<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended March 31, 2000
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OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission File Number 0-20006
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ANCHOR BANCORP WISCONSIN INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1726871
------------------------------- ------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
25 West Main Street
Madison, Wisconsin 53703
------------------------
(Address of principal executive office)
Registrant's telephone number, including area code (608) 252-8700
Securities registered pursuant to Section 12 (b) of the Act
Not Applicable
Securities registered pursuant to Section 12 (g) of the Act:
Common stock, par value $.10 per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 or Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. |X|
Based upon the $15.6875 closing price of the registrant's common stock
as of May 26, 2000, the aggregate market value of the 21,406,562 shares of the
registrant's common stock deemed to be held by non-affiliates of the registrant
was: $335.8 million. Although directors and executive officers of the registrant
and certain of its employee benefit plans were assumed to be "affiliates" of the
registrant for purposes of this calculation, the classification is not to be
interpreted as an admission of such status.
As of June 12, 2000, 23,729,033 shares of the registrant's common stock
were outstanding. There were also 100,000 series A- preferred stock purchase
rights authorized with none outstanding, as of the same date.
Documents Incorporated by Reference
Proxy Statement for the Annual Meeting of Stockholders to be held on July
25, 2000 (Part III, Items 10 to 13)
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Anchor BanCorp Wisconsin Inc. (the "Corporation") is a registered
savings and loan holding company incorporated under the laws of the State of
Wisconsin and is engaged in the savings and loan business through its
wholly-owned banking subsidiary, AnchorBank, S.S.B. (the "Bank"). On July 15,
1992, the Bank converted from a state-chartered mutual savings institution to a
stock savings institution. As part of the conversion, the Corporation acquired
all of the outstanding common stock of the Bank. The Corporation also has a
non-banking subsidiary, Investment Directions, Inc. ("IDI"), a Wisconsin
corporation, which invests in limited real estate partnerships. IDI created a
subsidiary in March 1997, Nevada Investment Directions, Inc. ("NIDI"), which
also invests in limited partnerships. NIDI was organized in the state of Nevada.
The Bank was organized in 1919 as a Wisconsin-chartered savings
institution. As a state-chartered savings institution, the Bank's deposits are
insured up to the maximum allowable amount by the Federal Deposit Insurance
Corporation ("FDIC"). The Bank is a member of the Federal Home Loan Bank of
Chicago ("FHLB"), and is regulated by the Office of Thrift Supervision ("OTS"),
the FDIC and the Wisconsin Commissioner of Savings and Loan ("Commissioner").
The Corporation is subject to the periodic reporting requirements of the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended ("Exchange Act"). The Bank is also regulated by the Board of
Governors of the Federal Reserve System ("Federal Reserve Board") relating to
reserves required to be maintained against deposits and certain other matters.
See "Regulation."
The Bank blends an interest in the consumer and small business markets
with the willingness to expand its numerous checking, savings and lending
programs to meet customers' changing financial needs. The Bank offers checking,
savings, money market accounts, mortgages, home equity and other consumer loans,
student loans, credit cards, annuities and related consumer financial services.
The Bank also offers banking services to businesses, including checking
accounts, lines of credit, secured loans and commercial real estate loans.
The Bank has three wholly owned subsidiaries. Anchor Investment
Services, Inc. ("AIS"), a Wisconsin corporation, offers a full line of
securities, annuities, and insurance products to the Bank's customers and other
members of the general public. ADPC Corporation ("ADPC"), a Wisconsin
corporation, holds and develops certain of the Bank's foreclosed properties.
Anchor Investment Corporation ("AIC") is an operating subsidiary that is located
in and formed under the laws of the State of Nevada. AIC was formed for the
purpose of managing a portion of the Bank's investment portfolio (primarily
mortgage-related securities).
MARKET AREA
The Bank's primary market area consists of the metropolitan area of
Madison, Wisconsin, the suburban communities of Dane County, Wisconsin and
southern Wisconsin, the Fox Valley, as well as contiguous counties in Iowa and
Illinois. As of March 31, 2000, the Bank conducted business from its
headquarters and main office in Madison, Wisconsin and from 48 other
full-service offices located primarily in south-central and southwest Wisconsin
and one loan origination office located in south-central Wisconsin.
COMPETITION
The Bank is subject to extensive competition from other savings
institutions as well as commercial banks and credit unions in both attracting
and retaining deposits and in real estate and other lending activities.
Competition for deposits also comes from money market funds, bond funds,
corporate debt and government securities. Competition for the origination of
real estate loans comes principally from other savings institutions,
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commercial banks and mortgage banking companies. Competition for consumer loans
is primarily from other savings institutions, commercial banks, consumer finance
companies and credit unions.
The principal factors that are used to attract deposit accounts and
that distinguish one financial institution from another include rates of return,
types of accounts, service fees, convenience of office locations and hours, and
other services. The primary factors in competing for loans are interest rates,
loan fee charges, timeliness and quality of service to the borrower.
LENDING ACTIVITIES
GENERAL. At March 31, 2000, the Bank's net loans held for investment
totaled $2.3 billion, representing approximately 79.1% of its $2.9 billion of
total assets at that date. Approximately 79% of the Bank's total loans held for
investment at March 31, 2000 were secured by first liens on real estate.
The Bank's primary lending emphasis is on the origination of
single-family residential loans secured by properties located primarily in
Wisconsin, with adjustable-rate loans generally being originated for inclusion
in the Bank's loan portfolio and fixed-rate loans generally being originated for
sale into the secondary market. In order to increase the yield and interest rate
sensitivity of its portfolio, the Bank also originates commercial real estate,
multi-family, construction, consumer and commercial business loans in its
primary market area.
Non-real estate loans originated by the Bank consist of a variety of
consumer loans and commercial business loans. At March 31, 2000, the Bank's
total loans held for investment included $444.8 million or 18.3% of consumer
loans and $61.4 million or 2.5% of commercial business loans.
LOAN PORTFOLIO COMPOSITION. The following table presents information
concerning the composition of the Bank's consolidated loans held for investment
at the dates indicated.
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<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Single-family residential $1,001,408 41.24% $1,061,813 47.66% $1,032,116 50.07%
Multi-family residential 291,917 12.02 233,984 10.50 191,580 9.29
Commercial real estate 388,678 16.01 282,980 12.70 248,365 12.05
Construction 210,660 8.68 179,189 8.04 139,314 6.76
Land 29,232 1.20 17,309 0.78 12,503 0.56
---------- ------ ---------- ------ ---------- ------
Total mortgage loans 1,921,895 79.15 1,775,275 79.69 1,623,878 78.78
---------- ------ ---------- ------ ---------- ------
Consumer loans:
Second mortgage and home equity 243,124 10.01 214,295 9.62 220,177 10.68
Education 136,011 5.60 130,254 5.85 125,503 6.09
Other 65,686 2.71 56,590 2.33 53,867 2.61
---------- ------ ---------- ------ ---------- ------
Total consumer loans 444,821 18.32 401,139 18.01 399,547 19.38
---------- ------ ---------- ------ ---------- ------
Commercial business loans:
Loans 61,419 2.53 51,403 2.31 37,861 1.84
Lease receivables -- 0.00 -- 0.00 5 0.00
---------- ------ ---------- ------ ---------- ------
Total commercial business loans 61,419 2.53 51,403 2.31 37,866 1.84
---------- ------ ---------- ------ ---------- ------
Gross loans receivable 2,428,135 100.00% 2,227,817 100.00% 2,061,291 100.00%
====== ====== ======
Contras to loans:
Undisbursed loan proceeds (97,092) (87,401) (68,686)
Allowance for loan losses (24,404) (24,027) (25,400)
Unearned loan fees (3,528) (4,015) (4,137)
Discount on loans purchased (361) (792) (1,016)
Unearned interest (29) (16) (29)
---------- ---------- ----------
Total contras to loans (125,414) (116,251) (99,268)
---------- ---------- ----------
Loans receivable, net $2,302,721 $2,111,566 $1,962,023
========== ========== ==========
</TABLE>
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<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------
1997 1996
-------------------------------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
-------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
Single-family residential $ 864,717 48.80% $ 872,596 53.04%
Multi-family residential 177,108 10.00 175,707 10.68
Commercial real estate 205,369 11.59 168,554 10.25
Construction 120,421 6.80 90,568 5.51
Land 15,730 0.89 21,077 1.28
---------- ------ ---------- ------
Total mortgage loans 1,383,345 78.07 1,328,502 80.76
---------- ------ ---------- ------
Consumer loans:
Second mortgage and home equity 194,888 11.00 155,214 9.44
Education 113,606 6.41 89,710 5.45
Other 50,966 2.88 40,924 2.49
---------- ------ ---------- ------
Total consumer loans 359,460 20.29 285,848 17.38
---------- ------ ---------- ------
Commercial business loans:
Loans 29,012 1.64 30,352 1.85
Lease receivables 10 0.00 363 0.02
---------- ------ ---------- ------
Total commercial business loans 29,022 1.64 30,715 1.87
---------- ------ ---------- ------
Gross loans receivable 1,771,827 100.00% 1,645,065 100.00%
====== ======
Contras to loans:
Undisbursed loan proceeds (59,793) (50,800)
Allowance for loan losses (24,155) (23,882)
Unearned loan fees (3,691) (2,804)
Discount on loans purchased (1,180) (1,484)
Unearned interest (89) (118)
---------- ----------
Total contras to loans (88,908) (79,088)
---------- ----------
Loans receivable, net $1,682,919 $1,565,977
========== ==========
</TABLE>
The following table shows, at March 31, 2000, the scheduled contractual
maturities of the Bank's consolidated gross loans held for investment, as well
as the dollar amount of such loans which are scheduled to mature after one year
which have fixed or adjustable interest rates.
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<TABLE>
<CAPTION>
MULTI-FAMILY
RESIDENTIAL
AND
SINGLE-FAMILY COMMERCIAL CONSTRUCTION COMMERCIAL
RESIDENTIAL REAL ESTATE AND LAND CONSUMER BUSINESS
LOANS LOANS LOANS LOANS LOANS
-----------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Amounts due:
In one year or less $ 36,367 $ 86,873 $ 111,519 $ 69,808 $ 30,495
After one year through
five years 133,479 94,636 14,908 192,794 19,355
After five years 831,562 499,086 113,465 182,219 11,569
---------- ---------- ---------- ---------- ----------
$1,001,408 $ 680,595 $ 239,892 $ 444,821 $ 61,419
========== ========== ========== ========== ==========
Interest rate terms on amounts
due after one year:
Fixed $ 318,388 $ 118,358 $ 22,755 $ 216,064 $ 7,107
========== ========== ========== ========== ==========
Adjustable $ 646,653 $ 475,364 $ 105,618 $ 158,949 $ 23,817
========== ========== ========== ========== ==========
</TABLE>
SINGLE-FAMILY RESIDENTIAL LOANS. Historically, savings institutions,
such as the Bank, have concentrated their lending activities on the origination
of loans secured primarily by first mortgage liens on owner-occupied, existing
single-family residences. At March 31, 2000, $1.0 billion or 41.2% of the Bank's
total loans held for investment consisted of single-family residential loans,
substantially all of which are conventional loans, which are neither insured or
guaranteed by a federal or state agency.
The adjustable-rate loans, currently emphasized by the Bank, have up to
30-year maturities and terms which permit the Bank to annually increase or
decrease the rate on the loans at its discretion, based on a designated index.
This is subject to a limit of 1% per adjustment and an aggregate 5% adjustment
over the life of the loan. The Bank also originates, to a much lesser extent,
adjustable-rate loans with terms that provide for annual adjustment to the
interest rate in accordance with changes in a designated index. These are
generally subject to a limit of 2% per adjustment and an aggregate 5% adjustment
over the life of the loan.
Adjustable-rate loans decrease the risks associated with changes in
interest rates but involve other risks, primarily because as interest rates
rise, the payment by the borrower rises to the extent permitted by the terms of
the loan, thereby increasing the potential for default. At the same time, the
marketability of the underlying property may be adversely affected by higher
interest rates. The Bank believes that these risks, which have not had a
material adverse effect on the Bank to date, generally are less than the risks
associated with holding fixed-rate loans in an increasing interest rate
environment. At March 31, 2000, approximately $683.0 million or 68.2% of the
Bank's permanent single-family residential loans held for investment consisted
of loans with adjustable interest rates.
The Bank continues to originate long-term, fixed-rate mortgage loans,
including conventional, Federal Housing Administration ("FHA"), Federal Veterans
Administration ("VA") and Wisconsin Housing and Economic Development Authority
("WHEDA") loans, in order to provide a full range of products to its customers.
The Bank generally sells current production of these loans with terms of 20
years or more to the Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
National Mortgage Association ("FNMA"), WHEDA and other institutional investors,
while keeping some of the 10-year term loans in its portfolio. The Bank retains
the right to service substantially all loans that it sells.
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At March 31, 2000, approximately $318.4 million or 31.8% of the
permanent single-family residential loans in the Bank's loans held for
investment consisted of loans that provide for fixed rates of interest. Although
these loans generally provide for repayments of principal over a fixed period of
10 to 30 years, it is the Bank's experience that, because of prepayments and
due-on-sale clauses, such loans generally remain outstanding for a substantially
shorter period of time.
MULTI-FAMILY RESIDENTIAL AND COMMERCIAL REAL ESTATE. The Bank
originates multi-family loans that it typically holds in its loan portfolio.
Such loans generally have adjustable rates and shorter terms than single-family
residential loans, thus increasing the sensitivity of the loan portfolio to
changes in interest rates, as well as providing higher fees and rates than
single-family residential loans. At March 31, 2000, the Bank had $291.9 million
of loans secured by multi-family residential real estate and $388.7 million of
loans secured by commercial real estate. The Bank generally limits the
origination of such loans to its primary market area.
The Bank's multi-family residential loans are primarily secured by
apartment buildings and commercial real estate loans are primarily secured by
office buildings, industrial buildings, warehouses, small retail shopping
centers and various special purpose properties, including motels, restaurants
and nursing homes.
Although terms vary, multi-family residential and commercial real
estate loans generally have maturities of 15 to 30 years, as well as balloon
payments, and terms which provide that the interest rates thereon may be
adjusted annually at the Bank's discretion, based on a designated index, subject
to an initial fixed-rate for a one to five year period and an annual limit of 1%
to 1.5% per adjustment, with no limit on the amount of such adjustments over the
life of the loan.
CONSTRUCTION AND LAND LOANS. Historically, the Bank has been an active
originator of loans to construct residential and commercial properties
("construction loans"), and to a lesser extent, loans to acquire and develop
real estate for the construction of such properties ("land loans"). At March 31,
2000, construction loans amounted to $210.7 million or 8.7% of the Bank's total
loans held for investment. Land loans amounted to $29.2 million at March 31,
2000.
The Bank's construction loans generally have terms of six to 12 months,
fixed interest rates and fees which are due at the time of origination and at
maturity if the Bank does not originate the permanent financing on the
constructed property. Loan proceeds are disbursed in increments as construction
progresses and as inspections by the Bank's in-house appraiser warrant. Land
acquisition and development loans generally have the same terms as construction
loans, but may have longer maturities than such loans.
CONSUMER LOANS. The Bank offers consumer loans in order to provide a
full range of financial services to its customers. At March 31, 2000, $444.8
million or 18.3% of the Bank's consolidated total loans held for investment
consisted of consumer loans. Consumer loans generally have shorter terms and
higher interest rates than mortgage loans but generally involve more risk than
mortgage loans because of the type and nature of the collateral and, in certain
cases, the absence of collateral. These risks are not as prevalent in the case
of the Bank's consumer loan portfolio, however, because a high percentage of
insured home equity loans are underwritten in a manner such that they result in
a lending risk which is substantially similar to single-family residential loans
and education loans, which are generally guaranteed by a federal governmental
agency
The largest component of the Bank's consumer loan portfolio is second
mortgage and home equity loans, which amounted to $243.1 million or 10.0% of
loans at March 31, 2000. The primary home equity loan product has an adjustable
interest rate that is linked to the prime interest rate and is secured by a
mortgage, either a primary or a junior lien, on the borrower's residence. A
fixed-rate home equity product is also offered.
Approximately $136.0 million or 5.6% of the Bank's loans at March 31,
2000 consisted of education loans. These are generally made for a maximum of
$2,500 per year for undergraduate studies and $5,000 per year for graduate
studies and are either due within six months of graduation or repaid on an
installment basis after graduation. Education loans generally have interest
rates that adjust annually in accordance with a designated index. Both the
principal amount of an education loan and interest thereon generally are
guaranteed by the Great
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Lakes Higher Education Corporation, which generally obtains reinsurance of its
obligations from the U.S. Department of Education. Education loans may be sold
to the Student Loan Marketing Association ("SLMA") or to other investors. The
Bank sold $1.4 million of these education loans during fiscal 2000.
The remainder of the Bank's consumer loan portfolio consists of deposit
account secured loans and loans that have been made for a variety of consumer
purposes. These include credit extended through credit cards issued by the Bank
pursuant to an agency arrangement under which the Bank generally is allocated
44% of the profit or losses from such activities. At March 31, 2000, the Bank's
approved credit card lines and the outstanding credit pursuant to such lines
amounted to $36.7 million and $4.8 million, respectively.
COMMERCIAL BUSINESS LOANS AND LEASES. The Bank originates loans for
commercial, corporate and business purposes, including issuing letters of
credit. At March 31, 2000, commercial business loans amounted to $61.4 million
or 2.5 % of the Bank's total loans held for investment. The Bank's commercial
business loan portfolio is comprised of loans for a variety of purposes and
generally is secured by equipment, machinery and other corporate assets.
Commercial business loans generally have terms of five years or less and
interest rates that float in accordance with a designated prime lending rate.
Substantially all of such loans are secured and backed by the personal
guarantees of the individuals of the business.
FEE INCOME FROM LENDING ACTIVITIES. Loan origination and commitment
fees and certain direct loan origination costs are being deferred and the net
amounts are amortized as an adjustment of the related loan's yield.
The Bank also receives other fees and charges relating to existing
mortgage loans, which include prepayment penalties, late charges and fees
collected in connection with a change in borrower or other loan modifications.
Other types of loans also generate fee income for the Bank. These include annual
fees assessed on credit card accounts, transactional fees relating to credit
card usage and late charges on consumer loans.
ORIGINATION, PURCHASE AND SALE OF LOANS. The Bank's loan originations
come from a number of sources. Residential mortgage loan originations are
attributable primarily to depositors, walk-in customers, referrals from real
estate brokers and builders and direct solicitations. Commercial real estate
loan originations are obtained by direct solicitations and referrals. Consumer
loans are originated from walk-in customers, existing depositors and mortgagors
and direct solicitation. Student loans are originated from solicitation of
eligible students and from walk-in customers.
Applications for all types of loans are obtained at the Bank's six
regional lending offices, certain of its branch offices and one loan origination
facility. Loans may be approved by members of the Loan Committee, within
designated limits. Depending on the type and amount of the loans, one or more
signatures of the members of the Senior Loan Committee also may be required. At
least three signatures of members of the Senior Loan Committee are required to
approve (i) all loans over $250,000 and all loans secured by properties
consisting of over eight units and (ii) loans over $750,000 and up to $1.0
million, provided that the President is one of the approving members. Loans in
excess of $1.0 million may be committed by the Senior Loan Committee, subject in
all cases to the prior approval of the Board of Directors of the Bank.
The Bank's general policy is to lend up to 80% of the appraised value
of the property securing a single-family residential loan (referred to as the
loan-to-value ratio). The Bank will lend more than 80% of the appraised value of
the property, but generally will require that the borrower obtain private
mortgage insurance in an amount intended to reduce the Bank's exposure to 80% or
less of the appraised value of the underlying property. At March 31, 2000, the
Bank had approximately $27.7 million of loans that had loan-to-value ratios of
greater Than 80% and did not have private mortgage insurance for the portion of
the loans above such amount.
Property appraisals on the real estate and improvements securing the
Bank's single-family residential loans are made by the Bank's staff or
independent appraisers approved by the Bank's Board of Directors. Appraisals are
performed in accordance with federal regulations and policies.
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The Bank's underwriting criteria generally require that multi-family
residential and commercial real estate loans have loan-to-value ratios which
amount to 80% or less and debt coverage ratios of at least 110%. The Bank also
generally obtains personal guarantees on its multi-family residential and
commercial real estate loans from the principals of the borrowers, as well as
appraisals of the security property from independent appraisal firms.
The portfolio of commercial and multi-family residential loans is
reviewed on a continuing basis (annually for most loans of $500,000 or more) to
identify any potential risks that exist in regard to the property management,
financial criteria of the loan, operating performance, competitive marketplace
and collateral valuation. The credit analysis function of the Bank is
responsible for identifying and reporting credit risk quantified through a loan
rating system and making recommendations to mitigate credit risk in the
portfolio. These and other underwriting standards are documented in written
policy statements, which are periodically updated and approved by the Bank's
Board of Directors.
The Bank generally obtains title insurance policies on most first
mortgage real estate loans it originates. If title insurance is not obtained or
is unavailable, the Bank obtains an abstract of title and title opinion.
Borrowers must obtain hazard insurance prior to closing and, when required by
the United States Department of Housing and Urban Development, flood insurance.
Borrowers may be required to advance funds, with each monthly payment of
principal and interest, to a loan escrow account from which the Bank makes
disbursements for items such as real estate taxes, hazard insurance premiums and
mortgage insurance premiums as they become due.
The Bank encounters certain environmental risks in its lending
activities. Under federal and state environmental laws, lenders may become
liable for costs of cleaning up hazardous materials found on secured properties.
Certain states may also impose liens with higher priorities than first mortgages
on properties to recover funds used in such efforts. Although the foregoing
environmental risks are more usually associated with industrial and commercial
loans, environmental risks may be substantial for residential lenders, like the
Bank, since environmental contamination may render the secured property
unsuitable for residential use. In addition, the value of residential properties
may become substantially diminished by contamination of nearby properties. In
accordance with the guidelines of FNMA and FHLMC, appraisals for single-family
homes on which the Bank lends include comments on environmental influences and
conditions. The Bank attempts to control its exposure to environmental risks
with respect to loans secured by larger properties by monitoring available
information on hazardous waste disposal sites and requiring environmental
inspections of such properties prior to closing the loan. No assurance can be
given, however, that the value of properties securing loans in the Bank's
portfolio will not be adversely affected by the presence of hazardous materials
or that future changes in federal or state laws will not increase the Bank's
exposure to liability for environmental cleanup.
The Bank has been actively involved in the secondary market since the
mid-1980s and generally originates single-family residential loans under terms,
conditions and documentation which permit sale to FHLMC, FNMA and other
investors in the secondary market, such as WHEDA, the Wisconsin Department of
Veterans Affairs and other financial institutions. The Bank sells substantially
all of the fixed-rate, single-family residential loans with terms over 15 years
it originates in order to decrease the amount of such loans in its loan
portfolio, as well as all of the FHA and VA loans originated. The volume of
loans originated and sold is reliant on a number of factors but is most
influenced by general interest rates. In periods of higher interest rates, such
as occurred in fiscal 2000, customer demand for fixed-rate mortgages declines.
In periods of lower interest rates, such as fiscal 1999, customer demand for
fixed-rate mortgages increases. The Bank's sales are usually made through
forward sales commitments. The Bank attempts to limit any interest rate risk
created by forward commitments by limiting the number of days between the
commitment and closing, charging fees for commitments, and limiting the amounts
of its uncovered commitments at any one time. Forward commitments to cover
closed loans and loans with rate locks to customers range from 70% to 90% of
committed amounts. The Bank also periodically has used its loans to securitize
mortgage-backed securities.
The Bank generally continues to collect payments on conventional loans
that it sells to others as they become due, to inspect the security property, to
make certain insurance and tax advances on behalf of borrowers and to otherwise
service such loans. The Bank recognizes a servicing fee when the related loan
payments are received.
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At March 31, 2000, the Bank was servicing $1.6 billion of loans for others. The
Bank sells all of the FHA/VA loans originated on a servicing-released basis.
The Bank is not an active purchaser of multi-family and commercial
loans because of sufficient loan demand in its market area. Servicing of loans
or loan participations purchased by the Bank is performed by the seller, with a
portion of the interest being paid by the borrower retained by the seller to
cover servicing costs. At March 31, 2000, approximately $24.3 million of
mortgage loans were being serviced for the Bank by others.
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The following table shows the Bank's consolidated total loans
originated, purchased, sold and repaid during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------
2000 1999 1998
--------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Gross loans receivable at beginning of year(1) $ 2,245,897 $ 2,096,043 $ 1,954,961
Loans originated for investment:
Single-family residential 75,110 121,326 257,261
Multi-family residential 50,326 131,007 44,882
Commercial real estate 194,393 231,957 102,112
Construction and land 308,192 283,076 199,935
Consumer 216,419 207,385 205,941
Commercial business 38,617 46,216 22,750
----------- ----------- -----------
Total originations 883,057 1,020,968 832,881
----------- ----------- -----------
Loans purchased for investment:
Single-family residential -- -- --
Multi-family residential 950 -- --
Commercial real estate 242 -- 6,115
----------- ----------- -----------
Total purchases 1,192 -- 6,115
Total originations and purchases 884,249 1,020,968 838,996
Repayments (605,348) (703,695) (610,172)
Transfers of loans to held for sale (81,530) (114,789) (42,260)
----------- ----------- -----------
Net activity in loans held for investment 197,371 202,484 186,564
----------- ----------- -----------
Loans originated for sale:
Single-family residential 228,830 475,218 333,930
Transfers of loans from held for investment 81,530 94,789 28,838
Sales of loans (249,399) (530,210) (408,250)
Loans converted into mortgage-backed
securities (74,330) (92,427) --
----------- ----------- -----------
Net activity in loans held for sale (13,369) (52,630) (45,482)
----------- ----------- -----------
Gross loans receivable at end of period $ 2,429,899 $ 2,245,897 $ 2,096,043
=========== =========== ===========
</TABLE>
---------------------------------------------------
(1) Includes loans held for sale and loans held for investment.
DELINQUENCY PROCEDURES. Delinquent and problem loans are a normal part
of any lending business. When a borrower fails to make a required payment by the
15th day after which the payment is due, the loan is considered delinquent and
internal collection procedures are generally instituted. The borrower is
contacted to determine the reason for the delinquency and attempts are made to
cure the loan. In most cases, deficiencies are cured promptly. The Bank
regularly reviews the loan status, the condition of the property, and
circumstances of the borrower. Based upon the results of its review, the Bank
may negotiate and accept a repayment program with the borrower, accept a
voluntary deed in lieu of foreclosure or, when deemed necessary, initiate
foreclosure proceedings.
A decision as to whether and when to initiate foreclosure proceedings
is based upon such factors as the amount of the outstanding loan in relation to
the original indebtedness, the extent of delinquency and the borrower's ability
and willingness to cooperate in curing the deficiencies. If foreclosed on, the
property is sold at a public sale and the Bank will generally bid an amount
reasonably equivalent to the lower of the fair value of the foreclosed property
or the amount of judgment due the Bank. A judgment of foreclosure for
residential mortgage loans will
10
<PAGE> 12
normally provide for the recovery of all sums advanced by the mortgagee
including, but not limited to, insurance, repairs, taxes, appraisals,
post-judgment interest, attorneys' fees, costs and disbursements.
Real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure is classified as foreclosed property until it is sold. When property
is acquired, it is carried at the lower of carrying or estimated fair value at
the date of acquisition, with charge-offs, if any, charged to the allowance for
loan losses prior to transfer to foreclosed property. Upon acquisition, all
costs incurred in maintaining the property are expensed. Costs relating to the
development and improvement of the property, however, are capitalized to the
extent of fair value. Remaining gain or loss on the ultimate disposal of the
property is included in operations.
LOAN DELINQUENCIES. Loans are placed on non-accrual status when, in the
judgment of management, the probability of collection of interest is deemed to
be insufficient to warrant further accrual. When a loan is placed on non-accrual
status, previously accrued but unpaid interest is deducted from interest income.
As a matter of policy, the Bank does not accrue interest on loans past due more
than 90 days.
The interest income that would have been recorded during fiscal 2000 if
the Bank's non-accrual loans at the end of the period had been current in
accordance with their terms during the period was $220,000. The amount of
interest income attributable to these loans and included in interest income
during fiscal 2000 was $70,000.
The following table sets forth information relating to delinquent loans
of the Bank and their relation to the Bank's total loans held for investment at
the dates indicated.
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------------
% OF % OF % OF
TOTAL TOTAL TOTAL
DAYS PAST DUE BALANCE LOANS BALANCE LOANS BALANCE LOANS
----------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
30 to 59 days $ 3,224 0.13% $ 5,535 0.25% $ 7,525 0.37%
60 to 89 days 903 0.04 693 0.03 1,397 0.07
90 days and over 3,614 0.15 4,006 0.18 5,976 0.29
------- ---- ------- ---- ------- ----
Total $ 7,741 0.32% $10,234 0.46% $14,898 0.72%
======= ==== ======= ==== ======= ====
</TABLE>
There were no non-accrual loans with a carrying value of $1.0 million
or greater at March 31, 2000. For additional discussion of the Corporation's
asset quality, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Financial Condition-Non-Performing Assets" in Item 7
included herewith. See also Notes 1 and 5 to the Consolidated Financial
Statements in Item 8 included herewith.
REAL ESTATE HELD FOR DEVELOPMENT AND SALE. At March 31, 2000, there was
one property in non-performing real estate held for development and sale with a
carrying value greater than $1.0 million. The property consists of several
condominium units in Bloomington, Minnesota with a carrying value of $1.9
million. The units were related to a former non-accrual loan for a condominium
project, which was repurchased by the lead lender in fiscal 1998. For additional
discussion of real estate held for development and sale that is not considered a
part of non-performing assets, see the discussion under "Subsidiaries-Investment
Directions, Inc." and "- Nevada Investment Directions, Inc." and Note 15 to the
Consolidated Financial Statements in Item 8 included herewith.
FORECLOSED PROPERTIES. At March 31, 2000, the Corporation had no
foreclosed properties with a net carrying value of $1.0 million or more.
Foreclosed properties and repossessed assets decreased $360,000 during the
fiscal year.
11
<PAGE> 13
CLASSIFIED ASSETS. OTS regulations require that each insured savings
institution classify its assets on a regular basis. In addition, in connection
with examinations of insured associations, OTS examiners have authority to
identify problem assets and, if appropriate, require them to be classified.
There are three classifications for problem assets: "substandard," "doubtful"
and "loss." Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full highly questionable and
improbable, on the basis of currently existing facts, conditions, and values. An
asset that is classified loss is considered uncollectible and of such little
value, that continuance as an asset of the institution is not warranted. Another
category designated special mention also must be established and maintained for
assets which do not currently expose an insured institution to a sufficient
degree of risk to warrant classification as substandard, doubtful or loss but do
possess credit deficiencies or potential weaknesses deserving management's close
attention.
Assets classified as substandard or doubtful require the institution to
establish general allowances for loan losses. If an asset or portion thereof is
classified loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the assets
classified loss or charge off such amount.
Classified assets include non-performing assets plus other loans and
assets, including contingent liabilities, meeting the criteria for
classification. Non-performing assets include loans and foreclosed properties
that are not performing under all material contractual terms of the original
notes.
As of March 31, 2000, the Bank's classified assets consisted of $10.7
million of loans and foreclosed properties classified as substandard, net of
specific reserves, and no loans classified as special mention, doubtful or loss.
At March 31, 1999, substandard assets amounted to $10.5 million and no loans
were classified as special mention, doubtful or loss.
ALLOWANCE FOR LOSSES. A provision for losses on loans and foreclosed
properties is provided when a loss is probable and can be reasonably estimated.
The allowance is established by charges against operations in the period in
which those losses are identified.
The Bank establishes general allowances based on current and projected
levels of components of the loan portfolio and the amount and type of its
classified assets. In addition, the Bank monitors and uses standards for these
allowances that depend on the nature of the classification and loan location of
the security property.
Additional discussion on the allowance for losses at March 31, 2000 has
been presented as part of the discussion under "Allowance for Loan and
Foreclosure Losses" in Management's Discussion and Analysis, which is contained
in Item 7, included herewith.
12
<PAGE> 14
SECURITIES - GENERAL
Management determines the appropriate classification of securities at
the time of purchase. Debt securities are classified as held to maturity when
the Corporation has the intent and ability to hold the securities to maturity.
Held-to-maturity securities are carried at amortized cost. Securities are
classified as trading when the Corporation intends to actively buy and sell
securities in order to make a profit. Trading securities are carried at fair
value, with unrealized holding gains and losses included in the income
statement.
Securities not classified as held to maturity or trading are classified
as available for sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity. For the years ended March 31, 2000 and 1999,
stockholders' equity decreased by $2.7 million (net of deferred income tax of
$1,074,000), and $440,000 (net of deferred income taxes of $1.1 million),
respectively to reflect net unrealized gains and losses on holding securities
classified as available for sale. There were no securities designated as trading
during the three years ending March 31, 2000.
INVESTMENT SECURITIES
In addition to lending activities and investments in mortgage-related
securities, the Corporation conducts other investment activities on an ongoing
basis in order to diversify assets, limit interest rate risk and credit risk and
meet regulatory liquidity requirements. Investment decisions are made by
authorized officers in accordance with policies established by the respective
boards of directors.
The Corporation's policy does not permit investment in non-investment
grade bonds and permits investment in various types of liquid assets permissible
for the Bank under OTS regulations, which include U.S. Government obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to limitations on investment grade
securities, the Corporation also invests in corporate debt securities from time
to time.
13
<PAGE> 15
The table below sets forth information regarding the amortized cost and
fair values of the Corporation's investment securities at the dates indicated.
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE COST FAIR VALUE
--------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Available For Sale:
U.S. Government and federal
agency obligations $13,748 $13,530 $17,645 $17,798 $21,821 $21,859
Mutual fund 14,247 14,190 11,142 11,144 14,099 14,104
Corporate stock and other 8,581 7,216 11,134 11,314 10,136 11,103
------- ------- ------- ------- ------- -------
$36,576 $34,936 $39,921 $40,256 $46,056 $47,066
Held To Maturity:
U.S. Government and federal
agency obligations $51,270 $49,971 $46,491 $46,334 $33,516 $33,684
Other securities - - 975 975 - -
------- ------- ------- ------- ------- -------
51,270 49,971 47,466 47,309 33,516 33,684
------- ------- ------- ------- ------- -------
Total investment securities $87,846 $84,907 $87,387 $87,565 $79,572 $80,750
======= ======= ======= ======= ======= =======
</TABLE>
For additional information regarding the Corporation's investment
securities, see the Corporation's Consolidated Financial Statements, including
Note 3 thereto included in Item 8.
MORTGAGE-RELATED SECURITIES
The Corporation purchases mortgage-related securities to supplement
loan production and to provide collateral for borrowings. The Corporation
invests in mortgage-backed securities which are insured or guaranteed by FHLMC,
FNMA, or the Government National Mortgage Association ("GNMA") and in
mortgage-derivative securities backed by FHLMC, FNMA and GNMA mortgage-backed
securities.
At March 31, 2000, the amortized cost of the Corporation's
mortgage-backed securities held to maturity amounted to $229.2 million and
included $197.9 million, $28.9 million and $2.3 million which are insured or
guaranteed by FNMA, FHLMC and GNMA, respectively. All three issuers of
securities have adjustable-rate securities included in securities held to
maturity.
The fair value of the Corporation's mortgage-backed securities
available for sale amounted to $37.7 million at March 31, 2000, of which $5.8
million are five- and seven-year balloon securities, $29.4 million are 15- and
30-year securities and $2.6 million are adjustable-rate securities.
Mortgage-backed securities increase the quality of the Corporation's
assets by virtue of the insurance or guarantees of federal agencies that back
them, require less capital under risk-based regulatory capital requirements than
non-insured or guaranteed mortgage loans, are more liquid than individual
mortgage loans and may be used to collateralize borrowings or other obligations
of the Corporation. At March 31, 2000, $17.2 million of the Corporation's
mortgage-backed securities available for sale and $83.7 million mortgage-backed
securities held to maturity were pledged to secure various obligations of the
Bank.
14
<PAGE> 16
Management believes that certain mortgage-derivative securities
represent an attractive alternative relative to other investments due to the
wide variety of maturity and repayment options available through such
investments and due to the limited credit risk associated with such investments.
The Bank's mortgage-derivative securities are made up of collateralized mortgage
obligations ("CMO's"), including CMO's which qualify as Real Estate Mortgage
Investment Conduits ("REMIC's") under the Internal Revenue Code of 1986, as
amended ("Code"). At March 31, 2000, the Corporation's had $14.0 million in
mortgage-derivative securities held to maturity. The fair value of the
mortgage-derivative securities available for sale held by the Corporation
amounted to $19.6 million at the same date.
The following table sets forth the maturity and weighted average yield
characteristics of the Corporation's mortgage-related securities at March 31,
2000, classified by term to maturity. The balance is at amortized cost for
held-to-maturity securities and at fair value for available-for-sale securities.
<TABLE>
<CAPTION>
ONE TO FIVE YEARS FIVE TO TEN YEARS OVER TEN YEARS
---------------------- --------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
BALANCE YIELD BALANCE YIELD BALANCE YIELD TOTAL
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Available for Sale:
Mortgage-derivative securities $ - 0.00% $ - 0.00% $ 19,586 6.59% $ 19,586
Mortgage-backed securities 3,460 6.26 31,537 6.52 2,693 6.77 37,690
-------- ---- -------- ---- -------- ---- --------
3,460 6.26 31,537 6.52 22,279 6.61 57,276
-------- ---- -------- ---- -------- ---- --------
Held to Maturity:
Mortgage-derivative securities 4,665 6.61 6,435 6.48 2,984 5.96 14,084
Mortgage-backed securities 11,816 6.40 30,862 6.24 186,481 6.42 229,159
-------- ---- -------- ---- -------- ---- --------
16,481 6.46 37,297 6.28 189,465 6.41 243,243
-------- ---- -------- ---- -------- ---- --------
Mortgage-related securities $ 19,941 6.42% $ 68,834 6.39% $211,744 6.43% $300,519
======== ==== ======== ==== ======== ==== ========
</TABLE>
Due to repayments of the underlying loans, the actual maturities of
mortgage-related securities are expected to be substantially less than the
scheduled maturities.
For additional information regarding the Corporation's mortgage-related
securities, see the Corporation's Consolidated Financial Statements, including
Note 4 thereto included in Item 8.
The Bank is required by the OTS to maintain liquid assets at minimum
levels which vary from time to time and which amounted to 4.0% at March 31,
2000. The Bank's liquidity ratio was 11.71% as of March 31, 2000.
SOURCES OF FUNDS
GENERAL. Deposits are a major source of the Bank's funds for lending
and other investment activities. In addition to deposits, the Bank derives funds
from loan and mortgage-related securities, principal repayments and prepayments,
maturities of investment securities, sales of loans and securities, interest
payments on loans and securities, advances from the FHLB and, from time to time,
repurchase agreements and other borrowings. Loan repayments and interest
payments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are significantly influenced by general interest
rates, economic conditions and competition. Borrowings may be used on a
short-term basis to compensate for reductions in the availability of funds from
other sources. They also may be used on a longer term basis for general business
purposes, including providing financing for lending and other investment
activities and asset/liability management strategies.
15
<PAGE> 17
DEPOSITS. The Bank's deposit products include passbook savings
accounts, demand accounts, NOW accounts, money market deposit accounts and
certificates of deposit ranging in terms of 42 days to seven years. Included
among these deposit products are Individual Retirement Account certificates and
Keogh retirement certificates, as well as negotiable-rate certificates of
deposit with balances of $100,000 or more ("jumbo certificates").
The Bank's deposits are obtained primarily from residents of Wisconsin.
The Bank has entered into agreements with certain brokers that provide funds for
a specified fee. At March 31, 2000, the Bank had $91.4 million in brokered
deposits.
The Bank attracts deposits through a network of convenient office
locations by utilizing a detailed customer sales and service plan and by
offering a wide variety of accounts and services, competitive interest rates and
convenient customer hours. Deposit terms offered by the Bank vary according to
the minimum balance required, the time period the funds must remain on deposit
and the interest rate, among other factors. In determining the characteristics
of its deposit accounts, consideration is given to the profitability of the
Bank, matching terms of the deposits with loan products, the attractiveness to
customers and the rates offered by the Bank's competitors.
The following table sets forth the amount and maturities of the
Corporation's certificates of deposit at March 31, 2000.
<TABLE>
<CAPTION>
OVER SIX OVER OVER TWO
MONTHS ONE YEAR YEARS OVER
SIX MONTHS THROUGH THROUGH THROUGH THREE
INTEREST RATE AND LESS ONE YEAR TWO YEARS THREE YEARS YEARS TOTAL
--------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
3.00% to 4.99% $ 126,365 $ 32,139 $ 22,994 $ 2,308 $ 2,302 $ 186,108
5.00% to 6.99% 429,245 324,268 188,350 31,376 14,709 987,948
7.00% to 8.99% 2,845 -- 14 2 -- 2,861
---------- ---------- ---------- ---------- ---------- ----------
$ 558,455 $ 356,407 $ 211,358 $ 33,686 $ 17,011 $1,176,917
========== ========== ========== ========== ========== ==========
</TABLE>
At March 31, 2000, the Corporation had $197.3 million of certificates
greater than or equal to $100,000, of which $58.2 million are scheduled to
mature within three months, $46.7 million in over three months through six
months, $72.6 million in over six months through 12 months and $19.8 million in
over 12 months.
BORROWINGS. From time to time the Bank obtains advances from the FHLB,
which generally are secured by capital stock of the FHLB that is required to be
held by the Bank and by certain of the Bank's mortgage loans. See "Regulation."
Such advances are made pursuant to several different credit programs, each of
which has its own interest rate and range of maturities. The FHLB may prescribe
the acceptable uses for these advances, as well as limitations on the size of
the advances and repayment provisions. The Bank has pledged a substantial
portion of its loans receivable and all of its investment in FHLB stock as
collateral for these advances.
From time to time the Bank enters into repurchase agreements with
nationally recognized primary securities dealers. Repurchase agreements are
accounted for as borrowings by the Bank and are secured by mortgage-backed
securities. The Bank utilized this source of funds during the year ended March
31, 2000 and may continue to do so in the future.
The Corporation has a short-term line of credit to fund IDI's limited
partnership interests. The interest is based on LIBOR, (London InterBank
Offering Rate), and is payable monthly and each draw has a specified maturity.
The final maturity of the line of credit is in December 2000. See Note 8 to the
Corporation's Consolidated Financial Statements for more information on
borrowings.
16
<PAGE> 18
The following table sets forth the outstanding balances and weighted
average interest rates for the Corporation's borrowings (short-term and
long-term) at the dates indicated.
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
-------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
FHLB advances $ 649,046 5.73% $ 517,695 5.30% $ 508,145 5.69%
Repurchase agreements 92,413 6.03 42,464 4.91 42,935 5.60
Other loans payable 15,400 7.24 12,800 6.21 12,830 8.78
</TABLE>
The following table sets forth information relating to the
Corporation's short-term (maturities of one year or less) borrowings at the
dates and for the periods indicated.
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Maximum month-end balance:
FHLB advances $ 378,450 $ 440,850 $ 466,670
Repurchase agreements 92,413 52,139 45,214
Other loans payable 15,400 21,550 14,972
Average balance:
FHLB advances 302,787 373,137 426,960
Repurchase agreements 59,756 30,930 22,923
Other loans payable 9,669 13,297 12,067
</TABLE>
SUBSIDIARIES
INVESTMENT DIRECTIONS, INC. IDI is a wholly owned non-banking
subsidiary of the Corporation formed in February 1996, that has invested in
various limited partnerships funded by borrowings from the Corporation. The
Corporation's investment in IDI at March 31, 2000, amounted to $6.1 million. For
the year ended March 31, 2000, IDI had total assets of $32.8 million and a
reported net loss of $345,000. This compares to total assets of $28.1 million
and net income of $600,000 for the prior year ended March 31, 1999.
The assets of IDI include two partnership interests with carrying
values greater than $1.0 million. The first investment is a project in Indian
Palms, California, which is in early development, with a carrying value at March
31, 2000, of $22.0 million. This compares to a carrying value of $14.9 million
at March 31, 1999. The $7.1 million increase in partnership investment from the
prior fiscal year was largely due to expansion for a clubhouse, the purchase of
additional lots held for sale to recreational residential housing developers,
and a purchase by IDI of an additional 30% equity in Indian Palms.
The net loss of the Indian Palms partnership for the year ended March
31, 2000, was $1.1 million as compared to a net loss of $600,000 for the year
ended March 31, 1999. Gross sales of properties were $2,072,500 in 2000. There
were no sales in 1999 or 1998.
The second material partnership investment is a project in Tampa Bay,
Florida with a carrying value of $6.1 million at March 31, 2000. This compares
to a carrying value of $5.9 million for the prior year ended March 31, 1999. The
$200,000 increase in partnership investment from the prior fiscal year was
largely due to the
17
<PAGE> 19
development of the project. This project includes a golf course and fully
developed single family recreational residential lots.
The net income of the Tampa Bay partnership for the year ended March
31, 2000, was $145,000 as compared to net income of $1.4 million for the year
ended March 31, 1999. This decrease was largely due to a gain on the sale of
land reported in 1999. Gross sales of properties were $1.1 million, $6.3
million, and $28,000 in 2000, 1999, and 1998, respectively.
The balance of assets in IDI includes loans to finance the sales of
various partnerships. None of these loans were greater than or equal to $1.0
million and all were current at March 31, 2000.
At March 31, 2000, the Corporation had extended $27.0 million to IDI to
fund various partnership investments. This represents an increase of $5.0
million from borrowings of $22.0 million at March 31, 1999.
These amounts have been eliminated in consolidation.
At March 31, 2000, IDI had a general valuation allowance of $600,000.
This compares to an allowance of $600,000 for the prior year ended March 31,
1999. As of March 31, 2000, and March 31, 1999, there have been no charge-offs
for any of the partnerships within IDI.
NEVADA INVESTMENT DIRECTIONS, INC. NIDI is a wholly owned non-banking
subsidiary of IDI formed in March 1997, that has invested in various limited
partnerships. NIDI was organized in the State of Nevada. IDI's investment in
NIDI at March 31, 2000, amounted to $4.4 million. For the year ended March 31,
2000, NIDI had total assets of $4.9 million and net income of $475,000. This
compares to total assets of $5.8 million and net income of $700,000 for the
prior year ended March 31, 1999.
The assets of NIDI include one partnership interest with a carrying
value greater than $1.0 million. The partnership investment is an industrial
park in Round Rock, Texas called Oakmont with a carrying value at March 31,
2000, of $4.5 million. This compares to a carrying value of $3.6 million for the
prior year ended March 31, 1999. The partnership had net income of $260,000 for
the year ended March 31, 2000, as compared to net income of $300,000 for the
year ended March 31, 1999. Oakmont has become a majority owned subsidiary of
NIDI with IDI owning the remaining interest.
The balance of assets at NIDI includes loans to finance the sale of
various partnerships. None of these loans had a balance greater than or equal to
$1.0 million and all were current at March 31, 2000.
At March 31, 2000, the Corporation had extended $450,000 to NIDI to
fund various partnership investments. NIDI had borrowings from the Corporation
of $1.1 million as of March 31, 1999. These amounts have been eliminated in
consolidation.
OAKMONT. In January 2000, IDI and NIDI purchased all of the equity
owned by the unrelated partners of Oakmont, and Oakmont became a consolidating
subsidiary of IDI and NIDI. Subsequently, Oakmont sold 36% of its land to an
outside buyer. Oakmont invested the remainder of its land in a new partnership
called Chandler Creek LP formed with the outside buyer. Chandler Creek had a
carrying value at Oakmont of $4.5 million at March 31, 2000.
Together, IDI, NIDI, and Oakmont represent the real estate investment
segment of the Corporation's business. This segment is categorized as real
estate held for development and sale on the Corporation's consolidated financial
statements. Net of reserves of $100,000 and non-performing real estate held for
development and sale of $1.7 million, the segment represents $32.5 million of
total assets for that category. For further discussion of the real estate held
for development and sale segment, see Item 8 - Note 15 to the Corporation's
Consolidated Financial Statements.
ANCHOR INVESTMENT SERVICES, INC. AIS is a wholly owned subsidiary of
the Bank that offers a full line of securities, annuities, and insurance
products to its customers and members of the general public. For the year ended
March 31, 2000, AIS had a net profit of $147,000. The Bank's investment in AIS
amounted to $243,000 at March 31, 2000.
18
<PAGE> 20
ADPC CORPORATION. ADPC is a wholly owned subsidiary of the Bank that
holds and develops certain of the Bank's foreclosed properties. The Bank's
investment in ADPC at March 31, 2000 amounted to $2.0 million. ADPC had a net
loss of $100,000 for the year ended March 31, 2000.
ADPC II, LLC. ADPC II was dissolved in September, 1998 with the sale of
its multi-family property that had been classified as non-performing real estate
held for development and sale. A loan to the buyer to help fund the sale, of
$300,000, was transferred to ADPC. A deferred gain of $300,000 was also
transferred to ADPC.
ANCHOR INVESTMENT CORPORATION. AIC is an operating subsidiary of the
Bank that was incorporated in March 1993. Located in the State of Nevada, AIC
was formed for the purpose of managing a portion of the Bank's investment
portfolio (primarily mortgage-backed securities). As an operating subsidiary,
AIC's results of operations are combined with the Bank's for financial and
regulatory purposes. The Bank's investment in AIC amounted to $261.2 million at
March 31, 2000. AIC had net income of $11.1 million for the year ended March 31,
2000. The Bank had outstanding notes to AIC of $42.0 million at March 31, 2000,
with a weighted average rate of 8.50% and maturities during the next six months.
EMPLOYEES
The Corporation had 708 full-time employees and 167 part-time employees
at March 31, 2000. The Corporation promotes equal employment opportunity and
considers its relationship with its employees to be good.
The employees are not represented by a collective bargaining unit.
19
<PAGE> 21
REGULATION
Set forth below is a brief description of certain laws and regulations
which relate to the regulation of the Corporation and the Bank. The description
of these laws and regulations, as well as descriptions of laws and regulations
contained elsewhere herein, does not purport to be complete and is qualified in
its entirety by reference to applicable laws and regulations.
THE CORPORATION
The Corporation is a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Corporation is required to
register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Corporation and its non-savings association subsidiaries which permits the OTS
to restrict or prohibit activities that are determined to be a serious risk to
the subsidiary savings association. In addition, the Corporation is subject to
the examination and supervision by the Director. The Director is authorized to
prohibit by order the activities of a savings and loan holding company that,
among other things, the Director feels endangers the safety of the savings and
loan association or is contrary to the public interest. The Director is
empowered to direct the operations of the savings and loan association and its
holding company until the order is complied with and may prohibit dividends from
the savings and loan association to its holding company during such period.
As a unitary savings and loan holding company in existence prior to May
4, 1999, the Corporation generally is not subject to activity restrictions as
long as the Bank is in compliance with the Qualified Thrift Lender ("QTL") Test.
See "Qualified Thrift Lender Requirement."
The Corporation must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Interstate acquisitions generally
are permitted based on specific state authorization or in a supervisory
acquisition of a failing savings association.
THE BANK
The Bank is a state chartered savings institution, the deposits of
which are federally insured and backed by the full faith and credit of the
United States Government. The Bank has applied to change its charter from a
state savings bank to a federal savings bank. Subject to regulatory approval,
AnchorBank, S.S.B. will become AnchorBank FSB effective June 30, 2000. The Bank
is subject to broad state and federal regulation and oversight by the OTS and
the FDIC extending to all aspects of its operations. The Bank is a member of the
FHLB of Chicago and is subject to certain limited regulation by the Federal
Reserve Board. The Bank is a member of the Savings Association Insurance Fund
("SAIF") and the deposits of the Bank are insured by the FDIC. As a
Wisconsin-chartered institution, the Bank is also currently subject to
regulation, examination and supervision by the Director.
REGULATION OF SAVINGS ASSOCIATIONS The OTS has extensive authority over
the operations of all insured savings associations. In addition, the Bank is
subject to regulation and supervision by the Director. As part of this
authority, the Bank is required to file periodic reports with the OTS and the
Director and is subject to periodic examinations by the OTS, the Director and
the FDIC. Examinations by the Director are usually conducted jointly with the
OTS. When these examinations are conducted by the OTS, the Director, or the
FDIC, the examiners may require the Bank to provide for higher general or
specific loan loss allowances. The last regular joint examination of the Bank by
the OTS and the Director was as of August 31, 1999. The FDIC was included in a
joint examination as of November 30, 1992.
Savings institutions are required by OTS regulations to pay assessments
to the OTS to fund the operations of the OTS. The general assessment, paid on a
semiannual basis, is computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the institution's latest
quarterly Thrift Financial Report. The Bank's semi-annual OTS assessment for the
six months ending June 30, 2000 was $215,000.
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<PAGE> 22
Wisconsin-chartered institutions are also required to pay an annual
state assessment. Under Wisconsin law, the fee cannot exceed 12 cents per $1,000
of assets or fraction thereof, as of the close of the preceding calendar year.
In addition to an annual fee, each Wisconsin-chartered institution is subject to
examination fees. The Bank's assessment for the year ending June 30, 2000 was
$60,000.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including the Bank and the
Corporation, and their affiliated parties such as directors, officers,
employees, agents and certain other persons providing services to the Bank or
the Corporation. This enforcement authority established a comprehensive
framework of activities that the entities can engage in and is intended
primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies. Such policies include classification of assets, and the establishment
of adequate loan loss reserves for regulatory purposes. The State of Wisconsin
regulatory authority has similar enforcement authority over the Bank and the
Corporation.
QUALIFIED THRIFT LENDER REQUIREMENT In order for the Bank to exercise
the powers granted to SAIF-insured institutions and maintain full access to FHLB
advances, it must qualify as a qualified thrift lender ("QTL"). Under the
Homeowners' Loan Act, as amended, ("HOLA") and OTS regulations, a savings
institution is required to maintain a level of qualified thrift investments
equal to at least 65% of its "portfolio assets" (as defined by statute) on a
monthly basis for nine out of 12 months per calendar year. Qualified thrift
investments for purposes of the QTL test consist primarily of residential
mortgages and related investments. As of March 31, 2000, the Bank was in
compliance with the QTL test.
FEDERAL REGULATIONS The Bank is subject to federal regulations which
address various issues including, but not limited to, insurance of deposits,
capital requirements, and liquidity.
NEW FINANCIAL SERVICES ACT On November 12, 1999, the Financial Services
Modernization Act ("Act"), which could have a far-reaching impact on the
financial services industry, was signed into law. The intent of the law is to
increase competition in the financial services area and includes repealing
sections of the 1933 Glass-Steagal Act. The Act authorizes affiliations between
banking, securities and insurance firms and authorizes bank holding companies
and national banks to engage in a variety of new financial activities. Under the
Act, a bank holding company that qualifies as and elects to become a financial
holding company may engage in any activity stipulated by the Act under the
regulation of the Federal Reserve. The Act restricts the chartering and
transferring of unitary thrift holding companies, although it does not restrict
the operations of unitary holding companies in existence prior to May 4, 1999
that continue to meet the QTL test and control only a single savings
institution. The Corporation and the Bank presently meet these requirements. The
Act also imposes a number of consumer protections that generally greatly limit
disclosure of customer information to non-affiliated third parties. Disclosure
of ATM usage charges is also required by the Act. Many of the Act's provisions
require the issuance of regulations to implement the statutory provisions. As
such, it is too early to assess the eventual impact of the Act on either the
financial services industry in general or the specific operations of the
Corporation and the Bank.
INSURANCE OF DEPOSITS The Bank's deposits are insured up to applicable
limits under the SAIF of the FDIC. The FDIC regulations assign institutions to a
particular capital group based on the level of an institution's capital - "well
capitalized," "adequately capitalized," or "undercapitalized". These three
groups are then divided into three subgroups reflecting varying levels of
supervisory concern, from those institutions considered to be healthy to those
that are considered to be of substantial supervisory concern. This matrix
results in nine assessment risk classifications, with well capitalized,
financially sound, institutions paying lower rates than are paid by
undercapitalized institutions likely to pose a risk of loss to the insurance
fund absent corrective actions.
Beginning January 1, 1997, effective SAIF rates generally range from
zero basis points to 27 basis points. From 1997 through 1999, SAIF members paid
6.4 basis points to fund the Financing Corporation ("FICO"), while BIF member
institutions paid approximately 1.3 basis points. Thereafter, BIF and SAIF
members are assessed at the same rate by FICO. The Bank's insurance premiums,
which had amounted to 23 basis points, were thus reduced to 6.4 basis points
effective January 1, 1997 through December 31, 1999. The FICO assessment rate
for the first quarter of 2000 was 2.12 basis points.
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<PAGE> 23
REGULATORY CAPITAL REQUIREMENTS For the fiscal years ended March 31,
2000 and 1999, the OTS capital regulations require savings institutions to meet
two capital standards: (i) "tier 1 core capital" in an amount not less than 4%
of adjusted total assets and (ii) "risk-based capital" of at least 8% of
risk-weighted assets. Savings institutions must meet both standards to comply
with the capital requirements. For additional discussion of regulatory capital
requirements, refer to Note 9 to the Consolidated Financial Statements in Item 8
included herewith.
Wisconsin-chartered associations are required to maintain a net worth
ratio of at least 6.0%. Under this provision, an association's "net worth ratio"
is defined as a ratio, expressed as a percentage of assets, calculated by
subtracting liabilities from assets, adding to the resulting difference
unallocated general loan loss allowances, and dividing the sum by the
association's assets. At March 31, 2000, the Bank was in compliance with this
net worth requirement with a ratio of 7.37%.
LIMITATION ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. OTS
regulations impose various restrictions or requirements on associations with
respect to their ability to pay dividends or make other distributions of
capital. OTS regulations prohibit an association from declaring or paying any
dividends or from repurchasing any of its stock if, as a result, the regulatory
(or total) capital of the association would be reduced below the amount required
to be maintained for the liquidation account established in connection with its
mutual to stock conversion.
Under new OTS regulations effective April 1, 1999, a savings
institution must file an application for OTS approval of the capital
distribution if either (1) the total capital distributions for the applicable
calendar year exceed the sum of the institution's net income for that year to
date plus the institution's retained net income for the preceding two years, (2)
the institution would not be at least adequately capitalized following the
distribution, (3) the distribution would violate any applicable statute,
regulation, agreement or OTS-imposed condition, or (4) the institution is not
eligible for expedited treatment of its filings. If an application is not
required to be filed, savings institutions that are a subsidiary of a holding
company (as well as certain other institutions) must still file a notice with
the OTS at least 30 days before the board of directors declares a dividend or
approves a capital distribution.
Unless prior approval of the Director is obtained, the Bank may not pay
a dividend or otherwise distribute any profits if it fails to maintain its
required net worth ratio either prior to, or as a result of, such distribution.
LIQUIDITY Under applicable federal regulations, savings institutions
are required to maintain an average daily balance of liquid assets (including
cash, certain time deposits, certain bankers' acceptances, certain corporate
debt securities and highly rated commercial paper, securities of certain mutual
funds and specified United States Government, state or federal agency
obligations) equal to a certain percentage of the sum of its average daily
balance of net withdrawable deposits plus short-term borrowings. This liquidity
requirement may be changed from time to time by the Director of the OTS to any
amount within the range of 4% to 10% depending upon economic conditions and the
deposit flows of member institutions, and currently is 4%. Effective November
24, 1997, the OTS adopted a new liquidity rule. The rule lowers liquidity
requirements for savings associations from 5 to 4 percent of the association's
liquidity base. The base has been reduced by modifying the definition of net
withdrawable accounts to exclude, at the association's option, accounts with
maturities in excess of one year. The new rule requires the calculation once
each quarter, rather than monthly, and removes the requirement that certain
obligations must mature in five years or less to qualify as a liquid asset. The
rule also added certain short-term mortgage-related securities and short-term
first lien residential mortgage loans to the list of assets includable as
regulatory liquidity. Historically, the Bank has operated in compliance with
applicable liquidity requirements.
Savings institutions are also required to maintain an average daily
balance of short-term liquid assets at a specified percentage (currently 1.0%)
of the total of the average daily balance of its net withdrawable deposits and
short-term borrowings. At March 31, 2000, the Bank was in compliance with these
liquidity requirements.
RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES
The Bank is required to comply with Sections 23A and 23B of the Federal
Reserve Act ("Sections 23A and 23B") relative to transactions with affiliates.
Generally, Sections 23A and 23B limit the extent to which the
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<PAGE> 24
insured institution or its subsidiaries may engage in certain covered
transactions with an affiliate to an amount equal to 10% of such institution's
capital and surplus, place an aggregate limit on all such transactions with
affiliates to an amount equal to 20% of such capital and surplus, and require
that all such transactions be on terms substantially the same, or at least as
favorable to the institution or subsidiary, as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guaranty and similar other types of
transactions. Exemptions from 23A or 23B may be granted only by the FRB. The
Corporation has not been significantly affected by such restrictions or
transactions with affiliates.
FEDERAL HOME LOAN BANK SYSTEM The Bank is a member of the FHLB of
Chicago, which is one of 12 regional FHLBs that administers the home financing
credit function of savings associations. The FHLBs provide a central credit
facility for member savings institutions. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
loans to members (i.e., advances) in accordance with policies and procedures
established by the board of directors of the FHLB. These policies and procedures
are subject to regulation and oversight of the Federal Housing Finance Board.
All advances from the FHLB are required to be fully secured by sufficient
collateral as determined by the FHLB. In addition, all long-term advances are
required to provide funds for residential home financing.
As a member, the Bank is required to own shares of capital stock in the
FHLB of Chicago. At March 31, 2000, the Bank owned $34.6 million in FHLB stock,
which is in compliance with this requirement. The Bank has received substantial
dividends on its FHLB stock. The dividend for fiscal 2000 amounted to $2.0
million as compared to $1.4 million for fiscal 1999.
The FHLBs are required to provide funds for the resolution of troubled
savings associations and to contribute to low- and moderately-priced housing
programs through direct loans or interest subsidies on advances targeted for
community investment and low- and moderate-income housing projects. These
contributions have adversely affected the level of FHLB dividends paid and could
continue to do so in the future. These contributions could also have an adverse
effect on the value of FHLB stock in the future. A reduction in value of the
Bank's FHLB stock may result in a charge to the Corporation's earnings.
FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. At March 31, 2000, the Bank
was in compliance with these requirements. These reserves may be used to satisfy
liquidity requirements imposed by the Director of the OTS. Because required
reserves must be maintained in the form of cash or a non-interest-bearing
account at a Federal Reserve Bank, the effect of this reserve requirement is to
reduce the amount of the institution's interest-earning assets.
Savings institutions also have the authority to borrow from the Federal
Reserve "discount window." Federal Reserve Board regulations, however, require
savings institutions to exhaust all FHLB sources before borrowing from a Federal
Reserve Bank.
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<PAGE> 25
TAXATION
FEDERAL
The Corporation files a consolidated federal income tax return on
behalf of itself, the Bank and its subsidiaries on a fiscal tax year basis.
In prior years, the Bank qualified under provisions of the Internal
Revenue Code which permitted, as a deduction from taxable income, allowable bad
debt deductions which significantly exceeded actual losses and the financial
statement loan loss provisions. These earnings appropriated to a savings
institution's bad debt reserves and deducted for federal income tax purposes may
not, without adverse tax consequences, be utilized for the payment of cash
dividends or other distributions to a stockholder (including distributions on
redemption, dissolution or liquidation) or for any other purpose (except to
absorb bad debt losses). As of March 31, 2000, the Bank's bad debt reserves for
tax purposes totaled approximately $46.1 million. (See Note 11 to the
Consolidated Financial Statements for additional discussion).
STATE
Under current law, the state of Wisconsin imposes a corporate franchise
tax of 7.9% on the separate taxable incomes of the members of the Corporation's
consolidated income tax group except IDI and NIDI, both located in Nevada.
Presently, the income of AIC and NIDI are only subject to taxation in Nevada,
which currently does not impose a corporate income or franchise tax.
ITEM 2. PROPERTIES
At March 31, 2000, The Bank conducted its business from its
headquarters and main office at 25 West Main Street, Madison, Wisconsin and 48
other deposit-taking offices and one lending only office located primarily in
south-central, east-central and southwest Wisconsin. The Bank owns 33 of its
deposit-taking offices, leases the land on which 3 such offices are located, and
leases the remaining 13 deposit-taking offices. In addition, the Bank leases its
loan origination facility. The leases expire between 2000 and 2005. The
aggregate net book value at March 31, 2000 of the properties owned or leased,
including headquarters, properties and leasehold improvements, was $18.9
million. See Note 6 to the Corporation's Consolidated Financial Statements,
included as Item 8 hereto, for information regarding the premises and equipment.
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<PAGE> 26
ITEM 3. LEGAL PROCEEDINGS
The Corporation is involved in routine legal proceedings occurring in
the ordinary course of business which, in the aggregate, are believed by
management of the Corporation to be immaterial to the financial condition and
results of operations of the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended March 31, 2000, no
matters were submitted to a vote of security holders through a solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
COMMON STOCK
The Corporation's common stock is traded on the NASDAQ Stock Market.
The trading symbol is ABCW. As of March 31, 2000, there were approximately 2,900
stockholders of record. That number does not include stockholders holding their
stock in street name or nominee's name.
SHAREHOLDERS' RIGHTS PLAN
On July 22, 1997, the Board of Directors of the Corporation declared a
dividend distribution of one "Right" for each outstanding share of Common Stock,
par value $0.10 per share, of the Corporation to stockholders of record at the
close of business on August 1, 1997. Subject to certain exceptions, each Right
entitles the registered holder to purchase from the Corporation one
one-hundredth of a share of Series A Preferred Stock, par value $0.10 per share,
at a price of $200.00, subject to adjustment. The Purchase Price must be paid in
cash. The description and terms of the Rights are set forth in a Rights
Agreement between the Corporation and Firstar Trust Company, as Rights Agent.
QUARTERLY STOCK PRICE AND DIVIDEND INFORMATION
The table below shows the reported high and low sale prices of Common
Stock and cash dividends paid per share of Common Stock during the periods
indicated in fiscal 2000 and 1999.
<TABLE>
<CAPTION>
CASH
QUARTER ENDED HIGH LOW DIVIDEND
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
March 31, 2000 $ 15.875 $ 12.750 $ 0.070
December 31, 1999 16.875 15.000 0.065
September 30, 1999 20.000 15.750 0.065
June 30, 1999 20.125 15.250 0.050
March 31, 1999 24.500 14.000 $ 0.050
December 31, 1998 24.125 17.000 0.050
September 30, 1998 24.000 19.344 0.050
June 30, 1998 23.375 18.875 0.045
</TABLE>
For information regarding restrictions on the payments of dividends,
see "Item 1. Business -- Regulation -- Limitations on Dividends and Other
Capital Distributions" in this report.
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<PAGE> 27
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
AT OR FOR YEAR ENDED MARCH 31,
---------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Earnings per share:
Basic $ 0.80 $ 1.26 $ 1.06 $ 0.71 $ 0.68
Diluted 0.78 1.19 1.01 0.68 0.65
Interest income 202,065 194,309 186,910 160,516 144,040
Interest expense 119,393 114,535 110,893 95,543 85,059
Net interest income 82,672 79,774 76,017 64,973 58,981
Provision for loan losses 1,306 1,017 1,250 850 675
Non-interest income 13,717 21,227 15,222 14,538 10,024
Non-interest expenses 59,985 51,136 48,137 53,076 41,640
Income taxes 15,596 18,607 15,507 9,197 9,626
Net income 19,502 30,241 26,345 16,388 17,064
Total assets 2,911,152 2,663,718 2,517,080 2,156,168 2,010,216
Investment securities 86,206 87,722 80,460 52,511 39,823
Mortgage-related securities 300,519 258,489 254,389 263,295 245,754
Loans receivable held for
investment, net 2,302,721 2,111,566 1,962,023 1,682,919 1,565,977
Deposits 1,897,369 1,835,416 1,710,980 1,465,608 1,392,073
Notes payable to FHLB 649,046 517,695 508,145 439,065 368,769
Other borrowings 107,813 55,264 55,765 57,374 54,613
Stockholders' equity 217,215 220,287 202,868 165,319 165,594
Shares outstanding 24,088,147 23,832,165 23,791,787 21,623,990 23,430,534
Book value per share
at end of period $ 9.02 $ 9.24 $ 8.53 $ 7.65 $ 7.07
Dividend paid per share 0.25 0.20 0.16 0.12 0.08
Dividend payout ratio 31.25% 15.48% 15.09% 16.73% 11.76%
Yield on earning assets 7.57 7.68 7.94 7.90 7.85
Cost of funds 4.79 4.84 5.01 4.98 4.99
Interest rate spread 2.78 2.84 2.93 2.92 2.86
Net interest margin 3.10 3.15 3.23 3.20 3.21
Return on average assets 0.71 1.16 1.08 0.78 0.90
Return on average equity 8.92 14.44 13.24 9.90 10.15
Average equity to average assets 7.97 8.04 8.15 7.84 8.86
</TABLE>
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<PAGE> 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains certain "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Corporation desires to take
advantage of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995 and is including this statement for the expressed purpose of
availing itself of the protection of the safe harbor with respect to all of such
forward-looking statements. These forward-looking statements describe future
plans or strategies and include the Corporation's expectations of future
financial results. The Corporation's ability to predict results or the effect of
future plans or strategies is inherently uncertain and the Corporation can give
no assurance that those results or expectations will be attained. Factors that
could affect actual results include but are not limited to i) general market
rates, ii) changes in market interest rates and the shape of the yield curve,
iii) general economic conditions, iv) real estate markets, v)
legislative/regulatory changes, vi) monetary and fiscal policies of the U.S.
Treasury and the Federal Reserve, vii) changes in the quality or composition of
the Corporation's loan and investment portfolios, viii) demand for loan
products, ix) the level of loan and MBS repayments, x) deposit flows, xi)
competition, xii) demand for financial services in the Corporation's markets,
and xiii) changes in accounting principles, policies or guidelines. These
factors should be considered in evaluating the forward-looking statements, and
undue reliance should not be placed on such statements.
The Corporation does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
The following discussion is designed to provide a more thorough discussion of
the Corporation's financial condition and results of operations as well as to
provide additional information on the Corporation's asset/liability management
strategies, sources of liquidity and capital resources. Management's discussion
and analysis should be read in conjunction with the consolidated financial
statements and supplemental data contained elsewhere in this report.
RESULTS OF OPERATIONS
Comparison of Years Ended March 31, 2000 and 1999
GENERAL Net income decreased $10.7 million to $19.5 million in fiscal 2000 from
$30.2 million in fiscal 1999. The primary components of this decrease in
earnings for fiscal 2000, as compared to fiscal 1999, were a decrease of $7.5
million in non-interest income and an increase of $8.8 million in non-interest
expense. This was partially offset by an increase of $2.6 million in net
interest income after the provision for loan losses and a decrease of $3.0
million in income taxes. The returns on average assets and average stockholders'
equity for fiscal 2000 were .71% and 8.92%, respectively, as compared to 1.16%
and 14.44%, respectively, for fiscal 1999.
NET INTEREST INCOME Net interest income increased by $2.9 million during fiscal
2000 due to increases in the volume of interest-earning assets and
interest-bearing liabilities. The average balances of interest-earning assets
and interest-bearing liabilities increased to $2.67 billion and $2.49 billion in
fiscal 2000, respectively, from $2.53 billion and $2.37 billion, respectively,
in fiscal 1999. The ratio of average interest-earning assets to average
interest-bearing liabilities remained relatively constant at 1.07% for both
fiscal 2000 and fiscal 1999. The average yield on interest-earning assets (7.57%
in fiscal 2000 versus 7.68% in fiscal 1999) decreased, as did the average cost
on interest-bearing liabilities (4.79% in fiscal 2000 versus 4.84% in fiscal
1999). The net interest margin decreased to 3.10% for fiscal 2000 from 3.15% for
fiscal 1999 and the interest rate spread decreased to 2.78% from 2.84% for
fiscal 2000 and 1999, respectively. The decrease in the net interest margin is
reflective of decreased yields on loans as rates fall, offset by a decrease in
the cost of funds. These factors are reflected in the analysis of changes in net
interest income, arising from changes in the volume of interest-earning assets,
interest-bearing liabilities and the rates earned and paid on such assets and
liabilities. The analysis indicates that the increases in the volume of
interest-earning assets increased net interest income in fiscal 2000 by
approximately $7.3 million. Offsetting this increase, was a $4.4 million
decrease in net interest income caused by the combination of rate and
rate/volume changes.
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<PAGE> 29
PROVISION FOR LOAN LOSSES Provision for loan losses increased slightly from $1.0
million in fiscal 1999 to $1.3 million in fiscal 2000 based on management's
ongoing evaluation of asset quality. There was a decrease in net charge-offs of
$1.5 million in overall loans in fiscal 2000, and the quality of the loan
portfolio continues to be good. The Corporation's allowance for loan losses
increased slightly from $24.0 million at March 31, 1999 to $24.4 million at
March 31, 2000. This amount represented 1.01% of total loans at March 31, 2000,
as compared to 1.08% of total loans at March 31, 1999. For further discussion of
the allowance for loan losses, see "Financial Condition--Allowance for Loan and
Foreclosure Losses."
NON-INTEREST INCOME Non-interest income decreased $7.5 million to $13.7 million
for fiscal 2000 compared to $21.2 million for fiscal 1999 as a result of several
factors. The net gain on sale of loans decreased by $5.3 million largely due to
decreased volume of loan sales during the year. Net income from operations of
real estate investments decreased $1.1 million because there were fewer sales of
partnership interests with more development costs as projects are held at IDI in
fiscal 2000. Other non-interest income, which includes a variety of loan fee and
other miscellaneous fee income, decreased $1.0 million for fiscal 2000. In
addition to decreased loan fee income, there was a non-recurring gain on the
sale of an investment property of $360,000 for fiscal 1999. Net gain on sale of
investments and securities decreased $350,000 for fiscal 2000, and service
charges on deposits also decreased $100,000. Partially offsetting these
decreases were increases in other categories. Income from insurance commissions
increased $290,000 for fiscal 2000. Loan servicing income increased $70,000 due
to increased volume of loans serviced for others.
NON-INTEREST EXPENSES Non-interest expenses increased $8.8 million for fiscal
2000 compared to 1999 as a result of several factors. The majority of the
increase was attributed to merger-related expenses of $8.3 million ($5.1
million, net of tax) due to the merger with FCBF and increased goodwill expense
of $1.5 million ($900,000, net of tax). Unamortized goodwill from a previous
merger became impaired and was written off. There was an increase in furniture
and equipment expense of $430,000 in fiscal 2000, primarily due to normal
replacement costs. Marketing expense also increased $340,000 in fiscal 2000 due
to increased promotions. Data processing expense increased $190,000 due to
consulting expenses associated with computer and software upgrades. These
increases were partially offset by several non-interest expense decreases.
Compensation expense decreased $1.3 million largely due to decreased incentive
payments, and other non-interest expenses decreased $350,000 during fiscal 2000.
Federal insurance premiums decreased $150,000, and occupancy expense also
decreased $110,000 during this fiscal year.
INCOME TAXES Income tax expense decreased $3.0 million for fiscal 2000 as
compared to fiscal 1999. The effective tax rate for fiscal 2000 was 44.44% as
compared to 38.09% for fiscal 1999. The unusual effective tax rate for fiscal
2000 is a result of certain merger-related costs and goodwill amortization that
are not deductible for tax purposes. See Note 11 to the Consolidated Financial
Statements included as Item 8.
Comparison of Years Ended March 31, 1999 and 1998
GENERAL Net income increased $3.9 million to $30.2 million in fiscal 1999 from
$26.3 million in fiscal 1998. The components of this increase in earnings for
fiscal 1999, as compared to fiscal 1998, were an increase of $6.0 million in
non-interest income and an increase of $4.0 million in net interest income after
the provision for loan losses. This was partially offset by an increase of $3.0
million in non-interest expense and an increase of $3.1 million in income taxes.
The returns on average assets and average stockholders' equity for fiscal 1999
were 1.16% and 14.44%, respectively, as compared to 1.08% and 13.24%,
respectively, for fiscal 1998.
NET INTEREST INCOME Net interest income increased by $3.8 million during fiscal
1999 due to increases in the volume of interest-earning assets and
interest-bearing liabilities. The average balances of interest-earning assets
and interest-bearing liabilities increased to $2.53 billion and $2.37 billion in
fiscal 1999, respectively, from $2.35 billion and $2.21 billion, respectively,
in fiscal 1998. The ratio of average interest-earning assets to average
interest-bearing liabilities increased slightly to 1.07% for fiscal 1999
compared to 1.06% for fiscal 1998. The average yield on interest-earning assets
(7.68% in fiscal 1999 versus 7.94% in fiscal 1998) decreased, as did the average
cost on interest-bearing liabilities (4.84% in fiscal 1999 versus 5.01% in
fiscal 1998). The net interest margin decreased to 3.15% for fiscal 1999 from
3.23% for fiscal 1998 and the interest rate spread decreased to 2.84% from 2.93%
for fiscal 1999 and 1998, respectively. The decrease in the net interest margin
is reflective of
28
<PAGE> 30
decreased yields on loans as rates fall, offset by a decrease in the cost of
funds. These factors are reflected in the analysis of changes in net interest
income, arising from changes in the volume of interest-earning assets,
interest-bearing liabilities and the rates earned and paid on such assets and
liabilities. The analysis indicates that the increases in the volume of
interest-earning assets increased net interest income in fiscal 1999 by
approximately $8.4 million. Offsetting this increase, was a $4.6 million
decrease in net interest income caused by the combination of rate and
rate/volume changes.
PROVISION FOR LOAN LOSSES Provision for loan losses decreased slightly from $1.3
million in fiscal 1998 to $1.0 million in fiscal 1999 based on management's
ongoing evaluation of asset quality. While an increase in net charge-offs of
$970,000 was experienced in overall loans in fiscal 1999, the quality of the
loan portfolio continues to be good. The Corporation's allowance for loan losses
decreased slightly from $25.4 million at March 31, 1998 to $24.0 million at
March 31, 1999. This amount represented 1.08% of total loans at March 31, 1999,
as compared to 1.23% of total loans at March 31, 1998. For further discussion of
the allowance for loan losses, see "Financial Condition--Allowance for Loan and
Foreclosure Losses."
NON-INTEREST INCOME Non-interest income increased $6.0 million to $21.2 million
for fiscal 1999 compared to $15.2 million for fiscal 1998 as a result of several
factors. The gain on sale of loans increased by $3.2 million largely due to
increased volume of loan sales during the year. Net income from the operations
of real estate investments increased $3.0 million because of increased sales and
the associated decreased holding costs incurred with those investments. Net gain
on sale of investments and securities increased $480,000 and service charges on
deposits increased $340,000, essentially due to a growth in deposits. Partially
offsetting these increases were several decreases in other categories. Loan
servicing income decreased $780,000 due to increased amortization of originated
mortgage servicing rights ("OMSR's") of $1.0 million, partially offset by
increased volume of loans serviced for others. Insurance commissions decreased
by $130,000 due to decreased volume in this area, and other non-interest income
also decreased $80,000, for fiscal 1999.
NON-INTEREST EXPENSES Non-interest expenses increased $3.0 million for fiscal
1999 compared to 1998 as a result of several factors. The majority of the
increase was because compensation expense increased $3.5 million, largely due to
increased incentive payments. Data processing expense increased $360,000 over
the prior fiscal year due to consulting expenses associated with computer and
software upgrades. Furniture and equipment increased $300,000 due to normal
replacement costs. Occupancy expense also increased $200,000 during fiscal 1999.
These increases were offset by several non-interest expense decreases. Other
non-interest expenses decreased $1.0 million during this fiscal year due to
decreases in legal, audit and accounting, postage, telephone and other expenses.
Marketing expenses decreased $330,000 due to decreased promotions.
INCOME TAXES Income tax expense increased $3.1 million for fiscal 1999 as
compared to fiscal 1998. The effective tax rate for fiscal 1999 was 38.09% as
compared to 37.05% for fiscal 1998. See Note 11 to the Consolidated Financial
Statements.
NET INTEREST INFORMATION
AVERAGE INTEREST-EARNING ASSETS, AVERAGE INTEREST-BEARING LIABILITIES AND
INTEREST RATE SPREAD AND Margin The table on the following page shows the
Corporation's average balances, interest, average rates, the spread between the
combined average rates earned on interest-earning assets and average cost of
interest-bearing liabilities, the average net interest margin, computed as net
interest income as a ratio of average interest-earning assets, and the ratio of
average interest-earning assets to average interest-bearing liabilities for the
years indicated. The average balances are derived from average daily balances.
29
<PAGE> 31
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------------------------
2000 1999 1998
--------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
--------------------------------------------------------------------------------------------------
(Dollars In Thousands)
INTEREST-EARNING ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans (1) $ 1,796,749 $ 135,369 7.53% $ 1,683,821 $ 128,487 7.63% $1,475,292 $119,504 8.10%
Consumer loans 414,478 36,041 8.70 404,264 36,332 8.99 422,562 37,183 8.80
Commercial business loans 64,155 5,758 8.98 44,952 3,960 8.81 36,980 3,713 10.04
----------- --------- ----------- --------- ---------- --------
Total loans receivable (2) 2,275,382 177,168 7.79 2,133,036 168,779 7.91 1,934,835 160,400 8.29
Mortgage-related securities (1) 247,352 15,937 6.44 239,608 15,671 6.54 275,035 18,734 6.81
Investment securities (1) 104,781 6,108 5.83 94,479 5,778 6.12 96,980 4,897 5.05
Interest-bearing deposits 12,652 716 5.66 36,404 2,287 6.28 19,534 1,044 5.34
Federal Home Loan Bank stock 30,486 2,136 7.01 27,464 1,794 6.53 26,922 1,835 6.82
----------- --------- ----------- --------- ---------- --------
Total interest-earning
assets 2,670,653 202,065 7.57 2,530,991 194,309 7.68 2,353,306 186,910 7.94
Non-interest-earning assets 73,226 72,569 89,970
----------- ----------- ----------
Total assets $ 2,743,879 $ 2,603,560 $2,443,276
=========== =========== ==========
INTEREST-BEARING LIABILITIES
Demand deposits $ 537,156 15,259 2.84 $ 473,243 13,240 2.80 $ 386,921 11,364 2.94
Regular passbook savings 190,751 4,969 2.60 139,751 3,110 2.23 134,246 3,248 2.42
Certificates of deposit 1,087,459 61,251 5.63 1,169,841 65,897 5.63 1,121,913 64,497 5.75
----------- --------- ----------- --------- ---------- --------
Total deposits 1,815,366 81,479 4.49 1,782,834 82,247 4.61 1,643,080 79,109 4.81
Notes payable and other
borrowings 664,882 37,358 5.62 566,275 31,745 5.61 552,082 31,202 5.65
Other 14,050 556 3.96 16,616 543 3.27 19,736 582 2.95
----------- --------- ----------- --------- ---------- --------
Total interest-bearing
liabilities 2,494,298 119,393 4.79 2,365,725 114,535 4.84 2,214,898 110,893 5.01
--------- ---- --------- ---- -------- ----
Non-interest-bearing
liabilities 30,830 28,412 29,361
----------- ----------- ----------
Total liabilities 2,525,128 2,394,136 2,244,259
Stockholders' equity 218,751 209,424 199,017
----------- ----------- ----------
Total liabilities and
stockholders' equity $ 2,743,879 $ 2,603,560 $2,443,276
Net interest income/ =========== =========== ==========
interest rate spread $ 82,672 2.78% $ 79,774 2.84% $ 76,017 2.93%
======== ==== ======== ==== ======== ====
Net interest-earning assets $ 176,355 $ 165,266 $ 138,408
=========== =========== ==========
Net interest margin 3.10% 3.15% 3.23%
==== ==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 1.07 1.07 1.06
==== ==== ====
</TABLE>
-------------------------------
(1) Includes amortized cost basis of assets held and available for sale.
(2) The average balances of loans include non-performing loans, interest of
which is recognized on a cash basis.
30
<PAGE> 32
RATE/VOLUME ANALYSIS
The most significant impact on the Corporation's net interest income between
periods is derived from the interaction of changes in the volume of and rates
earned or paid on interest-earning assets and interest-bearing liabilities. The
volume of earning dollars in loans and investments, compared to the volume of
interest-bearing liabilities represented by deposits and borrowings, combined
with the spread, produces the changes in net interest income between periods.
The following table shows the relative contribution of the changes in average
volume and average interest rates on changes in net interest income for the
periods indicated. Information is provided with respect to (i) effects on
interest income attributable to changes in rate (changes in rate multiplied by
prior volume), (ii) effects on interest income attributable to changes in volume
(changes in volume multiplied by prior rate) and (iii) changes in rate/volume
(changes in rate multiplied by changes in volume).
<TABLE>
<CAPTION>
INCREASE (DECREASE) FOR THE YEAR ENDED MARCH 31,
---------------------------------------------------------------------------------------------
2000 COMPARED TO 1999 1999 COMPARED TO 1998
-----------------------------------------------------------------------------------------------
RATE/ RATE/
RATE VOLUME VOLUME NET RATE VOLUME VOLUME NET
-----------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Mortgage loans (1) $ (1,626) $ 8,617 $ (109) $ 6,882 $ (6,930) $ 16,892 $ (979) $ 8,983
Consumer loans (1,179) 917 (30) (291) 795 (1,611) (34) (851)
Commercial business loans 75 1,692 32 1,798 (455) 800 (98) 247
--------- -------- -------- -------- -------- -------- -------- --------
Total loans receivable (2,730) 11,226 (107) 8,389 (6,590) 16,081 (1,111) 8,379
Mortgage-related securities (1) (233) 508 (8) 266 (746) (2,412) 96 (3,063)
Investment securities (1) (271) 630 (29) 330 1,034 (126) (27) 881
Interest-bearing deposits (227) (1,491) 148 (1,571) 183 903 158 1,243
Federal Home Loan Bank stock 130 198 14 342 (76) 38 (2) (41)
--------- -------- -------- -------- -------- -------- -------- --------
Total net change in income on
interest-earning assets (3,331) 11,071 18 7,756 (6,195) 14,484 (886) 7,399
INTEREST -BEARING LIABILITIES
Demand deposits 203 1,788 27 2,019 (539) 2,535 (120) 1,876
Regular passbook savings 530 1,135 194 1,859 (260) 133 (11) (138)
Certificates of deposit (6) (4,641) -- (4,646) (1,300) 2,755 (56) 1,400
--------- -------- -------- -------- -------- -------- -------- --------
Total deposits 727 (1,718) 221 (768) (2,099) 5,423 (187) 3,138
Notes payable and other borrowings 73 5,527 13 5,613 (253) 801 (6) 543
Other 115 (84) (18) 13 63 (92) (10) (39)
--------- -------- -------- -------- -------- -------- -------- --------
Total net change in expense on
interest-bearing liabilities 915 3,725 216 4,858 (2,289) 6,132 (203) 3,642
--------- -------- -------- -------- -------- -------- -------- --------
Net change in net interest income $ (4,246) $ 7,346 $ (198) $ 2,898 $ (3,906) $ 8,352 $ (683) $ 3,757
========= ======== ======== ======== ======== ======== ======== ========
</TABLE>
----------------------------------
(1) Includes amortized cost basis of assets held and available for sale.
31
<PAGE> 33
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 2000, the Bank made dividend payments of $20.1 million to the
Corporation. The Bank is subject to certain regulatory limitations relative to
its ability to pay dividends to the Corporation. Management believes that the
Corporation will not be adversely affected by these dividend limitations and
that projected future dividends from the Bank will be sufficient to meet the
Corporation's liquidity needs. In addition to dividends from the Bank, the
Corporation also could sell capital stock or debt issues through the capital
markets as alternative sources of funds, as well as obtain loans from outside
banks.
The Bank's primary sources of funds are principal and interest payments on loans
receivable and mortgage-related securities, sales of mortgage loans originated
for sale, FHLB advances, deposits and other borrowings. While maturities and
scheduled amortization of loans and mortgage-related securities are a
predictable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition.
The Bank is required by the OTS to maintain specified levels of liquid
investments in qualifying types of U.S. Government and agency securities and
other investments. This requirement, which may be varied by the OTS, is based
upon a percentage of deposits and short-term borrowings. The required percentage
is currently 4.0%. At March 31, 2000 and 1999, the Bank's liquidity ratio was
11.7% and 13.7%, respectively.
Operating activities resulted in a net cash inflow of $23.6 million. Operating
cash flows for fiscal 2000 included earnings of $19.5 million and $(23.8)
million of net proceeds from the origination and sale of mortgage loans held for
sale.
Investing activities in fiscal 2000 resulted in a net cash outflow of $222.6
million. Primary investing activities resulting in cash outflows were $204.2
million for the purchase of securities and $174.8 million for the increase in
net loans receivable. The most significant cash inflows from investing
activities were principal payments of $54.4 million received on mortgage-related
securities, as well as $106.9 million from the proceeds of sales and maturities
of investment securities.
Financing activities resulted in a net cash inflow of $218.7 million including a
net increase in deposits of $62.0 million, a net increase in borrowings of
$181.8 million and a cash outflow of $21.4 million for treasury stock purchases.
At March 31, 2000, the Corporation had outstanding commitments to originate
$65.2 million of loans; commitments to extend funds to or on behalf of customers
pursuant to lines and letters of credit of $132.0 million; and $1.1 million of
loans sold with recourse to the Corporation in the event of default by the
borrower. (See Note 12 to the Consolidated Financial Statements.) Scheduled
maturities of certificates of deposit during the twelve months following March
31, 2000 amounted to $916.5 million, and scheduled maturities of borrowings
during the same period totaled $378.4 million. The Bank has entered into
agreements with certain brokers that will provide blocks of funds at specified
interest rates for an identified fee. Management believes adequate capital and
borrowings are available from various sources to fund all commitments to the
extent required.
At March 31, 2000, the Bank's capital exceeded all capital requirements of the
State of Wisconsin and the OTS as mandated by federal law and regulations on
both a current and fully phased-in basis. See Note 9 to the Consolidated
Financial Statements.
FINANCIAL CONDITION
GENERAL Total assets of the Corporation increased $247.4 million or 9.3% from
$2.66 billion at March 31, 1999, to $2.91 billion at March 31, 2000. This
increase was primarily funded by net increases in borrowings of $134.0 million,
deposits of $62.0 million, and reverse repurchase agreements of $49.9 million.
These funds were generally invested in loans receivable and mortgage-related
securities.
MORTGAGE-RELATED SECURITIES Mortgage-related securities (both available for sale
and held to maturity) increased $42.0 million as a net result during the year of
(i) purchases of $98.2 million, (ii) principal repayments and market
32
<PAGE> 34
value adjustments of $56.2 million and (iii) sales of $17,000. Mortgage-related
securities consisted of $280.9 million mortgage-backed securities and $19.6
million mortgage-derivative securities at March 31, 2000. See Notes 1 and 4 to
the Consolidated Financial Statements.
Mortgage-related securities are subject to inherent risks based upon the future
performance of the underlying collateral (i.e., mortgage loans) for these
securities. Among these risks are prepayment risk and interest rate risk. Should
general interest rate levels decline, the mortgage-related securities portfolio
would be subject to (i) prepayments as borrowers typically would seek to obtain
financing at lower rates, (ii) a decline in interest income received on
adjustable-rate mortgage-related securities, and (iii) an increase in fair value
of fixed-rate mortgage-related securities. Conversely, should general interest
rate levels increase, the mortgage-related securities portfolio would be subject
to (i) a longer term to maturity as borrowers would be less likely to prepay
their loans, (ii) an increase in interest income received on adjustable-rate
mortgage-related securities, (iii) a decline in fair value of fixed-rate
mortgage-related securities, and (iv) a decline in fair value of adjustable-rate
mortgage-related securities to an extent dependent upon the level of interest
rate increases, the time period to the next interest rate repricing date for the
individual security, and the applicable periodic (annual and/or lifetime) cap
which could limit the degree to which the individual security could reprice
within a given time period.
LOANS RECEIVABLE Total net loans (including loans held for sale) increased
$174.8 million during fiscal 2000 from $2.13 billion at March 31, 1999, to $2.30
billion at March 31, 2000. The activity included (i) originations and purchases
of $870.7 million, (ii) sales of loans held for sale of $249.4 million, and
(iii) principal repayments and other reductions of $446.5 million. See Note 5 to
the Corporation's Consolidated Financial Statements for more information.
NON-PERFORMING ASSETS Non-performing assets (consisting of non-accrual loans,
non-performing real estate held for development and sale, foreclosed properties
and repossessed assets) decreased to $5.6 million or 0.19% of total assets at
March 31, 2000 from $6.4 million or 0.24% of total assets at March 31, 1999.
Non-performing assets are summarized as follows for the dates indicated:
33
<PAGE> 35
<TABLE>
<CAPTION>
AT MARCH 31,
-----------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Single-family residential $ 2,582 $ 2,931 $ 3,256 $ 3,019 $ 1,281
Multi-family residential 3 -- 898 4,489 --
Commercial real estate 126 145 288 2,978 6,038
Construction and land -- -- -- 58 81
Consumer 571 571 765 463 202
Commercial business 332 359 769 610 508
------- ------- ------- ------- -------
Total non-accrual loans 3,614 4,006 5,976 11,617 8,110
Real estate held for development and sale 1,691 1,764 4,431 2,736 2,319
Foreclosed properties and repossessed assets, net 272 630 3,794 246 91
------- ------- ------- ------- -------
Total non-performing assets $ 5,577 $ 6,400 $14,201 $14,599 $10,520
======= ======= ======= ======= =======
Performing troubled debt restructurings $ 144 $ 293 $ 725 $ 329 $ 332
======= ======= ======= ======= =======
Total non-accrual loans to total loans 0.15% 0.18% 0.29% 0.66% 0.49%
Total non-performing assets to total assets 0.19 0.24 0.56 0.68 0.52
Allowance for loan losses to total loans 1.00 1.08 1.23 1.36 1.45
Allowance for loan losses to total
non-accrual loans 675.26 599.78 425.03 207.93 294.48
Allowance for loan and foreclosure losses
to total non-performing assets 439.63 379.97 181.15 172.84 233.83
</TABLE>
Non-accrual loans decreased $390,000 in fiscal 2000. This decrease is not
attributable to any one property. At March 31, 2000, there were no non-accrual
loans with a carrying value of greater than $1.0 million. Loans are placed on
non-accrual status when, in the judgment of management, the probability of
collection of interest is deemed to be insufficient to warrant further accrual.
When a loan is placed on non-accrual status, previously accrued but unpaid
interest is deducted from interest income. As a matter of policy, the
Corporation does not accrue interest on loans past due more than 90 days.
Non-performing real estate held for development and sale decreased $70,000
during fiscal 2000. At March 31, 2000, there was one property in non-performing
real estate held for development and sale with a carrying value greater than
$1.0 million. The property consists of several condominium units in Bloomington,
Minnesota with a carrying value of $1.9 million. The units were related to, but
not a part of, a former non-accrual loan for a condominium project that was sold
in the prior fiscal year.
Foreclosed properties and repossessed assets decreased $360,000 in fiscal 2000.
This decrease is not attributable to any one property. At March 31, 2000, there
are no properties in foreclosed properties with a carrying value greater than
$1.0 million.
The total of performing troubled debt restructurings does not represent a
material amount and does not include any loans larger than $1.0 million.
34
<PAGE> 36
ALLOWANCES FOR LOAN AND FORECLOSURE LOSSES The Corporation's loan portfolio,
foreclosed properties, repossessed assets and loans sold with recourse are
evaluated on a continuing basis to determine the necessity for additions to the
allowances for losses and the related balance in the allowances. These
evaluations consider several factors including, but not limited to, general
economic conditions, collateral value, loan portfolio composition, loan
delinquencies, prior loss experience, anticipated loss of interest and
management's estimation of future potential losses. The evaluation of the
allowance for loan losses includes a review of known loan problems as well as
potential loan problems based upon historical trends and ratios. Foreclosed
properties are recorded at the lower of carrying or fair value with charge-offs,
if any, charged to the allowance for loan losses prior to transfer to foreclosed
property. The fair value is primarily based on appraisals, discounted cash flow
analysis (the majority of which are based on current occupancy and lease rates)
and pending offers. A summary of the activity in the allowance for loan losses
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of year $ 24,027 $ 25,400 $ 24,155 $ 23,882 $ 23,304
Charge-offs:
Mortgage (45) (1,518) (956) (222) (439)
Consumer (833) (1,054) (1,058) (503) (104)
Commercial business (378) (414) (406) (275) (455)
-------- -------- -------- -------- --------
Total charge-offs (1,256) (2,986) (2,420) (1,000) (998)
-------- -------- -------- -------- --------
Recoveries:
Mortgage 87 447 825 250 298
Consumer 203 123 76 5 10
Commercial business 37 26 95 168 43
-------- -------- -------- -------- --------
Total recoveries 327 596 996 423 351
-------- -------- -------- -------- --------
Net charge-offs (929) (2,390) (1,424) (577) (647)
-------- -------- -------- -------- --------
Provision 1,306 1,017 1,250 850 675
Acquired banks', allowances -- -- 1,419 -- 550
-------- -------- -------- -------- --------
Allowance at end of year $ 24,404 $ 24,027 $ 25,400 $ 24,155 $ 23,882
======== ======== ======== ======== ========
Net charge-offs to average loans
held for sale and for investment (0.04)% (0.11)% (0.07)% (0.03)% (0.04)%
==== ==== ==== ==== ====
</TABLE>
The fiscal 2000 provision for loan losses totaled $1.3 million as compared to
$1.0 million in fiscal 1999. The provision for loan losses for fiscal years 2000
and 1999 remain at significantly lower levels compared to earlier years when the
Bank's charge-off experience from certain portfolio segments required larger
allowances due to higher defaults during a period of economic downturn. Those
segments were largely multi-family real estate loans secured by properties in
states other than Wisconsin and leases receivable. The Corporation had, until
the past few years, substantially ceased extending credit in those segments
since the late 1980's. Because of this historical experience, and based on the
volume and type of lending reintroduced to the loan portfolio (in the real
estate held for development and sale segment), management considered it
appropriate to retain the allowance at its present level. For further discussion
of the real estate held for development and sale segment, see Item 8 - Note 15
to the Consolidated Financial Statements and Item 1 - "Business - Subsidiaries".
35
<PAGE> 37
The Bank considers economic trends in its overall level of general allowances.
Historically, the Bank's non-performing and classified assets have fluctuated
with economic trends, both locally and nationally. At March 31, 2000, the
present positive local and national economic conditions are reflected in the
Bank's decrease in non-performing and classified assets. At the same time, both
locally and nationally, consumer debt levels have risen and have been
accompanied by increased default levels. In response to these conditions, the
Bank has decreased its general reserve slightly from $10.5 million to $9.4
million.
Non-performing assets have decreased $800,000 while classified asset levels have
increased $200,000 during the past fiscal year. Because of the increased growth
in the real estate investment segment and in the commercial loan portfolio,
management believes that the present level of the allowance is prudent.
Loan charge-offs were $1.3 million and $3.0 million for the fiscal years ending
March 31, 2000 and 1999, respectively. Total charge-offs for the years ended
March 31, 2000 and 1999 decreased $1.7 million and increased $570,000,
respectively, from the prior respective fiscal year ends. The decrease in
charge-offs for fiscal 2000 is largely due to decreases in mortgage and consumer
loan charge-offs. Mortgage loan and consumer loan charge-offs decreased $1.5
million and $220,000, respectively, for the year ended March 31, 2000. The
increase in charge-offs for fiscal 1999 was largely due to an increase in
mortgage loan charge-offs. Mortgage loan charge-offs increased $560,000 for the
year ended March 31, 1999. Commercial loan and consumer loan charge-offs
remained relatively constant at $410,000 and $1.1 million, respectively, for the
year ended March 31, 1999. While recoveries slightly offset the charge-offs for
the year ended March 31, 2000, such recoveries decreased $270,000 from $600,000
in fiscal 1999 to $330,000 in fiscal 2000. Recoveries decreased $400,000 during
the fiscal year ended March 31, 1999.
The decreased level in net charge-offs of $1.5 million and increased level in
net charge-offs of $1.0 million for the respective years ended March 31, 2000
and 1999 do not represent changes in the quality of the loan portfolio, but
instead reflect the local and national trends in overall consumer debt levels
and bankruptcy filings.
The table below shows the Corporation's allocation of the allowance for loan
losses by loan type at the dates indicated.
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------
% OF TOTAL % OF TOTAL % OF TOTAL % OF TOTAL % OF TOTAL
LOANS BY LOANS BY LOANS BY LOANS BY LOANS BY
AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY AMOUNT CATEGORY
-----------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single-family residential $ 2,109 8.64% $ 2,035 8.47% $ 1,277 5.03% $ 679 2.81% $ 638 2.67%
Multi-family residential 1,749 7.17 1,962 8.17 592 2.33 492 2.04 364 1.52
Commercial real estate 6,360 26.06 4,976 20.71 1,624 6.39 1,010 4.18 772 3.23
Construction and land - - - - 187 0.74 - - 4 0.02
Consumer 2,088 8.56 1,543 6.42 2,188 8.61 1,511 6.26 1,037 4.34
Commercial business 2,729 11.18 3,000 12.49 1,337 5.26 1,370 5.67 1,008 4.22
Unallocated 9,369 38.39 10,511 43.75 18,195 71.63 19,093 79.04 20,059 83.99
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total allowance for
loan losses $ 24,404 100.00% $ 24,027 100.00% $ 25,400 100.00% $ 24,155 100.00% $ 23,882 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
Although management believes that the March 31, 2000, allowance for loan losses
is adequate based upon the current evaluation of loan delinquencies,
non-performing assets, charge-off trends, economic conditions and other factors,
there can be no assurance that future adjustments to the allowance will not be
necessary. Management also continues to pursue all practical and legal methods
of collection, repossession and disposal, and adheres to high underwriting
standards in the origination process, in order to continue to maintain strong
asset quality.
36
<PAGE> 38
DEPOSITS Deposits increased $62.0 million during fiscal 2000 to $1.90 billion,
of which $3.5 million was due to increases in certificates of deposit, $24.3
million was due to increases in money market accounts, and $35.4 million was due
to increases in NOW accounts. All of these increases were due to promotions and
related growth of deposit households. The weighted average cost of deposits
increased to 4.59% at fiscal year-end 2000 compared to 4.46% at fiscal year-end
1999.
BORROWINGS FHLB advances increased $131.4 million during fiscal 2000 to fund the
increased loan activity. At March 31, 2000, advances totaled $649.0 million with
a weighted average interest rate of 5.73%. Reverse repurchase agreements
increased $49.9 million during fiscal 2000. Other loans payable increased $2.6
million from the prior fiscal year. For additional information, see Note 8 to
the Consolidated Financial Statements.
STOCKHOLDERS' EQUITY Stockholders' equity at March 31, 2000 was $217.2 million,
or 7.46% of total assets, compared to $220.3 million and 8.27% of total assets
at March 31, 1999. Stockholders' equity decreased during the year as a result of
(i) comprehensive income of $16.8 million, which includes net income of $19.5
million and an offsetting change in net unrealized losses on available-for-sale
securities as a part of accumulated other comprehensive loss of $2.7 million,
(ii) the repayment of ESOP borrowings of $690,000, (iii) the exercise of stock
options of $1.8 million, (iv) the vesting of recognition plan shares of
$140,000, (v) employee stock plan purchases of $550,000, (vi) the tax benefit
from certain stock options of $1.6 million, (vii) the consolidation of the SERP
liability of $850,000 and (viii) the conversion of FCBF shares of $1.9 million.
These were offset by (i) the purchase of treasury stock of $21.4 million and
(ii) the payment of cash dividends of $5.9 million.
IMPACT OF YEAR 2000
The Corporation has addressed all potential problems associated with automated
systems including information systems. The Corporation identified areas of
operations critical for the delivery of its products and services. The majority
of the Corporation's applications used in operations are purchased from an
outside vendor (third party). The Corporation's plan included obtaining
certification of compliance from third parties and testing all of the impacted
applications (both internally developed and third party provided). The
Corporation was fully compliant by June 30, 1999. The Corporation successfully
completed all tests and does not anticipate any future problems. The Corporation
did not incur any interruption in business as a result of the century change.
COSTS The total cost of the Year 2000 project was approximately $500,000 and was
funded through operating cash flows. All costs have been incurred and there are
no further expenditures projected for Year 2000 issues.
CONTINGENCY PLANS The Corporation has completed its contingency plans for all
critical applications. These contingency plans will be adopted as a part of the
Corporation's formal disaster plan. The plan will be updated and tested
annually.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ASSET AND LIABILITY MANAGEMENT The primary function of asset and liability
management is to provide liquidity and maintain an appropriate balance between
interest-earning assets and interest-bearing liabilities within specified
maturities and/or repricing dates. Interest rate risk is the imbalance between
interest-earning assets and interest-bearing liabilities at a given maturity or
repricing date, and is commonly referred to as the interest rate gap (the
"gap"). A positive gap exists when there are more assets than liabilities
maturing or repricing within the same time frame. A negative gap occurs when
there are more liabilities than assets maturing or repricing within the same
time frame.
The Corporation's strategy for asset and liability management is to maintain an
interest rate gap that minimizes the impact of interest rate movements on the
net interest margin. As part of this strategy, the Corporation sells
substantially all new originations of long-term, fixed-rate, single-family
residential mortgage loans in the secondary market, invests in adjustable-rate
or medium-term, fixed-rate, single-family residential mortgage loans, invests in
medium-term mortgage-related securities, and invests in consumer loans which
generally have shorter terms to
37
<PAGE> 39
maturity and higher and/or adjustable interest rates. The Corporation
occasionally sells adjustable-rate loans at origination to private investors.
The Corporation also originates multi-family residential and commercial real
estate loans, which generally have adjustable or floating interest rates and/or
shorter terms to maturity than conventional single-family residential loans.
Long-term, fixed-rate, single-family mortgage loans originated for sale in the
secondary market are generally committed for sale at the time the interest rate
is locked with the borrower. As such, these loans involve little interest rate
risk to the Corporation.
Although management believes that its asset/liability management strategies
reduce the potential effects of changes in interest rates on the Corporation's
operations, material and prolonged changes in interest rates would adversely
affect the Corporation's operations.
The Corporation's cumulative net gap position at March 31, 2000 for one year or
less was a negative 6.52% of total assets. The calculation of a gap position
requires management to make a number of assumptions as to when an asset or
liability will reprice or mature. Management believes that its assumptions
approximate actual experience and considers them reasonable, although the actual
amortization and repayment of assets and liabilities may vary substantially.
The Corporation utilizes certain prepayment assumptions and decay rates from
various sources such as the OTS and as determined by management. The following
table summarizes the Corporation's interest rate sensitivity gap position as of
March 31, 2000.
38
<PAGE> 40
<TABLE>
<CAPTION>
03/31/01 03/31/02 03/31/03 03/31/04 03/31/05
==========================================================================
(Dollars In thousands)
<S> <C> <C> <C> <C> <C>
Rate sensitive assets:
Mortgage loans - Fixed (1) (2) $ 168,335 $ 89,101 $ 67,550 $ 52,119 $ 40,768
Average interest rate 7.56% 7.56% 7.51% 7.47% 7.44%
Mortgage loans -Variable (1) (2) 685,996 280,277 151,309 49,557 26,374
Average interest rate 7.43% 6.93% 6.82% 5.10% 4.89%
Consumer loans (1) 318,767 59,642 30,155 15,809 8,746
Average interest rate 8.44% 8.31% 8.28% 8.26% 8.25%
Commercial business loans (1) 42,568 12,357 3,502 812 545
Average interest rate 8.75% 8.75% 8.75% 8.75% 8.75%
Mortgage-related securities (3) 105,900 60,217 40,004 27,377 18,643
Average interest rate 6.34% 6.33% 6.33% 6.33% 6.33%
Investment securities and other
interest-earning assets (3) 101,814 18,713 14,034 4,678 4,678
Average interest rate 6.19% 6.00% 6.00% 6.00% 6.00%
Total rate sensitive assets 1,423,380 520,307 306,554 150,352 99,754
Rate sensitive liabilities:
Interest-bearing
transaction accounts (4) 212,090 125,237 83,871 56,002 36,561
Average interest rate 3.17% 3.90% 3.65% 3.44% 3.33%
Time-deposits (4) 914,868 153,084 91,950 8,506 8,506
Average interest rate 5.60% 5.74% 5.68% 5.61% 5.61%
Borrowings 486,263 80,596 30,500 16,000 81,000
Average interest rate 5.88% 5.71% 6.15% 5.40% 5.63%
Total rate sensitive liabilities 1,613,221 358,917 206,321 80,508 126,067
Interest sensitivity gap $ (189,841) $ 161,390 $ 100,233 $ 69,844 $ (26,313)
=========== =========== =========== =========== ===========
Cumulative interest sensitivity gap $ (189,841) $ (28,451) $ 71,782 $ 141,626 $ 115,313
=========== =========== =========== =========== ===========
Cumulative interest sensitivity
gap as a percent of total assets (6.52)% (0.98)% 2.47% 4.86% 3.96%
</TABLE>
<TABLE>
<CAPTION>
FAIR VALUE
THEREAFTER TOTAL 03/31/00
=========================================
(Dollars In thousands)
<S> <C> <C> <C>
Rate sensitive assets:
Mortgage loans - Fixed (1) (2) $ 208,552 $ 626,425 $ 604,707
Average interest rate 7.28%
Mortgage loans -Variable (1) (2) -- 1,193,513 1,172,094
Average interest rate
Consumer loans (1) 11,131 444,250 442,617
Average interest rate 8.25%
Commercial business loans (1) 1,302 61,086 61,221
Average interest rate 8.75%
Mortgage-related securities (3) 48,378 300,519 292,583
Average interest rate 6.33%
Investment securities and other
interest-earning assets (3) 14,034 157,951 157,437
Average interest rate 6.00%
Total rate sensitive assets 283,397 2,783,744 2,730,659
Rate sensitive liabilities:
Interest-bearing
transaction accounts (4) 61,353 575,114 557,586
Average interest rate 3.82%
Time-deposits (4) -- 1,176,914 1,161,144
Average interest rate
Borrowings 62,500 756,859 749,446
Average interest rate 5.43%
Total rate sensitive liabilities 123,853 2,508,887 2,468,176
Interest sensitivity gap $ 159,544 $ 274,857
=========== ===========
Cumulative interest sensitivity gap $ 274,857
===========
Cumulative interest sensitivity
gap as a percent of total assets 9.44%
</TABLE>
---------------------------------
(1) Balances have been reduced for (i) undisbursed loan proceeds, which
aggregated $97.1 million, and (ii) non-accrual loans, which amounted to
$3.6 million.
(2) Includes $1.8 million of loans held for sale spread throughout the periods.
(3) Includes $92.2 million of securities available for sale spread throughout
the periods.
(4) Does not include $134.2 million of demand accounts because they are
non-interest-bearing. Also does not include accrued interest payable, which
amounted to $11.1 million. Projected decay rates for demand deposits and
passbook savings are selected by management from various sources such as
the OTS.
39
<PAGE> 41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF ANCHOR BANCORP WISCONSIN INC.
Page
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets.............................................. 41
Consolidated Statements of Income........................................ 42
Consolidated Statements of Changes in Stockholders' Equity............... 43
Consolidated Statements of Cash Flows.................................... 45
Notes to Consolidated Financial Statements............................... 47
Report of Ernst & Young LLP, Independent Auditors........................ 72
Management and Audit Committee Report.................................... 73
SUPPLEMENTARY DATA
Quarterly Financial Information.......................................... 74
40
<PAGE> 42
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------
2000 1999
---------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C>
ASSETS
Cash $ 46,560 $ 32,807
Interest-bearing deposits 37,148 31,169
----------- -----------
Cash and cash equivalents 83,708 63,976
Investment securities available for sale 34,936 40,256
Investment securities held to maturity (fair value of $49,971 and
$47,309, respectively) 51,270 47,466
Mortgage-related securities available for sale 57,276 66,956
Mortgage-related securities held to maturity (fair value of $234,505
and $192,687, respectively) 243,243 191,533
Loans receivable, net:
Held for sale 1,764 18,080
Held for investment 2,302,721 2,111,566
Foreclosed properties and repossessed assets, net 272 630
Real estate held for development and sale 34,063 30,075
Office properties and equipment 25,712 24,879
Federal Home Loan Bank stock--at cost 34,597 27,745
Accrued interest on investments and loans 19,364 17,322
Prepaid expenses and other assets 22,226 23,234
----------- -----------
Total assets $ 2,911,152 $ 2,663,718
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 1,897,369 $ 1,835,416
Federal Home Loan Bank and other borrowings 664,446 530,495
Reverse repurchase agreements 92,413 42,464
Advance payments by borrowers for taxes and insurance 8,213 10,360
Other liabilities 31,496 24,696
----------- -----------
Total liabilities 2,693,937 2,443,431
----------- -----------
Preferred stock, $.10 par value, 5,000,000 shares
authorized, none outstanding - -
Common stock, $.10 par value, 100,000,000 shares
authorized, 25,363,339 and 24,998,648 shares issued, respectively 2,536 2,500
Additional paid-in capital 56,496 80,199
Retained earnings 179,211 168,458
Less: Treasury stock (1,275,192 shares and 1,166,483 shares,
respectively), at cost (18,438) (29,811)
Borrowings of Employee Stock Ownership Plan - (689)
Common stock purchased by benefit plans (923) (1,370)
Accumulated other comprehensive income (loss) (1,667) 1,000
----------- -----------
Total stockholders' equity 217,215 220,287
----------- -----------
Total liabilities and stockholders' equity $ 2,911,152 $ 2,663,718
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
41
<PAGE> 43
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------
2000 1999 1998
-----------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
INTEREST INCOME:
Loans $ 177,168 $ 168,779 $ 160,400
Mortgage-related securities 15,937 15,671 18,734
Investment securities 8,244 7,572 6,732
Interest-bearing deposits 716 2,287 1,044
--------- --------- ---------
Total interest income 202,065 194,309 186,910
INTEREST EXPENSE:
Deposits 81,479 82,247 79,109
Notes payable and other borrowings 37,358 31,745 31,202
Other 556 543 582
--------- --------- ---------
Total interest expense 119,393 114,535 110,893
--------- --------- ---------
Net interest income 82,672 79,774 76,017
Provision for loan losses 1,306 1,017 1,250
--------- --------- ---------
Net interest income after provision for loan losses 81,366 78,757 74,767
NON-INTEREST INCOME:
Loan servicing income 2,063 1,992 2,764
Service charges on deposits 4,877 4,977 4,637
Insurance commissions 1,415 1,129 1,256
Gain on sale of loans 2,010 7,354 4,191
Net gain on sale of investments and securities 272 623 140
Net income (loss) from operations of real estate investments 1,499 2,563 (437)
Other 1,581 2,589 2,671
--------- --------- ---------
Total non-interest income 13,717 21,227 15,222
NON-INTEREST EXPENSES:
Compensation 27,459 28,746 25,280
Occupancy 4,196 4,303 4,106
Federal insurance premiums 905 1,052 1,035
Furniture and equipment 3,685 3,257 2,951
Data processing 3,777 3,588 3,233
Marketing 2,534 2,194 2,519
Merger-related 8,297 -- --
Goodwill 1,761 279 279
Other 7,371 7,717 8,734
--------- --------- ---------
Total non-interest expenses 59,985 51,136 48,137
--------- --------- ---------
Income before income taxes 35,098 48,848 41,852
Income taxes 15,596 18,607 15,507
--------- --------- ---------
Net income $ 19,502 $ 30,241 $ 26,345
========= ========= =========
Earnings per share:
Basic $ 0.80 $ 1.26 $ 1.06
Diluted 0.78 1.19 1.01
Dividends declared per share 0.25 0.20 0.16
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
42
<PAGE> 44
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON ACCU-
STOCK MULATED
PURCHASED BOR- OTHER
ADDITIONAL BY ROWINGS COMPRE-
COMMON PAID-IN RETAINED TREASURY BENEFIT OF HENSIVE
STOCK CAPITAL EARNINGS STOCK PLANS ESOP INCOME TOTAL
------------------------------------------------------------------------------------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1997 $2,500 $46,086 $137,365 $(17,712) $ (869) $(1,246) $ (805) $165,319
====================================================================================
Comprehensive income
Net income -- -- 26,345 -- -- -- -- 26,345
Change in net unrealized gains (losses)
on available-for-sale securities,
net of tax -- -- -- -- -- -- 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
====================================================================================
Comprehensive income
Net income -- -- 30,241 -- -- -- -- 30,241
Change in net unrealized gains (losses)
on available-for-sale securities
net of tax -- -- -- -- -- -- (443) (443)
--------
Comprehensive income 29,798
Purchase of treasury stock -- -- -- (11,492) -- -- -- (11,492)
Exercise of stock options -- 193 (9,815) 12,316 -- -- -- 2,694
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 -- -- -- -- -- 161 -- 161
Consolidation of SERP -- -- -- (1,438) -- -- -- (1,438)
Tax benefit from stock
related compensation -- 2,661 -- -- -- -- -- 2,661
Repayment of ESOP borrowings -- -- -- -- 1,045 -- -- 1,045
------------------------------------------------------------------------------------
Balance at March 31, 1999 $2,500 $80,199 $168,458 $(29,811) $(1,370) $ (689) $ 1,000 $220,287
====================================================================================
</TABLE>
43
<PAGE> 45
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY, (CON'T.)
<TABLE>
<CAPTION>
COMMON ACCU-
STOCK MULATED
PURCHASED BOR- OTHER
ADDITIONAL BY ROWINGS COMPRE-
COMMON PAID-IN RETAINED TREASURY BENEFIT OF HENSIVE
STOCK CAPITAL EARNINGS STOCK PLANS ESOP INCOME TOTAL
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comprehensive income:
Net income -- -- 19,502 -- -- -- -- 19,502
Change in net unrealized gains
on available-for-sale securities
net of tax -- -- -- -- -- -- (2,667) (2,667)
--------
Comprehensive income 16,835
Retirement of treasury stock -- (28,583) -- 28,583 -- -- -- --
Conversion of FCBF shares -- 2,593 -- -- (740) -- -- 1,853
Purchase of treasury stock -- -- -- (21,403) -- -- -- (21,403)
Exercise of stock options 36 741 (2,838) 3,819 -- -- -- 1,758
Purchase of stock by retirement plan -- 154 20 374 -- -- -- 548
Cash dividend ($0.25 per share) -- -- (5,931) -- -- -- -- (5,931)
Recognition plan shares vested -- -- -- -- 140 -- -- 140
Consolidation of SERP -- (196) -- -- 1,047 -- -- 851
Tax benefit from stock
related compensation -- 1,588 -- -- -- -- -- 1,588
Repayment of ESOP borrowings -- -- -- -- -- 689 -- 689
---------------------------------------------------------------------------------------
Balance at March 31, 2000 $ 2,536 $ 56,496 $ 179,211 $(18,438) $ (923) $ -- $ (1,667) $217,215
=======================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
44
<PAGE> 46
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
2000 1999 1998
--------------------------------------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 19,502 $ 30,241 $ 26,345
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses on loans and real estate 1,306 1,217 1,275
Provision for depreciation and amortization 3,298 2,522 2,464
Net gain on sales of loans (2,010) (7,354) (4,141)
Net gain (loss)on sale of investments and securities (272) 137 164
Increase in accrued interest receivable (2,042) (770) (1,301)
Increase (decrease) in accrued interest payable 3,190 (352) 2,535
Increase (decrease) in accounts payable 13,705 (4,075) 5,835
Other 10,762 917 4,320
--------- --------- ---------
Net cash provided by operating activities before proceeds
from loan sales 47,439 22,483 37,496
Net proceeds from origination and sale of loans held for sale (23,796) 17,593 5,173
--------- --------- ---------
Net cash provided by operating activities 23,643 40,076 42,669
INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale 44,360 35,906 19,745
Proceeds from maturities of investment securities 62,502 79,055 68,902
Purchase of investment securities available for sale (95,021) (66,160) (71,821)
Purchase of investment securities held to maturity (11,000) (55,981) (17,969)
Proceeds from sales of mortgage-related securities available for sale -- 5,761 4,750
Purchase of mortgage-related securities held to maturity (83,181) (17,958) (4,670)
Purchase of mortgage-related securities available for sale (14,999) (12,843) (4,741)
Principal collected on mortgage-related securities 54,410 113,248 45,607
Increase in loans receivable (174,839) (233,898) (135,774)
Net of office properties and equipment (833) (2,228) (2,716)
Sales of real estate 5,009 7,912 14,118
Purchase of real estate held for development and sale (8,997) (14,379) (6,652)
Net cash received in acquisition of OSB -- -- 3,104
--------- --------- ---------
Net cash used by investing activities (222,589) (161,565) (88,117)
</TABLE>
45
<PAGE> 47
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------
2000 1999 1998
------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Increase in deposit accounts $ 61,953 $ 124,937 $ 81,519
Decrease in advance payments by borrowers
for taxes and insurance (2,147) (1,239) (457)
Proceeds from notes payable to Federal Home Loan Bank 1,158,600 1,512,450 582,400
Repayment of notes payable to Federal Home Loan Bank (1,027,249) (1,502,900) (571,680)
Increase (decrease) in securities sold under agreements
to repurchase 49,949 (471) 3,599
Increase (decrease) in other loans payable 2,600 (30) (4,519)
Treasury stock purchased (21,403) (11,492) (16,752)
Reissuance of treasury stock for options 1,758 2,694 1,644
Purchase of stock by retirement plans 548 761 --
Payments of cash dividends to stockholders (5,931) (6,771) (5,756)
----------- ----------- -----------
Net cash provided by financing activities 218,678 117,939 69,998
----------- ----------- -----------
Net increase in cash and cash equivalents 19,732 (3,550) 24,873
Cash and cash equivalents at beginning of year 63,976 67,526 42,653
----------- ----------- -----------
Cash and cash equivalents at end of year $ 83,708 $ 63,976 $ 67,526
=========== =========== ===========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid or credited to accounts:
Interest on deposits and borrowings $ 122,583 $ 114,562 $ 109,460
Income taxes 12,192 16,813 13,192
Non-cash transactions:
Loans transferred to foreclosed properties -- 230 --
Retirement of treasury stock 28,583
Secuitization of Mortgage loans held for sale to Mortgage-backed 74,330 92,427 4,877
securities and other adjustments
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
46
<PAGE> 48
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 Investment
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 an original maturity of three months or less
to be cash equivalents.
INVESTMENT AND MORTGAGE-RELATED SECURITIES HELD-TO-MATURITY AND
AVAILABLE-FOR-SALE Debt securities that the Corporation has the intent and
ability to hold to maturity are classified as held-to-maturity and are stated at
amortized cost. Securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at fair value, with
the unrealized gains and losses, net of tax, reported as a separate component of
accumulated other comprehensive income in stockholders' equity.
Discounts and premiums on investment and mortgage-backed securities are accreted
and amortized into interest income using the interest method over the estimated
remaining life of the assets.
Realized gains and losses, and declines in value judged to be other than
temporary, are included in "Net gain (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
origination of certain fixed-rate mortgage loans and certain adjustable-rate
mortgage loans and are carried at the lower of aggregate cost or market value.
Fees received from the borrower and direct costs to originate are deferred and
recorded as an adjustment of the sales price.
MORTGAGE SERVICING RIGHTS Mortgage servicing rights are recorded as an asset
when loans are sold with servicing rights retained. For loans delivered to and
funded by the Federal Home Loan Bank (FHLB) see Note 12. The cost of mortgage
servicing rights is amortized in proportion to, and over the period of,
estimated net servicing revenues. Impairment of mortgage servicing rights is
assessed based on the fair values of those rights. Fair values are estimated
using discounted cash flows based on a current market interest rate. For
purposes of measuring impairment, the rights are stratified based on predominant
risk characteristics of the underlying loans which include
47
<PAGE> 49
product type (i.e., fixed or adjustable) and interest rate bands. The amount of
impairment recognized is the amount by which the capitalized mortgage servicing
rights for a stratum exceed their fair value.
INTEREST ON LOANS Interest on loans is accrued on the unpaid principal balances
as earned. Loans are placed on non-accrual status when, in the judgment of
management, the probability of collection of principal and interest is deemed to
be insufficient to warrant further accrual. When a loan is placed on non-accrual
status, previously accrued but unpaid interest is deducted from the allowance
for interest. Loans are restored to accrual status when the obligation is
brought current, has performed in accordance with the contractual terms for a
reasonable period of time, and the ultimate collectibility of the total
contractual principal and interest is no longer in doubt. Allowances of $144,000
and $168,000 were established at March 31, 2000 and 1999, respectively, for
interest on non-accrual status loans.
LOAN FEES AND DISCOUNTS Loan origination and commitment fees and certain direct
loan origination costs are deferred and amortized as an adjustment to the
related loan's yield. The Corporation is amortizing these amounts, as well as
discounts on purchased loans, using the level yield method, adjusted for
prepayments, over the life of the related loans.
FORECLOSED PROPERTIES AND REPOSSESSED ASSETS Real estate acquired by foreclosure
or by deed in lieu of foreclosure and other repossessed assets are carried at
the lower of cost or fair value, less estimated selling expenses. Costs relating
to the development and improvement of the property are capitalized; holding
period costs are charged to expense.
ALLOWANCES FOR LOSSES An allowance for losses on loans is 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, 2000 and 1999, 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.
GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill, representing the excess of
purchase price over the fair value of net assets acquired, resulted from an
acquisition made by the Bank. The Bank's goodwill is amortized to operating
expense using the straight-line method over 10 years until deemed impaired.
48
<PAGE> 50
Amortization of goodwill for the years ended March 31, 2000, 1999, and 1998 was
$1.76 million, $280,000, and $280,000 respectively. In 2000, increased
competition for deposits from alternate investment products and increases in
interest rates that negatively impacted interest rate spread and net interest
margin, caused management to revise cash flow estimates to be realized from the
acquired business. A review of the remaining goodwill indicated that, based on
the estimated undiscounted cash flows of the entity acquired over the remaining
amortization period, it was impaired. Accordingly, $1.76 million representing
the remaining unamortized goodwill was written off. This write-off is included
in the amortization of intangibles in the consolidated statement of income.
STOCK OPTIONS The Corporation has elected to follow Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under Statement of Financial
Accounting Standard (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB No. 25, because the exercise price of
the Corporation's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
NEW ACCOUNTING STANDARDS In June 1999, the Financial Accounting Standards Board
("FASB") issued SFAS No. 137 to effectively defer the implementation date of
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" for
one year. SFAS No. 133 was issued in June 1998 and establishes, for the first
time, comprehensive accounting and reporting standards for derivative
instruments and hedging activities. This new standard requires that all
derivative instruments be recorded in the statement of condition at fair value.
The recording of the gain or loss due to changes in fair value could either be
reported in earnings or as other comprehensive income in the statement of
shareholders' equity, depending on the type of instrument and whether or not it
is considered a hedge. With the issuance of SFAS No. 137, SFAS No. 133 is now
effective for all fiscal quarters beginning after June 15, 2000. The adoption of
this new statement is currently not expected to have a material effect on the
Corporation's future financial condition, results of operations, or liquidity.
RECLASSIFICATIONS Certain 1999 and 1998 accounts have been reclassified to
conform to the 2000 presentations.
NOTE 2 - Business Combination
On June 7, 1999 the Corporation acquired FCB Financial Corp (FCBF). FCBF was
merged into the Corporation and its wholly owned subsidiary bank, Fox Cities
Bank, was merged into the Bank. In the merger, FCBF shareholders received 1.83
shares of the Corporation's common stock for each outstanding share of FCBF
common stock. This merger resulted in the issuance of 7,028,444 shares of common
stock in exchange for 3,840,680 shares of outstanding FCBF common stock. The
merger has been accounted for as a pooling-of-interests and, accordingly, all
historical financial information and share data for the Corporation has been
restated to include FCBF for all periods presented. Certain reclassifications
were made to FCBF's statements to conform to the Corporation's presentations.
In connection with the merger, the Corporation incurred pre-tax merger-related
charges of $8.3 million. These charges included $5.4 million in change of
control severance, retirement, and other related employee payments, $2.3 million
in investment banking, legal and accounting fees and $0.6 million in direct
merger-related data processing and other equipment costs. At March 31, 2000, all
such costs had been incurred and no further charges related to the merger are
anticipated.
As a part of the merger, there were also several FCBF sponsored employee benefit
plans that were either terminated or merged into the Corporation's similar
benefit plans. These former plans and their dissolution are discussed in detail
in Note 10 - Employee Benefit Plans.
49
<PAGE> 51
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
COST GAINS LOSSES FAIR VALUE
----------------------------------------------
<S> <C> <C> <C> <C>
AT MARCH 31, 2000:
Available for Sale:
U.S. Government and federal agency obligations $ 13,748 $ -- $ (218) $ 13,530
Mutual funds 14,247 -- (57) 14,190
Corporate stock and other 8,026 -- (1,362) 6,664
Municipal securities 555 -- (3) 552
-------- -------- -------- --------
$ 36,576 $ -- $ (1,640) $ 34,936
======== ======== ======== ========
Held to Maturity:
U.S. Government and federal agency obligations $ 51,270 $ 3 $ (1,302) $ 49,971
======== ======== ======== ========
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
Municipal securities 4,510 137 -- 4,647
-------- -------- -------- --------
$ 39,921 $ 661 $ (326) $ 40,256
======== ======== ======== ========
Held to Maturity:
U.S. Government and federal agency obligations 46,491 86 (243) 46,334
Other securities 975 -- -- 975
-------- -------- -------- --------
$ 47,466 $ 86 $ (243) $ 47,309
======== ======== ======== ========
</TABLE>
Proceeds from sales of investment securities available for sale during the years
ended March 31, 2000, 1999 and 1998 were $44,360,000, $35,906,000 and
$19,745,000, respectively. Gross gains of $287,000, $550,000 and $3,000 were
realized on sales in 2000, 1999 and 1998, respectively. Gross losses of $15,000
and $36,000 were realized on sales of investment securities for the years ended
March 31, 2000 and 1999, respectively.
50
<PAGE> 52
The amortized cost and fair value of investment securities by contractual
maturity at March 31, 2000 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 $24,286,000 at March
31, 2000. Securities subject to six-month calls at March 31, 2000 are
$9,480,000.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
---------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 18,310 $ 18,217 $ 3,997 $ 3,968
Due after one year through five years 10,240 10,054 46,294 45,021
Due after five years 1,344 1,261 979 979
Corporate stock 6,682 5,404 - -
-------- -------- -------- --------
$ 36,576 $ 34,936 $ 51,270 $ 49,968
======== ======== ======== ========
</TABLE>
NOTE 4 - MORTGAGE-RELATED SECURITIES
Mortgage-backed securities are backed by governmental agencies, including the
Federal Home Loan Mortgage Corporation, the Federal National Mortgage
Association and the Government National Mortgage Association. CMO's and REMIC's
are trusts which own securities backed by the governmental agencies noted above.
Mortgage-backed securities and CMO's and REMIC's have estimated average lives of
five years or less.
The amortized cost and fair values of mortgage-related securities are as follows
(in thousands):
51
<PAGE> 53
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------------------------------------------------
<S> <C> <C> <C> <C>
AT MARCH 31, 2000:
Available for Sale:
CMO's and REMICS $ 19,952 $ 107 $ (473) $ 19,586
Mortgage-backed securities 38,683 40 (1,033) 37,690
--------- --------- --------- ---------
$ 58,635 $ 147 $ (1,506) $ 57,276
========= ========= ========= =========
Held to Maturity:
CMO's and REMICS $ 14,084 $ 17 $ (224) $ 13,877
Mortgage-backed securities 229,159 106 (8,637) 220,628
--------- --------- --------- ---------
$ 243,243 $ 123 $ (8,861) $ 234,505
========= ========= ========= =========
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
========= ========= ========= =========
</TABLE>
Proceeds from sales of mortgage-related securities available for sale during the
years ended March 31, 1999 and 1998 were $5,761,000 and $4,750,000,
respectively. There were no sales of mortgage-related securities during the year
ended March 31, 2000. Gross gains of $109,000 and $137,000 were realized on
sales in 1999 and 1998, respectively. No gains were realized in 2000. No losses
were realized in 2000, 1999 or 1998.
NOTE 5 - LOANS RECEIVABLE
Loans receivable held for investment consist of the following (in thousands):
52
<PAGE> 54
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------------------------------
2000 1999
----------------------------------------------------------
<S> <C> <C>
First mortgage loans:
Single-family residential $ 1,001,408 $ 1,061,813
Multi-family residential 291,917 233,984
Commercial real estate 388,678 282,980
Construction 210,660 179,189
Land 29,232 17,309
----------- -----------
1,921,895 1,775,275
Second mortgage loans 243,124 214,295
Education loans 136,011 130,254
Commercial business loans and leases 61,419 51,403
Credit card and other consumer loans 65,686 56,590
----------- ----------
2,428,135 2,227,817
Less:
Undisbursed loan proceeds 97,092 87,401
Allowance for loan losses 24,404 24,027
Unearned loan fees 3,528 4,015
Discount on purchased loans 361 792
Unearned interest 29 16
----------- --------
125,414 116,251
----------- -----------
$ 2,302,721 $ 2,111,566
============ ===========
</TABLE>
A summary of the activity in the allowance for loan losses follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------------
2000 1999 1998
-----------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 24,027 $ 25,400 $ 24,155
Provisions 1,306 1,017 1,250
Charge-offs (1,256) (2,955) (2,420)
Recoveries 327 565 996
Acquired through acquisition - - 1,419
--------- --------- ---------
Balance at end of year $ 24,404 $ 24,027 $ 25,400
========= ========= =========
</TABLE>
A substantial portion of the Bank's loans are collateralized by real estate in
and around the State of Wisconsin. Accordingly, the ultimate collectibility of a
substantial portion of the loan portfolio is susceptible to changes in market
conditions in that area.
Mortgage loans serviced for others are not included in the consolidated balance
sheets. The unpaid principal balances of mortgage loans serviced for others were
approximately $1,640,435,000 and $1,547,464,000 at March 31, 2000 and 1999,
respectively.
Mortgage servicing rights of $7,351,000 and $7,298,000 are included in other
assets. $1,003,000, $5,740,000, and $2,939,000 were capitalized during the years
ended March 31, 2000, 1999, and 1998, respectively. Amortization of
53
<PAGE> 55
mortgage servicing rights was $2,289,000, $2,180,000, and $826,000 for
the years ended March 31, 2000, 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 $1.5 million, $1.3 million, and $450,000 for the years ended March 31, 2000,
1999, and 1998, respectively. The increase of $200,000 for fiscal 2000 was
attributed to provisions to the allowance. For discussion of the fair value of
mortgage servicing rights and method of valuation, see Notes 1 and 13.
NOTE 6 - OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------
2000 1999
-------------------------------------
<S> <C> <C>
Land and land improvements $ 5,882 $ 5,828
Office buildings 27,211 26,310
Furniture and equipment 21,516 20,582
Leasehold improvements 2,299 1,592
-------- --------
56,908 54,312
Less allowance for depreciation and amortization 31,196 29,433
-------- --------
$ 25,712 $ 24,879
======== ========
</TABLE>
54
<PAGE> 56
NOTE 7 - DEPOSITS
Deposits are summarized as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
2000 1999
-----------------------------
<S> <C> <C>
Negotiable order of withdrawal ("NOW") accounts: $ 248,003 $ 212,564
Money market accounts 320,323 295,979
Passbook accounts 141,025 142,974
Certificates of deposit 1,176,917 1,173,467
----------- -----------
1,886,268 1,824,984
Accrued interest on deposits 11,101 10,432
----------- -----------
$ 1,897,369 $ 1,835,416
=========== ===========
</TABLE>
A summary of annual maturities of certificates of deposit outstanding at March
31, 2000 follows (in thousands):
<TABLE>
<CAPTION>
MATURES DURING YEAR ENDED MARCH 31, AMOUNT
------------------------------------------------------------------------------------------------------
<S> <C>
2001 $ 914,861
2002 211,349
2003 33,694
2004 14,217
Thereafter 2,796
-----------
$ 1,176,917
===========
</TABLE>
At March 31, 2000 and 1999, certificates of deposit with balances greater than
or equal to $100,000 amounted to $197,300,000 and $182,704,000, respectively.
NOTE 8 - BORROWINGS
The Bank enters into sales of securities under agreements to repurchase the
securities ("reverse repurchase agreements"). These agreements are treated as
financings with the obligations to repurchase securities reflected as a
liability and the dollar amount of securities underlying the agreements
remaining in the asset accounts. The securities underlying the agreements are
held by the counter-party brokers in the Bank's account. At March 31, 2000,
1999, and 1998 liabilities recorded under agreements to repurchase were
$92,413,000, $42,464,000, and $42,935,000, respectively. The reverse repurchase
agreements had weighted-average interest rates of 6.03%, 4.91%, and 5.60% at
March 31, 2000, 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 $59,756,000, $30,930,000, and $22,923,000 during 2000,
1999, and 1998, respectively. The maximum outstanding at any month-end was
$92,413,000, $52,139,000, and $45,214,000 during 2000, 1999, and 1998,
respectively. The agreements were collateralized by mortgage-backed securities
available for sale and held to maturity with market values of $96,489,000,
$43,638,000 and $44,650,000 at March 31, 2000, 1999, and 1998, respectively.
55
<PAGE> 57
Federal Home Loan Bank ("FHLB") advances and other loans payable consist of the
following (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
--------------------------------------------------------------------------
MATURES DURING WEIGHTED WEIGHTED
YEAR ENDED MARCH 31, AMOUNT RATE AMOUNT RATE
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FHLB advances:
2000 $ - - $255,349 5.42%
2001 378,450 5.79 53,500 5.20
2002 80,596 5.71 28,596 5.15
2003 30,500 6.15 48,500 5.51
2004 16,000 5.40 24,000 5.25
2005 81,000 5.63 10,000 4.98
2006 5,000 4.91 7,000 4.94
2008 8,500 5.06 25,000 4.84
2009 49,000 5.54 65,750 5.08
Other loans payable various 15,400 7.24 12,800 6.22
--------- --------
$ 664,446 5.77% $530,495 5.32%
========= ==== ======== ====
</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 $34,597,000 at March 31, 2000.
NOTE 9 - STOCKHOLDERS' EQUITY
The Board of Directors of the Corporation is authorized to issue preferred stock
in series and to establish the voting powers, other special rights of the shares
of each such series and the qualifications and restrictions thereof. Preferred
stock may rank prior to the common stock as to dividend rights, liquidation
preferences or both, and may have full or limited voting rights. Under Wisconsin
state law, preferred stockholders would be entitled to vote as a separate class
or series in certain circumstances, including any amendment which would
adversely change the specific terms of such series of stock or which would
create or enlarge any class or series ranking prior thereto in rights and
preferences. No preferred stock has been issued.
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
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, 2000, that the Bank
meets all capital adequacy requirements to which it is subject.
As of March 31, 2000, the most recent notification from the Office of Thrift
Supervision ("OTS") categorizes the Bank as well capitalized under the framework
for prompt corrective action. To be categorized as well capitalized, the Bank
must maintain minimum core, tangible, and risk-based capital ratios. There have
been no conditions or
56
<PAGE> 58
events since that notification that management believes have changed the Bank's
category. The qualification results in a lower assessment of FDIC premiums and
other benefits.
The following table summarizes the Bank's capital ratios and the ratios required
by its federal regulators at March 31, 2000 and 1999 (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, 2000:
Tier 1 capital
(to adjusted tangible assets) $ 188,606 6.56% $ 86,201 3.00% $ 143,669 5.00%
Risk-based capital
(to risk-based assets) 212,066 11.07 153,196 8.00 191,495 10.00
Tangible capital
(to tangible assets) 188,606 6.56 43,101 1.50 N/A N/A
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
</TABLE>
The following table reconciles stockholders' equity to the component of federal
regulatory capital at March 31, 2000 and 1999 (dollars in thousands):
57
<PAGE> 59
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------
2000 1999
------------------------------------
<S> <C> <C>
Stockholders' equity of the Corporation $ 217,215 $ 220,287
Less: Capitalization of the Corporation and Non-Bank
subsidiaries (28,944) (35,057)
---------- ---------
Stockholders' equity of the Bank 188,271 185,230
Less: Intangible assets and other non-includable assets 335 (4,004)
---------- ---------
Tier 1 and tangible capital 188,606 181,226
Plus: Allowable general valuation allowances 23,460 21,058
---------- ---------
Risk based capital $ 212,066 $ 202,284
========== =========
</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 10 - EMPLOYEE BENEFIT PLANS
The Corporation maintains a defined contribution plan that covers substantially
all employees with more than one year of service who are at least 21 years of
age. Participating employees may contribute up to 18% (8% before tax and 10%
after tax) of their compensation. The Corporation matches the amounts
contributed by each participating employee up to 2% of the employee's
compensation and 25% of each employee's contributions up to the next 4% of
compensation. The Corporation may also contribute additional amounts at its
discretion. The Corporation's contribution was $570,000, $354,000 and $364,000
for the years ended March 31, 2000, 1999 and 1998, respectively.
FCBF had a qualified defined contribution plan similar to the Corporation's
defined contribution plan. The plan was merged into the Corporation's plan in
fiscal 2000. All participants were allowed to redirect their funds within the
Corporation's defined contribution plan. Expenses related to this plan were
$33,000 and $36,000 in 1999 and 1998, respectively.
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 all of the borrowing and released all of the
shares associated with this borrowing in 2000. Any discretionary contributions
to the ESOP and the shares calculated to be released from the suspense account
have been allocated among participants on the basis of compensation. Forfeitures
are reallocated among the remaining participating employees. The dividends on
ESOP shares were used to purchase additional shares to be allocated under the
plan. The number of shares allocated to participants is determined based on the
annual contribution plus any shares purchased from dividends received during the
year. The ESOP plan expense for fiscal years 2000, 1999 and 1998 was $425,000,
$1,692,000 and $1,440,000, 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
58
<PAGE> 60
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 were repaid in fiscal 2000 as part of the plan's
termination. As part of the FCBF merger, all of the allocated shares of the FCBF
ESOP were released to participants of the plan.
The activity in the ESOP shares of both plans is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year 1,956,640 2,018,877 2,121,669
Additional shares purchased 18,633 7,674 128,034
Shares distributed for terminations (79,281) (1,345) (110,414)
Sale of shares for cash distributions (10,500) (68,566) (120,412)
--------- --------- ---------
Balance at end of year 1,885,492 1,956,640 2,018,877
Allocated shares included above 1,885,492 1,774,363 1,737,019
--------- --------- ---------
Unallocated shares - 182,277 281,858
========= ========= =========
</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, 41,950 shares, 17,800 shares and 9,200 shares
were granted during the years ended March 31, 2000, 1999 and 1998, respectively,
to employees in management positions. These grants had fair values of $774,000,
$346,000, and $126,000, for the respective years. The $2,000,000 contributed to
the MRPs is being amortized to compensation expense as the Bank's employees
become vested in the awarded shares. The amount amortized to expense was
$412,000, $248,000 and $175,000 for the years ended March 31, 2000, 1999 and
1998, respectively. Shares vested during the years ended March 31, 2000, 1999
and 1998 and distributed to the employees totaled 10,600, 9,600 and 125,600
respectively. The remaining unamortized cost of the MRPs is reflected as a
reduction of stockholders' equity.
The Corporation has stock option plans under which shares of common stock are
reserved for the grant of both incentive and non-incentive stock options to
directors, officers and employees. The date the options are first exercisable is
determined by a committee of the Board of Directors of the Corporation. The
options expire no later than ten years from the grant date.
Pursuant to the merger with FCBF, any unvested options in the plan became fully
vested and exercisable. FCBF options were exchanged for 1.83 options for the
Corporation's common stock. Exercise prices of all of the options were reduced
by the equivalent ratio.
59
<PAGE> 61
A summary of stock options activity, including FCBF activity as adjusted for the
1.83 exchange ratio, for all periods follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------------
2000 1999 1998
----------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,592,906 $ 8.55 2,910,475 $ 6.55 2,634,530 $ 4.77
Granted 74,740 15.69 313,601 18.83 632,795 12.37
Exercised (512,249) 5.71 (602,180) 3.99 (356,849) 2.47
Forfeited (50,239) 16.46 (28,991) 13.91 - 0.00
--------- --------- ---------
Outstanding at end of year 2,105,157 8.98 2,592,906 8.55 2,910,475 6.55
========= ========= =========
Options exercisable at year-end 1,756,880 1,897,307 2,188,162
========= ========= =========
</TABLE>
The range of exercise prices of options exercisable at March 31, 2000 was $2.00
to $21.81. At March 31, 2000, options for 906,322 shares were available for
future grants. The weighted remaining contractual life of outstanding options at
March 31, 2000 is 6.18 years.
The Corporation applies APB Opinion No. 25 and related interpretations in
accounting for stock options. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost for the
Corporation's stock option plans been determined based on the fair value at the
date of grant for awards under the stock option plans consistent with the method
of SFAS No. 123, the Corporation's net income and earnings per share would have
been reduced to the pro forma amounts indicated below (in thousands).
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------
2000 1999 1998
--------------------------------------------------------
<S> <C> <C> <C>
Net Income
As reported $ 19,502 $ 30,241 $ 26,345
Pro forma 18,864 29,751 25,833
Earnings per share-Basic
As reported $ 0.80 $ 1.26 $ 1.06
Pro forma 0.77 1.24 1.04
Earnings per share-Diluted
As reported $ 0.78 $ 1.19 $ 1.01
Pro forma 0.75 1.17 0.99
</TABLE>
The pro forma amounts indicated above may not be representative of the effects
on reported net income for future years. The fair values of stock options
granted in fiscal years ended March 31, 2000, 1999, and 1998 were estimated on
the date of grant using the Black-Scholes option-pricing model.
60
<PAGE> 62
The weighted average fair values and related assumptions are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------
2000 1999 1998
-----------------------------------------------
<S> <C> <C> <C>
Weighted average fair value $ 5.20 $ 7.29 $ 6.11
Expected volatility 34.00% 36.70% 17.50%
Risk free interest rate 5.25% 5.25% 6.00%
Expected lives 5 years 5 years 5 years
Dividend yield 1.60% 1.00% 1.25%
</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 2000, 1999 and 1998 was
$143,000, $137,000 and $39,000, respectively. The second plan provides for
contributions by the Corporation to supplement the participant's retirement. The
expense associated with this plan for fiscal 2000 and 1998 was $300,000 and
$327,000, respectively. There was no expense for fiscal 1999.
NOTE 11 - INCOME TAXES
The Corporation and its subsidiaries file a consolidated federal income tax
return and separate state income tax returns.
In prior years, the Bank qualified under provisions of the Internal Revenue Code
which permitted as a deduction from taxable income allowable bad debt
deductions, which significantly exceeded actual losses and the financial
statement loan loss provisions. At March 31, 2000, 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.
61
<PAGE> 63
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
2000 1999 1998
----------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 13,089 $15,593 $12,494
State 1,854 2,387 1,898
-------- ------- -------
14,943 17,980 14,392
Deferred:
Federal 547 449 951
State 106 178 164
-------- ------- -------
653 627 1,115
-------- ------- -------
$ 15,596 $18,607 $15,507
======== ======= =======
</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,
2000 1999 1998
----------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes $ 35,098 $ 48,848 $ 41,852
======== ======== ========
Income tax expense at federal statutory
rate of 35% $ 12,284 $ 17,097 $ 14,648
State income taxes, net of federal income
tax benefits 1,274 1,667 1,340
Nondeductible merger & acquisition costs 980 - -
Goodwill amortization 617 98 98
Increase in valuation allowance 36 74 -
Other 405 (329) (579)
-------- -------- --------
Income tax provision $ 15,596 $ 18,607 $ 15,507
======== ======== ========
</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.
62
<PAGE> 64
The significant components of the Corporation's deferred tax assets
(liabilities) are as follows (in thousands):
<TABLE>
<CAPTION>
AT MARCH 31,
2000 1999 1998
----------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Allowances for losses $ 8,857 $ 8,304 $ 8,142
Other 4,893 4,419 3,930
------- ------- -------
Total deferred tax assets 13,750 12,723 12,072
Valuation allowance (110) (74) -
------- ------- -------
Adjusted deferred tax assets 13,640 12,649 12,072
Deferred tax liabilities:
Other (4,658) (4,731) (3,889)
------- ------- -------
Total deferred tax liabilities (4,658) (4,731) (3,889)
------- ------- -------
Total deferred tax assets $ 8,982 $ 7,918 $ 8,183
======= ======= =======
</TABLE>
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES
The Corporation is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, loans sold
with recourse against the Corporation and financial guarantees which involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheets. The contract amounts of
those instruments reflect the extent of involvement and exposure to credit loss
the Corporation has in particular classes of financial instruments. The
Corporation uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. Since many of the
commitments are expected to expire without being drawn upon, the total committed
amounts do not necessarily represent future cash requirements.
Financial instruments whose contract amounts represent credit risk are as
follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------
2000 1999
------------------------------------
<S> <C> <C>
Commitments to extend credit:
Fixed rate $ 4,586 $ 42,841
Adjustable rate 60,637 49,123
Unused lines of credit:
Home equity 37,336 33,348
Credit cards 31,854 21,928
Commercial 39,756 28,056
Letters of credit 23,038 18,700
Loans sold with recourse 1,119 1,500
Credit enhancement under the Federal
Home Loan Bank of Chicago Mortgage
Partnership Finance Program 4,985 4,139
</TABLE>
63
<PAGE> 65
Commitments to extend credit and unused lines of credit are agreements to lend
to a customer as long as there is no violation of any condition established in
the contract. Letters of credit commit the Corporation to make payments on
behalf of customers when certain specified future events occur. Commitments and
letters of credit generally have fixed expiration dates or other termination
clauses and may require payment of a fee. As some such commitments expire
without being drawn upon or funded by the Federal Home Loan Bank of Chicago
(FHLB), the total commitment amounts do not necessarily represent future cash
requirements. The Corporation evaluates each customer's creditworthiness on a
case-by-case basis. With the exception of credit card lines of credit, the
Corporation generally extends credit only on a secured basis. Collateral
obtained varies, but consists primarily of single-family residences and
income-producing commercial properties. Fixed-rate loan commitments expose the
Corporation to a certain amount of interest rate risk if market rates of
interest substantially increase during the commitment period. Similar risks
exist relative to loans classified as held for sale, which totalled $1,764,000
and $18,080,000 at March 31, 2000 and 1999, 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, 2000 and 1999 amounted to $7,782,000 and $25,862,000, 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 $5.0 million at March 31,
2000. Once delivered to the Program, the Corporation provides a contractually
agreed-upon credit enhancement and performs servicing of the loans. Under the
credit enhancement, the Corporation is liable for losses on loans delivered to
the Program after application of any mortgage insurance and a contractually
agreed-upon credit enhancement provided by the Program subject to an agree-upon
maximum. The Corporation received a fee for this credit enhancement. The
Corporation does not anticipate that any credit losses will be incurred in
excess of anticipated credit enhancement fees.
Loans sold to investors with recourse to the Corporation met the underwriting
standards of the investor and the Corporation at the time of origination. In the
event of default by the borrower, the investor may resell the loans to the
Corporation at par value. As the Corporation expects relatively few such loans
to become delinquent, the total amount of loans sold with recourse does not
necessarily represent future cash requirements. Collateral obtained on such
loans consists primarily of single-family residences.
Except for the above-noted commitments to originate and/or sell mortgage loans
in the normal course of business, the Corporation and the Bank have not
undertaken the use of off-balance-sheet derivative financial instruments for any
purpose.
In the ordinary course of business, there are legal proceedings against the
Corporation and its subsidiaries. Management considers that the aggregate
liabilities, if any, resulting from such actions would not have a material,
adverse effect on the financial position of the Corporation.
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosure of fair value information about financial instruments, for which it
is practicable to estimate that value, is required whether or not recognized in
the consolidated balance sheets. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instruments. Certain financial instruments and
all non-financial instruments are excluded from the disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not necessarily
represent the underlying value of the Corporation.
The Corporation, in estimating its fair value disclosures for financial
instruments, used the following methods and assumptions:
64
<PAGE> 66
CASH AND CASH EQUIVALENTS AND ACCRUED INTEREST: The carrying amounts reported in
the balance sheets approximate those assets' and liabilities' fair values.
INVESTMENT AND MORTGAGE-RELATED SECURITIES: Fair values for investment and
mortgage-related securities are based on quoted market prices, where available.
If quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
LOANS RECEIVABLE: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for loans held for sale are based on outstanding sale commitments or
quoted market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair value
of fixed-rate residential mortgage loans held for investment, commercial real
estate loans, rental property mortgage loans and consumer and other loans and
leases are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality. For construction loans, fair values are based on carrying values
due to the short-term nature of the loans.
MORTGAGE SERVICING RIGHTS: 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.
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, 2000 and 1999.
65
<PAGE> 67
The carrying amounts and fair values of the Corporation's financial instruments
consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash equivalents $ 83,708 $ 83,708 $ 63,976 $ 63,976
Investment securities 86,206 84,904 87,722 87,565
Mortgage-related securities 300,519 291,781 258,489 259,643
Loans held for sale 1,764 1,764 18,080 18,080
Loans receivable 2,302,721 2,280,639 2,111,566 2,116,338
Mortgage servicing rights 7,351 7,351 7,298 7,298
Federal Home Loan Bank stock 34,597 34,597 27,745 27,745
Accrued interest receivable 19,364 19,364 17,322 17,322
Financial liabilities:
Deposits 1,886,268 1,718,730 1,824,984 1,813,801
Federal Home Loan Bank and other borrowings 664,446 641,607 530,495 523,522
Reverse repurchase agreements 92,413 107,839 42,464 42,430
Accrued interest payable 14,673 14,673 13,116 13,116
</TABLE>
66
<PAGE> 68
NOTE 14 - CONDENSED PARENT ONLY FINANCIAL INFORMATION
The following represents the unconsolidated financial information of the
Corporation:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------
2000 1999
---------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,697 $ 7,582
Investment in subsidiaries 194,324 191,745
Securities available for sale 9,512 11,588
Loans receivable 24,465 22,631
Other 4,243 3,420
--------- ----------
Total assets $ 234,241 $ 236,966
========= ==========
LIABILITIES
Loans payable $ 15,400 $ 12,800
Other liabilities 1,626 3,879
--------- ----------
Total liabilities 17,026 16,679
STOCKHOLDERS' EQUITY
Total stockholders' equity 217,215 220,287
--------- ----------
Total liabilities and stockholders' equity $ 234,241 $ 236,966
========= ==========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------
2000 1999 1998
-------------------------------------------------
<S> <C> <C> <C>
Interest income $ 2,639 $ 9,384 $ 11,573
Interest expense 647 885 288
------- -------- --------
Net interest income 1,992 8,499 11,285
Equity in net income from subsidiaries 18,968 22,141 15,646
Non-interest income 308 478 33
------- -------- --------
21,268 31,118 26,964
Non-interest expense 1,195 408 519
------- -------- --------
Income before income taxes 20,073 30,710 26,445
Income taxes 571 469 100
------- -------- --------
Net income $19,502 $ 30,241 $ 26,345
======= ======== ========
</TABLE>
67
<PAGE> 69
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------
2000 1999 1998
-----------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 19,502 $ 30,241 $ 26,345
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Equity in net income of subsidiaries (18,968) (29,955) (25,404)
Other (2,553) (1,436) 666
-------- -------- --------
Net cash provided (used) by operating activities (2,019) (1,150) 1,607
INVESTING ACTIVITIES
Proceeds from maturities of investment securities 162 - -
Purchase of investment securities available for sale (3,810) (1,453) (306)
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 (1,834) (11,960) 1,073
Dividends from subsidiary 18,000 20,544 26,330
Other 5,353 (14) 4,280
-------- -------- --------
Net cash provided by investing activities 17,873 8,063 27,141
FINANCING ACTIVITIES
Increase (decrease) in other loans payable 2,600 10,800 (6,500)
Purchase of treasury stock (21,403) (11,492) (16,751)
Exercise of stock options and purchase of stock by retirement plans 2,306 3,471 1,354
Cash dividend paid (5,931) (6,771) (5,756)
Repayment of ESOP borrowings 689 690 690
-------- -------- --------
Net cash used by financing activities (21,739) (3,302) (26,963)
-------- -------- --------
Increase (decrease) in cash and cash equivalents (5,885) 3,611 1,785
Cash and cash equivalents at beginning of year 7,582 3,971 2,186
-------- -------- --------
Cash and cash equivalents at end of year $ 1,697 $ 7,582 $ 3,971
======== ======== ========
</TABLE>
68
<PAGE> 70
NOTE 15 - SEGMENT INFORMATION
According to the materiality thresholds of SFAS No. 131, the Corporation is
required to report each operating segment based on materiality thresholds of ten
percent or more of certain amounts, such as revenue. Additionally, the
Corporation is required to report separate operating segments until the revenue
attributable to such segments is at least 75 percent of total consolidated
revenue. SFAS No. 131 allows the Corporation to combine operating segments, even
though they may be individually material, if the segments have similar basic
characteristics in the nature of the products, production processes, and type or
class of customer for products or services. Based on the above criteria, the
Corporation has two reportable segments.
COMMUNITY BANKING: This segment is the main basis of operation for the
Corporation and includes the branch network and other deposit support services;
origination, sales and servicing of one-to-four family loans; origination of
multifamily, commercial real estate and business loans; origination of a variety
of consumer loans; and sales of alternative financial investments such as tax
deferred annuities.
REAL ESTATE INVESTMENTS: The Corporation's non-banking subsidiary, IDI, and its
subsidiary, NIDI, invest in limited partnerships in real estate developments.
Such developments include recreational residential developments and industrial
developments (such as office parks).
The following represents reconciliations of reportable segment revenues, profit
or loss, and assets to the Corporation's consolidated totals for the years ended
March 31, 2000, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 2000
------------------------------------------------------
CONSOLIDATED
REAL ESTATE COMMUNITY FINANCIAL
INVESTMENTS BANKING STATEMENTS
-------------- -------------- ----------------
<S> <C> <C> <C>
Interest income $ 2,540 $ 202,065 $ 204,605
Interest expense 0 119,393 119,393
-------------- -------------- ----------------
Net interest income 2,540 82,672 85,212
Provision for loan losses 0 1,306 1,306
-------------- -------------- ----------------
Net interest income after provision for loan losses 2,540 81,366 83,906
Other income (992) 12,218 11,226
Other expense 49 59,985 60,034
--------------- -------------- ----------------
Net operating income 1,499 33,599 35,098
Gain on sale of real estate partnership investments 0 0 0
-------------- -------------- ----------------
Income before income taxes 1,499 33,599 35,098
Income tax expense (benefit) (166) 15,762 15,596
--------------- -------------- ----------------
Net income $ 1,665 $ 17,837 $ 19,502
=============== =============== ================
Average assets $ 35,962 $ 2,707,917 $ 2,743,879
</TABLE>
69
<PAGE> 71
<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 1,017 1,017
--------------- --------------- ----------------
Net interest income after provision for loan losses 1,974 78,757 80,731
Other income 631 18,664 19,295
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 tax expense 412 18,195 18,607
--------------- --------------- ----------------
Net income $ 2,151 $ 28,090 $ 30,241
=============== =============== ================
Average assets $ 26,530 $ 2,577,030 $ 2,603,560
<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 (loss) (592) 42,289 41,697
Gain on sale of real estate partnership investments 155 0 155
--------------- --------------- ----------------
Income (loss) before income taxes (437) 42,289 41,852
Income tax expense (benefit) (260) 15,767 15,507
--------------- --------------- ----------------
Net income (loss) $ (177) $ 26,522 $ 26,345
=============== =============== ================
Average assets $ 13,855 $ 2,429,421 $ 2,443,276
</TABLE>
70
<PAGE> 72
NOTE 16 - EARNINGS PER SHARE
The computation of earnings per share for fiscal years 2000, 1999, and 1998 is
as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED MARCH 31,
------------------------------------------------------------------
2000 1999 1998
------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income $ 19,501,869 $ 30,240,991 $ 26,345,093
------------ ------------- ------------
Numerator for basic and diluted earnings
per share--income available to common
stockholders $ 19,501,869 $ 30,240,991 $ 26,345,093
Denominator:
Denominator for basic earnings per
share--weighted-average common
shares outstanding 24,364,065 24,021,061 24,826,882
Effect of dilutive securities:
Employee stock options 795,884 1,301,929 1,348,562
Denominator for diluted earnings per
share--adjusted weighted-average
------------ ------------- ------------
common shares and assumed conversions 25,159,949 25,322,990 26,175,444
============ ============= ============
Basic earnings per share $ 0.80 $ 1.26 $ 1.06
============ ============= ============
Diluted earnings per share $ 0.78 $ 1.19 $ 1.01
============ ============= ============
</TABLE>
71
<PAGE> 73
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, 2000 and 1999, 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, 2000. 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 and 1998 financial statements of FCB
Financial Corp., which statements reflect total assets constituting 19.6% of the
consolidated financial statement totals as of March 31, 1999 and net income
constituting 22.1% and 22.2% of the consolidated financial statement totals for
the years ended March 31, 1999 and 1998. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to data included for FCB Financial Corp., is based solely on the report
of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Anchor BanCorp Wisconsin Inc. at March
31, 2000 and 1999, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended March 31, 2000, in
conformity with accounting standards generally accepted in the United States.
/s/ Ernst & Young LLP
April 28, 2000
Milwaukee, Wisconsin
72
<PAGE> 74
MANAGEMENT AND AUDIT COMMITTEE REPORT
Management is responsible for the preparation, content and integrity of the
financial statements and all other financial information included in this annual
report. The financial statements have been prepared in accordance with generally
accepted accounting principles.
The Corporation maintains a system of internal controls designed to provide
reasonable assurance as to the integrity of financial records and the protection
of assets. The system of internal controls includes written policies and
procedures, proper delegation of authority, organizational division of
responsibilities and the careful selection and training of qualified personnel.
In addition, the internal auditors and independent auditors periodically test
the system of internal controls.
Management recognizes that the cost of a system of internal controls should not
exceed the benefits derived and that there are inherent limitations to be
considered in the potential effectiveness of any system. However, management
believes that the system of internal controls provides reasonable assurances
that financial transactions are recorded properly to permit the preparation of
reliable financial statements.
The Audit Committee of the Board of Directors is composed of outside directors
and has the responsibility for the recommendation of the independent auditors
for the Corporation. The committee meets regularly with the independent auditors
and internal auditors to review the scope of their audits and audit reports and
to discuss any action to be taken. The independent auditors and the internal
auditors have free access to the Audit Committee.
/s/ Douglas J. Timmerman
Douglas J. Timmerman
President and Chief Executive Officer
/s/ Michael W. Helser
Michael W. Helser
Treasurer and Chief Financial Officer
/s/ Holly Cremer Berkenstadt
Holly Cremer Berkenstadt
Audit Committee
/s/ Greg M. Larson
Greg M. Larson
Audit Committee
/s/ Pat Richter
Pat Richter
Audit Committee
/s/ Bruce A. Robertson
Bruce A. Robertson
Audit Committee
April 28, 2000
73
<PAGE> 75
QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
MAR 31, DEC 31, SEP 30, JUN 30, MAR 31, DEC 31, SEP 30, JUN 30,
2000 1999 1999 1999 1999(1) 1998(1) 1998(1) 1998(1)
--------------------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $ 45,902 $ 45,154 $ 43,793 $ 42,319 $ 41,827 $ 42,688 $ 42,333 $ 41,972
Securities and other 6,110 6,422 6,231 6,134 6,150 6,634 6,475 6,232
-------- -------- -------- -------- -------- -------- -------- --------
Total interest income 52,012 51,576 50,024 48,453 47,977 49,322 48,808 48,204
Interest expense:
Deposits 21,057 20,392 20,153 19,876 19,936 20,931 21,099 20,356
Borrowings and other 10,799 10,335 8,870 7,910 7,805 8,003 8,359 7,880
-------- -------- -------- -------- -------- -------- -------- --------
Total interest expense 31,856 30,727 29,023 27,786 27,741 28,934 29,458 28,236
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income 20,156 20,849 21,001 20,667 20,236 20,388 19,350 19,968
Provision for loan losses 150 150 150 856 299 359 284 275
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for loan losses 20,006 20,699 20,851 19,811 19,937 20,029 19,066 19,693
Service charges on deposits 1,071 1,257 1,243 1,306 1,205 1,260 1,288 1,224
Net gain on sale of loans 182 433 366 1,029 1,562 1,803 1,684 2,142
Other non-interest income 2,756 1,363 1,385 1,325 1,849 1,660 3,500 2,085
-------- -------- -------- -------- -------- -------- -------- --------
Total non-interest income 4,009 3,053 2,994 3,660 4,616 4,723 6,472 5,451
Compensation 6,839 6,938 6,722 6,960 7,647 7,050 7,130 6,919
Merger-related -- -- -- 8,297 -- -- -- --
Goodwill -- -- -- 1,761 70 70 70 70
Other non-interest expenses 5,571 5,839 5,325 5,733 5,383 5,478 5,783 5,469
-------- -------- -------- -------- -------- -------- -------- --------
Total non-interest expenses 12,410 12,777 12,047 22,751 13,100 12,598 12,983 12,458
-------- -------- -------- -------- -------- -------- -------- --------
Income before income taxes 11,605 10,975 11,798 720 11,453 12,154 12,555 12,686
Income taxes 4,414 4,183 4,676 2,323 4,334 4,664 4,781 4,828
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 7,191 $ 6,792 $ 7,122 $ (1,603) $ 7,119 $ 7,490 $ 7,774 $ 7,858
======== ======== ======== ======== ======== ======== ======== ========
Earnings (loss) Per Share:
Basic $ 0.30 $ 0.28 $ 0.29 $ (0.07) $ 0.29 $ 0.31 $ 0.32 $ 0.32
Diluted 0.29 0.27 0.28 (0.06) 0.28 0.30 0.31 0.31
</TABLE>
(1) In June, 1999 the Corporation merged with FCB Financial Corp. (FCBF)
through an exchange of stock. The transaction was accounted for as a
pooling of interests, with the previously reported results of operations
being restated for all periods shown.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE> 76
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to Directors and Executive Officers is
incorporated herein by reference to pages 3 to 8 to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on July 25, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The information relating to executive compensation is incorporated
herein by reference to pages 13 to 24 to the Registrant's Proxy Statement for
the Annual Meeting of Stockholders to be held on July 25, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to pages 9 to 12 to
the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be
held on July 25, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related
transactions is incorporated herein by reference to pages 23 to 24 to the
Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held
on July 25, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of the Corporation and
its subsidiaries, together with the report thereon of Ernst & Young LLP, dated
April 28, 2000 are incorporated herein by reference to Item 8 of this Annual
Report on Form 10-K:
Consolidated Balance Sheets at March 31, 2000 and 1999.
Consolidated Statements of Income for each year in the three-year
period ended March 31, 2000.
Consolidated Statements of Stockholders' Equity for each year in the
three-year period ended March 31, 2000.
Consolidated Statements of Cash Flows for each year in the three-year
period ended March 31, 2000.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(A)(2) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not required or are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
75
<PAGE> 77
(A)(3) EXHIBITS
The following exhibits are either filed as part of this Annual Report
on Form 10-K or are incorporated herein by reference:
EXHIBIT NO. 3. CERTIFICATE OF INCORPORATION AND BYLAWS:
3.1 Articles of Incorporation of Anchor BanCorp Wisconsin
Inc. (incorporated herein by reference to Exhibit 3.1
of Registrant's Form S-1, Registration Statement,
filed on March 19, 1992, as amended, Registration No.
33-46536 ("Form S-1")).
3.2 Bylaws of Anchor BanCorp Wisconsin Inc.
(incorporated herein by reference to Exhibit 3.2 of
Registrant's Form S-1).
EXHIBIT NO. 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS:
4 Form of Common Stock Certificate (incorporated
herein by reference to Exhibit 4 of Registrant's
Form S-1).
EXHIBIT NO. 10. MATERIAL CONTRACTS:
10.1 Anchor BanCorp Wisconsin Inc. Retirement Plan
(incorporated herein by reference to Exhibit 10.1 of
Registrant's Form S-1).
10.2 Anchor BanCorp Wisconsin Inc. 1992 Stock Incentive
Plan (incorporated herein by reference to Exhibit
10.2 of Registrant's Form S-1).
10.3 Anchor BanCorp Wisconsin Inc. 1992 Director's Stock
Option Plan (incorporated herein by reference to
Exhibit 10.3 of Registrant's Form S-1).
10.4 Anchor BanCorp Wisconsin Inc. Management Recognition
Plans (incorporated herein by reference to Exhibit
10.4 of Registrant's Form S-1).
10.5 Anchor BanCorp Wisconsin Inc. Employee Stock
Ownership Plan (incorporated herein by reference to
Exhibit 10.5 of Registrant's Form S-1).
10.6 Employment Agreement among the Corporation, the Bank
and Douglas J. Timmerman (incorporated by reference
to Exhibit 10.6 of Registrant's Annual Report or Form
10-K for the year ended March 31, 1995).
10.7 Deferred Compensation Agreement between the
Corporation and Douglas J. Timmerman, as amended
(incorporated by reference to Exhibit 10.7 of
Registrant's Form S-1) and form of related Deferred
Compensation Trust Agreement, as amended
(incorporated by reference to Exhibit 10.7 of
Registrant's Annual Report or Form 10-K for the year
ended March 31, 1994).
10.8 1995 Stock Option Plan for Non-Employee Directors
(incorporated by reference to the Registrant's proxy
statement filed on June 16, 1995).
10.9 1995 Stock Incentive Plan (incorporated by reference
to the Registrant's proxy statement filed on June 16,
1995).
10.10 Employment Agreement among the Corporation, the Bank
and J. Anthony Cattelino (incorporated by reference
to Exhibit 10.10 of Registrant's Annual Report or
Form 10-K for the year ended March 31, 1995).
76
<PAGE> 78
10.11 Employment Agreement among the Corporation, the Bank
and Michael W. Helser (incorporated by reference to
Exhibit 10.11 of Registrant's Annual Report or Form
10-K for the year ended March 31, 1995).
10.12 Severance Agreement among the Corporation, the Bank
and Ronald R. Osterholz (incorporated by reference to
Exhibit 10.12 of Registrant's Annual Report or Form
10-K for the year ended March 31, 1995).
10.13 Severance Agreement among the Corporation, the Bank
and David L. Weimert (incorporated by reference to
Exhibit 10.13 of Registrant's Annual Report or Form
10-K for the year ended March 31, 1995).
10.14 Severance Agreement among the Corporation, the Bank
and Donald F. Bertucci (incorporated by reference to
Exhibit 10.14 of Registrant's Annual Report or Form
10-K for the year ended March 31, 1995).
10.15 Anchor BanCorp Wisconsin Inc. Directors' Deferred
Compensation Plan (incorporated by reference to
Exhibit 10.9 of Registrant's Form S-1).
10.16 Anchor BanCorp Wisconsin Inc. Annual Incentive Bonus
Plan (incorporated by reference to Exhibit 10.10 of
Registrant's Form S-1).
10.17 AnchorBank, S.S.B. Supplemental Executive Retirement
Plan (incorporated by reference to Exhibit 10.11 of
Registrant's Annual Report or Form 10-K for the year
ended March 31, 1994).
10.18 AnchorBank, S.S.B. Excess Benefit Plan (incorporated
by reference to Exhibit 10.12 of Registrant's Annual
Report or Form 10-K for the year ended March 31,
1994).
10.19 Stockholder Rights Agreement, dated July 22, 1997
between the corporation and Firstar Trust Company, as
Rights Agent (incorporated by reference to the
Registrant's current Report on Form 8-K filed on July
28, 1997).
The Corporation's management contracts or compensatory plans or arrangements
consist of Exhibits 10.1-10.19 above.
EXHIBIT NO. 11. COMPUTATION OF EARNINGS PER SHARE:
Refer to Note 16 of the Notes to Consolidated Financial
Statements in Item 8.
EXHIBIT NO. 21. SUBSIDIARIES OF THE REGISTRANT:
Subsidiary information is incorporated herein by
reference to "Part I, Item 1, Business-General" and "Part
I, Item 1, Business-Subsidiaries."
EXHIBIT NO. 23. CONSENT OF ERNST & YOUNG LLP:
The consent of Ernst & Young LLP is included herein as an
exhibit to this Report.
77
<PAGE> 79
EXHIBIT NO. 27. FINANCIAL DATA SCHEDULES:
(B) FORMS 8-K
None
(C) EXHIBITS
Exhibits to the Form 10-K required by Item 601 of Regulation S-K are
attached or incorporated herein by reference as stated in the Index
to Exhibits.
(D) FINANCIAL STATEMENTS EXCLUDED FROM ANNUAL REPORT TO SHAREHOLDERS
PURSUANT TO RULE 14A3(B)
Not applicable
78
<PAGE> 80
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ANCHOR BANCORP WISCONSIN INC.
By: /s/ Douglas J. Timmerman
----------------------------------------------
Douglas J. Timmerman
Chairman of the Board, President and Chief
Executive Officer
Date: May 20, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
By: /s/ Douglas J. Timmerman By: /s/ Michael W. Helser
------------------------------ --------------------------------------
Douglas J. Timmerman Michael W. Helser
Chairman of the Board, President Treasurer and Chief Financial Officer
and Chief Executive Officer (principal financial and
(principal executive officer) accounting officer)
Date: May 20, 2000 Date: May 20, 2000
79
<PAGE> 81
By: /s/ Donald D. Kropidlowski By: /s/ Greg M. Larson
------------------------------ ------------------------------
Donald D. Kropidlowski Greg M. Larson
Director Director
Date: May 20, 2000 Date: May 20, 2000
By: /s/ Richard A. Bergstrom By: /s/ Pat Richter
------------------------------ ------------------------------
Richard A. Bergstrom Pat Richter
Director Director
Date: May 20, 2000 Date: May 20, 2000
By: /s/ Bruce A. Robertson By: /s/ Holly Cremer Berkenstadt
------------------------------- ------------------------------
Bruce A. Robertson Holly Cremer Berkenstadt
Director Director
Date: May 20, 2000 Date: May 20, 2000
By: /s/ Donald D. Parker
----------------------
Donald D. Parker
Director
Date: May 20, 2000
80
