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<SEC-DOCUMENT>0000950124-01-501774.txt : 20010612
<SEC-HEADER>0000950124-01-501774.hdr.sgml : 20010612
ACCESSION NUMBER: 0000950124-01-501774
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 20010331
FILED AS OF DATE: 20010611
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ANCHOR BANCORP WISCONSIN INC
CENTRAL INDEX KEY: 0000885322
STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036]
IRS NUMBER: 391726871
STATE OF INCORPORATION: WI
FISCAL YEAR END: 0331
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 000-20006
FILM NUMBER: 1657997
BUSINESS ADDRESS:
STREET 1: 25 WEST MAIN ST
CITY: MADISON
STATE: WI
ZIP: 53703
BUSINESS PHONE: 6082528700
MAIL ADDRESS:
STREET 1: PO BOX 7933
CITY: MADISON
STATE: WI
ZIP: 53707-7933
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>c63174e10-k.txt
<DESCRIPTION>ANNUAL REPORT ENDED 3/31/01
<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, 2001
--------------
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 $15.45 closing price of the registrant's common stock as
of May 25, 2001, the aggregate market value of the 20,518,830 shares of the
registrant's common stock deemed to be held by non-affiliates of the registrant
was: $317.0 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 8, 2001, 22,755,723 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 24,
2001 (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, fsb (the "Bank"). The Corporation
also has a non-banking subsidiary, Investment Directions, Inc. ("IDI"), a
Wisconsin corporation, which invests in real estate partnerships. IDI has two
subsidiaries, Nevada Investment Directions, Inc. ("NIDI") and California
Investment Directions, Inc. ("CIDI"), both of which invest in real estate held
for development and sale.
The Bank was organized in 1919 as a Wisconsin-chartered savings
institution. In July 2000, the Bank converted to a federally-chartered savings
institution, and 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"), and the FDIC. 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 in east-central Wisconsin, as well as
contiguous counties in Iowa and Illinois. As of March 31, 2001, 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 three loan origination offices.
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, commercial
banks and mortgage banking companies. Competition for consumer loans is
primarily from other savings institutions, commercial banks, consumer finance
companies and credit unions.
1
<PAGE> 3
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, 2001, the Bank's net loans held for investment
totaled $2.4 billion, representing approximately 77.2% of its $3.1 billion of
total assets at that date. Approximately 77.9% of the Bank's total loans held
for investment at March 31, 2001 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, 2001, the Bank's
total loans held for investment included $474.2 million or 18.6% of consumer
loans and $90.2 million or 3.5% 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,
-------------------------------------------------------------------------
2001 2000 1999
-------------------------------------------------------------------------
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 $ 872,718 34.17% $ 1,001,408 41.24% $ 1,061,813 47.66%
Multi-family residential 305,009 11.94 291,917 12.02 233,984 10.50
Commercial real estate 501,640 19.64 388,678 16.01 282,980 12.70
Construction 266,712 10.44 210,660 8.68 179,189 8.04
Land 43,849 1.72 29,232 1.20 17,309 0.78
--------- ----- ----------- ----- ----------- -----
Total mortgage loans 1,989,928 77.90 1,921,895 79.15 1,775,275 79.69
--------- ----- ----------- ----- ----------- -----
Consumer loans:
Second mortgage and home equity 271,733 10.64 243,124 10.01 214,295 9.62
Education 130,215 5.10 136,011 5.60 130,254 5.85
Other 72,274 2.83 65,686 2.71 56,590 2.54
--------- ----- ----------- ----- ----------- -----
Total consumer loans 474,222 18.57 444,821 18.32 401,139 18.01
--------- ----- ----------- ----- ----------- -----
Commercial business loans:
Loans 90,212 3.53 61,419 2.53 51,403 2.31
Lease receivables - 0.00 - 0.00 - 0.00
--------- ----- ----------- ----- ----------- -----
Total commercial business loans 90,212 3.53 61,419 2.53 51,403 2.31
--------- ----- ----------- ----- ----------- -----
Gross loans receivable 2,554,362 100.00% 2,428,135 100.00% 2,227,817 100.00%
====== ====== ======
Contras to loans:
Undisbursed loan proceeds (111,298) (97,092) (87,401)
Allowance for loan losses (24,076) (24,404) (24,027)
Unearned net loan fees (3,610) (3,528) (4,015)
Discount on loans purchased (371) (361) (792)
Unearned interest (31) (29) (16)
--------- ----------- -----------
Total contras to loans (139,386) (125,414) (116,251)
--------- ----------- -----------
Loans receivable, net $ 2,414,976 $ 2,302,721 $ 2,111,566
=========== =========== ===========
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------
1998 1997
-------------------------------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
-------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
Single-family residential $ 1,032,116 50.07% $ 864,717 48.80%
Multi-family residential 191,580 9.29 177,108 10.00
Commercial real estate 248,365 12.05 205,369 11.59
Construction 139,314 6.76 120,421 6.80
Land 12,503 0.61 15,730 0.89
----------- ------- ----------- -------
Total mortgage loans 1,623,878 78.78 1,383,345 78.07
----------- ------- ----------- -------
Consumer loans:
Second mortgage and home equity 220,177 10.68 194,888 11.00
Education 125,503 6.09 113,606 6.41
Other 53,867 2.61 50,966 2.88
----------- ------- ----------- -------
Total consumer loans 399,547 19.38 359,460 20.29
----------- ------- ----------- -------
Commercial business loans:
Loans 37,861 1.84 29,012 1.64
Lease receivables 5 0.00 10 0.00
----------- ------- ----------- -------
Total commercial business loans 37,866 1.84 29,022 1.64
----------- ------- ----------- -------
Gross loans receivable 2,061,291 100.00% 1,771,827 100.00%
======= =======
Contras to loans:
Undisbursed loan proceeds (68,686) (59,793)
Allowance for loan losses (25,400) (24,155)
Unearned net loan fees (4,137) (3,691)
Discount on loans purchased (1,016) (1,180)
Unearned interest (29) (89)
------------ -----------
Total contras to loans (99,268) (88,908)
------------ -----------
Loans receivable, net $ 1,962,023 $ 1,682,919
=========== ===========
</TABLE>
The following table shows, at March 31, 2001, 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 $ 113,193 $ 336,889 $ 120,252 $ 67,615 $ 44,654
After one year through
five years 522,897 417,472 157,836 242,891 27,314
After five years 236,628 52,288 32,473 163,716 18,244
---------- ---------- ---------- ---------- ---------
$ 872,718 $ 806,649 $ 310,561 $ 474,222 $ 90,212
========== ========== ========== ========== =========
Interest rate terms on amounts
due after one year:
Fixed $ 303,809 $ 93,952 $ 39,939 $ 272,782 $ 11,627
========== ========== ========== ========== =========
Adjustable $ 455,716 $ 375,808 $ 150,370 $ 133,825 $ 33,931
========== ========== ========== ========== =========
</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, 2001, $872.7 million or 34.2% 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 nor 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 generally subject to a limit of 2% per adjustment and an aggregate 6%
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, 2001, approximately $568.9 million or 65.2% of the
Bank's permanent single-family residential loans held for investment consisted
of loans with adjustable interest rates. Also, as interest rates decline,
borrowers may refinance their mortgages into fixed-rate loans thereby prepaying
the balance of the loan prior to maturity.
The Bank continues to originate long-term, fixed-rate conventional
mortgage loans. 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"), and other
institutional investors, while keeping some of the 10-year term loans in its
portfolio. In order to provide a full range of products to its customers, the
Bank also participates in the loan origination programs of Wisconsin Housing and
Economic Development Authority ("WHEDA"), Wisconsin Department of Veterans
Affairs ("WDVA") and the FHLB. The Bank retains the right to service
substantially all loans that it sells.
At March 31, 2001, approximately $303.8 million or 34.8% 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
5
<PAGE> 7
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, 2001, the Bank had $305.0 million
of loans secured by multi-family residential real estate and $501.6 million of
loans secured by commercial real estate. These represented 11.9% and 19.6% of
the Bank's total loans held for investment, respectively. 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 hotels, 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
generally of 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,
2001, construction loans amounted to $266.7 million or 10.4% of the Bank's total
loans held for investment. Land loans amounted to $43.8 million or 1.7% of the
Bank's total loans held for investment at March 31, 2001.
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, 2001, $474.2
million or 18.6% 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 $271.7 million or 10.6% of
total loans at March 31, 2001. 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 $130.2 million or 5.1% of the Bank's total loans at March
31, 2001 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 Lakes Higher Education Corporation, which generally
obtains reinsurance of its obligations from the U.S.
6
<PAGE> 8
Department of Education. Education loans may be sold to the Student Loan
Marketing Association ("SLMA") or to other investors. The Bank sold $9.0 million
of these education loans during fiscal 2001.
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, 2001, the Bank's
approved credit card lines and the outstanding credit pursuant to such lines
amounted to $40.7 million and $5.4 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, 2001, commercial business loans amounted to $90.2 million
or 3.5% 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.
NET 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 three loan
origination facilities. Loans may be approved by members of the Officers' 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. For loan requests of $1.5 million or less, loan approval
authority is designated to an Officers' Loan Committee and requires at least
three of the members' signatures. Senior Loan Committee members are authorized
to approve loan requests between $1.5 million and $3.0 million and approval
requires at least three of the members' signatures. Loan requests in excess of
$3.0 million must be approved by the Board of Directors.
The Bank's general policy is to lend up to 80% of the appraised value
or purchase price 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, 2001, the Bank had approximately $24.4 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 during the
underwriting process. 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 loans of $1.0 million or more, and
semi-annually for loans of $750,000 to $1.0 million) 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,
flood 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. 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.
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 services all originated loans that have been sold to
other investors. This includes the collection of payments, the inspection of the
secured property, and the disbursement of certain insurance and tax advances on
behalf of borrowers. The Bank recognizes a servicing fee when the related loan
payments are received. At March 31, 2001, the Bank was servicing $1.9 billion of
loans for others.
8
<PAGE> 10
The Bank is not an active purchaser of 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, 2001, approximately $22.7 million of mortgage loans were being serviced for
the Bank by others.
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,
--------------------------------------------------------------
2001 2000 1999
--------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Gross loans receivable at beginning of year(1) $ 2,429,899 $ 2,245,897 $ 2,096,043
Loans originated for investment:
Single-family residential (339,027) 75,110 121,326
Multi-family residential 42,424 50,326 131,007
Commercial real estate 273,142 194,393 231,957
Construction and land 332,145 308,192 283,076
Consumer 203,929 216,419 207,385
Commercial business 71,982 38,617 46,216
----------- ----------- -----------
Total originations 584,595 883,057 1,020,968
----------- ----------- -----------
Loans purchased for investment:
Single-family residential - - -
Multi-family residential 330 950 -
Commercial real estate 766 242 -
----------- ----------- -----------
Total purchases 1,096 1,192 -
Total originations and purchases 585,691 884,249 1,020,968
Repayments (331,007) (605,348) (703,695)
Transfers of loans to held for sale (128,456) (81,530) (114,789)
----------- ----------- -----------
Net activity in loans held for investment 126,228 197,371 202,484
----------- ----------- -----------
Loans originated for sale:
Single-family residential 579,699 228,830 475,218
Transfers of loans from held for investment 128,456 81,530 94,789
Sales of loans (563,842) (249,399) (530,210)
Loans converted into mortgage-backed
securities (128,456) (74,330) (92,427)
----------- ----------- -----------
Net activity in loans held for sale 15,857 (13,369) (52,630)
----------- ----------- -----------
Gross loans receivable at end of period $ 2,571,984 $ 2,429,899 $ 2,245,897
=========== =========== ===========
</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.
9
<PAGE> 11
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, the value of the
collateral, 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 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 2001 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 $380,000. The amount of
interest income attributable to these loans and included in interest income
during fiscal 2001 was $150,000.
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,
-----------------------------------------------------------------------------------------
2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
% 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 $ 7,141 0.28% $ 3,224 0.13% $ 5,535 0.25%
60 to 89 days 716 0.03 903 0.04 693 0.03
90 days and over 5,047 0.20 3,614 0.15 4,006 0.18
-------- -------- -------- -------- -------- --------
Total $ 12,904 0.51% $ 7,741 0.32% $ 10,234 0.46%
======== ======== ======== ======== ======== ========
</TABLE>
There was one non-accrual loan with a carrying value of $1.0 million or
greater at March 31, 2001. 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.
NON-PERFORMING REAL ESTATE HELD FOR DEVELOPMENT AND SALE. At March 31,
2001, there were no properties in non-performing real estate held for
development and sale with a carrying value greater than $1.0 million.
Non-performing real estate held for development and sale decreased $1.3 million
during the fiscal year. 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.
10
<PAGE> 12
FORECLOSED PROPERTIES. At March 31, 2001, the Bank had no foreclosed
properties with a net carrying value of $1.0 million or more. Foreclosed
properties and repossessed assets increased $40,000 during the fiscal year.
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 losses. If an asset or portion thereof is
classified loss, the insured institution must either establish specific
allowances for 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, 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, 2001, the Bank's classified assets consisted of $6.8
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, 2000, substandard assets amounted to $10.7 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 levels of
components of the loan portfolio and the amount, type of its classified assets,
and other factors. 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, 2001 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.
11
<PAGE> 13
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, 2001 and 2000,
stockholders' equity increased $3.6 million (net of deferred income tax of $1.5
million), and decreased $2.7 million (net of deferred income tax of $1,074,000),
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, 2001.
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.
12
<PAGE> 14
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,
--------------------------------------------------------------------------------------
2001 2000 1999
--------------------------------------------------------------------------------------
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 $ 9,081 $ 9,219 $ 13,748 $ 13,530 $ 17,645 $ 17,798
Mutual fund 5,996 6,005 14,247 14,190 11,142 11,144
Corporate stock and other 7,837 6,992 8,581 7,216 11,134 11,314
----------- ----------- ----------- ----------- ----------- -----------
$ 22,914 $ 22,216 $ 36,576 $ 34,936 $ 39,921 $ 40,256
Held To Maturity:
U.S. Government and federal
agency obligations $ 33,913 $ 34,096 $ 51,270 $ 49,971 $ 46,491 $ 46,334
Other securities - - - - 975 975
----------- ----------- ----------- ----------- ----------- -----------
33,913 34,096 51,270 49,971 47,466 47,309
----------- ----------- ----------- ----------- ----------- -----------
Total investment securities $ 56,827 $ 56,312 $ 87,846 $ 84,907 $ 87,387 $ 87,565
=========== =========== =========== =========== =========== ===========
</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, 2001, the amortized cost of the Corporation's
mortgage-backed securities held to maturity amounted to $194.1 million and
included $173.8 million, $18.5 million and $1.8 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 $153.1 million at March 31, 2001, of which $4.9
million are five- and seven-year balloon securities, $108.6 million are 15- and
30-year securities and $39.6 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, 2001, $3.5 million of the Corporation's
mortgage-backed securities available for sale and $28.2 million mortgage-backed
securities held to maturity were pledged to secure various obligations of the
Corporation.
13
<PAGE> 15
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 Corporation'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, 2001, the Corporation's had $11.0
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 $20.9 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,
2001, 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% $ 20,892 6.64% $ 20,892
Mortgage-backed securities 5,705 6.32 23,244 6.63 124,127 6.74 153,076
-------- ---- -------- ---- --------- ---- ---------
5,705 6.32 23,244 6.63 145,019 6.73 173,968
-------- ---- -------- ---- --------- ---- ---------
Held to Maturity:
Mortgage-derivative securities 1,856 6.73 5,883 6.51 3,303 6.16 11,042
Mortgage-backed securities 22,147 5.95 7,650 6.53 164,352 6.43 194,149
-------- ---- -------- ---- --------- ---- ---------
24,003 6.01 13,533 6.52 167,655 6.42 205,191
-------- ---- -------- ---- --------- ---- ---------
Mortgage-related securities $ 29,708 6.07% $ 36,777 6.59% $ 312,674 6.56% $ 379,159
======== ==== ======== ==== ========= ==== =========
</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.
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.
14
<PAGE> 16
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, 2001, the Bank had $128.8 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 Bank's
certificates of deposit at March 31, 2001.
<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% $ 49,830 $ 20,610 $ 3,574 $ 1,453 $ 807 $ 76,274
5.00% to 6.99% 497,713 392,159 319,113 20,804 6,992 1,236,781
7.00% to 8.99% 27,389 10,891 5,103 100 - 43,483
---------- ---------- ---------- ---------- ---------- ----------
$ 574,932 $ 423,660 $ 327,790 $ 22,357 $ 7,799 $1,356,538
========== ========== ========== ========== ========== ==========
</TABLE>
At March 31, 2001, the Bank had $160.6 million of certificates greater
than or equal to $100,000, of which $28.4 million are scheduled to mature within
three months, $21.5 million in over three months through six months, $50.4
million in over six months through 12 months and $60.3 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. A portion of the Bank's mortgage-related
securities has also been pledged as collateral.
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, 2001 and may continue to do so in the future.
The Corporation has a short-term line of credit used in part to fund
IDI's partnership interests and investments in real estate held for development
and sale. This line of credit also funds other Corporation needs. The interest
is based on LIBOR (London InterBank Offering Rate), and is payable monthly and
each draw has a
15
<PAGE> 17
specified maturity. The final maturity of the line of credit is in October 2001.
See Note 8 to the Corporation's Consolidated Financial Statements in Item 8
included herewith for more information on borrowings.
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,
-------------------------------------------------------------------------------------------
2001 2000 1999
-------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
-------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
FHLB advances $ 669,896 6.05% $ 649,046 5.73% $ 517,695 5.30%
Repurchase agreements 27,948 5.32 92,413 6.03 42,464 4.91
Other loans payable 42,754 7.33 15,400 7.24 12,800 6.21
</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,
----------------------------------------------------------------------------------
2001 2000 1999
----------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Maximum month-end balance:
FHLB advances $ 712,646 $ 686,945 $ 547,845
Repurchase agreements 116,551 92,413 52,139
Other loans payable 43,015 15,400 21,550
Average balance:
FHLB advances 682,139 609,258 526,187
Repurchase agreements 86,420 59,756 30,930
Other loans payable 35,224 9,669 13,297
</TABLE>
SUBSIDIARIES
INVESTMENT DIRECTIONS, INC. IDI is a wholly owned non-banking
subsidiary of the Corporation that has invested in various limited partnerships
and subsidiaries funded by borrowings from the Corporation. The Corporation's
investment in IDI at March 31, 2001, amounted to $3.2 million. For the year
ended March 31, 2001, IDI had total assets of $37.5 million and a reported net
loss of $2.7 million. This compares to total assets of $32.8 million and a net
loss of $345,000 for the prior year ended March 31, 2000.
During the year ended March 31, 2001, IDI and its newly formed wholly
owned subsidiary CIDI purchased all of the equity owned by the unrelated
partners of S&D Indian Palms, Ltd. and Davsha, LLC. Indian Palms and Davsha
became majority owned subsidiaries of IDI with CIDI. In addition, Davsha II, LLC
and Davsha III, LLC were formed as wholly owned subsidiaries of Davsha.
The assets of IDI include one non-subsidiary partnership interest with
a carrying value greater than $1.0 million. The partnership investment is a
project in Tampa Bay, Florida with a carrying value of $6.5 million at March 31,
2001. This compares to a carrying value of $6.1 million for the prior year ended
March 31, 2000. The $400,000 increase in partnership investment from the prior
fiscal year was largely due to further development of the project. This project
includes a golf course and fully developed single family recreational
residential lots. The net
16
<PAGE> 18
loss of the Tampa Bay partnership for the year ended March 31, 2001, was
$580,000 as compared to a net loss of $145,000 for the year ended March 31,
2000. This decrease in income was largely due to decreased lot sales, decreased
golf revenue, and a gain on the condemnation of land reported in 2000.
The balance of assets at IDI includes loans to finance the acquisition
and development of property for various partnerships and subsidiaries. At March
31, 2001, IDI had extended $23.8 million to Indian Palms, $1.8 million to
Davsha, and $1.2 million to Davsha II as compared to $20.0 million to Indian
Palms alone at March 31, 2000. These amounts have been eliminated in
consolidation.
At March 31, 2001, the Corporation had extended $34.9 million to IDI to
fund various partnership and subsidiary investments. This represents an increase
of $7.9 million from borrowings of $27.0 million at March 31, 2000. These
amounts have been eliminated in consolidation.
At March 31, 2001, IDI had a general valuation allowance of $675,000.
This compares to an allowance of $600,000 for the prior year ended March 31,
2000. As of March 31, 2001, and March 31, 2000, there have been no charge-offs
for any of the partnerships or subsidiaries 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, 2001, amounted to $4.5 million. For the year ended March 31,
2001, NIDI had total assets of $4.7 million and net income of $68,000. This
compares to total assets of $4.9 million and net income of $475,000 for the
prior year ended March 31, 2000.
The balance of assets at NIDI includes a $4.4 million loan to Oakmont,
a subsidiary of IDI and NIDI. This amount has been eliminated in consolidation.
At March 31, 2001, the Corporation had extended $190,000 to NIDI to
fund various partnership investments. NIDI had borrowings from the Corporation
of $450,000 as of March 31, 2000. These amounts have been eliminated in
consolidation.
CALIFORNIA INVESTMENT DIRECTIONS, INC. CIDI is a wholly owned
non-banking subsidiary of IDI formed in April 2000, to purchase and hold the
general partnership interest in S&D Indian Palms and a minority interest in
Davsha, LLC. CIDI was organized in the state of California. IDI's investment in
CIDI at March 31, 2001, amounted to ($114,000). For the year ended March 31,
2001, CIDI had total assets of ($12,000) and a net loss of $115,000.
INDIAN PALMS GP, LLC. In April 2000, CIDI purchased all of the equity
owned by the unrelated members of Indian Palms GP, and Indian Palms GP became a
consolidating subsidiary of CIDI. Indian Palms GP is the general partner of S&D
Indian Palms and was organized in the state of Texas. CIDI's investment in
Indian Palms GP at March 31, 2001, amounted to $23,000. For the year ended March
31, 2001, Indian Palms GP had total assets of $23,000 and a net loss of $27,000.
S&D INDIAN PALMS, LTD. In April 2000, IDI purchased all of the equity
owned by the unrelated partners of Indian Palms, and Indian Palms became a
consolidating subsidiary of IDI. Indian Palms GP, a consolidating subsidiary of
CIDI, owns a 1% general partner interest in Indian Palms. Indian Palms was
organized in the state of California in which it owns a golf resort and land for
residential lot development. IDI's investment in Indian Palms at March 31, 2001,
amounted to ($724,000). For the year ended March 31, 2001, Indian Palms had
total assets of $31.9 million and a net loss of $2.7 million. This compares to
total assets of $28.9 million and a net loss of $1.4 million for the year ended
March 31, 2000.
DAVSHA, LLC. In April 2000, CIDI purchased all of the equity owned by
the unrelated members of Davsha, and Davsha became a consolidating subsidiary of
IDI and CIDI. Davsha was organized in the state of California where it purchased
land from Indian Palms and develops residential housing for sale. For the year
ended
17
<PAGE> 19
March 31, 2001, Davsha had total assets of $11.3 million and a net loss of
$758,000. This compares to total assets of $7.7 million and net income of
$216,000 for the year ended March 31, 2000.
DAVSHA II, LLC. Davsha II is a wholly owned non-banking subsidiary of
Davsha formed in April 2000. Davsha II was organized in the state of California.
Davsha II is a limited partner in Paragon Indian Palms Associates, a partnership
formed in February 2000, to develop residential housing on land purchased from
Indian Palms. Davsha's investment in Davsha II at March 31, 2001, amounted to
$49,000. For the year ended March 31, 2001, Davsha II had total assets of $1.5
million and a net loss of $132,000.
DAVSHA III, LLC. Davsha III is a wholly owned non-banking subsidiary of
Davsha formed in February 2001. Davsha III was organized in the state of
California to develop residential housing on land it will purchase from Indian
Palms. Davsha's investment in Davsha III at March 31, 2001, amounted to $600.
For the year ended March 31, 2001, Davsha III had total assets of $37,000 and a
net loss of $400.
OAKMONT. Oakmont became a wholly owned non-banking subsidiary of NIDI
and IDI in January 2000. Oakmont was organized in the state of Texas. Oakmont is
a limited partner in Chandler Creek LP, a partnership formed in January 2000, to
develop an industrial park located in Round Rock, Texas. At March 31, 2001,
Chandler Creek had a carrying value at Oakmont of $3.2 million, and Oakmont had
extended $1.7 million to the unrelated partner in Chandler Creek. For the year
ended March 31, 2001, Oakmont had total assets of $4.9 million and a net loss of
$153,000. This compares to total assets of $4.6 million and a net loss of
$278,000 at March 31, 2000.
Together, IDI, NIDI, CIDI, Indian Palms, Indian Palms GP, Davsha,
Davsha II, Davsha III, 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 $350,000, the segment represents $48.4 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, 2001, AIS had a net profit of $125,000. The Bank's investment in AIS
amounted to $193,000 at March 31, 2001.
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, 2001 amounted to $1.3 million. ADPC had a net
loss of $191,000 for the year ended March 31, 2001.
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 $610.2 million at
March 31, 2001. AIC had net income of $23.3 million for the year ended March 31,
2001. The Bank had outstanding notes to AIC of $89.0 million at March 31, 2001,
with a weighted average rate of 9.03% and maturities during the next six months.
EMPLOYEES
The Corporation had 667 full-time employees and 165 part-time employees
at March 31, 2001. 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> 20
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.
As a unitary savings and loan holding company in existence on or before
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 federally-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 is subject to broad 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.
REGULATION OF SAVINGS ASSOCIATIONS. The OTS has extensive authority
over the operations of all insured savings associations. As part of this
authority, the Bank is required to file periodic reports with the OTS and is
subject to periodic examinations by the OTS and the FDIC. The examiners may
require the Bank to provide for higher general or specific loan loss allowances.
The last regular examination of the Bank by the OTS was as of June 30, 2000. 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, 2001 was $240,000.
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.
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<PAGE> 21
QUALIFIED THRIFT LENDER REQUIREMENT. In order for the Bank to exercise
the powers granted to SAIF-insured institutions, it must qualify as a qualified
thrift lender ("QTL"). Under the Home Owners' 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,
2001, the Bank was in compliance with the QTL test.
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.
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.
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 FICO assessment rate for the
first quarter of 2001 was 1.96 basis points.
REGULATORY CAPITAL REQUIREMENTS. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted
assets.
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill, less nonqualifying intangible assets, certain
mortgage servicing rights and certain investments.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, and the portion of the allowance
20
<PAGE> 22
for loan losses not designated for specific loan losses. The portion of the
allowance for loan and lease losses includable in supplementary capital is
limited to a maximum of 1.25% of risk-weighted assets. Overall, supplementary
capital is limited to 100% of core capital. A savings association must calculate
its risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets.
The risk-based capital standards of the OTS generally require savings
institutions with more than a "normal" level of interest rate risk to maintain
additional total capital. An institution's interest rate risk will be measured
in terms of the sensitivity of its "net portfolio value" to changes in interest
rates. Net portfolio value is defined, generally, as the present value of
expected cash inflows from existing assets and off-balance sheet contracts less
the present value of expected cash outflows from existing liabilities. A savings
institution will be considered to have a "normal" level of interest rate risk
exposure if the decline in its net portfolio value after an immediate 200 basis
point increase or decrease in market interest rates (whichever results in the
greater decline) is less than two percent of the current estimated economic
value of its assets. An institution with a greater than normal interest rate
risk will be required to deduct from total capital, for purposes of calculating
its risk-based capital requirement, an amount (the "interest rate risk
component") equal to one-half the difference between the institution's measured
interest rate risk and the normal level of interest rate risk, multiplied by the
economic value of its total assets. For additional discussion of regulatory
capital requirements, refer to Note 9 to the Consolidated Financial Statements
in Item 8 included herewith.
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, such as the Bank, 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 payment of a
dividend or a capital distribution.
LIQUIDITY. In December 2000, legislation was enacted that removed the
provision that authorized the Director of the OTS to establish a liquidity
requirement of any amount within the range of 4% to 10% of a savings
association's average daily balance of net withdrawable deposits plus short-term
borrowings depending upon economic conditions and the deposit flows of member
institutions. In revising the OTS Regulations to conform with the recent
legislation, the OTS removed the specific liquidity requirement but adopted a
rule that requires each savings association and service corporation to maintain
sufficient liquidity to ensure its safe and sound operation. At March 31, 2001,
the Bank believes that it was in compliance with these liquidity requirements.
The Bank's liquidity ratio was 15.14% at March 31, 2001.
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, 2001, the Bank
was in compliance with these requirements. The OTS has permitted these reserves
to be used to satisfy liquidity requirements. 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.
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<PAGE> 23
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.
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, Section 23A limits the extent to which the 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 Section 23B requires that all such covered
transactions and certain additional 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, 2001, the Bank owned $38.0 million in FHLB stock,
which is in compliance with this requirement. The Bank received dividends on its
FHLB stock for fiscal 2001 of $2.7 million as compared to $2.1 million for
fiscal 2000.
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.
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<PAGE> 24
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, 2001, 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 AIC 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, 2001, The Bank conducted its business from its
headquarters and main office at 25 West Main Street, Madison, Wisconsin and 48
other full-service offices and three lending only offices. The Bank owns 33 of
its full-service offices, leases the land on which 3 such offices are located,
and leases the remaining 13 full-service offices. In addition, the Bank leases
its three loan-origination facilities. The leases expire between 2001 and 2014.
The aggregate net book value at March 31, 2001 of the properties owned or
leased, including headquarters, properties and leasehold improvements, was $18.6
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> 25
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, 2001, 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,
National Market. The trading symbol is ABCW. As of March 31, 2001, 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 2001 and 2000.
<TABLE>
<CAPTION>
CASH
QUARTER ENDED HIGH LOW DIVIDEND
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
March 31, 2001 $ 16.750 $ 12.875 $ 0.075
December 31, 2000 16.188 14.000 0.075
September 30, 2000 17.000 14.688 0.075
June 30, 2000 16.750 13.688 0.070
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
</TABLE>
For information regarding restrictions on the payments of dividends by
the Bank, see "Item 1. Business -- Regulation -- Limitations on Dividends and
Other Capital Distributions" in this report.
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<PAGE> 26
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
AT OR FOR YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------------------------------------------------------------------------------------------
(Dollars In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Earnings per share:
Basic $ 1.19 $ 0.80 $ 1.26 $ 1.06 $ 0.71
Diluted 1.16 0.78 1.19 1.01 0.68
Interest income 228,647 202,594 194,807 187,392 160,952
Interest expense 148,096 119,393 114,535 110,893 95,543
Net interest income 80,551 83,201 80,272 76,499 65,409
Provision for loan losses 945 1,306 1,017 1,250 850
Non-interest income 13,503 14,390 22,019 15,882 14,968
Non-interest expenses 51,450 61,187 52,426 49,279 53,942
Income taxes 14,682 15,596 18,607 15,507 9,197
Net income 26,977 19,502 30,241 26,345 16,388
Total assets 3,127,474 2,911,152 2,663,718 2,517,080 2,156,168
Investment securities 56,129 86,206 87,722 80,460 52,511
Mortgage-related securities 379,159 300,519 258,489 254,389 263,295
Loans receivable held for
investment, net 2,414,976 2,302,721 2,111,566 1,962,023 1,682,919
Deposits 2,119,320 1,897,369 1,835,416 1,710,980 1,465,608
Notes payable to FHLB 669,896 649,046 517,695 508,145 439,065
Other borrowings 70,702 107,813 55,264 55,765 57,374
Stockholders' equity $ 219,612 $ 217,215 $ 220,287 $ 202,868 $ 165,319
Shares outstanding 22,814,923 24,088,147 23,832,165 23,791,787 21,623,990
Book value per share
at end of period $ 9.63 $ 9.02 $ 9.24 $ 8.53 $ 7.65
Dividend paid per share 0.30 0.25 0.20 0.16 0.12
Dividend payout ratio 24.79% 31.25% 15.48% 15.09% 16.73%
Yield on earning assets 7.89 7.56 7.68 7.94 7.90
Cost of funds 5.31 4.79 4.84 5.01 4.98
Interest rate spread 2.58 2.77 2.84 2.93 2.92
Net interest margin 2.78 3.10 3.15 3.23 3.20
Return on average assets 0.88 0.71 1.16 1.08 0.78
Return on average equity 12.48 8.92 14.44 13.24 9.90
Average equity to average assets 7.09 7.97 8.04 8.15 7.84
</TABLE>
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<PAGE> 27
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, 2001 and 2000
GENERAL. Net income increased $7.5 million to $27.0 million in fiscal
2001 from $19.5 million in fiscal 2000. The primary component of this increase
in earnings for fiscal 2001, as compared to fiscal 2000, was a decrease of $9.7
million in non-interest expense. This was partially offset by a decrease of $2.3
million in net interest income after the provision for loan losses. The returns
on average assets and average stockholders' equity for fiscal 2001 were .88% and
12.48%, respectively, as compared to .71% and 8.92%, respectively, for fiscal
2000.
NET INTEREST INCOME. Net interest income decreased by $2.7 million
during fiscal 2001 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 $2.90 billion and $2.79 billion in
fiscal 2001, respectively, from $2.68 billion and $2.49 billion, respectively,
in fiscal 2000. The ratio of average interest-earning assets to average
interest-bearing liabilities decreased to 1.04% in fiscal 2001 from 1.07% in
fiscal 2000. The average yield on interest-earning assets (7.89% in fiscal 2001
versus 7.56% in fiscal 2000) increased, as did the average cost on
interest-bearing liabilities (5.31% in fiscal 2001 versus 4.79% in fiscal 2000).
The net interest margin decreased to 2.78% for fiscal 2001 from 3.10% for fiscal
2000 and the interest rate spread decreased to 2.58% from 2.77% for fiscal 2001
and 2000, respectively. The decrease in the net interest margin is reflective of
an increase in the cost of funds, offset by increased yields on loans as rates
rise. 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 liabilities decreased net interest income in fiscal 2001 by
approximately $1.2 million. In addition, there was a $1.4 million decrease in
net interest income caused by the combination of rate and rate/volume changes.
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<PAGE> 28
PROVISION FOR LOAN LOSSES. Provision for loan losses decreased from
$1.3 million in fiscal 2000 to $950,000 in fiscal 2001 based on management's
ongoing evaluation of asset quality. There was a slight increase in net
charge-offs of $340,000 in overall loans in fiscal 2001, primarily due to
increased mortgage loan charge-offs, and the quality of the loan portfolio
continues to be good. The Corporation's allowance for loan losses decreased
slightly from $24.4 million at March 31, 2000 to $24.1 million at March 31,
2001. This amount represented .94% of total loans at March 31, 2001, as compared
to 1.00% of total loans at March 31, 2000. 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 $890,000 to $13.5
million for fiscal 2001 compared to $14.4 million for fiscal 2000 primarily due
to the decrease of $3.5 million in net income from operations of real estate
investments. This decrease was largely due to decreased resort and golf net
income at the partnerships and losses on the sale of four condominium units in a
development in Bloomington, Minnesota. Other non-interest income, which includes
a variety of loan fee and other miscellaneous fee income, also decreased
$120,000 for fiscal 2001. Partially offsetting these decreases were increases in
other categories. The net gain on sale of loans increased by $1.0 million
largely due to increased volume of loan sales during the year. Service charges
on deposits increased $840,000 essentially due to a growth in deposits and loan
servicing income increased $440,000 due to increased volume of loans serviced
for others. Income from insurance commissions increased $400,000 due to
increased sales and net gain on sale of investments and securities increased
$40,000 for fiscal 2001.
NON-INTEREST EXPENSE. Non-interest expense decreased $9.7 million to
$51.5 million for fiscal 2001 compared to $61.2 million for fiscal 2000 as a
result of several factors. The majority of the decrease 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 $1.8 million ($1.1 million
net of tax) in fiscal 2000. Unamortized goodwill from a previous merger became
impaired and was written off in fiscal 2000. Exclusive of the one-time charges
for the merger and goodwill, non-interest expense increased $320,000 in fiscal
2001. This increase was primarily due to an increase in compensation expense of
$1.6 million, largely due to an increase in incentive compensation resulting
from increased loan production. In addition, occupancy expense increased
$220,000 during this fiscal year. There was an increase in furniture and
equipment expense of $130,000 in fiscal 2001, primarily due to normal
replacement costs, and data processing expense increased $40,000. These
increases were partially offset by decreases in other categories. Other
non-interest expense decreased $760,000 due to decreases in postage, retail and
other expenses and federal insurance premiums decreased $520,000 due to a
reduction in the assessment in fiscal 2001. Also, marketing expense decreased
$410,000 due to decreased promotions.
INCOME TAXES. Income tax expense decreased $910,000 for fiscal 2001 as
compared to fiscal 2000. The effective tax rate for fiscal 2001 was 35.24% as
compared to 44.44% for fiscal 2000. 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, 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 $7.6
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 $2.68 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 (7.56%
in fiscal 2000 versus 7.68% in fiscal 1999) decreased, as did the average cost
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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 2.77% 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 $8.0 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 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 1.00% 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 $7.6 million to
$14.4 million for fiscal 2000 compared to $22.0 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
$1.3 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 $90,000.
Partially offsetting these decreases were increases in other categories. Income
from insurance commissions increased $290,000 for fiscal 2000. Loan servicing
income increased $210,000 due to increased volume of loans serviced for others.
NON-INTEREST EXPENSE. Non-interest expense 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 expense decreased $390,000 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.
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NET INTEREST INFORMATION
AVERAGE INTEREST-EARNING ASSETS, AVERAGE INTEREST-BEARING LIABILITIES
AND INTEREST RATE SPREAD AND MARGIN. The following table 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.
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<TABLE>
<CAPTION>