##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 Form 10-Q
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2006
 OR
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission File Number 000-51507
 WAUWATOSA HOLDINGS, INC.
  Wisconsin
(State or other jurisdiction of
incorporation or organization)
    
    20-3598485
(IRS Employer Identification No.)
 11200 W. Plank Ct.
Wauwatosa, WI 53226
(414) 761-1000
  þ o
  o o þ
  o þ




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##### 



WAUWATOSA HOLDINGS, INC.
 10-Q INDEX
 Page No.PART I. FINANCIAL INFORMATIONItem l. Financial StatementsConsolidated Statements of Financial Condition as of March 31, 2006 (unaudited) and December 31, 2005
    
    3Consolidated Statements of Income for the three months ended March 31, 2006 and 2005 (unaudited)
    
    4Consolidated Statements of Changes in Shareholders Equity for the three months ended March 31, 2006 and 2005 (unaudited)
    
    5Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005 (unaudited)
    
    6Notes to Consolidated Financial Statements
    
    7-14Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    15-30Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    31-32Item 4. Controls and Procedures
    
    33PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    34Item 6. Exhibits
    
    34Signatures
    
    35CertificationCertificationCertificationCertificationCertification of the CEOCertification of the CFOCertification of the CEOCertification of the CFO
  -2-




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 WAUWATOSA HOLDINGS, INC AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 (Unaudited)March 31,
    
    
    December 31,2006
    
    
    2005(In Thousands, except share data)AssetsCash
    
    $
    12,529
    
    
    
    8,761Federal funds sold
    
    
    8,998
    
    
    
    5,388Short-term investments
    
    
    1,715
    
    
    
    2,349Cash and cash equivalents
    
    
    23,242
    
    
    
    16,498Securities available-for-sale (at fair value)
    
    
    118,736
    
    
    
    121,955Loans receivable
    
    
    1,345,193
    
    
    
    1,306,018Less: Allowance for loan losses
    
    
    5,418
    
    
    
    5,250Loans receivable, net
    
    
    1,339,775
    
    
    
    1,300,768Office properties and equipment, net
    
    
    27,417
    
    
    
    25,022Federal Home Loan Bank stock, at cost
    
    
    14,406
    
    
    
    14,406Cash surrender value of life insurance
    
    
    22,949
    
    
    
    22,792Prepaid expenses and other assets
    
    
    11,138
    
    
    
    9,768Total assets
    
    $
    1,557,663
    
    
    
    1,511,209Liabilities and Shareholders EquityLiabilities:Demand deposits
    
    $
    71,040
    
    
    
    82,290Money market and savings deposits
    
    
    56,055
    
    
    
    33,565Time deposits
    
    
    953,129
    
    
    
    929,738Total deposits
    
    
    1,080,224
    
    
    
    1,045,593Federal Home Loan Bank advances short-term
    
    
    36,209
    
    
    
    87,209Federal Home Loan Bank advances long-term
    
    
    182,003
    
    
    
    114,003Advance payments by borrowers for taxes
    
    
    8,303
    
    
    
    181Other liabilities
    
    
    16,555
    
    
    
    32,527Total liabilities
    
    
    1,323,294
    
    
    
    1,279,513Shareholders 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,
33,057,164 shares outstanding)
    
    
    337
    
    
    
    337Additional paid-in-capital
    
    
    103,881
    
    
    
    103,859Accumulated other comprehensive loss (net of taxes)
    
    
    (1,840
    )
    
    
    (1,571
    )Retained earnings
    
    
    139,462
    
    
    
    136,756Unearned ESOP shares
    
    
    (7,471
    )
    
    
    (7,685
    )Total shareholders equity
    
    
    234,369
    
    
    
    231,696Total liabilities and shareholders equity
    
    $
    1,557,663
    
    
    
    1,511,209
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WAUWATOSA HOLDINGS, INC AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)Three Months Ended March 31,2006
    
    
    2005(In Thousands, except share data)Interest income:Loans
    
    $
    20,206
    
    
    
    17,313Mortgage-related securities
    
    
    1,063
    
    
    
    551Debt securities, federal funds sold and
short-term investments
    
    
    588
    
    
    
    538Total interest income
    
    
    21,857
    
    
    
    18,402Interest expense:Deposits
    
    
    9,334
    
    
    
    8,229Borrowings
    
    
    2,463
    
    
    
    770Total interest expense
    
    
    11,797
    
    
    
    8,999Net interest income
    
    
    10,060
    
    
    
    9,403Provision for loan losses
    
    
    307
    
    
    
    901Net interest income after
provision for loan losses
    
    
    9,753
    
    
    
    8,502Noninterest income:Service charges on loans and deposits
    
    
    485
    
    
    
    384Increase in cash surrender value of life insurance
    
    
    157
    
    
    
    67Gain on sale of securities
    
    
    
    
    
    
    60Loan brokerage fees
    
    
    339
    
    
    
    Other
    
    
    212
    
    
    
    71Total noninterest income
    
    
    1,193
    
    
    
    582Noninterest expenses:Compensation, payroll taxes, and other employee benefits
    
    
    3,863
    
    
    
    2,836Occupancy, office furniture, and equipment
    
    
    962
    
    
    
    910Advertising
    
    
    285
    
    
    
    155Data processing
    
    
    375
    
    
    
    286Charitable contributions
    
    
    
    
    
    
    187Communications
    
    
    161
    
    
    
    149Professional fees
    
    
    178
    
    
    
    211Other
    
    
    832
    
    
    
    698Total noninterest expenses
    
    
    6,656
    
    
    
    5,432Income before income taxes
    
    
    4,290
    
    
    
    3,652Income taxes
    
    
    1,584
    
    
    
    3,062Net income
    
    $
    2,706
    
    
    
    590Earnings per share:Basic
    
    
    0.08
    
    
    
    N/ADiluted
    
    
    0.08
    
    
    
    N/AWeighted average shares outstanding:Basic
    
    
    33,047,880
    
    
    
    N/ADiluted
    
    
    33,047,880
    
    
    
    N/A
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WAUWATOSA HOLDINGS, INC AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 AccumulatedCommon
    
    
    Additional
    
    
    
    
    
    
    Unearned
    
    
    OtherStock
    
    
    Paid-In
    
    
    Retained
    
    
    ESOP
    
    
    Comprehensive
    
    
    TotalShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Shares
    
    
    Income (Loss)
    
    
    Equity(In Thousands)Balances at December 31, 2004
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    130,713
    
    
    
    
    
    
    
    (390
    )
    
    
    130,323Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    590
    
    
    
    
    
    
    
    
    
    
    
    590Other comprehensive income:Net
unrealized holding gains (losses) on
available for sale securities arising during the
period, net of taxes $434
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (841
    )
    
    
    (841
    )Total comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (251
    )Balances at March 31, 2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    131,303
    
    
    
    
    
    
    
    (1,231
    )
    
    
    130,072Balances at December 31, 2005
    
    
    33,724
    
    
    $
    337
    
    
    
    103,859
    
    
    
    136,756
    
    
    
    (7,685
    )
    
    
    (1,571
    )
    
    
    231,696Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,706
    
    
    
    
    
    
    
    
    
    
    
    2,706Other comprehensive income:Net
unrealized holding gains (losses) on
available for sale securities arising during the period, net
of taxes $146
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (269
    )
    
    
    (269
    )Total
comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,437ESOP shares committed to be released to Plan participants
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    214
    
    
    
    
    
    
    
    236Balances at March 31, 2006
    
    
    33,724
    
    
    $
    337
    
    
    
    103,881
    
    
    
    139,462
    
    
    
    (7,471
    )
    
    
    (1,840
    )
    
    
    234,369
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WAUWATOSA HOLDINGS, INC AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)Three Months Ended March 31,2006
    
    
    2005Operating activities:Net income
    
    $
    2,706
    
    
    
    590Adjustments to reconcile net income to net
cash provided by operating activities:Provision for loan losses
    
    
    307
    
    
    
    901Provision for depreciation
    
    
    551
    
    
    
    481Deferred income taxes
    
    
    (223
    )
    
    
    (1,718
    )Net amortization of premium on debt and mortgage-related securities
    
    
    (10
    )
    
    
    61Amortization of unearned ESOP shares
    
    
    214
    
    
    
    Increase in accrued interest receivable
    
    
    (152
    )
    
    
    (221
    )Increase in cash surrender value of life insurance
    
    
    (157
    )
    
    
    (144
    )Increase in accrued interest on deposits
    
    
    341
    
    
    
    85Increase (decrease) in other liabilities
    
    
    (241
    )
    
    
    702FHLB stock dividends
    
    
    
    
    
    
    (188
    )Gain on sale of securities
    
    
    
    
    
    
    (60
    )Gain on sale of office properties and equipment
    
    
    (116
    )
    
    
    (16
    )Other
    
    
    (380
    )
    
    
    442Net cash provided by operating activities
    
    
    2,840
    
    
    
    915Investing activities:Principal repayments on mortgage-related securities
    
    
    3,592
    
    
    
    3,147Net increase in loans receivable
    
    
    (39,928
    )
    
    
    (32,259
    )Net purchases of office properties and equipment
    
    
    (591
    )
    
    
    (407
    )Purchase of land
    
    
    (2,114
    )
    
    
    Purchase of Waterstone Mortgage Corporation
    
    
    (1,082
    )
    
    
    Proceeds from sales of foreclosed properties
    
    
    425
    
    
    
    155Net cash used by investing activities
    
    
    (39,698
    )
    
    
    (29,364
    )Financing activities:Net increase in deposits
    
    
    34,631
    
    
    
    3,324Net change in short-term FHLB advances
    
    
    (51,000
    )
    
    
    (2,000
    )Proceeds from long-term FHLB advances
    
    
    68,000
    
    
    
    36,507Net decrease in advance payments by borrowers for taxes
    
    
    (8,029
    )
    
    
    (4,435
    )Net cash provided by financing activities
    
    
    43,602
    
    
    
    33,396Increase in cash and cash equivalents
    
    
    6,744
    
    
    
    4,947Cash and cash equivalents at beginning of period
    
    
    16,498
    
    
    
    13,570Cash and cash equivalents at end of period
    
    $
    23,242
    
    
    
    18,517Supplemental information:Cash paid or credited during the period for:Income tax payments
    
    $
    210
    
    
    
    55Interest payments
    
    
    11,456
    
    
    
    8,859Noncash investing activities:Loans receivable transferred to foreclosed properties
    
    
    620
    
    
    
    277Capital leases originated
    
    
    
    
    
    
    3,423Non Cash financing activities:Long-term FHLB advances reclassified to short-term
    
    
    7,000
    
    
    
    35,000
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WAUWATOSA HOLDINGS, INC AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Note 1  Basis of Presentation
     Note 2  Reclassifications
  -7-




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Note 3  Securities Available-for-Sale
  March 31, 2006(In Thousands)Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealizedcost
    
    
    gains
    
    
    losses
    
    
    Fair valueMortgage-backed securities
    
    $
    17,050
    
    
    
    2
    
    
    
    (418
    )
    
    
    16,634Collateralized mortgage obligations
    
    
    72,886
    
    
    
    
    
    
    
    (1,839
    )
    
    
    71,047Mortgage-related securities
    
    
    89,936
    
    
    
    2
    
    
    
    (2,257
    )
    
    
    87,681Government agency bonds
    
    
    26,576
    
    
    
    
    
    
    
    (692
    )
    
    
    25,884Municipals
    
    
    4,278
    
    
    
    160
    
    
    
    (22
    )
    
    
    4,416Debt securities
    
    
    30,854
    
    
    
    160
    
    
    
    (714
    )
    
    
    30,300Other securities
    
    
    776
    
    
    
    
    
    
    
    (21
    )
    
    
    755$
    121,566
    
    
    
    162
    
    
    
    (2,992
    )
    
    
    118,736
 December 31, 2005(In Thousands)Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealizedcost
    
    
    gains
    
    
    losses
    
    
    Fair valueMortgage-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
  -8-




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##### Table of Contents



Amortized
    
    
    FairCost
    
    
    Value(In Thousands)Due within one year
    
    $
    
    
    
    $
    Due after one year through five years
    
    
    26,826
    
    
    
    26,134Due after five years through ten years
    
    
    855
    
    
    
    842Due after ten years
    
    
    3,423
    
    
    
    3,574Mutual funds
    
    
    526
    
    
    
    505Mortgage-related securities
    
    
    89,936
    
    
    
    87,681$
    121,566
    
    
    $
    118,736
  March 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
    
    $
    4,377
    
    
    
    (90
    )
    
    
    21,506
    
    
    
    (602
    )
    
    
    25,883
    
    
    
    (692
    )Municipals
    
    
    1,333
    
    
    
    (22
    )
    
    
    
    
    
    
    
    
    
    
    1,333
    
    
    
    (22
    )Mortgage-related securities
    
    
    47,194
    
    
    
    (674
    )
    
    
    40,237
    
    
    
    (1,583
    )
    
    
    87,431
    
    
    
    (2,257
    )Other securities
    
    
    756
    
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    756
    
    
    
    (21
    )$
    53,660
    
    
    
    (807
    )
    
    
    61,743
    
    
    
    (2,185
    )
    
    
    115,403
    
    
    
    (2,992
    )
  -9-




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##### Table of Contents



Note 4  Loans Receivable
  March 31,
    
    
    December 31,2006
    
    
    2005(In Thousands)Mortgage loans:Residential real estate:Single family
    
    $
    475,379
    
    
    
    469,395Two- to four-family
    
    
    259,724
    
    
    
    256,270Over four-family
    
    
    464,357
    
    
    
    443,528Construction
    
    
    175,042
    
    
    
    165,516Commercial real estate
    
    
    33,549
    
    
    
    34,543Land
    
    
    27,277
    
    
    
    23,685Credit cards
    
    
    121
    
    
    
    126Other
    
    
    20
    
    
    
    331,435,469
    
    
    
    1,393,096Less:Undisbursed loan proceeds
    
    
    85,796
    
    
    
    82,712Unearned loan fees
    
    
    4,480
    
    
    
    4,366$
    1,345,193
    
    
    
    1,306,018
   For the three months endedMarch 31,2006
    
    
    2005(In Thousands)Balance at beginning of period
    
    $
    5,250
    
    
    
    3,737Provision for loan losses
    
    
    307
    
    
    
    901Charge-offs
    
    
    (139
    )
    
    
    (5
    )Recoveries
    
    
    
    
    
    
    Balance at end of period
    
    $
    5,418
    
    
    
    4,633Percentage of allowance to gross loans
    
    
    0.40
    %
    
    
    0.33
    %
 -10-




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##### Table of Contents



Note 5  Deposits
  (In Thousands)Within one year
    
    $
    636,166One to two years
    
    
    207,026Two to three years
    
    
    56,112Three to four years
    
    
    30,661Four through five years
    
    
    23,129After five years
    
    
    35$
    953,129
 -11-




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##### Table of Contents



Note 6  FHLB Advances
  March 31,
    
    
    December 31,2006
    
    
    2005(In Thousands)Federal Home Loan Bank (FHLB) advances:Short-term FHLB advances:FHLB advance, 4.41%, due January 2006
    
    $
    
    
    
    
    23,000FHLB advance, 2.62%, due January 2006
    
    
    
    
    
    
    25,000FHLB advance, 2.21%, due January 2006
    
    
    
    
    
    
    10,000FHLB advance, 3.26%, due July 2006
    
    
    11,777
    
    
    
    11,777FHLB advance, 2.83%, due September 2006
    
    
    2,432
    
    
    
    2,432FHLB advance, 4.49%, due October 2006
    
    
    15,000
    
    
    
    15,000FHLB advance, 3.56%, due February 2007
    
    
    7,000
    
    
    
    Total short-term FHLB advances
    
    
    36,209
    
    
    
    87,209Long-term FHLB advances:FHLB advance, 3.56%, due February 2007
    
    
    
    
    
    
    7,000FHLB advance, 3.17%, due August 2007
    
    
    5,408
    
    
    
    5,408FHLB advance, 3.19%, due September 2007
    
    
    4,123
    
    
    
    4,123FHLB advance, 3.09%, due October 2007
    
    
    4,693
    
    
    
    4,693FHLB advance, 4.56%, due October 2007
    
    
    10,000
    
    
    
    10,000FHLB advance, 4.73%, due December 2007
    
    
    10,000
    
    
    
    10,000FHLB advance, 3.67%, due January 2008
    
    
    6,819
    
    
    
    6,819FHLB advance, 3.63%, due January 2008
    
    
    3,074
    
    
    
    3,074FHLB advance, 3.80%, due February 2008
    
    
    7,836
    
    
    
    7,836FHLB advance, 3.58%, due August 2008
    
    
    5,000
    
    
    
    5,000FHLB advance, 4.78%, due November 2008
    
    
    9,150
    
    
    
    9,150FHLB advance, 4.69%, due November 2008
    
    
    8,900
    
    
    
    8,900FHLB advance, 4.76%, due December 2008
    
    
    7,000
    
    
    
    7,000FHLB advance, 4.72%, due October 2010
    
    
    25,000
    
    
    
    25,000FHLB advance, 4.47%, due February 2011
    
    
    25,000
    
    
    
    FHLB advance, 4.01%, due January 2016
    
    
    50,000
    
    
    
    Total long-term FHLB advances
    
    
    182,003
    
    
    
    114,003Total FHLB advances
    
    $
    218,212
    
    
    
    201,212
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##### Table of Contents



Note 7  Financial Instruments with Off-Balance Sheet Risk
  March 31,
    
    
    December 31,2006
    
    
    2005(In Thousands)Financial instruments whose contract amounts represent
potential credit risk:Commitments to extend credit under first mortgage loans
    
    $
    49,807
    
    
    
    43,375Commitments to extend credit under home equity lines
of credit
    
    
    19,834
    
    
    
    31,809Standby letters of credit
    
    
    1,580
    
    
    
    1,576
 Note 8  Earnings per share
   (In Thousands)Net income
    
    $
    2,706Weighted average shares outstanding
    
    
    33,048Effect of dilutive potential common shares
    
    
    Diluted weighted average shares outstanding
    
    
    33,048Basic earnings per share
    
    $
    0.08Diluted earnings per share
    
    $
    0.08
 Note 9  Recent Accounting Developments
 . ,
 -13-




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##### Table of Contents



Accounting for Certain Investments in Debt and Equity Securities
 -14-




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Cautionary Statements Regarding Forward-Looking Information
  
    
    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;
    
    our ability to enter new markets successfully and take advantage of growth
opportunities;
    
    general economic conditions, either nationally or in our market areas, 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.
  Overview
  -15-




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##### Table of Contents



Critical Accounting Policies
  Allowance for Loan Losses.
  -16-




---



##### Table of Contents



Income Taxes.
   -17-




---



##### Table of Contents



Comparison of Operating Results for the Three Months Ended March 31, 2006 and 2005
 General
 Total Interest Income
 Total
Interest Expense 
   -18-




---



##### Table of Contents



Net Interest Income
 Provision for Loan Losses
 Noninterest Income
 Noninterest Expense
 -19-




---



##### Table of Contents



Income Taxes
 Net
Income 
 Comparison of Financial Condition at March 31, 2006 and December 31, 2005
 Total Assets
 Loans Receivable
 -20-




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##### Table of Contents



As of or for the
    
    
    As of or for theThree Months Ended
    
    
    Six Months EndedMarch 31, 2006
    
    
    December 31, 2005(In Thousands)Total loans at beginning of period
    
    $
    1,393,096
    
    
    
    1,299,812Real estate loans originated:Residential (1)Single family
    
    
    21,130
    
    
    
    81,397Two- to four-family
    
    
    19,072
    
    
    
    52,030Over four-family
    
    
    40,713
    
    
    
    95,734Construction
    
    
    11,718
    
    
    
    43,865Commercial
    
    
    2,017
    
    
    
    2,658Land
    
    
    5,015
    
    
    
    10,451Total loans originated
    
    
    99,665
    
    
    
    286,135Other loans  net activity
    
    
    (18
    )
    
    
    (43
    )Principal repayments
    
    
    (57,274
    )
    
    
    (192,808
    )Net loan activity
    
    
    42,373
    
    
    
    93,284Total loans at end of period
    
    $
    1,435,469
    
    
    
    1,393,096
 
 (1)
    
    Residential mortgage loans include home equity loans and home equity lines of
credit. Office Properties and Equipment
 Deposits
 Borrowings
 -21-




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##### Table of Contents



Advance Payments by Borrowers for Taxes
 Other Liabilities
 Shareholders Equity
 Average Balance Sheets, Interest and Yields/Costs
  -22-




---



##### Table of Contents



Three Months Ended March 31,2006
    
    
    2005Average
    
    
    Interest and
    
    
    
    
    
    
    Average
    
    
    Interest andBalance
    
    
    Dividends
    
    
    Yield/Cost
    
    
    Balance
    
    
    Dividends
    
    
    Yield/Cost(Dollars in Thousands)Interest-earning assets:Loans receivable, net
    
    $
    1,325,260
    (1)
    
    $
    20,206
    
    
    
    6.18
    %
    
    $
    1,160,299
    (1)
    
    $
    17,313
    
    
    
    6.05
    %Available for sale securities(5)
    
    
    122,665
    
    
    
    1,378
    
    
    
    4.56
    
    
    
    90,384
    
    
    
    842
    
    
    
    3.78Other earning assets
    
    
    24,209
    
    
    
    273
    
    
    
    4.57
    
    
    
    17,926
    
    
    
    247
    
    
    
    5.57Total interest-earning assets
    
    
    1,472,134
    
    
    
    21,857
    
    
    
    6.02
    
    
    
    1,268,609
    
    
    
    18,402
    
    
    
    5.88Noninterest-earning assets
    
    
    60,328
    
    
    
    
    
    
    
    
    
    
    
    51,118Total assets
    
    $
    1,532,462
    
    
    
    
    
    
    
    
    
    
    $
    1,319,727Interest-bearing liabilities:Demand and money market accounts
    
    $
    94,138
    
    
    $
    437
    
    
    
    1.88
    
    
    $
    85,580
    
    
    
    187
    
    
    
    0.89Savings accounts
    
    
    21,128
    
    
    
    26
    
    
    
    0.50
    
    
    
    23,702
    
    
    
    29
    
    
    
    0.50Certificates of deposit
    
    
    932,092
    
    
    
    8,868
    
    
    
    3.86
    
    
    
    963,071
    
    
    
    8,010
    
    
    
    3.37Total interest-bearing deposits
    
    
    1,047,358
    
    
    
    9,331
    
    
    
    3.61
    
    
    
    1,072,353
    
    
    
    8,226
    
    
    
    3.11Advances from the Federal Home Loan Bank
    
    
    224,974
    
    
    
    2,360
    
    
    
    4.25
    
    
    
    96,218
    
    
    
    732
    
    
    
    3.09Other interest bearing liabilities
    
    
    7,785
    
    
    
    106
    
    
    
    5.52
    
    
    
    4,723
    
    
    
    41
    
    
    
    3.52Total interest-bearing liabilities
    
    
    1,280,117
    
    
    
    11,797
    
    
    
    3.74
    
    
    
    1,173,294
    
    
    
    8,999
    
    
    
    3.11Noninterest-bearing liabilities
    
    
    19,056
    
    
    
    
    
    
    
    
    
    
    
    14,674Total liabilities
    
    
    1,299,173
    
    
    
    
    
    
    
    
    
    
    
    1,187,968Equity
    
    
    233,289
    
    
    
    
    
    
    
    
    
    
    
    131,759Total liabilities and equity
    
    $
    1,532,462
    
    
    
    
    
    
    
    
    
    
    $
    1,319,727Net interest income
    
    
    
    
    
    
    10,060
    
    
    
    
    
    
    
    
    
    
    
    9,403Net interest rate spread (2)
    
    
    
    
    
    
    
    
    
    
    2.28
    %
    
    
    
    
    
    
    
    
    
    
    2.77
    %Net interest-earning assets (3)
    
    $
    192,017
    
    
    
    
    
    
    
    
    
    
    $
    95,315Net interest margin (4)
    
    
    
    
    
    
    2.77
    %
    
    
    
    
    
    
    
    
    
    
    3.01
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    115.00
    %
    
    
    
    
    
    
    
    
    
    
    108.12
    %
 
 (1)
    
    Includes net deferred loan fee amortization income of $197 and $179 for the three months
ended March 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. -23-




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##### Table of Contents



Rate/Volume Analysis
  Three Months Ended March 31,2006 vs. 2005Increase (Decrease)Due toVolume
    
    
    Rate
    
    
    Net(In Thousands)Interest and dividend income:Loans receivable(1) (2)
    
    $
    2,512
    
    
    
    381
    
    
    
    2,893Securities interest and income
from other earning
assets(3)
    
    
    459
    
    
    
    103
    
    
    
    562Total interest-earning assets
    
    
    2,971
    
    
    
    484
    
    
    
    3,455Interest expense:Demand and Money Market accounts
    
    
    17
    
    
    
    233
    
    
    
    250Savings accounts
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Certificates of deposit
    
    
    (270
    )
    
    
    1,128
    
    
    
    858Total interest-bearing deposits
    
    
    (256
    )
    
    
    1,361
    
    
    
    1,105FHLB Advances
    
    
    1,486
    
    
    
    142
    
    
    
    1,628Other interest-bearing
liabilities
    
    
    144
    
    
    
    (79
    )
    
    
    65Total interest-bearing
liabilities
    
    
    1,374
    
    
    
    1,424
    
    
    
    2,798Net change in net interest income
    
    $
    1,597
    
    
    
    (940
    )
    
    
    657
 
 (1)
    
    Includes net deferred loan fee amortization income of $197 and $179 for the three months
ended March 31, 2006 and 2005, respectively.(2)
    
    Non-accrual loans have been included in average loans receivable balance.(3)
    
    Average balance of available for sale securities is based on amortized historical cost. 
 -24-




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##### Table of Contents



ASSET QUALITY
  NON-PERFORMING LOANS AND ASSETS
 At March 31,
    
    
    At December 31,2006
    
    
    2005(Dollars in Thousands)Non-accrual loans:Residential (1)Single family
    
    $
    4,122
    
    
    
    5,654Two- to four-family
    
    
    1,356
    
    
    
    3,386Over four-family
    
    
    3,143
    
    
    
    6,703Construction
    
    
    1,490
    
    
    
    760Commercial
    
    
    
    
    
    
    962Land
    
    
    736
    
    
    
    600Total non-performing loans
    
    
    10,847
    
    
    
    18,065Real estate owned
    
    
    587
    
    
    
    215Total non-performing assets
    
    $
    11,434
    
    
    
    18,280Total non-performing loans to total loans
    
    
    0.81
    %
    
    
    1.38
    %Total non-performing loans to total assets
    
    
    0.70
    %
    
    
    1.20
    %Total non-performing assets to total assets
    
    
    0.73
    %
    
    
    1.21
    %
 
 (1)
    
    Residential mortgage loans include home equity loans and home equity lines of credit.   -25-




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##### Table of Contents



ALLOWANCE FOR LOAN LOSSES
 At or for the Three
    
    
    At and for the SixMonths Ended
    
    
    Months EndedMarch 31, 2006
    
    
    December 31, 2005(Dollars in Thousands)Balance at beginning of period
    
    $
    5,250
    
    
    
    4,606Provision for loan losses
    
    
    307
    
    
    
    1,035Charge-offs:Residential (1)Single family
    
    
    
    
    
    
    37Two- to four-family
    
    
    137
    
    
    
    60Over four-family
    
    
    
    
    
    
    169Construction
    
    
    
    
    
    
    Commercial
    
    
    2
    
    
    
    102Land
    
    
    
    
    
    
    Other loans
    
    
    
    
    
    
    23Total charge-offs
    
    
    139
    
    
    
    391Total recoveries
    
    
    
    
    
    
    Net charge-offs
    
    
    139
    
    
    
    391Allowance at end of year
    
    $
    5,418
    
    
    
    5,250Ratios:Allowance for loan losses to non-performing loans at
end of period
    
    
    49.95
    %
    
    
    29.06
    %Allowance for loan losses to net loans receivable at
end of period
    
    
    0.40
    %
    
    
    0.40
    %Net charge-offs to average loans outstanding (annualized)
    
    
    0.04
    %
    
    
    0.06
    %
 
 (1) Residential loans include home equity loans and home equity lines of credit.   -26-




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##### Table of Contents



Impact of Inflation and Changing Prices .
 Liquidity and Capital Resources
    -27-




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##### Table of Contents



Regulatory Capital
  -28-




---



##### Table of Contents



March 31, 2006To Be Well-CapitalizedFor Capital
    
    Under Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action Provisions (1)Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioWauwatosa HoldingsTotal capital (to risk-weighted assets)
    
    $
    241,076
    
    
    
    21.71
    %
    
    
    88,820
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ATier I capital (to risk-weighted assets)
    
    
    235,658
    
    
    
    21.23
    %
    
    
    44,410
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ATier I capital (to average assets)
    
    
    235,658
    
    
    
    15.38
    %
    
    
    61,298
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AWauwatosa SavingsTotal capital (to risk-weighted assets)
    
    $
    189,611
    
    
    
    17.76
    %
    
    
    85,421
    
    
    
    8.00
    %
    
    
    106,776
    
    
    
    10.00
    %Tier I capital (to risk-weighted assets)
    
    
    184,193
    
    
    
    17.25
    %
    
    
    42,710
    
    
    
    4.00
    %
    
    
    64,066
    
    
    
    6.00
    %Tier I capital (to average assets)
    
    
    184,193
    
    
    
    12.21
    %
    
    
    60,358
    
    
    
    4.00
    %
    
    
    75,447
    
    
    
    5.00
    %State of Wisconsin (to total assets)(2)
    
    
    184,193
    
    
    
    12.18
    %
    
    
    90,715
    
    
    
    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. -29-




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##### Table of Contents



Contractual Obligations, Commitments, Contingent Liabilities, and Off-balance Sheet Arrangements
  One Year
    
    
    Three Years
    
    
    OverOne Year
    
    
    Through
    
    
    Through
    
    
    FiveTotal
    
    
    or Less
    
    
    Three Years
    
    
    Five Years
    
    
    Years(In Thousands)Deposits without a
stated maturity
    
    $
    127,095
    
    
    
    127,095
    
    
    
    
    
    
    
    
    
    
    
    Certificates of
deposit
    
    
    953,129
    
    
    
    636,166
    
    
    
    263,138
    
    
    
    53,790
    
    
    
    35Federal Home Loan
Bank advances
(1)
    
    
    218,212
    
    
    
    36,209
    
    
    
    82,003
    
    
    
    50,000
    
    
    
    50,000Operating
leases(2)
    
    
    74
    
    
    
    30
    
    
    
    44
    
    
    
    
    
    
    
    Capital lease
    
    
    4,200
    
    
    
    300
    
    
    
    3,900
    
    
    
    
    
    
    
    Salary continuation
agreements
    
    
    3,629
    
    
    
    406
    
    
    
    1,110
    
    
    
    1,051
    
    
    
    1,062$
    1,306,339
    
    
    
    800,206
    
    
    
    350,195
    
    
    
    104,841
    
    
    
    51,097
 
 (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.  Other Commitments
 More than
    
    
    More thanOne Year
    
    
    Three Years
    
    
    OverOne Year
    
    
    Through
    
    
    Through
    
    
    FiveTotal
    
    
    or Less
    
    
    Three Years
    
    
    Five Years
    
    
    Years(In Thousands)Real estate loan commitments (1)
    
    $
    49,807
    
    
    
    49,807
    
    
    
    
    
    
    
    
    
    
    
    Unused portion of home equity lines of credit
(2)
    
    
    19,834
    
    
    
    19,834
    
    
    
    
    
    
    
    
    
    
    
    Unused portion of construction loans (3)
    
    
    85,796
    
    
    
    85,796
    
    
    
    
    
    
    
    
    
    
    
    Standby letters of credit
    
    
    1,571
    
    
    
    1,532
    
    
    
    5
    
    
    
    
    
    
    
    34Total Other Commitments
    
    $
    157,008
    
    
    
    156,969
    
    
    
    5
    
    
    
    
    
    
    
    34
 
 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. -30-




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Management of Market Risk
 General.
  Income Simulation.
 -31-




---



##### Table of Contents



PercentageIncrease (Decrease) in Estimated NetAnnual Interest IncomeOver 24 Months300 basis point
increase in
rates
    
    
    (17.07
    )200 basis point increase
in rates
    
    
    (10.22
    )100 basis point increase
in rates
    
    
    (4.64
    )100 basis point decrease
in rates
    
    
    3.29
  -32-




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##### Table of Contents



Item 4. Controls and Procedures
 Disclosure Controls and Procedures :
 Internal Control Over Financial Reporting :
 -33-




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 6. Exhibits
  -34-




---



##### Table of Contents



WAUWATOSA HOLDINGS, INC.(Registrant)Date: May 1, 2006/s/ Donald J. StephensDonald J. StephensChairman and Chief Executive OfficerDate: May 1, 2006/s/ Richard C. LarsonRichard C. LarsonChief Financial Officer
 -35-




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##### Table of Contents



Exhibit No.
    
    Description
    
    Filed Herewith31.1
    
    Sarbanes-Oxley Act Section 302
Certification signed by the Chairman and
Chief Executive Officer of Wauwatosa
Holdings, Inc.
    
    X31.2
    
    Sarbanes-Oxley Act Section 302
Certification signed by the Chief
Financial Officer of Wauwatosa Holdings,
Inc.
    
    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 Chairman and Chief
Executive Officer of Wauwatosa Holdings,
Inc.
    
    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, Inc.
    
    X