##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 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
    
    (IRS Employer Identification No.)incorporation or organization)25 West Main StreetMadison, Wisconsin
    
    53703(Address of principal executive office)
    
    (Zip Code)
  Registrants telephone number, including area code
  (Former name, former address, and former fiscal year, if changed since last report)
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



ANCHOR BANCORP WISCONSIN INC.
INDEX  FORM 10-Q
 Page #Part I  Financial InformationItem 1 Financial Statements (Unaudited)Consolidated Balance Sheets as of September 30, 2008
and March 31, 2008
    
    
    2Consolidated Statements of Income for the Three and Six
Months Ended September 30, 2008 and 2007
    
    
    3Consolidated Statements of Cash Flows for the Six Months
Ended September 30, 2008 and 2007
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    24Results of Operations
    
    
    29Financial Condition
    
    
    34Asset Quality
    
    
    35Liquidity & Capital Resources
    
    
    39Guarantees
    
    
    41Asset/Liability Management
    
    
    42Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    43Item 4 Controls and Procedures
    
    
    43Part II  Other InformationItem 1 Legal Proceedings
    
    
    45Item 1A Risk Factors
    
    
    45Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    49Item 3 Defaults upon Senior Securities
    
    
    49Item 4 Submission of Matters to a Vote of Security Holders
    
    
    49Item 5 Other Information
    
    
    49Item 6 Exhibits
    
    
    50Signatures
    
    
    51EX-31.1EX-31.2EX-32.1EX-32.2
  1




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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
  September 30,
    
    
    March 31,2008
    
    
    2008(In Thousands, Except Share Data)AssetsCash
    
    $
    79,962
    
    
    $
    102,622Interest-bearing deposits
    
    
    17,263
    
    
    
    155,121Cash and cash equivalents
    
    
    97,225
    
    
    
    257,743Investment securities available for sale
    
    
    112,778
    
    
    
    87,036Mortgage-related securities available for sale
    
    
    273,766
    
    
    
    269,370Mortgage-related securities held to maturity (fair value of $55
and $60, respectively)
    
    
    55
    
    
    
    59Loans, less allowance for loan losses of $64,614 at September 30, 2008
and $38,285 at March 31, 2008:Held for sale
    
    
    4,099
    
    
    
    9,669Held for investment
    
    
    4,069,369
    
    
    
    4,202,833Foreclosed properties and repossessed assets, net
    
    
    29,712
    
    
    
    8,247Real estate held for development and sale
    
    
    60,439
    
    
    
    59,002Office properties and equipment
    
    
    47,053
    
    
    
    47,916Federal Home Loan Bank stockat cost
    
    
    54,829
    
    
    
    54,829Accrued interest and other assets
    
    
    106,568
    
    
    
    80,478Goodwill
    
    
    72,181
    
    
    
    72,375Total assets
    
    $
    4,928,074
    
    
    $
    5,149,557Liabilities and Stockholders EquityDepositsNon-interest bearing
    
    $
    306,130
    
    
    $
    280,897Interest bearing
    
    
    3,043,205
    
    
    
    3,259,097Total deposits
    
    
    3,349,335
    
    
    
    3,539,994Short-term borrowings
    
    
    296,508
    
    
    
    232,289Long-term borrowings
    
    
    914,054
    
    
    
    974,472Other liabilities
    
    
    44,647
    
    
    
    51,605Total liabilities
    
    
    4,604,544
    
    
    
    4,798,360Commitments and contingent liabilities (Note 11)Minority interest in real estate partnerships
    
    
    6,029
    
    
    
    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, 21,517,724 and 21,348,170 shares outstanding,
respectively
    
    
    2,536
    
    
    
    2,536Additional paid-in capital
    
    
    72,288
    
    
    
    72,300Retained earnings
    
    
    348,443
    
    
    
    374,593Accumulated other comprehensive income (loss)
    
    
    (3,784
    )
    
    
    1,864Treasury stock (3,845,615 and 4,015,169 shares, respectively), at cost
    
    
    (96,562
    )
    
    
    (100,930
    )Deferred compensation obligation
    
    
    (5,420
    )
    
    
    (5,247
    )Total stockholders equity
    
    
    317,501
    
    
    
    345,116Total liabilities, minority interest and stockholders equity
    
    $
    4,928,074
    
    
    $
    5,149,557
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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Statements of Income
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands, Except Per Share Data)Interest income:Loans
    
    $
    59,450
    
    
    $
    69,714
    
    
    $
    125,161
    
    
    $
    137,745Mortgage-related securities
    
    
    3,687
    
    
    
    3,028
    
    
    
    7,355
    
    
    
    6,034Investment securities and Federal Home Loan Bank stock
    
    
    780
    
    
    
    1,345
    
    
    
    1,581
    
    
    
    2,560Interest-bearing deposits
    
    
    71
    
    
    
    636
    
    
    
    399
    
    
    
    1,031Total interest income
    
    
    63,988
    
    
    
    74,723
    
    
    
    134,496
    
    
    
    147,370Interest expense:Deposits
    
    
    23,898
    
    
    
    31,424
    
    
    
    50,740
    
    
    
    62,870Short-term borrowings
    
    
    2,352
    
    
    
    8,474
    
    
    
    4,095
    
    
    
    15,132Long-term borrowings
    
    
    7,784
    
    
    
    3,241
    
    
    
    16,286
    
    
    
    6,767Total interest expense
    
    
    34,034
    
    
    
    43,139
    
    
    
    71,121
    
    
    
    84,769Net interest income
    
    
    29,954
    
    
    
    31,584
    
    
    
    63,375
    
    
    
    62,601Provision for loan losses
    
    
    46,964
    
    
    
    2,095
    
    
    
    56,364
    
    
    
    4,366Net interest income (loss) after provision for loan losses
    
    
    (17,010
    )
    
    
    29,489
    
    
    
    7,011
    
    
    
    58,235Non-interest income:Real estate investment partnership revenue
    
    
    
    
    
    
    2,428
    
    
    
    
    
    
    
    7,154Loan servicing income
    
    
    1,414
    
    
    
    1,375
    
    
    
    2,614
    
    
    
    2,855Credit enhancement income
    
    
    479
    
    
    
    424
    
    
    
    896
    
    
    
    845Service charges on deposits
    
    
    4,134
    
    
    
    3,148
    
    
    
    7,993
    
    
    
    6,239Investment and insurance commissions
    
    
    1,073
    
    
    
    1,058
    
    
    
    2,254
    
    
    
    2,040Net gain on sale of loans
    
    
    808
    
    
    
    814
    
    
    
    3,051
    
    
    
    2,401Net gain (loss) on sale or impairment of investments and
mortgage-related securities
    
    
    (1,902
    )
    
    
    3
    
    
    
    (1,902
    )
    
    
    15Other revenue from real estate partnership operations
    
    
    1,032
    
    
    
    992
    
    
    
    2,505
    
    
    
    2,215Other
    
    
    1,209
    
    
    
    696
    
    
    
    2,645
    
    
    
    1,814Total non-interest income
    
    
    8,247
    
    
    
    10,938
    
    
    
    20,056
    
    
    
    25,578
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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
Consolidated Statements of Income
 Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In Thousands, Except Per Share Data)Non-interest expense:Compensation
    
    $
    14,665
    
    
    $
    11,301
    
    
    $
    27,972
    
    
    $
    22,571Real estate investment partnership cost of sales
    
    
    
    
    
    
    2,669
    
    
    
    
    
    
    
    7,009Occupancy
    
    
    2,557
    
    
    
    1,937
    
    
    
    4,973
    
    
    
    3,874Furniture and equipment
    
    
    2,067
    
    
    
    1,543
    
    
    
    4,193
    
    
    
    3,024Data processing
    
    
    1,823
    
    
    
    1,520
    
    
    
    3,635
    
    
    
    3,007Marketing
    
    
    741
    
    
    
    1,086
    
    
    
    1,327
    
    
    
    2,170Other expenses from real estate partnership operations
    
    
    1,724
    
    
    
    1,797
    
    
    
    3,915
    
    
    
    3,882Net expense (income)  REO operations
    
    
    1,952
    
    
    
    227
    
    
    
    2,141
    
    
    
    429Other
    
    
    4,638
    
    
    
    3,248
    
    
    
    8,802
    
    
    
    6,249Total non-interest expense
    
    
    30,167
    
    
    
    25,328
    
    
    
    56,958
    
    
    
    52,215Minority interest in loss of consolidated real estate
partnerships
    
    
    (13
    )
    
    
    (203
    )
    
    
    (52
    )
    
    
    (278
    )Income (loss) before income taxes
    
    
    (38,917
    )
    
    
    15,302
    
    
    
    (29,839
    )
    
    
    31,876Income taxes
    
    
    (15,618
    )
    
    
    6,028
    
    
    
    (12,052
    )
    
    
    12,716Net income (loss)
    
    $
    (23,299
    )
    
    $
    9,274
    
    
    $
    (17,787
    )
    
    $
    19,160Comprehensive income (loss)
    
    $
    (24,048
    )
    
    $
    11,415
    
    
    $
    (23,435
    )
    
    $
    19,409Earnings per share:Basic
    
    $
    (1.11
    )
    
    $
    0.44
    
    
    $
    (0.85
    )
    
    $
    0.91Diluted
    
    
    (1.11
    )
    
    
    0.44
    
    
    
    (0.85
    )
    
    
    0.91Dividends declared per share
    
    
    0.10
    
    
    
    0.18
    
    
    
    0.28
    
    
    
    0.35
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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 Six Months Ended September 30,2008
    
    
    2007(In Thousands)Operating ActivitiesNet income (Loss)
    
    $
    (17,787
    )
    
    $
    19,160Adjustments to reconcile net income to net
cash provided by operating activities:Provision for loan losses
    
    
    56,364
    
    
    
    4,366Provision for depreciation and amortization
    
    
    2,631
    
    
    
    2,067Cash paid due to origination of loans held for sale
    
    
    (268,929
    )
    
    
    (209,170
    )Cash received due to sale of loans held for sale
    
    
    277,550
    
    
    
    210,642Net gain on sales of loans
    
    
    (3,051
    )
    
    
    (2,401
    )Net loss (gain) on sale or impairment of
investments and mortgage related securities
    
    
    1,902
    
    
    
    (15
    )Decrease (increase) in accrued interest receivable
    
    
    3,881
    
    
    
    (1,940
    )(Increase) decrease in other assets
    
    
    (29,777
    )
    
    
    (5,991
    )(Decrease) increase in accrued interest payable
    
    
    (9,735
    )
    
    
    2,084Decrease in other payable
    
    
    (4,660
    )
    
    
    122Other
    
    
    6,526
    
    
    
    (3,361
    )Net cash provided by operating activities
    
    
    14,915
    
    
    
    15,563Investing ActivitiesProceeds from sales of investment securities available for sale
    
    
    23,690
    
    
    
    9,867Proceeds from maturities of investment securities
    
    
    
    
    
    
    56,507Purchase of investment securities available for sale
    
    
    (52,744
    )
    
    
    (113,979
    )Purchase of mortgage-related securities available for sale
    
    
    (42,602
    )
    
    
    (25,106
    )Principal collected on mortgage-related securities
    
    
    30,865
    
    
    
    30,749FHLB Stock Redemption
    
    
    
    
    
    
    FHLB Stock Purchase
    
    
    
    
    
    
    (6,040
    )Net decrease (increase) in loans held for investment
    
    
    45,569
    
    
    
    (73,332
    )Purchases of office properties and equipment
    
    
    (1,721
    )
    
    
    (1,652
    )Sales of office properties and equipment
    
    
    79
    
    
    
    39Proceeds from sale of foreclosed properties
    
    
    6,621
    
    
    
    Investment in real estate held for development and sale
    
    
    (1,605
    )
    
    
    2,072Net cash provided by (used in) investing activities
    
    
    8,152
    
    
    
    (120,875
    )
 5




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Contd)
 Six Months Ended September 30,2008
    
    
    2007(In Thousands)Financing Activities(Decrease) increase in deposit accounts
    
    $
    (193,814
    )
    
    $
    170,160Increase in advance payments by borrowers
for taxes and insurance
    
    
    10,592
    
    
    
    11,569Increase in short-term borrowings
    
    
    64,235
    
    
    
    107,175Proceeds from long-term borrowings
    
    
    107,082
    
    
    
    7,297Repayment of long-term borrowings
    
    
    (167,500
    )
    
    
    (101,319
    )Treasury stock purchased
    
    
    
    
    
    
    (5,740
    )Exercise of stock options
    
    
    1,485
    
    
    
    996Cash received from employee stock purchase plan
    
    
    238
    
    
    
    (8
    )Tax benefit from stock related compensation
    
    
    (12
    )
    
    
    766Payments of cash dividends to stockholders
    
    
    (5,891
    )
    
    
    (7,092
    )Net cash provided by (used in) financing activities
    
    
    (183,585
    )
    
    
    183,804Net decrease in cash and cash equivalents
    
    
    (160,518
    )
    
    
    (32,019
    )Cash and cash equivalents at beginning of period
    
    
    257,743
    
    
    
    152,544Cash and cash equivalents at end of period
    
    $
    97,225
    
    
    $
    120,525Supplementary cash flow information:Cash paid or credited to accounts:Interest on deposits and borrowings
    
    $
    80,856
    
    
    $
    73,029Income taxes
    
    
    9,155
    
    
    
    17,890Non-cash transactions:Transfer of loans to foreclosed properties
    
    
    28,480
    
    
    
    
  6




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##### Table of Contents



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




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##### Table of Contents



Note 3  Business Combination
   Unaudited Pro Forma Condensed Combined Financial Information
  Three Months
    
    
    Six MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2007Net interest income after provision for loan losses
    
    $
    33,778
    
    
    $
    66,883Non-interest income
    
    
    12,097
    
    
    
    28,042Non-interest expense
    
    
    29,073
    
    
    
    59,785Minority interest in loss of real estate partnership operations
    
    
    (203
    )
    
    
    (278
    )Income before taxes
    
    
    17,005
    
    
    
    35,418Income taxes
    
    
    6,625
    
    
    
    13,903Net income
    
    $
    10,380
    
    
    $
    21,515Per common share informationEarnings
    
    
    0.50
    
    
    
    1.02Diluted earnings
    
    
    0.49
    
    
    
    1.02Average common shares issued and outstanding
    
    
    20,879,592
    
    
    
    21,001,210Average diluted common shares outstanding
    
    
    21,000,576
    
    
    
    21,159,568
 Note 4  Stock-Based Compensation
   8




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##### Table of Contents



Six Months Ended September 30, 2008WeightedAverageOptions
    
    
    PriceOutstanding at beginning of period
    
    
    752,397
    
    
    $
    20.43Granted
    
    
    
    
    
    
    Exercised
    
    
    (96,870
    )
    
    
    15.34Forfeited
    
    
    (114,357
    )
    
    
    19.83Outstanding at end of period
    
    
    541,170
    
    
    $
    21.47Options exercisable at September 30, 2008
    
    
    541,170
    
    
    $
    21.47
  Options Outstanding
    
    Exercisable OptionsWeighted-AverageRemaining
    
    Weighted-
    
    
    
    
    
    Weighted-Contractual
    
    Average
    
    
    
    
    
    AverageRange of Exercise Prices
    
    Shares
    
    Life (Years)
    
    Exercise Price
    
    Shares
    
    Exercise Price$15.06  $18.81
    
    
    189,830
    
    
    
    2.25
    
    
    $
    15.77
    
    
    
    189,830
    
    
    $
    15.77$22.07  $23.77
    
    
    275,250
    
    
    
    4.26
    
    
    
    23.05
    
    
    
    275,250
    
    
    
    23.05$28.50  $31.95
    
    
    76,090
    
    
    
    6.44
    
    
    
    29.99
    
    
    
    76,090
    
    
    
    29.99541,170
    
    
    
    3.86
    
    
    
    21.47
    
    
    
    541,170
    
    
    
    21.47
   Six Months Ended September 30, 2008WeightedAverageOptions
    
    
    PriceBalance at beginning of period
    
    
    78,800
    
    
    $
    26.32Restricted stock granted
    
    
    22,500
    
    
    
    7.32Restricted stock vested
    
    
    (2,500
    )
    
    
    31.95Restricted stock forfeited
    
    
    
    
    
    
    Balance at end of period
    
    
    98,800
    
    
    $
    21.85
  9




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##### Table of Contents



Note 5  Loans Receivable
  September 30,
    
    
    March 31,2008
    
    
    2008First mortgage loans:Single-family residential
    
    $
    879,591
    
    
    $
    893,001Multi-family residential
    
    
    663,003
    
    
    
    694,423Commercial real estate
    
    
    1,025,330
    
    
    
    1,088,004Construction
    
    
    354,003
    
    
    
    402,395Land
    
    
    283,391
    
    
    
    306,3633,205,318
    
    
    
    3,384,186Second mortgage loans
    
    
    369,192
    
    
    
    356,009Education loans
    
    
    318,076
    
    
    
    275,850Commercial business loans and leases
    
    
    258,455
    
    
    
    277,312Credit card and other consumer loans
    
    
    89,376
    
    
    
    95,1494,240,417
    
    
    
    4,388,506Contras to loans:Undisbursed loan proceeds*
    
    
    (101,186
    )
    
    
    (141,219
    )Allowance for loan losses
    
    
    (64,614
    )
    
    
    (38,285
    )Unearned loan fees
    
    
    (5,220
    )
    
    
    (6,075
    )Net discount on loans purchased
    
    
    (10
    )
    
    
    (11
    )Unearned interest
    
    
    (18
    )
    
    
    (83
    )(171,048
    )
    
    
    (185,673
    )$
    4,069,369
    
    
    $
    4,202,833
 
 *
    
    Undisbursed loan proceeds are funds to be disbursed upon an authorized draw request.  Three Months Ended September 30,
    
    
    Six Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars In Thousands)
    
    
    (Dollars In Thousands)Allowance at beginning of period
    
    $
    40,265
    
    
    $
    22,220
    
    
    $
    38,285
    
    
    $
    20,517Provision
    
    
    46,964
    
    
    
    2,095
    
    
    
    56,364
    
    
    
    4,366Charge-offs
    
    
    (23,556
    )
    
    
    (2,457
    )
    
    
    (30,982
    )
    
    
    (3,116
    )Recoveries
    
    
    941
    
    
    
    144
    
    
    
    947
    
    
    
    235Allowance at end of period
    
    $
    64,614
    
    
    $
    22,002
    
    
    $
    64,614
    
    
    $
    22,002
  10




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##### Table of Contents



At September 30,
    
    
    At March 31,2008
    
    
    2008
    
    
    2007
    
    
    2006(In Thousands)Impaired loans with valuation
reserve required
    
    $
    50,298
    
    
    $
    52,866
    
    
    $
    2,130
    
    
    $
    6,381Impaired loans without a
specific reserve
    
    
    104,744
    
    
    
    51,192
    
    
    
    45,718
    
    
    
    9,107Total impaired loans
    
    
    155,042
    
    
    
    104,058
    
    
    
    47,848
    
    
    
    15,488Less:Specific valuation allowance
    
    
    (16,915
    )
    
    
    (17,639
    )
    
    
    (517
    )
    
    
    (3,111
    )$
    138,127
    
    
    $
    86,419
    
    
    $
    47,331
    
    
    $
    12,377Average impaired loans, net
    
    $
    91,174
    
    
    $
    61,931
    
    
    $
    24,620
    
    
    $
    9,010Interest income recognized
on impaired loans
    
    $
    805
    
    
    $
    107
    
    
    $
    44
    
    
    $
    208Interest income recognized on a cash basis
on impaired loans
    
    $
    805
    
    
    $
    107
    
    
    $
    44
    
    
    $
    208Loans on nonaccrual status
    
    $
    139,350
    
    
    $
    101,241
    
    
    $
    47,040
    
    
    $
    13,529Loans past due ninety days or more and
still accruing
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Performing troubled debt restructurings
    
    $
    400
    
    
    $
    400
    
    
    $
    400
    
    
    $
    
 Note 6  Goodwill and Other Intangible Assets
    11




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##### Table of Contents



September 30,
    
    
    March 31,2008
    
    
    2008(In Thousands)Balance at beginning of period
    
    $
    5,359
    
    
    $
    Other intangibles from business combination
    
    
    
    
    
    
    5,517Amortization expense
    
    
    (317
    )
    
    
    (158
    )Balance at end of period
    
    $
    5,042
    
    
    $
    5,359Gross carrying amount
    
    $
    5,517
    
    
    $
    5,517Accumulated amortization
    
    
    (475
    )
    
    
    (158
    )Net book value
    
    $
    5,042
    
    
    $
    5,359
       12




---



##### Table of Contents



Residential
    
    
    Other(In Thousands)Mortgage servicing rights as of March 31, 2007
    
    $
    6,364
    
    
    $
    1,047Acquired servicing rights of S & C Bank at market value
    
    
    1,632
    
    
    
    Additions
    
    
    5,822
    
    
    
    629Amortization
    
    
    (1,985
    )
    
    
    (333
    )Reclassification
    
    
    (135
    )
    
    
    135Mortgage servicing rights before valuation allowance
at end of period
    
    
    11,698
    
    
    
    1,478Valuation allowance
    
    
    
    
    
    
    Net mortgage servicing rights as of March 31, 2008
    
    $
    11,698
    
    
    $
    1,478Fair market value at the end of the period
    
    $
    13,764
    
    
    $
    2,040Key assumptions:Weighted average discount
    
    
    11.04
    %
    
    
    20.12
    %Weighted average prepayment speed assumption
    
    
    16.82
    %
    
    
    13.15
    %Mortgage servicing rights as of March 31, 2008
    
    $
    11,698
    
    
    $
    1,478Additions
    
    
    2,943
    
    
    
    82Amortization
    
    
    (1,208
    )
    
    
    (171
    )Mortgage servicing rights before valuation allowance
at end of period
    
    
    13,433
    
    
    
    1,389Valuation allowance
    
    
    
    
    
    
    Net mortgage servicing rights as of September 30, 2008
    
    $
    13,433
    
    
    $
    1,389Fair market value at the end of the period
    
    $
    16,552
    
    
    $
    2,042Key assumptions:Weighted average discount
    
    
    12.84
    %
    
    
    9.73
    %Weighted average prepayment speed assumption
    
    
    12.08
    %
    
    
    11.75
    %
  13




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##### Table of Contents



Residential
    
    
    Other
    
    
    CoreMortgage
    
    
    Mortgage
    
    
    DepositServicing Rights
    
    
    Servicing Rights
    
    
    Premium
    
    
    Total(In Thousands)Quarter ended September 30, 2008 (actual)
    
    $
    526
    
    
    $
    69
    
    
    $
    158
    
    
    $
    753Estimate for the year ended March 31,2009
    
    $
    2,416
    
    
    $
    342
    
    
    $
    634
    
    
    $
    3,3922010
    
    
    2,416
    
    
    
    342
    
    
    
    634
    
    
    
    3,3922011
    
    
    2,416
    
    
    
    342
    
    
    
    634
    
    
    
    3,3922012
    
    
    2,416
    
    
    
    342
    
    
    
    634
    
    
    
    3,392Thereafter
    
    
    3,769
    
    
    
    21
    
    
    
    2,506
    
    
    
    6,296$
    13,433
    
    
    $
    1,389
    
    
    $
    5,042
    
    
    $
    19,864
 Note 7  Recent Accounting Pronouncements
 Business Combinations .
 
    
    acquisition costs will be generally expensed as incurred;
    
    noncontrolling interests (formerly known as minority interests) will be valued at fair
value at the acquisition date;
    
    acquired contingent liabilities will be recorded at fair value at the acquisition date
and subsequently measured at either the higher of such amount or the amount determined
under existing guidance for non-acquired contingencies;
    
    the acquirer shall not recognize a separate valuation allowance as of the acquisition
date for assets acquired in a business that are measured at their acquisition-date fair
value;
    
    restructuring costs associated with a business combination will be generally expensed
subsequent to the acquisition date; and
    
    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 .
 14




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##### Table of Contents



Note 8  Stockholders Equity
    Note 9  Earnings Per Share
  15




---



##### Table of Contents



Three Months Ended September 30,2008
    
    
    2007Numerator:Net income
    
    $
    (23,298,383
    )
    
    $
    9,274,128Numerator for basic and diluted earnings
per shareincome available to common
stockholders
    
    $
    (23,298,383
    )
    
    $
    9,274,128Denominator:Denominator for basic earnings per
shareweighted-average shares
    
    
    20,985,181
    
    
    
    20,879,592Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    120,984Management Recognition Plans
    
    
    
    
    
    
    Denominator for diluted earnings per
shareadjusted weighted-average
shares and assumed conversions
    
    
    20,985,181
    
    
    
    21,000,576Basic earnings per share
    
    $
    (1.11
    )
    
    $
    0.44Diluted earnings per share
    
    $
    (1.11
    )
    
    $
    0.44
 Six Months Ended September 30,2008
    
    
    2007Numerator:Net income
    
    $
    (17,786,870
    )
    
    $
    19,159,761Numerator for basic and diluted earnings
per shareincome available to common
stockholders
    
    $
    (17,786,870
    )
    
    $
    19,159,761Denominator:Denominator for basic earnings per
shareweighted-average shares
    
    
    20,956,822
    
    
    
    21,001,210Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    158,358Management Recognition Plans
    
    
    
    
    
    
    Denominator for diluted earnings per
shareadjusted weighted-average
shares and assumed conversions
    
    
    20,956,822
    
    
    
    21,159,568Basic earnings per share
    
    $
    (0.85
    )
    
    $
    0.91Diluted earnings per share
    
    $
    (0.85
    )
    
    $
    0.91
  16




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##### Table of Contents



Note 10  Segment Information
  Community Banking:
 Real Estate Investments:
   17




---



##### Table of Contents



Three Months Ended September 30, 2008(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    34
    
    
    $
    64,267
    
    
    $
    (313
    )
    
    $
    63,988Interest expense
    
    
    291
    
    
    
    34,056
    
    
    
    (313
    )
    
    
    34,034Net interest income (loss)
    
    
    (257
    )
    
    
    30,211
    
    
    
    
    
    
    
    29,954Provision for loan losses
    
    
    
    
    
    
    46,964
    
    
    
    
    
    
    
    46,964Net interest loss after provision for loan losses
    
    
    (257
    )
    
    
    (16,753
    )
    
    
    
    
    
    
    (17,010
    )Real estate investment partnership revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other revenue from real estate operations
    
    
    1,032
    
    
    
    
    
    
    
    
    
    
    
    1,032Other income
    
    
    
    
    
    
    7,245
    
    
    
    (30
    )
    
    
    7,215Real estate investment partnership cost of sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other expense from real estate partnership operations
    
    
    (1,754
    )
    
    
    
    
    
    
    30
    
    
    
    (1,724
    )Minority interest in loss of real estate partnerships
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    13Other expense
    
    
    
    
    
    
    (28,443
    )
    
    
    
    
    
    
    (28,443
    )Loss before income taxes
    
    
    (966
    )
    
    
    (37,951
    )
    
    
    
    
    
    
    (38,917
    )Income tax benefit
    
    
    (375
    )
    
    
    (15,243
    )
    
    
    
    
    
    
    (15,618
    )Net loss
    
    $
    (591
    )
    
    $
    (22,708
    )
    
    $
    
    
    
    $
    (23,299
    )Total assets at end of period
    
    $
    71,390
    
    
    $
    4,856,684
    
    
    $
    
    
    
    $
    4,928,074Goodwill
    
    $
    
    
    
    $
    72,181
    
    
    $
    
    
    
    $
    72,181
 Three Months Ended September 30, 2007(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    106
    
    
    $
    75,133
    
    
    $
    (516
    )
    
    $
    74,723Interest expense
    
    
    464
    
    
    
    43,191
    
    
    
    (516
    )
    
    
    43,139Net interest income (loss)
    
    
    (358
    )
    
    
    31,942
    
    
    
    
    
    
    
    31,584Provision for loan losses
    
    
    
    
    
    
    2,095
    
    
    
    
    
    
    
    2,095Net interest income (loss) after provision for loan losses
    
    
    (358
    )
    
    
    29,847
    
    
    
    
    
    
    
    29,489Real estate investment partnership revenue
    
    
    2,428
    
    
    
    
    
    
    
    
    
    
    
    2,428Other revenue from real estate operations
    
    
    992
    
    
    
    
    
    
    
    
    
    
    
    992Other income
    
    
    
    
    
    
    7,548
    
    
    
    (30
    )
    
    
    7,518Real estate investment partnership cost of sales
    
    
    (2,669
    )
    
    
    
    
    
    
    
    
    
    
    (2,669
    )Other expense from real estate partnership operations
    
    
    (1,827
    )
    
    
    
    
    
    
    30
    
    
    
    (1,797
    )Minority interest in loss of real estate partnerships
    
    
    203
    
    
    
    
    
    
    
    
    
    
    
    203Other expense
    
    
    
    
    
    
    (20,862
    )
    
    
    
    
    
    
    (20,862
    )Income (loss) before income taxes
    
    
    (1,231
    )
    
    
    16,533
    
    
    
    
    
    
    
    15,302Income tax expense (benefit)
    
    
    (576
    )
    
    
    6,604
    
    
    
    
    
    
    
    6,028Net income (loss)
    
    $
    (655
    )
    
    $
    9,929
    
    
    $
    
    
    
    $
    9,274Total assets at end of period
    
    $
    71,333
    
    
    $
    4,540,193
    
    
    $
    
    
    
    $
    4,611,526Goodwill
    
    $
    
    
    
    $
    19,956
    
    
    $
    
    
    
    $
    19,956
 18




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##### Table of Contents



Six Months Ended September 30, 2008(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    61
    
    
    $
    135,087
    
    
    $
    (652
    )
    
    $
    134,496Interest expense
    
    
    602
    
    
    
    71,171
    
    
    
    (652
    )
    
    
    71,121Net interest income (loss)
    
    
    (541
    )
    
    
    63,916
    
    
    
    
    
    
    
    63,375Provision for loan losses
    
    
    
    
    
    
    56,364
    
    
    
    
    
    
    
    56,364Net interest income (loss) after provision for loan losses
    
    
    (541
    )
    
    
    7,552
    
    
    
    
    
    
    
    7,011Real estate investment partnership revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other revenue from real estate operations
    
    
    2,505
    
    
    
    
    
    
    
    
    
    
    
    2,505Other income
    
    
    
    
    
    
    17,610
    
    
    
    (59
    )
    
    
    17,551Real estate investment partnership cost of sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other expense from real estate partnership operations
    
    
    (3,974
    )
    
    
    
    
    
    
    59
    
    
    
    (3,915
    )Minority interest in loss of real estate partnerships
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    52Other expense
    
    
    
    
    
    
    (53,043
    )
    
    
    
    
    
    
    (53,043
    )Income (loss) before income taxes
    
    
    (1,958
    )
    
    
    (27,881
    )
    
    
    
    
    
    
    (29,839
    )Income tax (benefit) expense
    
    
    (739
    )
    
    
    (11,313
    )
    
    
    
    
    
    
    (12,052
    )Net income (loss)
    
    $
    (1,219
    )
    
    $
    (16,568
    )
    
    $
    
    
    
    $
    (17,787
    )Total assets at end of period
    
    $
    71,390
    
    
    $
    4,856,684
    
    
    $
    
    
    
    $
    4,928,074Goodwill
    
    $
    
    
    
    $
    72,181
    
    
    $
    
    
    
    $
    72,181
 Six Months Ended September 30, 2007(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    191
    
    
    $
    148,191
    
    
    $
    (1,012
    )
    
    $
    147,370Interest expense
    
    
    912
    
    
    
    84,869
    
    
    
    (1,012
    )
    
    
    84,769Net interest income (loss)
    
    
    (721
    )
    
    
    63,322
    
    
    
    
    
    
    
    62,601Provision for loan losses
    
    
    
    
    
    
    4,366
    
    
    
    
    
    
    
    4,366Net interest income (loss) after provision for loan losses
    
    
    (721
    )
    
    
    58,956
    
    
    
    
    
    
    
    58,235Real estate investment partnership revenue
    
    
    7,154
    
    
    
    
    
    
    
    
    
    
    
    7,154Other revenue from real estate operations
    
    
    2,215
    
    
    
    
    
    
    
    
    
    
    
    2,215Other income
    
    
    
    
    
    
    16,269
    
    
    
    (60
    )
    
    
    16,209Real estate investment partnership cost of sales
    
    
    (7,009
    )
    
    
    
    
    
    
    
    
    
    
    (7,009
    )Other expense from real estate partnership operations
    
    
    (3,942
    )
    
    
    
    
    
    
    60
    
    
    
    (3,882
    )Minority interest in loss of real estate partnerships
    
    
    278
    
    
    
    
    
    
    
    
    
    
    
    278Other expense
    
    
    
    
    
    
    (41,324
    )
    
    
    
    
    
    
    (41,324
    )Income (loss) before income taxes
    
    
    (2,025
    )
    
    
    33,901
    
    
    
    
    
    
    
    31,876Income tax expense (benefit)
    
    
    (809
    )
    
    
    13,525
    
    
    
    
    
    
    
    12,716Net income (loss)
    
    $
    (1,216
    )
    
    $
    20,376
    
    
    $
    
    
    
    $
    19,160Total assets at end of period
    
    $
    71,333
    
    
    $
    4,540,193
    
    
    $
    
    
    
    $
    4,611,526Goodwill
    
    $
    
    
    
    $
    19,956
    
    
    $
    
    
    
    $
    19,956
 19




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##### Table of Contents



Note 11  Commitments and Contingent Liabilities
   September 30,
    
    March 31,2008
    
    2008Commitments to extend credit:
    
    $
    75,825
    
    
    $
    119,224Unused lines of credit:Home equity
    
    
    147,423
    
    
    
    136,458Credit cards
    
    
    39,969
    
    
    
    40,368Commercial
    
    
    125,623
    
    
    
    128,505Letters of credit
    
    
    32,702
    
    
    
    47,218Credit enhancement under the Federal
Home Loan Bank of Chicago Mortgage
Partnership Finance Program
    
    
    24,484
    
    
    
    23,698Real estate investment segment borrowing guarantees unfunded
    
    
    2,095
    
    
    
    3,277
     20




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##### Table of Contents



Note 12  Fair Value of Financial Instruments
   
    
    Level 1: Valuations for assets and liabilities traded in active exchange markets.
Valuations are obtained from readily available pricing sources for market transactions
involving identical assets or liabilities.
    
    Level 2: Valuations for assets and liabilities traded in less active dealer or broker
markets. Valuations are obtained from third party pricing services for identical or similar
assets or liabilities.
    
    Level 3: Valuations for assets and liabilities that are derived from other valuation
methodologies, including option pricing models, discounted cash flow models and similar
techniques, and not based on market exchange, dealer or broker traded transactions. Level 3
valuations incorporate certain assumptions and projections in determining the fair value
assigned to such assets.
   Fair Value on a Recurring Basis
  21




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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
    
    $
    112,778
    
    
    $
    1,597
    
    
    $
    111,181
    
    
    $
    Mortgage-related securities available for sale
    
    
    273,766
    
    
    
    
    
    
    
    
    
    
    
    273,766
   Mortgage-Related SecuritiesAvailable for SaleBalance at beginning of quarter
    
    $
    Total gains (losses) (realized/unrealized)Included in earnings
    
    
    213Included in other comprehensive income
    
    
    (1,037
    )Purchases
    
    
    18,434Principal repayments
    
    
    (13,886
    )Transfers in and/or out of level 3
    
    
    270,042Balance at end of quarter
    
    $
    273,766
  Fair Value on a Nonrecurring Basis
  Fair Value Measurements UsingQuoted Pricesin Active
    
    Significant Other
    
    SignificantMarkets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsTotal
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Impaired loans with specific valuation
allowance under SFAS 114
    
    $
    39,671
    
    
    $
    
    
    
    $
    
    
    
    $
    39,671Loans held for sale
    
    
    2,320
    
    
    
    
    
    
    
    2,320
    
    
    
    
  22




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##### Table of Contents



Note 13  Credit Agreement
   Note 14  Subsequent Events
  23




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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 $(1.11) for the quarter ended September 30, 2008
compared to $0.44 per share for the quarter ended September 30, 2007, primarily due to a
$44.9 million increase in the provision for loan losses as well as a $4.8 million increase
in non-interest expense;
    
    The interest rate spread decreased to 2.59% for the quarter ended September 30, 2008
compared to 2.77% for the quarter ended September 30, 2007;
    
    Loans receivable decreased $139.0 million, or 3.30%, since March 31, 2008;
    
    Deposits declined $190.7 million, or 5.39%, since March 31, 2008;
    
    Book value per share was $14.76 at September 30, 2008 compared to $16.17 at March 31,
2008 and $15.88 at September 30, 2007;
    
    Total non-performing assets (nonaccrual loans, loans past due more than ninety days and
other real estate) increased $59.6 million, or 54.4%, to $169.1 million at September 30,
2008 from $109.5 million at March 31, 2008, and total non-accrual loans increased $38.2
million, or 37.6% to $139.4 million at September 30, 2008 from $101.2 million at March 31,
2008; and
    
    Real estate investment partnership revenue declined $7.2 million from $7.2 million for
the six months ended September 30, 2007 to $0 for the six months ended September 30, 2008.
Real estate investment partnership cost of sales declined $7.0 million from $7.0 million to
$0 during the same respective periods. These decreases were due to the decline in the
number of sales at the real estate partnership level. Net loss from the real estate
investment segment remained steady at $1.2 million for the six months ended September 30,
2007 and 2008, respectively. The partnerships currently have approximately 43 single family
housing units and approximately 100 individual lots for sale. There were no sales of
partnership properties during the six months ended September 30, 2008. Management
anticipates continued lower sales activity for the remainder of the fiscal year.
 24




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##### Table of Contents



Three Months Ended(Dollars in thousands - except per share amounts)
    
    9/30/2008
    
    6/30/2008
    
    3/31/2008
    
    12/31/2007Operations Data:Net interest income
    
    $
    29,954
    
    
    $
    33,421
    
    
    $
    35,066
    
    
    $
    31,338Provision for loan losses
    
    
    46,964
    
    
    
    9,400
    
    
    
    10,393
    
    
    
    7,792Net gain on sale of loans
    
    
    808
    
    
    
    2,243
    
    
    
    2,984
    
    
    
    1,468Real estate investment partnership revenue
    
    
    
    
    
    
    
    
    
    
    457
    
    
    
    1,012Other non-interest income
    
    
    7,439
    
    
    
    9,566
    
    
    
    10,121
    
    
    
    9,430Real estate investment partnership cost of sales
    
    
    
    
    
    
    
    
    
    
    548
    
    
    
    932Other non-interest expense
    
    
    30,167
    
    
    
    26,791
    
    
    
    29,249
    
    
    
    24,180Minority interest in loss of
real estate partnership operations
    
    
    (13
    )
    
    
    (39
    )
    
    
    (43
    )
    
    
    (81
    )Income (loss) before income taxes
    
    
    (38,917
    )
    
    
    9,078
    
    
    
    8,481
    
    
    
    10,425Income taxes
    
    
    (15,618
    )
    
    
    3,566
    
    
    
    2,838
    
    
    
    4,096Net income (loss)
    
    
    (23,299
    )
    
    
    5,512
    
    
    
    5,643
    
    
    
    6,329Selected Financial Ratios(1):Yield on earning assets
    
    
    5.59
    %
    
    
    6.05
    %
    
    
    6.10
    %
    
    
    6.68
    %Cost of funds
    
    
    3.00
    
    
    
    3.22
    
    
    
    3.31
    
    
    
    4.01Interest rate spread
    
    
    2.59
    
    
    
    2.83
    
    
    
    2.79
    
    
    
    2.67Net interest margin
    
    
    2.62
    
    
    
    2.87
    
    
    
    2.84
    
    
    
    2.83Return on average assets
    
    
    (1.89
    )
    
    
    0.44
    
    
    
    0.43
    
    
    
    0.54Return on average equity
    
    
    (27.69
    )
    
    
    6.37
    
    
    
    6.56
    
    
    
    7.44Average equity to average assets
    
    
    6.84
    
    
    
    6.93
    
    
    
    6.55
    
    
    
    7.31Non-interest expense to average assets
    
    
    2.45
    
    
    
    2.15
    
    
    
    2.27
    
    
    
    2.16Per Share:Basic earnings per share
    
    $
    (1.11
    )
    
    $
    0.26
    
    
    $
    0.27
    
    
    $
    0.30Diluted earnings per share
    
    
    (1.11
    )
    
    
    0.26
    
    
    
    0.27
    
    
    
    0.30Dividends per share
    
    
    0.10
    
    
    
    0.18
    
    
    
    0.18
    
    
    
    0.18Book value per share
    
    
    14.76
    
    
    
    16.00
    
    
    
    16.17
    
    
    
    15.98Financial Condition:Total assets
    
    $
    4,928,074
    
    
    $
    4,949,335
    
    
    $
    5,149,557
    
    
    $
    4,725,773Loans receivable, netHeld for sale
    
    
    4,099
    
    
    
    6,619
    
    
    
    9,669
    
    
    
    6,170Held for investment
    
    
    4,069,369
    
    
    
    4,129,075
    
    
    
    4,202,833
    
    
    
    3,941,891Deposits
    
    
    3,349,335
    
    
    
    3,406,975
    
    
    
    3,539,994
    
    
    
    3,145,551Borrowings
    
    
    1,210,562
    
    
    
    1,147,329
    
    
    
    1,206,761
    
    
    
    1,150,914Stockholders equity
    
    
    317,501
    
    
    
    343,599
    
    
    
    345,116
    
    
    
    341,084Allowance for loan losses
    
    
    64,614
    
    
    
    40,265
    
    
    
    38,285
    
    
    
    28,761Non-performing assets
    
    
    169,062
    
    
    
    144,137
    
    
    
    109,488
    
    
    
    87,002
 
 (1)
    
    Annualized when appropriate. 25




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##### Table of Contents



Three Months Ended(Dollars in thousands - except per share amounts)
    
    9/30/2007
    
    6/30/2007
    
    3/31/2007
    
    12/31/2006Operations Data:Net interest income
    
    $
    31,584
    
    
    $
    31,017
    
    
    $
    29,834
    
    
    $
    32,529Provision for loan losses
    
    
    2,095
    
    
    
    2,271
    
    
    
    4,050
    
    
    
    3,375Net gain on sale of loans
    
    
    814
    
    
    
    1,587
    
    
    
    465
    
    
    
    776Real estate investment partnership revenue
    
    
    2,428
    
    
    
    4,726
    
    
    
    2,851
    
    
    
    8,009Other non-interest income
    
    
    7,696
    
    
    
    8,327
    
    
    
    8,205
    
    
    
    7,331Real estate investment partnership cost of sales
    
    
    2,669
    
    
    
    4,340
    
    
    
    3,153
    
    
    
    7,115Other non-interest expense
    
    
    22,659
    
    
    
    22,547
    
    
    
    21,410
    
    
    
    22,443Minority interest in loss of
real estate partnership operations
    
    
    (203
    )
    
    
    (75
    )
    
    
    (573
    )
    
    
    (31
    )Income before income taxes
    
    
    15,302
    
    
    
    16,574
    
    
    
    13,315
    
    
    
    15,743Income taxes
    
    
    6,028
    
    
    
    6,688
    
    
    
    5,086
    
    
    
    5,308Net income
    
    
    9,274
    
    
    
    9,886
    
    
    
    8,229
    
    
    
    10,435Selected Financial Ratios(1):Yield on earning assets
    
    
    6.90
    %
    
    
    6.80
    %
    
    
    6.73
    %
    
    
    6.81
    %Cost of funds
    
    
    4.13
    
    
    
    4.05
    
    
    
    4.08
    
    
    
    3.92Interest rate spread
    
    
    2.77
    
    
    
    2.75
    
    
    
    2.65
    
    
    
    2.89Net interest margin
    
    
    2.92
    
    
    
    2.90
    
    
    
    2.81
    
    
    
    3.05Return on average assets
    
    
    0.82
    
    
    
    0.88
    
    
    
    0.74
    
    
    
    0.93Return on average equity
    
    
    11.07
    
    
    
    11.77
    
    
    
    9.72
    
    
    
    12.51Average equity to average assets
    
    
    7.37
    
    
    
    7.49
    
    
    
    7.61
    
    
    
    7.45Non-interest expense to average assets
    
    
    2.23
    
    
    
    2.40
    
    
    
    2.21
    
    
    
    2.64Per Share:Basic earnings per share
    
    $
    0.44
    
    
    $
    0.47
    
    
    $
    0.39
    
    
    $
    0.49Diluted earnings per share
    
    
    0.44
    
    
    
    0.46
    
    
    
    0.38
    
    
    
    0.48Dividends per share
    
    
    0.18
    
    
    
    0.17
    
    
    
    0.17
    
    
    
    0.17Book value per share
    
    
    15.88
    
    
    
    15.54
    
    
    
    15.55
    
    
    
    15.45Financial Condition:Total assets
    
    $
    4,611,526
    
    
    $
    4,532,758
    
    
    $
    4,539,685
    
    
    $
    4,505,896Loans receivable, netHeld for sale
    
    
    5,403
    
    
    
    9,062
    
    
    
    4,474
    
    
    
    4,470Held for investment
    
    
    3,944,980
    
    
    
    3,890,053
    
    
    
    3,874,049
    
    
    
    3,834,381Deposits
    
    
    3,178,588
    
    
    
    3,248,964
    
    
    
    3,248,246
    
    
    
    3,240,540Borrowings
    
    
    1,039,540
    
    
    
    891,016
    
    
    
    900,477
    
    
    
    841,219Stockholders equity
    
    
    338,907
    
    
    
    331,593
    
    
    
    336,866
    
    
    
    336,522Allowance for loan losses
    
    
    22,002
    
    
    
    22,220
    
    
    
    20,517
    
    
    
    20,031Non-performing assets
    
    
    63,078
    
    
    
    53,180
    
    
    
    54,452
    
    
    
    39,484
 
 (1)
    
    Annualized when appropriate. 26




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##### Table of Contents



Significant Accounting Policies
  
    
    Declines in the fair value of held-to-maturity and available-for-sale securities below
their cost that are deemed to be other than temporary are reflected in earnings as realized
losses. In estimating other-than-temporary impairment losses, management considers many
factors which include: (1) the length of time and the extent to which the fair value has
been less than cost, (2) the financial condition and near-term prospects of the issuer, and
(3) the intent and ability of the Corporation to retain its investment in the issuer for a
period of time sufficient to allow for any anticipated recovery in fair value. If a
security has been impaired, and the impairment is deemed other-than-temporary and material,
a write down will occur in that quarter. If a loss is deemed to be other-than-temporary, it
is recognized as a realized loss in the consolidated statement of income with the security
assigned a new cost basis. 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 (ie, rated AA or above) at
the purchase date and therefore, do not fall within the scope of
EITF99-20.
    
    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.The allowance for loan losses is increased by the provision for loan losses charged to
expense and reduced by loans charged off, net of recoveries. Provisions for loan losses are
provided on both a specific and general basis. Specific allowances are provided for impaired
credits based on the methodologies prescribed in FASB Statement No.114. General valuation
allowances are based on a portfolio segmentation based on collateral type, purpose and risk
grading, with a further evaluation of various qualitative factors noted above.We incorporate our internal loss history to establish potential risk based on
collateral type securing each loan. As an additional comparison, we examine peer group banks
to determine the nature and scope of their losses. Finally, we closely examine each impaired
loan to individually assess the appropriate specific loan loss reserve for such credit.At least quarterly, we review the assumptions and formulas by which additions are made to
the specific and general valuation allowances for loan losses in an effort to refine such
allowance in light of the current status of the factors described above. The total loan
portfolio is thoroughly reviewed at least
quarterly for
 27




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##### Table of Contents



satisfactory levels of general and specific reserves together with impaired
loans to determine if write downs are necessary.Although we believe the levels of the allowance as of September 30, 2008 are adequate to
absorb probable losses in the loan portfolio, a continued decline in local economic
conditions, a continued increase in our non-performing assets or other similar factors could
result in increasing losses that cannot be reasonably estimated at this time.
    
    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 evaluates goodwill for impairment on at least an annual basis pursuant
to SFAS 142, Goodwill and Other Intangible Assets. The Corporation evaluates goodwill on an
annual basis unless there is reason to believe goodwill is impaired. The first step of the
impairment evaluation involves the determination of the fair value of each reporting unit
to which goodwill has been assigned. Goodwill is not impaired if the fair value of the
reporting unit exceeds its carrying value. The Corporation determined that none of its
goodwill was impaired as of December 31, 2007, which is the annual review date. At
September 30, 2008, the Corporations market capitalization was less than the total
shareholders equity, which is one factor that is considered when determining goodwill
impairment. If current market conditions persist, it is possible that we will have a
goodwill impairment charge against earnings in the next quarter.
 28




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##### Table of Contents



RESULTS OF OPERATIONS
 General.
 Net Interest Income.
    29




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##### Table of Contents



Provision for Loan Losses.
 Average Interest-Earning Assets, Average Interest-Bearing Liabilities and Interest Rate
Spread.
 30




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##### Table of Contents



Three Months Ended September 30,2008
    
    
    2007Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Cost (1)
    
    
    Balance
    
    
    Interest
    
    
    Cost (1)(Dollars In Thousands)Interest-Earning AssetsMortgage loans
    
    $
    3,111,614
    
    
    $
    44,830
    
    
    
    5.76
    %
    
    $
    3,027,068
    
    
    $
    52,658
    
    
    
    6.96
    %Consumer loans
    
    
    752,792
    
    
    
    10,966
    
    
    
    5.83
    
    
    
    650,225
    
    
    
    12,129
    
    
    
    7.46Commercial business loans
    
    
    260,596
    
    
    
    3,654
    
    
    
    5.61
    
    
    
    239,140
    
    
    
    4,927
    
    
    
    8.24Total loans receivable (2) (3)
    
    
    4,125,002
    
    
    
    59,450
    
    
    
    5.76
    
    
    
    3,916,433
    
    
    
    69,714
    
    
    
    7.12Mortgage-related securities (4)
    
    
    271,445
    
    
    
    3,687
    
    
    
    5.43
    
    
    
    241,394
    
    
    
    3,028
    
    
    
    5.02Investment securities (4)
    
    
    105,206
    
    
    
    780
    
    
    
    2.97
    
    
    
    94,020
    
    
    
    1,056
    
    
    
    4.49Interest-bearing deposits
    
    
    20,845
    
    
    
    71
    
    
    
    1.36
    
    
    
    37,592
    
    
    
    636
    
    
    
    6.77Federal Home Loan Bank stock
    
    
    54,829
    
    
    
    
    
    
    
    0.00
    
    
    
    44,271
    
    
    
    289
    
    
    
    2.61Total interest-earning assets
    
    
    4,577,327
    
    
    
    63,988
    
    
    
    5.59
    
    
    
    4,333,710
    
    
    
    74,723
    
    
    
    6.90Non-interest-earning assets
    
    
    343,151
    
    
    
    
    
    
    
    
    
    
    
    217,345Total assets
    
    $
    4,920,478
    
    
    
    
    
    
    
    
    
    
    $
    4,551,055Interest-Bearing LiabilitiesDemand deposits
    
    $
    1,064,336
    
    
    
    2,811
    
    
    
    1.06
    
    
    $
    958,627
    
    
    
    5,694
    
    
    
    2.38Regular passbook savings
    
    
    238,704
    
    
    
    283
    
    
    
    0.47
    
    
    
    195,910
    
    
    
    225
    
    
    
    0.46Certificates of deposit
    
    
    2,071,132
    
    
    
    20,804
    
    
    
    4.02
    
    
    
    2,048,115
    
    
    
    25,505
    
    
    
    4.98Total deposits
    
    
    3,374,172
    
    
    
    23,898
    
    
    
    2.83
    
    
    
    3,202,652
    
    
    
    31,424
    
    
    
    3.92Short-term borrowings
    
    
    282,013
    
    
    
    2,352
    
    
    
    3.34
    
    
    
    667,165
    
    
    
    8,474
    
    
    
    5.08Long-term borrowings
    
    
    888,579
    
    
    
    7,784
    
    
    
    3.50
    
    
    
    304,296
    
    
    
    3,241
    
    
    
    4.26Total interest-bearing liabilities
    
    
    4,544,764
    
    
    
    34,034
    
    
    
    3.00
    
    
    
    4,174,113
    
    
    
    43,139
    
    
    
    4.13Non-interest-bearing liabilities
    
    
    39,179
    
    
    
    
    
    
    
    
    
    
    
    41,701Total liabilities
    
    
    4,583,943
    
    
    
    
    
    
    
    
    
    
    
    4,215,814Stockholders equity
    
    
    336,535
    
    
    
    
    
    
    
    
    
    
    
    335,241Total liabilities and stockholders equity
    
    $
    4,920,478
    
    
    
    
    
    
    
    
    
    
    $
    4,551,055Net interest income/interest rate spread (5)
    
    
    
    
    
    $
    29,954
    
    
    
    2.59
    %
    
    
    
    
    
    $
    31,584
    
    
    
    2.77
    %Net interest-earning assets
    
    $
    32,563
    
    
    
    
    
    
    
    
    
    
    $
    159,597Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    2.62
    %
    
    
    
    
    
    
    
    
    
    
    2.92
    %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. 31




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##### Table of Contents



Six Months Ended September 30,2008
    
    
    2007Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Cost (1)
    
    
    Balance
    
    
    Interest
    
    
    Cost (1)(Dollars In Thousands)Interest-Earning AssetsMortgage loans
    
    $
    3,149,094
    
    
    $
    94,443
    
    
    
    6.00
    %
    
    $
    3,021,682
    
    
    $
    104,132
    
    
    
    6.89
    %Consumer loans
    
    
    740,819
    
    
    
    23,115
    
    
    
    6.24
    
    
    
    644,763
    
    
    
    23,916
    
    
    
    7.42Commercial business loans
    
    
    263,421
    
    
    
    7,603
    
    
    
    5.77
    
    
    
    235,489
    
    
    
    9,697
    
    
    
    8.24Total loans receivable (2) (3)
    
    
    4,153,334
    
    
    
    125,161
    
    
    
    6.03
    
    
    
    3,901,934
    
    
    
    137,745
    
    
    
    7.06Mortgage-related securities (4)
    
    
    272,768
    
    
    
    7,355
    
    
    
    5.39
    
    
    
    243,074
    
    
    
    6,034
    
    
    
    4.96Investment securities (4)
    
    
    97,315
    
    
    
    1,581
    
    
    
    3.25
    
    
    
    85,271
    
    
    
    1,988
    
    
    
    4.66Interest-bearing deposits
    
    
    41,380
    
    
    
    399
    
    
    
    1.93
    
    
    
    32,156
    
    
    
    1,031
    
    
    
    6.41Federal Home Loan Bank stock
    
    
    54,829
    
    
    
    
    
    
    
    0.00
    
    
    
    42,824
    
    
    
    572
    
    
    
    2.67Total interest-earning assets
    
    
    4,619,626
    
    
    
    134,496
    
    
    
    5.82
    
    
    
    4,305,259
    
    
    
    147,370
    
    
    
    6.85Non-interest-earning assets
    
    
    336,863
    
    
    
    
    
    
    
    
    
    
    
    215,023Total assets
    
    $
    4,956,489
    
    
    
    
    
    
    
    
    
    
    $
    4,520,282Interest-Bearing LiabilitiesDemand deposits
    
    $
    1,080,116
    
    
    
    6,070
    
    
    
    1.12
    
    
    $
    949,536
    
    
    
    11,398
    
    
    
    2.40Regular passbook savings
    
    
    233,444
    
    
    
    549
    
    
    
    0.47
    
    
    
    194,776
    
    
    
    437
    
    
    
    0.45Certificates of deposit
    
    
    2,105,141
    
    
    
    44,121
    
    
    
    4.19
    
    
    
    2,078,707
    
    
    
    51,035
    
    
    
    4.91Total deposits
    
    
    3,418,701
    
    
    
    50,740
    
    
    
    2.97
    
    
    
    3,223,019
    
    
    
    62,870
    
    
    
    3.90Short-term borrowings
    
    
    238,445
    
    
    
    4,095
    
    
    
    3.43
    
    
    
    581,196
    
    
    
    15,132
    
    
    
    5.21Long-term borrowings
    
    
    918,732
    
    
    
    16,286
    
    
    
    3.55
    
    
    
    339,612
    
    
    
    6,767
    
    
    
    3.99Total interest-bearing liabilities
    
    
    4,575,878
    
    
    
    71,121
    
    
    
    3.11
    
    
    
    4,143,827
    
    
    
    84,769
    
    
    
    4.09Non-interest-bearing liabilities
    
    
    39,740
    
    
    
    
    
    
    
    
    
    
    
    40,206Total liabilities
    
    
    4,615,618
    
    
    
    
    
    
    
    
    
    
    
    4,184,033Stockholders equity
    
    
    340,871
    
    
    
    
    
    
    
    
    
    
    
    336,249Total liabilities and stockholders equity
    
    $
    4,956,489
    
    
    
    
    
    
    
    
    
    
    $
    4,520,282Net interest income/interest rate spread (5)
    
    
    
    
    
    $
    63,375
    
    
    
    2.71
    %
    
    
    
    
    
    $
    62,601
    
    
    
    2.76
    %Net interest-earning assets
    
    $
    43,748
    
    
    
    
    
    
    
    
    
    
    $
    161,432Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    2.74
    %
    
    
    
    
    
    
    
    
    
    
    2.91
    %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. 32




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##### Table of Contents



Non-Interest Income.
 Non-Interest Expense.
 Income Taxes.
    33




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##### Table of Contents



FINANCIAL CONDITION
            34




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##### Table of Contents



ASSET QUALITY
   At September 30,
    
    
    At March 31,2008
    
    
    2008
    
    
    2007
    
    
    2006(Dollars In Thousands)Non-accrual loans:Single-family residential
    
    $
    12,760
    
    
    $
    21,200
    
    
    $
    13,038
    
    
    $
    2,856Multi-family residential
    
    
    23,685
    
    
    
    18,393
    
    
    
    17,289
    
    
    
    4,214Commercial real estate
    
    
    33,530
    
    
    
    29,204
    
    
    
    12,030
    
    
    
    3,398Construction and land
    
    
    43,409
    
    
    
    14,888
    
    
    
    1,696
    
    
    
    Consumer
    
    
    3,579
    
    
    
    2,258
    
    
    
    705
    
    
    
    548Commercial business
    
    
    22,387
    
    
    
    15,298
    
    
    
    2,283
    
    
    
    2,513Total non-accrual loans
    
    
    139,350
    
    
    
    101,241
    
    
    
    47,041
    
    
    
    13,529Foreclosed properties and repossessed assets, net
    
    
    29,712
    
    
    
    8,247
    
    
    
    7,411
    
    
    
    2,192Total non-performing assets
    
    $
    169,062
    
    
    $
    109,488
    
    
    $
    54,452
    
    
    $
    15,721Performing troubled debt restructurings
    
    $
    400
    
    
    $
    400
    
    
    $
    400
    
    
    $
    Total non-accrual loans to total loans(1)
    
    
    3.29
    %
    
    
    2.31
    %
    
    
    1.16
    %
    
    
    0.35
    %Total non-performing assets to total assets
    
    
    3.43
    
    
    
    2.13
    
    
    
    1.20
    
    
    
    0.37Allowance for loan losses to total loans(1)
    
    
    1.52
    
    
    
    0.87
    
    
    
    0.50
    
    
    
    0.41Allowance for loan losses to total
non-accrual loans
    
    
    46.37
    
    
    
    37.82
    
    
    
    43.62
    
    
    
    115.09Allowance for loan and foreclosure losses
to total non-performing assets
    
    
    38.23
    
    
    
    34.98
    
    
    
    37.71
    
    
    
    100.48
 
 (1)
    
    Total loans are gross loans receivable before the reduction for
loans in process, unearned interest and loan fees and the
allowance for loan losses.  
    
    $14.1 million multi-family residential loan secured by a golf course and condominium
project located in central Wisconsin (5 loans)
    
    $8.1 million multi-family residential loan secured by a condo project located in central
Wisconsin (3 loans)
    
    $4.0 million commercial real estate loan secured by a retail center located in southern
Wisconsin
    
    $9.4 million construction and land loan secured by a condominium and retail complex in
southern Wisconsin
    
    $6.1 million construction and land loan secured by a condominium project located in
central Wisconsin
    
    $1.2 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
 35




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##### Table of Contents




    
    $4.7 million commercial business loan secured by a construction company located in
southern Wisconsin (2 loans)
  
    
    $1.3 million multi-family residential loan secured by duplexes and lots located in
southern Wisconsin
    
    $2.7 million multi-family residential loan secured by two multi-family properties in
central Wisconsin
    
    $1.1 million commercial real estate loan secured by a warehouse in northeast Wisconsin
    
    $3.0 million commercial real estate loan secured by a sports complex in southeast
Wisconsin
    
    $3.7 million construction and land development loan secured by condominiums in southeast
Wisconsin (2 loans)
    
    $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
  
    
    $1.3 million property secured by a condominium project in southern Wisconsin
    
    $4.0 million property secured by an apartment building located in Minnesota
    
    $8.3 million properties secured by several single family properties throughout Wisconsin
and Minnesota
  
    
    $3.3 million property secured by a condominium projected in southern Wisconsin
  
    
    $1.4 million loan secured by a commercial lot located in southeast Wisconsin
    
    $1.3 million loan secured by an office building located southern Wisconsin
    
    $7.9 million commercial loan secured by vacant land located in southern Wisconsin
  36




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##### Table of Contents



At September 30,
    
    
    At March 31,2008
    
    
    2008
    
    
    2007
    
    
    2006(In Thousands)Impaired loans with valuation
reserve required
    
    $
    50,298
    
    
    $
    52,866
    
    
    $
    2,130
    
    
    $
    6,381Impaired loans without a
specific reserve
    
    
    104,744
    
    
    
    51,192
    
    
    
    45,718
    
    
    
    9,107Total impaired loans
    
    
    155,042
    
    
    
    104,058
    
    
    
    47,848
    
    
    
    15,488Less:Specific valuation allowance
    
    
    (16,915
    )
    
    
    (17,639
    )
    
    
    (517
    )
    
    
    (3,111
    )$
    138,127
    
    
    $
    86,419
    
    
    $
    47,331
    
    
    $
    12,377Average impaired loans, net
    
    $
    91,174
    
    
    $
    61,931
    
    
    $
    24,620
    
    
    $
    9,010Interest income recognized
on impaired loans
    
    $
    805
    
    
    $
    107
    
    
    $
    44
    
    
    $
    208Interest income recognized on a cash basis
on impaired loans
    
    $
    805
    
    
    $
    107
    
    
    $
    44
    
    
    $
    208Loans on nonaccrual status
    
    $
    139,350
    
    
    $
    101,241
    
    
    $
    47,040
    
    
    $
    13,529Loans past due ninety days or more and
still accruing
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Performing troubled debt restructurings
    
    $
    400
    
    
    $
    400
    
    
    $
    400
    
    
    $
    
  At September 30,
    
    
    At March 31,2008
    
    
    2008
    
    
    2007
    
    
    2006(In Thousands)30 to 59 days
    
    $
    54,001
    
    
    $
    66,617
    
    
    $
    12,776
    
    
    $
    9,87460 to 89 days
    
    
    21,774
    
    
    
    12,928
    
    
    
    5,414
    
    
    
    733Total
    
    $
    75,775
    
    
    $
    79,545
    
    
    $
    18,190
    
    
    $
    10,607
   37




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars In Thousands)Allowance at beginning of period
    
    $
    40,265
    
    
    $
    22,220
    
    
    $
    38,285
    
    
    $
    20,517Charge-offs:Construction
    
    
    (1,023
    )
    
    
    
    
    
    
    (1,320
    )
    
    
    (32
    )Mortgage
    
    
    (10,549
    )
    
    
    (1,965
    )
    
    
    (15,468
    )
    
    
    (2,383
    )Consumer
    
    
    (214
    )
    
    
    (107
    )
    
    
    (480
    )
    
    
    (313
    )Commercial business
    
    
    (11,770
    )
    
    
    (385
    )
    
    
    (13,714
    )
    
    
    (388
    )Total charge-offs
    
    
    (23,556
    )
    
    
    (2,457
    )
    
    
    (30,982
    )
    
    
    (3,116
    )Recoveries:Mortgage
    
    
    590
    
    
    
    77
    
    
    
    590
    
    
    
    84Consumer
    
    
    4
    
    
    
    8
    
    
    
    10
    
    
    
    22Commercial business
    
    
    347
    
    
    
    59
    
    
    
    347
    
    
    
    129Total recoveries
    
    
    941
    
    
    
    144
    
    
    
    947
    
    
    
    235Net (charge-offs) recoveries
    
    
    (22,615
    )
    
    
    (2,313
    )
    
    
    (30,035
    )
    
    
    (2,881
    )Provision for loan losses
    
    
    46,964
    
    
    
    2,095
    
    
    
    56,364
    
    
    
    4,366Allowance at end of period
    
    $
    64,614
    
    
    $
    22,002
    
    
    $
    64,614
    
    
    $
    22,002Net charge-offs to average loans
    
    
    (2.19
    )%
    
    
    (0.24
    )%
    
    
    (1.45
    )%
    
    
    (0.15
    )%
  38




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LIQUIDITY AND CAPITAL RESOURCES
      Credit Agreement
   39




---



##### Table of Contents



Minimum RequiredMinimum Required
    
    to be WellFor Capital
    
    Capitalized UnderActual
    
    Adequacy Purposes
    
    OTS RequirementsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars In Thousands)At September 30, 2008:Tier 1 capital

(to adjusted tangible assets)
    
    $
    333,056
    
    
    
    6.95
    %
    
    $
    143,802
    
    
    
    3.00
    %
    
    $
    239,670
    
    
    
    5.00
    %Risk-based capital

(to risk-based assets)
    
    
    379,655
    
    
    
    10.23
    
    
    
    296,795
    
    
    
    8.00
    
    
    
    370,994
    
    
    
    10.00Tangible capital

(to tangible assets)
    
    
    333,056
    
    
    
    6.95
    
    
    
    71,901
    
    
    
    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
  September 30,
    
    
    March 31,2008
    
    
    2008(In Thousands)Stockholders equity of the Bank
    
    $
    407,164
    
    
    $
    432,382Less: Goodwill and intangible assets
    
    
    (77,223
    )
    
    
    (77,734
    )Accumulated other comprehensive income
    
    
    3,115
    
    
    
    (2,337
    )Tier 1 and tangible capital
    
    
    333,056
    
    
    
    352,311Plus: Allowable general valuation allowances
    
    
    46,599
    
    
    
    38,285Risk-based capital
    
    $
    379,655
    
    
    $
    390,596
 40




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##### Table of Contents



GUARANTEES
   Amount
    
    
    AmountSubsidiary
    
    Partnership
    
    Amount
    
    
    Outstanding
    
    
    Outstandingof IDI
    
    Entity
    
    Guaranteed
    
    
    at 9/30/08
    
    
    at 3/31/08(Dollars in thousands)Oakmont
    
    Chandler Creek
    
    $
    15,000
    
    
    $
    15,000
    
    
    $
    15,000Davsha III
    
    Indian Palms 147, LLC
    
    
    500
    
    
    
    448
    
    
    
    396Davsha V
    
    Villa Santa Rosa, LLC
    
    
    1,000
    
    
    
    900
    
    
    
    722Davsha VII
    
    La Vista Grande 121, LLC
    
    
    15,000
    
    
    
    13,057
    
    
    
    12,105Total
    
    
    
    $
    31,500
    
    
    $
    29,405
    
    
    $
    28,223
     41




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##### Table of Contents



ASSET/LIABILITY MANAGEMENT
     REGULATORY DEVELOPMENTS
  FORWARD-LOOKING STATEMENTS
  42




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##### Table of Contents



Item 3 Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4 Controls and Procedures.
  43




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##### Table of Contents



44




---



##### Table of Contents



Part II  Other Information
 
 Item 1 Legal Proceedings.
  
 Item 1A Risk Factors.
  Risks Related to Our Business
 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.
  45




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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.
   46




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##### Table of Contents



We must reduce the outstanding balance under the Credit Agreement to $60.0 million
prior to December 30, 2008 and pay all outstanding balances under the Credit
Agreement by December 31, 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.
     Risks Related to Recent Market, Legislative and Regulatory Events
 Unpredictable market conditions may adversely affect our customers and sources of
capital, which could impair our results of operations.
  47




---



##### Table of Contents



Current levels of market volatility are unprecedented and may impact our ability to
raise capital
  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.
   The creditworthiness of other financial institutions could adversely affect us.
  48




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##### Table of Contents



Item 2 Unregistered Sales of Equity Securities and Use of Proceeds.
   Total Number ofShares Purchased
    
    
    Maximum Number ofTotal Number
    
    
    Average
    
    
    as Part of Publicly
    
    
    Shares that May Yet Beof Shares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Purchased Under thePeriod
    
    Purchased
    
    
    per Share
    
    
    or Programs
    
    
    Plans or Programs (1)July 1 -July 31, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,572,160August 1 - August 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,572,160September 1 - September
30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,572,160Total
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    1,572,160
 
 (1)
    
    Effective November 3, 2006, the Board of Directors extended the current share repurchase
program of approximately 1.3 million shares of its outstanding common stock in the open market
for an additional year. In July 2007, the Board of Directors approved the repurchase of an
additional 5% of the Corporations common stock, representing approximately 1,068,000 of
outstanding shares and extended all previous share repurchase authorizations for a year. The
repurchases are authorized to be made from time to time in open-market and/or negotiated
transactions as, in the opinion of management, market conditions may warrant. The repurchased
shares will be held as treasury stock and will be available for general corporate purposes.
The Corporation utilizes various securities brokers as its agent for the stock repurchase
program. 
 Item 3 Defaults upon Senior Securities.
  
 Item 4 Submission of Matters to a Vote of Security Holders.
  
 Item 5 Other Information.
  49




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##### Table of Contents



Item 6 Exhibits.
  Exhibit 10.1
    
    Amendment No. 1 to Amended and Restated Credit Agreement, dated as of
September 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 September
30, 2008 (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.
 50




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##### Table of Contents



SIGNATURES
   Date: November 10, 2008
    By:
    /s/ Douglas J. TimmermanDouglas J. Timmerman, Chairman of theBoard, President and Chief Executive Officer Date:      November 10, 2008
    By:
    /s/ Dale C. RinggenbergDale C. Ringgenberg, Treasurer andChief Financial Officer 51