UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended March 31, 2010
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number 0-20006
ANCHOR BANCORP WISCONSIN
INC.
(Exact name of registrant as
specified in its charter)
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Wisconsin
(State or other
jurisdiction
of incorporation or organization)
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39-1726871
(IRS Employer
Identification No.)
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25 West Main Street
Madison, Wisconsin 53703
(Address of principal executive
office)
Registrants
telephone number, including area code
(608) 252-8700
Securities
registered pursuant to Section 12 (b) of the
Act:
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Common
stock, par value $.10 per share |
NASDAQ Global Market |
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(Title
of Class) |
(Name
of each exchange on which registered) |
Securities registered pursuant to Section 12 (g) of
the Act:
Not Applicable
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes þ No o
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 registrants 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. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
(Do not check if a smaller reporting company)
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Smaller reporting company o
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Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
As of September 30, 2009, the aggregate market value of the
21,589,792 outstanding shares of the Registrants common
stock deemed to be held by non-affiliates of the registrant was
$24.7 million, based upon the closing price of $1.30 per
share of common stock as reported by the Nasdaq Global Market on
such date. 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 4, 2010, 21,689,604 shares of the
Registrants common stock were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on August 9, 2010
(Part III, Items 10 to 14).
ANCHOR
BANCORP WISCONSIN INC.
FISCAL
2010
FORM 10-K
ANNUAL REPORT
TABLE OF
CONTENTS
(i)
FORWARD-LOOKING
STATEMENTS
In the normal course of business, we, in an effort to help keep
our shareholders and the public informed about our operations,
may from time to time issue or make certain statements, either
in writing or orally, that are or contain forward-looking
statements, as that term is defined in the U.S. federal
securities laws. Generally, these statements relate to business
plans or strategies, projected or anticipated benefits from
acquisitions or dispositions made by or to be made by us,
projections involving anticipated revenues, earnings, liquidity,
profitability or other aspects of operating results or other
future developments in our affairs or the industry in which we
conduct business. Forward-looking statements may be identified
by reference to a future period or periods or by the use of
forward-looking terminology such as anticipate,
believe, project, continue,
ongoing, expect, intend,
plan, estimate or similar expressions.
Although we believe that the anticipated results or other
expectations reflected in our forward-looking statements are
based on reasonable assumptions, we can give no assurance that
those results or expectations will be attained. Forward-looking
statements involve risks, uncertainties and assumptions (some of
which are beyond our control), and as a result actual results
may differ materially from those expressed in forward-looking
statements due to several factors more fully described in
Item 1A, Risk Factors, as well as elsewhere in
this Annual Report on
Form 10-K.
Factors that could cause actual results to differ from
forward-looking statements include, but are not limited to, the
following, as well as those discussed elsewhere herein:
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general economic or industry conditions could be less favorable
than expected, resulting in a deterioration in credit quality, a
change in the allowance for loan and lease losses or a reduced
demand for credit or fee-based products and services;
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soundness of other financial institutions with which the Company
and the Bank engage in transactions;
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competitive pressures could intensify and affect our
profitability, including as a result of continued industry
consolidation, the increased availability of financial services
from non-banks, technological developments or bank regulatory
reform;
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changes in technology;
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deterioration in commercial real estate, land and construction
loan portfolios resulting in increased loan losses;
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uncertainties regarding our ability to continue as a going
concern;
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our ability to address our own liquidity problems;
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demand for financial services, loss of customer confidence, and
customer deposit account withdrawals;
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our ability to pay dividends;
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changes in the quality or composition of the Banks loan
and investment portfolios and allowances for loan loss;
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unprecedented volatility in the market and fluctuations in the
value of our common stock;
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dilution of existing shareholders as a result of possible future
transaction;
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uncertainties about the Company and the Banks Cease and
Desist Orders with OTS;
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uncertainties about our ability to raise sufficient new capital
in a timely manner in order to increase the Banks
regulatory capital ratios;
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changes in the conditions of the securities markets, which could
adversely affect, among other things, the value or credit
quality of our assets, the availability and terms of funding
necessary to meet our liquidity needs and our ability to
originate loans;
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increases in Federal Deposit Insurance Corporation premiums due
to market developments and regulatory changes; changes in
accounting principles, policies or guidelines;
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(ii)
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uncertainties regarding our investment in the common stock of
the Federal Home Loan Bank of Chicago;
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delisting of the Companys common stock from Nasdaq;
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significant unforeseen legal expenses;
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uncertainties about market interest rates;
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security breaches of our information systems;
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acts or threats of terrorism and actions taken by the United
States or other governments as a result of such acts or threats,
severe weather, natural disasters, acts of war;
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environmental liability for properties to which we take title;
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expiration of Amendment No. 6 to our Amended and Restated
Credit Agreement on May 31, 2011;
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uncertainties about our ability to obtain regulatory approval
and finalize transactions to sell several branch locations;
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uncertainties relating to the Emergency Economic Stabilization
Act or 2008, the American Recovery and Reinvestment Act of 2009,
the implementation by the U.S. Department of the Treasury
and federal banking regulators of a number of programs to
address capital and liquidity issues in the banking system and
additional programs that will apply to us in the future, all of
which may have significant effects on us and the financial
services industry;
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changes in the U.S. Treasurys Capital Purchase
Program;
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changes in the extensive laws, regulations and policies
governing financial holding companies and their subsidiaries;
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monetary and fiscal policies of the U.S. Department of the
Treasury; and
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challenges relating to recruiting and retaining key employees.
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You should not put undue reliance on any forward-looking
statements. Forward-looking statements speak only as of the date
they are made and we undertake no obligation to update them in
light of new information or future events, except to the extent
required by federal securities laws.
(iii)
PART I
General
We, Anchor BanCorp Wisconsin Inc. (the Corporation
or the Company) are a registered savings and loan
holding company incorporated under the laws of the State of
Wisconsin. We are engaged in the savings and loan business
through our wholly owned banking subsidiary, AnchorBank, fsb
(the Bank).
The Bank was organized in 1919 as a Wisconsin chartered savings
institution and converted to a federally chartered savings
institution in July 2000. AnchorBank, fsb is the third largest
depository institution headquartered in the state of Wisconsin
and its largest thrift in terms of assets. The Banks
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
(FHLB) of Chicago, and is regulated by the Office of
Thrift Supervision (OTS) and the FDIC. The
Corporation is regulated by the OTS as a savings and loan
holding company and 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). See Regulation and
Supervision.
Primarily through our branch network, we offer checking,
savings, money market accounts, mortgages, home equity and other
consumer loans, credit cards, annuities, investment products and
related consumer financial services. The Bank also provides
banking services to businesses, including checking accounts,
lines of credit, secured loans and commercial real estate loans.
AnchorBanks branch network serves as the primary vehicle
through which we cross sell additional products to existing
customers and generate new customer relationships. During the
fiscal year ended March 31, 2010, more than 11,000 new
customer households were added, with nearly 70 percent
coming in via three key product gateways: checking
accounts (DDAs), Certificates of Deposit and Residential
Mortgages.
In addition to our branch network, we provide products and
services online via our
WebBranchtm
online banking system and our Speed
e-Apptm
online mortgage application tool. During the 2010 fiscal year we
saw a substantial increase in mortgage applications come in
through Speed
e-App, with
online applications accounting for nearly 50 percent of
mortgage applications.
The Corporation also has a non-banking subsidiary, Investment
Directions, Inc. (IDI), a Wisconsin corporation
which has historically invested in real estate partnerships. IDI
had two subsidiaries, Nevada Investment Directions, Inc.
(NIDI) and California Investment Directions, Inc.
(CIDI), both of which invested in real estate held
for development and sale. During our fiscal year ended
March 31, 2010 IDIs investment activities were
substantially curtailed.
The Bank has two wholly-owned subsidiaries: ADPC Corporation
(ADPC), a Wisconsin corporation, holds and develops
certain of the Banks foreclosed properties. Anchor
Investment Corporation (AIC), an operating
subsidiary that is located in and formed under the laws of the
State of Nevada, manages a portion of the Banks investment
portfolio (primarily mortgage related securities).
The Corporation maintains a web site at
www.anchorbank.com. All of the Corporations filings
under the Exchange Act are available through that web site, free
of charge, including copies of Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to those reports, on the date that the
Corporation files those materials with, or furnishes them to,
the SEC.
Market
Area
The Banks primary market area consists of south-central,
east-central, southeastern and northwest Wisconsin, as well as
contiguous counties in Iowa, Minnesota and Illinois. At
March 31, 2010, the Bank conducted business from its
headquarters and main office in Madison, Wisconsin, and from 70
other full-service offices and two loan origination offices
which services our more than 165,000 households and businesses.
During the fiscal year an agreement was reached, to sell 11 of
the banks branches in the Northwest region of the state
and, in May, 2010 to sell, four offices in the Green Bay area.
Additionally, in May 2010 the Banks lending only office in
Hudson, WI was
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closed. One lending only office in Lake Geneva, WI remains, all
other offices operate as full service branches. Both
transactions were anticipated to be closed during fiscal 2010.
Following the sale of these branches, AnchorBanks market
area will be concentrated in the greater
Madison/Dane
County, Suburban Milwaukee and Fox Valley areas. Together these
areas account for nearly half of Wisconsins population and
provide a strong platform for long term growth locally and
regionally. Within its market footprint AnchorBank exhibits a
strong retail franchise with the second highest market share of
both deposits and mortgage origination in the Madison area and
with the sixth largest deposit and mortgage origination share in
the state overall.
Our home market of Madison provides a strong base in a highly
attractive market. Madison is home to both state and county
governments as well as the University of Wisconsin. Madison has
enjoyed rapid population growth of 12.8 percent since 2000,
a median household income 15 percent above the national
average and relatively low unemployment at 5.7 percent (as
of April 2010) versus the national average of
9.9 percent.
The Fox Valley, consisting primarily of the cities of Appleton
and Oshkosh and their associated satellite communities is one of
the states fastest growing areas and also benefits from
significantly higher than median income levels at approximately
$69,700, 27 percent higher than the national average. The
bank operates 12 branches in the Fox Valley area.
In the Milwaukee area, AnchorBank operates eight branches, all
located in suburban areas outside the City of Milwaukee. The
largest city in Wisconsin, the Milwaukee Metropolitan area is
home to more than 2 million people with a median income of
$60,500 and more than 61,000 businesses.
Competition
The Bank encounters strong competition in attracting both loan
and deposit customers. Such competition includes banks, savings
institutions, mortgage banking companies, credit unions, finance
companies, mutual funds, insurance companies and brokerage and
investment banking firms. The Banks market area includes
branches of several commercial banks that are substantially
larger in terms of loans and deposits. Furthermore, tax exempt
credit unions operate in most of the Banks market area and
aggressively price their products and services to a large
portion of the market. The Corporations profitability
depends upon the Banks continued ability to successfully
maintain market share and mitigate credit losses.
Customer demand for real estate loans has decreased and the
Banks income has been affected because alternative
investments, such as securities, typically earn less income than
real estate secured loans. Customer demand for loans secured by
real estate has been reduced by a weak economy, an increase in
unemployment and a decrease in real estate values.
The principal factors that are used to attract deposit accounts
and that distinguish one financial institution from another
include rates of return, quality of service to the depositors,
types of accounts, service fees, convenience of office locations
and hours, and other services. We offer a full array of deposit,
savings and investment products to meet the needs of our
consumer and business customers with features, high service
levels, convenience and rates/fees structured to provide a
competitive value proposition for our customers and prospective
customers. In return, our customers have rewarded us with high
levels of satisfaction and loyalty.
The primary factors in competing for loans are interest rates,
loan fee charges, and timeliness and quality of service to the
borrower. Similar to the market for deposit and investment
products, we focus on offering the best overall value to our
loan customers. During the 2010 fiscal year we originated
$1.20 billion in single family conforming
loans. While single family conforming loans are
subsequently sold to investors, a key competitive difference is
that AnchorBank retains servicing on our residential mortgages,
thereby ensuring a high level of continuing customer service.
AnchorBank currently has a servicing portfolio of approximately
$3.60 billion.
Overall 97 percent of our customers report they are
satisfied with AnchorBank, with 14 percent of them
indicating that their satisfaction has increased over the past
year according to a survey conducted in the past fiscal year.
The average tenure of their patronage to our bank is
12 years.
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Key
Business Strategies
To address the challenges of the current business environment in
which we operate we have undertaken four key strategic
initiatives to strengthen our operations, reduce risk and
enhance the value of our franchise. These are:
1. Strengthening our management team
2. Increasing efficiency and improving core operations
3. Realigning our balance sheet
4. Enhancing our risk management and lending processes and
aggressively addressing our classified loan portfolio
Strengthening
our management team
We began a transformational process within our leadership ranks
beginning with the appointment of Dave Omachinski as Lead
Director of the Board in February 2009. This process accelerated
significantly in June, 2009 when Mr. Omachinski was elected
as Chairman of the Board, and with the appointment that same
month of Chris Bauer as President and CEO of Anchor BanCorp
Wisconsin and CEO of AnchorBank, fsb. Mr. Omachinski had
served on the Board since 2002.
Previously, Mr.Omachinski served as President/Chief Operating
Officer of Oshkosh BGosh Company. Following the sale of
Oshkosh BGosh to Carters in 2005,
Mr. Omachinski has had an active management consulting
practice.
Mr. Bauer brings an extensive
33-year
background in the banking sector, having previously served as
Chairman and CEO of Firstar Bank Milwaukee, and head of
commercial banking for Firstar Corporation, a
$37-billion
financial services company based in Milwaukee, at the time of
his retirement in 1999. In 2000, Bauer founded First Business
Bank Milwaukee and served as its Chairman of the Board until
2003. Under Mr. Bauers leadership, First Business
Bank Milwaukee grew to more than $70 million in assets in
only three years. Bauer was also recently elected Chairman of
the Board of the American Automobile Association.
In August, 2009, Martha M. Hayes was added to our executive
management team as Chief Credit Risk Officer, a new role at
AnchorBank. The Chief Credit Risk Officer function was born out
of the Banks commitment to reinforce our commercial loan
process to provide for stricter controls and monitoring.
Previously, Ms. Hayes was with Merrill Lynch Business
Financial Services in Chicago, where she served as President and
Managing Director. While there, she was recognized for leading
the turnaround of a $250 million revenue line of business
for the company. Prior to that role, she served in a variety of
related capacities for Wachovia Corporation, including Senior
Vice President and Director of Commercial Loan Products and
Chief Operating Officer for Wachovias Risk Management
Division, Business Credit Solutions. Ms. Hayes
significant progress in this area was recognized by the
Corporations Board with her promotion to Executive Vice
President, Chief Risk Officer in June 2010.
Further enhancements in the Credit area were made in November,
2009 with the addition of Kurt Reindl as
1st Vice
President Credit Administration and Scott Ciano as
1st Vice
President Special Assets. Together
Messrs. Reindl and Ciano bring more than 50 years of
financial services, lending and workout experience to
AnchorBank. Additionally in November, 2009, Ms. Patricia
Carlin was added as
1st Vice
President Bank Operations in order to strengthen and
gain efficiencies in our operations areas. Ms. Carlin
brings 28 years of bank operations experience to AnchorBank.
Increasing
efficiency and improving core operations
During fiscal 2010 we put substantial effort into improving our
efficiency and operations. Historically, until our recent
challenges with credit-related expenses, we have demonstrated
sound operating efficiency levels. However, the dynamics of the
current market mean we must focus on even more aggressive cost
management and operational improvement efforts.
In March, 2009, Management undertook a comprehensive branch
review which ultimately led to the decision to close three
branches which had substantial geographic overlap with other
branches. Branches closed were one
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each in Madison, Neenah and Oshkosh. In May, 2009, we made the
strategic decision to exit the indirect auto lending business,
which analysis showed was only marginally profitable and deemed
non-core to our business strategy.
Focusing on developing operating efficiencies and re-engineering
business processes has allowed the Corporation to reduce its
compensation and benefits expenses from $14 million for the
quarter ending September 2009 to $12 million for the
quarters ending December 2009 and March 2010. Additional cost
savings were generated by an all encompassing strategic business
review completed in May, 2010. An approximately 13 percent
reduction in core operating expenses is anticipated from this
process, which reviewed staffing levels, vendor relationships
and business processes. If fully implemented as planned, these
efforts will lower core operating expenses (core operating
expenses exclude non-recurring expenses and expenses that are
temporarily elevated due to current economic conditions).
Realigning
Our Balance Sheet
A core strategy to address our capital needs has been to reduce
the size of our balance sheet, reduce our funding costs and
shift our loan concentration in favor of a more balanced
portfolio. Sales of portions of our loan portfolio, including
our indirect auto loan portfolio, substantial portions of our
student loan portfolio and sales of certain
one-to-four
family mortgage loans previously held for investment have
generated a $158.2 million reduction in our assets during
the fiscal year. Further balance sheet contraction of
$291 million is anticipated in early fiscal 2011 as part of
planned sales of branches in the Northwest region of the state
and the Green Bay area, as discussed above. Overall the size of
our loan portfolio has decreased by $952 million from a
height of $4.39 billion as of March 31, 2008 to
$3.44 billion as of March 31, 2010. At the same time,
access to the secondary market for residential mortgage loans
has allowed us to remain very active in the residential mortgage
and refinancing markets without adding assets to our balance
sheet.
As of March 31, 2010, commercial real estate loans made up
more than 24 percent of the Banks total loan
portfolio and land and construction loans made up nearly
10 percent. Our target is that by 2013 these two segments
of the portfolio will be reduced to 16 percent and
6 percent, respectively. We see opportunities to increase
Commercial &Industrial, Consumer and Residential
Mortgage lending as portions of the targeted loan mix.
On the funding side of the balance sheet, we have worked to both
maintain our liquidity through selective deposit promotions as
well as to begin the process of shifting our funding mix in
favor of lower cost core deposits and away from reliance on time
deposits (Certificates of Deposit). This has led to an evolution
of our CD pricing strategy to more closely align with the costs
of competing sources of funds, such as the Federal Home Loan
Bank and Federal Reserve, and to provide the Banks best
rates only to those customers who provide the Bank with deeper,
multi-product relationships, which in turn provide access to
lower cost core deposits and the opportunity to generate fee
income. New checking products and promotions have been developed
to help drive core deposit relationships, and sales training and
incentive programs have been shifted to focus on core deposit
sales and cross selling.
Together with a favorable rate environment, these efforts have
helped reduce our cost of funds from 2.94 percent at
March 31, 2009, to 2.82 percent at March 31,
2010, a reduction of 12 basis points.
Enhancing
our risk management and lending processes and aggressively
addressing our existing classified loan portfolio
Under the leadership of Ms. Hayes, we have made significant
progress in enhancing our risk management and lending process,
as well as aggressively addressing our classified loan
portfolio. These actions are aimed at addressing the need for an
Enterprise Risk Management culture. Specific actions taken
include the creation of a Special Assets Group to properly
address and develop resolution plans with borrowers experiencing
deteriorating financial condition. The commercial bank has been
realigned to improve the overall risk management and align the
resource around the risk in the portfolio. These changes include
the establishment of a new independent underwriting group which
evaluates the total borrowing relationship using a global cash
flow methodology. Credit and collections groups have also been
consolidated across lending areas to enhance efficiency, as well
as provide a more consistent approach and comprehensive view of
the Banks collections efforts. New metric and reporting
have
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been introduced to more effectively manage the portfolio
performance. A new loan risk rating system using qualitative
metrics to identify loans with potential risk has been
implemented along with a new enhanced impairment analysis to
evaluate all classified loans.
Recent
Developments
The following provides a summary of significant developments
occurring after the end of fiscal year 2010 (March 31,
2010) but prior to the filing of this 10K report in late
June 2010.
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March 31, 2010: Anchor Bancorp Wisconsin Inc. and Badger
Anchor Holdings, LLC mutually terminated agreements entered into
in December 2009 pursuant to which Badger Holdings would have
made up to a $400 million investment in the Corporation,
including a term loan in the aggregate principal amount of
$110 million. The parties terminated the Agreements because
several conditions to closing had not been met.
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April 2, 2010: the Corporation announced that we engaged
Sandler ONeill & Partners, L.P. as financial
advisor to assist the Corporation in evaluating strategic
alternatives. Sandler ONeill is a preeminent investment
banking firm serving financial institutions and was engaged as
part of our comprehensive effort to raise additional capital,
strengthen our balance sheet and improve our financial
performance.
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May 3, 2010: the Corporation entered into Amendment
No. 6 to the Amended and Restated Credit Agreement, dated
as of June 9, 2008, among the Corporation, U.S. Bank
National Association, and its partner lenders. The Amendment
provided, among other provisions, that the maturity date of the
loan was extended to May 31, 2011 and that interest
accruing is due on the earlier of (i) the date the Loans
are paid in full or the maturity date.
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May 5, 2010: Douglas Timmerman announced his retirement
from the Board of Directors of Anchor BanCorp Wisconsin Inc,
effective May 5, 2010. Mr. Timmermans
resignation was not due to any dispute or disagreement with the
Corporation
and/or its
board or management. He had served on the Board of Directors
since 1971.
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May 13, 2010: the Audit Committee Chair, as previously
authorized by the Corporations board of directors,
concluded based upon the recommendation of management and the
findings of a recent internal financial review of the accounting
for FDIC insurance premiums at its wholly-owned subsidiary,
AnchorBank, fsb (the Bank), that the
Corporations previously filed consolidated financial
statements as of and for the three quarters ending June 30,
2009, September 30, 2009 and December 31, 2009, as
reported in its Quarterly Reports on
Form 10-Q,
as well as the Corporations previously issued earnings
release for each affected quarter, can no longer be relied upon
and would be restated based on the adjusted additional accrued
FDIC insurance premiums. As a result of the foregoing, the
Corporation incurred an additional loss in the range of
$1.2 million to $3.2 million for each quarter under
restatement for a total loss of $6.6 million. The impact of
the restatement had no effect on the Banks regulatory
capital ratio classification for any affected quarters.
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May 14, 2010: the bank announced that it has entered into a
definitive agreement for the sale of four AnchorBank branches in
the Green Bay, Wisconsin, area to Nicolet National Bank
(Nicolet) of Green Bay. The transaction is subject to regulatory
approval and customary closing conditions and is expected to be
completed in July 2010. Under the agreement, Nicolet will assume
approximately $117 million in deposits along with loans,
real estate, and other assets. The branches involved in the
transaction are the Ashwaubenon Office located at 2363 Holmgren
Way in Green Bay, the Howard office at 2380 Dousman Street in
Green Bay and the De Pere offices at 1610 Lawrence Drive and
2082 Monroe Road.
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Also On May 14, 2010: Dale Ringgenberg announced his
retirement as Chief Financial Officer of Anchor Bancorp
Wisconsin Inc., effective August 31, 2010 after
34 years of service with the Corporation.
Mr. Ringgenbergs retirement was not due to any
dispute or disagreement with the Corporation
and/or its
board or management. Management is currently conducting a
national search for Mr. Ringgenbergs replacement.
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May 26, 2010: Anchor Bancorp Wisconsin Inc. and the
Corporations wholly-owned subsidiary bank, AnchorBank, fsb
and Mark Timmerman agreed to terminate Mr. Timmermans
employment agreements
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with the Corporation and the Bank, effective May 26, 2010.
Mr. Timmerman agreed to release and discharge the Bank and
the Corporation from any and all obligations or liabilities
under the Employment Agreements. Mr. Timmerman will
continue to be employed in his present capacity as Executive
Vice President, General Counsel and Secretary of the Corporation
and as President and Chief Operating Officer of the Bank.
|
|
|
|
|
|
During May an all encompassing strategic business review was
completed. An approximately 13 percent reduction in core
operating expenses is anticipated from this process, which
reviewed staffing levels, vendor relationships and business
processes. Approximately one-third of the savings resulted from
staff reductions. If fully implemented as planned, these efforts
will lower core operating expenses.
|
|
|
|
June 1, 2010: Martha M. Hayes was promoted to the position
of Executive Vice President Chief Risk Officer,
subject to regulatory approval as part of an ongoing effort to
drive operational excellence while ensuring the highest standard
of credit quality in every loan it makes, Hayes joined the
Corporation in August 2009.
|
|
|
|
June 2, 2010: Dan Nichols, Executive Vice
President Commercial Lending announces he is leaving
AnchorBank, effective August 31, 2010 after 25 years
of service with the Bank. Mr. Nichols resignation was
not due to any dispute or disagreement with the Corporation
and/or its board or management.
|
|
|
|
June 2, 2010: The Corporation received notice from its
regulator, the Office of Thrift Supervision (OTS) to address
several compliance issues. Management expects the Board of
Directors to voluntarily adopt the Memorandum of Understanding
(MOU) on or before June 30, 2010.
|
|
|
|
On June 14, 2010: the Bank, announced that it received the
necessary regulatory approval for the sale of 11 AnchorBank
branches to Royal Credit Union under an agreement previously
reached in November, 2009. The sale and conversion was completed
on June 25, 2010. The branches included in the sale are
located in Amery, Balsam Lake, Centuria, Menomonie, Milltown,
New Richmond, Osceola, River Falls, St. Croix Falls,
Somerset, and Star Prairie. Under the terms of the agreement,
AnchorBank sold approximately $169 million in deposits,
real estate loans and other assets.
|
|
|
|
On June 18, 2010: the Corporation received a letter from
The Nasdaq Stock Market (Nasdaq) stating that it no
longer complies with Nasdaq Marketplace Rule 5450(a)(1)
because the bid price of the Corporations common stock
closed below the required minimum $1.00 per share for the
previous 30 consecutive business days (May 6, 2010 through
June 17, 2010). The letter also indicated that, in
accordance with Marketplace Rule 5810(c)(3)(A), the
Corporation has a period of 180 calendar days, until
December 15, 2010, to regain compliance with
Rule 5450(a)(1). If at any time before December 15,
2010, the bid price of the Corporations common stock
closes at $1.00 per share or more for a minimum of 10
consecutive business days, Nasdaq will notify the Corporation
that it has regained compliance with Rule 5450(a)(1). In
the event the Corporation does not regain compliance with
Rule 5450(a)(1) prior to the expiration of the
180-day
period, Nasdaq will notify the Corporation that its common stock
is subject to delisting. The Corporation may appeal the
delisting determination to a Nasdaq hearing panel. At such
hearing, the Corporation would present a plan to regain
compliance and Nasdaq would then subsequently render a decision.
The Corporation is currently evaluating its alternatives to
resolve the listing deficiency.
|
Business
Overview
Lending
Activities
General. At March 31, 2010, the Banks net
loans held for investment totaled $3.23 billion,
representing approximately 73.1% of its $4.42 billion of
total assets at that date. Approximately $2.56 billion, or
74.6%, of the Banks total loans receivable at
March 31, 2010 were secured by first liens on real estate.
The Bank originates single-family residential loans secured by
properties located primarily in Wisconsin, with adjustable-rate
loans generally being originated for inclusion in the
Banks loan portfolio and fixed-rate loans generally being
originated for sale into the secondary market. At this time, the
Bank is not active in the origination of new commercial real
estate, multi-family, construction, and commercial business
loans. Consumer and education loans are still originated to our
core retail banking customers.
6
Non-real estate loans originated by the Bank consist of a
variety of consumer loans and commercial business loans. At
March 31, 2010, the Banks total loans receivable
included $709.3 million, or 20.6%, of consumer loans and
$164.3 million, or 4.8%, of commercial business loans.
Loan Portfolio Composition. The following
table presents information concerning the composition of the
Banks consolidated loans held for investment at the dates
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
Amount
|
|
|
of Total
|
|
|
Amount
|
|
|
of Total
|
|
|
Amount
|
|
|
of Total
|
|
|
|
(Dollars in Thousands)
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family residential
|
|
$
|
765,312
|
|
|
|
22.27
|
%
|
|
$
|
843,482
|
|
|
|
20.52
|
%
|
|
$
|
893,001
|
|
|
|
20.35
|
%
|
Multi-family residential
|
|
|
614,930
|
|
|
|
17.89
|
|
|
|
662,483
|
|
|
|
16.12
|
|
|
|
694,423
|
|
|
|
15.82
|
|
Commercial real estate
|
|
|
842,905
|
|
|
|
24.53
|
|
|
|
1,020,981
|
|
|
|
24.84
|
|
|
|
1,088,004
|
|
|
|
24.79
|
|
Construction
|
|
|
108,486
|
|
|
|
3.16
|
|
|
|
267,375
|
|
|
|
6.51
|
|
|
|
402,395
|
|
|
|
9.17
|
|
Land
|
|
|
231,330
|
|
|
|
6.73
|
|
|
|
266,756
|
|
|
|
6.49
|
|
|
|
306,363
|
|
|
|
6.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
|
2,562,963
|
|
|
|
74.58
|
|
|
|
3,061,077
|
|
|
|
74.48
|
|
|
|
3,384,186
|
|
|
|
77.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second mortgage and home equity
|
|
|
352,795
|
|
|
|
10.27
|
|
|
|
394,708
|
|
|
|
9.61
|
|
|
|
356,009
|
|
|
|
8.11
|
|
Education
|
|
|
331,475
|
|
|
|
9.64
|
|
|
|
358,784
|
|
|
|
8.73
|
|
|
|
275,850
|
|
|
|
6.29
|
|
Other
|
|
|
24,990
|
|
|
|
0.73
|
|
|
|
56,302
|
|
|
|
1.37
|
|
|
|
95,149
|
|
|
|
2.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer loans
|
|
|
709,260
|
|
|
|
20.64
|
|
|
|
809,794
|
|
|
|
19.71
|
|
|
|
727,008
|
|
|
|
16.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
164,329
|
|
|
|
4.78
|
|
|
|
238,940
|
|
|
|
5.81
|
|
|
|
277,312
|
|
|
|
6.32
|
|
Lease receivables
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial business loans
|
|
|
164,329
|
|
|
|
4.78
|
|
|
|
238,940
|
|
|
|
5.81
|
|
|
|
277,312
|
|
|
|
6.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable
|
|
|
3,436,552
|
|
|
|
100.00
|
%
|
|
|
4,109,811
|
|
|
|
100.00
|
%
|
|
|
4,388,506
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contras to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undisbursed loan proceeds
|
|
|
(23,334
|
)
|
|
|
|
|
|
|
(71,672
|
)
|
|
|
|
|
|
|
(141,219
|
)
|
|
|
|
|
Allowance for loan losses
|
|
|
(179,644
|
)
|
|
|
|
|
|
|
(137,165
|
)
|
|
|
|
|
|
|
(38,285
|
)
|
|
|
|
|
Unearned net loan fees
|
|
|
(3,898
|
)
|
|
|
|
|
|
|
(4,441
|
)
|
|
|
|
|
|
|
(6,075
|
)
|
|
|
|
|
Net (discount) premium on loans purchased
|
|
|
(8
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
Unearned interest
|
|
|
(88
|
)
|
|
|
|
|
|
|
(84
|
)
|
|
|
|
|
|
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contras to loans
|
|
|
(206,972
|
)
|
|
|
|
|
|
|
(213,372
|
)
|
|
|
|
|
|
|
(185,673
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
$
|
3,229,580
|
|
|
|
|
|
|
$
|
3,896,439
|
|
|
|
|
|
|
$
|
4,202,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
Amount
|
|
|
of Total
|
|
|
Amount
|
|
|
of Total
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family residential
|
|
$
|
843,677
|
|
|
|
20.76
|
%
|
|
$
|
785,444
|
|
|
|
20.51
|
%
|
Multi-family residential
|
|
|
654,567
|
|
|
|
16.11
|
|
|
|
626,029
|
|
|
|
16.35
|
|
Commercial real estate
|
|
|
1,020,325
|
|
|
|
25.10
|
|
|
|
974,123
|
|
|
|
25.43
|
|
Construction
|
|
|
460,746
|
|
|
|
11.33
|
|
|
|
457,493
|
|
|
|
11.94
|
|
Land
|
|
|
214,703
|
|
|
|
5.28
|
|
|
|
159,855
|
|
|
|
4.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans
|
|
|
3,194,018
|
|
|
|
78.58
|
|
|
|
3,002,944
|
|
|
|
78.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second mortgage and home equity
|
|
|
351,739
|
|
|
|
8.65
|
|
|
|
342,829
|
|
|
|
8.95
|
|
Education
|
|
|
223,707
|
|
|
|
5.50
|
|
|
|
213,628
|
|
|
|
5.58
|
|
Other
|
|
|
60,413
|
|
|
|
1.49
|
|
|
|
65,858
|
|
|
|
1.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer loans
|
|
|
635,859
|
|
|
|
15.64
|
|
|
|
622,315
|
|
|
|
16.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
234,791
|
|
|
|
5.78
|
|
|
|
205,019
|
|
|
|
5.35
|
|
Lease receivables
|
|
|
1
|
|
|
|
0.00
|
|
|
|
1
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial business loans
|
|
|
234,792
|
|
|
|
5.78
|
|
|
|
205,020
|
|
|
|
5.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans receivable
|
|
|
4,064,669
|
|
|
|
100.00
|
%
|
|
|
3,830,279
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contras to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undisbursed loan proceeds
|
|
|
(163,505
|
)
|
|
|
|
|
|
|
(193,755
|
)
|
|
|
|
|
Allowance for loan losses
|
|
|
(20,517
|
)
|
|
|
|
|
|
|
(15,570
|
)
|
|
|
|
|
Unearned net loan fees
|
|
|
(6,541
|
)
|
|
|
|
|
|
|
(7,469
|
)
|
|
|
|
|
Net premium on loans purchased
|
|
|
(15
|
)
|
|
|
|
|
|
|
795
|
|
|
|
|
|
Unearned interest
|
|
|
(42
|
)
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contras to loans
|
|
|
(190,620
|
)
|
|
|
|
|
|
|
(216,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
|
|
$
|
3,874,049
|
|
|
|
|
|
|
$
|
3,614,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
The following table shows, at March 31, 2010, the scheduled
contractual maturities of the Banks 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Family
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate,
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-Family
|
|
|
Construction
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
Residential
|
|
|
and Land
|
|
|
Consumer
|
|
|
Business
|
|
|
|
|
|
|
Loans
|
|
|
Loans
|
|
|
Loans
|
|
|
Loans
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Amounts due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In one year or less
|
|
$
|
43,362
|
|
|
$
|
855,311
|
|
|
$
|
57,491
|
|
|
$
|
92,118
|
|
|
$
|
1,048,282
|
|
After one year through five years
|
|
|
47,046
|
|
|
|
648,478
|
|
|
|
172,566
|
|
|
|
54,168
|
|
|
|
922,258
|
|
After five years
|
|
|
674,904
|
|
|
|
293,862
|
|
|
|
479,203
|
|
|
|
18,043
|
|
|
|
1,466,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
765,312
|
|
|
$
|
1,797,651
|
|
|
$
|
709,260
|
|
|
$
|
164,329
|
|
|
$
|
3,436,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate terms on amounts due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
$
|
244,552
|
|
|
$
|
1,139,904
|
|
|
$
|
424,536
|
|
|
$
|
122,398
|
|
|
$
|
1,931,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustable
|
|
$
|
520,760
|
|
|
$
|
657,747
|
|
|
$
|
284,724
|
|
|
$
|
41,931
|
|
|
$
|
1,505,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-Family Residential Loans. At
March 31, 2010, $765.3 million, or 22.3%, of the
Banks total loans receivable 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. Single-family residential loans have increased as
a percentage of the Banks total loans receivable from
20.5% at March 31, 2006 to 22.3% at March 31, 2010.
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, 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. The Bank
makes a limited number of interest-only loans and does not make
payment option loans, pursuant to which a consumer may select a
payment option which can result in negative amortization on 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,
2010, approximately $520.8 million, or 68.0%, of the
Banks permanent single-family residential loans receivable
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 15 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), and Wisconsin
Department of Veterans Affairs (WDVA). The Bank
retains the right to service substantially all loans that it
sells.
At March 31, 2010, approximately $244.6 million, or
32.0%, of the Banks permanent single-family residential
loans receivable consisted of loans that provide for fixed rates
of interest. Although these loans generally provide for
repayments of principal over a fixed period of 10 to
30 years, it is the Banks experience that, because of
prepayments and
due-on-sale
clauses, such loans generally remain outstanding for a
substantially shorter period of time.
9
Multi-Family Residential and Commercial Real
Estate. The Bank originates multi-family
residential and commercial real estate 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, 2010, the Bank had $614.9 million of loans
secured by multi-family residential real estate and
$842.9 million of loans secured by commercial real estate,
which represented 17.9% and 24.5% of the Banks total loans
receivable, respectively. The Bank generally limits the
origination of such loans to its primary market area.
The Banks 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
20 years, as well as balloon payments, and terms which
provide that the interest rates thereon may be adjusted annually
at the Banks 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. The Bank, in the
past years, has been an originator of loans to construct
residential and commercial properties (construction
loans) and loans to acquire and develop real estate for
the construction of such properties (land loans). At
March 31, 2010, construction loans amounted to
$108.5 million, or 3.2%, of the Banks total loans
receivable. Land loans amounted to $231.3 million, or 6.7%,
of the Banks total loans receivable at March 31, 2010.
The Banks 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 Banks in-house
Construction Administrator and outside construction inspectors
warrant. Typically, a component of the loan amount has been a
reserve to cover interest payments during the construction
phase. Land acquisition and development loans generally have the
same terms as construction loans, but may have longer maturities
than such loans. At this time, the Bank is not active and has
currently suspended activity in this market segment.
Consumer Loans. The Bank offers consumer loans
in order to provide a full range of financial services to its
customers. At March 31, 2010, $709.3 million, or
20.6%, of the Banks consolidated total loans receivable
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.
The largest component of the Banks consumer loan portfolio
is second mortgage and home equity loans, which amounted to
$352.8 million, or 10.3%, of total loans receivable at
March 31, 2010. 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 borrowers residence. Advances do not exceed
85% of assessed or appraised value as of the loan origination
date. A fixed-rate home equity product is also offered.
Approximately $331.5 million, or 9.6%, of the Banks
total loans receivable at March 31, 2010 consisted of
education loans. These are generally made for a maximum of
$3,500 per year for undergraduate studies and $8,500 per year
for graduate studies and are placed in repayment on an
installment basis within six months of 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. Department of Education. Education loans may be sold
to the U.S. Department of Education or to other investors.
The Bank received $84.8 million from the sale of these
education loans during fiscal 2010.
The remainder of the Banks consumer loan portfolio
consists of vehicle loans and other secured and unsecured 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
participates in outstanding balances,
10
currently at 28%, with a third party, ELAN Financial Services.
The Bank also shares 33% of annual fees paid to ELAN and 30% of
late payment, over limit and cash advance fees paid to ELAN as
well as 25% to 30% of interchange income paid to ELAN.
At March 31, 2010, the Banks approved credit card
lines amounted to $46.2 million. The total outstanding
amount at March 31, 2010 is $8.8 million.
Commercial Business Loans and Leases. The Bank
originates loans for commercial, corporate and business
purposes, including issuing letters of credit. At March 31,
2010, commercial business loans amounted to $164.3 million,
or 4.8%, of the Banks total loans receivable. The
Banks commercial business loan portfolio is comprised of
loans for a variety of purposes and generally is secured by
equipment, machinery and other business assets. Commercial
business loans generally have terms of five years or less and
interest rates that float in accordance with a designated
published index. Substantially all of such loans are secured and
backed by the personal guarantees of the owners 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 to the related loans 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
Banks loan originations come from a number of sources.
Residential mortgage loan originations are attributable
primarily to depositors, walk-in customers, the Companys
website, referrals from real estate brokers, 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 direct marketing of current customers with college students
and college lender lists.
Applications for all types of loans are obtained at the
Banks seven regional lending offices, certain of its
branch offices and two loan origination facilities. Loans may be
approved by members of the Senior Loan Committee, within
designated limits. Depending on the type and amount of the
loans, four 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 a Concurrence Authority Credit Officer to sign within their
authority. Senior Loan Committee members are authorized to
approve loan requests between $1.5 million and
$4.0 million and approval requires at least three of the
members signatures. Loan requests in excess of
$4.0 million must be approved by the Board of Directors.
The Banks general policy is to lend up to 80% of the
appraised value or purchase price of the property, whichever is
less, 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 will require that the borrower obtain when
possible, private mortgage insurance in an amount intended to
reduce the Banks exposure to 80% or less of the appraised
value of the underlying property. At March 31, 2010, the
Bank had approximately $2.6 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 Banks single-family residential loans are made by the
Banks staff or independent appraisers approved by the
Banks Board of Directors during the underwriting process.
Appraisals are performed in accordance with federal regulations
and policies.
The Banks 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 collateral from independent appraisal firms.
The portfolio of commercial real estate, multi-family
residential and commercial business loans is reviewed on a
continuing basis to identify any potential risks that exist in
regard to the property management, financial criteria of
11
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 Banks Board of Directors.
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 Banks 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 Banks 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 dependent on a number of factors, but is most
influenced by general interest rates. In periods of lower
interest rates, demand for fixed-rate mortgages increases. In
periods of higher interest rates, customer demand for fixed-rate
mortgages declines. The Banks 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 100% 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, 2010, the Bank was
servicing $3.60 billion of loans for others.
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, 2010, approximately $14.1 million of
mortgage loans were being serviced for the Bank by others.
12
The following table shows the Banks consolidated total
loans originated, purchased, sold and repaid during the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Gross loans receivable at beginning of year(1)
|
|
$
|
4,271,775
|
|
|
$
|
4,398,175
|
|
|
$
|
4,069,143
|
|
Loans originated for investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family residential(2)
|
|
|
184,354
|
|
|
|
126,585
|
|
|
|
209,924
|
|
Multi-family residential
|
|
|
44,109
|
|
|
|
71,881
|
|
|
|
109,320
|
|
Commercial real estate
|
|
|
89,869
|
|
|
|
226,848
|
|
|
|
244,694
|
|
Construction and land
|
|
|
81,799
|
|
|
|
138,260
|
|
|
|
367,573
|
|
Consumer
|
|
|
212,460
|
|
|
|
172,628
|
|
|
|
156,983
|
|
Commercial business
|
|
|
18,512
|
|
|
|
43,775
|
|
|
|
103,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total originations
|
|
|
631,103
|
|
|
|
779,977
|
|
|
|
1,191,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments
|
|
|
(1,255,484
|
)
|
|
|
(1,058,672
|
)
|
|
|
(867,917
|
)
|
Transfers of loans to held for sale
|
|
|
(48,878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net activity in loans held for investment
|
|
|
(673,259
|
)
|
|
|
(278,695
|
)
|
|
|
323,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans originated for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family residential
|
|
|
887,466
|
|
|
|
1,005,355
|
|
|
|
530,260
|
|
Multi-family residential
|
|
|
|
|
|
|
20,296
|
|
|
|
23,537
|
|
Commercial
|
|
|
|
|
|
|
3,999
|
|
|
|
107,044
|
|
Transfers of loans from held for investment
|
|
|
48,878
|
|
|
|
|
|
|
|
|
|
Sales of loans
|
|
|
(1,029,946
|
)
|
|
|
(877,355
|
)
|
|
|
(655,646
|
)
|
Loans converted into mortgage-backed securities
|
|
|
(48,878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net activity in loans held for sale
|
|
|
(142,480
|
)
|
|
|
152,295
|
|
|
|
5,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans receivable at end of period
|
|
$
|
3,456,036
|
|
|
$
|
4,271,775
|
|
|
$
|
4,398,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes loans held for sale and loans held for investment. |
|
(2) |
|
Includes single-family residential loans originated on an agency
basis through the Mortgage Partnership Finance 100 Program of
the Federal Home Loan Bank of Chicago. |
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 instituted. The borrower is
contacted to determine the reason for the delinquency and
attempts are made to cure the loan. 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 initiate foreclosure proceedings.
A decision as to whether and when to initiate foreclosure
proceedings is based upon such factors as the amount of the
outstanding loan in relation to the original indebtedness, the
extent of delinquency, the value of the collateral, and the
borrowers financial 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.
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 recorded at the
estimated fair value less cost to sell at the
13
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.
For discussion of the Corporations asset quality, see
Managements Discussion and Analysis of Financial
Condition and Results of Operations Financial
Condition Non-Performing Assets in
Item 7. See also Notes 1 and 5 to the Consolidated
Financial Statements in Item 8.
Investment
Securities
In addition to lending activities, 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. The Corporation invests
in mortgage-related securities which are insured or guaranteed
by FHLMC, FNMA, or the Government National Mortgage Association
(GNMA) backed by FHLMC, FNMA and GNMA
mortgage-backed securities and also invests in non-agency
collateralized mortgage obligations (CMOs).
Investment decisions are made by authorized officers in
accordance with policies established by the board of directors.
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 earnings.
At March 31, 2010, the amortized cost of the
Corporations investment securities held to maturity
amounted to $39,000, all of which are
30-year
securities. There were no five- and seven-year balloon
securities. All of the held to maturity investment securities
are insured or guaranteed by FNMA and are adjustable-rate
securities.
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,
2010 and 2009, stockholders equity increased $938,000 (net
of deferred income tax receivable) and decreased
$8.2 million (net of deferred income tax receivable),
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 ended
March 31, 2010.
The Corporations 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,
municipal bonds, securities of various federal agencies, certain
certificates of deposit of insured banks and savings
institutions, certain bankers acceptances, repurchase
agreements and federal funds. Although the Corporation does not
purchase non-investment grade securities, it does own
$28.3 million, or 6.8% of the total investment security
portfolio, of non-investment grade securities as a result of
ratings downgrades. Subject to limitations on investment grade
securities, the Corporation also invests in corporate stock and
debt securities from time to time.
Agency-backed securities increase the quality of the
Corporations 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, 2010, securities with a fair value of
$317.7 million held by the Corporation are either AAA rated
or are guaranteed by the government. At March 31, 2010,
$301.2 million of the Corporations securities
available-for-sale were pledged to secure various obligations of
the Corporation. The Corporation had no securities
held-to-maturity that were pledged to secure obligations of the
Corporation at March 31, 2010.
14
The table below sets forth information regarding the amortized
cost and fair values of the Corporations investment
securities at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Amortized
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
51,029
|
|
|
$
|
51,031
|
|
|
$
|
48,471
|
|
|
$
|
48,919
|
|
Municipal bonds
|
|
|
|
|
|
|
|
|
|
|
21,768
|
|
|
|
22,233
|
|
Mutual fund
|
|
|
|
|
|
|
|
|
|
|
1,797
|
|
|
|
1,797
|
|
Corporate stock and other
|
|
|
1,176
|
|
|
|
1,198
|
|
|
|
4,806
|
|
|
|
4,735
|
|
Agency CMOs and REMICs
|
|
|
1,393
|
|
|
|
1,413
|
|
|
|
142,692
|
|
|
|
143,995
|
|
Non-agency CMOs
|
|
|
91,140
|
|
|
|
85,367
|
|
|
|
119,473
|
|
|
|
107,527
|
|
Residential mortgage-backed securities
|
|
|
14,907
|
|
|
|
15,440
|
|
|
|
97,562
|
|
|
|
100,754
|
|
GNMA securities
|
|
|
261,957
|
|
|
|
261,754
|
|
|
|
54,753
|
|
|
|
55,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
421,602
|
|
|
|
416,203
|
|
|
|
491,322
|
|
|
|
484,985
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
|
|
39
|
|
|
|
40
|
|
|
|
50
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
40
|
|
|
|
50
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
$
|
421,641
|
|
|
$
|
416,243
|
|
|
$
|
491,372
|
|
|
$
|
485,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporations mortgage-derivative securities are made
up of CMOs, including CMOs which qualify as Real Estate Mortgage
Investment Conduits (REMICs) under the Internal
Revenue Code of 1986, as amended (Code). At
March 31, 2010, the Corporation had no mortgage-derivative
securities held to maturity. The fair value of the
mortgage-derivative securities available for sale held by the
Corporation amounted to $327.3 million at the same date.
The following table sets forth the maturity and weighted average
yield characteristics of the Corporations mortgage-related
securities at March 31, 2010, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than Five Years
|
|
|
Five to Ten Years
|
|
|
Over Ten Years
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Balance
|
|
|
Yield
|
|
|
Balance
|
|
|
Yield
|
|
|
Balance
|
|
|
Yield
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency obligations
|
|
$
|
46,000
|
|
|
|
0.23
|
%
|
|
|
|
|
|
|
|
|
|
$
|
5,031
|
|
|
|
5.53
|
%
|
|
$
|
51,031
|
|
Corporate stock and other
|
|
|
25
|
|
|
|
7.20
|
|
|
|
|
|
|
|
|
|
|
|
1,173
|
|
|
|
8.66
|
|
|
|
1,198
|
|
Agency CMOs and REMICs
|
|
|
|
|
|
|
|
|
|
|
796
|
|
|
|
4.46
|
|
|
|
617
|
|
|
|
4.08
|
|
|
|
1,413
|
|
Non-agency CMOs
|
|
|
2,045
|
|
|
|
4.76
|
|
|
|
20,936
|
|
|
|
5.52
|
|
|
|
62,386
|
|
|
|
7.16
|
|
|
|
85,367
|
|
Residential mortgage-backed Securities
|
|
|
1,587
|
|
|
|
4.24
|
|
|
|
7,423
|
|
|
|
5.28
|
|
|
|
6,430
|
|
|
|
3.80
|
|
|
|
15,440
|
|
GNMA Securities
|
|
|
|
|
|
|
|
|
|
|
794
|
|
|
|
4.88
|
|
|
|
260,960
|
|
|
|
2.89
|
|
|
|
261,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,657
|
|
|
|
0.34
|
|
|
|
29,949
|
|
|
|
5.42
|
|
|
|
336,597
|
|
|
|
7.46
|
|
|
|
416,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed Securities
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
3.90
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
3.90
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities
|
|
$
|
46,657
|
|
|
|
0.34
|
%
|
|
$
|
29,988
|
|
|
|
5.42
|
%
|
|
$
|
336,597
|
|
|
|
7.46
|
%
|
|
$
|
416,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Due to repayments of the underlying loans, the actual maturities
of mortgage-related securities are expected to be substantially
sooner than the scheduled maturities.
For additional information regarding the Corporations
investment securities, see the Corporations Consolidated
Financial Statements, including Note 4 thereto included in
Item 8.
Sources
of Funds
General. Deposits are a major source of the
Banks funds for lending and other investment activities.
In addition to deposits, the Bank derives funds from principal
repayments and prepayments on loan and mortgage-related
securities, 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.
Deposits. The Banks deposit products
include passbook savings accounts, demand accounts, interest
bearing checking 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 Banks deposits are obtained primarily from residents
of Wisconsin. The Bank has entered into agreements with certain
brokers that provide funds for a specified fee. While brokered
deposits are a good source of funds, they are interest rate
driven and thus inherently have more liquidity and interest rate
risk. To mitigate this risk, the Banks liquidity policy
limits the amount of brokered deposits to 10% of assets and to
the total amount of borrowings. At March 31, 2010, the Bank
had $173.5 million in brokered deposits, which accounted
for 4.9% of its $3.55 billion of total deposits and accrued
interest. At March 31, 2010, the Bank is precluded from
obtaining new or renewing existing brokered deposits because the
Bank is undercapitalized.
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
Banks competitors.
The following table sets forth the amount and maturities of the
Banks certificates of deposit at March 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
0.00% to 2.99%
|
|
$
|
856,967
|
|
|
$
|
409,865
|
|
|
$
|
187,899
|
|
|
$
|
6,621
|
|
|
$
|
6,954
|
|
|
$
|
1,468,306
|
|
3.00% to 4.99%
|
|
|
178,413
|
|
|
|
475,260
|
|
|
|
154,529
|
|
|
|
36,685
|
|
|
|
31,792
|
|
|
|
876,679
|
|
5.00% to 6.99%
|
|
|
819
|
|
|
|
276
|
|
|
|
2,911
|
|
|
|
571
|
|
|
|
2
|
|
|
|
4,579
|
|
S&C PVA(1)
|
|
|
8
|
|
|
|
6
|
|
|
|
5
|
|
|
|
1
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,036,207
|
|
|
$
|
885,407
|
|
|
$
|
345,344
|
|
|
$
|
43,878
|
|
|
$
|
38,748
|
|
|
$
|
2,349,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Stemming from the Banks acquisition of S&C Bank on
January 2, 2008, a purchase value adjustment was made to
the market values of certificates of deposit and core deposit
accounts. The market value of certificate of deposit accounts
was determined by discounting cash flows using current deposit
rates for the remaining |
16
|
|
|
|
|
contractual maturity. The market value of the core deposit
intangible in the amount of $5.5 million (checking, money
market and passbook accounts) was determined using discounted
cash flows with estimated decay rates and is not included in the
above table. |
At March 31, 2010, the Bank had $483.8 million of
certificates greater than or equal to $100,000, of which
$157.6 million are scheduled to mature in seven through
twelve months and $63.7 million in over twelve months.
Borrowings. From time to time the Bank obtains
advances from the FHLB, which generally are secured by capital
stock of the FHLB that certain of the Banks mortgage loans
and investment securities. 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.
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 did
not utilize this source of funds during the year ended
March 31, 2010, but may do so in the future.
The Corporation used a short-term line of credit used in part to
fund IDIs partnership interests and investments in
real estate held for development and sale. This line of credit
also funded other Corporation needs. The final maturity of the
line of credit was extended to May 2011. At March 31, 2010
and 2009, the Corporation had drawn $116.3 million under
this line of credit, respectively. The Corporation does not have
credit remaining on this line of credit. See Note 11 to the
Corporations Consolidated Financial Statements in
Item 8 for more information on borrowings.
The following table sets forth the outstanding balances and
weighted average interest rates for the Corporations
borrowings at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
Balance
|
|
Rate
|
|
Balance
|
|
Rate
|
|
Balance
|
|
Rate
|
|
|
(Dollars in thousands)
|
|
FHLB advances
|
|
$
|
613,429
|
|
|
|
3.08
|
%
|
|
$
|
887,329
|
|
|
|
3.41
|
%
|
|
$
|
1,059,850
|
|
|
|
3.63
|
%
|
Other borrowed funds
|
|
|
182,724
|
|
|
|
8.71
|
|
|
|
191,063
|
|
|
|
8.00
|
|
|
|
146,887
|
|
|
|
4.37
|
|
The following table sets forth information relating to the
Corporations short-term (original maturities of one year
or less) borrowings at the dates and for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In thousands)
|
|
Maximum month-end balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
$
|
|
|
|
$
|
210,500
|
|
|
$
|
665,300
|
|
Other borrowed funds
|
|
|
116,300
|
|
|
|
118,465
|
|
|
|
118,465
|
|
Average balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB advances
|
|
|
|
|
|
|
100,217
|
|
|
|
434,446
|
|
Other borrowed funds
|
|
|
116,300
|
|
|
|
116,678
|
|
|
|
72,853
|
|
Subsidiaries
Investment Directions, Inc. IDI is a
wholly-owned non-banking subsidiary of the Corporation that has
invested in various limited partnerships (see Davsha and Oakmont
partnerships below) and subsidiaries funded by borrowings from
the Corporation. Because the Corporation has made substantially
all of the initial capital investment in these partnerships and
as a result bears substantially all the risks of ownership of
these partnerships, such partnerships have been deemed variable
interest entities (VIEs) subject to the
consolidation requirements of ASC
810-10-15.
The application of ASC-810-10-15 results in the consolidation of
assets, liabilities, income and expense of the partnerships into
the Corporations financial statements. The portion of
ownership and income that
17
belongs to the other partner is reflected as noncontrolling
interest so there is no effect on net income or
shareholders equity. See Note 1 Variable
Interest Entities to the Consolidated Financial Statements in
Item 8 for a detailed discussion of the financial statement
effects of
ASC-810-10-15.
During the year ended March 31, 2010, IDI sold for
$11.5 million its interest in Davsha, LLC and its related
interest in the limited partnerships as well as the golf course
and resort at Indian Palms, which included some developed lots.
The following table sets forth certain selected parent-only
financial data of IDI at and for the years ended March 31,
2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
At or for the Year Ended March 31
|
|
|
2010
|
|
2009
|
|
|
(In thousands)
|
|
Cash and other assets
|
|
$
|
1,394
|
|
|
$
|
3,248
|
|
Loans receivable, net
|
|
|
1,554
|
|
|
|
2,132
|
|
Investments in consolidated partnerships and corporations:
|
|
|
|
|
|
|
|
|
California Investment Directions
|
|
|
|
|
|
|
(640
|
)
|
Nevada Investment Directions
|
|
|
|
|
|
|
(619
|
)
|
Indian Palms
|
|
|
|
|
|
|
5,739
|
|
Davsha
|
|
|
|
|
|
|
(3,776
|
)
|
Other assets
|
|
|
2,997
|
|
|
|
2,547
|
|
Total assets
|
|
|
5,945
|
|
|
|
8,631
|
|
Borrowings from the Corporation
|
|
|
4,600
|
|
|
|
20,442
|
|
Other liabilities
|
|
|
24
|
|
|
|
|
|
Shareholders equity
|
|
|
1,321
|
|
|
|
(11,811
|
)
|
Net interest income (expense)
|
|
|
59
|
|
|
|
(177
|
)
|
Investment income (loss):
|
|
|
|
|
|
|
|
|
California Investment Directions
|
|
|
765
|
|
|
|
(1,756
|
)
|
Nevada Investment Directions
|
|
|
|
|
|
|
875
|
|
Indian Palms
|
|
|
10,449
|
|
|
|
(6,143
|
)
|
Davsha
|
|
|
2,059
|
|
|
|
(6,983
|
)
|
Oakmont
|
|
|
|
|
|
|
74
|
|
Impairment on investments
|
|
|
(1,000
|
)
|
|
|
(5,500
|
)
|
Other income (loss)
|
|
|
(706
|
)
|
|
|
457
|
|
Operating expenses
|
|
|
(14,958
|
)
|
|
|
(772
|
)
|
Income tax benefit
|
|
|
488
|
|
|
|
1,488
|
|
Net loss
|
|
|
(2,844
|
)
|
|
|
(18,437
|
)
|
California Investment Directions, Inc. CIDI
was 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, Ltd. and a minority interest in Davsha,
LLC. CIDI was organized in the state of California. Davsha and
its subsidiaries invested in VIEs which were subject to
consolidation pursuant to ASC
810-10-15.
CIDI was dissolved during the year ended March 31, 2010
because its entire interest in the limited partnerships was
eliminated.
Nevada Investment Directions, Inc. NIDI was a
wholly owned non-banking subsidiary of IDI formed in March 1997
that had invested in a limited partnership, Oakmont, as a 94.12%
owner (IDI being the other 5.88% owner). NIDI was organized in
the state of Nevada. Oakmont invested in a VIE, Chandler Creek
Business Park of Round Rock, Texas. This interest was eliminated
in March 2009.
S&D Indian Palms, Ltd. Indian Palms was a
wholly owned non-banking subsidiary of IDI organized in the
state of California which owned a golf resort and land for
residential lot development in California. Indian Palms sold
land to Davsha, LLC, which in turn sold land to its subsidiaries
and subsequently to its real estate partnerships for lot
development.
18
Davsha, LLC. Davsha was a wholly owned
non-banking subsidiary of IDI (80% owned) and CIDI (20% owned).
Davsha was organized in the state of California, where it
purchased land from Indian Palms and developed residential
housing for sale. Davsha had three wholly owned non-banking
subsidiaries, Davsha III, Davsha V and Davsha VII. Each of these
subsidiaries formed partnerships with developers and purchased
lots from Davsha.
Oakmont. Oakmont became a wholly owned
non-banking subsidiary of NIDI and IDI in January 2000 with NIDI
having a 94.12% partnership interest and IDI having a 5.88%
partnership interest. Oakmont was organized in the state of
Texas. Oakmont was a limited partner in Chandler Creek Business
Park of Round Rock, Texas, a joint venture partnership formed to
develop an industrial park located in Round Rock, Texas. The
original project consisted of four office warehouse buildings
totaling 163,000 square feet and vacant land of
approximately 135 acres. Oakmont sold its interest in
Chandler Creek in March 2009 to one of the other partners in the
partnership. As a result of the sale, Oakmont recognized a gain
on sale of $1.4 million.
The assets that remain at IDI include an equity interest in one
commercial real estate property and one real estate development
along with various notes receivable.
At March 31, 2010, the Corporation had extended
$4.6 million to IDI to fund various partnership and
subsidiary investments. This represents a decrease of
$15.8 million from borrowings of $20.4 million at
March 31, 2009. These amounts are eliminated in
consolidation.
ADPC Corporation. ADPC is a wholly owned
subsidiary of the Bank that holds and develops certain of the
Banks foreclosed properties. The Banks investment in
ADPC at March 31, 2010 amounted to $2.7 million as
compared to $3.7 million at March 31, 2009. ADPC had a
net loss of $998,000 for the year ended March 31, 2010 as
compared to $747,000 for the year ended March 31, 2009.
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 Banks investment
portfolio (primarily mortgage-backed securities). As an
operating subsidiary, AICs results of operations are
combined with the Banks for financial and regulatory
purposes. The Banks investment in AIC amounted to
$223.6 million at March 31, 2010 as compared to
$212.6 million at March 31, 2009. AIC had net income
of $7.8 million for the year ended March 31, 2010 as
compared to $5.3 million for the year ended March 31,
2009.
Employees
The Corporation had 932 full-time employees and
131 part-time employees at March 31, 2010. 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.
Branch
Sale Agreements
On November 13, 2009, the Bank entered into a Branch Sale
Agreement for the sale of eleven branches in Northwestern
Wisconsin to Royal Credit Union (RCU) of Eau Claire, Wisconsin,
whereby RCU assumed approximately $169 million in deposits
and received a corresponding amount in loans, real estate and
other assets. The transaction received regulatory approval and
closed on June 25, 2010.
The Company and RCU made customary representations, warranties,
covenants and agreements in the Branch Sale Agreement. The
parties have also agreed to indemnify each other (subject to
customary limitations) with respect to breaches of
representations and warranties, breaches of covenants and
agreements, assets not retained or purchased, liabilities not
retained or assumed, and ownership or operation of the branches,
assets or liabilities during certain time periods.
On May 4, 2010, the Bank entered into a Branch Sale
Agreement for the sale of four branches in the Green Bay,
Wisconsin area to Nicolet National Bank (Nicolet) of Green Bay,
Wisconsin, whereby Nicolet assumed approximately
$117 million in deposits and receive a corresponding amount
in loans, real estate and other assets. The transaction is
subject to regulatory approval and customary closing conditions.
The transaction is expected to be completed in the second fiscal
quarter.
19
The Bank and Nicolet made customary representations, warranties,
covenants and agreements in the Branch Sale Agreement. The
parties have also agreed to indemnify each other (subject to
customary limitations) with respect to breaches of
representations and warranties, breaches of covenants and
agreements, assets not retained or purchased, liabilities not
retained or assumed, and ownership or operation of the branches,
assets or liabilities during certain time periods.
Regulation
and Supervision
The business of the Corporation and the Bank is subject to
extensive regulation and supervision under federal banking laws
and other federal and state laws and regulations. In general,
these laws and regulations are intended for the protection of
depositors, the deposit insurance funds administered by the FDIC
and the banking system as a whole, and not for the protection of
stockholders or creditors of insured institutions.
Set forth below are brief descriptions of selected laws and
regulations applicable to the Corporation and the Bank. These
descriptions are not intended to be a comprehensive description
of all laws and regulations to which the Corporation and the
Bank are subject or to be complete descriptions of the laws and
regulations discussed. The descriptions of statutory and
regulatory provisions are qualified in their entirety by
reference to the particular statutes and regulations. Changes in
applicable statutes, regulations or regulatory policy may have a
material effect on us and our businesses.
The
Corporation
General. The Corporation is registered as a
savings and loan holding company under Section 10 of the
Home Owners Loan Act (HOLA). As a result, the
Corporation is subject to the regulation, examination,
supervision and reporting requirements of the OTS. The
Corporation must file quarterly and annual reports with the OTS
that describes its financial condition.
Activities Restrictions. There are generally
no restrictions on the activities of a savings and loan holding
company, such as the Corporation, which controlled only one
subsidiary savings association on or before May 4, 1999 (a
grandfathered holding company). However, if the
Director of the OTS determines that there is reasonable cause to
believe that the continuation by a savings and loan holding
company of an activity constitutes a serious risk to the
financial safety, soundness or stability of its subsidiary
savings association, the Director may impose such restrictions
as it deems necessary to address such risk, including limiting
(i) payment of dividends by the savings association;
(ii) transactions between the savings association and its
affiliates; and (iii) any activities of the savings
association that might create a serious risk that the
liabilities of the holding company and its affiliates may be
imposed on the savings association. Notwithstanding the above
rules as to permissible business activities of unitary savings
and loan holding companies, if the savings association
subsidiary of such a holding company fails to meet the qualified
thrift lender (QTL) test, then such unitary holding
company also shall become subject to the activities restrictions
applicable to multiple savings and loan holding companies and,
unless the savings association requalifies as a QTL within one
year thereafter, shall register as, and become subject to the
restrictions applicable to, a bank holding company. Regulation
as a bank holding company could be adverse to the
Corporations operations and impose additional and possibly
more burdensome regulatory requirements on the Corporation. See
The Bank Qualified Thrift Lender
Test below.
If a savings and loan holding company acquires control of a
second savings association and holds it as a separate
institution, the holding company becomes a multiple savings and
loan holding company. As a general rule, multiple savings and
loan holding companies are subject to restrictions on their
activities that are not imposed on a grandfathered holding
company. They could not commence or continue any business
activity other than: (i) those permitted for a bank holding
company under section 4(c) of the Bank Holding Company Act
(unless the Director of the OTS by regulation prohibits or
limits such 4(c) activities); (ii) furnishing or performing
management services for a subsidiary savings association;
(iii) conducting an insurance agency or escrow business;
(iv) holding, managing, or liquidating assets owned by or
acquired from a subsidiary savings association; (v) holding
or managing properties used or occupied by a subsidiary savings
association; (vi) acting as trustee under deeds of trust;
or (vii) those activities authorized by regulation as of
March 5, 1987, to be engaged in by multiple savings and
loan holding companies.
20
Restrictions on Acquisitions. Except under
limited circumstances, savings and loan holding companies are
prohibited from acquiring, without prior approval of the OTS:
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|
|
|
|
control of any other savings institution or savings and loan
holding company or all or substantially all the assets
thereof; or
|
|
|
|
more than 5% of the voting shares of a savings institution or
holding company of a savings institution which is not a
subsidiary.
|
In evaluating an application by a holding company to acquire a
savings association, the OTS must consider the financial and
managerial resources and future prospects of the holding company
and savings association involved, the risk of the acquisition to
the insurance funds, the convenience and needs of the community
and the effect of the acquisition on competition. Acquisitions
which result in a savings and loan holding company controlling
savings associations in more than one state are generally
prohibited, except in supervisory transactions involving failing
savings associations or based on specific state authorization of
such acquisitions. Except with the prior approval of the OTS, no
director or officer of a savings and loan holding company or
person owning or controlling by proxy or otherwise more than 25%
of such Corporations voting stock, may acquire control of
any savings institution, other than a subsidiary savings
institution, or of any other savings and loan holding company.
Change of Control. Federal law requires, with
few exceptions, OTS approval (or, in some cases, notice and
effective clearance) prior to any acquisition of control of the
Corporation. Among other criteria, under OTS regulations,
control is conclusively presumed to exist if a
person or Corporation acquires, directly or indirectly, more
than 25% of any class of voting stock of the savings association
or holding company. Control is also presumed to exist, subject
to rebuttal, if an acquiror acquires more than 10% of any class
of voting stock (or more than 25% of any class of stock) and is
subject to any of several control factors,
including, among other matters, the relative ownership position
of a person, the existence of control agreements and board
composition.
Change in Management. If a savings and loan
holding company is in a troubled condition, as
defined in the OTS regulations, it is required to give
30 days prior written notice to the OTS before adding
or replacing a director, employing any person as a senior
executive officer or changing the responsibility of any senior
executive officer so that such person would assume a different
senior executive position. The OTS then has the opportunity to
disapprove any such appointment.
Limitations on Dividends. The Corporation is a
legal entity separate and distinct from the Bank and its other
subsidiaries. The Corporations principal source of revenue
consists of dividends from the Bank. The payment of dividends by
the Bank is subject to various regulatory requirements,
including a minimum of 30 days advance notice to the
OTS of any proposed dividend to the Corporation.
Other limitations may apply depending on the size of the
proposed dividend and the condition of the Bank. See
The Bank Restrictions on Capital
Distributions below.
The
Bank
General. The Bank is a federal savings bank
organized under the laws of the United States and subject to
regulation and examination by the OTS. The OTS regulates all
areas of the Banks banking operations, including
investments, reserves, lending, mergers, payment of dividends,
interest rates, transactions with affiliates (including the
Corporation), establishment of branches and other aspects of the
Banks operations. The Bank is subject to regular
examinations by the OTS and is assessed amounts to cover the
costs of such examinations.
Because the Banks deposits are insured by the FDIC to the
maximum extent permitted by law, the Bank is also regulated by
the FDIC. The major functions of the FDIC with respect to
insured institutions include making assessments, if required,
against insured institutions to fund the appropriate deposit
insurance fund and preventing the continuance or development of
unsound and unsafe banking practices.
Capital Requirements. OTS regulations require
that federal savings banks maintain: (i) tangible
capital in an amount of not less than 1.5% of adjusted
total assets, (ii) core
(Tier 1) capital in an amount not less than 3.0%
of adjusted total assets and (iii) a level of risk-based
capital equal to 8.0% of total risk-weighted assets. Most banks
are required to maintain a minimum leverage ratio of
core (Tier 1) capital of at least 4.0% to 5.0% of
adjusted total assets.
21
Core capital includes common stockholders
equity (including common stock, additional paid in capital and
retained earnings, but excluding any net unrealized gains or
losses, net of related taxes, on certain securities available
for sale), noncumulative perpetual preferred stock and any
related surplus and noncontrolling interests in the equity
accounts of full consolidated subsidiaries. Intangible assets
generally must be deducted from core capital, other than certain
servicing assets and purchased credit card relationships,
subject to limitations. Tangible capital means core
capital less any intangible assets (except for mortgage
servicing assets includable in core capital) and investments in
subsidiaries engaged in activities not permissible for a
national bank. Total capital, for purposes of the
risk-based capital requirement, equals the sum of core capital
plus supplementary (Tier 2) capital (which, as
defined, includes the sum of, among other items, perpetual
preferred stock not counted as core capital, limited life
preferred stock, subordinated debt and general loan and lease
loss allowances up to 1.25% of risk-weighted assets) less
certain deductions. The amount of supplementary
(Tier 2) capital that may be counted towards
satisfaction of the total capital requirement may not exceed
100% of core capital, and OTS regulations require the
maintenance of a minimum ratio of core capital to total
risk-weighted assets of 4.0%. Risk-weighted assets are
determined by multiplying certain categories of a savings
associations assets, including off-balance sheet
equivalents, by an assigned risk weight of 0% to 100% based on
the credit risk associated with those assets as specified in OTS
regulations.
As of March 31, 2010, the Bank was not in compliance with
all minimum regulatory capital requirements, with tangible, core
and risk-based capital ratios of 3.73%, 3.73% and 7.32%,
respectively. Capital requirements higher than the generally
applicable minimum requirement may be established for a
particular savings association if the OTS determines that the
institutions capital was or may become inadequate in view
of its particular circumstances. In June, 2009, the Bank
consented to the issuance of a Cease and Desist Agreement with
the OTS which requires, among other things, capital requirements
in excess of the generally applicable minimum requirements. See
Note 2 to the Consolidated Financial Statements included in
Item 8.
Prompt Corrective Action. Under
Section 38 of the Federal Deposit Insurance Act
(FDIA), each federal banking agency is required to
take prompt corrective action to deal with depository
institutions subject to their jurisdiction that fail to meet
their minimum capital requirements or are otherwise in a
troubled condition. The prompt corrective action provisions
require undercapitalized institutions to become subject to an
increasingly stringent array of restrictions, requirements and
prohibitions as their capital levels deteriorate and supervisory
problems mount. Should these corrective measures prove
unsuccessful in recapitalizing the institution and correcting
its problems, the FDIA mandates that the institution be placed
in receivership.
Pursuant to regulations promulgated under Section 38 of the
FDIA, the corrective actions that the banking agencies either
must or may take are tied primarily to an institutions
capital levels. In accordance with the framework set forth in
the FDIA, the federal banking agencies have developed a
classification system, pursuant to which all banks and savings
associations are placed into one of five categories: well
capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized.
The capital thresholds established for each of the categories
are as follows:
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Tier 1
|
|
Total
|
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Tier 1
|
|
Risk-Based
|
|
Risk-Based
|
Capital Category
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|
Leverage Ratio
|
|
Capital Ratio
|
|
Capital Ratio
|
|
Well Capitalized
|
|
5% or above
|
|
6% or above
|
|
10% or above
|
Adequately Capitalized
|
|
4% or above(1)
|
|
4% or above
|
|
8% or above
|
Undercapitalized
|
|
Less than 4%
|
|
Less than 4%
|
|
Less than 8%
|
Significantly Undercapitalized
|
|
Less than 3%
|
|
Less than 3%
|
|
Less than 6%
|
Critically Undercapitalized
|
|
Less than 2%
|
|
|
|
|
|
|
|
(1) |
|
3% for banks with the highest supervisory rating. |
The applicable federal banking agency also has authority, after
providing an opportunity for a hearing, to downgrade an
institution from well capitalized to
adequately capitalized or to subject an
adequately capitalized or
undercapitalized institution to the supervisory
actions applicable to the next lower category, for supervisory
concerns.
22
Applicable laws and regulations also generally provide that no
insured institution may make a capital distribution if it would
cause the institution to become undercapitalized.
Capital distributions include cash (but not stock) dividends,
stock purchases, redemptions and other distributions of capital
to the owners of an institution. Moreover, only a well
capitalized depository institution may accept brokered
deposits without prior regulatory approval.
Undercapitalized depository institutions are subject
to growth limitations and other restrictions and are required to
submit a capital restoration plan. The federal banking agencies
may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is
likely to succeed in restoring the depository institutions
capital. In addition, for a capital restoration plan to be
acceptable, the depository institutions parent holding
company must guarantee that the institution will comply with
such capital restoration plan. The aggregate liability of the
parent holding company is limited to the lesser of (i) an
amount equal to 5% of the depository institutions total
assets at the time it became undercapitalized, and
(ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all
capital standards applicable with respect to such institution as
of the time it fails to comply with the plan. If a depository
institution fails to submit an acceptable plan, it is treated as
if it is significantly undercapitalized.
Significantly undercapitalized depository
institutions may be subject to a number of requirements and
restrictions, including orders to sell sufficient voting stock
to become adequately capitalized, requirements to
reduce total assets and cessation of receipt of deposits from
correspondent banks.
Critically undercapitalized institutions are subject
to the appointment of a receiver or conservator.
As of March 31, 2010, the Bank was
undercapitalized. See Note 12 to the
Consolidated Financial Statements included in Item 8.
Restrictions on Capital Distributions. OTS
regulations govern capital distributions by savings
institutions, which include cash dividends, stock repurchases
and other transactions charged to the capital account of a
savings institution to make capital distributions. Under
applicable regulations, a savings institution must file an
application for OTS approval of the capital distribution if:
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the total capital distributions for the applicable calendar year
exceed the sum of the institutions net income for that
year to date plus the institutions retained net income for
the preceding two years;
|
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|
the institution would not be at least adequately capitalized
following the distribution;
|
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|
the distribution would violate any applicable statute,
regulation, agreement or OTS-imposed condition; or
|
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|
the institution is not eligible for expedited treatment of its
filings with the OTS.
|
If an application is not required to be filed, savings
institutions such as the Bank which are a subsidiary of a
holding company (as well as certain other institutions) must
still file a notice with the OTS at least 30 days before
the board of directors declares a dividend or approves a capital
distribution.
An institution that either before or after a proposed capital
distribution fails to meet its then applicable minimum capital
requirement or that has been notified that it needs more than
normal supervision may not make any capital distributions
without the prior written approval of the OTS. In addition, the
OTS may prohibit a proposed capital distribution, which would
otherwise be permitted by OTS regulations, if the OTS determines
that such distribution would constitute an unsafe or unsound
practice.
The FDIC prohibits an insured depository institution from paying
dividends on its capital stock or interest on its capital notes
or debentures (if such interest is required to be paid only out
of net profits) or distributing any of its capital assets while
it remains in default in the payment of any assessment due the
FDIC. The Bank is currently not in default in any assessment
payment to the FDIC.
Qualified Thrift Lender Test. A savings
association can comply with the qualified thrift lender, or QTL,
test set forth in the HOLA and implementing regulations of the
OTS by either meeting the QTL test set forth therein or
qualifying as a domestic building and loan association as
defined in Section 7701(a)(19) of the Internal Revenue Code
of 1986. The QTL test set forth in the HOLA requires a savings
association to maintain 65% of portfolio assets
23
in qualified thrift investments, or QTLs. Portfolio assets are
defined as total assets less intangibles, property used by a
savings association in its business and liquidity investments in
an amount not exceeding 20% of assets. Generally, QTLs are
residential housing related assets. At March 31, 2010, the
amount of the Banks assets which were invested in QTLs
exceeded the percentage required to qualify the Bank under the
QTL test.
Applicable laws and regulations provide that any savings
association that fails to meet the definition of a QTL must
either convert to a national bank charter or limit its future
investments and activities (including branching and payments of
dividends) to those permitted for both savings associations and
national banks. Further, within one year of the loss of QTL
status, a holding company of a savings association that does not
convert to a bank charter must register as a bank holding
company and be subject to all statutes applicable to bank
holding companies. In order to exercise the powers granted to
federally-chartered savings associations and maintain full
access to FHLB advances, the Bank must continue to meet the
definition of a QTL.
Safety and Soundness Standards. The OTS and
the other federal bank regulatory agencies have established
guidelines for safety and soundness, addressing operational and
managerial standards, as well as compensation matters for
insured financial institutions. Institutions failing to meet
these standards are required to submit compliance plans to their
appropriate federal regulators. The OTS and the other agencies
have also established guidelines regarding asset quality and
earnings standards for insured institutions. The Bank believes
that it is in compliance with these guidelines and standards.
Community Investment and Consumer Protection
Laws. In connection with the Banks lending
activities, the Bank is subject to a variety of federal laws
designed to protect borrowers and promote lending to various
sectors of the economy and population. Included among these are
the federal Home Mortgage Disclosure Act, Real Estate Settlement
Procedures Act,
Truth-in-Lending
Act,
Truth-in-Savings
Act, Fair Housing Act, Equal Credit Opportunity Act, Fair Credit
Reporting Act, Bank Secrecy Act, Money Laundering Prosecution
Improvements Act and Community Reinvestment Act.
The Community Reinvestment Act requires insured institutions to
define the communities that they serve, identify the credit
needs of those communities and adopt and implement a
Community Reinvestment Act Statement pursuant to
which they offer credit products and take other actions that
respond to the credit needs of the community. The responsible
federal banking regulator (the OTS in the case of the Bank) must
conduct regular Community Reinvestment Act examinations of
insured financial institutions and assign to them a Community
Reinvestment Act rating of outstanding,
satisfactory, needs improvement or
unsatisfactory. The record of a depository
institution under the Community Reinvestment Act will be taken
into account when applying for the establishment of new branches
or mergers with other institutions. The Banks current
Community Reinvestment Act rating is satisfactory.
The Bank attempts in good faith to ensure compliance with the
requirements of the consumer protection statutes to which it is
subject, as well as the regulations that implement the statutory
provisions. The requirements are complex, however, and even
inadvertent non-compliance could result in civil and, in some
cases, criminal liability.
Federal Deposit Insurance. The FDIC insures
the deposits, up to prescribed statutory limits, of federally
insured banks and savings institutions. Under the Federal
Deposit Insurance Reform Act of 2005 (the Reform
Act), which was signed into law on February 15, 2006:
(i) the Bank Insurance Fund and the Savings Association
Insurance Fund administered by the FDIC were merged into a new
combined fund, called the Deposit Insurance Fund
(DIF), effective March 31, 2006, (ii) the
current $100,000 deposit insurance coverage will be indexed for
inflation (with adjustments every five years, commencing
January 1, 2011); and (iii) deposit insurance coverage
for retirement accounts was increased to $250,000 per
participant subject to adjustment for inflation. The FDIC also
has been given greater latitude in setting the assessment rates
for insured depository institutions which could be used to
impose minimum assessments. On October 3, 2008, as part of
the Emergency Economic Stabilization Act of 2008, the level of
basic FDIC insurance of accounts was temporarily increased to
$250,000. The basic level is scheduled to return to $100,000 on
December 31, 2013.
In addition, on November 21, 2008, the Board of Directors
of the FDIC adopted a final rule relating to its Temporary
Liquidity Guarantee Program (TLGP). The TLGP was
first announced by the FDIC on October 14,
24
2008, preceded by the determination of systemic risk by the
Secretary of the Treasury (after consultation with the
President), as an initiative to counter the system-wide crisis
in the nations financial sector. Under the TLGP, the FDIC
will (i) guarantee, through the earlier of maturity or
June 30, 2012, certain newly issued senior unsecured debt
issued by participating institutions on or after
October 14, 2008 and before June 30, 2009 and
(ii) provide full FDIC deposit insurance coverage through
December 31, 2009 for non-interest bearing transaction
deposit accounts paying less than 0.5% interest per annum and
held at participating FDIC-insured institutions. Coverage under
the TLGP was available for the first 30 days without
charge. The Company and the Bank elected to continue to
participate in the TLGP account insurance program, through
payment of a fee assessment of 10 basis points per quarter
on amounts in excess of $250,000 in covered accounts. At
March 31, 2010, neither the Company nor the Bank had issued
any senior unsecured debt under the TLGP.
The FDIC is authorized to set the reserve ratio for the DIF
annually at between 1.15% and 1.5% of estimated insured
deposits. If the DIFs reserves exceed the designated
reserve ratio, the FDIC is required to pay out all or, if the
reserve ratio is less than 1.5%, a portion of the excess as a
dividend to insured depository institutions based on the
percentage of insured deposits held on December 31, 1996
adjusted for subsequently paid premiums. Insured depository
institutions that were in existence on December 31, 1996
and paid assessments prior to that date (or their successors)
are entitled to a one-time credit against future assessments
based on their past contributions to the FDICs insurance
funds.
Pursuant to the Reform Act, the FDIC has determined to maintain
the designated reserve ratio at its current 1.25%. The FDIC also
has adopted a new risk-based premium system that provides for
quarterly assessments based on an insured institutions
ranking in one of four risk categories based on their
examination ratings and capital ratios. Well-capitalized
institutions with the CAMELS ratings of 1 or 2 are grouped in
Risk Category I and are assessed for deposit insurance at an
annual rate of between 12 and 16 basis points, with the
assessment rate for an individual institution to be determined
according to a formula based on a weighted average of the
institutions individual CAMELS component ratings plus
either five financial ratios or, in the case of an institution
with assets of $10 billion or more, the average ratings of
its long-term debt. Institutions in Risk Categories II, III
and IV are assessed at annual rates of 22, 32 and
45 basis points, respectively.
In addition, all institutions with deposits insured by the FDIC
are required to pay assessments to fund interest payments on
bonds issued by the Financing Corporation, an agency of the
Federal government established to recapitalize the predecessor
to the Savings Association Insurance Fund. The assessment rate
for the first quarter of 2010 was .0104% of insured deposits and
it is adjusted quarterly. These assessments will continue until
the Financing Corporation bonds mature in 2017.
Insurance of deposits may be terminated by the FDIC, after
notice and hearing, upon a finding by the FDIC that the savings
association has engaged in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has
violated any applicable law, rule, regulation, order or
condition imposed by, or written agreement with, the FDIC.
Additionally, if insurance termination proceedings are initiated
against a savings association, the FDIC may temporarily suspend
insurance on new deposits received by an institution under
certain circumstances.
Due to losses incurred by the Deposit Insurance Fund from failed
institutions in 2008 and anticipated future losses, the FDIC
adopted, pursuant to a Restoration Plan to replenish the fund,
an across the board 7.0 basis point increase in the
assessment range for the first quarter of 2009. The FDIC
subsequently adopted further refinements to its risk-based
assessment system, effective April 1, 2009, that
effectively make the range 7.0 to 77.5 basis points. In May
2009, the FDIC adopted a final rule imposing a special
assessment on all insured institutions due to recent bank and
savings association failures. The emergency assessment amounts
to 5 basis points of total assets minus Tier 1 Capital
as of June 30, 2009. The assessment was collected on
September 30, 2009 and recorded against earnings for the
quarter ended June 30, 2009.
In November 2009, the FDIC issued a rule that required all
insured depository institutions, with limited exceptions, to
prepay their estimated quarterly risk-based assessments for the
fourth quarter of 2009 and for all of 2010, 2011 and 2012. The
FDIC also adopted a uniform three-basis point increase in
assessment rates effective on January 1, 2011.
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Brokered Deposits. The FDIA restricts the use
of brokered deposits by certain depository institutions. Under
the FDIA and applicable regulations, (i) a well
capitalized insured depository institution may solicit and
accept, renew or roll over any brokered deposit without
restriction, (ii) an adequately capitalized insured
depository institution may not accept, renew or roll over
any brokered deposit unless it has applied for and been granted
a waiver of this prohibition by the OTS and (iii) an
undercapitalized insured depository institution may
not (x) accept, renew or roll over any brokered deposit or
(y) solicit deposits by offering an effective yield that
exceeds by more than 75 basis points the prevailing
effective yields on insured deposits of comparable maturity in
such institutions normal market area or in the market area
in which such deposits are being solicited. The term
undercapitalized insured depository institution is
defined to mean any insured depository institution that fails to
meet the minimum regulatory capital requirement prescribed by
its appropriate federal banking agency. The OTS may, on a
case-by-case
basis and upon application by an adequately capitalized insured
depository institution, waive the restriction on brokered
deposits upon a finding that the acceptance of brokered deposits
does not constitute an unsafe or unsound practice with respect
to such institution. The Corporation had $173.5 million of
outstanding brokered deposits at March 31, 2010. At
March 31, 2010, the Bank is undercapitalized and as a
result, precluded from accepting, renewing or rolling over
brokered deposits without prior approval of the OTS. See
Note 2 to the Consolidated Financial Statements included in
Item 8.
Federal Home Loan Bank System. The FHLB System
consists of 12 regional FHLBs, each subject to supervision and
regulation by the Federal Housing Finance Board, or FHFB. The
FHLBs provide a central credit facility for member savings
associations. Collateral is required. The Bank is a member of
the FHLB of Chicago. The maximum amount that the FHLB of Chicago
will advance fluctuates from time to time in accordance with
changes in policies of the FHFB and the FHLB of Chicago, and the
maximum amount generally is reduced by borrowings from any other
source. In addition, the amount of FHLB advances that a savings
association may obtain is restricted in the event the
institution fails to maintain its status as a QTL.
Federal Reserve System. The Federal Reserve
Board has adopted regulations that require savings associations
to maintain non-earning reserves against their transaction
accounts (primarily NOW and regular checking accounts). These
reserves may be used to satisfy liquidity requirements imposed
by the OTS. Because required reserves must be maintained in the
form of cash or a non-interest-bearing account at a Federal
Reserve Bank, the effect of this reserve requirement is to
reduce the amount of the Banks interest-earning assets.
Transactions With Affiliates
Restrictions. Transactions between savings
associations and any affiliate are governed by Section 11
of the HOLA and Sections 23A and 23B of the Federal Reserve
Act and regulations thereunder. An affiliate of a savings
association generally is any company or entity which controls,
is controlled by or is under common control with the savings
association. In a holding company context, the parent holding
company of a savings association (such as the Corporation) and
any companies which are controlled by such parent holding
company are affiliates of the savings association. Generally,
Section 23A limits the extent to which the savings
association or its subsidiaries may engage in covered
transactions with any one affiliate to an amount equal to
10% of such associations capital stock and surplus, and
contains an aggregate limit on all such transactions with all
affiliates to an amount equal to 20% of such capital stock and
surplus. Section 23B applies to covered
transactions as well as certain other transactions and
requires that all transactions be on terms substantially the
same, or at least as favorable, to the savings association as
those provided to a non-affiliate. The term covered
transaction includes the making of loans to, purchase of
assets from and issuance of a guarantee to an affiliate and
similar transactions. Section 23B transactions also apply
to the provision of services and the sale of assets by a savings
association to an affiliate. In addition to the restrictions
imposed by Sections 23A and 23B, Section 11 of the
HOLA prohibits a savings association from (i) making a loan
or other extension of credit to an affiliate, except for any
affiliate which engages only in certain activities which are
permissible for bank holding companies, or (ii) purchasing
or investing in any stocks, bonds, debentures, notes or similar
obligations of any affiliate, except for affiliates which are
subsidiaries of the savings association.
In addition, Sections 22(g) and (h) of the Federal
Reserve Act place restrictions on extensions of credit to
executive officers, directors and principal stockholders. Under
Section 22(h), loans to a director, an executive officer
and to a greater than 10% stockholder of a savings association
(a principal stockholder), and certain affiliated
interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the
savings associations loans to one borrower limit
(generally equal to 15% of the institutions
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unimpaired capital and surplus). Section 22(h) also
requires that loans to directors, executive officers and
principal stockholders be made on terms substantially the same
as offered in comparable transactions to other persons unless
the loans are made pursuant to a benefit or compensation program
that (i) is widely available to employees of the
institution and (ii) does not give preference to any
director, executive officer or principal stockholder, or certain
affiliated interests of either, over other employees of the
savings institution. Section 22(h) also requires prior
board approval for certain loans. In addition, the aggregate
amount of extensions of credit by a savings institution to all
insiders cannot exceed the institutions unimpaired capital
and surplus. Furthermore, Section 22(g) places additional
restrictions on loans to executive officers. At March 31,
2010, the Bank was in compliance with the above restrictions.
The USA PATRIOT Act of 2001. The USA PATRIOT
Act requires financial institutions such as the Bank to prohibit
correspondent accounts with foreign shell banks, establish an
anti-money laundering program that includes employee training
and an independent audit, follow minimum standards for
identifying customers and maintaining records of the
identification information and make regular comparisons of
customers against agency lists of suspected terrorists, their
organizations and money launderers.
Privacy Regulation. The Corporation and the
Bank are subject to numerous privacy-related laws and their
implementing regulations, including but not limited to
Title V of the Gramm-Leach-Bliley Act, the Fair Credit
Reporting Act, the Electronic Funds Transfer Act, the Right to
Financial Privacy Act, the Childrens Online Privacy
Protection Act and other federal and state privacy and consumer
protection laws. Those laws and the regulations promulgated
under their authority can limit, under certain circumstances,
the extent to which financial institutions may disclose
nonpublic personal information that is specific to a particular
individual to affiliated companies and nonaffiliated third
parties. Moreover, the Bank is required to establish and
maintain a comprehensive Information Security Program in
accordance with the Interagency Guidelines Establishing
Standards for Safeguarding Customer Information. The program
must be designed to:
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ensure the security and confidentiality of customer information;
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protect against any anticipated threats or hazards to the
security or integrity of such information; and
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protect against unauthorized access to or use of such
information that could result in substantial harm or
inconvenience to any customer.
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In addition, the Federal Trade Commission has implemented a
nationwide do not call registry that allows
consumers to prevent unsolicited telemarketing calls. Millions
of households already have placed their telephone numbers on
this registry.
Regulatory Enforcement Authority. The
enforcement powers available to federal banking agencies are
substantial and include, among other things, the ability to
assess civil money penalties, to issue
cease-and-desist
or removal orders and to initiate injunctive actions against
insured institutions and institution-affiliated parties. In
general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports
filed with regulatory authorities.
Sarbanes-Oxley Act of 2002. On July 30,
2002, President George W. Bush signed into law the
Sarbanes-Oxley Act of 2002, which generally establishes a
comprehensive framework to modernize and reform the oversight of
public company auditing, improve the quality and transparency of
financial reporting by those companies and strengthen the
independence of auditors. Among other things, the new
legislation (i) created a public company accounting
oversight board which is empowered to set auditing, quality
control and ethics standards, to inspect registered public
accounting firms, to conduct investigations and to take
disciplinary actions, subject to SEC oversight and review;
(ii) strengthened auditor independence from corporate
management by, among other things, limiting the scope of
consulting services that auditors can offer their public company
audit clients; (iii) heightened the responsibility of
public company directors and senior managers for the quality of
the financial reporting and disclosure made by their companies;
(iv) adopted a number of provisions to deter wrongdoing by
corporate management; (v) imposed a number of new corporate
disclosure requirements; (vi) adopted provisions which
generally seek to limit and expose to public view possible
conflicts of interest affecting securities analysts; and
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(vii) imposed a range of new criminal penalties for fraud
and other wrongful acts, as well as extended the period during
which certain types of lawsuits can be brought against a company
or its insiders.
Overdraft Regulation. The Federal Reserve has
amended Regulation E (Electronic Fund Transfers)
effective July 1, 2010 to require consumers to opt in, or
affirmatively consent, to the institutions overdraft
service for ATM and one-time debit card transactions, before
overdraft fees may be assessed on the account. Consumers will
also be provided a clear disclosure of the fees and terms
associated with the institutions overdraft service.
Source of Strength Doctrine. Federal Reserve
policy requires bank holding companies to act as a source of
financial and managerial strength to their subsidiary banks.
Under this policy, the holding company is expected to commit
resources to support its bank subsidiary, including at times
when the holding company may not be in a financial position to
provide it. Any capital loans by a bank holding company to its
subsidiary bank are subordinate in right of payment to deposits
and to certain other indebtedness of such subsidiary bank. In
the event of a bank holding companys bankruptcy, any
commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a bank subsidiary
will be assumed by the bankruptcy trustee and entitled to
priority of payment.
Emergency
Economic Stabilization Act of 2008
On October 3, 2008, President Bush signed into law the
Emergency Economic Stabilization Act of 2008 (EESA),
giving the United States Department of the Treasury
(Treasury) authority to take certain actions to
restore liquidity and stability to the U.S. banking
markets. Based upon its authority in the EESA, a number of
programs to implement EESA have been announced. Those programs
include the following:
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Capital Purchase Program (CPP). Pursuant to this
program, Treasury, on behalf of the US government, will purchase
preferred stock, along with warrants to purchase common stock,
from certain financial institutions, including bank holding
companies, savings and loan holding companies and banks or
savings associations not controlled by a holding company. The
investment will have a dividend rate of 5% per year, until the
fifth anniversary of Treasurys investment and a dividend
of 9% thereafter. During the time Treasury holds securities
issued pursuant to this program, participating financial
institutions will be required to comply with certain provisions
regarding executive compensation and corporate governance.
Participation in this program also imposes certain restrictions
upon an institutions dividends to common shareholders and
stock repurchase activities. As described further herein, we
elected to participate in the CPP and received $110 million
pursuant to the program.
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Temporary Liquidity Guarantee Program. This program contained
both (i) a debt guarantee component, whereby the FDIC will
guarantee until June 30, 2012, the senior unsecured debt
issued by eligible financial institutions between
October 14, 2008 and June 30, 2009; and (ii) an
account transaction guarantee component, whereby the FDIC will
insure 100% of non-interest bearing deposit transaction accounts
held at eligible financial institutions, such as payment
processing accounts, payroll accounts and working capital
accounts through December 31, 2009. The deadline for
participation or opting out of this program was December 5,
2008. We elected not to opt out of the program.
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Temporary increase in deposit insurance coverage. Pursuant to
the EESA, the FDIC temporarily raised the basic limit on federal
deposit insurance coverage from $100,000 to $250,000 per
depositor. The EESA provides that the basic deposit insurance
limit will return to $100,000 after December 31, 2013.
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The
American Recovery and Reinvestment Act of 2009.
On February 17, 2009, the American Recovery and
Reinvestment Act of 2009 (ARRA) was signed into law.
Included among the many provisions in ARRA are restrictions
affecting financial institutions who are participants in TARP,
which are set forth in the form of amendments to EESA. These
amendments provide that during the period in which any
obligation under TARP remains outstanding (other than
obligations relating to outstanding warrants), TARP recipients
are subject to appropriate standards for executive compensation
and corporate governance which were set forth in an interim
final rule regarding TARP standards for Compensation and
Corporate Governance,
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issued by Treasury and effective on June 15, 2009 (the
Interim Final Rule). Among the executive
compensation and corporate governance provisions included in
ARRA and the Interim Final Rule are the following:
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an incentive compensation clawback provision to
cover senior executive officers (defined in this
instance and below to mean the named executive
officers for whom compensation disclosure is provided in
the companys proxy statement) and the next 20 most highly
compensated employees;
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a prohibition on certain golden parachute payments to cover any
payment related to a departure for any reason (with limited
exceptions) made to any senior executive officer (as defined
above) and the next five most highly compensated employees;
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a limitation on incentive compensation paid or accrued to the
five most highly compensated employees of the financial
institution, subject to limited exceptions for pre-existing
arrangements set forth in written employment contracts executed
on or prior to February 11, 2009, and certain awards of
restricted stock which may not exceed 1/3 of annual
compensation, are subject to a two year holding period and
cannot be transferred until Treasurys preferred stock is
redeemed in full;
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a requirement that the Companys chief executive officer
and chief financial officer provide in annual securities
filings, a written certification of compliance with the
executive compensation and corporate governance provisions of
the Interim Final Rule;
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an obligation for the compensation committee of the board of
directors to evaluate with the companys chief risk officer
certain compensation plans to ensure that such plans do not
encourage unnecessary or excessive risks or the manipulation of
reported earnings;
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a requirement that companies adopt a company-wide policy
regarding excessive or luxury expenditures; and
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a requirement that companies permit a separate, non-binding
shareholder vote to approve the compensation of executives.
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ARRA also empowers the Treasury with the authority to review
bonus, retention, and other compensation paid to senior
executive officers that have received TARP assistance to
determine if the compensation was inconsistent with the purposes
of ARRA or TARP, or otherwise contrary to the public interest
and, if so, seek to negotiate reimbursements. The provision of
ARRA will apply to the Company until it has redeemed the
securities sold to the Treasury under the CPP.
In addition, companies who have issued preferred stock to
Treasury under TARP are now permitted to redeem such investments
at any time, subject to consultation with banking regulators.
Upon such redemption, the warrants may be immediately liquidated
by Treasury.
Homeowners
Affordability and Stability Plan
In February 2009, the Administration also announced its
Financial Stability Plan and Homeowners Affordability and
Stability Plan (HASP). The Financial Stability Plan
is the second phase of TARP, to be administrated by the
Treasury. Its four key elements include:
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the development of a public/private investment fund essentially
structured as a government sponsored enterprise with the mission
to purchase troubled assets from banks with an initial
capitalization from government funds;
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the Capital Assistance Program under which the Treasury will
purchase additional preferred stock available only for banks
that have undergone a new stress test given by their regulator;
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an expansion of the Federal Reserves term asset-backed
liquidity facility to support the purchase of up to
$1 trillion in AAA-rated asset backed securities backed by
consumer, student, and small business loans, and possible other
types of loans; and
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the establishment of a mortgage loan modification program with
$50 billion in federal funds further detailed in the HASP.
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The HASP is a program aimed to help seven to nine million
families restructure their mortgages to avoid foreclosure. The
plan also develops guidance for loan modifications nationwide.
HASP provides programs and funding for eligible refinancing of
loans owned or guaranteed by Fannie Mae or Freddie Mac, along
with incentives to lenders, mortgage servicers, and borrowers to
modify mortgages of responsible homeowners who are
at risk of defaulting on their mortgage. The goals of HASP are
to assist in the prevention of home foreclosures and to help
stabilize falling home prices.
Beyond the Companys participation in certain programs,
such as TARP, the Company will benefit from these programs if
they help stabilize the national banking system and aid in the
recovery of the housing market.
Legislative
and Regulatory Proposals
Proposals to change the laws and regulations governing the
operations and taxation of, and federal insurance premiums paid
by, savings banks and other financial institutions and companies
that control such institutions are frequently raised in the
U.S. Congress, state legislatures and before the FDIC, the
OTS and other bank regulatory authorities. The likelihood of any
major changes in the future and the impact such changes might
have on us or our subsidiaries are impossible to determine.
Similarly, proposals to change the accounting treatment
applicable to savings banks and other depository institutions
are frequently raised by the SEC, the federal banking agencies,
the IRS and other appropriate authorities, including, among
others, proposals relating to fair market value accounting for
certain classes of assets and liabilities. The likelihood and
impact of any additional future accounting rule changes and the
impact such changes might have on us or our subsidiaries are
impossible to determine at this time.
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.
The Small Business Job Protection Act of 1996 (the Job
Protection Act) repealed the reserve method of
accounting for bad debts by most thrift institutions effective
for the taxable years beginning after 1995. Larger thrift
institutions such as the Bank are now required to use the
specific charge-off method. The Job Protection Act
also granted partial relief from reserve recapture provisions,
which are triggered by the change in method. This legislation
did not have a material impact on the Banks financial
condition or results of operations.
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 Corporations consolidated income tax group,
including, pursuant to an agreement between the Corporation and
the Wisconsin Department of Revenue, AIC commencing in the
fourth quarter of fiscal 2004.
In analyzing whether to make or to continue an investment in
our securities, investors should consider, among other factors,
the following risk factors.
Risks
Related to Our Industry
Our
business may be adversely affected by current conditions in the
financial markets, the real estate market and economic
conditions generally.
Beginning in the latter half of 2007 and continuing into 2010,
negative developments in the capital markets resulted in
uncertainty and instability in the financial markets, and an
economic downturn. The housing market declined, resulting in
decreasing home prices and increasing delinquencies and
foreclosures. The credit performance of residential and
commercial real estate, construction and land loans resulted in
significant write-downs of
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asset values by financial institutions, including
government-sponsored entities and major commercial and
investment banks. The declines in the performance and value of
mortgage assets encompassed all mortgage and real estate asset
types, leveraged bank loans and nearly all other asset classes,
including equity securities. These write-downs have caused many
financial institutions to seek additional capital or to merge
with larger and stronger institutions. Some financial
institutions have failed. Continued, and potentially increased,
volatility, instability and weakness could affect our ability to
sell investment securities and other financial assets, which in
turn could adversely affect our liquidity and financial
position. This instability also could affect the prices at which
we could make any such sales, which could adversely affect our
earnings and financial condition.
Concerns over the stability of the financial markets and the
economy have resulted in decreased lending by some financial
institutions to their customers and to each other. This
tightening of credit has led to increased loan delinquencies,
lack of customer confidence, increased market volatility and a
widespread reduction in general business activity. Competition
among depository institutions for deposits has increased
significantly, and access to deposits or borrowed funds has
decreased for many institutions. It has also become more
difficult to assess the creditworthiness of customers and to
estimate the losses inherent in our loan portfolio.
Current conditions, including high unemployment, weak corporate
performance, soft real estate markets, and the decline of home
sales and property values, could negatively affect the volume of
loan originations and prepayments, the value of the real estate
securing our mortgage loans, and borrowers ability to
repay loan obligations, all of which could adversely impact our
earnings and financial condition. Business activity across a
wide range of industries and regions is greatly reduced, and
local governments and many companies are in serious difficulty
due to the lack of consumer spending and the lack of liquidity
in the credit markets. A worsening of current conditions would
likely adversely affect our business and results of operations,
as well as those of our customers. As a result, we may
experience increased foreclosures, delinquencies and customer
bankruptcies, as well as more restricted access to funds.
The
soundness of other financial institutions could negatively
affect us.
Our ability to engage in routine funding transactions could be
adversely affected by the actions and commercial soundness of
other financial institutions. Financial services institutions
are interrelated as a result of trading, clearing, counterparty,
or other relationships. As a result, defaults by, or even rumors
or questions about, one or more financial services institutions,
or the financial services industry generally, have led to
market-wide liquidity problems and could lead to losses or
defaults by us or by other institutions. Many of these
transactions expose us to credit risk in the event of default of
our counterparty or client. In addition, our credit risk may be
exacerbated when the collateral held by us cannot be realized
upon or is liquidated at prices not sufficient to recover the
full amount of the financial instrument exposure due us. There
is no assurance that any such losses would not materially and
adversely affect our results of operations.
Regulation
by federal and state agencies could adversely affect our
business, revenue, and profit margins.
We are heavily regulated by federal and state agencies. This
regulation is to protect depositors, the federal deposit
insurance fund and the banking system as a whole. Congress and
state legislatures and federal and state regulatory agencies
continually review banking laws, regulations, and policies for
possible changes. Changes to statutes, regulations, or
regulatory policies, including interpretation or implementation
of statutes, regulations, or policies, could affect us
adversely, including limiting the types of financial services
and products we may offer
and/or
increasing the ability of non-banks to offer competing financial
services and products. Also, if we do not comply with laws,
regulations, or policies, we could receive regulatory sanctions
and damage to our reputation.
Competition
in the financial services industry is intense and could result
in losing business or reducing margins.
We operate in a highly competitive industry that could become
even more competitive as a result of legislative, regulatory and
technological changes, and continued consolidation. We face
aggressive competition from other domestic and foreign lending
institutions and from numerous other providers of financial
services. The ability of non-banking financial institutions to
provide services previously limited to commercial banks has
intensified
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competition. Because non-banking financial institutions are not
subject to the same regulatory restrictions as banks and bank
holding companies, they can often operate with greater
flexibility and lower cost structures. Securities firms and
insurance companies that elect to become financial holding
companies may acquire banks and other financial institutions.
This may significantly change the competitive environment in
which we conduct business. Some of our competitors have greater
financial resources
and/or face
fewer regulatory constraints. As a result of these various
sources of competition, we could lose business to competitors or
be forced to price products and services on less advantageous
terms to retain or attract clients, either of which would
adversely affect our profitability.
We
continually encounter technological change.
The financial services industry is continually undergoing rapid
technological change with frequent introductions of new
technology-driven products and services. The effective use of
technology increases efficiency and enables financial
institutions to better serve customers and to reduce costs. Our
future success depends, in part, upon our ability to address the
needs of our customers by using technology to provide products
and services that will satisfy customer demands, as well as to
create additional efficiencies in our operations. Many
competitors have substantially greater resources to invest in
technological improvements. We may not be able to effectively
implement new technology-driven products and services or be
successful in marketing these products and services to its
customers. Failure to successfully keep pace with technological
change affecting the financial services industry could have a
material adverse impact on our business and, in turn, our
financial condition, results of operations and cash flows.
Risks
Related to Our Business
We
experienced a net loss in fiscal 2010 directly attributable to a
substantial deterioration in our commercial real estate, land
and construction loan portfolio and the resulting increase in
our provision for loan losses.
We realized a net loss of $177.1 million in fiscal 2010.
The net loss is primarily the result of a $161.9 million
provision to our loan loss reserve. The loan loss reserve is the
amount required to maintain the allowance for loan losses at an
adequate level to absorb probable loan losses. The provision for
loan losses is primarily attributable to our residential
construction and residential land loan portfolios, which
continue to experience deterioration in estimated collateral
values and repayment abilities of some of our customers. Other
reasons for the level of the provision for loan losses are
attributable to the continuing general weakening economic
conditions and decline in real estate values in the markets
served by the Corporation.
At March 31, 2010, our non-performing loans (consisting of
loans past due more than 90 days, loans less than
90 days delinquent but placed on non-accrual status due to
anticipated probable loss and non-accrual troubled debt
restructurings) were $369.1 million compared to
$227.8 million at March 31, 2009. For the year ended
March 31, 2010, annualized net charge-offs as a percentage
of average loans were 3.30% compared to 2.60% for the
corresponding period in 2009. These increases are primarily due
to our construction and land portfolio.
At March 31, approximately 75% of total gross loans were
classified as first mortgage loans, with approximately 3% of
loans being classified as construction loans and approximately
7% being classified as land loans.
The deterioration in our commercial real estate, construction
and land loan portfolios has been caused primarily by the
weakening economy and the slowdown in sales of the housing
market. The unemployment rate for the state of Wisconsin was
9.8% as of March 31, 2010 compared to 9.4% at
March 31, 2009. With many real estate projects requiring an
extended time to market, some of our borrowers have exhausted
their liquidity which may require us to place their loans into
non-accrual status.
Our
independent registered public accounting firm has expressed
substantial doubt about our ability to continue as a going
concern.
Our independent registered public accounting firm in its audit
report for the fiscal year ending March 31, 2010 has
expressed substantial doubt about our ability to continue as a
going concern. Continued operations depend on
32
our ability to meet our existing debt obligations and the
financing or other capital required to do so may not be
available or may not be available on reasonable terms. The Bank
has low levels of capital, significant operating losses and
significant deterioration in the quality of its assets. Further,
we have become subject to enhanced regulatory scrutiny. The
potential lack of sources of liquidity raises substantial doubt
about our ability to continue as a going concern for the
foreseeable future. Our Consolidated Financial Statements were
prepared under the assumption that we will continue our
operations on a going concern basis, which contemplates the
realization of assets and the discharge of liabilities in the
normal course of business. Our Consolidated Financial Statements
do not include any adjustments that might be necessary if we are
unable to continue as a going concern. If we cannot continue as
a going concern, our shareholders will lose some or all of their
investment.
We are actively pursuing a broad range of strategic alternatives
in order to address any doubt related to the Corporations
ability to continue as a going concern. There can be no
assurance that the pursuit of strategic alternatives will result
in any transaction, or that any such transaction, if
consummated, will allow the Corporations shareholders to
avoid a loss of all or substantially all of their investment in
the Corporation. In addition, a transaction, which would likely
involve equity financing, would result in substantial dilution
to our current shareholders and could adversely affect the price
of our common stock. The pursuit of strategic alternatives may
also involve significant expenses and management time and
attention.
The
Bank may be subject to a federal conservatorship or receivership
if it cannot comply with the Cease and Desist Order, the Capital
Restoration Plan, the Memorandum of Understanding, or if its
condition continues to deteriorate.
In June 2009, the Bank voluntarily entered into a Cease and
Desist Order with the OTS which required, among other things,
capital requirements in excess of the generally applicable
minimum requirements. The Bank is also required to create and
implement a Capital Restoration Plan. In December 2009, the Bank
submitted its Capital Restoration Plan which was rejected by the
OTS. The Bank was given until May, 2010 to submit another
Capital Restoration Plan and there is no assurance it will be
able to submit an acceptable plan or, if a plan is accepted,
implement the plan. Moreover, the condition of the Banks
loan portfolio may continue to deteriorate in the current
economic environment and thus continue to deplete the
Banks capital and other financial resources. Therefore,
should the Bank fail to comply with the Cease and Desist Order
or the Memorandum of Understanding, fail to implement an
acceptable Capital Restoration Plan and comply with its terms,
fail to comply with capital and liquidity funding requirements,
or suffer a continued deterioration in its financial condition,
the Bank may be subject to being placed into a federal
conservatorship or receivership by the OTS, with the FDIC
appointed as conservator or receiver. If these events occur, the
Corporation probably would suffer a complete loss of the value
of its ownership interest in the Bank, and the Corporation
subsequently may be exposed to significant claims by the FDIC
and the OTS.
Our
business is subject to liquidity risk, and changes in our source
of funds may adversely affect our performance and financial
condition by increasing our cost of funds.
Our ability to make loans is directly related to our ability to
secure funding. Retail deposits and core deposits are our
primary source of liquidity. We also rely on advances from the
FHLB of Chicago as a funding source. We have also been granted
access to Federal Reserve Bank of Chicagos discount
window, but as of March 31, 2010 we had no borrowings
outstanding from this source. In addition, as of March 31,
2010, the Corporation had outstanding borrowings from the FHLB
of $613.4 million, out of our maximum borrowing capacity
from the FHLB at this time of $729.7 million.
Primary uses of funds include withdrawal of and interest
payments on deposits, originations of loans and payment of
operating expenses. Core deposits represent a significant source
of low-cost funds. Alternative funding sources such as large
balance time deposits or borrowings are a comparatively
higher-cost source of funds. Liquidity risk arises from the
inability to meet obligations when they come due or to manage
unplanned decreases or changes in funding sources. Although we
believe we can continue to pursue our core deposit funding
strategy successfully, significant fluctuations in core deposit
balances may adversely affect our financial condition and
results of operations.
33
Concern
of our customers over deposit insurance may cause a decrease in
deposits.
With recent increased concerns about bank failures, customers
increasingly are concerned about the extent to which their
deposits are insured by the FDIC. Customers may withdraw
deposits in an effort to ensure that the amount they have on
deposit with their bank is fully insured. On October 14,
2008, the FDIC announced a new program, the Temporary Liquidity
Guarantee Program (the TLGP) where all
noninterest-bearing transaction deposit accounts, including all
personal and business checking deposit accounts, and NOW
accounts, which are capped at a rate no higher than 0.50%, are
fully guaranteed, through December 31, 2010, regardless of
dollar amount. We have elected to participate in the program. If
this program is not extended beyond December 31, 2010, we
may experience a decrease in deposits. Decreases in deposits may
adversely affect our funding costs, net income, and liquidity.
Our
liquidity is largely dependent upon our ability to receive
dividends from our subsidiary bank, which accounts for most of
our revenue and could affect our ability to pay dividends, and
we may be unable to enhance liquidity from other
sources.
We are a separate and distinct legal entity from our
subsidiaries, including the Bank. We receive substantially all
of our revenue from dividends from the Bank. These dividends are
the principal source of funds to pay dividends on our common
stock and interest and principal on our debt. Various federal
and/or state
laws and regulations limit the amount of dividends that the Bank
and certain of our non-bank subsidiaries may pay us.
Additionally, if our subsidiaries earnings are not
sufficient to make dividend payments to us while maintaining
adequate capital levels, our ability to make dividend payments
to our preferred and common shareholders will be negatively
impacted. The Bank is currently precluded from paying dividends
to us.
Additional
increases in our level of non-performing assets would have an
adverse effect on our financial condition and results of
operations.
Weakening conditions in the real estate sector have adversely
affected, and may continue to adversely affect, our loan
portfolio. Non-performing assets increased by
$144.1 million to $424.5 million, or 9.6% of total
assets, at March 31, 2010 from $280.4 million, or 5.3%
of total assets, at March 31, 2009. If loans that are
currently non-performing further deteriorate, we may need to
increase our allowance to cover additional charge-offs. If loans
that are currently performing become non-performing, we may need
to continue to increase our allowance for loan losses if
additional losses are anticipated which would have an adverse
impact on our financial condition and results of operations. The
increased time and expense associated with the work out of
non-performing assets and potential non-performing assets also
could adversely affect our operations.
Future
sales or other dilution of the Corporations equity may
adversely affect the market price of the Corporations
common stock.
In connection with our participation in TARP CPP the Corporation
has, or under other circumstances may, issue additional common
stock or preferred securities, including securities convertible
or exchangeable for, or that represent the right to receive,
common stock. Further, pursuant to the Cease and Desist order
with the OTS, the Bank must meet certain capital ratios which
may require the issuance of additional equity capital, which
would significantly dilute the current shareholders. The market
price of the Corporations common stock could decline as a
result of sales of a large number of shares of common stock,
preferred stock or similar securities in the market. The
issuance of additional capital stock would dilute the ownership
interest of the Corporations existing shareholders.
Holders
of our common stock have no preemptive rights and are subject to
potential dilution.
Our articles of incorporation do not provide any shareholder
with a preemptive right to subscribe for additional shares of
common stock upon any increase thereof. Thus, upon the issuance
of any additional shares of common stock or other voting
securities of the Company or securities convertible into common
stock or other voting securities, shareholders may be unable to
maintain their pro rata voting or ownership interest in us.
34
On
June 26, 2009, the Corporation and the Bank each consented
to the issuance of an Order to Cease and Desist by the Office of
Thrift Supervision. If we do not raise additional capital, we
may not be in compliance with the capital requirements of the
Banks Cease and Desist Order, which could have a material
adverse effect upon us.
The Cease and Desist Orders required that, no later than
September 30, 2009, the Bank meet and maintain both a core
capital ratio equal to or greater than 7 percent and a
total risk-based capital ratio equal to or greater than
11 percent. Further, no later than December 31, 2009,
the Bank had to meet and maintain both a core capital ratio
equal to or greater than 8 percent and a total risk-based
capital ratio equal to or greater than 12 percent. At
March 31, 2010, the Bank and Corporation had complied with
all aspects of the Cease and Desist Orders, except that the
Bank, based upon presently available unaudited financial
information, had core capital and total risk-based capital
ratios of 3.73 percent and 7.32 percent, respectively,
each below the required capital ratios set forth above. On
May 21, 2010, the Bank submitted a revised Capital
Restoration Plan to the OTS and continues to comply with all
other requests from the OTS with the exception of achieving the
capital ratios set forth above. Without a waiver by the OTS,
amendment or modification of the Orders, or acceptance of the
Banks Capital Restoration Plan, the Bank could be subject
to further regulatory action.
All customer deposits remain fully insured to the highest limits
set by the FDIC.
If the Bank is placed in conservatorship or receivership, it is
highly likely that such action would lead to a complete loss of
all value of the Companys ownership interest in the Bank.
In addition, further restrictions could be placed on the Bank if
it were determined that the Bank was significantly
undercapitalized, or critically undercapitalized, with
increasingly greater restrictions being imposed as any level of
undercapitalization increased.
Anchor
Bancorp and the Bank are no longer considered adequately
capitalized for regulatory purposes, which causes us to
incur increased premiums for deposit insurance, limits the
Banks ability to gather brokered deposits, and will
trigger acceleration of certain of our brokered
deposits.
As of March 31, 2010, AnchorBank is not considered
adequately capitalized for regulatory capital
purposes. As a result, the FDIC will assess higher deposit
insurance premiums on the Bank, which will impact our earnings.
Because the Bank is not considered adequately
capitalized, the Bank is not able to accept new brokered
deposits at this time or to renew maturing brokered deposits
without FDIC approval. The Bank is also precluded from offering
certificates of deposit at rates which exceed the national
average from comparable certificates of deposit plus
75 basis points.
Our
allowance for losses on loans and leases may not be adequate to
cover probable losses.
Our level of non-performing loans increased significantly in the
fiscal year ended March 31, 2010, relative to comparable
periods for the preceding year. Our provision for loan losses
decreased by $43.8 million to $161.9 million for the
fiscal year ended March 31, 2010 from $205.7 million
for the fiscal year ended March 31, 2009. Our allowance for
loan losses increased by $42.4 million to
$179.6 million, or 5.2% of total loans, at March 31,
2010 from $137.2 million, or 3.3% of total loans at
March 31, 2009. Our allowance for loan losses also
increased by $98.9 million to $137.2 million, or 3.3%
of total loans, at March 31, 2009, from $38.3 million,
or 0.9% of total loans, at March 31, 2008. Our allowance
for loan and foreclosure losses was 46.2% at March 31,
2010, 52.1% at March 31, 2009 and 35.0% at March 31,
2008, respectively, of non-performing assets. There can be no
assurance that any future declines in real estate market
conditions and values, general economic conditions or changes in
regulatory policies will not require us to increase our
allowance for loan and lease losses, which would adversely
affect our results of operations.
Future
Federal Deposit Insurance Corporation assessments will hurt our
earnings.
In May 2009, the Federal Deposit Insurance Corporation adopted a
final rule imposing a special assessment on all insured
institutions due to recent bank and savings association
failures. The emergency assessment amounts to 5 basis
points of total assets minus Tier 1 Capital as of
June 30, 2009. We recorded an expense of $2.5 million
during the quarter ended June 30, 2009, to reflect the
special assessment. The assessment was collected on
September 30, 2009 and was recorded against earnings for
the quarter ended June 30, 2009. The special assessment
negatively
35
impacted the Companys earnings for the year ended
March 31, 2010, as compared to the year ended
March 31, 2009, as a result of this special assessment. In
November 2009, the FDIC issued a rule that required all insured
depository institutions, with limited exceptions, to prepay
their estimated quarterly risk-based assessments for the fourth
quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC
also adopted a uniform three-basis point increase in assessment
rates effective on January 1, 2011. Any additional
emergency special assessment imposed by the FDIC will likely
negatively impact the Companys earnings.
If our
investment in the common stock of the Federal Home Loan Bank of
Chicago is other than temporarily impaired, our financial
condition and results of operations could be materially
impaired.
The Bank owns common stock of the Federal Home Loan Bank of
Chicago (FHLBC). The common stock is held to qualify
for membership in the Federal Home Loan Bank System and to be
eligible to borrow funds under the FHLBCs advance program.
The aggregate cost and fair value of our FHLBC common stock as
of March 31, 2010 was $54.8 million, based on its par
value. There is no market for the FHLBC common stock.
On October 10, 2007, the FHLBC entered into a consensual
cease and desist order with the Federal Housing Finance Board,
now known as the Federal Housing Finance Agency
(FHFA). Under the terms of the order, capital stock
repurchases and redemptions, including redemptions upon
membership withdrawal or other termination, are prohibited
unless the FHLBC receives the prior approval of the Director of
the Office of Supervision of the FHFA (the
Director). The order also provides that dividend
declarations are subject to the prior written approval of the
Director and required the FHLBC to submit a capital structure
plan to the FHFA. The FHLBC has not declared any dividends since
the order was issued and it has not received approval of a
capital structure plan. In July of 2008, the FHFA amended the
order to permit the FHLBC to repurchase or redeem newly-issued
capital stock to support new advances, subject to certain
conditions set forth in the order. Our FHLBC common stock is not
newly-issued and is not affected by this amendment.
Recent published reports indicate that certain member banks of
the Federal Home Loan Bank System could have materially lower
regulatory capital levels due to the application of certain
accounting rules and asset quality issues. In an extreme
situation, it is possible that the capitalization of a Federal
Home Loan Bank, including the FHLBC, could be substantially
diminished or reduced to zero. Our FHLBC common stock is
accounted for in accordance with the authoritative guidance for
financial services depository and lending (ASC
942-325-35).
This guidance provides that, for impairment testing purposes,
the value of long term investments such as FHLBC common stock is
based on the ultimate recoverability of the par
value of the security without regard to temporary declines in
value. Consequently, if events occur that give rise to
substantial doubt about the ultimate recoverability of the par
value of our FHLBC common stock, this investment could be deemed
to be
other-than-temporarily
impaired, and the impairment loss that would be required to be
recorded would cause our earnings to decrease by the after-tax
amount of the impairment loss.
We are
not paying dividends on our common stock and are deferring
distributions on our preferred stock, and are otherwise
restricted from paying cash dividends on our common stock. The
failure to resume paying dividends may adversely affect
us.
We historically paid cash dividends before suspending dividend
payments on our common stock. The Federal Reserve, as a matter
of policy, has indicated that bank holding companies should not
pay dividends using funds from TARP CPP. There is no assurance
that we will resume paying cash dividends. Even if we resume
paying dividends, future payment of cash dividends on our common
stock, if any, will be subject to the prior payment of all
unpaid dividends and deferred distributions on our Series B
Preferred Stock held by the U.S. Treasury. Further, we need
prior Treasury approval to increase our quarterly cash dividends
prior to January 30, 2012, or until the date we redeem all
shares of Series B Preferred Stock or the Treasury has
transferred all shares of Series B Preferred Stock to third
parties. All dividends are declared and paid at the discretion
of our board of directors and are dependent upon our liquidity,
financial condition, results of operations, capital requirements
and such other factors as our board of directors may deem
relevant.
Further, dividend payments on our Series B Preferred Stock
are cumulative and therefore unpaid dividends and distributions
will accrue and compound on each subsequent dividend payment
date. In the event of any liquidation,
36
dissolution or winding up of the affairs of our company, holders
of the Series B Preferred Stock shall be entitled to
receive for each share of Series B Preferred Stock the
liquidation amount plus the amount of any accrued and unpaid
dividends. If we defer six quarterly dividend payments, whether
or not consecutive, the Treasury will have the right to appoint
two directors to our board of directors until all accrued but
unpaid dividends have been paid. We have deferred five dividend
payments on the Series B Preferred Stock held by the
Treasury.
Maintaining
or increasing market share depends on market acceptance and
regulatory approval of new products and services.
Our success depends, in part, on the ability to adapt products
and services to evolving industry standards. There is increasing
pressure to provide products and services at lower prices. This
can reduce net interest income and noninterest income from
fee-based products and services. In addition, the widespread
adoption of new technologies could require us to make
substantial capital expenditures to modify or adapt existing
products and services or develop new products and services. We
may not be successful in introducing new products and services
in response to industry trends or development in technology or
those new products may not achieve market acceptance. As a
result, we could lose business, be forced to price products and
services on less advantageous terms to retain or attract
clients, or be subject to cost increases.
We may
fail to meet continued listing requirements with
NASDAQ.
Our common stock is listed on the NASDAQ Global Market. As a
NASDAQ listed company, we are required to comply with the
continued listing requirements of the NASDAQ Market Place Rules
to maintain our listing status which includes maintaining a
minimum closing bid price of at least $1.00 per share for our
common stock. We were notified by NASDAQ on June 24, 2010
of our non-compliance with listing standards because the bid
price of our common stock closed below the required minimum
$1.00 per share for the previous 30 consecutive business days.
We regained compliance with the NASDAQ listing requirements but
there is no guarantee we will remain compliant. If we are unable
to remain compliant, our common stock could be delisted by
NASDAQ. Delisting could reduce the ability of investors to
purchase or sell our common stock as quickly and as
inexpensively as they have done historically.
Continued
deterioration in the real estate markets or other segments of
our loan portfolio could lead to additional losses, which could
have a material negative effect on our financial condition and
results of operations.
The commercial real estate market continues to experience a
variety of difficulties. As a result of increased levels of
commercial and consumer delinquencies and declining real estate
values, which reduce the customers borrowing power and the
value of the collateral securing the loan, we have experienced
increasing levels of charge-offs and provisions for loan losses.
Continued increases in delinquency levels or continued declines
in real estate values, which cause our borrowers
loan-to-value
ratios to increase, could result in additional charge-offs and
provisions for loan losses. This could have a material negative
effect on our business and results of operations.
Significant
legal actions could subject us to substantial uninsured
liabilities.
We are from time to time subject to claims related to our
operations. These claims and legal actions, including
supervisory actions by our regulators, could involve large
monetary claims and significant defense costs. Substantial legal
liability or significant regulatory action against us could have
material adverse financial effects or cause significant
reputational harm to us, which in turn could seriously harm our
business prospects. We may be exposed to substantial uninsured
liabilities, which could adversely affect our results of
operations and financial condition.
While
we attempt to manage the risk from changes in market interest
rates, interest rate risk management techniques are not exact.
In addition, we may not be able to economically hedge our
interest rate risk. A rapid or substantial increase or decrease
in interest rates could adversely affect our net interest income
and results of operations.
Our net income depends primarily upon our net interest income.
Net interest income is income that remains after deducting, from
total income generated by earning assets, the interest expense
attributable to the acquisition of
37
the funds required to support earning assets. Income from
earning assets includes income from loans, investment securities
and short-term investments. The amount of interest income is
dependent on many factors, including the volume of earning
assets, the general level of interest rates, the dynamics of
changes in interest rates and the level of nonperforming loans.
The cost of funds varies with the amount of funds required to
support earning assets, the rates paid to attract and hold
deposits, rates paid on borrowed funds and the levels of
non-interest-bearing demand deposits and equity capital.
Different types of assets and liabilities may react differently,
and at different times, to changes in market interest rates. We
expect that we will periodically experience gaps in
the interest rate sensitivities of our assets and liabilities.
That means either our interest-bearing liabilities will be more
sensitive to changes in market interest rates than our interest
earning assets, or vice versa. When interest-bearing liabilities
mature or reprice more quickly than interest earning assets, an
increase in market rates of interest could reduce our net
interest income. Likewise, when interest-earning assets mature
or reprice more quickly than interest-bearing liabilities,
falling interest rates could reduce net interest income. We are
unable to predict changes in market interest rates which are
affected by many factors beyond our control including inflation,
recession, unemployment, money supply, domestic and
international events and changes in the United States and other
financial markets. Based on our net interest income simulation
model, if market interest rates were to increase immediately by
100 or 200 basis points (a parallel and immediate shift of
the yield curve) net interest income would be expected to
increase by 7.07% and 13.49%, respectively, from what it would
be if rates were to remain at March 31, 2010 levels. The
actual amount of any increase or decrease may be higher or lower
than that predicted by our simulation model. The output from our
simulation model has not been validated or back tested against
actual movements in market interest rates. We are unable to say
with any degree of certainty that the modeled simulation of our
net interest income would be a fair approximation of the actual
change in net interest income given if one or more of the market
scenarios we examine had actually occurred. Net interest income
is not only affected by the level and direction of interest
rates, but also by the shape of the yield curve, credit spreads,
relationships between interest sensitive instruments and key
driver rates, balance sheet growth, client loan and deposit
preferences and the timing of changes in these variables.
An
interruption in or breach in security of our information systems
may result in a loss of customer business.
We rely heavily on communications and information systems to
conduct our business. Any failure or interruptions or breach in
security of these systems could result in failures or
disruptions in our customer relationship management, general
ledger, deposits, servicing, or loan origination systems. The
occurrence of any failures, interruptions or security breaches
of information systems used to process customer transactions
could damage our reputation, result in a loss of customer
business, subject us to additional regulatory scrutiny, or
expose us to civil litigation and possible financial liability,
any of which could have a material adverse effect on our
financial condition, results of operations and cash flows.
Additionally, we outsource a portion of our data processing to a
third party. If our third party provider encounters difficulties
or if we have difficulty in communicating with such third party,
it will significantly affect our ability to adequately process
and account for customer transactions, which would significantly
affect our business operations. Furthermore, breaches of such
third partys technology may also cause reimbursable loss
to our consumer and business customers, through no fault of our
own.
Management regularly reviews and updates our internal controls,
disclosure controls and procedures, and corporate governance
policies and procedures. Any system of controls, however well
designed and operated, is based in part on certain assumptions
and can provide only reasonable, not absolute, assurances that
the objectives of the system are met. Any failure or
circumvention of our controls and procedures or failure to
comply with regulations related to controls and procedures could
have a material adverse effect on our business, results of
operations, cash flows and financial condition.
38
Severe
weather, natural disasters, acts of war or terrorism and other
external events could significantly impact our
business.
Severe weather, natural disasters, acts of war or terrorism and
other adverse external events could have a significant impact on
our ability to conduct business. Such events could affect the
stability of our deposit base; impair the ability of borrowers
to repay outstanding loans, impair the value of collateral
securing loans, cause significant property damage, result in
loss of revenue
and/or cause
us to incur additional expenses. Although management has
established disaster recovery policies and procedures and is
insured for these situations, the occurrence of any such event
could have a material adverse effect on our business, which, in
turn, could have a material adverse effect on our financial
condition, results of operations and cash flows.
We are
exposed to risk of environmental liabilities with respect to
properties to which it takes title.
In the course of our business, we may own or foreclose and take
title to real estate, and could be subject to environmental
liabilities with respect to these properties. We may be held
liable to a governmental entity or to third parties for property
damage, personal injury, investigation and
clean-up
costs incurred by these parties in connection with environmental
contamination, or may be required to investigate or clean up
hazardous or toxic substances, or chemical releases at a
property. The costs associated with investigation or remediation
activities could be substantial. In addition, as the owner or
former owner of a contaminated site, we may be subject to common
law claims by third parties based on damages and costs resulting
from environmental contamination emanating from the property. If
we ever become subject to significant environmental liabilities,
our business, financial condition, cash flows, liquidity and
results of operations could be materially and adversely affected.
Risks
Related to Our Credit Agreement
We are
party to a credit agreement that requires us to observe certain
covenants that limit our flexibility in operating our
business.
We are party to a credit agreement, dated as of June 9,
2008, by and among the Corporation, the financial institutions
from time to time party to the agreement and U.S. Bank
National Association, as administrative agent for the lenders,
as amended (the Credit Agreement). The most recent
amendment, Amendment No. 6 to Amended and Restated Credit
Agreement was dated April 29, 2010. The Credit Agreement
requires us to comply with affirmative and negative covenants
customary for restricted indebtedness. These covenants limit our
ability to, among other things:
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incur additional indebtedness or issue certain preferred shares;
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pay dividends on, repurchase or make distributions in respect of
our capital stock or make other restricted payments;
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make certain investments;
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sell certain assets; and
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consolidate, merge, sell or otherwise dispose of all or
substantially all of the Corporations assets.
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The Credit Agreement provides that the Bank must attain and
maintain certain capital ratios and requires us to retain a
financial consult, as well as other customary representations,
warranties, conditions and events of default for agreements of
such type. The Agent and the lenders have certain rights,
including the right to accelerate the maturity of the borrowings
if all covenants are not complied with. Further, the Agent or
the lenders have agreed to forbear from exercising their rights
and remedies until the earlier of (i) the occurrence of an
event of default, as that term is defined in the Amendment,
other than failure to make principal payments, or
(ii) May 31, 2011.
If the lenders under the secured credit facilities accelerate
the repayment of borrowings, we may not have sufficient assets
to make the payments when due.
Accordingly, this creates significant uncertainty related to the
Corporations operations.
39
We
must pay in full the outstanding balance under the Credit
Agreement by the earlier of May 31, 2011 or the receipt of
net proceeds of a financing transaction from the sale of equity
securities.
As of March 31, 2010, the total revolving loan commitment
under the Credit Agreement was $116.3 million and aggregate
borrowings under the Credit Agreement were $116.3 million.
We must pay in full the outstanding balance under the Credit
Agreement by the earlier of May 31, 2011 or the receipt of
net proceeds of a financing transaction from the sale of equity
securities of not less than $116.3 million. If the net
proceeds are received from the U.S. Department of the
Treasury and the terms of such investment prohibit the use of
the investment proceeds to repay senior debt, then no payment is
required from the Treasury investment. As of the date of this
filing, we do not have sufficient cash on hand to reduce our
outstanding borrowings to zero. There can be no assurance that
we will be able to raise sufficient capital or have sufficient
cash on hand to reduce our outstanding borrowings to zero by
May 31, 2011, which may limit our ability to fund ongoing
operations.
Unless the maturity date is extended, our outstanding borrowings
under our Credit Agreement are due on May 31, 2011. The
Credit Agreement does not include a commitment to refinance the
remaining outstanding balance of the loans when they mature and
there is no guarantee that our lenders will renew their loans at
that time. Refusal to provide us with renewals or refinancing
opportunities would cause our indebtedness to become immediately
due and payable upon the contractual maturity of such
indebtedness, which could result in our insolvency if we are
unable to repay the debt.
If the Agent or the lenders decided not to refinance the
remaining outstanding balance of the loans then at the earlier
of (i) the occurrence of an event of default under the
Amendment (other than a failure to make principal payments), or
(ii) May 31, 2011, the agent, on behalf of the lenders
may, among other remedies, seize the outstanding shares of the
Banks capital stock held by the Corporation or other
securities or assets of the Corporations subsidiaries
which have been pledged as collateral for borrowings under the
Credit Agreement. If the Agent were to take one or more of these
actions, it could have a material adverse affect on our
reputation, operations and ability to continue as a going
concern, and you could lose your investment in the securities.
If we are unable to renew, replace or expand our sources of
financing on acceptable terms, it may have an adverse effect on
our business and results of operations and our ability to make
distributions to shareholders. Upon liquidation, holders of our
debt securities and lenders with respect to other borrowings
will receive, and any holders of preferred stock that is
currently outstanding and that we may issue in the future may
receive, a distribution of our available assets prior to holders
of our common stock. The decisions by investors and lenders to
enter into equity and financing transactions with us will depend
upon a number of factors, including our historical and projected
financial performance, compliance with the terms of our current
credit arrangements, industry and market trends, the
availability of capital and our investors and
lenders policies and rates applicable thereto, and the
relative attractiveness of alternative investment or lending
opportunities.
Risks
Related to Recent Branch Sales
We may
fail to complete the proposed sale of four branches to Nicolet
National Bank of Green Bay or realize the anticipated benefits
of the disposition.
The proposed sale of four branches to Nicolet National Bank of
Green Bay are subject to a variety of conditions, including
regulatory approvals for both the Bank and buyers. All
regulatory applications have been filed with the appropriate
regulators. The regulators may not grant these approvals as we
anticipate, or the approvals may require material changes to the
terms of the sale or otherwise contain material adverse
conditions that would preclude closing the sale. Further, the
parties may be unable to satisfy all the closing conditions.
Even if we sell the braches as we expect, we may not realize the
anticipated benefits to our capital and earnings.
40
Risks
Related to Recent Market, Legislative and Regulatory
Events
The
TARP CPP and the ARRA impose certain executive compensation and
corporate governance requirements that may adversely affect us
and our business, including our ability to recruit and retain
qualified employees.
The purchase agreement we entered into in connection with our
participation in the TARP CPP required us to adopt the
Treasurys standards for executive compensation and
corporate governance while the Treasury holds the equity issued
pursuant to the TARP CPP, including the common stock which may
be issued pursuant to the warrant to purchase
7,399,103 shares of common stock. These standards generally
apply to our chief executive officer, chief financial officer
and the three next most highly compensated senior executive
officers. The standards include:
|
|
|
|
|
ensuring that incentive compensation for senior executives does
not encourage unnecessary and excessive risks that threaten the
value of the financial institution;
|
|
|
|
requiring clawbacks of any bonus or incentive compensation paid
to a senior executive based on statements of earnings, gains or
other criteria that are later proven to be materially inaccurate;
|
|
|
|
prohibiting golden parachute payments to senior
executives; and
|
|
|
|
agreeing not to deduct for tax purposes executive compensation
in excess of $500,000 for each senior executive.
|
In particular, the change to the deductibility limit on
executive compensation may increase the overall cost of our
compensation programs in future periods.
ARRA imposed further limitations on compensation during the TARP
Assistance Period including
|
|
|
|
|
a prohibition on making any golden parachute payment to a senior
executive officer or any of our next five most highly
compensated employees;
|
|
|
|
a prohibition on any compensation plan that would encourage
manipulation of the reported earnings to enhance the
compensation of any of its employees; and
|
|
|
|
a prohibition of the five highest paid executives from receiving
or accruing any bonus, retention award, or incentive
compensation, or bonus except for long-term restricted stock
with a value not greater than one-third of the total amount of
annual compensation of the employee receiving the stock.
|
The prohibition may expand to other employees based on increases
in the aggregate value of financial assistance that we receive
in the future.
The Treasury released an interim final rule on TARP standards
for compensation and corporate governance on June 10, 2009,
which implemented and further expanded the limitations and
restrictions imposed on executive compensation and corporate
governance by the TARP CPP and ARRA. The new Treasury interim
final rules, which became effective on June 15, 2009, also
prohibit any tax
gross-up
payments to senior executive officers and the next 20 highest
paid executives. The rule further authorizes the Treasury to
establish the Office of the Special Master for TARP Executive
Compensation with broad powers to review compensation plans and
corporate governance matters of TARP CPP recipients.
These provisions and any future rules issued by the Treasury
could adversely affect our ability to attract and retain
management capable and motivated sufficiently to manage and
operate our business through difficult economic and market
conditions. If we are unable to attract and retain qualified
employees to manage and operate our business, we may not be able
to successfully execute our business strategy.
TARP
lending goals may not be attainable.
Congress and the bank regulators have encouraged recipients of
TARP CPP capital to use such capital to make loans and it may
not be possible to safely, soundly and profitably make
sufficient loans to creditworthy persons in the current economy
to satisfy such goals. Congressional demands for additional
lending by TARP CPP recipients, and regulatory demands for
demonstrating and reporting such lending are increasing. On
November 12, 2008, the
41
bank regulatory agencies issued a statement encouraging banks
to, among other things, lend prudently and responsibly to
creditworthy borrowers and to work with borrowers to
preserve homeownership and avoid preventable foreclosures.
We continue to lend and have expanded our mortgage loan
originations, and to report our lending to the Treasury. The
future demands for additional lending are unclear and uncertain,
and we could be forced to make loans that involve risks or terms
that we would not otherwise find acceptable or in our
shareholders best interest. Such loans could adversely
affect our results of operation and financial condition, and may
be in conflict with bank regulations and requirements as to
liquidity and capital. The profitability of funding such loans
using deposits may be adversely affected by increased FDIC
insurance premiums.
The
Company and the Bank are subject to extensive regulation,
supervision and examination by federal banking
authorities.
Changes in applicable regulations or legislation could have a
substantial impact on our operations. Additional legislation and
regulations that could significantly affect our powers,
authority and operations may be enacted or adopted in the
future, which could have a material adverse effect on our
financial condition and results of operations. In that regard,
proposals for legislation restructuring the regulation of the
financial services industry are currently under consideration.
Adoption of such proposals could, among other things, increase
the overall costs of regulatory compliance. Further, regulators
have significant discretion and authority to prevent or remedy
unsafe or unsound practices or violations of laws or regulations
by financial institutions and holding companies in the
performance of their supervisory and enforcement duties. These
powers recently have been utilized more frequently due to the
serious national, regional and local economic conditions that we
and other financial institutions are facing. The exercise of
regulatory authority may have a negative impact on our financial
condition and results of operations. We cannot predict the
actual effects of various governmental, regulatory, monetary and
fiscal initiatives, which have been and may be enacted on the
financial markets. The terms and costs of these activities, or
the failure of these actions to help stabilize the financial
markets, asset prices, market liquidity, and a continuation or
worsening of current financial market and economic conditions
could materially and adversely affect our business, financial
condition, results of operations, and the trading price of our
common stock. In addition, failure or the inability to comply
with these various requirements can lead to diminished
reputation and investor confidence, reduced franchise value,
loss of business, curtailment of expansion opportunities, fines
and penalties, intervention or sanctions by regulators and
costly litigation or expensive additional controls and systems.
There
can be no assurance that enacted legislation or any proposed
federal programs will stabilize the U.S. financial system and
such legislation and programs may adversely affect
us.
There has been much legislative and regulatory action in
response to the financial crises affecting the banking system
and financial markets and threats to investment banks and other
financial institutions. There can be no assurance, however, as
to the actual impact that the legislation and its implementing
regulations or any other governmental program will have on the
financial markets. The failure of the actions by the
legislators, the regulatory bodies or the U.S. government
to stabilize the financial markets and a continuation or
worsening of current financial market conditions could
materially and adversely affect our business, financial
condition, results of operations, and access to credit or the
trading price of our common shares.
Contemplated and proposed legislation, state and federal
programs, and increased government control or influence may
adversely affect us by increasing the uncertainty in our lending
operations and expose us to increased losses, including
legislation that would allow bankruptcy courts to permit
modifications to mortgage loans on a debtors primary
residence, moratoriums on a mortgagors right to foreclose
on property, and requirements that fees be paid to register
other real estate owned property. Statutes and regulations may
be altered that may potentially increase our costs to service
and underwrite mortgage loans. Additionally, federal
intervention and operation of formerly private institutions may
adversely affect our rights under contracts with such
institutions and the way in which we conduct business in certain
markets.
42
The
fiscal and monetary policies of the federal government and its
agencies could have a material adverse effect on our
earnings.
The Board of Governors of the Federal Reserve System regulates
the supply of money and credit in the United States. Its
policies determine in large part the cost of funds for lending
and investing and the return earned on those loans and
investments, both of which affect the net interest margin. The
resultant changes in interest rates can also materially decrease
the value of certain financial assets we hold, such as debt
securities. Its policies can also adversely affect borrowers,
potentially increasing the risk that they may fail to repay
their loans. Changes in Federal Reserve Board policies are
beyond our control and difficult to predict; consequently, the
impact of these changes on our activities and results of
operations is difficult to predict.
Managements
ability to retain key officers and employees may
change.
Our future operating results depend substantially upon the
continued service of its executive officers and key personnel.
Our future operating results also depend in significant part
upon its ability to attract and retain qualified management,
financial, technical, marketing, sales and support personnel.
Competition for qualified personnel is intense, and we cannot
ensure success in attracting or retaining qualified personnel.
There may be only a limited number of persons with the requisite
skills to serve in these positions, and it may be increasingly
difficult for us to hire personnel over time.
Our ability to retain key officers and employees may be further
impacted by legislation and regulation affecting the financial
services industry. For example, Section 7001 of the ARRA
which amended Section 111 of the EESA in its entirety, as
well as the final interim regulations issued by the
U.S. Treasury, significantly expanded the executive
compensation restrictions. Such restrictions applied to us as a
participant in the TARP CPP and generally continued to apply for
as long as any Treasury owned shares were outstanding. These
ARRA restrictions shall not apply to us during such time when
the federal government only holds warrants to purchase common
shares. Such restrictions and standards may further impact
managements ability to compete with financial institutions
that are not subject to the ARRA limitations on executive
compensation.
Our business, financial condition, or results of operations
could be materially adversely affected by the loss of any of its
key employees, or our inability to attract and retain skilled
employees.
We are
subject to various reporting requirements that increase
compliance costs, and failure to comply timely could adversely
affect our reputation and the value of our common
stock.
We are required to comply with various corporate governance and
financial reporting requirements under the Sarbanes-Oxley Act of
2002, as well as rules and regulations adopted by the Securities
and Exchange Commission, the Public Corporation Accounting
Oversight Board and Nasdaq. In particular, we are required to
include management and independent auditor reports on internal
controls as part of our Annual Report on
Form 10-K
pursuant to Section 404 of the Sarbanes-Oxley Act. We
expect to continue to spend significant amounts of time and
money on compliance with these rules. In addition, pursuant to
our Cease and Desist Order with OTS, we must prepare and submit
various reports and may face further reporting obligations in
the future depending upon our financial condition. Compliance
with various regulatory reporting requires significant
commitments of time from management and our directors, which
reduces the time available for the performance of their other
responsibilities. Our failure to track and comply with the
various rules may materially adversely affect our reputation,
ability to obtain the necessary certifications to financial
statements, lead to additional regulatory enforcement actions,
and could adversely affect the value of our common stock.
Non-compliance
with USA PATRIOT Act, Bank Secrecy Act, or other laws and
regulations could result in fines or sanctions, and curtail
expansion opportunities
Financial institutions are required under the USA PATRIOT and
Bank Secrecy Acts to develop programs to prevent financial
institutions from being used for money laundering and terrorist
activities. Financial institutions are also obligated to file
suspicious activity reports with the U.S. Treasurys
office of Financial Crimes Enforcement Network if such
activities are detected. These rules also require financial
institutions to establish procedures for identifying and
verifying the identity of customers seeking to open new
financial accounts. Failure or the inability to
43
comply with these regulations could result in fines or
penalties, curtailment of expansion opportunities, intervention
or sanctions by regulators and costly litigation or expensive
additional controls and systems. During the last few years,
several banking institutions have received large fines for
non-compliance with these laws and regulations. We have
developed policies and continues to augment procedures and
systems designed to assist in compliance with these laws and
regulations.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
None
At March 31, 2010, the Bank conducted its business from its
headquarters and main office at 25 West Main Street,
Madison, Wisconsin and 70 other full-service offices and two
loan origination offices. The Bank owns 44 of its full-service
offices, leases the land on which four such offices are located,
and leases the remaining 23 full-service offices. The Bank also
owns a building at its headquarters which hosts its support
center, one vacant lot for sale as well as three land sites for
future development. In addition, the Bank leases its two
loan-origination facilities. The leases expire between 2010 and
2030. The aggregate net book value at March 31, 2010 of the
properties owned or leased, including headquarters, properties
and leasehold improvements, was $32.3 million. See
Note 9 to the Corporations Consolidated Financial
Statements included in Item 8, for information regarding
premises and equipment.
|
|
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.
This item is not in use.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Repurchases of Equity Securities
|
Common
Stock
The Corporations Common Stock is traded on the Nasdaq
Global Select Market under the symbol ABCW. At
June 4, 2010, there were approximately 2,500 stockholders
of record. That number does not include stockholders holding
their stock in street name or nominees name.
44
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 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
Quarter Ended
|
|
High
|
|
Low
|
|
Dividend
|
|
March 31, 2010
|
|
$
|
1.400
|
|
|
$
|
0.640
|
|
|
$
|
|
|
December 31, 2009
|
|
|
1.350
|
|
|
|
0.370
|
|
|
|
|
|
September 30, 2009
|
|
|
1.650
|
|
|
|
1.020
|
|
|
|
|
|
June 30, 2009
|
|
|
2.420
|
|
|
|
0.850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
$
|
2.770
|
|
|
$
|
0.380
|
|
|
$
|
|
|
December 31, 2008
|
|
|
7.730
|
|
|
|
1.810
|
|
|
|
0.010
|
|
September 30, 2008
|
|
|
9.450
|
|
|
|
5.860
|
|
|
|
0.100
|
|
June 30, 2008
|
|
|
19.920
|
|
|
|
7.010
|
|
|
|
0.180
|
|
For information regarding restrictions on the payments of
dividends by the Bank to the Corporation, see Item 1.
Business Regulation and Supervision The
Bank Restrictions on Capital Distributions,
Item 1A. Risk Factors Risks Related to
Our Business and Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources of
this
Form 10-K.
Repurchases
of Common Stock
As of March 31, 2010, the Corporation does not have a stock
repurchase plan in place.
45
Performance
Graph
The following graph compares the yearly cumulative total return
on the Common Stock over a five-year measurement period since
March 31, 2005 with (i) the yearly cumulative total
return on the stocks included in the Nasdaq Stock Market Index
(for United States companies) and (ii) the yearly
cumulative total return on the stocks included in the
Morningstar, Inc. index (formally known as the Hemscott Group)
Index. All of these cumulative returns are computed assuming the
reinvestment of dividends at the frequency with which dividends
were paid during the applicable years.
46
|
|
Item 6.
|
Selected
Financial Data
|
The following information at and for the years ended
March 31, 2010, 2009, 2008, 2007 and 2006 has been derived
from the Corporations historical audited consolidated
financial statements for those years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For Year Ended March 31,
|
|
|
2010
|
|
2009
|
|
2008(4)
|
|
2007
|
|
2006
|
|
|
(Dollars in thousands, except per share data)
|
|
Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
217,082
|
|
|
$
|
260,262
|
|
|
$
|
296,675
|
|
|
$
|
280,692
|
|
|
$
|
238,550
|
|
Interest expense
|
|
|
132,271
|
|
|
|
135,472
|
|
|
|
167,670
|
|
|
|
152,646
|
|
|
|
105,846
|
|
Net interest income
|
|
|
84,811
|
|
|
|
124,790
|
|
|
|
129,005
|
|
|
|
128,046
|
|
|
|
132,704
|
|
Provision for loan losses
|
|
|
161,926
|
|
|
|
205,719
|
|
|
|
22,551
|
|
|
|
11,255
|
|
|
|
3,900
|
|
Real estate investment partnership revenue
|
|
|
|
|
|
|
2,130
|
|
|
|
8,399
|
|
|
|
18,977
|
|
|
|
33,974
|
|
Other non-interest income
|
|
|
56,753
|
|
|
|
43,817
|
|
|
|
42,747
|
|
|
|
35,538
|
|
|
|
33,037
|
|
Real estate investment partnership cost of sales
|
|
|
|
|
|
|
1,736
|
|
|
|
8,489
|
|
|
|
17,607
|
|
|
|
28,509
|
|
Other non-interest expense
|
|
|
158,200
|
|
|
|
224,195
|
|
|
|
98,731
|
|
|
|
90,382
|
|
|
|
89,973
|
|
Income (loss) before income tax expense (benefit)
|
|
|
(178,562
|
)
|
|
|
(260,913
|
)
|
|
|
50,380
|
|
|
|
63,317
|
|
|
|
77,333
|
|
Income tax expense (benefit)
|
|
|
(1,500
|
)
|
|
|
(30,098
|
)
|
|
|
19,650
|
|
|
|
24,586
|
|
|
|
30,927
|
|
Net income (loss)
|
|
|
(177,062
|
)
|
|
|
(230,815
|
)
|
|
|
30,730
|
|
|
|
38,731
|
|
|
|
46,406
|
|
Loss (income) attributable to non-controlling interest in real
estate partnerships
|
|
|
|
|
|
|
(148
|
)
|
|
|
(402
|
)
|
|
|
(241
|
)
|
|
|
1,723
|
|
Preferred stock dividends and discount accretion
|
|
|
(12,911
|
)
|
|
|
(2,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common equity of Anchor BanCorp
|
|
|
(189,973
|
)
|
|
|
(232,839
|
)
|
|
|
31,132
|
|
|
|
38,972
|
|
|
|
44,683
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(8.97
|
)
|
|
|
(11.05
|
)
|
|
|
1.48
|
|
|
|
1.82
|
|
|
|
2.07
|
|
Diluted
|
|
|
(8.97
|
)
|
|
|
(11.05
|
)
|
|
|
1.48
|
|
|
|
1.80
|
|
|
|
2.03
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,416,265
|
|
|
$
|
5,272,110
|
|
|
$
|
5,149,557
|
|
|
$
|
4,539,685
|
|
|
$
|
4,275,140
|
|
Investment securities available for sale
|
|
|
416,203
|
|
|
|
484,985
|
|
|
|
356,406
|
|
|
|
321,516
|
|
|
|
296,959
|
|
Investment securities held to maturity
|
|
|
39
|
|
|
|
50
|
|
|
|
59
|
|
|
|
68
|
|
|
|
77
|
|
Loans receivable held for investment, net
|
|
|
3,229,580
|
|
|
|
3,896,439
|
|
|
|
4,202,833
|
|
|
|
3,874,049
|
|
|
|
3,614,265
|
|
Deposits and accrued interest
|
|
|
3,552,762
|
|
|
|
3,923,827
|
|
|
|
3,539,994
|
|
|
|
3,248,246
|
|
|
|
3,040,217
|
|
Other borrowed funds
|
|
|
796,153
|
|
|
|
1,078,392
|
|
|
|
1,206,761
|
|
|
|
900,477
|
|
|
|
861,861
|
|
Stockholders equity
|
|
|
30,113
|
|
|
|
211,365
|
|
|
|
345,116
|
|
|
|
336,866
|
|
|
|
321,025
|
|
Common shares outstanding
|
|
|
21,685,925
|
|
|
|
21,569,785
|
|
|
|
21,348,170
|
|
|
|
21,669,094
|
|
|
|
21,854,303
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per common share at end of period
|
|
$
|
(3.68
|
)
|
|
$
|
4.70
|
|
|
$
|
16.17
|
|
|
$
|
15.55
|
|
|
$
|
14.69
|
|
Dividends paid per share
|
|
|
0.00
|
|
|
|
0.29
|
|
|
|
0.71
|
|
|
|
0.67
|
|
|
|
0.62
|
|
Dividend payout ratio
|
|
|
0.00
|
%
|
|
|
(2.62
|
)%
|
|
|
47.97
|
%
|
|
|
36.81
|
%
|
|
|
29.95
|
%
|
Yield on earning assets
|
|
|
4.74
|
|
|
|
5.63
|
|
|
|
6.25
|
|
|
|
6.71
|
|
|
|
6.05
|
|
Cost of funds
|
|
|
2.82
|
|
|
|
2.94
|
|
|
|
3.65
|
|
|
|
3.80
|
|
|
|
2.80
|
|
Interest rate spread
|
|
|
1.92
|
|
|
|
2.69
|
|
|
|
2.60
|
|
|
|
2.91
|
|
|
|
3.25
|
|
Net interest margin(1)
|
|
|
1.85
|
|
|
|
2.70
|
|
|
|
2.72
|
|
|
|
3.06
|
|
|
|
3.36
|
|
Return on average assets(2)
|
|
|
(3.67
|
)
|
|
|
(4.65
|
)
|
|
|
0.63
|
|
|
|
0.89
|
|
|
|
1.08
|
|
Return on average equity(3)
|
|
|
(158.84
|
)
|
|
|
(77.05
|
)
|
|
|
9.17
|
|
|
|
11.75
|
|
|
|
14.16
|
|
Average equity to average assets
|
|
|
2.31
|
|
|
|
6.03
|
|
|
|
6.82
|
|
|
|
7.55
|
|
|
|
7.62
|
|
|
|
|
(1) |
|
Net interest margin represents net interest income as a
percentage of average interest-earning assets. |
|
(2) |
|
Return on average assets represents net income as a percentage
of average total assets. |
|
(3) |
|
Return on average equity represents net income as a percentage
of average total stockholders equity. |
|
(4) |
|
During the fourth quarter of the year ended March 31,
2008, the Corporation acquired S&C Bank, which consisted of
total assets of $381.1 million, total deposits of
$305.5 million and total loans of $280.8 million. |
47
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Set forth below is a discussion and analysis of the
Corporations financial condition and results of
operations, including information on the Corporations
asset/liability management strategies, sources of liquidity and
capital resources and significant accounting policies.
Management is required to make estimates, assumptions, and
judgments that affect the amounts reported in the financial
statements and accompanying notes. These estimates, assumptions,
and judgments are based on information available as of the date
of the financial statements; accordingly, as this information
changes, actual results could differ from the estimates,
assumptions, and judgments reflected in the financial
statements. Certain policies inherently have a greater reliance
on the use of estimates, assumptions, and judgments and, as
such, have a greater possibility of producing results that could
be materially different than originally reported. Management
believes the following policies are both important to the
portrayal of our financial condition and results of operations
and require subjective or complex judgments; therefore,
management considers the following to be critical accounting
policies. Management has reviewed the application of these
polices with the Audit Committee of our board of directors.
Managements discussion and analysis should be read in
conjunction with the consolidated financial statements and
supplemental data contained elsewhere in this report.
Critical
Accounting Policies
There are a number of accounting policies that require the use
of judgment. Some of the more significant policies are as
follows:
|
|
|
|
|
Declines in the fair value of
held-to-maturity
and
available-for-sale
securities below their amortized cost that are deemed to be
other than temporary due to credit loss are reflected in
earnings as realized losses. In estimating
other-than-temporary
impairment losses on debt securities, management considers many
factors which include: (1) the length of time and the
extent to which the fair value has been less than cost,
(2) the financial condition and near-term prospects of the
issuer, and (3) the intent and ability of the Corporation
to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value.
To determine if an
other-than-temporary
impairment exists on a debt security, the Corporation first
determines if (a) it intends to sell the security or
(b) it is more likely than not that it will be required to
sell the security before its anticipated recovery. If either of
the conditions is met, the Corporation will recognize an
other-than-temporary
impairment in earnings equal to the difference between the fair
value of the security and its adjusted cost. If neither of the
conditions is met, the Corporation determines (a) the
amount of the impairment related to credit loss and (b) the
amount of the impairment due to all other factors. The
difference between the present values of the cash flows expected
to be collected and the amortized cost basis is the credit loss.
The credit loss is the amount of the
other-than-temporary
impairment that is recognized in earnings and is a reduction to
the cost basis of the security. The amount of total impairment
related to all other factors is included in other comprehensive
income (loss).
|
|
|
|
The allowance for loan losses is a valuation allowance for
probable and inherent losses incurred in the loan portfolio. The
allowance is comprised of both a specific and general component.
Specific allowances are provided on impaired loans pursuant to
accounting standards. The general allowance is based on
historical loss experience, adjusted for qualitative and
environmental factors pursuant to
ASC 450-2
Loss Contingencies and other related regulatory
guidance. At least quarterly, we review the assumptions and
methodology related to the general allowance in an effort to
update and refine the estimate.
|
In determining the general allowance we have segregated the loan
portfolio by collateral type. By doing so we are better able to
identify trends in borrower behavior and loss severity. For each
collateral type, we compute a historical loss factor. In
determining the appropriate period of activity to use in
computing the historical loss factor we look at trends in
quarterly net charge-off ratios. It is our intention to utilize
a period of activity that we believe to be most reflective of
current experience. Changes in the historical period are made
when there is a distinct change in the trend of net charge-off
experience. Given the changes in the credit market that have
occurred in fiscal years 2009 and 2010, management reviewed each
stratas historical losses by quarter for any trends that
would indicate a shorter look back period would be more
representative. Based on this review, it was determined that
increases in charge-offs in the more recent
48
quarters were being diluted by minimal charge-offs in the
earlier quarters for each strata except acquisitions and
development. As a result, a twelve quarter historical loss
period was used for these stratas, versus a 20 quarter
historical loss period, as it was determined to be more
representative of the current credit market.
In addition to the historical loss factor, we consider the
impact of the following qualitative factors: changes in lending
policies, procedures and practices, economic and industry trends
and conditions, experience, ability and depth of lending
management, level of and trends in past dues and delinquent
loans, changes in the quality of the loan review system, changes
in the value of the underlying collateral for collateral
dependent loans, changes in credit concentrations, portfolio
size and other external factors such as legal and regulatory. In
determining the impact, if any, of an individual qualitative
factor, we compare the current underlying facts and
circumstances surrounding a particular factor with those in the
historical periods, adjusting the historical loss factor in a
directionally consistent manner with changes in the qualitative
factor. We will continue to analyze the qualitative factors on a
quarterly basis, adjusting the historical loss factor both up
and down, to a factor we believe is appropriate for the probable
and inherent risk of loss in our portfolio.
Specific allowances are determined as a result of our loan
review process. When a loan is identified as impaired it is
evaluated for loss using either the fair value of collateral
less selling costs or a discounted cash flow analysis as a
determinant of fair value. If fair value exceeds the Banks
carrying value of the loan no loss is anticipated and no
specific reserve is established. However, if the Banks
carrying value of the loan is greater than fair value a specific
reserve is established. In either situation, loans identified as
impaired are excluded from the calculation of the general
reserve.
We regularly obtain updated appraisals for real estate
collateral dependent loans for which we deem it appropriate to
assess whether or not a specific asset is impaired. Loans having
unpaid principal balance of $500,000 or less and considered to
be include in a homogenous pool of assets do not require an
impairment analysis therefore updated appraisals are not
obtained until the foreclosure or sheriff sale occurs. Due to
certain limitations, including, but not limited to, the
availability of qualified appraisers, the time necessary to
complete acceptable appraisals, the availability of comparable
market data and information, and other considerations, in
certain instances current appraisals are not readily available.
The fair value of such loans for which current and acceptable
appraisals are not available is approximately $51 million
based on the Corporations best estimate of fair value,
discounted at various rates depending on the collateral type.
Collateral dependent loans are considered to be non-performing
at such time that they become ninety days past due or a probable
loss is expected. At the time a loan is determined to be
non-performing it is downgraded per the Corporations loan
rating system, it is placed on non-accrual, and an allowance
consistent with the Corporations historical experience for
similar substandard loans is established. Within
ninety days of this determination a comprehensive analysis of
the loans is completed, including ordering new appraisals, where
necessary, and an adjustment to the estimated allowance is
recognized to reflect the fair value of the loan based on the
underlying collateral or the discounted cash flows. Until such
date at which an updated appraisal is obtained, when deemed
necessary, the Corporation applies discounts to the existing
appraisals in estimating the fair value of collateral. These
discounts are 25 percent on commercial real estate and
35 percent on unimproved land. These discount percentages
are based on actual experience over the past nine month period.
If the appraisal is within one year, the Corporation applies a
discount of 15 percent. The Corporation believes these
discounts reflect market factors, the locations in which the
collateral is located and the estimated cost to dispose.
We consider the allowance for loan losses at March 31, 2010
to be at an acceptable level. Although we believe that we have
established and maintained the allowance for loan losses at an
adequate level, changes may be necessary if future economic and
other conditions differ substantially from the current
environment. Although we use the best information available, the
level of the allowance for loan losses remains an estimate that
is subject to significant judgment and short-term change.
|
|
|
|
|
Real estate acquired by foreclosure or by deed in lieu of
foreclosure and other repossessed assets, upon initial
recognition, is carried at the lower of cost or fair value, less
estimated selling expenses. Each parcel of real estate owned is
appraised within six months of the time of acquisition of such
property and periodically
|
49
|
|
|
|
|
thereafter. At the date of foreclosure any write down to fair
value less estimated selling costs is charged to the allowance
for loan losses. Costs relating to the development and
improvement of the property are capitalized; holding period
costs and subsequent changes to the valuation allowance are
charged to expense. Foreclosed properties and repossessed assets
are re-measured at fair value after initial recognition through
the use of a valuation allowance on foreclosed assets. The value
may be adjusted based on a new appraisal or as a result of an
adjustment to the sale price of the property.
|
|
|
|
|
|
Mortgage servicing rights are established on loans that are
originated and subsequently sold with servicing retained. A
portion of the loans book basis is allocated to mortgage
servicing rights at the time of sale. The fair value of mortgage
servicing rights is the present value of estimated future net
cash flows from the servicing relationship using current market
participant assumptions for prepayments or defaults, servicing
costs and other factors. As the loans are repaid and net
servicing revenue is earned, mortgage servicing rights are
amortized into expense. Net servicing revenues are expected to
exceed this amortization expense. However, if actual prepayment
experience or defaults exceed what was originally anticipated,
net servicing revenues may be less than expected and mortgage
servicing rights may be impaired. Mortgage servicing rights are
carried at the lower of amortized cost or fair value.
|
|
|
|
The Corporation provides for federal income taxes with a
deferred tax liability or deferred tax asset computed by
applying the current statutory tax rates to net taxable or
deductible differences between the tax basis of an asset or
liability and its reported amount in the consolidated financial
statements that will result in taxable or deductible amounts in
future periods. The Corporation regularly reviews the carrying
amount of its deferred tax assets to determine if the
establishment of a valuation allowance is necessary. If based on
the available evidence, it is more likely than not that all or a
portion of the Corporations deferred tax assets will not
be realized in future periods, a deferred tax valuation
allowance would be established. Consideration is given to
various positive and negative factors that could affect the
realization of the deferred tax assets.
|
In evaluating this available evidence, management considers,
among other things, historical financial performance,
expectation of future earnings, the ability to carry back losses
to recoup taxes previously paid, length of statutory carry
forward periods, experience with operating loss and tax credit
carry forwards not expiring unused, tax planning strategies and
timing of reversals of temporary differences. Significant
judgment is required in assessing future earning trends and the
timing of reversals of temporary differences. The
Corporations evaluation is based on current tax laws as
well as managements expectations of future performance.
As a result of its evaluation, the Corporation has recorded a
full valuation allowance on its net deferred tax asset.
Recent Accounting Pronouncements. Refer to
Note 1 of our consolidated financial statements for a
description of recent accounting pronouncements including the
respective dates of adoption and effects on results of
operations and financial condition.
Segment
Review
The Corporations primary reportable segment is community
banking. Community banking consists of lending and deposit
gathering (as well as other banking-related products and
services) to businesses, governments and consumers and the
support to deliver, fund and manage such banking services. The
Corporations real estate segment invested in real estate
developments. During the quarter ended September 30, 2009,
IDI sold its interest in several limited partnerships as well as
substantially all of its remaining assets. The assets that
remain at IDI include an equity interest in one commercial real
estate property and one real estate development along with
various notes receivable.
50
The Corporations profitability is predominantly dependent
on net interest income, non-interest income, the level of the
provision for loan losses, non-interest expense and taxes of its
community banking segment. The following table sets forth the
results of operations of the Corporations segments for the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Real Estate
|
|
|
Community
|
|
|
Intersegment
|
|
|
Financial
|
|
|
|
Investments
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Statements
|
|
|
|
(In thousands)
|
|
|
Interest income
|
|
$
|
95
|
|
|
$
|
217,144
|
|
|
$
|
(157
|
)
|
|
$
|
217,082
|
|
Interest expense
|
|
|
128
|
|
|
|
132,300
|
|
|
|
(157
|
)
|
|
|
132,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
(33
|
)
|
|
|
84,844
|
|
|
|
|
|
|
|
84,811
|
|
Provision for loan losses
|
|
|
|
|
|
|
161,926
|
|
|
|
|
|
|
|
161,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest loss after provision for loan losses
|
|
|
(33
|
)
|
|
|
(77,082
|
)
|
|
|
|
|
|
|
(77,115
|
)
|
Other revenue from real estate operations
|
|
|
1,684
|
|
|
|
|
|
|
|
|
|
|
|
1,684
|
|
Other income
|
|
|
|
|
|
|
55,093
|
|
|
|
(24
|
)
|
|
|
55,069
|
|
Other expense from real estate partnership operations
|
|
|
(4,983
|
)
|
|
|
|
|
|
|
24
|
|
|
|
(4,959
|
)
|
Other expense
|
|
|
|
|
|
|
(153,241
|
)
|
|
|
|
|
|
|
(153,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(3,332
|
)
|
|
|
(175,230
|
)
|
|
|
|
|
|
|
(178,562
|
)
|
Income tax expense (benefit)
|
|
|
(488
|
)
|
|
|
(1,012
|
)
|
|
|
|
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,844
|
)
|
|
$
|
(174,218
|
)
|
|
$
|
|
|
|
$
|
(177,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at end of period
|
|
$
|
5,945
|
|
|
$
|
4,410,320
|
|
|
$
|
|
|
|
$
|
4,416,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Real Estate
|
|
|
Community
|
|
|
Intersegment
|
|
|
Financial
|
|
|
|
Investments
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Statements
|
|
|
|
(In thousands)
|
|
|
Interest income
|
|
$
|
102
|
|
|
$
|
261,373
|
|
|
$
|
(1,213
|
)
|
|
$
|
260,262
|
|
Interest expense
|
|
|
1,116
|
|
|
|
135,569
|
|
|
|
(1,213
|
)
|
|
|
135,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
(1,014
|
)
|
|
|
125,804
|
|
|
|
|
|
|
|
124,790
|
|
Provision for loan losses
|
|
|
|
|
|
|
205,719
|
|
|
|
|
|
|
|
205,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest loss after provision for loan losses
|
|
|
(1,014
|
)
|
|
|
(79,915
|
)
|
|
|
|
|
|
|
(80,929
|
)
|
Real estate investment partnership revenue
|
|
|
2,130
|
|
|
|
|
|
|
|
|
|
|
|
2,130
|
|
Other revenue from real estate operations
|
|
|
8,194
|
|
|
|
|
|
|
|
|
|
|
|
8,194
|
|
Other income
|
|
|
|
|
|
|
35,297
|
|
|
|
(90
|
)
|
|
|
35,207
|
|
Real estate investment partnership cost of sales
|
|
|
(1,736
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,736
|
)
|
Other expense from real estate partnership operations
|
|
|
(9,596
|
)
|
|
|
|
|
|
|
90
|
|
|
|
(9,506
|
)
|
Real estate partnership impairment
|
|
|
(17,631
|
)
|
|
|
|
|
|
|
|
|
|
|
(17,631
|
)
|
Non-controlling interest in income of real estate partnerships
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
148
|
|
Other expense
|
|
|
|
|
|
|
(196,642
|
)
|
|
|
|
|
|
|
(196,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(19,505
|
)
|
|
|
(241,260
|
)
|
|
|
|
|
|
|
(260,765
|
)
|
Income tax benefit
|
|
|
(1,068
|
)
|
|
|
(29,030
|
)
|
|
|
|
|
|
|
(30,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(18,437
|
)
|
|
$
|
(212,230
|
)
|
|
$
|
|
|
|
$
|
(230,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at end of period
|
|
$
|
25,070
|
|
|
$
|
5,247,040
|
|
|
$
|
|
|
|
$
|
5,272,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Real Estate
|
|
|
Community
|
|
|
Intersegment
|
|
|
Financial
|
|
|
|
Investments
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Statements
|
|
|
|
(In thousands)
|
|
|
Interest income
|
|
$
|
141
|
|
|
$
|
298,515
|
|
|
$
|
(1,981
|
)
|
|
$
|
296,675
|
|
Interest expense
|
|
|
1,828
|
|
|
|
167,823
|
|
|
|
(1,981
|
)
|
|
|
167,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
(1,687
|
)
|
|
|
130,692
|
|
|
|
|
|
|
|
129,005
|
|
Provision for loan losses
|
|
|
|
|
|
|
22,551
|
|
|
|
|
|
|
|
22,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for loan losses
|
|
|
(1,687
|
)
|
|
|
108,141
|
|
|
|
|
|
|
|
106,454
|
|
Real estate investment partnership revenue
|
|
|
8,399
|
|
|
|
|
|
|
|
|
|
|
|
8,399
|
|
Other revenue from real estate operations
|
|
|
7,664
|
|
|
|
|
|
|
|
|
|
|
|
7,664
|
|
Other income
|
|
|
|
|
|
|
35,643
|
|
|
|
(119
|
)
|
|
|
35,524
|
|
Real estate investment partnership cost of sales
|
|
|
(8,489
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,489
|
)
|
Other expense from real estate partnership operations
|
|
|
(10,291
|
)
|
|
|
|
|
|
|
119
|
|
|
|
(10,172
|
)
|
Non-controlling interest in income of real estate partnerships
|
|
|
402
|
|
|
|
|
|
|
|
|
|
|
|
402
|
|
Other expense
|
|
|
|
|
|
|
(89,000
|
)
|
|
|
|
|
|
|
(89,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(4,002
|
)
|
|
|
54,784
|
|
|
|
|
|
|
|
50,782
|
|
Income tax expense (benefit)
|
|
|
(1,682
|
)
|
|
|
21,332
|
|
|
|
|
|
|
|
19,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,320
|
)
|
|
$
|
33,452
|
|
|
$
|
|
|
|
$
|
31,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at end of period
|
|
$
|
72,028
|
|
|
$
|
5,077,529
|
|
|
$
|
|
|
|
$
|
5,149,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
|
|
|
$
|
72,375
|
|
|
$
|
|
|
|
$
|
72,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
of Operations
Comparison
of Years Ended March 31, 2010 and 2009
General. Net income increased
$53.7 million to a net loss of $177.1 million in
fiscal 2010 from net loss of $230.8 million in fiscal 2009.
The primary component of this increase in earnings for fiscal
2010, as compared to fiscal 2009, was a decrease in non-interest
expense of $67.7 million, due to a $72.2 million
impairment of goodwill in the prior year. The increase in net
income was also attributable to a $43.8 million decrease in
the provision for loan losses. In addition, non-interest income
increased $10.8 million. These increases were partially
offset by a decrease in net interest income of
$40.0 million and a decrease in income tax benefit of
$28.6 million. An allowance of $71.3 million was
placed on the deferred tax asset during the year ended
March 31, 2010. A full valuation allowance has been
recorded on the net deferred tax asset due to the uncertainty of
the Corporation to create sufficient taxable income in the near
future to fully utilize it. The returns on average assets and
average stockholders equity for fiscal 2010 were (3.67)%
and (158.84)%, respectively, as compared to (4.65)% and
(77.05)%, respectively, for fiscal 2009.
Net Interest Income. Net interest income
decreased by $40.0 million during fiscal 2010 due to the
decline in yield on interest earning assets which was offset by
the decreased cost of interest bearing liabilities. The primary
factor that contributed to the decline in net interest income
was the fact that approximately $12.7 million of interest
income on nonaccrual loans was reversed when the loans were
placed on nonaccrual status. The average balances of
interest-earning assets decreased to $4.58 billion and the
average balance of interest-bearing liabilities increased to
$4.69 billion in fiscal 2010, from $4.62 billion and
$4.61 billion, respectively, in fiscal 2009. The ratio of
average interest-earning assets to average interest-bearing
liabilities decreased to 0.98 in fiscal 2010 from 1.00 in fiscal
53
2009. The average yield on interest-earning assets (4.74% in
fiscal 2010 versus 5.63% in fiscal 2009) decreased, as did
the average cost on interest-bearing liabilities (2.82% in
fiscal 2010 versus 2.94% in fiscal 2009). The net interest
margin decreased to 1.85% in fiscal 2010 from 2.70% in fiscal
2009 and the interest rate spread decreased to 1.92% from 2.69%
in fiscal 2010 and 2009, respectively. The decrease in interest
rate spread was reflective of a decrease in the yields on loans
as interest rates decreased, which was slightly offset by a
smaller 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 as set forth under Rate/Volume
Analysis below. The analysis indicates that the decrease
of $40.0 million in net interest income stemmed from net
rate/volume decreases in interest-earning assets of
$43.2 million offset by the net rate/volume decreases of
interest- bearing liabilities of $3.2 million.
Provision for Loan Losses. The provision for
loan losses decreased $43.8 million from
$205.7 million in fiscal 2009 to $161.9 million in
fiscal 2010 based on managements ongoing evaluation of
asset quality. This charge reflected a decrease in provision to
$161.9 million during the year allocated between specific
reserves on impaired credits and an increase to the general
reserve. The decrease in provision and specific and general
reserves was in response to the following trends identified in
the portfolio: (i) a proactive method of identification of
criticized assets and (ii) continued analysis of the
commercial real estate, construction and land portfolios. These
increases resulted in the Corporations allowance for loan
losses increasing $42.4 million from $137.2 million at
March 31, 2009 to $179.6 million at March 31,
2010. The allowance for loan losses represented 5.23% of total
loans at March 31, 2010, as compared to 3.34% of total
loans at March 31, 2009. For further discussion of the
allowance for loan losses, see Financial
Condition Allowance for Loan and Foreclosure
Losses.
Future provisions for loan losses will continue to be based upon
managements assessment of the overall loan portfolio and
the underlying collateral, trends in non-performing loans,
current economic conditions and other relevant factors in order
to maintain the allowance for loan losses at adequate levels to
provide for probable and estimable future losses. The
establishment of the amount of the loan loss allowance
inherently involves judgments by management as to the adequacy
of the allowance, which ultimately may or may not be correct.
Higher rates of loan defaults than anticipated would likely
result in a need to increase provisions in future years. Also,
as multi-family and commercial loan portfolios increase,
additional provisions would likely be added to the loan loss
allowance as they carry a higher risk of loss.
Non-interest Income. Non-interest income
increased $10.9 million to $56.8 million for fiscal
2010 compared to $45.9 million for fiscal 2009 primarily
due to the increase of net gain on sale of investment securities
of $14.4 million for fiscal 2010. In addition, net gain on
sale of loans increased $7.9 million due to an increase in
refinancing activity. Partially offsetting these increases were
decreases in other categories. Income from the
Corporations real estate segment decreased
$8.6 million and other non-interest income decreased
$1.1 million primarily due to decreased fee income.
Non-interest Expense. Non-interest expense
decreased $67.7 million to $158.2 million for fiscal
2010 compared to $225.9 million for fiscal 2009 primarily
due to a $72.2 million impairment of goodwill and a
$17.6 million impairment of real estate in the prior year.
In addition, expenses of the real estate segment decreased
$6.3 million, mortgage servicing rights impairment expense
decreased $4.3 million and compensation expense decreased
$3.4 million. These decreases were offset by an increase in
federal deposit insurance premiums of $14.7 million, an
increase in other non-interest expense of $9.4 million due
to increased legal and consulting fees, an increase in net
expense of REO operations of $8.8 million and an increase
in the impairment of foreclosure cost advances of
$4.7 million due to the fact that previously capitalized
foreclosure cost advances were deemed unrecoverable.
Real Estate Segment. Net income generated by
the real estate segment increased $15.6 million for fiscal
2010 to a net loss of $2.8 million from a net loss of
$18.4 million in fiscal 2009. During the quarter ended
September 30, 2009, IDI sold its interest in several
limited partnerships as well as substantially all of its
remaining assets, which included some developed lots. The assets
that remain at IDI include an equity interest in one commercial
real estate property and one real estate development along with
various notes receivable.
54
Non-Controlling Interests. Non-controlling
interest in income (loss) of real estate partnership operations
represents the share of income of development partners in the
Corporations real estate investment partnerships. Such
non-controlling interest increased $148,000 from a loss of
$148,000 in fiscal 2009 to zero in fiscal 2010.
For more information on the effects to the consolidated
operations of the Corporation, see Real Estate Held for
Development and Sale and Variable Interest Entities, in
Note 1 to the Consolidated Financial Statements included in
Item 8.
Income Taxes. Income tax benefit decreased
$28.6 million for fiscal 2010 as compared to fiscal 2009.
The effective tax rate for fiscal 2010 was (0.84)% as compared
to (11.65)% for fiscal 2009. The decline in the effective tax
rate was primarily due to the valuation allowance of
$71.3 million placed on the deferred tax asset during the
year ended March 31, 2010. A full valuation allowance has
been recorded on the net deferred tax asset due to the
uncertainty of the Corporation to create sufficient taxable
income in the near future to fully utilize it. See Note 14
to the Consolidated Financial Statements included in Item 8.
Comparison
of Years Ended March 31, 2009 and 2008
General. Net income decreased
$261.5 million to a loss of $230.8 million in fiscal
2009 from net income of $30.7 million in fiscal 2008. The
primary component of this decrease in earnings for fiscal 2009,
as compared to fiscal 2008, was a $183.2 million increase
in the provision for loan losses. The decrease in net income was
also attributable to an increase in non-interest expense of
$118.7 million, primarily due to a $72.2 million write
down of goodwill due to impairment. In addition, non-interest
income decreased $5.2 million and net interest income
decreased $4.2 million. These decreases were partially
offset by a decrease in income tax expense of
$49.7 million. An allowance of $46.3 million was
placed on the deferred tax asset during the year ended
March 31, 2009. A valuation allowance was recognized
because it is more-likely-than-not that a portion of the
deferred tax asset will not be realized. The remaining deferred
tax asset is realizable due to the ability to carry back losses
to prior years, future reversals of existing temporary
differences, and the expectation of future taxable income. The
returns on average assets and average stockholders equity
for fiscal 2009 were (4.65)% and (77.05)%, respectively, as
compared to 0.63% and 9.17%, respectively, for fiscal 2008.
Net Interest Income. Net interest income
decreased by $4.2 million during fiscal 2009 due to the
decreased cost of interest bearing liabilities which was offset
by the decline in yield on interest earning assets. Factors that
contributed to the decline in net interest income were the fact
that approximately $5.6 million of interest income on
nonaccrual loans was reversed when the loans were placed on
nonaccrual status. The average balances of interest-earning
assets decreased to $4.62 billion and the average balance
of interest-bearing liabilities increased to $4.61 billion
in fiscal 2009, from $4.75 billion and $4.60 billion,
respectively, in fiscal 2008. The ratio of average
interest-earning assets to average interest-bearing liabilities
decreased to 1.00 in fiscal 2009 from 1.03 in fiscal 2008. The
average yield on interest-earning assets (5.63% in fiscal 2009
versus 6.25% in fiscal 2008) decreased, as did the average
cost on interest-bearing liabilities (2.94% in fiscal 2009
versus 3.65% in fiscal 2008). The net interest margin decreased
to 2.70% in fiscal 2009 from 2.72% in fiscal 2008 and the
interest rate spread increased to 2.69% from 2.60% in fiscal
2009 and 2008, respectively. The increase in interest rate
spread was reflective of a decrease in the cost of funds, which
was slightly offset by a smaller decrease in the yields on loans
as interest rates decreased. 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 as set forth under Rate/Volume Analysis
below. The analysis indicates that the decrease of
$4.2 million in net interest income stemmed from net
rate/volume decreases in interest- earning assets of
$36.4 million offset by the net rate/volume decreases of
interest- bearing liabilities of $32.2 million.
Provision for Loan Losses. The provision for
loan losses increased $183.2 million from
$22.6 million in fiscal 2008 to $205.7 million in
fiscal 2009 based on managements ongoing evaluation of
asset quality. This charge reflected an increase in provision to
$205.7 million during the year allocated between specific
reserves on impaired credits and an increase to the general
reserve. The increase in provision and specific and general
reserves was in response to the following trends identified in
the portfolio: (i) an increase in net charge-offs of
$99.3 million in fiscal 2009, primarily due to increased
mortgage loan charge-offs. and (ii) increases in
non-performing loans, in commercial real estate, construction
and land and consumer loans, from $101.2 million at
March 31, 2008 to
55
$227.8 million at March 31, 2009. These increases
resulted in the Corporations allowance for loan losses
increasing $98.9 million from $38.3 million at
March 31, 2008 to $137.2 million at March 31,
2009. The allowance for loan losses represented 3.34% of total
loans at March 31, 2009, as compared to 0.87% of total
loans at March 31, 2008. 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 $5.2 million to $45.9 million for fiscal
2009 compared to $51.1 million for fiscal 2008 primarily
due to the decrease of income from the Corporations real
estate segment of $5.7 million for fiscal 2009. In
addition, gain (loss) on investments and mortgage-related
securities decreased $3.8 million, loan servicing income
decreased $2.1 million and other than temporary impairment
on securities of $805,000 was recorded. Partially offsetting
these decreases were increases in other categories. Net gain on
sale of loans increased $4.5 million and service charges on
deposits increased $2.4 million.
Non-interest Expense. Non-interest expense
increased $118.7 million to $225.9 million for fiscal
2009 compared to $107.2 million for fiscal 2008 primarily
due to goodwill impairment of $72.2 million and a
$17.6 million impairment of real estate. In addition, net
expense of REO operations increased $11.9 million,
compensation expense increased $9.4 million, other
non-interest expense increased $4.9 million due to
increased legal fees and loan fees, mortgage servicing rights
impairment expense increased $3.1 million, furniture and
equipment expense increased $1.8 million due to the fact
that the current year includes a full year of operations at
branches acquired in the prior year, occupancy expense increased
$1.6 million due to a full year of operations in the
current year of branches acquired in the prior year and data
processing expense increased $1.1 million. These increases
were offset by a decrease in real estate investment partnership
cost of sales of $6.8 million and marketing expense
decreased $1.0 million.
Real Estate Segment. Net income generated by
the real estate segment decreased $16.1 million for fiscal
2009 to a net loss of $18.4 million from a net loss of
$2.3 million in fiscal 2008. The primary reason for the
decrease for fiscal 2009 was a $17.6 million impairment of
real estate. In addition, partnership sales decreased
$6.5 million, income tax expense increased $614,000 and
minority interest in income of real estate partnerships
increased $254,000. These decreases in net income were offset in
part by a $6.8 million decrease in real estate investment
cost of sales and a $754,000 increase in other revenue from real
estate operations. Future sales revenues are based on several
factors, including the interest rate environment. Therefore,
management cannot predict future activity.
Non-Controlling Interests. Non-controlling
interest in income (loss) of real estate partnership operations
represents the share of income of development partners in the
Corporations real estate investment partnerships. Such
non-controlling interest increased $254,000 from a loss of
$402,000 in fiscal 2008 to a loss of $148,000 in fiscal 2009.
For more information on the effects to the consolidated
operations of the Corporation, see Real Estate Held for
Development and Sale and Variable Interest Entities, in
Note 1 to the Consolidated Financial Statements included in
Item 8.
Income Taxes. Income tax expense decreased
$49.7 million for fiscal 2009 as compared to fiscal 2008.
The effective tax rate for fiscal 2009 was (11.65)% as compared
to 38.69% for fiscal 2008. The decline in the effective tax rate
was primarily due to the valuation allowance of
$46.3 million placed on the deferred tax asset during the
year ended March 31, 2009. To the extent available, sources
of taxable income, including those available from prior
years under tax regulations, are deemed per GAAP to be
insufficient to absorb tax losses, and a valuation allowance is
therefore necessary. See Note 14 to the Consolidated
Financial Statements included in Item 8.
Fourth
Quarter Results
Net loss for the quarter ending March 31, 2010 was
$26.6 million, compared to net loss of $45.9 million
for the quarter ending March 31, 2009. The results for the
quarter ending March 31, 2010 generated an annualized
return on average assets of (2.40)% and an annualized return on
average equity of (232.27)%, compared to (3.62)% and (84.21)%,
respectively, for the same period in 2009.
56
Net interest income was $18.6 million for the three months
ended March 31, 2010, a decrease of $10.1 million from
$28.7 million for the comparable period in 2009. The net
interest margin was 1.77% for the quarter ending March 31,
2010 and 2.45% for the quarter ending March 31, 2009.
Provision for loan losses was $20.2 million in the quarter
ending March 31, 2010 compared to $56.4 million in the
quarter ending March 31, 2009. Net charge-offs were
$5.0 million in the quarter ended March 31, 2010
compared to $41.8 million in the quarter ended
March 31, 2009. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations Asset Quality below for further
analysis of the allowance for loan losses.
Non-interest income was $10.5 million for the quarter ended
March 31, 2010, a decrease of $5.5 million compared to
$16.0 million for the quarter ended March 31, 2009.
The majority of the decrease was attributable to a
$5.0 million decrease in revenue from the real estate
segment. In addition, income from net gain on sale of loans
decreased $4.5 million. Partially offsetting these
decreases was an increase in loan servicing income of
$1.9 million.
Non-interest expense decreased $13.2 million to
$37.1 million for the quarter ended March 31, 2010
from $50.3 million for the quarter ended March 31,
2009 primarily due to a $15.5 million decrease in expenses
from the Corporations real estate segment, which included
$13.0 million of impairment of real estate in the prior
year. Partially offsetting these decreases was an increase in
federal deposit insurance premiums of $1.1 million.
The Corporation had an income tax benefit of $1.5 million
for the three months ended March 31, 2010 compared to
income tax benefit of $16.1 million for the three months
ended March 31, 2009. The effective tax rate (benefit) was
(5.34)% and (27.2)% for the quarter ended March 31, 2010
and 2009, respectively. The change in the effective tax rate was
mainly due to the fact that a full valuation allowance has been
recorded on the net deferred tax asset due to the uncertainty of
the Corporation to create sufficient taxable income in the near
future to fully utilize it.
Net
Interest Income Information
Average Interest-Earning Assets, Average Interest-Bearing
Liabilities and Interest Rate Spread and
Margin. The following table shows the
Corporations average balances, interest, average rates,
the spread between the combined average rates earned on
interest-earning assets and average cost of interest-bearing
liabilities, net interest margin, which represents net interest
income as a percentage 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.
57
Average
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
|
(Dollars in thousands)
|
|
|
Interest-earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
$
|
2,685,764
|
|
|
$
|
146,190
|
|
|
|
5.44
|
%
|
|
$
|
3,092,823
|
|
|
$
|
181,249
|
|
|
|
5.86
|
%
|
|
$
|
3,276,629
|
|
|
$
|
209,065
|
|
|
|
6.38
|
%
|
Consumer loans
|
|
|
764,352
|
|
|
|
38,611
|
|
|
|
5.05
|
|
|
|
766,902
|
|
|
|
45,566
|
|
|
|
5.94
|
|
|
|
721,860
|
|
|
|
48,627
|
|
|
|
6.74
|
|
Commercial business loans
|
|
|
173,151
|
|
|
|
10,793
|
|
|
|
6.23
|
|
|
|
249,502
|
|
|
|
14,298
|
|
|
|
5.73
|
|
|
|
253,794
|
|
|
|
19,014
|
|
|
|
7.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable(1)(2)
|
|
|
3,623,267
|
|
|
|
195,594
|
|
|
|
5.40
|
|
|
|
4,109,227
|
|
|
|
241,113
|
|
|
|
5.87
|
|
|
|
4,252,283
|
|
|
|
276,706
|
|
|
|
6.51
|
|
Investment securities(3)
|
|
|
474,808
|
|
|
|
20,443
|
|
|
|
4.31
|
|
|
|
382,068
|
|
|
|
18,615
|
|
|
|
4.87
|
|
|
|
402,787
|
|
|
|
16,695
|
|
|
|
4.14
|
|
Interest-bearing deposits
|
|
|
426,377
|
|
|
|
1,045
|
|
|
|
0.25
|
|
|
|
76,787
|
|
|
|
534
|
|
|
|
0.70
|
|
|
|
43,405
|
|
|
|
2,702
|
|
|
|
6.23
|
|
Federal Home Loan Bank stock
|
|
|
54,829
|
|
|
|
|
|
|
|
0.00
|
|
|
|
54,829
|
|
|
|
|
|
|
|
0.00
|
|
|
|
48,689
|
|
|
|
572
|
|
|
|
1.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
4,579,281
|
|
|
|
217,082
|
|
|
|
4.74
|
|
|
|
4,622,911
|
|
|
|
260,262
|
|
|
|
5.63
|
|
|
|
4,747,164
|
|
|
|
296,675
|
|
|
|
6.25
|
|
Non-interest-earning assets
|
|
|
248,171
|
|
|
|
|
|
|
|
|
|
|
|
337,798
|
|
|
|
|
|
|
|
|
|
|
|
228,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,827,452
|
|
|
|
|
|
|
|
|
|
|
$
|
4,960,709
|
|
|
|
|
|
|
|
|
|
|
$
|
4,975,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
939,315
|
|
|
|
5,179
|
|
|
|
0.55
|
|
|
$
|
1,023,961
|
|
|
|
9,377
|
|
|
|
0.92
|
|
|
$
|
1,113,836
|
|
|
|
21,135
|
|
|
|
1.90
|
|
Regular passbook savings
|
|
|
244,558
|
|
|
|
694
|
|
|
|
0.28
|
|
|
|
228,978
|
|
|
|
883
|
|
|
|
0.39
|
|
|
|
221,219
|
|
|
|
916
|
|
|
|
0.41
|
|
Certificates of deposit
|
|
|
2,601,292
|
|
|
|
81,467
|
|
|
|
3.13
|
|
|
|
2,217,594
|
|
|
|
84,597
|
|
|
|
3.81
|
|
|
|
2,233,818
|
|
|
|
101,218
|
|
|
|
4.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
3,785,165
|
|
|
|
87,340
|
|
|
|
2.31
|
|
|
|
3,470,533
|
|
|
|
94,857
|
|
|
|
2.73
|
|
|
|
3,568,873
|
|
|
|
123,269
|
|
|
|
3.45
|
|
Other borrowed funds
|
|
|
901,985
|
|
|
|
44,931
|
|
|
|
4.98
|
|
|
|
1,142,871
|
|
|
|
40,615
|
|
|
|
3.55
|
|
|
|
1,029,810
|
|
|
|
44,401
|
|
|
|
4.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
4,687,150
|
|
|
|
132,271
|
|
|
|
2.82
|
|
|
|
4,613,404
|
|
|
|
135,472
|
|
|
|
2.94
|
|
|
|
4,598,683
|
|
|
|
167,670
|
|
|
|
3.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities
|
|
|
28,829
|
|
|
|
|
|
|
|
|
|
|
|
47,950
|
|
|
|
|
|
|
|
|
|
|
|
37,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,715,979
|
|
|
|
|
|
|
|
|
|
|
|
4,661,354
|
|
|
|
|
|
|
|
|
|
|
|
4,636,074
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
111,473
|
|
|
|
|
|
|
|
|
|
|
|
299,355
|
|
|
|
|
|
|
|
|
|
|
|
339,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
4,827,452
|
|
|
|
|
|
|
|
|
|
|
$
|
4,960,709
|
|
|
|
|
|
|
|
|
|
|
$
|
4,975,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest rate spread(4)
|
|
|
|
|
|
$
|
84,811
|
|
|
|
1.92
|
%
|
|
|
|
|
|
$
|
124,790
|
|
|
|
2.69
|
%
|
|
|
|
|
|
$
|
129,005
|
|
|
|
2.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets
|
|
$
|
(107,869
|
)
|
|
|
|
|
|
|
|
|
|
$
|
9,507
|
|
|
|
|
|
|
|
|
|
|
$
|
148,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin(5)
|
|
|
|
|
|
|
|
|
|
|
1.85
|
%
|
|
|
|
|
|
|
|
|
|
|
2.70
|
%
|
|
|
|
|
|
|
|
|
|
|
2.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of average interest-earning assets to average
interest-bearing liabilities
|
|
|
0.98
|
|
|
|
|
|
|
|
|
|
|
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the purpose of these computations, non-accrual loans are
included in the daily average loan amounts outstanding. |
|
(2) |
|
Interest earned on loans includes loan fees (which are not
material in amount) and interest income which has been received
from borrowers whose loans were removed from non-accrual status
during the period indicated. |
|
(3) |
|
Average balances of securities
available-for-sale
are based on amortized cost. |
|
(4) |
|
Interest rate spread represents the difference between the
weighted-average yield on interest-earning assets and the
weighted-average cost of interest-bearing liabilities and is
represented on a fully tax equivalent basis. |
|
(5) |
|
Net interest margin represents net interest income as a
percentage of average interest-earning assets. |
58
Rate/Volume
Analysis
The most significant impact on the Corporations net
interest income between periods is derived from the interaction
of changes in the volume of and rates earned or paid on
interest-earning assets and interest-bearing liabilities. The
volume of earning dollars in loans and investments, compared to
the volume of interest-bearing liabilities represented by
deposits and borrowings, combined with the spread, produces the
changes in net interest income between periods. The following
table shows the relative contribution of the changes in average
volume and average interest rates on changes in net interest
income for the periods indicated. Information is provided with
respect to the effects on net interest income attributable to
(i) changes in rate (changes in rate multiplied by prior
volume), (ii) changes in volume (changes in volume
multiplied by prior rate) and (iii) changes in rate/volume
(changes in rate multiplied by changes in volume).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) for the Year Ended March 31,
|
|
|
|
2010 Compared To 2009
|
|
|
2009 Compared To 2008
|
|
|
|
|
|
|
|
|
|
Rate/
|
|
|
|
|
|
|
|
|
|
|
|
Rate/
|
|
|
|
|
|
|
Rate
|
|
|
Volume
|
|
|
Volume
|
|
|
Net
|
|
|
Rate
|
|
|
Volume
|
|
|
Volume
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
$
|
(12,902
|
)
|
|
$
|
(23,855
|
)
|
|
$
|
1,698
|
|
|
$
|
(35,059
|
)
|
|
$
|
(17,044
|
)
|
|
$
|
(11,728
|
)
|
|
$
|
956
|
|
|
$
|
(27,816
|
)
|
Consumer loans
|
|
|
(6,826
|
)
|
|
|
(152
|
)
|
|
|
23
|
|
|
|
(6,955
|
)
|
|
|
(5,737
|
)
|
|
|
3,034
|
|
|
|
(358
|
)
|
|
|
(3,061
|
)
|
Commercial business loans
|
|
|
1,254
|
|
|
|
(4,375
|
)
|
|
|
(384
|
)
|
|
|
(3,505
|
)
|
|
|
(4,470
|
)
|
|
|
(322
|
)
|
|
|
76
|
|
|
|
(4,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans receivable(1)(2)
|
|
|
(18,474
|
)
|
|
|
(28,382
|
)
|
|
|
1,337
|
|
|
|
(45,519
|
)
|
|
|
(27,251
|
)
|
|
|
(9,016
|
)
|
|
|
674
|
|
|
|
(35,593
|
)
|
Investment securities(3)
|
|
|
(2,165
|
)
|
|
|
4,519
|
|
|
|
(526
|
)
|
|
|
1,828
|
|
|
|
2,929
|
|
|
|
(858
|
)
|
|
|
(151
|
)
|
|
|
1,920
|
|
Interest-bearing deposits
|
|
|
(346
|
)
|
|
|
2,431
|
|
|
|
(1,574
|
)
|
|
|
511
|
|
|
|
(2,400
|
)
|
|
|
2,078
|
|
|
|
(1,846
|
)
|
|
|
(2,168
|
)
|
Federal Home Loan Bank stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(572
|
)
|
|
|
72
|
|
|
|
(72
|
)
|
|
|
(572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net change in income on interest-earning assets
|
|
|
(20,985
|
)
|
|
|
(21,432
|
)
|
|
|
(763
|
)
|
|
|
(43,180
|
)
|
|
|
(27,294
|
)
|
|
|
(7,724
|
)
|
|
|
(1,395
|
)
|
|
|
(36,413
|
)
|
Interest-bearing Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
(3,731
|
)
|
|
|
(775
|
)
|
|
|
308
|
|
|
|
(4,198
|
)
|
|
|
(10,935
|
)
|
|
|
(1,705
|
)
|
|
|
882
|
|
|
|
(11,758
|
)
|
Regular passbook savings
|
|
|
(233
|
)
|
|
|
60
|
|
|
|
(16
|
)
|
|
|
(189
|
)
|
|
|
(63
|
)
|
|
|
32
|
|
|
|
(2
|
)
|
|
|
(33
|
)
|
Certificates of deposit
|
|
|
(15,147
|
)
|
|
|
14,638
|
|
|
|
(2,621
|
)
|
|
|
(3,130
|
)
|
|
|
(16,002
|
)
|
|
|
(735
|
)
|
|
|
116
|
|
|
|
(16,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
(19,111
|
)
|
|
|
13,923
|
|
|
|
(2,329
|
)
|
|
|
(7,517
|
)
|
|
|
(27,000
|
)
|
|
|
(2,408
|
)
|
|
|
996
|
|
|
|
(28,412
|
)
|
Other borrowed funds
|
|
|
16,315
|
|
|
|
(8,561
|
)
|
|
|
(3,439
|
)
|
|
|
4,315
|
|
|
|
(7,804
|
)
|
|
|
4,875
|
|
|
|
(857
|
)
|
|
|
(3,786
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net change in expense on interest-bearing liabilities
|
|
|
(2,796
|
)
|
|
|
5,362
|
|
|
|
(5,768
|
)
|
|
|
(3,202
|
)
|
|
|
(34,804
|
)
|
|
|
2,467
|
|
|
|
139
|
|
|
|
(32,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in net interest income
|
|
$
|
(18,189
|
)
|
|
$
|
(26,794
|
)
|
|
$
|
5,005
|
|
|
$
|
(39,978
|
)
|
|
$
|
7,510
|
|
|
$
|
(10,191
|
)
|
|
$
|
(1,534
|
)
|
|
$
|
(4,215
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the purpose of these computations, non-accrual loans are
included in the daily average loan amounts outstanding. |
|
(2) |
|
Interest earned on loans includes loan fees (which are not
material in amount) and interest income which has been received
from borrowers whose loans were removed from non-accrual status
during the period indicated. |
|
(3) |
|
Average balances of securities
available-for-sale
are based on amortized cost. |
59
Financial
Condition
General. Total assets of the Corporation
decreased $855.8 million, or 16.2%, from $5.27 billion
at March 31, 2009 to $4.42 billion at March 31,
2010. This decrease was primarily attributable to a decrease in
loans receivable as well as a decrease in investment securities.
Investment Securities. Investment securities
(both
available-for-sale
and
held-to-maturity)
decreased $68.8 million during the year due to principal
repayments, sales and fair value adjustments of
$614.3 million and
other-than-temporary
impairments of $1.1 million due to credit losses that are
recognized in earnings partially offset by purchases of
$497.7 million and the securitization of mortgage loans to
agency mortgage-backed securities of $48.9 million. See
Notes 1 and 5 to the Consolidated Financial Statements
included in Item 8.
Investment securities are subject to inherent risks based upon
the future performance of the underlying collateral (i.e.,
mortgage loans) for these securities. Among these risks are
prepayment risk, interest rate risk and credit risk. Should
general interest rate levels decline, the mortgage-related
securities portfolio would be subject to (i) prepayments as
borrowers typically would seek to obtain financing at lower
rates, (ii) a decline in interest income received on
adjustable-rate mortgage-related securities, and (iii) an
increase in fair value of fixed-rate mortgage-related
securities. Conversely, should general interest rate levels
increase, the mortgage-related securities portfolio would be
subject to (i) a longer term to maturity as borrowers would
be less likely to prepay their loans, (ii) an increase in
interest income received on adjustable-rate mortgage-related
securities, (iii) a decline in fair value of fixed-rate
mortgage-related securities, (iv) a decline in fair value
of adjustable-rate mortgage-related securities to an extent
dependent upon the level of interest rate increases, the time
period to the next interest rate repricing date for the
individual security and the applicable periodic (annual
and/or
lifetime) cap which could limit the degree to which the
individual security could reprice within a given time period,
and (v) should default rates and loss severities increase
on the underlying collateral of mortgage-related securities, the
Corporation may experience credit losses that need to be
recognized in earnings as an
other-than-temporary
impairment.
Loans Receivable. Total net loans decreased
$809.3 million during fiscal 2010 from $4.06 billion
at March 31, 2009 to $3.25 billion at March 31,
2010. The activity included (i) originations of
$1.52 billion, (ii) sales of $1.13 billion and
(iii) principal repayments and other reductions of
$1.20 billion.
During 2010, the Corporation originated $631.1 million of
loans for investment, as compared to $780.0 million and
$1.19 billion during fiscal 2009 and 2008, respectively. Of
the $631.1 million of loans originated for investment in
fiscal 2010, $184.4 million or 29.2% was comprised of
single-family residential loans, $134.0 million or 21.2%
was comprised of multi-family residential and commercial real
estate loans, $81.8 million or 13.0% was comprised of
construction and land loans, $212.5 million or 33.7% was
comprised of consumer loans and $18.5 million or 2.9% was
comprised of commercial business loans. During the year ended
March 31, 2010, the Corporation securitized
$48.9 million of mortgage loans to agency mortgage-backed
securities which were sold at a gain of $1.8 million.
Single-family residential loans held by the Corporation for
investment amounted to $765.3 million and
$843.5 million at March 31, 2010 and 2009,
respectively, which represented approximately 22.3% and 20.5% of
gross loans held for investment in 2010 and 2009, respectively.
In the aggregate, gross multi-family residential and commercial
real estate loans, construction and land loans, consumer loans
and commercial business loans, each of which involves more risk
than single-family residential loans because of the nature of,
or in certain cases the absence of, loan collateral, decreased
$595.1 million or 18.2% from March 31, 2009 to
March 31, 2010 and represented approximately 77.7% and
79.5% of gross loans held for investment at March 31, 2010
and 2009, respectively.
Single-family residential loans originated for sale amounted to
$1.16 billion in fiscal 2010, as compared to
$1.01 billion and $530.3 million in fiscal 2009 and
fiscal 2008, respectively. This increase was primarily
attributable to the decreasing interest rate environment in
fiscal 2010. At March 31, 2010, loans held for sale, which
consisted of single-family residential loans, multi-family
residential loans and commercial real estate loans, amounted to
$19.5 million, as compared to $162.0 million at
March 31, 2009. Loans held for sale are recorded at the
lower of cost or market.
60
Non-Performing Assets. The composition of
non-performing loans is summarized as follows for the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
|
|
|
|
|
|
|
|
Percent of Total
|
|
|
|
|
|
|
|
|
Percent of Total
|
|
|
|
Non-Performing
|
|
|
%
|
|
|
Loans
|
|
|
Non-Performing
|
|
|
%
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Single-family residential
|
|
$
|
52,765
|
|
|
|
14.3
|
%
|
|
|
1.54
|
%
|
|
$
|
31,868
|
|
|
|
14.0
|
%
|
|
|
0.78
|
%
|
Multi-family residential
|
|
|
60,485
|
|
|
|
16.4
|
%
|
|
|
1.76
|
%
|
|
|
50,090
|
|
|
|
22.0
|
%
|
|
|
1.22
|
%
|
Commercial real estate
|
|
|
131,730
|
|
|
|
35.7
|
%
|
|
|
3.83
|
%
|
|
|
56,972
|
|
|
|
25.0
|
%
|
|
|
1.39
|
%
|
Construction and land
|
|
|
97,240
|
|
|
|
26.3
|
%
|
|
|
2.83
|
%
|
|
|
70,536
|
|
|
|
31.0
|
%
|
|
|
1.72
|
%
|
Consumer
|
|
|
5,154
|
|
|
|
1.4
|
%
|
|
|
0.15
|
%
|
|
|
3,525
|
|
|
|
1.5
|
%
|
|
|
0.09
|
%
|
Commercial business
|
|
|
21,698
|
|
|
|
5.9
|
%
|
|
|
0.63
|
%
|
|
|
14,823
|
|
|
|
6.5
|
%
|
|
|
0.36
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Performing Loans
|
|
$
|
369,072
|
|
|
|
100.0
|
%
|
|
|
10.74
|
%
|
|
$
|
227,814
|
|
|
|
100.0
|
%
|
|
|
5.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of non-performing loan activity for
the year ended March 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Performing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Performing
|
|
|
Remaining
|
|
|
|
|
|
|
Loan Balance
|
|
|
|
|
|
Moved to
|
|
|
Moved to
|
|
|
|
|
|
|
|
|
Loan Balance
|
|
|
Balance of
|
|
|
ALLL
|
|
Loan Category
|
|
April 1, 2009
|
|
|
Additions
|
|
|
Accrual
|
|
|
OREO
|
|
|
Pay Down
|
|
|
Charge Off
|
|
|
March 31, 2010
|
|
|
Loans
|
|
|
Allocated
|
|
|
Single-family residential
|
|
$
|
31,868
|
|
|
$
|
66,359
|
|
|
$
|
(26,435
|
)
|
|
$
|
(6,529
|
)
|
|
$
|
(9,568
|
)
|
|
$
|
(2,930
|
)
|
|
$
|
52,765
|
|
|
$
|
712,547
|
|
|
$
|
20,960
|
|
Multi-family residential
|
|
|
50,090
|
|
|
|
79,486
|
|
|
|
(42,897
|
)
|
|
|
(4,036
|
)
|
|
|
(14,525
|
)
|
|
|
(7,633
|
)
|
|
|
60,485
|
|
|
|
554,445
|
|
|
|
26,471
|
|
Commercial real estate
|
|
|
56,972
|
|
|
|
212,019
|
|
|
|
(88,803
|
)
|
|
|
(11,556
|
)
|
|
|
(20,479
|
)
|
|
|
(16,423
|
)
|
|
|
131,730
|
|
|
|
711,175
|
|
|
|
75,379
|
|
Construction and land
|
|
|
70,536
|
|
|
|
152,402
|
|
|
|
(75,119
|
)
|
|
|
(13,767
|
)
|
|
|
(17,085
|
)
|
|
|
(19,727
|
)
|
|
|
97,240
|
|
|
|
242,576
|
|
|
|
23,908
|
|
Consumer
|
|
|
3,525
|
|
|
|
1,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,154
|
|
|
|
704,106
|
|
|
|
2,650
|
|
Commercial business
|
|
|
14,823
|
|
|
|
41,501
|
|
|
|
(20,721
|
)
|
|
|
(660
|
)
|
|
|
(6,185
|
)
|
|
|
(7,060
|
)
|
|
|
21,698
|
|
|
|
142,631
|
|
|
|
30,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
227,814
|
|
|
$
|
553,396
|
|
|
$
|
(253,975
|
)
|
|
$
|
(36,548
|
)
|
|
$
|
(67,842
|
)
|
|
$
|
(53,773
|
)
|
|
$
|
369,072
|
|
|
$
|
3,067,480
|
|
|
$
|
179,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans (consisting of loans past due more than
90 days, loans less than 90 days delinquent but placed
on non-accrual status due to anticipated probable loss and
non-accrual troubled debt restructurings) increased
$141.3 million during the year ended March 31, 2010.
Non-performing assets increased $144.1 million to
$424.5 million at March 31, 2010 from
$280.4 million at March 31, 2009 and increased as a
percentage of total assets to 9.61% from 5.32% at such dates,
respectively. The increase in non-performing loans at
March 31, 2010 was the result of an increase of
$74.8 million in non-performing commercial real estate
loans, $26.7 million in non-performing construction and
land loans, $20.9 million in non-performing single-family
residential loans, $10.4 million in non-performing
multi-family loans, $6.9 million in non-performing
commercial business loans and $1.6 million in
non-performing consumer loans.
The composition of non-performing assets is summarized as
follows for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
At March 31,
|
|
|
At March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands)
|
|
|
Total non-accrual loans
|
|
$
|
324,494
|
|
|
$
|
166,354
|
|
Troubled debt restructurings non-accrual(2)
|
|
|
44,578
|
|
|
|
61,460
|
|
Other real estate owned (OREO)
|
|
|
55,436
|
|
|
|
52,563
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
424,508
|
|
|
$
|
280,377
|
|
|
|
|
|
|
|
|
|
|
Total non-performing loans to total loans(1)
|
|
|
10.74
|
%
|
|
|
5.54
|
%
|
Total non-performing assets to total assets
|
|
|
9.61
|
|
|
|
5.32
|
|
Allowance for loan losses to total loans(1)
|
|
|
5.23
|
|
|
|
3.34
|
|
Allowance for loan losses to total non-performing loans
|
|
|
48.67
|
|
|
|
60.21
|
|
Allowance for loan and foreclosure losses to total
non-performing assets
|
|
|
46.16
|
|
|
|
52.08
|
|
|
|
|
(1) |
|
Total loans are gross loans receivable before the reduction for
loans in process, unearned interest and loan fees and the
allowance from loans losses. |
|
(2) |
|
Troubled debt restructurings non-accrual represent
non-accrual loans that were modified in a troubled debt
restructuring less than six months prior to the period end date. |
61
The following is a summary of non-performing asset activity for
the year ended March 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past Due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Still
|
|
|
Total Non-
|
|
|
Other Real
|
|
|
Total Non-
|
|
|
|
|
|
|
Accruing
|
|
|
Performing
|
|
|
Estate Owned
|
|
|
Performing
|
|
|
|
Non-Accrual
|
|
|
Interest
|
|
|
Loans
|
|
|
(OREO)
|
|
|
Assets
|
|
|
Balance at April 1, 2009
|
|
$
|
227,814
|
|
|
$
|
|
|
|
$
|
227,814
|
|
|
$
|
52,563
|
|
|
$
|
280,377
|
|
Increase in fair market value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
553,396
|
|
|
|
|
|
|
|
553,396
|
|
|
|
61,090
|
|
|
|
614,486
|
|
Transfers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Past due to nonaccrual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual to OREO
|
|
|
(36,548
|
)
|
|
|
|
|
|
|
(36,548
|
)
|
|
|
|
|
|
|
(36,548
|
)
|
Returned to accrual status
|
|
|
(253,975
|
)
|
|
|
|
|
|
|
(253,975
|
)
|
|
|
|
|
|
|
(253,975
|
)
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,441
|
)
|
|
|
(38,441
|
)
|
Charge-offs/Loss
|
|
|
(53,773
|
)
|
|
|
|
|
|
|
(53,773
|
)
|
|
|
(19,776
|
)
|
|
|
(73,549
|
)
|
Payments
|
|
|
(67,842
|
)
|
|
|
|
|
|
|
(67,842
|
)
|
|
|
|
|
|
|
(67,842
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
$
|
369,072
|
|
|
$
|
|
|
|
$
|
369,072
|
|
|
$
|
55,436
|
|
|
$
|
424,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans modified in a troubled debt restructuring due to rate or
term concessions that are currently on non-accrual status will
remain on non-accrual status for a period of at least six
months. If after six months, or a period sufficient enough to
demonstrate the willingness and ability of the borrower to
perform under the modified terms, the borrower has made payments
in accordance with the modified terms, the loan is returned to
accrual status but retains its status as a troubled debt
restructuring. The designation as a troubled debt restructuring
is removed in years after the restructuring if both of the
following conditions exist: (a) the restructuring agreement
specifies an interest rate equal to or greater than the rate
that the creditor was willing to accept at the time of
restructuring for a new loan with comparable risk and
(b) the loan is not impaired based on the terms specified
by the restructuring agreement.
The decrease in loans considered troubled debt restructurings of
$16.9 million to $44.6 million at March 31, 2010
from $61.5 million at March 31, 2009 is a result of
continued efforts by the Corporation to work with their
borrowers experiencing financial difficulties. As time passes
and borrowers continue to perform in accordance with the
restructured loan terms, we expect a portion of this balance to
be returned to accrual status.
Beginning late in the first quarter of fiscal 2010, management
began significant efforts in the credit risk area to obtain a
thorough understanding of the risk within the loan portfolio and
to take action to eliminate or limit any further material
adverse consequences. These efforts include the following:
1. Realigning the corporate structure to ensure that risk
is adequately and appropriately identified, mitigated and where
possible, eliminated:
|
|
|
|
|
Appointment of a Chief Credit Risk Officer responsible for
overseeing all aspects of corporate risk.
|
|
|
|
Creation of a Special Assets Group to properly assess potential
collateral shortfall exposure and to develop workout plans.
|
|
|
|
Development of a risk management framework.
|
2. Creation and implementation of a new loan risk rating
system using qualitative metrics to identify loans with
potential risk so they could be properly classified and
monitored.
3. Implementation of a new enhanced impairment analysis to
evaluate all classified loans.
4. Introduction of a new Allowance for Loan and Lease
Policy that improves the timeliness of specific reserves taken
for the allowance for loan and lease calculation.
5. Analysis of the population of recent appraisals received
and developed a specific reserve amount to capture the probable
deterioration in value.
62
6. Establishment of an independent underwriting group that
evaluates the total borrowing relationship using a global cash
flow methodology.
7. Beginning of proactive monitoring of matured and
delinquent loans.
8. Proactive review of the performing (non-impaired)
portfolio for performance issues.
9. Development of resolution plan on all classified assets.
10. Introduction of a portfolio management team.
As a result of these continued efforts, management has a clearer
understanding of the non-performing loans and related probable
and inherent losses within the loan portfolio. While no
assurances can be given as to whether significant increases in
the level of non-performing loans and the ALLL through
additional provisions for loan losses will be required in the
future, we believe the magnitude of the initial increase in
non-performing loans and in the level of non-performing loans
and the provisions that were taken in fiscal 2010 and 2009 are a
result of our efforts described above and are not indicative of
a trend for the future.
Loan Delinquencies. The following table sets
forth information relating to delinquent loans of the Bank and
their relation to the Banks total loans held for
investment at the dates indicated (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
Days Past Due
|
|
Balance
|
|
|
Loans
|
|
|
Balance
|
|
|
Loans
|
|
|
Balance
|
|
|
Loans
|
|
|
30 to 59 days
|
|
$
|
53,105
|
|
|
|
1.54
|
%
|
|
$
|
64,862
|
|
|
|
1.58
|
%
|
|
$
|
66,617
|
|
|
|
1.52
|
%
|
60 to 89 days
|
|
|
53,864
|
|
|
|
1.56
|
|
|
|
29,858
|
|
|
|
0.73
|
|
|
|
12,928
|
|
|
|
0.29
|
|
90 days and over
|
|
|
217,393
|
|
|
|
6.31
|
|
|
|
146,151
|
|
|
|
3.56
|
|
|
|
101,241
|
|
|
|
2.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
324,362
|
|
|
|
9.42
|
%
|
|
$
|
240,871
|
|
|
|
5.86
|
%
|
|
$
|
180,786
|
|
|
|
4.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The interest income that would have been recorded during fiscal
2010 if the Banks non-performing loans at the end of the
period had been current in accordance with their terms during
the period was $13.0 million. The amount of interest income
attributable to these loans and included in interest income
during fiscal 2010 was $5.9 million.
Allowances for Loan and Lease Losses. Like all
financial institutions, we must maintain an adequate allowance
for loan losses. The allowance for loan losses is established
through a provision for loan losses charged to expense. Loans
are charged against the allowance for loan losses when we
believe that repayment of the principal is unlikely. Subsequent
recoveries, if any, are credited to the allowance. The allowance
is an amount that we believe will be adequate to absorb probable
losses on existing loans that may become uncollectible, based on
evaluation of the collectability of loans and prior credit loss
experience, together with the other factors noted earlier.
Our allowance for loan loss methodology incorporates several
quantitative and qualitative risk factors used to establish the
appropriate allowance for loan loss at each reporting date.
Quantitative factors include our historical loss experience,
peer group experience, delinquency and charge-off trends,
collateral values, changes in non-performing loans, other
factors, and information about individual loans including the
borrowers sensitivity to interest rate movements.
Qualitative factors include the economic condition of our
operating markets and the state of certain industries. Specific
changes in the risk factors are based on perceived risk of
similar groups of loans classified by collateral type, purpose
and terms. Statistics on local trends, peers, and an internal
three-year loss history are also incorporated into the
allowance. Due to the credit concentration of our loan portfolio
in real estate secured loans, the value of collateral is heavily
dependent on real estate values in Wisconsin and surrounding
states. While management uses the best information available to
make its evaluation, future adjustments to the allowance may be
necessary if there are significant changes in economic or other
conditions. In addition, the OTS, as an integral part of their
examination processes, periodically review the Banks
allowance for loan losses, and may require us to make additions
to the allowance based on their judgment about information
available to them at the time of their examinations. Management
periodically reviews the assumptions and formulae used in
determining the allowance and makes adjustments if required to
reflect the current risk profile of the portfolio.
63
The allowance consists of specific and general components. The
specific allowance relates to impaired loans. For such loans, an
allowance is established when the discounted cash flows (or
collateral value or observable market price) of the impaired
loan are lower than the carrying value of that loan, pursuant to
ASC 450-20
Loss Contingencies. The general allowance covers
non-impaired
loans and is based on historical loss experience adjusted for
the various qualitative and quantitative factors listed above,
pursuant to
ASC 450-20
and other related regulatory guidance. Loans graded substandard
and below are individually examined closely to determine the
appropriate loan loss reserve.
The following table summarizes the activity in our allowance for
loan losses for the period indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands)
|
|
|
Allowance at beginning of year
|
|
$
|
137,165
|
|
|
$
|
38,285
|
|
|
$
|
20,517
|
|
|
$
|
15,570
|
|
|
$
|
26,444
|
|
Purchase of S&C Bank
|
|
|
|
|
|
|
|
|
|
|
2,795
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family residential
|
|
|
(5,505
|
)
|
|
|
(11,226
|
)
|
|
|
(670
|
)
|
|
|
(192
|
)
|
|
|
(23
|
)
|
Multi-family residential
|
|
|
(12,729
|
)
|
|
|
(10,093
|
)
|
|
|
(700
|
)
|
|
|
(256
|
)
|
|
|
|
|
Commercial real estate
|
|
|
(32,580
|
)
|
|
|
(33,315
|
)
|
|
|
(3,551
|
)
|
|
|
(704
|
)
|
|
|
(1,193
|
)
|
Construction and land
|
|
|
(44,107
|
)
|
|
|
(24,978
|
)
|
|
|
|
|
|
|
(78
|
)
|
|
|
|
|
Consumer
|
|
|
(4,322
|
)
|
|
|
(2,310
|
)
|
|
|
(862
|
)
|
|
|
(416
|
)
|
|
|
(584
|
)
|
Commercial business
|
|
|
(23,040
|
)
|
|
|
(27,002
|
)
|
|
|
(2,130
|
)
|
|
|
(5,571
|
)
|
|
|
(13,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
(122,283
|
)
|
|
|
(108,924
|
)
|
|
|
(7,913
|
)
|
|
|
(7,217
|
)
|
|
|
(15,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family residential
|
|
|
580
|
|
|
|
118
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Multi-family residential
|
|
|
|
|
|
|
6
|
|
|
|
65
|
|
|
|
5
|
|
|
|
|
|
Commercial real estate
|
|
|
632
|
|
|
|
941
|
|
|
|
28
|
|
|
|
35
|
|
|
|
155
|
|
Construction and land
|
|
|
119
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
46
|
|
|
|
73
|
|
|
|
48
|
|
|
|
62
|
|
|
|
81
|
|
Commercial business
|
|
|
1,459
|
|
|
|
806
|
|
|
|
194
|
|
|
|
804
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
2,836
|
|
|
|
2,085
|
|
|
|
335
|
|
|
|
909
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs
|
|
|
(119,447
|
)
|
|
|
(106,839
|
)
|
|
|
(7,578
|
)
|
|
|
(6,308
|
)
|
|
|
(14,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
|
|
|
161,926
|
|
|
|
205,719
|
|
|
|
22,551
|
|
|
|
11,255
|
|
|
|
3,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of year
|
|
$
|
179,644
|
|
|
$
|
137,165
|
|
|
$
|
38,285
|
|
|
$
|
20,517
|
|
|
$
|
15,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs to average loans held for sale and for investment
|
|
|
(3.30
|
)%
|
|
|
(2.60
|
)%
|
|
|
(0.18
|
)%
|
|
|
(0.17
|
)%
|
|
|
(0.42
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loan charge-offs were $122.3 million and
$108.9 million for the fiscal years ending March 31,
2010 and 2009, respectively. Total loan charge-offs for the
years ended March 31, 2010 and 2009 increased
$13.4 million and $101.0 million respectively, from
the prior fiscal years. The increase in charge-offs for fiscal
2010 was largely due to an increase of $19.1 million in
construction and land loan charge-offs, a $2.6 million
increase in multi-family residential loan charge-offs and a
$2.0 million increase in consumer loan charge-offs, which
was offset in part by a $5.7 million decrease in
single-family residential loan charge-offs, a $4.0 million
decrease in commercial business charge-offs and a $735,000
decrease in commercial real estate charge-offs. The increase in
charge-offs for fiscal 2009 was largely due to an increase of
$29.8 million in commercial real estate loan charge-offs, a
$25.0 million increase in construction and land loan
charge-offs, a $24.9 million increase in commercial
business loan charge-offs, an $10.6 million increase in
single-family residential loan charge-offs, a $9.4 million
increase in multi-family residential loan charge-offs and a
$1.4 million increase in consumer loan charge-offs.
Recoveries increased
64
$751,000 during the fiscal year ended March 31, 2010.
Recoveries increased $1.8 million from $335,000 in fiscal
2008 to $2.1 million in fiscal 2009.
The provision for loan losses decreased $43.8 million to
$161.9 million for the fiscal year ending March 31,
2010 compared to $205.7 million for the year ended
March 31, 2009. The decrease in the provision for loan
losses is the result of managements ongoing evaluation of
the loan portfolio. Management considered the increase in
non-accrual loans to total loans to 10.83% at March 31,
2010 from 5.54% at March 31, 2009 as well as an increase in
total non-performing assets to 9.69% at March 31, 2010 from
5.32% at March 31, 2009 to be factors that warranted the
provision for loan losses.
The table below shows the Corporations allocation of the
allowance for loan losses by loan loss reserve category at the
dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Loan
|
|
|
|
|
|
Loan
|
|
|
|
|
|
Loan
|
|
|
|
|
|
Loan
|
|
|
|
|
|
Loan
|
|
|
|
|
|
|
Type to
|
|
|
|
|
|
Type to
|
|
|
|
|
|
Type to
|
|
|
|
|
|
Type to
|
|
|
|
|
|
Type to
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
|
|
2010
|
|
|
Loans
|
|
|
2009
|
|
|
Loans
|
|
|
2008
|
|
|
Loans
|
|
|
2007
|
|
|
Loans
|
|
|
2006
|
|
|
Loans
|
|
|
|
(Dollars in thousands)
|
|
|
Allowance allocation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family residential
|
|
$
|
20,960
|
|
|
|
22.27
|
%
|
|
$
|
11,154
|
|
|
|
20.52
|
%
|
|
$
|
5,175
|
|
|
|
20.35
|
%
|
|
$
|
1,515
|
|
|
|
20.76
|
%
|
|
$
|
551
|
|
|
|
20.51
|
%
|
Multi-family residential
|
|
|
26,471
|
|
|
|
17.89
|
|
|
|
19,202
|
|
|
|
16.12
|
|
|
|
2,736
|
|
|
|
15.82
|
|
|
|
1,563
|
|
|
|
16.11
|
|
|
|
699
|
|
|
|
16.35
|
|
Commercial real estate
|
|
|
75,379
|
|
|
|
24.53
|
|
|
|
50,218
|
|
|
|
24.84
|
|
|
|
13,493
|
|
|
|
24.79
|
|
|
|
9,214
|
|
|
|
25.10
|
|
|
|
4,924
|
|
|
|
25.43
|
|
Construction and land
|
|
|
23,908
|
|
|
|
9.89
|
|
|
|
30,526
|
|
|
|
13.00
|
|
|
|
7,522
|
|
|
|
16.15
|
|
|
|
1,447
|
|
|
|
16.61
|
|
|
|
988
|
|
|
|
16.11
|
|
Consumer
|
|
|
2,650
|
|
|
|
20.64
|
|
|
|
3,703
|
|
|
|
19.71
|
|
|
|
1,468
|
|
|
|
16.57
|
|
|
|
1,429
|
|
|
|
15.64
|
|
|
|
1,410
|
|
|
|
16.25
|
|
Commercial business
|
|
|
30,276
|
|
|
|
4.78
|
|
|
|
22,362
|
|
|
|
5.81
|
|
|
|
7,891
|
|
|
|
6.32
|
|
|
|
5,349
|
|
|
|
5.78
|
|
|
|
6,998
|
|
|
|
5.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses
|
|
$
|
179,644
|
|
|
|
100.00
|
%
|
|
$
|
137,165
|
|
|
|
100.00
|
%
|
|
$
|
38,285
|
|
|
|
100.00
|
%
|
|
$
|
20,517
|
|
|
|
100.00
|
%
|
|
$
|
15,570
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance category as a percent of total allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-family residential
|
|
|
11.67
|
%
|
|
|
|
|
|
|
8.13
|
%
|
|
|
|
|
|
|
13.52
|
%
|
|
|
|
|
|
|
7.38
|
%
|
|
|
|
|
|
|
3.54
|
%
|
|
|
|
|
Multi-family residential
|
|
|
14.74
|
|
|
|
|
|
|
|
14.00
|
|
|
|
|
|
|
|
7.15
|
|
|
|
|
|
|
|
7.62
|
|
|
|
|
|
|
|
4.49
|
|
|
|
|
|
Commercial real estate
|
|
|
41.96
|
|
|
|
|
|
|
|
36.61
|
|
|
|
|
|
|
|
35.24
|
|
|
|
|
|
|
|
44.91
|
|
|
|
|
|
|
|
31.62
|
|
|
|
|
|
Construction and land
|
|
|
13.31
|
|
|
|
|
|
|
|
22.25
|
|
|
|
|
|
|
|
19.65
|
|
|
|
|
|
|
|
7.05
|
|
|
|
|
|
|
|
6.35
|
|
|
|
|
|
Consumer
|
|
|
1.48
|
|
|
|
|
|
|
|
2.70
|
|
|
|
|
|
|
|
3.83
|
|
|
|
|
|
|
|
6.96
|
|
|
|
|
|
|
|
9.06
|
|
|
|
|
|
Commercial business
|
|
|
16.86
|
|
|
|
|
|
|
|
16.31
|
|
|
|
|
|
|
|
20.61
|
|
|
|
|
|
|
|
26.08
|
|
|
|
|
|
|
|
44.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total allowance for loan losses
|
|
|
100.00
|
%
|
|
|
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management increased the allowance for the single-family
residential loan portfolio due to analysis of individual spec
builders which indicate potential losses due to the slow down of
residential real estate transactions. Of the $21.0 million
allocated to single-family residential, $9.8 million
relates to specific credits. The allowance allocation for the
commercial real estate loan portfolio increased primarily due to
the analysis of individual credits which required allocation of
additional reserves for probable loss as well as the increase in
non-performing loans. Approximately 53% of the allowance
allocated to commercial real estate and construction and land
categories are related to specific loans. Of the
$30.3 million allocated to commercial business,
$12.6 million is related to specific loans. Overall, of the
Corporations $179.6 million allowance for loan
losses, $60.6 million is related to specific loans.
The allowance process is analyzed regularly, with modifications
made if needed, and those results are reported four times per
year to the Banks Board of Directors. Although management
believes that the March 31, 2010 allowance for loan losses
is adequate based upon the current evaluation of loan
delinquencies, non-performing assets, charge-off trends,
economic conditions and other factors, there can be no assurance
that future adjustments to the allowance will not be necessary.
Management also continues to pursue all practical and legal
methods of
65
collection, repossession and disposal, and adheres to high
underwriting standards in the origination process in order to
continue to maintain strong asset quality. Our determination as
to the classification of our assets and the amount of our
valuation allowances is subject to review by the OTS, which can
order the establishment of additional general or specific loss
allowances.
Foreclosed Properties and Reposessed
Assets. Foreclosed properties and repossessed
assets (also known as other real estate owned or OREO) increased
$2.9 million during the year ended March 31, 2010.
Individual Properties included in OREO at March 31, 2010
with a recorded balance in excess of $1 million are listed
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Most
|
|
|
|
|
|
|
|
|
Date
|
|
|
Recent
|
|
|
|
|
|
Recorded
|
|
|
Placed in
|
|
|
Appraisal
|
|
Description
|
|
Location
|
|
Balance
|
|
|
OREO
|
|
|
Date
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Construction company/equipment
|
|
Southern Wisconsin
|
|
$
|
2.9
|
|
|
|
1/29/2009
|
|
|
|
N/A
|
|
Partially constructed condominium and retail complex
|
|
Southern Wisconsin
|
|
|
11.1
|
|
|
|
12/31/2008
|
|
|
|
11/1/2008
|
|
Condo units/single family residence
|
|
Northeast Wisconsin
|
|
|
1.3
|
|
|
|
12/30/2009
|
|
|
|
3/1/2009
|
|
Commercial building/vacant land
|
|
Northeast Wisconsin
|
|
|
1.4
|
|
|
|
12/29/2009
|
|
|
|
9/1/2009
|
|
Partially constructed condominium project
|
|
Central Wisconsin
|
|
|
13.0
|
|
|
|
3/31/2009
|
|
|
|
1/1/2006
|
|
Property secured by CBRF
|
|
Northeast Wisconsin
|
|
|
4.2
|
|
|
|
12/31/2008
|
|
|
|
3/1/2009
|
|
Several single family properties
|
|
Minnesota
|
|
|
4.1
|
|
|
|
9/16/2008
|
|
|
|
11/1/2009
|
|
Commercial/various properties
|
|
Central Wisconsin
|
|
|
2.9
|
|
|
|
11/3/2009
|
|
|
|
4/1/2009
|
|
Commercial building
|
|
Central Wisconsin
|
|
|
1.0
|
|
|
|
8/31/2009
|
|
|
|
2/26/2009
|
|
Several duplexes and single family properties
|
|
Central Wisconsin
|
|
|
1.4
|
|
|
|
3/29/2010
|
|
|
|
8/1/2009
|
|
Vacant commercial building
|
|
Northwest Wisconsin
|
|
|
1.2
|
|
|
|
3/30/2010
|
|
|
|
1/9/2010
|
|
Retail/office building
|
|
Central Wisconsin
|
|
|
3.4
|
|
|
|
1/22/2010
|
|
|
|
5/6/2009
|
|
Condo units with additional land
|
|
Central Wisconsin
|
|
|
5.9
|
|
|
|
3/31/2010
|
|
|
|
8/1/2008
|
|
Other properties individually less than $1 million
|
|
|
|
|
18.2
|
|
|
|
|
|
|
|
|
|
Valuation allowance on OREO
|
|
|
|
|
(16.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Some properties were transferred to OREO at a value that was
based upon a discounted cash flow of the property upon
completion of the project. Factors that were considered include
the cost to complete a project, absorption rates and projected
sales of units. The appraisal received at the time the loan was
made is no longer considered applicable and therefore the
properties are analyzed on a periodic basis to determine the
current net realizable value.
On a quarterly basis, the Corporation reviews its list prices of
its OREO properties and makes appropriate adjustments based upon
updated appraisals or market analysis by brokers.
Accrued Interest and Other Assets. Accrued
interest and other assets decreased $23.3 million to
$83.7 million at March 31, 2010 from
$107.0 million at March 31, 2009. The decrease was
mainly due to a decrease in income taxes receivable of
$13.4 million.
Deposits and Accrued Interest. Deposits and
accrued interest decreased $371.1 million during fiscal
2010 to $3.55 billion, of which $418.3 million was due
to decreases in certificates of deposit and $25.8 million
was due to decreases in money market accounts. These decreases
were partially offset by an increase of $54.0 million in
checking accounts and a $25.3 million increase in passbook
accounts. The increases were due to promotions and related
growth of deposit households as interest rates begin to edge
upward in fiscal 2010. Deposits obtained from brokerage firms
which solicit deposits from their customers for deposit with the
Corporation amounted to
66
$173.5 million at March 31, 2010, as compared to
$457.3 million at March 31, 2009. The weighted average
cost of deposits decreased to 2.31% in fiscal 2010 compared to
2.73% in fiscal 2009.
Borrowings. FHLB advances decreased
$273.9 million during fiscal 2010. At March 31, 2010,
advances totaled $613.4 million and had a weighted average
interest rate of 3.08% compared to advances of
$887.3 million with a weighted average interest rate of
3.41% at March 31, 2009. Other loans payable decreased
$8.3 million from the prior fiscal year. Other loans
payable consist of borrowings of the Corporation of
$116.3 million, which was primarily for the purpose of the
Corporations stock repurchase program. For additional
information, see Note 11 to the Consolidated Financial
Statements included in Item 8.
Stockholders Equity. Stockholders
equity at March 31, 2010 was $30.1 million, or 0.68%
of total assets, compared to $211.4 million, or 4.01% of
total assets at March 31, 2009. Stockholders equity
decreased during the year as a result of (i) comprehensive
loss of $176.1 million, which includes net loss of
$177.1 million and an increase in net unrealized gains on
available-for-sale
securities and non-credit OTTI charges included as a part of
accumulated other comprehensive income of $1.0 million and
(ii) the dividend accrued on preferred stock of
$5.5 million. These decreases were partially offset by
(i) the purchase of stock by retirement plans of $372,000.
Liquidity
and Capital Resources
On a parent-only basis at March 31, 2010, the
Corporations commitments and debt service requirements
consisted primarily of $116.3 million payable to
U.S. Bank pursuant to a $116.3 million line of credit.
The weighted average rate on the line of credit was 12.00% at
March 31, 2010 and the line of credit matures in May 2011.
Corporation loans to IDI and other non-bank subsidiaries
amounted to $4.6 million at March 31, 2010.
The Corporations principal sources of funds for it to meet
its parent-only obligations are dividends from the Bank, which
are subject to regulatory limitations, and borrowings from
public and private sources. During fiscal 2010, the Bank made no
dividend payments to the Corporation, and at March 31, 2010
the Bank had nothing available for dividends that could be paid
to the Corporation without the prior approval of the OTS.
On January 30, 2009, as part of the United States
Department of the Treasury (the UST) Capital
Purchase Program (the CPP), the Corporation entered
into a Letter Agreement with the UST. Pursuant to the Securities
Purchase Agreement Standard Terms (the
Securities Purchase Agreement) issued
110,000 shares of the Corporations Fixed Rate
Cumulative Perpetual Preferred Stock, Series B (the
Preferred Stock), having a liquidation amount per
share of $1,000, for a total purchase price of $110,000,000. The
Preferred Stock will pay cumulative compounding dividends at a
rate of 5% per year for the first five years following issuance
and 9% per year thereafter. The Corporation may not redeem the
Preferred Stock during the first three years following issuance
except with the proceeds from one or more qualified equity
offerings. After three years, the Corporation may redeem shares
of the Preferred Stock for the per share liquidation amount of
$1,000 plus any accrued and unpaid dividends.
As long as any Preferred Stock is outstanding, the Corporation
may pay dividends on its Common Stock, $.10 par value per
share (the Common Stock), and redeem or repurchase
its Common Stock, provided that all accrued and unpaid dividends
for all past dividend periods on the Preferred Stock are fully
paid. Prior to the third anniversary of the USTs purchase
of the Preferred Stock, unless Preferred Stock has been redeemed
or the UST has transferred all of the Preferred Stock to third
parties, the consent of the UST will be required for the
Corporation to increase its Common Stock dividend or repurchase
its Common Stock or other equity or capital securities, other
than in connection with benefit plans consistent with past
practice and certain other circumstances specified in the
Securities Purchase Agreement. The Preferred Stock will be
non-voting except for class voting rights on matters that would
adversely affect the rights of the holders of the Preferred
Stock.
As a condition to participating in the CPP, the Corporation
issued and sold to the UST a warrant (the Warrant)
to purchase up to 7,399,103 shares (the Warrant
Shares) of the Corporations Common Stock, at an
initial per share exercise price of $2.23, for an aggregate
purchase price of approximately $16,500,000. The term of the
Warrant is ten years. Exercise of the Warrant is subject to the
receipt by the Corporation of shareholder approval. The Warrant
provides for the adjustment of the exercise price should the
Corporation not receive shareholder
67
approval, as well as customary anti-dilution provisions.
Pursuant to the Securities Purchase Agreement, the UST has
agreed not to exercise voting power with respect to any shares
of Common Stock issued upon exercise of the Warrant.
The terms of the Treasury Departments purchase of the
preferred securities include certain restrictions on certain
forms of executive compensation and limits on the tax
deductibility of compensation we pay to executive management.
The Corporation invested the proceeds of the sale of Preferred
Stock and Warrants in the Bank as Tier 1 capital.
For the Bank, liquidity represents the ability to fund asset
growth, accommodate deposit withdrawls, pay operating expenses
and meet other contractual obligations and commitments. See
Contractual Obligations and Commitments below.
The Banks primary sources of funds are principal and
interest payments on loans receivable and mortgage-related
securities, sales of mortgage loans originated for sale, FHLB
advances, deposits and other borrowings. While maturities and
scheduled amortization of loans and mortgage-related securities
are a predictable source of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates,
economic conditions and competition.
The Bank has entered into agreements with certain brokers that
will provide deposits obtained from their customers at specified
interest rates for an identified fee, or so called
brokered deposits. At March 31, 2010, the Bank
had $173.5 million of brokered deposits. In June, 2009, the
Bank consented to the issuance of a Cease and Desist Agreement
with the OTS which will limit the Banks ability to accept,
renew or roll over brokered deposits without prior approval of
the OTS. See Note 2 to the Consolidated Financial
Statements included in Item 8.
In fiscal 2010, consolidated operating activities resulted in a
net cash outflow of $387.8 million. Operating cash flows
for fiscal 2010 included loss of $177.1 million and
$385.2 million of net payments from the origination and
sale of mortgage loans held for sale.
Consolidated investing activities in fiscal 2010 resulted in a
net cash inflow of $1.12 billion. Primary investing
activities resulting in cash inflows were net decrease in loans
held for investment of $942.7 million, proceeds of sales
and maturities of investment securities of $519.0 million
and $104.3 million of principal repayments received on
securities. The most significant cash outflows from investing
activities were $497.7 million for the purchase of
securities.
Consolidated financing activities resulted in a net cash outflow
of $654.3 million in fiscal 2010, including a net decrease
in deposits of $365.6 million and a net decrease in
borrowings of $288.7 million.
Credit
Agreement
Effective April 29, 2010 we entered into Amendment
No. 6 , or the Amendment, to the Amended and
Restated Credit Agreement, dated as of June 9, 2008, the
Credit Agreement,, among Anchor BanCorp, the lenders
from time to time a party thereto, and U.S. Bank National
Association, as administrative agent for such lenders, or the
Agent. The Amendment provides that the Corporation
must pay in full the outstanding balance under the Credit
Agreement on the earlier of (1) the Corporations
receipt of net proceeds of a financing transaction from the sale
of equity securities in an amount not less than $116,300,000 or
(b) May 31, 2011. Amounts repaid by the Company may
not be reborrowed and U.S. Bank National Association is
under no obligation to make additional loans to the Corporation.
These borrowings are shown in the Companys financial
statements as other borrowings. For additional
information about the Credit Agreement, see Part II,
Item 1A Risk Factors Risks Related
to Our Credit Agreement.
Contractual
Obligations and Commitments
At March 31, 2010, on a consolidated basis the Corporation
had outstanding commitments to originate $20.8 million of
loans and commitments to extend funds to or on behalf of
customers pursuant to lines and letters of credit of
$247.8 million. See Note 16 to the Consolidated
Financial Statements included in Item 8. Commitments to
68
extend funds typically have a term of less than one year.
Scheduled maturities of certificates of deposit for the Bank
during the twelve months following March 31, 2010 amounted
to $1.92 billion. Scheduled maturities of borrowings during
the same period totaled $181.5 million for the Bank and
$122.7 million for the Corporation. Management believes
adequate capital and borrowings are available from various
sources to fund all commitments to the extent required.
The following table summarizes our contractual principal cash
obligations and other commitments at March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
|
(Dollars in thousands)
|
|
|
Long-term debt obligations
|
|
$
|
796,153
|
|
|
$
|
304,174
|
|
|
$
|
300,979
|
|
|
$
|
5,000
|
|
|
$
|
186,000
|
|
Operating lease obligations
|
|
|
25,059
|
|
|
|
2,291
|
|
|
|
4,300
|
|
|
|
3,972
|
|
|
|
14,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
821,212
|
|
|
$
|
306,465
|
|
|
$
|
305,279
|
|
|
$
|
8,972
|
|
|
$
|
200,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2010, the Banks capital was below all
capital requirements of the OTS as mandated by federal laws and
regulations. See Note 12 to the Consolidated Financial
Statements included in Item 8.
Regulatory
Agreements
On June 26, 2009, Anchor Bancorp Wisconsin Inc. (the
Company) and its wholly-owned subsidiary, Anchor
Bank (the Bank) each consented to the issuance of an
Order to Cease and Desist (the Company Order and the
Bank Order, respectively, and together, the
Orders) by the Office of Thrift Supervision (the
OTS).
The Company Order requires that the Company notify, and in
certain cases receive the permission of, the OTS prior to:
(i) declaring, making or paying any dividends or other
capital distributions on its capital stock, including the
repurchase or redemption of its capital stock;
(ii) incurring, issuing, renewing or rolling over any debt,
increasing any current lines of credit or guaranteeing the debt
of any entity; (iiv) making certain changes to its
directors or senior executive officers; (iv) entering into,
renewing, extending or revising any contractual arrangement
related to compensation or benefits with any of its directors or
senior executive officers; and (v) making any golden
parachute payments or prohibited indemnification payments. By
July 31, 2009, the Companys board was required to
develop and submit to the OTS a three-year cash flow plan, which
must be reviewed at least quarterly by the Companys
management and board for material deviations between the cash
flow plans projections and actual results (the
Variance Analysis Report). Within thirty days
following the end of each quarter, the Company is required to
provide the OTS its Variance Analysis Report for that quarter.
The Bank Order requires that the Bank notify, or in certain
cases receive the permission of, the OTS prior to
(i) increasing its total assets in any quarter in excess of
an amount equal to net interest credited on deposit liabilities
during the quarter; (ii) accepting, rolling over or
renewing any brokered deposits; (iii) making certain
changes to its directors or senior executive officers;
(iv) entering into, renewing, extending or revising any
contractual arrangement related to compensation or benefits with
any of its directors or senior executive officers;
(v) making any golden parachute or prohibited
indemnification payments; (vi) paying dividends or making
other capital distributions on its capital stock;
(vii) entering into certain transactions with affiliates;
and (viii) entering into third-party contracts outside the
normal course of business.
The Orders also require that, no later than September 30,
2009, the Bank was to meet and maintain both a core capital
ratio equal to or greater than 7 percent and a total
risk-based capital ratio equal to or greater than
11 percent. Further, no later than December 31, 2009,
the Bank was to meet and maintain both a core capital ratio
equal to or greater than 8 percent and a total risk-based
capital ratio equal to or greater than 12 percent. The Bank
must also submit to the OTS, within prescribed time periods, a
written capital contingency plan, a problem asset plan, a
revised business plan, and an implementation plan resulting from
a review of commercial lending practices. The Orders also
require the Bank to review its current liquidity management
policy and the adequacy of its allowance for loan and lease
losses.
69
At September 30, 2009, December 31, 2009 and
March 31, 2010, the Bank had a core capital ratio of
4.12 percent, 4.12 percent and 3.73 percent,
respectively, and a total risk-based capital ratio of
7.37 percent, 7.59 percent and 7.32 percent,
respectively, each below the required capital ratios set forth
above. Without a waiver by the OTS or amendment or modification
of the Orders, the Bank could be subject to further regulatory
action. All customer deposits remain fully insured to the
highest limits set by the FDIC.
The Company is working with its advisors to explore possible
alternatives to raise additional equity capital. If completed,
any such transaction would likely result in significant dilution
for the current common shareholders. No agreements have been
reached with respect to any possible capital infusion
transaction. Because by September 30, 2009 or
December 31, 2009, respectively, the Bank did not meet the
required capital ratios set forth above, either through the
completion of a successful capital raise or otherwise, the OTS
may take additional significant regulatory action against the
Bank and Company which could, among other things, materially
adversely affect the Companys shareholders.
The OTS may grant extensions to the timelines established by the
Orders.
The description of each of the Orders and the corresponding
Stipulation and Consent to Issuance of Order to Cease and Desist
(the Stipulations) set forth in this section is
qualified in its entirety by reference to the Orders and
Stipulations, copies of which are attached as
Exhibits 10.25, 10.26, 10.27, and 10.28 to the Annual
Report on
Form 10-K
for the year ended March 31, 2009.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Asset and Liability Management. The primary
objective of asset and liability management is to provide
consistent net interest income growth and returns on equity
while maintaining adequate liquidity over a range of interest
rate environments. To that end, management focuses on asset and
liability management strategies that help reduce interest rate
risk and attain the corporate goals and objectives adopted by
the Corporations board of directors.
The Corporations strategy for asset and liability
management is to maintain an interest rate gap that attempts to
minimize the negative impact of interest rate movements on the
net interest margin. As part of this strategy, the Corporation
sells substantially all new originations of long-term,
fixed-rate, single-family residential mortgage loans in the
secondary market, invests in adjustable-rate or medium-term,
fixed-rate, single-family residential mortgage loans, invests in
medium-term mortgage-related securities, and invests in consumer
loans which generally have shorter terms to maturity and higher
and/or
adjustable interest rates. The Corporation occasionally sells
adjustable-rate loans at origination to private investors.
The Corporation also originates multi-family residential and
commercial real estate loans, which generally have adjustable or
floating interest rates
and/or
shorter terms to maturity than conventional single-family
residential loans. Long-term, fixed-rate, single-family mortgage
loans originated for sale in the secondary market are generally
committed for sale at the time the interest rate is locked with
the borrower. As such, these loans involve little interest rate
risk to the Corporation.
The Corporations cumulative net gap position at
March 31, 2010 for one year or less was a positive 4.58% of
total assets, which was within the Corporations policy.
The calculation of a gap position requires management to make a
number of assumptions as to when an asset or liability will
reprice or mature. Management believes that its assumptions
approximate actual experience and considers them reasonable,
although the actual amortization and repayment of assets and
liabilities may vary substantially. Competitive pressures for
deposits have made time deposits sensitive to interest rates and
may also affect transaction accounts, in particular, passbooks
and money market accounts in the future.
70
The Corporation utilizes certain prepayment assumptions and
decay rates from various sources such as the OTS and as
determined by management. The following table summarizes the
Corporations interest rate sensitivity gap position at
March 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Sensitivity for the Periods Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
03/31/11
|
|
|
03/31/12
|
|
|
03/31/13
|
|
|
03/31/14
|
|
|
03/31/15
|
|
|
Thereafter
|
|
|
Total(4)
|
|
|
03/31/10
|
|
|
|
(Dollars In thousands)
|
|
|
Rate sensitive assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans Fixed(1)(2)
|
|
$
|
432,024
|
|
|
$
|
136,846
|
|
|
$
|
107,383
|
|
|
$
|
87,570
|
|
|
$
|
73,228
|
|
|
$
|
395,833
|
|
|
|
1,122,786
|
|
|
$
|
1,141,068
|
|
Average interest rate
|
|
|
6.07
|
%
|
|
|
6.11
|
%
|
|
|
6.15
|
%
|
|
|
6.19
|
%
|
|
|
6.21
|
%
|
|
|
6.19
|
%
|
|
|
6.14
|
%
|
|
|
|
|
Mortgage loans Variable(1)(2)
|
|
|
1,274,115
|
|
|
|
79,042
|
|
|
|
32,034
|
|
|
|
13,365
|
|
|
|
7,334
|
|
|
|
20,489
|
|
|
|
1,299,001
|
|
|
|
1,305,686
|
|
Average interest rate
|
|
|
5.15
|
%
|
|
|
5.94
|
%
|
|
|
5.86
|
%
|
|
|
5.75
|
%
|
|
|
5.74
|
%
|
|
|
5.67
|
%
|
|
|
5.19
|
%
|
|
|
|
|
Consumer loans(1)
|
|
|
256,452
|
|
|
|
67,931
|
|
|
|
45,762
|
|
|
|
34,646
|
|
|
|
28,704
|
|
|
|
278,205
|
|
|
|
648,144
|
|
|
|
658,534
|
|
Average interest rate
|
|
|
5.88
|
%
|
|
|
6.41
|
%
|
|
|
6.07
|
%
|
|
|
5.82
|
%
|
|
|
5.70
|
%
|
|
|
5.43
|
%
|
|
|
5.74
|
%
|
|
|
|
|
Commercial business loans(1)
|
|
|
147,931
|
|
|
|
19,655
|
|
|
|
9,276
|
|
|
|
4,476
|
|
|
|
2,598
|
|
|
|
5,421
|
|
|
|
172,447
|
|
|
|
173,614
|
|
Average interest rate
|
|
|
5.78
|
%
|
|
|
5.80
|
%
|
|
|
5.63
|
%
|
|
|
5.31
|
%
|
|
|
4.89
|
%
|
|
|
4.84
|
%
|
|
|
5.72
|
%
|
|
|
|
|
Investment securities(3)
|
|
|
791,162
|
|
|
|
75,757
|
|
|
|
32,958
|
|
|
|
16,227
|
|
|
|
8,715
|
|
|
|
16,004
|
|
|
|
940,823
|
|
|
|
940,946
|
|
Average interest rate
|
|
|
1.43
|
%
|
|
|
3.55
|
%
|
|
|
3.20
|
%
|
|
|
2.63
|
%
|
|
|
1.77
|
%
|
|
|
1.07
|
%
|
|
|
1.68
|
%
|
|
|
|
|
Total rate sensitive loans(4)
|
|
|
2,110,522
|
|
|
|
303,474
|
|
|
|
194,455
|
|
|
|
140,057
|
|
|
|
111,864
|
|
|
|
699,948
|
|
|
|
3,242,378
|
|
|
|
3,278,903
|
|
Total rate sensitive assets
|
|
|
2,901,684
|
|
|
|
379,231
|
|
|
|
227,413
|
|
|
|
156,284
|
|
|
|
120,579
|
|
|
|
715,952
|
|
|
|
4,183,201
|
|
|
|
4,219,849
|
|
Rate sensitive liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing transaction accounts(5)
|
|
|
358,916
|
|
|
|
188,213
|
|
|
|
122,254
|
|
|
|
81,611
|
|
|
|
55,745
|
|
|
|
145,609
|
|
|
|
952,348
|
|
|
|
920,186
|
|
Average interest rate
|
|
|
0.53
|
%
|
|
|
0.50
|
%
|
|
|
0.48
|
%
|
|
|
0.46
|
%
|
|
|
0.44
|
%
|
|
|
0.41
|
%
|
|
|
0.49
|
%
|
|
|
|
|
Time deposits(5)
|
|
|
1,917,199
|
|
|
|
349,110
|
|
|
|
43,945
|
|
|
|
29,477
|
|
|
|
9,334
|
|
|
|
0
|
|
|
|
2,349,065
|
|
|
|
2,348,769
|
|
Average interest rate
|
|
|
2.60
|
%
|
|
|
2.80
|
%
|
|
|
3.90
|
%
|
|
|
4.07
|
%
|
|
|
2.95
|
%
|
|
|
0.00
|
%
|
|
|
2.67
|
%
|
|
|
|
|
Borrowings
|
|
|
423,478
|
|
|
|
177,168
|
|
|
|
72,126
|
|
|
|
23,085
|
|
|
|
23,165
|
|
|
|
77,131
|
|
|
|
796,153
|
|
|
|
783,326
|
|
Average interest rate
|
|
|
4.74
|
%
|
|
|
2.27
|
%
|
|
|
3.01
|
%
|
|
|
3.14
|
%
|
|
|
3.15
|
%
|
|
|
3.12
|
%
|
|
|
3.78
|
%
|
|
|
|
|
Total rate sensitive liabilities
|
|
|
2,699,593
|
|
|
|
714,491
|
|
|
|
238,325
|
|
|
|
134,173
|
|
|
|
88,244
|
|
|
|
222,740
|
|
|
|
4,097,566
|
|
|
|
4,052,281
|
|
Interest sensitivity gap
|
|
$
|
202,091
|
|
|
$
|
(335,260
|
)
|
|
$
|
(10,912
|
)
|
|
$
|
22,111
|
|
|
$
|
32,335
|
|
|
$
|
493,212
|
|
|
$
|
85,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest sensitivity gap
|
|
$
|
202,091
|
|
|
$
|
(133,169
|
)
|
|
$
|
(144,081
|
)
|
|
$
|
(121,970
|
)
|
|
$
|
(89,635
|
)
|
|
$
|
403,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative interest sensitivity gap as a percent of total assets
|
|
|
4.58
|
%
|
|
|
−3.02
|
%
|
|
|
−3.26
|
%
|
|
|
−2.76
|
%
|
|
|
−2.03
|
%
|
|
|
9.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Loan Balances for the periods are shown before reductions for
reserves of $298.4 million, loans held for sale of
$19.5 million and deferred fees of $12.8 million. |
|
(2) |
|
Includes $19.5 million of loans held for sale spread
throughout the periods. |
|
(3) |
|
Includes $416.2 million of securities available for sale
spread throughout the periods. |
|
(4) |
|
Loan Total and Fair Value amounts are shown net of respective
amounts of $330.7 million and $289.8 million in
deferred fees and loss reserves. |
|
(5) |
|
Does not include $244.3 million of demand accounts because
they are non-interest-bearing. Also excludes accrued interest
payable of $8.9 million less intercompany items of $-1.9
million. Projected decay rates for demand deposits and passbook
savings are selected by management from various sources
including the OTS. |
Net Interest Income Sensitivity. Net interest
income is a primary source of revenue. Net interest income
sensitivity is used to assess the interest rate risk associated
with this income in various interest rate environments.
Management uses the net interest income sensitivity to provide a
perspective on how interest rate pricing affects the
Corporations interest rate risk profile. Simulations are
processed quarterly and include scenarios where market rates are
immediately shocked up and down along with current
and anticipated interest rate pricing of interest sensitive
assets and liabilities. The sensitivity measurement is
calculated as the percentage variance of net interest income
simulations to the base results.
71
The following table sets forth the estimated sensitivity of net
interest income for 12 months following the dates
indicated. The calculations are based on immediate changes of
100 and 200 points in interest rates up or down.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200 Basis Point
|
|
100 Basis Point
|
|
100 Basis Point
|
|
200 Basis Point
|
|
|
Rate Increase
|
|
Rate Increase
|
|
Rate Decrease
|
|
Rate Decrease
|
|
March 31, 2010
|
|
|
13.49
|
%
|
|
|
7.07
|
%
|
|
|
(4.16
|
)%
|
|
|
(10.75
|
)%
|
March 31, 2009
|
|
|
6.45
|
%
|
|
|
3.25
|
%
|
|
|
(4.71
|
)%
|
|
|
(10.32
|
)%
|
The methods we used in the previous table have some inherent
shortcomings. This type of modeling requires that we make
assumptions which may not reflect the manner in which actual
yields and costs respond to changes in market interest rates.
For example, we make assumptions regarding the acceleration rate
of the prepayment speeds of higher yielding mortgage loans.
Prepayments will accelerate in a falling rate environment and
the reverse will occur in a rising rate environment. We also
assume that decay rates on core deposits will accelerate in a
rising rate environment and the reverse in a falling rate
environment. The table assumes that we will take no action in
response to the changes in interest rates, when in practice rate
changes on certain products, such as savings deposits, may lag
market changes. In addition, prepayment estimates and other
assumptions within the model are subjective in nature, involve
uncertainties, and therefore cannot be determined with
precision. Accordingly, although the net interest income model
may provide an estimate of our interest rate risk at a
particular point in time, such measurements are not intended to
and do not provide a precise forecast of the effect of changes
in interest rates on our interest income.
72
[This page
intentionally left blank]
73
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS OF ANCHOR BANCORP WISCONSIN
INC.
|
|
|
|
|
|
|
Page
|
|
Consolidated Financial Statements
|
|
|
|
|
|
|
|
75
|
|
|
|
|
76
|
|
|
|
|
77
|
|
|
|
|
79
|
|
|
|
|
80
|
|
|
|
|
124
|
|
74
Anchor
Bancorp Wisconsin Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
March 31,
|
|
|
2009
|
|
|
|
2010
|
|
|
(As Restated)
|
|
|
|
(In thousands,
|
|
|
|
except share data)
|
|
|
ASSETS
|
Cash and due from banks
|
|
$
|
42,411
|
|
|
$
|
59,654
|
|
Interest-bearing deposits
|
|
|
469,751
|
|
|
|
374,172
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
512,162
|
|
|
|
433,826
|
|
Investment securities available for sale
|
|
|
416,203
|
|
|
|
484,985
|
|
Investment securities held to maturity (fair value of $40 and
$50, respectively)
|
|
|
39
|
|
|
|
50
|
|
Loans, less allowance for loan losses of $179,644 at
March 31, 2010 and $137,165 at March 31, 2009:
|
|
|
|
|
|
|
|
|
Held for sale
|
|
|
19,484
|
|
|
|
161,964
|
|
Held for investment
|
|
|
3,229,580
|
|
|
|
3,896,439
|
|
Foreclosed properties and repossessed assets, net
|
|
|
55,436
|
|
|
|
52,563
|
|
Real estate held for development and sale
|
|
|
1,304
|
|
|
|
16,120
|
|
Office properties and equipment
|
|
|
43,558
|
|
|
|
48,123
|
|
Federal Home Loan Bank stock at cost
|
|
|
54,829
|
|
|
|
54,829
|
|
Deferred tax asset, net of valuation allowance
|
|
|
|
|
|
|
16,202
|
|
Accrued interest and other assets
|
|
|
83,670
|
|
|
|
107,009
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,416,265
|
|
|
$
|
5,272,110
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Deposits
|
|
|
|
|
|
|
|
|
Non-interest bearing
|
|
$
|
285,374
|
|
|
$
|
274,392
|
|
Interest bearing deposits and accrued interest
|
|
|
3,267,388
|
|
|
|
3,649,435
|
|
|
|
|
|
|
|
|
|
|
Total deposits and accrued interest
|
|
|
3,552,762
|
|
|
|
3,923,827
|
|
Other borrowed funds
|
|
|
796,153
|
|
|
|
1,078,392
|
|
Other liabilities
|
|
|
37,237
|
|
|
|
58,115
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,386,152
|
|
|
|
5,060,334
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities (Note 16)
|
|
|
|
|
|
|
|
|
Preferred stock, $.10 par value, 5,000,000 shares
authorized, 110,000 shares issued and outstanding
|
|
|
81,596
|
|
|
|
74,185
|
|
Common stock, $.10 par value, 100,000,000 shares
authorized, 25,363,339 shares issued, 21,685,925 and
21,569,785 shares outstanding, respectively
|
|
|
2,536
|
|
|
|
2,536
|
|
Additional paid-in capital
|
|
|
109,133
|
|
|
|
109,327
|
|
Retained earnings (deficit)
|
|
|
(61,249
|
)
|
|
|
131,878
|
|
Accumulated other comprehensive income related to AFS securities
|
|
|
507
|
|
|
|
10
|
|
Accumulated other comprehensive loss related to OTTI non credit
issues
|
|
|
(5,906
|
)
|
|
|
(6,347
|
)
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss
|
|
|
(5,399
|
)
|
|
|
(6,337
|
)
|
Treasury stock (3,677,414 and 3,793,554 shares,
respectively), at cost
|
|
|
(90,975
|
)
|
|
|
(94,744
|
)
|
Deferred compensation obligation
|
|
|
(5,529
|
)
|
|
|
(5,480
|
)
|
|
|
|
|
|
|
|
|
|
Total Anchor BanCorp stockholders equity
|
|
|
30,113
|
|
|
|
211,365
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest in real estate partnerships
|
|
|
|
|
|
|
411
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
4,416,265
|
|
|
$
|
5,272,110
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
75
Anchor
Bancorp Wisconsin Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
2010
|
|
|
(As Restated)
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
195,594
|
|
|
$
|
241,113
|
|
|
$
|
276,706
|
|
Investment securities and Federal Home Loan Bank stock
|
|
|
20,443
|
|
|
|
18,615
|
|
|
|
17,267
|
|
Interest-bearing deposits
|
|
|
1,045
|
|
|
|
534
|
|
|
|
2,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
217,082
|
|
|
|
260,262
|
|
|
|
296,675
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
87,340
|
|
|
|
94,857
|
|
|
|
123,269
|
|
Other borrowed funds
|
|
|
44,931
|
|
|
|
40,615
|
|
|
|
44,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
132,271
|
|
|
|
135,472
|
|
|
|
167,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
84,811
|
|
|
|
124,790
|
|
|
|
129,005
|
|
Provision for loan losses
|
|
|
161,926
|
|
|
|
205,719
|
|
|
|
22,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for loan losses
|
|
|
(77,115
|
)
|
|
|
(80,929
|
)
|
|
|
106,454
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other than temporary losses
|
|
|
(2,337
|
)
|
|
|
(7,152
|
)
|
|
|
|
|
Portion of loss recognized in other comprehensive income
|
|
|
2,100
|
|
|
|
6,347
|
|
|
|
|
|
Reclassification from other comprehensive income
|
|
|
(847
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment losses recognized in earnings
|
|
|
(1,084
|
)
|
|
|
(805
|
)
|
|
|
|
|
Real estate investment partnership revenue
|
|
|
|
|
|
|
2,130
|
|
|
|
8,399
|
|
Loan servicing income
|
|
|
2,570
|
|
|
|
2,957
|
|
|
|
5,031
|
|
Credit enhancement income
|
|
|
1,259
|
|
|
|
1,784
|
|
|
|
1,705
|
|
Service charges on deposits
|
|
|
15,433
|
|
|
|
15,487
|
|
|
|
13,039
|
|
Investment and insurance commissions
|
|
|
3,451
|
|
|
|
3,933
|
|
|
|
3,961
|
|
Net gain on sale of loans
|
|
|
18,584
|
|
|
|
10,681
|
|
|
|
6,144
|
|
Net gain (loss) on sale of investment securities
|
|
|
11,095
|
|
|
|
(3,298
|
)
|
|
|
514
|
|
Other revenue from real estate partnership operations
|
|
|
1,684
|
|
|
|
8,194
|
|
|
|
7,664
|
|
Other
|
|
|
3,761
|
|
|
|
4,884
|
|
|
|
4,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
56,753
|
|
|
|
45,947
|
|
|
|
51,146
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
53,042
|
|
|
|
56,472
|
|
|
|
47,118
|
|
Real estate investment partnership cost of sales
|
|
|
|
|
|
|
1,736
|
|
|
|
8,489
|
|
Occupancy
|
|
|
10,256
|
|
|
|
10,370
|
|
|
|
8,755
|
|
Federal deposit insurance premiums
|
|
|
18,630
|
|
|
|
3,907
|
|
|
|
384
|
|
Furniture and equipment
|
|
|
7,950
|
|
|
|
8,431
|
|
|
|
6,629
|
|
Data processing
|
|
|
7,178
|
|
|
|
7,327
|
|
|
|
6,274
|
|
Marketing
|
|
|
2,282
|
|
|
|
3,026
|
|
|
|
4,047
|
|
Other expenses from real estate partnership operations
|
|
|
4,959
|
|
|
|
9,506
|
|
|
|
10,172
|
|
Real estate partnership impairment
|
|
|
|
|
|
|
17,631
|
|
|
|
|
|
REO operations net expense
|
|
|
22,301
|
|
|
|
13,515
|
|
|
|
1,588
|
|
Mortgage servicing rights impairment (recovery)
|
|
|
(1,905
|
)
|
|
|
2,407
|
|
|
|
(709
|
)
|
Foreclosure cost advance impairment
|
|
|
4,677
|
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
|
|
|
|
|
72,181
|
|
|
|
|
|
Other
|
|
|
28,830
|
|
|
|
19,422
|
|
|
|
14,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
158,200
|
|
|
|
225,931
|
|
|
|
107,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
(178,562
|
)
|
|
|
(260,913
|
)
|
|
|
50,380
|
|
Income tax expense (benefit)
|
|
|
(1,500
|
)
|
|
|
(30,098
|
)
|
|
|
19,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(177,062
|
)
|
|
$
|
(230,815
|
)
|
|
$
|
30,730
|
|
Income attributable to non-controlling interest in real estate
partnerships
|
|
|
|
|
|
|
(148
|
)
|
|
|
(402
|
)
|
Preferred stock dividends and discount accretion
|
|
|
(12,911
|
)
|
|
|
(2,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common equity of Anchor BanCorp
|
|
$
|
(189,973
|
)
|
|
$
|
(232,839
|
)
|
|
$
|
31,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(8.97
|
)
|
|
$
|
(11.05
|
)
|
|
$
|
1.48
|
|
Diluted
|
|
|
(8.97
|
)
|
|
|
(11.05
|
)
|
|
|
1.48
|
|
Dividends declared per common share
|
|
|
|
|
|
|
0.29
|
|
|
|
0.71
|
|
See accompanying Notes to Consolidated Financial Statements.
76
Anchor
Bancorp Wisconsin Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
|
|
|
|
Controlling
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Treasury
|
|
|
Compensation
|
|
|
Income
|
|
|
|
|
|
|
Interest
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
Obligation
|
|
|
(Loss)
|
|
|
Total
|
|
|
|
(Dollars in thousands except per share data)
|
|
|
Balance at April 1, 2007
|
|
$
|
7,486
|
|
|
$
|
|
|
|
$
|
2,536
|
|
|
$
|
72,122
|
|
|
$
|
359,570
|
|
|
$
|
(91,751
|
)
|
|
$
|
(5,069
|
)
|
|
$
|
(542
|
)
|
|
$
|
344,352
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,132
|
|
Change in net unrealized gains (losses) on
available-for-sale
securities net of tax of $1.6 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,406
|
|
|
|
2,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in non-controlling interest
|
|
|
(1,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,405
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,556
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,556
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(906
|
)
|
|
|
1,744
|
|
|
|
|
|
|
|
|
|
|
|
838
|
|
Issuance of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(303
|
)
|
|
|
1,633
|
|
|
|
(178
|
)
|
|
|
|
|
|
|
1,152
|
|
Cash dividend ($0.71 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,900
|
)
|
Tax benefit from stock related compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008
|
|
$
|
6,081
|
|
|
$
|
|
|
|
$
|
2,536
|
|
|
$
|
72,300
|
|
|
$
|
374,593
|
|
|
$
|
(100,930
|
)
|
|
$
|
(5,247
|
)
|
|
$
|
1,864
|
|
|
$
|
351,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (As restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(230,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(230,667
|
)
|
Non-credit portion of
other-than-
temporary impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities, net of tax of ($0.5) million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,856
|
)
|
|
|
(5,856
|
)
|
Change in net unrealized gains (losses) on
available-for-sale
securities net of tax of ($0.2) million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,345
|
)
|
|
|
(2,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(238,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in non-controlling interest
|
|
|
(5,670
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,670
|
)
|
Issuance of preferred stock
|
|
|
|
|
|
|
72,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,938
|
|
Issuance of stock warrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,062
|
|
Dividend on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(925
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,102
|
)
|
|
|
2,587
|
|
|
|
|
|
|
|
|
|
|
|
1,485
|
|
Issuance of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,673
|
)
|
|
|
3,599
|
|
|
|
(233
|
)
|
|
|
|
|
|
|
693
|
|
Accretion of preferred stock discount
|
|
|
|
|
|
|
1,247
|
|
|
|
|
|
|
|
|
|
|
|
(1,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend ($0.29 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,101
|
)
|
Tax benefit from stock related compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2009 (As restated)
|
|
$
|
411
|
|
|
$
|
74,185
|
|
|
$
|
2,536
|
|
|
$
|
109,327
|
|
|
$
|
131,878
|
|
|
$
|
(94,744
|
)
|
|
$
|
(5,480
|
)
|
|
$
|
(6,337
|
)
|
|
$
|
211,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
Anchor
Bancorp Wisconsin Inc. and Subsidiaries
Consolidated
Statements of Changes in Stockholders
Equity (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
|
|
|
|
Controlling
|
|
|
Preferred
|
|
|
Common
|
|
|
Paid-in
|
|
|
Earnings
|
|
|
Treasury
|
|
|
Compensation
|
|
|
Income
|
|
|
|
|
|
|
Interest
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Stock
|
|
|
Obligation
|
|
|
(Loss)
|
|
|
Total
|
|
|
|
(Dollars in thousands except per share data)
|
|
|
Balance at April 1, 2009 (As restated)
|
|
$
|
411
|
|
|
$
|
74,185
|
|
|
$
|
2,536
|
|
|
$
|
109,327
|
|
|
$
|
131,878
|
|
|
$
|
(94,744
|
)
|
|
$
|
(5,480
|
)
|
|
$
|
(6,337
|
)
|
|
$
|
211,776
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(177,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(177,062
|
)
|
Non-credit portion of
other-than-
temporary impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities, net of tax of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,100
|
)
|
|
|
(2,100
|
)
|
Reclassification adjustment for net gains realized in income,
net of tax of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,095
|
)
|
|
|
(11,095
|
)
|
Reclassification adjustment for credit portion of
other-than-temporary
investments realized in income, net of tax of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
847
|
|
|
|
847
|
|
Change in net unrealized gains (losses) on
available-for-sale
securities net of tax of $0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,286
|
|
|
|
13,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(176,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in non-controlling interest
|
|
|
(411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(411
|
)
|
Dividend on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,500
|
)
|
Issuance of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(194
|
)
|
|
|
(3,154
|
)
|
|
|
3,769
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
372
|
|
Accretion of preferred stock discount
|
|
|
|
|
|
|
7,411
|
|
|
|
|
|
|
|
|
|
|
|
(7,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
$
|
|
|
|
$
|
81,596
|
|
|
$
|
2,536
|
|
|
$
|
109,133
|
|
|
$
|
(61,249
|
)
|
|
$
|
(90,975
|
)
|
|
$
|
(5,529
|
)
|
|
$
|
(5,399
|
)
|
|
$
|
30,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
78
Anchor
Bancorp Wisconsin Inc. and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
2010
|
|
|
(As Restated)
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(177,062
|
)
|
|
$
|
(230,667
|
)
|
|
$
|
31,132
|
|
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
161,926
|
|
|
|
205,719
|
|
|
|
22,551
|
|
Provision for OREO losses
|
|
|
19,775
|
|
|
|
10,387
|
|
|
|
|
|
Provision for depreciation and amortization
|
|
|
4,951
|
|
|
|
5,400
|
|
|
|
4,333
|
|
Amortization and accretion of investment securities, net
|
|
|
2,980
|
|
|
|
(245
|
)
|
|
|
(1,726
|
)
|
Goodwill impairment
|
|
|
|
|
|
|
72,181
|
|
|
|
|
|
Real estate held for development and sale impairment
|
|
|
|
|
|
|
17,631
|
|
|
|
|
|
Mortgage servicing rights impairment (recovery)
|
|
|
(1,905
|
)
|
|
|
2,407
|
|
|
|
(709
|
)
|
Foreclosure cost advance impairment
|
|
|
4,677
|
|
|
|
|
|
|
|
|
|
Decrease in non-controlling interest in real estate partnerships
|
|
|
(411
|
)
|
|
|
(5,670
|
)
|
|
|
(1,405
|
)
|
Cash paid due to origination of loans-held-for-sale
|
|
|
(1,518,569
|
)
|
|
|
(1,809,627
|
)
|
|
|
(660,841
|
)
|
Cash received due to sale of loans-held-for-sale
|
|
|
1,133,344
|
|
|
|
888,036
|
|
|
|
662,499
|
|
Net gain on sales of loans
|
|
|
(18,584
|
)
|
|
|
(10,681
|
)
|
|
|
(6,144
|
)
|
Net loss (gain) on investments and mortgage-related securities
|
|
|
(11,095
|
)
|
|
|
3,298
|
|
|
|
(514
|
)
|
Gain on sale of foreclosed properties
|
|
|
(632
|
)
|
|
|
|
|
|
|
|
|
Net loss on impairment of securities-available-for-sale
|
|
|
1,084
|
|
|
|
805
|
|
|
|
|
|
Deferred income taxes
|
|
|
16,202
|
|
|
|
(12,442
|
)
|
|
|
(5,598
|
)
|
Stock-based compensation expense
|
|
|
372
|
|
|
|
693
|
|
|
|
1,152
|
|
Decrease (increase) in accrued interest receivable
|
|
|
5,217
|
|
|
|
4,546
|
|
|
|
(3,798
|
)
|
(Increase) decrease prepaid expense and other assets
|
|
|
15,350
|
|
|
|
(37,050
|
)
|
|
|
(4,916
|
)
|
Decrease in accrued interest payable on deposits
|
|
|
(5,473
|
)
|
|
|
(7,076
|
)
|
|
|
(4,608
|
)
|
Increase (decrease) in other liabilities
|
|
|
(19,954
|
)
|
|
|
5,585
|
|
|
|
933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
(387,807
|
)
|
|
|
(896,770
|
)
|
|
|
32,341
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of securities
|
|
|
468,020
|
|
|
|
22,170
|
|
|
|
40,110
|
|
Proceeds from maturities of securities
|
|
|
50,936
|
|
|
|
79,981
|
|
|
|
324,580
|
|
Purchase of securities
|
|
|
(497,659
|
)
|
|
|
(302,902
|
)
|
|
|
(387,704
|
)
|
Principal collected on securities
|
|
|
104,343
|
|
|
|
60,122
|
|
|
|
57,468
|
|
FHLB stock purchase
|
|
|
|
|
|
|
|
|
|
|
(13,468
|
)
|
Net decrease (increase) in loans-held-for-investment
|
|
|
942,743
|
|
|
|
804,289
|
|
|
|
(78,007
|
)
|
Purchases of office properties and equipment
|
|
|
(2,180
|
)
|
|
|
(5,327
|
)
|
|
|
(4,209
|
)
|
Proceeds from sales of office properties and equipment
|
|
|
468
|
|
|
|
79
|
|
|
|
41
|
|
Proceeds from sale of foreclosed properties
|
|
|
39,073
|
|
|
|
21,660
|
|
|
|
6,639
|
|
Net cash paid to purchase S&C Bank
|
|
|
|
|
|
|
|
|
|
|
(91,182
|
)
|
Sale of real estate held for development and sale
|
|
|
14,654
|
|
|
|
24,892
|
|
|
|
980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
1,120,398
|
|
|
|
704,964
|
|
|
|
(144,752
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in deposit accounts
|
|
|
(364,783
|
)
|
|
|
390,310
|
|
|
|
(8,718
|
)
|
Increase (decrease) in advance payments by borrowers for taxes
and insurance
|
|
|
(809
|
)
|
|
|
599
|
|
|
|
(376
|
)
|
Proceeds from borrowed funds
|
|
|
56,357
|
|
|
|
597,299
|
|
|
|
5,954,662
|
|
Repayment of borrowed funds
|
|
|
(345,020
|
)
|
|
|
(725,668
|
)
|
|
|
(5,671,012
|
)
|
Proceeds from issuance of preferred stock and common stock
warrant
|
|
|
|
|
|
|
110,000
|
|
|
|
|
|
Treasury stock purchased
|
|
|
|
|
|
|
|
|
|
|
(12,556
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
1,485
|
|
|
|
838
|
|
Tax adjustment from stock related compensation
|
|
|
|
|
|
|
(35
|
)
|
|
|
178
|
|
Payments of cash dividends to stockholders
|
|
|
|
|
|
|
(6,101
|
)
|
|
|
(14,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
(654,225
|
)
|
|
|
367,889
|
|
|
|
248,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
78,336
|
|
|
|
176,083
|
|
|
|
135,705
|
|
Cash and cash equivalents at beginning of year
|
|
|
433,826
|
|
|
|
257,743
|
|
|
|
122,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
512,162
|
|
|
$
|
433,826
|
|
|
$
|
257,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid or credited to accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits and borrowings
|
|
$
|
133,327
|
|
|
$
|
144,905
|
|
|
$
|
163,186
|
|
Income taxes
|
|
|
(29,376
|
)
|
|
|
9,155
|
|
|
|
23,695
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer of loans to foreclosed properties
|
|
|
59,601
|
|
|
|
76,363
|
|
|
|
7,496
|
|
Transfer of fixed asset to foreclosed properties
|
|
|
1,488
|
|
|
|
|
|
|
|
|
|
Securitization of mortgage loans held for sale to
mortgage-backed securities
|
|
|
48,878
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
79
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Summary of Significant Accounting Policies
Going Concern. The Consolidated Financial
Statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. Significant
operating losses in fiscal 2008, 2009 and 2010, significant
levels of criticized assets and low levels of capital raise
substantial doubt about the Corporations ability to
continue as a going concern. See Note 12. Other than a
valuation allowance for deferred tax assets, the Consolidated
Financial Statements do not include any adjustment that might be
necessary if the Corporation is unable to continue as a going
concern. See Note 14.
Business. Anchor BanCorp Wisconsin Inc. (the
Corporation) is a Wisconsin corporation incorporated
in 1992 for the purpose of becoming a savings and loan holding
company for AnchorBank, fsb (the Bank), a
wholly-owned subsidiary. The Bank provides a full range of
financial services to individual customers through its branch
locations in Wisconsin. The Bank is subject to competition from
other financial institutions and other financial service
providers. The Corporation and its subsidiary also are subject
to the regulations of certain federal and state agencies and
undergo periodic examinations by those regulatory authorities.
The Corporation also has a non-banking subsidiary, Investment
Directions, Inc. (IDI), which invests in real estate
held for development and sale.
Basis of Financial Statement Presentation. The
consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States and include the accounts and operations of the
Corporation and its wholly owned subsidiaries, the Bank and IDI,
and their wholly owned subsidiaries. The Bank has the following
subsidiaries: Anchor Investment Corporation and ADPC
Corporation. Significant intercompany accounts and transactions
have been eliminated.
In preparing the consolidated financial statements, management
is required to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those
estimates. Material estimates that are particularly susceptible
to significant change in the near term relate to the
determination of the allowance for loan losses, the valuation of
foreclosed real estate and the fair value of financial
instruments.
We have evaluated all subsequent events through the date of this
filing.
Cash and Cash Equivalents. The Corporation
considers interest-bearing deposits that have an original
maturity of three months or less to be cash equivalents.
Investment Securities
Held-to-Maturity
and
Available-For-Sale. Debt
securities that the Corporation has the intent and ability to
hold to maturity are classified as
held-to-maturity
and are stated at amortized cost adjusted for amortization of
premiums and accretion of discounts. Securities not classified
as
held-to-maturity
are classified as
available-for-sale.
Available-for-sale
securities are stated at fair value, with unrealized gains and
losses, net of tax, reported as a separate component of
accumulated other comprehensive income in stockholders
equity.
Discounts and premiums on investment and mortgage-backed
securities are accreted and amortized into interest income using
the effective yield method over the estimated remaining life of
the assets.
Realized gains and losses are included in Net gain (loss)
on sale of investment securities in the consolidated
statements of income as a component of non-interest income. The
cost of securities sold is based on the specific identification
method. When the Corporation sells
held-to-maturity
securities, it is in accordance with
ASC 320-10
as the securities are substantially mature.
Declines in the fair value of
held-to-maturity
and
available-for-sale
securities below their amortized cost basis that are deemed to
be
other-than-temporary
impairment losses are reflected as realized losses. To determine
if an
other-than-temporary
impairment exists on a debt security, the Corporation first
determines if (a) it intends to sell the security or
(b) it is more likely than not that it will be required to
sell the security before its anticipated recovery. If either of
the conditions is met, the Corporation will recognize an
other-than-temporary
impairment in earnings equal to the difference between the fair
value of the security and its adjusted cost basis. If neither of
the conditions is met, the Corporation determines (a) the
amount of the impairment related to credit loss and (b) the
amount of the impairment due to all other factors. The
difference between the present values of the cash flows expected
to be
80
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
collected and the amortized cost basis is the credit loss. The
amount of the credit loss is included in the consolidated
statements of income as an
other-than-temporary
impairment on securities and is an adjustment to the cost basis
of the security. The portion of the total impairment that is
related to all other factors is included in other comprehensive
income (loss).
Loans Held for Sale. Loans held for sale
generally consist of the current origination of certain
fixed-rate mortgage loans and certain adjustable-rate mortgage
loans and are carried at lower of cost or fair value, determined
on an aggregate basis. Fees received from the borrower and
direct costs to originate the loan are deferred and recorded as
an adjustment of the sales price.
Mortgage Servicing Rights. Mortgage servicing
rights are recorded as an asset when loans are sold to third
parties with servicing rights retained. The cost allocated to
the mortgage servicing rights retained has been recognized as a
separate asset and is initially recorded at fair value and is
amortized in proportion to, and over the period of, estimated
net servicing revenues. The carrying value of these assets is
periodically reviewed for impairment using a lower of carrying
value or fair value methodology. The fair value of the servicing
rights is determined by estimating the present value of future
net cash flows, taking into consideration market loan prepayment
speeds, discount rates, servicing costs and other economic
factors. For purposes of measuring impairment, the rights are
stratified based on predominant risk characteristics of the
underlying loans which include product type (i.e., fixed or
adjustable) and interest rate bands. The amount of impairment
recognized is the amount by which the capitalized mortgage
servicing rights on a
loan-by-loan
basis exceed their fair value.
Transfers of Financial Assets. Transfers of
financial assets are accounted for as sales when control over
the assets has been surrendered. Control over transferred assets
is deemed to be surrendered when (1) the assets have been
isolated from the Corporation, (2) the transferee obtains
the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred
assets, and (3) the Corporation does not maintain effective
control over the transferred assets through an agreement to
repurchase them before their maturity.
Loans Held for Investment. Loans are stated at
the amount of the unpaid principal, reduced by unearned net loan
fees and an allowance for loan losses. Interest on loans is
accrued on the unpaid principal balances as earned. Loans are
placed on non-accrual status when they become 90 days past
due or in the judgment of management the probability of
collection of principal and interest is deemed to be
insufficient to warrant further accrual. When a loan is placed
on non-accrual status, previously accrued but unpaid interest is
deducted from interest income. Payments received on non-accrual
loans are recognized in income on a cash basis. Loans are
restored to accrual status when the obligation is brought
current, has performed in accordance with the contractual terms
for a reasonable period of time, and the ultimate collectibility
of the total contractual principal and interest is no longer in
doubt.
Loan Fees and Discounts. Loan origination and
commitment fees and certain direct loan origination costs are
deferred and amortized as an adjustment to the related
loans yield. The Corporation is generally amortizing these
amounts, as well as discounts on purchased loans, using the
level yield method, adjusted for prepayments, over the life of
the related loans.
Allowance for Loan Losses. The allowance for
loan losses is maintained at a level believed adequate by
management to absorb probable and estimable losses inherent in
the loan portfolio and is based on the size and current risk
characteristics of the loan portfolio; an assessment of
individual problem loans; actual and anticipated loss
experience; and current economic events in specific industries
and geographical areas. These economic events include
unemployment levels, regulatory guidance, and general economic
conditions. Determination of the allowance is inherently
subjective as it requires significant estimates, including the
amounts and timing of expected future cash flows on impaired
loans, estimated losses on pools of homogeneous loans based on
historical loss experience, and consideration of current
economic trends, all of which may be susceptible to significant
change. Loan losses are charged off against the allowance, while
recoveries of amounts previously charged off are credited to the
allowance. A provision for loan losses is charged to operating
expense based on managements periodic evaluation of the
factors previously mentioned as well as other pertinent factors.
In addition, regulatory agencies periodically review the
allowance for loan losses. These agencies may require the
Corporation to make
81
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
additions to the allowance for loan losses based on their
judgements of collectibility based on information available to
them at the time of their examination.
Specific allowance allocations are established for probable
losses resulting from analysis developed through specific
allocations on individual loans and are based on a regular
analysis of impaired loans. A loan is considered impaired when
it is probable that the Corporation will be unable to collect
all contractual principal and interest due according to the
terms of the loan agreement. Impaired loans include non-accrual
and restructured loans exclusive of smaller homogeneous loans
such as home equity, installment, and 1-4 family residential
loans. The fair value of impaired loans is determined based on
the present value of expected future cash flows discounted at
the loans effective interest rate, the market price of the
loan, or the fair value of the underlying collateral less costs
to sell, if the loan is collateral dependent. Cash collections
on impaired loans are credited to the loan receivable balance
and no interest income is recognized on those loans until the
principal balance is current.
Foreclosed Properties and Repossessed
Assets. Real estate acquired by foreclosure or by
deed in lieu of foreclosure and other repossessed assets are
held for sale and are initially recorded at fair value at the
date of foreclosure, establishing a new cost basis. Subsequent
to foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of cost or
fair value, less estimated selling expenses. At the date of
foreclosure any write down to fair value less estimated selling
costs is charged to the allowance for loan losses. Costs
relating to the development and improvement of the property are
capitalized; holding period costs and subsequent changes to the
valuation allowance are charged to expense.
Real Estate Held for Development and
Sale. Real estate held for development and sale
includes investments in land and partnerships that purchased
land or other property. These investments are carried at the
lower of cost plus capitalized development costs and interest,
or estimated fair value. Income on the sale of land and lots
between the entities is deferred until development and
construction are complete and a third party purchases the
property. Deferred income is then recognized as a component of
non-interest income under real estate investment partnership
revenue.
The assets and liabilities in real estate held for development
and sale is summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Real estate held for development and sale
|
|
$
|
1,304
|
|
|
$
|
16,120
|
|
Cash and other assets of real estate investment subsidiaries
|
|
|
4,641
|
|
|
|
8,950
|
|
|
|
|
|
|
|
|
|
|
Total assets of real estate held for development and sale
|
|
|
5,945
|
|
|
|
25,070
|
|
Borrowings of subsidiaries
|
|
|
|
|
|
|
14,763
|
|
Other liabilities of subsidiaries
|
|
|
4,624
|
|
|
|
21,707
|
|
|
|
|
|
|
|
|
|
|
Total liabilities of real estate segment
|
|
|
4,624
|
|
|
|
36,470
|
|
Non-controlling interest in consolidated real estate partnerships
|
|
|
|
|
|
|
411
|
|
|
|
|
|
|
|
|
|
|
Net assets of real estate held for development and sale
|
|
$
|
1,321
|
|
|
$
|
(11,811
|
)
|
|
|
|
|
|
|
|
|
|
Real estate investment partnership revenue is presented in
non-interest income and represents revenue recognized upon the
closing of sales of developed lots and homes to independent
third parties. Real estate investment partnership cost of sales
is included in non-interest expense and represents the costs of
such closed sales. Other revenue (primarily rental income) and
other expenses from real estate operations are also included in
non-interest income and non-interest expense, respectively.
Non-controlling interest in real estate partnerships represents
the equity interests of development partners in the real estate
investment partnerships. The development partners share of
income is reflected as non-controlling interest in income of
real estate partnership operations in non-interest expense.
82
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The results of operations of the real estate investment segment
are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Real estate investment partnership revenue
|
|
$
|
|
|
|
$
|
2,130
|
|
|
$
|
8,399
|
|
Real estate investment partnership cost of sales
|
|
|
|
|
|
|
(1,736
|
)
|
|
|
(8,489
|
)
|
Other expenses from real estate partnership operations
|
|
|
(4,983
|
)
|
|
|
(9,596
|
)
|
|
|
(10,291
|
)
|
Real estate partnership impairment
|
|
|
|
|
|
|
(17,631
|
)
|
|
|
|
|
Net interest expense after provision for loan losses
|
|
|
(33
|
)
|
|
|
(1,014
|
)
|
|
|
(1,687
|
)
|
Income attributable to non-controlling interest in real estate
partnerships
|
|
|
|
|
|
|
148
|
|
|
|
402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss of real estate investment subsidiaries investing in
variable interest entities, before tax
|
|
|
(5,016
|
)
|
|
|
(27,699
|
)
|
|
|
(11,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue from real estate operations
|
|
|
1,684
|
|
|
|
8,194
|
|
|
|
7,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss of real estate partnership investment subsidiaries, before
tax
|
|
$
|
(3,332
|
)
|
|
$
|
(19,505
|
)
|
|
$
|
(4,002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and Other Intangibles. Goodwill
represented the excess of purchase price over the fair value of
net assets acquired using the purchase method of accounting.
Other intangible assets represent purchased assets that also
lack physical substance but can be distinguished from goodwill
because of contractual or other legal rights or because the
asset is capable of being sold or exchanged either on its own or
in combination with a related contract, asset, or liability.
Goodwill was written off in the quarter ended December 31,
2008. Identified intangible assets that have a finite useful
life are amortized over that life in a manner that reflects the
estimated decline in the economic value of the identified
intangible asset. Identified intangible assets that have a
finite useful life are periodically reviewed to determine
whether there have been any events or circumstances to indicate
that the recorded amount is not recoverable from projected
undiscounted net operating cash flows. If the projected
undiscounted net operating cash flows are less than the carrying
amount, a loss is recognized to reduce the carrying amount to
fair value, and, when appropriate, the amortization period is
also reduced. Unamortized intangible assets associated with
disposed assets are included in the determination of gain or
loss on sale of the disposed assets. All of the Companys
other intangible assets have finite lives and are amortized over
varying periods not exceeding 11 years and are included in
other assets.
Office Properties and Equipment. Office
properties and equipment are recorded at cost and include
expenditures for new facilities and items that substantially
increase the estimated useful lives (3 years to
39 years) of existing buildings and equipment. Expenditures
for normal repairs and maintenance are charged to operations as
incurred. When properties are retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from
the respective accounts and the resulting gain or loss is
recorded in income.
Investment in Federal Home Loan Bank
Stock. The Company is a member of the Federal
Home Loan Bank (FHLB) system. As a result of membership in the
FHLB system, the Company is required to maintain a minimum
investment in FHLB stock. FHLB stock is capital stock that is
bought from and sold to the FHLB at $100 par. The stock is
not transferable and cannot be used as collateral. During the
year ended March 31, 2008, the FHLB discontinued dividend
payments.
The Corporation views its investment in the FHLB stock as a
long-term investment. Accordingly, when evaluating for
impairment, the value is determined based on the ultimate
recovery of the par value rather than recognizing temporary
declines in value. The determination of whether a decline
affects the ultimate recovery is influenced by criteria such as:
1) the significance of the decline in net assets of the
FHLBs as compared to the capital stock amount and length of time
a decline has persisted; 2) impact of legislative and
regulatory changes on the FHLB and 3) the liquidity
position of the FHLB.
83
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The FHLB of Chicago filed an SEC
Form 10-Q
on May 13, 2010 announcing its financial results for its
first quarter ended March 31, 2010. The FHLB of Chicago
reported net income for the first quarter of $1 million,
compared to a net loss of $39 million for the same period
in the previous year. This $40 million increase in net
income was due to a $42 million reduction in
other-than-temporary-impairments
on investment securities. Retained earnings at March 31,
2010 was $709 million, or a decrease of $25 million
from March 31, 2009. The FHLB of Chicago reported that they
are in compliance with all of their regulatory capital
requirements as of the filing date of their
10-Q. The
FHLB Chicago is under a cease and desist order that precludes
any capital stock repurchases or redemptions without the
approval of the OS Director. It did not pay any dividends in
2009. The Corporation has concluded that its investment in the
FHLB Chicago is not impaired as of this date. However, this
estimate could change in the near term by the following:
1) significant OTTI losses are incurred on the MBS causing
a significant decline in their regulatory capital status;
2) the economic losses resulting from credit deterioration
on the MBS increases significantly and 3) capital
preservation strategies being utilized by the FHLB become
ineffective.
Advertising Costs. All advertising costs
incurred by the Corporation are expensed in the period in which
they are incurred.
Depreciation and Amortization. The cost of
office properties and equipment is being depreciated principally
by the straight-line method over the estimated useful lives
(3 years to 39 years) of the assets. The cost of
capitalized leasehold improvements is amortized on the
straight-line method over the lesser of the term of the
respective lease or estimated economic life.
Income Taxes. The Corporations deferred
income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to periods in which the differences are expected to
affect taxable income. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable
or refundable for the period adjusted for the change during the
period in deferred tax assets and liabilities. The Corporation
and its subsidiaries file a consolidated federal income tax
return and separate state income tax returns. The intercompany
settlement of taxes paid is based on tax sharing agreements
which generally allocate taxes to each entity on a separate
return basis.
The Corporation is subject to the income tax laws of the U.S.,
its states and municipalities. These tax laws are complex and
subject to different interpretations by the taxpayer and the
relevant Governmental taxing authorities. The Corporation
adopted accounting guidance related to uncertainty in income
taxes. The guidance prescribes a comprehensive model for how
companies should recognize, measure, present, and disclose in
their financial statements uncertain tax positions taken or
expected to be taken on a tax return. Under the guidance, tax
positions shall initially be recognized in the financial
statements when it is more likely than not the position will be
sustained upon examination by the tax authorities. Such tax
positions shall initially and subsequently be measured as the
largest amount of tax benefit that is greater than 50% likely of
being realized upon ultimate settlement with the tax authority
assuming full knowledge of the position and all relevant facts.
The guidance also revises disclosure requirements to include an
annual tabular roll forward of unrecognized tax benefits. In
establishing a provision for income tax expense, the Corporation
must make judgments and interpretations about the application of
these inherently complex tax laws within the framework of
existing U.S. GAAP. The Corporation recognizes interest and
penalties related to uncertain tax positions in other taxes.
Earnings Per Share. Basic earnings per share
(EPS) is computed by dividing net income by the
weighted average number of common shares outstanding for the
period. The basic EPS computation excludes the dilutive effect
of all common stock equivalents. Diluted EPS is computed by
dividing net income available for common equity by the weighted
average number of common shares outstanding plus all potential
common shares which could be issued if securities or other
contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock. The
Corporations common stock equivalents represent shares
issuable under its long-term incentive compensation plans. Such
common stock equivalents are computed based on the treasury
stock method using the average market price for the period.
84
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Comprehensive Income (Loss). Comprehensive
income or loss is the total of reported net income or loss and
all other revenues, expenses, gains and losses that under
generally accepted accounting principles bypass reported net
income. The Corporation includes unrealized gains or losses, net
of tax, on securities available for sale in other comprehensive
income.
Deferred Compensation Obligation. Deferred
compensation obligation is the cost of the stock associated with
selected employee benefit plans. See Note 13 for further
discussion of the plans.
Repurchase Plan. For the year ended
March 31, 2010, the Corporation did not repurchase any
shares of common stock on the open market. All repurchased
shares are held as treasury after settlement.
Stock-Based Compensation Plan. The Corporation
grants stock-based compensation to employees and directors under
various plans discussed in Note 13. Compensation is granted
in the forms of restricted stock and stock options.
The compensation expense recognized related to stock-based
compensation was $566,000, $693,000 and $838,000 for the fiscal
years ended March 31, 2010, 2009 and 2008, respectively.
New
Accounting Pronouncements.
On July 1, 2009, the Accounting Standards Codification
became FASBs officially recognized source of authoritative
U.S. generally accepted accounting principles applicable to
all public and non-public non-governmental entities, superseding
existing FASB, AICPA, EITF and related literature. Rules and
interpretive releases of the SEC under the authority of federal
securities laws are also sources of authoritative GAAP for SEC
registrants. All other accounting literature is considered
non-authoritative. The switch to the ASC affects the way
companies refer to U.S. GAAP in financial statements and
accounting policies. Citing particular content in the ASC
involves specifying the unique numeric path to the content
through the Topic, Subtopic, Section and Paragraph structure.
FASB ASC Topic 260, Earnings Per
Share. On April 1, 2009, the
Corporation adopted new authoritative accounting guidance under
ASC Topic 260, Earnings Per Share, which provides
that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall
be included in the computation of earnings per share pursuant to
the two-class method, as discussed above. The adoption of this
guidance did not significantly impact the Corporations
previously reported consolidated financial statements.
New authoritative accounting guidance under ASC Topic 810 amends
prior guidance to change how a company determines when an entity
that is insufficiently capitalized or is not controlled through
voting (or similar rights) should be consolidated. The
determination of whether a company is required to consolidate an
entity is based on, among other things, an entitys purpose
and design and a companys ability to direct the activities
of the entity that most significantly impact the entitys
economic performance. The new authoritative accounting guidance
requires additional disclosures about the reporting
entitys involvement with variable-interest entities and
any significant changes in risk exposure due to that involvement
as well as its affect on the entitys financial statements.
The new authoritative accounting guidance under ASC Topic 810
will be effective April 1, 2010 and is not expected to have
an impact on the Corporations consolidated financial
statements.
FASB ASC Topic 855, Subsequent
Events. New authoritative accounting
guidance under ASC Topic 855, Subsequent Events,
establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before
financial statements are issued or available to be issued. ASC
Topic 855 defines (i) the period after the balance sheet
date during which a reporting entitys management should
evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements,
(ii) the circumstances under which an entity should
recognize events or transactions occurring after the balance
sheet date in its financial statements, and (iii) the
disclosures an entity should make about events or transactions
that occurred after the balance sheet date. The new
authoritative accounting guidance under ASC Topic 855 became
effective for the Corporations consolidated financial
statements on June 30, 2009.
85
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
FASB ASC Topic 860, Transfers and
Servicing. New authoritative accounting
guidance under ASC Topic 860, Transfers and
Servicing, amends prior accounting guidance to enhance
reporting about transfers of financial assets, including
securitizations, and where companies have continuing exposure to
the risks related to transferred financial assets. The new
authoritative accounting guidance eliminates the concept of a
qualifying special-purpose entity and changes the
requirements for derecognizing financial assets. The new
authoritative accounting guidance also requires additional
disclosures about all continuing involvements with transferred
financial assets including information about gains and losses
resulting from transfers during the period. The new
authoritative accounting guidance under ASC Topic 860 will be
effective April 1, 2010 and is not expected to have an
impact on the Corporations consolidated financial
statements.
Reclassifications and Restatements. Certain
2009 and 2008 accounts have been reclassified to conform to the
2010 presentations. There was $2.4 million of FDIC
insurance premium that should have been expensed in prior years.
The 2009 results of operations and stockholders equity
have been restated to reflect this expense. The
reclassifications had no impact on 2008 consolidated results of
operations or stockholders equity.
|
|
Note 2
|
Significant
Risks and Uncertainties
|
Regulatory
Agreements
On June 26, 2009, Anchor Bancorp Wisconsin Inc. (the
Company) and its wholly-owned subsidiary, Anchor
Bank (the Bank) each consented to the issuance of an
Order to Cease and Desist (the Company Order and the
Bank Order, respectively, and together, the
Orders) by the Office of Thrift Supervision (the
OTS).
The Company Order requires the Company to notify, and in certain
cases to obtain the permission of, the OTS prior to:
(i) declaring, making or paying any dividends or other
capital distributions on its capital stock, including the
repurchase or redemption of its capital stock;
(ii) incurring, issuing, renewing or rolling over any debt,
increasing any current lines of credit or guaranteeing the debt
of any entity; (iii) making certain changes to its
directors or senior executive officers; (iv) entering into,
renewing, extending or revising any contractual arrangement
related to compensation or benefits with any of its directors or
senior executive officers; and (v) making any golden
parachute payments or prohibited indemnification payments. By
July 31, 2009, the Companys board was required to
develop and submit to the OTS a three-year cash flow plan, which
must be reviewed at least quarterly by the Companys
management and board for material deviations between the cash
flow plans projections and actual results (the
Variance Analysis Report). This plan has been
submitted. Within thirty days following the end of each quarter,
the Company is required to provide the OTS its Variance Analysis
Report for that quarter. These reports have been submitted.
The Bank Order requires the Bank to notify, or in certain cases
obtain the permission of, the OTS prior to (i) increasing
its total assets in any quarter in excess of an amount equal to
net interest credited on deposit liabilities during the quarter;
(ii) accepting, rolling over or renewing any brokered
deposits; (iii) making certain changes to its directors or
senior executive officers; (iv) entering into, renewing,
extending or revising any contractual arrangement related to
compensation or benefits with any of its directors or senior
executive officers; (v) making any golden parachute or
prohibited indemnification payments; (vi) paying dividends
or making other capital distributions on its capital stock;
(vii) entering into certain transactions with affiliates;
and (viii) entering into third-party contracts outside the
normal course of business.
The Orders also require that, no later than September 30,
2009, the Bank meet and maintain both a core capital ratio equal
to or greater than 7 percent and a total risk-based capital
ratio equal to or greater than 11 percent. Further, the
Bank was required to meet and maintain both a core capital ratio
equal to or greater than 8 percent and a total risk-based
capital ratio equal to or greater than 12 percent. The Bank
must also submit, and has submitted, to the OTS, within
prescribed time periods, a written capital contingency plan, a
problem asset plan, a revised business plan, and an
implementation plan resulting from a review of commercial
lending practices. The Orders also require the Bank to review
its current liquidity management policy and the adequacy of its
allowance for loan and lease losses.
86
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At September 30, 2009, December 31, 2009 and
March 31, 2010, the Bank had a core capital ratio of
4.12 percent, 4.12 percent and 3.73 percent,
respectively, and a total risk-based capital ratio of
7.37 percent, 7.59 percent and 7.32 percent,
respectively, each below the required capital ratios set forth
above. Without a waiver by the OTS or amendment or modification
of the Orders, the Bank could be subject to further regulatory
action. All customer deposits remain fully insured to the
highest limits set by the FDIC.
The description of each of the Orders and the corresponding
Stipulation and Consent to Issuance of Order to Cease and Desist
were previously filed attached as Exhibits to the
Corporations Annual Report on
Form 10-K
for the fiscal year ended March 31, 2009.
Going
Concern
The Corporation and the Bank continue to diligently work with
their financial and professional advisors in seeking qualified
sources of outside capital, and in achieving compliance with the
requirements of the Cease and Desist Order. The Corporation and
the Bank continue to consult with the OTS and FDIC on a regular
basis concerning the Corporations and Banks
proposals to obtain outside capital and to develop action plans
that will be acceptable to federal regulatory authorities, but
there can be no assurance that these actions will be successful,
or that even if one or more of the Corporations and
Banks proposals are accepted by the Corporations and
Banks Federal regulators, that these proposals will be
successfully implemented. While the Corporations
management continues to exert maximum effort to attract new
capital, significant operating losses in fiscal 2008, 2009 and
2010, significant levels of criticized assets and low levels of
capital raise substantial doubt as to the Corporations
ability to continue as a going concern. If the Corporation is
unable to achieve compliance with the requirements of the Cease
and Desist Order, or implement an acceptable Capital Restoration
Plan, and if the Corporation cannot otherwise comply with such
commitments and regulations, the OTS or FDIC could force a sale,
liquidation or federal conservatorship or receivership of the
Bank. See Note 1.
Branch
Sales
Management of the Corporation has entered into an agreement for
the sale of eleven branches in Northwestern Wisconsin. The buyer
will assume approximately $169 million in deposits and
receive $65 million in loans and $9.9 million in real
estate and other assets. On June 14, 2010 the Corporation
announced that it received the necessary regulatory approval for
the sale of these branches. The sale and conversion was
completed on June 25, 2010 and a gain of approximately
$4.9 million was recognized. In addition, management of the
Corporation has entered into an agreement for the sale of four
branches in the Green Bay, Wisconsin area. The buyer will assume
approximately $117 million in deposits along with loans,
real estate and other assets. This transaction is subject to
regulatory approval and customary closing conditions. If
regulatory approval is not received, the Corporation may not
achieve the increase in capital level anticipated.
Credit
Risks
While the Corporation has devoted and will continue to devote
substantial management resources toward the resolution of all
delinquent, impaired and nonaccrual loans, no assurance can be
made that managements efforts will be successful. These
conditions create an uncertainty about material adverse
consequences that may occur in the near term. The continuing
recession and the decrease in valuations of real estate have had
a significant adverse impact on the Corporations
consolidated financial condition and results of operations. As
reported in the accompanying consolidated financial statements,
the Corporation has incurred a net loss of $177.1 million
for the fiscal year ended March 31, 2010.
Stockholders equity decreased from $211.4 million or
4.01% of total assets at March 31, 2009 to
$30.1 million or 0.68% of total assets at March 31,
2010. At March 31, 2010, the Banks Risk-based capital
is considered undercapitalized for regulatory purposes.
Additionally, the Banks risk-based capital and Tier 1
capital ratios are below the target levels of the Order to Cease
and Desist dated June 26, 2009. The recent losses originate
from a provision for loan losses of $161.9 million for the
fiscal year ended March 31, 2010, along with an increase in
nonaccrual loans, which has reduced the Corporations net
interest income. The Corporations
87
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
net interest income will continue to be impacted by the level of
non-performing assets and the Corporation expects additional
losses into the next fiscal year.
Management of the Corporation has taken significant actions in
the credit risk area to limit any additional material adverse
consequences. These efforts include the following:
1. Realigning the corporate structure to ensure that risk
is adequately and appropriately identified, mitigated and where
possible, eliminated through the:
a. Appointment of a Chief Credit Risk Officer responsible
for overseeing all aspects of corporate risk.
b. Creation of a Special Assets Group to properly assess
potential collateral shortfall exposure and to develop workout
plans.
c. Development of a risk management framework.
2. Creation and implementation of a new loan risk rating
system using qualitative metrics to identify loans with
potential risk so they could be properly classified and
monitored.
3. Implementation of a new enhanced impairment analysis to
evaluate all classified loans.
4. Introduction of a new Allowance for Loan and Lease
Policy that improves the timeliness of specific reserves taken
for the allowance for loan and lease calculation.
5. Analysis of the population of recent appraisals received
and developed a specific reserve amount to capture the probable
deterioration in value.
6. Establishment of an independent underwriting group that
evaluates the total borrowing relationship using a global cash
flow methodology.
7. Beginning of proactive monitoring of matured and
delinquent loans.
8. Proactive review of the performing (non-impaired)
portfolio for performance issues.
9. Development of resolution plan on all classified assets.
10. Introduction of a portfolio management team.
The Corporation and the Bank have submitted a capital
restoration plan stating that the Bank intends to restore the
capital position of the Bank. If the OTS does not accept the
Banks plan, the OTS could assess civil money penalties or
take other enforcement actions against the Bank or the
Corporation.
Further, the Corporation entered into an amendment (Amendment
No. 6) to the Credit Agreement with U.S. Bank NA
as described in Note 11, which established new financial
covenants. Under the terms of the amended Credit Agreement, the
Agent and the lenders have certain rights, including the right
to accelerate the maturity of the borrowings if all covenants
are not complied with. Currently, the Corporation is in
compliance with the financial and non-financial covenants. If
the above transactions are not consummated, the Corporation may
not remain in compliance with the covenants. Accordingly, this
creates significant uncertainty related to the
Corporations operations.
|
|
Note 3
|
Restrictions
on Cash and Due From Bank Accounts
|
AnchorBank fsb (Bank) is required to maintain cash and reserve
balances with the Federal Reserve Bank. The average amount of
reserve balances for the years ended March 31, 2010 and
2009 was approximately $21.0 million and
$18.5 million, respectively.
The nature of the Corporations business requires that it
maintain amounts due from banks and federal funds sold which, at
times, may exceed federally insured limits. Management monitors
these correspondent relationships and the Corporation has not
experienced any losses in such accounts.
88
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 4
|
Investment
Securities
|
The amortized cost and fair values of investment securities are
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Fair Value
|
|
|
At March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
51,029
|
|
|
$
|
49
|
|
|
$
|
(47
|
)
|
|
$
|
51,031
|
|
Municipal bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate stock and other
|
|
|
1,176
|
|
|
|
72
|
|
|
|
(50
|
)
|
|
|
1,198
|
|
Agency CMOs and REMICs
|
|
|
1,393
|
|
|
|
20
|
|
|
|
|
|
|
|
1,413
|
|
Non-agency CMOs
|
|
|
91,140
|
|
|
|
550
|
|
|
|
(6,323
|
)
|
|
|
85,367
|
|
Residential mortgage-backed securities
|
|
|
14,907
|
|
|
|
593
|
|
|
|
(60
|
)
|
|
|
15,440
|
|
GNMA securities
|
|
|
261,957
|
|
|
|
1,226
|
|
|
|
(1,429
|
)
|
|
|
261,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
421,602
|
|
|
$
|
2,510
|
|
|
$
|
(7,909
|
)
|
|
$
|
416,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
|
$
|
39
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
48,471
|
|
|
$
|
501
|
|
|
$
|
(53
|
)
|
|
$
|
48,919
|
|
Municipal bonds
|
|
|
21,768
|
|
|
|
524
|
|
|
|
(59
|
)
|
|
|
22,233
|
|
Mutual funds
|
|
|
1,797
|
|
|
|
|
|
|
|
|
|
|
|
1,797
|
|
Corporate stock and other
|
|
|
4,806
|
|
|
|
33
|
|
|
|
(104
|
)
|
|
|
4,735
|
|
Agency CMOs and REMICs
|
|
|
142,692
|
|
|
|
1,732
|
|
|
|
(429
|
)
|
|
|
143,995
|
|
Non-agency CMOs
|
|
|
119,473
|
|
|
|
333
|
|
|
|
(12,279
|
)
|
|
|
107,527
|
|
Residential mortgage-backed securities
|
|
|
97,562
|
|
|
|
3,221
|
|
|
|
(29
|
)
|
|
|
100,754
|
|
GNMA securities
|
|
|
54,753
|
|
|
|
417
|
|
|
|
(145
|
)
|
|
|
55,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
491,322
|
|
|
$
|
6,761
|
|
|
$
|
(13,098
|
)
|
|
$
|
484,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
|
$
|
50
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
50
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below shows the Corporations gross unrealized
losses and fair value of investments, aggregated by investment
category and length of time that individual investments have
been in a continuous unrealized loss position at March 31,
2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2010
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
Description of Securities
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
(In thousands)
|
|
|
US government and federal agency obligations
|
|
$
|
4,000
|
|
|
$
|
(47
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,000
|
|
|
$
|
(47
|
)
|
Corporate stock and other
|
|
|
51
|
|
|
|
(13
|
)
|
|
|
50
|
|
|
|
(37
|
)
|
|
|
101
|
|
|
|
(50
|
)
|
Agency CMOs and REMICs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-agency CMOs
|
|
|
4,244
|
|
|
|
(37
|
)
|
|
|
43,029
|
|
|
|
(6,286
|
)
|
|
|
47,273
|
|
|
|
(6,323
|
)
|
Residential mortgage-backed securities
|
|
|
1,336
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
1,336
|
|
|
|
(60
|
)
|
GNMA securities
|
|
|
138,996
|
|
|
|
(1,429
|
)
|
|
|
|
|
|
|
|
|
|
|
138,996
|
|
|
|
(1,429
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
148,627
|
|
|
$
|
(1,586
|
)
|
|
$
|
43,079
|
|
|
$
|
(6,323
|
)
|
|
$
|
191,706
|
|
|
$
|
(7,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2009
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
Description of Securities
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
|
(In thousands)
|
|
|
US government and federal agency obligations
|
|
$
|
24,832
|
|
|
$
|
(53
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
24,832
|
|
|
$
|
(53
|
)
|
Municipal bonds
|
|
|
1,455
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
1,455
|
|
|
|
(59
|
)
|
Corporate stock and other
|
|
|
151
|
|
|
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
|
151
|
|
|
|
(104
|
)
|
Agency CMOs and REMICs
|
|
|
43,931
|
|
|
|
(429
|
)
|
|
|
|
|
|
|
|
|
|
|
43,931
|
|
|
|
(429
|
)
|
Non-agency CMOs
|
|
|
42,607
|
|
|
|
(5,155
|
)
|
|
|
45,476
|
|
|
|
(7,124
|
)
|
|
|
88,083
|
|
|
|
(12,279
|
)
|
Residential mortgage-backed securities
|
|
|
3,892
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
3,892
|
|
|
|
(29
|
)
|
GNMA securities
|
|
|
24,049
|
|
|
|
(135
|
)
|
|
|
1,803
|
|
|
|
(10
|
)
|
|
|
25,852
|
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
140,917
|
|
|
$
|
(5,964
|
)
|
|
$
|
47,279
|
|
|
$
|
(7,134
|
)
|
|
$
|
188,196
|
|
|
$
|
(13,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables above represent 43 investment securities at
March 31, 2010 compared to 82 at March 31, 2009 that,
due to the current interest rate environment and other factors,
have declined in value but do not presently represent other than
temporary losses. Management evaluates securities for
other-than-temporary
impairment at least on a quarterly basis, and more frequently
when economic or market concerns warrant such evaluation. In
estimating
other-than-temporary
impairment losses on investment securities, management considers
many factors which include: (1) the length of time and the
extent to which the fair value has been less than cost,
(2) the financial condition and near-term prospects of the
issuer, and (3) the intent and ability of the Corporation
to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value.
To determine if an
other-than-temporary
impairment exists on a debt security, the Corporation first
determines if (a) it intends to sell the security or
(b) it is more likely than not that it will be required to
sell the security before its anticipated recovery. If either of
the conditions is met, the Corporation will recognize an
other-than-temporary
impairment in earnings equal to the difference between the
securitys fair value and its adjusted cost basis. If
neither of the conditions is met, the Corporation determines
(a) the amount of the impairment related to credit loss and
(b) the amount of the impairment due to all other factors.
The difference between the present values of the cash flows
expected to be collected and the amortized cost basis is the
credit loss. The credit loss is the portion of the
other-than-temporary
impairment that is recognized in earnings and is a reduction to
the cost basis of the security. The portion of total impairment
related to all other factors is included in other comprehensive
income (loss).
90
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In analyzing an issuers financial condition, management
considers whether the securities are issued by the federal
government or its agencies, whether downgrades by bond rating
agencies have occurred, and industry analysts reports.
The Corporation utilizes a discounted cash flow model in the
determination of fair value which is used in the calculation of
other-than-temporary
impairments on non-agency CMOs. This model is also used to
determine the portion of the
other-than-temporary
impairment that is due to credit losses, and the portion that is
due to all other factors. On securities with
other-than-temporary
impairment, the difference between the present value of the cash
flows expected to be collected and the amortized cost basis of
the debt security is the credit loss.
The significant inputs used for calculating the credit loss
portion of the OTTI include prepayment assumptions, loss
severities, original FICO scores, historical rates of
delinquency, percentage of loans with limited underwriting,
historical rates of default, original
loan-to-value
ratio, aggregate property location by metropolitan statistical
area, original credit support, current credit support, and
weighted-averaged maturity. The discount rates used to establish
the net present value of expected cash flows for purposes of
determining OTTI ranged from 5.4% to 9.5%. The rates used equate
to the effective yield implicit in the security at the date of
acquisition for the bonds for which the bank has not in the past
incurred OTTI. For the bonds for which the bank has previously
recorded OTTI, the discount rate used equates to the accounting
yield on the security as of the valuation date. Default rates
were calculated separately for each category of underlying
borrower based on delinquency status (i.e. current, 30 to
59 days delinquent, 60 to 89 days delinquent, 90+ days
delinquent, and foreclosure balances) of the loans as of
March 1, 2010. These balances were entered into a loss
migration model to calculate projected default rates, which are
benchmarked against results that have recently been experienced
by other major servicers on non-agency CMOs with similar
attributes. The projected default rates used in the model ranged
from 2.2% to 12.8%. To estimate fair value, the bank discounted
its best estimate expected cash flows after credit losses at
rates ranging from 4.5% to 15.0%. The rates utilized are based
on the risk free rate equivalent to the remaining average life
of the security, plus a spread for normal liquidity, plus a
spread to reflect the uncertainty of the cash flow estimates.
The bank benchmarks it fair value results to a pricing service
and monitors the market for actual trades. The bank includes
these inputs in its derivation of the discount rates used to
estimate fair value. There are no payments in kind allowed on
these non-agency CMOs.
Based on the Corporations impairment testing as of
March 31, 2010, 15 non-agency CMOs with a fair value of
$34.8 million and an adjusted cost of $40.7 million
were
other-than-temporarily
impaired compared to nine non-agency CMOs with a fair value of
$26.1 million and an adjusted cost basis of
$32.5 million as of March 31, 2009. The portion of the
other-than-temporary
impairment due to credit of $1.1 million and $805,000 was
included in earnings for the year ending March 31, 2010 and
three-month period ending March 31, 2009, respectively. The
cumulative unrealized losses on the securities analyzed were
$7.8 million at March 31, 2010 and $7.2 million
at March 31, 2009. The difference between the total
unrealized losses of $7.8 million and the credit loss of
$1.9 million, or $5.9 million, was included in other
comprehensive income. All of the Corporations
other-than-temporary
impaired debt securities are non-agency CMOs.
91
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the fair value of 15
other-than-temporarily
impaired non-agency CMOs by year of vintage, credit rating, and
collateral loan type. This table also includes a breakout of
OTTI between impairment due to credit loss and impairment due to
other factors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Vintage
|
|
|
|
|
|
Total OTTI
|
|
|
Total OTTI
|
|
|
|
Prior to
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair
|
|
|
|
|
|
Related to
|
|
|
Related to
|
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Value
|
|
|
Total OTTI
|
|
|
Credit Loss
|
|
|
Other Factors
|
|
|
|
(In thousands)
|
|
|
Total OTTI Non-Agency CMOs Rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,598
|
|
|
$
|
|
|
|
$
|
3,598
|
|
|
$
|
|
|
|
$
|
(49
|
)
|
|
$
|
|
|
AA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
|
1,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,659
|
|
|
|
(274
|
)
|
|
|
(18
|
)
|
|
|
(256
|
)
|
BBB
|
|
|
1,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,264
|
|
|
|
(141
|
)
|
|
|
(7
|
)
|
|
|
(139
|
)
|
BB and below
|
|
|
|
|
|
|
11,711
|
|
|
|
2,271
|
|
|
|
14,298
|
|
|
|
28,280
|
|
|
|
(1,922
|
)
|
|
|
(1,009
|
)
|
|
|
(1,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Agency CMOs
|
|
$
|
2,922
|
|
|
$
|
11,711
|
|
|
$
|
5,869
|
|
|
$
|
14,298
|
|
|
$
|
34,800
|
|
|
$
|
(2,337
|
)
|
|
$
|
(1,084
|
)
|
|
$
|
(2,100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary
impairments related to credit loss by year of vintage were
$1.1 million for 2007, $441,000 for 2006, $337,000 for 2005
and $25,000 prior to 2005.
The following table is a rollforward of the amount of
other-than-temporary
impairment related to credit losses that have been recognized in
earnings for which a portion of an
other-than-temporary
impairment was recognized in other comprehensive income for the
year ended March 31, 2010 and the three months ended
March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
|
Beginning balance of the amount of OTTI related to credit losses
|
|
$
|
805
|
|
|
$
|
|
|
The credit portion of
other-than-temporary-impairment
not previously recognized
|
|
|
237
|
|
|
|
805
|
|
Additional increases to the amount related to the credit loss
for which OTTI was previously recognized
|
|
|
847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of the amount of OTTI related to credit losses
|
|
$
|
1,889
|
|
|
$
|
805
|
|
|
|
|
|
|
|
|
|
|
The cost of investment securities sold is determined using the
specific identification method. Sales of investment securities
available for sale are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Proceeds from sales:
|
|
$
|
468,020
|
|
|
$
|
22,170
|
|
|
$
|
40,110
|
|
Gross gains on sales
|
|
|
11,116
|
|
|
|
|
|
|
|
601
|
|
Gross losses on sales
|
|
|
21
|
|
|
|
3,298
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on sales
|
|
$
|
11,095
|
|
|
$
|
(3,298
|
)
|
|
$
|
514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2010 and 2009, investment securities
available-for-sale
with a fair value of approximately $301.2 million and
$371.7 million, respectively, were pledged to secure
deposits, borrowings and for other purposes as permitted or
required by law.
92
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The fair value of investment securities by contractual maturity
at March 31, 2010 are shown below. Actual maturities may
differ from contractual maturities because issuers have the
right to call or prepay obligations with or without call or
prepayment penalties. Investment securities subject to six-month
calls amount to $5.5 million at March 31, 2010.
Investment securities subject to twelve-month calls at
March 31, 2010 are $50,000.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After 1 Year
|
|
|
After 5 Years
|
|
|
Over
|
|
|
|
|
|
|
Within 1 Year
|
|
|
through 5 Years
|
|
|
through 10 Years
|
|
|
Ten Years
|
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
|
Available-for-sale,
at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
42,000
|
|
|
$
|
4,000
|
|
|
$
|
|
|
|
$
|
5,031
|
|
|
$
|
51,031
|
|
Corporate stock and other
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
1,173
|
|
|
|
1,198
|
|
Agency CMOs and REMICs
|
|
|
|
|
|
|
|
|
|
|
796
|
|
|
|
617
|
|
|
|
1,413
|
|
Non-agency CMOs
|
|
|
|
|
|
|
2,045
|
|
|
|
20,936
|
|
|
|
62,386
|
|
|
|
85,367
|
|
Residential mortgage-backed securities
|
|
|
709
|
|
|
|
878
|
|
|
|
7,423
|
|
|
|
6,430
|
|
|
|
15,440
|
|
GNMA securities
|
|
|
|
|
|
|
|
|
|
|
794
|
|
|
|
260,960
|
|
|
|
261,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
42,734
|
|
|
$
|
6,923
|
|
|
$
|
29,949
|
|
|
$
|
336,597
|
|
|
$
|
416,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity,
at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
40
|
|
|
$
|
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
40
|
|
|
$
|
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
42,734
|
|
|
$
|
6,923
|
|
|
$
|
29,989
|
|
|
$
|
336,597
|
|
|
$
|
416,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity,
at cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
39
|
|
|
$
|
|
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 5
|
Loans
Receivable
|
Loans receivable held for investment consist of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
First mortgage loans:
|
|
|
|
|
|
|
|
|
Single-family residential
|
|
$
|
765,312
|
|
|
$
|
843,482
|
|
Multi-family residential
|
|
|
614,930
|
|
|
|
662,483
|
|
Commercial real estate
|
|
|
842,905
|
|
|
|
1,020,981
|
|
Construction
|
|
|
108,486
|
|
|
|
267,375
|
|
Land
|
|
|
231,330
|
|
|
|
266,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,562,963
|
|
|
|
3,061,077
|
|
Second mortgage loans
|
|
|
352,795
|
|
|
|
394,708
|
|
Education loans
|
|
|
331,475
|
|
|
|
358,784
|
|
Commercial business loans and leases
|
|
|
164,329
|
|
|
|
238,940
|
|
Credit card and other consumer loans
|
|
|
24,990
|
|
|
|
56,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,436,552
|
|
|
|
4,109,811
|
|
Contras to loans:
|
|
|
|
|
|
|
|
|
Undisbursed loan proceeds*
|
|
|
(23,334
|
)
|
|
|
(71,672
|
)
|
Allowance for loan losses
|
|
|
(179,644
|
)
|
|
|
(137,165
|
)
|
Unearned loan fees
|
|
|
(3,898
|
)
|
|
|
(4,441
|
)
|
Net discount on loans purchased
|
|
|
(8
|
)
|
|
|
(10
|
)
|
Unearned interest
|
|
|
(88
|
)
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(206,972
|
)
|
|
|
(213,372
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,229,580
|
|
|
$
|
3,896,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Undisbursed loan proceeds are funds to be disbursed upon a draw
request approved by the Bank. |
A summary of the activity in the allowance for loan losses
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Allowance at beginning of year
|
|
$
|
137,165
|
|
|
$
|
38,285
|
|
|
$
|
20,517
|
|
Provision
|
|
|
161,926
|
|
|
|
205,719
|
|
|
|
22,551
|
|
Charge-offs
|
|
|
(122,283
|
)
|
|
|
(108,924
|
)
|
|
|
(7,913
|
)
|
Recoveries
|
|
|
2,836
|
|
|
|
2,085
|
|
|
|
335
|
|
Acquisition of S&C Bank
|
|
|
|
|
|
|
|
|
|
|
2,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance at end of year
|
|
$
|
179,644
|
|
|
$
|
137,165
|
|
|
$
|
38,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010, the Corporation had loans totaling
$17.1 million that are on interest reserve. For these
loans, no payments are typically received from the borrower
since accumulated interest is added to the principal of the loan
through the interest reserve. If appraisal values relating to
these real estate secured loans, which includes various
assumptions, prove to be overstated
and/or
decline over the contractual term of the loan, the Corporation
may have inadequate security for the repayment of the loan. As
of March 31, 2010, $1.0 million of our impaired loans
remain on interest reserve, all of which have been placed on
non-accrual status.
94
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At March 31, 2010, the Corporation has identified
$388.3 million of loans as impaired, net of allowances and
including performing troubled debt restructurings. A loan is
identified as impaired when, based on current information and
events, it is probable that the Bank will be unable to collect
all amounts due according to the contractual terms of the loan
agreement. A summary of the details regarding impaired loans
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Impaired loans with valuation reserve required
|
|
$
|
210,422
|
|
|
$
|
124,179
|
|
|
$
|
52,866
|
|
Impaired loans without a specific reserve
|
|
|
238,541
|
|
|
|
103,635
|
|
|
|
51,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans
|
|
|
448,963
|
|
|
|
227,814
|
|
|
|
104,058
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific valuation allowance
|
|
|
(60,620
|
)
|
|
|
(30,799
|
)
|
|
|
(17,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
388,343
|
|
|
$
|
197,015
|
|
|
$
|
86,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average impaired loans
|
|
$
|
364,585
|
|
|
$
|
194,923
|
|
|
$
|
67,138
|
|
Interest income recognized on impaired loans
|
|
$
|
11,939
|
|
|
$
|
9,484
|
|
|
$
|
107
|
|
Loans and troubled debt restructurings on non-accrual status
|
|
$
|
369,072
|
|
|
$
|
227,814
|
|
|
$
|
104,058
|
|
Troubled debt restructurings accrual
|
|
$
|
79,891
|
|
|
$
|
|
|
|
$
|
|
|
Troubled debt restructurings non-accrual
|
|
$
|
44,578
|
|
|
$
|
61,460
|
|
|
$
|
400
|
|
Loans past due ninety days or more and still accruing
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Currently, all impaired loans (except for performing troubled
debt restructurings) are placed on nonaccrual status. In those
instances in which terms of a loan have been modified, including
troubled debt restructurings, the Corporation may remove the
non-performing designation at such time the borrower has
complied with the modified terms of the loan for at least six
months and applicable underwriting criteria have been satisfied,
including an indication of sufficient collateral coverage. In
the event a portion of a loan has been charged-off to reflect
deterioration in fair value of the collateral, no recovery is
recognized until the modified loan has been fully satisfied.
Previously, a loan could be considered substandard and impaired
while not being placed on nonaccrual status if contractually
performing. Those loans past due more than 90 days are
considered non-performing. March 31, 2009 impaired loans
net of allowances as previously reported were
$415.1 million. Based on the work performed for the
restatement of the first quarter of fiscal year end
March 31, 2010, classifications were changed.
The Corporation is currently committed to lend approximately
$7.4 million in additional funds on these impaired loans in
accordance with the original terms of these loans; however, the
Corporation is not legally obligated to, and will not, disburse
additional funds on any loans while in nonaccrual status. All of
the $7.4 million in committed funds on impaired loans is
applicable to non-performing loans. The Corporation will
continue to monitor its portfolio on a regular basis and will
only lend additional funds as warranted on these impaired loans.
Approximately 26% of the impaired loans as of March 31,
2010 relate to residential construction and residential land
loans. As of March 31, 2010, $238.5 million of
impaired loans do not have any specific valuation allowance. A
loan is impaired when both the contractual interest payments and
the contractual principal payments of a loan are not expected to
be collected as scheduled in the loan agreement. The
$238.5 million of impaired loans without a specific
valuation allowance as of March 31, 2010 are generally
impaired due to delays or anticipated delays in receiving
payments pursuant to the contractual terms of the loan
agreements.
The Corporation has experienced declines in the current
valuations for real estate collateral supporting portions of its
loan portfolio, primarily residential construction and
residential land loans, throughout fiscal year 2010, as
reflected in recently received appraisals. Currently,
$398.2 million or approximately 88.7% of impaired loans
secured by real estate before reserves have recent appraisals
(i.e. within one year) or an appraisal is not required due to
the fact that the loan is either fully reserved or has a small
balance and is included in a homogenous pool of loans; uses a
net present value of future cash flows for impairment; or has an
SBA guaranty although the
95
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Corporation continues to receive appraisals. If real estate
values continue to decline and as updated appraisals are
received, the Corporation may have to increase its allowance for
loan losses significantly.
Certain mortgage loans are pledged as collateral for FHLB
borrowings. See Note 11.
A substantial portion of the Banks loans are
collateralized by real estate in and around the State of
Wisconsin. Accordingly, the ultimate collectibility of a
substantial portion of the loan portfolio is susceptible to
changes in market conditions in that area.
In the ordinary course of business, the Bank has granted loans
to principal officers and directors and their affiliates
amounting to $9,329,000 and $12,435,000 at March 31, 2010
and 2009, respectively. During the year ended March 31,
2010, total principal additions were $272,000 and total
principal payments were $3,378,000.
|
|
Note 6
|
Foreclosed
Properties and Repossessed Assets
|
Real estate acquired by foreclosure or by deed in lieu of
foreclosure and other repossessed assets are held for sale and
are initially recorded at fair value at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure,
valuations are periodically performed by management and the
assets are carried at the lower of cost or fair value, less
estimated selling expenses. At the date of foreclosure any write
down to fair value less estimated selling costs is charged to
the allowance for loan losses. Costs relating to the development
and improvement of the property are capitalized; holding period
costs and subsequent changes to the valuation allowance are
charged to expense.
A summary of the activity in foreclosed properties and
repossessed assets is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance at beginning of year
|
|
$
|
52,563
|
|
|
$
|
8,248
|
|
Additions
|
|
|
61,089
|
|
|
|
86,030
|
|
Capitalized improvements
|
|
|
|
|
|
|
1,152
|
|
Valuations/write-offs
|
|
|
(19,775
|
)
|
|
|
(10,387
|
)
|
Sales
|
|
|
(38,441
|
)
|
|
|
(32,480
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
55,436
|
|
|
$
|
52,563
|
|
|
|
|
|
|
|
|
|
|
During the year ended March 31, 2010, net expenses from REO
operations was $22.3 million, consisting of
$19.8 million of valuations and write offs and
$2.5 million of net expenses from operations.
|
|
Note 7
|
Goodwill
and Other Intangibles
|
The Corporation accounts for goodwill in accordance with
ASC 350 Intangibles Goodwill and
Other. All of the Corporations goodwill was assigned
to the community banking segment, which was also the reporting
unit. The Corporation tested its goodwill for impairment on its
annual impairment testing date of December 31, 2008 and
ultimately concluded that the impairment was equal to
$72.2 million, the entire balance of the recorded goodwill.
The following table presents the changes in the carrying amount
of goodwill as of March 31, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of period
|
|
$
|
|
|
|
$
|
72,375
|
|
Goodwill adjustment
|
|
|
|
|
|
|
(194
|
)
|
Goodwill impairment
|
|
|
|
|
|
|
(72,181
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
96
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Corporation has other intangible assets consisting of core
deposit intangibles with a remaining weighted average
amortization period of approximately 6.5 years. The core
deposit premium had a value net of accumulated amortization of
$4.1 million and $4.7 million at March 31, 2010
and 2009, respectively. The Corporation evaluated core deposit
intangibles and determined that as of March 31, 2010, they
are not considered impaired.
The following tables present the changes in the carrying amount
of core deposit intangibles, gross carrying amount, accumulated
amortization and net book value as of March 31, 2010 and
2009.
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Balance at beginning of period
|
|
$
|
4,725
|
|
|
$
|
5,359
|
|
Amortization expense
|
|
|
(633
|
)
|
|
|
(634
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
4,092
|
|
|
$
|
4,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Gross carrying amount
|
|
$
|
5,517
|
|
|
$
|
5,517
|
|
Accumulated amortization
|
|
|
(1,425
|
)
|
|
|
(792
|
)
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
$
|
4,092
|
|
|
$
|
4,725
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8
|
Mortgage
Servicing Rights
|
The Corporation records mortgage servicing rights (MSRs) when
loans are sold to third-parties with servicing of those loans
retained. In addition, MSRs are recorded when acquiring or
assuming an obligation to service a financial (loan) asset that
does not relate to a financial asset that is owned. The
servicing asset is initially measured at fair value. The
Corporation has defined two classes of MSRs
residential (one to four family) and large
multi-family/commercial real estate serviced for private
investors.
The first class, residential MSRs, are servicing rights on one
to four family mortgage loans sold to public agencies and
servicing assets related to the FHLB MPF program. The
Corporation obtained a servicing asset when they delivered loans
as an agent to the FHLB of Chicago under its MPF
program. Initial fair value of these residential mortgatge
servicing rights is calculated using a discounted cash flow
model based on market value assumptions at the time of
origination. In addition, this class includes servicing rights
purchased from other banks for residential loans at an agreed
upon purchase price, which becomes the initial fair value. The
Corporation assesses this class for impairment using a
discounted cash flow model based on current market value
assumptions at each reporting period.
The other class of mortgage servicing rights is for large
multi-family/commercial real estate loans partially sold to
private investors. The initial fair value is calculated using a
discounted cash flow model based on market participant
assumptions at the time of origination at each reporting period.
Critical assumptions used in the discounted cash flow models for
both classes of MSRs include mortgage prepayment speeds,
discount rates, costs to service, ancillary and late fee income.
Variations in the assumptions could materially affect the
estimated fair values. Changes to the assumptions are made when
current trends and market data indicate that new trends have
developed. Current market participant assumptions based on loan
product types fixed rate, adjustable rate and
balloon loans include discount rates in the range of
9.5 to 23.5 percent as well as total portfolio lifetime
weighted average prepayment speeds of 12.6 to 14.4 percent
annual CPR. Many of these assumptions are subjective and require
a high level of management judgment. MSR valuation assumptions
are reviewed and approved by management on a quarterly basis.
Prepayment speeds may be affected by economic factors such as
home price appreciation, market interest rates, the availability
of other credit products to our borrowers and customer payment
patterns. Prepayment speeds include the impact of all borrower
prepayments, including full payoffs, additional principal
payments and the impact of loans paid off due to foreclosure
liquidations. As market interest rates decline, prepayment
speeds will
97
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
generally increase as customers refinance existing mortgages
under more favorable interest rate terms. As prepayment speeds
increase, anticipated cash flows will generally decline
resulting in a potential reduction, or impairment, to the fair
value of the capitalized MSRs. Alternatively, an increase in
market interest rates may cause a decrease in prepayment speeds
and therefore an increase in fair value of MSRs. Annually,
external data is obtained to test the values and assumptions
that are used in the initial valuations for the discounted cash
flow model.
The Corporation has chosen to use the amortization method to
measure each class of separately recognized servicing assets.
Under the amortization method, the Corporation amortizes
servicing assets in proportion to and over the period of net
servicing income. Income generated as the result of new
servicing assets is reported as net gain on sale of loans and
the amortization of servicing assets is reported as a reduction
to loan servicing income in the Corporations consolidated
statements of income. Ancillary income is recorded in other
non-interest income.
Information regarding the Corporations mortgage servicing
rights follows:
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Other
|
|
|
|
(In thousands)
|
|
|
Mortgage servicing rights as of March 31, 2008
|
|
$
|
11,698
|
|
|
$
|
1,478
|
|
Additions
|
|
|
10,087
|
|
|
|
142
|
|
Amortization
|
|
|
(4,623
|
)
|
|
|
(362
|
)
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights before valuation allowance at end of
period
|
|
|
17,162
|
|
|
|
1,258
|
|
Valuation allowance
|
|
|
(2,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net mortgage servicing rights as of March 31, 2009
|
|
$
|
14,755
|
|
|
$
|
1,258
|
|
|
|
|
|
|
|
|
|
|
Fair value at the end of the period
|
|
$
|
15,292
|
|
|
$
|
1,662
|
|
Key assumptions:
|
|
|
|
|
|
|
|
|
Weighted average discount
|
|
|
11.14
|
%
|
|
|
21.12
|
%
|
Weighted average prepayment speed assumption
|
|
|
17.99
|
%
|
|
|
24.39
|
%
|
Mortgage servicing rights as of March 31, 2009
|
|
$
|
17,162
|
|
|
$
|
1,258
|
|
Additions
|
|
|
12,013
|
|
|
|
1
|
|
Amortization
|
|
|
(5,803
|
)
|
|
|
(252
|
)
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights before valuation allowance at end of
period
|
|
|
23,372
|
|
|
|
1,007
|
|
Valuation allowance
|
|
|
(502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net mortgage servicing rights as of March 31, 2010
|
|
$
|
22,870
|
|
|
$
|
1,007
|
|
|
|
|
|
|
|
|
|
|
Fair value at the end of the period
|
|
$
|
23,329
|
|
|
$
|
1,624
|
|
Key assumptions:
|
|
|
|
|
|
|
|
|
Weighted average discount
|
|
|
10.63
|
%
|
|
|
20.83
|
%
|
Weighted average prepayment speed assumption
|
|
|
10.34
|
%
|
|
|
24.13
|
%
|
The projections of amortization expense for mortgage servicing
rights and the core deposit premium set forth below are based on
asset balances and the interest rate environment as of
March 31, 2010. The core deposit premium amortization
projection excludes the impact of the pending branch sales, of
which approximately 80% of the core deposit premium is based
upon. Future amortization expense may be significantly different
depending upon changes in the mortgage servicing portfolio,
mortgage interest rates and market conditions.
98
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
Other
|
|
|
Core
|
|
|
|
|
|
|
Mortgage
|
|
|
Mortgage
|
|
|
Deposit
|
|
|
|
|
|
|
Servicing Rights
|
|
|
Servicing Rights
|
|
|
Premium
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Year ended March 31, 2010 (actual)
|
|
$
|
5,803
|
|
|
$
|
252
|
|
|
$
|
633
|
|
|
$
|
6,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimate for the year ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
4,574
|
|
|
$
|
201
|
|
|
$
|
633
|
|
|
$
|
5,408
|
|
2012
|
|
|
3,659
|
|
|
|
161
|
|
|
|
633
|
|
|
|
4,453
|
|
2013
|
|
|
2,927
|
|
|
|
129
|
|
|
|
633
|
|
|
|
3,689
|
|
2014
|
|
|
2,342
|
|
|
|
103
|
|
|
|
633
|
|
|
|
3,078
|
|
2015
|
|
|
1,874
|
|
|
|
82
|
|
|
|
633
|
|
|
|
2,589
|
|
Thereafter
|
|
|
7,494
|
|
|
|
331
|
|
|
|
927
|
|
|
|
8,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,870
|
|
|
$
|
1,007
|
|
|
$
|
4,092
|
|
|
$
|
27,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans serviced for others are not included in the
consolidated balance sheets. The unpaid principal balances of
mortgage loans serviced for others were approximately
$3.60 billion at March 31, 2010 and $3.25 billion
at March 31, 2009.
|
|
Note 9
|
Office
Properties and Equipment
|
Office properties and equipment are summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Land and land improvements
|
|
$
|
9,333
|
|
|
$
|
10,188
|
|
Office buildings
|
|
|
52,288
|
|
|
|
53,383
|
|
Furniture and equipment
|
|
|
53,658
|
|
|
|
52,434
|
|
Leasehold improvements
|
|
|
5,433
|
|
|
|
5,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,712
|
|
|
|
121,018
|
|
Less accumulated depreciation and amortization
|
|
|
77,154
|
|
|
|
72,895
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
43,558
|
|
|
$
|
48,123
|
|
|
|
|
|
|
|
|
|
|
During the years ending March 31, 2010, 2009 and 2008,
building depreciation expense was $2,016,000, $2,032,000 and
$1,622,000, respectively. The furniture and fixture depreciation
expense during the years ended March 31, 2010, 2009, and
2008 was $2,941,000, $3,049,000 and $2,534,000, respectively.
The Bank leases various branch offices, office facilities and
equipment under noncancelable operating leases which expire on
various dates through 2030. Future minimum payments under
noncancelable operating leases with initial or remaining terms
of one year or more for the years indicated are as follows at
March 31, 2010:
|
|
|
|
|
|
|
Amount of Future
|
|
Year
|
|
Minimum Payments
|
|
|
|
(Dollars in thousands)
|
|
|
2011
|
|
$
|
2,291
|
|
2012
|
|
|
2,220
|
|
2013
|
|
|
2,080
|
|
2014
|
|
|
2,016
|
|
2015
|
|
|
1,956
|
|
Thereafter
|
|
|
14,496
|
|
|
|
|
|
|
Total
|
|
$
|
25,059
|
|
|
|
|
|
|
99
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the years ended March 31, 2010, 2009 and 2008, rental
expense was $2,964,000, $2,826,000 and $2,284,000, respectively.
Deposits are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
2010
|
|
|
Average Rate
|
|
|
2009
|
|
|
Average Rate
|
|
|
Negotiable order of withdrawal (NOW) accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing
|
|
$
|
285,374
|
|
|
|
0.00
|
%
|
|
$
|
274,392
|
|
|
|
0.00
|
%
|
Interest-bearing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
211,593
|
|
|
|
0.30
|
%
|
|
|
170,167
|
|
|
|
0.23
|
%
|
Variable rate
|
|
|
29,488
|
|
|
|
0.38
|
%
|
|
|
27,930
|
|
|
|
0.38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526,455
|
|
|
|
0.14
|
%
|
|
|
472,489
|
|
|
|
0.11
|
%
|
Variable rate insured money market accounts
|
|
|
412,599
|
|
|
|
0.74
|
%
|
|
|
438,380
|
|
|
|
0.78
|
%
|
Passbook accounts
|
|
|
248,576
|
|
|
|
0.26
|
%
|
|
|
223,242
|
|
|
|
0.26
|
%
|
Advance payments by borrowers for taxes and insurance
|
|
|
6,585
|
|
|
|
0.25
|
%
|
|
|
7,395
|
|
|
|
0.25
|
%
|
Certificates of deposit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.00% to 2.99%
|
|
|
1,468,306
|
|
|
|
2.04
|
%
|
|
|
758,747
|
|
|
|
2.59
|
%
|
3.00% to 4.99%
|
|
|
876,679
|
|
|
|
3.72
|
%
|
|
|
1,997,614
|
|
|
|
3.54
|
%
|
5.00% to 6.99%
|
|
|
4,579
|
|
|
|
5.11
|
%
|
|
|
11,465
|
|
|
|
5.12
|
%
|
S&C purchase accounting adjustment
|
|
|
20
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,349,584
|
|
|
|
2.67
|
%
|
|
|
2,767,885
|
|
|
|
3.29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,543,799
|
|
|
|
1.90
|
%
|
|
|
3,909,391
|
|
|
|
2.44
|
%
|
Accrued interest on deposits
|
|
|
8,963
|
|
|
|
|
|
|
|
14,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,552,762
|
|
|
|
|
|
|
$
|
3,923,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of annual maturities of certificates of deposit
outstanding at March 31, 2010 follows (in thousands):
|
|
|
|
|
Matures During Year Ended March 31,
|
|
Amount
|
|
|
2011
|
|
$
|
1,921,614
|
|
2012
|
|
|
345,344
|
|
2013
|
|
|
43,878
|
|
2014
|
|
|
29,438
|
|
2015
|
|
|
9,310
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,349,584
|
|
|
|
|
|
|
At March 31, 2010 and 2009, certificates of deposit with
balances greater than or equal to $100,000 amounted to
$483.8 million and $500.5 million, respectively.
100
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Bank has entered into agreements with certain brokers that
will provide deposits obtained from their customers at specified
interest rates for an identified fee, or so called
brokered deposits. At March 31, 2010 and 2009,
the Bank had $173.5 million and $457.3 million in
brokered deposits. In June, 2009, the Bank entered into a Cease
and Desist Agreement with the OTS which limits the Banks
ability to accept, renew or roll over brokered deposits without
prior approval of the OTS as discussed in Note 2.
|
|
Note 11
|
Other
Borrowed Funds
|
Other borrowed funds consist of the following (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matures During
|
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
|
|
Year Ended
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
March 31,
|
|
|
Amount
|
|
|
Average Rate
|
|
|
Amount
|
|
|
Average Rate
|
|
|
FHLB advances:
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
330,000
|
|
|
|
3.60
|
|
|
|
|
2011
|
|
|
|
181,450
|
|
|
|
3.69
|
|
|
|
181,450
|
|
|
|
3.69
|
|
|
|
|
2012
|
|
|
|
80,979
|
|
|
|
1.75
|
|
|
|
24,879
|
|
|
|
3.82
|
|
|
|
|
2013
|
|
|
|
160,000
|
|
|
|
3.00
|
|
|
|
160,000
|
|
|
|
3.00
|
|
|
|
|
2014
|
|
|
|
5,000
|
|
|
|
2.95
|
|
|
|
5,000
|
|
|
|
2.95
|
|
|
|
|
2018
|
|
|
|
100,000
|
|
|
|
3.36
|
|
|
|
100,000
|
|
|
|
3.36
|
|
|
|
|
2019
|
|
|
|
86,000
|
|
|
|
2.87
|
|
|
|
86,000
|
|
|
|
2.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FHLB Advances
|
|
|
|
|
|
|
613,429
|
|
|
|
|
|
|
|
887,329
|
|
|
|
|
|
Other Borrowed Funds
|
|
|
|
|
|
|
182,724
|
|
|
|
8.71
|
|
|
|
191,063
|
|
|
|
8.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
796,153
|
|
|
|
4.37
|
%
|
|
$
|
1,078,392
|
|
|
|
3.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Bank selects loans that meet underwriting criteria
established by the FHLB as collateral for outstanding advances.
FHLB advances are limited to 65% of single-family loans, 60% of
multi-family loans and to 25% of eligible home equity and home
equity line of credit loans meeting such criteria. In addition,
these notes are collateralized by FHLB stock of $54,829,000 at
March 31, 2010 and 2009. The FHLB borrowings are also
collateralized by mortgage-related securities with a fair value
of $222.8 million and $301.2 million at March 31,
2010 and 2009, respectively, and agency notes with a fair value
of $5.0 million at March 31, 2010 and 2009.
As of March 31, 2010 and 2009, the Corporation had drawn a
total of $116.3 million at a weighted average interest rate
of 12.00% and $116.3 million at a weighted average interest
rate of 8.00%, respectively, on a short term line of credit at
U.S. Bank. The total line of credit available is
$116.3 million. At March 31, 2010, the base rate was
4.00% and the deferred rate was 8.00% for a weighted average
interest rate of 12.00%. The credit agreement was amended as of
April 29, 2010 to a base rate of 0.00% and a deferred rate
of 12.00% for a weighted average rate of 12.00%. The remaining
balance of $66.4 million of other borrowed funds represent
borrowings of $60.0 million on an FDIC guaranteed senior
note at a weighted average interest rate of 2.74% as well as
accrued dividends on preferred stock of $6.4 million at a
weighted average interest rate of 5.00%.
The Corporation owes $116.3 million to various Lenders led
by U.S. Bank under the Credit Agreement discussed in the
previous paragraph. The Corporation is currently in default of
the Credit Agreement as a result of failure to make a principal
payment on March 2, 2009. On April 29, 2010, the
Corporation entered into Amendment No. 6 (the
Amendment) to the Amended and Restated Credit
Agreement, dated as of June 9, 2008, the Credit
Agreement, among the Corporation, the lenders from time to
time a party thereto, and U.S. Bank National Association,
as administrative agent for such lenders, or the
Agent. Under the Amendment, the Agent and the
Lenders agree to forbear from exercising their rights and
remedies against the Corporation until the earliest to occur of
the following: (i) the occurrence of any Event of Default
(other than a failure to make principal payments on the
outstanding balance under the Credit Agreement or other Existing
Defaults); or (ii) May 31, 2011. Notwithstanding the
agreement to forbear, the Agent may at any time, in its sole
discretion, take any action reasonably necessary to preserve or
protect its interest in the stock of the Bank, Investment
Directions, Inc. or any other collateral securing
101
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
any of the obligations against the actions of the Corporation or
any third party without notice to or the consent of any party.
The Amendment also provides that the outstanding balance under
the Credit Agreement shall bear interest equal to a Base
Rate of 0% per annum up to and including April 28,
2010 and at all times thereafter at a floating rate per annum
equal to the prime rate announced by the Agent from time to
time, plus a Deferred Interest Rate of 4.0% per
annum up to and including April 28, 2010 and at all times
thereafter, the difference at any time between 12.0% per annum
and the Base Rate. Interest accruing at the Base Rate is due on
the last day of each month and on May 31, 2011 (the
Maturity Date); interest accruing at the Deferred
Interest Rate is due on the earlier of (i) the date the
Loans are paid in full or (ii) the Maturity Date.
Within two business days after the Corporation has knowledge of
an event, the CFO shall submit a statement of the
event together with a statement of the actions which the
Corporation proposes to take to the Agent. An event may include:
|
|
|
|
|
Any event which, either of itself or with the lapse of time or
the giving of notice or both, would constitute a Default under
the Credit Agreement;
|
|
|
|
A default or an event of default under any other material
agreement to which the Corporation or Bank is a party; or
|
|
|
|
Any pending or threatened litigation or certain administrative
proceedings.
|
Within 15 days after the end of each month, the
Corporations president or vice president shall submit a
certificate indicating whether the Corporation is in compliance
with the following financial covenants:
|
|
|
|
|
The Bank shall maintain a Tier 1 Leverage Ratio of not less
than (i) 3.75% at all times during the period from
April 29, 2010 through May 31, 2010, (ii) 3.85%
at all times during the period from June 1, 2010 through
August 31, 2010, (iii) 3.90% at all times during the
period from September 1, 2010 through November 30,
2010 and (iv) 3.95% at all times thereafter.
|
|
|
|
The Bank shall maintain a Total Risk Based Capital ratio of not
less than (i) 7.10% at all times during the period from
April 29, 2010 through May 31, 2010, (ii) 7.35%
at all times during the period from June 1, 2010 through
August 31, 2010, (iii) 7.60% at all times during the
period from September 1, 2010 through November 30,
2010 and (iv) 7.65% at all times thereafter.
|
|
|
|
The ratio of Non-Performing Loans to Gross Loans shall not
exceed (i) 14.50% at any time during the period from
April 29, 2010 through May 31, 2010, (ii) 13.00%
at any time during the period from June 1, 2010 through
September 30, 2010, (iii) 12.50% at any time during
the period from October 1, 2010 through November 30,
2010, (iv) 12.00% at any time during the period from
December 1, 2010 through March 31, 2010,
(v) 11.00% at any time during the period from April 1,
2011 through April 30, 2011 and (vi) 10.00% at all
times thereafter.
|
The total outstanding balance under the Credit Agreement as of
March 31, 2010 was $116.3 million. These borrowings
are shown in the Corporations consolidated financial
statements as other borrowed funds. The Amendment provides that
the Corporation must pay in full the outstanding balance under
the Credit Agreement on the earlier of the Corporations
receipt of net proceeds of a financing transaction from the sale
of equity securities in an amount not less than
$116.3 million or May 31, 2011.
The Credit Agreement and the Amendment also contain customary
representations, warranties, conditions and events of default
for agreements of such type. At March 31, 2010, the
Corporation was not in compliance with all covenants contained
in the Credit Agreement. The Credit Agreement was subsequently
amended. Under the terms of the Credit Agreement, the Agent and
the Lenders have certain rights, including the right to
accelerate the maturity of the borrowings if all covenants are
not complied with. Currently, no such action has been taken by
the Agent or the Lenders. However, the default creates
significant uncertainty related to the Corporations
operations.
102
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 12
Stockholders Equity
The Board of Directors of the Corporation is authorized to issue
preferred stock in series and to establish the voting powers,
other special rights of the shares of each such series and the
qualifications and restrictions thereof. Preferred stock may
rank prior to the common stock as to dividend rights,
liquidation preferences or both, and may have full or limited
voting rights. Under Wisconsin state law, preferred stockholders
would be entitled to vote as a separate class or series in
certain circumstances, including any amendment which would
adversely change the specific terms of such series of stock or
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. We have deferred five
dividend payments on the Series B Preferred Stock held by
the Treasury.
Preferred Equity: The
Corporations Articles of Incorporation, as amended,
authorize the issuance of 5,000,000 shares of preferred
stock at a par value of $0.10 per share. In January, 2009, as
part of the U.S. Department of Treasurys
(UST) Capital Purchase Program (CPP),
the Corporation issued 110,000 shares of senior preferred
stock (with a par value of $0.10 per share and a liquidation
preference of $1,000 per share) and a
10-year
warrant to purchase approximately 7.4 million shares of
common stock (see section Common Stock Warrants
below for additional information), for aggregate proceeds of
$110 million. The proceeds received were allocated between
the Senior Preferred Stock and the Common Stock Warrants based
upon their relative fair values, which resulted in the recording
of a discount on the Senior Preferred Stock upon issuance that
reflects the value allocated to the Common Stock Warrants. The
discount is accreted using a level-yield basis over five years.
The allocated carrying value of the Senior Preferred Stock and
Common Stock Warrants on the date of issuance (based on their
relative fair values) were $72.9 million and
$37.1 million, respectively. Cumulative dividends on the
Senior Preferred Stock are payable at 5% per annum for the first
five years and at a rate of 9% per annum thereafter on the
liquidation preference of $1,000 per share. The Corporation is
prohibited from paying any dividend with respect to shares of
common stock unless all accrued and unpaid dividends are paid in
full on the Senior Preferred Stock for all past dividend
periods. The Senior Preferred Stock is non-voting, other than
class voting rights on matters that could adversely affect the
Senior Preferred Stock. Three years after the original issue
date the Corporation may redeem the Senior Preferred Stock at a
redemption price equal to the sum of the liquidation preference
of $1,000 per share and any accrued and unpaid dividends. Prior
to the end of three years, the Senior Preferred Stock may be
redeemed with the proceeds from one or more qualified equity
offerings of any Tier 1 perpetual preferred or common stock
of at least $110 million (each a Qualified Equity
Offering). The UST may also transfer the Senior Preferred
Stock to a third party at any time.
Common Stock Warrants: The Common Stock
Warrants have a term of 10 years and are exercisable at any
time, in whole or in part, at an exercise price of $2.23 per
share (subject to certain anti-dilution adjustments).
Assumptions were used in estimating the fair value of Common
Stock Warrants. The weighted average expected life of the Common
Stock Warrants represents the period of time that common stock
warrants are expected to be outstanding. The risk-free interest
rate is based on the U.S. Treasury yield curve in effect at
the time of grant. The expected volatility is based on the
historical volatility of the Corporations stock. The
following assumptions were used in estimating the fair value for
the Common Stock Warrants: a weighted average expected life of
10 years, a risk-free interest rate of 3.35%, an expected
volatility of 50.12%, and a dividend yield of 1.55%. Based on
these assumptions, the estimated fair value of the Common Stock
Warrants was $7.8 million.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the
Banks financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Banks assets,
liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Banks capital
amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings,
and other factors.
103
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Qualitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios
of core, tangible, and risk-based capital. Management believes,
as of March 31, 2010, that the Bank was below all capital
adequacy requirements to which it is subject.
As of March 31, 2010, the most recent notification from the
OTS categorizes the Bank as undercapitalized under the framework
for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum core, tangible and
risk-based capital ratios. In June, 2009, the Bank consented to
the issuance of a Cease and Desist Agreement with the OTS which
requires, among other things, capital requirements in excess of
the generally applicable minimum requirements.
The following table summarizes the Banks capital ratios
and the ratios required by its federal regulators to be
considered adequately or well-capitalized at March 31, 2010
and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Required
|
|
|
|
|
Minimum Required
|
|
to be Well
|
|
|
|
|
For Capital
|
|
Capitalized Under
|
|
|
Actual
|
|
Adequacy Purposes
|
|
OTS Requirements
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
(Dollars in thousands)
|
|
At March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to adjusted tangible assets)
|
|
$
|
164,932
|
|
|
|
3.73
|
%
|
|
$
|
132,696
|
|
|
|
3.00
|
%
|
|
$
|
221,159
|
|
|
|
5.00
|
%
|
Risk-based capital (to risk-based assets)
|
|
|
201,062
|
|
|
|
7.32
|
|
|
|
219,751
|
|
|
|
8.00
|
|
|
|
274,689
|
|
|
|
10.00
|
|
Tangible capital (to tangible assets)
|
|
|
164,932
|
|
|
|
3.73
|
|
|
|
66,348
|
|
|
|
1.50
|
|
|
|
N/A
|
|
|
|
N/A
|
|
At March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital (to adjusted tangible assets)
|
|
$
|
321,774
|
|
|
|
6.13
|
%
|
|
$
|
157,498
|
|
|
|
3.00
|
%
|
|
$
|
262,497
|
|
|
|
5.00
|
%
|
Risk-based capital (to risk-based assets)
|
|
|
368,312
|
|
|
|
10.14
|
|
|
|
290,594
|
|
|
|
8.00
|
|
|
|
363,242
|
|
|
|
10.00
|
|
Tangible capital (to tangible assets)
|
|
|
321,774
|
|
|
|
6.13
|
|
|
|
78,749
|
|
|
|
1.50
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The following table reconciles stockholders equity to
federal regulatory capital at March 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Stockholders equity of the Bank
|
|
$
|
165,043
|
|
|
$
|
320,149
|
|
Less: Intangible assets
|
|
|
(4,092
|
)
|
|
|
(4,725
|
)
|
Disallowed servicing assets
|
|
|
(1,418
|
)
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
5,399
|
|
|
|
6,350
|
|
|
|
|
|
|
|
|
|
|
Tier 1 and tangible capital
|
|
|
164,932
|
|
|
|
321,774
|
|
Plus: Allowable general valuation allowances
|
|
|
36,130
|
|
|
|
46,538
|
|
|
|
|
|
|
|
|
|
|
Risk-based capital
|
|
$
|
201,062
|
|
|
$
|
368,312
|
|
|
|
|
|
|
|
|
|
|
The Bank may not declare or pay a cash dividend if such
declaration and payment would violate regulatory requirements.
As part of the Cease and Desist Agreement with the OTS, the
Corporation must receive the permission of the OTS prior to
declaring, making or paying any dividends or other capital
distributions on its capital stock as further described in
Note 2.
|
|
Note 13
|
Employee
Benefit Plans
|
The Corporation maintains a defined contribution plan in which
all employees are eligible to participate. Employees become
eligible on the first of the month following 60 days of
employment. Participating employees
104
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
may contribute up to 50% of their base compensation. The
Corporation matched 100% of the amounts contributed by each
participating employee up to 2% of the employees
compensation, 50% of the employees contribution up to the
next 2% of compensation, and 25% of each employees
contributions up to the next 4% of compensation. In October
2009, the Corporation suspended the matching contribution. The
Corporation may also contribute additional amounts at its
discretion. The Corporations contribution was $567,000,
$1.1 million, and $963,000, for the years ended
March 31, 2010, 2009, and 2008, respectively.
The Corporation sponsors an Employee Stock Ownership Plan
(ESOP) which covers all employees with more than one
year of employment, who are at least 21 years of age and
who work more than 1,000 hours in a plan year. Any
discretionary contributions to the ESOP have been allocated
among participants on the basis of compensation. Forfeitures are
reallocated among the remaining participating employees. The
dividends on ESOP shares were used to purchase additional shares
to be allocated under the plan. The number of shares allocated
to participants is determined based on the annual contribution
plus any shares purchased from dividends received during the
year. There was no ESOP expense for fiscal years 2010, 2009 and
2008.
The activity in the ESOP shares of both plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
|
1,195,831
|
|
|
|
1,270,438
|
|
|
|
1,355,508
|
|
Additional shares purchased
|
|
|
191,110
|
|
|
|
|
|
|
|
|
|
Shares distributed for terminations
|
|
|
(52,801
|
)
|
|
|
(53,628
|
)
|
|
|
(50,189
|
)
|
Sale of shares for cash distributions
|
|
|
|
|
|
|
(20,979
|
)
|
|
|
(34,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
1,334,140
|
|
|
|
1,195,831
|
|
|
|
1,270,438
|
|
Allocated shares included above
|
|
|
1,334,140
|
|
|
|
1,195,831
|
|
|
|
1,270,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the event a terminated ESOP participant desires to sell their
shares of the Corporations stock, or for certain employees
who elect to diversify their account balances, the Corporation
may be required to purchase the shares from the participant at
their fair market value. At March 31, 2010 and 2009, the
ESOP held 1,334,140 shares and 1,195,831 shares,
respectively, all of which have been allocated to ESOP
participants. The fair market value of those shares totaled
$1.5 million and $1.6 million as of March 31,
2010 and 2009, respectively. During the years ended
March 31, 2010 and 2009, the fair market value of the stock
purchased by the Company from ESOP participants totaled $222,000
and $363,000, respectively. The Corporation is planning on
terminating the ESOP plan during fiscal year 2011. Upon
termination, all ESOP shares will be distributed to participants
of the plan.
During 1992, the Corporation formed four Management Recognition
Plans (MRPs) which acquired a total of 4% of the
shares of the Corporations common stock. The Bank
contributed $2,000,000 to the MRPs to enable the MRP trustee to
acquire a total of 1,000,000 shares of the
Corporations common stock. In 2001, the Corporation
amended and restated the MRPs to extend their term. There were
no shares granted during the years ended March 31, 2010,
2009 and 2008. The $2,000,000 contributed to the MRPs is being
amortized to compensation expense as the Banks employees
become vested in the awarded shares. There was no MRP amortized
to compensation expense for the years ended March 31, 2010,
2009 and 2008. There were no shares vested during the years
ended March 31, 2010, 2009 and 2008.
105
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The activity in the MRP shares is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
|
429,869
|
|
|
|
418,185
|
|
|
|
405,965
|
|
Additional shares purchased
|
|
|
|
|
|
|
11,684
|
|
|
|
12,220
|
|
Shares vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
429,869
|
|
|
|
429,869
|
|
|
|
418,185
|
|
Allocated shares included above
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated shares
|
|
|
429,869
|
|
|
|
429,869
|
|
|
|
418,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation has stock compensation plans under which shares
of common stock are reserved for the grant of incentive and
non-incentive stock options and restricted stock or restricted
stock units to directors, officers and employees. The date the
options are first exercisable is determined by a committee of
the Board of Directors of the Corporation. The options expire no
later than ten years from the grant date.
A summary of stock options activity for all periods follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Outstanding at beginning of year
|
|
|
515,670
|
|
|
$
|
21.60
|
|
|
|
752,397
|
|
|
$
|
20.43
|
|
|
|
837,296
|
|
|
$
|
19.82
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(96,870
|
)
|
|
|
15.34
|
|
|
|
(72,427
|
)
|
|
|
14.53
|
|
Forfeited
|
|
|
(41,000
|
)
|
|
|
20.75
|
|
|
|
(139,857
|
)
|
|
|
19.66
|
|
|
|
(12,472
|
)
|
|
|
13.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
474,670
|
|
|
$
|
21.61
|
|
|
|
515,670
|
|
|
$
|
21.60
|
|
|
|
752,397
|
|
|
$
|
20.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable and vested at year-end
|
|
|
474,670
|
|
|
$
|
21.61
|
|
|
|
515,670
|
|
|
$
|
21.60
|
|
|
|
752,397
|
|
|
$
|
20.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of options exercised
|
|
$
|
|
|
|
|
|
|
|
$
|
51
|
|
|
|
|
|
|
$
|
875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of options outstanding and
exercisable at March 31, 2010 was zero.
At March 31, 2010, 877,200 shares were available for
future grants. The expense related to stock options was zero for
the fiscal years ended March 31, 2010, 2009 and 2008.
The following table represents outstanding stock options and
exercisable stock options at their respective ranges of exercise
prices at March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Exercisable Options
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Contractual
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Range of Exercise Prices
|
|
Shares
|
|
|
Life (Years)
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
$15.06 $22.07
|
|
|
252,330
|
|
|
|
1.54
|
|
|
$
|
17.98
|
|
|
|
252,330
|
|
|
$
|
17.99
|
|
$23.77 $28.50
|
|
|
189,340
|
|
|
|
3.46
|
|
|
|
24.65
|
|
|
|
189,340
|
|
|
|
24.65
|
|
$31.95 $31.95
|
|
|
33,000
|
|
|
|
5.32
|
|
|
|
31.95
|
|
|
|
33,000
|
|
|
|
31.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
474,670
|
|
|
|
2.57
|
|
|
$
|
21.61
|
|
|
|
474,670
|
|
|
$
|
21.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In 2004, the Corporation approved the 2004 Equity Incentive
Plan. The purpose of the plan was to promote the interests of
the Corporation and its stockholders by (i) attracting and
retaining exceptional executive personnel and other key
employees of the Corporation and its Affiliates;
(ii) motivating such employees by means of
performance-related incentives to achieve long-range performance
goals; and (iii) enabling such employees to participate in
the long-term growth and financial success of the Corporation.
Under the plan, up to 921,990 shares of Common Stock were
authorized and available for issuance. Of the
921,990 shares available, up to 300,000 shares may be
awarded in the form of restricted stock or restricted stock
units which are not subject to the achievement of a performance
target or targets. The restricted stock grants generally vest
over a period of three to five years and are included in
outstanding shares at the time of vesting. There were 22,500 and
32,700 shares granted at fair value under the plan during
the years ended March 31, 2009 and 2008, respectively.
There were no shares granted under the plan for the year ended
March 31, 2010. The restricted stock grant plan expense was
$501,000, $599,000 and $644,000 for the fiscal years ended
March 31, 2010, 2009 and 2008, respectively.
The activity in the restricted stock grant shares is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
Options
|
|
|
Fair Value
|
|
|
Options
|
|
|
Fair Value
|
|
|
Options
|
|
|
Fair Value
|
|
|
Balance at beginning of year
|
|
|
76,000
|
|
|
$
|
22.62
|
|
|
|
78,800
|
|
|
$
|
26.32
|
|
|
|
66,600
|
|
|
$
|
29.62
|
|
Restricted stock granted
|
|
|
|
|
|
|
|
|
|
|
22,500
|
|
|
|
7.32
|
|
|
|
32,700
|
|
|
|
22.85
|
|
Restricted stock vested
|
|
|
(21,550
|
)
|
|
|
23.16
|
|
|
|
(12,900
|
)
|
|
|
29.14
|
|
|
|
(19,500
|
)
|
|
|
30.09
|
|
Restricted stock forfeited
|
|
|
(2,000
|
)
|
|
|
7.32
|
|
|
|
(12,400
|
)
|
|
|
11.58
|
|
|
|
(1,000
|
)
|
|
|
22.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
52,450
|
|
|
$
|
22.98
|
|
|
|
76,000
|
|
|
$
|
22.62
|
|
|
|
78,800
|
|
|
$
|
26.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2010, there was approximately $764,000 of
total unrecognized compensation cost related to nonvested
share-based compensation arrangements (including share option
and nonvested share awards) granted under the Plan. The fair
value of stock that vested during the year ended March 31,
2010 was $14,000.
The Corporation and its subsidiaries file a consolidated federal
income tax return and separate state income tax returns.
The provision for income taxes consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(18,360
|
)
|
|
$
|
(23,064
|
)
|
|
$
|
19,416
|
|
State
|
|
|
(519
|
)
|
|
|
97
|
|
|
|
5,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,879
|
)
|
|
|
(22,967
|
)
|
|
|
25,248
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
17,360
|
|
|
|
(8,558
|
)
|
|
|
(4,381
|
)
|
State
|
|
|
19
|
|
|
|
1,427
|
|
|
|
(1,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,379
|
|
|
|
(7,131
|
)
|
|
|
(5,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Tax Expense (Benefit)
|
|
$
|
(1,500
|
)
|
|
$
|
(30,098
|
)
|
|
$
|
19,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At March 31, 2010, the affiliated group had a federal net
operating loss carryover of $93.5 million, and at
March 31, 2010, 2009 and 2008, certain subsidiaries had
state net operating loss carryovers of $210.4 million,
$70.4 million and $12.5 million, respectively. These
carryovers expire in varying amounts in 2011 through 2025.
The provision for income taxes differs from that computed at the
federal statutory corporate tax rate as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
Pretax
|
|
|
|
|
|
Pretax
|
|
|
|
|
|
Pretax
|
|
|
|
Amount
|
|
|
Income
|
|
|
Amount
|
|
|
Income
|
|
|
Amount
|
|
|
Income
|
|
|
Income (loss) before income taxes
|
|
$
|
(178,562
|
)
|
|
|
100.0
|
%
|
|
$
|
(260,765
|
)
|
|
|
100.0
|
%
|
|
$
|
50,782
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) at federal statutory rate of 35%
|
|
$
|
(62,497
|
)
|
|
|
35.0
|
%
|
|
$
|
(91,267
|
)
|
|
|
35.0
|
%
|
|
$
|
17,774
|
|
|
|
35.0
|
%
|
State income taxes, net of federal income tax benefits
|
|
|
(8,630
|
)
|
|
|
4.8
|
|
|
|
(8,966
|
)
|
|
|
3.4
|
|
|
|
2,913
|
|
|
|
5.7
|
|
Tax benefit from dividend to ESOP
|
|
|
|
|
|
|
|
|
|
|
(125
|
)
|
|
|
0.0
|
|
|
|
(319
|
)
|
|
|
(0.6
|
)
|
Reduction in tax exposure reserve
|
|
|
(1,500
|
)
|
|
|
0.8
|
|
|
|
(977
|
)
|
|
|
0.4
|
|
|
|
(500
|
)
|
|
|
(1.0
|
)
|
Write-off of goodwill
|
|
|
|
|
|
|
|
|
|
|
24,348
|
|
|
|
(9.3
|
)
|
|
|
|
|
|
|
|
|
Increase in valuation allowance
|
|
|
71,273
|
|
|
|
(39.9
|
)
|
|
|
47,248
|
|
|
|
(18.1
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
(146
|
)
|
|
|
0.1
|
|
|
|
(359
|
)
|
|
|
0.1
|
|
|
|
(218
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
(1,500
|
)
|
|
|
0.8
|
%
|
|
$
|
(30,098
|
)
|
|
|
11.5
|
%
|
|
$
|
19,650
|
|
|
|
38.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets and liabilities reflect the net tax
effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
108
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The significant components of the Corporations deferred
tax assets (liabilities) are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for loan losses
|
|
$
|
79,035
|
|
|
$
|
58,442
|
|
|
$
|
15,081
|
|
Other loss reserves
|
|
|
2,182
|
|
|
|
4,822
|
|
|
|
269
|
|
Federal NOL carryforwards
|
|
|
35,102
|
|
|
|
|
|
|
|
|
|
State NOL carryforwards
|
|
|
10,794
|
|
|
|
3,604
|
|
|
|
631
|
|
Unrealized gains/(losses)
|
|
|
2,131
|
|
|
|
2,695
|
|
|
|
(738
|
)
|
Other
|
|
|
6,947
|
|
|
|
12,711
|
|
|
|
9,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
136,191
|
|
|
|
82,274
|
|
|
|
24,288
|
|
Valuation allowance
|
|
|
(118,600
|
)
|
|
|
(50,919
|
)
|
|
|
(997
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted deferred tax assets
|
|
|
17,591
|
|
|
|
31,355
|
|
|
|
23,291
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
FHLB stock dividends
|
|
|
(3,976
|
)
|
|
|
(3,997
|
)
|
|
|
(4,022
|
)
|
Mortgage servicing rights
|
|
|
(9,312
|
)
|
|
|
(6,094
|
)
|
|
|
(4,888
|
)
|
Purchase accounting
|
|
|
(2,933
|
)
|
|
|
(3,348
|
)
|
|
|
(4,713
|
)
|
Other
|
|
|
(1,370
|
)
|
|
|
(1,639
|
)
|
|
|
(1,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(17,591
|
)
|
|
|
(15,078
|
)
|
|
|
(15,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
16,277
|
|
|
$
|
8,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have maintained significant net deferred tax assets for
deductible temporary differences, the largest of which relates
to our allowance for loan losses. For income tax return
purposes, only net charge-offs on uncollectible loan balances
are deductible, not the provision for loan losses. Under
generally accepted accounting principles, a valuation allowance
is required to be recognized if it is more likely than
not that a deferred tax asset will not be realized. The
determination of the realizability of the deferred tax assets is
highly subjective and dependent upon judgment concerning
managements evaluation of both positive and negative
evidence, the forecasts of future income, applicable tax
planning strategies, and assessments of the current and future
economic and business conditions. Management considered both
positive and negative evidence regarding the ultimate
realizability of the Corporations deferred tax assets.
Positive evidence includes the existence of taxes paid in
available carryback years as well as the probability that
taxable income will be generated in future periods while
negative evidence includes significant losses in the current
year or cumulative losses in the current and prior two years as
well as general business and economic trends. At March 31,
2010, Management determined that a valuation allowance relating
to a portion of the Corporations deferred tax asset was
necessary. This determination was based largely on the negative
evidence represented by a loss in the two most recent years
caused by the significant loan loss provisions recorded during
the years ended March 31, 2010 and 2009 associated with our
loan portfolio. In addition, general uncertainty surrounding
future economic and business conditions have increased the
potential volatility and uncertainty of our projected earnings.
Therefore, a valuation allowance of $118.6 million was
recorded to offset net deferred tax assets that exceed the
Corporations carryback potential.
Accounting for Uncertainty in Income
Taxes: Effective April 1, 2007, the
Corporation adopted FIN 48. This Interpretation provides
guidance on financial statement recognition and measurement of
tax positions taken, or expected to be taken, in tax returns.
The adoption of this Interpretation had no material impact on
the Corporations current and prior year financial
statements.
The Corporation is subject to U.S. federal income tax as
well as income tax of various state jurisdictions. The tax years
2007-2009
remain open to examination by the Internal Revenue Service and
certain state jurisdictions while the years
2006-2009
remain open to examination by certain other state jurisdictions.
109
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 15
Guarantees
The Corporations real estate investment subsidiary, IDI,
was required to guaranty the partnership loans of its
consolidated subsidiaries for the development of homes for sale.
During the quarter ended September 30, 2009, IDI sold its
interest in the majority of the real estate segment. As part of
the transaction, IDI was released from its guarantees. The table
below summarizes the individual consolidated subsidiaries and
their respective guarantees and outstanding loan balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Amount
|
|
|
Amount
|
|
|
Amount
|
|
|
|
|
|
Guaranteed
|
|
|
Outstanding
|
|
|
Guaranteed
|
|
|
Outstanding
|
|
Subsidiary of IDI
|
|
Partnership Entity
|
|
at 3/31/09
|
|
|
at 3/31/09
|
|
|
at 3/31/10
|
|
|
at 3/31/10
|
|
(Dollars in thousands)
|
|
|
N/A
|
|
Canterbury Inn Shakopee, LLC
|
|
$
|
4,750
|
|
|
$
|
4,417
|
|
|
$
|
4,750
|
|
|
$
|
4,357
|
|
Davsha III
|
|
Indian Palms 147, LLC
|
|
|
500
|
|
|
|
476
|
|
|
|
|
|
|
|
|
|
Davsha V
|
|
Villa Santa Rosa, LLC
|
|
|
1,000
|
|
|
|
346
|
|
|
|
|
|
|
|
|
|
Davsha VII
|
|
La Vista Grande 121, LLC
|
|
|
15,000
|
|
|
|
13,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
21,250
|
|
|
$
|
18,981
|
|
|
$
|
4,750
|
|
|
$
|
4,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 16
|
Commitments
and Contingent Liabilities
|
The Corporation is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit, loans sold
with recourse against the Corporation and financial guarantees
which involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The contract amounts of those
instruments reflect the extent of involvement and exposure to
credit loss the Corporation has in particular classes of
financial instruments. The Corporation uses the same credit
policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments. Since many of the
commitments are expected to expire without being drawn upon, the
total committed amounts do not necessarily represent future cash
requirements.
Financial instruments whose contract amounts represent credit
risk are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
|
2010
|
|
2009
|
|
Commitments to extend credit:
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
$
|
16,390
|
|
|
$
|
51,797
|
|
Adjustable rate
|
|
|
4,406
|
|
|
|
630
|
|
Unused lines of credit:
|
|
|
|
|
|
|
|
|
Home equity
|
|
|
142,044
|
|
|
|
144,662
|
|
Credit cards
|
|
|
37,360
|
|
|
|
37,602
|
|
Commercial
|
|
|
42,968
|
|
|
|
89,300
|
|
Letters of credit
|
|
|
25,393
|
|
|
|
20,694
|
|
Credit enhancement under the Federal
|
|
|
|
|
|
|
|
|
Home Loan Bank of Chicago Mortgage
|
|
|
|
|
|
|
|
|
Partnership Finance Program
|
|
|
21,602
|
|
|
|
23,527
|
|
IDI borrowing guarantees unfunded
|
|
|
393
|
|
|
|
2,269
|
|
Commitments to extend credit and unused lines of credit are
agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Letters
of credit commit the Corporation to make payments on behalf of
customers when certain specified future events occur.
Commitments and letters of credit generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. As some such commitments expire without being
drawn upon or funded by the Federal Home Loan Bank of Chicago
(FHLB), the
110
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
total commitment amounts do not necessarily represent future
cash requirements. The Corporation evaluates each
customers creditworthiness on a
case-by-case
basis. With the exception of credit card lines of credit, the
Corporation generally extends credit only on a secured basis.
Collateral obtained varies, but consists primarily of
single-family residences and income-producing commercial
properties. Fixed-rate loan commitments expose the Corporation
to a certain amount of interest rate risk if market rates of
interest substantially increase during the commitment period.
Similar risks exist relative to loans classified as held for
sale, which totaled $19,484,000 and $161,964,000 at
March 31, 2010 and 2009, respectively. This exposure,
however, is mitigated by the existence of firm commitments to
sell the majority of the fixed-rate loans. Commitments to sell
mortgage loans within 60 days at March 31, 2010 and
2009 amounted to $59,000,000 and $540,198,000, respectively.
The Corporation previously participated in the Mortgage
Partnership Finance (MPF) Program of the Federal Home Loan Bank
of Chicago (FHLB). The program was intended to provide member
institutions with an alternative to holding fixed-rate mortgages
in their loan portfolios or selling them in the secondary
market. An institution participates in the MPF Program by either
originating individual loans on a flow basis as
agent for the FHLB pursuant to the MPF 100 Program
or by selling, as principal, closed loans owned by an
institution to the FHLB pursuant to one of the FHLBs
closed-loan programs. The program was discontinued in 2008 in
its present format and the Corporation no longer funds loans
through the MPF program. The Corporation does, however, continue
to service the loans funded under the program and maintains the
credit exposure and credit enhancement fees. Under the MPF
Program, credit risk is shared by the participating institution
and the FHLB by structuring the loss exposure in several layers,
with the participating institution being liable for losses after
application of an initial layer of losses (after any private
mortgage insurance) is absorbed by the FHLB, subject to an
agreed-upon
maximum amount of such secondary credit enhancement which is
intended to be in an amount equivalent to a AA
credit risk rating by a rating agency. The participating
institution receives credit enhancement fees from the FHLB for
providing this credit enhancement and continuing to manage the
credit risk of the MPF Program loans. Participating institutions
are also paid specified servicing fees for servicing the loans.
Pursuant to the credit enhancement feature of that Program, the
Corporation has retained secondary credit loss exposure in the
amount of $21.6 million at March 31, 2010 related to
approximately $920.0 million of residential mortgage loans
that the Corporation has originated as agent for the FHLB. Under
the credit enhancement, the FHLB is liable for losses on loans
up to one percent of the original delivered loan balances in
each pool. The Corporation is then liable for losses over and
above the first position up to a contractually
agreed-upon
maximum amount in each pool that was delivered to the Program.
The Corporation receives a monthly fee for this credit
enhancement obligation based on the outstanding loan balances.
Based on historical experience, the Corporation does not
anticipate that any credit losses will be incurred under the
credit enhancement obligation.
Loans sold to investors with recourse to the Corporation met the
underwriting standards of the investor and the Corporation at
the time of origination. In the event of default by the
borrower, the investor may resell the loans to the Corporation
at par value. As the Corporation expects relatively few such
loans to become delinquent, the total amount of loans sold with
recourse does not necessarily represent future cash
requirements. Collateral obtained on such loans consists
primarily of single-family residences.
Except for the above-noted commitments to originate
and/or sell
mortgage loans in the normal course of business, the Corporation
and the Bank have not undertaken the use of off-balance-sheet
derivative financial instruments for any purpose.
In the ordinary course of business, there are legal proceedings
against the Corporation and its subsidiaries. Management
considers that the aggregate liabilities, if any, resulting from
such actions would not have a material, adverse effect on the
financial position of the Corporation.
|
|
Note 17
|
Derivative
Financial Instruments
|
The Corporation has recorded derivative contracts related to
commitments to fund residential mortgages (interest rate
locks) and commitments to deliver funded mortgages to
investors (see Note 16). The fair values of these
derivatives were immaterial at March 31, 2010 and 2009.
111
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 18
|
Fair
Value of Financial Instruments
|
Disclosure of fair value information about financial
instruments, for which it is practicable to estimate that value,
is required whether or not recognized in the consolidated
balance sheets. In cases where quoted market prices are not
available, fair values are based on estimates using present
value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instruments.
Certain financial instruments with a fair value that is not
practicable to estimate and all non-financial instruments are
excluded from the disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not necessarily
represent the underlying value of the Corporation.
The Corporation, in estimating its fair value disclosures for
financial instruments, used the following methods and
assumptions:
Cash and cash equivalents and accrued
interest: The carrying amounts reported in the
balance sheets approximate those assets and
liabilities fair values.
Investment securities: Fair values for
investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable
instruments. For securities in inactive markets, fair values are
based on discounted cash flow or other valuation models.
Loans receivable: For variable-rate loans that
reprice frequently and with no significant change in credit
risk, fair values are based on carrying values. The fair values
for loans held for sale are based on outstanding sale
commitments or quoted market prices of similar loans sold in
conjunction with securitization transactions, adjusted for
differences in loan characteristics. The fair value of
fixed-rate residential mortgage loans held for investment,
commercial real estate loans, rental property mortgage loans and
consumer and other loans and leases are estimated using
discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of
similar credit quality. For construction loans, fair values are
based on carrying values due to the short-term nature of the
loans.
Federal Home Loan Bank stock: The carrying
amount of FHLB stock approximates its fair value as it can only
be redeemed to the FHLB at its par value of $100.
Deposits: The fair values disclosed for NOW
accounts, passbook accounts and variable rate insured money
market accounts are, by definition, equal to the amount payable
on demand at the reporting date (i.e., their carrying amounts).
The fair values of fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies
current incremental interest rates being offered on certificates
of deposit to a schedule of aggregated expected monthly
maturities of the outstanding certificates of deposit.
Borrowings: The fair value of the
Corporations borrowings are estimated using discounted
cash flow analysis, based on the Corporations current
incremental borrowing rates for similar types of borrowing
arrangements.
Off-balance-sheet instruments: Fair values of
the Corporations off-balance-sheet instruments (lending
commitments and unused lines of credit) are based on fees
currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements, the
counterparties credit standing and discounted cash flow
analyses. The fair value of these off-balance-sheet items
approximates the recorded amounts of the related fees and is not
material at March 31, 2010 and 2009.
112
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The carrying amounts and fair values of the Corporations
financial instruments consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2010
|
|
2009
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Amount
|
|
Value
|
|
Amount
|
|
Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
512,162
|
|
|
$
|
512,162
|
|
|
$
|
433,826
|
|
|
$
|
433,826
|
|
Investment securities available for sale
|
|
|
416,203
|
|
|
|
416,203
|
|
|
|
484,985
|
|
|
|
484,985
|
|
Investment securities held to maturity
|
|
|
39
|
|
|
|
40
|
|
|
|
50
|
|
|
|
50
|
|
Loans held for sale
|
|
|
19,484
|
|
|
|
19,622
|
|
|
|
161,964
|
|
|
|
164,124
|
|
Loans receivable
|
|
|
3,229,580
|
|
|
|
3,278,903
|
|
|
|
3,896,439
|
|
|
|
3,981,442
|
|
Federal Home Loan Bank stock
|
|
|
54,829
|
|
|
|
54,829
|
|
|
|
54,829
|
|
|
|
54,829
|
|
Accrued interest receivable
|
|
|
20,159
|
|
|
|
20,159
|
|
|
|
25,375
|
|
|
|
25,375
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
3,543,799
|
|
|
|
3,513,254
|
|
|
|
3,909,391
|
|
|
|
3,921,802
|
|
Other borrowed funds
|
|
|
796,153
|
|
|
|
783,326
|
|
|
|
1,078,392
|
|
|
|
1,079,556
|
|
Accrued interest payable borrowings
|
|
|
7,088
|
|
|
|
7,088
|
|
|
|
2,833
|
|
|
|
2,833
|
|
Accrued interest payable deposits
|
|
|
8,963
|
|
|
|
8,963
|
|
|
|
14,436
|
|
|
|
14,436
|
|
Accounting guidance for fair value establishes a framework for
measuring fair value and expands disclosures about fair value
measurements.
ASC 820-10
applies only to fair value measurements already required or
permitted by other accounting standards and does not impose
requirements for additional fair value measures. It defines fair
value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
In determining the fair value, the Corporation uses various
valuation methods including market, income and cost approaches.
Based on these approaches, the Corporation utilizes assumptions
that market participants would use in pricing the asset or
liability, including assumptions about risk and the risks
inherent in the inputs to the valuation technique. These inputs
can be readily observable, market corroborated or generally
unobservable inputs. The Corporation uses valuation techniques
that maximize the use of observable inputs and minimize the use
of unobservable inputs. Based on observability of the inputs
used in the valuation techniques, the Corporation is required to
provide the following information according to the fair value
hierarchy. The fair value hierarchy ranks the quality and
reliability of the information used to determine fair values.
Financial assets and liabilities carried at fair value are
classified and disclosed in one of the following three
categories:
|
|
|
|
|
Level 1: Valuations for assets and
liabilities traded in active exchange markets. Valuations are
obtained from readily available pricing sources for market
transactions involving identical assets or liabilities.
|
|
|
|
Level 2: Valuations for assets and
liabilities traded in less active dealer or broker markets.
Valuations are obtained from third party pricing services for
identical or similar assets or liabilities.
|
|
|
|
Level 3: Valuations for assets and
liabilities that are derived from other valuation methodologies,
including option pricing models, discounted cash flow models and
similar techniques, and not based on market exchange, dealer or
broker traded transactions. Level 3 valuations incorporate
certain assumptions and projections in determining the fair
value assigned to such assets.
|
113
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair
Value on a Recurring Basis
The table below presents the financial instruments carried at
fair value as of March 31, 2010 and 2009, by the valuation
hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
March 31, 2010
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Available for sale debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency obligations
|
|
$
|
51,031
|
|
|
$
|
|
|
|
$
|
51,031
|
|
|
$
|
|
|
Agency CMOs and REMICs
|
|
|
1,413
|
|
|
|
|
|
|
|
|
|
|
|
1,413
|
|
Non-agency CMOs
|
|
|
85,367
|
|
|
|
|
|
|
|
|
|
|
|
85,367
|
|
Residential mortgage-backed securities
|
|
|
15,440
|
|
|
|
|
|
|
|
|
|
|
|
15,440
|
|
GNMA securities
|
|
|
261,754
|
|
|
|
|
|
|
|
|
|
|
|
261,754
|
|
Corporate bonds
|
|
|
1,097
|
|
|
|
572
|
|
|
|
525
|
|
|
|
|
|
Available for sale equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services
|
|
|
101
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
416,203
|
|
|
$
|
673
|
|
|
$
|
51,556
|
|
|
$
|
363,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
March 31, 2009
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Investment securities available for sale
|
|
$
|
484,985
|
|
|
$
|
616
|
|
|
$
|
77,068
|
|
|
$
|
407,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
484,985
|
|
|
$
|
616
|
|
|
$
|
77,068
|
|
|
$
|
407,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a reconciliation of assets measured at fair
value on a recurring basis using significant unobservable inputs
(level 3) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Investment Securities
|
|
|
Investment Securities
|
|
|
|
Available for Sale
|
|
|
Available for Sale
|
|
|
Balance at beginning of year
|
|
$
|
407,301
|
|
|
$
|
|
|
Total gains (losses) (realized/unrealized)
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
7,253
|
|
|
|
731
|
|
Included in other comprehensive income
|
|
|
1,786
|
|
|
|
(3,350
|
)
|
Included in earnings as other than temporary impairment
|
|
|
(1,084
|
)
|
|
|
(805
|
)
|
Purchases
|
|
|
437,141
|
|
|
|
184,340
|
|
Securitization of mortgage loans held for sale to
mortgage-related securities
|
|
|
48,878
|
|
|
|
|
|
Principal repayments
|
|
|
(104,331
|
)
|
|
|
(43,657
|
)
|
Sales
|
|
|
(432,970
|
)
|
|
|
|
|
Transfers in and/or out of level 3
|
|
|
|
|
|
|
270,042
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
363,974
|
|
|
$
|
407,301
|
|
|
|
|
|
|
|
|
|
|
The purchases of securities classified as level 3 during
the years ended March 31, 2010 and 2009 included
collateralized mortgage obligation (CMOs) and
U.S. Government sponsored agency real estate mortgage
investment conduits (REMICs).
A pricing service was used to value our investment securities
and mortgage-related securities as of March 31, 2010.
Mortgage-related securities were considered a level 3 due
to the fact that the inputs for determining fair value are
unobservable and these securities need to be placed out for bid
in order to arrive at the fair value. The Corporation utilized
fair value estimates obtained from an independent pricing
service as of March 31, 2010 for all corporate
mortgage-related securities that were rated below triple-A by at
least one major rating service as of the measurement date. These
estimates were determined using a discounted cash flow model in
accordance with the guidance provided in
ASC 820-10-65.
The significant inputs to the discounted cash flow model are
prepayment speeds of 4.8% to 17.3%, default rates of 1.5% to
12.8%, loss severities of 23.6% to 55.3% and discount rates of
4.5% to 15.0%.
Fair
Value on a Nonrecurring Basis
Certain assets are measured at fair value on a nonrecurring
basis; that is, the instruments are not measured at fair value
on an ongoing basis but are subject to fair value adjustments in
certain circumstances (for example, when there is evidence of
impairment). The following table presents such assets carried on
the consolidated balance sheet by caption and by level within
the fair value hierarchy as of March 31, 2010 and 2009 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Impaired loans
|
|
$
|
149,802
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
149,802
|
|
Loans held for sale
|
|
|
4,752
|
|
|
|
|
|
|
|
4,752
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
Foreclosed properties and repossessed assets
|
|
|
55,436
|
|
|
|
|
|
|
|
|
|
|
|
55,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
216,990
|
|
|
$
|
|
|
|
$
|
4,752
|
|
|
$
|
212,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Impaired loans
|
|
$
|
93,380
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
93,380
|
|
Loans held for sale
|
|
|
5,845
|
|
|
|
|
|
|
|
5,845
|
|
|
|
|
|
Mortgage servicing rights
|
|
|
10,463
|
|
|
|
|
|
|
|
|
|
|
|
10,463
|
|
Foreclosed properties and repossessed assets
|
|
|
52,563
|
|
|
|
|
|
|
|
|
|
|
|
52,563
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
162,251
|
|
|
$
|
|
|
|
$
|
5,845
|
|
|
$
|
156,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Corporation does not record loans at fair value on a
recurring basis. However, from time to time, a loan is
considered impaired and an allowance for loan losses is
established. The specific reserves for collateral dependent
impaired loans are based on the fair value of the collateral
less estimated costs to sell. The fair value of collateral was
determined based on appraisals. In some cases, adjustments were
made to the appraised values due to various factors including
age of the appraisal, age of comparables included in the
appraisal, and known changes in the market and in the
collateral. When significant adjustments were based on
unobservable inputs, the resulting fair value measurement has
been categorized as a Level 3 measurement.
Loans held for sale generally consist of the current origination
of certain fixed-rate mortgage loans and certain adjustable-rate
mortgage loans and are carried at lower of cost or fair value,
determined on an aggregate basis. Fees received from the
borrower and direct costs to originate the loan are deferred and
recorded as an adjustment of the sales price.
Mortgage servicing rights are recorded as an asset when loans
are sold to third parties with servicing rights retained. The
cost allocated to the mortgage servicing rights retained has
been recognized as a separate asset and is initially recorded at
fair value and amortized in proportion to, and over the period
of, estimated net servicing revenues. The carrying value of
these assets is periodically reviewed for impairment using a
lower of carrying value or fair value methodology. The fair
value of the servicing rights is determined by estimating the
present value of future net cash flows, taking into
consideration market loan prepayment speeds, discount rates,
servicing costs and other economic factors. For purposes of
measuring impairment, the rights are stratified based on
predominant risk characteristics of the underlying loans which
include product type (i.e., fixed or adjustable) and interest
rate bands. The amount of impairment recognized is the amount by
which the capitalized mortgage servicing rights on a
loan-by-loan
basis exceed their fair value. Mortgage servicing rights are
carried at the lower of amortized cost or fair value.
Foreclosed properties and repossessed assets, upon initial
recognition, are measured and reported at fair value through a
charge-off to the allowance for loan losses based upon the fair
value of the foreclosed asset. The fair value of foreclosed
properties and repossessed assets, upon initial recognition, are
estimated using Level 3 inputs based on appraisals adjusted
for market discounts. Foreclosed properties and repossessed
assets are re-measured at fair value after initial recognition
through the use of a valuation allowance on foreclosed assets.
In accordance with the accounting standards, goodwill with a
carrying value of $72.2 million was written down to its
implied fair value of zero, resulting in an impairment charge of
$72.2 million, which was included in earnings for the
fiscal year ended March 31, 2009.
116
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 19
|
Condensed
Parent Only Financial Information
|
The following represents the parent company only financial
information of the Corporation:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
2009
|
|
|
|
2010
|
|
|
(Restated)
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
1,128
|
|
|
$
|
7,357
|
|
Investment in subsidiaries
|
|
|
166,364
|
|
|
|
308,338
|
|
Securities available for sale
|
|
|
|
|
|
|
57
|
|
Loans receivable from non-bank subsidiaries
|
|
|
4,600
|
|
|
|
20,442
|
|
Other
|
|
|
1,175
|
|
|
|
3,222
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
173,267
|
|
|
$
|
339,416
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Loans payable
|
|
$
|
122,724
|
|
|
$
|
116,300
|
|
Other liabilities
|
|
|
20,430
|
|
|
|
11,751
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
143,154
|
|
|
|
128,051
|
|
STOCKHOLDERS EQUITY
|
Total stockholders equity
|
|
|
30,113
|
|
|
|
211,365
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
173,267
|
|
|
$
|
339,416
|
|
|
|
|
|
|
|
|
|
|
117
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
2010
|
|
|
(Restated)
|
|
|
2008
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Interest income
|
|
$
|
166
|
|
|
$
|
1,208
|
|
|
$
|
2,033
|
|
Interest expense
|
|
|
16,968
|
|
|
|
6,216
|
|
|
|
3,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense
|
|
|
(16,802
|
)
|
|
|
(5,008
|
)
|
|
|
(1,903
|
)
|
Equity in net income (loss) from subsidiaries
|
|
|
(158,709
|
)
|
|
|
(225,643
|
)
|
|
|
32,264
|
|
Non-interest income
|
|
|
102
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(175,409
|
)
|
|
|
(230,651
|
)
|
|
|
30,373
|
|
Non-interest expense
|
|
|
2,191
|
|
|
|
3,437
|
|
|
|
553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(177,600
|
)
|
|
|
(234,088
|
)
|
|
|
29,820
|
|
Income tax benefit
|
|
|
(538
|
)
|
|
|
(3,421
|
)
|
|
|
(1,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(177,062
|
)
|
|
$
|
(230,667
|
)
|
|
$
|
31,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
2010
|
|
|
(Restated)
|
|
|
2008
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(177,062
|
)
|
|
$
|
(230,667
|
)
|
|
$
|
31,132
|
|
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net loss (income) of subsidiaries
|
|
|
158,709
|
|
|
|
225,643
|
|
|
|
(32,264
|
)
|
Other
|
|
|
(9,897
|
)
|
|
|
(1,621
|
)
|
|
|
(610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by operating activities
|
|
|
(28,250
|
)
|
|
|
(6,645
|
)
|
|
|
(1,742
|
)
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities of investment securities
|
|
|
|
|
|
|
653
|
|
|
|
279
|
|
Proceeds from sales of investment securities available for sale
|
|
|
119
|
|
|
|
|
|
|
|
|
|
Net (increase) decrease in loans receivable from non-bank
subsidiaries
|
|
|
15,842
|
|
|
|
8,431
|
|
|
|
(1,383
|
)
|
Capital contribution to Bank subsidiary
|
|
|
|
|
|
|
(110,000
|
)
|
|
|
(39,000
|
)
|
Capital contribution to non-Bank subsidiary
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
Dividends from Bank subsidiary
|
|
|
|
|
|
|
6,195
|
|
|
|
16,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing activities
|
|
|
15,956
|
|
|
|
(94,721
|
)
|
|
|
(24,104
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in loans payable
|
|
|
5,499
|
|
|
|
(2,165
|
)
|
|
|
54,865
|
|
Issuance of preferred stock and common stock warrants
|
|
|
|
|
|
|
110,000
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(12,556
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
1,485
|
|
|
|
838
|
|
Purchase of stock by retirement plans
|
|
|
566
|
|
|
|
693
|
|
|
|
1,152
|
|
Cash dividends paid
|
|
|
|
|
|
|
(6,101
|
)
|
|
|
(14,900
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
6,065
|
|
|
|
103,912
|
|
|
|
29,399
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(6,229
|
)
|
|
|
2,546
|
|
|
|
3,553
|
|
Cash and cash equivalents at beginning of year
|
|
|
7,357
|
|
|
|
4,811
|
|
|
|
1,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,128
|
|
|
$
|
7,357
|
|
|
$
|
4,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 20
|
Segment
Information
|
The Corporation provides a full range of banking services, as
well as real estate investments through its two consolidated
subsidiaries. The Corporation manages its business with a
primary focus on each subsidiary. Thus, the Corporation has
identified two operating segments. The Corporation has not
aggregated any operating segments.
Community Banking: This segment is the main
basis of operation for the Corporation and includes the branch
network and other deposit support services; origination, sales
and servicing of
one-to-four
family loans; origination of multifamily, commercial real estate
and business loans; origination of a variety of consumer loans;
and sales of alternative financial investments such as tax
deferred annuities.
Real Estate Investments: The
Corporations non-banking subsidiary, IDI, invested in
limited partnerships in real estate developments. Such
developments included recreational residential developments.
During the quarter ended September 30, 2009, IDI sold its
interest in several limited partnerships as well as
substantially all of its remaining assets, which included some
developed lots. The assets that remain at IDI include an equity
interest in one commercial real estate property and one real
estate development along with various notes receivable.
The Real Estate Investment segment borrows funds from the
Corporation to meet its operating needs. Such intercompany
borrowings are eliminated in consolidation. The interest income
and interest expense associated with such borrowings are also
eliminated in consolidation.
The following represents reconciliations of reportable segment
revenues, profit or loss, and assets to the Corporations
consolidated totals for the years ended March 31, 2010,
2009 and 2008, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Real Estate
|
|
|
Community
|
|
|
Intersegment
|
|
|
Financial
|
|
|
|
Investments
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Statements
|
|
|
|
(In thousands)
|
|
|
Interest income
|
|
$
|
95
|
|
|
$
|
217,144
|
|
|
$
|
(157
|
)
|
|
$
|
217,082
|
|
Interest expense
|
|
|
128
|
|
|
|
132,300
|
|
|
|
(157
|
)
|
|
|
132,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
(33
|
)
|
|
|
84,844
|
|
|
|
|
|
|
|
84,811
|
|
Provision for loan losses
|
|
|
|
|
|
|
161,926
|
|
|
|
|
|
|
|
161,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest loss after provision for loan losses
|
|
|
(33
|
)
|
|
|
(77,082
|
)
|
|
|
|
|
|
|
(77,115
|
)
|
Other revenue from real estate operations
|
|
|
1,684
|
|
|
|
|
|
|
|
|
|
|
|
1,684
|
|
Other income
|
|
|
|
|
|
|
55,093
|
|
|
|
(24
|
)
|
|
|
55,069
|
|
Other expense from real estate partnership operations
|
|
|
(4,983
|
)
|
|
|
|
|
|
|
24
|
|
|
|
(4,959
|
)
|
Other expense
|
|
|
|
|
|
|
(153,241
|
)
|
|
|
|
|
|
|
(153,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(3,332
|
)
|
|
|
(175,230
|
)
|
|
|
|
|
|
|
(178,562
|
)
|
Income tax expense (benefit)
|
|
|
(488
|
)
|
|
|
(1,012
|
)
|
|
|
|
|
|
|
(1,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,844
|
)
|
|
$
|
(174,218
|
)
|
|
$
|
|
|
|
$
|
(177,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at end of period
|
|
$
|
5,945
|
|
|
$
|
4,410,320
|
|
|
$
|
|
|
|
$
|
4,416,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Real Estate
|
|
|
Community
|
|
|
Intersegment
|
|
|
Financial
|
|
|
|
Investments
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Statements
|
|
|
|
(In thousands)
|
|
|
Interest income
|
|
$
|
102
|
|
|
$
|
261,373
|
|
|
$
|
(1,213
|
)
|
|
$
|
260,262
|
|
Interest expense
|
|
|
1,116
|
|
|
|
135,569
|
|
|
|
(1,213
|
)
|
|
|
135,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
(1,014
|
)
|
|
|
125,804
|
|
|
|
|
|
|
|
124,790
|
|
Provision for loan losses
|
|
|
|
|
|
|
205,719
|
|
|
|
|
|
|
|
205,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest loss after provision for loan losses
|
|
|
(1,014
|
)
|
|
|
(79,915
|
)
|
|
|
|
|
|
|
(80,929
|
)
|
Real estate investment partnership revenue
|
|
|
2,130
|
|
|
|
|
|
|
|
|
|
|
|
2,130
|
|
Other revenue from real estate operations
|
|
|
8,194
|
|
|
|
|
|
|
|
|
|
|
|
8,194
|
|
Other income
|
|
|
|
|
|
|
35,297
|
|
|
|
(90
|
)
|
|
|
35,207
|
|
Real estate investment partnership cost of sales
|
|
|
(1,736
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,736
|
)
|
Other expense from real estate partnership operations
|
|
|
(9,596
|
)
|
|
|
|
|
|
|
90
|
|
|
|
(9,506
|
)
|
Real estate partnership impairment
|
|
|
(17,631
|
)
|
|
|
|
|
|
|
|
|
|
|
(17,631
|
)
|
Non-controlling interest in income of real estate partnerships
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
148
|
|
Other expense
|
|
|
|
|
|
|
(196,642
|
)
|
|
|
|
|
|
|
(196,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(19,505
|
)
|
|
|
(241,260
|
)
|
|
|
|
|
|
|
(260,765
|
)
|
Income tax benefit
|
|
|
(1,068
|
)
|
|
|
(29,030
|
)
|
|
|
|
|
|
|
(30,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(18,437
|
)
|
|
$
|
(212,230
|
)
|
|
$
|
|
|
|
$
|
(230,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at end of period
|
|
$
|
25,070
|
|
|
$
|
5,247,040
|
|
|
$
|
|
|
|
$
|
5,272,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
Real Estate
|
|
|
Community
|
|
|
Intersegment
|
|
|
Financial
|
|
|
|
Investments
|
|
|
Banking
|
|
|
Eliminations
|
|
|
Statements
|
|
|
|
(In thousands)
|
|
|
Interest income
|
|
$
|
141
|
|
|
$
|
298,515
|
|
|
$
|
(1,981
|
)
|
|
$
|
296,675
|
|
Interest expense
|
|
|
1,828
|
|
|
|
167,823
|
|
|
|
(1,981
|
)
|
|
|
167,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss)
|
|
|
(1,687
|
)
|
|
|
130,692
|
|
|
|
|
|
|
|
129,005
|
|
Provision for loan losses
|
|
|
|
|
|
|
22,551
|
|
|
|
|
|
|
|
22,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for loan losses
|
|
|
(1,687
|
)
|
|
|
108,141
|
|
|
|
|
|
|
|
106,454
|
|
Real estate investment partnership revenue
|
|
|
8,399
|
|
|
|
|
|
|
|
|
|
|
|
8,399
|
|
Other revenue from real estate operations
|
|
|
7,664
|
|
|
|
|
|
|
|
|
|
|
|
7,664
|
|
Other income
|
|
|
|
|
|
|
35,643
|
|
|
|
(119
|
)
|
|
|
35,524
|
|
Real estate investment partnership cost of sales
|
|
|
(8,489
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,489
|
)
|
Other expense from real estate partnership operations
|
|
|
(10,291
|
)
|
|
|
|
|
|
|
119
|
|
|
|
(10,172
|
)
|
Non-controlling interest in income of real estate partnerships
|
|
|
402
|
|
|
|
|
|
|
|
|
|
|
|
402
|
|
Other expense
|
|
|
|
|
|
|
(89,000
|
)
|
|
|
|
|
|
|
(89,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(4,002
|
)
|
|
|
54,784
|
|
|
|
|
|
|
|
50,782
|
|
Income tax expense (benefit)
|
|
|
(1,682
|
)
|
|
|
21,332
|
|
|
|
|
|
|
|
19,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,320
|
)
|
|
$
|
33,452
|
|
|
$
|
|
|
|
$
|
31,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at end of period
|
|
$
|
72,028
|
|
|
$
|
5,077,529
|
|
|
$
|
|
|
|
$
|
5,149,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
|
|
|
$
|
72,375
|
|
|
$
|
|
|
|
$
|
72,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 21
|
Earnings
per Share
|
The computation of earnings per share for fiscal years 2010,
2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended March 31,
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
2010
|
|
|
(Restated)
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted earnings per share
loss available to common stockholders
|
|
$
|
(189,973
|
)
|
|
$
|
(232,839
|
)
|
|
$
|
31,132
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
weighted-average shares
|
|
|
21,189
|
|
|
|
21,076
|
|
|
|
20,976
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
|
|
|
|
|
|
|
|
120
|
|
Management Recognition Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share adjusted
weighted-average shares and assumed conversions
|
|
|
21,189
|
|
|
|
21,076
|
|
|
|
21,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per common share
|
|
$
|
(8.97
|
)
|
|
$
|
(11.05
|
)
|
|
$
|
1.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per common share
|
|
$
|
(8.97
|
)
|
|
$
|
(11.05
|
)
|
|
$
|
1.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2010, approximately 475,000 stock options were
excluded from the calculation of diluted earnings per share
because they were anti-dilutive. The warrant to purchase
7.4 million shares at an exercise price of $2.23 was not
included in the computation of diluted earnings per share
because the warrants exercise price was greater than the
average market price of common stock and was, therefore,
anti-dilutive. Because of their anti-dilutive effect, the shares
that would be issued if the Senior Preferred Stock were
converted are not included in the computation of diluted
earnings per share for the years ended March 31, 2010, 2009
and 2008.
122
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note 22
|
Selected
Quarterly Financial Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar 31,
|
|
|
Dec 31,
|
|
|
Sep 30,
|
|
|
Jun 30,
|
|
|
Mar 31,
|
|
|
Dec 31,
|
|
|
Sep 30,
|
|
|
Jun 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
43,708
|
|
|
$
|
48,545
|
|
|
$
|
49,551
|
|
|
$
|
53,790
|
|
|
$
|
55,910
|
|
|
$
|
60,042
|
|
|
$
|
59,450
|
|
|
$
|
65,711
|
|
Securities and other
|
|
|
4,329
|
|
|
|
5,009
|
|
|
|
5,834
|
|
|
|
6,316
|
|
|
|
5,183
|
|
|
|
4,631
|
|
|
|
4,538
|
|
|
|
4,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
48,037
|
|
|
|
53,554
|
|
|
|
55,385
|
|
|
|
60,106
|
|
|
|
61,093
|
|
|
|
64,673
|
|
|
|
63,988
|
|
|
|
70,508
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
18,889
|
|
|
|
21,278
|
|
|
|
23,040
|
|
|
|
24,133
|
|
|
|
22,515
|
|
|
|
21,602
|
|
|
|
23,898
|
|
|
|
26,842
|
|
Other borrowed funds
|
|
|
10,524
|
|
|
|
9,943
|
|
|
|
13,406
|
|
|
|
11,058
|
|
|
|
9,870
|
|
|
|
10,364
|
|
|
|
10,136
|
|
|
|
10,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
29,413
|
|
|
|
31,221
|
|
|
|
36,446
|
|
|
|
35,191
|
|
|
|
32,385
|
|
|
|
31,966
|
|
|
|
34,034
|
|
|
|
37,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
18,624
|
|
|
|
22,333
|
|
|
|
18,939
|
|
|
|
24,915
|
|
|
|
28,708
|
|
|
|
32,707
|
|
|
|
29,954
|
|
|
|
33,421
|
|
Provision for loan losses
|
|
|
20,170
|
|
|
|
10,456
|
|
|
|
60,900
|
|
|
|
70,400
|
|
|
|
56,385
|
|
|
|
92,970
|
|
|
|
46,964
|
|
|
|
9,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for loan losses
|
|
|
(1,546
|
)
|
|
|
11,877
|
|
|
|
(41,961
|
)
|
|
|
(45,485
|
)
|
|
|
(27,677
|
)
|
|
|
(60,263
|
)
|
|
|
(17,010
|
)
|
|
|
24,021
|
|
Real estate investment partnership revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
310
|
|
|
|
1,820
|
|
|
|
|
|
|
|
|
|
Service charges on deposits
|
|
|
3,509
|
|
|
|
3,949
|
|
|
|
4,146
|
|
|
|
3,829
|
|
|
|
3,528
|
|
|
|
3,966
|
|
|
|
4,134
|
|
|
|
3,859
|
|
Net gain (loss) on sale of loans
|
|
|
3,314
|
|
|
|
2,805
|
|
|
|
1,062
|
|
|
|
11,403
|
|
|
|
7,858
|
|
|
|
(228
|
)
|
|
|
808
|
|
|
|
2,243
|
|
Net gain (loss) on sale of investment securities
|
|
|
1,699
|
|
|
|
5,783
|
|
|
|
2,108
|
|
|
|
1,505
|
|
|
|
|
|
|
|
(1,396
|
)
|
|
|
(1,902
|
)
|
|
|
|
|
Net impairment losses recognized in earnings
|
|
|
(339
|
)
|
|
|
(346
|
)
|
|
|
(186
|
)
|
|
|
(213
|
)
|
|
|
(805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue from real estate operations
|
|
|
(709
|
)
|
|
|
|
|
|
|
1,482
|
|
|
|
911
|
|
|
|
3,966
|
|
|
|
1,723
|
|
|
|
1,032
|
|
|
|
1,473
|
|
Other non-interest income
|
|
|
3,032
|
|
|
|
3,505
|
|
|
|
2,319
|
|
|
|
2,185
|
|
|
|
1,149
|
|
|
|
3,701
|
|
|
|
4,280
|
|
|
|
4,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
10,506
|
|
|
|
15,696
|
|
|
|
10,931
|
|
|
|
19,620
|
|
|
|
16,006
|
|
|
|
9,586
|
|
|
|
8,352
|
|
|
|
12,003
|
|
Compensation
|
|
|
12,178
|
|
|
|
12,415
|
|
|
|
14,099
|
|
|
|
14,350
|
|
|
|
14,373
|
|
|
|
13,828
|
|
|
|
14,770
|
|
|
|
13,501
|
|
Real estate partnership cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
545
|
|
|
|
1,191
|
|
|
|
|
|
|
|
|
|
Federal deposit insurance premium
|
|
|
4,144
|
|
|
|
4,300
|
|
|
|
4,608
|
|
|
|
5,578
|
|
|
|
3,023
|
|
|
|
624
|
|
|
|
162
|
|
|
|
98
|
|
Other expenses from real estate partnership operations
|
|
|
1,089
|
|
|
|
211
|
|
|
|
2,208
|
|
|
|
1,451
|
|
|
|
16,052
|
|
|
|
7,170
|
|
|
|
1,724
|
|
|
|
2,191
|
|
REO
operations-net
expense
|
|
|
5,257
|
|
|
|
5,867
|
|
|
|
7,245
|
|
|
|
3,932
|
|
|
|
3,336
|
|
|
|
8,038
|
|
|
|
1,952
|
|
|
|
189
|
|
Other non-interest expense
|
|
|
14,425
|
|
|
|
14,977
|
|
|
|
15,905
|
|
|
|
13,961
|
|
|
|
13,015
|
|
|
|
87,479
|
|
|
|
11,664
|
|
|
|
11,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense
|
|
|
37,093
|
|
|
|
37,770
|
|
|
|
44,065
|
|
|
|
39,272
|
|
|
|
50,344
|
|
|
|
118,330
|
|
|
|
30,272
|
|
|
|
26,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(28,133
|
)
|
|
|
(10,197
|
)
|
|
|
(75,095
|
)
|
|
|
(65,137
|
)
|
|
|
(62,015
|
)
|
|
|
(169,007
|
)
|
|
|
(38,930
|
)
|
|
|
9,039
|
|
Income taxes
|
|
|
(1,503
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
(16,147
|
)
|
|
|
(1,899
|
)
|
|
|
(15,618
|
)
|
|
|
3,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(26,630
|
)
|
|
|
(10,200
|
)
|
|
|
(75,095
|
)
|
|
|
(65,137
|
)
|
|
|
(45,868
|
)
|
|
|
(167,108
|
)
|
|
|
(23,312
|
)
|
|
|
5,473
|
|
Income (loss) attributable to non-controlling interest in real
estate partnerships
|
|
|
|
|
|
|
|
|
|
|
85
|
|
|
|
(85
|
)
|
|
|
(246
|
)
|
|
|
150
|
|
|
|
(13
|
)
|
|
|
(39
|
)
|
Preferred stock dividends and discount accretion
|
|
|
(3,211
|
)
|
|
|
(3,228
|
)
|
|
|
(3,228
|
)
|
|
|
(3,244
|
)
|
|
|
(2,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common equity of Anchor BanCorp
|
|
$
|
(29,841
|
)
|
|
$
|
(13,428
|
)
|
|
$
|
(78,408
|
)
|
|
$
|
(68,296
|
)
|
|
$
|
(47,794
|
)
|
|
$
|
(167,258
|
)
|
|
$
|
(23,299
|
)
|
|
$
|
5,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.40
|
)
|
|
$
|
(0.63
|
)
|
|
$
|
(3.71
|
)
|
|
$
|
(3.23
|
)
|
|
$
|
(2.26
|
)
|
|
$
|
(7.96
|
)
|
|
$
|
(1.11
|
)
|
|
$
|
0.26
|
|
Diluted
|
|
|
(1.40
|
)
|
|
|
(0.63
|
)
|
|
|
(3.71
|
)
|
|
|
(3.23
|
)
|
|
|
(2.26
|
)
|
|
|
(7.96
|
)
|
|
|
(1.11
|
)
|
|
|
0.26
|
|
123
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Anchor BanCorp Wisconsin Inc.
Madison, Wisconsin
We have audited the consolidated balance sheets of Anchor
BanCorp Wisconsin Inc. and Subsidiaries (the Corporation) as of
March 31, 2010 and 2009, and the related consolidated
statements of income, changes in stockholders equity, and
cash flows for each of the three years in the period ended
March 31, 2010. These financial statements are the
responsibility of the Corporations management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Corporation as of March 31, 2010 and 2009,
and the results of their operations and their cash flows for
each of the three years in the period ended March 31, 2010,
in conformity with U.S generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Corporation and the Bank will
continue as a going concern. As discussed in Note 12 to the
consolidated financial statements, at March 31, 2010, all
of the subsidiary banks regulatory capital amounts and
ratios are below the required levels and the bank is considered
undercapitalized under the regulatory framework for
prompt corrective action. The subsidiary bank has also suffered
recurring losses from operations. Failure to meet the capital
requirements exposes the Corporation to regulatory sanctions
that may include restrictions on operations and growth,
mandatory asset dispositions, and seizure of the subsidiary
bank. In addition, as discussed in Note 11, the
Corporations outstanding balance under the Amended and
Restated Credit Agreement could be declared in default and
become due or payable if financial covenants are not met. These
matters raise substantial doubt about the ability of the
Corporation to continue as a going concern. The accompanying
financial statements do not include any adjustments that would
be necessary should the Corporation be unable to continue as a
going concern.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Corporations internal control over financial reporting as
of March 31, 2010, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Our report dated June 29, 2010 expressed
an opinion that the Corporation had not maintained effective
internal control over financial reporting as of March 31,
2010, based on criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
/s/ McGladrey &
Pullen, LLP
Madison, Wisconsin
June 29, 2010
McGladrey & Pullen, LLP is a member firm of RSM
International, an affiliation of separate and independent legal
entities.
124
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Anchor BanCorp Wisconsin Inc.
Madison, Wisconsin
We have audited Anchor BanCorp Wisconsin Inc. and Subsidiaries
(the Corporations) internal control over financial
reporting as of March 31, 2010, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Corporations management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting included in the
accompanying Managements Annual Report on Internal Control
over Financial Reporting. Our responsibility is to express an
opinion on the Corporations internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A corporations internal control over financial reporting
is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A corporations
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
corporation; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
corporation are being made only in accordance with
authorizations of management and directors of the corporation;
and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the corporations assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of the corporations annual or interim
financial statements will not be prevented or detected in a
timely basis. The following material weakness has been
identified and included in managements assessment.
The Corporation did not maintain effective entity level controls
to ensure that the financial statements were prepared in
accordance with generally accepted accounting principles.
This material weakness was considered in determining the nature,
timing and extent of audit tests applied in our audit of the
2010 financial statements, and this report does not affect our
report dated June 29, 2010 on those financial statements.
125
In our opinion, because of the effect of the material weakness
described above on the achievement of the objectives of the
control criteria, the Corporation has not maintained effective
internal control over financial reporting as of March 31,
2010, based on criteria established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements as of for the year ended
March 31, 2010 of Anchor BanCorp Wisconsin Inc. and our
report dated June 29, 2010 expressed an unqualified opinion
with an emphasis paragraph regarding the Corporations
ability to continue as a going concern.
/s/ McGladrey &
Pullen, LLP
Madison, Wisconsin
June 29, 2010
McGladrey & Pullen, LLP is a member firm of RSM
International, an affiliation of separate and independent legal
entities.
126
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure Controls and Procedures. The
Corporation maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed
in the Corporations reports under the Securities Exchange
Act of 1934, as amended (the Exchange Act), is
recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and that
such information is accumulated and communicated to management,
including the Corporations Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosures. The design of any
system of disclosure controls and procedures is based in part
upon certain assumptions about the likelihood of future events,
and there can be no assurance that any disclosure controls and
procedures will succeed in achieving their stated goals under
all potential future conditions.
Managements Annual Report on Internal Control over
Financial Reporting. Management of the
Corporation is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rule 13a-15(f)
and
15d-15(f)
under the Exchange Act. Under Section 404 of the
Sarbanes-Oxley Act of 2002, management is required to assess the
effectiveness of the Corporations internal control over
financial reporting as of the end of each fiscal year and
report, based on that assessment, whether the Corporations
internal control over financial reporting is effective. The
Corporations internal control system is designed to
provide reasonable assurance regarding the preparation and fair
presentation of published financial statements. All internal
control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to
financial statement preparation and presentation and may not
prevent or detect all misstatements.
Management has assessed the effectiveness of the
Corporations internal control over financial reporting as
of March 31, 2010. In making its assessment of internal
control over financial reporting, management used the criteria
set forth by the Committee of Sponsoring Organizations
(COSO) of the Treadway Commission in Internal
Control Integrated Framework. These criteria include
the control environment, risk assessment, control activities,
information and communication and monitoring of each of the
above criteria. Based on our evaluation under the framework in
Internal Control Integrated Framework, our
management concluded that our internal control over financial
reporting was not effective as of March 31, 2010.
Managements assessment of the effectiveness of our
internal control over financial reporting as of March 31,
2010 has been audited by our independent registered public
accounting firm, as stated in its report included in Item 8.
Internal
Control over Financial Reporting
During the year ended March 31, 2010, the Corporation
identified a material weakness in its internal control over
financial reporting (as defined in
Rules 13a-15(f)
and
15d-15(f) of
the Exchange Act). The Corporations principal executive
officer and principal financial officer concluded that the
entity level controls over financial reporting in accordance
with generally accepted accounting principles.
A material weakness is a control deficiency, or combination of
control deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a
material misstatement of the Corporations annual or
interim financial statements will not be prevented or detected
on a timely basis.
Changes
in Internal Control over Financial Reporting
During the year ended March 31, 2010, we have implemented a
number changes in our internal control structure to address the
material weaknesses described above. Following is a description
of those changes.
1. Our Internal Control over Financial Reporting related to
the allowance for loan losses and the completeness and accuracy
of the provision for loan losses contained multiple deficiencies
that represented material weaknesses.
127
In addition to the hiring of a Chief Credit Risk Officer, the
following changes were made to address these material weaknesses:
To ensure early detection of and timely communication to the
Board of Directors regarding deteriorating assets, the
Corporation:
|
|
|
|
|
Created and implemented a new loan risk rating system based on
qualitative metrics to proactively identify loans with potential
risk and move them to a substandard list.
|
|
|
|
Developed a dedicated team to underwrite all new loans,
modifications and renewals using the new loan risk rating system.
|
|
|
|
Implemented procedural changes, including a material
change form to ensure all downgrades are communicated and
escalated to management on a timely basis.
|
|
|
|
Began conducting monthly watch list, delinquencies and
matured/maturing loan meetings as well as quarterly Portfolio
Review meetings.
|
The Corporation did not have a dedicated team to address loans
identified as problem loans. The Corporation created a Special
Assets Group to oversee problem loans. The Special Assets Group
is responsible for collecting the information to perform
analysis in accordance with ASC
310-10-35,
assessing potential shortfall exposure, developing workout
plans, and making recommendations for the impairment
calculation. In addition:
|
|
|
|
|
Problem loans over $300,000 in total exposure are assigned to a
special asset officer that is determined by collateral type.
|
|
|
|
Regular meetings are being held to assess resolution plans for
problem loans.
|
|
|
|
Proactive and aggressive steps are being taken to resolve the
problem loan, including the obtainment of additional collateral,
a loan restructuring or a pay down.
|
To improve asset tracking and ensure application of a consistent
accounting approach for all classified assets the Corporation
implemented a new impairment analysis format and reevaluated all
classified relationships over $500,000 in order to:
|
|
|
|
|
Establish standard discount rates for all collateral types.
|
|
|
|
Identify all related entities associated with existing impaired
loans thereby ensuring a complete evaluation.
|
|
|
|
Update the impairment evaluation procedure where collateral is
the primary repayment source, so that collateral is now
evaluated on a
loan-by-loan
basis.
|
|
|
|
Define the appropriate calculation method for the impairment,
collateral or cash flow.
|
|
|
|
Establish a quarterly, independent review by internal audit to
validate the impairment analysis
|
The Corporation did not have a formal process for evaluating
loan modifications for the accurate identification of Troubled
Debt Restructures. A formal Trouble Debt Restructures
(TDR) Policy has been developed and implemented as
follows:
|
|
|
|
|
The TDR Policy is incorporated within the ALLL Policy for ease
of use and assurance of compliance.
|
|
|
|
The TDR Policy clearly identifies the criteria for designating a
loan modification as a TDR and outlines the appropriate measures
for those classified as such.
|
|
|
|
TDR Procedures have been developed to support the TDR Policy and
ensure its accurate implementation.
|
To improve the process of computing the allowance for loan and
lease loss (ALLL) in accordance with
ASC 450-2
the Corporation implemented an improved ALLL Policy. The ALLL
Policy is designed to streamline and improve the timeliness of
specific reserves taken within the ALLL calculation and ensure
the historical and
128
qualitative factors used in determining the general reserve are
appropriate based on the underlying facts and circumstance
within the loan portfolio. Specific changes in the process
include the following:
|
|
|
|
|
Identified specific risk concentrations within the loan
portfolio to better track and understand borrower behavior.
|
|
|
|
Developed and analyzed historical charge-off information by risk
concentration to identify an appropriate historical look back
period to serve as the basis for the historical loss component
of the ALLL calculation.
|
|
|
|
Developed qualitative factors using guidance from the December
2006 Interagency Statement on the Allowance for Loan Loss and
current informational sources.
|
|
|
|
Developed proper segregation of duties between those individuals
responsible for preparing the general reserve portion of the
ALLL and the specific reserve portion of the ALLL and those
reviewing the overall adequacy of the ALLL.
|
|
|
|
Developed a process to consistently document the ALLL
calculation and the underlying support.
|
2. Our existing policies and procedures relating to OREO
did not provide for sufficient supervisory controls around the
valuation and recording of impairment charges for other real
estate owned to ensure impairment charges were properly
recognized and recorded. The following changes were made to
correct these material weaknesses:
|
|
|
|
|
An asset account has been set up for legal and miscellaneous
expenses related to loans that have not completed the
foreclosure process and been transferred to OREO but for which
the Corporation believes they will be able to recover. This
account is now reconciled on a monthly basis and reviewed for
collectability in accordance with
ASC 450-2.
|
|
|
|
The OREO Policy was improved and implemented. Improvements
include ordering appraisals on all OREO at the earlier of
in-substance foreclosure or transfer to OREO and subsequently as
deemed necessary by management, development of a standard form
to determine values for all OREO, development of a checklist to
determine the appropriate accounting entries for OREO, including
entries related to OREO sales financed by the Bank,
reconciliation of OREO accounts monthly and guidelines for
accepting or declining offers to purchase.
|
3. Our controls over the preparation of consolidated
financial statements in accordance with generally accepted
accounting principles (GAAP) were not effective. We
have made changes to the financial statement close process as
follows to enable us to prepare timely, accurate financial
statements in accordance with GAAP:
a. Completion of a GAAP Disclosure Checklist provided
by a nationally recognized accounting support vendor on a
quarterly basis. This has enabled us to ensure that all required
disclosures have been identified and included as deemed
necessary.
b. Developed a responsibility matrix and production
calendar. The responsibility matrix identifies the preparer,
reviewer and backup reviewer as well as a due date, which is
determined by the production calendar.
c. Engaged a regional public accounting firm to assist in
the preparation of technical accounting memos and oversight of
the financial statement production process.
Other than the actions mentioned above, there has been no change
in the Corporations internal control over financial
reporting ((as defined in
Rules 13a-15(f)
and
15d-15(f) of
the Exchange Act) that occurred during the Corporations
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Corporations
internal control over financial reporting.
Management believes that the changes to the Corporations
internal control over financial reporting identified above
remediate the material weaknesses in internal control described
above.
|
|
|
|
|
/s/ Dale
C. Ringgenberg
|
|
|
|
Chris Bauer
|
|
Dale C. Ringgenberg
|
Chairman of the Board, President and Chief Executive Officer
|
|
Senior Vice President, Treasurer and Chief Financial Officer
|
|
|
|
June 29, 2010
|
|
June 29, 2010
|
129
|
|
Item 9B.
|
Other
Information
|
Not applicable.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information related to Directors and Executive Officers is
incorporated herein by reference to Election of
Directors and Section 16(a) Beneficial
Ownership Reporting Compliance in the Corporations
Proxy Statement for the Annual Meeting of Stockholders to be
held on August 9, 2010.
The Corporation has adopted a code of business conduct and
ethics for the CEO and CFO which is available on the
Corporations website at www.anchorbank.com.
|
|
Item 11.
|
Executive
Compensation
|
The information relating to executive compensation is
incorporated herein by reference to Compensation of
Directors and Executive Compensation in the
Corporations Proxy Statement for the Annual Meeting of
Stockholders to be held on August 9, 2010.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
The information relating to security ownership of certain
beneficial owners and management is incorporated herein by
reference to Beneficial Ownership of Common Stock by
Certain Beneficial Owners and Management in the
Corporations Proxy Statement for the Annual Meeting of
Stockholders to be held on August 9, 2010.
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of Securities
|
|
|
|
|
|
Remaining Available for
|
|
|
|
to be Issued Upon
|
|
|
Weighted-Average
|
|
|
Future Issuance Under Equity
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Compensation Plans
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Reflected in the First Column)
|
|
|
Equity Compensation Plans Approved By Security Holders
|
|
|
474,670
|
(1)
|
|
$
|
21.61
|
|
|
|
1,307,069
|
(2)(3)
|
Equity Compensation Plans Not Approved By Security Holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
474,670
|
|
|
$
|
21.61
|
|
|
|
1,307,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes purchase rights accruing under our 1999 Employee Stock
Purchase Plan (ESPP), which has a
stockholder-approved reserve of 300,000 shares of Common
Stock. Under the ESPP, each eligible employee may purchase
shares of Common Stock at semi-annual intervals each year at a
purchase price determined by the Compensation Committee, which
shall not be less than 95% of the fair market value of a share
of Common Stock on the last business day of such annual offering
period. In no event may the amount of Common Stock purchased by
a participant in the ESPP in a calendar year exceed $25,000,
measured as of the time an option under the ESPP is granted. |
|
(2) |
|
Includes shares available for future issuance under the ESPP. As
of March 31, 2010, no shares of Common Stock were available
for issuance under this plan. |
|
(3) |
|
Includes 429,869 shares of Common Stock which may be
awarded under the Companys Amended and Restated Management
Recognition Plan, which provides for the grant of restricted
Common Stock to employees of the Company. |
130
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information relating to certain relationships and related
transactions is incorporated herein by reference to
Election of Directors in the Registrants Proxy
Statement for the Annual Meeting of Stockholders to be held on
August 9, 2010.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required by this item is incorporated herein by
reference to Relationship with Independent Registered
Public Accounting Firm in the Corporations Proxy
Statement for the Annual Meeting of Stockholders to be held on
August 9, 2010.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) (1) Financial Statements
The following consolidated financial statements of the
Corporation and its subsidiaries, together with the related
reports of McGladrey & Pullen, LLP, dated
June 29, 2010, are incorporated herein by reference to
Item 8 of this Annual Report on
Form 10-K:
Consolidated Balance Sheets at March 31, 2010 and 2009.
Consolidated Statements of Income for each year in the
three-year period ended March 31, 2010.
Consolidated Statements of Changes in Stockholders Equity
for each year in the three-year period ended March 31, 2010.
Consolidated Statements of Cash Flows for each year in the
three-year period ended March 31, 2010.
Notes to Consolidated Financial Statements.
Report of Independent Registered Public Accounting Firm on
Consolidated Financial Statements.
Report of Independent Registered Public Accounting Firm on
Internal Control Over Financial Reporting.
(a) (2) Financial Statement Schedules
All schedules are omitted because they are not required or are
not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
(a)(3) Exhibits
The following exhibits are either filed as part of this Annual
Report on
Form 10-K
or are incorporated herein by reference:
|
|
|
|
|
Exhibit No. 3.
|
|
Certificate of Incorporation and Bylaws:
|
|
|
3
|
.1
|
|
Articles of Incorporation of Anchor BanCorp Wisconsin Inc., as
amended, including Articles of Amendment with respect to
series A Preferred Stock (incorporated by reference to
Exhibit 3.1 of Registrants
Form 10-K
for the year ended March 31, 2001 filed on June 11,
2001, File
No. 000-20006,
Film No. 01657997) and Articles of Amendment with
respect to Fixed Rate Cumulative Perpetual Preferred Stock,
Series B dated January 30, 2009 (incorporated by
reference to Exhibit 4.2 of Registrants Current
Report on
Form 8-K
filed February 3, 2009, File
No. 000-20006,
Film No. 09565443).
|
|
3
|
.2
|
|
Bylaws of Anchor BanCorp Wisconsin Inc. (incorporated by
reference to Exhibit 3.2 of Registrants
Form S-1
Registration Statement filed on March 19, 1992) and
Amendment to the Bylaws of Anchor BanCorp Wisconsin, Inc. dated
June 2, 2009 (incorporated by reference to Exhibit 3.2
of Registrants Annual Report on
Form 10-K
for the year ended March 31, 2009 filed on June 29,
2009, File
No. 000-20006,
Film No. 09915927).
|
131
|
|
|
|
|
Exhibit No. 4.
|
|
Instruments Defining the Rights of Security Holders:
|
|
|
4
|
.1
|
|
Form of Common Stock Certificate (incorporated by reference to
Exhibit 4 of Registrants
Form S-1
Registration Statement filed on March 19, 1992).
|
|
4
|
.2
|
|
Warrant to Purchase Shares of Anchor BanCorp Wisconsin, Inc.
Common Stock dated January 30, 2009 issued to the United
States Department of the Treasury (incorporated by reference to
Exhibit 4.1 of Registrants Current Report on
Form 8-K
filed February 3, 2009, File
No. 000-20006,
Film No. 09565443).
|
|
|
|
|
|
Exhibit No. 10.
|
|
Material Contracts:
|
|
|
10
|
.1
|
|
Anchor BanCorp Wisconsin Inc. Retirement Plan (incorporated by
reference to Exhibit 10.1 of Registrants
Form S-1
Registration Statement filed on March 19, 1992).
|
|
10
|
.2
|
|
Anchor BanCorp Wisconsin Inc. 1992 Stock Incentive Plan
(incorporated by reference to Exhibit 10.2 of
Registrants
Form S-1
Registration Statement filed on March 19, 1992).
|
|
10
|
.3
|
|
Anchor BanCorp Wisconsin Inc. 1992 Directors Stock
Option Plan (incorporated by reference to Exhibit 10.3 of
Registrants
Form S-1
Registration Statement filed on March 19, 1992).
|
|
10
|
.4
|
|
Anchor BanCorp Wisconsin Inc. Amended and Restated Management
Recognition Plan (incorporated by reference to Annex B of
Registrants proxy statement filed on June 11, 2001,
File
No. 000-20006,
Film No. 01657999).
|
|
10
|
.5
|
|
Anchor BanCorp Wisconsin Inc. Employee Stock Ownership Plan
(incorporated by reference to Exhibit 10.5 of
Registrants
Form S-1
Registration Statement filed on March 19, 1992).
|
|
10
|
.6
|
|
Employment Agreement among the Corporation, the Bank and Douglas
J. Timmerman (incorporated by reference to Exhibit 10.6 of
Registrants Annual Report on
Form 10-K
for the year ended March 31, 1995 filed on June 22,
1995, File
No. 000-20006).
|
|
10
|
.7
|
|
Deferred Compensation Agreement between the Corporation and
Douglas J. Timmerman, as amended (incorporated by reference to
Exhibit 10.7 of Registrants
Form S-1
Registration Statement filed on March 19, 1992) and
form of related Deferred Compensation Trust Agreement, as
amended (incorporated by reference to Exhibit 10.7 of
Registrants Annual Report on
Form 10-K
for the year ended March 31, 1994 filed on June 29,
1994, File
No. 000-20006).
|
|
10
|
.8
|
|
1995 Stock Option Plan for Non-Employee Directors (incorporated
by reference to Registrants proxy statement filed on
June 16, 1995, File
No. 000-20006).
|
|
10
|
.9
|
|
1995 Stock Incentive Plan (incorporated by reference to
Registrants proxy statement filed on June 16, 1995,
File
No. 000-20006).
|
|
10
|
.10
|
|
Severance Agreement among the Corporation, the Bank and Ronald
R. Osterholz (incorporated by reference to Exhibit 10.12 of
Registrants Annual Report on
Form 10-K
for the year ended March 31, 1995 filed on June 22,
1995, File
No. 000-20006).
|
|
10
|
.11
|
|
Severance Agreement among the Corporation, the Bank and Donald
F. Bertucci (incorporated by reference to Exhibit 10.14 of
Registrants Annual Report on
Form 10-K
for the year ended March 31, 1995 filed on June 22,
1995, File
No. 000-20006).
|
|
10
|
.12
|
|
Anchor BanCorp Wisconsin Inc. Directors Deferred
Compensation Plan (incorporated by reference to
Exhibit 10.9 of Registrants
Form S-1
Registration Statement filed on March 19, 1992).
|
|
10
|
.13
|
|
Anchor BanCorp Wisconsin Inc. Annual Incentive Bonus Plan
(incorporated by reference to Exhibit 10.10 of
Registrants
Form S-1
Registration Statement filed on March 19, 1992).
|
|
10
|
.14
|
|
AnchorBank, fsb Amended and Restated Supplemental Executive
Retirement Plan (incorporated by reference to Exhibit 10.17
of Registrants Annual Report on
Form 10-K
for the year ended March 31, 2005 filed on August 2,
2005, File
No. 000-20006,
Film No. 05992357).
|
|
10
|
.15
|
|
AnchorBank, fsb Excess Benefit Plan (incorporated by reference
to Exhibit 10.12 of Registrants Annual Report on
Form 10-K
for the year ended March 31, 1994 filed on June 29,
1994, File
No. 000-2006).
|
|
10
|
.16
|
|
2001 Stock Option Plan for Non-Employee Directors (incorporated
by reference to Annex C of Registrants proxy
statement filed on June 11, 2001, File
No. 000-20006,
Film No. 01657999).
|
132
|
|
|
|
|
Exhibit No. 10.
|
|
Material Contracts:
|
|
|
10
|
.17
|
|
2004 Equity Incentive Plan (incorporated by reference to
Appendix B of Registrants proxy statement filed
June 10, 2004, File
No. 000-20006,
Film No. 04857422).
|
|
10
|
.18
|
|
Amendment No. 1 to AnchorBank fsb. Amended and Restated
Supplemental Executive Retirement Plan (incorporated by
reference to Exhibit 10.22 of Registrants Annual
Report on
Form 10-K
for the year ended March 31, 2005 filed August 2,
2005, File
No. 000-20006,
Film No. 05992357).
|
|
10
|
.19
|
|
Employment Agreement among the Corporation, the Bank and Mark D.
Timmerman (incorporated by reference to Exhibit 10.2 of
Registrants Current Report on
Form 8-K
filed on August 22, 2005, File
No. 000-20006,
Film No. 051041343).
|
|
10
|
.20
|
|
Amended and Restated Credit Agreement, dated as of June 9,
2008, among Anchor Bancorp Wisconsin Inc., the financial
institutions from time to time party to the agreement and U.S.
Bank National Association, as administrative agent for the
lenders (incorporated by reference to Exhibit 10.1 to
Registrants Quarterly Report on
Form 10-Q
filed August 11, 2008, File
No. 000-20006,
Film No. 081006528).
|
|
10
|
.21
|
|
Pledge Agreement, dated as of June 9, 2008, among Anchor
Bancorp Wisconsin Inc., the financial institutions from time to
time party to the agreement and U.S. Bank National Association,
as administrative agent for the lenders (incorporated by
reference to Exhibit 10.2 to the Registrants
Quarterly Report on
Form 10-Q
filed August 11, 2008, File
No. 000-20006,
Film No. 081006528).
|
|
10
|
.22
|
|
Amendment No. 1 to Amended and Restated Credit Agreement,
dated as of September 30, 2008, among Anchor Bancorp
Wisconsin, Inc., the financial institutions from time to time
party to the agreement and U.S. Bank National Association, as
administrative agent for the lenders (incorporated by reference
to Exhibit 10.1 of Registrants Current Report on
Form 8-K
filed September 30, 2008, File
No. 000-20006,
Film No. 081098069).
|
|
10
|
.23
|
|
Amendment No. 2 to Amended and Restated Credit Agreement,
dated as of December 22, 2008, among Anchor Bancorp
Wisconsin, Inc., the financial institutions from time to time
party to the agreement and U.S. Bank National Association, as
administrative agent for the lenders (incorporated by reference
to Exhibit 10.1 of Registrants Current Report on
Form 8-K
filed December 31, 2008, File
No. 000-20006,
Film No. 081279327).
|
|
10
|
.24
|
|
Letter Agreement including the Securities Purchase
Agreement Standard Terms, between Anchor BanCorp
Wisconsin, Inc. and the United States Department of the
Treasury, dated January 30, 2009 (incorporated by reference
to Exhibit 10.1 of Registrants Current Report on
Form 8-K
filed February 3, 2009, File
No. 000-20006,
Film No. 09565443).
|
|
10
|
.25
|
|
Amendment No. 3 to Amended and Restated Credit Agreement,
dated as of March 2, 2009, among Anchor Bancorp Wisconsin,
Inc., the financial institutions from time to time party to the
agreement and U.S. Bank National Association, as administrative
agent for the lenders (incorporated by reference to
Exhibit 10.1 of Registrants Current Report on
Form 8-K
filed March 4, 2009, File
No. 000-20006,
Film No. 09654044).
|
|
10
|
.26
|
|
Amendment No. 4 to Amended and Restated Credit Agreement,
dated as of May 29, 2009, among Anchor Bancorp Wisconsin,
Inc., the financial institutions from time to time party to the
agreement and U.S. Bank National Association, as administrative
agent for the lenders (incorporated by reference to
Exhibit 10.1 of Registrants Current Report on
Form 8-K
filed June 2, 2009, File
No. 000-20006,
Film No. 09867558).
|
|
10
|
.27
|
|
Order to Cease and Desist between Anchor BanCorp Wisconsin, Inc.
and the Office of Thrift Supervision dated June 26, 2009
(incorporated by reference to Exhibit 10.28 of
Registrants Annual Report on
Form 10-K
for the year ended March 31, 2009 filed on June 29,
2009, File
No. 000-20006,
Film No. 09915927).
|
|
10
|
.28
|
|
Stipulation and Consent to Issuance of Order to Cease and Desist
between Anchor BanCorp Wisconsin, Inc. and the Office of Thrift
Supervision dated June 26, 2009 (incorporated by reference
to Exhibit 10.29 of Registrants Annual Report on
Form 10-K
for the year ended March 31, 2009 filed on June 29,
2009, File
No. 000-20006,
Film No. 09915927).
|
133
|
|
|
|
|
Exhibit No. 10.
|
|
Material Contracts:
|
|
|
10
|
.29
|
|
Order to Cease and Desist between AnchorBank, fsb and the Office
of Thrift Supervision dated June 26, 2009 (incorporated by
reference to Exhibit 10.30 of Registrants Annual
Report on
Form 10-K
for the year ended March 31, 2009 filed on June 29,
2009, File
No. 000-20006,
Film No. 09915927).
|
|
10
|
.30
|
|
Stipulation and Consent to Issuance of Order to Cease and Desist
between AnchorBank, fsb and the Office of Thrift Supervision
dated June 26, 2009 (incorporated by reference to
Exhibit 10.31 of Registrants Annual Report on
Form 10-K
for the year ended March 31, 2009 filed on June 29,
2009, File
No. 000-20006,
Film No. 09915927).
|
|
10
|
.31
|
|
Stock Purchase Agreement between Anchor Bancorp Wisconsin Inc.
and Badger Anchor Holdings, LLC dated December 1, 2009
(incorporated by reference to Exhibit 10.32 of
Registrants Current Report on
Form 8-K
filed December 3, 2009, File
No. 000-20006,
Film No. 091219363).
|
|
10
|
.32
|
|
Loan Agreement between Anchor Bancorp Wisconsin Inc. and Badger
Anchor Holdings, LLC dated December 1, 2009 (incorporated
by reference to Exhibit 10.33 of Registrants Current
Report on
Form 8-K
filed December 3, 2009, File
No. 000-20006
Film No. 091219363).
|
|
10
|
.33
|
|
Amendment No. 5 to Amended and Restated Credit Agreement,
dated as of December 22, 2009, among Anchor Bancorp
Wisconsin Inc., the financial institutions from time to time
party to the agreement and U.S. Bank National Association, as
administrative agent for the lenders (incorporated by reference
to Exhibit 10.1 of Registrants Current Report on
Form 8-K
filed December 23, 2009, File
No. 000-20006,
Film No. 091258727).
|
|
10
|
.34
|
|
Amendment No. 6 to Amended and Restated Credit Agreement,
dated as of April 29, 2010, among Anchor Bancorp Wisconsin
Inc., the financial institutions from time to time party to the
agreement and U.S. Bank National Association, as administrative
agent for the lenders (incorporated by reference to
Exhibit 10.1 of Registrants Current Report on
Form 8-K
filed May 6, 2010, File
No. 000-20006,
Film No. 10808918).
|
|
10
|
.35
|
|
Branch Sale Agreement between AnchorBank, fsb and Nicolet
National Bank dated May 5, 2010 (filed herewith).
|
|
10
|
.36
|
|
Branch Sale Agreement between AnchorBank, fsb and Royal Credit
Union dated November 13, 2009 (filed herewith).
|
The Corporations management contracts or compensatory
plans or arrangements consist of
Exhibits 10.1-10.22
above.
|
|
|
|
|
Exhibit No. 11.
|
|
Computation of Earnings per Share:
|
|
Refer to Note 21 to the Consolidated Financial Statements
in Item 8.
|
|
|
|
|
Exhibit No. 21.
|
|
Subsidiaries of the Registrant:
|
|
Subsidiary information is incorporated by reference to
Part I, Item 1, Business-General and
Part I, Item 1, Business-Subsidiaries.
|
|
|
|
|
Exhibit No. 23.1
|
|
Consent of McGladrey & Pullen, LLP:
|
|
The consent of McGladrey & Pullen, LLP is included
herein as an exhibit to this Report.
Exhibit
No. 31.1
Certification of Chief Executive Officer Pursuant to
Rules 13a-14
and 15d-14 of the Securities Exchange Act of 1934 and
Section 302 of the Sarbanes-Oxley Act of 2002 is included
herein as an exhibit to this Report.
Exhibit
No. 31.2
Certification of Chief Financial Officer Pursuant to
Rules 13a-14
and 15d-14 of the Securities Exchange Act of 1934 and
Section 302 of the Sarbanes-Oxley Act of 2002 is included
herein as an exhibit to this Report.
134
Exhibit
No. 32.1
Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350) is included herein as an exhibit to
this report.
Exhibit
No. 32.2
Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350) is included herein as an exhibit to
this report.
Exhibit
No. 99.1
TARP/CPP Certification is included herein as an exhibit to this
report.
Exhibit
No. 99.2
TARP/CPP Certification is included herein as an exhibit to this
report.
(b) Exhibits
Exhibits to the
Form 10-K
required by Item 601 of
Regulation S-K
are attached or incorporated herein by reference as stated in
(a)(3) and the Index to Exhibits.
(c) Financial Statements excluded from Annual Report to
Shareholders pursuant to
Rule 14a-3(b)
Not applicable
135
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ANCHOR BANCORP WISCONSIN INC.
Chris Bauer
President and Chief Executive Officer
Date: June 29, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons in
the capacities and on the dates indicated.
|
|
|
|
|
|
|
By:
|
|
/s/ Chris
Bauer
|
|
By:
|
|
/s/ Dale
C. Ringgenberg
|
|
|
|
|
|
|
|
|
|
Chris Bauer
President and Chief Executive Officer
(principal executive officer)
|
|
|
|
Dale C. Ringgenberg
Treasurer and Chief Financial Officer
(principal financial and accounting officer)
|
|
|
Date: June 29, 2010
|
|
|
|
Date: June 29, 2010
|
|
|
|
|
|
|
|
By:
|
|
/s/ Donald
D. Kropidlowski
|
|
By:
|
|
/s/ Greg
M. Larson
|
|
|
|
|
|
|
|
|
|
Donald D. Kropidlowski
Director
|
|
|
|
Greg M. Larson
Director
|
|
|
Date: June 29, 2010
|
|
|
|
Date: June 29, 2010
|
|
|
|
|
|
|
|
By:
|
|
/s/ Richard
A. Bergstrom
|
|
By:
|
|
/s/ Pat
Richter
|
|
|
|
|
|
|
|
|
|
Richard A. Bergstrom
Director
|
|
|
|
Pat Richter
Director
|
|
|
Date: June 29, 2010
|
|
|
|
Date: June 29, 2010
|
|
|
|
|
|
|
|
By:
|
|
/s/ James
D. Smessaert
|
|
By:
|
|
/s/ Holly
Cremer Berkenstadt
|
|
|
|
|
|
|
|
|
|
James D. Smessaert
Director
|
|
|
|
Holly Cremer Berkenstadt
Director
|
|
|
Date: June 29, 2010
|
|
|
|
Date: June 29, 2010
|
|
|
|
|
|
|
|
By:
|
|
/s/ Donald
D. Parker
|
|
By:
|
|
/s/ David
L. Omachinski
|
|
|
|
|
|
|
|
|
|
Donald D. Parker
Director
|
|
|
|
David L. Omachinski
Director
|
|
|
Date: June 29, 2010
|
|
|
|
Date: June 29, 2010
|
136