SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2002
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
COMMISSION FILE NUMBER 0-20006
ANCHOR BANCORP WISCONSIN INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Wisconsin 39-1726871
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
25 West Main Street
Madison, Wisconsin 53703
(Address of principal executive office) (Zip Code)
(608) 252-8700
Registrant's telephone number, including area code
Not Applicable
(Former name, former address, and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No | |
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes |X| No | |
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class: Common stock -- $.10 Par Value
Number of shares outstanding as of January 31, 2003: 24,452,187
ANCHOR BANCORP WISCONSIN INC.
INDEX - FORM 10-Q
PART I - FINANCIAL INFORMATION PAGE #
------
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets as of December 31, 2002
and March 31, 2002 2
Consolidated Statements of Income for the Three and Nine
Months Ended December 31, 2002 and 2001 3
Consolidated Statements of Cash Flows for the Nine Months
Ended December 31, 2002 and 2001 4
Notes to Unaudited Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations 11
Financial Condition 16
Asset Quality 17
Liquidity & Capital Resources 19
Asset/Liability Management 21
Segment Reporting 22
Item 3 Quantitative and Qualitative Disclosures About Market Risk 25
Item 4 Controls and Procedures 25
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 25
Item 2 Changes in Securities and Use of Proceeds 25
Item 3 Defaults upon Senior Securities 25
Item 4 Submission of Matters to a Vote of Security Holders 25
Item 5 Other Information 25
Item 6 Exhibits and Reports on Form 8-K 26
SIGNATURES 27
1
CONSOLIDATED BALANCE SHEETS
(Unaudited)
DECEMBER 31, MARCH 31,
2002 2002
----------------------------------
(In Thousands, Except Share Data)
ASSETS
Cash $ 77,904 $ 57,568
Interest-bearing deposits 99,977 204,108
----------- -----------
Cash and cash equivalents 177,881 261,676
Investment securities available for sale 68,489 65,993
Investment securities held to maturity (fair value of $3,120 and
$7,897, respectively) 2,998 7,747
Mortgage-related securities available for sale 227,721 145,293
Mortgage-related securities held to maturity (fair value of $90,366
and $141,330, respectively) 85,947 140,293
Loans receivable, net:
Held for sale 32,366 46,520
Held for investment 2,715,964 2,627,248
Foreclosed properties and repossessed assets, net 1,570 1,475
Real estate held for development and sale 45,134 46,986
Office properties and equipment 31,006 31,132
Federal Home Loan Bank stock--at cost 55,334 53,316
Accrued interest on investments and loans 18,396 19,918
Prepaid expenses and other assets 58,730 59,479
----------- -----------
Total assets $ 3,521,536 $ 3,507,076
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 2,575,254 $ 2,553,987
Federal Home Loan Bank and other borrowings 568,806 621,590
Advance payments by borrowers for taxes and insurance 903 7,838
Other liabilities 80,884 46,149
----------- -----------
Total liabilities 3,225,847 3,229,564
----------- -----------
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, 24,376,879 and 24,950,258 shares outstanding,
respectively 2,536 2,536
Additional paid-in capital 63,281 61,735
Retained earnings 243,461 218,149
Accumulated other comprehensive income 6,043 2,473
Treasury stock (986,460 shares and 413,081 shares, respectively), at cost (18,840) (6,324)
Common stock purchased by benefit plans (792) (1,057)
----------- -----------
Total stockholders' equity 295,689 277,512
----------- -----------
Total liabilities and stockholders' equity $ 3,521,536 $ 3,507,076
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
2
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- -------------------------
2002 2001 2002 2001
------------------------- -------------------------
(In Thousands, Except Per Share Data)
INTEREST INCOME:
Loans $ 45,504 $ 50,205 $ 140,995 $ 147,752
Mortgage-related securities 4,918 4,807 13,059 15,771
Investment securities 1,546 1,625 4,684 4,819
Interest-bearing deposits 519 511 1,531 1,586
---------- ---------- ---------- ----------
Total interest income 52,487 57,148 160,269 169,928
INTEREST EXPENSE:
Deposits 16,177 23,125 51,348 72,022
Notes payable and other borrowings 6,484 8,049 20,522 27,369
Other 127 187 346 462
---------- ---------- ---------- ----------
Total interest expense 22,788 31,361 72,216 99,853
---------- ---------- ---------- ----------
Net interest income 29,699 25,787 88,053 70,075
Provision for loan losses 450 150 1,350 910
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 29,249 25,637 86,703 69,165
NON-INTEREST INCOME:
Loan servicing income (loss) (3,378) (127) (3,466) 407
Service charges on deposits 1,867 1,706 5,433 4,869
Insurance commissions 337 384 1,457 1,122
Gain on sale of loans 7,605 2,347 14,374 5,663
Net gain (loss) on sale of investments and mortgage-related securities 206 (5) 960 825
Net loss from operations of real estate investments (232) (695) (584) (668)
Other 2,550 822 3,216 2,341
---------- ---------- ---------- ----------
Total non-interest income 8,955 4,432 21,390 14,559
NON-INTEREST EXPENSE:
Compensation 9,210 8,407 27,301 24,208
Occupancy 1,460 1,193 4,257 3,385
Furniture and equipment 1,407 1,160 3,842 3,283
Data processing 1,339 1,252 3,899 3,384
Marketing 715 612 2,137 1,845
Federal insurance premiums 106 101 328 299
Other 2,300 3,067 8,100 7,689
---------- ---------- ---------- ----------
Total non-interest expense 16,537 15,792 49,864 44,093
---------- ---------- ---------- ----------
Income before income taxes 21,667 14,277 58,229 39,631
Income taxes 8,260 5,463 21,933 14,667
---------- ---------- ---------- ----------
Net income $ 13,407 $ 8,814 $ 36,296 $ 24,964
========== ========== ========== ==========
Earnings per share:
Basic $ 0.56 $ 0.38 $ 1.50 $ 1.12
Diluted 0.55 0.37 1.47 1.09
Dividends declared per share 0.09 0.08 0.26 0.24
See accompanying Notes to Unaudited Consolidated Financial Statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED DECEMBER 31,
------------------------------
2002 2001
------------------------------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income $ 36,296 $ 24,964
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Provision for loan losses 1,350 910
Provision for depreciation and amortization 3,442 5,088
Net gain on sales of loans (14,374) (5,663)
Amortization of stock benefit plans 28 30
Tax benefit from stock related compensation 1,164 --
Decrease in accrued interest receivable 1,522 398
Decrease in accrued interest payable (3,043) (3,000)
Increase in accounts payable 34,735 62,770
Other 11,254 4,881
--------- ---------
Net cash provided by operating activities before net proceeds
from loan sales 72,374 90,378
Net increase (decrease) due to origination and sale of loans held for sale 14,154 (42,685)
--------- ---------
Net cash provided by operating activities 86,528 47,693
INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale 12,668 2,600
Proceeds from maturities of investment securities 320,701 337,666
Purchase of investment securities available for sale (332,578) (346,628)
Proceeds from sale of mortgage-related securities available for sale 32,392 21,916
Purchase of mortgage-related securities available for sale (58,236) (51,186)
Principal collected on mortgage-related securities 130,284 88,326
Loans originated for investment (388,504) (499,983)
Principal repayments on loans 175,673 207,140
Net additions of office properties and equipment (2,556) (10,348)
Cash paid to purchase Ledger Capital Corp -- (1,985)
Investment in real estate held for development and sale 1,785 2,097
--------- ---------
Net cash used by investing activities (108,371) (250,385)
4
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
(Unaudited)
NINE MONTHS ENDED DECEMBER 31,
------------------------------
2002 2001
------------------------------
(IN THOUSANDS)
FINANCING ACTIVITIES
Increase in deposit accounts $ 21,267 $ 438,708
Decrease in advance payments by borrowers
for taxes and insurance (6,935) (6,861)
Proceeds from notes payable to Federal Home Loan Bank 95,168 570,700
Repayment of notes payable to Federal Home Loan Bank (134,400) (633,096)
Decrease in securities sold under agreements
to repurchase -- (27,813)
Increase (decrease) in other loans payable (13,552) 8,740
Treasury stock purchased (19,618) (13,743)
Exercise of stock options 1,794 2,709
Purchase of stock by retirement plans 837 160
Payments of cash dividends to stockholders (6,513) (5,402)
---------- ----------
Net cash provided (used) by financing activities (61,952) 334,102
---------- ----------
Net increase (decrease) in cash and cash equivalents (83,795) 131,410
Cash and cash equivalents at beginning of period 261,676 105,042
---------- ----------
Cash and cash equivalents at end of period $ 177,881 $ 236,452
========== ==========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid or credited to accounts:
Interest on deposits and borrowings $ 73,738 $ 124,094
Income taxes 15,460 11,919
Non-cash transactions:
Securitization of mortgage loans held for sale to mortgage-backed
securities 124,115 --
See accompanying Notes to Unaudited Consolidated Financial Statements
5
ANCHOR BANCORP WISCONSIN INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The unaudited consolidated financial statements include the accounts and results
of operations of Anchor BanCorp Wisconsin Inc. (the "Corporation") and its
wholly-owned subsidiaries, AnchorBank fsb (the "Bank"), and Investment
Directions, Inc. ("IDI"). The Bank's accounts and results of operations include
its wholly-owned subsidiaries, Anchor Investment Services, Inc. ("AIS"), ADPC
Corporation ("ADPC") and Anchor Investment Corporation ("AIC"). All significant
intercompany balances and transactions have been eliminated. Investments in
joint ventures and other less than 50% owned partnerships, which are not
material, are accounted for by the equity method. Partnerships with 50%
ownership or more are consolidated, with significant intercompany accounts
eliminated.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of the consolidated financial statements have been
included.
In preparing the unaudited consolidated financial statements in conformity with
GAAP, management is required to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates. The results of
operations and other data for the nine-month period ended December 31, 2002 are
not necessarily indicative of results that may be expected for any other interim
period or the entire fiscal year ending March 31, 2003. The unaudited
consolidated financial statements presented herein should be read in conjunction
with the audited consolidated financial statements and related notes thereto
included in the Corporation's Annual Report for the year ended March 31, 2002.
Unrealized gains or losses on the Corporation's available-for-sale securities
are included in other comprehensive income. During the quarter ended December
31, 2002 and 2001, total comprehensive income amounted to $16.4 million and $9.2
million, respectively. For the nine months ended December 31, 2002 and 2001,
comprehensive income was $39.9 million and $26.4 million, respectively.
NEW ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board
issued SFAS No. 141, "Business Combinations" and No. 142, "Goodwill and Other
Intangible Assets," effective for fiscal years beginning after December 15,
2001. Under the new rules, goodwill and certain intangible assets are no longer
amortized, but are reviewed at least annually for impairment. Separable
intangible assets that are not deemed to have indefinite lives will no longer be
amortized, but will be subject to annual impairment tests in accordance with the
SFAS. Other intangible assets will continue to be amortized over their useful
lives.
SFAS No. 144, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," was issued in October 2001 and addresses
how and when to measure impairment of long-lived assets and how to account for
long-lived assets that an entity plans to dispose of either through sale,
abandonment, exchange, or distribution to owners. The new provisions supersede
FASB No. 121, which addressed asset impairment, and certain provisions of APB
Opinion 30 related to reporting the effects of the disposal of a business
segment and requires expected future operating losses from discontinued
operations to be recorded in the period in which the losses are incurred rather
than the measurement date. Under FASB No. 144, more dispositions may qualify for
discontinued operations treatment in the income statement. The provisions of
FASB No. 144 became effective for
6
the Corporation April 1, 2002 and are not expected to have a material impact on
the Corporation's financial position or results of operations.
Certain 2001 accounts have been reclassified to conform to the 2002
presentations.
NOTE 3 - GOODWILL AND OTHER INTANGIBLE ASSETS
The Corporation's carrying value of goodwill was $20.0 million at December 31,
2002 and at March 31, 2002. Information regarding the Company's other intangible
assets follows:
DECEMBER 31, 2002 MARCH 31, 2002
------------------------------------------ ------------------------------------------
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION NET AMOUNT AMORTIZATION NET
------------------------------------------ ------------------------------------------
(In Thousands)
Other intangible assets:
Core deposit premium $ 3,124 $ 639 $ 2,485 $ 3,408 $ 284 $ 3,124
Mortgage servicing rights 20,657 8,561 12,096 16,200 5,175 11,025
---------- ---------- ---------- ---------- ---------- ----------
Total $ 23,781 $ 9,200 $ 14,581 $ 19,608 $ 5,459 $ 14,149
========== ========== ========== ========== ========== ==========
The projections of amortization expense for mortgage servicing rights set forth
below are based on asset balances and the interest rate environment as of
December 31, 2002. Future amortization expense may be significantly different
depending upon changes in the mortgage servicing portfolio, mortgage interest
rates and market conditions.
The following table shows the current period and estimated future amortization
expense for amortized intangible assets:
MORTGAGE CORE
SERVICING DEPOSIT
RIGHTS PREMIUM TOTAL
---------- ------- ------
(In Thousands)
Nine months ended December 31, 2002 (actual) $ 8,561 $ 639 $9,200
Three months ended March 31, 2003 (estimate) 4,500 213 4,713
Estimate for the year ended March 31,
2004 3,798 852 4,650
2005 1,266 852 2,118
2006 1,266 568 1,834
2007 1,266 -- 1,266
7
NOTE 4 - STOCKHOLDERS' EQUITY
During the quarter ended December 31, 2002, options for 22,682 shares of common
stock were exercised at a weighted-average price of $9.71 per share. Treasury
shares were issued in exchange for the options using the last-in-first-out
method. The cost of the treasury shares issued in excess of the option price
paid was charged to retained earnings $(240,000). During the quarter ended
December 31, 2002, the Corporation repurchased 262,800 shares of common stock.
During the quarter, 5,000 shares of treasury stock were reissued to the
Corporation's retirement plans. The weighted-average cost of these shares was
$20.79 per share or $100,000 in the aggregate and the excess of the cost over
the market price of the treasury shares of $5,000 was credited to retained
earnings. On November 15, 2002, the Corporation paid a cash dividend of $0.09
per share, amounting to $2.2 million.
NOTE 5 - EARNINGS PER SHARE
Basic earnings per share for the three and nine months ended December 31, 2002
and 2001 have been determined by dividing net income for the respective periods
by the weighted average number of shares of common stock outstanding. Diluted
earnings per share is computed by dividing net income by the weighted average
number of common shares outstanding plus common stock equivalents. Common stock
equivalents are computed using the treasury stock method.
8
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
2002 2001
-------------------------------
Numerator:
Net income $ 13,407,600 $ 8,813,857
------------ ------------
Numerator for basic and diluted earnings
per share--income available to common
stockholders $ 13,407,600 $ 8,813,857
Denominator:
Denominator for basic earnings per
share--weighted-average shares 23,860,751 23,025,397
Effect of dilutive securities:
Employee stock options 532,354 588,381
Management Recognition Plans 4,514 13,399
Denominator for diluted earnings per
share--adjusted weighted-average
------------ ------------
shares and assumed conversions 24,397,619 23,627,177
============ ============
Basic earnings per share $ 0.56 $ 0.38
============ ============
Diluted earnings per share $ 0.55 $ 0.37
============ ============
NINE MONTHS ENDED DECEMBER 31,
-------------------------------
2002 2001
-------------------------------
Numerator:
Net income $ 36,296,486 $ 24,963,726
------------ ------------
Numerator for basic and diluted earnings
per share--income available to common
stockholders $ 36,296,486 $ 24,963,726
Denominator:
Denominator for basic earnings per
share--weighted-average shares 24,150,500 22,361,428
Effect of dilutive securities:
Employee stock options 597,962 565,427
Management Recognition Plans 9,135 18,559
Denominator for diluted earnings per
share--adjusted weighted-average
------------ ------------
shares and assumed conversions 24,757,597 22,945,414
============ ============
Basic earnings per share $ 1.50 $ 1.12
============ ============
Diluted earnings per share $ 1.47 $ 1.09
============ ============
9
NOTE 6 - SUBSEQUENT EVENTS
On January 20, 2003, the Corporation declared a $0.10 per share cash dividend on
its common stock to be paid on February 14, 2003 to stockholders of record on
January 31, 2003.
10
ANCHOR BANCORP WISCONSIN INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains certain "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. 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 Board, 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. In
addition, acquisitions may result in large one-time charges to income, may not
produce revenue enhancements or cost savings at levels or within time frames
originally anticipated and may result in unforeseen integration difficulties.
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.
Set forth below is management's discussion and analysis of the Corporation's
financial condition and results of operations for the three and nine months
ended December 31, 2002, which includes information on the Corporation's
asset/liability management strategies, sources of liquidity and capital
resources. This discussion should be read in conjunction with the consolidated
financial statements and supplemental data contained elsewhere in this report.
RESULTS OF OPERATIONS
General. Net income for the three months ended December 31, 2002 increased $4.6
million to $13.4 million from $8.8 million and increased $11.3 million to $36.3
million from $25.0 million for the nine months ended December 31, 2002. The
increase in net income for the three-month period compared to the same period
last year was largely due to a decrease in interest expense of $8.6 million. In
addition, non-interest income increased $4.5 million for the three months ended
December 31, 2002, primarily due to an increase in the gain on sale of loans of
$5.3 million. These increases were partially offset by a decrease in interest
income of $4.7 million, an increase in income tax expense of $2.8 million, an
increase in non-interest expense of $750,000 and an increase in the provision
for loan losses of $300,000. The increase in net income for the nine-month
period compared to the same period last year was largely due to a decrease in
interest expense of $27.6 million. In addition, non-interest income for the nine
months ended December 31, 2002 increased $6.8 million, primarily due to an
increase in the gain on sale of loans of $8.7 million. These increases were
partially offset by a decrease in interest income of $9.7 million, an increase
in income tax expense of $7.3 million, an increase in non-interest expense of
$5.8 million and an increase in provision for loan losses of $440,000 for the
nine-month period.
Net Interest Income. Net interest income increased $3.9 million and $18.0
million for the three and nine months ended December 31, 2002, respectively,
compared to the same periods in 2001. The net interest margin increased to 3.58%
from 3.27% for the respective three-month periods and increased to 3.60% from
3.03% for the respective nine-month periods. The interest rate spread increased
to 3.48% from 3.18% and increased to 3.49% from 2.83%, respectively, for the
same periods.
Interest income on loans decreased $4.7 million and $6.8 million, respectively,
for the three and nine months ended December 31, 2002 as compared to the same
periods in the prior year. This decrease was the result of a decrease of
11
93 basis points in the average yield on loans to 6.86% from 7.79% for the
three-month period and a decrease of 66 basis points to 7.10% from 7.76% for the
nine-month period. Interest income on mortgage-related securities increased
$110,000 for the three-month period primarily due to an increase of $27.9
million in the average balance of mortgage related securities and decreased $2.7
million, for the nine-month period due primarily to a decrease of 19 basis
points to 6.09% from 6.28%. In addition, the average balance of mortgage-related
securities decreased $48.9 million in the nine-month period ended December 31,
2002. Interest income on investment securities (including Federal Home Loan Bank
stock) decreased $80,000 and $140,000, respectively, for the three- and
nine-month periods ended December 31, 2002 as compared to the same periods in
the prior year. This was primarily a result of a decrease of $19.7 million in
the average balance of investment securities for the three-month period ended
December 31, 2002 and a decrease of 101 basis points in the average yield from
4.66% to 3.65% for the nine-month period as compared to the same period in the
prior year. In addition, interest income on interest-bearing deposits increased
$10,000 and decreased $60,000 for the three and nine months ended December 31,
2002 as compared to the same periods in 2001.
Interest expense on deposits decreased $6.9 million and $20.7 million for the
three and nine months ended December 31, 2002 as compared to the same periods in
2001. These decreases were due primarily to a decrease of 136 basis points in
the weighted average cost of deposits to 2.47% from 3.83% for the three-month
period and a decrease of 155 basis points to 2.72% from 4.27% for the nine-month
period. Interest expense on notes payable and other borrowings decreased $1.6
million and $6.8 million, respectively, during the same periods due primarily to
a decrease of $75.9 million and $48.1 million, respectively, in the average
balances of notes payable and other borrowings. There was also a decrease in the
weighted average cost of notes payable and other borrowings for the three and
nine months of 43 basis points and 105 basis points, respectively. Other
interest expense decreased $60,000 and $120,000 for the three and nine months
ended December 31, 2002, as compared to the same periods in the prior year.
Provision for Loan Losses. Provision for loan losses increased $300,000 to
$450,000 and increased $440,000 to $1.4 million for the three- and nine-month
periods ended December 31, 2002 compared to the same periods for the prior year.
The provisions were based on management's ongoing evaluation of asset quality
and reflects losses that are inherent in the loan portfolio.
Average Interest-Earning Assets, Average Interest-Bearing Liabilities and
Interest Rate Spread. The following tables show the Corporation's average
balances, interest, average rates, net interest margin and the spread between
the combined average rates earned on interest-earning assets and average cost of
interest-bearing liabilities for the periods indicated. The average balances are
derived from average daily balances.
12
THREE MONTHS ENDED DECEMBER 31,
-------------------------------------------------------------------------
2002 2001
---------------------------------- ----------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST (1) BALANCE INTEREST COST (1)
-------------------------------------------------------------------------
(Dollars In Thousands)
INTEREST-EARNING ASSETS
Mortgage loans (2) $2,053,483 $ 35,164 6.85% $2,021,719 $ 39,711 7.86%
Consumer loans (2) 467,950 8,175 6.99 445,755 8,843 7.94
Commercial business loans(2) 133,692 2,165 6.48 109,061 1,651 6.06
---------- -------- ---------- --------
Total loans receivable (2) 2,655,125 45,504 6.86 2,576,535 50,205 7.79
Mortgage-related securities 349,653 4,918 5.63 321,717 4,807 5.98
Investment securities 92,348 709 3.07 120,384 921 3.06
Interest-bearing deposits 168,942 519 1.23 84,915 511 2.41
Federal Home Loan Bank stock 55,312 837 6.05 47,021 704 5.99
---------- -------- ---------- --------
Total interest-earning assets 3,321,380 52,487 6.32 3,150,572 57,148 7.26
-------- --------
Non-interest-earning assets 239,631 236,115
---------- ----------
Total assets $3,561,011 $3,386,687
========== ==========
INTEREST-BEARING LIABILITIES
Demand deposits $ 816,307 1,457 0.71 $ 735,064 2,548 1.39
Regular passbook savings 185,832 409 0.88 148,763 430 1.16
Certificates of deposit 1,620,691 14,311 3.53 1,531,023 20,147 5.26
---------- -------- ---------- --------
Total deposits 2,622,830 16,177 2.47 2,414,850 23,125 3.83
Notes payable and other borrowings 567,578 6,484 4.57 643,463 8,049 5.00
Other 16,559 127 3.07 19,378 187 3.86
---------- -------- ---------- --------
Total interest-bearing liabilities 3,206,967 22,788 2.84 3,077,691 31,361 4.08
-------- -------- -------- --------
Non-interest-bearing liabilities 60,514 68,152
---------- ----------
Total liabilities 3,267,481 3,145,843
Stockholders' equity 293,530 240,844
---------- ----------
Total liabilities and stockholders' equity $3,561,011 $3,386,687
========== ==========
Net interest income/interest rate spread $ 29,699 3.48% $ 25,787 3.18%
======== ========
Net interest-earning assets $ 114,413 $ 72,881
========== ==========
Net interest margin 3.58% 3.27%
======== ========
Ratio of average interest-earning assets
to average interest-bearing liabilities 1.04 1.02
========== ==========
- -----------------------------
(1) Annualized
(2) The average balances of loans include non-performing loans, interest of
which is recognized on a cash basis.
13
NINE MONTHS ENDED DECEMBER 31,
-------------------------------------------------------------------------
2002 2001
---------------------------------- ----------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST (1) BALANCE INTEREST COST (1)
-------------------------------------------------------------------------
(Dollars In Thousands)
INTEREST-EARNING ASSETS
Mortgage loans (2) $2,090,319 $110,385 7.04% $1,986,772 $114,580 7.69%
Consumer loans (2) 435,004 24,432 7.49 453,998 27,955 8.21
Commercial business loans(2) 120,760 6,178 6.82 98,675 5,217 7.05
---------- -------- ---------- --------
Total loans receivable (2) 2,646,083 140,995 7.10 2,539,445 147,752 7.76
Mortgage-related securities 285,801 13,059 6.09 334,742 15,771 6.28
Investment securities 117,116 2,486 2.83 96,405 2,883 3.99
Interest-bearing deposits 157,140 1,531 1.30 67,920 1,586 3.11
Federal Home Loan Bank stock 53,909 2,198 5.44 41,623 1,936 6.20
---------- -------- ---------- --------
Total interest-earning assets 3,260,049 160,269 6.55 3,080,135 169,928 7.36
-------- --------
Non-interest-earning assets 220,596 125,762
---------- ----------
Total assets $3,480,645 $3,205,897
========== ==========
INTEREST-BEARING LIABILITIES
Demand deposits $ 730,551 5,081 0.93 $ 674,007 9,958 1.97
Regular passbook savings 175,459 1,327 1.01 139,629 1,306 1.25
Certificates of deposit 1,612,211 44,940 3.72 1,437,352 60,758 5.64
---------- -------- ---------- --------
Total deposits 2,518,221 51,348 2.72 2,250,988 72,022 4.27
Notes payable and other borrowings 621,400 20,522 4.40 669,492 27,369 5.45
Other 11,775 346 3.92 16,075 462 3.83
---------- -------- ---------- --------
Total interest-bearing liabilities 3,151,396 72,216 3.06 2,936,555 99,853 4.53
-------- --------- -------- --------
Non-interest-bearing liabilities 34,589 36,970
---------- ----------
Total liabilities 3,185,985 2,973,525
Stockholders' equity 294,660 232,372
---------- ----------
Total liabilities and stockholders' equity $3,480,645 $3,205,897
========== ==========
Net interest income/interest rate spread $ 88,053 3.49% $ 70,075 2.83%
======== ========= ======== ========
Net interest-earning assets $ 108,653 $ 143,580
========== ==========
Net interest margin 3.60% 3.03%
========= ========
Ratio of average interest-earning assets
to average interest-bearing liabilities 1.03 1.05
========== ==========
- -----------------------------
(1) Annualized
(2) The average balances of loans include non-performing loans, interest of
which is recognized on a cash basis.
14
Non-Interest Income. Non-interest income increased $4.5 million to $9.0 million
and $6.8 million to $21.4 million, respectively, for the three and nine months
ended December 31, 2002 as compared to $4.4 million and $14.6 million for the
same periods in the prior year, primarily due to an increase in gain on sale of
loans of $5.3 million and $8.7 million, respectively. These increases were due
to an increase in the gain on sale of loans due to higher volume of loan
originations as a result of the low interest rate environment. In addition,
other non-interest income, which includes a variety of loan fee and other
miscellaneous fee income, increased $1.7 million and $880,000 for the respective
three- and nine-month periods ended December 31, 2002 largely due to FASB No.133
hedge income. Service charges on deposit accounts increased $160,000 and
$560,000, respectively, for the three and nine months ended December 31, 2002.
Net income from operations of real estate investments increased $460,000 and
$80,000, respectively, for the three- and nine-month periods ended December 31,
2002 as compared to the same periods in the prior year. Net gain on sale of
investments and mortgage-related securities increased $210,000 and $140,000
respectively, for the three and nine months ended December 31, 2002. Insurance
commissions decreased $50,000 and increased $340,000 for the respective three-
and nine-month periods. These increases were partially offset by a decrease in
loan servicing income of $3.3 million and $3.9 million during the three and nine
months ended December 31, 2002, respectively, as compared to the same periods in
the prior year, due primarily to increased amortization of mortgage servicing
rights, which resulted from increases in mortgage loan refinancing in the
declining interest rate environment.
Non-Interest Expense. Non-interest expense increased $750,000 to $16.5 million
and $5.8 million to $49.9 million, respectively, for the three and nine months
ended December 31, 2002 as compared to $15.8 million and $44.1 million for the
same periods in 2001, as a result of several factors. Compensation expense
increased $800,000 and $3.1 million, respectively, for the three- and nine-month
periods compared to the prior periods due primarily to an increase in incentive
compensation resulting from increased loan production and increased employee
benefits such as health insurance. In addition, occupancy expense increased
$270,000 and $870,000, respectively, for the three and nine months ended
December 31, 2002 as compared to the same periods in the prior year due largely
to increased maintenance and repairs expense. Furniture and equipment expense
increased $250,000 and $560,000, in the three and nine months, respectively. In
addition, data processing expense increased $90,000 and $520,000, respectively,
for the three- and nine-month periods ended December 31, 2002 as compared to the
same periods in the prior year primarily due to increased lease payments on
computer equipment, line charges and support services. Other non-interest
expense decreased $770,000 and increased $410,000, respectively, for the three
and nine months largely due to increased postage, telephone and other
miscellaneous expense. Marketing expense increased $100,000 and $290,000,
respectively, for the three- and nine-month periods ended December 31, 2002 as
compared to the same periods in the prior year.
Income Taxes. Income tax expense increased $2.8 million and $7.3 million during
the three and nine months ended December 31, 2002, respectively, as compared to
the same periods in 2001. The effective tax rate was 38.1% and 37.7%,
respectively, for the current three- and nine-month periods, as compared to
38.3% and 37.0% for the three- and nine-month periods last year.
15
FINANCIAL CONDITION
During the nine months ended December 31, 2002, the Corporation's assets
increased by $14.5 million from $3.51 billion at March 31, 2002 to $3.52
billion. The majority of this increase was attributable to increases in loans
and mortgage-related securities, which was partially offset by decreases in
other categories such as cash and cash equivalents and investments.
Total loans (including loans held for sale) increased $74.6 million during the
nine months ended December 31, 2002. Activity for the period consisted of (i)
originations and purchases of $1.62 billion, (ii) sales of $1.25 billion, and
(iii) principal repayments and other adjustments of $295.4 million.
Mortgage-related securities (both available for sale and held to maturity)
increased $28.1 million during the nine months ended December 31, 2002 as a
result of purchases of $58.2 million and principal repayments and other
adjustments of $2.2 million. This increase was partially offset by sales of
$32.4 million of mortgage-related securities in this nine-month period.
Mortgage-related securities consisted of $259.4 million of mortgage-backed
securities and $54.3 million of Collateralized Mortgage Obligations ("CMO's")
and Real Estate Mortgage Investment Conduits ("REMIC's") at December 31, 2002.
The Corporation invests in corporate CMOs and agency-issued REMICs. These
investments are deemed to have limited credit risk. The investments do have
interest rate risk due to, among other things, actual prepayments being more or
less than those predicted at the time of purchase. The Corporation invests only
in short-term tranches in order to limit the reinvestment risk associated with
greater than anticipated prepayments, as well as changes in value resulting from
changes in interest rates.
Investment securities (both available for sale and held to maturity) decreased
$2.3 million during the nine months ended December 31, 2002 as a result of sales
and maturities of $333.4 million of U.S. Government and agency securities, which
were substantially offset by purchases of $332.6 million of such securities.
Total liabilities decreased $3.7 million during the nine months ended December
31, 2002. This decrease was largely due to a $52.8 million decrease in FHLB
advances and other borrowings and a $6.9 million decrease in advance payments by
borrowers for taxes and insurance during the nine months ended December 31,
2002. These decreases were partially offset by a $34.7 million increase in other
liabilities and a $21.3 million increase in deposits during the nine-month
period. Brokered deposits have been used in the past and may be used in the
future as the need for funds requires them. Brokered deposits totaled $236.0
million at December 31, 2002 and generally mature within one to five years.
Stockholders' equity increased $18.2 million during the nine months ended
December 31, 2002 as a net result of (i) comprehensive income of $39.9 million,
(ii) stock options exercised of $6.2 million (with the excess of the cost of
treasury shares over the option price ($4.4 million) charged to retained
earnings), (iii) the purchase of stock by retirement plans of $890,000 (with the
excess of the cost of treasury shares over the option price ($52,000) charged to
retained earnings), and (iv) benefit plan shares earned and related tax
adjustments totaling $1.8 million. These increases were partially offset by (i)
purchases of treasury stock of $19.6 million and (ii) cash dividends of $6.5
million.
16
ASSET QUALITY
Loans are placed on non-accrual status when, in the judgment of management, the
probability of collection of interest is deemed to be insufficient to warrant
further accrual. When a loan is placed on non-accrual status, previously accrued
but unpaid interest is deducted from interest income. As a matter of policy, the
Corporation does not accrue interest on loans past due 90 days or more.
Non-performing assets increased $50,000 at December 31, 2002 from March 31, 2002
and remained constant as a percentage of total assets to at 0.30% at such dates,
respectively.
Non-performing assets are summarized as follows at the dates indicated:
AT MARCH 31,
AT DECEMBER 31, --------------------------------------
2002 2002 2001 2000
--------------- --------------------------------------
(Dollars In Thousands)
Non-accrual loans:
Single-family residential $ 6,236 $ 4,505 $ 2,572 $ 2,582
Multi-family residential -- 187 372 3
Commercial real estate 1,697 2,212 650 126
Construction and land -- 168 257 --
Consumer 625 933 499 571
Commercial business 446 1,037 697 332
-------- -------- -------- --------
Total non-accrual loans 9,004 9,042 5,047 3,614
Real estate held for development and sale 65 74 352 1,691
Foreclosed properties and repossessed assets, net 1,570 1,475 313 272
-------- -------- -------- --------
Total non-performing assets $ 10,638 $ 10,591 $ 5,712 $ 5,577
======== ======== ======== ========
Performing troubled debt restructurings $ 2,594 $ 403 $ 300 $ 144
======== ======== ======== ========
Total non-accrual loans to total loans 0.31% 0.32% 0.20% 0.15%
Total non-performing assets to total assets 0.30 0.30 0.18 0.19
Allowance for loan losses to total loans 1.03 1.09 0.94 1.00
Allowance for loan losses to total
non-accrual loans 328.81 346.04 477.04 675.26
Allowance for loan and foreclosure losses
to total non-performing assets 283.28 300.05 422.16 439.63
Non-accrual loans decreased $40,000 during the nine months ended December 31,
2002. At December 31, 2002, there was one non-accrual commercial real estate
loan with a carrying value greater than $1.0 million. The loan is a loan
participation which is secured by a 161 unit motel located in Schiller Park,
Illinois, which had a carrying value of $1.5 million at December 31, 2002. The
original loan was for $13.1 million, of which the Bank is an 11.5% participant.
Non-performing real estate held for development and sale remained relatively
constant for the nine months ended December 31, 2002.
Foreclosed properties and repossessed assets increased $100,000 for the nine
months ended December 31, 2002. There were no foreclosed properties and
repossessed assets with a carrying value greater than $1.0 million at December
31, 2002.
Performing troubled debt restructurings increased $2.2 million during the nine
months ended December 31, 2002. This increase was attributable to a commercial
real estate property secured by a 182 room lodge located in Sonoma,
17
California, with a carrying value of $2.0 million, which was acquired in the
acquisition of Ledger Capital Corp. on November 10, 2001.
At December 31, 2002, assets that the Corporation has classified as substandard,
net of reserves, consisted of $22.2 million of loans and foreclosed properties.
As of March 31, 2002, substandard assets amounted to $24.7 million. The decrease
of $2.5 million in substandard assets was not attributable to any one specific
loan.
A summary of the details regarding impaired loans follows (in thousands):
AT DECEMBER 31, AT MARCH 31,
--------------- ------------------------------------
2002 2002 2001 2000
--------------- ------------------------------------
Impaired loans with valuation
reserve required $ 8,490 $ 11,467 $ 964 $ 5,637
Less:
Specific valuation allowance 3,380 4,240 615 952
-------- -------- -------- --------
Total impaired loans $ 5,110 $ 7,227 $ 349 $ 4,685
======== ======== ======== ========
Average impaired loans $ 6,467 $ 6,216 $ 3,301 $ 5,731
Interest income recognized
on impaired loans $ 504 $ 740 $ 43 $ 431
The following table sets forth information relating to the Corporation's loans
that were less than 90 days delinquent at the dates indicated.
AT MARCH 31,
AT DECEMBER 31, -------------------------------------
2002 2002 2001 2000
--------------- -------------------------------------
(In Thousands)
30 to 59 days $ 9,514 $ 17,647 $ 7,141 $ 3,224
60 to 89 days 1,201 2,671 716 903
-------- -------- -------- --------
Total $ 10,715 $ 20,318 $ 7,857 $ 4,127
======== ======== ======== ========
The Corporation's loan portfolio, foreclosed properties and repossessed assets
are evaluated on a continuing basis to determine the necessity for additions to
the allowance for losses and the related balance in the allowances. These
evaluations consider several factors, including, but not limited to, general
economic conditions, loan portfolio composition, loan delinquencies, prior loss
experience, collateral value, anticipated loss of interest and management's
estimation of future losses. The evaluation of the allowance for loan losses
includes a review of known loan problems as well as inherent problems based upon
historical trends and ratios. Foreclosed properties are recorded at the lower of
carrying value or fair value with charge-offs, if any, charged to the allowance
for loan losses prior to transfer to foreclosed property. The fair value is
primarily based on appraisals, discounted cash flow analysis (the majority of
which are based on current occupancy and lease rates) and pending offers.
18
A summary of the activity in the allowance for losses on loans follows:
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------ ------------------------
2002 2001 2002 2001
------------------------ ------------------------
(Dollars In Thousands)
Allowance at beginning of period $ 30,760 $ 23,773 $ 31,065 $ 24,076
Purchase of Ledger Capital Corp -- 8,438 -- 8,438
Charge-offs:
Mortgage (395) (11) (846) (551)
Consumer (104) (153) (479) (537)
Commercial business (1,257) (484) (1,754) (689)
-------- -------- -------- --------
Total charge-offs (1,756) (648) (3,079) (1,777)
Recoveries:
Mortgage 126 17 130 19
Consumer 16 8 41 30
Commercial business 9 6 98 48
-------- -------- -------- --------
Total recoveries 151 31 269 97
-------- -------- -------- --------
Net charge-offs (1,605) (617) (2,810) (1,680)
Provision for loan losses 450 150 1,350 910
-------- -------- -------- --------
Allowance at end of period $ 29,605 $ 31,744 $ 29,605 $ 31,744
======== ======== ======== ========
Net charge-offs to average loans (0.24)% (0.10)% (0.21)% (0.13)%
======== ======== ======== ========
Although management believes that the December 31, 2002 allowance for loan
losses is adequate based upon the current evaluation of loan delinquencies,
non-accrual loans, charge-off trends, economic conditions and other factors,
there can be no assurance that future adjustments to the allowance, which could
adversely affect the Corporation's results of operations, will not be necessary.
Management also continues to pursue all practical and legal methods of
collection, repossession and disposal, as well as adhering to high underwriting
standards in the origination process, in order to maintain strong asset quality.
LIQUIDITY AND CAPITAL RESOURCES
On an unconsolidated basis, the Corporation's sources of funds include dividends
from its subsidiaries, including the Bank, interest on its investments and
returns on its real estate held for sale. The Bank's primary sources of funds
are payments on loans and securities, deposits from retail and wholesale
sources, advances and other borrowings.
At December 31, 2002, the Corporation had outstanding commitments to originate
loans of $200.1 million, commitments to extend funds to, or on behalf of,
customers pursuant to lines and letters of credit of $211.5 million and loans
sold with recourse to the Corporation in the event of default by the borrower of
$372,000. The Corporation had sold loans with recourse in the amount of $8.3
million through the FHLB Mortgage Partnership Finance Program at December 31,
2002. Scheduled maturities of certificates of deposit during the twelve months
following December 31, 2002 amounted to $972.6 million and scheduled maturities
of FHLB advances during the same period totaled $133.0 million. At December 31,
2002, the Corporation had no reverse repurchase agreements. Management believes
adequate capital and borrowings are available from various sources to fund all
commitments to the extent required.
19
The Bank is required by the Office of Thrift Supervision ("OTS") to maintain
liquid investments in qualifying types of U.S. Government and agency securities
and other investments sufficient to ensure its safe and sound operation. During
the quarter ended December 31, 2002, the Bank's average liquidity ratio was
20.25%, which was substantially in excess of applicable requirements.
Under federal law and regulation, the Bank is required to meet certain tangible,
core and risk-based capital requirements. Tangible capital generally consists of
stockholders' equity minus certain intangible assets. Core capital generally
consists of tangible capital plus qualifying intangible assets. The risk-based
capital requirements presently address credit risk related to both recorded and
off-balance sheet commitments and obligations. The OTS requirement for the core
capital ratio for the Bank is currently 3.00%. The requirement is 4.00% for all
but the most highly-rated financial institutions.
The following summarizes the Bank's capital levels and ratios and the levels and
ratios required by the OTS at December 31, 2002 and March 31, 2002 (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 DECEMBER 31, 2002:
Tier 1 capital
(to adjusted tangible assets) $256,970 7.46% $103,312 3.00% $172,186 5.00%
Risk-based capital
(to risk-based assets) 283,207 11.28 200,904 8.00 251,130 10.00
Tangible capital
(to tangible assets) 256,970 7.46 51,656 1.50 N/A N/A
AS OF MARCH 31, 2002:
Tier 1 capital
(to adjusted tangible assets) $250,688 7.31% $102,903 3.00% $171,505 5.00%
Risk-based capital
(to risk-based assets) 277,528 11.01 201,613 8.00 252,016 10.00
Tangible capital
(to tangible assets) 250,688 7.31 51,451 1.50 N/A N/A
20
The following table reconciles the Corporation's stockholders' equity to
regulatory capital at December 31, 2002 and March 31, 2002 (dollars in
thousands):
DECEMBER 31, MARCH 31,
-------------------------------
2002 2002
-------------------------------
Stockholders' equity of the Corporation $ 295,689 $ 277,512
Less: Capitalization of the Corporation and non-bank
subsidiaries (9,782) (523)
------------ ------------
Stockholders' equity of the Bank 285,907 276,989
Less: Intangible assets and other non-includable assets (28,937) (26,301)
------------ ------------
Tier 1 and tangible capital 256,970 250,688
Plus: Allowable general valuation allowances 26,237 26,840
------------ ------------
Risk based capital $ 283,207 $ 277,528
============ ============
ASSET/LIABILITY MANAGEMENT
The primary function of asset and liability management is to provide liquidity
and maintain an appropriate balance between interest-earning assets and
interest-bearing liabilities within specified maturities and/or repricing dates.
Interest rate risk is the imbalance between interest-earning assets and
interest-bearing liabilities at a given maturity or repricing date, and is
commonly referred to as the interest rate gap (the "gap"). A positive gap exists
when there are more assets than liabilities maturing or repricing within the
same time frame. A negative gap occurs when there are more liabilities than
assets maturing or repricing within the same time frame. During a period of
rising interest rates, a negative gap over a particular period would tend to
adversely affect net interest income over such period, while a positive gap over
a particular period would tend to result in an increase in net interest income
over such period.
The Corporation's strategy for asset and liability management is to maintain an
interest rate gap that minimizes the impact of interest rate movements on the
net interest margin. As part of this strategy, the Corporation sells
substantially all new originations of long-term, fixed-rate, single-family
residential mortgage loans in the secondary market, and invests in
adjustable-rate or medium-term, fixed-rate, single-family residential mortgage
loans, medium-term mortgage-related securities and consumer loans, which
generally have shorter terms to maturity and higher interest rates than
single-family mortgage loans.
The Corporation also originates multi-family residential and commercial real
estate loans, which generally have adjustable or floating interest rates and/or
shorter terms to maturity than conventional single-family residential loans.
Long-term, fixed-rate, single-family residential mortgage loans originated for
sale in the secondary market are generally committed for sale at the time the
interest rate is locked with the borrower. As such, these loans involve little
interest rate risk to the Corporation.
The calculation of a gap position requires management to make a number of
assumptions as to when an asset or liability will reprice or mature. Management
believes that its assumptions approximate actual experience and considers them
reasonable, although the actual amortization and repayment of assets and
liabilities may vary substantially. The cumulative net gap position at December
31, 2002 has not changed materially since March 31, 2002.
21
SEGMENT REPORTING
According to the materiality thresholds of SFAS No. 131, the Corporation is
required to report each operating segment based on materiality thresholds of ten
percent or more of certain amounts, such as revenue. Additionally, the
Corporation is required to report separate operating segments until the revenue
attributable to such segments is at least 75 percent of total consolidated
revenue. SFAS No. 131 allows the Corporation to combine operating segments, even
though they may be individually material, if the segments have similar basic
characteristics in the nature of the products, production processes, and type or
class of customer for products or services. Based on the above criteria, the
Corporation has two reportable segments.
COMMUNITY BANKING: This segment is the main basis of operation for the
Corporation and includes the branch network and other deposit support services;
origination, sales and servicing of one-to-four family loans; origination of
multifamily, commercial real estate and business loans; origination of a variety
of consumer loans; and sales of alternative financial investments such as tax
deferred annuities.
REAL ESTATE INVESTMENTS: The Corporation's non-banking subsidiary, IDI, and its
subsidiary, NIDI, invest in limited partnerships in real estate developments.
Such developments include recreational residential developments and industrial
developments (such as office parks).
The following represents reconciliations of reportable segment revenues, profit
or loss, and assets to the Corporation's consolidated totals for the three and
nine months ended December 31, 2002 and 2001, respectively.
22
THREE MONTHS ENDED DECEMBER 31, 2002
------------------------------------------------------------------------
CONSOLIDATED
REAL ESTATE COMMUNITY INTERSEGMENT FINANCIAL
INVESTMENTS BANKING ELIMINATIONS STATEMENTS
------------- ------------- ------------- -------------
(Dollars in thousands)
Interest income $ 97 $ 52,487 $ (97) $ 52,487
Interest expense 90 22,788 (90) 22,788
------------- ------------- ------------- -------------
Net interest income 7 29,699 (7) 29,699
Provision for loan losses -- 450 -- 450
------------- ------------- ------------- -------------
Net interest income after provision for
loan losses 7 29,249 (7) 29,249
Other income 3,001 9,187 (3,233) 8,955
Other expense 3,240 16,537 (3,240) 16,537
------------- ------------- ------------- -------------
Income (loss) before income taxes (232) 21,899 -- 21,667
Income tax expense (benefit) (303) 8,563 -- 8,260
------------- ------------- ------------- -------------
Net income $ 71 $ 13,336 $ -- $ 13,407
============= ============= ============= =============
Total assets $ 45,134 $ 3,476,402 $ -- $ 3,521,536
THREE MONTHS ENDED DECEMBER 31, 2001
-----------------------------------------------------------------------
CONSOLIDATED
REAL ESTATE COMMUNITY INTERSEGMENT FINANCIAL
INVESTMENTS BANKING ELIMINATIONS STATEMENTS
------------- ------------- ------------- -------------
(Dollars in thousands)
Interest income $ 27 $ 57,148 $ (27) $ 57,148
Interest expense 93 31,361 (93) 31,361
------------- ------------- ------------- -------------
Net interest income (loss) (66) 25,787 66 25,787
Provision for loan losses -- 150 -- 150
------------- ------------- ------------- -------------
Net interest income (loss) after provision for
loan losses (66) 25,637 66 25,637
Other income 2,688 5,127 (3,383) 4,432
Other expense 3,317 15,792 (3,317) 15,792
------------- ------------- ------------- -------------
Income (loss) before income taxes (695) 14,972 -- 14,277
Income tax expense (benefit) (320) 5,783 -- 5,463
------------- ------------- ------------- -------------
Net income (loss) $ (375) $ 9,189 $ -- $ 8,814
============= ============= ============= =============
Total assets $ 46,561 $ 3,532,885 $ -- $ 3,579,446
23
NINE MONTHS ENDED DECEMBER 31, 2002
-------------------------------------------------------------------------
CONSOLIDATED
REAL ESTATE COMMUNITY INTERSEGMENT FINANCIAL
INVESTMENTS BANKING ELIMINATIONS STATEMENTS
------------- ------------- ------------- -------------
(Dollars in thousands)
Interest income $ 161 $ 160,269 $ (161) $ 160,269
Interest expense 243 72,216 (243) 72,216
------------- ------------- ------------- -------------
Net interest income (loss) (82) 88,053 82 88,053
Provision for loan losses -- 1,350 -- 1,350
------------- ------------- ------------- -------------
Net interest income (loss) after provision for
loan losses (82) 86,703 82 86,703
Other income 11,761 21,974 (12,345) 21,390
Other expense 12,263 49,864 (12,263) 49,864
------------- ------------- ------------- -------------
Income (loss) before income taxes (584) 58,813 -- 58,229
Income tax expense (benefit) (505) 22,438 -- 21,933
------------- ------------- ------------- -------------
Net income (loss) $ (79) $ 36,375 $ -- $ 36,296
============= ============= ============= =============
Total assets $ 45,134 $ 3,476,402 $ -- $ 3,521,536
NINE MONTHS ENDED DECEMBER 31, 2001
-------------------------------------------------------------------------
CONSOLIDATED
REAL ESTATE COMMUNITY INTERSEGMENT FINANCIAL
INVESTMENTS BANKING ELIMINATIONS STATEMENTS
------------- ------------- ------------- -------------
(Dollars in thousands)
Interest income $ 156 $ 169,928 $ (156) $ 169,928
Interest expense 364 99,853 (364) 99,853
------------- ------------- ------------- -------------
Net interest income (loss) (208) 70,075 208 70,075
Provision for loan losses -- 910 -- 910
------------- ------------- ------------- -------------
Net interest income (loss) after provision for
loan losses (208) 69,165 208 69,165
Other income 13,862 15,227 (14,530) 14,559
Other expense 14,322 44,093 (14,322) 44,093
------------- ------------- ------------- -------------
Income (loss) before income taxes (668) 40,299 -- 39,631
Income tax expense (benefit) (598) 15,265 -- 14,667
------------- ------------- ------------- -------------
Net income (loss) $ (70) $ 25,034 $ -- $ 24,964
============= ============= ============= =============
Total assets $ 46,561 $ 3,532,885 $ -- $ 3,579,446
24
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Corporation's market rate risk has not materially changed from March
31, 2002. See the Corporation's Annual Report on Form 10-K for the year
ended March 31, 2002.
ITEM 4 CONTROLS AND PROCEDURES
Within 90 days prior to the date of this Quarterly Report, the Corporation
carried out an evaluation, under the supervision and the participation of
the Corporation's management, including the Corporation's Chief Executive
Office and Chief Financial Officer, of the effectiveness of the design and
operation of the Corporation's disclosure controls and procedures. Based
upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Corporation's disclosure controls and
procedures are effective. There were no significant changes in the
Corporation's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their
evaluation.
Disclosure controls and procedures are the controls and other procedures
of the Corporation that are designed to ensure that the information
required to be disclosed by the Corporation in its reports filed or
submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Corporation in its reports
filed under the Exchange Act is accumulated and communicated to the
Corporation's management, including the principal executive officer and
principal financial officer, as appropriate to allow timely decisions
regarding required disclosure.
PART II - OTHER INFORMATION
ITEM 1 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 2 CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5 OTHER INFORMATION.
None.
25
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS.
Exhibit 99.1 Certification of the Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. 1350)
Exhibit 99.2 Certification of the Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. 1350)
(B) REPORTS ON FORM 8-K.
None.
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANCHOR BANCORP WISCONSIN INC.
Date: February 10, 2003 By: /s/ Douglas J. Timmerman
------------------- --------------------------------------------
Douglas J. Timmerman, Chairman of the
Board, President and Chief Executive Officer
Date: February 10, 2003 By: /s/ Michael W. Helser
------------------- --------------------------------------------
Michael W. Helser, Treasurer and
Chief Financial Officer
27
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Douglas J. Timmerman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Anchor Bancorp
Wisconsin, Inc. (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 10, 2003 /s/ Douglas J. Timmerman
--------------------------------------------
Douglas J. Timmerman
Chairman, President and Chief Executive Officer
28
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael W. Helser, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Anchor Bancorp
Wisconsin, Inc. (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
annual report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: February 10, 2003 /s/ Michael W. Helser
--------------------------------------
Michael W. Helser
Chief Financial Officer and Treasurer
29