##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 Commission file number: 000-51507
 WAUWATOSA HOLDINGS, INC.
  Wisconsin
    
    39-0691250(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)11200 W Plank Ct, Wauwatosa, WI
    
    53226(Address of principal executive offices)
    
    (Zip Code)
 (414) 761-1000
  Common Stock, $0.01 Par Value
  NONE
  o þ
  o þ
  þ o
 þ
  o þ o
  o þ
 ®
 DOCUMENTS INCORPORATED BY REFERENCE
 Part of Form 10-K Into WhichDocument
    
    Portions of Document are IncorporatedProxy Statement for Annual Meeting of
    
    Part IIIShareholders on May 16, 2007




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##### 



WAUWATOSA HOLDINGS, INC.
 FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 2006
 TABLE OF CONTENTS
 ITEM
    
    
    
    
    PAGEPART I1.
    
    Business
    
    
    3-481A.
    
    Risk Factors
    
    
    49-511B.
    
    Unresolved Staff Comments
    
    
    512.
    
    Properties
    
    
    523.
    
    Legal Proceedings
    
    
    534.
    
    Submission of Matters to a Vote of Security Holders
    
    
    53PART II5.
    
    Market for Registrants Common Equity, Related Stockholders Matters and
Issuer Purchases of Equity Securities
    
    
    54-566.
    
    Selected Financial Data
    
    
    57-597.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    60-827A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    83-848.
    
    Financial Statements and Supplementary Data
    
    
    85-1209.
    
    Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
    
    
    1219A.
    
    Controls and Procedures
    
    
    121-1239B.
    
    Other Information
    
    
    124PART III10.
    
    Directors and Executive Officers of the Registrant
    
    
    12511.
    
    Executive Compensation
    
    
    12512.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    12613.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    12614.
    
    Principal Accountant Fees and Services
    
    
    126PART IV15.
    
    Exhibits and Financial Statement Schedules
    
    
    127Signatures
    
    
    128List of SubsidiariesConsent of Independent Registered Public Accounting FirmSection 302 Certification - Chief Executive OfficerSection 302 Certification - Chief Financial OfficerSection 906 Certification - Chief Executive OfficerSection 906 Certification - Chief Financial Officer
  -2-




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Part 1
  
 Item 1. Business
 Introduction
   www.wsbonline.com
 Cautionary Factors
  -3-




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
    
    inflation and changes in the interest rate environment that reduce our margins or
reduce the fair value of financial instruments;
    
    legislative or regulatory changes that adversely affect our business;
    
    changes in our organization, compensation and benefit plans;
    
    our ability to enter new markets successfully and take advantage of growth
opportunities;
    
    general economic conditions, either nationally or in our market area, that are worse
than expected;
    
    significantly increased competition among depository and other financial
institutions;
    
    adverse changes in the securities markets;
    
    changes in accounting policies and practices, as may be adopted by the bank
regulatory agencies and the Financial Accounting Standards Board; and
    
    changes in consumer spending, borrowing and savings habits.
  BUSINESS OF WAUWATOSA SAVINGS BANK
 General
    -4-




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##### Table of Contents



Business Strategy
   
    
    Remaining a Community-Oriented Institution.We were established in
Wauwatosa, Wisconsin, a suburb of Milwaukee, in 1921, and have been
operating continuously since that time. We have been, and continue to
be, committed to meeting the financial needs of the communities we
serve, and we are dedicated to providing quality personal service to
our customers. Our focus will be to retain our mutual holding company
form of organization consistent with our historical,
community-oriented focus.
    
    Continuing Emphasis on Residential Real Estate Lending.We intend to
continue our emphasis on the origination of residential real estate
loans, especially over four-family loans. Current loans-to-one
borrower limitations cap the amount of credit that we can extend to a
single or affiliated group of investors/developers at 15% of Wauwatosa
Savings capital. Following our stock offering, we have been able to
serve over four-family borrowers with larger lending needs and to
originate larger commercial real estate loans than we had in the past.
We provide long-term, fixed-rate loans and indexed, adjustable
mortgage loan products to our owner-occupied residential mortgage
customers.
    
    Expansion within Our Market Area.Wauwatosa Savings growth in recent
years has been achieved through the origination of real estate
mortgages funded primarily by fixed-term deposits. We currently
operate seven banking offices. In 2006, we opened two new full service
branches, one in the city of Franklin, Wisconsin and the other in the
village of Germantown, Wisconsin. We plan to expand our branch
network in the near future by adding one to two branches each year
within our existing market area defined as Milwaukee and Waukesha
counties and each of the other six contiguous counties. The first new
branch office that we expect to open in calendar 2007 will be located
in the City of West Allis, Wisconsin.
    
    Maintaining High Asset Quality.We have emphasized maintaining strong
asset quality by following conservative underwriting criteria. This
goal was emphasized in 2006 by establishing a loan approval committee,
by adding a credit underwriting function and by adding a credit review
function.
    
    Expansion of Product Offerings.We intend to broaden the line of both
retail and commercial product offerings in the upcoming years. In
2006, we purchased Waterstone Mortgage Corporation, a mortgage broker
with offices located in Wisconsin and Michigan. This acquisition
expands both the types of mortgage loan products offered and the
geographical coverage for those products. In addition, we began
originating commercial loans in 2006. A commercial lending department
is being formally added to the Bank in March 2007.
 -5-




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##### Table of Contents



Competition
 th th
  Market Area
   Lending Activities
   -6-




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##### Table of Contents



Loan Portfolio Composition.
 2006
    
    
    2005
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in Thousands)Real estate loans:Residential (1)Single family
    
    
    472,852
    
    
    
    32.74
    %
    
    $
    469,395
    
    
    
    33.69
    %
    
    $
    430,333
    
    
    
    33.11
    %
    
    $
    391,864
    
    
    
    34.60
    %
    
    $
    357,212
    
    
    
    36.63
    %
    
    $
    371,754
    
    
    
    40.21
    %Two- to four-family
    
    
    250,571
    
    
    
    17.34
    %
    
    
    256,270
    
    
    
    18.40
    %
    
    
    251,268
    
    
    
    19.33
    %
    
    
    224,765
    
    
    
    19.85
    %
    
    
    203,655
    
    
    
    20.88
    %
    
    
    185,218
    
    
    
    20.04
    %Over four-family
    
    
    468,750
    
    
    
    32.44
    %
    
    
    443,528
    
    
    
    31.84
    %
    
    
    407,601
    
    
    
    31.36
    %
    
    
    340,753
    
    
    
    30.09
    %
    
    
    287,589
    
    
    
    29.49
    %
    
    
    262,310
    
    
    
    28.38
    %Construction
    
    
    175,165
    
    
    
    12.12
    %
    
    
    165,516
    
    
    
    11.88
    %
    
    
    149,540
    
    
    
    11.50
    %
    
    
    110,495
    
    
    
    9.76
    %
    
    
    75,535
    
    
    
    7.74
    %
    
    
    66,918
    
    
    
    7.24
    %Commercial
    
    
    46,610
    
    
    
    3.23
    %
    
    
    34,543
    
    
    
    2.48
    %
    
    
    36,586
    
    
    
    2.81
    %
    
    
    46,138
    
    
    
    4.07
    %
    
    
    43,895
    
    
    
    4.50
    %
    
    
    28,552
    
    
    
    3.09
    %Land
    
    
    27,951
    
    
    
    1.93
    %
    
    
    23,685
    
    
    
    1.70
    %
    
    
    24,282
    
    
    
    1.87
    %
    
    
    18,307
    
    
    
    1.62
    %
    
    
    7,195
    
    
    
    0.74
    %
    
    
    9,434
    
    
    
    1.02
    %Commercial
    
    
    2,657
    
    
    
    0.18
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other loans
    
    
    227
    
    
    
    0.02
    %
    
    
    159
    
    
    
    0.01
    %
    
    
    202
    
    
    
    0.02
    %
    
    
    186
    
    
    
    0.01
    %
    
    
    214
    
    
    
    0.02
    %
    
    
    214
    
    
    
    0.02
    %Total loans
    
    
    1,444,783
    
    
    
    100.00
    %
    
    
    1,393,096
    
    
    
    100.00
    %
    
    
    1,299,812
    
    
    
    100.00
    %
    
    
    1,132,508
    
    
    
    100.00
    %
    
    
    975,295
    
    
    
    100.00
    %
    
    
    924,400
    
    
    
    100.00
    %Undisbursed loan
proceeds
    
    
    (67,390
    )
    
    
    
    
    
    
    (82,712
    )
    
    
    
    
    
    
    (77,484
    )
    
    
    
    
    
    
    (61,904
    )
    
    
    
    
    
    
    (29,173
    )
    
    
    
    
    
    
    (23,947
    )Net deferred loan
fees and premiums
    
    
    (4,486
    )
    
    
    
    
    
    
    (4,366
    )
    
    
    
    
    
    
    (4,161
    )
    
    
    
    
    
    
    (3,631
    )
    
    
    
    
    
    
    (3,099
    )
    
    
    
    
    
    
    (2,576
    )losses
    
    
    (7,195
    )
    
    
    
    
    
    
    (5,250
    )
    
    
    
    
    
    
    (4,606
    )
    
    
    
    
    
    
    (3,378
    )
    
    
    
    
    
    
    (2,970
    )
    
    
    
    
    
    
    (2,479
    )Loans, net
    
    $
    1,365,712
    
    
    
    
    
    
    $
    1,300,768
    
    
    
    
    
    
    $
    1,213,561
    
    
    
    
    
    
    $
    1,063,594
    
    
    
    
    
    
    $
    940,053
    
    
    
    
    
    
    $
    895,398
 
 (1)
    
    Residential mortgage loans include home equity loans and home equity lines of credit. -7-




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##### Table of Contents



Loan Portfolio Maturities and Yields.
 Residential(1)Single Family
    
    
    Two- to four-family
    
    
    Over four-family
    
    
    Construction
    
    
    Commercial Real Estate
    
    
    
    LandWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageMaturity Date
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate(Dollars in Thousands)Jan 1, 2007 
Dec 31, 2007
    
    
    15,406
    
    
    
    6.80
    %
    
    
    26,505
    
    
    
    6.42
    %
    
    
    48,081
    
    
    
    6.09
    %
    
    
    78,082
    
    
    
    6.43
    %
    
    
    426
    
    
    
    6.85
    %
    
    
    8,658
    
    
    
    6.47
    %Jan 1, 2008 
Dec 31, 2008
    
    
    25,995
    
    
    
    6.37
    %
    
    
    50,803
    
    
    
    6.36
    %
    
    
    110,914
    
    
    
    6.12
    %
    
    
    22,315
    
    
    
    6.73
    %
    
    
    6,741
    
    
    
    6.03
    %
    
    
    2,744
    
    
    
    6.47
    %Jan 1, 2009 
Dec 31, 2009
    
    
    24,070
    
    
    
    6.94
    %
    
    
    65,681
    
    
    
    6.90
    %
    
    
    93,281
    
    
    
    6.57
    %
    
    
    11,497
    
    
    
    6.51
    %
    
    
    16,925
    
    
    
    6.71
    %
    
    
    4,188
    
    
    
    6.53
    %Jan 1, 2010 
Dec 31, 2010
    
    
    2,171
    
    
    
    8.00
    %
    
    
    2,535
    
    
    
    6.92
    %
    
    
    13,498
    
    
    
    6.25
    %
    
    
    9,497
    
    
    
    6.36
    %
    
    
    1,220
    
    
    
    7.10
    %
    
    
    
    
    
    
    Jan 1, 2011 
Dec 31, 2011
    
    
    16,904
    
    
    
    8.00
    %
    
    
    1,616
    
    
    
    6.89
    %
    
    
    10,284
    
    
    
    6.72
    %
    
    
    
    
    
    
    
    
    
    
    1,964
    
    
    
    6.74
    %
    
    
    
    
    
    
    Jan 1, 2012
and thereafter
    
    
    388,306
    
    
    
    5.92
    %
    
    
    103,431
    
    
    
    6.12
    %
    
    
    192,692
    
    
    
    6.46
    %
    
    
    53,774
    
    
    
    5.94
    %
    
    
    19,334
    
    
    
    6.09
    %
    
    
    12,361
    
    
    
    7.10
    %Total
    
    $
    472,852
    
    
    
    6.11
    %
    
    $
    250,571
    
    
    
    6.42
    %
    
    $
    468,750
    
    
    
    6.36
    %
    
    $
    175,165
    
    
    
    6.32
    %
    
    $
    46,610
    
    
    
    6.37
    %
    
    $
    27,951
    
    
    
    6.76
    %
 Commercial Business
    
    
    Consumer
    
    
    Total LoansWeighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedMaturity Date
    
    Amount
    
    
    Average Rate
    
    
    Amount
    
    
    Average Rate
    
    
    Amount
    
    
    Average Rate(Dollars in thousands)Jan 1, 2007  Dec 31, 2007
    
    
    
    
    
    
    
    
    
    $
    227
    
    
    
    7.00
    %
    
    $
    177,385
    
    
    
    6.36
    %Jan 1, 2008  Dec 31, 2008
    
    
    1,290
    
    
    
    9.25
    %
    
    
    
    
    
    
    
    
    
    
    220,802
    
    
    
    6.28Jan 1, 2009  Dec 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    215,642
    
    
    
    6.72Jan 1, 2010  Dec 31, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,921
    
    
    
    6.51Jan 1, 2011  Dec 31, 2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,768
    
    
    
    7.43Jan 1, 2012 and thereafter
    
    
    1,367
    
    
    
    7.38
    %
    
    
    
    
    
    
    
    
    
    
    771,265
    
    
    
    6.11Total
    
    $
    2,657
    
    
    
    8.29
    %
    
    $
    227
    
    
    
    7.00
    %
    
    $
    1,444,783
    
    
    
    6.30
    %
 
 (1)
    
    Residential mortgage loans include home equity loans and home equity lines
of credit. -8-




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##### Table of Contents



Due After December 31, 2007Fixed
    
    Variable
    
    Total(In Thousands)Real estate loans:Residential(1)Single family
    
    $
    58,831
    
    
    $
    398,615
    
    
    $
    457,446Two- to four-family
    
    
    121,605
    
    
    
    102,461
    
    
    
    224,066Over four-family
    
    
    223,490
    
    
    
    197,179
    
    
    
    420,669Construction
    
    
    39,618
    
    
    
    57,465
    
    
    
    97,083Commercial
    
    
    23,900
    
    
    
    22,284
    
    
    
    46,184Land
    
    
    6,391
    
    
    
    12,902
    
    
    
    19,293Commerical
    
    
    967
    
    
    
    1,690
    
    
    
    2,657Total loans
    
    $
    474,802
    
    
    $
    792,596
    
    
    $
    1,267,398
 
 (1)
    
    Residential mortgage loans include home equity loans and home equity lines of
credit. One- to Four-Family Residential Mortgage Loans.
   -9-




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##### Table of Contents



The Wall Street
Journal
 Over Four-family Real Estate Loans.
 -10-




---



##### Table of Contents



Residential Construction Loans.
  -11-




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##### Table of Contents



Commercial Real Estate Loans.
 -12-




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##### Table of Contents



Six MonthsYear Ended
    
    EndedDecember
    
    December 31,
    
    Years Ended June 30,2006
    
    2005
    
    2005
    
    2004(In Thousands)Total loans at beginning of year
    
    $
    1,393,096
    
    
    $
    1,299,812
    
    
    $
    1,132,507
    
    
    $
    975,296Real estate loans originated for investment:Residential (1)Single family
    
    
    69,004
    
    
    
    81,397
    
    
    
    139,878
    
    
    
    146,712Two- to four-family
    
    
    53,699
    
    
    
    52,030
    
    
    
    96,560
    
    
    
    98,223Over four-family
    
    
    99,949
    
    
    
    95,734
    
    
    
    148,964
    
    
    
    129,187Construction
    
    
    63,434
    
    
    
    43,865
    
    
    
    80,221
    
    
    
    49,898Commercial
    
    
    19,867
    
    
    
    2,658
    
    
    
    11,733
    
    
    
    8,651Land
    
    
    10,670
    
    
    
    10,451
    
    
    
    19,775
    
    
    
    26,930Total real estate loans originated for investment
    
    
    316,623
    
    
    
    286,135
    
    
    
    497,131
    
    
    
    459,601Commercial loans originated for investment
    
    
    2,867
    
    
    
    
    
    
    
    
    
    
    
    Total loans originated for investment
    
    
    319,490
    
    
    
    286,135
    
    
    
    497,131
    
    
    
    459,601Other loans  net activity
    
    
    67
    
    
    
    (43
    )
    
    
    16
    
    
    
    (29
    )Loans purchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,398Principal repayments
    
    
    (267,870
    )
    
    
    (192,808
    )
    
    
    (329,842
    )
    
    
    (303,759
    )Net activity in loans held for investment
    
    
    51,687
    
    
    
    93,284
    
    
    
    167,305
    
    
    
    157,211Loans originated for sale
    
    
    84,603
    
    
    
    
    
    
    
    
    
    
    
    Loans sold
    
    
    (79,216
    )
    
    
    
    
    
    
    
    
    
    
    Net activity in loans held for sale
    
    
    5,387
    
    
    
    
    
    
    
    
    
    
    
    Total loans receivable and held for sale at end of period
    
    $
    1,450,170
    
    
    $
    1,393,096
    
    
    $
    1,299,812
    
    
    $
    1,132,507
 
 (1)
    
    Residential mortgage loans include home equity loans and home equity lines of
credit. -13-




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##### Table of Contents



Origination, Purchasing and Servicing of Loans.
 - - -
 Loan Approval Procedures and Authority .
  o
    
    Any secured 1-4 family mortgage loan up to $500,000 for a borrower with
total outstanding loans receivable of less than $2,000,000 that is independently
underwritten can be approved and closed by any loan officer.o
    
    Any loan up to $500,000 for a borrower with total outstanding loans
receivable of less than $2,000,000 can be approved and closed by a commercial loan
officer.o
    
    Any secured mortgage loan ranging from $500,001 to $2,999,999 or any
new loan to a borrower with outstanding loans receivable exceeding $2,000,000 must
be approved by the Officer Loan Committee. If approved, any loan officer may close
the loan.o
    
    Any loan for $3,000,000 or greater must be approved by the Officer Loan
Committee and Board of Directors prior to closing. If approved, any loan officer
may close the loan.
  Non-Performing and Problem Assets
  -14-




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##### Table of Contents



Non-Performing Assets.
  At December 31,
    
    
    
    
    
    At June 30,2006
    
    2005
    
    2005
    
    2004
    
    2003
    
    2002(Dollars in Thousands)Non-accrual loans:Residential(1)Single family
    
    
    7,903
    
    
    $
    5,654
    
    
    $
    3,842
    
    
    $
    3,425
    
    
    $
    4,764
    
    
    $
    4,970Two- to four-family
    
    
    4,581
    
    
    
    3,386
    
    
    
    1,390
    
    
    
    603
    
    
    
    1,387
    
    
    
    709Over four-family
    
    
    8,384
    
    
    
    6,703
    
    
    
    5,877
    
    
    
    4,776
    
    
    
    5,268
    
    
    
    6,137Construction
    
    
    2,443
    
    
    
    760
    
    
    
    830
    
    
    
    
    
    
    
    220
    
    
    
    Commercial real estate
    
    
    357
    
    
    
    962
    
    
    
    1,137
    
    
    
    1,139
    
    
    
    2,528
    
    
    
    141Commercial loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Land
    
    
    5,220
    
    
    
    600
    
    
    
    
    
    
    
    2,072
    
    
    
    1,421
    
    
    
    983Total non-performing loans
    
    
    28,888
    
    
    
    18,065
    
    
    
    13,076
    
    
    
    12,015
    
    
    
    15,588
    
    
    
    12,940Real estate owned
    
    
    520
    
    
    
    215
    
    
    
    475
    
    
    
    770
    
    
    
    
    
    
    
    998Total non-performing assets
    
    $
    29,408
    
    
    $
    18,280
    
    
    $
    13,551
    
    
    $
    12,785
    
    
    $
    15,588
    
    
    $
    13,938Total non-performing loans to total loans, net
    
    
    2.10
    %
    
    
    1.39
    %
    
    
    1.07
    %
    
    
    1.13
    %
    
    
    1.65
    %
    
    
    1.44
    %Total non-performing loans to total assets
    
    
    1.75
    %
    
    
    1.20
    %
    
    
    0.94
    %
    
    
    0.97
    %
    
    
    1.41
    %
    
    
    1.29
    %
 
 (1)
    
    Residential mortgage loans include home equity loans and home equity lines of
credit. -15-




---



##### Table of Contents



Classified Assets.
  -16-




---



##### Table of Contents



Allowance for Loan Losses
     -17-




---



##### Table of Contents



At or for the SixAt or for the Year
    
    Month PeriodEnded December 31,
    
    Ended December 31,
    
    At or for the Year Ended June 30,2006
    
    2005
    
    2005
    
    2004
    
    2005
    
    2004
    
    2003
    
    2002(Dollars in Thousands)Balance at beginning of period
    
    $
    5,250
    
    
    $
    3,737
    
    
    $
    4,606
    
    
    $
    3,378
    
    
    $
    3,378
    
    
    $
    2,970
    
    
    $
    2,479
    
    
    $
    1,973Provision for loan losses
    
    
    2,201
    
    
    
    1,909
    
    
    
    1,035
    
    
    
    363
    
    
    
    1,238
    
    
    
    860
    
    
    
    520
    
    
    
    1,336Charge-offs:Residential(1)Single family
    
    
    271
    
    
    
    37
    
    
    
    37
    
    
    
    
    
    
    
    1
    
    
    
    320
    
    
    
    26
    
    
    
    307Two- to four-family
    
    
    253
    
    
    
    60
    
    
    
    60
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    131Over four-family
    
    
    
    
    
    
    169
    
    
    
    169
    
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    
    
    
    
    408Commercial real estate
    
    
    5
    
    
    
    104
    
    
    
    102
    
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    15Land
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Other loans
    
    
    7
    
    
    
    27
    
    
    
    23
    
    
    
    1
    
    
    
    8
    
    
    
    8
    
    
    
    3
    
    
    
    16Total charge-offs
    
    
    536
    
    
    
    397
    
    
    
    391
    
    
    
    4
    
    
    
    11
    
    
    
    453
    
    
    
    29
    
    
    
    880Recoveries:Residential(1)Single family
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14Two- to four-family
    
    
    87
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Over four-family
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28Commercial real estate
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other loans
    
    
    6
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    Total recoveries
    
    
    280
    
    
    
    1
    
    
    
    0
    
    
    
    0
    
    
    
    1
    
    
    
    1
    
    
    
    0
    
    
    
    50Net charge-offs
    
    
    256
    
    
    
    396
    
    
    
    391
    
    
    
    4
    
    
    
    10
    
    
    
    452
    
    
    
    29
    
    
    
    830Allowance at end of year
    
    $
    7,195
    
    
    $
    5,250
    
    
    $
    5,250
    
    
    $
    3,737
    
    
    $
    4,606
    
    
    $
    3,378
    
    
    $
    2,970
    
    
    $
    2,479Ratios:Allowance for loan losses to non-
performing loans at end of period
    
    
    24.91
    %
    
    
    29.06
    %
    
    
    29.06
    %
    
    
    28.06
    %
    
    
    35.22
    %
    
    
    28.11
    %
    
    
    19.05
    %
    
    
    19.16
    %Allowance for loan losses to net
loans outstanding at end of period
    
    
    0.52
    %
    
    
    0.40
    %
    
    
    0.40
    %
    
    
    0.33
    %
    
    
    0.38
    %
    
    
    0.32
    %
    
    
    0.32
    %
    
    
    0.28
    %Net charge-offs to average loans
outstanding (annualized)
    
    
    0.02
    %
    
    
    0.03
    %
    
    
    0.06
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.05
    %
    
    
    0.00
    %
    
    
    0.09
    %
 
 (1)
    
    Real estate loans include home equity loans and home equity lines of credit. -18-




---



##### Table of Contents



Allocation of Allowance for Loan Losses.
 At December 31,2006
    
    2005% of
    
    
    
    
    
    
    
    
    
    % of% of Loans
    
    Allowance
    
    
    
    
    
    % of Loans
    
    AllowanceAllowance
    
    in Category
    
    in Category
    
    Allowance
    
    in Category
    
    in Categoryfor Loan
    
    to Total
    
    to Total
    
    for Loan
    
    to Total
    
    to TotalLosses
    
    Loans
    
    Allowance
    
    Losses
    
    Loans
    
    Allowance(Dollars in Thousands)Real Estate:Residential(1)Single family
    
    $
    2,198
    
    
    
    32.74
    %
    
    
    30.55
    %
    
    $
    1,777
    
    
    
    33.69
    %
    
    
    33.85
    %Two- to four-family
    
    
    1,918
    
    
    
    17.34
    %
    
    
    26.66
    %
    
    
    847
    
    
    
    18.40
    %
    
    
    16.13
    %Over four-family
    
    
    2,034
    
    
    
    32.44
    %
    
    
    28.27
    %
    
    
    1,716
    
    
    
    31.84
    %
    
    
    32.69
    %Construction
    
    
    167
    
    
    
    12.12
    %
    
    
    2.32
    %
    
    
    234
    
    
    
    2.48
    %
    
    
    4.46
    %Commercial Real Estate
    
    
    764
    
    
    
    3.23
    %
    
    
    10.62
    %
    
    
    630
    
    
    
    11.88
    %
    
    
    12.00
    %Land
    
    
    
    
    
    
    1.93
    %
    
    
    
    
    
    
    
    
    
    
    1.70
    %
    
    
    Commerical
    
    
    
    
    
    
    0.18
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    30
    
    
    
    0.02
    %
    
    
    0.42
    %
    
    
    27
    
    
    
    0.01
    %
    
    
    0.51
    %Unallocated
    
    
    84
    
    
    
    0.00
    %
    
    
    1.16
    %
    
    
    19
    
    
    
    
    
    
    
    0.36
    %Total allowance for loan losses
    
    $
    7,195
    
    
    
    100.00
    %
    
    
    100.00
    %
    
    $
    5,250
    
    
    
    100.00
    %
    
    
    100.00
    %
 -19-




---



##### Table of Contents



At June 30,2005
    
    2004
    
    2003
    
    2002% of
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    % of% of Loans
    
    Allowance
    
    
    
    
    
    % of Loans
    
    Allowance
    
    
    
    
    
    % of Loans
    
    Allowance
    
    
    
    
    
    % of Loans
    
    AllowanceAllowance
    
    in Category
    
    in Category
    
    Allowance
    
    in Category
    
    in Category
    
    Allowance
    
    in Category
    
    in Category
    
    Allowance
    
    in Category
    
    in Categoryfor Loan
    
    to Total
    
    to Total
    
    for Loan
    
    to Total
    
    to Total
    
    for Loan
    
    to Total
    
    to Total
    
    for Loan
    
    to Total
    
    to TotalLosses
    
    Loans
    
    Allowance
    
    Losses
    
    Loans
    
    Allowance
    
    Losses
    
    Loans
    
    Allowance
    
    Losses
    
    Loans
    
    Allowance(In Thousands)Real Estate:Residential(1)Single family
    
    $
    1,211
    
    
    
    33.11
    %
    
    
    26.29
    %
    
    $
    766
    
    
    
    34.60
    %
    
    
    22.68
    %
    
    $
    517
    
    
    
    36.63
    %
    
    
    17.41
    %
    
    $
    163
    
    
    
    40.21
    %
    
    
    6.58
    %Two- to four-family
    
    
    392
    
    
    
    19.33
    %
    
    
    8.51
    %
    
    
    352
    
    
    
    19.85
    %
    
    
    10.42
    %
    
    
    327
    
    
    
    20.88
    %
    
    
    11.01
    %
    
    
    302
    
    
    
    20.04
    %
    
    
    12.18
    %Over four-family
    
    
    1,646
    
    
    
    31.36
    %
    
    
    35.74
    %
    
    
    1,831
    
    
    
    30.09
    %
    
    
    54.20
    %
    
    
    1,852
    
    
    
    29.49
    %
    
    
    62.36
    %
    
    
    1,582
    
    
    
    28.38
    %
    
    
    63.82
    %Construction
    
    
    712
    
    
    
    2.81
    %
    
    
    15.46
    %
    
    
    100
    
    
    
    4.07
    %
    
    
    2.96
    %
    
    
    
    
    
    
    4.50
    %
    
    
    
    
    
    
    
    
    
    
    3.09
    %
    
    
    Commercial Real Estate
    
    
    450
    
    
    
    11.50
    %
    
    
    9.77
    %
    
    
    309
    
    
    
    9.76
    %
    
    
    9.15
    %
    
    
    259
    
    
    
    7.74
    %
    
    
    8.72
    %
    
    
    154
    
    
    
    7.24
    %
    
    
    6.21
    %Land
    
    
    10
    
    
    
    1.87
    %
    
    
    0.22
    %
    
    
    
    
    
    
    1.62
    %
    
    
    
    
    
    
    
    
    
    
    0.74
    %
    
    
    
    
    
    
    
    
    
    
    1.02
    %
    
    
    Commerical
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    25
    
    
    
    0.02
    %
    
    
    0.54
    %
    
    
    20
    
    
    
    0.01
    %
    
    
    0.59
    %
    
    
    15
    
    
    
    0.02
    %
    
    
    0.50
    %
    
    
    10
    
    
    
    0.02
    %
    
    
    0.40
    %Unallocated
    
    
    160
    
    
    
    
    
    
    
    3.47
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    268
    
    
    
    
    
    
    
    10.81
    %Total allowance for loan
losses
    
    $
    4,606
    
    
    
    100.00
    %
    
    
    100.00
    %
    
    $
    3,378
    
    
    
    100.00
    %
    
    
    100.00
    %
    
    $
    2,970
    
    
    
    100.00
    %
    
    
    100.00
    %
    
    $
    2,479
    
    
    
    100.00
    %
    
    
    100.00
    %
 
 (1)
    
    Residential mortgage loans include home equity loans and home equity lines of
credit. -20-




---



##### Table of Contents



-21-




---



##### Table of Contents



Mortgage Banking Activity
   Investment Activities
  -22-




---



##### Table of Contents



U.S. Government and Agency Bonds.
 Mortgage-Related Securities.
   -23-




---



##### Table of Contents



Municipal Obligations.
 -24-




---



##### Table of Contents



Investment Securities Portfolio.
  At December 31,
    
    At June 30,2006
    
    2005
    
    2005
    
    2004Amortized
    
    
    
    
    
    Amortized
    
    
    
    
    
    Amortized
    
    
    
    
    
    AmortizedCost
    
    Fair Value
    
    Cost
    
    Fair Value
    
    Cost
    
    Fair Value
    
    Cost
    
    Fair Value(In Thousands)Securities Available for Sale:Government agency bonds
    
    $
    13,450
    
    
    $
    13,257
    
    
    $
    26,577
    
    
    $
    25,950
    
    
    $
    26,580
    
    
    $
    26,387
    
    
    $
    17,683
    
    
    $
    17,462Mortgage-related securities
    
    
    100,693
    
    
    
    98,873
    
    
    
    93,515
    
    
    
    91,578
    
    
    
    54,438
    
    
    
    53,445
    
    
    
    80,918
    
    
    
    77,819Municipal obligations
    
    
    4,278
    
    
    
    4,421
    
    
    
    4,278
    
    
    
    4,427
    
    
    
    3,923
    
    
    
    4,159
    
    
    
    4,173
    
    
    
    4,268Other securities
    
    
    794
    
    
    
    779
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total securities available for
sale
    
    $
    119,215
    
    
    $
    117,330
    
    
    $
    124,370
    
    
    $
    121,955
    
    
    $
    84,941
    
    
    $
    83,991
    
    
    $
    102,774
    
    
    $
    99,549
 -25-




---



##### Table of Contents



Portfolio Maturities and Yields.
 More than One Year
    
    More than Five YearsOne Year or Less
    
    through Five Years
    
    through Ten Years
    
    More than Ten Years
    
    Total SecuritiesWeighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedCarrying
    
    Average
    
    Carrying
    
    Average
    
    Carrying
    
    Average
    
    Carrying
    
    Average
    
    Carrying
    
    AverageValue
    
    Yield
    
    Value
    
    Yield
    
    Value
    
    Yield
    
    Value
    
    Yield
    
    Value
    
    Yield(Dollars in Thousands)Securities available for sale:Government agency bonds
    
    $
    5,447
    
    
    
    3.10
    %
    
    $
    7,810
    
    
    
    4.10
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    13,257
    
    
    
    3.69
    %Mortgage-related securities
    
    
    
    
    
    
    
    
    
    
    50,594
    
    
    
    4.80
    %
    
    
    38,977
    
    
    
    5.24
    %
    
    
    9,302
    
    
    
    5.50
    %
    
    
    98,873
    
    
    
    5.04
    %Municipal obligations
    
    
    
    
    
    
    
    
    
    
    2,728
    
    
    
    5.04
    %
    
    
    1,693
    
    
    
    3.92
    %
    
    
    
    
    
    
    
    
    
    
    4,421
    
    
    
    4.60
    %Other securities
    
    
    529
    
    
    
    4.29
    %
    
    
    250
    
    
    
    4.05
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    779
    
    
    
    4.21
    %Total securities available for sale
    
    $
    5,976
    
    
    
    3.21
    %
    
    $
    61,382
    
    
    
    4.72
    %
    
    $
    40,670
    
    
    
    5.18
    %
    
    $
    9,302
    
    
    
    5.50
    %
    
    $
    117,330
    
    
    
    4.87
    %
 -26-




---



##### Table of Contents



Sources of Funds
 General.
 Deposits.
    -27-




---



##### Table of Contents



-28-




---



##### Table of Contents



At December 31,
    
    
    At June 30,2006
    
    
    2005
    
    
    2005
    
    
    2004Weighted
    
    
    
    
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageBalance
    
    
    Percent
    
    
    Rate
    
    
    Balance
    
    
    Percent
    
    
    Rate
    
    
    Balance
    
    
    Percent
    
    
    Rate
    
    
    Balance
    
    
    Percent
    
    
    Rate(Dollars in Thousands)Deposit type:Demand deposits
    
    $
    15,087
    
    
    
    1.46
    %
    
    
    0.07
    %
    
    $
    17,667
    
    
    
    1.69
    %
    
    
    0.00
    %
    
    $
    18,816
    
    
    
    1.67
    %
    
    
    0.00
    %
    
    $
    15,923
    
    
    
    1.54
    %
    
    
    0.00
    %NOW accounts
    
    
    43,320
    
    
    
    4.18
    %
    
    
    0.95
    %
    
    
    64,623
    
    
    
    6.18
    %
    
    
    1.41
    %
    
    
    82,045
    
    
    
    7.27
    %
    
    
    1.74
    %
    
    
    83,260
    
    
    
    8.04
    %
    
    
    0.98
    %Regular savings
    
    
    18,177
    
    
    
    1.75
    %
    
    
    0.40
    %
    
    
    20,962
    
    
    
    2.00
    %
    
    
    0.50
    %
    
    
    23,614
    
    
    
    2.09
    %
    
    
    0.50
    %
    
    
    24,877
    
    
    
    2.40
    %
    
    
    0.50
    %Money market and
savings deposits
    
    
    76,295
    
    
    
    7.36
    %
    
    
    4.70
    %
    
    
    12,603
    
    
    
    1.21
    %
    
    
    3.03
    %
    
    
    3,503
    
    
    
    0.31
    %
    
    
    1.06
    %
    
    
    3,597
    
    
    
    0.35
    %
    
    
    1.03
    %Total transaction accounts
    
    
    152,879
    
    
    
    14.75
    %
    
    
    2.67
    %
    
    
    115,855
    
    
    
    11.08
    %
    
    
    1.21
    %
    
    
    127,978
    
    
    
    11.34
    %
    
    
    1.24
    %
    
    
    127,657
    
    
    
    12.33
    %
    
    
    0.77
    %Certificates of deposit
    
    
    883,339
    
    
    
    85.25
    %
    
    
    4.63
    %
    
    
    929,738
    
    
    
    88.92
    %
    
    
    3.80
    %
    
    
    1,000,813
    
    
    
    88.66
    %
    
    
    3.52
    %
    
    
    907,931
    
    
    
    87.67
    %
    
    
    3.28
    %Total deposits
    
    $
    1,036,218
    
    
    
    100.00
    %
    
    
    4.34
    %
    
    $
    1,045,593
    
    
    
    100.00
    %
    
    
    3.51
    %
    
    $
    1,128,791
    
    
    
    100.00
    %
    
    
    3.26
    %
    
    $
    1,035,588
    
    
    
    100.00
    %
    
    
    2.97
    %
 -29-




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##### Table of Contents



(In Thousands)DueThree months or less
    
    $
    41,335Over three months through six months
    
    
    39,444Over six months through 12 months
    
    
    74,514Over 12 months
    
    
    51,722Total
    
    $
    207,015
  Year Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,
    
    
    Years Ended June 30,2006
    
    
    2005
    
    
    2005
    
    
    2004(In Thousands)Beginning balance
    
    $
    1,045,593
    
    
    $
    1,128,791
    
    
    $
    1,035,588
    
    
    $
    909,491Net increase/(decrease)
in deposits
before interest credited
    
    
    (46,460
    )
    
    
    (99,191
    )
    
    
    62,085
    
    
    
    101,529Interest credited
    
    
    37,085
    
    
    
    15,993
    
    
    
    31,118
    
    
    
    24,568Net increase/(decrease)
in deposits
    
    
    (9,375
    )
    
    
    (83,198
    )
    
    
    93,203
    
    
    
    126,097Ending balance
    
    $
    1,036,218
    
    
    $
    1,045,593
    
    
    $
    1,128,791
    
    
    $
    1,035,588
 -30-




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##### Table of Contents



Advances From Federal Home Loan Bank.
 At or For the SixAt or For the Year
    
    Months Ended
    
    At or For the YearEnded December 31,
    
    December 31,
    
    Ended June 30,2006
    
    2005
    
    2005
    
    2004(Dollars in Thousands)FHLB Advances:Balance outstanding at end of period
    
    $
    334,003
    
    
    
    201,212
    
    
    
    93,162
    
    
    
    60,000Weighted average interest rate at
the end of period
    
    
    4.31
    %
    
    
    3.90
    %
    
    
    3.07
    %
    
    
    3.32
    %Maximum amount of advances
outstanding at any
month end during the period
    
    
    349,003
    
    
    
    201,212
    
    
    
    106,162
    
    
    
    96,000Average balance outstanding
during the period
    
    
    265,821
    
    
    
    127,046
    
    
    
    74,641
    
    
    
    63,452Weighted average interest rate
during the period
    
    
    4.32
    %
    
    
    3.55
    %
    
    
    3.59
    %
    
    
    3.27
    %
 Average Balance Sheet and Rate Yield Analysis
  Cash Dividends
  -31-




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##### Table of Contents



Subsidiary Activities
  Wauwatosa Investments, Inc.
  Main Street Real Estate Holdings, LLC.
 Waterstone Mortgage Corporation.
 Personnel
  Supervision and Regulation
  -32-




---



##### Table of Contents



Regulation of Wauwatosa Savings Bank
  Intrastate and Interstate Merger and Branching Activities
 Wisconsin Law and Regulation.
 Federal Law and Regulation de novo
 Loans and Investments
 Wisconsin Law and Regulations.
  -33-




---



##### Table of Contents



Federal Law and Regulation
  Lending Standards
 Wisconsin Law and Regulation.
 Federal Law and Regulation
 -34-




---



##### Table of Contents




    
    for loans secured by raw land, the supervisory loan-to-value limit is 65% of the
value of the collateral;
    
    for land development loans (i.e., loans for the purpose of improving unimproved
property prior to the erection of structures), the supervisory limit is 75%;
    
    for loans for the construction of commercial, over four-family or other
non-residential property, the supervisory limit is 80%;
    
    for loans for the construction of one- to four-family properties, the
supervisory limit is 85%; and
    
    for loans secured by other improved property (e.g., farmland, completed
commercial property and other income-producing property, including non-owner
occupied, one- to four-family property), the limit is 85%.
  Deposits
 Wisconsin Law and Regulation.
 Federal Law and Regulation
 -35-




---



##### Table of Contents



Deposit Insurance
 Wisconsin Law and Regulation.
 Federal Law and Regulation
    -36-




---



##### Table of Contents



Capitalization
 Wisconsin Law and Regulation
 Federal Law and Regulation
   -37-




---



##### Table of Contents



Safety and Soundness Standards
  Prompt Corrective Action
  Tier 1Total Capital to
    
    Capital to
    
    Tier 1 CapitalCategory
    
    Risk Weighted Assets
    
    Risk Weighted Assets
    
    to Total AssetsWell
capitalized
    
    
    310
    %
    
    
    36
    %
    
    
    35
    %Adequately
capitalized
    
    
    3 8
    %
    
    
    34
    %
    
    
    34
    %*Under
capitalized
    
    
    < 8
    %
    
    
    <4
    %
    
    
    <4
    %*Significantly
undercapitalized
    
    
    < 6
    %
    
    
    <3
    %
    
    
    <3
    %Critically
undercapitalized
    
    Tangible assets to capital of < 2%
 
 *
    
    3% if the bank receives the highest rating under the uniform system  -38-




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##### Table of Contents




    
    an amount equal to five percent of the banks total assets at the time it became
undercapitalized; and
    
    the amount that is necessary (or would have been necessary) to bring the bank
into compliance with all capital standards applicable with respect to such bank as
of the time it fails to comply with the plan.
   Dividends
  Liquidity and Reserves
 Wisconsin Law and Regulation.
 -39-




---



##### Table of Contents



Federal Law and Regulation
 Transactions with Affiliates and Insiders
 Wisconsin Law and Regulation
 Federal Law and Regulation.
  -40-




---



##### Table of Contents



Transactions between Bank Customers and Affiliates
  -41-




---



##### Table of Contents



Examinations and Assessments
  Customer Privacy
  Community Reinvestment Act
   
    
    a lending test, to evaluate the institutions record of making loans in its
service areas;
    
    an investment test, to evaluate the institutions record of investing in
community development projects, affordable housing, and programs benefiting low or
moderate income individuals and businesses; and
    
    a service test, to evaluate the institutions delivery of services through its
branches, ATMs and other offices.
  -42-




---



##### Table of Contents



Federal Home Loan Bank System
    USA PATRIOT Act
  Regulation of Wauwatosa Holdings
 Holding Company Regulation
 Wisconsin Law and Regulation.
 -43-




---



##### Table of Contents



Federal Law and Regulation
     -44-




---



##### Table of Contents



Federal Securities Laws Regulation
 Securities Exchange Act.
 Sarbanes-Oxley Act of 2002.
    
    
    audit committees and auditor independence;
    
    certification of financial statements by the chief executive officer and the
chief financial officer;
    
    management reporting, and auditor attestation, of internal control over
financial reporting;
    
    the forfeiture of bonuses or other incentive-based compensation and profits from
the sale of an issuers securities if the issuers financial statements later
require restatement;
    
    a prohibition on insider trading during retirement plan black-out periods;
    
    further disclosure of off-balance sheet transactions;
    
    a prohibition on many personal loans to directors and officers (with exceptions
for financial institutions);
 -45-




---



##### Table of Contents




    
    expedited filing requirements for reporting of insiders transactions; and
    
    disclosure of a code of ethics and disclosure of a change or waiver of such code.
  Regulation of Lamplighter Financial, MHC
 Bank Holding Company Regulation
 Wisconsin Law and Regulation.
 Federal Law and Regulation.
 Mutual Holding Company Regulation
  Membership.
 Permitted Activities
 Examinations and Assessments.
 -46-




---



##### Table of Contents



Federal and State Taxation
 Federal Taxation
 General.
 Method of Accounting.
 Bad Debt Reserves.
 Taxable Distributions and Recapture.
 Alternative Minimum Tax.
 Net Operating Loss Carryovers.
 -47-




---



##### Table of Contents



Corporate Dividends-Received Deduction.
 State Taxation
 Wisconsin State Taxation.
   -48-




---



##### Table of Contents



Item 1A. Risk Factors
 Changing Interest Rates May Hurt Our Profits.
   Wisconsin Tax Developments Could Reduce Our Net Income.
    -49-




---



##### Table of Contents



If Our Allowance for Loan Losses is Not Sufficient to Cover Actual Loan Losses, Our Earnings
Could Decrease.
   A Large Portion of Our Loan Portfolio Is Over Four-Family Loans, Which May Be Individually
Riskier Than One- To Four-Family Loans.
  Our Shareholders Own a Minority of Wauwatosa Holdings Common Stock and Are Not Able to Exercise
Voting Control Over Most Matters Put to a Vote of Shareholders.
  -50-




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##### Table of Contents



If We Declare Dividends on Our Common Stock, Lamplighter Financial, MHC Will be Prohibited From
Waiving the Receipt of Dividends by Current Federal Reserve Board Policy.
  
 Item 1B. Unresolved Staff Comments
  -51-




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##### Table of Contents



Item 2. Properties
  Owned
    
    Year
    
    Date ofOr
    
    Acquired
    
    Lease
    
    December 31, 2006Location
    
    Leased
    
    Or Leased
    
    Expiration
    
    Net Book Value(In Thousands)Main Office:7500 West State Street
Wauwatosa, Wisconsin
    
    Own
    
    
    1971
    
    
    
    N/A
    
    
    $
    1,459Branches:6560 South 27th Street
Oak Creek, Wisconsin
    
    Own
    
    
    1986
    
    
    
    N/A
    
    
    $
    1,17321505 East Moreland Blvd
Waukesha, Wisconsin
    
    Capital Lease
    
    
    2005
    
    
    
    2009
    
    
    $
    5,4841233 Corporate Center Drive
Oconomowoc, Wisconsin
    
    Own
    
    
    2003
    
    
    
    N/A
    
    
    $
    2,8681230 George Towne Drive
Pewaukee, Wisconsin
    
    Own
    
    
    2004
    
    
    
    N/A
    
    
    $
    3,8576555 S 108th St
Franklin, Wisconsin
    
    Own
    
    
    2006
    
    
    
    N/A
    
    
    $
    2,676W188N9820 Appleton Ave
Germantown, Wisconsin
    
    Own
    
    
    2006
    
    
    
    N/A
    
    
    $
    2,67610101 W Greenfield Ave (1)
West Allis, Wisconsin
    
    Own
    
    
    2006
    
    
    
    N/A
    
    
    $
    2,9101405 Capitol Drive (2)
Pewaukee, Wisconsin
    
    Lease
    
    
    1999
    
    
    
    2009
    
    
    $
    247136 W State Street (3)
Wauwatosa, Wiscsonsin
    
    Own
    
    
    2000
    
    
    
    N/A
    
    
    $
    591Corporate Center:11200 West Plank Court (4)
Wauwatosa, Wisconsin
    
    Own
    
    
    2004
    
    
    
    N/A
    
    
    $
    4,932
 
 (1)
    
    This facility currently functions as a mortgage service center. A full-service branch will
open at this facility in March of 2007.(2)
    
    Supermarket banking facility sold in January 2007.(3)
    
    Drive-up banking facility only.(4)
    
    Leased in 2002, purchased in 2004. -52-




---



##### Table of Contents



Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  -53-




---



##### Table of Contents



Part II
 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters and
Issuer Purchase of Equity Securities
      -54-




---



##### Table of Contents



High
    
    Low20061st Quarter
    
    $
    13.85
    
    
    $
    11.442nd Quarter
    
    
    17.06
    
    
    
    13.083rd Quarter
    
    
    18.90
    
    
    
    15.704th Quarter
    
    
    18.23
    
    
    
    17.172005October 5, 2005 to December 31, 2005
    
    
    11.95
    
    
    
    10.35
 Stock Repurchase Program
  PERFORMANCE GRAPH
  
 -55-




---



##### Table of Contents



Stock/Index
    
    
    10/4/2005
    
    
    
    12/31/05
    
    
    
    3/31/2006
    
    
    
    6/30/2006
    
    
    
    9/30/2006
    
    
    
    12/31/2006Wauwatosa Holdings Common Stock (WAUW)
    
    
    
    100.00
    
    
    
    
    114.40
    
    
    
    
    136.00
    
    
    
    
    170.60
    
    
    
    
    176.50
    
    
    
    
    178.20NASDAQ Stock Market (^IXIC)
    
    
    
    100.00
    
    
    
    
    103.08
    
    
    
    
    109.37
    
    
    
    
    101.53
    
    
    
    
    105.57
    
    
    
    
    112.90Americas Community Bankers NASDAQ
Index
    
    
    
    100.00
    
    
    
    
    102.75
    
    
    
    
    109.05
    
    
    
    
    108.42
    
    
    
    
    111.51
    
    
    
    
    116.49
 Compensation Plans
  Number of shares to be issued
    
    
    
    
    
    Number of securitiesupon exercise of outstanding
    
    Weighted average
    
    remaining available forPlan
       
    options and rights
       
    exercise price
       
    issuance under plan2006 Equity
Incentive Plan
    
    
    1,494,298
    (1)
    
    $
    
    (2)
    
    
    1,494,298
 
 (1)
    
    Consists of 1,067,356 shares reserved for issuance for future grants of stock options and
426,942 shares reserved for future grants of restricted stock.(2)
    
    No options were granted and no restricted stock awards were made as of December 31, 2006. -56-




---



##### Table of Contents



Item 6 . Selected Financial Data
 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
  At December 31,
    
    At June 30,2006
    
    2005
    
    2005
    
    2004
    
    2003
    
    2002(In Thousands)Selected Financial Condition
Data:Total assets
    
    $
    1,648,470
    
    
    $
    1,511,209
    
    
    $
    1,386,132
    
    
    $
    1,240,084
    
    
    $
    1,104,893
    
    
    $
    1,002,435Available for sale securities
    
    
    117,330
    
    
    
    121,955
    
    
    
    83,991
    
    
    
    99,549
    
    
    
    90,453
    
    
    
    41,733Federal Home Loan Bank stock
    
    
    17,213
    
    
    
    14,406
    
    
    
    14,097
    
    
    
    13,322
    
    
    
    8,658
    
    
    
    8,088Loans receivable, net
    
    
    1,372,907
    
    
    
    1,306,018
    
    
    
    1,213,561
    
    
    
    1,063,594
    
    
    
    940,053
    
    
    
    895,398Cash and cash equivalents
    
    
    73,807
    
    
    
    16,498
    
    
    
    20,467
    
    
    
    19,392
    
    
    
    28,767
    
    
    
    38,945Deposits
    
    
    1,036,218
    
    
    
    1,045,593
    
    
    
    1,128,791
    
    
    
    1,035,588
    
    
    
    909,491
    
    
    
    841,873Advance payments by borrowers for taxes
    
    
    190
    
    
    
    181
    
    
    
    15,821
    
    
    
    14,446
    
    
    
    13,649
    
    
    
    13,837Advances from the Federal Home
Loan Bank
    
    
    334,003
    
    
    
    201,212
    
    
    
    93,162
    
    
    
    60,000
    
    
    
    60,000
    
    
    
    35,000Total equity
    
    
    241,272
    
    
    
    231,696
    
    
    
    133,416
    
    
    
    122,799
    
    
    
    114,596
    
    
    
    103,507Allowance for loan losses
    
    
    7,195
    
    
    
    5,250
    
    
    
    4,606
    
    
    
    3,378
    
    
    
    2,970
    
    
    
    2,479Non-performing loans
    
    
    28,888
    
    
    
    18,065
    
    
    
    13,076
    
    
    
    12,015
    
    
    
    15,588
    
    
    
    12,940
 -57-




---



##### Table of Contents



Six Months EndedYears Ended December 31,
    
    
    December 31,
    
    
    Years Ended June 30,2006
    
    
    2005
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(In Thousands, except per share amounts)Selected Operating Data:Interest income
    
    $
    92,228
    
    
    $
    79,736
    
    
    $
    42,036
    
    
    $
    36,580
    
    
    $
    74,207
    
    
    $
    66,088
    
    
    $
    66,451
    
    
    $
    70,125Interest expense
    
    
    53,779
    
    
    
    39,537
    
    
    
    20,758
    
    
    
    17,290
    
    
    
    36,068
    
    
    
    32,432
    
    
    
    34,459
    
    
    
    41,412Net interest income
    
    
    38,449
    
    
    
    40,199
    
    
    
    21,278
    
    
    
    19,290
    
    
    
    38,139
    
    
    
    33,656
    
    
    
    31,933
    
    
    
    28,712Provision for loan losses
    
    
    2,201
    
    
    
    1,909
    
    
    
    1,035
    
    
    
    363
    
    
    
    1,238
    
    
    
    860
    
    
    
    520
    
    
    
    1,336Net interest income after
provision for loan losses
    
    
    36,248
    
    
    
    38,290
    
    
    
    20,243
    
    
    
    18,927
    
    
    
    36,901
    
    
    
    32,796
    
    
    
    31,472
    
    
    
    27,377Noninterest income
    
    
    5,202
    
    
    
    3,526
    
    
    
    2,272
    
    
    
    1,985
    
    
    
    3,311
    
    
    
    3,035
    
    
    
    2,993
    
    
    
    2,141Noninterest expense
    
    
    28,698
    
    
    
    29,646
    
    
    
    18,331
    
    
    
    12,262
    
    
    
    23,576
    
    
    
    20,384
    
    
    
    17,618
    
    
    
    13,863Income before income taxes
    
    
    12,752
    
    
    
    12,170
    
    
    
    4,184
    
    
    
    8,650
    
    
    
    16,636
    
    
    
    15,447
    
    
    
    16,847
    
    
    
    15,655Provision for income taxes
    
    
    4,699
    
    
    
    6,127
    
    
    
    1,471
    
    
    
    2,864
    
    
    
    7,520
    
    
    
    4,863
    
    
    
    5,742
    
    
    
    4,816Net income
    
    $
    8,053
    
    
    $
    6,043
    
    
    $
    2,713
    
    
    $
    5,786
    
    
    $
    9,116
    
    
    $
    10,584
    
    
    $
    11,105
    
    
    $
    10,839Income (loss) per share 
basic (1)
    
    $
    0.24
    
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AIncome (loss) per share 
diluted (1)
    
    $
    0.24
    
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
 
 (1)
    
    The 2005 loss per share is based upon net loss and weighted average shares outstanding from
the date of reorganization (October 4, 2005) to December 31, 2005. -58-




---



##### Table of Contents



At or For the Years
    
    At or for the Six MonthsEnded December 31,
    
    Ended December 31,
    
    At or For the Years Ended June 30,2006
    
    2005
    
    2005
    
    2004
    
    2005
    
    2004
    
    2003
    
    2002Selected
Financial
Ratios(4)and Other Data:Performance Ratios:Return on average assets
    
    
    0.50
    %
    
    
    0.43
    %
    
    
    0.36
    %
    
    
    0.89
    %
    
    
    0.70
    %
    
    
    0.90
    %
    
    
    1.08
    %
    
    
    1.10
    %Return on average equity
    
    
    3.41
    
    
    
    4.52
    
    
    
    3.22
    
    
    
    8.30
    
    
    
    7.12
    
    
    
    8.88
    
    
    
    10.19
    
    
    
    11.21Interest rate spread (1)
    
    
    2.00
    
    
    
    2.56
    
    
    
    2.43
    
    
    
    2.89
    
    
    
    2.74
    
    
    
    2.70
    
    
    
    2.84
    
    
    
    2.50Net interest margin (2)
    
    
    2.52
    
    
    
    2.95
    
    
    
    2.96
    
    
    
    3.13
    
    
    
    3.04
    
    
    
    2.98
    
    
    
    3.19
    
    
    
    2.97Noninterest expense to average assets
    
    
    1.80
    
    
    
    2.09
    
    
    
    2.44
    
    
    
    1.88
    
    
    
    1.81
    
    
    
    1.74
    
    
    
    1.71
    
    
    
    1.40Efficiency ratio (3)
    
    
    66.19
    
    
    
    67.80
    
    
    
    77.84
    
    
    
    57.64
    
    
    
    56.88
    
    
    
    55.55
    
    
    
    50.36
    
    
    
    44.93Average interest-earning assets to
average interest-bearing liabilities
    
    
    114.59
    
    
    
    113.07
    
    
    
    118.38
    
    
    
    108.7
    
    
    
    110.29
    
    
    
    109.71
    
    
    
    110.09
    
    
    
    110.92Capital Ratios:Equity to total assets at end of period
    
    
    14.64
    %
    
    
    15.33
    %
    
    
    15.33
    %
    
    
    9.43
    %
    
    
    9.63
    %
    
    
    9.90
    %
    
    
    10.37
    %
    
    
    10.33
    %Average equity to average assets
    
    
    14.79
    
    
    
    9.41
    
    
    
    11.25
    
    
    
    10.66
    
    
    
    9.83
    
    
    
    10.15
    
    
    
    10.56
    
    
    
    9.79Total capital to risk-weighted assets
    
    
    21.36
    
    
    
    22.79
    
    
    
    22.79
    
    
    
    14.59
    
    
    
    14.05
    
    
    
    15.02
    
    
    
    15.61
    
    
    
    15.11Tier I capital to risk-weighted assets
    
    
    20.75
    
    
    
    22.29
    
    
    
    22.29
    
    
    
    14.20
    
    
    
    13.58
    
    
    
    14.62
    
    
    
    15.22
    
    
    
    15.07Tier I capital to average assets
    
    
    14.47
    
    
    
    14.23
    
    
    
    14.23
    
    
    
    10.09
    
    
    
    9.84
    
    
    
    10.18
    
    
    
    10.50
    
    
    
    10.25Asset Quality Ratios:Allowance for loan losses as a percent
of total loans
    
    
    0.52
    %
    
    
    0.40
    %
    
    
    0.40
    %
    
    
    0.33
    %
    
    
    0.38
    %
    
    
    0.32
    %
    
    
    0.32
    %
    
    
    0.28
    %Allowance for loan losses as a percent
of non-performing loans
    
    
    24.91
    
    
    
    29.06
    
    
    
    29.06
    
    
    
    28.06
    
    
    
    35.22
    
    
    
    28.11
    
    
    
    19.05
    
    
    
    19.16Net charge-offs to average outstanding
loans during the period
    
    
    0.02
    
    
    
    0.03
    
    
    
    0.06
    
    
    
    0
    
    
    
    0
    
    
    
    0.05
    
    
    
    0
    
    
    
    0.09Non-performing loans as a percent of
total loans
    
    
    2.10
    
    
    
    1.39
    
    
    
    1.39
    
    
    
    1.17
    
    
    
    1.07
    
    
    
    1.13
    
    
    
    1.65
    
    
    
    1.44Non-performing assets as a percent of
total assets
    
    
    1.75
    
    
    
    1.20
    
    
    
    1.21
    
    
    
    0.96
    
    
    
    0.98
    
    
    
    1.03
    
    
    
    1.41
    
    
    
    1.39Other Data:Number of full service offices
    
    
    7
    
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    4
    
    
    
    3Number of limited service offices
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1
 
 (1)
    
    Represents the difference between the weighted average yield on average interest-earning
assets and the weighted average cost of interest-bearing liabilities.(2)
    
    Represents net interest income as a percent of average interest-earning assets.(3)
    
    Represents non-interest expense divided by the sum of net interest income and non-interest
income.(4)
    
    Ratios for six-month periods have been annualized. -59-




---



##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results
of Operations
 Overview
    Critical Accounting Policies
  Allowance for Loan Losses.
 -60-




---



##### Table of Contents



Income Taxes.
   -61-




---



##### Table of Contents



Comparison of Financial Condition at December 31, 2006 and at December 31, 2005
 Total Assets.
 Cash and Cash Equivalents.
 Loans Held for Sale.
 Loans Receivable.
 Office Properties and Equipment.
 -62-




---



##### Table of Contents



Federal Home Loan Bank Stock.
 Prepaid Expenses and Other Assets .
 Deposits.
 Federal Home Loan Bank Advances.
 Other Liabilities.
 -63-




---



##### Table of Contents



Shareholders Equity.
 Comparison of Financial Condition at December 31, 2005 and June 30, 2005
 Total Assets.
 Loans Receivable.
 Securities Available for Sale.
 Deposits.
 Federal Home Loan Bank Advances.
 Advance Payments by Borrowers for Taxes.
 -64-




---



##### Table of Contents



Other Liabilities.
 Shareholders Equity.
 Average Balance Sheets, Interest and Yields/Costs
  -65-




---



##### Table of Contents



Years Ended December 31,2006
    
    
    2005Interest
    
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    
    and
    
    
    
    
    
    
    Average
    
    
    andBalance
    
    
    Dividends
    
    
    Yield/Cost
    
    
    Balance
    
    
    Dividends
    
    
    Yield/Cost(Dollars in Thousands)Interest-earning assets:Loans receivable, net
    
    $
    1,350,865
    
    
    $
    83,822
    (1)
    
    
    6.21
    %
    
    $
    1,219,707
    
    
    $
    74,020
    (1)
    
    
    6.07
    %Available for sale securities(5)
(6)
    
    
    115,846
    
    
    
    5,355
    
    
    
    4.62
    
    
    
    106,128
    
    
    
    4,102
    
    
    
    3.87Other earning assets
    
    
    61,985
    
    
    
    3,051
    
    
    
    4.92
    
    
    
    38,456
    
    
    
    1,614
    
    
    
    4.20Total interest-earning assets
    
    
    1,528,696
    
    
    
    92,228
    
    
    
    6.03
    
    
    
    1,364,291
    
    
    
    79,736
    
    
    
    5.84Noninterest-earning assets
    
    
    68,286
    
    
    
    
    
    
    
    
    
    
    
    57,461Total assets
    
    $
    1,596,982
    
    
    
    
    
    
    
    
    
    
    
    1,421,752Interest-bearing liabilities:Demand and money market accounts
    
    $
    110,907
    
    
    
    2,810
    
    
    
    2.53
    
    
    $
    89,694
    
    
    
    1,156
    
    
    
    1.29Savings accounts
    
    
    20,658
    
    
    
    101
    
    
    
    0.49
    
    
    
    23,812
    
    
    
    119
    
    
    
    0.50Certificates of deposit
    
    
    925,026
    
    
    
    39,080
    
    
    
    4.22
    
    
    
    970,977
    
    
    
    34,152
    
    
    
    3.52Total interest-bearing deposits
    
    
    1,056,591
    
    
    
    41,991
    
    
    
    3.97
    
    
    
    1,084,483
    
    
    
    35,427
    
    
    
    3.27Advances from the Federal Home Loan Bank
and Federal funds purchased
    
    
    265,821
    
    
    
    11,472
    
    
    
    4.32
    
    
    
    110,979
    
    
    
    3,719
    
    
    
    3.35Other interest bearing liabilities
    
    
    11,684
    
    
    
    316
    
    
    
    2.70
    
    
    
    11,151
    
    
    
    391
    
    
    
    3.51Total interest-bearing liabilities
    
    
    1,334,096
    
    
    
    53,779
    
    
    
    4.03
    
    
    
    1,206,613
    
    
    
    39,537
    
    
    
    3.28Noninterest-bearing liabilities
    
    
    26,716
    
    
    
    
    
    
    
    
    
    
    
    81,398Total liabilities
    
    
    1,360,812
    
    
    
    
    
    
    
    
    
    
    
    1,288,011Equity
    
    
    236,170
    
    
    
    
    
    
    
    
    
    
    
    133,741Total liabilities and equity
    
    $
    1,596,982
    
    
    
    
    
    
    
    
    
    
    $
    1,421,752Net interest income
    
    
    
    
    
    $
    38,449
    
    
    
    
    
    
    
    
    
    
    $
    40,199Net interest rate spread (2)
    
    
    
    
    
    
    
    
    
    
    2.00
    %
    
    
    
    
    
    
    
    
    
    
    2.56
    %Net interest-earning assets (3)
    
    $
    194,600
    
    
    
    
    
    
    
    
    
    
    $
    157,678Net interest margin (4)
    
    
    
    
    
    
    
    
    
    
    2.52
    %
    
    
    
    
    
    
    
    
    
    
    2.95
    %Average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    114.59
    %
    
    
    
    
    
    
    
    
    
    
    113.07
    %
 
 (1)
    
    Includes net deferred loan fee amortization income of $885,000 and $940,000 for the
years ended December 31, 2006 and 2005, respectively.(2)
    
    Net interest rate spread represents the difference between the yield on average
interest-earning assets and the cost of average interest-bearing liabilities.(3)
    
    Net interest-earning assets represent total interest-earning assets less total
interest-bearing liabilities.(4)
    
    Net interest margin represents net interest income divided by average total interest-earning
assets.(5)
    
    Average balance of available for sale securities is based on amortized historical cost.(6)
    
    Interest income from tax exempt securities is not significant to total interest income,
therefore, interest and yield on interest earnings assets are not stated on a tax equivalent
basis. -66-




---



##### Table of Contents



Six Month Period Ended December 31,2005
    
    
    2004Interest
    
    
    
    
    
    
    
    
    
    
    InterestAverage
    
    
    and
    
    
    
    
    
    
    Average
    
    
    andBalance
    
    
    Dividends
    
    
    Yield/Cost
    
    
    Balance
    
    
    Dividends
    
    
    Yield/Cost(Dollars in Thousands)Interest-earning assets:Loans receivable, net
    
    $
    1,258,594
    
    
    $
    38,516
    (1)
    
    
    6.12
    %
    
    $
    1,106,826
    
    
    $
    34,272
    (1)
    
    
    6.19
    %Available for sale securities(5)
(6)
    
    
    123,872
    
    
    
    2,440
    
    
    
    3.94
    
    
    
    99,988
    
    
    
    1,784
    
    
    
    3.57Other earning assets
    
    
    54,577
    
    
    
    1,080
    
    
    
    3.96
    
    
    
    24,304
    
    
    
    524
    
    
    
    4.31Total interest-earning assets
    
    
    1,437,043
    
    
    
    42,036
    
    
    
    5.85
    
    
    
    1,231,118
    
    
    
    36,580
    
    
    
    5.94Noninterest-earning assets
    
    
    62,987
    
    
    
    
    
    
    
    
    
    
    
    51,989Total assets
    
    $
    1,500,030
    
    
    
    
    
    
    
    
    
    
    
    1,283,107Interest-bearing liabilities:Demand and money market accounts
    
    $
    92,170
    
    
    
    792
    
    
    
    1.72
    
    
    $
    92,174
    
    
    
    412
    
    
    
    0.89Savings accounts
    
    
    18,088
    
    
    
    60
    
    
    
    0.66
    
    
    
    24,912
    
    
    
    63
    
    
    
    0.51Certificates of deposit
    
    
    961,144
    
    
    
    17,414
    
    
    
    3.62
    
    
    
    928,164
    
    
    
    15,453
    
    
    
    3.33Total interest-bearing deposits
    
    
    1,071,402
    
    
    
    18,266
    
    
    
    3.41
    
    
    
    1,045,250
    
    
    
    15,928
    
    
    
    3.05Advances from the Federal Home Loan Bank
and Federal funds purchased
    
    
    127,046
    
    
    
    2,258
    
    
    
    3.55
    
    
    
    74,031
    
    
    
    1,253
    
    
    
    3.39Other interest bearing liabilities
    
    
    15,514
    
    
    
    234
    
    
    
    3.02
    
    
    
    13,333
    
    
    
    109
    
    
    
    1.64Total interest-bearing liabilities
    
    
    1,213,962
    
    
    
    20,758
    
    
    
    3.42
    
    
    
    1,132,614
    
    
    
    17,290
    
    
    
    3.05Noninterest-bearing liabilities
    
    
    117,302
    
    
    
    
    
    
    
    
    
    
    
    11,133Total liabilities
    
    
    1,331,504
    
    
    
    
    
    
    
    
    
    
    
    1,143,747Equity
    
    
    168,766
    
    
    
    
    
    
    
    
    
    
    
    139,360Total liabilities and equity
    
    $
    1,500,030
    
    
    
    
    
    
    
    
    
    
    $
    1,283,107Net interest income
    
    
    
    
    
    $
    21,278
    
    
    
    
    
    
    
    
    
    
    $
    19,290Net interest rate spread (2)
    
    
    
    
    
    
    
    
    
    
    2.43
    %
    
    
    
    
    
    
    
    
    
    
    2.89
    %Net interest-earning assets (3)
    
    $
    223,081
    
    
    
    
    
    
    
    
    
    
    $
    98,504Net interest margin (4)
    
    
    
    
    
    
    
    
    
    
    2.96
    %
    
    
    
    
    
    
    
    
    
    
    3.13
    %Average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    118.38
    %
    
    
    
    
    
    
    
    
    
    
    108.70
    %
 
 (1)
    
    Includes net deferred loan fee amortization income of $512,000 and $504,000 for the six
month periods ended December 31, 2005 and 2004, respectively.(2)
    
    Net interest rate spread represents the difference between the yield on average
interest-earning assets and the cost of average interest-bearing liabilities.(3)
    
    Net interest-earning assets represent total interest-earning assets less total
interest-bearing liabilities.(4)
    
    Net interest margin represents net interest income divided by average total interest-earning
assets.(5)
    
    Average balance of available for sale securities is based on amortized historical cost.(6)
    
    Interest income from tax exempt securities is not significant to total interest income,
therefore, interest and yield on interest earnings assets are not stated on a tax equivalent
basis. -67-




---



##### Table of Contents



Year Ended June 30,2005
    
    
    2004Interest and
    
    
    
    
    
    
    
    
    
    
    Interest andAverage Balance
    
    
    Dividends
    
    
    Yield/Cost
    
    
    Average Balance
    
    
    Dividends
    
    
    Yield/Cost(Dollars in Thousands)Interest-earning assets:Loans receivable, net
    
    $
    1,140,444
    
    
    $
    69,775
    (1)
    
    
    6.12
    %
    
    $
    996,511
    
    
    $
    61,530
    (1)
    
    
    6.17
    %Available for sale securities(5)
(6)
    
    
    78,870
    
    
    
    3,442
    
    
    
    4.36
    
    
    
    97,092
    
    
    
    3,700
    
    
    
    3.82Other earning assets
    
    
    37,302
    
    
    
    989
    
    
    
    2.65
    
    
    
    35,287
    
    
    
    858
    
    
    
    2.43Total interest-earning assets
    
    
    1,256,616
    
    
    
    74,207
    
    
    
    5.91
    
    
    
    1,128,890
    
    
    
    66,088
    
    
    
    5.85Noninterest-earning assets
    
    
    45,149
    
    
    
    
    
    
    
    
    
    
    
    44,973Total assets
    
    $
    1,301,765
    
    
    
    
    
    
    
    
    
    
    $
    1,173,863Interest-bearing liabilities:Demand and money market accounts
    
    $
    76,758
    
    
    
    899
    
    
    
    1.17
    
    
    $
    88,324
    
    
    
    884
    
    
    
    1.00Savings accounts
    
    
    27,944
    
    
    
    122
    
    
    
    0.44
    
    
    
    22,675
    
    
    
    113
    
    
    
    0.50Certificates of deposit
    
    
    954,322
    
    
    
    32,068
    
    
    
    3.36
    
    
    
    847,126
    
    
    
    29,084
    
    
    
    3.43Total interest-bearing deposits
    
    
    1,059,024
    
    
    
    33,089
    
    
    
    3.12
    
    
    
    958,125
    
    
    
    30,081
    
    
    
    3.14Advances from the Federal Home Loan
Bank and Federal funds purchased
    
    
    74,785
    
    
    
    2,783
    
    
    
    3.72
    
    
    
    65,237
    
    
    
    2,109
    
    
    
    3.23Other interest bearing liabilities
    
    
    5,579
    
    
    
    196
    
    
    
    3.51
    
    
    
    5,624
    
    
    
    242
    
    
    
    4.29Total interest-bearing liabilities
    
    
    1,139,388
    
    
    
    36,068
    
    
    
    3.17
    
    
    
    1,028,986
    
    
    
    32,432
    
    
    
    3.15Noninterest-bearing liabilities
    
    
    34,351
    
    
    
    
    
    
    
    
    
    
    
    25,680Total liabilities
    
    
    1,173,739
    
    
    
    
    
    
    
    
    
    
    
    1,054,666Equity
    
    
    128,026
    
    
    
    
    
    
    
    
    
    
    
    119,197Total liabilities and equity
    
    $
    1,301,765
    
    
    
    
    
    
    
    
    
    
    $
    1,173,863Net interest income
    
    
    
    
    
    $
    38,139
    
    
    
    
    
    
    
    
    
    
    $
    33,656Net interest rate spread (2)
    
    
    
    
    
    
    
    
    
    
    2.74
    %
    
    
    
    
    
    
    
    
    
    
    2.70
    %Net interest-earning assets
(3)
    
    $
    117,288
    
    
    
    
    
    
    
    
    
    
    $
    99,904Net interest margin (4)
    
    
    
    
    
    
    
    
    
    
    3.04
    %
    
    
    
    
    
    
    
    
    
    
    2.98
    %Average interest-earning assets to
average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    110.29
    %
    
    
    
    
    
    
    
    
    
    
    109.71
    %
 
 (1)
    
    Includes net deferred loan fee amortization income of $932,000 and $1,008,000 for the years
ended June 30, 2005 and 2004, respectively.(2)
    
    Net interest rate spread represents the difference between the yield on average
interest-earning assets and the cost of average interest-bearing liabilities.(3)
    
    Net interest-earning assets represent total interest-earning assets less total
interest-bearing liabilities.(4)
    
    Net interest margin represents net interest income divided by average total interest-earning
assets.(5)
    
    Average balance of available for sale securities is based on amortized historical cost.(6)
    
    Interest income from tax exempt securities is not significant to total interest income,
therefore, interest and yield on interest earnings assets are not stated on a tax equivalent
basis. -68-




---



##### Table of Contents



Rate/Volume Analysis
  Years Ended
    
    
    Six Month Period EndedDecember 31,
    
    
    December 31,2006 vs. 2005
    
    
    2005 vs. 2004Increase (Decrease) Due to
    
    
    Increase (Decrease) Due toVolume
    
    
    Rate
    
    
    Net
    
    
    Volume
    
    
    Rate
    
    
    Net(In Thousands)Interest and dividend income:Loans receivable(1) (2)
    
    $
    8,108
    
    
    $
    1,694
    
    
    $
    9,802
    
    
    $
    4,649
    
    
    $
    (405
    )
    
    $
    4,244Securities interest and income from
other earning assets
    
    
    1,453
    
    
    
    1,237
    
    
    
    2,690
    
    
    
    1,106
    
    
    
    106
    
    
    
    1,212Total interest-earning assets
    
    
    9,561
    
    
    
    2,931
    
    
    
    12,492
    
    
    
    5,755
    
    
    
    (299
    )
    
    
    5,456Interest expense:Demand and Money Market accounts
    
    
    325
    
    
    
    1,329
    
    
    
    1,654
    
    
    
    
    
    
    
    380
    
    
    
    380Savings accounts
    
    
    (15
    )
    
    
    (3
    )
    
    
    (18
    )
    
    
    (20
    )
    
    
    17
    
    
    
    (3
    )Certificates of deposit
    
    
    (1,516
    )
    
    
    6,444
    
    
    
    4,928
    
    
    
    516
    
    
    
    1,445
    
    
    
    1,961Total interest-bearing deposits
    
    
    (1,206
    )
    
    
    7,770
    
    
    
    6,564
    
    
    
    496
    
    
    
    1,842
    
    
    
    2,338FHLB Advances
    
    
    6,427
    
    
    
    1,326
    
    
    
    7,753
    
    
    
    946
    
    
    
    59
    
    
    
    1,005Other interest-bearing liabilities
    
    
    20
    
    
    
    (95
    )
    
    
    (75
    )
    
    
    14
    
    
    
    111
    
    
    
    125Total interest-bearing liabilities
    
    
    5,241
    
    
    
    9,001
    
    
    
    14,242
    
    
    
    1,456
    
    
    
    2,012
    
    
    
    3,468Net change in interest income
    
    $
    4,320
    
    
    $
    (6,070
    )
    
    $
    (1,750
    )
    
    $
    4,299
    
    
    $
    (2,311
    )
    
    $
    1,988
 
 (1)
    
    Includes net deferred loan fee amortization income of $885,000, $940,000, $512,000 and
$504,000 for the years ended December 31, 2006 and 2005 and for the six month periods ended
December 31, 2005 and 2004, respectively.(2)
    
    Non-accrual loans have been included in average loans receivable balance. -69-




---



##### Table of Contents



Years Ended June 30,2005 vs. 2004Increase (Decrease) Due toVolume
    
    
    Rate
    
    
    Net(In Thousands)Interest and dividend income:Loans receivable(1) (2)
    
    $
    8,811
    
    
    $
    (567
    )
    
    $
    8,244Securities interest and income from other earning
assets
    
    
    (590
    )
    
    
    465
    
    
    
    (125
    )Total interest-earning assets
    
    
    8,221
    
    
    
    (102
    )
    
    
    8,119Interest expense:Demand and Money Market accounts
    
    
    (124
    )
    
    
    139
    
    
    
    15Savings accounts
    
    
    24
    
    
    
    (15
    )
    
    
    9Certificates of deposit
    
    
    3,613
    
    
    
    (630
    )
    
    
    2,983Total interest-bearing deposits
    
    
    3,513
    
    
    
    (506
    )
    
    
    3,007FHLB Advances
    
    
    (1,128
    )
    
    
    1,802
    
    
    
    674Other interest-bearing liabilities
    
    
    (2
    )
    
    
    (43
    )
    
    
    (45
    )Total interest-bearing liabilities
    
    
    2,383
    
    
    
    1,253
    
    
    
    3,636Net change in interest income
    
    $
    5,838
    
    
    $
    (1,355
    )
    
    $
    4,483
 
 (1)
    
    Includes net deferred loan fee amortization income of $932,000,and $1,008,000 for the years
ended June 30, 2005 and 2004 , respectively.(2)
    
    Non-accrual loans have been included in average loans receivable balance. Comparison of Operating Results for the Years Ended December 31 2006 and December 31, 2005
 General.
 Total Interest Income.
 -70-




---



##### Table of Contents



Total Interest Expense.
   Net Interest Income.
 -71-




---



##### Table of Contents



Provision for Loan Losses.
 Noninterest Income.
 Noninterest Expense.
  -72-
    Table of Contents      Income Taxes .
 Net Income.
 Comparison of Operating Results for the Six Month Periods Ended December 31, 2005 and December 31,
2004
 General.
 -73-




---



##### Table of Contents



Interest Income.
 Interest Expense.
 Net Interest Income.
 Provision for Loan Losses.
 -74-




---



##### Table of Contents



Noninterest Income.
 Noninterest Expense.
 Income Tax Expense.
 Comparison of Operating Results for the Years Ended June 30, 2005 (Fiscal 2005) and June 30, 2004
(Fiscal 2004)
 General.
 Interest Income. -75-
    Table of Contents    Interest Expense.
 Net Interest Income.
 Provision for Loan Losses.
 Noninterest Income.
 Noninterest Expense.
 Income Tax Expense.
 -76-




---



##### Table of Contents



Liquidity and Capital Resources
     -77-




---



##### Table of Contents



-78-




---



##### Table of Contents



Contractual Obligations, Commitments, Contingent Liabilities, and Off-balance Sheet Arrangements
  Contractual Obligations
 More Than
    
    
    More thanOne Year
    
    
    Three YearsOne Year
    
    
    Through
    
    
    Through FiveTotal
    
    
    or Less
    
    
    Three Years
    
    
    Years
    
    
    Over Five Years(In Thousands)Federal Home Loan Bank advances(1)
    
    $
    334,003
    
    
    $
    41,224
    
    
    $
    47,779
    
    
    $
    25,000
    
    
    $
    220,000Operating leases(2)
    
    
    309
    
    
    
    98
    
    
    
    211
    
    
    
    
    
    
    
    Capital lease
    
    
    3,975
    
    
    
    300
    
    
    
    3,675
    
    
    
    
    
    
    
    Salary continuation agreements
    
    
    3,324
    
    
    
    491
    
    
    
    1,152
    
    
    
    746
    
    
    
    935Total Contractual Obligations
    
    $
    341,611
    
    
    $
    42,113
    
    
    $
    52,817
    
    
    $
    25,746
    
    
    $
    220,935
 
 (1)
    
    Secured under a blanket security agreement on qualifying assets, principally,
mortgage loans. Excludes interest which will accrue on the advances.(2)
    
    Represents non-cancelable operating leases for offices and equipment.  Other Commitments
 More Than
    
    
    More thanOne Year
    
    
    Three YearsOne Year
    
    
    Through
    
    
    Through FiveTotal
    
    
    or Less
    
    
    Three Years
    
    
    Years
    
    
    Over Five Years(In Thousands)Real estate loan commitments(1)
    
    $
    28,067
    
    
    $
    28,067
    
    
    $
    
    
    
    $
    
    
    
    $
    Unused portion of home equity lines of
credit(2)
    
    
    34,676
    
    
    
    34,676
    
    
    
    
    
    
    
    
    
    
    
    Unused portion of construction loans(3)
    
    
    32,714
    
    
    
    32,714
    
    
    
    
    
    
    
    
    
    
    
    Standby letters of credit
    
    
    639
    
    
    
    611
    
    
    
    8
    
    
    
    20
    
    
    
    Total Other Commitments
    
    $
    96,096
    
    
    $
    96,068
    
    
    $
    8
    
    
    $
    20
    
    
    $
    0
 
 General:
    
    Commitments to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract and generally have fixed expiration dates or
other termination clauses.(1)
    
    Commitments for loans are extended to customers for up to 180 days after which they
expire.(2)
    
    Unused portions of home equity loans are available to the borrower for up to 10
years.(3)
    
    Unused portions of construction loans are available to the borrower for up to 1
year. -79-




---



##### Table of Contents



Impact of Recent Accounting Pronouncements
   Accounting for Certain Hybrid Financial Instruments, , Accounting for
Derivative Instruments and Hedging Activities, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities.
 Fair Value Measurements -80-
    Table of Contents    The Fair Value Option for Financial Assets and
Financial Liabilities, Including an Amendment of FASB Statement No. 115
  Impact of Inflation and Changing Prices
 -81-
    Table of Contents  Quarterly Financial Information
  Quarter EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(In thousands, except per share amounts)2006 (unaudited)Interest income
    
    $
    21,857
    
    
    $
    22,418
    
    
    $
    23,266
    
    
    $
    24,687Interest expense
    
    
    11,797
    
    
    
    12,828
    
    
    
    14,090
    
    
    
    15,064Net interest income
    
    
    10,060
    
    
    
    9,590
    
    
    
    9,176
    
    
    
    9,623Provision for loan losses
    
    
    307
    
    
    
    345
    
    
    
    1191
    
    
    
    358Net income after provision
for loan losses
    
    
    9,753
    
    
    
    9,245
    
    
    
    7,985
    
    
    
    9,265Total noninterest income
    
    
    1,193
    
    
    
    1,491
    
    
    
    1,229
    
    
    
    1,289Total noninterest expense
    
    
    6,656
    
    
    
    7,327
    
    
    
    7,771
    
    
    
    6,944Income before income taxes
    
    
    4,290
    
    
    
    3,409
    
    
    
    1,443
    
    
    
    3,610Income taxes
    
    
    1,584
    
    
    
    1,252
    
    
    
    537
    
    
    
    1,326Net income
    
    $
    2,706
    
    
    $
    2,157
    
    
    $
    906
    
    
    $
    2,284Loss per share  basic
    
    $
    0.08
    
    
    $
    0.07
    
    
    $
    0.03
    
    
    $
    0.07Loss per share  diluted
    
    $
    0.08
    
    
    $
    0.07
    
    
    $
    0.03
    
    
    $
    0.072005 (unaudited)Interest income
    
    $
    18,384
    
    
    $
    19,271
    
    
    
    20,550
    
    
    
    21,486Interest expense
    
    
    8,999
    
    
    
    9,779
    
    
    
    10,231
    
    
    
    10,527Net interest income
    
    
    9,385
    
    
    
    9,492
    
    
    
    10,319
    
    
    
    10,959Provision for loan losses
    
    
    900
    
    
    
    (26
    )
    
    
    209
    
    
    
    826Net income after provision
for loan losses
    
    
    8,485
    
    
    
    9,518
    
    
    
    10,110
    
    
    
    10,133Total noninterest income
    
    
    601
    
    
    
    697
    
    
    
    1,005
    
    
    
    1,267Total noninterest expense
    
    
    5,433
    
    
    
    5,881
    
    
    
    5,753
    
    
    
    12,578Income (loss) before
income taxes
    
    
    3,653
    
    
    
    4,334
    
    
    
    5,362
    
    
    
    (1,178
    )Income taxes (benefit)
    
    
    3,062
    
    
    
    1,594
    
    
    
    1,940
    
    
    
    (469
    )Net income (loss)
    
    $
    591
    
    
    $
    2,740
    
    
    $
    3,422
    
    
    $
    (709
    )Loss per share  basic
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    ($0.02
    )Loss per share  diluted
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    ($0.02
    )
 -82-
    Table of Contents  Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Management of Market Risk
 General.
  Income Simulation.
 -83-
    Table of Contents  PercentageIncrease (Decrease) in Estimated NetAnnual Interest IncomeOver 24 Months300 basis point increase in
rates
    
    
    (17.22
    %)200 basis point increase in
rates
    
    
    (9.82
    %)100 basis point increase in
rates
    
    
    (4.05
    %)100 basis point decrease in
rates
    
    
    3.74
    %200 basis point decrease in
rates
    
    
    11.74
    %
  -84-
    Table of Contents  Item 8.
    
    Financial Statements and Supplementary Data
 Report of Independent Registered Public Accounting Firm
 
        -85-
    Table of Contents  Wauwatosa Holdings, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
December 31, 2006 and 2005 and June 30, 2005
 December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005(In Thousands, except share data)AssetsCash
    
    $
    26,745
    
    
    
    8,761
    
    
    
    10,107Federal funds sold
    
    
    19,458
    
    
    
    5,388
    
    
    
    8,779Interest-bearing deposits in other financial institutions
and other short term investments
    
    
    27,604
    
    
    
    2,349
    
    
    
    1,581Cash and cash equivalents
    
    
    73,807
    
    
    
    16,498
    
    
    
    20,467Securities available-for-sale (at fair value)
    
    
    117,330
    
    
    
    121,955
    
    
    
    83,991Loans held for sale
    
    
    5,387
    
    
    
    
    
    
    
    Loans receivable
    
    
    1,372,907
    
    
    
    1,306,018
    
    
    
    1,218,167Less: Allowance for loan losses
    
    
    7,195
    
    
    
    5,250
    
    
    
    4,606Loans receivable, net
    
    
    1,365,712
    
    
    
    1,300,768
    
    
    
    1,213,561Office properties and equipment, net
    
    
    32,625
    
    
    
    25,022
    
    
    
    24,018Federal Home Loan Bank stock, at cost
    
    
    17,213
    
    
    
    14,406
    
    
    
    14,097Cash surrender value of life insurance
    
    
    24,152
    
    
    
    22,792
    
    
    
    22,078Prepaid expenses and other assets
    
    
    12,244
    
    
    
    9,768
    
    
    
    7,920Total assets
    
    $
    1,648,470
    
    
    
    1,511,209
    
    
    
    1,386,132Liabilities and Shareholders EquityLiabilities:Demand deposits
    
    $
    58,407
    
    
    
    82,290
    
    
    
    100,861Money market and savings deposits
    
    
    94,472
    
    
    
    33,565
    
    
    
    27,117Time deposits
    
    
    883,339
    
    
    
    929,738
    
    
    
    1,000,813Total deposits
    
    
    1,036,218
    
    
    
    1,045,593
    
    
    
    1,128,791Federal Home Loan Bank advances short-term
    
    
    41,224
    
    
    
    87,209
    
    
    
    35,000Federal Home Loan Bank advances long-term
    
    
    292,779
    
    
    
    114,003
    
    
    
    58,162Advance payments by borrowers for taxes
    
    
    190
    
    
    
    181
    
    
    
    15,821Other liabilities
    
    
    36,787
    
    
    
    32,527
    
    
    
    14,942Total liabilities
    
    
    1,407,198
    
    
    
    1,279,513
    
    
    
    1,252,716Shareholders equity:Preferred stock (par value $.01 per share, authorized
20,000,000 shares, no shares issued)
    
    
    
    
    
    
    
    
    
    
    Common stock
(par value $.01 per share, authorized 200,000,000 shares, 33,723,750 shares issued, 33,114,539 and 33,038,385 shares outstanding at
December 31, 2006 and 2005, respectively)
    
    
    337
    
    
    
    337
    
    
    
    Additional paid-in capital
    
    
    104,182
    
    
    
    103,859
    
    
    
    Accumulated other comprehensive loss (net of taxes)
    
    
    (1,225
    )
    
    
    (1,571
    )
    
    
    (627
    )Retained earnings
    
    
    144,809
    
    
    
    136,756
    
    
    
    134,043Unearned ESOP shares
    
    
    (6,831
    )
    
    
    (7,685
    )
    
    
    Total shareholders equity
    
    
    241,272
    
    
    
    231,696
    
    
    
    133,416Total liabilities and shareholders equity
    
    $
    1,648,470
    
    
    
    1,511,209
    
    
    
    1,386,132
 See Accompanying notes to consolidated financial statements.
 -86-
    Table of Contents  Wauwatosa Holdings, Inc. and Subsidiaries
Consolidated Statements of Income
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 Years ended
    
    
    Six months ended
    
    
    Years endedDecember 31,
    
    
    December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(In Thousands, except per share amounts)(Unaudited)
    
    
    
    
    
    
    (Unaudited)Interest income:Loans
    
    $
    83,822
    
    
    
    74,020
    
    
    
    38,516
    
    
    
    34,272
    
    
    
    69,775
    
    
    
    61,530Mortgage-related securities
    
    
    4,263
    
    
    
    2,466
    
    
    
    1,389
    
    
    
    1,206
    
    
    
    2,283
    
    
    
    3,264Debt securities, federal funds sold and
short-term investments
    
    
    4,143
    
    
    
    3,250
    
    
    
    2,131
    
    
    
    1,102
    
    
    
    2,149
    
    
    
    1,294Total interest income
    
    
    92,228
    
    
    
    79,736
    
    
    
    42,036
    
    
    
    36,580
    
    
    
    74,207
    
    
    
    66,088Interest expense:Deposits
    
    
    42,038
    
    
    
    35,468
    
    
    
    18,296
    
    
    
    15,960
    
    
    
    33,285
    
    
    
    30,324Borrowings
    
    
    11,741
    
    
    
    4,069
    
    
    
    2,462
    
    
    
    1,330
    
    
    
    2,783
    
    
    
    2,108Total interest expense
    
    
    53,779
    
    
    
    39,537
    
    
    
    20,758
    
    
    
    17,290
    
    
    
    36,068
    
    
    
    32,432Net interest income
    
    
    38,449
    
    
    
    40,199
    
    
    
    21,278
    
    
    
    19,290
    
    
    
    38,139
    
    
    
    33,656Provision for loan losses
    
    
    2,201
    
    
    
    1,909
    
    
    
    1,035
    
    
    
    363
    
    
    
    1,238
    
    
    
    860Net interest income after provision for loan losses
    
    
    36,248
    
    
    
    38,290
    
    
    
    20,243
    
    
    
    18,927
    
    
    
    36,901
    
    
    
    32,796Noninterest income:Service charges on loans and deposits
    
    
    2,021
    
    
    
    1,745
    
    
    
    940
    
    
    
    929
    
    
    
    1,216
    
    
    
    1,144Increase in cash surrender value of life insurance
    
    
    1,055
    
    
    
    805
    
    
    
    587
    
    
    
    424
    
    
    
    642
    
    
    
    1,007Gain (loss) on sale of securities
    
    
    (819
    )
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    47Mortgage banking income
    
    
    2,109
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    836
    
    
    
    964
    
    
    
    745
    
    
    
    632
    
    
    
    1,441
    
    
    
    837Total noninterest income
    
    
    5,202
    
    
    
    3,526
    
    
    
    2,272
    
    
    
    1,985
    
    
    
    3,311
    
    
    
    3,035Noninterest expenses:Compensation, payroll taxes, and other employee benefits
    
    
    16,209
    
    
    
    13,133
    
    
    
    7,404
    
    
    
    5,705
    
    
    
    11,434
    
    
    
    10,763Occupancy, office furniture, and equipment
    
    
    4,304
    
    
    
    3,571
    
    
    
    1,802
    
    
    
    1,714
    
    
    
    3,482
    
    
    
    3,470Advertising
    
    
    1,369
    
    
    
    1,355
    
    
    
    764
    
    
    
    536
    
    
    
    1,128
    
    
    
    1,025Data processing
    
    
    1,730
    
    
    
    1,412
    
    
    
    840
    
    
    
    570
    
    
    
    1,142
    
    
    
    1,048Charitable contributions
    
    
    
    
    
    
    5,685
    
    
    
    5,310
    
    
    
    1,713
    
    
    
    2,088
    
    
    
    987Communications
    
    
    700
    
    
    
    619
    
    
    
    300
    
    
    
    272
    
    
    
    591
    
    
    
    525Professional fees
    
    
    1,243
    
    
    
    926
    
    
    
    529
    
    
    
    230
    
    
    
    627
    
    
    
    386Other
    
    
    3,143
    
    
    
    2,945
    
    
    
    1,382
    
    
    
    1,522
    
    
    
    3,084
    
    
    
    2,180Total noninterest expenses
    
    
    28,698
    
    
    
    29,646
    
    
    
    18,331
    
    
    
    12,262
    
    
    
    23,576
    
    
    
    20,384Income before income taxes
    
    
    12,752
    
    
    
    12,170
    
    
    
    4,184
    
    
    
    8,650
    
    
    
    16,636
    
    
    
    15,447Income taxes
    
    
    4,699
    
    
    
    6,127
    
    
    
    1,471
    
    
    
    2,864
    
    
    
    7,520
    
    
    
    4,863Net income
    
    $
    8,053
    
    
    
    6,043
    
    
    
    2,713
    
    
    
    5,786
    
    
    
    9,116
    
    
    
    10,584Loss per share:Basic
    
    $
    0.24
    
    
    
    (0.02
    )
    
    
    (0.02
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ADiluted
    
    $
    0.24
    
    
    
    (0.02
    )
    
    
    (0.02
    )
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AWeighted average shares outstanding:Basic
    
    
    33,076,565
    
    
    
    33,135,424
    
    
    
    33,135,424
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/ADiluted
    
    
    33,076,565
    
    
    
    33,135,424
    
    
    
    33,135,424
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/A
 See Accompanying notes to consolidated financial statements.
 -87-
    Table of Contents  Wauwatosa Holdings, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders Equity
Years Ended December 31, 2006 and June 30, 2005 and 2004
Six Months Ended December 31, 2005
 AccumulatedAdditional
    
    
    
    
    
    
    Unearned
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Retained
    
    
    ESOP
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Income (Loss)
    
    
    Equity(In Thousands)Balances at June 30, 2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    134,043
    
    
    
    
    
    
    
    (627
    )
    
    
    133,416Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,713
    
    
    
    
    
    
    
    
    
    
    
    2,713Other comprehensive income:Net unrealized holding gains on
available for sale securities arising during the period, net of taxes $521
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (944
    )
    
    
    (944
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,769Sale of common stock, net of issuance costs of $2,439
    
    
    10,117
    
    
    
    101
    
    
    
    98,630
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,731Contribution of shares to charitable foundation
    
    
    557
    
    
    
    6
    
    
    
    5,559
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,565Capitalization of Lamplighter Financial, MHC
    
    
    23,050
    
    
    
    230
    
    
    
    (330
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100
    )Purchase of ESOP shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,539
    )
    
    
    
    
    
    
    (8,539
    )ESOP shares committed to be released to Plan participants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    854
    
    
    
    
    
    
    
    854Balances at December 31, 2005
    
    
    33,724
    
    
    
    337
    
    
    
    103,859
    
    
    
    136,756
    
    
    
    (7,685
    )
    
    
    (1,571
    )
    
    
    231,696Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,053
    
    
    
    
    
    
    
    
    
    
    
    8,053Other comprehensive income:Net unrealized holding losses on
available for sale securities arising during the period, net of taxes $101
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (187
    )
    
    
    (187
    )Reclassification adjustment for net losses on
available for sale securities realized in net
income, net of taxes of $286
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    533
    
    
    
    533Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,399ESOP shares committed to be released to Plan participants
    
    
    
    
    
    
    
    
    
    
    323
    
    
    
    
    
    
    
    854
    
    
    
    
    
    
    
    1,177Balances at December 31, 2006
    
    
    33,724
    
    
    $
    337
    
    
    
    104,182
    
    
    
    144,809
    
    
    
    (6,831
    )
    
    
    (1,225
    )
    
    
    241,272
 See Accompanying notes to consolidated financial statements.
 -88-
    Table of Contents  Wauwatosa Holdings, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders Equity
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005
 AccumulatedOtherComprehensive
    
    
    RetainedIncome (Loss)
    
    
    Earnings
    
    
    Total Equity(In Thousands)Balances at June 30, 2003
    
    $
    252
    
    
    
    114,343
    
    
    
    114,595Comprehensive income:Net income
    
    
    
    
    
    
    10,584
    
    
    
    10,584Other comprehensive income:Net unrealized holding losses on available for
sale securities arising during the year, net of taxes $1,211
    
    
    (2,350
    )
    
    
    
    
    
    
    (2,350
    )Less reclassification adjustment for net gains
on available for sale securities realized in net income, net of taxes of $16
    
    
    (31
    )
    
    
    
    
    
    
    (31
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    8,203Balances at June 30, 2004
    
    
    (2,129
    )
    
    
    124,927
    
    
    
    122,798Comprehensive income:Net income
    
    
    
    
    
    
    9,116
    
    
    
    9,116Other comprehensive income:Net unrealized holding gains on available for sale securities arising
during the year, net of taxes $799
    
    
    1,509
    
    
    
    
    
    
    
    1,509Less reclassification adjustment for net gains on available for sale
securities realized in net income, net of taxes of $5
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    10,618Balances at June 30, 2005
    
    $
    (627
    )
    
    
    134,043
    
    
    
    133,416
 See Accompanying notes to consolidated financial statements.
 -89-
    Table of Contents  Wauwatosa Holdings, Inc. and Subsidiaries
Consolidated Statements of Changes Cash Flows
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 Years ended
    
    
    Six months ended
    
    
    Years endedDecember 31,
    
    
    December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(In Thousands)(Unaudited)
    
    
    
    
    
    
    (Unaudited)Operating activities:Net income
    
    
    8,053
    
    
    
    6,043
    
    
    
    2,713
    
    
    
    5,786
    
    
    
    9,116
    
    
    
    10,584Adjustments to reconcile net income to net
cash provided by operating activities:Provision for loan losses
    
    
    2,201
    
    
    
    1,909
    
    
    
    1,035
    
    
    
    363
    
    
    
    1,238
    
    
    
    860Provision for depreciation
    
    
    2,369
    
    
    
    2,017
    
    
    
    1,053
    
    
    
    945
    
    
    
    1,607
    
    
    
    1,353Deferred income taxes
    
    
    (1,280
    )
    
    
    (2,344
    )
    
    
    (1,933
    )
    
    
    (780
    )
    
    
    (1,192
    )
    
    
    (133
    )Net
amortization of premium on debt and mortgage-related securities
    
    
    22
    
    
    
    (198
    )
    
    
    (81
    )
    
    
    (229
    )
    
    
    49
    
    
    
    190Amortization of unearned ESOP shares
    
    
    1,177
    
    
    
    854
    
    
    
    854
    
    
    
    
    
    
    
    
    
    
    
    Gain on sale of loans held for sale
    
    
    (1,054
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loans originated for sale
    
    
    (84,603
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds on sales of loans originated for sale
    
    
    80,270
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Charitable contribution of common stock
    
    
    
    
    
    
    5,565
    
    
    
    5,565
    
    
    
    
    
    
    
    
    
    
    
    Decrease (increase) in accrued interest receivable
    
    
    (621
    )
    
    
    854
    
    
    
    (412
    )
    
    
    (1
    )
    
    
    (230
    )
    
    
    87Increase in cash surrender value of life insurance
    
    
    (1,055
    )
    
    
    (928
    )
    
    
    (587
    )
    
    
    (451
    )
    
    
    (642
    )
    
    
    (1,007
    )Increase (decrease) in accrued interest on deposits
    
    
    1,301
    
    
    
    (641
    )
    
    
    68
    
    
    
    480
    
    
    
    1,269
    
    
    
    333Increase (decrease) in other liabilities
    
    
    2,901
    
    
    
    6,029
    
    
    
    1,241
    
    
    
    2,322
    
    
    
    3,004
    
    
    
    (238
    )FHLB stock dividends
    
    
    
    
    
    
    (684
    )
    
    
    (309
    )
    
    
    (400
    )
    
    
    (776
    )
    
    
    (664
    )(Gain) loss on sale of securities
    
    
    819
    
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    (47
    )Gain on sale of office properties and equipment
    
    
    7
    
    
    
    (571
    )
    
    
    (571
    )
    
    
    (488
    )
    
    
    (488
    )
    
    
    Other
    
    
    (386
    )
    
    
    (477
    )
    
    
    1,144
    
    
    
    1,654
    
    
    
    118
    
    
    
    (94
    )Net cash provided by operating activities
    
    
    10,121
    
    
    
    17,416
    
    
    
    9,780
    
    
    
    9,201
    
    
    
    13,061
    
    
    
    11,224Investing activities:Proceeds from maturities of debt securities
    
    
    
    
    
    
    1,003
    
    
    
    6,350
    
    
    
    1,000
    
    
    
    25,397
    
    
    
    19,300Proceeds from sales of debt securities
    
    
    12,832
    
    
    
    262
    
    
    
    
    
    
    
    
    
    
    
    262
    
    
    
    5,040Purchases of debt securities
    
    
    
    
    
    
    (1,356
    )
    
    
    (6,700
    )
    
    
    (10,000
    )
    
    
    (34,299
    )
    
    
    (31,885
    )Principal repayments on mortgage-related securities
    
    
    15,457
    
    
    
    16,855
    
    
    
    10,323
    
    
    
    14,914
    
    
    
    21,091
    
    
    
    31,993Proceeds from sales of mortgage-related securities
    
    
    13,036
    
    
    
    
    
    
    
    
    
    
    
    5,347
    
    
    
    5,348
    
    
    
    2,056Purchase of mortgage-related securities
    
    
    (36,037
    )
    
    
    (49,682
    )
    
    
    (49,682
    )
    
    
    
    
    
    
    
    
    
    
    (39,400
    )Net increase in FHLB stock
    
    
    (2,807
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,000
    )Net increase in loans receivable
    
    
    (68,717
    )
    
    
    (161,771
    )
    
    
    (88,242
    )
    
    
    (79,554
    )
    
    
    (153,126
    )
    
    
    (127,550
    )Purchase of bank owned life insurance
    
    
    (306
    )
    
    
    (306
    )
    
    
    (126
    )
    
    
    (126
    )
    
    
    (456
    )
    
    
    (363
    )Net purchases of premises and equipment
    
    
    (11,598
    )
    
    
    (4,186
    )
    
    
    (2,346
    )
    
    
    (4,964
    )
    
    
    (6,506
    )
    
    
    (5,087
    )Proceeds from sales of foreclosed properties
    
    
    1,233
    
    
    
    1,564
    
    
    
    235
    
    
    
    732
    
    
    
    1,883
    
    
    
    2,403Proceeds from sales of premises and equipment
    
    
    1,751
    
    
    
    843
    
    
    
    847
    
    
    
    680
    
    
    
    680
    
    
    
    Purchase of Waterstone Mortgage Corporation
    
    
    (1,081
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash used by investing activities
    
    
    (76,237
    )
    
    
    (196,774
    )
    
    
    (129,341
    )
    
    
    (71,971
    )
    
    
    (139,726
    )
    
    
    (147,493
    )
 See Accompanying notes to consolidated financial statements.
 -90-
    Table of Contents  Wauwatosa Holdings, Inc. and Subsidiaries
Consolidated Statements of Changes Cash Flows
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 Financing activities:Net increase (decrease) in deposits
    
    
    (9,375
    )
    
    
    (37,403
    )
    
    
    (83,198
    )
    
    
    47,408
    
    
    
    93,203
    
    
    
    126,097Net change in short-term FHLB advances
    
    
    (112,209
    )
    
    
    59,507
    
    
    
    38,000
    
    
    
    (25,000
    )
    
    
    10,000
    
    
    
    (10,000
    )Proceeds from long-term FHLB advances
    
    
    245,000
    
    
    
    70,050
    
    
    
    70,050
    
    
    
    21,656
    
    
    
    23,162
    
    
    
    10,000Proceeds from federal funds purchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    Net increase (decrease) in advance payments by borrowers for taxes
    
    
    9
    
    
    
    40
    
    
    
    648
    
    
    
    (2,116
    )
    
    
    1,375
    
    
    
    797Net proceeds from sale of stock
    
    
    
    
    
    
    98,731
    
    
    
    98,731
    
    
    
    
    
    
    
    
    
    
    
    Capitalization of Lamplighter, MHC
    
    
    
    
    
    
    (100
    )
    
    
    (100
    )
    
    
    
    
    
    
    
    
    
    
    Financing for purchase of ESOP shares
    
    
    
    
    
    
    (8,539
    )
    
    
    (8,539
    )
    
    
    
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    123,425
    
    
    
    182,286
    
    
    
    115,592
    
    
    
    56,948
    
    
    
    127,740
    
    
    
    126,894Increase (decrease) in cash and cash equivalents
    
    
    57,309
    
    
    
    2,928
    
    
    
    (3,969
    )
    
    
    (5,822
    )
    
    
    1,075
    
    
    
    (9,375
    )Cash and cash equivalents at beginning of period
    
    
    16,498
    
    
    
    13,570
    
    
    
    20,467
    
    
    
    19,392
    
    
    
    19,392
    
    
    
    28,767Cash and cash equivalents at end of period
    
    $
    73,807
    
    
    
    16,498
    
    
    
    16,498
    
    
    
    13,570
    
    
    
    20,467
    
    
    
    19,392Supplemental information:Cash paid or credited during the period for:Income tax payments
    
    
    4,777
    
    
    
    5,765
    
    
    
    2,970
    
    
    
    3,130
    
    
    
    5,925
    
    
    
    5,045Interest payments
    
    
    52,477
    
    
    
    38,683
    
    
    
    20,691
    
    
    
    16,810
    
    
    
    34,798
    
    
    
    32,100Noncash investing activities:Loans receivable transferred to foreclosed properties
    
    
    1,572
    
    
    
    269
    
    
    
    
    
    
    
    1,571
    
    
    
    1,921
    
    
    
    1,057Obligations under capital lease
    
    
    
    
    
    
    3,423
    
    
    
    
    
    
    
    
    
    
    
    3,423
    
    
    
    Non Cash financing activities:Long-term FHLB advances reclassified to short-term
    
    
    66,224
    
    
    
    12,703
    
    
    
    14,209
    
    
    
    
    
    
    
    25,000
    
    
    
    25,000
 See Accompanying notes to consolidated financial statements.
 -91-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 1) Summary of Accounting Policies
 a)
    
    OrganizationThe Board of Directors of Wauwatosa Savings Bank (the Bank) adopted the Plan of
Reorganization and related Stock Issuance Plan on May 17, 2005, as amended on June 3, 2005,
under which Wauwatosa Holdings, Inc. (the Company) was formed to become the mid-tier holding
company for the Bank. In addition, Lamplighter Financial, MHC, a Wisconsin-chartered mutual
holding company, was formed to become the majority owner of Wauwatosa Holdings, Inc.In connection with the Plan of Reorganization and Stock Issuance Plan, on October 4, 2005,
10,117,125 shares of Wauwatosa Holdings, Inc. were sold to eligible subscribers in a
registered stock offering; 556,442 shares were issued to the Wauwatosa Savings Bank Fund of
the Waukesha County Community Foundation, and the remaining 23,050,183 shares were issued to
Lamplighter Financial, MHC. The Companys outstanding common shares are 68.4% owned by
Lamplighter Financial, MHC.b)
    
    Fiscal Year ChangeIn 2005, the Company changed its fiscal year ended June 30 to a fiscal year ended December
31. The six month period ended December 31, 2005, transitions between the Companys old and
new fiscal year ends. The results of operations for the six-month period ended December 31,
2005 are not necessarily indicative of results that may be expected for any other interim
period or for an entire fiscal year. The unaudited financial statements for the year ended
December 31, 2005 and for the six months ended December 31, 2004, in the opinion of
management, include all adjustments (consisting of normal accruals) necessary for a fair
presentation in accordance with U.S. generally accepted accounting principles.c)
    
    Nature of OperationsThe Company operates as a one-bank holding company. The Bank is principally engaged in the
business of attracting deposits from the general public and using such deposits to originate
residential real estate loans.d)
    
    Principles of ConsolidationThe consolidated financial statements include the accounts and operations of Wauwatosa
Holdings, Inc. and its wholly owned subsidiary, Wauwatosa Savings Bank. The Bank has the
following wholly owned subsidiaries: Wauwatosa Investments, Inc., Waterston Mortgage
Corporation and Main Street Real Estate Holdings, LLC. All significant intercompany accounts
and transactions have been eliminated in consolidation.The Bank provides a full range of financial services to customers through branch locations
in southeastern Wisconsin. The Bank is subject to the regulations of certain federal and
state agencies and undergoes periodic examinations by those regulatory authorities.e)
    
    Use of EstimatesThe preparation of the consolidated financial statements requires management of the Company
to make a number of estimates and assumptions relating to the reported amount of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the
 -92-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 reported amounts of revenues and expenses during the period. Significant items subject to
such estimates and assumptions include the allowance for loan losses and deferred income
taxes. Actual results could differ from those estimates.f)
    
    Cash and Cash EquivalentsThe Company considers federal funds sold and highly liquid debt instruments with a maturity
of three months or less when purchased to be cash equivalents.g)
    
    SecuritiesManagement has designated all securities as available-for-sale. As such, they are stated at
fair value, with the unrealized gains and losses, net of tax, reported as a separate
component of equity.The cost of debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity or, in the case of mortgage-related securities, over the estimated
life of the security. Such amortization is included in interest income from investments.
Declines in the fair value of investment securities available for sale that are deemed to be
other-than-temporary are charged to earnings as a realized loss and a new cost basis for the
securities is established. In evaluating other-than-temporary impairment, management
considers the length of time and extent to which the fair value has been less than cost, the
financial condition and near-term prospects of the issuer, and the intent and ability of the
Company to retain its investment in the issuer for a period of time sufficient to allow for
any anticipated recovery in fair value in the near term. Realized securities gains or losses
on securities sales (using specific identification method) and declines in value judged to
be other-than-temporary are included in investment securities gains (losses), net, in the
consolidated statements of income.Federal Home Loan Bank stock is carried at cost, which is the amount that the stock is
redeemable by tendering to the FHLB or the amount at which shares can be sold to other FHLB
members. FHLB dividends are recognized as income on their ex-dividend date.h)
    
    Loans Held for SaleLoans held for sale, which generally consist of current origination of certain fixed-rate
mortgage loans, are carried at the lower of cost or estimated market value as determined on
an aggregate basis. The amount by which cost exceeds market value is accounted for as a
valuation adjustment to the carrying value of the loans. Changes, if any, are included in
mortgage banking income in the consolidated statements of income.i)
    
    Loans Receivable and Related Interest IncomeLoans are carried at the principal amount outstanding, net of any unearned income. Loan
origination and commitment fees and certain direct loan origination costs are deferred and
the net amount amortized as an adjustment of the related loans yield. Amortization is based
on a level-yield method over the contractual life of the related loans or until the loan is
paid in full. Interest on loans is accrued and credited to income as it is earned. Accrual
of interest is generally discontinued either when reasonable doubt exists as to the full,
timely collection of interest or principal, or when a loan becomes contractually past due
more than 90 days with respect to interest or principal. At that time, previously accrued
and uncollected interest on such loans is reversed and additional income is recorded only to
the extent that payments are received and the collection of principal is reasonably assured.
Generally, loans are restored to accrual status when the
 -93-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 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.j)
    
    Allowance for Loan LossesThe allowance for loan losses is established as losses are estimated to have occurred
through a provision for loan losses charged to income. Loan losses are charged against the
allowance when management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance.The Bank establishes valuation allowances on multi-family and commercial real estate loans
considered impaired. A loan is considered impaired when, based on current information and
events, it is probable that the Bank will not be able to collect all amounts due according
to the contractual terms of the loan agreement. A valuation allowance is established for an
amount equal to the impairment when the carrying amount of the loan exceeds the present
value of the expected future cash flows, discounted at the loans original effective
interest rate or the fair value of the underlying collateral.The Bank also establishes valuation allowances based on an evaluation of the various risk
components that are inherent in the loan portfolio. The risk components that are evaluated
include past loan loss experience; the level of nonperforming and classified assets; current
economic conditions; volume, growth, and composition of the loan portfolio; adverse
situations that may affect the borrowers ability to repay; the estimated value of any
underlying collateral; peer group comparisons; regulatory guidance; and other relevant
factors. The allowance is increased by provisions charged to earnings and reduced by
charge-offs, net of recoveries. The adequacy of the allowance for loan losses is approved
quarterly by the Banks board of directors. The allowance reflects managements best
estimate of the amount needed to provide for the probable loss on impaired loans, as well as
other credit risks of the Bank, and is based on a risk model developed and implemented by
management and approved by the Banks board of directors.Actual results could differ from this estimate, and future additions to the allowance may be
necessary based on unforeseen changes in economic conditions. In addition, federal
regulators periodically review the Banks allowance for loan losses. Such regulators have
the authority to require the Bank to recognize additions to the allowance at the time of
their examination.k)
    
    Foreclosed PropertiesForeclosed properties acquired through, or in lieu of, loan foreclosure are recorded at the
lower of cost or fair value, minus estimated costs to sell at the date of foreclosure.
Impairments of foreclosed properties after acquisition are charged to expense at the time of
impairment.l)
    
    Cash Surrender Value of Life InsuranceThe Company purchased bank owned life insurance on the lives of certain employees. The
Company is the beneficiary of the life insurance policies. The cash surrender value of life
insurance is reported at the amount that would be received in cash if the polices are
surrendered. Increases in the cash value of the policies and proceeds of death benefits
received are recorded in non-interest income. The increase in cash surrender value of life
insurance is not subject to income taxes, as long as the Company has the intent and ability
to hold the policies until the death benefits are received.
 -94-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 m)
    
    Office Properties and EquipmentOffice properties and equipment, including leasehold improvements and software, are stated
at cost, net of depreciation and amortization. Depreciation and amortization are computed on
the straight-line method over the estimated useful lives of the related assets. Leasehold
improvements are amortized over the lease term, if shorter than the estimated useful life.
Maintenance and repairs are charged to expense as incurred, while additions or major
improvements are capitalized and depreciated over their estimated useful lives. Estimated
useful lives of the assets are 10 to 30 years for office properties, three to 10 years for
equipment, and three years for software. Rent expense related to long-term operating leases
is recorded on the accrual basis.n)
    
    Income TaxesDeferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. In assessing the likelihood of realization of
deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income, and, if
necessary, tax planning strategies in making this assessment.The Company accrues for income tax exposures for amounts management deems probable to be
paid upon settlement of the related income tax issue. Amounts are accrued in the period in
which the exposure becomes probable and estimable. When the exposure is no longer
determined to be probable, the accrual is reversed as a reduction of income tax expense.o)
    
    Earnings Per ShareBasic earnings per share (EPS) is computed by dividing net income by the weighted average
number of common shares outstanding for the period. Diluted EPS is computed by dividing net
income by the weighted average number of common shares outstanding adjusted for the dilutive
effect of all potential common shares. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were exercised or
converted into common stock. The Company does not currently have any securities or
contracts to issue common stock that, if exercised or converted into common stock, would
result in dilution. Shares of the Employee Stock Ownership Plan committed to be released
are considered outstanding for both common and diluted EPS.p)
    
    Other Comprehensive IncomeComprehensive income is the total of reported net income and all other revenues, expenses,
gains and losses that under generally accepted accounting principles bypass reported net
income. The Company includes unrealized gains or losses, net of tax, on securities
available for sale in other comprehensive income.
 -95-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 q)
    
    Employee Stock Ownership Plan (ESOP)Compensation expense under the ESOP is equal to the fair value of common shares released or
committed to be released to participants in the ESOP in each respective period. Common
stock purchased by the ESOP and not committed to be released to participants is included in
the consolidated statements of financial condition at cost as a reduction of shareholders
equity.r)
    
    ReclassificationsCertain prior year amounts have been reclassified to conform to the 2006 presentation.
 -96-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 2) Securities Available for Sale
 The amortized cost and fair values of the Companys investment in securities follow:
 December 31, 2006Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealizedcost
    
    
    gains
    
    
    losses
    
    
    Fair value(In Thousands)Mortgage-backed securities
    
    $
    18,274
    
    
    
    3
    
    
    
    (275
    )
    
    
    18,002Collateralized mortgage obligations
    
    
    82,419
    
    
    
    1
    
    
    
    (1,549
    )
    
    
    80,871Mortgage-related securities
    
    
    100,693
    
    
    
    4
    
    
    
    (1,824
    )
    
    
    98,873Government agency bonds
    
    
    13,450
    
    
    
    
    
    
    
    (193
    )
    
    
    13,257Municipals
    
    
    4,278
    
    
    
    151
    
    
    
    (8
    )
    
    
    4,421Debt securities
    
    
    17,728
    
    
    
    151
    
    
    
    (201
    )
    
    
    17,678Other securities
    
    
    794
    
    
    
    
    
    
    
    (15
    )
    
    
    779$
    119,215
    
    
    
    155
    
    
    
    (2,040
    )
    
    
    117,330
 December 31, 2005Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealizedcost
    
    
    gains
    
    
    losses
    
    
    Fair value(In Thousands)Mortgage-backed securities
    
    $
    17,478
    
    
    
    3
    
    
    
    (340
    )
    
    
    17,141Collateralized mortgage obligations
    
    
    76,037
    
    
    
    
    
    
    
    (1,600
    )
    
    
    74,437Mortgage-related securities
    
    
    93,515
    
    
    
    3
    
    
    
    (1,940
    )
    
    
    91,578Government agency bonds
    
    
    26,577
    
    
    
    
    
    
    
    (627
    )
    
    
    25,950Municipals
    
    
    4,278
    
    
    
    176
    
    
    
    (27
    )
    
    
    4,427Debt securities
    
    
    30,855
    
    
    
    176
    
    
    
    (654
    )
    
    
    30,377$
    124,370
    
    
    
    179
    
    
    
    (2,594
    )
    
    
    121,955
 -97-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 June 30, 2005Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealizedcost
    
    
    gains
    
    
    losses
    
    
    Fair value(In Thousands)Mortgage-backed securities
    
    $
    5,817
    
    
    
    3
    
    
    
    (180
    )
    
    
    5,640Collateralized mortgage obligations
    
    
    48,621
    
    
    
    9
    
    
    
    (825
    )
    
    
    47,805Mortgage-related securities
    
    
    54,438
    
    
    
    12
    
    
    
    (1,005
    )
    
    
    53,445Government agency bonds
    
    
    26,580
    
    
    
    27
    
    
    
    (220
    )
    
    
    26,387Municipals
    
    
    3,923
    
    
    
    238
    
    
    
    (2
    )
    
    
    4,159Debt securities
    
    
    30,503
    
    
    
    265
    
    
    
    (222
    )
    
    
    30,546$
    84,941
    
    
    
    277
    
    
    
    (1,227
    )
    
    
    83,991
 The amortized cost and fair value of securities at December 31, 2006 and 2005, by
contractual maturity, are shown below. Expected maturities may differ from contractual
maturities because issuers or borrowers may have the right to prepay obligations with or
without prepayment penalties.
 December 31, 2006Amortizedcost
    
    
    Fair value(In Thousands)Debt securities:Due within one year
    
    $
    5,502
    
    
    
    5,447Due after one year
through five years
    
    
    10,543
    
    
    
    10,538Due after five years
through ten years
    
    
    1,683
    
    
    
    1,693Mortgage-related securities
    
    
    100,693
    
    
    
    98,873Mutual Funds
    
    
    794
    
    
    
    779$
    119,215
    
    
    
    117,330
 -98-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
  Years Ended December 31,
    
    Six Months Ended December 31,
    
    Year ended June 30,2006
    
    2005
    
    2005
    
    2004
    
    2005
    
    2004(In Thousands)(Unaudited)
    
    
    
    
    
    (Unaudited)Proceeds
    
    $
    25,868
    
    
    
    262
    
    
    
    
    
    
    
    5,347
    
    
    
    5,610
    
    
    
    7,096Gross gains
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    4
    
    
    
    16
    
    
    
    49Gross losses
    
    
    819
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4
    
    
    
    2
  December 31, 2006Less than 12 months
    
    
    12 months or longer
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealizedvalue
    
    
    loss
    
    
    value
    
    
    loss
    
    
    value
    
    
    loss(In Thousands)Government agency bonds
    
    $
    
    
    
    
    
    
    
    
    13,257
    
    
    
    (193
    )
    
    
    13,257
    
    
    
    (193
    )Municipals
    
    
    874
    
    
    
    (5
    )
    
    
    472
    
    
    
    (3
    )
    
    
    1,346
    
    
    
    (8
    )Mortgage-related securities
    
    
    38,986
    
    
    
    (470
    )
    
    
    54,922
    
    
    
    (1,354
    )
    
    
    93,908
    
    
    
    (1,824
    )Other Securities
    
    
    778
    
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    778
    
    
    
    (15
    )$
    40,638
    
    
    
    (490
    )
    
    
    68,651
    
    
    
    (1,550
    )
    
    
    109,289
    
    
    
    (2,040
    )
 December 31, 2005Less than 12 months
    
    
    12 months or longer
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealizedvalue
    
    
    loss
    
    
    value
    
    
    loss
    
    
    value
    
    
    loss(In Thousands)Government agency bonds
    
    $
    13,863
    
    
    
    (303
    )
    
    
    12,088
    
    
    
    (324
    )
    
    
    25,951
    
    
    
    (627
    )Municipals
    
    
    1,327
    
    
    
    (27
    )
    
    
    
    
    
    
    
    
    
    
    1,327
    
    
    
    (27
    )Mortgage-related securities
    
    
    55,679
    
    
    
    (716
    )
    
    
    35,739
    
    
    
    (1,224
    )
    
    
    91,418
    
    
    
    (1,940
    )$
    70,869
    
    
    
    (1,046
    )
    
    
    47,827
    
    
    
    (1,548
    )
    
    
    118,696
    
    
    
    (2,594
    )
 June 30, 2005Less than 12 months
    
    
    12 months or longer
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealizedvalue
    
    
    loss
    
    
    value
    
    
    loss
    
    
    value
    
    
    loss(In Thousands)Government agency bonds
    
    $
    18,952
    
    
    
    (167
    )
    
    
    2,948
    
    
    
    (53
    )
    
    
    21,900
    
    
    
    (220
    )Municipals
    
    
    999
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    999
    
    
    
    (2
    )Mortgage-related securities
    
    
    17,341
    
    
    
    (173
    )
    
    
    34,378
    
    
    
    (832
    )
    
    
    51,719
    
    
    
    (1,005
    )$
    37,292
    
    
    
    (342
    )
    
    
    37,326
    
    
    
    (885
    )
    
    
    74,618
    
    
    
    (1,227
    )
  -99-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
  3) Loans Receivable
  December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005(In Thousands)Mortgage loans:Residential real estate:Single family
    
    $
    472,852
    
    
    
    469,395
    
    
    
    430,333Two- to four-family
    
    
    250,571
    
    
    
    256,270
    
    
    
    251,268Over four-family
    
    
    468,750
    
    
    
    443,528
    
    
    
    407,601Construction
    
    
    175,165
    
    
    
    165,516
    
    
    
    149,540Commercial real estate
    
    
    46,610
    
    
    
    34,543
    
    
    
    36,586Land
    
    
    27,951
    
    
    
    23,685
    
    
    
    24,282Commercial loans
    
    
    2,657
    
    
    
    
    
    
    
    Credit cards
    
    
    141
    
    
    
    126
    
    
    
    150Other
    
    
    86
    
    
    
    33
    
    
    
    521,444,783
    
    
    
    1,393,096
    
    
    
    1,299,812Less:Undisbursed loan proceeds
    
    
    67,390
    
    
    
    82,712
    
    
    
    77,484Unearned loan fees
    
    
    4,486
    
    
    
    4,366
    
    
    
    4,161$
    1,372,907
    
    
    
    1,306,018
    
    
    
    1,218,167
   -100-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
  Years ended
    
    
    Six months endedDecember 31,
    
    
    December 31,
    
    
    Years ended June 30,2006
    
    
    2005
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(In Thousands)(Unaudited)
    
    
    
    
    
    
    (Unaudited)Balance at beginning of period
    
    $
    5,250
    
    
    
    3,737
    
    
    
    4,606
    
    
    
    3,378
    
    
    
    3,378
    
    
    
    2,970Provision for loan losses
    
    
    2,201
    
    
    
    1,909
    
    
    
    1,035
    
    
    
    363
    
    
    
    1,238
    
    
    
    860Charge-offs
    
    
    (536
    )
    
    
    (397
    )
    
    
    (391
    )
    
    
    (4
    )
    
    
    (11
    )
    
    
    (453
    )Recoveries
    
    
    280
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Balance at end of period
    
    $
    7,195
    
    
    
    5,250
    
    
    
    5,250
    
    
    
    3,737
    
    
    
    4,606
    
    
    
    3,378Percentage of allowance to
gross loans
    
    
    0.52
    %
    
    
    0.40
    %
    
    
    0.40
    %
    
    
    0.33
    %
    
    
    0.38
    %
    
    
    0.32
    %
  December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005(In Thousands)Non-performing loans
    
    $
    28,888
    
    
    
    18,065
    
    
    
    13,076
  December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005(In Thousands)Impaired loans for which an allowance
has been provided
    
    $
    11,430
    
    
    
    699
    
    
    
    1,158Impaired loans for which no allowance
has been provided
    
    
    18,499
    
    
    
    11,549
    
    
    
    5,951Total loans determined to be impaired
    
    $
    29,929
    
    
    
    12,248
    
    
    
    7,109Allowance for loan losses related to
impaired loans
    
    $
    1,616
    
    
    
    230
    
    
    
    195Average recorded investment in
impaired loans
    
    $
    14,447
    
    
    
    10,784
    
    
    
    6,824Cash basis interest income recognized
from impaired loans
    
    $
    2,216
    
    
    
    1,001
    
    
    
    492
 -101-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
  Years ended
    
    
    Six months ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005
    
    
    2005(In Thousands)Balance at beginning of period
    
    $
    885
    
    
    
    781
    
    
    
    896
    
    
    
    747New loans
    
    
    145
    
    
    
    300
    
    
    
    
    
    
    
    574Repayments
    
    
    (80
    )
    
    
    (196
    )
    
    
    (11
    )
    
    
    (425
    )Balance at end of period
    
    $
    950
    
    
    
    885
    
    
    
    885
    
    
    
    896Average interest rate at end of period
    
    
    3.90
    %
    
    
    3.08
    %
    
    
    3.08
    %
    
    
    3.08
    %
  4) Office Properties and Equipment
  December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005(In Thousands)Land
    
    $
    5,989
    
    
    
    4,962
    
    
    
    5,031Office buildings and improvements
    
    
    28,838
    
    
    
    21,796
    
    
    
    20,579Furniture and equipment
    
    
    11,301
    
    
    
    9,399
    
    
    
    8,80846,128
    
    
    
    36,157
    
    
    
    34,418Less accumulated depreciation
    
    
    (13,503
    )
    
    
    (11,135
    )
    
    
    (10,400
    )$
    32,625
    
    
    
    25,022
    
    
    
    24,018
  -102-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
   December 31,2006
    
    
    2005(In Thousands)Office buildings and improvements
    
    $
    5,724
    
    
    
    5,765Less accumulated depreciation
    
    
    (240
    )
    
    
    (93
    )$
    5,484
    
    
    
    5,672
   Capital
    
    
    Operatinglease
    
    
    leases(In Thousands)Within one year
    
    $
    300
    
    
    
    98One to two years
    
    
    300
    
    
    
    107Two to three years
    
    
    3,375
    
    
    
    104Three to four years
    
    
    
    
    
    
    Four to five years
    
    
    
    
    
    
    After five years
    
    
    
    
    
    
    Total
    
    $
    3,975
    
    
    
    309Net minimum lease payments
    
    
    3,975Less amounts representing interest
    
    
    (601
    )Present value of net minimum
capital lease payments
    
    $
    3,374
 5) Deposits
  -103-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
  Years ended December 31,2006
    
    
    2005(In Thousands)(Unaudited)Interest-bearing demand deposits
    
    $
    631
    
    
    
    1,104Money market and savings deposits
    
    
    2,326
    
    
    
    212Time deposits
    
    
    39,081
    
    
    
    34,152$
    42,038
    
    
    
    35,468
 Six months ended December 31,
    
    
    Year ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(In Thousands)(Unaudited)Interest-bearing demand deposits
    
    $
    637
    
    
    
    395
    
    
    
    863
    
    
    
    741Money market and savings deposits
    
    
    122
    
    
    
    112
    
    
    
    202
    
    
    
    326Time deposits
    
    
    17,537
    
    
    
    15,453
    
    
    
    32,220
    
    
    
    29,257$
    18,296
    
    
    
    15,960
    
    
    
    33,285
    
    
    
    30,324
  (In Thousands)Within one year
    
    $
    693,396One to two years
    
    
    111,080Two to three years
    
    
    45,720Three to four years
    
    
    29,751Four through five years
    
    
    3,392After five years
    
    
    $
    883,339
 -104-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 6) FHLB Advances
  December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005(In Thousands)Federal Home Loan Bank (FHLB) advances:Short-term FHLB advances:At 2.62%, due January 2006
    
    $
    
    
    
    
    25,000
    
    
    
    25,000At 2.21%, due January 2006
    
    
    
    
    
    
    10,000
    
    
    
    10,000At 4.41%, due January 2006
    
    
    
    
    
    
    23,000
    
    
    
    At 3.26%, due July 2006
    
    
    
    
    
    
    11,777
    
    
    
    At 2.83%, due September 2006
    
    
    
    
    
    
    2,432
    
    
    
    At 4.49%, due October 2006
    
    
    
    
    
    
    15,000
    
    
    
    At 3.56%, due February 2007
    
    
    7,000
    
    
    
    
    
    
    
    At 3.17%, due August 2007
    
    
    5,408
    
    
    
    
    
    
    
    At 3.19%, due September 2007
    
    
    4,123
    
    
    
    
    
    
    
    At 3.09%, due October 2007
    
    
    4,693
    
    
    
    
    
    
    
    At 4.56%, due October 2007
    
    
    10,000
    
    
    
    
    
    
    
    At 4.73%, due December 2007
    
    
    10,000
    
    
    
    
    
    
    
    Total short-term FHLB advances
    
    
    41,224
    
    
    
    87,209
    
    
    
    35,000Long-term FHLB advances:At 3.26%, due July 2006
    
    
    
    
    
    
    
    
    
    
    11,777At 2.83%, due September 2006
    
    
    
    
    
    
    
    
    
    
    2,432At 3.56%, due February 2007
    
    
    
    
    
    
    7,000
    
    
    
    7,000At 3.17%, due August 2007
    
    
    
    
    
    
    5,408
    
    
    
    5,408At 3.19%, due September 2007
    
    
    
    
    
    
    4,123
    
    
    
    4,123At 3.09%, due October 2007
    
    
    
    
    
    
    4,693
    
    
    
    4,693At 4.56%, due October 2007
    
    
    
    
    
    
    10,000
    
    
    
    At 4.73%, due December 2007
    
    
    
    
    
    
    10,000
    
    
    
    At 3.67%, due January 2008
    
    
    6,819
    
    
    
    6,819
    
    
    
    6,819At 3.63%, due January 2008
    
    
    3,074
    
    
    
    3,074
    
    
    
    3,074At 3.80%, due February 2008
    
    
    7,836
    
    
    
    7,836
    
    
    
    7,836At 3.58%, due August 2008
    
    
    5,000
    
    
    
    5,000
    
    
    
    5,000At 4.78%, due November 2008
    
    
    9,150
    
    
    
    9,150
    
    
    
    At 4.69%, due November 2008
    
    
    8,900
    
    
    
    8,900
    
    
    
    At 4.76%, due December 2008
    
    
    7,000
    
    
    
    7,000
    
    
    
    At 4.72%, due October 2010
    
    
    25,000
    
    
    
    25,000
    
    
    
    At 4.01%, due January 2016, callable quarterly as of
January 2009
    
    
    50,000
    
    
    
    
    
    
    
    At 4.48%, due May 2016, callable quarterly as of May 2007
    
    
    10,000
    
    
    
    
    
    
    
    At 4.49%, due June 2016, callable quarterly as of June 2007
    
    
    10,000
    
    
    
    
    
    
    
    At 4.82%, due July 2016, callable quarterly as of July 2007
    
    
    25,000
    
    
    
    
    
    
    
    At 4.51%, due July 2016, callable quarterly as of July 2008
    
    
    25,000
    
    
    
    
    
    
    
    At 4.46%, due August 2016, callable quarterly as of August
2007
    
    
    25,000
    
    
    
    
    
    
    
    At 4.33%, due August 2016, callable quarterly as of August
2008
    
    
    25,000
    
    
    
    
    
    
    
    At 4.25%, due September 2016, callable as of March 2009
    
    
    50,000
    
    
    
    
    
    
    
    Total long-term FHLB advances
    
    
    292,779
    
    
    
    114,003
    
    
    
    58,162Total FHLB advances
    
    $
    334,003
    
    
    
    201,212
    
    
    
    93,162
 -105-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
   7) Regulatory Capital
      -106-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 December 31, 2006To Be Well-CapitalizedFor Capital
    
    Under Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action Provisions (1)Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars In Thousands)Wauwatosa HoldingsTotal capital (to risk-weighted
assets)
    
    $
    248,866
    
    
    
    21.36
    %
    
    
    93,216
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ATier I capital (to risk-weighted
assets)
    
    
    241,760
    
    
    
    20.75
    %
    
    
    46,608
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ATier I capital (to average assets)
    
    
    241,760
    
    
    
    14.47
    %
    
    
    66,820
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AWauwatosa SavingsTotal capital (to risk-weighted
assets)
    
    $
    203,400
    
    
    
    18.19
    %
    
    
    89,439
    
    
    
    8.00
    %
    
    
    111,799
    
    
    
    10.00
    %Tier I capital (to risk-weighted
assets)
    
    
    196,464
    
    
    
    17.57
    %
    
    
    44,719
    
    
    
    4.00
    %
    
    
    67,079
    
    
    
    6.00
    %Tier I capital (to average assets)
    
    
    196,464
    
    
    
    12.10
    %
    
    
    64,961
    
    
    
    4.00
    %
    
    
    81,201
    
    
    
    5.00
    %State of Wisconsin (to total assets) (2)
    
    
    196,464
    
    
    
    12.26
    %
    
    
    96,180
    
    
    
    6.00
    %
    
    
    N/A
    
    
    
    N/A
 December 31, 2005To Be Well-CapitalizedFor Capital
    
    Under Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action Provisions (1)Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars In Thousands)Wauwatosa HoldingsTotal capital (to risk-weighted
assets)
    
    $
    238,212
    
    
    
    22.79
    %
    
    
    83,723
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ATier I capital (to risk-weighted
assets)
    
    
    233,262
    
    
    
    22.29
    %
    
    
    41,862
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ATier I capital (to average assets)
    
    
    233,262
    
    
    
    14.23
    %
    
    
    65,564
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AWauwatosa SavingsTotal capital (to risk-weighted
assets)
    
    $
    187,370
    
    
    
    17.90
    %
    
    
    83,689
    
    
    
    8.00
    %
    
    
    104,611
    
    
    
    10.00
    %Tier I capital (to risk-weighted
assets)
    
    
    182,120
    
    
    
    17.40
    %
    
    
    41,845
    
    
    
    4.00
    %
    
    
    62,767
    
    
    
    6.00
    %Tier I capital (to average assets)
    
    
    182,120
    
    
    
    11.12
    %
    
    
    65,535
    
    
    
    4.00
    %
    
    
    81,919
    
    
    
    5.00
    %State of Wisconsin (to total assets) (2)
    
    
    182,120
    
    
    
    12.08
    %
    
    
    90,424
    
    
    
    6.00
    %
    
    
    N/A
    
    
    
    N/A
 June 30, 2005To Be Well-CapitalizedFor Capital
    
    Under Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars In Thousands)Wauwatosa SavingsTotal capital (to risk-weighted
assets)
    
    $
    138,638
    
    
    
    14.05
    %
    
    
    78,963
    
    
    
    8.00
    %
    
    
    98,704
    
    
    
    10.00
    %Tier I capital (to risk-weighted
assets)
    
    
    134,032
    
    
    
    13.58
    %
    
    
    39,481
    
    
    
    4.00
    %
    
    
    59,222
    
    
    
    6.00
    %Tier I capital (to average assets)
    
    
    134,032
    
    
    
    9.84
    %
    
    
    54,458
    
    
    
    4.00
    %
    
    
    68,072
    
    
    
    5.00
    %State of Wisconsin (to total assets) (2)
    
    
    134,043
    
    
    
    9.60
    %
    
    
    83,167
    
    
    
    6.00
    %
    
    
    N/A
    
    
    
    N/A
 
 (1)
    
    Prompt corrective action provisions are not applicable at the bank holding company level.(2)
    
    State of Wisconsin regulatory capital requirements are not applicable at the bank holding company level. -107-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 8) Employee Benefit Plans
      9) Employee Stock Ownership Plan
  -108-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
   2006
    
    
    2005Beginning ESOP shares
    
    
    685,365
    
    
    
    761,515Shares committed to be released
    
    
    (76,152
    )
    
    
    (76,150
    )Unreleased shares
    
    
    609,213
    
    
    
    685,365Fair value of unreleased shares (in thousands)
    
    $
    10,856
    
    
    
    7,841
 10) Income Taxes
  Years ended December 31,
    
    
 Six months ended December 31,
    
    
    Year ended June 30,2006
    
    
    2005
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(In Thousands)(Unaudited)
    
    
    
    
    
    
    (Unaudited)Current:Federal
    
    $
    4,761
    
    
    
    5,144
    
    
    
    2,526
    
    
    
    2,784
    
    
    
    5,403
    
    
    
    4,811State
    
    
    1,218
    
    
    
    3,327
    
    
    
    878
    
    
    
    860
    
    
    
    3,309
    
    
    
    1855,979
    
    
    
    8,471
    
    
    
    3,404
    
    
    
    3,644
    
    
    
    8,712
    
    
    
    4,996Deferred:Federal
    
    
    (899
    )
    
    
    (2,718
    )
    
    
    (1,632
    )
    
    
    (69
    )
    
    
    (1,155
    )
    
    
    (86
    )State
    
    
    (381
    )
    
    
    374
    
    
    
    (301
    )
    
    
    (711
    )
    
    
    (37
    )
    
    
    (47
    )(1,280
    )
    
    
    (2,344
    )
    
    
    (1,933
    )
    
    
    (780
    )
    
    
    (1,192
    )
    
    
    (133
    )Total
    
    $
    4,699
    
    
    
    6,127
    
    
    
    1,471
    
    
    
    2,864
    
    
    
    7,520
    
    
    
    4,863
 -109-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
  Years ended December 31,
    
    
    Six months ended December 31,2006
    
    
    2005
    
    
    2005
    
    
    2004(Dollars In Thousands)(Unaudited)
    
    
    
    
    
    
    (Unaudited)Income before income taxes
    
    $
    12,752
    
    
    
    12,169
    
    
    $
    4,184
    
    
    $
    8,650Tax at Federal statutory rate (35%)
    
    
    4,463
    
    
    
    4,259
    
    
    
    1,464
    
    
    
    3,028Add (deduct) effect of:State income taxes, net of Federal
income tax benefit
    
    
    545
    
    
    
    2,405
    
    
    
    375
    
    
    
    97Cash surrender value of life insurance
    
    
    (370
    )
    
    
    (281
    )
    
    
    (205
    )
    
    
    (149
    )Non-deductible ESOP expense
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    Tax-exempt interest income
    
    
    (69
    )
    
    
    (61
    )
    
    
    (29
    )
    
    
    (32
    )Other
    
    
    17
    
    
    
    (195
    )
    
    
    (134
    )
    
    
    (80
    )Income tax provision
    
    
    4,699
    
    
    
    6,127
    
    
    
    1,471
    
    
    
    2,864Effective tax rate
    
    
    36.9
    %
    
    
    50.3
    %
    
    
    35.2
    %
    
    
    33.1
    %
 Year ended June 30,2005
    
    
    2004(Dollars In Thousands)Income before income taxes
    
    $
    16,636
    
    
    
    15,447Tax at Federal statutory rate (35%)
    
    $
    5,822
    
    
    
    5,406Add (deduct) effect of:State income taxes, net of Federal
income tax benefit
    
    
    2,127
    
    
    
    90Cash surrender value of life insurance
    
    
    (225
    )
    
    
    (353
    )Tax-exempt interest income
    
    
    (64
    )
    
    
    (58
    )Other
    
    
    (140
    )
    
    
    (222
    )Income tax provision
    
    $
    7,520
    
    
    
    4,863Effective tax rate
    
    
    45.2
    %
    
    
    31.5
    %
 -110-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
  December 31,
    
    
    June 30,2006
    
    
    2005
    
    
    2005(In Thousands)Gross deferred tax assets:Excess book depreciation
    
    $
    455
    
    
    
    138
    
    
    
    394Compensation agreements
    
    
    1,139
    
    
    
    1,092
    
    
    
    1,169Allowance for loan losses
    
    
    2,846
    
    
    
    2,195
    
    
    
    1,857State tax contingent liability
    
    
    1,701
    
    
    
    1,243
    
    
    
    1,052State NOL carryforward
    
    
    167
    
    
    
    
    
    
    
    Unrealized loss on securities available for sale
    
    
    660
    
    
    
    844
    
    
    
    323Loans to facilitate the sale of real estate owned
    
    
    589
    
    
    
    589
    
    
    
    589Charitable contributions carry forward
    
    
    1,386
    
    
    
    1,916
    
    
    
    Other
    
    
    363
    
    
    
    210
    
    
    
    153Total gross deferred tax assets
    
    
    9,306
    
    
    
    8,227
    
    
    
    5,537Valuation allowance  charitable
contribution carry forward
    
    
    (234
    )
    
    
    (225
    )
    
    
    Deferred tax assets
    
    
    9,072
    
    
    
    8,002
    
    
    
    5,537Gross deferred tax liabilities:FHLB stock dividends
    
    
    (1,018
    )
    
    
    (1,018
    )
    
    
    (893
    )Deferred loan fees
    
    
    (135
    )
    
    
    (161
    )
    
    
    (275
    )Deferred liabilities
    
    
    (1,153
    )
    
    
    (1,179
    )
    
    
    (1,168
    )Net deferred tax assets
    
    $
    7,919
    
    
    
    6,823
    
    
    
    4,369
    -111-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
   11) Financial Instruments with Off-Balance-Sheet Risk
   December 31,
    
    June 30,2006
    
    2005
    
    2005(In Thousands)Financial instruments whose contract
amounts represent potential credit risk:Commitments to extend credit
under first mortgage loans
    
    $
    28,067
    
    
    
    43,375
    
    
    
    65,566Commitments to extend credit
home equity lines of credit
    
    
    34,676
    
    
    
    31,809
    
    
    
    30,253Standby letters of credit
    
    
    639
    
    
    
    1,576
    
    
    
    1,374
 -112-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
     12) Fair Values of Financial Instruments
  -113-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
  a)
    
    Cash and Cash EquivalentsThe carrying amounts reported in the consolidated statements of financial condition for
cash and cash equivalents approximate those assets fair values.b)
    
    Mortgage-Related and Debt SecuritiesFair values for mortgage-related and debt securities are based on quoted market prices of
these or comparable instruments.c)
    
    Loans Held for SaleFair value is estimated using the prices of the Companys existing commitments to sell
such loans and/or the quoted market price for commitments to sell similar loans.d)
    
    Loans ReceivableFair values for loans receivable are estimated using a discounted cash flow calculation
that applies current interest rates to estimated future cash flows of the loans
receivable.e)
    
    FHLB StockFor FHLB stock, the carrying amount is the amount at which shares can be redeemed with
the FHLB and is a reasonable estimate of fair value.f)
    
    Cash Surrender Value of Life InsuranceThe carrying amounts reported in the consolidated statements of financial condition for
the cash surrender value of life insurance approximate those assets fair values.g)
    
    Deposits and Advance Payments by Borrowers for TaxesThe fair values for interest-bearing and noninterest-bearing negotiable order of
withdrawal accounts, savings accounts, and 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 for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being offered on
certificates of similar remaining maturities to a schedule of aggregated expected monthly
maturities of the outstanding certificates of deposit. The advance payments by borrowers
for taxes are equal to their carrying amounts at the reporting date.h)
    
    FHLB AdvancesFair values for FHLB advances are estimated using a discounted cash flow calculation that
applies current interest rates to estimated future cash flows of the advances.i)
    
    Accrued Interest Payable and Accrued Interest ReceivableFor accrued interest payable and accrued interest receivable, the carrying amount is a
reasonable estimate of fair value.
 -114-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 j)
    
    Commitments to Extend Credit and Standby Letters of CreditCommitments to extend credit and standby letters of credit are generally not marketable.
Furthermore, interest rates on any amounts drawn under such commitments would be
generally established at market rates at the time of the draw. Fair values for the
Companys commitments to extend credit and standby letters of credit are based on fees
currently charged to enter into similar agreements, taking into account the remaining
terms of the agreements, the counterpartys credit standing, and discounted
cash flow analyses. The fair value of the Companys commitments to extend credit is not
material at December 31, 2006 and 2005 and June 30, 2005.k)
    
    Obligations under Capital LeasesThe fair value of obligations under capital leases is determined using a present value of
future minimum lease payments discounted at the current interest rate at the time of
lease inception.
  December 31, 2006
    
    December 31, 2005Carrying
    
    Fair
    
    Carrying
    
    Fairamount
    
    value
    
    amount
    
    value(In Thousands)Cash and cash equivalents
    
    $
    73,807
    
    
    
    73,807
    
    
    
    16,498
    
    
    
    16,498Securities
    
    
    117,330
    
    
    
    117,330
    
    
    
    121,955
    
    
    
    121,955Loans held for sale
    
    
    5,387
    
    
    
    5,387
    
    
    
    
    
    
    
    Loans receivable
    
    
    1,365,712
    
    
    
    1,367,223
    
    
    
    1,300,768
    
    
    
    1,289,777FHLB stock
    
    
    17,213
    
    
    
    17,213
    
    
    
    14,406
    
    
    
    14,406Cash surrender value of life insurance
    
    
    24,152
    
    
    
    24,152
    
    
    
    22,792
    
    
    
    22,792Accrued interest receivable
    
    
    2,179
    
    
    
    2,179
    
    
    
    1,558
    
    
    
    1,558Deposits
    
    
    1,036,218
    
    
    
    1,034,697
    
    
    
    1,045,593
    
    
    
    1,035,048Advance payments by
borrowers for taxes
    
    
    190
    
    
    
    190
    
    
    
    181
    
    
    
    181FHLB advances
    
    
    334,003
    
    
    
    333,746
    
    
    
    201,212
    
    
    
    200,146Accrued interest payable
    
    
    4,344
    
    
    
    4,344
    
    
    
    3,039
    
    
    
    3,039Obligations under capital leases
    
    
    3,374
    
    
    
    3,374
    
    
    
    3,403
    
    
    
    3,403Commitments to extend credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stand-by letters of credit
    
    
    4
    
    
    
    4
    
    
    
    10
    
    
    
    10
 -115-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 June 30,2005Carrying
    
    Fairamount
    
    value(In Thousands)Cash and cash equivalents
    
    $
    20,467
    
    
    
    20,467Mortgage-related securities
    
    
    53,445
    
    
    
    53,445Debt securities
    
    
    30,546
    
    
    
    30,546Loans receivable
    
    
    1,213,561
    
    
    
    1,290,428FHLB stock
    
    
    14,097
    
    
    
    14,097Cash surrender value of
life insurance
    
    
    22,078
    
    
    
    22,078Accrued interest receivable
    
    
    1,145
    
    
    
    1,145Deposits
    
    
    1,128,791
    
    
    
    1,121,833Advance payments by
borrowers for taxes
    
    
    15,821
    
    
    
    15,821FHLB advances
    
    
    93,162
    
    
    
    93,162Accrued interest payable
    
    
    2,974
    
    
    
    2,974Obligations under capital leases
    
    
    3,416
    
    
    
    3,416Commitments to extend credit
    
    
    
    
    
    
    Stand-by letters of credit
    
    
    9
    
    
    
    9
 -116-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 13) Earnings (loss) per share
   (In Thousands, except pershare amounts)Net income for the year ended December 31, 2006
    
    $
    8,053Weighted average shares outstanding
    
    
    33,077Effect of dilutive potential common shares
    
    
    Diluted weighted average shares outstanding
    
    
    33,077Basic earnings per share
    
    $
    0.24Diluted earnings per share
    
    $
    0.24Net loss (for the period October 5, 2005
through December 31, 2005)
    
    $
    (709
    )Weighted average shares outstanding
    
    
    33,135Effect of dilutive potential common shares
    
    
    Diluted weighted average shares outstanding
    
    
    33,135Basic loss per share
    
    $
    (0.02
    )Diluted loss per share
    
    $
    (0.02
    )
 14) Acquisition
  -117-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 15) Condensed Parent Company Only Statements
 Statement of Financial Condition
 December 31,
    
    
    December 31,2006
    
    
    2005(In Thousands)AssetsCash and cash equivalents
    
    $
    82
    
    
    
    41,311Loans receivable
    
    
    42,786
    
    
    
    Less: Allowance for loan losses
    
    
    (171
    )
    
    
    Loans receivable, net
    
    
    42,697
    
    
    
    Investment in subsidiaries
    
    
    195,975
    
    
    
    188,239Receivable from ESOP
    
    
    1,238
    
    
    
    952Deferred tax asset
    
    
    1,062
    
    
    
    1,564Income tax benefit receivable
    
    
    459
    
    
    
    617Other assets
    
    
    
    
    
    
    1Total Assets
    
    $
    241,431
    
    
    
    232,684Liabilities and shareholders equityLiabilities:Due to subsidiaries
    
    $
    
    
    
    
    785Other liabilities
    
    
    159
    
    
    
    203159
    
    
    
    988Shareholders equityPreferred
Stock (par value $.01 per share, authorized 20,000,000 shares, no shares issued
    
    
    
    
    
    
    Common Stock (par value $.01 per share, authorized 200,000,000
shares, 33,723,750 shares issued, 33,114,539 and 33,038,385 shares outstanding at December 31,
2006 and 2005, respectively)
    
    
    337
    
    
    
    337Additional paid-in-capital
    
    
    104,182
    
    
    
    103,859Retained earnings
    
    
    144,809
    
    
    
    136,756Unearned ESOP shares
    
    
    (6,831
    )
    
    
    (7,685
    )Accumulated other comprehensive loss (net of taxes)
    
    
    (1,225
    )
    
    
    (1,571
    )Total shareholders equity
    
    
    241,272
    
    
    
    231,696Total liabilities and shareholders equity
    
    $
    241,431
    
    
    
    232,684
 -118-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 Statement of Operations
 For the periodFor the year ended
    
    
    October 5, 2005 throughDecember 31, 2006
    
    
    December 31, 2005(In Thousands)Interest income
    
    $
    2,601
    
    
    
    97Provision for loan losses
    
    
    171
    
    
    
    Interest income after provision for loan losses
    
    
    2,430Equity in earnings of subsidiaries*
    
    
    7,390
    
    
    
    2,965Total income
    
    
    9,820
    
    
    
    3,062Compensation
    
    
    513
    
    
    
    Professional fees
    
    
    146
    
    
    
    Charitable contribution
    
    
    
    
    
    
    5,564Other expense
    
    
    448
    
    
    
    38Total expense
    
    
    1,107
    
    
    
    5,602Income (loss) before income tax benefit
    
    
    8,713
    
    
    
    (2,540
    )Income tax expense (benefit)
    
    
    660
    
    
    
    (1,831
    )Net income (loss)
    
    $
    8,053
    
    
    
    (709
    )
 
 *
    
    Equity in earnings of subsidiaries related to the prior period is for the period
from October 5, 2005 through December 31, 2005, the period for which Wauwatosa Holdings, Inc
owned the Bank and its subsidiaries. -119-
    Table of Contents  Notes to Consolidated Financial Statements
Years Ended December 31, 2006 and 2005 and June 30, 2005 and 2004
Six Months Ended December 31, 2005 and 2004
 Statement of Cash Flows
 For the periodFor the year ended
    
    
    October 5, 2005 throughDecember 31, 2006
    
    
    December 31, 2005(In Thousands)Cash flows from operating activities
    
    $Net loss
    
    
    8,053
    
    
    
    (709
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Provision for loan losses
    
    
    171
    
    
    
    Amortization of unearned ESOP
    
    
    1,177
    
    
    
    Deferred income taxes
    
    
    502
    
    
    
    (1,564
    )Charitable contribution of common stock
    
    
    
    
    
    
    5,565Equity in earnings of subsidiaries*
    
    
    (7,390
    )
    
    
    (2,965
    )Change in other operating activities and liabilities
    
    
    (956
    )
    
    
    (582
    )Net cash used in operating actitivies
    
    
    1,557
    
    
    
    (255
    )Cash flows from investing activities:Net increase in loans receivable
    
    
    (42,786
    )
    
    
    Investment of proceeds in subsidiary
    
    
    
    
    
    
    (57,065
    )Net cash used by investing activities
    
    
    (42,786
    )
    
    
    (57,065
    )Cash flows from financing activities:Net proceeds from sale of common stock
    
    
    
    
    
    
    98,731Capitalization of Lamplighter, MHC
    
    
    
    
    
    
    (100
    )Net cash provided by financing activities
    
    
    
    
    
    
    98,631Net increase (decrease) in cash
    
    
    (41,229
    )
    
    
    41,311Cash and cash equivalents at beginning of year
    
    
    41,311
    
    
    
    Cash and cash equivalents at end of year
    
    $
    82
    
    
    
    41,311
 16) Segments and Related Information
  -120-
    Table of Contents  Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
  
 Item 9A . Controls and Procedures
 Disclosure Controls and Procedures :
 Change in Internal Control Over Financial Reporting :
 Managements Annual Report on Internal Control Over Financial Reporting
    -121-
    Table of Contents  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Managements Annual Report on
Internal Control Over Financial Reporting, Internal Control-Integrated Framework
    -122-
    Table of Contents  Internal Control-Integrated Framework Internal
Control-Integrated Framework
  
 -123-
    Table of Contents  Item 9B . Other Information .
  -124-
    Table of Contents  Part III
 
 Item 10 . Directors and Executive Officers of the Registrant
  Executive Officers of the Registrant
  ExecutiveOffices and Positions with Wauwatosa Holdings and
    
    OfficerName and Age
    
    Wauwatosa Savings Bank*
    
    Since (1)Douglas S. Gordon, 49 (2)
    
    Chief Executive Officer and
President of Wauwatosa Holdings
and of Wauwatosa Savings Bank
    
    
    2005Richard C. Larson, 49
    
    Chief Financial Officer and
Senior Vice President of
Wauwatosa Holdings and of
Wauwatosa Savings Bank
    
    
    1990Barbara J. Coutley, 55
    
    Senior Vice President and
Secretary of Wauwatosa Holdings
and of Wauwatosa Savings Bank
    
    
    1984William F. Bruss, 37
    
    General Counsel of Wauwatosa
Holdings and General Counsel,
Senior Vice President and
Compliance Officer of Wauwatosa
Savings Bank
    
    
    2005Rebecca M. Arndt, 39
    
    Vice President  Retail
Operations of Wauwatosa Savings
Bank previously First Vice
President, Retail Banking at
Ozaukee Bank
    
    
    2006
 
 *
    
    Excluding directorships and excluding positions with Bank subsidiaries. Those positions do
not constitute a substantial part of the officers duties.(1)
    
    Indicates date when individual first held an executive officer position with the Bank. These
individuals became executive officers of Wauwatosa Holdings upon its organization as noted.(2)
    
    Prior to joining Wauwatosa Holdings in October 2005, Mr. Gordon was a real estate investor. 
 Item 11 . Executive Compensation
  -125-
    Table of Contents  Item 12 . Security Ownership of Certain Beneficial Owners and Management
  
 Item 13 . Certain Relationships and Related Transactions and Director Independence
  
 Item 14 . Principal Accountant Fees and Services
  -126-
    Table of Contents  Part IV
 
 Item 15 . Exhibits and Financial Statement Schedules
  Financial Statements and Financial Statement Schedules
         Exhibits
 -127-
    Table of Contents  SIGNATURES
  WAUWATOSA HOLDINGS, INC.March 15, 2007By:
    
    /s/ Douglas S. GordonDouglas S. GordonChief Executive Officer
 POWER OF ATTORNEY
   Signature and Title
 /s/ Douglas S. Gordon
    
    /s/ Patrick S. LawtonDouglas S. Gordon,
    
    Patrick S. Lawton, Chairman and DirectorChief Executive Officer and Director(Principal Executive Officer)/s/ Barbara J. Coutley
    
    /s/ Thomas E. DalumBarbara J. Coutley, Senior Vice President
    
    Thomas E. Dalum, DirectorSecretary and Director/s/ Richard C. Larson
    
    /s/ Michael L. HansenRichard C. Larson, Senior Vice President
    
    Michael L. Hansen, DirectorChief Financial Officer(Principal Financial and Accounting Officer)/s/ Stephen J. SchmidtStephen J. Schmidt, Director
 
  -128-
    Table of Contents  WAUWATOSA HOLDINGS, INC.
( Wauwatosa Holdings or the Company)**
Commission File No. 000-51507
 
 EXHIBIT INDEX
 TO
 2006 REPORT ON FORM 10-K
  Incorporated Herein
    
    FiledExhibit
    
    Description
    
    By Reference To
    
    Herewith2.1
    
    Plan of Reorganization from
Mutual Savings Bank to Mutual
Holding Company of Wauwatosa
Savings Bank (the Bank), as
adopted on May 17,2005 and
amended on June 3, 2005 (the
Plan)
    
    Exhibit 2.1 to the Companys
Registration Statement on
Form S-1, Registration No.
333-125715 (the 2005 S-1)3.1
    
    Proposed Articles of
Incorporation of the Company
    
    Exhibit 3.1 to 2005 S-13.2
    
    Proposed Bylaws of the Company
    
    Exhibit 3.1 to 2005 S-110.1*
    
    Wauwatosa Savings Bank
Employee Stock Ownership Plan
and Trust
    
    Exhibit 10.1 to 2005 S-110.2*
    
    Supplemental Retirement
Benefit Plan between the Bank
and Donald J. Stephens
    
    Exhibit 10.2 to 2005 S-110.3*
    
    Employment Agreement between
the Bank and Douglas S.
Gordon
    
    Exhibit 10.1 to the
Companys Current Report on
Form 8-K filed on October
26, 2005 and amended on
December 19, 200610.4*
    
    Stock Compensation Plans
    
    Exhibit 10.1 to the
companys Current Report on
Form 8-K filed on May 22,
200610.5*
    
    Early Retirement, Resignation
and Release Agreement between
the Bank and Donald J.
Stephens
    
    Exhibit 10.5 to the
Companys Annual Report on
Form 10-K filed March 27,
200611.1
    
    Statement re: Computation of
Per Share Earnings
    
    See Note 13 in Part II Item 821.1
    
    List of Subsidiaries
    
    
    
    X23.1
    
    Consent of Independent
Registered Public Accounting
Firm
    
    
    
    X
 EI-1
    Table of Contents  Incorporated Herein
    
    FiledExhibit
    
    Description
    
    By Reference To
    
    Herewith24.1
    
    Powers of Attorney
    
    Signature Page31.1
    
    Sarbanes-Oxley Act Section
302 Certification signed by
the Chief Executive Officer
of Wauwatosa Holdings
    
    
    
    X31.2
    
    Sarbanes-Oxley Act Section
302 Certification signed by
the Chief Financial Officer
of Wauwatosa Holdings
    
    
    
    X32.1
    
    Certification pursuant to 18
U.S. C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002 signed by the Chief
Executive Officer of
Wauwatosa Holdings
    
    
    
    X32.2
    
    Certification pursuant to 18
U.S. C. Section 1350, as
adopted pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002 signed by the Chief
Financial Officer of
Wauwatosa Holdings
    
    
    
    X
 
 *
    
    Designates management or compensatory agreements, plans or arrangements required to be filed as
exhibits pursuant to Item 15(b) of Form 10-K. EI-2