##### 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 December 31, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 COMMISSION FILE NUMBER 0-20006
 ANCHOR BANCORP WISCONSIN INC.
 (Exact name of registrant as specified in its charter)
 Wisconsin
    
    39-1726871(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer Identification No.)25 West Main 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
  Large accelerated filer o 
  Accelerated filer þ
  Non-accelerated filer o
  Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



ANCHOR BANCORP WISCONSIN INC.
INDEX  FORM 10-Q
 Page #Part I  Financial InformationItem 1 Financial Statements (Unaudited)Consolidated Balance Sheets as of December 31, 2008
and March 31, 2008
    
    
    2Consolidated Statements of Income for the Three and Nine
Months Ended December 31, 2008 and 2007
    
    
    3Consolidated Statements of Cash Flows for the Nine Months
Ended December 31, 2008 and 2007
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2
Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    29Results of Operations
    
    
    35Financial Condition
    
    
    40Asset Quality
    
    
    42Liquidity & Capital Resources
    
    
    47Guarantees
    
    
    49Asset/Liability Management
    
    
    50Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    51Item 4 Controls and Procedures
    
    
    52Part II  Other InformationItem 1 Legal Proceedings
    
    
    53Item 1A Risk Factors
    
    
    53Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    58Item 3 Defaults upon Senior Securities
    
    
    58Item 4 Submission of Matters to a Vote of Security Holders
    
    
    58Item 5 Other Information
    
    
    58Item 6 Exhibits
    
    
    59Signatures
    
    
    60EX-31.1EX-31.2EX-32.1EX-32.2
  1




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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
  December 31,
    
    
    March 31,2008
    
    
    2008(In Thousands, Except Share Data)AssetsCash
    
    $
    92,179
    
    
    $
    102,622Interest-bearing deposits
    
    
    61,045
    
    
    
    155,121Cash and cash equivalents
    
    
    153,224
    
    
    
    257,743Investment securities available for sale
    
    
    75,657
    
    
    
    87,036Mortgage-related securities available for sale
    
    
    280,014
    
    
    
    269,370Mortgage-related securities held to maturity (fair value of $53
and $60, respectively)
    
    
    52
    
    
    
    59Loans, less allowance for loan losses of $122,571 at December 31, 2008
and $38,285 at March 31, 2008:Held for sale
    
    
    32,139
    
    
    
    9,669Held for investment
    
    
    3,948,065
    
    
    
    4,202,833Foreclosed properties and repossessed assets, net
    
    
    46,026
    
    
    
    8,247Real estate held for development and sale
    
    
    54,590
    
    
    
    59,002Office properties and equipment
    
    
    46,825
    
    
    
    47,916Federal Home Loan Bank stockat cost
    
    
    54,829
    
    
    
    54,829Deferred tax asset, net of valuation allowance
    
    
    13,218
    
    
    
    3,760Accrued interest and other assets
    
    
    94,208
    
    
    
    76,718Goodwill
    
    
    
    
    
    
    72,375Total assets
    
    $
    4,798,847
    
    
    $
    5,149,557Liabilities and Stockholders EquityDepositsNon-interest bearing
    
    $
    257,946
    
    
    $
    280,897Interest bearing and accrued interest
    
    
    3,155,503
    
    
    
    3,259,097Total deposits
    
    
    3,413,449
    
    
    
    3,539,994Short-term borrowings
    
    
    216,300
    
    
    
    232,289Long-term borrowings
    
    
    935,812
    
    
    
    974,472Other liabilities
    
    
    80,446
    
    
    
    51,605Total liabilities
    
    
    4,646,007
    
    
    
    4,798,360Commitments and contingent liabilities (Note 13)Minority interest in real estate partnerships
    
    
    6,178
    
    
    
    6,081Preferred stock, $.10 par value, 5,000,000 shares
authorized, none outstanding
    
    
    
    
    
    
    Common stock, $.10 par value, 100,000,000 shares authorized,
25,363,339 shares issued, 21,557,162 and 21,348,170 shares outstanding,
respectively
    
    
    2,536
    
    
    
    2,536Additional paid-in capital
    
    
    72,265
    
    
    
    72,300Retained earnings
    
    
    179,998
    
    
    
    374,593Accumulated other comprehensive income (loss)
    
    
    (7,587
    )
    
    
    1,864Treasury stock (3,806,177 and 4,015,169 shares, respectively), at cost
    
    
    (95,090
    )
    
    
    (100,930
    )Deferred compensation obligation
    
    
    (5,460
    )
    
    
    (5,247
    )Total stockholders equity
    
    
    146,662
    
    
    
    345,116Total liabilities, minority interest and stockholders equity
    
    $
    4,798,847
    
    
    $
    5,149,557
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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Statements of Income
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands, Except Per Share Data)Interest income:Loans
    
    $
    60,042
    
    
    $
    68,732
    
    
    $
    185,203
    
    
    $
    206,477Mortgage-related securities
    
    
    3,743
    
    
    
    3,143
    
    
    
    11,099
    
    
    
    9,177Investment securities and Federal Home Loan Bank stock
    
    
    818
    
    
    
    1,060
    
    
    
    2,398
    
    
    
    3,619Interest-bearing deposits
    
    
    70
    
    
    
    1,102
    
    
    
    469
    
    
    
    2,134Total interest income
    
    
    64,673
    
    
    
    74,037
    
    
    
    199,169
    
    
    
    221,407Interest expense:Deposits
    
    
    21,602
    
    
    
    31,036
    
    
    
    72,342
    
    
    
    93,906Short-term borrowings
    
    
    2,471
    
    
    
    8,048
    
    
    
    6,566
    
    
    
    23,180Long-term borrowings
    
    
    7,893
    
    
    
    3,615
    
    
    
    24,179
    
    
    
    10,382Total interest expense
    
    
    31,966
    
    
    
    42,699
    
    
    
    103,087
    
    
    
    127,468Net interest income
    
    
    32,707
    
    
    
    31,338
    
    
    
    96,082
    
    
    
    93,939Provision for loan losses
    
    
    92,970
    
    
    
    7,792
    
    
    
    149,334
    
    
    
    12,158Net interest income (loss) after provision for loan losses
    
    
    (60,263
    )
    
    
    23,546
    
    
    
    (53,252
    )
    
    
    81,781Non-interest income:Real estate investment partnership revenue
    
    
    1,836
    
    
    
    1,012
    
    
    
    1,836
    
    
    
    8,166Loan servicing income
    
    
    1,244
    
    
    
    1,380
    
    
    
    3,859
    
    
    
    4,235Credit enhancement income
    
    
    481
    
    
    
    426
    
    
    
    1,377
    
    
    
    1,271Service charges on deposits
    
    
    3,966
    
    
    
    3,191
    
    
    
    11,959
    
    
    
    9,430Investment and insurance commissions
    
    
    971
    
    
    
    1,016
    
    
    
    3,225
    
    
    
    3,056Net gain (loss) on sale of loans
    
    
    (228
    )
    
    
    1,468
    
    
    
    2,823
    
    
    
    3,160Net gain (loss) on sale or impairment of investments and
mortgage-related securities
    
    
    (1,396
    )
    
    
    
    
    
    
    (3,298
    )
    
    
    15Other revenue from real estate partnership operations
    
    
    1,707
    
    
    
    2,750
    
    
    
    4,212
    
    
    
    4,965Other
    
    
    932
    
    
    
    667
    
    
    
    3,576
    
    
    
    2,481Total non-interest income
    
    
    9,513
    
    
    
    11,910
    
    
    
    29,569
    
    
    
    36,779
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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 Consolidated Statements of Income
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands, Except Per Share Data)Non-interest expense:Compensation
    
    $
    13,755
    
    
    $
    11,358
    
    
    $
    41,727
    
    
    $
    33,929Real estate investment partnership cost of sales
    
    
    1,191
    
    
    
    932
    
    
    
    1,191
    
    
    
    7,941Occupancy
    
    
    2,328
    
    
    
    1,882
    
    
    
    7,302
    
    
    
    5,756Furniture and equipment
    
    
    2,189
    
    
    
    1,626
    
    
    
    6,382
    
    
    
    4,650Data processing
    
    
    1,858
    
    
    
    1,510
    
    
    
    5,493
    
    
    
    4,518Marketing
    
    
    727
    
    
    
    1,086
    
    
    
    2,055
    
    
    
    3,256Other expenses from real estate partnership operations
    
    
    7,170
    
    
    
    2,894
    
    
    
    11,085
    
    
    
    6,776Net expense  REO operations
    
    
    8,038
    
    
    
    272
    
    
    
    10,179
    
    
    
    701Mortgage servicing rights impairment
    
    
    2,535
    
    
    
    
    
    
    
    2,535
    
    
    
    (709
    )Goodwill impairment
    
    
    72,181
    
    
    
    
    
    
    
    72,181
    
    
    
    Other
    
    
    6,285
    
    
    
    3,552
    
    
    
    15,085
    
    
    
    9,800Total non-interest expense
    
    
    118,257
    
    
    
    25,112
    
    
    
    175,215
    
    
    
    76,618Minority interest in income (loss) of consolidated
real estate partnerships
    
    
    150
    
    
    
    (81
    )
    
    
    98
    
    
    
    (359
    )Income (loss) before income taxes
    
    
    (169,157
    )
    
    
    10,425
    
    
    
    (198,996
    )
    
    
    42,301Income taxes
    
    
    (1,899
    )
    
    
    4,096
    
    
    
    (13,951
    )
    
    
    16,812Net income (loss)
    
    $
    (167,258
    )
    
    $
    6,329
    
    
    $
    (185,045
    )
    
    $
    25,489Comprehensive income (loss)
    
    $
    (171,061
    )
    
    $
    6,961
    
    
    $
    (194,496
    )
    
    $
    26,370Earnings per share:Basic
    
    $
    (7.96
    )
    
    $
    0.30
    
    
    $
    (8.82
    )
    
    $
    1.22Diluted
    
    
    (7.96
    )
    
    
    0.30
    
    
    
    (8.82
    )
    
    
    1.21Dividends declared per share
    
    
    0.01
    
    
    
    0.18
    
    
    
    0.29
    
    
    
    0.53
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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
  Nine Months Ended December 31,2008
    
    
    2007(In Thousands)Operating ActivitiesNet income (loss)
    
    $
    (185,045
    )
    
    $
    25,489Adjustments to reconcile net income to net
cash provided by operating activities:Provision for loan losses
    
    
    149,334
    
    
    
    12,158Provision for OREO losses
    
    
    5,877
    
    
    
    Provision for depreciation and amortization
    
    
    3,881
    
    
    
    3,096Goodwill impairment
    
    
    72,181
    
    
    
    Real estate held for development and sale impairment
    
    
    4,628
    
    
    
    Mortgage servicing rights impairment
    
    
    2,535
    
    
    
    Deferred tax impairment
    
    
    36,500
    
    
    
    Cash paid due to origination of loans held for sale
    
    
    (366,187
    )
    
    
    (354,519
    )Cash received due to sale of loans held for sale
    
    
    346,540
    
    
    
    355,983Net gain on sales of loans
    
    
    (2,823
    )
    
    
    (3,160
    )Net loss (gain) on sale or impairment of
investments and mortgage related securities
    
    
    3,298
    
    
    
    (15
    )Decrease (increase) in accrued interest receivable
    
    
    3,300
    
    
    
    (1,748
    )Increase in prepaid expense and other assets
    
    
    (69,089
    )
    
    
    (10,669
    )(Decrease) increase in accrued interest payable
    
    
    (12,712
    )
    
    
    3,414Increase in other liabilities
    
    
    31,203
    
    
    
    34,214Other
    
    
    9,677
    
    
    
    (12,094
    )Net cash provided by operating activities
    
    
    33,098
    
    
    
    52,149Investing ActivitiesProceeds from sales of investment securities available for sale
    
    
    22,170
    
    
    
    10,174Proceeds from maturities of investment securities
    
    
    73,345
    
    
    
    206,055Purchase of investment securities available for sale
    
    
    (86,292
    )
    
    
    (288,736
    )Purchase of mortgage-related securities available for sale
    
    
    (70,010
    )
    
    
    (63,142
    )Principal collected on mortgage-related securities
    
    
    43,074
    
    
    
    42,577FHLB Stock Purchase
    
    
    
    
    
    
    (11,165
    )Net decrease (increase) in loans held for investment
    
    
    46,981
    
    
    
    (71,002
    )Purchases of office properties and equipment
    
    
    (2,659
    )
    
    
    (3,147
    )Sales of office properties and equipment
    
    
    79
    
    
    
    41Proceeds from sale of foreclosed properties
    
    
    10,965
    
    
    
    Investment in real estate held for development and sale
    
    
    (468
    )
    
    
    881Net cash provided by (used in) investing activities
    
    
    37,185
    
    
    
    (177,464
    )
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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 Consolidated Statements of Cash Flows (Contd)
  Nine Months Ended December 31,2008
    
    
    2007(In Thousands)Financing ActivitiesDecrease in deposit accounts
    
    $
    (110,241
    )
    
    $
    (98,327
    )Decrease in advance payments by borrowers
for taxes and insurance
    
    
    (5,954
    )
    
    
    (6,579
    )(Decrease) increase in short-term borrowings
    
    
    (15,989
    )
    
    
    70,865Proceeds from long-term borrowings
    
    
    146,180
    
    
    
    502,405Repayment of long-term borrowings
    
    
    (184,840
    )
    
    
    (322,833
    )Treasury stock purchased
    
    
    
    
    
    
    (12,556
    )Exercise of stock options
    
    
    1,485
    
    
    
    793Cash received from employee stock purchase plan
    
    
    693
    
    
    
    727Tax benefit from stock related compensation
    
    
    (35
    )
    
    
    18Payments of cash dividends to stockholders
    
    
    (6,101
    )
    
    
    (11,134
    )Net cash (used in) provided by financing activities
    
    
    (174,802
    )
    
    
    123,379Net decrease in cash and cash equivalents
    
    
    (104,519
    )
    
    
    (1,936
    )Cash and cash equivalents at beginning of period
    
    
    257,743
    
    
    
    122,038Cash and cash equivalents at end of period
    
    $
    153,224
    
    
    $
    120,102Supplementary cash flow information:Cash paid or credited to accounts:Interest on deposits and borrowings
    
    $
    115,799
    
    
    $
    124,054Income taxes
    
    
    9,155
    
    
    
    21,184Non-cash transactions:Transfer of loans to foreclosed properties
    
    
    55,630
    
    
    
    
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##### Table of Contents



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




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Note 3  Significant Risk and Uncertainties
   Note 4  Business Combination
   Unaudited Pro Forma Condensed Combined Financial Information
  8




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Three Months
    
    
    Nine MonthsEnded December 31,
    
    
    Ended December 31,2007
    
    
    2007Net interest income after provision for loan losses
    
    $
    27,705
    
    
    $
    94,588Non-interest income
    
    
    13,032
    
    
    
    41,074Non-interest expense
    
    
    28,017
    
    
    
    87,802Minority interest in loss of real estate partnership operations
    
    
    (81
    )
    
    
    (359
    )Income before taxes
    
    
    12,801
    
    
    
    48,219Income taxes
    
    
    4,935
    
    
    
    18,838Net income
    
    $
    7,866
    
    
    $
    29,381Per common share informationEarnings
    
    
    0.38
    
    
    
    1.40Diluted earnings
    
    
    0.38
    
    
    
    1.39Average common shares issued and outstanding
    
    
    20,823,434
    
    
    
    20,941,736Average diluted common shares outstanding
    
    
    20,931,474
    
    
    
    21,083,260
 Note 5  Stock-Based Compensation
   Nine Months Ended December 31, 2008WeightedAverageOptions
    
    
    PriceOutstanding at beginning of period
    
    
    752,397
    
    
    $
    20.43Granted
    
    
    
    
    
    
    Exercised
    
    
    (96,870
    )
    
    
    15.34Forfeited
    
    
    (139,357
    )
    
    
    19.65Outstanding at end of period
    
    
    516,170
    
    
    $
    21.60Options exercisable at December 31, 2008
    
    
    516,170
    
    
    $
    21.60
  9




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Options Outstanding
    
    Exercisable OptionsWeighted-AverageRemaining
    
    Weighted-
    
    
    
    
    
    Weighted-Contractual
    
    Average
    
    
    
    
    
    AverageRange of Exercise Prices
    
    Shares
    
    Life (Years)
    
    Exercise Price
    
    Shares
    
    Exercise Price$15.06 - $22.07
    
    
    281,830
    
    
    
    2.77
    
    
    $
    18.12
    
    
    
    281,830
    
    
    $
    18.12$23.77 - $28.50
    
    
    201,340
    
    
    
    4.75
    
    
    
    24.78
    
    
    
    201,340
    
    
    
    24.78$31.95 - $31.95
    
    
    33,000
    
    
    
    6.57
    
    
    
    31.95
    
    
    
    33,000
    
    
    
    31.95516,170
    
    
    
    3.78
    
    
    
    21.60
    
    
    
    516,170
    
    
    
    21.60
   Nine Months Ended December 31, 2008WeightedAverageOptions
    
    
    PriceBalance at beginning of period
    
    
    78,800
    
    
    $
    26.32Restricted stock granted
    
    
    22,500
    
    
    
    7.32Restricted stock vested
    
    
    (12,900
    )
    
    
    29.14Restricted stock forfeited
    
    
    (6,400
    )
    
    
    15.57Balance at end of period
    
    
    82,000
    
    
    $
    21.50
  10




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Note 6  Loans Receivable
  December 31,
    
    
    March 31,2008
    
    
    2008First mortgage loans:Single-family residential
    
    $
    853,080
    
    
    $
    893,001Multi-family residential
    
    
    671,025
    
    
    
    694,423Commercial real estate
    
    
    1,008,264
    
    
    
    1,088,004Construction
    
    
    303,957
    
    
    
    402,395Land
    
    
    276,195
    
    
    
    306,3633,112,521
    
    
    
    3,384,186Second mortgage loans
    
    
    403,188
    
    
    
    356,009Education loans
    
    
    333,640
    
    
    
    275,850Commercial business loans and leases
    
    
    243,494
    
    
    
    277,312Credit card and other consumer loans
    
    
    59,276
    
    
    
    95,1494,152,119
    
    
    
    4,388,506Contras to loans:Undisbursed loan proceeds
    
    
    (76,336
    )
    
    
    (141,219
    )Allowance for loan losses
    
    
    (122,571
    )
    
    
    (38,285
    )Unearned loan fees
    
    
    (5,003
    )
    
    
    (6,075
    )Net discount on loans purchased
    
    
    (10
    )
    
    
    (11
    )Unearned interest
    
    
    (133
    )
    
    
    (83
    )(204,053
    )
    
    
    (185,673
    )$
    3,948,065
    
    
    $
    4,202,833
 
   Three Months Ended December 31,
    
    
    Nine Months Ended December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars In Thousands)
    
    
    (Dollars In Thousands)Allowance at beginning of period
    
    $
    64,614
    
    
    $
    22,002
    
    
    $
    38,285
    
    
    $
    20,517Provision
    
    
    92,970
    
    
    
    7,792
    
    
    
    149,334
    
    
    
    12,158Charge-offs
    
    
    (35,228
    )
    
    
    (1,080
    )
    
    
    (66,210
    )
    
    
    (4,196
    )Recoveries
    
    
    215
    
    
    
    47
    
    
    
    1,162
    
    
    
    282Allowance at end of period
    
    $
    122,571
    
    
    $
    28,761
    
    
    $
    122,571
    
    
    $
    28,761
   11




---



##### Table of Contents



At December 31,
    
    
    At March 31,2008
    
    
    2008
    
    
    2007
    
    
    2006(In Thousands)Impaired loans with valuation
reserve required
    
    $
    177,365
    
    
    $
    52,866
    
    
    $
    2,130
    
    
    $
    6,381Impaired loans without a
specific reserve
    
    
    187,304
    
    
    
    51,192
    
    
    
    45,718
    
    
    
    9,107Total impaired loans
    
    
    364,669
    
    
    
    104,058
    
    
    
    47,848
    
    
    
    15,488Less:Specific valuation allowance
    
    
    (54,019
    )
    
    
    (17,639
    )
    
    
    (517
    )
    
    
    (3,111
    )$
    310,650
    
    
    $
    86,419
    
    
    $
    47,331
    
    
    $
    12,377Average impaired loans
    
    $
    165,236
    
    
    $
    67,138
    
    
    $
    26,458
    
    
    $
    14,749Interest income recognized
on impaired loans
    
    $
    12,001
    
    
    $
    107
    
    
    $
    44
    
    
    $
    208Interest income recognized on a cash basis
on impaired loans
    
    $
    9,940
    
    
    $
    107
    
    
    $
    44
    
    
    $
    208Loans on nonaccrual status
    
    $
    120,356
    
    
    $
    101,241
    
    
    $
    47,040
    
    
    $
    13,529Loans past due ninety days or more and
still accruing
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Performing troubled debt restructurings
    
    $
    15,836
    
    
    $
    400
    
    
    $
    400
    
    
    $
    400
    12




---



##### Table of Contents



Note 7  Goodwill and Other Intangible Assets
 Goodwill and Other
Intangible Assets
    December 31,
    
    
    March 31,2008
    
    
    2008(In Thousands)Balance at beginning of period
    
    $
    5,359
    
    
    $
    Other intangibles from business combination
    
    
    
    
    
    
    5,517Amortization expense
    
    
    (475
    )
    
    
    (158
    )Balance at end of period
    
    $
    4,884
    
    
    $
    5,359Gross carrying amount
    
    $
    5,517
    
    
    $
    5,517Accumulated amortization
    
    
    (633
    )
    
    
    (158
    )Net book value
    
    $
    4,884
    
    
    $
    5,359
   13




---



##### Table of Contents



14




---



##### Table of Contents



Residential
    
    
    Other(In Thousands)Mortgage servicing rights as of March 31, 2007
    
    $
    6,364
    
    
    $
    1,047Acquired servicing rights of S & C Bank at market value
    
    
    1,632
    
    
    
    Additions
    
    
    5,822
    
    
    
    629Amortization
    
    
    (1,985
    )
    
    
    (333
    )Reclassification
    
    
    (135
    )
    
    
    135Mortgage servicing rights before valuation allowance at end of period
    
    
    11,698
    
    
    
    1,478Valuation allowance
    
    
    
    
    
    
    Net mortgage servicing rights as of March 31, 2008
    
    $
    11,698
    
    
    $
    1,478Fair market value at the end of the period
    
    $
    13,764
    
    
    $
    2,040Key assumptions:Weighted average discount
    
    
    11.04
    %
    
    
    20.12
    %Weighted average prepayment speed assumption
    
    
    16.82
    %
    
    
    13.15
    %Mortgage servicing rights as of March 31, 2008
    
    $
    11,698
    
    
    $
    1,478Additions
    
    
    3,519
    
    
    
    120Amortization
    
    
    (1,895
    )
    
    
    (250
    )Mortgage servicing rights before valuation allowance at end of period
    
    
    13,322
    
    
    
    1,348Valuation allowance
    
    
    (2,535
    )
    
    
    Net mortgage servicing rights as of December 31, 2008
    
    $
    10,787
    
    
    $
    1,348Fair market value at the end of the period
    
    $
    11,402
    
    
    $
    1,827Key assumptions:Weighted average discount
    
    
    11.51
    %
    
    
    21.12
    %Weighted average prepayment speed assumption
    
    
    25.81
    %
    
    
    25.47
    %
  Residential
    
    
    Other
    
    
    CoreMortgage
    
    
    Mortgage
    
    
    DepositServicing Rights
    
    
    Servicing Rights
    
    
    Premium
    
    
    Total(In Thousands)Quarter ended December 31, 2008
(actual)
    
    $
    688
    
    
    $
    78
    
    
    $
    158
    
    
    $
    924Estimate for the year ended March 31,2009
    
    $
    2,526
    
    
    $
    333
    
    
    $
    634
    
    
    $
    3,4932010
    
    
    2,526
    
    
    
    333
    
    
    
    634
    
    
    
    3,4932011
    
    
    2,526
    
    
    
    333
    
    
    
    634
    
    
    
    3,4932012
    
    
    2,526
    
    
    
    333
    
    
    
    634
    
    
    
    3,493Thereafter
    
    
    683
    
    
    
    16
    
    
    
    2,348
    
    
    
    3,047$
    10,787
    
    
    $
    1,348
    
    
    $
    4,884
    
    
    $
    17,019
 15




---



##### Table of Contents



Note 8  Federal Home Loan Bank Stock
   Note 9  Recent Accounting Pronouncements
 Business Combinations .
 
    
    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;
    
    acquired contingent liabilities will be recorded at fair value at the acquisition date
and subsequently measured at either the higher of such amount or the amount determined
under existing guidance for non-acquired contingencies;
    
    the acquirer shall not recognize a separate valuation allowance as of the acquisition
date for assets acquired in a business that are measured at their acquisition-date fair
value;
    
    restructuring costs associated with a business combination will be generally expensed
subsequent to the acquisition date; and
    
    changes in deferred tax asset valuation allowances and income tax uncertainties after
the acquisition date generally will affect income tax expense.
 .
 Noncontrolling Interests in
Consolidated Financial Statements  An Amendment of ARB No. 51 .
 16




---



##### Table of Contents



Determination of the Useful Life
of Intangible Assets Goodwill and Other Intangible Assets
   Note 10  Stockholders Equity
  17




---



##### Table of Contents



Below
    
    
    
    
    
    
    
    
    
    
    TotalDescription of
    
    
    
    
    
    
    
    
    
    Investment
    
    
    Not
    
    
    Total Fair
    
    
    Amortized
    
    
    UnrealizedSecurities
    
    AAA
    
    
    AA
    
    
    Grade
    
    
    Rated
    
    
    Value
    
    
    Cost
    
    
    Loss(Dollars in Thousands)Investment SecuritiesGovernment sponsored
agencies
    
    $
    19,968
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    19,968
    
    
    $
    20,000
    
    
    $
    (32
    )Municipal bonds
    
    
    913
    
    
    
    260
    
    
    
    812
    
    
    
    328
    
    
    
    2,313
    
    
    
    2,360
    
    
    
    (47
    )Total Invesment Securities
    
    $
    20,881
    
    
    $
    260
    
    
    $
    812
    
    
    $
    328
    
    
    $
    22,281
    
    
    $
    22,360
    
    
    $
    (79
    )Mortgage-Related SecuritiesCMOs and REMICS
    
    $
    73,597
    
    
    $
    
    
    
    $
    7,064
    
    
    $
    1,535
    
    
    $
    82,196
    
    
    $
    98,642
    
    
    $
    (16,446
    )Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,238
    
    
    
    47,238
    
    
    
    48,467
    
    
    
    (1,229
    )GNMA securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    809
    
    
    
    809
    
    
    
    815
    
    
    
    (6
    )Total Mortgage-Related
Securities
    
    $
    73,597
    
    
    $
    
    
    
    $
    7,064
    
    
    $
    49,582
    
    
    $
    130,243
    
    
    $
    147,924
    
    
    $
    (17,681
    )Total Fair Value of Available-for-
Sale Securities with
Unrealized Losses
    
    $
    94,478
    
    
    $
    260
    
    
    $
    7,876
    
    
    $
    49,910
    
    
    $
    152,524
    
    
    $
    170,284
    
    
    $
    (17,760
    )
  Note 11  Earnings Per Share
  18




---



##### Table of Contents



Three Months Ended December 31,2008
    
    
    2007Numerator:Net income
    
    $
    (167,257,822
    )
    
    $
    6,329,095Numerator for basic and diluted earnings
per shareincome available to common
stockholders
    
    $
    (167,257,822
    )
    
    $
    6,329,095Denominator:Denominator for basic earnings per
shareweighted-average shares
    
    
    20,999,625
    
    
    
    20,823,434Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    108,040Management Recognition Plans
    
    
    
    
    
    
    Denominator for diluted earnings per
shareadjusted weighted-average
shares and assumed conversions
    
    
    20,999,625
    
    
    
    20,931,474Basic earnings per share
    
    $
    (7.96
    )
    
    $
    0.30Diluted earnings per share
    
    $
    (7.96
    )
    
    $
    0.30
 Nine Months Ended December 31,2008
    
    
    2007Numerator:Net income
    
    $
    (185,044,692
    )
    
    $
    25,488,856Numerator for basic and diluted earnings
per shareincome available to common
stockholders
    
    $
    (185,044,692
    )
    
    $
    25,488,856Denominator:Denominator for basic earnings per
shareweighted-average shares
    
    
    20,971,141
    
    
    
    20,941,736Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    141,524Management Recognition Plans
    
    
    
    
    
    
    Denominator for diluted earnings per
shareadjusted weighted-average
shares and assumed conversions
    
    
    20,971,141
    
    
    
    21,083,260Basic earnings per share
    
    $
    (8.82
    )
    
    $
    1.22Diluted earnings per share
    
    $
    (8.82
    )
    
    $
    1.21
  19




---



##### Table of Contents



Note 12  Segment Information
  Community Banking:
 Real Estate Investments:
   20




---



##### Table of Contents



Three Months Ended December 31, 2008(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    24
    
    
    $
    64,947
    
    
    $
    (298
    )
    
    $
    64,673Interest expense
    
    
    286
    
    
    
    31,978
    
    
    
    (298
    )
    
    
    31,966Net interest income (loss)
    
    
    (262
    )
    
    
    32,969
    
    
    
    
    
    
    
    32,707Provision for loan losses
    
    
    
    
    
    
    92,970
    
    
    
    
    
    
    
    92,970Net interest income (loss) after
provision for loan losses
    
    
    (262
    )
    
    
    (60,001
    )
    
    
    
    
    
    
    (60,263
    )Real estate investment partnership revenue
    
    
    1,836
    
    
    
    
    
    
    
    
    
    
    
    1,836Other revenue from real estate operations
    
    
    1,707
    
    
    
    
    
    
    
    
    
    
    
    1,707Other income
    
    
    
    
    
    
    6,000
    
    
    
    (30
    )
    
    
    5,970Real estate investment partnership cost
of sales
    
    
    (1,191
    )
    
    
    
    
    
    
    
    
    
    
    (1,191
    )Other expense from real estate
partnership operations
    
    
    (7,200
    )
    
    
    
    
    
    
    30
    
    
    
    (7,170
    )Minority interest in income of real
estate partnerships
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    (150
    )Other expense
    
    
    
    
    
    
    (109,896
    )
    
    
    
    
    
    
    (109,896
    )Loss before income taxes
    
    
    (5,260
    )
    
    
    (163,897
    )
    
    
    
    
    
    
    (169,157
    )Income tax benefit
    
    
    (1,868
    )
    
    
    (31
    )
    
    
    
    
    
    
    (1,899
    )Net loss
    
    $
    (3,392
    )
    
    $
    (163,866
    )
    
    $
    
    
    
    $
    (167,258
    )Total assets at end of period
    
    $
    67,939
    
    
    $
    4,730,908
    
    
    $
    
    
    
    $
    4,798,847Goodwill
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Three Months Ended December 31, 2007(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    120
    
    
    $
    74,442
    
    
    $
    (525
    )
    
    $
    74,037Interest expense
    
    
    493
    
    
    
    42,731
    
    
    
    (525
    )
    
    
    42,699Net interest income (loss)
    
    
    (373
    )
    
    
    31,711
    
    
    
    
    
    
    
    31,338Provision for loan losses
    
    
    
    
    
    
    7,792
    
    
    
    
    
    
    
    7,792Net interest income (loss) after
provision for loan losses
    
    
    (373
    )
    
    
    23,919
    
    
    
    
    
    
    
    23,546Real estate investment partnership revenue
    
    
    1,012
    
    
    
    
    
    
    
    
    
    
    
    1,012Other revenue from real estate operations
    
    
    2,750
    
    
    
    
    
    
    
    
    
    
    
    2,750Other income
    
    
    
    
    
    
    8,178
    
    
    
    (30
    )
    
    
    8,148Real estate investment partnership cost
of sales
    
    
    (932
    )
    
    
    
    
    
    
    
    
    
    
    (932
    )Other expense from real estate
partnership operations
    
    
    (2,924
    )
    
    
    
    
    
    
    30
    
    
    
    (2,894
    )Minority interest in loss of real estate
partnerships
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    81Other expense
    
    
    
    
    
    
    (21,286
    )
    
    
    
    
    
    
    (21,286
    )Income (loss) before income taxes
    
    
    (386
    )
    
    
    10,811
    
    
    
    
    
    
    
    10,425Income tax expense (benefit)
    
    
    (201
    )
    
    
    4,297
    
    
    
    
    
    
    
    4,096Net income (loss)
    
    $
    (185
    )
    
    $
    6,514
    
    
    $
    
    
    
    $
    6,329Total assets at end of period
    
    $
    73,363
    
    
    $
    4,652,410
    
    
    $
    
    
    
    $
    4,725,773Goodwill
    
    $
    
    
    
    $
    19,956
    
    
    $
    
    
    
    $
    19,956
 21




---



##### Table of Contents



Nine Months Ended December 31, 2008(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    85
    
    
    $
    200,034
    
    
    $
    (950
    )
    
    $
    199,169Interest expense
    
    
    889
    
    
    
    103,148
    
    
    
    (950
    )
    
    
    103,087Net interest income (loss)
    
    
    (804
    )
    
    
    96,886
    
    
    
    
    
    
    
    96,082Provision for loan losses
    
    
    
    
    
    
    149,334
    
    
    
    
    
    
    
    149,334Net interest income (loss) after
provision for loan losses
    
    
    (804
    )
    
    
    (52,448
    )
    
    
    
    
    
    
    (53,252
    )Real estate investment partnership revenue
    
    
    1,836
    
    
    
    
    
    
    
    
    
    
    
    1,836Other revenue from real estate operations
    
    
    4,212
    
    
    
    
    
    
    
    
    
    
    
    4,212Other income
    
    
    
    
    
    
    23,610
    
    
    
    (89
    )
    
    
    23,521Real estate investment partnership cost
of sales
    
    
    (1,191
    )
    
    
    
    
    
    
    
    
    
    
    (1,191
    )Other expense from real estate
partnership operations
    
    
    (11,174
    )
    
    
    
    
    
    
    89
    
    
    
    (11,085
    )Minority interest in income of real
estate partnerships
    
    
    (98
    )
    
    
    
    
    
    
    
    
    
    
    (98
    )Other expense
    
    
    
    
    
    
    (162,939
    )
    
    
    
    
    
    
    (162,939
    )Loss before income taxes
    
    
    (7,219
    )
    
    
    (191,777
    )
    
    
    
    
    
    
    (198,996
    )Income tax benefit
    
    
    (2,607
    )
    
    
    (11,344
    )
    
    
    
    
    
    
    (13,951
    )Net loss
    
    $
    (4,612
    )
    
    $
    (180,433
    )
    
    $
    
    
    
    $
    (185,045
    )Total assets at end of period
    
    $
    67,939
    
    
    $
    4,730,908
    
    
    $
    
    
    
    $
    4,798,847Goodwill
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Nine Months Ended December 31, 2007(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    310
    
    
    $
    222,635
    
    
    $
    (1,538
    )
    
    $
    221,407Interest expense
    
    
    1,406
    
    
    
    127,600
    
    
    
    (1,538
    )
    
    
    127,468Net interest income (loss)
    
    
    (1,096
    )
    
    
    95,035
    
    
    
    
    
    
    
    93,939Provision for loan losses
    
    
    
    
    
    
    12,158
    
    
    
    
    
    
    
    12,158Net interest income (loss) after
provision for loan losses
    
    
    (1,096
    )
    
    
    82,877
    
    
    
    
    
    
    
    81,781Real estate investment partnership revenue
    
    
    8,166
    
    
    
    
    
    
    
    
    
    
    
    8,166Other revenue from real estate operations
    
    
    4,965
    
    
    
    
    
    
    
    
    
    
    
    4,965Other income
    
    
    
    
    
    
    24,446
    
    
    
    (89
    )
    
    
    24,357Real estate investment partnership cost
of sales
    
    
    (7,941
    )
    
    
    
    
    
    
    
    
    
    
    (7,941
    )Other expense from real estate
partnership operations
    
    
    (6,865
    )
    
    
    
    
    
    
    89
    
    
    
    (6,776
    )Minority interest in loss of real estate
partnerships
    
    
    359
    
    
    
    
    
    
    
    
    
    
    
    359Other expense
    
    
    
    
    
    
    (62,610
    )
    
    
    
    
    
    
    (62,610
    )Income (loss) before income taxes
    
    
    (2,412
    )
    
    
    44,713
    
    
    
    
    
    
    
    42,301Income tax expense (benefit)
    
    
    (1,195
    )
    
    
    18,007
    
    
    
    
    
    
    
    16,812Net income (loss)
    
    $
    (1,217
    )
    
    $
    26,706
    
    
    $
    
    
    
    $
    25,489Total assets at end of period
    
    $
    73,363
    
    
    $
    4,652,410
    
    
    $
    
    
    
    $
    4,725,773Goodwill
    
    $
    
    
    
    $
    19,956
    
    
    $
    
    
    
    $
    19,956
 22




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##### Table of Contents



Note 13  Commitments and Contingent Liabilities
   December 31,
    
    March 31,2008
    
    2008Commitments to extend credit:
    
    $
    72,500
    
    
    $
    119,224Unused lines of credit:Home equity
    
    
    143,621
    
    
    
    136,458Credit cards
    
    
    36,956
    
    
    
    40,368Commercial
    
    
    107,738
    
    
    
    128,505Letters of credit
    
    
    24,428
    
    
    
    47,218Credit enhancement under the FederalHome Loan Bank of Chicago MortgagePartnership Finance Program
    
    
    23,527
    
    
    
    23,698Real estate investment segment borrowing guarantees unfunded
    
    
    2,137
    
    
    
    3,277
      23




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##### Table of Contents



Note 14  Fair Value of Financial Instruments
   
    
    Level 1: Valuations for assets and liabilities traded in active exchange markets.
Valuations are obtained from readily available pricing sources for market transactions
involving identical assets or liabilities.
    
    Level 2: Valuations for assets and liabilities traded in less active dealer or broker
markets. Valuations are obtained from third party pricing services for identical or similar
assets or liabilities.
    
    Level 3: Valuations for assets and liabilities that are derived from other valuation
methodologies, including option pricing models, discounted cash flow models and similar
techniques, and not based on market exchange, dealer or broker traded transactions. Level 3
valuations incorporate certain assumptions and projections in determining the fair value
assigned to such assets.
   Fair Value on a Recurring Basis
  24




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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
    
    $
    75,657
    
    
    $
    725
    
    
    $
    74,932
    
    
    $
    Mortgage-related securities available for sale
    
    
    280,014
    
    
    
    
    
    
    
    
    
    
    
    280,014
   Mortgage-RelatedSecuritiesAvailable for SaleBalance at beginning of quarter
    
    $
    273,766Total gains (losses) (realized/unrealized)Included in earnings
    
    
    219Included in other comprehensive income
    
    
    (8,955
    )Purchases
    
    
    27,409Principal repayments
    
    
    (12,425
    )Transfers in and/or out of level 3
    
    
    Balance at end of quarter
    
    $
    280,014
   Fair Value on a Nonrecurring Basis
 
 25




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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 with specific valuation
allowance under SFAS 114
    
    $
    145,517
    
    
    $
    
    
    
    $
    
    
    
    $
    145,517Loans held for sale
    
    
    245
    
    
    
    
    
    
    
    245
    
    
    
    Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Note 15  Income Taxes
  26




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##### Table of Contents



Note 16  Credit Agreement
    27




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##### Table of Contents



Note 17  Subsequent Events
   28




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC.
 
 ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Executive Overview
  
    
    Diluted earnings per share decreased to $(7.96) for the quarter ended December, 2008
compared to $0.30 per share for the quarter ended December 31, 2007, primarily due to a
$85.2 million increase in the provision for loan losses as well as a $72.2 million non-cash
expense for the impairment of goodwill ;
    
    The interest rate spread increased to 2.88% for the quarter ended December 31, 2008
compared to 2.67% for the quarter ended December 31, 2007;
    
    Loans receivable decreased $232.3 million, or 5.51%, since March 31, 2008;
    
    Deposits declined $126.5 million, or 3.57%, since March 31, 2008;
    
    Book value per share was $6.80 at December 31, 2008 compared to $16.17 at March 31, 2008
and $15.98 at December 31, 2007;
    
    Total non-performing assets (nonaccrual loans, loans past due more than ninety days and
other real estate) increased $56.9 million, or 52.0%, to $166.4 million at December 31,
2008 from $109.5 million at March 31, 2008, and total non-accrual loans increased $19.1
million, or 18.9% to $120.4 million at December 31, 2008 from $101.2 million at March 31,
2008; and
    
    Real estate investment partnership revenue increased $824,000 from $1.0 million for the
three months ended December 31, 2007 to $1.8 million for the three months ended December
31, 2008. Real estate investment partnership cost of sales increased $259,000 from $932,000
to $1.2 million during the same respective periods. Net loss from the real estate
investment segment increased from $185,000 to $3.4 million for the three months ended
December 31, 2007 and 2008, respectively mainly due to the impairment of property at one of
the real estate investment subsidiaries. The partnerships currently have approximately 43
single family housing units and approximately 100 individual lots for sale. Management
anticipates continued lower sales activity for the remainder of the fiscal year.
 29




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##### Table of Contents



Three Months Ended(Dollars in thousands - except per share amounts)
    
    12/31/2008
    
    9/30/2008
    
    6/30/2008
    
    3/31/2008Operations Data:Net interest income
    
    $
    32,707
    
    
    $
    29,954
    
    
    $
    33,421
    
    
    $
    35,066Provision for loan losses
    
    
    92,970
    
    
    
    46,964
    
    
    
    9,400
    
    
    
    10,393Net gain (loss) on sale of loans
    
    
    (228
    )
    
    
    808
    
    
    
    2,243
    
    
    
    2,984Real estate investment partnership revenue
    
    
    1,836
    
    
    
    
    
    
    
    
    
    
    
    457Other non-interest income
    
    
    7,905
    
    
    
    7,439
    
    
    
    9,566
    
    
    
    10,121Real estate investment partnership cost of sales
    
    
    1,191
    
    
    
    
    
    
    
    
    
    
    
    548Other non-interest expense
    
    
    117,066
    
    
    
    30,167
    
    
    
    26,791
    
    
    
    29,249Minority interest in income (loss) of
real estate partnership operations
    
    
    150
    
    
    
    (13
    )
    
    
    (39
    )
    
    
    (43
    )Income (loss) before income taxes
    
    
    (169,157
    )
    
    
    (38,917
    )
    
    
    9,078
    
    
    
    8,481Income taxes
    
    
    (1,899
    )
    
    
    (15,618
    )
    
    
    3,566
    
    
    
    2,838Net income (loss)
    
    
    (167,258
    )
    
    
    (23,299
    )
    
    
    5,512
    
    
    
    5,643Selected Financial Ratios(1):Yield on earning assets
    
    
    5.69
    %
    
    
    5.59
    %
    
    
    6.05
    %
    
    
    6.10
    %Cost of funds
    
    
    2.81
    
    
    
    3.00
    
    
    
    3.22
    
    
    
    3.31Interest rate spread
    
    
    2.88
    
    
    
    2.59
    
    
    
    2.83
    
    
    
    2.79Net interest margin
    
    
    2.88
    
    
    
    2.62
    
    
    
    2.87
    
    
    
    2.84Return on average assets
    
    
    (13.72
    )
    
    
    (1.89
    )
    
    
    0.44
    
    
    
    0.43Return on average equity
    
    
    (242.66
    )
    
    
    (27.69
    )
    
    
    6.37
    
    
    
    6.56Average equity to average assets
    
    
    5.66
    
    
    
    6.84
    
    
    
    6.93
    
    
    
    6.55Non-interest expense to average assets
    
    
    9.70
    
    
    
    2.45
    
    
    
    2.15
    
    
    
    2.27Per Share:Basic earnings per share
    
    $
    (7.96
    )
    
    $
    (1.11
    )
    
    $
    0.26
    
    
    $
    0.27Diluted earnings per share
    
    
    (7.96
    )
    
    
    (1.11
    )
    
    
    0.26
    
    
    
    0.27Dividends per share
    
    
    0.01
    
    
    
    0.10
    
    
    
    0.18
    
    
    
    0.18Book value per share
    
    
    6.80
    
    
    
    14.76
    
    
    
    16.00
    
    
    
    16.17Financial Condition:Total assets
    
    $
    4,798,847
    
    
    $
    4,928,074
    
    
    $
    4,949,335
    
    
    $
    5,149,557Loans receivable, netHeld for sale
    
    
    32,139
    
    
    
    4,099
    
    
    
    6,619
    
    
    
    9,669Held for investment
    
    
    3,948,065
    
    
    
    4,069,369
    
    
    
    4,129,075
    
    
    
    4,202,833Deposits
    
    
    3,413,449
    
    
    
    3,349,335
    
    
    
    3,406,975
    
    
    
    3,539,994Borrowings
    
    
    1,152,112
    
    
    
    1,210,562
    
    
    
    1,147,329
    
    
    
    1,206,761Stockholders equity
    
    
    146,662
    
    
    
    317,501
    
    
    
    343,599
    
    
    
    345,116Allowance for loan losses
    
    
    122,571
    
    
    
    64,614
    
    
    
    40,265
    
    
    
    38,285Non-performing assets(2)
    
    
    166,382
    
    
    
    169,062
    
    
    
    144,137
    
    
    
    109,488
 
 (1)
    
    Annualized when appropriate.(2)
    
    Non-performing assets consist of loans on non-accrual status, loans past due more
than ninety days and still accruing and other real estate owned. 30




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Three Months Ended(Dollars in thousands - except per share amounts)
    
    12/31/2007
    
    9/30/2007
    
    6/30/2007
    
    3/31/2007Operations Data:Net interest income
    
    $
    31,338
    
    
    $
    31,584
    
    
    $
    31,017
    
    
    $
    29,834Provision for loan losses
    
    
    7,792
    
    
    
    2,095
    
    
    
    2,271
    
    
    
    4,050Net gain on sale of loans
    
    
    1,468
    
    
    
    814
    
    
    
    1,587
    
    
    
    465Real estate investment partnership revenue
    
    
    1,012
    
    
    
    2,428
    
    
    
    4,726
    
    
    
    2,851Other non-interest income
    
    
    9,430
    
    
    
    7,696
    
    
    
    8,327
    
    
    
    8,205Real estate investment partnership cost of sales
    
    
    932
    
    
    
    2,669
    
    
    
    4,340
    
    
    
    3,153Other non-interest expense
    
    
    24,180
    
    
    
    22,659
    
    
    
    22,547
    
    
    
    21,410Minority interest in loss of
real estate partnership operations
    
    
    (81
    )
    
    
    (203
    )
    
    
    (75
    )
    
    
    (573
    )Income before income taxes
    
    
    10,425
    
    
    
    15,302
    
    
    
    16,574
    
    
    
    13,315Income taxes
    
    
    4,096
    
    
    
    6,028
    
    
    
    6,688
    
    
    
    5,086Net income
    
    
    6,329
    
    
    
    9,274
    
    
    
    9,886
    
    
    
    8,229Selected Financial Ratios(1):Yield on earning assets
    
    
    6.68
    %
    
    
    6.90
    %
    
    
    6.80
    %
    
    
    6.73
    %Cost of funds
    
    
    4.01
    
    
    
    4.13
    
    
    
    4.05
    
    
    
    4.08Interest rate spread
    
    
    2.67
    
    
    
    2.77
    
    
    
    2.75
    
    
    
    2.65Net interest margin
    
    
    2.83
    
    
    
    2.92
    
    
    
    2.90
    
    
    
    2.81Return on average assets
    
    
    0.54
    
    
    
    0.82
    
    
    
    0.88
    
    
    
    0.74Return on average equity
    
    
    7.44
    
    
    
    11.07
    
    
    
    11.77
    
    
    
    9.72Average equity to average assets
    
    
    7.31
    
    
    
    7.37
    
    
    
    7.49
    
    
    
    7.61Non-interest expense to average assets
    
    
    2.16
    
    
    
    2.23
    
    
    
    2.40
    
    
    
    2.21Per Share:Basic earnings per share
    
    $
    0.30
    
    
    $
    0.44
    
    
    $
    0.47
    
    
    $
    0.39Diluted earnings per share
    
    
    0.30
    
    
    
    0.44
    
    
    
    0.46
    
    
    
    0.38Dividends per share
    
    
    0.18
    
    
    
    0.18
    
    
    
    0.17
    
    
    
    0.17Book value per share
    
    
    15.98
    
    
    
    15.88
    
    
    
    15.54
    
    
    
    15.55Financial Condition:Total assets
    
    $
    4,725,773
    
    
    $
    4,611,526
    
    
    $
    4,532,758
    
    
    $
    4,539,685Loans receivable, netHeld for sale
    
    
    6,170
    
    
    
    5,403
    
    
    
    9,062
    
    
    
    4,474Held for investment
    
    
    3,941,891
    
    
    
    3,944,980
    
    
    
    3,890,053
    
    
    
    3,874,049Deposits
    
    
    3,145,551
    
    
    
    3,178,588
    
    
    
    3,248,964
    
    
    
    3,248,246Borrowings
    
    
    1,150,914
    
    
    
    1,039,540
    
    
    
    891,016
    
    
    
    900,477Stockholders equity
    
    
    341,084
    
    
    
    338,907
    
    
    
    331,593
    
    
    
    336,866Allowance for loan losses
    
    
    28,761
    
    
    
    22,002
    
    
    
    22,220
    
    
    
    20,517Non-performing assets(2)
    
    
    87,002
    
    
    
    63,078
    
    
    
    53,180
    
    
    
    54,452
 
 (1)
    
    Annualized when appropriate.(2)
    
    Non-performing assets consist of loans on non-accrual status, loans past due
more than ninety days and still
accruing and other real estate owned. 31




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Significant Accounting Policies
  
    
    Declines in the fair value of held-to-maturity and available-for-sale securities below
their cost that are deemed to be other than temporary are reflected in earnings as realized
losses. In estimating other-than-temporary impairment losses, management considers many
factors which include: (1) the length of time and the extent to which the fair value has
been less than cost, (2) the financial condition and near-term prospects of the issuer, and
(3) the intent and ability of the Corporation to retain its investment in the issuer for a
period of time sufficient to allow for any anticipated recovery in fair value. If a
security has been impaired, and the impairment is deemed other-than-temporary, a write down
will occur in that quarter. If a loss is deemed to be other-than-temporary, it is
recognized as a realized loss in the consolidated statement of income and the security is
assigned a new cost basis. Management has applied EITF 99-20, Recognition of Interest
Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That
Continue to Be Held by a Transferor in Securitized Financial Assets, based on the security
attributes at the purchase date and then does not further evaluate. All securities were of
high credit quality (i.e. rated AA or above) at the purchase date and therefore, do not
fall within the scope of EITF 99-20.
    
    Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities, requires that available-for-sale securities be
carried at fair value. Management determines fair value based on quoted market prices,
identical assets in active markets or by other valuation methodologies, including option
pricing models, discounted cash flow models and similar techniques. Adjustments to the
available-for-sale securities fair value impact the consolidated financial statements by
increasing or decreasing assets and stockholders equity, and possibly net income as
discussed in the preceding paragraph.
    
    The allowance for loan losses is a valuation allowance for probable losses incurred in
the loan portfolio. Our allowance for loan loss methodology incorporates a variety of risk
considerations in establishing an allowance for loan losses that we believe is adequate to
absorb probable losses in the existing portfolio. Such analysis addresses our historical
loss experience, delinquency and charge-off trends, collateral values, changes in
non-performing loans, economic conditions, peer group experience and other considerations.
This information is then analyzed to determine estimated loss factors which, in turn, is
assigned to each loan category. These factors also incorporate known information about
individual loans, including the borrowers sensitivity to interest rate movements. Changes
in the factors themselves are driven by perceived risk in pools of homogenous loans
classified by collateral type, purpose and term. Management monitors local trends to
anticipate probable delinquency on a quarterly basis.Our primary lending emphasis is commercial real estate loans, construction loans and land
acquisition and development loans for both residential and commercial projects. We also have
a concentration of loans secured by real property located in Wisconsin. Based on the
composition of our loan portfolio and the growth in our loan portfolio, we believe the
primary risks inherent in our portfolio are increases in interest rates, a decline in the
economy, generally, and a decline in real estate market values. Any one or a combination of
these events may adversely affect our loan portfolio resulting in increased delinquencies,
loan losses and future levels of provisions. We consider it important to maintain the ratio
of our allowance for loan losses to total loans at an acceptable level given current
economic conditions, interest rates and the composition of our portfolio.The allowance for loan losses is increased by the provision for loan losses charged to
expense and reduced by loans charged off, net of recoveries. Provisions for loan losses are
made on both a specific and general basis. Specific allowances are provided on impaired
credits pursuant to SFAS No. 114 Accounting by Creditors for Impairment of a Loan. The
general component of the allowance for loan losses is based on historical loss experience
and adjusted for qualitative and environmental factors pursuant to SFAS No. 5 Accounting
for Contingencies and other related regulatory guidance. At least quarterly, we review the
 32




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##### Table of Contents



assumptions and formulas related to our general valuation allowances in an effort to update
and to refine
our allowance for loan losses in light of the various factors described above. During the
quarter ended December 31, 2008, we decided to make further increases to the environmental
loss factors due to the weaknesses in the real estate markets in which we operate, declines
in appraisal valuations, increases in nonperforming loans, increases in potential problem
loans, and the general weakening of the local economies in the markets in which we operate.
In the event that our residential construction and land portfolio continues to experience
deterioration in estimated collateral values, we may have to further adjust and discount the
appraised values for the collateral underlying the loans in that portfolio, which could
result in significant increases to our provision for loan losses.We consider the ratio of the allowance for loan losses to total loans at December 31, 2008
to be at an acceptable level. Although we believe that we have established and maintained
the allowance for loan losses at adequate levels, additions may be necessary if future
economic and other conditions differ substantially from the current operating environment.
Although management uses 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. Mortgage servicing rights are established on
loans that are originated and subsequently sold. A portion of the loans book basis is
allocated to mortgage servicing rights when a loan is sold. The fair value of mortgage
servicing rights is the present value of estimated future net cash flows from the servicing
relationship using current market 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
cost or market value.
    
    The Corporation accounts for federal income taxes in accordance with the provisions of
SFAS No. 109, Accounting for Income Taxes. Pursuant to the provisions of SFAS No. 109, 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.
    
    Goodwill is presumed to have an indefinite useful life and is tested, at least annually,
for impairment at the reporting unit level. Impairment exists when the carrying amount of
goodwill exceeds its implied fair value. The Corporation annually reviews the goodwill for
impairment in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. If the
fair value of our reporting unit with goodwill exceeds its carrying amount, further
evaluation is not necessary. However, if the fair value of our reporting unit with goodwill
is less than its carrying amount, further evaluation is required to compare the implied
fair value of the reporting units goodwill to its carrying amount to determine if a
write-down of goodwill is required.During the quarter ended December 30, 2008, our stock price continued to deteriorate. In
addition, there was continued deterioration in our credit quality. These market conditions
and related credit concerns caused valuations for financial institutions to decrease
significantly during the three months ended December 31, 2008. The market price of the
Corporations stock declined from $7.34 on September 30, 2008 to $2.76 at December 31, 2008.
 33




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##### Table of Contents



As a result of the above conditions, the Corporation completed its annual impairment
valuation test of its $72.2 million goodwill asset during the three months ended December
31, 2008. As a result of this impairment test, the Corporation recorded a full impairment
charge to the goodwill asset of $72.2 million.
The goodwill impairment charge had no impact on the Corporations tangible capital levels,
tangible book value per share, regulatory capital ratios or liquidity.
 34




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RESULTS OF OPERATIONS
 General.
 Net Interest Income.
   35




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##### Table of Contents



Provision for Loan Losses.
 Average Interest-Earning Assets, Average Interest-Bearing Liabilities and Interest Rate
Spread.
 36




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Three Months Ended December 31,2008
    
    
    2007Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    

Cost (1)
    
    
    Balance
    
    
    Interest
    
    

Cost (1)(Dollars In Thousands)Interest-Earning AssetsMortgage loans
    
    $
    3,043,654
    
    
    $
    44,779
    
    
    
    5.88
    %
    
    $
    3,050,053
    
    
    $
    52,246
    
    
    
    6.85
    %Consumer loans
    
    
    783,251
    
    
    
    11,733
    
    
    
    5.99
    
    
    
    664,010
    
    
    
    12,118
    
    
    
    7.30Commercial business loans
    
    
    243,317
    
    
    
    3,530
    
    
    
    5.80
    
    
    
    236,975
    
    
    
    4,368
    
    
    
    7.37Total loans receivable (2) (3)
    
    
    4,070,222
    
    
    
    60,042
    
    
    
    5.90
    
    
    
    3,951,038
    
    
    
    68,732
    
    
    
    6.96Mortgage-related securities (4)
    
    
    273,161
    
    
    
    3,743
    
    
    
    5.48
    
    
    
    246,591
    
    
    
    3,143
    
    
    
    5.10Investment securities (4)
    
    
    96,607
    
    
    
    818
    
    
    
    3.39
    
    
    
    129,023
    
    
    
    1,060
    
    
    
    3.29Interest-bearing deposits
    
    
    51,048
    
    
    
    70
    
    
    
    0.55
    
    
    
    61,128
    
    
    
    1,102
    
    
    
    7.21Federal Home Loan Bank stock
    
    
    54,829
    
    
    
    
    
    
    
    0.00
    
    
    
    48,279
    
    
    
    
    
    
    
    0.00Total interest-earning assets
    
    
    4,545,867
    
    
    
    64,673
    
    
    
    5.69
    
    
    
    4,436,059
    
    
    
    74,037
    
    
    
    6.68Non-interest-earning assets
    
    
    329,137
    
    
    
    
    
    
    
    
    
    
    
    220,387Total assets
    
    $
    4,875,004
    
    
    
    
    
    
    
    
    
    
    $
    4,656,446Interest-Bearing LiabilitiesDemand deposits
    
    $
    1,008,069
    
    
    
    1,965
    
    
    
    0.78
    
    
    $
    955,174
    
    
    
    5,174
    
    
    
    2.17Regular passbook savings
    
    
    231,909
    
    
    
    191
    
    
    
    0.33
    
    
    
    192,614
    
    
    
    226
    
    
    
    0.47Certificates of deposit
    
    
    2,141,593
    
    
    
    19,446
    
    
    
    3.63
    
    
    
    2,070,000
    
    
    
    25,636
    
    
    
    4.95Total deposits
    
    
    3,381,571
    
    
    
    21,602
    
    
    
    2.56
    
    
    
    3,217,788
    
    
    
    31,036
    
    
    
    3.86Short-term borrowings
    
    
    249,378
    
    
    
    2,471
    
    
    
    3.96
    
    
    
    672,177
    
    
    
    8,048
    
    
    
    4.79Long-term borrowings
    
    
    913,073
    
    
    
    7,893
    
    
    
    3.46
    
    
    
    371,489
    
    
    
    3,615
    
    
    
    3.89Total interest-bearing liabilities
    
    
    4,544,022
    
    
    
    31,966
    
    
    
    2.81
    
    
    
    4,261,454
    
    
    
    42,699
    
    
    
    4.01Non-interest-bearing liabilities
    
    
    55,277
    
    
    
    
    
    
    
    
    
    
    
    54,535Total liabilities
    
    
    4,599,299
    
    
    
    
    
    
    
    
    
    
    
    4,315,989Stockholders equity
    
    
    275,705
    
    
    
    
    
    
    
    
    
    
    
    340,457Total liabilities and stockholders equity
    
    $
    4,875,004
    
    
    
    
    
    
    
    
    
    
    $
    4,656,446Net interest income/interest rate spread (5)
    
    
    
    
    
    $
    32,707
    
    
    
    2.88
    %
    
    
    
    
    
    $
    31,338
    
    
    
    2.67
    %Net interest-earning assets
    
    $
    1,845
    
    
    
    
    
    
    
    
    
    
    $
    174,605Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    2.88
    %
    
    
    
    
    
    
    
    
    
    
    2.83
    %Ratio of average interest-earning assets
to average interest-bearing liabilities
    
    
    1.00
    
    
    
    
    
    
    
    
    
    
    
    1.04
 
 (1)
    
    Annualized(2)
    
    For the purpose of these computations, non-accrual loans are included in the daily
average loan amounts outstanding.(3)
    
    Interest earned on loans includes loan fees (which are not material in amount) and
interest income which has been received from borrowers whose loans were removed from non-accrual status
during the period indicated.(4)
    
    Average balances of securities available-for-sale are based on amortized cost.(5)
    
    Interest rate spread represents the difference between the weighted-average yield on
interest-earning assets and the weighted-average cost of interest-bearing liabilities and is
represented on a fully tax equivalent basis.(6)
    
    Net interest margin represents net interest income as a percentage of average
interest-earning assets. 37




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##### Table of Contents



Nine Months Ended December 31,2008
    
    
    2007Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    

Cost (1)
    
    
    Balance
    
    
    Interest
    
    

Cost (1)(Dollars In Thousands)Interest-Earning AssetsMortgage loans
    
    $
    3,113,820
    
    
    $
    139,223
    
    
    
    5.96
    %
    
    $
    3,031,122
    
    
    $
    156,378
    
    
    
    6.88
    %Consumer loans
    
    
    755,014
    
    
    
    34,848
    
    
    
    6.15
    
    
    
    651,202
    
    
    
    36,035
    
    
    
    7.38Commercial business loans
    
    
    256,696
    
    
    
    11,132
    
    
    
    5.78
    
    
    
    235,986
    
    
    
    14,064
    
    
    
    7.95Total loans receivable (2) (3)
    
    
    4,125,530
    
    
    
    185,203
    
    
    
    5.99
    
    
    
    3,918,310
    
    
    
    206,477
    
    
    
    7.03Mortgage-related securities (4)
    
    
    273,218
    
    
    
    11,099
    
    
    
    5.42
    
    
    
    244,251
    
    
    
    9,177
    
    
    
    5.01Investment securities (4)
    
    
    99,722
    
    
    
    2,398
    
    
    
    3.21
    
    
    
    99,908
    
    
    
    3,047
    
    
    
    4.07Interest-bearing deposits
    
    
    44,614
    
    
    
    469
    
    
    
    1.40
    
    
    
    41,848
    
    
    
    2,134
    
    
    
    6.80Federal Home Loan Bank stock
    
    
    54,829
    
    
    
    
    
    
    
    0.00
    
    
    
    44,649
    
    
    
    572
    
    
    
    1.71Total interest-earning assets
    
    
    4,597,913
    
    
    
    199,169
    
    
    
    5.78
    
    
    
    4,348,966
    
    
    
    221,407
    
    
    
    6.79Non-interest-earning assets
    
    
    329,397
    
    
    
    
    
    
    
    
    
    
    
    216,911Total assets
    
    $
    4,927,310
    
    
    
    
    
    
    
    
    
    
    $
    4,565,877Interest-Bearing LiabilitiesDemand deposits
    
    $
    1,056,013
    
    
    
    8,035
    
    
    
    1.01
    
    
    $
    951,422
    
    
    
    16,571
    
    
    
    2.32Regular passbook savings
    
    
    232,930
    
    
    
    740
    
    
    
    0.42
    
    
    
    194,053
    
    
    
    663
    
    
    
    0.46Certificates of deposit
    
    
    2,117,346
    
    
    
    63,567
    
    
    
    4.00
    
    
    
    2,075,794
    
    
    
    76,672
    
    
    
    4.92Total deposits
    
    
    3,406,289
    
    
    
    72,342
    
    
    
    2.83
    
    
    
    3,221,269
    
    
    
    93,906
    
    
    
    3.89Short-term borrowings
    
    
    242,102
    
    
    
    6,566
    
    
    
    3.62
    
    
    
    611,633
    
    
    
    23,180
    
    
    
    5.05Long-term borrowings
    
    
    916,839
    
    
    
    24,179
    
    
    
    3.52
    
    
    
    350,277
    
    
    
    10,382
    
    
    
    3.95Total interest-bearing liabilities
    
    
    4,565,230
    
    
    
    103,087
    
    
    
    3.01
    
    
    
    4,183,179
    
    
    
    127,468
    
    
    
    4.06Non-interest-bearing liabilities
    
    
    44,938
    
    
    
    
    
    
    
    
    
    
    
    45,032Total liabilities
    
    
    4,610,168
    
    
    
    
    
    
    
    
    
    
    
    4,228,211Stockholders equity
    
    
    317,142
    
    
    
    
    
    
    
    
    
    
    
    337,666Total liabilities and stockholders equity
    
    $
    4,927,310
    
    
    
    
    
    
    
    
    
    
    $
    4,565,877Net interest income/interest rate spread (5)
    
    
    
    
    
    $
    96,082
    
    
    
    2.77
    %
    
    
    
    
    
    $
    93,939
    
    
    
    2.73
    %Net interest-earning assets
    
    $
    32,683
    
    
    
    
    
    
    
    
    
    
    $
    165,787Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    2.79
    %
    
    
    
    
    
    
    
    
    
    
    2.88
    %Ratio of average interest-earning assets
to average interest-bearing liabilities
    
    
    1.01
    
    
    
    
    
    
    
    
    
    
    
    1.04
 
 (1)
    
    Annualized(2)
    
    For the purpose of these computations, non-accrual loans are included in the daily
average loan amounts outstanding.(3)
    
    Interest earned on loans includes loan fees (which are not material in amount) and
interest income which has been received from borrowers whose loans were removed from non-accrual
status during the period indicated.(4)
    
    Average balances of securities available-for-sale are based on amortized cost.(5)
    
    Interest rate spread represents the difference between the weighted-average yield on
interest-earning assets and the weighted-average cost of interest-bearing liabilities and is
represented on a fully tax equivalent basis.(6)
    
    Net interest margin represents net interest income as a percentage of average
interest-earning assets. 38




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##### Table of Contents



Non-Interest Income.
 Non-Interest Expense.
 Income Taxes.
   39




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##### Table of Contents



FINANCIAL CONDITION
         40




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##### Table of Contents



41




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##### Table of Contents



ASSET QUALITY
   December 31, 2008
    
    
    March 31, 2008Nonaccrual
    
    
    
    
    
    
    Percent of
    
    
    Nonaccrual
    
    
    
    
    
    
    Percent ofBalance
    
    
    %
    
    
    Total Loans
    
    
    Balance
    
    
    %
    
    
    Total Loans(Dollars in Thousands)Single-family residential
    
    $
    15,078
    
    
    
    12.5
    %
    
    
    0.36
    %
    
    $
    21,200
    
    
    
    20.9
    %
    
    
    0.48
    %Multi-family residential
    
    
    13,296
    
    
    
    11.0
    %
    
    
    0.32
    %
    
    
    18,393
    
    
    
    18.2
    %
    
    
    0.42
    %Commercial real estate
    
    
    42,441
    
    
    
    35.3
    %
    
    
    1.02
    %
    
    
    29,204
    
    
    
    28.8
    %
    
    
    0.67
    %Construction and land
    
    
    24,408
    
    
    
    20.3
    %
    
    
    0.59
    %
    
    
    14,888
    
    
    
    14.7
    %
    
    
    0.34
    %Consumer
    
    
    3,594
    
    
    
    3.0
    %
    
    
    0.09
    %
    
    
    2,258
    
    
    
    2.2
    %
    
    
    0.05
    %Commercial business
    
    
    21,539
    
    
    
    17.9
    %
    
    
    0.52
    %
    
    
    15,298
    
    
    
    15.1
    %
    
    
    0.35
    %Total Nonaccrual Loans
    
    $
    120,356
    
    
    
    100.0
    %
    
    
    2.90
    %
    
    $
    101,241
    
    
    
    100.0
    %
    
    
    2.31
    %
 At December 31,
    
    
    At March 31,2008
    
    
    2008(Dollars in thousands)Total nonaccrual loans
    
    $
    120,356
    
    
    $
    101,241Other real estate owned (OREO)
    
    
    46,026
    
    
    
    8,247Total nonperforming assets
    
    $
    166,382
    
    
    $
    109,488Performing
troubled debt restructurings
    
    $
    15,836
    
    
    $
    400Total nonaccrual loans to total loans (1)
    
    
    2.90
    %
    
    
    2.31
    %Total nonperforming assets to total assets
    
    
    3.47
    
    
    
    2.13Allowance for loan losses to total loans
(1)
    
    
    2.95
    
    
    
    0.87Allowance for loan losses to total non-accrual loans
    
    
    101.84
    
    
    
    37.82Allowance for loan and foreclosure losses to total
non-performing assets
    
    
    77.21
    
    
    
    34.98
 
 (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.  42




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##### Table of Contents




    
    $12.7 million multi-family residential loan secured by a golf course and condominium
project located in central Wisconsin (6 loans)
    
    $4.4 million commercial business loan secured by a construction company located in
southern Wisconsin (2 loans)
    
    $9.9 million commercial business loan secured by a business located in southern
Wisconsin (2 loans)
    
    $1.7 million commercial real estate loan secured by a commercial building located in
southern Wisconsin (2 loans)
    
    $2.1 million commercial real estate loan secured by a property located in southern
Wisconsin
    
    $4.0 million commercial real estate loan secured by a retail center located in southern
Wisconsin
    
    $2.6 million commercial real estate loan secured by a golf course and condominium
project located in northwest Wisconsin
    
    $2.4 million construction and land loan secured by residential lots located in northeast
Wisconsin
    
    $1.4 million construction and land loan secured by vacant land near a golf course
located in central Wisconsin
    
    $1.1 million commercial business loan secured by a commercial property located in
central Wisconsin
  
    
    $3.7 million construction and land development loan secured by condominiums in southeast
Wisconsin (2 loans)
    
    $1.1 million commercial real estate loan secured by a warehouse in northeast Wisconsin
    
    $1.9 million construction and land development loan secured by a retail development in
northeast Wisconsin
    
    $2.0 million construction and land development loan secured by a retail center in
southeast Wisconsin
    
    $1.2 million commercial business loan secured by a retail business located in southeast
Wisconsin
  MostRecorded
    
    
    Date
    
    
    RecentBalance
    
    
    Placed in
    
    
    AppraisalDescription
    
    Location
    
    (in millions)
    
    
    OREO
    
    
    DateCondominium project
    
    Southern Wisconsin
    
    $
    3.6
    
    
    
    8/14/2007
    
    
    
    8/9/2004Duplexes and lots
    
    Southern Wisconsin
    
    
    1.1
    
    
    
    11/5/2008
    
    
    
    9/5/2008Partially constructed condominium and retail
complex
    
    Southern Wisconsin
    
    
    6.4
    
    
    
    12/31/2008
    
    
    
    11/1/2005Sports complex
    
    Southern Wisconsin
    
    
    2.5
    
    
    
    11/11/2008
    
    
    
    6/2/2008Partially constructed condominium
    
    Central Wisconsin
    
    
    6.2
    
    
    
    12/31/2008
    
    
    
    8/1/2005Condominium project
    
    Southern Wisconsin
    
    
    1.3
    
    
    
    9/30/2008
    
    
    
    11/5/2007Apartment building
    
    Minnesota
    
    
    4.0
    
    
    
    6/18/2008
    
    
    
    9/21/2006Property secured by CBRF
    
    Northeast Wisconsin
    
    
    4.4
    
    
    
    12/31/2008
    
    
    
    1/28/2004Several single family properties
    
    Wisconsin/Minnesota
    
    
    8.3
    
    
    
    9/16/2008
    
    
    
    6/1/2007Other properties individually less than $1 million
    
    
    
    
    14.1Valuation allowance on OREO
    
    
    
    
    (5.9
    )$
    46.0
 43




---



##### Table of Contents




    
    $11.2 million loan secured by residential lots located in northeast Wisconsin (3 loans)
    
    $9.0 million loan secured by a residential development located in southern Wisconsin (2
loans)
    
    $14.6 million loan secured by developments located in southern Wisconsin (3 loans)
    
    $22.2 million loan secured by multi-family and commercial developments located in
southern Wisconsin (8 loans)
    
    $3.6 million loan secured by commercial property located in southern Wisconsin (2 loans)
    
    $6.2 million loan secured by a residential development located in southern Wisconsin (2
loans)
    
    $12.5 million loan secured by a residential development located in southern Wisconsin (3
loans)
    
    $4.1 million loan secured by a condominium development located in central Wisconsin (2
loans)
    
    $12.8 million loan secured by commercial and residential property located in southern
Wisconsin (13 loans)
    
    $38.5 million loan secured by residential development located in southern Wisconsin (51
loans)
    
    $4.3 million loan secured by a condominium development located in northeastern Wisconsin
    
    $2.8 million loan secured by a residential development located in northwestern Wisconsin
    
    $15.4 million loan secured by a golf and vacation resort located in central Wisconsin
    
    $1.7 million loan secured by a commercial business located in southern Wisconsin
    
    $8.1 million loan secured by vacant land located in southern Wisconsin
    
    $12.3 million loan secured by condominiums located in central Wisconsin
    
    $1.1 million loan secured by a residential development located in northwestern Wisconsin
    
    $2.1 million loan secured by a residential development located in northeastern Wisconsin
    
    $40.0 million loan secured by residential developments located in southern Wisconsin
    
    $3.0 million loan secured by residential developments located in southern Wisconsin
    
    $2.2 million loan secured by various land development properties located in east central
Wisconsin
  44




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##### Table of Contents



At December 31,
    
    
    At March 31,2008
    
    
    2008
    
    
    2007
    
    
    2006(In Thousands)Impaired loans with
valuation
reserve required
    
    $
    177,365
    
    
    $
    52,866
    
    
    $
    2,130
    
    
    $
    6,381Impaired loans
without a
specific reserve
    
    
    187,304
    
    
    
    51,192
    
    
    
    45,718
    
    
    
    9,107Total impaired
loans
    
    
    364,669
    
    
    
    104,058
    
    
    
    47,848
    
    
    
    15,488Less:Specific valuation
allowance
    
    
    (54,019
    )
    
    
    (17,639
    )
    
    
    (517
    )
    
    
    (3,111
    )$
    310,650
    
    
    $
    86,419
    
    
    $
    47,331
    
    
    $
    12,377Average impaired
loans
    
    $
    165,236
    
    
    $
    67,138
    
    
    $
    26,458
    
    
    $
    14,749Interest income
recognized
on impaired loans
    
    $
    12,001
    
    
    $
    107
    
    
    $
    44
    
    
    $
    208Interest income
recognized on a
cash basis
on impaired loans
    
    $
    9,940
    
    
    $
    107
    
    
    $
    44
    
    
    $
    208Loans on nonaccrual
status
    
    $
    120,636
    
    
    $
    101,241
    
    
    $
    47,040
    
    
    $
    13,529Loans past due
ninety days or more
and
still accruing
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Performing troubled
debt restructurings
    
    $
    15,836
    
    
    $
    400
    
    
    $
    400
    
    
    $
    400
  At December 31,
    
    
    At March 31,2008
    
    
    2008
    
    
    2007
    
    
    2006(In Thousands)30 to 59 days
    
    $
    101,937
    
    
    $
    66,617
    
    
    $
    12,776
    
    
    $
    9,87460 to 89 days
    
    
    32,814
    
    
    
    12,928
    
    
    
    5,414
    
    
    
    733Total
    
    $
    134,751
    
    
    $
    79,545
    
    
    $
    18,190
    
    
    $
    10,607
   45




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars In Thousands)Allowance at beginning of period
    
    $
    64,614
    
    
    $
    22,002
    
    
    $
    38,285
    
    
    $
    20,517Charge-offs:Construction
    
    
    (6,989
    )
    
    
    
    
    
    
    (8,309
    )
    
    
    (32
    )Mortgage
    
    
    (19,986
    )
    
    
    (185
    )
    
    
    (35,454
    )
    
    
    (2,568
    )Consumer
    
    
    (802
    )
    
    
    (132
    )
    
    
    (1,282
    )
    
    
    (445
    )Commercial business
    
    
    (7,451
    )
    
    
    (763
    )
    
    
    (21,165
    )
    
    
    (1,151
    )Total charge-offs
    
    
    (35,228
    )
    
    
    (1,080
    )
    
    
    (66,210
    )
    
    
    (4,196
    )Recoveries:Mortgage
    
    
    182
    
    
    
    
    
    
    
    772
    
    
    
    84Consumer
    
    
    16
    
    
    
    5
    
    
    
    26
    
    
    
    27Commercial business
    
    
    17
    
    
    
    42
    
    
    
    364
    
    
    
    171Total recoveries
    
    
    215
    
    
    
    47
    
    
    
    1,162
    
    
    
    282Net (charge-offs) recoveries
    
    
    (35,013
    )
    
    
    (1,033
    )
    
    
    (65,048
    )
    
    
    (3,914
    )Provision for loan losses
    
    
    92,970
    
    
    
    7,792
    
    
    
    149,334
    
    
    
    12,158Allowance at end of period
    
    $
    122,571
    
    
    $
    28,761
    
    
    $
    122,571
    
    
    $
    28,761Net charge-offs to average loans (annualized)
    
    
    (3.44
    )%
    
    
    (0.10
    )%
    
    
    (2.10
    )%
    
    
    (0.13
    )%
  46




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LIQUIDITY AND CAPITAL RESOURCES
      Credit Agreement
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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 December 31, 2008:Tier 1 capital
(to adjusted tangible assets)
    
    $
    244,047
    
    
    
    5.14
    %
    
    $
    142,456
    
    
    
    3.00
    %
    
    $
    237,427
    
    
    
    5.00
    %Risk-based capital
(to risk-based assets)
    
    
    289,849
    
    
    
    8.08
    
    
    
    286,992
    
    
    
    8.00
    
    
    
    358,740
    
    
    
    10.00Tangible capital
(to tangible assets)
    
    
    244,047
    
    
    
    5.14
    
    
    
    71,228
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/AAt March 31, 2008:Tier 1 capital
(to adjusted tangible assets)
    
    $
    352,311
    
    
    
    7.04
    %
    
    $
    150,210
    
    
    
    3.00
    %
    
    $
    250,349
    
    
    
    5.00
    %Risk-based capital
(to risk-based assets)
    
    
    390,596
    
    
    
    10.14
    
    
    
    308,273
    
    
    
    8.00
    
    
    
    385,341
    
    
    
    10.00Tangible capital
(to tangible assets)
    
    
    352,311
    
    
    
    7.04
    
    
    
    75,105
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/A
  December 31,
    
    
    March 31,2008
    
    
    2008(In Thousands)Stockholders equity of the Bank
    
    $
    241,334
    
    
    $
    432,382Less: Goodwill and intangible assets
    
    
    (4,884
    )
    
    
    (77,734
    )Accumulated other comprehensive income
    
    
    7,597
    
    
    
    (2,337
    )Tier 1 and tangible capital
    
    
    244,047
    
    
    
    352,311Plus: Allowable general valuation allowances
    
    
    45,802
    
    
    
    38,285Risk-based capital
    
    $
    289,849
    
    
    $
    390,596
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GUARANTEES
   Amount
    
    
    AmountSubsidiary
    
    Partnership
    
    Amount
    
    
    Outstanding
    
    
    Outstandingof IDI
    
    Entity
    
    Guaranteed
    
    
    at 12/31/08
    
    
    at 3/31/08(Dollars in thousands)Oakmont
    
    Chandler Creek
    
    $
    15,000
    
    
    $
    15,000
    
    
    $
    15,000Davsha III
    
    Indian Palms 147, LLC
    
    
    500
    
    
    
    458
    
    
    
    396Davsha V
    
    Villa Santa Rosa, LLC
    
    
    1,000
    
    
    
    585
    
    
    
    722Davsha VII
    
    La Vista Grande 121, LLC
    
    
    15,000
    
    
    
    13,320
    
    
    
    12,105Total
    
    
    
    $
    31,500
    
    
    $
    29,363
    
    
    $
    28,223
     49




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ASSET/LIABILITY MANAGEMENT
     REGULATORY DEVELOPMENTS
   50




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FORWARD-LOOKING STATEMENTS
    51




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Item 3 Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4 Controls and Procedures.
    52




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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 third quarter of fiscal 2009 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 and, an
impairment charge representing a full write-down of our goodwill asset, and we are
likely to experience additional losses in the fourth quarter of fiscal 2009, which
will likely mean a net loss for the 2009 fiscal year.
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Future dividend payments and common stock repurchases are restricted by the terms of
the U.S. Treasurys equity investment in us.
  Future sales or other dilution of the Corporations equity may adversely affect the
market price of the Corporations common stock.
  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.
  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.
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Additional increases in our level of non-performing assets will have an adverse
effect on our financial condition and results of operations.
  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.
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##### Table of Contents



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.
   We must reduce the outstanding balance under the Credit Agreement to $60.0 million
prior to March 2, 2009 and further reduce the outstanding balance under the Credit
Agreement to $54.0 million by September 30, 2009, and failure by us to meet our
payment obligations to the lenders by such dates could have a material adverse
affect on our business operations.
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##### Table of Contents



Risks Related to Recent Market, Legislative and Regulatory Events
 We cannot predict the impact on us or the Bank of recently enacted legislation, in
particular the Emergency Economic Stabilization Act of 2008 and its implementing
regulations, and actions by the FDIC.
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##### Table of Contents



Item 2 Unregistered Sales of Equity Securities and Use of Proceeds.
   Total Number ofTotal
    
    
    
    
    
    
    Shares Purchased
    
    
    Maximum Number ofNumber
    
    
    Average
    
    
    as Part of Publicly
    
    
    Shares that May Yet Beof Shares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Purchased Under thePeriod
    
    Purchased
    
    
    per Share
    
    
    or Programs
    
    

Plans or Programs (1)October 1 -October 31, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,572,160November 1 - November 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,572,160December 1 - December 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,572,160Total
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,572,160
 
 (1)
    
    Effective November 3, 2006, the Board of
Directors extended the current share repurchase
program of approximately 1.3 million shares of
its outstanding common stock in the open
market for an additional year. In July 2007,
the Board of Directors approved the repurchase
of an additional 5% of the Corporations
common stock, representing approximately 1,068,000 of
outstanding shares and extended all previous share
repurchase authorizations for a year. The
repurchases are authorized to be made from
time to time in open-market and/or negotiated
transactions as, in the opinion of management,
market conditions may warrant. The repurchased
shares will be held as treasury stock and
will be available for general corporate purposes.
The Corporation utilizes various securities brokers
as its agent for the stock repurchase program.
In connection with the Corporations participation
in the CPP, the Corporation
has suspended its share repurchase program. 
 Item 3 Defaults upon Senior Securities.
  
 Item 4 Submission of Matters to a Vote of Security Holders.
  
 Item 5 Other Information.
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Item 6 Exhibits.
  Exhibit 4.1
    
    Warrant to Purchase Shares of Anchor
BanCorp Wisconsin, Inc. Common Stock dated
January 30, 2009 issued to the United
States Department of the Treasury
incorporated by reference to Exhibit 4.1
to the Corporations Current Report on
Form 8-K filed February 3, 2009 (File
No. 000-20006)
 Exhibit 4.2
    
    Articles of Amendment of Anchor
BanCorp Wisconsin, Inc. with respect to
Fixed Rate Cumulative Perpetual Preferred
Stock, Series B dated January 30,
2009 incorporated by reference to Exhibit
4.2 to the Corporations Current Report
on Form 8-K filed February 3, 2009
(File No. 000-20006)
 Exhibit 10.1
    
    Amendment No. 2 to Amended and
Restated Credit Agreement, dated as of
December 30, 2008, among Anchor Bancorp
Wisconsin, Inc., the financial institutions
from time to time party to the
agreement and U.S. Bank National
Association, as administrative agent for
the lenders incorporated by reference to
Exhibit 10.1 to the Corporations Current
Report on Form 8-K filed December 31,
2008 (File No. 000-20006).
 Exhibit 10.2
    
    Letter Agreement including the Securities
Purchase AgreementStandard Terms
incorporated therein, between Anchor
BanCorp Wisconsin, Inc. and The
United States Department of the
Treasury, dated January 30, 2009
incorporated by reference to Exhibit
10.1 to the Corporations Current
Report on Form 8-K filed February
3, 2009 (File No. 000-20006)
 Exhibit 31.1
    
    Certification of Chief Executive Officer
Pursuant to Rules 13a-14 and 15d-14
of the Securities Exchange Act of
1934 and Section 302 of the
Sarbanes-Oxley Act of 2002 is included
herein as an exhibit to this Report.
 Exhibit 31.2
    
    Certification of Chief Financial Officer
Pursuant to Rules 13a-14 and 15d-14
of the Securities Exchange Act of
1934 and Section 302 of the
Sarbanes-Oxley Act of 2002 is included
as an exhibit to this Report.
 Exhibit 32.1
    
    Certification of the Chief Executive
Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18
U.S.C. 1350) is included herein
as an exhibit to this Report.
 Exhibit 32.2
    
    Certification of the Chief Financial
Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18
U.S.C. 1350) is included herein
as an exhibit to this Report.
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SIGNATURES
   Date:
    
    February 16, 2009
    
    By:
    
    /s/ Douglas J. Timmerman

Douglas J. Timmerman, Chairman of the
Board, President and Chief Executive OfficerDate:
    
    February 16, 2009
    
    By:
    
    /s/ Dale C. Ringgenberg

Dale C. Ringgenberg, Treasurer and
Chief Financial Officer
 60