##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 or
 o
    
    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 0-20006
 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 StreetMadison, Wisconsin
    
    53703(Address of principal executive office)
    
    (Zip Code)
 Registrants telephone number, including area code
 (Former name, former address, and former fiscal year, if changed since last report)
  þ o
  o þ o
  o þ




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##### 



ANCHOR BANCORP WISCONSIN INC.
INDEX  FORM 10-Q
 Page #Part I  Financial InformationItem 1
    
    Financial Statements (Unaudited)Consolidated Balance Sheets as of September 30, 2007 and March 31, 2007
    
    
    2Consolidated Statements of Income for the Three and Six Months Ended September 30, 2007 and 2006
    
    
    3Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2007 and 2006
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Results of Operations
    
    
    24Financial Condition
    
    
    29Asset Quality
    
    
    30Liquidity & Capital Resources
    
    
    33Guarantees
    
    
    35Asset/Liability Management
    
    
    36Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    37Item 4
    
    Controls and Procedures
    
    
    37Part II  Other InformationItem 1
    
    Legal Proceedings
    
    
    37Item 1A
    
    Risk Factors
    
    
    37Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 3
    
    Defaults upon Senior Securities
    
    
    38Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    38Item 5
    
    Other Information
    
    
    38Item 6
    
    Exhibits
    
    
    38Signatures
    
    
    40302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
  1




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
 September 30,
    
    
    March 31,2007
    
    
    2007(Unaudited)(In Thousands, Except Share Data)AssetsCash
    
    $
    55,995
    
    
    $
    77,951Interest-bearing deposits
    
    
    11,665
    
    
    
    44,087Cash and cash equivalents
    
    
    67,660
    
    
    
    122,038Investment securities available for sale
    
    
    121,323
    
    
    
    73,545Mortgage-related securities available for sale
    
    
    242,962
    
    
    
    247,971Mortgage-related securities held to maturity (fair value of $64
and $68, respectively)
    
    
    64
    
    
    
    68Loans, less allowance for loan losses of $22,002 at September 30, 2007
and $20,517 at March 31, 2007:Held for sale
    
    
    5,403
    
    
    
    4,474Held for investment
    
    
    3,944,980
    
    
    
    3,874,049Foreclosed properties and repossessed assets, net
    
    
    7,497
    
    
    
    7,411Real estate held for development and sale
    
    
    58,063
    
    
    
    60,303Office properties and equipment
    
    
    31,812
    
    
    
    32,034Federal Home Loan Bank stockat cost
    
    
    47,401
    
    
    
    41,361Accrued interest on investments, loans and other assets
    
    
    64,405
    
    
    
    56,475Goodwill
    
    
    19,956
    
    
    
    19,956Total assets
    
    $
    4,611,526
    
    
    $
    4,539,685Liabilities and Stockholders EquityDepositsNon-interest bearing
    
    $
    254,994
    
    
    $
    241,234Interest bearing
    
    
    2,923,594
    
    
    
    3,007,012Total deposits
    
    
    3,178,588
    
    
    
    3,248,246Short-term borrowings
    
    
    731,765
    
    
    
    472,400Long-term borrowings
    
    
    307,775
    
    
    
    428,077Other liabilities
    
    
    47,713
    
    
    
    46,610Total liabilities
    
    
    4,265,841
    
    
    
    4,195,333Minority interest in real estate partnerships
    
    
    6,778
    
    
    
    7,486Commitments and contingent liabilities (Note 8)Preferred stock, $.10 par value, 5,000,000 shares
authorized, none outstanding
    
    
    
    
    
    
    Common stock, $.10 par value, 100,000,000 shares authorized,
25,363,339 shares issued, 21,342,399 and 21,669,094 shares outstanding,
respectively
    
    
    2,536
    
    
    
    2,536Additional paid-in capital
    
    
    72,136
    
    
    
    72,122Retained earnings
    
    
    370,516
    
    
    
    359,570Accumulated other comprehensive loss
    
    
    (293
    )
    
    
    (542
    )Treasury stock (4,020,940 and 3,694,245 shares, respectively), at cost
    
    
    (100,725
    )
    
    
    (91,751
    )Deferred compensation obligation
    
    
    (5,263
    )
    
    
    (5,069
    )Total stockholders equity
    
    
    338,907
    
    
    
    336,866Total liabilities and stockholders equity
    
    $
    4,611,526
    
    
    $
    4,539,685
  2




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Statements of Income
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands, Except Per Share Data)Interest income:Loans
    
    $
    69,714
    
    
    $
    65,740
    
    
    $
    137,745
    
    
    $
    127,515Mortgage-related securities
    
    
    3,028
    
    
    
    3,061
    
    
    
    6,034
    
    
    
    5,965Investment securities
    
    
    1,345
    
    
    
    1,240
    
    
    
    2,560
    
    
    
    2,197Interest-bearing deposits
    
    
    636
    
    
    
    439
    
    
    
    1,031
    
    
    
    1,070Total interest income
    
    
    74,723
    
    
    
    70,480
    
    
    
    147,370
    
    
    
    136,747Interest expense:Deposits
    
    
    31,424
    
    
    
    28,618
    
    
    
    62,870
    
    
    
    53,974Short-term borrowings
    
    
    8,474
    
    
    
    3,550
    
    
    
    15,132
    
    
    
    5,812Long-term borrowings
    
    
    3,241
    
    
    
    5,474
    
    
    
    6,767
    
    
    
    11,278Total interest expense
    
    
    43,139
    
    
    
    37,642
    
    
    
    84,769
    
    
    
    71,064Net interest income
    
    
    31,584
    
    
    
    32,838
    
    
    
    62,601
    
    
    
    65,683Provision for loan losses
    
    
    2,095
    
    
    
    2,625
    
    
    
    4,366
    
    
    
    3,830Net interest income after provision for loan losses
    
    
    29,489
    
    
    
    30,213
    
    
    
    58,235
    
    
    
    61,853Non-interest income:Real estate investment partnership revenue
    
    
    2,428
    
    
    
    3,631
    
    
    
    7,154
    
    
    
    8,117Loan servicing income
    
    
    1,375
    
    
    
    1,417
    
    
    
    2,855
    
    
    
    2,414Credit enhancement income
    
    
    424
    
    
    
    417
    
    
    
    845
    
    
    
    834Service charges on deposits
    
    
    3,148
    
    
    
    2,517
    
    
    
    6,239
    
    
    
    4,945Investment and insurance commissions
    
    
    1,058
    
    
    
    973
    
    
    
    2,040
    
    
    
    1,799Net gain on sale of loans
    
    
    814
    
    
    
    1,349
    
    
    
    2,401
    
    
    
    2,219Net gain (loss) on sale of investments and
mortgage-related securities
    
    
    3
    
    
    
    
    
    
    
    15
    
    
    
    (283
    )Other revenue from real estate operations
    
    
    992
    
    
    
    1,575
    
    
    
    2,215
    
    
    
    3,722Other
    
    
    696
    
    
    
    1,176
    
    
    
    1,814
    
    
    
    2,595Total non-interest income
    
    
    10,938
    
    
    
    13,055
    
    
    
    25,578
    
    
    
    26,362
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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 Consolidated Statements of Income
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands, Except Per Share Data)Non-interest expense:Compensation
    
    $
    11,301
    
    
    $
    11,579
    
    
    $
    22,571
    
    
    $
    22,305Real estate investment partnership cost of sales
    
    
    2,669
    
    
    
    3,486
    
    
    
    7,009
    
    
    
    7,339Occupancy
    
    
    1,937
    
    
    
    1,986
    
    
    
    3,874
    
    
    
    3,985Furniture and equipment
    
    
    1,543
    
    
    
    1,595
    
    
    
    3,024
    
    
    
    3,048Data processing
    
    
    1,520
    
    
    
    1,639
    
    
    
    3,007
    
    
    
    3,060Marketing
    
    
    1,086
    
    
    
    1,158
    
    
    
    2,170
    
    
    
    2,310Other expenses from real estate partnership operations
    
    
    1,797
    
    
    
    2,179
    
    
    
    3,882
    
    
    
    4,757Other
    
    
    3,475
    
    
    
    3,291
    
    
    
    6,678
    
    
    
    6,548Total non-interest expense
    
    
    25,328
    
    
    
    26,913
    
    
    
    52,215
    
    
    
    53,352Minority interest in income (loss) of real estate
partnership operations
    
    
    (203
    )
    
    
    (75
    )
    
    
    (278
    )
    
    
    363Income before income taxes
    
    
    15,302
    
    
    
    16,430
    
    
    
    31,876
    
    
    
    34,500Income taxes
    
    
    6,028
    
    
    
    6,769
    
    
    
    12,716
    
    
    
    14,192Net income
    
    $
    9,274
    
    
    $
    9,661
    
    
    $
    19,160
    
    
    $
    20,308Earnings per share:Basic
    
    $
    0.44
    
    
    $
    0.45
    
    
    $
    0.91
    
    
    $
    0.95Diluted
    
    
    0.44
    
    
    
    0.44
    
    
    
    0.91
    
    
    
    0.93Dividends declared per share
    
    
    0.18
    
    
    
    0.17
    
    
    
    0.35
    
    
    
    0.33
  4




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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
  Six Months Ended September 30,2007
    
    
    2006(In Thousands)Operating ActivitiesNet income
    
    $
    19,160
    
    
    $
    20,308Adjustments to reconcile net income to net
cash provided by operating activities:Provision for loan losses
    
    
    4,366
    
    
    
    3,830Provision for depreciation and amortization
    
    
    2,067
    
    
    
    2,132Cash paid due to origination of loans held for sale
    
    
    (209,170
    )
    
    
    (202,642
    )Cash received due to sale of loans held for sale
    
    
    210,642
    
    
    
    204,977Net gain on sales of loans
    
    
    (2,401
    )
    
    
    (2,219
    )Loss (gain) on sale of investments
    
    
    (15
    )
    
    
    283Increase in accrued interest receivable
    
    
    (1,940
    )
    
    
    (1,285
    )(Increase) decrease in other assets
    
    
    (5,991
    )
    
    
    1,716Increase in accrued interest payable
    
    
    2,084
    
    
    
    1,965Increase (decrease) in other payable
    
    
    122
    
    
    
    (447
    )Other
    
    
    (3,361
    )
    
    
    (4,783
    )Net cash provided by operating activities
    
    
    15,563
    
    
    
    23,835Investing ActivitiesProceeds from sales of investment securities available for sale
    
    
    9,867
    
    
    
    65Proceeds from maturities of investment securities
    
    
    56,507
    
    
    
    53,875Purchase of investment securities available for sale
    
    
    (113,979
    )
    
    
    (93,571
    )Purchase of mortgage-related securities available for sale
    
    
    (25,106
    )
    
    
    (38,308
    )Principal collected on mortgage-related securities
    
    
    30,749
    
    
    
    25,851FHLB Stock Redemption
    
    
    
    
    
    
    3,750FHLB Stock Purchase
    
    
    (6,040
    )
    
    
    Net increase in loans held for investment
    
    
    (73,332
    )
    
    
    (181,993
    )Purchases of office properties and equipment
    
    
    (1,652
    )
    
    
    (2,100
    )Sales of office properties and equipment
    
    
    39
    
    
    
    161Investment in real estate held for development and sale
    
    
    2,072
    
    
    
    (7,388
    )Net cash used in investing activities
    
    
    (120,875
    )
    
    
    (239,658
    )
 5




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 Consolidated Statements of Cash Flows (Contd)
  Six Months Ended September 30,2007
    
    
    2006(In Thousands)Financing Activities(Decrease) increase in deposit accounts
    
    $
    (81,263
    )
    
    $
    170,160Increase in advance payments by borrowers
for taxes and insurance
    
    
    10,502
    
    
    
    11,569Increase in short-term borrowings
    
    
    259,365
    
    
    
    107,175Proceeds from long-term borrowings
    
    
    143,324
    
    
    
    7,297Repayment of long-term borrowings
    
    
    (263,626
    )
    
    
    (101,319
    )Treasury stock purchased
    
    
    (10,897
    )
    
    
    (5,740
    )Exercise of stock options
    
    
    634
    
    
    
    996Cash received from employee stock purchase plan
    
    
    257
    
    
    
    (8
    )Tax benefit from stock related compensation
    
    
    14
    
    
    
    766Payments of cash dividends to stockholders
    
    
    (7,376
    )
    
    
    (7,092
    )Net cash provided by financing activities
    
    
    50,934
    
    
    
    183,804Net decrease in cash and cash equivalents
    
    
    (54,378
    )
    
    
    (32,019
    )Cash and cash equivalents at beginning of period
    
    
    122,038
    
    
    
    152,544Cash and cash equivalents at end of period
    
    $
    67,660
    
    
    $
    120,525Supplementary cash flow information:Cash paid or credited to accounts:Interest on deposits and borrowings
    
    $
    45,223
    
    
    $
    73,029Income taxes
    
    
    14,199
    
    
    
    17,890
  6




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Principles of Consolidation
  Note 2  Basis of Presentation
       7




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Note 3  Stock-Based Compensation
   Six Months Ended September 30, 2007WeightedAverageOptions
    
    
    PriceOutstanding at beginning of period
    
    
    837,296
    
    
    $
    19.82Granted
    
    
    
    
    
    
    Exercised
    
    
    (61,682
    )
    
    
    13.76Forfeited
    
    
    (11,740
    )
    
    
    12.99Outstanding at end of period
    
    
    763,874
    
    
    $
    20.41Options exercisable at September 30, 2007
    
    
    763,874
    
    
    $
    20.41
  Options Outstanding
    
    Exercisable OptionsWeighted-AverageRemaining
    
    Weighted-
    
    
    
    
    
    Weighted-Contractual
    
    Average
    
    
    
    
    
    AverageRange of Exercise Prices
    
    Shares
    
    Life (Years)
    
    Exercise Price
    
    Shares
    
    Exercise Price$15.06 - $15.70
    
    
    261,700
    
    
    
    3.40
    
    
    $
    15.32
    
    
    
    261,700
    
    
    $
    15.32$16.12 - $22.07
    
    
    266,634
    
    
    
    2.53
    
    
    
    20.68
    
    
    
    266,634
    
    
    
    20.68$23.77 - $31.95
    
    
    234,340
    
    
    
    6.26
    
    
    
    25.79
    
    
    
    234,340
    
    
    
    25.79762,674
    
    
    
    3.97
    
    
    
    20.41
    
    
    
    762,674
    
    
    
    20.41
  8




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##### Table of Contents



Six Months Ended September 30, 2007WeightedAverageOptions
    
    
    PriceBalance at beginning of period
    
    
    66,600
    
    
    $
    29.62Restricted stock granted
    
    
    
    
    
    
    Restricted stock vested
    
    
    (2,500
    )
    
    
    31.75Restriced stock forfeited
    
    
    
    
    
    
    Balance at end of period
    
    
    64,100
    
    
    $
    29.62
 Note 4  Goodwill and Other Intangible Assets
       9




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Residential
    
    
    Other(In Thousands)Mortgage servicing rights as of March 31, 2006
    
    $
    5,735
    
    
    $
    1,324Additions
    
    
    2,464
    
    
    
    456Amortization
    
    
    (1,835
    )
    
    
    (733
    )Mortgage servicing rights before valuation allowance at end of period
    
    
    6,364
    
    
    
    1,047Valuation allowance
    
    
    (709
    )
    
    
    Net mortgage servicing rights as of March 31, 2007
    
    $
    5,655
    
    
    $
    1,047Fair market value at the end of the period
    
    $
    10,489
    
    
    $
    1,673Key assumptions:Weighted average discount
    
    
    11.23
    %
    
    
    18.65
    %Weighted average prepayment speed assumption
    
    
    13.43
    %
    
    
    12.90
    %Mortgage servicing rights as of March 31, 2007
    
    $
    6,364
    
    
    $
    1,047Additions
    
    
    1,807
    
    
    
    186Amortization
    
    
    (581
    )
    
    
    (158
    )Reclassification
    
    
    (135
    )
    
    
    135Mortgage servicing rights before valuation allowance at end of period
    
    
    7,455
    
    
    
    1,210Valuation allowance
    
    
    
    
    
    
    Net mortgage servicing rights as of September 30, 2007
    
    $
    7,455
    
    
    $
    1,210Fair market value at the end of the period
    
    $
    13,103
    
    
    $
    2,052Key assumptions:Weighted average discount
    
    
    11.29
    %
    
    
    19.41
    %Weighted average prepayment speed assumption
    
    
    14.22
    %
    
    
    13.90
    %
  10




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Residential
    
    
    Other(In Thousands)Quarter ended September 30, 2007 (actual)
    
    $
    302
    
    
    $
    80Estimate for the year ended March 31,2008
    
    $
    1,162
    
    
    $
    3162009
    
    
    1,162
    
    
    
    3162010
    
    
    1,162
    
    
    
    3162011
    
    
    1,162
    
    
    
    262Thereafter
    
    
    2,807
    
    
    
    $
    7,455
    
    
    $
    1,210
 Note 5  Stockholders Equity
    11




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Note 6  Earnings Per Share
  12




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##### Table of Contents



Three Months Ended September 30,2007
    
    
    2006Numerator:Net income
    
    $
    9,274,128
    
    
    $
    9,660,194Numerator for basic and diluted earnings
per shareincome available to common
stockholders
    
    $
    9,274,128
    
    
    $
    9,660,194Denominator:Denominator for basic earnings per
shareweighted-average shares
    
    
    20,879,592
    
    
    
    21,478,523Effect of dilutive securities:Employee stock options
    
    
    120,984
    
    
    
    278,365Denominator for diluted earnings per
shareadjusted weighted-average
shares and assumed conversions
    
    
    21,000,576
    
    
    
    21,756,888Basic earnings per share
    
    $
    0.44
    
    
    $
    0.45Diluted earnings per share
    
    $
    0.44
    
    
    $
    0.44
 Six Months Ended September 30,2007
    
    
    2006Numerator:Net income
    
    $
    19,159,761
    
    
    $
    20,307,622Numerator for basic and diluted earnings
per shareincome available to common
stockholders
    
    $
    19,159,761
    
    
    $
    20,307,622Denominator:Denominator for basic earnings per
shareweighted-average shares
    
    
    21,001,210
    
    
    
    21,472,026Effect of dilutive securities:Employee stock options
    
    
    158,358
    
    
    
    305,340Denominator for diluted earnings per
shareadjusted weighted-average
shares and assumed conversions
    
    
    21,159,568
    
    
    
    21,777,366Basic earnings per share
    
    $
    0.91
    
    
    $
    0.95Diluted earnings per share
    
    $
    0.91
    
    
    $
    0.93
 13




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##### Table of Contents



Note 7  Segment Information
  Community Banking:
 Real Estate Investments:
   14




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##### Table of Contents



Three Months Ended September 30, 2007(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    106
    
    
    $
    75,133
    
    
    $
    (516
    )
    
    $
    74,723Interest expense
    
    
    464
    
    
    
    43,191
    
    
    
    (516
    )
    
    
    43,139Net interest income (loss)
    
    
    (358
    )
    
    
    31,942
    
    
    
    
    
    
    
    31,584Provision for loan losses
    
    
    
    
    
    
    2,095
    
    
    
    
    
    
    
    2,095Net interest income (loss) after provision for loan losses
    
    
    (358
    )
    
    
    29,847
    
    
    
    
    
    
    
    29,489Real estate investment partnership revenue
    
    
    2,428
    
    
    
    
    
    
    
    
    
    
    
    2,428Other revenue from real estate operations
    
    
    992
    
    
    
    
    
    
    
    
    
    
    
    992Other income
    
    
    
    
    
    
    7,548
    
    
    
    (30
    )
    
    
    7,518Real estate investment partnership cost of sales
    
    
    (2,669
    )
    
    
    
    
    
    
    
    
    
    
    (2,669
    )Other expense from real estate partnership operations
    
    
    (1,827
    )
    
    
    
    
    
    
    30
    
    
    
    (1,797
    )Minority interest in loss of real estate partnerships
    
    
    203
    
    
    
    
    
    
    
    
    
    
    
    203Other expense
    
    
    
    
    
    
    (20,862
    )
    
    
    
    
    
    
    (20,862
    )Income (loss) before income taxes
    
    
    (1,231
    )
    
    
    16,533
    
    
    
    
    
    
    
    15,302Income tax expense (benefit)
    
    
    (576
    )
    
    
    6,604
    
    
    
    
    
    
    
    6,028Net income (loss)
    
    $
    (655
    )
    
    $
    9,929
    
    
    $
    
    
    
    $
    9,274Total assets at end of period
    
    $
    71,333
    
    
    $
    4,540,193
    
    
    $
    
    
    
    $
    4,611,526
 Three Months Ended September 30, 2006(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    86
    
    
    $
    70,915
    
    
    $
    (521
    )
    
    $
    70,480Interest expense
    
    
    508
    
    
    
    37,655
    
    
    
    (521
    )
    
    
    37,642Net interest income (loss)
    
    
    (422
    )
    
    
    33,260
    
    
    
    
    
    
    
    32,838Provision for loan losses
    
    
    
    
    
    
    2,625
    
    
    
    
    
    
    
    2,625Net interest income (loss) after provision for loan losses
    
    
    (422
    )
    
    
    30,635
    
    
    
    
    
    
    
    30,213Real estate investment partnership revenue
    
    
    3,631
    
    
    
    
    
    
    
    
    
    
    
    3,631Other revenue from real estate operations
    
    
    1,575
    
    
    
    
    
    
    
    
    
    
    
    1,575Other income
    
    
    
    
    
    
    7,879
    
    
    
    (30
    )
    
    
    7,849Real estate investment partnership cost of sales
    
    
    (3,486
    )
    
    
    
    
    
    
    
    
    
    
    (3,486
    )Other expense from real estate partnership operations
    
    
    (2,209
    )
    
    
    
    
    
    
    30
    
    
    
    (2,179
    )Minority interest in loss of real estate partnerships
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    75Other expense
    
    
    
    
    
    
    (21,248
    )
    
    
    
    
    
    
    (21,248
    )Income (loss) before income taxes
    
    
    (836
    )
    
    
    17,266
    
    
    
    
    
    
    
    16,430Income tax expense (benefit)
    
    
    (192
    )
    
    
    6,961
    
    
    
    
    
    
    
    6,769Net income (loss)
    
    $
    (644
    )
    
    $
    10,305
    
    
    $
    
    
    
    $
    9,661Total assets at end of period
    
    $
    76,508
    
    
    $
    4,405,078
    
    
    $
    
    
    
    $
    4,481,586
 15




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##### Table of Contents



Six Months Ended September 30, 2007(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    191
    
    
    $
    148,191
    
    
    $
    (1,012
    )
    
    $
    147,370Interest expense
    
    
    912
    
    
    
    84,869
    
    
    
    (1,012
    )
    
    
    84,769Net interest income (loss)
    
    
    (721
    )
    
    
    63,322
    
    
    
    
    
    
    
    62,601Provision for loan losses
    
    
    
    
    
    
    4,366
    
    
    
    
    
    
    
    4,366Net interest income (loss) after provision for loan losses
    
    
    (721
    )
    
    
    58,956
    
    
    
    
    
    
    
    58,235Real estate investment partnership revenue
    
    
    7,154
    
    
    
    
    
    
    
    
    
    
    
    7,154Other revenue from real estate operations
    
    
    2,215
    
    
    
    
    
    
    
    
    
    
    
    2,215Other income
    
    
    
    
    
    
    16,269
    
    
    
    (60
    )
    
    
    16,209Real estate investment partnership cost of sales
    
    
    (7,009
    )
    
    
    
    
    
    
    
    
    
    
    (7,009
    )Other expense from real estate partnership operations
    
    
    (3,942
    )
    
    
    
    
    
    
    60
    
    
    
    (3,882
    )Minority interest in loss of real estate partnerships
    
    
    278
    
    
    
    
    
    
    
    
    
    
    
    278Other expense
    
    
    
    
    
    
    (41,324
    )
    
    
    
    
    
    
    (41,324
    )Income (loss) before income taxes
    
    
    (2,025
    )
    
    
    33,901
    
    
    
    
    
    
    
    31,876Income tax expense (benefit)
    
    
    (809
    )
    
    
    13,525
    
    
    
    
    
    
    
    12,716Net income (loss)
    
    $
    (1,216
    )
    
    $
    20,376
    
    
    $
    
    
    
    $
    19,160Total assets at end of period
    
    $
    71,333
    
    
    $
    4,540,193
    
    
    $
    
    
    
    $
    4,611,526
 Six Months Ended September 30, 2006(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    190
    
    
    $
    137,519
    
    
    $
    (962
    )
    
    $
    136,747Interest expense
    
    
    931
    
    
    
    71,095
    
    
    
    (962
    )
    
    
    71,064Net interest income (loss)
    
    
    (741
    )
    
    
    66,424
    
    
    
    
    
    
    
    65,683Provision for loan losses
    
    
    
    
    
    
    3,830
    
    
    
    
    
    
    
    3,830Net interest income (loss) after provision for loan losses
    
    
    (741
    )
    
    
    62,594
    
    
    
    
    
    
    
    61,853Real estate investment partnership revenue
    
    
    8,117
    
    
    
    
    
    
    
    
    
    
    
    8,117Other revenue from real estate operations
    
    
    3,722
    
    
    
    
    
    
    
    
    
    
    
    3,722Other income
    
    
    
    
    
    
    14,583
    
    
    
    (60
    )
    
    
    14,523Real estate investment partnership cost of sales
    
    
    (7,339
    )
    
    
    
    
    
    
    
    
    
    
    (7,339
    )Other expense from real estate partnership operations
    
    
    (4,817
    )
    
    
    
    
    
    
    60
    
    
    
    (4,757
    )Minority interest in income of real estate partnerships
    
    
    (363
    )
    
    
    
    
    
    
    
    
    
    
    (363
    )Other expense
    
    
    
    
    
    
    (41,256
    )
    
    
    
    
    
    
    (41,256
    )Income (loss) before income taxes
    
    
    (1,421
    )
    
    
    35,921
    
    
    
    
    
    
    
    34,500Income tax expense (benefit)
    
    
    (399
    )
    
    
    14,591
    
    
    
    
    
    
    
    14,192Net income (loss)
    
    $
    (1,022
    )
    
    $
    21,330
    
    
    $
    
    
    
    $
    20,308Total assets at end of period
    
    $
    76,508
    
    
    $
    4,405,078
    
    
    $
    
    
    
    $
    4,481,586
 16




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##### Table of Contents



Note 8  Commitments and Contingent Liabilities
   September 30,
    
    March 31,2007
    
    2007Commitments to extend credit:
    
    $
    123,954
    
    
    $
    91,081Unused lines of credit:Home equity
    
    
    92,105
    
    
    
    91,630Credit cards
    
    
    37,193
    
    
    
    40,799Commercial
    
    
    121,549
    
    
    
    125,560Letters of credit
    
    
    47,470
    
    
    
    59,910Credit enhancement under the FederalHome Loan Bank of Chicago MortgagePartnership Finance Program
    
    
    21,401
    
    
    
    20,902Real estate investment segment borrowing guarantees unfunded
    
    
    21,677
    
    
    
    18,555Other financial guarantees
    
    
    669
    
    
    
    900
     17




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##### Table of Contents



Note 9  Subsequent Events
   18




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC.
 
 ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Executive Overview
  
    
    Diluted earnings per share remained constant at $0.44 for the quarter ended September
30, 2007 compared to the quarter ended September 30, 2006;
    
    The interest rate spread decreased to 2.77% for the quarter ended September 30, 2007
compared to 3.01% for the quarter ended September 30, 2006 because interest-bearing
liabilities repriced upward faster than interest-earning assets;
    
    Loans receivable increased $71.9 million, or 1.85%, since March 31, 2007;
    
    Deposits declined $69.7 million, or 2.14%, since March 31, 2007;
    
    Book value per share was $15.88 at September 30, 2007 compared to $15.55 at March 31,
2007 and $15.18 at September 30, 2006; and
    
    Total non-performing assets increased $8.6 million to $63.1 million at September 30,
2007 from March 31, 2007 and total non-accrual loans increased $8.5 million to $55.6
million at September 30, 2007 from March 31, 2007.
 19




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##### Table of Contents




    
    Real estate investment partnership revenue declined $963,000 from $8.1 million for the
six months ended September 30, 2006 to $7.2 million for the six months ended September 30,
2007. Real estate investment partnership cost of sales declined $330,000 from $7.3 million
to $7.0 million during the same respective periods. These decreases were due to the decline
in the number of sales at the real estate partnership level. Net loss from the real estate
investment segment increased from $1.0 million to $1.2 million for the six months ended
September 30, 2006 and 2007, respectively. The partnerships currently have approximately
45 single family housing units and approximately 100 individual lots for sale. Management
anticipates continued lower sales activity for the remainder of the fiscal year.
 20




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##### Table of Contents



Three Months Ended(Dollars in thousands - except per share amounts)
    
    9/30/2007
    
    6/30/2007
    
    3/31/2007
    
    12/31/2006Operations Data:Net interest income
    
    $
    31,584
    
    
    $
    31,017
    
    
    $
    29,834
    
    
    $
    32,529Provision for loan losses
    
    
    2,095
    
    
    
    2,271
    
    
    
    4,050
    
    
    
    3,375Net gain on sale of loans
    
    
    814
    
    
    
    1,587
    
    
    
    465
    
    
    
    776Real estate investment partnership revenue
    
    
    2,428
    
    
    
    4,726
    
    
    
    2,851
    
    
    
    8,009Other non-interest income
    
    
    7,696
    
    
    
    8,327
    
    
    
    8,205
    
    
    
    7,331Real estate investment partnership cost of sales
    
    
    2,669
    
    
    
    4,340
    
    
    
    3,153
    
    
    
    7,115Other non-interest expense
    
    
    22,659
    
    
    
    22,547
    
    
    
    21,410
    
    
    
    22,443Minority interest in loss of
real estate partnership operations
    
    
    (203
    )
    
    
    (75
    )
    
    
    (573
    )
    
    
    (31
    )Income before income taxes
    
    
    15,302
    
    
    
    16,574
    
    
    
    13,315
    
    
    
    15,743Income taxes
    
    
    6,028
    
    
    
    6,688
    
    
    
    5,086
    
    
    
    5,308Net income
    
    
    9,274
    
    
    
    9,886
    
    
    
    8,229
    
    
    
    10,435Selected Financial Ratios(1):Yield on earning assets
    
    
    6.90
    %
    
    
    6.80
    %
    
    
    6.73
    %
    
    
    6.81
    %Cost of funds
    
    
    4.13
    
    
    
    4.05
    
    
    
    4.08
    
    
    
    3.92Interest rate spread
    
    
    2.77
    
    
    
    2.75
    
    
    
    2.65
    
    
    
    2.89Net interest margin
    
    
    2.92
    
    
    
    2.90
    
    
    
    2.81
    
    
    
    3.05Return on average assets
    
    
    0.82
    
    
    
    0.88
    
    
    
    0.74
    
    
    
    0.93Return on average equity
    
    
    11.07
    
    
    
    11.77
    
    
    
    9.72
    
    
    
    12.51Average equity to average assets
    
    
    7.37
    
    
    
    7.49
    
    
    
    7.61
    
    
    
    7.45Non-interest expense to average assets
    
    
    2.23
    
    
    
    2.40
    
    
    
    2.21
    
    
    
    2.64Per Share:Basic earnings per share
    
    $
    0.44
    
    
    $
    0.47
    
    
    $
    0.39
    
    
    $
    0.49Diluted earnings per share
    
    
    0.44
    
    
    
    0.46
    
    
    
    0.38
    
    
    
    0.48Dividends per share
    
    
    0.18
    
    
    
    0.17
    
    
    
    0.17
    
    
    
    0.17Book value per share
    
    
    15.88
    
    
    
    15.54
    
    
    
    15.55
    
    
    
    15.45Financial Condition:Total assets
    
    $
    4,611,526
    
    
    $
    4,532,758
    
    
    $
    4,539,685
    
    
    $
    4,505,896Loans receivable, netHeld for sale
    
    
    5,403
    
    
    
    9,062
    
    
    
    4,474
    
    
    
    4,470Held for investment
    
    
    3,944,980
    
    
    
    3,890,053
    
    
    
    3,874,049
    
    
    
    3,834,381Deposits
    
    
    3,178,588
    
    
    
    3,248,964
    
    
    
    3,248,246
    
    
    
    3,240,540Borrowings
    
    
    1,039,540
    
    
    
    891,016
    
    
    
    900,477
    
    
    
    841,219Stockholders equity
    
    
    338,907
    
    
    
    331,593
    
    
    
    336,866
    
    
    
    336,522Allowance for loan losses
    
    
    22,002
    
    
    
    22,220
    
    
    
    20,517
    
    
    
    20,031Non-performing assets
    
    
    63,078
    
    
    
    53,180
    
    
    
    54,452
    
    
    
    39,484
 
 (1)
    
    Annualized when appropriate. 21




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##### Table of Contents



Three Months Ended(Dollars in thousands - except per share amounts)
    
    9/30/2006
    
    6/30/2006
    
    3/31/2006
    
    12/31/2005Operations Data:Net interest income
    
    $
    32,838
    
    
    $
    32,845
    
    
    $
    33,294
    
    
    $
    33,837Provision for loan losses
    
    
    2,625
    
    
    
    1,205
    
    
    
    1,450
    
    
    
    700Net gain on sale of loans
    
    
    1,349
    
    
    
    869
    
    
    
    1,348
    
    
    
    144Real estate investment partnership revenue
    
    
    3,631
    
    
    
    4,486
    
    
    
    4,524
    
    
    
    6,378Other non-interest income
    
    
    8,075
    
    
    
    7,952
    
    
    
    8,063
    
    
    
    7,898Real estate investment partnership cost of sales
    
    
    3,486
    
    
    
    3,853
    
    
    
    3,791
    
    
    
    5,527Other non-interest expense
    
    
    23,427
    
    
    
    22,586
    
    
    
    22,534
    
    
    
    23,238Minority interest in income (loss) of
real estate partnership operations
    
    
    (75
    )
    
    
    438
    
    
    
    29
    
    
    
    304Income before income taxes
    
    
    16,430
    
    
    
    18,070
    
    
    
    19,425
    
    
    
    18,488Income taxes
    
    
    6,769
    
    
    
    7,423
    
    
    
    7,973
    
    
    
    7,595Net income
    
    
    9,661
    
    
    
    10,647
    
    
    
    11,452
    
    
    
    10,893Selected Financial Ratios(1):Yield on earning assets
    
    
    6.76
    %
    
    
    6.52
    %
    
    
    6.34
    %
    
    
    6.15
    %Cost of funds
    
    
    3.75
    
    
    
    3.43
    
    
    
    3.11
    
    
    
    2.88Interest rate spread
    
    
    3.01
    
    
    
    3.09
    
    
    
    3.23
    
    
    
    3.27Net interest margin
    
    
    3.15
    
    
    
    3.23
    
    
    
    3.35
    
    
    
    3.39Return on average assets
    
    
    0.88
    
    
    
    1.00
    
    
    
    1.10
    
    
    
    1.04Return on average equity
    
    
    11.72
    
    
    
    13.14
    
    
    
    14.46
    
    
    
    13.91Average equity to average assets
    
    
    7.53
    
    
    
    7.60
    
    
    
    7.59
    
    
    
    7.45Non-interest expense to average assets
    
    
    2.46
    
    
    
    2.48
    
    
    
    2.52
    
    
    
    2.74Per Share:Basic earnings per share
    
    $
    0.45
    
    
    $
    0.50
    
    
    $
    0.54
    
    
    $
    0.51Diluted earnings per share
    
    
    0.44
    
    
    
    0.49
    
    
    
    0.53
    
    
    
    0.50Dividends per share
    
    
    0.17
    
    
    
    0.16
    
    
    
    0.16
    
    
    
    0.16Book value per share
    
    
    15.18
    
    
    
    14.91
    
    
    
    14.69
    
    
    
    14.32Financial Condition:Total assets
    
    $
    4,481,586
    
    
    $
    4,356,921
    
    
    $
    4,275,140
    
    
    $
    4,200,234Loans receivable, netHeld for sale
    
    
    5,393
    
    
    
    4,118
    
    
    
    5,509
    
    
    
    5,847Held for investment
    
    
    3,794,039
    
    
    
    3,709,745
    
    
    
    3,614,265
    
    
    
    3,545,436Deposits
    
    
    3,223,759
    
    
    
    3,177,220
    
    
    
    3,040,217
    
    
    
    2,987,284Borrowings
    
    
    875,014
    
    
    
    791,098
    
    
    
    861,861
    
    
    
    814,641Stockholders equity
    
    
    330,774
    
    
    
    326,495
    
    
    
    321,025
    
    
    
    312,089Allowance for loan losses
    
    
    18,393
    
    
    
    15,636
    
    
    
    15,570
    
    
    
    15,252Non-performing assets
    
    
    22,506
    
    
    
    18,836
    
    
    
    15,721
    
    
    
    17,265
 
 (1)
 22




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##### Table of Contents



Significant Accounting Policies
  
    
    The allowance for loan losses is maintained at a level believed adequate by management to
absorb probable and estimable losses inherent in the loan portfolio and is based on the size
and current risk characteristics of the loan portfolio; an assessment of individual problem
loans; actual and anticipated loss experience; and current economic events in specific
industries and geographical areas. These economic events include unemployment levels,
regulatory guidance, and general economic conditions. Determination of the allowance is
inherently subjective as it requires significant estimates, including the amounts and timing
of expected future cash flows on impaired loans, estimated losses on pools of homogeneous
loans based on historical loss experience, and consideration of current economic trends, all
of which may be susceptible to significant change. Loan losses are charged off against the
allowance, while recoveries of amounts previously charged off are credited to the allowance.
A provision for loan losses is charged to operating expense based on managements periodic
evaluation of the factors previously mentioned as well as other pertinent factors.Allowances are established for expected losses resulting from analysis developed through credit
allocations on individual loans and are based on a regular analysis of impaired loans where the
internal credit rating is at or below a predetermined classification. A loan is considered
impaired when it is probable that the Corporation will be unable to collect all contractual
principal and interest due according to the terms of the loan agreement. Loans subject to
impairment are defined as non-accrual and restructured loans exclusive of smaller homogeneous
loans such as home equity, installment, and 1-4 family residential loans. The fair value of the
loans is determined based on the present value of expected future cash flows discounted at the
loans effective interest rate, the market price of the loan, or the fair value of the
underlying collateral less costs to sell, if the loan is collateral dependent.
    
    Valuation of mortgage servicing rights requires the use of judgment. Mortgage servicing
rights are established on loans that are originated and subsequently sold with servicing
rights retained. A portion of the loans book basis is allocated to mortgage servicing rights
when a loan is sold. The fair value of mortgage servicing rights is the present value of
estimated future net cash flows from the servicing relationship using current market
assumptions for prepayments, servicing costs and other factors. As the loans are repaid and
net servicing revenue is earned, mortgage servicing rights are amortized into expense. Net
servicing revenues are expected to exceed this amortization expense. However, if actual
prepayment experience exceeds what was originally anticipated, net servicing revenues may be
less than expected and mortgage servicing rights may be impaired.
    
    Goodwill is reviewed at least annually for impairment, which requires judgment. Goodwill
has been recorded as a result of an acquisition in which purchase price exceeded fair value of
net assets acquired. The price paid for the acquisition is analyzed and compared to a number
of current indices. If goodwill is determined to be impaired, it would be expensed in the
period in which it became impaired.
 23




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##### Table of Contents



RESULTS OF OPERATIONS
 General.
 Net Interest Income.
   24




---



##### Table of Contents



Provision for Loan Losses.
 Average Interest-Earning Assets, Average Interest-Bearing Liabilities and Interest Rate
Spread.
 25




---



##### Table of Contents



Three Months Ended September 30,2007
    
    
    2006Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Cost(1)
    
    
    Balance
    
    
    Interest
    
    
    Cost(1)(Dollars In Thousands)Interest-Earning AssetsMortgage loans
    
    $
    3,027,068
    
    
    $
    52,658
    
    
    
    6.96
    %
    
    $
    2,929,479
    
    
    $
    49,753
    
    
    
    6.79
    %Consumer loans
    
    
    650,225
    
    
    
    12,129
    
    
    
    7.46
    
    
    
    630,121
    
    
    
    11,458
    
    
    
    7.27Commercial business loans
    
    
    239,140
    
    
    
    4,927
    
    
    
    8.24
    
    
    
    211,529
    
    
    
    4,529
    
    
    
    8.56Total loans receivable (2) (3)
    
    
    3,916,433
    
    
    
    69,714
    
    
    
    7.12
    
    
    
    3,771,129
    
    
    
    65,740
    
    
    
    6.97Mortgage-related securities (4)
    
    
    241,394
    
    
    
    3,028
    
    
    
    5.02
    
    
    
    256,050
    
    
    
    3,061
    
    
    
    4.78Investment securities (4)
    
    
    94,020
    
    
    
    1,056
    
    
    
    4.49
    
    
    
    73,531
    
    
    
    893
    
    
    
    4.86Interest-bearing deposits
    
    
    37,592
    
    
    
    636
    
    
    
    6.77
    
    
    
    31,140
    
    
    
    439
    
    
    
    5.64Federal Home Loan Bank stock
    
    
    44,271
    
    
    
    289
    
    
    
    2.61
    
    
    
    41,598
    
    
    
    347
    
    
    
    3.34Total interest-earning assets
    
    
    4,333,710
    
    
    
    74,723
    
    
    
    6.90
    
    
    
    4,173,448
    
    
    
    70,480
    
    
    
    6.76Non-interest-earning assets
    
    
    217,345
    
    
    
    
    
    
    
    
    
    
    
    207,613Total assets
    
    $
    4,551,055
    
    
    
    
    
    
    
    
    
    
    $
    4,381,061Interest-Bearing LiabilitiesDemand deposits
    
    $
    958,627
    
    
    
    5,694
    
    
    
    2.38
    
    
    $
    882,308
    
    
    
    5,427
    
    
    
    2.46Regular passbook savings
    
    
    195,910
    
    
    
    225
    
    
    
    0.46
    
    
    
    210,632
    
    
    
    242
    
    
    
    0.46Certificates of deposit
    
    
    2,048,115
    
    
    
    25,505
    
    
    
    4.98
    
    
    
    2,075,036
    
    
    
    22,949
    
    
    
    4.42Total deposits
    
    
    3,202,652
    
    
    
    31,424
    
    
    
    3.92
    
    
    
    3,167,976
    
    
    
    28,618
    
    
    
    3.61Short-term borrowings
    
    
    667,165
    
    
    
    8,474
    
    
    
    5.08
    
    
    
    253,174
    
    
    
    3,550
    
    
    
    5.61Long-term borrowings
    
    
    304,296
    
    
    
    3,241
    
    
    
    4.26
    
    
    
    591,298
    
    
    
    5,474
    
    
    
    3.70Total interest-bearing liabilities
    
    
    4,174,113
    
    
    
    43,139
    
    
    
    4.13
    
    
    
    4,012,448
    
    
    
    37,642
    
    
    
    3.75Non-interest-bearing liabilities
    
    
    41,701
    
    
    
    
    
    
    
    
    
    
    
    38,876Total liabilities
    
    
    4,215,814
    
    
    
    
    
    
    
    
    
    
    
    4,051,324Stockholders equity
    
    
    335,241
    
    
    
    
    
    
    
    
    
    
    
    329,737Total liabilities and stockholders equity
    
    $
    4,551,055
    
    
    
    
    
    
    
    
    
    
    $
    4,381,061Net interest income/interest
rate spread (5)
    
    
    
    
    
    $
    31,584
    
    
    
    2.77
    %
    
    
    
    
    
    $
    32,838
    
    
    
    3.01
    %Net interest-earning assets
    
    $
    159,597
    
    
    
    
    
    
    
    
    
    
    $
    161,000Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    2.92
    %
    
    
    
    
    
    
    
    
    
    
    3.15
    %Ratio of average interest-earning assets
to average interest-bearing liabilities
    
    
    1.04
    
    
    
    
    
    
    
    
    
    
    
    1.04
 
 (1)
    
    Annualized(2)
    
    For the purpose of these computations, non-accrual loans are included in the daily
average loan amounts
outstanding.(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.(6)
    
    Net interest margin represents net interest income as a percentage of average
interest-earning assets. 26




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##### Table of Contents



Six Months Ended September 30,2007
    
    
    2006Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Cost(1)
    
    
    Balance
    
    
    Interest
    
    
    Cost(1)(Dollars In Thousands)Interest-Earning AssetsMortgage loans
    
    $
    3,021,682
    
    
    $
    104,132
    
    
    
    6.89
    %
    
    $
    2,885,418
    
    
    $
    96,241
    
    
    
    6.67
    %Consumer loans
    
    
    644,763
    
    
    
    23,916
    
    
    
    7.42
    
    
    
    625,506
    
    
    
    22,472
    
    
    
    7.19Commercial business loans
    
    
    235,489
    
    
    
    9,697
    
    
    
    8.24
    
    
    
    207,386
    
    
    
    8,802
    
    
    
    8.49Total loans receivable (2) (3)
    
    
    3,901,934
    
    
    
    137,745
    
    
    
    7.06
    
    
    
    3,718,310
    
    
    
    127,515
    
    
    
    6.86Mortgage-related securities (4)
    
    
    243,074
    
    
    
    6,034
    
    
    
    4.96
    
    
    
    252,519
    
    
    
    5,965
    
    
    
    4.72Investment securities (4)
    
    
    85,271
    
    
    
    1,988
    
    
    
    4.66
    
    
    
    64,269
    
    
    
    1,503
    
    
    
    4.68Interest-bearing deposits
    
    
    32,156
    
    
    
    1,031
    
    
    
    6.41
    
    
    
    41,356
    
    
    
    1,070
    
    
    
    5.17Federal Home Loan Bank stock
    
    
    42,824
    
    
    
    572
    
    
    
    2.67
    
    
    
    43,237
    
    
    
    694
    
    
    
    3.21Total interest-earning assets
    
    
    4,305,259
    
    
    
    147,370
    
    
    
    6.85
    
    
    
    4,119,691
    
    
    
    136,747
    
    
    
    6.64Non-interest-earning assets
    
    
    215,023
    
    
    
    
    
    
    
    
    
    
    
    204,086Total assets
    
    $
    4,520,282
    
    
    
    
    
    
    
    
    
    
    $
    4,323,777Interest-Bearing LiabilitiesDemand deposits
    
    $
    949,536
    
    
    
    11,398
    
    
    
    2.40
    
    
    $
    856,693
    
    
    
    9,835
    
    
    
    2.30Regular passbook savings
    
    
    194,776
    
    
    
    437
    
    
    
    0.45
    
    
    
    212,338
    
    
    
    486
    
    
    
    0.46Certificates of deposit
    
    
    2,078,707
    
    
    
    51,035
    
    
    
    4.91
    
    
    
    2,059,754
    
    
    
    43,653
    
    
    
    4.24Total deposits
    
    
    3,223,019
    
    
    
    62,870
    
    
    
    3.90
    
    
    
    3,128,785
    
    
    
    53,974
    
    
    
    3.45Short-term borrowings
    
    
    581,196
    
    
    
    15,132
    
    
    
    5.21
    
    
    
    209,870
    
    
    
    5,812
    
    
    
    5.54Long-term borrowings
    
    
    339,612
    
    
    
    6,767
    
    
    
    3.99
    
    
    
    618,589
    
    
    
    11,278
    
    
    
    3.65Total interest-bearing liabilities
    
    
    4,143,827
    
    
    
    84,769
    
    
    
    4.09
    
    
    
    3,957,244
    
    
    
    71,064
    
    
    
    3.59Non-interest-bearing liabilities
    
    
    40,206
    
    
    
    
    
    
    
    
    
    
    
    39,484Total liabilities
    
    
    4,184,033
    
    
    
    
    
    
    
    
    
    
    
    3,996,728Stockholders equity
    
    
    336,249
    
    
    
    
    
    
    
    
    
    
    
    327,049Total liabilities and stockholders equity
    
    $
    4,520,282
    
    
    
    
    
    
    
    
    
    
    $
    4,323,777Net interest income/interest
rate spread (5)
    
    
    
    
    
    $
    62,601
    
    
    
    2.76
    %
    
    
    
    
    
    $
    65,683
    
    
    
    3.05
    %Net interest-earning assets
    
    $
    161,432
    
    
    
    
    
    
    
    
    
    
    $
    162,447Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    2.91
    %
    
    
    
    
    
    
    
    
    
    
    3.19
    %Ratio of average interest-earning assets
to average interest-bearing liabilities
    
    
    1.04
    
    
    
    
    
    
    
    
    
    
    
    1.04
 
 (1)
    
    Annualized(2)
    
    For the purpose of these computations, non-accrual loans are included in the daily
average loan amounts
outstanding.(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.(6)
    
    Net interest margin represents net interest income as a percentage of average
interest-earning assets. 27




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##### Table of Contents



Non-Interest Income.
 Non-Interest Expense.
 Income Taxes.
    28




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##### Table of Contents



FINANCIAL CONDITION
          29




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##### Table of Contents



ASSET QUALITY
   At September 30,
    
    
    At March 31,2007
    
    
    2007
    
    
    2006
    
    
    2005(Dollars In Thousands)Non-accrual loans:Single-family residential
    
    $
    15,197
    
    
    $
    13,038
    
    
    $
    2,856
    
    
    $
    2,406Multi-family residential
    
    
    16,315
    
    
    
    17,289
    
    
    
    4,214
    
    
    
    Commercial real estate
    
    
    10,412
    
    
    
    12,030
    
    
    
    3,398
    
    
    
    4,894Construction and land
    
    
    8,133
    
    
    
    1,696
    
    
    
    
    
    
    
    Consumer
    
    
    1,027
    
    
    
    705
    
    
    
    548
    
    
    
    453Commercial business
    
    
    4,497
    
    
    
    2,283
    
    
    
    2,513
    
    
    
    6,697Total non-accrual loans
    
    
    55,581
    
    
    
    47,041
    
    
    
    13,529
    
    
    
    14,450Foreclosed properties and repossessed assets, net
    
    
    7,497
    
    
    
    7,411
    
    
    
    2,192
    
    
    
    1,458Total non-performing assets
    
    $
    63,078
    
    
    $
    54,452
    
    
    $
    15,721
    
    
    $
    15,908Performing troubled debt restructurings
    
    $
    400
    
    
    $
    400
    
    
    $
    
    
    
    $
    Total non-accrual loans to total loans(1)
    
    
    1.34
    %
    
    
    1.16
    %
    
    
    0.35
    %
    
    
    0.40
    %Total non-performing assets to total assets
    
    
    1.37
    
    
    
    1.20
    
    
    
    0.37
    
    
    
    0.39Allowance for loan losses to total loans(1)
    
    
    0.53
    
    
    
    0.50
    
    
    
    0.41
    
    
    
    0.73Allowance for loan losses to total
non-accrual loans
    
    
    39.59
    
    
    
    43.62
    
    
    
    115.09
    
    
    
    183.00Allowance for loan and foreclosure losses
to total non-performing assets
    
    
    34.91
    
    
    
    37.71
    
    
    
    100.48
    
    
    
    167.39
 
 (1)
    
    Total loans are gross loans receivable before the reduction for loans in process,
unearned interest and loan fees and the
allowance for loan losses.  30




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##### Table of Contents



At September 30,
    
    
    March 31,2007
    
    
    2007
    
    
    2006
    
    
    2005(In Thousands)Impaired loans
    
    $
    7,929
    
    
    $
    1,426
    
    
    $
    6,381
    
    
    $
    10,827Less:Specific valuation allowance
    
    
    
    
    
    
    504
    
    
    
    3,111
    
    
    
    7,126Total impaired loans, net of
specific valuation allowance
    
    $
    7,929
    
    
    $
    922
    
    
    $
    3,270
    
    
    $
    3,701Average impaired loans
    
    $
    2,881
    
    
    $
    2,360
    
    
    $
    3,829
    
    
    $
    11,535Interest income recognized
on impaired loans
    
    $
    2
    
    
    $
    44
    
    
    $
    208
    
    
    $
    249Interest income recognized on a cash basis
on impaired loans
    
    $
    2
    
    
    $
    44
    
    
    $
    208
    
    
    $
    249
 31




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##### Table of Contents



At September 30,
    
    
    At March 31,2007
    
    
    2007
    
    
    2006
    
    
    2005(In Thousands)30 to 59 days
    
    $
    40,290
    
    
    $
    12,776
    
    
    $
    9,874
    
    
    $
    5,85360 to 89 days
    
    
    8,947
    
    
    
    5,414
    
    
    
    733
    
    
    
    714Total
    
    $
    49,237
    
    
    $
    18,190
    
    
    $
    10,607
    
    
    $
    6,567
    Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Dollars In Thousands)Allowance at beginning of period
    
    $
    22,220
    
    
    $
    15,636
    
    
    $
    20,517
    
    
    $
    15,570Charge-offs:Mortgage
    
    
    (1,965
    )
    
    
    (210
    )
    
    
    (2,415
    )
    
    
    (625
    )Consumer
    
    
    (107
    )
    
    
    (90
    )
    
    
    (313
    )
    
    
    (160
    )Commercial business
    
    
    (385
    )
    
    
    (10
    )
    
    
    (388
    )
    
    
    (846
    )Total charge-offs
    
    
    (2,457
    )
    
    
    (310
    )
    
    
    (3,116
    )
    
    
    (1,631
    )Recoveries:Mortgage
    
    
    77
    
    
    
    
    
    
    
    84
    
    
    
    1Consumer
    
    
    8
    
    
    
    9
    
    
    
    22
    
    
    
    15Commercial business
    
    
    59
    
    
    
    433
    
    
    
    129
    
    
    
    608Total recoveries
    
    
    144
    
    
    
    442
    
    
    
    235
    
    
    
    624Net (charge-offs) recoveries
    
    
    (2,313
    )
    
    
    132
    
    
    
    (2,881
    )
    
    
    (1,007
    )Provision for loan losses
    
    
    2,095
    
    
    
    2,625
    
    
    
    4,366
    
    
    
    3,830Allowance at end of period
    
    $
    22,002
    
    
    $
    18,393
    
    
    $
    22,002
    
    
    $
    18,393Net charge-offs to average loans
    
    
    (0.24
    )%
    
    
    0.01
    %
    
    
    (0.15
    )%
    
    
    (0.05
    )%
 32




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
     33




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##### Table of Contents



Minimum RequiredMinimum Required
    
    to be WellFor Capital
    
    Capitalized UnderActual
    
    Adequacy Purposes
    
    OTS RequirementsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars In Thousands)At September 30, 2007:Tier 1 capital(to adjusted tangible assets)
    
    $
    357,597
    
    
    
    7.91
    %
    
    $
    135,669
    
    
    
    3.00
    %
    
    $
    226,115
    
    
    
    5.00
    %Risk-based capital(to risk-based assets)
    
    
    379,599
    
    
    
    10.64
    
    
    
    285,526
    
    
    
    8.00
    
    
    
    356,907
    
    
    
    10.00Tangible capital(to tangible assets)
    
    
    357,597
    
    
    
    7.91
    
    
    
    67,835
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/AAt March 31, 2007:Tier 1 capital(to adjusted tangible assets)
    
    $
    352,333
    
    
    
    7.92
    %
    
    $
    133,407
    
    
    
    3.00
    %
    
    $
    222,344
    
    
    
    5.00
    %Risk-based capital(to risk-based assets)
    
    
    372,346
    
    
    
    10.84
    
    
    
    274,773
    
    
    
    8.00
    
    
    
    343,466
    
    
    
    10.00Tangible capital(to tangible assets)
    
    
    352,333
    
    
    
    7.92
    
    
    
    66,703
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/A
  September 30,
    
    
    March 31,2007
    
    
    2007(In Thousands)Stockholders equity of the Bank
    
    $
    377,348
    
    
    $
    371,708Less: Goodwill and intangible assets
    
    
    (19,956
    )
    
    
    (19,956
    )Accumulated other comprehensive income
    
    
    205
    
    
    
    581Tier 1 and tangible capital
    
    
    357,597
    
    
    
    352,333Plus: Allowable general valuation allowances
    
    
    22,002
    
    
    
    20,013Risk-based capital
    
    $
    379,599
    
    
    $
    372,346
 34




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##### Table of Contents



GUARANTEES
   Amount
    
    
    AmountSubsidiary
    
    Partnership
    
    Amount
    
    
    Outstanding
    
    
    Outstandingof IDI
    
    Entity
    
    Guaranteed
    
    
    at 9/30/07
    
    
    at 3/31/07(Dollars in thousands)Oakmont
    
    Chandler Creek
    
    $
    14,150
    
    
    $
    12,350
    
    
    $
    12,350Davsha III
    
    Indian Palms 147, LLC
    
    
    4,655
    
    
    
    226
    
    
    
    851Davsha V
    
    Villa Santa Rosa, LLC
    
    
    11,000
    
    
    
    341
    
    
    
    1,601Davsha VII
    
    La Vista Grande 121, LLC
    
    
    14,619
    
    
    
    9,830
    
    
    
    11,067Total
    
    
    
    $
    44,424
    
    
    $
    22,747
    
    
    $
    25,869
      35




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##### Table of Contents



ASSET/LIABILITY MANAGEMENT
     REGULATORY DEVELOPMENTS
  FORWARD-LOOKING STATEMENTS
  36




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##### Table of Contents



Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk.
 The Corporations market rate risk has not materially changed from March 31, 2007.
See Item 7A in the Corporations Annual Report on Form 10-K for the year ended March
31, 2007. 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 Companys Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of the
Corporations disclosure controls and procedures (as defined in Exchange Act Rule
13a-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 Companys disclosure controls and procedures are operating in an
effective manner.No change in the Corporations internal control over financial reporting (as defined
in Exchange Act Rule 13a-15(f)) has 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.
 
 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.
 There have been no material changes to the factors disclosed in Part I, Item
1A, Risk Factors in our Annual Report on Form 10-K for the year ended March 31,
2007.
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##### Table of Contents



Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
 (a)  (b) Not applicable.(c) The following table sets forth information with respect to any purchase made by or on
behalf of
the Corporation or any affiliated purchaser, as defined in §240.10b-18(a)(3) under the
Exchange
Act, of shares of the Corporations Common Stock during the indicated periods.
 Total Number ofShares Purchased
    
    
    Maximum Number ofTotal Number
    
    
    Average
    
    
    as Part of Publicly
    
    
    Shares that May Yet Beof Shares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Purchased Under thePeriod
    
    Purchased
    
    
    per Share
    
    
    or Programs
    
    
    Plans or Programs(2)July 1 -July 31, 2007
    
    
    1,999
    
    
    $
    25.98
    
    
    
    
    
    
    
    1,650,860August 1 - August 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,650,860September 1 - September 30, 2007
    
    
    18,700
    
    
    
    27.95
    
    
    
    18,700
    
    
    
    1,632,160Total
    
    
    20,699
    (1)
    
    $
    27.76
    
    
    
    18,700
    
    
    
    1,632,160
 
 (1)
    
    Consists of 18,700 shares purchased pursuant to a publicly announced repurchase program, and
1,999 shares acquired from employees in payment for the exercise price of stock options
granted to them pursuant to the Corporations stock option program.(2)
    
    Effective November 3, 2006, the Board of Directors extended the current share repurchase
program of approximately 1.3 million shares of its outstanding common stock in the open market
for an additional year. In July 2007, the Board of Directors approved the repurchase of an
additional 5% of the Corporations common stock, representing approximately 1,068,000 of
outstanding shares. The repurchases are authorized to be made from time to time in
open-market and/or negotiated transactions as, in the opinion of management, market conditions
may warrant. The repurchased shares will be held as treasury stock and will be available for
general corporate purposes. The Corporation utilizes various securities brokers as its agent
for the stock repurchase program. 
 Item 3
    
    Defaults upon Senior Securities.
 Not applicable.
 
 Item 4
    
    Submission of Matters to a Vote of Security Holders.
 Not applicable.
 
 Item 5
    
    Other Information.
 None.
 
 Item 6
    
    Exhibits
 The following exhibits are filed with this report:
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##### Table of Contents



Exhibit 31.1
    
    Certification of Chief Executive Officer Pursuant to Rules 13a-14 and
15d-14 of the Securities Exchange Act of 1934 and Section 302 of the
Sarbanes-Oxley Act of 2002 is included herein as an exhibit to this Report.Exhibit 31.2
    
    Certification of Chief Financial Officer Pursuant to Rules 13a-14 and
15d-14 of the Securities Exchange Act of 1934 and Section 302 of the
Sarbanes-Oxley Act of 2002 is included as an exhibit to this Report.Exhibit 32.1
    
    Certification of the Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) is included herein as an
exhibit to this Report.Exhibit 32.2
    
    Certification of the Chief Financial Officer pursuant to Section 906 of
the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) is included herein as an
exhibit to this Report.
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##### Table of Contents



SIGNATURES
   Date: November 6, 2007
    By:
    /s/ Douglas J. TimmermanDouglas J. Timmerman, Chairman of theBoard, President and Chief Executive OfficerDate: November 6, 2007
    By:
    /s/ Dale C. RinggenbergDale C. Ringgenberg, Treasurer andChief Financial Officer 40