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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, 1997
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 60514-1596
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 NASDAQ
(Title of Class) (Name of each exchange
on which registered)
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 3,
1998, the aggregate market value of the voting stock held by non-affiliates of
the registrant was $472,137,346.*
The number of shares of Common Stock outstanding as of March 3, 1998: 15,012,836
- --------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
PART III - Portions of the Proxy Statement for the Annual Meeting of
Shareholders to be held on April 29, 1998 are incorporated by reference into
Part III hereof.
- ---------------------------
* Solely for purposes of this calculation, all executive officers and directors
of the registrant are considered to be affiliates. Also included are shares held
by various employee benefit plans where trustees are (i) directors or executive
officers of the registrant or (ii) required to vote a portion of unallocated
shares at the direction of employees.
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PART I
ITEM 1. BUSINESS
GENERAL
MAF Bancorp, Inc. ("Company"), is a registered savings and loan holding
company incorporated under the laws of the state of Delaware and is primarily
engaged in the consumer banking business through its wholly-owned subsidiary,
Mid America Bank, fsb ("Bank") and secondarily, in the residential real estate
development business through MAF Developments, Inc. ("MAF Developments").
On May 30, 1996, the Company acquired N.S. Bancorp, Inc. ("NSBI"), which was
the sole shareholder of Northwestern Savings Bank ("Northwestern"). At
acquisition, Northwestern had $749.7 million in loans receivable, which were
primarily one-to four-family residential mortgage loans, and $872.0 million in
deposits, which were serviced from six branch locations. All but one of the
branches are in markets which the Bank did not service in the past. See Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a more detailed review of the acquisition.
The Bank is a consumer-oriented financial institution offering various
financial services to its customers through 22 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, Mid America Development Services, Inc. ("Mid
America Developments"), and NW Financial, Inc. ("NW Financial"), the Company and
the Bank are also engaged in primarily residential real estate development
activities. Additionally, the Bank operates an insurance agency, Mid America
Insurance Agency, Inc., which provides general insurance services, and an
investment 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.
The Company's executive offices are located at 55th Street and Holmes Avenue,
Clarendon Hills, Illinois 60514-1596. The telephone number is (630) 325-7300.
MARKET DATA
Based on total assets at December 31, 1997, the Bank is one of the largest
financial institutions headquartered in the Chicago metropolitan area, with its
home office located in Clarendon Hills, Illinois in the southeastern portion of
DuPage County. Through its network of 22 retail banking offices, the Bank
serves the residential, commercial and high technology sector west of Chicago,
including western Cook County, northern Will County, eastern Kane County and
DuPage County, as well as the northwest side of the City of Chicago.
2
COMPETITION
The Bank is faced with increasing competition in attracting retail customer
business, including deposit accounts and loan originations. Competition for
deposit accounts comes primarily from other savings institutions, commercial
banks, money market mutual funds, and insurance companies (primarily in the form
of annuity products). Factors affecting the attraction of customers include
interest rates offered, convenience of branch locations, ease of business
transactions, and office hours. Competition for loan products comes primarily
from other mortgage brokers, savings institutions, commercial banks and mortgage
banking companies. Factors affecting business include interest rates, terms,
fees, and customer service.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains 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 Reform Act of 1995, and
is including this statement for purposes of 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," or similar expressions. The Company's ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse affect on the operations
and future prospects of the Company and the subsidiaries include, but are not
limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
the Company's market area and accounting principals, 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. Further
information concerning the Company and its business, including additional
factors that could materially affect the Company's financial results, is
included in the Company's filings with the Securities and Exchange Commission.
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 - Thrift
Rechartering Legislation" for more information.
3
EXECUTIVE OFFICERS OF THE REGISTRANT
The following executive officers were employed by the Company and the Bank as
of January 1, 1998.
NAME AGE POSITION(S) HELD
---- --- ----------------
Allen H. Koranda 51 Chairman of the Board and Chief Executive
Officer of the Company and the Bank
Kenneth Koranda 48 President and Director of the Company
and the Bank
Jerry A. Weberling 46 Executive Vice President and Chief Financial
Officer of the Company and the Bank
Gerard J. Buccino 36 Senior Vice President and Controller of the
Company and the Bank
William Haider 46 Senior Vice President of the Company and
the Bank; President of Mid America
Developments, NW Financial and MAF Developments
Michael J. Janssen 38 Senior Vice President of the Company and
the Bank
David W. Kohlsaat 43 Senior Vice President of the Company and
the Bank
Thomas Miers 46 Senior Vice President of the Company and
the Bank
Kenneth Rusdal 56 Senior Vice President of the Company and
the Bank
Sharon Wheeler 45 Senior Vice President of the Company and
the Bank
Gail Brzostek 49 First Vice President of the Bank
Alan W. Schatz 39 First Vice President of the Bank
Diane Stutte 49 First Vice President of the Bank
Carolyn Pihera 55 Vice President and Corporate Secretary of the
Company and the Bank
4
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
Developments, a wholly-owned subsidiary of the Bank. 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 Developments. 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.
Jerry A. Weberling has been Executive Vice President and Chief Financial
Officer of the Company and the Bank since July 1993. Prior to that, he was
Senior Vice President of the Company since August, 1989, and Senior Vice
President and Chief Financial Officer of the Bank from March 1990 to July 1993.
He was Senior Vice President and Controller from 1986 to March 1990. He joined
the Bank in 1984. He is a certified public accountant. Mr. Weberling holds a
Bachelor of Science degree from Northern Illinois University.
Gerard J. Buccino has been Senior Vice President and Controller of the Company
and the Bank since July 1996. Prior to that he was First Vice President and
Controller of the Company and the Bank from July 1993 to July 1996 and Vice
President and Controller of the Company and the Bank from March 1990 to July
1993. He is a certified public accountant. Mr. Buccino holds a Bachelor of
Science degree from Marquette University and a Master of Business Administration
degree from the University of Chicago Graduate School of Business.
William Haider has been Senior Vice President of the Company and the Bank
since July 1996. Prior to that he was Vice President of the Company since April
1993 and of the Bank since 1987. He is President of Mid America Developments,
MAF Developments, and NW Financial, managing the real estate development
activities of the Company. Mr. Haider holds a Bachelor of Science degree from
Southern Illinois University. He joined the Bank in 1984.
Michael J. Janssen has been Senior Vice President - Investor Relations and
Taxation of the Company and the Bank since July 1996. Prior to that he was
First Vice President - Investor Relations and Taxation of the Company and the
Bank from July 1993 to July 1996, and Vice President of the Company from March
1990 to July 1993. He is a certified public accountant. Mr. Janssen holds a
Bachelor of Business Administration degree from the University of Notre Dame,
and a Master of Science of Taxation degree from DePaul University.
David W. Kohlsaat has been Senior Vice President - Administration since July
1996. Prior to that he was First Vice President - Administration of the Company
from July 1993 to July 1996, and is responsible for retail deposit
administration and Human Resources. He has been Vice President of the Company
since April 1993 and of the Bank since 1980. Mr. Kohlsaat holds a Bachelor of
Science degree from Southern Methodist University. He joined the Bank in 1976.
5
Thomas Miers has been Senior Vice President of the Company since April 1993
and Senior Vice President-Retail Banking of the Bank since January 1992. Prior
to that he was Senior Vice President - Marketing. Mr. Miers holds a Bachelor of
Science degree from George Williams College. He joined the Bank in 1979.
Kenneth Rusdal has been Senior Vice President of the Company since April 1993
and Senior Vice President-Operations and Information System since January 1992.
Prior to that he was Senior Vice President-Information Systems from 1987 through
1991. He also served as Vice President of Software Development for FISERV,
Inc., where he was employed from 1983 to 1987.
Sharon Wheeler has been Senior Vice President of the Company since April 1993
and has been Senior Vice President - Residential Lending of the Bank since July
1986. She joined the Bank in 1971.
Gail Brzostek has been First Vice President - Check Operations and VISA
services since July 1996. Prior to that she was Vice President - Check
Operations since 1985. She joined the Bank in 1967.
Alan W. Schatz has been First Vice President - Secondary Marketing of the Bank
since July 1996. Prior to that he was Vice President - Secondary Marketing of
the Bank from September 1992 to July 1996. Prior to that he served as the
Director of Trading and Risk Management at First Illinois Mortgage Corporation
where he was employed from 1987 until 1992. Mr. Schatz holds a Bachelor of
Science degree from the University of Illinois at Chicago and a Master of
Business Administration degree from Rosary College.
Diane Stutte has been First Vice President - Teller Operations since July
1996. Prior to that, she was Vice President - Teller Operations of the Bank
since 1985. She joined the Bank in 1970.
Carolyn Pihera has been Vice President since 1979 and Corporate Secretary to
the Board of Directors of the Company since August 1989, and of the Bank since
1980. She joined the Bank in 1959 and currently is also Office Manager of the
Clarendon Hills office.
Employees
The Bank employs a total of 855 full time equivalent employees as of December
31, 1997. Management considers its relationship with its employees to be
excellent.
ITEM 2. PROPERTIES
The Company neither owns nor leases any real property. For the time being, it
utilizes the property and equipment of the Bank without payment to the Bank.
The Bank conducts its business through 22 retail banking offices, including
its executive office location in Clarendon Hills, Illinois, and a 30,000 square
foot centralized loan processing and servicing operation located in Naperville,
Illinois, which it 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, 1997, the data processing
equipment owned has a net book value of $2.7 million.
6
The following table sets forth information regarding the Bank's executive
office and its 22 branches. At December 31, 1997, the net book value of the
Bank's premises and related equipment was $35.8 million.
NET BOOK VALUE
DATE LEASED DATE LEASE % OF TOTAL DECEMBER 31,
LOCATION OR ACQUIRED EXPIRES DEPOSITS 1997
-------- ----------- ---------- ---------- --------------
(Dollars in thousands)
EXECUTIVE AND HOME OFFICE
55th Street and Holmes Avenue
Clarendon Hills, Illinois 60514 1975/1986 owned 11.34% $ 4,826
BRANCHES
Chicago, Illinois
2300 North Western Avenue 1996 owned 5.48 683
3844 West Belmont Avenue 1996 owned 11.48 490
6333 North Milwaukee Avenue 1996 2001 5.16 40
5075 South Archer Avenue 1996 owned 7.98 760
Norridge, Illinois
4100 North Harlem Avenue 1996 1998 6.12 5
4350 North Harlem Avenue 1997 owned(1)
Cicero, Illinois
5900/5847 West Cermak Road 1939/1978 owned 13.00 1,115
4830 West Cermak Road 1970 owned 1.72 446
Berwyn, Illinois
6620 West Ogden Avenue 1996 owned 0.59 1,080
6650 West Cermak Avenue 1996 owned 3.51 507
Riverside, Illinois
40 East Burlington 1977 owned 4.33 908
LaGrange Park, Illinois
1921 East 31st Street 1981 owned 4.40 859
Broadview, Illinois
800 Broadview Village Square 1997 2011 .01 181
Western Springs, Illinois
40 West 47th Street 1978 owned 3.54 802
Downers Grove
7351 S. Lemont Road 1997 owned(2) .22 896
Naperville, Illinois
1001 South Washington 1974 owned 7.46 2,065
9 East Ogden Avenue 1982 owned 1.81 930
1308 S. Naperville Blvd. 1987 owned 2.71 1,452
3135 Book Road 1997 owned 0.97 1,978
Wheaton, Illinois
250 East Roosevelt Road 1977 owned 3.75 910
161 Danada Square East 1988 2009 1.60 294
St. Charles, Illinois
2600 East Main Street 1979 owned 2.82 2,073
Other fixed assets - 12,520
------- -------
Total 100.00% $35,820
======= =======
- ------------------------------------------
(1) Land lease expires in 2006, new branch currently under construction.
(2) Land lease expires in 2007.
7
ITEM 3. LEGAL PROCEEDINGS
There are no outstanding legal proceedings against the Company. There are
various actions pending against the Bank but, in the opinion of management, the
probable liability resulting from these suits is unlikely, individually or in
the aggregate, to have a material effect on the Bank's or the Company's
financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS
MATTERS
The Company's common stock is traded over-the-counter and quoted on the
NASDAQ/National Market System under the symbol "MAFB". As of March 3, 1998, the
Company had 1,772 stockholders of record. The table below shows the reported
high and low sales prices of the common stock during the periods indicated.
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
HIGH LOW HIGH LOW
------- ------- ------- -------
First Quarter 27.83 22.25 17.00 16.33
Second Quarter 28.42 24.83 18.00 16.00
Third Quarter 34.75 27.92 17.67 14.83
Fourth Quarter 35.38 30.50 23.50 17.33
Such over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
The Company declared $0.27 per share in dividends during the year ended
December 31, 1997, and $0.12 per share in dividends for the six months ended
December 31, 1996. 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 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."
All amounts in this Form 10-K have been adjusted for the 3-for-2 stock split
announced by the Company on April 30, 1997, which was paid on July 9, 1997 to
shareholders of record on June 17, 1997.
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, JUNE 30,
------------------------- --------------------------------------
1997 1996 1996 1995 1994
------ ------- --------- -------- -------
(Dollars in thousands, except per share data)
SELECTED FINANCIAL DATA:
Total assets $ 3,457,664 3,230,341 3,117,149 1,783,076 1,586,334
Loans receivable, net 2,707,127 2,430,113 2,293,399 1,267,453 1,010,992
Mortgage-backed securities 283,008 359,587 418,102 307,390 347,902
Interest-bearing deposits 57,197 55,285 37,496 10,465 29,922
Federal funds sold 50,000 24,700 5,700 9,360 17,450
Investment securities 177,803 171,818 171,251 90,319 97,260
Real estate held for
development or sale 31,197 28,112 26,620 11,454 6,404
Deposits 2,337,013 2,262,226 2,254,100 1,313,306 1,292,531
Borrowed funds 770,013 632,897 537,696 307,024 149,856
Subordinated capital note, net 26,779 26,709 26,676 20,100 20,027
Stockholders' equity 263,411 250,625 242,226 105,419 95,150
Book value per share 17.55 15.93 15.62 12.80 11.18
Tangible book value per share 15.46 13.74 13.32 12.80 11.18
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------------------------------
1997 1996 1996 1995 1994
---------- --------- ---------- ----------- ------------
(Dollars in thousands, except per share amounts)
SELECTED OPERATING DATA:
Interest income $ 238,915 112,827 143,095 114,963 103,778
Interest expense 145,216 68,631 93,221 73,367 69,694
---------- --------- --------- --------- ---------
Net interest income 93,699 44,196 49,874 41,596 34,084
Provision for loan losses 1,150 700 700 475 1,200
---------- --------- --------- --------- ---------
Net interest income after provision
for loan losses 92,549 43,496 49,174 41,121 32,884
Non-interest income:
Gain (loss) on sale of loans receivable
and mortgage-backed securities 432 (32) 198 (56) 3,135
Income from real estate operations 6,876 4,133 4,786 7,497 7,719
Gain (loss) on sale and writedown of:
Investment securities 404 251 188 (231) 200
Foreclosed real estate 17 161 50 181 145
Deposit account service charges 7,217 3,219 4,894 3,347 2,414
Loan servicing fee income 2,278 1,249 2,394 2,373 2,456
Other 5,493 2,978 4,590 3,539 3,579
---------- --------- --------- --------- ---------
Total non-interest income 22,717 11,959 17,100 16,650 19,648
Non-interest expense:
Compensation and benefits 30,472 14,503 21,209 18,257 16,954
Office occupancy and equipment 6,203 2,652 3,774 3,522 3,569
Federal deposit insurance premiums 1,468 2,338 3,255 3,003 2,996
Special SAIF assessment - 14,216 - - -
Other 16,468 7,369 9,548 8,630 7,797
---------- --------- --------- --------- ---------
Total non-interest expense 54,611 41,078 37,786 33,412 31,316
---------- --------- --------- --------- ---------
Income before income taxes
and other items 60,655 14,377 28,488 24,359 21,216
Income taxes 22,707 5,602 10,805 9,316 7,766
---------- --------- --------- --------- ---------
Income before other items 37,948 8,775 17,683 15,043 13,450
Extraordinary item (1) - - (474) - -
---------- --------- --------- --------- ---------
Net income $ 37,948 8,775 17,209 15,043 13,450
========== ========= ========= ========= =========
Basic earnings per share $ 2.46 .56 1.97 1.80 1.55
========== ========= ========= ========= =========
Diluted earnings per share $ 2.38 .54 1.84 1.70 1.48
========== ========= ========= ========= =========
9
Year Ended Six Months Ended Year Ended June 30,
December 31, December 31, --------------------------------------------
1997 1996(2) 1996 1995 1994
------- ---------- --------- --------- ---------
(Dollars in thousands, except per share data)
SELECTED FINANCIAL RATIOS AND
OTHER DATA:
Return on average assets 1.14% 1.11% (3) .85% .90% .85%
Return on average equity 14.69 14.18 (3) 14.21 15.22 14.80
Average stockholders' equity
to average assets 7.79 7.80 6.00 5.91 5.75
Stockholders' equity to
total assets 7.62 7.76 7.77 5.91 6.00
Tangible and core capital to
total assets (Bank only) 6.88 6.96 7.02 5.64 5.90
Risk-based capital ratio
(Bank only) 14.34 15.05 15.36 12.07 13.24
Interest rate spread during
period 2.62 2.64 2.24 2.29 1.99
Net yield on average interest-
earning assets 2.98 2.96 2.62 2.62 2.29
Average interest-earning
assets to average
interest-bearing liabilities 107.99 107.98 107.83 107.22 106.48
Non-interest expense to
average assets 1.65 1.70 (3) 1.87 2.00 1.98
Non-interest expense to
average assets and
average loans serviced
for others 1.26 1.27 (3) 1.27 1.31 1.31
Efficiency ratio 47.07 47.79 (3) 56.58 57.14 58.50
Ratio of earnings to fixed
charges:
Including interest on deposits 1.41x 1.41x (3) 1.30x 1.32x 1.30x
Excluding interest on deposits 2.26x 2.35x (3) 1.93x 2.34x 2.24x
Non-performing loans to
total loans .39 .55 .56 .57 .83
Non-performing assets to
total assets .32 .46 .44 .42 .75
Cumulative one-year gap (.80) 7.50 5.22 4.89 1.84
Number of deposit accounts 275,055 259,041 255,960 164,592 148,519
Mortgage loans serviced for
others $ 997,204 1,045,740 1,040,260 887,887 823,924
Loan originations 1,091,824 469,452 989,753 585,882 813,689
Full-service customer
service facilities 22 20 20 13 13
STOCK PRICE AND DIVIDEND
INFORMATION:
High $ 35.38 23.50 18.00 14.47 14.85
Low 22.25 14.83 13.79 10.91 10.71
Close 35.38 23.17 16.33 14.24 13.94
Cash dividends per share .27 .12 .213 .194 -
Dividend payout ratio 11.34% 22.22% 11.59% 11.46% -
- ---------------------------------
(1) The extraordinary item in the year ended June 30, 1996 represents a $474,000
extraordinary charge for the early extinguishment of debt.
(2) Ratios for the six months ended December 31, 1996 are annualized.
(3) 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
As of December 31, 1996, the Company changed its fiscal year to coincide with
the calendar year, compared to the June 30 fiscal year it followed in the past.
Management's discussion and analysis of financial condition and results of
operations will discuss the year ended December 31, 1997, the six month
transition period ended December 31, 1996, and the fiscal years ended June 30,
1996 and 1995.
OVERVIEW
Net income for the Company was $37.9 million, or $2.38 per diluted share,
compared to $8.8 million, or $.54 per diluted share for the six months ended
December 31, 1996. The six month period included an after-tax charge of $8.7
million, or $.53 per share for the one-time special SAIF assessment, which was
assessed to all SAIF-insured savings institutions. Without this charge,
operating earnings were $17.4 million, or $1.07 per share. For the year ended
June 30, 1996, net income was $17.2 million, or $1.84 per diluted share,
compared to $15.0 million, or $1.70 per diluted share for the year ended June
30, 1995. The Company earned $1.89 per diluted share for the year ended June 30,
1996, before consideration of a $474,000 or $.05 per share extraordinary loss on
the early repayment of subordinated capital notes.
Highlights of results for the Company's performance in calendar 1997 are as
follows:
. Net interest income improved to $93.7 million, compared to $44.2 million for
the six months ended December 31, 1996, primarily due to a 5.2% increase in
average interest-earning assets. The Company's net interest margin remained
relatively steady at 2.98% for the year ended December 31, 1997, compared to
2.96% for the six months ended December 31, 1996, despite a flattening yield
curve.
. Fee income from deposit accounts increased to $7.2 million for the year
ended December 31, 1997, compared to $3.2 million for the six months ended
December 31, 1996, due to continued increases in the Bank's checking account
base, and increased fees from debit cards.
. Income from real estate operations remained strong at $6.9 million for the
year ended December 31, 1997, due to strong sales in the Harmony Grove
subdivision, as well as in the Woodbridge project, where the development had
its strongest year of sales ever at 133 homes.
. The Company maintained its non-interest expense to average assets ratio at
1.65% for the year ended December 31, 1997, compared to 1.70% for the six
months ended December 31, 1996, exclusive of the effect of the special SAIF
assessment, despite the opening of two new branches, increases in data
processing infrastructure and marketing initiatives during the current year.
ACQUISITION
On May 30, 1996, the Company completed its acquisition of NSBI, and its
wholly-owned subsidiary, Northwestern, for cash and stock totaling $269.7
million. The Company paid $41.18 per share of NSBI in the form of $20.1799 cash
and .8549 shares of the Company's common stock. The Company issued 7.8 million
shares in the acquisition. The cash portion of the purchase was made from
existing cash, as well as funds from NSBI due to their excess capital position
as of the acquisition date. Additionally, the Company obtained a $35.0 million
unsecured term bank loan with a local commercial bank. The transaction was
accounted for under the purchase method. As such, the Company valued the assets
and liabilities of NSBI at fair value, and created goodwill and core deposit
intangible assets aggregating $35.9 million as a result of the transaction.
11
NET INTEREST INCOME
Net interest income is the principal source of earnings for the Company, and
consists of interest income on loans receivable, 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 which fund such investments.
Net interest income before the provision for loan losses was $93.7 million,
$44.2 million and $49.9 million for the year ended December 31, 1997, six months
ended December 31, 1996 and year ended June 30, 1996, respectively. The net
interest margin (net interest income divided by average interest-earning assets)
for the same periods were 2.98%, 2.96%, and 2.62%, respectively. The increase in
the margin during the current year is primarily due to an increase in net
interest-earning assets, as overall interest rates remained relatively stable.
The large increase in the net interest margin for the six months ended December
31, 1996 is due to the NSBI acquisition which dramatically decreased the average
cost of deposits. The margin remained constant at 2.62% for the years ended June
30, 1996 and 1995. The stability in the net interest margin between the years
ended June 30, 1996 and 1995 was primarily due to a 28 basis point increase in
the yield on average interest-earning assets, offset by an increase in the
average cost of funds of 33 basis points. Although the net interest spread
declined by 5 basis points, this was offset by growth in the balance of
interest-earning assets over interest-bearing liabilities, due to the increased
capital level of the Bank.
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.
TWELVE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1997 VS. 1996 DECEMBER 31, 1996 VS. 1995 JUNE 30, 1996 VS. 1995
----------------------------- --------------------------- --------------------------
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 $44,863 43,891 972 38,466 39,293 (827) 28,955 27,454 1,501
Mortgage-backed securities (427) (1,614) 1,187 4,242 3,273 969 (1,456) (1,961) 505
Investment securities 1,870 1,194 676 2,374 2,178 196 1,129 859 270
Interest-bearing deposits 1,635 1,875 (240) 890 1,180 (290) (4) (593) 589
Federal funds sold 1,900 1,944 (44) 38 197 (159) (475) (771) 296
------- ------ ----- ------ ------ ------ ------ ------ -----
49,841 47,290 2,551 46,010 46,121 (111) 28,149 24,988 3,161
------- ------ ----- ------ ------ ------ ------ ------ -----
INTEREST-BEARING LIABILITIES:
Deposits 17,740 17,855 (115) 17,516 20,213 (2,697) 7,531 4,699 2,832
Borrowed funds 10,252 11,062 (810) 6,487 7,360 (873) 12,323 12,871 (548)
------- ------ ----- ------ ------ ------ ------ ------ -----
27,992 28,917 (925) 24,003 27,573 (3,570) 19,854 17,570 2,284
------- ------ ----- ------ ------ ------ ------ ------ -----
Net change $21,849 18,373 3,476 22,007 18,548 3,459 8,295 7,418 877
======= ====== ===== ====== ====== ====== ====== ====== =====
12
The average yield on interest-earning assets increased for the year ended
December 31, 1997 to 7.57% compared to 7.53% for the six months ended December
31, 1996. The average yield on loans receivable decreased 1 basis point,
however, the average balance increased 8.3% to $2.6 billion for the year ended
December 31, 1997. The average yield on investment securities increased 37 basis
points primarily due to accelerated amortization of purchase accounting
discounts on investment securities called prior to maturity.
The average cost of deposits increased 6 basis points to 4.44% for the year
ended December 31, 1997 compared to the six months ended December 31, 1996.
Average deposits increased $47.7 million, of which $37.9 million was
attributable to certificates of deposit which carry average rates in excess of
the overall cost of deposits. The average balance of borrowed funds increased
$97.4 million, with a 15 basis point decline in average cost of borrowings due
to generally lower interest rates during the current year. The increase in the
average balance of borrowed funds is primarily due to funding for the increase
in mortgage loans held for investment purposes.
The average yield on interest-earning assets increased 4 basis points for the
six months ended December 31, 1996 from the year ended June 30, 1996 with a $1.1
billion increase in net interest-earning assets primarily due to the acquisition
of NSBI. The yield on loans receivable decreased 3 basis points offset by a 58
basis point increase in mortgage-backed securities and a 20 basis point increase
in investment securities. These increases are attributable to the longer term
maturities of the mortgage-backed securities and investment securities acquired
from NSBI.
The average cost of deposits decreased 31 basis points accompanying a $819.7
million increase in average balance for the six months ended December 31, 1996
compared to the year ended June 30, 1996. The significant change is due to the
addition of low cost deposits from the NSBI acquisition. The average cost of
borrowed funds decreased 33 basis points although the average balance increased
$180.6 million. The increase in the average balance is primarily due to
borrowings for the acquisition, as well as funding for the increase in loan
originations.
The average yield on interest-earning assets improved during the year ended
June 30, 1996 to 7.49% compared to 7.21% for the year ended June 30, 1995. The
improvement was primarily due to a 13 basis point increase in the average yield
on loans receivable and a 16 basis point increase in the average yield on
mortgage-backed securities, due to upward repricing of adjustable-rate loans and
mortgage-backed securities owned by the Bank. Average loans receivable
increased by $352.6 million, or 31.1% for the year ended June 30, 1996, while
average mortgage-backed securities decreased $31.3 million, as the Bank was able
to increase earning assets with higher loan originations held for investment
purposes rather than through the purchase of mortgage-backed securities. The
average balance of investment securities, interest-bearing deposits and federal
funds sold was relatively consistent for the year ended June 30, 1996 compared
to 1995.
The average cost of deposits increased 22 basis points during the year ended
June 30, 1996, compared to the year ended June 30, 1995, primarily due to
increased rates on certificates of deposits. Because of the inability to
increase savings deposits during the years ended June 30, 1996 and 1995, the
increase in interest-earning assets was funded with borrowed funds, primarily
FHLB of Chicago advances. Average borrowings increased $183.3 million during the
year ended June 30, 1996. These additional borrowings did lead to a decrease in
the average cost of borrowings by 22 basis points, although this is somewhat
attributable to the lower rates on adjustable-rate advances from the FHLB of
Chicago, and short-term reverse repurchase agreements. Included in the increase
in borrowed funds for the year ended June 30, 1996 is a $35.0 million unsecured
term bank loan which was obtained for funding the acquisition of NSBI.
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 indicted. 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, 1997 includes fees which are considered adjustments to yield.
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31,
--------------------------------- ---------------------------------
1997 1996
--------------------------------- ---------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
----------- -------- -------- ----------- -------- --------
(Dollars in thousands)
ASSETS:
Interest-earning assets:
Loans receivable 2,568,736 198,805 7.73% 2,372,072 91,783 7.74%
Mortgage-backed securities 316,617 22,106 6.98 388,237 13,368 6.89
Investment securities/(1)/ 151,640 10,626 6.91 161,275 5,390 6.54
Interest-bearing deposits 70,297 4,589 6.44 55,020 1,805 6.42
Federal funds sold 46,427 3,059 6.50 20,099 659 6.41
---------- -------- ----------- --------
Total interest-earning assets 3,153,717 239,185 7.57 2,996,703 113,005 7.53
Non-interest earning assets 162,947 163,984
---------- -----------
Total assets 3,316,664 $ 3,160,687
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Deposits 2,217,908 98,581 4.44 2,170,234 47,967 4.38
Borrowed funds and subordinated debt 702,451 46,635 6.56 605,083 20,664 6.71
---------- -------- ----------- --------
Total interest-bearing liabilities 2,920,359 145,216 4.95 2,775,317 68,631 4.89
---- ----
Non-interest bearing deposits 73,109 70,462
Other liabilities 64,838 68,378
---------- -----------
Total liabilities 3,058,306 2,914,157
Stockholders' equity 258,358 246,530
---------- -----------
Liabilities and stockholders' equity 3,316,664 $ 3,160,687
========== ===========
Net interest income/interest rate spread 93,969 2.62% $ 44,374 2.64%
======== ==== ======== ====
Net earning assets/net yield on average
interest-earning assets $ 233,358 2.98% $ 221,386 2.96%
========== ==== =========== ====
Ratio of interest-earning assets to
interest-bearing liabilities 107.99% 107.98%
========== ===========
YEAR ENDED JUNE 30,
--------------------------------------------------------- AT DECEMBER 31,
1996 1995 1997
--------------------------------------------------------- --------------------
AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE COST
----------- -------- -------- ----------- -------- ----- ----------- -------
(Dollars in thousands)
ASSETS:
Interest-earning assets:
Loans receivable $1,485,309 115,466 7.77% $1,132,669 86,511 7.64% $2,722,602 7.75%
Mortgage-backed securities 289,759 18,291 6.31 321,074 19,747 6.15 283,008 6.98
Investment securities/(1)/ 100,671 6,382 6.34 86,932 5,253 6.04 177,803 6.20
Interest-bearing deposits 24,128 2,064 8.55 32,205 2,068 6.42 57,197 5.45
Federal funds sold 14,088 1,121 7.96 24,389 1,596 6.54 50,000 5.41
---------- -------- ---------- -------- ----------
Total interest-earning
assets 1,913,955 143,324 7.49 1,597,269 115,175 7.21 3,290,610 7.52
Non-interest earning assets 104,543 75,098 167,054
---------- ---------- ----------
Total assets $2,018,498 $1,672,367 $3,457,664
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities :
Deposits 1,350,501 63,325 4.69 1,248,513 55,794 4.47 2,251,321 4.44
Borrowed funds and subordinated debt 424,461 29,896 7.04 241,141 17,573 7.26 796,792 6.56
---------- -------- ---------- -------- ----------
Total interest-bearing liabilities 1,774,962 93,221 5.25 1,489,654 73,367 4.92 3,048,113 5.00
-------- ---- -------- ----
Non-interest bearing deposits 57,665 47,576 85,692
Other liabilities 64,729 36,320 60,448
---------- ---------- ----------
Total liabilities 1,897,356 1,573,550 3,194,253
Stockholders' equity 121,142 98,817 263,411
---------- ---------- ----------
Liabilities and stockholders' equity $2,018,498 $1,672,367 $3,457,664
========== ========== ==========
Net interestincome/interest rate spread $ 50,103 2.24% $ 41,808 2.29% 2.52%
======== ==== ======== ==== ====
Net earning assets/net yield on average
interest-earning assets $ 138,993 2.62% $ 107,615 2.62% $ 242,497 N/A
========== ==== ========== ==== ========== ====
Ratio of interest-earning assets to
interest-bearing liabilities 107.83% 107.22% 107.96%
========== ========== ==========
- ------------------------------------
/(1)/ Includes $28.9 million, $30.7 million, $18.7 million, $10.4 million, and
$33.0 million of Stock in Federal Home Loan Bank of Chicago for the year
ended December 31, 1997, six months ended December 31, 1996, years ended
June 30, 1996, 1995, and at December 31, 1997, respectively. Income on a
tax equivalent basis is computed assuming an effective tax rate of
40.0%.
14
PROVISION FOR LOAN LOSSES
The provision for loan losses is recorded to provide coverage for losses
inherent in the Bank's loan portfolio. Over the past three and one half years,
the Bank has maintained consistent and historically low levels of non-performing
loan balances, as well as adequate coverage percentages of the allowance for
loan losses to non-performing loans. The Company recorded a provision for loan
losses of $1.2 million for the year ended December 31, 1997, compared to
$700,000 for the six months ended December 31, 1996. The increase in the
provision in 1997 is due to increased charge-off activity in the Bank's single-
family loan portfolio, as well as a $2.9 million charge-off on a commercial real
estate loan. See "Asset Quality" for additional information regarding this
charge-off. For the years ended June 30, 1996 and 1995, the Company recorded a
provision of $700,000 and $475,000, respectively.
NON-INTEREST INCOME
Non-interest income is another significant source of revenue for the Company.
It consists of fees earned on products and services, gains and losses from loan
sale activity and income from real estate operations. Although changes in
interest rates can have an impact on earnings from these sources, the impact is
generally not nearly as dramatic as the impact on net interest income. Non-
interest income was $22.7 million for the year ended December 31, 1997, $12.0
million for the six months ended December 31, 1996, $17.1 million and $16.7
million for the years ended June 30, 1996 and 1995, respectively. The table
below shows the composition of non-interest income for the periods indicated.
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED JUNE 30,
DECEMBER 31, ------------------ ---------------------
1997 1996 1995 1996 1995
------------- -------- ------- --------- ---------
(In thousands)
Gain (loss) on sale and writedown of:
Loans receivable $ 419 264 178 203 (56)
Mortgage-backed securities 13 (296) 57 (5) --
Investment securities 404 251 45 188 (231)
Foreclosed real estate 17 161 21 50 181
Income from real estate operations 6,876 4,133 2,820 4,786 7,497
Deposit account service charges 7,217 3,219 2,370 4,894 3,347
Loan servicing fee income 2,278 1,249 1,164 2,394 2,373
Brokerage commissions 2,050 924 750 1,711 1,383
Mortgage loan late charges and other loan fees 1,337 666 459 948 759
Insurance commissions 447 235 211 412 432
Safe deposit box fees 275 143 140 273 271
Loss on real estate owned operations, net (47) (51) (11) (17) (5)
Other 1,431 1,061 550 1,263 699
------- ------ ----- ------ ------
$22,717 11,959 8,754 17,100 16,650
======= ====== ===== ====== ======
The Bank recorded a net gain on the sale of loans receivable and mortgage-
backed securities for the year ended December 31, 1997 of $432,000 compared to a
net loss of $32,000 for the six months ended December 31, 1996. The Bank sold
loans totaling $107.2 million during the current year compared to $65.6 million
for the six months ended December 31, 1996. The loss during the six months ended
December 31, 1996 was primarily due to the sale of $16.9 million of adjustable-
rate and fixed-rate CMOs, which were classified as available for sale, at a loss
of $301,000. The Bank recorded a net gain on the sale of loans receivable and
mortgage-backed securities of $198,000 for the year ended June 30, 1996 and a
loss of $56,000 for the year ended June 30, 1995. During the year ended June 30,
1996, due to refinance activity, loan sale volume doubled compared to the prior
year period. Although loan sale
15
volume increased, between the two periods, margins on loan sales remained thin
due to competitive pricing in the origination market, which often led to the
Bank originating loans at or near break even.
The gains and losses on mortgage-backed securities included in the above
figures represent the sale of loans originated by the Bank and swapped into
mortgage-backed securities prior to sale. The Bank swapped and sold $3.4 million
during the year ended December 31, 1997 compared to $8.2 million during the six
months ended December 31, 1996. For the year ended June 30, 1996, the Bank
swapped and sold $41.2 million of loans into mortgage-backed securities. The
Bank had no swap activity during the year ended June 30, 1995.
The Company had net gains on the sale of investment securities during the year
ended December 31, 1997 of $404,000, compared to $251,000 during the six months
ended December 31, 1996, primarily due to the sale of marketable equity
securities. The Company had net gains on the sale of investment securities
during the year ended June 30, 1996 of $188,000, primarily due to the sale of
marketable equity securities, and net losses of $231,000 for the year ended June
30, 1995 primarily from the write-off of a $159,000 equity investment in a local
community housing organization and from the sale of investment securities
available for sale whose values deteriorated in the wake of rising interest
rates. These losses were offset by gains on the sale of marketable equity
securities.
Income from real estate operations was $6.9 million for the year ended
December 31, 1997, $4.1 million for the six months ended December 31, 1996, $4.8
million for the year ended June 30, 1996 and $7.5 million for the year ended
June 30, 1995. A summary of income from real estate operations is as follows:
YEAR ENDED SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -----------------------------------
1997 1996 1996 1995
--------------- --------------- --------------- ---------------
LOTS LOTS LOTS INCOME LOTS
SOLD INCOME SOLD INCOME SOLD (LOSS) SOLD INCOME
---- ------ ---- ------ ---- ------ ---- ------
(Dollars in thousands)
Woodbridge 133 $3,452 26 $ 349 10 $ 85 - $ -
Harmony Grove 120 1,588 75 760 - - - -
Clow Creek Farm 18 700 10 261 145 3,537 81 1,711
Reigate Woods 11 610 15 826 2 98 - -
Fields of Ambria 9 - 13 156 2 17 - -
Ashbury 8 290 23 1,624 34 1,392 134 5,364
Creekside of Remington 8 16 - - 27 81 6 9
Woods of Rivermist 5 220 3 157 - - 6 374
Other - - - - - (424) 1 39
--- ------ --- ------ --- ------ --- ------
312 $6,876 165 $4,133 220 $4,786 228 $7,497
=== ====== === ====== === ====== === ======
During the year ended December 31, 1997, sales accelerated in the Woodbridge
subdivision due to an improvement in the identification of the subdivision's
target market. At December 31, 1997, only 15 lots remain unsold and management
expects this project to be sold out in 1998. Harmony Grove continued to have
solid lot sales during 1997; the initial lots were sold during the six months
ended December 31, 1996. There were 54 lots under contract at December 31, 1997.
The Company sold its final lots in the 1,115-lot Ashbury subdivision during
1997. Only six lots remain in the 260-lot Clow Creek Farm subdivision. Reduced
sales over the past eighteen months reflect the near completion of this
subdivision. Sales continued to be slow in the Creekside subdivision in 1997. To
date, a total of 41 lots have been sold in this 170-lot project. Eight lots are
under contract at December 31, 1997.
16
Deposit account service charges were $7.2 million for the year ended December
31, 1997 compared to $3.2 million for the six months ended December 31, 1996.
The results are a function of an increase of over 11,000 checking accounts since
December 31, 1996, an overall increase in fees per account and increased usage
of debit cards which were introduced in January 1996.
Loan servicing fee income is generated from loans which the Bank has
originated and sold, or from purchased servicing. For the year ended December
31, 1997 servicing fee income was $2.3 million compared to $1.2 million for the
six months ended December 31, 1996. High refinance activity, along with a
decrease in loan sale activity, led to a small decline in the balance of loans
serviced for others during the current year. For the year ended June 30, 1996,
loan servicing fee income was $2.4 million, consistent with the results for the
year ended June 30, 1995. The average balance of loans serviced for others was
$1.02 billion, $1.05 billion, $963.8 million and $881.0 million for the year
ended December 31, 1997, six months ended December 31, 1996 and years ended June
30, 1996 and 1995, respectively. The decline in the average balance during the
current year reflects the Bank's strategy of holding more loan originations for
its own portfolio. The increase in average loans serviced during the six months
ended December 31, 1996 and the year ended June 30, 1996 was due to a greater
percentage of loan originations being sold. Since July 1, 1996, upon the
adoption of SFAS No. 122, mortgage servicing rights are capitalized when a loan
is sold. Prior to July 1, 1996, the Bank was only able to capitalize mortgage
servicing rights on wholesale originations. The amortization of mortgage
servicing rights is charged against loan servicing fee income. Amortization of
mortgage servicing rights totaled $427,000 for the year ended December 31, 1997,
$156,000 for the six months ended December 31, 1996, and $253,000 for the year
ended June 30, 1996, compared to $109,000 for the year ended June 30, 1995. The
increase during the current year reflects faster prepayment speeds than
originally estimated which required the Bank to increase its amortization.
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 improved to $2.1 million for the year
ended December 31, 1997 compared to $924,000 for the six months ended December
31, 1996. Commissions were $1.7 million for the year ended June 30, 1996, and
$1.4 million for the year ended June 30, 1995. The improvement in commissions is
due to increased sales of mutual funds and other non-traditional products, an
increase in the number of locations which provide INVEST services, as well as
sharing a greater percentage of current commission revenue and trailer fee
income with INVEST than in the past.
17
NON-INTEREST EXPENSE
Non-interest expense was $54.6 million for the year ended December 31, 1997,
compared to $41.1 million for the six months ended December 31, 1996. Included
in the six month ended December 31, 1996 total is the impact of the one-time
assessment to recapitalize the SAIF of $14.2 million. Non-interest expense for
the year ended June 30, 1996 increased $4.4 million, or 13.1% from non-interest
expense for the year ended June 30, 1995. The table below shows the composition
of non-interest expense for the periods indicated.
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, YEAR ENDED JUNE 30,
DECEMBER 31, ---------------- -------------------
1997 1996 1995 1996 1995
------------ ------- ------ -------- --------
(In thousands)
Compensation $23,898 11,657 7,645 16,790 14,474
Employee benefits 6,574 2,846 2,052 4,419 3,783
------- ------ ------ ------ ------
Total compensation and benefits 30,472 14,503 9,697 21,209 18,257
Occupancy expense 4,554 1,715 1,056 2,469 2,274
Furniture, fixture and equipment expense 1,649 937 699 1,305 1,248
Federal deposit insurance premiums 1,468 2,338 1,523 3,255 3,003
Special SAIF assessment - 14,216 - - -
Advertising and promotion 2,737 1,025 916 1,746 1,760
Data processing 2,098 1,032 760 1,683 1,473
Professional fees 1,154 449 362 904 751
OTS assessment fees 483 164 148 305 281
Postage 1,042 509 342 872 659
Stationery, brochures and supplies 1,045 514 425 857 618
ATM network fees 569 277 266 527 523
Telephone 666 274 200 413 349
Correspondent banking services 462 233 138 283 279
Insurance costs 413 254 137 260 298
Amortization of goodwill 1,341 679 - 113 -
Amortization of core deposit intangible 1,296 709 - 122 -
Other 3,162 1,250 604 1,463 1,639
------- ------ ------ ------ ------
$54,611 41,078 17,273 37,786 33,412
======= ====== ====== ====== ======
Compensation and benefits was $30.5 million for the year ended December 31,
1997, a 5.1% increase on an annualized basis compared to the six months ended
December 31, 1996, primarily due to the addition of two new branch locations,
normal salary increases and higher loan officer commissions resulting from
record loan volume. Employee benefits expense increased primarily due to
increased medical insurance costs and a higher profit sharing contribution. The
$3.0 million, or 16.2% increase during the year ended June 30, 1996 was
primarily due to an increase in loan related compensation, including incentives
and overtime, as well as the addition of employees, primarily to staff a new
branch and to handle increased loan volume. In addition, the acquisition of NSBI
increased compensation and benefits for one month in 1996 by approximately
$600,000. Benefit costs increased $636,000 in 1996 due to additional FICA tax
expense, as well as higher profit sharing and supplemental retirement plan
benefit expenses.
18
Occupancy and equipment costs increased to $6.2 million for the year ended
December 31, 1997, primarily due to costs related to two new branch locations
opening this year as well as costs related to the Bank's permanent Ashbury
branch. Occupancy and equipment costs increased during the six months ended
December 31, 1996 primarily due to the acquisition of NSBI which had six branch
locations. Occupancy and equipment costs remained relatively constant between
the years ended June 30, 1996 and 1995.
The decrease in FDIC premiums to $1.5 million during the year ended December
31, 1997 reflects the reduction in the premium rate the Bank pays on deposits as
a result of legislation which recapitalized the SAIF. During the six months
ended December 31, 1996, a one-time special assessment of 65.7 basis points on
deposit balances as of March 31, 1995 was imposed on all savings institutions.
This charge equaled $14.2 million for the Bank. Without this assessment, FDIC
insurance premiums were $2.3 million for the six month period ended December 31,
1996. FDIC insurance premiums increased slightly during the year ended June 30,
1996, compared to the year ended June 30, 1995, due to deposit growth.
Advertising and promotion expenses increased to $2.7 million for the year
ended December 31, 1997, a 33.5% increase compared to the annualized expense for
the six months ended December 31, 1996. The increase was primarily due to the
higher marketing costs expended in introducing the Bank's products and services
in the NSBI offices beginning in calendar 1997 and costs related to the new
Downers Grove, Super K-Mart and Ashbury branches which opened in 1997.
Advertising costs remained basically unchanged between the years ended June 30,
1996 and 1995.
Data processing expense was $2.1 million during the current year, compared to
$1.0 million for the six months ended December 31, 1996. Data processing expense
rose $210,000, or 14.3% in 1996, due to the upgrading of data processing systems
during the year ended June 30, 1996. The Bank utilizes personal computers in
many of its operations as a means of controlling general operating expenses as
well as providing the means to improve the speed of processing transactions,
loan originations, and other back office productivity.
As a result of the merger with NSBI, the Bank established a core deposit
intangible on non-maturity deposit liabilities, and goodwill as required under
the purchase method of accounting. During the year ended December 31, 1997, the
Company amortized $1.3 million of core deposit intangible, and $1.3 million of
goodwill against operations. The Bank is amortizing its core deposit intangible
on an accelerated method over 10 years, while amortizing goodwill on the
straight-line method over a 20 year period. For the six months ended December
31, 1996 $709,000 was amortized for core deposit premium and $679,000 for
goodwill. The amounts for the year ended June 30, 1996 represent one month's
amortization.
Other expense increased to $3.2 million for the year ended December 31, 1997,
compared to $1.3 million for the six months ended December 31, 1996. The
increase was primarily due to a higher incidence of check losses incurred due to
the increased checking account base and higher title, credit report and
appraisal fees due to the higher loan volumes. Other expense was down slightly
between the years ended June 30, 1996 and 1995.
The other operating expenses categories not discussed above increased to $5.8
million for the year ended December 31, 1997, a 9.1% increase compared to the
annualized expense for the six months ended December 31, 1996 and is due to the
additional branches and growth in the balance sheet and customer activity
levels. The $663,000 increase in other operating expenses during the year ended
June 30, 1996 was due to the higher expenses due to the NSBI acquisition which
closed on May 30, 1996 and higher postage and stationary and supplies expenses.
19
INCOME TAXES
For the year ended December 31, 1997, income tax expense totaled $22.7
million, equal to an effective income tax rate of 37.4%, compared to income tax
expense of $5.6 million for the six months ended December 31, 1996, or an
effective income tax rate of 39.0%. The decrease in the effective income tax
rate was primarily due to the recognition in 1997 of $1.0 million in income tax
benefits related to the resolution of certain prior years' income tax issues.
For the year ended June 30, 1996, income tax expense attributable to income from
continuing operations totaled $10.8 million, equal to an effective income tax
rate of 37.9%, compared to $9.3 million, or an effective income tax rate of
38.2% for the year ended June 30, 1995.
REVIEW OF FINANCIAL CONDITION
Total assets increased $227.3 million, or 7.0% to $3.5 billion at December 31,
1997, compared to $3.2 billion at December 31, 1996. The increase was primarily
due to a $277.0 million increase in loans receivable, which were funded
primarily with borrowed funds and increased savings deposits.
Cash, interest-bearing deposits and federal funds sold increased a combined
$21.2 million to $146.9 million at December 31, 1997. During the year, the Bank
used most of its available cash, in addition to outside borrowings, to fund
increased mortgage loans held for investment purposes.
Investment securities classified as held to maturity decreased $46.7 million,
to $25.3 million as of December 31, 1997. The decrease is due to maturities and
calls prior to maturity of $54.5 million of U.S. Government and agency
securities, offset by $6.9 million of purchases of U.S. Government and short-
term securities.
Investment securities available for sale increased $50.5 million to $119.5
million at December 31, 1997. Increases due to purchases of $115.2 million of
U.S. Government Agency and asset-backed securities, were offset by sales of $8.1
million of marketable equity securities and maturities of $59.1 million. Net
unrealized gains in the available for sale portfolio were $2.6 million at
December 31, 1997.
Mortgage-backed securities classified as held to maturity decreased $51.2
million to $215.4 million as of December 31, 1997. The decrease is primarily due
to amortization and prepayments. Due to the Bank's ability to originate
sufficient amounts of mortgage loans for its own portfolio, the Bank did not
purchase any mortgage-backed securities during the year ended December 31, 1997.
Mortgage-backed securities classified as available for sale decreased $25.4
million to $67.6 million at December 31, 1997, from $92.9 at December 31, 1996.
The decrease is due to normal amortization and prepayments. At December 31,
1997, net unrealized gains in the available for sale portfolio were $19,000.
Included in total mortgage-backed securities at December 31, 1997 are $134.4
million of CMO's which have 3-5 year weighted average lives, and 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. Also included in mortgage-backed securities as of December 31,
1997 are $11.1 million, and $19.4 million of FHLMC securities with an average
yield of 8.70%, and 8.95% which collateralize a similar amount of CMO bonds
issued by the Bank's special purpose finance subsidiaries, Mid America Finance
Corporation ("MAFC") and Northwestern Acceptance Corporation ("NWAC"),
respectively. Principal repayments and prepayments on these securities are
available exclusively for the repayment of the CMO bonds which they
collateralize.
20
Investment securities and mortgage-backed securities acquired and classified
as available-for-sale represent a secondary source of liquidity to the Bank and
the Company. The market value of these securities fluctuates with interest rate
movements. Net interest income in future periods may be adversely impacted to
the extent interest rates increase and these securities are not sold with the
proceeds reinvested at the higher market rates. The decision whether to sell
the available for sale securities or not, is based on a number of factors,
including but not limited to projected funding needs, reinvestment alternatives
and the relative cost of alternative liquidity sources. Investments and
mortgage-backed securities classified as held to maturity cannot be sold except
under extraordinary and very restrictive circumstances. Generally, these
investments are acquired for investment after taking into account the Bank's
cash flow needs, the investment's projected cash flows, the Bank's overall
interest rate and maturity structure of the liability base used to fund these
investment's and the net interest spread obtained. To the extent the Bank has
been able to maintain funding costs below a market rate of interest, the
potential negative impact from rising interest rates on investments and
mortgage-backed securities held to maturity on net interest income in future
periods has been substantially mitigated.
Loans receivable increased 11.4%, or $277.0 million to $2.7 billion at
December 31, 1997. Loan originations were $1.1 billion, offset by amortization
and prepayments of $706.6 million, as well as sales of $107.2 million during the
year December 31, 1997. The loans sold represent long-term fixed-rate mortgages,
which are sold as a means of limiting borrowings and interest-rate risk. During
the current year, the Bank held for investment a substantial portion of its
fixed-rate loan originations, in an effort to grow its loan portfolio.
The allowance for loan losses decreased to $15.5 million as of December 31,
1997, due to net charge-offs of $3.6 million offset by the current period
provision for loan losses of $1.2 million. As of December 31, 1997, the Bank's
ratio of the allowance for loan losses to total non-performing loans was 145.2%,
compared to 133.1% as of December 31, 1996. In addition, the ratio of the
allowance for loan losses to total loans decreased to .57% at December 31, 1997,
compared to .73% at December 31, 1996. During the year ended December 31, 1997,
the Bank charged off $2.9 million on a second mortgage on a commercial real
estate loan, which had been previously restructured and was on non-accrual
status. The Bank obtained title to the collateral in January 1998.
Real estate held for development or sale increased $3.1 million to
$31.2 million at December 31, 1997. A summary of real estate held for
development or sale is as follows:
December 31,
----------------
1997 1996
------- ------
(In thousands)
MAF Developments, Inc.:
Harmony Grove $ 4,856 4,164
Clow Creek Farm 128 717
Creekside of Remington 1,662 1,760
Tallgrass of Naperville 14,292 4,392
------- ------
20,938 11,033
------- ------
Mid America Developments, Inc.:
Ashbury 50 122
Woods of Rivermist 154 546
------- ------
204 668
------- ------
NW Financial, Inc.:
Reigate Woods 5,314 6,263
Woodbridge 3,498 8,348
Fields of Ambria 1,243 1,800
------- ------
10,055 16,411
------- ------
$31,197 28,112
======= ======
21
Activity at MAF Developments, which is owned by the Company, was primarily in
the Harmony Grove subdivision, as the Company sold 120 lots of the development,
which were offset in part by continued development costs of the project. As of
December 31, 1997, the Company is developing the remaining units for sale in
1998. At December 31, 1997, 54 lots are under contract. The decrease in Clow
Creek Farm is due to the successful sale of a majority of the lots in this
project. At December 31, 1997, there are 6 lots remaining of this 260-lot
subdivision. Creekside of Remington's investment decreased slightly due to
eight lot sales, and marginal development costs incurred during 1997. There are
eight lots pending sale in Creekside at December 31, 1997. Tallgrass of
Naperville is currently planned as a 1,098-lot joint venture in Naperville,
Illinois. The increase in the investment is due to the acquisition of a second
parcel of land for $7.0 million and the last installment payment for the first
parcel of land for $1.8 million. Development has begun as of December 31, 1997.
The Company expects the first lots to be delivered to builders in late 1998.
Mid America Developments is nearing the completion of its land development
operations. As of December 31, 1997, all residential lots in the 1,115-lot
Ashbury subdivision have been sold. The remaining investment relates to a small
commercial parcel which is under contract at December 31, 1997. Two lots remain
unsold in the Woods of Rivermist development.
NW Financial's projects continued to be developed during the twelve months
ended December 31, 1997, with additional funds disbursed for home construction
offset by sales activity. Sales activity in Reigate Woods and Fields of Ambria
led to a decline in each development's investment balance. Substantially all
public improvements are complete in these two projects. Significant progress in
the sell-out of the Woodbridge subdivision was made in 1997, with 133 home
sales. Seven of the remaining 15 homesites are under contract at December 31,
1997. Included in the project's investment is 48 acres of commercially-zoned
land, with a cost basis of $2.2 million, which is currently being marketed for
sale in bulk, or separate parcels.
Premises and equipment increased $3.5 million to $35.8 million at December 31,
1997, due to purchases of $6.8 million, offset by depreciation and amortization
of $3.1 million. Acquisitions in 1997 were directed toward continued upgrading
of the Company's data processing system, building improvements to the new
Downers Grove branch and the construction of a permanent Ashbury branch.
Cost in excess of fair value of net assets acquired (goodwill) decreased to
$24.6 million at December 31, 1997 from $26.3 million at December 31, 1996,
primarily due to amortization of $1.3 million. Goodwill is being amortized over
a 20 year period using the straight-line method.
Deposits increased $74.8 million to $2.34 billion as of December 31, 1997.
The increase is primarily due to interest credited on deposits of $94.9 million,
offset by net outflows of deposits of $20.0 million during the year ended
December 31, 1997 and $128,000 in amortization of purchase accounting premiums
on certificates of deposits.
Borrowed funds, which consist primarily of FHLB of Chicago advances, as well
as CMO bonds payable, and reverse repurchase agreements, increased $137.1
million, to $770.0 million at December 31, 1997. During the current twelve
month period, the Bank borrowed an additional $180.0 million (net) of FHLB of
Chicago advances, primarily to fund loan volume held for investment purposes.
As of December 31, 1997, the Bank has $660.5 million of FHLB of Chicago advances
at a weighted average rate and term of 6.37%, and 2.4 years, respectively,
compared to $480.5 million of FHLB of Chicago advances at a weighted average
rate and term of 6.44%, and 2.7 years, respectively, as of December 31, 1996.
The Bank's reverse repurchase agreements decreased by $35.0 million to $44.8
million at December 31, 1997 due to current year maturities. At December 31,
1997, the remaining reverse repurchase agreements have an average life of 12
months and an average cost of 6.31%. CMO bonds payable issued by MAFC and NWAC,
had repayments of $5.0 million during the year ended December 31, 1997.
22
LENDING ACTIVITIES
General. The Bank's lending activities reflect its focus as a consumer
banking institution serving its local market area by concentrating on
residential mortgage lending. Reflective of this focus, the Bank has been one
of the largest originators of residential mortgages in its market area for
years. In addition to traditional retail originations, the Bank also operates a
wholesale lending operation that purchases loans from brokers and
correspondents. In connection with these activities, the Bank emphasizes the
origination of adjustable-rate or shorter-term loans for its portfolio and sells
a portion of its long-term fixed-rate loans directly into the secondary market.
It is the Bank's general policy that approximately 60-70% of its loan portfolio
have adjustable rates or terms to repricing or maturity of seven years or less.
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, 1997, the Bank originated and purchased
$517.2 million in fixed-rate one- to four-family residential mortgage loans, of
which $399.2 million, or 77.2%, conformed to the requirements for sale to FNMA
and FHLMC and $118.0 million, or 22.8%, did not conform to the requirements of
these agencies. During the year ended December 31, 1997, the Bank sold $107.2
million of these loans in the secondary market. The Bank's "nonconforming"
loans are generally designated as such because the principal loan balance
exceeds $214,600 ($227,150 as of January 1, 1998), 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 carry interest rates from one-eighth to three-
eighths of one percent higher than similar, conforming fixed-rate loans.
As a result of its acquisition of NSBI, the Bank acquired a $749.7 million
loan portfolio. Included in the portfolio as of the acquisition date was a
$670.5 million nationwide portfolio of single-family residential mortgage loans
which had been purchased through brokers as part of NSBI's loan strategy.
Collateral for this portfolio is spread throughout 43 states, Puerto Rico and
the District of Colombia. Currently, it is not management's intent to continue
the purchase strategy utilized successfully by NSBI, rather management intends
to manage this purchased loan portfolio through its maturity. Due to normal
amortization and prepayments, this portfolio has a balance of $437.2 million at
December 31, 1997.
While the Bank has primarily focused its lending activities on the origination
of loans secured by first mortgages on owner-occupied one- to four-family
residences, the Bank, to a lesser extent, also originates multi-family mortgage
loans, residential construction loans, land acquisition and development loans,
commercial real estate loans and a variety of consumer loans. At December 31,
1997, the Bank's net loans receivable amounted to $2.7 billion, excluding $283.0
million in mortgage-backed securities.
23
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, JUNE 30,
------------------------------------------------- ----------------------
1997 1996 1996
----------------------- ----------------------- ----------------------
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 $2,408,393 88.27% 2,160,525 87.93% $2,032,102 87.57%
Held for sale 6,537 0.24 6,495 0.26 9,314 0.40
Multi-family 105,051 3.85 92,968 3.78 94,713 4.08
Commercial 35,839 1.31 46,313 1.89 46,101 1.99
Construction 17,263 0.63 17,263 0.70 16,090 0.69
Land 24,425 0.90 25,685 1.05 26,644 1.15
---------- --------- ---------- --------- ---------- ---------
Total real estate
loans 2,597,508 95.20 2,349,249 95.61 2,224,964 95.88
---------- --------- ---------- --------- ---------- ---------
Other loans:
Consumer loans:
Equity lines of credit 88,106 3.23 86,614 3.53 79,193 3.41
Home equity loans 34,447 1.26 14,251 0.58 10,525 0.45
Other 5,793 .21 5,009 0.20 4,110 0.18
---------- --------- ---------- --------- ---------- ---------
Total consumer loans 128,346 4.70 105,874 4.31 93,828 4.04
Commercial business
loans 2,659 0.10 1,871 0.08 1,821 0.08
---------- --------- ---------- --------- ---------- ---------
Total other loans 131,005 4.80 107,745 4.39 95,649 4.12
---------- --------- ---------- --------- ---------- ---------
Total loans receivable 2,728,513 100.00% 2,456,994 100.00% 2,320,613 100.00%
========= ========= =========
Less:
Loans in process 6,683 7,620 6,715
Unearned discounts,
premiums and
deferred loan
fees, net (772) 1,347 3,245
Allowance for loan
losses 15,475 17,914 17,254
---------- ---------- ---------
Loans receivable, net 2,707,127 $2,430,113 $2,293,399
========== ========== =========
Mortgage-backed securities:
GNMA held to maturity $ 2,442 3,248 3,637
FHLMC held to maturity 108,037 138,963 157,468
FHLMC available for sale 5,706 7,425 8,052
FNMA held to maturity 22,796 29,343 32,044
FNMA available for sale 9,610 12,029 13,565
CMOs held to maturity 82,174 95,104 100,232
CMOs available for sale 52,243 73,475 103,104
---------- ---------- ---------
Total mortgage-backed
securities $ 283,008 359,587 418,102
========== ========== =========
JUNE 30,
------------------------------------------------
1995 1994
----------------------- ----------------------
PERCENT PERCENT
OF OF
AMOUNT TOTAL AMOUNT TOTAL
---------- ---------- ---------- ---------
(Dollars in thousands)
Real estate loans:
One- to four-family:
Held for investment $1,032,233 80.25% $ 835,369 81.28%
Held for sale 24,984 1.94 8,739 0.85
Multi-family 67,248 5.23 49,864 4.85
Commercial 47,273 3.68 52,090 5.07
Construction 19,984 1.55 13,860 1.35
Land 19,281 1.50 15,453 1.50
---------- --------- ---------- ---------
Total real estate
loans 1,211,003 94.15 975,375 94.90
---------- --------- ---------- ---------
Other loans:
Consumer loans:
Equity lines of credit 66,710 5.19 46,451 4.52
Home equity loans 4,335 0.34 1,112 0.11
Other 2,652 0.20 2,471 0.24
---------- --------- ---------- ---------
Total consumer loans 73,697 5.73 50,034 4.87
Commercial business
loans 1,560 0.12 2,341 0.23
---------- --------- ---------- ---------
Total other loans 75,257 5.85 52,375 5.10
---------- --------- ---------- ---------
Total loans receivable 1,286,260 100.00% 1,027,750 100.00%
========= =========
Less:
Loans in process 8,728 5,161
Unearned discounts, premiums
and deferred loan fees, net 882 2,818
Allowance for loan losses 9,197 8,779
---------- ----------
Loans receivable, net $1,267,453 $1,010,992
========== ==========
Mortgage-backed securities:
GNMA held to maturity -- --
FHLMC held to maturity 31,560 38,789
FHLMC available for sale -- --
FNMA held to maturity 16,296 19,283
FNMA available for sale -- --
CMOs held to maturity 196,096 289,830
CMOs available for sale 63,438 --
--------- ----------
Total mortgage-backed
securities 307,390 347,902
========= ==========
24
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,
----------------------------------------------------
1997 1996 June 30, 1996
------------------------ ------------------------- -----------------------
Amount Percent Amount Percent Amount Percent
----------- ---------- ----------- ----------- ---------- ----------
(Dollars in thousands)
Adjustable-rate loans:
Real estate:
One-to four-family $1,489,757 54.59% $1,534,435 62.45% $1,513,732 65.23%
Multi-family 75,562 2.77 67,762 2.76 68,058 2.93
Commercial 16,128 .60 20,424 .83 20,178 .87
Construction 16,041 .59 15,749 .64 11,812 .51
Land 16,268 .59 16,430 .67 14,872 .64
---------- --------- ---------- ---------- ---------- ---------
Total adjustable-rate
real estate loans 1,613,756 59.14 1,654,800 67.35 1,628,652 70.18
Consumer 89,992 3.30 88,368 3.60 79,883 3.44
Commercial business 2,080 .08 1,257 .05 911 .04
---------- --------- ---------- ---------- ---------- ---------
Total adjustable-rate
loans receivable 1,705,828 62.52 1,744,425 71.00 1,709,446 73.66
---------- --------- ---------- ---------- ---------- ---------
Fixed-rate loans:
Real estate:
One-to four-family 918,636 33.67 626,090 25.48 518,370 22.34
One-to four-family held for
sale 6,537 .24 6,495 .26 9,314 .40
Multi-family 29,489 1.08 25,206 1.03 26,655 1.15
Commercial 19,711 .72 25,889 1.05 25,923 1.12
Construction 1,222 .04 1,514 .06 4,278 .18
Land 8,157 .30 9,255 .38 11,772 .51
---------- --------- ---------- ---------- ---------- ---------
Total fixed-rate real
estate loans 983,752 36.05 694,449 28.26 596,312 25.70
Consumer 38,354 1.40 17,506 .71 13,945 .60
Commercial business 579 .03 614 .03 910 .04
---------- --------- ---------- ---------- ---------- ---------
Total fixed-rate loans
receivable 1,022,685 37.48 712,569 29.00 611,167 26.34
---------- ---------- ---------- ---------- ---------
Total loans receivable 2,728,513 100.00% 2,456,994 100.00% 2,320,613 100.00%
========= ========== =========
Less:
Loans in process 6,683 7,620 6,715
Unearned discounts, premiums
and deferred loan fees, net (772) 1,347 3,245
Allowance for loan losses 15,475 17,914 17,254
---------- ---------- ----------
Loans receivable, net $2,707,127 $2,430,113 $2,293,399
========== ========== ==========
Mortgage-backed securities:
Adjustable-rate $ 125,195 44.35% $ 149,919 41.80% $ 165,905 39.77%
Fixed-rate held by the Bank 126,638 44.86 170,686 47.59 207,032 49.63
Fixed-rate held by finance
subsidiaries (1) 30,467 10.79 38,073 10.61 44,202 10.60
---------- --------- ---------- ---------- ---------- ---------
Total mortgage-backed
securities 282,300 100.00% 358,678 100.00% 417,139 100.00%
========= ========== =========
Plus unamortized premiums 708 909 963
---------- -------