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<SEC-DOCUMENT>/in/edgar/work/20000616/0000950124-00-003774/0000950124-00-003774.txt : 20000919
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ACCESSION NUMBER: 0000950124-00-003774
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 20000331
FILED AS OF DATE: 20000616
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ANCHOR BANCORP WISCONSIN INC
CENTRAL INDEX KEY: 0000885322
STANDARD INDUSTRIAL CLASSIFICATION: [6036
] IRS NUMBER: 391726871
STATE OF INCORPORATION: WI
FISCAL YEAR END: 0331
</COMPANY-DATA>
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 000-20006
FILM NUMBER: 656054
</FILING-VALUES>
BUSINESS ADDRESS:
STREET 1: 25 WEST MAIN ST
CITY: MADISON
STATE: WI
ZIP: 53703
BUSINESS PHONE: 6082528700
</BUSINESS-ADDRESS>
MAIL ADDRESS:
STREET 1: PO BOX 7933
CITY: MADISON
STATE: WI
ZIP: 53707-7933
</MAIL-ADDRESS>
</FILER>
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10-K405
<TEXT>
<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
--------------
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
------------------- -------------------
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 (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,
1
<PAGE> 3
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.
2
<PAGE> 4
<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>
3
<PAGE> 5
<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.
4
<PAGE> 6
<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.
5
<PAGE> 7
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
6
<PAGE> 8
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.
7
<PAGE> 9
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.
8
<PAGE> 10
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.
9
<PAGE> 11
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.
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<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
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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
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<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