<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
COMMISSION FILE NUMBER 0-20006
ANCHOR BANCORP WISCONSIN INC.
-----------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Wisconsin 39-1726871
---------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
25 West Main Street
Madison, Wisconsin 53703
------------------ -----
(Address of principal executive office) (Zip Code)
(608) 252-8700
--------------
Registrant's telephone number, including area code
Not Applicable
--------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class: Common stock -- $.10 Par Value
Number of shares outstanding as of January 31, 2000: 24,815,048
<PAGE> 2
ANCHOR BANCORP WISCONSIN INC.
INDEX - FORM 10-Q
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE #
-------
<C> <C>
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets as of December 31, 1999
and March 31, 1999 2
Consolidated Statements of Income for the Three and Nine
Months Ended December 31, 1999 and 1998 3
Consolidated Statements of Cash Flows for the Nine Months
Ended December 31, 1999 and 1998 4
Notes to Unaudited Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations 10
Financial Condition 15
Asset Quality 16
Liquidity & Capital Resources 19
Asset/Liability Management 21
Item 3 Quantitative and Qualitative Disclosures About Market Risk 25
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 25
Item 2 Changes in Securities 25
Item 3 Defaults upon Senior Securities 25
Item 4 Submission of Matters to Vote of Security Holders 25
Item 5 Other Information 25
Item 6 Exhibits and Reports on Form 8-K 25
SIGNATURES 26
</TABLE>
1
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 1999
--------------------------------
(In Thousands)
<S> <C> <C>
ASSETS
Cash $ 47,340 $ 32,807
Interest-bearing deposits 18,927 31,169
----------- ----------
Cash and cash equivalents 66,267 63,976
Investment securities available for sale 23,628 35,609
Investment securities held to maturity (fair value of $54,000 and
$51,900, respectively) 55,515 51,976
Mortgage-related securities available for sale 60,292 66,956
Mortgage-related securities held to maturity (fair value of
$170,300 and $192,700, respectively) 174,995 191,533
Loans receivable, net:
Held for sale 4,587 18,080
Held for investment 2,308,775 2,111,566
Foreclosed properties and repossessed assets, net 341 1,710
Real estate held for development and sale 31,023 30,075
Office properties and equipment 25,885 24,879
Federal Home Loan Bank stock--at cost 34,547 27,745
Accrued interest on investments and loans 18,684 17,322
Prepaid expenses and other assets 27,599 22,154
---------- ----------
Total assets $2,832,138 $2,663,581
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $1,844,621 $1,835,416
Federal Home Loan Bank and other borrowings 695,345 530,495
Reverse repurchase agreements 47,616 42,464
Advance payments by borrowers for taxes and insurance 1,091 10,360
Other liabilities 19,409 24,696
---------- ----------
Total liabilities 2,608,082 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 56,447 80,199
Retained earnings 174,977 168,458
Less: Treasury stock (469,153 shares and 1,166,483 shares,
respectively), at cost (7,429) (29,811)
Borrowings of Employee Stock Ownership Plan (689) (689)
Common stock purchased by benefit plans (1,013) (1,370)
Accumulated other comprehensive income (loss) (773) 863
---------- ----------
Total stockholders' equity 224,056 220,150
---------- ----------
Total liabilities and stockholders' equity $2,832,138 $2,663,581
========== ==========
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
2
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ -------------------------------
1999 1998 1999 1998
-----------------------------------------------------------------
(In Thousands, Except Per Share Data)
INTEREST INCOME:
<S> <C> <C> <C> <C>
Loans $ 45,154 $ 42,688 $ 131,266 $ 126,952
Mortgage-related securities
3,839 3,990 11,858 11,443
Investment securities
2,399 2,135 6,417 6,130
Interest-bearing deposits 184 509 513 1,806
----------- ----------- ------------ ------------
Total interest income 51,576 49,322 150,054 146,331
INTEREST EXPENSE:
Deposits 20,392 20,931 60,422 62,386
Notes payable and other borrowings 10,130 7,806 26,602 23,653
Other 205 197 513 755
----------- ----------- ------------ ------------
Total interest expense 30,727 28,934 87,537 86,794
----------- ----------- ------------ ------------
Net interest income
20,849 20,388 62,517 59,537
Provision for loan losses 150 359 1,156 918
----------- ----------- ------------ ------------
Net interest income after provision
for loan losses 20,699 20,029 61,361 58,619
NON-INTEREST INCOME:
Loan servicing income 495 257 1,565 1,470
Service charges on deposits 1,257 1,260 3,806 3,772
Insurance commissions 400 233 899 905
Net gain on sale of loans 433 1,803 1,828 5,793
Net gain (loss) on sale of investments
and securities (13) 156 (8) 137
Net income (loss) from operations of
real estate investment (42) 141 410 2,506
Other 523 873 1,209 2,229
----------- ----------- ------------ ------------
Total non-interest income 3,053 4,723 9,709 16,812
NON-INTEREST EXPENSES:
Compensation 6,938 7,050 20,620 21,099
Occupancy 1,166 1,091 3,187 3,212
Federal insurance premiums 275 256 807 775
Furniture and equipment 995 780 2,796 2,464
Data processing 873 899 2,692 2,582
Marketing 626 660 1,911 1,994
Merger-related -- -- 8,500 --
Goodwill -- 70 1,761 209
Other 1,904 1,792 5,303 5,702
----------- ----------- ------------ ------------
Total non-interest expenses 12,777 12,598 47,577 38,037
----------- ----------- ------------ ------------
Income before income taxes 10,975 12,154 23,493 37,394
Income taxes 4,183 4,664 11,182 14,273
----------- ------ ------------
Net income $ 6,792 $ 7,490 $ 12,311 $ 23,121
=========== =========== ============ ============
Earnings per share:
Basic $ 0.28 $ 0.31 $ 0.50 $ 0.96
Diluted
0.27 0.30 0.48 0.91
Dividends declared per share:
0.07 0.05 0.18 0.15
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements.
3
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
--------------------------------------
1999 1998
--------------------------------------
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 12,311 $ 23,121
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses on loans 1,156 918
Provision for depreciation and amortization 2,722 1,799
Net gain on sales of loans (1,828) (5,793)
Net gain (loss) on sale of investments and mortgage-related securities (8) 137
Increase in accrued interest receivable (1,362) (570)
Increase (decrease) in accrued interest payable 1,226 (397)
Increase (decrease) in accounts payable 735 (3,914)
Other 13,570 4,473
--------- ---------
Net cash provided by operating activities before proceeds
from loan sales 28,522 19,774
Net proceeds from origination and sale of loans held for sale (27,517) 79,464
--------- ---------
Net cash provided by operating activities 1,005 99,238
INVESTING ACTIVITIES
Proceeds from sales of investment securities available for sale 38,429 33,276
Proceeds from maturities of investment securities 60,696 60,884
Purchase of investment securities available for sale (80,188) (50,123)
Purchase of investment securities held to maturity (11,000) (45,995)
Proceeds from sales of mortgage-related securities available for sale (2) 3,664
Purchase of mortgage-related securities held to maturity (8,851) (14,966)
Purchase of mortgage-related securities available for sale (14,999) (6,905)
Principal collected on mortgage-related securities 45,400 83,277
Increase in loans receivable (183,716) (274,624)
Purchase of office properties and equipment (1,006) (1,715)
Sales of real estate 5,009 7,673
Purchase of real estate held for sale (5,957) (13,162)
--------- ---------
Net cash used by investing activities (156,185) (218,716)
</TABLE>
4
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
--------------------------------------
1999 1998
--------------------------------------
(In Thousands)
<S> <C> <C>
FINANCING ACTIVITIES
Increase in deposit accounts $ 9,205 $116,025
Decrease in advance payments by borrowers
for taxes and insurance (9,269) (9,302)
Proceeds from notes payable to Federal Home Loan Bank 1,058,550 671,550
Repayment of notes payable to Federal Home Loan Bank (893,300) (638,500)
Increase (decrease) in securities sold under agreements to repurchase 5,152 (18,839)
Increase (decrease) in other loans payable (4,400) 1,170
Treasury stock purchased (9,233) (406)
Reissuance of treasury stock for options 4,419 480
Purchase of stock by retirement plans 541 -
Payments of cash dividends to stockholders (4,194) (1,709)
----------- --------
Net cash provided by financing activities 157,471 120,469
----------- --------
Net increase in cash and cash equivalents 2,291 991
Cash and cash equivalents at beginning of year 63,976 67,526
----------- --------
Cash and cash equivalents at end of year $ 66,267 $ 68,517
=========== ========
SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid or credited to accounts:
Interest on deposits and borrowings $ 63,743 $ 86,676
Income taxes 8,695 13,336
Non-cash transactions:
Loans transferred to foreclosed properties - 187
Retirement of treasury stock 28,563 -
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
5
<PAGE> 7
ANCHOR BANCORP WISCONSIN INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The unaudited consolidated financial statements include the accounts and results
of operations of Anchor BanCorp Wisconsin Inc. (the "Corporation") and its
wholly-owned subsidiaries, AnchorBank, S.S.B. (the "Bank"), Investment
Directions, Inc. ("IDI") and Nevada Investment Directions, Inc. ("NIDI"). The
Bank's statements include its wholly-owned subsidiaries, Anchor Insurance
Services, Inc. ("AIS"), ADPC Corporation ("ADPC"), and Anchor Investment
Corporation ("AIC"). All significant intercompany balances and transactions have
been eliminated. Investments in joint ventures and other less than 50% owned
partnerships, which are not material, are accounted for on the equity method.
Partnerships with 50% ownership or more are consolidated, with significant
intercompany accounts eliminated.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") and with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the consolidated financial statements have been included.
In preparing the consolidated financial statements in conformity with GAAP,
management is required to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates. The results of operations and other
data for the nine-month period ended December 31, 1999 are not necessarily
indicative of results that may be expected for any other interim period or the
entire fiscal year ending March 31, 2000. The unaudited consolidated financial
statements presented herein should be read in conjunction with the audited
consolidated financial statements and related notes thereto included in the
Corporation's Annual Report for the year ended March 31, 1999.
Comprehensive income consists of net income plus unrealized gains or losses on
the Corporation's available-for-sale securities to be included in other
comprehensive income. For the quarter ended December 31, 1999 and 1998, total
comprehensive income amounted to $6.2 million and $7.0 million, respectively.
For the nine months ended December 31, 1999 and 1998, comprehensive income was
$10.7 million and $22.7 million, respectively.
NEW ACCOUNTING STANDARDS In June 1998, SFAS No. 133, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES," established accounting and reporting
standards requiring that derivative instruments (including derivative
instruments embedded in other contracts) be recorded on the balance sheet as
either assets or liabilities measured at fair value. Changes in the derivative's
fair value would be recognized currently in earnings unless specific hedge
accounting criteria are met. The earliest the Corporation would be required to
adopt SFAS No. 133 is April 1, 2001. The Corporation does not believe SFAS
No. 133 will have a material impact on its financial position or results of
operations due to its limited use of derivatives.
In October 1998, SFAS No. 134, "ACCOUNTING FOR MORTGAGE-BACKED SECURITIES
RETAINED AFTER THE SECURITIZATION OF MORTGAGE LOANS HELD FOR SALE BY A MORTGAGE
BANKING ENTITY - AMENDMENT OF FASB NO. 64," was issued. This Statement requires
that after the securitization of mortgage loans, an entity classify the
resulting mortgage-backed securities or other retained interest based on its
ability and intent to sell or hold those securities in accordance with SFAS
No. 115, "ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES" (i.e
trading, available-for-sale or held-to-maturity). This Statement is not required
to be adopted until April 1, 2000. The Corporation does not believe SFAS No. 134
will have a material impact on its financial position or results of operations.
6
<PAGE> 8
RECLASSIFICATIONS Certain 1998 accounts have been reclassified to conform to
the 1999 presentations. Also, previously reported financial information for 1998
and 1999 has been restated due to the merger with FCB Financial Corp. (FCBF) in
June, 1999.
NOTE 3 - BUSINESS COMBINATION
On June 7, 1999 the Corporation merged with 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
the FCBF's statements to conform to the Corporation's presentations.
In connection with the merger, the Corporation recorded pre-tax merger-related
charges of approximately $8.5 million. These charges include $5.4 million in
change of control severance, retirement plan, and other related employee
payments, $2.3 million in investment banking, legal and accounting fees and
$0.8 million in direct merger-related data processing and other equipment costs.
NOTE 4 - STOCKHOLDERS' EQUITY
During the quarter ended December 31, 1999, options for 64,604 shares of common
stock were exercised at a weighted average exercise price of $4.94 per share.
Treasury shares were issued in exchange for the options using the
last-in-first-out method. The cost of the treasury shares issued in excess of
the option price paid, $700,000, was charged to retained earnings. During the
quarter ended December 31, 1999, the Corporation repurchased 500,668 shares of
common stock. During the quarter, 9,968 shares of treasury stock were reissued
to the Corporation's retirement plans. The weighted cost of these shares was
$15.72 per share or $160,000 and the excess of the treasury cost over the option
price ($3,000) was charged to retained earnings. On November 15, 1999, the
Corporation paid a cash dividend of $0.065 per share amounting to $1.6 million.
NOTE 5 - EARNINGS PER SHARE
Basic earnings per share for the three and nine months ended December 31, 1999
and 1998 have been determined by dividing net income for the respective periods
by the weighted average number of shares of common stock outstanding. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. The Corporation's potentially dilutive common stock represent
shares issuable under its stock option plan. Common stock equivalents are
computed using the treasury stock method.
7
<PAGE> 9
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
--------------------------------------------
1999 1998
--------------------------------------------
<S> <C> <C>
Numerator:
Net income $ 6,792,371 $ 7,489,896
------------- -------------
Numerator for basic and diluted earnings
per share--income available to common
stockholders $ 6,792,371 $ 7,489,896
Denominator:
Denominator for basic earnings per
share--weighted-average shares
24,432,845 23,937,154
Effect of dilutive securities:
Employee stock options 730,290 1,273,754
Denominator for diluted earnings per
share--adjusted weighted-average
shares and assumed conversions 25,163,135 25,210,908
------------- -------------
Basic earnings per share $ 0.28 $ 0.31
============= =============
Diluted earnings per share $ 0.27 $ 0.30
============= =============
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
--------------------------------------------
1999 1998
--------------------------------------------
<S> <C> <C>
Numerator:
Net income $ 12,310,970 $ 23,120,963
------------- -------------
Numerator for basic and diluted earnings
per share--income available to common
stockholders $ 12,310,970 $ 23,120,963
Denominator:
Denominator for basic earnings per
share--weighted-average shares 24,549,435 23,969,760
Effect of dilutive securities:
Employee stock options 859,720 1,385,994
Denominator for diluted earnings per
share--adjusted weighted-average
shares and assumed conversions 25,409,155 25,355,754
============= =============
Basic earnings per share $ 0.50 $ 0.96
============= =============
Diluted earnings per share $ 0.48 $ 0.91
============= =============
</TABLE>
8
<PAGE> 10
NOTE 6 -- SUBSEQUENT EVENTS
On January 20, 2000, the Corporation declared a $0.07 per share cash dividend to
be paid on February 15, 2000 to stockholders of record on February 1, 2000.
9
<PAGE> 11
ANCHOR BANCORP WISCONSIN INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This report contains certain "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. 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
GENERAL. Net income for the three and nine months ended December 31, 1999
decreased $700,000 to $6.8 million and decreased $10.8 million to $12.3 million,
respectively, from the same periods in the prior year. The decrease in net
income for the three-month period compared to the same period last year was
largely due to the increase in interest expense of $1.8 million and the decrease
in non-interest income of $1.7 million, primarily due to the decrease in net
gain on sale of loans of $1.4 million and the decrease in other non-interest
income of $350,000. These decreases were offset by an increase in interest
income of $2.3 million, and a decrease in income tax expense of $480,000. The
decrease in net income for the nine-month period compared to the same period
last year was largely due to the increase in non-interest expense of $9.5
million, primarily due to the merger-related expenses of $8.5 million in
connection with the merger with FCBF and goodwill expense of $1.8 million. In
addition, non-interest income decreased by $7.1 million, primarily due to the
decrease in net gain on sale of loans of $4.0 million, the decrease in net
income from operations of real estate investment of $2.1 million, and the
decrease in other income of $1.0 million. These decreases, for the nine-month
period, were partially offset by an increase in interest income of $3.7 million,
and a decrease in income taxes of $3.1 million.
NET INTEREST INCOME. Net interest income increased $460,000 and $3.0 million for
the three and nine months ended December 31, 1999 compared to the same periods
in 1998. The net interest margin decreased to 3.04% from 3.20% for the
respective three-month periods and decreased to 3.13% from 3.17% for the
respective nine-month periods. The interest rate spread decreased to 2.75% from
2.91% and decreased to 2.87% from 2.92%, respectively, for the same periods.
10
<PAGE> 12
Interest income on loans increased $2.5 million and $4.3 million for the three
and nine months ended December 31, 1999 as compared to the same periods in the
prior year. This increase was a result of an increase of $205.2 million and
$164.7 million, respectively, in the average balance of loans for the periods
due to increased loan originations. Interest income on mortgage-related
securities decreased $150,000 and increased $420,000 for the same periods due
primarily to the decrease of $7.9 million and the increase of $6.9 million,
respectively, in the average balance of mortgage-related securities. Interest
income on investment securities (including Federal Home Loan Bank stock)
increased $260,000 and $290,000 for the three- and nine-month periods ended
December 31, 1999 due primarily to the increase of $24.9 million and $15.4
million, respectively, in the average balance of the investment securities.
Interest income on interest-bearing deposits decreased $330,000 and $1.3
million, respectively, for the three and nine months ended December 31, 1999,
due to the decrease of $26.6 million and $30.7 million in the average balance of
interest-bearing deposits.
Interest expense on deposits decreased $540,000 and $2.0 million, respectively,
for the three and nine months ended December 31, 1999 as compared to the same
periods in 1998. Although the average balances of deposits increased $19.7
million and $27.7 million, respectively, for the three- and nine-month periods,
these increases were more than offset by a decrease in the average cost of funds
from 4.58% to 4.41% for the respective three-month periods, and by a decrease
from 4.61% to 4.40% for the respective nine-month periods. Interest expense on
notes payable and other borrowings increased $2.3 million and $2.9 million,
respectively, during the same periods due to an increase of $161.2 million and
$111.9 million, respectively, in the average balance of notes payable and other
borrowings. Other interest expense increased $10,000 and decreased $240,000,
respectively, for the three and nine months ended December 31, 1999.
PROVISION FOR LOAN LOSSES. Provision for loan losses decreased $210,000 to
$150,000, and increased $240,000 to $1.2 million for the three- and nine-month
periods ended December 31, 1999 as compared to the same periods for the prior
year. The nine-month period increase included a $650,000 conforming adjustment
to bring FCBF's allowance in conformity with the Corporation's allowance policy.
Exclusive of this one-time conforming provision, provision for loan losses for
the nine-month period would have decreased $410,000 to $510,000. The provision
was based on management's ongoing evaluation of asset quality.
AVERAGE INTEREST-EARNING ASSETS, AVERAGE INTEREST-BEARING LIABILITIES AND
INTEREST RATE SPREAD. The following tables show the Corporation's average
balances, interest, average rates, net interest margin and the spread between
the combined average rates earned on interest-earning assets and average cost of
interest-bearing liabilities for the periods indicated. The average balances are
derived from average daily balances.
11
<PAGE> 13
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
------------------------------------- ------------------------------------
1999 1998
------------------------------------- ------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST (1) BALANCE INTEREST COST (1)
------------------------------------- -----------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Mortgage loans (2) $1,840,236 $34,689 7.54% $1,645,813 $32,102 7.80%
Consumer loans (2) 424,673 9,167 8.63 410,328 9,164 8.93
Commercial business loans(2) 57,599 1,298 9.01 61,215 1,422 9.29
---------- ------- ---------- -------
Total loans receivable (2) 2,322,508 45,154 7.78 2,117,356 42,688 8.06
Mortgage-related securities 242,013 3,839 6.35 249,870 3,990 6.39
Investment securities 132,856 1,784 5.37 112,892 1,671 5.92
Interest-bearing deposits 14,181 184 5.19 40,766 509 4.99
Federal Home Loan Bank stock 32,846 615 7.49 27,880 464 6.66
---------- ------- ---------- -------
Total interest-earning assets 2,744,404 51,576 7.52 2,548,764 49,322 7.74
---- ----
Non-interest-earning assets 103,633 89,708
---------- ----------
Total assets $2,848,037 $2,638,472
========== ==========
INTEREST-BEARING LIABILITIES
Demand deposits $ 608,729 3,973 2.61 $ 553,476 3,802 2.75
Regular passbook savings 82,274 552 2.68 141,976 777 2.19
Certificates of deposit 1,157,992 15,867 5.48 1,133,815 16,352 5.77
---------- ------- ---------- -------
Total deposits 1,848,995 20,392 4.41 1,829,267 20,931 4.58
Notes payable and other borrowings 706,447 10,130 5.74 545,216 7,806 5.73
Other 21,628 205 3.79 20,023 197 3.94
---------- ------- ---------- -------
Total interest-bearing liabilities 2,577,070 30,727 4.77 2,394,506 28,934 4.83
------- ---- ------- ----
Non-interest-bearing liabilities 45,196 33,798
---------- ----------
Total liabilities 2,622,266 2,428,304
Stockholders' equity 225,771 210,168
---------- ----------
Total liabilities and stockholders' equity $2,848,037 $2,638,472
========== ==========
Net interest income/interest rate spread $20,849 2.75% $20,388 2.91%
======= ==== ======= ====
Net interest-earning assets $ 167,334 $ 154,258
========== ==========
Net interest margin 3.04% 3.20%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 1.06 1.06
==== ====
</TABLE>
[FN]
- --------------------------------------------
(1) Annualized
(2) The average balances of loans include non-performing loans, interest
of which is recognized on a cash basis. </FN>
12
<PAGE> 14
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998
------------------------------------- ------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST(1) BALANCE INTEREST COST(1)
------------------------------------- ------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Mortgage loans (2) $ 1,764,699 $ 100,187 7.57% $ 1,610,239 $ 95,039 7.87%
Consumer loans (2) 412,323 26,649 8.62 429,598 29,080 9.03
Commercial business loans(2) 67,682 4,430 8.73 40,174 2,832 9.40
----------- --------- ----------- --------
Total loans receivable (2) 2,244,704 131,266 7.80 2,080,011 126,952 8.14
Mortgage-related securities 246,939 11,858 6.40 240,063 11,443 6.36
Investment securities 122,819 4,891 5.31 111,538 4,771 5.70
Interest-bearing deposits 14,432 513 4.74 45,093 1,806 5.34
Federal Home Loan Bank stock 31,322 1,526 6.50 27,195 1,359 6.66
----------- --------- ----------- --------
Total interest-earning assets 2,660,216 150,054 7.52 2,503,900 146,331 7.79
---- ----
Non-interest-earning assets 105,943 122,769
----------- -----------
Total assets $ 2,766,159 $ 2,626,669
=========== ===========
INTEREST-BEARING LIABILITIES
Demand deposits $ 558,869 11,185 2.67 $ 530,833 11.141 2.80
Regular passbook savings 188,604 3,869 2.74 151,032 2,376 2.10
Certificates of deposit 1,084,621 45,368 5.58 1,122,551 48,869 5.80
----------- --------- ----------- --------
Total deposits 1,832,094 60,422 4.40 1,804,416 62,386 4.61
Notes payable and other borrowings 659,414 26,602 5.38 547,493 23,653 5.76
Other 18,307 513 3.74 26,250 755 3.83
----------- --------- ----------- --------
Total interest-bearing liabilities 2,509,815 87,537 4.65 2,378,159 86,794 4.87
--------- ---- -------- ----
Non-interest-bearing liabilities 32,514 41,373
----------- -----------
Total liabilities 2,542,329 2,419,532
Stockholders' equity 223,830 207,137
----------- -----------
Total liabilities and stockholders' equity $ 2,766,159 $ 2,626,669
=========== ===========
Net interest income/interest rate spread $ 62,517 2.87% $ 59,537 2.92%
========= ==== ======== ====
Net interest-earning assets $ 150,401 $ 125,741
=========== ===========
Net interest margin 3.13% 3.17%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities 1.06 1.05
==== ====
</TABLE>
- --------------------------------------------
(1) Annualized
(2) The average balances of loans include non-performing loans, interest of
which is recognized on a cash basis.
13
<PAGE> 15
NON-INTEREST INCOME. Non-interest income decreased $1.7 million to $3.1 million
and decreased $7.1 million to $9.7 million, respectively, for the three and nine
months ended December 31, 1999 as compared to the same periods in the prior year
as a result of several factors. The net gain on sale of loans decreased
$1.4 million and $4.0 million for the three- and nine-month periods due to
decreased volume of loan sales. Net income from operations of real estate
investments for the three and nine months ended December 31, 1999 decreased
$180,000 and $2.1 million, respectively, because there were no sales of
partnership interests at IDI in 1999. Other non-interest income, which includes
a variety of loan fee and other miscellaneous fee income, decreased $350,000 and
$1.0 million, respectively, for the three and nine months ended December 31,
1999 as compared to the same periods in the prior year. In addition to decreased
loan fee income, the decrease for the comparative nine-month periods included a
non-recurring gain on the sale of an investment property for the nine months
ended December 31, 1998 of $360,000. Net gain on sale of investments and
securities decreased $170,000, and $150,000 for the three- and nine-month
periods ended December 31, 1999 as compared to the same periods in the prior
year. Partially offsetting these decreases was loan servicing income which
increased $240,000, and $100,000 for the same three- and nine-month periods
ended December 31, 1999. These increases are accompanied by a decrease in the
amortization of Originated Mortgage Servicing Rights (OMSR's) of $170,000 and an
increase of $130,000 for the same respective three- and nine-month periods in
the prior year. Insurance commissions increased $170,000 and decreased $10,000
for the three- and nine-month periods. Service charges on deposits remained
relatively constant for the three-month period and increased $30,000 for the
nine-month period as compared to the same prior, respective periods.
NON-INTEREST EXPENSE. Non-interest expense increased $180,000 to $12.8 million
and increased $9.5 million to $47.6 million, respectively, during the three and
nine months ended December 31, 1999 as compared to the same periods in 1998 as a
result of several factors. The increase in non-interest expense for the
three-month period ended December 31, 1999 as compared to the same period in the
prior year is largely due to an increase in furniture and equipment of $220,000
and an increase of $110,000 in other non-interest expense. The increase in
furniture and equipment and other non-interest expense is primarily due to
increases in furniture, postage, telephone, and stationery expenses. Occupancy
expense increased $80,000 and federal insurance premiums increased $20,000 for
the three-month period ended December 31, 1999 as compared to the same period in
the prior year. Partially offsetting these increases were decreases in
compensation expense of $110,000 and goodwill of $70,000 for the same
three-month period ended December 31, 1999. Additionally, marketing decreased
$30,000 and data processing decreased $30,000 for the same three-month period.
The increase in non-interest expense for the nine-month period ended
December 31, 1999 is attributed to merger-related expense of $8.5 million
($5.1 million, net of tax) in the first quarter of fiscal 2000 due to the merger
with FCBF and increased goodwill expense of $1.6 million ($970,000 net of tax),
also in the first quarter of fiscal 2000. Unamortized goodwill from a previous
merger became impaired and was written off. Exclusive of the one-time charges
for the merger and goodwill, non-interest expense decreased $510,000 for the
nine-month period ended December 31, 1999 as compared to the same period in the
prior year. This decrease is primarily due to a decrease in compensation of
$480,000 and a decrease in other non-interest expense of $400,000. Additionally,
marketing expense and occupancy expense decreased $80,000 and $30,000,
respectively, for the same nine-month period as compared to the prior year.
Partially offsetting these decreases were increases of $330,000 in furniture and
equipment expense, $110,000 in data processing expense, and $30,000 in federal
insurance premiums as compared to the prior nine-month period.
INCOME TAXES. Income tax expense decreased $480,000 and $3.1 million during the
respective three and nine months ended December 31, 1999 as compared to the same
periods in 1998. The effective tax rate was 38.1% and 47.6%, respectively for
the current year as compared to 38.4% and 38.2% for the three- and nine-month
periods last year. The unusual effective tax rate for the nine-month period
ended December 31, 1999, is a result of certain merger-related costs and
goodwill amortization that are not deductible for tax purposes.
14
<PAGE> 16
FINANCIAL CONDITION
During the nine months ended December 31, 1999, the Corporation's assets
increased by $168.6 million from $2.66 billion at March 31, 1999, to
$2.83 billion. The majority of this increase was attributable to increases in
loans and investment securities.
Investment securities (both available for sale and held to maturity) decreased
$8.4 million during the nine months ended December 31, 1999 as a result of sales
and maturities of $99.6 million of U.S. Government and agency securities which
was partially offset by purchases of $91.2 million.
Mortgage-related securities (both available for sale and held to maturity)
decreased $23.2 million during the nine months ended December 31, 1999 as a
result of principal repayments and market value adjustments of $47.1 million.
This decrease was partially offset by purchases of $23.9 million.
Mortgage-related securities consisted of $200.2 million of mortgage-backed
securities and $35.1 million of Collateralized Mortgage Obligations ("CMO's")
and Real Estate Mortgage Investment Conduits ("REMIC's") at December 31, 1999.
The Corporation's investments in CMO's and REMIC's are limited to federal agency
issued REMIC's which represent an interest in mortgage-backed securities. These
investments are deemed to have limited credit risk. The investments do have
prepayment risk due to, among other things, actual prepayments being more or
less than those predicted at the time of purchase. The Corporation invests only
in short-term tranches in order to limit the reinvestment risk associated with
greater than anticipated prepayments, as well as changes in value resulting from
changes in interest rates.
Total loans (including loans held for sale) increased $183.7 million during the
nine months ended December 31, 1999. Activity for the period included (i)
originations and purchases of $835.8 million, (ii) sales of $207.4 million, and
(iii) principal repayments and other adjustments of $444.7 million.
Deposits increased $9.2 million during the nine months ended December 31, 1999.
The increase was due primarily to new demand deposit products and certificate
promotions. Brokered deposits have been used in the past and may be used in the
future as the need for funds requires them. Brokered deposits totaled
$94.3 million at December 31, 1999 and generally mature in one year. FHLB
advances increased $169.2 million during the nine months ended December 31,
1999. Reverse repurchase agreements increased $5.2 million and other borrowings
decreased $4.4 million during the nine months ended December 31, 1999. Advance
payments by borrowers for taxes and insurance decreased $9.3 million.
Stockholders' equity increased $3.9 million during the nine months ended
December 31, 1999 as a net result of (i) comprehensive income of $10.7 million
(ii) stock options exercised of $6.0 million (with the excess of the cost of
treasury shares over the option price ($1.6 million) charged to retained
earnings), (iii) the tax benefit from certain stock options of $1.3 million,
(iv) the purchase of stock by retirement plans of $540,000, (v) benefit plan
shares earned and related tax adjustments totaling $80,000, and (vi) the
decrease in market value of the SERP liability of $280,000. These were offset by
(i) cash dividends of $4.2 million and (ii) treasury stock purchases
of $9.2 million.
IMPACT OF YEAR 2000
STATE OF READINESS 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.
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.
15
<PAGE> 17
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.
ASSET QUALITY
Loans are placed on non-accrual status when, in the judgment of management, the
probability of collection of interest is deemed to be insufficient to warrant
further accrual. When a loan is placed on non-accrual status, previously accrued
but unpaid interest is deducted from interest income. As a matter of policy, the
Corporation does not accrue interest on loans past due 90 days or more.
Non-performing assets (consisting of non-accrual loans, certain real estate held
for development and sale, foreclosed properties and repossessed assets) for all
periods shown have been restated to include non-performing assets from the
merger with FCBF. Of the amount merged with the Corporation's non-performing
loans, none of the loans were greater than $1.0 million. Non-performing assets
remained steady at $6.4 million from March 31, 1999 to December 31, 1999 and
represented 0.24% to 0.22% of total assets at such respective dates.
16
<PAGE> 18
Non-performing assets are summarized as follows at the dates indicated:
<TABLE>
<CAPTION>
AT MARCH 31,
AT DECEMBER 31, --------------------------------------------------
1999 1999 1998 1997
----------------- --------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Non-accrual loans:
Single-family residential $ 2,968 $ 2,931 $ 3,256 $ 3,019
Multi-family residential 3 -- 898 4,489
Commercial real estate 354 145 288 778
Construction and land -- -- -- 2,258
Consumer 610 571 765 463
Commercial business 402 359 769 610
------------- ------------ ------------ ------------
Total non-accrual loans 4,337 4,006 5,976 11,617
Real estate held for development and sale 1,680 1,764 4,431 2,736
Foreclosed properties and repossessed assets,
net 341 630 3,806 246
------------- ------------ ------------ ------------
Total non-performing assets $ 6,358 $ 6,400 $ 14,213 $ 14,599
============= ============ ============ ============
Performing troubled debt restructurings $ -- $ 293 $ 329 $ 329
============= ============ ============ ============
Total non-accrual loans to total loans 0.18% 0.18% 0.29% 0.66%
Total non-performing assets to total assets 0.22 0.24 0.56 0.68
Allowance for loan losses to total loans 1.01 1.08 1.23 1.36
Allowance for loan losses to total
non-accrual loans 565.44 599.78 425.03 207.93
Allowance for loan and foreclosure losses
to total non-performing assets 388.35 379.97 181.00 172.84
</TABLE>
Non-accrual loans increased $330,000 during the nine months ended December 31,
1999 primarily due to the addition of $210,000 of commercial real estate
non-accrual loans. Other categories also increased slightly. At December 31,
1999, there were no non-accrual loans with a carrying value greater than
$1.0 million.
Non-performing real estate held for development and sale decreased $80,000 for
the nine months ended December 31, 1999. At December 31, 1999, 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 fiscal 1999. One of
the condominium units was sold which resulted in a decrease of $210,000 in
non-performing real estate held for development and sale. This decrease was
partially offset by the addition of an investment in a multi-family property
with a net carrying value of $120,000 acquired in the FCB merger. Additionally,
the sale of a multi-family project in Madison, Wisconsin, that had been a
non-accrual loan, resulted in the Corporation providing interim financing to
the buyer until permanent financing can be obtained. A deferred gain of
$310,000, associated with the project remains in real estate held for
development and sale until the sale of the property is deemed final.
17
<PAGE> 19
Foreclosed properties and repossessed assets decreased $290,000 largely due to
the sale of a multi-family unit that had a carrying value of $370,000. There are
no foreclosed properties and repossessed assets with a carrying value greater
than $1.0 million at December 31, 1999.
There are no performing troubled debt restructurings at December 31, 1999. This
represents a decrease of $290,000 from March 31, 1999.
At December 31, 1999, assets that the Corporation has classified as substandard,
net of reserves, consisted of $12.4 million of loans and foreclosed properties.
As of March 31, 1999, the substandard assets amounted to $10.5 million. The
increase of $1.9 million is due largely to the addition of the Bloomington,
Minnesota condominium units that are classified as non-performing real estate
held for development and sale which were added to substandard investments during
the nine-month period ended December 31, 1999. The following table sets forth
information relating to the Corporation's loans that were less than 90 days
delinquent at the dates indicated.
<TABLE>
<CAPTION>
AT MARCH 31,
AT DECEMBER 31, -------------------------------------------------
1999 1999 1998 1997
--------------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
30 to 59 days $ 5,202 $ 5,535 $ 7,525 $ 4,133
60 to 89 days 885 693 1,397 1,091
---------- ---------- ---------- ----------
Total $ 6,087 $ 6,228 $ 8,922 $ 5,224
========== ========== ========== ==========
</TABLE>
The Corporation's loan portfolio, foreclosed properties and repossessed assets
are evaluated on a continuing basis to determine the necessity for additions to
the allowance for losses and the related balance in the allowances. These
evaluations consider several factors, including, but not limited to, general
economic conditions, loan portfolio composition, loan delinquencies, prior loss
experience, collateral value, anticipated loss of interest and management's
estimation of future potential losses. The evaluation of the allowance for loan
losses includes a review of known loan problems based upon historical trends and
ratios. Foreclosed properties are recorded at the lower of carrying value or
fair value with charge-offs, if any, charged to the allowance for loan losses
prior to transfer to foreclosed property. The fair value is primarily based on
appraisals, discounted cash flow analysis (the majority of which are based on
current occupancy and lease rates) and pending offers.
18
<PAGE> 20
A summary of the activity in the allowance for losses on loans follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------------- ----------------------------------
1999 1998 1999 1998
--------------------------------- ----------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Allowance at beginning of period $ 24,732 $ 25,210 $ 24,324 $ 25,400
Charge-offs:
Mortgage (5) (1,210) (9) (1,533)
Consumer (211) (271) (793) (775)
Commercial business (189) (157) (361) (367)
-------- -------- -------- --------
Total charge-offs (405) (1,638) (1,163) (2,675)
Recoveries:
Mortgage 9 217 42 401
Consumer 26 20 142 106
Commercial business 11 6 22 24
-------- -------- -------- -------
Total recoveries 46 243 206 531
-------- -------- -------- -------
Net charge-offs (359) (1,395) (957) (2,144)
Provision 150 359 1,156 918
-------- -------- -------- -------
Allowance at end of period $ 24,523 $ 24,174 $ 24,523 $ 24,174
======== ======== ======== ========
Net charge-offs to average loans (0.06)% (0.26)% (0.06)% (0.14)%
==== ==== ==== ====
</TABLE>
Although management believes that the December 31, 1999 allowance for loan
losses is adequate, based upon the current evaluation of loan delinquencies,
non-accrual loans, charge-off trends, economic conditions and other factors,
there can be no assurance that future adjustments to the allowance, which could
adversely affect the Corporation's results of operations, will not be necessary.
Management also continues to pursue all practical and legal methods of
collection, repossession and disposal, as well as adhering to high underwriting
standards in the origination process, in order to maintain strong asset quality.
LIQUIDITY AND CAPITAL RESOURCES
On an unconsolidated basis, the Corporation's sources of funds include dividends
from its subsidiaries, including the Bank, interest on its investments and
returns on its real estate held for sale. The Bank's primary sources of funds
are payments on loans and mortgage-related securities, deposits from retail and
wholesale sources, advances and other borrowings.
At December 31, 1999, the Corporation had outstanding commitments to originate
loans of $67.7 million, commitments to extend funds to, or on behalf of,
customers pursuant to lines and letters of credit of $125.6 million and loans
sold with recourse to the Corporation in the event of default by the borrower of
$1.3 million. The Corporation had firm commitments outstanding to deliver loans
through the FHLB Mortgage Partnership Finance Program of $5.0 million at
December 31, 1999. Scheduled maturities of certificates of deposit during the
twelve months following December 31, 1999 amounted to $960.4 million and
scheduled maturities of FHLB advances during the same period totaled
$373.3 million. At December 31, 1999, the Corporation also had $47.6 million of
reverse repurchase agreements, all of which are scheduled to mature during the
twelve months following December 31, 1999. Management believes adequate capital
and borrowings are available from various sources to fund all commitments to the
extent required.
19
<PAGE> 21
The Bank is required by the Office of Thrift Supervision ("OTS") to maintain
specified levels of liquid investments in qualifying types of U.S. Government
and agency securities and other investments. This requirement, which may be
varied by the OTS, is based upon a percentage of deposits and short-term
borrowings. The required percentage is currently 4.0%. During the quarter ended
December 31, 1999, the Bank's average liquidity ratio was 16.40%.
Under federal law and regulation, the Bank is required to meet certain tangible,
core and risk-based capital requirements. Tangible capital generally consists of
stockholders' equity minus certain intangible assets. Core capital generally
consists of tangible capital plus qualifying intangible assets. The risk-based
capital requirements presently address credit risk related to both recorded and
off-balance sheet commitments and obligations. As a state-chartered savings
institution, the Bank is also subject to the minimum regulatory capital
requirement of the State of Wisconsin, which is 6% of total assets. The Bank's
capital ratio for this measurement was 7.61% as of December 31, 1999.
The following summarizes the Bank's capital levels and ratios and the levels and
ratios required by the OTS at December 31, 1999 and December 31, 1998 (dollars
in thousands):
[CAPTION]
<TABLE>
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 DECEMBER 31, 1999:
Tier 1 capital
(to adjusted tangible $ 187,871 6.73% $ 83,724 3.00% $ 139,540 5.00%
assets)
Risk-based capital
(to risk-based assets) 211.152 11.31 149,356 8.00 186,695 10.00
Tangible capital
(to tangible assets) 187,871 6.73 41,862 1.50 N/A N/A
AS OF DECEMBER 31, 1998:
Tier 1 capital
(to adjusted tangible assets) 181,652 6.94 78,493 3.00 130,821 5.00
Risk-based capital
(to risk-based assets) 202,562 12.06 134,355 8.00 167,944 10.00
Tangible capital
(to tangible assets) 181,652 6.94 39,246 1.50 N/A N/A
</TABLE>
The OTS has proposed to increase the core capital ratio from the current 3.00%
to a range of 4.00% to 5.00% for all but the most healthy financial
institutions. The OTS also has proposed an interest rate risk calculation such
that an institution with a measured interest rate risk exposure, as defined,
greater than specified levels must deduct an interest rate risk component when
calculating the OTS risk-based capital. Final implementation of these proposals
was pending at December 31, 1999. Management does not believe these rules will
significantly impact the Bank's ability to meet the capital requirements.
20
<PAGE> 22
The following table reconciles stockholder equity to regulatory capital at
December 31, 1999 and 1998 (dollars in thousands):
[CAPTION]
<TABLE>
DECEMBER 31,
-----------------------------------------
1999 1998
----------------- ------------------
<S> <C> <C>
Stockholders' equity of the Corporation $ 224,056 $ 213,021
Less: Capitalization of the Corporation and Non-Bank
subsidiaries (35,133) (26,702)
---------- ----------
Stockholders' equity of the Bank 188,923 186,319
Less: Intangible assets and other non-includable assets (1,052) (4,667)
---------- ----------
Tier 1 and tangible capital 187,871 181,652
Plus: Allowable general valuation allowances 23,281 20,910
---------- ----------
Risk based capital $ 211,152 $ 202,562
========== ==========
</TABLE>
ASSET/LIABILITY MANAGEMENT
The primary function of asset and liability management is to provide liquidity
and maintain an appropriate balance between interest-earning assets and
interest-bearing liabilities within specified maturities and/or repricing dates.
Interest rate risk is the imbalance between interest-earning assets and
interest-bearing liabilities at a given maturity or repricing date, and is
commonly referred to as the interest rate gap (the "gap"). A positive gap exists
when there are more assets than liabilities maturing or repricing within the
same time frame. A negative gap occurs when there are more liabilities than
assets maturing or repricing within the same time frame. During a period of
rising interest rates, a negative gap over a particular period would tend to
adversely affect net interest income over such period, while a positive gap over
a particular period would tend to result in an increase in net interest income
over such period.
The Corporation's strategy for asset and liability management is to maintain an
interest rate gap that minimizes the impact of interest rate movements on the
net interest margin. As part of this strategy, the Corporation sells
substantially all new originations of long-term, fixed-rate, single-family
residential mortgage loans in the secondary market, invests in adjustable-rate
or medium-term, fixed-rate, single-family residential mortgage loans, invests in
medium-term mortgage-related securities and invests in consumer loans which
generally have shorter terms to maturity and higher and/or adjustable interest
rates.
The Corporation also originates multi-family residential and commercial real
estate loans, which generally have adjustable or floating interest rates and/or
shorter terms to maturity than conventional single-family residential loans.
Long-term, fixed-rate, single-family residential mortgage loans originated for
sale in the secondary market are generally committed for sale at the time the
interest rate is locked with the borrower. As such, these loans involve little
interest rate risk to the Corporation.
The 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 have been no material changes in the
Corporation's asset/liability structure or management strategies and assumptions
since the prior fiscal year ended March 31, 1999. The cumulative net gap
position at December 31, 1999 has not changed materially since March 31, 1999.
21
<PAGE> 23
SEGMENT REPORTING
According to the materiality thresholds of SFAS No. 131, the Corporation is
required to report each operating segment based on materiality thresholds of ten
percent or more of certain amounts, such as revenue. Additionally, the
Corporation is required to report separate operating segments until the revenue
attributable to such segments is at least 75 percent of total consolidated
revenue. SFAS No. 131 allows the Corporation to combine operating segments, even
though they may be individually material, if the segments have similar basic
characteristics in the nature of the products, production processes, and type or
class of customer for products or services. Based on the above criteria, the
Corporation has two reportable segments.
COMMUNITY BANKING: This segment is the main basis of operation for the
Corporation and includes the branch network and other deposit support services;
origination, sales and servicing of one-to-four family loans; origination of
multifamily, commercial real estate and business loans; origination of a variety
of consumer loans; and sales of alternative financial investments such as tax
deferred annuities.
REAL ESTATE INVESTMENTS: The Corporation's non-banking subsidiary, IDI, and it's
subsidiary, NIDI, invest in limited partnerships in real estate developments.
Such developments include recreational residential developments and industrial
developments (such as office parks).
The following represents reconciliations of reportable segment revenues, profit
or loss, and assets to the Corporation's consolidated totals for the three and
nine months ended December 31, 1999 and 1998, respectively.
22
<PAGE> 24
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1999
--------------------------------------------------
CONSOLIDATED
REAL ESTATE COMMUNITY FINANCIAL
INVESTMENTS BANKING STATEMENTS
----------- ----------- ------------
<S> <C> <C> <C>
Interest income $ 555 $ 51,576 $ 52,131
Interest expense 0 30,727 30,727
---------- ----------- -----------
Net interest income 555 20,849 21,404
Provision for loan losses 0 150 150
---------- ----------- -----------
Net interest income after provision for loan losses 555 20,699 21,254
Other income (loss) (560) 3,095 2,535
Other expense 37 12,777 12,814
---------- ----------- -----------
Net operating income (loss) (42) 11,017 10,975
Gain on sale of real estate partnership investments 0 0 0
---------- ----------- -----------
Income (loss) before income taxes (42) 11,017 10,975
Income taxes (227) 4,410 4,183
---------- ----------- -----------
Net income $ 185 $ 6,607 $ 6,792
========== =========== ===========
Average assets $ 29,636 $ 2,821,652 $ 2,851,288
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1998
---------------------------------------------------
CONSOLIDATED
REAL ESTATE COMMUNITY FINANCIAL
INVESTMENTS BANKING STATEMENTS
----------- ----------- ------------
<S> <C> <C> <C>
Interest income $ 518 $ 49,322 $ 49,840
Interest expense 0 28,934 28,934
---------- ----------- -----------
Net interest income 518 20,388 20,906
Provision for loan losses 0 359 359
---------- ----------- -----------
Net interest income after provision for loan losses 518 20,029 20,547
Other income (loss) (358) 4,582 4,224
Other expense 19 12,598 12,617
---------- ----------- -----------
Net operating income 141 12,013 12,154
Gain on sale of real estate partnership investments 0 0 0
---------- ----------- -----------
Income before income taxes 141 12,013 12,154
Income taxes (116) 4,780 4,664
---------- ----------- -----------
Net income $ 257 $ 7,233 $ 7,490
========== =========== ===========
Average assets $ 26,784 $ 2,611,688 $ 2,638,472
</TABLE>
23
<PAGE> 25
<TABLE>
NINE MONTHS ENDED DECEMBER 31, 1999
---------------------------------------------------
CONSOLIDATED
REAL ESTATE COMMUNITY FINANCIAL
INVESTMENTS BANKING STATEMENTS
------------- ------------- -------------
<S> <C> <C> <C>
Interest income $ 1,615 $ 150,054 $ 151,669
Interest expense 0 87,537 87,537
------------- ------------- -------------
Net interest income 1,615 62,517 64,132
Provision for loan losses 0 1,156 1,156
------------- ------------- -------------
Net interest income after provision for loan losses 1,615 61,361 62,976
Other income (loss) (1,202) 9,299 8,097
Other expense 3 47,577 47,580
------------- ------------- -------------
Net operating income 410 23,083 23,493
Gain on sale of real estate partnership investments 0 0 0
------------- ------------- -------------
Income before income taxes 410 23,083 23,493
Income taxes (367) 11,549 11,182
------------- ------------- -------------
Net income $ 777 $ 11,534 $ 12,311
============= ============= =============
Average assets $ 29,311 $ 2,739,299 $ 2,768,610
</TABLE>
<TABLE>
NINE MONTHS ENDED DECEMBER 31, 1998
----------------------------------------------------
CONSOLIDATED
REAL ESTATE COMMUNITY FINANCIAL
INVESTMENTS BANKING STATEMENTS
------------- ------------ --------------
<S> <C> <C> <C>
Interest income $ 1,316 $ 146,331 $ 147,647
Interest expense 0 86,794 86,794
------------- ------------- -------------
Net interest income 1,316 59,537 60,853
Provision for loan losses 0 918 918
------------- ------------- -------------
Net interest income after provision for loan losses 1,316 58,619 59,935
Other income 1,163 14,306 15,469
Other expense (27) 38,037 38,010
------------- ------------- -------------
Net operating income 2,506 34,888 37,394
Gain on sale of real estate partnership investments 0 0 0
------------- ------------- -------------
Income before income taxes 2,506 34,888 37,394
Income taxes 553 13,720 14,273
------------- ------------- -------------
Net income $ 1,953 $ 21,168 $ 23,121
============= ============= =============
Average assets $ 23,292 $ 2,603,377 $ 2,626,669
</TABLE>
24
<PAGE> 26
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See "Asset/Liability Management".
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.
The Bank is involved in routine legal proceedings occurring in the ordinary
course of business which, in the aggregate, are believed by management of the
Corporation to be immaterial to the financial condition and results of
operations of the Corporation.
ITEM 2 CHANGES IN SECURITIES.
Not applicable.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4 SUBMISSION OF MATTER TO VOTE OF SECURITIES HOLDERS.
Not applicable.
ITEM 5 OTHER INFORMATION.
None.
ITEM 6 EXHIBITS AND REPORTS.
(A) EXHIBIT NO. 27 FINANCIAL DATA SCHEDULES
(B) REPORTS ON FORM 8-K.
None.
25
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
ANCHOR BANCORP WISCONSIN INC.
<S> <C> <C>
Date: January 31, 2000 By: /s/ Douglas J. Timmerman
------------------------------ -----------------------------------------------------
Douglas J. Timmerman, Chairman of the
Board, President and Chief Executive Officer
Date: January 31, 2000 By: /s/ Michael W. Helser
------------------------------ -----------------------------------------------------
Michael W. Helser, Treasurer and
Chief Financial Officer
</TABLE>
26
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 47,340
<INT-BEARING-DEPOSITS> 1
<FED-FUNDS-SOLD> 18,926
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 83,920
<INVESTMENTS-CARRYING> 230,510
<INVESTMENTS-MARKET> 224,300
<LOANS> 2,428,981
<ALLOWANCE> 24,523
<TOTAL-ASSETS> 2,832,138
<DEPOSITS> 1,844,621
<SHORT-TERM> 429,365
<LIABILITIES-OTHER> 20,500
<LONG-TERM> 313,596
0
0
<COMMON> 58,983
<OTHER-SE> 165,073
<TOTAL-LIABILITIES-AND-EQUITY> 2,832,138
<INTEREST-LOAN> 131,266
<INTEREST-INVEST> 18,275
<INTEREST-OTHER> 513
<INTEREST-TOTAL> 150,054
<INTEREST-DEPOSIT> 60,422
<INTEREST-EXPENSE> 87,537
<INTEREST-INCOME-NET> 62,517
<LOAN-LOSSES> 1,156
<SECURITIES-GAINS> (8)
<EXPENSE-OTHER> 47,577
<INCOME-PRETAX> 23,493
<INCOME-PRE-EXTRAORDINARY> 23,493
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,311
<EPS-BASIC> .50
<EPS-DILUTED> .48
<YIELD-ACTUAL> 7.52
<LOANS-NON> 4,337
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,346
<ALLOWANCE-OPEN> 24,324
<CHARGE-OFFS> 1,163
<RECOVERIES> 206
<ALLOWANCE-CLOSE> 24,523
<ALLOWANCE-DOMESTIC> 24,523
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 8,224
</TABLE>
