<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-18121
MAF BANCORP, INC.
(Exact name of registrant as specified in its charter)
---------------
Delaware 36-3664868
(State of Incorporation) (I.R.S. Employer
Identification No.)
55th Street & Holmes Avenue
Clarendon Hills, Illinois 60514
(Address of Principal executive Offices) (Zip Code)
Registrant's telephone number: (630) 325-7300
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
------- -------
The number of shares outstanding of the issuer's common stock, par value $.01
per share, was 23,215,287 at May 12, 2000.
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<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q
Index
-----
Part I. Financial Information Page
- ------- --------------------- ----
Item 1 Financial Statements
Consolidated Statements of Financial Condition
as of March 31, 2000 and December 31, 1999 (unaudited).......... 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 2000 and 1999 (unaudited)................ 4
Consolidated Statement of Changes in Stockholders' Equity
for the Three Months Ended March 31, 2000 (unaudited)........... 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999 (unaudited).......... 6
Notes to Unaudited Consolidated Financial Statements............ 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 10
Item 3 Quantitative and Qualitative Disclosures About Market Risk...... 28
Part II. Other Information
- -------- -----------------
Item 1 Legal Proceedings............................................... 28
Item 2 Changes in Securities........................................... 28
Item 3 Defaults Upon Senior Securities................................. 28
Item 4 Submission of Matters to a Vote of Security Holders............. 28
Item 5 Other Information............................................... 28
Item 6 Exhibits and Reports on Form 8-K................................ 29
Signature Page.................................................. 30
2
<PAGE>
Item 1. Financial Statements
MAF BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ----------
Assets
- ------
<S> <C> <C>
Cash and due from banks $ 46,245 71,721
Interest-bearing deposits 21,089 51,306
Federal funds sold 115,364 35,013
Investment securities, at cost (fair value of $12,385 and $12,321) 12,059 11,999
Investment securities available for sale, at fair value 190,056 194,105
Stock in Federal Home Loan Bank of Chicago, at cost 78,275 75,025
Mortgage-backed securities, at amortized cost
(fair value of $90,332 and $92,095) 94,144 94,251
Mortgage-backed securities available for sale, at fair value 37,887 39,703
Loans receivable held for sale 37,899 12,601
Loans receivable, net of allowance for losses of $17,567 and $17,276 3,984,857 3,871,968
Accrued interest receivable 25,145 23,740
Foreclosed real estate 8,221 7,415
Real estate held for development or sale 14,815 15,889
Premises and equipment, net 42,516 42,489
Other assets 53,048 49,640
Intangible assets, net of accumulated amortization of $11,515 and $10,555 60,270 61,200
---------- ---------
$4,821,890 4,658,065
========== =========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposits $2,756,789 2,699,242
Borrowed funds 1,622,925 1,526,363
Advances by borrowers for taxes and insurance 40,589 34,767
Accrued expenses and other liabilities 49,936 44,772
---------- ---------
Total liabilities 4,470,239 4,305,144
---------- ---------
Stockholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000
shares; none outstanding -- --
Common stock, $.01 par value;
authorized 80,000,000 shares; 25,420,650 shares issued;
23,449,287 and 23,911,508 shares outstanding 254 254
Additional paid-in capital 197,320 194,874
Retained earnings, substantially restricted 202,140 198,156
Stock in gain deferral plan; 223,453 shares 511 511
Accumulated other comprehensive loss (4,022) (3,675)
Treasury stock, at cost; 2,194,816 and 1,732,595 shares (44,552) (37,199)
---------- ---------
Total stockholders' equity 351,651 352,921
Commitments and contingencies ---------- ---------
$4,821,890 4,658,065
========== =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
2000 1999
----------- ----------
<S> <C> <C>
Interest income:
Loans receivable $70,705 59,733
Mortgage-backed securities 1,525 1,860
Mortgage-backed securities available for sale 649 780
Investment securities 1,597 920
Investment securities available for sale 3,214 2,932
Interest-bearing deposits and federal funds sold 2,401 1,213
------- -------
Total interest income 80,091 67,438
------- -------
Interest expense:
Deposits 25,789 24,581
Borrowed funds 23,759 14,454
------- -------
Total interest expense 49,548 39,035
------- -------
Net interest income 30,543 28,403
Provision for loan losses 300 250
------- -------
Net interest income after provision for loan losses 30,243 28,153
------- -------
Non-interest income:
Gain on sale of:
Loans receivable 49 1,456
Mortgage-backed securities 8 4
Investment securities 133 538
Foreclosed real estate 72 12
Deposit account service charges 2,570 2,205
Income from real estate operations 2,475 621
Brokerage commissions 678 592
Loan servicing fee income 556 376
Other 1,218 1,512
------- -------
Total non-interest income 7,759 7,316
------- -------
Non-interest expense:
Compensation and benefits 10,145 9,466
Office occupancy and equipment 1,915 1,807
Advertising and promotion 1,002 532
Data processing 716 591
Federal deposit insurance premiums 147 404
Amortization of intangible assets 960 977
Other 2,801 2,403
------- -------
Total non-interest expense 17,686 16,180
------- -------
Income before income taxes 20,316 19,289
Income tax expense 7,207 7,610
------- -------
Net income $13,109 $11,679
======= =======
Basic earnings per share $.55 $.47
======= =======
Diluted earnings per share $.55 $.46
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000
----------------------------------------------------------------------------
Accumulated
Additional other Gain
Common paid-in Retained comprehensive deferral Treasury
stock capital earnings loss plan stock Total
------ ---------- --------- -------------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $254 194,874 198,156 (3,675) 511 (37,199) 352,921
---- ------- ------- ------ ---- ------- -------
Comprehensive income:
Net income - - 13,109 - - - 13,109
Other comprehensive loss, net of tax:
Unrealized holding loss during the period - - - (261) - - (261)
Less: reclassification adjustment of gains
included in net income - - - (86) - - (86)
---- ------- ------- ------ ---- ------- -------
Total comprehensive income - - 13,109 (347) - - 12,762
---- ------- ------- ------ ---- ------- -------
Exercise of 367,245 stock options and
reissuance of treasury stock - - (7,014) - - 7,083 69
Impact of exercise of acquisition
carry-over stock options - 52 - - - - 52
Purchase of treasury stock - - - - - (14,436) (14,436)
Tax benefits from stock-related compensation - 2,394 - - - - 2,394
Cash dividends ($.09 per share) - - (2,131) - - - (2,131)
Dividends paid to gain deferral plan - - 20 - - - 20
---- ------- ------- ------ ---- ------- -------
Balance at March 31, 2000 $254 197,320 202,140 (4,022) 511 (44,552) 351,651
==== ======= ======= ====== ==== ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
2000 1999
--------- --------
<S> <C> <C>
Operating activities:
Net income $ 13,109 11,679
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,054 965
Provision for loan losses 300 250
Deferred income tax (benefit) expense (119) 562
Amortization of intangible assets 960 977
Amortization of premiums, discounts, loan fees and servicing rights 148 296
Net gain on sale of loans receivable, mortgage-backed securities,
and real estate held for development or sale (2,532) (2,081)
Gain on sale of investment securities (133) (538)
Increase in accrued interest receivable (1,405) (234)
Net (increase) decrease in other assets and liabilities 843 (9,705)
Loans originated for sale (60,002) (56,877)
Loans purchased for sale (1,008) (13,548)
Sale of loans receivable originated and purchased for sale 35,511 138,892
Sale of mortgage-backed securities available for sale 8 752
--------- --------
Net cash provided by (used in) operating activities (13,266) 71,390
--------- --------
Investing activities:
Loans receivable originated for investment (202,628) (250,270)
Principal repayments on loans receivable 127,269 188,557
Principal repayments on mortgage-backed securities 5,745 19,384
Proceeds from maturities of investment securities available for sale 19,343 28,035
Proceeds from sale of:
Investment securities available for sale 480 8,859
Real estate held for development or sale 12,318 5,852
Purchases of:
Loans receivable held for investment (39,051) (62,225)
Investment securities available for sale (15,967) (31,835)
Investment securities held to maturity (59) (196)
Mortgage-backed securities held to maturity (4,085) -
Stock in FHLB of Chicago (3,250) -
Real estate held for development or sale (6,843) (5,846)
Premises and equipment (1,081) (922)
--------- --------
Net cash used in investing activities (107,809) (100,607)
--------- --------
(continued)
</TABLE>
6
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
2000 1999
-------- -------
<S> <C> <C>
Financing activities:
Proceeds from FHLB of Chicago advances $ 145,000 70,000
Proceeds from unsecured line of credit 9,500 8,000
Repayment of FHLB of Chicago advances (65,000) (80,000)
Repayment of unsecured line of credit (2,500) (4,000)
Net increase in other borrowings 9,562 -
Proceeds from exercise of stock options 69 619
Purchase of treasury stock (12,466) (24,424)
Cash dividends (2,131) (1,541)
Net increase in deposits 57,877 13,598
Increase in advances by borrowers for taxes and insurance 5,822 4,851
-------- -------
Net cash provided (used in) by financing activities 145,733 (12,897)
-------- -------
Increase (decrease) in cash and cash equivalents 24,658 (42,114)
Cash and cash equivalents at beginning of period 158,040 157,699
-------- -------
Cash and cash equivalents at end of period $ 182,698 115,585
======== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowed funds $ 48,508 38,822
Income taxes - 800
Summary of non-cash transactions:
Transfer of loans receivable to foreclosed real estate 1,221 1,607
Loans receivable swapped into mortgage-backed securities - 753
Common stock received for option exercises 790 -
======== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE>
MAF BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Three Months Ended March 31, 2000 and 1999
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring accruals) necessary for a fair presentation have been
included. The results of operations for the three months ended March 31, 2000
are not necessarily indicative of results that may be expected for the year
ending December 31, 2000.
The consolidated financial statements include the accounts of MAF Bancorp,
Inc. ("Company"), and its wholly-owned subsidiaries, Mid America Bank, fsb and
subsidiaries ("Bank") and MAF Developments, Inc., as of and for the three month
periods ended March 31, 2000 and 1999 and as of December 31, 1999. All material
intercompany balances and transactions have been eliminated in consolidation.
(2) 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
potential common stock and are considered in the diluted earnings per share
calculations unless anti-dilutive. Stock options are the only adjustment made to
average shares outstanding in computing diluted earnings per share. Weighted
average shares used in calculating earnings per share are summarized below for
the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------------------------------------------------------------
2000 1999
----------------------------------------------- ------------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ---------- ----------- ------------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share:
Income available to
common shareholders $13,109 23,780,241 $.55 $11,679 24,636,116 $.47
======= ==== ======= ====
Effect of dilutive securities:
Stock options 173,755 785,744
---------- ----------
Diluted earnings per share:
Income available to common
shareholders plus assumed
conversions $13,109 23,953,996 $.55 $11,679 25,421,860 $.46
======= ========== ==== ======= ========== ====
</TABLE>
8
<PAGE>
(3) Commitments and Contingencies
At March 31, 2000, the Bank had outstanding commitments to originate and
purchase loans of $432.7 million, of which $104.2 million were fixed-rate loans,
with rates ranging from 6.00% to 9.13%, and $328.5 million were adjustable-rate
loans. At March 31, 2000, commitments to sell loans were $48.9 million.
At March 31, 2000, the Bank had outstanding standby letters of credit
totaling $15.5 million, two of which totaled $13.3 million to enhance a
developer's industrial revenue bond financings of commercial real estate in the
Bank's market. These two letters of credit are collateralized by mortgage-backed
securities and U.S. Government and agency securities owned by the Bank.
Additionally, the Company had outstanding standby letters of credit totaling
$9.5 million related to real estate development improvements.
(4) 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.
(5) Reclassifications
Certain reclassifications of 1999 amounts have been made to conform with
current year presentations.
(6) 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 residential mortgage
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>
At or For the Three Months Ended March 31, 2000
-------------------------------------------------------
Retail Land Consolidated
Banking Development Eliminations Total
--------- ----------- ------------ ---------------
(In thousands)
<S> <C> <C> <C> <C>
Interest income $ 80,185 - (94) 80,091
Interest expense 49,548 94 (94) 49,548
---------- ------ --- ---------
Net interest income (loss) 30,637 (94) - 30,543
Provision for loan losses 300 - - 300
---------- ------ --- ---------
Net interest income (loss)
after provision 30,337 (94) - 30,243
Non-interest income 5,284 2,475 7,759
Non-interest expense 17,395 291 - 17,686
---------- ------ --- ---------
Income (loss) before income taxes 18,226 2,090 - 20,316
Income tax expense (benefit) 6,466 741 - 7,207
---------- ------ --- ---------
Net income (loss) $ 11,760 1,349 - 13,109
========== ====== === =========
Average assets $4,712,903 18,173 - 4,731,076
========== ====== === =========
(continued)
</TABLE>
9
<PAGE>
(6) Segment Information (continued)
<TABLE>
<CAPTION>
At or For the Three Months Ended March 31, 1999
--------------------------------------------------------
Retail Land Consolidated
Banking Development Eliminations Total
---------- ----------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
Interest income $ 67,925 - (487) 67,438
Interest expense 39,035 487 (487) 39,035
---------- ------ ---- ------------
Net interest income (loss) 28,890 (487) - 28,403
Provision for loan losses 250 - - 250
---------- ------ ---- ------------
Net interest income (loss) after provision 28,640 (487) - 28,153
Non-interest income 6,695 621 - 7,316
Non-interest expense 15,877 303 - 16,180
---------- ------ ---- ------------
Income (loss) before income taxes 19,458 (169) - 19,289
Income tax expense (benefit) 7,677 (67) - 7,610
---------- ------ ---- ------------
Net income (loss) $ 11,781 (102) - 11,679
========== ====== ==== ============
Average assets $4,054,130 28,156 - 4,082,286
========== ====== ==== ============
</TABLE>
(7) New Accounting Pronouncements
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 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
MAF Bancorp, Inc. ("Company"), is a registered savings and loan holding
company incorporated under the laws of the state of Delaware and is primarily
engaged in the consumer banking business through its wholly-owned subsidiary,
Mid America Bank, fsb ("Bank"), and secondarily, in the residential real estate
development business primarily through MAF Developments, Inc.
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 defined as the western suburbs of Chicago,
including DuPage County, western Cook County, northern Will County, eastern Kane
County, 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, and NW Financial, Inc., the Company and the Bank
are also engaged in primarily residential real estate development activities.
Additionally, the Bank operates an insurance agency, Mid America Insurance
Agency, Inc., which provides general insurance services, a title agency, Centre
Point Title Services, Inc., which provides general title services for the Bank's
loan customers, Mid America Investment Services, Inc., which offers investment
services and securities
10
<PAGE>
brokerage primarily to Bank customers through its affiliation with INVEST, a
registered broker-dealer, and MAF Realty Co., LLC III, the holding company of
MAF Realty, LLC IV, a real estate investment trust.
The banking industry has and continues to experience consolidation both
nationally and in the local Chicago area. 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 markets 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
generally at a premium to current market value. As such, management anticipates
that acquisitions made by the Company could 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.
The Company completed its purchase of two branches (Burbank and Tinley
Park, Illinois) of M&I Bank, FSB, Milwaukee, Wisconsin on April 17, 2000. The
branch acquisitions expand the Company's banking franchise into the southwest
side of Chicago, a market the Company has targeted for future growth. The
transaction involved the acquisition of approximately $90.0 million of deposits
and the related branch buildings. The Company paid an $11.6 million, or 12.9%
premium on deposits.
Cautionary Statement Regarding Forward-Looking Information
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 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, competition, demand for financial services
in the Company's market area, the possible short-term dilutive effect of
potential acquisitions, and tax and financial 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.
11
<PAGE>
Regulation and Supervision
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. Such 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. Any change in such regulation, whether by the OTS, the FDIC or
Congress could have a material impact on the Company and its operations.
Capital Standards. Savings associations must meet three capital requirements:
core and tangible capital to total assets ratios as well as a regulatory capital
to total risk-weighted assets ratio.
Core Capital Requirement
The core capital requirement, or the required "leverage limit," currently
requires a savings institution to maintain core capital of not less than 3% of
adjusted total assets. For the Bank, core capital generally includes common
stockholders' equity (including retained earnings), and minority interests in
the equity accounts of fully consolidated subsidiaries, less intangibles other
than certain servicing rights. Investments in and advances to subsidiaries
engaged in activities not permissible for national banks are also required to be
deducted in computing core total capital.
Tangible Capital Requirement
Under OTS regulation, savings institutions are required to meet a tangible
capital requirement of 1.5% of adjusted total assets. Tangible capital is
defined as core capital less any intangible assets, plus purchased mortgage
servicing rights in an amount includable in core capital.
Risk-Based Capital Requirement
The risk-based capital requirement provides that savings institutions
maintain total capital equal to not less than 8% of total risk-weighted assets.
For purposes of the risk-based capital computation, total capital is defined as
core capital, as defined above, plus supplementary capital, primarily general
loan loss reserves (limited to a maximum of 1.25% of total risk-weighted
assets.) Supplementary capital included in total capital cannot exceed 100% of
core capital.
12
<PAGE>
At March 31, 2000, the Bank was in compliance with all of its capital
requirements as follows:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
------------------------- --------------------------
Percent of Percent of
Amount Assets Amount Assets
------------ ---------- ------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Stockholder's equity of the Bank $ 360,963 7.53% $ 354,297 7.64%
========== ===== ========== =====
Tangible capital $ 295,938 6.27% $ 288,177 6.32%
Tangible capital requirement 70,830 1.50 68,391 1.50
---------- ----- ---------- -----
Excess $ 225,108 4.77% $ 219,786 4.82%
========== ===== ========== =====
Core capital $ 295,938 6.27% $ 288,177 6.32%
Core capital requirement 141,661 3.00 136,782 3.00
---------- ----- ---------- -----
Excess $ 154,277 3.27% $ 151,395 3.32%
========== ===== ========== =====
Core and supplementary capital $ 313,505 12.13% $ 305,453 12.32%
Risk-based capital requirement 206,687 8.00 198,423 8.00
---------- ----- ---------- -----
Excess $ 106,818 4.13% $ 107,030 4.32%
========== ===== ========== =====
Total Bank assets $ 4,795,840 $ 4,634,591
Adjusted total Bank assets 4,722,032 4,559,397
Total risk-weighted assets 2,657,401 2,555,481
Adjusted total risk-weighted assets 2,583,593 2,480,286
Investment in Bank's real estate subsidiaries 8,054 7,930
========== ==========
</TABLE>
A reconciliation of consolidated stockholder's equity of the Bank for
financial reporting purposes to capital available to the Bank to meet regulatory
capital requirements is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
(In thousands)
<S> <C> <C>
Stockholder's equity of the Bank $ 360,963 354,297
Goodwill (54,285) (54,939)
Core deposit intangibles (5,985) (6,261)
Non-permissible subsidiary deduction (8,054) (7,930)
Non-includable purchased mortgage servicing rights (746) (733)
Regulatory capital adjustment for available for sale securities 4,045 3,743
-------- -------
Tangible and core capital 295,938 288,177
General loan loss reserves 17,567 17,276
-------- -------
Core and supplementary capital $ 313,505 305,453
======== =======
</TABLE>
13
<PAGE>
Changes in Financial Condition
Total assets of the Company were $4.82 billion at March 31, 2000, an
increase of $163.8 million from $4.66 billion at December 31, 1999. The increase
is primarily due to an increase in deposits and borrowings used to fund loans
receivable held for investment and sale.
Cash and short-term investments totaled a combined $182.7 million at March
31, 2000, an increase of $24.7 million from the combined balance of $158.0
million at December 31, 1999. Cash and due from banks decreased $25.5 million
due to the reinvestment of vault cash accumulated as of December 31, 1999 for
potential customer Year 2000 concerns.
Investment securities available for sale decreased $4.0 million to $190.1
million at March 31, 2000. The decrease is due to sales of $480,000 and
maturities of $19.3 million of primarily U.S. agency and asset-backed
securities, offset by purchases of $16.0 million in primarily U.S. agency and
asset-backed securities. The Company recognized a gain of $133,000 on the sale
of investment securities during the three months ended March 31, 2000.
Mortgage-backed securities available for sale decreased $1.8 million to
$37.9 million at March 31, 2000, primarily due to amortization and prepayments.
Loans receivable, including loans held for sale, increased $138.2 million,
or 3.6%, to $4.02 billion at March 31, 2000. The Bank originated $306.9 million
of loans during the three month period ended March 31, 2000. Offsetting this
increase were amortization and prepayments totaling $127.3 million, as well as
loan sales of $35.7 million. Loans receivable held for sale increased to $37.9
million as of March 31, 2000, compared to $12.6 million at December 31, 1999,
primarily due to the classification of certain ARM loan originations for sale
during the current quarter. Traditionally, the Bank had generally held ARM
originations in its portfolio. However, due to rising interest rates, and
increased consumer preference for ARM loans, the Bank has decided to start
selling some of its hybrid ARM loan originations to manage its asset growth.
The allowance for loan losses totaled $17.6 million at March 31, 2000, an
increase of $291,000 from the balance at December 31, 1999, due to a $300,000
provision for loan losses, offset by net charge-offs of $9,000. The Bank's
allowance for loan losses to total loans outstanding was .44% at March 31, 2000,
unchanged from December 31, 1999. Non-performing loans increased $604,000 to
$16.3 million at March 31, 2000, compared to $15.6 million at December 31, 1999.
As a percentage of total loans receivable, the level of non-performing loans was
.41% at March 31, 2000, compared to .40% at December 31, 1999. The ratio of the
allowance for loan losses to non-performing loans was 108.1% at March 31, 2000
compared to 110.4% at December 31, 1999, and 115.3% at March 31, 1999.
14
<PAGE>
Foreclosed real estate increased $806,000 to $8.2 million at March 31,
2000, primarily due to new single family foreclosures on $1.2 million of loans
offset by the receipt of $548,000 from sales of foreclosed property. Foreclosed
real estate includes a $6.1 million commercial office complex currently under
contract and expected to close in the second quarter.
Real estate held for development or sale decreased $1.1 million to $14.8
million at March 31, 2000. A summary of the carrying value of real estate held
for development or sale is as follows:
March 31, December 31,
2000 1999
------- -------
(In thousands)
MAF Developments, Inc.
Tallgrass of Naperville $11,484 11,720
Creekside of Remington 1,657 1,657
------- ------
13,141 13,377
------- ------
NW Financial, Inc.
Reigate Woods 1,274 2,112
Woodbridge 400 400
------- ------
1,674 2,512
------- ------
$14,815 15,889
======= ======
The Tallgrass of Naperville project balance decreased $236,000 due to 90
lots sales in the current quarter offset by $6.7 million in development costs.
These costs in the current quarter include a scheduled installment payment for
land in the amount of $3.4 million. As of March 31, 2000, 138 lots were under
contract. The next phase of the development, which consists of approximately 170
lots, is expected to be offered for sale to builders in the third or fourth
quarter of 2000. The remaining balance of the Creekside of Remington project
consists of 75 lots, contracted to be sold to a local developer and scheduled to
close in the second quarter of 2000. The Company expects any profit on the sale
to be nominal.
The Company sold three homesites in its Reigate Woods subdivision during
the first three months of 2000. At March 31, 2000, there were seven remaining
homesites, with three homesites under contract. The remaining balance in the
Woodbridge project consists of four commercial parcels that are under contract
with closings expected over the next nine months. Current estimated aggregate
pre-tax profit on the Woodbridge sales is $1.1 million.
Deposits increased $57.5 million, to $2.76 billion at March 31, 2000, which
reflects the success of recent retail deposit initiatives directed toward
increasing the Company's deposit base. After consideration of interest credited
to accounts of $25.6 million during the three months ended March 31, 2000,
actual cash inflows were $32.2 million during the period. The increase is
primarily due to a $26.7 million increase in certificate of deposit accounts and
a $31.2 million increase in core deposits. The Bank had a net increase of 3,500
checking accounts during the current quarter to 106,000 accounts, due to
increased marketing efforts.
Borrowed funds, which consist primarily of FHLB of Chicago advances,
increased $96.6 million to $1.62 billion at March 31, 2000. The increase is
primarily attributable to a net $80.0 million increase in FHLB of Chicago
borrowings used to fund loan originations. The balance of the Company's
unsecured revolving line of credit increased by $7.0 million primarily to fund
the Company's stock buyback program.
15
<PAGE>
Asset Quality
Non-Performing Assets. 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, the full amount of previously accrued but unpaid
interest is deducted from 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.
For the quarter ended March 31, 2000, interest income that would have been
recorded on non-accrual loans (had they been performing according to their
original terms) amounted to $312,000, compared to $255,000 for the three months
ended March 31, 1999.
Delinquent Loans. Delinquencies in the Bank's portfolio at the dates
indicated were as follows:
<TABLE>
<CAPTION>
61-90 Days 91 Days or More
----------------------------------- ---------------------------------------
Principal Principal
Number Balance of Percent Number Balance of Percent
of Delinquent of of Delinquent of
Loans Loans Total Loans Loans Total
--------- ------------ ---------- ----------- ------------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
March 31, 2000 40 $4,370 .11% 122 $14,254 .36%
== ====== === === ======= ===
December 31, 1999 63 $6,280 .16% 130 $13,224 .34%
== ====== === === ======= ===
September 30, 1999 62 $4,828 .13% 123 $12,321 .33%
== ====== === === ======= ===
June 30, 1999 49 $3,655 .11% 112 $12,299 .35%
== ====== === === ======= ===
March 31, 1999 33 $3,125 .09% 123 $13,677 .40%
== ====== === === ======= ===
</TABLE>
16
<PAGE>
Loan Portfolio Composition. The following table sets forth the composition of
the Bank's loan portfolio in dollar amounts at the dates indicated:
<TABLE>
<CAPTION>
At
----------------------------------------------------------------------
3/31/00 12/31/99 9/30/99 6/30/99 3/31/99 12/31/98
---------- --------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One-to four-family:
Held for investment $3,581,604 3,479,425 3,292,649 3,085,456 2,998,662 2,877,482
Held for sale 37,899 12,601 13,787 100,016 21,387 89,406
Multi-family 162,666 164,878 164,687 153,150 141,018 137,254
Commercial 40,142 38,817 39,670 38,050 41,581 43,069
Construction 27,529 27,707 29,651 29,558 39,090 28,429
Land 29,143 28,602 20,148 24,655 23,674 24,765
---------- --------- --------- --------- --------- ---------
Total real estate loans 3,878,983 3,752,030 3,560,592 3,430,885 3,265,412 3,200,405
Other loans:
Consumer loans:
Equity lines of credit 106,503 99,099 95,749 93,502 90,053 91,915
Home equity loans 51,746 48,397 45,717 44,987 40,434 42,398
Other 4,751 4,757 6,008 6,252 6,294 6,015
---------- --------- --------- --------- --------- ---------
Total consumer loans 163,000 152,253 147,474 144,741 136,781 140,328
Commercial business lines 3,399 3,132 1,740 1,743 1,780 2,356
---------- --------- --------- --------- --------- ---------
Total other loans 166,399 155,385 149,214 146,484 138,561 142,684
---------- --------- --------- --------- --------- ---------
Total loans receivable 4,045,382 3,907,415 3,709,806 3,577,369 3,403,973 3,343,089
Less:
Loans in process 11,467 11,893 13,240 16,828 17,904 10,698
Unearned discounts, premiums
and deferred loan expenses, net (6,408) (6,323) (5,404) (4,603) (3,743) (3,455)
Allowance for loan losses 17,567 17,276 17,012 16,978 16,794 16,770
---------- --------- --------- --------- --------- ---------
Total loans receivable, net 4,022,756 3,884,569 3,684,958 3,548,166 3,373,018 3,319,076
Loans receivable held for sale (37,899) (12,601) (13,787) (100,016) (21,387) (89,406)
---------- --------- --------- --------- --------- ---------
Loans receivable, net $3,984,857 3,871,968 3,671,171 3,448,150 3,351,631 3,229,670
========== ========= ========= ========= ========= =========
</TABLE>
17
<PAGE>
Non-performing assets. 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, foreclosed real estate and non-accrual investment
securities of the Bank.
<TABLE>
<CAPTION>
At
-------------------------------------------------------------
3/31/00 12/31/99 9/30/99 6/30/99 3/31/99 12/31/98
-------- -------- ------- ------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-performing loans:
One- to four-family and multi-family loans:
Non-accrual loans $13,624 12,548 10,453 9,472 9,897 10,641
Accruing loans 91 days or more overdue 529 771 1,312 1,377 1,743 1,381
------- ------ ------ ------ ------ ------
Total 14,153 13,319 11,765 10,849 11,640 12,022
------- ------ ------ ------ ------ ------
Commercial real estate, construction and land loans:
Non-accrual loans 632 607 608 926 1,744 1,284
Accruing loans 91 days or more overdue - - - - - -
------- ------ ------ ------ ------ ------
Total 632 607 608 926 1,744 1,284
------- ------ ------ ------ ------ ------
Other loans:
Non-accrual loans 1,445 1,683 1,258 1,239 1,166 721
Accruing loans 91 days or more overdue 24 41 29 42 16 22
------- ------ ------ ------ ------ ------
Total 1,469 1,724 1,287 1,281 1,182 743
------- ------ ------ ------ ------ ------
Total non-performing loans:
Non-accrual loans 15,701 14,838 12,319 11,637 12,807 12,646
Accruing loans 91 days or more overdue 553 812 1,341 1,419 1,759 1,403
------- ------ ------ ------ ------ ------
Total $16,254 15,650 13,660 13,056 14,566 14,049
======= ====== ====== ====== ====== ======
Non-accrual loans to total loans .40% .38 .33 .34 .38 .39
Accruing loans 91 days or more overdue to total loans .01 .02 .04 .04 .05 .04
------- ------ ------ ------ ------ ------
Non-performing loans to total loans .41% .40 .37 .38 .43 .43
======= ====== ===== ===== ====== ======
Foreclosed real estate (net of related reserves):
One- to four-family $ 1,454 1,220 1,558 2,404 2,307 1,736
Commercial, construction and land 6,767 6,195 6,245 6,624 6,621 6,621
------- ------ ------ ------ ------ ------
Total $ 8,221 7,415 7,803 9,028 8,928 8,357
======= ====== ===== ===== ====== ======
Non-performing loans and foreclosed real estate to total
loans and foreclosed real estate .61 .59 .58 .63 .69 .73
======= ====== ====== ======= ====== ======
Total non-performing assets $24,475 23,065 21,463 22,084 23,494 22,406
======= ====== ====== ======== ====== ======
Total non-performing assets to total assets .51% .50 .48 .52 .57 .54
======= ====== ====== ======= ====== ======
</TABLE>
18
<PAGE>
Liquidity and Capital Resources
The Company's principal sources of funds are cash dividends paid by the
Bank and MAF Developments, and liquidity generated by borrowings. The Company
also maintains a one-year, $20.0 million unsecured revolving line of credit from
a commercial bank, due and renewable annually on April 30. The Company's
principal uses of funds are interest payments on a $29.9 million unsecured term
bank loan, bank borrowings, cash dividends to shareholders, loans to and
investments in MAF Developments, stock repurchases, as well as investment
purchases with excess cash flow.
As a result of the Company's new stock repurchase program and additional
real estate investment opportunities, subsequent to March 31, 2000, the Company
renewed and increased its unsecured revolving line of credit to $25.0 million
from $20.0 million and amended the $29.9 million bank term loan agreement to
revise the repayment schedule as follows:
As
Original Amended
-------- -------
(In thousands)
December 31, 2000 $ 4,500 500
December 31, 2001 7,000 1,500
December 31, 2002 9,200 9,200
December 31, 2003 9,200 18,700
------- ------
$ 29,900 29,900
======= ======
For the three month period ended March 31, 2000, the Company received $7.5
million in dividends from the Bank and declared common stock dividends of $.09
per share or $2.1 million. On April 26, 2000, the Company announced an 11%
increase in its quarterly dividend rate to $.10 payable on July 6, 2000. During
the current quarter, the Company completed a previously announced stock buyback
program and initiated a new 600,000 share buyback program on March 8, 2000.
During the quarter ended March 31, 2000, the Company repurchased 690,800 shares
for $12.5 million at an average price of $18.05 per share. The Company used cash
from the dividends from the Bank, as well as funds borrowed on its unsecured
revolving line of credit to fund the shares repurchased.
The Bank's principal sources of funds are deposits, advances from the FHLB
of Chicago, reverse repurchase agreements, principal repayments on loans and
mortgage-backed securities, proceeds from the sale of loans and funds provided
by operations. While scheduled loan and mortgage-backed securities amortization
and maturing interest-bearing deposits are a relatively predictable source of
funds, deposit flows and loan and mortgage-backed securities prepayments are
greatly influenced by economic conditions, the general level of interest rates
and competition. The Bank utilizes particular sources of funds based on
comparative costs and availability. The Bank generally manages the pricing of
its deposits to maintain a steady deposit balance, but has from time to time
decided to pay rates on deposits as high as its competition, and when necessary,
to supplement deposits with longer term and/or less expensive alternative
sources of funds.
The Bank is required by regulation to maintain specific minimum levels of
liquid investments. Regulations currently in effect 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 quarter ended March 31, 2000, the Bank's average
liquidity ratio was 10.6%. At March 31, 2000, total liquidity was $250.1
million, or 9.6%, which was $145.7 million in excess of the 4.0% regulatory
requirement.
19
<PAGE>
During the three months ended March 31, 2000, the Bank originated and
purchased loans totaling $306.9 million compared with $391.1 million during the
same period a year ago. Loan sales and swaps for the three months ended March
31, 2000, were $35.7 million, compared to $139.2 million for the prior year
period. The Bank has outstanding commitments to originate and purchase loans of
$432.7 million and commitments to sell or swap loans of $48.9 million at March
31, 2000. At March 31, 2000, 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.
Asset/Liability Management
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 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
20
<PAGE>
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.
Although the Bank's overall strategy for asset/liability management remains
consistent, due to the increased consumer demand for ARM loans, the relatively
flat curve, and reduced regulatory capital levels, the Bank decided to begin
selling a portion of its ARM originations during the current quarter. It is
currently expected that the Bank will continue to sell some of its ARM
production for the foreseeable future.
The table on the next page sets forth the scheduled repricing or maturity
of the Bank's assets and liabilities at March 31, 2000. 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 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 shown in the
category relating to the period of time until their respective final maturities.
Due to recent increases in market interest rates, $140.0 million of FHLB
advances with final maturities ranging from 13 to 112 months, but callable in
one year or less are categorized as $80.0 million due in 6 months or less, and
$60.0 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 by 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 rate will differ from those rates assumed by management in the
table.
21
<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>
At March 31, 2000
------------------------------------------------------------------------
More Than More Than More Than
6 Months 6 Months 1 Year 3 Years to More Than
or Less to 1 Year to 3 Years 5 Years 5 Years Total
----------- ---------- ----------- ----------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $ 532,457 420,006 1,128,469 691,819 1,267,572 4,040,323
Mortgage-backed securities 67,208 20,154 15,603 12,486 16,580 132,031
Interest-bearing deposits 21,089 - - - - 21,089
Federal funds sold 115,364 - - - - 115,364
Investment securities (1) 144,168 471 5,821 38,021 91,909 280,390
---------- -------- --------- -------- --------- ---------
Total interest-earning assets 880,286 440,631 1,149,893 742,326 1,376,061 4,589,197
Impact of hedging activity (2) 37,899 - - - (37,899) -
---------- -------- --------- -------- --------- ---------
Total net interest-earning assets adjusted
for impact of hedging activities 918,185 440,631 1,149,893 742,326 1,338,162 4,589,197
---------- -------- --------- -------- --------- ---------
Interest-bearing liabilities:
NOW and checking accounts 19,652 17,982 65,812 40,881 86,872 231,199
Money market accounts 164,768 - - - - 164,768
Passbook accounts 62,774 57,438 210,224 130,586 277,496 738,518
Certificate accounts 853,297 264,153 326,806 42,954 9,436 1,496,646
FHLB advances 235,000 205,000 585,000 155,500 380,000 1,560,500
Other borrowings 62,425 - - - - 62,425
---------- -------- --------- -------- --------- ---------
Total interest-bearing liabilities 1,397,916 544,573 1,187,842 369,921 753,804 4,254,056
---------- -------- --------- -------- --------- ---------
Interest sensitivity gap $ (479,731) (103,942) (37,949) 372,405 584,358 335,141
========== ======== ========= ======== ========= =========
Cumulative gap $ (479,731) (583,673) (621,622) (249,217) 335,141
========== ======== ========= ======== =========
Cumulative gap as a percentage
of total assets (9.95) (12.10) (12.89) (5.17) 5.95
Cumulative net interest-earning assets as
a percentage of interest-bearing liabilities 65.68% 69.95 80.14 92.88 107.88
</TABLE>
- ------------------------------
(1) Includes $78.3 million of stock in FHLB of Chicago in 6 months or less.
(2) Represents forward commitments to sell long-term fixed-rate mortgage loans.
22
<PAGE>
Average Balances/Rates
The following table sets forth certain information relating to the Bank's
consolidated statements of financial condition and reflects the average yield on
assets and average cost of liabilities for the periods indicated. Average yields
and costs are derived by dividing income or expense by the average balance of
assets or liabilities, respectively, for the periods shown. Average balances are
derived from average daily balances. The yield/cost at March 31, 2000, includes
fees which are considered adjustments to yield.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------- At March 31,
2000 1999 2000
------------------------------- ------------------------------- --------------------
Average Average
Average Yield/ Average Yield/ Yield/
Balance Interest Cost Balance Interest Cost Balance Cost
---------- -------- ------- ---------- -------- ------- ---------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable $3,950,441 70,705 7.16% $3,362,180 59,733 7.11% $4,040,323 7.25%
Mortgage-backed securities 131,473 2,174 6.61 169,675 2,640 6.22 132,031 6.63
Interest-bearing deposits (1) 34,133 574 6.75 30,206 543 7.29 21,089 5.93
Federal funds sold (1) 107,658 1,827 6.81 33,880 670 8.02 115,364 5.86
Investment securities (2) 283,994 4,848 6.85 265,339 3,889 5.94 280,390 6.87
---------- ------ ---------- ------ ----------
Total interest-earning assets 4,507,699 80,128 7.11 3,861,280 67,475 7.00 4,589,197 7.17
====== ======
Non-interest earning assets 223,377 221,006 232,693
---------- ---------- ----------
Total assets $4,731,076 $4,082,286 $4,821,890
========== ========== ==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposits 2,583,165 25,789 4.00 $2,533,651 24,581 3.93 $2,631,131 4.10
Borrowed funds 1,590,732 23,759 5.99 1,018,389 14,454 5.76 1,622,925 6.03
---------- ------ ---------- ------ ----------
Total interest-bearing liabilities 4,173,897 49,548 4.76 3,552,040 39,035 4.46 4,254,056 4.84
------ ---- ------ ---- ----
Non-interest bearing deposits 119,512 103,747 125,658
Other liabilities 85,350 86,891 90,525
---------- ---------- ----------
Total liabilities 4,378,759 3,742,678 4,470,239
Stockholders' equity 352,317 339,608 351,651
---------- ---------- ----------
Liabilities and stockholders' equity $4,731,076 $4,082,286 $4,821,890
========== ========== ==========
Net interest income/interest rate spread 30,580 2.35% 28,440 2.54% 2.33%
====== ==== ====== ==== ====
Net earning assets/net yield on
average interest-earning assets $ 333,802 2.71% $ 309,240 2.95% N/A
========== ==== ========== ==== ======
Ratio of interest-earning assets to
interest-bearing liabilities 108.00% 108.71% 107.88%
====== ====== ======
</TABLE>
- ---------------------------------------
(1) Includes pro-rata share of interest income received on outstanding drafts
payable.
(2) Income and yields are stated on a taxable equivalent basis at 35%.
23
<PAGE>
Rate/Volume Analysis of Net Interest Income
The following table 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 during
the periods indicated, on a taxable equivalent basis. 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 rates (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>
Three Months Ended March 31, 2000
Compared to March 31, 1999
Increase (Decrease)
-----------------------------------
Volume Rate Net
------- ----- ------
(In thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable $10,549 423 10,972
Mortgage-backed securities (623) 157 (466)
Interest bearing deposits 72 (41) 31
Federal funds sold 1,274 (117) 1,157
Investment securities 303 656 959
------- ----- ------
Total 11,575 1,078 12,653
------- ----- ------
Interest-bearing liabilities:
Deposits 633 575 1,208
Borrowed funds 8,676 629 9,305
------- ----- ------
Total 9,309 1,204 10,513
------- ----- ------
Net change in net interest income $ 2,266 (126) 2,140
======= ===== ======
</TABLE>
Comparison of the Results of Operations for the Three Months Ended March 31,
2000 and 1999
General - Net income for the three months ended March 31, 2000, was $13.1
million, or $.55 per diluted share, compared to net income of $11.7 million, or
$.46 per diluted share for the three months ended March 31, 1999, an increase of
$1.4 million or 19.1% on a diluted earnings per share basis. The increase in
earnings per share was primarily due to higher net interest income, an increase
in income from real estate operations, higher deposit account service charges,
as well as the impact of the repurchase of shares under the Company's stock
repurchase programs, offset partially by higher non-interest expenses.
Net interest income - Net interest income was $30.5 million for the current
quarter, compared to $28.4 million for the quarter ended March 31, 1999, an
increase of $2.1 million or 7.5%. Average net interest-earning assets increased
to $333.8 million for the three months ended March 31, 2000, compared to $309.2
million for the three months ended March 31, 1999, while the Company's net
interest margin decreased to 2.71% for the current three month period, compared
to 2.95% for the prior year period, and is a result of the Bank's negative one-
year gap position. The 24 basis point decline in the net interest margin is
primarily due to the negative impact of rising U.S. Treasury rates over the past
12 months on the Bank's funding base, primarily on renewing certificates of
deposits, maturing FHLB advances, and higher spreads over Treasury rates for new
FHLB advances and certificates of deposit. The impact of rising rates on the
Bank's funding base has been slightly offset by an increase in its yield on
interest earning assets. In addition, the Company stock repurchase program has
exerted downward pressure on the net interest margin by decreasing the level of
interest earning assets.
24
<PAGE>
Interest income on loans receivable increased $11.0 million as a result of
a $588.3 million increase in average loans receivable, as well as a slightly
higher average yield on loans receivable for the current period compared to the
prior year period. Although interest rates have generally risen over the past 12
months, the average yield on loans receivable has increased only slightly due to
a dramatic change in the mix of loan originations toward lower-yielding ARM
loans. Interest income on mortgage-backed securities decreased $466,000 to $2.2
million for the current quarter, due to a $38.2 million decrease in average
balances. Interest income on investment securities increased $1.0 million to
$4.8 million, primarily due to the increase in average balance of $18.7 million
and a 91 basis point increase in yield due to floating rate assets repricing
higher and a higher dividend rate paid on Federal Home Loan Bank stock.
Interest expense on deposit accounts increased $1.2 million to $25.8
million, due to a $49.5 million increase in average deposits during the current
three month period, and a 7 basis point increase in the average cost of
deposits. The increase in the average cost of deposits is primarily due to
upward repricing on maturing certificate of deposits.
Interest expense on borrowed funds increased $9.3 million to $23.8 million,
as a result of a $572.3 million increase in the average balance of borrowed
funds, and a 23 basis point increase in the average cost of borrowed funds. The
increase in the average balance is primarily due to an increase in FHLB of
Chicago advances of $577.1 million, which have been used to fund loan
originations held for investment.
Recent increases in U. S. Treasury rates and widening of credit spreads, as
well as uncertainty regarding potential additional Federal Reserve Board
interest rate increases, is expected to have a negative impact on the Bank's net
interest margin. In addition, competition for deposits has increased, as retail
deposits have become a cheaper funding source than wholesale borrowings,
requiring the Bank to pay higher deposit rates to attract and retain deposit
funding. The Bank is currently emphasizing the origination of adjustable-rate
loans which 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 FHLB advances at higher rates. Currently,
however, the Company expects to be able to increase its net interest income. A
continuation of current consumer preference for adjustable rate loans is
expected to allow the Bank to increase its level of interest earning assets in
an amount that more than offsets the decline in its net interest margin.
Provision for loan losses - The Bank provided $300,000 in provision for
loan losses during the current three month period, compared to $250,000 for the
prior year three month period. Net charge-offs during the current quarter were
$9,000, compared to net charge-offs of $225,000 for the three months ended March
31, 1999. The Bank's allowance for loan losses was $17.6 million at March 31,
2000, which equaled .44% of total loans receivable, the same percentage as at
December 31, 1999. The ratio of the allowance for loan losses to non-performing
loans was 108.1% at March 31, 2000 compared to 110.4% at December 31, 1999 and
115.3% at March 31, 1999.
25
<PAGE>
Non-interest income - Non-interest income increased 6.1% to $7.8 million
for the three months ended March 31, 2000, compared to $7.3 million for the
three months ended March 31, 1999, primarily due to higher real estate
development profits and deposit account service charges offset by substantially
lower gains on sales of mortgage loans and investment securities.
Gain on sale of loans and mortgage-backed securities decreased to a
combined $57,000 for the three months ended March 31, 2000, compared to a
combined $1.5 million for the three months ended March 31, 1999. Loan sale
volume was $35.7 million during the current quarter, compared to $139.2 million
for the three months ended March 31, 1999. The decrease in loan sale activity is
primarily due to a lesser amount of fixed-rate originations in the current three
month period due to rising interest rates. It is currently expected that loan
sale volume will remain below 1999 levels during the remainder of 2000, and
profits on sales will be substantially less than those recorded in 1999. The
gain on sale of mortgage-backed securities results from loans originated by the
Bank being swapped into mortgage-backed securities prior to sale. During the
three months ended March 31, 2000, no loans swapped and sold, compared to
$753,000 during the three months ended March 31, 1999.
Income from real estate operations increased $1.9 million to $2.5 million
for the three months ended March 31, 2000. A summary of income from real estate
operations is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------
2000 1999
------------------ -------------------
Pre-tax
# of Pre-tax # of Income
Lots Income Lots (Loss)
---- ------- ---- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tallgrass of Naperville 90 $ 2,288 38 $ 202
Reigate Woods 3 83 3 135
Harmony Grove - 104 5 323
Woodbridge - - - (39)
---- ------- ---- -------
93 $ 2,475 46 $ 621
==== ======= ==== =======
</TABLE>
Sales in Tallgrass of Naperville project during the current quarter reflect
closings of lots previously under contract in the current phase of the
development. At March 31, 2000, 138 lots remain under contract, with closings
expected in the second and third quarters of 2000. The large increase in the
profit margin per lot is primarily due to increases in Unit 2 lot prices. As
demand remains strong for this project's lots, the Company currently expects
margins to remain at least at current levels for the foreseeable future. Profit
margins were reduced for the Reigate Woods sales, as the few remaining homesites
are being discounted in order to finish the project. The Harmony Grove profit in
the current quarter represents rebated costs previously charged against profit.
The project was complete as of March 31, 2000.
Deposit account service charges increased $365,000, or 16.6% to $2.6
million for the three months ended March 31, 2000, primarily due to continued
growth in the number of checking accounts and related fees, including debit card
fees. At March 31, 2000, the Bank had approximately 106,100 checking accounts,
compared to 95,600 at March 31, 1999.
26
<PAGE>
Loan servicing fee income increased to $556,000, for the three months ended
March 31, 2000 compared to $376,000 for the three months ended March 31, 1999.
The increase is primarily due to a decrease in the amortization of capitalized
servicing resulting from the slowdown of prepayments. In addition, the average
balance of loans serviced for others increased 12.2% to $1.23 billion for the
current three-month period, compared to $1.09 billion for the prior year period.
Amortization of mortgage servicing rights equaled $223,000 for the three months
ended March 31, 2000, compared to $343,000 for the prior three-month period.
Other non-interest income decreased $294,000, or 19.4% to $1.2 million for
the three months ended March 31, 2000, primarily due to decreased fee income
related to loan modifications, in light of slower refinance activity.
Non-interest expense - Non-interest expense increased $1.5 million or 9.3%
to $17.7 million for the three months ended March 31, 2000. The ratio of non-
interest expense to average assets improved to 1.50% for the current quarter
compared to 1.59% for the prior year period, reflecting increased operating
efficiencies.
Compensation and benefits increased 7.2% or $679,000 to $10.1 million for
the three months ended March 31, 2000, compared to the three months ended March
31, 1999. The increase is primarily due to additional staffing for the new
branch, and normal compensation increases. Compensation and benefits are
expected to increase as a result of the two branch acquisitions that closed in
April 2000.
Occupancy expense increased $108,000, or 6.0% to $1.9 million for the three
months ended March 31, 2000, compared to the prior year period, primarily due to
higher real estate taxes, the addition of one new branch location and the cost
of ongoing branch renovation programs.
Federal deposit insurance premium expense decreased $257,000 or 63.6% to
$147,000 for the three months ended March 31, 2000, compared to the prior year
period due to a scheduled decrease in insurance rates that went into effect
January 1, 2000.
Data processing expense increased $125,000 or 21.2% to $716,000 for the
three months ended March 31, 2000, compared to the prior year period, primarily
due to higher depreciation expense for computer equipment and contracted
software services related to the branch deposit acquisition.
Advertising and promotion expense increased $470,000, or 88.4% for the
three months ended March 31, 2000, compared to the prior year period. The
increase is primarily due to a radio-based marketing campaign designed to
enhance the Company's brand awareness in May 1999 and heavier print advertising
for deposit products. Management does not expect further significant increases
compared to the prior year in its advertising and promotion expenses for the
remainder of 2000.
Income taxes - For the three months ended March 31, 2000, income tax
expense totaled $7.2 million, or an effective income tax rate of 35.5%, compared
to $7.6 million, or an effective income tax rate of 39.5%, for the three months
ended March 31, 1999. The lower effective income tax rate in the current period
was primarily the result of proactive tax planning initiated in mid 1999,
involving the transfer of Bank portfolio assets to an operating subsidiary. In
addition, the recognition in the current period of income tax benefits relating
to the resolution of certain prior years' income tax issues resulted in a lower
effective tax rate.
27
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
A comprehensive qualitative and quantatative analysis regarding market risk
is disclosed in the Company's December 31, 1999 Form 10K. There have been no
material changes in the assumptions used or results obtained regarding market
risk since December 31, 1999.
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings. Not applicable.
Item 2. Changes in Securities. Not applicable.
Item 3. Defaults Upon Senior Securities. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company held its Annual Meeting of Shareholders on April 26,
2000.
(b) The names of each director elected at the Annual Meeting for
three-year terms are as follows:
Joe F. Hanauer
F. William Trescott
Andrew J. Zych
The names of the other directors, whose terms of office continued after
the Annual Meeting, are as follows:
Robert Bowles, MD Kenneth Koranda
David C. Burba Henry R. Smogolski
Terry A. Ekl Lois B. Vasto
Allen Koranda Jerry A. Weberling
(c) In addition to the election of directors, the following matters
were voted upon at the Annual Meeting. The number of affirmative
votes and negative votes cast with respect to each matter is shown
below.
(i) Approval of the MAF Bancorp, Inc. 2000 Stock Option Plan.
For Against Abstain
---------- --------- -------
19,189,888 1,442,490 152,278
(ii) Ratification of the appointment of KPMG LLP as the Company's
independent auditors for the year ending December 31, 2000:
For Against Abstain
---------- --------- -------
20,583,520 175,282 25,854
(d) None.
Item 5. Other Information. None.
28
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. 3. Certificate of Incorporation and By-laws.
(i) Certificate of Incorporation, as amended. (Incorporation by
reference to Exhibit No. 3(i) to Registrant's December 31,
1999 10-K).
(ii) By-laws of Registrant, as amended. (Incorporated by
reference to Exhibit No. 3 to Registrant's June 30, 1990
Form 10-K).
Exhibit No. 11. Statement re: Computation of per share earnings:
<TABLE>
<CAPTION>
Quarter Ended
March 31, 2000
--------------
<S> <C>
Net income $13,109,000
===========
Weighted average common shares outstanding 23,780,241
===========
Basic earnings per share $ .55
===========
Weighted average common shares outstanding 23,780,241
Common stock equivalents due to dilutive
effect of stock options 173,755
-----------
Total weighted average common shares and equivalents
outstanding for diluted computation 23,953,996
===========
Diluted earnings per share $ .55
===========
</TABLE>
Exhibit No. 27. Financial Data Schedule.
(b) Reports on Form 8-K.
On January 26, 2000, MAF Bancorp, Inc. filed the announcement of
its 1999 fourth quarter and year ended earnings results.
On March 14, 2000, MAF Bancorp, Inc. filed the notice of its
Annual Meeting of Shareholders to be held on April 26, 2000.
29
<PAGE>
SIGNATURES
Pursuant to the requirements 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)
Date: May 12, 2000 By: /s/ Allen H. Koranda
-------------------- -----------------------------------
Allen H. Koranda
Chairman of the Board and
Chief Executive Officer
(Duly Authorized Officer)
Date: May 12, 2000 By: /s/ Jerry A. Weberling
-------------------- -----------------------------------
Jerry A. Weberling
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 46,245
<INT-BEARING-DEPOSITS> 21,089
<FED-FUNDS-SOLD> 115,364
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 227,943
<INVESTMENTS-CARRYING> 184,478
<INVESTMENTS-MARKET> 180,992
<LOANS> 4,040,323
<ALLOWANCE> 17,567
<TOTAL-ASSETS> 4,821,890
<DEPOSITS> 2,756,789
<SHORT-TERM> 226,525
<LIABILITIES-OTHER> 1,396,400
<LONG-TERM> 0
0
0
<COMMON> 254
<OTHER-SE> 351,397
<TOTAL-LIABILITIES-AND-EQUITY> 4,821,890
<INTEREST-LOAN> 70,705
<INTEREST-INVEST> 6,985
<INTEREST-OTHER> 2,401
<INTEREST-TOTAL> 80,091
<INTEREST-DEPOSIT> 25,789
<INTEREST-EXPENSE> 23,759
<INTEREST-INCOME-NET> 30,543
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 133
<EXPENSE-OTHER> 17,752
<INCOME-PRETAX> 20,316
<INCOME-PRE-EXTRAORDINARY> 13,109
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,109
<EPS-BASIC> 0.550
<EPS-DILUTED> 0.550
<YIELD-ACTUAL> 2.33
<LOANS-NON> 15,701
<LOANS-PAST> 553
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17,276
<CHARGE-OFFS> 10
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 17,567
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 17,567
</TABLE>
