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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual report pursuant to section 13 or 15(d) of
the Securities Exchange Act of 1934
For the year ended December 31, 2000
Commission file number 0-18121
-------------------
MAF Bancorp, Inc.
Delaware 36-3664868
(State of incorporation) (IRS Employer identification No.)
55th Street & Holmes Avenue, Clarendon Hills, Illinois 60514-1500
Telephone Number (630) 325-7300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ______
------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _______
Based upon the closing price of the registrant's common stock as of March 7,
2001, the aggregate market value of the voting stock held by non-affiliates of
the registrant was $513,826,901.*
The number of shares of Common Stock outstanding as of March 7, 2001: 22,855,601
- --------------------------------------------------------------------------------
Documents Incorporated by Reference
PART III - Portions of the Proxy Statement for the Annual Meeting of
Shareholders to be held on April 25, 2001 are incorporated by reference into
Part III hereof.
* Solely for purposes of this calculation, all executive officers and directors
of the registrant are considered to be affiliates. Also included are shares held
by employee benefit plans where trustees are directors or executive officers of
the registrant.
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MAF BANCORP, INC. AND SUBSIDIARIES
FORM 10-K
Index
-----
Part I.
Page
----
Item 1. Business........................................................................................... 3
Item 2. Properties......................................................................................... 6
Item 3. Legal Proceedings.................................................................................. 8
Item 4. Submission of Matters to a vote of Security Holders................................................ 8
Part II.
Item 5. Market for the Registrant's Common Stock and Related Stockholders Matters.......................... 8
Item 6. Selected Financial Data............................................................................ 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation............... 11
Item 7A. Quantatative and Qualitative Disclosures about Market Risk......................................... 54
Item 8. Financial Statements and Supplementary Data........................................................ 58
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures.............. 93
Part III.
Item 10. Directors and Executive Officers of the Registrant................................................. 93
Item 11. Executive Compensation............................................................................. 93
Item 12. Security Ownership of Certain Beneficial Owners and Management..................................... 93
Item 13. Certain Relationships and Related Transactions..................................................... 93
Part IV.
Item 14. Exhibits, Financial Statements and Reports on Form 8-K............................................. 93
Signature Page................................................................................................ 98
2
Item 1. Business
General
MAF Bancorp, Inc. ("Company"), was incorporated under the laws of the state
of Delaware in 1989. The Company is a registered savings and loan holding
company primarily engaged in the retail banking business through its
wholly-owned subsidiary, Mid America Bank, fsb ("Bank") and, to a lesser extent,
in the residential real estate development business. With over $5.0 billion in
assets, the Bank is one of the largest financial institutions in the Chicago
metropolitan area.
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 comprised of the western suburbs of Chicago,
including DuPage County, which has the second highest per capita income in
Illinois, as well as the west side of Chicago. It is principally engaged in the
business of attracting deposits from the general public and using such deposits,
along with other borrowings, to make loans secured by real estate, primarily
one- to four-family residential mortgage loans. To a lesser extent, the Bank
also makes multi-family mortgage, residential construction, land acquisition and
development and a variety of consumer loans. The Bank also has a small portfolio
of commercial real estate. Through two wholly-owned subsidiaries, MAF
Developments, Inc. ("MAF Developments") and NW Financial, Inc. ("NW Financial"),
the Company and the Bank are also engaged in real estate development activities,
primarily residential development. Additionally, the Bank operates an insurance
agency, Mid America Insurance Agency, Inc., which provides general insurance
services, a title agency, Centre Point Title Services, Inc., which provides
general title services for the Bank's loan customers, and Mid America Investment
Services, Inc. ("Mid America Investments"), which offers investment services and
securities brokerage primarily to Bank customers through its affiliation with
INVEST, a registered broker-dealer.
For financial information regarding the Company's two separate lines of
business (retail banking and land development), see "Note 21. Segment
Information" to the audited consolidated financial statements of the Company
included in "Item 8. Financial Statements and Supplementary Data."
As a federally chartered savings bank, the Bank's deposits are insured up
to the applicable limits by the Federal Deposit Insurance Corporation ("FDIC").
The Bank is a member of the Federal Home Loan Bank ("FHLB") of Chicago, which is
one of the twelve regional banks for federally insured savings institutions
comprising the FHLB system. The Bank is regulated by the Office of Thrift
Supervision ("OTS") and the FDIC. The Bank is further regulated by the Board of
Governors of the Federal Reserve System as to reserves required to be maintained
against deposits and certain other matters.
The Company's executive offices are located at 55th Street and Holmes
Avenue, Clarendon Hills, Illinois 60514-1500. The telephone number is (630)
325-7300.
Competition
The Bank is faced with increasing competition in attracting retail customer
business, including deposit accounts and loan originations. Competition for
deposit accounts comes primarily from other savings institutions, commercial
banks, money market mutual funds, and insurance companies (primarily in the form
of annuity products). Factors affecting the attraction of customers include
interest rates offered, convenience of branch locations, ease of business
transactions, and office hours. Competition for loan products comes primarily
from mortgage brokers, other savings institutions, commercial banks and mortgage
banking companies. Factors affecting business include interest rates, terms,
fees, and customer service.
3
Regulatory Environment
The Bank is subject to extensive regulation, supervision and examination by
the OTS, as its chartering authority and primary federal regulator, and by the
FDIC, which insures its deposits up to applicable limits. Such regulation and
supervision establish a comprehensive framework of activities in which the Bank
can engage and is designed primarily for the protection of the insurance fund
and depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities. Any change in such regulation, whether by the OTS, the FDIC or
Congress could have a material impact on the Bank and its operations. See
"Regulation and Supervision - Federal Savings Institution Regulation" for more
information.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This report, in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere, contains, and other periodic
reports and press releases of the Company may contain, certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
Company intends such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and is including this statement for purposes of
invoking these safe harbor provisions. Forward-looking statements, which are
based on certain assumptions and describe future plans, strategies and
expectations of the Company, are generally identifiable by use of the words
"believe," "expect," "intend," "anticipate," "estimate," "project," "plan," or
similar expressions. The Company's ability to predict results or the actual
effect of future plans or strategies is inherently uncertain, and actual results
may differ from those predicted. Factors which could have a material adverse
effect on the operations and future prospects of the Company and the
subsidiaries include, but are not limited to, unexpected changes in interest
rates, general economic conditions, legislative/regulatory changes, monetary and
fiscal policies of the U.S. Government, including policies of the U.S. Treasury
and the Federal Reserve Board, the quality or composition of the Company's loan
or investment portfolios, demand for loan products 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.
4
Executive Officers of the Registrant
The executive officers of the Company are listed below.
Name Age Position(s) Held
---- --- ----------------
Allen H. Koranda 54 Chairman of the Board and Chief
Executive Officer of the Company
and the Bank
Kenneth Koranda 51 President and Director of the
Company and the Bank
David C. Burba 53 Executive Vice President and
Director of the Company and the
Bank
Jerry A. Weberling 49 Executive Vice President, Chief
Financial Officer and Director of
the Company and the Bank
Gerard J. Buccino 39 Senior Vice President of the
Company and the Bank
William Haider 49 Senior Vice President of the
Company and the Bank; President
of NW Financial and MAF
Developments
Michael J. Janssen 41 Senior Vice President of the
Company and the Bank
David W. Kohlsaat 46 Senior Vice President of the
Company and the Bank
Thomas Miers 49 Senior Vice President of the
Company and the Bank
Kenneth Rusdal 59 Senior Vice President of the
Company and the Bank
Sharon Wheeler 48 Senior Vice President of the
Company and the Bank
Biographical Information
Set forth below is certain information with respect to executive officers
of the Company and the Bank. Unless otherwise indicated, the principal
occupation listed for each person below has been their principal occupation for
the past five years.
Allen H. Koranda has been Chairman of the Board and Chief Executive Officer
of the Company since August, 1989, and of the Bank since May, 1984. He joined
the Bank in 1972. He is also Senior Vice President and a director of Mid America
Investments. Mr. Koranda holds Bachelor of Arts and Juris Doctor degrees from
Northwestern University. Mr. Koranda is the brother of Kenneth Koranda.
Kenneth Koranda has been President of the Company since August, 1989, and
of the Bank since July 1984. He joined the Bank in 1972. He is also Chairman of
Mid America Investments. Mr. Koranda holds a Bachelor of Arts degree from
Stanford University and a Juris Doctor degree from Northwestern University. Mr.
Koranda is the brother of Allen Koranda.
David C. Burba joined the Company as Executive Vice President on January 1,
1999 in conjunction with the acquisition of Westco. He had previously served as
Chairman of the Board and President of
5
Westco since 1992 and President of First Federal Savings and Loan of Westchester
since 1978. Mr. Burba holds a Bachelor of Arts degree from Carthage College.
Jerry A. Weberling has been Executive Vice President and Chief Financial
Officer of the Company and the Bank since July 1993. He joined the Bank in 1984.
He is a certified public accountant. Mr. Weberling holds a Bachelor of Science
degree from Northern Illinois University.
Gerard J. Buccino has been Senior Vice President - Risk Management of the
Company and the Bank since July 2000. Prior to that he was Senior Vice President
and Controller of the Company and the Bank since July 1996. He was First Vice
President and Controller of the Company and the Bank from July 1993 to July
1996. He joined the Bank in 1990. He is a certified public accountant. Mr.
Buccino holds a Bachelor of Science degree from Marquette University and a
Master of Business Administration degree from the University of Chicago Graduate
School of Business.
William Haider has been Senior Vice President of the Company and the Bank
since July 1996. Prior to that he was Vice President of the Company since April
1993. He joined the Bank in 1984. He is President of MAF Developments and NW
Financial, managing the real estate development activities of the Company. Mr.
Haider holds a Bachelor of Science degree from Southern Illinois University.
Michael J. Janssen has been Senior Vice President - Investor Relations and
Taxation of the Company and the Bank since July 1996. Prior to that he was First
Vice President - Investor Relations and Taxation of the Company and the Bank
from July 1993 to July 1996. He joined the Bank in 1989. He is a certified
public accountant. Mr. Janssen holds a Bachelor of Business Administration
degree from the University of Notre Dame, and a Master of Science in Taxation
degree from DePaul University.
David W. Kohlsaat has been Senior Vice President - Administration since
July 1996. Prior to that he was First Vice President - Administration of the
Company from July 1993 to July 1996, and is responsible for retail deposit
administration and human resources. He joined the Bank in 1976. Mr. Kohlsaat
holds a Bachelor of Science degree from Southern Methodist University.
Thomas Miers has been Senior Vice President of the Company since April 1993
and Senior Vice President-Retail Banking of the Bank since January 1992. He
joined the Bank in 1979. Mr. Miers holds a Bachelor of Science degree from
George Williams College.
Kenneth Rusdal has been Senior Vice President of the Company since April
1993 and Senior Vice President-Operations and Information Systems since January
1992. He joined the Bank in 1987.
Sharon Wheeler has been Senior Vice President of the Company since April
1993 and has been Senior Vice President - Residential Lending of the Bank since
July 1986. She joined the Bank in 1971.
Employees
The Bank employs a total of 1,035 full time equivalent employees as of
December 31, 2000. Management considers its relationship with its employees to
be excellent.
Item 2. Properties
The Company's business is conducted through 27 retail banking offices,
including the Company's executive office location in Clarendon Hills, Illinois,
and a 30,000 square foot loan processing and servicing center located in
Naperville, Illinois, which the Bank leases. The Bank has its own data
processing equipment. The data processing equipment primarily consists of
mainframe hardware, network servers, personal computers and ATMs. At December
31, 2000, the data processing equipment owned has a net book value of $4.5
million.
6
The following table sets forth information regarding the executive office
and the Bank's 27 branches. At December 31, 2000, the net book value of premises
and related equipment was $48.9 million.
Net Book Value
Date Leased Date Lease % of Total December 31,
Location or Acquired Expires Deposits 2000
-------- ----------- ------- -------- ----
(Dollars in thousands)
Executive and Home Office
55th Street and Holmes Avenue
Clarendon Hills, Illinois 1975/1986 owned 8.23% $ 4,484
Branches
Berwyn, Illinois
6620 West Ogden Avenue 1996 owned 1.04 1,386
6650 West Cermak Road 1996 owned 2.84 361
Broadview, Illinois
800 Broadview Village Square 1997 2012 .13 173
Burbank, Illinois
4900 West 87th Street 2000 owned 1.55 859
Chicago, Illinois
2300 North Western Avenue 1996 owned 4.34 1,654
3844 West Belmont Avenue 1996 owned 9.91 310
6333 North Milwaukee Avenue 1996 2006 4.71 2
5075 South Archer Avenue 1996 owned 8.12 2,689
Cicero, Illinois
5900/5847 West Cermak Road 1939/1978 owned 9.38 1,436
4830 West Cermak Road 1970 owned 1.46 434
Downers Grove, Illinois
7351 South Lemont Road 1997 owned(2) .97 709
LaGrange Park, Illinois
1921 East 31st Street 1981 owned 3.52 1,099
Naperville, Illinois
1001 South Washington 1974 owned 6.29 1,829
9 East Ogden Avenue 1982 owned 1.97 1,186
1308 South Naper Boulevard 1987 owned 2.80 1,400
3135 Book Road 1997 owned 1.68 1,711
Norridge, Illinois
4100 North Harlem Avenue 1996 2001 .96 8
4350 North Harlem Avenue 1998 owned(1) 5.67 2,236
6401 North Harlem Avenue 1999 2004 1.14 7
Riverside, Illinois
40 East Burlington 1977 owned 3.49 822
St. Charles, Illinois
2600 East Main Street 1979 owned 2.51 1,949
Tinley Park, Illinois
7151 West 159th Street 2000 owned 1.80 1,296
table continued on next page
7
continued
Net Book Value
Date Leased Date Lease % of Total December 31,
Location or Acquired Expires Deposits 2000
-------- ----------- ---------- ---------- --------------
(Dollars in thousands)
Westchester, Illinois
2121 South Mannheim Road/ 1998 owned 8.02 2,630
10551 West Cermak Road
Western Springs, Illinois
40 West 47th Street 1978 owned 2.90 780
Wheaton, Illinois
250 East Roosevelt Road 1977 owned 2.94 776
161 Danada Square East 1988 2008 1.63 214
Other fixed assets - 16,464
------- -------
Total 100.00% $48,904
======= =======
--------------------------------
(1) Land lease expires in 2006.
(2) Land lease expires in 2007.
Item 3. Legal Proceedings
As of December 31, 2000, there are no outstanding legal proceedings against
the Company. There are various actions pending against the Bank but, in the
opinion of management, these actions are unlikely, individually or in the
aggregate, to have a material adverse effect on the Company's financial
statements.
Item 4. Submission of Matters to a Vote of Security Holders None.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholders
Matters
The Company's common stock trades on the Nasdaq Stock Market under the
symbol "MAFB." As of March 7, 2001, the Company had 1,891 shareholders of
record. The table below shows the reported high and low sales prices of the
common stock during the periods indicated as well as the period end closing
sales prices.
December 31, 2000 December 31, 1999
----------------------------------- ---------------------------------------
High Low Close Dividend High Low Close Dividend
------ ------ ------ -------- ----- --- ----- --------
First Quarter $ 21.00 15.50 16.19 .09 27.50 21.75 22.25 .07
Second Quarter 19.94 15.50 18.19 .10 25.13 21.50 24.25 .09
Third Quarter 25.00 17.88 24.88 .10 24.31 18.88 19.88 .09
Fourth Quarter 30.00 20.50 28.44 .10 23.69 19.88 20.94 .09
The Company declared $0.39 per share in dividends during the year ended
December 31, 2000, and $0.34 per share in dividends for the year ended December
31, 1999. The Company's ability to pay cash dividends primarily depends on cash
dividends received from the Bank. Dividend payments from the Bank are subject to
various regulatory restrictions. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations-Regulation and
Supervision - Federal Savings Institution Regulation - Limitation on Capital
Distributions."
8
Item 6. Selected Financial Data
The following table sets forth certain summary consolidated financial data at or
for the periods indicated. This information should be read in conjunction with
the Consolidated Financial Statements and notes thereto included herein. See
"Item 8. Financial Statements and Supplementary Data."
December 31,
-------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
Selected Financial Data:
Total assets $ 5,195,588 4,658,065 4,121,087 3,457,664 3,230,341
Loans receivable, net 4,328,114 3,884,569 3,319,076 2,707,127 2,430,113
Mortgage-backed securities 104,385 133,954 183,603 283,008 359,587
Interest-bearing deposits 53,392 51,306 24,564 57,197 55,285
Federal funds sold 139,268 35,013 79,140 50,000 24,700
Investment securities 271,902 281,129 260,945 177,803 171,818
Real estate held for development
or sale 12,718 15,889 25,134 31,197 28,112
Deposits 2,974,213 2,699,242 2,656,872 2,337,013 2,262,226
Borrowed funds 1,728,900 1,526,363 1,034,500 770,013 632,897
Subordinated capital notes, net - - - 26,779 26,709
Stockholders' equity 387,729 352,921 344,996 263,411 250,625
Book value per share 16.78 14.76 13.81 11.70 10.62
Tangible book value per share (1) 13.80 12.20 11.32 10.31 9.16
Six Months Ended
Year Ended December 31, December 31,
---------------------------------------------------------
2000 1999 1998 1997 1996
----------- --------- --------- --------- ---------
(Dollars in thousands, except per share data)
Selected Operating Data:
Interest income $ 343,103 285,092 247,263 238,987 112,827
Interest expense 217,173 168,401 150,575 145,216 68,631
----------- --------- --------- --------- ---------
Net interest income 125,930 116,691 96,688 93,771 44,196
Provision for loan losses 1,500 1,100 800 1,150 700
----------- --------- --------- --------- ---------
Net interest income after provision
for loan losses 124,430 115,591 95,888 92,621 43,496
Non-interest income:
Gain (loss) on sale of loans receivable
and mortgage-backed securities 408 2,583 3,204 432 (32)
Gain on sale of investment securities 256 1,776 816 404 251
Gain on sale of loan servicing rights 4,442 - - - -
Income from real estate operations 9,536 9,630 4,517 6,876 4,133
Deposit account service charges 12,715 10,200 8,626 7,217 3,219
Loan servicing fee income 1,686 1,761 1,400 2,278 1,249
Recovery (impairment) of mortgage
servicing rights - 900 (1,269) - -
Other 8,400 7,994 8,256 5,438 3,139
----------- --------- --------- --------- ---------
Total non-interest income 37,443 34,844 25,550 22,645 11,959
Non-interest expense:
Compensation and benefits 41,197 37,845 34,494 30,472 14,503
Office occupancy and equipment 8,124 7,274 6,645 6,203 2,652
Federal deposit insurance premiums 604 1,585 1,438 1,468 2,338
Special SAIF assessment - - - - 14,216
Other 23,078 20,976 16,366 16,468 7,369
----------- --------- --------- --------- ---------
Total non-interest expense 73,003 67,680 58,943 54,611 41,078
----------- --------- --------- --------- ---------
Income before income taxes
and extraordinary items 88,870 82,755 62,495 60,655 14,377
Income taxes 32,311 31,210 23,793 22,707 5,602
----------- --------- --------- --------- ---------
Income before extraordinary items 56,559 51,545 38,702 37,948 8,775
Extraordinary items (2) - - (456) - -
----------- --------- --------- --------- ---------
Net income $ 56,559 51,545 38,246 37,948 8,775
=========== ========= ========= ========= =========
Basic earnings per share $ 2.43 2.13 1.70 1.64 .37
=========== ========= ========= ========= =========
Diluted earnings per share $ 2.40 2.07 1.65 1.59 .36
=========== ========= ========= ========= =========
9
Six Months Ended
Year Ended December 31, December 31,
------------------------------------------------------
2000 1999 1998 1997 1996/(3)/
------- --------- --------- --------- ----------------
(Dollars in thousands, except per share data)
Selected Financial Ratios and
Other Data:
Return on average assets 1.14% 1.20% 1.07% 1.14% 1.11%/(4)/
Return on average equity 15.57 14.98 13.87 14.69 14.18/(4)/
Average stockholders' equity
to average assets 7.34 8.03 7.73 7.79 7.80
Stockholders' equity to total assets 7.46 7.58 8.37 7.62 7.76
Tangible and core capital to
total assets (Bank only) 6.32 6.32 6.67 6.88 6.96
Risk-based capital ratio (Bank only) 11.98 12.32 13.42 14.34 15.05
Interest rate spread during period 2.30 2.52 2.47 2.62 2.64
Net yield on average interest-earning assets 2.68 2.88 2.85 2.98 2.96
Average interest-earning assets to average
interest-bearing liabilities 108.10 108.56 108.62 107.99 107.98
Non-interest expense to average assets 1.48 1.58 1.65 1.65 1.70/(4)/
Non-interest expense to average assets
and average loans serviced for others 1.22 1.25 1.28 1.26 1.27/(4)/
Efficiency ratio 44.56 45.19 48.54 47.07 47.79/(4)/
Ratio of earnings to fixed charges:
Including interest on deposits 1.41x 1.48x 1.41x 1.41x 1.41x/(4)/
Excluding interest on deposits 1.86x 2.18x 2.11x 2.26x 2.35x/(4)/
Non-performing loans to total loans .39% .40 .43 .39 .55
Non-performing assets to total assets .36 .50 .54 .32 .46
Cumulative one-year gap (5.18) (11.47) (4.23) (.80) 7.50
Number of deposit accounts 339,340 314,396 305,411 275,055 259,041
Mortgage loans serviced for others $ 785,350 1,226,874 1,065,126 997,204 1,045,740
Loan originations 1,484,220 1,711,337 1,754,009 1,091,824 469,452
Full-service customer service facilities 27 25 24 22 20
Stock Price and Dividend Information:
High $ 30.00 27.50 29.25 24.46 15.67
Low 15.50 18.88 18.75 14.78 9.89
Close 28.44 20.94 26.50 23.58 15.45
Cash dividends declared per share .39 .34 .257 .18 .08
Dividend payout ratio 16.05% 15.96% 15.12% 10.98% 21.62%
_______________________
/(1)/In computing tangible book value per share, the Company excludes goodwill
and core deposit intangible assets from stockholders' equity.
/(2)/The extraordinary items in the year ended December 31, 1998 represent
charges for the early extinguishment of debt, net of tax benefits.
/(3)/Ratios for the six months ended December 31, 1996 are annualized. The
Company changed its year end from June 30 to December 31 in 1996.
/(4)/Excludes the effect of the special SAIF assessment of $14.2 million ($8.7
million after tax) for the six months ended December 31, 1996. Including
the impact of the special SAIF assessment, the Company's actual ratios were
as follows: Return on average assets of .56%; Return on average equity of
7.12%; Non-interest expense to average assets of 2.60%; Non-interest
expense to average assets and average loans serviced for others of 1.95%;
Efficiency ratio of 73.09%; Ratio of earnings to fixed charges including
interest on deposits of 1.20x; and Ratio of earnings to fixed charges
excluding interest on deposits of 1.67x.
10
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Net income for the Company was $56.6 million, or $2.40 per diluted share
($2.43 per basic share) for the year ended December 31, 2000, an increase of 16%
over the prior year. Net income in 1999 was $51.5 million, or $2.07 per diluted
share ($2.13 per basic share) and $38.2 million, or $1.65 per diluted share
($1.70 per basic share) for the year ended December 31, 1998.
The growth in earnings in 2000 was attributable to increases in various
core business' of the Bank, as well as the recognition of income from the sale
of mortgage servicing rights. This growth was attained despite a flat to
inverted Treasury yield curve, which hampered the growth rate of the Bank's net
interest income. Highlights for 2000 include:
. Marketing initiatives in 2000 resulted in a 41% increase in consumer
loans, primarily home equity loans, with balances totaling $215.3
million at December 31, 2000 compared to $152.3 million at
December 31, 1999.
. Deposit account service charges increased 25% to $12.7 million for
the year ended December 31, 2000. Deposit account fee income
continues to be one of the Company's strongest revenue growth areas
and is a result of successful initiatives to grow the Bank's
transaction account base.
. Income from real estate operations contributed $9.5 million to pre-
tax income, primarily due to $8.7 million of gains from record lot
sales in the Company's Tallgrass residential project.
. The Company's non-interest expense to average assets ratio decreased
more than 6% year over year. The Company's efficiency ratio improved
to 44.56% from 45.19% a year ago, and 48.54% for December 31, 1998.
. During 2000, the Company sold mortgage servicing rights relative to
approximately $600.0 million of mortgage loans at a pre-tax profit
of $4.4 million, or $.11 per diluted share on an after tax basis.
Historically, the Bank has not been a seller of servicing rights and
does not currently anticipate further bulk sales, but expects to
continue to service most of the loans it originates for sale into
the secondary market. This bulk sale took advantage of aggressive
pricing for loan servicing rights in the marketplace.
Recent and anticipated future declines in the targeted federal funds rate
are expected to result in a more favorable interest rate environment during
2001. Although management still expects moderate pressure on the net interest
margin during the first half of 2001, it anticipates a higher trending net
interest margin beginning in the second half of 2001 as a result of current
Federal Reserve Board monetary policy. Based on this interest rate outlook and
with the expected continued strong contribution from the Company's retail
banking business and real estate development operations, the Company is
currently projecting results for 2001 in the range of $2.40-$2.45 per diluted
share, which is consistent with the current consensus analysts' estimate of
$2.42 per diluted share.
11
Acquisitions and Expansion Activity
The Company's acquisitions and branch purchases during the past three years
are listed as follows:
Intangibles
Selling Entity Transaction Date Completed Deposits Loans Recorded
- -------------- ----------- ---------------- -------- --------- --------------
(In thousands)
M&I Bank, FSB Branch purchases April 2000 $ 89,800 $ 5,292 $ 12,139
Northern Trust Company Branch purchase September 1999 22,200 399 3,057
Westco Bancorp Acquisition December 1998 259,900 245,189 33,108
As it has in recent years, the Company expects to continue to search for
and evaluate potential acquisition opportunities that will enhance franchise
value and may periodically be presented with opportunities to acquire other
institutions, branches or deposits in the market it serves, or which allow the
Company to expand outside its current primary market areas of DuPage County and
the City of Chicago. Management intends to review acquisition opportunities
across a variety of parameters, including the potential impact on its financial
condition as well as its financial performance in the future. It is anticipated
that future acquisitions, if any, will likely be valued at a premium to book
value, and many times at a premium to current market value. As such, management
anticipates that acquisitions made by the Company may include some book value
per share dilution and earnings per share dilution for the Company's
shareholders depending on the Company's success in integrating the operations of
businesses acquired and the level of cost savings and revenue enhancements that
may be achieved.
Net Interest Income
Net interest income is the principal source of earnings for the Company,
and consists of interest income on loans receivable and mortgage-backed and
investment securities, offset by interest expense on deposits and borrowed
funds. Net interest income fluctuates due to a variety of reasons, most notably
due to the size of the balance sheet, changes in interest rates, and to a lesser
extent asset quality. The Company seeks to increase net interest income without
materially mismatching maturities of the interest-earning assets it invests in
compared to the interest-bearing liabilities that fund such investments.
Net interest income before the provision for loan losses was $125.9 million
in 2000, $116.7 million in 1999 and $96.7 million in 1998. The net interest
margin (net interest income divided by average interest-earning assets) for the
same periods was 2.68%, 2.88%, and 2.85%, respectively.
During 2000, the yield curve was primarily flat, to inverted with short-
term rates increasing throughout most of the year and long-term (10-year) rates
decreasing almost 100 basis points. This yield curve provided decreased net
interest spread on asset growth in 2000, which led to a 20 basis point decline
in the Bank's net interest margin. The rising short-term rates and inverted
yield curve, along with increased competition for retail deposits increased the
cost of funding by 49 basis points in 2000. As the yield curve moved more
inverted throughout 2000, mortgage customers continued to favor adjustable rate
ARM loans, most of which the Bank kept in portfolio, despite tightening spreads
to incremental funding costs. Not until the end of 2000, when long-term rates
rallied quickly, did the Bank begin to see a shift toward long-term fixed rate
mortgages. The Bank originated $1.5 billion in loan volume in 2000, down from
$1.7 billion in 1999. Production in 2000 was 60.6% adjustable, which helped the
Bank grow interest-earning assets. Based on the decline in long-term interest
rates, the Bank expects loan originations to favor fixed-rate loans in 2001,
which will hamper its ability to grow earning assets in 2001.
12
Rate/Volume Analysis
The table below describes the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Bank's interest income and interest expense on a
fully taxable equivalent basis during the periods indicated. Information is
provided in each category with respect to (i) changes attributable to changes in
volume (changes in volume multiplied by prior rate), (ii) changes attributable
to changes in rate (changes in rates multiplied by prior volume), and (iii) the
net change. Changes attributable to the combined impact of volume and rate have
been allocated proportionately to the changes due to volume and the changes due
to rate.
Year Ended Year Ended Year Ended
December 31, 2000 vs. 1999 December 31, 1999 vs. 1998 December 31, 1998 vs. 1997
-------------------------- ----------------------------- ---------------------------
Total Due To Total Due To Total Due To
--------------- ---------------- -----------------
Change Volume Rate Change Volume Rate Change Volume Rate
-------- ------ -------- ------- ------- ------- -------- -------- -------
(In thousands)
Interest-earning assets:
Loans receivable $ 50,850 43,613 7,237 41,072 50,259 (9,187) 13,550 22,083 (8,533)
Mortgage-backed securities (1,476) (2,173) 697 (4,542) (4,029) (513) (8,131) (6,660) (1,471)
Investment securities 3,231 579 2,652 2,943 2,951 (8) 2,982 4,231 (1,249)
Interest-bearing deposits 498 384 114 (437) (358) (79) (2,191) (2,656) 465
Federal funds sold 4,908 4,805 103 (1,215) (1,227) 12 1,952 1,591 361
------- ------- ------ ------- ------- ------ ------- ------- -------
Total interest income 58,011 47,208 10,803 37,821 47,596 (9,775) 8,162 18,589 (10,427)
------- ------- ------ ------- ------- ------ ------- ------- -------
Interest-bearing liabilities:
Deposits 15,844 5,974 9,870 3,877 12,380 (8,503) (2,793) 1,294 (4,087)
Borrowed funds 32,928 28,358 4,570 13,949 17,955 (4,006) 8,152 11,244 (3,092)
------- ------- ------ ------- ------ -------- -------- -------- --------
Total interest expense 48,772 34,332 14,440 17,826 30,335 (12,509) 5,359 12,538 (7,179)
------ ------- ------ ------- ------ ------- -------- -------- --------
Net change $ 9,239 12,876 (3,637) 19,995 17,261 2,734 2,803 6,051 (3,248)
====== ======= ====== ======= ====== ======= ======== ======== ========
Interest income on loans receivable increased $50.9 million in 2000 to
$304.3 million, while increasing $41.1 million in 1999 and $13.6 million in
1998. The increase in interest income on loans receivable over the last three
years is primarily attributable to growth in the Bank's loan portfolio through
loan originations and acquisitions. Average loans receivable increased $599.1
million in 2000, to $4.2 billion, primarily as a result of originated ARM loans
held for investment purposes. Prepayments slowed during 2000 due to trending
higher interest rates during the first six months of 2000. Average loans
receivable increased $702.4 million in 1999, including $245.0 million due to the
acquisition of Westco that closed on December 31, 1998.
The average yield on loans receivable increased 20 basis points in 2000 to
7.31%, after falling 31 basis points during 1999. The average yield on loans
receivable was 7.42% in 1998. The increase in yield in 2000 is a result of
increases in short-term rates and a shift of loan customers' preference to
adjustable rates loans. Current year ARM originations were consistently higher
than the overall loan portfolio rate. Additionally, due to the expansion of the
Bank's consumer loan portfolio, the overall yield on loans receivable was
enhanced, as the Bank's consumer loans are generally based on prime plus a small
margin.
13
Average Balance Sheets
The following table sets forth certain information relating to the Company's
consolidated statements of financial condition and reflects the average yield on
assets and average cost of liabilities for the periods indicated. Such yields
and costs are derived by dividing income or expense, on a tax equivalent basis,
by the average balance of assets or liabilities. Average balances are derived
from average daily balances, and include non-performing loans. The yield/cost at
December 31, 2000 includes fees which are considered adjustments to yield.
Year Ended December 31,
-------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------- ------------------------------ ---------------------------
Average Average Average
Yield/ Yield/ Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
---------- -------- ------- ---------- -------- ------- ---------- -------- ------
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans receivable $4,164,443 304,349 7.31% $3,565,375 253,499 7.11% $2,862,954 212,427 7.42%
Mortgage-backed securities 118,200 7,957 6.73 151,119 9,433 6.24 215,377 13,975 6.49
Investment securities/(1)/ 274,021 19,782 7.22 265,011 16,551 6.25 217,757 13,608 6.25
Interest-bearing deposits 33,212 2,459 7.40 27,969 1,961 7.01 33,042 2,398 7.26
Federal funds sold 115,857 8,704 7.51 51,860 3,796 7.32 68,621 5,011 7.30
---------- ------- ---------- -------- ---------- --------
Total interest-earning assets 4,705,733 343,251 7.29 4,061,334 285,240 7.02 3,397,751 247,419 7.28
Non-interest earning assets 242,499 222,357 171,764
---------- ---------- ----------
Total assets $4,948,232 $4,283,691 $3,569,515
========== ========== ==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposits 2,701,476 115,509 4.28 2,553,732 99,665 3.90 2,247,306 95,788 4.26
Borrowed funds and subordinated debt 1,651,852 101,664 6.15 1,187,262 68,736 5.79 880,872 54,787 6.22
---------- ------- ---------- -------- ---------- --------
Total interest-bearing liabilities 4,353,328 217,173 4.99 3,740,994 168,401 4.50 3,128,178 150,575 4.81
Non-interest bearing deposits 131,807 112,760 92,790
Other liabilities 99,886 85,831 72,713
---------- ---------- ----------
Total liabilities 4,585,021 3,939,585 3,293,681
Stockholders' equity 363,211 344,106 275,834
---------- ---------- ----------
Liabilities and stockholders' equity $4,948,232 $4,283,691 $3,569,515
========== ========== ==========
Net interest income/interest rate spread $126,078 2.30% $116,839 2.52% $ 96,844 2.47%
======== ==== ======== ==== ======== ====
Net earning assets/net yield on average
interest-earning assets $ 352,405 2.68% $ 320,340 2.88% $ 269,573 2.85%
========== ==== ========== ==== ========== ====
Ratio of interest-earning assets to
interest-bearing liabilities 108.10% 108.56% 108.62%
======== ======== ======
At December 31,
2000
---------------------
Yield/
Balance Cost
---------- ------
Assets:
Interest-earning assets:
Loans receivable 4,346,372 7.50%
Mortgage-backed securities 104,385 6.79
Investment securities/(1)/ 271,902 6.96
Interest-bearing deposits 53,392 6.30
Federal funds sold 139,268 6.42
----------
Total interest-earning assets 4,915,319 7.41
Non-interest earning assets 280,269
----------
Total assets 5,195,588
==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposits 2,833,270 4.55
Borrowed funds and subordinated debt 1,728,900 6.24
----------
Total interest-bearing liabilities 4,562,170 5.19
Non-interest bearing deposits 140,943
Other liabilities 104,746
----------
Total liabilities 4,807,859
Stockholders' equity 387,729
----------
Liabilities and stockholders' equity 5,195,588
==========
Net interest income/interest rate spread
2.22%
Net earning assets/net yield on average
interest-earning assets $ 353,149
==========
Ratio of interest-earning assets to
interest-bearing liabilities 107.74%
==========
/(1)/ Includes average balances of $81.0 million, $57.7 million, and $39.4
million stock in Federal Home Loan Bank of Chicago for the years ended
December 31, 2000, 1999 and 1998, respectively. At December 31, 2000, the
Bank owned $84.8 million of FHLB stock. Income on a tax equivalent basis
is computed assuming an effective tax rate of approximately 40%.
14
Interest income from mortgage-backed securities decreased $1.5 million in
2000 to $8.0 million, from $9.4 million in 1999, and $14.0 million in 1998. Due
to the ability to originate mortgage loans for its own portfolio, the Bank has
reduced its holdings of mortgage-backed securities generally through normal
amortization and prepayments over the past three years. Average mortgage-backed
securities were $118.2 million in 2000, compared to $151.1 million in 1999 and
$215.4 million in 1998.
Interest income from investment securities increased $3.2 million in 2000
to $19.6 million, while increasing $3.0 million in 1999 and $3.1 million in
1998. The average balance of investment securities has been steadily rising over
the past two years, to $274.0 million in 2000 from $217.8 million in 1998. The
increase has been primarily in FHLB stock, which increased $33.9 million during
the past two years. The average yield on investment securities increased 97
basis points in 2000, after remaining relatively steady from 1998 to 1999. This
large increase in yield is primarily due to increases in the average yield on
FHLB stock which was 7.5%, 6.8% and 6.6% for the years ended December 31, 2000,
1999 and 1998 respectively.
Interest income from federal funds sold and interest-bearing deposits
increased $6.4 million in 2000 while decreasing $1.7 million in 1999. The
average balance of liquid investments were $149.1 million, $79.8 million and
$101.7 million in 2000, 1999 and 1998, respectively. These fluctuations were
moving in line with levels of short-term interest rates which declined in 1999
and increased in 2000. The Bank carried higher levels of liquidity in 2000 due
to the larger balance sheet, higher level of short-term interest rates, and
lower volume of mortgage loan originations and purchases.
The average cost of deposits increased 38 basis points in 2000 compared to
1999, primarily due to upward repricing of maturing certificates of deposit in
2000 and competitive pricing on new certificate of deposit products, as well as
the introduction of a high rate money market product. In 2000, average deposits
increased $147.7 million, $89.8 million of which is attributable to branch
purchases. The average cost of deposits in 1999 declined 36 basis points due to
lower repricing on certificate of deposit accounts and increased checking
balances that carry little or no interest rate. With the recent decreases in
interest rates, as well as the expectation of further reductions in the targeted
federal funds rate, management expects the cost of deposits to peak in the first
quarter of 2001 and trend down for the balance of the year.
Interest expense on borrowed funds increased $32.9 million to $101.7
million in 2000, while increasing $13.9 million in 1999, compared to 1998.
Average borrowings increased $464.6 million in 2000 and $306.4 million in 1999,
in conjunction with the Bank increasing its loans receivable portfolio. The
Bank's advance portfolio is primarily fixed-rate, some of which are callable at
par by the FHLB of Chicago at their discretion. The average cost of borrowings
increased 36 basis points in 2000 due to maturing lower rate advances replaced
by higher cost borrowings.
Recent decreases in U. S. Treasury rates and anticipated additional Federal
Reserve Board interest rate decreases, are expected to have a favorable impact
on the Bank's net interest margin in 2001. At December 31, 2000, the Bank has
$735.5 million of prepayment protected long-term fixed-rate mortgage loans in
its portfolio, or 16.9% of total loans at an average interest rate of 6.87%.
During a period of declining interest rates, these loans prepay at a slower pace
and help mitigate the risk of reinvesting prepayments into lower yielding assets
as rates decrease. Management expects additional moderate pressure on the net
interest margin during the first half of 2001, with the net interest margin
stabilizing and trending higher in the second half of 2001. Offsetting the
higher expected net interest margin is the prospect of slower asset growth due
to the expected increase in fixed-rate mortgage loans which the Bank expects to
sell.
15
Provision for loan losses
The provision for loan losses is recorded to provide coverage for probable
losses inherent in the Bank's loan portfolio. The Company recorded a provision
for loan losses of $1.5 million in 2000, compared to $1.1 million in 1999, and
$800,000 in 1998. Net chargeoffs were $518,000, $594,000 and $351,000 in 2000,
1999 and 1998, respectively. The allowance for loan losses is based on
management's continuous evaluation of the risk inherent in the Bank's loan
portfolio, including its composition of loans and economic conditions that may
affect the borrowers ability to make payments. In assessing its provision for
loan losses in 2000, management took into account the growth in the loan
portfolio and charge-off experience. At December 31, 2000, the Bank's allowance
for loan losses was $18.3 million, or 109.3% of non-performing loans and .42% of
total loans, compared to $17.3 million, or 110.4% of non-performing loans and
.44% of total loans at December 31, 1999.
Non-interest income
Non-interest income is another significant source of revenue for the
Company. It consists of fees earned on products and services, gains and losses
from asset sale activity and income from real estate operations. Although
changes in interest rates can have an impact on revenues from these sources, the
impact is generally not nearly as dramatic as the impact on net interest income.
Non-interest income was $37.4 million, $34.8 million, and $25.6 million for the
years ended December 31, 2000, 1999 and 1998, respectively.
The table below shows the composition of non-interest income for the
periods indicated.
Percentage
Year Ended December 31, Increase (Decrease)
------------------------------- ---------------------
2000 1999 1998 2000/1999 1999/1998
-------- -------- -------- --------- ----------
(In thousands)
Gain (loss) on sale and writedown of:
Loans receivable $ 1,108 2,583 3,204 (57.1)% (19.4)%
Mortgage-backed securities (700) - - 100.0 -
Investment securities 256 1,776 816 (85.6) 117.6
Foreclosed real estate 258 (57) 212 552.6 (126.9)
Loan servicing rights 4,442 - - 100.0 -
Income from real estate operations 9,536 9,630 4,517 (1.0) 113.2
Deposit account service charges 12,715 10,200 8,626 24.7 18.2
Brokerage commissions 2,322 2,566 2,812 (9.5) (8.7)
Mortgage loan related fees 1,738 2,040 2,302 (14.8) (11.4)
Loan servicing fee income 1,686 1,761 1,400 (4.3) 25.8
Recovery (impairment) of mortgage servicing rights - 900 (1,269) (100.0) 170.9
Insurance commissions 594 527 456 12.7 15.6
Safe deposit box fees 446 405 311 10.1 30.2
Bank owned life insurance 1,320 1,210 458 9.1 164.2
Real estate owned operations, net (246) (216) (43) (13.9) (402.3)
Other 1,968 1,519 1,748 29.6 (13.1)
-------- -------- -------- ------- -------
$ 37,443 34,844 25,550 7.5% 36.4%
======== ======== ======== ======= =======
Gain on sale of loans and mortgage-backed securities. The Bank recorded a
net gain on the sale of loans receivable of $1.1 million in 2000, compared to
$2.6 million in 1999, and $3.2 million in 1998. Loan sales were $335.7 million,
$402.9 million, and $437.5 million, in 2000, 1999, and 1998, respectively. The
decrease in gains since 1998 is primarily due to less loan sale volume, as well
as lower loan sale margins, due to generally rising interest rates during the
periods. The Company believes that if the recent trend toward lower interest
rates continues, and consumers continue to favor fixed-rate loan
16
products, profit from loan sales in 2001 will likely substantially exceed 2000
results. The $700,000 loss on mortgage-backed securities in 2000 is the result
of a sale of a $9.3 million floating rate CMO which was more appropriate for a
positively sloped yield curve environment. The security was sold to redeploy the
proceeds into higher yielding assets.
Gains and losses on loans receivable include gains and losses from the sale
of loans originated by the Bank and swapped into mortgage-backed securities
prior to sale. The Bank swapped and sold $9.3 million in 2000, compared to $62.6
million in 1999, and $26.6 million in 1998. Sales of swaps versus whole loans to
FNMA or FHLMC are primarily determined by price differences at the time of sale,
and are executed in a manner to maximize profit to the Bank. The Bank has
generally held few of its own mortgage-backed securities in portfolio.
Gain on sale of investment securities. The Company had net gains on the
sale of investment securities of $256,000 in 2000, compared to $1.8 million in
1999, and $816,000 in 1998. Net gains in these periods have been generated
primarily from the sale of equity securities. During 2000 and 1999 management
elected to sell portions of its equity holdings in light of market conditions,
as well as generate funds for its stock buyback program. The 1998 results
included a $375,000 writedown required on certain equity securities and $76,000
in net gains from the sale of the Bank's 100% beneficial interests in two
special purpose finance subsidiaries.
Income from real estate operations. Income from real estate operations was
$9.5 million in 2000, $9.6 million in 1999 and $4.5 million in 1998. Continued
strong lot sale activity resulted in strong profits and margins in 2000. The
large increase in 1999 was primarily attributable to the sale of three
commercial parcels. A summary of income from real estate operations is as
follows:
Year Ended December 31,
--------------------------------------------------------------
2000 1999 1998
------------------ ------------------ ------------------
Lots Income Lots Income Lots Income
Sold (Loss) Sold (Loss) Sold (Loss)
---- --------- ---- --------- ---- -------
(Dollars in thousands)
Tallgrass of Naperville 306 $ 8,699 252 $ 3,457 20 $ 114
Woodbridge - 418 - 5,163 15 153
Reigate Woods 10 210 11 509 20 930
Harmony Grove - 104 7 479 184 2,851
Creekside of Remington 75 105 42 172 12 29
Ashbury - - - (150) - 297
Clow Creek Farm - - - - 6 260
Woods of Rivermist - - - - 2 5
Fields of Ambria - - - - 6 (122)
----- -------- ------ -------- ----- --------
391 $ 9,536 312 $ 9,630 265 $ 4,517
===== ======== ====== ======== ===== ========
During the current year, 306 lots were sold in the 951-lot Tallgrass of
Naperville development generating $8.7 million in income. Additionally, the
average profit margin per lot increased dramatically in 2000 due to higher lot
sale prices, without any corresponding increase in the estimated cost of each
lot. To date, 578 lots have been sold, and an additional 103 lots are under
contract at December 31, 2000. Management currently expects strong sales from
the Tallgrass subdivision in 2001 that will result in pre-tax income from real
estate development in the range of $8.0-$9.5 million.
17
Current year sales in the Woodbridge project represent the sale of two
small commercial parcels. At December 31, 2000, there are two commercial parcels
remaining, which are under contract and expected to be sold at a pre-tax profit
of approximately $500,000. The Reigate Woods subdivision had 10 lot sales in
2000, completing the 85-lot project. The lot sale activity in Creekside of
Remington represents a bulk sale of the final 75 lots of this project.
The $5.2 million in income in 1999 recorded in the Woodbridge project
reflects the sale of three commercial parcels. All of the residential lots in
Woodbridge had been sold previous to 1999. The 252 lots sold in Tallgrass in
1999 represent the first full year of sales efforts of the project. The Harmony
Grove subdivision was the largest contributor to income from real estate
operations in 1998 and the final lots were sold in 1999. The Tallgrass of
Naperville project sold its first 20 lots in December 1998. The Company
completed four projects in 1998: Clow Creek Farm, Woods of Rivermist, Fields of
Ambria and Ashbury.
Deposit account service charges. Deposit account service charges increased
$12.7 million in 2000, compared to $10.2 million in 1999, and $8.6 million in
1998. The primary source of these fees is from checking account charges for
insufficient funds, service charges, sustained overdraft fees, debit card usage,
and automated teller machine services. Increases are a function of a higher
number of checking accounts, new fees charged for services, as well as increases
in existing fee schedules. The number of checking accounts maintained by the
Bank was 116,000, 103,000, and 94,000 at December 31, 2000, 1999, and 1998,
respectively.
Brokerage commissions. Through the Bank's affiliation with INVEST, the Bank
offers non-traditional investment products to its customers such as mutual
funds, annuities and other brokerage services. Commission revenue decreased to
$2.3 million in 2000, compared to $2.6 million in 1999, and $2.8 million in
1998. The trending decline in revenue is attributable to broker turnover in 1999
and early 2000, stock market declines in 2000, as well as continued competition
for brokerage services from discount and internet brokerage companies.
Mortgage loan related fees. Mortgage loan related fees include late charge
income on loans owned and serviced by the Bank, inspection fee income for
construction loans and loan modification income for refinance transactions.
Income from these sources was $1.7 million in 2000, $2.0 million in 1999, and
$2.3 million in 1998. The primary reason for the decrease in 2000 was a
reduction of loan modification fee income due to the reduction in refinance
activity. The Bank introduced the loan modification option in 1998 to allow a
customer to lower the interest rate and/or modify other loan terms for a fee, in
lieu of processing a new loan. The Bank treats the modified loan as if it was
paid off, and amortizes any remaining deferred fees or expenses as interest
income. With the current trend toward lower interest rates, management
anticipates an increase in loan modification fee income in 2001.
Loan servicing fee income. Loan servicing fee income is generated from
loans that the Bank has originated and sold, or from purchased servicing, and
includes fees for the collection and remittance of mortgage payments, insurance
policies and real estate taxes. Typically, the Bank receives a servicing fee for
performing the aforementioned services equal to at least 1/4 of 1% for
fixed-rate mortgages and 1/4 to 3/8 of 1% for ARM loans on the outstanding
principal balance of the sold loan being serviced. Loan servicing fee income is
reduced by the amortization of capitalized mortgage servicing rights, and
impairment valuations against recorded values of mortgage servicing rights.
Loan servicing fee income, including the recovery of prior period valuation
allowances and/or impairment writedowns recognized, was $1.7 million in 2000,
compared to $2.7 million in 1999, and $131,000 in 1998. The following table
shows the components of loan servicing fee income in dollars and as a percentage
of loans serviced for others for the periods indicated:
18
Year Ended December 31,
------------------------------------------
2000 1999 1998
----------- ---------- -----------
(Dollars in thousands)
Gross servicing revenue $ 2,724 3,032 2,708
Amortization of mortgage servicing rights (1,038) (1,271) (1,308)
Impairment of mortgage servicing rights - - (1,269)
Impairment recovery of mortgage servicing rights - 900 -
---------- ------- ---------
Loan servicing fee income, net $ 1,686 2,661 131
========== ========= =========
As a percentage of average loans serviced for others:
Gross servicing revenue .259% .264% .265%
Amortization of mortgage servicing rights (.099) (.111) (.128)
Impairment of mortgage servicing rights - - (.124)
Impairment recovery of mortgage servicing rights - .078 -
---------- --------- ---------
Loan servicing fee income .160% .231% .013%
========== ========= =========
Average balance of loans serviced for others $1,050,287 1,148,514 1,020,919
Loans serviced for others 785,350 1,226,874 1,065,126
Loan sales for the year 335,665 402,891 437,549
========== ========= =========
The Bank's average balance of loans serviced for others decreased 8.6%
during 2000 primarily due to the third quarter sale of $600.0 million in
servicing rights at a gain of $4.4 million. Historically, the Bank has not been
a seller of bulk servicing rights, but made the sale to take advantage of
aggressive pricing for servicing rights, and as a hedge against lower interest
rates. While the Bank generally intends to grow its servicing portfolio,
management may periodically review opportunities to sell servicing rights in the
future. This transaction also led to lower loan servicing fee income for 2000
compared to 1999. Management expects income in 2001 to remain below 2000
results, despite expected increases in the loan serviced for others portfolio.
During 1999, an increase in interest rates led to a $900,000 recovery of
previously established impairment valuation in 1998 on the loans serviced for
others portfolio due to a lowering of management's estimated prepayment
assumptions. At December 31, 2000, 1999, and 1998, the weighted-average coupon
rate on the loans serviced for others portfolio was 7.55%, 7.28%, and 7.39%,
respectively.
Income from Bank owned life insurance. The Bank invested $20.0 million in
bank owned life insurance ("BOLI") to help fund the cost of certain employee
benefit plan expenses. The Bank's BOLI investment consists of the purchase of
life insurance on the lives of certain employees from an insurance carrier with
a Standard and Poors rating of AA+. The Company is the sole beneficiary of the
life insurance policies. Income is recorded on this investment based on
increases in the cash surrender value ("CSV") of the life insurance policies. To
the benefit of the Company, this income is free from income taxes. Death
benefits paid to the Company will be revenue in the periods received, if any. In
2000, CSV income recognized on these life insurance policies totaled $1.3
million compared to $1.2 million in 1999.
Other non-interest income. Other non-interest income includes various
miscellaneous fees charged to customers for money orders, savings bonds,
travelers checks, wire transfers and the preferred return on limited partnership
investments in residential real estate projects. The primary reason for the
increase in other income in 2000 was due to additional limited partnership
investments made in 2000.
19
Non-interest expense
Non-interest expense was $73.0 million in 2000, compared to $67.7 million
in 1999, and $58.9 million in 1998. The table below shows the composition of
non-interest expense for the periods indicated.
Percentage
Year Ended December 31, Increase (Decrease)
--------------------------------- ----------------------
2000 1999 1998 2000/1999 1999/1998
-------- ------- ------- ---------- ---------
(In thousands)
Compensation $ 32,181 29,435 26,892 9.3% 9.5%
Employee benefits 9,016 8,410 7,602 7.2 10.6
-------- ------- ------- ------ -------
Total compensation and benefits 41,197 37,845 34,494 8.9 9.7
Occupancy expense 5,610 4,929 4,649 13.8 6.0
Furniture, fixture and equipment expense 2,514 2,345 1,996 7.2 17.5
Federal deposit insurance premiums 604 1,585 1,438 (61.9) 10.2
Advertising and promotion 3,569 3,149 2,281 13.3 38.1
Data processing 3,034 2,611 2,267 16.2 15.2
Professional fees 1,583 1,657 1,166 (4.5) 42.1
Stationery, brochures and supplies 1,340 1,236 1,153 8.4 7.2
Postage 1,281 1,423 1,148 (10.0) 24.0
Telephone 1,200 1,158 775 3.6 49.4
ATM network fees 562 518 546 8.5 (5.1)
OTS assessment fees 661 577 512 14.6 12.7
Correspondent banking services 608 500 432 21.6 15.7
Insurance costs 492 485 432 1.4 12.3
Other 4,273 3,778 3,243 13.1 16.5
Amortization of goodwill 3,118 2,648 1,336 17.7 98.2
Amortization of core deposit intangible 1,357 1,236 1,075 9.8 15.0
-------- ------- ------- ------ -------
$ 73,003 67,680 58,943 7.9% 14.8%
======== ======= ======= ====== =======
Compensation expense. Compensation expense was $32.2 million for the year
ended December 31, 2000, compared to $29.4 million for the year ended December
31, 1999, primarily attributable to increased personnel at two acquired branch
operations as well as normal year end salary increases. Compensation expense in
1999 increased 9.5% from 1998 due primarily to increased personnel from the
Westco acquisition.
Employee benefits expense. Employee benefits expense increased $606,000 to
$9.0 million in 2000. The increase is primarily attributable to increased
medical expense of $385,000 as well as a $120,000 increase in the Bank's
contribution to its ESOP and profit sharing plans. Employee benefits expense
increased $808,000 in 1999 from 1998 due to a $650,000 increase in employer FICA
taxes resulting from increased compensation expense and taxes due to stock
option exercises, $320,000 due to increased contributions to the Bank's ESOP and
profit sharing plans, as well as increased medical insurance costs.
Occupancy and equipment expense. Occupancy expenses increased $681,000, or
13.8%, during 2000 due to increased operating costs related to current year
branch purchases, as well as higher real estate taxes throughout the Bank's
branch network. Occupancy expenses increased $280,000 between 1999 and 1998
primarily due to the Westco acquisition. Furniture and equipment costs increased
$169,000 in 2000 due to the addition of new branches and remodeled branch
locations. During 1999, furniture and equipment costs increased $349,000
primarily due to increased depreciation from interior renovation work done at
various branch locations.
20
FDIC insurance expense. FDIC insurance decreased $981,000 to $604,000 in
2000 primarily due to a 67% decrease in its insurance assessment rate effective
January 1, 2000. The increase of $147,000 in 1999 resulted from an increase in
deposits from the Westco acquisition. The Bank has paid the lowest rate allowed
by regulation for savings institutions over the past three years and expects to
continue to qualify for the most favorable rate. On January 1, 2000, the lowest
rate allowed by regulation decreased to approximately .021% per $100 of deposits
from approximately .064% per $100 of deposits.
Advertising and promotion expense. Advertising and promotion expenses
increased $420,000 to $3.6 million in 2000. The primary reason for the increase
is higher newspaper and billboard advertising expenses related to the Bank's
efforts in promoting its brand recognition strategy. This advertising initiative
began in May 1999 and is also the primary reason for an $868,000 increase in
advertising and promotion expense in 1999.
Data processing expense. Data processing expenses increased $423,000 to
$3.0 million in 2000 primarily due to costs related to new and upgraded
equipment. Data processing expenses were $2.6 million in 1999, or 15.2% more
than in 1998, due to costs associated with implementation of the Bank's Year
2000 plan, as well as upgrading the Company's communication network.
Other non-interest expenses. Other non-interest expense includes costs
related to the day-to-day operations of the Company. Correspondent banking
service charges increased 21.6% to $608,000 in 2000 due to price increases and
higher volumes related to currency and coin services. During 2000, the Company
incurred increased costs for security and its internet banking program.
Professional fees decreased 4.5% from 1999 to 2000 primarily due to legal and
accounting expenses related to the formation of a mortgage real estate
investment trust in connection with a new tax planning initiative in 1999.
Amortization of core deposit intangible. Amortization of core deposit
intangibles increased $121,000 to $1.4 million in 2000 primarily due to the
branch purchases offset by lower amortization from the Northwestern and Westco
acquisitions. Amortization of core deposit intangibles totaled $1.2 million in
1999, compared to $1.1 million for the year ended December 31, 1998. The Bank is
amortizing its core deposit intangible on an accelerated method over 10 years.
Amortization of goodwill. Amortization of goodwill increased $470,000 to
$3.1 million in 2000, primarily due to branch purchases. Amortization of
goodwill in 1999 increased $1.3 million from 1998 primarily due to the
acquisition of Westco. The Bank amortizes goodwill over a period not to exceed
25 years using the straight-line method.
Income taxes
Income tax expense from continuing operations was $32.3 million in 2000,
(effective income tax rate of 36.4%) compared to $31.2 million (effective income
tax rate of 37.7%) in 1999. The lower effective income tax rate in the current
year compared to a year ago was primarily the result of proactive tax planning
involving the transfer of Bank portfolio assets to an operating subsidiary in
the second half of 1999. The effect of having this structure in place for all of
2000 compared to only one-half of 1999 resulted in the lower effective income
tax rate in the current period. Income tax expense from continuing operations
was $23.8 million in 1998, equal to an effective income tax rate of 38.1%.
Extraordinary Item
During the year ended December 31, 1998, the Company incurred an
extraordinary charge of $456,000, or $.02 per diluted share, net of income tax
benefits of $294,000, related to the early call of its $27.6 million, 8.32%
subordinated capital notes due September 2005. The call provision in the
indenture allowed for early redemption at par plus accrued interest.
21
Review of Financial Condition
Total assets increased $537.5 million, or 11.5%, to $5.2 billion at
December 31, 2000, compared to $4.66 billion at December 31, 1999, due primarily
to an increase in loans receivable funded with borrowed funds and to a lesser
extent an increase in deposit balances. Management expects more moderate balance
sheet growth in 2001 compared to 2000, primarily due to recent declines in
long-term interest rates. Management currently expects lower long-term interest
rates to lead to an increase in refinance activity, coupled by a shift in
consumers' preference to fixed rate mortgages which the Bank generally sells in
the secondary market.
Cash, interest-bearing deposits and federal funds sold increased a combined
$112.5 million to $271 million at December 31, 2000. The increase is due to
deposit inflows experienced at the end of the current year. The excess cash is
expected to be redeployed into investment securities, adjustable-rate mortgages,
or to repay maturing borrowings.
Investment securities classified as held to maturity increased $634,000 to
$12.6 million as of December 31, 2000. As of January 1, 2001, upon the adoption
of and as permitted under Statement of Financial Accounting Standards ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging Activities," the
Bank transferred all of the held to maturity portfolio to available for sale.
The $9.8 million increased investment in FHLB of Chicago stock was required due
to the growth in the Bank's FHLB of Chicago advance portfolio, as well as
current year dividends on FHLB stock being paid in stock.
Investment securities available for sale decreased $19.6 million to $174.5
million at December 31, 2000. The Company purchased a total of $22.0 million of
investment securities, which consisted primarily of asset-backed securities,
U.S. Agency securities, corporate debt securities and equity securities, offset
by maturities of securities totaling $47.5 million. The Company also sold $2.2
million of equity securities, for gains of $256,000. At December 31, 2000, this
portfolio had net unrealized gains of $2.2 million, compared to net unrealized
losses of $5.5 million at December 31, 1999, reflecting the positive impact of
lower interest rates.
Mortgage-backed securities classified as held to maturity decreased $14.0
million to $80.3 million as of December 31, 2000. The decrease is primarily due
to amortization and prepayments of $18.7 million offset by purchases of $4.8
million. Subsequent to December 31, 2000, the Bank transferred all of its held
to maturity portfolio to available for sale as allowed under SFAS No. 133.
Mortgage-backed securities classified as available for sale decreased $15.6
million to $24.1 million at December 31, 2000. The decrease is primarily due to
amortization and prepayments of $6.3 million and the sale of a $9.3 million CMO
security at a loss of $700,000. At December 31, 2000, net unrealized gains in
the available for sale portfolio were $169,000, compared to an unrealized loss
of $550,000 at December 31, 1999.
Included in total mortgage-backed securities at December 31, 2000 are $51.4
million of CMO's with a weighted average life of 5.4 years that are primarily
collateralized by the Federal National Mortgage Association ("FNMA"), the
Federal Home Loan Mortgage Corporation ("FHLMC") and the Government National
Mortgage Association ("GNMA") mortgage-backed securities, and to a lesser extent
by whole loans.
Investment securities and mortgage-backed securities acquired and
classified as available-for-sale represent a secondary source of liquidity to
the Bank and the Company. The market value of these securities fluctuates with
interest rate movements. Net interest income in future periods may be adversely
impacted to the extent interest rates increase and these securities are not sold
with the proceeds reinvested at the higher market rates. The decision whether to
sell the available for sale securities or not, is based on a number of factors,
including but not limited to projected funding needs,
22
reinvestment alternatives and the relative cost of alternative liquidity
sources. Investments and mortgage-backed securities classified as held to
maturity cannot be sold except under extraordinary and very restrictive
circumstances. Generally, these investments are acquired for investment after
taking into account the Bank's cash flow needs, the investment's projected cash
flows, the Bank's overall interest rate and maturity structure of the liability
base used to fund these investment's and the net interest spread obtained.
Loans receivable increased 11.4%, or $443.5 million to $4.33 billion at
December 31, 2000. The Bank originated $1.5 billion of mortgage loans during the
current year, including $924.6 million of adjustable-rate loans that are
typically held in portfolio. This volume was offset by amortization and
prepayments of $704.4 million, and sales of $335.7 million. The loans sold
represent primarily long-term conforming fixed-rate mortgages, and certain
hybrid ARM loans, which are sold as a means of limiting interest-rate risk.
Loans held for sale increased to $41.1 million at December 31, 2000 compared to
$12.6 million at December 31, 1999 due to lower interest rates increasing the
production of long-term fixed-rate mortgage loans near the end of the year.
The allowance for loan losses increased $982,000 to $18.3 million as of
December 31, 2000. The increase is due to a provision for loan losses of $1.5
million, offset by net charge-offs of $518,000. As of December 31, 2000, the
Bank's ratio of the allowance for loan losses to total non-performing loans was
109.3%, compared to 110.4% as of December 31, 1999. The ratio of the allowance
for loan losses to total loans decreased to .42% at December 31, 2000, compared
to .44% at December 31, 1999. Management believes that the current allowance for
loan losses is adequate.
Real estate held for development or sale decreased $3.2 million to $12.7
million at December 31, 2000. A summary of real estate held for development or
sale is as follows:
December 31,
--------------------------
2000 1999
-------- --------
(In thousands)
Tallgrass of Naperville $ 8,041 11,720
Plainfield project 4,387 -
Woodbridge 290 400
Reigate Woods - 2,112
Creekside of Remington - 1,657
-------- --------
$ 12,718 15,889
======== ========
The decrease in the 951-lot Tallgrass of Naperville project is primarily
due to strong lot sales in the project during the current year. The Company sold
306 lots during 2000 and has an additional 103 lots under contract at December
31, 2000. Land for a new planned development of approximately 365 lots in
Plainfield, Illinois was acquired in 2000 with development expected to begin in
late 2001. The Company entered into a contract for the purchase of an additional
123 acres of land for another residential project of approximately 183 lots in
Sugar Grove, Illinois, with lots sales expected to begin in late 2002.
The increase in the Woodbridge project is due to the improvements made in
the remaining two commercial parcels in this project. The remaining three acres
are currently expected to be sold during 2001 at approximately $500,000 of
pre-tax profit. The Reigate Woods subdivision decreased due to the sale of the
remaining 10 homesites in 2000. The Harmony Grove project was sold out in 1999.
The final 75 lots of Creekside of Remington were sold in bulk in 2000.
Premises and equipment increased $6.4 million to $48.9 million at December
31, 2000. The increase is primarily due to purchases of $8.4 million and $2.5
million related to two branch purchases, offset by depreciation and amortization
of $4.4 million. The Company's purchases in 2000 related to data processing
equipment as well as branch facility upgrades and expansion, and branch
purchases.
23
Foreclosed real estate decreased to $1.8 million at December 31, 2000,
compared to $7.4 million at December 31, 1999. The decrease is primarily due to
the sale of a $6.1 million commercial office complex in June 2000. As part of
the sale, the buyer assumed a $6.0 million industrial revenue bond previously
assumed by the Bank as part of other borrowings. The Bank continues to maintain
a $6.5 million standby letter of credit against this borrowing.
Other assets increased $10.8 million to $60.5 million at December 31, 2000.
The increase is primarily attributable to a $3.1 million increase in the cash
surrender value of life insurance policies maintained in conjunction with the
Company's Bank owned life insurance program ("BOLI"), and deferred compensation
plans. The Bank has $35.4 million in cash surrender value of life insurance at
December 31, 2000.
Intangible assets increased by $7.7 million, to $68.9 million at December
31, 2000. The increase is primarily due to the addition of $12.1 million of
goodwill and core deposit intangibles from the Bank's branch acquisition offset
by amortization of intangibles totaling $4.4 million.
Deposits increased $275.0 million to $2.97 billion as of December 31, 2000.
The increase is primarily due to the branch acquisition that increased deposits
by $89.8 million, net savings inflows of $76.2 million and interest credited to
deposits of $109.7 million.
Borrowed funds increased $202.5 million, or 13.3%, to $1.7 billion at
December 31, 2000. The Bank funded its increase in loans receivable primarily
with FHLB of Chicago advances, which increased $215.0 million during the current
year. As of December 31, 2000, the Bank had $1.7 billion of FHLB of Chicago
advances at a weighted average rate and term to maturity of 6.21% and 3.4 years,
respectively, compared to $1.5 billion at a weighted average rate and term to
maturity of 6.01% and 4.2 years, respectively, as of December 31, 1999. Of the
FHLB advances at December 31, 2000, $500.0 million of advances, with a weighted
average term to maturity of 6.7 years, contain various call provisions, with a
weighted average term to call of 2.2 years. The calls are most likely exercised
by the issuer in a period of rising interest rates. The average rate on these
borrowings is 5.61% at December 31, 2000. Reverse repurchase agreements
decreased by $10.0 million due to $39.2 million in maturities offset by new
fundings of $29.2 million.
Stockholders' equity of the Company grew to $387.7 million at December 31,
2000, compared to $352.9 million at December 31, 1999, an increase of $34.8
million. The increase in stockholders' equity is primarily due to comprehensive
income of $61.7 million, offset by the payment of cash dividends of $9.1 million
and the repurchase of $21.3 million of common stock.
24
Lending Activities
General. The Bank's lending activities reflect its focus as a retail
banking institution serving its local market area by concentrating on
residential mortgage lending. The Bank is one of the largest originators of
residential mortgages in its market area. The Bank has traditionally held the
origination of adjustable-rate or shorter-term loans for its portfolio and sold
a portion of its long-term fixed-rate loans directly into the secondary market.
The Bank originates and purchases long-term fixed-rate mortgage loans in
response to customer demand; however, the Bank sells selected conforming
long-term fixed-rate mortgage loans and a limited amount of ARM loans in the
secondary market, primarily to the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). The volume of
current loan originations sold into the secondary market varies over time based
on the Bank's available cash or borrowing capacity, as well as in response to
the Bank's asset/liability management strategy.
During the year ended December 31, 2000, the Bank originated and purchased
$470.1 million in fixed-rate one- to four-family residential mortgage loans, of
which $360.1 million, or 76.6%, conformed to the requirements for sale to FNMA
and FHLMC and $110.0 million, or 23.4%, did not conform to the requirements of
these agencies. During the year ended December 31, 2000, the Bank sold $335.7
million of these loans in the secondary market. The Bank's "nonconforming" loans
are generally designated as such because the principal loan balance exceeds
$252,700 ($275,000 as of January 1, 2001), which is the FHLMC and FNMA purchase
limit, and not because the loans present increased risk of default to the Bank.
Generally, nonconforming loans are held in the Bank's loan portfolio. Loans with
such excess balances generally carry interest rates from one-eighth to
three-eighths of one percent higher than similar, conforming fixed-rate loans.
25
Loan Portfolio Composition. The following table sets forth the
composition of the Bank's loan and mortgage-backed securities portfolio
in dollar amounts and in percentages at the dates indicated:
December 31,
----------------------------------------------------------------------------
2000 1999 1998
--------------------- -------------------- -----------------------
Percent Percent Percent
of of of
Amount Total Amount Total Amount Total
----------------------------------------------------------------------------
(Dollars in thousands)
Real estate loans:
One- to four-family:
Held for investment $3,807,980 87.50% $3,479,425 89.05% $2,877,482 86.07%
Held for sale 41,074 .94 12,601 .32 89,406 2.67
Multi-family 173,072 3.98 164,878 4.22 137,254 4.11
Commercial 41,223 .95 38,817 .99 43,069 1.29
Construction 29,566 .67 27,707 .71 28,429 0.85
Land 40,497 .93 28,602 .73 24,765 0.74
---------- ------- ---------- ------ ---------- ------
Total real estate loans 4,133,412 94.97 3,752,030 96.02 3,200,405 95.73
---------- ------- ---------- ------ ---------- ------
Other loans:
Consumer loans:
Equity lines of credit 146,020 3.36 99,099 2.54 91,915 2.75
Home equity loans 64,465 1.48 48,397 1.24 42,398 1.27
Other 4,783 .11 4,757 .12 6,015 0.18
---------- ------- ---------- ------ ---------- ------
Total consumer loans 215,268 4.95 152,253 3.90 140,328 4.20
Commercial business loans 3,528 .08 3,132 .08 2,356 0.07
---------- ------- ---------- ------ ---------- ------
Total other loans 218,796 5.03 155,385 3.98 142,684 4.27
---------- ------- ---------- ------ ---------- ------
Total loans receivable 4,352,208 100.00% 3,907,415 100.00% 3,343,089 100.00%
======= ====== ======
Less:
Loans in process 12,912 11,893 10,698
Unearned discounts, premiums
and deferred loan fees, net (7,076) (6,323) (3,455)
Allowance for loan losses 18,258 17,276 16,770
---------- ---------- ----------
Loans receivable, net $4,328,114 $3,884,569 $3,319,076
========== ========== ==========
Mortgage-backed securities:
GNMA held to maturity $ 744 1,115 1,782
FHLMC held to maturity 31,523 37,804 53,750
FHLMC available for sale 2,229 2,716 3,976
FNMA held to maturity 15,479 13,385 17,421
FNMA available for sale 2,891 3,711 6,133
CMOs held to maturity 32,555 41,947 55,585
CMOs available for sale 18,964 33,276 44,956
---------- ---------- ----------
Total mortgage-backed securities $ 104,385 $ 133,954 $ 183,603
========== ========== ==========
----------------------------------------------
1997 1996
---------------------- ---------------------
Percent Percent
of of
Amount Total Amount Total
----------- ------- ----------- -------
Real estate loans:
One-to four-family:
Held for investment $2,408,393 88.27% $2,160,525 87.93%
Held for sale 6,537 0.24 6,495 0.26
Multi-family 105,051 3.85 92,968 3.78
Commercial 35,839 1.31 46,313 1.89
Construction 17,263 0.63 17,263 0.70
Land 24,425 0.90 25,685 1.05
---------- ------- ---------- ------
Total real estate loans 2,597,508 95.20 2,349,249 95.61
---------- ------- ---------- ------
Other loans:
Consumer loans:
Equity lines of credit 88,106 3.23 86,614 3.53
Home equity loans 34,447 1.26 14,251 0.58
Other 5,793 .21 5,009 0.20
---------- ------- ---------- ------
Total consumer loans 128,346 4.70 105,874 4.31
Commercial business loans 2,659 0.10 1,871 0.08
---------- ------- ---------- ------
Total other loans 131,005 4.80 107,745 4.39
---------- ------- ---------- ------
Total loans receivable 2,728,513 100.00% 2,456,994 100.00%
======= ======
Less:
Loans in process 6,683 7,620
Unearned discounts, premiums
and deferred loan fees, net (772) 1,347
Allowance for loan losses 15,475 17,914
---------- ----------
Loans receivable, net $2,707,127 $2,430,113
========== ==========
Mortgage-backed securities:
GNMA held to maturity 2,442 3,248
FHLMC held to maturity 108,037 138,963
FHLMC available for sale 5,706 7,425
FNMA held to maturity 22,796 29,343
FNMA available for sale 9,610 12,029
CMOs held to maturity 82,174 95,104
CMOs available for sale 52,243 73,475
---------- ----------
Total mortgage-backed securities $ 283,008 $ 359,587
========== ==========
26
The following table shows the composition of the Bank's fixed- and
adjustable-rate loan portfolio as well as the Bank's mortgage-backed securities
portfolio as of the dates indicated.
December 31,
-------------------------------------------------------------------------
2000 1999 1998
---------------------- --------------------- ----------------------
Amount Percent Amount Percent Amount Percent
----------- ------- ----------- ------- ----------- -------
(Dollars in thousands)
Adjustable-rate loans:
Real estate:
One-to four-family $ 1,950,183 44.81% $ 1,614,377 41.33% $ 1,261,915 37.74%
Multi-family 111,660 2.57 102,112 2.61 77,270 2.32
Commercial 22,175 .51 19,889 .51 19,384 .58
Construction 15,456 .35 27,399 .70 28,121 .84
Land 24,997 .57 19,220 .48 17,319 .52
----------- ------ ----------- ------ ----------- ------
Total adjustable-rate real estate loans 2,124,471 48.81 1,782,997 45.63 1,404,009 42.00
Consumer 148,005 3.40 100,936 2.59 96,867 2.90
Commercial business 3,434 .08 2,303 .05 1,009 .03
----------- ------ ----------- ------ ----------- ------
Total adjustable-rate loans receivable 2,275,910 52.29 1,886,236 48.27 1,501,885 44.93
----------- ------ ----------- ------ ----------- ------
Fixed-rate loans:
Real estate:
One- to four-family