##### Table of Contents





SECURITIES AND EXCHANGE
COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2012

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from             to

COMMISSION FILE NUMBER 001-34955





ANCHOR BANCORP WISCONSIN INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Wisconsin                                                      |  | 39-1726871                       
|(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer Identification No.)
|                                                               | 
|25 West Main Street Madison, Wisconsin                         |  | 53703                            
|(Address of principal executive office)                        |  | (Zip Code)                       

(608) 252-8700

Registrants telephone number, including area code

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90
days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes  x    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  | x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.

Class: Common stock  $.10 Par Value

Number of shares outstanding as of
July 31, 2012: 21,247,725









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##### Table of Contents

ANCHOR BANCORP WISCONSIN INC.

INDEX - FORM 10-Q



|                                                                                                    |  |    |  |                                                                                                                                               |  |       
|--------------------------------------------------------------------------------------------------- |  | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------- |  | ------
|                                                                                                    |  |    |  |                                                                                                                                               |  | Page #
|Part I  Financial Information                                                                      |  |   
|                                                                                                    | 
|Item 1       Financial Statements                                                                   |  |   
|                                                                                                    |  |    | 
|                                                                                                    |  |    |  | Unaudited Consolidated Balance Sheets as of June 30, 2012 and March 31, 2012                                                                  |  | 2     
|                                                                                                    |  |    | 
|                                                                                                    |  |    |  | Unaudited Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended June 30,
2012 and 2011                    |  | 3     
|                                                                                                    |  |    | 
|                                                                                                    |  |    |  | Unaudited Consolidated Statements of Changes in Stockholders Deficit for the Three Months Ended June
 30, 2012 and Year Ended March 31, 2012 |  | 5     
|                                                                                                    |  |    | 
|                                                                                                    |  |    |  | Unaudited Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2012 and
2011                                             |  | 6     
|                                                                                                    |  |    | 
|                                                                                                    |  |    |  | Notes to Unaudited Consolidated Financial Statements                                                                                          |  | 8     
|                                                                                                    | 
|Item 2       
Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 44
|                                                                                                    |  |    | 
|                                                                                                    |  |    |  | Executive Overview                                                                                                                            |  | 44    
|                                                                                                    |  |    | 
|                                                                                                    |  |    |  | Results of Operations                                                                                                                         |  | 49    
|                                                                                                    |  |    | 
|                                                                                                    |  |    |  | Financial Condition                                                                                                                           |  | 53    
|                                                                                                    |  |    | 
|                                                                                                    |  |    |  | Regulatory Developments                                                                                                                       |  | 54    
|                                                                                                    |  |    | 
|                                                                                                    |  |    |  | Risk Management                                                                                                                               |  | 57    
|                                                                                                    |  |    |  | Credit Risk Management                                                                                                                        |  | 58    
|                                                                                                    |  |    |  | Liquidity Risk Management                                                                                                                     |  | 66    
|                                                                                                    |  |    |  | Market Risk Management                                                                                                                        |  | 69    
|                                                                                                    |  |    | 
|                                                                                                    |  |    |  | Critical Accounting Estimates and Judgments                                                                                                   |  | 72    
|                                                                                                    |  |    | 
|                                                                                                    |  |    |  | Forward Looking Statements                                                                                                                    |  | 75    
|                                                                                                    | 
|Item 3       
Quantitative and Qualitative Disclosures About Market Risk                            |  | 76
|                                                                                                    | 
|Item 4       Controls and Procedures                                                                |  | 76
|                                                                                                    | 
|Part II  Other Information                                                                         |  |   
|                                                                                                    | 
|Item 1       Legal Proceedings                                                                      |  | 77
|Item 1A    Risk Factors                                                                             |  | 77
|Item 2       
Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 77
|Item 3       Defaults Upon Senior Securities                                                        |  | 77
|Item 4       Mine Safety Disclosures                                                                |  | 77
|Item 5       Other Information                                                                      |  | 77
|Item 6       Exhibits                                                                               |  | 77
|                                                                                                    | 
|Signatures                                                                                          |  | 79



1



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##### Table of Contents

ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)



|                                                                                                                                                                                     |  |                                   |           |   |               |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------- | --------- | - | ------------- | - | --------- | -
|                                                                                                                                                                                     |  | June 30,2012                      |           |   | March 31,2012 |  
|                                                                                                                                                                                     |  | (In thousands, except share data) |          
|Assets                                                                                                                                                                               |  |                                   |           |   |               |   |           |  
|Cash and due from banks                                                                                                                                                              |  | $                                 | 55,995    |   |               | $ | 51,584    |  
|Interest-bearing deposits                                                                                                                                                            |  |                                   | 312,374   |   |               |   | 191,396   |  
|                                                                                                                                                                                     |  |                                   |           |   |               |   |           |  
|Cash and cash equivalents                                                                                                                                                            |  |                                   | 368,369   |   |               |   | 242,980   |  
|Investment securities available for sale                                                                                                                                             |  |                                   | 231,644   |   |               |   | 242,299   |  
|Investment securities held to maturity (fair value of $0 and $20, respectively)                                                                                                      |  |                                   |          |   |               |   | 20        |  
|Loans                                                                                                                                                                                |  |                                   |           |   |               |   |           |  
|Held for sale                                                                                                                                                                        |  |                                   | 27,938    |   |               |   | 39,332    |  
|Held for investment, less allowance for loan losses of $100,477 at June 30, 2012 and $111,215 at March 31,
2012                                                                      |  |                                   | 1,959,551 |   |               |   | 2,058,008 |  
|Other real estate owned, net                                                                                                                                                         |  |                                   | 83,955    |   |               |   | 88,841    |  
|Premises and equipment, net                                                                                                                                                          |  |                                   | 27,422    |   |               |   | 25,453    |  
|Federal Home Loan Bank stockat cost                                                                                                                                                 |  |                                   | 30,522    |   |               |   | 35,792    |  
|Mortgage servicing rights, net                                                                                                                                                       |  |                                   | 20,590    |   |               |   | 22,156    |  
|Accrued interest receivable                                                                                                                                                          |  |                                   | 11,391    |   |               |   | 12,075    |  
|Other assets                                                                                                                                                                         |  |                                   | 22,694    |   |               |   | 22,496    |  
|                                                                                                                                                                                     |  |                                   |           |   |               |   |           |  
|Total assets                                                                                                                                                                         |  | $                                 | 2,784,076 |   |               | $ | 2,789,452 |  
|                                                                                                                                                                                     |  |                                   |           |   |               |   |           |  
|Liabilities and Stockholders Deficit                                                                                                                                                |  |                                   |           |   |               |   |           |  
|Deposits                                                                                                                                                                             |  |                                   |           |   |               |   |           |  
|Non-interest bearing                                                                                                                                                                 |  | $                                 | 275,526   |   |               | $ | 264,751   |  
|Interest bearing                                                                                                                                                                     |  |                                   | 1,977,647 |   |               |   | 2,000,164 |  
|                                                                                                                                                                                     |  |                                   |           |   |               |   |           |  
|Total deposits                                                                                                                                                                       |  |                                   | 2,253,173 |   |               |   | 2,264,915 |  
|Other borrowed funds                                                                                                                                                                 |  |                                   | 476,378   |   |               |   | 476,103   |  
|Accrued interest and fees payable                                                                                                                                                    |  |                                   | 47,937    |   |               |   | 43,320    |  
|Accrued taxes, insurance and employee related expenses                                                                                                                               |  |                                   | 6,502     |   |               |   | 6,385     |  
|Other liabilities                                                                                                                                                                    |  |                                   | 28,594    |   |               |   | 28,279    |  
|                                                                                                                                                                                     |  |                                   |           |   |               |   |           |  
|Total liabilities                                                                                                                                                                    |  |                                   | 2,812,584 |   |               |   | 2,819,002 |  
|                                                                                                                                                                                     |  |                                   |           |   |               |   |           |  
|Commitments and contingent liabilities (Note 13)                                                                                                                                     |  |                                   |           |   |               |   |           |  
|                                                                                                                                                                                     |  |                                  
|Preferred stock, $0.10 par value, 5,000,000 shares authorized, 110,000 shares issued and outstanding; dividends in arrears of
$20,395 at June 30, 2012 and $18,785 at March 31, 2012 |  |                                   | 98,284    |   |               |   | 96,421    |  
|Common stock, $0.10 par value, 100,000,000 shares authorized, 25,363,339 shares issued, 21,247,725 shares
outstanding                                                                |  |                                   | 2,536     |   |               |   | 2,536     |  
|Additional paid-in capital                                                                                                                                                           |  |                                   | 110,402   |   |               |   | 110,402   |  
|Retained deficit                                                                                                                                                                     |  |                                   | (149,321  | ) |               |   | (147,513  | )
|Accumulated other comprehensive income related to AFS securities                                                                                                                     |  |                                   | 4,444     |   |               |   | 3,628     |  
|Accumulated other comprehensive loss related to OTTI securities - non credit factors                                                                                                 |  |                                   | (3,325    | ) |               |   | (3,496    | )
|                                                                                                                                                                                     |  |                                   |           |   |               |   |           |  
|Total accumulated other comprehensive income                                                                                                                                         |  |                                   | 1,119     |   |               |   | 132       |  
|Treasury stock (4,115,614 shares at June 30, 2012 and March 31, 2012), at cost                                                                                                       |  |                                   | (90,259   | ) |               |   | (90,259   | )
|Deferred compensation obligation                                                                                                                                                     |  |                                   | (1,269    | ) |               |   | (1,269    | )
|                                                                                                                                                                                     |  |                                   |           |   |               |   |           |  
|Total stockholders deficit                                                                                                                                                          |  |                                   | (28,508   | ) |               |   | (29,550   | )
|                                                                                                                                                                                     |  |                                   |           |   |               |   |           |  
|Total liabilities and stockholders deficit                                                                                                                                          |  | $                                 | 2,784,076 |   |               | $ | 2,789,452 |  
|                                                                                                                                                                                     |  |                                   |           |   |               |   |           |  

See accompanying Notes to Unaudited Consolidated Financial Statements.



2



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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income

(Unaudited)



|                                                                                                   |  |                                       |        |   |      |   |        |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                   |  | Three Months Ended June 30,           |       
|                                                                                                   |  | 2012                                  |        |   | 2011 |  
|                                                                                                   |  | (In thousands, except per share data) |       
|Interest income:                                                                                   |  |                                       |        |   |      |   |        |  
|Loans                                                                                              |  | $                                     | 25,288 |   |      | $ | 32,109 |  
|Investment securities and Federal Home Loan Bank stock                                             |  |                                       | 1,549  |   |      |   | 3,956  |  
|Interest-bearing deposits                                                                          |  |                                       | 154    |   |      |   | 52     |  
|                                                                                                   |  |                                       |        |   |      |   |        |  
|Total interest income                                                                              |  |                                       | 26,991 |   |      |   | 36,117 |  
|                                                                                                   |  |                                      
|Interest expense:                                                                                  |  |                                       |        |   |      |   |        |  
|Deposits                                                                                           |  |                                       | 3,591  |   |      |   | 7,319  |  
|Other borrowed funds                                                                               |  |                                       | 7,001  |   |      |   | 7,278  |  
|                                                                                                   |  |                                       |        |   |      |   |        |  
|Total interest expense                                                                             |  |                                       | 10,592 |   |      |   | 14,597 |  
|                                                                                                   |  |                                       |        |   |      |   |        |  
|Net interest income                                                                                |  |                                       | 16,399 |   |      |   | 21,520 |  
|Provision for credit losses                                                                        |  |                                       | (1,716 | ) |      |   | 3,482  |  
|                                                                                                   |  |                                       |        |   |      |   |        |  
|Net interest income after provision for credit losses                                              |  |                                       | 18,115 |   |      |   | 18,038 |  
|                                                                                                   |  |                                      
|Non-interest income:                                                                               |  |                                       |        |   |      |   |        |  
|Impairment on new OTTI securities                                                                  |  |                                       |       |   |      |   |       |  
|Non-credit related impairment on new OTTI securities recognized in other comprehensive income      |  |                                       |       |   |      |   |       |  
|Reclassification of credit related other-than-temporary impairment from other comprehensive income |  |                                       | (64    | ) |      |   | (59    | )
|                                                                                                   |  |                                       |        |   |      |   |        |  
|Net impairment losses recognized in earnings                                                       |  |                                       | (64    | ) |      |   | (59    | )
|Loan servicing income (loss), net of amortization                                                  |  |                                       | (395   | ) |      |   | 814    |  
|Service charges on deposits                                                                        |  |                                       | 2,866  |   |      |   | 2,794  |  
|Investment and insurance commissions                                                               |  |                                       | 1,032  |   |      |   | 1,037  |  
|Net gain on sale of loans                                                                          |  |                                       | 5,823  |   |      |   | 1,173  |  
|Net gain on sale of investment securities                                                          |  |                                       | 62     |   |      |   | 1,136  |  
|Net gain on sale of OREO                                                                           |  |                                       | 3,172  |   |      |   | 1,245  |  
|Revenue from real estate partnership operations                                                    |  |                                       | 5      |   |      |   | 38     |  
|Other                                                                                              |  |                                       | 997    |   |      |   | 994    |  
|                                                                                                   |  |                                       |        |   |      |   |        |  
|Total non-interest income                                                                          |  |                                       | 13,498 |   |      |   | 9,172  |  

(Continued)



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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income(Cont.)

(Unaudited)



|                                                                                                                                              |  |                                       |        |   |      |   |        |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                                              |  | Three Months Ended June 30,           |       
|                                                                                                                                              |  | 2012                                  |        |   | 2011 |  
|                                                                                                                                              |  | (In thousands, except per share data) |       
|Non-interest expense:                                                                                                                         |  |                                       |        |   |      |   |        |  
|Compensation and benefits                                                                                                                     |  | $                                     | 10,560 |   |      | $ | 10,194 |  
|Occupancy                                                                                                                                     |  |                                       | 1,833  |   |      |   | 1,980  |  
|Furniture and equipment                                                                                                                       |  |                                       | 1,586  |   |      |   | 1,544  |  
|Federal deposit insurance premiums                                                                                                            |  |                                       | 1,564  |   |      |   | 1,933  |  
|Data processing                                                                                                                               |  |                                       | 1,385  |   |      |   | 1,383  |  
|Marketing                                                                                                                                     |  |                                       | 239    |   |      |   | 305    |  
|Expenses from real estate partnership operations                                                                                              |  |                                       | 571    |   |      |   | 42     |  
|OREO expense, net                                                                                                                             |  |                                       | 7,012  |   |      |   | 8,870  |  
|Mortgage servicing rights impairment                                                                                                          |  |                                       | 1,257  |   |      |   | 221    |  
|Legal services                                                                                                                                |  |                                       | 1,574  |   |      |   | 934    |  
|Other professional fees                                                                                                                       |  |                                       | 643    |   |      |   | 1,018  |  
|Other                                                                                                                                         |  |                                       | 3,334  |   |      |   | 3,531  |  
|                                                                                                                                              |  |                                       |        |   |      |   |        |  
|Total non-interest expense                                                                                                                    |  |                                       | 31,558 |   |      |   | 31,955 |  
|                                                                                                                                              |  |                                       |        |   |      |   |        |  
|Income (loss) before income taxes                                                                                                             |  |                                       | 55     |   |      |   | (4,745 | )
|Income tax expense                                                                                                                            |  |                                       |       |   |      |   | 10     |  
|                                                                                                                                              |  |                                       |        |   |      |   |        |  
|Net income (loss)                                                                                                                             |  |                                       | 55     |   |      |   | (4,755 | )
|Preferred stock dividends in arrears                                                                                                          |  |                                       | (1,610 | ) |      |   | (1,536 | )
|Preferred stock discount accretion                                                                                                            |  |                                       | (1,863 | ) |      |   | (1,863 | )
|                                                                                                                                              |  |                                       |        |   |      |   |        |  
|Net loss available to common equity                                                                                                           |  | $                                     | (3,418 | ) |      | $ | (8,154 | )
|                                                                                                                                              |  |                                       |        |   |      |   |        |  
|Net income (loss)                                                                                                                             |  | $                                     | 55     |   |      | $ | (4,755 | )
|Reclassification adjustment for realized net gains recognized in income                                                                       |  |                                       | (62    | ) |      |   | (1,136 | )
|Reclassification adjustment for unrealized credit related other-than-temporary impairment losses recognized in
income                         |  |                                       | 68     |   |      |   | 59     |  
|Reclassification adjustment for credit related other-than-temporary impairment previously recognized on securities paid-off
during the period |  |                                       | (4     | ) |      |   |       |  
|Change in net unrealized gains on available-for-sale securities                                                                               |  |                                       | 985    |   |      |   | 14,013 |  
|                                                                                                                                              |  |                                       |        |   |      |   |        |  
|Comprehensive income                                                                                                                          |  | $                                     | 1,042  |   |      | $ | 8,181  |  
|                                                                                                                                              |  |                                       |        |   |      |   |        |  
|Loss per common share:                                                                                                                        |  |                                       |        |   |      |   |        |  
|Basic                                                                                                                                         |  | $                                     | (0.16  | ) |      | $ | (0.38  | )
|Diluted                                                                                                                                       |  |                                       | (0.16  | ) |      |   | (0.38  | )
|Dividends declared per common share                                                                                                           |  |                                       |       |   |      |   |       |  

See accompanying Notes to Unaudited Consolidated Financial Statements.



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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders Equity (Deficit)

(Unaudited)



|                                                                                                                                              |  |                |        |  |             |   |       |                          |  |   |                 |   |  |               |          |   |                                |   |         |                                             |  |   |        |   |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ |  | ----------- | - | ----- | ------------------------ |  | - | --------------- | - |  | ------------- | -------- | - | ------------------------------ | - | ------- | ------------------------------------------- |  | - | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                              |  | PreferredStock |        |  | CommonStock |   |       | AdditionalPaid-inCapital |  |   | RetainedDeficit |   |  | TreasuryStock |          |   | DeferredCompensationObligation |   |         | Accu-mulatedOtherCompre-hensiveIncome(Loss) |  |   | Total  |  
|                                                                                                                                              |  | (In thousands) |       
|Balance at April 1, 2011                                                                                                                      |  | $              | 89,008 |  |             | $ | 2,536 |                          |  | $ | 111,513         |   |  | $             | (103,362 | ) |                                | $ | (90,534 | )                                           |  | $ | (2,380 | ) |  | $ | (19,952 | ) |  | $ | (13,171 | )
|                                                                                                                                              |  |                |        |  |             |   |       |                         
|Net loss                                                                                                                                      |  |                |       |  |             |   |      |                          |  |   |                |   |  |               | (36,738  | ) |                                |   |        |                                             |  |   |       |   |  |   |        |   |  |   | (36,738 | )
|Reclassification adjustment for realized net gains recognized in income                                                                       |  |                |       |  |             |   |      |                          |  |   |                |   |  |               |         |   |                                |   |        |                                             |  |   |       |   |  |   | (6,579  | ) |  |   | (6,579  | )
|Reclassification adjustment for unrealized credit related other-than-temporary impairment losses recognized in
income                         |  |                |       |  |             |   |      |                          |  |   |                |   |  |               |         |   |                                |   |        |                                             |  |   |       |   |  |   | 558     |   |  |   | 558     |  
|Change in net unrealized gains (losses) on available-for-sale securities                                                                      |  |                |       |  |             |   |      |                          |  |   |                |   |  |               |         |   |                                |   |        |                                             |  |   |       |   |  |   | 26,105  |   |  |   | 26,105  |  
|Vesting of restricted stock                                                                                                                   |  |                |       |  |             |   |      |                          |  |   |                |   |  |               |         |   |                                |   | 275     |                                             |  |   |       |   |  |   |        |   |  |   | 275     |  
|Change in stock-based deferred compensation obligation                                                                                        |  |                |       |  |             |   |      |                          |  |   | (1,111          | ) |  |               |         |   |                                |   |        |                                             |  |   | 1,111  |   |  |   |        |   |  |   |        |  
|Accretion of preferred stock discount                                                                                                         |  |                | 7,413  |  |             |   |      |                          |  |   |                |   |  |               | (7,413   | ) |                                |   |        |                                             |  |   |       |   |  |   |        |   |  |   |        |  
|                                                                                                                                              |  |                |        |  |             |   |       |                          |  |   |                 |   |  |               |          |   |                                |   |         |                                             |  |   |        |   |  |   |         |   |  |   |         |  
|Balance at March 31, 2012                                                                                                                     |  |                | 96,421 |  |             |   | 2,536 |                          |  |   | 110,402         |   |  |               | (147,513 | ) |                                |   | (90,259 | )                                           |  |   | (1,269 | ) |  |   | 132     |   |  |   | (29,550 | )
|                                                                                                                                              |  |                |        |  |             |   |       |                          |  |   |                 |   |  |               |          |   |                                |   |         |                                             |  |   |        |   |  |   |         |   |  |   |         |  
|Net income                                                                                                                                    |  |                |       |  |             |   |      |                          |  |   |                |   |  |               | 55       |   |                                |   |        |                                             |  |   |       |   |  |   |        |   |  |   | 55      |  
|Reclassification adjustment for realized net gains recognized in income                                                                       |  |                |       |  |             |   |      |                          |  |   |                |   |  |               |         |   |                                |   |        |                                             |  |   |       |   |  |   | (62     | ) |  |   | (62     | )
|Reclassification adjustment for unrealized credit related other-than-temporary impairment losses recognized in
income                         |  |                |       |  |             |   |      |                          |  |   |                |   |  |               |         |   |                                |   |        |                                             |  |   |       |   |  |   | 68      |   |  |   | 68      |  
|Reclassification adjustment for credit related other-than-temporary impairment previously recognized on securities paid-off
during the period |  |                |       |  |             |   |      |                          |  |   |                |   |  |               |         |   |                                |   |        |                                             |  |   |       |   |  |   | (4      | ) |  |   | (4      | )
|Change in net unrealized gains (losses) on available-for-sale securities                                                                      |  |                |       |  |             |   |      |                          |  |   |                |   |  |               |         |   |                                |   |        |                                             |  |   |       |   |  |   | 985     |   |  |   | 985     |  
|Accretion of preferred stock discount                                                                                                         |  |                | 1,863  |  |             |   |      |                          |  |   |                |   |  |               | (1,863   | ) |                                |   |        |                                             |  |   |       |   |  |   |        |   |  |   |        |  
|                                                                                                                                              |  |                |        |  |             |   |       |                          |  |   |                 |   |  |               |          |   |                                |   |         |                                             |  |   |        |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2012                                                                                                                      |  | $              | 98,284 |  |             | $ | 2,536 |                          |  | $ | 110,402         |   |  | $             | (149,321 | ) |                                | $ | (90,259 | )                                           |  | $ | (1,269 | ) |  | $ | 1,119   |   |  | $ | (28,508 | )
|                                                                                                                                              |  |                |        |  |             |   |       |                          |  |   |                 |   |  |               |          |   |                                |   |         |                                             |  |   |        |   |  |   |         |   |  |   |         |  

See accompanying Notes to Unaudited Consolidated Financial Statements



5



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##### Table of Contents

ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                         |  |                             |          |   |      |   |         |  
|---------------------------------------------------------------------------------------- |  | --------------------------- | -------- | - | ---- | - | ------- | -
|                                                                                         |  | Three Months Ended June 30, |         
|                                                                                         |  | 2012                        |          |   | 2011 |  
|                                                                                         |  | (In thousands)              |         
|Operating Activities                                                                     |  |                             |          |   |      |   |         |  
|Net income (loss)                                                                        |  | $                           | 55       |   |      | $ | (4,755  | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                             |          |   |      |   |         |  
|Provision for credit losses                                                              |  |                             | (1,716   | ) |      |   | 3,482   |  
|Provision for OREO losses                                                                |  |                             | 4,634    |   |      |   | 4,890   |  
|Depreciation and amortization                                                            |  |                             | 1,004    |   |      |   | 909     |  
|Amortization and accretion of investment securities premium/discount, net                |  |                             | 206      |   |      |   | 371     |  
|Real estate held for development and sale impairment                                     |  |                             | 245      |   |      |   |        |  
|Mortgage servicing rights impairment                                                     |  |                             | 1,257    |   |      |   | 221     |  
|Cash paid to originate loans held for sale                                               |  |                             | (242,340 | ) |      |   | (80,549 | )
|Cash received on sale of loans held for sale                                             |  |                             | 259,557  |   |      |   | 72,927  |  
|Net gain on sales of loans                                                               |  |                             | (5,823   | ) |      |   | (1,173  | )
|Net gain on sale of investment securities                                                |  |                             | (62      | ) |      |   | (1,136  | )
|Gain on sale of OREO                                                                     |  |                             | (3,172   | ) |      |   | (1,245  | )
|Net impairment losses recognized in earnings                                             |  |                             | 64       |   |      |   | 59      |  
|Decrease in accrued interest receivable                                                  |  |                             | 684      |   |      |   | 730     |  
|Increase in prepaid expense and other assets                                             |  |                             | (134     | ) |      |   | (345    | )
|Increase in accrued interest and fees payable                                            |  |                             | 4,617    |   |      |   | 2,962   |  
|Increase in other liabilities                                                            |  |                             | 432      |   |      |   | 3,193   |  
|                                                                                         |  |                             |          |   |      |   |         |  
|Net cash provided by operating activities                                                |  |                             | 19,508   |   |      |   | 541     |  
|                                                                                         |  |                            
|Investing Activities                                                                     |  |                             |          |   |      |   |         |  
|Proceeds from sale of investment securities                                              |  |                             | 1,905    |   |      |   | 55,757  |  
|Principal collected on investment securities                                             |  |                             | 9,549    |   |      |   | 10,405  |  
|FHLB stock redemption                                                                    |  |                             | 5,270    |   |      |   |        |  
|Decrease in loans held for investment                                                    |  |                             | 81,355   |   |      |   | 102,646 |  
|Purchases of premises and equipment                                                      |  |                             | (103     | ) |      |   | (156    | )
|Proceeds from sale of premises and equipment                                             |  |                             |         |   |      |   | 9       |  
|Proceeds from sale of OREO                                                               |  |                             | 19,372   |   |      |   | 20,823  |  
|                                                                                         |  |                             |          |   |      |   |         |  
|Net cash provided by investing activities                                                |  |                             | 117,348  |   |      |   | 189,484 |  

(Continued)



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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows(Contd)

(Unaudited)



|                                                                  |  |                             |         |   |      |   |            |  
|----------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ---------- | -
|                                                                  |  | Three Months Ended June 30, |        
|                                                                  |  | 2012                        |         |   | 2011 |  
|                                                                  |  | (In thousands)              |        
|Financing Activities                                              |  |                             |         |   |      |   |            |  
|Decrease in deposits                                              |  | $                           | (16,401 | ) |      | $ | (61,183    | )
|Increase in advance payments by borrowers for taxes and insurance |  |                             | 4,659   |   |      |   | 3,989      |  
|Proceeds from borrowed funds                                      |  |                             | 19,700  |   |      |   | 1,550,000  |  
|Repayment of borrowed funds                                       |  |                             | (19,425 | ) |      |   | (1,661,100 | )
|                                                                  |  |                             |         |   |      |   |            |  
|Net cash used in financing activities                             |  |                             | (11,467 | ) |      |   | (168,294   | )
|                                                                  |  |                             |         |   |      |   |            |  
|Net increase in cash and cash equivalents                         |  |                             | 125,389 |   |      |   | 21,731     |  
|Cash and cash equivalents at beginning of period                  |  |                             | 242,980 |   |      |   | 107,015    |  
|                                                                  |  |                             |         |   |      |   |            |  
|Cash and cash equivalents at end of period                        |  | $                           | 368,369 |   |      | $ | 128,746    |  
|                                                                  |  |                             |         |   |      |   |            |  
|Supplementary cash flow information:                              |  |                             |         |   |      |   |            |  
|Cash paid (received) or credited to accounts:                     |  |                             |         |   |      |   |            |  
|Interest on deposits and borrowings                               |  | $                           | 5,975   |   |      | $ | 11,635     |  
|Income taxes                                                      |  |                             | 10      |   |      |   |           |  
|Non-cash transactions:                                            |  |                             |         |   |      |   |            |  
|Transfer of loans to OREO                                         |  |                             | 18,818  |   |      |   | 23,252     |  
|Transfer of OREO to premises and equipment                        |  |                             | 2,870   |   |      |   |           |  

See accompanying Notes to Unaudited Consolidated Financial Statements



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ANCHOR BANCORP WISCONSIN INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1  Basis of Presentation

The unaudited consolidated financial statements include the accounts and results of operations of Anchor BanCorp Wisconsin Inc. (the
Corporation) and its wholly-owned subsidiaries, AnchorBank fsb (the Bank) and Investment Directions, Inc. (IDI). The Bank has one subsidiary at June 30, 2012: ADPC Corporation. Significant inter-company
balances and transactions have been eliminated.

The accompanying unaudited interim consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (GAAP) and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the unaudited consolidated financial statements have been included.

In preparing the unaudited consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that
affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term
relate to the determination of the allowance for loan losses, the valuation of foreclosed real estate, the net carrying value of mortgage servicing rights and deferred tax assets, and the fair value of investment securities, interest rate lock
commitments, forward contracts to sell mortgage loans, and loans held for sale. The results of operations and other data for the three-month period ended June 30, 2012 is not necessarily indicative of results that may be expected for the fiscal
year ending March 31, 2013. We have evaluated all subsequent events through the date of this filing. The interim unaudited consolidated financial statements presented herein should be read in conjunction with the audited consolidated financial
statements and related notes thereto included in the Corporations Annual Report on Form 10-K for the fiscal year ended March 31, 2012.

Certain prior period amounts have been reclassified to conform to the current period presentations with no impact on net income (loss) or total equity.

Note 2  Significant Risks and Uncertainties

Regulatory Agreements

On June 26, 2009, the Corporation and the Bank each consented to the issuance of an Order to Cease and Desist (the Corporation Order and
the Bank Order, respectively, and together, the Orders) by the Office of Thrift Supervision (the OTS). As of July 21, 2011, regulation of the Bank was assumed by the Office of the Comptroller of the Currency
(OCC), and the Federal Reserve became the primary regulator for the Corporation.

The Corporation Order requires the Corporation
to notify, and in certain cases to obtain the permission of, the Federal Reserve prior to: (i) declaring, making or paying any dividends or other capital distributions on its capital stock, including the repurchase or redemption of its capital
stock; (ii) incurring, issuing, renewing or rolling over any debt, increasing any current lines of credit or guaranteeing the debt of any entity; (iii) making certain changes to its directors or senior executive officers;
(iv) entering into, renewing, extending or revising any contractual arrangement related to compensation or benefits with any of its directors or senior executive officers; and (v) making any golden parachute payments or prohibited
indemnification payments. The Corporation developed and submitted to the OTS a three-year cash flow plan, which must be reviewed at least quarterly by the Corporations management and board for material deviations between the cash flow
plans projections and actual results (the Variance Analysis Report). Within 45 days following the end of each quarter, the Corporation is required to provide the Federal Reserve its Variance Analysis Report for that quarter.



8



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The Bank Order requires the Bank to notify, or in certain cases obtain the permission of, the OCC prior to
(i) increasing its total assets in any quarter in excess of an amount equal to net interest credited on deposit liabilities during the quarter; (ii) accepting, rolling over or renewing any brokered deposits; (iii) making certain
changes to its directors or senior executive officers; (iv) entering into, renewing, extending or revising any contractual arrangement related to compensation or benefits with any of its directors or senior executive officers; (v) making
any golden parachute or prohibited indemnification payments; (vi) paying dividends or making other capital distributions on its capital stock; (vii) entering into certain transactions with affiliates; and (viii) entering into
third-party contracts outside the normal course of business. The Bank also developed and submitted within the prescribed time periods, a written capital restoration plan, a problem asset plan, a revised business plan, and an implementation plan
resulting from a review of commercial lending practices. The Orders also require the Bank to regularly review its current liquidity management policy and the adequacy of its allowance for loan and lease losses.

On August 31, 2010, the OTS approved the capital restoration plan submitted by the Bank, although the approval included a Prompt Corrective Action
Directive (PCA). The only additional requirement included in the PCA was that the Bank must obtain prior written approval from the Regional Director before entering into any contract or lease for the purchase or sale of real estate or of
any interest therein, except for contracts entered into in the ordinary course of business for the purchase or sale of other real estate owned due to foreclosure (OREO) where the contract does not exceed $3.5 million and the sales price
of the OREO does not fall below 85% of the net carrying value of the OREO.

The Orders also required that, as of September 30, 2009, the
Bank had to meet and maintain both a core capital ratio equal to or greater than 7 percent and a total risk-based capital ratio equal to or greater than 11 percent. Further, as of December 31, 2009, the Bank had to meet and maintain both a core
capital ratio equal to or greater than 8 percent and a total risk-based capital ratio equal to or greater than 12 percent.

At June 30,
2012, the Bank had a tier 1 leverage (core) ratio of 4.56% and a total risk-based capital ratio of 8.98%, each below the required capital ratios set forth above. Without a waiver, amendment or modification of the Orders, the Bank could be subject to
further regulatory action, although neither the Bank nor the Corporation has received notice of any regulatory action to be taken by the OCC or the Federal Reserve with regards to the Orders. That said, at June 30, 2012, the Banks
risk-based capital is considered adequately capitalized for regulatory purposes. Under OCC requirements, a bank must have a total risk-based capital ratio of 8 percent or greater to be considered adequately capitalized. The Bank
continues to work toward the requirements of the Bank Order which requires a total risk-based capital ratio of 12 percent, which exceeds traditional capital levels for a bank. All customer deposits remain fully insured to the limits set by the
FDIC.

As referenced above, on July 21, 2011, the OTS, which was the Banks primary regulator, ceased operations as a result of
changes implemented pursuant to the Dodd-Frank Act. As of July 21, 2011, regulation of the Bank was assumed by the OCC, and the Federal Reserve became the primary regulator for the Corporation. The Federal Reserve and the OCC are now
responsible for the administration of the Orders.

Going Concern

The Corporation and the Bank continue to diligently work with their financial and professional advisors in seeking qualified sources of outside capital, and in achieving compliance with the requirements
of the Orders. The Corporation and the Bank consult with the Federal Reserve, the OCC and FDIC on a regular basis concerning the Corporations and Banks proposals to obtain outside capital and to develop action plans that will be
acceptable to federal regulatory authorities, but there can be no assurance that these actions will be successful, or that even if one or more of the Corporations and Banks proposals are accepted by the Federal regulators, that these
proposals will be successfully implemented. While the Corporations management continues to exert maximum effort to attract new capital, significant operating losses in the past four fiscal years, significant levels of criticized assets at the
Bank and negative equity raise substantial doubt as to the Corporations ability to continue as a going concern. If the Corporation and Bank are unable to achieve compliance with the requirements of the Orders, or implement an acceptable
capital restoration plan, and if the Corporation and Bank cannot otherwise comply with such commitments and regulations, the OCC or FDIC could force a sale, liquidation or federal conservatorship or receivership of the Bank.



9



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As discussed in greater detail in the previous section, Regulatory Agreements, the Corporation
and the Bank have submitted a capital restoration plan describing how the Corporation intends to restore the capital position of the Bank. On August 31, 2010, the OTS accepted this plan. The OCC and Federal Reserve now have oversight authority
of this plan.

Further, the Corporation entered into an amendment dated November 29, 2011 (Amendment No. 8) to the
Amended and Restated Credit Agreement (Credit Agreement) among the Corporation, the lenders from time to time a party thereto, and U.S. Bank National Association, as administrative agent for such lenders, or the Agent as
described in Note 9, in which the existing interest rate remained the same and the financial covenants related to capital ratios and non-performing loans were moderately relaxed. Under the terms of the Credit Agreement, the Agent and the lenders
have certain rights if all covenants are not complied with, including the right to accelerate the maturity of the borrowings. As of June 30, 2012, the Corporation was in compliance with the financial and non-financial covenants contained in the
Credit Agreement, as amended, although there is no guarantee that the Corporation will remain in compliance with the covenants. As of the date of this filing, the Corporation does not have sufficient cash on hand to reduce outstanding borrowings to
zero. There can be no assurance that the Corporation will be able to raise sufficient capital or have enough cash on hand to reduce outstanding borrowings to zero by November 30, 2012, which may, if unable to secure an extension at that time,
limit the Corporations ability to fund ongoing operations.

Credit Risks

While the Corporation has devoted and will continue to devote substantial management resources toward the resolution of all delinquent and impaired loans, no assurance can be made that managements
efforts will be successful. These conditions create an uncertainty about material adverse consequences that may occur in the near term. The continuing recession and the decrease in valuations of real estate have had a significant adverse impact on
the Corporations consolidated financial condition and results of operations.

Non-performing assets totaled $272.9 million at
June 30, 2012, or 9.8% of total assets, which decreased the Corporations interest income. The Corporations results of operations will continue to be impacted by the level of non-performing assets and the Corporation expects
continued downward pressure on interest income in the future. As reported in the accompanying unaudited interim consolidated financial statements, the Corporation has net income of $55,000 for the three months ended June 30, 2012.
Stockholders equity improved from a deficit of $29.6 million or (1.06)% of total assets at March 31, 2012 to a deficit of $28.5 million or (1.02)% of total assets at June 30, 2012.

Note 3  Recent Accounting Pronouncements

ASU No. 2011-02, Receivables (Topic 310)  A Creditors Determination of Whether a Restructuring Is a
Troubled Debt Restructuring. ASU 2011-02 states that in evaluating whether a restructuring constitutes a troubled debt restructuring (TDR), a creditor must separately conclude that both of the following exist: (i) the
restructuring constitutes a concession and (ii) the debtor is experiencing financial difficulties. In addition, the amendments to Topic 310 clarify that a creditor is precluded from using the effective interest rate test in the debtors
guidance on restructuring of payables when evaluating whether a restructuring constitutes a troubled debt restructuring. The amendments to Topic 310 also required new disclosures regarding currently outstanding TDRs and TDR activity during the
period. The Corporation adopted ASU 2011-02 in its second quarter of fiscal 2012.

As a result of adopting the amendments in ASU 2011-02, the
Corporation reassessed all restructurings that occurred on or after April 1, 2011, the beginning of the prior fiscal year, for identification as TDRs. Certain receivables were identified as TDRs for which the allowance for credit losses had
previously been measured under a general allowance for credit losses methodology. Upon identifying those receivables as TDRs, they were also deemed impaired under the guidance in ASC 310-10-35. The amendments in ASU 2011-02 require prospective
application of impairment measured in accordance with the guidance of ASC 310-10-35 for the receivables that are newly identified as impaired. The adoption of the ASU resulted in an increase in the number of loans within its commercial real estate
portfolios that are considered TDRs but did not have a material impact on the Companys financial statements for the periods ended September 30, 2011. At September 30, 2011, the period of adoption, the recorded



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investment in receivables for which the allowance for credit losses was previously measured under a general allowance for credit losses methodology and are now impaired under ASC 310-10-35 was
$258,000, and the resulting allowance for credit losses associated with those receivables, on the basis of a current evaluation of loss, was zero.

Note 4  Investment Securities

The amortized cost and fair value of investment securities are as follows:



|                                                              |  |                |         |  |            |   |       |            |  |   |        |   |  |   |         | 
|------------------------------------------------------------- |  | -------------- | ------- |  | ---------- | - | ----- | ---------- |  | - | ------ | - |  | - | ------- | 
|                                                              |  |                |         |  | Gross      |   |       | Gross      |  |   |        |  
|                                                              |  | Amortized      |         |  | Unrealized |   |       | Unrealized |  |   | Fair   |  
|                                                              |  | Cost           |         |  | Gains      |   |       | (Losses)   |  |   | Value  |  
|                                                              |  | (In thousands) |        
|At June 30, 2012                                              |  |                |         | 
|Available-for-sale:                                           |  |                |         |  |            |   |       |            |  |   |        |   |  |   |         | 
|U.S. government sponsored and federal agency obligations      |  | $              | 3,528   |  |            | $ | 23    |            |  | $ |       |   |  | $ | 3,551   | 
|Corporate stock and bonds                                     |  |                | 652     |  |            |   | 77    |            |  |   | (22    | ) |  |   | 707     | 
|Non-agency CMOs(1)                                            |  |                | 21,784  |  |            |   | 32    |            |  |   | (3,340 | ) |  |   | 18,476  | 
|Government sponsored agency mortgage-backed securities(1)     |  |                | 3,797   |  |            |   | 248   |            |  |   |       |   |  |   | 4,045   | 
|GNMA mortgage-backed securities(1)                            |  |                | 200,764 |  |            |   | 4,105 |            |  |   | (4     | ) |  |   | 204,865 | 
|                                                              |  |                |         |  |            |   |       |            |  |   |        |   |  |   |         | 
|                                                              |  | $              | 230,525 |  |            | $ | 4,485 |            |  | $ | (3,366 | ) |  | $ | 231,644 | 
|                                                              |  |                |         |  |            |   |       |            |  |   |        |   |  |   |         | 
|At March 31, 2012                                             |  |                |         | 
|Available-for-sale:                                           |  |                |         |  |            |   |       |            |  |   |        |   |  |   |         | 
|U.S. government sponsored and federal agency obligations      |  | $              | 3,556   |  |            | $ |      |            |  | $ | (25    | ) |  | $ | 3,531   | 
|Corporate stock and bonds                                     |  |                | 652     |  |            |   | 50    |            |  |   | (41    | ) |  |   | 661     | 
|Non-agency CMOs(1)                                            |  |                | 25,067  |  |            |   | 163   |            |  |   | (3,638 | ) |  |   | 21,592  | 
|Government sponsored agency mortgage-backed securities(1)     |  |                | 3,944   |  |            |   | 251   |            |  |   |       |   |  |   | 4,195   | 
|GNMA mortgage-backed securities(1)                            |  |                | 208,948 |  |            |   | 3,597 |            |  |   | (225   | ) |  |   | 212,320 | 
|                                                              |  |                |         |  |            |   |       |            |  |   |        |   |  |   |         | 
|                                                              |  | $              | 242,167 |  |            | $ | 4,061 |            |  | $ | (3,929 | ) |  | $ | 242,299 | 
|                                                              |  |                |         |  |            |   |       |            |  |   |        |   |  |   |         | 
|Held-to-maturity:                                             |  |                |         |  |            |   |       |            |  |   |        |   |  |   |         | 
|Government sponsored agency mortgage-backed securities(1) (2) |  | $              | 20      |  |            | $ |      |            |  | $ |       |   |  | $ | 20      | 
|                                                              |  |                |         |  |            |   |       |            |  |   |        |   |  |   |         | 



|(1) | Primarily collateralized by residential mortgages.
|--- | --------------------------------------------------

|(2) | Full principal payoff was received on this security in May, 2012.
|--- | -----------------------------------------------------------------

Independent pricing services are used to value all investment securities. One pricing service is used to value all securities except the non-agency CMOs. A specialized pricing service is used for
valuation of the non-agency CMO portfolio.



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To estimate the fair value of non-agency CMOs, the pricing service valuation model discounted estimated
expected cash flows after credit losses at rates ranging from 4% to 12%. The rates utilized are based on the risk free rate equivalent to the remaining average life of the security, plus a spread for normal liquidity and a spread to reflect the
uncertainty of the cash flow estimates. The pricing service benchmarks its fair value results to other pricing services and monitors the market for actual trades. The cash flow model includes these inputs in its derivation of the discount
rates used to estimate fair value. There are no payments in kind allowed on these non-agency CMOs.

The tables below present the fair value
and gross unrealized losses of all securities in an unrealized loss position, aggregated by investment category and length of time that individual investments have been in a continuous unrealized loss position at June 30, 2012 and
March 31, 2012.



|                                |  |                                             |        |  |                                           |   |     |            |  |   |                |  |  |            |        |   |                |   |        |  |  |   |        |  
|------------------------------- |  | ------------------------------------------- | ------ |  | ----------------------------------------- | - | --- | ---------- |  | - | -------------- |  |  | ---------- | ------ | - | -------------- | - | ------ |  |  | - | ------ | -
|                                |  | At June 30, 2012                            |       
|                                |  | Unrealized Loss PositionLess
than 12 months |        |  | Unrealized Loss Position12
months or More |   |     | Total      | 
|                                |  | Fair Value                                  |        |  | UnrealizedLoss                            |   |     | Fair Value |  |   | UnrealizedLoss |  |  | Fair Value |        |   | UnrealizedLoss |  
|                                |  | (In thousands)                              |       
|Corporate stock and bonds       |  | $                                           | 66     |  |                                           | $ | (22 | )          |  | $ |               |  |  | $          |       |   |                | $ | 66     |  |  | $ | (22    | )
|Non-agency CMOs                 |  |                                             | 73     |  |                                           |   |    |            |  |   | 16,392         |  |  |            | (3,340 | ) |                |   | 16,465 |  |  |   | (3,340 | )
|GNMA mortgage-backed securities |  |                                             | 10,176 |  |                                           |   | (4  | )          |  |   |               |  |  |            |       |   |                |   | 10,176 |  |  |   | (4     | )
|                                |  |                                             |        |  |                                           |   |     |            |  |   |                |  |  |            |        |   |                |   |        |  |  |   |        |  
|                                |  | $                                           | 10,315 |  |                                           | $ | (26 | )          |  | $ | 16,392         |  |  | $          | (3,340 | ) |                | $ | 26,707 |  |  | $ | (3,366 | )
|                                |  |                                             |        |  |                                           |   |     |            |  |   |                |  |  |            |        |   |                |   |        |  |  |   |        |  



|                                                         |  |                                             |        |  |                                           |   |      |            |  |   |                |  |  |            |        |   |                |   |        |  |  |   |        |  
|-------------------------------------------------------- |  | ------------------------------------------- | ------ |  | ----------------------------------------- | - | ---- | ---------- |  | - | -------------- |  |  | ---------- | ------ | - | -------------- | - | ------ |  |  | - | ------ | -
|                                                         |  | At March 31, 2012                           |       
|                                                         |  | Unrealized Loss PositionLess
than 12 months |        |  | Unrealized Loss Position12
months or More |   |      | Total      | 
|                                                         |  | Fair Value                                  |        |  | UnrealizedLoss                            |   |      | Fair Value |  |   | UnrealizedLoss |  |  | Fair Value |        |   | UnrealizedLoss |  
|                                                         |  | (In thousands)                              |       
|U.S. government sponsored and federal agency obligations |  | $                                           | 3,531  |  |                                           | $ | (25  | )          |  | $ |               |  |  | $          |       |   |                | $ | 3,531  |  |  | $ | (25    | )
|Corporate stock and bonds                                |  |                                             | 111    |  |                                           |   | (41  | )          |  |   |               |  |  |            |       |   |                |   | 111    |  |  |   | (41    | )
|Non-agency CMOs                                          |  |                                             | 77     |  |                                           |   |     |            |  |   | 18,109         |  |  |            | (3,638 | ) |                |   | 18,186 |  |  |   | (3,638 | )
|GNMA mortgage-backed securities                          |  |                                             | 37,631 |  |                                           |   | (225 | )          |  |   |               |  |  |            |       |   |                |   | 37,631 |  |  |   | (225   | )
|                                                         |  |                                             |        |  |                                           |   |      |            |  |   |                |  |  |            |        |   |                |   |        |  |  |   |        |  
|                                                         |  | $                                           | 41,350 |  |                                           | $ | (291 | )          |  | $ | 18,109         |  |  | $          | (3,638 | ) |                | $ | 59,459 |  |  | $ | (3,929 | )
|                                                         |  |                                             |        |  |                                           |   |      |            |  |   |                |  |  |            |        |   |                |   |        |  |  |   |        |  

Other-Than-Temporary Impairment

The number of individual securities in the tables above total 15 at June 30, 2012 and 20 at March 31, 2012, respectively. Although these securities have declined in value these unrealized losses
are considered temporary. Management evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. In estimating other-than-temporary impairment
losses on investment securities, management considers many factors which include: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and
(3) the intent and ability of the Corporation to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value.



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To determine if an other-than-temporary impairment exists on a debt security with an unrealized loss, the
Corporation first determines if (a) it intends to sell the security or (b) it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of the conditions is met, the Corporation will
recognize an other-than-temporary impairment loss in earnings equal to the difference between the securitys fair value and its amortized cost basis. If neither condition is met, the Corporation determines (a) the amount of the impairment
related to credit loss and (b) the amount of the impairment due to all other factors. The difference between the present values of the cash flows expected to be collected, discounted at the purchase yield or current accounting yield of the
security, and the amortized cost basis is the credit loss. The credit loss is the portion of the impairment that is deemed other-than-temporary and recognized in earnings and is a reduction in the cost basis of the security. The portion of
impairment related to all other factors is deemed temporary and included in other comprehensive income (loss).

The Corporation utilizes an
independent pricing service to run a discounted cash flow model in the calculation of other-than-temporary impairment losses on non-agency CMOs. This model is used to determine the portion of the impairment that is other-than-temporary due to credit
losses, and the portion that is temporary due to all other factors.

The significant inputs used for calculating the credit loss portion of
securities with other-than-temporary impairment (OTTI) include prepayment assumptions, loss severities, original FICO scores, historical rates of delinquency, percentage of loans with limited underwriting, historical rates of default,
original loan-to-value ratio, aggregate property location by metropolitan statistical area, original credit support, current credit support, and weighted-average maturity.

The discount rates used to establish the net present value of expected cash flows for purposes of determining OTTI ranged from 4% to 12%. These rates equate to the effective yield implicit in the
security at the date of acquisition for the bonds for which the Corporation has not in the past incurred OTTI. For the bonds for which the Corporation has previously recorded OTTI, the discount rate used equates to the accounting yield on the
security as of the valuation date.

Default rates were calculated separately for each category of underlying borrower based on delinquency
status (i.e. current, 30 to 59 days delinquent, 60 to 89 days delinquent, 90+ days delinquent, and foreclosure balances) of the loans as of June 1, 2012. This data is entered into a loss migration model to calculate projected default rates,
which are benchmarked against results that have recently been experienced by other major servicers of non-agency CMOs with similar attributes. The month 1 to month 24 constant default rate in the model ranged from 3.25% to 11.49%.

At June 30, 2012, 11 non-agency CMOs with a fair value of $16.8 million and an adjusted cost basis of $20.2 million were other-than-temporarily
impaired. At March 31, 2012, 14 non-agency CMOs with a fair value of $19.6 million and an adjusted cost basis of $23.1 million were other-than-temporarily impaired. Unrealized other-than-temporary impairment due to credit losses of $64,000 was
included in earnings for the three months ended June 30, 2012. For the three months ended June 30, 2012, realized losses of $138,000 related to credit issues (i.e.  principal reduced without a receipt of cash) were incurred that were
previously recognized in earnings as unrealized other-than-temporary impairment.

Unrealized losses on U.S. government sponsored and federal
agency obligations, corporate stocks and bonds and Ginnie Mae (GNMA) mortgage-backed securities as of June 30, 2012 due to changes in interest rates and other non-credit related factors totaled $26,000. The Corporation has analyzed
these securities for evidence of other-than-temporary impairment and concluded that no OTTI exists and that the unrealized losses are properly classified in accumulated other comprehensive income.

The following table is a roll forward of the amount of other-than-temporary impairment related to credit losses that have been recognized in earnings for
which a portion of impairment was deemed temporary and recognized in other comprehensive income for the three months ended June 30, 2012 and 2011:



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|                                                                                                                 |  |                             |       |   |      |   |       | 
|---------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ----- | - | ---- | - | ----- | 
|                                                                                                                 |  | Three months ended June 30, |      
|                                                                                                                 |  | 2012                        |       |   | 2011 |  
|                                                                                                                 |  | (In thousands)              |      
|Beginning balance of unrealized OTTI related to credit losses                                                    |  | $                           | 2,391 |   |      | $ | 2,197 | 
|Additional unrealized OTTI related to credit losses for which OTTI was previously recognized                     |  |                             | 68    |   |      |   | 59    | 
|Credit related OTTI previously recognized for securities sold or paid-off during the period                      |  |                             | (164  | ) |      |   |      | 
|Decrease for realized amount of credit losses for which unrealized credit related OTTI was previously recognized |  |                             | (138  | ) |      |   |      | 
|                                                                                                                 |  |                             |       |   |      |   |       | 
|Ending balance of unrealized OTTI related to credit losses                                                       |  | $                           | 2,157 |   |      | $ | 2,256 | 
|                                                                                                                 |  |                             |       |   |      |   |       | 

All of the Corporations other-than-temporarily impaired debt securities are non-agency CMOs. On a cumulative basis,
other-than-temporary impairment losses recognized in earnings by year of vintage were as follows:



|                |                |                  |       | 
|--------------- | -------------- | ---------------- | ----- | 
|Year of Vintage |                | At June 30, 2012 |      
|                | (In thousands) |                 
|Prior to 2005   |                | $                | 7     | 
|2005            |                |                  | 471   | 
|2006            |                |                  | 299   | 
|2007            |                |                  | 1,380 | 
|                |                |                  |       | 
|                |                | $                | 2,157 | 
|                |                |                  |       | 

The cost of investment securities sold is determined using the specific identification method. Sales of investment
securities available for sale are summarized below:



|                      |  |                            |       |  |      |   |        |  
|--------------------- |  | -------------------------- | ----- |  | ---- | - | ------ | -
|                      |  | Three Months
EndedJune 30, |      
|                      |  | 2012                       |       |  | 2011 |  
|                      |  | (In thousands)             |      
|Proceeds from sales:  |  | $                          | 1,905 |  |      | $ | 55,757 |  
|                      |  |                           
|Gross gains on sales  |  |                            | 62    |  |      |   | 1,141  |  
|Gross losses on sales |  |                            |      |  |      |   | (5     | )
|                      |  |                            |       |  |      |   |        |  
|Net gain on sales     |  | $                          | 62    |  |      | $ | 1,136  |  
|                      |  |                            |       |  |      |   |        |  

At June 30, 2012 and March 31, 2012, investment securities available-for-sale with a fair value of
approximately $208.2 million and $216.3 million, respectively, were pledged to secure deposits, borrowings and for other purposes as permitted or required by law.



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The fair values of investment securities by contractual maturity at June 30, 2012 are shown below.
Actual maturities may differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties.



|                                                         |  |                |    |  |                           |   |       |                             |  |   |               |  |  |       |         |  |  |   |         | 
|-------------------------------------------------------- |  | -------------- | -- |  | ------------------------- | - | ----- | --------------------------- |  | - | ------------- |  |  | ----- | ------- |  |  | - | ------- | 
|                                                         |  | Within 1Year   |    |  | After 1Yearthrough 5Years |   |       | After 5Yearsthrough 10Years |  |   | Over TenYears |  |  | Total |        
|                                                         |  | (In thousands) |   
|Available-for-sale, at fair value:                       |  |                |    |  |                           |   |       |                             |  |   |               |  |  |       |         |  |  |   |         | 
|U.S. government sponsored and federal agency obligations |  | $              |   |  |                           | $ | 3,551 |                             |  | $ |              |  |  | $     |        |  |  | $ | 3,551   | 
|Corporate stock and bonds                                |  |                |   |  |                           |   |      |                             |  |   |              |  |  |       | 707     |  |  |   | 707     | 
|Non-agency CMOs                                          |  |                |   |  |                           |   |      |                             |  |   | 827           |  |  |       | 17,649  |  |  |   | 18,476  | 
|Government sponsored agency mortgage-backed securities   |  |                | 10 |  |                           |   | 30    |                             |  |   | 867           |  |  |       | 3,138   |  |  |   | 4,045   | 
|GNMA mortgage-backed securities                          |  |                |   |  |                           |   |      |                             |  |   | 434           |  |  |       | 204,431 |  |  |   | 204,865 | 
|                                                         |  |                |    |  |                           |   |       |                             |  |   |               |  |  |       |         |  |  |   |         | 
|Total                                                    |  | $              | 10 |  |                           | $ | 3,581 |                             |  | $ | 2,128         |  |  | $     | 225,925 |  |  | $ | 231,644 | 
|                                                         |  |                |    |  |                           |   |       |                             |  |   |               |  |  |       |         |  |  |   |         | 

Note 5  Loans Receivable

Loans receivable held for investment consist of the following:



|                               |  |                |           |   |               |   |           |  
|------------------------------ |  | -------------- | --------- | - | ------------- | - | --------- | -
|                               |  | June 30,2012   |           |   | March 31,2012 |  
|                               |  | (In thousands) |          
|Residential                    |  | $              | 551,464   |   |               | $ | 564,691   |  
|Commercial and industrial      |  |                | 30,473    |   |               |   | 38,977    |  
|Commercial real estate:        |  |                |           |   |               |   |           |  
|Land and construction          |  |                | 163,435   |   |               |   | 186,048   |  
|Multi-family                   |  |                | 324,481   |   |               |   | 342,216   |  
|Retail/office                  |  |                | 275,759   |   |               |   | 298,277   |  
|Other commercial real estate   |  |                | 234,667   |   |               |   | 248,275   |  
|Consumer:                      |  |                |           |   |               |   |           |  
|Education                      |  |                | 227,125   |   |               |   | 240,331   |  
|Other consumer                 |  |                | 271,975   |   |               |   | 269,532   |  
|                               |  |                |           |   |               |   |           |  
|Total unpaid principal balance |  |                | 2,079,379 |   |               |   | 2,188,347 |  
|                               |  |                |           |   |               |   |           |  
|Allowance for loan losses      |  |                | (100,477  | ) |               |   | (111,215  | )
|Undisbursed loan proceeds(1)   |  |                | (16,526   | ) |               |   | (16,034   | )
|Unearned loan fees, net        |  |                | (2,819    | ) |               |   | (3,086    | )
|Unearned interest              |  |                | (6        | ) |               |   | (4        | )
|                               |  |                |           |   |               |   |           |  
|Total contras to loans         |  |                | (119,828  | ) |               |   | (130,339  | )
|                               |  |                |           |   |               |   |           |  
|Loans held for investment      |  | $              | 1,959,551 |   |               | $ | 2,058,008 |  
|                               |  |                |           |   |               |   |           |  



|(1) | Undisbursed loan proceeds are funds to be disbursed upon a draw request approved by the Corporation.
|--- | ----------------------------------------------------------------------------------------------------



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Residential Loans

At June 30, 2012, $551.5 million, or 26.5%, of the total loans unpaid principal balance receivable consisted of residential loans, substantially all of which were 1 to 4 family dwellings. Residential
loans consist of both adjustable and fixed-rate loans. The adjustable-rate loans currently in the portfolio have up to 30-year maturities and terms which permit the Corporation to annually increase or decrease the rate on the loans, based on a
designated index. These rate changes are generally subject to a limit of 2% per adjustment and an aggregate 6% adjustment over the life of the loan. These loans are documented according to standard industry practices. The Corporation makes a
limited number of interest-only loans which tend to have a shorter term to maturity and does not originate negative amortization and option payment adjustable rate mortgages.

Adjustable-rate loans decrease the risks associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent
permitted by the terms of the loan, thereby increasing the potential for default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. The Corporation believes that these risks, which
have not had a material adverse effect to date, generally are less than the risks associated with holding fixed-rate loans in an increasing interest rate environment. Also, as interest rates decline, borrowers may refinance their mortgages into
fixed-rate loans thereby prepaying the balance of the loan prior to maturity. At June 30, 2012, approximately $380.8 million, or 69.0%, of the held for investment residential loans unpaid principal balance consisted of loans with adjustable
interest rates.

The Corporation continues to originate long-term, fixed-rate conventional mortgage loans. Current production of these loans
with terms of 15 years or more are generally sold to Fannie Mae, Freddie Mac and other institutional investors, while a small percentage of loan production is retained in the held for investment portfolio. In order to provide a full range of
products to its customers, the Corporation also participates in the loan origination programs of Wisconsin Housing and Economic Development Authority (WHEDA), Wisconsin Department of Veterans Affairs (WDVA) and the Federal
Housing Administration (FHA). The Corporation retains the right to service substantially all loans that it sells.

At
June 30, 2012, approximately $170.7 million, or 31.0%, of the held for investment residential loans unpaid principal balance consisted of loans with fixed rates of interest. Although these loans generally provide for repayments of principal
over a fixed period of 10 to 30 years, it is the Corporations experience that, because of prepayments and due-on-sale clauses, such loans generally remain outstanding for a substantially shorter period of time.

Commercial and Industrial Loans

The
Corporation originates loans for commercial, corporate and business purposes, including issuing letters of credit. At June 30, 2012, the unpaid principal balance receivable of commercial and industrial loans amounted to $30.5 million, or 1.5%,
of the total loans unpaid principal balance receivable. The commercial and industrial loan portfolio is comprised of loans for a variety of business purposes and generally are secured by equipment, machinery and other corporate assets. These loans
generally have terms of five years or less and interest rates that float in accordance with a designated published index. Substantially all of such loans are secured and backed by the personal guarantees of the owners of the business.

Commercial Real Estate Loans

The
Corporation originates commercial real estate loans that it typically holds in its loan portfolio which includes land and construction, multi-family, retail/office and other commercial real estate. Such loans generally have adjustable rates and
shorter terms than single-family residential loans, thus increasing the earnings sensitivity of the loan portfolio to changes in interest rates, as well as providing higher fees and rates than residential loans. At June 30, 2012, $998.3 million
of loans unpaid principal balance receivable were secured by commercial real estate, which represented 48.0% of the total loans unpaid principal balance receivable. The Corporation generally limits the origination of such loans to its primary market
area.



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##### Table of Contents

The Corporations commercial real estate loans are primarily secured by apartment buildings, office and
industrial buildings, land, warehouses, small retail shopping centers and various special purpose properties, including hotels, and nursing homes. Although terms vary, commercial real estate loans generally have amortization periods of 15 to 25
years, as well as balloon payments of two to five years, and terms which provide that the interest rates thereon may be adjusted annually based on a designated index.

Consumer Loans

The Corporation offers consumer loans in order to provide a wider range of
financial services to its customers. At June 30, 2012, $499.1 million, or 24.0%, of the total loans unpaid principal balance receivable consisted of consumer loans. Consumer loans typically have higher interest rates than mortgage loans but
generally involve more risk than mortgage loans because of the type and nature of the collateral and, in certain cases, the absence of collateral.

Approximately $227.1 million, or 10.9%, of the total loans unpaid principal balance receivable at June 30, 2012 consisted of education loans. These loans are generally made for a maximum of $3,500
per year for undergraduate studies and $8,500 per year for graduate studies and are placed in repayment status on an installment basis within six months following graduation. Education loans generally have interest rates that adjust annually in
accordance with a designated index. Both the principal amount of an education loan and interest thereon are generally guaranteed by the Great Lakes Higher Education Corporation up to 97% of the balance of the loan, which typically obtains
reinsurance of its obligations from the U.S. Department of Education. During the quarter ended September 30, 2010, the Corporation discontinued the origination of student loans. Education loans may be sold to the U.S. Department of Education or
to other investors. No education loans were sold during the three months ended June 30, 2012.

The largest component of the other
consumer loan portfolio is second mortgage and home equity loans. The primary home equity loan product has an adjustable rate that is linked to the prime interest rate and is secured by a mortgage, either a primary or a junior lien, on the
borrowers residence. New home equity lines do not exceed 85% of appraised value of the property at the loan origination date. A fixed-rate home equity second mortgage term product is also offered.

The remainder of the other consumer loan portfolio consists of vehicle loans and other secured and unsecured loans made for a variety of consumer
purposes. These include credit extended through credit cards issued by a third party, ELAN Financial Services (ELAN), pursuant to an agency arrangement under which the Corporation participates in outstanding balances, currently at 25% to 28%. The
Corporation also shares 33% to 37% of annual fees, and 30% of late payment, over limit and cash advance fees, as well as 25% to 30% of interchange income from the underlying portfolio.

Allowances for Loan Losses

The allowance for loan losses consists of general, substandard
and specific components even though the entire allowance is available to cover losses on any loan. The specific allowance component relates to impaired loans (i.e.  non-accrual) and all loans reported as troubled debt restructurings. For such
loans, an allowance is established when the discounted cash flows (or collateral value if repayment relies solely on the operation or sale of the collateral) of the impaired loan are lower than the carrying value of that loan. The substandard loan
component is primarily associated with loans rated in this category but not in non-accrual status. The general allowance component covers pass, watch and special mention rated loans and is based on historical loss experience adjusted for various
qualitative and quantitative factors. Loans graded substandard and below are individually examined to determine the appropriate loan loss reserve. A reserve for unfunded commitments and letters of credit is also maintained which is classified in
other liabilities.



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##### Table of Contents

The following table presents the allowance for loan losses by component:



|                                |  |                 |         |  |                  |   |         | 
|------------------------------- |  | --------------- | ------- |  | ---------------- | - | ------- | 
|                                |  | At June 30,2012 |         |  | At March 31,2012 |  
|                                |  | (In thousands)  |        
|General component               |  | $               | 32,170  |  |                  | $ | 37,085  | 
|Substandard loan component      |  |                 | 28,936  |  |                  |   | 29,980  | 
|Specific component              |  |                 | 39,371  |  |                  |   | 44,150  | 
|                                |  |                 |         |  |                  |   |         | 
|Total allowance for loan losses |  | $               | 100,477 |  |                  | $ | 111,215 | 
|                                |  |                 |         |  |                  |   |         | 

The following table presents the unpaid principal balance of loans by risk category:



|                                                  |  |                 |           |  |                  |   |           | 
|------------------------------------------------- |  | --------------- | --------- |  | ---------------- | - | --------- | 
|                                                  |  | At June 30,2012 |           |  | At March 31,2012 |  
|                                                  |  | (In thousands)  |          
|Pass                                              |  | $               | 1,567,180 |  |                  | $ | 1,624,889 | 
|Watch                                             |  |                 | 119,203   |  |                  |   | 115,917   | 
|Special mention                                   |  |                 | 42,194    |  |                  |   | 56,762    | 
|                                                  |  |                 |           |  |                  |   |           | 
|Total pass, watch and special mention rated loans |  |                 | 1,728,577 |  |                  |   | 1,797,568 | 
|                                                  |  |                 |           |  |                  |   |           | 
|Substandard, excluding TDR accrual                |  |                 | 90,122    |  |                  |   | 93,207    | 
|                                                  |  |                 |           |  |                  |   |           | 
|TDR accrual                                       |  |                 | 71,693    |  |                  |   | 72,648    | 
|Non-accrual                                       |  |                 | 188,987   |  |                  |   | 224,924   | 
|                                                  |  |                 |           |  |                  |   |           | 
|Total impaired loans                              |  |                 | 260,680   |  |                  |   | 297,572   | 
|                                                  |  |                 |           |  |                  |   |           | 
|Total unpaid principal balance                    |  | $               | 2,079,379 |  |                  | $ | 2,188,347 | 
|                                                  |  |                 |           |  |                  |   |           | 

The following table presents activity in the allowance for loan losses by portfolio segment for the three months ended
June 30, 2012 and 2011:



|                                     |  |                |        |   |                          |   |        |                       |  |   |          |   |  |       |       |   |  |   |         |  
|------------------------------------ |  | -------------- | ------ | - | ------------------------ | - | ------ | --------------------- |  | - | -------- | - |  | ----- | ----- | - |  | - | ------- | -
|                                     |  | Residential    |        |   | Commercialand Industrial |   |        | CommercialReal Estate |  |   | Consumer |   |  | Total |      
|                                     |  | (In thousands) |       
|For the Quarter Ended June 30, 2012: |  |                |        |  
|Beginning balance                    |  | $              | 13,027 |   |                          | $ | 10,568 |                       |  | $ | 85,153   |   |  | $     | 2,467 |   |  | $ | 111,215 |  
|Provision                            |  |                | 1,673  |   |                          |   | (1,443 | )                     |  |   | (3,760   | ) |  |       | 727   |   |  |   | (2,803  | )
|Charge-offs                          |  |                | (1,363 | ) |                          |   | (1,651 | )                     |  |   | (6,768   | ) |  |       | (791  | ) |  |   | (10,573 | )
|Recoveries                           |  |                | 208    |   |                          |   | 1,042  |                       |  |   | 1,356    |   |  |       | 32    |   |  |   | 2,638   |  
|                                     |  |                |        |   |                          |   |        |                       |  |   |          |   |  |       |       |   |  |   |         |  
|Ending balance                       |  | $              | 13,545 |   |                          | $ | 8,516  |                       |  | $ | 75,981   |   |  | $     | 2,435 |   |  | $ | 100,477 |  
|                                     |  |                |        |   |                          |   |        |                       |  |   |          |   |  |       |       |   |  |   |         |  
|For the Quarter Ended June 30, 2011: |  |                |        |   |                          |   |        |                       |  |   |          |   |  |       |       |   |  |   |         |  
|Beginning balance                    |  | $              | 20,487 |   |                          | $ | 19,541 |                       |  | $ | 106,445  |   |  | $     | 3,649 |   |  | $ | 150,122 |  
|Provision                            |  |                | 390    |   |                          |   | (197   | )                     |  |   | 2,733    |   |  |       | 694   |   |  |   | 3,620   |  
|Charge-offs                          |  |                | (1,756 | ) |                          |   | (2,522 | )                     |  |   | (12,574  | ) |  |       | (858  | ) |  |   | (17,710 | )
|Recoveries                           |  |                | 506    |   |                          |   | 643    |                       |  |   | 1,415    |   |  |       | 144   |   |  |   | 2,708   |  
|                                     |  |                |        |   |                          |   |        |                       |  |   |          |   |  |       |       |   |  |   |         |  
|Ending balance                       |  | $              | 19,627 |   |                          | $ | 17,465 |                       |  | $ | 98,019   |   |  | $     | 3,629 |   |  | $ | 138,740 |  
|                                     |  |                |        |   |                          |   |        |                       |  |   |          |   |  |       |       |   |  |   |         |  



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##### Table of Contents

The following table presents the balance in the allowance for loan losses and the unpaid principal balance
of loans by portfolio segment and based on impairment method as of June 30, 2012 and March 31, 2012:



|                                      |  |                |         |  |                          |   |        |                       |  |   |           |  |  |       |         |  |  |   |           | 
|------------------------------------- |  | -------------- | ------- |  | ------------------------ | - | ------ | --------------------- |  | - | --------- |  |  | ----- | ------- |  |  | - | --------- | 
|                                      |  | Residential    |         |  | Commercialand Industrial |   |        | CommercialReal Estate |  |   | Consumer  |  |  | Total |        
|                                      |  | (In thousands) |        
|At June 30, 2012:                     |  |                |         | 
|Allowance for loan losses:            |  |                |         |  |                          |   |        |                       |  |   |           |  |  |       |         |  |  |   |           | 
|Individually evaluated for impairment |  | $              | 4,900   |  |                          | $ | 4,726  |                       |  | $ | 29,363    |  |  | $     | 382     |  |  | $ | 39,371    | 
|Collectively evaluated for impairment |  |                | 8,645   |  |                          |   | 3,790  |                       |  |   | 46,618    |  |  |       | 2,053   |  |  |   | 61,106    | 
|                                      |  |                |         |  |                          |   |        |                       |  |   |           |  |  |       |         |  |  |   |           | 
|Total                                 |  | $              | 13,545  |  |                          | $ | 8,516  |                       |  | $ | 75,981    |  |  | $     | 2,435   |  |  | $ | 100,477   | 
|                                      |  |                |         |  |                          |   |        |                       |  |   |           |  |  |       |         |  |  |   |           | 
|Loans:                                |  |                |         |  |                          |   |        |                       |  |   |           |  |  |       |         |  |  |   |           | 
|Loans individually evaluated          |  | $              | 46,172  |  |                          | $ | 9,230  |                       |  | $ | 197,350   |  |  | $     | 7,928   |  |  | $ | 260,680   | 
|Loans collectively evaluated          |  |                | 505,292 |  |                          |   | 21,243 |                       |  |   | 800,992   |  |  |       | 491,172 |  |  |   | 1,818,699 | 
|                                      |  |                |         |  |                          |   |        |                       |  |   |           |  |  |       |         |  |  |   |           | 
|Total                                 |  | $              | 551,464 |  |                          | $ | 30,473 |                       |  | $ | 998,342   |  |  | $     | 499,100 |  |  | $ | 2,079,379 | 
|                                      |  |                |         |  |                          |   |        |                       |  |   |           |  |  |       |         |  |  |   |           | 
|At March 31, 2012:                    |  |                |         | 
|Allowance for loan losses:            |  |                |         |  |                          |   |        |                       |  |   |           |  |  |       |         |  |  |   |           | 
|Individually evaluated for impairment |  | $              | 5,080   |  |                          | $ | 5,548  |                       |  | $ | 33,137    |  |  | $     | 385     |  |  | $ | 44,150    | 
|Collectively evaluated for impairment |  |                | 7,947   |  |                          |   | 5,020  |                       |  |   | 52,016    |  |  |       | 2,082   |  |  |   | 67,065    | 
|                                      |  |                |         |  |                          |   |        |                       |  |   |           |  |  |       |         |  |  |   |           | 
|Total                                 |  | $              | 13,027  |  |                          | $ | 10,568 |                       |  | $ | 85,153    |  |  | $     | 2,467   |  |  | $ | 111,215   | 
|                                      |  |                |         |  |                          |   |        |                       |  |   |           |  |  |       |         |  |  |   |           | 
|Loans:                                |  |                |         |  |                          |   |        |                       |  |   |           |  |  |       |         |  |  |   |           | 
|Loans individually evaluated          |  | $              | 49,411  |  |                          | $ | 10,774 |                       |  | $ | 228,873   |  |  | $     | 8,514   |  |  | $ | 297,572   | 
|Loans collectively evaluated          |  |                | 515,280 |  |                          |   | 28,203 |                       |  |   | 845,943   |  |  |       | 501,349 |  |  |   | 1,890,775 | 
|                                      |  |                |         |  |                          |   |        |                       |  |   |           |  |  |       |         |  |  |   |           | 
|Total                                 |  | $              | 564,691 |  |                          | $ | 38,977 |                       |  | $ | 1,074,816 |  |  | $     | 509,863 |  |  | $ | 2,188,347 | 
|                                      |  |                |         |  |                          |   |        |                       |  |   |           |  |  |       |         |  |  |   |           | 

The provision for credit losses reflected in the consolidated statements of operations includes the provision for loan
losses and the provision for unfunded commitment losses as follows:



|                                         |  |                             |        |   |      |   |       |  
|---------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ----- | -
|                                         |  | Three months ended June 30, |       
|                                         |  | 2012                        |        |   | 2011 |  
|                                         |  | (In thousands)              |       
|Provision for loan losses                |  | $                           | (2,803 | ) |      | $ | 3,620 |  
|Provision for unfunded commitment losses |  |                             | 1,087  |   |      |   | (138  | )
|                                         |  |                             |        |   |      |   |       |  
|Provision for credit losses              |  | $                           | (1,716 | ) |      | $ | 3,482 |  
|                                         |  |                             |        |   |      |   |       |  

The provision for unfunded commitment losses in the three months ending June 30, 2012 totaled $1.1 million, up from
$(0.1) million during the same period in 2011. This increase reflects the implementation in June 2012 of a more refined process of estimating probable losses inherent in the unfunded loan commitment and letter of credit portfolios. The reserve for
unfunded commitments and letters of credit at June 30, 2012 totaled $1.7 million, classified in other liabilities on the consolidated balance sheet.

At June 30, 2012, $260.7 million of unpaid principal balance of loans were identified as impaired which includes performing troubled debt restructurings. At March 31, 2012, impaired loans were
$297.6 million. A loan is identified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement and thus are
placed on non-accrual status. Interest income on certain impaired loans is recognized on a cash basis.



19



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A substantial portion of the Corporations loans are collateralized by real estate in Wisconsin and
adjacent states. Accordingly, the ultimate collectability of the loan portfolio is susceptible to changes in real estate market conditions in that area.

The following table presents impaired loans segregated by loans with no specific allowance and loans with an allowance, by class of loans, as of June 30, 2012:



|                                     |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|------------------------------------ |  | ---------------------- | ------- |  | ------------------- | - | ------ | -------------- |  | - | --------------------- |  |  | ------------------------------------------- | ------- |  |  | - | ----- | 
|                                     |  | UnpaidPrincipalBalance |         |  | AssociatedAllowance |   |        | CarryingAmount |  |   | AverageCarryingAmount |  |  | Fiscal Year toDate InterestIncomeRecognized |        
|                                     |  | (In thousands)         |        
|With no specific allowance recorded: |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|Residential                          |  | $                      | 16,389  |  |                     | $ |       |                |  | $ | 16,389                |  |  | $                                           | 17,311  |  |  | $ | 113   | 
|Commercial and industrial            |  |                        | 111     |  |                     |   |       |                |  |   | 111                   |  |  |                                             | 1,501   |  |  |   | 46    | 
|Land and construction                |  |                        | 40,290  |  |                     |   |       |                |  |   | 40,290                |  |  |                                             | 43,451  |  |  |   | 103   | 
|Multi-family                         |  |                        | 15,174  |  |                     |   |       |                |  |   | 15,174                |  |  |                                             | 15,678  |  |  |   | 127   | 
|Retail/office                        |  |                        | 12,444  |  |                     |   |       |                |  |   | 12,444                |  |  |                                             | 12,581  |  |  |   | 133   | 
|Other commercial real estate         |  |                        | 20,988  |  |                     |   |       |                |  |   | 20,988                |  |  |                                             | 22,004  |  |  |   | 195   | 
|Education                            |  |                        |        |  |                     |   |       |                |  |   |                      |  |  |                                             |        |  |  |   |      | 
|Other consumer                       |  |                        | 452     |  |                     |   |       |                |  |   | 452                   |  |  |                                             | 455     |  |  |   | 14    | 
|                                     |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|Subtotal                             |  |                        | 105,848 |  |                     |   |       |                |  |   | 105,848               |  |  |                                             | 112,981 |  |  |   | 731   | 
|                                     |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|With an allowance recorded(1):       |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|Residential                          |  |                        | 29,783  |  |                     |   | 4,900  |                |  |   | 24,883                |  |  |                                             | 25,599  |  |  |   | 94    | 
|Commercial and industrial            |  |                        | 9,119   |  |                     |   | 4,726  |                |  |   | 4,393                 |  |  |                                             | 5,468   |  |  |   | 98    | 
|Land and construction                |  |                        | 23,242  |  |                     |   | 13,061 |                |  |   | 10,181                |  |  |                                             | 15,108  |  |  |   | 107   | 
|Multi-family                         |  |                        | 31,017  |  |                     |   | 7,795  |                |  |   | 23,222                |  |  |                                             | 24,184  |  |  |   | 288   | 
|Retail/office                        |  |                        | 29,455  |  |                     |   | 6,609  |                |  |   | 22,846                |  |  |                                             | 22,370  |  |  |   | 317   | 
|Other commercial real estate         |  |                        | 24,740  |  |                     |   | 1,898  |                |  |   | 22,842                |  |  |                                             | 23,370  |  |  |   | 157   | 
|Education(2)                         |  |                        | 721     |  |                     |   | 1      |                |  |   | 720                   |  |  |                                             | 769     |  |  |   |      | 
|Other consumer                       |  |                        | 6,755   |  |                     |   | 381    |                |  |   | 6,374                 |  |  |                                             | 6,340   |  |  |   | 111   | 
|                                     |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|Subtotal                             |  |                        | 154,832 |  |                     |   | 39,371 |                |  |   | 115,461               |  |  |                                             | 123,208 |  |  |   | 1,172 | 
|                                     |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|Total                                |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|Residential                          |  |                        | 46,172  |  |                     |   | 4,900  |                |  |   | 41,272                |  |  |                                             | 42,910  |  |  |   | 207   | 
|Commercial and industrial            |  |                        | 9,230   |  |                     |   | 4,726  |                |  |   | 4,504                 |  |  |                                             | 6,969   |  |  |   | 144   | 
|Land and construction                |  |                        | 63,532  |  |                     |   | 13,061 |                |  |   | 50,471                |  |  |                                             | 58,559  |  |  |   | 210   | 
|Multi-family                         |  |                        | 46,191  |  |                     |   | 7,795  |                |  |   | 38,396                |  |  |                                             | 39,862  |  |  |   | 415   | 
|Retail/office                        |  |                        | 41,899  |  |                     |   | 6,609  |                |  |   | 35,290                |  |  |                                             | 34,951  |  |  |   | 450   | 
|Other commercial real estate         |  |                        | 45,728  |  |                     |   | 1,898  |                |  |   | 43,830                |  |  |                                             | 45,374  |  |  |   | 352   | 
|Education(2)                         |  |                        | 721     |  |                     |   | 1      |                |  |   | 720                   |  |  |                                             | 769     |  |  |   |      | 
|Other consumer                       |  |                        | 7,207   |  |                     |   | 381    |                |  |   | 6,826                 |  |  |                                             | 6,795   |  |  |   | 125   | 
|                                     |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|                                     |  | $                      | 260,680 |  |                     | $ | 39,371 |                |  | $ | 221,309               |  |  | $                                           | 236,189 |  |  | $ | 1,903 | 
|                                     |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 



|(1) | Includes ratio-based allowance for loan losses of $2.8 million associated with loans totaling $23.9 million for which individual reviews have not been
completed but an allowance established based on the ratio of allowance for loan losses to unpaid principal balance for the loans individually reviewed, by class of loan.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Excludes the guaranteed portion of education loans 90+ days past due with unpaid principal balance and average carrying amounts totaling $23,296 and
$25,453 that are not considered impaired based on a guarantee provided by government agencies.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The carrying amounts above and below include the unpaid principal balance less the associated allowance. The
average carrying amount is a trailing twelve month average calculated based on the ending quarterly balances. The interest income recognized is the fiscal year to date interest income recognized on a cash basis.

The following table presents impaired loans segregated by loans with no specific allowance and loans with an allowance, by class of loans, as of
March 31, 2012:



|                                     |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|------------------------------------ |  | ---------------------- | ------- |  | ------------------- | - | ------ | -------------- |  | - | --------------------- |  |  | ------------------------------------------- | ------- |  |  | - | ----- | 
|                                     |  | UnpaidPrincipalBalance |         |  | AssociatedAllowance |   |        | CarryingAmount |  |   | AverageCarryingAmount |  |  | Fiscal Year toDate InterestIncomeRecognized |        
|                                     |  | (In thousands)         |        
|With no specific allowance recorded: |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|Residential                          |  | $                      | 19,845  |  |                     | $ |       |                |  | $ | 19,845                |  |  | $                                           | 22,224  |  |  | $ | 208   | 
|Commercial and industrial            |  |                        | 3,389   |  |                     |   |       |                |  |   | 3,389                 |  |  |                                             | 6,771   |  |  |   | 61    | 
|Land and construction                |  |                        | 34,446  |  |                     |   |       |                |  |   | 34,446                |  |  |                                             | 39,601  |  |  |   | 581   | 
|Multi-family                         |  |                        | 19,822  |  |                     |   |       |                |  |   | 19,822                |  |  |                                             | 21,624  |  |  |   | 264   | 
|Retail/office                        |  |                        | 21,787  |  |                     |   |       |                |  |   | 21,787                |  |  |                                             | 23,577  |  |  |   | 816   | 
|Other commercial real estate         |  |                        | 24,213  |  |                     |   |       |                |  |   | 24,213                |  |  |                                             | 23,812  |  |  |   | 571   | 
|Education                            |  |                        |        |  |                     |   |       |                |  |   |                      |  |  |                                             |        |  |  |   |      | 
|Other consumer                       |  |                        | 474     |  |                     |   |       |                |  |   | 474                   |  |  |                                             | 507     |  |  |   | 62    | 
|                                     |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|Subtotal                             |  |                        | 123,976 |  |                     |   |       |                |  |   | 123,976               |  |  |                                             | 138,116 |  |  |   | 2,563 | 
|                                     |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|With an allowance recorded(1):       |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|Residential                          |  |                        | 29,566  |  |                     |   | 5,080  |                |  |   | 24,486                |  |  |                                             | 28,070  |  |  |   | 520   | 
|Commercial and industrial            |  |                        | 7,385   |  |                     |   | 5,548  |                |  |   | 1,837                 |  |  |                                             | 6,285   |  |  |   | 260   | 
|Land and construction                |  |                        | 47,545  |  |                     |   | 14,543 |                |  |   | 33,002                |  |  |                                             | 47,499  |  |  |   | 886   | 
|Multi-family                         |  |                        | 27,307  |  |                     |   | 7,896  |                |  |   | 19,411                |  |  |                                             | 25,803  |  |  |   | 927   | 
|Retail/office                        |  |                        | 28,954  |  |                     |   | 6,672  |                |  |   | 22,282                |  |  |                                             | 27,417  |  |  |   | 858   | 
|Other commercial real estate         |  |                        | 24,799  |  |                     |   | 4,026  |                |  |   | 20,773                |  |  |                                             | 22,891  |  |  |   | 737   | 
|Education(2)                         |  |                        | 762     |  |                     |   | 1      |                |  |   | 761                   |  |  |                                             | 789     |  |  |   |      | 
|Other consumer                       |  |                        | 7,278   |  |                     |   | 384    |                |  |   | 6,894                 |  |  |                                             | 7,190   |  |  |   | 480   | 
|                                     |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|Subtotal                             |  |                        | 173,596 |  |                     |   | 44,150 |                |  |   | 129,446               |  |  |                                             | 165,944 |  |  |   | 4,668 | 
|                                     |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|Total                                |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|Residential                          |  |                        | 49,411  |  |                     |   | 5,080  |                |  |   | 44,331                |  |  |                                             | 50,294  |  |  |   | 728   | 
|Commercial and industrial            |  |                        | 10,774  |  |                     |   | 5,548  |                |  |   | 5,226                 |  |  |                                             | 13,056  |  |  |   | 321   | 
|Land and construction                |  |                        | 81,991  |  |                     |   | 14,543 |                |  |   | 67,448                |  |  |                                             | 87,100  |  |  |   | 1,467 | 
|Multi-family                         |  |                        | 47,129  |  |                     |   | 7,896  |                |  |   | 39,233                |  |  |                                             | 47,427  |  |  |   | 1,191 | 
|Retail/office                        |  |                        | 50,741  |  |                     |   | 6,672  |                |  |   | 44,069                |  |  |                                             | 50,994  |  |  |   | 1,674 | 
|Other commercial real estate         |  |                        | 49,012  |  |                     |   | 4,026  |                |  |   | 44,986                |  |  |                                             | 46,703  |  |  |   | 1,308 | 
|Education(2)                         |  |                        | 762     |  |                     |   | 1      |                |  |   | 761                   |  |  |                                             | 789     |  |  |   |      | 
|Other consumer                       |  |                        | 7,752   |  |                     |   | 384    |                |  |   | 7,368                 |  |  |                                             | 7,697   |  |  |   | 542   | 
|                                     |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 
|                                     |  | $                      | 297,572 |  |                     | $ | 44,150 |                |  | $ | 253,422               |  |  | $                                           | 304,060 |  |  | $ | 7,231 | 
|                                     |  |                        |         |  |                     |   |        |                |  |   |                       |  |  |                                             |         |  |  |   |       | 



|(1) | Includes
ratio-based allowance for loan losses of $2.8 million associated with loans totaling $24.6 million for which individual reviews have not been completed but an allowance established based on the ratio of allowance for loan losses to unpaid principal
balance for the loans individually reviewed, by class of loan.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Excludes the
guaranteed portion of education loans 90+ days past due with unpaid principal balance and average carrying amounts totaling $24,641 and $25,520 that are not considered impaired based on a guarantee provided by government agencies.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The following is additional information regarding impaired loans:



|                                                             |  |                |         |   |              |   |         |  
|------------------------------------------------------------ |  | -------------- | ------- | - | ------------ | - | ------- | -
|                                                             |  | At June 30,    |         |   | At March 31, |  
|                                                             |  | 2012           |         |   | 2012         |  
|                                                             |  | (In thousands) |        
|Unpaid principal balance of impaired loans:                  |  |                |         |   |              |   |         |  
|With specific reserve required                               |  | $              | 154,832 |   |              | $ | 173,596 |  
|Without a specific reserve                                   |  |                | 105,848 |   |              |   | 123,976 |  
|                                                             |  |                |         |   |              |   |         |  
|Total impaired loans                                         |  |                | 260,680 |   |              |   | 297,572 |  
|Less:                                                        |  |                |         |   |              |   |         |  
|Specific valuation allowance for impaired loans              |  |                | (39,371 | ) |              |   | (44,150 | )
|                                                             |  |                |         |   |              |   |         |  
|Carrying amount of impaired loans                            |  | $              | 221,309 |   |              | $ | 253,422 |  
|                                                             |  |                |         |   |              |   |         |  
|Average carrying amount of impaired loans                    |  | $              | 236,189 |   |              | $ | 304,060 |  
|Loans and troubled debt restructurings on non-accrual status |  |                | 188,987 |   |              |   | 224,924 |  
|Troubled debt restructurings  accrual                       |  |                | 71,693  |   |              |   | 72,648  |  
|Troubled debt restructurings  non-accrual(1)                |  |                | 61,520  |   |              |   | 76,378  |  
|Loans past due ninety days or more and still accruing(2)     |  |                | 23,296  |   |              |   | 30,697  |  



|(1) | Troubled debt restructurings  non-accrual are included in the loans and troubled debt restructurings on non-accrual status line item above.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes the guaranteed portion of education loans of $23,296 and $24,641 at June 30, 2012, and March 31, 2012, respectively, that were 90+
days past due which continue to accrue interest due to a guarantee provided by government agencies covering approximately 97% of the outstanding balance.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                             |  |                            |       |  |      |   |       | 
|------------------------------------------------------------ |  | -------------------------- | ----- |  | ---- | - | ----- | 
|                                                             |  | For the Three Months Ended |      
|                                                             |  | June 30,                   |      
|                                                             |  | 2012                       |       |  | 2011 |  
|                                                             |  | (In thousands)             |      
|Interest income recognized on impaired loans on a cash basis |  | $                          | 1,903 |  |      | $ | 1,263 | 

All TDRs are classified as impaired loans, subject to performance conditions noted below. TDRs may be on either
accrual or non-accrual status based upon the repayment performance of the borrower and managements assessment of collectability. Loans deemed non-accrual may return to accrual status after six consecutive months of performance in
accordance with the terms of the restructuring. Additionally, they may be considered not a TDR after twelve consecutive months of performance in accordance with the terms of the restructuring agreement, if the interest rate was a market rate for a
borrower with similar credit risk at the date of restructuring.

The Corporation is currently committed to lend approximately $6.0 million in
additional funds on impaired loans in accordance with the original terms of these loans; however, is not legally obligated to, and will not, disburse additional funds on any loans while in nonaccrual status or if the borrower is in default.

The Corporation experienced declines in the valuations for real estate collateral supporting portions of its loan portfolio throughout fiscal
years 2010, 2011 and 2012, as reflected in recently received appraisals. Currently, $348.2 million or approximately 92% of the unpaid principal balance of classified loans (i.e. loans risk rated as substandard or loss) have recent appraisals (i.e.
within one year) or have been determined to not need an appraisal. Loans that do not require an appraisal under Corporation policy include situations in which the loan (i) is fully reserved; (ii) has a



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small balance (less than $250,000) and rather than being individually evaluated for impairment, is included in a homogenous pool of loans; (iii) uses a net present value of future cash flows
to measure impairment; or (iv) is not secured by real estate. Appraised values greater than one year old are discounted by an additional 10% for improved land or commercial real estate and 20% for unimproved land, in determination of the
allowance for loan losses.

While Corporation policy may not require updated appraisals for these loans, new appraisals may still be
obtained. For example, 56% of the loans which do not require an updated appraisal do have either an appraisal within the last year or an appraisal on order. If real estate values decline, the Corporation may have to increase its allowance for
loan losses as updated appraisals or other indications of a decrease in the value of collateral are received.

The following table presents
the aging of the recorded investment in past due loans as of June 30, 2012 by class of loans:



|                             |  |                |        |  |       |   |        |            |  |   |         |  |  |   |         | 
|---------------------------- |  | -------------- | ------ |  | ----- | - | ------ | ---------- |  | - | ------- |  |  | - | ------- | 
|                             |  | Days Past Due  |        |  |       |  
|                             |  | 30-59          |        |  | 60-89 |   |        | 90 or More |  |   | Total   | 
|                             |  | (In thousands) |       
|Residential                  |  | $              | 2,305  |  |       | $ | 1,242  |            |  | $ | 34,442  |  |  | $ | 37,989  | 
|Commercial and industrial    |  |                | 1,045  |  |       |   | 936    |            |  |   | 2,595   |  |  |   | 4,576   | 
|Land and construction        |  |                | 5,227  |  |       |   | 110    |            |  |   | 24,004  |  |  |   | 29,341  | 
|Multi-family                 |  |                | 2,087  |  |       |   | 539    |            |  |   | 25,850  |  |  |   | 28,476  | 
|Retail/office                |  |                | 1,190  |  |       |   | 6,501  |            |  |   | 10,352  |  |  |   | 18,043  | 
|Other commercial real estate |  |                |       |  |       |   | 496    |            |  |   | 13,450  |  |  |   | 13,946  | 
|Education                    |  |                | 9,113  |  |       |   | 7,155  |            |  |   | 24,017  |  |  |   | 40,285  | 
|Other consumer               |  |                | 1,045  |  |       |   | 852    |            |  |   | 6,384   |  |  |   | 8,281   | 
|                             |  |                |        |  |       |   |        |            |  |   |         |  |  |   |         | 
|                             |  | $              | 22,012 |  |       | $ | 17,831 |            |  | $ | 141,094 |  |  | $ | 180,937 | 
|                             |  |                |        |  |       |   |        |            |  |   |         |  |  |   |         | 

The following table presents the aging of the recorded investment in past due loans as of March 31, 2012 by class of
loans:



|                             |  |                |        |  |       |   |        |            |  |   |         |  |  |   |         | 
|---------------------------- |  | -------------- | ------ |  | ----- | - | ------ | ---------- |  | - | ------- |  |  | - | ------- | 
|                             |  | Days Past Due  |        |  |       |  
|                             |  | 30-59          |        |  | 60-89 |   |        | 90 or More |  |   | Total   | 
|                             |  | (In thousands) |       
|Residential                  |  | $              | 2,414  |  |       | $ | 1,071  |            |  | $ | 37,791  |  |  | $ | 41,276  | 
|Commercial and industrial    |  |                | 976    |  |       |   | 539    |            |  |   | 3,183   |  |  |   | 4,698   | 
|Land and construction        |  |                | 37     |  |       |   |       |            |  |   | 60,680  |  |  |   | 60,717  | 
|Multi-family                 |  |                | 360    |  |       |   | 541    |            |  |   | 26,371  |  |  |   | 27,272  | 
|Retail/office                |  |                | 2,627  |  |       |   | 2,634  |            |  |   | 14,033  |  |  |   | 19,294  | 
|Other commercial real estate |  |                | 1,884  |  |       |   | 191    |            |  |   | 16,323  |  |  |   | 18,398  | 
|Education                    |  |                | 8,370  |  |       |   | 6,562  |            |  |   | 25,403  |  |  |   | 40,335  | 
|Other consumer               |  |                | 1,664  |  |       |   | 692    |            |  |   | 6,879   |  |  |   | 9,235   | 
|                             |  |                |        |  |       |   |        |            |  |   |         |  |  |   |         | 
|                             |  | $              | 18,332 |  |       | $ | 12,230 |            |  | $ | 190,663 |  |  | $ | 221,225 | 
|                             |  |                |        |  |       |   |        |            |  |   |         |  |  |   |         | 

Total delinquencies (loans past due 30 days or more) at June 30, 2012 were $180.9 million. The Corporation has
experienced a reduction in delinquencies in each quarter-end since December 31, 2010 due to improving credit conditions and loans moving to OREO. The Corporation has $23.3 million of education loans past due 90 days or more that are still
accruing interest due to the approximate 97% guarantee provided by governmental agencies. Loans less than 90 days delinquent may be placed on non-accrual status when the probability of collection of principal and interest is deemed to be
insufficient to warrant further accrual.



23



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##### Table of Contents

Credit Quality Indicators:

The Corporation groups commercial and industrial and commercial real estate loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current
financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. This analysis is updated on a monthly basis. The Corporation uses the following definitions for risk
ratings:

Pass. Loans classified as pass represent assets that are evaluated and are performing under the stated terms.
Pass rated assets are analyzed by the pay capacity of the obligor, current net worth of the obligor and/or by the value of the loan collateral.

Watch. Loans classified as watch possess potential weaknesses that require management attention, but do not yet warrant adverse classification. While the status of an asset put on this list does
not technically trigger their classification as substandard or non-accrual, it is considered a proactive way to identify potential issues and address them before the situation deteriorates further and results in a loss for the Corporation.

Special Mention. Loans classified as special mention exhibit material negative financial trends due to company specific
or industry conditions which, if not corrected or mitigated, threaten their capacity to meet current or continuing debt obligations. These borrowers still demonstrate the financial flexibility to address and cure the root cause of these adverse
financial trends without significant deviations from their current business plan. Their potential weakness deserves close attention and warrant enhanced monitoring on the part of management. The expectation is these borrowers will return to a pass
rating given reasonable time; or will be further downgraded.

Substandard. Loans classified as substandard are
inadequately protected by the current net worth, paying capacity of the obligor, or by the collateral pledged. Substandard assets must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by
the distinct possibility that the Corporation will sustain a loss if the deficiencies are not corrected.

Non-Accrual.
Loans classified as non-accrual have the weaknesses of those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly
questionable and improbable. Loans that fall into this category are deemed collateral dependent and an individual impairment evaluation is performed on all relationships greater than $500,000. Loans in this category are allocated a specific reserve
if the collateral does not support the outstanding loan balance or charged off if deemed uncollectible.

As of June 30, 2012, and based
on the most recent analysis performed, the risk category of loans by class of loans is as follows:



|                                          |  |                |         |   |       |   |         |                |  |   |             |   |  |             |         |   |                               |   |         |   |  |   |           |  
|----------------------------------------- |  | -------------- | ------- | - | ----- | - | ------- | -------------- |  | - | ----------- | - |  | ----------- | ------- | - | ----------------------------- | - | ------- | - |  | - | --------- | -
|                                          |  | Pass           |         |   | Watch |   |         | SpecialMention |  |   | Substandard |   |  | Non-Accrual |         |   | Total 
UnpaidPrincipalBalance |  
|                                          |  | (In thousands) |        
|Commercial and industrial                 |  | $              | 10,438  |   |       | $ | 5,132   |                |  | $ | 244         |   |  | $           | 7,446   |   |                               | $ | 7,213   |   |  | $ | 30,473    |  
|Commercial real estate:                   |  |                |         |   |       |   |         |                |  |   |             |   |  |             |         |   |                               |   |         |   |  |   |           |  
|Land and construction                     |  |                | 47,596  |   |       |   | 18,667  |                |  |   | 6,236       |   |  |             | 44,587  |   |                               |   | 46,349  |   |  |   | 163,435   |  
|Multi-family                              |  |                | 240,725 |   |       |   | 22,415  |                |  |   | 1,921       |   |  |             | 22,534  |   |                               |   | 36,886  |   |  |   | 324,481   |  
|Retail/office                             |  |                | 144,885 |   |       |   | 53,769  |                |  |   | 8,877       |   |  |             | 43,576  |   |                               |   | 24,652  |   |  |   | 275,759   |  
|Other                                     |  |                | 122,107 |   |       |   | 19,220  |                |  |   | 24,916      |   |  |             | 43,672  |   |                               |   | 24,752  |   |  |   | 234,667   |  
|                                          |  |                |         |   |       |   |         |                |  |   |             |   |  |             |         |   |                               |   |         |   |  |   |           |  
|                                          |  | $              | 565,751 |   |       | $ | 119,203 |                |  | $ | 42,194      |   |  | $           | 161,815 |   |                               | $ | 139,852 |   |  | $ | 1,028,815 |  
|                                          |  |                |         |   |       |   |         |                |  |   |             |   |  |             |         |   |                               |   |         |   |  |   |           |  
|Percent of total unpaid principal balance |  |                | 55.0    | % |       |   | 11.6    | %              |  |   | 4.1         | % |  |             | 15.7    | % |                               |   | 13.6    | % |  |   | 100.0     | %
|                                          |  |                |         |   |       |   |         |                |  |   |             |   |  |             |         |   |                               |   |         |   |  |   |           |  



24



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##### Table of Contents

As of March 31, 2012, and based on the most recent analysis performed, the risk category of loans by
class of loans is as follows:



|                                          |  |                |         |   |       |   |         |         |  |   |             |   |  |             |         |   |              |   |         |   |  |   |           |  
|----------------------------------------- |  | -------------- | ------- | - | ----- | - | ------- | ------- |  | - | ----------- | - |  | ----------- | ------- | - | ------------ | - | ------- | - |  | - | --------- | -
|                                          |  |                |         |   |       |   |         |         |  |   |             |   |  |             |         |   | Total Unpaid |  
|                                          |  |                |         |   |       |   |         | Special |  |   |             |   |  |             |         |   | Principal    |  
|                                          |  | Pass           |         |   | Watch |   |         | Mention |  |   | Substandard |   |  | Non-Accrual |         |   | Balance      |  
|                                          |  | (In thousands) |        
|Commercial and industrial                 |  | $              | 15,187  |   |       | $ | 5,506   |         |  | $ | 255         |   |  | $           | 9,812   |   |              | $ | 8,217   |   |  | $ | 38,977    |  
|Commercial real estate:                   |  |                |         |   |       |   |         |         |  |   |             |   |  |             |         |   |              |   |         |   |  |   |           |  
|Land and construction                     |  |                | 63,643  |   |       |   | 4,532   |         |  |   | 6,344       |   |  |             | 47,300  |   |              |   | 64,229  |   |  |   | 186,048   |  
|Multi-family                              |  |                | 252,107 |   |       |   | 26,829  |         |  |   | 2,728       |   |  |             | 22,790  |   |              |   | 37,762  |   |  |   | 342,216   |  
|Retail/office                             |  |                | 149,907 |   |       |   | 58,252  |         |  |   | 13,080      |   |  |             | 43,221  |   |              |   | 33,817  |   |  |   | 298,277   |  
|Other                                     |  |                | 122,427 |   |       |   | 20,798  |         |  |   | 34,355      |   |  |             | 42,732  |   |              |   | 27,963  |   |  |   | 248,275   |  
|                                          |  |                |         |   |       |   |         |         |  |   |             |   |  |             |         |   |              |   |         |   |  |   |           |  
|                                          |  | $              | 603,271 |   |       | $ | 115,917 |         |  | $ | 56,762      |   |  | $           | 165,855 |   |              | $ | 171,988 |   |  | $ | 1,113,793 |  
|                                          |  |                |         |   |       |   |         |         |  |   |             |   |  |             |         |   |              |   |         |   |  |   |           |  
|Percent of total unpaid principal balance |  |                | 54.2    | % |       |   | 10.4    | %       |  |   | 5.1         | % |  |             | 14.9    | % |              |   | 15.4    | % |  |   | 100.0     | %
|                                          |  |                |         |   |       |   |         |         |  |   |             |   |  |             |         |   |              |   |         |   |  |   |           |  

Residential and consumer loans are managed on a pool basis due to their homogeneous nature. Loans that are delinquent 90
days or more are considered non-accrual. The following table presents the unpaid principal balance of residential and consumer loans based on accrual status as of June 30, 2012 and March 31, 2012:



|               |  |                  |           |  |                   |   |        |                              |  |   |           |  |  |             |           |  |                              |   |        |  |  |   |           | 
|-------------- |  | ---------------- | --------- |  | ----------------- | - | ------ | ---------------------------- |  | - | --------- |  |  | ----------- | --------- |  | ---------------------------- | - | ------ |  |  | - | --------- | 
|               |  | At June 30, 2012 |           |  | At March 31, 2012 |  
|               |  | Accrual          |           |  | Non-Accrual       |   |        | Total UnpaidPrincipalBalance |  |   | Accrual   |  |  | Non-Accrual |           |  | Total UnpaidPrincipalBalance |  
|               |  | (In thousands)   |          
|Residential    |  | $                | 510,129   |  |                   | $ | 41,335 |                              |  | $ | 551,464   |  |  | $           | 520,141   |  |                              | $ | 44,550 |  |  | $ | 564,691   | 
|Consumer:      |  |                  |           |  |                   |   |        |                              |  |   |           |  |  |             |           |  |                              |   |        |  |  |   |           | 
|Education(1)   |  |                  | 226,404   |  |                   |   | 721    |                              |  |   | 227,125   |  |  |             | 239,569   |  |                              |   | 762    |  |  |   | 240,331   | 
|Other consumer |  |                  | 264,896   |  |                   |   | 7,079  |                              |  |   | 271,975   |  |  |             | 261,908   |  |                              |   | 7,624  |  |  |   | 269,532   | 
|               |  |                  |           |  |                   |   |        |                              |  |   |           |  |  |             |           |  |                              |   |        |  |  |   |           | 
|               |  | $                | 1,001,429 |  |                   | $ | 49,135 |                              |  | $ | 1,050,564 |  |  | $           | 1,021,618 |  |                              | $ | 52,936 |  |  | $ | 1,074,554 | 
|               |  |                  |           |  |                   |   |        |                              |  |   |           |  |  |             |           |  |                              |   |        |  |  |   |           | 



|(1) | Non  accrual
education loans represent the portion of these loans 90+ days past due that are not covered by a guarantee provided by government agencies that is limited to approximately 97% of the outstanding balance.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Troubled Debt Restructurings

Modification of loan terms in a troubled debt restructuring are generally in the form of an extension of payment terms or lowering of the interest rate,
although occasionally the Corporation has reduced the outstanding principal balance.

Loans modified in a troubled debt restructuring that are
currently on non-accrual status will remain on non-accrual status for a period of at least six months. If after six months, or a longer period sufficient to demonstrate the willingness and ability of the borrower to perform under the modified terms,
the borrower has made payments in accordance with the modified terms, the loan is returned to accrual status but retains its designation as a troubled debt restructuring. The designation as a troubled debt restructuring is removed in years after the
restructuring if both of the following conditions exist: (a) the restructuring agreement specifies an interest rate equal to or greater than the rate that the creditor was willing to accept at the time of restructuring for a new loan with
comparable risk and (b) the loan is not impaired based on the terms specified by the restructuring agreement.



25



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##### Table of Contents

The following table presents information related to loans modified in a troubled debt restructuring, by
class, during the three months ended June 30, 2012:



|                                 |                        |                                  |   |                         |                                           |   |              |  |  |   |     |  |  |   |     | 
|-------------------------------- | ---------------------- | -------------------------------- | - | ----------------------- | ----------------------------------------- | - | ------------ |  |  | - | --- |  |  | - | --- | 
|                                 |                        | Three Months Ended June 30, 2012 |  
|                                 |                        | Number ofModifications           |   |                         | UnpaidPrincipalBalance (2)(at period end) |   |              |  |  |   |     | 
|                                 |                        |                                  |   | Balance in the ALLL (3) |                                          
|Troubled Debt Restructurings (1) |                        |                                  |   | Prior toModification    |                                           |   | At PeriodEnd | 
|                                 | (Dollars in thousands) |                                 
|Residential                      |                        |                                  | 0 |                         |                                           | $ |             |  |  | $ |    |  |  | $ |    | 
|Commercial and industrial        |                        |                                  | 2 |                         |                                           |   | 163          |  |  |   | 206 |  |  |   | 156 | 
|Land and construction            |                        |                                  | 2 |                         |                                           |   | 962          |  |  |   | 96  |  |  |   |    | 
|Multi-family                     |                        |                                  | 0 |                         |                                           |   |             |  |  |   |    |  |  |   |    | 
|Retail/office                    |                        |                                  | 3 |                         |                                           |   | 1,719        |  |  |   | 596 |  |  |   | 631 | 
|Other commercial real estate     |                        |                                  | 0 |                         |                                           |   |             |  |  |   |    |  |  |   |    | 
|Education                        |                        |                                  | 0 |                         |                                           |   |             |  |  |   |    |  |  |   |    | 
|Other consumer                   |                        |                                  | 2 |                         |                                           |   | 37           |  |  |   |    |  |  |   |    | 
|                                 |                        |                                  |   |                         |                                           |   |              |  |  |   |     |  |  |   |     | 
|                                 |                        |                                  | 9 |                         |                                           | $ | 2,881        |  |  | $ | 898 |  |  | $ | 787 | 
|                                 |                        |                                  |   |                         |                                           |   |              |  |  |   |     |  |  |   |     | 



|(1) | Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported in this table.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(2) | The unpaid principal balance is inclusive of all partial paydowns and charge-offs since the modification date.
|--- | --------------------------------------------------------------------------------------------------------------

|(3) | The balance in the ALLL represents any specific component of the allowance for loan losses associated with these loans.
|--- | -----------------------------------------------------------------------------------------------------------------------

The following table presents loans modified in a troubled debt restructuring from July 1, 2011 to June 30, 2012, by class, that subsequently
defaulted (i.e., 90 days or more past due following a modification) during the three months ended June 30, 2012:



|                                 |                        |                    |   |  |                 |   |     | 
|-------------------------------- | ---------------------- | ------------------ | - |  | --------------- | - | --- | 
|                                 |                        | Three Months Ended |  
|                                 |                        | June 30, 2012      |  
|                                 |                        |                    |   |  | Unpaid          |  
|                                 |                        | Number of          |   |  | Principal       |  
|                                 |                        | Modified           |   |  | Balance (2)     |  
|Troubled Debt Restructurings (1) |                        | Loans              |   |  | (at period end) |  
|                                 | (Dollars in thousands) |                   
|Residential                      |                        |                    | 0 |  |                 | $ |    | 
|Commercial and industrial        |                        |                    | 2 |  |                 |   | 523 | 
|Land and construction            |                        |                    | 0 |  |                 |   |    | 
|Multi-family                     |                        |                    | 0 |  |                 |   |    | 
|Retail/office                    |                        |                    | 1 |  |                 |   | 161 | 
|Other commercial real estate     |                        |                    | 0 |  |                 |   |    | 
|Education                        |                        |                    | 0 |  |                 |   |    | 
|Other consumer                   |                        |                    | 0 |  |                 |   |    | 
|                                 |                        |                    |   |  |                 |   |     | 
|                                 |                        |                    | 3 |  |                 | $ | 684 | 
|                                 |                        |                    |   |  |                 |   |     | 



|(1) | Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported in this table.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(2) | The unpaid principal balance is inclusive of all partial paydowns and charge-offs since the modification date.
|--- | --------------------------------------------------------------------------------------------------------------



26



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##### Table of Contents

The following table presents the unpaid principal balance of loans modified in a TDR during the three months
ended June 30, 2012, by class and by type of modification:



|                                    |                |                                       |                         |  |  |                     |     |  |                      |   |    |           |  |   |       |  |  |   |       |  |  |   |       | 
|----------------------------------- | -------------- | ------------------------------------- | ----------------------- |  |  | ------------------- | --- |  | -------------------- | - | -- | --------- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                    |                | Principaland 
Interestto InterestOnly |                         |  |  |                     |     |  |                      |   |    |           |  |   |       |  |  |  
|                                    |                |                                       | Interest Rate Reduction |  |  |                     |     |  |                      |   |    |           | 
|Troubled Debt Restructurings (1)(2) |                |                                       | To BelowMarket Rate     |  |  | To InterestOnly (3) |     |  | BelowMarket Rate (4) |   |    | Other (5) |  |   | Total | 
|                                    | (In thousands) |                                      
|Residential                         |                | $                                     |                        |  |  | $                   |    |  |                      | $ |   |           |  | $ |      |  |  | $ |      |  |  | $ |      | 
|Commercial and industrial           |                |                                       |                        |  |  |                     |    |  |                      |   |   |           |  |   |      |  |  |   | 163   |  |  |   | 163   | 
|Land and construction               |                |                                       |                        |  |  |                     |    |  |                      |   |   |           |  |   | 210   |  |  |   | 752   |  |  |   | 962   | 
|Multi-family                        |                |                                       |                        |  |  |                     |    |  |                      |   |   |           |  |   |      |  |  |   |      |  |  |   |      | 
|Retail/office                       |                |                                       |                        |  |  |                     | 161 |  |                      |   |   |           |  |   | 546   |  |  |   | 1,012 |  |  |   | 1,719 | 
|Other commercial real estate        |                |                                       |                        |  |  |                     |    |  |                      |   |   |           |  |   |      |  |  |   |      |  |  |   |      | 
|Education                           |                |                                       |                        |  |  |                     |    |  |                      |   |   |           |  |   |      |  |  |   |      |  |  |   |      | 
|Other consumer                      |                |                                       |                        |  |  |                     |    |  |                      |   | 18 |           |  |   |      |  |  |   | 19    |  |  |   | 37    | 
|                                    |                |                                       |                         |  |  |                     |     |  |                      |   |    |           |  |   |       |  |  |   |       |  |  |   |       | 
|                                    |                | $                                     |                        |  |  | $                   | 161 |  |                      | $ | 18 |           |  | $ | 756   |  |  | $ | 1,946 |  |  | $ | 2,881 | 
|                                    |                |                                       |                         |  |  |                     |     |  |                      |   |    |           |  |   |       |  |  |   |       |  |  |   |       | 



|(1) | Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported in this table.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(2) | The unpaid principal balance is inclusive of all partial paydowns and charge-offs since the modification date.
|--- | --------------------------------------------------------------------------------------------------------------

|(3) | Includes modifications of loan repayment terms from principal and interest to interest only, along with a reduction in the contractual interest rate.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes loans modified at below market rates for borrowers with similar risk profiles and having comparable loan terms and conditions. Market rates are determined by
reference to internal new loan pricing grids that specify credit spreads based on loan risk rating and term to maturity.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Other modifications primarily include providing for the deferral of interest currently due to the new maturity date of the loan.
|--- | --------------------------------------------------------------------------------------------------------------------------------

As time passes and borrowers continue to perform in accordance with the restructured loan terms, a portion of the troubled debt restructurings 
non-accrual balance may be returned to accrual status.

Pledged Loans

At June 30, 2012 and March 31, 2012, residential, multi-family, education and other consumer loans receivable with unpaid principal of approximately $822.5 million and $792.7 million were
pledged to secure borrowings and for other purposes as permitted or required by law. Certain of the real-estate related loans are pledged as collateral for FHLB borrowings. See Note 9.

In the ordinary course of business, the Bank has granted loans to principal officers and directors and their affiliates amounting to $454,000 and $515,000 at June 30, 2012 and March 31, 2012,
respectively. During the three months ended June 30, 2012, there were no principal additions and principal payments totaled $61,000.

Note 6  Other Real Estate Owned

Real estate acquired by foreclosure, real estate acquired by deed in lieu of foreclosure and other repossessed assets (OREO) are held
for sale and are initially recorded at fair value less a discount for estimated selling expenses at the date of foreclosure. At the date of foreclosure, any write down to fair value less estimated selling costs is charged to the allowance for loan
losses. If the discounted fair value exceeds the net carrying value of the loans, recoveries to the allowance for loan losses are recorded to the extent of previous charge-offs, with any excess, which is infrequent, recognized as a gain in
non-interest income. Subsequent to foreclosure, valuations are periodically performed and a valuation allowance is established if fair value less estimated selling costs exceeds the carrying value. Costs relating to the development and improvement
of the property may be capitalized; holding period costs and subsequent changes to the valuation allowance are charged to expense.



27



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##### Table of Contents

A summary of the activity in other real estate owned is as follows:



|                                   |  |                                     |         |   |      |   |         |  
|---------------------------------- |  | ----------------------------------- | ------- | - | ---- | - | ------- | -
|                                   |  | For the Three Months Ended June 30, |        
|                                   |  | 2012                                |         |   | 2011 |  
|                                   |  | (In thousands)                      |        
|Balance at beginning of period     |  | $                                   | 88,841  |   |      | $ | 90,707  |  
|                                   |  |                                    
|Additions                          |  |                                     | 18,818  |   |      |   | 23,252  |  
|Valuations/write-offs              |  |                                     | (4,634  | ) |      |   | (4,890  | )
|Transfer to premises and equipment |  |                                     | (2,870  | ) |      |   |        |  
|Sales                              |  |                                     | (16,200 | ) |      |   | (19,578 | )
|                                   |  |                                     |         |   |      |   |         |  
|Balance at end of period           |  | $                                   | 83,955  |   |      | $ | 89,491  |  
|                                   |  |                                     |         |   |      |   |         |  

The balances at end of period above are net of a valuation allowance of $24.5 million and $20.9 million at June 30,
2012 and 2011, respectively, recognized during the holding period for declines in fair value subsequent to foreclosure or acceptance of deed in lieu of foreclosure. A summary of activity in the OREO valuation allowance is as follows:



|                               |  |                                     |        |   |      |   |        |  
|------------------------------ |  | ----------------------------------- | ------ | - | ---- | - | ------ | -
|                               |  | For the Three Months Ended June 30, |       
|                               |  | 2012                                |        |   | 2011 |  
|                               |  | (In thousands)                      |       
|Balance at beginning of period |  | $                                   | 22,521 |   |      | $ | 19,975 |  
|Provision                      |  |                                     | 4,634  |   |      |   | 4,890  |  
|Sales                          |  |                                     | (2,623 | ) |      |   | (4,000 | )
|                               |  |                                     |        |   |      |   |        |  
|Balance at end of period       |  | $                                   | 24,532 |   |      | $ | 20,865 |  
|                               |  |                                     |        |   |      |   |        |  

During the three months ended June 30, 2012 and 2011, OREO expense, net was $7.0 million and $8.9 million,
consisting of $4.6 million and $4.9 million of valuation adjustments, $411,000 and $1.1 million of foreclosure cost expense and $2.0 million and $2.9 million of net expenses from operations, respectively.

Note 7  Mortgage Servicing Rights

The Corporation records mortgage servicing rights (MSRs) when loans are sold to third parties with servicing of those loans retained.
In addition, MSRs are recorded when acquiring or assuming an obligation to service a financial (loan) asset that does not relate to an asset that is owned. Servicing assets are initially measured at fair value determined using a discounted cash flow
model based on market assumptions at the time of origination. Subsequently, the MSR asset is carried at the lower of amortized cost or fair value. The Corporation assesses MSRs for impairment using a discounted cash flow model provided by a third
party that is based on current market assumptions at each reporting period. For purposes of measuring fair value, the servicing rights are stratified into relatively homogeneous pools based on characteristics such as product type and interest rate
bands. Impairment is recognized, if necessary, at the pool level rather than for each individual servicing right asset.

The fair value of the
Corporations MSRs is highly sensitive to changes in market interest rates, and will generally decrease in value in a falling rate environment, while generally increasing in value as rates rise. The Corporations MSRs are fairly highly
correlated to changes in the U.S. Treasury 10-year note rate which fell considerably from 1.67% at June 30, 2012 to 1.51% at July 31, 2012. Impairment losses are expected in future periods if market interest rates remain at these historically low
levels or continue to decline.

The Corporation has chosen to use the amortization method to measure servicing assets. Under the amortization
method, servicing assets are amortized in proportion to and over the period of net servicing income. Income generated as the result of the capitalization of new servicing assets is reported as net gain on sale of loans and the amortization of
servicing assets is reported as a reduction to loan servicing income in the consolidated statements of operations. Ancillary income is recorded in other non-interest income.



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Information regarding mortgage servicing rights for the three months ended June 30, 2012 and 2011 is as
follows:



|                                                      |  |                                     |        |   |      |   |        |  
|----------------------------------------------------- |  | ----------------------------------- | ------ | - | ---- | - | ------ | -
|                                                      |  | For the Three Months Ended June 30, |       
|                                                      |  | 2012                                |        |   | 2011 |  
|                                                      |  | (In thousands)                      |       
|Balance at beginning of period                        |  | $                                   | 24,970 |   |      | $ | 25,366 |  
|Additions                                             |  |                                     | 2,027  |   |      |   | 670    |  
|Amortization                                          |  |                                     | (2,336 | ) |      |   | (1,305 | )
|                                                      |  |                                     |        |   |      |   |        |  
|Balance at end of period  before valuation allowance |  |                                     | 24,661 |   |      |   | 24,731 |  
|Valuation allowance                                   |  |                                     | (4,071 | ) |      |   | (626   | )
|                                                      |  |                                     |        |   |      |   |        |  
|Balance at end of period                              |  | $                                   | 20,590 |   |      | $ | 24,105 |  
|                                                      |  |                                     |        |   |      |   |        |  
|Fair value at the end of the period                   |  | $                                   | 20,848 |   |      | $ | 25,210 |  
|Key assumptions:                                      |  |                                     |        |   |      |   |        |  
|Weighted average discount rate                        |  |                                     | 10.97  | % |      |   | 11.30  | %
|Weighted average prepayment speed                     |  |                                     | 15.95  | % |      |   | 9.90   | %

The projections of amortization expense for mortgage servicing rights set forth below are based on asset balances as of
June 30, 2012 and an assumed amortization rate of 20% per year. Future amortization expense may be significantly different depending upon changes in the mortgage servicing portfolio, mortgage interest rates and market conditions.



|                                      |  |                 |        | 
|------------------------------------- |  | --------------- | ------ | 
|                                      |  | MSRAmortization |       
|                                      | 
|                                      |  | (In thousands)  |       
|Three months ended June 30, 2012      |  | $               | 2,336  | 
|                                      |  |                 |        | 
|Estimate for the year ended March 31, |  |                 |        | 
|2013 (nine remaining months)          |  | $               | 3,699  | 
|2014                                  |  |                 | 4,192  | 
|2015                                  |  |                 | 3,354  | 
|2016                                  |  |                 | 2,683  | 
|2017                                  |  |                 | 2,146  | 
|Thereafter                            |  |                 | 8,586  | 
|                                      |  |                 |        | 
|                                      |  | $               | 24,661 | 
|                                      |  |                 |        | 

Mortgage loans serviced for others are not included on the consolidated balance sheets. The unpaid principal balance of
mortgage loans serviced for others was approximately $3.1 billion at June 30, 2012 and March 31, 2012.



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##### Table of Contents

Note 8  Deposits

Deposits are summarized as follows:



|                                                      |  |                        |           |  |                |  |      |          |  |   |              |  |  |  |      |  
|----------------------------------------------------- |  | ---------------------- | --------- |  | -------------- |  | ---- | -------- |  | - | ------------ |  |  |  | ---- | -
|                                                      |  | June 30, 2012          |           |  | March 31, 2012 | 
|                                                      |  | Carrying               |           |  | Weighted       |  |      | Carrying |  |   | Weighted     | 
|                                                      |  | Amount                 |           |  | Average Rate   |  |      | Amount   |  |   | Average Rate | 
|                                                      |  | (Dollars in thousands) |          
|Non-interest-bearing checking                         |  | $                      | 275,526   |  |                |  | 0.00 | %        |  | $ | 264,751      |  |  |  | 0.00 | %
|Interest-bearing checking                             |  |                        |           |  |                |  |      |          |  |   |              |  |  |  |      |  
|Fixed rate                                            |  |                        | 237,961   |  |                |  | 0.07 |          |  |   | 235,459      |  |  |  | 0.07 |  
|Variable rate                                         |  |                        | 29,308    |  |                |  | 0.10 |          |  |   | 30,639       |  |  |  | 0.10 |  
|                                                      |  |                        |           |  |                |  |      |          |  |   |              |  |  |  |      |  
|Total checking accounts                               |  |                        | 542,795   |  |                |  | 0.04 |          |  |   | 530,849      |  |  |  | 0.04 |  
|Money market accounts                                 |  |                        | 496,042   |  |                |  | 0.25 |          |  |   | 492,787      |  |  |  | 0.28 |  
|Regular savings                                       |  |                        | 271,202   |  |                |  | 0.10 |          |  |   | 265,238      |  |  |  | 0.10 |  
|Advance payments by borrowers for taxes and insurance |  |                        | 10,793    |  |                |  | 0.10 |          |  |   | 6,134        |  |  |  | 0.10 |  
|                                                      |  |                        |           | 
|Certificates of deposit:                              |  |                        |           |  |                |  |      |          |  |   |              |  |  |  |      |  
|0.00% to 1.99%                                        |  |                        | 728,914   |  |                |  | 0.82 |          |  |   | 751,326      |  |  |  | 0.86 |  
|2.00% to 3.99%                                        |  |                        | 171,491   |  |                |  | 2.38 |          |  |   | 179,455      |  |  |  | 2.42 |  
|4.00% and above                                       |  |                        | 31,936    |  |                |  | 4.54 |          |  |   | 39,126       |  |  |  | 4.51 |  
|                                                      |  |                        |           |  |                |  |      |          |  |   |              |  |  |  |      |  
|Total certificates of deposit                         |  |                        | 932,341   |  |                |  | 1.23 |          |  |   | 969,907      |  |  |  | 1.30 |  
|                                                      |  |                        |           |  |                |  |      |          |  |   |              |  |  |  |      |  
|Total deposits                                        |  | $                      | 2,253,173 |  |                |  | 0.59 | %        |  | $ | 2,264,915    |  |  |  | 0.64 | %
|                                                      |  |                        |           |  |                |  |      |          |  |   |              |  |  |  |      |  

Maturities of certificates of deposit outstanding at June 30, 2012 are summarized as follows:



|                                    |                |        |         | 
|----------------------------------- | -------------- | ------ | ------- | 
|Matures During Year Ended March 31, |                | Amount |        
|                                    | (In thousands) |       
|2013 (nine remaining months)        |                | $      | 653,971 | 
|2014                                |                |        | 198,798 | 
|2015                                |                |        | 29,441  | 
|2016                                |                |        | 11,620  | 
|2017                                |                |        | 38,511  | 
|Thereafter                          |                |        |        | 
|                                    |                |        |         | 
|                                    |                | $      | 932,341 | 
|                                    |                |        |         | 

At June 30, 2012 and March 31, 2012, certificates of deposit with balances greater than or equal to $100,000
totaled $190.3 million and $195.2 million, respectively.

The Bank has entered into agreements with certain brokers that provided deposits
obtained from their customers at specified interest rates for an identified fee, or so called brokered deposits. At June 30, 2012 and March 31, 2012, the Bank had $274,000 and $2.1 million in brokered deposits. Due to existing
capital levels, the Bank is currently prohibited from obtaining or renewing any brokered deposits. The Bank has $24.9 million in out-of-network certificates of deposit at June 30, 2012. These deposits, which are not considered brokered
deposits, are opened via internet listing services and are kept within FDIC insured balance limits.



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Note 9  Other Borrowed Funds

Other borrowed funds consist of the following:



|                      |  |                              |  |                        |         |  |                |  |       |        |  |   |          |  |  |  |       |  
|--------------------- |  | ---------------------------- |  | ---------------------- | ------- |  | -------------- |  | ----- | ------ |  | - | -------- |  |  |  | ----- | -
|                      |  |                              |  | June 30, 2012          |         |  | March 31, 2012 | 
|                      |  | Matures During               |  |                        |         |  | Weighted       |  |       |        |  |   | Weighted | 
|                      |  | Year Ended                   |  |                        |         |  | Average        |  |       |        |  |   | Average  | 
|                      |  | March 31,                    |  | Amount                 |         |  | Rate           |  |       | Amount |  |   | Rate     | 
|                      |  |                              |  | (Dollars in thousands) |        
|FHLB advances:        |  | 2013 (nine remaining months) |  | $                      | 10,000  |  |                |  | 4.12  | %      |  | $ | 10,000   |  |  |  | 4.12  | %
|                      |  | 2014                         |  |                        | 11,500  |  |                |  | 1.93  |        |  |   | 11,500   |  |  |  | 1.93  |  
|                      |  | 2015                         |  |                        | 150,000 |  |                |  | 1.52  |        |  |   | 150,000  |  |  |  | 1.62  |  
|                      |  | 2018                         |  |                        | 100,000 |  |                |  | 3.36  |        |  |   | 100,000  |  |  |  | 3.36  |  
|                      |  | 2019                         |  |                        | 86,000  |  |                |  | 2.87  |        |  |   | 86,000   |  |  |  | 2.87  |  
|                      |  |                              |  |                        |         |  |                |  |       |        |  |   |          |  |  |  |       |  
|Total FHLB advances   |  |                              |  |                        | 357,500 |  |                |  |       |        |  |   | 357,500  |  |  |  |       |  
|Line of credit        |  |                              |  |                        | 116,300 |  |                |  | 15.00 |        |  |   | 116,300  |  |  |  | 15.00 |  
|Repurchase agreements |  |                              |  |                        | 2,578   |  |                |  | 0.14  |        |  |   | 2,303    |  |  |  | 0.21  |  
|                      |  |                              |  |                        |         |  |                |  |       |        |  |   |          |  |  |  |       |  
|                      |  |                              |  | $                      | 476,378 |  |                |  | 5.41  | %      |  | $ | 476,103  |  |  |  | 5.53  | %
|                      |  |                              |  |                        |         |  |                |  |       |        |  |   |          |  |  |  |       |  

The Bank selects loans that meet underwriting criteria established by the FHLB as collateral for outstanding advances.
FHLB advances are limited to 65% of single-family loans, 60% of multi-family loans and 20% of eligible home equity and home equity line of credit loans meeting such criteria. FHLB borrowings of $191.0 million have call features that may be exercised
quarterly by the FHLB. The FHLB borrowings are also collateralized by mortgage-related securities with a fair value of $179.3 million and $184.6 million at June 30, 2012 and March 31, 2012, respectively.

Credit Agreement

As of
June 30, 2012 and March 31, 2012, the Corporation had drawn a total of $116.3 million at a weighted average interest rate of 15.00%, on a short term line of credit to various lenders led by U.S. Bank. The total line of credit available is
$116.3 million. At June 30, 2012 and March 31, 2012, the base rate was 0.00% and the deferred rate was 15.00% for a weighted average interest rate of 15.00%.

On November 29, 2011, the Corporation entered into Amendment No. 8 (the Amendment) to the Amended and Restated Credit Agreement, dated as of June 9, 2008, (the Credit
Agreement), among the Corporation, the lenders from time to time a party thereto, and U.S. Bank National Association, as administrative agent for such lenders, or the Agent. The Corporation is currently in default on the Credit
Agreement as a result of failure to make a principal payment on March 2, 2009. Under the Amendment, the Agent and the Lenders agreed to forbear from exercising their rights and remedies against the Corporation until the earliest to occur of the
following: (i) the occurrence of any Event of Default (other than a failure to make principal payments on the outstanding balance under the Credit Agreement or other Existing Defaults); or (ii) November 30, 2012. Notwithstanding the
agreement to forbear, the Agent may at any time, in its sole discretion, take any action reasonably necessary to preserve or protect its interest in the stock of the Bank, IDI, or any other collateral securing any of the obligations against the
actions of the Corporation or any third party without notice to or the consent of any party.

The Amendment also provides that the outstanding
balance under the Credit Agreement shall bear interest at 15% per annum. Interest accruing under the Credit Agreement is due on the earlier of (i) the date the Credit Agreement is paid in full or (ii) November 30, 2012. At
June 30, 2012, the Corporation had accrued interest and amendment fees payable related to the Credit Agreement of $40.2 million and $5.7 million, respectively.

Within two business days after the Corporation has knowledge of an event, the CFO is required to submit a statement of the event to the Agent, together with a statement of the actions which
the Corporation proposes to take in response to the event. An event may include: (i) any event which, either of itself or with the lapse of time or the giving of notice or both, would constitute a Default under the Credit Agreement; (ii) a
default or an event of default under any other material agreement to which the Corporation or Bank is a party; or (iii) any pending or threatened litigation or certain administrative proceedings.



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The Amendment requires the Bank to maintain the following financial covenants:



| |  |  | Tier 1 leverage ratio of not less than 3.70% at all times.
| | - |  | ----------------------------------------------------------



| |  |  | Total risk based capital ratio of not less than 7.50% at all times.
| | - |  | -------------------------------------------------------------------



| |  |  | Ratio of non-performing loans to gross loans not to exceed 15.00% at any time.
| | - |  | ------------------------------------------------------------------------------

The Credit Agreement and the Amendment also contain customary representations, warranties, conditions and events of default for agreements of such
type. At June 30, 2012, the Corporation was in compliance with all covenants contained in the Credit Agreement and the Amendment. Under the terms of the Credit Agreement and Amendment, the Agent and the lenders have certain
rights, including the right to accelerate the maturity of the borrowings if the Corporation is not in compliance with all covenants. Currently, no such action has been taken by the Agent or the Lenders. However, the default creates
significant uncertainty related to the Corporations operations.

Temporary Liquidity Guarantee Program

In October 2008, the Secretary of the United States Department of the Treasury invoked the systemic risk exception of the FDIC Improvement Act of 1991 and
the FDIC announced the Temporary Liquidity Guarantee Program (the TLGP). The TLGP provides a guarantee, through the earlier of maturity or June 30, 2012, of certain senior unsecured debt issued by participating Eligible Entities
(including the Corporation) between October 14, 2008 and June 30, 2009. The Bank signed a master agreement with the FDIC on December 5, 2008 for issuance of bonds under the program and subsequently issued $60.0 million of bonds in
February 2009 bearing interest at a fixed rate of 2.74%. The bonds matured on February 11, 2012 and were paid in full.

Note 10  Capital Purchase Program

Pursuant to the Capital Purchase Program (CPP) in January 2009, Treasury, on behalf of the U.S. government, purchased the
Corporations preferred stock, along with warrants to purchase approximately 7.4 million shares of the Corporations common stock at an exercise price of $2.23 per share. The preferred stock has a dividend rate of 5% per year,
until the fifth anniversary of Treasurys investment and a dividend of 9% thereafter. During the time Treasury holds securities issued pursuant to this program, the Corporation is required to comply with certain provisions regarding executive
compensation and corporate governance. Participation in the CPP also imposes certain restrictions upon the payment of dividends to common shareholders and stock repurchase activities. The Corporation elected to participate in the CPP and received
$110 million. The Corporation has deferred 13 dividend payments on the Series B Preferred Stock held by the U.S. Treasury. On September 30, 2011, the Treasury exercised its right to appoint two directors to the Board of Directors of the
Corporation as a result of the nonpayment of dividends. At June 30, 2012 and March 31, 2012, the cumulative amount of dividends in arrears not declared, including interest on unpaid dividends at 5% per annum, was $20.4 million and
$18.8 million, respectively.

Note 11  Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Banks financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Banks assets, liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Banks capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.



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Qualitative measures established by regulation to ensure capital adequacy require the Bank to maintain
minimum amounts and ratios of core, tangible, and risk-based capital. Management believes, as of June 30, 2012, that the Bank was adequately capitalized under PCA guidelines. Under these OCC requirements, a bank must have a total risk-based
capital ratio of 8.0 percent or greater to be considered adequately capitalized. The Bank continues to work toward the requirements of the previously issued Cease and Desist Order which requires a total risk-based capital ratio of
12.0 percent, which exceeds traditional capital levels for a bank. The Bank does not currently meet these elevated capital levels. See Note 2.

The following table summarizes the Banks capital ratios and the ratios required by its federal regulators to be considered adequately or well-capitalized under standard PCA guidelines at
June 30, 2012 and March 31, 2012:



|                         |  |                        |         |  |                             |  |      |                       |  |   |                                |  |  |        |      |   |       |   |         |        |  |  |       |   |  |   |         |  |  |  |       |  
|------------------------ |  | ---------------------- | ------- |  | --------------------------- |  | ---- | --------------------- |  | - | ------------------------------ |  |  | ------ | ---- | - | ----- | - | ------- | ------ |  |  | ----- | - |  | - | ------- |  |  |  | ----- | -
|                         |  |                        |         |  |                             |  |      | Minimum Required      | 
|                         |  | Actual                 |         |  | To be AdequatelyCapitalized |  |      | To be WellCapitalized |  |   | Under Order toCease and Desist | 
|                         |  | Amount                 |         |  | Ratio                       |  |      | Amount                |  |   | Ratio                          |  |  | Amount |      |   | Ratio |   |         | Amount |  |  | Ratio |  
|                         |  | (Dollars in thousands) |        
|At June 30, 2012         |  |                        |         |  |                             |  |      |                       |  |   |                                |  |  |        |      |   |       |   |         |        |  |  |       |   |  |   |         |  |  |  |       |  
|Tier 1 leverage (core)   |  | $                      | 127,026 |  |                             |  | 4.56 | %                     |  | $ | 111,333                        |  |  |        | 4.00 | % |       | $ | 139,166 |        |  |  | 5.00  | % |  | $ | 222,666 |  |  |  | 8.00  | %
|                         |  |                        |         |  |                             |  |      |                      
|Total risk-based capital |  |                        | 148,738 |  |                             |  | 8.98 |                       |  |   | 132,460                        |  |  |        | 8.00 |   |       |   | 165,574 |        |  |  | 10.00 |   |  |   | 198,689 |  |  |  | 12.00 |  
|                         |  |                        |         |  |                             |  |      |                      
|At March 31, 2012        |  |                        |         |  |                             |  |      |                       |  |   |                                |  |  |        |      |   |       |   |         |        |  |  |       |   |  |   |         |  |  |  |       |  
|Tier 1 leverage (core)   |  | $                      | 125,894 |  |                             |  | 4.51 | %                     |  | $ | 111,685                        |  |  |        | 4.00 | % |       | $ | 139,606 |        |  |  | 5.00  | % |  | $ | 223,370 |  |  |  | 8.00  | %
|                         |  |                        |         |  |                             |  |      |                      
|Total risk-based capital |  |                        | 149,141 |  |                             |  | 8.42 |                       |  |   | 141,701                        |  |  |        | 8.00 |   |       |   | 177,126 |        |  |  | 10.00 |   |  |   | 212,551 |  |  |  | 12.00 |  

The following table reconciles the Banks stockholders equity to federal regulatory capital at June 30,
2012 and March 31, 2012:



|                                              |  |                |         |   |               |   |         |  
|--------------------------------------------- |  | -------------- | ------- | - | ------------- | - | ------- | -
|                                              |  | June 30,2012   |         |   | March 31,2012 |  
|                                              |  | (In thousands) |        
|Stockholders equity of the Bank              |  | $              | 129,972 |   |               | $ | 128,071 |  
|Less: Disallowed servicing assets             |  |                | (1,827  | ) |               |   | (2,045  | )
|Accumulated other comprehensive (income) loss |  |                | (1,119  | ) |               |   | (132    | )
|                                              |  |                |         |   |               |   |         |  
|Tier 1 capital                                |  |                | 127,026 |   |               |   | 125,894 |  
|Plus: Allowable general valuation allowances  |  |                | 21,712  |   |               |   | 23,247  |  
|                                              |  |                |         |   |               |   |         |  
|Total risk-based capital                      |  | $              | 148,738 |   |               | $ | 149,141 |  
|                                              |  |                |         |   |               |   |         |  

Note 12  Income Taxes

The Corporation accounts for income taxes based on the asset and liability method. Deferred tax assets and liabilities are recorded
based on the difference between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes, computed using enacted tax rates. Significant net deferred tax assets have been created for deductible temporary
differences, the largest of which relates to our allowance for loan losses. For



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income tax return purposes, only net charge-offs on uncollectible loan balances are deductible, not the provision for credit losses. Under generally accepted accounting principles, a valuation
allowance is required to be recognized if it is more likely than not that a deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon
managements evaluation and judgment of both positive and negative evidence, the forecasts of future income, applicable tax planning strategies, and assessments of the current and future economic and business conditions. The Corporation
considers both positive and negative evidence regarding the ultimate realizability of deferred tax assets. Positive evidence includes the existence of taxes paid in available carry back years as well as the probability that taxable income will be
generated in future periods while negative evidence includes significant losses in the current year or cumulative losses in the current and prior two years as well as general business and economic trends.

At June 30, 2012 and March 31, 2012, the Corporation determined that a valuation allowance relating to the deferred tax asset was necessary.
This determination was based largely on the negative evidence represented by the losses in the current and prior fiscal years caused by the significant loan loss provisions associated with the loan portfolio. In addition, general uncertainty
surrounding future economic and business conditions have increased the potential volatility and uncertainty of projected earnings. Therefore, a valuation allowance of $150.4 million and $149.8 million at June 30, 2012 and March 31, 2012,
respectively, was recorded to offset net deferred tax assets that exceed the Corporations carry back potential.

The significant
components of the Corporations deferred tax assets (liabilities) are as follows:



|                               |  |                |          |   |              |   |          |  
|------------------------------ |  | -------------- | -------- | - | ------------ | - | -------- | -
|                               |  | At June 30,    |          |   | At March 31, |  
|                               |  | 2012           |          |   | 2012         |  
|                               |  | (In thousands) |         
|Deferred tax assets:           |  |                |          |   |              |   |          |  
|Allowance for loan losses      |  | $              | 50,998   |   |              | $ | 54,063   |  
|Other loss reserves            |  |                | 2,206    |   |              |   | 2,635    |  
|Federal NOL carryforwards      |  |                | 86,141   |   |              |   | 82,885   |  
|State NOL carryforwards        |  |                | 18,656   |   |              |   | 18,178   |  
|Purchase accounting            |  |                | 223      |   |              |   | 216      |  
|Other                          |  |                | 3,586    |   |              |   | 3,635    |  
|                               |  |                |          |   |              |   |          |  
|Total deferred tax assets      |  |                | 161,810  |   |              |   | 161,612  |  
|Valuation allowance            |  |                | (150,447 | ) |              |   | (149,831 | )
|                               |  |                |          |   |              |   |          |  
|Adjusted deferred tax assets   |  |                | 11,363   |   |              |   | 11,781   |  
|Deferred tax liabilities:      |  |                |          |   |              |   |          |  
|FHLB stock dividends           |  |                | (2,269   | ) |              |   | (2,636   | )
|Mortgage servicing rights      |  |                | (8,258   | ) |              |   | (8,825   | )
|Unrealized gains (losses)      |  |                | (449     | ) |              |   | (53      | )
|Other                          |  |                | (387     | ) |              |   | (267     | )
|                               |  |                |          |   |              |   |          |  
|Total deferred tax liabilities |  |                | (11,363  | ) |              |   | (11,781  | )
|                               |  |                |          |   |              |   |          |  
|Net deferred tax assets        |  | $              |         |   |              | $ |         |  
|                               |  |                |          |   |              |   |          |  

The Corporation is subject to U.S. federal income tax as well as income tax of state jurisdictions. The tax years
2009-2011 remain open to examination by the Internal Revenue Service and certain state jurisdictions while the years 2008-2011 remain open to examination by certain other state jurisdictions.

The Corporation recognizes interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2012 and March 31, 2012, the Corporation has not recognized any accrued
interest and penalties related to uncertain tax positions.



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Note 13  Commitments and Contingent Liabilities

The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to extend credit and financial guarantees which involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated
balance sheets. The contract amounts of those instruments reflect the extent of involvement and exposure to credit loss the Corporation has in particular classes of financial instruments. The same credit policies are used in making commitments and
conditional obligations as for on-balance-sheet instruments. Since many of the commitments are expected to expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements.

Financial instruments whose contract amounts represent credit risk are as follows:



|                                                                                                    |  |                |         |  |               |   |         | 
|--------------------------------------------------------------------------------------------------- |  | -------------- | ------- |  | ------------- | - | ------- | 
|                                                                                                    |  | June 30,2012   |         |  | March 31,2012 |  
|                                                                                                    |  | (In thousands) |        
|Commitments to extend credit:                                                                       |  | $              | 11,627  |  |               | $ | 15,022  | 
|Unused lines of credit:                                                                             |  |                |         |  |               |   |         | 
|Home equity                                                                                         |  |                | 112,619 |  |               |   | 112,760 | 
|Credit cards                                                                                        |  |                | 28,888  |  |               |   | 31,658  | 
|Commercial                                                                                          |  |                | 10,974  |  |               |   | 9,446   | 
|Letters of credit                                                                                   |  |                | 17,709  |  |               |   | 17,349  | 
|Credit enhancement under the Federal Home Loan Bank of Chicago Mortgage Partnership Finance Program |  |                | 20,442  |  |               |   | 20,442  | 

Commitments to extend credit are in the form of a loan in the near future. Unused lines of credit are agreements to lend
to a customer as long as there is no violation of any condition established in the contract and may be drawn upon at the borrowers discretion. Letters of credit commit the Corporation to make payments on behalf of customers when certain
specified future events occur. Commitments and letters of credit primarily have fixed expiration dates or other termination clauses and may require payment of a fee. As some such commitments expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Corporation evaluates each customers creditworthiness on a case-by-case basis. With the exception of credit card lines of credit, the Corporation primarily extends credit on a
secured basis. Collateral obtained consists primarily of single-family residences and income-producing commercial properties.

At
June 30, 2012, the Corporation has $1.7 million of reserves on unfunded commitments, unused lines of credit and letters of credit classified in other liabilities. The Corporation intends to fund commitments through current liquidity.

Pursuant to a credit enhancement feature of the MPF program, the Corporation has retained secondary credit loss exposure in the amount of
$20.4 million at June 30, 2012 related to approximately $351.4 million of residential mortgage loans that the Bank has originated as agent for the FHLB. Under the credit enhancement, the FHLB is liable for losses on loans up to one percent of
the original delivered loan balances in each pool. The Bank is then liable for losses over and above the first position up to a contractually agreed-upon maximum amount in each pool that was delivered to the Program. The Corporation receives a
monthly fee for this credit enhancement obligation based on the outstanding loan balances. The Corporation has recorded net credit enhancement fee income from this program totaling $4,000 and $46,000 for the three months ending June 30, 2012
and June 30, 2011, respectively. Based on historical experience, the Corporation does not anticipate that any credit losses will be incurred under the credit enhancement obligation.



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In the ordinary course of business, there are legal proceedings against the Corporation and its
subsidiaries. Management considers that the aggregate liabilities, if any, resulting from such actions would not have a material, adverse effect on the consolidated financial position of the Corporation.

One pending lawsuit against the Corporation currently in the discovery stage involves a Bank-issued letter of credit in support of a residential real
estate development. Although no specific reserve for loss has been established at June 30, 2012, possible losses due to an unfavorable outcome have been estimated in the range of zero to $2.4 million due to a shortfall in collateral value.

Note 14  Derivative Financial Instruments

The Corporation enters into contracts that meet the definition of derivative financial instruments in accordance with ASC
815Derivative and Hedging. Derivatives are used as part of a risk management strategy to address exposure to changes in interest rates inherent in the Corporations origination and sale of certain residential mortgages into the secondary
market. These derivative contracts used for risk management purposes include: (1) interest rate lock commitments provided to customers to fund mortgage loans intended to be sold; and (2) forward sale contracts for the future delivery of
funded residential mortgages.

Forward sale contracts are entered into when interest rate lock commitments are granted to customers in an
effort to economically hedge the effect of future changes in interest rates on the commitments to fund mortgage loans intended to be sold, as well as on the portfolio of funded mortgages not yet sold. For accounting purposes, these derivatives are
not designated as being in a hedging relationship. The contracts are carried at fair value on the consolidated balance sheets, with changes in fair value recorded in the consolidated statements of operations.

Derivative financial instruments are summarized as follows:



|                                            |  |                      |  |                  |         |  |                    |   |       |                |  |   |                    |  |  |   |     | 
|------------------------------------------- |  | -------------------- |  | ---------------- | ------- |  | ------------------ | - | ----- | -------------- |  | - | ------------------ |  |  | - | --- | 
|                                            |  |                      |  | At June 30, 2012 |         |  | At March 31, 2012  |  
|                                            |  | BalanceSheetLocation |  | NotionalAmount   |         |  | EstimatedFairValue |   |       | NotionalAmount |  |   | EstimatedFairValue | 
|                                            |  |                      |  | (In thousands)   |        
|Derivative assets:                          |  |                      |  |                  |         |  |                    |   |       |                |  |   |                    |  |  |   |     | 
|Interest rate lock commitments(1)           |  | Other assets         |  | $                | 146,842 |  |                    | $ | 3,151 |                |  | $ | 115,032            |  |  | $ | 943 | 
|Forward contracts to sell mortgage loans(2) |  | Other liabilities    |  |                  |        |  |                    |   |      |                |  |   | 50,000             |  |  |   | 98  | 
|                                            |  |                      |  |                  |        
|Derivative liabilities:                     |  |                      |  |                  |         |  |                    |   |       |                |  |   |                    |  |  |   |     | 
|Interest rate lock commitments(1)           |  | Other liabilities    |  |                  | 259     |  |                    |   | 1     |                |  |   | 27,689             |  |  |   | 72  | 
|Forward contracts to sell mortgage loans(2) |  | Other liabilities    |  |                  | 155,000 |  |                    |   | 1,516 |                |  |   | 105,000            |  |  |   | 557 | 



|(1) | Interest rate lock commitments include $120.6 million and $118.3 million of commitments not yet approved in the credit underwriting process, yet
represent potential interest rate risk exposure to the extent of those mortgage loan applications eventually approved for funding.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The Corporation has elected to offset the fair value of individual forward sale contracts and present a net amount in accordance with ASC 815-45,
Derivatives and Hedging.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Net gains (losses) included in the consolidated statements of operations related to derivative
financial instruments during the three months ended June 30, 2012 and 2011 were ($3.8) million and ($0.5) million, respectively, recognized in net gain on sale of loans.



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Note 15  Fair Value of Financial Instruments

ASC Topic 820 establishes a framework for measuring fair value and disclosures about fair value measurements. Fair value is defined as
the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

In determining fair value, the Corporation uses various valuation methods including market, income and cost approaches. Based on these approaches, assumptions are utilized that market participants would
use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable inputs. Valuation
methodologies are employed that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on observability of the inputs used in the valuation methodologies, financial assets and liabilities measured at fair value on a
recurring and nonrecurring basis are categorized according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities that are adjusted
to fair value are classified in one of the following three categories:



| |  |  | Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the
measurement date.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3: Significant unobservable inputs that reflect a reporting entitys own assumptions about the assumptions that market participants would
use in pricing an asset or liability.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Fair Value on a Recurring Basis

The table below presents the financial instruments carried at fair value as of June 30, 2012 and March 31, 2012, by the valuation hierarchy (as
described above):



|                                                         |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|-------------------------------------------------------- |  | -------------- | ------- |  | ------- | - | --- | ------- |  | - | ------- |  |  | - | ------ | 
|                                                         |  | Total          |         |  |         |  
|                                                         |  | June 30, 2012  |         |  | Level 1 |   |     | Level 2 |  |   | Level 3 | 
|                                                         |  | (In thousands) |        
|Financial assets                                         |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|Investment securities availble for sale:                 |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|U.S. government sponsored and federal agency obligations |  | $              | 3,551   |  |         | $ |    |         |  | $ | 3,551   |  |  | $ |       | 
|Corporate stock and bonds                                |  |                | 707     |  |         |   | 707 |         |  |   |        |  |  |   |       | 
|Non-agency CMOs                                          |  |                | 18,476  |  |         |   |    |         |  |   |        |  |  |   | 18,476 | 
|Government sponsored agency mortgage-backed securities   |  |                | 4,045   |  |         |   |    |         |  |   | 4,045   |  |  |   |       | 
|GNMA mortgage-backed securities                          |  |                | 204,865 |  |         |   |    |         |  |   | 204,865 |  |  |   |       | 
|Other assets:                                            |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|Interest rate lock commitments                           |  |                | 3,151   |  |         |   |    |         |  |   | 3,151   |  |  |   |       | 
|                                                         |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|Total                                                    |  | $              | 234,795 |  |         | $ | 707 |         |  | $ | 215,612 |  |  | $ | 18,476 | 
|                                                         |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|Financial liabilities                                    |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|Other liabilities:                                       |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|Interest rate lock commitments                           |  | $              | 1       |  |         | $ |    |         |  | $ | 1       |  |  | $ |       | 
|Forward contracts to sell mortgage loans                 |  |                | 1,516   |  |         |   |    |         |  |   | 1,516   |  |  |   |       | 
|                                                         |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|Total                                                    |  | $              | 1,517   |  |         | $ |    |         |  | $ | 1,517   |  |  | $ |       | 
|                                                         |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 



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|                                                         |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|-------------------------------------------------------- |  | -------------- | ------- |  | ------- | - | --- | ------- |  | - | ------- |  |  | - | ------ | 
|                                                         |  | Total          |         |  |         |  
|                                                         |  | March 31, 2012 |         |  | Level 1 |   |     | Level 2 |  |   | Level 3 | 
|                                                         |  | (In thousands) |        
|Financial assets                                         |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|Investment securities availble for sale:                 |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|U.S. government sponsored and federal agency obligations |  | $              | 3,531   |  |         | $ |    |         |  | $ | 3,531   |  |  | $ |       | 
|Corporate stock and bonds                                |  |                | 661     |  |         |   | 661 |         |  |   |        |  |  |   |       | 
|Non-agency CMOs                                          |  |                | 21,592  |  |         |   |    |         |  |   |        |  |  |   | 21,592 | 
|Government sponsored agency mortgage-backed securities   |  |                | 4,195   |  |         |   |    |         |  |   | 4,195   |  |  |   |       | 
|GNMA mortgage-backed securities                          |  |                | 212,320 |  |         |   |    |         |  |   | 212,320 |  |  |   |       | 
|Other assets:                                            |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|Interest rate lock commitments                           |  |                | 943     |  |         |   |    |         |  |   | 943     |  |  |   |       | 
|                                                         |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|Total                                                    |  | $              | 243,242 |  |         | $ | 661 |         |  | $ | 220,989 |  |  | $ | 21,592 | 
|                                                         |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|Financial liabilities                                    |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|Other liabilities:                                       |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|Interest rate lock commitments                           |  | $              | 72      |  |         | $ |    |         |  | $ | 72      |  |  | $ |       | 
|Forward contracts to sell mortgage loans                 |  |                | 459     |  |         |   |    |         |  |   | 459     |  |  |   |       | 
|                                                         |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 
|Total                                                    |  | $              | 531     |  |         | $ |    |         |  | $ | 531     |  |  | $ |       | 
|                                                         |  |                |         |  |         |   |     |         |  |   |         |  |  |   |        | 

An independent service is used to price available-for-sale U.S. government sponsored and federal agency obligations,
corporate bonds, government sponsored agency mortgage-backed securities, and GNMA mortgage-backed securities using a market data model under Level 2. The significant inputs used at June 30, 2012 and March 31, 2012 to price Ginnie Mae
mortgage-backed securities are as follows:



|                     |  |               |     |   |                |  |     |      |  |  |     |   |  |  |     |  
|-------------------- |  | ------------- | --- | - | -------------- |  | --- | ---- |  |  | --- | - |  |  | --- | -
|                     |  | June 30, 2012 |     |   | March 31, 2012 | 
|                     |  | From          |     |   | To             |  |     | From |  |  | To  |  
|Coupon rate          |  |               | 1.6 | % |                |  | 5.5 | %    |  |  | 1.6 | % |  |  | 5.5 | %
|Duration (in years)  |  |               | 0.3 |   |                |  | 6.1 |      |  |  | 0.1 |   |  |  | 6.1 |  
|PSA prepayment speed |  |               | 283 |   |                |  | 457 |      |  |  | 201 |   |  |  | 495 |  

The Corporation had 99.7% of its non-agency CMOs valued by another independent pricing service that used a discounted
cash flow model that incorporates inputs considered Level 3 by the accounting guidance. The significant inputs used by the model at June 30, 2012 and March 31, 2012 include observable and unobservable inputs as follows:



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##### Table of Contents

|                                          |  |               |      |   |                |  |      |      |  |  |      |   |  |  |      |  
|----------------------------------------- |  | ------------- | ---- | - | -------------- |  | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                          |  | June 30, 2012 |      |   | March 31, 2012 | 
|                                          |  | From          |      |   | To             |  |      | From |  |  | To   |  
|Observable inputs:                        |  |               |      |   |                |  |      |      |  |  |      |   |  |  |      |  
|30 to 59 day delinquency rate             |  |               | 2.3  | % |                |  | 5.1  | %    |  |  | 1.2  | % |  |  | 4.8  | %
|60 to 89 day delinquency rate             |  |               | 0.4  |   |                |  | 2.7  |      |  |  | 0.6  |   |  |  | 2.5  |  
|90 plus day delinquency rate              |  |               | 0.9  |   |                |  | 5.2  |      |  |  | 1.1  |   |  |  | 6.0  |  
|Loss severity                             |  |               | 39.7 |   |                |  | 73.3 |      |  |  | 39.5 |   |  |  | 71.7 |  
|Coupon rate                               |  |               | 5.0  |   |                |  | 7.5  |      |  |  | 5.0  |   |  |  | 7.5  |  
|Current credit support                    |  |               |     |   |                |  | 28.3 |      |  |  |     |   |  |  | 25.3 |  
|Unobservable inputs:                      |  |               |      |   |                |  |      |      |  |  |      |   |  |  |      |  
|Month 1 to month 24 constant default rate |  |               | 3.3  |   |                |  | 11.5 |      |  |  | 3.4  |   |  |  | 11.3 |  
|Discount rate                             |  |               | 4.0  |   |                |  | 12.0 |      |  |  | 4.0  |   |  |  | 12.0 |  

Other assets and other liabilities include interest rate lock commitments provided to customers to fund mortgage loans
intended to be sold and forward sale contracts for future delivery of funded residential mortgages to investors. The Corporation relies on an internal valuation model to estimate the fair value of its interest rate lock commitments, which includes
applying an estimated pull-through rate (the percentage of commitments expected to result in a closed loan) based on historical experience; multiplied by quoted investor prices on closed loans for future delivery determined to be reasonably
applicable to the loan commitment based on interest rate, terms and rate lock expiration.

The Corporation also relies on an internal
valuation model to estimate the fair value of its forward contracts to sell residential mortgage loans (i.e., an estimate of what the Corporation would receive or pay to terminate the forward delivery contract) based on market prices for similar
financial instruments, which includes matching specific terms and maturities of the forward commitments against applicable investor pricing available.

The following is a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (level 3):



|                                                                                                                   |  |                                  |        |   |                           |   |         |  
|------------------------------------------------------------------------------------------------------------------ |  | -------------------------------- | ------ | - | ------------------------- | - | ------- | -
|                                                                                                                   |  | Three Months 
EndedJune 30, 2012 |        |   | Year EndedMarch 
31, 2012 |  
|                                                                                                                   |  | Non-agency CMOs                  |        |   | Non-agency CMOs           |  
|                                                                                                                   |  | (In thousands)                   |       
|Balance at beginning of period                                                                                     |  | $                                | 21,592 |   |                           | $ | 46,637  |  
|                                                                                                                   |  |                                 
|Total gains (losses) (realized/unrealized)                                                                         |  |                                  |        |   |                           |   |         |  
|Included in earnings                                                                                               |  |                                  | 129    |   |                           |   | 334     |  
|Included in other comprehensive income                                                                             |  |                                  | 168    |   |                           |   | (192    | )
|Included in earnings as unrealized other-than-temporary impairment                                                 |  |                                  | (68    | ) |                           |   | (558    | )
|Included in earnings upon payoff of securities for which other-than-temporary impairment was previously
recognized |  |                                  | 4      |   |                           |   |        |  
|Included in earnings as realized other-than-temporary impairment                                                   |  |                                  | 138    |   |                           |   | 363     |  
|Principal repayments                                                                                               |  |                                  | (1,582 | ) |                           |   | ( 8,596 | )
|Sales                                                                                                              |  |                                  | (1,905 | ) |                           |   | (16,396 | )
|                                                                                                                   |  |                                  |        |   |                           |   |         |  
|Balance at end of period                                                                                           |  | $                                | 18,476 |   |                           | $ | 21,592  |  
|                                                                                                                   |  |                                  |        |   |                           |   |         |  

There were no transfers in or out of Levels 1, 2 or 3 during the three months ended June 30, 2012 and twelve months
ended March 31, 2012.



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Fair Value on a Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of impairment). Loans held for sale and mortgage servicing rights includes only those items that were adjusted to fair value as of the dates indicated. The following table presents such assets
carried on the consolidated balance sheet by caption and by level within the fair value hierarchy as of June 30, 2012 and March 31, 2012:



|                                                |  |                     |         |  |         |   |   |         |  |   |         |  |  |   |         | 
|----------------------------------------------- |  | ------------------- | ------- |  | ------- | - | - | ------- |  | - | ------- |  |  | - | ------- | 
|                                                |  | TotalJune 30, 
2012 |         |  | Level 1 |   |   | Level 2 |  |   | Level 3 | 
|                                                |  | (In thousands)      |        
|Impaired loans, with an allowance recorded, net |  | $                   | 115,461 |  |         | $ |  |         |  | $ |        |  |  | $ | 115,461 | 
|Mortgage servicing rights                       |  |                     | 19,357  |  |         |   |  |         |  |   |        |  |  |   | 19,357  | 
|Other real estate owned                         |  |                     | 83,955  |  |         |   |  |         |  |   |        |  |  |   | 83,955  | 
|                                                |  |                     |         |  |         |   |   |         |  |   |         |  |  |   |         | 
|Total assets at fair value                      |  | $                   | 218,773 |  |         | $ |  |         |  | $ |        |  |  | $ | 218,773 | 
|                                                |  |                     |         |  |         |   |   |         |  |   |         |  |  |   |         | 



|                                                |  |                      |         |  |         |   |   |         |  |   |         |  |  |   |         | 
|----------------------------------------------- |  | -------------------- | ------- |  | ------- | - | - | ------- |  | - | ------- |  |  | - | ------- | 
|                                                |  | TotalMarch 31, 
2012 |         |  | Level 1 |   |   | Level 2 |  |   | Level 3 | 
|                                                |  | (In thousands)       |        
|Impaired loans, with an allowance recorded, net |  | $                    | 129,446 |  |         | $ |  |         |  | $ |        |  |  | $ | 129,446 | 
|Loans held for sale                             |  |                      | 145     |  |         |   |  |         |  |   | 145     |  |  |   |        | 
|Mortgage servicing rights                       |  |                      | 20,671  |  |         |   |  |         |  |   |        |  |  |   | 20,671  | 
|Other real estate owned                         |  |                      | 88,841  |  |         |   |  |         |  |   |        |  |  |   | 88,841  | 
|                                                |  |                      |         |  |         |   |   |         |  |   |         |  |  |   |         | 
|Total assets at fair value                      |  | $                    | 239,103 |  |         | $ |  |         |  | $ | 145     |  |  | $ | 238,958 | 
|                                                |  |                      |         |  |         |   |   |         |  |   |         |  |  |   |         | 

The Corporation does not adjust loans held for investment to fair value on a recurring basis. However, some loans are
considered impaired and an allowance for loan losses is established. The specific reserves for collateral dependent impaired loans are based on the fair value of the underlying collateral less estimated costs to sell. The fair value of collateral is
usually determined based on appraisals. In some cases, adjustments are made to appraised values due to various factors including age of the appraisal, age of comparables included in the appraisal, and known changes in the market and in the
collateral. Since adjustments to appraised values are based on unobservable inputs, the resulting fair value measurement is categorized as a Level 3 measurement.

Loans held for sale primarily consist of the current origination of certain fixed- and adjustable-rate residential mortgage loans and are carried at lower of cost or fair value, determined on a loan level
basis. These loans are valued individually based upon quoted market prices and the amount of any gross loss is recorded as a valuation allowance in loans held for sale. Fees received from the borrower and direct costs to originate the loan are
deferred and recorded as an adjustment to the loan carrying value.

Mortgage servicing rights are recorded as an asset when loans are sold to
third parties with servicing rights retained. The cost allocated to the mortgage servicing rights retained has been recognized as a separate asset and is initially recorded at fair value and subsequently amortized in proportion to, and over the
period of, estimated net servicing revenues. The carrying value of these assets is reviewed for impairment on a monthly basis using a lower of carrying value or fair value methodology. The fair value of servicing rights is determined by estimating
the present value of future net cash flows using a discounted cash flow model, taking into consideration market loan prepayment speeds, discount rates, servicing costs and other economic factors. For purposes of measuring impairment, the rights are
stratified based on predominant risk characteristics of the underlying loans which include product type (i.e., fixed, adjustable or balloon) and interest rate bands. If the aggregate carrying value of the capitalized mortgage servicing rights for a
stratum exceeds its fair value, the difference is recognized in earnings as an impairment loss.



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Critical assumptions used in the discounted cash flow model include mortgage prepayment speeds, discount
rates, costs to service, ancillary and late fee income. Variations in the assumptions could materially affect the estimated fair values. Changes to the assumptions are made when market data indicate that new trends have developed. Current market
participant assumptions based on loan product types  fixed rate, adjustable rate and balloon loansinclude discount rates in the range of 10.0 to 16.5 percent as well as total portfolio lifetime weighted average prepayment speeds of 5.9
to 42.3 percent annual CPR. Many of these assumptions are subjective and require a high level of management judgment. MSR valuation assumptions are reviewed and approved by management on a quarterly basis.

Prepayment speeds may be affected by economic factors such as changes in home prices, market interest rates, the availability of other credit products to
borrowers and customer payment patterns. Prepayment speeds include the impact of all borrower prepayments, including full payoffs, additional principal payments and the impact of loans paid off due to foreclosure liquidations. As market interest
rates decline, prepayment speeds will generally increase as customers refinance existing mortgages to more favorable interest rate terms. As prepayment speeds increase, anticipated cash flows will generally decline resulting in a potential
reduction, or impairment, of the fair value of the capitalized MSRs. Alternatively, an increase in market interest rates may cause a decrease in prepayment speeds and therefore an increase in fair value of MSRs. Annually, external data is obtained
to test the values and assumptions that are used for the initial valuations in the discounted cash flow model.

Real estate acquired by
foreclosure, real estate acquired by deed in lieu of foreclosure and other repossessed assets (OREO) are held for sale and are initially recorded at fair value less estimated selling expenses at the date of foreclosure. OREO is re-measured at the
lower of cost or fair value after initial recognition and reported using a valuation allowance on foreclosed assets. Fair value is generally based on third party appraisals and is therefore considered a Level 3 measurement.

ASC Topic 825 requires disclosure of fair value information about financial instruments, for which it is practicable to estimate that value, whether or
not recognized in the consolidated balance sheets, including those financial assets and liabilities that are not measured and reported at fair value on a recurring or nonrecurring basis. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair
value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in immediate settlement of the instruments. Certain financial instruments with a fair value that is not practicable to estimate and
all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented in the table below do not necessarily represent the underlying value of the Corporation.

The following methods and assumptions were used in estimating the fair value of financial instruments that were not previously disclosed:

Cash and cash equivalents and accrued interest: The carrying amounts reported in the balance sheets approximate the fair values for those assets
and liabilities. In accordance with ASC Topic 820, cash and cash equivalents and accrued interest have been categorized as a Level 2 fair value measurement.

Loans receivable: The fair value of residential mortgage loans held for investment, commercial real estate loans, commercial and industrial loans, and consumer and other loans held for investment
are estimated using observable inputs including estimated cash flows, and discount rates based on interest rates currently being offered for loans with similar terms, to borrowers of similar credit quality. In accordance with ASC Topic 820, loans
held for investment have been categorized as a Level 2 fair value measurement.

Federal Home Loan Bank stock: The carrying amount of
FHLB stock approximates its fair value as it can only be redeemed with the FHLB at par value. In accordance with ASC Topic 820, Federal Home Loan Bank stock has been categorized as a Level 2 fair value measurement.

Deposits: The fair value of checking, savings and money market accounts are estimated using a discounted cash flow analysis, with run-off rate
based on published bank regulatory decay rate tables. The fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies current interest rates being offered on certificates of deposit to a
schedule of aggregated expected monthly maturities of the outstanding certificates of deposit. In accordance with ASC Topic 820, deposits have been categorized as a Level 2 fair value measurement.



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Other borrowed funds: The fair value of other borrowed funds are estimated using discounted cash flow
analysis, based on the Corporations current incremental borrowing rates for similar types of borrowing arrangements. In accordance with ASC Topic 820, other borrowed funds have been categorized as a Level 2 fair value measurement.

Off-balance-sheet instruments: The fair value of off-balance-sheet instruments (held for investment lending commitments and unused lines of credit)
are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the counterparties credit standing and discounted cash flow analyses. The fair value of these off-balance-sheet
items approximates the recorded amounts of the related fees and is not material at June 30, 2012 and March 31, 2012.

The carrying
amount and fair value of the Corporations financial instruments consist of the following:



|                                         |  |                |           |  |                |   |           |                |  |   |           |  |  |   |           | 
|---------------------------------------- |  | -------------- | --------- |  | -------------- | - | --------- | -------------- |  | - | --------- |  |  | - | --------- | 
|                                         |  | June 30, 2012  |           |  | March 31, 2012 |  
|                                         |  | CarryingAmount |           |  | FairValue      |   |           | CarryingAmount |  |   | FairValue | 
|                                         |  | (In thousands) |          
|Financial assets:                        |  |                |           |  |                |   |           |                |  |   |           |  |  |   |           | 
|Cash and cash equivalents                |  | $              | 368,369   |  |                | $ | 368,369   |                |  | $ | 242,980   |  |  | $ | 242,980   | 
|Investment securities available for sale |  |                | 231,644   |  |                |   | 231,644   |                |  |   | 242,229   |  |  |   | 242,299   | 
|Investment securities held to maturity   |  |                |          |  |                |   |          |                |  |   | 20        |  |  |   | 20        | 
|Loans held for sale                      |  |                | 27,938    |  |                |   | 28,807    |                |  |   | 39,332    |  |  |   | 39,742    | 
|Loans held for investment                |  |                | 1,959,551 |  |                |   | 1,921,794 |                |  |   | 2,058,008 |  |  |   | 2,008,278 | 
|Mortgage servicing rights                |  |                | 20,590    |  |                |   | 20,848    |                |  |   | 22,156    |  |  |   | 22,346    | 
|Federal Home Loan Bank stock             |  |                | 30,522    |  |                |   | 30,522    |                |  |   | 35,792    |  |  |   | 35,792    | 
|Accrued interest receivable              |  |                | 11,391    |  |                |   | 11,391    |                |  |   | 12,075    |  |  |   | 12,075    | 
|Interest rate lock commitments           |  |                | 3,151     |  |                |   | 3,151     |                |  |   | 943       |  |  |   | 943       | 
|                                         |  |                |           | 
|Financial liabilities:                   |  |                |           |  |                |   |           |                |  |   |           |  |  |   |           | 
|Deposits                                 |  |                | 2,253,173 |  |                |   | 2,236,365 |                |  |   | 2,264,915 |  |  |   | 2,232,691 | 
|Other borrowed funds                     |  |                | 476,378   |  |                |   | 503,798   |                |  |   | 476,103   |  |  |   | 502,846   | 
|Accrued interest payable-borrowings      |  |                | 40,880    |  |                |   | 40,880    |                |  |   | 36,568    |  |  |   | 36,568    | 
|Accrued interest payable-deposits        |  |                | 1,385     |  |                |   | 1,385     |                |  |   | 1,513     |  |  |   | 1,513     | 
|Interest rate lock commitments           |  |                | 1         |  |                |   | 1         |                |  |   | 72        |  |  |   | 72        | 
|Forward contracts to sell mortgage loans |  |                | 1,516     |  |                |   | 1,516     |                |  |   | 459       |  |  |   | 459       | 

Note 16  Earnings Per Share

Basic earnings per share for the three months ended June 30, 2012 and 2011 has been determined by dividing net income available to
common stockholders for the respective periods by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income available to common stockholders by the weighted average number of
common shares outstanding plus the effect of dilutive securities. The effects of dilutive securities are computed using the treasury stock method.



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|                                                                                                      |  |                                                 |        |   |      |   |        |  
|----------------------------------------------------------------------------------------------------- |  | ----------------------------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                      |  | Three Months Ended June 30,                     |       
|                                                                                                      |  | 2012                                            |        |   | 2011 |  
|                                                                                                      |  | (In thousands, except share and per share data) |       
|Numerator:                                                                                            |  |                                                 |        |  
|Numerator for basic and diluted earnings per share  loss available to common stockholders            |  | $                                               | (3,418 | ) |      | $ | (8,154 | )
|Denominator:                                                                                          |  |                                                 |        |   |      |   |        |  
|Denominator for basic earnings per share  weighted average shares                                    |  |                                                 | 21,248 |   |      |   | 21,248 |  
|Effect of dilutive securities:                                                                        |  |                                                 |        |   |      |   |        |  
|Employee stock options                                                                                |  |                                                 |       |   |      |   |       |  
|                                                                                                      |  |                                                 |        |   |      |   |        |  
|Denominator for diluted earnings per share  adjusted weighted average shares and assumed conversions |  |                                                 | 21,248 |   |      |   | 21,248 |  
|                                                                                                      |  |                                                 |        |   |      |   |        |  
|Basic loss per common share                                                                           |  | $                                               | (0.16  | ) |      | $ | (0.38  | )
|                                                                                                      |  |                                                 |        |   |      |   |        |  
|Diluted loss per common share                                                                         |  | $                                               | (0.16  | ) |      | $ | (0.38  | )
|                                                                                                      |  |                                                 |        |   |      |   |        |  

At June 30, 2012, approximately 144,000 stock options were excluded from the calculation of diluted earnings per
share because they were anti-dilutive, representing all stock options currently outstanding. Treasurys warrants (see Note 10) to purchase approximately 7.4 million shares at an exercise price of $2.23 were also not included in the
computation of diluted earnings per share because the warrants exercise price was greater than the average market price of common stock and, therefore, anti-dilutive. Because of their anti-dilutive effect, the shares that would be issued if
Treasurys Senior Preferred Stock were converted into common stock are not included in the computation of diluted earnings per share for the three months ended June 30, 2012 and 2011.



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ANCHOR BANCORP WISCONSIN INC.

ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Set forth below is managements discussion and analysis of the consolidated results of operations and financial condition of Anchor Bancorp Wisconsin Inc. (the Corporation) and its
wholly-owned subsidiaries, AnchorBank fsb (the Bank) and Investment Directions Inc. (IDI), for the three months ended June 30, 2012, which includes information regarding significant regulatory developments and the
Corporations risk management activities, including asset/liability management strategies, sources of liquidity and capital resources. This discussion should be read in conjunction with the unaudited consolidated financial statements and
supplemental data contained elsewhere in this quarterly report filed on Form 10-Q for the three-month period ending June 
30, 2012.

EXECUTIVE OVERVIEW

On June 26, 2009, the Corporation and the Bank each consented to the issuance of an Order to Cease and Desist by the Office of Thrift Supervision. The Cease and Desist Order required, that, no later
than December 31, 2009, the Bank meet and maintain both a tier 1 (core) capital ratio equal to or greater than 8 percent and a total risk-based capital ratio equal to or greater than 12 percent.

The Cease and Desist Order also required that the Bank submit a Capital Restoration Plan along with a revised business plan to the OTS. The Bank complied
with that directive on July 23, 2010 with the submission of its Revised Capital Restoration Plan (the Plan). On August 31, 2010, the OTS approved the Plan submitted by the Bank, although the approval included a Prompt
Corrective Action Directive (PCA).

At June 30, 2012, the Bank and the Corporation had complied with all aspects of the Cease
and Desist and the PCA, except the Bank had a tier 1 leverage ratio and a total risk-based capital ratio of 4.56 percent and 8.98 percent, respectively, each below the required capital ratios set forth above.

The Corporation remains diligent in its efforts to raise outside capital to bring it in compliance with the Cease and Desist Order. The Corporation
continues to make strides to improve the financial performance and efficiency of the Bank to increase the likelihood that it will be able to attract outside capital.

But the organization continues to face significant challenges. The Corporation, as the holding company of the Bank, continues to be burdened with significant senior debt and preferred stock obligations.
The Corporation currently owes $116.3 million to various lenders led by U.S. Bank under the Credit Agreement that matures November 30, 2012. The Corporation also has accrued but unpaid interest and fees totaling $45.8 million associated with
this obligation that is due and payable at maturity.

In addition, the Corporation issued $110 million in preferred stock in January 2009 to
the United States Treasury pursuant to the Treasurys Capital Purchase Program (CPP). While the Bank has substantial liquidity, it is currently precluded by its regulators from paying dividends to the Corporation. As a result, and
as permitted under the CPP program, the Corporation has deferred 13 quarterly preferred stock dividend payments to the Treasury totaling $20.4 million, including interest. As a result of those deferrals, Treasury had the right to appoint two
additional persons to the Corporations Board of Directors and as announced on September 30, 2011, appointed Messrs. Duane Morse and Leonard Rush to the Corporations Board.

The Corporation has engaged and continues to work with Sandler ONeill & Partners, L.P. as its financial advisor to assist in capital raising efforts to address its capital needs.

Credit Highlights

The Corporation has continued to see improvement in early stage and overall delinquencies during the past year. This, coupled with the Banks ongoing
efforts to aggressively work out of troubled credits, has led to a decline in the level of non-performing loans. At June 30, 2012, non-performing loans (consisting of loans past due more than 90 days, loans less than 90 days delinquent but
placed on non-accrual status due to anticipated probable loss and non-accrual troubled debt restructurings) totaled $189.0 million, $35.9 million below the $224.9 million at March 31,



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##### Table of Contents

2012. In addition, the Bank experienced a moderate decrease in the level of foreclosed properties on the consolidated balance sheet. At June 30, 2012, other real estate owned was $84.0
million, compared to $88.8 million at March 31, 2012, a 5.5 percent decrease. As a result, the decline in the levels of non-performing assets was just slightly greater than the decline in non-performing loans. An elevated level of
non-performing assets has, and will continue to have, a negative impact on net interest income and expenses related to managing the troubled loan portfolio.

The allowance for loan losses declined to $100.5 million at June 30, 2012 from $111.2 million at March 31, 2012, a 9.7 percent decrease. Net charge-offs during the three months ended
June 30, 2012 were $7.9 million compared to $15.0 million for the same period in 2012. The provision for credit losses was $(1.7) million for the three months ended June 30, 2012, compared to $3.5 million for the three months ended
June 30, 2011. While the balance in the allowance for loan losses declined 9.7 percent during the first quarter of fiscal 2013, the allowance compared to total non-performing loans of 53.17 percent at June 30, 2012 compared favorably to
the 49.45 percent at March 31, 2012.

Market and Industry Developments

The economic turmoil that began in the middle of 2007 and continued into 2010 has appeared to have settled into a slow economic recovery in 2011 and 2012.
At this time the recovery has somewhat uncertain prospects. This has been accompanied by dramatic changes in the competitive landscape of the financial services industry and a wholesale reformation of the legislative and regulatory landscape with
the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which was signed into law by President Obama on July 21, 2010.

Dodd-Frank is extensive, complex and comprehensive legislation that impacts many aspects of banking organizations. Dodd-Frank is likely to negatively impact the Corporations revenue and increase
both the direct and indirect costs of doing business, as it includes provisions that could increase regulatory fees and deposit insurance assessments and impose heightened capital standards, while at the same time impacting the nature and costs of
the Corporations businesses. As a result of Dodd-Frank, the OTS ceased to be our primary regulator with the OCC now regulating the Bank and the Federal Reserve regulating the Corporation. It is unclear at this time what effect this change will
have on our results of operations.

Until such time as the regulatory agencies issue proposed and final regulations implementing the numerous
provisions of Dodd-Frank, a process that will extend at least over the next twelve months and may last several years, management will not be able to fully assess the impact the legislation will have on its business.

Financial Results

Results for
the first quarter ended June 30, 2012 include:



| |  |  | Basic and diluted (loss) per common share improved to $(0.16) for the quarter ended June 30, 2012 compared to $(0.38) per share for the quarter
ended June 30, 2011, primarily due to a decrease of $5.2 million in the provision for credit losses;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The net interest margin decreased to 2.57% for the quarter ended June 30, 2012 from 2.77% for the quarter ended June 30, 2011 primarily due
to a decline in the average yield on mortgage and consumer loans as new loans and renewals are funded in todays lower rate environment, and the maturity of lower rate FHLB advances during the first quarter of 2011;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Loans held for sale decreased $11.4 million, or 29.0% since March 31, 2012 primarily due to lower residential mortgage origination volume and
retention of a significantly higher percentage of originated mortgage loans in the held for investment portfolio;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Loans held for investment (net of the allowance for loan losses) decreased $98.5 million, or 4.8%, since March 31, 2012 primarily due to scheduled
pay-offs and amortization and the transfer of $18.8 million to other real estate owned;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | Deposits decreased $11.7 million, or 0.5%, since March 31, 2012 primarily due to runoff of time deposits;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | Total risk-based capital ratio for the Bank was 8.98% as of June 30, 2012, compared to 8.42% at March 31, 2012. Under regulatory
requirements, a bank must have a total risk-based capital ratio of 8% or greater to be considered adequately capitalized; however, the Banks total risk based capital ratio remains below the 12% level required under the terms of the Cease and
Desist Order issued by the Office of Thrift Supervision (OTS) on June 26, 2009. (Now administered by the Federal Reserve with respect to the Corporation and the Office of the Comptroller of the Currency (OCC) with
respect to the Bank).
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Total non-performing loans decreased $35.9 million, or 16.0% to $189.0 million at June 30, 2012 from $224.9 million at March 31, 2012;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Total non-performing assets (total non-performing loans and other real estate owned) decreased $40.9 million, or 13.0%, to $272.9 million at
June 30, 2012 from $313.8 million at March 31, 2012;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The provision for credit losses decreased $5.2 million, to a recapture of $(1.7) million for the three months ended June 30, 2012 from $3.5
million for the three months ended June 30, 2011; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Delinquencies (loans past due 30 days or more) decreased $40.3 million or 18.2%, to $180.9 million at June 30, 2012 from $221.2 million at
March 31, 2012.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Selected quarterly data are set forth in the following tables.



|                                                  |  |                                                   |           |   |           |   |           |            |  |   |           |   |  |   |           |  
|------------------------------------------------- |  | ------------------------------------------------- | --------- | - | --------- | - | --------- | ---------- |  | - | --------- | - |  | - | --------- | -
|                                                  |  | Three Months Ended                                |          
|                                                  |  | 6/30/2012                                         |           |   | 3/31/2012 |   |           | 12/31/2011 |  |   | 9/30/2011 |  
|                                                  |  | (Dollars in thousands  except per share amounts) |          
|Operations Data:                                  |  |                                                   |           |  
|Net interest income                               |  | $                                                 | 16,399    |   |           | $ | 15,888    |            |  | $ | 16,014    |   |  | $ | 18,500    |  
|Provision for credit losses                       |  |                                                   | (1,716    | ) |           |   | 4,601     |            |  |   | 8,380     |   |  |   | 17,115    |  
|Net gain on sale of loans                         |  |                                                   | 5,823     |   |           |   | 6,406     |            |  |   | 6,018     |   |  |   | 3,994     |  
|Net gain on sale of investment securities         |  |                                                   | 62        |   |           |   | 217       |            |  |   | 20        |   |  |   | 5,206     |  
|Net gain on sale of branches                      |  |                                                   |          |   |           |   |          |            |  |   |          |   |  |   |          |  
|Other non-interest income                         |  |                                                   | 7,613     |   |           |   | 6,357     |            |  |   | 3,456     |   |  |   | 5,579     |  
|Non-interest expense                              |  |                                                   | 31,558    |   |           |   | 28,220    |            |  |   | 28,997    |   |  |   | 32,325    |  
|Income (loss) before income tax expense (benefit) |  |                                                   | 55        |   |           |   | (3,953    | )          |  |   | (11,869   | ) |  |   | (16,161   | )
|Income tax expense                                |  |                                                   |          |   |           |   |          |            |  |   |          |   |  |   |          |  
|Net income (loss)                                 |  |                                                   | 55        |   |           |   | (3,953    | )          |  |   | (11,869   | ) |  |   | (16,161   | )
|Preferred stock dividends in arrears              |  |                                                   | (1,610    | ) |           |   | (1,591    | )          |  |   | (1,572    | ) |  |   | (1,579    | )
|Preferred stock discount accretion                |  |                                                   | (1,863    | ) |           |   | (1,844    | )          |  |   | (1,853    | ) |  |   | (1,853    | )
|Net loss available to common equity               |  |                                                   | (3,418    | ) |           |   | (7,388    | )          |  |   | (15,294   | ) |  |   | (19,593   | )
|                                                  |  |                                                   |           |  
|Selected Financial Ratios (1):                    |  |                                                   |           |   |           |   |           |            |  |   |           |   |  |   |           |  
|Yield on interest-earning assets                  |  |                                                   | 4.22      | % |           |   | 4.17      | %          |  |   | 4.09      | % |  |   | 4.42      | %
|Cost of funds                                     |  |                                                   | 1.56      |   |           |   | 1.72      |            |  |   | 1.81      |   |  |   | 1.84      |  
|Interest rate spread                              |  |                                                   | 2.66      |   |           |   | 2.45      |            |  |   | 2.28      |   |  |   | 2.58      |  
|Net interest margin                               |  |                                                   | 2.57      |   |           |   | 2.35      |            |  |   | 2.19      |   |  |   | 2.48      |  
|Return on average assets                          |  |                                                   | 0.01      |   |           |   | (0.54     | )          |  |   | (1.51     | ) |  |   | (2.02     | )
|Average equity to average assets                  |  |                                                   | (1.03     | ) |           |   | (0.94     | )          |  |   | (0.53     | ) |  |   | (0.20     | )
|Non-interest expense to average assets            |  |                                                   | 4.56      |   |           |   | 3.89      |            |  |   | 3.69      |   |  |   | 4.04      |  
|                                                  |  |                                                   |           |  
|Per Share:                                        |  |                                                   |           |   |           |   |           |            |  |   |           |   |  |   |           |  
|Basic loss per common share                       |  | $                                                 | (0.16     | ) |           | $ | (0.35     | )          |  | $ | (0.72     | ) |  | $ | (0.92     | )
|Diluted loss per common share                     |  |                                                   | (0.16     | ) |           |   | (0.35     | )          |  |   | (0.72     | ) |  |   | (0.92     | )
|Dividends per common share                        |  |                                                   |          |   |           |   |          |            |  |   |          |   |  |   |          |  
|Book value per common share                       |  |                                                   | (6.52     | ) |           |   | (6.57     | )          |  |   | (6.37     | ) |  |   | (5.81     | )
|                                                  |  |                                                   |           |  
|Financial Condition:                              |  |                                                   |           |   |           |   |           |            |  |   |           |   |  |   |           |  
|Total assets                                      |  | $                                                 | 2,784,076 |   |           | $ | 2,789,452 |            |  | $ | 3,061,573 |   |  | $ | 3,197,441 |  
|Loans receivable, net                             |  |                                                   |           |   |           |   |           |            |  |   |           |   |  |   |           |  
|Held for sale                                     |  |                                                   | 27,938    |   |           |   | 39,332    |            |  |   | 36,962    |   |  |   | 45,199    |  
|Held for investment                               |  |                                                   | 1,959,551 |   |           |   | 2,058,008 |            |  |   | 2,166,351 |   |  |   | 2,257,905 |  
|Deposits                                          |  |                                                   | 2,253,173 |   |           |   | 2,264,915 |            |  |   | 2,472,697 |   |  |   | 2,593,670 |  
|Other borrowed funds                              |  |                                                   | 476,378   |   |           |   | 476,103   |            |  |   | 538,091   |   |  |   | 537,194   |  
|Stockholders deficit                             |  |                                                   | (28,508   | ) |           |   | (29,550   | )          |  |   | (25,327   | ) |  |   | (13,391   | )
|Allowance for loan losses                         |  |                                                   | 100,477   |   |           |   | 111,215   |            |  |   | 130,926   |   |  |   | 138,347   |  
|Non-performing assets(2)                          |  |                                                   | 272,942   |   |           |   | 313,765   |            |  |   | 348,077   |   |  |   | 349,472   |  



|(1) | Annualized when appropriate.
|--- | ----------------------------

|(2) | Non-performing
assets consist of loans past due more than ninety days and on non-accrual status, loans past due due less than ninety days but placed on non-accrual status due to anticipated probable loss, non-accrual troubled debt restructurings and OREO.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|                                                  |  |                                                   |           |   |           |   |           |            |  |   |           |   |  |   |           |  
|------------------------------------------------- |  | ------------------------------------------------- | --------- | - | --------- | - | --------- | ---------- |  | - | --------- | - |  | - | --------- | -
|                                                  |  | Three Months Ended                                |          
|                                                  |  | 6/30/2011                                         |           |   | 3/31/2011 |   |           | 12/31/2010 |  |   | 9/30/2010 |  
|                                                  |  | (Dollars in thousands  except per share amounts) |          
|Operations Data:                                  |  |                                                   |           |   |           |   |           |            |  |   |           |   |  |   |           |  
|Net interest income                               |  | $                                                 | 21,520    |   |           | $ | 21,460    |            |  | $ | 22,314    |   |  | $ | 22,418    |  
|Provision for credit losses                       |  |                                                   | 3,482     |   |           |   | 10,178    |            |  |   | 21,412    |   |  |   | 10,674    |  
|Net gain on sale of loans                         |  |                                                   | 1,173     |   |           |   | 1,600     |            |  |   | 5,601     |   |  |   | 9,216     |  
|Net gain on sale of investment securities         |  |                                                   | 1,136     |   |           |   | 709       |            |  |   | 1,187     |   |  |   | 6,653     |  
|Net gain on sale of branches                      |  |                                                   |          |   |           |   | 2         |            |  |   | 100       |   |  |   | 2,318     |  
|Other non-interest income                         |  |                                                   | 5,618     |   |           |   | 4,479     |            |  |   | 4,798     |   |  |   | 5,533     |  
|Non-interest expense                              |  |                                                   | 30,710    |   |           |   | 36,305    |            |  |   | 24,647    |   |  |   | 34,112    |  
|Income (loss) before income tax expense (benefit) |  |                                                   | (4,745    | ) |           |   | (18,233   | )          |  |   | (12,059   | ) |  |   | 1,352     |  
|Income tax expense (benefit)                      |  |                                                   | 10        |   |           |   | 150       |            |  |   |          |   |  |   | 14        |  
|Net income (loss)                                 |  |                                                   | (4,755    | ) |           |   | (18,383   | )          |  |   | (12,059   | ) |  |   | 1,338     |  
|Preferred stock dividends in arrears              |  |                                                   | (1,536    | ) |           |   | (1,503    | )          |  |   | (1,494    | ) |  |   | (1,352    | )
|Preferred stock discount accretion                |  |                                                   | (1,863    | ) |           |   | (1,843    | )          |  |   | (1,853    | ) |  |   | (1,853    | )
|Net loss available to common equity               |  |                                                   | (8,154    | ) |           |   | (21,729   | )          |  |   | (15,406   | ) |  |   | (1,867    | )
|                                                  |  |                                                   |           |  
|Selected Financial Ratios (1):                    |  |                                                   |           |   |           |   |           |            |  |   |           |   |  |   |           |  
|Yield on interest-earning assets                  |  |                                                   | 4.66      | % |           |   | 4.57      | %          |  |   | 4.66      | % |  |   | 4.80      | %
|Cost of funds                                     |  |                                                   | 1.77      |   |           |   | 1.84      |            |  |   | 2.07      |   |  |   | 2.24      |  
|Interest rate spread                              |  |                                                   | 2.89      |   |           |   | 2.73      |            |  |   | 2.59      |   |  |   | 2.56      |  
|Net interest margin                               |  |                                                   | 2.77      |   |           |   | 2.63      |            |  |   | 2.51      |   |  |   | 2.45      |  
|Return on average assets                          |  |                                                   | (0.39     | ) |           |   | (2.12     | )          |  |   | (1.31     | ) |  |   | 0.13      |  
|Return on average equity                          |  |                                                   | N/M       |   |           |   | N/M       |            |  |   | N/M       |   |  |   | 20.30     |  
|Average equity to average assets                  |  |                                                   | (0.32     | ) |           |   | (0.15     | )          |  |   | 0.41      |   |  |   | 0.63      |  
|Non-interest expense to average assets            |  |                                                   | 3.69      |   |           |   | 4.18      |            |  |   | 2.64      |   |  |   | 3.51      |  
|                                                  |  |                                                   |           |  
|Per Share:                                        |  |                                                   |           |   |           |   |           |            |  |   |           |   |  |   |           |  
|Basic loss per common share                       |  | $                                                 | (0.38     | ) |           | $ | (1.02     | )          |  | $ | (0.72     | ) |  | $ | (0.09     | )
|Diluted loss per common share                     |  |                                                   | (0.38     | ) |           |   | (1.02     | )          |  |   | (0.72     | ) |  |   | (0.09     | )
|Dividends per common share                        |  |                                                   |          |   |           |   |          |            |  |   |          |   |  |   |          |  
|Book value per common share                       |  |                                                   | (5.41     | ) |           |   | (5.80     | )          |  |   | (4.94     | ) |  |   | (3.31     | )
|                                                  |  |                                                   |           |  
|Financial Condition:                              |  |                                                   |           |   |           |   |           |            |  |   |           |   |  |   |           |  
|Total assets                                      |  | $                                                 | 3,240,867 |   |           | $ | 3,394,825 |            |  | $ | 3,580,752 |   |  | $ | 3,803,853 |  
|Loans receivable, net                             |  |                                                   |           |   |           |   |           |            |  |   |           |   |  |   |           |  
|Held for sale                                     |  |                                                   | 16,333    |   |           |   | 7,538     |            |  |   | 37,196    |   |  |   | 28,744    |  
|Held for investment                               |  |                                                   | 2,390,987 |   |           |   | 2,520,367 |            |  |   | 2,661,991 |   |  |   | 2,839,217 |  
|Deposits                                          |  |                                                   | 2,643,099 |   |           |   | 2,699,433 |            |  |   | 2,835,245 |   |  |   | 3,017,498 |  
|Other borrowed funds                              |  |                                                   | 547,045   |   |           |   | 659,005   |            |  |   | 682,090   |   |  |   | 700,539   |  
|Stockholders (deficit) equity                    |  |                                                   | (4,990    | ) |           |   | (13,171   | )          |  |   | 4,939     |   |  |   | 39,611    |  
|Allowance for loan losses                         |  |                                                   | 138,740   |   |           |   | 150,122   |            |  |   | 157,438   |   |  |   | 156,186   |  
|Non-performing assets(2)                          |  |                                                   | 375,201   |   |           |   | 396,981   |            |  |   | 403,364   |   |  |   | 410,347   |  



|(1) | Annualized when appropriate.
|--- | ----------------------------

|(2) | Non-performing
assets consist of loans past due more than ninety days and on non-accrual status, loans past due due less than ninety days but placed on non-accrual status due to anticipated probable loss, non-accrual troubled debt restructurings and OREO.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

RESULTS OF OPERATIONS

Overview

Net results from
operations for the three months ended June 30, 2012 improved $4.7 million to net income of $0.1 million from a net loss of $4.8 million in the prior year period. The swing to modest net income from the net loss reported for the three-month
period last year was largely due to a decrease in provision for credit losses of $5.2 million and higher non-interest income of $4.3 million. These favorable variances were partially offset by a decrease in net interest income of $5.1 million. The
discussion that follows in this section provides additional details regarding these results.

Average Interest-Earning Assets, Average
Interest-Bearing Liabilities and Interest Rate Spread

The tables on the following page show the Corporations average balances,
interest, average rates, net interest margin and interest rate spread for the periods indicated. The average balances are derived from average daily balances.



49



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|                                                                                 |  |                             |           |   |          |   |        |                      |  |  |                |   |  |          |           |   |                      |   |        |  |  |  |      |  
|-------------------------------------------------------------------------------- |  | --------------------------- | --------- | - | -------- | - | ------ | -------------------- |  |  | -------------- | - |  | -------- | --------- | - | -------------------- | - | ------ |  |  |  | ---- | -
|                                                                                 |  | Three Months Ended June 30, |          
|                                                                                 |  | 2012                        |           |   | 2011     |  
|                                                                                 |  | AverageBalance              |           |   | Interest |   |        | AverageYield/Cost(1) |  |  | AverageBalance |   |  | Interest |           |   | AverageYield/Cost(1) |  
|                                                                                 |  | (Dollars In thousands)      |          
|Interest-Earning Assets                                                          |  |                             |           |   |          |   |        |                      |  |  |                |   |  |          |           |   |                      |   |        |  |  |  |      |  
|Mortgage loans                                                                   |  | $                           | 1,519,198 |   |          | $ | 18,795 |                      |  |  | 4.95           | % |  | $        | 1,849,237 |   |                      | $ | 23,658 |  |  |  | 5.12 | %
|Consumer loans                                                                   |  |                             | 501,032   |   |          |   | 6,065  |                      |  |  | 4.84           |   |  |          | 548,617   |   |                      |   | 6,956  |  |  |  | 5.07 |  
|Commercial business loans                                                        |  |                             | 19,727    |   |          |   | 428    |                      |  |  | 8.68           |   |  |          | 69,098    |   |                      |   | 1,495  |  |  |  | 8.65 |  
|                                                                                 |  |                             |           |   |          |   |        |                      |  |  |                |   |  |          |           |   |                      |   |        |  |  |  |      |  
|Total loans receivable(2) (3)                                                    |  |                             | 2,039,957 |   |          |   | 25,288 |                      |  |  | 4.96           |   |  |          | 2,466,952 |   |                      |   | 32,109 |  |  |  | 5.21 |  
|Investment securities(4)                                                         |  |                             | 238,427   |   |          |   | 1,521  |                      |  |  | 2.55           |   |  |          | 498,615   |   |                      |   | 3,942  |  |  |  | 3.16 |  
|Interest-bearing deposits                                                        |  |                             | 245,474   |   |          |   | 154    |                      |  |  | 0.25           |   |  |          | 82,284    |   |                      |   | 52     |  |  |  | 0.25 |  
|Federal Home Loan Bank stock                                                     |  |                             | 33,128    |   |          |   | 28     |                      |  |  | 0.34           |   |  |          | 54,829    |   |                      |   | 14     |  |  |  | 0.10 |  
|                                                                                 |  |                             |           |   |          |   |        |                      |  |  |                |   |  |          |           |   |                      |   |        |  |  |  |      |  
|Total interest-earning assets                                                    |  |                             | 2,556,986 |   |          |   | 26,991 |                      |  |  | 4.22           |   |  |          | 3,102,680 |   |                      |   | 36,117 |  |  |  | 4.66 |  
|Non-interest-earning assets                                                      |  |                             | 208,817   |   |          |   |        |                      |  |  |                |   |  |          | 225,150   |   |                      |   |        |  |  |  |      |  
|                                                                                 |  |                             |           |   |          |   |        |                      |  |  |                |   |  |          |           |   |                      |   |        |  |  |  |      |  
|Total assets                                                                     |  | $                           | 2,765,803 |   |          |   |        |                      |  |  |                |   |  | $        | 3,327,830 |   |                      |   |        |  |  |  |      |  
|                                                                                 |  |                             |           |   |          |   |        |                      |  |  |                |   |  |          |           |   |                      |   |        |  |  |  |      |  
|Interest-Bearing Liabilities                                                     |  |                             |           |   |          |   |        |                      |  |  |                |   |  |          |           |   |                      |   |        |  |  |  |      |  
|Demand deposits                                                                  |  | $                           | 1,011,400 |   |          |   | 549    |                      |  |  | 0.22           |   |  | $        | 908,274   |   |                      |   | 604    |  |  |  | 0.27 |  
|Regular savings                                                                  |  |                             | 275,380   |   |          |   | 84     |                      |  |  | 0.12           |   |  |          | 251,892   |   |                      |   | 112    |  |  |  | 0.18 |  
|Certificates of deposit                                                          |  |                             | 950,943   |   |          |   | 2,958  |                      |  |  | 1.24           |   |  |          | 1,521,360 |   |                      |   | 6,603  |  |  |  | 1.74 |  
|                                                                                 |  |                             |           |   |          |   |        |                      |  |  |                |   |  |          |           |   |                      |   |        |  |  |  |      |  
|Total deposits                                                                   |  |                             | 2,237,723 |   |          |   | 3,591  |                      |  |  | 0.64           |   |  |          | 2,681,526 |   |                      |   | 7,319  |  |  |  | 1.09 |  
|Other borrowed funds                                                             |  |                             | 477,866   |   |          |   | 7,001  |                      |  |  | 5.86           |   |  |          | 605,312   |   |                      |   | 7,278  |  |  |  | 4.81 |  
|                                                                                 |  |                             |           |   |          |   |        |                      |  |  |                |   |  |          |           |   |                      |   |        |  |  |  |      |  
|Total interest-bearing liabilities                                               |  |                             | 2,715,589 |   |          |   | 10,592 |                      |  |  | 1.56           |   |  |          | 3,286,838 |   |                      |   | 14,597 |  |  |  | 1.78 |  
|                                                                                 |  |                             |           |   |          |   |        |                      |  |  |                |   |  |          |           |   |                      |   |        |  |  |  |      |  
|Non-interest-bearing liabilities                                                 |  |                             | 78,830    |   |          |   |        |                      |  |  |                |   |  |          | 51,804    |   |                      |   |        |  |  |  |      |  
|                                                                                 |  |                             |           |   |          |   |        |                      |  |  |                |   |  |          |           |   |                      |   |        |  |  |  |      |  
|Total liabilities                                                                |  |                             | 2,794,419 |   |          |   |        |                      |  |  |                |   |  |          | 3,338,642 |   |                      |   |        |  |  |  |      |  
|Stockholders deficit                                                            |  |                             | (28,616   | ) |          |   |        |                      |  |  |                |   |  |          | (10,812   | ) |                      |   |        |  |  |  |      |  
|                                                                                 |  |                             |           |   |          |   |        |                      |  |  |                |   |  |          |           |   |                      |   |        |  |  |  |      |  
|Total liabilities and stockholders deficit                                      |  | $                           | 2,765,803 |   |          |   |        |                      |  |  |                |   |  | $        | 3,327,830 |   |                      |   |        |  |  |  |      |  
|                                                                                 |  |                             |           |   |          |   |        |                      |  |  |                |   |  |          |           |   |                      |   |        |  |  |  |      |  
|Net interest income/interest rate spread(5)                                      |  |                             |           |   |          | $ | 16,399 |                      |  |  | 2.66           | % |  |          |           |   |                      | $ | 21,520 |  |  |  | 2.88 | %
|                                                                                 |  |                             |           |   |          |   |        |                      |  |  |                |   |  |          |           |   |                      |   |        |  |  |  |      |  
|Net interest-earning assets                                                      |  | $                           | (158,603  | ) |          |   |        |                      |  |  |                |   |  | $        | (184,158  | ) |                      |   |        |  |  |  |      |  
|                                                                                 |  |                             |           |   |          |   |        |                      |  |  |                |   |  |          |           |   |                      |   |        |  |  |  |      |  
|Net interest margin(6)                                                           |  |                             |           |   |          |   |        |                      |  |  | 2.57           | % |  |          |           |   |                      |   |        |  |  |  | 2.77 | %
|                                                                                 |  |                             |           |   |          |   |        |                      |  |  |                |   |  |          |           |   |                      |   |        |  |  |  |      |  
|Ratio of average interest-earning assets to average interest-bearing liabilities |  |                             | 0.94      |   |          |   |        |                      |  |  |                |   |  |          | 0.94      |   |                      |   |        |  |  |  |      |  
|                                                                                 |  |                             |           |   |          |   |        |                      |  |  |                |   |  |          |           |   |                      |   |        |  |  |  |      |  



|(1) | Annualized
|--- | ----------

|(2) | For the purpose of these computations, non-accrual loans are included in the daily average loan amountsoutstanding.
|--- | -------------------------------------------------------------------------------------------------------------------

|(3) | Interest earned on loans includes loan fees (which are not material in amount) and interest income which has been received from borrowers whose loans
were removed from non-accrual status during the period indicated.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Average balances of securities available-for-sale are based on amortized cost.
|--- | ------------------------------------------------------------------------------

|(5) | Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of
interest-bearing liabilities and is represented on a fully tax equivalent basis if applicable.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Net interest margin represents net interest income as a percentage of average interest-earning assets.
|--- | ------------------------------------------------------------------------------------------------------



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Net Interest Income

Net interest income decreased $5.1 million or 23.8% for the three months ended June 30, 2012, as compared to the respective periods in the prior year. Interest income decreased $9.1 million or 25.3%
for the three months ended June 30, 2012, as compared to the same period in the prior year primarily due to a decline in average balances in the loan and investment security portfolios. Interest expense decreased $4.0 million or 27.4% for the
three months ended June 30, 2012, as compared to the same period in the prior year due to a reduction in certificate of deposit (CD) average balances and the rate paid on these accounts. The net interest margin decreased to 2.57%
for the three-month period ended June 30, 2012 from 2.77% for the three-month period in the prior year.

Loan portfolio average balances
declined $427.0 million in the quarter ending June 30, 2012 compared to the same period a year ago largely due to scheduled principal payments, prepayments of principal, charge-offs and transfers to OREO. New loan origination has been limited
as part the Corporations capital improvement strategy to reduce risk-weighted assets by shrinking the overall size of the balance sheet. Investment security average balances decreased $260.2 million primarily due to the sale of higher yielding
holdings in fiscal 2012 for capital management purposes.

The average balance of CDs decreased $570.4 million for the three months ended
June 30, 2012 as compared to the respective period a year ago. Likewise, the average rate paid on CDs fell by 50 basis points quarter over quarter. The decline in CD average balances and interest rates was largely the result of lower rates
offered in the market due to reduced funding needs and improved deposit pricing disciplines.

Provision for Credit Losses

Provision for credit losses decreased $5.2 million for the three-month period ended June 30, 2012, as compared to the respective
period last year. The decrease in provision for credit losses was partly due to the approximately $2.5 million impact of lower net charge-offs in the quarter ending June 30, 2012 of $7.9 million that replaced net charge-offs of $20.4 million in
the quarter ending December 31, 2010 in the trailing six quarter net charge-off history used in the determination of the general component of the allowance for loan losses. In addition, the provision for credit losses attributable to
substandard and impaired loans was favorably impacted by the steady quarter-over-quarter decrease in non-performing loans since March 2010. Non-performing loans totaled $189.0 million at June 30, 2012 down from $260.9 million at June 30,
2011.

Future provisions for credit losses will continue to be based upon managements assessment of the overall loan portfolio and the
underlying collateral, trends in non-performing loans, current economic conditions and other relevant factors in order to maintain the allowance for loan losses at adequate levels to provide for probable and estimable future losses. The
establishment of the amount of the loan loss allowance inherently involves judgments by management as to the adequacy of the allowance, which ultimately may change. Higher rates of loan defaults than anticipated would likely result in a need to
increase provisions in future periods. Conversely, the provision for loan losses may decline should credit metrics such as net-charge offs and the amount of non-performing loans improve in the future.



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Non-Interest Income

The following table presents non-interest income by major category for the periods indicated:



|                                                  |  |                             |        |   |                     |   |       |        |  |   |         |   |  |  |        |   
|------------------------------------------------- |  | --------------------------- | ------ | - | ------------------- | - | ----- | ------ |  | - | ------- | - |  |  | ------ | --
|                                                  |  | Three Months Ended June 30, |        |   | Increase (Decrease) |  
|                                                  |  | 2012                        |        |   | 2011                |   |       | Amount |  |   | Percent |  
|                                                  |  | (Dollars in thousands)      |       
|Net impairment losses recognized in earnings      |  | $                           | (64    | ) |                     | $ | (59   | )      |  | $ | (5      | ) |  |  | (8.5   | )%
|Loan servicing income (loss), net of amortization |  |                             | (395   | ) |                     |   | 814   |        |  |   | (1,209  | ) |  |  | (148.5 | ) 
|Service charges on deposits                       |  |                             | 2,866  |   |                     |   | 2,794 |        |  |   | 72      |   |  |  | 2.6    |   
|Investment and insurance commissions              |  |                             | 1,032  |   |                     |   | 1,037 |        |  |   | (5      | ) |  |  | (0.5   | ) 
|Net gain on sale of loans                         |  |                             | 5,823  |   |                     |   | 1,173 |        |  |   | 4,650   |   |  |  | 396.4  |   
|Net gain on sale of investment securities         |  |                             | 62     |   |                     |   | 1,136 |        |  |   | (1,074  | ) |  |  | (94.5  | ) 
|Net gain on sale of OREO                          |  |                             | 3,172  |   |                     |   | 1,245 |        |  |   | 1,927   |   |  |  | 154.8  |   
|Revenue from real estate partnership operations   |  |                             | 5      |   |                     |   | 38    |        |  |   | (33     | ) |  |  | (86.8  | ) 
|Other                                             |  |                             | 997    |   |                     |   | 994   |        |  |   | 3       |   |  |  | 0.3    |   
|                                                  |  |                             |        |   |                     |   |       |        |  |   |         |   |  |  |        |   
|Total non-interest income                         |  | $                           | 13,498 |   |                     | $ | 9,172 |        |  | $ | 4,326   |   |  |  | 47.2   | % 
|                                                  |  |                             |        |   |                     |   |       |        |  |   |         |   |  |  |        |   

Non-interest income increased $4.3 million or 47.2% to $13.5 million for the three months ended June 30, 2012,
compared to $9.2 million for the respective period in 2011. The increase was primarily due to higher gains on the sale of loans and OREO, partially offset by lower loan servicing income and gain on sale of investment securities. The increase in net
gain on sale of loans of $4.7 million was primarily attributable to a significantly higher volume of residential mortgage loan sales in the current year period, as well as higher margins on sale. The loan servicing decrease of $1.2 million in the
current quarter compared to the respective period a year ago was primarily due to higher amortization charges related to the mortgage servicing right asset reflecting lower market interest rates at the end of June 2012. Net gain on sale of
investment securities also fell, by $1.1 million, to $0.1 million in the three months ended June 30, 2012, primarily due to a significant decrease in the level of investment security sale activity, as proceeds from sale totaled $1.9 million in
the current quarter compared to $55.8 million in the same quarter a year ago. Net gain on OREO increased to $3.2 million in the quarter ending June 30, 2012 from $1.2 million in the year ago quarter largely due to the impact of improved market
conditions on prices at which property is being sold from the inventory of repossessed property.



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##### Table of Contents

Non-Interest Expense

The following table presents non-interest expense by major category for the periods indicated:



|                                                 |  |                             |        |  |                     |   |        |        |  |   |         |   |  |  |         |   
|------------------------------------------------ |  | --------------------------- | ------ |  | ------------------- | - | ------ | ------ |  | - | ------- | - |  |  | ------- | --
|                                                 |  | Three Months Ended June 30, |        |  | Increase (Decrease) |  
|                                                 |  | 2012                        |        |  | 2011                |   |        | Amount |  |   | Percent |  
|                                                 |  | (Dollars in thousands)      |       
|Compensation and benefits                        |  | $                           | 10,560 |  |                     | $ | 10,194 |        |  | $ | 366     |   |  |  | 3.6     | % 
|Occupancy                                        |  |                             | 1,833  |  |                     |   | 1,980  |        |  |   | (147    | ) |  |  | (7.4    | ) 
|Furniture and equipment                          |  |                             | 1,586  |  |                     |   | 1,544  |        |  |   | 42      |   |  |  | 2.7     |   
|Federal deposit insurance premiums               |  |                             | 1,564  |  |                     |   | 1,933  |        |  |   | (369    | ) |  |  | (19.1   | ) 
|Data processing                                  |  |                             | 1,385  |  |                     |   | 1,383  |        |  |   | 2       |   |  |  | 0.1     |   
|Marketing                                        |  |                             | 239    |  |                     |   | 305    |        |  |   | (66     | ) |  |  | (21.6   | ) 
|Expenses from real estate partnership operations |  |                             | 571    |  |                     |   | 42     |        |  |   | 529     |   |  |  | 1,259.5 |   
|OREO expense, net                                |  |                             | 7,012  |  |                     |   | 8,870  |        |  |   | (1,858  | ) |  |  | (20.9   | ) 
|Mortgage servicing rights impairment             |  |                             | 1,257  |  |                     |   | 221    |        |  |   | 1,036   |   |  |  | 468.8   |   
|Legal services                                   |  |                             | 1,574  |  |                     |   | 934    |        |  |   | 640     |   |  |  | 68.5    |   
|Other professional fees                          |  |                             | 643    |  |                     |   | 1,018  |        |  |   | (375    | ) |  |  | (36.8   | ) 
|Other                                            |  |                             | 3,334  |  |                     |   | 3,531  |        |  |   | (197    | ) |  |  | (5.6    | ) 
|                                                 |  |                             |        |  |                     |   |        |        |  |   |         |   |  |  |         |   
|Total non-interest expense                       |  | $                           | 31,558 |  |                     | $ | 31,955 |        |  | $ | (397    | ) |  |  | (1.2    | )%
|                                                 |  |                             |        |  |                     |   |        |        |  |   |         |   |  |  |         |   

Non-interest expense decreased $0.4 million or 1.2% to $31.6 million for the three months ended June 30, 2012, as
compared to $32.0 million for the respective period in 2011. The decrease was primarily due to lower OREO expenses to maintain, operate and sell OREO property; partially offset by higher MSR impairment due to the impact of lower interest rates and
the resultant mortgage refinance activity.

Income Taxes

Income tax expense the three months ended June 30, 2012 was zero compared to $10 thousand for the same period a year ago. A full valuation allowance has been recorded on the net deferred tax asset
due to the uncertainty of the Corporations ability to create sufficient taxable income to utilize it.

FINANCIAL CONDITION

During the three months ended June 30, 2012, total assets decreased by $5.4 million from $2.79 billion at March 31, 2012 to $2.78 billion at June 30, 2012. The majority of this decrease was
attributable to a decrease of $98.5 million in loans held for investment, offset by a $125.4 million increase in cash and cash equivalents.

Interest-bearing deposits totaled $312.4 million at June 30, 2012, up $121.0 million or 63.2% from $191.4 million at March 31, 2012. The
build-up of cash liquidity in the period resulted primarily from cash flow generated by the loan portfolio, and the unfavorable investment security reinvestment environment in the quarter caused by historically low market interest rates.

Investment securities available for sale decreased $10.7 million during the three months ended June 30, 2012 as a result of sales of $1.8 million,
principal repayments of $9.5 million, a net increase in fair value of $0.9 million, premium amortization net of discount accretion of $0.2 and net realized and unrealized impairment losses of $0.1 million in the period.

Investment securities are subject to inherent risks based upon the future performance of the underlying collateral (i.e., mortgage loans) for these
securities. Among these risks are prepayment risk, interest rate risk and credit risk. Should general interest rate levels decline, the mortgage-related securities portfolio



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would be subject to (i) prepayments as borrowers typically would seek to obtain financing at lower
rates, (ii) a decline in interest income received on adjustable-rate mortgage-related securities, and (iii) an increase in fair value of fixed-rate mortgage-related securities. Conversely, should general interest rate levels increase, the
mortgage-related securities portfolio would be subject to (i) a longer term to maturity as borrowers would be less likely to prepay their loans, (ii) an increase in interest income received on adjustable-rate mortgage-related securities,
(iii) a decline in fair value of fixed-rate mortgage-related securities, (iv) a decline in fair value of adjustable-rate mortgage-related securities to an extent dependent upon the level of interest rate increases, the time period to the
next interest rate repricing date for the individual security and the applicable periodic (annual and/or lifetime) cap which could limit the degree to which the individual security may reprice within a given time period, and (v) should default
rates and loss severities increase on the underlying collateral of mortgage-related securities, the Corporation may experience credit losses recognized in earnings as other-than-temporary impairment.

Loans held for investment decreased $98.5 million during the three months ended June 30, 2012. Activity for the period consisted of principal
repayments of $143.0 million and transfers to other real estate owned of $18.8 million; partially offset by originations and refinances of $52.9 million and other miscellaneous activity of $10.4 million.

Other real estate owned decreased $4.9 million to $84.0 million at June 30, 2012 from $88.8 million at March 31, 2012 due to sales of $19.1
million and additional write downs of various properties of $4.6 million. These decreases were partially offset by transfers in from the loan portfolio of $18.8 million.

Net deferred tax assets were zero at June 30, 2012 and March 31, 2012 due to a valuation allowance on the entire balance. The valuation allowance is necessary as the recovery of the net deferred
asset is not more likely than not as it is uncertain if the Corporation can generate sufficient taxable income in the near future.

Total
liabilities decreased $6.4 million during the three months ended June 30, 2012 largely due to an $11.7 million decrease in deposits, partially offset by a $4.6 million increase in accrued interest and fees payable. The decrease in deposits was
largely due to lower CD balances attributable to more disciplined pricing of these products to reduce excess liquidity, partially offset by an increase in checking, savings and money market deposit product balances. Brokered deposits totaled
$274,000 or approximately 0.01% of total deposits at June 30, 2012 and $2.1 million or approximately 0.09% of total deposits at March 31, 2012.

Stockholders equity increased $1.0 million during the three months ended June 30, 2012 primarily due improved fair value of the available for sale investment securities portfolio of $0.8
million attributable to falling market interest rates during the quarter.

REGULATORY DEVELOPMENTS

Emergency Economic Stabilization Act of 2008

On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (EESA), giving the United States Department of the Treasury (Treasury)
authority to take certain actions to restore liquidity and stability to the U.S. banking markets. Based upon its authority in the EESA, a number of programs to implement EESA have been announced. Those programs include the following:



| |  |  | Capital Purchase Program (CPP). Pursuant to this program, Treasury, on behalf of the US government, purchased preferred stock, along with
warrants to purchase common stock, from certain financial institutions, including bank holding companies, savings and loan holding companies and banks or savings associations not controlled by a holding company. The investment has a dividend rate of
5% per year, until the fifth anniversary of Treasurys investment and a dividend of 9% thereafter. During the time Treasury holds securities issued pursuant to this program, participating financial institutions will be required to comply
with certain provisions regarding executive compensation and corporate governance. Participation in this program also imposed certain restrictions upon a participating institutions dividends to common shareholders and stock repurchase
activities. As described further herein, we elected to participate in the CPP and received $110 million pursuant to the program.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Temporary Liquidity Guarantee Program. This program contained both (i) a debt guarantee component, whereby the FDIC will guarantee until
June 30, 2012, the senior unsecured debt issued by eligible financial institutions between October 14, 2008 and June 30, 2009; and (ii) an account transaction guarantee
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | component, whereby the FDIC will insure 100% of non-interest bearing deposit transaction accounts held at eligible financial institutions, such as payment processing accounts, payroll accounts
and working capital accounts through December 31, 2009. The Corporation and the Bank signed a master agreement with the FDIC on December 5, 2008 for issuance of bonds under the program. As of June 30, 2012, the Bank had no bonds
outstanding as all matured in February, 2012.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Permanent increase in deposit insurance coverage. Dodd-Frank permanently raised the basic limit on federal deposit insurance coverage from $100,000 to
$250,000 per depositor.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The American Recovery and Reinvestment Act of 2009

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (ARRA) was signed into law. Included among the many provisions
in ARRA are restrictions affecting financial institutions who are participants in CPP. ARRA provides that during the period in which any obligation under CPP remains outstanding (other than obligations relating to outstanding warrants), CPP
recipients are subject to appropriate standards for executive compensation and corporate governance which were set forth in an interim final rule regarding standards for Compensation and Corporate Governance, issued by Treasury and effective on
June 15, 2009 (the Interim Final Rule). Among the executive compensation and corporate governance provisions included in ARRA and the Interim Final Rule are the following:



| |  |  | an incentive compensation clawback provision to cover senior executive officers (defined in this instance and below to mean the
named executive officers for whom compensation disclosure is provided in the Corporations proxy statement) and the next twenty most highly compensated employees;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a prohibition on certain golden parachute payments to cover any payment related to a departure for any reason (with limited exceptions) made to any
senior executive officer (as defined above) and the next five most highly compensated employees;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a limitation on incentive compensation paid or accrued to the five most highly compensated employees of the financial institution, subject to limited
exceptions for pre-existing arrangements set forth in written employment contracts executed on or prior to February 11, 2009, and certain awards of restricted stock which may not exceed 1/3 of annual compensation, are subject to a two year
holding period and cannot be transferred until Treasurys preferred stock is redeemed in full;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a requirement that the Corporations chief executive officer and chief financial officer provide in annual securities filings, a written
certification of compliance with the executive compensation and corporate governance provisions of the Interim Final Rule;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an obligation for the compensation committee of the board of directors to evaluate with the Corporations chief risk officer certain compensation
plans to ensure that such plans do not encourage unnecessary or excessive risks or the manipulation of reported earnings;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a requirement that companies adopt a Corporation-wide policy regarding excessive or luxury expenditures; and
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | a requirement that companies permit a separate, non-binding shareholder vote to approve the compensation of executives.
| | - |  | -----------------------------------------------------------------------------------------------------------------------

The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) was established pursuant to Section 121 of EESA and has
the duty, among other things, to conduct, supervise, and coordinate audits and investigations of the purchase, management and sale of assets by the Treasury under TARP and the CPP, including the shares of non-voting preferred shares purchased from
the Corporation. Thus, the Corporation is now also subject to supervision, regulation and investigation by SIGTARP by virtue of its participation in the TARP CPP.



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In addition, companies who have issued preferred stock to Treasury under CPP are now permitted to redeem
such investments at any time, subject to consultation with banking regulators. Upon such redemption, the warrants may be immediately liquidated by Treasury.

Dodd-Frank Act

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall
Street Reform and Consumer Protection Act (the Dodd-Frank Act), which significantly changes the regulation of financial institutions and the financial services industry. The Dodd-Frank Act includes provisions affecting large and small
financial institutions alike, including several provisions that will profoundly affect how community banks, thrifts, and smaller bank and thrift holding companies, such as the Corporation, will be regulated in the future. Among other things, these
provisions abolish the OTS and transfer its functions to the other federal banking agencies, relax rules regarding interstate branching, allow financial institutions to pay interest on business checking accounts, change the scope of federal deposit
insurance coverage, and impose new capital requirements on bank and thrift holding companies. The Dodd-Frank Act also establishes the Bureau of Consumer Financial Protection as an independent entity within the Federal Reserve, which will be given
the authority to promulgate consumer protection regulations applicable to all entities offering consumer financial services or products, including banks. Additionally, the Dodd-Frank Act includes a series of provisions covering mortgage loan
origination standards affecting, among other things, originator compensation, minimum repayment standards, and pre-payments. The Dodd-Frank Act contains numerous other provisions affecting financial institutions of all types, many of which may have
an impact on the operating environment of the Corporation in substantial and unpredictable ways. Consequently, the Dodd-Frank Act is likely to affect our cost of doing business, it may limit or expand our permissible activities, and it may affect
the competitive balance within the financial services industry and market areas. The nature and extent of future legislative and regulatory changes affecting financial institutions, including as a result of the Dodd-Frank Act, is very unpredictable
at this time. The Corporations management is actively reviewing the provisions of the Dodd-Frank Act, many of which are phased-in over the next several months and years, and assessing its probable impact on the business, financial condition,
and results of operations of the Corporation. However, the ultimate effect of the Dodd-Frank Act on the financial services industry in general, and the Corporation in particular, is uncertain at this time.

Order to Cease and Desist

On
June 26, 2009, the Corporation and the Bank each consented to the issuance of an Order to Cease and Desist (the Corporation Order and the Bank Order, respectively, and together, the Orders) by the OTS. As of
July 21, 2011, the Cease and Desist Order is now administered by the OCC with respect to the Bank and the Federal Reserve with respect to the Corporation.

The Corporation Order requires the Corporation to notify, and in certain cases to obtain the permission of, the Federal Reserve prior to: (i) declaring, making or paying any dividends or other
capital distributions on its capital stock, including the repurchase or redemption of its capital stock; (ii) incurring, issuing, renewing or rolling over any debt, increasing any current lines of credit or guaranteeing the debt of any entity;
(iii) making certain changes to its directors or senior executive officers; (iv) entering into, renewing, extending or revising any contractual arrangement related to compensation or benefits with any of its directors or senior executive
officers; and (v) making any golden parachute payments or prohibited indemnification payments. The Corporation developed and submitted to the OTS a three-year cash flow plan, which must be reviewed at least quarterly by the Corporations
management and board for material deviations between the cash flow plans projections and actual results (the Variance Analysis Report). Within 45 days following the end of each quarter, the Corporation is required to provide the
Federal Reserve its Variance Analysis Report for that quarter.

The Bank Order requires that the Bank notify, or in certain cases receive the
permission of, the OTS prior to (i) increasing its total assets in any quarter in excess of an amount equal to net interest credited on deposit liabilities during the quarter; (ii) accepting, rolling over or renewing any brokered deposits;
(iii) making certain changes to its directors or senior executive officers; (iv) entering into, renewing, extending or revising any contractual arrangement related to compensation or benefits with any of its directors or senior executive
officers; (v) making any golden parachute or prohibited indemnification payments; (vi) paying dividends or making other capital distributions on its capital stock; (vii) entering into certain transactions with affiliates; and
(viii) entering into third-party contracts outside the normal course of business.



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The Orders also required that the Bank meet and maintain both a core capital ratio equal to or greater than
8 percent and a total risk-based capital ratio equal to or greater than 12 percent. The Bank submitted to the OTS, a written capital contingency plan, a problem asset plan, a revised business plan, and an implementation plan resulting from a review
of commercial lending practices. The Orders also required the Bank to review its current liquidity management policy and the adequacy of its allowance for loan and lease losses.

At June 30, 2012 and March 31, 2012 the Bank had a tier 1 leverage ratio of 4.56% and 4.51%, respectively, and a total risk-based capital ratio of 8.98% and 8.42%, respectively, each below the
required capital ratios set forth above. All customer deposits remain fully insured to the highest limits set by the FDIC. As a result, the bank regulatory agencies may take additional significant regulatory action against the Bank and Corporation
which could, among other things, materially adversely affect the Corporations shareholders. The bank regulatory agencies may grant extensions to the timelines established by the Orders.

The description of each of the Orders and the corresponding Stipulation and Consent to Issuance of Order to Cease and Desist were previously filed attached as Exhibits to the Corporations Annual
Report on Form 10-K for the fiscal year ended March 31, 2009.

Capital Restoration Plan

In August, 2010, the Bank received conditional approval of its Capital Restoration Plan (the Plan) from the OTS. In conjunction with this
approval, the Board of Directors of the Corporation executed a Stipulation and Consent to a Prompt Corrective Action Directive (the Directive) dated August 31, 2010, with the OTS. The Plan included two sets of assumptions for
continuing to improve the Banks capital levels, one based on obtaining capital from an outside source and one which reflects the results of the Banks ongoing initiatives in the absence of an external capital infusion. An essential
element for the conditional approval of the Plan was the Banks ability to attain adequately capitalized (8.0% or greater total risk based capital) status as of July 31, 2010. Based on the Banks internal financial
reporting, a total risk based capital level of 8.05% was achieved as of July 31, 2010. As of June 30, 2012, total risk-based capital was 8.98%.

In addition to requiring compliance with the Plan, the Directive imposes certain other operating requirements and restrictions, most of which were also part of the voluntary Orders entered into with the
OTS in June 2009. The Plan will now be administered by OCC.

RISK MANAGEMENT

The Bank encounters risk as part of the normal course of business and designs risk management processes to help manage these risks. This Risk Management
section describes the Banks risk management philosophy, principles, governance and various aspects of its risk management program.

Risk Management Philosophy

The
Banks risk management philosophy is to manage to an acceptable level of overall risk while still allowing it to capture opportunities and optimize shareholder value. However, due to the general state of the economy and the elevated risk in the
loan portfolio, the Banks risk profile does not currently meet our desired risk level. The Bank is working toward reducing the overall risk level to a more desired risk profile.

Risk Management Principles

The Bank views risk management as not about eliminating
risks, but about identifying and accepting risks and then working to effectively manage them so as to optimize shareholder value. Risk management includes, but is not limited to the following:



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| |  |  | Taking only risks consistent with the Banks strategy and within its capability to manage,
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Ensuring strong underwriting and credit risk management practices,
| | - |  | ------------------------------------------------------------------



| |  |  | Practicing disciplined capital and liquidity management,
| | - |  | --------------------------------------------------------



| |  |  | Helping ensure that risks and earnings volatility are appropriately understood and measured,
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | Avoiding excessive concentrations, and
| | - |  | --------------------------------------



| |  |  | Helping support external stakeholder confidence.
| | - |  | ------------------------------------------------

Although the Board as a whole is primarily responsible for oversight of risk management, committees of the Board may provide oversight to specific areas of risk with respect to the level of risk and risk
management structure. The Bank uses management level risk committees to help ensure that business decisions are executed within our desired risk profile. Management provides oversight for the establishment and implementation of new risk management
initiatives, review of risk profiles and discussion of key risk issues. The Bank hired a new Chief Risk Officer in charge of overseeing credit risk management several years ago. Our internal audit department performs an independent assessment of the
internal control environment and plays a critical role in risk management, testing the operation of the internal control system and reporting findings to management and to the Audit Committee of the Board.

CREDIT RISK MANAGEMENT

Credit risk represents the possibility that a customer, counterparty or issuer may not perform in accordance with contractual terms. Credit risk is
inherent in the financial services business and results from extending credit to customers, purchasing investment securities and entering into certain guarantee contracts. Credit risk is one of the most significant risks facing the Bank.

In addition to credit policies and procedures and setting portfolio objectives for the level of credit risk, the Bank has established guidelines for
problem loans, acceptable levels of total borrower exposure and other credit measures. In 2011, 2012 and fiscal year-to-date 2013, management has continued to focus on loss mitigation and maximization of recoveries in the Banks non-performing
asset portfolios. Over time, the Bank will return to management of portfolio returns through discrete investments within approved risk tolerances.

The Bank seeks to achieve credit portfolio objectives by maintaining a customer base that is diverse in borrower exposure and industry types. Corporate credit personnel are responsible for loan
underwriting and approval processes to help ensure that newly approved loans meet policy and portfolio objectives.

The Risk Management group
is responsible for monitoring credit risk. Internal Audit also provides an independent assessment of the effectiveness of the credit risk management process. The Bank also manages credit risk in accordance with regulatory guidance.



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Non-Performing Loans

The composition of non-performing loans is summarized as follows for the dates indicated:



|                             |  |                        |         |  |                               |  |       |                               |  |  |                     |   |  |                               |         |  |                               |  |       |   |  |  |       |  
|---------------------------- |  | ---------------------- | ------- |  | ----------------------------- |  | ----- | ----------------------------- |  |  | ------------------- | - |  | ----------------------------- | ------- |  | ----------------------------- |  | ----- | - |  |  | ----- | -
|                             |  | June 30, 2012          |         |  | March 31, 2012                | 
|                             |  | Non-PerformingLoans    |         |  | Percent
ofNon-PerformingLoans |  |       | Percent ofTotal GrossLoans(1) |  |  | Non-PerformingLoans |   |  | Percent
ofNon-PerformingLoans |         |  | Percent ofTotal GrossLoans(1) | 
|                             |  | (Dollars in thousands) |        
|Residential                  |  | $                      | 41,335  |  |                               |  | 21.9  | %                             |  |  | 1.99                | % |  | $                             | 44,550  |  |                               |  | 19.8  | % |  |  | 2.04  | %
|Commercial and industrial    |  |                        | 7,213   |  |                               |  | 3.8   |                               |  |  | 0.35                |   |  |                               | 8,217   |  |                               |  | 3.7   |   |  |  | 0.38  |  
|Land and construction        |  |                        | 46,349  |  |                               |  | 24.5  |                               |  |  | 2.23                |   |  |                               | 64,229  |  |                               |  | 28.6  |   |  |  | 2.94  |  
|Multi-family                 |  |                        | 36,886  |  |                               |  | 19.5  |                               |  |  | 1.77                |   |  |                               | 37,762  |  |                               |  | 16.8  |   |  |  | 1.73  |  
|Retail/office                |  |                        | 24,652  |  |                               |  | 13.0  |                               |  |  | 1.19                |   |  |                               | 33,817  |  |                               |  | 15.0  |   |  |  | 1.55  |  
|Other commercial real estate |  |                        | 24,752  |  |                               |  | 13.1  |                               |  |  | 1.19                |   |  |                               | 27,963  |  |                               |  | 12.4  |   |  |  | 1.28  |  
|Education(2)                 |  |                        | 721     |  |                               |  | 0.4   |                               |  |  | 0.03                |   |  |                               | 762     |  |                               |  | 0.3   |   |  |  | 0.03  |  
|Other consumer               |  |                        | 7,079   |  |                               |  | 3.7   |                               |  |  | 0.34                |   |  |                               | 7,624   |  |                               |  | 3.4   |   |  |  | 0.35  |  
|                             |  |                        |         |  |                               |  |       |                               |  |  |                     |   |  |                               |         |  |                               |  |       |   |  |  |       |  
|Total non-performing loans   |  | $                      | 188,987 |  |                               |  | 100.0 | %                             |  |  | 9.09                | % |  | $                             | 224,924 |  |                               |  | 100.0 | % |  |  | 10.28 | %
|                             |  |                        |         |  |                               |  |       |                               |  |  |                     |   |  |                               |         |  |                               |  |       |   |  |  |       |  



|(1) | Gross loans are the unpaid principal balance before the reduction for loans in process, unearned interest and loan fees and the allowance for loans
losses.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Excludes the guaranteed portion of education loans 90+ days past due with an unpaid principal balance totaling $23,296 and $24,641 at June 30,
2012 and March 31, 2012, respectively, that are not considered impaired based on a guarantee provided by government agencies.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The following is a summary of non-performing loan activity for the three months ended June 30, 2012:



|                             |  |                                          |         |  |           |   |       |                             |  |   |                    |   |  |           |         |   |             |   |         |                                          |  |   |                          |   |  |                |         |  |  |   |           |  |  |   |         | 
|---------------------------- |  | ---------------------------------------- | ------- |  | --------- | - | ----- | --------------------------- |  | - | ------------------ | - |  | --------- | ------- | - | ----------- | - | ------- | ---------------------------------------- |  | - | ------------------------ | - |  | -------------- | ------- |  |  | - | --------- |  |  | - | ------- | 
|Loan Class                   |  | Non-performingloan 
balanceApril 1, 2012 |         |  | Additions |   |       | Transferredto AccrualStatus |  |   | Transferredto OREO |   |  | Paid Down |         |   | Charged Off |   |         | Non- performingloan balanceJune 30, 2012 |  |   | Remainingbalance ofloans |   |  | AssociatedALLL |        
|                             |  | (In thousands)                           |        
|Residential                  |  | $                                        | 44,550  |  |           | $ | 2,222 |                             |  | $ | (665               | ) |  | $         | (2,934  | ) |             | $ | (697    | )                                        |  | $ | (1,141                   | ) |  | $              | 41,335  |  |  | $ | 510,129   |  |  | $ | 13,545  | 
|Commercial and industrial    |  |                                          | 8,217   |  |           |   | 899   |                             |  |   | (70                | ) |  |           |        |   |             |   | (910    | )                                        |  |   | (923                     | ) |  |                | 7,213   |  |  |   | 23,260    |  |  |   | 8,516   | 
|Land and construction        |  |                                          | 64,229  |  |           |   |      |                             |  |   | (38                | ) |  |           | (11,415 | ) |             |   | (4,570  | )                                        |  |   | (1,857                   | ) |  |                | 46,349  |  |  |   | 117,086   |  |  |   | 25,926  | 
|Multi-family                 |  |                                          | 37,762  |  |           |   | 360   |                             |  |   |                   |   |  |           | (101    | ) |             |   | (433    | )                                        |  |   | (702                     | ) |  |                | 36,886  |  |  |   | 287,595   |  |  |   | 15,816  | 
|Retail/office                |  |                                          | 33,817  |  |           |   |      |                             |  |   | (53                | ) |  |           | (3,800  | ) |             |   | (4,887  | )                                        |  |   | (425                     | ) |  |                | 24,652  |  |  |   | 251,107   |  |  |   | 19,283  | 
|Other commercial real estate |  |                                          | 27,963  |  |           |   | 580   |                             |  |   | (75                | ) |  |           | (514    | ) |             |   | (498    | )                                        |  |   | (2,704                   | ) |  |                | 24,752  |  |  |   | 209,915   |  |  |   | 14,956  | 
|Education                    |  |                                          | 762     |  |           |   | 6     |                             |  |   |                   |   |  |           |        |   |             |   | (47     | )                                        |  |   |                         |   |  |                | 721     |  |  |   | 226,404   |  |  |   | 351     | 
|Other consumer               |  |                                          | 7,624   |  |           |   | 1,069 |                             |  |   | (674               | ) |  |           | (54     | ) |             |   | (268    | )                                        |  |   | (618                     | ) |  |                | 7,079   |  |  |   | 264,896   |  |  |   | 2,084   | 
|                             |  |                                          |         |  |           |   |       |                             |  |   |                    |   |  |           |         |   |             |   |         |                                          |  |   |                          |   |  |                |         |  |  |   |           |  |  |   |         | 
|Total                        |  | $                                        | 224,924 |  |           | $ | 5,136 |                             |  | $ | (1,575             | ) |  | $         | (18,818 | ) |             | $ | (12,310 | )                                        |  | $ | (8,370                   | ) |  | $              | 188,987 |  |  | $ | 1,890,392 |  |  | $ | 100,477 | 
|                             |  |                                          |         |  |           |   |       |                             |  |   |                    |   |  |           |         |   |             |   |         |                                          |  |   |                          |   |  |                |         |  |  |   |           |  |  |   |         | 

Non-performing loans (consisting of loans past due more than 90 days and on non-accrual status, loans less than 90 days
delinquent but placed on non-accrual status due to anticipated probable loss and non-accrual troubled debt restructurings) decreased $35.9 million during the three months ended June 30, 2012. The loan categories with the largest decline in
non-performing loans during the three months ended June 30, 2012 were land and construction loans of $17.9 million and retail/office loans of $9.2 million.

The interest income that would have been recorded during the three months ended June 30, 2012 and 2011 if the Banks non-performing loans at the end of the period had been current in accordance
with their terms during the period was $1.1 million and $465,000, respectively.



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Non-Performing Assets

The composition of non-performing assets is summarized as follows for the dates indicated:



|                                                                                       |  |                        |         |   |              |   |         |  
|-------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ------------ | - | ------- | -
|                                                                                       |  | At June 30,            |         |   | At March 31, |  
|                                                                                       |  | 2012                   |         |   | 2012         |  
|                                                                                       |  | (Dollars in thousands) |        
|Non-accrual loans  excluding troubled debt restructurings                             |  | $                      | 127,467 |   |              | $ | 148,546 |  
|Troubled debt restructurings  non-accrual(1)                                          |  |                        | 61,520  |   |              |   | 76,378  |  
|Other real estate owned (OREO)                                                         |  |                        | 83,955  |   |              |   | 88,841  |  
|                                                                                       |  |                        |         |   |              |   |         |  
|Total non-performing assets                                                            |  | $                      | 272,942 |   |              | $ | 313,765 |  
|                                                                                       |  |                        |         |   |              |   |         |  
|Total non-performing loans to total gross loans(2)                                     |  |                        | 9.09    | % |              |   | 10.28   | %
|Total non-performing assets to total assets                                            |  |                        | 9.80    |   |              |   | 11.25   |  
|Allowance for loan losses to total gross loans(2)                                      |  |                        | 4.83    |   |              |   | 5.08    |  
|Allowance for loan losses to total non-performing loans                                |  |                        | 53.17   |   |              |   | 49.45   |  
|Allowance for loan losses plus OREO valuation allowance to total non-performing assets |  |                        | 45.80   |   |              |   | 42.62   |  



|(1) | Troubled debt
restructurings  non-accrual represent non-accrual loans that were modified in a troubled debt restructuring less than six months prior to the period end date or have not performed in accordance with the modified terms for at least six months.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Gross loans are the unpaid principal balance before the reduction for loans in process, unearned interest and loan fees and the allowance for loans
losses.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

Loans modified in a troubled debt restructuring due to rate or term concessions that are currently on non-accrual
status will remain on non-accrual status for a period of at least six months. If after six months, or a longer period sufficient to demonstrate the willingness and ability of the borrower to perform under the modified terms, the borrower has made
payments in accordance with the modified terms, the loan is returned to accrual status but retains its status as a troubled debt restructuring. The designation as a troubled debt restructuring is removed in years after the restructuring if both of
the following conditions are met: (a) the restructuring agreement specifies an interest rate equal to or greater than the rate that the creditor was willing to accept at the time of restructuring for a new loan with comparable risk and
(b) the loan is not impaired based on the terms specified by the restructuring agreement. As time passes and borrowers continue to perform in accordance with the restructured loan terms, a portion of the troubled debt restructurings 
non-accrual balance may be returned to accrual status.



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The following is a summary of non-performing asset activity for the three months ended June 30, 2012:



|                                                 |  |                               |         |   |                              |   |         |                             |  |   |         |  
|------------------------------------------------ |  | ----------------------------- | ------- | - | ---------------------------- | - | ------- | --------------------------- |  | - | ------- | -
|                                                 |  | Total Non-performingLoans
(1) |         |   | Other RealEstate Owned(OREO) |   |         | Total 
Non-performingAssets | 
|                                                 |  | (In thousands)                |        
|Balance at April 1, 2012                         |  | $                             | 224,924 |   |                              | $ | 88,841  |                             |  | $ | 313,765 |  
|                                                 |  |                               |        
|Additions                                        |  |                               | 5,136   |   |                              |   |        |                             |  |   | 5,136   |  
|Transfers:                                       |  |                               |         |   |                              |   |         |                             |  |   |         |  
|Nonaccrual to OREO                               |  |                               | (18,818 | ) |                              |   | 18,818  |                             |  |   |        |  
|OREO to premises and equipment                   |  |                               |        |   |                              |   | (2,870  | )                           |  |   | (2,870  | )
|Returned to accrual status                       |  |                               | (1,575  | ) |                              |   |        |                             |  |   | (1,575  | )
|Sales                                            |  |                               |        |   |                              |   | (16,200 | )                           |  |   | (16,200 | )
|Loan charge-offs/OREO net additional write-downs |  |                               | (8,370  | ) |                              |   | (4,634  | )                           |  |   | (13,004 | )
|Payments                                         |  |                               | (12,310 | ) |                              |   |        |                             |  |   | (12,310 | )
|                                                 |  |                               |         |   |                              |   |         |                             |  |   |         |  
|Balance at June 30, 2012                         |  | $                             | 188,987 |   |                              | $ | 83,955  |                             |  | $ | 272,942 |  
|                                                 |  |                               |         |   |                              |   |         |                             |  |   |         |  



|(1) | Total non-performing loans exclude $24,641 and $23,296 of education loans that are 90 days or more past due but still accruing interest at April 1, 2012 and
June 30, 2012, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Loan Delinquencies 30 Days and Over

The following table sets forth information relating to the Corporations past due loans that were delinquent 30 days and over at the dates indicated.



|                 |                        |               |         |  |                       |  |      |         |  |   |                       |  |  |  |       |  
|---------------- | ---------------------- | ------------- | ------- |  | --------------------- |  | ---- | ------- |  | - | --------------------- |  |  |  | ----- | -
|                 |                        | June 30, 2012 |         |  | March 31, 2012        | 
|Days Past Due    |                        | Balance       |         |  | % of TotalGross Loans |  |      | Balance |  |   | % of TotalGross Loans | 
|                 | (Dollars in thousands) |              
|30 to 59 days    |                        | $             | 22,012  |  |                       |  | 1.06 | %       |  | $ | 18,332                |  |  |  | 0.84  | %
|60 to 89 days    |                        |               | 17,831  |  |                       |  | 0.86 |         |  |   | 12,230                |  |  |  | 0.56  |  
|90 days and over |                        |               | 141,094 |  |                       |  | 6.79 |         |  |   | 190,663               |  |  |  | 8.71  |  
|                 |                        |               |         |  |                       |  |      |         |  |   |                       |  |  |  |       |  
|Total            |                        | $             | 180,937 |  |                       |  | 8.71 | %       |  | $ | 221,225               |  |  |  | 10.11 | %
|                 |                        |               |         |  |                       |  |      |         |  |   |                       |  |  |  |       |  

Loans delinquent 90 days and over decreased $49.6 million to $141.1 million at June 30, 2012 from $190.7 million at
March 31, 2012 as a result of increased monitoring and loss mitigation efforts.

Impaired Loans

At June 30, 2012, the Corporation has identified $260.7 million of loans as impaired which includes non-accrual loans plus performing troubled debt
restructurings. At March 31, 2012, impaired loans were $297.6 million. A loan is identified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the
contractual terms of the loan agreement and thus are placed on non-accrual status.

Allowance for Loan and Lease Losses

Like all financial institutions, we must maintain an adequate allowance for loan losses. The allowance for loan losses is established
through a provision for loan losses charged to expense. Loans are charged-off against the allowance for loan losses when we believe that repayment of principal is unlikely. Subsequent recoveries, if any, are



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credited to the allowance. The allowance is an amount that we believe will be adequate to absorb probable losses on existing loans that may become uncollectible, based on evaluation of the
collectability of loans and prior credit loss experience, together with the other factors discussed in the critical accounting policies.

The
allowance for loan losses consists of general, substandard loan and specific components even though the entire allowance is available to cover losses on any loan. The specific allowance component relates to impaired loans (i.e.  non-accrual)
and all loans reported as troubled debt restructurings. For such loans, an allowance is established when the discounted cash flows (or collateral value if repayment relies solely on the operation or sale of the collateral) of the impaired loan are
lower than the carrying value of that loan. The substandard loan component is primarily associated with loans rated in this category but not in non-accrual status. The general allowance component covers pass, watch and special mention rated loans
and is based on historical net loss experience for the past six quarters, adjusted for various qualitative and quantitative factors. Loans graded substandard and below are individually examined to determine the appropriate loan loss reserve. A
reserve for unfunded commitments and letters of credit is also maintained which is classified in other liabilities.

The general component
allowance for loan loss methodology incorporates the following quantitative and qualitative risk factors to establish the appropriate general allowance for loan loss at each reporting date.

Quantitative factors include:



| |  |  | loan volume and terms
| | - |  | ---------------------



| |  |  | delinquency and charge-off trends
| | - |  | ---------------------------------



| |  |  | collateral values
| | - |  | -----------------



| |  |  | credit concentrations
| | - |  | ---------------------



| |  |  | external factors such as competition and legal and regulatory requirements,
| | - |  | ---------------------------------------------------------------------------



| |  |  | portfolio size
| | - |  | --------------

Qualitative factors include:



| |  |  | lending policies, procedures and practices
| | - |  | ------------------------------------------



| |  |  | national and local economic conditions
| | - |  | --------------------------------------



| |  |  | experience, ability and depth of lending management and other relevant staff
| | - |  | ----------------------------------------------------------------------------



| |  |  | loan review system
| | - |  | ------------------

Specific changes in the risk factors are based on perceived risk of similar groups of loans classified by collateral type, purpose and terms. Statistics
on local trends, peers, and an internal six quarter net loss history are also incorporated into the allowance methodology. Due to the credit concentration of our loan portfolio in real estate secured loans, the value of collateral is heavily
dependent on real estate values in Wisconsin and surrounding states. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic or
other conditions. In addition, the OCC, as an integral part of their examination processes, periodically reviews the Banks allowance for loan losses, and may recommend adjustments to the allowance. Management periodically reviews the
assumptions and formula used in determining the allowance and makes adjustments if required to reflect the current risk profile of the portfolio.

During the quarter ending December 31, 2011, the values assigned to quantitative factors regarding loan volume and terms, delinquency and charge-off trends, and collateral values; and the qualitative
factor regarding economic conditions, were adjusted lower to reflect the results of an analysis based on various publications, market research, economic reports, Corporation portfolio credit metrics, managements expertise and knowledge of the
immediate lending market, as well as analysis of peer institutions and similar markets. The factor value changes resulted in a lower required allowance for loan losses as of December 31, 2011 totaling $6.1 million. The lower required allowances
by portfolio segment were $2.4 million for the residential segment, $0.1 million for the commercial and industrial segment, and $3.6 million for the commercial real estate segment. No changes to the values assigned to quantitative and qualitative
factors were made in the three months ending June 30, 2012.



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The following table presents the allowance for loan losses by component:



|                                |  |                 |         |  |                  |   |         | 
|------------------------------- |  | --------------- | ------- |  | ---------------- | - | ------- | 
|                                |  | At June 30,2012 |         |  | At March 31,2012 |  
|                                |  | (In thousands)  |        
|General component               |  | $               | 32,170  |  |                  | $ | 37,085  | 
|Substandard loan component      |  |                 | 28,936  |  |                  |   | 29,980  | 
|Specific component              |  |                 | 39,371  |  |                  |   | 44,150  | 
|                                |  |                 |         |  |                  |   |         | 
|Total allowance for loan losses |  | $               | 100,477 |  |                  | $ | 111,215 | 
|                                |  |                 |         |  |                  |   |         | 

The following table presents the unpaid principal balance of loans by risk category:



|                                                  |  |                 |           |  |                  |   |           | 
|------------------------------------------------- |  | --------------- | --------- |  | ---------------- | - | --------- | 
|                                                  |  | At June 30,2012 |           |  | At March 31,2012 |  
|                                                  |  | (In thousands)  |          
|Pass                                              |  | $               | 1,567,180 |  |                  | $ | 1,624,889 | 
|Watch                                             |  |                 | 119,203   |  |                  |   | 115,917   | 
|Special mention                                   |  |                 | 42,194    |  |                  |   | 56,762    | 
|                                                  |  |                 |           |  |                  |   |           | 
|Total pass, watch and special mention rated loans |  |                 | 1,728,577 |  |                  |   | 1,797,568 | 
|                                                  |  |                 |           |  |                  |   |           | 
|Substandard, excluding TDR accrual                |  |                 | 90,122    |  |                  |   | 93,207    | 
|                                                  |  |                 |           |  |                  |   |           | 
|TDR accrual                                       |  |                 | 71,693    |  |                  |   | 72,648    | 
|Non-accrual                                       |  |                 | 188,987   |  |                  |   | 224,924   | 
|                                                  |  |                 |           |  |                  |   |           | 
|Total impaired loans                              |  |                 | 260,680   |  |                  |   | 297,572   | 
|                                                  |  |                 |           |  |                  |   |           | 
|Total unpaid principal balance                    |  | $               | 2,079,379 |  |                  | $ | 2,188,347 | 
|                                                  |  |                 |           |  |                  |   |           | 

The following table presents credit risk metrics related to the allowance for loan losses:



|                                                            |  |                        |        |   |                  |   |        |  
|----------------------------------------------------------- |  | ---------------------- | ------ | - | ---------------- | - | ------ | -
|                                                            |  | At June 30,2012        |        |   | At March 31,2012 |  
|                                                            |  | (Dollars in thousands) |       
|General ALLL / pass, watch and special mention loans        |  |                        | 1.9    | % |                  |   | 2.1    | %
|Substandard ALLL / substandard loans, excluding TDR accrual |  |                        | 32.1   | % |                  |   | 32.2   | %
|Specific ALLL / impaired loans                              |  |                        | 15.1   | % |                  |   | 14.8   | %
|Loans 30 to 89 days past due                                |  | $                      | 39,843 |   |                  | $ | 30,562 |  



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The following table summarizes activity in the allowance for loan losses for the period indicated.



|                                                                  |  |                            |         |    |      |   |         |   
|----------------------------------------------------------------- |  | -------------------------- | ------- | -- | ---- | - | ------- | --
|                                                                  |  | Three Months
EndedJune 30, |        
|                                                                  |  | 2012                       |         |    | 2011 |  
|                                                                  |  | (Dollars in thousands)     |        
|Allowance at beginning of period                                  |  | $                          | 111,215 |    |      | $ | 150,122 |   
|Charge-offs:                                                      |  |                            |         |    |      |   |         |   
|Residential                                                       |  |                            | (1,363  | )  |      |   | (1,756  | ) 
|Multi-family                                                      |  |                            | (752    | )  |      |   | (548    | ) 
|Commercial real estate                                            |  |                            | (3,904  | )  |      |   | (6,147  | ) 
|Land and construction                                             |  |                            | (2,112  | )  |      |   | (5,879  | ) 
|Consumer                                                          |  |                            | (791    | )  |      |   | (858    | ) 
|Commercial and industrial                                         |  |                            | (1,651  | )  |      |   | (2,522  | ) 
|                                                                  |  |                            |         |    |      |   |         |   
|Total charge-offs                                                 |  |                            | (10,573 | )  |      |   | (17,710 | ) 
|                                                                  |  |                            |         |    |      |   |         |   
|Recoveries:                                                       |  |                            |         |    |      |   |         |   
|Residential                                                       |  |                            | 208     |    |      |   | 506     |   
|Multi-family                                                      |  |                            | 51      |    |      |   | 212     |   
|Commercial real estate                                            |  |                            | 1,059   |    |      |   | 915     |   
|Land and construction                                             |  |                            | 246     |    |      |   | 289     |   
|Consumer                                                          |  |                            | 32      |    |      |   | 144     |   
|Commercial and industrial                                         |  |                            | 1,042   |    |      |   | 642     |   
|                                                                  |  |                            |         |    |      |   |         |   
|Total recoveries                                                  |  |                            | 2,638   |    |      |   | 2,708   |   
|                                                                  |  |                            |         |    |      |   |         |   
|Net charge-offs                                                   |  |                            | (7,935  | )  |      |   | (15,002 | ) 
|                                                                  |  |                            |         |    |      |   |         |   
|Provision                                                         |  |                            | (2,803  | )  |      |   | 3,620   |   
|                                                                  |  |                            |         |    |      |   |         |   
|Allowance at end of period                                        |  | $                          | 100,477 |    |      | $ | 138,740 |   
|                                                                  |  |                            |         |    |      |   |         |   
|Net charge-offs to average loans held for sale and for investment |  |                            | (1.56   | )% |      |   | (2.43   | )%
|                                                                  |  |                            |         |    |      |   |         |   

Total loan charge-offs were $10.6 million and $17.7 million for the three months ending June 30, 2012 and 2011,
respectively. Total loan charge-offs for the three months ended June 30, 2012 decreased $7.1 million from the same period in the prior fiscal year. Recoveries decreased $70,000 during the three months ended June 30, 2012 from the same
period in the prior fiscal year.

A recapture of the provision for loan losses totaling $2.8 million for the three months ending June 30,
2012 represented an improvement of $6.4 million compared to $3.6 million of provision expense for the three months ended June 30, 2011. The improvement in the provision for loan losses is the result of managements ongoing evaluation of
the loan portfolio. Management considered the allowance for loan losses to total non-performing loans of 53.17% in determining the provision for loan losses and the adequacy of the allowance for loan losses.

The allowance process is analyzed regularly, with modifications made if needed, and those results are reported four times per year to the Banks
Board of Directors. Although management believes that the June 30, 2012 allowance for loan losses is adequate based upon the current evaluation of loan delinquencies, non-performing assets, charge-off trends, economic conditions and other
factors, there can be no assurance that future adjustments to the allowance will be unnecessary. Management also continues to pursue all practical and legal methods of collection, repossession and disposal, and adheres to high underwriting standards
in the origination process in order to continue to improve asset quality. Determination as to the classification of assets and the amount of valuation allowances is subject to review by the bank regulatory agencies which can recommend the
establishment of additional general or specific loss allowances.



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##### Table of Contents

Other Real Estate Owned

Other real estate owned (OREO) decreased $4.9 million during the three months ended June 30, 2012.Individual properties included in OREO at June 30, 2012 with a recorded balance in
excess of $1 million are listed below:



|                                                   |  |                         |  |                |        | 
|-------------------------------------------------- |  | ----------------------- |  | -------------- | ------ | 
|Description                                        |  | Location                |  | CarryingValue  |       
|                                                   |  |                         |  | (In thousands) |       
|Condo units with additional land                   |  | Central Wisconsin       |  | $              | 5,726  | 
|Retail/office building                             |  | Central Wisconsin       |  |                | 2,567  | 
|Multi-family and vacant land                       |  | Northwest Wisconsin     |  |                | 1,578  | 
|Vacant land                                        |  | Northwest Wisconsin     |  |                | 1,052  | 
|Vacant land                                        |  | South Central Wisconsin |  |                | 8,533  | 
|Retail/office building                             |  | South Central Wisconsin |  |                | 2,762  | 
|Single family and vacant land                      |  | South Central Wisconsin |  |                | 1,950  | 
|Commercial building                                |  | South Central Wisconsin |  |                | 1,294  | 
|Vacant land                                        |  | South Central Wisconsin |  |                | 1,445  | 
|Retail/office building                             |  | South Central Wisconsin |  |                | 1,076  | 
|Vacant land                                        |  | Southeast Wisconsin     |  |                | 5,100  | 
|Commercial building                                |  | Southeast Wisconsin     |  |                | 3,035  | 
|Commercial building and vacant land                |  | Southeast Wisconsin     |  |                | 1,581  | 
|Vacant land                                        |  | Southeast Wisconsin     |  |                | 1,190  | 
|Office/warehouse building                          |  | Southeast Wisconsin     |  |                | 1,190  | 
|Vacant land                                        |  | Southeast Wisconsin     |  |                | 1,162  | 
|Other properties individually less than $1 million |  |                         |  |                | 42,714 | 
|                                                   |  |                         |  |                |        | 
|                                                   |  |                         |  | $              | 83,955 | 
|                                                   |  |                         |  |                |        | 

Foreclosed properties are recorded at fair value less cost to sell upon transfer to OREO with shortfalls, if any, charged
to the allowance for loan losses. Subsequent decreases in the valuation of OREO are recorded in a valuation account for the foreclosed property with a corresponding charge to OREO expense, net. The fair value is primarily based on appraisals. On a
quarterly basis, the Corporation reviews the carrying values of its OREO properties and makes appropriate adjustments based upon updated appraisals or market analysis including recent sales or broker opinion. For appraisals received over one year
ago, management considers broker and market analysis to update the estimated fair value.

LIQUIDITY RISK MANAGEMENT

Liquidity risk is the risk of potential loss if the Corporation were unable to meet its funding requirements at a reasonable cost. The Corporation manages
liquidity risk at the bank and holding company to help ensure that it can obtain cost-effective funding to meet current and future obligations.

The largest source of liquidity on a consolidated basis is the deposit base that originates from retail and corporate banking businesses. Other borrowed
funds are available from a diverse mix of short and long-term funding sources. Liquid assets and unused borrowing capacity from a number of sources are also available to maintain an adequate liquidity position.



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Liquidity and Capital Resources

On an unconsolidated basis, the Corporations sources of funds include dividends from its subsidiaries, including the Bank, interest on its investments and returns on its real estate held for sale.
As a condition of the Cease and Desist Order with the OTS (now administered by the OCC), the Bank is currently prohibited from paying dividends to the Corporation. Due to a lack of liquidity and resultant failure to make a principal payment on
March 2, 2009, the Corporation continued to be unable to meet its obligations under the credit agreement during the three months ended June 30, 2012.

The Banks primary sources of funds are principal and interest payments on loans and securities, deposits from retail and wholesale sources, FHLB advances and other borrowings. The Bank is currently
prohibited from obtaining new brokered deposits due to its current capital levels. As of June 30, 2012, the Corporation had outstanding borrowings from the FHLB of $357.5 million. The total maximum borrowing capacity at the FHLB based on the
existing stock holding as of June 30, 2012 was $610.4 million, subject to collateral availability. Total borrowing capacity based on the value of the existing collateral pledged was $493.5 million.

Capital Purchase Program

On
January 30, 2009, as part of Treasurys CPP, the Corporation entered into a Letter Agreement with Treasury. Pursuant to the Securities Purchase Agreement  Standard Terms (the Securities Purchase Agreement) the Corporation
issued to the Treasury 110,000 shares of the Corporations Fixed Rate Cumulative Perpetual Preferred Stock, Series B (the Preferred Stock), having a liquidation amount per share of $1,000, for a total purchase price of
$110,000,000. The Preferred Stock will pay cumulative compounding dividends at a rate of 5% per year for the first five years following issuance and 9% per year thereafter. The Securities Purchase Agreement provides for redemption of
shares of the Preferred Stock for the per share liquidation amount of $1,000 plus any accrued and unpaid dividends. The Corporation has deferred the payment of dividends during each of the 13 quarters ended June 30, 2012 due to a lack of
liquidity. As a result of such deferrals, on September 30, 2011, the Treasury exercised its right to appoint two directors to the Board of Directors of the Corporation.

As long as any Preferred Stock is outstanding, the Corporation may not pay dividends on its Common Stock, $.10 par value per share, and redeem or repurchase its Common Stock, unless all accrued and unpaid
dividends for all past periods on the Preferred Stock are fully paid. The Preferred Stock is non-voting except for class voting rights on matters that would adversely affect the rights of the holders of the Preferred Stock.

As a condition to participating in the CPP, the Corporation issued and sold to the Treasury warrants to purchase up to 7,399,103 shares of the
Corporations Common Stock, at an initial per share exercise price of $2.23, for an aggregate purchase price of approximately $16.5 million. The term of the warrants is ten years. Issuance of the warrants was subject to the receipt by the
Corporation of shareholder approval which was received at the 2009 annual meeting of shareholders. The warrants provide for the adjustment of the exercise price should the Corporation not have received shareholder approval, as well as customary
anti-dilution provisions. Pursuant to the Securities Purchase Agreement, the Treasury has agreed not to exercise voting power with respect to any shares of common stock issued upon exercise of the warrants.

The terms of the Treasurys purchase of the preferred securities include restrictions on certain forms of executive compensation and limits on the
tax deductibility of compensation paid to executive management. The Corporation invested the proceeds of the sale of Preferred Stock and warrants into the Bank as Tier 1 capital.

Loan Commitments

At June 30, 2012, the Bank had outstanding commitments to originate
loans of $11.6 million and commitments to extend funds to, or on behalf of, customers pursuant to lines and letters of credit of $170.2 million. Scheduled maturities of certificates of deposit for the Bank during the twelve months following
June 30, 2012 amounted to $744.0 million. Scheduled maturities of borrowings during the same period totaled $10.0 million for the Bank and $116.3 million for the Corporation. Management believes adequate resources are available to fund all Bank
commitments to the extent required. For more information regarding the Corporations borrowings, see Credit Agreement section below.



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Other

The Corporation previously participated in the Mortgage Partnership Finance Program of the FHLB of Chicago (MPF Program). Pursuant to the credit enhancement feature of the MPF Program, the
Corporation has retained a secondary credit loss exposure in the amount of $20.4 million at June 30, 2012 related to approximately $351.4 million of residential mortgage loans that the Corporation has originated as agent for the FHLB. Under the
credit enhancement, the FHLB is liable for losses on loans up to one percent of the original delivered loan balances in each pool. The Corporation is then liable for losses over and above the first position up to a contractually agreed-upon maximum
amount in each pool that was delivered to the Program. The Corporation receives a monthly fee for this credit enhancement obligation based on the outstanding loan balances. The monthly fee received is net of losses under the MPF Program. The MPF
Program was discontinued in 2008 in its present format and the Corporation no longer funds loans through the MPF Program.

The Bank has
entered into agreements with certain brokers that provided deposits obtained from their customers at specified interest rates for an identified fee, or so called brokered deposits. At June 30, 2012, the Bank had $274,000 of brokered
deposits. At June 30, 2012, the Bank was under a Cease and Desist Order with the OCC which limits the Banks ability to accept, renew or roll over brokered deposits without prior approval of the OCC.

In January 2012, the Bank exchanged four of its Federal Home Loan Bank advances totaling $150.0 million for an equal number and principal amount of
advances with extended maturity dates and different interest rate terms to reduce interest rate risk and lower the current cost of funds. The advances exchanged carried fixed rates of interest ranging from 2.53% to 3.25% and maturity dates from
January through March 2013. The new advances all mature in January 2015 and require monthly interest payments based on 3 month LIBOR plus a spread ranging from 0.98% to 1.15%. Prepayment fees due upon exchange of the instruments totaling
$4.3 million were embedded in the spread over LIBOR on the new advances. No gain or loss was recorded for these transactions as the criteria in Accounting Standards Codification 470-50, Debt  Modifications and
Extinguishments requiring accounting as an extinguishment of debt were not met.

Under federal law and regulation, the Bank is
required to meet tier 1 leverage, tier 1 risk-based and total risk-based capital requirements. Tier 1 capital primarily consists of stockholders equity minus certain intangible assets and unrealized gains/losses on available-for-sale
securities. Total risk-based capital primarily consists of tier 1 capital plus a qualifying portion of the allowance for loan losses. The risk-based capital requirements presently address credit risk related to both recorded and off-balance sheet
commitments and obligations.

The Cease and Desist Orders also required that by no later than December 31, 2009, the Bank meet and
maintain both a tier 1 leverage (core) ratio equal to or greater than 8% and a total risk-based capital ratio equal to or greater than 12%. The Bank was required to submit to the OTS, and has submitted, a written capital contingency plan, a problem
asset plan, a revised business plan, and an implementation plan resulting from a review of commercial lending practices.

At June 30,
2012, the Bank had a tier 1 leverage ratio of 4.56% and a total risk-based capital ratio of 8.98%, each below the required capital ratios set forth above. As a result, the OCC may take additional significant regulatory action against the Bank and
Corporation which could, among other things, materially adversely affect the Corporations shareholders. All customer deposits remain fully insured to the highest limits set by the FDIC. The OCC may grant extensions to the timelines established
by the Orders.

Our ability to meet short-term liquidity and capital resource requirements may be subject to our ability to obtain additional
debt financing and equity capital. We may increase capital resources through offerings of equity securities (possibly including common shares and one or more classes of preferred shares), commercial paper, medium-term notes, securitization
transactions structured as secured financings, and senior or subordinated notes.



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Credit Agreement

On November 29, 2011, the Corporation entered into Amendment No. 8 (the Amendment) to the Amended and Restated Credit Agreement, dated as of June 9, 2008, (the Credit
Agreement) among the Corporation, the Lenders from time to time a party thereto, and U.S. Bank National Association, as administrative agent for such Lenders (the Agent). The Corporation owes $116.3 million principal amount under
the Credit Agreement.

Under the Amendment, the Agent and the Lenders agreed to forbear from exercising their rights and remedies against the
Corporation until the earliest to occur of the following: (i) the occurrence of any Event of Default (other than a failure to make principal payments on the outstanding balance under the Credit Agreement or other Existing Defaults, as defined
in the Credit Agreement); or (ii) November 30, 2012. Notwithstanding the agreement to forbear, the Agent may at any time, in its sole discretion, take any action reasonably necessary to preserve or protect its interest in the stock of the Bank,
IDI or any other collateral securing any of the obligations against the actions of the Corporation or any third party without notice to or the consent of any party.

The Amendment also provides that the outstanding balance under the Credit Agreement shall bear interest at a rate equal to 15% per annum. Interest accruing under the Credit Agreement is due on the
earlier of (i) the date the loans are paid in full or (ii) November 30, 2012. At June 30, 2012, the Corporation had accrued interest payable related to the Credit Agreement of $40.2 million and an amendment fee payable of $5.7
million.

Within two business days after the Corporation obtains knowledge of an event, the Chief Financial Officer of the Bank shall submit a
statement of the event together with a statement of the actions which the Corporation proposes to take to the Agent as a result of the occurrence of such event. An event may include: (i) any event which, either of itself or with the lapse of
time or the giving of notice or both, would constitute a Default under the Credit Agreement; (ii) a default or an event of default under any other material agreement to which the Corporation or Bank is a party; or (iii) any pending or
threatened litigation or certain administrative proceedings.

The Amendment requires the Bank to maintain the following financial covenants:



| |  |  | A Tier 1 Leverage Ratio of not less than 3.70% at all times.
| | - |  | ------------------------------------------------------------



| |  |  | A Total Risk Based Capital ratio of not less than 7.50% at all times.
| | - |  | ---------------------------------------------------------------------



| |  |  | Ratio of non-performing loans to gross loans not to exceed 15.00% at any time.
| | - |  | ------------------------------------------------------------------------------

The total outstanding principal balance under the Credit Agreement as of June 30, 2012 was $116.3 million. These borrowings are shown in the
Corporations consolidated financial statements as other borrowed funds. The Amendment provides that the Corporation must pay in full the outstanding balance under the Credit Agreement on the earlier of the Corporations receipt of net
proceeds of a financing transaction from the sale of equity securities in an amount not less than $116.3 million, or November 30, 2012.

The Credit Agreement and the Amendment also contain customary representations, warranties, conditions and events of default for agreements of such
type. At June 30, 2012, the Corporation was in compliance with all covenants contained in the Credit Agreement and the Amendment. Under the terms of the Credit Agreement, as amended on November 29, 2011, the Agent and the
Lenders have certain rights, including the right to accelerate the maturity of the borrowings if all covenants are not complied with. Currently, no such action has been taken by the Agent or the Lenders. However, the default creates
significant uncertainty related to the Corporations operations.

For additional information about the Credit Agreement, see Part II,
Item 1A  Risk Factors  Risks Related to Our Credit Agreement in the Corporations Annual Report on Form 10-K for the year ended March 31, 2012.

MARKET RISK MANAGEMENT

Market risk is the risk of a loss
in earnings or economic value due to adverse movements in market factors such as interest rates, credit spreads, foreign exchange rates, and equity prices. We are exposed to market risk primarily by our involvement in, among others, traditional
banking activities of taking deposits and extending loans.



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Asset/Liability Management

The business of the Corporation and the composition of its consolidated balance sheet consist of investments in interest-earning assets (primarily loans and investment securities) that are largely funded
by interest-bearing liabilities (deposits and borrowings). All of the financial instruments of the Corporation as of June 30, 2012 were held for other-than-trading purposes. Such financial instruments have varying levels of sensitivity to
changes in market rates of interest. The Corporations net interest income is dependent on the amounts of and yields on its interest-earning assets as compared to the amounts of and rates on its interest-bearing liabilities. Net interest income
is therefore sensitive to changes in market rates of interest.

The Corporations asset/liability management strategy is to maximize net
interest income while limiting exposure to risks associated with changes in interest rates. This strategy is implemented by the Corporations ongoing analysis and management of its interest rate risk. A principal function of asset/liability
management is to coordinate the levels of interest-sensitive assets and liabilities to manage net interest income changes within limits in times of fluctuating market interest rates.

Interest rate risk results when the maturity or repricing intervals and interest rate indices of interest-earning assets, interest-bearing liabilities, and off-balance-sheet financial instruments are
different, thus creating a risk that will result in disproportionate changes in the value of, and net earnings generated from, interest-earning assets, interest-bearing liabilities, and off-balance-sheet financial instruments. The Corporations
exposure to interest rate risk is managed primarily through a strategy of selecting the types and terms of interest-earning assets and interest-bearing liabilities that generate favorable earnings while limiting the potential negative effects of
changes in market interest rates. Because the primary source of interest-bearing liabilities is customer deposits, the Corporations ability to manage the types and terms of such deposits may be somewhat limited by customer maturity preferences
in the market areas in which we operate. Deposit pricing is competitive with promotional rates frequently offered by competitors. Borrowings, which include FHLB advances, short-term borrowings, and long-term borrowings, are generally structured with
specific terms which, in managements judgment, when aggregated with the terms for outstanding deposits and matched with interest-earning assets, reduce exposure to interest rate risk. The rates, terms, and interest rate indices of
interest-earning assets result primarily from the Corporations strategy of investing in securities and loans (a portion of which have adjustable rates). This permits the Corporation to limit its exposure to interest rate risk, together with
credit risk, while at the same time achieving a positive interest rate spread from the difference between the income earned on interest-earning assets and the cost of interest-bearing liabilities.

Management uses a simulation model for internal asset/liability management. The model incorporates maturity and repricing information for securities,
loans, deposits, and borrowings plus repricing assumptions on products without specific repricing dates (e.g., savings and interest-bearing demand deposits), to calculate the cash flows, income, and expense of the Corporations assets and
liabilities. In addition, the model computes a theoretical market value of equity by estimating the market values of assets and liabilities. The model also projects the effect on the Corporations earnings and theoretical value for a change in
interest rates. The Corporations exposure to interest rates is reviewed on a monthly basis by senior management and the Board of Directors.

The Corporation performs a net interest income analysis as part of its asset/liability management processes. Net interest income analysis measures the change in net interest income in the event of
hypothetical changes in interest rates. This analysis assesses the risk of change in net interest income in the event of sudden and sustained 100 and 200 basis point increases in market interest rates. As a result of current market conditions,
100 and 200 basis point decreases in market interest rates are not applicable for 2012 and 2011 as those decreases would result in some deposit interest rate assumptions falling below zero. Nonetheless, the Corporations net interest
income could decline in those scenarios as yields on earning assets could continue to adjust downward.



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The following table presents the estimated percentage change in net interest income assuming hypothetical
interest rate shocks:



|               |  |                              |      |   |                              |  |     |  
|-------------- |  | ---------------------------- | ---- | - | ---------------------------- |  | --- | -
|               |  | 200 Basis PointRate Increase |      |   | 100 Basis PointRate Increase | 
|June 30, 2012  |  |                              | 13.0 | % |                              |  | 6.3 | %
|March 31, 2012 |  |                              | 13.2 | % |                              |  | 6.4 | %

Gap analysis is used to determine the repricing characteristics of the Corporations assets and
liabilities. The Corporation had a positive net Gap position at June 30, 2012 for Year 1 of 28.1% compared to 24.5% at March 31, 2012, meaning a greater amount of interest-earning assets are repricing or maturing than the amount of
interest-bearing liabilities during the same time period. A positive gap generally indicates the Corporation is positioned to benefit from a rising interest rate environment. The Gap position does not necessarily indicate the level of the
Corporations interest rate sensitivity or the impact to net interest income because the interest-earning assets and interest-bearing liabilities are repricing based on different indices.

Computations of the prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market
interest rates, loan prepayments and deposit decay rates. These computations should not be relied upon as indicative of actual results. Actual values may differ from those projections set forth above, should market conditions vary from assumptions
used in preparing the analyses. Further, the computations do not contemplate any actions the Corporation may undertake in response to changes in interest rates.

The Gap analysis is based upon assumptions as to when assets and liabilities will reprice in a changing interest rate environment. Because such assumptions can be no more than estimates,
certain assets and liabilities indicated as maturing or otherwise repricing within a stated period may, in fact, mature or reprice at different times and at different volumes than those estimated. Also, the renewal or repricing of certain assets and
liabilities can be discretionary and subject to competitive and other pressures. Therefore, the gap information above does not and cannot necessarily indicate the actual future impact of general interest rate movements on the Corporations net
interest income.

See Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations 
Asset/Liability Management in the Corporations Annual Report on Form 10-K for the year ended March 31, 2012.

COMPLIANCE RISK MANAGEMENT

Compliance risk represents the risk of regulatory sanctions, reputational impact or financial loss resulting from the Corporations failure to comply with regulations and standards of good banking
practice. Activities which may expose the Corporation to compliance risk include, but are not limited to, those dealing with the prevention of money laundering, privacy and data protection, community reinvestment initiatives, fair lending challenges
and employment and tax matters.

STRATEGIC AND/OR REPUTATION
RISK MANAGEMENT

Strategic and/or reputation risk represents the risk of loss due to damage to reputation,
failure to fully develop and execute business plans, failure to assess current and new opportunities in business, markets and products and any other event not identified in the defined risk types mentioned previously. Mitigation of the various risk
elements that represent strategic and/or reputation risk is achieved through initiatives to help the Corporation better understand, monitor and report on the various risks.



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CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The consolidated financial statements are prepared by applying certain accounting policies. Certain of these policies require management to make estimates
and strategic or economic assumptions that may prove inaccurate or are subject to variations that may significantly affect the reported results and financial position for the period or in future periods. Some of the more significant policies are as
follows:

Fair Value Measurements

Management must use estimates, assumptions, and judgments when assets and liabilities are required to be recorded at, or adjusted to reflect, fair value under GAAP. This includes the initial measurement
at fair value of the assets acquired and liabilities assumed in acquisitions qualifying as business combinations, foreclosed properties and repossessed assets and the capitalization of mortgage servicing rights. The valuation of both financial and
nonfinancial assets and liabilities in these transactions requires numerous assumptions and estimates and the use of third-party sources including appraisers and valuation specialists.

Assets and liabilities carried at fair value inherently result in a higher degree of financial statement volatility. Assets and liabilities measured at fair value on a recurring basis include available
for sale securities, interest rate lock commitments and forward contracts to sell mortgage loans. Assets and liabilities measured at fair value on a non-recurring basis may include loans held for sale, mortgage servicing rights, certain impaired
loans and foreclosed assets. Fair values and the information used to record valuation adjustments for certain assets and liabilities are based on either quoted market prices or are provided by other independent third-party sources, when available.
When such third-party information is not available, fair value is estimated primarily by using cash flow and other financial modeling techniques. Changes in underlying factors, assumptions, or estimates in any of these areas could materially impact
future financial condition and results of operations.

Available-for-Sale Securities

Declines in the fair value of available-for-sale securities below their amortized cost that are deemed to be other-than- temporary are reflected in
earnings as unrealized losses. In estimating other-than-temporary impairment losses on debt securities, management considers many factors which include: (1) the length of time and the extent to which the fair value has been less than cost,
(2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair
value. To determine if other-than-temporary impairment exists on a debt security, the Corporation first determines if (a) it intends to sell the security or (b) it is more likely than not that it will be required to sell the security
before its anticipated recovery. If either of the conditions is met, the Corporation will recognize an other-than-temporary impairment loss in earnings equal to the difference between the fair value of the security and its amortized cost. If neither
of the conditions is met, the Corporation determines (a) the amount of the impairment related to credit loss and (b) the amount of the impairment due to all other factors. The difference between the present values of the cash flows
expected to be collected, discounted at the purchase yield or current accounting yield of the security, and the amortized cost basis is the credit loss. The credit loss is the amount of impairment deemed other-than-temporary and recognized in
earnings and is a reduction to the cost basis of the security. The amount of impairment related to all other factors (i.e. non-credit) is deemed temporary and included in accumulated other comprehensive income (loss).

Allowance for Loan Losses

The
allowance for loan losses is a valuation allowance for probable and inherent losses incurred in the loan portfolio. Management maintains an allowance for loan and lease losses (ALLL)and separately a reserve for unfunded loan commitments and
letters of credit in other liabilitiesat levels that we believe to be adequate to absorb estimated probable credit losses incurred in the loan portfolio. The adequacy of the ALLL is determined based on periodic evaluations of the loan and
lease portfolios and other relevant factors. The ALLL is comprised of general, substandard loan and specific components. Even though the entire allowance is available to cover losses on any loan, specific allowances are provided on impaired loans
pursuant to accounting standards. The general allowance is based on historical loss experience, adjusted for quantitative and qualitative factors. At least quarterly, management reviews the assumptions and methodology related to the general
allowance in an effort to update and refine the estimate.



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In determining the general allowance, management has segregated the loan portfolio by purpose and collateral
type. By doing so we are better able to identify trends in borrower behavior and loss severity. For each class of loan, we compute a historical loss factor. In determining the appropriate period of activity to use in computing the historical loss
factor we look at trends in quarterly net charge-off rates. It is managements intention to utilize a period of activity that is most reflective of current experience. Changes in the historical period are made when there is a distinct change in
the trend of net charge-off experience. Given the changes in the credit market that have occurred since 2008, management reviewed each class historical losses by quarter for any trends that would indicate a different look back period would be
more representative of current experience.

Management adjusts historical loss rates based on six quantitative factors and four qualitative
factors which are listed in the preceding section titled Allowance for Loan and Lease Losses within Credit Risk Management. In determining the impact, if any, of an individual factor, management compares the current underlying facts and
circumstances surrounding that particular factor with those in the historical periods, adjusting the historical loss factor based on changes in the quantitative or qualitative factor. Management will continue to analyze the factors on a quarterly
basis, adjusting the historical loss factor as necessary, to a factor believed to be appropriate for the probable and inherent risk of loss in the portfolio.

Specific allowances are determined as a result of our impairment review process. When a loan is identified as impaired it is evaluated for loss using either the fair value of collateral method or the
present value of cash flows method. If the present value of expected cash flows or the fair value of collateral exceeds the Banks carrying value of the loan no loss is anticipated and no specific reserve is established. However, if the
Banks carrying value of the loan is greater than the present value of expected cash flows or fair value of collateral a specific reserve is established. In either situation, loans identified as impaired are excluded from the calculation of the
general reserve.

The determination of the substandard loan ALLL component is consistent with the specific ALLL process, however is applicable
to substandard rated loans that are not considered impaired.

The Corporation regularly obtains updated appraisals for real estate collateral
dependent loans for which it calculates impairment based on the fair value of collateral. Loans having an unpaid principal balance of $250,000 or less in a homogenous pool of assets do not require an impairment analysis and, therefore, updated
appraisals may not be obtained until the foreclosure or sheriff sale occurs. Due to certain limitations, including, but not limited to, the availability of qualified appraisers, the time necessary to complete acceptable appraisals, the availability
of comparable market data and information, and other considerations, in certain instances current appraisals are not readily available.

The
determination of value on an individually reviewed loan is estimated using an appraisal discounted by 15%, 25% or 35% depending on whether the appraisal is a) current, b) improved land or commercial real estate (CRE) greater than a year old, or c)
unimproved land greater than a year old, respectively. The 15% discount represents an estimate of selling costs and potential taxes and other expenses the Bank may need to incur to dispose of a property. The additional discounts on appraisals
greater than a year old of 10% and 20% on improved land/CRE and unimproved land, respectively reflect the decrease in collateral values during fiscal years 2010, 2011 and 2012. These percentages are supported by the Banks analysis of appraisal
activity over the past 12 months.

Loans are considered to be non-performing at such time that they become ninety days past due or earlier if
a loss is deemed probable. At the time a loan is determined to be non-performing it is downgraded per the Corporations loan rating system, it is placed on non-accrual, and an allowance consistent with the Corporations historical
experience for similar substandard loans is established. Within ninety days of this determination a comprehensive analysis of the loans is completed, including ordering new appraisals, where necessary, and an adjustment to the estimated
allowance is recognized to reflect the fair value of the loan based on the underlying collateral or the discounted cash flows. Until such date at which an updated appraisal is obtained, when deemed necessary, the Corporation applies discounts to the
existing appraisals in estimating the fair value of collateral as described above.



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Management considers the ALLL at June 30, 2012 to be at an acceptable level, although changes may be
necessary if future economic and other conditions differ substantially from the current environment. Although the best information available is used, the level of the ALLL remains an estimate that is subject to significant judgment and short-term
change. To the extent actual outcomes differ from our estimates, additional provision for credit losses may be required that would reduce future earnings.

Foreclosure

Real estate acquired by foreclosure or by deed in lieu of foreclosure
and other repossessed assets is held for sale and initially recorded at fair value less a 15% discount for estimated selling costs at the date of foreclosure, establishing a new cost basis. At the date of foreclosure any write down to fair value
less estimated selling costs is charged to the allowance for loan losses. If the discounted fair value exceeds the net carrying value of the loans, recoveries to the allowance for loan losses are recorded to the extent of previous charge-offs, with
any excess, which is infrequent, recognized as a gain in non-interest income. Subsequent to foreclosure, updated appraisals are generally obtained on an annual basis and the assets are adjusted to the lower of cost or fair value, less 15% for
estimated selling expenses. An additional 10% discount is generally applied to all asset values that are based on appraisals greater than one year old. Costs relating to the development and improvement of the property are capitalized; holding period
costs and subsequent changes to the valuation allowance are charged to non-interest expense.

Mortgage Servicing Rights

Mortgage servicing rights (MSR) are initially recorded as an asset, measured at fair value, when loans are sold to third parties with
servicing rights retained. MSR assets are amortized in proportion to, and over the period of, estimated net servicing revenues. The carrying value of these assets is periodically reviewed for impairment using a lower of amortized cost or fair value
methodology. The fair value of the servicing rights is determined by estimating the present value of future net cash flows, taking into consideration market loan prepayment speeds, discount rates, servicing costs and other economic factors. For
purposes of measuring impairment, the rights are stratified into relatively homogeneous pools based on predominant risk characteristics of the underlying loans which include product type (i.e., fixed, adjustable or balloon) and interest rate bands.
If the aggregate carrying value of the capitalized mortgage servicing rights for a stratum exceeds its fair value, a mortgage servicing right impairment is recognized in earnings for the difference. As the loans are repaid and net servicing revenue
is earned, mortgage servicing rights are amortized into expense. Net servicing revenues are expected to exceed this amortization expense. However, if actual prepayment experience or defaults exceed what was originally anticipated, net servicing
revenues may be less than expected and mortgage servicing rights may be impaired.

The interest rate bands used to stratify the serviced loans
were changed in the quarter ending December 31, 2011 in response to the significantly lower interest rate environment over the past several years and the resultant bunching of a substantial portion of serviced loans into two of the
nine historical strata. The restratification of serviced loans did not have a material impact on the impairment measurement of the mortgage servicing right asset during that period.

Income Taxes

The Corporations provision for federal income taxes has resulted
in the recognition of a deferred tax liability or deferred tax asset computed by applying the current statutory tax rates to net taxable or deductible differences between the tax basis of an asset or liability and its reported amount in the
consolidated financial statements that will produce taxable or deductible amounts in future periods. The Corporation regularly reviews the carrying amount of its deferred tax assets to determine if the establishment of a valuation allowance is
necessary. If based on the available evidence, it is more likely than not that all or a portion of the Corporations deferred tax assets will not be realized in future periods, a deferred tax valuation allowance would be established.
Consideration is given to various positive and negative factors that could affect the realization of the deferred tax assets.

In evaluating
this available evidence, management considers, among other things, historical financial performance, expectation of future earnings, the ability to carry back losses to recoup taxes previously paid, length of statutory carry forward periods,
experience with operating loss and tax credit carry forwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earnings trends and the timing of
reversals of temporary differences. The Corporations evaluation is based on current tax laws as well as managements expectations of future performance.



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As a result of its evaluation, the Corporation has recorded a full valuation allowance on its net deferred
tax asset.

Revenue Recognition

The Corporation derives net interest and non-interest income from various sources, including:



| |  |  | Lending,
| | - |  | --------



| |  |  | Securities portfolio,
| | - |  | ---------------------



| |  |  | Customer deposits,
| | - |  | ------------------



| |  |  | Loan servicing, and
| | - |  | -------------------



| |  |  | Sale of loans and securities.
| | - |  | -----------------------------

The Corporation also earns fees and commissions from issuing loan commitments, standby letters of credit and financial guarantees and selling various insurance products. Revenue earned on interest-earning
assets, including the accretion of fair value adjustments on discounts for purchased loans, is recognized based on the effective yield of the financial instrument.

FORWARD-LOOKING STATEMENTS

This report contains certain
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and Section 27A
of the Securities Act. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not
always, made through the use of words or phrases such as anticipate, estimate, plans, projects, continuing, ongoing, expects, management believes,
we believe, and similar words or phrases. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Our actual results could differ
materially from those anticipated in such forward-looking statements as a result of several factors more fully described under the caption Risk Factors and elsewhere in this report as well as in our Annual Report on Form 10-K for the
fiscal year ended March 31, 2012. Factors that could affect actual results include but are not limited to;



| | (i) | general economic or industry conditions could be less favorable than expected, resulting in a deterioration in credit quality, a change in the allowance for loan and
lease losses or a reduced demand for credit or fee-based products and services;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) | soundness of other financial institutions with which the Corporation and the Bank engage in transactions;
| | ---- | ---------------------------------------------------------------------------------------------------------



| | (iii) | competitive pressures could intensify and affect our profitability, including as a result of continued industry consolidation, the increased availability of financial
services from non-banks, technological developments or bank regulatory reform;
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (iv) | changes in technology;
| | ---- | ----------------------



| | (v) | deterioration in commercial real estate, land and construction loan portfolios resulting in increased loan losses;
| | --- | ------------------------------------------------------------------------------------------------------------------



| | (vi) | uncertainties regarding our ability to continue as a going concern;
| | ---- | -------------------------------------------------------------------



| | (vii) | our ability to address our own liquidity problems;
| | ----- | --------------------------------------------------



| | (viii) | demand for financial services, loss of customer confidence, and customer deposit account withdrawals;
| | ------ | -----------------------------------------------------------------------------------------------------



| | (ix) | our ability to pay dividends;
| | ---- | -----------------------------



| | (x) | changes in the quality or composition of the Banks loan and investment portfolios and allowances for loan loss;
| | --- | ----------------------------------------------------------------------------------------------------------------



| | (xi) | dilution of existing shareholders as a result of possible future transaction;
| | ---- | -----------------------------------------------------------------------------



| | (xii) | uncertainties about the Corporation and the Banks Cease and Desist Orders;
| | ----- | ---------------------------------------------------------------------------



| | (xiii) | uncertainties about our ability to meet the Banks 12 percent capital requirement of our Cease and Desist Order;
| | ------ | ----------------------------------------------------------------------------------------------------------------



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| | (xiv) | increases in Federal Deposit Insurance Corporation premiums due to market developments and regulatory changes;
| | ----- | --------------------------------------------------------------------------------------------------------------



| | (xv) | changes in accounting principles, policies or guidelines;
| | ---- | ---------------------------------------------------------



| | (xvi) | significant unforeseen legal expenses;
| | ----- | --------------------------------------



| | (xvii) | uncertainties about market interest rates;
| | ------ | ------------------------------------------



| | (xviii) | security breaches of our information systems;
| | ------- | ---------------------------------------------



| | (xix) | environmental liability for properties to which we take title;
| | ----- | --------------------------------------------------------------



| | (xx) | expiration of our Amended and Restated Credit Agreement;
| | ---- | --------------------------------------------------------



| | (xxi) | the effects of any changes to the servicing compensation structure for mortgage servicers pursuant to the programs of government sponsored entities;
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | (xxii) | uncertainties relating to the Emergency Economic Stabilization Act or 2008, the American Recovery and Reinvestment Act of 2009, the Dodd-Frank Act, the implementation
by the U.S. Department of the Treasury and federal banking regulators of a number of programs to address capital and liquidity issues in the banking system and additional programs that will apply to us in the future, all of which may have
significant effects on us and the financial services industry; and
| | ------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (xxiii) | challenges relating to recruiting and retaining key employees.
| | ------- | --------------------------------------------------------------

In addition, to the extent that we engage in acquisition transactions, such transactions may result in large one-time charges to income, may not produce revenue enhancements or cost savings at levels or
within time frames originally anticipated and may result in unforeseen integration difficulties. These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. All
forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations, and, therefore, you are cautioned not to place undue reliance on such
statements. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this report. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no
obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

The Corporation does not undertake and specifically disclaims any obligation to update any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after
the date of such statements.



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 3 |  | Quantitative and Qualitative Disclosures About Market Risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       | 
|       |  | The Corporations market risk has not materially changed from March 31, 2012. See Item 7A in the Corporations Annual Report on Form 10-K for the year ended
March 31, 2012. See also Asset/Liability Management in Part I, Item 2 of this report.                                                                                                                                                                                                                                                                                           
|       | 
|Item 4 |  | Controls and Procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       | 
|       |  | The Corporations management, with the participation of the Corporations Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the
Corporations disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report and, based on this evaluation, the Corporations Chief Executive Officer and
Chief Financial Officer concluded that the Corporations disclosure controls and procedures are operating in an effective manner.
|       | 
|       |  | Changes in Internal Control Over Financial Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       | 
|       |  | There has been no change in the Corporations internal control over financial reporting ((as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during
the Corporations most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Corporations internal control over financial reporting.                                                                                                                                                                          



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Part II  Other Information



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                           
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 1  |  | Legal Proceedings.                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 
|        |  | The Corporation is involved in routine legal proceedings occurring in the ordinary course of business which, in the aggregate, are believed by management of the
Corporation to be immaterial to the financial condition and results of operations of the Corporation.                                                                                                                                                                      
|        | 
|Item 1A |  | Risk Factors.                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 
|        |  | We are subject to a number of risks which may potentially impact our business, financial condition, results of operations and liquidity. As a financial services
institution, certain elements of risk are inherent in all of our transactions and are present in every business decision we make. Thus, we encounter risk as part of the normal course of our business, and we design risk management processes to help
manage these risks.
|        | 
|        |  | Refer to Risk Factors in the Corporations Annual Report on Form 10-K for the year ended March 31, 2012, for discussion of these
risks.                                                                                                                                                                                                                                                                                                   
|        | 
|Item 2  |  | Unregistered Sales of Equity Securities and Use of Proceeds.                                                                                                                                                                                                                                                                                                                                                                                
|        | 
|        |  | There were no unregistered sales of equity securities or repurchases of equity securities by the registrant for the three months ended June 30,
2012.                                                                                                                                                                                                                                                                                       
|        | 
|Item 3  |  | Defaults Upon Senior Securities.                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 
|        |  | None.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 
|Item 4  |  | Mine Safety Disclosures.                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 
|        |  | Not applicable.                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 
|Item 5  |  | Other Information.                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 
|        |  | None.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 
|Item 6  |  | Exhibits.*                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 
|        |  | The following exhibits are filed with this report:                                                                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |  | Exhibit 31.1                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Certification of Principal Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 is
included herein as an exhibit to this Report.
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |  | Exhibit 31.2                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Certification of Principal Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 is
included herein as an exhibit to this Report.



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| |  |              |  |                                                                                                                                                                             
| |  | ------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |             
| |  | Exhibit 32.1 |  | Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) is
included herein as an exhibit to this Report.
| |  |             
| |  | Exhibit 32.2 |  | Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) is included herein as an exhibit to this
Report.



|* | XBRL Interactive Data File will be filed by amendment to this Form 10-Q within 30 days of the filing date of this Form 10-Q, as permitted by Rule 405(a)(2)(ii) of
Regulation S-T.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



|                     |  |  |  |                               |  |                                                                                 
|-------------------- |  |  |  | ----------------------------- |  | --------------------------------------------------------------------------------
|                     |  |  |  | ANCHOR BANCORP WISCONSIN INC.
|                     |  |  | 
|Date: August 9, 2012 |  |  |  | By:                           |  | /s/ Chris Bauer                                                                 
|                     |  |  |  |                               |  | Chris Bauer, President and Chief Executive Office                               
|                     |  |  | 
|Date: August 9, 2012 |  |  |  | By:                           |  | /s/ Thomas G. Dolan                                                             
|                     |  |  |  |                               |  | Thomas G. Dolan, Executive Vice President, Treasurer and Chief Financial Officer



79