##### 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, 2007
 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
    
    20-3598485(State or other jurisdiction of
    
    (IRS Employer Identification No.)incorporation or organization)
 11200 W. Plank Ct.
Wauwatosa, WI 53226
(414) 761-1000
  þ o
  o þ o
  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,
2007 (unaudited) and December 31, 2006
    
    
    3Consolidated Statements of Income for the three months ended March
31, 2007 and 2006 (unaudited)
    
    
    4Consolidated Statements of Changes in Shareholders Equity for the
three months ended March 31, 2007 and 2006 (unaudited)
    
    
    5Consolidated Statements of Cash Flows for the three months ended
March 31, 2007 and 2006 (unaudited)
    
    
    6-7Notes to Consolidated Financial Statements
    
    
    8-17Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    18-33Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    36PART II. OTHER INFORMATION
    
    
    36Item 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 6. Exhibits
    
    
    36Signatures
    
    
    38CertificationCertificationCertificationCertificationCertificationCertificationCertificationCertification
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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 31,2007
    
    
    2006(In Thousands, except share data)AssetsCash
    
    $
    16,417
    
    
    
    26,745Federal funds sold
    
    
    16,097
    
    
    
    21,800Interest-earning deposits in other financial institutions
and other short term investments
    
    
    25,801
    
    
    
    25,262Cash and cash equivalents
    
    
    58,315
    
    
    
    73,807Securities available-for-sale (at fair value)
    
    
    116,973
    
    
    
    117,330Securities held-to-maturity (at amortized cost)
    
    
    7,646
    
    
    
    Loans held for sale
    
    
    7,683
    
    
    
    5,387Loans receivable
    
    
    1,377,026
    
    
    
    1,372,907Less: Allowance for loan losses
    
    
    7,244
    
    
    
    7,195Loans receivable, net
    
    
    1,369,782
    
    
    
    1,365,712Office properties and equipment, net
    
    
    32,904
    
    
    
    32,625Federal Home Loan Bank stock, at cost
    
    
    17,213
    
    
    
    17,213Cash surrender value of life insurance
    
    
    24,333
    
    
    
    24,152Prepaid expenses and other assets
    
    
    12,688
    
    
    
    12,244Total assets
    
    $
    1,647,537
    
    
    
    1,648,470Liabilities and Shareholders EquityLiabilities:Demand deposits
    
    $
    54,671
    
    
    
    58,407Money market and savings deposits
    
    
    107,370
    
    
    
    94,472Time deposits
    
    
    860,897
    
    
    
    883,339Total deposits
    
    
    1,022,938
    
    
    
    1,036,218Short term borrowings
    
    
    51,953
    
    
    
    41,224Long term borrowings
    
    
    311,050
    
    
    
    292,779Advance payments by borrowers for taxes
    
    
    8,498
    
    
    
    190Other liabilities
    
    
    22,945
    
    
    
    36,787Total liabilities
    
    
    1,417,384
    
    
    
    1,407,198Shareholders 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
200,000,000 shares, 33,975,250 shares issued, 32,558,013 and
33,114,539 shares outstanding at March 31, 2007 and
December 31, 2006, respectively)
    
    
    340
    
    
    
    337Additional paid-in capital
    
    
    104,750
    
    
    
    104,182Accumulated other comprehensive loss (net of taxes)
    
    
    (751
    )
    
    
    (1,225
    )Retained earnings, substantially restricted
    
    
    146,908
    
    
    
    144,809Unearned ESOP shares
    
    
    (6,618
    )
    
    
    (6,831
    )Treasury shares (826,801 shares), at cost
    
    
    (14,476
    )
    
    
    Total shareholders equity
    
    
    230,153
    
    
    
    241,272Total liabilities and shareholders equity
    
    $
    1,647,537
    
    
    
    1,648,470
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WAUWATOSA HOLDINGS, INC AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited)Three months ended March 31,2007
    
    
    2006(In thousands, except per share data)Interest income:Loans
    
    $
    21,323
    
    
    
    20,206Mortgage-related securities
    
    
    1,264
    
    
    
    1,063Debt securities, federal funds sold and
short-term investments
    
    
    988
    
    
    
    588Total interest income
    
    
    23,575
    
    
    
    21,857Interest expense:Deposits
    
    
    11,024
    
    
    
    9,334Borrowings
    
    
    3,785
    
    
    
    2,463Total interest expense
    
    
    14,809
    
    
    
    11,797Net interest income
    
    
    8,766
    
    
    
    10,060Provision for loan losses
    
    
    350
    
    
    
    307Net interest income after provision for loan losses
    
    
    8,416
    
    
    
    9,753Noninterest income:Service charges on loans and deposits
    
    
    517
    
    
    
    485Increase in cash surrender value of life insurance
    
    
    181
    
    
    
    157Mortgage banking income
    
    
    568
    
    
    
    339Other
    
    
    345
    
    
    
    212Total noninterest income
    
    
    1,611
    
    
    
    1,193Noninterest expenses:Compensation, payroll taxes, and other employee benefits
    
    
    4,000
    
    
    
    3,863Occupancy, office furniture, and equipment
    
    
    1,224
    
    
    
    962Advertising
    
    
    273
    
    
    
    285Data processing
    
    
    239
    
    
    
    375Communications
    
    
    216
    
    
    
    161Professional fees
    
    
    270
    
    
    
    178Other
    
    
    594
    
    
    
    832Total noninterest expenses
    
    
    6,816
    
    
    
    6,656Income before income taxes
    
    
    3,211
    
    
    
    4,290Income taxes
    
    
    1,112
    
    
    
    1,584Net income
    
    $
    2,099
    
    
    
    2,706Earnings per share:Basic
    
    $
    0.06
    
    
    
    0.08Diluted
    
    $
    0.06
    
    
    
    0.08Weighted average shares outstanding:Basic
    
    
    32,920,752
    
    
    
    33,047,880Diluted
    
    
    32,927,095
    
    
    
    33,047,880
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##### Table of Contents



WAUWATOSA HOLDINGS, INC AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)
 AccumulatedCommon
    
    
    Additional
    
    
    Other
    
    
    
    
    
    
    UnearnedStock
    
    
    Paid-In
    
    
    Comprehensive
    
    
    Retained
    
    
    ESOP
    
    
    TreasuryShares
    
    
    Amount
    
    
    Capital
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Shares
    
    
    Stock
    
    
    Equity(In Thousands)Balances at December 31, 2005
    
    
    33,724
    
    
    $
    337
    
    
    
    103,859
    
    
    
    (1,571
    )
    
    
    136,756
    
    
    
    (7,685
    )
    
    
    
    
    
    
    231,696Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,706
    
    
    
    
    
    
    
    
    
    
    
    2,706Other comprehensive income:Net unrealized holding losses on
available for sale securities arising during the
period, net of tax benefit of $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
    
    
    
    (1,840
    )
    
    
    139,462
    
    
    
    (7,471
    )
    
    
    
    
    
    
    234,369Balances at December 31, 2006
    
    
    33,724
    
    
    $
    337
    
    
    
    104,182
    
    
    
    (1,225
    )
    
    
    144,809
    
    
    
    (6,831
    )
    
    
    
    
    
    
    241,272Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,099
    
    
    
    
    
    
    
    
    
    
    
    2,099Other comprehensive income:Net unrealized holding gains on
available for sale securities arising during the
period, net of taxes of $256
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    474
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    474Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,573ESOP shares committed to be released to Plan
participants
    
    
    
    
    
    
    
    
    
    
    123
    
    
    
    
    
    
    
    
    
    
    
    213
    
    
    
    
    
    
    
    336Stock based compensation
    
    
    252
    
    
    
    3
    
    
    
    445
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    448Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,476
    )
    
    
    (14,476
    )Balances at March 31, 2007
    
    
    33,976
    
    
    $
    340
    
    
    
    104,750
    
    
    
    (751
    )
    
    
    146,908
    
    
    
    (6,618
    )
    
    
    (14,476
    )
    
    
    230,153
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WAUWATOSA HOLDINGS, INC AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)Three months ended March 31,2007
    
    
    2006(In Thousands)Operating activities:Net income
    
    $
    2,099
    
    
    
    2,706Adjustments to reconcile net income to net
cash provided by operating activities:Provision for loan losses
    
    
    350
    
    
    
    307Provision for depreciation
    
    
    631
    
    
    
    551Deferred income taxes
    
    
    197
    
    
    
    (223
    )Stock based compensation expense
    
    
    448
    
    
    
    Net amortization of premium on debt and mortgage-related
securities
    
    
    (24
    )
    
    
    (10
    )Fair value of ESOP shares committed to be released
    
    
    336
    
    
    
    214Gain on sale of loans held for sale
    
    
    (308
    )
    
    
    Loans originated for sale
    
    
    (45,093
    )
    
    
    Proceeds on sales of loans originated for sale
    
    
    43,104
    
    
    
    Increase in accrued interest receivable
    
    
    (662
    )
    
    
    (152
    )Increase in cash surrender value of life insurance
    
    
    (181
    )
    
    
    (157
    )Increase (decrease) in accrued interest on deposits
    
    
    (362
    )
    
    
    341Increase (decrease) in other liabilities
    
    
    4,182
    
    
    
    (241
    )Gain on sale of real estate owned and other assets
    
    
    (71
    )
    
    
    (116
    )Other
    
    
    412
    
    
    
    (380
    )Net cash provided by operating activities
    
    
    5,058
    
    
    
    2,840Investing activities:Net increase in loans receivable
    
    
    (5,034
    )
    
    
    (39,928
    )Purchases of:Debt securities
    
    
    (1,385
    )
    
    
    Mortgage-related securities
    
    
    (2,057
    )
    
    
    Structured notes, held-to-maturity
    
    
    (7,646
    )Premises and equipment, net
    
    
    (825
    )
    
    
    (2,705
    )Waterstone Mortgage Corporation
    
    
    
    
    
    
    (1,082
    )Proceeds from:Principal repayments on mortgage-related securities
    
    
    3,998
    
    
    
    3,592Sales of real estate owned and other assets
    
    
    505
    
    
    
    425Net cash used in investing activities
    
    
    (12,444
    )
    
    
    (39,698
    )
  -6-




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##### Table of Contents



WAUWATOSA HOLDINGS, INC AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)Three months ended March 31,2007
    
    
    2006(In Thousands)Financing activities:Net increase (decrease) in deposits
    
    
    (13,280
    )
    
    
    34,631Net change in short-term borrowings
    
    
    (7,000
    )
    
    
    (51,000
    )Proceeds from long-term borrowings
    
    
    36,000
    
    
    
    68,000Net increase (decrease) in advance payments by borrowers for taxes
    
    
    (9,350
    )
    
    
    (8,029
    )Purchase of treasury stock
    
    
    (14,476
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (8,106
    )
    
    
    43,602Increase (decrease) in cash and cash equivalents
    
    
    (15,492
    )
    
    
    6,744Cash and cash equivalents at beginning of period
    
    
    73,807
    
    
    
    16,498Cash and cash equivalents at end of period
    
    
    58,315
    
    
    
    23,242Supplemental information:Cash paid or credited during the period for:Income tax payments
    
    
    1,757
    
    
    
    210Interest payments
    
    
    15,172
    
    
    
    11,456Noncash investing activities:Loans receivable transferred to foreclosed properties
    
    
    614
    
    
    
    620Non Cash financing activities:Long-term FHLB advances reclassified to short-term
    
    
    17,729
    
    
    
    7,000
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##### Table of Contents



WAUWATOSA HOLDINGS, INC AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Basis of Presentation
     Note 2  Reclassifications
  -8-




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##### Table of Contents



Note 3  Securities
 Securities Available for Sale
  March 31, 2007(In Thousands)Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealizedcost
    
    
    gains
    
    
    losses
    
    
    Fair valueMortgage-backed securities
    
    $
    17,689
    
    
    
    8
    
    
    
    (233
    )
    
    
    17,464Collateralized mortgage obligations
    
    
    81,071
    
    
    
    96
    
    
    
    (1,013
    )
    
    
    80,154Mortgage-related securities
    
    
    98,760
    
    
    
    104
    
    
    
    (1,246
    )
    
    
    97,618Government sponsored entity bonds
    
    
    13,455
    
    
    
    
    
    
    
    (132
    )
    
    
    13,323Municipals
    
    
    5,663
    
    
    
    144
    
    
    
    (25
    )
    
    
    5,782Debt securities
    
    
    19,118
    
    
    
    144
    
    
    
    (157
    )
    
    
    19,105Other securities
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    250$
    118,128
    
    
    
    248
    
    
    
    (1,403
    )
    
    
    116,973
 December 31, 2006(In Thousands)Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealizedcost
    
    
    gains
    
    
    losses
    
    
    Fair valueMortgage-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 sponsored entity 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
  -9-




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##### Table of Contents



Amortized
    
    
    FairCost
    
    
    Value(In Thousands)Due within one year
    
    $
    6,497
    
    
    
    6,457Due after one year through five years
    
    
    9,882
    
    
    
    9,934Due after five years through ten years
    
    
    1,354
    
    
    
    1,349Due after ten years
    
    
    1,385
    
    
    
    1,365Mortgage-related securities
    
    
    98,760
    
    
    
    97,618Other securities
    
    
    250
    
    
    
    250$
    118,128
    
    
    
    116,973
  March 31, 2007Less than 12 months
    
    
    12 months or longer
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealizedvalue
    
    
    loss
    
    
    value
    
    
    loss
    
    
    value
    
    
    loss(In Thousands)Mortgage
backed securities
    
    $
    
    
    
    
    
    
    
    
    14,492
    
    
    
    (233
    )
    
    
    14,492
    
    
    
    (233
    )Collateralized mortgage obligations
    
    
    19,052
    
    
    
    (223
    )
    
    
    38,789
    
    
    
    (790
    )
    
    
    57,841
    
    
    
    (1,013
    )Government sponsored entity bonds
    
    
    
    
    
    
    
    
    
    
    13,323
    
    
    
    (132
    )
    
    
    13,323
    
    
    
    (132
    )Municipals
    
    
    2,241
    
    
    
    (23
    )
    
    
    473
    
    
    
    (2
    )
    
    
    2,714
    
    
    
    (25
    )$
    21,293
    
    
    
    (246
    )
    
    
    67,077
    
    
    
    (1,157
    )
    
    
    88,370
    
    
    
    (1,403
    )
  Securities Held-to-Maturity
  -10-




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##### Table of Contents



Note 4  Loans Receivable
  March 31,
    
    
    December 31,2007
    
    
    2006(In Thousands)Mortgage loans:One- to four-family
    
    $
    666,390
    
    
    
    666,167Over four-family residential
    
    
    477,585
    
    
    
    480,722Commercial real estate
    
    
    53,129
    
    
    
    48,836Construction and land
    
    
    172,071
    
    
    
    168,523Total mortgage loans
    
    
    1,369,175
    
    
    
    1,364,248Consumer loans
    
    
    74,914
    
    
    
    77,878Commercial business loans
    
    
    3,695
    
    
    
    2,6571,447,784
    
    
    
    1,444,783Less:Undisbursed loan proceeds
    
    
    66,562
    
    
    
    67,390Unearned loan fees
    
    
    4,196
    
    
    
    4,486Total loans receivable, net
    
    $
    1,377,026
    
    
    
    1,372,907
   For the Three Months EndedMarch 31,2007
    
    
    2006(In Thousands)Balance at beginning of period
    
    $
    7,195
    
    
    
    5,250Provision for loan losses
    
    
    350
    
    
    
    307Charge-offs
    
    
    (301
    )
    
    
    (139
    )Recoveries
    
    
    
    
    
    
    Balance at end of period
    
    $
    7,244
    
    
    
    5,418Percentage of allowance to total loans
    
    
    0.53
    %
    
    
    0.40
    %
 -11-




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##### Table of Contents



Note 5  Deposits
  (In Thousands)Within one year
    
    $
    716,670One to two years
    
    
    68,742Two to three years
    
    
    45,124Three to four years
    
    
    23,283Four through five years
    
    
    6,989After five years
    
    
    89$
    860,897
 Note 6  Borrowings
  March 31, 2007
    
    December 31, 2006Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageBalance
    
    Rate
    
    Balance
    
    Rate(In Thousands)
    
    
    
    
    
    (In Thousands)Federal Home Loan Bank advances maturing:2007
    
    
    34,224
    
    
    
    4.02
    %
    
    
    41,224
    
    
    
    3.94
    %2008
    
    
    47,779
    
    
    
    4.24
    %
    
    
    47,779
    
    
    
    4.24
    %2010
    
    
    37,000
    
    
    
    4.78
    %
    
    
    25,000
    
    
    
    4.24
    %2016
    
    
    220,000
    
    
    
    4.34
    %
    
    
    220,000
    
    
    
    4.34
    %Repurchase agreements maturing:2017
    
    
    24,000
    
    
    
    4.21
    %
    
    
    363,003
    
    
    
    4.34
    %
    
    
    334,003
    
    
    
    4.31
    %
    -12-




---



##### Table of Contents



Note 7
 Stock-Based Compensation
 Stock-Based Compensation Plan
  Accounting for Stock-Based Compensation Plan
   Dividend Yield
    
    
    1.32
    %Risk-free interest rate
    
    
    4.44
    %Expected volatility
    
    
    31.86
    %Weighted average expected life
    

    6.5 yearsWeighted average per share value of options
    
    $
    6.27
   -13-




---



##### Table of Contents



Weighted Average
    
    AggregateWeighted Average
    
    Years Remaining in
    
    Instrinsic ValueStock Options
    
    Shares
    
    Exercise Price
    
    Contractual Term
    
    (000s)Outstanding December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    782,500
    
    
    $
    17.67
    
    
    
    9.75
    
    
    
    Excercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (7,500
    )
    
    
    17.67
    
    
    
    9.75
    
    
    
    Outstanding March 31, 2007
    
    
    775,000
    
    
    
    17.67
    
    
    
    9.75
    
    
    
    Options exercisable at March 31, 2007
    
    
    
    
    
    
    17.67
    
    
    
    
    
    
    
    
  Weighted AverageStock Options
    
    Shares
    
    Grant Date Fair ValueNonvested at December 31, 2006
    
    
    
    
    
    
    Granted
    
    
    782,500
    
    
    $
    6.27Vested
    
    
    
    
    
    
    Forfeited
    
    
    (7,500
    )
    
    
    6.27Nonvested at March 31, 2007
    
    
    775,000
    
    
    
    6.27
   Weighted AverageRestricted Stock
    
    Shares
    
    Grant Date Fair ValueNonvested at December 31, 2006
    
    
    Granted
    
    
    251,500
    
    
    $
    17.67Vested
    
    
    Forfeited
    
    
    Nonvested at March 31, 2007
    
    
    251,500
    
    
    
    17.67
  -14-




---



##### Table of Contents



Note 7
 Financial Instruments with Off-Balance Sheet Risk
  March 31,
    
    December 31,2007
    
    2006(In Thousands)Financial instruments whose contract amounts represent
potential credit risk:Commitments to extend credit under first mortgage loans
    
    $
    23,318
    
    
    
    28,067Unused portion of home equity lines of credit
    
    
    32,973
    
    
    
    34,676Unused portion of construction loans
    
    
    33,590
    
    
    
    32,714Standby letters of credit
    
    
    373
    
    
    
    639
  -15-




---



##### Table of Contents



Note 8
 Earnings per share
   Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31, 2007
    
    
    March 31, 2006(In Thousands, except per share data)Net income
    
    $
    2,099
    
    
    $
    2,706Weighted average shares outstanding
    
    
    32,921
    
    
    
    33,048Effect of dilutive potential common shares
    
    
    6
    
    
    
    Diluted weighted average shares outstanding
    
    
    32,927
    
    
    
    33,048Basic earnings per share
    
    $
    0.06
    
    
    $
    0.08Diluted earnings per share
    
    $
    0.06
    
    
    $
    0.08
 -16-




---



##### Table of Contents



Note 9
 Recent Accounting Developments
   Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities, Including an Amendment of FASB Statement No. 115
 -17-




---



##### 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.
  -18-




---



##### Table of Contents



Overview
    Critical Accounting Policies
  Allowance for Loan Losses.
  -19-




---



##### Table of Contents



Income Taxes.
   Comparison of Operating Results for the Three Months Ended March 31, 2007 and 2006
 General
 -20-




---



##### Table of Contents



Total Interest Income
 Total
Interest Expense 
   -21-




---



##### Table of Contents



Net Interest Income
 Provision for Loan Losses
 Noninterest Income
 Noninterest Expense
  -22-




---



##### Table of Contents



Income Taxes
 Net
Income 
 Comparison of Financial Condition at March 31, 2007 and December 31, 2006
 Total Assets
 Cash
and Cash Equivalents 
 -23-




---



##### Table of Contents



Securities
Held to Maturity
 Loans
Held for Sale 
 Loans Receivable
  As of or for the
    
    
    As of or for theThree Months Ended
    
    
    Year EndedMarch 31, 2007
    
    
    December 31, 2006(In Thousands)Total loans receivable and held for sale at beginning of period
    
    $
    1,450,170
    
    
    
    1,393,096Real estate loans originated for investment:ResidentialOne- to four-family
    
    
    22,260
    
    
    
    111,384Over four-family
    
    
    14,955
    
    
    
    99,420Construction and land
    
    
    7,429
    
    
    
    74,104Commercial
    
    
    9,357
    
    
    
    19,867Total real estate loans originated for investment
    
    
    54,001
    
    
    
    304,775Consumer loans originated for investment
    
    
    3,759
    
    
    
    11,915Commerical loans originated for investment
    
    
    1,638
    
    
    
    2,867Total loans originated for investment
    
    
    59,398
    
    
    
    319,557Principal repayments
    
    
    (56,397
    )
    
    
    (267,870
    )Net activity in loans held for investment
    
    
    3,001
    
    
    
    51,687Loans originated for sale
    
    
    45,093
    
    
    
    84,603Loans sold
    
    
    (42,797
    )
    
    
    (79,216
    )Net activity in loans held for sale
    
    
    2,296
    
    
    
    5,387Total loans receivable and held for sale at end of period
    
    $
    1,455,467
    
    
    
    1,450,170
 Deposits
 -24-




---



##### Table of Contents



Borrowings
 Advance Payments by Borrowers for Taxes
 Other Liabilities
 Shareholders
Equity
  -25-




---



##### Table of Contents



Average Balance Sheets, Interest and Yields/Costs
  Three Months Ended March 31,2007
    
    
    2006Average
    
    
    Interest and
    
    
    
    
    
    Average
    
    
    Interest andBalance
    
    
    Dividends
    
    
    Yield/Cost
    
    
    Balance
    
    
    Dividends
    
    
    Yield/Cost(Dollars in Thousands)Interest-earning assets:Loans receivable, net
    
    $
    1,384,345
    
    
    
    21,323
    (1)
    
    
    6.25
    %
    
    $
    1,325,260
    
    
    
    20,206
    (1)
    
    
    6.18
    %Mortgage related securities(2)
    
    
    97,647
    
    
    
    1,264
    
    
    
    5.25
    
    
    
    90,058
    
    
    
    1,063
    
    
    
    4.79Debt securities (2), federal funds sold and short-term investments
    
    
    87,372
    
    
    
    988
    
    
    
    4.59
    
    
    
    56,816
    
    
    
    588
    
    
    
    4.20Total interest-earning assets
    
    
    1,569,364
    
    
    
    23,575
    
    
    
    6.09
    
    
    
    1,472,134
    
    
    
    21,857
    
    
    
    6.02Noninterest-earning assets
    
    
    66,236
    
    
    
    
    
    
    
    
    
    
    
    60,328Total assets
    
    $
    1,635,600
    
    
    
    
    
    
    
    
    
    
    
    1,532,462Interest-bearing liabilities:Demand and money market accounts
    
    $
    137,591
    
    
    
    1,047
    
    
    
    3.09
    
    
    $
    94,138
    
    
    
    437
    
    
    
    1.88Savings accounts
    
    
    19,002
    
    
    
    19
    
    
    
    0.41
    
    
    
    21,128
    
    
    
    26
    
    
    
    0.50Certificates of deposit
    
    
    867,632
    
    
    
    9,954
    
    
    
    4.65
    
    
    
    932,092
    
    
    
    8,868
    
    
    
    3.86Total interest-bearing deposits
    
    
    1,024,225
    
    
    
    11,020
    
    
    
    4.36
    
    
    
    1,047,358
    
    
    
    9,331
    
    
    
    3.61Borrowings
    
    
    345,999
    
    
    
    3,691
    
    
    
    4.33
    
    
    
    224,974
    
    
    
    2,360
    
    
    
    4.25Other interest bearing liabilities
    
    
    11,733
    
    
    
    98
    
    
    
    3.39
    
    
    
    7,785
    
    
    
    106
    
    
    
    5.52Total interest-bearing liabilities
    
    
    1,381,957
    
    
    
    14,809
    
    
    
    4.35
    
    
    
    1,280,117
    
    
    
    11,797
    
    
    
    3.74Noninterest-bearing liabilities
    
    
    15,535
    
    
    
    
    
    
    
    
    
    
    
    19,056Total liabilities
    
    
    1,397,492
    
    
    
    
    
    
    
    
    
    
    
    1,299,173Equity
    
    
    238,108
    
    
    
    
    
    
    
    
    
    
    
    233,289Total liabilities and equity
    
    $
    1,635,600
    
    
    
    
    
    
    
    
    
    
    $
    1,532,462Net interest income
    
    
    
    
    
    
    8,766
    
    
    
    
    
    
    
    
    
    
    $
    10,060Net interest rate spread (3)
    
    
    
    
    
    
    
    
    
    
    1.74
    %
    
    
    
    
    
    
    
    
    
    
    2.28
    %Net interest-earning assets (4)
    
    $
    187,407
    
    
    
    
    
    
    
    
    
    
    $
    192,017Net interest margin (5)
    
    
    
    
    
    
    
    
    
    
    2.27
    %
    
    
    
    
    
    
    
    
    
    
    2.77
    %Average interest-earning assets to average interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    113.56
    %
    
    
    
    
    
    
    
    
    
    
    115.00
    %
 
 (1)
    
    Includes net deferred loan fee amortization income of $518 and $197 for the three months ended
March 31,2007 and 2006, respectively.(2)
    
    Average balance of mortgage related and debt securities is based on amortized historical
cost.(3)
    
    Net interest rate spread represents the difference between the yield on average
interest-earning assets and the cost of average interest-bearing liabilities.(4)
    
    Net interest-earning assets represent total interest-earning assets less total
interest-bearing liabilities.(5)
    
    Net interest margin represents net interest income divided by average total interest-earning
assets. -26-




---



##### Table of Contents



Rate/Volume Analysis
  Three Months Ended March 31,2007 versus 2006Increase (Decrease) Due toRate
    
    
    Volume
    
    
    Net(In Thousands)Interest and dividend income:Loans receivable(1) (2)
    
    $
    908
    
    
    
    209
    
    
    
    1,117Securities interest and income from
other earning assets(3)
    
    
    456
    
    
    
    145
    
    
    
    601Total interest-earning assets
    
    
    1,364
    
    
    
    354
    
    
    
    1,718Interest expense:Demand and Money Market accounts
    
    
    256
    
    
    
    354
    
    
    
    610Savings accounts
    
    
    (2
    )
    
    
    (5
    )
    
    
    (7
    )Certificates of deposit
    
    
    (549
    )
    
    
    1,635
    
    
    
    1,086Total interest-bearing deposits
    
    
    (295
    )
    
    
    1,984
    
    
    
    1,689Borrowings
    
    
    1,290
    
    
    
    41
    
    
    
    1,331Other interest-bearing liabilities
    
    
    (34
    )
    
    
    26
    
    
    
    (8
    )Total interest-bearing liabilities
    
    
    961
    
    
    
    2,051
    
    
    
    3,012Net change in net interest income
    
    $
    403
    
    
    
    (1,697
    )
    
    
    (1,294
    )
 
 (1)
    
    Includes net deferred loan fee amortization income of $518 and $197 for the three months
ended March 31, 2007 and 2006, 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. -27-




---



##### Table of Contents



ASSET QUALITY
  NON-PERFORMING LOANS AND ASSETS
 At March 31,
    
    
    At December 31,2007
    
    
    2006(Dollars in Thousands)Non-accrual loans:Mortgage loansOne- to four-family
    
    
    17,563
    
    
    
    12,376Over four-family
    
    
    11,523
    
    
    
    8,384Construction and land
    
    
    9,810
    
    
    
    7,664Commercial
    
    
    2,843
    
    
    
    357Total mortgage
    
    
    41,739
    
    
    
    28,781Consumer
    
    
    351
    
    
    
    107Total non-performing loans
    
    
    42,090
    
    
    
    28,888Real estate owned
    
    
    733
    
    
    
    520Total non-performing assets
    
    $
    42,823
    
    
    
    29,408Total non-performing loans to total loans receivable
    
    
    3.06
    %
    
    
    2.10
    %Total non-performing loans to total assets
    
    
    2.56
    %
    
    
    1.75
    %Total non-performing assets to total assets
    
    
    2.60
    %
    
    
    1.79
    %
 
  -28-




---



##### Table of Contents



At or for the Three
    
    
    At or for the ThreeMonths Ended
    
    
    Months EndedMarch 31, 2007
    
    
    March 31, 2006(Dollars in Thousands)Balance at beginning of period
    
    $
    7,195
    
    
    
    5,250Provision for loan losses
    
    
    350
    
    
    
    307Charge-offs:MortgageOne- to four-family
    
    
    301
    
    
    
    137Commercial
    
    
    
    
    
    
    2Total charge-offs
    
    
    301
    
    
    
    139Total recoveries
    
    
    
    
    
    
    Net charge-offs
    
    
    301
    
    
    
    139Allowance at end of period
    
    $
    7,244
    
    
    
    5,418Ratios:Allowance for loan losses to non-performing
loans at end of period
    
    
    17.20
    %
    
    
    49.95
    %Allowance for loan losses to loans
receivable at
end of period
    
    
    0.53
    %
    
    
    0.40
    %Net
charge-offs to average loans outstanding (annualized)
    
    
    0.09
    %
    
    
    0.04
    %
 
   -29-




---



##### Table of Contents



Impact of Inflation and Changing Prices
  Liquidity and Capital Resources
     -30-




---



##### Table of Contents



Regulatory Capital
  -31-




---



##### Table of Contents



March 31, 2007To Be Well-CapitalizedFor Capital
    
    Under Prompt CorrectiveActual
    
    Adequacy Purposes
    
    Action Provisions (1)Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioWauwatosa HoldingsTotal capital (to risk-weighted
assets)
    
    $
    237,350
    
    
    
    20.18
    %
    
    
    94,100
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/ATier I capital (to risk-weighted
assets)
    
    
    230,195
    
    
    
    19.57
    %
    
    
    47,050
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/ATier I capital (to average assets)
    
    
    230,195
    
    
    
    13.97
    %
    
    
    65,923
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AWauwatosa SavingsTotal capital (to risk-weighted
assets)
    
    $
    205,749
    
    
    
    18.01
    %
    
    
    91,382
    
    
    
    8.00
    %
    
    
    114,228
    
    
    
    10.00
    %Tier I capital (to risk-weighted
assets)
    
    
    198,713
    
    
    
    17.40
    %
    
    
    45,691
    
    
    
    4.00
    %
    
    
    68,537
    
    
    
    6.00
    %Tier I capital (to average assets)
    
    
    198,713
    
    
    
    12.37
    %
    
    
    64,247
    
    
    
    4.00
    %
    
    
    80,308
    
    
    
    5.00
    %State of Wisconsin (to total assets) (2)
    
    
    198,713
    
    
    
    12.32
    %
    
    
    96,804
    
    
    
    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. -32-




---



##### Table of Contents



Contractual Obligations, Commitments, Contingent Liabilities, and Off-balance Sheet
Arrangements
  Contractual Obligations
 More than
    
    
    More thanOne Year
    
    
    Three Years
    
    
    OverOne Year
    
    
    Through
    
    
    Through
    
    
    FiveTotal
    
    
    or Less
    
    
    Three Years
    
    
    Five Years
    
    
    Years(In Thousands)Deposits without a stated maturity
    
    $
    162,041
    
    
    
    162,041
    
    
    
    
    
    
    
    
    
    
    
    Certificates of deposit
    
    
    860,897
    
    
    
    716,670
    
    
    
    113,866
    
    
    
    30,272
    
    
    
    89Federal Home Loan Bank advances (1)
    
    
    339,003
    
    
    
    51,953
    
    
    
    30,050
    
    
    
    37,000
    
    
    
    220,000Repurchase agreements (2)
    
    
    24,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,000Operating leases(3)
    
    
    283
    
    
    
    100
    
    
    
    183
    
    
    
    
    
    
    
    Capital lease
    
    
    3,900
    
    
    
    300
    
    
    
    3,600
    
    
    
    
    
    
    
    State income tax obligation(4)
    
    
    3,726
    
    
    
    1,242
    
    
    
    2,484Salary continuation agreements
    
    
    3,223
    
    
    
    533
    
    
    
    1,152
    
    
    
    645
    
    
    
    893$
    1,397,073
    
    
    
    932,839
    
    
    
    151,335
    
    
    
    67,917
    
    
    
    244,982
 
 (1)
    
    Secured under a blanket security agreement on qualifying assets, principally,
mortgage loans. Excludes interest which will accrue on the advances. All Federal Home Loan
Bank advances with maturities exceeding five years are callable on a quarterly basis with the
initial call at various from May 2007 through March 2009.(2)
    
    The repurchase agreements are callable on a quarterly basis with the initial call
of March 2009.(3)
    
    Represents non-cancelable operating leases for offices.(4)
    
    Represents remaining amounts due to the Wisconsin Department of Revenue related to
the operations of the Companys Nevada subsidiary.  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)
    
    $
    23,318
    
    
    
    23,318
    
    
    
    
    
    
    
    
    
    
    
    Unused portion of home equity lines of credit
(2)
    
    
    32,973
    
    
    
    32,973
    
    
    
    
    
    
    
    
    
    
    
    Unused portion of construction loans (3)
    
    
    33,590
    
    
    
    33,590
    
    
    
    
    
    
    
    
    
    
    
    Standby letters of credit
    
    
    373
    
    
    
    353
    
    
    
    
    
    
    
    20
    
    
    
    Total Other Commitments
    
    $
    90,254
    
    
    
    90,234
    
    
    
    
    
    
    
    20
    
    
    
    
 
 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 90 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. -33-




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
 Management of Market Risk
 General.
 Income Simulation.
 PercentageIncrease (Decrease) in Estimated NetAnnual Interest IncomeOver 24 Months300 basis point increase in
rates
    
    
    (13.55
    )%200 basis point increase in rates
    
    
    (7.01
    )100 basis point increase in rates
    
    
    (1.68
    )100 basis point decrease in rates
    
    
    4.49200 basis point decrease in rates
    
    
    13.42
    %
  -34-




---



##### Table of Contents



Item 4. Controls and Procedures
 Disclosure Controls and Procedures :
 Internal Control Over Financial Reporting :
 -35-




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total number of
    
    Maximum numbershares purchased
    
    of shares that mayTotal number
    
    Average
    
    as part of
    
    yet be purchasedof shares
    
    price paid
    
    publicly announced
    
    under thePeriod
    
    purchased
    
    per share
    
    plans or programs
    
    plans or programsJanuary 1  January 31, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,494,298February 1  February 28, 2007
    
    
    112,863
    
    
    
    17.77
    
    
    
    112,863
    
    
    
    1,381,435March 1  March 31, 2007
    
    
    713,938
    
    
    
    17.47
    
    
    
    826,801
    
    
    
    667,497826,801
    
    
    
    17.51
 
 Item 6. Exhibits
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##### Table of Contents



WAUWATOSA HOLDINGS, INC.(Registrant)Date: May 7, 2007/s/Douglas S. GordonDouglas S. GordonChief Executive OfficerDate: May 7, 2007/s/ Richard C. LarsonRichard C. LarsonChief Financial Officer
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##### Table of Contents



Exhibit No.
    
    Description
    
    Filed Herewith31.1
    
    Sarbanes-Oxley Act Section 302 Certification signed by the 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 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
 -38-