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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended March 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission File Number 0-20006
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ANCHOR BANCORP WISCONSIN INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1726871
- --------------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
25 West Main Street
Madison, Wisconsin 53703
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(Address of principal executive office)
Registrant's telephone number, including area code (608) 252-8700
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Securities registered pursuant to Section 12 (b) of the Act
Not Applicable
Securities registered pursuant to Section 12 (g) of the Act:
Common stock, par value $.10 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 or Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K.
[X]
Based upon the $15.45 closing price of the registrant's common stock as
of May 25, 2001, the aggregate market value of the 20,518,830 shares of the
registrant's common stock deemed to be held by non-affiliates of the registrant
was: $317.0 million. Although directors and executive officers of the registrant
and certain of its employee benefit plans were assumed to be "affiliates" of the
registrant for purposes of this calculation, the classification is not to be
interpreted as an admission of such status.
As of June 8, 2001, 22,755,723 shares of the registrant's common stock
were outstanding. There were also 100,000 series A- preferred stock purchase
rights authorized with none outstanding, as of the same date.
Documents Incorporated by Reference
Proxy Statement for the Annual Meeting of Stockholders to be held on July 24,
2001 (Part III, Items 10 to 13)
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PART I
ITEM 1. BUSINESS
GENERAL
Anchor BanCorp Wisconsin Inc. (the "Corporation") is a registered
savings and loan holding company incorporated under the laws of the State of
Wisconsin and is engaged in the savings and loan business through its
wholly-owned banking subsidiary, AnchorBank, fsb (the "Bank"). The Corporation
also has a non-banking subsidiary, Investment Directions, Inc. ("IDI"), a
Wisconsin corporation, which invests in real estate partnerships. IDI has two
subsidiaries, Nevada Investment Directions, Inc. ("NIDI") and California
Investment Directions, Inc. ("CIDI"), both of which invest in real estate held
for development and sale.
The Bank was organized in 1919 as a Wisconsin-chartered savings
institution. In July 2000, the Bank converted to a federally-chartered savings
institution, and the Bank's deposits are insured up to the maximum allowable
amount by the Federal Deposit Insurance Corporation ("FDIC"). The Bank is a
member of the Federal Home Loan Bank of Chicago ("FHLB"), and is regulated by
the Office of Thrift Supervision ("OTS"), and the FDIC. The Corporation is
subject to the periodic reporting requirements of the Securities and Exchange
Commission ("SEC") under the Securities Exchange Act of 1934, as amended
("Exchange Act"). The Bank is also regulated by the Board of Governors of the
Federal Reserve System ("Federal Reserve Board") relating to reserves required
to be maintained against deposits and certain other matters. See "Regulation."
The Bank blends an interest in the consumer and small business markets
with the willingness to expand its numerous checking, savings and lending
programs to meet customers' changing financial needs. The Bank offers checking,
savings, money market accounts, mortgages, home equity and other consumer loans,
student loans, credit cards, annuities and related consumer financial services.
The Bank also offers banking services to businesses, including checking
accounts, lines of credit, secured loans and commercial real estate loans.
The Bank has three wholly owned subsidiaries. Anchor Investment
Services, Inc. ("AIS"), a Wisconsin corporation, offers a full line of
securities, annuities, and insurance products to the Bank's customers and other
members of the general public. ADPC Corporation ("ADPC"), a Wisconsin
corporation, holds and develops certain of the Bank's foreclosed properties.
Anchor Investment Corporation ("AIC") is an operating subsidiary that is located
in and formed under the laws of the State of Nevada. AIC was formed for the
purpose of managing a portion of the Bank's investment portfolio (primarily
mortgage-related securities).
MARKET AREA
The Bank's primary market area consists of the metropolitan area of
Madison, Wisconsin, the suburban communities of Dane County, Wisconsin and
southern Wisconsin, the Fox Valley in east-central Wisconsin, as well as
contiguous counties in Iowa and Illinois. As of March 31, 2001, the Bank
conducted business from its headquarters and main office in Madison, Wisconsin
and from 48 other full-service offices located primarily in south-central and
southwest Wisconsin and three loan origination offices.
COMPETITION
The Bank is subject to extensive competition from other savings
institutions as well as commercial banks and credit unions in both attracting
and retaining deposits and in real estate and other lending activities.
Competition for deposits also comes from money market funds, bond funds,
corporate debt and government securities. Competition for the origination of
real estate loans comes principally from other savings institutions, commercial
banks and mortgage banking companies. Competition for consumer loans is
primarily from other savings institutions, commercial banks, consumer finance
companies and credit unions.
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The principal factors that are used to attract deposit accounts and
that distinguish one financial institution from another include rates of return,
types of accounts, service fees, convenience of office locations and hours, and
other services. The primary factors in competing for loans are interest rates,
loan fee charges, timeliness and quality of service to the borrower.
LENDING ACTIVITIES
GENERAL. At March 31, 2001, the Bank's net loans held for investment
totaled $2.4 billion, representing approximately 77.2% of its $3.1 billion of
total assets at that date. Approximately 77.9% of the Bank's total loans held
for investment at March 31, 2001 were secured by first liens on real estate.
The Bank's primary lending emphasis is on the origination of
single-family residential loans secured by properties located primarily in
Wisconsin, with adjustable-rate loans generally being originated for inclusion
in the Bank's loan portfolio and fixed-rate loans generally being originated for
sale into the secondary market. In order to increase the yield and interest rate
sensitivity of its portfolio, the Bank also originates commercial real estate,
multi-family, construction, consumer and commercial business loans in its
primary market area.
Non-real estate loans originated by the Bank consist of a variety of
consumer loans and commercial business loans. At March 31, 2001, the Bank's
total loans held for investment included $474.2 million or 18.6% of consumer
loans and $90.2 million or 3.5% of commercial business loans.
LOAN PORTFOLIO COMPOSITION. The following table presents information
concerning the composition of the Bank's consolidated loans held for investment
at the dates indicated.
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MARCH 31,
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2001 2000 1999
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PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
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(Dollars in Thousands)
Mortgage loans:
Single-family residential $ 872,718 34.17% $ 1,001,408 41.24% $ 1,061,813 47.66%
Multi-family residential 305,009 11.94 291,917 12.02 233,984 10.50
Commercial real estate 501,640 19.64 388,678 16.01 282,980 12.70
Construction 266,712 10.44 210,660 8.68 179,189 8.04
Land 43,849 1.72 29,232 1.20 17,309 0.78
--------- ----- ----------- ----- ----------- -----
Total mortgage loans 1,989,928 77.90 1,921,895 79.15 1,775,275 79.69
--------- ----- ----------- ----- ----------- -----
Consumer loans:
Second mortgage and home equity 271,733 10.64 243,124 10.01 214,295 9.62
Education 130,215 5.10 136,011 5.60 130,254 5.85
Other 72,274 2.83 65,686 2.71 56,590 2.54
--------- ----- ----------- ----- ----------- -----
Total consumer loans 474,222 18.57 444,821 18.32 401,139 18.01
--------- ----- ----------- ----- ----------- -----
Commercial business loans:
Loans 90,212 3.53 61,419 2.53 51,403 2.31
Lease receivables - 0.00 - 0.00 - 0.00
--------- ----- ----------- ----- ----------- -----
Total commercial business loans 90,212 3.53 61,419 2.53 51,403 2.31
--------- ----- ----------- ----- ----------- -----
Gross loans receivable 2,554,362 100.00% 2,428,135 100.00% 2,227,817 100.00%
====== ====== ======
Contras to loans:
Undisbursed loan proceeds (111,298) (97,092) (87,401)
Allowance for loan losses (24,076) (24,404) (24,027)
Unearned net loan fees (3,610) (3,528) (4,015)
Discount on loans purchased (371) (361) (792)
Unearned interest (31) (29) (16)
--------- ----------- -----------
Total contras to loans (139,386) (125,414) (116,251)
--------- ----------- -----------
Loans receivable, net $ 2,414,976 $ 2,302,721 $ 2,111,566
=========== =========== ===========
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MARCH 31,
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1998 1997
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PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
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(Dollars in thousands)
Mortgage loans:
Single-family residential $ 1,032,116 50.07% $ 864,717 48.80%
Multi-family residential 191,580 9.29 177,108 10.00
Commercial real estate 248,365 12.05 205,369 11.59
Construction 139,314 6.76 120,421 6.80
Land 12,503 0.61 15,730 0.89
----------- ------- ----------- -------
Total mortgage loans 1,623,878 78.78 1,383,345 78.07
----------- ------- ----------- -------
Consumer loans:
Second mortgage and home equity 220,177 10.68 194,888 11.00
Education 125,503 6.09 113,606 6.41
Other 53,867 2.61 50,966 2.88
----------- ------- ----------- -------
Total consumer loans 399,547 19.38 359,460 20.29
----------- ------- ----------- -------
Commercial business loans:
Loans 37,861 1.84 29,012 1.64
Lease receivables 5 0.00 10 0.00
----------- ------- ----------- -------
Total commercial business loans 37,866 1.84 29,022 1.64
----------- ------- ----------- -------
Gross loans receivable 2,061,291 100.00% 1,771,827 100.00%
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Contras to loans:
Undisbursed loan proceeds (68,686) (59,793)
Allowance for loan losses (25,400) (24,155)
Unearned net loan fees (4,137) (3,691)
Discount on loans purchased (1,016) (1,180)
Unearned interest (29) (89)
------------ -----------
Total contras to loans (99,268) (88,908)
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Loans receivable, net $ 1,962,023 $ 1,682,919
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The following table shows, at March 31, 2001, the scheduled contractual
maturities of the Bank's consolidated gross loans held for investment, as well
as the dollar amount of such loans which are scheduled to mature after one year
which have fixed or adjustable interest rates.
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MULTI-FAMILY
RESIDENTIAL
AND
SINGLE-FAMILY COMMERCIAL CONSTRUCTION COMMERCIAL
RESIDENTIAL REAL ESTATE AND LAND CONSUMER BUSINESS
LOANS LOANS LOANS LOANS LOANS
------------------------------------------------------------------------------------------
(In Thousands)
Amounts due:
In one year or less $ 113,193 $ 336,889 $ 120,252 $ 67,615 $ 44,654
After one year through
five years 522,897 417,472 157,836 242,891 27,314
After five years 236,628 52,288 32,473 163,716 18,244
---------- ---------- ---------- ---------- ---------
$ 872,718 $ 806,649 $ 310,561 $ 474,222 $ 90,212
========== ========== ========== ========== =========
Interest rate terms on amounts
due after one year:
Fixed $ 303,809 $ 93,952 $ 39,939 $ 272,782 $ 11,627
========== ========== ========== ========== =========
Adjustable $ 455,716 $ 375,808 $ 150,370 $ 133,825 $ 33,931
========== ========== ========== ========== =========
SINGLE-FAMILY RESIDENTIAL LOANS. Historically, savings institutions,
such as the Bank, have concentrated their lending activities on the origination
of loans secured primarily by first mortgage liens on owner-occupied, existing
single-family residences. At March 31, 2001, $872.7 million or 34.2% of the
Bank's total loans held for investment consisted of single-family residential
loans, substantially all of which are conventional loans, which are neither
insured nor guaranteed by a federal or state agency.
The adjustable-rate loans, currently emphasized by the Bank, have up to
30-year maturities and terms which permit the Bank to annually increase or
decrease the rate on the loans at its discretion, based on a designated index.
This is generally subject to a limit of 2% per adjustment and an aggregate 6%
adjustment over the life of the loan.
Adjustable-rate loans decrease the risks associated with changes in
interest rates but involve other risks, primarily because as interest rates
rise, the payment by the borrower rises to the extent permitted by the terms of
the loan, thereby increasing the potential for default. At the same time, the
marketability of the underlying property may be adversely affected by higher
interest rates. The Bank believes that these risks, which have not had a
material adverse effect on the Bank to date, generally are less than the risks
associated with holding fixed-rate loans in an increasing interest rate
environment. At March 31, 2001, approximately $568.9 million or 65.2% of the
Bank's permanent single-family residential loans held for investment consisted
of loans with adjustable interest rates. Also, as interest rates decline,
borrowers may refinance their mortgages into fixed-rate loans thereby prepaying
the balance of the loan prior to maturity.
The Bank continues to originate long-term, fixed-rate conventional
mortgage loans. The Bank generally sells current production of these loans with
terms of 20 years or more to the Federal Home Loan Mortgage Corporation
("FHLMC"), Federal National Mortgage Association ("FNMA"), and other
institutional investors, while keeping some of the 10-year term loans in its
portfolio. In order to provide a full range of products to its customers, the
Bank also participates in the loan origination programs of Wisconsin Housing and
Economic Development Authority ("WHEDA"), Wisconsin Department of Veterans
Affairs ("WDVA") and the FHLB. The Bank retains the right to service
substantially all loans that it sells.
At March 31, 2001, approximately $303.8 million or 34.8% of the
permanent single-family residential loans in the Bank's loans held for
investment consisted of loans that provide for fixed rates of interest. Although
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these loans generally provide for repayments of principal over a fixed period of
10 to 30 years, it is the Bank's experience that, because of prepayments and
due-on-sale clauses, such loans generally remain outstanding for a substantially
shorter period of time.
MULTI-FAMILY RESIDENTIAL AND COMMERCIAL REAL ESTATE. The Bank
originates multi-family loans that it typically holds in its loan portfolio.
Such loans generally have adjustable rates and shorter terms than single-family
residential loans, thus increasing the sensitivity of the loan portfolio to
changes in interest rates, as well as providing higher fees and rates than
single-family residential loans. At March 31, 2001, the Bank had $305.0 million
of loans secured by multi-family residential real estate and $501.6 million of
loans secured by commercial real estate. These represented 11.9% and 19.6% of
the Bank's total loans held for investment, respectively. The Bank generally
limits the origination of such loans to its primary market area.
The Bank's multi-family residential loans are primarily secured by
apartment buildings and commercial real estate loans are primarily secured by
office buildings, industrial buildings, warehouses, small retail shopping
centers and various special purpose properties, including hotels, restaurants
and nursing homes.
Although terms vary, multi-family residential and commercial real
estate loans generally have maturities of 15 to 30 years, as well as balloon
payments, and terms which provide that the interest rates thereon may be
adjusted annually at the Bank's discretion, based on a designated index, subject
to an initial fixed-rate for a one to five year period and an annual limit
generally of 1.5% per adjustment, with no limit on the amount of such
adjustments over the life of the loan.
CONSTRUCTION AND LAND LOANS. Historically, the Bank has been an active
originator of loans to construct residential and commercial properties
("construction loans"), and to a lesser extent, loans to acquire and develop
real estate for the construction of such properties ("land loans"). At March 31,
2001, construction loans amounted to $266.7 million or 10.4% of the Bank's total
loans held for investment. Land loans amounted to $43.8 million or 1.7% of the
Bank's total loans held for investment at March 31, 2001.
The Bank's construction loans generally have terms of six to 12 months,
fixed interest rates and fees which are due at the time of origination and at
maturity if the Bank does not originate the permanent financing on the
constructed property. Loan proceeds are disbursed in increments as construction
progresses and as inspections by the Bank's in-house appraiser warrant. Land
acquisition and development loans generally have the same terms as construction
loans, but may have longer maturities than such loans.
CONSUMER LOANS. The Bank offers consumer loans in order to provide a
full range of financial services to its customers. At March 31, 2001, $474.2
million or 18.6% of the Bank's consolidated total loans held for investment
consisted of consumer loans. Consumer loans generally have shorter terms and
higher interest rates than mortgage loans but generally involve more risk than
mortgage loans because of the type and nature of the collateral and, in certain
cases, the absence of collateral. These risks are not as prevalent in the case
of the Bank's consumer loan portfolio, however, because a high percentage of
insured home equity loans are underwritten in a manner such that they result in
a lending risk which is substantially similar to single-family residential loans
and education loans, which are generally guaranteed by a federal governmental
agency.
The largest component of the Bank's consumer loan portfolio is second
mortgage and home equity loans, which amounted to $271.7 million or 10.6% of
total loans at March 31, 2001. The primary home equity loan product has an
adjustable interest rate that is linked to the prime interest rate and is
secured by a mortgage, either a primary or a junior lien, on the borrower's
residence. A fixed-rate home equity product is also offered.
Approximately $130.2 million or 5.1% of the Bank's total loans at March
31, 2001 consisted of education loans. These are generally made for a maximum of
$2,500 per year for undergraduate studies and $5,000 per year for graduate
studies and are either due within six months of graduation or repaid on an
installment basis after graduation. Education loans generally have interest
rates that adjust annually in accordance with a designated index. Both the
principal amount of an education loan and interest thereon generally are
guaranteed by the Great Lakes Higher Education Corporation, which generally
obtains reinsurance of its obligations from the U.S.
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Department of Education. Education loans may be sold to the Student Loan
Marketing Association ("SLMA") or to other investors. The Bank sold $9.0 million
of these education loans during fiscal 2001.
The remainder of the Bank's consumer loan portfolio consists of deposit
account secured loans and loans that have been made for a variety of consumer
purposes. These include credit extended through credit cards issued by the Bank
pursuant to an agency arrangement under which the Bank generally is allocated
44% of the profit or losses from such activities. At March 31, 2001, the Bank's
approved credit card lines and the outstanding credit pursuant to such lines
amounted to $40.7 million and $5.4 million, respectively.
COMMERCIAL BUSINESS LOANS AND LEASES. The Bank originates loans for
commercial, corporate and business purposes, including issuing letters of
credit. At March 31, 2001, commercial business loans amounted to $90.2 million
or 3.5% of the Bank's total loans held for investment. The Bank's commercial
business loan portfolio is comprised of loans for a variety of purposes and
generally is secured by equipment, machinery and other corporate assets.
Commercial business loans generally have terms of five years or less and
interest rates that float in accordance with a designated prime lending rate.
Substantially all of such loans are secured and backed by the personal
guarantees of the individuals of the business.
NET FEE INCOME FROM LENDING ACTIVITIES. Loan origination and commitment
fees and certain direct loan origination costs are being deferred and the net
amounts are amortized as an adjustment of the related loan's yield.
The Bank also receives other fees and charges relating to existing
mortgage loans, which include prepayment penalties, late charges and fees
collected in connection with a change in borrower or other loan modifications.
Other types of loans also generate fee income for the Bank. These include annual
fees assessed on credit card accounts, transactional fees relating to credit
card usage and late charges on consumer loans.
ORIGINATION, PURCHASE AND SALE OF LOANS. The Bank's loan originations
come from a number of sources. Residential mortgage loan originations are
attributable primarily to depositors, walk-in customers, referrals from real
estate brokers and builders and direct solicitations. Commercial real estate
loan originations are obtained by direct solicitations and referrals. Consumer
loans are originated from walk-in customers, existing depositors and mortgagors
and direct solicitation. Student loans are originated from solicitation of
eligible students and from walk-in customers.
Applications for all types of loans are obtained at the Bank's six
regional lending offices, certain of its branch offices and three loan
origination facilities. Loans may be approved by members of the Officers' Loan
Committee, within designated limits. Depending on the type and amount of the
loans, one or more signatures of the members of the Senior Loan Committee also
may be required. For loan requests of $1.5 million or less, loan approval
authority is designated to an Officers' Loan Committee and requires at least
three of the members' signatures. Senior Loan Committee members are authorized
to approve loan requests between $1.5 million and $3.0 million and approval
requires at least three of the members' signatures. Loan requests in excess of
$3.0 million must be approved by the Board of Directors.
The Bank's general policy is to lend up to 80% of the appraised value
or purchase price of the property securing a single-family residential loan
(referred to as the loan-to-value ratio). The Bank will lend more than 80% of
the appraised value of the property, but generally will require that the
borrower obtain private mortgage insurance in an amount intended to reduce the
Bank's exposure to 80% or less of the appraised value of the underlying
property. At March 31, 2001, the Bank had approximately $24.4 million of loans
that had loan-to-value ratios of greater than 80% and did not have private
mortgage insurance for the portion of the loans above such amount.
Property appraisals on the real estate and improvements securing the
Bank's single-family residential loans are made by the Bank's staff or
independent appraisers approved by the Bank's Board of Directors during the
underwriting process. Appraisals are performed in accordance with federal
regulations and policies.
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The Bank's underwriting criteria generally require that multi-family
residential and commercial real estate loans have loan-to-value ratios which
amount to 80% or less and debt coverage ratios of at least 110%. The Bank also
generally obtains personal guarantees on its multi-family residential and
commercial real estate loans from the principals of the borrowers, as well as
appraisals of the security property from independent appraisal firms.
The portfolio of commercial and multi-family residential loans is
reviewed on a continuing basis (annually for loans of $1.0 million or more, and
semi-annually for loans of $750,000 to $1.0 million) to identify any potential
risks that exist in regard to the property management, financial criteria of the
loan, operating performance, competitive marketplace and collateral valuation.
The credit analysis function of the Bank is responsible for identifying and
reporting credit risk quantified through a loan rating system and making
recommendations to mitigate credit risk in the portfolio. These and other
underwriting standards are documented in written policy statements, which are
periodically updated and approved by the Bank's Board of Directors.
The Bank generally obtains title insurance policies on most first
mortgage real estate loans it originates. If title insurance is not obtained or
is unavailable, the Bank obtains an abstract of title and title opinion.
Borrowers must obtain hazard insurance prior to closing and, when required by
the United States Department of Housing and Urban Development, flood insurance.
Borrowers may be required to advance funds, with each monthly payment of
principal and interest, to a loan escrow account from which the Bank makes
disbursements for items such as real estate taxes, hazard insurance premiums,
flood insurance premiums, and mortgage insurance premiums as they become due.
The Bank encounters certain environmental risks in its lending
activities. Under federal and state environmental laws, lenders may become
liable for costs of cleaning up hazardous materials found on secured properties.
Certain states may also impose liens with higher priorities than first mortgages
on properties to recover funds used in such efforts. Although the foregoing
environmental risks are more usually associated with industrial and commercial
loans, environmental risks may be substantial for residential lenders, like the
Bank, since environmental contamination may render the secured property
unsuitable for residential use. In addition, the value of residential properties
may become substantially diminished by contamination of nearby properties. In
accordance with the guidelines of FNMA and FHLMC, appraisals for single-family
homes on which the Bank lends include comments on environmental influences and
conditions. The Bank attempts to control its exposure to environmental risks
with respect to loans secured by larger properties by monitoring available
information on hazardous waste disposal sites and requiring environmental
inspections of such properties prior to closing the loan. No assurance can be
given, however, that the value of properties securing loans in the Bank's
portfolio will not be adversely affected by the presence of hazardous materials
or that future changes in federal or state laws will not increase the Bank's
exposure to liability for environmental cleanup.
The Bank has been actively involved in the secondary market since the
mid-1980s and generally originates single-family residential loans under terms,
conditions and documentation which permit sale to FHLMC, FNMA and other
investors in the secondary market. The Bank sells substantially all of the
fixed-rate, single-family residential loans with terms over 15 years it
originates in order to decrease the amount of such loans in its loan portfolio.
The volume of loans originated and sold is reliant on a number of factors but is
most influenced by general interest rates. In periods of higher interest rates,
such as occurred in fiscal 2000, customer demand for fixed-rate mortgages
declines. In periods of lower interest rates, such as fiscal 1999, customer
demand for fixed-rate mortgages increases. The Bank's sales are usually made
through forward sales commitments. The Bank attempts to limit any interest rate
risk created by forward commitments by limiting the number of days between the
commitment and closing, charging fees for commitments, and limiting the amounts
of its uncovered commitments at any one time. Forward commitments to cover
closed loans and loans with rate locks to customers range from 70% to 90% of
committed amounts. The Bank also periodically has used its loans to securitize
mortgage-backed securities.
The Bank generally services all originated loans that have been sold to
other investors. This includes the collection of payments, the inspection of the
secured property, and the disbursement of certain insurance and tax advances on
behalf of borrowers. The Bank recognizes a servicing fee when the related loan
payments are received. At March 31, 2001, the Bank was servicing $1.9 billion of
loans for others.
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The Bank is not an active purchaser of loans because of sufficient loan
demand in its market area. Servicing of loans or loan participations purchased
by the Bank is performed by the seller, with a portion of the interest being
paid by the borrower retained by the seller to cover servicing costs. At March
31, 2001, approximately $22.7 million of mortgage loans were being serviced for
the Bank by others.
The following table shows the Bank's consolidated total loans
originated, purchased, sold and repaid during the periods indicated.
YEAR ENDED MARCH 31,
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2001 2000 1999
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(In Thousands)
Gross loans receivable at beginning of year(1) $ 2,429,899 $ 2,245,897 $ 2,096,043
Loans originated for investment:
Single-family residential (339,027) 75,110 121,326
Multi-family residential 42,424 50,326 131,007
Commercial real estate 273,142 194,393 231,957
Construction and land 332,145 308,192 283,076
Consumer 203,929 216,419 207,385
Commercial business 71,982 38,617 46,216
----------- ----------- -----------
Total originations 584,595 883,057 1,020,968
----------- ----------- -----------
Loans purchased for investment:
Single-family residential - - -
Multi-family residential 330 950 -
Commercial real estate 766 242 -
----------- ----------- -----------
Total purchases 1,096 1,192 -
Total originations and purchases 585,691 884,249 1,020,968
Repayments (331,007) (605,348) (703,695)
Transfers of loans to held for sale (128,456) (81,530) (114,789)
----------- ----------- -----------
Net activity in loans held for investment 126,228 197,371 202,484
----------- ----------- -----------
Loans originated for sale:
Single-family residential 579,699 228,830 475,218
Transfers of loans from held for investment 128,456 81,530 94,789
Sales of loans (563,842) (249,399) (530,210)
Loans converted into mortgage-backed
securities (128,456) (74,330) (92,427)
----------- ----------- -----------
Net activity in loans held for sale 15,857 (13,369) (52,630)
----------- ----------- -----------
Gross loans receivable at end of period $ 2,571,984 $ 2,429,899 $ 2,245,897
=========== =========== ===========
- ---------------------------------------------------
(1) Includes loans held for sale and loans held for investment.
DELINQUENCY PROCEDURES. Delinquent and problem loans are a normal part
of any lending business. When a borrower fails to make a required payment by the
15th day after which the payment is due, the loan is considered delinquent and
internal collection procedures are generally instituted. The borrower is
contacted to determine the reason for the delinquency and attempts are made to
cure the loan. In most cases, deficiencies are cured promptly. The Bank
regularly reviews the loan status, the condition of the property, and
circumstances of the borrower. Based upon the results of its review, the Bank
may negotiate and accept a repayment program with the borrower, accept a
voluntary deed in lieu of foreclosure or, when deemed necessary, initiate
foreclosure proceedings.
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A decision as to whether and when to initiate foreclosure proceedings
is based upon such factors as the amount of the outstanding loan in relation to
the original indebtedness, the extent of delinquency, the value of the
collateral, and the borrower's ability and willingness to cooperate in curing
the deficiencies. If foreclosed on, the property is sold at a public sale and
the Bank will generally bid an amount reasonably equivalent to the lower of the
fair value of the foreclosed property or the amount of judgment due the Bank. A
judgment of foreclosure for residential mortgage loans will normally provide for
the recovery of all sums advanced by the mortgagee including, but not limited
to, insurance, repairs, taxes, appraisals, post-judgment interest, attorneys'
fees, costs and disbursements.
Real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure is classified as foreclosed property until it is sold. When property
is acquired, it is carried at the lower of carrying or estimated fair value at
the date of acquisition, with charge-offs, if any, charged to the allowance for
loan losses prior to transfer to foreclosed property. Upon acquisition, all
costs incurred in maintaining the property are expensed. Costs relating to the
development and improvement of the property, however, are capitalized to the
extent of fair value. Remaining gain or loss on the ultimate disposal of the
property is included in operations.
LOAN DELINQUENCIES. 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 Bank does not accrue interest on loans past due more
than 90 days.
The interest income that would have been recorded during fiscal 2001 if
the Bank's non-accrual loans at the end of the period had been current in
accordance with their terms during the period was $380,000. The amount of
interest income attributable to these loans and included in interest income
during fiscal 2001 was $150,000.
The following table sets forth information relating to delinquent loans
of the Bank and their relation to the Bank's total loans held for investment at
the dates indicated.
MARCH 31,
-----------------------------------------------------------------------------------------
2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
% OF % OF % OF
TOTAL TOTAL TOTAL
DAYS PAST DUE BALANCE LOANS BALANCE LOANS BALANCE LOANS
- ---------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
30 to 59 days $ 7,141 0.28% $ 3,224 0.13% $ 5,535 0.25%
60 to 89 days 716 0.03 903 0.04 693 0.03
90 days and over 5,047 0.20 3,614 0.15 4,006 0.18
-------- -------- -------- -------- -------- --------
Total $ 12,904 0.51% $ 7,741 0.32% $ 10,234 0.46%
======== ======== ======== ======== ======== ========
There was one non-accrual loan with a carrying value of $1.0 million or
greater at March 31, 2001. For additional discussion of the Corporation's asset
quality, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition-Non-Performing Assets" in Item 7
included herewith. See also Notes 1 and 5 to the Consolidated Financial
Statements in Item 8 included herewith.
NON-PERFORMING REAL ESTATE HELD FOR DEVELOPMENT AND SALE. At March 31,
2001, there were no properties in non-performing real estate held for
development and sale with a carrying value greater than $1.0 million.
Non-performing real estate held for development and sale decreased $1.3 million
during the fiscal year. For additional discussion of real estate held for
development and sale that is not considered a part of non-performing assets, see
the discussion under "Subsidiaries - Investment Directions, Inc." and "- Nevada
Investment Directions, Inc." and Note 15 to the Consolidated Financial
Statements in Item 8 included herewith.
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FORECLOSED PROPERTIES. At March 31, 2001, the Bank had no foreclosed
properties with a net carrying value of $1.0 million or more. Foreclosed
properties and repossessed assets increased $40,000 during the fiscal year.
CLASSIFIED ASSETS. OTS regulations require that each insured savings
institution classify its assets on a regular basis. In addition, in connection
with examinations of insured associations, OTS examiners have authority to
identify problem assets and, if appropriate, require them to be classified.
There are three classifications for problem assets: "substandard," "doubtful"
and "loss." Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full highly questionable and
improbable, on the basis of currently existing facts, conditions, and values. An
asset that is classified loss is considered uncollectible and of such little
value, that continuance as an asset of the institution is not warranted. Another
category designated special mention also must be established and maintained for
assets which do not currently expose an insured institution to a sufficient
degree of risk to warrant classification as substandard, doubtful or loss but do
possess credit deficiencies or potential weaknesses deserving management's close
attention.
Assets classified as substandard or doubtful require the institution to
establish general allowances for losses. If an asset or portion thereof is
classified loss, the insured institution must either establish specific
allowances for losses in the amount of 100% of the portion of the assets
classified loss or charge off such amount.
Classified assets include non-performing assets plus other loans and
assets, meeting the criteria for classification. Non-performing assets include
loans and foreclosed properties that are not performing under all material
contractual terms of the original notes.
As of March 31, 2001, the Bank's classified assets consisted of $6.8
million of loans and foreclosed properties classified as substandard, net of
specific reserves, and no loans classified as special mention, doubtful or loss.
At March 31, 2000, substandard assets amounted to $10.7 million and no loans
were classified as special mention, doubtful or loss.
ALLOWANCE FOR LOSSES. A provision for losses on loans and foreclosed
properties is provided when a loss is probable and can be reasonably estimated.
The allowance is established by charges against operations in the period in
which those losses are identified.
The Bank establishes general allowances based on current levels of
components of the loan portfolio and the amount, type of its classified assets,
and other factors. In addition, the Bank monitors and uses standards for these
allowances that depend on the nature of the classification and loan location of
the security property.
Additional discussion on the allowance for losses at March 31, 2001 has
been presented as part of the discussion under "Allowance for Loan and
Foreclosure Losses" in Management's Discussion and Analysis, which is contained
in Item 7, included herewith.
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SECURITIES - GENERAL
Management determines the appropriate classification of securities at
the time of purchase. Debt securities are classified as held to maturity when
the Corporation has the intent and ability to hold the securities to maturity.
Held-to-maturity securities are carried at amortized cost. Securities are
classified as trading when the Corporation intends to actively buy and sell
securities in order to make a profit. Trading securities are carried at fair
value, with unrealized holding gains and losses included in the income
statement.
Securities not classified as held to maturity or trading are classified
as available for sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity. For the years ended March 31, 2001 and 2000,
stockholders' equity increased $3.6 million (net of deferred income tax of $1.5
million), and decreased $2.7 million (net of deferred income tax of $1,074,000),
respectively, to reflect net unrealized gains and losses on holding securities
classified as available for sale. There were no securities designated as trading
during the three years ending March 31, 2001.
INVESTMENT SECURITIES
In addition to lending activities and investments in mortgage-related
securities, the Corporation conducts other investment activities on an ongoing
basis in order to diversify assets, limit interest rate risk and credit risk and
meet regulatory liquidity requirements. Investment decisions are made by
authorized officers in accordance with policies established by the respective
boards of directors.
The Corporation's policy does not permit investment in non-investment
grade bonds and permits investment in various types of liquid assets permissible
for the Bank under OTS regulations, which include U.S. Government obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to limitations on investment grade
securities, the Corporation also invests in corporate debt securities from time
to time.
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The table below sets forth information regarding the amortized cost and
fair values of the Corporation's investment securities at the dates indicated.
MARCH 31,
--------------------------------------------------------------------------------------
2001 2000 1999
--------------------------------------------------------------------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE COST FAIR VALUE
--------------------------------------------------------------------------------------
(In Thousands)
Available For Sale:
U.S. Government and federal
agency obligations $ 9,081 $ 9,219 $ 13,748 $ 13,530 $ 17,645 $ 17,798
Mutual fund 5,996 6,005 14,247 14,190 11,142 11,144
Corporate stock and other 7,837 6,992 8,581 7,216 11,134 11,314
----------- ----------- ----------- ----------- ----------- -----------
$ 22,914 $ 22,216 $ 36,576 $ 34,936 $ 39,921 $ 40,256
Held To Maturity:
U.S. Government and federal
agency obligations $ 33,913 $ 34,096 $ 51,270 $ 49,971 $ 46,491 $ 46,334
Other securities - - - - 975 975
----------- ----------- ----------- ----------- ----------- -----------
33,913 34,096 51,270 49,971 47,466 47,309
----------- ----------- ----------- ----------- ----------- -----------
Total investment securities $ 56,827 $ 56,312 $ 87,846 $ 84,907 $ 87,387 $ 87,565
=========== =========== =========== =========== =========== ===========
For additional information regarding the Corporation's investment
securities, see the Corporation's Consolidated Financial Statements, including
Note 3 thereto included in Item 8.
MORTGAGE-RELATED SECURITIES
The Corporation purchases mortgage-related securities to supplement
loan production and to provide collateral for borrowings. The Corporation
invests in mortgage-backed securities which are insured or guaranteed by FHLMC,
FNMA, or the Government National Mortgage Association ("GNMA") and in
mortgage-derivative securities backed by FHLMC, FNMA and GNMA mortgage-backed
securities.
At March 31, 2001, the amortized cost of the Corporation's
mortgage-backed securities held to maturity amounted to $194.1 million and
included $173.8 million, $18.5 million and $1.8 million which are insured or
guaranteed by FNMA, FHLMC and GNMA, respectively. All three issuers of
securities have adjustable-rate securities included in securities held to
maturity.
The fair value of the Corporation's mortgage-backed securities
available for sale amounted to $153.1 million at March 31, 2001, of which $4.9
million are five- and seven-year balloon securities, $108.6 million are 15- and
30-year securities and $39.6 million are adjustable-rate securities.
Mortgage-backed securities increase the quality of the Corporation's
assets by virtue of the insurance or guarantees of federal agencies that back
them, require less capital under risk-based regulatory capital requirements than
non-insured or guaranteed mortgage loans, are more liquid than individual
mortgage loans and may be used to collateralize borrowings or other obligations
of the Corporation. At March 31, 2001, $3.5 million of the Corporation's
mortgage-backed securities available for sale and $28.2 million mortgage-backed
securities held to maturity were pledged to secure various obligations of the
Corporation.
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Management believes that certain mortgage-derivative securities
represent an attractive alternative relative to other investments due to the
wide variety of maturity and repayment options available through such
investments and due to the limited credit risk associated with such investments.
The Corporation's mortgage-derivative securities are made up of collateralized
mortgage obligations ("CMO's"), including CMO's which qualify as Real Estate
Mortgage Investment Conduits ("REMIC's") under the Internal Revenue Code of
1986, as amended ("Code"). At March 31, 2001, the Corporation's had $11.0
million in mortgage-derivative securities held to maturity. The fair value of
the mortgage-derivative securities available for sale held by the Corporation
amounted to $20.9 million at the same date.
The following table sets forth the maturity and weighted average yield
characteristics of the Corporation's mortgage-related securities at March 31,
2001, classified by term to maturity. The balance is at amortized cost for
held-to-maturity securities and at fair value for available-for-sale securities.
ONE TO FIVE YEARS FIVE TO TEN YEARS OVER TEN YEARS
--------------------- --------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
BALANCE YIELD BALANCE YIELD BALANCE YIELD TOTAL
-----------------------------------------------------------------------------------
Available for Sale:
Mortgage-derivative securities $ - 0.00% $ - 0.00% $ 20,892 6.64% $ 20,892
Mortgage-backed securities 5,705 6.32 23,244 6.63 124,127 6.74 153,076
-------- ---- -------- ---- --------- ---- ---------
5,705 6.32 23,244 6.63 145,019 6.73 173,968
-------- ---- -------- ---- --------- ---- ---------
Held to Maturity:
Mortgage-derivative securities 1,856 6.73 5,883 6.51 3,303 6.16 11,042
Mortgage-backed securities 22,147 5.95 7,650 6.53 164,352 6.43 194,149
-------- ---- -------- ---- --------- ---- ---------
24,003 6.01 13,533 6.52 167,655 6.42 205,191
-------- ---- -------- ---- --------- ---- ---------
Mortgage-related securities $ 29,708 6.07% $ 36,777 6.59% $ 312,674 6.56% $ 379,159
======== ==== ======== ==== ========= ==== =========
Due to repayments of the underlying loans, the actual maturities of
mortgage-related securities are expected to be substantially less than the
scheduled maturities.
For additional information regarding the Corporation's mortgage-related
securities, see the Corporation's Consolidated Financial Statements, including
Note 4 thereto, included in Item 8.
SOURCES OF FUNDS
GENERAL. Deposits are a major source of the Bank's funds for lending
and other investment activities. In addition to deposits, the Bank derives funds
from loan and mortgage-related securities, principal repayments and prepayments,
maturities of investment securities, sales of loans and securities, interest
payments on loans and securities, advances from the FHLB and, from time to time,
repurchase agreements and other borrowings. Loan repayments and interest
payments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are significantly influenced by general interest
rates, economic conditions and competition. Borrowings may be used on a
short-term basis to compensate for reductions in the availability of funds from
other sources. They also may be used on a longer term basis for general business
purposes, including providing financing for lending and other investment
activities and asset/liability management strategies.
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DEPOSITS. The Bank's deposit products include passbook savings
accounts, demand accounts, NOW accounts, money market deposit accounts and
certificates of deposit ranging in terms of 42 days to seven years. Included
among these deposit products are Individual Retirement Account certificates and
Keogh retirement certificates, as well as negotiable-rate certificates of
deposit with balances of $100,000 or more ("jumbo certificates").
The Bank's deposits are obtained primarily from residents of Wisconsin.
The Bank has entered into agreements with certain brokers that provide funds for
a specified fee. At March 31, 2001, the Bank had $128.8 million in brokered
deposits.
The Bank attracts deposits through a network of convenient office
locations by utilizing a detailed customer sales and service plan and by
offering a wide variety of accounts and services, competitive interest rates and
convenient customer hours. Deposit terms offered by the Bank vary according to
the minimum balance required, the time period the funds must remain on deposit
and the interest rate, among other factors. In determining the characteristics
of its deposit accounts, consideration is given to the profitability of the
Bank, matching terms of the deposits with loan products, the attractiveness to
customers and the rates offered by the Bank's competitors.
The following table sets forth the amount and maturities of the Bank's
certificates of deposit at March 31, 2001.
OVER SIX OVER OVER TWO
MONTHS ONE YEAR YEARS OVER
SIX MONTHS THROUGH THROUGH THROUGH THREE
INTEREST RATE AND LESS ONE YEAR TWO YEARS THREE YEARS YEARS TOTAL
- --------------------------------------------------------------------------------------------------------------------
(In Thousands)
3.00% to 4.99% $ 49,830 $ 20,610 $ 3,574 $ 1,453 $ 807 $ 76,274
5.00% to 6.99% 497,713 392,159 319,113 20,804 6,992 1,236,781
7.00% to 8.99% 27,389 10,891 5,103 100 - 43,483
---------- ---------- ---------- ---------- ---------- ----------
$ 574,932 $ 423,660 $ 327,790 $ 22,357 $ 7,799 $1,356,538
========== ========== ========== ========== ========== ==========
At March 31, 2001, the Bank had $160.6 million of certificates greater
than or equal to $100,000, of which $28.4 million are scheduled to mature within
three months, $21.5 million in over three months through six months, $50.4
million in over six months through 12 months and $60.3 million in over 12
months.
BORROWINGS. From time to time the Bank obtains advances from the FHLB,
which generally are secured by capital stock of the FHLB that is required to be
held by the Bank and by certain of the Bank's mortgage loans. See "Regulation."
Such advances are made pursuant to several different credit programs, each of
which has its own interest rate and range of maturities. The FHLB may prescribe
the acceptable uses for these advances, as well as limitations on the size of
the advances and repayment provisions. The Bank has pledged a substantial
portion of its loans receivable and all of its investment in FHLB stock as
collateral for these advances. A portion of the Bank's mortgage-related
securities has also been pledged as collateral.
From time to time the Bank enters into repurchase agreements with
nationally recognized primary securities dealers. Repurchase agreements are
accounted for as borrowings by the Bank and are secured by mortgage-backed
securities. The Bank utilized this source of funds during the year ended March
31, 2001 and may continue to do so in the future.
The Corporation has a short-term line of credit used in part to fund
IDI's partnership interests and investments in real estate held for development
and sale. This line of credit also funds other Corporation needs. The interest
is based on LIBOR (London InterBank Offering Rate), and is payable monthly and
each draw has a
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specified maturity. The final maturity of the line of credit is in October 2001.
See Note 8 to the Corporation's Consolidated Financial Statements in Item 8
included herewith for more information on borrowings.
The following table sets forth the outstanding balances and weighted
average interest rates for the Corporation's borrowings (short-term and
long-term) at the dates indicated.
MARCH 31,
-------------------------------------------------------------------------------------------
2001 2000 1999
-------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
-------------------------------------------------------------------------------------------
(Dollars In Thousands)
FHLB advances $ 669,896 6.05% $ 649,046 5.73% $ 517,695 5.30%
Repurchase agreements 27,948 5.32 92,413 6.03 42,464 4.91
Other loans payable 42,754 7.33 15,400 7.24 12,800 6.21
The following table sets forth information relating to the
Corporation's short-term (maturities of one year or less) borrowings at the
dates and for the periods indicated.
MARCH 31,
----------------------------------------------------------------------------------
2001 2000 1999
----------------------------------------------------------------------------------
(In Thousands)
Maximum month-end balance:
FHLB advances $ 712,646 $ 686,945 $ 547,845
Repurchase agreements 116,551 92,413 52,139
Other loans payable 43,015 15,400 21,550
Average balance:
FHLB advances 682,139 609,258 526,187
Repurchase agreements 86,420 59,756 30,930
Other loans payable 35,224 9,669 13,297
SUBSIDIARIES
INVESTMENT DIRECTIONS, INC. IDI is a wholly owned non-banking
subsidiary of the Corporation that has invested in various limited partnerships
and subsidiaries funded by borrowings from the Corporation. The Corporation's
investment in IDI at March 31, 2001, amounted to $3.2 million. For the year
ended March 31, 2001, IDI had total assets of $37.5 million and a reported net
loss of $2.7 million. This compares to total assets of $32.8 million and a net
loss of $345,000 for the prior year ended March 31, 2000.
During the year ended March 31, 2001, IDI and its newly formed wholly
owned subsidiary CIDI purchased all of the equity owned by the unrelated
partners of S&D Indian Palms, Ltd. and Davsha, LLC. Indian Palms and Davsha
became majority owned subsidiaries of IDI with CIDI. In addition, Davsha II, LLC
and Davsha III, LLC were formed as wholly owned subsidiaries of Davsha.
The assets of IDI include one non-subsidiary partnership interest with
a carrying value greater than $1.0 million. The partnership investment is a
project in Tampa Bay, Florida with a carrying value of $6.5 million at March 31,
2001. This compares to a carrying value of $6.1 million for the prior year ended
March 31, 2000. The $400,000 increase in partnership investment from the prior
fiscal year was largely due to further development of the project. This project
includes a golf course and fully developed single family recreational
residential lots. The net
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loss of the Tampa Bay partnership for the year ended March 31, 2001, was
$580,000 as compared to a net loss of $145,000 for the year ended March 31,
2000. This decrease in income was largely due to decreased lot sales, decreased
golf revenue, and a gain on the condemnation of land reported in 2000.
The balance of assets at IDI includes loans to finance the acquisition
and development of property for various partnerships and subsidiaries. At March
31, 2001, IDI had extended $23.8 million to Indian Palms, $1.8 million to
Davsha, and $1.2 million to Davsha II as compared to $20.0 million to Indian
Palms alone at March 31, 2000. These amounts have been eliminated in
consolidation.
At March 31, 2001, the Corporation had extended $34.9 million to IDI to
fund various partnership and subsidiary investments. This represents an increase
of $7.9 million from borrowings of $27.0 million at March 31, 2000. These
amounts have been eliminated in consolidation.
At March 31, 2001, IDI had a general valuation allowance of $675,000.
This compares to an allowance of $600,000 for the prior year ended March 31,
2000. As of March 31, 2001, and March 31, 2000, there have been no charge-offs
for any of the partnerships or subsidiaries within IDI.
NEVADA INVESTMENT DIRECTIONS, INC. NIDI is a wholly owned non-banking
subsidiary of IDI formed in March 1997, that has invested in various limited
partnerships. NIDI was organized in the State of Nevada. IDI's investment in
NIDI at March 31, 2001, amounted to $4.5 million. For the year ended March 31,
2001, NIDI had total assets of $4.7 million and net income of $68,000. This
compares to total assets of $4.9 million and net income of $475,000 for the
prior year ended March 31, 2000.
The balance of assets at NIDI includes a $4.4 million loan to Oakmont,
a subsidiary of IDI and NIDI. This amount has been eliminated in consolidation.
At March 31, 2001, the Corporation had extended $190,000 to NIDI to
fund various partnership investments. NIDI had borrowings from the Corporation
of $450,000 as of March 31, 2000. These amounts have been eliminated in
consolidation.
CALIFORNIA INVESTMENT DIRECTIONS, INC. CIDI is a wholly owned
non-banking subsidiary of IDI formed in April 2000, to purchase and hold the
general partnership interest in S&D Indian Palms and a minority interest in
Davsha, LLC. CIDI was organized in the state of California. IDI's investment in
CIDI at March 31, 2001, amounted to ($114,000). For the year ended March 31,
2001, CIDI had total assets of ($12,000) and a net loss of $115,000.
INDIAN PALMS GP, LLC. In April 2000, CIDI purchased all of the equity
owned by the unrelated members of Indian Palms GP, and Indian Palms GP became a
consolidating subsidiary of CIDI. Indian Palms GP is the general partner of S&D
Indian Palms and was organized in the state of Texas. CIDI's investment in
Indian Palms GP at March 31, 2001, amounted to $23,000. For the year ended March
31, 2001, Indian Palms GP had total assets of $23,000 and a net loss of $27,000.
S&D INDIAN PALMS, LTD. In April 2000, IDI purchased all of the equity
owned by the unrelated partners of Indian Palms, and Indian Palms became a
consolidating subsidiary of IDI. Indian Palms GP, a consolidating subsidiary of
CIDI, owns a 1% general partner interest in Indian Palms. Indian Palms was
organized in the state of California in which it owns a golf resort and land for
residential lot development. IDI's investment in Indian Palms at March 31, 2001,
amounted to ($724,000). For the year ended March 31, 2001, Indian Palms had
total assets of $31.9 million and a net loss of $2.7 million. This compares to
total assets of $28.9 million and a net loss of $1.4 million for the year ended
March 31, 2000.
DAVSHA, LLC. In April 2000, CIDI purchased all of the equity owned by
the unrelated members of Davsha, and Davsha became a consolidating subsidiary of
IDI and CIDI. Davsha was organized in the state of California where it purchased
land from Indian Palms and develops residential housing for sale. For the year
ended
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March 31, 2001, Davsha had total assets of $11.3 million and a net loss of
$758,000. This compares to total assets of $7.7 million and net income of
$216,000 for the year ended March 31, 2000.
DAVSHA II, LLC. Davsha II is a wholly owned non-banking subsidiary of
Davsha formed in April 2000. Davsha II was organized in the state of California.
Davsha II is a limited partner in Paragon Indian Palms Associates, a partnership
formed in February 2000, to develop residential housing on land purchased from
Indian Palms. Davsha's investment in Davsha II at March 31, 2001, amounted to
$49,000. For the year ended March 31, 2001, Davsha II had total assets of $1.5
million and a net loss of $132,000.
DAVSHA III, LLC. Davsha III is a wholly owned non-banking subsidiary of
Davsha formed in February 2001. Davsha III was organized in the state of
California to develop residential housing on land it will purchase from Indian
Palms. Davsha's investment in Davsha III at March 31, 2001, amounted to $600.
For the year ended March 31, 2001, Davsha III had total assets of $37,000 and a
net loss of $400.
OAKMONT. Oakmont became a wholly owned non-banking subsidiary of NIDI
and IDI in January 2000. Oakmont was organized in the state of Texas. Oakmont is
a limited partner in Chandler Creek LP, a partnership formed in January 2000, to
develop an industrial park located in Round Rock, Texas. At March 31, 2001,
Chandler Creek had a carrying value at Oakmont of $3.2 million, and Oakmont had
extended $1.7 million to the unrelated partner in Chandler Creek. For the year
ended March 31, 2001, Oakmont had total assets of $4.9 million and a net loss of
$153,000. This compares to total assets of $4.6 million and a net loss of
$278,000 at March 31, 2000.
Together, IDI, NIDI, CIDI, Indian Palms, Indian Palms GP, Davsha,
Davsha II, Davsha III, and Oakmont represent the real estate investment segment
of the Corporation's business. This segment is categorized as real estate held
for development and sale on the Corporation's consolidated financial statements.
Net of reserves of $100,000 and non-performing real estate held for development
and sale of $350,000, the segment represents $48.4 million of total assets for
that category. For further discussion of the real estate held for development
and sale segment, see Item 8 - Note 15 to the Corporation's Consolidated
Financial Statements.
ANCHOR INVESTMENT SERVICES, INC. AIS is a wholly owned subsidiary of
the Bank that offers a full line of securities, annuities, and insurance
products to its customers and members of the general public. For the year ended
March 31, 2001, AIS had a net profit of $125,000. The Bank's investment in AIS
amounted to $193,000 at March 31, 2001.
ADPC CORPORATION. ADPC is a wholly owned subsidiary of the Bank that
holds and develops certain of the Bank's foreclosed properties. The Bank's
investment in ADPC at March 31, 2001 amounted to $1.3 million. ADPC had a net
loss of $191,000 for the year ended March 31, 2001.
ANCHOR INVESTMENT CORPORATION. AIC is an operating subsidiary of the
Bank that was incorporated in March 1993. Located in the State of Nevada, AIC
was formed for the purpose of managing a portion of the Bank's investment
portfolio (primarily mortgage-backed securities). As an operating subsidiary,
AIC's results of operations are combined with the Bank's for financial and
regulatory purposes. The Bank's investment in AIC amounted to $610.2 million at
March 31, 2001. AIC had net income of $23.3 million for the year ended March 31,
2001. The Bank had outstanding notes to AIC of $89.0 million at March 31, 2001,
with a weighted average rate of 9.03% and maturities during the next six months.
EMPLOYEES
The Corporation had 667 full-time employees and 165 part-time employees
at March 31, 2001. The Corporation promotes equal employment opportunity and
considers its relationship with its employees to be good. The employees are not
represented by a collective bargaining unit.
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REGULATION
Set forth below is a brief description of certain laws and regulations
which relate to the regulation of the Corporation and the Bank. The description
of these laws and regulations, as well as descriptions of laws and regulations
contained elsewhere herein, does not purport to be complete and is qualified in
its entirety by reference to applicable laws and regulations.
THE CORPORATION
The Corporation is a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Corporation is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Corporation and its non-savings association subsidiaries which permits the OTS
to restrict or prohibit activities that are determined to be a serious risk to
the subsidiary savings association.
As a unitary savings and loan holding company in existence on or before
May 4, 1999, the Corporation generally is not subject to activity restrictions
as long as the Bank is in compliance with the Qualified Thrift Lender ("QTL")
Test. See "Qualified Thrift Lender Requirement."
The Corporation must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Interstate acquisitions generally
are permitted based on specific state authorization or in a supervisory
acquisition of a failing savings association.
THE BANK
The Bank is a federally-chartered savings institution, the deposits of
which are federally insured and backed by the full faith and credit of the
United States Government. The Bank is subject to broad federal regulation and
oversight by the OTS and the FDIC extending to all aspects of its operations.
The Bank is a member of the FHLB of Chicago and is subject to certain limited
regulation by the Federal Reserve Board. The Bank is a member of the Savings
Association Insurance Fund ("SAIF") and the deposits of the Bank are insured by
the FDIC.
REGULATION OF SAVINGS ASSOCIATIONS. The OTS has extensive authority
over the operations of all insured savings associations. As part of this
authority, the Bank is required to file periodic reports with the OTS and is
subject to periodic examinations by the OTS and the FDIC. The examiners may
require the Bank to provide for higher general or specific loan loss allowances.
The last regular examination of the Bank by the OTS was as of June 30, 2000. The
FDIC was included in a joint examination as of November 30, 1992.
Savings institutions are required by OTS regulations to pay assessments
to the OTS to fund the operations of the OTS. The general assessment, paid on a
semiannual basis, is computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the institution's latest
quarterly Thrift Financial Report. The Bank's semi-annual OTS assessment for the
six months ending June 30, 2001 was $240,000.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including the Bank and the
Corporation, and their affiliated parties such as directors, officers,
employees, agents and certain other persons providing services to the Bank or
the Corporation. This enforcement authority established a comprehensive
framework of activities that the entities can engage in and is intended
primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies. Such policies include classification of assets, and the establishment
of adequate loan loss reserves for regulatory purposes.
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QUALIFIED THRIFT LENDER REQUIREMENT. In order for the Bank to exercise
the powers granted to SAIF-insured institutions, it must qualify as a qualified
thrift lender ("QTL"). Under the Home Owners' Loan Act, as amended, ("HOLA") and
OTS regulations, a savings institution is required to maintain a level of
qualified thrift investments equal to at least 65% of its "portfolio assets" (as
defined by statute) on a monthly basis for nine out of 12 months per calendar
year. Qualified thrift investments for purposes of the QTL test consist
primarily of residential mortgages and related investments. As of March 31,
2001, the Bank was in compliance with the QTL test.
NEW FINANCIAL SERVICES ACT. On November 12, 1999, the Financial
Services Modernization Act ("Act"), which could have a far-reaching impact on
the financial services industry, was signed into law. The intent of the law is
to increase competition in the financial services area and includes repealing
sections of the 1933 Glass-Steagal Act. The Act authorizes affiliations between
banking, securities and insurance firms and authorizes bank holding companies
and national banks to engage in a variety of new financial activities. Under the
Act, a bank holding company that qualifies as and elects to become a financial
holding company may engage in any activity stipulated by the Act under the
regulation of the Federal Reserve. The Act restricts the chartering and
transferring of unitary thrift holding companies, although it does not restrict
the operations of unitary holding companies in existence prior to May 4, 1999
that continue to meet the QTL test and control only a single savings
institution. The Corporation and the Bank presently meet these requirements. The
Act also imposes a number of consumer protections that generally greatly limit
disclosure of customer information to non-affiliated third parties. Disclosure
of ATM usage charges is also required by the Act. Many of the Act's provisions
require the issuance of regulations to implement the statutory provisions. As
such, it is too early to assess the eventual impact of the Act on either the
financial services industry in general or the specific operations of the
Corporation and the Bank.
FEDERAL REGULATIONS. The Bank is subject to federal regulations which
address various issues including, but not limited to, insurance of deposits,
capital requirements, and liquidity.
INSURANCE OF DEPOSITS. The Bank's deposits are insured up to applicable
limits under the SAIF of the FDIC. The FDIC regulations assign institutions to a
particular capital group based on the level of an institution's capital - "well
capitalized," "adequately capitalized," or "undercapitalized". These three
groups are then divided into three subgroups reflecting varying levels of
supervisory concern, from those institutions considered to be healthy to those
that are considered to be of substantial supervisory concern. This matrix
results in nine assessment risk classifications, with well capitalized,
financially sound, institutions paying lower rates than are paid by
undercapitalized institutions likely to pose a risk of loss to the insurance
fund absent corrective actions.
Beginning January 1, 1997, effective SAIF rates generally range from
zero basis points to 27 basis points. From 1997 through 1999, SAIF members paid
6.4 basis points to fund the Financing Corporation ("FICO"), while BIF member
institutions paid approximately 1.3 basis points. Thereafter, BIF and SAIF
members are assessed at the same rate by FICO. The FICO assessment rate for the
first quarter of 2001 was 1.96 basis points.
REGULATORY CAPITAL REQUIREMENTS. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted
assets.
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill, less nonqualifying intangible assets, certain
mortgage servicing rights and certain investments.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, and the portion of the allowance
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for loan losses not designated for specific loan losses. The portion of the
allowance for loan and lease losses includable in supplementary capital is
limited to a maximum of 1.25% of risk-weighted assets. Overall, supplementary
capital is limited to 100% of core capital. A savings association must calculate
its risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets.
The risk-based capital standards of the OTS generally require savings
institutions with more than a "normal" level of interest rate risk to maintain
additional total capital. An institution's interest rate risk will be measured
in terms of the sensitivity of its "net portfolio value" to changes in interest
rates. Net portfolio value is defined, generally, as the present value of
expected cash inflows from existing assets and off-balance sheet contracts less
the present value of expected cash outflows from existing liabilities. A savings
institution will be considered to have a "normal" level of interest rate risk
exposure if the decline in its net portfolio value after an immediate 200 basis
point increase or decrease in market interest rates (whichever results in the
greater decline) is less than two percent of the current estimated economic
value of its assets. An institution with a greater than normal interest rate
risk will be required to deduct from total capital, for purposes of calculating
its risk-based capital requirement, an amount (the "interest rate risk
component") equal to one-half the difference between the institution's measured
interest rate risk and the normal level of interest rate risk, multiplied by the
economic value of its total assets. For additional discussion of regulatory
capital requirements, refer to Note 9 to the Consolidated Financial Statements
in Item 8 included herewith.
LIMITATION ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. OTS
regulations impose various restrictions or requirements on associations with
respect to their ability to pay dividends or make other distributions of
capital. OTS regulations prohibit an association from declaring or paying any
dividends or from repurchasing any of its stock if, as a result, the regulatory
(or total) capital of the association would be reduced below the amount required
to be maintained for the liquidation account established in connection with its
mutual to stock conversion.
Under new OTS regulations effective April 1, 1999, a savings
institution must file an application for OTS approval of the capital
distribution if either (1) the total capital distributions for the applicable
calendar year exceed the sum of the institution's net income for that year to
date plus the institution's retained net income for the preceding two years, (2)
the institution would not be at least adequately capitalized following the
distribution, (3) the distribution would violate any applicable statute,
regulation, agreement or OTS-imposed condition, or (4) the institution is not
eligible for expedited treatment of its filings. If an application is not
required to be filed, savings institutions, such as the Bank, that are a
subsidiary of a holding company (as well as certain other institutions) must
still file a notice with the OTS at least 30 days before the payment of a
dividend or a capital distribution.
LIQUIDITY. In December 2000, legislation was enacted that removed the
provision that authorized the Director of the OTS to establish a liquidity
requirement of any amount within the range of 4% to 10% of a savings
association's average daily balance of net withdrawable deposits plus short-term
borrowings depending upon economic conditions and the deposit flows of member
institutions. In revising the OTS Regulations to conform with the recent
legislation, the OTS removed the specific liquidity requirement but adopted a
rule that requires each savings association and service corporation to maintain
sufficient liquidity to ensure its safe and sound operation. At March 31, 2001,
the Bank believes that it was in compliance with these liquidity requirements.
The Bank's liquidity ratio was 15.14% at March 31, 2001.
FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. At March 31, 2001, the Bank
was in compliance with these requirements. The OTS has permitted these reserves
to be used to satisfy liquidity requirements. Because required reserves must be
maintained in the form of cash or a non-interest-bearing account at a Federal
Reserve Bank, the effect of this reserve requirement is to reduce the amount of
the institution's interest-earning assets.
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Savings institutions also have the authority to borrow from the Federal
Reserve "discount window." Federal Reserve Board regulations, however, require
savings institutions to exhaust all FHLB sources before borrowing from a Federal
Reserve Bank.
RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES
The Bank is required to comply with Sections 23A and 23B of the Federal
Reserve Act ("Sections 23A and 23B") relative to transactions with affiliates.
Generally, Section 23A limits the extent to which the insured institution or its
subsidiaries may engage in certain covered transactions with an affiliate to an
amount equal to 10% of such institution's capital and surplus, place an
aggregate limit on all such transactions with affiliates to an amount equal to
20% of such capital and surplus, and Section 23B requires that all such covered
transactions and certain additional transactions be on terms substantially the
same, or at least as favorable to the institution or subsidiary, as those
provided to a non-affiliate. The term "covered transaction" includes the making
of loans, purchase of assets, issuance of a guaranty and similar other types of
transactions. Exemptions from 23A or 23B may be granted only by the FRB. The
Corporation has not been significantly affected by such restrictions or
transactions with affiliates.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB of
Chicago, which is one of 12 regional FHLBs that administers the home financing
credit function of savings associations. The FHLBs provide a central credit
facility for member savings institutions. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
loans to members (i.e., advances) in accordance with policies and procedures
established by the board of directors of the FHLB. These policies and procedures
are subject to regulation and oversight of the Federal Housing Finance Board.
All advances from the FHLB are required to be fully secured by sufficient
collateral as determined by the FHLB. In addition, all long-term advances are
required to provide funds for residential home financing.
As a member, the Bank is required to own shares of capital stock in the
FHLB of Chicago. At March 31, 2001, the Bank owned $38.0 million in FHLB stock,
which is in compliance with this requirement. The Bank received dividends on its
FHLB stock for fiscal 2001 of $2.7 million as compared to $2.1 million for
fiscal 2000.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to low- and moderately-priced housing
programs through direct loans or interest subsidies on advances targeted for
community investment and low- and moderate-income housing projects. These
contributions have adversely affected the level of FHLB dividends paid and could
continue to do so in the future. These contributions could also have an adverse
effect on the value of FHLB stock in the future. A reduction in value of the
Bank's FHLB stock may result in a charge to the Corporation's earnings.
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TAXATION
FEDERAL
The Corporation files a consolidated federal income tax return on
behalf of itself, the Bank and its subsidiaries on a fiscal tax year basis.
In prior years, the Bank qualified under provisions of the Internal
Revenue Code which permitted, as a deduction from taxable income, allowable bad
debt deductions which significantly exceeded actual losses and the financial
statement loan loss provisions. These earnings appropriated to a savings
institution's bad debt reserves and deducted for federal income tax purposes may
not, without adverse tax consequences, be utilized for the payment of cash
dividends or other distributions to a stockholder (including distributions on
redemption, dissolution or liquidation) or for any other purpose (except to
absorb bad debt losses). As of March 31, 2001, the Bank's bad debt reserves for
tax purposes totaled approximately $46.1 million. (See Note 11 to the
Consolidated Financial Statements for additional discussion).
STATE
Under current law, the state of Wisconsin imposes a corporate franchise
tax of 7.9% on the separate taxable incomes of the members of the Corporation's
consolidated income tax group except AIC and NIDI, both located in Nevada.
Presently, the income of AIC and NIDI are only subject to taxation in Nevada,
which currently does not impose a corporate income or franchise tax.
ITEM 2. PROPERTIES
At March 31, 2001, The Bank conducted its business from its
headquarters and main office at 25 West Main Street, Madison, Wisconsin and 48
other full-service offices and three lending only offices. The Bank owns 33 of
its full-service offices, leases the land on which 3 such offices are located,
and leases the remaining 13 full-service offices. In addition, the Bank leases
its three loan-origination facilities. The leases expire between 2001 and 2014.
The aggregate net book value at March 31, 2001 of the properties owned or
leased, including headquarters, properties and leasehold improvements, was $18.6
million. See Note 6 to the Corporation's Consolidated Financial Statements,
included as Item 8 hereto, for information regarding the premises and equipment.
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ITEM 3. LEGAL PROCEEDINGS
The Corporation 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended March 31, 2001, no
matters were submitted to a vote of security holders through a solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
COMMON STOCK
The Corporation's Common Stock is traded on the Nasdaq Stock Market,
National Market. The trading symbol is ABCW. As of March 31, 2001, there were
approximately 2,900 stockholders of record. That number does not include
stockholders holding their stock in street name or nominee's name.
SHAREHOLDERS' RIGHTS PLAN
On July 22, 1997, the Board of Directors of the Corporation declared a
dividend distribution of one "Right" for each outstanding share of Common Stock,
par value $0.10 per share, of the Corporation to stockholders of record at the
close of business on August 1, 1997. Subject to certain exceptions, each Right
entitles the registered holder to purchase from the Corporation one
one-hundredth of a share of Series A Preferred Stock, par value $0.10 per share,
at a price of $200.00, subject to adjustment. The Purchase Price must be paid in
cash. The description and terms of the Rights are set forth in a Rights
Agreement between the Corporation and Firstar Trust Company, as Rights Agent.
QUARTERLY STOCK PRICE AND DIVIDEND INFORMATION
The table below shows the reported high and low sale prices of Common
Stock and cash dividends paid per share of Common Stock during the periods
indicated in fiscal 2001 and 2000.
CASH
QUARTER ENDED HIGH LOW DIVIDEND
- ---------------------------------------------------------------------------------------------------------------
March 31, 2001 $ 16.750 $ 12.875 $ 0.075
December 31, 2000 16.188 14.000 0.075
September 30, 2000 17.000 14.688 0.075
June 30, 2000 16.750 13.688 0.070
March 31, 2000 15.875 12.750 0.070
December 31, 1999 16.875 15.000 0.065
September 30, 1999 20.000 15.750 0.065
June 30, 1999 20.125 15.250 0.050
For information regarding restrictions on the payments of dividends by
the Bank, see "Item 1. Business -- Regulation -- Limitations on Dividends and
Other Capital Distributions" in this report.
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ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY
AT OR FOR YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------------------------------------------------------------------------------------------
(Dollars In Thousands, Except Per Share Data)
Earnings per share:
Basic $ 1.19 $ 0.80 $ 1.26 $ 1.06 $ 0.71
Diluted 1.16 0.78 1.19 1.01 0.68
Interest income 228,647 202,594 194,807 187,392 160,952
Interest expense 148,096 119,393 114,535 110,893 95,543
Net interest income 80,551 83,201 80,272 76,499 65,409
Provision for loan losses 945 1,306 1,017 1,250 850
Non-interest income 13,503 14,390 22,019 15,882 14,968
Non-interest expenses 51,450 61,187 52,426 49,279 53,942
Income taxes 14,682 15,596 18,607 15,507 9,197
Net income 26,977 19,502 30,241 26,345 16,388
Total assets 3,127,474 2,911,152 2,663,718 2,517,080 2,156,168
Investment securities 56,129 86,206 87,722 80,460 52,511
Mortgage-related securities 379,159 300,519 258,489 254,389 263,295
Loans receivable held for
investment, net 2,414,976 2,302,721 2,111,566 1,962,023 1,682,919
Deposits 2,119,320 1,897,369 1,835,416 1,710,980 1,465,608
Notes payable to FHLB 669,896 649,046 517,695 508,145 439,065
Other borrowings 70,702 107,813 55,264 55,765 57,374
Stockholders' equity $ 219,612 $ 217,215 $ 220,287 $ 202,868 $ 165,319
Shares outstanding 22,814,923 24,088,147 23,832,165 23,791,787 21,623,990
Book value per share
at end of period $ 9.63 $ 9.02 $ 9.24 $ 8.53 $ 7.65
Dividend paid per share 0.30 0.25 0.20 0.16 0.12
Dividend payout ratio 24.79% 31.25% 15.48% 15.09% 16.73%
Yield on earning assets 7.89 7.56 7.68 7.94 7.90
Cost of funds 5.31 4.79 4.84 5.01 4.98
Interest rate spread 2.58 2.77 2.84 2.93 2.92
Net interest margin 2.78 3.10 3.15 3.23 3.20
Return on average assets 0.88 0.71 1.16 1.08 0.78
Return on average equity 12.48 8.92 14.44 13.24 9.90
Average equity to average assets 7.09 7.97 8.04 8.15 7.84
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ITEM 7. 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
Comparison of Years Ended March 31, 2001 and 2000
GENERAL. Net income increased $7.5 million to $27.0 million in fiscal
2001 from $19.5 million in fiscal 2000. The primary component of this increase
in earnings for fiscal 2001, as compared to fiscal 2000, was a decrease of $9.7
million in non-interest expense. This was partially offset by a decrease of $2.3
million in net interest income after the provision for loan losses. The returns
on average assets and average stockholders' equity for fiscal 2001 were .88% and
12.48%, respectively, as compared to .71% and 8.92%, respectively, for fiscal
2000.
NET INTEREST INCOME. Net interest income decreased by $2.7 million
during fiscal 2001 due to increases in the volume of interest-earning assets and
interest-bearing liabilities. The average balances of interest-earning assets
and interest-bearing liabilities increased to $2.90 billion and $2.79 billion in
fiscal 2001, respectively, from $2.68 billion and $2.49 billion, respectively,
in fiscal 2000. The ratio of average interest-earning assets to average
interest-bearing liabilities decreased to 1.04% in fiscal 2001 from 1.07% in
fiscal 2000. The average yield on interest-earning assets (7.89% in fiscal 2001
versus 7.56% in fiscal 2000) increased, as did the average cost on
interest-bearing liabilities (5.31% in fiscal 2001 versus 4.79% in fiscal 2000).
The net interest margin decreased to 2.78% for fiscal 2001 from 3.10% for fiscal
2000 and the interest rate spread decreased to 2.58% from 2.77% for fiscal 2001
and 2000, respectively. The decrease in the net interest margin is reflective of
an increase in the cost of funds, offset by increased yields on loans as rates
rise. These factors are reflected in the analysis of changes in net interest
income, arising from changes in the volume of interest-earning assets,
interest-bearing liabilities and the rates earned and paid on such assets and
liabilities. The analysis indicates that the increases in the volume of
interest-earning liabilities decreased net interest income in fiscal 2001 by
approximately $1.2 million. In addition, there was a $1.4 million decrease in
net interest income caused by the combination of rate and rate/volume changes.
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PROVISION FOR LOAN LOSSES. Provision for loan losses decreased from
$1.3 million in fiscal 2000 to $950,000 in fiscal 2001 based on management's
ongoing evaluation of asset quality. There was a slight increase in net
charge-offs of $340,000 in overall loans in fiscal 2001, primarily due to
increased mortgage loan charge-offs, and the quality of the loan portfolio
continues to be good. The Corporation's allowance for loan losses decreased
slightly from $24.4 million at March 31, 2000 to $24.1 million at March 31,
2001. This amount represented .94% of total loans at March 31, 2001, as compared
to 1.00% of total loans at March 31, 2000. For further discussion of the
allowance for loan losses, see "Financial Condition--Allowance for Loan and
Foreclosure Losses."
NON-INTEREST INCOME. Non-interest income decreased $890,000 to $13.5
million for fiscal 2001 compared to $14.4 million for fiscal 2000 primarily due
to the decrease of $3.5 million in net income from operations of real estate
investments. This decrease was largely due to decreased resort and golf net
income at the partnerships and losses on the sale of four condominium units in a
development in Bloomington, Minnesota. Other non-interest income, which includes
a variety of loan fee and other miscellaneous fee income, also decreased
$120,000 for fiscal 2001. Partially offsetting these decreases were increases in
other categories. The net gain on sale of loans increased by $1.0 million
largely due to increased volume of loan sales during the year. Service charges
on deposits increased $840,000 essentially due to a growth in deposits and loan
servicing income increased $440,000 due to increased volume of loans serviced
for others. Income from insurance commissions increased $400,000 due to
increased sales and net gain on sale of investments and securities increased
$40,000 for fiscal 2001.
NON-INTEREST EXPENSE. Non-interest expense decreased $9.7 million to
$51.5 million for fiscal 2001 compared to $61.2 million for fiscal 2000 as a
result of several factors. The majority of the decrease was attributed to
merger-related expenses of $8.3 million ($5.1 million, net of tax) due to the
merger with FCBF and increased goodwill expense of $1.8 million ($1.1 million
net of tax) in fiscal 2000. Unamortized goodwill from a previous merger became
impaired and was written off in fiscal 2000. Exclusive of the one-time charges
for the merger and goodwill, non-interest expense increased $320,000 in fiscal
2001. This increase was primarily due to an increase in compensation expense of
$1.6 million, largely due to an increase in incentive compensation resulting
from increased loan production. In addition, occupancy expense increased
$220,000 during this fiscal year. There was an increase in furniture and
equipment expense of $130,000 in fiscal 2001, primarily due to normal
replacement costs, and data processing expense increased $40,000. These
increases were partially offset by decreases in other categories. Other
non-interest expense decreased $760,000 due to decreases in postage, retail and
other expenses and federal insurance premiums decreased $520,000 due to a
reduction in the assessment in fiscal 2001. Also, marketing expense decreased
$410,000 due to decreased promotions.
INCOME TAXES. Income tax expense decreased $910,000 for fiscal 2001 as
compared to fiscal 2000. The effective tax rate for fiscal 2001 was 35.24% as
compared to 44.44% for fiscal 2000. The unusual effective tax rate for fiscal
2000 is a result of certain merger-related costs and goodwill amortization that
are not deductible for tax purposes. See Note 11 to the Consolidated Financial
Statements included as Item 8.
Comparison of Years Ended March 31, 2000 and 1999
GENERAL. Net income decreased $10.7 million to $19.5 million in fiscal
2000 from $30.2 million in fiscal 1999. The primary components of this decrease
in earnings for fiscal 2000, as compared to fiscal 1999, were a decrease of $7.6
million in non-interest income and an increase of $8.8 million in non-interest
expense. This was partially offset by an increase of $2.6 million in net
interest income after the provision for loan losses and a decrease of $3.0
million in income taxes. The returns on average assets and average stockholders'
equity for fiscal 2000 were .71% and 8.92%, respectively, as compared to 1.16%
and 14.44%, respectively, for fiscal 1999.
NET INTEREST INCOME. Net interest income increased by $2.9 million
during fiscal 2000 due to increases in the volume of interest-earning assets and
interest-bearing liabilities. The average balances of interest-earning assets
and interest-bearing liabilities increased to $2.68 billion and $2.49 billion in
fiscal 2000, respectively, from $2.53 billion and $2.37 billion, respectively,
in fiscal 1999. The ratio of average interest-earning assets to average
interest-bearing liabilities remained relatively constant at 1.07% for both
fiscal 2000 and fiscal 1999. The average yield on interest-earning assets (7.56%
in fiscal 2000 versus 7.68% in fiscal 1999) decreased, as did the average cost
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on interest-bearing liabilities (4.79% in fiscal 2000 versus 4.84% in fiscal
1999). The net interest margin decreased to 3.10% for fiscal 2000 from 3.15% for
fiscal 1999 and the interest rate spread decreased to 2.77% from 2.84% for
fiscal 2000 and 1999, respectively. The decrease in the net interest margin is
reflective of decreased yields on loans as rates fall, offset by a decrease in
the cost of funds. These factors are reflected in the analysis of changes in net
interest income, arising from changes in the volume of interest-earning assets,
interest-bearing liabilities and the rates earned and paid on such assets and
liabilities. The analysis indicates that the increases in the volume of
interest-earning assets increased net interest income in fiscal 2000 by
approximately $8.0 million. Offsetting this increase, was a $4.6 million
decrease in net interest income caused by the combination of rate and
rate/volume changes.
PROVISION FOR LOAN LOSSES. Provision for loan losses increased slightly
from $1.0 million in fiscal 1999 to $1.3 million in fiscal 2000 based on
management's ongoing evaluation of asset quality. There was a decrease in net
charge-offs of $1.5 million in overall loans in fiscal 2000, and the quality of
the loan portfolio continues to be good. The Corporation's allowance for loan
losses increased slightly from $24.0 million at March 31, 1999 to $24.4 million
at March 31, 2000. This amount represented 1.00% of total loans at March 31,
2000, as compared to 1.08% of total loans at March 31, 1999. For further
discussion of the allowance for loan losses, see "Financial Condition--Allowance
for Loan and Foreclosure Losses."
NON-INTEREST INCOME. Non-interest income decreased $7.6 million to
$14.4 million for fiscal 2000 compared to $22.0 million for fiscal 1999 as a
result of several factors. The net gain on sale of loans decreased by $5.3
million largely due to decreased volume of loan sales during the year. Net
income from operations of real estate investments decreased $1.1 million because
there were fewer sales of partnership interests with more development costs as
projects are held at IDI in fiscal 2000. Other non-interest income, which
includes a variety of loan fee and other miscellaneous fee income, decreased
$1.3 million for fiscal 2000. In addition to decreased loan fee income, there
was a non-recurring gain on the sale of an investment property of $360,000 for
fiscal 1999. Net gain on sale of investments and securities decreased $350,000
for fiscal 2000, and service charges on deposits also decreased $90,000.
Partially offsetting these decreases were increases in other categories. Income
from insurance commissions increased $290,000 for fiscal 2000. Loan servicing
income increased $210,000 due to increased volume of loans serviced for others.
NON-INTEREST EXPENSE. Non-interest expense increased $8.8 million for
fiscal 2000 compared to 1999 as a result of several factors. The majority of the
increase was attributed to merger-related expenses of $8.3 million ($5.1
million, net of tax) due to the merger with FCBF and increased goodwill expense
of $1.5 million ($900,000, net of tax). Unamortized goodwill from a previous
merger became impaired and was written off. There was an increase in furniture
and equipment expense of $430,000 in fiscal 2000, primarily due to normal
replacement costs. Marketing expense also increased $340,000 in fiscal 2000 due
to increased promotions. Data processing expense increased $190,000 due to
consulting expenses associated with computer and software upgrades. These
increases were partially offset by several non-interest expense decreases.
Compensation expense decreased $1.3 million largely due to decreased incentive
payments, and other non-interest expense decreased $390,000 during fiscal 2000.
Federal insurance premiums decreased $150,000, and occupancy expense also
decreased $110,000 during this fiscal year.
INCOME TAXES. Income tax expense decreased $3.0 million for fiscal 2000
as compared to fiscal 1999. The effective tax rate for fiscal 2000 was 44.44% as
compared to 38.09% for fiscal 1999. The unusual effective tax rate for fiscal
2000 is a result of certain merger-related costs and goodwill amortization that
are not deductible for tax purposes. See Note 11 to the Consolidated Financial
Statements included as Item 8.
28
30
NET INTEREST INFORMATION
AVERAGE INTEREST-EARNING ASSETS, AVERAGE INTEREST-BEARING LIABILITIES
AND INTEREST RATE SPREAD AND MARGIN. The following table shows the Corporation's
average balances, interest, average rates, the spread between the combined
average rates earned on interest-earning assets and average cost of
interest-bearing liabilities, the average net interest margin, computed as net
interest income as a ratio of average interest-earning assets, and the ratio of
average interest-earning assets to average interest-bearing liabilities for the
years indicated. The average balances are derived from average daily balances.
29
31
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------------------
2001 2000 1999
-------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
-------------------------------------------------------------------------------------------------
(Dollars In Thousands)
INTEREST-EARNING ASSETS
Mortgage loans (1) $ 1,882,215 $150,267 7.98% $1,796,749 $135,369 7.53% $ 1,683,821 $128,487 7.63%
Consumer loans 464,926 40,954 8.81 414,478 36,041 8.70 404,264 36,332 8.99
Commercial business loans 74,356 7,214 9.70 64,155 5,758 8.98 44,952 3,960 8.81
------------ -------- ---------- -------- ----------- --------
Total loans receivable (2) 2,421,497 198,435 8.19 2,275,382 177,168 7.79 2,133,036 168,779 7.91
Mortgage-related securities (1) 311,132 20,051 6.44 247,352 15,937 6.44 239,608 15,671 6.54
Investment securities (1) 92,372 5,313 5.75 104,781 6,108 5.83 94,479 5,778 6.12
Interest-bearing deposits 34,887 2,121 6.08 22,989 1,245 5.42 36,404 2,287 6.28
Federal Home Loan Bank stock 36,532 2,727 7.46 30,486 2,136 7.01 27,464 1,794 6.53
------------ -------- ---------- -------- ----------- --------
Total interest-earning assets 2,896,420 228,647 7.89 2,680,990 202,594 7.56 2,530,991 194,309 7.68
Non-interest-earning assets 154,184 62,889 72,569
------------ ---------- ----------
Total assets $ 3,050,604 $2,743,879 $2,603,560
============ ========== ==========
INTEREST-BEARING LIABILITIES
Demand deposits $ 568,448 18,669 3.28 $ 537,156 15,259 2.84 $ 473,243 13,240 2.80
Regular passbook savings 134,559 2,147 1.60 190,751 4,969 2.60 139,751 3,110 2.23
Certificates of deposit 1,269,512 76,624 6.04 1,087,459 61,251 5.63 1,169,841 65,897 5.63
------------ -------- ---------- -------- ---------- --------
Total deposits 1,972,519 97,440 4.94 1,815,366 81,479 4.49 1,782,834 82,247 4.61
Notes payable and other
borrowings 802,677 50,151 6.25 664,882 37,358 5.62 566,275 31,745 5.61
Other 14,583 505 3.46 14,050 556 3.96 16,616 543 3.27
------------ -------- ---------- -------- ---------- --------
Total interest-bearing
liabilities 2,789,779 148,096 5.31 2,494,298 119,393 4.79 2,365,725 114,535 4.84
-------- ---- -------- ---- -------- ----
Non-interest-bearing liabilities 44,645 30,830 28,412
------------ ---------- ----------
Total liabilities 2,834,424 2,525,128 2,394,136
Stockholders' equity 216,180 218,751 209,424
------------ ---------- ----------
Total liabilities and
stockholders' equity $ 3,050,604 $2,743,879 $2,603,560
============ ========== ==========
Net interest income/
interest rate spread $ 80,551 2.58% $ 83,201 2.77% $ 79,774 2.84%
======== ==== ======== ==== ======== ====
Net interest-earning assets $ 106,641 $ 186,692 $ 165,266
============ ========== ==========
Net interest margin 2.78% 3.10% 3.15%
==== ==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 1.04 1.07 1.07
==== ==== ====
- ----------------------------------
(1) Includes amortized cost basis of assets held and available for sale.
(2) The average balances of loans include non-performing loans, interest of
which is recognized on a cash basis.
30
32
RATE/VOLUME ANALYSIS
The most significant impact on the Corporation's net interest income
between periods is derived from the interaction of changes in the volume of and
rates earned or paid on interest-earning assets and interest-bearing
liabilities. The volume of earning dollars in loans and investments, compared to
the volume of interest-bearing liabilities represented by deposits and
borrowings, combined with the spread, produces the changes in net interest
income between periods. The following table shows the relative contribution of
the changes in average volume and average interest rates on changes in net
interest income for the periods indicated. Information is provided with respect
to (i) effects on interest income attributable to changes in rate (changes in
rate multiplied by prior volume), (ii) effects on interest income attributable
to changes in volume (changes in volume multiplied by prior rate) and (iii)
changes in rate/volume (changes in rate multiplied by changes in volume).
INCREASE (DECREASE) FOR THE YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------------------
2001 COMPARED TO 2000 2000 COMPARED TO 1999
-----------------------------------------------------------------------------------------------
RATE/ RATE/
RATE VOLUME VOLUME NET RATE VOLUME VOLUME NET
-----------------------------------------------------------------------------------------------
(In Thousands)
INTEREST-EARNING ASSETS
Mortgage loans (1) $ 8,075 $ 6,439 $ 384 $ 14,898 $ (1,626) $ 8,617 $ (109) $ 6,882
Consumer loans 470 4,386 57 4,913 (1,178) 917 (30) (291)
Commercial business loans 466 916 74 1,456 75 1,691 32 1,798
-------- -------- ------- --------- --------- --------- ------- -------
Total loans receivable 9,011 11,741 515 21,267 (2,729) 11,225 (107) 8,389
Mortgage-related securities (1) 4 4,109 1 4,114 (233) 507 (8) 266
Investment securities (1) (81) (724) 10 (795) (271) 630 (29) 330
Interest-bearing deposits 153 644 79 876 (315) (843) 116 (1,042)
Federal Home Loan Bank stock 140 423 28 591 130 198 14 342
-------- -------- ------- --------- --------- --------- ------- -------
Total net change in income on
interest-earning assets 9,227 16,193 633 26,053 (3,418) 11,717 (14) 8,285
INTEREST -BEARING LIABILITIES
Demand deposits 2,382 889 139 3,410 203 1,789 27 2,019
Regular passbook savings (1,925) (1,464) 567 (2,822) 530 1,135 194 1,859
Certificates of deposit 4,385 10,254 734 15,373 (6) (4,640) - (4,646)
-------- -------- ------- --------- --------- --------- ------- -------
Total deposits 4,842 9,679 1,440 15,961 727 (1,716) 221 (768)
Notes payable and other borrowings 4,184 7,742 867 12,793 73 5,527 13 5,613
Other (69) 21 (3) (51) 115 (84) (18) 13
-------- -------- ------- --------- --------- --------- ------- -------
Total net change in expense on
interest-bearing liabilities 8,957 17,442 2,304 28,703 915 3,727 216 4,858
-------- -------- ------- --------- --------- --------- ------- -------
Net change in net interest income $ 270 $ (1,249) $(1,671) $ (2,650) $ (4,333) $ 7,990 $ (230) $ 3,427
======== ======== ======= ========= ========= ========= ======= =======
- ----------------------------------
(1) Includes amortized cost basis of assets held and available for sale.
31
33
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 2001, the Bank made dividend payments of $12.3 million to
the Corporation. The Bank is subject to certain regulatory limitations relative
to its ability to pay dividends to the Corporation. Management believes that the
Corporation will not be adversely affected by these dividend limitations and
that projected future dividends from the Bank will be sufficient to meet the
Corporation's liquidity needs. In addition to dividends from the Bank, the
Corporation also could sell capital stock or debt issues through the capital
markets as alternative sources of funds, as well as obtain loans from outside
banks.
The Bank's primary sources of funds are principal and interest payments
on loans receivable and mortgage-related securities, sales of mortgage loans
originated for sale, FHLB advances, deposits and other borrowings. While
maturities and scheduled amortization of loans and mortgage-related securities
are a predictable source of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions and
competition.
The Bank is required by the OTS to maintain levels of liquid
investments in qualifying types of U.S. Government and agency securities and
other investments sufficient to ensure its safe and sound operation. At March
31, 2001 and 2000, the Bank's liquidity ratio was 15.14% and 11.7%,
respectively.
In fiscal 2001, operating activities resulted in a net cash inflow of
$55.0 million. Operating cash flows for fiscal 2001 included earnings of $27.0
million and $(17.0) million of net proceeds from the origination and sale of
mortgage loans held for sale.
Investing activities in fiscal 2001 resulted in a net cash outflow of
$210.2 million. Primary investing activities resulting in cash outflows were
$78.4 million for the purchase of securities and $128.1 million for the increase
in net loans receivable. The most significant cash inflows from investing
activities were principal payments of $49.2 million received on mortgage-related
securities, as well as $80.2 million from the proceeds of sales and maturities
of investment securities.
Financing activities resulted in a net cash inflow of $176.5 million
including a net increase in deposits of $222.0 million, a net increase in
borrowings of $20.6 million and a cash outflow of $24.4 million for treasury
stock purchases.
At March 31, 2001, the Corporation had outstanding commitments to
originate $90.6 million of loans; commitments to extend funds to or on behalf of
customers pursuant to lines and letters of credit of $145.6 million; and $1.1
million of loans sold with recourse to the Corporation in the event of default
by the borrower. (See Note 12 to the Consolidated Financial Statements.)
Scheduled maturities of certificates of deposit during the twelve months
following March 31, 2001 amounted to $998.4 million, and scheduled maturities of
borrowings during the same period totaled $451.0 million. The Bank has entered
into agreements with certain brokers that will provide blocks of funds at
specified interest rates for an identified fee. Management believes adequate
capital and borrowings are available from various sources to fund all
commitments to the extent required.
At March 31, 2001, the Bank's capital exceeded all capital requirements
of the OTS as mandated by federal law and regulations on both a current and
fully phased-in basis. See Note 9 to the Consolidated Financial Statements.
FINANCIAL CONDITION
GENERAL. Total assets of the Corporation increased $216.3 million or
7.4% from $2.91 billion at March 31, 2000 to $3.13 billion at March 31, 2001.
This increase was primarily funded by net increases in deposits of $222.0
million, and borrowings of $48.2 million. These funds were generally invested in
loans receivable and mortgage-related securities.
32
34
MORTGAGE-RELATED SECURITIES. Mortgage-related securities (both
available for sale and held to maturity) increased $78.6 million as a net result
during the year of (i) purchases of $6.0 million, (ii) principal repayments and
market value adjustments of $(80.5) million and (iii) sales of $7.9 million.
Mortgage-related securities consisted of $347.2 million of mortgage-backed
securities ($153.1 million were available for sale and $194.1 million were held
to maturity) and $31.9 million of mortgage-derivative securities ($20.9 million
were available for sale and $11.0 million were held to maturity) at March 31,
2001. See Notes 1 and 4 to the Consolidated Financial Statements.
Mortgage-related securities are subject to inherent risks based upon
the future performance of the underlying collateral (i.e., mortgage loans) for
these securities. Among these risks are prepayment risk and interest rate risk.
Should general interest rate levels decline, the mortgage-related securities
portfolio would be subject to (i) prepayments as borrowers typically would seek
to obtain financing at lower rates, (ii) a decline in interest income received
on adjustable-rate mortgage-related securities, and (iii) an increase in fair
value of fixed-rate mortgage-related securities. Conversely, should general
interest rate levels increase, the mortgage-related securities portfolio would
be subject to (i) a longer term to maturity as borrowers would be less likely to
prepay their loans, (ii) an increase in interest income received on
adjustable-rate mortgage-related securities, (iii) a decline in fair value of
fixed-rate mortgage-related securities, and (iv) a decline in fair value of
adjustable-rate mortgage-related securities to an extent dependent upon the
level of interest rate increases, the time period to the next interest rate
repricing date for the individual security, and the applicable periodic (annual
and/or lifetime) cap which could limit the degree to which the individual
security could reprice within a given time period.
LOANS RECEIVABLE. Total net loans (including loans held for sale)
increased $128.1 million during fiscal 2001 from $2.30 billion at March 31,
2000, to $2.43 billion at March 31, 2001. The activity included (i) originations
and purchases of $1.16 billion, (ii) sales of $563.8 million, and (iii)
principal repayments and other reductions of $468.1 million. See Note 5 to the
Corporation's Consolidated Financial Statements for more information.
NON-PERFORMING ASSETS. Non-performing assets (consisting of non-accrual
loans, non-performing real estate held for development and sale, foreclosed
properties and repossessed assets) increased to $5.7 million or 0.18% of total
assets at March 31, 2001 from $5.6 million or 0.19% of total assets at March 31,
2000.
Non-performing assets are summarized as follows for the dates
indicated:
33
35
AT MARCH 31,
2001 2000 1999 1998 1997
-------------------------------------------------------------------------------
(Dollars In Thousands)
Non-accrual loans:
Single-family residential $ 2,572 $ 2,582 $ 2,931 $ 3,256 $ 3,019
Multi-family residential 372 3 - 898 4,489
Commercial real estate 650 126 145 288 2,978
Construction and land 257 - - - 58
Consumer 499 571 571 765 463
Commercial business 697 332 359 769 610
----------- ------------ ----------- ----------- -----------
Total non-accrual loans 5,047 3,614 4,006 5,976 11,617
Real estate held for development and sale 352 1,691 1,764 4,431 2,736
Foreclosed properties and repossessed assets, net 313 272 630 3,794 246
----------- ------------ ----------- ----------- -----------
Total non-performing assets $ 5,712 $ 5,577 $ 6,400 $ 14,201 $ 14,599
=========== ============ =========== =========== ===========
Performing troubled debt restructurings $ 300 $ 144 $ 293 $ 725 $ 329
=========== ============ =========== =========== ===========
Total non-accrual loans to total loans 0.20% 0.15% 0.18% 0.29% 0.66%
Total non-performing assets to total assets 0.18 0.19 0.24 0.56 0.68
Allowance for loan losses to total loans 0.94 1.00 1.08 1.23 1.36
Allowance for loan losses to total
non-accrual loans 477.04 675.26 599.78 425.03 207.93
Allowance for loan and foreclosure losses
to total non-performing assets 422.16 439.63 379.97 181.15 172.84
Non-accrual loans increased $1.4 million in fiscal 2001. This increase
is largely attributable to one single family property. At March 31, 2001, there
was one non-accrual single family loan with a carrying value of greater than
$1.0 million. 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 more than 90 days.
Non-performing real estate held for development and sale decreased $1.3
million during fiscal 2001. At March 31, 2001, there were no properties in
non-performing real estate held for development and sale with a carrying value
greater than $1.0 million.
Foreclosed properties and repossessed assets increased $40,000 in
fiscal 2001. This increase is not attributable to any one property. At March 31,
2001, there are no properties in foreclosed properties with a carrying value
greater than $1.0 million.
The total of performing troubled debt restructurings does not represent
a material amount and does not include any loans larger than $1.0 million.
ALLOWANCES FOR LOAN AND FORECLOSURE LOSSES. The Corporation's loan
portfolio, foreclosed properties, and repossessed assets are evaluated on a
continuing basis to determine the necessity for additions to the allowances for
losses and the related balance in the allowances. These evaluations consider
several factors including, but not
34
36
limited to, general economic conditions, collateral value, loan portfolio
composition, loan delinquencies, prior loss experience, anticipated loss of
interest and losses inherent in the portfolio. The evaluation of the allowance
for loan losses includes a review of known loan problems as well as potential
loan problems based upon historical trends and ratios. Foreclosed properties are
recorded at the lower of carrying 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. A summary of the activity in the allowance for loan losses
follows:
YEAR ENDED MARCH 31,
------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------------------------------------------------------------------
(Dollars In Thousands)
Allowance at beginning of year $ 24,404 $ 24,027 $ 25,400 $ 24,155 $ 23,882
Charge-offs:
Mortgage (560) (45) (1,518) (956) (222)
Consumer (794) (833) (1,054) (1,058) (503)
Commercial business (271) (378) (414) (406) (275)
---------- --------- --------- --------- ---------
Total charge-offs (1,625) (1,256) (2,986) (2,420) (1,000)
---------- --------- --------- --------- ---------
Recoveries:
Mortgage 232 87 447 825 250
Consumer 102 203 123 76 5
Commercial business 18 37 26 95 168
---------- --------- --------- --------- ---------
Total recoveries 352 327 596 996 423
---------- --------- --------- --------- ---------
Net charge-offs (1,273) (929) (2,390) (1,424) (577)
---------- --------- --------- --------- ---------
Provision 945 1,306 1,017 1,250 850
Acquired banks' allowances - - - 1,419 -
---------- --------- --------- --------- ---------
Allowance at end of year $ 24,076 $ 24,404 $ 24,027 $ 25,400 $ 24,155
========== ========= ========= ========= =========
Net charge-offs to average loans
held for sale and for investment (0.05)% (0.04)% (0.11)% (0.07)% (0.03)%
========== ========= ========= ========= =========
The fiscal 2001 provision for loan losses totaled $950,000 compared to
$1.3 million in fiscal 2000. The provision for loan losses for fiscal years 2001
and 2000 remain at significantly lower levels compared to earlier years when the
Bank's charge-off experience from certain portfolio segments required larger
allowances due to higher defaults during a period of economic downturn. Those
segments were largely multi-family real estate loans secured by properties in
states other than Wisconsin and leases receivable. The Corporation had, until
the past few years, substantially ceased extending credit in those segments
since the late 1980's. Because of this historical experience, and based on the
volume and type of lending reintroduced to the loan portfolio (in the real
estate held for development and sale segment), management considered it
appropriate to retain the allowance at its present level. For further discussion
of the real estate held for development and sale segment, see Item 8 - Note 15
to the Consolidated Financial Statements and Item 1 - "Business - Subsidiaries".
The level of allowances for loan losses considers numerous factors
including the outstanding loan balances in various categories of loans and the
relative risk of each category. The loan portfolio has consistently shifted
toward higher risk categories since 1997, as the Bank restructures its loans to
include a greater portion in non-single family mortgage loans. The Bank also
considers economic trends in its overall level of general allowances.
35
37
Historically, the Bank's non-performing and classified assets have
fluctuated with economic trends, both locally and nationally. At March 31, 2001,
the present positive local and national economic conditions are reflected in the
Bank's decrease in classified assets. In response to these conditions, the Bank
has decreased its general reserve from $9.4 million to $6.6 million. Management
believes that the present level of the allowance is prudent.
Loan charge-offs were $1.6 million and $1.3 million for the fiscal
years ending March 31, 2001 and 2000, respectively. Total charge-offs for the
years ended March 31, 2001 and 2000 increased $370,000 and decreased $1.7
million, respectively, from the prior fiscal years. The increase in charge-offs
for fiscal 2001 is largely due to an increase of $520,000 in mortgage loan
charge-offs. Commercial loan charge-offs decreased $110,000, while consumer loan
charge-offs decreased $40,000 for the year ended March 31, 2001. The decrease in
charge-offs for fiscal 2000 was largely due to decreases in mortgage and
consumer loan charge-offs. Mortgage loan and consumer loan charge-offs decreased
$1.5 million and $220,000, respectively, for the year ended March 31, 2000.
Commercial loan charge-offs decreased $40,000 for the year ended March 31, 2000.
While recoveries slightly offset the charge-offs for the year ended March 31,
2001, such recoveries increased $20,000 from $330,000 in fiscal 2000 to $350,000
in fiscal 2001. Recoveries decreased $270,000 during the fiscal year ended March
31, 2000.
The increased level in net charge-offs of $340,000 and decreased level
in net charge-offs of $1.5 million for the respective years ended March 31, 2001
and 2000 do not represent changes in the quality of the loan portfolio, but
instead reflect the local and national trends in overall consumer debt levels
and bankruptcy filings.
The table below shows the Corporation's allocation of the allowance for
loan losses by loan type at the dates indicated.
MARCH 31,
---------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
---------------------------------------------------------------------------------------------------------
% OF TOTAL % OF TOTAL % OF TOTAL % OF TOTAL % OF TOTAL
LOANS BY LOANS BY LOANS BY LOANS BY LOANS BY
AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY
---------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Single-family residential $ 2,104 8.74% $ 2,109 8.64% $ 2,035 8.47% $ 1,277 5.03% $ 679 2.81%
Multi-family residential 2,284 9.49 1,749 7.17 1,962 8.17 592 2.33 492 2.04
Commercial real estate 7,181 29.83 6,360 26.06 4,976 20.71 1,624 6.39 1,010 4.18
Construction and land - - - - - - 187 0.74 - -
Consumer 2,120 8.81 2,088 8.56 1,543 6.42 2,188 8.61 1,511 6.26
Commercial business 3,817 15.85 2,729 11.18 3,000 12.49 1,337 5.26 1,370 5.67
Unallocated 6,570 27.29 9,369 38.39 10,511 43.75 18,195 71.63 19,093 79.04
-------- ------ -------- ------- ------- ------ ------- ------ ------- ------
Total allowance for
loan losses $ 24,076 100.00% $ 24,404 100.00% $24,027 100.00% $25,400 100.00% $24,155 100.00%
======== ====== ======== ======= ======= ====== ======= ====== ======= ======
Although management believes that the March 31, 2001, allowance for
loan losses is adequate based upon the current evaluation of loan delinquencies,
non-performing assets, charge-off trends, economic conditions and other factors,
there can be no assurance that future adjustments to the allowance will not be
necessary. Management also continues to pursue all practical and legal methods
of collection, repossession and disposal, and adheres to high underwriting
standards in the origination process, in order to continue to maintain strong
asset quality.
DEPOSITS. Deposits increased $222.0 million during fiscal 2001 to $2.12
billion, of which $179.6 million was due to increases in certificates of
deposit, $23.9 million was due to increases in money market accounts, and $25.3
million was due to increases in NOW accounts. All of these increases were due to
promotions and related growth of deposit households. The weighted average cost
of deposits increased to 4.75% at fiscal year-end 2001 compared to 4.59% at
fiscal year-end 2000.
36
38
BORROWINGS. FHLB advances increased $20.9 million during fiscal 2001
primarily to fund the increased loan activity. At March 31, 2001, advances
totaled $669.9 million with a weighted average interest rate of 6.05%. Reverse
repurchase agreements decreased $64.5 million during fiscal 2001. Other loans
payable increased $27.3 million from the prior fiscal year. For additional
information, see Note 8 to the Consolidated Financial Statements.
STOCKHOLDERS' EQUITY. Stockholders' equity at March 31, 2001 was $219.6
million, or 7.02% of total assets, compared to $217.2 million and 7.46% of total
assets at March 31, 2000. Stockholders' equity increased during the year as a
result of (i) comprehensive income of $30.6 million, which includes net income
of $27.0 million and an change in net unrealized losses on available-for-sale
securities as a part of accumulated other comprehensive income of $3.6 million,
(ii) the exercise of stock options of $1.7 million, (iii) the vesting of
recognition plan shares of $210,000, (iv) employee stock plan purchases of $1.2
million, (v) the tax benefit from certain stock options of $100,000. These were
offset by (i) the purchase of treasury stock of $24.6 million and (ii) the
payment of cash dividends of $6.9 million.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET AND 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.
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 occasionally sells adjustable-rate loans at origination
to private investors.
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 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.
Although management believes that its asset/liability management
strategies reduce the potential effects of changes in interest rates on the
Corporation's operations, material and prolonged changes in interest rates would
adversely affect the Corporation's operations.
The Corporation's cumulative net gap position at March 31, 2001 for one
year or less was a negative 8.43% of total assets. 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 Corporation utilizes certain prepayment assumptions and decay rates
from various sources such as the OTS and as determined by management. The
following table summarizes the Corporation's interest rate sensitivity gap
position as of March 31, 2001.
37
39
FAIR VALUE
03/31/02 03/31/03 03/31/04 03/31/95 03/31/96 THEREAFTER TOTAL 03/31/01
------------------------------------------------------------------------------------------------
(Dollars In thousands)
Rate sensitive assets:
Mortgage loans - Fixed (1) (2) $ 212,198 $ 83,276 $ 46,920 $28,563 $17,816 $ 68,185 $ 456,958 $ 456,533
Average interest rate 7.44% 7.54% 7.38% 7.29% 7.32% 7.28%
Mortgage loans -Variable (1) (2) 812,310 281,980 149,149 27,942 14,769 - 1,286,150 1,292,236
Average interest rate 8.09% 7.83% 7.83% 7.81% 7.81%
Consumer loans (1) 343,820 67,163 32,382 15,655 8,646 11,041 478,707 482,337
Average interest rate 8.32% 8.46% 8.44% 8.42% 8.42% 8.41%
Commercial business loans (1) 42,568 12,357 3,502 812 545 1,302 61,086 84,925
Average interest rate 8.43% 8.43% 8.43% 8.43% 8.43% 8.43%
Mortgage-related securities (3) 99,594 60,078 42,902 31,819 23,993 120,772 379,158 361,569
Average interest rate 6.54% 6.54% 6.54% 6.54% 6.54% 6.54%
Investment securities and other
interest-earning assets (3) 99,146 7,721 7,721 5,200 3,939 11,818 135,545 139,195
Average interest rate 6.24% 5.70% 5.70% 5.70% 5.70% 5.70%
Total rate sensitive assets 1,609,636 512,575 282,576 109,991 69,708 213,118 2,797,604 2,816,795
Rate sensitive liabilities:
Interest-bearing
transaction accounts (4) 366,801 68,748 46,617 32,235 22,764 74,597 611,762 569,555
Average interest rate 3.50% 3.78% 3.58% 3.36% 3.12% 2.27%
Time-deposits (4) 998,429 207,383 142,744 3,488 3,488 823 1,356,355 1,370,351
Average interest rate 6.12% 6.17% 6.46% 5.66% 5.66% 5.99%
Borrowings 509,044 92,900 24,000 30,500 13,000 58,500 727,944 728,582
Average interest rate 6.23% 5.72% 5.47% 5.85% 5.26% 5.25%
Total rate sensitive liabilities 1,874,274 369,031 213,361 66,223 39,252 133,920 2,696,061 2,668,488
Interest sensitivity gap $ (264,638) $ 143,544 $ 69,215 $43,768 $30,456 $ 79,198 $ 101,543
========== ========= ========= ======= ======= ======== ==========
Cumulative interest sensitivity gap $ (264,638) $(121,094) $ (51,879) $(8,111) $22,345 $101,543
========== ========= ========= ======= ======= ========
Cumulative interest sensitivity
gap as a percent of total assets (8.43)% (3.86)% (1.65)% (0.26)% 0.71% 3.24%
- ---------------------------------
(1) Balances have been reduced for (i) undisbursed loan proceeds, which
aggregated $111.3 million, and (ii) non-accrual loans, which amounted to
$5.0 million.
(2) Includes $17.6 million of loans held for sale spread throughout the periods.
(3) Includes $196.2 million of securities available for sale spread throughout
the periods.
(4) Does not include $159.3 million of demand accounts because they are
non-interest-bearing. Also does not include accrued interest payable,
which amounted to $13.8 million. Projected decay rates for demand deposits
and passbook savings are selected by management from various sources such as
the OTS.
38
40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF ANCHOR BANCORP WISCONSIN INC.
Page
----
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets ............................................................................... 40
Consolidated Statements of Income.......................................................................... 41
Consolidated Statements of Changes in Stockholders' Equity................................................. 42
Consolidated Statements of Cash Flows...................................................................... 44
Notes to Consolidated Financial Statements ................................................................ 46
Report of Ernst & Young LLP, Independent Auditors ......................................................... 72
Management and Audit Committee Report...................................................................... 73
SUPPLEMENTARY DATA
Quarterly Financial Information............................................................................ 74
39
41
CONSOLIDATED BALANCE SHEETS
MARCH 31,
-------------------------------------
2001 2000
-------------------------------------
(In Thousands, Except Per Share Data)
ASSETS
Cash $ 58,481 $ 46,560
Interest-bearing deposits 46,561 37,148
----------- -----------
Cash and cash equivalents 105,042 83,708
Investment securities available for sale 22,216 34,936
Investment securities held to maturity (fair value of $34,096 and
$49,971, respectively) 33,913 51,270
Mortgage-related securities available for sale 173,968 57,276
Mortgage-related securities held to maturity (fair value of $207,669
and $234,505, respectively) 205,191 243,243
Loans receivable, net:
Held for sale 17,622 1,764
Held for investment 2,414,976 2,302,721
Foreclosed properties and repossessed assets, net 313 272
Real estate held for development and sale 48,658 34,063
Office properties and equipment 25,734 25,712
Federal Home Loan Bank stock--at cost 37,985 34,597
Accrued interest on investments and loans 20,862 19,364
Prepaid expenses and other assets 20,994 22,226
----------- -----------
Total assets $ 3,127,474 $ 2,911,152
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $2,119,320 $1,897,369
Federal Home Loan Bank and other borrowings 712,650 664,446
Reverse repurchase agreements 27,948 92,413
Advance payments by borrowers for taxes and insurance 7,918 8,213
Other liabilities 40,026 31,496
----------- -----------
Total liabilities 2,907,862 2,693,937
----------- -----------
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, 22,814,923 and 24,088,147 shares outstanding,
respectively 2,536 2,536
Additional paid-in capital 56,571 56,496
Retained earnings 197,599 179,211
Treasury stock (2,548,416 shares and 1,275,192 shares,
respectively), at cost (38,339) (18,438)
Common stock purchased by benefit plans (709) (923)
Accumulated other comprehensive income (loss) 1,954 (1,667)
----------- -----------
Total stockholders' equity 219,612 217,215
----------- -----------
Total liabilities and stockholders' equity $ 3,127,474 $ 2,911,152
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
40
42
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED MARCH 31,
--------------------------------------------
2001 2000 1999
--------------------------------------------
(In Thousands, Except Per Share Data)
INTEREST INCOME:
Loans $ 198,435 $ 177,168 $ 168,779
Mortgage-related securities 20,051 15,937 15,671
Investment securities 8,040 8,244 7,572
Interest-bearing deposits 2,121 1,245 2,785
--------- --------- ---------
Total interest income 228,647 202,594 194,807
INTEREST EXPENSE:
Deposits 97,440 81,479 82,247
Notes payable and other borrowings 50,151 37,358 31,745
Other 505 556 543
--------- --------- ---------
Total interest expense 148,096 119,393 114,535
--------- --------- ---------
Net interest income 80,551 83,201 80,272
Provision for loan losses 945 1,306 1,017
--------- --------- ---------
Net interest income after provision for loan losses 79,606 81,895 79,255
NON-INTEREST INCOME:
Loan servicing income 2,745 2,303 2,093
Service charges on deposits 5,764 4,928 5,014
Insurance commissions 1,815 1,415 1,129
Gain on sale of loans 3,044 2,010 7,354
Net gain on sale of investments and mortgage-related securities 311 272 623
Net income (loss) from operations of real estate investments (2,023) 1,499 2,563
Other 1,847 1,963 3,243
--------- --------- ---------
Total non-interest income 13,503 14,390 22,019
NON-INTEREST EXPENSE:
Compensation 28,442 26,833 28,165
Occupancy 4,416 4,196 4,303
Furniture and equipment 3,812 3,685 3,257
Data processing 3,821 3,777 3,588
Marketing 2,129 2,534 2,194
Merger-related - 8,297 -
Goodwill - 1,761 279
Federal insurance premiums 386 905 1,052
Other 8,444 9,199 9,588
--------- --------- ---------
Total non-interest expense 51,450 61,187 52,426
--------- --------- ---------
Income before income taxes 41,659 35,098 48,848
Income taxes 14,682 15,596 18,607
--------- --------- ---------
Net income $ 26,977 $ 19,502 $ 30,241
========= ========= =========
Earnings per share:
Basic $ 1.19 $ 0.80 $ 1.26
Diluted 1.16 0.78 1.19
Dividends declared per share 0.30 0.25 0.20
See accompanying Notes to Consolidated Financial Statements.
41
43
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
------------------------------------------------------
(Dollars in thousands except per share data)
------------------------------------------------------
Balance at March 31, 1998 $2,500 $77,345 $154,826 $(29,981)
==================================================
Comprehensive income
Net income - - 30,241 -
Change in net unrealized gains
(losses) on available-for-sale
securities net of tax - - - -
Comprehensive income
Purchase of treasury stock - - - (11,492)
Exercise of stock options - 193 (9,815) 12,316
Purchase of stock by retirement plan - - (23) 784
Cash dividend ($0.20 per share) - - (3,482) -
Cash dividend paid by acquiree prior
to combination - - (3,289) -
Recognition plan shares vested - - - -
Common stock in Rabbi Trust - - - (1,438)
Tax benefit from stock
related compensation - 2,661 - -
Repayment of ESOP borrowings - - - -
--------------------------------------------------
Balance at March 31, 1999 $2,500 $80,199 $168,458 $(29,811)
==================================================
Comprehensive income:
Net income - - 19,502 -
Change in net unrealized gains
(losses) on available-for-sale
securities net of tax - - - -
Comprehensive income
Retirement of treasury stock - (28,583) - 28,583
Conversion of FCBF shares - 2,593 - -
Purchase of treasury stock - - - (21,403)
Exercise of stock options 36 741 (2,838) 3,819
Purchase of stock by retirement plan - 154 20 374
Cash dividend ($0.25 per share) - - (5,931) -
Recognition plan shares vested - - - -
Common stock in Rabbi Trust - (196) - -
Tax benefit from stock
related compensation - 1,588 - -
Repayment of ESOP borrowings - - - -
--------------------------------------------------
Balance at March 31, 2000 $2,536 $56,496 $179,211 $(18,438)
==================================================
UNEARNED
COMMON
STOCK ACCUMULATED
PURCHASED UNEARNED OTHER
BY SHARES COMPREHENSIVE
BENEFIT OF INCOME/
PLANS ESOP (LOSS) TOTAL
--------------------------------------------------
(Dollars in thousands except per share data)
--------------------------------------------------
Balance at March 31, 1998 $(2,415) $(850) $1,443 $202,868
================================================
Comprehensive income
Net income - - - 30,241
Change in net unrealized gains
(losses) on available-for-sale
securities net of tax - - (443) (443)
--------
Comprehensive income 29,798
Purchase of treasury stock - - - (11,492)
Exercise of stock options - - - 2,694
Purchase of stock by retirement plan - - - 761
Cash dividend ($0.20 per share) - - - (3,482)
Cash dividend paid by acquiree prior
to combination - - - (3,289)
Recognition plan shares vested - 161 - 161
Common stock in Rabbi Trust - - - (1,438)
Tax benefit from stock
related compensation - - - 2,661
Repayment of ESOP borrowings 1,045 - - 1,045
------------------------------------------------
Balance at March 31, 1999 $(1,370) $(689) $1,000 $220,287
================================================
Comprehensive income:
Net income - - - 19,502
Change in net unrealized gains
(losses) on available-for-sale
securities net of tax - - (2,667) (2,667)
---------
Comprehensive income 16,835
Retirement of treasury stock - - - -
Conversion of FCBF shares (740) - - 1,853
Purchase of treasury stock - - - (21,403)
Exercise of stock options - - - 1,758
Purchase of stock by retirement plan - - - 548
Cash dividend ($0.25 per share) - - - (5,931)
Recognition plan shares vested 140 - - 140
Common stock in Rabbi Trust 1,047 - - 851
Tax benefit from stock
related compensation - - - 1,588
Repayment of ESOP borrowings - 689 - 689
------------------------------------------------
Balance at March 31, 2000 $(923) $- $(1,667) $217,215
================================================
42
44
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY, (CON'T.)
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
-----------------------------------------------------
(Dollars in thousands except per share data)
Comprehensive income:
Net income - - 26,977 -
Change in net unrealized gains
(losses) on available-for-sale
securities net of tax - - - -
Comprehensive income
Purchase of treasury stock - - - (24,605)
Exercise of stock options - (26) (1,643) 3,378
Purchase of stock by retirement plans - - (79) 1,326
Cash dividend ($0.075 per share) - - (6,867) -
Recognition plan shares vested - - - -
Common stock in Rabbi Trust - - - -
Tax benefit from stock
related compensation - 101 - -
-----------------------------------------------------
Balance at March 31, 2001 $2,536 $56,571 $197,599 $(38,339)
=====================================================
UNEARNED
COMMON
STOCK ACCUMULATED
PURCHASED UNEARNED OTHER
BY SHARES COMPREHENSIVE
BENEFIT OF INCOME/
PLANS ESOP (LOSS) TOTAL
-------------------------------------------------
(Dollars in thousands except per share data)
Comprehensive income:
Net income - - - 26,977
Change in net unrealized gains
(losses) on available-for-sale
securities net of tax - - 3,621 3,621
--------
Comprehensive income 30,598
Purchase of treasury stock - - - (24,605)
Exercise of stock options - - - 1,709
Purchase of stock by retirement plans - - - 1,247
Cash dividend ($0.075 per share) - - - (6,867)
Recognition plan shares vested 214 - - 214
Common stock in Rabbi Trust - - - -
Tax benefit from stock
related compensation - - - 101
------------------------------------------------
Balance at March 31, 2001 $(709) $- $1,954 $219,612
================================================
See accompanying Notes to Consolidated Financial Statements.
43
45
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31,
------------------------------------------------------
2001 2000 1999
------------------------------------------------------
(In Thousands)
OPERATING ACTIVITIES
Net income $ 26,977 $ 19,502 $ 30,241
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 945 1,306 1,217
Provision for depreciation and amortization 2,696 3,298 2,522
Net gain on sales of loans (3,044) (2,010) (7,354)
Amortization of stock benefit plans 397 412 248
Deferred income taxes 225 653 627
Tax Benefit from stock related compensation 101 1,588 2,661
Increase in accrued interest receivable (1,497) (2,042) (770)
Increase (decrease) in accrued interest payable 3,066 3,190 (352)
Increase (decrease) in accounts payable 8,287 13,705 (4,075)
Other 33,463 7,837 (2,482)
-------- ---------- ----------
Net cash provided by operating activities before proceeds
from loan sales 71,616 47,439 22,483
Net proceeds from origination and sale of loans held for sale (16,954) (23,796) 17,593
-------- ---------- ----------
Net cash provided by operating activities 54,662 23,643 40,076
INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale 6,254 44,360 35,906
Proceeds from maturities of investment securities 73,921 62,502 79,055
Purchase of investment securities available for sale (72,408) (95,021) (66,160)
Purchase of investment securities held to maturity - (11,000) (55,981)
Proceeds from sale of mortgage-related securities available for sale 7,852 - 5,761
Purchase of mortgage-related securities held to maturity - (83,181) (17,958)
Purchase of mortgage-related securities available for sale (5,984) (14,999) (12,843)
Principal collected on mortgage-related securities 49,168 54,410 113,248
Loans originated for investment (584,595) (1,105,801) (1,332,866)
Principal repayments on loans 331,007 930,962 1,098,968
Net office properties and equipment 22 (833) (2,228)
Sales of real estate 312 5,009 7,912
Investment in real estate held for development and sale (15,756) (8,997) (14,379)
-------- ---------- ----------
Net cash used by investing activities (210,207) (222,589) (161,565)
44
46
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
YEAR ENDED MARCH 31,
------------------------------------------------------
2001 2000 1999
------------------------------------------------------
(In Thousands)
FINANCING ACTIVITIES
Increase in deposit accounts $221,951 $ 61,953 $ 124,937
Decrease in advance payments by borrowers
for taxes and insurance (295) (2,147) (1,239)
Proceeds from notes payable to Federal Home Loan Bank 878,600 1,158,600 1,512,450
Repayment of notes payable to Federal Home Loan Bank (857,750) (1,027,249) (1,502,900)
Increase (decrease) in securities sold under agreements
to repurchase (64,465) 49,949 (471)
Increase (decrease) in other loans payable 27,354 2,600 (30)
Treasury stock purchased (24,605) (21,403) (11,492)
Exercise of stock options 1,709 1,758 2,694
Purchase of stock by retirement plans 1,247 548 761
Payments of cash dividends to stockholders (6,867) (5,931) (6,771)
-------- ---------- ----------
Net cash provided by financing activities 176,879 218,678 117,939
-------- ---------- ----------
Net increase in cash and cash equivalents 21,334 19,732 (3,550)
Cash and cash equivalents at beginning of year 83,708 63,976 67,526
-------- ---------- ----------
Cash and cash equivalents at end of year $105,042 $ 83,708 $ 63,976
======== ========== ==========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid or credited to accounts:
Interest on deposits and borrowings $151,162 $ 122,583 $ 114,562
Income taxes 14,574 12,192 16,813
Non-cash transactions:
Loans transferred to foreclosed properties 41 - 230
Retirement of treasury stock - 28,563
Securitization of mortgage loans held for sale to mortgage-backed
securities 128,456 74,330 92,427
See accompanying Notes to Consolidated Financial Statements
45
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS Anchor BanCorp Wisconsin Inc. (the "Corporation") is a Wisconsin
corporation incorporated in 1992 for the purpose of becoming a savings and loan
holding company for AnchorBank, fsb (the "Bank"), a wholly-owned subsidiary. The
Bank provides a full range of financial services to individual customers through
its branch locations in Wisconsin. The Bank is subject to competition from other
financial institutions and other financial service providers. The Corporation
and its subsidiary also are subject to the regulations of certain federal and
state agencies and undergo periodic examinations by those regulatory
authorities. The Corporation also has a non-banking subsidiary, Investment
Directions, Inc. ("IDI"), which invests in real estate held for development and
sale.
BASIS OF FINANCIAL STATEMENT PRESENTATION The consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States and include the accounts and operations of the Corporation
and its wholly owned subsidiaries, the Bank and IDI, and their wholly owned
subsidiaries. The Bank has the following subsidiaries: Anchor Investment
Corporation, Anchor Investment Services Inc., and ADPC Corporation. IDI's wholly
owned subsidiaries are Nevada Investment Directions, Inc. ("NIDI") and
California Investment Directions, Inc. ("CIDI"). Significant intercompany
accounts and transactions have been eliminated. Investments in joint ventures
and other less than 50% owned partnerships, which are not material, are
accounted for on the equity method. Partnerships over 50% ownership are
consolidated, with significant intercompany accounts eliminated.
In preparing the consolidated financial statements, 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.
CASH AND CASH EQUIVALENTS The Corporation considers federal funds sold and
interest-bearing deposits that have an original maturity of three months or less
to be cash equivalents.
INVESTMENT AND MORTGAGE-RELATED SECURITIES HELD-TO-MATURITY AND
AVAILABLE-FOR-SALE Debt securities that the Corporation has the intent and
ability to hold to maturity are classified as held-to-maturity and are stated at
amortized cost. Securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at fair value, with
the unrealized gains and losses, net of tax, reported as a separate component of
accumulated other comprehensive income in stockholders' equity.
Discounts and premiums on investment and mortgage-backed securities are accreted
and amortized into interest income using the interest method over the estimated
remaining life of the assets.
Realized gains and losses, and declines in value judged to be other than
temporary, are included in "Net gain on sale of securities" in the consolidated
statements of income as a component of other income. The cost of securities sold
is based on the specific identification method.
LOANS HELD FOR SALE Loans held for sale generally consist of the current
origination of certain fixed-rate mortgage loans and certain adjustable-rate
mortgage loans and are carried at the lower of aggregate cost or market value.
Fees received from the borrower and direct costs to originate are deferred and
recorded as an adjustment of the sales price.
MORTGAGE SERVICING RIGHTS Mortgage servicing rights are recorded as an asset
when loans are sold to third parties with servicing rights retained. For loans
delivered to and funded by the Federal Home Loan Bank (FHLB) see Note 12. The
cost of mortgage servicing rights is amortized in proportion to, and over the
period of, estimated net servicing revenues. Impairment of mortgage servicing
rights is assessed based on the fair values of those rights. Fair values are
estimated using discounted cash flows based on a current market interest rate.
For purposes of measuring impairment, the rights are stratified based on
predominant risk characteristics of the underlying loans
46
48
which include product type (i.e., fixed or adjustable) and interest rate bands.
The amount of impairment recognized is the amount by which the capitalized
mortgage servicing rights for a stratum exceed their fair value.
INTEREST ON LOANS Interest on loans is accrued on the unpaid principal balances
as earned. Loans are placed on non-accrual status when, in the judgment of
management, the probability of collection of principal and 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 the allowance
for interest. Loans are restored to accrual status when the obligation is
brought current, has performed in accordance with the contractual terms for a
reasonable period of time, and the ultimate collectibility of the total
contractual principal and interest is no longer in doubt. Allowances of $194,000
and $144,000 were established at March 31, 2001 and 2000, respectively, for
interest on non-accrual status loans.
LOAN FEES AND DISCOUNTS Loan origination and commitment fees and certain direct
loan origination costs are deferred and amortized as an adjustment to the
related loan's yield. The Corporation is amortizing these amounts, as well as
discounts on purchased loans, using the level yield method, adjusted for
prepayments, over the life of the related loans.
FORECLOSED PROPERTIES AND REPOSSESSED ASSETS Real estate acquired by foreclosure
or by deed in lieu of foreclosure and other repossessed assets are carried at
the lower of cost or fair value, less estimated selling expenses. Costs relating
to the development and improvement of the property are capitalized; holding
period costs are charged to expense.
ALLOWANCES FOR LOAN LOSSES An allowance for loan losses is maintained at a level
believed adequate by management to absorb losses in the respective portfolios.
Management's evaluation of the allowance for loan losses considers various
factors including, but not limited to, general economic conditions, the level of
troubled loans, expected future cash flows, loan portfolio composition, prior
loss experience, estimated sales price of the collateral, and holding and
selling costs. The evaluation is inherently subjective as it requires material
estimates including the amounts and timing of future cash flows expected to be
received on impaired loans that may be susceptible to significant change. While
management uses available information to recognize losses, future additions to
the allowances may be necessary based on changes in economic conditions. A loan
is considered impaired when it is probable that a creditor will be unable to
collect all contractual principle and interest due according to the terms of the
loan agreement. Loans subject to impairment valuation are defined as non-accrual
and restructured loans exclusive of smaller balance homogeneous loan such as
home equity, installment and one-to-four family residential loans. An impairment
is recorded when the carrying amount of the loan exceeds the present value of
the expected future cash flows, discounted at the loan's original effective
rate. However, as a practical expedient, management measures impairment based on
the fair value of the underlying collateral. At March 31, 2001 and 2000, the
amount of loans considered impaired by management is not significant.
REAL ESTATE HELD FOR DEVELOPMENT AND SALE Real estate held for development and
sale includes investments in land and partnerships that purchased land and other
property and also an investment in a multi-family residential property. These
investments are carried at the lower of cost plus capitalized development costs
and interest, less accumulated depreciation, or estimated fair value.
OFFICE PROPERTIES AND EQUIPMENT Office properties and equipment are recorded at
cost and include expenditures for new facilities and items that substantially
increase the useful lives of existing buildings and equipment. Expenditures for
normal repairs and maintenance are charged to operations as incurred. When
properties are retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the respective accounts and the
resulting gain or loss is recorded in income.
DEPRECIATION AND AMORTIZATION The cost of office properties and equipment is
being depreciated principally by the straight-line method over the estimated
useful lives of the assets. The cost of capitalized leasehold improvements is
amortized on the straight-line method over the lesser of the term of the
respective lease or estimated economic life.
47
49
GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill, representing the excess of
purchase price over the fair value of net assets acquired, resulted from an
acquisition made by the Bank in a prior year. In 2000, increased competition for
deposits from alternate investment products and increases in interest rates that
negatively impacted interest rate spread and net interest margin, caused
management to revise cash flow estimates to be realized from the acquired
business. A review of the remaining goodwill indicated that, based on the
estimated undiscounted cash flows of the entity acquired over the remaining
amortization period, it was impaired. Accordingly, the remaining unamortized
goodwill was written off. This write-off is included in the amortization of
intangibles in the consolidated statement of income for 2000.
STOCK OPTIONS The Corporation has elected to follow Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under Statement of Financial
Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB No. 25, because the exercise price of
the Corporation's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
ADVERTISING COSTS All advertising costs incurred by the Corporation are expensed
in the period in which they are incurred.
INCOME TAXES The Corporation's deferred income tax assets and liabilities are
computed annually for differences between the financial statement and tax basis
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to periods in which
the differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable or refundable for
the period adjusted for the change during the period in deferred tax assets and
liabilities. The Corporation and its subsidiaries file a consolidated federal
income tax return. The intercompany settlement of taxes paid is based on tax
sharing agreements which generally allocate taxes to each entity on a separate
return basis.
EARNINGS PER SHARE Basic earnings per share ("EPS") is computed by dividing net
income by the weighted average number of common shares outstanding for the
period. The basic EPS computation excludes the dilutive effect of all common
stock equivalents. Diluted EPS is computed by dividing net income by the
weighted average number of common shares outstanding plus all potential common
shares. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. The Corporation's potential common shares represent shares
issuable under its long-term incentive compensation plans. Such common stock
equivalents are computed based on the treasury stock method using the average
market price for the period.
COMPREHENSIVE INCOME Comprehensive income is the total of reported net income
and all other revenues, expenses, gains and losses that under generally accepted
accounting principles bypass reported net income. The Corporation includes
unrealized gains or losses, net of tax, on securities available for sale in
other comprehensive income.
NEW ACCOUNTING STANDARDS In June 1999, the Financial Accounting Standards Board
("FASB") issued SFAS No. 137 to effectively defer the implementation date of
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" for
one year. SFAS No. 133 was issued in June 1998 and established, for the first
time, comprehensive accounting and reporting standards for derivative
instruments and hedging activities. This new standard requires that all
derivative instruments be recorded in the statement of condition at fair value.
The recording of the gain or loss due to changes in fair value could either be
reported in earnings or as other comprehensive income in the statement of
shareholders' equity, depending on the type of instrument and whether or not it
is considered a hedge. With the issuance of SFAS No. 137, SFAS No. 133 is now
effective April 1, 2001. The adoption of this new statement did not have a
material effect on the Corporation's financial condition, results of operations,
or liquidity.
48
50
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS
OF LIABILITIES In September 2000, FASB issued Statement No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"
("FASB No. 140") that replaces, in its entirety, FASB Statement No. 125.
Although FASB No. 140 has changed many of the rules regarding securitizations,
it continues to require an entity to recognize the financial and servicing
assets it controls and the liabilities it has incurred and to derecognize
financial assets when control has been surrendered in accordance with the
criteria provided in the Statement. As required, the Corporation will apply the
new rules prospectively to transactions beginning in April of 2001. Based on
current circumstances, the Corporation believes the application of the new rules
will not have a material impact on its financial statements.
RECLASSIFICATIONS Certain 2000 and 1999 accounts have been reclassified to
conform to the 2001 presentations.
NOTE 2 - BUSINESS COMBINATION
On June 7, 1999 the Corporation acquired FCB Financial Corp (FCBF). FCBF was
merged into the Corporation and its wholly owned subsidiary bank, Fox Cities
Bank, was merged into the Bank. In the merger, FCBF shareholders received 1.83
shares of the Corporation's common stock for each outstanding share of FCBF
common stock. This merger resulted in the issuance of 7,028,444 shares of common
stock in exchange for 3,840,680 shares of outstanding FCBF common stock. The
merger has been accounted for as a pooling-of-interests and, accordingly, all
historical financial information and share data for the Corporation has been
restated to include FCBF for all periods presented.
In connection with the merger, the Corporation incurred pre-tax merger-related
charges of $8.3 million. These charges included $5.4 million in change of
control severance, retirement, and other related employee payments, $2.3 million
in investment banking, legal and accounting fees and $0.6 million in direct
merger-related data processing and other equipment costs. At March 31, 2000, all
such costs had been incurred and no further charges related to the merger are
anticipated.
As a part of the merger, there were also several FCBF sponsored employee benefit
plans that were either terminated or merged into the Corporation's similar
benefit plans. These former plans and their dissolution are discussed in detail
in Note 10 - Employee Benefit Plans.
49
51
NOTE 3 - INVESTMENT SECURITIES
The amortized cost and fair values of investment securities are as follows (in
thousands):
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-----------------------------------------------------------------------
AT MARCH 31, 2001:
Available for Sale:
U.S. Government and federal agency obligations $ 9,081 $ 138 $ - $ 9,219
Mutual funds 5,996 9 - 6,005
Corporate stock and other 7,837 547 (1,392) 6,992
-------- ----- ------- -------
$ 22,914 $ 694 $(1,392) $22,216
======== ===== ======= =======
Held to Maturity:
U.S. Government and federal agency obligations $ 33,913 $ 186 $ (3) $34,096
======== ===== ======= =======
AT MARCH 31, 2000:
Available for Sale:
U.S. Government and federal agency obligations $ 13,748 $ - $ (218) $13,530
Mutual funds 14,247 - (57) 14,190
Corporate stock and other 8,026 - (1,362) 6,664
Municipal securities 555 - (3) 552
-------- ----- ------- -------
$ 36,576 $ - $(1,640) $34,936
======== ===== ======= =======
Held to Maturity:
U.S. Government and federal agency obligations $ 51,270 $ 3 $(1,302) $49,971
======== ===== ======= =======
Proceeds from sales of investment securities available for sale during the years
ended March 31, 2001, 2000 and 1999 were $6,254,000, $44,360,000, and
$35,906,000, respectively. Gross gains of $110,000, $287,000, and $550,000 were
realized on sales in 2001, 2000 and 1999, respectively. Gross losses of $4,000,
$15,000 and $36,000 were realized on sales of investment securities for the
years ended March 31, 2001, 2000 and 1999, respectively.
50
52
The amortized cost and fair value of investment securities by contractual
maturity at March 31, 2001 are shown below (in thousands). Actual maturities may
differ from contractual maturities because issuers have the right to call or
prepay obligations with or without call or prepayment penalties. Government
agency securities subject to three-month calls amount to $20,025,000 at March
31, 2001. Securities subject to six-month calls at March 31, 2001 are $506,000.
AVAILABLE FOR SALE HELD TO MATURITY
----------------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------------------------------------------------------------------------
Due in one year or less $ 9,076 $ 9,089 $ 10,653 $10,704
Due after one year through five years 7,078 7,225 23,260 23,392
Due after five years 268 240 - -
Corporate stock 6,492 5,662 - -
-------- -------- -------- -------
$ 22,914 $ 22,216 $ 33,913 $34,096
======== ======== ======== =======
NOTE 4 - MORTGAGE-RELATED SECURITIES
Mortgage-backed securities are backed by governmental agencies, including the
Federal Home Loan Mortgage Corporation, the Federal National Mortgage
Association and the Government National Mortgage Association. CMO's and REMIC's
are trusts which own securities backed by the governmental agencies noted above.
Mortgage-backed securities and CMO's and REMIC's have estimated average lives of
five years or less.
The amortized cost and fair values of mortgage-related securities are as follows
(in thousands):
51
53
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------------------------------------------------------------------------
AT MARCH 31, 2001:
Available for Sale:
CMO's and REMICS $ 20,172 $ 738 $ (18) $ 20,892
Mortgage-backed securities 149,914 3,185 (23) 153,076
--------- ------- ------- --------
$ 170,086 $ 3,923 $ (41) $173,968
========= ======= ======= ========
Held to Maturity:
CMO's and REMICS $ 11,042 $ 133 $ (5) $ 11,170
Mortgage-backed securities 194,149 2,418 (68) 196,499
--------- ------- ------- --------
$ 205,191 $ 2,551 $ (73) $207,669
========= ======= ======= ========
AT MARCH 31, 2000:
Available for Sale:
CMO's and REMICS $ 19,952 $ 107 $ (473) $ 19,586
Mortgage-backed securities 38,683 40 (1,033) 37,690
--------- ------- ------- --------
$ 58,635 $ 147 $(1,506) $ 57,276
========= ======= ======= ========
Held to Maturity:
CMO's and REMICS $ 14,084 $ 17 $ (224) $ 13,877
Mortgage-backed securities 229,159 106 (8,637) 220,628
--------- ------- ------- --------
$ 243,243 $ 123 $(8,861) $234,505
========= ======= ======= ========
Proceeds from sales of mortgage-related securities available for sale during the
years ended March 31, 2001 and 1999 were $7,852,000 and $5,761,000,
respectively. There were no sales of mortgage-related securities during the year
ended March 31, 2000. Gross gains of $205,000 and $109,000 were realized on
sales in 2001 and 1999, respectively. No gains were realized in 2000. No losses
were realized in 2001, 2000, or 1999.
At March 31, 2001, $3.5 million of the Corporation's mortgage-related securities
available for sale and $28.2 million mortgage-related securities held to
maturity were pledged as collateral to secure various obligations of the
Corporation. See Note 8.
NOTE 5 - LOANS RECEIVABLE
Loans receivable held for investment consist of the following (in thousands):
52
54
MARCH 31,
------------------------------------------------------------
2001 2000
------------------------------------------------------------
First mortgage loans:
Single-family residential $ 872,718 $1,001,408
Multi-family residential 305,009 291,917
Commercial real estate 501,640 388,678
Construction 266,712 210,660
Land 43,849 29,232
---------- ----------
1,989,928 1,921,895
Second mortgage loans 271,733 243,124
Education loans 130,215 136,011
Commercial business loans and leases 90,212 61,419
Credit card and other consumer loans 72,274 65,686
---------- ----------
2,554,362 2,428,135
Less:
Undisbursed loan proceeds 111,298 97,092
Allowance for loan losses 24,076 24,404
Unearned loan fees 3,610 3,528
Discount on purchased loans 371 361
Unearned interest 31 29
---------- ----------
139,386 125,414
---------- ----------
$2,414,976 $2,302,721
========== ==========
A summary of the activity in the allowance for loan losses follows (in
thousands):
YEAR ENDED MARCH 31,
-------------------------------------------------------
2001 2000 1999
-------------------------------------------------------
Balance at beginning of year $ 24,404 $ 24,027 $ 25,400
Provisions 945 1,306 1,017
Charge-offs (1,625) (1,256) (2,955)
Recoveries 352 327 565
--------- --------- ---------
Balance at end of year $ 24,076 $ 24,404 $ 24,027
========= ========= =========
Certain mortgage loans are pledged as collateral for FHLB borrowings.
See Note 8.
A substantial portion of the Bank's loans are collateralized by real estate in
and around the State of Wisconsin. Accordingly, the ultimate collectibility of a
substantial portion of the loan portfolio is susceptible to changes in market
conditions in that area.
Mortgage loans serviced for others are not included in the consolidated balance
sheets. The unpaid principal balances of mortgage loans serviced for others were
approximately $1,917,863,000 and $1,640,435,000 at March 31, 2001 and 2000,
respectively.
Mortgage servicing rights of $8,784,000 and $7,351,000 and $7,298,000 are
included in other assets. $3,077,000, $1,003,000, and $5,740,000 were
capitalized during the years ended March 31, 2001, 2000, and 1999, respectively.
Amortization of mortgage servicing rights was $2,404,000, $2,289,000, and
$2,180,000 for the years ended March 31, 2001, 2000, and 1999, respectively. The
valuation allowance for the impairment of mortgage servicing rights
53
55
was $690,000, $1.5 million, and $1.3 million for the years ended March 31, 2001,
2000, and 1999, respectively. For discussion of the fair value of mortgage
servicing rights and method of valuation, see Notes 1 and 13.
NOTE 6 - OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized as follows (in thousands):
MARCH 31,
----------------------------------------
2001 2000
----------------------------------------
Land and land improvements $ 5,879 $ 5,882
Office buildings 27,733 27,211
Furniture and equipment 23,459 21,516
Leasehold improvements 2,333 2,299
-------- --------
59,404 56,908
Less allowance for depreciation and amortization 33,670 31,196
-------- --------
$ 25,734 $ 25,712
======== ========
54
56
NOTE 7 - DEPOSITS
Deposits are summarized as follows (in thousands):
MARCH 31,
-----------------------------------
2001 2000
-----------------------------------
Negotiable order of withdrawal ("NOW") accounts: $ 273,323 $ 248,003
Money market accounts 344,238 320,323
Passbook accounts 131,408 141,025
Certificates of deposit 1,356,538 1,176,917
---------- ----------
2,105,507 1,886,268
Accrued interest on deposits 13,813 11,101
---------- ----------
$2,119,320 $1,897,369
========== ==========
A summary of annual maturities of certificates of deposit outstanding at March
31, 2001 follows (in thousands):
MATURES DURING YEAR ENDED MARCH 31, AMOUNT
- -------------------------------------------------------------------------------------
2002 $ 998,443
2003 327,921
2004 22,375
2005 3,686
Thereafter 4,113
----------
$1,356,538
==========
At March 31, 2001 and 2000, certificates of deposit with balances greater than
or equal to $100,000 amounted to $160,613,000 and $197,300,000, respectively.
NOTE 8 - BORROWINGS
The Bank enters into sales of securities under agreements to repurchase the
securities ("reverse repurchase agreements"). These agreements are treated as
financings with the obligations to repurchase securities reflected as a
liability and the dollar amount of securities underlying the agreements
remaining in the asset accounts and are carried at the amounts at which the
securities will be subsequently reacquired or resold, as specified in the
respective agreements. The Bank's policy is to take possession of securities
purchased under agreements to resell. The market value of securities to be
repurchased and resold is monitored, and additional collateral is obtained where
appropriate to protect against credit exposure. The securities underlying the
agreements are held by the counter-party brokers in the Bank's account. At March
31, 2001, 2000, and 1999 liabilities recorded under agreements to repurchase
were $27,948,000, $92,413,000, and $42,464,000, respectively. The reverse
repurchase agreements had weighted-average interest rates of 5.32%, 6.03%, and
4.91% at March 31, 2001, 2000, and 1999, respectively, and mature within one
year of the fiscal year-end. Based upon month-end balances, securities sold
under agreements to repurchase averaged $83,310,000, $59,756,000, and
$30,930,000 during 2001, 2000, and 1999, respectively. The maximum outstanding
at any month-end was $116,551,000, $92,413,000, and $52,139,000 during 2001,
2000, and 1999, respectively. The agreements were collateralized by
mortgage-backed securities available for sale and held to maturity with market
values of $28,633,000, $96,489,000, and $43,638,000 at March 31, 2001, 2000, and
1999, respectively.
55
57
Federal Home Loan Bank ("FHLB") advances and other loans payable consist of the
following (dollars in thousands):
MARCH 31, 2001 MARCH 31, 2000
----------------------------------------------------------------------
MATURES DURING WEIGHTED WEIGHTED
YEAR ENDED MARCH 31, AMOUNT RATE AMOUNT RATE
-------------------------------------------------------------------------------------------------
FHLB advances: 2,001 $ - - $378,450 5.79%
2,002 450,996 6.29% 80,596 5.71
2,003 92,900 5.72 30,500 6.15
2,004 24,000 5.47 16,000 5.40
2,005 30,500 5.85 81,000 5.63
2,006 13,000 5.26 5,000 4.91
2,008 6,500 5.05 8,500 5.06
2,009 49,000 5.22 49,000 5.54
2,011 3,000 6.06 - -
Other loans payable various 42,754 7.33 15,400 7.24
-------- --------
$712,650 6.13% $664,446 5.77%
======== ==== ======== ====
The Bank is required to maintain unencumbered first mortgage loans in its
portfolio aggregating at least 167% of the amount of outstanding advances from
the FHLB as collateral. In addition, these notes are collateralized by FHLB
stock of $37,985,000 at March 31, 2001. The FHLB borrowings are also
collateralized by mortgage-related securities of $109.9 million.
Included in other loans payable is a short-term line of credit to the
Corporation in the amount of $50.0 million. As of March 31, 2001, the
Corporation has drawn a total of $30.1 million. The interest is based on LIBOR
(London InterBank Offering Rate), and is payable monthly and each draw has a
specified maturity. The final maturity of the line of credit is in October 2001.
NOTE 9 - STOCKHOLDERS' EQUITY
The Board of Directors of the Corporation is authorized to issue preferred stock
in series and to establish the voting powers, other special rights of the shares
of each such series and the qualifications and restrictions thereof. Preferred
stock may rank prior to the common stock as to dividend rights, liquidation
preferences or both, and may have full or limited voting rights. Under Wisconsin
state law, preferred stockholders would be entitled to vote as a separate class
or series in certain circumstances, including any amendment which would
adversely change the specific terms of such series of stock or which would
create or enlarge any class or series ranking prior thereto in rights and
preferences. No preferred stock has been issued.
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
56
58
Qualitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of core, tangible, and
risk-based capital. Management believes, as of March 31, 2001, that the Bank
meets all capital adequacy requirements to which it is subject.
As of March 31, 2001, the most recent notification from the Office of Thrift
Supervision ("OTS") categorizes the Bank as well capitalized under the framework
for prompt corrective action. To be categorized as well capitalized, the Bank
must maintain minimum core, tangible, and risk-based capital ratios. There have
been no conditions or events since that notification that management believes
have changed the Bank's category. The qualification results in a lower
assessment of FDIC premiums and other benefits.
The following table summarizes the Bank's capital ratios and the ratios required
by its federal regulators at March 31, 2001 and 2000 (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 MARCH 31, 2001:
Tier 1 capital
(to adjusted tangible assets) $199,341 6.50% $ 92,072 3.00% $153,454 5.00%
Risk-based capital
(to risk-based assets) 222,496 10.44 170,535 8.00 213,169 10.00
Tangible capital
(to tangible assets) 199,341 6.50 46,036 1.50 N/A N/A
AS OF MARCH 31, 2000:
Tier 1 capital
(to adjusted tangible assets) 188,606 6.56% 86,201 3.00% 143,669 5.00%
Risk-based capital
(to risk-based assets) 212,066 11.07 153,196 8.00 191,495 10.00
Tangible capital
(to tangible assets) 188,606 6.56 43,101 1.50 N/A N/A
The following table reconciles stockholders' equity to federal regulatory
capital at March 31, 2001 and 2000 (dollars in thousands):
57
59
MARCH 31,
------------------------------------------
2001 2000
------------------------------------------
Stockholders' equity of the Corporation $ 219,612 $ 217,215
Less: Capitalization of the Corporation and Non-Bank
subsidiaries (17,410) (28,944)
--------- ---------
Stockholders' equity of the Bank 202,202 188,271
Less: Intangible assets and other non-includable assets (2,861) 335
--------- ---------
Tier 1 and tangible capital 199,341 188,606
Plus: Allowable general valuation allowances 23,155 23,460
--------- ---------
Risk based capital $ 222,496 $ 212,066
========= =========
The Bank may not declare or pay a cash dividend if such declaration and payment
would violate regulatory requirements. Unlike the Bank, the Corporation is not
subject to these regulatory restrictions on the payment of dividends to its
stockholders. However, the source of its future corporate dividends may depend
upon dividends from the Bank.
NOTE 10 - EMPLOYEE BENEFIT PLANS
The Corporation maintains a defined contribution plan that covers substantially
all employees with more than one year of service who are at least 21 years of
age. Participating employees may contribute up to 18% (8% before tax and 10%
after tax) of their compensation. The Corporation matches the amounts
contributed by each participating employee up to 2% of the employee's
compensation and 25% of each employee's contributions up to the next 4% of
compensation. The Corporation may also contribute additional amounts at its
discretion. The Corporation's contribution was $887,000, $570,000, and $354,000
for the years ended March 31, 2001, 2000, and 1999, respectively.
FCBF had a qualified defined contribution plan similar to the Corporation's
defined contribution plan. The plan was merged into the Corporation's plan in
fiscal 2000. All participants were allowed to redirect their funds within the
Corporation's defined contribution plan. Expenses related to this plan were
$33,000 in 1999.
The Corporation sponsors an Employee Stock Ownership Plan ("ESOP") which covers
substantially all employees with more than one year of employment who are at
least 21 years of age. In 1998, the ESOP borrowed $2,069,000 from the
Corporation to purchase 100,000 common shares. The Bank has repaid all of the
borrowing and released all of the shares associated with this borrowing in 2000.
Any discretionary contributions to the ESOP and the shares calculated to be
released from the suspense account have been allocated among participants on the
basis of compensation. Forfeitures are reallocated among the remaining
participating employees. The dividends on ESOP shares were used to purchase
additional shares to be allocated under the plan. The number of shares allocated
to participants is determined based on the annual contribution plus any shares
purchased from dividends received during the year. The ESOP plan expense for
fiscal years 2000 and 1999 was $425,000 and $1,692,000, respectively. There was
no ESOP plan expense for 2001.
FCBF sponsored an ESOP for substantially all of its full-time employees. In
conjunction with the merger, the Corporation assumed a $487,000 loan associated
with the ESOP. The loan was repaid in fiscal 2000 as part of the plan's
termination. As part of the FCBF merger, all of the allocated shares of the FCBF
ESOP were released to participants of the plan.
58
60
The activity in the ESOP shares of both plans is as follows:
YEAR ENDED MARCH 31,
-----------------------------------------------
2001 2000 1999
-----------------------------------------------
Balance at beginning of year 1,381,990 1,919,488 1,981,725
Additional shares purchased 32,198 18,633 7,674
Shares distributed for terminations (53,950) (545,631) (1,345)
Sale of shares for cash distributions (20,050) (10,500) (68,566)
---------- ---------- ----------
Balance at end of year 1,340,188 1,381,990 1,919,488
Allocated shares included above 1,340,188 1,381,990 1,737,211
---------- ---------- ----------
Unallocated shares - - 182,277
========== ========== ==========
During 1992, the Corporation formed four Management Recognition Plans ("MRPs")
which acquired a total of 4% of the shares of common stock. The Bank contributed
$2,000,000 to the MRPs to enable the MRP trustee to acquire a total of 1,000,000
shares of common stock. Of these, 6,200 shares, 41,950 shares, and 17,800 shares
were granted during the years ended March 31, 2001, 2000, and 1999,
respectively, to employees in management positions. These grants had fair values
of $94,000, $774,000, and $346,000, for the respective years. The $2,000,000
contributed to the MRPs is being amortized to compensation expense as the Bank's
employees become vested in the awarded shares. The amount amortized to expense
was $397,000, $412,000, and $248,000 for the years ended March 31, 2001, 2000,
and 1999, respectively. Shares vested during the years ended March 31, 2001,
2000, and 1999 and distributed to the employees totaled 11,650, 10,600, and
9,600 respectively. The remaining unamortized cost of the MRPs is reflected as a
reduction of stockholders' equity.
The Corporation has stock option plans under which shares of common stock are
reserved for the grant of both incentive and non-incentive stock options to
directors, officers and employees. The date the options are first exercisable is
determined by a committee of the Board of Directors of the Corporation. The
options expire no later than ten years from the grant date.
Pursuant to the merger with FCBF, any unvested options in the plan became fully
vested and exercisable. FCBF options were exchanged for 1.83 options to purchase
the Corporation's common stock. Exercise prices of all of the options were
reduced by the equivalent ratio.
59
61
A summary of stock options activity, including FCBF activity as adjusted for the
1.83 exchange ratio, for all periods follows:
YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------
2001 2000 1999
--------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------------------------------------------------------------------------------
Outstanding at beginning of year 2,105,157 8.98 2,592,906 8.55 2,910,475 $ 6.55
Granted 68,870 15.06 74,740 15.69 313,601 18.83
Exercised (174,405) 6.38 (512,249) 5.71 (602,180) 3.99
Forfeited (62,478) 13.06 (50,239) 16.46 (28,991) 13.91
--------- --------- ---------
Outstanding at end of year 1,937,143 9.64 2,105,157 8.98 2,592,906 8.55
========= ========= =========
Options exercisable at year-end 1,795,809 1,756,880 1,897,307
========= ========= =========
At March 31, 2001, options for 837,454 shares were available for future grants.
The following table represents outstanding stock options and exercisable stock
options at their respective ranges of exercise prices:
OPTIONS OUTSTANDING EXERCISABLE OPTIONS
---------------------------------------------- ----------------------------------
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
CONTRACTUAL AVERAGE AVERAGE
RANGE OF EXERCISE PRICES SHARES LIFE (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------------------------
$2.00 - $6.53 899,223 3.41 5.16 899,223 5.16
$8.50 - $12.99 646,144 6.16 10.90 646,144 10.90
$15.06 - $21.81 391,776 7.72 17.83 250,442 19.08
--------- ---------
1,937,143 5.20 9.64 1,795,809 9.17
========= =========
The Corporation applies APB Opinion No. 25 and related interpretations in
accounting for stock options. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost for the
Corporation's stock option plans been determined based on the fair value at the
date of grant for awards under the stock option plans consistent with the method
of SFAS No. 123, the Corporation's net income and earnings per share would have
been reduced to the pro forma amounts indicated on the following page (in
thousands, except per share amounts).
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YEAR ENDED MARCH 31,
-------------------------------------------------------------------
2001 2000 1999
-------------------------------------------------------------------
Net Income
As reported $26,977 $19,502 $30,241
Pro forma 26,755 18,864 29,751
Earnings per share-Basic
As reported $ 1.19 $ 0.80 $ 1.26
Pro forma 1.18 0.77 1.24
Earnings per share-Diluted
As reported $ 1.16 $ 0.78 $ 1.19
Pro forma 1.15 0.75 1.17
The pro forma amounts indicated above may not be representative of the effects
on reported net income for future years. The fair values of stock options
granted in fiscal years ended March 31, 2001, 2000, and 1999 were estimated on
the date of grant using the Black-Scholes option-pricing model.
The weighted average fair values and related assumptions are as follows:
YEAR ENDED MARCH 31,
-----------------------------------------------
2001 2000 1999
-----------------------------------------------
Weighted average fair value $4.07 $5.20 $7.29
Expected volatility 27.00% 34.00% 36.70%
Risk free interest rate 5.25% 5.25% 5.25%
Expected lives 5 years 5 years 5 years
Dividend yield 1.99% 1.60% 1.00%
The Corporation has two deferred compensation plans to benefit certain
executives of the Corporation and the Bank. The first plan provides for
contributions by both the participant and the Corporation equal to the amounts
in excess of limitations imposed by the Internal Revenue Code amendment of 1986.
The expense associated with this plan for fiscal 2000, and 1999 was $143,000 and
$137,000, respectively. There was no expense in fiscal 2001. The second plan
provides for contributions by the Corporation to supplement the participant's
retirement. The expense associated with this plan for fiscal 2001 and 2000 was
$431,000 and $300,000, respectively. There was no expense for fiscal 1999.
NOTE 11 - INCOME TAXES
The Corporation and its subsidiaries file a consolidated federal income tax
return and separate state income tax returns.
In prior years, the Bank qualified under provisions of the Internal Revenue Code
which permitted as a deduction from taxable income allowable bad debt
deductions, which significantly exceeded actual losses and the financial
statement loan loss provisions. At March 31, 2001, retained earnings included
approximately $46,057,000 for which no provision for income tax has been made.
Income taxes of approximately $18,485,000 would be imposed if the Bank were to
use these reserves for any purpose other than to absorb bad debt losses.
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63
The provision for income taxes consists of the following (in thousands):
YEAR ENDED MARCH 31,
2001 2000 1999
-----------------------------------------------
Current:
Federal $14,377 $13,089 $15,593
State 80 1,854 2,387
------- ------- -------
14,457 14,943 17,980
Deferred:
Federal 177 547 449
State 48 106 178
------- ------- -------
225 653 627
------- ------- -------
$14,682 $15,596 $18,607
======= ======= =======
The provision for income taxes differs from that computed at the federal
statutory corporate tax rate as follows (in thousands):
YEAR ENDED MARCH 31,
2001 2000 1999
-------------------------------------------------
Income before income taxes $ 41,659 $ 35,098 $ 48,848
======== ======== ========
Income tax expense at federal statutory
rate of 35% $ 14,581 $ 12,284 $ 17,097
State income taxes, net of federal income
tax benefits 83 1,274 1,667
Nondeductible merger and acquisition costs - 980 -
Nondeductible Goodwill amortization - 617 98
Increase in valuation allowance 163 36 74
Other (145) 405 (329)
-------- -------- --------
Income tax provision $ 14,682 $ 15,596 $ 18,607
======== ======== ========
Deferred income tax assets and liabilities reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
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64
The significant components of the Corporation's deferred tax assets
(liabilities) are as follows (in thousands):
AT MARCH 31,
2001 2000 1999
----------------------------------------------
Deferred tax assets:
Allowances for loan losses $ 9,375 $ 8,857 $ 8,304
Other 4,207 4,893 4,419
-------- -------- --------
Total deferred tax assets 13,582 13,750 12,723
Valuation allowance (273) (110) (74)
-------- -------- --------
Adjusted deferred tax assets 13,309 13,640 12,649
Deferred tax liabilities:
Other (7,064) (4,658) (4,731)
-------- -------- --------
Total deferred tax liabilities (7,064) (4,658) (4,731)
-------- -------- --------
Total deferred tax assets $ 6,245 $ 8,982 $ 7,918
======== ======== ========
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES
The Corporation is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, loans sold
with recourse against the Corporation and financial guarantees which involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheets. The contract amounts of
those instruments reflect the extent of involvement and exposure to credit loss
the Corporation has in particular classes of financial instruments. The
Corporation uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. Since many of the
commitments are expected to expire without being drawn upon, the total committed
amounts do not necessarily represent future cash requirements.
Financial instruments whose contract amounts represent credit risk are as
follows (in thousands):
MARCH 31,
-------------------------------
2001 2000
-------------------------------
Commitments to extend credit:
Fixed rate $34,803 $ 4,586
Adjustable rate 55,767 60,637
Unused lines of credit:
Home equity 39,963 37,336
Credit cards 35,246 31,854
Commercial 41,040 39,756
Letters of credit 29,308 23,038
Loans sold with recourse 1,087 1,119
Credit enhancement under the Federal
Home Loan Bank of Chicago Mortgage
Partnership Finance Program 6,202 4,985
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65
Commitments to extend credit and unused lines of credit are agreements to lend
to a customer as long as there is no violation of any condition established in
the contract. Letters of credit commit the Corporation to make payments on
behalf of customers when certain specified future events occur. Commitments and
letters of credit generally have fixed expiration dates or other termination
clauses and may require payment of a fee. As some such commitments expire
without being drawn upon or funded by the Federal Home Loan Bank of Chicago
(FHLB), the total commitment amounts do not necessarily represent future cash
requirements. The Corporation evaluates each customer's creditworthiness on a
case-by-case basis. With the exception of credit card lines of credit, the
Corporation generally extends credit only on a secured basis. Collateral
obtained varies, but consists primarily of single-family residences and
income-producing commercial properties. Fixed-rate loan commitments expose the
Corporation to a certain amount of interest rate risk if market rates of
interest substantially increase during the commitment period. Similar risks
exist relative to loans classified as held for sale, which totalled $17,622,000,
and $1,764,000 at March 31, 2001 and 2000, respectively. This exposure, however,
is mitigated by the existence of firm commitments to sell the majority of the
fixed-rate loans. Commitments to sell mortgage loans within 60 days at March 31,
2001 and 2000 amounted to $81,800,000 and $7,784,000, respectively.
The Corporation participates in the FHLB Mortgage Partnership Finance Program
(the Program). In addition to entering into forward commitments to sell mortgage
loans to a secondary market agency, the Corporation enters into firm commitments
to deliver loans to the FHLB through the Program. Under the Program, loans are
funded by the FHLB and the Corporation receives an agency fee reported as a
component of gain on sale of loans. The Corporation had firm commitments
outstanding to deliver loans through the Program of $6.2 million at March 31,
2001. Once delivered to the Program, the Corporation provides a contractually
agreed-upon credit enhancement and performs servicing of the loans. Under the
credit enhancement, the Corporation is liable for losses on loans delivered to
the Program after application of any mortgage insurance and a contractually
agreed-upon credit enhancement provided by the Program subject to an agree-upon
maximum. The Corporation received a fee for this credit enhancement. The
Corporation does not anticipate that any credit losses will be incurred in
excess of anticipated credit enhancement fees.
Loans sold to investors with recourse to the Corporation met the underwriting
standards of the investor and the Corporation at the time of origination. In the
event of default by the borrower, the investor may resell the loans to the
Corporation at par value. As the Corporation expects relatively few such loans
to become delinquent, the total amount of loans sold with recourse does not
necessarily represent future cash requirements. Collateral obtained on such
loans consists primarily of single-family residences.
Except for the above-noted commitments to originate and/or sell mortgage loans
in the normal course of business, the Corporation and the Bank have not
undertaken the use of off-balance-sheet derivative financial instruments for any
purpose.
In the ordinary course of business, there are legal proceedings against the
Corporation and its subsidiaries. Management considers that the aggregate
liabilities, if any, resulting from such actions would not have a material,
adverse effect on the financial position of the Corporation.
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosure of fair value information about financial instruments, for which it
is practicable to estimate that value, is required whether or not recognized in
the consolidated balance sheets. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instruments. Certain financial instruments and
all non-financial instruments are excluded from the disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not necessarily
represent the underlying value of the Corporation.
64
66
The Corporation, in estimating its fair value disclosures for financial
instruments, used the following methods and assumptions:
CASH AND CASH EQUIVALENTS AND ACCRUED INTEREST: The carrying amounts reported in
the balance sheets approximate those assets' and liabilities' fair values.
INVESTMENT AND MORTGAGE-RELATED SECURITIES: Fair values for investment and
mortgage-related securities are based on quoted market prices, where available.
If quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
LOANS RECEIVABLE: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for loans held for sale are based on outstanding sale commitments or
quoted market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair value
of fixed-rate residential mortgage loans held for investment, commercial real
estate loans, rental property mortgage loans and consumer and other loans and
leases are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality. For construction loans, fair values are based on carrying values
due to the short-term nature of the loans.
MORTGAGE SERVICING RIGHTS: The Corporation has calculated the fair market value
of mortgage servicing rights for those loans that are originated with servicing
rights retained. For valuation purposes, loans are stratified by product type
and, within product type, by interest rate. The primary indicator of fair market
value for each loan is its comparison to market interest rate for that loan
type. The present value of future net revenue is calculated using estimated
future loan prepayment rates.
FEDERAL HOME LOAN BANK STOCK: The carrying amount of FHLB stock equals its fair
value because the shares can be resold to the FHLB or other member banks at
their carrying amount of $100 per share par amount.
DEPOSITS: The fair values disclosed for NOW accounts, passbook accounts and
variable rate insured money market accounts are, by definition, equal to the
amount payable on demand at the reporting date (i.e., their carrying amounts).
The fair values of fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies current incremental interest rates
being offered on certificates of deposit to a schedule of aggregated expected
monthly maturities of the outstanding certificates of deposit.
BORROWINGS: The fair value of the Corporation's borrowings are estimated using
discounted cash flow analysis, based on the Corporation's current incremental
borrowing rates for similar types of borrowing arrangements.
OFF-BALANCE-SHEET INSTRUMENTS: Fair values of the Corporation's
off-balance-sheet instruments (lending commitments and unused lines of credit)
are based on fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements, the counterparties' credit
standing and discounted cash flow analyses. The fair value of these
off-balance-sheet items approximates the recorded amounts of the related fees
and is not material at March 31, 2001 and 2000.
65
67
The carrying amounts and fair values of the Corporation's financial instruments
consist of the following (in thousands):
MARCH 31,
----------------------------------------------------------------
2001 2000
----------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------------------------------------------------------------
Financial assets:
Cash equivalents $ 105,042 $ 105,042 $ 83,708 $ 83,708
Investment securities 56,129 56,312 86,206 84,904
Mortgage-related securities 379,159 381,637 300,519 291,781
Loans held for sale 17,622 17,622 1,764 1,764
Loans receivable 2,414,976 2,316,031 2,302,721 2,280,639
Mortgage servicing rights 8,784 8,784 7,351 7,351
Federal Home Loan Bank stock 37,985 37,985 34,597 34,597
Accrued interest receivable 20,862 20,862 19,364 19,364
Financial liabilities:
Deposits 2,119,320 1,939,906 1,897,369 1,718,730
Federal Home Loan Bank and other borrowings 712,650 700,665 664,446 641,607
Reverse repurchase agreements 27,948 27,917 92,413 107,839
Accrued interest payable--borrowings 3,954 3,954 3,572 3,572
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68
NOTE 14 - CONDENSED PARENT ONLY FINANCIAL INFORMATION
The following represents the unconsolidated financial information of the
Corporation:
CONDENSED BALANCE SHEETS
MARCH 31,
----------------------------------
2001 2000
----------------------------------
(In Thousands)
ASSETS
Cash and cash equivalents $ 177 $ 1,697
Investment in subsidiaries 205,434 194,324
Securities available for sale 9,676 9,512
Loans receivable from non-bank subsidiaries 29,558 24,465
Other 7,339 4,243
-------- --------
Total assets $252,184 $234,241
======== ========
LIABILITIES
Loans payable $ 30,100 $ 15,400
Other liabilities 2,472 1,626
-------- --------
Total liabilities 32,572 17,026
STOCKHOLDERS' EQUITY
Total stockholders' equity 219,612 217,215
-------- --------
Total liabilities and stockholders' equity $252,184 $234,241
======== ========
CONDENSED STATEMENTS OF INCOME
YEAR ENDED MARCH 31,
--------------------------------------------
2001 2000 1999
--------------------------------------------
(In Thousands)
Interest income $ 3,086 $ 2,639 $ 9,384
Interest expense 1,699 647 885
-------- -------- --------
Net interest income 1,387 1,992 8,499
Equity in net income from subsidiaries 26,601 18,968 22,141
Non-interest income (219) 308 478
-------- -------- --------
27,769 21,268 31,118
Non-interest expense 540 1,195 408
-------- -------- --------
Income before income taxes 27,229 20,073 30,710
Income taxes 252 571 469
-------- -------- --------
Net income $ 26,977 $ 19,502 $ 30,241
======== ======== ========
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CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31,
------------------------------------------
2001 2000 1999
------------------------------------------
(In Thousands)
OPERATING ACTIVITIES
Net income $ 26,977 $ 19,502 $ 30,241
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Equity in net income of subsidiaries (26,601) (18,968) (29,955)
Other (1,876) (2,553) (1,436)
-------- -------- --------
Net cash used by operating activities (1,500) (2,019) (1,150)
INVESTING ACTIVITIES
Proceeds from maturities of investment securities - 162 -
Purchase of investment securities available for sale (678) (3,810) (1,453)
Proceeds from sales of mortgage-related securities available for sale - - 944
Principal collected on mortgage-backed securities - 2 2
Net increase in loans receivable from non-bank subsidiaries (5,093) (1,834) (11,960)
Dividends from Bank subsidiary 18,700 18,000 20,544
Other 867 5,353 (14)
-------- -------- --------
Net cash provided by investing activities 13,796 17,873 8,063
FINANCING ACTIVITIES
Increase in loans payable 14,700 2,600 10,800
Purchase of treasury stock (24,605) (21,403) (11,492)
Exercise of stock options and purchase of stock by retirement plans 2,956 2,306 3,471
Cash dividend paid (6,867) (5,931) (6,771)
Repayment of ESOP borrowings - 689 690
-------- -------- --------
Net cash used by financing activities (13,816) (21,739) (3,302)
-------- -------- --------
Increase (decrease) in cash and cash equivalents (1,520) (5,885) 3,611
Cash and cash equivalents at beginning of year 1,697 7,582 3,971
-------- -------- --------
Cash and cash equivalents at end of year $ 177 $ 1,697 $ 7,582
======== ======== ========
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NOTE 15 - SEGMENT INFORMATION
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, 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. The Corporation combines 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 its
subsidiaries, NIDI and CIDI, invest 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 years ended
March 31, 2001, 2000, and 1999, respectively (in thousands).
YEAR ENDED MARCH 31, 2001
-----------------------------------------------------------------
CONSOLIDATED
REAL ESTATE COMMUNITY INTERSEGMENT FINANCIAL
INVESTMENTS BANKING ELIMINATIONS STATEMENTS
----------- ---------- ------------ ------------
Interest income $ 351 $ 228,647 $ (351) $ 228,647
Interest expense 314 148,096 (314) 148,096
---------- ---------- ---------- ----------
Net interest income 37 80,551 (37) 80,551
Provision for loan losses 0 945 0 945
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 37 79,606 (37) 79,606
Other income 13,938 15,526 (15,961) 13,503
Other expense 15,998 51,450 (15,998) 51,450
---------- ---------- ---------- ----------
Net operating income (loss) (2,023) 43,682 0 41,659
Gain on sale of real estate partnership investments 0 0 0 0
---------- ---------- ---------- ----------
Income (loss) before income taxes (2,023) 43,682 0 41,659
Income tax expense (benefit) (1,625) 16,307 0 14,682
---------- ---------- ---------- ----------
Net income (loss) $ (398) $ 27,375 $ - $ 26,977
========== ========== ========== ==========
Average assets $ 47,155 $3,003,449 $ - $3,050,604
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YEAR ENDED MARCH 31, 2000
-----------------------------------------------------------------
CONSOLIDATED
REAL ESTATE COMMUNITY INTERSEGMENT FINANCIAL
INVESTMENTS BANKING ELIMINATIONS STATEMENTS
----------- ---------- ------------ ------------
Interest income $ 2,540 $ 202,594 $ (2,540) $ 202,594
Interest expense 0 119,393 0 119,393
---------- ---------- ---------- ----------
Net interest income 2,540 83,201 (2,540) 83,201
Provision for loan losses 0 1,306 0 1,306
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 2,540 81,895 (2,540) 81,895
Other income (992) 12,891 2,491 14,390
Other expense 49 61,187 (49) 61,187
---------- ---------- ---------- ----------
Net operating income 1,499 33,599 0 35,098
Gain on sale of real estate partnership investments 0 0 0 0
---------- ---------- ---------- ----------
Income before income taxes 1,499 33,599 0 35,098
Income tax expense (benefit) (166) 15,762 0 15,596
---------- ---------- ---------- ----------
Net income $ 1,665 $ 17,837 $ - $ 19,502
========== ========== ========== ==========
Average assets $ 35,962 $2,707,917 $ - $2,743,879
YEAR ENDED MARCH 31, 1999
---------------------------------------------------------------
CONSOLIDATED
REAL ESTATE COMMUNITY INTERSEGMENT FINANCIAL
INVESTMENTS BANKING ELIMINATIONS STATEMENTS
----------- ---------- ------------ ------------
Interest income $ 1,974 $ 194,807 $ (1,974) $ 194,807
Interest expense 0 114,535 0 114,535
---------- ---------- ---------- ----------
Net interest income 1,974 80,272 (1,974) 80,272
Provision for loan losses 0 1,017 0 1,017
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 1,974 79,255 (1,974) 79,255
Other income 631 19,456 1,932 22,019
Other expense 456 52,426 (456) 52,426
---------- ---------- ---------- ----------
Net operating income 2,149 46,285 414 48,848
Gain on sale of real estate partnership investments 414 0 (414) 0
---------- ---------- ---------- ----------
Income before income taxes 2,563 46,285 0 48,848
Income tax expense 412 18,195 0 18,607
---------- ---------- ---------- ----------
Net income $ 2,151 $ 28,090 $ - $ 30,241
========== ========== ========== ==========
Average assets $ 26,530 $2,577,030 $ - $2,603,560
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NOTE 16 - EARNINGS PER SHARE
The computation of earnings per share for fiscal years 2001, 2000, and 1999 is
as follows:
TWELVE MONTHS ENDED MARCH 31,
-------------------------------------------------------
2001 2000 1999
-------------------------------------------------------
Numerator:
Net income $26,977,014 $19,501,869 $30,240,991
----------- ----------- -----------
Numerator for basic and diluted earnings
per share--income available to common
stockholders $26,977,014 $19,501,869 $30,240,991
Denominator:
Denominator for basic earnings per
share--weighted-average common
shares outstanding 22,646,701 24,364,065 24,021,061
Effect of dilutive securities:
Employee stock options 561,132 795,884 1,301,929
----------- ----------- -----------
Denominator for diluted earnings per
share--adjusted weighted-average
common shares and assumed conversions 23,207,833 25,159,949 25,322,990
=========== =========== ===========
Basic earnings per share $ 1.19 $ 0.80 $ 1.26
=========== =========== ===========
Diluted earnings per share $ 1.16 $ 0.78 $ 1.19
=========== =========== ===========
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Anchor BanCorp Wisconsin Inc.
We have audited the accompanying consolidated balance sheets of Anchor BanCorp
Wisconsin Inc. (the "Corporation") as of March 31, 2001 and 2000, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended March 31, 2001. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1999 financial statements of FCB Financial
Corp., which statements reflect net income constituting 22.1% of the
consolidated financial statement totals for the year ended March 31, 1999. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to data included for FCB Financial Corp.,
is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Anchor BanCorp Wisconsin Inc. at March
31, 2001 and 2000, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended March 31, 2001, in
conformity with accounting standards generally accepted in the United States.
/s/ Ernst & Young LLP
May 9, 2001
Milwaukee, Wisconsin
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74
MANAGEMENT AND AUDIT COMMITTEE REPORT
Management is responsible for the preparation, content and integrity of the
financial statements and all other financial information included in this annual
report. The financial statements have been prepared in accordance with generally
accepted accounting principles.
The Corporation maintains a system of internal controls designed to provide
reasonable assurance as to the integrity of financial records and the protection
of assets. The system of internal controls includes written policies and
procedures, proper delegation of authority, organizational division of
responsibilities and the careful selection and training of qualified personnel.
In addition, the internal auditors and independent auditors periodically test
the system of internal controls.
Management recognizes that the cost of a system of internal controls should not
exceed the benefits derived and that there are inherent limitations to be
considered in the potential effectiveness of any system. However, management
believes that the system of internal controls provides reasonable assurances
that financial transactions are recorded properly to permit the preparation of
reliable financial statements.
The Audit Committee of the Board of Directors is composed of outside directors
and has the responsibility for the recommendation of the independent auditors
for the Corporation. The committee meets regularly with the independent auditors
and internal auditors to review the scope of their audits and audit reports and
to discuss any action to be taken. The independent auditors and the internal
auditors have free access to the Audit Committee.
/s/ Douglas J. Timmerman
Douglas J. Timmerman
President and Chief Executive Officer
/s/ Michael W. Helser
Michael W. Helser
Treasurer and Chief Financial Officer
/s/ Holly Cremer Berkenstadt
Holly Cremer Berkenstadt
Audit Committee
/s/ Greg M. Larson
Greg M. Larson
Audit Committee
/s/ Pat Richter
Pat Richter
Audit Committee
/s/ Bruce A. Robertson
Bruce A. Robertson
Audit Committee
May 9, 2001
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QUARTERLY FINANCIAL INFORMATION
MAR 31, DEC 31, SEP 30, JUN 30, MAR 31, DEC 31, SEP 30, JUN 30,
2001 2000 2000 2000 2000 1999 1999 1999
---------------------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
Interest income:
Loans $ 49,814 $ 51,416 $ 49,893 $ 47,359 $ 45,902 $ 45,154 $ 43,793 $ 42,319
Securities and other 8,549 7,524 7,077 7,062 6,263 6,630 6,316 6,216
-------- -------- -------- -------- -------- -------- -------- --------
Total interest income 58,363 58,940 56,970 54,421 52,165 51,784 50,109 48,535
Interest expense:
Deposits 25,815 26,319 23,448 21,858 21,057 20,392 20,153 19,876
Borrowings and other 12,189 12,845 13,679 11,982 10,799 10,335 8,870 7,910
-------- -------- -------- -------- -------- -------- -------- --------
Total interest expense 38,004 39,164 37,127 33,840 31,856 30,727 29,023 27,786
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income 20,359 19,776 19,843 20,581 20,309 21,057 21,086 20,749
Provision for loan losses 450 150 160 185 150 150 150 856
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for loan losses 19,909 19,626 19,683 20,396 20,159 20,907 20,936 19,893
Service charges on deposits 1,414 1,512 1,438 1,400 1,084 1,269 1,259 1,316
Net gain on sale of loans 868 609 1,208 360 182 433 366 1,029
Other non-interest income 1,208 957 911 1,610 2,898 1,426 1,645 1,484
-------- -------- -------- -------- -------- -------- -------- --------
Total non-interest income 3,490 3,078 3,557 3,370 4,164 3,128 3,270 3,829
Compensation 7,117 7,210 6,921 7,194 6,693 6,737 6,585 6,843
Merger-related - - - - - - - 8,297
Goodwill - - - - - - - 1,761
Other non-interest expenses 5,909 5,682 5,916 5,501 6,025 6,323 5,823 6,101
-------- -------- -------- -------- -------- -------- -------- --------
Total non-interest expenses 13,026 12,892 12,837 12,695 12,718 13,060 12,408 23,002
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes 10,373 9,812 10,403 11,071 11,605 10,975 11,798 720
Income taxes 3,429 3,345 3,822 4,086 4,414 4,183 4,676 2,323
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 6,944 $ 6,467 $ 6,581 $ 6,985 $ 7,191 $ 6,792 $ 7,122 $ (1,603)
======== ======== ======== ======== ======== ======== ======== ========
Earnings (loss) Per Share:
Basic $ 0.31 $ 0.29 $ 0.29 $ 0.30 $ 0.30 $ 0.28 $ 0.29 $ (0.07)
Diluted 0.31 0.28 0.28 0.29 0.29 0.27 0.28 (0.06)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to Directors and Executive Officers is
incorporated herein by reference to pages 3 to 8 to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on July 24, 2001.
ITEM 11. EXECUTIVE COMPENSATION
The information relating to executive compensation is incorporated
herein by reference to pages 13 to 24 to the Registrant's Proxy Statement for
the Annual Meeting of Stockholders to be held on July 24, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to pages 9 to 12 to
the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be
held on July 24, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related
transactions is incorporated herein by reference to pages 23 to 24 to the
Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held
on July 24, 2001.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of the Corporation and
its subsidiaries, together with the report thereon of Ernst & Young LLP, dated
May 9, 2001 are incorporated herein by reference to Item 8 of this Annual Report
on Form 10-K:
Consolidated Balance Sheets at March 31, 2001 and 2000.
Consolidated Statements of Income for each year in the three-year
period ended March 31, 2001.
Consolidated Statements of Stockholders' Equity for each year in the
three-year period ended March 31, 2001.
Consolidated Statements of Cash Flows for each year in the three-year
period ended March 31, 2001.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(a)(2) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not required or are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
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(a)(3) EXHIBITS
The following exhibits are either filed as part of this Annual Report
on Form 10-K or are incorporated herein by reference:
EXHIBIT NO. 3. CERTIFICATE OF INCORPORATION AND BYLAWS:
3.1 Articles of Incorporation of Anchor BanCorp Wisconsin
Inc. as amended effective September 16, 1999.
3.2 Bylaws of Anchor BanCorp Wisconsin Inc. (incorporated
herein by reference to Exhibit 3.2 of Registrant's
Form S-1, Registration Statement, filed on March 19,
1992, as amended, Registration No. 33-46536
("Form S-1")).
EXHIBIT NO. 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS:
4 Form of Common Stock Certificate (incorporated herein
by reference to Exhibit 4 of Registrant's Form S-1).
EXHIBIT NO. 10. MATERIAL CONTRACTS:
10.1 Anchor BanCorp Wisconsin Inc. Retirement Plan
(incorporated herein by reference to Exhibit 10.1 of
Registrant's Form S-1).
10.2 Anchor BanCorp Wisconsin Inc. 1992 Stock Incentive
Plan (incorporated herein by reference to Exhibit
10.2 of Registrant's Form S-1).
10.3 Anchor BanCorp Wisconsin Inc. 1992 Director's Stock
Option Plan (incorporated herein by reference to
Exhibit 10.3 of Registrant's Form S-1).
10.4 Anchor BanCorp Wisconsin Inc. Amended and Restated
Management Recognition Plan (incorporated herein by
reference to the Registrant's Proxy Statement for the
Annual Meeting of stockholders to be held on July 24,
2001).
10.5 Anchor BanCorp Wisconsin Inc. Employee Stock
Ownership Plan (incorporated herein by reference to
Exhibit 10.5 of Registrant's Form S-1).
10.6 Employment Agreement among the Corporation, the Bank
and Douglas J. Timmerman (incorporated by reference
to Exhibit 10.6 of Registrant's Annual Report or Form
10-K for the year ended March 31, 1995).
10.7 Deferred Compensation Agreement between the
Corporation and Douglas J. Timmerman, as amended
(incorporated by reference to Exhibit 10.7 of
Registrant's Form S-1) and form of related Deferred
Compensation Trust Agreement, as amended
(incorporated by reference to Exhibit 10.7 of
Registrant's Annual Report or Form 10-K for the year
ended March 31, 1994).
10.8 1995 Stock Option Plan for Non-Employee Directors
(incorporated by reference to the Registrant's proxy
statement filed on June 16, 1995).
10.9 1995 Stock Incentive Plan (incorporated by reference
to the Registrant's proxy statement filed on June 16,
1995).
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78
10.10 Employment Agreement among the Corporation, the Bank
and J. Anthony Cattelino (incorporated by reference
to Exhibit 10.10 of Registrant's Annual Report or
Form 10-K for the year ended March 31, 1995).
10.11 Employment Agreement among the Corporation, the Bank
and Michael W. Helser (incorporated by reference to
Exhibit 10.11 of Registrant's Annual Report or Form
10-K for the year ended March 31, 1995).
10.12 Severance Agreement among the Corporation, the Bank
and Ronald R. Osterholz (incorporated by reference to
Exhibit 10.12 of Registrant's Annual Report or Form
10-K for the year ended March 31, 1995).
10.13 Severance Agreement among the Corporation, the Bank
and David L. Weimert (incorporated by reference to
Exhibit 10.13 of Registrant's Annual Report or Form
10-K for the year ended March 31, 1995).
10.14 Severance Agreement among the Corporation, the Bank
and Donald F. Bertucci (incorporated by reference to
Exhibit 10.14 of Registrant's Annual Report or Form
10-K for the year ended March 31, 1995).
10.15 Anchor BanCorp Wisconsin Inc. Directors' Deferred
Compensation Plan (incorporated by reference to
Exhibit 10.9 of Registrant's Form S-1).
10.16 Anchor BanCorp Wisconsin Inc. Annual Incentive Bonus
Plan (incorporated by reference to Exhibit 10.10 of
Registrant's Form S-1).
10.17 AnchorBank, S.S.B. Supplemental Executive Retirement
Plan (incorporated by reference to Exhibit 10.11 of
Registrant's Annual Report or Form 10-K for the year
ended March 31, 1994).
10.18 AnchorBank, S.S.B. Excess Benefit Plan (incorporated
by reference to Exhibit 10.12 of Registrant's Annual
Report or Form 10-K for the year ended March 31,
1994).
10.19 Stockholder Rights Agreement, dated July 22, 1997
between the corporation and Firstar Trust Company, as
Rights Agent (incorporated by reference to the
Registrant's current Report on Form 8-K filed on July
28, 1997).
10.20 2001 Stock Option Plan for Non-Employee Directors
(incorporated herein by reference to the Registrant's
Proxy Statement for the Annual Meeting of
stockholders to be held on July 24, 2001).
The Corporation's management contracts or compensatory plans or arrangements
consist of Exhibits 10.1-10.20 above.
EXHIBIT NO. 11. COMPUTATION OF EARNINGS PER SHARE:
Refer to Note 16 of the Notes to Consolidated Financial
Statements in Item 8.
EXHIBIT NO. 21. SUBSIDIARIES OF THE REGISTRANT:
Subsidiary information is incorporated herein by reference to
"Part I, Item 1, Business-General" and "Part I, Item 1,
Business-Subsidiaries."
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79
EXHIBIT NO. 23. CONSENT OF ERNST & YOUNG LLP:
The consent of Ernst & Young LLP is included herein as an
exhibit to this Report.
(b) FORMS 8-K
None
(c) EXHIBITS
Exhibits to the Form 10-K required by Item 601 of Regulation S-K are
attached or incorporated herein by reference as stated in the Index
to Exhibits.
(d) FINANCIAL STATEMENTS EXCLUDED FROM ANNUAL REPORT TO SHAREHOLDERS
PURSUANT TO RULE 14a3(b)
Not applicable
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Douglas J. Timmerman
-----------------------------------------------
Douglas J. Timmerman
Chairman of the Board, President and Chief
Executive Officer
Date: May 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
By: /s/ Douglas J. Timmerman By:/s/ Michael W. Helser
--------------------------------- -------------------------------------
Douglas J. Timmerman Michael W. Helser
Chairman of the Board, President Treasurer and Chief Financial Officer
and Chief Executive Officer (principal financial and
(principal executive officer) accounting officer)
Date: May 30, 2001 Date: May 30, 2001
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81
By: /s/ Donald D. Kropidlowski By: /s/ Greg M. Larson
-------------------------------- ---------------------------------
Donald D. Kropidlowski Greg M. Larson
Director Director
Date: May 30, 2001 Date: May 30, 2001
By: /s/ Richard A. Bergstrom By: /s/ Pat Richter
-------------------------------- ---------------------------------
Richard A. Bergstrom Pat Richter
Director Director
Date: May 30, 2001 Date: May 30, 2001
By: /s/ Bruce A. Robertson By: /s/ Holly Cremer Berkenstadt
-------------------------------- ---------------------------------
Bruce A. Robertson Holly Cremer Berkenstadt
Director Director
Date: May 30, 2001 Date: May 30, 2001
By: /s/ Donald D. Parker
---------------------------------------------
Donald D. Parker
Director
Date: May 30, 2001
80