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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
COMMISSION FILE NUMBER 0-20006
ANCHOR BANCORP WISCONSIN INC.
-----------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Wisconsin 39-1726871
-------------------- --------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
25 West Main Street
Madison, Wisconsin 53703
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(Address of principal executive office) (Zip Code)
(608) 252-8700
-------------------------------
Registrant's telephone number, including area code
Not Applicable
-------------------------------
(Former name, former address, and former fiscal year, if changed since last
report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class: Common stock -- $.10 Par Value
Number of shares outstanding as of July 31, 2000: 23,165,985
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ANCHOR BANCORP WISCONSIN INC.
INDEX - FORM 10-Q
PART I - FINANCIAL INFORMATION PAGE #
------
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2000
and March 31, 2000 2
Consolidated Statements of Income for the Three
Months Ended June 30, 2000 and 1999 3
Consolidated Statements of Cash Flows for the Three
Months Ended June 30, 2000 and 1999 4
Notes to Unaudited Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations 8
Financial Condition 12
Asset Quality 13
Liquidity & Capital Resources 15
Asset/Liability Management 17
Item 3 Quantitative and Qualitative Disclosures About Market Risk 20
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 20
Item 2 Changes in Securities 20
Item 3 Defaults upon Senior Securities 20
Item 4 Submission of Matters to Vote of Security Holders 20
Item 5 Other Information 20
Item 6 Exhibits and Reports on Form 8-K 20
SIGNATURES 22
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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
JUNE 30, MARCH 31,
2000 2000
--------------------------------
(In Thousands)
ASSETS
Cash $ 58,823 $ 46,560
Interest-bearing deposits 17,457 37,148
------------ ------------
Cash and cash equivalents 76,280 83,708
Investment securities available for sale 43,111 34,936
Investment securities held to maturity (fair value of $49,776 and
$49,971, respectively) 51,037 51,270
Mortgage-related securities available for sale 55,114 57,276
Mortgage-related securities held to maturity (fair value of $225,118
and $234,505, respectively) 233,552 243,243
Loans receivable, net:
Held for sale 2,137 1,764
Held for investment 2,408,939 2,302,721
Foreclosed properties and repossessed assets, net 376 272
Real estate held for development and sale 48,698 34,063
Office properties and equipment 25,341 25,712
Federal Home Loan Bank stock--at cost 35,199 34,597
Accrued interest on investments and loans 20,208 19,364
Prepaid expenses and other assets 20,729 22,226
------------ ------------
Total assets $ 3,020,721 $ 2,911,152
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 1,922,008 $ 1,897,369
Federal Home Loan Bank and other borrowings 714,163 664,446
Reverse repurchase agreements 116,551 92,413
Advance payments by borrowers for taxes and insurance 15,698 8,213
Other liabilities 37,098 31,496
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Total liabilities 2,805,518 2,693,937
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Preferred stock, $.10 par value, 5,000,000 shares
authorized, none outstanding - -
Common stock, $.10 par value, 100,000,000 shares
authorized, 25,363,339 shares issued 2,536 2,536
Additional paid-in capital 56,587 56,496
Retained earnings 184,008 179,211
Less: Treasury stock (1,710,384 shares and 1,275,192 shares,
respectively), at cost (25,193) (18,438)
Common stock purchased by benefit plans (883) (923)
Accumulated other comprehensive income (loss) (1,852) (1,667)
------------ ------------
Total stockholders' equity 215,203 217,215
------------ ------------
Total liabilities and stockholders' equity $ 3,020,721 $ 2,911,152
============ ============
See accompanying Notes to Unaudited Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED JUNE 30,
-------------------------------------
2000 1999
-------------------------------------
(In Thousands, Except Per Share Data)
INTEREST INCOME:
Loans $ 47,359 $ 42,319
Mortgage-related securities 4,746 4,050
Investment securities 1,937 1,870
Interest-bearing deposits 379 214
-------- --------
Total interest income 54,421 48,453
INTEREST EXPENSE:
Deposits 21,858 19,876
Notes payable and other borrowings 11,875 7,796
Other 107 114
-------- --------
Total interest expense 33,840 27,786
-------- --------
Net interest income 20,581 20,667
Provision for loan losses 185 856
-------- --------
Net interest income after provision for loan losses 20,396 19,811
NON-INTEREST INCOME:
Loan servicing income 612 556
Service charges on deposits 1,400 1,306
Insurance commissions 529 218
Gain on sale of loans 360 1,029
Net income from operations of real estate investment 100 124
Other 369 427
-------- --------
Total non-interest income 3,370 3,660
NON-INTEREST EXPENSES:
Compensation 7,194 6,960
Occupancy 982 914
Federal insurance premiums 94 267
Furniture and equipment 947 889
Data processing 866 960
Marketing 686 670
Merger-related -- 8,500
Goodwill -- 1,761
Other 1,926 1,830
-------- --------
Total non-interest expenses 12,695 22,751
-------- --------
Income before income taxes 11,071 720
Income taxes 4,086 2,323
-------- --------
Net income (loss) $ 6,985 $ (1,603)
======== ========
Earnings per share:
Basic $ 0.30 $ (0.07)
Diluted 0.29 (0.06)
Dividends declared per share 0.07 0.05
See accompanying Notes to Unaudited Consolidated Financial Statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30,
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2000 1999
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(In Thousands)
OPERATING ACTIVITIES
Net income (loss) $ 6,985 $ (1,603)
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses on loans and real estate 185 856
Provision for depreciation and amortization 263 729
Net gain on sales of loans (360) (1,029)
Decrease (increase) in accrued interest receivable (844) 566
Increase (decrease) in accrued interest payable 1,324 (979)
Increase (decrease) in accounts payable 4,384 (2,913)
Other (2,791) 8,163
--------- ---------
Net cash provided by operating activities before proceeds
from loan sales 9,146 3,790
Net proceeds from origination and sale of loans held for sale (1,139) (43,738)
--------- ---------
Net cash provided by operating activities 8,007 (39,948)
INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale 2,159 2,143
Proceeds from maturities of investment securities 5,236 5,485
Purchase of investment securities available for sale (16,230) (19,600)
Purchase of investment securities held to maturity -- (11,000)
Purchase of mortgage-related securities held to maturity -- (8,851)
Purchase of mortgage-related securities available for sale -- (8,985)
Principal collected on mortgage-related securities 11,911 19,037
Loans originated for investment (253,684) (196,504)
Principal repayments on loans 153,091 164,955
Net office properties and equipment (371) (784)
Sales of real estate 312 1,866
Purchase of real estate held for development and sale (14,894) (3,827)
--------- ---------
Net cash used by investing activities (112,470) (56,065)
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CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
THREE MONTHS ENDED JUNE 30,
-------------------------------------
2000 1999
-------------------------------------
(In Thousands)
FINANCING ACTIVITIES
Increase in deposit accounts $ 24,639 $ 23,641
Increase in advance payments by borrowers
for taxes and insurance 7,485 5,081
Proceeds from notes payable to Federal Home Loan Bank 243,800 208,800
Repayment of notes payable to Federal Home Loan Bank (206,100) (183,400)
Increase in securities sold under agreements
to repurchase 24,138 21,896
Increase (decrease) in other loans payable 12,016 (2,150)
Treasury stock purchased (7,712) -
Reissuance of treasury stock for options 322 3,137
Purchase of stock by retirement plans 125 230
Payments of cash dividends to stockholders (1,678) (904)
-------- -------
Net cash provided by financing activities 97,035 76,331
-------- --------
Net decrease in cash and cash equivalents (7,428) (19,682)
Cash and cash equivalents at beginning of year 83,708 63,976
--------- --------
Cash and cash equivalents at end of year $ 76,280 $ 44,294
========= ========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid or credited to accounts:
Interest on deposits and borrowings $ 32,516 $ 19,688
Income taxes 3,877 3,288
Non-cash transactions:
Retirement of treasury stock - 2,613
See accompanying Notes to Unaudited Consolidated Financial Statements
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ANCHOR BANCORP WISCONSIN INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The unaudited consolidated financial statements include the accounts and results
of operations of Anchor BanCorp Wisconsin Inc. (the "Corporation") and its
wholly-owned subsidiaries, AnchorBank, S.S.B. (the "Bank"), Investment
Directions, Inc. ("IDI"), Nevada Investment Directions, Inc. ("NIDI") and
California Investment Directions, Inc. ("CIDI"). The Bank's accounts and results
of operations include its wholly-owned subsidiaries, Anchor Investment Services,
Inc. ("AIS"), ADPC Corporation ("ADPC"), and Anchor Investment Corporation
("AIC"). All significant intercompany balances and transactions have been
eliminated. Investments in joint ventures and other less than 50% owned
partnerships, which are not material, are accounted for by the equity method.
Partnerships with 50% ownership or more are consolidated, with significant
intercompany accounts eliminated.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") and with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the consolidated financial statements have been included.
In preparing the consolidated financial statements in conformity with GAAP,
management is required to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates. The results of operations and other
data for the three-month period ended June 30, 2000 are not necessarily
indicative of results that may be expected for any other interim period or the
entire fiscal year ending March 31, 2001. The unaudited consolidated financial
statements presented herein should be read in conjunction with the audited
consolidated financial statements and related notes thereto included in the
Corporation's Annual Report for the year ended March 31, 2000.
Unrealized gains or losses on the Corporation's available-for-sale securities
are included in other comprehensive income. During the quarter ended June 30,
2000 and 1999, total comprehensive income (loss) amounted to $6.8 million and
$(2.3) million, respectively.
RECLASSIFICATIONS Certain 1999 accounts have been reclassified to conform to the
2000 presentations.
NOTE 3 - STOCKHOLDERS' EQUITY
On May 19, 2000, 2,550 shares of restricted stock granted pursuant to the
Corporation's management recognition plan were earned by the recipients. During
the quarter ended June 30, 2000, options for 55,885 shares of common stock were
exercised at a weighted-average price of $5.84 per share. Treasury shares were
issued in exchange for the options using the last-in-first-out method. The cost
of treasury shares issued in excess of the option price paid was charged to
retained earnings $(510,000). During the quarter ended June 30, 2000, the
Corporation repurchased 498,991 shares of common stock. During the quarter,
7,914 shares of treasury stock were reissued to the Corporation's retirement
plans. The weighted-average cost of these shares was $15.28 per share or
$120,000 in the aggregate and the excess of the market price over cost of the
treasury shares $(4,000) was charged to retained earnings. On May 15, 2000, the
Corporation paid a cash dividend of $.07 per share of common stock, amounting to
$1.7 million.
NOTE 4 - EARNINGS PER SHARE
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NOTE 4 - EARNINGS PER SHARE
THREE MONTHS ENDED JUNE 30,
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2000 1999
-------------------------------------------
Numerator:
Net income $ 6,984,811 $ (1,603,185)
----------------- -----------------
Numerator for basic and diluted earnings
per share--income available to common
stockholders $ 6,984,811 $ (1,603,185)
Denominator:
Denominator for basic earnings per
share--weighted-average common
shares outstanding 23,311,159 24,501,732
Effect of dilutive securities:
Employee stock options 604,292 984,283
Denominator for diluted earnings per
share--adjusted weighted-average
----------------- -----------------
common shares and assumed conversions 23,915,451 25,486,015
================= =================
Basic earnings per share $ 0.30 $ (0.07)
================= =================
Diluted earnings per share $ 0.29 $ (0.06)
================= =================
Earnings per share for the three months ended June 30, 2000 and 1999 have been
determined by dividing net income for the respective periods by the weighted
average number of shares of common stock and common stock equivalents
outstanding. Common stock equivalents are computed using the treasury stock
method.
NOTE 5 - SUBSEQUENT EVENTS
On July 20, 2000, the Corporation declared a $0.075 per share cash dividend on
its common stock to be paid on August 15, 2000 to stockholders of record on
August 1, 2000.
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ANCHOR BANCORP WISCONSIN INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 Corporation desires to take
advantage of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995 and is including this statement for the expressed purpose of
availing itself of the protection of the safe harbor with respect to all of such
forward-looking statements. These forward-looking statements describe future
plans or strategies and include the Corporation's expectations of future
financial results. The Corporation's ability to predict results or the effect of
future plans or strategies is inherently uncertain and the Corporation can give
no assurance that those results or expectations will be attained. Factors that
could affect actual results include but are not limited to i) general market
rates, ii) changes in market interest rates and the shape of the yield curve,
iii) general economic conditions, iv) real estate markets, v)
legislative/regulatory changes, vi) monetary and fiscal policies of the U.S.
Treasury and the Federal Reserve, vii) changes in the quality or composition of
the Corporation's loan and investment portfolios, viii) demand for loan
products, ix) the level of loan and MBS repayments, x) deposit flows, xi)
competition, xii) demand for financial services in the Corporation's markets,
and xiii) changes in accounting principles, policies or guidelines. These
factors should be considered in evaluating the forward-looking statements, and
undue reliance should not be placed on such statements.
The Corporation does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
The following discussion is designed to provide a more thorough discussion of
the Corporation's financial condition and results of operations as well as to
provide additional information on the Corporation's asset/liability management
strategies, sources of liquidity and capital resources. Management's discussion
and analysis should be read in conjunction with the consolidated financial
statements and supplemental data contained elsewhere in this report.
RESULTS OF OPERATIONS
General. Net income for the three months ended June 30, 2000 increased $8.6
million to $7.0 million from a net loss of $1.6 million for the same period in
the prior year. The increase in net income for the three-month period compared
to the same period last year was largely due to the decrease in non-interest
expense of $10.1 million, primarily due to prior year merger-related expenses of
$8.5 million in connection with the acquisition of FCBF and the write off of
goodwill of $1.8 million that had become impaired, also in the same period in
the prior year. This increase was accompanied by an increase in interest income
of $6.0 million. The provision for loan losses for the three months ended June
30, 2000, decreased $670,000. These were offset by the $6.1 million increase in
interest expense, a $1.8 million increase in income taxes and the decrease in
non-interest income of $290,000 for the same three-month period.
Net Interest Income. Net interest income decreased $90,000 for the three months
ended June 30, 2000 compared to the same period in 1999. The net interest margin
decreased to 2.94% from 3.20% for the same respective three-month periods. The
interest rate spread decreased to 2.72% from 2.94%, for the three-month periods.
Interest income on loans increased $5.0 million for the three months ended June
30, 2000 as compared to the same period in the prior year. This increase was a
result of an increase of $171.4 million in the average balance of loans for the
periods due to increased loan originations. Interest income on mortgage-related
securities increased $700,000 for the same period due primarily to the increase
of $41.1 million in the average balance of mortgage-related securities. Interest
income on investment securities (including Federal Home Loan Bank stock)
increased $70,000 for the three-month period ended June 30, 2000 as compared to
the same period in the prior year. This was primarily a result of a decrease of
$5.9 million in the average balance of investment securities which was partially
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offset by an increase in interest rates for those investments for the three
months ended June 30, 2000 as compared to the same period in 1999. Interest
income on interest-bearing deposits increased $170,000 for the three months
ended June 30, 2000, due to an increase of $11.3 million in the average balance
of interest-bearing deposits.
Interest expense on deposits increased $2.0 million for the three months ended
June 30, 2000 as compared to the same period in 1999. The increase was due
primarily to the increase in the average balance of deposits of $45.1 million
for the three-month period as a result of various demand deposit and certificate
promotions. Interest expense on notes payable and other borrowings increased
$4.1 million during the same period due to an increase of $201.9 million in the
average balance of notes payable and other borrowings. Other interest expense
remained constant.
Provision for Loan Losses. Provision for loan losses decreased $670,000 to
$190,000 for the three-month period ended June 30, 2000 from $860,000 in the
same period for the prior year. The decrease included a $650,000 adjustment in
the prior year to bring FCBF's allowance in conformity with the Corporation's
allowance policy in connection with the acquisition. The provision was based on
management's ongoing evaluation of asset quality.
Average Interest-Earning Assets, Average Interest-Bearing Liabilities and
Interest Rate Spread. The following tables show the Corporation's average
balances, interest, average rates and the spread between the combined average
rates earned on interest-earning assets and average cost of interest-bearing
liabilities for the periods indicated. The average balances are derived from
average daily balances.
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THREE MONTHS ENDED JUNE 30,
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2000 1999
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AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST(1) BALANCE INTEREST COST(1)
----------------------------------------------------------------------------------
(Dollars In Thousands)
INTEREST-EARNING ASSETS
Mortgage loans $ 1,834,648 $ 35,862 7.82% $ 1,697,115 $ 31,934 7.53%
Consumer loans 448,339 9,808 8.75 402,402 8,656 8.60
Commercial business loans 71,608 1,689 9.43 83,634 1,729 8.27
------------ -------- ------------ --------
Total loans receivable 2,354,595 47,359 8.05 2,183,151 42,319 7.75
Mortgage-related securities 294,580 4,746 6.44 253,455 4,050 6.39
Investment securities 92,879 1,303 5.61 106,907 1,431 5.35
Interest-bearing deposits 25,121 379 6.03 13,792 214 6.21
Federal Home Loan Bank stock 35,159 634 7.21 27,000 439 6.50
------------ -------- ------------ --------
Total interest-earning assets 2,802,334 54,421 7.77 2,584,305 48,453 7.50
Non-interest-earning assets 133,837 95,713
------------ ------------
Total assets $ 2,936,171 $ 2,680,018
============ ============
INTEREST-BEARING LIABILITIES
Demand deposits $ 565,122 4,490 3.18 $ 526,479 3,461 2.63
Regular passbook savings 139,490 560 1.61 146,708 858 2.34
Certificates of deposit 1,177,018 16,808 5.71 1,163,380 15,557 5.35
------------ -------- ------------ --------
Total deposits 1,881,630 21,858 4.65 1,836,567 19,876 4.33
Notes payable and other borrowings 788,480 11,875 6.02 586,550 7,796 5.32
Other 12,331 107 3.47 12,298 114 3.71
------- ---- ------- --------
Total interest-bearing liabilities 2,682,441 33,840 5.05 2,435,415 27,786 4.56
-------- ------ -------- ------
Non-interest-bearing liabilities 37,521 23,389
------------ ------------
Total liabilities 2,719,962 2,458,804
Stockholders' equity 216,209 221,214
------------ ------------
Total liabilities and stockholders' equity $ 2,936,171 $ 2,680,018
============ ============
Net interest income/interest rate spread $ 20,581 2.72% $ 20,667 2.94%
======== ====== ========= ======
Net interest-earning assets $ 119,893 $ 48,890
============ ============
Net interest margin 2.94% 3.20%
====== ======
Ratio of average interest-earning assets
to average interest-bearing liabilities 1.04 1.06
==== ====
- --------------------------------------------
(1) Annualized
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Non-Interest Income. Non-interest income decreased $290,000 to $3.4 million from
$3.7 million, for the three months ended June 30, 2000 as compared to the same
period in the prior year as a result of several factors. The gain on sale of
loans decreased $670,000 for the three-month period due to decreased volume of
loan sales. Other non-interest income decreased $60,000 for the three-month
period ended June 30, 2000. Net income from operations of real estate
investments for the three months ended June 30, 2000 decreased $20,000. These
decreases were partially offset by an increase in insurance commissions of
$310,000 due to increased sales for the three-month period ended June 30, 2000.
Service charges on deposits increased $100,000 for the same three-month period
ended June 30, 2000 due to a growth in deposits. Loan servicing income increased
$60,000, for the same three-month period, largely due to an increase in the
volume of serviced loans.
Non-Interest Expense. Non-interest expense decreased $10.1 million to $12.7
million from $22.8 million during the three months ended June 30, 2000 as
compared to the same period in 1999 as a result of several factors.
Merger-related expense decreased $8.5 million for the three-month period ended
June 30, 2000, as compared to the same period in the prior year due to the
merger in June 1999 with FCBF. Goodwill expense also decreased $1.8 million
because unamortized goodwill from a previous merger became impaired and was
written off in the 1999 period. Exclusive of the one-time charges for the merger
and goodwill, other non-interest expense increased $210,000. Compensation
expense increased $230,000 due primarily to an increase in incentive
compensation resulting from increased loan production. Other non-interest
expense increased $100,000 for the three months ended June 30, 2000. Occupancy
expense increased $70,000 during the three-month period. Furniture and equipment
expenses increased $60,000 for the same time period, largely due to normal
increases in depreciation and other costs. Marketing expense increased $20,000
for the three-month period ending June 30, 2000. These increases were partially
offset by a decrease in federal insurance premiums of $170,000 due to a
reduction in the assessment. Data processing expense decreased $100,000 for the
three months ending June 30, 2000.
Income Taxes. Income tax expense increased $1.8 million during the three months
ended June 30, 2000 as compared to the same period in 1999. The effective tax
rate was 36.9% for the current year as compared to 322.6% for the three-month
period last year. The unusual effective tax rate for period ending June 30, 1999
is a result of certain merger-related costs and goodwill amortization that are
not deductible for tax purposes.
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FINANCIAL CONDITION
During the three months ended June 30, 2000, the Corporation's assets increased
by $109.6 million from $2.91 billion at March 31, 2000, to $3.02 billion. The
majority of this increase was attributable to increases in loans and investment
securities and was partially offset by decreases in mortgage-related securities.
Investment securities (both available for sale and held to maturity) increased
$7.9 million during the three months ended June 30, 2000 as a result of
purchases of $16.2 million of U.S. Government and agency securities which was
partially offset by sales and maturities of $8.3 million.
Mortgage-related securities (both available for sale and held to maturity)
decreased $11.9 million during the three months ended June 30, 2000 as a result
of principal repayments and market value adjustments. There were no purchases
during the period ended June 30, 2000. Mortgage-related securities consisted of
$256.4 million of mortgage-backed securities and $32.3 million of Collateralized
Mortgage Obligations ("CMO's") and Real Estate Mortgage Investment Conduits
("REMIC's") at June 30, 2000.
The Corporation's investments in CMO's and REMIC's are limited to federal agency
issued REMIC's which represent an interest in mortgage-backed securities. These
investments are deemed to have limited credit risk. The investments do have
interest rate risk due to, among other things, actual prepayments being more or
less than those predicted at the time of purchase. The Corporation invests only
in short-term tranches in order to limit the reinvestment risk associated with
greater than anticipated prepayments, as well as changes in value resulting from
changes in interest rates.
Total loans (including loans held for sale) increased $106.6 million during the
three months ended June 30, 2000. Activity for the period included (i)
originations and purchases of $300.9 million, (ii) sales of $46.0 million, and
(iii) principal repayments and other adjustments of $148.3 million.
Deposits increased $24.6 million during the three months ended June 30, 2000.
The increase was due primarily to new demand deposit products and certificate
promotions. Brokered deposits have been used in the past and may be used in the
future as the need for funds requires them. Brokered deposits totaled $100.7
million at June 30, 2000 and generally mature in one year. FHLB advances and
other borrowings increased $49.7 million during the three months ended June 30,
2000. Reverse repurchase agreements increased $24.1 million during the three
months ended June 30, 2000. Advance payments by borrowers for taxes and
insurance increased $7.5 million.
Stockholders' equity decreased $2.01 million during the three months ended June
30, 2000 as a net result of (i) comprehensive income of $6.8 million, (ii) stock
options exercised of $830,000 (with the excess of the cost of treasury shares
over the option price $(510,000) charged to retained earnings), (iii) the tax
benefit from certain stock options of $90,000, (iv) the purchase of stock by
retirement plans of $120,000, and (v) benefit plan shares earned and related tax
adjustments totaling $40,000. These were offset by (i) purchases of treasury
stock of $7.7 million and (ii) cash dividends of $1.7 million.
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ASSET QUALITY
Loans are placed on non-accrual status when, in the judgment of management, the
probability of collection of interest is deemed to be insufficient to warrant
further accrual. When a loan is placed on non-accrual status, previously accrued
but unpaid interest is deducted from interest income. As a matter of policy, the
Corporation does not accrue interest on loans past due 90 days or more.
Non-performing assets decreased $480,000 to $5.1 million at June 30, 2000 from
$5.6 million at March 31, 2000 and decreased as a percentage of total assets to
0.17% from 0.19% at such dates, respectively.
Non-performing assets are summarized as follows at the dates indicated:
AT JUNE 30, AT MARCH 31,
---------------------------------------------------
2000 2000 1999 1998
----------------- ---------------------------------------------------
(Dollars In Thousands)
Non-accrual loans:
Single-family residential $ 1,824 $ 2,582 $ 2,931 $ 3,256
Multi-family residential 3 3 - 898
Commercial real estate 114 126 145 288
Construction and land - - - -
Consumer 462 571 571 765
Commercial business 304 332 359 769
-------- -------- -------- --------
Total non-accrual loans 2,707 3,614 4,006 5,976
Real estate held for development and sale 2,013 1,691 1,764 4,431
Foreclosed properties and repossessed assets, net 376 272 630 3,794
-------- --------- --------- ---------
Total non-performing assets $ 5,096 $ 5,577 $ 6,400 $ 14,201
======== ========= ========= =========
Performing troubled debt restructurings $ 144 $ 144 $ 293 $ 725
======== ========= ========= =========
Total non-accrual loans to total loans 0.11% 0.15% 0.18% 0.29%
Total non-performing assets to total assets 0.17 0.19 0.24 0.56
Allowance for loan losses to total loans 0.96 1.00 1.08 1.23
Allowance for loan losses to total
non-accrual loans 901.51 675.26 599.78 425.03
Allowance for loan and foreclosure losses
to total non-performing assets 481.20 439.63 379.97 181.15
Non-accrual loans decreased $910,000 during the three months ended June 30, 2000
largely due to a decrease in single family non-accrual loans. At June 30, 2000,
there were no non-accrual loans with a carrying value greater than $1.0 million.
Non-performing real estate held for development and sale increased of $320,000
for the three months ended June 30, 2000. At June 30, 2000, there was one
property in non-performing real estate held for development and sale with a
carrying value greater than $1.0 million. The property consists of several
condominium units in Bloomington, Minnesota with a carrying value of $2.0
million. The units were related to, but not a part of, a former
13
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non-accrual loan for a condominium project that was sold in fiscal 1999. The
Corporation is in the process of completing the units for subsequent sale.
Foreclosed properties and repossessed assets increased $100,000. There are no
foreclosed properties and repossessed assets with a carrying value greater than
$1.0 million at June 30, 2000.
Performing troubled debt restructurings, the amount of which is considered
immaterial, remained relatively unchanged at June 30, 2000 from March 31, 2000.
At June 30, 2000, assets that the Corporation has classified as substandard, net
of reserves, consisted of $10.0 million of loans and foreclosed properties. As
of March 31, 2000, the substandard assets amounted to $10.7 million. There have
been no significant additions or deletions in substandard assets.
The following table sets forth information relating to the Corporation's loans
that were less than 90 days delinquent at the dates indicated.
AT JUNE 30, AT MARCH 31,
---------------------------------------------
2000 2000 1999 1998
----------------- ---------------------------------------------
(In Thousands)
30 to 59 days $ 7,120 $ 3,224 $ 5,535 $ 7,525
60 to 89 days 1,107 903 693 1,397
----------------- ------------ ------------ -----------
Total $ 8,227 $ 4,127 $ 6,228 $ 8,922
================= ============ ============ ===========
The Corporation's loan portfolio, foreclosed properties and repossessed assets
are evaluated on a continuing basis to determine the necessity for additions to
the allowance for losses and the related balance in the allowances. These
evaluations consider several factors, including, but not limited to, general
economic conditions, loan portfolio composition, loan delinquencies, prior loss
experience, collateral value, anticipated loss of interest and management's
estimation of future potential losses. The evaluation of the allowance for loan
losses includes a review of known loan problems as well as potential problems
based upon historical trends and ratios. Foreclosed properties are recorded at
the lower of carrying value or fair value with charge-offs, if any, charged to
the allowance for loan losses prior to transfer to foreclosed property. The fair
value is primarily based on appraisals, discounted cash flow analysis (the
majority of which are based on current occupancy and lease rates) and pending
offers.
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A summary of the activity in the allowance for losses on loans follows:
THREE MONTHS ENDED
JUNE 30,
----------------------------------
2000 1999
----------------------------------
(Dollars In Thousands)
Allowance at beginning of period $ 24,404 $ 24,027
Charge-offs:
Mortgage (11) (3)
Consumer (209) (393)
Commercial business (1) (1)
---------- ----------
Total charge-offs (221) (397)
Recoveries:
Mortgage 9 13
Consumer 25 96
Commercial business 2 8
----------- ----------
Total recoveries 36 117
----------- ----------
Net charge-offs (185) (280)
----------- ----------
Provision 185 856
----------- ----------
Allowance at end of period $ 24,404 $ 24,603
=========== ==========
Net recoveries (charge-offs) to
average loans (0.03)% (0.05)%
=========== ===========
Although management believes that the June 30, 2000 allowance for loan losses is
adequate, based upon the current evaluation of loan delinquencies, non-accrual
loans, charge-off trends, economic conditions and other factors, there can be no
assurance that future adjustments to the allowance, which could adversely affect
the Corporation's results of operations, will not be necessary. Management also
continues to pursue all practical and legal methods of collection, repossession
and disposal, as well as adhering to high underwriting standards in the
origination process, in order to maintain strong asset quality.
LIQUIDITY AND CAPITAL RESOURCES
On an unconsolidated basis, the Corporation's sources of funds include dividends
from its subsidiaries, including the Bank, interest on its investments and
returns on its real estate held for sale. The Bank's primary sources of funds
are payments on loans and mortgage-related securities, deposits from retail and
wholesale sources, advances and other borrowings.
At June 30, 2000, the Corporation had outstanding commitments to originate loans
of $54.4 million, commitments to extend funds to, or on behalf of, customers
pursuant to lines and letters of credit of $134.8 million and loans sold with
recourse to the Corporation in the event of default by the borrower of $1.1
million. The Corporation had firm commitments outstanding to deliver loans
through the FHLB Mortgage Partnership Finance Program of $5.4 million at June
30, 2000. Scheduled maturities of certificates of deposit during the twelve
months following June 30, 2000 amounted to $932.7 million and scheduled
maturities of FHLB advances during the same period totaled $445.7 million. At
June 30, 2000, the Corporation also had $116.6 million of reverse repurchase
agreements, all of which are scheduled to mature during the twelve months
following June 30, 2000. Management believes adequate capital and borrowings are
available from various sources to fund all commitments to the extent required.
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The Bank is required by the Office of Thrift Supervision ("OTS") to maintain
specified levels of liquid investments in qualifying types of U.S. Government
and agency securities and other investments. This requirement, which may be
varied by the OTS, is based upon a percentage of deposits and short-term
borrowings. The required percentage is currently 4.0%. During the quarter ended
June 30, 2000, the Bank's average liquidity ratio was 13.5%.
Under federal law and regulation, the Bank is required to meet certain tangible,
core and risk-based capital requirements. Tangible capital generally consists of
stockholders' equity minus certain intangible assets. Core capital generally
consists of tangible capital plus qualifying intangible assets. The risk-based
capital requirements presently address credit risk related to both recorded and
off-balance sheet commitments and obligations.
The following summarizes the Bank's capital levels and ratios and the levels and
ratios required by the OTS at June 30, 2000 and June 30, 1999 (dollars in
thousands):
MINIMUM REQUIRED
MINIMUM REQUIRED TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ACTUAL ADEQUACY PURPOSES OTS REQUIREMENTS
----------------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------------------------------------------------------------------------
As of June 30, 2000:
Tier 1 capital
(to adjusted tangible assets) $ 184,758 6.22% $ 89,116 3.00% $ 148,526 5.00%
Risk-based capital
(to risk-based assets) 207,980 10.33 161,123 8.00 201,404 10.00
Tangible capital
(to tangible assets) 184,758 6.22 1.5058 N/A N/A
AS OF JUNE 30, 1999
Tier 1 capital
(to adjusted tangible assets) 181,326 6.72 80,943 3.00 134,905 5.00
Risk-based capital
(to risk-based assets) 203,159 11.63 139,727 8.00 174,659 10.00
Tangible capital
(to tangible assets) 181,326 6.72 1.5072 N/A N/A
The OTS has proposed to increase the core capital ratio from the current 3.00%
to a range of 4.00% to 5.00% for all but the most healthy financial
institutions. The OTS also has proposed an interest rate risk calculation such
that an institution with a measured interest rate risk exposure, as defined,
greater than specified levels must deduct an interest rate risk component when
calculating the OTS risk-based capital. Final implementation of these proposals
was pending at June 30, 2000. Management does not believe these rules will
significantly impact the Bank's ability to meet the capital requirements.
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The following table reconciles stockholder equity to regulatory capital at June
30, 2000 and 1999 (dollars in thousands):
JUNE 30,
-----------------------------------------
2000 1999
-----------------------------------------
Stockholders' equity of the Corporation $ 215,203 $ 220,803
Less: Capitalization of the Corporation and Non-Bank
subsidiaries (30,909) (39,245)
---------- ----------
Stockholders' equity of the Bank 184,294 181,558
Less: Intangible assets and other non-includable assets 464 (232)
---------- ----------
Tier 1 and tangible capital 184,758 181,326
Plus: Allowable general valuation allowances 23,222 21,833
---------- ----------
Risk based capital $ 207,980 $ 203,159
========== ==========
ASSET/LIABILITY MANAGEMENT
The primary function of asset and liability management is to provide liquidity
and maintain an appropriate balance between interest-earning assets and
interest-bearing liabilities within specified maturities and/or repricing dates.
Interest rate risk is the imbalance between interest-earning assets and
interest-bearing liabilities at a given maturity or repricing date, and is
commonly referred to as the interest rate gap (the "gap"). A positive gap exists
when there are more assets than liabilities maturing or repricing within the
same time frame. A negative gap occurs when there are more liabilities than
assets maturing or repricing within the same time frame. During a period of
rising interest rates, a negative gap over a particular period would tend to
adversely affect net interest income over such period, while a positive gap over
a particular period would tend to result in an increase in net interest income
over such period.
The Corporation's strategy for asset and liability management is to maintain an
interest rate gap that minimizes the impact of interest rate movements on the
net interest margin. As part of this strategy, the Corporation sells
substantially all new originations of long-term, fixed-rate, single-family
residential mortgage loans in the secondary market, invests in adjustable-rate
or medium-term, fixed-rate, single-family residential mortgage loans, invests in
medium-term mortgage-related securities and invests in consumer loans which
generally have shorter terms to maturity and higher and/or adjustable interest
rates.
The Corporation also originates multi-family residential and commercial real
estate loans, which generally have adjustable or floating interest rates and/or
shorter terms to maturity than conventional single-family residential loans.
Long-term, fixed-rate, single-family residential mortgage loans originated for
sale in the secondary market are generally committed for sale at the time the
interest rate is locked with the borrower. As such, these loans involve little
interest rate risk to the Corporation.
The calculation of a gap position requires management to make a number of
assumptions as to when an asset or liability will reprice or mature. Management
believes that its assumptions approximate actual experience and considers them
reasonable, although the actual amortization and repayment of assets and
liabilities may vary substantially. The cumulative net gap position at June 30,
2000 has not changed materially since March 31, 2000.
SEGMENT REPORTING
According to the materiality thresholds of SFAS No. 131, the Corporation is
required to report each operating segment based on materiality thresholds of ten
percent or more of certain amounts, such as revenue. Additionally,
17
19
the Corporation is required to report separate operating segments until the
revenue attributable to such segments is at least 75 percent of total
consolidated revenue. SFAS No. 131 allows the Corporation to combine operating
segments, even though they may be individually material, if the segments have
similar basic characteristics in the nature of the products, production
processes, and type or class of customer for products or services. Based on the
above criteria, the Corporation has two reportable segments.
COMMUNITY BANKING: This segment is the main basis of operation for the
Corporation and includes the branch network and other deposit support services;
origination, sales and servicing of one-to-four family loans; origination of
multifamily, commercial real estate and business loans; origination of a variety
of consumer loans; and sales of alternative financial investments such as tax
deferred annuities.
REAL ESTATE INVESTMENTS: The Corporation's non-banking subsidiary, IDI, and it's
subsidiary, NIDI, invest in limited partnerships in real estate developments.
Such developments include recreational residential developments and industrial
developments (such as office parks).
The following represents reconciliations of reportable segment revenues, profit
or loss, and assets to the Corporation's consolidated totals for the three
months ended June 30, 2000 and 1999, respectively.
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20
THREE MONTHS ENDED JUNE 30, 2000
------------------------------------------------------
CONSOLIDATED
REAL ESTATE COMMUNITY FINANCIAL
INVESTMENTS BANKING STATEMENTS
--------------- --------------- ----------------
Interest income $ 336 $ 54,421 $ 54,757
Interest expense 0 33,840 33,840
--------------- --------------- ----------------
Net interest income 336 20,581 20,917
Provision for loan losses 0 185 185
--------------- --------------- ----------------
Net interest income after provision for loan losses 336 20,396 20,732
Other income (loss) 3,396 3,270 6,666
Other expense 3,632 12,695 16,327
--------------- --------------- ----------------
Net operating income 100 10,971 11,071
Gain on sale of real estate partnership investments 0 0 0
--------------- --------------- ----------------
Income before income taxes 100 10,971 11,071
Income taxes (243) 4,329 4,086
--------------- --------------- ----------------
Net income $ 343 $ 6,642 $ 6,985
=============== =============== ================
Average assets $ 42,395 $ 2,896,065 $ 2,938,460
THREE MONTHS ENDED JUNE 30, 1999
------------------------------------------------------
CONSOLIDATED
REAL ESTATE COMMUNITY FINANCIAL
INVESTMENTS BANKING STATEMENTS
--------------- --------------- ----------------
Interest income $ 523 $ 48,453 $ 48,976
Interest expense 0 27,786 27,786
--------------- --------------- ----------------
Net interest income 523 20,667 21,190
Provision for loan losses 0 856 856
--------------- --------------- ----------------
Net interest income after provision for loan losses 523 19,811 20,334
Other income (loss) (463) 3,536 3,073
Other expense (64) 22,751 22,687
--------------- --------------- ----------------
Net operating income 124 596 720
Gain on sale of real estate partnership investments 0 0 0
--------------- --------------- ----------------
Income before income taxes 124 596 720
Income taxes 290 2,033 2,323
--------------- --------------- ----------------
Net income $ (166) $ (1,437) $ (1,603)
=============== =============== ================
Average assets $ 31,098 $ 2,828,920 $ 2,860,018
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ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.
The Bank is involved in routine legal proceedings occurring in the ordinary
course of business which, in the aggregate, are believed by management of the
Corporation to be immaterial to the financial condition and results of
operations of the Corporation.
ITEM 2 CHANGES IN SECURITIES.
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4 SUBMISSION OF MATTER TO VOTE OF SECURITIES HOLDERS.
The Annual Meeting of Stockholders was held on July 25, 2000.
There were 23,902,955 shares of common stock that could be
voted, and 19,165,511 shares present at the meeting by holders
thereof in person or by proxy which constituted a quorum. The
following is a summary of the results of items voted upon.
NUMBER OF VOTES
--------------------------------------------------
FOR WITHHELD
-------------- -------------
Nominees for three-year term ending 2003:
Holly Cremer Berkenstadt 18,400,452 765,059
Donald D. Kropidlowski 16,772,528 2,392,983
Bruce A. Robertson 18,321,714 843,797
FOR AGAINST WITHHELD
-------------- ------------- -------------
Appointment of Ernst & Young LLP as independent
auditor for the year ending March 31, 2001 18,835,765 278,719 51,027
ITEM 5 OTHER INFORMATION.
None.
ITEM 6 EXHIBITS AND REPORTS.
(a) EXHIBIT NO. 27 FINANCIAL DATA SCHEDULES
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(b) REPORTS ON FORM 8-K.
None.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANCHOR BANCORP WISCONSIN INC.
Date: July 31, 2000 By: /s/ Douglas J. Timmerman
----------------------- --------------------------------------------
Douglas J. Timmerman, Chairman of the
Board, President and Chief Executive Officer
Date: July 31, 2000 By: /s/ Michael W. Helser
----------------------- --------------------------------------------
Michael W. Helser, Treasurer and
Chief Financial Officer
22