<PAGE> 1
SECURITIES And EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K(a)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 7, 1999
ANCHOR BANCORP WISCONSIN INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
WISCONSIN 0-20006 39-1726871
(State or other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
incorporation)
</TABLE>
25 WEST MAIN
MADISON, WISCONSIN 53703
(Address of Principal Executive Offices)
(608) 252-8700
(Registrant's Telephone Number, Including Area Code)
<PAGE> 2
INDEX TO CURRENT REPORT ON FORM 8-K(A)
Financial Statements of Acquiree and Report of
Wipfli, Ullrich, Bertelson, Independent Auditor......................Item 7(a)
Pro forma Financial Information of Registrant
and Report of Ernst and Young, Independent Auditor...................Item 7(b)
<PAGE> 3
ITEM 7(A). FINANCIAL STATEMENTS OF ACQUIREE AND REPORT OF WIPFLI, ULLRICH,
AND BERTELSON, INDEPENDENT AUDITOR
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FCB FINANCIAL CORP.
OSHKOSH, WISCONSIN
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999, 1998, AND 1997
[WIPFLI ULLRICH BERTELSON LLP LOGO]
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FCB FINANCIAL CORP.
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CONSOLIDATED FINANCIAL STATEMENTS
Years Ended March 31, 1999, 1998, and 1997
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TABLE OF CONTENTS
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Page
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Independent Auditor's Report 1
Financial Statements:
Consolidated Statements of Financial Condition 2
Consolidated Statements of Income 3
Consolidated Statements of Shareholders' Equity 4
Consolidated Statements of Cash Flows 5 - 6
Notes to Consolidated Financial Statements 7 - 30
</TABLE>
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[WIPFLI ULLRICH BERTELSON LLP LOGO]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
FCB Financial Corp.
Oshkosh, Wisconsin
We have audited the accompanying consolidated statements of financial condition
of FCB Financial Corp. and Subsidiaries as of March 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended March 31, 1999. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial condition of FCB Financial Corp.
and Subsidiaries at March 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1999, in conformity with generally accepted accounting principles.
/s/ Wipfli Ullrich Bertelson LLP
Wipfli Ullrich Bertelson LLP
May 6, 1999
Green Bay, Wisconsin
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FCB FINANCIAL CORP.
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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 1999 and 1998
(Dollars In Thousands)
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ASSETS
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash $ 2,360 $ 1,029
Interest-bearing deposits 27,042 27,330
--------- ---------
Cash and cash equivalents 29,402 28,359
Investment securities available for sale, at fair value 2,893 2,894
Investment securities held to maturity (estimated fair value of
$45,110 and $20,719 at March 31, 1999 and 1998, respectively) 45,131 20,424
Mortgage-related securities available for sale, at fair value 20,599 33,870
Mortgage-related securities held to maturity (estimated fair value of $14,723
and $26,124 at March 31, 1999 and 1998,
respectively) 14,620 25,754
Investment in Federal Home Loan Bank stock, at cost 5,568 6,028
Loans held for sale 2,650 16,692
Loans receivable - Net 387,324 370,934
Office properties and equipment 6,665 6,610
Other assets 7,057 6,207
--------- ---------
TOTAL ASSETS $ 521,909 $ 517,772
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposit accounts $ 329,426 $ 318,508
Borrowed funds 102,100 109,350
Advance payments by borrowers for taxes and insurance 3,785 4,644
Other liabilities 8,671 10,354
--------- ---------
Total liabilities 443,982 442,856
--------- ---------
Commitments and contingencies (See Note 16)
Shareholders' equity:
Common stock - $.01 par value:
Authorized - 15,000,000 shares
Issued - 4,528,368 shares at March 31, 1999 and 1998 45 45
Additional paid-in capital 60,480 59,638
Retained earnings - Substantially restricted 32,360 29,211
Accumulated other comprehensive income 278 502
Unearned compensation - ESOP (701) (1,036)
--------- ---------
Totals 92,462 88,360
Less - 687,688 and 661,288 shares of treasury common
stock, at cost, at March 31, 1999 and 1998, respectively (14,535) (13,444)
--------- ---------
Total shareholders' equity 77,927 74,916
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 521,909 $ 517,772
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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FCB FINANCIAL CORP.
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CONSOLIDATED STATEMENTS OF INCOME
Years Ended March 31, 1999, 1998, and 1997
(Dollars In Thousands, Except Per Share Amounts)
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<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest and dividend income:
Interest on loans $ 30,344 $ 31,392 $ 17,702
Interest on securities:
Taxable 5,590 5,536 2,012
Tax-exempt 227 208 -
Dividends on FHLB stock 371 394 201
Interest-bearing deposits 1,810 409 50
---------------- ---------------- ----------------
Total interest and dividend income 38,342 37,939 19,965
---------------- ---------------- ----------------
Interest expense:
Deposit accounts 15,054 15,061 7,704
Borrowed funds 5,933 6,231 3,123
---------------- ---------------- ----------------
Total interest expense 20,987 21,292 10,827
---------------- ---------------- ----------------
Net interest income 17, 355 16,647 9,138
Provision for loan losses 402 950 350
---------------- ---------------- ----------------
Net interest income after provision for
loan losses 16,953 15,697 8,788
---------------- ---------------- ----------------
Noninterest income:
Loan fees - Net 678 674 378
Deposit fees 910 756 140
Gain on sale of securities - 99 -
Gain on sale of other assets - Net 1,162 950 288
Other income 662 531 181
---------------- ---------------- ----------------
Total noninterest income 3,412 3,010 987
---------------- ---------------- ----------------
Operating expenses:
Compensation, payroll taxes, and other
employee benefits 5,494 5,133 2,437
Marketing 327 367 254
Occupancy 1,280 1,185 678
Data processing 502 618 270
Federal insurance premiums 200 199 1,246
Merger-related - 827 -
Other 1,928 1,514 785
---------------- ---------------- ----------------
Total operating expenses 9,731 9,843 5,670
---------------- ---------------- ----------------
Income before provision for income taxes 10,634 8,864 4,105
Provision for income taxes 3,937 3,020 1,665
---------------- ---------------- ----------------
Net income $ 6,697 $ 5,844 $ 2,440
================ ================ ================
Basic earnings per share $ 1.80 $ 1.59 $ 1.03
================ ================ ================
Diluted earnings per share $ 1.76 $ 1.55 $ 1.01
================ ================ ================
Cash dividends declared per share $ .88 $ .78 $ .72
================ ================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
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FCB FINANCIAL CORP.
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY Years Ended March 31, 1999, 1998,
and 1997
(Dollars In Thousands, Except Per Share Amounts)
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<TABLE>
<CAPTION>
Accumulated
Additional Other Unearned Treasury
Common Paid-In Retained Comprehensive Compensation Common
Stock Capital Earnings Income (Loss) ESOP Stock Total
----- ------- -------- ------------- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1996 $ 29 $ 28,693 $ 25,930 $ (26) $ (1,118) $ (6,316) $ 47,192
----------
Comprehensive income:
Net income for 1997 - - 2,440 - - - 2,440
Other comprehensive loss - - - (46) - - (46)
----------
Comprehensive income - - - - - - 2,394
Cash dividends declared
($.72 per share) - - (1,696) - - - (1,696)
Amortization of unearned
compensation - ESOP - 218 - - 249 - 467
Exercise of stock options -
7,189 treasury common
shares - - (44) - - 116 72
Purchase of treasury common
stock - 56,000 shares - - - - - (997) (997)
--------- --------- -------- ------------ ----------- -------- ----------
Balance at March 31, 1997 29 28,911 26,630 (72) (869) (7,197) 47,432
----------
Comprehensive income:
Net income for 1998 - - 5,844 - - - 5,844
Other comprehensive income - - - 574 - - 574
----------
Comprehensive income - - - - - - 6,418
Cash dividends declared
($.78 per share) - - (2,946) - - - (2,946)
Amortization of unearned
compensation - ESOP - 530 - - 320 - 850
Exercise of stock options -
54,215 treasury common
shares - 290 (317) - - 938 911
Purchase of treasury common
stock - 269,806 shares - - - - - (7,185) (7,185)
Acquisition of OSB Financial
Corp. 16 29,907 - - (487) - 29,436
--------- --------- ------- ------------ ----------- -------- ----------
Balance at March 31, 1998 45 59,638 29,211 502 (1,036) (13,444) 74,916
----------
Comprehensive income:
Net income for 1999 - - 6,697 - - - 6,697
Other comprehensive loss - - - (224) - - (224)
----------
Comprehensive income - - - - - - 6,473
Cash dividends declared
($.88 per share) - - (3,289) - - - (3,289)
Amortization of unearned
compensation - ESOP - 633 - - 335 - 968
Exercise of stock options -
25,808 treasury common
shares - 209 (259) - - 533 483
Purchase of treasury common
stock - 52,208 shares - - - - - (1,624) (1,624)
--------- --------- -------- ------------ ----------- -------- ----------
Balance at March 31, 1999 $ 45 $ 60,480 $ 32,360 $ 278 $ (701) $(14,535) $ 77,927
========= ========= ======== ============ =========== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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FCB FINANCIAL CORP.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31, 1999, 1998, and 1997
(Dollars In Thousands)
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<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,697 $ 5,844 $ 2,440
---------------- ---------------- ----------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and net amortization 239 202 261
Provision for loan losses 402 950 350
Gain on sale of assets - Net (1,162) (1,049) (288)
Loans originated for sale (78,310) (72,388) (18,000)
Proceeds from loan sales 86,934 58,194 20,179
Changes in operating assets (1,094) (908) (296)
Changes in operating liabilities (1,506) 3,339 (6)
Unearned compensation - ESOP 968 850 467
---------------- ---------------- ----------------
Total adjustments 6,471 (10,810) 2,667
---------------- ---------------- ----------------
Net cash provided by (used in) operating activities 13,168 (4,966) 5,107
---------------- ---------------- ----------------
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 29,662 15,924 8,000
Purchases of investment securities held to maturity (54,231) (2,954) (10,000)
Proceeds from maturities of investment securities
available for sale 2,000 - -
Purchases of investment securities available
for sale (1,997) (1,997) -
Principal repayments on mortgage-related securities
held to maturity 14,291 2,605 1,325
Purchases of mortgage-related securities held
to maturity (2,992) - -
Principal repayments on mortgage-related securities
available for sale 13,057 823 459
Proceeds from sale of mortgage-related securities
available for sale - 3,470 -
Purchases of Federal Home Loan Bank stock (600) (40) (650)
Redemption of Federal Home Loan Bank stock 1,060 175 -
Net (increase) decrease in loans (10,437) 27,495 (16,949)
Proceeds from sale of other assets 912 64 -
Capital expenditures (1,097) (497) (126)
Net cash received in acquisition - 3,104 -
---------------- ---------------- ----------------
Net cash provided by (used in) investing activities (10,372) 48,172 (17,941)
---------------- ---------------- ----------------
Cash flows from financing activities:
Net increase in deposit accounts 10,918 3,069 2,048
Net increase (decrease) in short-term borrowings - (18,100) 4,700
Proceeds from other borrowings 37,000 87,000 47,300
Repayment of other borrowings (44,250) (82,810) (39,000)
Net increase (decrease) in advance payments by
borrowers for taxes and insurance (859) 263 176
Proceeds from exercise of stock options 274 911 72
Purchases of treasury common stock (1,624) (7,185) (997)
Dividends paid (3,212) (2,623) (1,629)
---------------- ---------------- ----------------
Net cash provided by (used in) financing activities (1,753) (19,475) 12,670
---------------- ---------------- ----------------
</TABLE>
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FCB FINANCIAL CORP.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED) Years Ended March 31, 1999,
1998, and 1997
(Dollars In Thousands)
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<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net increase (decrease) in cash and cash equivalents $ 1,043 $ 23,731 $ (164)
Cash and cash equivalents at beginning 28,359 4,628 4,792
---------------- ---------------- ----------------
Cash and cash equivalents at end $ 29,402 $ 28,359 $ 4,628
================ ================ ================
Supplemental cash flow information:
Cash paid during the year for:
Interest on deposit accounts $ 14,944 $ 15,085 $ 7,631
Interest on borrowed funds 5,996 6,257 3,056
Income taxes 3,746 3,037 1,877
Noncash investing and financing activities:
Loans transferred to foreclosed properties and
properties subject to foreclosure 230 112 -
Loans transferred from held for sale to held for
investment 6,585 2,231 -
Assets and liabilities acquired in acquisition:
Securities - 67,759 -
Loans receivable - Net - 176,288 -
Office properties and equipment - 2,057 -
Other assets - 6,221 -
Deposit accounts - (162,276) -
Borrowed funds - (58,360) -
Other liabilities - (5,357) -
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 12
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FCB FINANCIAL CORP.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations.
FCB Financial Corp. is a Wisconsin corporation and the savings and loan holding
company for Fox Cities Bank (the "Bank"). The Bank is a federally chartered
savings bank and operates as a full service financial institution with a primary
market area of East Central Wisconsin. The Bank emphasizes first mortgage loans
secured by one- to four-family real estate located in its market area. The Bank
also makes commercial, commercial real estate, five or more family residential,
consumer and residential construction loans within its primary market area. The
Bank, through its wholly owned subsidiary, Fox Cities Financial Services, Inc.,
sells various investment products and tax deferred annuities. Fox Cities
Financial Services, Inc. also holds a 50% limited partnership interest in an
apartment complex located in Menasha, Wisconsin. The partnership qualifies for
federal low income housing tax credits. Additionally, the Bank owns Fox Cities
Investments, Inc., a Nevada corporation, which owns and manages a portfolio of
investment securities, all of which are permissible investments of the Bank
itself.
Use of Estimates in Preparation of Financial Statements.
The preparation of the accompanying financial statements of FCB Financial Corp.
and Subsidiaries (the "Corporation") in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that directly affect the reported amounts of assets, liabilities,
revenues, and expenses. Actual results may differ from these estimates.
Principles of Consolidation.
The accompanying consolidated financial statements include the accounts of FCB
Financial Corp., Fox Cities Bank, and its wholly owned subsidiaries, Fox Cities
Financial Services, Inc. and Fox Cities Investments, Inc., after elimination of
significant intercompany accounts and transactions.
Cash Equivalents.
The Corporation considers all highly liquid debt instruments with original
maturities when purchased of three months or less to be cash equivalents.
Investment and Mortgage-Related Securities Held to Maturity and Available for
Sale.
Management determines the appropriate classification of securities at the time
of purchase. Securities are classified as held to maturity when the Corporation
has the positive intent and ability to hold the securities to maturity. Held to
maturity securities are stated at amortized cost. Securities not classified as
held to maturity are classified as available for sale. Available for sale
securities are stated at fair value with the unrealized gains and losses, net of
tax, reported as accumulated other comprehensive income (loss) within
shareholders' equity until realized. Interest and dividends are included in
interest income from securities as earned. Realized gains and losses and
declines in value judged to be other than temporary are included in net gains
and losses from sales of investment and mortgage-related securities. The cost of
securities sold is based on the specific identification method.
Fair values of many securities are estimates based on financial methods or
prices paid for similar securities. It is possible interest rates could change
considerably resulting in a material change in the estimated fair value.
Federal Home Loan Bank Stock.
The Corporation's investment in Federal Home Loan Bank ("FHLB") stock at March
31, 1999 and 1998 meets the minimum amount required, and is carried at cost
which is its redeemable (fair) value since the market for this stock is limited.
<PAGE> 13
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FCB FINANCIAL CORP.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans Held for Sale.
Loans held for sale consist of the current origination of certain fixed-rate
mortgage loans and are recorded at the lower of aggregate cost or fair value.
Fees received from the borrower are deferred and recorded as an adjustment of
the sale price. A gain or loss is recognized at the time of the sale reflecting
the present value of the difference between the contractual interest rate of the
loans sold and the yield to the investor, adjusted for the initial value of
mortgage servicing rights. The servicing fee is recognized as the related loan
payments are received.
Loans Receivable.
Loans receivable are stated at unpaid principal balances, less unamortized
unrealized losses, the allowance for loan losses, and net deferred
loan-origination fees and discounts.
Interest income is recognized using the interest method. Accrual of interest is
discontinued either when reasonable doubt exists as to the full, timely
collection of interest or principal or when a loan becomes contractually past
due by 90 days or more with respect to interest or principal. At that time, any
accrued but uncollected interest is reversed, and additional income is recorded
only to the extent that payments are received and the collection of principal is
reasonably assured.
Loan Fees and Related Costs.
Certain loan-origination fees, commitment fees, and direct loan-origination
costs are being deferred and the net amounts amortized as an adjustment of the
related loan's yield. The Bank is amortizing these amounts into interest income,
using the level-yield method, over the contractual life of the related loan.
Other loan-origination and commitment fees not required to be recognized as a
yield adjustment are included in loan fees.
Mortgage Servicing Rights.
The Corporation recognizes mortgage servicing rights as assets regardless of how
the rights are acquired. For loans which are subsequently sold or securitized, a
portion of the cost of the loans is required to be allocated to the servicing
rights based on the relative fair values of the loans and the servicing rights.
The Corporation amortizes mortgage servicing rights over the period of estimated
net servicing revenues. Impairment of mortgage servicing rights is assessed
based on the fair value of those rights. Fair values are estimated using
discounted cash flows based on a current market interest rate. For purposes of
measuring impairment, the rights are stratified by rate in the quarter in which
the underlying loans were sold. Impairment is recognized through a valuation
allowance.
Allowance for Loan Losses.
The allowance for loan losses includes specific allowances related to commercial
loans which have been judged to be impaired. The Corporation generally considers
credit card, residential mortgage, and consumer installment loans to be large
groups of smaller-balance homogeneous loans. These loans are collectively
evaluated in the analysis of the adequacy of the allowance for loan losses.
A loan is impaired when, based on current information, it is probable the
Corporation will not collect all amounts due in accordance with the contractual
terms of the loan agreement. Management considers, on a loan by loan basis, the
conditions which may constitute a minimum delay or shortfall in payment, as well
as the factors which may influence its decision in determining when a loan is
impaired. These specific allowances are based on discounted cash flows of
expected future payments using the loan's initial effective interest rate or the
fair value of the collateral if the loan is collateral dependent.
<PAGE> 14
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FCB FINANCIAL CORP.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Corporation continues to maintain a general allowance for loans and
foreclosed properties not considered impaired. The allowance for loan and
foreclosed property losses is maintained at a level which management believes is
adequate to provide for possible losses. Management periodically evaluates the
adequacy of the allowance using the Corporation's past loss experience, known
and inherent risks in the portfolio, composition of the portfolio, current
economic conditions, and other relevant factors. This evaluation is inherently
subjective since it requires material estimates that may be susceptible to
significant change.
Foreclosed Properties.
Real estate properties acquired through, or in lieu of, loan foreclosure are
initially recorded at fair value at the date of the foreclosure. Subsequently,
the foreclosed assets are carried at the lower of the newly established cost or
fair value less estimated selling costs. Costs related to the development and
improvement of property are capitalized, whereas costs related to the holding of
property are expensed.
Office Properties and Equipment.
Office properties and equipment are recorded at cost less accumulated
depreciation. Maintenance and repair costs are charged to expense as incurred.
When property is retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the respective accounts and the
resulting gain or loss is recorded in income or expense, respectively.
The cost of office properties and equipment is being depreciated by the
straight-line method over the estimated useful lives. The cost of leasehold
improvements is amortized on a straight-line method over the lesser of the term
of the respective lease or the estimated economic life of the improvements.
Advertising Costs.
Advertising costs are expensed as incurred.
Income Taxes.
The Corporation files one consolidated federal income tax return. Federal income
tax expense (credit) is allocated to each subsidiary based on an intercompany
tax sharing agreement. Each subsidiary files separate state franchise tax
returns.
Deferred income taxes have been provided under the liability method. Deferred
tax assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities, as measured by the
enacted tax rates which will be in effect when these differences are expected to
reverse. Deferred tax expense (credit) is the result of changes in the deferred
tax asset and liability.
Comprehensive Income.
Effective April 1, 1998, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which was
issued by the Financial Accounting Standards Board (FASB) in June 1997. In
accordance with this statement, the Corporation reports those items defined as
comprehensive income in the consolidated statements of shareholders' equity.
Comprehensive income consists of net income and other comprehensive income
(loss). Other comprehensive income (loss) includes unrealized gains and losses
on securities available for sale which are recognized as a separate component of
shareholders' equity, accumulated other comprehensive income (loss). The
adoption of SFAS No. 130 did not have an impact on the Corporation's financial
position or results of operations.
<PAGE> 15
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FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Segment Information.
Effective April 1, 1998, the Corporation adopted SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information," which was issued in
June 1997. This statement establishes new standards for reporting information
about operating segments in annual and interim financial statements. The
standard also requires descriptive information about the way operating segments
are determined, the products and services provided by the segments, and the
nature of differences between reportable segment measurements and those used for
the consolidated enterprise. The disclosure requirements had no impact on the
Corporation's financial position or results of operations.
Employee Benefits.
Effective April 1, 1998, the Corporation adopted SFAS No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits," which was issued
in February 1998. This statement standardizes employers' disclosures regarding
pension and other postretirement benefit plans. The statement did not change the
measurement or recognition of pensions and other postretirement benefit plans.
The statement had no impact on the Corporation's financial position or results
of operations.
Future Accounting Change.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. This
statement requires an entity to recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. The statement is
effective for fiscal years beginning after June 15, 1999 (the FASB has proposed
delaying the effective date of this statement to fiscal years beginning after
June 15, 2000). Management, at this time, cannot determine the effect adoption
of this statement may have on the consolidated financial statements of the
Corporation as the accounting for derivatives is dependent on the amount and
nature of derivatives, if any, in place at the time of adoption.
Reclassifications.
Certain amounts in the 1998 and 1997 consolidated financial statements have been
reclassified to conform to the 1999 presentation.
NOTE 2 - BUSINESS COMBINATIONS
On January 5, 1999, the Corporation entered into a definitive agreement (the
"Merger Agreement") providing for the merger of the Corporation with and into
Anchor Bancorp Wisconsin Inc. ("Anchor"), with Anchor continuing as the
surviving corporation (the "Merger"). Anchor, headquartered in Madison,
Wisconsin, is the parent holding company for AnchorBank, S.S.B., a $2.1 billion
financial institution with 35 full-service offices and two lending-only
facilities in Wisconsin. The Merger Agreement provides that each outstanding
share of common stock, $.01 par value, of the Corporation will be converted
(other than certain shares that will be canceled as specified in the Merger
Agreement) into the right to receive 1.83 shares of common stock, $.10 par
value, of Anchor. Outstanding stock options to purchase shares of Corporation
common stock held by employees and directors of the Corporation will be
converted into options to purchase Anchor common stock upon consummation of the
Merger. Consummation of the Merger is subject to the approval of the
shareholders of both companies. The Merger is structured as a
pooling-of-interests for financial accounting purposes and as a tax-free
reorganization for shareholders of the Corporation. The Merger is currently
expected to be completed during the second calendar quarter of 1999.
<PAGE> 16
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FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - BUSINESS COMBINATIONS (CONTINUED)
On May 1, 1997, the Corporation acquired OSB Financial Corp. ("OSB"), the
savings and loan holding company for Oshkosh Savings Bank, F.S.B., a
community-oriented institution with $256.7 million in assets. The purchase price
of $29.9 million was made up of 1,618,868 shares of the Corporation's common
stock and an immaterial amount of cash paid in lieu of fractional shares. The
merger of equals added seven full-service banking locations in East Central
Wisconsin to the Corporation and was accounted for as a purchase. Accordingly,
the related accounts and results of operations of OSB are included in the
Corporation's consolidated financial statements from the date of acquisition.
Prior period results and balances have not been restated in connection with the
merger. There was no goodwill recorded as a result of the transaction.
NOTE 3 - INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities at March 31
are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------- --------------- --------------- ---------------
(Dollars In Thousands)
1999
Available for Sale:
<S> <C> <C> <C> <C>
Other securities $ 2,894 $ - $ 1 $ 2,893
================ =============== =============== ===============
Held to Maturity:
U.S. government securities $ 4,505 $ 60 $ - $ 4,565
U.S. agency securities 35,141 19 237 34,923
Municipal securities 4,510 137 - 4,647
Other securities 975 - - 975
---------------- --------------- --------------- ---------------
Totals $ 45,131 $ 216 $ 237 $ 45,110
================ =============== =============== ===============
1998
Available for Sale:
Other securities $ 2,894 $ - $ - $ 2,894
================ =============== =============== ===============
Held to Maturity:
U.S. government securities $ 9,999 $ 90 $ - $ 10,089
U.S. agency securities 5,930 83 - 6,013
Municipal securities 4,495 122 - 4,617
---------------- --------------- --------------- ---------------
Totals $ 20,424 $ 295 $ - $ 20,719
================ =============== ============== ===============
</TABLE>
There were no sales of investment securities during the years ended March 31,
1999, 1998, and 1997.
<PAGE> 17
-12-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated fair value of all investment securities at
March 31, 1999, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
-------------------------------- ------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------- ------------- ------------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 896 $ 892 $ 3,065 $ 3,089
Due after one year through
five years 1,998 2,001 39,701 39,600
Due after five years through
ten years - - 2,365 2,421
-------------- ------------- ------------- -------------
Totals $ 2,894 $ 2,893 $ 45,131 $ 45,110
============== ============= ============= =============
</TABLE>
NOTE 4 - MORTGAGE-RELATED SECURITIES
The amortized cost and estimated fair value of mortgage-related securities at
March 31 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------- --------------- --------------- ---------------
(Dollars In Thousands)
1999
Available for Sale:
<S> <C> <C> <C> <C>
Government National Mortgage
Association Certificates $ 1,570 $ 24 $ - $ 1,594
Collateralized Mortgage
Obligations 8,660 327 80 8,907
Federal Home Loan Mortgage
Corporation Certificates 1,402 60 - 1,462
Federal National Mortgage
Association Certificates 8,553 156 73 8,636
---------------- --------------- --------------- ----------------
Totals $ 20,185 $ 567 $ 153 $ 20,599
================ =============== =============== ================
Held to Maturity:
Government National Mortgage
Association Certificates $ 791 $ 22 $ - $ 813
Collateralized Mortgage
Obligations 5,114 22 - 5,136
Federal Home Loan Mortgage
Corporation Certificates 5,210 23 33 5,200
Federal National Mortgage
Association Certificates 3,505 69 - 3,574
---------------- --------------- --------------- ----------------
Totals $ 14,620 $ 136 $ 33 $ 14,723
================ =============== =============== ================
</TABLE>
<PAGE> 18
-13-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - MORTGAGE-RELATED SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------- --------------- -------------- ---------------
(Dollars In Thousands)
1998
Available for Sale:
<S> <C> <C> <C> <C>
Government National Mortgage
Association Certificates $ 2,141 $ 51 $ - $ 2,192
Collateralized Mortgage
Obligations 8,650 343 136 8,857
Federal Home Loan Mortgage
Corporation Certificates 1,611 65 - 1,676
Federal National Mortgage
Association Certificates 20,716 436 7 21,145
---------------- --------------- --------------- ----------------
Totals $ 33,118 $ 895 $ 143 $ 33,870
================ =============== =============== ================
Held to Maturity:
Government National Mortgage
Association Certificates $ 1,091 $ 33 $ - $ 1,124
Collateralized Mortgage
Obligations 14,993 124 - 15,117
Federal Home Loan Mortgage
Corporation Certificates 3,894 87 - 3,981
Federal National Mortgage
Association Certificates 5,776 126 - 5,902
---------------- --------------- --------------- ----------------
Totals $ 25,754 $ 370 $ - $ 26,124
================ =============== ================ ================
</TABLE>
Sales of mortgage-related securities resulted in total proceeds of $3,470,000
and gross realized gains of $99,000 during the year ended March 31, 1998. There
were no sales of mortgage-related securities during the years ended March 31,
1999 and 1997.
Expected maturities for mortgage-related securities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<PAGE> 19
-14-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - LOANS RECEIVABLE
Details of loans receivable at March 31 follow:
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
(Dollars In Thousands)
<S> <C> <C>
First mortgage loans:
One- to four-family residential $ 220,765 $ 214,353
Five or more family residential 9,817 14,230
Commercial 70,372 64,451
Construction 24,595 18,938
--------------- ----------------
Total first mortgage loans 325,549 311,972
--------------- ----------------
Consumer loans:
Home improvement and home equity 34,173 36,303
Auto and recreational vehicles 24,622 19,496
Educational 4,827 4,197
Other 1,727 1,530
--------------- ----------------
Total consumer loans 65,349 61,526
--------------- ----------------
Commercial loans 11,002 7,622
--------------- ----------------
Subtotals 401,900 381,120
--------------- ----------------
Less:
Undisbursed loan proceeds 10,240 5,930
Unearned interest and loan fees 201 298
Unamortized unrealized loss 316 391
Allowance for loan losses 3,819 3,567
--------------- ----------------
Subtotals 14,576 10,186
--------------- ----------------
Totals $ 387,324 $ 370,934
=============== ================
</TABLE>
A summary of the activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------------------------------------------
1999 1998 1997
--------------- --------------- -----------------
(Dollars In Thousands)
<S> <C> <C> <C>
Balance at beginning $ 3,567 $ 1,405 $ 1,075
Provisions 402 950 350
Charge offs (163) (224) (20)
Recoveries 13 17 -
Allowance acquired through acquisition - 1,419 -
--------------- --------------- -----------------
Balance at end $ 3,819 $ 3,567 $ 1,405
=============== =============== =================
</TABLE>
<PAGE> 20
-15-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - LOANS RECEIVABLE (CONTINUED)
Nonperforming loans, which include loans on which the accrual of interest has
been discontinued, totaled $910,000 and $1,225,000 at March 31, 1999 and 1998,
respectively. The Bank did not have any troubled debt restructuring at March 31,
1999 or 1998. The Bank did not have any material impaired commercial loans
during fiscal years 1999 and 1998, and had no impaired commercial loans at March
31, 1999 and 1998.
More than 90% of the Bank's lending activity is with borrowers within its
primary market area, East Central Wisconsin. Although the Bank has a diversified
portfolio, a substantial portion of its debtors' ability to honor their
contracts is dependent upon the general economic conditions of the area.
NOTE 6 - LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances of
these loans at March 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ---------------- ------------------
(Dollars In Thousands)
<S> <C> <C> <C>
Mortgage loan portfolios serviced for:
Federal Home Loan Mortgage
Corporation $ 192,555 $ 169,884 $ 120,971
Federal National Mortgage Association 40,320 62,787 -
Other investors 13,358 9,820 6,363
--------------- ---------------- ------------------
Totals $ 246,233 $ 242,491 $ 127,334
=============== ================ ==================
</TABLE>
Custodial escrow balances maintained in connection with the foregoing loan
servicing were $3,806,000 and $5,028,000 at March 31, 1999 and 1998,
respectively.
Mortgage servicing rights are required to be recognized as a separate asset and
amortized over the estimated period that servicing income is recognized. An
analysis of changes in mortgage servicing rights is as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------------------------------------------
1999 1998 1997
--------------- ---------------- ------------------
(Dollars In Thousands)
<S> <C> <C> <C>
Balance at beginning $ 740 $ 194 $ -
Capitalized amounts 866 579 202
Less:
Amortization (122) (33) (8)
Valuation allowance (239) - -
--------------- ---------------- ------------------
Balance at end $ 1,245 $ 740 $ 194
=============== ================ ==================
</TABLE>
The valuation allowance was $239,000 at March 31, 1999. There was no impairment
of mortgage servicing rights and no valuation allowance at March 31, 1998 and
1997.
<PAGE> 21
-16-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7 - OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at March 31 consist of the following:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
(Dollars In Thousands)
<S> <C> <C>
Land and land improvements $ 1,699 $ 1,737
Buildings and building improvements 6,833 7,065
Leasehold improvements 90 90
Furniture, fixtures, and equipment 3,457 3,696
Automobiles 87 64
Construction in progress - 381
----------------- -----------------
Subtotals 12,166 13,033
Less - Accumulated depreciation 5,501 6,423
----------------- -----------------
Total office properties and equipment $ 6,665 $ 6,610
================= =================
</TABLE>
Depreciation and amortization of office properties and equipment charged to
operating expenses amounted to $430,000, $389,000, and $261,000 in 1999, 1998,
and 1997, respectively.
NOTE 8 - DEPOSIT ACCOUNTS
Deposit accounts at March 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------- -----------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
-------------- ------------- ------------ ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
NOW accounts:
Non-interest bearing $ 14,726 -% $ 12,449 -%
Interest bearing 18,416 1.36 17,271 1.63
Regular savings accounts 38,789 2.18 37,864 2.73
Money market accounts 59,821 4.12 42,451 4.59
Certificate accounts 197,674 5.34 208,473 6.11
-------------- ------------
Totals $ 329,426 4.29% $ 318,508 5.02%
============== ==== ============ ====
</TABLE>
Certificate accounts include $16.8 million and $18.3 million in denominations of
$100,000 or more at March 31, 1999 and 1998, respectively.
<PAGE> 22
-17-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - DEPOSIT ACCOUNTS (CONTINUED)
On March 31, 1999, certificate accounts have scheduled maturity dates as
follows:
<TABLE>
<CAPTION>
Mature During
Years Ended
March 31, Amount
------------- -------------------
(Dollars In Thousands)
<S> <C>
2000 $ 175,845
2001 16,559
2002 2,793
2003 1,559
2004 918
------------------
Totals $ 197,674
==================
</TABLE>
Interest expense on deposit accounts consists of the following:
<TABLE>
<CAPTION>
Years Ended March 31,
----------------------------------------------
1999 1998 1997
------------ ------------ -------------
(Dollars In Thousands)
<S> <C> <C> <C>
NOW and money market accounts $ 2,549 $ 1,824 $ 831
Regular savings accounts 1,040 985 502
Certificate accounts 11,390 12,154 6,297
Advance payments by borrowers for
taxes and insurance 75 98 74
------------ ------------ ------------
Totals $ 15,054 $ 15,061 $ 7,704
============ ============ ============
</TABLE>
NOTE 9 - BORROWED FUNDS
Borrowed funds consist of FHLB advances at March 31 and are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
---------------- -------- --------------- ----------
(Dollars In Thousands)
FHLB advances maturing during
the years ended March 31:
<S> <C> <C> <C> <C>
1999 $ - -% $ 34,250 5.72%
2000 22,300 5.28 22,300 5.65
2002 1,800 6.32 1,800 6.32
2003 41,000 5.49 41,000 5.49
2005 10,000 4.98 10,000 4.98
2009 27,000 5.19 - -
---------------- ---------------
Totals $ 102,100 5.33% $ 109,350 5.56%
================ ===============
</TABLE>
<PAGE> 23
-18-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9 - BORROWED FUNDS (CONTINUED)
The Corporation is required to maintain as collateral unencumbered one- to
four-family mortgage loans such that the outstanding balance of FHLB advances
does not exceed 60% of the book value of this collateral. The borrowings are
also collateralized by the FHLB stock owned by the Corporation. The variable
rate term borrowings at March 31, 1999, which are included in the above, total
$11 million and are at interest rates tied to the one-month LIBOR index. Accrued
interest payable on advances totaled $470,000 and $533,000 at March 31, 1999 and
1998, respectively.
NOTE 10 - EMPLOYEE BENEFIT PLANS
The Bank has a qualified defined contribution plan covering substantially all
full-time employees who have completed one year of service and are at least 18
years old. Participating employees can contribute up to 15% of their
compensation. The Bank may make discretionary contributions for the employees'
benefit. Bank expense related to this plan was $33,000 and $36,000 in 1999 and
1998, respectively. There was no expense under this plan in 1997.
The Bank has Deferred Compensation Agreements with two employees and a
Separation Benefit Plan with two employees. Each of these plans are
nonqualified, supplemental retirement plans. Under each plan, the individual
employees have a set amount to be accrued for at age 65. The current accrued
liability is determined based on the present value of this gross amount. At
March 31, 1999, the maximum liability which could be paid under these agreements
is $149,000. The amount charged to operations, under these agreements, was
$15,000, $15,000, and $26,000 for 1999, 1998, and 1997, respectively.
The Corporation has reserved 290,950 shares of common stock to be issued under a
nonqualified stock option plan for employees and directors. The compensation
committee of the Board of Directors of the Corporation administers the plan. The
committee determines the persons to whom awards will be granted under the plan,
except for certain option grants to nonemployee directors which are automatic
pursuant to the terms of the plan. Options granted under the plan may be
incentive stock options ("ISO") or nonincentive stock options ("SO"), provided
that only SOs may be granted to nonemployee directors. The per share exercise
price of options granted under the plan may not be less than the fair market
value of a share of the Corporation's common stock on the date of grant, subject
to certain additional limitations for ISOs granted to a 10% or more shareholder.
Options granted under the plan and outstanding as of March 31, 1999, have an
exercise term of ten years from the grant date. The plan also authorizes the
committee to grant stock appreciation rights to officers and employees of the
Corporation. The plan expires September 23, 2003, and is subject to early
termination at the direction of the Board of Directors of the Corporation.
In 1998, as a result of the business combination with OSB, options representing
83,112 shares of the Corporation's stock were assumed by the Corporation at
exercise prices as originally granted, adjusted for the exchange ratio of the
merger transaction. These options were originally granted by OSB under its stock
option plan. Also as a result of the OSB merger, all outstanding options became
100% vested and exercisable on the date of the OSB merger.
<PAGE> 24
-19-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - EMPLOYEE BENEFIT PLANS (CONTINUED)
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
Shares Option Price
Under Option Per Share
----------------- -----------------
<S> <C> <C>
Outstanding at April 1, 1996 117,844 $10 - $15
Exercised (7,189) $10
-------
Outstanding at March 31, 1997 110,655 $10 - $15
Transferred in from OSB 83,112 $7.87 - $16.60
Granted 55,500 $23.75 - $27.375
Exercised (54,215) $7.87 - $16.60
-------
Outstanding at March 31, 1998 195,052 $7.87 - $27.375
Granted 64,700 $28.625 - $32.50
Exercised (25,808) $10 - $16.60
Canceled (3,600) $32.50
-------
Outstanding at March 31, 1999 230,344 $7.87 - $32.50
=======
</TABLE>
The options above are nonincentive stock options. Options granted are eligible
to be exercised over a five-year period at 20% each year.
The fair value of each option granted is estimated on the grant date using the
Black-Scholes methodology.
The following assumptions were made as of the grant date in estimating the fair
value for options granted:
<TABLE>
<CAPTION>
1999 1998
----------------- ----------------
<S> <C> <C>
Dividend yield 2.34% 2.75%
Risk-free interest rate 5.12% 5.12%
Weighted average expected life (years) 7.5 7.5
Expected volatility 34.86% 30.26%
The per share weighted average fair value of the options
granted as of their grant date, using the assumptions
shown above $6.56 $4.36
</TABLE>
<PAGE> 25
-20-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - EMPLOYEE BENEFIT PLANS (CONTINUED)
There were no options granted in 1997. No compensation cost has been recognized
for the plan. Had compensation cost been determined on the basis of fair value,
net income and earnings per share would have been reduced as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(Dollars In Thousands, Except Per Share Amounts)
<S> <C> <C>
Net income:
As reported $ 6,697 $ 5,844
================= ================
Pro forma $ 6,622 $ 5,817
================= ================
Earnings per share:
As reported:
Basic $ 1.80 $ 1.59
Diluted $ 1.76 $ 1.55
Pro forma:
Basic $ 1.77 $ 1.58
Diluted $ 1.74 $ 1.54
</TABLE>
The following is a summary of the options outstanding at March 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- -----------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Exercise Exercise
Price Range Number Life - Years Price Number Price
---------------- ------------ ----------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
7.870 - 10.000 66,387 4.3 $ 9.62 66,387 $ 9.62
15.000 - 16.600 47,357 6.2 16.09 47,357 16.09
23.750 - 27.375 55,500 8.2 24.14 11,100 24.14
28.625 - 32.500 61,100 9.1 31.47 - -
------ --- ----------- ------- -----------
Totals 230,344 6.9 $ 20.24 124,844 $ 13.36
======= === =========== ======= ===========
</TABLE>
<PAGE> 26
-21-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - EMPLOYEE BENEFIT PLANS (CONTINUED)
The Corporation sponsors an Employee Stock Ownership Plan ("ESOP") for
substantially all of its full-time employees. The ESOP originally borrowed
$1,800,000 from FCB Financial Corp. and purchased 180,000 shares of the
Corporation's common stock. The loan is payable in annual installments of
$243,000 including interest at a rate of 6.5% over a ten-year amortization. In
addition, pursuant to the terms of the OSB merger, the ESOP plan of OSB was
combined with the above plan. The conversion ratio was applied to the OSB ESOP
shares prior to inclusion in the Corporation ESOP. As part of the OSB merger,
the Corporation assumed $487,000 of debt related to the former OSB ESOP. This
loan is payable in quarterly installments of $29,000 including interest at the
prime rate of interest over a remaining 42-month amortization from March 31,
1999. Contributions to the plan must be sufficient to service the ESOP loan. Any
additional contributions are determined by the Board of Directors. All dividends
received by the ESOP are used to pay debt service. As the debt is repaid, shares
are released and allocated to active employees based on the proportion of debt
service paid in the year. As shares are committed to be released, the
Corporation reports ESOP expense equal to the current market price of the
shares, and the shares become outstanding for earnings per share computations.
ESOP shares that have not been committed to be released are not considered
outstanding for purposes of computing earnings per share. The cost of the
unearned shares is reported in the consolidated statement of financial condition
as unearned compensation. Dividends on allocated ESOP shares are recorded as a
reduction of retained earnings; dividends on unallocated ESOP shares are
recorded as ESOP expense. ESOP expense was $903,000, $754,000, and $415,000 for
1999, 1998, and 1997, respectively. Dividends received by the ESOP were
$224,000, $209,000, and $123,000 in 1999, 1998, and 1997, respectively, and were
used to reduce loan principal. The fair value of unearned ESOP shares at March
31, 1999, totaled $2.3 million.
The following is a summary of ESOP shares at March 31:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Allocated 173,446 137,980
Committed to be released - -
Unearned 81,390 117,591
------- ---------
Totals 254,836 255,571
======= =========
</TABLE>
The ESOP distributed 735 and 40,034 allocated shares to former employees during
the years ended March 31, 1999 and 1998, respectively.
<PAGE> 27
-22-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11 - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended March 31,
-----------------------------------------------------
1999 1998 1997
------------- ------------- ------------
(Dollars In Thousands)
<S> <C> <C> <C>
Current tax expense (credit):
Federal $ 3,166 $ 2,735 $ 1,431
Low income housing credit (70) (70) (70)
State 436 469 288
------------- ------------- ------------
Total current 3,532 3,134 1,649
------------- ------------- ------------
Deferred tax expense (credit):
Federal 324 (91) 13
State 81 (23) 3
------------- -------------- ------------
Total deferred 405 (114) 16
------------- ------------- ------------
Total provision for income taxes $ 3,937 $ 3,020 $ 1,665
============= ============= ============
</TABLE>
Included in the total provision for income taxes is expense of $34,000 for the
year ended March 31, 1998, related to security transactions. There were no sales
of securities during the years ended March 31, 1999 and 1997.
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Corporation's assets and
liabilities. The major components of the net deferred tax asset as of March 31
are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
(Dollars In Thousands)
<S> <C> <C>
Deferred tax assets:
Loans held for sale $ 125 $ 181
Allowance for loan losses 1,233 1,122
Marketable securities 309 406
Deferred directors' fees 554 521
Other - Net 95 292
--------------- ---------------
Total deferred tax assets 2,316 2,522
--------------- ---------------
Deferred tax liabilities:
Unrealized securities gains (135) (250)
Depreciation (118) (35)
FHLB stock dividends (79) (161)
Mortgage servicing rights (488) (290)
--------------- ---------------
Total deferred tax liabilities (820) (736)
--------------- ---------------
Net deferred tax asset $ 1,496 $ 1,786
=============== ===============
</TABLE>
<PAGE> 28
-23-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11 - INCOME TAXES (Continued)
The provision for income taxes differs from that computed at the federal
statutory corporate tax rate as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
-----------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------- ----------------------------- ----------------------------
Amount Percent Amount Percent Amount Percent
------------ ------------- ----------- ------------- ------------ ------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Income before
provision for
income taxes $ 10,634 100% $ 8,864 100% $ 4,105 100%
============ === ============ === ============ ===
Tax at federal
statutory rates $ 3,616 34% $ 3,014 34% $ 1,396 34%
Increase (decrease)
in tax:
State income
taxes - Net of
federal income
tax benefits 341 3 294 3 191 5
Low income
housing credit (70) (1) (70) (1) (70) (2)
ESOP compensation 171 2 148 2 56 1
Tax-exempt interest
exclusion (72) (1) (71) (1) - -
Other (49) - (295) (3) 92 2
--------------- --- ----------- --- ------------ ---
Totals $ 3,937 37% $ 3,020 34% $ 1,665 40%
============ === ============ === ============ ===
</TABLE>
NOTE 12 - SHAREHOLDERS' EQUITY
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital to risk-weighted assets and of Tier I capital
to average assets. Management believes, as of March 31, 1999, the Bank meets all
capital adequacy requirements to which it is subject.
As of March 31, 1999, the most recent notifications from the Office of Thrift
Supervision ("OTS") categorizes the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the following table. There are no
conditions or events since that notification that management believes have
changed the Bank's category.
<PAGE> 29
-24-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12 - SHAREHOLDERS' EQUITY (CONTINUED)
The Bank's actual and minimum regulatory capital amounts (in thousands) and
ratios are as follows:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
MARCH 31, 1999:
Total capital (to risk-weighted
assets) $ 62,758 20.2% >=$ 24,902 >=8.0% >=$ 31,068 >=10.0%
Tier I capital (to risk-weighted
assets) $ 58,939 18.9% >=$ 12,474 >=4.0% >=$ 18,711 >=6.0%
Tier I capital (to average assets) $ 58,939 11.4% >=$ 20,602 >=4.0% >=$ 25,850 >=5.0%
MARCH 31, 1998:
Total capital (to risk-weighted
assets) $ 62,959 18.9% >=$ 26,674 >=8.0% >=$ 33,312 >=10.0%
Tier I capital (to risk-weighted
assets) $ 59,392 17.8% >=$ 13,347 >=4.0% >=$ 20,020 >=6.0%
Tier I capital (to average assets) $ 59,392 11.6% >=$ 20,474 >=4.0% >=$ 25,600 >=5.0%
</TABLE>
The capital distribution regulations allow a well capitalized bank to make
capital distributions during a calendar year up to 100% of its net income to
date plus the amount that would reduce by one half its surplus capital ratio at
the beginning of the calendar year. Any distributions in excess of that amount
requires prior OTS notice, with the opportunity for OTS to object to the
distribution.
NOTE 13 - EARNINGS PER SHARE
The following table reflects a reconciliation, for the years ended March 31, of
basic earnings per share and diluted earnings per share:
<TABLE>
<CAPTION>
Years Ended March 31,
--------------------------------------------
1999 1998 1997
---- ---- ----
(Dollars In Thousands, Except Per Share Amounts)
<S> <C> <C> <C>
Basic EPS:
Income available to common shareholders $ 6,697 $ 5,844 $ 2,440
Average common shares outstanding 3,730,649 3,679,692 2,357,465
Earnings per share - Basic $ 1.80 $ 1.59 $ 1.03
=============== ============= =============
Diluted EPS:
Income available to common shareholders $ 6,697 $ 5,844 $ 2,440
Average common shares outstanding 3,730,649 3,679,692 2,357,465
Effect of options - Net 75,272 83,826 51,991
--------------- ------------- -------------
Average common shares outstanding - Diluted 3,805,921 3,763,518 2,409,456
Earnings per share - Diluted $ 1.76 $ 1.55 $ 1.01
=============== ============= =============
</TABLE>
<PAGE> 30
-25-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income and accumulated other comprehensive income (loss) are shown
in the consolidated statements of shareholders' equity. The Corporation's
accumulated other comprehensive income (loss) is comprised of the unrealized
gain or loss on securities available for sale. The following shows the activity
in accumulated other comprehensive income (loss):
<TABLE>
<CAPTION>
Years Ended March 31,
--------------------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
(Dollars In Thousands)
<S> <C> <C> <C>
Accumulated other comprehensive income (loss)
at beginning $ 502 $ (72) $ (26)
---------------- ---------------- ----------------
Activity:
Unrealized gain (loss) on securities available
for sale (339) 944 (77)
Tax impact 115 (305) 31
---------------- ---------------- ----------------
Net unrealized gain (loss) on securities
available for sale (224) 639 (46)
---------------- ---------------- ----------------
Reclassification adjustment for realized gains
on securities available for sale - (99) -
Tax impact - 34 -
---------------- ---------------- ----------------
Net reclassification adjustment - (65) -
---------------- ---------------- ----------------
Net change in accumulated other comprehensive
income (loss) (224) 574 (46)
---------------- ---------------- ----------------
Accumulated other comprehensive income (loss)
at end $ 278 $ 502 $ (72)
================ ================ ================
</TABLE>
NOTE 15 - SEGMENT INFORMATION
The Corporation, through the branch network of its subsidiary Bank, provides a
full range of consumer and commercial banking services to individuals and
businesses in East Central Wisconsin. These services include demand, time, and
savings deposits; safe deposit services; credit cards; notary services; night
depository; money orders, traveler's checks, and cashier's checks; savings
bonds; secured and unsecured consumer, commercial, and real estate loans; ATM
processing; cash management; and financial planning.
While the Corporation's chief decision makers monitor the revenue streams of
various products and services, operations are managed and financial performance
is evaluated on a Corporate-wide basis. Accordingly, all of the Corporation's
banking operations are considered by management to be aggregated in one
reportable operating segment.
<PAGE> 31
-26-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Corporation is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments are in the form of commitments to extend credit and
involve elements of credit risk in excess of the amount recognized in the
consolidated statements of financial condition.
The Corporation's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Corporation uses
the same credit policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.
Financial instruments whose contract amounts represent credit risk at March 31
are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
(Dollars In Thousands)
<S> <C> <C>
Commitments to extend credit:
Fixed rate (6.50% - 8.50% at March 31, 1999 and
6.125% - 9.50% at March 31, 1998) $ 16,641 $ 16,359
Adjustable rate (5.95% - 9.25% at March 31, 1999
and 6.125% - 9.75% at March 31, 1998) 1,323 4,883
----------------- -----------------
Total outstanding commitments $ 17,964 $ 21,242
================= =================
Unused lines of credit $ 10,693 $ 7,838
================= =================
Commitments to sell loans $ - $ 21,411
================= =================
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates not exceeding a maximum of 45 days or
other termination clauses and may require payment of a fee. Since a portion of
the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Corporation evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained, if it is deemed necessary by the Corporation
upon extension of credit, is based on management's credit evaluation of the
party.
The Corporation frequently enters into loan sale commitments prior to closing
loans in order to limit interest rate risk for the period of time between when a
loan is committed and when it is sold. These sale commitments are typically made
on a loan-by-loan basis.
<PAGE> 32
-27-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
the Corporation's financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
consolidated statements of financial condition for cash and short-term
interest-bearing deposits approximate those assets' fair values.
Investment and mortgage-related securities: Fair values are based on quoted
market prices, where available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar securities.
Loans receivable and loans held for sale: For certain homogeneous
categories of loans, such as fixed-rate residential mortgages, fair value
is estimated using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics. The fair
value of other types of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings. The carrying amount of accrued
interest approximates its fair value. Impaired loans are measured at the
estimated fair value of the expected future cash flows at the loan's
effective interest rate, the loan's observable market price, or the fair
value of the collateral for loans which are collateral dependent.
Therefore, the carrying value of impaired loans approximates the estimated
fair value for these assets.
Mortgage servicing rights: The fair value of mortgage servicing rights is
based on the present value of future cash flows using discounted rates
applicable to the level of risk of the underlying loans.
Deposit accounts: The fair value of NOW, passbook, and money market
accounts is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificate accounts is estimated using discounted
cash flows with discount rates at interest rates currently offered for
deposits of similar remaining maturities.
Borrowed funds: Rates currently available to the Corporation for debt with
similar terms and remaining maturities are used to estimate fair value of
existing debt. The fair value of borrowed funds due on demand is the amount
payable at the reporting date. The fair value of borrowed funds with fixed
terms is estimated using discounted cash flows with discount rates at
interest rates currently offered by lenders for similar remaining
maturities.
Off-balance-sheet instruments: The fair value of commitments would be
estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements, the
current interest rates, and the present creditworthiness of the
counterparties. Since this amount is immaterial, no amounts for fair value
are presented.
Limitations: Fair value estimates are made at a specific point in time
based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Corporation's entire
holdings of a particular financial instrument. Because no market exists for
a significant portion of the Corporation's financial instruments, fair
value estimates are based on judgments regarding future expected prepayment
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions
could significantly affect the estimates. Fair value estimates are based on
existing on- and off-balance sheet financial instruments without attempting
to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments.
Significant assets and liabilities that are not considered financial
instruments include office properties and equipment, other assets, and
other liabilities. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in the
estimates.
<PAGE> 33
-28-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 17 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying value and estimated fair value of financial instruments at March 31
are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------- -------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 29,402 $ 29,402 $ 28,359 $ 28,359
Securities 83,243 83,325 82,942 83,607
Federal Home Loan Bank stock 5,568 5,568 6,028 6,028
Total loans - Net 389,974 395,167 387,626 392,565
Mortgage servicing rights 1,245 1,245 740 740
------------ ------------ ------------- -------------
Total financial assets $ 509,432 $ 514,707 $ 505,695 $ 511,299
============ ============ ============= =============
Financial liabilities:
Deposit accounts $ 329,426 $ 329,877 $ 318,508 $ 318,689
Borrowed funds 102,100 99,009 109,350 107,225
------------ ------------ ------------- -------------
Total financial liabilities $ 431,526 $ 428,886 $ 427,858 $ 425,914
============ ============ ============= =============
</TABLE>
<PAGE> 34
-29-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 18 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL CONDITION
March 31, 1999 and 1998
(Dollars In Thousands)
ASSETS
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash $ 6,793 $ 3,128
Investment securities held to maturity 4,510 4,495
Mortgage-related securities available for sale 3,905 3,847
Investment in subsidiary 61,149 61,025
Other assets 2,437 3,232
---------------- ----------------
TOTAL ASSETS $ 78,794 $ 75,727
================ ================
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Other liabilities $ 867 $ 811
Total shareholders' equity 77,927 74,916
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 78,794 $ 75,727
================ ================
</TABLE>
STATEMENTS OF INCOME
Years Ended March 31, 1999, 1998, and 1997
(Dollars In Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Interest and dividend income $ 7,641 $ 10,672 $ 2,222
Equity in undistributed net income of subsidiary (796) (4,686) 471
Other income - 4 -
---------------- ---------------- --------------
Total income 6,845 5,990 2,693
Other expense 86 146 124
---------------- ---------------- --------------
Income before provision for income taxes 6,759 5,844 2,569
Provision for income taxes 62 - 129
---------------- ---------------- --------------
Net income $ 6,697 $ 5,844 $ 2,440
================ ================ ==============
</TABLE>
<PAGE> 35
-30-
FCB FINANCIAL CORP.
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 18 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS
Years Ended March 31, 1999, 1998, and 1997
(Dollars In Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income $ 6,697 $ 5,844 $ 2,440
-------------- ---------------- ---------------
<S> <C> <C> <C>
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in net income of subsidiary (7,018) (5,071) (2,176)
Decrease (increase) in other assets 495 (42) (8)
Decrease in other liabilities (21) (522) (100)
-------------- ---------------- ---------------
Total adjustments (6,544) (5,635) (2,284)
-------------- ---------------- ---------------
Net cash provided by operating activities 153 209 156
-------------- ---------------- ---------------
Cash flows from investing activities:
Purchases of investment securities held to
maturity - (4,481) -
Dividend received from subsidiary 7,814 9,757 1,705
Net decrease in note receivable 260 1,747 1,326
Net cash received in acquisition - 4,015 -
-------------- ---------------- ---------------
Net cash provided by investing activities 8,074 11,038 3,031
-------------- ---------------- ---------------
Cash flows from financing activities:
Purchases of treasury common stock (1,624) (7,185) (997)
Proceeds from exercise of stock options 274 911 72
Dividends paid (3,212) (2,623) (1,629)
-------------- ---------------- ---------------
Net cash used in financing activities (4,562) (8,897) (2,554)
-------------- ---------------- ---------------
Net increase in cash 3,665 2,350 633
Cash at beginning 3,128 778 145
-------------- ---------------- ---------------
Cash at end $ 6,793 $ 3,128 $ 778
============== ================ ===============
</TABLE>
<PAGE> 36
[WIPFLI ULLRICH BERTELSON LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
FCB Financial Corp.
Oshkosh, Wisconsin
We have audited the accompanying consolidated statements of financial condition
of FCB Financial Corp. and Subsidiaries as of March 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended March 31, 1999. These financial
statements are the responsibility of the Corporation's management. Our respon-
sibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial condition of FCB Financial Corp.
and Subsidiaries at March 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1999, in conformity with generally accepted accounting principles.
/s/ Wipfli Ullrich Bertelson LLP
Wipfli Ullrich Bertelson LLP
May 6, 1999
Green Bay, Wisconsin
<PAGE> 37
ITEM 7(B). PRO FORMA FINANCIAL INFORMATION OF REGISTRANT.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF ANCHOR BANCORP, WISCONSIN INC.
Page
----
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets .......................................... 2
Consolidated Statements of Income..................................... 3
Consolidated Statements of Changes in Stockholders' Equity............ 4
Consolidated Statements of Cash Flows................................. 5
Notes to Consolidated Financial Statements ........................... 7
Report of Ernst & Young LLP, Independent Auditors .................... 33
Management and Audit Committee Report................................. 34
1
<PAGE> 38
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------
1999 1998
--------------------------------------------
(Dollars In Thousands Except Per Share Data)
<S> <C> <C>
ASSETS
Cash $ 32,807 $ 33,028
Interest-bearing deposits 31,169 34,498
----------- -----------
Cash and cash equivalents 63,976 67,526
Investment securities available for sale 35,609 42,449
Investment securities held to maturity (fair value of $51,900 and
$38,300, respectively) 51,976 38,011
Mortgage-related securities available for sale 66,956 101,396
Mortgage-related securities held to maturity (fair value of $192,700
and $154,200, respectively) 191,533 152,993
Loans receivable, net:
Held for sale 18,080 34,752
Held for investment 2,111,566 1,962,023
Foreclosed properties and repossessed assets, net 1,710 4,723
Real estate held for development and sale 30,075 22,630
Office properties and equipment 24,879 25,250
Federal Home Loan Bank stock--at cost 27,745 28,030
Accrued interest on investments and loans 17,322 16,514
Prepaid expenses and other assets 22,170 20,783
----------- -----------
Total assets $ 2,663,597 $ 2,517,080
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 1,835,416 $ 1,710,980
Federal Home Loan Bank and other borrowings 530,495 520,975
Reverse repurchase agreements 42,464 42,935
Advance payments by borrowers for taxes and insurance 10,360 11,599
Other liabilities 24,696 27,723
----------- -----------
Total liabilities 2,443,431 2,314,212
=========== ===========
Preferred stock, $.10 par value, 5,000,000 shares
authorized, none outstanding -- --
Common stock, $.10 par value, 30,000,000 shares
authorized, 24,998,648 shares issued 2,500 2,500
Additional paid-in capital 80,192 77,345
Retained earnings 168,481 154,826
Less: Treasury stock (1,166,483 shares and 1,255,173 shares,
respectively), at cost (29,811) (29,981)
Borrowings of Employee Stock Ownership Plan (1,390) (2,415)
Common stock purchased by benefit plans (669) (850)
Accumulated other comprehensive income 863 1,443
----------- -----------
Total stockholders' equity 220,166 202,868
----------- -----------
Total liabilities and stockholders' equity $ 2,663,597 $ 2,517,080
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 39
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------
1999 1998 1997
---------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
INTEREST INCOME:
Loans $168,779 $ 160,400 $137,720
Mortgage-related securities 15,671 18,734 17,207
Investment securities 7,572 6,732 4,814
Interest-bearing deposits 2,287 1,044 775
-------- --------- --------
Total interest income 194,309 186,910 160,516
INTEREST EXPENSE:
Deposits 82,322 79,207 68,118
Notes payable and other borrowings 31,745 31,202 26,905
Other 468 484 520
-------- --------- --------
Total interest expense 114,535 110,893 95,543
-------- --------- --------
Net interest income 79,774 76,017 64,973
Provision for loan losses 1,017 1,250 850
-------- --------- --------
Net interest income after provision for loan losses 78,757 74,767 64,123
NON-INTEREST INCOME:
Loan servicing income 1,992 2,764 3,010
Service charges on deposits 4,977 4,637 3,819
Insurance commissions 1,129 1,256 1,366
Gain on sale of loans 7,354 4,191 1,513
Net income (loss) from operations of real estate investment 2,563 (437) 2,406
Other 3,212 2,811 2,424
-------- --------- --------
Total non-interest income 21,227 15,222 14,538
NON-INTEREST EXPENSES:
Compensation 28,746 25,280 23,730
Occupancy 4,303 4,106 3,724
Federal insurance premiums 1,052 1,035 2,400
Federal insurance special assessment -- -- 8,710
Furniture and equipment 3,257 2,951 2,778
Data processing 3,588 3,233 2,434
Marketing 2,194 2,519 2,216
Other 7,996 9,013 7,084
-------- --------- --------
Total non-interest expenses 51,136 48,137 53,076
-------- --------- --------
Income before income taxes 48,848 41,852 25,585
Income taxes 18,607 15,507 9,197
-------- --------- --------
Net income $ 30,241 $ 26,345 $ 16,388
======== ========= ========
Earnings per share:
Basic $ 1.26 $ 1.06 $ 0.71
Diluted 1.19 1.01 0.68
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
3
<PAGE> 40
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON ACCU-
STOCK MULATED
BOR- PURCHASED OTHER
ADDITIONAL ROWINGS BY COMPRE-
COMMON PAID-IN RETAINED TREASURY OF BENEFIT HENSIVE
STOCK CAPITAL EARNINGS STOCK ESOP PLANS INCOME TOTAL
--------------------------------------------------------------------------------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996 $ 2,500 $ 45,511 $ 126,121 $ (4,192) $ (2,046) $ (1,546) $ (754) $ 165,594
Net income:
Comprehensive income - - 16,388 - - - - 16,388
Change in net unrealized losses
on available-for-sale securities - - - - - - (51) (51)
--------
Comprehensive income 16,337
Purchase of treasury stock - - - (15,218) - - - (15,218)
Exercise of stock options - - (1,224) 1,698 - - - 474
Cash dividend ($0.12 per share) - - (2,224) - - - - (2,224)
Cash dividend paid by acquiree prior
to combination - - (1,696) - - - - (1,696)
Recognition plan shares vested - - - - - 300 - 300
Tax benefit from stock
related compensation - 575 - - - - - 575
Repayment of ESOP borrowings - - - - 1,177 - - 1,177
---------------------------------------------------------------------------------
Balance at March 31, 1997 $ 2,500 $ 46,086 $ 137,365 $(17,712) $ (869) $ (1,246) $ (805) $ 165,319
=================================================================================
Net income:
Comprehensive income - - 26,345 - - - - 26,345
Change in net unrealized gains
on available-for-sale securities - - - - - - 2,248 2,248
---------
Comprehensive income 28,593
Purchase of treasury stock - - - (16,751) - - - (16,751)
Exercise of stock options - - (3,128) 4,482 - - - 1,354
Cash dividend ($0.16 per share) - - (2,810) - - - - (2,810)
Cash dividend paid by acquiree prior
to combination - - (2,946) - - - - (2,946)
Recognition plan shares vested - - - - - 396 - 396
Tax benefit from stock
related compensation - 1,336 - - - - - 1,336
Borrowing - ESOP - - - - (2,069) - - (2,069)
Repayment of ESOP borrowings - - - - 1,010 - - 1,010
Acquisition of OSB Financial Corp. - 29,923 - - (487) - - 29,436
----------------------------------------------------------------------------------
Balance at March 31, 1998 $ 2,500 $ 77,345 $ 154,826 $(29,981) $ (2,415) $ (850) $ 1,443 $ 202,868
==================================================================================
Net income:
Comprehensive income - - 30,241 - - - - 30,241
Change in net unrealized gains
on available-for-sale securities - - - - - - (580) (580)
---------
Comprehensive income 29,661
Purchase of treasury stock - - - (11,492) - - - (11,492)
Exercise of stock options - 209 (9,815) 12,316 - - - 2,710
Purchase of stock by retirement plan - (23) - 784 - - - 761
Cash dividend ($0.20 per share) - - (3,482) - - - - (3,482)
Cash dividend paid by acquiree prior
to combination - - (3,289) - - - - (3,289)
Recognition plan shares vested - - - - - 181 - 181
Consolidation of SERP - - - (1,438) - - - (1,438)
Tax benefit from stock
related compensation - 2,661 - - - - - 2,661
Repayment of ESOP borrowings - - - - 1,025 - - 1,025
----------------------------------------------------------------------------------
Balance at March 31, 1999 $ 2,500 $ 80,192 $ 168,481 $(29,811) $ (1,390) $ (669) $ 863 $ 220,166
==================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 41
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------
1999 1998 1997
---------------------------------------------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 30,241 $ 26,345 $ 16,388
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses on loans 1,217 1,250 850
Provision for depreciation and amortization 2,522 2,464 2,383
Net gain on sales of loans (7,354) (4,191) (1,513)
Increase in accrued interest receivable (770) (1,301) (2,267)
Increase (decrease) in accrued interest payable (352) 2,535 2,207
Increase (decrease) in accounts payable (4,075) 5,835 (1,973)
Other 1,038 5,171 (3,717)
--------- --------- ---------
Net cash provided by operating activities before proceeds
from loan sales 22,467 38,108 12,358
Net proceeds from origination and sale of loans held for sale 17,593 5,173 12,024
--------- --------- ---------
Net cash provided by operating activities 40,060 43,281 24,382
INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale 35,906 19,745 39,809
Proceeds from maturities of investment securities 79,055 68,902 19,099
Purchase of investment securities available for sale (66,160) (71,821) (55,328)
Purchase of investment securities held to maturity (55,981) (17,969) (15,949)
Proceeds from sales of mortgage-related securities available for sale 5,761 4,750 5,617
Purchase of mortgage-related securities held to maturity (17,958) (4,670) (26,725)
Purchase of mortgage-related securities available for sale (12,843) (4,741) (2,057)
Principal collected on mortgage-related securities 113,248 45,607 60,338
Increase in loans receivable (233,898) (135,774) (174,633)
Purchase of office properties and equipment (2,228) (2,716) (1,958)
Sales of real estate 7,912 14,118 15,767
Purchase of real estate held for sale (14,379) (6,652) (21,292)
Net cash received in a business combination -- 3,104 --
--------- --------- ---------
Net cash used by investing activities (161,565) (88,117) (157,312)
</TABLE>
5
<PAGE> 42
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------
1999 1998 1997
----------------------------------------------
(In Thousands)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Increase in deposit accounts $ 124,937 $ 81,519 $ 71,868
Decrease in advance payments by borrowers
for taxes and insurance (1,239) (457) (87)
Proceeds from notes payable to Federal Home Loan Bank 1,512,450 582,400 577,496
Repayment of notes payable to Federal Home Loan Bank (1,502,900) (571,680) (507,200)
Increase (decrease) in securities sold under agreements
to repurchase (471) 3,599 (8,247)
Increase (decrease) in other loans payable (30) (4,519) 11,936
Treasury stock purchased (11,492) (16,751) (15,218)
Exercise of stock options 2,710 1,354 474
Purchase of stock by retirement plans 761 -- --
Payments of cash dividends to stockholders (6,771) (5,756) (3,920)
----------- --------- ---------
Net cash provided by financing activities 117,955 69,709 127,102
----------- --------- ---------
Net increase (decrease) in cash and cash equivalents (3,550) 24,873 (5,828)
Cash and cash equivalents at beginning of year 67,526 42,653 48,481
----------- --------- ---------
Cash and cash equivalents at end of year $ 63,976 $ 67,526 $ 42,653
=========== ========= =========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid or credited to accounts:
Interest on deposits and borrowings $ 114,562 $ 109,460 $ 93,757
Income taxes 16,813 13,192 9,525
Non-cash transactions:
Securitization of mortgage loans held for sale to mortgage-backed
securities and other adjustments 92,427 -- 54,938
Loans transferred to foreclosed properties 230 4,877 1,903
Assets and liabilities acquired in acquisition:
Securities -- 67,759 --
Loans receivable - Net -- 176,288 --
Office properties and equipment -- 2,057 --
Other assets -- 6,221 --
Deposit accounts -- (162,276) --
Borrowed funds -- (58,360) --
Other liabilities -- (5,357) --
See accompanying Notes to Consolidated Financial Statements
</TABLE>
6
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS Anchor BanCorp Wisconsin Inc. (the "Corporation") is a Wisconsin
corporation incorporated in 1992 for the purpose of becoming a savings and loan
holding company for AnchorBank, S.S.B. (the "Bank"), a wholly-owned subsidiary.
The Bank provides a full range of financial services to individual customers
through its branch locations in Wisconsin. The Bank is subject to competition
from other financial institutions and other financial service providers. The
Corporation and its subsidiary also are subject to the regulations of certain
federal and state agencies and undergo periodic examinations by those regulatory
authorities. The Corporation also has a non-banking subsidiary, Investment
Directions, Inc. ("IDI"), which invests in various limited partnerships.
BASIS OF FINANCIAL STATEMENT PRESENTATION The consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
and include the accounts and operations of the Corporation and its wholly owned
subsidiaries, the Bank and IDI and their wholly owned subsidiaries. The Bank has
the following subsidiaries: Anchor Investment Corporation, Anchor Insurance
Services Inc., and ADPC Corporation. IDI's wholly owned subsidiary is Nevada
Investment Directions, Inc. ("NIDI"). Significant intercompany accounts and
transactions have been eliminated. Investments in joint ventures and other less
than 50% owned partnerships, which are not material, are accounted for on the
equity method. Partnerships over 50% ownership are consolidated, with
significant intercompany accounts eliminated.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
CASH AND CASH EQUIVALENTS The Corporation considers federal funds sold and
interest-bearing deposits that have original maturities of three months or less
to be cash equivalents.
INVESTMENT AND MORTGAGE-RELATED SECURITIES HELD-TO-MATURITY AND
AVAILABLE-FOR-SALE Securities that the Corporation has the intent and ability to
hold to maturity are classified as held-to-maturity securities and are stated at
amortized cost. Securities not classified as held to maturity are classified as
available-for-sale. Available-for-sale securities are stated at fair value, with
the unrealized gains and losses, net of tax, reported as a separate component of
accumulated other comprehensive income in stockholders' equity.
Discounts and premiums on investment and mortgage-backed securities are accreted
and amortized into interest income using the interest method over the estimated
remaining contractual life of the assets.
Realized gains and losses, and declines in value judged to be other than
temporary, are included in "Net gain (loss) on sale of securities" in the
consolidated statements of income as a component of other income. The cost of
securities sold is based on the specific identification method.
LOANS HELD FOR SALE Loans held for sale generally consist of the current
originations of certain fixed-rate mortgage loans and certain adjustable-rate
mortgage loans and are carried at the lower of aggregate cost or market value.
Fees received from the borrower and direct costs to originate are deferred and
recorded as an adjustment of the sales price.
MORTGAGE SERVICING RIGHTS Mortgage servicing rights are recorded as an asset
when loans are sold with servicing rights retained. For loans delivered to and
funded by the FHLB see Note 13. The cost of mortgage servicing rights is
amortized in proportion to, and over the period of, estimated net servicing
revenues. Impairment of mortgage servicing rights is assessed based on the fair
values of those rights. Fair values are estimated using discounted cash flows
based on a current market interest rate. For purposes of measuring impairment,
the rights are stratified based on predominant risk characteristics of the
underlying loans which include product type (i.e., fixed or adjustable)
7
<PAGE> 44
and interest rate bands. The amount of impairment recognized is the amount by
which the capitalized mortgage servicing rights for a stratum exceed their fair
value.
INTEREST ON LOANS Interest on loans is accrued on the unpaid principal balances
as earned. Loans are placed on non-accrual status when, in the judgment of
management, the probability of collection of principal and interest is deemed to
be insufficient to warrant further accrual. When a loan is placed on non-accrual
status, previously accrued but unpaid interest is deducted from the allowance
for interest. Loans are restored to accrual status when the obligation is
brought current, has performed in accordance with the contractual terms for a
reasonable period of time and the ultimate collectibility of the total
contractual principal and interest is no longer in doubt. Allowances of $168,000
and $247,000 were established at March 31, 1999 and 1998, respectively, for
interest on non-accrual status loans.
LOAN FEES AND DISCOUNTS Loan origination and commitment fees and certain direct
loan origination costs are deferred and amortized as an adjustment to the
related loan's yield. The Corporation is amortizing these amounts, as well as
discounts on purchased loans, using the level yield method, adjusted for
prepayments, over the contractual life of the related loans.
FORECLOSED PROPERTIES AND REPOSSESSED ASSETS Real estate acquired by foreclosure
or by deed in lieu of foreclosure and other repossessed assets are carried at
the lower of cost or fair value, less estimated selling expenses. Costs relating
to the development and improvement of the property are capitalized; holding
period costs are charged to expense.
ALLOWANCES FOR LOSSES Allowances for losses on loans and foreclosed properties
are maintained at a level believed adequate by management to absorb losses in
the respective portfolios. Management's evaluation of the allowance for loss
considers various factors including, but not limited to, general economic
conditions, the level of troubled assets, expected future cash flows, loan
portfolio composition, prior loss experience, estimated sales price of the
collateral, holding and selling costs and regulatory agencies. The evaluation is
inherently subjective as it requires material estimates including the amounts
and timing of future cash flows expected to be received on impaired loans that
may be susceptible to significant change. While management uses available
information to recognize losses, future additions to the allowances may be
necessary based on changes in economic conditions. A loan is considered impaired
when the carrying amount of the loan exceeds the present value of the future
cash flows, discounted at the loan's original effective rate. However, as a
practical expedient, management measures impairment based on the fair value of
the underlying collateral. At March 31, 1999 and 1998, the amount of loans
considered impaired by management is not significant.
REAL ESTATE HELD FOR DEVELOPMENT AND SALE Real estate held for development and
sale includes investments in partnerships that purchased land and other property
and also an investment in a multi-family residential property. These investments
are carried at the lower of cost plus capitalized development costs and
interest, less accumulated depreciation, or estimated fair value.
OFFICE PROPERTIES AND EQUIPMENT Office properties and equipment are recorded at
cost and include expenditures for new facilities and items that substantially
increase the useful lives of existing buildings and equipment. Expenditures for
normal repairs and maintenance are charged to operations as incurred. When
properties are retired or otherwise disposed of, the related cost and
accumulated depreciation are removed from the respective accounts and the
resulting gain or loss is recorded in income.
DEPRECIATION AND AMORTIZATION The cost of office properties and equipment is
being depreciated principally by the straight-line method over the estimated
useful lives of the assets. The cost of leasehold improvements is amortized on
the straight-line method over the lesser of the term of the respective lease or
estimated economic life.
STOCK OPTIONS The Corporation has elected to follow Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under Statement of Financial
Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
requires use of option valuation models
8
<PAGE> 45
that were not developed for use in valuing employee stock options. Under APB No.
25, because the exercise price of the Corporation's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
EARNINGS PER SHARE The computation of basic earnings per share excludes the
dilutive effect of common stock equivalents. Stock options issued to employees
and directors represent the only common stock equivalent of the Corporation.
Diluted earnings per share reflect the potential dilutive effect of stock
options computed using the treasury stock method.
NEW ACCOUNTING STANDARDS
On September 30, 1998, the Corporation adopted EITF 97-14, "Accounting for
Deferred Compensation Arrangements Where Amounts Earned are Held in a Rabbi
Trust and Invested." In accordance with this pronouncement, the Corporation now
consolidates assets held in a Rabbi Trust for the benefit of certain employees.
At the date of adoption, a liability was recorded for the deferred compensation
obligation and the shares held in the Rabbi Trust were recorded as treasury
shares.
As of January 1, 1998, the Corporation adopted SFAS No. 130, "Reporting
Comprehensive Income." Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Corporation's net income or stockholders'
equity. SFAS No. 130 requires unrealized gains or losses on the Corporation's
available-for-sale securities, which prior to adoption were reported separately
in stockholders' equity, to be included in other comprehensive income. Prior
year financial statements have been reclassified to conform to the requirements
of SFAS No. 130.
In 1998, the Corporation adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which establishes standards for the way
that public business enterprises report information about operating segments in
annual and interim financial statements. Because this Statement addresses how
supplemental information is disclosed in such reports, the adoption will not
impact the primary financial statements. See Note 16 - Segment Reporting for
further details.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," established accounting and reporting standards requiring that
derivative instruments (including derivative instruments embedded in other
contracts) be recorded on the balance sheet as either assets or liabilities
measured at fair value. Changes in the derivative's fair value would be
recognized currently in earnings unless specific hedge accounting criteria are
met. The earliest the Corporation would be required to adopt SFAS No. 133 is
April 1, 2000. The Corporation does not believe SFAS No. 133 will have a
material impact on its financial position or results of operations due to its
limited use of derivatives.
In October 1998, SFAS No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Entity - Amendment of FASB No. 64," was issued. This Statement requires
that after the securitization of mortgage loans, an entity classify the
resulting mortgage-backed securities or other retained interest based on its
ability and intent to sell or hold those securities in accordance with SFAS No.
115 "Accounting for Certain Investments in Debt and Equity Securities" (i.e
trading, available-for-sale or held-to-maturity). This Statement is not required
to be adopted until April 1, 2000. The Corporation does not believe SFAS No. 134
will have a material impact on its financial position or results of operations.
RECLASSIFICATIONS Certain 1998 and 1997 accounts have been reclassified to
conform to the 1999 presentations. All share and per share amounts for 1998 and
1997 have been adjusted to reflect the two-for-one stock split distributed in
August 1998.
NOTE 2 - BUSINESS COMBINATION
On June 7, 1999 the Corporation merged with FCB Financial Corp (FCBF). FCBF was
merged into the Corporation and its wholly owned subsidiary bank, Fox Cities
Bank, became a wholly owned subsidiary of the Corporation. In
9
<PAGE> 46
the merger, FCBF shareholders received 1.83 shares of the Corporation's common
stock for each outstanding share of FCBF common stock. This merger resulted in
the issuance of 7,028,444 shares of common stock, at an average cost of $6.84
per share, in exchange for 3,840,680 shares of outstanding FCBF common stock.
The merger has been accounted for as a pooling-of-interests and, accordingly,
all historical financial information and share data for the Corporation has been
restated to include FCBF for all periods presented. Certain reclassifications
were made to FCBF's statements to conform to the Corporation's presentations.
In connection with the merger, the Corporation and FCBF expect the combined
Corporation to incur pre-tax merger related charges of approximately $8.5
million. These charges are expected to include $5.4 million in change of control
severance, retirement, and other related employee payments, $2.3 million in
investment banking, legal and accounting fees and $0.8 million in direct merger
related data processing and other equipment costs. At March 31, 1999, no merger
related charges had been incurred. Most merger related charges will be recorded
in the first quarter of fiscal 2000.
As a part of the merger, there were also several FCBF sponsored employee benefit
plans that will be either terminated or merged into the Corporation's similar
benefit plans. These former plans and their planned dissolutions are discussed
in detail in Note 11 - Employee Benefit Plans.
The following table shows gross revenues (representing net interest income and
non-interest income, exclusive of security gains), net income and diluted
earnings per share on an individual and combined basis for the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------
1999 1998 1997
--------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Gross revenues:
Anchor BanCorp Wisconsin Inc. $ 79,811 $71,541 $69,370
FCBF 20,767 19,558 10,125
-------- ------- -------
Combined $100,578 $91,099 $79,495
======== ======= =======
Net income:
Anchor BanCorp Wisconsin Inc. $ 23,544 $20,501 $13,948
FCBF 6,697 5,844 2,440
-------- ------- -------
Combined $ 30,241 $26,345 $16,388
======== ======= =======
Diluted earnings per share:
Anchor BanCorp Wisconsin Inc. $ 1.28 $ 1.06 $ 0.71
FCBF 1.76 1.55 1.01
Combined 1.19 1.01 0.68
</TABLE>
10
<PAGE> 47
NOTE 3 - INVESTMENT SECURITIES
The amortized cost and fair values of investment securities are as follows (in
thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------------------------------------------------------
<S> <C> <C> <C> <C>
AT MARCH 31, 1999:
Available for Sale:
U.S. Government and federal agency obligations $17,645 $ 153 $ -- $17,798
Mutual funds 11,142 2 -- 11,144
Corporate stock and other 6,624 369 (326) 6,667
------- ----- -------- -------
$35,411 $ 524 $ (326) $35,609
======= ===== ======== =======
Held to Maturity:
U.S. Government and federal agency obligations $46,491 $ 86 $ (243) $46,334
Municipal securities 4,510 137 -- 4,647
Other securities 975 -- -- 975
------- ----- -------- -------
$51,976 $ 223 $ (243) $51,956
======= ===== ======== =======
AT MARCH 31, 1998:
Available for Sale:
U.S. Government and federal agency obligations $21,821 $ 94 $ (56) $21,859
Mutual funds 14,099 11 (6) 14,104
Corporate stock and other 5,641 855 (10) 6,486
------- ----- -------- -------
$41,561 $ 960 $ (72) $42,449
======= ===== ======== =======
Held to Maturity:
U.S. Government and federal agency obligations $33,516 $ 208 $ (40) $33,684
Municipal securities 4,495 122 -- 4,617
------- ----- -------- -------
$38,011 $ 330 $ (40) $38,301
======= ===== ======== =======
</TABLE>
Proceeds from sales of investment securities available for sale during the years
ended March 31, 1999, 1998 and 1997 were $35,906,000, $19,745,000 and
$39,809,000, respectively. Gross gains of $550,000, $3,000 and $16,000 were
realized on sales in 1999, 1998 and 1997, respectively. A gross loss of $36,000
was realized on sales of investment securities for the year ended March 31,
1999.
11
<PAGE> 48
The amortized cost and fair value of investment securities by contractual
maturity at March 31, 1999 are shown below (in thousands). Actual maturities may
differ from contractual maturities because issuers have the right to call or
prepay obligations with or without call or prepayment penalties. Government
agency securities subject to three month calls amount to $800,000 at March 31,
1999. There are no securities subject to six month calls at March 31, 1999.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
--------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less $15,937 $15,939 $ 3,065 $ 3,089
Due after one year through five years 15,744 15,896 41,271 41,170
Due after five years 100 100 7,640 7,697
Corporate stock 3,630 3,674 -- --
------- ------- ------- -------
$35,411 $35,609 $51,976 $51,956
======= ======= ======= =======
</TABLE>
12
<PAGE> 49
NOTE 4 - MORTGAGE-RELATED SECURITIES
Mortgage-related securities are backed by governmental agencies, including the
Federal Home Loan Mortgage Corporation, the Federal National Mortgage
Association and the Government National Mortgage Association. CMO's and REMICS
have estimated average lives of five years or less.
The amortized cost and fair values of mortgage-related securities are as follows
(in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
AT MARCH 31, 1999:
Available for Sale:
CMO's and REMICS $ 9,720 $ 348 $ (81) $ 9,987
Mortgage-backed securities 56,311 750 (92) 56,969
-------- ------- --------- --------
$ 66,031 $ 1,098 $ (173) $ 66,956
======== ======= ========= ========
Held to Maturity:
CMO's and REMICS $ 17,201 $ 61 $ (7) $ 17,255
Mortgage-backed securities 174,332 1,526 (426) 175,432
-------- ------- --------- --------
$191,533 $ 1,587 $ (433) $192,687
======== ======= ========= ========
AT MARCH 31, 1998:
Available for Sale:
CMO's and REMICS $ 9,762 $ 343 $ (137) $ 9,968
Mortgage-backed securities 90,197 1,284 (53) 91,428
-------- ------- --------- --------
$ 99,959 $ 1,627 $ (190) $101,396
======== ======= ========= ========
Held to Maturity:
CMO's and REMICS $ 38,508 $ 225 $ (71) $ 38,662
Mortgage-backed securities 114,485 1,322 (212) 115,595
-------- ------- --------- --------
$152,993 $ 1,547 $ (283) $154,257
======== ======= ========= ========
</TABLE>
Proceeds from sales of mortgage-related securities available for sale during the
years ended March 31, 1999, 1998 and 1997 were $5,761,000, $4,750,000 and
$5,617,000, respectively. Gross gains of $109,000 and $137,000 were realized on
sales in 1999 and 1998, respectively. No losses were realized in 1999 and 1998.
No gains or losses were realized on sales of mortgage-related securities in
1997.
13
<PAGE> 50
NOTE 5 - LOANS RECEIVABLE
Loans receivable held for investment consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------
1999 1998
---------------------------------------
<S> <C> <C>
First mortgage loans:
Single-family residential $1,061,813 $1,032,116
Multi-family residential 233,984 191,580
Commercial real estate 282,980 248,365
Construction 179,189 139,314
Land 17,309 12,503
---------- ----------
1,775,275 1,623,878
Second mortgage loans 214,295 220,177
Education loans 130,254 125,503
Commercial business loans and leases 51,403 37,866
Credit card and other consumer loans 56,590 53,867
---------- ----------
2,227,817 2,061,291
Less:
Undisbursed loan proceeds 87,401 68,686
Allowance for loan losses 24,027 25,400
Unearned loan fees 4,015 4,137
Discount on purchased loans 792 1,016
Unearned interest 16 29
---------- ----------
116,251 99,268
---------- ----------
$2,111,566 $1,962,023
========== ==========
</TABLE>
A summary of the activity in the allowance for loan losses follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 25,400 $ 24,155 $ 23,882
Provisions 1,017 1,250 850
Charge-offs (2,955) (2,420) (1,000)
Recoveries 565 996 423
Acquired through acquisition -- 1,419 --
-------- -------- --------
Balance at end of year $ 24,027 $ 25,400 $ 24,155
======== ======== ========
</TABLE>
A substantial portion of the Bank's loans are collateralized by real estate in
and around Dane County, Wisconsin. Accordingly, the ultimate collectibility of a
substantial portion of the loan portfolio is susceptible to changes in market
conditions in that area.
Mortgage loans serviced for others are not included in the consolidated balance
sheets. The unpaid principal balances of mortgage loans serviced for others were
approximately $1,547,464,000 and $1,351,330,000 at March 31, 1999 and 1998,
respectively.
14
<PAGE> 51
Mortgage servicing rights of $7,298,000 and $3,527,000 are included in other
assets. $5,740,000 and $2,939,000 were capitalized during the years ended March
31, 1999 and 1998, respectively. Amortization of mortgage servicing rights was
$2,180,000 and $826,000 for the years ended March 31, 1999 and 1998,
respectively. A general valuation allowance was established for the impairment
of mortgage servicing rights. The valuation allowance for the impairment of
mortgage servicing rights was $1.3 million and $450,000 for the years ended
March 31, 1999 and 1998, respectively. This increase of $889,000 was attributed
to provisions to the allowance. For discussion of the fair value of mortgage
servicing rights and method of valuation, see Note 13 - Fair Value of Financial
Instruments.
NOTE 6 - FORECLOSED PROPERTIES AND REPOSSESSED ASSETS
Foreclosed properties, repossessed assets and properties subject to redemption
had a cost of $1,894,000 and $5,048,000 at March 31, 1999 and 1998,
respectively. At March 31, 1999 and 1998, an allowance for losses of $291,000
and $325,000, respectively, related to these assets.
The activity in the allowance for losses on foreclosed properties and
repossessed assets was as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of year $ 325 $ 1,078 $ 717 $ 787 $ 343
Provision 200 25 500 200 950
Charge-offs (234) (778) (139) (270) (506)
----- ------- ------- ----- -----
Allowance at end of year $ 291 $ 325 $ 1,078 $ 717 $ 787
===== ======= ======= ===== =====
</TABLE>
NOTE 7 - OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------------------------
1999 1998
------------------------------
<S> <C> <C>
Land and land improvements $ 5,828 $ 5,679
Office buildings 26,310 25,671
Furniture and equipment 20,582 20,795
Leasehold improvements 1,592 2,288
------- -------
54,312 54,433
Less allowance for depreciation and amortization 29,433 29,183
------- -------
</TABLE>
15
<PAGE> 52
NOTE 8 - DEPOSITS
Deposits are summarized as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------
1999 1998
--------------------------------------------
<S> <C> <C>
Negotiable order of withdrawal ("NOW") accounts $ 212,564 $ 193,597
Money market accounts 295,979 235,695
Passbook accounts 142,974 138,377
Certificates of deposit 1,173,467 1,132,378
---------- ----------
1,824,984 1,700,047
Accrued interest on deposits 10,432 10,933
----------- ----------
$ 1,835,416 $1,710,980
=========== ==========
</TABLE>
A summary of annual maturities of certificates of deposit follows (in
thousands):
<TABLE>
<CAPTION>
MATURES DURING YEAR ENDED MARCH 31, AMOUNT
- --------------------------------------------------------------------------------
<S> <C>
2000 $ 960,818
2001 164,151
2002 21,294
2003 14,107
Thereafter 13,097
----------
$1,173,467
==========
</TABLE>
At March 31, 1999 and 1998, certificates of deposit with balances greater than
or equal to $100,000 amounted to $182,704,000 and $142,735,000, respectively.
NOTE 9 - BORROWINGS
The Bank enters into sales of securities under agreements to repurchase the
securities ("reverse repurchase agreements"). These agreements are treated as
financings with the obligations to repurchase securities reflected as a
liability and the dollar amount of securities underlying the agreements
remaining in the asset accounts. The securities underlying the agreements are
held by the counter-party brokers in the Bank's account. At March 31, 1999 and
1998, liabilities recorded under agreements to repurchase were $42,464,000 and
$42,935,000, respectively. The reverse repurchase agreements had a
weighted-average interest rate of 4.91% and 5.60% at March 31, 1999 and 1998,
respectively, and mature within one year of the fiscal year-end. Based upon
month-end balances, securities sold under agreements to repurchase averaged
$30,930,000 and $22,923,000 during 1999 and 1998, respectively. The maximum
outstanding at any month-end was $52,139,000 and $45,214,000 during 1999 and
1998, respectively. The agreements were collateralized by mortgage-backed
securities available for sale and held to maturity with market values of
$43,638,000 and $44,650,000 at March 31, 1999 and 1998, respectively.
16
<PAGE> 53
Federal Home Loan Bank ("FHLB") advances and other loans payable consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1999 MARCH 31, 1998
--------------------------------------------------------------------------
MATURES DURING WEIGHTED WEIGHTED
YEAR ENDED MARCH 31, AMOUNT RATE AMOUNT RATE
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FHLB advances: 1999 $ - - $341,200 5.76%
2000 255,349 5.42% 73,349 5.83
2001 53,500 5.20 8,296 5.88
2002 28,596 5.15 1,800 6.32
2003 48,500 5.51 48,500 5.51
2004 24,000 5.25 - -
2005 10,000 4.98 10,000 4.98
2006 7,000 4.94 - -
2008 25,000 4.84 25,000 4.84
2009 65,750 5.08 - -
Other loans payable various 12,800 6.22 12,830 8.78
-------- --------
$530,495 5.32% $520,975 5.77%
======== ===== ======== ====
</TABLE>
The Bank is required to maintain unencumbered first mortgage loans in its
portfolio aggregating at least 167% of the amount of outstanding advances from
the FHLB as collateral. In addition, these notes are collateralized by FHLB
stock of $27,745,000 at March 31, 1999.
NOTE 10 - STOCKHOLDERS' EQUITY
The Board of Directors of the Corporation is authorized to issue preferred stock
in series and to establish the voting powers, other special rights of the shares
of each such series and the qualifications and restrictions thereof. Preferred
stock may rank prior to the common stock as to dividend rights, liquidation
preferences or both, and may have full or limited voting rights. Under Wisconsin
state law, preferred stockholders would be entitled to vote as a separate class
or series in certain circumstances, including any amendment which would
adversely change the specific terms of such series of stock or which would
create or enlarge any class or series ranking prior thereto in rights and
preferences. No preferred stock has been issued.
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory -- and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Qualitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of core, tangible, and
risk-based capital. Management believes, as of March 31, 1999, that the Bank
meets all capital adequacy requirements to which it is subject.
As of March 31, 1999, the most recent notification from the Office of Thrift
Supervision ("OTS") categorizes the Bank as well capitalized under the framework
for prompt corrective action. To be categorized as well capitalized, the Bank
must maintain minimum core, tangible, and risk-based capital ratios as set forth
in the following table.
17
<PAGE> 54
There have been no conditions or events since that notification that management
believes have changed the Bank's category. The qualification results in a lower
assessment of FDIC premiums and other benefits.
The following table summarizes the Bank's capital ratios and the ratios required
by its regulators at March 31, 1999 and 1998 (dollars in thousands):
<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 MARCH 31, 1999:
Tier 1 capital
(to adjusted tangible assets) $181,226 6.90% $ 78,851 3.00% $131,418 5.00%
Risk-based capital
(to risk-based assets) 202,284 11.98 135,078 8.00 168,848 10.00
Tangible capital
(to tangible assets) 181,226 6.90 39,425 1.50 N/A N/A
AS OF MARCH 31, 1998:
Tier 1 capital
(to adjusted tangible assets) 171,546 6.88 74,837 3.00 124,729 5.00
Risk-based capital
(to risk-based assets) 191,062 12.04 126,933 8.00 158,667 10.00
Tangible capital
(to tangible assets) 171,546 6.88 37,419 1.50 N/A N/A
</TABLE>
18
<PAGE> 55
The following table reconciles stockholders' equity to the component of
regulatory capital at March 31, 1999 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
March 31,
--------------------------------------------
1999 1998
--------------------------------------------
<S> <C> <C>
Stockholders' equity of the Corporation $220,166 $202,868
Less: Capitalization of the Corporation and Non-Bank
subsidiaries (34,936) (27,422)
-------- -------
Stockholders' equity of the Bank 185,230 175,446
Less: Intangible assets and other non-includable assets (4,004) (3,900)
------- --------
Tier 1 and tangible capital 181,226 171,546
Plus: Allowable general valuation allowances 21,058 19,516
-------- --------
Risk based capital $202,284 $191,062
======== ========
</TABLE>
The Bank may not declare or pay a cash dividend if such declaration and payment
would violate regulatory requirements. Unlike the Bank, the Corporation is not
subject to these regulatory restrictions on the payment of dividends to its
stockholders. However, the source of its future corporate dividends may depend
upon dividends from the Bank.
NOTE 11 - EMPLOYEE BENEFIT PLANS
The Corporation maintains a defined contribution plan that covers substantially
all employees with more than one year of service who are at least 21 years of
age. Participating employees may contribute up to 18% (8% before tax and 10%
after tax) of their compensation. The Corporation matches the amounts
contributed by each participating employee up to 2% of the employee's
compensation and 25% of each employee's contributions up to the next 4% of
compensation. The Corporation may also contribute additional amounts at its
discretion. The Corporation's contribution was $354,000, $364,000 and $335,000
for the years ended March 31, 1999, 1998 and 1997, respectively.
FCBF had a qualified defined contribution plan similar to the Corporation's
defined contribution plan. The plan will be merged into the Corporation's plan
in fiscal 2000. The funds in the FCBF plan presently reside with the trustee and
when the merger of the plan occurs, all participants will be allowed to redirect
their funds within the Corporation's defined contribution plan. Expenses related
to this plan were $33,000, and $36,000 in 1999 and 1998, respectively. There was
no plan expense in 1997.
The Corporation sponsors an Employee Stock Ownership Plan ("ESOP") which covers
substantially all employees with more than one year of employment who are at
least 21 years of age. In 1992, the ESOP borrowed $3,000,000 from the
Corporation to purchase 1,500,000 common shares. The Bank repaid the borrowing
and all shares associated with that borrowing were released in 1997. In 1998,
the ESOP borrowed $2,069,000 from the Corporation to purchase 100,000 additional
common shares. The Bank has repaid $1,380,000 and 66,666 of the shares
associated with this borrowing have been released. Any discretionary
contributions to the ESOP and the shares calculated to be released from the
suspense account have been allocated among participants on the basis of
compensation. Forfeitures are reallocated among the remaining participating
employees. The dividends on ESOP shares were used to purchase additional shares
to be allocated under the plan. The number of shares allocated to participants
is determined based on the annual contribution plus any shares purchased from
dividends received
19
<PAGE> 56
during the year. The ESOP plan expense for both plans for the fiscal years 1999,
1998 and 1997 was $1,692,000, $1,440,000 and $1,418,000, respectively.
FCBF sponsored an ESOP for substantially all of its full-time employees. The
FCBF ESOP originally borrowed $1,800,000 from FCBF to purchase 180,000 shares of
FCBF's common stock. Additionally, in conjunction with the merger, the
Corporation assumed a $487,000 loan associated with an ESOP from the acquiree's
prior merger. The ESOP from the prior merger was combined with the FCBF plan.
The loans are expected to be repaid in fiscal 2000 as part of the plan's
termination. As part of the FCBF merger, all of the allocated shares of the FCBF
ESOP will be distributed to participants of the plan. Receipt of a determination
letter and approval from the Internal Revenue Service are expected some time in
fiscal 2000.
The activity in the ESOP shares of both plans is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------
1999 1998 1997
-------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year 2,018,877 2,121,669 2,182,872
Additional shares purchased 7,674 128,034 -
Shares distributed for terminations 1,345 110,414 31,771
Sale of shares for cash distributions 68,566 120,412 29,432
--------- --------- ---------
Balance at end of year 1,956,640 2,018,877 2,121,669
Allocated shares included above 1,774,363 1,737,019 1,746,256
--------- --------- ---------
Unreleased shares 182,277 281,858 375,413
========= ========= =========
</TABLE>
During 1992, the Corporation formed four Management Recognition Plans ("MRPs")
which acquired a total of 4% of the shares of common stock. The Bank contributed
$2,000,000 to the MRPs to enable the MRP trustee to acquire a total of 1,000,000
shares of common stock. Of these, 17,800 shares, 9,200 shares and 11,200 shares
were granted during the years ended March 31, 1999, 1998 and 1997, respectively,
to employees in management positions. The $2,000,000 contributed to the MRPs is
being amortized to compensation expense as the Bank's employees become vested in
the awarded shares. The amount amortized to expense was $248,000, $175,000 and
$334,000 for the years ended March 31, 1999, 1998 and 1997, respectively. Shares
vested during the years ended March 31, 1999, 1998 and 1997 and distributed to
the employees totalled 9,600, 125,600 and 131,364 respectively. The remaining
unamortized cost of the MRPs is reflected as a reduction of stockholders'
equity.
The Corporation has stock option plans under which shares of common stock are
reserved for the grant of both incentive and non-incentive stock options to
directors, officers and employees. The date the options are first exercisable is
determined by a committee of the Board of Directors of the Corporation. The
options expire no later than ten years from the grant date.
FCBF had reserved 290,950 shares of common stock to be issued under a
nonqualified stock option plan for employees and directors. Pursuant to the
merger, any unvested options in the plan became fully vested. FCBF options were
exchanged for 1.83 options for the Corporation's common stock. Exercise prices
of all of the options were reduced by the equivalent ratio. All outstanding
options of FCBF became 100% vested and exercisable.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, which also requires that the information be determined as if the
Corporation has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that statement. The
Corporation's pro forma net income and pro forma primary earnings per share for
fiscal 1999, 1998, and 1997 were not materially different from the net income
and basic earnings per share disclosed in the consolidated statements of income.
20
<PAGE> 57
A summary of stock options activity follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,910,475 6.55 2,634,530 $ 4.77 2,581,425 $ 2.63
Granted 313,601 18.83 632,795 12.37 249,688 8.51
Exercised (602,180) 3.99 (356,849.45) 2.47 (190,744) 2.68
Forfeited (28,991) 13.91 - 0.00 (5,840) 5.17
--------- ------------ ---------
Outstanding at end of year 2,592,905 8.55 2,910,476 6.55 2,634,529 4.77
========= ========= =========
Options exercisable at year-end 1,897,307 2,188,162 736,522
========= ========= =========
</TABLE>
The range of exercise prices of options exercisable at March 31, 1999 was $2.00
to $21.81. At March 31, 1999, options for 969,144 shares were available for
future grants. The weighted remaining contractual life of outstanding options at
March 31, 1999 is 5.93 years.
The Corporation applies APB Opinion No. 25 and related Interpretations in
accounting for stock options in compliance with SFAS No. 123. The Corporation
has elected to provide the pro forma disclosure of net income and earnings per
share for the fiscal year ends shown as if compensation expense had been
realized. The following table reflects both income as reported and pro forma
income with the implementation of SFAS No. 123.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------
3/31/99 3/31/98 3/31/97
-----------------------------------
<S> <C> <C> <C>
Net Income
As reported $30,241 $26,345 $16,388
Pro forma 29,751 25,833 16,057
Earnings per share-Basic
As reported $ 1.26 $ 1.06 $ 0.71
Pro forma 1.24 1.04 0.70
Earnings per share-Diluted
As reported $ 1.19 $ 1.01 $ 0.68
Pro forma 1.17 0.99 0.67
</TABLE>
The fair values of stock options granted in fiscal years ended March 31, 1999,
1998, and 1997 were estimated on the date of grant using the Black-Scholes
option-pricing mode.
21
<PAGE> 58
The weighted average fair values and related assumptions are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------
3/31/99 3/31/98 3/31/97
-----------------------------------
<S> <C> <C> <C>
Weighted average fair value $ 7.29 $ 6.11 $ 8.43
Expected volatility 36.7% 17.5% 17.5%
Risk free interest rate 5.25% 6.00% 6.00%
Expected lives 5 years 5 years 5 years
Dividend yield 1.00% 1.25% 1.25%
</TABLE>
The fair value of the options granted at FCBF was also estimated using the
Black-Scholes methodology. The following assumptions were made as of the grant
date in estimating the fair value for the options granted at FCBF:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------
3/31/99 3/31/98 3/31/97
---------------------------------------
<S> <C> <C> <C>
Weighted average fair value $ 6.56 $ 4.36 $ 4.36
Expected volatility 34.9% 30.3% 30.3%
Risk free interest rate 5.12% 5.12% 5.12%
Expected lives 7.5 years 7.5 years 7.5 years
Dividend yield 2.34% 2.75% 2.75%
</TABLE>
The Corporation has two deferred compensation plans to benefit certain
executives of the Corporation and the Bank. The first plan provides for
contributions by both the participant and the Corporation equal to the amounts
in excess of limitations imposed by the Internal Revenue Code amendment of 1986.
The expense associated with this plan for fiscal 1999, 1998 and 1997 was
$137,000, $39,000 and $358,000, respectively. The second plan provides for
contributions by the Corporation to supplement the participant's retirement. The
expense associated with this plan for fiscal 1998 and 1997 was $327,000 and
$356,000, respectively. There was no expense for fiscal 1999.
FCBF had a deferred compensation agreement with two of its employees and a
separation benefit plan also with two of its employees. Each of these plans were
nonqualified, supplemental retirement plans in which the individual employees
had a set amount to be accrued by age 65. At March 31, 1999, the maximum
liability that could have been paid under these agreements was $149,000. It is
expected that the plans will be terminated and paid in the first quarter of
fiscal 2000. The expense associated with this plan for fiscal 1999, 1998 and
1997 was $15,000, $15,000 and $26,000, respectively.
NOTE 12 - INCOME TAXES
The Corporation and its subsidiaries file a consolidated federal income tax
return and separate state income tax returns.
In prior years, the Bank qualified under provisions of the Internal Revenue Code
which permitted as a deduction from taxable income allowable bad debt deductions
which significantly exceeded actual losses and the financial statement loan loss
provisions. At March 31, 1999, retained earnings included approximately
$46,057,000 for which no provision for income tax has been made. Income taxes of
approximately $18,485,000 would be imposed if the Bank were to use these
reserves for any purpose other than to absorb bad debt losses.
22
<PAGE> 59
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $15,593 $12,494 $7,643
State 2,387 1,898 1,650
------- ------- ------
17,980 14,392 9,293
Deferred:
Federal 449 951 334
State 178 164 (430)
------- ------- ------
627 1,115 (96)
------- ------- ------
$18,607 $15,507 $9,197
======= ======= ======
</TABLE>
The provision for income taxes differs from that computed at the federal
statutory corporate tax rate as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1999 1998 1997
--------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes $48,848 $41,852 $25,585
------- ------- -------
Income tax expense at federal statutory
rate of 35% $17,097 $14,648 $ 8,955
State income taxes, net of federal income
tax benefits 1,667 1,340 793
Reduction in valuation allowance - - (638)
Other (157) (481) 87
------- ------- -------
Income tax provision $18,607 $15,507 $ 9,197
======= ======= =======
</TABLE>
Deferred income tax assets and liabilities reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
23
<PAGE> 60
The significant components of the Corporation's deferred tax assets
(liabilities) are as follows (in thousands):
<TABLE>
<CAPTION>
AT MARCH 31,
1999 1998 1997
----------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Allowances for losses $ 8,304 $ 8,142 $ 7,788
Other 4,419 3,930 2,947
------- ------- -------
Total deferred tax assets 12,723 12,072 10,735
Valuation allowance (74) - -
-------- ------- -------
Adjusted deferred tax assets 12,649 12,072 10,735
Deferred tax liabilities:
Other (4,731) (3,889) (1,622)
-------- ------- -------
Total deferred tax liabilities (4,731) (3,889) (1,622)
------- ------- -------
Total deferred tax assets $ 7,918 $ 8,183 $ 9,113
======= ======= =======
</TABLE>
NOTE 13 - COMMITMENTS AND CONTINGENT LIABILITIES
The Corporation is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, loans sold
with recourse against the Corporation and financial guarantees which involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheets. The contract amounts of
those instruments reflect the extent of involvement and exposure to credit loss
the Corporation has in particular classes of financial instruments. The
Corporation uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk are as
follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------
1999 1998
--------------------------------------------
<S> <C> <C>
Commitments to extend credit:
Fixed rate $42,841 $49,059
Adjustable rate 49,123 37,983
Unused lines of credit:
Home equity 33,348 28,948
Credit cards 21,928 20,340
Commercial 28,056 16,650
Letters of credit 18,700 17,476
Loans sold with recourse 1,500 1,900
Credit enhancement under the Federal
Home Loan Bank of Chicago Mortgage
Partnership Finance Program 4,139 378
</TABLE>
Commitments to extend credit and unused lines of credit are agreements to lend
to a customer as long as there is no violation of any condition established in
the contract. Letters of credit commit the Corporation to make payments
24
<PAGE> 61
on behalf of customers when certain specified future events occur. Commitments
and letters of credit generally have fixed expiration dates or other termination
clauses and may require payment of a fee. As some such commitments expire
without being drawn upon or funded by the Federal Home Loan Bank of Chicago
(FHLB), the total commitment amounts do not necessarily represent future cash
requirements. The Corporation evaluates each customer's creditworthiness on a
case-by-case basis. With the exception of credit card lines of credit, the
Corporation generally extends credit only on a secured basis. Collateral
obtained varies, but consists primarily of single-family residences and
income-producing commercial properties. Fixed-rate loan commitments expose the
Corporation to a certain amount of interest rate risk if market rates of
interest substantially increase during the commitment period. Similar risks
exist relative to loans classified as held for sale, which totalled $18,080,000
and $34,752,000 at March 31, 1999 and 1998, respectively. This exposure,
however, is mitigated by the existence of firm commitments to sell the majority
of the fixed-rate loans. Commitments to sell mortgage loans within 60 days at
March 31, 1999 and 1998 amounted to $25,862,000 and $62,619,000, respectively.
The Corporation participates in the FHLB Mortgage Partnership Finance Program
(the Program). In addition to entering into forward commitments to sell mortgage
loans to a secondary market agency, the Corporation enters into firm commitments
to deliver loans to the FHLB through the Program. Under the Program, loans are
funded by the FHLB and the Corporation receives an agency fee reported as a
component of gain on sale of loans. The Corporation had firm commitments
outstanding to deliver loans through the Program of $4.1 million at March 31,
1999. Once delivered to the Program, the Corporation provides a contractually
agreed-upon credit enhancement and performs servicing of the loans. Under the
credit enhancement, the Corporation is liable for losses on loans delivered to
the Program after application of any mortgage insurance and a contractually
agreed-upon credit enhancement provided by the Program subject to an agree-upon
maximum. The Corporation received a fee for this credit enhancement. The
Corporation does not anticipate that any credit losses will be incurred in
excess of anticipated credit enhancement fees.
Loans sold to investors with recourse to the Corporation met the underwriting
standards of the investor and the Corporation at the time of origination. In the
event of default by the borrower, the investor may resell the loans to the
Corporation at par value. As the Corporation expects relatively few such loans
to become delinquent, the total amount of loans sold with recourse does not
necessarily represent future cash requirements. Collateral obtained on such
loans consists primarily of single-family residences.
Except for the above-noted commitments to originate and/or sell mortgage loans
in the normal course of business, the Corporation and the Bank have not
undertaken the use of off-balance-sheet derivative financial instruments for any
purpose.
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosure of fair value information about financial instruments, for which it
is practicable to estimate that value, is required whether or not recognized in
the consolidated balance sheets. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instruments. Certain financial instruments and
all non-financial instruments are excluded from the disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not necessarily
represent the underlying value of the Corporation.
The Corporation, in estimating its fair value disclosures for financial
instruments, used the following methods and assumptions:
CASH AND CASH EQUIVALENTS AND ACCRUED INTEREST: The carrying amounts reported in
the balance sheets approximate those assets' and liabilities' fair values.
25
<PAGE> 62
INVESTMENT AND MORTGAGE-RELATED SECURITIES: Fair values for investment and
mortgage-related securities are based on quoted market prices, where available.
If quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
LOANS RECEIVABLE: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for loans held for sale are based on outstanding sale commitments or
quoted market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair value
of fixed-rate residential mortgage loans held for investment, commercial real
estate loans, rental property mortgage loans and consumer and other loans and
leases are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality. For construction loans, fair values are based on carrying values
due to the short-term nature of the loans.
MORTGAGE SERVICING RIGHTS: In accordance with FASB Statement No. 125, the
Corporation has calculated the fair market value of mortgage servicing rights
for those loans that are originated with servicing rights retained. For
valuation purposes, loans are stratified by product type and, within product
type, by interest rate. The primary indicator of fair market value for each loan
is its comparison to market interest rate for that loan type. The market values
are amortized on a monthly basis based upon prepayment histories. Loans may be
revalued monthly and book values adjusted to reflect changes in value.
FEDERAL HOME LOAN BANK STOCK: The carrying amount of FHLB stock equals its fair
value because the shares can be resold to the FHLB or other member banks at
their carrying amount of $100 per share par amount.
DEPOSITS: The fair values disclosed for NOW accounts, passbook accounts and
variable rate insured money market accounts are, by definition, equal to the
amount payable on demand at the reporting date (i.e., their carrying amounts).
The fair values of fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies current incremental interest rates
being offered on certificates of deposit to a schedule of aggregated expected
monthly maturities of the outstanding certificates of deposit.
BORROWINGS: The fair value of the Corporation's borrowings are estimated using
discounted cash flow analysis, based on the Corporation's current incremental
borrowing rates for similar types of borrowing arrangements.
OFF-BALANCE-SHEET INSTRUMENTS: Fair values of the Corporation's
off-balance-sheet instruments (lending commitments and unused lines of credit)
are based on fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements, the counterparties' credit
standing and discounted cash flow analyses. The fair value of these
off-balance-sheet items approximates the recorded amounts of the related fees
and is not material at March 31, 1999 and 1998.
26
<PAGE> 63
The carrying amounts and fair values of the Corporation's financial instruments
consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash equivalents $ 63,976 $ 63,976 $ 67,526 $ 67,526
Investment securities 87,585 87,565 80,460 80,750
Mortgage-related securities 258,489 259,643 254,389 255,653
Loans held for sale 18,080 18,080 34,752 34,752
Loans receivable 2,111,566 2,116,338 1,962,023 1,973,980
Mortgage servicing rights 7,298 7,298 3,527 3,527
Federal Home Loan Bank stock 27,745 27,745 28,030 28,030
Accrued interest receivable 17,322 17,322 16,514 16,514
Deposits 1,824,984 1,813,801 1,700,047 1,685,035
Federal Home Loan Bank and other borrowings 530,495 523,522 520,975 518,100
Reverse repurchase agreements 42,464 42,430 42,935 42,915
Accrued interest payable 13,116 13,116 13,551 13,551
</TABLE>
27
<PAGE> 64
NOTE 15 - PARENT ONLY FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------
1999 1998
------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 7,582 $ 3,971
Investment in subsidiaries 191,745 181,337
Securities held to maturity 4,510 4,495
Securities available for sale 6,941 6,444
Other 26,067 10,993
-------- --------
Total assets $236,845 $207,240
======== ========
LIABILITIES
Loans payable $ 12,800 $ 2,000
Other liabilities 3,879 2,372
-------- --------
Total liabilities 16,679 4,372
======== ========
STOCKHOLDERS' EQUITY
Total stockholders' equity 220,166 202,868
-------- --------
Total liabilities and stockholders' equity $236,845 $207,240
======== ========
</TABLE>
CONDENSED STATEMENTS OF INCOME (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 9,384 $ 11,573 $ 2,827
Interest expense 885 288 364
-------- -------- -------
Net interest income 8,499 11,285 2,463
Equity in net income from subsidiaries 22,141 15,646 14,021
Non-interest income 478 33 722
-------- -------- --------
31,118 26,964 17,206
Non-interest expenses 408 519 422
-------- -------- --------
Income before income taxes 30,710 26,445 16,784
Income taxes 469 100 396
-------- -------- --------
Net income $ 30,241 $ 26,345 $ 16,388
======== ======== ========
</TABLE>
28
<PAGE> 65
CONDENSED STATEMENTS OF CASH FLOWS (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 30,241 $ 26,345 $ 16,388
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Equity in net income of subsidiaries (29,955) (25,404) (15,726)
Other (1,771) 346 (927)
-------- -------- --------
Net cash provided (used) by operating activities (1,485) 1,287 (265)
INVESTING ACTIVITIES
Proceeds from maturities of investment securities -- -- 99
Purchase of investment securities available for sale (1,453) (306) (898)
Purchase of investment securities held to maturity -- (4,481) --
Proceeds from sales of mortgage-related securities available for sale 944 245 --
Principal collected on mortgage-backed securities 2 -- 2
Net decrease (increase) in loans receivable (11,960) 1,073 1,920
Dividends from subsidiary 20,544 26,330 13,233
Other (14) 4,280 70
-------- -------- --------
Net cash provided by investing activities 8,063 27,141 14,426
FINANCING ACTIVITIES
Increase (decrease) in other loans payable 10,800 (6,500) 3,502
Purchase of treasury stock (11,492) (16,751) (15,218)
Exercise of stock options and purchase of stock by retirement plans 3,471 1,354 474
Cash dividend paid (6,771) (5,756) (3,920)
Repayment of ESOP borrowings 1,025 1,010 1,177
-------- -------- --------
Net cash used by financing activities (2,967) (26,643) (13,985)
-------- -------- --------
Increase in cash and cash equivalents 3,611 1,785 176
Cash and cash equivalents at beginning of year 3,971 2,186 2,010
-------- -------- --------
Cash and cash equivalents at end of year $ 7,582 $ 3,971 $ 2,186
======== ======== ========
</TABLE>
29
<PAGE> 66
NOTE 16 - 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 it's
subsidiary, NIDI, invest in limited partnerships in real estate developments.
Such developments include recreational residential developments and industrial
developments (such as office parks).
The following represents reconciliations of reportable segment revenues, profit
or loss, and assets to the Corporation's consolidated totals for the years ended
March 31, 1999, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1999
------------------------------------------------------
CONSOLIDATED
REAL ESTATE COMMUNITY FINANCIAL
INVESTMENTS BANKING STATEMENTS
--------------- --------------- ----------------
<S> <C> <C> <C>
Interest income $ 1,974 $ 194,309 $ 196,283
Interest expense 0 114,535 114,535
------- ---------- ----------
Net interest income 1,974 79,774 81,748
Provision for loan losses 0 1,217 1,217
------- ---------- ----------
Net interest income after provision for loan losses 1,974 78,557 80,531
Other income 631 18,864 19,495
Other expense 456 51,136 51,592
------- ---------- ----------
Net operating income 2,149 46,285 48,434
Gain on sale of real estate partnership investments 414 0 414
------- ---------- ----------
Income before income taxes 2,563 46,285 48,848
Income taxes 412 18,195 18,607
------- ---------- ----------
Net income $ 2,151 $ 28,090 $ 30,241
======= ========== ==========
Average assets $26,530 $2,596,965 $2,623,495
</TABLE>
30
<PAGE> 67
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1998
---------------------------------------------------
CONSOLIDATED
REAL ESTATE COMMUNITY FINANCIAL
INVESTMENTS BANKING STATEMENTS
----------- ----------- ------------
<S> <C> <C> <C>
Interest income $ 334 $ 186,910 $ 187,244
Interest expense 0 110,893 110,893
-------- ---------- ----------
Net interest income 334 76,017 76,351
Provision for loan losses 0 1,250 1,250
-------- ---------- ----------
Net interest income after provision for loan losses 334 74,767 75,101
Other income (92) 15,659 15,567
Other expense 834 48,137 48,971
-------- ---------- ----------
Net operating income (592) 42,289 41,697
Gain on sale of real estate partnership investments 155 0 155
-------- ---------- ----------
Income before income taxes (437) 42,289 41,852
Income taxes (260) 15,767 15,507
======== ========== ==========
Net income $ (177) $ 26,522 $ 26,345
======== ========== ==========
Average assets $ 13,855 $2,434,726 $2,448,581
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
-------------------------------------------------
CONSOLIDATED
REAL ESTATE COMMUNITY FINANCIAL
INVESTMENTS BANKING STATEMENTS
------------ ----------- -----------
<S> <C> <C> <C>
Interest income $ 53 $ 160,516 $ 160,569
Interest expense 0 95,543 95,543
------ ---------- ----------
Net interest income 53 64,973 65,026
Provision for loan losses 0 850 850
------ ---------- ----------
Net interest income after provision for loan losses 53 64,123 64,176
Other income 6,052 12,132 18,184
Other expense 3,699 53,076 56,775
------ ---------- ----------
Net operating income 2,406 23,179 25,585
Gain on sale of real estate partnership investments 0 0 0
------ ---------- ----------
Income before income taxes 2,406 23,179 25,585
Income taxes 977 8,220 9,197
------ ---------- ----------
Net income $1,429 $ 14,959 $ 16,388
====== ========== ==========
Average assets $6,450 $2,103,082 $2,109,532
</TABLE>
31
<PAGE> 68
NOTE 17 - EARNINGS PER SHARE
The computation of earnings per share for fiscal years 1999, 1998, and 1997 is
as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED MARCH 31,
------------------------------------------------------
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income $30,240,991 $26,345,093 $16,387,999
----------- ----------- -----------
Numerator for basic and diluted earnings
per share--income available to common
stockholders $30,240,991 $26,345,093 $16,387,999
Denominator:
Denominator for basic earnings per
share--weighted-average shares 24,021,061 24,826,882 22,952,833
Effect of dilutive securities:
Employee stock options 1,301,929 1,348,562 1,118,667
Denominator for diluted earnings per
share--adjusted weighted-average
----------- ----------- -----------
shares and assumed conversions 25,322,990 26,175,444 24,071,500
----------- ----------- -----------
Basic earnings per share $ 1.26 $ 1.06 $ 0.71
=========== =========== ===========
Diluted earnings per share $ 1.19 $ 1.01 $ 0.68
=========== =========== ===========
</TABLE>
32
<PAGE> 69
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Anchor BanCorp Wisconsin Inc.
We have audited the accompanying consolidated balance sheets of Anchor BanCorp
Wisconsin Inc. (the "Corporation") as of March 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended March 31, 1999. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1999, 1998, and 1997 financial statements of
FCB Financial Corp., which statements reflect total assets constituting 19.6%
and 20.6% of the consolidated financial statement totals as of March 31, 1999
and 1998, respectively, and net income constituting 22.1%, 22.2% and 14.9% of
the consolidated financial statement totals for the three years in the period
ended March 31, 1999. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to data
included for FCB Financial Corp., is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Anchor BanCorp Wisconsin Inc. at March
31, 1999 and 1998, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended March 31, 1999, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
April 30, 1999
Milwaukee, Wisconsin
33
<PAGE> 70
MANAGEMENT AND AUDIT COMMITTEE REPORT
Management is responsible for the preparation, content and integrity of the
financial statements and all other financial information included in this annual
report. The financial statements have been prepared in accordance with generally
accepted accounting principles.
The Corporation maintains a system of internal controls designed to provide
reasonable assurance as to the integrity of financial records and the protection
of assets. The system of internal controls includes written policies and
procedures, proper delegation of authority, organizational division of
responsibilities and the careful selection and training of qualified personnel.
In addition, the internal auditors and independent auditors periodically test
the system of internal controls.
Management recognizes that the cost of a system of internal controls should not
exceed the benefits derived and that there are inherent limitations to be
considered in the potential effectiveness of any system. However, management
believes that the system of internal controls provides reasonable assurances
that financial transactions are recorded properly to permit the preparation of
reliable financial statements.
The Audit Committee of the Board of Directors is composed of outside directors
and has the responsibility for the recommendation of the independent auditors
for the Corporation. The committee meets regularly with the independent auditors
and internal auditors to review the scope of their audits and audit reports and
to discuss any action to be taken. The independent auditors and the internal
auditors have free access to the Audit Committee.
/s/ Douglas J. Timmerman
Douglas J. Timmerman
President and Chief Executive Officer
/s/ Michael W. Helser
Michael W. Helser
Treasurer and Chief Financial Officer
/s/ Arlie M. Mucks, Jr.
Arlie M. Mucks, Jr.
Chairman, Audit Committee
April 30, 1999
34
