Net income for the year ended December 31, 2006 was $84.6 million or $2.51 per diluted share compared to $103.4 million or $3.13 per diluted share for 2005. Excluding the balance sheet restructuring and certain tax charges, 2006 net income would have been $100.7 million, or $2.99 per diluted share.
Allen Koranda, Chairman of the Board and Chief Executive Officer, commented, "The restructuring better positions our balance sheet during this difficult interest rate environment. It will improve our net interest income and net interest margin, without increasing interest rate risk. Despite these positive effects, we expect the inverted yield curve and housing market conditions will challenge financial results in 2007. Our focus is on continuing to grow our higher-yielding asset categories, particularly through our business banking operation where we are encouraged with our recent results. Our conservative approach of developing this business through organic growth has been successful over the past few years, with solid growth rates in both loan and deposit balances and excellent credit quality experience."
Balance Sheet Restructuring
The balance sheet restructuring plan, which we announced on December 27, 2006, involved selling lower-yielding mortgage loans ($220 million) and investments ($531 million) and repaying higher cost borrowings ($502 million), with the balance of the proceeds invested in shorter-term investment securities to provide liquidity. These funds will be available for reinvestment in higher-yielding assets as the Company continues its strategy of increasing the concentration of business and home equity loans in its portfolio.
We recorded restructuring charges in the fourth quarter of $19.9 million, or $12.1 million on an after-tax basis, equal to $.36 per diluted share. The pre-tax charge included a $12.9 million other-than-temporary impairment on securities, a $4.2 million lower of cost or market adjustment on loans held for sale and $2.8 million relating to prepayment of borrowings. Total restructuring charges were less than originally estimated primarily due to lower prepayment charges recorded in connection with the repayment of borrowings. The Company currently expects that the balance sheet restructuring will contribute $9.8 million, or $.18 per diluted share, to net interest income in 2007.
While the charges relating to the restructuring have been fully reflected in the fourth quarter income statement, the resulting shrinkage in the Company's balance sheet from the restructuring was not yet reflected at December 31, 2006. The December repayment of borrowings was primarily funded from short-term Federal Home Loan Bank borrowings, which were repaid in early January with proceeds from the sale of investment and mortgage-backed securities that were part of the restructuring.
For a reconciliation of 2006 actual results to adjusted results discussed in this press release that exclude the balance sheet restructuring and certain tax charges, see "Reconciliation of GAAP to Non-GAAP Financial Measures" included later herein.
Net Interest Income and Net Interest Margin
Three Months Ended Year Ended
December 31, December 31,
----------- --------- ----------- ---------
2006 2005 2006 2005
----------- --------- ----------- ---------
Net interest margin 2.35% 2.69 2.52% 2.88
Interest rate spread 2.09 2.44 2.24 2.65
Net interest income (000's) $ 60,136 64,018 $ 259,629 264,759
Average assets:
Yield on interest-earning
assets 5.89% 5.38 5.77% 5.21
Yield on loans receivable 6.25 5.69 6.10 5.44
Yield on mortgage-backed
securities 4.58 4.37 4.58 4.23
Average interest-earning
assets (000's) $10,222,229 9,505,190 $10,317,994 9,193,692
Average liabilities:
Cost of interest-bearing
liabilities 3.80% 2.94 3.53% 2.56
Cost of deposits 3.32 2.30 2.97 1.94
Cost of borrowed funds 4.72 4.10 4.55 3.77
Cost of junior
subordinated debt 6.94 5.54 6.73 5.39
Average interest-bearing
liabilities (000's) $ 9,498,166 8,671,094 $ 9,506,348 8,360,019
Net Interest Margin: 4th Quarter 2006 v. 3rd Quarter 2006. The net interest margin declined 17 basis points during the quarter primarily due to the cost of interest-bearing liabilities continuing to increase at a faster pace than the yield on interest-earning assets. In addition, the Bank was running higher levels of short-term liquidity as residential mortgage volumes continued to weaken and the balance sheet restructuring strategy was under consideration. Continuing the trend of recent quarters, the cost of interest-bearing liabilities in the current period was impacted by competitive pressures on core deposit pricing and a continued change in our mix of deposits due to consumers shifting deposits into higher-yielding accounts. While we expect the balance sheet restructuring will add 20-25 basis points to net interest margin compared to the fourth quarter of 2006 and also expect to see some benefit from mortgage loan repricings during the year, we expect further margin expansion will be difficult as a result of the continued rise in deposit funding costs and the prolonged nature of the inverted yield curve environment.
Net Interest Margin: 4th Quarter 2006 v. 4th Quarter 2005. Comparing the current quarter to the fourth quarter of 2005, net interest margin declined by 34 basis points. The rise in short-term interest rates, a flattening and inverted yield curve environment, lower dividend yield on our investment in Federal Home Loan Bank of Chicago stock, higher deposit pricing driven by increased deposit pricing competition and a continued shift of funds out of lower cost core deposits into higher-rate certificates of deposit and money market accounts, have all negatively impacted our net interest margin over the past year. During the year, we repurchased 1.9 million shares of stock using borrowed funds, which positively impacted earnings per share results but had the effect of reducing net interest margin. We also increased our investments in bank-owned life insurance (earnings from which are classified as non-interest income) and in real estate held for development in the last twelve months which negatively impacts net interest margin.
Loan Portfolio Composition(1)
12/31/06 9/30/06 12/31/05
----------------- ----------------- -----------------
(Dollars in thousands)
One- to
four-family $4,012,468 53.9% $4,407,154 56.2% $4,256,913 59.0%
Home equity
lines of credit 1,211,037 16.2 1,250,136 15.9 1,282,154 17.8
Home equity and
consumer loans 96,471 1.3 103,528 1.3 70,162 1.0
Multi-family 801,866 10.8 800,624 10.2 698,659 9.7
Commercial real
estate 628,957 8.4 614,952 7.8 492,307 6.8
Construction 194,254 2.6 181,932 2.3 109,691 1.5
Land 304,685 4.1 299,377 3.8 171,580 2.4
Commercial
business loans 198,853 2.7 194,759 2.5 129,771 1.8
---------- ----- ---------- ----- ---------- -----
Total loans
receivable,
net $7,448,591 100.0% $7,852,462 100.0% $7,211,237 100.0%
========== ===== ========== ===== ========== =====
(1) Certain loan reclassifications have been made for December 31, 2005 to
conform to current period classification.
To further our strategy of shifting our loan portfolio mix into higher-yielding loan categories, during 2006 we limited balance sheet growth in lower-yielding one- to four-family residential loans by selling more of our originations. One- to four-family loan balances declined by nearly $400 million during the current quarter (about half of which related to the balance sheet restructuring), to 53.9% of total loans at December 31, 2006, compared to 59.0% a year earlier. Multi-family, commercial real estate, construction, land and commercial business loans increased to 28.6% of total loans at year-end compared to 22.2% a year ago.
Non-Interest Income
Three Months Ended Year Ended
December 31, December 31,
------- ------- ------- -------
2006 2005 2006 2005
------- ------- ------- -------
Total non-interest income (000's) $ 9,683 24,141 $75,918 81,176
Total non-interest income, exclusive
of balance sheet restructuring
charges(000's) 26,773 24,141 93,008 81,176
Non-interest income, exclusive of
balance sheet restructuring charges
/ total revenue(1) 30.8% 27.4 26.4% 23.5
(1) Total revenue equals net interest income plus non-interest income
exclusive of balance sheet restructuring charges.
Pre-tax restructuring charges included in non-interest income for the fourth quarter were $17.1 million. This included a $4.2 million lower of cost or market adjustment on loans transferred to held for sale and $12.9 million of other-than-temporary impairment charges on investment and mortgage-backed securities identified for sale. Exclusive of these charges, non-interest income increased by 10.9% compared to the fourth quarter of 2005. The increases are primarily the result of higher gains on sale of loans and loan servicing rights, higher deposit service fee income, and increased income from bank-owned life insurance investments. Non-interest income for 2006 was up by 14.6% from 2005, exclusive of the impact of restructuring charges.
Residential Mortgage Originations, Sales and Servicing
Three Months Ended Year Ended
December 31, December 31,
------------------------ ------------------------
2006 2005 2006 2005
----------- ------------ ----------- ------------
(Dollars in thousands)
1-4 Family Originations
and Purchases
Fixed-rate $ 167,352 159,512 $ 632,762 674,882
Adjustable rate 179,301 353,523 932,336 1,363,816
----------- ------------ ----------- ------------
Total $ 346,653 513,035 $ 1,565,098 2,038,698
=========== ============ =========== ============
Fixed-rate % 48% 31 40% 33
Adjustable rate % 52 69 60 67
Refinance % 42 33 33 31
Loan Sales
One- to four-family
fixed-rate $ 153,972 166,778 $ 638,903 661,641
One- to four-family
adjustable rate 134,276 - 525,186 24,839
----------- ------------ ----------- ------------
Total one- to
four-family 288,248 166,778 1,164,089 686,480
Home equity loans and
lines of credit 21,235 11,698 114,538 139,270
----------- ------------ ----------- ------------
Total loans sold $ 309,483 178,476 $ 1,278,627 825,750
=========== ============ =========== ============
Gain on sale of one- to
four - family
mortgages 3,541 1,575 11,204 7,100
Lower of cost or market
adjustment on loans
transferred to held
for sale (4,156) - (4,156) -
Gain on sale of home
equity loans and lines
of credit 430 266 1,745 3,575
----------- ------------ ----------- ------------
Total loan sale
gains (losses) $ (185) 1,841 $ 8,793 10,675
=========== ============ =========== ============
Margin on one- to four
-family loan sales
(exclusive of lower of
cost or market
adjustment) 1.23% .94 .96% 1.03
Loan Servicing
Gain on sale of
mortgage servicing
rights $ 3,600 2,400 $ 3,600 2,400
Loan servicing fee
income $ 861 443 $ 3,409 2,261
Valuation recovery on
mortgage servicing
rights - 46 - 171
Capitalized mortgage
servicing rights as a
percentage of loans
serviced for others .65% .69 .65% .69
Despite lower one- to four-family mortgage loan volume for the fourth quarter and year ended December 31, 2006 compared to the prior year, our strategy to sell more of our loan originations resulted in a 73% increase in one- to four-family loan sale volume in the current quarter compared to the fourth quarter of 2005, and a 70% increase on a year-over-year basis. Loan sale gains, exclusive of the lower of cost or market adjustment to loans held for sale (included in the balance sheet restructuring charge), were $3.5 million, up 125% from last year's fourth quarter. Margins on loan sales improved in the current quarter due to increased margins realized on ALT-A mortgage sales and selling more loans on a servicing-released basis. Higher sales volume of equity lines of credit during the current quarter also impacted loan sales gains.
During the fourth quarter, the Company completed a sale of mortgage servicing rights on approximately $963 million of loans, or 27% of its one- to four-family mortgage loans serviced for others portfolio, at a pre-tax gain of $3.6 million. The loan servicing rights were sold to take advantage of an increase in servicing values and represented primarily single service customers. The Company had a similar transaction in last year's fourth quarter, selling servicing rights on approximately $750 million of loans for a pre-tax gain of $2.4 million.
Loan servicing income increased for both the quarter and the year ended December 31, 2006 compared to prior year periods. This was primarily due to continued growth in the loans serviced for others portfolio and lower mortgage servicing rights amortization expense as loan prepayments have slowed in the servicing portfolio. Loan servicing fee income is expected to decline in 2007 due to the impact of the loan servicing rights sale and the current conditions in the mortgage market.
Deposit Account Service Fees
Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
------- ------- ------- -------
Deposit account service
charges (000's) $10,592 9,436 $41,837 35,193
Deposit account service fees / total
revenue exclusive of balance sheet
restructuring charges 12.2% 10.7 11.9% 10.2
Number of checking accounts
(period end) 266,200 252,200 266,200 252,200
We experienced a 12.3% increase in deposit account service charges for the current three-month period compared to last year's fourth quarter and an 18.9% increase during 2006 compared to 2005. The growth reflects increases in debit card activity and higher consumer overdraft activity due in part to allowing overdrafts at ATMs. The expansion of the deposit base relating to the February 2006 EFC acquisition also increased overall service fees.
Real Estate Development Operations
Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
------- ------- ------- -------
Real estate development income
(loss) - total (000's) $ (306) 2,762 $ 785 2,928
Residential lot sale closings - 123 86 123
Pending lot sales (period end) 33 85 33 85
Real estate held for development
or sale (period end) (000's) $83,049 50,066 $83,049 50,066
As previously reported, the loss in real estate development in the fourth quarter of 2006 resulted from the Company's decision not to exercise an expiring option to purchase a parcel of real estate in Plainfield, IL, which resulted in a write-off of an earnest money deposit and other costs. The slow real estate sales market and the considerable investment the Company has in the Springbank development in Plainfield led to this decision. There were no lot sales in Springbank during the fourth quarter, and 33 lots were under contract at December 31, 2006. The Company currently expects that lot sales in 2007 will be negatively impacted by the slowdown in the real estate market as the increase in inventory of existing homes for sale and uncertain outlook for new home sales has reduced current builder demand for new lots.
The increase in the balance of investment in real estate held for development or sale as compared to a year ago relates primarily to additional land purchases and development cost expenditures related to Springbank.
Non-Interest Expense
Three Months Ended Year Ended
December 31, December 31,
2006 2005 2006 2005
------- ------- ------- -------
Total non-interest expense (000's) $49,593 44,936 $198,070 186,074
Total non-interest expense, exclusive
of balance sheet restructuring
charges (000's) 46,780 44,936 195,257 186,074
Non-interest expense to average
assets exclusive of balance sheet
restructuring charges 1.66% 1.74 1.73% 1.86
Efficiency ratio (1) 56.16 52.41 56.07 54.31
(1) The efficiency ratio is calculated by dividing non-interest expense
exclusive of restructuring charges by the sum of net interest income
and non-interest income exclusive of restructuring charges and net
gain/(loss) on sale and write-down of mortgage-backed and investment
securities, mortgage servicing rights and fixed assets.
Total non-interest expense in the current quarter increased $4.7 million compared to the fourth quarter of 2005. The current quarter includes $2.8 million of charges related to the prepayment of $502 million of borrowings as part of the balance sheet restructuring. Compensation and benefits increased by $1.6 million, or 7.0%, due to normal annual salary increases and increased employee headcount, partly due to our acquisition of EFC Bancorp in February 2006.
The Company is focused on controlling non-interest expenses in this difficult operating environment. Non-interest expense exclusive of restructuring charges grew at only 4.1% for the quarter and 4.9% for the year ended December 31, 2006 compared to the same periods a year ago, despite additional headcount and occupancy costs arising from the acquisition of EFC Bancorp and opening two denovo branches in late 2005. These efforts to carefully monitor and control non-interest expense levels will continue across all business lines in 2007.
Non-interest expense totaled $198.1 million in 2006 including the prepayment charges noted above. This compared to $186.1 million reported for 2005. Compensation and benefits expense increased by 5.8% during 2006 while occupancy and equipment costs increased by 8.2% over this same period. The increase in these categories is primarily due to the impact of the EFC transaction and normal salary increases. Amortization of core deposit intangibles increased as a result of the EFC acquisition. Lower advertising expenses were due to lower promotional campaign activity in 2006 compared to last year. Professional expense decreased $2.0 million primarily due to lower consulting fees. In 2005 we incurred consulting fees related to various process improvements including an automated work flow system for the mortgage loan division and Sarbanes-Oxley and Bank Secrecy anti-money laundering compliance costs.
Income Tax Expense
Income tax expense totaled $9.8 million in the current quarter, equal to an effective income tax rate of 51.7%, compared to 35.0% reported for the fourth quarter of 2005. The increase in income taxes and the effective tax rate in the current quarter primarily results from $4.0 million of charges taken to adjust tax reserves due to uncertainties arising from a proposed assessment made in a recent tax authority audit of prior year tax returns, as well as for other potential tax liabilities and uncertainties. The Company disagrees with the proposed tax assessment and intends to defend its tax filing positions. Exclusive of these fourth quarter charges and the balance sheet restructuring charges, the Company's effective tax rate for the current quarter would have been 35.0%.
Income tax expense totaled $49.0 million in 2006, equal to an effective income tax rate of 36.7%, compared to $54.5 million or 34.5% reported for 2005. The increase in the effective tax rate compared to the prior year period was primarily attributable to certain tax charges recorded in the fourth quarter.
Asset Quality
12/31/06 9/30/06 12/31/05
---------- ---------- ----------
(Dollars in thousands)
Non-performing loans (NPL) $ 66,486 48,492 31,160
Non-performing assets (NPA) 70,428 52,326 31,949
NPL / total loans .89% .62 .43
NPA / total assets .63 .46 .30
Allowance for loan losses (ALL) $ 39,931 40,402 36,495
ALL / total loans .54 .51% .51
ALL / NPL 60.1 83.3 117.1
Provision for loan losses
(quarter ended) 1,350 900 1,500
Net charge-offs (quarter ended) 1,821 896 1,340
The increase in non-performing loans in the current quarter primarily relates to our residential loan portfolio. Also contributing to the increase in non-performing loans at December 31, 2006 is $5.6 million related to one loan on a commercial office building that resulted from the Bank advancing funds under a standby letter of credit in December as previously disclosed. During the quarter, the Bank recorded an additional $200,000 charge-off related to this loan. The loan is expected to be repaid in the first quarter of 2007. At December 31, 2006, loans secured by one- to four-family residential real estate comprised 83.5% of non-performing loans compared to 88.7% at September 30, 2006 and 93.1% at December 31, 2005.
Most of the charge-offs in the quarter were related to the residential loan portfolio, primarily home equity lines of credit. We have taken steps over the past year to enhance our residential portfolio risk management which has led to tightened underwriting standards for some of the nontraditional mortgage products we introduced over the past several years. We have also been selling more of the loans we originate of certain product types that we believe have higher risk of loss as part of our risk management strategies. The provision for loan losses in the current quarter reflects the level of charge-offs, offset by the $404 million shrinkage in the loan portfolio, which includes $220 million of loans transferred to loans held for sale as part of the restructuring, as well as the increase in non-performing loans and portfolio delinquencies, adverse housing market conditions and the shift in the mix of the portfolio.
Balance Sheet & Capital
12/31/06 9/30/06 12/31/05
---------- ---------- ----------
(Dollars in thousands)
Assets:
Total assets 11,120,499 11,464,799 10,487,504
Loans receivable, net of allowance for
loan losses 7,408,660 7,812,060 7,174,742
Mortgage-backed securities 1,407,796 1,436,544 1,556,570
Investment securities 529,998 530,405 475,152
Liabilities and Equity:
Total liabilities 10,048,354 10,405,647 9,509,325
Deposits 7,018,010 6,876,975 6,197,503
Borrowed funds 2,773,192 3,275,369 3,057,669
Junior subordinated debentures 67,011 67,011 67,011
Stockholders' equity 1,072,145 1,059,152 978,179
Deposit Composition
12/31/06 9/30/06 12/31/05
-------- -------- --------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
---------- -------- ---------- -------- ---------- --------
(Dollars in thousands)
Commercial
checking $ 300,624 -% $ 303,777 -% $ 258,632 -%
Non-interest
bearing
checking 303,480 - 294,087 - 291,462 -
Interest-
bearing
checking 739,149 1.03 723,667 1.08 816,387 .98
Commercial
money market 105,783 4.03 82,225 3.95 60,064 3.07
Money market 900,959 3.84 721,278 3.36 615,280 2.34
Passbook 1,113,980 0.71 1,165,252 .72 1,268,680 .60
---------- -------- ---------- -------- ---------- --------
Core
deposits $3,463,975 1.57 3,290,286 1.33 3,310,505 .96
---------- -------- ---------- -------- ---------- --------
Certificates
of deposit 3,554,317 4.72 3,587,069 4.48 2,885,998 3.65
Unamortized
premium
(discount),
net (282) - (380) - 1,000 -
---------- -------- ---------- -------- ---------- --------
Total
deposits $7,018,010 3.17% $6,876,975 2.97% $6,197,503 2.22%
========== ======== ========== ======== ========== ========
Since December 31, 2005 deposits have increased $820.5 million primarily due to deposits added in the EFC acquisition. Intense rate competition has made organic deposit growth challenging during 2006. Despite increases in interest rates and competition for deposits, the Company has been successful in maintaining a stable retail deposit base at attractive rates compared to wholesale funding costs.
Borrowed Funds
12/31/06 9/30/06 12/31/05
-------- ------- --------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
---------- -------- ---------- -------- ---------- --------
(Dollars in thousands)
Federal Home
Loan Bank
advances:
Fixed rate $1,605,000 4.30% $2,333,400 4.45% $2,221,000 4.21%
Adjustable
rate 150,000 5.45 200,000 5.46 250,000 4.42
Open line 400,000 5.29 - - - -
---------- -------- ---------- -------- ---------- --------
Total
FHLBC
advances 2,155,000 4.56 2,533,400 4.53 2,471,000 4.23
---------- -------- ---------- -------- ---------- --------
Reverse
repurchase
agreements 400,000 4.94 500,000 4.97 500,000 4.24
Unsecured
term loan 147,500 6.32 155,000 6.43 63,000 5.14
Other
borrowings 70,750 4.74 68,831 4.63 23,379 3.38
Unsecured
line of
credit - - 15,000 6.18 - -
Unamortized
premium (58) - 3,138 - 290 -
---------- -------- ---------- -------- ---------- --------
Total
borrowed
funds $2,773,192 4.71% $3,275,369 4.69% $3,057,669 4.24%
========== ======== ========== ======== ========== ========
In December 2006, $400 million of short-term open line advances were used to fund the majority of the $502 million of fixed-rate advances repaid as part of the balance sheet restructuring. The open line advance was repaid in January 2007 using proceeds from the sales of investment and mortgage-backed securities.
Stockholders' Equity
During the current quarter, we declared $8.2 million in cash dividends. The after-tax unrealized loss on securities held for sale improved by $10.3 million in the current quarter. This was primarily due to the recognition during the fourth quarter of $7.9 million of losses on investments identified for sale as part of the balance sheet restructuring. The Bank's tangible, core and risk-based capital ratios at December 31, 2006 exceeded minimum and well-capitalized regulatory capital requirements with an additional increase expected in January from the full impact of the balance sheet restructuring. These higher capital levels will provide additional financial flexibility. Return on equity for the three months ended December 31, 2006 was 9.43%, exclusive of balance sheet restructuring charges and certain tax charges. This compared to 11.13% for the fourth quarter of 2005. Return on tangible equity for the current quarter was 15.26%, exclusive of these charges, compared to 16.45% for the fourth quarter of 2005. For information regarding the calculation of return on equity and return on tangible equity ratios exclusive of the balance sheet restructuring and certain tax charges, see "Reconciliation of GAAP to Non-GAAP Financial Measures."
Company Profile
MAF Bancorp is the parent company of Mid America Bank, a federally chartered stock savings bank. The Bank currently operates a network of 82 retail banking offices throughout Chicago and Milwaukee and their surrounding areas. The Company's common stock trades on the NASDAQ Stock Market under the symbol MAFB.
Forward-Looking Information
Statements contained in this news release that are not historical facts, constitute forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended), which involve significant risks and uncertainties. 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. These 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. The Company undertakes no obligation to update these forward-looking statements in the future.
Factors which could have a material adverse effect on operations and could affect management's outlook or future prospects of the Company and its subsidiaries include, but are not limited to, unanticipated changes in interest rates or further inversion of the yield curve, unanticipated changes in secondary mortgage market conditions, deposit flows, competition, unfavorable resolutions of proposed tax assessments and pending tax uncertainties, adverse federal or state legislative or regulatory developments, higher than expected compliance costs, changes in economic conditions which result in increased delinquencies in the Company's loan portfolio, the quality or composition of the Company's loan or investment portfolios, demand for loan products, financial services and residential real estate in the Company's market areas, delays in the closing of existing lot sale contracts, deterioration in local housing markets, the possible short-term dilutive effect of other potential acquisitions, if any, 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.
MAF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Three Months Ended Year Ended
December 31, December 31,
------------------- -------------------
2006 2005 2006 2005
-------- --------- -------- ---------
(Unaudited)
Interest income $151,042 128,324 $595,200 478,656
Interest expense 90,906 64,306 335,571 213,897
-------- --------- -------- ---------
Net interest income 60,136 64,018 259,629 264,759
Provision for loan losses 1,350 1,500 3,900 1,980
-------- --------- -------- ---------
Net interest income after
provision for loan losses 58,786 62,518 255,729 262,779
Non-interest income:
Net gain (loss) on sale and
writedown of:
Loans receivable held for
sale (185) 1,841 8,793 10,675
Mortgage-backed securities (9,316) - (9,316) -
Investment securities (3,614) - (3,614) 727
Fixed assets 9 22 795 164
Foreclosed real estate (221) 25 (322) 221
Mortgage loan servicing
rights 3,600 2,400 3,600 2,400
Deposit account service
charges 10,592 9,436 41,837 35,193
Other loan fees 1,917 1,917 6,821 6,303
Bank-owned life insurance
income 2,161 1,456 7,303 5,576
Brokerage and insurance
commissions 1,715 1,351 6,281 4,891
Loan servicing fee income,
net 861 443 3,409 2,261
Valuation recovery on
mortgage servicing rights - 46 - 171
Income (loss) from real
estate operations (306) 2,762 785 2,928
Other 2,470 2,442 9,546 9,666
-------- --------- -------- ---------
Total non-interest income 9,683 24,141 75,918 81,176
Non-interest expense:
Compensation and benefits 25,100 23,463 105,795 99,988
Office occupancy and
equipment 7,787 7,786 31,813 29,393
Advertising and promotion 1,522 1,229 7,656 8,313
Data processing 2,508 2,100 9,695 8,144
Prepayment charge related to
repayment of borrowings 2,813 - 2,813 -
Other 8,822 9,641 35,989 37,334
Amortization of core deposit
intangibles 1,041 717 4,309 2,902
-------- --------- -------- ---------
Total non-interest expense 49,593 44,936 198,070 186,074
-------- --------- -------- ---------
Income before income taxes 18,876 41,723 133,577 157,881
Income taxes 9,757 14,591 48,994 54,528
-------- --------- -------- ---------
Net income $ 9,119 27,132 $ 84,583 103,353
======== ========= ======== =========
Basic earnings per share $ 0.28 0.85 $ 2.55 3.20
======== ========= ======== =========
Diluted earnings per share 0.27 0.83 2.51 3.13
======== ========= ======== =========
Average common and common
equivalent shares outstanding
(in thousands):
Basic 32,859 32,062 33,177 32,307
Diluted 33,451 32,693 33,765 32,984
MAF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
December 31, December 31,
2006 2005
------------ ------------
(Unaudited)
Assets
Cash and due from banks $ 198,391 $ 183,799
Interest-bearing deposits 67,883 38,491
Federal funds sold 64,944 23,739
------------ ------------
Total cash and cash equivalents 331,218 246,029
Investment securities available for sale, at
fair value 529,998 475,152
Stock in Federal Home Loan Bank of Chicago, at
cost 146,407 165,663
Mortgage-backed securities available for sale,
at fair value 1,195,494 1,313,409
Mortgage-backed securities held to maturity
(fair value $205,610 and $237,489) 212,302 243,161
Loans receivable held for sale 331,961 114,482
Loans receivable, net 7,448,591 7,211,237
Allowance for loan losses (39,931) (36,495)
------------ ------------
Loans receivable, net of allowance for loan
losses 7,408,660 7,174,742
------------ ------------
Accrued interest receivable 50,372 44,339
Foreclosed real estate 3,942 789
Real estate held for development or sale 83,049 50,066
Premises and equipment, net 174,474 149,312
Bank-owned life insurance 149,497 107,253
Other assets 78,263 68,685
Goodwill 387,980 304,251
Intangibles, net 36,882 30,171
------------ ------------
Total assets $ 11,120,499 $ 10,487,504
Liabilities and Stockholders' Equity
Liabilities:
Deposits 7,018,010 6,197,503
Borrowed funds 2,773,192 3,057,669
Junior subordinated debentures 67,011 67,011
Advances by borrowers for taxes and
insurance 44,115 45,115
Accrued expenses and other liabilities 146,026 142,027
------------ ------------
Total liabilities 10,048,354 9,509,325
------------ ------------
Stockholders' equity:
Preferred stock, $.01 par value; authorized
5,000,000 shares; none outstanding - -
Common stock, $.01 par value; 80,000,000
shares authorized; 34,499,494 and
33,634,642 shares issued; 32,895,846 and
32,066,721 shares outstanding 345 336
Additional paid-in capital 569,142 527,131
Retained earnings, substantially restricted 579,651 537,140
Accumulated other comprehensive loss, net of
tax (8,476) (19,391)
Treasury stock, at cost 1,603,648 and 1,567,921
shares (68,517) (67,037)
------------ ------------
Total stockholders' equity 1,072,145 978,179
------------ ------------
$ 11,120,499 $ 10,487,504
============ ============
MAF BANCORP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Dollars in thousands, except share data)
(Unaudited)
December 31, December 31,
2006 2005
-------------- -------------
Book value per share $ 32.59 $ 30.50
Tangible book value per share(1) 20.21 20.70
Stockholders' equity to total assets 9.64% 9.33%
Tangible stockholders' equity to tangible
assets(1) 6.21 6.52
Tangible capital ratio (Bank only) 7.44 7.07
Core capital ratio (Bank only) 7.44 7.07
Risk-based capital ratio (Bank only) 11.25 11.15
Common shares outstanding 32,895,846 32,066,721
Mortgage loans serviced for others $ 2,680,242 $ 2,919,075
Capitalized mortgage servicing rights, net 17,550 20,007
Core deposit intangibles, net 19,332 10,164
Three Months Ended Year Ended
December 31, December 31,
-------------------------- --------------------------
2006 2005 2006 2005
------------ ------------ ------------ ------------
Average balance
data:
Total assets $ 11,251,906 $ 10,340,168 $ 11,300,401 $ 9,994,672
Loans receivable 7,871,109 7,243,131 8,007,644 7,051,371
Interest-earning
assets 10,222,229 9,505,190 10,317,994 9,193,692
Interest-bearing
deposits 6,378,540 5,639,587 6,245,283 5,575,696
Interest-bearing
liabilities 9,498,166 8,671,094 9,506,348 8,360,019
Stockholders'
equity 1,067,914 974,797 1,051,984 961,538
Tangible
stockholders'
equity 660,032 659,850 650,992 644,876
Performance ratios
(exclusive of
balance sheet
restructuring and
certain tax
charges) (1) (2)
Return on
average assets 0.90% 1.05% 0.89% 1.03%
Return on
average equity 9.43 11.13 9.57 10.75
Return on
average
tangible equity 15.26 16.45 15.46 16.03
Non-interest
expense to
average assets 1.66 1.74 1.73 1.86
Efficiency
ratio(3) 56.16 52.41 56.07 54.31
Loans sold 309,483 178,476 1,278,627 825,750
Cash dividends
declared per share .25 .23 1.00 .92
(1) See "Reconciliation of GAAP to Non-GAAP Financial Measures" on the
following pages.
(2) Ratios shown for the three month periods are annualized.
(3) The efficiency ratio is calculated by dividing non-interest expense exclusive of balance sheet restructuring charges by the sum of net interest income and non-interest income exclusive of balance sheet restructuring charges and net gain (loss) on sale of mortgage-backed and investment securities and fixed assets.
MAF BANCORP, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
This press release contains certain financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America, or GAAP. The Company's management uses tangible book value per share, tangible stockholders' equity to tangible assets ratio and return on average tangible equity in its analysis of the Company's performance and financial condition and believes this presentation provides useful supplemental information that is helpful in understanding our financial condition and results, as it provides a method to assess management's success in managing alternatives for the utilization of tangible capital.
The Company believes net income, non-interest income and non-interest expense adjusted for the balance sheet restructuring and certain tax charges is useful supplemental information to better understand the core operating performance of the Company. The excluded tax charges relate to adjustments to tax reserves for prior year periods that were recorded in the fourth quarter because of uncertainties that recently arose relating to an unresolved tax authority audit and other developments.
These disclosures should not be considered an alternative to GAAP, nor are they necessarily comparable to non-GAAP performance measures that might be presented by other companies.
Tangible Book Value Per Share
Tangible book value per share is calculated by dividing (a) stockholders' equity less the sum of goodwill and core deposit intangibles, by (b) common shares outstanding. The following table presents a reconciliation of stockholders' equity to tangible stockholders' equity (in thousands):
12/31/06 9/30/06 12/31/05
------------------- ------------------- -------------------
Per Per Per
Amount share Amount share Amount share
----------- ------ ----------- ------ ----------- ------
Stockholders'
equity - as
reported $ 1,072,145 32.59 $ 1,059,152 32.28 $ 978,179 30.50
Goodwill (387,980) (11.79) (387,903) (11.82) (304,251) (9.48)
Core
deposit
intangibles (19,332) (0.59) (20,374) (0.62) (10,164) (0.32)
----------- ------ ----------- ------ ----------- ------
Tangible
stockholders'
equity $ 664,833 20.21 $ 650,875 19.84 $ 663,764 20.70
=========== ====== =========== ====== =========== ======
Tangible Stockholders' Equity to Tangible Assets
Tangible stockholders' equity to tangible assets is calculated by dividing (a) stockholders' equity less the sum of goodwill and core deposit intangibles, by (b) total assets less the sum of goodwill and core deposit intangibles. The following table presents a reconciliation of total assets to tangible assets (in thousands):
12/31/06 9/30/06 12/31/05
------------ ------------ ------------
Total assets - as reported $ 11,120,499 $ 11,464,799 $ 10,487,504
Goodwill (387,980) (387,903) (304,251)
Core deposit intangibles (19,332) (20,374) (10,164)
------------ ------------ ------------
Tangible total assets $ 10,713,187 $ 11,056,522 $ 10,173,089
============ ============ ============
Return on Average Stockholders' Equity and Return on Average Tangible
Stockholders' Equity
Return on average stockholders' equity is calculated by dividing (a) annualized net income adjusted for balance sheet restructuring charges and certain tax charges (see below) by (b) average stockholders' equity. Return on average tangible stockholders' equity is calculated by dividing (a) annualized net income adjusted for balance sheet restructuring charges and certain tax charges by (b) average stockholders' equity less average goodwill and core deposit intangibles. The following table presents a reconciliation of average stockholders' equity to average tangible stockholders' equity (in thousands):
Three Months Ended Year Ended
December 31, December 31,
------------------------ ------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Average stockholders’
equity $ 1,067,914 974,797 $ 1,051,984 961,538
Average goodwill (387,870) (304,313) (380,489) (304,950)
Average core deposit
intangibles (20,012) (10,634) (20,503) (11,712)
----------- ----------- ----------- -----------
Average tangible
stockholders’ equity $ 660,032 659,850 $ 650,992 644,876
=========== =========== =========== ===========
The following three tables reconcile net income, non-interest income and
non-interest expense to net income, non-interest income and non-interest
expense as adjusted for the balance sheet restructuring and certain tax
charges (in thousands):
Net income adjusted for balance sheet restructuring and certain tax charges
Three Months
Ended Year Ended
December 31, December 31,
------------ ------------
2006 2006
------------ ------------
Net income - as reported $ 9,119 84,583
Lower of cost of market adjustment on loans
transferred to held for sale 4,156 4,156
Loss on mortgage-backed securities 9,316 9,316
Loss on investment securities 3,618 3,618
Prepayment charge related to repayment
of borrowings 2,813 2,813
Tax benefits related to balance sheet
restructuring charges (7,798) (7,798)
Certain tax charges 3,963 3,963
------------ ------------
Net income adjusted for balance sheet
restructuring
and certain tax charges $ 25,187 100,651
============ ============
Return on average assets is calculated by dividing (a) net income adjusted for balance sheet restructuring and certain tax charges by (b) average total assets.
Non-interest income adjusted for balance sheet restructuring charges
Three Months
Ended Year Ended
December 31, December 31,
------------- -------------
2006 2006
------------- -------------
Non-interest income - as reported $ 9,683 75,918
Lower of cost of market adjustment on loans
transferred to held for sale 4,156 4,156
Loss on mortgage-backed securities 9,316 9,316
Loss on investment securities 3,618 3,618
------------- -------------
Non-interest income adjusted for balance sheet
restructuring charges $ 26,773 93,008
============= =============
Non-interest expense adjusted for balance sheet restructuring charges
Three Months Year
Ended Ended
December 31, December 31,
------------ ------------
2006 2006
------------ ------------
Non-interest expense - as reported $ 49,593 198,070
Prepayment charge related to repayment
of borrowings (2,813) (2,813)
------------ ------------
Non-interest expense adjusted for balance sheet
restructuring charges $ 46,780 195,257
============ ============
The ratio of non-interest expense to average assets is calculated by dividing (a) non-interest expense adjusted for balance sheet restructuring charges by (b) average total assets.
