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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 SEPTEMBER 30, 1996
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 10,485,480 at November 8, 1996.
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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 September 30, 1996 (unaudited) and June 30, 1996............ 3
Consolidated Statements of Operations for the Three
Months Ended September 30, 1996 and 1995 (unaudited).............. 4
Consolidated Statements of Changes in Stockholders'
Equity for the Three Months Ended September 30, 1996
and 1995 (unaudited).............................................. 5
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1996 and 1995 (unaudited)........ 6
Notes to Unaudited Consolidated Financial Statements.............. 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 10
Part II. Other Information
- -------- -----------------
Item 4 Submission of Matters to a Vote of Security Holders............... 31
Item 5 Other Information................................................. 32
Item 6 Exhibits and Reports on Form 8-K.................................. 32
Signature Page.................................................... 33
2
MAF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
SEPTEMBER 30, JUNE 30,
1996 1996
-------------- ----------
(Unaudited)
ASSETS
- ------
Cash and due from banks $ 38,319 51,665
Interest-bearing deposits 36,453 37,496
Federal funds sold 13,175 5,700
Investment securities, at amortized cost
(fair value of $79,914 at September 30, 1996
and $102,098 at June 30, 1996) 80,346 102,226
Investment securities available for
sale, at fair value 49,016 38,296
Stock in Federal Home Loan Bank of Chicago, at cost 30,729 30,729
Mortgage-backed securities, at
amortized cost (fair value of $278,548
at September 30, 1996 and $290,249 at June 30, 1996) 279,964 293,381
Mortgage-backed securities available
for sale, at fair value 117,068 124,721
Loans receivable held for sale 1,250 9,314
Loans receivable, net of allowance for losses of $17,589
at September 30, 1996 and $17,254 at June 30, 1996 2,369,742 2,284,085
Accrued interest receivable 20,763 19,974
Foreclosed real estate 1,068 888
Real estate held for development or sale 28,542 26,620
Premises and equipment, net 31,627 31,245
Excess of cost over fair value of net assets acquired 26,564 26,901
Other assets 37,996 33,908
---------- ---------
$3,162,622 3,117,149
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits 2,239,689 2,254,100
Borrowed funds 589,791 537,696
Subordinated capital notes, net 26,692 26,676
Advances by borrowers for taxes and insurance 8,623 17,056
Accrued expenses and other liabilities 55,984 39,395
---------- ---------
Total liabilities 2,920,779 2,874,923
---------- ---------
Stockholders' equity:
Preferred stock, $.01 par
value; authorized 5,000,000
shares; none outstanding - -
Common stock, $.01 par value;
authorized 40,000,000 shares;
11,211,046 shares issued;
10,485,480 outstanding at September 30, 1996,
11,057,498 shares issued;
10,340,673 outstanding at June 30, 1996 112 111
Additional paid-in capital 171,708 170,956
Retained earnings, substantially restricted 87,243 88,524
Unrealized loss on marketable securities, net of tax (456) (825)
Treasury stock, at cost;
725,566 shares at September 30, 1996
and 716,825 shares at June 30, 1996 (16,764) (16,540)
---------- ---------
Total stockholders' equity 241,843 242,226
Commitments and contingencies
---------- ---------
$3,162,622 3,117,149
========== =========
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)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
-------- -------
(Unaudited)
Interest income:
Loans receivable $45,043 26,013
Mortgage-backed securities 6,945 4,689
Investment securities 2,610 1,394
Interest-bearing deposits 713 408
Federal funds sold 281 416
------- ------
Total interest income 55,592 32,920
------- ------
Interest expense:
Deposits 23,915 15,103
Borrowed funds 9,588 6,648
------- ------
Total interest expense 33,503 21,751
------- ------
Net interest income 22,089 11,169
Provision for loan losses 350 100
------- ------
Net interest income after 21,739 11,069
provision for loan losses ------- ------
Non-interest income:
Gain (loss) on sale of:
Loans receivable 155 55
Mortgage-backed securities (4) 42
Investment securities 100 28
Foreclosed real estate 64 18
Income from real estate operations 1,663 1,513
Deposit account service charges 1,518 1,110
Loan servicing fee income 624 570
Brokerage commissions 426 355
Other 995 749
------- ------
Total non-interest income 5,541 4,440
------- ------
Non-interest expense:
Compensation and benefits 7,425 4,865
Office occupancy and equipment 1,307 856
Federal deposit insurance premiums 1,312 761
Special SAIF assessment 14,216 -
Advertising and promotion 458 449
Data processing 566 408
Amortization of goodwill 338 -
Other 2,193 1,299
------- ------
Total non-interest expense 27,815 8,638
------- ------
Income (loss) before income taxes (535) 6,871
Income tax expense (benefit) (197) 2,651
------- ------
Net income (loss) $ (338) 4,220
======= ======
Primary earnings (loss) per share $ (.03) .72
======= ======
Fully-diluted earnings (loss) per share $ (.03) .72
======= ======
See accompanying notes to unaudited consolidated financial statements.
4
MAF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
UNREALIZED GAIN (LOSS)
ADDITIONAL ON MARKETABLE
COMMON PAID-IN RETAINED SECURITIES, TREASURY
THREE MONTHS ENDED SEPTEMBER 30, 1996 STOCK CAPITAL EARNINGS NET OF TAX STOCK TOTAL
- ------------------------------------- ------ ------- -------- ---------- -------- ---------
Balance at June 30, 1996 $ 111 170,956 88,524 (825) (16,540) 242,226
Net loss - - (338) - - (338)
Proceeds from exercise of
153,548 stock options 1 739 - - (224) 516
Tax benefits from stock-related
compensation - 13 - - - 13
Market value adjustment on available
for sale securities - - - 369 - 369
Cash dividends ($.09 per share) - - (943) - - (943)
------ ------- ------ ------- ------- -------
Balance at September 30, 1996 $ 112 171,708 87,243 (456) (16,764) 241,843
====== ======= ====== ======= ======= =======
THREE MONTHS ENDED SEPTEMBER 30, 1995
- --------------------------------------
Balance at June 30, 1995 $ 59 39,740 73,447 (48) (7,779) 105,419
Net income - - 4,220 - - 4,220
Proceeds from exercise of
770 stock options - 4 - - - 4
Tax benefits from stock-related
compensation - 6 - - - 6
Market value adjustment on available
for sale securities - - - 221 - 221
Cash dividends ($.08 per share) - - (439) - - (439)
Impact of special 10% stock dividend - - (11) - - (11)
------ ------- ------ ------- ------- -------
Balance at September 30, 1995 $ 59 39,750 77,217 173 (7,779) 109,420
====== ======= ====== ======= ======= =======
See accompanying notes to unaudited consolidated financial statements.
5
MAF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1995
---------- ----------
(Unaudited)
Operating activities:
Net income (loss) $ (338) 4,220
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 689 457
Provision for loan losses 350 100
Deferred income tax expense 33 468
Amortization of premiums, discounts, loan fees and intangible assets 241 (80)
Net gain on sale of loans, mortgage-backed securities,
and real estate held for development or sale (1,814) (1,610)
Gain on sale of investment securities (100) (28)
(Increase) decrease in accrued interest receivable (789) (778)
Net (increase) decrease in other assets and liabilities 11,135 6,569
Loans originated for sale (23,865) (56,368)
Loans purchased for sale (9,407) (25,595)
Sale of loans originated and purchased for sale 41,438 72,724
Sale of mortgage-backed securities available for sale 7,317 8,796
--------- --------
Net cash provided by operating activities 24,890 8,875
--------- --------
Investing activities:
Loans originated for investment (120,196) (117,806)
Principal repayments on loans receivable 127,628 97,006
Principal repayments on mortgage-backed securities 21,661 15,019
Proceeds from maturities of investment securities available for sale 1,382 1,043
Proceeds from maturities of investment securities held to maturity 23,071 13,200
Proceeds from sale of:
Investment securities available for sale 380 196
Real estate held for development or sale 8,861 4,698
Purchases of:
Loans receivable held for investment (101,310) (66,552)
Investment securities available for sale (12,420) (375)
Investment securities held to maturity (788) (13,079)
Stock in Federal Home Loan Bank of Chicago - (3,750)
Real estate held for development or sale (8,500) (2,419)
Premises and equipment (1,071) (1,246)
--------- --------
Net cash used in investing activities (61,302) (74,065)
--------- --------
(continued)
6
MAF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1995
---------- --------
(Unaudited)
Financing activities:
Proceeds from FHLB of Chicago advances $ 170,000 75,000
Repayments of FHLB of Chicago advances (155,000) -
Net change in reverse repurchase agreements 40,000 (12,675)
Repayment of collateralized mortgage (3,302) (1,542)
obligations
Proceeds from exercise of stock options 516 4
Purchase of treasury stock - -
Net increase (decrease) in deposits (14,283) 15,764
Decrease in advances by borrowers for (8,433) (1,648)
taxes and insurance --------- -------
Net cash provided by financing activities 29,498 74,903
--------- -------
Increase (decrease) in cash and cash equivalents (6,914) 9,713
--------- -------
Cash and cash equivalents at beginning of period 94,861 59,807
--------- -------
Cash and cash equivalents at end of period $ 87,947 69,520
========= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowed funds $ 33,016 21,320
Income taxes - 500
Summary of non-cash transactions:
Transfer of loans receivable to foreclosed real estate 736 115
Loans receivable swapped into mortgage-backed securities 7,321 8,753
========= =======
See accompanying notes to unaudited consolidated financial statements.
7
MAF BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended September 30, 1996 and 1995
(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 September 30, 1996 are
not necessarily indicative of results that may be expected for the entire fiscal
year ended June 30, 1997.
The consolidated financial statements include the accounts of MAF Bancorp,
Inc. ("Company"), and its wholly-owned subsidiaries, Mid America Federal Savings
Bank and subsidiaries ("Bank") and MAF Developments, Inc., as of and for the
three month period ended September 30, 1996 and 1995 and as of June 30, 1996.
All material intercompany balances and transactions have been eliminated in
consolidation.
(2) EARNINGS PER SHARE
For purposes of computed earnings per share, the number of average shares
outstanding for the periods indicated is as follows:
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1995
---------- ---------
Primary earnings per share 10,789,628 5,865,583
Fully-diluted earnings per share 10,794,229 5,875,172
========== =========
The large increase in average shares outstanding is due to the acquisition
of N.S. Bancorp, Inc. ("NSBI" or "Northwestern") on May 30, 1996, whereby the
Company issued 5,194,710 of its common shares as part of the merger
consideration.
(3) STOCKHOLDERS' EQUITY
Pursuant to the terms of the acquisition of NSBI, a total of 100,000
options previously granted to employees of Northwestern were converted into
options to purchase 167,233 shares of the Company's common stock at an exercise
price of $4.78 per share. During the three months ended September 30, 1996,
153,548 options were exercised, of which 151,598 were options granted to
employees or former employees of Northwestern. The Company received cash, as
well as 8,741 shares of the Company's common stock as consideration for the
exercise of these options. The shares received were put into treasury shares.
8
(4) COMMITMENTS AND CONTINGENCIES
At September 30, 1996, the Bank had outstanding commitments to originate
and purchase loans of $153.5 million, of which $80.9 million were fixed-rate
loans, with rates ranging from 6.375% to 9.250%, and $72.6 million were
adjustable-rate loans. At September 30, 1996, commitments to sell loans were
$7.3 million.
At September 30, 1996, the Bank had outstanding 22 standby letters of
credit totaling $18.8 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 letters of credit are collateralized by mortgage-backed
securities and U.S. Government and agency securities owned by the Bank.
Additionally, the Company had 10 outstanding standby letters of credit totaling
$5.8 million related to real estate development improvements.
(5) RECLASSIFICATIONS
Certain reclassifications of prior quarter amounts have been made to
conform with current quarter presentation.
9
MAF BANCORP, INC. AND SUBSIDIARIES
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 Federal Savings Bank ("Bank") and secondarily, in the residential
real estate development business through MAF Developments, Inc. ("MAF
Developments"). Deposits of the Bank are insured up to the applicable limits of
the Savings Association Insurance Fund ("SAIF"), currently administered by the
Federal Deposit Insurance Corporation ("FDIC"). The Bank is subject to
regulation by the Office of Thrift Supervision ("OTS") and the FDIC. The Bank
files periodic reports with the OTS regarding its activities and financial
condition, and is subject to periodic examination by both the OTS and the FDIC.
The Bank is a consumer-oriented financial institution offering various
financial services to its customers through 20 retail banking offices. The
Bank's market area is generally defined as the western suburbs of Chicago,
including DuPage County, which has the second highest per capita income in
Illinois, as well as the northwest side of Chicago. It is principally engaged in
the business of attracting deposits from the general public and using such
deposits, along with other borrowings, to make loans secured by real estate,
primarily one-to four-family residential mortgage loans. To a lesser extent, the
Bank also makes multi-family mortgage, residential construction, land
acquisition and development and a variety of consumer loans. The Bank also has a
small portfolio of commercial real estate. Through three wholly owned
subsidiaries, MAF Developments, Inc. ("MAF Developments"), and Mid America
Development Services, Inc. ("Mid America Developments"), and NW Financial, Inc.
("NW Financial"), the Company and the Bank are also engaged in real estate
development activities. Additionally, the Bank operates an insurance agency, Mid
America Insurance Agency, Inc., which provides general insurance services, and a
brokerage operation through its affiliation with INVEST, a registered broker-
dealer.
As a federally chartered savings bank, the Bank's deposits are insured up
to the applicable limits by the Federal Deposit Insurance Corporation ("FDIC").
The Bank is a member of the Federal Home Loan Bank ("FHLB") of Chicago, which is
one of the twelve regional banks for federally insured savings institutions
comprising the FHLB system. The Bank is regulated by the Office of Thrift
Supervision ("OTS") and the FDIC. The Bank is further regulated by the Board of
Governors of the Federal Reserve System as to reserves required to be maintained
against deposits and certain other matters.
REGULATION AND SUPERVISION
The Bank is subject to extensive regulation, by the OTS, as its chartering
authority and primary federal regulator, and by the FDIC, which insures its
deposits up to applicable limits. Such regulation and supervision 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 Bank and its operations.
10
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. Core capital generally includes common stockholders'
equity (including retained earnings), certain noncumulative perpetual preferred
stock and related surplus 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, such as Mid America Developments, are required
to be deducted from total capital over a five-year phase-in period. See
"Deductions from Regulatory Capital on Non-Permissible Activities".
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.
Interest Rate Risk Component of Regulatory Capital
The OTS regulatory capital requirements also incorporate an interest rate
risk component. Savings institutions with "above normal" interest rate risk
exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. A savings institution's
interest rate risk is measured by the decline in the net portfolio value of its
assets (i.e., the difference between incoming and outgoing discounted cash flows
from assets, liabilities and off-balance sheet contracts) that would result from
a hypothetical 200 basis point increase or decrease in market interest rates
divided by the estimated economic value of the institution's assets. In
calculating its total capital under the risk-based capital rule, a savings
institution whose measured interest rate risk exposure exceeds 2% must deduct an
amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
institution's assets. The Director of the OTS may waive or defer a savings
institution's interest rate risk component on a case-by-case basis. A savings
institution with assets of less than $300 million and risk-based capital ratios
in excess of 12% is not subject to the interest rate risk component, unless the
OTS determines otherwise. For the present time, the OTS has delayed
implementation of the automatic deduction based on interest rate risk pending
testing of a process by which institutions may appeal their interest rate risk
component. If the Bank had been subject to an interest rate risk capital
component as of September 30, 1996, the Bank's total risk-weighted capital would
not have been subject to a deduction based on interest rate risk. At September
30, 1996, the Bank met each of its capital requirements, in each case on a fully
phased-in basis.
11
Deductions from Regulatory Capital on Non-Permissible Activities
Under the OTS capital regulation, deductions from tangible and core
capital, for the purpose of computing regulatory capital requirements, are
required for investments in and loans to subsidiaries engaged in non-permissible
activities for a national bank. Included in these non-permissible activities is
the development of real estate through the Bank's wholly-owned subsidiaries, Mid
America Developments, and NW Financial, which was acquired on May 30, 1996 as
part of the acquisition of NSBI. The regulation included a transitional rule for
the deduction from tangible capital over a five year period for investments in
and loans to Mid America Developments and NW Financial as of April 12, 1989. As
of July 1, 1996, 100% of such investment in and advances to Mid America
Developments and NW Financial was required to be deducted from capital, whereas
the deduction was 60% as of July 1, 1995.
Included in the calculation of the Bank's deduction from tangible and core
capital due to investments in and advances to Mid America Developments and NW
Financial is the Bank's total equity investment as well as unsecured loans made
to these real estate subsidiaries. Decreasing the investment in and advances to
the real estate subsidiaries requires the generation of cash to repay its loans
to the Bank or to declare dividends to pass undistributed profits up to the
Bank. Currently, the generation of cash at Mid America Developments is
accomplished by continued lot sales from improved land developments, and home
sales in projects owned by NW Financial.
The following is a summary of the Bank's investment in and advances to Mid
America Developments and NW Financial at the dates indicated:
9/30/96 6/30/96 3/31/96 12/31/95 9/30/95
-------- ------- ------- -------- -------
(in thousands)
Common stock $ 1,657 1,657 1,397 1,397 1,397
Retained earnings 10,767 12,308 2,982 2,656 3,372
Intercompany advances 7,637 7,729 227 29 479
-------- ------- ------- -------- -------
$ 20,061 21,694 4,606 4,082 5,248
======== ======= ======= ======== =======
The increase in the Bank's investment balance at June 30, 1996 is due to
the acquisition of Northwestern. As a result of the Bank's $20.1 million
investment in and advances to Mid America Developments and NW Financial at
September 30, 1996, the Bank is currently required to reduce capital for
purposes of computing regulatory capital by 100% of such amount, or $20.1
million, whereas only 60% of its investment of $21.7 million as of June 30, 1996
was required to be deducted.
12
At September 30, 1996, the Bank was in compliance with all of its capital requirements as follows:
SEPTEMBER 30, 1996 JUNE 30, 1996
------------------------- -------------------------
PERCENT OF PERCENT OF
AMOUNT ASSETS AMOUNT ASSETS
---------- ---------- ---------- ----------
(Dollars in thousands)
Stockholder's equity of the Bank $ 263,860 8.39% $ 263,346 8.43%
========== ===== ========== =====
Tangible capital $ 209,400 6.80% $ 215,582 7.02%
Tangible capital requirement 46,205 1.50 46,095 1.50
---------- ----- ---------- -----
Excess $ 163,195 5.30% $ 169,487 5.52%
========== ===== ========== =====
Core capital $ 209,400 6.80% $ 215,582 7.02%
Core capital requirement 92,410 3.00 92,189 3.00
---------- ----- ---------- -----
Excess $ 116,990 3.80% $ 123,393 4.02%
========== ===== ========== =====
Core and supplementary capital $ 226,778 14.87% $ 232,625 15.36%
Risk-based capital requirement 122,004 8.00 121,167 8.00
---------- ----- ---------- -----
Excess $ 104,774 6.87% $ 111,458 7.36%
========== ===== ========== =====
Total Bank assets $3,145,018 $3,122,790
Adjusted total Bank assets 3,080,336 3,072,970
Total risk-weighted assets 1,589,947 1,564,618
Adjusted total risk-weighted assets 1,525,054 1,514,587
Investment in Bank's real estate subsidiary 20,061 21,694
========== ==========
A reconciliation of consolidated stockholder's equity of the Bank for
financial reporting purposes to regulatory capital available to the Bank to meet
regulatory capital requirements is as follows:
SEPTEMBER 30, JUNE 30,
1996 1996
------------- --------
(in thousands)
Stockholder's equity of the Bank $263,860 263,346
Goodwill and other non-allowable intangible assets (34,938) (35,630)
Non-permissible subsidiary deduction (20,061) (13,016)
Non-includable purchased mortgage servicing rights (179) (184)
SFAS No. 115 capital adjustment 718 1,066
-------- -------
Tangible and core capital 209,400 215,582
General loan loss reserves 17,589 17,254
Land loans greater than 80% loan-to-value (211) (211)
-------- -------
Core and supplementary capital $226,778 232,625
======== =======
13
Prompt Corrective Regulatory Action. Under the OTS prompt corrective action
regulations, the OTS is required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon the
institution's degree of undercapitalization. Generally, a savings institution is
considered "well capitalized" if its ratio of total capital to risk-weighted
assets is at least 10%, its ratio of Tier I (core) capital to risk-weighted
assets is at least 6%, its ratio of core capital to total assets is at least 5%,
and it is not subject to any order or directive by the OTS to meet a specific
capital level. A savings institution generally is considered "adequately
capitalized" if its ratio of total capital to risk-weighted assets is at least
8%, its ratio of Tier I (core) capital to risk-weighted assets is at least 4%,
and its ratio of core capital to total assets is at least 4% (3% if the
institution receives the highest CAMEL rating). A savings institution that has a
ratio of total capital to weighted assets of less than 8%, a ratio of Tier I
(core) capital to risk-weighted assets of less than 4% or a ratio of core
capital to total assets of less than 4% (3% or less for institutions with the
highest examination rating) is considered to be "undercapitalized." A savings
institution that has a total risk-based capital ratio less than 6%, a Tier 1
risk-based capital ratio of less than 3% or a leverage ratio that is less than
3% is considered to be "significantly undercapitalized," and a savings
institution that has a tangible capital to assets ratio equal to or less than 2%
is deemed to be "critically undercapitalized." Subject to a narrow exception,
the banking regulator is required to appoint a receiver or conservator for an
institution that is "critically undercapitalized." The regulation also provides
that a capital restoration plan must be filed with the OTS within 45 days of the
date a savings institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Compliance
with the plan must be guaranteed by any parent holding company. In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
Insurance of Deposit Accounts. The FDIC has adopted a risk-based deposit
insurance system that assesses deposit insurance premiums according to the level
of risk involved in an institution's activities. An institution's risk category
is based upon whether the institution is classified as "well capitalized,"
"adequately capitalized" or "undercapitalized" and one of three supervisory
subcategories within each capital group. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation and information
which the FDIC determines to be relevant to the institution's financial
condition and the risk posed to the deposit insurance fund. Based on its capital
and supervisory subgroups until 1996, each Bank Insurance Fund ("BIF") and SAIF
member institution was assigned an annual FDIC assessment rate between 23 basis
points for an institution in the highest category (i.e., well-capitalized and
healthy) and 31 basis points for an institution in the lowest category (i.e.,
undercapitalized and posing substantial supervisory concern). The Bank's
assessment rate for September 30, 1996 was 23 basis points of deposits. The FDIC
has authority to further raise premiums if deemed necessary. If such action is
taken, it could have an adverse effect on the earnings of the Bank.
In 1996, in view of the BIF having been recapitalized to a 1.25% of insured
deposits ratio and the SAIF not achieving such an insured deposits ratio, the
FDIC adopted a new assessment rate schedule of 0 to 27 basis points for BIF
members and kept the insurance assessment rates for SAIF members, such as the
Bank, at 23 to 31 basis points. Under that new schedule, approximately 92% of
BIF members were required to pay only $2,000 per year creating a substantial
insurance assessment disparity between SAIF and BIF members which resulted in a
substantial competitive disadvantage to SAIF members.
14
On September 30, 1996, the President signed into law the Deposit Insurance
Funds Act of 1996 (the "Funds Act") which, among other things, imposed a special
one-time assessment on SAIF member institutions, including the Bank, to
recapitalize the SAIF. As required by the Funds Act, the FDIC imposed a special
assessment of 65.7 basis points on SAIF assessable deposits held as of March 31,
1995, payable November 27, 1996. A special assessment of $14.2 million on a
pretax basis was recognized by the Bank as an expense in the quarter ended
September 30, 1996. The special assessment is tax deductible, which led to an
after-tax charge of $8.7 million, or $.81 per share.
The Funds Act also spreads the obligations for payment of the Financing
Corporation ("FICO") bonds across all SAIF and BIF members. Beginning on January
1, 1997, BIF deposits will be assessed for FICO payments at a rate of 20% of the
rate assessed on SAIF deposits. Based on current estimates by the FDIC, BIF
deposits will be assessed a FICO payment of 1.3 basis points, while SAIF
deposits will pay an estimated 6.5 basis points. Full pro rata sharing of the
FICO payments between BIF and SAIF members will occur on the earlier of January
1, 2000 or the date the BIF and SAIF are merged. The Funds Act specifies that
the BIF and SAIF will be merged on January 1, 1999, provided no savings
associations remain as of that time.
As a result of the Funds Act, the FDIC recently proposed to lower SAIF
assessments to 0 to 27 basis points effective January 1, 1997, a range
comparable to that of BIF members. However, SAIF members will continue to make
higher FICO payments described above. Management cannot predict the level of
FDIC insurance assessments on an on-going basis, whether the savings association
charter will be eliminated, or whether the BIF and SAIF will eventually be
merged.
Legislative proposals are also under consideration that would require federal
savings associations to become either national or state chartered banks. If such
legislation is adopted, it could require divestiture of activities or otherwise
disrupt operations. No prediction can be made as to any such legislation.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
Loans to One Borrower. Under the HOLA, savings institutions are generally
subject to the limits on loans to one borrower applicable to national banks.
Generally, savings institutions may not make a loan or extend credit to a single
or related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if such loan is secured by readily-marketable collateral, which is
defined to include certain financial instruments and bullion. At September 30,
1996, the Bank's limit on loans to one borrower was $31.4 million. At September
30, 1996, the Bank's largest aggregate outstanding balance of loans to one
borrower was $16.2 million.
15
Standards for Safety and Soundness. The federal banking agencies have adopted
Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") and a final rule to implement safety and soundness standards
required under the FDI Act. The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes impaired. The
standards set forth in the Guidelines address internal controls and information
systems; internal audit system; credit underwriting; loan documentation;
interest rate risk exposure; asset growth; and compensation, fees and benefits.
The agencies are expected to adopt a proposed rule that proposes asset quality
and earnings standards which, if adopted in final, would be added to the
Guidelines. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the FDI Act. The final rule
establishes deadlines for the submission and review of such safety and soundness
compliance plans when such plans are required.
Limitation on Capital Distributions. OTS regulations impose limitations upon
all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in capital requirements before and after a proposed capital
distribution ("Tier 1 Bank") and has not been advised by the OTS that it is in
need of more than normal supervision, could, after prior notice but without
obtaining approval of the OTS, make capital distributions during a calendar year
equal to the greater of (i) 100% of its net earnings to date during the calendar
year plus the amount that would reduce by one-half its "surplus capital ratio"
(the excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year or (ii) 75% of its net income for the previous
four quarters. Any additional capital distributions would require prior
regulatory approval. In the event the Bank's capital fell below its regulatory
requirements or the OTS notified it that it was in need of more than normal
supervision, the Bank's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS determines that such distribution would constitute an unsafe or unsound
practice. In December 1994, the OTS proposed amendments to its capital
distribution regulation that would generally authorize the payment of capital
distributions without OTS approval provided the payment does not make the
institution undercapitalized within the meaning of the prompt corrective action
regulation. However, institutions in a holding company structure would still
have a prior notice requirement. At September 30, 1996, the Bank was a Tier 1
Bank. The Bank did not pay any dividends to the Company during the three months
ended September 30, 1996.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB System, which
consists of 12 regional FHLBs. The FHLBs provide a central credit facility
primarily for member institutions. The Bank, as a member of the FHLB of Chicago,
is required to acquire and hold shares of capital stock in that FHLB in an
amount at least equal to 1% of the aggregate principal amount of its unpaid
residential mortgage loans and similar obligations at the beginning of each
year, or 1/20 of its advances (borrowings) from the FHLB of Chicago, whichever
is greater. The Bank is in compliance with this requirement. FHLB advances must
be secured by specified types of collateral and may be obtained only for the
purpose of providing funds for residential housing finance. At September 30,
1996, FHLB of Chicago advances totaled $435.5 million.
The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members, which could reduce the net interest income of member
savings associations, such as the Bank. Further, there can be no assurance that
the impact of FDICIA and FIRREA on the FHLBs will not also cause a decrease in
the value of the FHLB of Chicago stock held by the Bank.
16
CHANGES IN FINANCIAL CONDITION
As of September 30, 1996, total assets of the Company were $3.16 billion, an
increase of $45.5 million or 1.5% from $3.12 billion at June 30, 1996. The
increase is primarily due to an increase in FHLB of Chicago advances and other
borrowings which were used to fund mortgage loans held for investment.
Cash and short-term investments totaled a combined $87.9 million at September
30, 1996, a decrease of $7.0 million from the combined balance of $94.9 million
at June 30, 1996. Overall liquidity levels remain relatively low as a percentage
of total assets due to cash balances being used to fund loan originations.
Investment securities classified as held to maturity decreased $21.9 million
to $80.3 million at September 30, 1996. The decrease is due to maturities of
U.S. Government agency obligations of $23.1 million, offset by amortization of
premiums, as well as cash purchases of $788,000.
Investment securities available for sale increased $10.7 million to $49.0
million at September 30, 1996. The increase is due to purchases of $12.4
million, offset by sales of marketable equity securities with a book value of
$280,000 and maturities of $1.4 million. The Company recognized a gain on the
sale of investment securities of $100,000 during the three months ended
September 30, 1996. At September 30, 1996, gross unrealized gains in the
available for sale portfolio were $290,000, compared to $329,000 at June
30,1996.
Mortgage-backed securities classified as held to maturity decreased $13.4
million to $280.0 million at September 30, 1996 compared to $293.4 million at
June 30, 1996. The decrease is primarily due to amortization and prepayments in
the portfolio. The Bank has not actively purchased mortgage-backed securities
due to the ability to generate loans receivable for its own portfolio through
its retail and wholesale originations.
Mortgage-backed securities available for sale decreased $7.7 million to $117.1
million at September 30, 1996, compared to $124.7 million at June 30, 1996. The
decrease is due to amortization and prepayment activity in the portfolio. There
was no purchase or sale activity during the three month period ended September
30, 1996. Gross unrealized losses in the available for sale portfolio were $1.0
million at September 30, 1996, compared to $1.7 million at June 30, 1996.
The Bank has $194.2 million of CMO securities at September 30, 1996, the
majority of which are collateralized by FNMA, FHLMC and GNMA mortgage-backed
securities, and to a lesser extent by whole loans. Additionally, included in
mortgage-backed securities held to maturity as of September 30, 1996, and June
30, 1996 are $41.5 million, and $44.3 million, respectively of FHLMC securities
with an average yield of 8.36% and 8.54%, respectively, which collateralize a
similar amount of CMO bonds issued by the Bank's special purpose finance
subsidiaries. Principal repayments and prepayments on these securities are
available exclusively for the repayment of the CMO bonds which they
collateralize.
Loans receivable, including loans held for sale, increased $77.6 million, or
3.4%, to $2.37 billion at September 30, 1996. The Bank originated and purchased
(through wholesale originations) $253.9 million during the three month period
ended September 30, 1996. Offsetting this increase was amortization and
prepayments totaling $127.6 million, as well as sales of $41.4 million. The
Company altered its normal mortgage banking strategy of selling most fixed rate
originations during the current three month period, and retained the majority of
longer-term fixed rate loans as a means of profitably utilizing the Bank's
additional capital acquired in the NSBI acquisition. The Bank intends to resume
its normal mortgage banking strategy of selling fixed-rate originations in the
near future. As a result of this strategy, loans receivable held for sale as of
September 30, 1996 was reduced to $1.2 million, compared to $9.4 million at June
30, 1996.
17
The allowance for loan losses totaled $17.6 million at September 30, 1996, an
increase of $335,000 from the balance at June 30, 1996, due to a $350,000
provision for loan losses, offset by net charge-offs of $15,000. The Bank's
allowance for loan losses to total loans outstanding was .73% at September 30,
1996, compared to .75% at June 30, 1996. Non-performing loans increased $852,000
to $13.7 million at September 30, 1996, or .57% of total loans receivable,
compared to $12.8 million, or .56% at June 30, 1996.
Real estate held for development or sale increased $1.9 million to $28.5
million at September 30, 1996. A summary of real estate held for development or
sale is as follows:
SEPT. 30, JUNE 30,
1996 1996
--------- --------
(in thousands)
MAF Developments, Inc.
Harmony Grove $ 6,256 5,104
Clow Creek Farm 956 1,168
Creekside of Remington 1,835 1,807
------- ------
9,047 8,079
------- ------
Mid America Developments, Inc.
Ashbury 400 1,196
Woods of Rivermist 615 755
------- ------
1,015 1,951
------- ------
NW Financial, Inc.
Reigate Woods 8,334 7,734
Woodbridge 7,787 6,475
Fields of Ambria 2,359 2,381
------- ------
18,480 16,590
------- ------
$28,542 26,620
======= ======
The increase in the Company's newest development, Harmony Grove, is due to the
development of the first phase, which consists of 148 lots, of which 127 lots
are under contract as of September 30, 1996. The Company expects a substantial
amount of these lots to close within the next three months. The balance of Clow
Creek Farm was reduced slightly due to six lot sales, and minimal additional
improvement costs. This development is substantially complete, with only 28 lots
remaining, of which eight are under contract as of September 30, 1996. The
Creekside of Remington subdivision, with 170 total lots, and 137 lots remaining,
had no sales or development activity during the current three month period. No
lots are under contract as of September 30, 1996.
The decrease in Ashbury is primarily due to seven lot sales, and the sale of
the project's 13-acre commercial parcel. Construction is substantially
completed. All of the remaining 24 lots in Ashbury are under contract as of
September 30, 1996. The balance in the Woods of Rivermist subdivision decreased
due to two lot sales during the current quarter. At September 30, 1996,
development is substantially complete, with four of the remaining eight lots
under contract.
The balance of Reigate Woods increased $600,000 due to continued development
of this project as well as additional construction costs on homesites. At
September 30, 1996, there are 62 remaining homesites, with 12 homesites under
contract. The $1.3 million increase in Woodbridge is primarily due to
underground development costs related to the final 70 lots of the subdivision,
as well as additional costs on homes under construction. At September 30, 1996,
there are 164 homesites remaining, with 53 under contract. There were five home
sales in Fields of Ambria during the three months ended September 30, 1996, and
nine of the remaining 23 homesites are under contract. Underground improvements
are substantially complete.
18
Deposits decreased $14.4 million, to $2.24 billion at September 30, 1996.
After consideration of interest credited to accounts of $20.3 million for the
three months ended September 30, 1996, actual cash outflows were $34.6 million.
Borrowed funds, which consist primarily of FHLB of Chicago advances and CMO
bonds payable, increased $52.1 million to $589.8 million at September 30, 1996.
The primary reason for the increase is due to the Bank increasing its FHLB of
Chicago advances by a net $15.0 million since June 30, 1996, as well as
increasing fixed-rate term reverse repurchase agreement borrowings by $40.0
million. The increases were primarily to fund loan volume held for investment.
Offsetting this increase was a $3.3 million decrease in the Bank's CMO bonds
payable issued by its special-purpose finance subsidiaries.
ASSET QUALITY
NON-PERFORMING ASSETS. When a borrower fails to make a required payment by the
end of the month in which the payment is due, the Bank generally institutes
collection procedures. The Bank will send a late notice, and in most cases,
delinquencies are cured promptly; however, if a loan has been delinquent for
more than 60 days, the Bank contacts the borrower in order to determine the
reason for the delinquency and to effect a cure, and, where appropriate, reviews
the condition of the property and the financial circumstances of the borrower.
Based upon the results of any such investigation, the Bank may: (1) accept a
repayment program for the arrearage from the borrower; (2) seek evidence, in the
form of a listing contract, of efforts by the borrower to sell the property if
the borrower has stated that he is attempting to sell; (3) request a deed in
lieu of foreclosure; or (4) initiate foreclosure proceedings. When a loan
payment is delinquent for three or more monthly installments, the Bank will
initiate foreclosure proceedings. Interest income on loans is reduced by the
full amount of accrued and uncollected interest on loans which are in
foreclosure or otherwise determined to be uncollectible, in accordance with SFAS
No. 5 "Accounting for Contingencies." Additionally, the Bank considers the
classification of investment securities, should they show signs of deteriorating
quality.
The Bank considers a loan impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan. For loans which are not
individually significant (i.e. loans under $500,000), and represent a
homogeneous population, the Bank evaluates impairment collectively based on
management reports on the level and extent of delinquencies, as well as
historical loss experience for these types of loans. The Bank uses this criteria
on one-to four-family residential loans, consumer loans, multi-family
residential loans, and land loans. Impairment for loans considered individually
significant and commercial real estate loans are measured based on the fair
value of the collateral securing the loan. At September 30, 1996, the Company
has no loans which are considered impaired under this criteria. Charge-offs of
principal occur when a loss has deemed to have occurred as a result of the book
value exceeding the fair value or net realizable value.
A loan (whether considered impaired or not) is classified as non-accrual when
collectibility is in doubt, and is normally analyzed upon the borrower becoming
90 days past due on contractual principal or interest payments. When a loan is
placed on non-accrual status, or in the process of foreclosure, previously
accrued but unpaid interest is reserved in full. 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 September 30, 1996, interest income that would have been
recorded on non-accrual loans (had they been performing according to their
original terms) amounted to $80,000, compared to $34,000 for the three months
ended September 30, 1995.
As of September 30, 1996, the Bank's ratio of non-performing loans to total
loans was .57%, compared to .56% at June 30, 1996 and .47% at September 30,
1996.
19
At September 30, 1996 and June 30, 1996, restructured loans which meet the
definition of troubled debt restructurings under SFAS No. 15 "Accounting by
Debtors and Creditors for Troubled Debt Restructurings," were $4.3 million,
consisting of two loans, at an average interest rate of 6.48%.
Foreclosed real estate increased $180,000 to $1.1 million at September 30,
1996, due primarily to the foreclosure of four single family residential
properties. At September 30, 1996, foreclosed real estate consists primarily of
six single-family residences.
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)
September 30, 1996 48 $6,050 .25% 63 $8,688 .36%
== ====== === == ====== ===
June 30, 1996 39 $4,804 .21% 57 $7,926 .34%
== ====== === == ====== ===
March 31, 1996 9 $ 867 .07% 35 $3,376 .28%
== ====== === == ====== ===
December 31, 1995 16 $ 826 .07% 26 $2,706 .24%
== ====== === == ====== ===
September 30, 1995 20 $1,847 .14% 21 $2,017 .15%
== ====== === == ====== ===
CLASSIFICATION OF ASSETS. In connection with the filing of its periodic
reports with the OTS, the Bank regularly reviews its portfolio to determine
whether any assets require classification in accordance with OTS regulation. At
September 30, 1996 and June 30, 1996, the Bank had no loans classified as
doubtful or loss. At September 30, 1996 and June 30, 1996, all non-performing
assets are classified as substandard. The table below summarizes assets
classified as substandard at the dates indicated:
SEPT. 30, JUNE 30,
1996 1996
--------- --------
(in thousands)
Loans receivable:
One-to-four family and multi-family $ 7,518 7,355
Commercial, construction and land 5,759 5,191
Equity lines of credit 360 287
Consumer-secured 48 --
------- ------
Total loans receivable 13,685 12,833
Foreclosed real estate 1,068 888
------- ------
$14,753 13,721
======= ======
20
LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition
of the Bank's loan portfolio in dollar amounts at the dates indicated:
YEAR ENDED JUNE 30, QUARTER ENDED
--------------------------------- ---------------------------------------------------------
1996 1995 1994 9/96 6/96 3/96 12/95 9/95
--------- --------- --------- --------- --------- --------- --------- ---------
(In thousands)
REAL ESTATE LOANS:
One- to four-family:
Held for investment $2,032,102 1,032,233 835,369 2,114,595 2,032,102 1,227,470 1,156,852 1,107,821
Held for sale 9,314 24,984 8,739 1,250 9,314 14,817 24,327 25,625
Multi-family 94,713 67,248 49,864 93,246 94,713 81,919 80,817 71,046
Commercial 46,101 47,273 52,090 45,875 46,101 45,087 45,115 46,026
Construction 16,090 19,984 13,860 15,854 16,090 17,860 16,403 18,035
Land 26,644 19,281 15,453 22,932 26,644 26,149 22,608 22,128
--------- --------- --------- --------- --------- --------- --------- ---------
Total real estate loans 2,224,964 1,211,003 975,375 2,293,752 2,224,964 1,413,302 1,346,122 1,290,681
OTHER LOANS:
Consumer loans:
Equity lines of credit 79,193 66,710 46,451 83,786 79,193 75,902 74,380 71,171
Home equity loans 10,525 4,335 1,112 13,126 10,525 8,877 7,537 5,608
Other 4,110 2,652 2,471 4,797 4,110 3,946 3,494 3,125
--------- --------- --------- --------- --------- --------- --------- ---------
Total consumer loans 93,828 73,697 50,034 101,709 93,828 88,725 85,411 79,904
Commercial business lines 1,821 1,560 2,341 2,098 1,821 2,220 2,234 2,100
--------- --------- --------- --------- --------- --------- --------- ---------
Total other loans 95,649 75,257 52,375 103,807 95,649 90,945 87,645 82,004
--------- --------- --------- --------- --------- --------- --------- ---------
Total loans receivable 2,320,613 1,286,260 1,027,750 2,397,559 2,320,613 1,504,247 1,433,767 1,372,685
Less:
Loans in process 6,715 8,728 5,161 6,406 6,715 8,843 7,893 8,135
Unearned discounts, premiums
and deferred loan fees, net 3,245 882 2,818 2,572 3,245 (1,416) (914) (78)
Allowance for loan losses 17,254 9,197 8,779 17,589 17,254 9,498 9,288 9,209
--------- --------- --------- --------- --------- --------- --------- ---------
Total loans receivable, net 2,293,399 1,267,453 1,010,992 2,370,992 2,293,399 1,487,322 1,417,500 1,355,419
Loans receivable held for sale (9,314) (24,984) (8,739) (1,250) (9,314) (14,817) (24,327) (25,625)
--------- --------- --------- --------- --------- --------- --------- ---------
Loans receivable, net $2,284,085 1,242,469 1,002,253 2,369,742 2,284,085 1,472,505 1,393,173 1,329,794
========= ========= ========= ========= ========= ========= ========= =========
21
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.
YEAR ENDED JUNE 30, QUARTER ENDED
--------------------- -------------------------------------
1996 1995 1994 9/96 6/96 3/96 12/95 9/95
------ ----- ------ ------ ------ ----- ----- -----
(In thousands)
Non-performing loans:
One- to four-family and multi-family loans:
Non-accrual loans $ 5,415 1,972 2,933 5,929 5,415 2,801 1,925 1,579
Accruing loans 91 days or more overdue 1,940 555 482 1,589 1,940 1,235 1,440 119
------ ----- ------ ------ ------ ----- ----- -----
Total 7,355 2,527 3,415 7,518 7,355 4,036 3,365 1,698
------ ----- ------ ------ ------ ----- ----- -----
Commercial real estate, construction and land loans:
Non-accrual loans 433 -- 312 889 433 439 211 --
Accruing loans 91 days or more overdue 459 100 118 599 459 -- 233 211
Restructured or renegotiated loans 4,299 4,379 4,464 4,271 4,299 4,321 4,344 4,363
------ ----- ------ ------ ------ ----- ----- -----
Total 5,191 4,479 4,894 5,759 5,191 4,760 4,788 4,574
------ ----- ------ ------ ------ ----- ----- -----
Other loans:
Non-accrual loans 287 168 163 385 287 223 163 164
Accruing loans 91 days or more overdue -- -- 24 23 -- -- 15 --
------ ----- ------ ------ ------ ----- ----- -----
Total 287 168 187 408 287 223 178 164
------ ----- ------ ------ ------ ----- ----- -----
Total non-performing loans:
Non-accrual loans 6,135 2,140 3,408 7,203 6,135 3,463 2,299 1,743
Accruing loans 91 days or more overdue 2,399 655 624 2,211 2,399 1,235 1,688 330
Restructured or renegotiated loans 4,299 4,379 4,464 4,271 4,299 4,321 4,344 4,363
------ ----- ------ ------ ------ ----- ----- -----
Total $12,833 7,174 8,496 13,685 12,833 9,019 8,331 6,436
====== ===== ====== ====== ====== ===== ===== =====
Non-accrual loans to total loans .27% .17 .33 .30% .27 .23 .16 .13
Accruing loans 91 days or more overdue to total loans .10 .05 .06 .09 .10 .08 .12 .02
Restructured or renegotiated loans to total loans .19 .35 .44 .18 .19 .29 .31 .32
------ ----- ------ ------ ------ ----- ----- -----
Non-performing loans to total loans .56% .57 .83 .57% .56 .60 .59 .47
====== ===== ====== ====== ====== ===== ===== =====
Foreclosed real estate (net of related reserves):
One- to four-family $ 888 311 1,379 1,068 888 109 249 126
Commercial, construction and land -- 25 2,090 -- -- -- -- --
------ ----- ------ ------ ------ ----- ----- -----
Total $ 888 336 3,469 1,068 888 109 249 126
====== ===== ====== ====== ====== ===== ===== =====
Non-performing loans and foreclosed real estate
to total loans and foreclosed real estate .60% .60 1.17 .62% .60 .61 .61 .49
====== ===== ====== ====== ====== ===== ===== =====
Total non-performing assets $13,721 7,510 11,965 14,753 13,721 9,128 8,580 6,562
====== ===== ====== ====== ====== ===== ===== =====
Total non-performing assets to total assets .44% .42 .75 .47% .44 .46 .45 .35
====== ===== ====== ====== ====== ===== ===== =====
22
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are cash dividends paid by the
Bank and MAF Developments, and liquidity generated by the issuance of common
stock, preferred stock, or borrowings. The Company's principal uses of funds are
interest payments on the Company's $26.7 million of 8.32% subordinated notes and
$35.0 million unsecured term bank loan, cash dividends to shareholders, loans to
and investments in MAF Developments, as well as investment purchases with excess
cash flow. The Company also maintains a $15.0 million unsecured revolving line
of credit from a commercial bank, of which no balances have been drawn. For the
three month period ended September 30, 1996, the Company received no dividends
from the Bank and declared a common stock dividend of $.09 per share, which was
paid on October 4, 1996.
The Bank's principal sources of funds are deposits, advances from the FHLB
of Chicago, reverse repurchase agreements, principal repayments on loans and
mortgage-backed securities, proceeds from the sale of loans and funds provided
by operations. While scheduled loan and mortgage-backed securities amortization
and maturing interest-bearing deposits are a relatively predictable source of
funds, deposit flows and loan and mortgage-backed securities prepayments are
greatly influenced by economic conditions, the general level of interest rates
and competition. The Bank utilizes particular sources of funds based on
comparative costs and availability. The Bank generally manages the pricing of
its deposits to maintain a steady deposit balance, but has from time to time
decided not to pay rates on deposits as high as its competition, and when
necessary, to supplement deposits with longer term and/or less expensive
alternative sources of funds. During the current three month period the Bank
borrowed $170.0 million of primarily fixed-rate FHLB of Chicago advances, and
$40.0 million of fixed-rate reverse repurchase agreements to repay $155.0
million of primarily short-term adjustable rate borrowings and to fund mortgage
loan originations held for investment.
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 5.0% of the sum of its average daily balance of
net withdrawable accounts and borrowed funds due in one year or less. This
regulatory requirement may be changed from time to time to reflect current
economic conditions. During the quarter ended September 30, 1996, the Bank's
average liquidity ratio was 6.09%. At September 30, 1996, total liquidity was
$133.6 million, or 5.6%, which was $14.4 million in excess of the 5.0%
regulatory requirement.
During the three months ended September 30, 1996, the Bank originated and
purchased loans totaling $253.9 million compared with $265.1 million during the
same period a year ago. Loan sales and swaps for the three months ended
September 30, 1996, were $48.7 million, compared to $81.2 million for the prior
year period, reflecting the Bank's desire to hold more loan originations for
investment purposes during the current three month period. The Bank has
outstanding commitments to originate and purchase loans of $153.5 million and
commitments to sell or swap loans of $7.3 million at September 30, 1996.
23
ASSET/LIABILITY MANAGEMENT
The Bank's overall asset/liability management strategy is directed toward
reducing the Bank's exposure to interest rate risk over time in changing
interest rate environments. Asset/liability management is a daily function of
the Bank's management due to continual fluctuations in interest rates and
financial markets.
As part of its asset/liability strategy, the Bank has implemented a policy
to maintain its cumulative one-year hedged interest sensitivity gap ratio within
a range of (15)% to 15% of total assets, which helps the Bank to maintain a more
stable net interest rate spread in various interest rate environments. The gap
ratio fluctuates as a result of market conditions and management's expectation
of future interest rate trends. Under OTS Thrift Bulletin 13, the Bank is
required to measure its interest rate risk assuming various increases and
decreases in general interest rates, and the effect on net interest income and
market value of portfolio equity. An interest rate risk policy has been approved
by the Board of Directors setting the limits to changes in net interest income
and market value of portfolio equity at the various rate scenarios required. In
addition, the OTS has added an interest rate risk component to its regulatory
capital requirements which could require an additional amount of capital based
on the level of adverse change in a savings institution's market value of
portfolio equity, resulting from changes in interest rates. Management
continually reviews its interest rate risk policies in light of potential higher
capital requirements that may result from the final adoption of an interest rate
risk component to the OTS capital requirements.
The Bank's asset/liability management strategy emphasizes the origination
of one- to four-family adjustable-rate loans and other loans which have shorter
terms to maturity or reprice more frequently than fixed-rate mortgage loans,
yet, provide a positive margin over the Bank's cost of funds. In response to
customer demand, the Bank originates fixed-rate mortgage loans, but sells the
majority of these loans in the secondary market in order to maintain its
interest rate sensitivity levels.
In conjunction with the strategy discussed above, management has also
hedged the Bank's exposure to interest rate risk primarily by committing to sell
fixed-rate mortgage loans for future delivery. Under these commitments, the Bank
agrees to sell fixed-rate loans at a specified price and at a specified future
date. The sale of fixed-rate mortgage loans for future delivery has enabled the
Bank to continue to originate new mortgage loans, and to generate gains on sale
of these loans as well as loan servicing fee income, while maintaining its gap
ratio within the parameters discussed above. Most of these forward sale
commitments are conducted with FNMA and FHLMC with respect to loans that conform
to the requirements of these government agencies. The forward commitment of
mortgage loans presents a risk to the Bank if the Bank is not able to deliver
the mortgage loans by the commitment expiration date. If this should occur, the
Bank would be required to pay a fee to the buyer. The Bank attempts to mitigate
this risk by charging potential retail borrowers a 1% fee to fix the interest
rate, or by requiring the interest rate to float at market rates until shortly
before closing. In its wholesale lending operation, there is more risk due to
the competitive inability to charge a rate lock fee to the mortgage brokers,
which the Bank tries to offset by using higher assumed fallout rates. In
addition, the Bank uses U.S. Treasury bond futures contracts to hedge some of
the mortgage pipeline exposure. These futures contracts are used to hedge
mortgage loan production in those circumstances where loans are not sold forward
as described above.
24
The table below sets forth the scheduled repricing or maturity of the
Bank's assets and liabilities at September 30, 1996, based on the assumptions
used by the FHLB of Chicago with respect to NOW, checking and passbook account
withdrawals and loan prepayment percentages. In a departure from the FHLB of
Chicago assumptions, which assume a 0% prepayment for other borrowings, the Bank
assumes that the collateralized mortgage obligations of Mid America Finance
Corporation included in other borrowings prepay at the same rate used for the
mortgage-backed securities collateralizing these obligations, while the
Northwestern Acceptance Corporation collateralized mortgage obligations are
adjustable-rate and included in the 6 months or less category.
The effect of these assumptions is to quantify the dollar amount of items
that are interest-sensitive and may be repriced within each of the periods
specified. The table does not necessarily indicate the impact of general
interest rate movements on the Bank's net interest yield because the repricing
of certain categories of assets and liabilities is subject to competitive and
other pressures beyond the Bank's control. As a result, certain assets and
liabilities indicated as maturing or otherwise repricing within a stated period
may, in fact, mature or reprice at different times and at different volumes.
AT SEPTEMBER 30, 1996
-----------------------------------------------------------------------
MORE THAN MORE THAN MORE THAN
6 MONTHS 6 MONTHS 1 YEAR 3 YEARS MORE THAN
OR LESS TO 1 YEAR TO 3 YEARS TO 5 YEARS 5 YEARS TOTAL
---------- --------- ---------- ---------- --------- ---------
(In thousands)
Interest-earning assets:
Loans receivable $ 694,780 467,663 705,826 283,936 238,948 2,391,153
Mortgage-backed securities 183,191 18,340 55,225 40,239 99,119 396,114
Interest-bearing deposits 36,453 - - - - 36,453
Federal funds sold 13,175 - - - - 13,175
Investment securities(1) 97,095 - 17,873 - 46,018 160,986
---------- ------- ------- ------- ------- ---------
Total interest-earning assets 1,024,694 486,003 778,924 324,175 384,085 2,997,881
Less yield adjustments, net 186 162 (219) (337) (2,341) (2,549)
---------- ------- ------- ------- ------- ---------
Total net interest-earning assets 1,024,880 486,165 778,705 323,838 381,744 2,995,332
Impact of hedging activity(2) 1,258 - - - (1,258) -
---------- ------- ------- ------- ------- ---------
Total net interest-earning assets
adjusted for impact of hedging
activities 1,026,138 486,165 778,705 323,838 380,486 2,995,332
---------- ------- ------- ------- ------- ---------
Interest-bearing liabilities:
NOW and checking accounts 11,904 10,894 39,875 24,769 52,636 140,078
Money market accounts 135,895 - - - - 135,895
Passbook accounts 55,604 50,878 186,212 115,671 245,801 654,166
Certificate accounts 606,472 202,999 368,797 57,446 11,039 1,246,753
FHLB advances 95,000 5,000 95,000 210,000 30,500 435,500
Other borrowings 61,727 17,548 75,014 - 26,694 180,983
---------- ------- ------- ------- ------- ---------
Total interest-bearing liabilities 966,602 287,319 764,898 407,886 366,670 2,793,375
---------- ------- ------- ------- ------- ---------
Interest sensitivity gap $ 59,536 198,846 13,807 (84,048) 13,816 201,957
========== ======= ======= ======= ======= =========
Cumulative gap $ 59,536 258,382 272,189 188,141 201,957
========== ======= ======= ======= =======
Cumulative gap assets as a percentage
of total assets 1.88% 8.17 8.61 5.95 6.39
Cumulative net interest-earning assets
as a percentage of interest-bearing
liabilities 106.16 120.61 113.48 107.75 107.23
- ---------------
(1) Includes $30.7 million of stock in FHLB of Chicago in 6 months or less.
(2) Represents forward commitments to sell long-term fixed-rate mortgage loans.
25
AVERAGE BALANCE SHEETS
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. Such 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 September 30, 1996
includes fees which are considered adjustments to yield.
THREE MONTHS ENDED SEPTEMBER 30, AT SEPTEMBER 30,
------------------------------------------------------------------ ---------------------
1996 1995 1996
-------------------------------- -------------------------------- ---------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE COST
------------ -------- -------- ------------ -------- -------- ------------ -------
(Dollars in Thousands)
ASSETS:
Interest-earning assets:
Loans receivable $2,326,373 45,043 7.74% $1,319,272 26,013 7.88% $2,388,581 7.76%
Mortgage-backed securities 405,427 6,945 6.85 299,055 4,689 6.27 397,032 6.91
Interest-bearing deposits(1) 41,383 713 6.74 18,660 408 8.56 36,453 5.22
Federal funds sold(1) 16,686 281 6.59 20,029 416 8.13 13,175 5.20
Investment securities(2) 161,909 2,699 6.52 92,017 1,444 6.14 160,091 6.67
---------- ------- ---------- ------- ----------
Total interest-earning assets 2,951,778 55,681 7.53 1,749,033 32,970 7.52 2,995,332 7.54
---- ---- ----
Non-interest earning assets 196,282 80,063 167,290
---------- ---------- ----------
Total assets $3,148,060 $1,829,096 3,162,622
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Deposits $2,163,299 23,915 4.39 $1,256,259 15,103 4.77 $2,176,892 4.46
Borrowed funds 555,486 9,588 6.79 365,117 6,648 7.15 616,483 6.78
---------- ------- ---------- ------- ----------
Total interest-bearing liabilities 2,718,785 33,503 4.88 1,621,376 21,751 5.31 2,793,375 4.97
------- ---- ------- ---- ----
Non-interest bearing deposits 76,998 55,358 62,797
Other liabilities 105,577 44,733 64,607
---------- ---------- ----------
Total liabilities 2,901,360 1,721,467 2,920,779
Stockholders' equity 246,700 107,629 241,843
---------- ---------- ----------
Liabilities and stockholders' equity $3,148,060 $1,829,096 $3,162,622
========== ========== ==========
Net interest income/interest $22,178
rate spread ======= 2.65% $11,219 2.21% 2.57%
==== ======= ==== ====
Net earning assets/net yield on
average interest-earning assets $ 232,993 3.01% $ 127,657 2.57% $ 201,957 N/A
========== ==== ========== ==== ==========
Ratio of interest-earning assets to
interest-bearing liabilities 108.57% 107.87% 107.23%
========== ========== ==========
- ---------------
(1) Includes pro-rata share of interest income received on outstanding drafts
payable.
(2) Income and yields are stated on a taxable equivalent basis.
26
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 SEPTEMBER 30, 1996
COMPARED TO SEPTEMBER 30, 1995
INCREASE (DECREASE)
----------------------------------------
VOLUME RATE NET
-------------- ----------- -----------
(In thousands)
INTEREST-EARNING ASSETS:
Loans receivable $19,495 (465) 19,030
Mortgage-backed securities 1,790 466 2,256
Interest bearing deposits 404 (99) 305
Federal funds sold (63) (72) (135)
Investment securities 1,161 94 1,255
------- ------ ------
Total 22,787 (76) 22,711
------- ------ ------
INTEREST-BEARING LIABILITIES:
Deposits 10,087 (1,275) 8,812
Borrowed funds 3,281 (341) 2,940
------- ------ ------
Total 13,368 (1,616) 11,752
------- ------ ------
Net change in net interest income $ 9,419 1,540 10,959
======= ====== ======
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
GENERAL - The Company incurred a net loss for the three months ended
September 30, 1996 of $338,000, or ($.03) per fully-diluted share, compared to
net income of $4.2 million, or $.72 per fully-diluted share for the three months
ended September, 1995. The current year quarter includes a one-time charge of
$8.7 million or $.81, net of applicable income taxes, reflecting the cost of the
SAIF recapitalization bill passed by Congress on September 30, 1996.
NET INTEREST INCOME - Net interest income was $22.1 million for the current
quarter, compared to $11.2 million for the quarter ended September 30, 1995, an
increase of $10.9 million. The increase is due to the Company's acquisition of
NSBI on May 30, 1996. The Company's average net interest-earning assets have
nearly doubled to $233.0 million for the three months ended September 30, 1996,
compared to $127.7 million for the three months ended September 30, 1995. In
addition, the Company's net interest margin improved to 3.01% for the current
three month period, compared to 2.57% for the prior year period, primarily due
to the acquisition of NSBI adding a substantial amount of low-cost deposits to
the Company's funding base.
27
Interest income on loans increased $19.0 million as a result of a $1.0
billion increase in average loans receivable offset by a 14 basis point decrease
in the average yield of the loan portfolio. Loans receivable increased $749.7
million due to the acquisition of NSBI, with the remainder of the increase in
the average balance due to the Bank's originations of shorter-term adjustable
rate mortgage loans for portfolio purposes, and the holding of certain longer-
term fixed-rate mortgage loans for investment purposes during the current three
month period. Interest income on mortgage-backed securities increased $2.3
million, or 48.1% to $6.9 million for the current quarter, due to a 35.6%
increase in average balances, due to the acquisition of NSBI, and a 58 basis
point increase in average yield, also due to the acquisition of NSBI, whose
mortgage-backed securities were primarily longer-term, fixed-rate securities.
Interest income on investment securities increased $1.2 million, or 87.2%
primarily due to the acquisition of NSBI. The average balances of federal funds
sold and interest-bearing deposits combined increased, although only nominally
when compared to the increase in the total interest-earning assets of the Bank,
due to the continued maintenance of lower levels of liquidity.
Interest expense on deposit accounts increased $8.8 million, or 58.3%, due
to an increase in average deposits of $907.0 million during the current three
month period, offset by a 38 basis point decrease in the average cost of
savings. The Bank acquired $872.0 in deposits from the NSBI acquisition, with
the remainder of the increase due to increases in checking balances, and the
opening of a new branch. The decrease in the average cost of savings is
primarily due to the acquisition of NSBI, whose deposit base was more weighted
with low-cost passbook accounts than that of the Bank's prior to the
acquisition.
Interest expense on borrowed funds increased $2.9 million, or 44.2%, as a
result of a $190.4 million increase in the average balance of borrowed funds,
offset by a 36 basis point decrease in the average cost of borrowed funds. The
increase in the average balance is due to an increase in FHLB of Chicago
advances of $100.0 million, and an increase in reverse repurchase agreements of
$64.8 million since September 30, 1995, which have been used to fund loan
originations which have been held in portfolio. Additionally, the Company
borrowed $35.0 million as part of funding the purchase of NSBI.
PROVISION FOR LOAN LOSSES - The Bank provided $350,000 in provision for
loan losses during the current three month period, compared to $100,000 for the
prior three month period. At September 30, 1996, the Bank's allowance for loan
losses was $17.6 million, which was .73% of total loans receivable, compared to
.75% at June 30, 1996. The ratio of the allowance for loan losses to non-
performing loans was 128.5% at September 30, 1996 compared to 134.5% at June 30,
1996.
NON-INTEREST INCOME - Non-interest income increased 24.8% to $5.5 million
for the three months ended September 30, 1996, compared to $4.4 million for the
three months ended September 30, 1995.
Gain (loss) on sale of loans and mortgage-backed securities increased to a
combined $151,000 for the three months ended September 30,1996, compared to a
combined $97,000 for the three months ended September 30, 1995. Continued
competitive pricing in the retail and wholesale origination markets have made
the generation of gains on the sale of loans difficult. The gain (loss) on sale
of mortgage-backed securities represents loans originated by the Bank and
swapped into mortgage-backed securities prior to sale. During the three months
ended September 30, 1996, $7.3 million of loans were swapped and sold, while
during the three months ended September 30, 1995, $8.8 million of loans were
swapped and sold.
The Company recognized $100,000 in gains on investment securities for the
three months ended September 30, 1996, compared to $28,000 for the prior year
period, primarily due to sales of marketable equity securities.
28
Income from real estate operations increased $150,000 to $1.7 million for the
three months ended September 30, 1996. A summary of income from real estate
operations is as follows:
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
1996 1995
---------------- ---------------
# OF PRE-TAX # OF PRE-TAX
LOTS INCOME LOTS INCOME
----- --------- ----- --------
(dollars in thousands)
Ashbury 7 $1,010 9 $ 330
Woods of Rivermist 2 112 - -
Clow Creek Farm 6 142 50 1,118
Creekside of Remington - - 23 65
Fields of Ambria 5 39 - -
Reigate Woods 5 245 - -
Woodbridge 10 115 - -
-- ------ -- ------
35 $1,663 82 $1,513
== ====== == ======
The seven lot sales in Ashbury leave only 24 lots unsold in this 1,115-lot
subdivision. All of the remaining lots are under contract. Included in the pre-
tax income from Ashbury is profit from the sale of a 13-acre commercial parcel
of $730,000. The two sales in the 31-lot Woods of Rivermist development leave
eight lots remaining, of which four are under contract at September 30, 1996.
The six lot sales in Clow Creek Farm are much lower than a year ago due to this
260-lot subdivision being nearly sold-out, with 28 lots remaining for sale at
September 30, 1996, of which eight are under contract. The sales in Fields of
Ambria, Reigate Woods and Woodbridge are due to the acquisition of NSBI in May
1996, which is why there is no sales activity reported in the previous year's
quarter. These sales represent sales of fully constructed homesites. The Fields
of Ambria subdivision is substantially complete as to underground improvements.
Deposit account service charges increased $408,000, or 36.8% to $1.5
million for the three months ended September 30, 1996. The increase is due to
improved fee income from checking accounts due to a large increase in the number
of checking accounts owned in response to the Bank's direct mail program. The
number of checking accounts owned by the Bank exceeded 68,000 at September 30,
1996, compared to 55,000 at September 30, 1995.
Loan servicing fee income increased $54,000, or 9.5% to $624,000 for the
three months ended September 30, 1996. Although the average balance of loans
serviced for others increased 16.3% to $1.1 billion for the current three month
period, compared to $905.9 million for the prior year period, income declined
primarily as a result of amortization of capitalized servicing fees, as well as
amortization of purchased mortgage servicing rights. Amortization of these items
equaled $76,000 for the three months ended September 30, 1996, compared to
$61,000 for the prior three month period.
Brokerage commissions increased 20.0% to $426,000 for the three months
ended September 30, 1996, due to improved sales of mutual fund products through
the Bank's network of INVEST brokers. Other non-interest income increased
$246,000, or 32.8% to $995,000 for the three months ended September 30, 1996,
due to increased fee income from the addition of six branch locations acquired
from NSBI, compared to the prior year period.
NON-INTEREST EXPENSE - Non-interest expense increased $19.2 million to
$27.8 million for the three months ended September 30, 1996, which includes a
one-time charge of $14.2 million for the recapitalization of the SAIF. Without
this charge, non-interest expense increased $5.0 million, or 57.4%, due to the
acquisition of NSBI adding overhead to the Company's operation.
29
Compensation and benefits increased $2.6 million to $7.4 million for the
three months ended September 30, 1996, compared to the three months ended
September 30, 1995. The Company added approximately 280 full-time equivalents in
the acquisition of NSBI, many of which remained on the payroll throughout the
current quarter. The Company reduced its staff during September 1996, due to the
substantial completion of the transition phase of the NSBI acquisition.
Occupancy expense increased 52.7% to $1.3 million due to the addition of
six branches from the NSBI acquisition, as well as a new branch in Berwyn,
Illinois. The Bank's branch network now operates out of 20 locations.
Data processing expense increased $158,000 to $566,000 for the three months
ended September 30, 1996 due primarily to greater depreciation expense from
enhancements in the company's PC-based local and wide area network system.
Additionally, the Company operated two data processing systems during most of
the current quarter due to the integration of data processing systems from the
acquisition of NSBI not occurring until September 1996.
FDIC insurance premiums increased significantly due to legislation passed
to recapitalize the SAIF, which insures deposits of savings institutions. As a
result of this legislation, SAIF-insured institutions, including the Bank, were
assessed a one-time charge of .657% of SAIF deposits at March 31, 1995, or $14.2
million for the Bank. Exclusive of this one-time charge, FDIC insurance premiums
increased $551,000 to $1.3 million for the three months ended September 30,
1996, primarily due to the acquisition of NSBI.
Other non-operating expense increased $894,000 to $2.2 million for the
three months ended September 30, 1996. The increase is due to the acquisition of
NSBI, which has added to general operating costs, as well as amortization
expense of $354,000 related to the core deposit premium established in the NSBI
acquisition, which is being amortized over 10 years on an accelerated basis. The
Company also incurred $338,000 in amortization expense of goodwill established
in the acquisition, which is being amortized over 20 years on a straight line
basis.
INCOME TAXES - For the three months ended September 30, 1996, income tax
benefit totaled $197,000, or an effective income tax benefit rate of 36.8%,
compared to $2.7 million, or an effective income tax rate of 38.6%, for the
three months ended September 30, 1995.
30
PART II - OTHER INFORMATION
- -----------------------------
Item 1. Legal Proceedings
The Company is not presently engaged in any legal proceedings of a
material nature.
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
October 23, 1996.
(b) The names of each director elected at the Annual Meeting are as
follows:
Allen H. Koranda
Robert Bowles, MD
Henry Smogolski
The names of each of the directors whose term of office continued after the
Annual Meeting are as follows:
Nicholas J. DiLorenzo, Sr. F. William Trescott
Terry A. Ekl Lois B. Vasto
Joe F. Hanauer Andrew J. Zych
Kenneth Koranda
(c) The following matters were voted upon at the Annual Meeting and the
number of affirmative votes and negative votes cast with respect to
the matter follows.
(i) Approval of amendments to the MAF Bancorp, Inc. 1990 Incentive
Stock Option Plan:
For Against Abstain
--------- ------- -------
8,419,798 314,788 98,704
(ii) Ratification of the appointment of KPMG Peat Marwick LLP as
the Company's independent auditors for the fiscal year ending
June 30, 1997:
For Against Abstain
--------- ------- -------
8,926,865 16,654 31,749
(d) None.
31
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit No. 11. Statement re: Computation of per share earnings
QUARTER ENDED
SEPT. 30, 1996
---------------
Net loss $ (338,000)
===========
Weighted average shares outstanding 10,397,727
Common stock equivalents due to dilutive effect of stock options 391,901
-----------
Total weighted average common
shares and equivalents outstanding for primary computation 10,789,628
===========
Primary loss per share $ (.03)
===========
Total weighted average common
shares and equivalents outstanding for primary computation 10,789,628
Additional dilutive shares using the end of period
market value versus the average market value when
applying the treasury stock method 4,601
-----------
Total weighted average common shares and equivalents
outstanding for fully diluted computation 10,794,229
===========
Fully-diluted loss per share $ (.03)
===========
(b) Reports on Form 8-K.
On July 23, 1996, the Company filed required pro forma financial
information relating to the Company's acquisition of N.S. Bancorp
which was not available at the time of initial filing under
Form 8-K on June 11, 1996.
32
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: November 8, 1996 By: /s/ Allen H. Koranda
---------------- ---------------------
Allen H. Koranda
Chairman of the Board and
Chief Executive Officer
(Duly Authorized Officer)
Date: November 8, 1996 By: /s/ Jerry A. Weberling
---------------- -----------------------
Jerry A. Weberling
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer)
33