Day on which date such payment shall
be due and payable. In the case of any payment of principal falling due on a day
which is not a Business Day, interest on such principal amount shall continue to
accrue during such extension at the rate per annum then in effect, which accrued
amount shall be due and payable on the next scheduled date for the payment of
interest.
Section 9.2. No Waiver, Cumulative Remedies. ; No delay or failure on the
part of the Lender or on the part of any holder of any of the Obligations in the
exercise of any power or right shall operate as a waiver thereof or as an
acquiescence in any default, nor shall any single or partial exercise of any
power or right preclude any other or further exercise thereof or the exercise of
any other power or right. The rights and remedies hereunder of the Lender and
any of the holders of the Obligations are cumulative to, and not exclusive of,
any rights or remedies which any of them would otherwise have.
Section 9.3. Amendments. Any provision of this Agreement or the other Loan
Documents may be amended or waived if, but only
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if, such amendment or waiver is in writing and is signed by the Company and the
Lender.
Section 9.4. Costs and Expenses. The Company agrees to pay on demand the
costs and expenses of the Lender in connection with the negotiation,
preparation, execution and delivery of this Agreement, the other Loan Documents
and the other instruments and documents to be delivered hereunder or thereunder,
and in connection with the transactions contemplated hereby or thereby, and in
connection with any consents hereunder or waivers or amendments hereto or
thereto, including the fees and expenses of Messrs. Chapman and Cutler, counsel
for the Lender, with respect to all of the foregoing (whether or not the
transactions contemplated hereby are consummated). The Company further agrees to
pay to the Lender all costs and expenses (including court costs and attorneys'
fees), if any, incurred or paid by the Lender in connection with any Default or
Event of Default or in connection with the enforcement of this Agreement or any
of the other Loan Documents or any other instrument or document delivered
hereunder or thereunder. The Company further agrees to indemnify and save the
Lender and any security trustee for the Lender harmless from any and all
liabilities, losses, costs and expenses incurred by the Lender, or any such
security trustee, in connection with any action, suit or proceeding brought
against the Lender, or any such security trustee, by any Person which arises out
of the transactions contemplated or financed hereby or out of any action or
inaction by the Lender or any such security trustee hereunder or thereunder,
except for such thereof as is caused by the gross negligence or willful
misconduct of the party seeking to be indemnified. The provisions of this
Section and the protective provisions of Section 2 hereof shall survive payment
of the Obligations.
Section 9.5. Documentary Taxes. The Company agrees to pay on demand any
documentary, stamp or similar taxes payable in respect of this Agreement or any
other Loan Document, including interest and penalties, in the event any such
taxes are assessed, irrespective of when such assessment is made and whether or
not any credit is then in use or available hereunder.
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Section 9.6. Survival of Representations. All representations and
warranties made herein or in any of the other Loan Documents or in certificates
given pursuant hereto or thereto shall survive the execution and delivery of
this Agreement and the other Loan Documents, and shall continue in full force
and effect with respect to the date as of which they were made as long as any
credit is in use or available hereunder.
Section 9.7. Participations. The Lender may grant participations in its
extensions of credit hereunder to any other bank or other lending institution (a
"Participant"), provided that (i) no Participant shall thereby acquire any
direct rights under this Agreement, (ii) any agreement pursuant to which such
participation is granted shall provide that the Lender shall retain the sole
right and responsibility to enforce the obligations of Company under this
Agreement and the other Loan Documents including, without limitation, the right
to approve any amendment, modification, or waiver of any provision of the Loan
Documents, except that such agreement may provide that the Lender will not agree
to any amendment, modification, or waiver of the Loan Documents without such
participant's consent that would reduce the principal amount of or interest
owing on, or extend the scheduled maturity date of, any Obligation in which such
participant has an interest or that relates to Sections 7.7, 7.8, 7.9, 7.10,
7.11, 7.12, 7.14, 7.17, or 7.21 of this Agreement, and (iii) no sale of a
participation in extensions of credit shall in any manner relieve the Lender of
its obligations hereunder.
Section 9.8. Notices. Except as otherwise specified herein, all notices
hereunder shall be in writing (including, without limitation, notice by
telecopy) and shall be given to the relevant party at its address or telecopier
number set forth below, in the case of the Company, or on the appropriate
signature page hereof, in the case of the Lender, or such other address or
telecopier number as such party may hereafter specify by notice to the other
given by United States certified or registered mail, by telecopy or by other
telecommunication device capable of creating a written record of such notice and
its receipt. Notices hereunder to the Company shall be addressed to:
MAF Bancorp., Inc.
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55th and Holmes
Clarendon Hills, Illinois 60514
Attention: Mr. Jerry Weberling
Telephone: (708) 887-5999
Telecopy: (708) 325-0407
with a copy of all written notices of default also to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601
Attention: Ms. Jennifer R. Evans
Telephone: (312) 609-7500
Telecopy: (312) 609-5005
Each such notice, request or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section and a confirmation of such telecopy has been received
by the sender, (ii) if given by mail, five (5) days after such communication is
deposited in the mail, certified or registered with return receipt requested,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the addresses specified in this Section; provided that any notice given pursuant
to Section 1 or Section 2 hereof shall be effective only upon receipt.
Section 9.9. Confidentiality. The Lender shall hold in confidence any
nonpublic information delivered or made available to it by the Company or any
Subsidiary or their respective officers, employees and independent public
accountants. The foregoing to the contrary notwithstanding, nothing herein shall
prevent the Lender from disclosing any information delivered or made available
to it by the Company or any Subsidiary (i) upon the order of any court or
administrative agency, (ii) upon the request or demand of any regulatory agency
or authority, (iii) which has been publicly disclosed other than as a result of
a disclosure by the Lender which is not permitted by this Agreement, (iv) in
connection with any litigation to which the Lender or any of its Affiliates may
be a party, along with the Company, any Subsidiary or any of their respective
Affiliates, (v) to the extent reasonably required in connection with the
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exercise of any right or remedy under this Agreement, the other Loan Documents
or otherwise, (vi) to legal counsel and financial consultants and independent
auditors of the Lender, and (vii) to any actual or proposed participant or
assignee of all or part of its rights under the credit contemplated hereby
provided such participant or assignee agrees in writing to be bound by the duty
of confidentiality under this Section to the same extent as if it were the
Lender hereunder.
Section 9.10. Headings. Section headings used in this Agreement are for
convenience of reference only and are not a part of this Agreement for any other
purpose.
Section 9.11. Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction. All rights, remedies and powers provided in this Agreement and the
other Loan Documents may be exercised only to the extent that the exercise
thereof does not violate any applicable mandatory provisions of law, and all the
provisions of this Agreement and the other Loan Documents are intended to be
subject to all applicable mandatory provisions of law which may be controlling
and to be limited to the extent necessary so that they will not render this
Agreement or the other Loan Documents invalid or unenforceable.
Section 9.12. Counterparts. This Agreement may be executed in any number
of counterparts, and by different parties hereto on separate counterpart
signature pages, and all such counterparts taken together shall be deemed to
constitute one and the same instrument.
Section 9.13. Entire Understanding. This Agreement together with the other
Loan Documents constitute the entire understanding of the parties with respect
to the subject matter hereof and any prior agreements, whether written or oral,
with respect thereto are superseded hereby.
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Section 9.14. Binding Nature, Governing Law, Etc. This Agreement shall be
binding upon the Company and its successors and assigns, and shall inure to the
benefit of the Lender and the benefit of its successors and assigns, including
any subsequent holder of an interest in the Obligations. The Company may not
assign its rights hereunder without the written consent of the Lender. THIS
AGREEMENT AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
Section 9.15. Submission to Jurisdiction; Waiver of Jury Trial. The
Company hereby submits to the non-exclusive jurisdiction of the United States
District Court for the Northern District of Illinois and of any Illinois State
court sitting in the City of Chicago for purposes of all legal proceedings
arising out of or relating to this Agreement, the other Loan Documents or the
transactions contemplated hereby or thereby. The Company irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum. THE COMPANY AND THE LENDER EACH HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY.
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this 22nd day of May, 1996.
MAF Bancorp, Inc.
By /s/ Allen Koranda
-----------------------,-----------
Allen Koranda,
Chief Executive Officer
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Accepted and Agreed to at Chicago, Illinois as of the day and year last
above written.
Harris Trust And Savings Bank
By /s/ Richard L. Loncar
--------------------------,-----------
Richard L. Loncar
Vice President
111 West Monroe Street
Chicago, Illinois 60603
Attention: Mr. Michael Cameli
Telephone: (312) 461-2396
Telecopy: (312) 765-8382
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Exhibit No. 10(viii) Mid America Federal Savings Bank Employees'
Profit Sharing Plan, as amended
<PAGE>
MID AMERICA FEDERAL SAVINGS BANK
EMPLOYEES' PROFIT SHARING PLAN
This Eleventh Amendment to the MidAmerica Federal Savings Bank Employees' Profit
Sharing Plan was executed on November 26, 1996 by MidAmerica Federal Savings
Bank, an Illinois corporation.
Pursuant to the provisions of Section 13 of the MidAmerica Federal Savings
Bank Employees' Profit Sharing Plan (the "Plan"), the Plan is hereby
amended:
EFFECTIVE DATE JANUARY 1, 1997:
- ------------------------------
SECTION 1 - PLAN IDENTIFY
- -------------------------
1.4 Fiscal Period. This Plan shall be operated on the basis of a January 1 -
-------------
December 31 fiscal year for the purpose of keeping the Plan's books and
records, and distributing or filing any reports or returns required by law.
EFFECTIVE DATE JANUARY 1, 1997:
- ------------------------------
SECTION 2 - DEFINITIONS
- -----------------------
The following definitions shall be changed:
"FISCAL YEAR" means the Employer's accounting year of 12 months beginning
on January 1 and ending on December 31.
EFFECTIVE DATE JANUARY 1, 1997:
- ------------------------------
"PLAN YEAR" means each period of 12 consecutive months beginning on January
1 of 1997 and each succeeding year. Prior to July 1, 1996, the Plan Year
meant each period of 12 consecutive months beginning on July 1 of 1983 and
each succeeding year. The period beginning on July 1, 1996 and ending on
December 31, 1996 was a Short Plan Year.
<PAGE>
EFFECTIVE DATE JULY 1, 1996:
- ---------------------------
"VALUATION DATE" means the last day of the Plan Year (December 31), the
last day of each quarter during the Plan Year (March 31, June 30, September
30, and December 31), and any other dates selected by the Committee, on
which the income (and losses) for the Trust Fund shall be allocated.
EFFECTIVE DATE JULY 1, 1996:
- ---------------------------
The following definition shall be added:
"SHORT PLAN YEAR" means a Plan Year of less than 12 months. In accordance
with Internal Revenue Service Regulation 1.401(a)(17)-1(b)(3)(iii), the
compensation limit for a Short Plan Year shall be an amount equal to the
otherwise applicable annual compensation limit multiplied by a fraction,
the numerator of which is the number of months in the Short Plan Year, and
the denominator of which is 12.
In a Short Plan Year, if the Cash Compensation of any Participant consists
of or includes commissions, then the Participant's Cash Compensation
limitation shall be adjusted, with the exclusion of any Cash Compensation
in excess of $75,000 (with adjustment for cost of living increases
identical to the cost of living increases announced by the Internal Revenue
Service for retirement plan limitations), with the annual Cash Compensation
limitation multiplied by a fraction, the numerator of which is the number
of months in the Short Plan Year, and the denominator of which is 12.
In a Short Plan Year, the Hours of Service which must be credited to an
Active Participant in order for that Active Participant to receive an
Employer Contribution and Forfeiture allocation shall be adjusted, with the
1,000 Hours of Service requirement multiplied by a fraction, the numerator
of which is the number of months in the Short Plan Year, and the
denominator of which is 12.
In a Short Plan Year, the Matching Contribution of 35% of Elective
Deferrals which do not exceed 4% of a Participant's Cash Compensation which
is not in excess of $30,000 shall be adjusted, with the $30,000 Cash
Compensation amount multiplied by a fraction, the numerator of which is the
number of months in the Short Plan Year, and the denominator of which is
12. A Matching Contribution of 25% shall be made to Elective Deferrals
which do not exceed 2% of a Participant's Cash Compensation which is in
excess of the adjusted $30,000 Cash Compensation amount.
<PAGE>
EFFECTIVE DATE JULY 1, 1996:
- ---------------------------
SECTION 3 - ELIGIBILITY FOR PARTICIPATION
- -----------------------------------------
Section 3 shall be amended by adding Section 3.3:
3.3 - Eligibility to Make Employee Rollover Contributions
---------------------------------------------------------
Upon inception of employment, an Employee may make a Rollover Contribution
to the Plan, since there is no minimum age or Year of Service requirement
which must be satisfied before an Employee is eligible to make a Rollover
Contribution.
EFFECTIVE DATE JULY 1, 1996:
- ---------------------------
SECTION 7 - INVESTMENTS
- -----------------------
Section 7.2(a) shall be replaced in its entirety with the following:
- --------------
7.2 - Participant Direction of Assets from General Fund
-------------------------------------------------------
(a) Participant Direction of Assets from Employer Contribution, Employee
Voluntary Contribution, and Employee Rollover General Fund
Contribution General Fund Accounts to Employer Stock.
Effective on July 1, 1989, the Trustees were expressly authorized to
receive from each Participant on an annual basis an irrevocable
election directing the Trustees to have all or a part of the Vested
portion of each such Participant's assets in the General Fund to be
invested in Employer Stock. A Participant's initial election required
a minimum investment of $250.
Effective with the Plan Year beginning on July 1, 1992, this annual
election was rescinded. However, any investments in Employer Stock
and any directions for investment made prior to the Plan Year
beginning on July 1, 1992 shall continue to be valid and shall not be
affected.
Effective with the Plan Year beginning on January 1, 1997, a
Participant may direct the Trustees to sell all or a portion of his
Employer Stock, with the amount received transferred into the General
Fund. The Trustees shall have the option to purchase this Employer
Stock from General Fund assets, or sell it.
<PAGE>
The net income from Employer Stock investments in the Employer
Contribution Account shall be invested primarily in Employer Stock and
such cash or short term investments as the Trustees shall deem
necessary to meet any contingencies.
<PAGE>
TENTH AMENDMENT TO THE
MID AMERICA FEDERAL SAVINGS BANK
EMPLOYEES' PROFIT SHARING PLAN
This Tenth Amendment to the MidAmerica Federal Savings Bank Employees' Profit
Sharing Plan was executed on May 28, 1996 by MidAmerica Federal Savings Bank, an
Illinois corporation.
Pursuant to the provisions of Section 13 of the MidAmerica Federal Savings
Bank Employees' Profit Sharing Plan (the "Plan"), the Plan is hereby
amended, with an effective date of July 1, 1996:
SECTION 2 - DEFINITIONS
- -----------------------
The definition of "General Fund" shall be changed to the following:
"GENERAL FUND" means all the investments in the Trust, as set forth in
Section 7.1, which have been made with Matching Contributions,
Discretionary Contributions, Qualified Matching Contributions, Qualified
Non-elective Contributions, Employee Voluntary Contributions, Employee
Rollover Contributions, and Employee Merged Plan Contributions, plus the
income (or loss) from these investments, shall be treated as from a single
fund, with the following exceptions:
(a) Vested assets which have been directed by Plan Participants to be
invested in Employer Stock, as set forth in Section 7.2(a), shall be
segregated and held in the Employer Stock Fund.
(b) Employee Voluntary Contribution Account assets and Employee Merged
Plan Contribution Account assets which have been directed by Plan
Participants into an Earmarked Investment, as set forth in Section
5.1(c)(i) and Section 5.1(e)(i), shall be segregated and held in the
account for the directed investment.
The following definitions shall be added:
MERGED PLAN CONTRIBUTION ACCOUNT means an account established and
maintained for a Participant with respect to assets which were credited to
his name in another qualified plan and which have been merged into this
Plan, pursuant to Section 4.2(c) and Section 5.1(e).
<PAGE>
NORTHWESTERN PLAN means the Northwestern Savings & Loan 401(k) Plan in
effect on June 30, 1996, just prior to its merger into this Plan.
SECTION 3 - ELIGIBILITY FOR PARTICIPATION
- -----------------------------------------
Section 3 shall be amended by adding the following after Section 3.1,
------------
Eligibility to Receive Employer Matching Contributions and Employer
- -------------------------------------------------------------------
Discretionary Contributions:
- ---------------------------
3.1A, Special Provision Applicable to Former Northwestern Participants
----------------------------------------------------------------------
Notwithstanding the foregoing provisions of Section 3.1, a Former
Northwestern Participant who is an Employee on July 1, 1996 shall become an
Active Participant as of such date.
Any other Employee of Northwestern who has completed one Year of Service
and has attained the age of 21 shall be eligible to participate in the Plan
as of the Entry Date coinciding with or next following the later of the
following dates: the last date of the Employee's first Year of Service, or
the Employee's 21st birthday. A Year of Service shall include any period
or periods previously credited to that Employee under the Northwestern
Plan.
An individual's satisfaction of the service requirement as of any Entry
Date shall constitute satisfaction thereof as of all subsequent Entry
Dates, regardless of any intervening interruption of his employment.
Section 3 shall be amended by adding the following after Section 3.2,
------------
Eligibility to Make Elective Deferral Contributions:
- ---------------------------------------------------
3.2A, Special Provision Applicable to Former Northwestern Participants
----------------------------------------------------------------------
Notwithstanding the foregoing provisions of Section 3.2, a Former Employee
of Northwestern shall be eligible to elect to defer a portion of his Cash
Compensation on July 1, 1996 if he has completed one Year of Service. A
Year of Service is a period of 12 consecutive months during which an
Employee has at least 1000 Hours of Service. A Year of Service shall
include any period or periods previously credited to that Employee under
the Northwestern Plan.
There is no minimum age requirement for a Former Employee of Northwestern
to be eligible to defer a portion of his Cash Compensation.
<PAGE>
SECTION 4 - CONTRIBUTIONS
- -------------------------
Section 4.2, Contributions by Participants, shall be amended by adding the
- ------------------------------------------
following:
(c) Merged Plan Contributions.
A Participant in this Plan may have assets merged into this Plan from
a qualified plan of another employer.
The balance in a Participant's Merged Plan Contribution Account shall
be 100% vested and not subject to Forfeiture for any reason.
Section 4.10, Contribution Not Forfeitable, shall be replaced in its entirety
- ------------------------------------------
with the following:
The Participant's accrued benefit derived from Elective Deferrals,
Qualified Non-elective Contributions, Qualified Matching Contributions,
Voluntary Contributions, Rollover Contributions, and Merged Plan
Contributions is nonforfeitable.
SECTION 5 - ALLOCATIONS
- -----------------------
The last paragraph of Section 5.1(a), Employer Contribution Account, shall be
---------------------------------------------
replaced with the following:
Employer Contribution Account assets shall be invested by the Plan Trustees
in the Plan's General Fund, together with the Voluntary Contribution
Account assets, Rollover Contribution Account cash assets, and Merged Plan
Contribution Account cash assets.
The last paragraph of Section 5.1(b), Voluntary Contribution Account, shall be
----------------------------------------------
replaced with the following:
Voluntary Contribution Account assets shall be invested by the Plan
Trustees in the Plan's General Fund, together with the Employer
Contribution Account assets, Rollover Contribution Account cash assets, and
Merged Plan Contribution Account cash assets.
Section 5.1(c), Rollover Contribution Account, shall be replaced in its entirety
- ---------------------------------------------
with the following:
(c) Rollover Contribution Account.
Rollover Contributions shall be maintained for each Participant in the
Rollover Contribution Account.
<PAGE>
Rollover Contribution cash assets shall be invested by the Plan
Trustees as follows:
(i) Effective July 1, 1996, a Participant may direct the Plan
Trustees to establish an Earmarked Account with cash assets, with
the investment selection limited to those chosen by the Plan
Trustees for Elective Deferral Contributions, pursuant to Section
7.3.
(ii) Cash assets which have not been directed by a Participant into an
Earmarked Account shall be invested by the Plan Trustees in the
Plan's General Fund, together with the Employer Contribution
Account assets, Voluntary Contribution Account assets, and Merged
Contribution Account cash assets.
If a Rollover Contribution consists of property other than cash, such
property shall be considered an Earmarked Investment for such
Participant.
Section 5.1, Contributions, shall be amended by adding thefollowing:
- --------------------------
(e) Merged Plan Contribution Account.
Merged Plan Contributions shall be maintained with each Participant in
the Merged Plan Contribution Account.
Merged Plan Contribution cash assets shall be invested by the Plan
Trustees as follows:
(i) A Participant may direct the Plan Trustees to establish an
Earmarked Account with cash assets, with the investment selection
limited to those chosen by the Plan Trustees for Elective
Deferral Contributions, pursuant to Section 7.3.
(ii) Cash assets which have not been directed by a Participant into an
Earmarked Account shall be invested by the Plan Trustees in the
Plan's General Fund, together with the Employer Contribution
Account assets, Voluntary Contribution Account assets, and
Rollover Contribution Account cash assets.
If a Merged Plan Contribution consists of property other than cash,
such property shall be considered an Earmarked Investment for such
Participant.
<PAGE>
Section 5.3, Income on Investments, shall be amended by replacing (a) in its
- ----------------------------------
entirety with the following:
(a) Employer Contribution, Voluntary Contribution, Rollover Contribution,
and Merged Plan Contribution Accounts.
(i) General Fund. On each Anniversary Date, the income (or loss) for
the Employer Contribution Account, Voluntary Contribution
Account, Rollover Contribution Account, and Merged Plan
Contribution Account shall be allocated based on the beginning
balance on the first day of the Plan Year for each Active
Participant and former Participant with Vested assets remaining
in the Plan on the Anniversary Date, less an adjustment for
distributions, withdrawals, or forfeitures during the Plan Year
on a time-weighted basis.
(ii) Earmarked Investment. Any income, expense, gain, or loss earned
or incurred with respect to such investment shall be credited
solely to the Earmarked Investment.
SECTION 7 - INVESTMENTS
- -----------------------
The first paragraph of Section 7.1, General Fund, shall be replaced with the
-------------------------
following:
Matching Contributions, Discretionary Contributions, Qualified Matching
Contributions, Qualified Non-elective Contributions, Employee Voluntary
Contributions, Employee Rollover Cash Contributions, and Employee Merged
Plan Cash Contributions shall be held in a "General Fund."
Section 7.2, Participant Direction of Assets from General Fund to Employer
- --------------------------------------------------------------------------
Stock, shall be replaced in its entirety with the following:
7.2 Participant Direction of Assets from General Fund
-------------------------------------------------
(a) Participant Direction of Assets from Employer Contribution,
Employee Voluntary Contribution, and Employee Rollover General
Fund Contribution General Fund Accounts to Employer Stock.
Effective on July 1, 1989, the Trustees were expressly authorized
to receive from each Participant on an annual basis an
irrevocable election directing the Trustees to have all or a part
of the Vested portion of each such Participant's assets in the
General Fund to be invested in Employer Stock. A Participant's
initial election required a minimum investment of $250.
<PAGE>
Effective with the Plan Year beginning on July 1, 1992, this
annual election was rescinded. However, any investments in
Employer Stock and any directions for investment made prior to
the Plan Year beginning on July 1, 1992 shall continue to be
valid and shall not be affected.
The net income from Employer Stock investments in the Employer
Contribution Account shall be invested primarily in Employer
Stock and such cash or short term investments as the Trustees
shall deem necessary to meet any contingencies.
(b) Participant Direction of Cash Assets in Employee Rollover
---------------------------------------------------------
Contribution and Employee Merged Plan Contribution Accounts from
----------------------------------------------------------------
General Fund to Earmarked Investments
-------------------------------------
Effective on July 1, 1996, a Participant may direct the Plan
Trustees to establish Earmarked Accounts with cash assets in the
General Fund, with the investment selection limited to those
chosen by the Plan Trustees for Elective Deferral Contributions,
pursuant to Section 7.3.
Section 7 shall be amended by adding the following after Section 7.3, Elective
---------------------
Deferral Accounts:
- -----------------
Section 7.3A, Assets Held under the Northwestern Plan
-----------------------------------------------------
Effective as of the close of June 30, 1996, or such later date as the
Committee shall effectuate the merger of the Northwestern Plan into the
Plan, the Trust Fund serving as the funding vehicle for the Northwestern
Plan shall become part of the Trust Fund of the Plan ("the Northwestern
Sub-Trust"). The Northwestern Sub-Trust shall continue to hold those
assets attributable to Former Northwestern Participants until such time as
the Former Northwestern Participants are eligible to elect the investment
options available under Section 7 of the Plan.
SECTION 8 - VESTING
- -------------------
Section 8.1, Vesting Schedule, shall be amended by replacing (b) with the
- -----------------------------
following:
(b) Accounts for Qualified Matching Contributions, Qualified Non-elective
Contributions, Elective Deferral Contributions, Employee Voluntary
<PAGE>
Contributions, Employee Rollover Contributions, and Employee Merged
Plan Contributions.
These Accounts are not subject to the Vesting Schedule in Section
8.1(a), and shall be 100% vested and not forfeitable for any reason.
Section 8 shall be amended by adding the following after Section 8.2,
------------
Computation of Vesting Years:
- ----------------------------
Section 8.2A, Recognition of Service under the Northwestern Plan
----------------------------------------------------------------
Solely with respect to Former Northwestern Participants, such period or
periods of employment shall include any period or periods previously
credited to that Employee under the Northwestern Plan.
SECTION 9 - PAYMENT OF BENEFITS
- -------------------------------
Section 9 shall be amended by adding the following after Section 9.1, Upon
-----------------
Termination of Employment:
- -------------------------
Section 9.1A, Protected Benefits for Former Northwestern Participants
---------------------------------------------------------------------
Former Northwestern Participants may, in addition to the optional forms of
payment available under Section 9.1 of the Plan, elect to receive the value
of their Account (accrued through June 30, 1996 or, if later, the date the
Northwestern Plan is merged into the Plan) as follows: (1) over a period
certain in monthly, quarterly, semiannual, or annual cash payments, which
shall not extend beyond the Participant's life expectancy (or the life
expectancy of the Participant and his designated Beneficiary) or (2) in a
nontransferrable annuity contract for a term certain (with no life
contingencies).
Section 9 shall be amended by adding the following section:
Section 9.12, Protected Benefits
--------------------------------
In the event the assets and/or liabilities of another plan are merged,
transferred, or consolidated with this Plan, all protected benefits, as
described in IRS Code Section 411(d)(6)(A), early retirement benefits,
retirement-type subsidies, and optional forms of benefit shall be preserved
for those assets merged, transferred, or consolidated with this Plan.
<PAGE>
SECTION 13 - AMENDMENT AND TERMINATION OF PLAN
- ----------------------------------------------
Section 13.3, Right to Amend or Terminate, shall be replaced in its entirety
- -----------------------------------------
with the following:
The Company intends to continue this Plan as a permanent program. However,
each participating Employer separately reserves the right to suspend,
supersede, or terminate the Plan at any time and for any reason, as it
applies to that Employer's Employees, and the Company reserves the right to
amend, suspend, supersede, merge, consolidate, or terminate the Plan at any
time and for any reason, as it applies to the Employees of all Employers.
No amendment, suspension, supersession, merger, consolidation, or
termination of the Plan shall reduce any Participant's or Beneficiary's
proportionate interest in the Trust Fund, or shall divert any portion of
the Trust Fund to purposes other than the exclusive benefit of the
Participants and their Beneficiaries prior to the satisfaction of all
liabilities under the Plan.
Moreover, there shall not be any transfer of assets to a successor plan or
merger or consolidation with another plan unless, in the event of the
termination of the successor plan or the surviving plan immediately
following such transfer, merger, or consolidation, each participant or
beneficiary would be entitled to a benefit equal to or greater than the
benefit he would have been entitled to if the plan in which he was
previously a participant or beneficiary had terminated immediately prior to
such transfer, merger, or consolidation.
Furthermore, except as permitted by the Code and the Regulations
thereunder, as a result of any transfer, merger, or consolidation, there
shall be no elimination or reduction of any IRS Code Section 411(d)(6)
protected benefits which each participant or beneficiary would have been
entitled to if the plan in which he was previously a participant or
beneficiary had terminated immediately prior to such transfer, merger, or
consolidation. Section 411(d)(6) protected benefits are benefits described
in Code Section 411(d)(6)(A), early retirement benefits, retirement-type
subsidies, and optional forms of benefit.
Following a termination of this Plan by the Company, the Trustee shall
continue to administer the Trust and pay benefits in accordance with the
Plan as amended from time to time and the Committee's instructions.
Section 13 shall be amended by adding the following after Section 13.3, Right to
----------------------
Amend or Terminate:
- ------------------
Section 13.3A, Merger
---------------------
Effective as of the close of June 30, 1996 or such later date as the
Committee may, in its sole discretion, determine, the Northwestern Plan
shall be merged
<PAGE>
into the Plan with all accrued benefits under the Northwestern Plan
becoming accrued benefits under this Plan, and such amounts shall be
allocated among the Employer Contribution Account, Rollover Contribution
Account, or Elective Deferral Account of such Participants as the Committee
shall determine. To the extent required by law or otherwise appropriate,
the applicable provisions of the Plan shall be deemed to apply
retroactively to the Northwestern Plan.
<PAGE>
MID AMERICA FEDERAL SAVINGS BANK
EMPLOYEES' PROFIT SHARING PLAN
(Adopted effective July 1, 1983, and conformed to amendments made
effective July 1, 1987, July 1, 1989, January 28, 1992, July 1,
1992, January 1, 1993, July 1, 1994, and July 1, 1995.)
<PAGE>
TABLE OF CONTENTS
- -----------------
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
Section 1. Plan Identity 1
-------------
1.1 Name 1
1.2 Purpose 1
1.3 Effective Date 1
1.4 Fiscal Period 1
1.5 Single Plan for All Employers 1
1.6 Interpretation of Provisions 1
Section 2. Definitions 1
-----------
Section 3. Eligibility for Participation 11
-----------------------------
3.1 Eligibility to Receive Employer Matching and
Employer Discretionary Contributions 11
3.1(a) Initial Eligibility 11
3.1(b) Eligibility Year 12
3.1(c) Recognized Absence 12
3.1(d) Maternity or Paternity Leave 12
3.1(e) Certain Employees Ineligible 12
3.1(f) Enrollment 13
3.1(g) Waiver of Participation 13
3.1(h) Participation and Reparticipation 13
3.2 Eligibility to Make Elective Deferral
Contributions 13
3.2(a) Initial Eligibility 13
3.2(b) Enrollment 13
Section 4. Contributions 14
-------------
4.1 Contributions by Employer 14
4.1(a) Elective Deferral Contributions 14
4.1(b) Matching Contributions 14
4.1(c) Discretionary Contributions 15
4.1(d) Qualified Matching Contributions 15
4.1(e) Qualified Non-elective Contributions 15
4.2 Contributions by Participants 15
4.2(a) Nondeductible Voluntary Contributions 15
4.2(b) Rollover Contributions 15
4.3 Excess Elective Deferral Contributions 16
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
4.4 Actual Deferral Percentage Test 16
4.5 Excess Contributions 17
4.6 Recharacterization 18
4.7 Actual Contribution Percentage Test 19
4.8 Excess Aggregate Contributions 20
4.9 Conditions as to Contributions 21
4. Contributions Not Forfeitable 21
Section 5. Allocations 21
-----------
5.1 Contributions 21
5.1(a) Employer Contribution Account 22
5.1(b) Voluntary Contribution Account 23
5.1(c) Rollover Contribution Account 23
5.1(d) Elective Deferral Account 23
5.2 Forfeitures 23
5.3 Income on Investments 23
5.3(a) Employer Contribution, Voluntary Contribution,
and Rollover Contribution Accounts 23
5.3(b) Elective Deferral Accounts 24
Section 6. Limitations on Contributions and Allocations 24
--------------------------------------------
6.1 Limitation on Annual Additions 24
6.2 Coordinated Limitation with Other Plans 25
6.3 Effect of Limitations 25
Section 7. Investments 26
-----------
7.1 General Fund 26
7.2 Participation Direction of Assets from
General Fund to Employer Stock 26
7.3 Elective Deferral Accounts 26
7.4 Voting of Employer Stock 27
7.5 Restrictions on Insider Trading 27
Section 8. Vesting 28
-------
8.1 Vesting Schedule 28
8.2 Computation of Vesting Years 28
8.3 Full Vesting upon Certain Events 29
8.4 Full Vesting upon Plan Termination 29
8.5 Forfeiture, Repayment, and Restoral 29
8.6 Accounting for Forfeitures 29
8.7 Vesting and Nonforfeitability 29
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 9. Payment of Benefits 30
-------------------
9.1 Upon Termination of Employment 30
9.2 Upon Death of Participant 30
9.2(a) Distribution Options if Distribution to
Participant Have Not Begun 31
9.2(b) Distribution Options if Distribution to
Participant Have Begun 31
9.3 Upon Attainment of Age 70 1/2 31
9.4 In-Service Distributions 31
9.4(a) Non-deductible Voluntary Contribution 31
9.4(b) Hardship Distribution 32
9.5 Type of Payment 33
9.5(a) Direct Rollover 33
9.5(b) Payment To Participant or Beneficiary 33
9.6 Form of Payment 33
9.6(a) Cash or "In Kind" 33
9.6(b) Employer Stock 33
9.6(c) Annuity 34
9.7 Timing of Distribution 34
9.8 Deemed Distribution 34
9.9 Qualified Domestic Relations Order 35
9.10 Beneficiary Designation 35
9.11 Marital Status of Participant 36
Section 10. Rules Governing Benefit Claims and Review
-----------------------------------------
of Appeals 36
----------
10.1 Claim for Benefits 36
10.2 Notification by Committee 36
10.3 Claims Review Procedure 37
Section 11. Administration of Plan 37
----------------------
11.1 Authority of Committee 37
11.2 Identity of Committee 37
11.3 Duties of Committee 38
11.4 Valuation of Employer Stock 38
11.5 Compliance with ERISA 38
11.6 Action by Committee 38
11.7 Execution of Documents 38
11.8 Adoption of Rules 38
11.9 Responsibilities to Participants 38
11.10 Alternate Payees in Event of Incapacity 39
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
11.11 Idemnification by Employers 39
11.12 Nonparticipation by Interested Member 39
Section 12. Powers and Duties of Plan Trustee 39
---------------------------------
12.1 Appointment of Trustees 39
12.2 Basic Responsibilities of Trustees 40
12.3 Investment Powers and Duties 40
12.4 Duties Regarding Payment of Benefits 42
12.5 Execution of Contracts and Payment of Benefits 42
12.6 Trustee Expenses 42
12.7 Trust Fund Annual Report 42
12.8 Audit 43
12.9 Idemnification by Employers 43
12.10 Nonparticipation by Interested Member 43
Section 13. Amendment and Termination of Plan 44
---------------------------------
13.1 Adoption of Plan by Other Employers 44
13.2 Adoption of Plan by Successor 44
13.3 Right to Amend or Terminate Plan 44
Section 14. Miscellaneous Provisions 45
------------------------
14.1 Plan Creates No Employment Rights 45
14.2 Nonassignability of Benefits 45
14.3 Limit of Employer Liability 45
14.4 Treatment of Expenses 45
14.5 Number and Gender 45
14.6 Nondiversion of Assets 45
14.7 Separability of Provisions 46
14.8 Service of Process 46
14.9 Governing State Law 46
Section 15. Top-Heavy Provisions 46
--------------------
15.1 Determination of Top-Heavy Status 46
15.2 Minimum Contributions 48
15.3 Top-Heavy Vesting Schedule 48
15.4 Maximum Compensation 48
</TABLE>
<PAGE>
1.1 Name. The name of this Plan is "MidAmerica Federal Savings Bank Employees'
----
Profit Sharing Plan".
1.2 Purpose. The purpose of this Plan Document is to describe the terms and
-------
conditions under which contributions made pursuant to the Plan will
becredited and paid to the Participants and their Beneficiaries.
1.3 Effective Date. The Effective Date of this Plan is July 1, 1983.
--------------
1.4 Fiscal Period. This Plan shall be operated on the basis of a July 1 - June
-------------
30 fiscal year for the purpose of keeping the Plan's books and records, and
distributing or filing any reports or returns required by law.
1.5 Single Plan for All Employers. This Plan shall be treated as a single plan
-----------------------------
with respect to all participating Employers for the purpose of crediting
contributions and forfeitures, distributing benefits, determining whether
there has been any termination of Service, and applying the limitations set
forth in Section 6.
1.6 Interpretation of Provisions. The Employers intend this Plan and Trust to
----------------------------
be a qualified profit-sharing plan under Section 401(a) of the Code. The
Plan and Trust shall be interpreted and applied in a manner consistent with
this intent and shall be administered at all times and in all respects in a
nondiscriminatory manner.
SECTION 2 - DEFINITIONS
-----------------------
The following words and phrases, for which the first letter is capitalized,
shall have the meaning specified when used in this Plan, unless the context
clearly indicates otherwise:
"ACCOUNT" means a Participant's interest in the assets accumulated under
this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect contributions, the Plan's investment
experience, distributions, and forfeitures.
"ACTIVE PARTICIPANT" means any Employee who has satisfied the eligibility
requirements of Section 3.1 and who qualifies as an Active Participant for
a particular Plan Year under Section 4.1.
"ACTUAL CONTRIBUTION PERCENTAGE" means, for a specified group of
Participants for a Plan Year, the average of the ratios (calculated
separately for each Participant in such group) of (i) Employer Matching
Contributions and Employee Voluntary Contributions actually paid to the
Trust on behalf of such Participant for the Plan Year to (ii) the
Participant's Total Compensation for such Plan Year, as set forth in
Section 4.7.
<PAGE>
"ACTUAL DEFERRAL PERCENTAGE" means, for a specified group of Participants
for a Plan Year, the average of the ratios (calculated separately for each
Participant in such group) of (i) the amount of Employer contributions
actually paid to the Trust on behalf of such Participant for the Plan Year
to (ii) the Participant's Total Compensation for such Plan Year, as set
forth in Section 4.4. Employer contributions on behalf of any Participant
shall include(i) any Elective Deferrals made pursuant to the Participant's
deferral election (including Excess Elective Deferrals of Highly
Compensated Employees), but excluding (a) Excess Elective Deferrals of Non-
highly Compensated Employees that arise solely from Elective Deferrals made
under the Plan or plans of this Employer and (b) Elective Deferrals that
are taken into account in the Contribution Percentage test(provided the ADP
test is satisfied both with and without exclusion of these Elective
Deferrals); and (ii) at the election of the Employer, Qualified Non-
elective Contributions and Qualified Matching Contributions. For purposes
of computing the Actual Deferral Percentages, an Employee who would be a
Participant but for the failure to make Elective Deferrals shall be treated
as a Participant on whose behalf no Elective Deferrals are made.
"AGGREGATE LIMIT" means the sum of (i) 125 percent of the greater of the
ADP of the Non-highly Compensated Employees for the Plan Year or the ACP of
Non-highly Compensated Employees under the Plan subject to Section 401(m)
of the Code for the Plan Year beginning with or within the Plan Year of the
CODA and (ii) the lesser of 200% or two plus the lesser of such ADP or ACP.
"Lesser" is substituted for "greater" in (i) above, and "greater" is
substituted for "lesser" after "two plus the" in (ii) if it would result in
a larger Aggregate Limit.
"ANNIVERSARY DATE" means the last day of each Plan Year.
"BENEFICIARY" means the person, persons, or entity designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation, or if all the designated
Beneficiaries shall die before the Participant dies or shall die before all
benefits have been paid, the Participant's Beneficiary shall be his
surviving Spouse, if any, or his estate if he is not survived by a spouse.
The Committee may rely upon the advice of the Participant's executor or
administrator as to the identity of the Participant's Spouse.
"BREAK IN SERVICE" means any five or more consecutive 12-month periods
beginning July 1 in which an Employee has 500 or fewer Hours of Service per
period. Solely for this purpose, an Employee shall be considered employed
for his normal hours of paid employment during a Recognized Absence, unless
he does not resume his Service at the end of the Recognized Absence.
Further, if an Employee is absent for any period beginning on or after
January 1, 1985, (i) by reason of the Employee's pregnancy; (ii) by reason
of the birth of the Employee's child; (iii) by reason of the placement of
a child with the Employee in connection with the Employee's adoption of the
child; or (iv) for purposes of caring for such child for a period beginning
immediately after such birth or placement, the Employee shall be credited
with the Hours of Service which would normally have been credited but for
such absence, up to a maximum of 501 Hours of
<PAGE>
Service, in the first 12-month period which would otherwise be counted
toward a Break in Service.
"CASH COMPENSATION" means a Participant's compensation from his Employer
with respect to that portion of a Plan Year in which he is an Active
Participant. A Participant's Cash Compensation shall be based upon the
cash method of accounting; overtime pay, bonuses, stock bonuses,
commissions, taxable sick pay, severance pay, any compensation deferred
under a qualified cash or deferred arrangement, and similar items shall be
included, but any compensation income realized under a stock option,
amounts paid by or received from an Employer to cover travel,
entertainment, moving, or similar expenses, and the value of any fringe
benefits not received in cash shall be excluded. Notwithstanding anything
herein to the contrary, if the Cash Compensation of any Participant
consists of or includes commissions, then the Participant's Cash
Compensation eligible for the allocation of contributions and forfeitures
shall exclude any Cash Compensation in any Plan Year in excess of $75,000,
effective with the Plan Year beginning July 1, 1992, with adjustment for
cost of living increases identical to the cost of living increases
announced by the Internal Revenue Service for retirement plan limitations.
A Participant's Cash Compensation shall exclude any compensation in any
Plan Year beginning after 1988 in excess of $200,000 (or the limit
currently in effect under Section 401(a)(17) of the Code).
"CODE" means the Internal Revenue Code of 1986, as amended or replaced from
time to time.
"COMMITTEE" means the Committee responsible for the administration of this
Plan in accordance with Section 11.
"COMPANY" means MidAmerica Federal Savings Bank, and any entity which
succeeds to the business of MidAmerica Federal Savings Bank and adopts this
Plan as its own pursuant to Section 13.2.
"CONTRACT" means a life insurance policy or annuity contract.
"CONTRIBUTION PERCENTAGE" means the ratio (expressed as a percentage) of
the Participant's Contribution Percentage Amounts to the Participant's
Total Compensation for the Plan Year (whether or not the Employee was a
Participant for the entire Plan Year).
"CONTRIBUTION PERCENTAGE AMOUNTS" means the sum of the Employee Voluntary
Contributions, Matching Contributions, Qualified Matching Contributions (to
the extent not taken into account for purposes of the ADP test), and
Qualified Non-elective Contributions (to the extent not take into account
for purposes of the ADP test) made under the Plan on behalf of the
Participant for the Plan Year. Such Contribution Percentage Amounts
shall not include Matching Contributions that are forfeited either to
correct Excess Aggregate Contributions or because the contributions to
which they relate
<PAGE>
are Excess Deferrals, Excess Contributions, or Excess Aggregate
Contributions. Elective Deferrals (to the extent not taken into account for
purposes of the ADP test) may be included in the Contribution Percentage
Amounts.
"DIRECT ROLLOVER" means a payment by the Plan to the Eligible Retirement
Plan specified by the Distributee.
"DISABILITY" means only a disability which renders the Participant unable,
as a result of bodily or mental disease or injury, to perform the duties
for an Employer for which he was responsible prior to the occurrence of
such bodily or mental disease or injury, which disability is expected to be
permanent or of long and indefinite duration. However, this term shallnot
include any disability directly or indirectly resulting from or related to
habitual drunkenness or addiction to narcotics, a criminal act occurring
while compensation to the Participant is suspended, or any injury which is
intentionally self-inflicted. Further, this term shall apply only if (i)
the Participant is sufficiently disabled to qualify for the payment of
disability benefits under the federal Social Security Act or Veterans
Disability Act; or (ii) the Participant's disability is certified by a
physician selected by the Committee.
Unless the Participant is sufficiently disabled to qualify for disability
benefits under the federal Social Security Act or Veterans Disability Act,
the Committee may require the Participant to be appropriately examined from
time to time by one or more physicians chosen by the Committee, and no
Participant who refuses to be examined shall be treated as having a
disability. In any event, the Committee's good faith decision as to
whether a Participant's Service has been terminated by disability shall be
final and conclusive.
"DISCRETIONARY CONTRIBUTION" means an optional Employer Contribution made
to the Plan, with the amount of the contribution, if any, determined by the
Employer each Plan Year.
"DISTRIBUTEE" means an Employee or former Employee. In addition, the
Employee's or former Employee's surviving Spouse and the Employee's or
former Employee's Spouse or former spouse who is the alternate payee under
a qualified domestic relations order, as defined in Section 414(p) of the
Code, are Distributees with regard to the interest of the Spouse or former
spouse.
"EARLY RETIREMENT" means retirement on or after a Participant's attainment
of age 55.
"ELECTIVE DEFERRAL CONTRIBUTION" means any Employer contribution to the
Plan that is made pursuant to a Participant's Elective Deferral, in lieu of
cash compensation. With respect to any taxable year, an Elective Deferral
Contribution is the sum of all Employer Contributions made on behalf of
such Participant pursuant to Section 4.1(a). The Elective Deferral
Contribution shall not include any deferrals properly distributed as excess
annual additions.
<PAGE>
"ELECTIVE DEFERRAL ACCOUNT" means an account established and maintained for
a Participant with respect to his Elective Deferral Contribution made
pursuant to Section 4.1(a).
"ELIGIBLE RETIREMENT PLAN" means an individual retirement account described
in Section 408(a) of the Code, an individual retirement annuity described
in Section 408(b) of the Code, an annuity plan described in Section 403(a)
of the Code, or a qualified trust described in Section 401(a) of the Code,
that accepts the Distributee's Eligible Rollover Distribution. However, in
the case of an Eligible Rollover Distribution to the surviving Spouse, an
Eligible Retirement Plan is an individual retirement account or an
individual retirement annuity.
"ELIGIBLE ROLLOVER DISTRIBUTION" means any distribution of all or any
portion of the balance to the credit of the Distributee, except that an
Eligible Rollover Distribution may not include:
(a) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the
life (or life expectancy) of the Distributee and the Distributee's
designated Beneficiary; or
(b) any distribution for a specified period of ten years or more; or
(c) any distribution to the extent such distribution is required under
section 401(a)(9) of the Code; or
(d) the portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to Employer Stock).
"EMPLOYEE" means any individual who is or has been employed or self-
employed by the Company. "Employee" shall also mean any Employee of the
Company maintaining the Plan or of any other Company required to be
aggregated with such Company under Sections 414(b), (c), (m), or (o) of the
Code. "Employee" also means an individual employed by a leasing
organization who, pursuant to an agreement between the Company and the
leasing organization, has performed services for the Company and any
related persons (within the meaning of Section 414(n) or (o) of the Code)
on a substantially full-time basis for more than one year, if such services
are of a type historically performed by employees in the Company's business
field. However, such a "leased employee" shall not be considered an
Employee if (i) he participates in a money purchase pension plan sponsored
by the leasing organization which provides for immediate participation,
immediate full vesting, and an annual contribution of at least 10 percent
of the Employee's Cash Compensation; and (ii) leased employees do not
constitute more than 20% of the Employer's total work force (including
leased employees, but excluding Highly Paid Employees and any other
employees who have not performed services for the Employer on a
substantially full-time basis for at least one year).
<PAGE>
"EMPLOYER" means the Company or any affiliate within the purview of Section
414(b), (c), or (m), and 415(h) of the Code, any other corporation,
partnership, or proprietorship which adopts this Plan with the Company's
consent pursuant to Section 13.1, and any entity which succeeds to the
business of any Employer and adopts the Plan pursuant to Section 13.2.
"EMPLOYER CONTRIBUTION ACCOUNT" means an account established and maintained
for a Participant with respect to Employer Matching Contributions, Employer
Discretionary Contributions, Qualified Employer Matching Contributions, and
Qualified Employer Non-elective Contributions.
"EMPLOYER STOCK" means shares of the Company's voting common stock or
preferred stock meeting the requirements of Section 409(e)(3) of the Code
issued by an Employer or an affiliated corporation. Such term shall
specifically include the voting common or preferred stock of MAF Bancorp,
Inc., the Company's holding company.
"ENTRY DATE" means January 1 and July 1 of each Plan Year. "ERISA" means
the Employee Retirement Income Security Act of 1974(P.L. 93-406, as
amended).
"EXCESS AGGREGATE CONTRIBUTIONS" means, with respect to any Plan Year, the
excess of the aggregate amount of the Employer Matching Contributions made
pursuant to Section 4.1(b) and (d), and any Qualified Non-elective
Contributions or Elective Deferral Contributions taken into account
pursuant to Section 4.8 on behalf of Highly Compensated Participants for
such Plan Year, over the maximum amount of such contributions permitted
under the limitations as set forth in Section 6.
"EXCESS CONTRIBUTIONS" means, with respect to any Plan Year, the excess of
Elective Deferral Contributions made on behalf of Highly Compensated
Participants for the Plan Year over the maximum amount of such
contributions permitted as set forth in Section 4.5. Excess Contributions
shall be treated as an "annual addition" pursuant to Section 6.1.
"EXCESS ELECTIVE DEFERRALS" means those Elective Deferral Contributions
that are includible in a Participant's gross income under Section 402(g) of
the Code to the extent such Participant's Elective Deferral Contributions
for a taxable year exceed the dollar limitation under such Code section.
Excess Elective Deferral Contributions shall be treated as annual additions
under the Plan, unless such amounts are distributed no later than the first
April 15 following the close of the Participant's taxable year.
"FAMILY MEMBER" means, with respect to an affected Participant, such
Participant's Spouse, such Participant's lineal descendants and ascendants,
and their spouses, as described in Section 414(q)(6)(B) of the Code.
<PAGE>
"FISCAL YEAR" means the Employer's accounting year of 12 months beginning
on July 1 and ending on June 30 of the following year.
"FORFEITURE" means that portion of a Participant's Account that is not
Vested, and occurs after a 1-Year Break in Service.
"GENERAL FUND" means all the investments in the Trust, as set forth in
Section 7.1, which have been made with Matching Contributions,
Discretionary Contributions, Qualified Matching Contributions, Qualified
Non-elective Contributions, Employee Voluntary Contributions, and Employee
Rollover Contributions, plus the income (or loss) from these investments,
shall be treated as from a single fund, with the following exception.
Vested assets which have been directed by Plan Participants to be invested
in Employer Stock, as set forth in Section 7.2, shall be segregated and
held in the Employer Stock Fund.
"HIGHLY COMPENSATED EMPLOYEE" for any Plan Year means an Employee who,
during either of that or the immediately preceding Plan Year (i) owned
more than five percent of the outstanding equity interest or the
outstanding voting interest in any Employer; (ii) had Total Compensation
exceeding $75,000 (as adjusted pursuant to Section 415(d) of the Code);
(iii) had Total Compensation exceeding $50,000 (as adjusted pursuant to
Section 415(d) of the Code) and was among the most highly compensated one-
fifth of all Employees; or (iv) was at any time an officer of an Employer
and had Total Compensation exceeding $45,000 (or 50% of the currently
applicable dollar limit under Section 415(b)(1)(A) of the Code).
For this purpose:
(a) "Total Compensation" shall include any amount which is excludable from
the Employee's gross income for tax purposes pursuant to Sections 125,
402(a)(8), 401(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated one-fifth of
all Employees" shall be determined by taking into account all
individuals working for all related Employer entities described in the
definition of "Service", but excluding any individual who has not
completed six months of Service, who normally works fewer than 17 1/2
hours per week or in fewer than six months per year, who has not
reached age 21, whose employment is covered by a collective bargaining
agreement, or who is a nonresident alien who receives no earned income
from United States sources.
(c) The number of individuals counted as "officers" shall not be more than
the lesser of (i) 50 individuals; or (ii) the greater of 3
individuals or 10 percent of the total number of Employees. If no
officer earns more than $45,000 (or the adjusted limit), then the
highest paid officer shall be a Highly Compensated Employee.
<PAGE>
(d) A former Employee shall be treated as a Highly Compensated Employee if
such Employee was a Highly Compensated Employee when such Employee
separated from service, or if such Employee was a Highly Compensated
Employee at any time after attaining age 55.
If an Employee is, during a determination year or look-back year, a Family
Member of either a 5 percent owner who is an active or former Employee or
Highly Compensated Employee who is one of the 10 most Highly Compensated
Employees ranked on the basis of Total Compensation paid by the Employer
during such year, then the Family Member and the 5 percent owner or top-ten
Highly Compensated Employee shall be aggregated. In such case, the Family
Member and 5 percent owner or top-ten Highly Compensated Employee shall be
treated as a single Employee receiving compensation and plan contributions
or benefits equal to the sum of such compensation and contributions or
benefits of the Family Member and 5 percent owner or top-ten Highly
Compensated Employee. For purposes of this section, Family Member includes
the Spouse, lineal ascendants and descendants of the Employee or former
Employee, and the spouses of such lineal ascendants and descendants.
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid
group, the top 100 Employees, the number of Employees treated as officers,
and the compensation that is considered, will be made in accordance with
Section 414(q) of the Code and the regulations thereunder.
"HOURS OF SERVICE" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled to be paid for
services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly paid or is
entitled to be paid for a period of vacation, holidays, illness,
disability, layoff, jury duty, temporary military duty, or leave of
absence is an Hour of Service. However, except as otherwise
specifically provided, no more than 501 Hours of Service shall be
credited for any single continuous period which an Employee performs
no duties. Further, no Hours of Service shall be credited on account
of payments made solely under a plan maintained to comply with
worker's compensation, unemployment compensation, or disability
insurance laws, or to reimburse an Employee for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of damages) is
either awarded or agreed to by the Employer is an Hour of Service.
However, no more than 501 Hours of Service shall be credited for any
single continuous period during which an Employee would not have
performed any duties.
<PAGE>
(d) Hours of Service shall be credited in any one period only under one of
the foregoing paragraphs (a), (b), and (c); an Employee may not get
double credit for the same period.
(e) If an Employer finds it impractical to count the actual Hours of
Service for any class or group of non-hourly Employees, each Employee
in that class or group shall be credited with 45 Hours of Service for
each weekly pay period in which he has at least one Hour of Service.
However, an Employee shall be credited only for his normal working
hours during a paid absence.
(f) Hours of Service to be credited on account of a payment to an Employee
(including back pay) shall be recorded in the period of Service for
which the payment was made. If the period overlaps two or more Plan
Years, the Hours of Service credit shall be allocated in proportion to
the respective portions of the period included in the several Plan
Years. However, in the case of periods of 31 days or less, the
Committee may apply a uniform policy of crediting the Hours of Service
to either the first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be counted as
required by Section 2530.200b-2(b) and (c) of the Department of
Labor's regulations under Title I of ERISA.
"INVESTMENT MANAGER" means an entity that (i) has the power to manage,
acquire, or dispose of Plan assets, and (ii) acknowledges fiduciary
responsibility to the Plan in writing. Such entity must be a person, firm,
or corporation registered as an investment adviser under the Investment
Advisors Act of 1940 and the Investment Advisor Regulatory Enhancement and
Disclosure Act of 1993.
"MATCHING CONTRIBUTION" means an Employer Contribution made to this Plan
for a Participant based on such Participant's Elective Deferral.
"NORMAL RETIREMENT DATE" means a Participant's 65th birthday.
"1-YEAR BREAK IN SERVICE" means a Plan Year during which an Employee has
not completed more than 500 Hours of Service and is not employed on the
last day of the Plan Year.
"PARTICIPANT" means any Employee who is participating in the Plan, or who
has previously participated in the Plan and still has a balance credited to
his Account.
"PLAN" means this document for the MidAmerica Federal Savings Bank
Employees' Profit Sharing Plan, including all amendments thereto.
"PLAN YEAR" means each period of 12 consecutive months beginning on July 1
of 1983 and each succeeding year.
<PAGE>
"QUALIFIED DOMESTIC RELATIONS ORDER" (QDRO) means a domestic relations
order which relates to an alternate payee's right to receive all or a
portion of the benefits payable to a Participant under this Plan, with the
provision of child support, alimony payments, or marital property rights to
a Spouse, former spouse, child, or other dependent of a Participant, that
the Committee has determined meets the requirements of Section 414(p) of
the Code.
"QUALIFIED MATCHING CONTRIBUTIONS" means the Employer Contributions to the
Plan that are made pursuant to Section 4.1(d), which are subject to the
distribution and nonforfeitability requirements of Section 401(k) of the
Code.
"QUALIFIED NON-ELECTIVE CONTRIBUTIONS" means the Employer contributions to
the Plan that are made pursuant to Section 4.1(e), which are subject to the
distribution and nonforfeitability requirements of Section 401(k) of the
Code.
"RECOGNIZED ABSENCE" means a period for which
(a) an Employer grants an Employee a leave of absence for a limited
period, but only if an Employer grants such leaves on a
nondiscriminatory basis; or
(b) an Employee is temporarily laid off by an Employer because of a change
in business conditions; or
(c) an Employee is on active military duty, but only to the extent that
his employment rights are protected by the Military Selective Service
Act of 1967 (38 U.S.C. Section 2021).
"ROLLOVER CONTRIBUTION ACCOUNT" means an account established and maintained
for a Participant with respect to his Direct Rollover or Rollover
Contributions made pursuant to Sections 4.2(b) and 5.1(c).
"SERVICE" means an Employee's period(s) of employment or self-employment
with an Employer, excluding for initial eligibility purposes any period in
which the individual was a nonresident alien and did not receive from an
Employer any earned income which constituted income from sources within the
United States. An Employee's Service shall include any service which
constitutes service with a predecessor employer within the meaning of
Section 414(a) of the Code. An Employee's Service shall also include any
service with an entity which is not an Employer, but only either (i) for a
period after 1975 in which the other entity is a member of a controlled
group of corporations or is under common control with other trades and
businesses within the meaning of Section 414(b) or 414(c) of the Code, and
a member of the controlled group or one of the trades and businesses is an
Employer; or (ii) for a period after 1979 in which the other entity is a
member of an affiliated service group within the meaning of Section 414(m)
of the Code, and a member of the affiliated service group is an Employer.
<PAGE>
"SPOUSE" means the individual, if any, to whom a Participant is lawfully
married on the date benefit payments to the Participant are to begin, or on
the date of the Participant's death, if earlier.
"SUSPENSE ACCOUNT" means the total forfeitable portion of all former
Participants' Accounts which have not yet become a Forfeiture during any
Plan Year.
"TOTAL COMPENSATION" means a Participant's wages, salary, overtime,
bonuses, commissions, and any other amounts received for personal services
rendered while in Service from any Employer or an Affiliate (within the
purview of Section 414(b), (c), and (m) of the Code, plus his earned income
from any such entity as defined in Section 401(c)(2) of the Code if he is
self-employed. Total Compensation shall include (i) severance payments and
amounts paid as a result of termination, (ii) amounts excludable from
gross income under Section 911 or deductible under Section 913 of the Code,
(iii) amounts described in Sections 104(a)(3), 105(a), and 105(h) of the
Code to the extent includable in gross income, (iv) amounts described in
Section 105(d) of the Code, (v) amounts received from an Employer for
moving expenses which are not deductible under Section 217 of the Code,
(vi) amounts includable in gross income in the year of, and on account of,
the grant of a nonqualified stock option, (vii) amounts includable in
gross income pursuant to Section 83(b) of the Code, (viii) amounts
includable in gross income under an unfunded nonqualified plan of deferred
compensation; but shall exclude (ix) Employer contributions to or amounts
received from a funded or qualified plan of deferred compensation, (x)
Employer contributions to a simplified employee pension account to the
extent deductible under Section 219 of the Code, (xi) Employer
contributions to a Section 403(b) annuity contract, (xii) amounts
includable in gross income pursuant to Section 83(a) of the Code, (xiii)
amounts includable in gross income upon the exercise of nonqualified stock
option or upon the disposition of stock acquired under any stock option,
and (xiv) any other amounts expended by the Employer on the Participant's
behalf which are excludable from his income or which receive special tax
benefits.
A Participant's Total Compensation shall exclude any compensation in any
limitation year beginning after 1988 in excess of $200,000 (or the limit
currently in effect under Section 401(a)(17) of the Code).
"TRUST" or "TRUST FUND" means the trust fund created under this Plan.
"TRUSTEE" means the individuals selected from time to time by the Company
to serve as co-trustees of the Trust Fund.
"VALUATION DATE" means the last day of the Plan Year (June 30), the last
day of each quarter during the Plan Year (September 30, December 31, March
31, and June 30), and any other dates selected by the Committee, on which
the income (or losses) for the Trust Fund shall be allocated.
<PAGE>
"VESTED" means the nonforfeitable portion of any account maintained on
behalf of a Participant.
"VESTING YEAR" means a period of Service credited to a Participant pursuant
to Section 8.2 for purposes of determining his Vested interest.
"VOLUNTARY CONTRIBUTION ACCOUNT" means an account established and
maintained for a Participant with respect to his nondeductible Voluntary
Contributions made pursuant to Section 4.2(a) and 5.1(b).
"YEAR OF SERVICE" means the computation period of 12 consecutive months
during which an Employee has at least 1000 Hours of Service.
For purposes of eligibility for participation, the initial computation
period shall begin with the date on which the Employee first performs an
Hour of Service. The participation computation period beginning after a 1-
Year Break in Service shall be measured from the date on which an Employee
again performs an Hour of Service. The participation computation period
shall shift to the Plan Year which includes the anniversary of the date on
which the Participant first performed an Hour of Service.
A Year of Service for vesting purposes will begin, for the first 12-month
period, with the date on which the Employee first performs an Hour of
Service. In the subsequent 12-month periods, it will begin on the first
day of the Plan Year containing the first anniversary of the Employee and
will end on the last day of that Plan Year, and each Plan Year thereafter.
SECTION 3 - ELIGIBILITY FOR PARTICIPATION
-----------------------------------------
3.1 Eligibility to Receive Employer Matching Contributions and Employer
-------------------------------------------------------------------
Discretionary Contributions.
---------------------------
(a) Initial Eligibility.
An Employee of the Company who
(I) has completed one Year of Service, and
(ii) has attained the age of 21,
shall be eligible to participate in the Plan as of the Entry Date
coinciding with or next following the later of the following dates:
<PAGE>
(I) the last date of the Employee's first Eligibility Year, or
(ii) the Employee's 21st birthday.
However, if an Employee is not in active Service with an Employer on the
date he would otherwise first be eligible to participate in the Plan, his
eligibility to participate in the Plan shall be deferred until the next day
he is in Service.
(b) Eligibility Year.
An "Eligibility Year" means an applicable eligibility period (as defined
below) in which the Employee has at least 1,000 Hours of Service. For this
purpose:
(I) an Employee's first "eligibility period" is the 12-consecutive month
period beginning on the first day on which he performs an Hour of
Service, and
(ii) his succeeding 12-consecutive month periods commence with the first
Plan Year which commences prior to the first anniversary of the
Employee's employment commencement date, regardless of whether the
Employee is entitled to be credited with 1,000 Hours of Service during
the initial eligibility computation period.
(c) Recognized Absence.
An Employee shall be considered employed for his normal hours of paid
employment during a Recognized Absence, unless he does not resume his
Service at the end of the Recognized Absence.
(d) Maternity or Paternity Leave.
Beginning on or after January 1, 1985, if any Employee is absent for any
period
(i) by reason of the Employee's pregnancy,
(ii) by reason of the birth of the Employee's child,
(iii) by reason of the placement of a child with the Employee in
connection with the Employee's adoption of the child, or
(iv) for purposes of caring for such child for a period beginning
immediately after such birth or placement,
the Employee shall be credited with the Hours of Service which would
normally have been credited but for such absence, up to a maximum of 501
Hours of Service, in the first 12-month period which would otherwise be
counted toward a Break in Service.
<PAGE>
(e) Certain Employees Ineligible.
No Employee shall be eligible to participate while his Service is covered
by a collective bargaining agreement between an Employer and the Employee's
collective bargaining agreement if
(i) retirement benefits have been the subject of good faith bargaining
between the Employer and the representative, and
(ii) the collective bargaining agreement does not provide for the
Employee's participation.
(f) Enrollment.
The Employer shall notify all Employees when they become eligible to
participate in the Plan and shall instruct them that they may elect not to
participate. Upon request, the Committee shall provide eligible Employees
with an Agreement of Non-Participation.
(g) Waiver of Participation.
An eligible Employee may elect not to become a Participant in the Plan by
signing and delivering to the Committee the Agreement of Non-Participation
within ninety (90) days after receiving it.
Any Employee who elects not to become a Participant as of the first Entry
Date on which he was eligible may become a Participant as of any succeeding
Entry Date if he is still eligible by executing a revocation of this
Agreement of Non-Participation and delivering the same to the Committee
within ninety (90) days of any succeeding Entry Date.
(h) Participation and Reparticipation.
Subject to the satisfaction of the foregoing requirements, an Employee
shall participate in the Plan during each period of his Service from the
date on which he first becomes eligible until his termination. For this
purpose, an Employee returning within five years of his termination who
previously satisfied the initial eligibility requirements for Employer
Matching, Employer Discretionary, Qualified Matching, and Qualified Non-
elective Contributions shall re-enter the Plan as of the date of his return
to Service with an Employer.
3.2 Eligibility to Make Elective Deferral Contributions.
---------------------------------------------------
(a) Initial Eligibility.
(i) Employees hired or rehired beginning with July 1, 1994.
<PAGE>
Effective with the Plan Year beginning on July 1, 1994, an Employee of
the Company who has completed one Year of Service shall be eligible to
elect to defer a portion of his Cash Compensation as of theEntry Date
coinciding with or next following the completion of one Year of
Service. A Year of Service is a period of 12 consecutive months during
which an Employee has at least 1000 Hours of Service.
However, if an Employee is not in active Service with an Employer on
the date he would otherwise first be eligible to participate in the
Plan, his eligibility to participate in the Plan shall be deferred
until the next day he is in Service.
There is no minimum age requirement for a Participant to be eligible
to defer a portion of his Cash Compensation.
(ii) Employees hired or regired prior to July 1, 1994.
An Employee hired or regired prior to July 1, 1994 is eligible to
elect to defer a portion of his Cash Compensation, with no Year of
Service requirement and no minimum age requirement.
(b) Enrollment.
An Employee shall elect to become a Participant by signing and delivering
to the Committee an Agreement of Participation.
<PAGE>
SECTION 4 - CONTRIBUTIONS
-------------------------
4.1 Contributions by Employer.
-------------------------
All Employees shall be eligible to defer a portion of their Cash
Compensation as Elective Deferrals.
An Employee shall be eligible to receive an Employer Matching, Employer
Discretionary, Qualified Matching, and Qualified Non-elective Contributions
if he is an Active Participant.
Active Participant means a Participant who has satisfied the eligibility
requirements for these contributions, as set forth in Section 3.1, and who
has at least 1,000 Hours of Service during the current Plan Year. However,
a Participant shall not qualify as an Active Participant unless (i) he is
in active Service with an Employer on the last day of the Plan Year, or
(ii) his Service terminated during the Plan Year by reason of death.
For each Plan Year, the Employer shall contribute to the Plan:
(a) Elective Deferral Contributions.
Effective with the Plan Year beginning on July 1, 1987, an amount
equal to the total Elective Deferrals of all Participants during the
Plan Year.
The balance in each Participant's Elective Deferral Account shall be
100% vested and not subject to Forfeiture for any reason.
(i) Each Employee may elect to defer an amount not to exceed the
lesser of 15% of his Cash Compensation or the dollar limitation
contained in Section 402(g) of the Code in effect at the
beginning of such taxable year.
(ii) A Participant may elect to change the amount of his Elective
Deferral, cancel his Elective Deferral, or resume his Elective
Deferral once each quarter, or more frequently at the discretion
of the Committee.
(iii) The termination of a Participant's Service with an Employer
shall be deemed to revoke any Elective Deferral agreement then
in effect, effective immediately following the close of the pay
period within which such termination occurs.
(iv) A Participant may elect to change his Elective Deferral
investment selections once each quarter, or more frequently at
the discretion of the Committee.
(b) Matching Contributions.
Effective with the Plan Year beginning on July 1, 1987, pursuant to
Section 3.1, an amount equal to 25% of the Elective Deferrals made by
Active Participants after their
<PAGE>
Entry Date. This contribution shall be limited to Elective Deferrals
which do not exceed 2% of a Participant's Cash Compensation. The balance
in a Participant's Employer Contribution Account based on Matching
Contributions shall be subject to the vesting schedule set forth in
Section 8.1.
(c) Discretionary Contributions.
An additional discretionary amount may be contributed from current or
accumulated net earnings by the Employer.
The balance in a Participant's Employer Contribution Account based on
Discretionary Contributions shall be subject to the vesting schedule set
forth in Section 8.1.
(d) Qualified Matching Contributions.
Qualified Matching Contributions may be made to Non-highly Compensated
Active Participants in order to satisfy the ADP and/or the ACP tests. The
Committee shall determine the amount to be allocated in order to satisfy
the ADP and/or the ACP tests.
Qualified Matching Contributions shall be 100% vested and not subject to
Forfeiture for any reason.
(e) Qualified Non-elective Contributions.
Qualified Non-elective Contributions may be made to Non-highly
Compensated Active Participants in order to satisfy the ADP and/or the
ACP tests. The Committee shall determine the amount to be allocated in
order to satisfy the ADP and/or ACP tests. Qualified Non-elective
Contributions shall be 100% vested and not subject to Forfeiture for any
reason.
4.2 Contributions by Participants
-----------------------------
(a) Nondeductible Voluntary Contributions.
A Participant may elect to contribute an amount not to exceed 10% of his
Cash Compensation as a nondeductible Voluntary Contribution.
The balance in a Participant's Voluntary Contribution Account shall be
100% vested and not subject to Forfeiture for any reason.
(b) Rollover Contributions.
If a Participant in this Plan receives a distribution from another
qualified retirement plan in which he was a participant, or if a
Participant in this Plan receives a distribution from his Conduit IRA,
other than a required minimum distribution, then a Rollover
<PAGE>
Contribution to this Plan may be made on or before the 60th day after the
distribution was received by the Participant.
Effective January 1, 1993, a Participant who is eligible to receive an
Eligible Rollover Distribution from an employee's trust (as described in
Section 401(a) of the Code and tax exempt under Section 501(a) of the
Code); or an annuity plan (as described in Section 403(a) of the Code);
or an individual retirement account (as described in Section 408(a) of
the Code); or an individual retirement annuity (as described in Section
408(b) of the Code) may, pursuant to Section 401(a)(31) of the Code and
with the consent of the Trustee, have such distribution processed as a
Direct Rollover to this Plan.
The balance in a Participant's Rollover Contribution Account shall be
100% vested and not subject to Forfeiture for any reason.
4.3 Excess Elective Deferral Contributions.
--------------------------------------
If a Participant's Elective Deferral Contributions under this Plan,
together with any elective deferrals (as defined in Regulation 1.402(g)-
1(b)) made in another qualified cash or deferred arrangement (under Section
401(k) of the Code), a simplified employee pension plan (under Section
408(k) of the Code), a salary reduction arrangement (under Section
3121(a)(5)(D) of the Code), a deferred compensation plan under Section 457
of the Code), or a trust described in Section 501(c)(18) of the Code,
exceed the limitation of Section 402(g) of the Code for such Participant's
taxable year, the Participant may, not later than March 1 following the
close of his taxable year, notify the Committee in writing of such excess,
and request the withdrawal of his Excess Elective Deferrals from this Plan.
Upon proper notification by the Participant, the Committee may direct the
Trustee to distribute the excess amount (including any income attributable
to such excess amount) to the Participant not later than April 15 following
the close of the Participant's taxable year.
4.4 Actual Deferral Percentage Test.
-------------------------------
The Actual Deferral Percentage (hereinafter referred to as "ADP") for
Participants who are Highly Compensated Employees for each Plan Year and
the ADP for Participants who are Non-highly Compensated Employees for the
same Plan Year must satisfy one of the following tests:
The average of the ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the average of the ADP
for Participants who are Non-highly Compensated Employees for the same
Plan Year multiplied by 1.25; or
The average of the ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the average of the ADP
for Participants who are Non-highly Compensated Employees for the same
Plan Year multiplied by 2.0, provided that the average of the ADP for
Participants who are Highly Compensated Employees does not
<PAGE>
exceed the average of the ADP for Participants who are Non-highly
Compensated Employees by more than two percentage points.
The ADP for any participant who is a Highly Compensated Employee for
thePlan Year and who is eligible to have Elective Deferrals (and Qualified
Non-elective Contributions or Qualified Matching Contributions, or both, if
treated as Elective Deferrals for purposes of the ADP test) allocated to
his account under two or more arrangements described in Section 401(k) of
the code, that are maintained by the Employer, shall be determined as if
such Elective Deferrals (and, if applicable, such Qualified Non-elective
Contributions or Qualified Matching Contributions, or both) were made under
a single arrangement. If a Highly Compensated Employee participates in two
or more cash or deferred arrangements that have different Plan Years, all
cash or deferred arrangements ending with or within the same calendar year
shall be treated as a single arrangement. Notwithstanding the foregoing,
certain plans shall be treated as separate if mandatorily disaggregated
under regulations under Section 401(k) of the Code.
In the event that this Plan satisfies the requirements of Sections 401(k),
401(a)(4), or 410(b) of the Code only if aggregated with one or more other
plans, or if one or more other plans satisfy the requirements of such
sections of the Code only if aggregated with this Plan, then this section
shall be applied by determining the ADP of employees as if all such plans
were a single plan. For Plan Years beginning after December 31, 1989, plans
may be aggregated in order to satisfy Section 401(k) of the Code only if
they have the same Plan Year.
For purposes of determining the ADP of a Participant who is a 5% owner or
one of the ten most highly-paid Highly Compensated Employees, the Elective
Deferral Contributions (and Qualified Non-elective Contributions or
Qualified Matching Contributions, or both, if treated as Elective Deferral
Contributions for purposes of the ADP test) and Total Compensation of such
Participant shall include the Elective Deferral Contributions (and, if
applicable, Qualified Non-elective Contributions and Qualified Matching
Contributions, or both) and Total Compensation for the Plan Year of Family
Members (as defined in Section 414(q)(6) of the Code). Family Members, with
respect to such Highly Compensated Employees, shall be disregarded as
separate Employees in determining the ADP both for Participants who are No
highly Compensated Employees and for Participants who are Highly
Compensated Employees.
For purposes of determining the ADP test, Elective Deferrals, Qualified No
elective Contributions, and Qualified Matching Contributions must be made
before the last day of the 12-month period immediately following the Plan
Year to which such contributions relate.
The Employer shall maintain records sufficient to demonstrate satisfaction
of the ADP test and the amount of Qualified Non-elective Contributions or
Qualified Matching Contributions, or both, used in such test.
The determination and treatment of ADP amounts of any Participant shall
satisfy such other requirements as may be prescribed by the Secretary of
the Treasury.
<PAGE>
4.5 Excess Contributions.
--------------------
Notwithstanding any other provision of this Plan, Excess Contributions,
plus any income and minus any loss allocable thereto, shall be distributed
no later than the last day of each Plan Year to Participants to whose
accounts such Excess Contributions were allocated for the preceding Plan
Year. If such excess amounts are distributed more than 2 1/2 months after
the last day of the Plan Year in which such excess amounts arose, a 10%
excise tax will be imposed on the Employer maintaining the Plan with
respect to such amounts. Such distributions shall be made to Highly
Compensated Employees on the basis of the respective portions of the Excess
Contributions attributable to each such Employee. Excess Contributions of
Participants who are subject to Family Member aggregation rules shall be
allocated among the Family Members in proportion to the Elective Deferrals
(and amounts treated as Elective Deferrals) of each Family Member that are
combined to determine the combined ADP.
Excess Contributions (including the amounts recharacterized) shall be
treated as annual additions under the Plan.
Excess Contributions shall be adjusted for any income or loss up to the
date of distribution. The income or loss allocable to Excess Contributions
is the sum of (i) the income or loss allocable to the Participant's
Elective Deferral Account (and, if applicable, the Qualified Non-elective
Contribution account or the Qualified Matching Contribution account, or
both) for the Plan Year multiplied by a fraction, the numerator of which is
such Participant's Excess Contributions for the Plan Year and the
denominator is the Participant's account balance attributable to Elective
Deferrals (and Qualified Non-elective Contributions or Qualified Matching
Contributions, or both, if any such contributions are included in the ADP
test) without regard to any income or loss occurring during such Plan Year;
and (ii) 10% of the amount determined under (i) multiplied by the number of
whole calendar months between the end of the Plan Year and the date of
distribution, counting the month of distribution if the distribution occurs
after the 15th of such month.
Excess Contributions shall be distributed from the Participant's Elective
Deferral Account and Qualified Matching Contribution Account (if
applicable) in proportion to the Participant's Elective Deferrals and
Qualified Matching Contributions (to the extend used in the ADP test) for
the Plan Year. Excess Contributions shall be distributed from the
Participant's Qualified Non-elective Contribution Account only to the
extent that such Excess Contributions exceed the balance in the
Participant's Elective Deferral Account and Qualified Matching Contribution
Account.
4.6 Recharacterization.
------------------
A Participant may treat his Excess Contributions as an amount distributed
to the Participant and then contributed by the Participant to the Plan as a
Voluntary Contribution. Recharacterized amounts will remain nonforfeitable
and subject to the same distribution
<PAGE>
requirements as Elective Deferrals. Amounts may not be recharacterized by a
Highly Compensated Employee to the extent that such amount in combination
with other Voluntary Contributions made by that Employee would exceed 10%
of his Cash Compensation, as set for in Sections 4.2(a) and 5.1(b).
Recharacterization must occur no later than 2 1/2 months after the last day
of the Plan Year in which such Excess Contributions arose, and is deemed to
occur no earlier than the date the last Highly Compensated Employee is
informed in writing of the amount recharacterized and the consequences
thereof. Recharacterized amounts will be taxable to the Participant for the
Participant's tax year in which the Participant would have received them in
cash.
Recharacterized amounts will be treated as Employer Contributions for
purposes of Sections 404, 409, 411, 412, 415, 416, and 417 of the Code.
4.7 Actual Contribution Percentage Test.
-----------------------------------
The Actual Contribution Percentage (hereinafter referred to as "ACP") for
Participants who are Highly Compensated Employees for each Plan Year and
the ACP for Participants who are Non-highly Compensated Employees for the
same Plan Year must satisfy one of the following tests:
The average of the ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the average of the ACP
for Participants who are Non-highly Compensated Employees for the same
Plan Year multiplied by 1.25; or
The average of the ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the average of the ACP
for Participants who are Non-highly Compensated Employees for the same
Plan Year multiplied by 2.0, provided that the average of the ACP for
Participants who are Highly Compensated Employees does not exceed the
average of the ACP for Participants who are Non-highly Compensated
Employees by more than two percentage points.
Multiple use: If one or more Highly Compensated Employees participate in
both a CODA and a plan subject to the ACP test maintained by the Employer,
and the sum of the ADP and ACP of those Highly Compensated Employees
subject to either or both tests exceeds the Aggregate Limit, then the ACP
of those Highly Compensated Employees who also participate in a CODA will
be reduced (beginning with such Highly Compensated Employee whose ACP is
the highest) so that the limit is not exceeded. The amount by which each
Highly Compensated Employee's Contribution Percentage Amount is reduced
shall be treated as an Excess Aggregate Contribution. The ADP and ACP of
the Highly Compensated Employees are determined after any corrections
required to meet the ADP and ACP tests. Multiple use does not occur if
either the ADP or ACP of the Highly Compensated Employees does not exceed
1.25 multiplied by the ADP and ACP of the Non-highly Compensated Employees.
<PAGE>
For purposes of this section, the Contribution Percentage for any
Participant who is a Highly Compensated Employee and who is eligible to
have Contribution Percentage Amounts allocated to his account under two or
more plans described in Section 401(a) of the Code, or arrangements
described in Section 401(k) of the Code that are maintained by the
Employer, shall be determined as if the total of such Contribution
Percentage Amounts was made under each plan. If a Highly Compensated
Employee participates in two or more cash or deferred arrangements that
have different plan years, all cash or deferred arrangements ending with or
within the same calendar year shall be treated as a single arrangement.
Notwithstanding the foregoing, certain plans shall be treated as separate
plans if mandatorily disaggregated under regulations under Section 401(m)
of the Code.
In the event that this Plan satisfies the requirements of Sections 401(m),
401(a)(4), or 410(b) of the Code only if aggregated with one or more other
plans, or if one or more other plans satisfy the requirements of such
sections of the Code only if aggregated with this Plan, then this section
shall be applied by determining the Contribution Percentage of Employees as
if all such plans were a single plan. For plan years beginning after
December 31, 1989, plans may be aggregated in order to satisfy Section
401(m) of the Code only if they have the same Plan Year. For purposes of
determining the Contribution Percentage of a Participant who is a 5% owner
or one of the ten most highly-paid Highly Compensated Employees, the
Contribution Percentage Amount and Total Compensation of such Participant
shall include the Contribution Percentage Amount and Total Compensation for
the Plan Year of Family Members (as defined in Section 414(q)(6) of the
Code). Family Members, with respect to Highly Compensated Employees, shall
be disregarded as separate employees in determining the Contribution
Percentage both for Participants who are Non-highly Compensated and for
Participants who are Highly Compensated Employees.
For purposes of the ACP test, Employee Voluntary Contributions are
considered to have been made in the Plan Year in which contributed to the
Trust. Matching Contributions and Qualified Non-elective Contributions will
be considered made for a Plan Year if made no later than the end of the 12-
month period beginning on the day after the close of the Plan Year.
The Employer shall maintain records sufficient to demonstrate satisfaction
of the ACP test, and the amount of Qualified Non-elective or Qualified
Marching Contributions, or both, used in such test.
The determination and treatment of the Contribution Percentage of any
Participant shall satisfy other requirements as may be prescribed by the
Secretary of the Treasury.
4.8 Excess Aggregate Contributions.
------------------------------
Notwithstanding any other provision of this Plan, Excess Aggregate
Contributions, plus any income and minus any loss allocable thereto, shall
be forfeited, if forfeitable, or if not forfeitable, distributed no later
than the last day of each Plan Year to Participants to whose accounts such
Excess Aggregate Contributions were allocated for the preceding Plan Year.
<PAGE>
Excess Aggregate Contributions of Participants who are subject to the
Family Member aggregation rules shall be allocated among the Family Members
in proportion to the Employee Voluntary and Matching Contributions (or
amounts treated as Matching Contributions) of each Family Member that are
combined to determine the combined ACP. If such Excess Aggregate
Contributions are distributed more the 2 1/2 months after the last day of
the Plan Year in which such excess amounts arose, a 10% excise tax will be
imposed on the Employer maintaining the Plan with respect to those amounts.
Excess Aggregate Contributions shall be treated as annual additions under
the Plan.
Excess Aggregate Contributions shall be adjusted for any income or loss up
to the date of distribution. The income or loss allocable to Excess
Aggregate Contributions is the sum of (i) the income or loss allocable to
the Participant's Voluntary Contribution Account, Matching Contribution
Account, Qualified Matching Contribution Account (if any, and if all
amounts therein are not used in the ADP test) and, if applicable, Qualified
Non-elective Contribution Account and Elective Deferral Account for the
Plan Year multiplied by a fraction, the numerator of which is
suchParticipant's Excess Aggregate Contributions for the Plan Year and the
denominator is the Participant's account balance(s) attributable to
Contribution Percentage Amounts without regard to any income or loss
occurring during such Plan Year; and (ii) 10% of the amount determined
under (i) multiplied by the number of whole calendar months between the end
of the Plan Year and the date of distribution, counting the month of
distribution if distribution occurs after the 15th of such month.
Forfeitures of Excess Aggregate Contributions shall be reallocated to the
accounts of Non-highly Compensated Employees.
Excess Aggregate Contributions shall be forfeited, if forfeitable, or
distributed on a pro-rata basis from the Participant's Voluntary
Contribution Account, Matching Contribution Account, and Qualified Matching
Contribution Account (and, if applicable, the Participant's Qualified Non-
elective Contribution Account or Elective Deferral Account, or both).
4.9 Conditions as to Contributions.
------------------------------
Employers' contributions shall in all events be subject to the limitation
set forth in Section 6. Any amount contributed by an Employer due to a good
faith but erroneous determination of its deductibility under Section 404 of
the Code shall be returned to the Employer within one year after the date
on which the contribution was originally made, or within one year after its
nondeductibility has been finally determined. However, the amount to be
returned shall be reduced to take into account any adverse investment
experience within the Trust Fund in order that the balance credited to each
Participant's Account is not less than it would have been if the
contribution had never been made.
4.10 Contributions Not Forfeitable.
-----------------------------
<PAGE>
The Participant's accrued benefit derived from Elective Deferrals,
Qualified Non-elective Contributions, Qualified Matching Contributions,
Voluntary Contributions, and Rollover Contributions is nonforfeitable.
SECTION 5 - ALLOCATIONS
-----------------------
5.1 Contributions
-------------
The Employer shall provide the Committee all information necessary to make
the allocation of Contributions and Forfeitures for each Plan Year. The
Employer shall pay the Employer Contributions to the Trustee for investment
in the Trust Fund for each Plan Year within the time prescribed by law for
the filing of the Employer's federal income tax return, including
extensions, for the Fiscal Year.
Elective Deferral Contributions accumulated through payroll deductions
shall be paid to the Trustee at the earliest date in which such contributions
can reasonably be segregated from the Employer's general assets, but in any
event within 90 days from the date on which such amounts would otherwise have
been payable to the Participant in cash. The provisions of Department of Labor
Regulations 2510.3-102 are incorporated herein by reference. Furthermore, any
additional Employer Contributions which are allocable to the Participant's
Elective Deferral Account for a Plan Year shall be paid to the Plan no later
than the 12-month period immediately following the close of such Plan Year.
(a) Employer Contribution Account.
Matching Contributions and Discretionary Contributions shall be
maintained for each Participant in the Employer Contribution Account,
subject to the vesting schedule in Section 8.1.
In addition, Qualified Matching and Qualified Non-elective
Contributions, if any, shall be maintained for each Participant in the
Employer Contribution Account, which shall be nonforfeitable.
If a Participant has satisfied the eligibility requirements for
Matching Contributions, Discretionary Contributions, Qualified
Matching Contributions, and Qualified Non-elective Contributions, is
employed by an Employer on the Anniversary Date, and has at least
1,000 Hours of Service during the Plan Year, his share of these
Contributions shall be determined as follows:
(i) Employer Matching Contributions:
<PAGE>
An Active Participant shall receive a Matching Contribution of 25%
of Elective Deferrals made after the Participant's Entry Date, which
do not exceed 2% of the Participant's Cash Compensation, pursuant to
Section 4.1(b).
(ii) Employer Discretionary Contributions:
A Discretionary Contribution shall be allocated to the account of
each Active Participant in proportion to the ratio which his Cash
Compensation for the Plan Year bears to the Cash Compensation of all
Active Participants for such Plan Year, pursuant to Section 4.1(c).
(iii) Qualified Matching Contributions:
An optional Qualified Matching Contribution shall be allocated to
the account of each Non-highly Compensated Employee who is an Active
Participant with Elective Deferrals made after the Participant's
Entry Date in such Plan Year, pursuant to Section 4.1(d). The
percent of the Qualified Matching Contribution shall be
discretionary.
(iv) Qualified Non-elective Contributions:
An optional Qualified Non-elective contributions shall be allocated
to the account of each Non-highly Compensated Employee who is an
Active Participant in proportion to the ratio which his Cash
Compensation for the Plan Year bears to the Cash Compensation of all
Non-highly Compensated Employees who are Active Participants for
such Plan Year, pursuant to Section 4.1(e).
Employer Contribution Account assets shall be invested by the Plan Trustee
in the Plan's General Fund, together with the Voluntary Contribution
Account assets and the Rollover Contribution Account cash assets.
(b) Voluntary Contribution Account.
A Participant may elect to contribute a maximum of 10% of his Cash
Compensation each Plan Year as nondeductible Voluntary Contributions.
Voluntary Contributions shall be maintained for each Participant in the
Voluntary Contribution Account.
Voluntary Contribution Account assets shall be invested by the Plan Trustee in
the Plan's General Fund, together with the Employer Contribution Account
assets and the Rollover Contribution Account cash assets.
(c) Rollover Contribution Account.
Rollover Contributions shall be maintained for each Participant in the
Rollover Contribution Account.
<PAGE>
Rollover Contribution Account cash assets shall be invested by the Plan
Trustee in the Plan's General Fund, together with the Employer
Contribution Account assets and the Voluntary Contribution Account
assets.
If a Rollover Contribution consists of property other than cash, such
property shall be considered an earmarked investment for such
Participant.
(d) Elective Deferral Account.
Elective Deferral Contributions shall be maintained for each Participant
in an Elective Deferral Account.
5.2 Forfeitures.
-----------
If a Participant has satisfied the eligibility requirements for Employer
Matching and Employer Discretionary Contributions, is employed by the
Company on an Anniversary Date, and has at least 1,000 Hours of Service
during the Plan Year, his share of Forfeitures shall be determined in the
following manner.
Any assets which have become Forfeitures since the last Anniversary Date
shall first be used to reinstate any previously forfeited account balances
of former Participants, if any, pursuant to Section 8.5. The remaining
Forfeitures, if any, shall be allocated to each Active Participant in
proportion to the ratio which his Cash Compensation for the Plan Year bears
to the Cash Compensation of all Active Participants for such Plan Year.
5.3 Income on Investments.
---------------------
(a) Employer Contribution, Voluntary Contribution, and Rollover
Contribution Accounts.
(i) General Fund. On each Anniversary Date, the income (or loss) for
the Employer Contribution Account, Voluntary Contribution
Account, and Rollover Contribution Account shall be allocated
based on the beginning balance on the first day of the Plan Year
for each Active Participant and former Participant with Vested
assets remaining in the Plan on the Anniversary Date, less an
adjustment for distributions, withdrawals, or forfeitures during
the Plan Year on a time-weighted basis .
(ii) Earmarked Investment. Any income, expense, gain, or loss earned
or incurred with respect to such investment shall be credited
solely to the earmarked investment.
(b) Elective Deferral Accounts.
(i) Pooled Investment. On September 30, December 31, March 31, and
June 30 of each Plan Year, the income (or loss) for each pooled
Elective Deferral Account shall be allocated based on the
beginning balance on the first day of every calendar quarter
<PAGE>
for each Participant with assets remaining in the Plan on the
Valuation Date for such quarter, less an adjustment for
distributions and withdrawals during the quarter on a time-weighted
basis, plus an adjustment for transfers from other investments on a
time-weighted basis, plus one-half of Elective Deferral
Contributions made during the quarter.
(ii) Earmarked Investment. Any income, expense, gain, or loss earned or
incurred with respect to such investment shall be credited solely to
the earmarked investment.
SECTION 6 - LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS
--------------------------------------------------------
6.1 Limitation on Annual Additions.
------------------------------
Notwithstanding the provisions of Section 5, the annual addition to a
Participant's accounts under this and any other defined contribution plans
maintained by the Employers or an affiliate (within the purview of Section
414(b), (c), and (m) and Section 415(h) of the Code, which affiliate shall
be deemed an Employer for this purpose) shall not exceed for any limitation
year an amount equal to the lesser of (i) $30,000 or if greater, one-fourth
of the defined benefit dollar limitation set forth in Section 415(b)(1) of
the Code as in effect for the limitation year, or (ii) 25% of the
Participant's Total Compensation for such limitation year.
For purposes of this Section 6.1 and the following Section 6.2, the "annual
addition" to a Participant's accounts means the sum of (i) the Employer
Contributions and Forfeitures credited to a Participant's Account with
respect to a limitation year, plus (ii) the Participant's total
nondeductible Voluntary Contributions for that year. The $30,000 and
$90,000 limitations referred to shall, for each limitation year ending
after 1988, be automatically adjusted to the new dollar limitations
determined by the Commissioner of Internal Revenue for the calendar year
beginning in that limitation year. Notwithstanding the foregoing, if the
special limitations on annual additions described in Section 415(c)(6) of
the Code applies, the limitations described in this section shall be
adjusted accordingly. A "limitation year" means each 12 consecutive month
period beginning July 1.
6.2 Coordinated Limitation with Other Plans.
---------------------------------------
Aside from the limitation prescribed by Section 6.1 with respect to the
annual addition to a Participant's accounts for any single limitation year,
if a Participant has ever participated in one or more defined benefit plans
maintained by an Employer or an affiliate, then the annual additions to his
accounts shall be limited on a cumulative basis so that the sum of his
defined contribution plan fraction and his defined benefit plan fraction
does not exceed one. For this purpose:
(a) A Participant's defined contribution plan fraction with respect to a
Plan Year shall be a fraction, (i) the numerator of which is the sum
of the annual additions to his accounts
<PAGE>
through the current year Plan Year, and (ii) the denominator of which
is the sum of the lesser of the following amounts -A- and -B-
determined for the current limitation year and each prior limitation
year of Service with an Employer: -A- is 1.25 times $30,000, or 1.0
times such dollar limitation if the Plan is top-heavy; and-B- is 35%
of the Participant's Total Compensation for such year. Further, if the
Participant participated in any related defined contribution plan in
any years beginning before 1976, any excess of the sum of the actual
annual additions to the Participant's accounts for those years over
the maximum annual additions which could have been made in accordance
with Section 6.1 shall be ignored, and Voluntary Contributions by the
Participant during those years shall be taken into account as to each
such year only to the extent that his average annual Voluntary
Contribution in those years exceeded 10% of his average annual Total
Compensation in those years.
(b) A Participant's defined benefit plan fraction with respect to a
limitation year shall be a fraction (i) the numerator of which is his
projected annual benefit payable at normal retirement under the
Employers' defined benefit plans, and (ii) the denominator of which is
the lesser of the following amounts -A- and -B- with an Employer: -A-
is 1.25 times $90,000, or 1.0 times such dollar limitation if the Plan
is top-heavy, and -B- 1.4 times the Participant's average Total
Compensation during his highest-paid three consecutive limitation
years.
6.3 Effect of Limitations.
---------------------
The Committee shall take whatever action may be necessary from time to time
to assure compliance with the limitations set forth in Section 6.1 and 6.2.
Specifically, the Committee shall see that each Employer restrict its
contributions for any Plan Year to an amount which, taking into account the
amount of available Forfeitures, may be completely allocated to the
Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the
Participant shall be curtailed to the extent necessary to satisfy the
limitations. Where an excessive amount is contributed on account of a
mistake as to one or more Participants' compensation, or there is an amount
of Forfeitures which may not be credited in the Plan Year in which it
becomes available, the amount shall be held in a Suspense Account to be
allocated in lieu of any Employer Contributions in future years until it is
eliminated, and to be returned to the Employer if it cannot be credited
consistent with these limitations before the termination of the Plan.
SECTION 7 - INVESTMENTS
-----------------------
7.1 General Fund.
------------
Matching Contributions, Discretionary Contributions, Qualified Matching
Contributions, Qualified Non-elective Contributions, Employee Voluntary
Contributions, and Employee Rollover Contributions shall be held in a
"General Fund".
<PAGE>
The Trustees shall have full power and authority to receive, collect,
receipt for, hold, manage, and care for all amounts paid and contributed to
the General Fund, and the proceeds thereof, and the income and profits
therefrom, as a single fund, and to invest and reinvest the same, pursuant
to the provisions of Section 12.3. The Trustees may invest in "qualifying
employer real property" and qualifying employer securities" as defined in
Section 407(d)(4) and (5) of ERISA, including Employer Stock.
7.2 Participant Direction of Assets from General Fund to Employer Stock.
-------------------------------------------------------------------
Effective on July 1, 1989, the Trustees were expressly authorized to
receive from each Participant on an annual basis an irrevocable election
directing the Trustees to have all or a part of the Vested portion of each
such Participant's assets in the General Fund to be invested in Employer
Stock. A Participant's initial election required a minimum investment of
$250.
Effective with the Plan Year beginning on July 1, 1992, this annual
election was rescinded. However, any investments in Employer Stock and any
directions for investment made prior to the Plan Year beginning on July 1,
1992 shall continue to be valid and shall not be affected.
The net income from Employer Stock investments in the Employer Contribution
Account shall be invested primarily in Employer Stock and such cash or
short term investments as the Trustees shall deem necessary to meet any
contingencies.
7.3 Elective Deferral Accounts.
--------------------------
The Trustees shall have full power and authority to receive, collect,
receipt for, hold, manage, and care for all amounts held, paid, and
contributed through Elective Deferrals.
Each Participant shall choose the investments for his Elective Deferrals
from those selected by the Trustees for this purpose. These investments
shall be chosen within the guidelines of ERISA. The investment selections
shall include, but not be limited to, the following:
(a) At least three diversified investments with different goals and
different risk factors.
(b) One or more investments with no market risk, which are fully insured
against loss by the United States or an agency of the United States.
(c) Employer Stock.
7.4 Voting of Employer Stock.
------------------------
The Participants shall have full voting rights with respect to Employer
Stock purchased with Participant direction. All shares of Employer Stock
purchased through Participant direction shall be voted by the Trustees as
directed by the Participants. The Trustees shall vote shares of Employer Stock
in the General Fund in proportion to the manner in which the shares of
<PAGE>
Employer Stock purchased with Participant direction are voted by the
Participants. The Trustees shall adopt such rules and procedures as they deem
necessary to carry out the intent of this provision.
7.5 Restrictions on Insider Transactions.
------------------------------------
On January 28, 1992, the following "Restrictions on Insider Transactions"
became effective.
Notwithstanding any other provisions in the Plan to the contrary,
transactions by Participants who are deemed to be insiders within the
meaning of Section 16 of the Securities Exchange Act of 1934 shall also be
restricted by the following provisions:
(a) For initial or periodic transactions resulting from an election to
participate or change levels of participation with respect to
securities of the issuer:
(i) Officer or director Participants making withdrawals must cease
further purchases in the Plan for six months, or the securities
so distributed must be held by the Participant six months prior
to disposition; provided, however, that extraordinary
distributions of all of the issuer's securities held by the Plan
and distributions in connection with death, retirement,
disability, termination of employment, or a qualified domestic
relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act, or the rules thereunder, are not
subject to this requirement.
(ii) Officer or director Participants who cease participation in the
Plan may not participate again for at least six months.
(b) For intra-plan transfers between an equity securities of the issuer
fund and another fund, the transaction is pursuant to an election made on a
quarterly date at least six months after the date of the previous intra-plan
transfer election relating to an equity securities of the issuer fund. The
quarterly date referred to in the previous sentence shall begin on the third
business day following the public release of quarterly and annual summary
statements of earnings of the Company and ending on the twelfth business day
following such date.
SECTION 8 - VESTING
-------------------
8.1 Vesting Schedule
----------------
(a) Employer Contribution Account for Employer Matching Contributions and
Employer Discretionary Contributions.
Upon termination of employment for any reason other than death, total
or permanent disability, or attainment of the Plan's Early Retirement
age, a Participant's Vested (nonforfeitable) portion of his assets in
the Employer Contribution Account maintained
<PAGE>
for Employer Matching and Employer Discretionary Contributions shall
be a percentage based on his Years of Service as determined by the
following schedule, and subject to the provisions in the balance of
this Section 8:
<TABLE>
<CAPTION>
Vesting Schedule
----------------
Years of Service Percent Vested Interest
----------------- ------------------------
<S> <C>
Less than 3 years 0%
3 20%
4 40%
5 60%
6 80%
7 or more years 100%
</TABLE>
(b) Accounts for Qualified Matching Contributions, Qualified Non-elective
Contributions, Elective Deferral Contributions, Employee Voluntary
Contributions and Employee Rollover Contributions.
These Accounts are not subject to the Vesting Schedule in Section
8.1(a), and shall be 100% vested and not forfeitable for any reason.
8.2 Computation of Vesting Years.
----------------------------
For purposes of this Plan, a "Vesting Year" means each 12-month period
beginning July 1, in which an Employee has at least 1,000 Hours of Service,
beginning with his initial Service with any Employer and including certain
Service with other employers as provided in the definition of "Service".
However, a Participant's Vesting Years shall be computed subject to the
following conditions and qualifications:
(a) A Participant's Vested interest in his Account accumulated before a
Break in Service shall be determined without regard to any Service
after the Break. Further, if a Participant has a Break in Service
before his interest in his Account has become Vested to some extent,
he shall lose credit for any Vesting Year before the Break.
(b) Unless otherwise specifically excluded, a Participant's Vesting Years
shall include any period of active military duty to the extent
required by the Military Selective Service Act of 1967 (38 U.S.C.
Section 2021).
8.3 Full Vesting upon Certain Events.
--------------------------------
Notwithstanding Section 8.1(a), a Participant's interest in his Account
shall fully vested on the Participant's Normal Retirement Date, provided
the Participant is in Service on or after that date. The Participant's
interest shall also fully vest in the event that his Service is terminated
by Early Retirement, Disability, or death.
<PAGE>
8.4 Full Vesting upon Plan Termination.
----------------------------------
Notwithstanding Section 8.1(a), a Participant's interest in his Account
shall fully vest if he is in active Service upon termination of this Plan
or upon the permanent and complete discontinuance of contributions by his
Employer. In the event of a partial termination, the interest of each
Participant who is in Service shall fully vest with respect to that part of
the Plan which is terminated.
8.5 Forfeiture, Repayment, and Restoral.
-----------------------------------
If a Participant's Service terminates before his interest in his Account is
fully Vested, that portion which has not Vested shall be forfeited when he
has a 1-Year Break in Service. In the case of a terminated Participant who
does not receive a distribution of his entire Vested interest and whose
Service resumes before a Break in Service occurs, any undistributed Vested
balance from his prior participation shall be maintained as a fully Vested
sub-account with his Account.
If any former Participant shall be reemployed by an Employer before five
consecutive 1-Year Breaks in Service have occurred, and such former
Participant has received a distribution of all his Vested assets in the
Plan, the unvested portion of his assets shall be reinstated to his Account
if he repays the full amount distributed to him within the earlier of five
years after the first date on which he is reemployed by an Employer or the
close of the first period of five consecutive 1-Year Breaks in Service
commencing after the distribution. Upon repayment of the entire
distribution within the required time period, the forfeited unvested assets
shall be restored in full.
8.6 Accounting for Forfeitures.
--------------------------
A Forfeiture shall be charged to the Participant's Account as of the first
Plan Year in which there is a 1-Year Break in Service. Except as otherwise
provided in Section 8.5, a Forfeiture shall be first used to reinstate any
previously forfeited account balances of former Participants, if any, with
the remaining Forfeitures, if any, allocated to the Active Participants,
pursuant to Section 5.2.
8.7 Vesting and Nonforfeitability.
-----------------------------
A Participant's interest in his Account which has become Vested shall be
nonforfeitable for any reason.
SECTION 9 - PAYMENT OF BENEFITS
-------------------------------
9.1 Upon Termination of Employment
------------------------------
<PAGE>
A Participant whose Service ends for any reason shall receive the Vested
portion of his Account in either: (i) a single payment; or (ii) over a
period not to exceed ten years.
Pursuant to Section 401(a)(31) of the Code, effective January 1, 1993, if a
Participant elects to receive the distribution in a single payment, payment
may be made either to the Participant or to an Eligible Retirement Plan as
a Direct Rollover.
A terminated Participant shall receive information from the Committee
pertaining to his distribution options and the tax consequences of the
distribution. Pursuant of Section 401(a)(31) of the Code and the
regulations thereunder, unless the Participant waives the 30-day waiting
period and elects to make or not to make a Direct Rollover, the
distribution shall not be made until at least 30 days have elapsed after
the Participant has been advised of his distribution options. If the
Participant has not attained the Plan's Normal Retirement age, the
Participant may elect to wait to receive his benefits until he becomes age
65.
A Participant may modify his distribution election at any time, provided
any new benefit payment date is at least 30 days after a modified election
is delivered to the Committee.
A Participant's benefits shall be calculated based on the most recent
Valuation Date before the date of payment.
9.2 Upon Death of Participant.
-------------------------
The Beneficiary of a Participant shall receive information from the
Committee pertaining to his distribution options and the tax consequences
of the distribution.
Pursuant to Section 401(a)(31) of the Code, effective January 1, 1993, if
the Beneficiary is a surviving Spouse, the distribution is an Eligible
Rollover Distribution, and payment may be made either to the Spouse, or to
the surviving Spouse's IRA as a Direct Rollover. If the Beneficiary is an
alternate payee spouse or former spouse, the distribution is an Eligible
Rollover Distribution, and payment may be made either to the alternate
payee spouse or former spouse, or to an Eligible Retirement Plan of the
alternate payee spouse or former spouse as a Direct Rollover.
If the distribution is an Eligible Rollover Distribution, pursuant to
Section 401(a)(31) of the Code and the regulations thereunder, unless the
Beneficiary waives the 30-day waiting period and elects to make or not to
make a Direct Rollover, the distribution shall not be made until at least
30 days have elapsed after the Beneficiary has been advised of his
distribution options.
A Beneficiary's benefits shall be calculated based on the most recent
Valuation Date before the date of payment.
(a) Distribution options if distribution to Participant have not begun.
<PAGE>
If a Participant dies before distribution has begun, his entire Account
shall be distributed to his Beneficiary no later than the earlier of the
Participant's required minimum distribution beginning date or five years
after death, unless one of the following is applicable:
(i) The Beneficiary elects and begins to receive payment over his life
expectancy by December 31 of the year following the year of the
death of the Participant.
(ii) The Beneficiary is the surviving Spouse. In this circumstance, the
distribution beginning date shall be the Participant's required
minimum distribution beginning date.
(iii) The Beneficiary is a child, and upon the attainment of the child's
majority (or other circumstance permitted in the Code and the
regulations thereunder) the surviving Spouse will becomethe
recipient of the payment of benefits, then the distribution
beginning date shall be the Participant's required minimum
distribution beginning date.
(b) Distribution options if distribution to Participant has begun.
If a Participant dies after his distribution has begun but before his
entire Account has been paid to him, then the balance of his Account
shall be distributed to his Beneficiary at least as rapidly as under
the distribution schedule elected by the Participant.
9.3 Upon Attainment of Age 70 1/2
-----------------------------
Distributions must commence to a terminated Participant no later than the
April 1 following the calendar year in which the Participant attained age
70 1/2.
Effective January 1, 1989, if a Participant is in Service upon the
attainment of age 70 1/2, minimum distribution payments shall commence by
April 1 of the calendar year following the calendar year in which the
Participant attained age 70 1/2. However, any Participant who was in
Service and became age 70 1/2 prior to January 1, 1989, except for a
Participant who was a 5% owner, shall not be subject to minimum
distribution payments until termination from Service with an Employer.
The distribution shall be made based on one of the following
irrevocableelections: (i) over the life of the Participant, or over the
joint lives of the Participant and his designated Beneficiary; or (ii) over
a period certain not to exceed the life expectancy of the Participant, or
the life expectancy of the Participant and his designated Beneficiary.
9.4 In-Service Distributions.
------------------------
(a) Non-deductible Voluntary Contribution Distribution.
<PAGE>
A distribution from a Non-deductible Voluntary Contribution Account
may be made at any time.
(b) Hardship Distribution.
A hardship distribution may be made from the Account of a Participant
subject to the following limitations:
(i) A hardship distribution shall be limited to the amount which is
necessary to satisfy an immediate and heavy financial need of the
Participant. The amount of an immediate and heavy financial need
may include any amounts necessary to pay any federal, state, or
local income taxes or penalties reasonably anticipated to result
from the distribution.
(ii) A distribution may be made to satisfy the financial need if the
Participant's need:
(I) Cannot be met through reimbursement or compensation by
insurance or otherwise; or
(II) Cannot be met by liquidation of the Participant's assets;
or
(III) Cannot be met by cessation of Elective Deferral
Contributions under the Plan; or
(IV) Cannot be met by other distributions or nontaxable (at the
time of the loan) loans from plans maintained by an
Employer or any other employer; or
(V) Cannot be met by borrowing from commercial sources on
reasonable commercial terms, in an amount sufficient to
satisfy the need.
(iii)A hardship distribution may be made for one of the following
purposes:
(I) to pay medical expenses incurred by the Participant, the
Participant's Spouse, or any dependents of the
Participant;
(II) costs directly related to the purchase of a principal
residence for the Participant (excluding mortgage
payments);
(III) payment of tuition and related educational fees for the
next 12 months of post-secondary education for the
Participant, the Participant's Spouse, children, or
dependents;
(IV) payments necessary to prevent eviction of the Participant
from the Participant's principal residence or foreclosure
on the mortgage of that residence; or
<PAGE>
(V) because of other events approved by the Secretary of the
Treasury or his delegate.
(iv) A hardship distribution may not be in excess of the amount needed
to satisfy the immediate and heavy financial need.
(v) For plan years beginning after December 31, 1988, any hardship
distribution from the Participant's Elective Deferral Account
must be limited to the distributable amount. The distributable
amount is equal to the Participant's total Elective Deferral
Contributions as of the date of distribution, reduced by the
amount of previous hardship distributions, plus income earned on
Elective Deferrals which were credited to the Participant's
Elective Deferral Account as of June 30, 1989.
Upon the receipt of a hardship distribution, a Participant is prohibited
from making Elective Deferrals and Voluntary Contributions to this Plan and
all other plans maintained by the Employer for at least 12 months. However,
this prohibition to making contributions to other plans does not include a
health or welfare benefit plan, including one which is part of a cafeteria
plan, pursuant to Section 125 of the Code.
9.5 Type of Payment.
---------------
This Section 9.5 applies to distributions made on or after January 1, 1993,
pursuant to Section 401(a)(31) of the Code and the regulations thereunder.
(a) Direct Rollover.
Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this section, a
Distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of an Eligible Rollover Distribution
processed as a Direct Rollover and paid directly to an Eligible
Retirement Plan selected by the Distributee.
(b) Payment to Participant or Beneficiary.
If a distribution is an Eligible Rollover Distribution, and the
Participant or Beneficiary elects to have payment made to himself,
then the distribution will be subject to mandatory 20% federal income
tax withholding, unless the distribution is less than $200 or consists
solely of Employer Stock and $200 or less in cash.
9.6 Form of Payment.
---------------
(a) Cash or "In Kind".
Distributions shall be made in cash or, if there are investments in
non-cash accounts, distributions may be made, at the election of the
Distributee, in cash and/or in kind.
<PAGE>
(b) Employer Stock.
Notwithstanding the foregoing in Section 9.6(a), any earmarked
investments in Employer Stock shall be distributed, to the greatest
extent possible, in the form of whole shares of Employer stock,
provided that Employer Stock is readily tradeable on an established
securities market at the time of distribution.
(c) Annuity.
In lieu of making payments directly from a terminated or deceased
Participant's Account, the Trustees may, in their sole discretion,
invest all or a portion of a Participant's Account in one or more
annuity Contracts and assign such Contract or Contracts to such
Participant or his Beneficiary in such manner as the Trustees deem
advisable. Before assigning any Contract to a terminated Participant
or a Beneficiary of a deceased Participant, the Trustees shall cause
such Contract to be made non-assignable by the assignee. Any Contract
obtained after July 31, 1983 shall be issued on a unisex basis and all
the terms and conditions under any such Contracts, including benefits,
premiums, options, loan values, and cash surrender values, shall be
the same for both male and female.
If any Contract on the life of a terminated or deceased Participant is
purchased, such Contract shall be endorsed to provide for payments
thereunder in accordance with the preceding provisions of this
section.
9.7 Timing of Distribution.
----------------------
Pursuant to Section 401(a)(31) of the Code and the regulations thereunder,
effective January 1, 1993, a Participant or Beneficiary shall be notified
of all distribution options at least thirty days prior to making a
distribution election. However, a Participant shall be permitted to waive
the 30-day period requirement which is given a Distributee to review all
distribution options, and may elect to make or not to make a Direct
Rollover to an Eligible Retirement Plan sooner.
If the value of a Participant's Vested assets exceeds (or at the time of
any prior distribution exceeded) $3,500, the Participant must consent to
the distribution in writing. However, the consent of the Participant shall
not be required to satisfy the commencement of minimum required
distributions, pursuant to Section 401(a)(9) of the Code.
Unless the Participant elects otherwise, distribution of benefits shall
begin no later than the 90th day after the close of the Plan Year in which
the Participant attains age 65.
A Participant's Vested assets are immediately distributable, subject to the
requirements of Section 401(a)(31) of the Code, if they do not exceed
$3,500. Payment will be made to the
<PAGE>
Participant or Beneficiary if a distribution election has not been received
within 90 days after notification of all distribution options.
9.8 Deemed Distribution.
-------------------
For purposes of this section, if a Participant terminates service and the
value of the Participant's vested account balance is zero, the Participant
shall be deemed to have received a distribution of such vested account
balance.
9.9 Qualified Domestic Relations Order.
----------------------------------
Under a Qualified Domestic Relations Order (QDRO), the following shall be
applicable:
(a) The alternate payee may receive a payment of benefits under this Plan
in accordance with the distribution options described in Section 9.
(b) The alternate payee may receive a payment of benefits under this Plan
prior to the Normal Retirement age if the QDRO specifically provides
for such earlier payment. If the present value of the payment exceeds
$3,500, the alternate payee must consent in writing to such
distribution.
(c) Upon receipt of an order which appears to be a domestic relations
order, the Committee will promptly notify the Participant and each
alternate payee of the receipt of the order, and provide them with a
copy of the procedures established by the Plan for determining whether
the order is a QDRO. While the determination is being made, a separate
accounting will be made with respect to any amounts which would be
payable under the order.
If the Committee or a court determines that the order is a QDRO,
within 18 months after receipt, the Committee will begin making
payments, including the separately accounted for amounts, pursuant to
the order when required or as soon as administratively practical.
If the Committee or court determines that the order is not a QDRO, or
if no determination is made within 18 months after receipt, then the
separately accounted for amounts will be either restored to the
Participant's account or distributed to the Participant, as if the
order did not exist. If the order is subsequently determined to be a
QDRO, such determination shall be applied prospectively to payments
made after the determination.
9.10 Beneficiary Designation.
-----------------------
Each Participant shall designate the person, persons, or entity to receive
benefits payable under the Plan upon the death of the Participant.
<PAGE>
No election by a married Participant of a primary Beneficiary who is not
the Participant's Spouse shall be valid unless the election is accompanied
by the Spouse's written consent, which
(a) must acknowledge the effect of the election,
(b) must explicitly provide either that the designated Beneficiary may not
subsequently be changed by the Participant without the Spouse's
further consent, or that it may be changed without such consent, and
(c) must be witnessed by the Committee, its representative, or a notary
public. (This requirement shall not apply if the Participant
establishes to the Committee's satisfaction that the Spouse may not be
located.)
9.11 Marital Status of Participant.
-----------------------------
The Committee shall from time to time take whatever steps it deems
appropriate to keep informed of each Participant's marital status. Each
Employer shall provide the Committee with the most reliable information in
the Employer's possession regarding its Participants' marital status, and
the Committee may, in its discretion, require a notarized affidavit from
any Participant as to his marital status.
The Committee, the Plan, the Trustee, and the Employers shall be fully
protected and discharged from any liability to the extent of any benefit
payments made as a result of the Committee's good faith and reasonable
reliance upon information obtained from a Participant and his Employer as
to his marital status.
SECTION 10 - RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS
-----------------------------------------------------------------
10.1 Claim for Benefits.
------------------
Any Participant or Beneficiary who qualifies for payment of benefits shall
file a claim for his benefits with the Committee on a form provided by the
Committee. The claim, including any election of an alternative benefit
form, shall be filed at least 30 days before the date on which the benefits
are to be begin. If a Participant or Beneficiary fails to file a claim by
the 30th day before the date on which benefits become payable, he shall be
presumed to have filed a claim for payment for the Participant's benefits
in the standard form prescribed in Section 9.
10.2 Notification by Committee.
-------------------------
Within 90 days after receiving a claim for benefits (or within 180 days, if
special circumstances require an extension of time, and written noticeof
the extension is given to the Participant or Beneficiary within 90 days
after receiving the claim for benefits), the
<PAGE>
Committee shall notify the Participant or Beneficiary whether the claim has
been approved or denied.
If the Committee denies a claim in any respect, the Committee shall set
forth in a written notice to the Participant or Beneficiary:
(a) Each specific reason for the denial;
(b) Specific references to the pertinent Plan provisions on which the
denial is based;
(c) A description of any additional material or information which could be
submitted by the Participant or Beneficiary to support his claim, with an
explanation of the relevance of such information; and
(d) An explanation of the claims review procedures set forth in Section
10.3.
10.3 Claims Review Procedure.
-----------------------
Within 60 days after a Participant or Beneficiary receives notice from the
Committee that his claim for benefits has been denied in any respect, he
may file with the Committee a written notice of appeal setting forth his
reasons for disputing the Committee's determination. In connection with his
appeal, the Participant or Beneficiary or his representative may inspect or
purchase copies of pertinent documents and records to the extent not
inconsistent with other Participants' and Beneficiaries' rights of privacy.
Within 60 days after receiving a notice of appeal from a prior
determination (or within 120 days, if special circumstances require an
extension of time, and written notice of the extension is given to the
Participant or Beneficiary and his representative within 60 days after
receiving the notice of appeal), the Committee shall furnish to the
Participant or Beneficiary and his representative, if any, a written
statement of the Committee's final decision with respect to his claim,
including the reasons for such decision and the particular Plan provisions
upon which it is based.
SECTION 11 - ADMINISTRATION OF PLAN
-----------------------------------
11.1 Authority of Committee.
----------------------
The Committee shall be the "plan administrator" within the meaning of ERISA
and shall have exclusive responsibility and authority to control and manage
the operation and administration of the Plan, including the interpretation
and application of its provisions, except to the extent such responsibility
and authority are otherwise specifically
(a) allocated to the Company, the Employers, or the Trustees under the
Plan,
<PAGE>
(b) delegated in writing to other persons by the Company, the Employers,
the Committee, or the Trustees, or
(c) allocated to other parties by operation of law.
The Committee shall have no investment responsibility with respect to the
Trust Fund. In the discharge of its duties, the Committee may employ
accountants, actuaries, legal counsel, and other agents (who also may be
employed by an Employer or the Trustees in the same or some other capacity)
and may pay their reasonable expenses and compensation.
11.2 Identity of Committee.
---------------------
The Committee shall consist of three or more individuals selected by the
Company. Any individual, including a director, trustee, shareholder,
officer, or employee of an Employer, shall be eligible to serve as a member
of the Committee. The Company shall have the power to remove any individual
serving on the Committee at any time without cause upon 10 days written
notice, and any individual may resign from the Committee at any time upon
10 days written notice to the Company. The Company shall notify the Trustee
of any change in membership of the Committee.
11.3 Duties of Committee.
-------------------
The Committee shall keep whatever records may be necessary to implement the
Plan and shall furnish whatever reports may be required from time to time
by the Company. The Committee shall furnish to the Trustees whatever
information may be necessary to properly administer the Trust. The
Committee shall see to the filing with the appropriate government agencies
all reports and returns required of the Plan Committee under ERISA and
other laws.
11.4 Valuation of Employer Stock.
---------------------------
If the valuation of any Employer Stock is not established by reported
trading on a generally recognized public market, the Committee shall have
the exclusive authority and responsibility to determine its value for all
purposes under the Plan. Such value shall be determined as of each
Valuation Date, and on any other date the Plan purchases or sells such
Employer Stock. The Committee shall use generally accepted methods of
valuing stock of similar corporations for purposes of arm's length business
and investment transactions, and in this connection, the Committee shall
obtain, and shall be protected in relying upon, the valuation of such
Employer Stock as determined by an independent appraiser experienced in
preparing valuations of similar businesses.
11.5 Compliance with ERISA.
---------------------
<PAGE>
The Committee shall perform all acts necessary to comply with ERISA. Each
individual member or employee of the Committee shall discharge his duties
in good faith and in accordance with the applicable requirements of ERISA.
11.6 Action by Committee.
-------------------
All actions of the Committee shall be governed by the affirmative vote of a
number of members which is a majority of the total number of members
currently appointed, including vacancies. The members of the Committee may
meet informally and may take any action without meeting as a group.
11.7 Execution of Documents.
----------------------
Any instrument executed by the Committee shall be signed by any member or
employee of the Committee.
11.8 Adoption of Rules.
-----------------
The Committee shall adopt such rules and regulations of uniform
applicability as it deems necessary or appropriate for the proper
administration and interpretation of the Plan.
11.9 Responsibilities to Participants.
--------------------------------
The Committee shall determine which Employees qualify to enter the Plan.
The Committee shall furnish to each eligible Employee whatever summary plan
descriptions, summary annual reports, and other notices and information may
be required by ERISA. The Committee also shall determine when a Participant
or his Beneficiary qualifies for the payment of benefits under the Plan.
The Committee shall furnish to each such Participant or Beneficiary
whatever information is required under ERISA (or is otherwise appropriate)
to enable the Participant or Beneficiary to make whatever elections may be
available pursuant to Section 9, and the Committee shall provide for the
payment of benefits in the proper form and amount from the assets of the
Trust Fund. The Committee may decide in its sole discretion to permit
modifications of elections and to defer or accelerate benefits to the
extent consistent with applicable law and the best interests of the
individuals concerned.
11.10 Alternative Payees in Event of Incapacity.
-----------------------------------------
If the Committee finds at any time that an individual qualifying for
benefits under this Plan is a minor or is incompetent, the Committee may
direct the benefits to be paid, in the case of a minor, to his parents, his
legal guardian, a custodian for him under the Uniform Gifts to Minors Act,
or the person having actual custody of him, or, in the case of an
incompetent, to his spouse, his legal guardian, or the person having actual
custody of him, the payments to be used for the individual's benefit. The
Committee and the Trustee shall not be obligated to inquire as to the
actual use of the funds by the person receiving them under this Section
<PAGE>
11.10, and any such payment shall completely discharge the obligations of
the Plan, the Trustee, the Committee, and the Employers to the extent of
the payment.
11.11 Indemnification by Employers.
----------------------------
Except as separately agreed in writing, the Committee, and any member or
employee of the Committee, shall be indemnified and held harmless by the
Employers, jointly and severally, to the fullest extent permitted by law
against any and all costs, damages, expenses, and liabilities reasonably
incurred by or imposed upon it or him in connection with any claim made
against it or him or in which it or him may be involved by reason of its or
his being, or having been, the Committee, or a member or employee of the
Committee, to the extent such amounts are not paid by insurance.
11.12 Nonparticipation by Interested Member.
-------------------------------------
Any member of the Committee who also is a Participant in the Plan shall
take no part in any determination specifically relating to his own participation
or benefits, unless his abstention would leave the Committee incapable of acting
on the matter.
SECTION 12 - POWERS AND DUTIES OF PLAN TRUSTEES
-----------------------------------------------
12.1 Appointment of Trustees.
-----------------------
The Board of Directors of the Company shall appoint a minimum of three
individuals to serve as Trustees of the Plan. The Board of Directors of the
Company shall have the right at any time, and from time to time, to remove
any Trustee without cause. An individual may resign as a Trustee at any
time upon 10 days written notice to the Company.
12.2 Basic Responsibilities of the Trustees
--------------------------------------
The Trustees shall have the following primary responsibilities:
(a) To invest, manage, and control the Plan assets in a manner consistent
with Section 7.
At the discretion of the Trustees, one or more Investment Managers may
be appointed to direct the investment of all or any portion of the
Trust Fund. An Investment Manager shall accept the appointment in
writing, acknowledging that he is a fiduciary pursuant to Section 401
of ERISA, and certifying his registration under the Investment
Advisors Act of 1940 and the Investment Advisor Regulatory Enhancement
and Disclosure Act of 1993. The Investment Manager, as a Plan
fiduciary, is subject to the fidelity bond requirement of Section 412
of ERISA, and shall furnish evidence that this requirement has been
satisfied each Plan Year. The Trustees shall be under no obligation to
review or question any investment decision made by the Investment
Manager, and shall have no
<PAGE>
liability for losses sustained with respect to any investments made or
retained by the Investment Manager, or for any acts or omissions of
the Investment Manager.
(b) At the direction of the Committee, to pay benefits to Participants in
the Plan and, in the event of their death, to their Beneficiaries.
(c) To maintain records of all receipts and disbursements, and to furnish
to the Employer a written annual report.
12.3 Investment Powers and Duties
----------------------------
The Trustees shall carry out their duties with skill and prudence, giving
due regard to any limitations imposed by the Code or ERISA. The Trustees,
in addition to all power and authority granted to it under common law,
statutory authority, and other provisions of the Plan, shall be empowered:
(a) To purchase, or subscribe for, any securities or other property and to
retain the same. In conjunction with the purchase of securities,
margin accounts may be opened and maintained;
(b) To sell, exchange, convey, transfer, grant options to purchase, or
otherwise dispose of any securities or other property held by the
Trustees, by private contract or at public auction. No person dealing
with the Trustees shall be bound to see to the application of the
purchase money or to inquire into the validity, expediency or
propriety of any such sale or other disposition, with or without
advertisement;
(c) To vote upon any stocks, bonds, or other securities; to give general
or special proxies or powers of attorney with or without power of
substitution; to exercise any conversion privileges, subscription
rights, or other options, and to make any payments incidental thereto;
to oppose, or to consent to, or otherwise participate in, corporate
reorganizations or other changes affecting corporate securities, and
to delegate discretionary powers, and to pay any assessments or
charges in connection therewith; and generally to exercise any of the
powers of an owner with respect to stocks, bonds, securities, or other
property.
(d) To cause any securities or other property to be registered in the
Trustees' own name, and to hold any investments in bearer form, but
the books and records of the Trustees shall at all times show that all
such investments are part of the Trust Fund;
(e) To borrow or raise money for the purposes of the Plan in such amount,
and upon such terms and conditions, as the Trustees shall deem
advisable; and for any sum so borrowed, to issue a promissory note as
Trustees, and to secure the repayment thereof by pledging all, or any
part, of the Trust Fund; and no person lending money to the Trustees
shall be bound to see the application of the money lent or to inquire
into the validity, expediency, or propriety of any borrowing;
<PAGE>
(f) To keep such a portion of the Trust Fund in cash or cash balances as
the Trustees may, from time to time, deem to be in the best interests
of the Plan, without liability for interest thereon;
(g) To accept and retain for such time as the Trustees may deem advisable
any securities or other property received or acquired as Trustee
hereunder, whether or not such securities or other property would
normally be purchased as investments hereunder;
(h) To make, execute, acknowledge, and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be
purchased as investments hereunder;
(i) To settle, compromise, or submit to arbitration any claims, debts, or
damages due or owing to or from the Plan, to commence or defend suits
of legal or administrative proceedings, and to represent the Plan in
all suits and legal and administrative proceedings;
(j) To employ suitable agents and counsel and to pay their reasonable
expenses and compensation, and such agent or counsel may or may not be
agent or counsel for the Employer;
(k) To apply for and procure from responsible insurance companies, to be
selected by the Committee, as an investment of the Trust Fund such
annuity, or other Contracts (on the life of any Participant) as the
Committee shall deem proper; to exercise, at any time or from time to
time, whatever rights and privileges may be granted under such annuity
or other Contracts; to collect, receive, and settle for the proceeds
of all such annuity or other Contracts as and when entitled to do so
under the provisions thereof;
(l) To invest funds of the Trust in time deposits or savings accounts
bearing a reasonable rate of interest in the Trustees' bank;
(m) To invest in Treasury Bills and other forms of United States
government obligations;
(n) To sell, purchase, and acquire put or call options if the options are
traded on and purchased through a national securities exchange
registered under the Securities Exchange Act of 1934, as amended, or,
if the options are not traded on a national securities exchange, are
guaranteed by a member firm of the New York Stock Exchange;
(o) To deposit monies in federally insured savings accounts or
certificates of deposit in banks or savings and loan associations;
(p) To pool all or any of the Trust Fund, from time to time, with assets
belonging to any other qualified employee pension benefit trust
created by the Employer or an affiliated company of the Employer, and
to commingle such assets and make joint or common investments and
carry joint accounts on behalf of this Plan and such other trust or
trusts,
<PAGE>
allocating undivided shares or interests in such investments or
accounts or any pooled assets of the two or more trusts in accordance
with their respective interests;
(q) To establish and maintain investments as directed by the Participants
for their Elective Deferral Contributions.
(r) To do all such acts and exercise all such rights and privileges,
although not specifically mentioned herein, as the Trustee may deem
necessary to carry out the purposes of the Plan.
12.4 Duties Regarding Payment of Benefits.
------------------------------------
At the direction of the Committee, the Trustee shall, in accordance with
the terms of the Plan, make payment of benefits and expenses from the Trust
Fund.
12.5 Execution of Contracts and Payment of Benefits
----------------------------------------------
Execution or endorsement of any contract or check shall require the written
approval of any two Trustees acting together.
12.6 Trustee Expenses.
----------------
The Trustees shall be reimbursed for any necessary expenses, including
reasonable fees for legal counsel. Such expenses shall be paid from the
Trust Fund, unless the Company elects to pay all or any portion of such
expenses. All extraordinary expenses and liabilities, such as the cost of
litigation or the payment of adverse claims shall be paid from the Trust
Fund. All taxes of any kind that may be levied or assessed under existing
or future laws upon, or in respect of, the Trust Fund or the income
thereof, shall be paid from the Trust Fund.
12.7 Trust Fund Annual Report.
------------------------
The Trustees shall maintain detailed and accurate records and accounts of
all transactions, which shall be available for inspection and audit by any
person or persons designated by the Committee. At the direction of the
Committee, the Trustees shall submit any valuations, reports, or other
information that may be required to the auditors.
Within a reasonable time following the later of the last day of the Plan
Year or receipt by the Trustees of the final Employer Contribution to the
Plan, the Trustees shall furnish to the Company and the Committee a written
account which shall contain: (i) the net income, or loss, of the Trust
Fund; (ii) the gains, or losses, realized by the Trust Fund from the sale
or other disposition of assets; (iii) the increase, or decrease, in the
value of the Trust Fund; (iv) all payments and distributions made from the
Trust Fund; and (v) any additional information that the Company or
Committee deems appropriate.
<PAGE>
Upon receipt of the Trust Fund accounting, the Company shall advise the
Trustees of its approval or disapproval within thirty days. If no
objection has been filed by the Company, or if the account has been
adjusted pursuant to agreement between the Company and the Trustees, it
shall be deemed to be approved by the Company except as to matters, if
any, covered by written objections from the Company. The approval by the
Company of any statement of account shall be binding as to all matters
embraced therein to the same extent as if the account of the Trustees had
been settled by judgment or decree in an action for a judicial settlement
of its account in a court of competent jurisdiction in which the
Trustees, the Company, and all persons having or claiming an interest in
the Plan were parties; provided, however, that nothing herein contained
shall deprive the Trustees of having its accounts judicially settled if
the Trustees so desires.
12.8 Audit.
-----
If an audit of the Plan's records shall be required by ERISA and the
regulations thereunder for any Plan Year, the Committee shall direct the
Trustees to engage on behalf of all Participants an independent qualified
public accountant for that purpose. Such accountant shall, after an audit
of the books and records of the Plan in accordance with generally
accepted auditing standards, within a reasonable period after the close
of the Plan Year, furnish to the Committee and the Trustees a report of
his audit, setting forth his opinion as to whether any statements or
schedules which are required to be filed by Section 103 of ERISA or by
the Secretary of Labor with the Plan's annual report, are presently
fairly in conformity with generally accepted accounting principles
applied consistently.
All auditing and accounting fees shall be an expense of and, at the
election of the Company, paid from the Trust Fund.
12.9 Idemnification by Employers.
---------------------------
Except as separately agreed in writing, the Trustees shall be idemnified
and held harmless by the Employers, jointly and severally, to the fullest
extent permitted by law against any and all costs, damages, expenses, and
liabilities reasonably incurred by or imposed upon them in connection
with any claim made against them or in which they may be involved as
Trustees, to the extent such amounts are not paid by insurance.
12.10 Nonparticipation by Interest Member.
-----------------------------------
Any Trustee who also is a Participant in the Plan shall take no part in
any determination specifically relating to his own participation or
benefits, unless his abstention would leave the other Trustees incapable
of acting on the matter.
SECTION 13 - AMENDMENT AND TERMINATION OF PLAN
----------------------------------------------
13.1 Adoption of Plan by Other Employers.
-----------------------------------
<PAGE>
With the consent of the Company, any entity may become a participating
Employer under the Plan by (i) taking such action as shall be necessary to
adopt the Plan, and (ii) executing and delivering such instruments and
taking such other action as may be necessary or desirable to put the Plan
into effect with respect to the entity's Employees.
13.2 Adoption of Plan by Successor.
-----------------------------
In the event that any Employer shall be reorganized by way of merger,
consolidation, transfer of assets or otherwise, so that an entity other
than an Employer shall succeed to all or substantially all of the
Employer's business, the successor entity may be substituted for the
Employer under the Plan by adopting the Plan. Contributions by the Employer
shall be automatically suspended from the effective date of any such
reorganization until the date upon which the substitution of the successor
entity for the Employer under the Plan becomes effective. If, within 90
days following the effective date of any such reorganization, the successor
entity shall not have elected to become a part to the Plan, or if the
Employer shall adopt a plan of complete liquidation other than in
connection with a reorganization, the Plan shall be automatically
terminated with respect to Employees of the Employer as of the close of
business on the 90th day following the effective date of the
reorganization, or as of the close of business on the date of adoption of a
plan of complete liquidation, as the case may be.
13.3 Right to Amend or Terminate.
---------------------------
The Company intends to continue this Plan as a permanent program. However,
each participating Employer separately reserves the right to suspend,
supersede, or terminate the Plan at any time and for any reason, as it
applies to that Employer's Employees, and the Company reserves the right to
amend, suspend, supersede, merge, consolidate, or terminate the Plan at any
time and for any reason, as it applies to the Employees of all Employers.
No amendment, suspension, supersession, merger, consolidation, or
termination of the Plan shall reduce any Participant's or Beneficiary's
proportionate interest in the Trust Fund, or shall divert any portion of
the Trust Fund to purposes other than the exclusive benefit of the
Participants and their Beneficiaries prior to the satisfaction of all
liabilities under the Plan. Moreover, there shall not be any transfer of
assets to a successor plan or merger or consolidation with another plan
unless, in the event of the termination of the successor plan or the
surviving plan immediately following such transfer, merger, or
consolidation, each participant or beneficiary would be entitled to a
benefit equal to or greater than the benefit he would have been entitled to
if the plan in which he was previously a participant or beneficiary had
terminated immediately prior to such transfer, merger, or consolidation.
Following a termination of this Plan by the Company, the Trustee shall
continue to administer the Trust and pay benefits in accordance with the
Plan as amended from time to time and the Committee's instructions.
SECTION 14 - MISCELLANEOUS PROVISIONS
-------------------------------------
<PAGE>
14.1 Plan Creates No Employment Rights.
---------------------------------
Nothing in this Plan shall be interpreted as giving any Employee the right
to be retained as an Employee by an Employer, or as limiting or affecting
the rights of an Employer to control its Employees or to terminate the
Service of any Employee at any time and for any reason, subject to any
applicable employment or collective bargaining agreements.
14.2 Nonassignability of Benefits.
----------------------------
No assignment, pledge, or other anticipation of benefits from the Plan will
be permitted or recognized by the Employers, the Committee, or the Trustee.
Moreover, benefits from the Plan shall not be subject to attachment,
garnishment, or other legal process for debts or liabilities of any
Participant or Beneficiary, to the extent permitted by law. This
prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement)
which relates to the provision of child support, alimony, or property
rights to a present or former spouse, child, or other dependent of a
Participant pursuant to a State domestic relations or community property
law, unless the judgment, decree, or order is determined by the Committee
to be a Qualified Domestic Relations Order within the meaning of Section
414(p) of the Code.
14.3 Limit of Employer Liability.
---------------------------
The liability of the Employers with respect to Participants under this Plan
shall be limited to making contributions to the Trust from time to time, in
accordance with Section 4.
14.4 Treatment of Expenses.
---------------------
All expenses incurred by the Committee and the Trustee in connection with
administering this Plan and Trust Fund shall be paid by the Trustee from
the Trust Fund to the extent the expenses have not been paid or assumed by
the Employer.
14.5 Number and Gender.
-----------------
Any use of the singular shall be interpreted to include the plural, and the
plural the singular. Any use of the masculine, feminine, or neuter shall be
interpreted to include the masculine, feminine, or neuter, as the context
shall require.
14.6 Nondiversion of Assets.
----------------------
Except as provided in Section 6.3, under no circumstances shall any portion
of the Trust Fund be diverted to or used for any purpose other than the
exclusive benefit of the Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan.
14.7 Separability of Provisions.
--------------------------
<PAGE>
If any provision of this Plan is held to be invalid or unenforcable, the
other provisions of the Plan shall not be affected but shall be applied as if
the invalid or unenforcable provision had not been included in the Plan.
14.8 Service of Process.
------------------
The agent for the service of process upon the Plan shall be the president
of the Company, or such other person as may be designated from time to time
by the Company.
14.9 Governing State Law.
-------------------
This Plan shall be interpreted in according with the laws of the State of
Illinois to the extent those laws are applicable under the provisions of
ERISA.
SECTION 15 - TOP-HEAVY PROVISIONS
---------------------------------
15.1 Determination of Top-Heavy Status.
---------------------------------
The Committee shall determine on a regular basis whether each Plan Year is
or is not a "Top-Heavy Year" for purposes of implementing the provisions of
Sections 15.2, 15.3, and 15.4, which shall apply only to the extent the
Plan is top-heavy or super top-heavy within the meaning of Section 416 of
the Code and the Treasury Regulations promulgated thereunder. In making
this determination, the Committee shall use the following definitions and
principles:
(a) The "Employer" includes all business entities which are considered
commonly controlled or affiliated within the meaning of Sections
414(b), 414(c), and 414(m) of the Code.
(b) The "plan aggregation group" includes each qualified retirement plan
maintained by the Employer (i) in which a Key Employee is a Participant
during the Plan Year, or (ii) which enables any plan described in clause
(i) to satisfy the requirements of Section 401(a)(4) or 410 of the Code, or
(iii) which provides contributions or benefits comparable to those of the
plans described in clauses (i) and (ii) and which is designated by the
Committee as part of the plan aggregation group.
(c) The "determination date", with respect to the first Plan Year of any
plan, means the last day of that Plan Year, and with respect to each
subsequent Plan Year, means the last day of the preceding Plan Year.
If any other plan has a determination date which differs from this
Plan's determination date, the top-heaviness of this Plan shall be
determined on the basis of the other plan's determination date falling
within the same calendar year as this Plan's determination date.
<PAGE>
(d) A "Key Employee", with respect to a Plan Year, means an Employee who
at any time during the five years ending on the top-heavy
determination date of the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having Total
Compensation greater than 150 percent of the limit then in effect
under Section 415(c)(1)(A) of the Code, (ii) one of the 10 Employees
owning the largest interests in the Employer having Total Compensation
greater than the limit then in effect under Section 415(c)(1)(A),
(iii) an owner of more than five percent of the outstanding equity
interest or outstanding voting interest in any Employer, or (iv) an
owner of more than one percent of the outstanding equity interest or
the outstanding voting interest in an Employer whose Total
Compensation exceeds $150,000. In determining which individuals are
Key Employees, the rules of Section 415(i) of the Code and Treasury
Regulations promulgated thereunder shall apply. The Beneficiary of a
Key Employee shall also be considered a Key Employee.
(e) A Non-key Employee means an Employee who at any time during the five
years ending on the top-heavy determination date for the Plan Year has
received compensation from an Employer and who has never been a Key
Employee, and the Beneficiary of any such Employee.
(f) The "aggregated benefits" for any Plan Year means (i) the adjusted
account balances in defined contribution plans on the determination
date, plus (ii) the adjusted value of accrued benefits in defined
benefit plans, calculated as to the annual valuation date coinciding
with or next preceding the determination date, with respect to Key
Employees and Non-key Employees under all plans with the plan
aggregation group which includes this Plan. For this purpose, the
"adjusted account balance" and the "adjusted value of accrued benefit"
for any Employee shall be increased by all plan distributions made
with respect to the Employee during the five years ending on the
determination date. Further, the adjusted account balance under a plan
shall not include any amount attributable to a Rollover Contribution
or similar transfer to the Plan initiated by an Employee and made
after 1983, unless both plans involved are maintained by the Employer,
in which event the transferred amount shall be counted in the
transferee plan and ignored for all purposes in the transferor plan.
Finally, the adjusted value of accrued benefits under any defined
benefit plan shall be determined by assuming whichever actuarial
assumptions were applied by the Pension Benefit Guaranty Corporation
to determine the sufficiency of plan assets for plans terminating on
the valuation date.
(g) This Plan shall be "top-heavy" for any Plan Year in which the
aggregated benefits of the Key Employees exceed 60 percent of the
total aggregated benefits for both Key Employees and Non-key
Employees.
(h) This Plan shall be "super top-heavy" for any Plan Year in which the
aggregated benefits of the Key Employees exceed 90 percent of the
total aggregated benefits for both Key Employees and Non-key
Employees.
<PAGE>
(I) A "Top-Heavy Year" means a Plan Year in which the Plan is top-heavy.
15.2 Minimum Contributions.
---------------------
For any Top-Heavy Year, a special contribution shall be made on behalf of
each Participant so that each Non-key Employee's allocation of Employer
Contributions and Forfeitures shall be equal to the lesser of (i) 3% of
such Non-key Employee's Total Compensation, or (ii) the highest ratio of
such allocation of Employer Contributions and Forfeitures received by any
Key Employee for that Plan Year. For purposes of the special contribution
of this Section 15.2, a Key Employee's Total Compensation shall include
amounts the Key Employee elected to defer under a qualified 401(k)
arrangement. Such a special contribution shall be made on behalf of each
Participant who is employed by the Employer on the last day of the Plan
Year, regardless of his Hours of Service.
Neither Elective Deferrals nor Matching Contributions may be taken into
account for the purpose of satisfying the minimum top-heavy contribution
requirement.
For any Plan Year when (i) the Plan is top-heavy and (ii) a Non-key
Employee is a Participant in both this Plan and a defined benefit plan
included in the plan aggregation group which is top heavy, the sum of the
Employer Contributions and Forfeitures allocated to the Account of each
such Non-key Employee shall be equal to at least 5% of such Non-key
Employee's Total Compensation for that Plan Year.
If the Employer has more than one plan, the required minimum Top-Heavy Year
contribution shall be met in this Plan.
15.3 Top-Heavy Vesting Schedule.
--------------------------
In a Top-Heavy Plan Year, a Participant's Vested interest in that portion
of his Employer Contribution Account maintained for Employer Matching and
Employer Discretionary Contributions shall be based on the following top-
heavy vesting schedule:
<TABLE>
<CAPTION>
Vesting Schedule
----------------
Years of Service Percent Vested Interest
---------------- -----------------------
<S> <C>
Less than 2 years 0%
2 20%
3 40%
4 60%
5 80%
6 or more years 100%
</TABLE>
15.4 Maximum Compensation.
--------------------
<PAGE>
For any Top-Heavy Year, a Participant's "Cash Compensation" as defined in
Section 2, and his "Total Compensation" for purposes of Section 15.2, shall
not exceed $200,000 (or the limit currently in effect under Section 415(d)
of the Code).
<PAGE>
AMENDMENTS TO THE
MAF BANCORP, INC. SHAREHOLDER VALUE LONG-TERM INCENTIVE
PLAN
1. Section VI(3) of the Plan is amended to read:
Performance Period: Except as described below, performance will be measured over
a three-year period. A new three year Performance Period will begin each year.
As a result, at any given time, three overlapping shareholder value plans will
be in effect. Notwithstanding the foregoing, performance units granted on July
1, 1994, July 1, 1995 and July 1, 1996 will be measured over a two and one-half
year period, in order to take into account the change in the Company's year end
to December 31, effective for the period ended December 31, 1996.
2. The second paragraph of Section V is amended to read:
Amendment, Modification, and Termination of the Plan: The Board or its
designated committee may at any time terminate, and from time to time may amend
or modify the Plan, except that no amendment shall decrease the amount of an
award payable to a Participant or group of Participants and except that no such
termination shall be effective with respect to the Performance Period(s) then in
effect.
3. The definition of "Retirement" contained in Section III is amended to read as
follows:
"Retirement" means retirement at the normal or early retirement date as set
forth in any tax qualified plan of the Bank.
The above amendments shall be effective as of December 17, 1996.
MAF Bancorp, Inc. Shareholder Value
Long-Term Incentive Plan
<PAGE>
Exhibit 10(xiii) MAF Bancorp, Inc. Shareholder Value Long-Term Incentive Plan
<PAGE>
CERTIFICATE OF RESOLUTION
I, Carolyn Pihera, do hereby certify that I am the duly elected and acting
Secretary of Mid America Federal Savings Bank, and that the following is a true
and correct copy of a certain resolution adopted by the Board of Directors of
said Bank at their regular meeting held June 27, 1995, at which meeting a quorum
of the members of said Bank were present and acting throughout:
NOW THEREFORE BE IT RESOLVED, that the Board amends Section IV, Eligibility
and Participation, and Section VI (4), Award Opportunities, by adding Gail
Brzostek, Vice President - Check Operations and Diane Stutte, Vice
President - Teller Operations as new Group IV participants whose target
award levels will be equal to 6% of base salaries.
I do further certify that the foregoing resolution has not been altered or
amended, but remains in force and effect.
IN WITNESS WHEREOF, I have executed this Certificate and affixed the Bank's seal
this 31st day of August, 1995.
/s/ Carolyn Pihera
- --------------------------------
Corporate Secretary
<PAGE>
MAF Bancorp
SHAREHOLDER VALUE LONG-
TERM INCENTIVE PLAN
Effective July, 1993
1
<PAGE>
I. PURPOSE OF THE PROGRAM
The purpose of the MAF Bancorp (the Company) Shareholder Value Incentive Plan
(the Plan) is to provide executives with financial motivation to act in the
long-term interests of the Company and its shareholders. By providing financial
rewards to executives linked to the achievement of long-term goals, the Company
believes the Plan will promote an increased focus by those people primarily
responsible for its long-term success on the longer-term impact of their
decisions.
II. EFFECTIVE DATE
The Plan will become effective on the first day of the 1994 fiscal year. The
Plan will continue in effect until and unless terminated by the Board of
Directors (the Board).
III. DEFINITIONS
1. "Base Salary", for purposes of this Plan only, is the fixed portion of
executives' compensation. It specifically excludes any amounts paid
pursuant to the Annual Incentive Plan and the Shareholder Value
Incentive Plan.
2. "Performance Period" means a period of three consecutive fiscal years
of the Company.
3. "Participant" means any employee designated by the Chairman/CEO to
participate in the Plan.
4. "Retirement", for purposes of this Plan only, shall be defined as the
first day of the month following the month in which the Participant
attains his or her 65th birthday.
5. "Disability" shall be defined by reference to its definition under
Section 8.02 of the Mid America Federal Savings Bank Profit Sharing
Plan.
6. "Total Shareholder Return" refers to stock price appreciation plus
reinvested dividends.
IV. ELIGIBILITY AND PARTICIPATION
In general, all executives who have the potential to significantly impact
strategic results will participate in the Plan. Other employees may be
appointed to participate in the Plan at the discretion of the Chairman or
President, if determined necessary or desirable to carry out the purpose of the
Plan.
Initially there will be three levels (i.e. groups) of participation under the
Plan. These include:
2
<PAGE>
IV. ELIGIBILITY AND PARTICIPATION (CONTINUED)
. Group I: The Chairman/CEO and the President
-------
. Group II:. Selected executives with company-wide responsibilities.
-------- Initially this includes:
- Chief Financial Officer
- SVP Loan Operations
. Group III: Selected executives with primary accountability for one or
--------- more key functional areas. Initially this includes:
- 1st VP and Controller
- 1st VP Administration/Savings
- 1st VP Investor Relations/Taxation
- VP Secondary Mortgage Marketing
- SVP Loan Administration/Compliance
- President Mid America Development
- SVP Operations/Information Systems
- SVP Retail Banking
The addition of Participants and/or changes in group assignment after July 1,
1993 will be effective upon notification of selection. If notification is given
in the midst of a Performance Period, Participants will receive a pro rata share
of any awards distributed at the end of the Performance Period.
V. OVERALL PLAN ADMINISTRATION
COMPENSATION COMMITTEE: The Compensation Committee (the Committee) shall be
responsible for overall Plan administration. The Committee, by majority action,
is authorized to interpret the Plan, to prescribe, amend, and rescind rules and
regulations relating to the Plan, to provide for conditions and assurances
deemed necessary or advisable to protect the interests of the Company, and to
make all other determinations necessary or advisable for the administration of
the Plan, but only to the extent not contrary to the express provisions of the
Plan. The Committee may request the assistance of the Board in making any
determination under the Plan or in carrying out its duties hereunder.
Determinations, interpretations, or other actions made or taken by the Committee
pursuant to the provisions of the Plan shall be final, binding and conclusive
for all purposes and upon all persons whomsoever.
AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN: The Board or its
designated committee may at any time terminate, and from time to time may amend
or modify the Plan, except that no amendment shall increase the amount of an
award payable to a Participant or group of Participants and except that no such
termination shall be effective with respect to the Performance Period(s) then in
effect.
3
<PAGE>
V. OVERALL PLAN ADMINISTRATION (CONTINUED)
EXPENSES OF THE PLAN: The expenses of the Plan shall be allocated
proportionately among the Company and the Bank based on the relative
compensation expense, other than the expense of this Plan, incurred by the
Company and the Bank for each Participant in the Plan.
VI. SHAREHOLDER VALUE PLAN
1. PLAN OVERVIEW: The shareholder value plan is predicated on the belief that
executives should receive long-term incentive awards commensurate to the
return shareholders receive in stock price appreciation and dividends. If
relative to other companies the Company performs well, this plan will
provide substantial awards to executives. Conversely, if the Company
performs poorly in terms of stock price appreciation and dividends, this
plan will provide no awards.
2. PERFORMANCE PERIOD: Performance will be measured over a three year period.
A new three-year Performance Period will begin each year. As a result, at
any given time three overlapping shareholder value plans will be in effect.
3. PERFORMANCE MEASURE: Before the beginning of each Performance Period, the
Chairman/CEO shall propose the criteria and performance goals upon which
Company performance will be based. These must be approved by the Board.
For the initial Performance Period, the criterion is the Company's Total
Shareholder Return relative to: (1) comparable thrift industry companies,
and (2) the S&P 500 stock index. Specifically, the plan will be activated
if the Company's Total Shareholder Return for the Performance Period is in
the 51st percentile or better when compared to thrift industry companies.
Once activated, the final award size will depend on the Company's
percentile rank in Total Shareholder Return relative to the return of S&P
500 companies over the Performance Period.
4. AWARD OPPORTUNITIES: Before the beginning of each Performance Period, the
Chairman/CEO shall propose award opportunities for each Participant group.
As a general guideline, award opportunities will correspond to the
competitive market practices and the relative priority placed by the
Company on achieving annual versus long-term performance goals. These must
be approved by the Board.
Participants will be assigned a "Target" award opportunity stated as a
percent of base salary. The Target level is the amount that will be paid
for exactly achieving Target performance goals.
Initial Target award levels are stated as follows:
. 25 percent of base salaries for Group I positions
. 20 percent of base salaries for Group II positions
. 11 percent of base salaries for Group III positions
4
<PAGE>
VI. SHAREHOLDER VALUE PLAN (CONTINUED)
5. AWARD DISTRIBUTION: Each Participant will be awarded a number of
Performance Units based on the Participant's base salary and his/her
assigned Target award opportunity. Performance Units will have a Target
value of $100. The number of units awarded will be determined by
multiplying each Participant's base salary by the Target award opportunity,
and the result divided by $100.
At the end of each Performance Period, the value of each Performance Unit
will be determined based on the following schedule:
<TABLE>
<CAPTION>
PERFORMANCE PERFORMANCE COMPANY TSR PERCENTILE
LEVEL UNIT VALUE RANK AMONG S&P 500
----------- ----------- ----------------------
<S> <C> <C>
Threshold $ 50 50th
$ 75 55th
Target $100 60th
$125 65th
$150 70th
$175 75th
$200 80th
$225 85th
Superior $250 90th
</TABLE>
The calculation of a Participant's award for a Performance Period shall be
made by multiplying the number of Performance Units granted by the
Performance Unit value. The award will be distributed in cash.
6. TIMING OF AWARD PAYMENTS: Except as outlined in Section VII, all awards
made under the Plan (i.e., cash) shall be paid to Participants within 30
days after the date on which the independent certified public accountants
have determined the Company's percentile rank on a Total Shareholder Return
basis among the S&P 500.
7. CHANGE IN CONTROL: Upon the occurrence of a Change in Control of the
company (as such term is defined in the MAF Bancorp 1990 Incentive Stock
Option Plan), Participants' awards for each of the three shareholder value
plans then in effect shall be calculated based on the applicable
performance criteria without regard to whether the full three year
performance period has been completed for each of the overlapping plans.
In such case, the performance period shall be deemed to have ended as of
the end of the latest calendar quarter preceding the closing of any Change
in Control transaction. The award calculated for each of the three
overlapping plans shall then be reduced on a pro rata basis based on the
ratio of the number of months actually completed in the performance period
to thirty-six months.
5
<PAGE>
VII. CHANGES IN EMPLOYEE STATUS
When a Participant's employment is terminated, voluntarily or involuntarily,
prior to vesting of Performance Units for reasons other than death, retirement
or disability, the Participant will forfeit all rights to unvested awards.
Terminating participants are entitled to receive vested Performance Units at the
same time that active Participants receive their awards.
Termination during a Performance Period for reasons of death, retirement or
disability will result in a pro rata payment based on the number of full months
of employment during the Performance Period(s) as a percent of the total months
of the Performance Period(s). Payment of awards, if earned, shall be made at
the same time that active Participants receive their awards.
VIII. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any beneficiary or
beneficiaries (who may be named contingentally or successively) to whom any
benefit under the Plan is to be paid in case of the Participant's death before
he or she receives any or all of such benefit. Each designation will revoke all
prior designations by the same Participant, shall be in a form prescribed by the
Committee and will be effective only when filed by the Participant in writing
with the Committee during his/her lifetime. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be paid
to the estate of the Participant.
IX. TAX WITHHOLDING
Upon payment of awards under the Plan, the amount of tax required by any
governmental authority to be withheld shall be deducted from each distribution
of cash.
X. RIGHTS OF EMPLOYERS
Nothing in the Plan shall interfere with or limit in any way the right of the
Company to terminate any Participant's employment at any time nor confer upon
any Participant any right to continue in the employ of the Company.
6
<PAGE>
Exhibit No. 10(xx) Consultant Agreement dated January 3, 1997 between
Mid America Federal Savings Bank and Lois B. Vasto
1
<PAGE>
LOIS B. VASTO
CONSULTANT AGREEMENT
--------------------
This Consultant Agreement made this 3rd day of January, 1997 between Lois
B. Vasto of 2141 University Drive, City of Naperville, County of Will, State of
Illinois, herein referred to as Consultant, and Mid America Federal Savings
Bank, a corporation whose principal place of business is located at 55th &
Holmes, Clarendon Hills, State of Illinois, hereinafter referred to as the Bank.
The parties stipulate and recite that:
A. Lois B. Vasto has been employed in various capacities with the Bank
since 1953 including most recently, as a Senior Vice President since
May, 1984.
B. Lois B. Vasto retired as an employee of the Bank on January 3, 1997.
C. The Bank is desirous of retaining the services of Lois B. Vasto for a
period of time based on her extensive experience in the field of
residential lending and based on her knowledge of the banking
industry.
For the reasons recited above, and in consideration of the mutual covenants
contained within this Agreement, the Bank and Consultant agree as follows:
SECTION ONE
TERM OF EMPLOYMENT
------------------
The Bank hereby retains Lois B. Vasto as a Consultant and Lois B. Vasto
accepts such position with Mid America for a term beginning on January 4, 1997
and ending on July 3, 1997.
Either party may cancel this Agreement on sixty days notice to the other
party in writing by certified mail or personal delivery.
Furthermore, this Agreement shall cease upon the death of the Consultant.
2
<PAGE>
SECTION TWO
DUTIES OF CONSULTANT
--------------------
The Consultant will render advisory and consulting services during the term
of this contract, and will give the Bank the benefit of her special knowledge,
skill, contacts and business experience in the fields of residential lending and
the banking industry. Consultant shall respond to reasonable requests for
advice and consultation on matters connected with residential lending, banking
and financial services during regular business hours.
SECTION THREE
FEES
----
For her services as a Consultant for the period covered by this Agreement,
Consultant shall be paid consulting fees equal to Seventy Three Thousand and
No/100 Dollars ($73,000.00), in monthly installments commencing January 31,
1997. In addition, Consultant will be entitled to receive additional fees equal
to 50% of the amount she would have been entitled to receive as a participant in
Group II of the Bank's Executive Annual Incentive Plan for 1997, had she not
retired as an employee of the Bank on January 3, 1997. Such additional
consulting fees shall be determined based on the same goals and criteria as are
set forth in the plan and/or by the Bank's Board of Directors and which apply to
other participants in Group II of the plan. Such additional consulting fees
shall be paid to Consultant on the same date that annual incentive bonuses for
calendar 1997 are paid to participants in the plan.
Consultant shall be reimbursed by the Bank for her out-of-pocket expenses
incurred in rendering such consulting services. The Bank will provide
Consultant with, and will cover the expenses for, secretarial services and a
company car for business purposes.
3
<PAGE>
SECTION FOUR
PRACTICE BY CONSULTANT
----------------------
Consultant may engage in the practice of advising the Bank and its
affiliates, except that Consultant may not represent in such capacity, any of
the clients of the Bank, or the clients of an assignee of this contract, who are
such clients at that time. Consultant shall not provide consulting services to
any persons, individuals, partnerships, corporations, or other entities who are
in competition with the Bank, including clients of the Bank, and Consultant
shall not become an employee, officer or director of another person, individual,
partnership, corporation, or other entity that operates in competition with the
Bank, unless consent is granted in writing by Employer.
Provided that the Bank is not in default hereof, the Consultant covenants
and agrees that she will not during the term which she is entitled to receive
consulting fees hereunder, engage directly or indirectly in any business (other
than that of the Bank or its affiliates) which is competitive with that business
in which the Bank or its affiliates is now engaged.
SECTION FIVE
ASSIGNMENT
----------
The Bank's rights under this contract may be assigned by it to any firm
engaged in residential lending, banking or financial services which the Bank may
form or which succeeds the Bank in its business. Upon such assignment, the
assignee shall assume and perform all the Bank's obligations under this
contract.
SECTION SIX
INDEPENDENT CONTRACTOR
----------------------
Both the Bank and the Consultant agree that the Consultant will act as an
independent contractor in the performance of her duties under this Agreement.
Accordingly, the Consultant shall be responsible for payment of all taxes,
4
<PAGE>
including federal and state income taxes, social security or self-employment
taxes, unemployment insurance taxes and any other taxes or business license fees
as required.
SECTION SEVEN
CONFIDENTIAL INFORMATION
------------------------
The Consultant agrees that any information received by the Consultant
during any furtherance of the Consultant's obligations in accordance with this
Agreement, which concerns the personal, financial or other affairs of the Bank
or its affiliates will be treated by the Consultant in full confidence and will
not be revealed to any other persons, firms or organizations.
In witness whereof, the parties have executed this Agreement at Clarendon
Hills, Illinois on this 3rd day of January, 1997.
/s/ Lois B. Vasto
- -----------------------------------
Lois B. Vasto, Consultant
/s/ Allen H. Koranda
- -----------------------------------
Allen H. Koranda, Chairman of the Board and
Chief Executive Officer
Mid America Federal Savings Bank
5
<PAGE>
Exhibit 10(xxiii) MAF Severance Benefits Program for Northwestern Employees.
<PAGE>
FIRST AMENDMENT TO THE
MAF SEVERANCE BENEFITS PROGRAM
FOR NORTHWESTERN EMPLOYEES
Effective as of January 1, 1997, the definitions of "Plan Year" and
"Severance Event" in Section 1.3 of the MAF Severance Benefits Program for
Northwestern Employees are amended to read as follows:
"Plan Year" means the period commencing on the Effective Date and
---------
ending December 31, 1996, and each calendar year thereafter.
"Severance Event" shall be deemed to have occurred if, and only if, as
---------------
of the Effective Date, or prior to March 31, 1997, the termination of an
Eligible Employee's employment with all Employers occurs, and such
termination is employer-initiated for reasons attributable to the Merger
and other than misconduct or unsatisfactory performance below acceptable
standards pursuant to the Company's progressive discipline policy
applicable to the Eligible Employee.
<PAGE>
MAF SEVERANCE BENEFITS PROGRAM
FOR NORTHWESTERN EMPLOYEES
EFFECTIVE DATE: MAY 30, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
ARTICLE I.................................................................. 1
GENERAL............................................................... 1
1.1 Purpose..................................................... 1
-------
1.2 Effective Date.............................................. 1
--------------
1.3 Definitions................................................. 1
-----------
1.4 Controlling Authority....................................... 3
---------------------
1.5 Sole Source of Severance Benefits........................... 3
---------------------------------
ARTICLE II................................................................. 3
ELIGIBILITY AND BENEFITS.............................................. 3
2.1 Eligibility................................................. 3
-----------
2.2 Eligibility Exclusions...................................... 3
----------------------
2.3 Severance Pay............................................... 4
-------------
2.4 Form And Payment Of Severance Benefits...................... 5
--------------------------------------
2.5 Lump Sum Death Benefit...................................... 5
----------------------
2.6 Other Benefits.............................................. 5
--------------
ARTICLE III................................................................ 6
PLAN ADMINISTRATION................................................... 6
3.1 Administration of Plan...................................... 6
----------------------
3.2 Rules and Procedures........................................ 6
--------------------
3.3 Claims Procedure............................................ 6
----------------
3.4 Actions of the Plan Administrator........................... 7
---------------------------------
3.5 Delegation.................................................. 7
----------
3.6 Reliance on Experts......................................... 7
-------------------
ARTICLE IV................................................................. 8
LIMITATIONS AND LIABILITIES........................................... 8
4.1 Non-guarantee of Employment................................. 8
---------------------------
4.2 Non-alienation of Assets and Benefits....................... 8
-------------------------------------
4.3 Limitation of Liability..................................... 8
-----------------------
4.4 Indemnification............................................. 8
---------------
ARTICLE V.................................................................. 8
FUNDING............................................................... 8
5.1 Funding..................................................... 8
-------
ARTICLE VI................................................................. 9
AFFILIATES............................................................ 9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
6.1 Obligation of Employers..................................... 9
-----------------------
6.2 Cooperation by Each Employer................................ 9
----------------------------
ARTICLE VII................................................................ 9
AMENDMENT AND TERMINATION............................................. 9
7.1 General..................................................... 9
-------
7.2 Amendments.................................................. 9
----------
ARTICLE VIII............................................................... 9
MISCELLANEOUS PROVISIONS.............................................. 9
8.1 ERISA....................................................... 9
-----
8.2 Applicable Law.............................................. 10
--------------
8.3 Exclusive Benefit of Participants........................... 10
---------------------------------
8.4 Agent for Service of Process................................ 10
----------------------------
</TABLE>
ii
<PAGE>
MAF SEVERANCE BENEFITS PROGRAM
FOR NORTHWESTERN EMPLOYEES
ARTICLE I
GENERAL
1.1 Purpose. It is the intention of MAF Bancorp, Inc. (the "Company")
-------
to create and maintain the MAF Severance Benefits Program for Northwestern
Employees (the "Plan") to provide Eligible Employees with income after
termination of employment under circumstances described herein, including, but
not limited to, the execution of the general release prescribed hereby.
1.2 Effective Date. The Plan shall become effective on the Effective
--------------
Date of the Merger under that certain Amended and Restated Agreement and Plan of
Merger, dated as of November 29, 1995, by and between the Company and N.S.
Bancorp, Inc. (the "Merger Agreement").
1.3 Definitions. Each capitalized term not defined herein shall have
-----------
the meaning ascribed to it under the Merger Agreement, unless the context
requires otherwise. Each term defined herein shall be given its defined meaning
wherever used in this document, unless the context requires otherwise.
"Affiliate" means (1) the Company and any corporation or enterprise,
---------
other than the Company, which, as of a given date, is a member of the same
controlled group of corporations, the same group of trades or businesses
under common control or the same affiliated service group, determined in
accordance with Code Section 414(b),(c),(m) or (o), as is the Company or
(2) a subsidiary of the Company where the Company is an owner of a majority
of the voting securities of such corporation or enterprise or (3) any other
corporation or enterprise deemed to be an affiliate by the Board of
Directors of the Company.
"Base Weekly Pay" means with respect to: (a) a salaried Employee, the
---------------
Employee's base annual salary as of the Severance Event, divided by 52, and
(b) an hourly Employee, the Employee's average weekly earnings based on
such Employee's straight time earnings for the twelve month period ending
with the last full week preceding the Severance Event.
"Beneficiary" means the person or persons designated by an Eligible
-----------
Employee to receive the payment described in Section 2.5 in the event of
the Eligible Employee's death while receiving Severance Pay. Such
designation shall be filed with the Committee on such form as the Committee
may prescribe. In the event an Eligible Employee fails to properly file a
designation, then the "Beneficiary" shall be the Eligible Employee's
estate.
1
<PAGE>
"Company" means MAF Bancorp, Inc.
-------
"Eligible Employee" means a Northwestern Employee who has satisfied
-----------------
all conditions of eligibility as provided in sections 2.1 and 2.2.
"Employer" means the Company and any Affiliate thereof which employs a
--------
Northwestern Employee as an Employee on or after the Effective Date.
"Employee" means an individual who provides services to the Company
--------
and any Affiliate as an employee for remuneration.
"Northwestern Employee" means each Employee of N.S. Bancorp, Inc.,
---------------------
Northwestern Savings Bank (to be merged into Mid America Federal Savings
Bank on the Effective Date) and each other Northwestern subsidiary as of
the Effective Date (collectively, "Northwestern") employed as of the
Effective Date, other than any Northwestern Employee who at any time on or
after November 29, 1995 was or becomes a party to a written employment
agreement with Northwestern, the Company or an Affiliate.
"Plan Administrator" means the First Vice President-Administration of
------------------
the Company or such other person or entity designated to administer the
Plan and be the named fiduciary thereof.
"Plan Year" means the period commencing on the Effective Date and
----------
ending December 31, 1996.
"Severance Event" shall be deemed to have occurred if, and only if, as
---------------
of the Effective Date, or prior to December 31, 1996, the termination of an
Eligible Employee's employment with all Employers occurs, and such
termination is employer-initiated for reasons attributable to the Merger
and other than misconduct or unsatisfactory performance below acceptable
standards pursuant to the Company's progressive discipline policy
applicable to the Eligible Employee.
"Severance Pay" means the benefit provided pursuant to Section 2.3.
-------------
"Week of Severance Pay" shall mean an amount equal to an Eligible
---------------------
Employee's Base Weekly Pay determined as of the Severance Event.
"Year of Service" means each full year of continuous employment with
---------------
the Employer. For purposes hereof, if a Northwestern Employee has had a
termination of employment prior to the Effective Date and was subsequently
reemployed, for the sole purpose of computing the amount of Severance Pay
under the Plan, his Years of Service shall be computed from his
reemployment date.
2
<PAGE>
1.4 Controlling Authority. This Plan document is the sole and controlling
---------------------
source of rights under the Plan. This Plan may only be amended in accordance
with Article VII herein.
1.5 Sole Source of Severance Benefits. This Plan shall be the sole
---------------------------------
source of severance benefits applicable to any Northwestern Employee who is an
Eligible Employee. No Employee, Officer or Director of the Company may promise
or grant severance benefits to any Northwestern Employee except as provided
herein and any other agreement or representation to the contrary is null and
void unless expressly approved in writing by the Board of Directors or Chief
Executive Officer of the Company or Mid America Federal Savings Bank. When such
an agreement exists, its terms and conditions shall apply and the Employee shall
no longer be eligible to receive benefits under this Plan.
ARTICLE II
ELIGIBILITY AND BENEFITS
2.1 Eligibility. Except as provided in Section 2.2 and subject to all
-----------
other exclusions contained in this Plan, a Northwestern Employee will be
eligible to receive Severance Pay if and only if: (a) his employment with all
Employers is terminated in circumstances that constitute a Severance Event; (b)
at the time of such Severance Event, he was employed by an Employer; and (c) he
executes a release of claims as set forth in Appendix A.
2.2 Eligibility Exclusions. Notwithstanding the foregoing, a Northwestern
----------------------
Employee who incurs a Severance Event will not be eligible to receive Severance
Pay if his employment voluntarily or involuntarily terminates when one or more
of the following circumstances is applicable:
(a) The Northwestern Employee is a party to an employment or
severance agreement providing for payments or other benefits as a
result of termination of employment; or
(b) The Northwestern Employee leaves employment voluntarily, either
by resignation (other than in circumstances that constitute a
Severance Event) or retirement; or
(c) The Northwestern Employee is on or commences a leave of absence
or other interruption of employment which does not constitute a
termination of employment; or
3
<PAGE>
(d) The Northwestern Employee is offered to continue in his present
position or is offered another position with the Company or an
Affiliate with comparable base annual or hourly compensation and
job responsibilities as determined at the discretion of the Plan
Administrator and declined to accept such position; or
(e) The Northwestern Employee is transferred to another facility or
location of the Company or an Affiliate at the same or another
position with comparable base annual or hourly compensation and
job responsibilities as determined at the discretion of the Plan
Administrator and declines to accept such transfer; or
(f) Employment is terminated as result of the sale of assets or stock
of an Employer, and the Northwestern Employee is offered the same
or another position with the successor in interest with
comparable base annual or hourly compensation as determined at
the discretion of the Plan Administrator; or
(g) The Northwestern Employee refuses to execute a release of claims
as provided in Section 2.1 hereof; or
(h) The Northwestern Employee terminates employment as a result of
death or disability.
2.3 Severance Pay. The Severance Pay provided by this Plan shall be
-------------
determined based upon the number of Years of Service and Base Weekly Pay of an
Eligible Employee at the time of the Severance Event as follows:
(a) All Eligible Employees shall be entitled to receive a benefit equal to
two (2) Weeks of Severance Pay for each full Year of Service as of the
Severance Event, subject to a maximum benefit of 26 weeks. Any
Eligible Employee who has completed one full Year of Service as of the
Merger Effective Date shall be entitled to receive a minimum benefit
equal to four (4) Weeks of Severance Pay. An Eligible Employee who has
not completed one full Year of Service as of the Merger Effective Date
shall be entitled to receive a minimum benefit equal to two (2) Weeks
of Severance Pay.
(b) Notwithstanding any provision of this Section 2.3 to the contrary,
Severance Pay shall be reduced by, or the Eligible Employee shall be
obligated to refund to the Employer to the extent such Severance Pay
was not so reduced, the amount of unemployment compensation received
by the Eligible Employee under any state or other governmental program
during the period the Severance Pay is payable.
4
<PAGE>
Severance Pay shall be subject to all applicable federal and state deductions
and withholding and shall be paid in such manner as prescribed in Section 2.4.
2.4 Form And Payment Of Severance Benefits Severance Benefits.
---------------------------------------------------------
Severance Pay shall be paid in installments on regular pay dates following
termination of employment. Installments shall commence as of the end of the
first pay period that occurs on or after the date the Eligible Employee has
executed the release of claims required by Section 2.1(c) and the seven-day
period for revocation thereof has expired. Installments shall continue until the
earlier of the date that (i) the Eligible Employee dies (in which case the
payment described in Section 2.5 shall be made to the Eligible Employee's
Beneficiary); or (ii) all Weeks of Severance Pay to which the Eligible Employee
is entitled are paid.
2.5 Lump Sum Death Benefit. In the event that an Eligible Employee dies
----------------------
after a Severance Event and prior to the payment of all of the Weeks of
Severance Pay to which Eligible Employee was entitled and the installments
terminate pursuant to Section 2.4, then a lump sum death benefit shall be paid
to the Beneficiary within 30 days after the date of death. The lump sum benefit
shall be equal to the aggregate amount of the Weeks of Severance Pay to which
the Eligible Employee was entitled but which had not been paid as of the date of
death. Notwithstanding the foregoing, in the event that as of the date of death
the Eligible Employee had not executed the release described in Section 2.1(c),
or if executed, the time for revocation had not expired, then the payment of the
lump sum shall be subject to the execution by the Beneficiary of a release
substantially similar in scope to the provisions of Appendix A.
2.6 Other Benefits.
--------------
(a) Salaries, Wages and Vacation. Any earned but unpaid salary or wages
----------------------------
and any earned but unused vacation for which an Employee is eligible at time of
termination of employment will be paid in a lump sum at time of termination of
employment, subject to applicable federal and state withholding.
(b) Insurance. Employees may be eligible for COBRA continuation coverage
---------
related to medical at full existing COBRA rates following termination of
employment, as provided in the applicable medical care plan. Applicable
premiums relating to single COBRA continuation coverage will be waived by MAF
Bancorp, Inc. for the first three (3) months of coverage for any Eligible
Employee who receives Severance Pay under this Plan. No other medical or health
insurance cost subsidies will be provided by an Employer, including any subsidy
relating to dependant COBRA continuation coverage or other insurance benefits.
(c) Outplacement Assistance. Eligible Employees shall receive
-----------------------
outplacement assistance, as needed, from the Employer utilizing its resources
within sixty (60) days after a Severance Event.
5
<PAGE>
(d) General Limitations. The severance benefits available to Eligible
-------------------
Employees are limited to the provisions herein. All qualified or non-qualified
retirement or other plan benefits for which the Eligible Employee may be
eligible shall be governed by the applicable plan's specific conditions.
ARTICLE III
PLAN ADMINISTRATION
3.1 Administration of Plan. The Plan shall be administered by the Plan
----------------------
Administrator unless the Board of Directors of MAF Bancorp, Inc. (as constituted
from time to time), or the person or persons designated by it to carry out its
duties or powers under the terms of this Plan, delegates such authority to
another party.
The Plan Administrator shall have authority to control and manage the
operation and administration of the Plan including all rights and powers
necessary or convenient to the carrying out of its functions hereunder, whether
or not such rights and powers are specifically enumerated herein. Without
limiting the generality of the foregoing, and in addition to the other powers
set forth in the Plan, the Plan Administrator shall have the following express
discretionary authorities:
(a) to construe and interpret the Plan, decide all questions of
eligibility and determine the amount, manner and time of payment of
any benefits hereunder;
(b) to prescribe procedures to be followed by Participants for filing
requests and elections under the Plan;
(c) to prepare and distribute, in such manner as determined to be
appropriate, information explaining the Plan;
(d) to receive or request from the Employers or Eligible Employees such
information as shall be necessary for the proper administration of the
Plan;
(e) to furnish the Employers upon request such annual and other reports
with respect to the administration of the Plan as are reasonable and
appropriate; and
(f) to determine the amounts available to provide a benefit and to
administer the claims procedure.
3.2 Rules and Procedures. The Plan Administrator may adopt such rules,
--------------------
regulations and bylaws as it deems necessary or desirable.
6
<PAGE>
3.3 Claims Procedure.
----------------
(a) Any Employee who believes that he is entitled to a benefit under the
Plan in an amount greater than he has received may file a claim for such benefit
by writing to the Plan Administrator.
(b) Every claim which is properly filed shall be answered in writing
within ninety (90) days (or one hundred eighty (180) days if special
circumstances require an extension of time for processing the claim) of receipt
stating whether the claim is granted or denied. If the claim is denied, the
claimant shall be provided specific reasons for denial; specific reference to
the pertinent Plan provisions on which the denial is based; a description of any
information necessary for the claimant to perfect a claim including an
explanation of why such information is necessary; and an explanation of the
Plan's claim appeal procedure including steps to be taken to submit the claim
for review.
(c) Within sixty (60) days after notice that a claim is denied, the
claimant may file a written appeal which shall include any comments, statements
or documents the claimant may wish to provide. Notice of the decision on appeal
shall be sent to the claimant within sixty (60) days of its receipt (or one
hundred twenty (120) days if special circumstances require an extension of time
for processing the appeal). In the event the claim is denied upon appeal, the
notice shall set forth the reasons for denial written in a manner calculated to
be understood by the claimant and specific reference to the pertinent provisions
of the Plan on which the denial is based. Any reasonable request from a
claimant for documents or information relevant to his claim prior to his filing
an appeal shall also be allowed.
(d) If notice of the denial of the claim or appeal is not furnished in the
time limits set forth above, the claim or appeal shall be deemed denied.
3.4 Actions of the Plan Administrator. All determinations,
---------------------------------
interpretations, rules, and decisions of the Plan Administrator or its delegate
shall be conclusive and binding upon all persons having or claiming to have any
interest or right under the Plan and shall be given deference in any judicial or
other proceeding.
3.5 Delegation. The Plan Administrator shall have the power to delegate
----------
specific duties, discretionary and other authorities and responsibilities to
officers or employees of the Company or other individuals or entities. Any
delegation by the Plan Administrator may allow further delegations by the
individual or entity to whom the delegation is made. Any delegation may be
rescinded by the Plan Administrator at any time. Each person or entity to whom a
duty or responsibility has been delegated shall be responsible for the exercise
of such duty or responsibility and shall not be responsible for any act or
failure to act of any other person or entity.
7
<PAGE>
3.6 Reliance on Experts. The Plan Administrator and its delegates shall
-------------------
be entitled to rely on any and all schedules, reports, opinions or advice
furnished by any duly appointed actuary, accountant, legal counsel, physician or
other medical expert and any other duly appointed advisor. Any such advisor may
be a person, firm or other organization acting or employed in like capacity for
an Employer.
ARTICLE IV
LIMITATIONS AND LIABILITIES
4.1 Non-guarantee of Employment. Nothing contained in the Plan shall be
---------------------------
construed as an agreement of employment, or as giving or conferring on any
Employee the right to continued employment, or as a limitation on the right of
an Employer to terminate the employment of an Employee, with or without cause.
Nor shall anything contained in the Plan affect the eligibility requirements
under any other plans maintained by an Employer, nor give any Employee a right
to coverage under any other plan.
4.2 Non-alienation of Assets and Benefits. Except as may be
-------------------------------------
required by applicable law, the benefits payable under the Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, including any such liability which is for alimony or
other payments for the support of a spouse or former spouse, or for any other
relative of the Employee, prior to actually being received by the person
entitled to the benefit under the terms of the Plan; and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or
otherwise dispose of any right to benefits payable hereunder shall be void.
4.3 Limitation of Liability. Neither an Employer nor the Plan
-----------------------
Administrator shall be liable for any act or failure to act which is made in
good faith pursuant to the provisions of the Plan or records of the Plan,
Company, Employer, or any employee benefit plans thereof, except to the extent
required by applicable law.
4.4 Indemnification. The Company and each Employer shall, to the extent
---------------
permitted by its Certificate of Incorporation and Bylaws, and by the laws of the
State in which it is incorporated, indemnify the Plan Administrator, and any
employee, officer or director of an Employer, against any and all liabilities
arising by reason of any act or omission made in good faith pursuant to the
provisions of the Plan, including expenses reasonably incurred in the defense of
any claim relating thereto.
8
<PAGE>
ARTICLE V
FUNDING
5.1 Funding. Benefits shall be paid out of the general assets of the
-------
Company or applicable Employer. Neither the Company nor any other Employer shall
be required to fund or otherwise provide for the payment of benefits in any
manner.
ARTICLE VI
AFFILIATES
6.1 Obligation of Employers. Each Employer agrees to make all payments
-----------------------
required hereunder to be made on behalf of Eligible Employees of such Employer,
and agrees that the liability for making such payments and providing such
benefits shall be the sole and exclusive obligation of such Employer.
6.2 Cooperation by Each Employer. To enable the Plan Administrator to
----------------------------
perform its functions, an Employer shall supply full and timely information to
the Plan Administrator on all matters relating to Base Weekly Pay and Years of
Service of all Employees and cause for termination of employment, and any other
pertinent facts or information as a Plan Administrator, in its sole discretion,
may require.
ARTICLE VII
AMENDMENT AND TERMINATION
7.1 General. The Company reserves the right to amend or terminate the
-------
Plan at any time, prospectively or retroactively, and for any reason; provided,
however, that any such amendment or termination which adversely affects any
Northwestern Employee shall not be effective unless such Employee has consented
thereto in writing.
7.2 Amendments. Any and all amendments shall be made in writing and shall
----------
be signed and approved by the Board of Directors of MAF Bancorp, Inc. (as
constituted from time to time), or the person or persons designated by its to
carry out its duties or powers under the terms of this Plan.
9
<PAGE>
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 ERISA.
-----
(a) Any person or persons may serve in more than one fiduciary
capacity with respect to the Plan.
(b) The Plan Administrator shall be a "named fiduciary" with respect
to the Plan; however, its responsibilities as such shall be limited to the
performance of those duties specifically assigned to it hereunder. The Plan
Administrator shall have no responsibility for the performance of any duty not
specifically so assigned, except to the extent required by applicable law.
(c) The Plan Administrator may allocate or delegate its
responsibilities hereunder to persons who are not named fiduciaries. The
allocation or delegation of any fiduciary responsibility shall be in writing,
and shall become effective upon the written acceptance thereof by the person or
persons to whom such responsibilities are allocated or delegated.
8.2 Applicable Law. This Plan shall be construed in accordance with
--------------
federal law under ERISA; provided, that nothing in this Section 8.2 shall be
construed as placing any restriction upon the right of an Employer acting
pursuant to the Plan to take any action or to incur any liability which it is
authorized to take or incur under its Certificate of Incorporation or Bylaws, or
under the laws of the State in which it is incorporated, except to the extent
that the same are superseded by applicable federal law.
8.3 Exclusive Benefit of Participants. This Plan is for the exclusive
---------------------------------
benefit of Eligible Employees and their beneficiaries.
8.4 Agent for Service of Process. The Plan Administrator shall be the
----------------------------
agent for service of process.
10
<PAGE>
APPENDIX A
RELEASE AND SEVERANCE AGREEMENT
-------------------------------
THIS RELEASE AND SEVERANCE AGREEMENT is made and entered into this ____ day
of _______________, _____ by and between MAF Bancorp, Inc., its subsidiaries and
affiliates, including but not limited to Mid America Federal Savings Bank,
successor to Northwestern Savings Bank, and the Northwestern Savings Bank
Severance Benefits Program (collectively "MAF") and the undersigned employee
(hereinafter "EMPLOYEE").
EMPLOYEE'S employment with MAF terminated on ______________, ______; and
EMPLOYEE has voluntarily agreed to the terms of this RELEASE AND SEVERANCE
AGREEMENT in exchange for Severance Pay under the Northwestern Savings Bank
Severance Benefits Program ("Program") to which EMPLOYEE otherwise would not be
entitled.
NOW THEREFORE, in consideration for Severance Pay provided under the Plan,
EMPLOYEE on behalf of himself and his spouse, heirs, executors, administrators,
children, and assigns does hereby fully release and discharge MAF, its officers,
directors, employees, agents, subsidiaries and divisions, benefit plans and
their administrators, fiduciaries and insurers, successors, and assigns from any
and all claims or demands for wages, back pay, front pay, attorney's fees and
other sums of money, insurance, benefits, contracts, controversies, agreements,
promises, damages, costs, actions or causes of action and liabilities of any
kind or character whatsoever, whether known or unknown, from the beginning of
time to the date of these presents, relating to his employment or termination of
employment from MAF, including but not limited to any claims, actions or causes
of action arising under the statutory, common law or other rules, orders or
regulations of the United States or any State or political subdivision thereof
including the Age Discrimination in Employment Act and the Older Workers Benefit
Protection Act.
EMPLOYEE acknowledges that EMPLOYEE'S obligations pursuant to applicable
policies of MAF, copies of which have been provided to EMPLOYEE, and under
applicable law relating to the use or disclosure of confidential information
shall continue to apply to EMPLOYEE.
This Release and Settlement Agreement supersedes any and all other
agreements between EMPLOYEE and MAF except agreements relating to proprietary or
confidential information belonging to MAF, and any other agreements, promises or
representations relating to severance pay or other terms and conditions of
employment are null and void.
This release does not affect EMPLOYEE'S right to any benefits to which
EMPLOYEE may be entitled under any employee benefit plan sponsored by MAF.
Page 1 of 3
<PAGE>
EMPLOYEE and MAF acknowledge that it is their mutual intent that the Age
Discrimination in Employment Act waiver contained herein fully comply with the
Older Workers Benefit Protection Act. Accordingly, EMPLOYEE acknowledges and
agrees that:
(a) The Severance Pay exceeds the nature and scope of that to which
he would otherwise have been legally entitled to receive.
(b) Execution of this Agreement and the Age Discrimination in
Employment Act waiver herein is his knowing and voluntary act;
(c) He has been advised by MAF to consult with his personal attorney
regarding the terms of this Agreement, including the aforementioned waiver;
(d) He has had at least forty-five (45) calendar days within which to
consider this Agreement;
(e) He has the right to revoke this Agreement in full within seven
(7) calendar days of execution and that none of the terms and provisions of
this Agreement shall become effective or be enforceable until such
revocation period has expired;
(f) He has been informed in writing of (i) the eligibility factors
under the Plan, (ii) the group of employees, including the job title and
age of each, eligible to receive Severance Pay, (iii) the ages of all
individuals in the same job classification or organizational unit who are
not eligible to receive Severance Pay, and (iv) any time limit applicable
to the Plan;
(g) He has read and fully understands the terms of this agreement;
and
(h) Nothing contained in this Agreement purports to release any of
EMPLOYEE's rights or claims under the Age Discrimination in Employment Act
that may arise after the date of execution.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
indicated above.
MAF BANCORP, INC., EMPLOYEE
for itself and its Subsidiaries
and Affiliates
By:________________________________ ________________________________________
Its:_______________________________ (Signature)
Page 2 of 3
<PAGE>
______________________________
NORTHWESTERN SAVINGS BANK (Print or type name)
BENEFITS PROGRAM
By:_______________________________
Its: Plan Administrator
Page 3 of 3
<PAGE>
EXHIBIT 12. STATEMENT RE:
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
SIX
MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
---------------------------------------------------------------------------
1996/(1)/ 1996 1995 1994 1993
---------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCLUSIVE OF INTEREST ON DEPOSITS:
EARNINGS:
Pre-tax income 28,593 28,488 24,359 21,216 21,913
Add: Fixed charges 68,896 93,481 73,593 69,867 74,438
Loss on equity investments - - - - -
Less: Interest capitalized (271) (579) (665) (376) (317)
---------------------------------------------------------------------------
Earnings 97,218 121,390 97,287 90,707 96,034
===========================================================================
FIXED CHARGES:
Interest on deposits 47,967 63,325 55,794 53,004 59,305
Interest on borrowed funds 20,664 29,896 17,573 16,690 15,006
Rent expense 265 260 226 173 127
---------------------------------------------------------------------------
Fixed charges 68,896 93,481 73,593 69,867 74,438
===========================================================================
Ratio of earnings to fixed charges
inclusive of interest on deposits 1.41 1.30 1.32 1.30 1.29
===========================================================================
EXCLUSIVE OF INTEREST ON DEPOSITS:
EARNINGS:
Pre-tax income 28,593 28,488 24,359 21,216 21,913
Add: Fixed charges 20,929 30,156 17,799 16,863 15,133
Loss on equity investments - - - - -
Less: Interest capitalized (271) (579) (665) (376) (317)
---------------------------------------------------------------------------
Earnings 49,251 58,065 41,493 37,703 36,729
===========================================================================
FIXED CHARGES:
Interest on deposits - - - - -
Interest on borrowed funds 20,664 29,896 17,573 16,690 15,006
Rent expense 265 260 226 173 127
---------------------------------------------------------------------------
Fixed charges 20,929 30,156 17,799 16,863 15,133
===========================================================================
Ratio of earnings to fixed charges
exclusive of interest on deposits 2.35 1.93 2.33 2.24 2.43
===========================================================================
</TABLE>
/(1)Excludes the impact of the
special SAIF assessment.
<PAGE>
Exhibit 21. Subsidiaries of the Registrant
The Company has two wholly-owned subsidiaries. All others listed are
either direct or indirect subsidiaries of the Bank.
SUBSIDIARIES OF THE COMPANY STATE OF INCORPORATION
--------------------------- ----------------------
Mid America Federal Savings Bank Illinois
MAF Developments, Inc. Illinois
SUBSIDIARIES OF THE BANK
------------------------
Mid America Development Services, Inc. Illinois
Mid America Insurance Agency, Inc. Illinois
Mid America Finance Corporation Illinois
Mid America Mortgage Securities, Inc. Illinois
N.W. Acceptance Corporation Delaware
N.W. Financial Corporation Illinois
Route 22 Development Corporation Illinois
Ambria Development Corporation Illinois
Randall Road Development Corporation Illinois
Reigate Woods Development Corporation Illinois
<PAGE>
CONSENT OF INDEPENDENT AUDITORS'
--------------------------------
The Board of Directors
MAF Bancorp, Inc.
We consent to incorporation by reference in the registration statements (No.'s
33-40932, 33-45790, 33-45794 and 333-06593) on Form S-8 and the registration
statement (No. 33-96754) on Form S-3 of MAF Bancorp, Inc. of our report dated
February 5, 1997, relating to the consolidated statements of financial condition
of MAF Bancorp, Inc. and subsidiaries as of December 31, 1996 and June 30, 1996,
and the related statements of income, changes in stockholders' equity and cash
flows for the six months ended December 31, 1996 and each of the years in the
two year period ended June 30, 1996, which report appears in the December 31,
1996 annual report on Form 10-K of MAF Bancorp, Inc.
Chicago, Illinois
March 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 45,732
<INT-BEARING-DEPOSITS> 55,285
<FED-FUNDS-SOLD> 24,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 161,978
<INVESTMENTS-CARRYING> 369,427
<INVESTMENTS-MARKET> 369,924
<LOANS> 2,448,027
<ALLOWANCE> 17,914
<TOTAL-ASSETS> 3,230,341
<DEPOSITS> 2,262,226
<SHORT-TERM> 95,000
<LIABILITIES-OTHER> 595,781
<LONG-TERM> 26,709
<COMMON> 112
0
0
<OTHER-SE> 250,513
<TOTAL-LIABILITIES-AND-EQUITY> 3,230,341
<INTEREST-LOAN> 91,783
<INTEREST-INVEST> 5,212
<INTEREST-OTHER> 15,832
<INTEREST-TOTAL> 112,827
<INTEREST-DEPOSIT> 47,967
<INTEREST-EXPENSE> 68,631
<INTEREST-INCOME-NET> 44,196
<LOAN-LOSSES> 700
<SECURITIES-GAINS> 251
<EXPENSE-OTHER> 40,968
<INCOME-PRETAX> 14,377
<INCOME-PRE-EXTRAORDINARY> 8,775
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,775
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
<YIELD-ACTUAL> 2.96
<LOANS-NON> 11,795
<LOANS-PAST> 1,669
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17,254
<CHARGE-OFFS> 66
<RECOVERIES> 26
<ALLOWANCE-CLOSE> 17,914
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 17,914
</TABLE>
