SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 53703
MADISON, WISCONSIN (Zip Code)
(Address of principal executive office)
(608) 252-8700
Registrant's telephone number, including area code
NOT APPLICABLE
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class: Common stock -- $.10 Par Value
Number of shares outstanding as of July 31, 1996: 4,664,335
<PAGE>
ANCHOR BANCORP WISCONSIN INC.
INDEX - FORM 10-Q
PART I - FINANCIAL INFORMATION PAGE #
------
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 1996
and March 31, 1996 2
Consolidated Statements of Income for the Three
Months Ended June 30, 1996 and 1995 3
Consolidated Statements of Cash Flows for the
Three Months Ended June 30, 1996 and 1995 4
Notes to Unaudited Consolidated Financial
Statements 6
Item 2 Management's Discussion and Analysis
Results of Operations 8
Financial Condition 10
Asset Quality 11
Liquidity & Capital Resources 14
Asset/Liability Management 15
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 18
Item 2 Changes in Securities 18
Item 3 Defaults Upon Senior Securities 18
Item 4 Submission of Matters to Vote of Security Holders 18
Item 5 Other Information 19
Item 6 Exhibits and Reports on Form 8-K 19
SIGNATURES 20
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<PAGE>
ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1996 1996
-------- ---------
(In Thousands)
<S> <C> <C>
ASSETS
Cash $ 34,382 $ 35,454
Federal funds sold 6,841 7,525
Interest-bearing deposits 719 710
---------- ----------
Cash and cash equivalents 41,942 43,689
Securities available for sale:
Investment securities 46,944 30,241
Mortgage-related securities 101,680 110,268
Securities held to maturity:
Investment securities (fair value of $5.5 million and 5,547 2,596
$2.6 million, respectively)
Mortgage-related securities (fair value of $135.4 million
and $109.9 million, respectively) 138,642 110,730
Loans receivable, net:
Held for sale 7,014 13,968
Held for investment 1,396,167 1,361,080
Foreclosed properties and repossessed assets, net 6,326 6,077
Real estate held for development and sale 12,363 13,640
Office properties and equipment 18,761 18,906
Federal Home Loan Bank stock--at cost 17,734 16,019
Accrued interest on investments and loans 12,629 11,549
Prepaid expenses and other assets 16,499 15,793
---------- ----------
Total assets $1,822,248 $1,754,556
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $1,270,622 $1,240,958
Advance payments by borrowers for taxes and insurance 15,257 7,938
Notes payable to Federal Home Loan Bank 348,669 316,869
Reverse repurchase agreements 46,517 47,582
Other loans payable 6,756 7,031
Other liabilities 16,532 15,776
---------- ----------
Total liabilities 1,704,353 1,636,154
---------- ----------
Preferred stock, $.10 par value, 5,000,000 shares
authorized, none outstanding -- --
Common stock, $.10 par value, 20,000,000 shares
authorized, 6,249,662 shares issued 625 625
Additional paid-in capital 50,086 50,086
Retained earnings 104,048 100,191
Less: Treasury stock (1,410,270 shares and 1,315,312 shares,
respectively) (32,496) (29,298)
Deferred compensation due employees (928) (928)
Common stock purchased by recognition plans (1,546) (1,546)
Unrealized losses on securities available for sale,
net of tax (1,894) (728)
---------- ----------
Total stockholders' equity 117,895 118,402
---------- ----------
Total liabilities and stockholders' equity $1,822,248 $1,754,556
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
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<PAGE>
ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1996 1995
---- ----
(In Thousands, Except Per Share Data)
<S> <C> <C>
Interest income:
Loans $29,725 $25,227
Mortgage-related securities 3,483 2,762
Investment securities 909 748
Interest-bearing deposits 174 53
------- -------
Total interest income 34,291 28,790
Interest expense:
Deposits 14,467 12,297
Notes payable and other borrowings 5,814 4,229
Other 109 106
------- -------
Total interest expense 20,390 16,632
------- -------
Net interest income 13,901 12,158
Provision for loan losses -- 175
------- -------
Net interest income after provision
for loan losses 13,901 11,983
Non-interest income:
Loan servicing income 704 626
Service charges on deposits 882 664
Insurance commissions 319 214
Net gain on sale of loans 157 132
Net loss on sale of securities -- --
Other 1,907 403
------- -------
Total non-interest income 3,969 2,039
Non-interest expenses:
Compensation 5,532 4,365
Occupancy 754 631
Federal insurance premiums 705 612
Furniture and equipment 720 530
Data processing 501 475
Marketing 518 445
Net cost of operations of foreclosure properties 28 11
Other 1,973 1,363
------- -------
Total non-interest expenses 10,731 8,432
------- -------
Income before income taxes 7,139 5,590
Income taxes 2,604 1,981
------- -------
Net income $ 4,535 $ 3,609
------- -------
------- -------
Earnings per share:
Primary $ 0.90 $ 0.70
Fully-diluted 0.89 0.70
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
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<PAGE>
ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-------------------
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,535 $ 3,609
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses on loans and real estate -- 225
Provision for depreciation and amortization 506 409
Loans originated for sale (39,546) (28,634)
Proceeds from sales of loans held for sale 46,657 23,045
Net gain on sales of loans and securities (157) (132)
Increase in accrued interest receivables (1,080) (632)
Increase in accrued interest payable 896 416
Decrease in accounts payable (1,857) (424)
Other 692 2,030
------- -------
Net cash provided (used) by operating activities 10,646 (88)
INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale -- 4,484
Purchase of investment securities available for sale (17,071) (16,194)
Purchase of investment securities held to maturity (2,950) --
Purchase of mortgage-related securities held to maturity (5,703) --
Principal collected on mortgage-related securities 15,004 7,699
Net increase in loans receivable (65,757) (33,163)
Purchase of office properties and equipment (355) (861)
Sales of real estate 1,958 580
Purchase of real estate held for sale (491) (40)
Increase in capitalized expense on real estate 3 (20)
------- -------
Net cash used by investing activities (75,362) (37,515)
</TABLE>
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<PAGE>
ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-------------------
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
FINANCING ACTIVITIES
Increase in deposits $ 29,065 $ 18,612
Increase in advance payments by
borrowers for taxes and insurance 7,319 6,045
Proceeds of notes payable to Federal Home Loan Bank 126,500 136,100
Repayment of notes payable to Federal Home Loan Bank (94,700) (116,850)
Decrease in securities sold under agreements to repurchase (1,065) --
Decrease in other loans payable (275) --
Treasury stock purchased (3,444) (4,192)
Sale of treasury stock for American purchase -- 3,486
Reissuance of treasury stock for options 60 23
Payments of cash dividends to stockholders (491) (403)
------- -------
Net cash provided by financing activities 62,969 42,821
------- -------
Increase (decrease) in cash and cash equivalents (1,747) 5,218
Cash and cash equivalents at beginning of year 43,689 28,865
------- -------
Cash and cash equivalents at end of year $ 41,942 $ 34,083
------- -------
------- -------
Supplementary cash flow information:
Cash paid or credited to accounts:
Interest on deposits and borrowings $ 15,736 $ 15,822
Income taxes 346 570
Non-cash transactions:
Mortgage loans transferred to loans held for sale -- 2,573
Loans transferred to foreclosed properties 404 479
Mortgage loans held for investment converted into
mortgage-backed securities 30,266 91,011
Securities available for sale market value adjustment (1,945) 908
American Equity BanCorp purchase:
Investment securities available for sale -- (2,390)
Mortgage-related securities available for sale -- (954)
Loans held for sale -- 5,969)
Loans receivable -- (85,244)
Office properties and equipment -- (1,314)
Federal Home Loan Bank stock -- (1,346)
Other assets -- (4,022)
Deposits -- 64,803
Notes payable to Federal Home Loan Bank -- 26,314
Other liabilities -- 1,038
Treasury stock issued -- 7,698
Other stockholders' equity -- 1,273
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
-5-
<PAGE>
ANCHOR BANCORP WISCONSIN INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The unaudited consolidated financial statements include the accounts and
results of operations of Anchor BanCorp Wisconsin Inc. (the "Corporation")
and its wholly-owned subsidiaries, AnchorBank, S.S.B. (the "Bank") and
Investment Directions, Inc. ("IDI"). The Bank's statements include its
wholly-owned subsidiaries, Anchor Insurance Services, Inc. ("AIS"), ADPC
Corporation ("ADPC"), Anchor Investment Corporation ("AIC"), Anchor Financial
Corp. ("AFC") and ADPC II LLC ("ADPC II"). 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 on the equity method. Partnerships over 50% ownership are
consolidated, with significant intercompany accounts eliminated.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the consolidated financial statements
have been included.
In preparing the consolidated financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates. The results of operations and other data
for the three month period ended June 30, 1996 are not necessarily indicative
of results that may be expected for any other interim period or the entire
year ending March 31, 1997. 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, 1996.
NOTE 3 - STOCKHOLDERS' EQUITY
On May 28, 1996, 1,200 shares of the management recognition plan were earned
by the recipients. During the quarter ended June 30, 1996, 7,400 shares of
stock options were exercised at a price of $8.00 per share. Treasury shares
were issued in exchange for the options using the last-in-first-out method.
The net loss of $186,000 was accounted for as an adjustment to retained
earnings. During the quarter ended June 30, 1996, the Corporation
repurchased 102,358 shares of common stock on the open market for an average
price of $33.65. On May 15, 1996, the Corporation paid out a cash dividend
of $.10 per share, amounting to $491,331.
-6-
<PAGE>
NOTE 4 - EARNINGS PER SHARE
Earnings per share for the three months ended June 30, 1996 and 1995 have
been determined by dividing net income for the respective periods by the
weighted average number of shares of common stock and common stock
equivalents outstanding. Stock options are regarded as common stock
equivalents and are therefore considered in both primary and fully diluted
earnings per share calculations. Common stock equivalents are computed using
the treasury stock method. The weighted average number of shares of common
stock and common stock equivalents outstanding for June 30, 1995 have been
adjusted to reflect the five-for-four stock split distributed on October,
1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------------------------------
1996 1995
------------------------- ------------------------
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
------- ------------- ------- -------------
<S> <C> <C> <C> <C>
Net income $4,535,277 $4,535,277 $3,609,156 $3,609,156
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares
outstanding 4,836,910 4,836,910 4,979,528 4,979,528
Common stock equivalents based on the
treasury stock method 229,559 233,406 184,804 187,369
---------- ---------- ---------- ----------
Total weighted average common shares
and equivalents outstanding 5,066,469 5,070,316 5,164,332 5,166,897
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per share $ 0.90 $ 0.89 $ 0.70 $ 0.70
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
NOTE 5 - CONTINGENT LIABILITIES
The Bank had previously entered into agreements whereby, for an annual fee,
certain mortgage-backed securities are pledged as collateral for industrial
revenue bonds for unrelated third party borrowers. At June 30, 1996,
mortgage-backed securities with a carrying value of approximately $3.1
million were pledged as collateral for industrial revenue bonds totalling
$2.6 million, which were current as of June 30, 1996.
NOTE 6 - SUBSEQUENT EVENTS
On July 23, 1996, the Corporation announced that its Board of Directors
declared an $.125 per share cash dividend to be paid on August 15, 1996 to
stockholders of record on August 1, 1996.
On July 23, 1996, the Corporation announced that its Board of Directors had
authorized the repurchase of up to 232,900 shares, or 5 percent, of the
outstanding common shares. Repurchased shares are held as treasury stock and
may be used for general corporate purposes.
-7-
<PAGE>
ANCHOR BANCORP WISCONSIN INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
GENERAL. Net income for the three months ended June 30, 1996 increased to
$4.5 million as compared to $3.6 million in the same period in the prior
year. The increase in net income for the period was largely due to (i) the
increase in net interest income of $1.8 million, (ii) the increase in
non-interest income of $1.9 million and (iii) the decrease in the provision
for loan losses of $175,000, which were partially offset by (i) the increase
in non-interest expenses of $2.3 million and (ii) the increase in income
taxes of $623,000.
NET INTEREST INCOME. Net interest income increased $1.8 million for the
three months ended June 30, 1996 compared to the same period in 1995. The
net interest margin decreased to 3.24% from 3.28% for the period. The
interest rate spread increased to 3.03% from 3.01% for the same period.
Interest income increased $5.5 million and interest expense increased $3.8
million for the three months ended June 30, 1996 as compared to the same
period in 1995.
Interest income on loans increased $4.5 million for the three month period
ended June 30, 1996 as compared to the same period in the prior year. This
was primarily a result of the increase of $169.0 million in the average
balance of loans for the period due to the increased origination of portfolio
loans. Interest income on mortgage-related securities increased $721,000 for
the same period due to the increase of $46.7 million in the average balance.
Interest expense on deposits increased $2.2 million for the three month
period ended June 30, 1996 as compared to the same period in 1995. The
increase was due primarily to the increase in the average balance of deposits
of $141.7 million, primarily as a result of deposits obtained through an
acquisition on June 30, 1995 and the promotion of a new market yield demand
deposit account. The average rate on deposits increased from 4.49% to 4.67%
during the three months ended June 30, 1996 and 1995, respectively, primarily
as a result of the above-described increases in deposits. Interest expense on
notes payable and other borrowings increased $1.6 million during the same
period. This was a result of an increase of $104.7 million in the average
balance of borrowings during the same period, as well as increases in the
weighted average rate paid on borrowings during the period.
PROVISION FOR LOAN LOSSES. Provision for loan losses decreased $175,000
during the three months ended June 30, 1996 as compared to the same period in
1995. See "Asset Quality" for further discussion.
NON-INTEREST INCOME. Non-interest income increased $1.9 million during the
three months ended June 30, 1996 as compared to the same period in the prior
year as a result of several factors. Service charges on deposits increased
$218,000 during the period due to increased fees for TYME transactions and
demand deposit returned checks. Other income increased $1.5 million due
primarily to increased partnership income from an unconsolidated partnership
of the Corporation ($717,000) and a consolidated partnership of IDI
($886,000), which were partially offset by decreases in various other income
items totalling $99,000.
-8-
<PAGE>
NON-INTEREST EXPENSE. Non-interest expense increased $2.3 million during the
three month period ended June 30, 1996 as compared to the same period in 1995
as a result of several factors. Compensation expense increased $1.2 million
due primarily to increases in staff, salaries and benefits as a result of
additional offices. Furniture and occupancy expenses increased $313,000
primarily due to increased depreciation and other costs from additional
offices. Other expenses increased $610,000 during the period due to
increases in goodwill amortization, legal fees and a minority interest in net
income of consolidated partnerships.
INCOME TAXES. Income tax expense increased $623,000 during the three months
ended June 30, 1996 as compared to the same period in 1995. The effective tax
rate for the current period was 36.5% as compared to 35.4% for the same
period last year.
The following table shows the Corporation's average balances, interest,
average rates and the spread between the combined average rates earned on
interest-earning assets and average cost of interest-bearing liabilities for
the periods indicated. The average balances are derived from average daily
balances.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------------------------------------------
1996 1995
------------------------------- ---------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST(1) BALANCE INTEREST COST(1)
------- -------- -------- ------- -------- -------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Mortgage loans $1,137,544 $22,561 7.93% $1,027,152 $19,917 7.76%
Consumer loans 258,394 6,409 9.92 208,810 4,728 9.06
Commercial business loans 29,829 755 10.12 20,842 582 11.17
---------- ------- ---------- -------
Total loans receivable 1,425,767 29,725 8.34 1,256,804 25,227 8.03
Mortgage-related securities 220,209 3,483 6.33 173,494 2,762 6.37
Investment securities 43,375 624 5.75 31,709 485 6.12
Interest-bearing deposits 11,381 174 6.12 3,526 53 6.01
Federal Home Loan Bank stock 16,936 285 6.73 16,256 263 6.47
---------- ------- ---------- -------
Total interest-earning assets 1,717,668 34,291 7.99 1,481,789 28,790 7.77
Non-interest-earning assets 64,771 49,015
---------- ----------
Total assets $1,782,439 $1,530,804
---------- ----------
---------- ----------
INTEREST-BEARING LIABILITIES
Demand deposits $ 278,649 1,782 2.56 $ 177,407 686 1.55
Regular passbook savings 106,365 608 2.29 106,241 603 2.27
Certificates of deposit 853,042 12,077 5.66 812,696 11,008 5.42
---------- ------- ---------- -------
Total deposits 1,238,056 14,467 4.67 1,096,344 12,297 4.49
Notes payable and other borrowings 393,794 5,814 5.91 289,102 4,229 5.85
Other 12,215 109 3.57 12,519 106 3.39
---------- ------- ---------- -------
Total interest-bearing liabilities 1,644,065 20,390 4.96 1,397,965 16,632 4.76
------- ----- ------ -----
Non-interest-bearing liabilities 18,188 18,384
---------- ----------
Total liabilities 1,662,253 1,416,349
Stockholders' equity 120,186 114,455
---------- ----------
Total liabilities and stockholders' equity $1,782,439 $1,530,804
---------- ----------
---------- ----------
Net interest income/interest rate spread $13,901 3.03% $12,158 3.01%
------- ----- ------- -----
------- ----- ------- -----
Net interest-earning assets $ 73,603 $ 83,824
---------- ----------
---------- ----------
Net interest margin 3.24% 3.28%
----- -----
----- -----
Ratio of average interest-earning assets
to average interest-bearing liabilities 1.04 1.06
---- ----
---- ----
</TABLE>
- -------------------
(1) Annualized
-9-
<PAGE>
FINANCIAL CONDITION
During the three months ended June 30, 1996, the Corporation increased its
assets $67.7 million to $1.82 billion. The majority of this increase was
attributable to increases in loans and securities.
Investment securities (both available for sale and held to maturity)
increased $19.7 million as a result of purchases of $20.0 million of U.S.
Government and agency securities which was partially offset by market value
and other adjustments of $400,000.
Mortgage-related securities (both available for sale and held to maturity)
increased $19.3 million as a result of (i) exchanges of $30.3 million of
loans held for investment for securities guaranteed by the Federal National
Mortgage Association and backed by such loans and (ii) purchases of $5.7
million. These increases were partially offset by principal repayments and
market value adjustments of $16.6 million. Mortgage-related securities
consisted of $208.3 million mortgage-backed securities and $32.0 million of
mortgage-derivative securities at June 30, 1996.
The Corporation's investments in mortgage-derivative securities are limited
to federal agency issued REMICs which represent an interest in
mortgage-backed securities. These investments are deemed to have limited
credit risk. The investments do have interest rate risk due to, among other
things, actual prepayments being more or less than those predicted at the
time of purchase. The Corporation invests only in short-term tranches in
order to limit the reinvestment risk associated with greater than anticipated
prepayments, as well as changes in value resulting from changes in interest
rates.
Total loans (including loans held for sale) increased $28.1 million during
the three months ended June 30, 1996. Activity for the period included (i)
originations and purchases of $227.4 million, (ii) sales of $76.9 million,
which included exchanges of $30.3 million for mortgage-backed securities and
(iii) principal repayments and other adjustments of $122.4 million.
Deposits increased $29.7 million during the three months ended June 30, 1996.
The increase was due to an increase in brokered deposit accounts and a new
market yield demand deposit account. Brokered deposits have been used in the
last six months and may be used in the future as the need for funds requires
it. Brokered deposits totalled $39.8 million at June 30, 1996 and generally
mature in one year. FHLB advances increased $31.8 million. Reverse
repurchase agreements and other borrowings decreased $1.3 million during the
three months ended June 30, 1996. Advance payments by borrowers for taxes
and insurance increased $7.3 million.
Stockholders' equity decreased $507,000 during the three months ended June
30, 1996 as a net result of (i) net income of $4.5 million, (ii) stock
options exercised of $60,000, (iii) the increase in net unrealized losses of
available-for-sale securities of $1.2 million, (iv) treasury stock
repurchased of $3.4 million and (v) cash dividends of $491,000.
-10-
<PAGE>
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 (consisting of non-accrual loans, certain real estate
held for development and sale, foreclosed properties and repossessed assets)
increased to $11.8 million at June 30, 1996 from $10.3 million at March 31,
1996 and increased as a percentage of total assets to .65% from .59% at such
dates, respectively.
Non-performing assets are summarized as follows at the dates indicated:
<TABLE>
<CAPTION>
AT MARCH 31,
AT JUNE 30, --------------------------------
1996 1996 1995 1994
----------- ---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Non-accrual loans:
Single-family residential $ 1,445 $ 629 $ 833 $ 565
Multi-family residential -- -- -- 37
Commercial real estate 490 470 624 617
Construction and land -- 81 81 81
Consumer 317 202 219 333
Commercial business 483 508 736 831
------- ------- ------- -------
Total non-accrual loans 2,735 1,890 2,493 2,464
Real estate held for development and sale 2,778 2,319 857 2,767
Foreclosed properties and repossessed assets, net 6,326 6,077 7,116 5,294
------- ------- ------- -------
Total non-performing assets $11,839 $10,286 $10,466 $10,525
------- ------- ------- -------
------- ------- ------- -------
Performing troubled debt restructurings $ 331 $ 332 $ 335 $ 4,687
------- ------- ------- -------
------- ------- ------- -------
Total non-accrual loans to total loans 0.19% 0.13% 0.19% 0.22%
Total non-performing assets to total assets 0.65 0.59 0.69 0.76
Allowance for loan losses to total loans 1.55 1.59 1.75 1.98
Allowance for loan losses to total
non-accrual loans 835.06 1206.72 899.68 897.69
Allowance for loan and foreclosure losses
to total non-performing assets 198.92 228.70 221.82 213.42
</TABLE>
Non-accrual loans increased $845,000 during the three months ended June 30,
1996. The increase was primarily due to two loans, one loan secured by a
property in Lake Geneva, Wisconsin totalling $340,000 and the other loan
secured by a condominium unit in Vero Beach, Florida totalling $450,000,
which reverted back to the Bank as part of a lawsuit with the Bank.
Non-performing real estate held for development and sale increased $459,000
for the same period due to increased development costs in ADPC II.
Foreclosed properties and repossessed assets increased $249,000 during the
three months ended June 30, 1996.
-11-
<PAGE>
At June 30, 1996, there were no non-accrual loans with a carrying value of
greater than $1.0 million.
Foreclosed properties and repossessed assets included two properties with a
carrying value of greater than $1.0 million. The first is a hotel and office
building in Garden Grove, California. The Corporation's share of the net
carrying value of this property amounted to $3.4 million at June 30, 1996.
The owners have filed for bankruptcy.
The second property is an apartment complex in Elm Grove, Wisconsin, which
formerly secured a $2.2 million loan. Phase I studies of the environmental
impact indicated a need for a Phase II study based on the history of the
property, which the Bank is pursuing. The Bank believes any cleanup which
may be necessary will be partially reimbursed by the Petroleum Environmental
Cleanup Fund, although there can be no assurance in this regard. The Bank
also believes that in the event of any remaining environmental cleanup
liability that it will pursue reimbursement from the adjoining land owner,
which is believed to have caused the contamination. As a result, the Bank
does not anticipate incurring any cost at this time.
At June 30, 1996, the Bank's assets which have been classified by it pursuant
to Federal regulations consisted of $15.9 million of loans and foreclosed
properties classified as "substandard," net of reserves. As of March 31,
1996, the substandard assets amounted to $12.6 million. In each case, these
amounts included the above discussed non-performing assets.
The following table sets forth information relating to the Corporation's
loans which are less than 90 days delinquent at the dates indicated.
<TABLE>
<CAPTION>
AT MARCH 31,
AT JUNE 30, --------------------------------
1996 1996 1995 1994
----------- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
30 to 59 days $5,199 $5,776 $2,696 $8,258
60 to 89 days 3,086 789 1,099 884
------ ------ ------ ------
Total $8,285 $6,565 $3,795 $9,142
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
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
limited to, general economic conditions, loan portfolio composition, loan
delinquencies, prior loss experience, collateral value, anticipated loss of
interest and management's estimation of future potential losses. The
evaluation of the allowance for loan losses includes a review of known loan
problems as well as potential problems based upon historical trends and
ratios. Foreclosed properties are recorded at the lower of carrying value or
fair value with charge-offs, if any, charged to the allowance for loan losses
prior to transfer to foreclosed property. The fair value
-12-
<PAGE>
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 losses on loans follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
------------------
1996 1995
---- ----
(Dollars In Thousands)
<S> <C> <C>
Allowance at beginning of period $22,807 $22,429
Charge-offs:
Mortgage (40) (1)
Consumer (16) (16)
Commercial business (1) --
------- -------
Total charge-offs (57) (17)
Recoveries:
Mortgage 9 62
Consumer 2 4
Commercial business 78 9
------- -------
Total recoveries 89 75
------- -------
Net recoveries 32 58
Provision -- 175
Allowance from American -- 550
------- -------
Allowance at end of period $22,839 $23,212
------- -------
------- -------
Net recoveries to average loans 0.01% 0.02%
------- -------
------- -------
</TABLE>
Although management believes that the June 30, 1996 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.
-13-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On an unconsolidated basis, the Corporation's sources of funds include
dividends from the Bank, payments on its loans and returns on its real estate
held for sale. The Bank's primary sources of funds are payments on loans and
mortgage-related securities, deposits and advances.
At June 30, 1996, the Corporation had outstanding commitments to originate
loans of $46.1 million, commitments to extend funds to, or on behalf of
customers, pursuant to lines and letters of credit of $58.7 million, loans
sold with recourse to the Corporation in the event of default by the borrower
of $3.7 million and financial guarantees provided to holders of certain
industrial revenue bonds of $2.6 million. Scheduled maturities of
certificates of deposit during the twelve months following June 30, 1996
amounted to $589.3 million and scheduled maturities of FHLB advances during
the same period totalled $232.3 million. The Bank has entered into
agreements with certain brokers which 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.
The Bank is required by the Office of Thrift Supervision ("OTS") to maintain
specified levels of liquid investments in qualifying types of U.S. Government
and agency securities and other investments. This requirement, which may be
varied by the OTS, is based upon a percentage of deposits and short-term
borrowings. The required percentage is currently 5.0%. During the quarter
ended June 30, 1996, the Bank's average liquidity ratio was 11.25%.
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. As a state-chartered savings institution, the Bank is also
subject to the minimum regulatory capital requirements of the State of
Wisconsin.
-14-
<PAGE>
The following summarizes the Bank's capital levels and ratios and the levels
and ratios required by the OTS and the State of Wisconsin at June 30, 1996:
<TABLE>
<CAPTION>
STATE OF
TANGIBLE CORE RISK-BASED WISCONSIN
CAPITAL CAPITAL CAPITAL CAPITAL
-------- ------- ---------- ---------
<S> <C> <C> <C> <C>
Bank's stockholder's equity $107,028 $107,028 $107,028 $107,028
Adjustment for:
SFAS No.115 capital component 1,931 1,931 1,931 --
Allowable unallocated general
loss allowance -- -- 13,911 21,362
Goodwill and other (2,566) (2,566) (2,835) --
-------- -------- -------- --------
Total regulatory capital 106,393 106,393 120,035 128,390
Required amount 27,138 54,275 88,440 108,589
-------- -------- -------- --------
Excess $ 79,255 $ 52,118 $ 31,595 $ 19,801
-------- -------- -------- --------
-------- -------- -------- --------
Regulatory capital ratio 5.88% 5.88% 10.86% 7.09%
Required ratio 1.50 3.00 8.00 6.00
---- ---- ---- ----
Excess 4.38% 2.88% 2.86% 1.09%
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
The OTS has proposed to increase the core capital ratio from the current
3.00% to a range of 4.00% to 5.00% for all but the most healthy financial
institutions. The OTS has added an interest rate risk calculation such that
an institution with a measured interest rate risk exposure, as defined,
greater than specified levels must deduct an interest rate risk component
when calculating the OTS risk-based capital. Final implementation of this
rule was pending at June 30, 1996. Management does not believe these rules
will significantly impact the Bank's ability to meet the capital requirements.
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-
-15-
<PAGE>
family residential mortgage loans in the secondary market, invests in
adjustable-rate or medium-term, fixed-rate, single-family residential
mortgage loans, invests in medium-term mortgage-related securities and
invests in consumer loans which generally have shorter terms to maturity and
higher and/or adjustable interest rates.
The Corporation also originates multi-family residential and commercial real
estate loans, which generally have adjustable or floating interest rates
and/or shorter terms to maturity than conventional single-family residential
loans. Long-term, fixed-rate, single-family residential mortgage loans
originated for sale in the secondary market are generally committed for sale
at the time the interest rate is locked with the borrower. As such, these
loans involve little interest rate risk to the Corporation.
The Corporation's cumulative net gap position at June 30, 1996 for one year
or less was a positive 3.21% 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.
-16-
<PAGE>
The following table summaries the Corporation's interest rate sensitivity gap
position as of June 30, 1996.
<TABLE>
<CAPTION>
MORE THAN MORE THAN
WITHIN ONE TO THREE TO MORE THAN
ONE YEAR THREE YEARS FIVE YEARS FIVE YEARS TOTAL
--------- ----------- ---------- ---------- ------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1) (2):
Fixed $ 97,313 $ 69,257 $ 26,544 $ 17,152 $ 210,266
Variable 640,298 274,810 12,225 -- 927,333
Consumer loans (1) 175,267 61,614 19,527 4,742 261,150
Commercial business loans (1) 23,704 4,356 -- -- 28,060
Mortgage-related securities (3) 112,748 89,166 25,389 13,019 240,322
Investment securities and other
interest-earning assets (3) 33,111 9,187 17,753 -- 60,051
---------- -------- -------- -------- ----------
Total $1,082,441 $508,390 $101,438 $ 34,913 $1,727,182
---------- -------- -------- -------- ----------
---------- -------- -------- -------- ----------
Interest-bearing liabilities:
Deposits (4) $ 740,433 $335,372 $ 69,963 $ 40,910 $1,186,678
Borrowings 283,524 118,369 49 -- 401,942
---------- -------- -------- -------- ----------
Total $1,023,957 $453,741 $ 70,012 $ 40,910 $1,588,620
---------- -------- -------- -------- ----------
---------- -------- -------- -------- ----------
Interest sensitivity gap $ 58,484 $ 54,649 $ 31,426 $ (5,997) $ 138,562
---------- -------- -------- -------- ----------
---------- -------- -------- -------- ----------
Cumulative interest sensitivity gap $ 58,484 $113,133 $144,559 $138,562
---------- -------- -------- --------
---------- -------- -------- --------
Cumulative interest sensitivity gap
as a percent of total assets 3.21% 6.21% 7.93% 7.60%
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
(1) Balances have been reduced for (i) undisbursed loan proceeds, which
aggregated $46.8 million, and (ii) non-accrual loans, which amounted
to $2.7 million.
(2) Includes $7.0 million of loans held for sale spread throughout the
periods.
(3) Includes $148.6 million of securities available for sale spread
throughout the periods.
(4) Does not include $77.3 million of demand accounts because they are
non-interest-bearing. Also does not include accrued interest payable,
which amounted to $6.7 million. Projected decay rates for demand
deposits and passbook savings were provided by the OTS.
-17-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.
The Bank is involved in litigation relating to alleged structural
deficiencies of a property located in Vero Beach, Florida. The
Bank contracted for the completion of this property after it was
acquired by foreclosure and converted it into a condominium
complex. In January, 1993, the Bank and the Homeowners Association
which represents the condominium owners entered into a settlement
agreement which covers various repairs totalling $500,000 which the
Corporation accrued in September, 1992 and paid in January 1993, as
well as repairs which are related to the post-tension cable system,
an estimated amount of which was accrued by the Corporation in
September, 1993 but has not yet been paid. Three lawsuits have
been filed against the Bank in connection with the foregoing by
various owners of condominiums in the complex and the Homeowners
Association. During fiscal 1996, one trial involving an individual
homeowner was finished, of which the result relieved the Bank of
any claim for punitive and/or general damages, but provided the
owner with recision (return of the unit to the Bank). The Bank is
currently considering the alternatives of appeal and/or negotiated
settlement. Based on the outcome of the above described case and
the evaluation of the accruals by the Corporation to date,
management does not believe that the remaining litigation will have
a material adverse effect on the financial condition or operations
of the Corporation.
ITEM 2 CHANGES IN SECURITIES.
Not applicable
ITEM 3 DEFAULTS UPON SENIOR SECURITIES.
Not applicable
ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITIES HOLDERS.
The Annual Meeting of Stockholders was held on July 23, 1996.
There were 4,849,742 shares of common stock which could be voted
and 4,281,605 shares present at the meeting by the holders thereof
in person or by proxy, which constituted a quorum. The following
is a summary of the results of the vote.
-18-
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF VOTES
------------------
FOR WITHHELD
--- --------
<S> <C> <C>
Nominees for three-year term ending 1999:
Arlie M. Mucks 4,224,522 57,083
Pat Richter 4,232,640 48,965
Donald Kropidlowski 4,232,777 48,828
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
Appointment of Ernst & Young LLP as independent
auditor for year ending March 31, 1997 4,249,307 12,061 20,237
</TABLE>
ITEM 5 OTHER INFORMATION.
The Balanced Budget Act of 1995, which was passed by the U.S.
Congress but vetoed by the President of the United States in
December 1995, included provisions which would, among other things,
recapitalize the Savings Association Insurance Fund ("SAIF") which
provides the federal insurance of the Bank, with a one-time charge
on SAIF-insured institutions of at least approximately $.85 for
every $100 of assessable deposits, and provide for an eventual
merger of the SAIF and the Bank Insurance Fund administered by the
FDIC. Although legislative proposals containing similar provisions
to recapitalize SAIF continue to be made, the Bank currently is
unable to predict the likelihood of legislation effecting these
changes. If the proposed assessment of $.85 to $.90 per $100 of
assessable deposits was effected based on deposits as of March 31,
1995, as proposed, the Bank's pro rata share would amount to
approximately $9.3 million to $9.9 million, respectively, on a
pre-tax basis.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
None
(b) Reports of Form 8-K:
None
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANCHOR BANCORP WISCONSIN INC.
Date: July 31, 1996 By: /s/ Douglas J. Timmerman
--------------------- -----------------------------------------
Douglas J. Timmerman, Chairman of the Board,
President and Chief Executive Officer
Date: July 31, 1996 By: /s/ Michael W. Helser
--------------------- -----------------------------------------
Michael W. Helser, Treasurer and
Chief Financial Officer
-20-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1.00
<CASH> 34,382
<INT-BEARING-DEPOSITS> 719
<FED-FUNDS-SOLD> 6,841
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 148,624
<INVESTMENTS-CARRYING> 144,189
<INVESTMENTS-MARKET> 140,879
<LOANS> 1,469,301
<ALLOWANCE> 22,839
<TOTAL-ASSETS> 1,822,248
<DEPOSITS> 1,270,622
<SHORT-TERM> 283,524
<LIABILITIES-OTHER> 31,789
<LONG-TERM> 118,418
0
0
<COMMON> 50,711
<OTHER-SE> 67,184
<TOTAL-LIABILITIES-AND-EQUITY> 1,822,248
<INTEREST-LOAN> 29,275
<INTEREST-INVEST> 4,392
<INTEREST-OTHER> 174
<INTEREST-TOTAL> 34,291
<INTEREST-DEPOSIT> 14,467
<INTEREST-EXPENSE> 20,390
<INTEREST-INCOME-NET> 13,901
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,731
<INCOME-PRETAX> 7,139
<INCOME-PRE-EXTRAORDINARY> 7,139
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,535
<EPS-PRIMARY> .90
<EPS-DILUTED> .89
<YIELD-ACTUAL> 7.99
<LOANS-NON> 2,735
<LOANS-PAST> 0
<LOANS-TROUBLED> 331
<LOANS-PROBLEM> 15,855
<ALLOWANCE-OPEN> 22,807
<CHARGE-OFFS> 57
<RECOVERIES> 89
<ALLOWANCE-CLOSE> 22,839
<ALLOWANCE-DOMESTIC> 22,839
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 21,362
</TABLE>
