##### 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, 2009
 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 Street 
Madison, 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 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company 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, 2009
and March 31, 2009
    
    2Consolidated Statements of Operations for the Three and Six
Months Ended September 30, 2009 and 2008
    
    3Consolidated Statements of Changes in Stockholders
Equity for the Six Months Ended September 30, 2009
    
    5Consolidated Statements of Cash Flows for the Six Months
Ended September 30, 2009 and 2008
    
    6Notes to Unaudited Consolidated Financial Statements
    
    8Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    39Results of Operations
    
    44Financial Condition
    
    49Asset Quality
    
    51Liquidity & Capital Resources
    
    56Guarantees
    
    59Asset/Liability Management
    
    60Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    64Item 4 Controls and Procedures
    
    64Part II  Other InformationItem 1 Legal Proceedings
    
    67Item 1A Risk Factors
    
    67Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    75Item 3 Defaults upon Senior Securities
    
    75Item 4 Submission of Matters to a Vote of Security Holders
    
    75Item 5 Other Information
    
    75Item 6 Exhibits
    
    76Signatures
    
    77EX-31.1EX-31.2EX-32.1EX-32.2
  1




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
 September 30,
    
    
    March 31,2009
    
    
    2009(unaudited)(In Thousands, Except Share Data)AssetsCash
    
    $
    45,638
    
    
    $
    59,654Interest-bearing deposits
    
    
    324,384
    
    
    
    374,172Cash and cash equivalents
    
    
    370,022
    
    
    
    433,826Investment securities available for sale
    
    
    24,833
    
    
    
    77,684Mortgage-related securities available for sale
    
    
    449,177
    
    
    
    407,301Mortgage-related securities held to maturity (fair value of $45
and $50, respectively)
    
    
    44
    
    
    
    50Loans, less allowance for loan losses of $170,664 at September 30, 2009
and $137,165 at March 31, 2009:Held for sale
    
    
    28,904
    
    
    
    161,964Held for investment
    
    
    3,506,464
    
    
    
    3,896,439Foreclosed properties and repossessed assets, net
    
    
    38,431
    
    
    
    52,563Real estate held for development and sale
    
    
    2,042
    
    
    
    16,120Office properties and equipment
    
    
    47,396
    
    
    
    48,123Federal Home Loan Bank stockat cost
    
    
    54,829
    
    
    
    54,829Deferred tax asset, net of valuation allowance
    
    
    
    
    
    
    16,202Accrued interest and other assets
    
    
    115,570
    
    
    
    107,954Total assets
    
    $
    4,637,712
    
    
    $
    5,273,055Liabilities and Stockholders EquityDepositsNon-interest bearing
    
    $
    295,096
    
    
    $
    274,392Interest bearing deposits and accrued interest
    
    
    3,444,901
    
    
    
    3,649,435Total deposits and accrued interest
    
    
    3,739,997
    
    
    
    3,923,827Other borrowed funds
    
    
    759,479
    
    
    
    1,078,392Other liabilities
    
    
    57,161
    
    
    
    56,704Total liabilities
    
    
    4,556,637
    
    
    
    5,058,923Commitments and contingent liabilities (Note 13)
    
    
    
    
    
    
    Preferred stock, $.10 par value, 5,000,000 shares authorized,
110,000 shares issued and outstanding
    
    
    77,900
    
    
    
    74,185Common stock, $.10 par value, 100,000,000 shares authorized,
25,363,339 shares issued, 21,589,792 and 21,569,785 shares outstanding,
respectively
    
    
    2,536
    
    
    
    2,536Additional paid-in capital
    
    
    109,317
    
    
    
    109,327Retained earnings (deficit)
    
    
    (7,645
    )
    
    
    134,234Accumulated other comprehensive income related to AFS securities
    
    
    4,759
    
    
    
    10Accumulated other comprehensive loss related to OTTI non credit issues
    
    
    (6,125
    )
    
    
    (6,347
    )Total accumulated other comprehensive loss
    
    
    (1,366
    )
    
    
    (6,337
    )Treasury stock (3,773,547 and 3,793,554 shares, respectively), at cost
    
    
    (94,155
    )
    
    
    (94,744
    )Deferred compensation obligation
    
    
    (5,512
    )
    
    
    (5,480
    )Total Anchor BanCorp stockholders equity
    
    
    81,075
    
    
    
    213,721Non-controlling interest in real estate partnerships
    
    
    
    
    
    
    411Total liabilities and stockholders equity
    
    $
    4,637,712
    
    
    $
    5,273,055
  2




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Statements of Operations
 Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In Thousands, Except Per Share Data)Interest income:Loans
    
    $
    49,551
    
    
    $
    59,450
    
    
    $
    103,341
    
    
    $
    125,161Mortgage-related securities
    
    
    5,174
    
    
    
    3,687
    
    
    
    10,750
    
    
    
    7,355Investment securities and Federal Home Loan Bank stock
    
    
    299
    
    
    
    780
    
    
    
    770
    
    
    
    1,581Interest-bearing deposits
    
    
    361
    
    
    
    71
    
    
    
    630
    
    
    
    399Total interest income
    
    
    55,385
    
    
    
    63,988
    
    
    
    115,491
    
    
    
    134,496Interest expense:Deposits
    
    
    23,040
    
    
    
    23,898
    
    
    
    47,173
    
    
    
    50,740Other borrowed funds
    
    
    13,406
    
    
    
    10,136
    
    
    
    24,464
    
    
    
    20,381Total interest expense
    
    
    36,446
    
    
    
    34,034
    
    
    
    71,637
    
    
    
    71,121Net interest income
    
    
    18,939
    
    
    
    29,954
    
    
    
    43,854
    
    
    
    63,375Provision for loan losses
    
    
    60,900
    
    
    
    46,964
    
    
    
    131,300
    
    
    
    56,364Net interest income (loss) after provision for loan losses
    
    
    (41,961
    )
    
    
    (17,010
    )
    
    
    (87,446
    )
    
    
    7,011Non-interest income:Loan servicing income
    
    
    669
    
    
    
    1,414
    
    
    
    487
    
    
    
    2,614Credit enhancement income
    
    
    319
    
    
    
    479
    
    
    
    696
    
    
    
    896Service charges on deposits
    
    
    4,146
    
    
    
    4,134
    
    
    
    7,975
    
    
    
    7,993Investment and insurance commissions
    
    
    798
    
    
    
    1,073
    
    
    
    1,602
    
    
    
    2,254Net gain on sale of loans
    
    
    1,062
    
    
    
    808
    
    
    
    12,465
    
    
    
    3,051Net gain (loss) on sale of investments and mortgage-related securities
    
    
    2,108
    
    
    
    (1,902
    )
    
    
    3,613
    
    
    
    (1,902
    )Total other than temporary losses
    
    
    (874
    )
    
    
    
    
    
    
    (1,038
    )
    
    
    Portion of loss recognized in other comprehensive income
    
    
    795
    
    
    
    
    
    
    
    955
    
    
    
    Reclassification from other comprehensive income
    
    
    (107
    )
    
    
    
    
    
    
    (316
    )
    
    
    Net impairment losses recognized in earnings
    
    
    (186
    )
    
    
    
    
    
    
    (399
    )
    
    
    Other revenue from real estate partnership operations
    
    
    1,482
    
    
    
    1,032
    
    
    
    2,393
    
    
    
    2,505Other
    
    
    460
    
    
    
    1,209
    
    
    
    1,586
    
    
    
    2,645Total non-interest income
    
    
    10,858
    
    
    
    8,247
    
    
    
    30,418
    
    
    
    20,056
  3




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 Consolidated Statements of Operations
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(In Thousands, Except Per Share Data)Non-interest expense:Compensation
    
    $
    14,026
    
    
    $
    14,665
    
    
    $
    28,316
    
    
    $
    27,972Occupancy
    
    
    2,647
    
    
    
    2,557
    
    
    
    5,060
    
    
    
    4,973Federal insurance premiums
    
    
    1,407
    
    
    
    162
    
    
    
    4,837
    
    
    
    260Furniture and equipment
    
    
    2,092
    
    
    
    2,067
    
    
    
    4,142
    
    
    
    4,193Data processing
    
    
    1,689
    
    
    
    1,823
    
    
    
    3,621
    
    
    
    3,635Marketing
    
    
    642
    
    
    
    741
    
    
    
    1,015
    
    
    
    1,327Other expenses from real estate partnership operations
    
    
    2,208
    
    
    
    1,724
    
    
    
    3,659
    
    
    
    3,915Net expense  REO operations
    
    
    7,245
    
    
    
    1,952
    
    
    
    11,177
    
    
    
    2,141Mortgage servicing rights impairment recovery
    
    
    (6
    )
    
    
    
    
    
    
    (1,350
    )
    
    
    Foreclosure cost advance impairment
    
    
    
    
    
    
    
    
    
    
    3,708
    
    
    
    Other
    
    
    8,841
    
    
    
    4,476
    
    
    
    13,670
    
    
    
    8,542Total non-interest expense
    
    
    40,791
    
    
    
    30,167
    
    
    
    77,855
    
    
    
    56,958Loss before income tax benefit
    
    
    (71,894
    )
    
    
    (38,930
    )
    
    
    (134,883
    )
    
    
    (29,891
    )Income tax benefit
    
    
    
    
    
    
    (15,618
    )
    
    
    
    
    
    
    (12,052
    )Net loss
    
    $
    (71,894
    )
    
    $
    (23,312
    )
    
    $
    (134,883
    )
    
    $
    (17,839
    )(Income) loss attributable to non-controlling interest in real estate partnerships
    
    
    (85
    )
    
    
    13
    
    
    
    
    
    
    
    52Preferred stock dividends and discount accretion
    
    
    (3,228
    )
    
    
    
    
    
    
    (6,472
    )
    
    
    Net loss available to common equity of Anchor BanCorp
    
    $
    (75,207
    )
    
    $
    (23,299
    )
    
    $
    (141,355
    )
    
    $
    (17,787
    )Comprehensive loss
    
    $
    (68,994
    )
    
    $
    (24,048
    )
    
    $
    (129,912
    )
    
    $
    (23,435
    )Earnings (loss) per common share:Basic
    
    $
    (3.56
    )
    
    $
    (1.11
    )
    
    $
    (6.68
    )
    
    $
    (0.85
    )Diluted
    
    
    (3.56
    )
    
    
    (1.11
    )
    
    
    (6.68
    )
    
    
    (0.85
    )Dividends declared per common share
    
    
    
    
    
    
    0.10
    
    
    
    
    
    
    
    0.28
  4




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Statements of Changes in Stockholders Equity
  Accu-mulatedOtherCompre-Non-
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    Retained
    
    
    
    
    
    
    Deferred
    
    
    hensiveControlling
    
    
    Preferred
    
    
    Common
    
    
    Paid-in
    
    
    Earnings
    
    
    Treasury
    
    
    Compensation
    
    
    IncomeInterest
    
    
    Stock
    
    
    Stock
    
    
    Capital
    
    
    (Deficit)
    
    
    Stock
    
    
    Obligation
    
    
    (Loss)
    
    
    Total(Dollars in thousands except per share data)Balance at April 1, 2009
    
    $
    411
    
    
    $
    74,185
    
    
    $
    2,536
    
    
    $
    109,327
    
    
    $
    134,234
    
    
    $
    (94,744
    )
    
    $
    (5,480
    )
    
    $
    (6,337
    )
    
    $
    214,132Comprehensive income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (134,883
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (134,883
    )Non-credit portion of other-than-temporary impairments:Available-for-sale securities, net of
tax
of $0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (955
    )
    
    
    (955
    )Reclassification adjustment for net gains realized in income, net of tax
of $0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,613
    )
    
    
    (3,613
    )Reclassification adjustment for credit portion
of other-than-temporary investments
realized in income, net of tax
of $0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    316
    
    
    
    316Change in net unrealized gains
(losses) on available-for-sale
securities
net of tax
of $0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,223
    
    
    
    9,223Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (129,912
    )Change in non-controlling interest
    
    
    (411
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (411
    )Dividend on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,757
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,757
    )Issuance of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (524
    )
    
    
    589
    
    
    
    (32
    )
    
    
    
    
    
    
    33Tax benefit from stock related compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Accretion of preferred stock
discount
    
    
    
    
    
    
    3,715
    
    
    
    
    
    
    
    
    
    
    
    (3,715
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at September 30, 2009
    
    $
    
    
    
    $
    77,900
    
    
    $
    2,536
    
    
    $
    109,317
    
    
    $
    (7,645
    )
    
    $
    (94,155
    )
    
    $
    (5,512
    )
    
    $
    (1,366
    )
    
    $
    81,075
  5




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 Six Months Ended September 30,2009
    
    
    2008(In Thousands)Operating ActivitiesNet loss
    
    $
    (134,883
    )
    
    $
    (17,787
    )Adjustments to reconcile net loss to net
cash provided by operating activities:Provision for loan losses
    
    
    131,300
    
    
    
    56,364Provision for OREO losses
    
    
    9,376
    
    
    
    1,298Provision for depreciation and amortization
    
    
    2,599
    
    
    
    2,682Amortization and accretion of investment securities, net
    
    
    88
    
    
    
    (94
    )Amortization and accretion of mortgage related securities, net
    
    
    764
    
    
    
    Mortgage servicing rights recovery
    
    
    (1,350
    )
    
    
    Foreclosure cost advance impairment
    
    
    3,708
    
    
    
    Cash paid due to origination of loans held for sale
    
    
    (801,974
    )
    
    
    (268,929
    )Cash received due to sale of loans held for sale
    
    
    947,499
    
    
    
    277,550Net gain on sales of loans
    
    
    (12,465
    )
    
    
    (3,051
    )Net (gain) loss on investments and mortgage-
related securities
    
    
    (3,613
    )
    
    
    1,902Loss on sale of foreclosed properties
    
    
    130
    
    
    
    39Net loss on impairment of securities available for sale
    
    
    399
    
    
    
    Stock-based compensation expense
    
    
    33
    
    
    
    238Decrease in accrued interest receivable
    
    
    3,479
    
    
    
    3,881(Increase) decrease in prepaid expense and other assets
    
    
    2,749
    
    
    
    (29,777
    )Decrease in accrued interest payable on deposits
    
    
    (2,162
    )
    
    
    (7,437
    )Decrease in other liabilities
    
    
    (2,300
    )
    
    
    (4,660
    )Net cash provided by operating activities
    
    
    143,377
    
    
    
    12,219Investing ActivitiesProceeds from sales of investment securities available for sale
    
    
    19,425
    
    
    
    Proceeds from maturities of investment securities available for sale
    
    
    46,965
    
    
    
    23,691Purchase of investment securities available for sale
    
    
    (13,530
    )
    
    
    (52,744
    )Purchase of mortgage-related securities available for sale
    
    
    (171,758
    )
    
    
    (42,602
    )Proceeds from sale of mortgage-related securities available for sale
    
    
    128,645
    
    
    
    Principal collected on mortgage-related securities
    
    
    57,445
    
    
    
    30,865Net decrease in loans held for investment
    
    
    197,355
    
    
    
    48,620Purchases of office properties and equipment
    
    
    (1,911
    )
    
    
    (1,730
    )Sales of office properties and equipment
    
    
    201
    
    
    
    79Proceeds from sale of foreclosed properties
    
    
    17,068
    
    
    
    6,564Sale of investment in real estate held for development and sale
    
    
    13,932
    
    
    
    Purchase of investment in real estate held for development and sale
    
    
    (16
    )
    
    
    (1,605
    )Net cash provided by investing activities
    
    
    293,821
    
    
    
    11,138
 6




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Contd)
 Six Months Ended September 30,2009
    
    
    2008(In Thousands)Financing ActivitiesDecrease in deposit accounts
    
    $
    (181,668
    )
    
    $
    (183,222
    )Proceeds from borrowed funds
    
    
    257
    
    
    
    487,582Repayment of borrowed funds
    
    
    (319,170
    )
    
    
    (483,765
    )Decrease in minority interest in real estate partnerships
    
    
    (411
    )
    
    
    (52
    )Exercise of stock options
    
    
    
    
    
    
    1,485Tax benefit from stock related compensation
    
    
    (10
    )
    
    
    (12
    )Payments of cash dividends to stockholders
    
    
    
    
    
    
    (5,891
    )Net cash used in financing activities
    
    
    (501,002
    )
    
    
    (183,875
    )Net decrease in cash and cash equivalents
    
    
    (63,804
    )
    
    
    (160,518
    )Cash and cash equivalents at beginning of period
    
    
    433,826
    
    
    
    257,743Cash and cash equivalents at end of period
    
    $
    370,022
    
    
    $
    97,225Supplementary cash flow information:Cash paid or credited to accounts:Interest on deposits and borrowings
    
    $
    72,689
    
    
    $
    80,856Income taxes
    
    
    (7,048
    )
    
    
    9,155Non-cash transactions:Transfer of loans to foreclosed properties
    
    
    12,442
    
    
    
    28,480Securitization of mortgage loans held for sale to mortgage-backed
securities
    
    
    48,878
    
    
    
    
  7




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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
       8




---



##### Table of Contents



Note 3  Significant Risks and Uncertainties
   1.
    
    Realigned corporate structure to ensure that risk is adequately and appropriately identified,
mitigated and where possible, eliminated:
 
    
    Appointed a Chief Credit Risk Officer responsible for overseeing all
aspects of corporate risk.
    
    Created a Special Assets Group to properly assess potential shortfall
exposure and to develop workout plans.
 2.
    
    Created and implemented a new loan risk rating system using qualitative metrics to
proactively identify loans with potential risk so they could be properly classified and
monitored.3.
    
    Implemented a new enhanced analysis approach to reevaluate all classified loans greater than
$500,000, which resulted in the following action items:
 
    
    Established standard discount rates applied to collateral types.
    
    Identified all related entities associated with existing impaired loans to
ensure that the impairment analysis represents a more accurate and thorough picture of the
total borrowing relationship.
    
    Changed the criteria for evaluating impaired loans using the collateral
methodology for a more accurate assessment. Collateral is now evaluated on a loan by loan
basis rather than from a total collateral pool perspective.
    
    Determined the appropriate amount of the loan to be charged off versus to be
put into a specific reserve.
 4.
    
    Incorporated policy improvements to further streamline and improve the timeliness of specific
reserves taken for the allowance for loan and lease calculation:
 
    
    Developed standard reserve percentage based on collateral type to replace
the individual loan analysis for all relationships under $500,000, with the average
reserve of that impaired pool now being used.
    
    Loans identified as impaired are immediately downgraded and assigned a
specific reserve based on collateral type as described in the previous point versus
waiting until appraisal or other data is received.
    
    Established a maximum period of 90 days for management to obtain all
necessary information to complete the impairment analysis.
 5.
    
    Analyzed the population of recent appraisals received and developed a specific reserve amount
to capture the probable deterioration in value above and beyond that anticipated in the
individual impaired loan reviews and for which the appraisals are pending.
 9




---



##### Table of Contents



6.
    
    Established an independent underwriting group that evaluates the total borrowing relationship
using a global cash flow methodology and develops an individual grade of the loan and
relationship based on the new risk rating system.7.
    
    Proactive monitoring of matured and delinquent loans between 30 and 89 days delinquent.8.
    
    Review of a substantial portion of the performing (non-impaired) portfolio for performance
issues. All relationships over $5 million have been reviewed with a completion date for
reviews of all relationships of $1 to $5 million targeted for the middle of the third quarter
of fiscal 2010.9.
    
    Determined that the amounts previously reported as
non-performing and impaired improperly included loans for which loss was not probable. Non-performing loans, non-performing assets and impaired loans, and the related ratios, at March 31, 2009 have been adjusted as a result.
   Note 4  Investment Securities
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    (Losses)
    
    
    Fair ValueAt September 30, 2009:Available for Sale:U.S. Government and federal agency obligations
    
    $
    17,703
    
    
    $
    456
    
    
    $
    (42
    )
    
    $
    18,117Mutual funds
    
    
    1,822
    
    
    
    
    
    
    
    
    
    
    
    1,822Other
    
    
    4,810
    
    
    
    107
    
    
    
    (23
    )
    
    
    4,894$
    24,335
    
    
    $
    563
    
    
    $
    (65
    )
    
    $
    24,833
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    (Losses)
    
    
    Fair ValueAt March 31, 2009:Available for Sale:U.S. Government and federal agency obligations
    
    $
    48,471
    
    
    $
    501
    
    
    $
    (53
    )
    
    $
    48,919Municipal Bonds
    
    
    21,768
    
    
    
    524
    
    
    
    (59
    )
    
    
    22,233Mutual funds
    
    
    1,797
    
    
    
    
    
    
    
    
    
    
    
    1,797Other
    
    
    4,806
    
    
    
    33
    
    
    
    (104
    )
    
    
    4,735$
    76,842
    
    
    $
    1,058
    
    
    $
    (216
    )
    
    $
    77,684
  10




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##### Table of Contents



At September 30, 2009Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedDescription of Securities
    
    Fair Value
    
    
    Loss
    
    
    Fair Value
    
    
    Loss
    
    
    Fair Value
    


    Loss(In Thousands)US government and Federal
Agency Obligations
    
    $
    4,940
    
    
    $
    (42
    )
    
    $
    
    
    
    $
    
    
    
    $
    4,940
    
    
    $
    (42
    )Other
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    (23
    )
    
    
    64
    
    
    
    (23
    )Total temporarily
impaired securities
    
    $
    4,940
    
    
    $
    (42
    )
    
    $
    64
    
    
    $
    (23
    )
    
    $
    5,004
    
    
    $
    (65
    )
 At March 31, 2009Less than 12 months
    
    
    12 months or more
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedDescription of Securities
    
    Fair Value
    


    Loss
    


    Fair Value
    


    Loss
    
    
    Fair Value
    


    Loss(In Thousands)US government and Federal
Agency Obligations
    
    $
    24,832
    
    
    $
    (53
    )
    
    $
    
    
    
    $
    
    
    
    $
    24,832
    
    
    $
    (53
    )Municipal Bonds
    
    
    1,455
    
    
    
    (59
    )
    
    
    
    
    
    
    
    
    
    
    1,455
    
    
    
    (59
    )Other
    
    
    151
    
    
    
    (104
    )
    
    
    
    
    
    
    
    
    
    
    151
    
    
    
    (104
    )Total temporarily
impaired securities
    
    $
    26,438
    
    
    $
    (216
    )
    
    $
    
    
    
    $
    
    
    
    $
    26,438
    
    
    $
    (216
    )
   11




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in millions)Proceeds from sales
    
    $
    13.1
    
    
    $
    
    
    
    $
    19.4
    
    
    $
    Gross gains on sales
    
    
    0.3
    
    
    
    
    
    
    
    0.4
    
    
    
    Gross losses on sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net gain on sales
    
    $
    0.3
    
    
    $
    
    
    
    $
    0.4
    
    
    $
    
   After 1
    
    
    After 5
    
    
    
    
    
    
    Non-Year
    
    
    Years
    
    
    
    
    
    
    MaturityWithin 1
    
    
    through 5
    
    
    through 10
    
    
    Over Ten
    
    
    EquityYear
    


    Years
    


    Years
    


    Years
    


    Investments
    


    Total(Dollars in Thousands)Available for Sale, at fair value:U.S. government and FederalAgency Obligations
    
    $
    3,043
    
    
    $
    10,134
    
    
    $
    
    
    
    $
    4,940
    
    
    $
    
    
    
    $
    18,117Mutual fund
    
    
    1,822
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,822Other
    
    
    3,599
    
    
    
    25
    
    
    
    
    
    
    
    1,164
    
    
    
    106
    
    
    
    4,894Total Investment Securities
    
    $
    8,464
    
    
    $
    10,159
    
    
    $
    
    
    
    $
    6,104
    
    
    $
    106
    
    
    $
    24,833
 Note 5  Mortgage-Related Securities
  12




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##### Table of Contents



Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    


    Gains
    


    (Losses)
    


    Fair ValueAt September 30, 2009:Available for Sale:Agency CMOs and REMICs
    
    $
    138,936
    
    
    $
    2,225
    
    
    $
    (31
    )
    
    $
    141,130Non-agency CMOs
    
    
    103,324
    
    
    
    161
    
    
    
    (9,090
    )
    
    
    94,395Residential mortgage-backed securities
    
    
    84,747
    
    
    
    3,875
    
    
    
    (32
    )
    
    
    88,590GNMA Securities
    
    
    124,072
    
    
    
    1,130
    
    
    
    (140
    )
    
    
    125,062$
    451,079
    
    
    $
    7,391
    
    
    $
    (9,293
    )
    
    $
    449,177Held to Maturity:Residential mortgage-backed securities
    
    $
    44
    
    
    $
    1
    
    
    $
    
    
    
    $
    45$
    44
    
    
    $
    1
    
    
    $
    
    
    
    $
    45
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    


    Gains
   


    (Losses)
    


    Fair ValueAt March 31, 2009:Available for Sale:Agency CMOs and REMICs
    
    $
    142,692
    
    
    $
    1,732
    
    
    $
    (429
    )
    
    $
    143,995Non-agency CMOs
    
    
    119,503
    
    
    
    333
    
    
    
    (12,309
    )
    
    
    107,527Residential mortgage-backed securities
    
    
    97,562
    
    
    
    3,221
    
    
    
    (29
    )
    
    
    100,754GNMA Securities
    
    
    54,753
    
    
    
    417
    
    
    
    (145
    )
    
    
    55,025$
    414,510
    
    
    $
    5,703
    
    
    $
    (12,912
    )
    
    $
    407,301Held to Maturity:Residential mortgage-backed securities
    
    $
    50
    
    
    $
    
    
    
    $
    
    
    
    $
    50$
    50
    
    
    $
    
    
    
    $
    
    
    
    $
    50
  13




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##### Table of Contents



At September 30, 2009Less than 12 months
    
    12 months or more
    
    TotalUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedDescription of Securities
    
    Fair Value
    
    Loss
    
    Fair Value
    
    Loss
    
    Fair Value
    
    Loss(In Thousands)Agency CMO/REMICs
    
    $
    10,494
    
    
    $
    (31
    )
    
    $
    
    
    
    $
    
    
    
    $
    10,494
    
    
    $
    (31
    )Non-Agency CMOs
    
    
    13,159
    
    
    
    (810
    )
    
    
    34,394
    
    
    
    (2,155
    )
    
    
    47,553
    
    
    
    (2,965
    )Residential
Mortgage-backed
securities
    
    
    1,432
    
    
    
    (32
    )
    
    
    
    
    
    
    
    
    
    
    1,432
    
    
    
    (32
    )GNMA Securities
    
    
    23,384
    
    
    
    (140
    )
    
    
    
    
    
    
    
    
    
    
    23,384
    
    
    
    (140
    )Total temporarily
impaired securities
    
    $
    48,469
    
    
    $
    (1,013
    )
    
    $
    34,394
    
    
    $
    (2,155
    )
    
    $
    82,863
    
    
    $
    (3,168
    )Other than temporarily
impaired securities
    
    $
    7,342
    
    
    $
    (226
    )
    
    $
    24,039
    
    
    $
    (5,899
    )
    
    
    31,381
    
    
    
    (6,125
    )Total temporary and
other than temporarily impaired
securities
    
    $
    55,811
    
    
    $
    (1,239
    )
    
    $
    58,433
    
    
    $
    (8,054
    )
    
    $
    114,244
    
    
    $
    (9,293
    )
 At March 31, 2009Less than 12 months
    
    12 months or more
    
    TotalUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedDescription of Securities
    
    Fair Value
    
    Loss
    
    Fair Value
    
    Loss
    
    Fair Value
    
    Loss(In Thousands)Agency CMO/REMICs
    
    $
    43,931
    
    
    $
    (429
    )
    
    $
    
    
    
    $
    
    
    
    $
    43,931
    
    
    $
    (429
    )Non-Agency CMOs
    
    
    33,715
    
    
    
    (2,874
    )
    
    
    34,265
    
    
    
    (3,014
    )
    
    
    67,980
    
    
    
    (5,888
    )Residential
Mortgage-backed
securities
    
    
    3,892
    
    
    
    (29
    )
    
    
    
    
    
    
    
    
    
    
    3,892
    
    
    
    (29
    )GNMA Securities
    
    
    24,049
    
    
    
    (135
    )
    
    
    1,803
    
    
    
    (10
    )
    
    
    25,852
    
    
    
    (145
    )$
    105,587
    
    
    $
    (3,467
    )
    
    $
    36,068
    
    
    $
    (3,024
    )
    
    $
    141,655
    
    
    $
    (6,491
    )Other than temporarily
impaired securities
    
    $
    8,892
    
    
    $
    (2,281
    )
    
    $
    11,211
    
    
    $
    (4,140
    )
    
    
    20,103
    
    
    
    (6,421
    )Total
temporary and other than
temporarily impaired
securities
    
    $
    114,479
    
    
    $
    (5,748
    )
    
    $
    47,279
    
    
    $
    (7,164
    )
    
    $
    161,758
    
    
    $
    (12,912
    )
  14




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##### Table of Contents



Total OTTI
    
    
    Total OTTIYear of Vintage
    
    
    
    
    
    
    
    
    
    
    Related to
    
    
    Related toPrior to 2005
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    Total
    
    
    Total OTTI
    
    
    Credit Loss
    
    
    Other Factors(in thousands)Total Non-Agency CMOs Rating:AAA
    
    $
    
    
    
    $
    
    
    
    $
    3,951
    
    
    $
    
    
    
    $
    7,610
    
    
    $
    (225
    )
    
    $
    (124
    )
    
    $
    (101
    )AA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,789
    
    
    
    7,814
    
    
    
    (1,083
    )
    
    
    (177
    )
    
    
    (906
    )A
    
    
    1,515
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,347
    
    
    
    (274
    )
    
    
    (18
    )
    
    
    (256
    )BBB
    
    
    1,392
    
    
    
    3,104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (710
    )
    
    
    (67
    )
    
    
    (643
    )BB and below
    
    
    
    
    
    
    6,083
    
    
    
    2,717
    
    
    
    9,829
    
    
    
    7,343
    
    
    
    (5,036
    )
    
    
    (817
    )
    
    
    (4,219
    )Total Non-Agency CMOs
    
    $
    2,908
    
    
    $
    9,187
    
    
    $
    6,668
    
    
    $
    12,618
    
    
    $
    31,381
    
    
    $
    (7,328
    )
    
    $
    (1,203
    )
    
    $
    (6,125
    )
 15




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedSeptember 30, 2009
    
    
    September 30, 2009Beginning balance of the amount of OTTI related to credit losses
    
    $
    1,018
    
    
    $
    805The credit portion of other-than-temporary-impairment not
previously recognized
    
    
    79
    
    
    
    83Additional increases to the amount related to the credit loss
for which OTTI was previously recognized
    
    
    107
    
    
    
    316Ending balance of the amount of OTTI related to credit losses
    
    $
    1,203
    
    
    $
    1,203
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in millions)Proceeds from sales
    
    $
    88.3
    
    
    $
    
    
    
    $
    128.6
    
    
    $
    Gross gains on sales
    
    
    1.8
    
    
    
    
    
    
    
    3.2
    
    
    
    Gross losses on sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net gain on sales
    
    $
    1.8
    
    
    $
    
    
    
    $
    3.2
    
    
    $
    
   16




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##### Table of Contents



After 1
    
    
    After 5Year
    
    
    YearsWithin 1
    
    
    through 5
    
    
    through 10
    
    
    Over TenYear
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Total(Dollars In Thousands)Mortgage-related securities
available for Sale, at fair value:Agency CMOs and REMICs
    
    $
    
    
    
    $
    
    
    
    $
    15,331
    
    
    $
    125,799
    
    
    $
    141,130Non-agency CMOs
    
    
    
    
    
    
    43
    
    
    
    21,134
    
    
    
    73,218
    
    
    
    94,395Residential Mortgage-backed securities
    
    
    948
    
    
    
    1,114
    
    
    
    44,412
    
    
    
    42,116
    
    
    
    88,590GNMA Secrurities
    
    
    
    
    
    
    
    
    
    
    4,872
    
    
    
    120,190
    
    
    
    125,062Total
    
    $
    948
    
    
    $
    1,157
    
    
    $
    85,749
    
    
    $
    361,323
    
    
    $
    449,177Held to Maturity, at fair value:Residential Mortgage-backed securities
    
    $
    
    
    
    $
    
    
    
    $
    45
    
    
    $
    
    
    
    $
    45Total
    
    $
    
    
    
    $
    
    
    
    $
    45
    
    
    $
    
    
    
    $
    45Total Mortgage-related securities
    
    $
    948
    
    
    $
    1,157
    
    
    $
    85,794
    
    
    $
    361,323
    
    
    $
    449,222Held to Maturity, at cost:Residential Mortgage-backed securities
    
    $
    
    
    
    $
    
    
    
    $
    44
    
    
    $
    
    
    
    $
    44
 17




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##### Table of Contents



Note 6  Loans Receivable
  September 30,
    
    
    March 31,2009
    
    
    2009First mortgage loans:Single-family residential
    
    $
    800,936
    
    
    $
    843,482Multi-family residential
    
    
    615,453
    
    
    
    662,483Commercial real estate
    
    
    903,553
    
    
    
    1,020,981Construction
    
    
    191,946
    
    
    
    267,375Land
    
    
    246,171
    
    
    
    266,7562,758,059
    
    
    
    3,061,077Second mortgage loans
    
    
    378,614
    
    
    
    394,708Education loans
    
    
    351,220
    
    
    
    358,784Commercial business loans and leases
    
    
    201,283
    
    
    
    238,940Credit card and other consumer loans
    
    
    29,465
    
    
    
    56,3023,718,641
    
    
    
    4,109,811Contras to loans:Undisbursed loan proceeds*
    
    
    (37,276
    )
    
    
    (71,672
    )Allowance for loan losses
    
    
    (170,664
    )
    
    
    (137,165
    )Unearned loan fees
    
    
    (4,161
    )
    
    
    (4,441
    )Net discount on loans purchased
    
    
    (9
    )
    
    
    (10
    )Unearned interest
    
    
    (67
    )
    
    
    (84
    )(212,177
    )
    
    
    (213,372
    )$
    3,506,464
    
    
    $
    3,896,439
 
 *
    
    Undisbursed loan proceeds are funds to be disbursed upon an authorized draw request.  Three Months Ended September 30,
    
    
    Six Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars In Thousands)
    
    
    (Dollars In Thousands)Allowance at beginning of period
    
    $
    139,455
    
    
    $
    40,265
    
    
    $
    137,165
    
    
    $
    38,285Provision
    
    
    60,900
    
    
    
    46,964
    
    
    
    131,300
    
    
    
    56,364Charge-offs
    
    
    (30,488
    )
    
    
    (23,556
    )
    
    
    (99,661
    )
    
    
    (30,982
    )Recoveries
    
    
    797
    
    
    
    941
    
    
    
    1,860
    
    
    
    947Allowance at end of period
    
    $
    170,664
    
    
    $
    64,614
    
    
    $
    170,664
    
    
    $
    64,614
  18




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At September 30,
    
    
    At March 31,2009
    
    
    2009
    
    
    2008
    
    
    2007(In Thousands)Impaired loans with valuation
reserve required
    
    $
    170,395
    
    
    $
    124,179
    
    
    $
    52,866
    
    
    $
    2,130Impaired loans without a
specific reserve
    
    
    244,684
    
    
    
    103,635
    
    
    
    51,192
    
    
    
    45,718Total impaired loans
    
    
    415,079
    
    
    
    227,814
    
    
    
    104,058
    
    
    
    47,848Less:Specific valuation allowance
    
    
    (35,356
    )
    
    
    (30,799
    )
    
    
    (17,639
    )
    
    
    (517
    )$
    379,723
    
    
    $
    197,015
    
    
    $
    86,419
    
    
    $
    47,331Average impaired loans
    
    $
    292,050
    
    
    $
    194,923
    
    
    $
    67,138
    
    
    $
    26,458Interest income recognized
on impaired loans
    
    $
    7,264
    
    
    $
    9,484
    
    
    $
    107
    
    
    $
    44Loans on nonaccrual status
    
    $
    288,027
    
    
    $
    166,354
    
    
    $
    101,241
    
    
    $
    47,040Loans past due ninety days or more and
still accruing
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Troubled debt restructurings  nonaccrual
    
    $
    127,052
    
    
    $
    61,460
    
    
    $
    400
    
    
    $
    400Troubled debt restructurings  accrual
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    19




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##### Table of Contents



Note 7  Other Intangible Assets
   For the
    
    
    For theSix Months Ended
    
    
    Year EndedSeptember 30,
    
    
    March 31,2009
    
    
    2009(In Thousands)Balance at beginning of period
    
    $
    4,725
    
    
    $
    5,359Amortization expense
    
    
    (317
    )
    
    
    (634
    )Balance at end of period
    
    $
    4,408
    
    
    $
    4,725
 September 30,
    
    
    March 31,2009
    
    
    2009(In Thousands)Gross carrying amount
    
    $
    5,517
    
    
    $
    5,517Accumulated amortization
    
    
    (1,109
    )
    
    
    (792
    )Net book value
    
    $
    4,408
    
    
    $
    4,725
    20




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21




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##### Table of Contents



Residential
    
    
    Other(In Thousands)Mortgage servicing rights as of March 31, 2008
    
    $
    11,698
    
    
    $
    1,478Additions
    
    
    10,087
    
    
    
    142Amortization
    
    
    (4,623
    )
    
    
    (362
    )Mortgage servicing rights before valuation allowance
at end of period
    
    
    17,162
    
    
    
    1,258Valuation allowance
    
    
    (2,407
    )
    
    
    Net mortgage servicing rights as of March 31, 2009
    
    $
    14,755
    
    
    $
    1,258Fair market value at the end of the period
    
    $
    15,292
    
    
    $
    1,662Key assumptions:Weighted average discount
    
    
    11.14
    %
    
    
    21.12
    %Weighted average prepayment speed assumption
    
    
    17.99
    %
    
    
    24.39
    %Mortgage servicing rights as of March 31, 2009
    
    $
    17,162
    
    
    $
    1,258Additions
    
    
    9,123
    
    
    
    1Amortization
    
    
    (3,554
    )
    
    
    (135
    )Mortgage servicing rights before valuation allowance
at end of period
    
    
    22,731
    
    
    
    1,124Valuation allowance
    
    
    (1,057
    )
    
    
    Net mortgage servicing rights as of September 30, 2009
    
    $
    21,674
    
    
    $
    1,124Fair market value at the end of the period
    
    $
    21,954
    
    
    $
    1,681Key assumptions:Weighted average discount
    
    
    10.74
    %
    
    
    20.83
    %Weighted average prepayment speed assumption
    
    
    13.56
    %
    
    
    24.28
    %
  Residential
    
    
    Other
    
    
    CoreMortgage
    
    
    Mortgage
    
    
    DepositServicing Rights
    
    
    Servicing Rights
    
    
    Premium
    
    
    Total(In Thousands)Quarter ended September 30, 2009
(actual)
    
    $
    1,434
    
    
    $
    63
    
    
    $
    158
    
    
    $
    1,655Estimate for the year ended March 31,2010
    
    $
    7,108
    
    
    $
    270
    
    
    $
    634
    
    
    $
    8,0122011
    
    
    7,108
    
    
    
    270
    
    
    
    634
    
    
    
    8,0122012
    
    
    7,108
    
    
    
    270
    
    
    
    634
    
    
    
    8,0122013
    
    
    350
    
    
    
    270
    
    
    
    634
    
    
    
    1,254Thereafter
    
    
    
    
    
    
    44
    
    
    
    1,872
    
    
    
    1,916$
    21,674
    
    
    $
    1,124
    
    
    $
    4,408
    
    
    $
    27,206
 22




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##### Table of Contents



Note 8  Federal Home Loan Bank Stock
   Note 9  Recent Accounting Pronouncements
  .
  
    
    acquisition costs will be generally expensed as incurred;
    
    noncontrolling interests (formerly known as minority interests) will
be recorded at fair value at the acquisition date;
    
    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
    
    changes in deferred tax asset valuation allowances and income tax
uncertainties after the acquisition date generally will affect income tax
expense.
  23




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##### Table of Contents



.
 24




---



##### Table of Contents



.
  
    
    The period after the balance sheet date during which
management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or
disclosure in the financial statements;
    
    The circumstances under which an entity should recognize
events or transactions occurring after the balance sheet
date in its financial statements; and
    
    The disclosures that an entity should make about events or
transactions that occurred after the balance sheet date.
  ,
  25




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##### Table of Contents



Note 10  Regulatory Capital
  Minimum RequiredMinimum Required
    
    to be WellFor Capital
    
    Capitalized UnderActual
    
    Adequacy Purposes
    
    OTS RequirementsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars In Thousands)At September 30, 2009:Tier 1 capital
(to adjusted tangible assets)
    
    $
    198,606
    
    
    
    4.28
    %
    
    $
    139,109
    
    
    
    3.00
    %
    
    $
    231,849
    
    
    
    5.00
    %Risk-based capital
(to risk-based assets)
    
    
    239,673
    
    
    
    7.59
    
    
    
    252,459
    
    
    
    8.00
    
    
    
    315,574
    
    
    
    10.00Tangible capital
(to tangible assets)
    
    
    198,606
    
    
    
    4.28
    
    
    
    69,555
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/AAt March 31, 2009:Tier 1 capital
(to adjusted tangible assets)
    
    $
    324,130
    
    
    
    6.17
    %
    
    $
    157,527
    
    
    
    3.00
    %
    
    $
    262,545
    
    
    
    5.00
    %Risk-based capital
(to risk-based assets)
    
    
    370,680
    
    
    
    10.20
    
    
    
    290,670
    
    
    
    8.00
    
    
    
    363,338
    
    
    
    10.00Tangible capital
(to tangible assets)
    
    
    324,130
    
    
    
    6.17
    
    
    
    78,763
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/A
  September 30,
    
    
    March 31,2009
    
    
    2009(In Thousands)Stockholders equity of the Bank
    
    $
    201,577
    
    
    $
    322,505Less: Goodwill and intangible assets
    
    
    (4,408
    )
    
    
    (4,725
    )Accumulated other comprehensive income
    
    
    1,437
    
    
    
    6,350Tier 1 and tangible capital
    
    
    198,606
    
    
    
    324,130Plus: Allowable general valuation allowances
    
    
    41,067
    
    
    
    46,550Risk-based capital
    
    $
    239,673
    
    
    $
    370,680
 Note 11  Earnings Per Share
  26




---



##### Table of Contents



Three Months Ended September 30,2009
    
    
    2008(in thousands)Numerator:Numerator for basic and diluted earnings
per shareloss available to common
stockholders
    
    $
    (75,207
    )
    
    $
    (23,299
    )Denominator:Denominator for basic earnings per
shareweighted-average shares
    
    
    21,155
    
    
    
    20,985Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    Management Recognition Plans
    
    
    
    
    
    
    Denominator for diluted earnings per
shareadjusted weighted-average
shares and assumed conversions
    
    
    21,155
    
    
    
    20,985Basic earnings (loss) per common share
    
    $
    (3.56
    )
    
    $
    (1.11
    )Diluted earnings (loss) per common share
    
    $
    (3.56
    )
    
    $
    (1.11
    )
 Six Months Ended September 30,2009
    
    
    2008(in thousands)Numerator:Numerator for basic and diluted earnings
per shareloss available to common
stockholders
    
    $
    (141,355
    )
    
    $
    (17,787
    )Denominator:Denominator for basic earnings per
shareweighted-average shares
    
    
    21,150
    
    
    
    20,957Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    Management Recognition Plans
    
    
    
    
    
    
    Denominator for diluted earnings per
shareadjusted weighted-average
shares and assumed conversions
    
    
    21,150
    
    
    
    20,957Basic earnings (loss) per common share
    
    $
    (6.68
    )
    
    $
    (0.85
    )Diluted earnings (loss) per common share
    
    $
    (6.68
    )
    
    $
    (0.85
    )
  27




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##### Table of Contents



Note 12  Segment Information
  Community Banking:
 Real Estate Investments:
  Three Months Ended September 30, 2009(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    18
    
    
    $
    55,368
    
    
    $
    (1
    )
    
    $
    55,385Interest expense
    
    
    
    
    
    
    36,447
    
    
    
    (1
    )
    
    
    36,446Net interest income
    
    
    18
    
    
    
    18,921
    
    
    
    
    
    
    
    18,939Provision for loan losses
    
    
    
    
    
    
    60,900
    
    
    
    
    
    
    
    60,900Net interest loss after provision for loan losses
    
    
    18
    
    
    
    (41,979
    )
    
    
    
    
    
    
    (41,961
    )Real estate investment partnership revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other revenue from real estate operations
    
    
    1,482
    
    
    
    
    
    
    
    
    
    
    
    1,482Other income
    
    
    
    
    
    
    9,376
    
    
    
    
    
    
    
    9,376Real estate investment partnership cost of sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other expense from real estate partnership operations
    
    
    (2,208
    )
    
    
    
    
    
    
    
    
    
    
    (2,208
    )Non-controlling interest in income of real estate partnerships
    
    
    (85
    )
    
    
    
    
    
    
    
    
    
    
    (85
    )Other expense
    
    
    
    
    
    
    (38,583
    )
    
    
    
    
    
    
    (38,583
    )Loss before income taxes
    
    
    (793
    )
    
    
    (71,186
    )
    
    
    
    
    
    
    (71,979
    )Income tax expense
    
    
    8
    
    
    
    (8
    )
    
    
    
    
    
    
    Net loss
    
    $
    (801
    )
    
    $
    (71,178
    )
    
    $
    
    
    
    $
    (71,979
    )Total assets at end of period
    
    $
    7,651
    
    
    $
    4,630,061
    
    
    $
    
    
    
    $
    4,637,712
 28




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##### Table of Contents



Three Months Ended September 30, 2008(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    34
    
    
    $
    64,267
    
    
    $
    (313
    )
    
    $
    63,988Interest expense
    
    
    291
    
    
    
    34,056
    
    
    
    (313
    )
    
    
    34,034Net interest income (loss)
    
    
    (257
    )
    
    
    30,211
    
    
    
    
    
    
    
    29,954Provision for loan losses
    
    
    
    
    
    
    46,964
    
    
    
    
    
    
    
    46,964Net interest loss after provision for loan losses
    
    
    (257
    )
    
    
    (16,753
    )
    
    
    
    
    
    
    (17,010
    )Real estate investment partnership revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other revenue from real estate operations
    
    
    1,032
    
    
    
    
    
    
    
    
    
    
    
    1,032Other income
    
    
    
    
    
    
    7,245
    
    
    
    (30
    )
    
    
    7,215Real estate investment partnership cost of sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other expense from real estate partnership operations
    
    
    (1,754
    )
    
    
    
    
    
    
    30
    
    
    
    (1,724
    )Non-controlling interest in loss of real estate partnerships
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    13Other expense
    
    
    
    
    
    
    (28,443
    )
    
    
    
    
    
    
    (28,443
    )Loss before income taxes
    
    
    (966
    )
    
    
    (37,951
    )
    
    
    
    
    
    
    (38,917
    )Income tax benefit
    
    
    (375
    )
    
    
    (15,243
    )
    
    
    
    
    
    
    (15,618
    )Net loss
    
    $
    (591
    )
    
    $
    (22,708
    )
    
    $
    
    
    
    $
    (23,299
    )Total assets at end of period
    
    $
    71,390
    
    
    $
    4,856,684
    
    
    $
    
    
    
    $
    4,928,074Goodwill
    
    $
    
    
    
    $
    72,181
    
    
    $
    
    
    
    $
    72,181
 Six Months Ended September 30, 2009(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    36
    
    
    $
    115,596
    
    
    $
    (141
    )
    
    $
    115,491Interest expense
    
    
    129
    
    
    
    71,649
    
    
    
    (141
    )
    
    
    71,637Net interest income (loss)
    
    
    (93
    )
    
    
    43,947
    
    
    
    
    
    
    
    43,854Provision for loan losses
    
    
    
    
    
    
    131,300
    
    
    
    
    
    
    
    131,300Net interest income (loss) after provision for loan losses
    
    
    (93
    )
    
    
    (87,353
    )
    
    
    
    
    
    
    (87,446
    )Real estate investment partnership revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other revenue from real estate operations
    
    
    2,393
    
    
    
    
    
    
    
    
    
    
    
    2,393Other income
    
    
    
    
    
    
    28,025
    
    
    
    
    
    
    
    28,025Real estate investment partnership cost of sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other expense from real estate partnership operations
    
    
    (3,659
    )
    
    
    
    
    
    
    
    
    
    
    (3,659
    )Non-controlling interest in income of real estate partnerships
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other expense
    
    
    
    
    
    
    (74,196
    )
    
    
    
    
    
    
    (74,196
    )Income (loss) before income taxes
    
    
    (1,359
    )
    
    
    (133,524
    )
    
    
    
    
    
    
    (134,883
    )Income tax (benefit) expense
    
    
    8
    
    
    
    (8
    )
    
    
    
    
    
    
    Net income (loss)
    
    $
    (1,367
    )
    
    $
    (133,516
    )
    
    $
    
    
    
    $
    (134,883
    )Total assets at end of period
    
    $
    7,651
    
    
    $
    4,630,061
    
    
    $
    
    
    
    $
    4,637,712
 29




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##### Table of Contents



Six Months Ended September 30, 2008(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    61
    
    
    $
    135,087
    
    
    $
    (652
    )
    
    $
    134,496Interest expense
    
    
    602
    
    
    
    71,171
    
    
    
    (652
    )
    
    
    71,121Net interest income (loss)
    
    
    (541
    )
    
    
    63,916
    
    
    
    
    
    
    
    63,375Provision for loan losses
    
    
    
    
    
    
    56,364
    
    
    
    
    
    
    
    56,364Net interest income (loss) after provision for loan losses
    
    
    (541
    )
    
    
    7,552
    
    
    
    
    
    
    
    7,011Real estate investment partnership revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other revenue from real estate operations
    
    
    2,505
    
    
    
    
    
    
    
    
    
    
    
    2,505Other income
    
    
    
    
    
    
    17,610
    
    
    
    (59
    )
    
    
    17,551Real estate investment partnership cost of sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other expense from real estate partnership operations
    
    
    (3,974
    )
    
    
    
    
    
    
    59
    
    
    
    (3,915
    )Non-controlling interest in loss of real estate partnerships
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    52Other expense
    
    
    
    
    
    
    (53,043
    )
    
    
    
    
    
    
    (53,043
    )Income (loss) before income taxes
    
    
    (1,958
    )
    
    
    (27,881
    )
    
    
    
    
    
    
    (29,839
    )Income tax (benefit) expense
    
    
    (739
    )
    
    
    (11,313
    )
    
    
    
    
    
    
    (12,052
    )Net income (loss)
    
    $
    (1,219
    )
    
    $
    (16,568
    )
    
    $
    
    
    
    $
    (17,787
    )Total assets at end of period
    
    $
    71,390
    
    
    $
    4,856,684
    
    
    $
    
    
    
    $
    4,928,074Goodwill
    
    $
    
    
    
    $
    72,181
    
    
    $
    
    
    
    $
    72,181
 Note 13  Commitments and Contingent Liabilities
   September 30,
    
    March 31,2009
    
    2009Commitments to extend credit:
    
    $
    14,709
    
    
    $
    52,427Unused lines of credit:Home equity
    
    
    142,792
    
    
    
    144,662Credit cards
    
    
    36,226
    
    
    
    37,602Commercial
    
    
    58,081
    
    
    
    89,300Letters of credit
    
    
    17,709
    
    
    
    20,694Credit enhancement under the FederalHome Loan Bank of Chicago MortgagePartnership Finance Program
    
    
    23,463
    
    
    
    23,527Real estate investment segment borrowing guarantees unfunded
    
    
    
    
    
    
    1,936
 30




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##### Table of Contents



Note 14  Fair Value of Financial Instruments
   Cash and cash equivalents and accrued interest:
 Investment and mortgage-related securities:
 Loans receivable:
 31




---



##### Table of Contents



Federal Home Loan Bank stock:
 Deposits:
 Other Borrowed Funds:
 Off-balance-sheet instruments:
  September 30, 2009
    
    March 31, 2009Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueFinancial assets:Cash and cash equivalents
    
    $
    370,022
    
    
    $
    370,022
    
    
    $
    433,826
    
    
    $
    433,826Investment securities
    
    
    24,833
    
    
    
    24,833
    
    
    
    77,684
    
    
    
    77,684Mortgage-related securities (available-for-sale and held-to-maturity)
    
    
    449,221
    
    
    
    449,222
    
    
    
    407,351
    
    
    
    407,351Loans held for sale
    
    
    28,904
    
    
    
    28,904
    
    
    
    161,964
    
    
    
    161,964Loans receivable
    
    
    3,506,464
    
    
    
    3,518,986
    
    
    
    3,896,439
    
    
    
    3,981,442Federal Home Loan Bank stock
    
    
    54,829
    
    
    
    54,829
    
    
    
    54,829
    
    
    
    54,829Accrued interest receivable
    
    
    21,896
    
    
    
    21,896
    
    
    
    25,375
    
    
    
    25,375Financial liabilities:Deposits
    
    
    3,727,723
    
    
    
    3,724,178
    
    
    
    3,909,391
    
    
    
    3,921,802Other borrowed funds
    
    
    759,479
    
    
    
    751,752
    
    
    
    1,078,392
    
    
    
    1,079,556Accrued interest payableborrowings
    
    
    5,092
    
    
    
    5,092
    
    
    
    2,833
    
    
    
    2,833Accrued interest payabledeposits
    
    
    12,274
    
    
    
    12,274
    
    
    
    14,436
    
    
    
    14,436
  32




---



##### Table of Contents




    
    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
  33




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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
    
    $
    24,833
    
    
    $
    770
    
    
    $
    24,063
    
    
    $
    Mortgage-related securities available for sale
    
    
    449,177
    
    
    
    
    
    
    
    
    
    
    
    449,177
  Three Months Ended
    
    
    Six Months EndedSeptember 30, 2009
    
    
    September 30, 2009Mortgage-Related Securities
    
    
    Mortgage-Related SecuritiesAvailable for Sale
    
    
    Available for SaleBalance at beginning of period
    
    $
    493,313
    
    
    $
    407,301Total gains (losses) (realized/unrealized)Included in earnings
    
    
    989
    
    
    
    2,415Included in other comprehensive income
    
    
    3,089
    
    
    
    5,308Included in earnings as other than temporary impairment
    
    
    (186
    )
    
    
    (399
    )Purchases
    
    
    68,805
    
    
    
    171,758Securitization of mortgage loans held for sale to mortgage-related securities
    
    
    
    
    
    
    48,878Principal repayments
    
    
    (28,510
    )
    
    
    (57,439
    )Sales
    
    
    (88,323
    )
    
    
    (128,645
    )Transfers in and/or out of level 3
    
    
    
    
    
    
    Balance at September 30, 2009
    
    $
    449,177
    
    
    $
    449,177
   Fair Value on a Nonrecurring Basis
  34




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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)Impaired loans
    
    $
    135,039
    
    
    $
    
    
    
    $
    
    
    
    $
    135,039Loans held for sale
    
    
    181
    
    
    
    
    
    
    
    181
    
    
    
    Mortgage servicing rights
    
    
    6,640
    
    
    
    
    
    
    
    
    
    
    
    6,640Foreclosed properties and repossessed assets
    
    
    38,431
    
    
    
    
    
    
    
    
    
    
    
    38,431
     Note 15  Income Taxes
  35




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##### Table of Contents



At September 30,
    
    
    At March 31,2009
    
    
    2009
    
    
    2008
    
    
    2007Deferred tax assets:Allowances for loan losses
    
    $
    72,628
    
    
    $
    58,442
    
    
    $
    15,081
    
    
    $
    8,238Other loss reserves
    
    
    3,308
    
    
    
    4,822
    
    
    
    269
    
    
    
    557Federal NOL carryforwards
    
    
    21,010
    
    
    
    
    
    
    
    
    
    
    
    State NOL carryforwards
    
    
    9,116
    
    
    
    3,604
    
    
    
    631
    
    
    
    469Unrealized gains/(losses)
    
    
    548
    
    
    
    2,695
    
    
    
    (738
    )
    
    
    389Other
    
    
    10,286
    
    
    
    11,773
    
    
    
    9,045
    
    
    
    8,103Total deferred tax assets
    
    
    116,896
    
    
    
    81,336
    
    
    
    24,288
    
    
    
    17,756Valuation allowance
    
    
    (99,112
    )
    
    
    (49,981
    )
    
    
    (997
    )
    
    
    (1,321
    )Adjusted deferred tax assets
    
    
    17,784
    
    
    
    31,355
    
    
    
    23,291
    
    
    
    16,435Deferred tax liabilities:FHLB stock dividends
    
    
    (3,976
    )
    
    
    (3,997
    )
    
    
    (4,022
    )
    
    
    (3,824
    )Mortgage servicing rights
    
    
    (8,867
    )
    
    
    (6,094
    )
    
    
    (4,888
    )
    
    
    (2,441
    )Purchase accounting
    
    
    (3,253
    )
    
    
    (3,348
    )
    
    
    (4,713
    )
    
    
    Other
    
    
    (1,688
    )
    
    
    (1,714
    )
    
    
    (1,513
    )
    
    
    (1,361
    )Total deferred tax liabilities
    
    
    (17,784
    )
    
    
    (15,153
    )
    
    
    (15,136
    )
    
    
    (7,626
    )Net deferred tax assets
    
    $
    
    
    
    $
    16,202
    
    
    $
    8,155
    
    
    $
    8,809
    36




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##### Table of Contents



Note 16  Credit Agreement
    Note 17  Regulatory Matters
     37




---



##### Table of Contents



Note 18  Subsequent Events
  38




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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 common share decreased to $(3.56) for the quarter ended September
30, 2009 compared to $(1.11) per share for the quarter ended September 30, 2008, primarily
due to a $13.9 million increase in the provision for loan losses and a $10.6 million
increase in non-interest expense;
    
    The interest rate spread decreased to 1.62% for the quarter ended September 30, 2009
compared to 2.59% for the quarter ended September 30, 2008;
    
    Loans receivable decreased $523.0 million, or 12.9%, since March 31, 2009;
    
    Deposits and accrued interest decreased $183.8 million, or 4.7%, since March 31, 2009;
    
    Book value per common share was $(1.34) at September 30, 2009 compared to $4.81 at March
31, 2009 and $14.76 at September 30, 2008;
    
    The Banks Risk-based capital and Tier 1 capital are undercapitalized per the target levels of the
Order to Cease and Desist dated June 26, 2009. However, the Banks Tier 1 capital is considered adequately capitalized for regulatory purposes.
    
    Total non-performing assets increased $173.1 million, or 61.7%, to $453.5 million at
September 30, 2009 from $280.4 million at March 31, 2009, and total non-performing loans
increased $187.3 million, or 82.2% to $415.1 million at September 30, 2009 from $227.8
million at March 31, 2009; and
    
    Net loss from the real estate investment segment was $1.4 million and $1.2 million for
the six months ended September 30, 2009 and 2008, respectively. These losses were mainly
due to the sale of the remaining interest in the real estate developments as of September
30, 2009.
 39




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##### Table of Contents



Three Months Ended9/30/2009
    
    
    6/30/2009
    
    
    3/31/2009
    
    
    12/31/2008(Dollars in thousands - except per share amounts)
    
    
    
    
    
    (restated)Operations Data:Net interest income
    
    $
    18,939
    
    
    $
    24,915
    
    
    $
    28,708
    
    
    $
    32,707Provision for loan losses
    
    
    60,900
    
    
    
    70,400
    
    
    
    56,385
    
    
    
    92,970Net gain (loss) on sale of loans
    
    
    1,062
    
    
    
    11,403
    
    
    
    7,858
    
    
    
    (228
    )Real estate investment partnership revenue
    
    
    
    
    
    
    
    
    
    
    310
    
    
    
    1,836Other non-interest income
    
    
    9,796
    
    
    
    8,157
    
    
    
    7,794
    
    
    
    7,905Real estate investment partnership cost of sales
    
    
    
    
    
    
    
    
    
    
    545
    
    
    
    1,191Other non-interest expense
    
    
    40,791
    
    
    
    37,064
    
    
    
    47,399
    
    
    
    117,066Non-controlling interest in income (loss) of
real estate partnership operations
    
    
    85
    
    
    
    (85
    )
    
    
    (246
    )
    
    
    150Loss before income taxes
    
    
    (71,979
    )
    
    
    (62,904
    )
    
    
    (59,413
    )
    
    
    (169,157
    )Income taxes (benefit)
    
    
    
    
    
    
    
    
    
    
    (16,147
    )
    
    
    (1,899
    )Net loss
    
    
    (71,979
    )
    
    
    (62,904
    )
    
    
    (43,266
    )
    
    
    (167,258
    )Selected Financial Ratios(1):Yield on earning assets
    
    
    4.62
    %
    
    
    4.80
    %
    
    
    5.22
    %
    
    
    5.69
    %Cost of funds
    
    
    3.00
    
    
    
    2.79
    
    
    
    2.72
    
    
    
    2.81Interest rate spread
    
    
    1.62
    
    
    
    2.01
    
    
    
    2.50
    
    
    
    2.88Net interest margin
    
    
    1.58
    
    
    
    1.99
    
    
    
    2.45
    
    
    
    2.88Return on average assets
    
    
    (5.71
    )
    
    
    (4.76
    )
    
    
    (3.44
    )
    
    
    (13.72
    )Return on average equity
    
    
    (222.48
    )
    
    
    (126.04
    )
    
    
    (79.64
    )
    
    
    (242.66
    )Average equity to average assets
    
    
    2.57
    
    
    
    3.77
    
    
    
    4.32
    
    
    
    5.66Non-interest expense to average assets
    
    
    3.23
    
    
    
    2.80
    
    
    
    3.81
    
    
    
    9.70Per Share:Basic earnings (loss) per common share
    
    $
    (3.56
    )
    
    $
    (2.97
    )
    
    $
    (2.05
    )
    
    $
    (7.96
    )Diluted earnings (loss) per common share
    
    
    (3.56
    )
    
    
    (2.97
    )
    
    
    (2.05
    )
    
    
    (7.96
    )Dividends per common share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.01Book value per common share
    
    
    (1.34
    )
    
    
    1.92
    
    
    
    4.81
    
    
    
    6.80Financial Condition:Total assets
    
    $
    4,637,712
    
    
    $
    5,238,320
    
    
    $
    5,273,055
    
    
    $
    4,798,847Loans receivable, netHeld for sale
    
    
    28,904
    
    
    
    115,340
    
    
    
    161,964
    
    
    
    32,139Held for investment
    
    
    3,506,464
    
    
    
    3,641,708
    
    
    
    3,896,439
    
    
    
    3,948,065Deposits and accrued interest
    
    
    3,739,997
    
    
    
    3,987,906
    
    
    
    3,923,827
    
    
    
    3,413,449Other borrowed funds
    
    
    759,479
    
    
    
    1,041,049
    
    
    
    1,078,392
    
    
    
    1,152,112Stockholders equity
    
    
    81,075
    
    
    
    151,422
    
    
    
    213,721
    
    
    
    146,662Allowance for loan losses
    
    
    170,664
    
    
    
    139,455
    
    
    
    137,165
    
    
    
    122,571Non-performing assets(2)
    
    
    453,510
    
    
    
    347,795
    
    
    
    280,377
    
    
    
    410,695
 
 (1)
    
    Annualized when appropriate.(2)
    
    Non-performing assets consist of loans past due more than ninety days, loans past due less than ninety days but
placed on non-accrual status due to anticipated probable loss, troubled debt restructurings performing less than
twelve months under the modified terms and foreclosed properties and repossessed assets. 40




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##### Table of Contents



Three Months Ended(Dollars in thousands - except per share amounts)
    
    9/30/2008
    
    
    6/30/2008
    
    
    3/31/2008
    
    
    12/31/2007Operations Data:Net interest income
    
    $
    29,954
    
    
    $
    33,421
    
    
    $
    35,066
    
    
    $
    31,338Provision for loan losses
    
    
    46,964
    
    
    
    9,400
    
    
    
    10,393
    
    
    
    7,792Net gain on sale of loans
    
    
    808
    
    
    
    2,243
    
    
    
    2,984
    
    
    
    1,468Real estate investment partnership revenue
    
    
    
    
    
    
    
    
    
    
    457
    
    
    
    1,012Other non-interest income
    
    
    7,439
    
    
    
    9,566
    
    
    
    10,121
    
    
    
    9,430Real estate investment partnership cost of sales
    
    
    
    
    
    
    
    
    
    
    548
    
    
    
    932Other non-interest expense
    
    
    30,167
    
    
    
    26,791
    
    
    
    29,249
    
    
    
    24,180Non-controlling interest in loss of
real estate partnership operations
    
    
    (13
    )
    
    
    (39
    )
    
    
    (43
    )
    
    
    (81
    )Income (loss) before income taxes
    
    
    (38,917
    )
    
    
    9,078
    
    
    
    8,481
    
    
    
    10,425Income taxes (benefit)
    
    
    (15,618
    )
    
    
    3,566
    
    
    
    2,838
    
    
    
    4,096Net income (loss)
    
    
    (23,299
    )
    
    
    5,512
    
    
    
    5,643
    
    
    
    6,329Selected Financial Ratios(1):Yield on earning assets
    
    
    5.59
    %
    
    
    6.05
    %
    
    
    6.10
    %
    
    
    6.68
    %Cost of funds
    
    
    3.00
    
    
    
    3.22
    
    
    
    3.31
    
    
    
    4.01Interest rate spread
    
    
    2.59
    
    
    
    2.83
    
    
    
    2.79
    
    
    
    2.67Net interest margin
    
    
    2.62
    
    
    
    2.87
    
    
    
    2.84
    
    
    
    2.83Return on average assets
    
    
    (1.89
    )
    
    
    0.44
    
    
    
    0.43
    
    
    
    0.54Return on average equity
    
    
    (27.69
    )
    
    
    6.37
    
    
    
    6.56
    
    
    
    7.44Average equity to average assets
    
    
    6.84
    
    
    
    6.93
    
    
    
    6.55
    
    
    
    7.31Non-interest expense to average assets
    
    
    2.45
    
    
    
    2.15
    
    
    
    2.27
    
    
    
    2.16Per Share:Basic earnings (loss) per common share
    
    $
    (1.11
    )
    
    $
    0.26
    
    
    $
    0.27
    
    
    $
    0.30Diluted earnings (loss) per common share
    
    
    (1.11
    )
    
    
    0.26
    
    
    
    0.27
    
    
    
    0.30Dividends per common share
    
    
    0.10
    
    
    
    0.18
    
    
    
    0.18
    
    
    
    0.18Book value per common share
    
    
    14.76
    
    
    
    16.00
    
    
    
    16.17
    
    
    
    15.98Financial Condition:Total assets
    
    $
    4,928,074
    
    
    $
    4,949,335
    
    
    $
    5,149,557
    
    
    $
    4,725,773Loans receivable, netHeld for sale
    
    
    4,099
    
    
    
    6,619
    
    
    
    9,669
    
    
    
    6,170Held for investment
    
    
    4,069,369
    
    
    
    4,129,075
    
    
    
    4,202,833
    
    
    
    3,941,891Deposits and accrued interest
    
    
    3,349,335
    
    
    
    3,406,975
    
    
    
    3,539,994
    
    
    
    3,145,551Other borrowed funds
    
    
    1,210,562
    
    
    
    1,147,329
    
    
    
    1,206,761
    
    
    
    1,150,914Stockholders equity
    
    
    317,501
    
    
    
    343,599
    
    
    
    345,116
    
    
    
    341,084Allowance for loan losses
    
    
    64,614
    
    
    
    40,265
    
    
    
    38,285
    
    
    
    28,761Non-performing assets(2)
    
    
    184,754
    
    
    
    147,036
    
    
    
    112,305
    
    
    
    87,002
 
 (1)
    
    Annualized when appropriate.(2)
    
    Non-performing assets consist of loans past due more than ninety days, loans past due less than ninety days but
placed on non-accrual status due to anticipated probable loss, troubled debt restructurings performing less than
twelve months under the modified terms and foreclosed properties and repossessed assets. 41




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##### Table of Contents



Critical 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 due to credit loss are reflected in
earnings as realized losses. In estimating other-than-temporary impairment losses on debt
securities, management considers many factors which include: (1) the length of time and the
extent to which the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer, and (3) the intent and ability of the Corporation to
retain its investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value. To determine if an other-than-temporary impairment
exists on a debt security, the Corporation first determines if (a) it intends to sell the
security or (b) it is more likely than not that it will be required to sell the security
before its anticipated recovery. If either of the conditions is met, the Corporation will
recognize an other-than-temporary impairment in earnings equal to the difference between
the fair value of the security and its adjusted cost. If neither of the conditions is met,
the Corporation determines (a) the amount of the impairment related to credit loss and (b)
the amount of the impairment due to all other factors. The difference between the present
values of the cash flows expected to be collected and the amortized cost basis is the
credit loss. The credit loss is the amount of the other-than-temporary impairment that is
recognized in earnings and is a reduction to the cost basis of the security. The amount of
total impairment related to all other factors is included in other comprehensive income
(loss). If a security is impaired, and the impairment is deemed other-than-temporary and
material, a write down will occur in that quarter.
    
    The allowance for loan losses is a valuation allowance for probable and inherent losses
incurred in the loan portfolio. The allowance is comprised of both a specific and general
component. Specific allowances are provided on impaired loans pursuant to ASC 310-10-35.
The general allowance is based on historical loss experience, adjusted for qualitative and
environmental factors pursuant to ASC 450-2 Loss Contingencies and other related
regulatory guidance. At least quarterly, we review the assumptions and methodology related
to the general allowance in an effort to update and refine the estimate.In determining the general allowance we have segregated the loan portfolio by collateral
type. By doing so we are better able to identify trends in borrower behavior and loss
severity. For each collateral type, we compute a historical factor. In determining the
appropriate period of activity to use in computing the historical factor we look at trends
in quarterly net charge-off ratios. It is our intention to utilize a period of activity
that we believe to be most reflective of current experience. Changes in the historical
period are made when there is a distinct change in the trend of net charge-off experience.In addition to the historical factor, we consider the impact of the following qualitative
factors: changes in lending policies, procedures and practices, economic and industry
trends and conditions, experience, ability and depth of lending management, level of and
trends in past dues and delinquent loans, changes in the quality of the loan review system,
changes in the value of the underlying collateral for collateral dependent loans, changes in
credit concentrations, and other external factors such as legal and regulatory. In
determining the impact, if any, of an individual qualitative factor, we compare the current
underlying facts and circumstances surrounding a particular factor with those in the
historical periods, adjusting the historical factor in a directionally consistent manner
with changes in the qualitative factor. For example, current property values in many of our
markets have declined when compared to the prior three years. This would indicate to us
that the severity of losses may be greater than in the past. Accordingly, we increased the
historical factor to account for this. We will continue to analyze the qualitative factors
on a quarterly basis, adjusting the historical factor both up and down, to a factor we
believe is appropriate for the probable and inherent risk of loss in our portfolio.Specific allowances are determined as a result of our loan review process. When a loan is
identified as impaired it is evaluated for loss using either the fair value of collateral
less selling costs or a discounted cash flow analysis as a determinant of fair value. If
fair value exceeds the Banks carrying value of the
 42




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##### Table of Contents



loan no loss is anticipated and no specific reserve is established. However, if the Banks
carrying value of the loan is greater than fair value a specific reserve is established. In
either situation, loans identified as impaired are excluded from the calculation of the
general reserve.We consider the allowance for loan losses at September 30, 2009 to be at an acceptable
level. Although we believe that we have established and maintained the allowance for loan
losses at an adequate level, changes may be necessary if future economic and other
conditions differ substantially from the current environment. Although we use the best
information available, the level of the allowance for loan losses remains an estimate that
is subject to significant judgment and short-term change.
    
    Valuation of mortgage servicing rights with servicing retained. 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 with
servicing retained. The fair value of mortgage servicing rights is the present value of
estimated future net cash flows from the servicing relationship using current market
participant 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 amortized cost or fair value.
    
    The Corporation accounts for federal income taxes in accordance with the provisions of
ASC 740-10-25, Income Taxes. Pursuant to the provisions of ASC 740-10-25, a deferred tax
liability or deferred tax asset is computed by applying the current statutory tax rates to
net taxable or deductible differences between the tax basis of an asset or liability and
its reported amount in the consolidated financial statements that will result in taxable or
deductible amounts in future periods. Deferred tax assets are recorded only to the extent
that the amount of net deductible temporary differences or carryforward attributes may be
utilized against current period earnings, carried back against prior years earnings,
offset against taxable temporary differences reversing in future periods, or utilized to
the extent of managements estimate of future taxable income. A valuation allowance is
provided for deferred tax assets to the extent that the value of net deductible temporary
differences and carryforward attributes exceeds managements estimates of taxes payable on
future taxable income. Deferred tax liabilities are provided on the total amount of net
temporary differences taxable in the future. A full valuation allowance has been recorded
on the deferred tax asset because the Corporation has exhausted its carryback potential and
is in a cumulative loss position.
 43




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##### Table of Contents



RESULTS OF OPERATIONS
 General.
 Net Interest Income.
    44




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##### Table of Contents



Provision for Loan Losses.
 Average Interest-Earning Assets, Average Interest-Bearing Liabilities and Interest Rate
Spread.
 45




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##### Table of Contents



Three Months Ended September 30,2009
    
    
    2008Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Cost(1)
    
    
    Balance
    
    
    Interest
    
    
    Cost(1)(Dollars In Thousands)Interest-Earning AssetsMortgage loans
    
    $
    2,710,901
    
    
    $
    37,162
    
    
    
    5.48
    %
    
    $
    3,111,614
    
    
    $
    44,830
    
    
    
    5.76
    %Consumer loans
    
    
    751,664
    
    
    
    9,583
    
    
    
    5.10
    
    
    
    752,792
    
    
    
    10,966
    
    
    
    5.83Commercial business loans
    
    
    181,521
    
    
    
    2,806
    
    
    
    6.18
    
    
    
    260,596
    
    
    
    3,654
    
    
    
    5.61Total loans receivable (2) (3)
    
    
    3,644,086
    
    
    
    49,551
    
    
    
    5.44
    
    
    
    4,125,002
    
    
    
    59,450
    
    
    
    5.76Mortgage-related securities (4)
    
    
    463,343
    
    
    
    5,174
    
    
    
    4.47
    
    
    
    271,445
    
    
    
    3,687
    
    
    
    5.43Investment securities (4)
    
    
    38,545
    
    
    
    299
    
    
    
    3.10
    
    
    
    105,206
    
    
    
    780
    
    
    
    2.97Interest-bearing deposits
    
    
    589,944
    
    
    
    361
    
    
    
    0.24
    
    
    
    20,845
    
    
    
    71
    
    
    
    1.36Federal Home Loan Bank stock
    
    
    54,829
    
    
    
    
    
    
    
    0.00
    
    
    
    54,829
    
    
    
    
    
    
    
    0.00Total interest-earning assets
    
    
    4,790,747
    
    
    
    55,385
    
    
    
    4.62
    
    
    
    4,577,327
    
    
    
    63,988
    
    
    
    5.59Non-interest-earning assets
    
    
    253,509
    
    
    
    
    
    
    
    
    
    
    
    343,151Total assets
    
    $
    5,044,256
    
    
    
    
    
    
    
    
    
    
    $
    4,920,478Interest-Bearing LiabilitiesDemand deposits
    
    $
    946,206
    
    
    
    1,337
    
    
    
    0.57
    
    
    $
    1,064,336
    
    
    
    2,811
    
    
    
    1.06Regular passbook savings
    
    
    247,344
    
    
    
    181
    
    
    
    0.29
    
    
    
    238,704
    
    
    
    283
    
    
    
    0.47Certificates of deposit
    
    
    2,677,319
    
    
    
    21,522
    
    
    
    3.22
    
    
    
    2,071,132
    
    
    
    20,804
    
    
    
    4.02Total deposits and accrued interest
    
    
    3,870,869
    
    
    
    23,040
    
    
    
    2.38
    
    
    
    3,374,172
    
    
    
    23,898
    
    
    
    2.83Other borrowed funds
    
    
    992,841
    
    
    
    13,406
    
    
    
    5.40
    
    
    
    1,170,592
    
    
    
    10,136
    
    
    
    3.46Total interest-bearing liabilities
    
    
    4,863,710
    
    
    
    36,446
    
    
    
    3.00
    
    
    
    4,544,764
    
    
    
    34,034
    
    
    
    3.00Non-interest-bearing liabilities
    
    
    51,132
    
    
    
    
    
    
    
    
    
    
    
    39,179Total liabilities
    
    
    4,914,842
    
    
    
    
    
    
    
    
    
    
    
    4,583,943Stockholders equity
    
    
    129,414
    
    
    
    
    
    
    
    
    
    
    
    336,535Total liabilities and stockholders equity
    
    $
    5,044,256
    
    
    
    
    
    
    
    
    
    
    $
    4,920,478Net interest income/interest rate spread (5)
    
    
    
    
    
    $
    18,939
    
    
    
    1.62
    %
    
    
    
    
    
    $
    29,954
    
    
    
    2.59
    %Net interest-earning assets
    
    $
    (72,963
    )
    
    
    
    
    
    
    
    
    
    $
    32,563Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    1.58
    %
    
    
    
    
    
    
    
    
    
    
    2.62
    %Ratio of average interest-earning assets
to average interest-bearing liabilities
    
    
    0.98
    
    
    
    
    
    
    
    
    
    
    
    1.01
 
 (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. 46




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##### Table of Contents



Six Months Ended September 30,2009
    
    
    2008Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    

Cost (1)
    
    
    Balance
    
    
    Interest
    
    

Cost (1)(Dollars In Thousands)Interest-Earning AssetsMortgage loans
    
    $
    2,840,976
    
    
    $
    77,351
    
    
    
    5.45
    %
    
    $
    3,149,094
    
    
    $
    94,443
    
    
    
    6.00
    %Consumer loans
    
    
    777,095
    
    
    
    20,329
    
    
    
    5.23
    
    
    
    740,819
    
    
    
    23,115
    
    
    
    6.24Commercial business loans
    
    
    195,663
    
    
    
    5,661
    
    
    
    5.79
    
    
    
    263,421
    
    
    
    7,603
    
    
    
    5.77Total loans receivable (2) (3)
    
    
    3,813,734
    
    
    
    103,341
    
    
    
    5.42
    
    
    
    4,153,334
    
    
    
    125,161
    
    
    
    6.03Mortgage-related securities (4)
    
    
    441,087
    
    
    
    10,750
    
    
    
    4.87
    
    
    
    272,768
    
    
    
    7,355
    
    
    
    5.39Investment securities (4)
    
    
    52,670
    
    
    
    770
    
    
    
    2.92
    
    
    
    97,315
    
    
    
    1,581
    
    
    
    3.25Interest-bearing deposits
    
    
    536,895
    
    
    
    630
    
    
    
    0.23
    
    
    
    41,380
    
    
    
    399
    
    
    
    1.93Federal Home Loan Bank stock
    
    
    54,829
    
    
    
    
    
    
    
    0.00
    
    
    
    54,829
    
    
    
    
    
    
    
    0.00Total interest-earning assets
    
    
    4,899,215
    
    
    
    115,491
    
    
    
    4.71
    
    
    
    4,619,626
    
    
    
    134,496
    
    
    
    5.82Non-interest-earning assets
    
    
    268,821
    
    
    
    
    
    
    
    
    
    
    
    336,863Total assets
    
    $
    5,168,036
    
    
    
    
    
    
    
    
    
    
    $
    4,956,489Interest-Bearing LiabilitiesDemand deposits
    
    $
    945,169
    
    
    
    2,703
    
    
    
    0.57
    
    
    $
    1,080,116
    
    
    
    6,070
    
    
    
    1.12Regular passbook savings
    
    
    243,794
    
    
    
    347
    
    
    
    0.28
    
    
    
    233,444
    
    
    
    549
    
    
    
    0.47Certificates of deposit
    
    
    2,734,413
    
    
    
    44,123
    
    
    
    3.23
    
    
    
    2,105,141
    
    
    
    44,121
    
    
    
    4.19Total deposits and accrued interest
    
    
    3,923,376
    
    
    
    47,173
    
    
    
    2.40
    
    
    
    3,418,701
    
    
    
    50,740
    
    
    
    2.97Other borrowed funds
    
    
    1,027,005
    
    
    
    24,464
    
    
    
    4.76
    
    
    
    1,157,177
    
    
    
    20,381
    
    
    
    3.52Total interest-bearing liabilities
    
    
    4,950,381
    
    
    
    71,637
    
    
    
    2.89
    
    
    
    4,575,878
    
    
    
    71,121
    
    
    
    3.11Non-interest-bearing liabilities
    
    
    51,256
    
    
    
    
    
    
    
    
    
    
    
    39,740Total liabilities
    
    
    5,001,637
    
    
    
    
    
    
    
    
    
    
    
    4,615,618Stockholders equity
    
    
    166,399
    
    
    
    
    
    
    
    
    
    
    
    340,871Total liabilities and stockholders equity
    
    $
    5,168,036
    
    
    
    
    
    
    
    
    
    
    $
    4,956,489Net interest income/interest rate
spread (5)
    
    
    
    
    
    $
    43,854
    
    
    
    1.82
    %
    
    
    
    
    
    $
    63,375
    
    
    
    2.71
    %Net interest-earning assets
    
    $
    (51,166
    )
    
    
    
    
    
    
    
    
    
    $
    43,748Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    1.79
    %
    
    
    
    
    
    
    
    
    
    
    2.74
    %Ratio of
average interest-earning assets
to average interest-bearing liabilities
    
    
    0.99
    
    
    
    
    
    
    
    
    
    
    
    1.01
 
 (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. 47




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##### Table of Contents



Non-Interest Income.
 Non-Interest Expense.
 Income Taxes.
   48




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##### Table of Contents



FINANCIAL CONDITION
         49




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##### Table of Contents



50




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ASSET QUALITY
  September 30, 2009
    
    
    March 31, 2009Non-
    
    
    
    
    
    
    Percent of
    
    
    Non-
    
    
    
    
    
    
    Percent ofPerforming
    
    
    %
    
    
    Total Loans
    
    
    Performing
    
    
    %
    
    
    Total Loans(Dollars in Thousands)Single-family residential
    
    $
    58,100
    
    
    
    14.0
    %
    
    
    1.56
    %
    
    $
    31,868
    
    
    
    14.0
    %
    
    
    0.78
    %Multi-family residential
    
    
    63,930
    
    
    
    15.4
    %
    
    
    1.72
    %
    
    
    50,090
    
    
    
    22.0
    %
    
    
    1.22
    %Commercial real estate
    
    
    131,228
    
    
    
    31.6
    %
    
    
    3.53
    %
    
    
    56,972
    
    
    
    25.0
    %
    
    
    1.39
    %Construction and land
    
    
    133,073
    
    
    
    32.1
    %
    
    
    3.58
    %
    
    
    70,536
    
    
    
    31.0
    %
    
    
    1.72
    %Consumer
    
    
    5,395
    
    
    
    1.3
    %
    
    
    0.15
    %
    
    
    3,525
    
    
    
    1.5
    %
    
    
    0.09
    %Commercial business
    
    
    23,353
    
    
    
    5.6
    %
    
    
    0.63
    %
    
    
    14,823
    
    
    
    6.5
    %
    
    
    0.36
    %Total Non-Performing Loans
    
    $
    415,079
    
    
    
    100.0
    %
    
    
    11.16
    %
    
    $
    227,814
    
    
    
    100.0
    %
    
    
    5.54
    %
  At September 30,
    
    
    At March 31,2009
    
    
    2009(Dollars in thousands)Total non-accrual loans
    
    $
    288,027
    
    
    $
    166,354Troubled debt restructurings  non-accrual (2)
    
    
    127,052
    
    
    
    61,460Troubled debt restructurings  accrual (3)
    
    
    
    
    
    
    Other real estate owned (OREO)
    
    
    38,431
    
    
    
    52,563Total non-performing assets
    
    $
    453,510
    
    
    $
    280,377Total non-performing loans to total loans (1)
    
    
    11.16
    %
    
    
    5.54
    %Total non-performing assets to total assets
    
    
    9.78
    
    
    
    5.32Allowance for loan losses to total loans (1)
    
    
    4.59
    
    
    
    3.34Allowance for loan losses to total non-performing loans
    
    
    41.12
    
    
    
    60.21Allowance for loan and foreclosure losses to total
non-performing assets
    
    
    40.11
    
    
    
    52.08
 
 (1)
    
    Total loans are gross loans receivable before the reduction for loans in
process, unearned interest and loan fees and the allowance from loans losses.(2)
    
    Troubled debt restructurings  non-accrual represent loans that were modified in a
troubled debt restructuring less than six months prior to the period end date.(3)
    
    Troubled debt restructurings  accrual represent loans that were modified in a
troubled debt restructuring and have been performing in accordance with the modified terms for more
than six months but less than twelve months.  51




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##### Table of Contents



1.
    
    Realigned the corporate structure to ensure that credit risk is adequately and
appropriately identified, mitigated and where possible, eliminated. This realignment
included the appointment of a Chief Credit Risk Officer and creation of a Special Assets
Group to properly assess potential shortfall exposure and to develop workout plans.2.
    
    Created and implemented a new loan risk rating system using qualitative metrics to
proactively identify loans with potential risk so they could be properly classified and
monitored.3.
    
    Re-evaluated all classified loans greater than $500,000. This resulted in the
following action items:
 a.
    
    Established standard discount rates for various collateral types.b.
    
    Identified all related entities associated with the existing impaired
loans to ensure that the impairment analysis represents a more accurate and
thorough picture of the total borrowing relationship. This resulted in an increase
of $2.6 million in specific reserves.c.
    
    Changed the evaluation of impairment when collateral is the primary
source of repayment so that collateral is now evaluated on a loan by loan basis
rather than from a total collateral pool for the relationship.d.
    
    Refined the determination of the bifurcation of the collateral
shortfall between specific reserve and charge off.
 4.
    
    Incorporated the following policy improvements to further streamline and improve the
timeliness of reserves taken in the ALLL calculation:
 a.
    
    Developed a standard reserve percentage based on collateral type to
replace the individual loan analysis for all relationships under $500,000, with the
average reserve of the impaired pool of that collateral type greater than $500,000
now being used as the proxy. This resulted in an increase in the ALLL of $1.4
million.b.
    
    Loans identified as impaired are immediately downgraded with the
standard impairment for its collateral type determined as described in item 4a
above, versus waiting until appraisal or other date is received to perform an
analyses. This resulted in an additional $6.3 million of specific reserves.c.
    
    Established a maximum period of 90 days for management to obtain all
necessary information and complete a specific impairment analysis.
 52




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5.
    
    Analyzed the population of recent appraisals received and developed a specific reserve
amount ($7.1 million at September 30, 2009) to capture the probable deterioration in
collateral value on loans with appraisals pending above and beyond that already
incorporated into the individual impaired loan reviews.6.
    
    Established an independent underwriting group that evaluates the total borrowing
relationship using a global cash flow methodology and develops an individual grade of the
loan and relationship based on the new risk rating system.7.
    
    Proactive monitoring of matured and delinquent loans between 30 and 89 days delinquent.8.
    
    Reviewed approximately 75 percent of the performing (non-impaired) portfolio for
performance issues. All relationships over $5 million have been reviewed with a completion
date for reviews of all relationships of $1 to $5 million targeted for the middle of the
third quarter of fiscal 2010.9.
    
    Determined that the amounts previously reported as non-performing and impaired
improperly included loans for which loss was not probable. Non-performing loans,
non-performing assets and impaired loans, and the related ratios, at March 31, 2009 have
been adjusted as a result.
    MostRecorded
    
    
    Date
    
    
    RecentBalance
    
    
    Placed in
    
    
    AppraisalDescription
    
    Location
    
    (in millions)
    
    
    OREO
    
    
    Date(Restated)Construction company/equipment
    
    Southern Wisconsin
    
    $
    2.9
    
    
    
    1/29/2009
    
    
    
    N/APartially constructed condominium and retail
complex
    
    Southern Wisconsin
    
    
    5.2
    
    
    
    12/31/2008
    
    
    
    11/1/2008Partially constructed condominium project
    
    Central Wisconsin
    
    
    12.7
    
    
    
    3/31/2009
    
    
    
    1/1/2006Property secured by CBRF
    
    Northeast Wisconsin
    
    
    4.2
    
    
    
    12/31/2008
    
    
    
    3/1/2009Several single family properties
    
    Minnesota
    
    
    5.0
    
    
    
    9/16/2008
    
    
    
    6/1/2007Commercial building
    
    Southern Wisconsin
    
    
    1.3
    
    
    
    4/27/2009
    
    
    
    7/11/2008Commercial building
    
    Southern Wisconsin
    
    
    1.2
    
    
    
    9/30/2009
    
    
    
    8/10/2009Commercial building
    
    Central Wisconsin
    
    
    1.0
    
    
    
    8/31/2009
    
    
    
    2/26/2009Other properties individually less than $1 million
    
    
    
    
    16.1Valuation allowance on OREO
    
    
    
    
    (11.2
    )$
    38.4
 53




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##### Table of Contents



At September 30,
    
    
    At March 31,2009
    
    
    2009
    
    
    2008
    
    
    2007(In Thousands)Impaired loans with valuation
reserve required
    
    $
    170,395
    
    
    $
    124,179
    
    
    $
    52,866
    
    
    $
    2,130Impaired loans without a
specific reserve
    
    
    244,684
    
    
    
    103,635
    
    
    
    51,192
    
    
    
    45,718Total impaired loans
    
    
    415,079
    
    
    
    227,814
    
    
    
    104,058
    
    
    
    47,848Less:Specific valuation allowance
    
    
    (35,356
    )
    
    
    (30,799
    )
    
    
    (17,639
    )
    
    
    (517
    )$
    379,723
    
    
    $
    197,015
    
    
    $
    86,419
    
    
    $
    47,331Average impaired loans
    
    $
    292,050
    
    
    $
    194,923
    
    
    $
    67,138
    
    
    $
    26,458Interest income recognized
on impaired loans
    
    $
    7,264
    
    
    $
    9,484
    
    
    $
    107
    
    
    $
    44Loans on nonaccrual status
    
    $
    288,027
    
    
    $
    166,354
    
    
    $
    101,241
    
    
    $
    47,040Loans past due ninety days or more and
still accruing
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Troubled debt restructurings  nonaccrual
    
    $
    127,052
    
    
    $
    61,460
    
    
    $
    400
    
    
    $
    400Troubled debt restructurings  accrual
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 54




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##### Table of Contents



At September 30,
    
    
    At March 31,2009
    
    
    2009
    
    
    2008
    
    
    2007(In Thousands)30 to 59 days
    
    $
    46,007
    
    
    $
    57,746
    
    
    $
    66,617
    
    
    $
    12,77660 to 89 days
    
    
    11,817
    
    
    
    20,927
    
    
    
    12,928
    
    
    
    5,414Total
    
    $
    57,824
    
    
    $
    78,673
    
    
    $
    79,545
    
    
    $
    18,190
    Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2009
    
    

    2008
    
    
    2009
    
    
    2008(Dollars In Thousands)Allowance at beginning of period
    
    $
    139,455
    
    
    $
    40,265
    
    
    $
    137,165
    
    
    $
    38,285Charge-offs:Construction
    
    
    (10,480
    )
    
    
    (1,023
    )
    
    
    (25,792
    )
    
    
    (1,320
    )Mortgage
    
    
    (14,268
    )
    
    
    (10,549
    )
    
    
    (53,720
    )
    
    
    (15,468
    )Consumer
    
    
    (559
    )
    
    
    (214
    )
    
    
    (1,235
    )
    
    
    (480
    )Commercial business
    
    
    (5,181
    )
    
    
    (11,770
    )
    
    
    (18,914
    )
    
    
    (13,714
    )Total charge-offs
    
    
    (30,488
    )
    
    
    (23,556
    )
    
    
    (99,661
    )
    
    
    (30,982
    )Recoveries:Mortgage
    
    
    651
    
    
    
    590
    
    
    
    876
    
    
    
    590Consumer
    
    
    8
    
    
    
    4
    
    
    
    25
    
    
    
    10Commercial business
    
    
    138
    
    
    
    347
    
    
    
    959
    
    
    
    347Total recoveries
    
    
    797
    
    
    
    941
    
    
    
    1,860
    
    
    
    947Net (charge-offs) recoveries
    
    
    (29,691
    )
    
    
    (22,615
    )
    
    
    (97,801
    )
    
    
    (30,035
    )Provision for loan losses
    
    
    60,900
    
    
    
    46,964
    
    
    
    131,300
    
    
    
    56,364Allowance at end of period
    
    $
    170,664
    
    
    $
    64,614
    
    
    $
    170,664
    
    
    $
    64,614Net charge-offs to average loans
    
    
    (3.26
    )%
    
    
    (2.19
    )%
    
    
    (5.13
    )%
    
    
    (1.45
    )%
  55




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LIQUIDITY AND CAPITAL RESOURCES
       56




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Credit Agreement
    57




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Minimum RequiredMinimum Required
    
    
    to be WellFor Capital
    
    
    Capitalized UnderActual
    
    
    Adequacy Purposes
    
    
    OTS RequirementsAmount
    
    
    Ratio
    

    
    Amount

    
    
    Ratio
    

    
    Amount


    
    
    Ratio(Dollars In Thousands)At September 30, 2009:Tier 1 capital
(to adjusted tangible assets)
    
    $
    198,606
    
    
    
    4.28
    %
    
    $
    139,109
    
    
    
    3.00
    %
    
    $
    231,849
    
    
    
    5.00
    %Risk-based capital
(to risk-based assets)
    
    
    239,673
    
    
    
    7.59
    
    
    
    252,459
    
    
    
    8.00
    
    
    
    315,574
    
    
    
    10.00Tangible capital
(to tangible assets)
    
    
    198,606
    
    
    
    4.28
    
    
    
    69,555
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/AAt March 31, 2009:Tier 1 capital
(to adjusted tangible assets)
    
    $
    324,130
    
    
    
    6.17
    %
    
    $
    157,527
    
    
    
    3.00
    %
    
    $
    262,545
    
    
    
    5.00
    %Risk-based capital
(to risk-based assets)
    
    
    370,680
    
    
    
    10.20
    
    
    
    290,670
    
    
    
    8.00
    
    
    
    363,338
    
    
    
    10.00Tangible capital
(to tangible assets)
    
    
    324,130
    
    
    
    6.17
    
    
    
    78,763
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/A
  September 30,
    
    
    March 31,2009
    
    
    2009(In Thousands)Stockholders equity of the Bank
    
    $
    201,577
    
    
    $
    322,505Less: Goodwill and intangible assets
    
    
    (4,408
    )
    
    
    (4,725
    )Accumulated other comprehensive income
    
    
    1,437
    
    
    
    6,350Tier 1 and tangible capital
    
    
    198,606
    
    
    
    324,130Plus: Allowable general valuation allowances
    
    
    41,067
    
    
    
    46,550Risk-based capital
    
    $
    239,673
    
    
    $
    370,680
 58




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GUARANTEES
   Amount
    
    
    Amount
    
    
    AmountSubsidiary
    
    Partnership
    
    Guaranteed
    
    
    Outstanding
    
    
    Outstandingof IDI
    
    Entity
    
    at 3/31/09
    
    
    at 3/31/09
    
    
    at 9/30/09(Dollars in thousands)Davsha III
    
    Indian Palms 147, LLC
    
    $
    1,000
    
    
    $
    476
    
    $
    Davsha V
    
    Villa Santa Rosa, LLC
    
    
    500
    
    
    
    346
    
    
    Davsha VII
    
    La Vista Grande 121, LLC
    
    
    15,000
    
    
    
    13,742
    
    
    Total
    
    
    
    $
    16,500
    
    
    $
    14,564
    
    $
    
   59




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ASSET/LIABILITY MANAGEMENT
     60




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REGULATORY DEVELOPMENTS
 Temporary Liquidity Guarantee Program
  Emergency Economic Stabilization Act of 2008
  
    
    Capital Purchase Program (CPP). Pursuant to this program, Treasury, on behalf of the US
government, will purchase preferred stock, along with warrants to purchase common stock, from
certain financial institutions, including bank holding companies, savings and loan holding
companies and banks or savings associations not controlled by a holding company. The
investment will have a dividend rate of 5% per year, until the fifth anniversary of Treasurys
investment and a dividend of 9% thereafter. During the time Treasury holds securities issued
pursuant to this program, participating financial institutions will be required to comply with
certain provisions regarding executive compensation and corporate governance. Participation
in this program also imposes certain restrictions upon an institutions dividends to common
shareholders and stock repurchase activities. We elected to participate in the CPP and
received $110 million pursuant to the program.
 
    
    Temporary Liquidity Guarantee Program. This program contained both (i) a debt guarantee
component, whereby the FDIC will guarantee until June 30, 2012, the senior unsecured debt
issued by eligible financial institutions between October 14, 2008 and June 30, 2009; and (ii)
an account transaction guarantee component, whereby the FDIC will insure 100% of non-interest
bearing deposit transaction accounts held at eligible financial institutions, such as payment
processing accounts, payroll accounts and working capital accounts through December 31, 2009.
The deadline for participation or opting out of this program was December 5, 2008. We elected
not to opt out of the program.
 
    
    Temporary increase in deposit insurance coverage. Pursuant to the EESA, the FDIC temporarily
raised the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per
depositor. The EESA provides that the basic deposit insurance limit will return to $100,000
after December 31, 2009.
 The American Recovery and Reinvestment Act of 2009
  61




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
    
    the development of a public/private investment fund essentially structured as a
government sponsored enterprise with the mission to purchase troubled assets from banks
with an initial capitalization from government funds;
    
    the Capital Assistance Program under which the Treasury will purchase
additional preferred stock available only for banks that have undergone a new stress
test given by their regulator;
    
    an expansion of the Federal Reserves term asset-backed liquidity facility to
support the purchase of up to $1 trillion in AAA  rated asset backed securities
backed by consumer, student, and small business loans, and possible other types of
loans; and
    
    the establishment of a mortgage loan modification program with $50 billion in
federal funds further detailed in the HASP.
   OTS Order to Cease and Desist
    62




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FORWARD-LOOKING STATEMENTS
   63




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##### Table of Contents



Item 3 Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4 Controls and Procedures.
   1.
    
    Our Internal Control over Financial Reporting related to the
allowance for loan losses and the completeness and accuracy of the provision
for loan losses contained multiple deficiencies that represent material
weaknesses. Specifically the Corporation failed to:
 
    
    Maintain policies and procedures to ensure that loan personnel performed
an analysis adequate to risk classify the loan portfolio.
    
    Effectively monitor the loan portfolio and identify problem loans in a
timely manner.
    
    Maintain policies and procedures to ensure that ASC 310-10-35
Receivables documentation is prepared timely, accurately and subject to
supervisory review.
    
    Receive current financial information on problem loans, in a timely
manner, to ensure that these loans were evaluated for impairment under ASC
310-10-35.
    
    Establish policies and procedures to ensure that an impairment
calculation is prepared for all loans identified as impaired and that the
impairment calculation is updated on a quarterly basis.
    
    Effectively monitor problem loans to ensure that recent appraisals are
used to support collateral valuation utilized in the impairment analysis.
    
    Maintain policies and procedures to ensure that the supporting
documentation for the allowance for loan loss calculation is reviewed and
tested by an individual independent of the allowance for loan loss process.
    
    Re-evaluate the qualitative factors used in the allowance calculation on
a quarterly basis to assess the continued decline in the local and national
economy; exacerbation of certain negative trends in real estate values;
increasing regional unemployment levels; slowed demand for both new and
existing housing; and the resulting stress on the Banks real estate and
development portfolios.
    
    Properly review subsequent events and therefore had to restate its first
quarter financial statements.
    
    Apply consistent discounts in its impairment analysis.
 2.
    
    The Corporation did not maintain effective controls over
financial reporting over impairment charges, related to Other Real Estate Owned
(OREO). The existing policies and procedures
 64




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##### Table of Contents



did not provide for sufficient supervisory controls around the valuation and
recording of impairment charges for other real estate owned to ensure impairment
charges were properly recognized and recorded.3.
    
    The Corporation did not maintain effective entity-level
controls to ensure that the financial statements were prepared in accordance
with generally accepted accounting principles. This material weakness was
identified by our auditors when they reviewed the financial statements and
identified disclosures that either required significant modification or were
missing altogether. The weakness relates primarily to disclosures required as
a result of changing economic conditions, adoption of new accounting standards,
and disclosure of unusual significant transactions. This material weakness was
evidenced by the ineffective preparation of the financial statements and
resulted from the lack of the necessary supervisory review to ensure accurate
presentation and disclosure in the financial statements.
  65




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Changes in Internal Control Over Financial Reporting
  66




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Part II  Other Information
 
 Item 1 Legal Proceedings.
  
 Item 1A Risk Factors.
  Risks Related to Our Business
 We experienced a net loss in the second quarter of fiscal 2010 directly attributable
to a substantial deterioration in our residential construction and residential land
loan portfolio and the resulting increase in our provision for loan losses.
     67




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##### Table of Contents



Our business is subject to liquidity risk, and changes in our source of funds may
adversely affect our performance and financial condition by increasing our cost of
funds.
   Additional increases in our level of non-performing assets will have an adverse
effect on our financial condition and results of operations.
  Future sales or other dilution of the Corporations equity may adversely affect the
market price of the Corporations common stock.
  68




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##### Table of Contents



Holders of our common stock have no preemptive rights and are subject to potential
dilution.
  On June 26, 2009, the Corporation and the Bank each consented to the issuance of an
Order to Cease and Desist by the Office of Thrift Supervision. If we do not raise
additional capital, we may not be in compliance with the capital requirements of the
Banks Cease and Desist Order, which could have a material adverse effect upon us.
   Anchor Bancorp and the Bank are no longer considered well capitalized for
regulatory which will cause us to incur increased premiums for deposit insurance,
require FDIC approval to gather brokered deposits, and will trigger acceleration of
certain of our brokered deposits.
  69




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##### Table of Contents



Our allowance for losses on loans and leases may not be adequate to cover probable
losses.
  Our real estate operations have had and may continue to have an adverse effect on
our results of operations.
  Future Federal Deposit Insurance Corporation assessments will hurt our earnings.
  70




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##### Table of Contents



We are not paying dividends on our common stock and are deferring distributions on
our preferred stock, and are otherwise restricted from paying cash dividends on our
common stock. The failure to resume paying dividends on our preferred stock may
adversely affect us.
   Risks Related to Our Credit Agreement
 We are party to a credit agreement that 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 Corporations assets.
  71




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##### Table of Contents



We must pay in full the outstanding balance under the Credit Agreement by the
earlier of May 31, 2010 or the receipt of net proceeds of a financing transaction
from the sale of equity securities.
     72




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##### Table of Contents



Risks Related to Recent Market, Legislative and Regulatory Events
 The TARP CPP and the ARRA impose certain executive compensation and corporate
governance requirements that may adversely affect us and our business, including our
ability to recruit and retain qualified employees.
  
    
    ensuring that incentive compensation for senior executives does not
encourage unnecessary and excessive risks that threaten the value of the
financial institution;
    
    required clawback of any bonus or incentive compensation paid to a
senior executive based on statements of earnings, gains or other criteria
that are later proven to be materially inaccurate;
    
    prohibition on making golden parachute payments to senior executives;
and
    
    agreement not to deduct for tax purposes executive compensation in
excess of $500,000 for each senior executive.
   
    
    a prohibition on making any golden parachute payment to a senior
executive officer or any of our next five most highly compensated
employees;
    
    a prohibition on any compensation plan that would encourage manipulation
of the reported earnings to enhance the compensation of any of its
employees; and
    
    a prohibition of the five highest paid executives from receiving or
accruing any bonus, retention award, or incentive compensation, or bonus
except for long-term restricted stock with a value not greater than
one-third of the total amount of annual compensation of the employee
receiving the stock.
   73




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TARP lending goals may not be attainable.
  74




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Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
 As of September 30, 2009, the Corporation does not have a stock repurchase plan in
place.
 
 Item 3
    
    Defaults upon Senior Securities.
 Not applicable.
 
 Item 4
    
    Submission of Matters to a Vote of Security Holders.
 The Annual Meeting of Stockholders was held on July 28, 2009. Information
regarding the results voted upon is reported in Item 4 of the Form 10Q for the
period ending June 30, 2009.
 
 Item 5
    
    Other Information.
 Not applicable.
 75




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Item 6
    
    Exhibits.
 The following exhibits are filed with this report:
 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.
 76




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SIGNATURES
   Date: November 16, 2009
    By:
    /s/ Chris BauerChris Bauer, President and Chief Executive OfficerDate: November 16, 2009
    By:
    /s/ Dale C. RinggenbergDale C. Ringgenberg, Treasurer andChief Financial Officer 77