<PAGE> 1
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, 1997
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, 1997: 4,533,517
<PAGE> 2
ANCHOR BANCORP WISCONSIN INC.
INDEX - FORM 10-Q
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE #
------
<S> <C>
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 1997
and March 31, 1997 2
Consolidated Statements of Income for the Three
Months Ended June 30, 1997 and 1996 3
Consolidated Statements of Cash Flows for the Three Months
Ended June 30, 1997 and 1996 4
Notes to Unaudited Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis
Results of Operations 8
Financial Condition 11
Asset Quality 12
Liquidity & Capital Resources 15
Asset/Liability Management 16
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 19
Item 2 Changes in Securities 19
Item 3 Defaults Upon Senior Securities 19
Item 4 Submission of Matters to Vote of Security Holders 20
Item 5 Other Information 20
Item 6 Exhibits and Reports on Form 8-K 20
SIGNATURES 21
</TABLE>
1
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1997
-------------------------------
(In Thousands)
<S> <C> <C>
ASSETS
Cash $ 35,156 $ 31,482
Interest-bearing deposits 1,082 6,543
----------- -----------
Cash and cash equivalents 36,238 38,025
Securities available for sale:
Investment securities 58,573 35,569
Mortgage-related securities 75,520 80,300
Securities held to maturity:
Investment securities (fair value of $11.2 million and
$7.9 million, respectively) 11,197 7,947
Mortgage-related securities (fair value of $149.9 million and
$157.8 million, respectively) 150,815 160,101
Loans receivable, net:
Held for sale 8,780 5,348
Held for investment 1,487,727 1,461,423
Foreclosed properties and repossessed assets, net 4,875 4,222
Real estate held for development and sale 23,473 23,706
Office properties and equipment 19,187 18,662
Federal Home Loan Bank stock--at cost 20,233 18,981
Accrued interest on investments and loans 13,661 13,729
Prepaid expenses and other assets 15,587 16,970
----------- -----------
Total assets $ 1,925,866 $ 1,884,983
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 1,326,325 $ 1,312,445
Advance payments by borrowers for taxes and insurance 14,630 7,675
Federal Home Loan Bank and other borrowings 408,137 392,204
Reverse repurchase agreements 39,238 39,335
Other liabilities 17,689 15,437
----------- -----------
Total liabilities 1,806,019 1,767,096
----------- -----------
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 50,446 50,443
Retained earnings 114,555 110,735
Less: Treasury stock (1,725,295 shares and 1,668,315 shares,
respectively) (44,435) (41,937)
Common stock purchased by recognition plans (1,204) (1,246)
Net unrealized loss on securities available for sale,
net of tax (140) (733)
----------- -----------
Total stockholders' equity 119,847 117,887
----------- -----------
Total liabilities and stockholders' equity $ 1,925,866 $ 1,884,983
=========== ===========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
2
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------------
1997 1996
-------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C>
Interest income:
Loans $ 31,330 $ 29,725
Mortgage-related securities 3,736 3,483
Investment securities 999 909
Interest-bearing deposits 132 174
------------ -----------
Total interest income 36,197 34,291
Interest expense:
Deposits 15,700 14,467
Notes payable and other borrowings 6,566 5,814
Other 103 109
------------ -----------
Total interest expense 22,369 20,390
------------ -----------
Net interest income 13,828 13,901
Provision for loan losses - -
------------ -----------
Net interest income after provision
for loan losses 13,828 13,901
Non-interest income:
Loan servicing income 760 704
Service charges on deposits 955 882
Insurance commissions 267 319
Net gain on sale of loans 467 157
Net gain on sale of securities 25 -
Other 1,332 1,907
------------ -----------
Total non-interest income 3,806 3,969
Non-interest expenses:
Compensation 4,843 5,532
Occupancy 921 754
Federal insurance premiums 210 705
Furniture and equipment 869 720
Data processing 635 501
Marketing 567 518
Other 2,085 2,001
------------ -----------
Total non-interest expenses 10,130 10,731
------------ -----------
Income before income taxes 7,504 7,139
Income taxes 2,883 2,604
------------ -----------
Net income $ 4,621 $ 4,535
============ ===========
Earnings per share:
Primary $ 0.97 $ 0.90
Fully diluted 0.97 0.89
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
3
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1997 1996
---------------------------
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,621 $ 4,535
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses on loans and real estate - -
Provision for depreciation and amortization 577 506
Loans originated for sale (48,810) (39,546)
Proceeds from sales of loans held for sale 61,046 46,657
Net gain on sale of loans and securities (492) (157)
Decrease (increase) in accrued interest receivable 68 (1,080)
Increase (decrease) in accrued interest payable (361) 896
Decrease in accounts payable (154) (1,857)
Other 5,439 692
--------- --------
Net cash provided by operating activities 21,934 10,646
INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale 245 -
Proceeds from maturities of investment securities 1,000 -
Purchase of investment securities available for sale (22,850) (17,071)
Purchase of investment securities held to maturity (4,249) (2,950)
Purchase of mortgage-related securities held to maturity - (5,703)
Principal collected on mortgage-related securities 10,832 15,004
Net increase in loans receivable (42,106) (65,757)
Office properties and equipment, net (503) (355)
Sales of real estate 3,168 1,958
Acquisition and development of real estate held for sale (2,982) (488)
--------- --------
Net cash used by investing activities (57,445) (75,362)
</TABLE>
4
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-----------------------------
1997 1996
-----------------------------
(In Thousands)
<S> <C> <C>
FINANCING ACTIVITIES
Increase in deposit accounts $ 14,234 $ 29,065
Increase in advance payments by
borrowers for taxes and insurance 6,955 7,319
Proceeds of notes payable to Federal Home
Loan Bank 139,600 126,500
Repayment of notes payable to Federal Home
Loan Bank (120,600) (94,700)
Increase in securities sold under agreements
to repurchase (97) (1,065)
Decrease in other loans payable (3,067) (275)
Treasury stock purchased (2,705) (3,444)
Cash received from stock options exercised 41 60
Payments of cash dividends to stockholders (637) (491)
----------- --------
Net cash provided by financing activities 33,724 62,969
----------- --------
Decrease in cash and cash equivalents (1,787) (1,747)
Cash and cash equivalents at beginning of year 38,025 43,689
----------- --------
Cash and cash equivalents at end of year $ 36,238 $ 41,942
=========== ========
Supplementary cash flow information:
Interest paid (including amounts credited to
deposit accounts) $ 22,730 $ 15,736
Income taxes paid 55 771
Non-cash transactions:
Mortgage loans transferred to loans held for sale 15,201 -
Loans transferred to foreclosed properties 626 404
Mortgages loans held for investment converted into
mortgage-backed securities held to maturity - 30,266
Securities available for sale market value
adjustment 2,897 (1,945)
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
5
<PAGE> 7
ANCHOR BANCORP WISCONSIN INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The unaudited consolidated financial statements include the accounts and
results of operations of Anchor BanCorp Wisconsin Inc. (the "Corporation") and
its wholly-owned subsidiaries, AnchorBank, S.S.B. (the "Bank"), Investment
Directions, Inc. ("IDI") and Nevada Investment Directions, Inc. ("NIDI"). The
Bank's statements include its wholly-owned subsidiaries, Anchor Insurance
Services, Inc. ("AIS"), ADPC Corporation ("ADPC"), Anchor Investment
Corporation ("AIC"), 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 with 50%
ownership or more are consolidated, with significant intercompany accounts
eliminated.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") and with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the consolidated financial statements have been included.
In preparing the consolidated financial statements in conformity with GAAP,
management is required to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates. The results of
operations and other data for the three month period ended June 30, 1997 are
not necessarily indicative of results that may be expected for any other
interim period or the entire year ending March 31, 1998. 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, 1997.
NOTE 3 - STOCKHOLDERS' EQUITY
On May 18, 1997, 1,200 shares of the management recognition plan were earned by
the recipients. During the quarter ended June 30, 1997, options for 4,770
shares of common stock were exercised at a weighted price of $8.76 per share.
Treasury shares were issued in exchange for the options using the
last-in-first-out method. The excess of the cost of treasury shares over the
option price ($166,000) was charged to retained earnings. During the quarter
ended June 30, 1997, the Corporation repurchased 61,750 shares of common stock
on the open market for an average price of $43.81. On May 15, 1997, the
Corporation paid out a cash dividend of $.14 per share, amounting to $637,000.
6
<PAGE> 8
NOTE 4 - EARNINGS PER SHARE
Earnings per share for the three months ended June 30, 1997 and 1996 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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------------------------------------------------
1997 1996
---------------------------------------------------------------------
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
--------------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net income $ 4,621,056 $ 4,621,056 $ 4,535,277 $ 4,535,277
============ ============ =========== ============
Weighted average common shares
outstanding 4,497,906 4,497,906 4,836,910 4,836,910
Common stock equivalents based on the
treasury stock method 257,924 277,962 229,559 233,406
------------ ------------ ----------- ------------
Total weighted average common shares
and equivalents outstanding 4,755,830 4,775,868 5,066,469 5,070,316
============ ============ =========== ============
Earnings per share $ 0.97 $ 0.97 $ 0.90 $ 0.89
============ ============ =========== ============
</TABLE>
NOTE 5 - SUBSEQUENT EVENTS
On July 22, 1997, the Corporation declared a $.16 per share cash dividend to be
paid on August 15, 1997 to stockholders of record on August 1, 1997. The
Corporation also declared a 2 for 1 stock split effective August 15, 1997 for
shareholders of record on August 1, 1997.
7
<PAGE> 9
ANCHOR BANCORP WISCONSIN INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
General. Net income for the three months ended June 30, 1997 increased
$100,000 to $4.6 million from $4.5 million for the same period in the prior
year. The increase in net income for the three month period compared to last
year was largely due to the increase in interest income of $1.9 million and a
decrease in non-interest expense of $601,000 which were largely offset by (i)
an increase in interest expense of $2.0 million combined with (ii) a decrease
in non-interest income of $163,000, and (iii) an increase in income taxes of
$279,000.
Net Interest Income. Net interest income decreased $73,000 for the three
months ended June 30, 1997 compared to the same period in 1996. The net
interest margin decreased to 3.02% from 3.24% for the three month period. The
interest rate spread decreased to 2.85% from 3.03% for the three month period.
Interest income on loans increased $1.6 million for the three month period
ended June 30, 1997 as compared to the same period in the prior year. This
increase was a result of the increase of $84.8 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 $253,000 for the same
period due primarily to the increase of $11.4 million in the average balance of
mortgage-related securities.
Interest expense on deposits increased $1.2 million for the three month period
ended June 30, 1997 as compared to the same period in 1996. The increase was
due primarily to the increase in the average balance of deposits of $76.5
million as a result of various demand deposit and certificate promotions. In
addition, the average rate on deposits increased from 4.67% to 4.78% during
the three months ended June 30, 1997 and 1996, respectively, primarily as a
result of the above-described deposit promotions. Interest expense on notes
payable and other borrowings increased $752,000 during the same period. This
was a result of an increase of $49.6 million in the average balance of
borrowings during the same period.
8
<PAGE> 10
The following tables show the Corporation's average balances, interest, average
rates and the spread between the combined average rates earned on
interest-earning assets and average cost of interest-bearing liabilities for
the periods indicated. The average balances are derived from average daily
balances.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------
1997 1996
----------------------------------- -----------------------------------
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 $1,149,043 $ 23,243 8.09% $1,137,544 $ 22,561 7.93%
Consumer loans 332,685 7,332 8.82 258,394 6,409 9.92
Commercial business loans 28,873 755 10.46 29,829 755 10.12
---------- -------- ---------- --------
Total loans receivable 1,510,601 31,330 8.30 1,425,767 29,725 8.34
Mortgage-related securities 231,656 3,736 6.45 220,209 3,483 6.33
Investment securities 58,275 667 4.58 43,375 624 5.75
Interest-bearing deposits 9,704 132 5.44 11,381 174 6.12
Federal Home Loan Bank stock 19,751 332 6.72 16,936 285 6.73
---------- -------- ---------- --------
Total interest-earning assets 1,829,987 36,197 7.91 1,717,668 34,291 7.99
Non-interest-earning assets 77,689 64,771
---------- ----------
Total assets $1,907,676 $1,782,439
========== ==========
INTEREST-BEARING LIABILITIES
Demand deposits $ 311,807 2,246 2.88 $ 278,649 1,782 2.56
Regular passbook savings 100,842 572 2.27 106,365 608 2.29
Certificates of deposit 901,930 12,882 5.71 853,042 12,077 5.66
---------- -------- ---------- --------
Total deposits 1,314,579 15,700 4.78 1,238,056 14,467 4.67
Notes payable and other borrowings 443,385 6,566 5.92 393,794 5,814 5.91
Other 11,539 103 3.57 12,215 109 3.57
---------- -------- ---------- --------
Total interest-bearing liabilities 1,769,503 22,369 5.06 1,644,065 20,390 4.96
Non-interest-bearing liabilities 14,166 -------- ---- 18,188 -------- ----
---------- ----------
Total liabilities 1,783,669 1,662,253
Stockholders' equity 124,007 120,186
---------- ----------
Total liabilities and stockholders' equity $1,907,676 $1,782,439
========== ==========
Net interest income/interest rate spread $ 13,828 2.85% $ 13,901 3.03%
======== ==== ======== ====
Net interest-earning assets $ 60,484 $ 73,603
========== ==========
Net interest margin 3.02% 3.24%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 1.03 1.04
==== ====
</TABLE>
- ---------------------------------
(1) Annualized
9
<PAGE> 11
Non-Interest Income. Non-interest income decreased $163,000 during the three
months ended June 30, 1997 as compared to the same period in the prior year as
a result of several factors. The net gain on sale of loans increased $310,000,
service charges on deposits increased $73,000, and net gain on sale of
securities increased $25,000 for the same period. These items were, however,
offset because other income decreased $575,000. This decrease was due
primarily to decreased investment income from the Corporation.
Non-Interest Expense. Non-interest expense decreased $600,000 during the three
month period ended June 30, 1997 as compared to the same period in 1996 as a
result of several factors. Compensation expense decreased $689,000 due
primarily to the retirement of higher salaried individuals and the elimination
of the cost associated with the Employee Stock Ownership Plan. Furniture and
occupancy expenses increased $316,000 largely due to increased depreciation and
other costs from additional offices. This was combined with an increase in
data processing expense of $134,000 as well as an increase in other expenses of
$110,000, the latter of which stemmed from telephone and stationary expenses.
These increases, however, were offset by the reduction of the federal insurance
premium of $495,000, for the same period, stemming from the recapitalization of
the Savings Association Insurance Fund (SAIF) in the past fiscal year ended
March 31, 1997.
Income Taxes. Income tax expense increased $279,000 during the three months
ended June 30, 1997 as compared to the same period in 1996. The effective tax
rate was 38.4% as compared to 36.5% for the same period last year.
10
<PAGE> 12
FINANCIAL CONDITION
During the three months ended June 30, 1997, the Corporation increased its
assets $40.9 million from $1.88 billion to $1.93 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
$26.3 million as a result of (i) purchases of $27.1 million of U.S. Government
and agency securities and (ii) market value and other adjustments of $399,000,
which were partially offset by sales and maturities of $1.2 million.
Mortgage-related securities (both available for sale and held to maturity)
decreased $14.1 million as a result of principal repayments and market value
adjustments. Mortgage-related securities consisted of $197.1 million of
mortgage-backed securities and $29.2 million of mortgage-derivative securities
at June 30, 1997.
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 $29.7 million during the
three months ended June 30, 1997. Activity for the period included (i)
originations and purchases of $193.3 million, (ii) sales of $60.6 million, and
(iii) principal repayments and other adjustments of $103.0 million.
Deposits increased $13.9 million during the three months ended June 30, 1997.
The increase was due primarily to new demand deposit products and a certificate
promotion. Brokered deposits have been used in the past and may be used in the
future as the need for funds requires it. Brokered deposits totalled $36.0
million at June 30, 1997 and generally mature in one year. FHLB advances
increased $19.0 million during the three months ended June 30, 1997. Reverse
repurchase agreements and other borrowings decreased $3.2 million during the
three months ended June 30, 1997. Advance payments by borrowers for taxes and
insurance increased $7.0 million.
Stockholders' equity increased $2.0 million during the three months ended June
30, 1997 as a net result of (i) net income of $4.6 million, (ii) stock options
exercised of $41,000, (iii) the decrease in net unrealized loss of
available-for-sale securities of $593,000, (iv) treasury stock repurchased of
$2.7 million, (v) cash dividends of $637,000, and (vi) management recognition
plan shares earned and related tax adjustments totalling $46,000.
11
<PAGE> 13
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 $14.6 million at June 30, 1997 from $13.8 million at March
31, 1997 and increased as a percentage of total assets to 0.76% from 0.73% at
such dates, respectively.
Non-performing assets are summarized as follows at the dates indicated:
<TABLE>
<CAPTION>
AT MARCH 31,
AT JUNE 30, --------------------------------------------------
1997 1997 1996 1995
----------- --------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Non-accrual loans:
Single-family residential $ 1,627 $ 1,712 $ 629 $ 833
Multi-family residential 3,012 3,199 - -
Commercial real estate 935 778 470 624
Construction and land 58 58 81 81
Consumer 610 438 202 219
Commercial business 786 610 508 736
--------- --------- --------- ---------
Total non-accrual loans 7,028 6,795 1,890 2,493
Real estate held for development and sale 2,713 2,736 2,319 857
Foreclosed properties and repossessed
assets, net 4,876 4,222 6,077 7,116
--------- --------- --------- ---------
Total non-performing assets $ 14,617 $ 13,753 $ 10,286 $ 10,466
========= ========= ========= =========
Performing troubled debt restructurings $ 3,179 $ 329 $ 332 $ 335
========= ========= ========= =========
Total non-accrual loans to total loans 0.45% 0.44% 0.13% 0.19%
Total non-performing assets to total assets 0.76 0.73 0.59 0.69
Allowance for loan losses to total loans 1.44 1.48 1.59 1.75
Allowance for loan losses to total
non-accrual loans 319.17 334.81 1206.72 899.68
Allowance for loan and foreclosure losses
to total non-performing assets 160.62 173.26 228.70 221.82
</TABLE>
Non-accrual loans increased $233,000 during the three months ended June 30,
1997. Non-performing real estate held for development and sale decreased
$23,000 for the three months ended June 30, 1997. Foreclosed properties and
repossessed assets increased $654,000 during the same period.
12
<PAGE> 14
At June 30, 1997, there was one non-accrual loan with a carrying value of
greater than $1.0 million. The loan, which had a total carrying value of $2.5
million, represented a 26% participation secured by a 48-unit condominium
project in Bloomington, Minnesota. Voluntary foreclosure on this project is
presently being sought by the Bank.
Foreclosed properties and repossessed assets include two properties with a
carrying value of greater than $1.0 million. The first 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, it will pursue
reimbursement from the adjoining land owner, who is believed to have caused the
contamination. The second is a 12-unit condominium project and associated
land in Madison, Wisconsin which formerly secured two loans totalling $1.6
million. ADPC is presently in the process of selling individual units.
Performing troubled debt restructurings increased $2.9 million primarily due to
the addition of a hotel and office building located in Garden Grove,
California. This loan was previously removed from foreclosed properties and
repossessed assets, in fiscal 1997, due to a repayment plan from the bankruptcy
settlement.
At June 30, 1997, assets that the Bank has classified, as "substandard", net of
reserves, consisted of $23.4 million of loans and foreclosed properties. As of
March 31, 1997, the substandard assets amounted to $16.5 million. The increase
was primarily due to the classification of two loans. The first was a 93%
participation loan to the Foxhills Resort Limited Partnership located in
Mishicot, Wisconsin totalling $4.8 million. Payments are current on the loan.
The second represented a loan for $1.7 million secured by commercial real
estate in Reno, Nevada. The Bank is pursuing foreclosure on this loan.
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, --------------------------------------------------
1997 1997 1996 1995
------------- --------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
30 to 59 days $ 6,673 $ 3,144 $ 5,776 $ 2,696
60 to 89 days 3,033 909 789 1,099
------------- ------------- ------------- -------------
Total $ 9,706 $ 4,053 $ 6,565 $ 3,795
============= ============= ============= =============
</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
13
<PAGE> 15
potential losses. The evaluation of the allowance for loan losses includes a
review of known loan problems as well as potential problems based upon
historical trends and ratios. Foreclosed properties are recorded at the lower
of carrying value or fair value with charge-offs, if any, charged to the
allowance for loan losses prior to transfer to foreclosed property. The fair
value is primarily based on appraisals, discounted cash flow analysis (the
majority of which are based on current occupancy and lease rates) and pending
offers.
A summary of the activity in the allowance for losses on loans follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------------
1997 1996
-----------------------------
(Dollars In Thousands)
<S> <C> <C>
Allowance at beginning of period $ 22,750 $ 22,807
Charge-offs:
Mortgage (41) (40)
Consumer (346) (16)
Commercial business - (1)
---------- ----------
Total charge-offs (387) (57)
Recoveries:
Mortgage 44 9
Consumer 2 2
Commercial business 22 78
---------- ----------
Total recoveries 68 89
---------- ----------
Net recoveries (charge-offs) (319) 32
---------- ----------
Provision - -
---------- ----------
Allowance at end of period $ 22,431 $ 22,839
========== ==========
Net recoveries (charge-offs) to
average loans (0.08)% 0.01%
==== ====
</TABLE>
Although management believes that the June 30, 1997 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.
14
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
On an unconsolidated basis, the Corporation's sources of funds include
dividends from its subsidiaries, including the Bank, interest on its
investments and returns on its real estate held for sale. The Bank's primary
sources of funds are payments on loans and mortgage-related securities,
deposits from retail and wholesale sources, advances and other borrowings.
At June 30, 1997, the Corporation had outstanding commitments to originate
loans of $70.9 million, commitments to extend funds to, or on behalf of,
customers pursuant to lines and letters of credit of $72.4 million and loans
sold with recourse to the Corporation in the event of default by the borrower
of $2.0 million. Scheduled maturities of certificates of deposit during the
twelve months following June 30, 1997 amounted to $747.3 million and scheduled
maturities of FHLB advances during the same period totalled $295.9 million. At
June 30, 1997, the Corporation also had $39.2 million of reverse repurchase
agreements, all of which are scheduled to mature during the twelve months
following June 30, 1997. 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%, which has been proposed
by the OTS to be reduced to 4%. During the quarter ended June 30, 1997, the
Bank's average liquidity ratio was 10.14%.
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 requirement of the State of Wisconsin which is 6% of total
assets. The Bank's capital ratio for this measurement is 6.84% as of June 30,
1997.
15
<PAGE> 17
The following summarizes the Bank's capital levels and ratios and the levels
and ratios required by the OTS at June 30, 1997 and June 30, 1996.
<TABLE>
<CAPTION>
MINIMUM REQUIRED
MINIMUM REQUIRED TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ACTUAL ADEQUACY PURPOSES OTS REQUIREMENTS
-----------------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF JUNE 30, 1997:
Tier 1 capital
(to adjusted tangible assets) $ 107,027 5.63% $ 56,986 3.00% $ 94,976 5.00%
Risk-based capital
(to risk-based assets) 121,541 10.53 92,372 8.00 115,466 10.00
Tangible capital
(to tangible assets) 107,027 5.63 28,493 1.50 N/A N/A
AS OF JUNE 30, 1996:
Tier 1 capital
(to adjusted tangible assets) 106,393 5.88 54,275 3.00 90,459 5.00
Risk-based capital
(to risk-based assets) 120,035 10.86 88,440 8.00 110,550 10.00
Tangible capital
(to tangible assets) 106,393 5.88 27,138 1.50 N/A N/A
</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, 1997. 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.
16
<PAGE> 18
The Corporation's strategy for asset and liability management is to maintain an
interest rate gap that minimizes the impact of interest rate movements on the
net interest margin. As part of this strategy, the Corporation sells
substantially all new originations of long-term, fixed-rate, single-family
residential mortgage loans in the secondary market, invests in adjustable-rate
or medium-term, fixed-rate, single-family residential mortgage loans, invests
in medium-term mortgage-related securities and invests in consumer loans which
generally have shorter terms to maturity and higher and/or adjustable interest
rates.
The Corporation also originates multi-family residential and commercial real
estate loans, which generally have adjustable or floating interest rates and/or
shorter terms to maturity than conventional single-family residential loans.
Long-term, fixed-rate, single-family residential mortgage loans originated for
sale in the secondary market are generally committed for sale at the time the
interest rate is locked with the borrower. As such, these loans involve little
interest rate risk to the Corporation.
The Corporation's cumulative net gap position at June 30, 1997 for one year or
less was a negative 3.59% 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.
17
<PAGE> 19
The following table summarizes the Corporation's interest rate sensitivity gap
position as of June 30, 1997.
<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> <C>
Interest-earning assets:
Mortgage loans (1) (2):
Fixed $ 96,289 $ 64,945 $ 18,676 $ 10,277 $ 190,187
Variable 679,194 266,072 14,413 - 959,679
Consumer loans (1) 227,772 82,600 23,754 - 334,126
Commercial business loans (1) 23,288 4,557 - - 27,845
Mortgage-related securities (3) 91,653 89,049 30,499 15,135 226,336
Investment securities and other
interest-earning assets (3) 60,640 7,441 22,997 - 91,078
---------- --------- ---------- --------- ----------
Total $1,178,836 $ 514,664 $ 110,339 $ 25,412 $1,829,251
========== ========= ========== ========= ==========
Interest-bearing liabilities:
Deposits (4) $ 907,350 $ 229,248 $ 60,661 $ 43,030 $1,240,289
Borrowings 340,608 96,034 10,733 - 447,375
---------- --------- ---------- --------- ----------
Total $1,247,958 $ 325,282 $ 71,394 $ 43,030 $1,687,664
========== ========= ========== ========= ==========
Interest sensitivity gap $ (69,122) $ 189,382 $ 38,945 $ (17,618) $ 141,587
========== ========= ========== ========= ==========
Cummulative interest sensitivity
gap $ (69,122) $ 120,260 $ 159,205 $ 141,587
========== ========= ========== =========
Cummulative interest sensitivity
gap as a percent of total assets (3.59)% 6.24% 8.27% 7.35%
==== ==== ==== ====
</TABLE>
(1) Balances have been reduced for (i) undisbursed loan proceeds, which
aggregated $41.7 million, and (ii) non-accrual loans, which amounted to $7.0
million.
(2) Includes $8.8 million of loans held for sale spread throughout the periods.
(3) Includes $75.5 million of securities available for sale spread throughout
the periods.
(4) Does not include $78.9 million of demand accounts because they are
non-interest-bearing. Also does not include accrued interest payable, which
amounted to $7.4 million. Projected decay rates for demand deposits and
passbook savings were provided by the OTS.
18
<PAGE> 20
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 is 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. This also covered 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 recission (return of the
unit to the Bank). The Bank is currently considering the alternatives of
appeal and/or negotiated settlement. During fiscal 1997, the lawsuit by the
Homeowners Association was settled for $1.2 million, the amount of which
represents a full and complete settlement of any and all alleged structural
deficiencies. Based on the outcome of the above described cases 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.
19
<PAGE> 21
ITEM 4 SUBMISSION OF MATTER TO VOTE OF SECURITIES HOLDERS.
The Annual Meeting of Stockholders was held on July 22, 1997. There were
4,527,117 shares of common stock which could be voted and 3,762,251 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.
<TABLE>
<CAPTION>
NUMBER OF VOTES
-----------------------
FOR WITHHELD
--------- --------
<S> <C> <C>
Nominees for three-year term ending 2000:
Bruce A. Robertson 3,731,784 30,467
Robert C. Buehner 3,731,535 30,716
Holly Cremer Berkenstadt 3,731,062 31,189
<CAPTION>
FOR AGAINST ABSTAINED
--------- -------- ---------
<S> <C> <C> <C>
Appointment of Ernst & Young LLP as independent
auditor for the year ending March 31, 1998 3,730,771 10,997 20,483
</TABLE>
ITEM 5 OTHER INFORMATION.
None.
ITEM 6 EXHIBITS AND REPORTS.
(a) Stockholder Rights Agreement, dated July 22, 1997,
between the Company and Firstar Trust Company, as
Rights Agent - incorporated by reference to the
Report as Form 8-K noted in paragraph (b) of this
item 6.
(b) A Report Form 8-K was filed by the Company on July
28, 1997.
20
<PAGE> 22
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, 1997 By: /s/ Douglas J. Timmerman
---------------------- --------------------------------------------
Douglas J. Timmerman, Chairman of the
Board, President and Chief Executive Officer
Date: July 31, 1997 By: /s/ Michael W. Helser
---------------------- --------------------------------------------
Michael W. Helser, Treasurer and
Chief Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 35,156
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,081
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 162,012
<INVESTMENTS-MARKET> 161,086
<LOANS> 1,556,617
<ALLOWANCE> 22,431
<TOTAL-ASSETS> 1,925,866
<DEPOSITS> 1,326,325
<SHORT-TERM> 340,608
<LIABILITIES-OTHER> 30,144
<LONG-TERM> 97,295
0
0
<COMMON> 51,071
<OTHER-SE> 68,776
<TOTAL-LIABILITIES-AND-EQUITY> 1,925,866
<INTEREST-LOAN> 31,330
<INTEREST-INVEST> 4,735
<INTEREST-OTHER> 132
<INTEREST-TOTAL> 36,198
<INTEREST-DEPOSIT> 15,700
<INTEREST-EXPENSE> 22,369
<INTEREST-INCOME-NET> 13,828
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 25
<EXPENSE-OTHER> 10,130
<INCOME-PRETAX> 7,504
<INCOME-PRE-EXTRAORDINARY> 7,504
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,621
<EPS-PRIMARY> 0.97
<EPS-DILUTED> 0.97
<YIELD-ACTUAL> 7.91
<LOANS-NON> 7,028
<LOANS-PAST> 0
<LOANS-TROUBLED> 3,179
<LOANS-PROBLEM> 13,221
<ALLOWANCE-OPEN> 22,750
<CHARGE-OFFS> 387
<RECOVERIES> 68
<ALLOWANCE-CLOSE> 22,431
<ALLOWANCE-DOMESTIC> 22,431
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 21,076
</TABLE>
