<PAGE>
================================================================================
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 year ended December 31, 1999
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 60514-1500
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
(Title of Class)
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. X
------
Based upon the closing price of the registrant's common stock as of March 1,
2000, the aggregate market value of the voting stock held by non-affiliates of
the registrant was $323,962,659.*
The number of shares of Common Stock outstanding as of March 1, 2000: 23,660,162
- --------------------------------------------------------------------------------
Documents Incorporated by Reference
PART III -- Portions of the Proxy Statement for the Annual Meeting of
Shareholders to be held on April 26, 2000 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.
================================================================================
<PAGE>
PART I
Item 1. Business
General
MAF Bancorp, Inc. ("Company"), was incorporated under the laws of the state
of Delaware in 1989. The Company is a registered savings and loan holding
company primarily engaged in the consumer banking business through its wholly-
owned subsidiary, Mid America Bank, fsb ("Bank") and, to a lesser extent, in the
residential real estate development business.
The Bank is a consumer-oriented financial institution offering various
financial services to its customers through 25 retail banking offices. The
Bank's market area is generally comprised of 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. 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 two wholly-owned
subsidiaries, MAF Developments, Inc. ("MAF Developments") and NW Financial, Inc.
("NW Financial"), the Company and the Bank are also engaged in real estate
development activities, primarily residential development. Additionally, the
Bank operates an insurance agency, Mid America Insurance Agency, Inc., which
provides general insurance services, a title agency, Centre Point Title
Services, Inc., which provides general title services for the Bank's loan
customers, and Mid America Investment Services, Inc. ("Mid America
Investments"), which offers investment services and securities brokerage
primarily to Bank customers through its affiliation with INVEST, a registered
broker-dealer. Mid America Investments was formerly known as Mid America
Development Services, Inc.
For financial information regarding the Company's two separate lines of
business (consumer banking and land development), see "Note 21. Segment
Information" to the audited consolidated financial statements of the Company
included in "Item 8. Financial Statements and Supplementary Data."
On December 31, 1998, the Company successfully completed its acquisition of
Westco Bancorp, Inc. ("Westco"), and its Bank subsidiary, First Federal Savings
and Loan of Westchester ("Westchester"). The Company acquired $245.2 million in
loans, $259.5 million in deposits, and a full service branch along with a
satellite drive-up facility. On May 30, 1996, the Company acquired N.S.
Bancorp, Inc. ("Northwestern"), and its Bank subsidiary, Northwestern Savings
Bank. At acquisition, Northwestern had $749.7 million in loans, 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.
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 60514-1500. The telephone number is
(630) 325-7300.
2
<PAGE>
Market Data
Based on total assets at December 31, 1999, the Bank is 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 25 retail banking offices, the Bank
serves the residential communities of 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, 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, and customer service.
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. See
"Regulation and Supervision - Federal Savings Institution Regulation" for more
information.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This report, in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere, contains, and other periodic
reports and press releases of the Company may contain, certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
Company intends such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and is including this statement for purposes of
invoking these safe harbor provisions. Forward-looking statements, which are
based on certain assumptions and describe future plans, strategies and
expectations of the Company, are generally identifiable by use of the words
"believe," "expect," "intend," "anticipate," "estimate," "project," "plan," or
similar expressions. The Company's ability to predict results or the actual
effect of future plans or strategies is inherently uncertain, and actual results
may differ from those predicted. Factors which could have a material adverse
effect on the operations and future prospects of the Company and the
subsidiaries include, but are not limited to, unexpected changes in interest
rates, general economic conditions, legislative/regulatory changes, monetary and
fiscal policies of the U.S. Government, including policies of the U.S. Treasury
and the Federal Reserve Board, the quality or composition of the Company's loan
or investment portfolios, demand for loan products, deposit flows, cost and
availability of wholesale borrowings, delays in completing the pending branch
acquisition, competition, demand for financial services in the Company's market
area, the possible short-term dilutive effect of potential acquisitions, and
accounting principles, policies and guidelines. These risks and uncertainties
should be considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements.
3
<PAGE>
Executive Officers of the Registrant
The following executive officers were employed by the Company and the Bank as
of January 1, 2000.
Name Age Position(s) Held
---- --- ----------------
Allen H. Koranda 53 Chairman of the Board and Chief Executive
Officer of the Company and the Bank
Kenneth Koranda 50 President and Director of the Company and
the Bank
David C. Burba 52 Executive Vice President and Director of
the Company and the Bank
Jerry A. Weberling 48 Executive Vice President, Chief Financial
Officer and Director of the Company and
the Bank
Gerard J. Buccino 38 Senior Vice President and Controller of
the Company and the Bank
William Haider 48 Senior Vice President of the Company and
the Bank; President of Mid America
Investments, NW Financial and
MAF Developments
Michael J. Janssen 40 Senior Vice President of the Company and
the Bank
David W. Kohlsaat 45 Senior Vice President of the Company and
the Bank
Thomas Miers 48 Senior Vice President of the Company and
the Bank
Kenneth Rusdal 58 Senior Vice President of the Company and
the Bank
Sharon Wheeler 47 Senior Vice President of the Company and
the Bank
Gail Brzostek 51 First Vice President of the Bank
Alan W. Schatz 41 First Vice President of the Bank
Diane Stutte 51 First Vice President of the Bank
Carolyn Pihera 57 Vice President and Corporate Secretary of
the Company and the Bank
4
<PAGE>
Biographical Information
Set forth below is certain information with respect to executive officers
of the Company and the Bank. Unless otherwise indicated, the principle
occupation listed for each person below has been their 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
Investments. 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 Investments. 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.
David C. Burba joined the Company as Executive Vice President on January 1,
1999 in conjunction with the acquisition of Westco. He had previously served as
Chairman of the Board and President of Westco since 1992 and President of First
Federal Savings and Loan of Westchester since 1978. Mr. Burba holds a Bachelor
of Arts degree from Carthage College.
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 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 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.
5
<PAGE>
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 Systems 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.
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.
Employees
The Bank employs a total of 947 full time equivalent employees as of
December 31, 1999. Management considers its relationship with its employees to
be excellent.
Item 2. Properties
The Company's business is conducted through 25 retail banking offices,
including the Company's executive office location in Clarendon Hills, Illinois,
and a 30,000 square foot loan processing and servicing center located in
Naperville, Illinois, which the Bank leases. The Bank has its own data
processing equipment. The data processing equipment primarily consists of
mainframe hardware, network servers, personal computers and ATMs. At
December 31, 1999, the data processing equipment owned has a net book value
of $2.9 million.
6
<PAGE>
The following table sets forth information regarding the executive office
and the Bank's 25 branches. At December 31, 1999, the net book value of premises
and related equipment was $42.5 million.
<TABLE>
<CAPTION>
Net Book Value
Date Leased Date Lease % of Total December 31,
Location or Acquired Expires Deposits 1999
-------- ------------ ------------- ----------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Executive and Home Office
55th Street and Holmes Avenue
Clarendon Hills, Illinois 1975/1986 owned 8.23% $ 4,478
Branches
Chicago, Illinois
2300 North Western Avenue 1996 owned 4.75 1,612
3844 West Belmont Avenue 1996 owned 10.31 370
6333 North Milwaukee Avenue 1996 2001 4.79 2
5075 South Archer Avenue 1996 owned 8.07 1,260
Norridge, Illinois
4100 North Harlem Avenue 1996 2000 .54 3
4350 North Harlem Avenue 1997 owned(1) 5.71 2,277
6401 North Harlem Avenue 1999 2004 1.06 --
Cicero, Illinois
5900/5847 West Cermak Road 1939/1978 owned 10.53 1,477
4830 West Cermak Road 1970 owned 1.53 446
Berwyn, Illinois
6620 West Ogden Avenue 1996 owned .85 1,188
6650 West Cermak Road 1996 owned 3.07 399
Riverside, Illinois
40 East Burlington 1977 owned 3.74 838
LaGrange Park, Illinois
1921 East 31st Street 1981 owned 3.72 1,124
Broadview, Illinois
800 Broadview Village Square 1997 2012 .10 188
Western Springs, Illinois
40 West 47th Street 1978 owned 3.09 786
Downers Grove, Illinois
7351 South Lemont Road 1997 owned(2) .66 771
Naperville, Illinois
1001 South Washington 1974 owned 6.61 1,915
9 East Ogden Avenue 1982 owned 1.80 1,192
1308 South Naper Boulevard 1987 owned 2.81 1,432
3135 Book Road 1997 owned 1.41 1,746
Westchester, Illinois
2121 South Mannheim Road 1998 owned 9.26 1,463
Wheaton, Illinois
250 East Roosevelt Road 1977 owned 3.14 823
161 Danada Square East 1988 2008 1.56 240
St. Charles, Illinois
2600 East Main Street 1979 owned 2.66 2,013
Other fixed assets -- 14,446
------ --------
Total 100.00% $ 42,489
====== ========
</TABLE>
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(1) Land lease expires in 2006
(2) Land lease expires in 2007.
7
<PAGE>
Item 3. Legal Proceedings
As of December 31, 1999, 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 trades on the Nasdaq Stock Market under the
symbol "MAFB." As of March 1, 2000, the Company had 2,067 shareholders of
record. The table below shows the reported high and low sales prices of the
common stock during the periods indicated as well as the period end closing
sales prices.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
--------------------------------------------- -----------------------------------------
High Low Close Dividend High Low Close Dividend
------ -------- ------- -------- ----- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $27.50 21.75 22.25 .07 26.33 21.67 25.38 .047
Second Quarter 25.13 21.50 24.25 .09 29.25 23.88 24.25 .070
Third Quarter 24.31 18.88 19.88 .09 25.00 18.75 23.50 .070
Fourth Quarter 23.69 19.88 20.94 .09 26.94 19.13 26.50 .070
</TABLE>
The Company declared $0.34 per share in dividends during the year ended
December 31, 1999, and $0.257 per share in dividends for the year ended
December 31, 1998. 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 regulatory 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."
8
<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>
December 31,
------------------------------------------------------------ June 30,
1999 1998 1997 1996 1996
----------- ---------- --------- ---------- ---------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Selected Financial Data:
Total assets $4,658,065 4,121,087 3,457,664 3,230,341 3,117,149
Loans receivable, net 3,884,569 3,319,076 2,707,127 2,430,113 2,293,399
Mortgage-backed securities 133,954 183,603 283,008 359,587 418,102
Interest-bearing deposits 51,306 24,564 57,197 55,285 37,496
Federal funds sold 35,013 79,140 50,000 24,700 5,700
Investment securities 281,129 260,945 177,803 171,818 171,251
Real estate held for development or sale 15,889 25,134 31,197 28,112 26,620
Deposits 2,699,242 2,656,872 2,337,013 2,262,226 2,254,100
Borrowed funds 1,526,363 1,034,500 770,013 632,897 537,696
Subordinated capital notes, net -- -- 26,779 26,709 26,676
Stockholders' equity 352,921 344,996 263,411 250,625 242,226
Book value per share 14.76 13.81 11.70 10.62 10.41
Tangible book value per share(1) 12.20 11.32 10.31 9.16 8.88
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended Year Ended
------------------------------------------- December 31, June 30,
1999 1998 1997 1996 1996
---------- --------- --------- --------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest income $ 285,092 247,263 238,987 112,827 143,095
Interest expense 168,401 150,575 145,216 68,631 93,221
---------- ------- ------- ------- -------
Net interest income 116,691 96,688 93,771 44,196 49,874
Provision for loan losses 1,100 800 1,150 700 700
---------- ------- ------- ------- -------
Net interest income after provision
for loan losses 115,591 95,888 92,621 43,496 49,174
Non-interest income:
Gain (loss) on sale of loans receivable
and mortgage-backed securities 2,583 3,204 432 (32) 198
Gain on sale of investment securities 1,776 816 404 251 188
Income from real estate operations 9,630 4,517 6,876 4,133 4,786
Deposit account service charges 10,200 8,626 7,217 3,219 4,894
Loan servicing fee income 1,761 1,400 2,278 1,249 2,394
Recovery (impairment) of mortgage
servicing rights 900 (1,269) -- -- --
Other 7,994 8,256 5,438 3,139 4,640
---------- ------- ------- ------- -------
Total non-interest income 34,844 25,550 22,645 11,959 17,100
Non-interest expense:
Compensation and benefits 37,845 34,494 30,472 14,503 21,209
Office occupancy and equipment 7,274 6,645 6,203 2,652 3,774
Federal deposit insurance premiums 1,585 1,438 1,468 2,338 3,255
Special SAIF assessment -- -- -- 14,216 --
Other 20,976 16,366 16,468 7,369 9,548
---------- ------- ------- ------- -------
Total non-interest expense 67,680 58,943 54,611 41,078 37,786
---------- ------- ------- ------- -------
Income before income taxes
and extraordinary items 82,755 62,495 60,655 14,377 28,488
Income taxes 31,210 23,793 22,707 5,602 10,805
---------- ------- ------- ------- -------
Income before extraordinary items 51,545 38,702 37,948 8,775 17,683
Extraordinary items(2) -- (456) -- -- (474)
---------- ------- ------- ------- -------
Net income $ 51,545 38,246 37,948 8,775 17,209
========== ======= ======= ======= =======
Basic earnings per share $ 2.13 1.70 1.64 .37 1.31
========== ======= ======= ======= =======
Diluted earnings per share $ 2.07 1.65 1.59 .36 1.23
========== ======= ======= ======= =======
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended Year Ended
------------------------------------------- December 31, June 30,
1999 1998 1997 1996(3) 1996
---------- --------- --------- --------- ----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and
Other Data:
Return on average assets 1.20% 1.07% 1.14% 1.11%(4) .85%
Return on average equity 14.98 13.87 14.69 14.18 (4) 14.21
Average stockholders' equity
to average assets 8.03 7.73 7.79 7.80 6.00
Stockholders' equity to total assets 7.58 8.37 7.62 7.76 7.77
Tangible and core capital to
total assets (Bank only) 6.32 6.67 6.88 6.96 7.02
Risk-based capital ratio (Bank only) 12.32 13.42 14.34 15.05 15.36
Interest rate spread during period 2.52 2.47 2.62 2.64 2.24
Net yield on average interest-earning assets 2.88 2.85 2.98 2.96 2.62
Average interest-earning assets to average
interest-bearing liabilities 108.56 108.62 107.99 107.98 107.83
Non-interest expense to average assets 1.58 1.65 1.65 1.70 (4) 1.87
Non-interest expense to average assets
and average loans serviced for others 1.25 1.28 1.26 1.27 (4) 1.27
Efficiency ratio 45.19 48.54 47.07 47.79 (4) 56.58
Ratio of earnings to fixed charges:
Including interest on deposits 1.48x 1.41x 1.41x 1.41x (4) 1.30x
Excluding interest on deposits 2.18x 2.11x 2.26x 2.35x (4) 1.93x
Non-performing loans to total loans .40% .43 .39 .55 .56
Non-performing assets to total assets .50 .54 .32 .46 .44
Cumulative one-year gap (11.47) (4.23) (.80) 7.50 5.22
Number of deposit accounts 314,396 305,411 275,055 259,041 255,960
Mortgage loans serviced for others $1,226,874 1,065,126 997,204 1,045,740 1,040,260
Loan originations 1,711,337 1,754,009 1,091,824 469,452 989,753
Full-service customer service facilities 25 24 22 20 20
Stock Price and Dividend Information:
High $ 27.50 29.25 24.46 15.67 12.00
Low 18.88 18.75 14.78 9.89 9.19
Close 20.94 26.50 23.58 15.45 10.89
Cash dividends declared per share .34 .257 .180 .08 .142
Dividend payout ratio 15.96% 15.12% 10.98% 21.62% 10.84%
</TABLE>
- -------------
(1) In computing tangible book value per share, the Company excludes goodwill
and core deposit intangible assets from stockholders' equity.
(2) The extraordinary items in the years ended December 31, 1998 and June 30,
1996 represent charges for the early extinguishment of debt, net of tax
benefits.
(3) Ratios for the six months ended December 31, 1996 are annualized.
(4) 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.
10
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Net income for the Company was $51.5 million, or $2.07 per diluted share
($2.13 per basic share) for the year ended December 31, 1999, an increase of 25%
over the prior year. Net income in 1998 of $38.2 million, or $1.65 per diluted
share ($1.70 per basic share) includes a $456,000, or $.02 per share
extraordinary charge for the early extinguishment of the Company's $27.6 million
of 8.32% subordinated capital notes. Net income was $37.9 million, or $1.59 per
diluted share ($1.64 per basic share) for the year ended December 31, 1997.
During 1999, the Company witnessed a period of rapidly rising interest
rates over the course of the year, with the 10-Year Treasury bond rising nearly
150 basis points and the six-month Treasury bill rising approximately 110 basis
points. The Company met the challenging interest rate environment with continued
positive results in its core banking operations.
. The Bank originated $1.7 billion in mortgage loans in 1999, as
compared to record originations in 1998 of $1.8 billion. Additionally,
the Bank increased loans receivable by 17.0%
. Deposit account service charges, mainly earned from checking accounts,
grew 18.3% to $10.2 million in 1999 due to continued success from the
Bank's direct mail strategy and further growth in its debit card
program.
. Income from real estate operations increased $5.1 million, or 113.2%,
to $9.6 million in 1999 compared to $4.5 million in 1998 primarily due
to $5.2 million of gains on the sale of three commercial parcels and
strong lot sales in Tallgrass, the Company's newest residential project.
. The Company's efficiency ratio improved to 45.19% in 1999, compared in
48.54% in 1998. In addition, the Company's 1999 non-interest expense to
average assets ratio of 1.58% declined slightly compared to 1.65% in
1998.
Acquisitions and Expansion Activity
On September 10, 1999, the Bank purchased a branch office from the Northern
Trust Company, with approximately $22.2 million of deposits. The Company
received primarily cash in the transaction. The transaction was recorded as a
purchase, and generated goodwill and a core deposit premium totaling $3.1
million. The Company also assumed the lease for the branch.
On December 31, 1998, the Company completed its acquisition of Westco
Bancorp for stock totaling approximately $90.0 million. The Company issued 3.3
million shares in the acquisition. The transaction was accounted for as a
purchase. The Company valued the assets and liabilities of Westco at fair value,
and created goodwill and core deposit intangible assets aggregating $33.3
million as a result of the transaction.
On May 30, 1996, the Company completed its acquisition of Northwestern, for
cash and stock totaling $269.7 million. The Company paid $41.18 per share of
Northwestern in the form of $20.1799 cash and .8549 shares of the Company's
common stock. The Company issued 11.7 million shares in the acquisition. The
cash portion of the purchase was made from existing cash, as well as funds from
Northwestern 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 transaction was accounted for as a purchase. As
such, the Company valued the assets and liabilities of Northwestern at fair
value, and created goodwill and core deposit intangible assets aggregating $35.9
million as a result of the transaction.
11
<PAGE>
Subsequent to December 31, 1999, the Company announced that it had entered
into an agreement to purchase two branches (Burbank and Tinley Park, Illinois)
of M&I Bank, FSB, Milwaukee, WI. The branch acquisition will expand the
Company's banking franchise into the southwest side of Chicago, a market the
Company has targeted for future growth. The transaction, which is expected to
close in the second quarter of 2000, involves approximately $90.0 million of
deposits and the related branch buildings. Based on the estimated 12.9% deposit
premium, the Company expects to pay approximately $11.6 million. The Company
expects the transaction to be neutral to reported earnings per share in the
first year of operations
As it has in recent years, the Company expects to continue to search for
and evaluate potential acquisition opportunities that will enhance franchise
value and may periodically be presented with opportunities to acquire other
institutions, branches or deposits in the market it serves, or which allow the
Company to expand outside its current primary market areas of DuPage County and
the City of Chicago. Management intends to review acquisition opportunities
across a variety of parameters, including the potential impact on its financial
condition as well as its financial performance in the future. It is anticipated
that future acquisitions, if any, will likely be valued at a premium to book
value, and many times at a premium to current market value. As such, management
anticipates that acquisitions made by the Company may include some book value
per share dilution and earnings per share dilution depending on the Company's
success in integrating the operations of businesses acquired and the level of
cost savings and revenue enhancements that may be achieved.
Net Interest Income
Net interest income is the principal source of earnings for the Company,
and consists of interest income on loans receivable and 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 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 that fund such investments.
Net interest income before the provision for loan losses was $116.7 million
in 1999, $96.7 million in 1998 and $93.8 million in 1997. The net interest
margin (net interest income divided by average interest-earning assets) for the
same periods were 2.88%, 2.85%, and 2.98%, respectively.
The past twelve months has continued to be a volatile period for U.S.
Treasury rates. While 1998 was primarily a year of rapidly falling interest
rates across the entire U.S. Treasury yield curve, as well as a period of
flattening of the Treasury yield curve, 1999 was nearly the opposite. Rapidly
rising interest rates were experienced throughout the year. Although some
positive slope was added back to the yield curve, the yield curve remained
relatively flat compared to recent history.
Borrowers generally favor long-term fixed-rate mortgage loans in falling
interest rate environments and adjustable-rate mortgage loans in a period of
rising interest rates. In addition, periods of rising interest rates normally
curtail overall loan origination activity, as the demand for refinancing
transactions declines, and new home purchase activity slows. In 1999, despite
the rapid increase in interest rates, the Bank was able to originate nearly
equal the record loan volume produced in 1998, albeit with a bias toward
adjustable-rate products. Loan production in 1999 was 43.5% adjustable-rate,
compared to 24.1% in 1998. The strong origination levels in 1999 are
attributable to expansion of the Bank's loan officer staff, as well as a
continued strong housing market in the Midwest.
12
<PAGE>
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>
Year Ended Year Ended Year Ended
December 31, 1999 vs. 1998 December 31, 1998 vs. 1997 December 31, 1997 vs. 1996
----------------------------- ------------------------------ -----------------------------
Due To Due To Due To
Total ------------------- Total --------------------- Total --------------------
Change Volume Rate Change Volume Rate Change Volume Rate
-------- -------- --------- ------- ----------- -------- ------- ----------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 41,072 50,259 (9,187) 13,550 22,083 (8,533) 44,935 43,941 994
Mortgage-backed securities (4,542) (4,029) (513) (8,131) (6,660) (1,471) (427) (1,614) 1,187
Investment securities 2,943 2,951 (8) 2,982 4,231 (1,249) 1,870 1,211 659
Interest-bearing deposits (437) (358) (79) (2,191) (2,656) 465 1,637 1,890 (253)
Federal funds sold (1,215) (1,227) 12 1,952 1,591 361 1,900 1,949 (49)
-------- ------ ------- ------ ------ ------- ------ ------ ------
Total interest income 37,821 47,596 (9,775) 8,162 18,589 (10,427) 49,915 47,377 2,538
-------- ------ ------- ------ ------ ------- ------ ------ ------
Interest-bearing liabilities:
Deposits 3,877 12,380 (8,503) (2,793) 1,294 (4,087) 17,740 17,855 (115)
Borrowed funds 13,949 17,955 (4,006) 8,152 11,244 (3,092) 10,246 11,143 (897)
-------- ------ ------- ------ ------ ------- ------ ------ ------
Total interest expense 17,826 30,335 (12,509) 5,359 12,538 (7,179) 27,986 28,998 (1,012)
-------- ------ ------- ------ ------ ------- ------ ------ ------
Net change $ 19,995 17,261 2,734 2,803 6,051 (3,248) 21,929 18,379 3,550
======== ====== ======= ====== ====== ======= ====== ====== ======
</TABLE>
Interest income on loans receivable increased $41.1 million in 1999 to
$253.5 million, while increasing $13.6 million in 1998 and $44.9 million in
1997. The increase in interest income on loans receivable over the last three
years is attributable to growth in Bank's loan portfolio through loan
originations and acquisitions. The Company's acquisition of Northwestern in 1996
dramatically increased the capital base of the Company, and the Bank's strategy
has been to leverage this capital by holding higher levels of loans receivable
in portfolio. Average loans receivable increased $702.4 million in 1999,
approximately $245.0 million of which is due to the purchase of Westco. The
remaining increase in 1999 is primarily due to continued robust loan
originations, a greater percentage of which were adjustable-rate loans that were
held in portfolio, as well as a slower pace of loan prepayments due to generally
rising interest rates. The growth in loans receivable during 1998 was comprised
primarily of newly originated fixed-rate loans with associated prepayment
penalties throughout the first five years of the loans. During the second
quarter of 1999, the Bank ceased adding these prepayment protected fixed-rate
loans to its portfolio.
The average yield on loans receivable has been steadily falling since 1997.
The average yield on loans receivable decreased 31 basis points in 1999 to
7.11%, after falling 32 basis points during 1998. The average yield on loans
receivable was 7.74% in 1997. Long term interest rates had been steadily
falling during 1997 and 1998, but made a dramatic turnaround in 1999, when they
increased approximately 150 basis points. Although interest rates increased
during 1999, the average yield on loans receivable continued to fall in 1999 due
to the heavier mix of hybrid adjustable rate loans with lower initial interest
rates and the lower-yielding fixed-rate loans added to the Bank's portfolio
during 1997, 1998 and early 1999. The decrease in 1998 was due to an increase
in prepayments and modifications of higher yielding loans.
13
<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, 1999 includes fees which are considered
adjustments to yield.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1999 1998
--------------------------------- --------------------------------
Average Average
Yield/ Yield/
Balance Interest Cost Balance Interest Cost
---------- -------- --------- ---------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable $3,565,375 253,499 7.11% $2,862,954 212,427 7.42%
Mortgage-backed securities 151,119 9,433 6.24 215,377 13,975 6.49
Investment securities(1) 265,011 16,551 6.25 217,757 13,608 6.25
Interest-bearing deposits 27,969 1,961 7.01 33,042 2,398 7.26
Federal funds sold 51,860 3,796 7.32 68,621 5,011 7.30
---------- -------- ---------- -------
Total interest-earning assets 4,061,334 285,240 7.02 3,397,751 247,419 7.28
Non-interest earning assets 222,357 171,764
---------- ----------
Total assets $4,283,691 $3,569,515
========== ==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposits 2,553,732 99,665 3.90 2,247,306 95,788 4.26
Borrowed funds and subordinated debt 1,187,262 68,736 5.79 880,872 54,787 6.22
---------- -------- ---------- -------
Total interest-bearing liabilities 3,740,994 168,401 4.50 3,128,178 150,575 4.81
Non-interest bearing deposits 112,760 92,790
Other liabilities 85,831 72,713
---------- ----------
Total liabilities 3,939,585 3,293,681
Stockholders' equity 344,106 275,834
---------- ----------
Liabilities and stockholders' equity $4,283,691 $3,569,515
---------- ----------
Net interest income/interest rate spread $116,839 2.52% $ 96,844 2.47%
======== ==== ======== ====
Net earning assets/net yield on average
interest-earning assets $ 320,340 2.88% $ 269,573 2.85%
========== ==== ========== ====
Ratio of interest-earning assets to
interest-bearing liabilities 108.56% 108.62%
======= ======
<CAPTION>
Year Ended December 31,
------------------------------------------ At December 31,
1997 1999
------------------------------------------ ---------------------
Average
Yield/ Yield/
Balance Interest Cost Balance Cost
--------- -------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable $2,568,736 198,877 7.74% $3,901,845 7.18%
Mortgage-backed securities 316,617 22,106 6.98 133,954 6.53
Investment securities(1) 151,640 10,626 7.01 281,129 6.74
Interest-bearing deposits 70,297 4,589 6.53 51,306 5.24
Federal funds sold 46,427 3,059 6.59 35,013 5.27
---------- -------- ----------
Total interest-earning assets 3,153,717 239,257 7.59 4,403,247 7.09
Non-interest earning assets 162,947 254,818
---------- ----------
Total assets $3,316,664 $4,658,065
========== ==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposits 2,217,908 98,581 4.44 2,581,321 4.02
Borrowed funds and subordinated debt 702,451 46,635 6.64 1,526,363 5.98
---------- -------- ----------
Total interest-bearing liabilities 2,920,359 145,216 4.97 4,107,684 4.75
Non-interest bearing deposits 73,109 117,921
Other liabilities 64,838 79,539
---------- -----------
Total liabilities 3,058,306 4,305,144
Stockholders' equity 258,358 352,921
---------- ----------
Liabilities and stockholders' equity $3,316,664 $4,658,065
========== ==========
Net interest income/interest rate spread $ 94,041 2.62% 2.35%
======== ===== =====
Net earning assets/net yield on average
interest-earning assets $ 233,358 2.98% $ 295,563 N/A
========== ==== ==========
Ratio of interest-earning assets to
interest-bearing liabilities 107.99% 107.20%
</TABLE>
- --------------
(1) Includes average balances of $57.7 million, $39.4 million, and $28.9
million stock in Federal Home Loan Bank of Chicago for the years ended
December 31, 1999, 1998 and 1997, respectively. At December 31, 1999, the
Bank owned $75.0 million of FHLB stock. Income on a tax equivalent basis
is computed assuming an effective tax rate of 40.0%.
14
<PAGE>
Interest income from mortgage-backed securities decreased $4.5 million in
1999 to $9.4 million, while decreasing $8.1 million in 1998, and $427,000 in
1997. Due to the ability to originate mortgage loans for its own portfolio, the
Bank has reduced its holdings of mortgage-backed securities generally through
normal amortization and prepayments. Average mortgage-backed securities were
$151.1 million in 1999. Average mortgage-backed securities decreased $64.3
million during 1999, and $101.2 million during 1998.
Interest income from investment securities increased $3.0 million in 1999
to $16.4 million, while increasing $3.1 million in 1998 and $1.9 million in
1997. The average balance of investment securities has been steadily rising over
the past two years, from $151.6 million in 1997 to $265.0 million in 1999. The
increase has been primarily in various fixed and adjustable-rate asset backed
securities that offer the Bank a suitable yield with a fairly predictable
average life. The average yield on investment securities remained relatively
steady in 1999, after falling 76 basis points in 1998. The decline in yield
during 1998 was primarily due to newer investment security purchases carrying
lower interest rates due to falling U.S. Treasury rates.
The average cost of deposits has steadily fallen over the past three years.
In 1999, average deposits increased $306.4 million, primarily due to the
acquisition of Westco. The average cost of deposits decreased 36 basis points
due to lower repricing on certificate of deposit accounts and increased checking
balances that carry little or no interest rate. Upward repricing on certificates
of deposit accounts began during the latter half of 1999 and will likely lead to
an increase in the Bank's cost of deposits into 2000. The average balance of
deposits in 1998 was relatively unchanged compared to 1997, while the average
cost decreased 18 basis points due primarily to falling interest rates and a
reduction in the passbook rate of interest.
Interest expense on borrowed funds increased $13.9 million to $68.7 million
in 1999, while increasing $8.2 million in 1998, compared to 1997. Average
borrowings increased $306.4 million in 1999 and $178.4 million in 1998, in
conjunction with the Bank increasing its loans receivable portfolio. Due to the
lack of deposit inflows, except for deposits obtained in acquisitions, this
growth has been funded almost primarily with FHLB of Chicago advances. The
Bank's advance portfolio is almost an entirely fixed-rate portfolio, some of
which are callable at par by the FHLB of Chicago at their discretion. The
average cost of borrowings decreased 43 basis points in 1999, due primarily to
maturing higher rate fixed-rate advances replaced by lower cost borrowings
during the first half of 1999. The cost of new borrowings in the latter half of
1999 and beyond have been and are likely to continue to be higher than the
average cost on borrowings outstanding due to the rapid rise in interest rates.
In 1998, the average cost of borrowings decreased 42 basis points due to the
downward repricing of maturing advances, and the use of callable borrowings to
fund long-term fixed-rate loan originations held for investment. These callable
advances carry a lower interest rate than non-callable borrowings in return for
the option for the issuer to call the borrowings prior to final maturity.
Recent increases in U. S. Treasury rates and flattening of the yield curve,
as well as expected additional Federal Reserve Board interest rate increases, is
expected to have a negative impact on the Bank's net interest margin in 2000. In
addition, competition for deposits has increased, as retail deposits have become
a cheaper funding source than wholesale borrowings. The Bank is currently
holding for portfolio adjustable-rate loans originations that tend to reduce
interest rate risk exposure but carry lower interest rates. The net interest
margin will also be pressured by the expected repricing of maturing certificates
of deposits and refinancing of maturing and called FHLB advances at higher
rates.
15
<PAGE>
Provision for loan losses
The provision for loan losses is recorded to provide coverage for losses
inherent in the Bank's loan portfolio. The Company recorded a provision for
loan losses of $1.1 million in 1999, compared to $800,000 in 1998, and
$1.2 million in 1997. The allowance for loan losses is based on management's
continuous evaluation of the risk inherent in the Bank's loan portfolio,
including its composition of loans and economic conditions that may affect the
borrower's ability to make payments. In assessing its provision for loan losses
in 1999, management took into account the continued increase of one-to-four
family loans as a percentage of total outstanding loans in its portfolio. At
December 31, 1999, the Bank's allowance for loan losses was $17.3 million, or
110.4% of non-performing loans, and .44% of total loans, compared to $16.8
million, or 119.4% of non-performing loans and .52% of total loans at
December 31, 1998.
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 $34.8 million, $25.6 million and $22.6 million for the years
ended December 31, 1999, 1998 and 1997, respectively.
The table below shows the composition of non-interest income for the
periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1999 1998 1997
-------- -------- -------
(In thousands)
<S> <C> <C> <C>
Gain (loss) on sale and writedown of:
Loans receivable $ 2,448 3,003 419
Mortgage-backed securities 135 201 13
Investment securities 1,776 816 404
Foreclosed real estate (57) 212 17
Income from real estate operations 9,630 4,517 6,876
Deposit account service charges 10,200 8,626 7,217
Brokerage commissions 2,566 2,812 2,050
Mortgage loan related fees 2,040 2,302 1,265
Loan servicing fee income 1,761 1,400 2,278
Recovery (impairment) of mortgage servicing rights 900 (1,269) -
Insurance commissions 527 456 447
Safe deposit box fees 405 311 275
Bank owned life insurance 1,210 458 -
Loss on real estate owned operations, net (216) (43) (47)
Other 1,519 1,748 1,431
------- ------ ------
$34,844 25,550 22,645
======= ====== ======
</TABLE>
Gain on sale of loans and mortgage-backed securities. The Bank recorded a
net gain on the sale of loans receivable and mortgage-backed securities of $2.6
million in 1999, compared to $3.2 million in 1998, and $432,000 in 1997. Loan
sales were $402.9 million, $437.5 million, and $105.8 million, in 1999, 1998,
and 1997, respectively. The decrease in gains in 1999 is primarily due to the
7.9% decrease in loan sale volume, as well as lower loan sale margins due to
rising interest rates. The large increase in loan sale profits in 1998 compared
to 1997 is primarily attributable to the $331.7 million increase in loan sales.
Given the current demand for adjustable-rate mortgage loans and increased
pricing competition for
16
<PAGE>
loan originations, gain on sale of loans in 2000 will be significantly less than
in 1999, due to lower originations of long-term fixed-rate loans and reduced
margins on sale. The Bank expects to offset some of the reduction in fixed-rate
loan sale profits with the sale of some of its ARM loan originations in 2000.
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 $62.6
million in 1999, compared to $26.6 million in 1998, and $3.4 million in 1997.
Sales of swaps versus whole loans to FNMA or FHLMC are primarily determined by
price differences at the time of sale, and are executed in a manner to maximize
profit to the Bank. The Bank has generally held few of its own swaps in
portfolio.
Gain on sale of investment securities. The Company had net gains on the
sale of investment securities of $1.8 million in 1999, compared to $816,000 in
1998, and $404,000 in 1997. Net gains in these periods have been generated
primarily from the sale of marketable equity securities of national and regional
bank and thrift companies. During 1999, management elected to sell a portion of
its equity holdings in light of market conditions, as well as generate funds for
its stock buyback program. The 1998 results included a $375,000 writedown
required on certain marketable equity securities and $76,000 in net gains from
the sale of the Bank's 100% beneficial interests in its two special purpose
finance subsidiaries, Mid America Finance Corporation ("MAFC") and Northwestern
Acceptance Corporation ("NWAC").
Income from real estate operations. Income from real estate operations was
$9.6 million in 1999, $4.5 million in 1998 and $6.9 million in 1997. The 113.2%
increase in 1999 is primarily attributable to the sale of three commercial
parcels that the Company acquired with the Northwestern acquisition in 1996. A
summary of income from real estate operations is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1999 1998 1997
---------------- ---------------- -----------------
Lots Income Lots Income Lots
Sold (Loss) Sold (Loss) Sold Income
---- ------- ---- ------- ---- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Woodbridge -- $5,163 15 $ 153 133 $3,452
Tallgrass of Naperville 252 3,457 20 114 -- --
Reigate Woods 11 509 20 930 11 610
Harmony Grove 7 479 184 2,851 120 1,588
Creekside of Remington 42 172 12 29 8 16
Ashbury -- (150) -- 297 8 290
Clow Creek Farm -- -- 6 260 18 700
Woods of Rivermist -- -- 2 5 5 220
Fields of Ambria -- -- 6 (122) 9 --
---- ------ ---- ------ --- ------
312 $9,630 265 $4,517 312 $6,876
==== ====== ==== ====== === ======
</TABLE>
Current year activity was marked by $5.2 million in income from commercial
real estate sales in the Woodbridge project, where 41 acres of the project's
remaining 48-acre commercial parcel were sold. All of the residential lots in
Woodbridge had been sold previous to 1999. In addition, 1999 also included
strong results from the Company's Tallgrass of Naperville project, currently
expected to be a 926-lot development. In addition to the 252 lots sold in 1999,
226 lots are under contract at December 31, 1999. The Reigate Woods subdivision
had 11 lot sales in 1999, and ten lots remaining at December 31, 1999. The lot
sale activity in Creekside of Remington represents a bulk sale of lots under an
agreement with a local builder. The remaining 75 lots are also under contract
with this builder, and expected to close in the second quarter of 2000, at a
minimal profit to the Company. The Company also completed the sell out of the
Harmony Grove subdivision. Management currently expects a moderate decrease in
income
17
<PAGE>
from real estate operations in 2000. Although it is expected that income from
the Tallgrass subdivision will increase significantly in 2000 compared to 1999,
it is not expected to offset the decrease in income from the Woodbridge
commercial parcel.
The Harmony Grove subdivision was the largest contributor to income from
real estate operations in 1998, with 184 lot sales nearly completing the sell
out of the project. The Tallgrass of Naperville project sold its first 20 lots
in December 1998. The Company sold out of four projects in 1998. The Ashbury
profit of $297,000 represents the sale of a small commercial parcel adjacent to
the residential parcel. The remaining lot sales in Clow Creek Farm, Woods of
Rivermist and Fields of Ambria had small profit margins, or losses in the case
of Fields of Ambria due to sale discounts, extended marketing costs, and
additional costs to complete these projects.
Deposit account service charges. Deposit account service charges totaled
$10.2 million in 1999, compared to $8.6 million in 1998, and $7.2 million in
1997. The primary source of these fees is from checking account charges for
insufficient funds, service charges, sustained overdraft fees, debit card usage,
and automated teller machine services. Increases are a function of the number of
checking accounts the Bank maintains, new fees charged for services, as well as
increases in existing fee schedules. The number of checking accounts maintained
by the Bank was 103,000, 94,000, and 82,000 at December 31, 1999, 1998, and
1997, respectively.
Brokerage commissions. 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 decreased to
$2.6 million in 1999, compared to $2.8 million in 1998, and $2.1 million in
1997. The decrease in 1999 is due to broker turnover that led to lost customer
transaction volume. The improvement from 1997 to 1998 in commissions was due to
increased sales of mutual funds and other non-traditional products, an increased
sales force, an increase in the number of locations which provide INVEST
services, as well as sharing a greater percentage of current commission revenue
and trailer fee income with INVEST than in the past.
Mortgage loan related fees. Mortgage loan related fees include late charge
income on loans owned and serviced by the Bank, inspection fee income for
construction loans and loan modification income for refinance transactions.
Income from these sources was $2.0 million in 1999, $2.3 million in 1998, and
$1.3 million in 1997. The primary reason for the decrease in 1999 was a
reduction of loan modification fee income due to the reduction in refinance
activity. The Bank introduced the loan modification option in 1998 to allow the
customer to lower the interest rate and/or modify other loan terms for a fee, in
lieu of processing a new loan. The Bank treats the modified loan as if it was
paid off, and amortizes any remaining deferred fees or expenses into interest
income. Mortgage loan related fee income in 1998 includes $723,000 from loan
modifications.
Loan servicing fee income. Loan servicing fee income is generated from
loans that the Bank has originated and sold, or from purchased servicing, and
includes fees for the collection and remittance of mortgage payments, insurance
policies and real estate taxes. 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 1/4 to 3/8 of 1% for ARM loans on the outstanding principal
balance of the sold loan being serviced. Loan servicing fee income is reduced by
the amortization of capitalized mortgage servicing rights, and impairment
valuations against recorded values of mortgage servicing rights.
18
<PAGE>
Loan servicing fee income, including the recovery of prior period valuation
allowances and/or impairment writedowns recognized, was $2.7 million in 1999,
compared to $131,000 in 1998, and $2.3 million in 1997. The following table
shows the components of loan servicing fee income in dollars and as a percentage
of loans serviced for others for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Gross servicing revenue-- $ 3,032 2,708 2,705
Amortization of mortgage servicing rights (1,271) (1,308) (427)
Impairment of mortgage servicing rights -- (1,269) --
Impairment recovery of mortgage servicing rights 900 -- --
---------- --------- ---------
Loan servicing fee income, net $ 2,661 131 2,278
========== ========= =========
As a percentage of average loans serviced for others:
Gross servicing revenue .264% .265 .264
Amortization of mortgage servicing rights (.111) (.128) (.042)
Impairment of mortgage servicing rights -- (.124) --
Impairment recovery of mortgage servicing rights .078 -- --
---------- --------- ---------
Loan servicing fee income .231% .013 .222
========== ========= =========
Average balance of loans serviced for others $1,148,514 1,020,919 1,024,720
Loan sales for the year 402,891 437,549 105,817
=========== ========= =========
</TABLE>
Due to the dramatic increase in long-term market rates of interest
throughout the year, prepayments on loans serviced for others slowed in 1999.
With loan sale activity remaining consistent with 1998 levels, the Bank's
average balance of loans serviced for others increased 12.5% during 1999. In
addition, the increase in interest rates also led to a $900,000 recovery of
previously established impairment valuations on the loans serviced for others
portfolio due to a lowering of management's estimated prepayment assumptions.
During 1998, the decline in long-term U.S. Treasury rates led to increased
prepayment activity in the loans serviced for others portfolio, that led to the
large increase in amortization of capitalized mortgage servicing rights, when
compared to the prior year. Although the Bank sold $437.5 million of loans in
1998, the average balance of loans serviced for others was flat compared to 1997
due to this prepayment activity. In addition, in 1998 an analysis of the value
of the Bank's mortgage servicing rights led to a $1.3 million impairment
writedown due to the impact of higher expected prepayment speeds on the net
present value of expected cash flows from these servicing rights. At December
31, 1999, 1998, and 1997, the weighted-average coupon rate on the loans serviced
for others portfolio was 7.28%, 7.39%, and 7.74%, respectively.
The Bank also services a majority of the loans that it holds in its own
portfolio for investment purposes. The following table sets forth information as
to the Bank's total loan servicing portfolio.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- -------------------
Amount Percent Amount Percent Amount Percent
---------- ------- ---------- ------- ---------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans owned by the Bank $3,733,250 75.27% $3,020,941 73.93% $2,284,748 69.62%
Loans serviced for others 1,226,874 24.73 1,065,126 26.07 997,204 30.38
---------- ------ ---------- ------ ---------- ------
Total loans serviced $4,960,124 100.00% $4,086,067 100.00% $3,281,952 100.00%
========== ====== ========== ====== ========== ======
</TABLE>
19
<PAGE>
Income from Bank owned life insurance. In 1998, the Bank invested $20.0
million in bank owned life insurance ("BOLI") to help fund the cost of certain
employee benefit plan expenses. The Bank's BOLI investment consists of the
purchase of life insurance on the lives of certain employees from an insurance
carrier with a Standard and Poors rating of AA+. The Company is the sole
beneficiary of the life insurance policies. Income is recorded on this
investment based on increases in the cash surrender value ("CSV") of the life
insurance policies. To the benefit of the Company, this income is free from
income taxes. Death benefits paid to the Company will be revenue in the periods
received, if any. In 1999, CSV income recognized on these life insurance
policies totaled $1.2 million compared to $458,000 in 1998.
Non-interest expense
Non-interest expense was $67.7 million in 1999, compared to $58.9 million
in 1998, and $54.6 million in 1997. The table below shows the composition of
non-interest expense for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1999 1998 1997
------- ------ ------
(In thousands)
<S> <C> <C> <C>
Compensation $29,435 26,892 23,898
Employee benefits 8,410 7,602 6,574
------- ------ ------
Total compensation and benefits 37,845 34,494 30,472
Occupancy expense 4,929 4,649 4,554
Furniture, fixture and equipment expense 2,345 1,996 1,649
Federal deposit insurance premiums 1,585 1,438 1,468
Advertising and promotion 3,149 2,281 2,737
Data processing 2,611 2,267 2,098
Professional fees 1,657 1,166 1,154
Stationery, brochures and supplies 1,236 1,153 1,045
Postage 1,423 1,148 1,042
Telephone 1,158 775 666
ATM network fees 518 546 569
OTS assessment fees 577 512 483
Correspondent banking services 500 432 462
Insurance costs 485 432 413
Amortization of goodwill 2,648 1,336 1,341
Amortization of core deposit intangible 1,236 1,075 1,296
Other 3,778 3,243 3,162
------- ------ ------
$67,680 58,943 54,611
======= ====== ======
</TABLE>
Compensation expense. Compensation expense was $29.4 million for the year
ended December 31, 1999, compared to $26.9 million for the year ended
December 31, 1998, primarily attributable to increased personnel from the Westco
acquisition and the acquired branch operations. Compensation expense in 1998
increased 12.5% from 1997 due primarily to increased loan officer commissions,
loan department incentive pay and overtime compensation due to increased loan
originations and refinance activity, as well as a 7.5% increase in the Company's
headcount related to new branch operations and increased loan staffing.
Employee benefits expense. Employee benefits expense increased $808,000 to
$8.4 million in 1999. The increase is primarily attributable to a $650,000
increase in employer FICA taxes due to increased compensation expense, and taxes
related to stock option exercises. In addition, the Bank increased its
contribution to its ESOP and profit sharing plans by $320,000 in 1999. Employee
benefits expense increased $1.0 million in 1998 from 1997 due to a $310,000
increase in employer FICA taxes resulting from increased compensation expense,
$150,000 due to increased contributions to the Bank's ESOP and profit sharing
plans, as well as increased medical insurance costs.
20
<PAGE>
Occupancy and equipment expense. Occupancy expenses increased $280,000, or
6.0%, during 1999 due to the new locations resulting from the Westco acquisition
and the branch purchase. Occupancy expenses were relatively constant between
1998 and 1997. Furniture and equipment costs increased $349,000 in 1999 due to
the addition of new branches and an upgraded voice mail system. During 1998,
furniture and equipment costs increased $347,000 primarily due to increased
depreciation from interior renovation work done at various branch locations.
FDIC insurance expense. FDIC insurance increased $147,000 to $1.6 million
in 1999 primarily due to higher deposit levels resulting from the acquisition of
Westco. Costs remained relatively constant between the year ended December 31,
1998 and 1997, as the Bank's average deposits were stable. The Bank has paid the
lowest rate allowed by regulation for savings institutions over the past three
years and expects to continue to qualify for the most favorable rate. During
these years, the lowest rate has remained the same at .0648% per $100 of
deposits. On January 1, 2000, the lowest rate allowed by regulation decreased to
approximately .021% per $100 of deposits as required by previous legislation. As
such, the Bank expects its FDIC insurance costs to decrease by approximately 65%
in 2000.
Advertising and promotion expense. Advertising and promotion expenses
increased $868,000 to $3.1 million in 1999. The primary reason for the increase
is a radio-based branding and advertising campaign initiated in the first
quarter of 1999. Advertising and promotion expenses decreased $456,000 to $2.3
million in 1998. The decrease was due to the reduction of advertising by the
Bank in anticipation of the branding campaign. In addition, the Bank scaled back
direct mail efforts promoting its Totally Free checking account.
Data processing expense. Data processing expenses increased $344,000 to
$2.6 million in 1999 primarily due to costs associated with implementation of
the Bank's Year 2000 Plan, as well as upgrading the Company's communication
network. Data processing expenses were $2.3 million in 1998, or 8.1% more than
in 1997, due to increased expenditures for the Bank's PC network, including a
limited amount of costs related to upgrading systems to Year 2000 compliance.
Other non-interest expenses. Other non-interest expense include costs
related to the day-to-day operations of the Company, as well as costs for the
implementation of strategic initiatives as well as more recently, for Year 2000
compliance. Professional fees increased $491,000 to $1.7 million in 1999
primarily due to legal and accounting expenses related to the formation of a
mortgage real estate investment trust in connection with a new tax planning
initiative. Professional fees in 1998 were relatively constant with amounts in
1997. During 1999, the Company incurred increased postage expense primarily due
to the acquisition of Westco, as well as incremental postage costs relating to
special Year 2000 mailings to customers. Telephone expense in 1999 increased due
to the acquisition of Westco, the addition of a call center for customer
service, as well as increased staffing levels. Other expense increases were
primarily due to the acquisition of Westco. Other non-interest expense was
relatively flat in 1998 compared to 1997.
Amortization of core deposit intangible. Amortization of core deposit
intangibles increased $161,000 to $1.2 million in 1999 primarily due to the
acquisition of Westco. Amortization of core deposit intangibles totaled $1.1 in
1998, compared to $1.3 million for the year ended December 31, 1997. The Bank is
amortizing its core deposit intangible on an accelerated method over 10 years.
Amortization of goodwill. Amortization of goodwill increased $1.3 million
to $2.6 million in 1999, primarily due to the acquisition of Westco.
Amortization of goodwill in 1998 and 1997 were relatively equal due to no
additional acquisition activity in 1998. The Bank amortizes goodwill over a
period not to exceed 25 years using the straight-line method.
21
<PAGE>
Income taxes
Income tax expense from continuing operations was $31.2 million in 1999,
(effective income tax rate of 37.7%) compared to $23.8 million (effective income
tax rate of 38.1%) in 1998. The lower effective income tax rate in the current
period compared to a year ago was primarily the result of proactive tax planning
involving the transfer of Bank portfolio assets to a newly formed operating
subsidiary. This structure generated net tax savings of approximately $1.2
million for 1999. These savings were offset in 1999 by approximately $350,000 in
after-tax professional fees and other costs incurred. While the effective tax
rate may vary from quarter to quarter, the Company currently expects the new
structure to result in a lowering of its effective income tax rate to
approximately 37.0% - 37.5% for the year ending December 31, 2000, depending on
the balances of the assets in the subsidiary, the amount and composition of
financial statement and taxable earnings for calendar 2000 and various other
factors. The change in the effective tax rate in 1999 compared to 1998 was also
affected by a decrease in the amount of income tax benefits recognized in the
current year compared to 1998, relating to the resolution of prior years' income
tax issues. Income tax expense from continuing operations was $22.7 million in
1997 (effective income tax rate of 37.4%).
Extraordinary Items
During the year ended December 31, 1998, the Company incurred an
extraordinary charge of $456,000, or $.02 per diluted share, net of income tax
benefits of $294,000, related to the early call of its $27.6 million, 8.32%
subordinated capital notes due September 2005. The call provision in the
indenture allowed for early redemption at par plus accrued interest.
Review of Financial Condition
Total assets increased $537.0 million, or 13.0%, to $4.66 billion at
December 31, 1999, compared to $4.12 billion at December 31, 1998, due primarily
to an increase in loans receivable funded with borrowed funds. While the Company
intends to continue to grow the balance sheet, management expects that the
recent rise in interest rates and anticipated further tightening actions by the
Federal Reserve Board will begin to slow the economy and housing market
activity. This, in turn, will likely lead to more moderate balance sheet growth
than experienced in 1999. Along with planned new deposit gathering initiatives
and its pending branch acquisition expected to close in the second quarter, the
Company expects its reliance on wholesale borrowings for funding loan growth in
2000 to be reduced.
Cash, interest-bearing deposits and federal funds sold increased a combined
$341,000 to $158 million at December 31, 1999.
Investment securities classified as held to maturity increased $892,000 to
$12.0 million as of December 31, 1999 as maturing investments were reinvested
primarily in U.S. Government securities. The $24.1 million increased investment
in FHLB of Chicago stock was required by the growth in the Bank's FHLB of
Chicago advance portfolio.
Investment securities available for sale decreased $5.0 million to $194.1
million at December 31, 1999. The Company purchased a total of $89.3 million of
investment securities, which consisted primarily of asset-backed securities,
U.S. Government and Agency securities, and marketable equity securities, offset
by maturities of securities totaling $54.5 million. The Company also sold $7.0
million of marketable equity securities, for gains of $1.3 million, as well as
U.S. Government agency securities of $27.8 million for a gain of $446,000. At
December 31, 1999, this portfolio had net unrealized losses of $5.5 million,
compared to net unrealized gains of $912,000 at December 31, 1998.
Mortgage-backed securities classified as held to maturity decreased $34.3
million to $94.3 million as of December 31, 1999. The decrease is primarily due
to the reinvestment of funds received from amortization and prepayments into
loans receivable.
22
<PAGE>
Mortgage-backed securities classified as available for sale decreased $15.4
million to $39.7 million at December 31, 1999. The decrease is primarily due to
amortization and prepayments of $15.0 million with these funds being reinvested
in loans receivable. At December 31, 1999, net unrealized losses in the
available for sale portfolio were $550,000, compared to an unrealized loss of
$205,000 at December 31, 1998.
Included in total mortgage-backed securities at December 31, 1999 are $75.2
million of CMO's with a weighted average life of 5.5 years that 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.
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.
Loans receivable increased 17.0%, or $565.5 million to $3.88 billion at
December 31, 1999. The Bank originated $1.7 billion of mortgage loans during the
current year, including $902.0 million of adjustable-rate loans that are
typically held in portfolio. This volume was offset by amortization and
prepayments of $737.0 million, and sales of $402.9 million. The loans sold
represent long-term conforming fixed-rate mortgages, which are sold as a means
of limiting interest-rate risk. Loans held for sale decreased substantially to
$12.6 million at December 31, 1999 compared to $89.4 million at December 31,
1998 due to higher interest rates curtailing the production of long-term fixed-
rate mortgage loans near the end of the year.
The allowance for loan losses increased $506,000 to $17.3 million as of
December 31, 1999. The increase is due to a provision for loan losses of $1.1
million, offset by net charge-offs of $594,000. As of December 31, 1999, the
Bank's ratio of the allowance for loan losses to total non-performing loans was
110.4%, compared to 119.4% as of December 31, 1998. The ratio of the allowance
for loan losses to total loans decreased to .44% at December 31, 1999, compared
to .52% at December 31, 1998. During 1999, the Bank's loan portfolio continued
to become more concentrated in single-family residential mortgage loans that
management perceives to carry lower risk than other types of loans in its
portfolio.
Real estate held for development or sale decreased $9.2 million to $15.9
million at December 31, 1999. A summary of real estate held for development or
sale is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
------- ------
(In thousands)
<S> <C> <C>
Tallgrass of Naperville $11,720 17,817
Creekside of Remington 1,657 1,456
Harmony Grove 2,112 3,419
Reigate Woods 400 2,436
Woodbridge -- 6
------- ------
$15,889 25,134
======= ======
</TABLE>
23
<PAGE>
The decrease in the 926-lot Tallgrass of Naperville project is primarily
due to strong lot sales in Unit 1 and 2 of the project during the current year,
where the Company sold 252 lots during 1999. At December 31, 1999, an additional
226 lots were under contract. The $200,000 increased investment in the Creekside
of Remington project is due to capitalized costs spent in conjunction with an
agreement to sell the remaining lots in bulk. At December 31, 1999, the
remaining 75 lots of this subdivision were under contract and are expected to be
sold in the second quarter of 2000. The Harmony Grove project was sold out
during the current year.
The Reigate Woods subdivision decreased primarily due to eleven homesite
sales in 1999. At December 31, 1999, ten homesites remained of which three were
under contract. The Company expects the complete sell-out of the project during
2000. The decline in the Woodbridge project is due to the sale of 41 acres of
the 48-acre commercial parcel in this project. The remaining 7 acres are
currently expected to be sold during 2000 at approximately $1.0 million of pre-
tax profit. At December 31, 1999, 3.2 acres were under contract. The Company
continues to look for additional parcels of land for future development in light
of the strong lot sales to date in its Tallgrass subdivision.
Premises and equipment increased $1.8 million to $42.5 million at
December 31, 1999. The increase is primarily due to purchases of $5.8 million,
offset by depreciation and amortization of $4.0 million. The Company's purchases
in 1999 related to data processing equipment as well as branch facility upgrades
and expansion.
Foreclosed real estate decreased to $7.4 million at December 31, 1999,
compared to $8.4 million at December 31, 1998. The decrease is primarily due to
sales of single-family residences, and $428,000 of writedowns on two commercial
properties.
Other assets increased $7.9 million to $49.6 million at December 31, 1999.
The increase is primarily attributable to an increase in mortgage servicing
rights of $3.1 million to $7.3 million at December 31, 1999, ($900,000 of which
relates to the recovery of a previously established impairment valuation), as
well as a $2.4 million increase in the cash surrender value of life insurance
policies maintained in conjunction with the Company's Bank owned life insurance
program ("BOLI"), and deferred compensation plans. The Bank has $32.9 million in
cash surrender value of life insurance at December 31, 1999.
Intangible assets decreased by $1.0 million, to $61.2 million at
December 31, 1999. The decrease is primarily due to the amortization of
previously recorded goodwill and core deposit intangibles totaling $3.9 million,
offset by the addition of $3.1 million of goodwill from the Bank's branch
acquisition.
Deposits increased $42.4 million to $2.70 billion as of December 31, 1999.
The increase is primarily due to the branch acquisition that increased deposits
by $22.2 million, interest credited to deposits of $97.5 million offset by
savings outflows of $75.6 million.
Borrowed funds increased $491.9 million, or 47.6%, to $1.53 billion at
December 31, 1999. The Bank funded its increase in loans receivable primarily
with FHLB of Chicago advances, which increased $505.0 million during the current
year. As of December 31, 1999, the Bank had $1.48 billion of FHLB of Chicago
advances at a weighted average rate and term to maturity of 6.01% and 4.2 years,
respectively, compared to $975.5 million at a weighted average rate and term to
maturity of 5.83% and 4.6 years, respectively, as of December 31, 1998. Of the
FHLB advances at December 31, 1999, $510.0 million of advances, with a weighted
average term to maturity of 7.8 years, contain various call provisions, with a
weighted average term to call of 2.7 years. The calls are most likely exercised
by the issuer in a period of rising interest rates. Management currently
anticipates $100.0 million of FHLB of Chicago advances outstanding at
December 31, 1999, with a weighted average maturity of 5.9 years and a
weighted average rate of 5.23%, will be called during 2000 due to increases in
interest rates. Management expects these borrowings will need to be refinanced
at higher prevailing interest rates. Reverse repurchase agreements decreased by
$10.0 million due to $30.0 million in maturities offset by a new fundings of
$20.0 million.
24
<PAGE>
Stockholders' equity of the Company grew to $352.9 million at December 31,
1999, compared to $345.0 million at December 31, 1998, an increase of $7.9
million. The increase in stockholders' equity is primarily due to comprehensive
income of $47.4 million, offset by the payment of cash dividends of $8.2 million
and the repurchase of $35.6 million of common stock (1,565,591 shares).
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. The Bank is one of the largest originators of
residential mortgages in its market area, and experienced record loan volume in
1998 due to a robust economy and high refinance activity attributable to falling
long-term interest rates. In addition to traditional retail originations, the
Bank operates a wholesale lending operation that purchases loans from brokers
and correspondents. In connection with these activities, the Bank has
traditionally held the origination of adjustable-rate or shorter-term loans for
its portfolio and sold a portion of its long-term fixed-rate loans directly into
the secondary market. 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 year ended December 31, 1999, the Bank originated and purchased
$749.5 million in fixed-rate one- to four family residential mortgage loans, of
which $611.8 million, or 81.6%, conformed to the balance requirements for sale
to FNMA and FHLMC and $137.7 million, or 18.4%, did not conform to the balance
requirements of these agencies. During the year ended December 31, 1999, the
Bank sold $402.9 million of these loans in the secondary market. The Bank's
"nonconforming" loans are generally designated as such because the principal
loan balance exceeds $240,000 ($252,700 as of January 1, 2000), 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 generally carry interest rates
from one-eighth to three-eighths of one percent higher than similar, conforming
fixed-rate loans.
In early 1997, the Bank started offering its loan products with prepayment
penalties in an effort to mitigate interest rate and prepayment risks in a
declining rate environment. The borrower receives a lower interest rate in
return for accepting prepayment penalties based on the original loan balance.
The penalty is 2% for the initial three years on ARM loans that are fixed for
the initial three-year period. The penalty for 10, 15, 20 and 30 year fixed rate
loans, seven year balloon loans and ARM loans that are fixed for the initial
five-year period is 3% for the first three years, 2% in year four and 1% in year
five. The Bank discontinued offering the fixed-rate prepayment protected product
in the second quarter of 1999. At December 31, 1999, the Bank had $956.5 million
of prepayment penalty loans, or 24.5% of its loans receivable, compared to
$617.3 million, or 18.5% as of December 31, 1998.
As a result of its acquisition of Northwestern, 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 that had been purchased through brokers as part of Northwestern's loan
strategy. Collateral for this portfolio is spread throughout 35 states.
Consistent with its strategy to focus primarily on the local market area, the
Bank has allowed this portfolio to amortize and prepay and plans to hold the
existing loans to maturity without replacement. Due to normal amortization and
prepayments, this portfolio had a balance of $161.6 million at December 31,
1999.
25
<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>
December 31,
------------------------------------------------------------------
1999 1998
---------------------------- ----------------------------
Percent Percent
of of
Amount Total Amount Total
---------- ------- ---------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
One- to four family:
Held for investment $3,479,425 89.05% $2,877,482 86.07%
Held for sale 12,601 .32 89,406 2.67
Multi-family 164,878 4.22 137,254 4.11
Commercial 38,817 .99 43,069 1.29
Construction 27,707 .71 28,429 0.85
Land 28,602 .73 24,765 0.74
---------- ------ ---------- ------
Total real estate loans 3,752,030 96.02 3,200,405 95.73
---------- ------ ---------- ------
Other loans:
Consumer loans:
Equity lines of credit 98,483 2.52 91,915 2.75
Home equity loans 48,397 1.24 42,398 1.27
Other 5,373 .14 6,015 0.18
---------- ------ ---------- ------
Total consumer loans 152,253 3.90 140,328 4.20
Commercial business loans 3,132 .08 2,356 0.07
---------- ------ ---------- ------
Total other loans 155,385 3.98 142,684 4.27
---------- ------ ---------- ------
Total loans receivable 3,907,415 100.00% 3,343,089 100.00%
====== ======
Less:
Loans in process 11,893 10,698
Unearned discounts, premiums
and deferred loan fees, net (6,323) (3,455)
Allowance for loan losses 17,276 16,770
---------- ----------
Loans receivable, net $3,884,569 $3,319,076
========== ==========
Mortgage-backed securities:
GNMA held to maturity $ 1,115 1,782
FHLMC held to maturity 37,804 53,750
FHLMC available for sale 2,716 3,976
FNMA held to maturity 13,385 17,421
FNMA available for sale 3,711 6,133
CMOs held to maturity 41,947 55,585
CMOs available for sale 33,276 44,956
---------- ----------
Total mortgage-backed securities $ 133,954 183,603
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------- June 30,
1997 1996 1996
------------------------ ------------------------- -----------------------
Percent Percent Percent
of of of
Amount Total Amount Total Amount Total
---------- ------- ---------- ------- ---------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four family:
Held for investment $2,408,393 88.27% $2,160,525 87.93% $2,032,102 87.57%
Held for sale 6,537 0.24 6,495 0.26 9,314 0.40
Multi-family 105,051 3.85 92,968 3.78 94,713 4.08
Commercial 35,839 1.31 46,313 1.89 46,101 1.99
Construction 17,263 0.63 17,263 0.70 16,090 0.69
Land 24,425 0.90 25,685 1.05 26,644 1.15
---------- ------ ---------- ------ ---------- ------
Total real estate loans 2,597,508 95.20 2,349,249 95.61 2,224,964 95.88
---------- ------ ---------- ------ ---------- ------
Other loans:
Consumer loans:
Equity lines of credit 88,106 3.23 86,614 3.53 79,193 3.41
Home equity loans 34,447 1.26 14,251 0.58 10,525 0.45
Other 5,793 .21 5,009 0.20 4,110 0.18
---------- ------ ---------- ------ ---------- ------
Total consumer loans 128,346 4.70 105,874 4.31 93,828 4.04
Commercial business loans 2,659 0.10 1,871 0.08 1,821 0.08
---------- ------ ---------- ------ ---------- ------
Total other loans 131,005 4.80 107,745 4.39 95,649 4.12
---------- ------ ---------- ------ ---------- ------
Total loans receivable 2,728,513 100.00% 2,456,994 100.00% 2,320,613 100.00%
====== ====== ======
Less:
Loans in process 6,683 7,620 6,715
Unearned discounts, premiums
and deferred loan fees, net (772) 1,347 3,245
Allowance for loan losses 15,475 17,914 17,254
---------- ---------- ----------
Loans receivable, net $2,707,127 $2,430,113 $2,293,399
========== ========== ==========
Mortgage-backed securities:
GNMA held to maturity 2,442 3,248 3,637
FHLMC held to maturity 103,037 138,963 157,468
FHLMC available for sale 5,706 7,425 8,052
FNMA held to maturity 22,796 29,343 32,044
FNMA available for sale 9,610 12,029 13,565
CMOs held to maturity 82,174 95,104 100,232
CMOs available for sale 52,243 73,475 103,104
---------- ---------- ----------
Total mortgage-backed securities 283,008 359,587 418,102
========== ========== ==========
</TABLE>
26
<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>
December 31,
-----------------------------------------------------------------------------
1999 1998 1997
---------------------- --------------------- ---------------------
Amount Percent Amount Percent Amount Percent
---------- ------- ---------- ------- ---------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Adjustable-rate loans:
Real estate:
One-to four family $1,614,377 41.33% $1,261,915 37.74% $1,489,757 54.59%
Multi-family 102,112 2.61 77,270 2.32 75,562 2.77
Commercial 19,889 .51 19,384 .58 16,128 .60
Construction 27,399 .70 28,121 .84 16,041 .59
Land 19,220 .48 17,319 .52 16,268 .59
---------- ------ ---------- ------ ---------- ------
Total adjustable-rate real estate loans 1,782,997 45.63 1,404,009 42.00 1,613,756 59.14
Consumer 100,936 2.59 96,867 2.90 89,992 3.30
Commercial business 2,303 .05 1,009 .03 2,080 .07
---------- ------ ---------- ------ ---------- ------
Total adjustable-rate loans receivable 1,886,236 48.27 1,501,885 44.93 1,705,828 62.51
---------- ------ ---------- ------ ---------- ------
Fixed-rate loans:
Real estate:
One-to four-family 1,865,048 47.72 1,615,567 48.33 918,636 33.68
One-to four-family held for sale 12,601 .32 89,406 2.67 6,537 .24
Multi-family 62,766 1.61 59,984 1.79 29,489 1.08
Commercial 18,928 .48 23,685 .71 19,711 .71
Construction 308 .01 308 .01 1,222 .04
Land 9,382 .25 7,446 .22 8,157 .31
---------- ------ ---------- ------ ---------- ------
Total fixed-rate real estate loans 1,969,033 50.39 1,796,396 53.73 983,752 36.06
Consumer 51,317 1.31 43,461 1.30 38,354 1.40
Commercial business 829 .03 1,347 .04 579 .03
---------- ------ ---------- ------ ---------- ------
Total fixed-rate loans receivable 2,021,179 51.73 1,841,204 55.07 1,022,685 37.49
---------- ------ ---------- ------ ---------- ------
Total loans receivable 3,907,415 100.00% 3,343,089 100.00% 2,728,513 100.00%
====== ====== ======
Less:
Loans in process 11,893 10,698 6,683
Unearned discounts, premiums and
deferred loan fees, net (6,323) (3,455) (772)
Allowance for loan losses 17,276 16,770 15,475
---------- ---------- ----------
Loans receivable, net $3,884,569 $3,319,076 $2,707,127
========== ========== ==========
Mortgage-backed securities:
Adjustable-rate $ 78,446 58.68% $ 94,493 51.59% $ 125,195 44.35%
Fixed-rate held by the Bank 55,245 41.32 88,686 48.41 126,638 44.86
Fixed-rate held by finance subsidiaries (1) -- -- -- -- 30,467 10.79
---------- ------ ---------- ------ ---------- ------
Total mortgage-backed securities 133,691 100.00% 183,179 100.00% 282,300 100.00%
====== ====== ======
Unamortized premiums 263 424 708
---------- ---------- ----------
Mortgage-backed securities, net $ 133,954 $ 183,603 $ 283,008
========== ========== ==========
Summary:
Adjustable rate loans:
Loans receivable $1,886,236 46.67% $1,501,885 42.59% $1,705,828 57.24%
Mortgage-backed securities 78,446 1.94 94,493 2.68 125,195 4.20
---------- ------ ---------- ------ ---------- ------
Total adjustable-rate loans 1,964,682 48.61 1,596,378 45.27 1,831,023 61.44
Fixed-rate loans:
Loans receivable 2,021,179 50.02 1,841,204 52.21 1,022,685 34.31
Mortgage-backed securities (2) 55,245 1.37 88,686 2.52 126,638 4.25
---------- ------ ---------- ------ ---------- ------
Total fixed-rate loans 2,076,424 51.39 1,929,890 54.73 1,149,323 38.56
---------- ------ ---------- ------ ---------- ------
Total loan portfolio (2) $4,041,106 100.00% $3,526,268 100.00% $2,980,346 100.00%
========== ====== ========== ====== ========== ======
</TABLE>
- ---------------------------
(1) See "Subsidiary activities - Mid America Finance Corporation and
Northwestern Acceptance Corporation."
(2) Excludes the fixed-rate mortgage-backed securities held by finance
subsidiaries, which are duration matched.
27
<PAGE>
Loan Maturity
The following table shows the contractual maturity of the Bank's loan
portfolio at December 31, 1999. The loan amounts do not reflect scheduled
principal amounts that have been repaid. Principal repayments and prepayments
on mortgage loans totaled $737.0 million, $942.1 million, and $706.6 million
for the years ended December 31, 1999, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
At December 31, 1999
---------------------------------------------------------------------------------------------
Real Estate Mortgage Loans Other loans
-------------------------------------------------------- ---------------------
One-to
Four- Multi- Commercial
Family Family Commercial Construction Land Consumer Business Total
---------- ------- ---------- ------------ ------- --------- ----------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amount due:
One year or less $ 1 136 45 861 226 1,405 470 3,144
---------- ------- ------ ------ ------ ------- ----- ----------
After one year
1 year to 2 years 8,598 4,330 253 21,683 3,990 8,230 1,633 48,717
2 years to 3 years 5,714 947 560 671 17,486 12,224 20 37,622
3 years to 5 years 120,255 6,098 8,632 4,492 269 26,914 696 167,356
5 years to 10 years 320,041 27,563 8,242 - 67 103,219 313 459,445
10 years to 20 years 481,910 66,273 18,348 - 4,559 261 - 571,351
Over 20 years 2,542,906 59,531 2,737 - 2,005 - - 2,607,179
---------- ------- ------ ------ ------ ------- ----- ----------
Total after 1 year 3,479,424 164,742 38,772 26,846 28,376 150,848 2,662 3,891,670
---------- ------- ------ ------ ------ ------- ----- ----------
Total amount due $3,479,425 164,878 38,817 27,707 28,602 152,253 3,132 3,894,814
========== ======= ====== ====== ====== ======= =====
Less:
Loans in process (11,893)
Deferred yield adjustments 6,323
Allowance for loan losses (17,276)
----------
Total loans receivable, net 3,871,968
Mortgage loans held for sale 12,601
----------
Total loans, net $3,884,569
==========
</TABLE>
The following table sets forth at December 31, 1999 the dollar amount of
loans receivable held for investment due after December 31, 2000, and whether
such loans have fixed or adjustable interest rates.
<TABLE>
<CAPTION>
Due After December 31, 2000
---------------------------------------------------------------
Fixed Adjustable Total
------------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Real estate loans:
One-to four-family $1,858,386 1,621,038 3,479,424
Multi-family 58,756 105,986 164,742
Commercial 19,047 19,725 38,772
Construction 308 26,538 26,846
Land 9,186 19,190 28,376
Consumer 50,943 99,905 150,848
Commercial business 1,368 1,294 2,662
---------- --------- ---------
Total loans receivable $1,997,994 1,893,676 3,891,670
========== ========= =========
</TABLE>
28
<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, 1999, the Bank's one- to four family residential mortgage loans
totaled $3.5 billion, or 89.4% of the Bank's total loans receivable. The Bank
emphasizes the origination of conventional hybrid 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 1999, the Bank originated $432.6
million of residential ARM loans, representing 34.6% of the total loans
originated by the Bank, all of which were held in portfolio. During the same
period, the Bank originated $712.9 million of fixed-rate residential mortgage
loans, representing 57.0% of the total mortgage loans originated by the Bank
during that period.
The Bank currently offers a number of ARM loan programs under which the
interest rate may be fixed for the initial one-, three-, or five-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 that 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 6%, and
are originated for terms of up to 40 years. At December 31, 1999, the weighted
average term to repricing of the Bank's ARM loan portfolio was 2.45 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 offers a mortgage loan modification program that allows the
borrower to receive a reduced interest rate, change in term, or a change in loan
program, in lieu of refinancing the original loan. The borrower is charged a fee
that varies based upon the modifications made, including an appraisal fee when
the Bank requires a reappraisal of the collateral. The program has been
advantageous to the Bank during periods of heavy refinance activity such as
1998, by limiting the disruption to its loan operations, as well as reducing the
costs associated with refinance activity of existing borrowers.
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 homebuyers meet the Bank's
underwriting standards and the applicable fees are paid.
29
<PAGE>
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 $1.5 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 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 underwriting 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 requires
flood insurance on a property located in special flood hazard areas. Borrowers
are generally 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, generally 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 risk of
default.
Wholesale Residential Lending. The Bank's wholesale loan origination
division that 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 $344.1 million for 1999,
compared to $346.2 million for 1998.
Purchased Loans. At December 31, 1999, the Bank had $161.6 million,
compared to $232.7 million at December 31, 1998, of purchased residential
mortgage loans, nearly all were acquired in the acquisition of Northwestern. The
vast majority of purchased loans are adjustable-rate loans secured by properties
which serve as the primary residence of the borrower, and which are located
primarily in metropolitan areas located in 35 states. The decrease in the
balance is primarily due to prepayments and amortization which have not been
replaced with new purchases since the Bank's current policy is to not purchase
loans outside of its market area. At December 31, 1999, purchased loans were
being serviced by 81 companies, the largest of which serviced $32.6 million, or
20.2% of total purchased loans. The loans in this portfolio were underwritten
with substantially the same underwriting standards as for loans originated by
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, 1999, $56.3 million, or 34.8% of the
loans in the purchased loan portfolio are in excess of the current FNMA limit of
$252,700. In addition to these underwriting guidelines, original executed
promissory notes with proper endorsements are in the possession of the Bank.
30
<PAGE>
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, 1999, the Bank had $27.7 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, 1999, the Bank's construction
and land loans totaled $56.3 million, or 1.4%, of total loans receivable.
The Bank uses underwriting and construction loan guidelines for financing
primarily individual, owner-occupied houses where qualified contractors are
involved. Construction loans 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 in the Bank's market area. At December 31, 1999, the Bank had land
loans to developers totaling $12.5 million. At December 31, 1999, the largest
aggregate amount of land acquisition and development loans to a single developer
amounted to $12.1 million. Loans to developers are generally short-term loans
with terms of three to five years. By policy, the loan-to-value ratio may not
exceed 80% and generally is less than 75%. The majority of such loans are based
on the prime rate, or the London interbank offering rate ("LIBOR"). 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.
Land loans are also made to local builders for the purchase of improved
lots. At December 31, 1999, the Bank had land loans outstanding to local
builders totaling $8.2 million. Such loans are generally for terms of up to
three years and are generally granted at rates similar to rates quoted for 30-
year fixed-rate residential mortgage loans. The loan-to-value ratio on such
loans is limited to 75%. Land loans for the purchase of fully improved lots are
also made to individuals. At December 31, 1999, the Bank had land loans to
individuals totaling $7.9 million. Such loans are made for up to 15-year terms
with adjustable or fixed interest rates which are made at the prevailing rates
for one- to four-family residential loans.
Construction and land development 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 and land development 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 and land development
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.
31
<PAGE>
Multi-family Lending. The Bank originates multi-family residential mortgage
loans in its market area. At December 31, 1999, the Bank had multi-family loans
of $164.9 million, including a portfolio of purchased participating interests of
$2.1 million related to low-income housing. Multi-family loans represent 4.2% of
total loans receivable at December 31, 1999. ARM loans represented 61.9% of the
multi-family residential loan portfolio at December 31, 1999. 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 25 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 properties of five or
more units are qualified on the basis of 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, 1999, the Bank had $38.8 million of commercial real
estate loans. The Bank's policy has been to originate additional commercial real
estate loans on a limited basis. 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 $5.4 million at December 31, 1999
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, 1999. At
December 31, 1999, the Bank's ten largest commercial real estate loans totaled
$17.4 million, all of which are current and performing in accordance with their
original terms.
Other Lending. The Bank's other lending activities consist of consumer
lending, primarily home equity loans, fixed-rate second mortgage loans, and to a
lesser extent, commercial business lending. On December 31, 1999, outstanding
balances on home equity lines represented $98.5 million or 2.5% of the Bank's
total loan portfolio. Home equity lines of credit are generally extended up to
85% of the appraised value of the property, less existing liens, generally at
interest rates which range from the designated prime rate minus .50% to plus
.50%, based on balances drawn. To a lesser extent, the Bank offers home equity
lines of credit at greater than 85% of the appraised value of the property. The
interest rate on greater than 85% loan-to-value lines of credit is the
designated prime rate plus an increment tiered by the percentage borrowed. The
Bank uses the same underwriting standards for home equity lines of credit as it
uses for residential mortgage loans. Other home equity loans consist of $48.4
million of primarily fixed-rate, second mortgage loans that generally amortize
over a five to ten year period.
Letters of Credit. At December 31, 1999, the Bank had $15.7 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 parcel
located in the Bank's market area, and included in foreclosed real estate. See
"Asset Quality and Allowance for Loan Losses."
32
<PAGE>
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 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 year, the Bank swapped and
sold $62.6 million, compared to $26.6 million for the year ended December 31,
1998.
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, 1999, ranged from 5.40% to 16.25%. At December 31, 1999, mortgage-
backed securities, totaled $134.0 million, or 2.9% of total assets. At December
31, 1999, the Bank's mortgage-backed securities portfolio had a market value of
$131.8 million.
33
<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>
Year Ended December 31,
-----------------------------------
1999 1998 1997
----------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Loans receivable:
Loans originated:
Adjustable-rate loans originated:
One-to four-family $ 432,649 213,038 277,788
Multi-family 34,129 18,557 16,803
Commercial 4,620 906 260
Construction 31,366 31,397 22,739
Land 14,389 8,335 8,156
Commercial business 1,030 459 811
Consumer 76,252 67,041 63,572
---------- --------- ---------
Total adjustable-rate loans originated 594,435 339,733 390,129
Fixed-rate loans originated:
One-to four-family 712,942 1,012,400 396,823
Multi-family 9,229 13,087 7,503
Commercial 938 1,015 133
Construction -- -- 890
Land 10,589 7,387 6,738
Consumer 38,579 33,672 35,079
---------- --------- ---------
Total fixed-rate loans originated 772,277 1,067,561 447,166
---------- --------- ---------
Total loans originated 1,366,712 1,407,294 837,295
Loans purchased:
Fixed-rate one- to four-family real estate 36,521 186,584 120,385
Adjustable-rate one- to four-family real estate 307,567 159,607 133,791
Other 537 524 353
---------- --------- ---------
Total loans purchased 344,625 346,715 254,529
---------- --------- ---------
Total loans originated and purchased 1,711,337 1,754,009 1,091,824
---------- --------- ---------
Loans acquired through acquisitions 399 245,245 --
Loans sold:
One- to four-family (fixed-rate) 340,308 410,944 102,459
Consumer loans 1,023 1,164 1,354
---------- --------- ---------
Total loans sold 341,331 412,108 103,813
Mortgage loan swaps (fixed-rate) 62,583 26,605 3,358
Transfer to foreclosed real estate and charge-offs 6,540 3,864 6,526
Amortization and prepayments 736,956 942,101 706,608
---------- --------- ---------
Total loans sold, loan swaps, transfers,
amortization and prepayments 1,147,410 1,384,678 820,305
---------- --------- ---------
Net increase $ 564,326 614,576 271,519
========== ========= =========
Mortgage-backed securities:
Mortgage-backed securities purchased $ -- 16,218 --
Mortgage-backed securities swaps 62,583 26,605 3,358
Mortgage-backed securities sold (62,583) (26,605) (3,358)
Sale of residual interests in finance subsidiaries -- (30,160) --
Amortization and prepayments (49,142) (84,956) (76,750)
---------- --------- ---------
Net decrease $ (49,142) (98,898) (76,750)
========== ========= =========
</TABLE>
34
<PAGE>
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 that are in process of foreclosure or
otherwise determined to be uncollectible.
Delinquent Loans. At December 31, 1999, 1998, and 1997, 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, 1999 63 $6,280 .16% 130 $13,224 .34%
== ====== === === ======= ===
December 31, 1998 41 $4,259 .13% 109 $13,163 .41%
== ====== === === ======= ===
December 31, 1997 32 $2,697 .10% 86 $10,134 .37%
== ====== === === ======= ===
</TABLE>
- ------------
(1) Percentage represents principal balance of delinquent loans to total loans
outstanding.
Non-Performing 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 that
are not individually significant (i.e. loans under $1.0 million), 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 these
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 occurred as a result of the book
value exceeding the fair 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.
35
<PAGE>
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>
December 31,
--------------------------------- June 30,
1999 1998 1997 1996 1996
------- ------ ------ ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
One-to four-family and multi-family loans:
Non-accrual loans(1) $12,548 10,641 7,039 7,680 5,415
Accruing loans 91 or more days overdue 771 1,381 2,071 896 1,940
------- ------ ------ ------ ------
Total 13,319 12,022 9,110 8,576 7,355
------- ------ ------ ------ ------
Commercial real estate, construction and land loans:
Non-accrual loans(1) 607 1,284 1,240 3,762 433
Accruing loans 91 or more days overdue -- -- -- 699 459
Restructured or renegotiated -- -- -- -- 4,299
------- ------ ------ ------ ------
Total 607 1,284 1,240 4,461 5,191
------- ------ ------ ------ ------
Other loans:
Non-accrual loans (1) 1,683 721 181 353 287
Accruing loans 91 or more days overdue 41 22 124 74 --
------- ------ ------ ------ ------
Total 1,724 743 305 427 287
------- ------ ------ ------ ------
Total non-performing loans:
Non-accrual loans (1) 14,838 12,646 8,460 11,795 6,135
Accruing loans 91 or more days overdue 812 1,403 2,195 1,669 2,399
Restructured or renegotiated -- -- -- -- 4,299
------- ------ ------ ------ ------
Total $15,650 14,049 10,655 13,464 12,833
======= ====== ====== ====== ======
Non-accrual loans to total loans .38% .39% .31% .48% .27%
Accruing loans 91 or more days overdue to total loans .02 .04 .08 .07 .10
Restructured or renegotiated to total loans -- -- -- -- .19
------- ------ ------ ------ ------
Non-performing loans to total loans .40% .43% .39% .55% .56%
======= ====== ====== ====== ======
Foreclosed real estate:
One-to four-family $ 1,220 1,736 489 1,257 888
Commercial real estate 6,195 6,621 -- -- --
------- ------ ------ ------ --------
Total foreclosed real estate, net of related reserves $ 7,415 8,357 489 1,257 888
======= ====== ====== ====== ========
Total non-performing assets $23,065 22,406 11,144 14,721 13,721
======= ====== ====== ====== ========
Total non-performing assets to total assets .50% .54% .32% .46% .44%
======= ====== ====== ====== ========
</TABLE>
- ------------
(1) Consists of loans in the process of foreclosure or for which interest is
otherwise deemed uncollectible.
For the years ended December 31, 1999, 1998 and 1997, the amount of
interest income that would have been recorded on non-accrual loans amounted to
$457,000, $421,000 and $633,000 respectively, if the loans had been current. For
the year ended December 31, 1999, interest income on non-accrual loans that was
included in net income amounted to $387,000.
Non-performing loans increased $1.6 million to $15.6 million at
December 31, 1999, primarily in one-to-four family residential loans. Non-
performing commercial real estate, construction and land loans decreased by
$677,000 to $607,000 as of December 31, 1999. Asset quality measured by non-
performing loans to total loans receivable was excellent at .40% as of
December 31, 1999.
36
<PAGE>
Foreclosed real estate includes $6.1 million related to a previously non-
performing $500,000 second mortgage on a commercial real estate loan the Bank
took title to in January 1998. In conjunction with the foreclosure, the Bank
assumed the first mortgage on this property, a $6.0 million industrial revenue
bond. During 1999, the Bank took a fair value writedown of $400,000 on this
property. The industrial revenue bond is current as to interest payments as of
December 31, 1999, and carries an interest rate of 4.20%. The industrial revenue
bond is assumable by any purchaser of the underlying collateral. The Bank has
issued a standby letter of credit against the industrial revenue bond. The
property is currently being marketed for sale by a commercial real estate
broker.
Classified Assets. The federal regulators have adopted a classification
system for problem assets of insured institutions that 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 that 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, 1999 and 1998, all of the Bank's non-performing loans were
classified as substandard.
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.
37
<PAGE>
The following table sets forth the Bank's allowance for loan losses at the
dates indicated.
<TABLE>
<CAPTION>
Six Year
Year Ended December 31, Months Ended Ended
------------------------------------------- December 31, June 30,
1999 1998 1997 1996 1996
-------- ------- ------- ------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $16,770 15,475 17,914 17,254 9,197
Charge-offs:
One- to four-family (522) (290) (637) (49) (376)
Commercial (88) (25) (2,994) -- --
Consumer (101) (87) (81) (17) --
------- ------ ------ ------ --------
(711) (402) (3,712) (66) (376)
------- ------ ------ ------ --------
Recoveries:
One- to four-family 105 1 106 25 --
Commercial -- -- 5 -- 10
Consumer 12 50 12 1 1
------- ------ ------ ------ --------
117 51 123 26 11
------- ------ ------ ------ --------
Charge-offs, net of recoveries (594) (351) (3,589) (40) (365)
Provision for loan losses 1,100 800 1,150 700 700
Balance related to acquisition -- 846 -- -- 7,722
------- ------ ------ ------ --------
Balance at end of period $17,276 16,770 15,475 17,914 17,254
======= ====== ====== ====== ========
Net charge-offs to average
loans outstanding .02% .01 .14 -- .03
Allowance for loan losses
to total loans receivable .44% .52 .57 .73 .75
Allowance for loan losses
to total non-performing loans 110.39% 119.37 145.24 133.05 134.45
Allowance for loan losses
to total non-performing assets 74.90% 74.85 138.86 121.69 124.75
======= ====== ====== ====== ========
</TABLE>
At December 31, 1999, the Bank maintained no specific reserves on its loan
portfolio, and is unaware of any specifically identifiable charge-offs in its
loan portfolio. The following table sets forth the Company's allocation of its
allowance for loan losses. This allocation is based on management's subjective
estimates. The amount allocated to a particular category should not be
interpreted as the only amount available for future charge-offs that may occur
within that category: it may not be indicative of future charge-off trends and
it may change from year to year based on management's assessment of the risk
characteristics of the loan portfolio.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------ -------------------------
Loan category Loan category Loan category
as a % of as a % of as a % of
Allowance Total Loans Allowance Total Loans Allowance Total Loans
--------- -------------- --------- -------------- --------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family residential $ 8,705 89.37% $ 8,302 88.74% $ 8,733 88.51%
Multi-family 1,235 4.22 1,025 4.11 784 3.85
Commercial real estate 2,078 0.99 2,354 1.29 1,972 1.31
Construction 256 0.71 256 0.85 171 0.63
Land 346 0.73 296 0.74 294 0.90
Consumer 1,085 3.98 854 4.27 774 4.80
Unallocated portion 3,571 NA 3,683 NA 2,747 NA
------- ------ ------- ------ ------- ------
Total $17,276 100.00% $16,770 100.00% $15,475 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
38
<PAGE>
At December 31, 1999, the Bank's loan portfolio consisted of 89.4% of one-
to four-family real estate loans, with an additional 3.9% 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 6.7% of
the Bank's portfolio, or $263.1 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-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, (less than 36 units) which management
believes have lower risk than larger properties. At December 31, 1999, in the
Bank's $164.9 million multi-family portfolio, ten loans are on properties
greater than 36 units and the average multi-family loan size is $295,000. In
addition, almost all of the Bank's construction and land loans are on one- to
four family residential properties. 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 $65.0 million at any one institution.
39
<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, 1999
----------------------------------------------------------------------------------
One Year 1 to 5 to More than
or Less 5 Years 10 Years 10 Years
------------------- ------------------- ------------------- -------------------
Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
-------- --------- -------- --------- -------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and agency
securities:
Held to maturity $ -- --% $ 9,983 7.31% $ -- --% $ -- --%
Available for sale 15,006 6.04 31,158 6.21 27,629 6.77 4,825 6.65
Marketable equity securities (1)
Common stock -- -- -- -- -- -- 6,100 6.77
Preferred stock -- -- -- -- -- -- 4,146 3.05
Other investment securities:
Held to maturity -- -- 2,016 12.00 -- -- -- --
Available for sale 9,315 5.99 26,098 6.14 30,798 6.87 39,030 7.38
-------- ------- -------- -------
Total $24,321 6.02% $69,255 6.51% $58,427 6.82% $54,101 6.91%
======== ===== ======= ===== ======= ===== ======= =====
<CAPTION>
December 31, 1999
-----------------------------------------------------------------
Total Investment Securities
-----------------------------------------------------------------
Average Weighted
Life Carrying Market Average
In Years Value Value Yield
---------- ---------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Government and agency
securities:
Held to maturity 4.38 $ 9,983 $ 10,305 7.31%
Available for sale 5.38 78,618 78,618 6.40
Marketable equity securities (1)
Common stock - 6,100 6,100 6.77
Preferred stock - 4,146 4,146 3.05
Other investment securities:
Held to maturity 5.01 2,016 2,016 12.00
Available for sale 11.48 105,241 105,241 6.80
-------- --------
Total 8.69 $206,104 $206,426 6.65%
===== ======== ======== =====
</TABLE>
- -------------
(1) Marketable equity securities with no stated maturity are included in
the "More than 10 Years" category, and are categorized as available
for sale.
40
<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, 1999 and 1998, the fair value of the
investment securities portfolio was $206.4 million and $211.3 million,
respectively.
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998 1997
-------- ------- -------
(In thousands)
<S> <C> <C> <C>
Interest-bearing deposits $ 51,306 24,564 57,197
======== ======= =======
Federal funds sold $ 35,013 79,140 50,000
======== ======= =======
Investment securities:
Available for sale:
U.S. Government and agency securities $ 78,618 119,261 60,933
Marketable equity securities 10,246 15,042 14,023
Other investment securities 105,241 64,657 44,554
-------- ------- -------
Total investments available for sale 194,105 198,960 119,510
-------- ------- -------
Held to maturity:
U.S. Government and agency securities 9,983 9,980 24,844
Other investment securities 2,016 1,127 424
-------- ------- -------
Total investments held to maturity 11,999 11,107 25,268
-------- ------- -------
Total investment securities $206,104 210,067 144,778
======== ======= =======
</TABLE>
The classification of investments as held to maturity, 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, 1999, $194.1 million of investment
securities were classified as available for sale and recorded at fair value
(cost basis of $199.6 million). At December 31, 1998, $199.0 million were
classified as available for sale (cost basis of $198.0 million). All balances
exclude the Bank's required investment of stock in the Federal Home Loan Bank of
Chicago, which was $75.0 million and $50.9 million at December 31, 1999, and
1998, 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.
41
<PAGE>
Deposit Portfolio. The following table sets forth the distribution and the
weighted average nominal interest rates of the Bank's average deposit accounts
for the years indicated:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998 December 31, 1997
------------------------------- -------------------------------- -------------------------------
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 $ 737,322 27.65% 2.48% $ 647,515 27.67% 2.65% $ 659,391 28.79% 2.85%
Interest bearing NOW
accounts 210,525 7.90 1.28 174,003 7.44 1.34 153,842 6.71 1.56
Non-interest bearing
checking 62,508 2.34 -- 50,662 2.16 -- 39,280 1.71 --
Commercial checking accounts 50,252 1.88 -- 42,127 1.80 -- 33,829 1.48 --
---------- ------ ---------- ------ ---------- ------
Total passbook, NOW and
checking accounts 1,060,607 39.77 1.98 914,307 39.07 2.13 886,342 38.69 2.39
---------- ------ ---------- ------ ---------- ------
Money market accounts 158,991 5.96 3.40 134,208 5.74 3.37 130,121 5.68 3.41
Jumbo deposits 32,659 1.22 4.90 17,713 0.76 5.47 22,035 .96 5.47
Certificate accounts with
original maturities of:
91 days or less 50,173 1.88 4.30 33,849 1.45 4.61 23,660 1.03 4.81
6 months 273,997 10.28 4.48 254,200 10.86 5.10 292,638 12.77 5.21
8 months 134,009 5.03 4.74 26,303 1.12 5.00 -- -- --
9 months -- -- -- -- -- -- 1,558 .07 5.19
10 months 71,647 2.69 5.34 100,888 4.31 5.44 5,964 .26 5.64
11 months 61,957 2.32 4.87 -- -- -- -- -- --
---------- ------ ---------- ------ ---------- ------
Total jumbo certificates
of deposits and 7-day
to 11 month certificate
accounts 624,442 23.42 4.68 432,953 18.50 5.15 345,855 15.09 5.21
---------- ------ ---------- ------ ---------- ------
Certificate accounts with
original maturities of:
12 months 158,491 5.95 4.69 170,430 7.28 5.33 211,686 9.24 5.39
13 months -- -- -- -- -- -- 8,914 .39 5.83
15 months 19,959 0.75 4.95 5,639 .24 5.20 -- -- --
18 months 252,819 9.48 5.11 296,749 12.68 5.66 128,695 5.62 5.77
19 months 126 0.00 5.80 82,306 3.52 5.93 176,418 7.70 5.91
24 months 66,329 2.49 4.86 15,542 0.66 5.61 42,685 1.86 5.64
25 months 15,595 0.58 5.45 -- -- -- -- -- --
30 months 104,285 3.91 5.63 78,080 3.34 5.83 103,031 4.50 6.15
35 months 11,130 0.42 5.74 -- -- -- -- -- --
36 months 37,626 1.41 7.74 7,191 0.31 5.46 16,355 .71 5.56
42 months 17,582 0.66 5.58 26,560 1.13 6.13 30,445 1.33 6.15
60 months 104,454 3.92 5.97 130,123 5.56 6.04 143,108 6.25 6.01
61 months to 120 months 34,056 1.28 6.06 46,008 1.97 6.89 67,362 2.94 7.52
---------- ------ ---------- ------ ---------- ------
Total 12-month to
120-month certificate
accounts and other
certificate accounts 822,452 30.85 5.37 858,628 36.69 5.77 928,699 40.54 5.92
---------- ------ ---------- ------ ---------- ------
Total deposits $2,666,492 100.00% 3.74% $2,340,096 100.00% 4.09% $2,291,017 100.00% 4.30%
========== ====== ==== ========== ====== ==== ========== ====== ====
</TABLE>
42
<PAGE>
The net increase in deposits in 1999 is primarily due to $22.2 million
acquired from the branch acquisition, interest credited to deposits, offset by
outflows during the period. In 1998, the increase in deposits is primarily due
to the acquisition of Westco. The following table presents the deposit activity
of the Bank for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1999 1998 1997
------------ ----------- -----------
(In thousands)
<S> <C> <C> <C>
Deposit transactions $ 9,323,669 7,603,609 6,274,978
Withdrawal transactions (9,399,302) (7,636,545) (6,294,936)
----------- ---------- ----------
Net withdrawal transactions (75,633) (32,936) (19,958)
Interest credited on deposits 97,510 90,651 94,873
----------- ---------- ----------
Net transaction activity 21,877 57,715 74,915
Deposits acquired, net 22,195 262,144 --
Amortization of premiums (1,702) -- (128)
----------- ---------- ----------
Net increase in deposits $ 42,370 319,859 74,787
=========== ========== ==========
</TABLE>
The following table presents, by various rate categories, the amount of
certificate accounts outstanding at December 31, 1999, 1998, and 1997, and the
periods to maturity of the certificate accounts outstanding at December 31,
1999:
<TABLE>
<CAPTION>
Period to Maturity December 31, 1999
December 31, -------------------------------------
----------------------------------- Within 1 to 3 Over
1999 1998 1997 One Year Years 3 Years Total
---------- ------------ --------- --------- ------- ------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
Less than 5.00% $ 525,916 425,242 31,286 494,111 21,667 10,138 525,916
5.00% to 5.99% 774,505 823,619 939,265 556,403 182,734 35,368 774,505
6.00% to 6.99% 130,976 167,371 286,476 47,209 73,476 10,291 130,976
7.00% to 7.99% 28,614 24,391 12,048 27,710 783 121 28,614
8.00% and greater 9,331 14,080 28,136 9,331 - - 9,331
---------- --------- --------- --------- ------- ------ ---------
Total $1,469,342 1,454,703 1,297,211 1,134,764 278,660 55,918 1,469,342
========== ========= ========= ========= ======= ====== =========
</TABLE>
At December 31, 1999, the Bank had outstanding $224.8 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 $ 61,674
Over three through six months 55,140
Over six through 12 months 57,978
Over 12 months 49,991
--------
Total $224,783
========
</TABLE>
43
<PAGE>
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 reinvested at a positive rate of return.
A summary of the Company's borrowed funds at December 31, 1999 and 1998 is
as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
--------------------------------------- ----------------------
Weighted Weighted
Interest Rate Average Average
Range Rate Amount Rate Amount
------------- -------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Fixed-rate advances from FHLB due:
Within 1 year 5.63% - 7.91% 6.63% 105,000 6.31% $ 190,000
1 to 2 years 5.07 - 6.84 6.28 390,000 6.63 105,000
2 to 3 years 5.75 - 6.43 6.21 275,000 6.41 165,000
3 to 4 years 5.84 - 6.78 6.35 55,500 5.97 55,000
4 to 5 years 6.48 - 6.61 6.54 65,000 6.39 500
5 to 6 years 4.87 - 6.73 5.57 105,000 -- --
6 to 8 years -- - -- -- -- 5.10 75,000
Greater than 8 years 4.81 - 5.86 5.30 385,000 5.26 285,000
------------ --------- ----------
Total fixed rate advances 4.81 - 7.91 5.98 1,380,500 5.90 875,500
Adjustable-rate advances from FHLB due:
Within 1 year -- - -- -- -- 5.24 50,000
1 to 2 years 6.08 - 6.62 6.35 50,000 -- --
2 to 3 years 6.62 - 6.62 6.62 25,000 5.37 25,000
Greater than 3 years 6.26 - 6.26 6.26 25,000 5.06 25,000
------------ --------- ----------
Total adjustable rate advances 6.08 - 6.62 6.40 100,000 5.23 100,000
------------ --------- ----------
Total advances from FHLB 4.81 - 7.91 6.01 1,480,500 5.83 975,500
============ ========= ==========
Fixed-rate reverse repurchase agreements 5.86 9,963 6.35 20,000
Unsecured term bank loan 7.17 29,900 6.28 33,000
Other borrowing 4.20 6,000 3.35 6,000
--------- ----------
Total borrowed funds 6.02% 1,526,363 5.84% 1,034,500
==== ========= ==== ==========
</TABLE>
Federal Home Loan Bank of Chicago Advances
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
time in accordance with the policies of the FHLB of Chicago. The maximum amount
of FHLB of Chicago advances to a member institution generally is reduced by
secured borrowings from any other source. At December 31, 1999, the Bank's FHLB
of Chicago advances totaled $1.5 billion, representing 31.8% of total assets.
Included in FHLB of Chicago advances at December 31, 1999 are $485.0
million of fixed-rate advances and $25.0 million of adjustable-rate advances
with original scheduled maturities of 2 to 10 years, which are callable at the
discretion of the FHLB of Chicago at periods from 1 to 7 years from the
origination date. The average term to maturity on these advances is 7.8 years,
while the average term to call is 2.7 years. The Bank receives a lower cost of
borrowing on such advances than on similar non-callable long-term advances in
return for granting the FHLB of Chicago the right to call the advances prior to
their final maturity. If called, the FHLB of Chicago will provide replacement
funding at the then prevailing market rate of interest for the remaining term to
maturity of the advances, subject to standard terms and conditions.
44
<PAGE>
Unsecured Term Bank Loan
The Company obtained a $35.0 million unsecured term bank loan in
conjunction with its acquisition of Northwestern. 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, in whole 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. To date, management has not chosen to fix the rate of interest
on this 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. The Company made its scheduled principal payment on the loan
on December 31, 1999 in the amount of $3.1 million and the remaining principal
amount outstanding at December 31, 1999 was $29.9 million. Prepayments of
principal are allowed, but fixed-rate portions, if any, are subject to a
prepayment penalty. In conjunction with the term bank loan, the Company also
maintains a $20.0 million one year unsecured revolving line of credit that
matures annually on April 30. The interest rate on the line of credit is
currently 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. At December 31, 1999, no balance is outstanding on the line of credit.
The financing agreements contain covenants that, among other things, require 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, 1999, the Company was in
compliance with these covenants.
Subordinated Capital Notes. In November 1998, the Company called the entire
balance of its Subordinated Capital Notes. Under the terms of the bond
indenture, the call was made at par plus accrued interest, and resulted in an
extraordinary charge to income of $456,000, or $.02 per diluted share,
representing the after-tax impact of the remaining $750,000 of unamortized
transaction costs, net of income tax benefits of $294,000.
Liquidity and Capital Resources
The Company's principal assets are its investment in the Bank and in MAF
Developments. To the extent that it does not generate significant earnings
outside of these two subsidiaries, the Company's liquidity position is primarily
dependent on dividends from the Bank. To date, excess cash flows at MAF
Developments have primarily been used to fund new real estate projects, and to a
lesser extent the Company's stock buyback program.
The Bank's ability to pay dividends to the Company is dependent on its
ability to generate earnings, and to meet regulatory restrictions. See
"Regulation and Supervision - Limitation on Capital Distributions" for a detail
of these restrictions. The Bank has not been restricted by these limitations in
funding the necessary amounts needed by the Company for its operations. The
Company received $35.0 million in dividends from the Bank in 1999, compared to
$50.0 million in 1998, and $34.5 million in 1997.
The primary uses of funds at the Company consist of principal and interest
payments on borrowed funds, cash dividends, and stock repurchases. The Company
has also funded loans to and investments in MAF Developments from time to time,
although none was made in 1999. To the extent the Company has excess cash at any
time, it will invest funds in investment securities, marketable equity
securities or other interest-earning assets.
45
<PAGE>
During 1999, the Company made total interest payments of $2.4 million on
its unsecured term bank loan (borrowed in conjunction with the acquisition of
Northwestern) and revolving line of credit, as well as a scheduled payment of
principal in the amount of $3.1 million.
During 1999, the Company repurchased 1,543,762 shares for a total of $35.1
million (average price of $22.77), compared to 973,938 shares for a total of
$22.7 million (average price of $23.32 per share) in 1998. The Company has used
stock repurchase programs as a means of providing for future acquisitions, stock
option exercises, and other general corporate purposes.
Cash dividends paid to common shareholders totaled $7.6 million ($.34 per
share declared) in 1999, compared to $5.3 million ($.257 per share declared) in
1998. The increase is primarily due to a 32% increase in the cash dividend rate
in 1999 compared to 1998, as well as additional shares outstanding due to the
acquisition of Westco. The most recent quarterly dividend of $.09 per share was
paid on January 4, 2000. The payment of cash dividends is subject to the
discretion of the Board of Directors and depends on a variety of factors,
including operating results, financial position, and the ability for the Bank to
pay dividends.
The Bank's principal sources of funds are deposits, advances from the FHLB
of Chicago, 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.
Cash flows from operating activities primarily includes net income for the
year, adjusted for items in net income that did not impact cash, as well as cash
flow activity from mortgage banking activity. The Bank originated and purchased
$252.7 million of loans for sale, and received $402.9 million in proceeds from
sales and swaps during 1999. During the year, the Bank transferred $74.4 million
of fixed rate loans receivable to loans held for sale, recorded a nominal lower
of cost adjustment and subsequently sold the loans. The transfer was made for
interest-rate risk and liquidity management purposes. The Bank had $12.6 million
of loans held for sale at December 31, 1999, down from $89.4 million at December
31, 1998. The decrease in loans held for sale is due to rising interest rates
that have led to an increase in adjustable-rate loan originations. Currently,
the Bank is not selling any of its adjustable-rate loan production into the
secondary market.
Cash used in investing activities reflects the impact of loans and
investments acquired for the Bank's interest-earning asset portfolios, as well
as cash flows from asset sales, real estate held for development activity and
the impact of business acquisitions. Cash used in investing activities totaled
$653.1 million in 1999, compared to $324.0 million in 1998. During the current
year, the Bank originated and purchased $1.46 billion of loans for investment,
which were offset by $737.0 million of loan amortization and prepayments.
Additionally, the Bank collected $49.1 million in amortization and prepayments
from mortgage-backed securities, which were primarily reinvested into loans held
for investment purposes. Purchases of investment securities declined in 1999
compared to 1998 as a higher portion of available funds were used to fund
continued strong loan demand. Investments securities purchased by the Company
totaled $100.4 million, financed mainly by maturities and sales of investments
of $99.6 million. Cash flow from the Company's land development operations was
positive, as sales of property of $46.4 million was offset by costs of land
acquisition and development of $15.7 million.
Cash provided from financing activities for Bank operations are primarily
in the form of savings deposits, FHLB of Chicago advances and to a lesser
extent, reverse repurchase agreements. Cash provided from financing activities
totaled $476.1 million in 1999. During the current year, as a means to fund loan
originations held for investment, the Bank borrowed a total of $790.0 million of
FHLB of Chicago advances, which were offset by $285.0 million of maturities.
46
<PAGE>
At December 31, 1999, the Company believes it has sufficient cash to fund
its outstanding commitments, or will be able to obtain the necessary funds from
outside sources to meet its cash needs.
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 4.0% 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 changed from time to time to reflect current
economic conditions. During the year ended December 31, 1999, the Bank's average
liquidity ratio was 7.4%. At December 31, 1999, total liquidity was $212.8
million, or 8.1%, which was $108.2 million in excess of the 4.0% 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.
Impact of Inflation and Changing Prices
The consolidated financial statements and related consolidated information
are prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. Unlike most industrial companies, virtually
all of the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates have a more significant effect on a
financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the price of goods and services.
Subsidiary Activities
MAF Developments and NW Financial. The Company engages in the business of
purchasing unimproved land for development into residential subdivisions of
single family lots through two wholly-owned subsidiaries. MAF Developments is a
wholly-owned subsidiary of the Company, while NW Financial is a wholly-owned
subsidiary of the Bank. The Company has been engaged in this activity since
1974, and since that time has developed and sold over 5,300 lots in 24 different
subdivisions primarily in the western suburbs of Chicago. These subsidiaries act
as sole principal or as a joint venture partner in their developments. The
subsidiaries historically have provided essentially all of the capital for a
joint venture and receive in exchange an ownership interest in the joint venture
which entitles it to a percentage of the profit or loss generated by the
project, 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 Northwestern, 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 two 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. The projects are located in
the north and northwest suburbs of Chicago.
OTS regulations impose restrictions on the Bank's participation in real
estate development activities. See "Regulation and Supervision - Federal Savings
Institution Regulation - Capital Requirements." 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 its existing
projects.
47
<PAGE>
The following is a summary as of December 31, 1999, of the residential real
estate projects 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>
NW Financial:
Woodbridge 2/90 531 -- -- 531 $ 400
531 single-family homes
48-acre commercial parcel
Reigate Woods 10/93 75 3 7 85 2,112
85 single-family homes
MAF Developments:
Tallgrass of Naperville 11/96-1/99 272 226 428 926 11,720
926 residential lots
Creekside of Remington N/A 95 75 -- 170 1,657
170 residential lots
-------
$15,889
=======
</TABLE>
The following table is a summary of the Bank's investment in and advances
to Mid America Investments and NW Financial at the dates indicated:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998 1997
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Common stock $2,486 2,486 1,657
Retained earnings 2,657 8,179 12,285
Intercompany advances 2,787 1,853 1,409
------ ------ ------
$7,930 12,518 15,351
====== ====== ======
</TABLE>
During the years ended December 31, 1999, 1998, and 1997, Mid America
Investments and NW Financial paid aggregate dividends of $9.0 million, $5.5
million, and $1.2 million, respectively, to the Bank. The remaining investment
at December 31, 1999 is a deduction for the Bank in computing its regulatory
capital requirements.
The following is a description of the projects currently under development:
Tallgrass of Naperville
MAF Developments, Inc., with a venture partner who shares in 40% of the
profits, has invested in 447 acres in three separate parcels from 1996 to 1999
for the development of 926 residential lots in Naperville, Illinois. As of
December 31, 1999, the Company's investment was $11.7 million.
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. Each joint venture
partner receives 50% of the profit of the project. Development commenced in late
fiscal 1994 in the first unit that consists of 91 lots. At December 31, 1999,
the Company's investment in Creekside of Remington was $1.7 million. The Company
entered into a sale agreement with a third party for the remaining 75 lots. In
April, 1999, 42 lots were sold with a second sale for the remaining lots
scheduled for April 2000.
48
<PAGE>
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 joint venture partner shares in
50% of the profits. Final lot sales closed during 1999.
Reigate Woods
Reigate Woods consists 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 50% of the profits
of the project. The project is funded solely by funds from NW Financial. The
Company's investment at December 31, 1999 was $2.1 million.
Woodbridge
Woodbridge consists of 341 acres of land in Elgin, Illinois. The project is
being developed with a developer who shares in 50% of the project's profits. The
project includes 232 acres for the construction of 531 single-family homes,
which is complete, and 48 acres of commercially-zoned property. At December 31,
1999, the Company has an investment of $400,000, all related to the remaining 7
acres of unsold commercial property. At December 31, 1999, 3.2 acres are under
contract.
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 varies according to the timing of the cash receipts from the
underlying collateral. The CMOs were accounted for as a financing transaction
and were reflected as borrowed funds in the consolidated financial statements of
the Company.
In the first quarter of 1998, the Bank entered into a transaction to sell
its 100% beneficial interest in the trust that owned the mortgage-backed
securities and issued the CMOs. Because the mortgage-backed securities
collateralizing the CMO bonds had high coupons relative to the current market,
the Bank felt it could mitigate the potential negative impact of higher
prepayments by selling its residual interest. Because of the sale of 100% of the
residual interest in the trust, the Bank has no more ownership in the trust, and
no longer consolidates the assets and liabilities of MAFC. The loss on the sale
totaled $739,000.
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.
During 1998, the Bank sold its 100% residual interest in NWAC via the sale
of the optional redemption rights on the CMO bonds issued by NWAC, which gave
the buyer the right to call the bonds prior to maturity, along with ownership of
the mortgage-backed securities collateralizing the CMO bonds. The Bank
recognized a profit on the sale of the optional redemption rights of $815,000.
Upon the calling of the bonds and the release of the mortgage-backed securities,
NWAC was dissolved.
49
<PAGE>
Mid America Insurance Agency. Mid America Insurance Agency, Inc. ("Mid
America Insurance") is an indirect wholly-owned subsidiary of the Bank which
provides insurance brokerage services, including personal and commercial
insurance products, to the Bank's customers. For the years ended December 31,
1999, 1998 and 1997, Mid America Insurance generated pre-tax income of $75,000,
$60,000, and $77,000, respectively.
Mid America Investments. The Bank, through Mid America Investments, is a
subscriber to INVEST, a registered broker-dealer that 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 16 Bank locations. Revenues are generated from the
sales of securities products in the form of commissions which are apportioned
between INVEST and the Bank. For the years ended December 31, 1999, 1998 and
1997, pre-tax income from INVEST operations was $836,000, $1.0 million, and
$852,000, respectively.
Year 2000 Compliance
During 1999, management completed its process of preparing for the Year
2000 date change. This process included a plan to identify potential problems
with the Company's mainframe computer, its companywide PC-based network, as well
as other operational issues that may have been hindered by system failures due
to the Year 2000 bug. It also included testing and implementation of internal
software, links with third party vendors in the normal course of business, as
well as the development of a contingency plan to address the potential risks in
the event of Year 2000 failures. To date, the Company has successfully managed
the Year 2000 transition without experiencing any significant operational
issues, nor is the Company aware of any significant Year 2000 issues experienced
by borrowers or significant vendors of the Company.
Although the Company feels that the Year 2000 problem is solved, unexpected
problems in the Company's internal systems or third party non-compliance or
service disruptions could still occur despite the Company's efforts to date.
Management continues to monitor all of its business processes in order to
address any Year 2000 computer issues that may arise.
The Company estimates its total cost for Year 2000 compliance was
approximately $500,000, a majority of which was expended in 1999. It currently
expects that the continued cost to address any problems that may arise in 2000
will not be material.
50
<PAGE>
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 (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-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 and no multiple savings and loan holding company
may acquire more than 5% of the voting stock of a company engaged in
impermissible activities.
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; 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 of the
institution on the risk to the insurance funds, the convenience and needs of the
community and competitive factors.
51
<PAGE>
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. 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 $7.9 million investment in Mid
America Investments and NW Financial at December 31, 1999, 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 at least 4% and
8%, respectively.
At December 31, 1999 and 1998, the Bank was in compliance with the current
capital requirements as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------ ------------------------
Percent of Percent of
Amount Assets Amount Assets
---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Stockholder's equity of the Bank $ 354,297 7.64% $ 341,568 8.36%
========== ===== ========== =====
Tangible capital $ 288,177 6.32 $ 266,793 6.67
Tangible capital requirement 68,391 1.50 60,009 1.50
---------- ----- ---------- -----
Excess $ 219,786 4.82 $ 206,784 5.17
========== ===== ========== =====
Core capital 288,177 6.32 266,793 6.67
Core capital requirement 136,782 3.00 120,018 3.00
---------- ----- ---------- -----
Excess $ 151,395 3.32 $ 146,775 3.67
========== ===== ========== =====
Core and supplementary capital $ 305,453 12.32 $ 283,563 13.42
Risk-based capital requirement 198,423 8.00 169,051 8.00
---------- ----- ---------- -----
Excess $ 107,030 4.32 $ 114,512 5.42
========== ===== ========== =====
Total Bank assets $4,634,591 $4,084,110
Adjusted total Bank assets 4,559,397 4,000,600
Total risk-weighted assets 2,555,481 2,196,644
Adjusted total risk-weighted assets 2,480,286 2,113,134
Investment in Bank's real estate subsidiaries 7,930 12,518
Goodwill and core deposit intangibles 61,200 62,219
</TABLE>
52
<PAGE>
The following table reflects the Bank's regulatory capital as of December 31,
1999 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 $354,297 354,297 354,297
Goodwill and core deposit intangibles (61,200) (61,200) (61,200)
Non-permissible subsidiary deduction (7,930) (7,930) (7,930)
Non-includible purchased mortgage servicing rights (733) (733) (733)
Regulatory capital adjustment for available
for sale securities 3,743 3,743 3,743
General allowance for loan losses - - 17,276
-------- ------- -------
Regulatory capital $288,177 288,177 305,453
======== ======= =======
</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 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.
53
<PAGE>
The Deposit Insurance Funds Act of 1996 (the "Funds Act") imposed a special
one-time assessment on SAIF members, including the Bank, to recapitalize the
SAIF. The SAIF was undercapitalized due primarily to a statutory requirement
that SAIF members make payments on bonds issued in the late 1980's by the
Financing Corporation ("FICO") to recapitalize the predecessor to SAIF. The
Funds Act spreads the obligations for payment of the FICO bonds across all SAIF
and BIF members. Beginning on January 1, 1997, BIF deposits were assessed for a
FICO payment of 1.3 basis points, while SAIF deposits paid 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.
As of December 31, 1999, the BIF and SAIF have not been merged.
As a result of the Funds Act and the FDIC Act, the FDIC voted to effectively
lower SAIF assessments to 0 to 27 basis points as of January 1, 1997. The
Bank's assessment rate for the year ended December 31, 1999 was the lowest
available to well-capitalized financial institutions. 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.
Impact of the Gramm-Leach-Bliley Act. On November 12, 1999, President
Clinton signed the Gramm-Leach-Bliley Act (the "GLB Act"), which among other
things, establishes a comprehensive framework to permit affiliations among
commercial banks, insurance companies and securities firms. The GLB Act
restricts the powers of new unitary savings and loan association holding
companies. Unitary savings and loan holding companies in existence or with
applications filed with the OTS on or before May 4, 1999, such as the Company,
retain their authority under the prior law. All other unitary savings and loan
holding companies are limited to financially related activities permissible for
bank holding companies, as defined under the GLB Act. The GLB Act also prohibits
non-financial companies from acquiring grandfathered unitary savings and loan
association holding companies.
The GLB Act also requires financial institutions to disclose, on ATM machines,
any non-customer fees and to disclose to their customers upon the issuance of an
ATM card any fees that may be imposed by the institutions on ATM users. For
older ATMs, financial institutions will have until December 31, 2004 to provide
such notices.
The OTS has recently proposed regulations implementing the privacy protection
provisions of the GLB Act. The proposed regulations would require each
financial institution to adopt procedures to protect customers' and consumers'
"nonpublic personal information." The Company would be required to disclose our
privacy policy, including identifying with whom the Company shares "nonpublic
personal information," to customers at the time of establishing the customer
relationship and annually thereafter. In addition, the Company would be
required to provide our customers with the ability to "opt-out" of having us
share their personal information with unaffiliated third parties. The GLB Act
also provides for the ability of each state to enact legislation that is more
protective of consumers' personal information.
The Company does not believe that the GLB Act will have a material adverse
affect upon its operations in the near term. However, to the extent the GLB Act
permits banks, securities firms and insurance companies to affiliate, the
financial services industry may experience further consolidation. This could
result in a growing number of larger financial institutions that offer a wider
variety of financial services than the Company currently offers and that can
aggressively compete in the markets the Company currently serves.
54
<PAGE>
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,
1999, the Bank's limit on loans to one borrower was $43.2 million. At December
31, 1999, the Bank's largest aggregate outstanding balance of loans to any one
borrower was $17.4 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 either qualify as a
"domestic building and loan association" under the Internal Revenue Code or
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, 1999, the Bank maintained 94.1% 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 regulations provide that an institution (i) which is not
eligible for expedited treatment; or (ii) which its total amount of capital
distributions for a calendar year exceeds its net income for that year to date
plus its retained income for the proceeding two years; or (iii) which would not
be at least adequately capitalized following the distribution; or (iv) which
would violate a prohibition contained in a statute, regulation or agreement
between the institution and the OTS by performing the capital distribution, must
submit an application to the OTS to receive approval of the capital
distribution. Under any other circumstances, the Bank would be required to
provide a written notice to the OTS 30 days prior to the capital distribution.
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 was 4% for 1999 and 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. The Bank's liquidity
ratio at December 31, 1999 was 8.14% 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 were $577,000 in 1999.
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
55
<PAGE>
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 cover a wide range of
violations and may amount to as much as $1 million per day in certain
circumstances. 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, 1999, the Bank was
in compliance with this requirement, with an investment in FHLB of Chicago stock
of $75.0 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.
56
<PAGE>
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 years
ended December 31, 1999, 1998, and 1997, dividends from the FHLB of Chicago to
the Bank amounted to $3.9 million, $2.6 million, and $2.0 million, 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 $44.3 million or less (subject to adjustment
by the Federal Reserve Board) the reserve requirement is 3%; and for accounts
greater than $44.3 million, the reserve requirement is currently $1,179,000 plus
10% (subject to adjustment by the Federal Reserve Board between 8% and 14%)
against that portion of total transaction accounts in excess of $44.3 million,
as the first $5.0 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 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires all derivatives to be recognized as either assets or liabilities in the
statement of financial condition and to be measured at fair value. As issued,
the Statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB No. 133." The Statement is effective upon issuance and it amends
SFAS No. 133 to be effective for all fiscal quarters of fiscal years beginning
after June 30, 2000. The Company does not believe this statement will have a
material impact on its financial position or results of operations.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Asset/Liability Management and GAP Analysis. As part of its normal
operations, the Bank is subject to interest-rate risk on the interest-sensitive
assets it invests in and the interest-sensitive liabilities it borrows. The
Bank's exposure to interest rate risk is reviewed at least quarterly by the
Bank's asset/liability management committee ("ALCO") and the Board of Directors
of the Company. The ALCO, which includes members of senior management, monitors
the rate and sensitivity repricing characteristics of the individual asset and
liability portfolios the Bank maintains and determines risk management
strategies.
The Bank utilizes an interest rate sensitivity gap analysis to monitor the
relationship of maturing or repricing interest-earning assets and interest-
bearing liabilities, while maintaining an acceptable interest rate spread.
Interest rate sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific period of time
and the amount of interest-bearing liabilities maturing or repricing within that
same period of time, and is usually analyzed at a period of one year.
Generally, a negative gap, where more interest-bearing liabilities are repricing
or maturing than interest-earning assets, would tend to result in a reduction in
net interest income in a period of rising interest rates. Conversely, during a
period of falling interest rates, a negative gap would likely result in an
improvement in net interest income. Management's goal is to maintain its
cumulative one-year gap within the range of (15)% to 15%. The gap ratio
fluctuates as a result of market conditions and management's expectation of
future interest rate trends. 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
57
<PAGE>
frequently than fixed-rate mortgage loans, yet provide a positive margin over
the Bank's cost of funds, for its own portfolio. Historically, the Bank has
generally sold its conforming fixed-rate loan originations in the secondary
market in order to maintain its interest rate sensitivity levels. During the
eighteen to twenty-four month period ended June 30, 1999, the Bank had been
retaining the majority of the non-conforming, fixed-rate originations and all of
the prepayment protected fixed-rate loan originations in portfolio for
investment purposes to help utilize the Bank's higher capital base resulting
from the merger with Northwestern. These fixed rate loans were funded with
intermediate to longer-term fixed rate FHLB advances, some of which contained
call options at the discretion of the FHLB of Chicago.
The Bank, except as noted below, has not used derivative financial instruments
such as swaps, caps, floors, options or similar financial instruments to manage
its interest rate risk. However, in conjunction with its origination and sale
strategy discussed above, management does hedge 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.
The table on the next page sets forth the scheduled repricing or maturity of
the Bank's assets and liabilities at December 31, 1999. The table uses
management's assumptions regarding prepayment percentages on loans and mortgage-
backed securities, based on its current experience in these portfolios. The
Bank uses the withdrawal assumptions used by the FHLB of Chicago with respect to
NOW, checking and passbook accounts, which are annual rates of 17.0%, 17.0%,
17.0%, 16.0%, and 33.0%, respectively. Investment securities and FHLB advances
that contain call provisions at the option of the issuer or lender are generally
shown in the category relating to their respective final maturities. Due to
recent increases in market interest rates, $100.0 million of FHLB advances with
final maturities ranging from 16 to 116 months, but callable in calendar 2000
are categorized as $50.0 million due in 6 months or less, and $50.0 million due
between 6 months and 1 year in anticipation of them being called.
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.
Certain shortcomings are inherent in using gap analysis to quantify exposure to
interest rate risk. For example, although certain assets and liabilities may
have similar maturities or repricings in the table, they may react differently
to actual changes in market interest rates. The interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. This is especially true in circumstances where management has a certain
amount of control over interest rates, such as the pricing of deposits.
Additionally, certain assets such as hybrid adjustable-rate mortgage loans have
features that restrict changes in interest rates on a short-term basis and over
the life of the asset. Finally, as interest rates change, loan prepayment rates
will differ from those rates assumed by management in the table.
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<PAGE>
Although management believes that its asset/liability management strategies
mitigate the potential effects of changes in interest rates on the Bank's
operations, material and prolonged increases in interest rates may adversely
affect the Bank's operations because the Bank's interest-bearing liabilities
which mature or reprice within one year are currently greater than the Bank's
interest-earning assets which mature or reprice within the same period.
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------------------------------------------------
less than
1/2 Yr. 1/2 - 1 Yr. 1 - 3 Yrs. 3 - 5 Yrs. 5+ Yrs. Total
----------- ------------ ----------- ----------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 527,599 400,524 1,448,402 305,909 1,219,411 3,901,845
Mortgage-backed securities 73,636 15,664 15,969 12,791 15,894 133,954
Investment securities (1) 146,585 6,696 7,332 39,484 81,032 281,129
Interest-bearing deposits 51,306 - - - - 51,306
Federal funds sold 35,013 - - - - 35,013
---------- -------- --------- -------- --------- ---------
Total interest-earning assets 834,139 422,884 1,471,703 358,184 1,316,337 4,403,247
Impact of hedging activities (2) 12,601 - - - (12,601) -
---------- -------- --------- -------- --------- ---------
Total net interest-earning assets,
adjusted for impact of hedging activities 846,740 422,884 1,471,703 358,184 1,303,736 4,403,247
Interest-bearing liabilities:
NOW and checking accounts 18,916 17,308 63,348 39,350 83,619 222,541
Money market accounts 162,303 - - - - 162,303
Passbook accounts 61,725 56,478 206,711 128,404 272,858 726,176
Certificate accounts 778,161 358,327 277,791 46,096 9,926 1,470,301
FHLB advances 190,000 115,000 615,000 120,500 440,000 1,480,500
Other borrowings and subordinated debt 45,863 - - - - 45,863
---------- -------- --------- -------- --------- ---------
Total interest-bearing liabilities 1,256,968 547,113 1,162,850 334,350 806,403 4,107,684
---------- -------- --------- -------- --------- ---------
Interest sensitivity gap $ (410,228) (124,229) 308,853 23,834 497,333 295,563
========== ======== ========= ======== ========= =========
Cumulative gap $ (410,228) (534,457) (225,604) (201,770) 295,563
========== ======== ========= ======== =========
Cumulative gap as a percentage
of total assets (8.81)% (11.47) (4.84) (4.33) 6.35
Cumulative net interest-earning assets as
a percentage of interest-bearing liabilities 67.36 % 70.38 92.40 93.89 107.20
</TABLE>
(1) Includes $75.0 million of stock in FHLB of Chicago in 6 months or less.
(2) Represents forward commitments to sell long-term fixed-rate mortgage loans.
The Bank's cumulative one-year gap was a negative $534.5 million or (11.47)%,
of total assets, compared with a negative $163.1 million or (4.23)% of total
assets at December 31, 1998. The increase in negative cumulative one-year gap
is due to the impact of estimated slower loan prepayments on the residential
loan portfolio and the assumed call prior to maturity of the $100.0 million of
FHLB advances callable in 2000 as discussed below. The increase in the negative
gap makes the Company increasingly susceptible to declines in net interest
income during a period of rising interest rates. At December 31, 1999, the Bank
has $767.5 million of prepayment protected long-term fixed-rate mortgage loans
in its portfolio, or 19.6% of total loans at an average interest rate of 6.86%.
During a period of rising interest rates, long-term fixed-rate loans (with or
without prepayment penalty clauses) tend to prepay at a slower pace than during
stable or falling interest rates, which does not allow the Bank to reinvest into
higher yielding assets as rates increase. At December 31, 1999, the Bank had
$1.4 billion of fixed-rate FHLB of Chicago advances at a weighted-average rate
of 5.90%, of which $485.0 million with a weighted-average rate of 5.18% contain
call provisions at the discretion of the issuer. The portfolio of fixed-rate
FHLB of Chicago advances has a weighted-average term to maturity of 52 months
compared to a weighted-average term to the earlier of maturity or call of 31
months. At December 31, 1999, the Bank has $100.0 million of fixed-rate FHLB
advances at a weighted average rate of 5.16% callable by the issuer in calendar
2000, $60.0 million of fixed-rate FHLB advances at a weighted average rate of
5.18% callable in calendar 2001 and $75.0 million at a weighted average rate of
4.98% callable in calendar 2002. Call provisions are more likely to be
exercised at the discretion of the issuer during periods of increasing interest
rates, which could require the Bank to refinance these borrowings at higher
interest rates sooner than their respective maturity dates.
59
<PAGE>
Net Portfolio Value Analysis. Under OTS Thrift Bulletin 13a, 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. The Board of Directors has established limits
to changes in Net Portfolio Value ("NPV") and net interest income across a range
of hypothetical interest rate changes. If estimated changes to NPV and net
interest income are not within these limits, the Board may direct management to
adjust its asset/liability mix to bring its interest rate risk within Board
limits.
Interest rate sensitivity analysis is used to measure the Bank's interest rate
risk by calculating the estimated change in the NPV of its cash flows from
interest sensitive assets and liabilities, as well as certain off-balance sheet
items, in the event of a series of sudden and sustained changes in interest
rates ranging from 100 to 300 basis points. Management assumes that a 200 basis
point movement up or down is considered reasonable and plausible for purposes of
reviewing its overall interest-rate risk. NPV is the market value of portfolio
equity and is computed as the difference between the market value of assets and
the market value of liabilities, adjusted for the value of off-balance sheet
items. The table below shows the change in NPV applying various rate shocks to
the Bank's interest-earning assets and interest-bearing liabilities as of
December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Estimated Increase Percentage Increase
Estimated NPV (Decrease) in NPV (Decrease) in NPV
Change in ------------------- -------------------- ---------------------
Interest rate 12/31/99 12/31/98 12/31/99 12/31/98 12/31/99 12/31/98
- ------------------------- --------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
200 basis point rise $ 205,306 272,711 (134,036) (88,007) (39)% (24)
100 basis point rise 278,243 323,955 (61,099) (36,763) (15) (10)
Base scenario 339,342 360,718 - - - -
100 basis point decline 378,980 378,655 39,638 17,936 12 5
200 basis point decline 396,377 382,975 57,035 22,257 17 6
</TABLE>
Primarily as a result of increased long-term interest rates, the Bank's net
portfolio value ("NPV") at December 31, 1999 decreased $21.4 million to $339.3
million from $360.7 million at December 31, 1998. Due to a greater percentage
of the Bank's mortgage loan portfolio being long-term and fixed-rate in nature,
during a period of rising interest rates the Bank's interest-earning assets
would decline in value at a faster pace than fixed-rate interest-bearing
liabilities increase in value. As a result of the rise in rates and change in
market risk during 1999, the Bank discontinued its origination of long-term
prepayment protected fixed-rate mortgage loans for portfolio purposes. The Bank
is emphasizing the origination of hybrid adjustable-rate mortgage loans for
portfolio, which generally earn a lower interest rate than long-term fixed-rate
mortgage loans. It is also attempting to extend maturities on certificate of
deposit accounts and borrowings, both of which would have the impact of reducing
the Company's negative cumulative one-year sensitivity gap.
Interest rate risk is the most significant market risk affecting the Bank.
Other types of market risk, such as foreign currency exchange risk and commodity
price risk, do not arise in the normal course of the Company's business
activities and operations.
60
<PAGE>
Item 8. Financial Statements and Supplementary Data
MAF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
----------- ----------
(In thousands)
<S> <C> <C>
Assets
Cash and due from banks $ 71,721 53,995
Interest-bearing deposits 51,306 24,564
Federal funds sold 35,013 79,140
Investment securities, at amortized cost (fair value of $12,321 and $12,360) 11,999 11,107
Investment securities available for sale, at fair value 194,105 198,960
Stock in Federal Home Loan Bank of Chicago, at cost 75,025 50,878
Mortgage-backed securities, at amortized cost (fair value of $92,095 and
$127,570) 94,251 128,538
Mortgage-backed securities available for sale, at fair value 39,703 55,065
Loans receivable held for sale 12,601 89,406
Loans receivable, net of allowance for loan losses of $17,276 and $16,770 3,871,968 3,229,670
Accrued interest receivable 23,740 21,545
Foreclosed real estate 7,415 8,357
Real estate held for development or sale 15,889 25,134
Premises and equipment, net 42,489 40,724
Other assets 49,640 41,785
Intangible assets, net of accumulated amortization of $10,555 and $6,671 61,200 62,219
---------- ---------
$4,658,065 4,121,087
========== =========
Liabilities and Stockholders' Equity
Liabilities:
Deposits 2,699,242 2,656,872
Borrowed funds 1,526,363 1,034,500
Advances by borrowers for taxes and insurance 34,767 30,576
Accrued expenses and other liabilities 44,772 54,143
---------- ---------
Total liabilities 4,305,144 3,776,091
Stockholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000 shares; none issued
or outstanding - -
Common stock, $.01 par value; 80,000,000 shares authorized; 25,420,650
shares issued; 23,911,508 and 24,984,398 shares outstanding 254 254
Additional paid-in capital 194,874 191,473
Retained earnings, substantially restricted 198,156 159,935
Stock in Gain Deferral Plan; 223,453 shares 511 -
Accumulated other comprehensive income (loss) (3,675) 425
Treasury stock, at cost; 1,732,595 and 436,252 shares (37,199) (7,091)
---------- ---------
Total stockholders' equity 352,921 344,996
Commitments and contingencies $4,658,065 4,121,087
========== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
61
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998 1997
-------- ------- -------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Interest income:
Loans receivable $253,499 212,427 198,877
Mortgage-backed securities 6,625 10,128 16,934
Mortgage-backed securities available for sale 2,808 3,847 5,172
Investment securities 4,837 3,689 5,213
Investment securities available for sale 11,566 9,763 5,143
Interest-bearing deposits and federal funds sold 5,757 7,409 7,648
-------- ------- -------
Total interest income 285,092 247,263 238,987
Interest expense:
Deposits 99,665 95,788 98,581
Borrowed funds and subordinated capital notes 68,736 54,787 46,635
-------- ------- -------
Total interest expense 168,401 150,575 145,216
-------- ------- -------
Net interest income 116,691 96,688 93,771
Provision for loan losses 1,100 800 1,150
-------- ------- -------
Net interest income after provision for loan losses 115,591 95,888 92,621
Non-interest income:
Gain (loss) on sale and writedown of:
Loans receivable 2,448 3,003 419
Mortgage-backed securities 135 201 13
Investment securities 1,776 816 404
Foreclosed real estate (57) 212 17
Income from real estate operations 9,630 4,517 6,876
Deposit account service charges 10,200 8,626 7,217
Loan servicing fee income 1,761 1,400 2,278
Impairment recovery (writedown) of mortgage servicing rights 900 (1,269) -
Brokerage commissions 2,566 2,812 2,050
Other 5,485 5,232 3,371
-------- ------- -------
Total non-interest income 34,844 25,550 22,645
Non-interest expense:
Compensation and benefits 37,845 34,494 30,472
Office occupancy and equipment 7,274 6,645 6,203
Advertising and promotion 3,149 2,281 2,737
Data processing 2,611 2,267 2,098
Federal deposit insurance premiums 1,585 1,438 1,468
Amortization of intangible assets 3,884 2,411 2,637
Other 11,332 9,407 8,996
-------- ------- -------
Total non-interest expense 67,680 58,943 54,611
-------- ------- -------
Income before income taxes and extraordinary item 82,755 62,495 60,655
Income taxes 31,210 23,793 22,707
-------- ------- -------
Income before extraordinary item 51,545 38,702 37,948
Extraordinary item - loss on early extinguishment of debt, net of
tax benefit of $294 - (456) -
-------- ------- -------
Net income $ 51,545 38,246 37,948
======== ======= =======
Basic earnings per share:
Income before extraordinary item $ 2.13 1.72 1.64
Extraordinary item, net of tax - (.02) -
-------- ------- -------
Net income $ 2.13 1.70 1.64
======== ======= =======
Diluted earnings per share:
Income before extraordinary item $ 2.07 1.67 1.59
Extraordinary item, net of tax - (.02) -
-------- ------- -------
Net income $ 2.07 1.65 1.59
======== ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
62
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
other
Additional Gain compre-
Common paid-in Retained Deferral hensive Treasury
stock capital earnings Plan income(loss) stock Total
------ ---------- --------- -------- ------------ --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 112 171,732 95,412 - 138 (16,769) 250,625
Comprehensive income:
Net income - - 37,948 - - - 37,948
Other comprehensive income, net of tax:
Unrealized holding gain during the year - - - - 1,660 - 1,660
Less: reclassification adjustment of
gains included in net income - - - - (246) - (246)
---- ------- ------- --- ------ ------- -------
Total comprehensive income - - 37,948 - 1,414 - 39,362
---- ------- ------- --- ------ ------- -------
Exercise of 116,791 stock options, and
reissuance of treasury stock 1 409 (146) - - (86) 178
Tax benefits from stock-related compensation - 60 - - - - 60
Purchase of 1,184,780 shares of treasury stock - - - - - (22,658) (22,658)
Cash dividends declared, $0.18 per share - - (4,143) - - - (4,143)
50% stock dividend, including impact of
fractional shares 56 - (69) - - - (13)
---- ------- ------- --- ------ ------- -------
Balance at December 31, 1997 $169 172,201 129,002 - 1,552 (39,513) 263,411
---- ------- ------- --- ------ ------- -------
Comprehensive income:
Net income - - 38,246 - - - 38,246
Other comprehensive income, net of tax:
Unrealized holding loss during the year - - - - (668) - (668)
Less: reclassification adjustment of
gains included in net income - - - - (459) - (459)
---- ------- ------- --- ------ ------- -------
Total comprehensive income - - 38,246 - (1,127) - 37,119
---- ------- ------- ---- ------ ------- -------
Issuance of 3,305,129 shares, including value
of stock option carryovers, for acquisition
of Westco Bancorp - 19,120 - - - 53,244 72,364
Exercise of 163,470 stock options, and
reissuance of treasury stock - - (1,462) - - 1,786 324
Tax benefits from stock-related compensation - 152 - - - - 152
Purchase of 973,938 shares of treasury stock - - - - - (22,608) (22,608)
Cash dividends declared, $0.257 per share - - (5,750) - - - (5,750)
50% stock dividend, including impact of
fractional shares 85 - (101) - - - (16)
---- ------- ------- --- ------ ------- -------
Balance at December 31, 1998 $254 191,473 159,935 - 425 (7,091) 344,996
---- ------- ------- --- ------ ------- -------
(Continued)
</TABLE>
63
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(Continued)
<TABLE>
<CAPTION>
Accumulated
other
Additional Gain compre-
Common paid-in Retained Deferral hensive Treasury
stock capital earnings Plan income(loss) stock Total
------ ---------- --------- -------- ------------ --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $254 191,473 159,935 - 425 (7,091) 344,996
Comprehensive income:
Net income - - 51,545 - - - 51,545
Other comprehensive income, net of tax:
Unrealized holding loss during the year - - - - (2,994) - (2,994)
Less: reclassification adjustment of
included in net income - - - - (1,106) - (1,106)
---- ------- ------- --- ------ ------- -------
Total comprehensive income - - 51,545 - (4,100) - 47,445
---- ------- ------- --- ------ ------- -------
Exercise of 525,801 stock options, and
reissuance of treasury stock - - (5,143) 511 - 5,525 893
Tax benefits from stock-related compensation - 1,008 - - - - 1,008
Impact of exercise of acquisition carry-over
options - 2,393 - - - - 2,393
Purchase of 1,565,591 shares of treasury stock - - - - - (35,633) (35,633)
Cash dividends declared, $0.34 per share - - (8,221) - - - (8,221)
Dividends paid to Gain Deferral Plan - - 40 - - - 40
---- ------- ------- --- ------ ------- -------
Balance at December 31, 1999 $254 194,874 198,156 511 (3,675) (37,199) 352,921
==== ======= ======= === ====== ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
64
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1999 1998 1997
------------ --------- ---------
(In thousands)
<S> <C> <C> <C>
Operating activities:
Net income $ 51,545 38,246 37,948
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of premiums, discounts and deferred
loan fees 1,107 2,850 (30)
Provision for loan losses 1,100 800 1,150
Net gain on sale of loans, mortgage-backed
securities, and real estate held for development
or sale (12,213) (7,721) (7,308)
Gain on sale of investment securities, net (1,776) (816) (404)
Impairment (recovery) of mortgage servicing rights (900) 1,269 -
Depreciation and amortization 3,982 3,542 3,117
Amortization of intangible assets 3,884 2,411 2,637
Deferred income tax expense (benefit) 1,505 (318) 2,258
Extraordinary item, net of tax benefit - 456 -
Decrease (increase) in accrued interest receivable (2,195) 296 (513)
Net (increase) decrease in other assets and
liabilities, net of effects from acquisitions (18,841) 8,674 (7,165)
Loans originated for sale (229,424) (432,345) (32,467)
Loans purchased for sale (23,306) (89,238) (74,746)
Sale of mortgage-backed securities available for sale 62,474 26,627 3,371
Sale of loans originated and purchased for sale 340,416 411,826 102,718
----------- -------- --------
Net cash provided by (used in) operating activities 177,358 (33,441) 30,566
----------- -------- --------
Investing activities:
Loans originated for investment (1,138,206) (973,030) (808,759)
Principal repayments on loans receivable 736,956 942,101 706,608
Principal repayments on mortgage-backed securities 49,142 84,956 76,750
Proceeds from maturities of investment securities available
for sale 54,499 138,309 59,070
Proceeds from maturities of investment securities held to
maturity 10,251 15,000 54,518
Proceeds from sale of:
Loans receivable 1,023 1,164 1,354
Investment securities held to maturity - 912 -
Investment securities available for sale 34,825 22,139 8,073
Stock in Federal Home Loan Bank of Chicago - 500 6,299
Real estate held for development or sale 46,352 32,106 47,339
Premises and equipment - 1 174
Purchases of:
Loans receivable held for investment (320,782) (255,789) (178,781)
Investment securities available for sale (89,289) (206,498) (115,175)
Investment securities held to maturity (11,066) (1,717) (6,866)
Mortgage-backed securities available for sale - (12,499) -
Mortgage-backed securities held to maturity - (3,769) -
Stock in Federal Home Loan Bank of Chicago (24,147) (16,250) (8,595)
Real estate held for development or sale (15,724) (13,891) (33,966)
Bank owned life insurance - (20,000) -
Premises and equipment (5,652) (5,947) (6,832)
Proceeds (payment) for acquisitions, net of cash acquired 18,734 (51,883) -
----------- -------- --------
Net cash used in investing activities (653,084) (324,035) (198,789)
----------- -------- --------
(Continued)
</TABLE>
65
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Continued)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998 1997
---------- --------- --------
(In thousands)
<S> <C> <C> <C>
Financing activities:
Proceeds from:
FHLB of Chicago advances $ 790,000 420,000 275,000
Unsecured line of credit 21,000 - -
Repayments of:
FHLB of Chicago advances (285,000) (105,000) (95,000)
Unsecured term bank loan (3,100) (1,500) (500)
Subordinated capital notes - (27,600) -
Unsecured line of credit (21,000) - -
Collateralized mortgage obligations - - (7,700)
Net decrease in reverse repurchase agreements (10,037) (24,804) (35,000)
Net increase in deposits 21,877 57,715 74,915
Increase in advances by borrowers for taxes and insurance 4,191 4,608 4,237
Issuance of common stock in conjunction with acquisitions - 72,713 -
Proceeds from exercise of stock options 893 324 178
Purchase of treasury stock (35,147) (22,924) (22,658)
Cash dividends paid (7,610) (5,275) (4,048)
--------- -------- -------
Net cash provided by financing activities 476,067 368,257 189,424
--------- -------- -------
Increase in cash and cash equivalents 341 10,781 21,201
Cash and cash equivalents at beginning of year 157,699 146,918 125,717
--------- -------- -------
Cash and cash equivalents at end of year $ 158,040 157,699 146,918
========= ======== =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowed funds $ 165,509 149,868 146,102
Income taxes 27,801 21,901 23,535
Summary of non-cash transactions:
Transfer of loans receivable to foreclosed real estate 5,945 3,511 2,937
Loans receivable swapped into mortgage-backed securities 62,583 26,605 3,358
Loans receivable transferred to held for sale 74,379 - -
Stock of acquiree transferred to treasury stock (14,935 shares) - 349 -
Mortgage-backed securities unconsolidated due to sale of
beneficial interests in special purpose finance subsidiaries - 30,904 -
CMO bonds payable unconsolidated due to sale of beneficial
interests in special purpose finance subsidiaries - 31,781 -
Other borrowing assumed in foreclosure - 6,000 -
Treasury stock received for withholding tax liability related to
stock option exercises (21,829 shares) 486 - -
Treasury stock received for stock option exercises (33,100,
19,123 and 14,823 shares) 718 471 262
========= ======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
66
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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 Bank, fsb ("Bank") and MAF Developments, Inc., as well
as the Bank's wholly-owned subsidiaries, Mid America Investment Services, Inc.
("Mid America Investments"), Mid America Finance Corporation ("MAFC"), Mid
America Insurance Agency, Inc., Mid America Mortgage Securities, Inc., NW
Financial, Inc. ("NW Financial"), Northwestern Acceptance Corporation ("NWAC"),
Centre Point Title Services, Inc., MAF Realty III, LLC, and MAF Realty IV, LLC.
All significant intercompany balances and transactions have been eliminated in
consolidation. Certain reclassifications of prior year amounts have been made
to conform with the current year presentation.
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.
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.
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. At December 31, 1999
and 1998, the Bank's reserve requirements were met with vault cash.
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 that 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. Securities that have losses deemed other than
temporary are recognized as losses in the statement of operations and a new cost
basis is determined.
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.
67
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Loans receivable held for sale. The Bank sells, generally without recourse,
whole loans and participation interests in mortgage loans that 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 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.
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 $1.0 million), 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.
There were no impaired loans as of December 31, 1999 or 1998. 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, if the entire
principal balance is considered collectible, 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
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examination. In
68
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
the opinion of management, the allowance, when taken as a whole, is adequate to
absorb losses in the loan portfolio.
Foreclosed Real Estate. Real estate properties acquired through, or in lieu
of, foreclosure are initially recorded at the lower of carrying value or fair
value less the cost to sell at the date of foreclosure, 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 2 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. Goodwill represents the excess of the purchase price over the
fair value of the net identifiable assets acquired in business combinations.
Core deposit intangibles represent the value assigned to the core deposit base
acquired. Each is recognized as a result of the purchase method of accounting
for business combinations. Goodwill is generally amortized over a period not to
exceed 25 years, while core deposit intangibles are amortized on an accelerated
method over a period not to exceed 10 years. Adjustments to goodwill after
acquisition are generally made within one year of acquisition date and are
primarily related to tax adjustments on assets and liabilities assumed in the
acquisition.
The Company reviews long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. The impairment is measured based on the
present value of expected future cash flows from the use of the asset and its
eventual disposition. If expected future cash flows are less than the carrying
amount of the asset, an impairment loss is recognized based on current fair
values.
Mortgage Servicing Rights. SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." provides
guidance for the recognition of mortgage servicing rights as a separate asset,
regardless of how these rights are acquired. SFAS No. 125 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
69
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
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.
Income Taxes. The Company and its direct 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 is not likely
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.
Stock Splits. On April 29, 1998, the Board of Directors of the Company
declared a 3-for-2 stock split in the form of a 50% stock dividend to be
distributed on July 10, 1998 to shareholders of record on June 18, 1998. Shares
distributed totaled 7,525,121 shares. Additionally, on April 30, 1997, the
Board of Directors declared a 3-for-2 stock split in the form a 50% stock
dividend to be distributed on July 9, 1997 to shareholders of record on June 17,
1997. Shares distributed totaled 7,695,605. All per share information has been
adjusted on a retroactive basis to reflect the impact of these stock splits.
Comprehensive Income. Comprehensive income includes net income plus other
comprehensive income. Other comprehensive income includes revenues, expenses,
gains and losses that under generally accepted accounting principles are
included in comprehensive income but excluded from net income. The Company
reports comprehensive income in its statement of changes in stockholders'
equity.
Segments. The Company uses the management approach for determining segment
reporting. Based on the management approach, the Company operates two separate
lines of business, retail banking and land development operations.
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 future common stock and are considered in the earnings
per share calculations, and are the only adjustments made to average shares
outstanding in computing diluted earnings per share. Future common stock is
computed using the treasury stock method.
70
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Weighted average shares used in calculating earnings per share are summarized
below.
<TABLE>
<CAPTION>
Year Ended December 31, 1999 Year Ended December 31, 1998
--------------------------------------------- --------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary item $51,545 $38,702
Extraordinary item, net of tax - (456)
------- -------
Basic earnings per share:
Income available to common
shareholders 51,545 24,253,946 $2.13 38,246 22,433,184 $1.70
===== =====
Effect of dilutive securities-
Stock options 676,667 764,978
---------- ----------
Diluted earnings per share:
Income available to common
shareholders plus assumed
conversions $51,545 24,930,613 $2.07 $38,246 23,198,162 $1.65
======= ========== ===== ======= ========== =====
Year Ended December 31, 1997
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(Dollars in thousands)
Income before extraordinary item $37,948
Extraordinary item, net of tax -
-------
Basic earnings per share:
Income available to
common shareholders 37,948 23,131,729 $1.64
=====
Effect of dilutive securities-
Stock options 766,525
----------
Diluted earnings per share:
Income available to common
shareholders plus assumed
conversions $37,948 23,898,254 $1.59
======= ========== =====
</TABLE>
2. Acquisitions
On September 10, 1999, the Bank purchased a branch office from the Northern
Trust Company, with approximately $22.2 million of deposits. The Company
received primarily cash for the deposits in the transaction. The transaction
was recorded as a purchase, and generated goodwill and a core deposit premium of
$3.1 million.
On December 31, 1998, the Company acquired Westco Bancorp, Inc. ("Westco"),
and its wholly owned subsidiary First Federal Savings and Loan of Westchester
("Westchester"). Under the terms of the merger agreement, all of the
outstanding shares of Westco were exchanged for 1.395 shares of MAF Bancorp
common stock, or a total of 3,305,129 shares. As of December 31, 1998, Westco
and Westchester were merged into the Company and Bank, respectively.
71
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
As of the date of acquisition, Westco had total assets of $312.3 million,
loans receivable of $245.2 million, deposits of $259.5 million, and
stockholders' equity of $46.7 million. The transaction was accounted for as a
purchase, and created goodwill of $31.6 million, and a core deposit intangible
of $1.7 million. Premiums and discounts on the fair value adjustments amounted
to $3.7 million and $2.6 million, respectively. Acquisition expenses incurred
in the transaction include professional fees as well as $4.2 million of
severance costs, net of applicable tax benefits. Westco operated one branch in
Westchester, Illinois, along with a drive-up facility.
On May 30, 1996, the Company acquired N.S. Bancorp, Inc. ("Northwestern"), and
its wholly-owned subsidiary Northwestern Savings Bank, through the issuance of
.8529 shares of MAF Bancorp common stock plus $20.1799 of cash for each share of
Northwestern common stock. The Company issued 11,687,474 shares of its common
stock in the acquisition. The funds used for the purchase were obtained
primarily from cash acquired, and an unsecured long-term bank borrowing for
$35.0 million (See note 13). At May 31, 1996, Northwestern had total assets of
$1.2 billion, loans receivable of $749.7 million, deposits of $872.0 million,
and stockholders' equity of $231.6 million. The transaction was accounted for as
a purchase. The transaction created goodwill of $26.7 million and a core
deposit intangible of $8.8 million. Northwestern operated six branches,
primarily in Chicago, Illinois.
3. Investment Securities
Investment securities available for sale and held to maturity are summarized
below:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------------------- ------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost 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:
After one year to five years $ 9,983 322 - 10,305 - - - -
After five years to ten years - - - - 9,980 1,253 - 11,233
Other investment securities 2,016 - - 2,016 1,127 - - 1,127
-------- --- ------ ------- ------- ----- ------ -------
$ 11,999 322 - 12,321 11,107 1,253 - 12,360
======== === ====== ======= ======= ===== ====== =======
Available for sale:
United States government
and agency obligations due:
Within one year $ 15,004 5 (3) 15,006 43,178 - (4) 43,174
After one year to five years 32,000 16 (858) 31,158 28,682 121 (22) 28,781
After five to ten years 30,000 - (2,371) 27,629 30,000 - (105) 29,895
After ten or more years 5,000 - (175) 4,825 17,315 384 (288) 17,411
Marketable equity securities 10,576 500 (830) 10,246 13,746 1,340 (44) 15,042
Asset-backed securities 107,047 2 (1,808) 105,241 65,127 127 (597) 64,657
-------- --- ------ ------- ------- ----- ------ -------
$199,627 523 (6,045) 194,105 198,048 1,972 (1,060) 198,960
======== === ====== ======= ======= ===== ====== =======
</TABLE>
The table above classifies investment securities by contractual maturities.
Expected maturities may differ from contractual maturities because certain
borrowers have the right to call obligations without penalty.
72
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
As of December 31, 1999 and 1998, the Company recorded unrealized gains
(losses) on investment securities available for sale as increases (decreases) to
stockholders' equity of $(3.3) million and $548,000, respectively, net of
deferred income tax expense (benefit) of $(2.2) million and $364,000.
Additionally, during the year ended December 31, 1998, the Company recognized
losses deemed other than temporary in marketable equity securities available for
sale totaling $375,000.
Activity in the sales of investment securities available for sale is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1999 1998 1997
-------- ----------- -------
(In thousands)
<S> <C> <C> <C>
Total proceeds on sale $34,825 22,139 8,073
======= ====== =====
Gross realized gains 1,789 1,447 404
Gross realized losses (13) (332) -
------- ------ -----
1,776 1,115 404
Losses deemed other than temporary - (375) -
------- ------ -----
Net gain $ 1,776 740 404
======= ====== =====
</TABLE>
4. Mortgage-Backed Securities
Mortgage-backed securities available for sale and held to maturity are
summarized below:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------------------------------- ------------------------------------------
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 pass-through certificates $ 1,115 50 (10) 1,155 1,782 105 - 1,887
FHLMC pass-through certificates 37,804 486 (888) 37,402 53,750 843 (80) 54,513
FNMA pass-through certificates 13,385 158 (362) 13,181 17,421 227 (245) 17,403
Collateralized mortgage obligations 41,947 - (1,590) 40,357 55,585 21 (1,839) 53,767
------- --- ------ ------- ------- ------ ------ -------
$94,251 694 (2,850) 92,095 128,538 1,196 (2,164) 127,570
======= === ====== ======= ======= ====== ====== =======
Available for sale:
FHLMC pass-through certificates $ 2,717 28 (29) 2,716 3,927 50 (1) 3,976
FNMA pass-through certificates 3,640 83 (12) 3,711 5,919 214 - 6,133
Collateralized mortgage obligations 33,896 5 (625) 33,276 45,424 176 (644) 44,956
------- --- ------ ------- ------- ------ ------ -------
$40,253 116 (666) 39,703 55,270 440 (645) 55,065
======= === ====== ======= ======= ====== ====== =======
</TABLE>
As of December 31, 1999 and 1998, the Company recorded unrealized losses on
mortgage-backed securities available for sale as decreases to stockholders'
equity of $333,000, and $124,000, respectively, net of deferred income tax
benefit of $217,000 and $81,000, respectively.
During the years ended December 31, 1999, 1998, and 1997, the Bank swapped
$62.6 million, $26.6 million, and $3.4 million, respectively, of loans it
originated into mortgage-backed securities, all of which were sold in the same
period swapped. Included in mortgage-backed securities at December 31, 1999 and
December 31, 1998, are $1.9 million, and $2.9 million, respectively, of loans
originated by the Bank that were swapped into mortgage-backed securities.
The book value and fair value of mortgage-backed securities held to maturity
by contractual maturity term is shown in the table on the following page.
Expected maturities may differ from contractual maturities because of
prepayments on underlying mortgage loans.
73
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
--------------------------- ----------------------------
Weighted Weighted
Book Fair Average Book Fair Average
Value Value Yield Value Value Yield
------- ------- --------- ------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Adjustable rate $24,940 25,249 7.01% $ 36,566 36,756 7.18%
Fixed rate, 15-year 17,225 16,347 6.17 21,689 21,795 6.12
Fixed rate, 30-year 10,139 10,142 8.16 14,698 15,252 8.31
Collateralized mortgage obligations 41,947 40,357 5.70 55,585 53,767 5.34
------- ------ -------- -------
$94,251 92,095 6.40% $128,538 127,570 6.34%
======= ====== ==== ======== ======= ====
</TABLE>
In 1998, the Bank sold its 100% beneficial interest in its two special-purpose
finance subsidiaries, MAFC and NWAC for net proceeds of $912,000, and recorded a
gain on sale of investment securities of $76,000. The Company no longer
consolidates MAFC and NWAC in its consolidated financial statements, reducing
mortgage-backed securities held to maturity by $30.9 million in 1998. The
Company considered this transaction a permissible sale of held to maturity
securities.
5. Loans Receivable Held For Sale
The Bank classifies loan originations that it intends to sell in the secondary
market as held for sale at the time of origination. At December 31, 1999 and
1998, the Bank had $12.6 million and $89.4 million of fixed-rate loans
classified as held for sale with weighted average rates of 7.65% and 6.79%,
respectively.
6. Loans Receivable
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
---------- ---------
(Dollars in thousands)
<S> <C> <C>
Real estate loans:
One-to-four family residential $3,479,425 2,877,482
Multi-family 164,878 137,254
Commercial 38,817 43,069
Construction 27,707 28,429
Land 28,602 24,765
---------- ---------
Total real estate loans 3,739,429 3,110,999
Other loans:
Consumer loans:
Equity lines of credit 98,483 91,915
Home equity loans 48,397 42,398
Other 5,373 6,015
---------- ---------
Total consumer loans 152,253 140,328
Commercial business loans 3,132 2,356
---------- ---------
Total other loans 155,385 142,684
---------- ---------
3,894,814 3,253,683
Unearned discounts, premiums, and deferred loan expenses, net 6,323 3,455
Loans in process (11,893) (10,698)
Allowance for loan losses (17,276) (16,770)
---------- ---------
$3,871,968 3,229,670
========== =========
</TABLE>
Adjustable-rate loans included in loans receivable totaled $1.9 billion, and
$1.5 billion at December 31, 1999 and 1998, respectively.
74
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Allowance for loan losses. Activity in the allowance for loan losses is
summarized as follows for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $16,770 15,475 17,914
Provision for loan losses 1,100 800 1,150
Balance acquired in acquisition - 846 -
Charge-offs (711) (402) (3,712)
Recoveries 117 51 123
------- ------ ------
Balance at end of year $17,276 16,770 15,475
======= ====== ======
</TABLE>
At December 31, 1999, 1998 and 1997, the Bank had $14.8 million, $12.6
million, and $8.5 million respectively, of loans that were on non-accrual
status. Interest income that would have been recorded on non-accrual loans
amounted to $457,000, $421,000, and $663,000 for the years ended December 31,
1999, 1998 and 1997, respectively, had these loans been accruing under their
contractual terms. Interest income that was included in net income was
$387,000, $229,000, and $120,000, for the years ended December 31, 1999, 1998
and 1997, respectively. There were no loans outstanding as of December 31,
1999 and 1998 that the Bank considered impaired.
Loan servicing and mortgage servicing rights. The Bank services loans for the
benefit of others pursuant to loan servicing agreements. Under 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 $1.23 billion, $1.07 billion, and $997.2
million, at December 31, 1999, 1998, and 1997, respectively. Non-interest
bearing custodial balances maintained in connection with mortgage loans serviced
for others (included in deposits) were $20.0 million, and $22.8 million at
December 31, 1999 and 1998, respectively.
Mortgage servicing rights are included in the statements of financial
condition in other assets. The company capitalizes servicing rights on loan
originations it identifies for sale at the time of origination. During 1998,
steadily declining long-term interest rates had a negative effect on the value
of the Bank's mortgage servicing rights. Actual prepayments in the Bank's loans
serviced for others portfolio were greater than management's initial estimate at
the time of capitalization, requiring the impairment writedown of $1.3 million.
During 1999, prepayments slowed due to rising interest rates and the Bank
recovered $900,000 of the impairment valuation writedown.
Activity in mortgage servicing rights is as follows for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 4,208 2,494 2,028
Additions 3,497 4,291 904
Amortization (1,271) (1,308) (438)
Impairment writedown (1,269)
Impairment recovery 900 - -
------- ------ ------
Balance at end of period $ 7,334 4,208 2,494
======= ====== =====
</TABLE>
75
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
7. Accrued Interest Receivable
Accrued interest receivable is summarized as follows:
December 31,
------------------
1999 1998
-------- --------
(In thousands)
Investment securities $ 3,289 2,695
Mortgage-backed securities 745 1,075
Loans receivable 20,768 18,815
Reserve for uncollected interest (1,062) (1,040)
------- ------
$23,740 21,545
======= ======
8. Foreclosed Real Estate
Foreclosed real estate is summarized as follows:
December 31,
----------------
1999 1998
------- ------
(In thousands)
Residential real estate $1,220 1,736
Commercial real estate 6,195 6,621
------ ------
$7,415 8,357
====== ======
At December 31, 1999, and 1998, foreclosed commercial real estate primarily
consists of a three building commercial office complex. Included in borrowed
funds is a $6.0 million industrial revenue bond obligation that is
collateralized by the office complex, and is assumable by any buyer. In
addition, the Bank maintains a standby letter of credit collateralizing the
industrial revenue bond obligation in the amount of $6.5 million.
9. Real Estate Held for Development or Sale
Real estate held for development or sale is summarized by project as follows:
December 31,
----------------
1999 1998
------- ------
(In thousands)
Tallgrass of Naperville $11,720 17,817
Reigate Woods 2,112 3,419
Creekside of Remington 1,657 1,456
Woodbridge 400 2,436
Harmony Grove - 6
------- ------
$15,889 25,134
======= ======
76
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Income (loss) from real estate operations is summarized by project for the
periods indicated:
Year Ended December 31,
-------------------------
1999 1998 1997
-------- ------- ------
(In thousands)
Tallgrass of Naperville $3,457 114 -
Woodbridge 5,163 153 3,452
Harmony Grove 479 2,851 1,588
Reigate Woods 509 930 610
Ashbury (150) 297 290
Clow Creek Farm - 260 700
Creekside of Remington 172 29 16
Woods of Rivermist - 5 220
Fields of Ambria - (122) -
------ ----- -----
$9,630 4,517 6,876
====== ===== =====
Interest capitalized to real estate held for development or sale amounted to
$536,000, $267,000, and $308,000 for the years ended December 31, 1999, 1998 and
1997, respectively.
10. Premises and Equipment
Premises and equipment are summarized as follows:
December 31,
-------------------
1999 1998
--------- --------
(In thousands)
Land $ 7,865 7,448
Office buildings 32,284 30,300
Furniture, fixtures and equipment 26,912 23,985
Leasehold improvements 1,389 1,382
-------- -------
Total office properties and equipment, at cost 68,450 63,115
Less: accumulated depreciation and amortization (25,961) (22,391)
-------- -------
$ 42,489 40,724
======== =======
Depreciation and amortization of premises and equipment, included in data
processing expense and office occupancy and equipment expense was $4.0 million,
$3.7 million, and $3.1 million, for the years ended December 31, 1999, 1998 and
1997, respectively.
The Bank is obligated under non-cancelable leases primarily for office space.
Rent expense under these leases for the years ended December 31, 1999, 1998 and
1997, was $1.1 million, $1.2 million, and $1.1 million, respectively. The
projected minimum rentals under existing leases (excluding lease escalations) as
of December 31, 1999, are as follows: 2000 - $1.2 million; 2001 - $1.1 million;
2002 - $1.1 million; 2003 - $1.0 million; 2004 - $630,000; 2005 and thereafter
$1.7 million.
77
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
11. Intangible Assets
Intangible assets are summarized as follows:
<TABLE>
<CAPTION>
Core deposit
Goodwill Intangible Total
-------- ---------- --------
(In thousands)
<S> <C> <C> <C>
Balance at December 31, 1996 $26,347 8,020 34,367
Adjustment related to Northwestern acquisition (400) - (400)
Amortization expense (1,341) (1,296) (2,637)
------- ------ ------
Balance at December 31, 1997 24,606 6,724 31,330
Addition related to Westco acquisition 31,598 1,702 33,300
Amortization expense (1,336) (1,075) (2,411)
------- ------ ------
Balance at December 31, 1998 54,868 7,351 62,219
Adjustment related to Westco acquisition (192) - (192)
Addition related to branch acquisition 2,911 146 3,057
Amortization expense (2,648) (1,236) (3,884)
------- ------ ------
Balance at December 31, 1999 $54,939 6,261 61,200
======= ====== ======
12. Deposits
Deposit account balances by interest rate are summarized as follows:
December 31, 1999 December 31, 1998
-------------------------------- ---------------------------------
Weighted Weighted
% of Average % of Average
Amount Total Rate Amount Total Rate
--------- ----- -------- --------- ----- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial checking accounts $ 49,076 1.8% -% 46,118 1.7% -%
Non-interest bearing checking 68,845 2.6 - 60,215 2.3 -
Interest bearing NOW accounts 222,541 8.2 1.27 213,315 8.0 1.34
Money market accounts 162,303 6.0 3.36 155,500 5.9 3.32
Passbook accounts 726,176 26.9 2.49 724,401 27.2 2.51
---------- ---- --------- ---- ----
1,228,941 45.5 2.14 1,199,549 45.1 2.19
---------- ---- --------- ----
Certificate accounts:
Less than 5.00% 525,916 19.5 4.69 425,242 16.1 4.65
5.00% to 5.99% 774,505 28.7 5.46 823,619 31.0 5.45
6.00% to 6.99% 130,976 4.9 6.29 167,371 6.3 6.32
7.00% to 7.99% 28,614 1.1 7.30 24,391 0.9 7.27
8.00% and greater 9,331 0.3 8.25 14,080 0.5 8.33
---------- ---- --------- ----
1,469,342 54.5 5.31 1,454,703 54.8 5.38
---------- ---- --------- ----
Unamortized premium 959 - 2,620 0.1
---------- ---- --------- ----
Total deposits $2,699,242 100.0% 3.87% 2,656,872 100.0% 3.93%
========== ===== ==== ========= ===== ====
</TABLE>
Scheduled maturities of certificate accounts at December 31, 1999 are as
follows (in thousands):
12 months or less $1,134,764
13 to 24 months 194,007
25 to 36 months 84,653
Over 36 months 55,918
----------
$1,469,342
==========
78
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Interest expense on deposit accounts is summarized as follows for the
periods indicated:
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
NOW and money market accounts $ 8,042 6,851 6,834
Passbook accounts 18,268 17,132 18,765
Certificate accounts 73,355 71,805 72,982
------- ------ ------
$99,665 95,788 98,581
======= ====== ======
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was $224.8 million, $195.6 million, and $159.8 million at December 31,
1999, 1998 and 1997, respectively.
At December 31, 1999, U.S. Treasury Notes, FHLMC and FNMA mortgage-backed
securities, as well as mortgage loans with an aggregate carrying value and
market value of $17.2 million, were pledged as collateral for certain jumbo
certificates.
13. Borrowed Funds
Borrowed funds are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------------------- ---------------------
Weighted Weighted
Interest Rate Average Average
Range Rate Amount Rate Amount
------------------- -------- ---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Fixed-rate advances from FHLB due:
Within 1 year 5.63% - 7.91% 6.63% $ 105,000 6.31% $ 190,000
1 to 2 years 5.07 - 6.84 6.28 390,000 6.63 105,000
2 to 3 years 5.75 - 6.43 6.21 275,000 6.41 165,000
3 to 4 years 5.84 - 6.78 6.35 55,500 5.97 55,000
4 to 5 years 6.48 - 6.61 6.54 65,000 6.39 500
5 to 6 years 4.87 - 6.73 5.57 105,000 - -
6 to 8 years - - - - - 5.10 75,000
Greater than 8 years 4.81 - 5.86 5.30 385,000 5.26 285,000
------------ ---- ---------- ------ ----------
Total fixed rate advances 4.81 - 7.91 5.98 1,380,500 5.90 875,500
Adjustable-rate advances from FHLB due:
Within 1 year - - - - - 5.24 50,000
1 to 2 years 6.08 - 6.62 6.35 50,000 - -
2 to 3 years 6.62 - 6.62 6.62 25,000 5.37 25,000
Greater than 3 years 6.26 - 6.26 6.26 25,000 5.06 25,000
------------ ---- ---------- ------ ----------
Total adjustable rate advances 6.08 - 6.62 6.40 100,000 5.23 100,000
------------ ---- ---------- ------ ----------
Total advances from FHLB 4.81 - 7.91 6.01 1,480,500 5.83 975,500
------------ ---------- ------ ----------
Fixed-rate reverse repurchase agreements 5.86 9,963 6.35 20,000
Unsecured term bank loan 7.17 29,900 6.28 33,000
Other borrowing 4.20 6,000 3.35 6,000
---------- ----------
Total borrowed funds 6.02 $1,526,363 5.84% 1,034,500
==== ========== ====== ==========
</TABLE>
79
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Federal Home Loan Bank of Chicago Advances. 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, 1999, adjustable-rate advances adjust as follows: $25.0 million at
the three month London interbank offering rate ("LIBOR") less .14%; $25.0
million at 1 month LIBOR less .29%; and $50.0 million at 1 month LIBOR plus
.07%.
Included in FHLB of Chicago advances at December 31, 1999 are $485.0 million
of fixed-rate advances and $25.0 million of adjustable-rate advances with
original scheduled maturities of 2 to 10 years, which are callable at the
discretion of the FHLB of Chicago at periods from 1 to 7 years from the
origination date. The Bank receives a lower cost of borrowing on such advances
than on similar non-callable long-term advances in return for granting the FHLB
of Chicago the right to call the advances prior to their final maturity.
Reverse Repurchase Agreements. 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:
Year Ended December 31,
------------------------
1999 1998 1997
------- ------ ------
(In thousands)
Balance at end of period $ 9,963 20,000 44,804
Maximum month-end balance 29,700 44,804 79,804
Average balance 17,155 30,750 72,571
Weighted average rate at end of period 5.86% 6.35 6.31
Weighted average rate on average balance 6.20 6.33 6.43
======= ====== ======
At December 31, 1999 and 1998, reverse repurchase agreements were
collateralized by investment and mortgage-backed securities with a carrying
value of $10.0 million and $20.7 million and a market value of $10.0 million and
$20.7 million, respectively. At December 31, 1999, the bank has one reverse
repurchase agreement with a remaining term to maturity of two months.
Unsecured Term Bank Loan. The Company obtained a $35.0 million unsecured term
bank loan in conjunction with its acquisition of Northwestern. 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. At December 31, 1999, the balance of the unsecured term loan
is $29.9 million. 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 $20.0 million one year unsecured revolving line of credit which
is renewable annually on April 30. 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. The
financing agreements contain covenants that, among other things, require 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, 1999, the Company was in
compliance with these covenants.
80
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Scheduled principal repayments of the unsecured term bank loan are as follows
as of December 31, 1999 (in thousands):
December 31, 2000 $ 4,500
December 31, 2001 7,000
December 31, 2002 9,200
December 31, 2003 9,200
-------
$29,900
=======
Other Borrowing. The other borrowing of $6.0 million is an industrial revenue
bond obligation collateralizing a commercial office complex that the Bank
foreclosed on in 1998. The borrowing is remarketed periodically by an
independent broker for a term determined by the owner of the property. In 1999
and 1998, the borrowing was remarketed on a quarterly basis. The borrowing is
assumable by any purchaser of the property.
Interest expense on borrowed funds and subordinated capital notes is
summarized as follows for the periods indicated:
Year Ended December 31,
-----------------------
1999 1998 1997
------- ------ ------
(In thousands)
FHLB of Chicago advances $65,060 47,936 34,086
Collateralized mortgage obligations - 216 3,163
Reverse repurchase agreements 1,055 1,936 4,642
Unsecured term bank loan 2,086 2,306 2,370
Unsecured revolving line of credit 331 - 17
Subordinated capital notes - 2,165 2,357
Other borrowing 204 228 -
------- ------ ------
$68,736 54,787 46,635
======= ====== ======
14. 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 December 31,
--------------------------------
1999 1998 1997
---------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 112,346 7,088 8,676
New forward commitments to deliver loans 310,634 542,807 104,229
Loans delivered to satisfy forward commitments (402,891) (437,549) (105,817)
--------- -------- --------
Balance at end of year $ 20,089 112,346 7,088
========= ======== ========
</TABLE>
81
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
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 on sale of mortgage loans for the year ended
December 31, 1999, 1998 and 1997, are $159,000, $(110,000), and $-0- of net
futures gains (losses), respectively, from hedging activities. At December 31,
1999, the Bank had $12,000 of net deferred gains on futures contracts. At
December 31, 1998, the Bank had $17,000 of net deferred gains on futures
contracts.
The following is a summary of the notional amount of interest rate futures
contract activity for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1999 1998 1997
---------- --------- --------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 1,000 - 1,500
Interest rate futures contracts sold 73,700 59,700 33,700
Interest rate futures contracts closed (74,700) (58,700) (35,200)
-------- ------- -------
Balance at end of year $ - 1,000 -
======== ======= =======
</TABLE>
15. Income Taxes
Total income tax expense was allocated as follows for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1999 1998 1997
---------- --------- --------
(In thousands)
<S> <C> <C> <C>
Income from continuing operations $31,210 23,793 22,707
Extraordinary item - (294) -
Stockholders' equity, for compensation
expense recognized for tax purposes in excess
of amounts for financial reporting purposes (1,008) (152) (60)
Stockholders' equity, for change in unrealized
gain (loss) on available for sale securities (2,680) (734) 916
-------- ------ ------
$ 27,522 22,613 23,563
======== ====== ======
</TABLE>
Retained earnings at December 31, 1999 include $59.4 million of 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 $23.5 million.
Income tax expense (benefit) attributable to income from continuing operations
is summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1999 1998 1997
---------- --------- --------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $26,598 21,057 18,805
State 3,107 3,054 1,644
------- ------ ------
29,705 24,111 20,449
Deferred:
Federal 1,235 (222) 1,979
State 270 (96) 279
------- ------ ------
1,505 (318) 2,258
------- ------ ------
Total income tax expense attributed to
income from continuing operations $31,210 23,793 22,707
======= ====== ======
</TABLE>
82
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
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 December 31,
---------------------------
1999 1998 1997
---- ---- ----
<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 benefit 2.6 2.9 2.0
Other items, net 0.1 0.2 0.4
---- ---- ----
Effective income tax rate 37.7% 38.1 37.4
==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998 are presented below:
<TABLE>
<CAPTION>
December 31,
-------------------
1999 1998
--------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Loan origination fees $ 511 949
Deferred compensation 4,511 4,887
Book general loan loss reserves 6,881 6,402
Book versus tax basis of real estate held for sale 526 219
Book versus tax basis of loans receivable 186 892
Book versus tax basis of securities 2,459 192
Book versus tax basis of deposits 367 1,048
Other 786 605
-------- -------
Total deferred tax assets 16,227 15,194
Deferred tax liabilities:
Loan origination fees (3,204) (2,446)
Excess of tax bad debt reserve over base year amount (1,981) (2,293)
Book versus tax basis of real estate held for sale (15) (584)
Book versus tax basis of land and fixed assets (2,050) (2,044)
Book versus tax basis of capitalized servicing (2,825) (1,534)
Book versus tax basis of intangible assets (2,453) (2,940)
Book versus tax basis of securities (1,018) (1,374)
Other (405) (286)
-------- -------
Total deferred tax liabilities (13,951) (13,501)
-------- -------
Net deferred tax asset $ 2,276 1,693
======== =======
</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
$132 million and $145 million over the past two years, respectively.
83
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
16. Extraordinary item
During the year ended December 31, 1998, the Company called its $27.6
million of 8.32% Subordinated Capital Notes due September 30, 2005. Under the
terms of the bond indenture, the call was made at par plus accrued interest, and
resulted in an extraordinary charge to income of $456,000, or $.02 per diluted
share, representing the after-tax impact of the remaining $750,000 of
unamortized transaction costs, net of income tax benefits of $294,000.
17. 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, 1999, that
the Bank meets all capital adequacy requirements to which it is subject.
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>
Actual For Capital Adequacy Purposes
---------------- --------------------------------------------------------------------
Amount Ratio Amount Ratio
-------- ------ --------------------------------- ------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
As of December 31, 1999:
Tangible capital
(to total assets) $288,177 6.32% greater than or equal to $ 68,391 greater than or equal to 1.50%
Core capital
(to total assets) $288,177 6.32% greater than or equal to $136,782 greater than or equal to 3.00%
Total capital
(to risk-weighted assets) $305,453 12.32% greater than or equal to $198,423 greater than or equal to 8.00%
Core capital
(to risk-weighted assets) $288,177 11.62% N/A
As of December 31, 1998:
Tangible capital
(to total assets) $266,793 6.67% greater than or equal to $ 60,009 greater than or equal to 1.50%
Core capital
(to total assets) $266,793 6.67% greater than or equal to $120,018 greater than or equal to 3.00%
Total capital
(to risk-weighted assets) $283,563 13.42% greater than or equal to $169,051 greater than or equal to 8.00%
Core capital
(to risk-weighted assets) $266,793 12.63% N/A
</TABLE>
<TABLE>
<CAPTION>
To Be Well Capitalized Under Prompt Corrective Action Provisions
--------------------------------------------------------------------
Amount Ratio
--------------------------------- ------------------------------
(Dollars in thousands)
<S> <C> <C>
As of December 31, 1999:
Tangible capital
(to total assets) N/A
Core capital
(to total assets) greater than or equal to $227,970 greater than or equal to 5.00%
Total capital
(to risk-weighted assets) greater than or equal to $248,029 greater than or equal to 10.00%
Core capital
(to risk-weighted assets) greater than or equal to $148,817 greater than or equal to 6.00%
As of December 31, 1998:
Tangible capital
(to total assets) N/A
Core capital
(to total assets) greater than or equal to $200,030 greater than or equal to 5.00%
Total capital
(to risk-weighted assets) greater than or equal to $211,313 greater than or equal to 10.00%
Core capital
(to risk-weighted assets) greater than or equal to $126,788 greater than or equal to 6.00%
</TABLE>
84
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
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 $7.9 million investment in Mid America Investments
and NW Financial at December 31, 1999. OTS regulations provide various
standards under which the Bank may declare and pay dividends to the Company. If
the total amount of all dividends, including the proposed dividend, declared by
the Bank in any calendar year, does not exceed the Bank's net income of that
year to date combined with the retained net income of the preceding two years,
the Bank must file a notice of such proposed dividend with the OTS. At December
31, 1999, $4.2 million of the Bank's retained earnings were available for
dividend declaration under this standard. Proposed capital distributions in
excess of this retained net income standard are not prohibited but are merely
subject to greater regulatory review through an application process.
As of December 31, 1999 and 1998, 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 above. There are no conditions or events since
that notification that management believes have changed the Bank's category.
18. Officer, Director and Employee Benefit Plans
Employee Stock Ownership Plan (ESOP). The Mid America Bank, fsb ESOP covers
substantially all employees with more than one year of employment who have
attained the age of 21. Contributions to the ESOP by the Bank are currently
made to purchase additional common shares of the Company's stock. For the years
ended December 31, 1999, 1998 and 1997, total contributions to the ESOP were
$960,000, $800,000, and $750,000, respectively. The ESOP purchased 42,308,
34,314, and 35,250 of the Company's shares for the years ended December 31,
1999, 1998 and 1997, respectively.
Profit Sharing Plan/401(k) Plan. The Mid America Bank, fsb Profit
Sharing/401(k) Plan allows employees 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. The Bank matches the pre-tax contributions of
employees at a rate equal to 35%, up to a $1,200 maximum matching contribution
per employee. The Bank, at its discretion, may make additional contributions.
Employees' contributions vest immediately while the Bank's contributions vest
gradually based on an employee's years of service. The Bank made discretionary
and matching contributions of $960,000, $800,000, and $700,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
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 and directors of the Bank.
85
<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
2,227,791. 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 December 31,
----------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Beginning of period 1,293,676 $ 7.72 1,195,402 $ 4.15 1,199,770 $ 3.24
Granted 679,325 24.20 232,450 23.65 92,250 15.22
Exercised (384,264) 2.32 (131,176) 3.07 (96,618) 3.42
Cancelled (10,060) 25.11 (3,000) 23.46 - -
--------- --------- ---------
End of period 1,578,677 $16.02 1,293,676 $ 7.72 1,195,402 $ 4.15
========= ====== ========= ====== ========= ======
Options exercisable 878,889 $ 9.94 1,093,172 $ 4.95 1,132,670 $ 3.65
========= ====== ========= ====== ========= ======
Fair value of options
granted during period $ 9.88 $ 9.92 $ 6.33
====== ====== ======
</TABLE>
At December 31, 1999, options for 23,368 shares were available for grant under
the Incentive Plan, which includes additions to the available shares of 53,030,
representing shares surrendered in connection with stock option exercises.
Cancelled shares also increase the number of shares available for grant under
the Incentive Plan.
The number of shares of common stock authorized under the Premium Plan is
556,875. 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 employees. 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 December 31,
---------------------------------------------------------
1999 1998 1997
----------------- ------------------ ------------------
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Beginning of period 416,612 $16.54 383,536 $13.85 338,810 $12.87
Granted 102,747 31.71 63,870 30.81 51,448 20.05
Exercised - - (30,794) 12.62 (6,722) 11.90
------- ------- -------
End of period 519,359 $19.54 416,612 $16.54 383,536 $13.85
======= ====== ======= ====== ======= ======
Options exercisable 519,359 $19.54 409,112 $16.58 332,459 $13.80
======= ====== ======= ====== ======= ======
Fair value of options
granted during period $ 7.96 $ 8.07 $ 5.40
====== ====== ======
</TABLE>
At December 31, 1999, no options were available for grant under the Premium
Plan.
In conjunction with the Company's acquisitions, certain stock options owned by
individuals of the acquired institutions were carried over into stock options of
the Company based on the transactions' exchange ratios. The values of these
stock options were included in the purchase price of the transactions as well as
in additional paid-in capital in the consolidated statements of financial
condition.
86
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
A summary of the activity in these carryover stock options is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Beginning of period 282,603 $ 4.80 15,802 $ 2.13 29,253 $ 2.13
Carryover options issued - - 268,301 4.94 - -
Exercised (141,537) 5.09 (1,500) 2.13 (13,451) 2.13
--------- ------- --------
End of period 141,066 $ 4.51 282,603 $ 4.80 15,802 $ 2.13
========= ====== ======= ====== ======== ========
Options exercisable 141,066 $ 4.51 282,603 $ 4.80 15,802 $ 2.13
========= ====== ======= ====== ======== ========
The following table summarizes information about stock options outstanding at
December 31, 1999:
Options Outstanding Options Exercisable
------------------------------------------------- -----------------------------
Weighted-Average Weighted-Average Weighted-Average
Range of Options Remaining Exercise Options Exercise
Exercise Prices Outstanding Life (yrs.) Price Exercisable Price
- --------------- ----------- ---------------- ---------------- ----------- ----------------
$ 2.13 to $ 4.78 634,235 1.07 $ 3.10 634,235 $ 3.10
6.13 to 19.68 506,088 5.91 13.01 499,124 12.98
20.24 to 35.99 1,098,779 9.07 25.05 405,955 27.27
--------- ---------
2,239,102 6.09 $16.11 1,539,314 $12.68
========= ==== ====== ========= ======
</TABLE>
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>
Year Ended December 31,
-----------------------------------
1999 1998 1997
-------- --------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Net income As reported $51,545 38,246 37,948
Pro-forma 48,881 36,627 37,041
Basic earnings per share As reported 2.13 1.70 1.64
Pro-forma 2.02 1.63 1.60
Diluted earnings per share As reported 2.07 1.65 1.59
Pro-forma 1.97 1.58 1.55
======= ====== ======
</TABLE>
The fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants during the years ended December 31, 1999, 1998, and 1997, respectively:
dividend yield of 1.37%, .84%, and 1.05%; expected volatility of 26.7%, 21.1%,
and 17.9%; risk-free interest rates of 5.51%, 5.80% and 6.72%; expected life of
10 years for each period.
87
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Stock Option Gain Deferral Plan. The MAF Bancorp, Inc. Stock Option Gain
Deferral Plan ("Gain Deferral Plan") was adopted during 1999. The Gain Deferral
Plan combines traditional deferred compensation arrangements with stock option
exercise transactions by allowing designated executive officer participants
(currently two) to defer to a future date, the receipt of shares representing
the value of underlying MAF Bancorp stock options. The Company's obligation to
issue the deferred MAF Bancorp shares in the future is recorded in stockholders'
equity as the product of the number of shares to be issued multiplied by the
exercise price of the related stock options. Dividends paid on MAF Bancorp
shares deferred through the Gain Deferral Plan are recorded as compensation
expense.
Supplemental Executive Retirement Plan. The Bank sponsors 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. In most cases, 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 plan is unfunded, however, the Company funds
life insurance policies that may be used to satisfy obligations of the SERP.
The following table sets forth the change in benefit obligations and the
related assumptions for the SERP for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 1997
------ ------- -------
(In thousands)
<S> <C> <C> <C>
Projected benefit obligation - beginning of period $ 1,298 850 499
Service cost 386 283 241
Interest cost 96 63 40
Actuarial (gains) losses (223) 107 75
Benefits paid (5) (5) (5)
------- ------ ----
Projected benefit obligation - end of period $ 1,552 1,298 850
======= ====== ====
Funded status (1,552) (1,298) (850)
Unrecognized (gain) loss (42) 191 84
------- ------ ----
Prepaid (accrued) benefit cost $(1,594) (1,107) (766)
======= ====== ====
Weighted average assumptions at period end:
Discount rate 8.00% 7.00 7.50
Rate of compensation increase 5.00 5.00 5.00
======= ====== ====
</TABLE>
88
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
The following sets forth the components of the net periodic benefit cost
related to the SERP for the period indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Service cost $386 283 241
Interest cost 96 63 40
Unrecognized net (gain) loss 10 - -
---- --- ---
Net periodic benefit cost $492 346 281
==== === ===
</TABLE>
19. 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 $318.3 million at December 31,
1999, represent amounts which the Bank plans to fund within the normal
commitment period of 30 to 90 days of which $115.6 million were fixed-rate, with
rates ranging from 6.75% to 8.50%, and $202.7 million were adjustable-rate
loans. Because 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, 1999, forward commitments to sell
mortgage loans for future delivery were $20.1 million, of which $12.6 million
are related to loans held for sale, and $7.5 million are unfunded as of December
31, 1999.
Additionally, the Bank has approved, but unused, home equity lines of credit
of $108.4 million at December 31, 1999. 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, 1999, the Bank had standby letters of credit totaling $15.7
million. Two of these standby letters of credit total $13.3 million, and
enhance a developer's industrial revenue bond financings of commercial real
estate in the Bank's market. One of these, in the amount of $6.5 million, is
related to a foreclosed real estate parcel. At December 31, 1999, the Bank had
pledged mortgage-backed securities and investment securities with an aggregate
carrying value and market value of $21.5 million and $23.2 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 credit creates a first position
lien in favor of the Bank. Additionally, at
89
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
December 31, 1999, the Company had standby letters of credit totaling $10.5
million, which ensure 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.
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. The Bank's loan portfolio
primarily consists of loans within its market area. At December 31, 1999 and
1998, loans representing 94.6% and 92.6%, respectively, of the Bank's total
loans receivable were located in the State of Illinois.
20. Parent Company Only Financial Information
The information as of December 31, 1999, and 1998, and for the years ended
December 31, 1999, 1998, and 1997, presented below should be read in conjunction
with the other Notes to Consolidated Financial Statements.
December 31,
------------------
Condensed Statements of Financial Condition 1999 1998
-------- -------
(In thousands)
Assets:
Cash and cash equivalents $ 4,137 13,762
Investment securities 8,205 12,462
Equity in net assets of subsidiaries 365,056 350,056
Other assets 11,180 16,876
-------- -------
$388,578 393,156
======== =======
Liabilities and Stockholders' Equity:
Liabilities:
Unsecured term bank loan 29,900 33,000
Accrued expenses 5,757 15,160
-------- -------
Total liabilities 35,657 48,160
-------- -------
Stockholders' equity:
Common stock 254 254
Additional paid-in capital 194,874 191,473
Retained earnings, substantially restricted 198,156 159,935
Stock in Gain Deferral Plan 511 -
Accumulated other comprehensive income (loss) (3,675) 425
Treasury stock (37,199) (7,091)
-------- -------
Total stockholders' equity 352,921 344,996
-------- -------
$388,578 393,156
======== =======
90
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
Year Ended December 31,
-----------------------------------
Condensed Statements of Operations 1999 1998 1997
-------- -------- -------
(In thousands)
Dividend income from the Bank $ 35,000 50,000 34,500
Interest income 1,360 1,874 1,795
Interest expense 2,436 4,493 4,766
-------- ------- -------
Net interest and dividend income 33,924 47,381 31,529
Gain on sale of investments, net 1,330 740 404
Non-interest expense 1,872 1,917 1,931
Extraordinary item, net of tax benefit - (456) -
-------- ------- -------
Net income before income tax benefit
and other adjustments 33,382 45,748 30,002
Income tax benefit (743) (1,615) (1,872)
-------- ------- -------
Net income before other adjustments 34,125 47,363 31,874
Dividend income in excess of equity in
subsidiaries - (10,865) -
Equity in undistributed earnings of
subsidiaries 17,420 1,748 6,074
-------- ------- -------
Net income $ 51,545 38,246 37,948
======== ======= =======
Year Ended December 31,
-----------------------------------
Condensed Statements of Cash Flows 1999 1998 1997
-------- -------- -------
(In thousands)
Operating activities:
Net income $ 51,545 38,246 37,948
Equity in undistributed earnings of
subsidiaries (17,420) (1,748) (6,074)
Dividend income in excess of equity
in subsidiaries - 10,865 -
Extraordinary item, net of tax benefit - 456 -
Gain on sale of investment securities (1,330) (740) (404)
Amortization of premiums and discounts - 71 78
Net decrease (increase) in other
assets and liabilities, net of effects
from acquisitions (1,816) 13,946 (6,052)
-------- ------- -------
Net cash provided by operating
activities 30,979 61,096 25,496
Investing activities:
Proceeds from sale of investment
securities 7,036 12,146 3,073
Proceeds from maturity of investment
securities - 500 559
Purchases of investment securities (2,676) (13,769) (6,157)
Payment for acquisitions, net of cash
acquired - (76,959) -
-------- ------- -------
Net cash provided by (used in)
investing activities 4,360 (78,082) (2,525)
Financing activities:
Proceeds from issuance of common stock - 72,713 -
Proceeds from exercise of stock options 893 324 178
Proceeds from borrowings 21,000 - -
Repayment of borrowings (24,100) (29,100) (500)
Purchases of treasury stock (35,147) (22,924) (22,658)
Cash dividends paid (7,610) (5,275) (4,048)
-------- ------- -------
Net cash provided by (used in)
financing activities (44,964) 15,738 (27,028)
-------- ------- -------
Decrease in cash and cash equivalents (9,625) (1,248) (4,057)
Cash and cash equivalents at beginning
of year 13,762 15,010 19,067
-------- ------- -------
Cash and cash equivalents at end of
year $ 4,137 13,762 15,010
======== ======= =======
91
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
21. Segment Information
The Company utilizes the "management approach" for segment reporting. This
approach is based on the way that a chief decision maker for the Company
organizes segments for making operating decisions and assessing performance.
The Company operates two separate lines of business. The Bank operates
primarily as a retail consumer bank, participating in mortgage loan portfolio
lending, deposit gathering and offering other financial services mainly to
individuals. Land development consists primarily of developing raw land for
residential use and sale to builders. Selected segment information is included
in the table below:
<TABLE>
<CAPTION>
Year Ended December 31, 1999
----------------------------------------------------------
Retail Land Consolidated
Banking Development Eliminations Total
----------- --------------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Interest income $ 286,457 - (1,365) 285,092
Interest expense 168,401 1,365 (1,365) 168,401
---------- ------ ------ ------------
Net interest income 118,056 (1,365) - 116,691
Provision for loan losses 1,100 - - 1,100
---------- ------ ------ ------------
Net interest income after provision 116,956 (1,365) - 115,591
Non-interest income 25,214 9,630 - 34,844
Non-interest expense 66,885 795 - 67,680
---------- ------ ------ ------------
Income before income taxes 75,285 7,470 - 82,755
Income tax expense 28,247 2,963 - 31,210
---------- ------ ------ ------------
Net income $ 47,038 4,507 - 51,545
========== ====== ====== ============
Average assets $4,259,190 24,501 - 4,283,691
========== ====== ====== ============
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------------------------------------
Retail Land Consolidated
Banking Development Eliminations Total
----------- --------------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Interest income $ 249,142 - (2,046) 247,096
Interest expense 150,575 2,046 (2,046) 150,575
---------- ------ ------ ------------
Net interest income 98,567 (2,046) - 96,521
Provision for loan losses 800 - - 800
---------- ------ ------ ------------
Net interest income after provision 97,767 (2,046) - 95,721
Non-interest income 21,200 4,517 - 25,717
Non-interest expense 58,386 557 - 58,943
---------- ------ ------ ------------
Income before income taxes 60,581 1,914 - 62,495
Income tax expense 23,034 759 - 23,793
Extraordinary item, net of tax (456) - - (456)
---------- ------ ------ ------------
Net income $ 37,091 1,155 - 38,246
========== ====== ====== ============
Average assets $3,541,341 28,174 - 3,569,515
========== ====== ====== ============
</TABLE>
92
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-----------------------------------------------------
Retail Land Consolidated
Banking Development Eliminations Total
---------- ------------ ------------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Interest income $ 242,013 - (3,098) 238,915
Interest expense 145,216 3,098 (3,098) 145,216
---------- ------ ------ ------------
Net interest income 96,797 (3,098) - 93,699
Provision for loan losses 1,150 - - 1,150
---------- ------ ------ ------------
Net interest income after provision 95,647 (3,098) - 92,549
Non-interest income 15,841 6,876 - 22,717
Non-interest expense 54,106 505 - 54,611
---------- ------ ------ ------------
Income before income taxes 57,382 3,273 - 60,655
Income tax expense 21,409 1,298 - 22,707
---------- ------ ------ ------------
Net income $ 35,973 1,975 - 37,948
========== ====== ====== ============
Average assets $3,281,685 34,979 - 3,316,664
========== ====== ====== ============
</TABLE>
22. 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 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, 1999 and 1998 are set forth in the following table below.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 158,040 158,040 157,699 157,699
Investment securities 281,129 281,451 260,945 262,198
Mortgage-backed securities 133,954 131,798 183,603 182,635
Loans receivable 3,884,569 3,821,782 3,319,076 3,392,834
Interest receivable 23,740 23,740 21,545 21,545
---------- --------- --------- ---------
Total financial assets $4,481,432 4,416,811 3,942,868 4,016,911
========== ========= ========= =========
Financial liabilities:
Non-maturity deposits $1,228,941 1,228,941 1,199,549 1,199,549
Deposits with stated maturities 1,470,301 1,470,134 1,457,323 1,465,778
Borrowed funds 1,526,363 1,500,602 1,034,500 1,063,521
Interest payable 7,653 7,653 4,792 4,792
---------- --------- --------- ---------
Total financial liabilities $4,233,258 4,207,330 3,696,164 3,733,640
========== ========= ========= =========
</TABLE>
93
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)
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.
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.
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, 1999 and 1998, the fair
value of the Bank's mortgage loan commitments of $318.3 million and $332.0
million, respectively, was $(2.3) million and $471,000, 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, 1999 and 1998.
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, 1999 and
1998, the estimated fair value of the Bank's purchased mortgage servicing rights
of $7.3 million and $4.2 million, was $7.3 million, and $4.2 million,
respectively. In addition, the estimated value of the mortgage servicing rights
related to the remaining loans serviced for others totaling $380.5 million and
$546.0 million as of December 31, 1999 and 1998, respectively, for which there
is no recorded balance, was $3.7 million and $4.7 million, respectively.
94
<PAGE>
MAF Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (End)
23. Selected Quarterly Financial Data (Unaudited)
The following are the consolidated results of operations on a quarterly basis:
<TABLE>
<CAPTION>
Year Ended December 31, 1999
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income $67,398 68,811 72,243 76,640
Interest expense 39,035 39,852 42,798 46,716
------- ------ ------ ------
Net interest income 28,363 28,959 29,445 29,924
Provision for loan losses 250 250 300 300
------- ------ ------ ------
Net interest income after provision for loan losses 28,113 28,709 29,145 29,624
Net gain on sale of assets 2,010 522 717 1,053
Income from real estate operations 621 3,917 2,478 2,614
Other income 4,725 5,282 5,424 5,481
Non-interest expense 16,180 16,524 17,217 17,759
------- ------ ------ ------
Income before income taxes 19,289 21,906 20,547 21,013
Income tax expense 7,610 8,667 7,671 7,262
------- ------ ------ ------
Net income $11,679 13,239 12,876 13,751
======= ====== ====== ======
Diluted earnings per share $ .46 .53 .52 .56
======= ====== ====== ======
Cash dividends declared per share $ .07 .09 .09 .09
======= ====== ====== ======
Stock price information:
High $ 27.50 25.13 24.31 23.69
Low 21.75 21.50 18.88 19.88
Close 22.25 24.25 19.88 20.94
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Interest income $61,288 61,813 62,114 61,881
Interest expense 37,295 37,605 37,968 37,707
------- ------ ------ ------
Net interest income 23,993 24,208 24,146 24,174
Provision for loan losses 200 200 200 200
------- ------ ------ ------
Net interest income after provision for loan losses 23,793 24,008 23,946 23,974
Net gain on sale of assets 839 1,021 1,167 1,224
Income from real estate operations 801 1,298 1,755 663
Other income 3,806 4,538 4,073 4,532
Non-interest expense 14,417 14,886 14,952 14,688
------- ------ ------ ------
Income before income taxes 14,822 15,979 15,989 15,705
Income tax expense 5,655 6,199 6,128 5,811
Extraordinary item, net of tax - - - (456)
------- ------ ------ ------
Net income $ 9,167 9,780 9,861 9,438
======= ====== ====== ======
Diluted earnings per share before extraordinary item $ .39 .42 .42 .43
Extraordinary item, net of tax - - - (.02)
------- ------ ------ ------
Diluted earnings per share .39 .42 .42 .41
======= ====== ====== ======
Cash dividends declared per share $ .047 .07 .07 .07
======= ====== ====== ======
Stock price information:
High $ 26.33 29.25 25.00 26.94
Low 21.67 23.88 18.75 19.13
Close 25.38 24.25 23.50 26.50
======= ====== ====== ======
</TABLE>
95
<PAGE>
EXHIBIT 23.1
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, 1999 and
1998, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
KPMG LLP
Chicago, Illinois
January 26, 2000
<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, 1999
and 1998.
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997.
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997.
<PAGE>
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(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.
(ii) By-laws of Registrant, as amended. (Incorporated herein by
reference to Exhibit No. 3 to Registrant's June 30, 1990
Form 10-K).
Exhibit No. 10. Material Contracts
(i) Mid America Bank, fsb 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).*
(ii) MAF Bancorp, Inc. 1990 Incentive Stock Option Plan, as
amended. (Incorporated herein by reference to Exhibit No. 10
to Registrant's June 30, 1999 Form 10-Q and to Exhibit A to
Registrant's Proxy Statement, dated March 23, 1998, relating
to the 1998 Annual Meeting of Shareholders, File No. 0-
18121).*
(iii) MAF Bancorp, Inc. 1993 Amended and Restated Premium Price
Stock Option Plan. (Incorporated herein by reference to
Exhibit No. 10 to Registrant's June 30, 1999 Form 10-Q and to
Exhibit No. 10 to Registrant's December 31, 1998 Form 10-K).*
(iv) Credit Agreement dated as of May 22, 1996, as amended through
April 3, 1998, between MAF Bancorp, Inc. and Harris Trust and
Savings Bank. (Incorporated herein by reference to Exhibit No.
10 to Registrant's December 31, 1998 Form 10-K).
(v) Amendment dated April 19, 1999, of the Credit Agreement dated
as of May 22, 1996, as amended, between MAF Bancorp, Inc. and
Harris Trust and Savings Bank.
(vi) 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).*
(vii) Mid America Bank, fsb Directors' Deferred Compensation Plan.
(Incorporated herein by reference to Exhibit No. 10 to
Registrant's December 31, 1997 Form 10-K).*
(viii) Mid America Bank, fsb Executive Deferred Compensation Plan.
(Incorporated herein by reference to Exhibit No. 10 to
Registrant's December 31, 1997 Form 10-K).*
<PAGE>
(ix) MAF Bancorp, Inc. Executive Annual Incentive Plan.
(Incorporated herein by reference to Exhibit No. 10 to
Registrant's June 30, 1994 Form 10-K).*
(x) MAF Bancorp, Inc. Shareholder Value Long-Term Incentive Plan,
as amended.*
(xi) Mid America Bank, fsb Supplemental Executive Retirement Plan,
as amended. (Incorporated herein by reference to Exhibit
No. 10 to Registrant's December 31, 1998 Form 10-K).*
(xii) Form of Employment Agreement, as amended, between MAF Bancorp,
Inc. and Allen Koranda, Kenneth Koranda and Jerry Weberling.*
(xiii) Form of Employment Agreement, as amended, between Mid America
Bank, fsb and Allen Koranda, Kenneth Koranda and Jerry
Weberling.*
(xiv) Employment Agreement, as amended, between David C. Burba and
MAF Bancorp, Inc.*
(xv) Form of Special Termination Agreement, as amended, between MAF
Bancorp, Inc., and Kenneth Rusdal and various officers.*
(xvi) Form of Special Termination Agreement, as amended, between Mid
America Bank, fsb, and Kenneth Rusdal and various officers.*
(xvii) Agreement Regarding Post-Employment Restrictive Covenants
between MAF Bancorp, Inc., Mid America Bank, fsb and David C.
Burba. (Incorporated herein by reference to Exhibit No. 10 to
Registrant's December 31, 1998 Form 10-K). *
(xviii) Form of Agreement Regarding Post-Employment Restrictive
Covenants between MAF Bancorp, Inc., Mid America Bank, fsb and
Richard A. Brechlin and Gregg P. Goossens. (Incorporated
herein by reference to Exhibit No. 10 to Registrant's
December 31, 1998 Form 10-K).
(xix) 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).*
(xx) Westco Bancorp, Inc. 1992 Incentive Stock Option Plan, as
amended (Incorporated by reference to the Post-Effective
Amendment No. 1 to Form S-8 Registration Statement filed by
Westco Bancorp, Inc. with the Commission on March 17, 1995,
Registration Statement No. 33-54764 and to Exhibit 99.2 to the
Registrant's Post-Effective Amendment No. 1 on Form S-8 to
Form S-4, Registration Statement No. 333-66693).*
(xxi) MAF Bancorp, Inc. Stock Option Gain Deferral Plan
(Incorporated herein by reference to Exhibit No. 10 to
Registrant's June 30, 1999 Form 10-Q).*
(xxii) MAF Bancorp, Inc. Stock Option Gain Deferral Plan Trust
Agreement (Incorporated herein by reference to Exhibit No. 10
to Registrant's September 30, 1999 Form 10-Q).*
- ----------------
* Indicates management contracts or compensatory plans or arrangements required
to be filed as an exhibit
<PAGE>
Exhibit No. 11. Statement re: Computation of Per Share Earnings for
the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Net income $51,545,000 38,246,000 37,948,000
=========== ========== ==========
Weighted average common shares outstanding 24,253,946 22,433,184 23,131,729
=========== ========== ==========
Basic earnings per share $ 2.13 1.70 1.64
=========== ========== ==========
Weighted average common shares outstanding 24,253,946 22,433,184 23,131,729
Common stock equivalents due to dilutive
effect on stock options 676,667 764,978 766,525
----------- ---------- ----------
Total weighted average common shares
and equivalents outstanding for
diluted computation 24,930,613 23,198,162 23,898,254
=========== ========== ==========
Diluted earnings per share $ 2.07 1.65 1.59
=========== ========== ==========
</TABLE>
Exhibit No. 12. Statements re: Computation of ratio of earnings to
fixed charges.
Exhibit No. 21. Subsidiaries of the Registrant
A list of the Company's and Mid America Bank's subsidiaries is
included as an exhibit to this report.
Exhibit No. 23. Consent of KPMG LLP
Exhibit No. 24. Power of Attorney (Included on Signature Page)
Exhibit No. 27. Financial Data Schedule
(b) Reports on Form 8-K
On October 27, 1999, MAF Bancorp, Inc. filed the announcement of its
1999 third quarter earnings results.
<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)
By: /s/ Allen H. Koranda
-------------------------
Allen H. Koranda
Chairman of the Board and
Chief Executive Officer
March 1, 2000
-------------------------
(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.
By: /s/ Allen H. Koranda March 1, 2000
------------------------------ -----------------
Allen H. Koranda (Date)
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Jerry A. Weberling March 1, 2000
------------------------------ ------------------
Jerry A. Weberling (Date)
Executive Vice President and
Chief Financial Officer and Director
(Principal Financial Officer)
By: /s/ Gerard J. Buccino March 1, 2000
------------------------------ ------------------
Gerard J. Buccino (Date)
Senior Vice President
and Controller
(Principal Accounting Officer)
<PAGE>
By: /s/ Robert Bowles, M.D. March 1, 2000
------------------------------ ------------------
Robert Bowles, M.D. (Date)
Director
By: /s/ David C. Burba March 1, 2000
------------------------------ ------------------
David C. Burba (Date)
Director
By: /s/ Terry Ekl March 1, 2000
------------------------------ ------------------
Terry Ekl (Date)
Director
By: /s/ Joe F. Hanauer March 1, 2000
------------------------------ ------------------
Joe F. Hanauer (Date)
Director
By: /s/ Kenneth Koranda March 1, 2000
------------------------------ ------------------
Kenneth Koranda (Date)
Director
By: /s/ Henry Smogolski March 1, 2000
------------------------------ -------------------
Henry Smogolski (Date)
Director
By: /s/ F. William Trescott March 1, 2000
------------------------------ -------------------
F. William Trescott (Date)
Director
By: /s/ Lois B. Vasto March 1, 2000
------------------------------ -------------------
Lois B. Vasto (Date)
Director
By: /s/ Andrew J. Zych March 1, 2000
------------------------------ -------------------
Andrew J. Zych (Date)
Director
<PAGE>
EXHIBIT INDEX
Exhibit 3 (i) Certificate of Incorporation, as amended.
Exhibit 10(v) Amendment dated April 19, 1999, of the Credit Agreement dated
as of May 22, 1996, as amended, between MAF Bancorp, Inc. and
Harris Trust and Savings Bank.
Exhibit 10(x) MAF Bancorp, Inc. Shareholder Value Long-Term Incentive Plan,
as amended.
Exhibit 10(xii) Form of Employment Agreement, as amended, between MAF Bancorp,
Inc. and Allen Koranda, Kenneth Koranda and Jerry Weberling.
Exhibit 10(xiii) Form of Employment Agreement, as amended, between Mid America
Bank, fsb and Allen Koranda, Kenneth Koranda and Jerry
Weberling.
Exhibit 10(xiv) Employment Agreement, as amended, between David C. Burba and
MAF Bancorp, Inc.
Exhibit 10(xv) Form of Special Termination Agreement, as amended, between MAF
Bancorp, Inc., and Kenneth Rusdal and various officers.
Exhibit 10(xvi) Form of Special Termination Agreement, as amended, between Mid
America Bank, fsb, and Kenneth Rusdal and various officers.
Exhibit No. 11 Statement re: Computation of Per Share Earnings for the years
ended December 31, 1999, 1998 and 1997.
Exhibit No. 12 Statements re: Computation of ratio of earnings to fixed
charges.
Exhibit No. 21 Subsidiaries of the Registrant
Exhibit No. 23 Consent of KPMG LLP
Exhibit No. 24 Power of Attorney (Included on Signature Page)
Exhibit No. 27 Financial Data Schedule
<PAGE>
Exhibit 3(i) - Certificate of Incorporation, as amended
<PAGE>
Exhibit No. 3(i)
CERTIFICATE OF INCORPORATION
OF
MAF BANCORP, INC.
<PAGE>
FIRST: The name of the Corporation is MAF Bancorp, Inc. (hereinafter
-----
sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
------
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
-----
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH:
------
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is fifteen million (15,000,000)
consisting of:
(a) five million (5,000,000) shares of Preferred Stock, par value
one cent ($.01) per share (the "Preferred Stock"); and
(b) ten million (10,000,000) shares of Common Stock, par value one
cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred Stock
in series, and by filing a certificate pursuant to the applicable law of the
State of Delaware (such certificate being hereinafter referred to as a
"Preferred Stock Designation"), to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock, without
a vote of the holders of the Preferred Stock, or of any series thereof, unless a
vote of any such holders is required pursuant to the terms of any Preferred
Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any outstanding Common
Stock which is beneficially owned, directly or indirectly, by a person who, as
of any record date for the determination of stockholders entitled to vote on any
matter, beneficially owns in excess of 10% of the then-outstanding shares of
Common Stock (the "Limit"), be entitled, or permitted to any vote in respect of
the shares held in excess of the Limit. The number of votes which may be cast
by any record owner by virtue of the provisions hereof in respect of Common
Stock beneficially owned by such person owning shares in excess of the Limit
shall be a number equal to the total number of votes which a single record owner
of all Common Stock owned by such person would be entitled to cast, multiplied
by a fraction, the numerator of which is the number of shares of such class or
series beneficially owned by such person and owned of record by such record
owner and the denominator of which is the total number of shares of Common Stock
beneficially owned by such person owning shares in excess of the Limit.
2
<PAGE>
The following definitions shall apply to this Section C of this Article
FOURTH:
(a) An "affiliate" of a specified person shall mean a person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person specified.
(b) "Beneficial ownership" shall be determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934 (or any successor rule or statutory provision), or, if said
Rule 13d-3 shall be rescinded and there shall be no successor rule or
statutory provision thereto, pursuant to said Rule 13d-3 as in effect on
August 1, 1989; provided, however, that a person shall, in any event, also
be deemed the "beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates beneficially
owns, directly or indirectly; or
(2) which such person or any of its affiliates has (i) the right
to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding (but shall not be deemed to be the beneficial owner of
any voting shares solely by reason of an agreement, contract, or other
arrangement with this Corporation to effect any transaction which is
described in any one or more of clauses of Section A of Article
3
<PAGE>
EIGHTH) or upon the exercise of conversion rights, exchange rights,
warrants, or options or otherwise, or (ii) sole or shared voting or
investment power with respect thereto pursuant to any agreement,
arrangement, understanding, relationship or otherwise (but shall not be
deemed to be the beneficial owner of any voting shares solely by reason
of a revocable proxy granted for a particular meeting of stockholders,
pursuant to a public solicitation of proxies for such meeting, with
respect to shares of which neither such person nor any such affiliate is
otherwise deemed the beneficial owner); or
(3) which are beneficially owned, directly or indirectly,
by any other person with which such first mentioned person or any of its
affiliates acts as a partnership, limited partnership, syndicate or
other group pursuant to any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of any shares of
capital stock of this Corporation;
and provided further, however, that (1) no director or officer of this
Corporation (or any affiliate of any such director or officer) shall,
solely by reason of any or all of such directors or officers acting in
their capacities as such, be deemed, for any purposes hereof, to
beneficially own any Common Stock beneficially owned by any other such
director or officer (or any affiliate thereof), and (2) neither any
employee stock ownership or similar plan of this Corporation or any
subsidiary of this Corporation nor any trustee with respect thereto (or
any affiliate of such trustee) shall, solely by reason of such capacity
of such trustee, be deemed, for any purposes hereof, to beneficially own
any Common Stock held under any such plan. For purposes of computing the
percentage beneficial ownership of Common Stock of a person the
outstanding Common Stock shall include shares deemed owned by such
person through application of this subsection but shall not include any
other Common Stock which may be issuable by this Corporation pursuant to
any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise. For all other purposes, the outstanding Common
Stock shall include only Common Stock then outstanding and shall not
include any Common Stock which may be issuable by this Corporation
pursuant to any agreement, or upon the exercise of conversion rights,
warrants or options, or otherwise.
(c) A "person" shall mean any individual, firm, corporation, or other
entity.
4
<PAGE>
(d) The board of directors shall have the power to construe and apply
the provisions of this section and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to (1) the number of shares of Common Stock beneficially owned
by any person, (2) whether a person is an affiliate of another, (3) whether
a person has an agreement, arrangement, or understanding with another as to
the matters referred to in the definition of beneficial ownership, (4) the
application of any other definition or operative provision of the section to
the given facts, or (5) any other matter relating to the applicability or
effect of this section.
3. The board of directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common Stock in excess
of the Limit (or holds of record Common Stock beneficially owned by any
person in excess of the Limit) supply the Corporation with complete
information as to (1) the record owner(s) of all shares beneficially owned
by such person who is reasonably believed to own shares in excess of the
Limit, (2) any other factual matter relating to the applicability or effect
of this section as may reasonably be requested of such person.
4. Except as otherwise provided by law or expressly provided in this
Section C, the presence, in person or by proxy, of the holders of record of
shares of capital stock of the Corporation entitling the holders thereof to
cast a majority of the votes (after giving effect, if required, to the
provision of this section) entitled to be cast by the holders of shares of
capital stock of the Corporation entitled to vote shall constitute a quorum
at all meetings of the stockholders, and every reference in this Certificate
of Incorporation to a majority or other proportion of capital stock (or the
holders thereof) for purposes of determining any quorum requirement or any
requirement for stockholder consent or approval shall be deemed to refer to
such majority or other proportion of the votes (or the holders thereof) then
entitled to be cast in respect of such capital stock.
5. Any constructions, applications, or determinations made by the
Board of Directors, pursuant to this section in good faith and on the basis
of such information and assistance as was then reasonably available for such
purpose shall be conclusive and binding upon the Corporation and its
stockholders.
6. In the event any provision (or portion thereof) of this Section C
shall be found to be invalid, prohibited or unenforceable for any reason,
the remaining provisions (or portions thereof) of this Section
5
<PAGE>
shall remain in full force and effect, and shall be construed as if such
invalid, prohibited or unenforceable provision had been stricken herefrom
or otherwise rendered inapplicable, it being the intent of this Corporation
and its stockholders that each such remaining provision (or portion
thereof) of this Section C remain, to the fullest extent permitted by law,
applicable and enforceable as to all stockholders, including stockholders
owning an amount of stock over the Limit, notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
-----
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and
of its directors and stockholders:
(a) The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors. In addition to the
powers and authority expressly conferred upon them by Statute or by this
Certificate of Incorporation or the By-laws of the Corporation, the
directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
(b) The directors of the Corporation need not be elected by written
ballot unless the By-laws so provide.
(c) Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
(d) Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any
such resolution is presented to the Board for adoption) (the "Whole
Board").
SIXTH:
-----
A. The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The directors shall be divided into three classes,
as nearly equal in number as reasonably possible, with the term of office of the
first class to expire at the first annual meeting of stockholders, the term of
office of the second class to expire at the annual meeting of stockholders one
year thereafter and the term of office of the third class to expire at the
annual meeting of stockholders two years thereafter. At each annual meeting of
stockholders following
6
<PAGE>
such initial classification and election, directors elected to succeed those
directors whose terms expire shall be elected for a term of office to expire at
the third succeeding annual meeting of stockholders after their election.
B. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from any increase
in the authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been elected expires. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
C. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
By-laws of the Corporation.
D. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any directors, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least 80 percent of the voting power of all of the
then-outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (after giving effect to the provisions of
Article FOURTH of this Certificate of Incorporation ("Article FOURTH"), voting
together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
-------
repeal By-laws of the Corporation. Any adoption, amendment or repeal of the By-
laws of the Corporation by the Board of Directors shall require the approval of
a majority of the Whole Board. The stockholders shall also have power to adopt,
amend or repeal the By-laws of the Corporation. In addition to any vote of the
holders of any class or series of stock of this Corporation required by law or
by this Certificate of Incorporation, the affirmative vote of the holders of at
least 80 percent of the voting power of all of the then-outstanding shares of
the capital stock of the Corporation entitled to vote generally in the election
of directors (after giving effect to the provisions of Article FOURTH), voting
together as a single class, shall be required to adopt, amend or repeal any
provisions of the By-laws of the Corporation.
EIGHTH:
------
7
<PAGE>
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in this
Section:
1. Any merger or consolidation of the Corporation or any Subsidiary (as
hereinafter defined) with (i) any Interested Stockholder (as hereinafter
defined) or (ii) any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation would be, an
Affiliate (as hereinafter defined) of an Interest Stockholder); or
2. Any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder, or any Affiliate of any Interested Stockholder, of
any assets of the Corporation or any Subsidiary having an aggregate Fair
Market Value (as hereafter defined) equaling or exceeding 25% or more of the
combined assets of the Corporation and its Subsidiaries; or
3. The issuance or transfer by the Corporation or any Subsidiary (in one
transaction or a series of transactions) of any securities of the Corporation
or any Subsidiary to any Interested Stockholder or any Affiliate of any
Interested Stockholder in exchange for cash, securities or other property (or
a combination thereof) having an aggregate Fair Market Value (as hereinafter
defined) equaling or exceeding 25% of the combined assets of the Corporation
and its Subsidiaries except pursuant to an employee benefit plan of the
Corporation or any Subsidiary thereof; or
4. The adoption of any plan or proposal for the liquidation or dissolution
of the Corporation proposed by or on behalf of an Interested Stockholder or
any Affiliate of any Interested Stockholder;or
5. Any reclassification of securities (including any reverse stock split),
or recapitalization of the Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any other transaction (whether or
not with or into or otherwise involving an Interested Stockholder) which has
the effect, directly or indirectly, of increasing the proportionate share of
the outstanding shares of any class of equity or convertible securities of
the Corporation or any Subsidiary which is directly or indirectly owned by an
Interested Stockholder or any Affiliate of any Interested Stockholder;
8
<PAGE>
shall require the affirmative vote of the holders of at least 80% of the voting
power of the then outstanding shares of stock of the Corporation entitled to
vote in the election of directors (the "Voting Stock"), voting together as a
single class. Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser percentage may be specified, by
law or by any other provisions of this Certificate of Incorporation or any
Preferred Stock Designation or in any agreement with any national securities
exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs 1
through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only the affirmative vote of the majority of the outstanding
shares of capital stock entitled to vote, or such vote as is required by law or
by this Certificate of Incorporation, if, in the case of any Business
Combination that does not involve any cash or other consideration being received
by the stockholders of the Corporation solely in their capacity as stockholders
of the Corporation, the condition specified in the following paragraph 1 is met
or, in the case of any other Business Combination, all of the conditions
specified in either of the following paragraphs 1 and 2 are met:
1. The Business Combination shall have been approved by a
majority of the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of consideration
other than cash to be received per share by the holders of Common Stock
in such Business Combination shall at least be equal to the higher of the
following :
I. (if applicable) the Highest Per Share Price (as hereinafter
defined), including any brokerage commissions, transfer taxes and
soliciting dealers' fees, paid by the Interested Stockholder or any of
its Affiliates for any shares of Common Stock acquired by it (X) within
the two-year period immediately prior to the first public announcement
of the proposal of the Business Combination (the "Announcement Date"),
or (Y) in the transaction which it became an Interested Stockholder,
whichever is higher.
9
<PAGE>
II. the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested Stockholder
became an Interested Stockholder (such latter date is referred to in
this Article EIGHTH as the "Determination Date"), whichever is higher.
(b) The aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of consideration
other than cash to be received per share by holders of shares of any
class of outstanding Voting Stock other than Common Stock shall be at
least equal to the highest of the following (it being intended that the
requirements of this subparagraph (b) shall be required to be met with
respect to every such class of outstanding Voting Stock, whether or not
the Interested Stockholder has previously acquired any shares of a
particular class of Voting Stock):
I. (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage commissions, transfer
taxes and soliciting dealers' fees, paid by the Interested Stockholder
for any shares of such class of Voting Stock acquired by it (X) within
the two-year period immediately prior to the Announcement Date, or (Y)
in the transaction in which it became an Interested Stockholder,
whichever is higher;
II. (if applicable) the highest preferential amount
per share to which the holders of shares of such class of Voting Stock
are entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; and
III. the Fair Market Value per share of such class
of Voting Stock on the Announcement Date or on the Determination Date,
whichever is higher.
(c) The consideration to be received by holders of a
particular class of outstanding Voting Stock (including Common Stock)
shall be in cash or in the same form as the Interested Stockholder has
previously paid for shares of such class of Voting Stock. If the
Interested Stockholder has paid for shares of any class of Voting Stock
with varying forms of consideration, the form of consideration to be
received per share by holders of shares of such class of Voting Stock
shall be either cash or the form used to acquire the largest number of
10
<PAGE>
shares of such class of Voting Stock previously acquired by
the Interested Stockholder. The price determined in
accordance with subparagraph B.2 of this Article EIGHTH shall
be subject to appropriate adjustment in the event of any
stock dividend, stock split, combination of shares or similar
event.
(d) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination: (i) except as approved by a majority of
the Disinterested Directors, there shall have been no failure
to declare and pay at the regular date therefor any full
quarterly dividends (whether or not cumulative) on any
outstanding stock having preference over the Common Stock as
to dividends or liquidation; (ii) there shall have been (X)
no reduction in the annual rate of dividends paid on the
Common Stock (except as necessary to reflect any subdivision
of the Common Stock), except as approved by a majority of the
Disinterested Directors, and (Y) an increase in such annual
rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction
which has the effect of reducing the number of outstanding
shares of the Common Stock, unless the failure to so increase
such annual rate is approved by a majority of the
Disinterested Directors, and (iii) neither such Interested
Stockholder or any of its Affiliates shall have become the
beneficial owner of any additional shares of Voting Stock
except as part of the transaction which results in such
Interested Stockholder becoming an Interested Stockholder.
(e) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such
Business Combination or otherwise.
(f) A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934 and the
rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations)
11
<PAGE>
shall be mailed to stockholders of the Corporation at least 30 days prior
to the consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant to such
Act or subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a group acting in concert, a
corporation, a partnership, an association, a joint venture, a pool, a joint
stock company, a trust, an unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities.
2. "Interested Stockholder" shall mean any person (other than the
Corporation or any Holding Company or Subsidiary thereof) who or which:
(a) is the beneficial owner, directly or indirectly, of more than 10%
of the voting power of the outstanding Voting Stock; or
(b) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the voting
power of the then outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act of
1933.
3. A person shall be a "beneficial owner" of any Voting Stock:
(a) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as in
effect on August 1, 1989; or
(b) which such person or any of its Affiliates or Associates has (i)
the right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement, arrangement
or understanding or upon the exercise of conversion rights,
12
<PAGE>
exchange rights, warrants or options, or otherwise, or (ii) the right to
vote pursuant to any agreement, arrangement or understanding (but neither
such person nor any such Affiliate or Associate shall be deemed to be the
beneficial owner of any shares of solely by reason of revocable proxy
granted for a particular meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, and with respect to which
shares neither such person nor any such Affiliate or Associate is
otherwise deemed the beneficial owner); or
(c) which are beneficially owned, directly or indirectly within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as in
effect on August 1, 1989, by any other person with which such person or
any of its Affiliates or Associates has any agreement, arrangement or
understanding for the purposes of acquiring, holding, voting (other than
solely by reason of a revocable proxy as described in subparagraph (b) of
this paragraph 3.) or disposing of any shares of Voting Stock;
provided, however, that in the case of any employee stock ownership or similar
plan of the Corporation or of any Subsidiary in which the beneficiaries thereof
possess the right to vote any shares of Voting Stock held by such plan, no such
plan nor any trustee with respect thereto (nor any Affiliate or such trustee),
solely by reason of such capacity of such trustee, shall be deemed, for any
purposes hereof, to beneficially own any shares of Voting Stock held under any
such plan.
4. For the purpose of determining whether a person is an Interested
Stockholder pursuant to Paragraph 2 of this Section C, the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed owned through
application of Paragraph 3 of this Section C but shall not include any other
shares of Voting Stock which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
5. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as in effect on August 1, 1989.
13
<PAGE>
6. "Subsidiary" means any corporation of which a majority of any class of
equity security is owned, directly or indirectly, by the Corporation; provided,
however, that for the purposes of the definition of Interested Stockholder set
forth in Paragraph 2 of this Section C, the term "Subsidiary" shall mean only a
corporation of which a majority of each class of equity security is owned,
directly or indirectly, by the Corporation.
7. "Disinterested Director" means any member of the Board of Directors
who is unaffiliated with the Interested Stockholder and was a member of the
Board of Directors prior to the time that the Interested Stockholder, became an
Interested Stockholder and any director who is thereafter chosen to fill any
vacancy of the Board of Directors or who is elected and who, in either event, is
unaffiliated with the Interested Stockholder and in connection with his or her
initial assumption of office is recommended for appointment or election by a
majority of Disinterested Directors then on the Board of Directors.
8. "Fair Market Value" means: (a) in the case of stock, the highest
closing sales price of the stock during the 30-day period immediately preceding
the date in question of a shares of such stock on the National Association of
Securities Dealers Automated Quotation System or any system then in use, or, if
such stock is admitted to trading on a principal United States securities
exchange registered under the Securities Exchange Act of 1934, Fair Market Value
shall be the highest sale price reported during the 30-day period preceding the
date in question, or, if no such quotations are available, the Fair Market Value
on the date in question of a share of such stock as determined by the Board of
Directors in good faith, in each case with respect to any class of stock,
appropriately adjusted for any dividend or distribution in shares of such stock
or any combination or reclassification of outstanding shares of such stock into
a smaller number of shares of such stock, and (b) in the case of property other
than cash or stock, the Fair Market Value of such property on the date in
question as determined by the Board of Directors in good faith.
9. References to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate adjustment for any dividend
or distribution in shares of such stock or any stock split or reclassification
of outstanding shares of such stock into a greater number of
14
<PAGE>
shares of such stock or any combination or reclassification of outstanding
shares of such stock into a similar number of shares of such stock.
10. In the event of any Business Combination in which the Corporation
survives, the phrase "other consideration to be received" as used in
Subparagraphs (a) and (b) of Paragraph 2 of Section B of this Article
EIGHTH shall include the shares of Common Stock and/or the shares of any
other class of outstanding Voting Stock retained by the holders of such
shares.
D. A majority of the Directors of the Corporation shall have the power and
duty to determine for the purposes of this Article EIGHTH, on the basis of
information known to them after reasonable inquiry, (a) whether a person is an
Interested Stockholder; (b) the number of shares of Voting Stock beneficially
owned by any person; (c) whether a person is an Affiliate or Associate of
another; and (d) whether the assets which are the subject of any Business
Combination have, or the consideration to be received for the issuance or
transfer of securities by the Corporation or any Subsidiary in any Business
Combination has an aggregate Fair Market Value equaling or exceeding 25% of the
combined assets of the Corporation and its Subsidiaries. A majority of the
Directors shall have the further power to interpret all of the terms and
provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least 80 percent of the voting power of all of the then-
outstanding shares of the Voting Stock, voting together as a single class, shall
be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
-----
offer or another Person (as defined in Article EIGHTH hereof) to (A) make a
tender or exchange offer for any equity security of the Corporation, (B) merge
or consolidate the Corporation with another corporation or entity or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due
15
<PAGE>
consideration to all relevant factors, including, without limitation, the social
and economic effect of acceptance of such offer on the Corporation's present and
future customers and employees and those of its Subsidiaries (as defined in
Article EIGHTH hereof); on the communities in which the Corporation and its
Subsidiaries operate or are located; on the ability of the Corporation to
fulfill its corporate objectives as a savings and loan holding company and on
the ability of its subsidiary savings association to fulfill the objectives of a
federally-chartered stock form savings association under applicable statutes and
regulations.
TENTH:
-----
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a director or an officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B. The right to indemnification conferred in Section A of this Article
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses") provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and
16
<PAGE>
not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit plan)
shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Section or otherwise. The rights to indemnification and to
the advancement of expenses conferred in Sections A and B of this Article shall
be contract rights and such rights shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforced a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its board of directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of
17
<PAGE>
expenses pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses,under this Article or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Corporation's
certificate of incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
ELEVENTH: A director of this Corporation shall not be personally liable to
--------
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of
the corporation shall not adversely affect any right or protection of a director
of the corporation existing at the time of such repeal or modification.
TWELFTH: The Corporation reserves the right to amend or repeal any
-------
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred
18
<PAGE>
upon stockholders are granted subject to this reservation; provided, however,
-------- -------
that, notwithstanding any other provision of this Certificate of Incorporation
or any provision of law which might otherwise permit a lesser vote or no vote,
but in addition to any vote of the holders of any class or series of the stock
of this Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, clauses (c) or (d) of Article
FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH or Article TENTH.
THIRTEENTH: The name and mailing address of the sole incorporator are as
----------
follows:
Name Mailing Address
---- ---------------
John F. Grossbauer 1201 N. Market Street
Wilmington, Delaware 19801
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and, accordingly, have hereto set my hand this 2nd day of August, 1989.
/s/ John F. Grossbauer
---------------------------
John F. Grossbauer
19
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MAF BANCORP, INC.
MAF Bancorp, Inc. a Delaware corporation (the "Corporation"), does hereby
certify the amendment set forth below to the Corporation's certificate of
incorporation was duly adopted by the Corporation in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
Article Twelfth shall be amended to read in its entirety as follows:
TWELTH: The corporation reserves the right to amend or repeal any
------
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred
upon stockholders are granted subject to this reservation, provided,
--------
however, that notwithstanding any other provision of this Certificate of
-------
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any vote of the holders of any class or
series of the stock of this Corporation required by law or by this
Certificate of Incorporation, the affirmative vote of the holders of at
least 80 percent of the voting power of all of the then-outstanding shares
of the capital stock of the Corporation entitled to vote generally in the
election of directors (after giving effect to the provisions of Article
FOURTH), voting together as a single class, shall be required to amend or
repeal this Article TWELFTH, Section C of Article FOURTH, Sections C or D
of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH or Article
TENTH of this Certificate of Incorporation.
IN WITNESS WHEREOF, MAF Bancorp, Inc. has caused this Certificate of
Amendment to be executed by its duly authorized officers this 18th day of
January, 1990.
MAF BANCORP, INC.
By: /s/ Kenneth Koranda
----------------------
Kenneth Koranda
President
ATTEST:
/s/ Sandra M. Welton
- ---------------------
Sandra M. Welton
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
MAF Bancorp, Inc., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of MAF Bancorp, Inc.,
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The proposed amendment to Paragraph A of the Certificate
of Incorporation of said corporation is as follows:
"A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is twenty-five million
(25,000,000) consisting of:
(a) five million (5,000,000) shares of Preferred Stock, par value
one cent ($.01) per share (the "Preferred Stock); and
(b) twenty million (20,000,000) shares of Common Stock, par value
one cent ($.01) per share (the "Common Stock")."
SECOND: That thereafter, pursuant to resolution of its Board of Directors, at
the annual meeting of the stockholders of said corporation, upon notice in
accordance with Section 222 of the General Corporation law of the State of
Delaware, the necessary number of shares as required by statute were voted in
favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said MAF Bancorp, Inc. has caused this certificate to be
signed by Jerry A. Weberling, its Executive Vice President and Chief Financial
Officer, and Carolyn Pihera, its Corporate Secretary, this 2/nd/ day of
November, 1993.
BY: /s/ Jerry Weberling
-------------------------------
Jerry A. Weberling
Executive Vice President and
Chief Financial Officer
ATTEST: /s/ Carolyn Pihera
---------------------------
Carolyn Pihera
Corporate Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MAF BANCORP, INC.
MAF Bancorp, Inc., (the "Corporation") a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, by the unanimous
written consent of its members, filed with the minutes of the board, duly
adopted resolutions, setting forth a proposed amendment to the Certificate of
Incorporation of said corporation, declaring said amendment to be advisable and
calling a meeting of the stockholders of said corporation for consideration
thereof. The resolutions setting forth the proposed amendment are as follows:
RESOLVED, that paragraph A of Article FOURTH of the Certificate of
Incorporation is hereby amended and restated in its entirety to read as
follows:
"A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is forty-five million
(45,000,000) consisting of:
(a) five million (5,000,000) shares of Preferred Stock, par
value one cent ($.01) per share (the "Preferred Stock"); and
(b) forty million (40,000,000) shares of Common Stock, par value
one cent ($.01) per share ( "Common Stock")."
SECOND: That the aforesaid amendment was duly adopted in accordance with the
applicable provision of Section 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, said Corporation has caused this Certificate to be signed
and attested by Kenneth Koranda, its President and Carolyn Pihera, its
Secretary, this 29th day of May, 1996.
MAF BANCORP, INC.
By: /s/ Kenneth Koranda
----------------------
Kenneth Koranda, President
ATTEST:
By: /s/ Carolyn Pihera
---------------------
Carolyn Pihera, Secretary
<PAGE>
Exhibit 3
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MAF BANCORP, INC.
MAF Bancorp, Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of MAF Bancorp, Inc.
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and directing that said amendment be considered at the next annual
meeting of stockholders of said corporation. The proposed amendment to Paragraph
A of Article FOURTH of the Certificate of Incorporation of said corporation is
as follows:
"A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is eight-five million
(85,000,000) consisting of:
(a) five million (5,000,000) shares of Preferred Stock, par value one
cent ($.01) per share (the "Preferred Stock"); and
(b) eighty million (80,000,000) shares of Common Stock, par value one
cent ($.01) per share (the "Common Stock")."
SECOND: That said amendment has been duly adopted in accordance with
provisions of the General Corporation Law of the State of Delaware by the
affirmative vote of the holders of a majority of all outstanding stock entitled
to vote at the annual meeting of stockholders.
THIRD: That the aforesaid amendment was duly adopted in accordance with the
applicable provisions of Sections 242 of the General Corporation Law of the
State of Delaware.
[SIGNATURE PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, said MAF Bancorp, Inc. has caused this Certificate to
be signed and attested by Michael Janssen, its Senior Vice President, and
Carolyn Pihera, its Secretary, this 10th day of May, 1999.
MAF BANCORP, INC.
By: /s/ Michael Janssen
--------------------------
Michael Janssen
Senior Vice President
ATTEST:
By:/s/ Carolyn Pihera
---------------------
Carolyn Pihera
Secretary
<PAGE>
Exhibit 10(v)
Exhibit 10(v) - Amendment dated April 19, 1999, of the Credit Agreement
dated as of May 22, 1996, as amended, between MAF Bancorp, Inc. and Harris Trust
and Savings Bank.
<PAGE>
Exhibit 10(v)
SEVENTH 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 amend the Credit Agreement by
increasing the Revolving Credit Commitment to $20,000,000, extending the
Revolving Credit Termination Date to April 30, 2000, deleting Section 7.9
(Tangible Capital Ratio), and increasing the aggregate amount of permitted
obligations for letters of credit issued in connection with land development
activities from $10,000,000 to $20,000,000 under Section 7.12(f), and the Lender
is willing to do so under the terms and conditions set forth in this agreement
(herein, the "Amendment").
1. AMENDMENTS.
Upon your acceptance hereof in the space provided for that purpose below,
the Credit Agreement shall be and hereby amended as follows:
1.1 The definition of "Revolving Credit Commitment" appearing in
Section 4.1 of the Credit Agreement shall be amended and restated in its
entirety to read as follows:
"Revolving Credit Commitment" means $20,000,000, as such amount may be
reduced pursuant hereto.
1.2 The definition of "Revolving Credit Termination Date" appearing
in Section 4.1 of the Credit Agreement shall be amended and restated in its
entirety to read as follows:
"Revolving Credit Termination Date" means April 30, 2000, 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.
1.3 Section 7.9 of the Credit Agreement (Tangible Capital Ratio)
shall be deleted and inserted in its place shall be the following:
"Section 7.9. Intentionally Deleted."
1.4 Section 7.12(f) of the Credit Agreement shall be amended and
restated in its entirety to read as follows:
<PAGE>
(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 $20,000,000 at any one time
outstanding;
1.5 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.
The effectiveness of the Amendment is subject to the satisfaction of all of
the following conditions precedent:
2.1 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.
2.2 Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Lender and its counsel.
3. MISCELLANEOUS.
3.1 Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this 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.
3.2 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 Amendment, including the fees and expenses of
counsel for the Lender.
3.3 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.
[SIGNATURE PAGE TO FOLLOW]
<PAGE>
This Seventh Amendment to Credit Agreement is entered into and effective as
of April 19, 1999.
MAF Bancorp, Inc.
By /s/ Jerry Weberling
----------------------------
Name Jerry Weberling
------------------------
Title Exec. V.P. & C.F.O.
-----------------------
Accepted and agreed to in Chicago, Illinois as of the date and year last
above written.
HARRIS TRUST AND SAVINGS BANK
By /s/ Michael S. Camelli
----------------------------
Name Michael S. Camelli
------------------------
Title Vice President
-----------------------
<PAGE>
Exhibit 10(X)
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>
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
7
<PAGE>
AMENDMENTS TO THE
MAF BANCORP, INC. SHAREHOLDER VALUE LONG-TERM INCENTIVE
PLAN
1. Section VI (2) 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 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.
8
<PAGE>
EXTRACT FROM THE RECORDS OF
MID AMERICA FEDERAL SAVINGS BANK
REGULAR MEETING OF THE BOARD OF DIRECTORS
HELD DECEMBER 16, 1997
At the meeting of the Board of Directors of Mid America Federal Savings Bank
duly called and held on the 16th day of December, 1997, a quorum being present,
it was on motion:
Long-Term Incentive Plan
WHEREAS, the Committee and the Board wish to amend Section VI(5) of the Plan to
provide for a revised valuation of performance units granted after June 30,
1998; and
WHEREAS, the Committee and the Board wish to amend Section VI(3) of the Plan to
eliminate the requirement that the Company's Total Shareholder Return be at
least in the 51st percentile of comparable thrift industry companies in order to
activate the plan, with such amendment to be effective for performance units
granted after June 30, 1997; and
WHEREAS, the Committee and the Board wish to amend Section VI(3) of the Plan to
provide for a Total Shareholder Return of an least 15% during a performance
period in order to activate the Plan, with such amendment to be effective for
performance units granted after June 30, 1996;
NOW THEREFORE BE IT RESOLVED, that the above resolutions are approved and
adopted with the following revised performance unit valuation table to be
effective for awards granted after June 30, 1996:
<TABLE>
<CAPTION>
Performance Rank v. New Performance
Level S&P 500 Unit Value
------- ---------------
<S> <C> <C>
Threshold 50th $ 50
55th $ 75
Target 60th $100
65th $117
70th $133
75th $150
80th $167
85th $183
Superior 90th $200
</TABLE>
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 14th day of March, 1998.
/s/ Carolyn Pihera
- ---------------------
Corporate Secretary
9
<PAGE>
EXHIBIT NO. 10(XII) - FORM OF EMPLOYMENT AGREEMENT, AS AMENDED,
BETWEEN MAF BANCORP, INC. AND ALLEN KORANDA,
KENNETH KORANDA AND JERRY WEBERLING
The attached Employment Agreement dated April 19, 1990, as amended, between MAF
Bancorp, Inc. and Allen Koranda is substantially identical in all material
respects (except as otherwise noted below) with the other contracts listed below
which are not being filed:
Parties to Employment Agreement
-------------------------------
MAF Bancorp, Inc. and Kenneth Koranda /(1)/
MAF Bancorp, Inc. and Jerry A. Weberling /(1)/
/(1)/ Section 3(a) of the Employment Agreements provide for minimum annual
salaries of $227,000 and $115,000 for Messrs. K. Koranda and Weberling,
respectively. Section 6(b) of the Employment Agreements provide for
minimum monthly disability benefit amounts of $14,187.50 and $7,187.50
for Messrs. K. Koranda and Weberling, respectively.
<PAGE>
MAF BANCORP, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of April 19, 1990 by and between MAF
Bancorp, Inc. and the "Holding Company"), a corporation organized under the laws
of the State of Delaware, with its principal administrative office at 55th &
Holmes Streets, Clarendon Hills, Illinois, and Allen H. Koranda ("Executive").
Any reference to "Bank" herein shall mean Mid America Federal Savings Bank or
any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Holding Company
on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual convenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
Chairman of the Board of Directors and Chief Executive Officer of the Holding
Company. During said period, Executive also agrees to serve, if elected, as an
officer and director of any subsidiary or affiliate of the Holding Company.
Failure to reelect Executive as Chief Executive Officer or failure to nominate
Executive to the Board of Directors or failure to elect the Executive as the
Chairman of the Board if elected as a director, without the consent of the
Executive shall constitute a breach of this Agreement.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of sixty (60) full calendar months thereafter. Commencing on the
third anniversary date of this Agreement, and continuing at each anniversary
date thereafter, the Agreement shall automatically renew for an additional year
such that the remaining term shall be three (3) years unless written notice is
provided to Executive at least ten (10) days and not more than twenty (20) days
prior to such anniversary date, that his employment shall cease at the end of
twenty-four (24) months following the next anniversary date.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful
<PAGE>
performance of his duties hereunder including activities and services related to
the organization, operation and management of the Holding Company; provided,
however, that with the approval of the Board of Directors of the Holding Company
("Board"), as evidenced by a resolution of such Board, from time to time,
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
such Board's judgment, will not present any conflict of interest with the
Holding Company, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) In the event that Executive's duties and responsibilities with respect
to the Bank are temporarily or permanently terminated pursuant to Sections 8 or
16 of the Employment Agreement dated April 19, 1990, between Executive and the
Bank ("Bank Agreement") and the course of conduct upon which such termination is
based would not constitute grounds for Termination for Cause under Section 8 of
this Agreement, then Executive shall assume such duties and responsibilities
formerly performed at the Bank as part of his duties and responsibilities as
Chief Executive Officer and Chairman of the Board of Directors of the Holding
Company and receive the compensation benefits provided hereunder by the Holding
Company. Nothing in this provision shall be interpreted as restricting the
Holding Company's right to remove Executive for Cause in accordance with Section
8 of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Section 2(b). The Holding
Company shall pay Executive as compensation a salary of not less than $239,000
per year ("Base Salary"). Such salary shall be payable semi-monthly. During
the period of this Agreement, Executive's salary shall be reviewed at least
annually; the first such review will be made no later than December 31, 1990.
Such review shall be conducted by a Committee designated by the Board, and such
Committee may increase said salary. In addition to the salary provided in this
Section 3(a), the Holding Company shall provide Executive at no cost to
Executive with all such other benefits as are provided uniformly to permanent
full-time employees of the Holding Company and the Bank.
(b) The Holding Company will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Holding Company will
not, without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would adversely affect Executive's rights or
benefits thereunder. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive will be entitled to participate in
or receive benefits under any employee benefit plans including retirement plans,
pension plans, profit-sharing plans, deferred compensation plans, health-and-
accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the Holding Company in the future to its senior
executives and management employees, subject to and on a basis consistent with
the terms, conditions and overall administration of such plans and arrangements.
Executive will be entitled to incentive compensation and bonuses as provided in
any plan of the Holding Company in which Executive is eligible to participate.
Nothing paid to the Executive under any such plan or
<PAGE>
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the Holding Company shall pay or reimburse Executive for all
reasonable travel and other reasonable expenses incurred by Executive performing
his obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
(d) In the event that Executive assumes additional duties and
responsibilities pursuant to Section 2(c) of this Agreement by reason of one of
the circumstances contained in Section 2(c) of this Agreement, and the Executive
receives or will receive less than the full amount of compensation and benefits
formerly entitled to him under the Bank Agreement, the Holding Company shall
assume the obligation to provide Executive with his compensation and benefits in
accordance with the Bank Agreement less any compensation and benefits received
from the Bank, subject to the terms and conditions of this Agreement, including
the Termination for Cause provisions in Section 8.
4. PAYMENTS TO EXECUTIVE UPON TERMINATION OF EMPLOYMENT.
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Sections 8 and 16.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following:(i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than a Change in Control, as defined in Section 5(a) hereof
or for Cause, as defined in Section 8 hereof; (ii) Executive's resignation from
the Holding Company's employ, upon any (A) failure to elect or reelect Executive
as the Chief Executive Officer or failure to nominate or renominate Executive to
the Board of Directors or failure to elect or reelect Executive as Chairman of
the Board if elected as a director, (B) material change in Executive's function,
duties, or responsibilities, which change would cause Executive's position to
become one of lesser responsibility, importance, or scope from the position and
attributes thereof described in Section 1, above, (and any such material change
shall be deemed a continuing breach of this Agreement), (C) liquidation,
dissolution, consolidation, or merger of the Holding Company in which the
Holding Company is not the resulting entity or transfer of all or substantially
all of the assets of Holding Company in which the Holding Company is not the
resulting entity, or (D) breach of this Agreement by the Holding Company. Upon
the occurrence of any event described in clauses (A), (B), (C) or (D), above,
Executive shall have the right to elect to terminate his employment under this
Agreement by resignation upon not less than sixty (60) days prior written notice
given within a reasonable period of time not to exceed, except in case of a
continuing breach, four calendar months after the event giving rise to said
right to elect.
(b) Upon the occurrence of an Event of Termination, the Holding Company
shall pay Executive, or, in the event of his subsequent death, his beneficiary
or beneficiaries, or his estate,
<PAGE>
as the case may be, as severance pay or liquidated damages, or both, a sum equal
to the greater of three (3) times the average of the three (3) preceding years'
Base Salary paid to the Executive or the salary payable to the Executive for the
remaining term of this Agreement; provided, however, that if the Bank is not
-------- -------
in compliance with its minimum capital requirements, such payments shall be
deferred until such time as the Bank is in capital compliance. At the discretion
of the Executive, such payments shall be made in a lump sum immediately upon the
occurrence of an Event of Termination, subject only to the proviso above, or
paid monthly during thirty-six (36) months following the Executive's
termination.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, health and disability coverage substantially
identical to the coverage maintained by the Holding Company for Executive prior
to his termination. Such coverage shall cease upon the earlier of Executive's
employment by another employer or thirty six (36) months.
(d) On an annual basis on January 2, or if January 2 is not a regular
business day, then on the next such regular business day, of each year,
Executive shall elect whether, in the event amounts are payable under Section
4(b) hereof, such amounts shall be paid in a lump sum or on a pro rata basis
pursuant to such section. Such election shall be irrevocable for the year for
which such election is made.
5. CHANGE IN CONTROL
(a) No benefit shall be payable under this Section 5 unless there shall
have been a Change in Control of the Holding Company, as set forth below. For
purposes of this Agreement, a "Change in Control" of Holding Company shall mean
an event 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 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 Holding Company representing 20% or more of the
Holding Company's outstanding securities ordinarily having the right to vote at
the election of directors except for securities purchased by any employee stock
ownership plan and trust of the Bank; or (b) individuals who constitute the
Board 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 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; or (c) a merger, consolidation or sale of all or substantially
all the assets of the Holding Company occurs; or (d) a proxy statement shall be
distributed soliciting
<PAGE>
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
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to the Plan are exchanged for or converted into
cash or property or securities not issued by the Bank or Holding Company; or (e)
a tender offer is made for 20% or more of the outstanding securities of the Bank
or Holding Company.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board of the Holding Company has
determined that a Change in Control has occurred, Executive shall be entitled to
the benefits provided in paragraphs (c), (d), (e), (f) and (g) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement (regardless of whether such termination results from his
resignation or his dismissal), unless such termination is because of his death,
disability or for cause. Upon the Change in Control, Executive shall have the
right to elect to terminate his employment with the Holding Company at any time
during the term of this Agreement.
(c) Upon the occurrence of a Change in Control followed by the Executive's
termination of employment, the Holding Company shall pay Executive, or in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, as severance pay or liquidated damages, or both, a sum equal
to three (3) times the average of the three (3) preceding years' Base Salary
paid to the Executive. At the discretion of the Executive, such payment may be
made in a lump sum immediately upon a Change in Control and termination of
employment of Executive or paid monthly during the thirty-six (36) months
following the Executive's termination.
(d) Upon the occurrence of a Change in Control followed by the Executive's
termination of employment, the Holding Company will cause to be continued life,
health and disability coverage substantially identical to the coverage
maintained by the Bank for the Executive prior to his severance. Such coverage
shall cease upon the earlier of Executive's employment by another employer or
thirty-six (36) months.
(e) Upon the occurrence of a Change in Control, the Executive will have
such rights as specified in the Holding Company's Incentive Stock Option Plan or
any other employee benefit plan with respect to options and such other rights as
may have been granted to Executive under such plans.
(f) Upon the occurrence of a Change in Control, the Executive will be
entitled to the benefits under the Bank's Management Recognition and Retention
Plans.
(g) Notwithstanding the preceding paragraphs of this Section 5, in the
event that:
(i) the aggregate payments or benefits to be made or
afforded to Executive under said paragraphs (the
"Termination Benefits") would be deemed to include
<PAGE>
an "excess parachute payment" under 280G of the
Code or any successor thereto, and
(ii) if such Termination Benefits were reduced to an
amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount
equal to three (3) times Executive's "base
amount", as determined in accordance with said
Section 280G, and the Non-Triggering Amount would
be greater than the aggregate value of the
Termination Benefits (without such reduction)
minus the amount of tax required to be paid by
Executive thereon by Section 4999 of the Code,
then the Termination Benefits shall be reduced to
the Non-Triggering Amount. The allocation of the
reduction required hereby among the Termination
Benefits provided by the preceding paragraphs of
this Section 5 shall be determined by the
Executive. In the event that Executive receives
the Non-Triggering Amount pursuant to this
paragraph (g) and it is subsequently determined by
the Internal Revenue Service or judicial authority
that Executive is deemed to have received an
amount in excess of the Non-Triggering Amount, the
Holding Company shall pay to Executive an amount
equal to the value of the payments or benefits in
excess of the Non-Triggering Amount he is so
deemed to have received.
(h) On an annual basis on January 2, or if January 2 is not a regular
business day, then on the next such regular business day, of each year,
Executive shall elect whether, in the event amounts are payable under Section
5(c) hereof, such amounts shall be paid in a lump sum or on a pro rata basis
pursuant to such section. Such election shall be irrevocable for the year for
which such election is made.
6. TERMINATION FOR DISABILITY
(a) If, as a result of Executive's incapacity due to physical or mental
illness, he shall have been absent from his duties with the Holding Company on a
full-time basis for six (6) consecutive months, and within thirty (30) days
after written notice of potential termination is given he shall not have
returned to the full-time performance of his duties, the Holding Company may
terminate Executive's employment for "Disability."
(b) The Holding Company will pay Executive, as disability pay, a monthly
payment equal to the greater amount of three-quarters (3/4) of Executive's
monthly rate of Base Salary on the effective date of such termination or
$14,937.50. These disability payments shall commence
<PAGE>
on the effective date of Executive's termination and will end on the earlier of
(i) the date Executive returns to the full-time employment of the Holding
Company in the same capacity as he was employed prior to his termination for
Disability and pursuant to any employment agreement between Executive and the
Holding Company; (ii)
Executive's full-time employment by another employer; (iii) Executive attaining
the normal age of retirement; or (iv) Executive's death. Notwithstanding any
other provision to the contrary, the Bank may apply any proceeds from disability
income insurance for Executive which was paid for by the Bank or Holding Company
as partial satisfaction of its obligation under this Section. The disability
payments will be in addition to any benefit payable from any qualified or non-
qualified retirement plans, stock benefit plans or other programs maintained by
the Bank or Holding Company.
(c) The Holding Company will cause to be continued life, health and
disability coverage substantially identical to the coverage maintained by the
Holding Company for the Executive prior to his termination for Disability. This
coverage shall cease upon the earlier of (i) the date Executive returns to the
full-time employment of the Holding Company, in the same capacity as he was
employed prior to his termination for Disability and pursuant to an employment
agreement between Executive and the Holding Company; (ii) Executive's full-time
employment by another employer; (iii) Executive's attaining the normal age of
retirement, or (iv) the Executive's death.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period during which
Executive is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT
Termination by the Holding Company of the Executive based on "Retirement"
shall mean termination in accordance with any retirement arrangement established
with Executive's consent with respect to him. Upon termination of Executive
upon Retirement, Executive shall be entitled to all benefits under any
retirement plan of the Holding Company and other plans to which Executive is a
party. In addition, the Holding Company will cause to be continued health
coverage substantially identical to the coverage maintained by the Holding
Company and the Bank for Executive prior to his Retirement until his death.
8. TERMINATION FOR CAUSE
The term "Termination for Cause" shall mean termination upon intentional
failure to perform stated duties, personal dishonesty which results in loss to
the Holding Company or one of its affiliates or willful violation of any law,
rule, regulation or final cease and desist order which results in substantial
loss to the Holding Company or one of its affiliates or any material breach of
this Agreement. For purposes of this Section, no act, or the failure to act, on
Executive's part shall be "willful" unless done, or omitted to be done, not in
good faith and without reasonable belief that the action or omission was in the
best interest of the Holding Company or its affiliates. Notwithstanding the
foregoing, Executive shall not be deemed to have
<PAGE>
been terminated for Cause unless and until there shall have been delivered to
him a copy of a resolution duly adopted by the affirmative vote of not less than
a majority of the members of the Board at a meeting of the Board called and held
for that purpose (after reasonable notice to Executive and an opportunity for
him, together with counsel, to be heard before the Board), finding that in the
good faith opinion of the Board, Executive was guilty of conduct justifying
termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after termination for Cause. Any stock options granted to Executive
under any stock option plan of the Bank, the Holding Company or any subsidiary
or affiliate thereof, shall become null and void effective upon Executive's
receipt of Notice of Termination for Cause pursuant to Section 9 hereof, and
shall not be exercisable by Executive at any time subsequent to such Termination
for Cause.
9. NOTICE
Any purported termination by the Holding Company or by Executive shall be
communicated by Notice of Termination to the other party hereto.
For purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated. "Date of Termination" shall mean (A) if Executive's
employment is terminated for Disability, thirty (30) days after a Notice of
Termination is given (provided that he shall not have returned to the
performance of his duties on a full-time basis during such thirty (30) day
period), and (B) if his employment is terminated for any other reason, the date
specified in the Notice of Termination (which, in the case of a Termination for
Cause, shall not be less than thirty (30) days from the date such Notice of
Termination is given); provided that if, within thirty (30) days after any
Notice of Termination is given, the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination, the
Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, by a binding
arbitration award, or by a final judgement, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected) and provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any such dispute, the
Holding Company will continue to pay Executive his full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to, Base Salary) and continue him as a participant in all compensation, benefit
and insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
10. POST-TERMINATION OBLIGATIONS.
<PAGE>
(a) All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with paragraph (b) of this Section 10 during
the term of this Agreement and for one (1) full year after the expiration or
termination hereof.
(b) Executive shall, upon reasonable notice, furnish such information and
assistance to the Bank as may reasonably be required by the Holding Company in
connection with any litigation in which it or any of its subsidiaries or
affiliates is, or may become, a party.
11. NON-DISCLOSURE.
Executive recognizes and acknowledges that the knowledge of the business
activities and plans for business activities of the Holding Company and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Bank. Executive will not, during or
after the term of his employment, disclose any knowledge of the past, present,
planned or considered business activities of the Bank or affiliates thereof to
any person, firm, corporation, or other entity for any reason or purpose
whatsoever. Notwithstanding the foregoing, Executive may disclose any knowledge
of banking, financial and/or economic principles, concepts or ideas which are
not solely and exclusively derived from the business plans and activities of the
Holding Company. In the event of a breach or threatened breach by the Executive
of the provisions of this Section, the Holding Company will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Holding Company or affiliates thereof, or from rendering any services to any
person, firm, corporation, other entity to whom such knowledge, in whole or in
part, has been disclosed or is threatened to be disclosed. Nothing herein will
be construed as prohibiting the Bank from pursuing other remedies available to
the Holding Company for such breach or threatened breach, including the recovery
of damages from Executive.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be paid in cash or check from
the general funds of the Holding Company. The Holding Company guarantees
payment and provision of all amounts and benefits due to the Executive under the
Employment Agreement by and between the Bank and the Executive, if any amounts
and benefits due from the Bank are not timely paid or provided by the Bank, such
amounts and benefits shall be paid or provided by the Holding Company.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring of
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
<PAGE>
14. EFFECT OF ACTION UNDER BANK AGREEMENT.
Notwithstanding any provision herein to the contrary, to the extent that
compensation payments and benefits are paid to or received by Executive under
the Employment Agreement dated April 19, 1990, between Executive and the Bank,
such compensation payments and benefits paid by the Bank will be deemed to
satisfy the corresponding obligations of the Holding Company under this
Agreement.
15. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
16. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future of as to any act other than that
specifically waived.
17. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
18. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
<PAGE>
19. GOVERNING LAW.
This Agreement and its validity, interpretation, performance and
enforcement shall be governed by the laws of Delaware.
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
21. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company.
22. INDEMNIFICATION
The Holding Company shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements, such settlements to be
approved by the Board of Directors of the Holding Company, if such action is
brought against Executive in his capacity as a officer or director of the
Holding Company. However, such indemnification shall not extend to matters as
to which Executive is finally adjudged to be liable for willful misconduct in
the performance of his duties.
SIGNATURES
IN WITNESS WHEREOF, the Holding Company has caused this Agreement to be
executed and its seal to be affixed hereunto by its duly authorized officer, and
Executive has signed this Agreement, on the 19th day of April, 1990.
ATTEST: MAF BANCORP, INC.
<PAGE>
/s/ Carolyn Pihera BY: /s/ Kenneth Koranda
- ------------------ -----------------------
Secretary President
(SEAL)
WITNESS:
/s/ Michael J. Janssen /s/ Allen Koranda
- ---------------------- -----------------
Executive
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
OF ALLEN KORANDA
----------------
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Employment Agreement of Allen
Koranda dated April 19, 1990 (the "Agreement") by adding the following two new
sentences to the end of Section 5(a) of the Agreement:
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. Section
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.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective
this August 28, 1990.
ATTEST: MAF BANCORP, INC.
By: /s/ Carolyn Pihera By: /s/ Kenneth Koranda
------------------ -------------------
Corporate Secretary President
EMPLOYEE
By: /s/ Allen Koranda
-----------------
<PAGE>
Amendment to Employment Agreement
of Allen Koranda
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Employment Agreement of Allen
Koranda dated April 19, 1990, as amended, (the "Agreement"), by adding a new
sentence after the first sentence of Section 1 of the Agreement as shown below,
and by revising Section 2(a) to read as shown below, both such amendments to be
effective as of the date shown below.
(Add after first sentence of Section 1)
The Executive shall render administrative and management services to the Holding
Company such as are customarily performed by persons in a similar executive
capacity.
(Revised Section 2(a))
2. TERMS AND DUTIES
----------------
(a) The period of Executive's employment under this Agreement shall be deemed
to have commenced as of the date first above written and shall continue for a
period of sixty (60) full calendar months thereafter. Commencing on a third
anniversary date of this Agreement, and continuing at each anniversary date
thereafter, the board of directors of the Holding Company ("Board") may extend
the Agreement an additional year. The Board will review the Agreement and the
Executive's performance annually for purposes of determining whether to extend
the Agreement, and the results thereof shall be included in the minutes of the
Board's meeting. In the event the Executive chooses not to renew the Agreement
for an additional period, the Executive shall provide the Holding Company with
written notice at least ten (10) days and not more than twenty (20) days prior
to such anniversary date. If either the Holding Company or the Executive chooses
not to renew the Agreement, the Executive's employment shall terminate at the
end of the remaining term of the Agreement.
In WITNESS WHEREOF, the parties hereto have executed this Amendment effective
this August 10, 1992.
ATTEST: MAF BANCORP, INC.
By: /s/ Carolyn Pihera By: /s/ Kenneth Koranda
------------------ -------------------
Corporate Secretary President
EMPLOYEE
By: /s/ Allen Koranda
-----------------
<PAGE>
Amendment to Employment Agreement
of Allen Koranda
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Employment Agreement of Allen
Koranda dated April 19, 1990, as amended, (the "Agreement"), as shown below.
Such amendments shall be effective as of the date shown below.
1. Section 4(b) shall be revised to read as follows:
Upon the occurrence of an Event of Termination, the Holding Company shall
pay Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or
liquidated damages, or both, a sum equal to the greater of (A) three (3)
times the average of the three preceding years compensation paid to the
Executive or (B) the compensation payable to the Executive for the
remaining term of this Agreement; provided, however, that if the Bank is
-------- -------
not in compliance with its minimum capital requirements, such payments
shall be deferred until such time as the Bank is in capital compliance. For
purposes of the preceding sentence, compensation shall include only Base
Salary plus payments made under the MAF Bancorp Executive Annual Incentive
Plan (or such other annual cash incentive plan in effect with respect to
years ending prior to July 1, 1993). At the discretion of the Executive,
such payments shall be made in a lump sum immediately upon the occurrence
of an Event of Termination, subject to only the proviso above or paid
monthly during the thirty-six (36) months following the Executive's
termination.
2. Section 5(c) shall be revised to read as follows:
Upon the occurrence of a Change in Control followed by the Executive's
termination of employment, the Holding Company shall pay Executive, or in
the event of his subsequent death, his beneficiary or beneficiaries, or his
estate, as the case may be, as severance pay or liquidated damages, or
both, a sum equal to three (3) times the average of the three preceding
years compensation paid to the Executive. For purposes of the preceding
sentence, compensation shall include only Base Salary plus payments made
under the MAF Bancorp Executive Annual Incentive Plan (or such other annual
cash incentive plan in effect with the respect to years ending prior to
July 1, 1993). At the discretion of the Executive, such payment may be made
in a lump sum immediately upon a Change in Control and termination of
employment of Executive or paid monthly during the thirty-six (36) months
following the Executive's termination.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective
this December 20, 1995.
ATTEST: MAF BANCORP, INC.
By: /s/ Carolyn Pihera By: /s/ Kenneth Koranda
------------------ -------------------
<PAGE>
Corporate Secretary President
EMPLOYEE
By: /s/ Allen Koranda
-----------------
<PAGE>
Exhibit 10(xiv)
Amendment to Employment Agreement of Allen Koranda
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Employment Agreement of Allen
Koranda dated April 19, 1990, as amended, (the "Agreement"), as shown below.
Such amendment shall be effective as of the date shown below.
Section 5(g) shall be revised to read as follows:
Notwithstanding the preceding paragraphs of this Section 5, in the event it
shall be determined that any payment or distribution of any type to or for the
benefit of the Executive by the Holding Company, any of its affiliates, or any
person who acquires ownership or effective control of the Holding Company or
ownership of a substantial portion of the Holding Company's assets (within the
meaning of Section 280G of the Code, and the regulations thereunder) or any
affiliate of such person, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the "Total
Payments"), is subject to the excise tax imposed by Section 4999 of the Code or
any similar successor provision or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest and penalties,
are collectively referred to as the "Excise Tax"), then, except in the case of a
Deminimus Excess Amount (as described below), the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes imposed upon the Gross-Up Payment
(including any federal, state and local income, payroll or excise taxes and any
interest or penalties imposed with respect to such taxes), the Executive retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total
Payments (not including any Gross-Up Payment).
In the event that the amount by which the present value of the Total Payments
which constitute "parachute payments" (within the meaning of Section 280G of the
Code)(the "Parachute Payments") exceeds three (3) times the Executive's "base
amount" (within the meaning of Section 280G of the Code)(the "Base Amount") is
less than 3% of the amount determined under Section 5(c) of this Agreement, such
excess shall be deemed to be a Deminimus Excess Amount and the Executive shall
not be entitled to a Gross-Up Payment. In such an instance, the Parachute
Payments shall be reduced to an amount (the "Non-Triggering Amount"), the value
of which is one dollar ($1.00) less than an amount equal to three (3) times
Executive's Base Amount; provided that such reduction shall not be made unless
the Non-Triggering Amount would be greater than the aggregate value of the
Parachute Payments (without such reduction) minus the amount of Excise Tax
required to be paid by Executive thereon. The reduction required hereby shall
be made by reducing the amount payable under Section 5(c) of this Agreement.
1
<PAGE>
All determinations as to the portion, if any, of the Total Payments which
constitute Parachute Payments, whether a Gross-Up Payment is required, the
amount of such Gross-Up Payment, the amount of any reduction, and any amounts
relevant to the foregoing paragraphs of this Section 5(g) shall be made by an
independent accounting firm selected by the Holding Company, which may be the
accounting firm then regularly retained by the Holding Company (the "Accounting
Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations, regarding the
amount of any Gross-Up Payment and any other relevant matter, both to the
Holding Company and the Executive, within five (5) days of a date of
termination, if applicable, or such earlier time as is requested by the Holding
Company or the Executive (if the Executive reasonably believes that any of the
Total Payments may be subject to the Excise Tax). Any determination by the
Accounting Firm shall be binding upon the Holding Company and the Executive. As
a result of uncertainty in the application of Sections 280G and 4999 of the Code
at the time of the initial determination by the Accounting Firm hereunder, or as
a result of a subsequent determination by the Internal Revenue Service or a
judicial authority, it is possible that the Holding Company should have made
Gross-Up Payments ("Underpayment"), or that Gross-Up Payments will have been
made by the Holding Company which should not have been made ("Overpayments").
In either such event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of the Underpayment,
the amount of such Underpayment shall be promptly paid by the Holding Company to
or for the benefit of the Executive. In the case of an Overpayment, the
Executive shall, at the direction and expense of the Holding Company, take such
steps as are reasonably necessary (including the filing of returns and claims
for refund), follow reasonable instructions from, and procedures established by,
the Holding Company, and otherwise reasonably cooperate with the Holding Company
to correct such Overpayment, including repayment of such Overpayment to the
Holding Company.
Effect of Certain Accounting Rules. The Executive acknowledges that it is in
the Holding Company's and Bank's best interests to remain eligible to account
for any business combination into which they may become a party under the
"pooling-of-interests" method of accounting. The Holding Company does not
believe that any provision of the foregoing Amendment to Employment Agreement
will affect the Holding Company's or Bank's ability to so account for any
business combination. Due to the uncertainties associated with the accounting
rules governing the pooling-of-interests method, however, it is possible that
the provisions of this Amendment may impact the Holding Company's or Bank's
ability to use pooling-of-interests accounting for business combinations.
Accordingly, in the event the Board of Directors determines it to be in the best
interests of the Holding Company or Bank to account for a business combination
under the pooling-of-interests method and, in the written opinion of the
Accounting Firm referred to above, if any provision of this Amendment makes a
business combination to which the Holding Company or Bank is a party ineligible
for pooling-of interests accounting under the provisions of APB Opinion No. 16,
as modified or amended, that but for such provision of this Amendment to
Employment Agreement would otherwise be eligible for such accounting treatment,
then the Holding Company and Executive agree that the terms of this Amendment
shall be rescinded to the extent necessary to enable the business combination to
so qualify for such accounting treatment.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment effective this
October 26, 1999.
ATTEST: MAF BANCORP, INC.
By: /s/ Carolyn Pihera By: /s/ Kenneth Koranda
------------------------------- -----------------------------
Carolyn Pihera Kenneth Koranda
Corporate Secretary President
EMPLOYEE
By: /s/ Allen Koranda
------------------------------
Allen Koranda
3
<PAGE>
EXHIBIT NO. 10(XIII) - FORM OF EMPLOYMENT AGREEMENT, AS AMENDED,
BETWEEN MID AMERICA BANK FSB AND ALLEN KORANDA,
KENNETH KORANDA AND JERRY WEBERLING
The attached Employment Agreement dated April 19, 1990, as amended, between Mid
America Bank and Allen Koranda is substantially identical in all
material respects (except as otherwise noted below) with the other contracts
listed below which are not being filed:
Parties to Employment Agreement
-------------------------------
Mid America Bank and Kenneth Koranda (1)
Mid America Bank and Jerry A. Weberling (1)
/(1)/ Section 3(a) of the Employment Agreements provide for minimum annual
salaries of $227,000 and $115,000 for Messrs. K. Koranda and Weberling,
respectively. Section 6(b) of the Employment Agreements provide for
minimum monthly disability benefit amounts of $14,187.50 and $7,187.50
for Messrs. K. Koranda and Weberling, respectively.
<PAGE>
MID AMERICA FEDERAL SAVINS BANK
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of April 19, 1990 by and between Mid
America Federal Savings Bank (the "Bank"), a corporation organized under the
laws of the United States, with its principal administrative office at 55th &
Holmes Streets, Clarendon Hills, Illinois, and Allen H. Koranda ("Executive").
Any reference to "Holding Company" herein shall mean MAF Bancorp, Inc. or any
successor thereto.
WHEREAS, the Bank wishes to assure itself of the services of Executive for
the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
Chairman of the Board of Directors and Chief Executive Officer of the Bank.
During said period, Executive also agrees to serve, if elected, as an officer
and director of any subsidiary or affiliate of the Bank. Failure to reelect
Executive as Chief Executive Officer or failure to nominate Executive to the
Board of Directors or failure to elect the Executive as the Chairman of the
Board if elected as a director without the consent of the Executive shall
constitute a breach of this Agreement.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of sixty (60) full calendar months thereafter. Commencing on the
third anniversary date of this Agreement, and continuing at each anniversary
date thereafter, the Agreement shall automatically renew for an additional year
such that the remaining term shall be three (3) years unless written notice is
provided to Executive at least ten (10) days and not more than twenty (20) days
prior to such anniversary date, that his employment shall cease at the end of
twenty-four (24) months following the next anniversary date.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Bank; provided, however, that with the approval
of the Board
<PAGE>
of Directors of the Bank ("Board"), as evidenced by a resolution of such Board,
from time to time, Executive may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict of
interest with the Bank, or materially affect the performance of Executive's
duties pursuant to this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Section 2(b). The Bank
shall pay Executive as compensation a salary of not less than $239,000 per year
("Base Salary"). Such salary shall be payable semi-monthly. During the period of
this Agreement, Executive's salary shall be reviewed at least annually; the
first such review will be made no later than December 31, 1990. Such review
shall be conducted by a Committee designated by the Board, and such Committee
may increase said salary. In addition to the salary provided in this Section
3(a), the Bank shall provide Executive at no cost to Executive with all such
other benefits as are provided uniformly to permanent full-time employees of the
Bank.
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive's rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), Executive will be entitled to participate in or receive benefits
under any employee benefit plans including retirement plans, pension plans,
profit-sharing plans, deferred compensation plans, health-and-accident plan,
medical coverage or any other employee benefit plan or arrangement made
available by the Bank in the future to its senior executives and management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements. Executive will be
entitled to incentive compensation and bonuses as provided in any plan of the
Bank in which Executive is eligible to participate. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be in lieu of
other compensation to which the Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3, the Bank shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing his
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON TERMINATION OF EMPLOYMENT.
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Sections 8 and 15.
<PAGE>
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following:(i) the
termination by the Bank or the Holding Company of Executive's full-time
employment hereunder for any reason other than a Change in Control, as defined
in Section 5(a) hereof or for Cause, as defined in Section 8 hereof; (ii)
Executive's resignation from the Bank's employ, upon any (A) failure to elect or
reelect Executive as the Chief Executive Officer or failure to nominate or
renominate Executive to the Board of Directors or failure to elect or reelect
Executive as Chairman of the Board if elected as a director, (B) material change
in Executive's functions, duties, or responsibilities, which change would cause
Executive's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Section 1, above,
(and any such material change shall be deemed a continuing breach of this
Agreement), (C) liquidation, dissolution, consolidation, or merger of the Bank
or Holding Company in which the Bank or the Holding Company is not the resulting
entity, or transfer of all or substantially all of the assets of the Bank or
Holding Company in which the Bank or Holding Company is not the resulting
entity, or (D) breach of this Agreement by the Bank. Upon the occurrence of any
event described in clauses (A), (B), (C) or (D), above, Executive shall have the
right to elect to terminate his employment under this Agreement by resignation
upon not less than sixty (60) days prior written notice given within a
reasonable period of time not to exceed, except in case of a continuing breach,
four calendar months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the Bank shall pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the greater of three (3) times the average of
the three (3) preceding years' Base Salary paid to the Executive or the salary
payable to the Executive for the remaining term of this Agreement; provided,
--------
however, that if the Bank is not in compliance with its minimum capital
- -------
requirements, such payments shall be deferred until such time as the Bank is in
capital compliance. At the discretion of the Executive, such payments shall be
made in a lump sum immediately upon the occurrence of an Event of Termination
subject to only the proviso above or paid monthly during thirty-six (36) months
following the Executive's termination.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, health and disability coverage substantially identical to the
coverage maintained by the Bank for Executive prior to his termination. Such
coverage shall cease upon the earlier of Executive's employment by another
employer or thirty six (36) months.
(d) On an annual basis on January 2, or if January 2 is not a regular
business day, then on the next such regular business day, of each year,
Executive shall elect whether, in the event amounts are payable under Section
4(b) hereof, such amounts shall be paid in a lump sum or on a pro rata basis
pursuant to such section. Such election shall be irrevocable for the year for
which such election is made.
5. CHANGE IN CONTROL.
<PAGE>
(a) No benefit shall be payable under this Section 5 unless there shall
have been a Change in Control of the Bank or Holding Company, as set forth
below. For purposes of this Agreement, a "Change in Control" of the Bank or
Holding Company shall mean an event 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
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, 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
Board of the Bank or Holding Company 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 stockholders 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; or (c) a merger, consolidation or sale of all or
substantially all the assets of the Bank or the Holding Company 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 with one or more corporations as a
result of which the outstanding shares of the class of securities then subject
to the Plan are exchanged for or converted into cash or property or securities
not issued by the Bank or Holding Company; or (e) a tender offer is made for 20%
or more of the outstanding securities of the Bank or Holding Company.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board of the Bank or the Holding Company
has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), (d), (e), (f) and (g) of
this Section 5 upon his subsequent termination of employment at any time during
the term of this Agreement (regardless of whether such termination results from
his resignation or his dismissal), unless such termination is because of his
death, disability or for cause. Upon the Change in Control, Executive shall have
the right to elect to terminate his employment with the Bank at any time during
the term of this Agreement.
(c) Upon the occurrence of a Change in Control followed by the Executive's
termination of employment, the Bank shall pay Executive, or in the event of his
subsequent
<PAGE>
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to three (3) times the
average of the three (3) preceding years' Base Salary paid to the Executive. At
the discretion of the Executive, such payment may be made in a lump sum
immediately upon a Change in Control and termination of employment of Executive
or paid monthly during the thirty-six (36) months following the Executive's
termination.
(d) Upon the occurrence of a Change in Control followed by the Executive's
termination of employment, the Bank will cause to be continued life, health and
disability coverage substantially identical to the coverage maintained by the
Bank for Executive prior to his severance. Such coverage shall cease upon
the earlier of Executive's employment by another employer or upon the expiration
of thirty-six (36) months.
(e) Upon the occurrence of a Change in Control, the Executive will have
such rights as specified in the Holding Company's Incentive Stock Option Plan or
any other employee benefit plan with respect to options and such other rights as
may have been granted to Executive under such plans.
(f) Upon the occurrence of a Change in Control, the Executive will be
entitled to the benefits under the Bank's Management Recognition and Retention
Plans.
(g) Notwithstanding the preceding paragraphs of this Section 5, in the
event that:
(i) the aggregate payments or benefits to be made or
afforded to Executive under said paragraphs (the
"Termination Benefits") would be deemed to include
an "excess parachute payment" under 280G of the Code
or any successor thereto, and
(ii) if such Termination Benefits were reduced to an amount
(the "Non-Triggering Amount"), the value of which is
one dollar ($1.00) less than an amount equal to three
(3) times Executive's "base amount", as determined in
accordance with said Section 280G, and the
Non-Triggering Amount would be greater than the
aggregate value of the Termination Benefits (without
such reduction) minus the amount of tax required to be
paid by Executive thereon by Section 4999 of the Code,
then the Termination Benefits shall be reduced to the
Non-Triggering Amount. The allocation of the reduction
required hereby among the Termination Benefits provided
by the preceding paragraphs of this Section 5 shall be
determined by the Executive. In the event that
Executive receives the Non-Triggering Amount pursuant
to this paragraph (g) and it is subsequently
<PAGE>
determined by the Internal Revenue Service or judicial
authority that Executive is deemed to have received an
amount in excess of the Non-Triggering Amount, the Bank
shall pay to Executive an amount equal to the value of the
payments or benefits in excess of the Non-Triggering Amount
he is so deemed to have received.
(h) On an annual basis on January 2, or if January 2 is not a regular
business day, then on the next such regular business day, of each year,
Executive shall elect whether, in the event amounts are payable under Section
5(c) hereof, such amounts shall be paid in a lump sum or on a pro rata basis
pursuant to such section. Such election shall be irrevocable for the year for
which such election is made.
6. TERMINATION FOR DISABILITY.
(a) If, as a result of Executive's incapacity due to physical or mental
illness, he shall have been absent from his duties with the Bank on a full-time
basis for six (6) consecutive months, and within thirty (30) days after written
notice of potential termination is given he shall not have returned to the full-
time performance of his duties, the Bank or the Holding Company may terminate
Executive's employment for "Disability."
(b) The Bank will pay Executive, as disability pay, a monthly payment
equal to the greater amount of three-quarters (3/4) of Executive's monthly rate
of Base Salary on the effective date of such termination or $14,937.50. These
disability payments shall commence on the effective date of Executive's
termination and will end on the earlier of (i) the date Executive returns to the
full-time employment of the Bank in the same capacity as he was employed prior
to his termination for Disability and pursuant to any employment agreement
between Executive and the Bank; (ii) Executive's full-time employment by another
employer; (iii) Executive attaining the normal age of retirement; or (iv)
Executive's death. Notwithstanding any other provision to the contrary, the Bank
may apply any proceeds from disability income insurance for Executive which was
paid for by the Bank as partial satisfaction of its obligation under this
Section. The disability payments will be in addition to any benefit payable from
any qualified or non-qualified retirement plans, stock benefit plans or other
programs maintained by the Bank.
(c) The Bank will cause to be continued life, health and disability
coverage substantially identical to the coverage maintained by the Bank for
Executive prior to his termination for Disability. This coverage shall cease
upon the earlier of (i) the date Executive returns to the full-time employment
of the Bank, in the same capacity as he was employed prior to his termination
for Disability and pursuant to an employment agreement between Executive and the
Bank; (ii) Executive's full-time employment by another employer; (iii)
Executive's attaining the normal age of retirement, or (iv) the Executive's
death.
<PAGE>
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period during which
Executive is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT.
Termination by the Bank of the Executive based on "Retirement" shall
mean termination in accordance with the Bank's retirement policy or in
accordance with any retirement arrangement established with Executive's consent
with respect to him. Upon termination of Executive upon Retirement, Executive
shall be entitled to all benefits under any retirement plan of the Bank and
other plans to which Executive is a party. In addition, the Bank will cause to
be continued health coverage substantially identical to the coverage maintained
by the Bank for Executive prior to his Retirement until his death.
8. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and- desist order, or material
breach of any provision of this Agreement. In determining incompetence, the acts
or omissions shall be measured against standards generally prevailing in the
savings institutions industry. Notwithstanding the foregoing, Executive shall
not be deemed to have been Terminated for Cause unless and until there shall
have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the members of the Board at a
meeting of the Board called and held for that purpose (after reasonable notice
to Executive and an opportunity for him, together with counsel, to be heard
before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. The Executive shall not have the right to
receive compensation or other benefits for any period after Termination for
Cause. Any stock options granted to Executive under any stock option plan of
the Bank, the Holding Company or any subsidiary or affiliate thereof, shall
become null and void effective upon Executive's receipt of Notice of Termination
for Cause pursuant to Section 9 hereof, and shall not be exercisable by
Executive at any time subsequent to such Termination for Cause.
9. NOTICE.
Any purported termination by the Holding Company or by Executive shall be
communicated by Notice of Termination to the other party hereto.
For purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated. "Date of Termination" shall mean (A) if Executive's
employment is terminated for Disability, thirty (30) days after a Notice of
Termination is given (provided that he shall not have returned to the
performance of his duties on
<PAGE>
a full-time basis during such thirty (30) day period), and (B) if his employment
is terminated for any other reason, the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided that if, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
Executive his full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, Base Salary) and continue him
as a participant in all compensation, benefit and insurance plans in which he
was participating when the notice of dispute was given, until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
10. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with paragraph (b) of this Section 10 during
the term of this Agreement and for one (1) full year after the expiration or
termination hereof.
(b) Executive shall, upon reasonable notice, furnish such information and
assistance to the Bank as may reasonably be required by the Bank in connection
with any litigation in which it or any of its subsidiaries or affiliates is, or
may become, a party.
11. NON-DISCLOSURE.
Executive recognizes and acknowledges that the knowledge of the business
activities and plans for business activities of the Bank and affiliates thereof,
as it may exist from time to time, is a valuable, special and unique asset of
the business of the Bank. Executive will not, during or after the term of his
employment, disclose any knowledge of the past, present, planned or considered
business activities of the Bank or affiliates thereof to any person, firm,
corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Bank. In the
event of a breach or threatened breach by the Executive of the provisions of
this Section, the Bank will be entitled to an injunction restraining Executive
from disclosing, in whole or in part, the knowledge of the past, present,
planned or considered business activities of the Bank or affiliates thereof, or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Bank from
pursuing other
<PAGE>
remedies available to the Bank for such breach or threatened breach, including
the recovery of damages from Executive.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be paid in cash or check from
the general funds of the Bank. The Holding Company, however, guarantees payment
and provision of all amounts and benefits due hereunder to Executive, if such
amounts due from the Bank are not timely paid or provided by the Bank, such
amounts and benefits shall be paid or provided by the Holding Company.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring of Executive of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that Executive is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver for
such term or condition for the future of as to any act other than that
specifically waived.
16. REQUIRED PROVISIONS.
<PAGE>
(a) The Bank may terminate the Employee's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Employee's right to compensation or other benefits under this Agreement.
Employee shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 hereinabove.
(b) If the Employee is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) (12 USC 1818(e)(3)) or 8(g) (12 USC 1818(g)) of the Federal
Deposit Insurance Act, as amended by the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, the Bank's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (I)
pay the Employee all or part of the compensation withheld while their contract
obligations were suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
(c) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e) (12 USC 1818(e)) or 8(g) (12 USC 1818(g)) of the Federal Deposit
Insurance Act, as amended by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, all obligations of the Bank under this contract shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x) (12 USC
1813(x)(1)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, all obligations of
the Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the institution, (I) by the Federal Deposit
Insurance Corporation, at the time FDIC enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in Section
13(c) (12 USC 1823(c)) of the Federal Deposit Insurance Act, as amended by the
Financial Institutions Reform, Recovery and Enforcement Act of 1989; or (ii) by
the Office of Thrift Supervision ("OTS") at the time the OTS or its District
Director approves a supervisory merger to resolve problems related to the
operations of the Bank or when the Bank is determined by the OTS or FDIC to be
in an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
17. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such
<PAGE>
provision not held so invalid, and each such other provision and part thereof
shall to the full extent consistent with law continue in full force and effect.
18. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
19. GOVERNING LAW.
This Agreement and its validity, interpretation, performance and
enforcement shall be governed by the Federal law.
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
21. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Bank, which payments are guaranteed by the Holding Company
pursuant to Section 12 hereof.
22. INDEMNIFICATION.
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Federal law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Bank (whether or not he continues to be a director or officer
at the time of incurring such expenses or liabilities), such expenses and
liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements, such settlements to be
approved by the Board of Directors of the Bank, if such action is brought
against Executive in his capacity as a officer or director of the Bank.
However, such indemnification shall not extend to matters as to which Executive
is finally adjudged to be liable for willful misconduct in the performance of
his duties.
<PAGE>
SIGNATURES.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed and
its seal to be affixed hereunto by its duly authorized officer, and Executive
has signed this Agreement, on the 19th day of April, 1990.
ATTEST: MID AMERICA FEDERAL SAVINGS BANK
/s/ Carolyn Pihera BY: /s/ Kenneth Koranda
- ------------------ -----------------------
Secretary President
(SEAL)
WITNESS:
/s/ Mary Hanna /s/ Allen Koranda
- -------------- -----------------
Executive
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
OF ALLEN KORANDA
----------------
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Employment Agreement of Allen
Koranda dated April 19, 1990 (the "Agreement") by adding the following two new
sentences to the end of Section 5(a) of the Agreement:
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. Section
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.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective
this August 28, 1990.
ATTEST: MID AMERICA FEDERAL SAVINGS BANK
By: /s/ Carolyn Pihera By: /s/ Kenneth Koranda
------------------ -------------------
Corporate Secretary President
EMPLOYEE
By: /s/ Allen Koranda
-----------------
<PAGE>
Amendment to Employment Agreement
of Allen Koranda
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Employment Agreement of Allen
Koranda dated April 19, 1990, as amended, (the "Agreement"), by adding a new
sentence after the first sentence of Section 1 of the Agreement as shown below,
and by revising Section 2(a) to read as shown below, both such amendments to be
effective as of the date shown below.
(Add after first sentence of Section 1)
The Executive shall render administrative and management services to the Bank
such as are customarily performed by persons in a similar executive capacity.
(Revised Section 2(a))
2. TERMS AND DUTIES
----------------
(a) The period of Executive's employment under this Agreement shall be deemed
to have commenced as of the date first above written and shall continue for a
period of sixty (60) full calendar months thereafter. Commencing on the third
anniversary date of this Agreement, and continuing at each anniversary date
thereafter, the board of directors of the Bank ("Board") may extend the
Agreement an additional year. The Board will review the Agreement and the
Executive's performance annually for purposes of determining whether to extend
the Agreement, and the results thereof shall be included in the minutes of the
Board's meeting. In the event the Executive chooses not to renew the Agreement
for an additional period, the Executive shall provide the Bank with written
notice at least ten (10) days and not more than twenty (20) days prior to such
anniversary date. If either the Bank or the Executive chooses not to renew the
Agreement, the Executive's employment shall terminate at the end of the
remaining term of the Agreement.
In WITNESS WHEREOF, the parties hereto have executed this Amendment effective
this August 10, 1992.
ATTEST: MID AMERICA FEDERAL SAVINGS BANK
By: /s/ Carolyn Pihera By: /s/ Kenneth Koranda
------------------ -------------------
Corporate Secretary President
EMPLOYEE
By: /s/ Allen Koranda
-----------------
<PAGE>
Amendment to Employment Agreement
of Allen Koranda
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Employment Agreement of Allen
Koranda dated April 19, 1990, as amended, (the "Agreement"), as shown below.
Such amendments shall be effective as of the date shown below.
1. Section 5(a)(iii)(a) shall be revised to read as follows:
(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 and completes the purchase 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 ownership plan and trust;
2. Section 5(a)(iii)(e) shall be revised to read as follows:
(e) a tender offer is made and completed for 20% or more of the outstanding
securities of the Bank or Holding Company.
3. Section 5(a)(iii)(d) shall be revised to read as follows:
(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
with one or more corporations as a result of which the outstanding shares
of the class of securities then subject to the Plan are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Holding Company, and such proxy statement proposal is approved by the
shareholders of the Holding Company.
4. Section 6, "Termination for Disability", shall be amended by adding the
following new paragraph 6(e):
(e) For purposes of this section and this Agreement, "disability" shall be
defined by reference to its definition contained in the Mid America Federal
Savings Bank Employees Profit Sharing Plan.
5. Section 21, "Payment of Legal Fees" shall be amended to read as follows:
<PAGE>
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank, if the Executive is successful on the
merits of such dispute or question pursuant to any legal judgment,
arbitration or settlement. Such payments are guaranteed by the Holding
Company pursuant to Section 12 hereof.
6. Section 4(d) shall be amended by adding the following sentence at the end
of this paragraph:
"Notwithstanding the previous sentence, however, the Bank may, in its sole
discretion, require such payments to be made in a lump sum."
IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective
this December 21, 1993.
ATTEST: MID AMERICA FEDERAL SAVINGS BANK
By: /s/ Carolyn Pihera By: /s/ Kenneth Koranda
------------------ -------------------
Corporate Secretary President
EMPLOYEE
By: /s/ Allen Koranda
-----------------
<PAGE>
Amendment to Employment Agreement
of Allen Koranda
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Employment Agreement of Allen
Koranda dated April 19, 1990, as amended, (the "Agreement"), as shown below.
Such amendments shall be effective as of the date shown below.
1. Section 4(b) shall be revised to read as follows:
Upon the occurrence of an Event of Termination, the Bank shall pay
Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or
liquidated damages, or both, a sum equal to the greater of (A) three (3)
times the average of the three preceding years compensation paid to the
Executive or (B) the compensation payable to the Executive for the
remaining term of this Agreement; provided, however, that if the Bank is
-------- -------
not in compliance with its minimum capital requirements, such payments
shall be deferred until such time as the Bank is in capital compliance. For
purposes of the preceding sentence, compensation shall include only Base
Salary plus payments made under the MAF Bancorp Executive Annual Incentive
Plan (or such other annual cash incentive plan in effect with respect to
years ending prior to July 1, 1993). At the discretion of the Executive,
such payments shall be made in a lump sum immediately upon the occurrence
of an Event of Termination, subject to only the proviso above or paid
monthly during the thirty-six (36) months following the Executive's
termination.
2. Section 5(c) shall be revised to read as follows:
Upon the occurrence of a Change in Control followed by the Executive's
termination of employment, the Bank shall pay Executive, or in the event of
his subsequent death, his beneficiary or beneficiaries, or his estate, as
the case may be, as severance pay or liquidated damages, or both, a sum
equal to three (3) times the average of the three preceding years
compensation paid to the Executive. For purposes of the preceding sentence,
compensation shall include only Base Salary plus payments made under the
MAF Bancorp Executive Annual Incentive Plan (or such other annual cash
incentive plan in effect with the respect to years ending prior to July 1,
1993). At the discretion of the Executive, such payment may be made in a
lump sum immediately upon a Change in Control and termination of employment
of Executive or paid monthly during the thirty-six (36) months following
the Executive's termination.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective
this December 20, 1995.
ATTEST: MID AMERICA FEDERAL SAVINGS BANK
By: /s/ Carolyn Pihera By: /s/ Kenneth Koranda
------------------ -------------------
<PAGE>
Corporate Secretary President
EMPLOYEE
By: /s/ Allen Koranda
-----------------
<PAGE>
Amendment to Employment Agreement of Allen Koranda
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Employment Agreement of Allen
Koranda dated April 19, 1990, as amended, (the "Agreement"), as shown below.
Such amendment shall be effective as of the date shown below.
Section 5(g) shall be revised to read as follows:
Notwithstanding the preceding paragraphs of this Section 5, in the event it
shall be determined that any payment or distribution of any type to or for the
benefit of the Executive by the Bank, any of its affiliates, or any person who
acquires ownership or effective control of the Bank or Holding Company or
ownership of a substantial portion of the Bank's or Holding Company's assets
(within the meaning of Section 280G of the Code, and the regulations thereunder)
or any affiliate of such person, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the "Total
Payments"), is subject to the excise tax imposed by Section 4999 of the Code or
any similar successor provision or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest and penalties,
are collectively referred to as the "Excise Tax"), then, except in the case of a
Deminimus Excess Amount (as described below), the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes imposed upon the Gross-Up Payment
(including any federal, state and local income, payroll or excise taxes and any
interest or penalties imposed with respect to such taxes), the Executive retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total
Payments (not including any Gross-Up Payment).
In the event that the amount by which the present value of the Total Payments
which constitute "parachute payments" (within the meaning of Section 280G of the
Code)(the "Parachute Payments") exceeds three (3) times the Executive's "base
amount" (within the meaning of Section 280G of the Code)(the "Base Amount") is
less than 3% of the amount determined under Section 5(c) of this Agreement, such
excess shall be deemed to be a Deminimus Excess Amount and the Executive shall
not be entitled to a Gross-Up Payment. In such an instance, the Parachute
Payments shall be reduced to an amount (the "Non-Triggering Amount"), the value
of which is one dollar ($1.00) less than an amount equal to three (3) times
Executive's Base Amount; provided that such reduction shall not be made unless
the Non-Triggering Amount would be greater than the aggregate value of the
Parachute Payments (without such reduction) minus the amount of Excise Tax
required to be paid by Executive thereon. The reduction required hereby shall
be made by reducing the amount payable under Section 5(c) of this Agreement.
1
<PAGE>
All determinations as to the portion, if any, of the Total Payments which
constitute Parachute Payments, whether a Gross-Up Payment is required, the
amount of such Gross-Up Payment, the amount of any reduction, and any amounts
relevant to the foregoing paragraphs of this Section 5(g) shall be made by an
independent accounting firm selected by the Bank, which may be the accounting
firm then regularly retained by the Bank (the "Accounting Firm"). The Accounting
Firm shall provide its determination (the "Determination"), together with
detailed supporting calculations, regarding the amount of any Gross-Up Payment
and any other relevant matter, both to the Bank and the Executive, within five
(5) days of a date of termination, if applicable, or such earlier time as is
requested by the Bank or the Executive (if the Executive reasonably believes
that any of the Total Payments may be subject to the Excise Tax). Any
determination by the Accounting Firm shall be binding upon the Bank and the
Executive. As a result of uncertainty in the application of Sections 280G and
4999 of the Code at the time of the initial determination by the Accounting Firm
hereunder, or as a result of a subsequent determination by the Internal Revenue
Service or a judicial authority, it is possible that the Bank should have made
Gross-Up Payments ("Underpayment"), or that Gross-Up Payments will have been
made by the Bank which should not have been made ("Overpayments"). In either
such event, the Accounting Firm shall determine the amount of the Underpayment
or Overpayment that has occurred. In the case of the Underpayment, the amount of
such Underpayment shall be promptly paid by the Bank to or for the benefit of
the Executive. In the case of an Overpayment, the Executive shall, at the
direction and expense of the Bank, take such steps as are reasonably necessary
(including the filing of returns and claims for refund), follow reasonable
instructions from, and procedures established by, the Bank, and otherwise
reasonably cooperate with the Bank to correct such Overpayment, including
repayment of such Overpayment to the Bank.
Effect of Certain Accounting Rules. The Executive acknowledges that it is in
the Bank and Holding Company's best interests to remain eligible to account for
any business combination into which they may become a party under the "pooling-
of-interests" method of accounting. The Bank does not believe that any provision
of the foregoing Amendment to Employment Agreement will affect the Bank or
Holding Company's ability to so account for any business combination. Due to the
uncertainties associated with the accounting rules governing the pooling-of-
interests method, however, it is possible that the provisions of this Amendment
may impact the Bank or Holding Company's ability to use pooling-of-interests
accounting for business combinations. Accordingly, in the event the Board of
Directors determines it to be in the best interests of the Bank or Holding
Company to account for a business combination under the pooling-of-interests
method and, in the written opinion of the Accounting Firm referred to above, if
any provision of this Amendment makes a business combination to which the Bank
or Holding Company is a party ineligible for pooling-of interests accounting
under the provisions of APB Opinion No. 16, as modified or amended, that but for
such provision of this Amendment to Employment Agreement would otherwise be
eligible for such accounting treatment, then the Bank and Executive agree that
the terms of this Amendment shall be rescinded to the extent necessary to enable
the business combination to so qualify for such accounting treatment.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment effective this
October 26, 1999.
ATTEST: MID AMERICA BANK, FSB
By: /s/ Carolyn Pihera By: /s/ Kenneth Koranda
--------------------- ----------------------
Carolyn Pihera Kenneth Koranda
Corporate Secretary President
EMPLOYEE
BY /s/ Allen Koranda
----------------------
Allen Koranda
<PAGE>
Exhibit No. 10(xiv) - Employment Agreement between MAF Bancorp, Inc. and David
Burba
<PAGE>
MAF BANCORP, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT, is made effective as of January 1, 1999 ("Effective Date"),
by and between MAF BANCORP, INC., a Delaware corporation (the "Company") and
David C. Burba ("Executive").
WHEREAS, the Executive was previously employed by Westco Bancorp, Inc.
("Westco") and by the First Federal Savings and Loan Association of Westchester
(the "Westco Subsidiary"); and
WHEREAS, Westco has merged with and into the Company and the Westco
Subsidiary has become a wholly-owned subsidiary of the Company through a merger
with Mid America Bank, fsb (the "Bank"); and
WHEREAS, the Company desires to provide for the employment of the Executive
by the Company and the Bank following the Merger and the termination of his
employment agreements with Westco and the Westco Subsidiary ("Westco Employment
Agreements"); and
WHEREAS, the Executive is willing to commit himself to serving the Company
and the Bank on the terms and conditions herein provided;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
-----------------------------
(a) Executive shall be employed as an Executive Vice President of the
Company and of the Bank effective as of the date hereof for the Period of
Employment as defined hereafter. The Executive shall report to the Chairman of
the Board and Chief Executive Officer of the Company (the "CEO"). The
Executive's duties and responsibilities shall consist of such duties and
responsibilities as may from time to time be assigned to the Executive by the
CEO, which duties and responsibilities shall be duties customary for an
Executive Vice President of the Company or Bank and will initially involve
directing and expanding the lending lines of business that Westco and the Westco
Subsidiary have developed in the Lincoln Park and Lakeview areas of Chicago,
representing the Company in identifying merger and acquisition candidates,
maintaining the retail banking customer relationships in the Westco and Westco
Subsidiary offices, representing the Bank in trade association activities and
participating in the decision-making process and meetings of the Company's and
Bank's senior management. The Executive shall devote substantially all of his
business time, attention, skill and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Company and the Bank.
(b) At the first regularly scheduled meeting of their respective Board of
Directors after the Effective Date, the Company and Bank shall cause Executive
to be elected to the Board of Directors of the Company and the Bank for a term
expiring at the Company's 1999 Annual Meeting of Stockholders and to nominate
the Executive for election at that meeting for a term
<PAGE>
expiring at the Company's 2002 Annual Meeting of Stockholders. Executive
acknowledges that for so long as he is an employee of the Company or the Bank,
he will not be entitled to any compensation in connection with his service as a
director, other than the annual retainer then paid to employee-directors. In the
event he becomes a non-employee director, Executive will be entitled to such
compensation, including stock option awards, as may then be paid to non-employee
directors.
2. PERIOD OF EMPLOYMENT. The period of the Executive's employment under
--------------------
this Agreement (the "Period of Employment") as an Executive Vice President shall
commence upon the Effective Date hereof and shall continue for a period of
thirty-six (36) full calendar months thereafter.
3. COMPENSATION AND REIMBURSEMENT.
------------------------------
(a) Salary. During the Period of Employment, the Bank shall pay the
------
Executive the compensation specified in this Agreement for the services
performed hereunder. The Bank shall pay the Executive as compensation a base
salary ("Base Salary") of $205,000 per year.
(b) Bonuses.
-------
(i) In consideration of the Executive's agreement to terminate his
Westco and Westco Subsidiary Employment Agreements and his entitlement to any
amounts thereunder, and of his agreement to continue in the employ of the
Company under the terms described in this Agreement, the Executive shall
receive a retention bonus in an amount equal to $920,000, less applicable state
and federal withholding taxes. The retention bonus shall be paid in three
installments: the first installment of $75,000 shall, to the extent not paid by
Westco or the Westco Subsidiary prior to the Effective Date, be paid no later
than January 10, 1999; the second installment of $650,000 shall be paid on April
1, 1999; and the third installment of $195,000 shall be paid on April 1, 2000.
The Bank shall increase the amount of the third installment by the amount of
interest that would have been credited on such amount as if it had been deferred
under the Bank's Executive Deferred Compensation Plan on April 1, 1999. In the
event of Executive's death or termination of employment for any reason prior to
the full payment of the retention bonus, the retention bonus shall be paid to
the Executive or to his designated beneficiary at the dates set forth above.
(ii) The Executive shall be eligible for consideration in 1999 and
subsequent years for annual incentive bonuses on the same basis as any annual
incentive bonus payable to other executives of the Company participating in Tier
II of the MAF Bancorp, Inc. Annual Incentive Plan and the plans described in
paragraph 3(c) below ("Comparable Executives") as determined by the Compensation
Committee of the Company's Board of Directors. Executive acknowledges that under
the Company's current compensation program, Comparable Executives participate in
Tier II of the annual incentive and other plans and are eligible to receive
annual bonuses in the range of 40% to 60% of Base Salary assuming certain safety
and soundness standards are maintained and the Company's earnings performance is
between target and superior, as such terms are defined under the annual
incentive plan.
(c) Options.
-------
<PAGE>
(i) The Company shall grant to Executive an option to purchase
10,000 shares of Company common stock as of the Effective Date, or if later, the
date in January 1999 on which the Company grants options to Comparable
Executives. Such option shall be granted under the Company's 1990 Incentive
Stock Option Plan (the "Incentive Plan") and shall be on the same terms and
conditions as non-qualified options granted in January 1999 to Comparable
Executives as part of the Company's annual option award program. The Executive
shall be entitled to receive additional option grants under the Incentive Plan
in each of 2000, 2001 and 2002 on the same basis as such grants are made to
Comparable Executives.
(ii) In addition, on the later of the Effective Date or the date in
1999 on which grants are made to Comparable Executives, the Executive will be
eligible for consideration to receive stock option grants under the 1993 Premium
Price Stock Option Plan and performance unit awards under the Company's
Shareholder Value Long-Term Incentive Plan on the same basis as grants and
awards are made to Comparable Executives. The Executive shall be entitled to
receive additional grants and awards under these Plans in each of 2000, 2001 and
2002 on the same basis as such grants are made to Comparable Executives.
(d) Vacation; Fringe Benefits. During the Period of Employment, the
-------------------------
Executive shall be entitled to a paid vacation, periods of absence occasioned by
illness and reasonable leaves of absence, automobile allowance, and to expense
reimbursement related to country club dues, participation in and attendance at
professional and civic organizations, meetings and conventions, in each instance
in accordance with Company policies applicable to Comparable Executives.
(e) Benefit Plans. Except as set forth below, the Executive shall be
-------------
eligible to participate in or receive benefits under any employee benefit plans
of the Company and Bank including, but not limited to, profit sharing and 401(k)
plans, employee stock ownership (ESOP) plans, health-and-accident plans, medical
coverage or any other employee benefit plans or arrangements, subject to and on
a basis consistent with the terms, conditions and overall administration of such
plans and arrangements. Nothing paid to the Executive under any such plan or
arrangement shall be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement. In addition, Executive shall be
entitled to participate in other executive benefit plans at the same level as
Comparable Executives. In addition to the stock option plans and annual
incentive plan described above, these plans shall include the Mid America Bank
Executive Deferred Compensation Plan, the Mid America Bank Directors Deferred
Compensation Plan and the Mid America Bank Supplemental Executive Retirement
Plan; provided, however, that in the event of a change in control (as defined in
the Deferred Compensation Plans and the Supplemental Executive Retirement Plan),
the Executive shall not be entitled to receive any additional years of service
credit or other incremental benefits applicable to other participants under such
Plans in connection with a change in control. For purposes of vesting and
eligibility to participate in such plans (but not for purposes of determining
benefits thereunder), Executive shall be given credit for Executive's service
with Westco and the Westco Subsidiary.
<PAGE>
4. TERMINATION; NOTICE.
-------------------
(a) The Company may terminate the Executive's employment with the Company
and the Bank at any time, with or without Cause. The Executive may terminate his
employment with the Company and Bank at any time for any reason.
(b) As used in this Agreement, an "Event of Termination" shall mean:
(i) the termination by the Company and the Bank of the Executive's
full-time employment hereunder for any reason other than for Cause, death or
Disability, or
(ii) the voluntary termination by the Executive of employment with
the Company and the Bank following a substantial breach of this Agreement by the
Company or Bank which breach is not cured by the Company or Bank within thirty
(30) days following the date the Executive gives written Notice of Termination
indicating the Executive's intention to voluntarily terminate employment as a
result thereof.
(c) Following the occurrence of an Event of Termination, the Bank shall
continue to pay to the Executive, or, in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, as severance
pay or liquidated damages, or both, the Base Salary and the annual incentive
bonus described in paragraph 3(b)(ii) above and to continue the life, medical
and other insurance benefits otherwise provided hereunder for the remainder of
the Period of Employment, as if Executive's employment continued hereunder, in
exchange for which the Executive shall execute and deliver to the Bank a release
and settlement agreement pursuant to which the Executive shall waive any and all
claims resulting from employment at or termination from the Bank other than
payments or benefits which are expressly provided for in this Agreement.
(d) The term "for Cause" shall mean termination because of the Executive's
personal dishonesty, incompetence, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. In determining incompetence, the acts or omissions
shall be measured against standards generally prevailing in the savings
institution industry. In determining willfulness, no act or failure to act on
the Executive's part shall be considered "willful" unless done or omitted to be
done by him not in good faith and without reasonable belief that his action or
omission was in the best interests of the Bank.
(e) The term "Disability" shall mean the Executive's absence from his
duties on a full-time basis for six (6) consecutive months as a result of his
incapacity due to physical or mental illness and his failure to return to full-
time performance of his duties within thirty (30) days after written notice of
potential termination is given to Executive by the Company.
(f) Any termination by the Company or by Executive shall be communicated
by Notice of Termination to the other party hereto and the termination shall
become effective as of the "Date of Termination" with respect thereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this
<PAGE>
Agreement relied upon and shall set forth in detail the facts and circumstances
claimed to provide a basis for the termination. The "Date of Termination" shall
be
(i) thirty (30) days after the Notice of Termination is given if
the Notice of Termination is given by the Company without Cause or due to
Disability, or by the Executive in the absence of a substantial breach of the
Agreement; or
(ii) the date the Notice of Termination is given if the termination
is by the Company for Cause; or
(iii) thirty (30) days after the Notice of Termination is given if
the Notice of Termination is given in connection with a substantial breach of
the Agreement by the Company or the Bank and such breach is not cured within
such thirty (30) day period.
5. POST-EMPLOYMENT RESTRICTIVE COVENANTS. The Executive's activities
-------------------------------------
during his employment and following the termination of his employment for any
reason shall be subject to the Agreement Regarding Post-Employment Restrictive
Covenants attached hereto as Appendix A.
6. EFFECT ON PRIOR AGREEMENTS. This Agreement contains the entire
--------------------------
understanding between the parties hereto and supersedes any prior employment or
severance compensation agreements between Executive and Westco.
7. MODIFICATION AND WAIVER. This Agreement may not be modified or
-----------------------
amended except by an instrument in writing signed by the parties hereto. No term
or condition of this Agreement shall be deemed to have been waived, nor shall
there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument of the party charged with such waiver or
estoppel. No such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such term
or condition for the future as to any act other than that specifically waived.
8. TAX WITHHOLDING. The Bank may withhold from any amounts payable to
---------------
the Executive under this Agreement to satisfy all applicable Federal, State,
local or other withholding taxes. In the event the Bank fails to withhold such
sums for any reason, it may require the Executive to promptly remit to it
sufficient cash to satisfy all applicable income and employment withholding
taxes.
9. ARBITRATION. Except as expressly set forth elsewhere in this
-----------
Agreement, it is mutually agreed between the parties that arbitration shall be
the sole and exclusive remedy to redress any dispute, claim or controversy
(hereinafter referred to as "grievance") involving the interpretation of this
Agreement or the terms or conditions of this Agreement or the terms, conditions
or termination of the Executive's employment with the Company or Bank. It is
the intention of the parties that the arbitration award shall be final and
binding and that a judgment on the award may be entered in any court of
competent jurisdiction and enforcement may be had according to its terms.
Arbitration shall be initiated by one party filing a written demand on the other
party. Any demand for arbitration by the Executive shall be made within 20 days
after receipt of the Notice of Termination. The arbitrator shall be chosen in
accordance with the
<PAGE>
voluntary labor arbitration rules of the American Arbitration Association. The
place of the arbitration shall be the offices of the American Arbitration
Association in Chicago, Illinois. The arbitrator shall not have jurisdiction or
authority to change any of the provisions of this Agreement but shall interpret
or apply any clause or clauses of this Agreement. The arbitrator shall have the
power to compel the attendance of witnesses at the hearing. The parties
stipulate that the provisions hereof, and the decision of the arbitrator with
respect to any grievance, shall be the sole and exclusive remedy for any alleged
breach of the employment relationship in which event the Company or Bank shall
be entitled to seek relief in any court having jurisdiction thereof. The parties
hereby acknowledge that subject to the foregoing exception, neither party has
the right to resort to any federal, state or local court or administrative
agency concerning breaches of this Agreement and that the decision of the
arbitrator shall be a complete defense to any suit, action or proceeding
instituted in any federal, state or local court or before any administration
agency with respect to any grievance which is arbitrable as herein set forth.
The arbitration provisions hereof shall, with respect to any grievance, survive
the termination or expiration of the Executive's employment under this
Agreement.
10. MISCELLANEOUS.
-------------
(a) If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
(b) The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
(c) To the extent not preempted by Federal law, this Agreement shall be
governed by and construed in accordance with the laws of the State of Illinois.
(d) Notwithstanding anything herein to the contrary, to the extent that
any compensation or benefits are paid to or received by Executive from the Bank
or any other subsidiary of the Company, such compensation or benefits shall be
deemed to satisfy the Company's obligations hereunder.
11. SUCCESSORS. This Agreement shall be binding upon and inure to the
----------
benefit of the Company, and its successors and Executive and his successors and
assigns. The Company shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Agreement, in the same manner and to the same extent that the Company would
be required to perform if no such succession or assignment had taken place.
[SIGNATURE PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, each of the Company and Bank have caused this Agreement
to be executed by its duly authorized officer and the Executive has signed this
Agreement, effective as of the date first written above.
MAF BANCORP, INC.
By: /s/ Allen H. Koranda
------------------------------------
Allen H. Koranda
Chairman and Chief Executive Officer
Executive:
/s/ David C.Burba
----------------------------------------
David C. Burba
<PAGE>
Exhibit 10(xiv)
Amendment to Employment Agreement of David Burba
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Employment Agreement of David
Burba dated January 1, 1999, (the "Agreement"), as shown below. Such amendment
shall be effective as of the date shown below.
Section 4(g) shall be added as follows:
Notwithstanding Section 4(c) of this Agreement, in the event it shall be
determined that a payment or distribution of the type described in Sections
3(c), (e) and 4(c) to or for the benefit of the Executive by the Holding
Company, any of its affiliates, or any person who acquires ownership or
effective control of the Holding Company or ownership of a substantial portion
of the Holding Company's assets (within the meaning of Section 280G of the Code,
and the regulations thereunder) or any affiliate of such person, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (the "Total Payments"), is subject to the excise tax imposed by
Section 4999 of the Code or any similar successor provision or any interest or
penalties with respect to such excise tax (such excise tax, together with any
such interest and penalties, are collectively referred to as the "Excise Tax"),
then, except in the case of a Deminimus Excess Amount (as described below), the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
imposed upon the Gross-Up Payment (including any federal, state and local
income, payroll or excise taxes and any interest or penalties imposed with
respect to such taxes), the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Total Payments (not including any
Gross-Up Payment).
In the event that the amount by which the present value of the Total Payments
which constitute "parachute payments" (within the meaning of Section 280G of the
Code)(the "Parachute Payments") exceeds three (3) times the Executive's "base
amount" (within the meaning of Section 280G of the Code)(the "Base Amount") is
less than 3% of the amount payable to Executive under Section 4(c) of this
Agreement, such excess shall be deemed to be a Deminimus Excess Amount and the
Executive shall not be entitled to a Gross-Up Payment. In such an instance, the
Parachute Payments shall be reduced to an amount (the "Non-Triggering Amount"),
the value of which is one dollar ($1.00) less than an amount equal to three (3)
times Executive's Base Amount; provided that such reduction shall not be made
unless the Non-Triggering Amount would be greater than the aggregate value of
the Parachute Payments (without such reduction) minus the amount of Excise Tax
required to be paid by Executive thereon. The reduction required hereby shall
be made by reducing the amount payable under Section 4(c) of this Agreement.
1
<PAGE>
All determinations as to the portion, if any, of the Total Payments which
constitute Parachute Payments, whether a Gross-Up Payment is required, the
amount of such Gross-Up Payment, the amount of any reduction, and any amounts
relevant to the foregoing paragraphs of this Section 4(g) shall be made by an
independent accounting firm selected by the Holding Company, which may be the
accounting firm then regularly retained by the Holding Company (the "Accounting
Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations, regarding the
amount of any Gross-Up Payment and any other relevant matter, both to the
Holding Company and the Executive, within five (5) days of a date of
termination, if applicable, or such earlier time as is requested by the Holding
Company or the Executive (if the Executive reasonably believes that any of the
Total Payments may be subject to the Excise Tax). Any determination by the
Accounting Firm shall be binding upon the Holding Company and the Executive. As
a result of uncertainty in the application of Sections 280G and 4999 of the Code
at the time of the initial determination by the Accounting Firm hereunder, or as
a result of a subsequent determination by the Internal Revenue Service or a
judicial authority, it is possible that the Holding Company should have made
Gross-Up Payments ("Underpayment"), or that Gross-Up Payments will have been
made by the Holding Company which should not have been made ("Overpayments").
In either such event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of the Underpayment,
the amount of such Underpayment shall be promptly paid by the Holding Company to
or for the benefit of the Executive. In the case of an Overpayment, the
Executive shall, at the direction and expense of the Holding Company, take such
steps as are reasonably necessary (including the filing of returns and claims
for refund), follow reasonable instructions from, and procedures established by,
the Holding Company, and otherwise reasonably cooperate with the Holding Company
to correct such Overpayment, including repayment of such Overpayment to the
Holding Company.
Effect of Certain Accounting Rules. The Executive acknowledges that it is in
the Holding Company's and Bank's best interests to remain eligible to account
for any business combination into which they may become a party under the
"pooling-of-interests" method of accounting. The Holding Company does not
believe that any provision of the foregoing Amendment to Employment Agreement
will affect the Holding Company's or Bank's ability to so account for any
business combination. Due to the uncertainties associated with the accounting
rules governing the pooling-of-interests method, however, it is possible that
the provisions of this Amendment may impact the Holding Company's or Bank's
ability to use pooling-of-interests accounting for business combinations.
Accordingly, in the event the Board of Directors determines it to be in the best
interests of the Holding Company or Bank to account for a business combination
under the pooling-of-interests method and, in the written opinion of the
Accounting Firm referred to above, if any provision of this Amendment makes a
business combination to which the Holding Company or Bank is a party ineligible
for pooling-of interests accounting under the provisions of APB Opinion No. 16,
as modified or amended, that but for such provision of this Amendment to
Employment Agreement would otherwise be eligible for such accounting treatment,
then the Holding Company and Executive agree that the terms of this Amendment
shall be rescinded to the extent necessary to enable the business combination to
so qualify for such accounting treatment.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment effective this
October 26, 1999.
ATTEST: MAF BANCORP, INC.
By: /s/ Carolyn Piherra By: /s/ Allen Koranda
------------------------------- -------------------------
Carolyn Pihera Allen Koranda
Corporate Secretary Chief Executive Officer
EMPLOYEE
By: /s/ David Burba
--------------------------
David Burba
3
<PAGE>
Exhibit No. 10(xv)
Exhibit 10(xv) Form of Special Termination Agreement, as amended, between MAF
Bancorp, Inc., and Kenneth Rusdal and various officers.
The attached Special Termination Agreement dated April 27, 1993, as amended,
between MAF Bancorp, Inc. and Kenneth Rusdal is substantially identical in
all material respects (except as otherwise noted below) with the other contracts
listed below which are not being filed:
Parties to Special Termination Agreement
----------------------------------------
MAF Bancorp, Inc. and Gerard J. Buccino
MAF Bancorp, Inc. and Michael J. Janssen
MAF Bancorp, Inc. and David W. Kohlsaat
MAF Bancorp, Inc. and William Haider
MAF Bancorp, Inc. and Thomas Miers
MAF Bancorp, Inc. and Sharon Wheeler
MAF Bancorp, Inc. and Gail Brzostek
MAF Bancorp, Inc. and Alan Schatz
MAF Bancorp, Inc. and Diane Stutte
1
<PAGE>
MAF BANCORP, INC.
SPECIAL TERMINATION AGREEMENT
This AGREEMENT is made effective as of April 27, 1993 by and between
MAF Bancorp, Inc. (the "Holding Company"), a corporation organized under the
laws of the State of Delaware, with its office at 55th & Holmes Streets,
Clarendon Hills, Illinois, and Kenneth Rusdal (the "Executive"). The term "Bank"
refers to Mid America Federal Savings Bank, the wholly-owned subsidiary of the
Company.
WHEREAS, the Holding Company recognizes the substantial experience and
abilities of the Executive and the Holding Company wishes to protect his
position therewith for the period provided in this Agreement; and
WHEREAS, Executive has been elected to, and has agreed to serve as an
Executive of the Holding Company and in the position of Senior Vice
President-Operations/Information Systems of the Bank, positions of substantial
responsibility which will require Executive to render administrative and
management services to the Holding Company such as are customarily performed by
persons in a similar executive capacity.
NOW, THEREFORE, in consideration of the contribution and responsibilities of
Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. At each anniversary date, the board of directors of
the Holding Company ("Board") may extend the Agreement an additional year. The
Board will review the Agreement and the Executive's performance annually for
purposes of determining whether to extend the Agreement, and the results thereof
shall be included in the minutes of the Board's meeting. In the event the
Executive chooses not to renew the Agreement, the Executive shall provide the
Holding Company with written notice at least ten (10) days and not more than
twenty (20) days prior to such anniversary date. If either the Holding Company
or the Executive chooses not to renew the Agreement for an additional period,
the Agreement shall cease at the end of its remaining term unless the
Executive's employment is voluntarily or involuntarily terminated with the
Holding Company pursuant to Section 2 hereof.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL.
--------------------------------------------
(a) Upon the occurrence of a Change in Control of the Holding
Company (as herein defined) followed at any time during the term of this
Agreement by the voluntary or involuntary termination of Executive's employment,
other than for Cause, as defined in Section 2(c) hereof, the provisions of
Section 3 shall apply. Upon the occurrence of a Change in Control, Executive
shall have the right to elect to voluntarily terminate his employment at any
time during the term of this Agreement following any demotion, loss of title,
office or significant authority, reduction in his annual compensation, or
relocation of his principal place of employment by more than 50 miles from its
location immediately prior to the Change in Control.
(b) Definition of a Change in Control. A "Change in Control" of the
Bank or the Holding Company shall mean 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 Exchange Act of 1934 (the "Exchange Act"); or
2
<PAGE>
(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 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 Holding Company representing 20% or
more of the Bank's or Holding Company's outstanding securities, 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 Board of Directors of the Holding Company 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 Holding Company's shareholders was approved by the Holding Company's
Nominating Committee, shall be, for purposes of this clause (b), considered as
though he were a member of the Incumbent Board; or (c) merger, consolidation or
sale of all or substantially all the assets of the Bank or Holding Company
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 the
reorganization, merger or consolidation of the Holding Company or Bank with one
or more corporations as a result of which the outstanding shares of the class of
securities then subject to the Plan are exchanged for or converted into cash or
property or securities not issued by the Bank or Holding Company; or (e) a
tender offer is made for 20% or more of the outstanding securities of the Bank
or 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.
(c) Executive shall not have the right to receive termination
benefits pursuant to Section 3 hereof upon Termination for Cause. The term
"Termination for Cause" shall mean termination upon intentional failure to
perform stated duties, personal dishonesty which results in loss to the Holding
Company or one of its affiliates or willful violation of any law, rule,
regulation or final cease and desist order which results in substantial loss to
the Holding Company or one of its affiliates or any material breach of this
Agreement. For purposes of this Section, no act, or the failure to act, on
Executive's part shall be "willful" unless done, or omitted to be done, not in
good faith and without reasonable belief that the action or omission was in the
best interest of the Holding Company or its affiliates. Notwithstanding the
foregoing, Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of not less than three-fourths of the
members of the Board at a meeting of the Board called and held for that purpose
(after reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying termination for Cause
and specifying the particulars thereof in detail. The Executive shall not have
the right to receive compensation or other benefits for any period after
termination for Cause. Any stock options granted to Executive under any stock
option plan of the Bank, the Holding Company or any subsidiary or affiliate
thereof, shall become null and
3
<PAGE>
void effective upon Executive's receipt of Notice of Termination for Cause
pursuant to Section 9 hereof, and shall not be exercisable by Executive at any
time subsequent to such Termination for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Bank and the
Holding Company shall pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to three (3) times the
average annual base salary paid to Executive for the three (3) years immediately
preceding Executive's termination. At the discretion of the Executive, upon an
election pursuant to Section 3(e) hereof, such payment may be made in a lump sum
immediately upon severance of Executive's employment or paid, on a pro rata
basis, semi-monthly during the thirty-six (36) months following the Executive's
termination.
(b) Upon the occurrence of a Change in Control of the Bank or the
Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or involuntary termination of employment, other than for
Termination for Cause, the Holding Company shall cause to be continued life,
health and disability coverage substantially identical to the coverage
maintained by the Bank for Executive prior to his severance. Such coverage
shall cease upon the earlier of Executive's obtaining similar coverage by
another employer or twelve (12) months from the date of Executive's termination.
In the event the Executive obtains new employment and receives less coverage for
life, health or disability, the Holding Company shall provide coverage
substantially identical to the coverage maintained by the Bank for the Executive
prior to termination for a period of twelve (12) months.
(c) Upon the occurrence of a Change in Control, the Executive will
have such rights as specified in the Holding Company's Incentive Stock Option
Plan or any other employee benefit plan with respect to options and such other
rights as may have been granted to Executive under such plans.
(d) Upon the occurrence of a Change in Control, the Executive will
be entitled to the benefits under the Bank's Management Recognition and
Retention Plans.
(e) On an annual basis Executive shall elect whether, in the event
amounts are payable under Sections 3(a) hereof, such amounts shall be paid in a
lump sum or on a pro rata basis pursuant to such sections. Such election shall
be irrevocable for the year for which such election is made.
4
<PAGE>
(f) Notwithstanding the preceding paragraphs of this Section 3, in
the event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") would be
deemed to include an "excess parachute payment" under Section 280G of the
Internal Revenue Code of 1986 (the "Code") or any successor thereto, and
(ii) if such Termination Benefits were reduced to an amount (the
"Non-Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount", as
determined in accordance with said Section 280G, and the Non-Triggering
Amount would be greater than the aggregate value of the Termination
Benefits (without such reduction) minus the amount of tax required to be
paid by Executive thereon by Section 4999 of the Code, then the Termination
Benefits shall be reduced to the Non-Triggering Amount. The allocation of
the reduction required hereby among the Termination Benefits provided by
the preceding paragraphs of this Section 3 shall be determined by
Executive. In the event that Executive receives the Non-Triggering Amount
pursuant to this paragraph (f) and it is subsequently determined by the
Internal Revenue Service or judicial authority that Executive is deemed to
have received an amount in excess of the Non-Triggering Amount, the Holding
Company shall pay to Executive an amount equal to the value of the payments
or benefits in excess of the Non-Triggering Amount he is so deemed to have
received.
4. NOTICE OF TERMINATION.
---------------------
Any purported termination by the Holding Company or by Executive shall be
communicated by Notice of Termination to the other party hereto.
For purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated. "Date of Termination" shall mean the date specified in
the Notice of Termination (which, in the case of a Termination for Cause, shall
not be less than thirty (30) days from the date such Notice of Termination is
given); provided that if, within thirty (30) days after any Notice of
Termination is given, the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal there from having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
5
<PAGE>
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Holding
Company. The Holding Company guarantees payment and provision of all amounts and
benefits due to the Executive under the Special Termination Agreement by and
between the Bank and the Executive, if any amounts and benefits due from the
Bank are not timely paid or provided by the Bank, such amounts and benefits
shall be paid or provided by the Holding Company.
6. EFFECT ON PRIOR AGREEMENT AND EXISTING BENEFIT PLANS.
----------------------------------------------------
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the Holding Company and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit
of, Executive, the Holding Company and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
9. REINSTATEMENT OF BENEFITS UNDER BANK AGREEMENT.
----------------------------------------------
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 9(b) of the Special Termination Agreement between Executive and the Bank
dated April 19, 1990 (the "Bank Agreement") during the term of this Agreement
and a Change in Control, as defined herein, occurs the
6
<PAGE>
Holding Company will assume its obligation to pay and the Executive will be
entitled to receive all of the termination benefits provided for under Section 3
of the Bank Agreement upon the notification of the Holding Company of the Bank's
receipt of a dismissal of charges in the Notice.
10. EFFECT OF ACTION UNDER BANK AGREEMENT.
-------------------------------------
Notwithstanding any provision herein to the contrary, to the extent that
payments and benefits are paid to or received by Executive under the Special
Termination Agreement dated April 19, 1990, between Executive and Bank, such
payments and benefits paid by the Bank will be deemed to satisfy the
corresponding obligations of the Holding Company under this Agreement.
11. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
13. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware.
14. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
15. PAYMENT OF LEGAL FEES.
---------------------
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company if Executive is in any material part
successful.
7
<PAGE>
16. SIGNATURES.
----------
IN WITNESS WHEREOF, the Holding Company has caused this Agreement to be
executed by its duly authorized officer, and Executive has signed this
Agreement, on the 4th day of May, 1993.
ATTEST: MAF BANCORP, INC.
/s/ Carolyn Pihera BY: /s/ Allen Koranda
- -- ------------------------ -------------------------
Secretary Chief Executive Officer
WITNESS:
/s/ Mary F. Palermini /s/ Kenneth Rusdal
- -- ----------------------- -------------------------
Seal Executive
8
<PAGE>
Amendment to Special Termination Agreement
of Kenneth Rusdal
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Employment Agreement of
Kenneth Rusdal dated April 27, 1993, as amended, (the "Agreement"), as shown
below. Such amendments shall be effective as of the date shown below.
1. Section 3(a) shall be revised to read as follows:
Upon the occurrence of a Change in Control, followed at any time during the
term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Bank and the
Holding Company shall pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to three (3) times the
average annual compensation paid to Executive for the three (3) years
immediately preceding Executive's termination. For purposes of the preceding
sentence, compensation shall include only base salary plus payments made under
the MAF Bancorp Executive Annual Incentive Plan (or such other annual cash
incentive plan in effect with respect to years ending prior to July 1, 1993). At
the discretion of Executive, upon an election pursuant to Section 3(e) hereof,
such payment may be made in a lump sum immediately upon severance of Executive's
employment or paid, on a pro rata basis, semi-monthly during the thirty-six (36)
months following Executive's termination.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective
this December 20, 1995.
ATTEST: MAF BANCORP, INC.
By: /s/ Carolyn Pihera By: /s/ Allen Koranda
------------------- ------------------
Carolyn Pihera Allen Koranda
Corporate Secretary Chief Executive Officer
EMPLOYEE
By: /s/ Kenneth B. Rusdal
----------------------
Kenneth Rusdal
<PAGE>
Amendment to Special Termination Agreement of Kenneth Rusdal
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Special Termination Agreement
of Kenneth Rusdal dated April 27, 1993, as amended, (the "Agreement"), as shown
below. Such amendment shall be effective as of the date shown below.
Section 3(f) shall be revised to read as follows:
Notwithstanding the preceding paragraphs of this Section 3, in the event it
shall be determined that any payment or distribution of any type to or for the
benefit of the Executive by the Holding Company, any of its affiliates, or any
person who acquires ownership or effective control of the Holding Company or
ownership of a substantial portion of the Holding Company's assets (within the
meaning of Section 280G of the Code, and the regulations thereunder) or any
affiliate of such person, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the "Total
Payments"), is subject to the excise tax imposed by Section 4999 of the Code or
any similar successor provision or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest and penalties,
are collectively referred to as the "Excise Tax"), then, except in the case of a
Deminimus Excess Amount (as described below), the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes imposed upon the Gross-Up Payment
(including any federal, state and local income, payroll or excise taxes and any
interest or penalties imposed with respect to such taxes), the Executive retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total
Payments (not including any Gross-Up Payment).
In the event that the amount by which the present value of the Total Payments
which constitute "parachute payments" (within the meaning of Section 280G of the
Code)(the "Parachute Payments") exceeds three (3) times the Executive's "base
amount" (within the meaning of Section 280G of the Code)(the "Base Amount") is
less than 3% of the amount determined under Section 3(a) of this Agreement, such
excess shall be deemed to be a Deminimus Excess Amount and the Executive shall
not be entitled to a Gross-Up Payment. In such an instance, the Parachute
Payments shall be reduced to an amount (the "Non-Triggering Amount"), the value
of which is one dollar ($1.00) less than an amount equal to three (3) times
Executive's Base Amount; provided that such reduction shall not be made unless
the Non-Triggering Amount would be greater than the aggregate value of the
Parachute Payments (without such reduction) minus the amount of Excise Tax
required to be paid by Executive thereon. The reduction required hereby shall
be made by reducing the amount payable under Section 3(a) of this Agreement.
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<PAGE>
All determinations as to the portion, if any, of the Total Payments which
constitute Parachute Payments, whether a Gross-Up Payment is required, the
amount of such Gross-Up Payment, the amount of any reduction, and any amounts
relevant to the foregoing paragraphs of this Section 3(f) shall be made by an
independent accounting firm selected by the Holding Company, which may be the
accounting firm then regularly retained by the Holding Company (the "Accounting
Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations, regarding the
amount of any Gross-Up Payment and any other relevant matter, both to the
Holding Company and the Executive, within five (5) days of a date of
termination, if applicable, or such earlier time as is requested by the Holding
Company or the Executive (if the Executive reasonably believes that any of the
Total Payments may be subject to the Excise Tax). Any determination by the
Accounting Firm shall be binding upon the Holding Company and the Executive. As
a result of uncertainty in the application of Sections 280G and 4999 of the Code
at the time of the initial determination by the Accounting Firm hereunder, or as
a result of a subsequent determination by the Internal Revenue Service or a
judicial authority, it is possible that the Holding Company should have made
Gross-Up Payments ("Underpayment"), or that Gross-Up Payments will have been
made by the Holding Company which should not have been made ("Overpayments").
In either such event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of the Underpayment,
the amount of such Underpayment shall be promptly paid by the Holding Company to
or for the benefit of the Executive. In the case of an Overpayment, the
Executive shall, at the direction and expense of the Holding Company, take such
steps as are reasonably necessary (including the filing of returns and claims
for refund), follow reasonable instructions from, and procedures established by,
the Holding Company, and otherwise reasonably cooperate with the Holding Company
to correct such Overpayment, including repayment of such Overpayment to the
Holding Company.
Effect of Certain Accounting Rules. The Executive acknowledges that it is in
the Holding Company's and Bank's best interests to remain eligible to account
for any business combination into which they may become a party under the
"pooling-of-interests" method of accounting. The Holding Company does not
believe that any provision of the foregoing Amendment to Special Termination
Agreement will affect the Holding Company's or Bank's ability to so account for
any business combination. Due to the uncertainties associated with the
accounting rules governing the pooling-of-interests method, however, it is
possible that the provisions of this Amendment may impact the Holding Company's
or Bank's ability to use pooling-of-interests accounting for business
combinations. Accordingly, in the event the Board of Directors determines it to
be in the best interests of the Holding Company or Bank to account for a
business combination under the pooling-of-interests method and, in the written
opinion of the Accounting Firm referred to above, if any provision of this
Amendment makes a business combination to which the Holding Company or Bank is a
party ineligible for pooling-of interests accounting under the provisions of APB
Opinion No. 16, as modified or amended, that but for such provision of this
Amendment to Special Termination Agreement would otherwise be eligible for such
accounting treatment, then the Holding Company and Executive agree that the
terms of this Amendment shall be rescinded to the extent necessary to enable the
business combination to so qualify for such accounting treatment.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment effective this
October 26, 1999.
ATTEST: MAF BANCORP, INC.
By: /s/ Carolyn Pihera By: /s/ Allen Koranda
--------------------------------- --------------------------------
Carolyn Pihera Allen Koranda
Corporate Secretary Chief Executive Officer
EMPLOYEE
By: /s/ Kenneth Rusdal
------------------------------
Kenneth Rusdal
3
<PAGE>
Exhibit No. 10(xvi) Form of Special Termination Agreement, as amended,
Between Mid America Bank, fsb and Kenneth Rusdal and various officers.
The attached Special Termination Agreement dated April 19, 1990, as amended,
between Mid America Bank and Kenneth Rusdal is substantially identical in all
material respects (except as otherwise noted below) with the other contracts
listed below which are not being filed:
Parties to Special Termination Agreement
----------------------------------------
Mid America Bank and Gerard J. Buccino
Mid America Bank and Michael J. Janssen
Mid America Bank and William Haider
Mid America Bank and Thomas Miers
Mid America Bank and Sharon Wheeler
1
<PAGE>
MID AMERICA FEDERAL SAVINGS BANK
SPECIAL TERMINATION AGREEMENT
This AGREEMENT is made effective as of April 19, 1990 by and between
Mid America Federal Savings Bank (the "Bank"), a federally chartered savings
institution, with its office at 55th & Holmes Street, Clarendon Hills, Illinois,
and Kenneth Rusdal (the "Executive"). The Bank is the wholly-owned subsidiary of
the Holding Company (the "Company"), a corporation organized under the laws of
the State of Delaware.
WHEREAS, the Bank recognizes the substantial contribution Executive
has made to the Bank and wishes to protect his position therewith for the period
provided in this Agreement; and
WHEREAS, Executive has been elected to, and has agreed to serve in the
position of Senior Vice President for the Bank, a position of substantial
responsibility;
NOW, THEREFORE, in consideration of the contribution and
responsibilities of Executive, and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT.
The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement and continuing at each anniversary date thereafter, this Agreement
shall automatically renew for an additional year such that the remaining term
shall be three (3) years unless written notice is provided to Executive, at
least ten (10) days and not more than twenty (20) days prior to expiration of
such period, then the term of this Agreement shall cease at the end of twenty-
four (24) months following the next anniversary date, or unless the Executive's
employment is voluntarily or involuntarily terminated with the Bank pursuant to
Section 2 hereof.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the Bank or the
Company (as herein defined) followed at any time during the term of this
Agreement by the voluntary or involuntary termination of Executive's employment,
other than for Cause, as defined in Section 2(c) hereof, the provisions of
Section 3 shall apply. Upon the occurrence of a Change in Control, Executive
shall have the right to elect to voluntarily terminate his employment at any
time during the term of this Agreement following any demotion, loss of title,
office or significant authority, reduction in his annual compensation, or
relocation of his principal place of employment by more than 50 miles from its
location immediately prior to the Change in Control.
(b) Definition of a Change in Control. A "Change in Control" of the
Bank or the Company shall mean 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 Exchange Act of 1934 (the "Exchange Act"); or (ii) results
2
<PAGE>
in a Change in Control of the Bank or the Holding Company within the meaning of
the Home Owners Loan Act of 1933 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 Company representing 20% or more of the
Bank's or Company's outstanding securities, 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 Board of
Directors of the 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 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, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board; or (c) merger,
consolidation or sale of all or substantially all the assets of the Bank or
Company occurs; or (d) a proxy statement shall be distributed soliciting proxies
from stockholders of the Company, by someone other than the current management
of the Company, seeking stockholder approval of the reorganization, merger or
consolidation of the Company or Bank with one or more corporations as a result
of which the outstanding shares of the class of securities then subject to the
Plan are exchanged for or converted into cash or property or securities not
issued by the Bank or Company; or (e) a tender offer is made for 20% or more of
the outstanding securities of the Bank or Holding Company.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of the Executive's personal
dishonesty, incompetence, willful misconduct, any breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
material provision of this Agreement. In determining incompetence, the acts or
omissions shall be measured against standards generally prevailing in the
savings institutions industry. Notwithstanding the foregoing, Executive shall
not be deemed to have been Terminated for Cause unless and until there shall
have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Board of Directors of the
Bank at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. The Executive shall not have
the right to receive compensation or other benefits for any period after
Termination for Cause. Any stock options or limited rights granted to Executive
under any stock option plan of the Bank, the Company or any subsidiary or
affiliate thereof, shall become null and void effective upon Executive's receipt
of Notice of Termination for Cause and shall not be exercisable by Executive at
any time subsequent to such Termination for Cause.
3
<PAGE>
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Bank and the
Company shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, as severance
pay or liquidated damages, or both, a sum equal to three (3) times the average
annual base salary paid to Executive for the three (3) years immediately
preceding Executive's termination. In the event the Executive has not been
employed by the Bank or Holding Company during all or part of the three
immediately preceding years, the annual base salary paid to Executive for such
periods shall, for purposes of this Section 3, be deemed to be equal to the
Executive's initial base salary upon commencing employment adjusted to reflect
assumed annual base salary increases of ten percent (10%). At the discretion of
Executive, upon an election pursuant to Section 3(e) hereof, such payment may be
made in a lump sum immediately upon severance of Executive's employment or paid,
on a pro rata basis, semi-monthly during the thirty-six (36) months following
the Executive's termination.
(b) Upon the occurrence of a Change in Control of the Bank or the
Company followed at any time during the term of this Agreement by Executive's
voluntary or involuntary termination of employment, other than for Termination
for Cause, the Bank shall cause to be continued life, health and disability
coverage substantially identical to the coverage maintained by the Bank for
Executive prior to his severance. Such coverage shall cease upon the earlier of
Executive's obtaining similar coverage by another employer or twelve (12) months
from the date of Executive's termination. In the event the Executive obtains new
employment and receives less coverage for life, health or disability, the Bank
shall provide coverage substantially identical to the coverage maintained by the
Bank for the Executive prior to termination for a period of twelve (12) months.
(c) Upon the occurrence of a Change in Control, the Executive will
have such rights as specified in the Company's Incentive Stock Option Plan or
any other employee benefit plan with respect to options and such other rights as
may have been granted to Executive under such plans.
(d) Upon a Change in Control, the Executive will be entitled to the
benefits under the Bank's Management Recognition and Retention Plans.
(e) On an annual basis Executive shall elect whether, in the event
amounts are payable under Sections 3(a) hereof, such amounts shall be paid in a
lump sum or on a pro rata basis pursuant to such sections. Such election shall
be irrevocable for the year for which such election is made.
(f) Notwithstanding the preceding paragraphs of this Section 3, in the
event that:
4
<PAGE>
(i) the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") would be
deemed to include an "excess parachute payment" under Section 280G of
the Internal Revenue Code of 1986 (the "Code") or any successor
thereto, and
(ii) if such Termination Benefits were reduced to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount", as
determined in accordance with said Section 280G, and the Non-
Triggering Amount would be greater than the aggregate value of the
Termination Benefits (without such reduction) minus the amount of tax
required to be paid by Executive thereon by Section 4999 of the Code,
then the Termination Benefits shall be reduced to the Non-Triggering
Amount. The allocation of the reduction required hereby among the
Termination Benefits provided by the preceding paragraphs of this
Section 3 shall be determined by Executive. In the event that
Executive receives the Non-Triggering Amount pursuant to this
paragraph (f) and it is subsequently determined by the Internal
Revenue Service or judicial authority that Executive is deemed to have
received an amount in excess of the Non-Triggering Amount, the Bank or
Company shall pay to Executive an amount equal to the value of the
payments or benefits in excess of the Non-Triggering Amount he is so
deemed to have received.
4. NOTICE OF TERMINATION.
Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in detail the facts and circumstances claimed to provide a
basis for termination of Executive's employment under the provision so
indicated. "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided that if, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal there from having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in
this Agreement shall be paid in cash or check from the general funds of the
Bank. The Company, however, guarantees payment and provision of all amounts and
benefits due hereunder to Executive, if such amounts
5
<PAGE>
and benefits due from the Bank are not timely paid or provided by the Bank, such
amounts and benefits shall be paid or provided by the Company.
6. EFFECT ON PRIOR AGREEMENT AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Bank and Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
7. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Bank and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
(a) The Bank may terminate the Executive's employment at any time, but
any termination by the Bank, other than Termination for Cause, shall not
prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause as defined in Section 2(c)
hereinabove.
(b) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) (12 USC 1818(e)(3)) or 8(g) (12 USC 1818(g)) of the
Federal Deposit Insurance Act, as amended by
6
<PAGE>
the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the
Bank's obligations under this contract shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank may in its discretion (I) pay the Executive all or part
of the compensation withheld while their contract obligations were suspended and
(ii) reinstate (in whole or in part) any of the obligations which were
suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e) (12 USC (S) 1818(e)) or 8(g) (12 USC (S) 1818(g)) of the Federal
Deposit Insurance Act, as amended by the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, all obligations of the Bank under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x) (12 USC
1813(x)(1)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, all obligations of
the Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution, (i) by the Federal
Deposit Insurance Corporation, at the time FDIC enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) (12 USC (S)1823(c))of the Federal Deposit Insurance Act, as
amended by the Financial Institutions Reform, Recovery and Enforcement Act of
1989; or (ii) by the Office of Thrift Supervision ("OTS") at the time the OTS or
its District Director approves a supervisory merger to resolve problems related
to the operations of the Bank or when the Bank is determined by the OTS or FDIC
to be in an unsafe or unsound condition. Any rights of the parties that have
already vested, however, shall not be affected by such action.
10. REINSTATEMENT OF BENEFITS UNDER 9(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 9(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and the Executive will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.
11. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
7
<PAGE>
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
13. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by Federal law.
14. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
15. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to
any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Bank, which payments are guaranteed by the Company
pursuant to Section 5 hereof.
16. SIGNATURES.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
by its duly authorized officer, and Executive has signed this Agreement, on the
19th day of April, 1990.
ATTEST: MID AMERICA FEDERAL SAVINGS BANK
/s/ Carolyn Pihera BY: /s/ Allen Koranda
- --------------------------- -------------------------------
Secretary Chief Executive Officer
WITNESS:
/s/ Catherine E. Rusdal /s/ Kenneth B. Rusdal
- --------------------------- -------------------------------
Executive
Seal
8
<PAGE>
AMENDMENT TO SPECIAL TERMINATION AGREEMENT
------------------------------------------
OF KEN RUSDAL
-------------
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Special Termination Agreement
of Ken Rusdal dated April 19, 1990 (the "Agreement") by adding the following
two new sentences to the end of Section 2(b) of the Agreement:
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.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective
this August 28, 1990.
ATTEST: MID AMERICA FEDERAL SAVINGS BANK
By: /s/ Carolyn Pihera By: /s/ Allen Koranda
------------------ -----------------
Carolyn Pihera Allen Koranda
Corporate Secretary Chairman of the Board
EMPLOYEE
By: /s/ Ken Rusdal
------------------
Ken Rusdal
9
<PAGE>
Amendment to Special Termination Agreement
of Kenneth Rusdal
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Special Termination Agreement
of Kenneth Rusdal dated April 19, 1990, as amended, (the "Agreement"), by
revising the third paragraph of the Agreement as shown below, and by revising
Section 1 to read as shown below, all such amendments to be effective as of the
date shown below.
(Revised third paragraph)
WHEREAS, Executive has been elected to and has agreed to serve in the position
of Senior Vice President-Operations and Information Systems for the Bank, a
position of substantial responsibility which will require Executive to
render administrative and management services to the Bank such as are
customarily performed by persons in a similar executive capacity;
(Revised Section 1)
1. TERM OF AGREEMENT.
The term of this Agreement shall be deemed to have commenced as of the date
first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. At each anniversary date, the board of directors of
the Bank ("Board") may extend the Agreement an additional year. The Board will
review the Agreement and the Executive's performance annually for purposes of
determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting. In the event the Executive
chooses not to renew the Agreement, the Executive shall provide the Bank with
written notice at least ten (10) days and not more than twenty (20) days prior
to such anniversary date. If either the Bank or the Executive chooses not to
renew the Agreement for an additional period, the Agreement shall cease at the
end of its remaining term unless the Executive's employment is voluntarily or
involuntarily terminated with the Bank pursuant to Section 2 hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective
this August 10, 1992.
ATTEST: MID AMERICA FEDERAL SAVINGS BANK
By: /s/ Carolyn Pihera By: /s/ Allen Koranda
------------------ -----------------
Carolyn Pihera Allen Koranda
10
<PAGE>
Corporate Secretary Chairman and CEO
EMPLOYEE
By: /s/ Kenneth B. Rusdal
--------------------
Kenneth Rusdal
11
<PAGE>
Amendment to Special Termination Agreement
of Kenneth Rusdal
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Employment Agreement of
Kenneth Rusdal dated April 19, 1990, as amended, (the "Agreement"), as shown
below. Such amendments shall be effective as of the date shown below.
1. Section 2(b)(iii)(a) shall be revised to read as follows:
(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 and completes the purchase of securities of the
Bank or Company representing 20% or more of the Bank's or the 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 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:
2. Section 2(b)(iii)(e) shall be revised to read as follows:
(e) a tender offer is made and completed for 20% or more of the outstanding
securities of the Bank or Company.
3. Section 2(b)(iii)(d) shall be revised to read as follows:
(d) a proxy statement shall be distributed soliciting proxies from
stockholders of the Company, by someone other than the current management
of the Company, seeking stockholder approval of a plan of reorganization,
merger or consolidation of the Company or Bank with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the Plan are exchanged for or converted into
cash or property or securities not issued by the Bank or the Company, and
such proxy statement proposal is approved by the shareholders of the
Company.
4. Section 15, "Payment of Legal Fees" shall be amended to read as follows:
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation
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<PAGE>
relating to this Agreement shall be paid or reimbursed by the Bank, if the
Executive is successful on the merits of such dispute or question pursuant
to any legal judgement, arbitration or settlement. Such payments are
guaranteed by the Company pursuant to Section 5 hereof.
6. Section 3(a) shall be amended by adding the following sentence at the end
of this paragraph:
"Notwithstanding the previous sentence, however, the Bank may, in its sole
discretion, require such payments to be made in a lump sum."
IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective
this December 21, 1993.
ATTEST: MID AMERICA FEDERAL SAVINGS BANK
By: /s/ Carolyn Pihera By: /s/ Allen Koranda
------------------ -----------------
Carolyn Pihera Allen Koranda
Corporate Secretary Chairman of the Board and
Chief Executive Officer
EMPLOYEE
By: /s/ Kenneth Rusdal
------------------
Kenneth Rusdal
13
<PAGE>
Amendment to Special Termination Agreement
of Kenneth Rusdal
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Employment Agreement of
Kenneth Rusdal dated April 19, 1990, as amended, (the "Agreement"), as shown
below. Such amendments shall be effective as of the date shown below.
1. Section 3(a) shall be revised to read as follows:
Upon the occurrence of a Change in Control, followed at any time during the
term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Bank and
the Company shall pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to three (3)
times the average annual compensation paid to Executive for the three (3)
years immediately preceding Executive's termination. For purposes of the
preceding sentence, compensation shall include only base salary plus
payments made under the MAF Bancorp Executive Annual Incentive Plan (or
such other annual cash incentive plan in effect with respect to years
ending prior to July 1, 1993). At the discretion of Executive, upon an
election pursuant to Section 3(e) hereof, such payment may be made in a
lump sum immediately upon severance of Executive's employment or paid, on a
pro rata basis, semi-monthly during the thirty-six (36) months following
Executive's termination.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective
this December 20, 1995.
ATTEST: MID AMERICA FEDERAL SAVINGS BANK
By: /s/ Carolyn Pihera By: /s/ Allen Koranda
------------------- ----------------------
Carolyn Pihera Allen Koranda
Corporate Secretary Chief Executive Officer
EMPLOYEE
By: /s/ Kenneth Rusdal
----------------------
Kenneth Rusdal
14
<PAGE>
Exhibit 10(xviii)
Amendment to Special Termination Agreement of Kenneth Rusdal
The undersigned, in consideration of their mutual promises and other good and
valuable consideration, hereby agree to amend the Special Termination Agreement
of Kenneth Rusdal dated April 19, 1990, as amended, (the "Agreement"), as shown
below. Such amendment shall be effective as of the date shown below.
Section 3(f) shall be revised to read as follows:
Notwithstanding the preceding paragraphs of this Section 3, in the event it
shall be determined that any payment or distribution of any type to or for the
benefit of the Executive by the Bank, any of its affiliates, or any person who
acquires ownership or effective control of the Bank or Holding Company or
ownership of a substantial portion of the Bank's or Holding Company's assets
(within the meaning of Section 280G of the Code, and the regulations thereunder)
or any affiliate of such person, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (the "Total
Payments"), is subject to the excise tax imposed by Section 4999 of the Code or
any similar successor provision or any interest or penalties with respect to
such excise tax (such excise tax, together with any such interest and penalties,
are collectively referred to as the "Excise Tax"), then, except in the case of a
Deminimus Excess Amount (as described below), the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes imposed upon the Gross-Up Payment
(including any federal, state and local income, payroll or excise taxes and any
interest or penalties imposed with respect to such taxes), the Executive retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total
Payments (not including any Gross-Up Payment).
In the event that the amount by which the present value of the Total Payments
which constitute "parachute payments" (within the meaning of Section 280G of the
Code)(the "Parachute Payments") exceeds three (3) times the Executive's "base
amount" (within the meaning of Section 280G of the Code)(the "Base Amount") is
less than 3% of the amount determined under Section 3(a) of this Agreement, such
excess shall be deemed to be a Deminimus Excess Amount and the Executive shall
not be entitled to a Gross-Up Payment. In such an instance, the Parachute
Payments shall be reduced to an amount (the "Non-Triggering Amount"), the value
of which is one dollar ($1.00) less than an amount equal to three (3) times
Executive's Base Amount; provided that such reduction shall not be made unless
the Non-Triggering Amount would be greater than the aggregate value of the
Parachute Payments (without such reduction) minus the amount of Excise Tax
required to be paid by Executive thereon. The reduction required hereby shall
be made by reducing the amount payable under Section 3(a) of this Agreement.
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<PAGE>
All determinations as to the portion, if any, of the Total Payments which
constitute Parachute Payments, whether a Gross-Up Payment is required, the
amount of such Gross-Up Payment, the amount of any reduction, and any amounts
relevant to the foregoing paragraphs of this Section 3(f) shall be made by an
independent accounting firm selected by the Bank, which may be the accounting
firm then regularly retained by the Bank (the "Accounting Firm"). The
Accounting Firm shall provide its determination (the "Determination"), together
with detailed supporting calculations, regarding the amount of any Gross-Up
Payment and any other relevant matter, both to the Bank and the Executive,
within five (5) days of a date of termination, if applicable, or such earlier
time as is requested by the Bank or the Executive (if the Executive reasonably
believes that any of the Total Payments may be subject to the Excise Tax). Any
determination by the Accounting Firm shall be binding upon the Bank and the
Executive. As a result of uncertainty in the application of Sections 280G and
4999 of the Code at the time of the initial determination by the Accounting Firm
hereunder, or as a result of a subsequent determination by the Internal Revenue
Service or a judicial authority, it is possible that the Bank should have made
Gross-Up Payments ("Underpayment"), or that Gross-Up Payments will have been
made by the Bank which should not have been made ("Overpayments"). In either
such event, the Accounting Firm shall determine the amount of the Underpayment
or Overpayment that has occurred. In the case of the Underpayment, the amount
of such Underpayment shall be promptly paid by the Bank to or for the benefit of
the Executive. In the case of an Overpayment, the Executive shall, at the
direction and expense of the Bank, take such steps as are reasonably necessary
(including the filing of returns and claims for refund), follow reasonable
instructions from, and procedures established by, the Bank, and otherwise
reasonably cooperate with the Bank to correct such Overpayment, including
repayment of such Overpayment to the Bank.
Effect of Certain Accounting Rules. The Executive acknowledges that it is in
the Bank and Holding Company's best interests to remain eligible to account for
any business combination into which they may become a party under the "pooling-
of-interests" method of accounting. The Bank does not believe that any
provision of the foregoing Amendment to Special Termination Agreement will
affect the Bank or Holding Company's ability to so account for any business
combination. Due to the uncertainties associated with the accounting rules
governing the pooling-of-interests method, however, it is possible that the
provisions of this Amendment may impact the Bank or Holding Company's ability to
use pooling-of-interests accounting for business combinations. Accordingly, in
the event the Board of Directors determines it to be in the best interests of
the Bank or Holding Company to account for a business combination under the
pooling-of-interests method and, in the written opinion of the Accounting Firm
referred to above, if any provision of this Amendment makes a business
combination to which the Bank or Holding Company is a party ineligible for
pooling-of interests accounting under the provisions of APB Opinion No. 16, as
modified or amended, that but for such provision of this Amendment to Special
Termination Agreement would otherwise be eligible for such accounting treatment,
then the Bank and Executive agree that the terms of this Amendment shall be
rescinded to the extent necessary to enable the business combination to so
qualify for such accounting treatment.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment effective this
October 26, 1999.
ATTEST: MID AMERICA BANK, FSB
By: /s/ Carolyn Pihera By: /s/ Allen Koranda
------------------------------ ---------------------------------
Carolyn Pihera Allen Koranda
Corporate Secretary Chief Executive Officer
EMPLOYEE
By: /s/ Kenneth Rusdal
----------------------------------
Kenneth Rusdal
3
<PAGE>
Exhibit 12. Statement re:
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Six Months Ended Year Ended
December 31, December 31, December 31, December 31, June 30,
---------------------------------------------------------------------------
1999 1998 1997 1996/(1)/ 1996
---------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Inclusive of interest on deposits:
Earnings:
Pre-tax income 82,755 62,495 60,655 28,593 28,488
Add: Fixed charges 169,546 151,728 146,293 68,896 93,481
Less: Interest capitalized (536) (267) (308) (271) (579)
-------------------------------------------------------------------------
Earnings 251,765 213,956 206,640 97,218 121,390
=========================================================================
Fixed Charges:
Interest on deposits 99,665 95,788 98,581 47,967 63,325
Interest on borrowed funds 68,736 54,787 46,635 20,664 29,896
Rent expense 1,145 1,153 1,077 265 260
-------------------------------------------------------------------------
Fixed charges 169,546 151,728 146,293 68,896 93,481
=========================================================================
Ratio of earnings to fixed charges
inclusive of interest on deposits 1.48 1.41 1.41 1.41 1.30
=========================================================================
Exclusive of interest on deposits:
Earnings:
Pre-tax income 82,755 62,495 60,655 28,593 28,488
Add: Fixed charges 69,881 55,940 47,172 20,929 30,156
Loss on equity investments - - - - -
Less: Interest capitalized (536) (267) (308) (271) (579)
-------------------------------------------------------------------------
Earnings 152,100 118,168 108,059 49,251 58,065
=========================================================================
Fixed charges:
Interest on deposits - - - - -
Interest on borrowed funds 68,736 54,787 46,635 20,664 29,896
Rent expense 1,145 1,153 1,077 265 260
-------------------------------------------------------------------------
Fixed charges 69,881 55,940 47,712 20,929 30,156
=========================================================================
Ratio of earnings to fixed charges
inclusive of interest on deposits 2.18 2.11 2.26 2.35 1.93
=========================================================================
</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 Bank, fsb Illinois
MAF Developments, Inc. Illinois
SUBSIDIARIES OF THE BANK STATE OF INCORPORATION
- ------------------------ ----------------------
Mid America Investment Services, Inc. (1) Illinois
Mid America Insurance Agency, Inc. Illinois
Mid America Finance Corporation Illinois
Mid America Mortgage Securities, Inc. Illinois
N.W. Financial Corporation Illinois
Ambria Development Corporation Illinois
Randall Road Development Corporation Illinois
Centre Point Title Services, Inc. Illinois
Reigate Woods Development Corporation Illinois
MAF Realty Co., L.L.C. - I (2) Delaware
MAF Realty Co., L.L.C. - II (2) Delaware
MAF Realty Co., L.L.C. - III Delaware
MAF Realty Co., L.L.C. - IV Delaware
(1) formerly known as Mid America Development Services, Inc.
(2) dissolved on September 14, 1999
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
MAF Bancorp, Inc.
We consent to incorporation by reference in the registration statements (No.'s
33-79110, 333-06593, 333-65655, 333-66693, 333-72865, 333-72863) on Form S-8 of
MAF Bancorp, Inc. of our report dated January 26, 2000, relating to the
consolidated statements of financial condition of MAF Bancorp, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1999, which report
appears in the December 31, 1999 annual report on Form 10-K of MAF Bancorp, Inc.
/s/ KPMG LLP
Chicago, Illinois
March 20, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 71,721
<INT-BEARING-DEPOSITS> 51,306
<FED-FUNDS-SOLD> 35,013
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 233,808
<INVESTMENTS-CARRYING> 181,275
<INVESTMENTS-MARKET> 179,441
<LOANS> 3,901,845
<ALLOWANCE> 17,276
<TOTAL-ASSETS> 4,658,065
<DEPOSITS> 2,699,242
<SHORT-TERM> 114,963
<LIABILITIES-OTHER> 1,411,400
<LONG-TERM> 0
0
0
<COMMON> 254
<OTHER-SE> 352,667
<TOTAL-LIABILITIES-AND-EQUITY> 4,658,065
<INTEREST-LOAN> 253,499
<INTEREST-INVEST> 25,836
<INTEREST-OTHER> 5,757
<INTEREST-TOTAL> 285,092
<INTEREST-DEPOSIT> 99,665
<INTEREST-EXPENSE> 68,736
<INTEREST-INCOME-NET> 116,691
<LOAN-LOSSES> 1,100
<SECURITIES-GAINS> 1,776
<EXPENSE-OTHER> 67,983
<INCOME-PRETAX> 82,755
<INCOME-PRE-EXTRAORDINARY> 51,545
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,545
<EPS-BASIC> 2.130
<EPS-DILUTED> 2.070
<YIELD-ACTUAL> 2.35
<LOANS-NON> 14,838
<LOANS-PAST> 812
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 16,770
<CHARGE-OFFS> 711
<RECOVERIES> 117
<ALLOWANCE-CLOSE> 17,276
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 17,276
</TABLE>
