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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, 2001
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 22,550,293 at May 11, 2001.
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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, 2001 and December 31, 2000 (unaudited)........................ 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 2001 and 2000 (unaudited).............................. 4
Consolidated Statement of Changes in Stockholders' Equity
for the Three Months Ended March 31, 2001 (unaudited)......................... 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2001 and 2000 (unaudited)........................ 6
Notes to Unaudited Consolidated Financial Statements.......................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................... 26
Part II. Other Information
- ------- -----------------
Item 1. Legal Proceedings............................................................. 27
Item 2. Changes in Securities......................................................... 27
Item 3. Defaults Upon Senior Securities............................................... 27
Item 4. Submission of Matters to a Vote of Security Holders........................... 27
Item 5. Other Information............................................................. 27
Item 6. Exhibits and Reports on Form 8-K.............................................. 28
Signature Page................................................................ 29
2
Part I. Financial Information
Item 1. Financial Statements
MAF BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Dollars in thousands)
(Unaudited)
March 31, December 31,
2001 2000
--------- ------------
Assets
- ------
Cash and due from banks $ 81,107 77,860
Interest-bearing deposits 31,925 53,392
Federal funds sold 142,648 139,268
Investment securities, at cost (fair value of $13,290 at December 31,
2000) - 12,633
Investment securities available for sale, at fair value 229,192 174,494
Stock in Federal Home Loan Bank of Chicago, at cost 86,475 84,775
Mortgage-backed securities, at amortized cost
(fair value of $79,137 at December 31, 2000) - 80,301
Mortgage-backed securities available for sale, at fair value 110,126 24,084
Loans receivable held for sale 162,355 41,074
Loans receivable, net of allowance for losses of $18,279 and $18,258 4,203,285 4,287,040
Accrued interest receivable 27,639 27,888
Foreclosed real estate 1,345 1,808
Real estate held for development or sale 7,887 12,718
Premises and equipment, net 48,895 48,904
Other assets 61,285 60,485
Intangible assets, net of accumulated amortization of $16,181 and
$15,030 67,713 68,864
---------- ----------
$5,261,877 5,195,588
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposits $3,067,129 2,974,213
Borrowed funds 1,684,900 1,728,900
Advances by borrowers for taxes and insurance 45,224 38,354
Accrued expenses and other liabilities 73,957 66,392
---------- ----------
Total liabilities 4,871,210 4,807,859
---------- ----------
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;
22,768,601 and 23,110,022 shares outstanding 254 254
Additional paid-in capital 198,119 198,068
Retained earnings, substantially restricted 249,523 237,867
Stock in gain deferral plan; 223,453 shares 511 511
Accumulated other comprehensive income 2,032 1,435
Treasury stock, at cost; 2,875,502 and 2,534,081 shares (59,772) (50,406)
---------- ----------
Total stockholders' equity 390,667 387,729
---------- ----------
$5,261,877 $5,195,588
========== ==========
See accompanying notes to unaudited consolidated financial statements.
3
MAF BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
------------------
2001 2000
------ ------
Interest income:
Loans receivable $ 80,083 70,705
Mortgage-backed securities - 1,525
Mortgage-backed securities available for sale 1,660 649
Investment securities 1,493 1,597
Investment securities available for sale 3,437 3,214
Interest-bearing deposits and federal funds sold 2,474 2,401
-------- ------
Total interest income 89,147 80,091
-------- ------
Interest expense:
Deposits 31,510 25,789
Borrowed funds 25,139 23,759
-------- ------
Total interest expense 56,649 49,548
-------- ------
Net interest income 32,498 30,543
Provision for loan losses - 300
-------- ------
Net interest income after provision for loan losses 32,498 30,243
-------- ------
Non-interest income:
Gain on sale of:
Loans receivable 691 57
Investment securities 170 133
Foreclosed real estate 175 72
Deposit account service charges 3,426 2,570
Income from real estate operations 3,349 2,475
Brokerage commissions 545 678
Loan servicing fee income (expense) (263) 556
Other 1,766 1,218
-------- ------
Total non-interest income 9,859 7,759
-------- ------
Non-interest expense:
Compensation and benefits 11,341 10,145
Office occupancy and equipment 2,224 1,915
Advertising and promotion 1,248 1,002
Data processing 764 716
Federal deposit insurance premiums 155 147
Amortization of intangible assets 1,151 960
Other 3,065 2,801
-------- ------
Total non-interest expense 19,948 17,686
-------- ------
Income before income taxes 22,409 20,316
Income tax expense 8,331 7,207
-------- ------
Net income $ 14,078 13,109
======== ======
Basic earnings per share $ .61 .55
======== ======
Diluted earnings per share $ .60 .55
======== ======
See accompanying notes to unaudited consolidated financial statements.
4
MAF BANCORP, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
(Dollars in thousands)
(Unaudited)
Three Months Ended March 31, 2001
--------------------------------------------------------------------------
Accumulated Stock in
Additional other gain
Common paid-in Retained comprehensive deferral Treasury
stock capital earnings income plan stock Total
----- ---------- -------- ------------- -------- --------- -------
Balance at December 31, 2000 $ 254 198,068 237,867 1,435 511 (50,406) 387,729
---- -------- ------- ------ ------- ------- -------
Comprehensive income:
Net income - - 14,078 - - - 14,078
Other comprehensive income, net of tax:
Unrealized holding gain during the period - - - 704 - - 704
Less: reclassification adjustment of gains
included in net income - - - (107) - - (107)
---- -------- ------- ------- ------- ------- -------
Total comprehensive income - - 14,078 597 - - 14,675
---- -------- ------- ------ ------- ------- -------
Exercise of 22,479 stock options and
reissuance of treasury stock - - (159) - - 446 287
Purchase of treasury stock - - - - - (9,812) (9,812)
Tax benefits from stock-related compensation - 51 - - - - 51
Cash dividends ($.10 per share) - - (2,286) - - - (2,286)
Dividends paid to gain deferral plan - - 23 - - - 23
---- -------- ------- ------ ------- ------- -------
Balance at March 31, 2001 $ 254 198,119 249,523 2,032 511 (59,772) 390,667
==== ======== ======= ====== ======= ======= =======
See accompanying notes to unaudited consolidated financial statements.
5
MAF BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31,
------------------
2001 2000
------ ------
Operating activities:
Net income $ 14,078 13,109
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,201 1,054
Provision for loan losses - 300
FHLB of Chicago stock dividend (1,700) -
Deferred income tax benefit (300) (119)
Amortization of intangible assets 1,151 960
Amortization of premiums, discounts, loan fees and servicing
rights 1,354 148
Net gain on sale of loans receivable and real estate held for
development or sale (4,040) (2,532)
Gain on sale of investment securities (170) (133)
Increase (decrease) in accrued interest receivable 249 (1,405)
Net decrease in other assets and liabilities 4,578 843
Loans originated for sale (247,378) (61,010)
Sale of loans originated and purchased for sale 125,987 35,519
-------- ------
Net cash used in operating activities (104,990) (13,266)
Investing activities:
Loans receivable originated for investment (267,196) (202,628)
Principal repayments on loans receivable 350,032 127,269
Principal repayments on mortgage-backed securities 5,826 5,745
Proceeds from maturities of investment securities available for
sale 13,318 19,343
Proceeds from sale of:
Investment securities available for sale 1,630 480
Real estate held for development or sale 12,183 12,318
Purchases of:
Loans receivable held for investment - (39,051)
Investment securities available for sale (56,143) (15,967)
Investment securities held to maturity - (59)
Mortgage-backed securities held to maturity - (4,085)
Mortgage-backed securities available for sale (11,279) -
Stock in FHLB of Chicago - (3,250)
Real estate held for development or sale (1,104) (6,843)
Premises and equipment (1,192) (1,081)
-------- --------
Net cash provided by (used in) investing activities $ 46,075 (107,809)
-------- --------
(continued)
6
MAF BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------
2001 2000
------ ------
Financing activities:
Proceeds from FHLB of Chicago advances $ 80,000 $ 145,000
Proceeds from unsecured line of credit 6,000 9,500
Repayment of FHLB of Chicago advances (130,000) (65,000)
Repayment of unsecured line of credit - (2,500)
Net decrease in other borrowings - 9,562
Proceeds from exercise of stock options 287 69
Purchase of treasury stock (9,812) (12,466)
Cash dividends (2,288) (2,131)
Net increase in deposits 93,018 57,877
Increase in advances by borrowers for taxes and insurance 6,870 5,822
-------- --------
Net cash provided by financing activities 44,075 145,733
-------- --------
Increase (decrease) in cash and cash equivalents (14,840) 24,658
Cash and cash equivalents at beginning of period 270,520 158,040
-------- --------
Cash and cash equivalents at end of period $ 255,680 $ 182,698
-------- --------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowed funds $ 55,658 $ 48,508
Summary of non-cash transactions:
Transfer of loans receivable to foreclosed real estate 877 1,221
Loans receivable swapped into mortgage-backed securities 19,668 -
Investments securities held-to-maturity transferred to
available-for-sale 12,633 -
Mortgage-backed securities held-to-maturity transferred to -
available-for-sale 80,301 -
Treasury stock received for option exercises (0 and 39,691 shares) - 790
-------- --------
See accompanying notes to unaudited consolidated financial statements.
7
MAF BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Three Months Ended March 31, 2001 and 2000
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America 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 accounting
principles generally accepted in the United States of America 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, 2001
are not necessarily indicative of results that may be expected for the year
ending December 31, 2001.
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, 2001 and 2000 and as of December 31, 2000. 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 to the extent that they have a dilutive effect. 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:
Three Months Ended March 31,
------------------------------------------------------------------------
2001 2000
----------------------------------- -----------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
(Dollars in thousands, except per share data)
Basic earnings per share:
Income available to
common shareholders $ 14,078 23,018,839 $ .61 $ 13,109 23,780,241 $ .55
====== ===== ====== =====
Effect of dilutive securities:
Stock options 474,394 173,755
---------- ----------
Diluted earnings per share:
Income available to common
shareholders plus assumed
conversions $ 14,078 23,493,233 $ .60 $ 13,109 23,953,996 $ .55
====== ========== ===== ====== ========== =====
8
(3) Commitments and Contingencies
At March 31, 2001, the Bank had outstanding commitments to originate and
purchase loans of $502.6 million, of which $361.7 million were fixed-rate loans,
with rates ranging from 6.13% to 8.50%, and $140.9 million were adjustable-rate
loans. At March 31, 2001, commitments to sell loans were $165.3 million.
At March 31, 2001, the Bank had outstanding standby letters of credit
totaling $14.4 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
$6.7 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 2000 amounts have been made to conform with
current period 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 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 tables below:
At or For the Three Months Ended March 31, 2001
-----------------------------------------------------
Retail Land Consolidated
Banking Development Eliminations Total
------- ----------- ------------ ------------
(In thousands)
Interest income $ 89,159 - (12) 89,147
Interest expense 56,649 12 (12) 56,649
--------- ------ ------- ---------
Net interest income 32,510 (12) - 32,498
Non-interest income 6,510 3,349 - 9,859
Non-interest expense 19,602 346 - 19,948
--------- ------ ------- ---------
Income before income taxes 19,418 2,991 - 22,409
Income tax expense 7,145 1,186 - 8,331
--------- ------ ------- ---------
Net income $ 12,273 1,805 - 14,078
========= ====== ======= =========
Average assets $ 5,114,236 14,421 - 5,128,657
========= ====== ======= =========
9
(6) Segment Information (continued)
At or For the Three Months Ended March 31, 2000
------------------------------------------------------
Retail Land Consolidated
Banking Development Eliminations Total
------- ----------- ------------ ------------
(In thousands)
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
========= ====== ======= =========
(7) New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board, ("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 adopted these statements as of January 1, 2001, and this
implementation did not have a material impact on its financial position or
results of operations. On January 1, 2001, the Company transferred $92.9 million
of investment and mortgage-backed securities with a market value of $92.4
million from the held-to-maturity category to the available-for-sale category as
allowed upon adoption of SFAS No. 133.
In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
140 supercedes and replaces FASB SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." Accordingly,
SFAS No. 140 is now the authoritative accounting literature for transfers and
servicing of financial assets and extinguishments of liabilities. SFAS No. 140
also includes several additional disclosure requirements in the area of
securitized financial assets and collateral arrangements. The provisions of SFAS
No. 140 related to transfers of financial assets are to be applied to all
transfers of financial assets occurring after March 31, 2001. The collateral
recognition and disclosure provisions in SFAS No. 140 are effective for fiscal
years ending after December 15, 2000. The Company anticipates that the adoption
of SFAS No. 140 will not have a material impact on the Company's results of
operation.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Cautionary Statement Regarding Forward-Looking Information
This report, in Item 2. "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 unanticipated 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 and secondary mortgage market
conditions, deposit flows, competition, demand for financial services and
residential real estate in the Company's market area, unanticipated problems in
closing pending real estate contracts, delays in real estate development
projects, the possible short-term dilutive effect of potential acquisitions, and
changes in 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. The Company undertakes
no obligation to update forward-looking statements for the effect of future
events.
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 retail banking business through its wholly-owned subsidiary, Mid
America Bank, fsb ("Bank"), and secondarily, in the land development business
primarily through MAF Developments, Inc.
The Bank is a consumer-oriented financial institution offering various
financial services to its customers through 27 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 and southwest sides 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
loans. 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
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 Co., LLC IV, a real estate investment trust.
11
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 involve some short-term 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.
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. The minimum level required for each of
these capital standards is established by regulation. The Company has managed
its balance sheet so as to reasonably exceed these minimums.
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 capital.
Tangible Capital Requirement
Under OTS regulation, savings institutions are required to meet a minimum
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.
12
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.) In computing total capital, the supplementary capital included cannot
exceed 100% of core capital.
At March 31, 2001, the Bank was in compliance with all of its capital
requirements as follows:
March 31, 2001 December 31, 2000
--------------------- ---------------------
Percent of Percent of
Amount Assets Amount Assets
--------- ---------- --------- ----------
(Dollars in thousands)
Stockholder's equity of the Bank $ 400,130 7.63% $ 394,474 7.63%
========= ====== ========= ======
Tangible capital $ 328,010 6.35% $ 321,931 6.32%
Tangible capital requirement 77,534 1.50 76,408 1.50
--------- ------ --------- ------
Excess $ 250,476 4.85% $ 245,523 4.82%
========= ====== ========= ======
Core capital $ 328,010 6.35% $ 321,931 6.32%
Core capital requirement 155,067 3.00 152,816 3.00
--------- ------ --------- ------
Excess $ 172,943 3.35% $ 169,115 3.32%
========= ====== ========= ======
Core and supplementary capital $ 342,050 11.86% $ 336,801 11.98%
Risk-based capital requirement 230,637 8.00 224,878 8.00
--------- ------ --------- ------
Excess $ 111,413 3.86% $ 111,923 3.98%
========= ====== ========= ======
Total Bank assets $ 5,241,798 $ 5,168,163
Adjusted total Bank assets 5,168,916 5,093,883
Total risk-weighted assets 2,955,846 2,885,260
Adjusted total risk-weighted assets 2,882,964 2,810,981
Investment in Bank's real estate subsidiaries 2,455 2,445
========= =========
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:
March 31, December 31,
2001 2000
--------- ------------
(In thousands)
Stockholder's equity of the Bank $ 400,130 394,474
Goodwill (61,151) (61,962)
Core deposit intangibles (6,562) (6,902)
Non-permissible subsidiary deduction (2,455) (2,445)
Non-includable purchased mortgage servicing rights (550) (511)
Regulatory capital adjustment for available for sale securities (1,402) (723)
-------- --------
Tangible and core capital 328,010 321,931
Recourse on loan sales (4,239) (3,388)
General loan loss reserves 18,279 18,258
-------- --------
Core and supplementary capital $ 342,050 336,801
======== ========
13
Changes in Financial Condition
Total assets of the Company were $5.26 billion at March 31, 2001, an
increase of $66.3 million, or 1.3% from $5.20 billion at December 31, 2000. The
increase is primarily due to an increase in investment securities and loans
receivable funded by an increase in deposits. The current quarter growth rate in
total assets is slower than the Bank has experienced in the past, and is a
direct result of declining long-term interest rates. Such declines have led to a
higher level of mortgage prepayments, and borrowers preferring fixed-rate
mortgage loans, which the Bank sells into the secondary market. Currently,
management expects this more modest growth rate to continue for the remainder of
2001.
Cash and short-term investments totaled a combined $255.7 million at March
31, 2001, a decrease of $14.8 million from the combined balance of $270.5
million at December 31, 2000.
Investment securities available for sale increased $54.7 million to $229.2
million at March 31, 2001. The Company transferred $12.6 million of investment
securities with a market value of $13.3 million from the held-to-maturity
category to the available for sale category on January 1, 2001 as allowed upon
adoption of SFAS No. 133. The remaining increase is due to $56.1 million in
purchases of primarily agency debt securities, corporate bonds and preferred
stock offset by maturities of $13.3 million of primarily asset-backed and U.S.
Agency securities, and sales of $1.6 million of equity securities. The increased
investment securities purchase activity is due to the fixed rate loan
origination market which is resulting in the redeployment of loan sale proceeds
into other investments. The Company recognized a gain of $170,000 on the sale of
investment securities available for sale during the three months ended March 31,
2001.
Mortgage-backed securities available for sale increased $86.0 million to
$110.1 million at March 31, 2001, primarily due to the transfer of $80.3 million
of mortgage-backed securities with a market value of $79.1 million from the
held-to-maturity category to the available for sale category on January 1, 2001
as allowed upon adoption of SFAS No. 133. The remaining increase is due to
purchases of GNMA mortgage-backed securities and Collaterized Mortgage
Obligations ("CMO") totaling $11.3 million, offset by normal amortization and
prepayments.
Included in mortgage-backed securities classified as available for sale are
$57.2 million of CMO securities at March 31, 2001, the majority of which are
collateralized by FNMA, FHLMC and GNMA mortgage-backed securities, and to a
lesser extent by whole loans.
Loans receivable, including loans held for sale, increased $37.5 million,
or .9%, to $4.37 billion at March 31, 2001. The Bank originated $515.5 million
of loans during the three-month period ended March 31, 2001, compared to $306.9
million during the prior year period. The higher loan origination volume was
primarily due to an increase in mortgage refinance activity as rates have
decreased in recent months compared to the prior year. Offsetting this increase
in loan balances were amortization and prepayments totaling $350.0 million, as
well as loan sales of $126.3 million. Loans receivable held for sale increased
to $162.4 million as of March 31, 2001, compared to $41.1 million at December
31, 2000. The large increase in loans held for sale is due to the increase in
fixed-rate loan originations during the quarter. The Bank typically sells its
fixed-rate loan originations into the secondary market.
The allowance for loan losses totaled $18.3 million at March 31, 2001, an
increase of $21,000 from the balance at December 31, 2000, due to net recoveries
for the period. The Bank's allowance for loan losses to total loans outstanding
was .43% at March 31, 2001, compared to .42% at December 31, 2000.
Non-performing loans increased $1.2 million to $17.9 million at March 31, 2001,
compared to $16.7 million at December 31, 2000. As a percentage of total loans
receivable, the level of non-performing loans was .42% at March 31, 2001,
compared to .39% at December 31, 2000. The ratio of the allowance for loan
losses to non-performing loans was 102.3% at March 31, 2001 compared to 109.3%
at December 31, 2000, and 108.1% at March 31, 2000.
14
In determining the allowance for loan losses and the related provision for
loan losses, management considers: (1) subjective factors, including local and
general economic business factors and trends, portfolio concentrations and
changes in the size and/or general terms of the loan portfolio, (2) historical
loss experience which has ranged from 1 to 14 basis points as a percentage of
outstanding loans over the last five years, and (3) specific allocations based
upon probable losses identified during the review of the portfolio.
Foreclosed real estate decreased $463,000 to $1.3 million at March 31, 2001
primarily due to the sale of 11 single family homes offset by the addition of
five single family homes.
Real estate held for development or sale decreased $4.8 million to $7.9
million at March 31, 2001 primarily due to lot sales in its Tallgrass
subdivision. A summary of the carrying value of real estate held for development
or sale follows:
March 31, December 31,
2001 2000
------- --------
(In thousands)
Tallgrass of Naperville $ 3,162 8,041
Shenandoah 4,435 4,387
Woodbridge 290 290
------- -------
$ 7,887 12,718
======= =======
The Company had 85 lot sales in Tallgrass of Naperville during the three
months ended March 31, 2001. At March 31, 2001, 288 lots remain in Tallgrass,
with 19 under contract. The balance of the Shenandoah project reflects the
Company's purchase, in the second quarter of 2000, of 182 acres of land in
Plainfield, Illinois. The project is currently expected to yield 365 lots, with
development expected to commence in late 2001. The remaining balance of the
Woodbridge project consists of two parcels of commercial property totaling 3.5
acres. At March 31, 2001, one of the two remaining parcels is under contract
with the Bank, and expected to be used for future branch expansion, while the
other is under contract and expected to be sold in the second half of 2001 at a
pre-tax profit of approximately $550,000. Another new residential project,
consisting of 123 acres in Sugar Grove, Illinois, is currently under contract
and assuming the parcel is acquired, lot sales are expected to begin in late
2002.
Deposits increased $92.9 million, to $3.07 billion at March 31, 2001. After
consideration of interest of $29.7 million credited to accounts during the three
months ended March 31, 2001, actual cash inflows were $63.3 million.
Borrowed funds, which consist primarily of FHLB of Chicago advances,
decreased $44.0 million to $1.68 billion at March 31, 2001. The decrease is
primarily attributable to a net $50.0 million decrease in FHLB of Chicago
borrowings due to repayments utilizing deposit inflows and excess liquidity from
higher loan sales resulting from increased fixed-rate loan originations.
Borrowings at March 31, 2001 also include $10.0 million drawn on the Company's
revolving line of credit compared to $4.0 million at December 31, 2000. These
funds have been used primarily to fund the Company's stock buyback program.
Stockholders' equity increased $2.9 million, or .8% at March 31, 2001,
primarily due to net income of $14.1 million and an increase in accumulated
other comprehensive income of $597,000, offset by stock repurchases of $9.8
million and cash dividends paid of $2.3 million.
15
Asset Quality
Non-Performing Assets. A loan (whether considered impaired or not) is
classified as non-accrual when collectibility is in doubt. Generally, when a
loan is 90 days or more past due, in the process of foreclosure, or in
bankruptcy, 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 the time when the loan is brought current in
accordance with its original terms. This policy is applied consistently for all
types of loans in the loan portfolio.
For the quarter ended March 31, 2001, interest on non-accrual loans that
would have been recorded as income, had they been performing according to their
original terms, amounted to $297,000, compared to $312,000 for the three months
ended March 31, 2000.
Delinquent Loans. Delinquencies in the Bank's portfolio at the dates
indicated were as follows:
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)
March 31, 2001 37 $ 4,745 .10% 123 $15,749 .35%
== ====== ==== === ====== ====
December 31, 2000 50 $ 4,084 .10% 115 $14,764 .34%
== ====== ==== === ====== ====
September 30, 2000 36 $ 4,004 .09% 119 $14,693 .35%
== ====== ==== === ======= ====
June 30, 2000 42 $ 3,665 .09% 111 $14,047 .34%
== ====== ==== === ====== ====
March 31, 2000 40 $ 4,370 .11% 122 $14,254 .36%
== ====== ==== === ====== ====
16
Loan Portfolio Composition. The following table sets forth the composition
of the Bank's loan portfolio in dollar amounts at the dates indicated:
At
--------------------------------------------------------------------------
3/31/01 12/31/00 9/30/00 6/30/00 3/31/00 12/31/99
--------- ---------- ---------- --------- --------- ---------
(In thousands)
Real estate loans:
One- to four-family:
Held for investment $ 3,714,537 3,807,980 3,783,956 3,723,765 3,581,604 3,479,425
Held for sale 162,355 41,074 52,156 35,973 37,899 12,601
Multi-family 171,883 173,072 168,128 165,309 162,666 164,878
Commercial 46,483 41,223 40,730 41,919 40,142 38,817
Construction 31,985 29,566 26,866 30,621 27,529 27,707
Land 40,752 40,497 35,114 34,272 29,143 28,602
--------- --------- --------- --------- --------- ---------
Total real estate loans 4,167,995 4,133,412 4,106,950 4,031,859 3,878,983 3,752,030
Other loans:
Consumer loans:
Equity lines of credit 154,009 146,020 132,894 120,835 106,503 99,099
Home equity loans 60,551 64,465 63,307 59,736 51,746 48,397
Other 4,735 4,783 4,720 4,746 4,751 4,757
--------- --------- --------- --------- --------- ---------
Total consumer loans 219,295 215,268 200,921 185,317 163,000 152,253
Commercial business loans 3,162 3,528 3,485 3,387 3,399 3,132
--------- --------- --------- --------- --------- ---------
Total other loans 222,457 218,796 204,406 188,704 166,399 155,385
--------- --------- --------- --------- --------- ---------
Total loans receivable 4,390,452 4,352,208 4,311,356 4,220,563 4,045,382 3,907,415
Less:
Loans in process 12,949 12,912 11,297 12,837 11,467 11,893
Unearned discounts, premiums
and deferred loan expenses, net (6,416) (7,076) (6,960) (6,641) (6,408) (6,323)
Allowance for loan losses 18,279 18,258 18,167 17,870 17,567 17,276
--------- --------- --------- --------- --------- ---------
Total loans receivable, net 4,365,640 4,328,114 4,288,852 4,196,497 4,022,756 3,884,569
Loans receivable held for sale (162,355) (41,074) (52,156) (35,973) (37,899) (12,601)
--------- --------- --------- --------- --------- ---------
Loans receivable, net $ 4,203,285 4,287,040 4,236,696 4,160,524 3,984,857 3,871,968
========= ========= ========= ========= ========= =========
17
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.
At
------------------------------------------------------
3/31/01 12/31/00 9/30/00 6/30/00 3/31/00 12/31/99
------- -------- -------- ------- ------- --------
(In thousands)
Non-performing loans:
One- to four-family and multi-family loans:
Non-accrual loans $ 16,627 14,023 13,398 13,211 13,624 12,548
Accruing loans 91 days or more overdue - 1,732 1,557 608 529 771
------- ------ ------- ------- ------ ------
Total 16,627 15,755 14,955 13,819 14,153 13,319
------- ------ ------- ------- ------ ------
Commercial real estate, construction and land loans:
Non-accrual loans 321 269 405 451 632 607
Accruing loans 91 days or more overdue - - - - - -
------- ------ ------- ------- ------ ------
Total 321 269 405 451 632 607
------- ------ ------- ------- ------ ------
Other loans:
Non-accrual loans 921 683 608 988 1,445 1,683
Accruing loans 91 days or more overdue - 2 6 4 24 41
------- ------ ------- ------- ------ ------
Total 921 685 614 992 1,469 1,724
------- ------ ------ ------- ------ ------
Total non-performing loans:
Non-accrual loans 17,869 14,975 14,411 14,650 15,701 14,838
Accruing loans 91 days or more overdue - 1,734 1,563 612 553 812
------- ------ ------- ------- ------ ------
Total $ 17,869 16,709 15,974 15,262 16,254 15,650
======= ====== ======= ======= ====== ======
Non-accrual loans to total loans .42 .35 .34 .35 .40 .38
Accruing loans 91 days or more overdue to total loans - .04 .04 .01 .01 .02
------- ------ ------- ------- ------ ------
Non-performing loans to total loans .42 .39 .38 .36 .41 .40
======= ====== ======= ======= ====== ======
Foreclosed real estate (net of related reserves):
One- to four-family $ 1,345 1,762 1,221 410 1,454 1,220
Commercial, construction and land - 46 100 571 6,767 6,195
------- ------ ------ ------- ------ ------
Total $ 1,345 1,808 1,321 981 8,221 7,415
======= ====== ======= ======= ====== ======
Non-performing loans and foreclosed real estate
to total loans and foreclosed real estate .45 .43 .41 .39 .61 .59
======= ======= ======== ======= ====== ======
Total non-performing assets $ 19,214 18,517 17,295 16,243 24,475 23,065
======= ======= ======== ======= ====== ======
Total non-performing assets to total assets .37 .36 .34 .33 .51 .50
======= ======= ======== ======= ====== ======
18
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 or the issuance
of common stock. The Company's principal uses of funds are interest payments on
the Company's term loan and revolving line of credit, cash dividends to
shareholders, loans to and investments in MAF Developments, as well as
investment purchases, stock repurchases and debt repayment. The Company also
maintains a one-year, $25.0 million unsecured revolving line of credit from a
commercial bank, due and renewable annually on May 31. At March 31, 2001, the
Company had $10.0 million outstanding under this line of credit. For the three-
month period ended March 31, 2001, the Company received $7.5 million in
dividends from the Bank and declared common stock dividends of $.10 per share,
or $2.3 million. During the three-months ended March 31, 2001, the Company
repurchased 363,900 shares of its common stock at an average price of $26.96 per
share, for a total of $9.8 million.
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 investment securities are a relatively predictable source of funds,
deposit flows and loan and mortgage-backed securities prepayments are greatly
influenced by economic conditions, the general level of interest rates and
competition. The Bank utilizes particular sources of funds based on comparative
costs and availability. The Bank generally manages the pricing of its deposits
to maintain a steady deposit balance, but has from time to time decided not to
pay rates on deposits as high as its competition, and when necessary, to
supplement deposits with longer term and/or less expensive alternative sources
of funds. During the current three-month period the Bank borrowed $80.0 million
of primarily fixed and variable rate FHLB of Chicago advances and repaid $130.0
million.
During the three months ended March 31, 2001, the Bank originated and
purchased loans totaling $515.5 million compared with $306.9 million during the
same period a year ago. Loan sales and swaps for the three months ended March
31, 2001, were $126.3 million, compared to $35.7 million for the prior year
period. The Bank has outstanding commitments to originate and purchase loans of
$502.6 million and commitments to sell or swap loans of $165.3 million at March
31, 2001. At March 31, 2001, the Company believes that 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 requirements.
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
19
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, for its own portfolio,
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.
The Bank, except as noted below, has not used derivative financial
instruments such as interest rate swaps, caps, floors, options or similar
financial instruments to manage its interest rate risk. However, in conjunction
with its origination and sale strategy, 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 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 March 31, 2001. 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 generally shown in the
category relating to their respective final maturities. However, due to recent
volatility in market interest rates, $39.8 million of investment securities with
final maturities ranging from 78 to 101 months, but callable in 6 months or less
are categorized in the 6 months or less category in anticipation of their call.
Additionally, $85.0 million of FHLB advances with final remaining maturities
ranging from 56 to 86 months, but callable in 6 months or less in anticipation
of their call by the lender.
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
for presentation purposes in the table.
20
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.
At March 31, 2001
--------------------------------------------------------------------------
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)
Interest-earning assets:
Loans receivable $ 867,279 589,912 1,136,440 784,298 1,005,990 4,383,919
Mortgage-backed securities 63,666 15,171 9,658 6,613 15,018 110,126
Interest-bearing deposits 31,925 - - - - 31,925
Federal funds sold 142,648 - - - - 142,648
Investment securities (1) 210,366 762 28,560 29,459 46,520 315,667
--------- --------- --------- -------- --------- ---------
Total interest-earning assets 1,315,884 605,845 1,174,658 820,370 1,067,528 4,984,285
Impact of hedging activity (2) 162,355 - - - (162,355) -
--------- --------- --------- -------- --------- ---------
Total net interest-earning assets adjusted
for impact of hedging activities 1,478,239 605,845 1,174,658 820,370 905,173 4,984,285
--------- --------- --------- -------- --------- ---------
Interest-bearing liabilities:
NOW and checking accounts 21,433 19,611 71,777 44,586 94,745 252,152
Money market accounts 253,403 - - - - 253,403
Passbook accounts 63,639 58,230 213,122 132,386 281,320 748,697
Certificate accounts 803,840 324,277 484,859 39,007 6,469 1,658,452
FHLB advances 390,000 215,000 500,500 285,000 255,000 1,645,500
Other borrowings 39,400 - - - - 39,400
--------- --------- --------- -------- --------- ---------
Total interest-bearing liabilities 1,571,715 617,118 1,270,258 500,979 637,534 4,597,604
--------- --------- --------- -------- --------- ---------
Interest sensitivity gap $ (93,476) (11,273) (95,600) 319,391 267,639 386,681
========= ========= ========= ======== ========= =========
Cumulative gap $ (93,476) (104,749) (200,349) 119,042 386,681
========= ========= ========= ======== =========
Cumulative gap assets as a percentage
of total assets (1.78)% (1.99) (3.81) 2.26 7.35
Cumulative net interest-earning assets as
a percentage of interest-bearing
liabilities 94.05% 95.21 94.21 103.01 108.41
(1) Includes $86.5 million of stock in FHLB of Chicago in 6 months or less.
(2) Represents forward commitments to sell long-term fixed-rate mortgage loans.
21
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, 2001 includes
fees which are considered adjustments to yield.
Three Months Ended March 31, At March 31,
---------------------------------------------------------------
2001 2000 2001
------------------------------ -------------------------------- -------------------
Average Average
Average Yield/ Average Yield/ Yield/
Balance Interest Cost Balance Interest Cost Balance Cost
----------- ---------- ------ ----------- ---------- --------- --------- ------
(Dollars in Thousands)
Assets:
Interest-earning assets:
Loans receivable $4,368,240 80,083 7.34% $3,950,441 70,705 7.16% $4,383,919 7.40%
Mortgage-backed securities 100,853 1,660 6.58 131,473 2,174 6.61 110,126 6.53
Interest-bearing deposits(1) 30,927 510 6.69 34,133 574 6.75 31,925 5.13
Federal funds sold (1) 109,306 1,964 7.29 107,658 1,827 6.81 142,648 5.28
Investment securities (2) 289,321 4,967 6.96 283,994 4,848 6.85 315,667 6.72
---------- ------ ---------- ------ ----------
Total interest-earning assets 4,898,647 89,184 7.29 4,507,699 80,128 7.11 4,984,285 7.26
Non-interest earning assets 230,010 223,377 277,592
---------- ---------- ----------
Total assets $5,128,657 $4,731,076 $5,261,877
========== ========== ==========
Liabilities and stockholders'
equity:
Interest-bearing liabilities:
Deposits 2,839,382 31,510 4.50 2,583,165 25,789 4.00 $2,912,704 4.50
Borrowed funds 1,659,578 25,139 6.14 1,590,732 23,759 5.99 1,684,900 6.04
---------- ------ ---------- ------ ---------- -----
Total interest-bearing
liabilities 4,498,960 56,649 5.11 4,173,897 49,548 4.76 4,597,604 5.06
------ ---- ------ ---- ----
Non-interest bearing deposits 134,146 119,512 154,425
Other liabilities 105,382 85,350 119,181
---------- ---------- ----------
Total liabilities 4,738,488 4,378,759 4,871,210
Stockholders' equity 390,169 352,317 390,667
---------- ---------- ----------
Liabilities and
stockholders' equity $5,128,657 $4,731,076 $5,261,877
========== ========== ==========
Net interest income/interest
rate spread 32,535 2.18% 30,580 2.35% 2.20%
====== ==== ====== ==== ====
Net earning assets/net yield
on average interest-earning
assets $ 399,687 2.66% $ 333,802 2.71% $ 386,681 N/A
========== ==== ========== ==== ========== ====
Ratio of interest-earning assets
to interest-bearing liabilities 108.88% 108.00% 108.41%
====== ====== ======
/(1)/ Includes pro-rata share of interest income received on outstanding drafts
payable.
/(2)/ Income and yields are stated on a taxable equivalent basis.
22
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.
Three Months Ended March 31,2001
Compared to
Three Months Ended March 31,2000
Increase (Decrease)
------------------------------
Volume Rate Net
------ -------- -------
(In thousands)
Interest-earning assets:
Loans receivable $ 7,593 1,785 9,378
Mortgage-backed securities (504) (10) (514)
Interest bearing deposits (59) (5) (64)
Federal funds sold 24 113 137
Investment securities 63 56 119
------ ------ ------
Total 7,117 1,939 9,056
------ ------ ------
Interest-bearing liabilities:
Deposits 2,543 3,178 5,721
Borrowed funds 869 511 1,380
------ ------ ------
Total 3,412 3,689 7,101
------ ------ ------
Net change in net interest income $ 3,705 (1,750) 1,955
====== ====== ======
Comparison of the Results of Operations for the Three Months Ended March 31,
2001 and 2000
General - Net income for the three months ended March 31, 2001 was $14.1
million, or $.60 per diluted share, compared to net income of $13.1 million, or
$.55 per diluted share for the three months ended March 31, 2000. The increase
in earnings is primarily due to higher net interest income, higher deposit fee
income, and an increase in income from real estate operations, offset by higher
non-interest expense and income tax expense.
Net interest income - Net interest income was $32.5 million for the current
quarter, compared to $30.5 million for the quarter ended March 31, 2000, an
increase of $2.0 million or 6.4%. The Company's average interest-earning assets
increased to $4.9 billion for the three months ended March 31, 2001, compared to
$4.5 billion for the three months ended March 31, 2000, while the Company's net
interest margin decreased to 2.66% for the current three month period, compared
to 2.71% in the prior year period. Management currently expects that the recent
200 basis point easing in monetary policy by the Federal Reserve Bank, along
with the recent widening of the difference in long-term and short-term rates,
should result in an increase in a slight improvement in the Bank's net interest
margin by the end of 2001.
23
Interest income on loans receivable increased $9.4 million as a result of a
$417.8 million increase in average loans receivable, along with an 18 basis
point increase in the average yield on loans receivable. The increases in
average balance and rate are due to the impact of rising interest rates in 2000
resulting in originations heavily weighted towards ARM loans, which the Bank
generally holds in portfolio. With little difference between ARM origination
rates and long-term mortgage rates, ARM loans originated and held in portfolio
during the first nine months of 2000 were generally at rates in excess of the
weighted average yield on the loan portfolio. Interest income on mortgage-backed
securities decreased $514,000 to $1.7 million for the current quarter, due
primarily to a $30.6 million decrease in average balances and a 3 basis point
decrease in yield. Average balances declined due to normal amortization and
prepayments. Interest income on investment securities increased $119,000 to $5.0
million, due to a $5.3 million increase in the average balance of this
portfolio, and an 11 basis point increase in yield. The increase in investment
balance is primarily due to purchases during the quarter as a result of higher
cash flows from loan sales.
Interest expense on deposit accounts increased $5.7 million to $31.5
million for the first quarter of 2001, due to a $256.2 million increase in
average deposits compared to the prior year quarter, and a 50 basis point
increase in the average cost of deposits compared to the prior year's three-
month period. Approximately $89.8 million of the growth in average deposits is
attributable to the acquisition of two branch offices since March 31, 2000, with
the remainder of the increase primarily due to an increase in money market and
certificates of deposit balances. The increase in average cost of deposits is
primarily due to the upward repricing of maturing certificates of deposit during
2000. With the recent reduction in U.S. Treasury rates, the Bank expects the
average cost of deposits to stabilize and decline later in 2001.
Interest expense on borrowed funds increased $1.4 million to $25.1 million,
as a result of a $68.8 million increase in the average balance of borrowed
funds, primarily advances from the FHLB of Chicago, and a 15 basis point
increase in the average cost of borrowed funds. The increase in the average
balance has been primarily for funding loan originations, while the increase in
the average rates has been due to the replacement of maturing and called
advances at higher interest rates.
Provision for loan losses - The Bank provided no provision for loan losses
during the first quarter of 2001, compared to $300,000 for the 2000 first
quarter. Net recoveries during the 2001 quarter were $21,000 compared to net
charge-offs of $9,000 for the three months ended March 31, 2000. The lack of a
provision this quarter is due to an assessment of a number of factors, including
the stable composition of the loan portfolio, good historical loss experience as
evidenced by net recoveries for the quarter, and the low level of non-performing
assets which is expected to continue. There were no changes in estimation method
or assumptions that impacted the provision for loan loss during the quarter. At
March 31, 2001 and December 31, 2000, the Bank's allowance for loan losses was
$18.3 million, which equaled .43% of total loans receivable at March 31, 2001,
compared to .42% at December 31, 2000. The ratio of the allowance for loan
losses to non-performing loans was 102.3% at March 31, 2001 compared to 109.3%
at December 31, 2000 and 108.1% at March 31, 2000.
Non-interest income - Non-interest income increased $2.1 million, or 27.1%,
to $9.9 million for the three months ended March 31, 2001, compared to $7.8
million for the three months ended March 31, 2000. The increase is due to
positive results in real estate development income and higher fee income from
deposit account products. Increased gains on sales of loans and investment
securities, were more than offset by lower loan servicing income.
24
Lower interest rates, and a higher level of fixed-rate loan originations
led to increased profits from loan sales. Gain on sale of loans increased to
$691,000 for the three months ended March 31, 2001, compared to $57,000 for the
three months ended March 31, 2000. A $240,000 mark-to-market adjustment is
included in gain on sale of loans as a result of valuation of loan commitments
and forward loan sales as derivative instruments under SFAS No. 133, which was
adopted on January 1, 2001. Loan sale volume was $126.3 million, including $19.7
million of current quarter originations that were swapped into mortgage-backed
securities and sold. For the three months ended March 31, 2000, loan sale volume
was $35.7 million. Compared to 2000, during the current year the Bank has begun
to experience a shift in consumers' preferences to fixed-rate mortgage loans,
due in part to a decline in long-term rates. Because the Company generally sells
fixed rate mortgage originations, this change will result in higher mortgage
banking profits, as well as contribute to more moderate balance sheet growth, in
2001.
Income from real estate operations increased $874,000 to $3.3 million for
the three months ended March 31, 2001 compared to the prior year quarter. A
summary of income from real estate operations follows:
Three Months Ended March 31,
------------------------------------
2001 2000
------------ -----------
# of Pre-tax # of Pre-tax
Lots Income Lots Income
------ ------ ------- ------
(Dollars in thousands)
Tallgrass of Naperville 85 $ 3,349 90 $ 2,288
Reigate Woods - - 3 83
Harmony Grove - - - 104
------ ------- ------- -------
85 $ 3,349 93 $ 2,475
====== ======= ======= =======
The Company sold 85 lots in Tallgrass of Naperville project during the
three months ended March 31, 2001. The significant increase in profit per lot is
primarily due to significantly higher lot prices on current year sales compared
to the prior year, without any appreciable increase in development costs. There
are 19 lots under contract in this 951-lot subdivision at March 31, 2001, with
288 remaining to be sold. Based on the strong demand in Tallgrass, management
currently expects that pre-tax income from real estate development in 2001
should be in the range of $8.0-$9.5 million.
Deposit account service charges increased $856,000, or 33.3%, to $3.4
million for the three months ended March 31, 2001, primarily due to continued
growth in the number of checking accounts serviced by the Bank and fee
increases. At March 31, 2001, the Bank had approximately 118,400 checking
accounts, compared to 106,100 at March 31, 2000.
Brokerage commissions decreased $133,000, or 19.6%, to $545,000 for the
three months ended March 31, 2001 compared to the prior year quarter. The
decline in commission income reflects the decrease in brokerage activity as a
result of the declining stock market and slowing economy.
Loan servicing fee income decreased $819,000 to a net expense of $(263,000)
for the three months ended March 31, 2001, compared to $556,000 for the prior
year quarter. The decrease is primarily due to the sale of $600 million of
servicing rights (approximately half of the Bank's portfolio of loans serviced
for others) in the third quarter of 2000. Amortization of servicing rights was
$614,000 for the three months ended March 31, 2001, compared to $223,000 for the
prior year three-month period. The increase in amortization expense was due to
increased prepayment speeds. In addition, a $215,000 impairment writedown was
taken on mortgage servicing rights due to the impact of higher expected
prepayment speeds on the net present value of expected cash flows from these
servicing rights.
25
Other non-interest income increased $548,000, or 45.0% to $1.8 million for
the three months ended March 31, 2001, compared to $1.2 million for the prior
year quarter. The increase is due primarily to increased income from loan
modifications and title agency fees.
Non-interest expense - Non-interest expense increased $2.3 million or 12.8%
compared to prior year period, to $19.9 million for the three months ended March
31, 2001.
Compensation and benefits increased 11.8% or $1.2 million to $11.3 million
for the three months ended March 31, 2001, compared to the three months ended
March 31, 2000. The increase is primarily due to increased normal salary
increases, higher benefit costs, increased staffing costs due to increased loan
volume, and increased staff resulting from two branch acquisitions in April
2000.
Occupancy expense increased $309,000, or 16.1% to $2.2 million for the
three months ended March 31, 2001 compared to the prior year period, primarily
due to higher utility and maintenance costs and increased operating expenses
from two new branch sites acquired.
Advertising and promotion expense increased $246,000, or 24.6% to $1.2
million for the three months ended March 31, 2001 compared to the prior year,
primarily due to increased advertising activity related to the Company's
branding campaign.
Data processing expense increased $48,000 or 6.7% to $764,000 for the three
months ended March 31, 2001 compared to the prior year period. The increase is
primarily due to increased depreciation expense related to additional acquired
computer equipment for upgrading existing systems and continued expansion of the
Bank's retail network.
Amortization of intangibles increased $191,000 to $1.2 million for the
three months ended March 31, 2001. The amortization relates to goodwill and core
deposit intangibles from transactions accounted for under the purchase method of
accounting. The increase in expense over the prior period was attributable to
the two branch acquisitions during the last twelve months, which were accounted
for as purchase transactions.
Other non-interest expense increased $264,000 to $3.1 million for the three
months ended March 31, 2001 compared to the prior year period. Costs increased
due to general operating expenses at the two new branches, as well as expenses
related to the Bank's internet-based lending activities.
Income taxes - For the three months ended March 31, 2001, income tax
expense totaled $8.3 million, or an effective income tax rate of 37.2%, compared
to $7.2 million, or an effective income tax rate of 35.5%, for the three months
ended March 31, 2000. The lower effective income tax rate in the prior period
was primarily the result of recognition in the prior period of income tax
benefits relating to the resolution of certain prior years' income tax issues.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
A comprehensive qualitative and quantitative analysis regarding market risk
is disclosed in the Company's December 31, 2000 Form 10-K. There have been no
material changes in the assumptions used or results obtained regarding market
risk since December 31, 2000.
26
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 25,
2001.
(b) The names of each director elected at the Annual Meeting for
three-year terms are as follows:
Terry A. Ekl
Kenneth Koranda
Lois B. Vasto
Jerry A. Weberling
The names of the other directors, whose terms of office continued
after the Annual Meeting, are as follows:
Robert Bowles, MD Henry R. Smogolski
David C. Burba F. William Trescott
Joe F. Hanauer Andrew J. Zych
Allen Koranda
(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 amendment to the MAF Bancorp, Inc. 2000
Stock Option Plan.
For Against Abstain Broker Non-votes
----------- ----------- ---------- ----------------
14,715,344 2,609,588 178,086 2,978,149
(ii) Ratification of the appointment of KPMG LLP as the
Company's independent auditors for the year ending
December 31, 2001:
For Against Abstain Broker Non-votes
----------- ------------ ---------- ----------------
20,351,338 80,842 48,987 0
(d) None.
Item 5. Other Information. None.
27
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. 3. Certificate of Incorporation and By-laws.
(i) Restated Certificate of Incorporation. (Incorporated
herein by reference to Exhibit 3.1 to Registrant's Form 8-
K dated December 19, 2000).
(ii) Amended and Restated By-laws of Registrant.
Exhibit No. 10. Material Contracts
(i) Amendment dated March 27, 2001 to the Mid America
Bank, fsb Supplemental Executive Retirement Plan, as
amended. *
(ii) Amendment dated March 27, 2001 to the MAF Bancorp, Inc.
Stock Option Gain Deferral Plan. *
-----------
* Indicates management contracts or compensatory plans or
arrangements required to be filed as an exhibit.
Exhibit No. 11. Statement re: Computation of per share earnings.
Quarter Ended
March 31, 2001
--------------
Net income $ 14,078,000
===========
Weighted average common shares outstanding 23,018,839
===========
Basic earnings per share $ .61
===
Weighted average common shares outstanding 23,018,839
Common stock equivalents due to dilutive
effect of stock options 474,394
-----------
Total weighted average common shares and
equivalents outstanding for diluted computation 23,493,233
===========
Diluted earnings per share $ .60
===
(b) Reports on Form 8-K.
A Form 8-K was filed to report that on January 25, 2001, MAF
Bancorp, Inc. announced its 2000 fourth quarter earnings results,
and a copy of the press release was included as an exhibit.
28
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 11, 2001 By: /s/ Allen H. Koranda
---------------------- -----------------------------
Allen H. Koranda
Chairman of the Board and
Chief Executive Officer
Date: May 11, 2001 By: /s/ Jerry A. Weberling
---------------------- -----------------------------
Jerry A. Weberling
Executive Vice President and
Chief Financial Officer
29