##### 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 June 30, 2008
 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
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  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 June 30, 2008
and March 31, 2008
    
    
    2Consolidated Statements of Income for the Three
Months Ended June 30, 2008 and 2007
    
    
    3Consolidated Statements of Cash Flows for the Three Months
Ended June 30, 2008 and 2007
    
    
    4Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    21Results of Operations
    
    
    26Financial Condition
    
    
    30Asset Quality
    
    
    31Liquidity & Capital Resources
    
    
    35Guarantees
    
    
    37Asset/Liability Management
    
    
    38Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 4 Controls and Procedures
    
    
    39Part II  Other InformationItem 1 Legal Proceedings
    
    
    40Item 1A Risk Factors
    
    
    40Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 3 Defaults upon Senior Securities
    
    
    42Item 4 Submission of Matters to a Vote of Security Holders
    
    
    42Item 5 Other Information
    
    
    43Item 6 Exhibits
    
    
    44Signatures
    
    
    45Exhibit 10.1Exhibit 10.2Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
  1




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
  June 30,
    
    
    March 31,2008
    
    
    2008(In Thousands, Except Share Data)AssetsCash
    
    $
    85,101
    
    
    $
    102,622Interest-bearing deposits
    
    
    17,683
    
    
    
    155,121Cash and cash equivalents
    
    
    102,784
    
    
    
    257,743Investment securities available for sale
    
    
    97,707
    
    
    
    87,036Mortgage-related securities available for sale
    
    
    270,042
    
    
    
    269,370Mortgage-related securities held to maturity (fair value of $57
and $60, respectively)
    
    
    57
    
    
    
    59Loans, less allowance for loan losses of $40,265 at June 30, 2008
and $38,285 at March 31, 2008:Held for sale
    
    
    6,619
    
    
    
    9,669Held for investment
    
    
    4,129,075
    
    
    
    4,202,833Foreclosed properties and repossessed assets, net
    
    
    24,006
    
    
    
    8,247Real estate held for development and sale
    
    
    59,808
    
    
    
    59,002Office properties and equipment
    
    
    47,937
    
    
    
    47,916Federal Home Loan Bank stockat cost
    
    
    54,829
    
    
    
    54,829Accrued interest on investments, loans and other assets
    
    
    84,096
    
    
    
    80,478Goodwill
    
    
    72,375
    
    
    
    72,375Total assets
    
    $
    4,949,335
    
    
    $
    5,149,557Liabilities and Stockholders EquityDepositsNon-interest bearing
    
    $
    302,011
    
    
    $
    280,897Interest bearing
    
    
    3,104,964
    
    
    
    3,259,097Total deposits
    
    
    3,406,975
    
    
    
    3,539,994Short-term borrowings
    
    
    273,015
    
    
    
    232,289Long-term borrowings
    
    
    874,314
    
    
    
    974,472Other liabilities
    
    
    45,391
    
    
    
    51,605Total liabilities
    
    
    4,599,695
    
    
    
    4,798,360Commitments and contingent liabilities (Note 11)Minority interest in real estate partnerships
    
    
    6,041
    
    
    
    6,081Preferred 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, 21,480,959 and 21,348,170 shares outstanding,
respectively
    
    
    2,536
    
    
    
    2,536Additional paid-in capital
    
    
    72,313
    
    
    
    72,300Retained earnings
    
    
    374,578
    
    
    
    374,593Accumulated other comprehensive income (loss)
    
    
    (3,035
    )
    
    
    1,864Treasury stock (3,882,380 and 4,015,169 shares, respectively), at cost
    
    
    (97,441
    )
    
    
    (100,930
    )Deferred compensation obligation
    
    
    (5,352
    )
    
    
    (5,247
    )Total stockholders equity
    
    
    343,599
    
    
    
    345,116Total liabilities, minority interest and stockholders equity
    
    $
    4,949,335
    
    
    $
    5,149,557
  2




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Statements of Income
  Three Months Ended June 30,2008
    
    
    2007(In Thousands, Except Per Share Data)Interest income:Loans
    
    $
    65,711
    
    
    $
    68,031Mortgage-related securities
    
    
    3,669
    
    
    
    3,006Investment securities and Federal Home Loan Bank stock
    
    
    800
    
    
    
    1,215Interest-bearing deposits
    
    
    328
    
    
    
    395Total interest income
    
    
    70,508
    
    
    
    72,647Interest expense:Deposits
    
    
    26,842
    
    
    
    31,446Short-term borrowings
    
    
    1,743
    
    
    
    6,658Long-term borrowings
    
    
    8,502
    
    
    
    3,526Total interest expense
    
    
    37,087
    
    
    
    41,630Net interest income
    
    
    33,421
    
    
    
    31,017Provision for loan losses
    
    
    9,400
    
    
    
    2,271Net interest income after provision for loan losses
    
    
    24,021
    
    
    
    28,746Non-interest income:Real estate investment partnership revenue
    
    
    
    
    
    
    4,726Loan servicing income
    
    
    1,201
    
    
    
    1,480Credit enhancement income
    
    
    417
    
    
    
    421Service charges on deposits
    
    
    3,859
    
    
    
    3,091Investment and insurance commissions
    
    
    1,181
    
    
    
    982Net gain on sale of loans
    
    
    2,243
    
    
    
    1,587Net gain on sale of investments and mortgage-related securities
    
    
    
    
    
    
    12Other revenue from real estate partnership operations
    
    
    1,473
    
    
    
    1,223Other
    
    
    1,435
    
    
    
    1,118Total non-interest income
    
    
    11,809
    
    
    
    14,640Non-interest expense:Compensation
    
    
    13,307
    
    
    
    11,270Real estate investment partnership cost of sales
    
    
    
    
    
    
    4,340Occupancy
    
    
    2,417
    
    
    
    1,937Furniture and equipment
    
    
    2,126
    
    
    
    1,481Data processing
    
    
    1,812
    
    
    
    1,487Marketing
    
    
    587
    
    
    
    1,084Other expenses from real estate partnership operations
    
    
    2,191
    
    
    
    2,085Other
    
    
    4,351
    
    
    
    3,203Total non-interest expense
    
    
    26,791
    
    
    
    26,887Minority interest in loss of consolidated real estate partnerships
    
    
    (39
    )
    
    
    (75
    )Income before income taxes
    
    
    9,078
    
    
    
    16,574Income taxes
    
    
    3,566
    
    
    
    6,688Net income
    
    $
    5,512
    
    
    $
    9,886Earnings per share:Basic
    
    $
    0.26
    
    
    $
    0.47Diluted
    
    
    0.26
    
    
    
    0.46Dividends declared per share
    
    
    0.18
    
    
    
    0.17
  3




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
  Three Months Ended June 30,2008
    
    
    2007(In Thousands)Operating ActivitiesNet income
    
    $
    5,512
    
    
    $
    9,886Adjustments to reconcile net income to net
cash provided by operating activities:Provision for loan losses
    
    
    9,400
    
    
    
    2,271Provision for depreciation and amortization
    
    
    1,255
    
    
    
    1,016Cash paid due to origination of loans held for sale
    
    
    (176,203
    )
    
    
    (127,562
    )Cash received due to sale of loans held for sale
    
    
    181,496
    
    
    
    124,561Net gain on sales of loans
    
    
    (2,243
    )
    
    
    (1,587
    )Loss on sale of investments
    
    
    
    
    
    
    (12
    )Decrease (increase) in accrued interest receivable
    
    
    396
    
    
    
    (583
    )Increase in prepaid expense and other assets
    
    
    (4,014
    )
    
    
    (404
    )Decrease in accrued interest payable
    
    
    (5,526
    )
    
    
    (197
    )Increase (decrease) in other payable
    
    
    (4,092
    )
    
    
    7,388Other
    
    
    (4,624
    )
    
    
    (714
    )Net cash provided by operating activities
    
    
    1,357
    
    
    
    14,063Investing ActivitiesProceeds from maturities of investment securities
    
    
    7,690
    
    
    
    25,112Purchase of investment securities available for sale
    
    
    (19,790
    )
    
    
    (26,648
    )Purchase of mortgage-related securities available for sale
    
    
    (24,168
    )
    
    
    (10,684
    )Principal collected on mortgage-related securities
    
    
    17,189
    
    
    
    15,224Net decrease (increase) in loans held for investment
    
    
    55,293
    
    
    
    (17,591
    )Net purchase of office properties and equipment
    
    
    (1,234
    )
    
    
    (1,222
    )Proceeds from sale of foreclosed properties
    
    
    762
    
    
    
    3,735Investment in real estate held for development and sale
    
    
    (890
    )
    
    
    1,357Net cash provided by (used in) investing activities
    
    
    34,852
    
    
    
    (10,717
    )
 4




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Contd)
 Three Months Ended June 30,2008
    
    
    2007(In Thousands)Financing ActivitiesDecrease in deposit accounts
    
    $
    (135,276
    )
    
    $
    (4,593
    )Increase in advance payments by borrowers
for taxes and insurance
    
    
    5,661
    
    
    
    5,714Increase in short-term borrowings
    
    
    40,735
    
    
    
    72,665Proceeds from long-term borrowings
    
    
    20,842
    
    
    
    8,183Repayment of long-term borrowings
    
    
    (121,000
    )
    
    
    (90,309
    )Treasury stock purchased
    
    
    
    
    
    
    (10,375
    )Exercise of stock options
    
    
    1,485
    
    
    
    533Cash received from employee stock purchase plan
    
    
    157
    
    
    
    178Tax benefit from stock related compensation
    
    
    13
    
    
    
    3Payments of cash dividends to stockholders
    
    
    (3,785
    )
    
    
    (3,606
    )Net cash used in financing activities
    
    
    (191,168
    )
    
    
    (21,607
    )Net decrease in cash and cash equivalents
    
    
    (154,959
    )
    
    
    (18,261
    )Cash and cash equivalents at beginning of period
    
    
    257,743
    
    
    
    122,038Cash and cash equivalents at end of period
    
    $
    102,784
    
    
    $
    103,777Supplementary cash flow information:Cash paid or credited to accounts:Interest on deposits and borrowings
    
    $
    42,613
    
    
    $
    41,433Income taxes
    
    
    3,155
    
    
    
    1,993Non-cash transactions:Transfer of loans to foreclosed properties
    
    
    16,222
    
    
    
    
  5




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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
       6




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##### Table of Contents



Note 3  Business Combination
   Unaudited Pro Forma Condensed Combined Financial Information
  Three MonthsEnded June 30,2007Net interest income after provision for loan losses
    
    $
    33,105Non-interest income
    
    
    15,945Non-interest expense
    
    
    30,712Minority interest in loss of real estate partnership operations
    
    
    (75
    )Income before taxes
    
    
    18,413Income taxes
    
    
    7,278Net income
    
    $
    11,135Per common share informationEarnings
    
    
    0.53Diluted earnings
    
    
    0.52Average common shares issued and outstanding
    
    
    21,124,164Average diluted common shares outstanding
    
    
    21,320,307
 Note 4  Stock-Based Compensation
   7




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##### Table of Contents



Three Months Ended June 30, 2008WeightedAverageOptions
    
    
    PriceOutstanding at beginning of period
    
    
    752,397
    
    
    $
    20.43Granted
    
    
    
    
    
    
    Exercised
    
    
    (96,870
    )
    
    
    15.34Forfeited
    
    
    (2,562
    )
    
    
    17.75Outstanding at end of period
    
    
    652,965
    
    
    $
    21.20Options exercisable at June 30, 2008
    
    
    652,965
    
    
    $
    21.20
  Options Outstanding
    
    Exercisable OptionsWeighted-AverageRemaining
    
    Weighted-
    
    
    
    
    
    Weighted-Contractual
    
    Average
    
    
    
    
    
    AverageRange of Exercise Prices
    
    Shares
    
    Life (Years)
    
    Exercise Price
    
    Shares
    
    Exercise Price$15.06  $19.94
    
    
    299,625
    
    
    
    1.59
    
    
    $
    17.26
    
    
    
    299,625
    
    
    $
    17.26$21.81  $23.77
    
    
    277,250
    
    
    
    4.48
    
    
    
    23.04
    
    
    
    277,250
    
    
    
    23.04$28.50  $31.95
    
    
    76,090
    
    
    
    6.69
    
    
    
    29.99
    
    
    
    76,090
    
    
    
    29.99652,965
    
    
    
    3.41
    
    
    
    21.20
    
    
    
    652,965
    
    
    
    21.20
   Three Months Ended June 30, 2008WeightedAverageOptions
    
    
    PriceBalance at beginning of period
    
    
    78,800
    
    
    $
    26.32Restricted stock granted
    
    
    
    
    
    
    Restricted stock vested
    
    
    
    
    
    
    Restricted stock forfeited
    
    
    
    
    
    
    Balance at end of period
    
    
    78,800
    
    
    $
    26.32
 8




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##### Table of Contents



Note 5  Loans Receivable
  June 30,
    
    
    March 31,2008
    
    
    2008First mortgage loans:Single-family residential
    
    $
    884,433
    
    
    $
    893,001Multi-family residential
    
    
    684,326
    
    
    
    694,423Commercial real estate
    
    
    1,050,345
    
    
    
    1,088,004Construction
    
    
    364,003
    
    
    
    402,395Land
    
    
    296,476
    
    
    
    306,3633,279,583
    
    
    
    3,384,186Second mortgage loans
    
    
    393,741
    
    
    
    356,009Education loans
    
    
    289,875
    
    
    
    275,850Commercial business loans and leases
    
    
    270,756
    
    
    
    277,312Credit card and other consumer loans
    
    
    55,286
    
    
    
    95,1494,289,241
    
    
    
    4,388,506Contras to loans:Undisbursed loan proceeds
    
    
    (114,140
    )
    
    
    (141,219
    )Allowance for loan losses
    
    
    (40,264
    )
    
    
    (38,285
    )Unearned loan fees
    
    
    (5,676
    )
    
    
    (6,075
    )Net discount on loans purchased
    
    
    (11
    )
    
    
    (11
    )Unearned interest
    
    
    (75
    )
    
    
    (83
    )(160,166
    )
    
    
    (185,673
    )$
    4,129,075
    
    
    $
    4,202,833
  Three Months Ended June 30,2008
    
    
    2007(Dollars In Thousands)Allowance at beginning of year
    
    $
    38,285
    
    
    $
    20,517Provision
    
    
    9,400
    
    
    
    2,271Charge-offs
    
    
    (7,426
    )
    
    
    (659
    )Recoveries
    
    
    6
    
    
    
    91Allowance at end of year
    
    $
    40,265
    
    
    $
    22,220
  9




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##### Table of Contents



At June 30,
    
    
    At March 31,2008
    
    

    2008
    
    
    2007
    
    
    2006(In Thousands)Impaired loans with valuation
reserve required
    
    $
    54,619
    
    
    $
    52,866
    
    
    $
    2,130
    
    
    $
    6,381Impaired loans without a
specific reserve
    
    
    68,411
    
    
    
    51,192
    
    
    
    45,718
    
    
    
    9,107Less:Specific valuation allowance
    
    
    (19,286
    )
    
    
    (17,639
    )
    
    
    (517
    )
    
    
    (3,111
    )$
    103,744
    
    
    $
    86,419
    
    
    $
    47,331
    
    
    $
    12,377Average impaired loans
    
    $
    73,213
    
    
    $
    61,931
    
    
    $
    24,620
    
    
    $
    9,010Interest income recognized
on impaired loans
    
    $
    43
    
    
    $
    107
    
    
    $
    44
    
    
    $
    208Interest income recognized on a cash basis
on impaired loans
    
    $
    43
    
    
    $
    107
    
    
    $
    44
    
    
    $
    208Loans on nonaccrual status
    
    $
    120,131
    
    
    $
    101,241
    
    
    $
    47,040
    
    
    $
    13,529Loans past due ninety days or more and
still accruing
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Note 6  Goodwill and Other Intangible Assets
    10




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##### Table of Contents



June 30,
    
    
    March 31,2008
    
    
    2008(In Thousands)Balance at beginning of period
    
    $
    5,359
    
    
    $
    Other intangibles from business combination
    
    
    
    
    
    
    5,517Amortization expense
    
    
    (159
    )
    
    
    (158
    )Balance at end of period
    
    $
    5,200
    
    
    $
    5,359Gross carrying amount
    
    $
    5,517
    
    
    $
    5,517Accumulated amortization
    
    
    (317
    )
    
    
    (158
    )Net book value
    
    $
    5,200
    
    
    $
    5,359
       11




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##### Table of Contents



Residential
    
    
    Other(In Thousands)Mortgage servicing rights as of March 31, 2007
    
    $
    6,364
    
    
    $
    1,047Acquired servicing rights of S & C Bank at market value
    
    
    1,632
    
    
    
    Additions
    
    
    5,822
    
    
    
    629Amortization
    
    
    (1,985
    )
    
    
    (333
    )Reclassification
    
    
    (135
    )
    
    
    135Mortgage servicing rights before valuation allowance
at end of period
    
    
    11,698
    
    
    
    1,478Valuation allowance
    
    
    
    
    
    
    Net mortgage servicing rights as of March 31, 2008
    
    $
    11,698
    
    
    $
    1,478Fair market value at the end of the period
    
    $
    13,764
    
    
    $
    2,040Key assumptions:Weighted average discount
    
    
    11.04
    %
    
    
    20.12
    %Weighted average prepayment speed assumption
    
    
    16.82
    %
    
    
    13.15
    %Mortgage servicing rights as of March 31, 2008
    
    $
    11,698
    
    
    $
    1,478Additions
    
    
    2,080
    
    
    
    44Amortization
    
    
    (682
    )
    
    
    (102
    )Mortgage servicing rights before valuation allowance
at end of period
    
    
    13,096
    
    
    
    1,420Valuation allowance
    
    
    
    
    
    
    Net mortgage servicing rights as of June 30, 2008
    
    $
    13,096
    
    
    $
    1,420Fair market value at the end of the period
    
    $
    16,858
    
    
    $
    1,978Key assumptions:Weighted average discount
    
    
    11.02
    %
    
    
    18.36
    %Weighted average prepayment speed assumption
    
    
    11.21
    %
    
    
    12.09
    %
  12




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##### Table of Contents



Residential
    
    
    Other
    
    
    CoreMortgage
    
    
    Mortgage
    
    
    DepositServicing Rights
    
    
    Servicing Rights
    
    
    Premium
    
    
    Total(In Thousands)Quarter ended June 30, 2008 (actual)
    
    $
    682
    
    
    $
    102
    
    
    $
    159
    
    
    $
    943Estimate for the year ended March 31,
2009
    
    $
    2,728
    
    
    $
    408
    
    
    $
    636
    
    
    $
    3,7722010
    
    
    2,728
    
    
    
    408
    
    
    
    636
    
    
    
    3,7722011
    
    
    2,728
    
    
    
    408
    
    
    
    636
    
    
    
    3,7722012
    
    
    2,728
    
    
    
    196
    
    
    
    636
    
    
    
    3,560Thereafter
    
    
    2,184
    
    
    
    
    
    
    
    2,656
    
    
    
    4,840$
    13,096
    
    
    $
    1,420
    
    
    $
    5,200
    
    
    $
    19,716
 Note 7  Recent Accounting Pronouncements
 Disclosures about Derivative Instruments
and Hedging Activities  an Amendment of FASB Statement 133 . a b Accounting for Derivative Instruments
and Hedging Activities; c
 
    
    Disclosure of the objectives for using derivative instruments be disclosed in terms of
underlying risk and accounting designation;
    
    Disclosure of the fair values of derivative instruments and their gains and losses in a
tabular format;
    
    Disclosure of information about credit-risk-related contingent features; and
    
    Cross-reference from the derivative footnote to other footnotes in which
derivative-related information is disclosed.
  Business Combinations .
 
    
    acquisition costs will be generally expensed as incurred;
    
    noncontrolling interests (formerly known as minority interests) will be valued at fair
value at the acquisition date;
    
    acquired contingent liabilities will be recorded at fair value at the acquisition date
and subsequently measured at either the higher of such amount or the amount determined
under existing guidance for non-acquired contingencies;
    
    the acquirer shall not recognize a separate valuation allowance as of the acquisition
date for assets acquired in a business that are measured at their acquisition-date fair
value;
    
    restructuring costs associated with a business combination will be generally expensed
subsequent to the acquisition date; and
 13




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##### Table of Contents




    
    changes in deferred tax asset valuation allowances and income tax uncertainties after
the acquisition date generally will affect income tax expense.
 .
 Noncontrolling Interests in
Consolidated Financial Statements  An Amendment of ARB No. 51 .
  Note 8  Stockholders Equity
    14




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##### Table of Contents



Note 9  Earnings Per Share
  Three Months Ended June 30,2008
    
    
    2007Numerator:Net income
    
    $
    5,511,513
    
    
    $
    9,885,633Numerator for basic and diluted earnings
per shareincome available to common
stockholders
    
    $
    5,511,513
    
    
    $
    9,885,633Denominator:Denominator for basic earnings per
shareweighted-average common
shares outstanding
    
    
    20,928,151
    
    
    
    21,124,164Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    196,143Denominator for diluted earnings per
shareadjusted weighted-average
common shares and assumed conversions
    
    
    20,928,151
    
    
    
    21,320,307Basic earnings per share
    
    $
    0.26
    
    
    $
    0.47Diluted earnings per share
    
    $
    0.26
    
    
    $
    0.46
  15




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##### Table of Contents



Note 10  Segment Information
  Community Banking:
 Real Estate Investments:
   16




---



##### Table of Contents



Three Months Ended June 30, 2008(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    26
    
    
    $
    70,820
    
    
    $
    (338
    )
    
    $
    70,508Interest expense
    
    
    312
    
    
    
    37,113
    
    
    
    (338
    )
    
    
    37,087Net interest income (loss)
    
    
    (286
    )
    
    
    33,707
    
    
    
    
    
    
    
    33,421Provision for loan losses
    
    
    
    
    
    
    9,400
    
    
    
    
    
    
    
    9,400Net interest income (loss) after provision for loan
losses
    
    
    (286
    )
    
    
    24,307
    
    
    
    
    
    
    
    24,021Real estate investment partnership revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other revenue from real estate operations
    
    
    1,473
    
    
    
    
    
    
    
    
    
    
    
    1,473Other income
    
    
    
    
    
    
    10,366
    
    
    
    (30
    )
    
    
    10,336Real estate investment partnership cost of sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other expense from real estate partnership operations
    
    
    (2,221
    )
    
    
    
    
    
    
    30
    
    
    
    (2,191
    )Minority interest in loss of real estate partnerships
    
    
    39
    
    
    
    
    
    
    
    
    
    
    
    39Other expense
    
    
    
    
    
    
    (24,600
    )
    
    
    
    
    
    
    (24,600
    )Income (loss) before income taxes
    
    
    (995
    )
    
    
    10,073
    
    
    
    
    
    
    
    9,078Income tax (benefit) expense
    
    
    (363
    )
    
    
    3,929
    
    
    
    
    
    
    
    3,566Net income (loss)
    
    $
    (632
    )
    
    $
    6,144
    
    
    $
    
    
    
    $
    5,512Total assets at end of period
    
    $
    70,833
    
    
    $
    4,878,502
    
    
    $
    
    
    
    $
    4,949,335Goodwill
    
    $
    
    
    
    $
    72,375
    
    
    $
    
    
    
    $
    72,375
 Three Months Ended June 30, 2007(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    85
    
    
    $
    73,058
    
    
    $
    (496
    )
    
    $
    72,647Interest expense
    
    
    448
    
    
    
    41,678
    
    
    
    (496
    )
    
    
    41,630Net interest income (loss)
    
    
    (363
    )
    
    
    31,380
    
    
    
    
    
    
    
    31,017Provision for loan losses
    
    
    
    
    
    
    2,271
    
    
    
    
    
    
    
    2,271Net interest income (loss) after provision for loan
losses
    
    
    (363
    )
    
    
    29,109
    
    
    
    
    
    
    
    28,746Real estate investment partnership revenue
    
    
    4,726
    
    
    
    
    
    
    
    
    
    
    
    4,726Other revenue from real estate operations
    
    
    1,223
    
    
    
    
    
    
    
    
    
    
    
    1,223Other income
    
    
    
    
    
    
    8,721
    
    
    
    (30
    )
    
    
    8,691Real estate investment partnership cost of sales
    
    
    (4,340
    )
    
    
    
    
    
    
    
    
    
    
    (4,340
    )Other expense from real estate partnership operations
    
    
    (2,115
    )
    
    
    
    
    
    
    30
    
    
    
    (2,085
    )Minority interest in loss of real estate partnerships
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    75Other expense
    
    
    
    
    
    
    (20,462
    )
    
    
    
    
    
    
    (20,462
    )Income (loss) before income taxes
    
    
    (794
    )
    
    
    17,368
    
    
    
    
    
    
    
    16,574Income tax (benefit) expense
    
    
    (233
    )
    
    
    6,921
    
    
    
    
    
    
    
    6,688Net income (loss)
    
    $
    (561
    )
    
    $
    10,447
    
    
    $
    
    
    
    $
    9,886Total assets at end of period
    
    $
    72,066
    
    
    $
    4,460,692
    
    
    $
    
    
    
    $
    4,532,758Goodwill
    
    $
    
    
    
    $
    19,956
    
    
    $
    
    
    
    $
    19,956
 17




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##### Table of Contents



Note 11  Commitments and Contingent Liabilities
   June 30,
    
    March 31,2008
    
    2008Commitments to extend credit:
    
    $
    84,083
    
    
    $
    119,224Unused lines of credit:Home equity
    
    
    144,841
    
    
    
    136,458Credit cards
    
    
    40,082
    
    
    
    40,368Commercial
    
    
    128,703
    
    
    
    128,505Letters of credit
    
    
    41,943
    
    
    
    47,218Credit enhancement under the FederalHome Loan Bank of Chicago MortgagePartnership Finance Program
    
    
    23,843
    
    
    
    23,698Real estate investment segment borrowing guarantees unfunded
    
    
    2,735
    
    
    
    3,277
     18




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##### Table of Contents



Note 12  Fair Value of Financial Instruments
   
    
    Level 1: Valuations for assets and liabilities traded in active exchange markets.
Valuations are obtained from readily available pricing sources for market transactions
involving identical assets or liabilities.
    
    Level 2: Valuations for assets and liabilities traded in less active dealer or broker
markets. Valuations are obtained from third party pricing services for identical or similar
assets or liabilities.
    
    Level 3: Valuations for assets and liabilities that are derived from other valuation
methodologies, including option pricing models, discounted cash flow models and similar
techniques, and not based on market exchange, dealer or broker traded transactions. Level 3
valuations incorporate certain assumptions and projections in determining the fair value
assigned to such assets.
   Fair Value on a Recurring Basis
  19




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##### Table of Contents



Fair Value Measurements UsingQuoted Pricesin Active
    
    Significant Other
    
    SignificantMarkets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsTotal
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Investment securities available for sale
    
    $
    97,707
    
    
    $
    3,468
    
    
    $
    94,239
    
    
    $
    Mortgage-related securities available for sale
    
    
    270,042
    
    
    
    
    
    
    
    270,042
    
    
    
    
  Fair Value on a Nonrecurring Basis
 
 Fair Value Measurements UsingQuoted Pricesin Active
    
    Significant Other
    
    SignificantMarkets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsTotal
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Impaired loans with specific valuation
allowance under SFAS 114
    
    $
    42,160
    
    
    $
    
    
    
    $
    
    
    
    $
    42,160Loans held for sale
    
    
    2,496
    
    
    
    
    
    
    
    2,496
    
    
    
    
  Note 13  Subsequent Events
  20




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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 decreased to $0.26 for the quarter ended June 30, 2008
compared to $0.46 per share for the quarter ended June 30, 2007, primarily due to a $7.1
million increase in the provision for loan losses as well as a $2.8 million decrease in
non-interest income;
    
    The interest rate spread increased to 2.83% for the quarter ended June 30, 2008 compared
to 2.75% for the quarter ended June 30, 2007;
    
    Loans receivable decreased $76.8 million, or 1.82%, since March 31, 2008;
    
    Deposits declined $133.0 million, or 3.76%, since March 31, 2008;
    
    Book value per share was $16.00 at June 30, 2008 compared to $16.17 at March 31, 2008
and $15.54 at June 30, 2007;
    
    Total non-performing assets increased $34.6 million, or
31.6%, to $144.1 million at June 30, 2008
from $109.5 million at March 31, 2008 and total non-accrual
loans increased $18.9 million, or 18.7%, to $120.1 million
at June 30, 2008 from $101.2 million at March 31, 2008; and
    
    Real estate investment partnership revenue declined $4.7 million from $4.7 million for
the three months ended June 30, 2007 to $0 for the three months ended June 30, 2008. Real
estate investment partnership cost of sales declined $4.3 million from $4.3 million to $0
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 $561,000 to $632,000 for the three months ended June 30, 2007 and
2008, respectively. The partnerships currently have approximately 43 single family housing
units and approximately 100 individual lots for sale. There were no sales of partnership
properties during the three months ended June 30, 2008. Management anticipates continued
lower sales activity for the remainder of the fiscal year.
 21




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##### Table of Contents



Three Months Ended(Dollars in thousands - except per share amounts)
    
    6/30/2008
    
    3/31/2008
    
    12/31/2007
    
    9/30/2007Operations Data:Net interest income
    
    $
    33,421
    
    
    $
    35,066
    
    
    $
    31,338
    
    
    $
    31,584Provision for loan losses
    
    
    9,400
    
    
    
    10,393
    
    
    
    7,792
    
    
    
    2,095Net gain on sale of loans
    
    
    2,243
    
    
    
    2,984
    
    
    
    1,468
    
    
    
    814Real estate investment partnership revenue
    
    
    
    
    
    
    457
    
    
    
    1,012
    
    
    
    2,428Other non-interest income
    
    
    9,566
    
    
    
    10,121
    
    
    
    9,430
    
    
    
    7,696Real estate investment partnership cost of sales
    
    
    
    
    
    
    548
    
    
    
    932
    
    
    
    2,669Other non-interest expense
    
    
    26,791
    
    
    
    29,249
    
    
    
    24,180
    
    
    
    22,659Minority interest in loss of
real estate partnership operations
    
    
    (39
    )
    
    
    (43
    )
    
    
    (81
    )
    
    
    (203
    )Income before income taxes
    
    
    9,078
    
    
    
    8,481
    
    
    
    10,425
    
    
    
    15,302Income taxes
    
    
    3,566
    
    
    
    2,838
    
    
    
    4,096
    
    
    
    6,028Net income
    
    
    5,512
    
    
    
    5,643
    
    
    
    6,329
    
    
    
    9,274Selected Financial Ratios(1):Yield on earning assets
    
    
    6.05
    %
    
    
    6.10
    %
    
    
    6.68
    %
    
    
    6.90
    %Cost of funds
    
    
    3.22
    
    
    
    3.31
    
    
    
    4.01
    
    
    
    4.13Interest rate spread
    
    
    2.83
    
    
    
    2.79
    
    
    
    2.67
    
    
    
    2.77Net interest margin
    
    
    2.87
    
    
    
    2.84
    
    
    
    2.83
    
    
    
    2.92Return on average assets
    
    
    0.44
    
    
    
    0.43
    
    
    
    0.54
    
    
    
    0.82Return on average equity
    
    
    6.37
    
    
    
    6.56
    
    
    
    7.44
    
    
    
    11.07Average equity to average assets
    
    
    6.93
    
    
    
    6.55
    
    
    
    7.31
    
    
    
    7.37Non-interest expense to average assets
    
    
    2.15
    
    
    
    2.27
    
    
    
    2.16
    
    
    
    2.23Per Share:Basic earnings per share
    
    $
    0.26
    
    
    $
    0.27
    
    
    $
    0.30
    
    
    $
    0.44Diluted earnings per share
    
    
    0.26
    
    
    
    0.27
    
    
    
    0.30
    
    
    
    0.44Dividends per share
    
    
    0.18
    
    
    
    0.18
    
    
    
    0.18
    
    
    
    0.18Book value per share
    
    
    16.00
    
    
    
    16.17
    
    
    
    15.98
    
    
    
    15.88Financial Condition:Total assets
    
    $
    4,949,335
    
    
    $
    5,149,557
    
    
    $
    4,725,773
    
    
    $
    4,611,526Loans receivable, netHeld for sale
    
    
    6,619
    
    
    
    9,669
    
    
    
    6,170
    
    
    
    5,403Held for investment
    
    
    4,129,075
    
    
    
    4,202,833
    
    
    
    3,941,891
    
    
    
    3,944,980Deposits
    
    
    3,406,975
    
    
    
    3,539,994
    
    
    
    3,145,551
    
    
    
    3,178,588Borrowings
    
    
    1,147,329
    
    
    
    1,206,761
    
    
    
    1,150,914
    
    
    
    1,039,540Stockholders equity
    
    
    343,599
    
    
    
    345,116
    
    
    
    341,084
    
    
    
    338,907Allowance for loan losses
    
    
    40,265
    
    
    
    38,285
    
    
    
    28,761
    
    
    
    22,002Non-performing assets
    
    
    144,137
    
    
    
    109,979
    
    
    
    87,002
    
    
    
    63,078
 
 (1)
    
    Annualized when appropriate. 22




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##### Table of Contents



Three Months Ended(Dollars in thousands - except per share amounts)
    
    6/30/2007
    
    3/31/2007
    
    12/31/2006
    
    9/30/2006Operations Data:Net interest income
    
    $
    31,017
    
    
    $
    29,834
    
    
    $
    32,529
    
    
    $
    32,838Provision for loan losses
    
    
    2,271
    
    
    
    4,050
    
    
    
    3,375
    
    
    
    2,625Net gain on sale of loans
    
    
    1,587
    
    
    
    465
    
    
    
    776
    
    
    
    1,349Real estate investment partnership revenue
    
    
    4,726
    
    
    
    2,851
    
    
    
    8,009
    
    
    
    3,631Other non-interest income
    
    
    8,327
    
    
    
    8,205
    
    
    
    7,331
    
    
    
    8,075Real estate investment partnership cost of sales
    
    
    4,340
    
    
    
    3,153
    
    
    
    7,115
    
    
    
    3,486Other non-interest expense
    
    
    22,547
    
    
    
    21,410
    
    
    
    22,443
    
    
    
    23,427Minority interest in loss of
real estate partnership operations
    
    
    (75
    )
    
    
    (573
    )
    
    
    (31
    )
    
    
    (75
    )Income before income taxes
    
    
    16,574
    
    
    
    13,315
    
    
    
    15,743
    
    
    
    16,430Income taxes
    
    
    6,688
    
    
    
    5,086
    
    
    
    5,308
    
    
    
    6,769Net income
    
    
    9,886
    
    
    
    8,229
    
    
    
    10,435
    
    
    
    9,661Selected Financial Ratios(1):Yield on earning assets
    
    
    6.80
    %
    
    
    6.73
    %
    
    
    6.81
    %
    
    
    6.76
    %Cost of funds
    
    
    4.05
    
    
    
    4.08
    
    
    
    3.92
    
    
    
    3.75Interest rate spread
    
    
    2.75
    
    
    
    2.65
    
    
    
    2.89
    
    
    
    3.01Net interest margin
    
    
    2.90
    
    
    
    2.81
    
    
    
    3.05
    
    
    
    3.15Return on average assets
    
    
    0.88
    
    
    
    0.74
    
    
    
    0.93
    
    
    
    0.88Return on average equity
    
    
    11.77
    
    
    
    9.72
    
    
    
    12.51
    
    
    
    11.72Average equity to average assets
    
    
    7.49
    
    
    
    7.61
    
    
    
    7.45
    
    
    
    7.53Non-interest expense to average assets
    
    
    2.40
    
    
    
    2.21
    
    
    
    2.64
    
    
    
    2.46Per Share:Basic earnings per share
    
    $
    0.47
    
    
    $
    0.39
    
    
    $
    0.49
    
    
    $
    0.45Diluted earnings per share
    
    
    0.46
    
    
    
    0.38
    
    
    
    0.48
    
    
    
    0.44Dividends per share
    
    
    0.17
    
    
    
    0.17
    
    
    
    0.17
    
    
    
    0.17Book value per share
    
    
    15.54
    
    
    
    15.55
    
    
    
    15.45
    
    
    
    15.18Financial Condition:Total assets
    
    $
    4,532,758
    
    
    $
    4,539,685
    
    
    $
    4,505,896
    
    
    $
    4,481,586Loans receivable, netHeld for sale
    
    
    9,062
    
    
    
    4,474
    
    
    
    4,470
    
    
    
    5,393Held for investment
    
    
    3,890,053
    
    
    
    3,874,049
    
    
    
    3,834,381
    
    
    
    3,794,039Deposits
    
    
    3,248,964
    
    
    
    3,248,246
    
    
    
    3,240,540
    
    
    
    3,223,759Borrowings
    
    
    891,016
    
    
    
    900,477
    
    
    
    841,219
    
    
    
    875,014Stockholders equity
    
    
    331,593
    
    
    
    336,866
    
    
    
    336,522
    
    
    
    330,774Allowance for loan losses
    
    
    22,220
    
    
    
    20,517
    
    
    
    20,031
    
    
    
    18,393Non-performing assets
    
    
    53,180
    
    
    
    54,452
    
    
    
    39,484
    
    
    
    22,506
 
 (1)
    
    Annualized when appropriate. 23




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##### Table of Contents



Significant Accounting Policies
  
    
    Declines in the fair value of held-to-maturity and available-for-sale securities below
their cost that are deemed to be other than temporary are reflected in earnings as realized
losses. In estimating other-than-temporary impairment losses, 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. If a
security has been impaired, and the impairment is deemed other-than-temporary and material,
a write down will occur in that quarter. If a loss is deemed to be other-than-temporary,
it is recognized as a realized loss in the consolidated statement of income with the
security assigned a new cost basis.
    
    Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities, requires that available-for-sale securities be
carried at fair value. Management utilizes the services of a third party vendor to assist
with the determination of estimated fair values. Adjustments to the available-for-sale
securities fair value impact the consolidated financial statements by increasing or
decreasing assets and stockholders equity, and possibly net income as discussed in the
preceding paragraph.
    
    The allowance for loan losses is a valuation allowance for probable losses incurred in
the loan portfolio. Our allowance for loan loss methodology incorporates a variety of risk
considerations in establishing an allowance for loan losses that we believe is adequate to
absorb probable losses in the existing portfolio. Such analysis addresses our historical
loss experience, delinquency and charge-off trends, collateral values, changes in
non-performing loans, economic conditions, peer group experience and other considerations.
This information is then analyzed to determine estimated loss factors which, in turn, is
assigned to each loan category. These factors also incorporate known information about
individual loans, including the borrowers sensitivity to interest rate movements. Changes
in the factors themselves are driven by perceived risk in pools of homogenous loans
classified by collateral type, purpose and term. Management monitors local trends to
anticipate future delinquency potential on a quarterly basis.The allowance for loan losses is increased by the provision for loan losses charged to
expense and reduced by loans charged off, net of recoveries. Provisions for loan losses are
provided on both a specific and general basis. Specific allowances are provided for watch,
criticized, and impaired credits for which the expected/anticipated loss may be measurable.
General valuation allowances are based on a portfolio segmentation based on collateral type,
purpose and risk grading, with a further evaluation of various factors noted above.We incorporate our internal loss history to establish potential risk based on collateral
type securing each loan. As an additional comparison, we examine peer group banks to
determine the nature and scope of their losses. Finally, we closely examine each credit
graded substandard to individually assess the appropriate specific loan loss reserve for
such credit.At least quarterly, we review the assumptions and formulas by which additions are made to
the specific and general valuation allowances for loan losses in an effort to refine such
allowance in light of the current status of the factors described above. The total loan
portfolio is thoroughly reviewed at least quarterly for satisfactory levels of general and
specific reserves together with impaired loans to determine if write downs are necessary.Although we believe the levels of the allowance as of June 30, 2008 are adequate to absorb
probable losses in the loan portfolio, a continued decline in local economic
conditions,a continued increase in our non-performing assets or other
similar
factors could result in increasing losses that cannot be reasonably estimated at this time.
 24




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##### Table of Contents




    
    Valuation of mortgage servicing rights requires the use of judgment. Mortgage servicing
rights are established on loans that are originated and subsequently sold. 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. Mortgage servicing rights are carried at the
lower of cost or market value.
    
    The Corporation evaluates goodwill for impairment on at least an annual basis pursuant
to SFAS 142, Goodwill and Other Intangible Assets. The first step of the impairment
evaluation involves the determination of the fair value of each reporting unit to which
goodwill has been assigned. Goodwill is not impaired if the fair value of the reporting
unit exceeds its carrying value. The Corporation determined that none of its goodwill was
impaired as of December 31, 2007, which is the annual review date.
 25




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##### Table of Contents



RESULTS OF OPERATIONS
 General.
 Net Interest Income.
   Provision for Loan Losses.
 26




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##### Table of Contents



Average Interest-Earning Assets, Average Interest-Bearing Liabilities and Interest Rate
Spread.
 27




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##### Table of Contents



Three Months Ended June 30,2008
    
    
    2007Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Cost(1)
    
    
    Balance
    
    
    Interest
    
    
    Cost(1)(Dollars In Thousands)Interest-Earning AssetsMortgage loans
    
    $
    3,186,986
    
    
    $
    49,613
    
    
    
    6.23
    %
    
    $
    3,016,235
    
    
    $
    51,474
    
    
    
    6.83
    %Consumer loans
    
    
    728,714
    
    
    
    12,149
    
    
    
    6.67
    
    
    
    639,242
    
    
    
    11,787
    
    
    
    7.38Commercial business loans
    
    
    266,278
    
    
    
    3,949
    
    
    
    5.93
    
    
    
    231,799
    
    
    
    4,770
    
    
    
    8.23Total loans receivable (2) (3)
    
    
    4,181,978
    
    
    
    65,711
    
    
    
    6.29
    
    
    
    3,887,276
    
    
    
    68,031
    
    
    
    7.00Mortgage-related securities (4)
    
    
    274,105
    
    
    
    3,669
    
    
    
    5.35
    
    
    
    244,773
    
    
    
    3,006
    
    
    
    4.91Investment securities (4)
    
    
    89,338
    
    
    
    800
    
    
    
    3.58
    
    
    
    76,425
    
    
    
    932
    
    
    
    4.88Interest-bearing deposits
    
    
    62,141
    
    
    
    328
    
    
    
    2.11
    
    
    
    26,660
    
    
    
    395
    
    
    
    5.93Federal Home Loan Bank stock
    
    
    54,829
    
    
    
    
    
    
    
    0.00
    
    
    
    41,361
    
    
    
    283
    
    
    
    2.74Total interest-earning assets
    
    
    4,662,391
    
    
    
    70,508
    
    
    
    6.05
    
    
    
    4,276,495
    
    
    
    72,647
    
    
    
    6.80Non-interest-earning assets
    
    
    331,141
    
    
    
    
    
    
    
    
    
    
    
    211,500Total assets
    
    $
    4,993,532
    
    
    
    
    
    
    
    
    
    
    $
    4,487,995Interest-Bearing LiabilitiesDemand deposits
    
    $
    1,096,070
    
    
    
    3,259
    
    
    
    1.19
    
    
    $
    940,345
    
    
    
    5,703
    
    
    
    2.43Regular passbook savings
    
    
    228,126
    
    
    
    266
    
    
    
    0.47
    
    
    
    193,630
    
    
    
    212
    
    
    
    0.44Certificates of deposit
    
    
    2,139,524
    
    
    
    23,317
    
    
    
    4.36
    
    
    
    2,109,636
    
    
    
    25,531
    
    
    
    4.84Total deposits
    
    
    3,463,720
    
    
    
    26,842
    
    
    
    3.10
    
    
    
    3,243,611
    
    
    
    31,446
    
    
    
    3.88Short-term borrowings
    
    
    194,397
    
    
    
    1,743
    
    
    
    3.59
    
    
    
    494,281
    
    
    
    6,658
    
    
    
    5.39Long-term borrowings
    
    
    949,217
    
    
    
    8,502
    
    
    
    3.58
    
    
    
    375,317
    
    
    
    3,526
    
    
    
    3.76Total interest-bearing liabilities
    
    
    4,607,334
    
    
    
    37,087
    
    
    
    3.22
    
    
    
    4,113,209
    
    
    
    41,630
    
    
    
    4.05Non-interest-bearing liabilities
    
    
    40,308
    
    
    
    
    
    
    
    
    
    
    
    38,694Total liabilities
    
    
    4,647,642
    
    
    
    
    
    
    
    
    
    
    
    4,151,903Stockholders equity
    
    
    345,890
    
    
    
    
    
    
    
    
    
    
    
    336,092Total liabilities and stockholders equity
    
    $
    4,993,532
    
    
    
    
    
    
    
    
    
    
    $
    4,487,995Net interest income/interest
rate spread (5)
    
    
    
    
    
    $
    33,421
    
    
    
    2.83
    %
    
    
    
    
    
    $
    31,017
    
    
    
    2.75
    %Net interest-earning assets
    
    $
    55,057
    
    
    
    
    
    
    
    
    
    
    $
    163,286Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    2.87
    %
    
    
    
    
    
    
    
    
    
    
    2.90
    %Ratio of average interest-earning assets
to average interest-bearing liabilities
    
    
    1.01
    
    
    
    
    
    
    
    
    
    
    
    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. 28




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Non-Interest Income.
 Non-Interest Expense.
 Income Taxes.
    29




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FINANCIAL CONDITION
           30




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##### Table of Contents



ASSET QUALITY
   At June 30,
    
    
    At March 31,2008
    
    
    2008
    
    
    2007
    
    
    2006(Dollars In Thousands)Non-accrual loans:Single-family residential
    
    $
    19,393
    
    
    $
    21,200
    
    
    $
    13,038
    
    
    $
    2,856Multi-family residential
    
    
    18,173
    
    
    
    18,393
    
    
    
    17,289
    
    
    
    4,214Commercial real estate
    
    
    26,398
    
    
    
    29,204
    
    
    
    12,030
    
    
    
    3,398Construction and land
    
    
    34,899
    
    
    
    14,888
    
    
    
    1,696
    
    
    
    Consumer
    
    
    2,955
    
    
    
    2,258
    
    
    
    705
    
    
    
    548Commercial business
    
    
    18,313
    
    
    
    15,298
    
    
    
    2,283
    
    
    
    2,513Total non-accrual loans
    
    
    120,131
    
    
    
    101,241
    
    
    
    47,041
    
    
    
    13,529Foreclosed properties and repossessed assets, net
    
    
    24,006
    
    
    
    8,247
    
    
    
    7,411
    
    
    
    2,192Total non-performing assets
    
    $
    144,137
    
    
    $
    109,488
    
    
    $
    54,452
    
    
    $
    15,721Performing troubled debt restructurings
    
    $
    400
    
    
    $
    400
    
    
    $
    400
    
    
    $
    Total non-accrual loans to total loans(1)
    
    
    2.80
    %
    
    
    2.31
    %
    
    
    1.16
    %
    
    
    0.35
    %Total non-performing assets to total assets
    
    
    2.91
    
    
    
    2.13
    
    
    
    1.20
    
    
    
    0.37Allowance for loan losses to total loans(1)
    
    
    0.94
    
    
    
    0.87
    
    
    
    0.50
    
    
    
    0.41Allowance for loan losses to total
non-accrual loans
    
    
    33.52
    
    
    
    37.82
    
    
    
    43.62
    
    
    
    115.09Allowance for loan and foreclosure losses
to total non-performing assets
    
    
    27.95
    
    
    
    34.98
    
    
    
    37.71
    
    
    
    100.48
 
 (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.  
    
    $3.7 million multi-family residential loan secured by a golf course and condominium
project located in central Wisconsin
    
    $2.3 million commercial real estate loan secured by a golf course and condominium
project located in central Wisconsin
    
    $9.6 million construction and land loan secured by a condominium and retail complex in
southern Wisconsin
    
    $6.1 million construction and land loan secured by a condominium project located in
central Wisconsin
    
    $1.4 million construction and land loan secured by vacant land near a golf course
located in central Wisconsin
 31




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##### Table of Contents




    
    $1.3 million multi-family residential loan secured by duplexes and lots located in
southern Wisconsin
    
    $2.7 million multi-family residential loan secured by two multi-family properties in
central Wisconsin
    
    $1.1 million commercial real estate loan secured by a warehouse in northeast Wisconsin
    
    $3.0 million commercial real estate loan secured by a sports complex in southeast
Wisconsin
    
    $1.3 million commercial real estate loan secured by a computer software company located
in Oregon
    
    $1.4 million construction and land development loan secured by a property in northeast
Wisconsin
    
    $1.2 million construction and land development loan secured by condominiums in southeast
Wisconsin
    
    $1.9 million construction and land development loan secured by a retail development in
northeast Wisconsin
    
    $2.6 million construction and land development loan secured by condominiums in southeast
Wisconsin
    
    $2.0 million construction and land development loan secured by a retail center in
southeast Wisconsin
    
    $1.2 million commercial business loan secured by a manufacturing plant in northern
Wisconsin
    
    $1.6 million commercial business loan secured by a retail business located in southeast
Wisconsin
  
    
    $4.0 million property secured by an apartment building located in Minnesota
    
    $1.0 million property secured by commercial and retail buildings in northeast Wisconsin
    
    $1.5 million property secured by commercial and retail buildings in northeast Wisconsin
  
    
    $2.9 million property secured by a condominium projected in southern Wisconsin
  
    
    Four multi-family loans to one borrower totaling $11.9 million secured by a golf course
located in central Wisconsin
    
    $1.4 million loan secured by a commercial lot located in southeast Wisconsin
    
    $1.3 million loan secured by an office building located southern Wisconsin
    
    $1.1 million commercial loan secured by a commercial business in northeast Wisconsin
  32




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##### Table of Contents



At June 30,
    
    
    At March 31,2008
    
    
    2008
    
    
    2007
    
    
    2006(In Thousands)Impaired loans with valuation
reserve required
    
    $
    54,619
    
    
    $
    52,866
    
    
    $
    2,130
    
    
    $
    6,381Impaired loans without a
specific reserve
    
    
    68,411
    
    
    
    51,192
    
    
    
    45,718
    
    
    
    9,107Less:Specific valuation allowance
    
    
    (19,286
    )
    
    
    (17,639
    )
    
    
    (517
    )
    
    
    (3,111
    )$
    103,744
    
    
    $
    86,419
    
    
    $
    47,331
    
    
    $
    12,377Average impaired loans
    
    $
    73,213
    
    
    $
    61,931
    
    
    $
    24,620
    
    
    $
    9,010Interest income recognized
on impaired loans
    
    $
    43
    
    
    $
    107
    
    
    $
    44
    
    
    $
    208Interest income recognized on a cash basis
on impaired loans
    
    $
    43
    
    
    $
    107
    
    
    $
    44
    
    
    $
    208Loans on nonaccrual status
    
    $
    120,131
    
    
    $
    101,241
    
    
    $
    47,040
    
    
    $
    13,529Loans past due ninety days or more and
still accruing
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  At June 30,
    
    
    At March 31,2008
    
    
    2008
    
    
    2007
    
    
    2006(In Thousands)30 to 59 days
    
    $
    52,655
    
    
    $
    66,617
    
    
    $
    12,776
    
    
    $
    9,87460 to 89 days
    
    
    25,278
    
    
    
    12,928
    
    
    
    5,414
    
    
    
    733Total
    
    $
    77,933
    
    
    $
    79,545
    
    
    $
    18,190
    
    
    $
    10,607
   33




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##### Table of Contents



Three Months EndedJune 30,2008
    
    
    2007(Dollars In Thousands)Allowance at beginning of period
    
    $
    38,285
    
    
    $
    20,517Charge-offs:Mortgage
    
    
    (5,216
    )
    
    
    (450
    )Consumer
    
    
    (266
    )
    
    
    (206
    )Commercial business
    
    
    (1,944
    )
    
    
    (3
    )Total charge-offs
    
    
    (7,426
    )
    
    
    (659
    )Recoveries:Mortgage
    
    
    
    
    
    
    7Consumer
    
    
    6
    
    
    
    14Commercial business
    
    
    
    
    
    
    70Total recoveries
    
    
    6
    
    
    
    91Net charge-offs
    
    
    (7,420
    )
    
    
    (568
    )Provision
    
    
    9,400
    
    
    
    2,271Allowance at end of period
    
    $
    40,265
    
    
    $
    22,220Net charge-offs to
average loans
    
    
    (0.71
    )%
    
    
    (0.06
    )%
  34




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
      Credit Agreement
  35




---



##### 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 June 30, 2008:Tier 1 capital(to adjusted tangible assets)
    
    $
    359,333
    
    
    
    7.46
    %
    
    $
    144,524
    
    
    
    3.00
    %
    
    $
    240,874
    
    
    
    5.00
    %Risk-based capital(to risk-based assets)
    
    
    399,598
    
    
    
    10.61
    
    
    
    301,299
    
    
    
    8.00
    
    
    
    376,623
    
    
    
    10.00Tangible capital(to tangible assets)
    
    
    359,333
    
    
    
    7.46
    
    
    
    72,262
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/AAt March 31, 2008:Tier 1 capital(to adjusted tangible assets)
    
    $
    352,311
    
    
    
    7.04
    %
    
    $
    150,210
    
    
    
    3.00
    %
    
    $
    250,349
    
    
    
    5.00
    %Risk-based capital(to risk-based assets)
    
    
    390,596
    
    
    
    10.14
    
    
    
    308,273
    
    
    
    8.00
    
    
    
    385,341
    
    
    
    10.00Tangible capital(to tangible assets)
    
    
    352,311
    
    
    
    7.04
    
    
    
    75,105
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/A
  June 30,
    
    
    March 31,2008
    
    
    2008(In Thousands)Stockholders equity of the Bank
    
    $
    434,566
    
    
    $
    432,382Less: Goodwill and intangible assets
    
    
    (77,576
    )
    
    
    (77,734
    )Accumulated other comprehensive income
    
    
    2,343
    
    
    
    (2,337
    )Tier 1 and tangible capital
    
    
    359,333
    
    
    
    352,311Plus: Allowable general valuation allowances
    
    
    40,265
    
    
    
    38,285Risk-based capital
    
    $
    399,598
    
    
    $
    390,596
 36




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##### Table of Contents



GUARANTEES
   Amount
    
    
    AmountSubsidiary
    
    
    
    Partnership
    
    Amount
    
    
    Outstanding
    
    
    Outstandingof IDI
    
    
    
    Entity
    
    Guaranteed
    
    
    at 6/30/08
    
    
    at 3/31/08(Dollars in thousands)Oakmont
    
    
    
    Chandler Creek
    
    $
    15,000
    
    
    $
    15,000
    
    
    $
    15,000Davsha III
    
    
    
    Indian Palms 147, LLC
    
    
    500
    
    
    
    431
    
    
    
    396Davsha V
    
    
    
    Villa Santa Rosa, LLC
    
    
    1,000
    
    
    
    796
    
    
    
    722Davsha VII
    
    
    
    La Vista Grande 121, LLC
    
    
    15,000
    
    
    
    12,538
    
    
    
    12,105Total
    
    
    
    
    
    $
    31,500
    
    
    $
    28,765
    
    
    $
    28,223
     37




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##### Table of Contents



ASSET/LIABILITY MANAGEMENT
     REGULATORY DEVELOPMENTS
  FORWARD-LOOKING STATEMENTS
  38




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##### Table of Contents



Item 3 Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4 Controls and Procedures.
   39




---



##### Table of Contents



Part II  Other Information
 
 Item 1 Legal Proceedings.
  
 Item 1A Risk Factors.
  Our Credit Agreement requires us to observe certain covenants that limit our
flexibility in operating our business.
  
    
    incur additional indebtedness or issue certain preferred shares;
    
    pay dividends on, repurchase or make distributions in respect of our capital
stock or make other restricted payments;
    
    make certain investments;
    
    sell certain assets; and
    
    consolidate, merge, sell or otherwise dispose of all or substantially all of
the Companys assets.
  If our lenders fail to renew our loans for additional terms or provide us with
refinancing opportunities, we may be unable to meet our debt obligations, which
would have a material adverse affect on our operations and the value of our common
stock.
  40




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##### Table of Contents



The decline in fair value of our stock could adversely affect our ability to raise
capital, dilute current shareholders ownership or make it more expensive to raise
capital, as well as increase the risk of incurring impairment to our recorded
goodwill.
  Loans made to us under the Credit Agreement mature on September 30, 2008 and failure
by us to meet our payment obligations to the lenders by such date could have a
material adverse affect on our business operations.
   41




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##### Table of Contents



Item 2 Unregistered Sales of Equity Securities and Use of Proceeds.
   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(1)April 1 -April 30, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,572,160May 1 - May 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,572,160June 1 - June 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,572,160Total
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,572,160
 
 (1)
    
    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 and extended all previous share repurchase authorizations for a year. 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.
  
 Item 4 Submission of Matters to a Vote of Security Holders.
  42




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##### Table of Contents



Number of VotesFor
    
    WithheldElection of Directors for three-year terms
expiring in 2011:Richard A. Bergstrom
    
    
    18,460,081
    
    
    
    649,172Donald D. Parker
    
    
    18,432,910
    
    
    
    676,343James D. Smessaert
    
    
    18,434,142
    
    
    
    675,111
 For
    
    Against
    
    AbstainedAppointment of McGladrey & Pullen LLP as independent
registered public accounting firm for the fiscal
year ending March 31, 2009
    
    
    18,672,169
    
    
    
    354,229
    
    
    
    82,855
  
 Item 5 Other Information.
      
    
    The Bank must maintain all capital ratios required for the  Bank
to be considered well capitalized under the applicable regulations and
guidelines issued by the Office of Thrift Supervision and all other Regulatory
Agencies.
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
    
    The Corporation must have adjusted net income of not less than (i) $5.5
million for the fiscal quarter ending on June 30, 2008 and (ii) $5.5 million
for the fiscal quarter ending on September 30, 2008.
    
    Nonperforming loans may not exceed 3.50% of total loans at any time.
    
    The Corporation may not pay cash dividends on its common stock if, after
taking a proposed cash dividend into account, the aggregate cash dividends paid
to the Corporation by the Bank during a fiscal year would be less than 150% of
the aggregate cash dividends paid by the Corporation on its common stock during
such fiscal year.
    
 Item 6 Exhibits.
  Exhibit 10.1
    
    Amended and Restated Credit Agreement, dated as of June 9, 2008, among
Anchor Bancorp Wisconsin, Inc., the financial institutions from time to time
party to the agreement and U.S. Bank National Association, as administrative
agent for the lenders.Exhibit 10.2
    
    Pledge Agreement, dated as of June 9, 2008, between the Corporation and
U.S. Bank National Association, as administrative agent for the lenders.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: August 8, 2008
    By:
    /s/ Douglas J. TimmermanDouglas J. Timmerman, Chairman of theBoard, President and Chief Executive OfficerDate: August 8, 2008
    By:
    /s/ Dale C. RinggenbergDale C. Ringgenberg, Treasurer andChief Financial Officer 45