##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 COMMISSION FILE NUMBER 0-20006
 ANCHOR BANCORP WISCONSIN INC.
 (Exact name of registrant as specified in its charter)
 Wisconsin
    
    39-1726871(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer Identification No.)25 West Main StreetMadison, Wisconsin
    
    53703(Address of principal executive office)
    
    (Zip Code)
  Registrants telephone number, including area code
  (Former name, former address, and former fiscal year, if changed since last report)
  þ o
 o 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 June 30, 2009
and March 31, 2009
    
    
    2Consolidated Statements of Income for the Three
Months Ended June 30, 2009 and 2008
    
    
    3Consolidated Statements of Changes in Stockholders
Equity for the Three Months Ended June 30, 2009 and 2008
    
    
    5Consolidated Statements of Cash Flows for the Three Months
Ended June 30, 2009 and 2008
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    8Item 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    38Results of Operations
    
    
    43Financial Condition
    
    
    47Asset Quality
    
    
    49Liquidity & Capital Resources
    
    
    53Guarantees
    
    
    55Asset/Liability Management
    
    
    56Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    60Item 4 Controls and Procedures
    
    
    60Part II  Other InformationItem 1 Legal Proceedings
    
    
    63Item 1A Risk Factors
    
    
    63Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    70Item 3 Defaults upon Senior Securities
    
    
    71Item 4 Submission of Matters to a Vote of Security Holders
    
    
    71Item 5 Other Information
    
    
    71Item 6 Exhibits
    
    
    72Signatures
    
    
    73EX-31.1EX-31.2EX-32.1EX-32.2
  1




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
 June 30,
    
    
    March 31,2009
    
    
    2009(In Thousands, Except Share Data)AssetsCash
    
    $
    63,850
    
    
    $
    59,654Interest-bearing deposits
    
    
    580,452
    
    
    
    374,172Cash and cash equivalents
    
    
    644,302
    
    
    
    433,826Investment securities available for sale
    
    
    51,294
    
    
    
    77,684Mortgage-related securities available for sale
    
    
    493,313
    
    
    
    407,301Mortgage-related securities held to maturity (fair value of $48
and $50, respectively)
    
    
    47
    
    
    
    50Loans, less allowance for loan losses of $141,378 at June 30, 2009
and $137,165 at March 31, 2009:Held for sale
    
    
    115,340
    
    
    
    161,964Held for investment
    
    
    3,692,708
    
    
    
    3,896,439Foreclosed properties and repossessed assets, net
    
    
    53,014
    
    
    
    52,563Real estate held for development and sale
    
    
    16,205
    
    
    
    16,120Office properties and equipment
    
    
    48,008
    
    
    
    48,123Federal Home Loan Bank stockat cost
    
    
    54,829
    
    
    
    54,829Deferred tax asset, net of valuation allowance
    
    
    16,250
    
    
    
    16,202Accrued interest and other assets
    
    
    107,359
    
    
    
    107,954Total assets
    
    $
    5,292,669
    
    
    $
    5,273,055Liabilities and Stockholders EquityDepositsNon-interest bearing
    
    $
    289,322
    
    
    $
    274,392Interest bearing deposits and accrued interest
    
    
    3,698,584
    
    
    
    3,649,435Total deposits and accrued interest
    
    
    3,987,906
    
    
    
    3,923,827Other borrowed funds
    
    
    1,041,049
    
    
    
    1,078,392Other liabilities
    
    
    60,815
    
    
    
    56,704Total liabilities
    
    
    5,089,770
    
    
    
    5,058,923Commitments and contingent liabilities (Note 13)Minority interest in real estate partnerships
    
    
    326
    
    
    
    411Preferred stock, $.10 par value, 5,000,000 shares authorized,
110,000 shares issued and outstanding
    
    
    76,047
    
    
    
    74,185Common stock, $.10 par value, 100,000,000 shares authorized,
25,363,339 shares issued, 21,578,713 and 21,569,785 shares outstanding,
respectively
    
    
    2,536
    
    
    
    2,536Additional paid-in capital
    
    
    109,327
    
    
    
    109,327Retained earnings
    
    
    119,004
    
    
    
    134,234Accumulated other comprehensive income (loss) related to AFS securities
    
    
    1,165
    
    
    
    10Accumulated other comprehensive income (loss) related to OTTI non credit issues
    
    
    (5,516
    )
    
    
    (6,347
    )Total accumulated other comprehensive income (loss)
    
    
    (4,351
    )
    
    
    (6,337
    )Treasury stock (3,784,626 and 3,793,554 shares, respectively), at cost
    
    
    (94,496
    )
    
    
    (94,744
    )Deferred compensation obligation
    
    
    (5,494
    )
    
    
    (5,480
    )Total stockholders equity
    
    
    202,573
    
    
    
    213,721Total liabilities, minority interest and stockholders equity
    
    $
    5,292,669
    
    
    $
    5,273,055
  2




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Statements of Income
 Three Months Ended June 30,2009
    
    
    2008(In Thousands, Except Per Share Data)Interest income:Loans
    
    $
    54,273
    
    
    $
    65,711Mortgage-related securities
    
    
    5,576
    
    
    
    3,669Investment securities and Federal Home Loan Bank stock
    
    
    471
    
    
    
    800Interest-bearing deposits
    
    
    269
    
    
    
    328Total interest income
    
    
    60,589
    
    
    
    70,508Interest expense:Deposits
    
    
    24,133
    
    
    
    26,842Other borrowed funds
    
    
    10,767
    
    
    
    10,245Total interest expense
    
    
    34,900
    
    
    
    37,087Net interest income
    
    
    25,689
    
    
    
    33,421Provision for loan losses
    
    
    19,400
    
    
    
    9,400Net interest income after provision for loan losses
    
    
    6,289
    
    
    
    24,021Non-interest income:Loan servicing income (loss)
    
    
    (182
    )
    
    
    1,201Credit enhancement income
    
    
    377
    
    
    
    417Service charges on deposits
    
    
    3,829
    
    
    
    3,859Investment and insurance commissions
    
    
    804
    
    
    
    1,181Net gain on sale of loans
    
    
    11,403
    
    
    
    2,243Net gain on
sale of investments and mortgage-related securities
    
    
    1,505
    
    
    
    Total other than temporary losses
    
    
    (164
    )
    
    
    Portion of loss recognized in other comprehensive income
    
    
    160Reclassification from other comprehensive income
    
    
    (209
    )
    
    
    Net impairment losses recognized in earnings
    
    
    (213
    )
    
    
    Other revenue from real estate partnership operations
    
    
    911
    
    
    
    1,473Other
    
    
    1,126
    
    
    
    1,435Total non-interest income
    
    
    19,560
    
    
    
    11,809
  3




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES  Consolidated Statements of Income ( Cont .)
 Three Months Ended June 30,2009
    
    
    2008(In Thousands, Except Per Share Data)Non-interest expense:Compensation
    
    $
    14,290
    
    
    $
    13,307Occupancy
    
    
    2,413
    
    
    
    2,417Federal insurance premiums
    
    
    3,430
    
    
    
    98Furniture and equipment
    
    
    2,050
    
    
    
    2,126Data processing
    
    
    1,932
    
    
    
    1,812Marketing
    
    
    373
    
    
    
    587Other expenses from real estate partnership operations
    
    
    1,451
    
    
    
    2,191Net ExpenseREO operations
    
    
    1,066
    
    
    
    189Mortgage servicing rights impairment recovery
    
    
    (1,344
    )
    
    
    Foreclosure cost advance impairment
    
    
    3,708
    
    
    
    Loan fee expense
    
    
    3,583
    
    
    
    120Other
    
    
    4,735
    
    
    
    3,944Total non-interest expense
    
    
    37,687
    
    
    
    26,791Minority interest in loss of consolidated real estate partnerships
    
    
    (85
    )
    
    
    (39
    )Income (loss) before income taxes
    
    
    (11,753
    )
    
    
    9,078Income taxes
    
    
    
    
    
    
    3,566Net income (loss)
    
    $
    (11,753
    )
    
    $
    5,512Preferred stock dividends and discount accretion
    
    
    (3,244
    )
    
    
    Net income (loss) available to common equity
    
    $
    (14,997
    )
    
    $
    5,512Comprehensive
income (loss)
    
    $
    (9,767
    )
    
    $
    613Earnings per share:Basic
    
    $
    (0.56
    )
    
    $
    0.26Diluted
    
    
    (0.56
    )
    
    
    0.26Dividends declared per common share
    
    
    
    
    
    
    0.18
  4




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Statements of Changes in Stockholders Equity
 Accu-mulatedOtherCompre-Additional
    
    
    
    
    
    
    
    
    
    
    Deferred
    
    
    hensivePreferred
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    Treasury
    
    
    Compensation
    
    
    IncomeStock
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    Obligation
    
    
    (Loss)
    
    
    Total(Dollars in thousands except per share data)Balance at April 1, 2009
    
    $
    74,185
    
    
    $
    2,536
    
    
    $
    109,327
    
    
    $
    134,234
    
    
    $
    (94,744
    )
    
    $
    (5,480
    )
    
    $
    (6,337
    )
    
    $
    213,721Comprehensive
income (loss):Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,753
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,753
    )Non-credit portion of other-than-
temporary impairments:Held-to-maturity securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Available-for-sale securities, net of
tax
of $0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49
    )
    
    
    (49
    )Change in net unrealized gains (losses)
on available-for-sale securities
net of tax of $0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,035
    
    
    
    2,035Comprehensive
income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (9,767
    )Dividend on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,382
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,382
    )Issuance of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (233
    )
    
    
    248
    
    
    
    (14
    )
    
    
    
    
    
    
    1Accretion of preferred stock discount
    
    
    1,862
    
    
    
    
    
    
    
    
    
    
    
    (1,862
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at June 30, 2009
    
    $
    76,047
    
    
    $
    2,536
    
    
    $
    109,327
    
    
    $
    119,004
    
    
    $
    (94,496
    )
    
    $
    (5,494
    )
    
    $
    (4,351
    )
    
    $
    202,573
  5




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 Three Months Ended June 30,2009
    
    
    2008(In Thousands)Operating ActivitiesNet income (loss)
    
    $
    (11,753
    )
    
    $
    5,512Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Provision for loan losses
    
    
    19,400
    
    
    
    9,400Provision for OREO losses
    
    
    20
    
    
    
    Provision for depreciation and amortization
    
    
    1,315
    
    
    
    1,255Amortization and accretion of investment securities, net
    
    
    48
    
    
    
    30Amortization and accretion of mortgage related securities, net
    
    
    (68
    )
    
    
    Mortgage servicing rights recovery
    
    
    (1,344
    )
    
    
    Foreclosure cost advance impairment
    
    
    3,708
    
    
    
    Cash paid due to origination of loans held for sale
    
    
    (648,235
    )
    
    
    (176,203
    )Cash received due to sale of loans held for sale
    
    
    706,262
    
    
    
    181,496Net gain on sales of loans
    
    
    (11,403
    )
    
    
    (2,243
    )Net gain on investments and mortgage-
related securities
    
    
    (1,505
    )
    
    
    Net loss on impairment of securities available for sale
    
    
    213
    
    
    
    Stock-based compensation expense
    
    
    1
    
    
    
    148Decrease in accrued interest receivable
    
    
    1,774
    
    
    
    396(Increase) decrease in prepaid expense and other assets
    
    
    (3,591
    )
    
    
    (1,205
    )Increase (decrease) in accrued interest payable on deposits
    
    
    3,032
    
    
    
    (5,526
    )Increase (decrease) in other liabilities
    
    
    2,729
    
    
    
    (4,092
    )Net cash provided by operating activities
    
    
    60,603
    
    
    
    8,968Investing ActivitiesProceeds from sales of investment securities available for sale
    
    
    6,319
    
    
    
    Proceeds from maturities of investment securities available for sale
    
    
    33,465
    
    
    
    7,690Purchase of investment securities available for sale
    
    
    (13,528
    )
    
    
    (19,790
    )Purchase of mortgage-related securities available for sale
    
    
    (102,953
    )
    
    
    (24,168
    )Proceeds from sale of mortgage-related securities available for sale
    
    
    40,322
    
    
    
    Principal collected on mortgage-related securities
    
    
    28,932
    
    
    
    17,189Net decrease in loans held for investment
    
    
    126,433
    
    
    
    48,136Purchases of office properties and equipment
    
    
    (1,240
    )
    
    
    (1,192
    )Sales of office properties and equipment
    
    
    132
    
    
    
    Capitalization of foreclosed properties
    
    
    1,859
    
    
    
    (299
    )Proceeds from sale of foreclosed properties
    
    
    6,690
    
    
    
    762Investment in real estate held for development and sale
    
    
    (177
    )
    
    
    (890
    )Net cash provided by investing activities
    
    
    126,254
    
    
    
    27,438
 6




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES  Consolidated Statements of Cash Flows (Contd)
 Three Months Ended June 30,2009
    
    
    2008(In Thousands)Financing ActivitiesIncrease (decrease) in deposit accounts
    
    $
    61,047
    
    
    $
    (129,615
    )Proceeds from borrowed funds
    
    
    257
    
    
    
    375,842Repayment of borrowed funds
    
    
    (37,600
    )
    
    
    (435,265
    )Decrease in minority interest in real estate partnerships
    
    
    (85
    )
    
    
    (40
    )Exercise of stock options
    
    
    
    
    
    
    1,485Tax benefit from stock related compensation
    
    
    
    
    
    
    13Payments of cash dividends to stockholders
    
    
    
    
    
    
    (3,785
    )Net cash provided by (used in) financing activities
    
    
    23,619
    
    
    
    (191,365
    )Net increase (decrease) in cash and cash equivalents
    
    
    210,476
    
    
    
    (154,959
    )Cash and cash equivalents at beginning of period
    
    
    433,826
    
    
    
    257,743Cash and cash equivalents at end of period
    
    $
    644,302
    
    
    $
    102,784Supplementary cash flow information:Cash paid or credited to accounts:Interest on deposits and borrowings
    
    $
    31,868
    
    
    $
    42,613Income taxes
    
    
    (7,007
    )
    
    
    3,155Non-cash transactions:Transfer of loans to foreclosed properties
    
    
    9,020
    
    
    
    16,222Securitization of mortgage loans held for sale
to mortgage-backed
securities
    
    
    48,878
    
    
    
    
  7




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Principles of Consolidation
  Note 2  Basis of Presentation
       8




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##### Table of Contents



Note 3  Investment Securities
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    (Losses)
    
    
    Fair ValueAt June 30, 2009:Available for Sale:U.S. Government and federal agency obligations
    
    $
    31,236
    
    
    $
    475
    
    
    $
    (81
    )
    
    $
    31,630Municipal Bonds
    
    
    12,813
    
    
    
    276
    
    
    
    (51
    )
    
    
    13,038Mutual funds
    
    
    1,822
    
    
    
    
    
    
    
    
    
    
    
    1,822Other
    
    
    4,808
    
    
    
    44
    
    
    
    (48
    )
    
    
    4,804$
    50,679
    
    
    $
    795
    
    
    $
    (180
    )
    
    $
    51,294
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    (Losses)
    
    
    Fair ValueAt March 31, 2009:Available for Sale:U.S. Government and federal agency obligations
    
    $
    48,471
    
    
    $
    501
    
    
    $
    (53
    )
    
    $
    48,919Municipal Bonds
    
    
    21,768
    
    
    
    524
    
    
    
    (59
    )
    
    
    22,233Mutual funds
    
    
    1,797
    
    
    
    
    
    
    
    
    
    
    
    1,797Other
    
    
    4,806
    
    
    
    33
    
    
    
    (104
    )
    
    
    4,735$
    76,842
    
    
    $
    1,058
    
    
    $
    (216
    )
    
    $
    77,684
  At June 30, 2009Less than 12 months
    
    12 months or more
    
    TotalUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedDescription of Securities
    
    Fair Value
    
    Loss
    
    Fair Value
    
    Loss
    
    Fair Value
    
    Loss(In Thousands)US government and FederalAgency Obligations
    
    $
    4,900
    
    
    $
    (81
    )
    
    $
    
    
    
    $
    
    
    
    $
    4,900
    
    
    $
    (81
    )Municipal Bonds
    
    
    1,197
    
    
    
    (25
    )
    
    
    309
    
    
    
    (26
    )
    
    
    1,506
    
    
    
    (51
    )Other
    
    
    
    
    
    
    
    
    
    
    103
    
    
    
    (48
    )
    
    
    103
    
    
    
    (48
    )Total temporarily
impaired securities
    
    $
    6,097
    
    
    $
    (106
    )
    
    $
    412
    
    
    $
    (74
    )
    
    $
    6,509
    
    
    $
    (180
    )
 9




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##### Table of Contents



At March 31, 2009Less than 12 months
    
    12 months or more
    
    TotalUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedDescription of Securities
    
    Fair Value
    
    Loss
    
    Fair Value
    
    Loss
    
    Fair Value
    
    Loss(In Thousands)US government and FederalAgency Obligations
    
    $
    24,832
    
    
    $
    (53
    )
    
    $
    
    
    
    $
    
    
    
    $
    24,832
    
    
    $
    (53
    )Municipal Bonds
    
    
    1,455
    
    
    
    (59
    )
    
    
    
    
    
    
    
    
    
    
    1,455
    
    
    
    (59
    )Other
    
    
    151
    
    
    
    (104
    )
    
    
    
    
    
    
    
    
    
    
    151
    
    
    
    (104
    )Total temporarily
impaired securities
    
    $
    26,438
    
    
    $
    (216
    )
    
    $
    
    
    
    $
    
    
    
    $
    26,438
    
    
    $
    (216
    )
      10




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##### Table of Contents



After 1
    
    
    After 5
    
    
    
    
    
    
    Non-Year
    
    
    Years
    
    
    
    
    
    
    MaturityWithin 1
    
    
    through 5
    
    
    through 10
    
    
    Over Ten
    
    
    EquityYear
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    Investments
    
    
    Total(Dollars in Thousands)Available for Sale, at fair value:U.S. government and FederalAgency Obligations
    
    $
    15,530
    
    
    $
    11,200
    
    
    $
    
    
    
    $
    4,900
    
    
    $
    
    
    
    $
    31,630Municipal Bonds
    
    
    2,885
    
    
    
    5,304
    
    
    
    2,360
    
    
    
    2,489
    
    
    
    
    
    
    
    13,038Mutual fund
    
    
    1,822
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,822Other
    
    
    3,597
    
    
    
    25
    
    
    
    
    
    
    
    1,116
    
    
    
    66
    
    
    
    4,804Total Investment Securities
    
    $
    23,834
    
    
    $
    16,529
    
    
    $
    2,360
    
    
    $
    8,505
    
    
    $
    66
    
    
    $
    51,294
 Note 4  Mortgage-Related Securities
   Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    (Losses)
    
    
    Fair ValueAt June 30, 2009:Available for Sale:Agency CMOs and REMICs
    
    $
    182,175
    
    
    $
    1,124
    
    
    $
    (700
    )
    
    $
    182,599Non-agency CMOs
    
    
    110,841
    
    
    
    278
    
    
    
    (10,178
    )
    
    
    100,941Residential mortgage-backed securities
    
    
    139,990
    
    
    
    4,394
    
    
    
    (70
    )
    
    
    144,314GNMA Securities
    
    
    65,298
    
    
    
    329
    
    
    
    (168
    )
    
    
    65,459$
    498,304
    
    
    $
    6,125
    
    
    $
    (11,116
    )
    
    $
    493,313Held to Maturity:Residential mortgage-backed securities
    
    $
    47
    
    
    $
    1
    
    
    $
    
    
    
    $
    48$
    47
    
    
    $
    1
    
    
    $
    
    
    
    $
    48
 11




---



##### Table of Contents



Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    (Losses)
    
    
    Fair ValueAt March 31, 2009:Available for Sale:Agency CMOs and REMICs
    
    $
    142,692
    
    
    $
    1,732
    
    
    $
    (429
    )
    
    $
    143,995Non-agency CMOs
    
    
    119,503
    
    
    
    333
    
    
    
    (12,309
    )
    
    
    107,527Residential mortgage-backed securities
    
    
    97,562
    
    
    
    3,221
    
    
    
    (29
    )
    
    
    100,754GNMA Securities
    
    
    54,753
    
    
    
    417
    
    
    
    (145
    )
    
    
    55,025$
    414,510
    
    
    $
    5,703
    
    
    $
    (12,912
    )
    
    $
    407,301Held to Maturity:Residential mortgage-backed securities
    
    $
    50
    
    
    $
    
    
    
    $
    
    
    
    $
    50$
    50
    
    
    $
    
    
    
    $
    
    
    
    $
    50
  At June 30, 2009Less than 12 months
    
    12 months or more
    
    TotalUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedDescription of Securities
    
    Fair Value
    
    Loss
    
    Fair Value
    
    Loss
    
    Fair Value
    
    Loss(In Thousands)Agency CMO/REMICs
    
    $
    94,571
    
    
    $
    (700
    )
    
    $
    
    
    
    $
    
    
    
    $
    94,571
    
    
    $
    (700
    )Non-Agency CMOs
    
    
    18,956
    
    
    
    (1,374
    )
    
    
    40,317
    
    
    
    (3,164
    )
    
    
    59,273
    
    
    
    (4,538
    )Residential Mortgage-backed securities
    
    
    6,574
    
    
    
    (70
    )
    
    
    
    
    
    
    
    
    
    
    6,574
    
    
    
    (70
    )GNMA Securities
    
    
    25,283
    
    
    
    (166
    )
    
    
    1,730
    
    
    
    (2
    )
    
    
    27,013
    
    
    
    (168
    )Total temporarily impaired securities
    
    $
    145,384
    
    
    $
    (2,310
    )
    
    $
    42,047
    
    
    $
    (3,166
    )
    
    $
    187,431
    
    
    $
    (5,476
    )Other than temporarily impaired
securities
    
    $
    3,700
    
    
    $
    (160
    )
    
    $
    20,711
    
    
    $
    (5,480
    )
    
    
    24,411
    
    
    
    (5,640
    )Total temporary and other than
temporarily impaired securities
    
    $
    149,084
    
    
    $
    (2,470
    )
    
    $
    62,758
    
    
    $
    (8,646
    )
    
    $
    211,842
    
    
    $
    (11,116
    )
 12




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##### Table of Contents



At March 31, 2009Less than 12 months
    
    12 months or more
    
    TotalUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedDescription of Securities
    
    Fair Value
    
    Loss
    
    Fair Value
    
    Loss
    
    Fair Value
    
    Loss(In Thousands)Agency CMO/REMICs
    
    $
    43,931
    
    
    $
    (429
    )
    
    $
    
    
    
    $
    
    
    
    $
    43,931
    
    
    $
    (429
    )Non-Agency CMOs
    
    
    33,715
    
    
    
    (2,874
    )
    
    
    34,265
    
    
    
    (3,014
    )
    
    
    67,980
    
    
    
    (5,888
    )Residential
Mortgage-backed
securities
    
    
    3,892
    
    
    
    (29
    )
    
    
    
    
    
    
    
    
    
    
    3,892
    
    
    
    (29
    )GNMA Securities
    
    
    24,049
    
    
    
    (135
    )
    
    
    1,803
    
    
    
    (10
    )
    
    
    25,852
    
    
    
    (145
    )$
    105,587
    
    
    $
    (3,467
    )
    
    $
    36,068
    
    
    $
    (3,024
    )
    
    $
    141,655
    
    
    $
    (6,491
    )Other than temporarily
impaired securities
    
    $
    8,892
    
    
    $
    (2,281
    )
    
    $
    11,211
    
    
    $
    (4,140
    )
    
    
    20,103
    
    
    
    (6,421
    )Total temporary and
other than temporarily
impaired securities
    
    $
    114,479
    
    
    $
    (5,748
    )
    
    $
    47,279
    
    
    $
    (7,164
    )
    
    $
    161,758
    
    
    $
    (12,912
    )
    13




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##### Table of Contents



Total OTTI
    
    
    Total OTTIYear of Vintage
    
    
    
    
    
    
    
    
    
    
    Related to
    
    
    Related to2005
    
    
    2006
    
    
    2007
    
    
    Total
    
    
    Total OTTI
    
    
    Credit Loss
    
    
    Other Factors(in thousands)Total Non-Agency CMOsRating:AAA
    
    $
    6,600
    
    
    $
    4,425
    
    
    $
    
    
    
    $
    11,025
    
    
    $
    696
    
    
    $
    244
    
    
    $
    452AA
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    A
    
    
    
    
    
    
    
    
    
    
    5,153
    
    
    
    5,153
    
    
    
    2,249
    
    
    
    257
    
    
    
    1,992BBB
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BB and below
    
    
    1,469
    
    
    
    2,818
    
    
    
    8,371
    
    
    
    12,658
    
    
    
    3,589
    
    
    
    517
    
    
    
    3,072Total Non-
Agency CMOs
    
    $
    8,069
    
    
    $
    7,243
    
    
    $
    13,524
    
    
    $
    28,836
    
    
    $
    6,534
    
    
    $
    1,018
    
    
    $
    5,516
   Beginning balance of the amount related to credit losses
    
    $
    805The credit portion of other-than temporary impairment not previously recognized
    
    
    4Securities sold during the period (realized)
    
    
    Reductions for securities previously recognized in OTTI, but for which the Corporation
intends to sell or it is more likely than not the Corporation will be required to sell
prior to recovery
    
    
    Additional increases to the amount
related to the credit loss for which an OTTI was previously recognized
    
    
    209Reductions for increases in cash flows expected to be collected
    
    
    Ending balance of the amount related to credit losses
    
    $
    1,018
  14




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##### Table of Contents



After 1
    
    
    After 5Year
    
    
    YearsWithin 1
    
    
    through 5
    
    
    through
    
    
    Over TenYear
    
    
    Years
    
    
    10 Years
    
    
    Years
    
    
    Total(Dollars In Thousands)Mortgage-related securities
available for Sale, at fair value:Agency CMOs and REMICs
    
    $
    
    
    
    $
    
    
    
    $
    20,976
    
    
    $
    161,623
    
    
    $
    182,599Non-agency CMOs
    
    
    
    
    
    
    46
    
    
    
    20,123
    
    
    
    80,772
    
    
    
    100,941Residential Mortgage-backed securities
    
    
    
    
    
    
    4,003
    
    
    
    40,738
    
    
    
    99,573
    
    
    
    144,314GNMA Secrurities
    
    
    
    
    
    
    
    
    
    
    863
    
    
    
    64,596
    
    
    
    65,459Total
    
    $
    
    
    
    $
    4,049
    
    
    $
    82,700
    
    
    $
    406,564
    
    
    $
    493,313Held to Maturity, at fair value:Residential Mortgage-backed securities
    
    $
    
    
    
    $
    
    
    
    $
    48
    
    
    $
    
    
    
    $
    48Total
    
    $
    
    
    
    $
    
    
    
    $
    48
    
    
    $
    
    
    
    $
    48Total Mortgage-related securities
    
    $
    
    
    
    $
    4,049
    
    
    $
    82,748
    
    
    $
    406,564
    
    
    $
    493,361Held to Maturity, at cost:Residential Mortgage-backed securities
    
    $
    
    
    
    $
    
    
    
    $
    47
    
    
    $
    
    
    
    $
    47
 15




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##### Table of Contents



Note 5  Stock-Based Compensation
   Three Months Ended June 30, 2009WeightedAverageOptions
    
    
    PriceOutstanding at beginning of period
    
    
    515,670
    
    
    $
    21.60Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (3,500
    )
    
    
    19.97Outstanding at end of period
    
    
    512,170
    
    
    $
    21.61Options exercisable and vested at June 30, 2009
    
    
    512,170
    
    
    $
    21.61Intrinsic value of options exercised
    
    
    
  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
    
    
    279,330
    
    
    
    2.28
    
    
    $
    18.12
    
    
    
    279,330
    
    
    $
    18.12$23.77  $28.50
    
    
    199,840
    
    
    
    4.25
    
    
    
    24.79
    
    
    
    199,840
    
    
    
    24.79$31.95  $31.95
    
    
    33,000
    
    
    
    6.07
    
    
    
    31.95
    
    
    
    33,000
    
    
    
    31.95512,170
    
    
    
    3.30
    
    
    
    21.61
    
    
    
    512,170
    
    
    
    21.61
  16




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##### Table of Contents



Three Months Ended June 30, 2009WeightedAverageOptions
    
    
    PriceBalance at beginning of period
    
    
    76,000
    
    
    $
    22.62Restricted stock granted
    
    
    
    
    
    
    Restricted stock vested
    
    
    
    
    
    
    Restricted stock forfeited
    
    
    
    
    
    
    Balance at end of period
    
    
    76,000
    
    
    $
    22.62
  Note 6  Loans Receivable
  June 30,
    
    
    March 31,2009
    
    
    2009First mortgage loans:Single-family residential
    
    $
    770,994
    
    
    $
    843,482Multi-family residential
    
    
    644,789
    
    
    
    662,483Commercial real estate
    
    
    982,261
    
    
    
    1,020,981Construction
    
    
    241,719
    
    
    
    267,375Land
    
    
    258,096
    
    
    
    266,7562,897,859
    
    
    
    3,061,077Second mortgage loans
    
    
    386,268
    
    
    
    394,708Education loans
    
    
    336,503
    
    
    
    358,784Commercial business loans and leases
    
    
    222,661
    
    
    
    238,940Credit card and other consumer loans
    
    
    53,063
    
    
    
    56,3023,896,354
    
    
    
    4,109,811Contras to loans:Undisbursed loan proceeds*
    
    
    (57,877
    )
    
    
    (71,672
    )Allowance for loan losses
    
    
    (141,378
    )
    
    
    (137,165
    )Unearned loan fees
    
    
    (4,318
    )
    
    
    (4,441
    )Net discount on loans purchased
    
    
    (9
    )
    
    
    (10
    )Unearned interest
    
    
    (64
    )
    
    
    (84
    )(203,646
    )
    
    
    (213,372
    )$
    3,692,708
    
    
    $
    3,896,439
 
 *
    
    Undisbursed loan proceeds are funds to be disbursed upon an authorized draw request. 17




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##### Table of Contents



Three Months Ended June 30,2009
    
    
    2008(Dollars In Thousands)Allowance at beginning of period
    
    $
    137,165
    
    
    $
    38,285Provision
    
    
    19,400
    
    
    
    9,400Charge-offs
    
    
    (16,251
    )
    
    
    (7,426
    )Recoveries
    
    
    1,064
    
    
    
    6Allowance at end of period
    
    $
    141,378
    
    
    $
    40,265
   At June 30,
    
    
    At March 31,2009
    
    
    2009
    
    
    2008
    
    
    2007(In Thousands)Impaired loans with valuation
reserve required
    
    $
    343,236
    
    
    $
    294,736
    
    
    $
    52,866
    
    
    $
    2,130Impaired loans without a
specific reserve
    
    
    169,802
    
    
    
    193,637
    
    
    
    51,192
    
    
    
    45,718Total impaired loans
    
    
    513,038
    
    
    
    488,373
    
    
    
    104,058
    
    
    
    47,848Less:Specific valuation allowance
    
    
    (80,185
    )
    
    
    (73,255
    )
    
    
    (17,639
    )
    
    
    (517
    )$
    432,853
    
    
    $
    415,118
    
    
    $
    86,419
    
    
    $
    47,331Average impaired loans
    
    $
    328,830
    
    
    $
    247,034
    
    
    $
    67,138
    
    
    $
    26,458Interest income recognized
on impaired loans
    
    $
    4,123
    
    
    $
    21,637
    
    
    $
    107
    
    
    $
    44Loans on nonaccrual status
    
    $
    513,038
    
    
    $
    488,373
    
    
    $
    101,241
    
    
    $
    47,040Loans past due ninety days or more and
still accruing
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Performing troubled debt restructurings
    
    $
    159,538
    
    
    $
    61,460
    
    
    $
    400
    
    
    $
    400
 18




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##### Table of Contents



Note 7  Other Intangible Assets
   June 30,
    
    
    March 31,2009
    
    
    2009(In Thousands)Balance at beginning of period
    
    $
    4,725
    
    
    $
    5,359Amortization expense
    
    
    (158
    )
    
    
    (634
    )Balance at end of period
    
    $
    4,567
    
    
    $
    4,725Gross carrying amount
    
    $
    5,517
    
    
    $
    5,517Accumulated amortization
    
    
    (950
    )
    
    
    (792
    )Net book value
    
    $
    4,567
    
    
    $
    4,725
  19




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20




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##### Table of Contents



Residential
    
    
    Other(In Thousands)Mortgage servicing rights as of March 31, 2008
    
    $
    11,698
    
    
    $
    1,478Additions
    
    
    10,087
    
    
    
    142Amortization
    
    
    (4,623
    )
    
    
    (362
    )Mortgage servicing rights before valuation
allowance at end of period
    
    
    17,162
    
    
    
    1,258Valuation allowance
    
    
    (2,407
    )
    
    
    Net mortgage servicing rights as of March 31, 2009
    
    $
    14,755
    
    
    $
    1,258Fair market value at the end of the period
    
    $
    15,292
    
    
    $
    1,662Key assumptions:Weighted average discount
    
    
    11.14
    %
    
    
    21.12
    %Weighted average prepayment speed assumption
    
    
    17.99
    %
    
    
    24.39
    %Mortgage servicing rights as of March 31, 2009
    
    $
    17,162
    
    
    $
    1,258Additions
    
    
    6,680
    
    
    
    Amortization
    
    
    (2,120
    )
    
    
    (72
    )Mortgage servicing rights before valuation
allowance at end of period
    
    
    21,722
    
    
    
    1,186Valuation allowance
    
    
    (1,063
    )
    
    
    Net mortgage servicing rights as of June 30, 2009
    
    $
    20,659
    
    
    $
    1,186Fair market value at the end of the period
    
    $
    19,795
    
    
    $
    1,797Key assumptions:Weighted average discount
    
    
    10.86
    %
    
    
    21.12
    %Weighted average prepayment speed assumption
    
    
    12.26
    %
    
    
    20.19
    %
  Residential
    
    
    Other
    
    
    CoreMortgage
    
    
    Mortgage
    
    
    DepositServicing Rights
    
    
    Servicing Rights
    
    
    Premium
    
    
    Total(In Thousands)Quarter ended June 30, 2009 (actual)
    
    $
    2,120
    
    
    $
    72
    
    
    $
    158
    
    
    $
    2,350Estimate for the year ended March 31,2010
    
    $
    8,480
    
    
    $
    288
    
    
    $
    634
    
    
    $
    9,4022011
    
    
    8,480
    
    
    
    288
    
    
    
    634
    
    
    
    9,4022012
    
    
    3,699
    
    
    
    288
    
    
    
    634
    
    
    
    4,6212013
    
    
    
    
    
    
    288
    
    
    
    634
    
    
    
    922Thereafter
    
    
    
    
    
    
    34
    
    
    
    2,031
    
    
    
    2,065$
    20,659
    
    
    $
    1,186
    
    
    $
    4,567
    
    
    $
    26,412
 Note 8  Federal Home Loan Bank Stock
  21




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##### Table of Contents



Note 9  Recent Accounting Pronouncements
 Generally Accepted Accounting
Principles amendments based on Statement of Financial Accounting Standards No. 168-The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles
 Omnibus Update-Amendments to Various
Topics for Technical Corrections.
 FASB
Accounting Standards Codification
   
    
    FASB Statement No. 166, Accounting for Transfers of Financial Assets(SFAS 166);
    
    FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R)(SFAS 167).
 22




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##### Table of Contents



Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities,
 Consolidation of
Variable Interest Entities,
   Subsequent Events .
 
    
    The period after the balance sheet date during which
management of a reporting entity should evaluate events
or transactions that may occur for potential
recognition or disclosure in the financial statements;
    
    The circumstances under which an entity should recognize
events or transactions occurring after the balance sheet
date in its financial statements; and
    
    The disclosures that an entity should make about events or
transactions that occurred after the balance sheet date.
   23




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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;
    
    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.
  Accounting for Assets Acquired and Liabilities Assumed in a
Business Combination That Arise from Contingencies.
 24




---



##### Table of Contents



Noncontrolling Interests in
Consolidated Financial Statements  An Amendment of ARB No. 51 .
 Determination of the Useful Life
of Intangible Assets Goodwill and Other Intangible Assets
   25




---



##### Table of Contents



Note 10  Stockholders Equity
  Preferred Equity:
 Common Stock Warrants:
 Note 11  Earnings Per Share
  26




---



##### Table of Contents



Three Months Ended June 30,2009
    
    
    2008(in thousands)Numerator:Net income
    
    $
    (11,753
    )
    
    $
    5,512Numerator for basic and diluted earnings
per shareincome available to common
stockholders
    
    $
    (11,753
    )
    
    $
    5,512Denominator:Denominator for basic earnings per
shareweighted-average common
shares outstanding
    
    
    21,145
    
    
    
    20,928Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    Denominator for diluted earnings per
shareadjusted weighted-average
common shares and assumed conversions
    
    
    21,145
    
    
    
    20,928Basic earnings per share
    
    $
    (0.56
    )
    
    $
    0.26Diluted earnings per share
    
    $
    (0.56
    )
    
    $
    0.26
  Note 12  Segment Information
  Community Banking:
 Real Estate Investments:
  27




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##### Table of Contents



Three Months Ended June 30, 2009(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    18
    
    
    $
    60,711
    
    
    $
    (140
    )
    
    $
    60,589Interest expense
    
    
    129
    
    
    
    34,911
    
    
    
    (140
    )
    
    
    34,900Net interest income (loss)
    
    
    (111
    )
    
    
    25,800
    
    
    
    
    
    
    
    25,689Provision for loan losses
    
    
    
    
    
    
    19,400
    
    
    
    
    
    
    
    19,400Net interest income (loss) after provision for loan
losses
    
    
    (111
    )
    
    
    6,400
    
    
    
    
    
    
    
    6,289Real estate investment partnership revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other revenue from real estate operations
    
    
    911
    
    
    
    
    
    
    
    
    
    
    
    911Other income
    
    
    
    
    
    
    18,649
    
    
    
    
    
    
    
    18,649Real estate investment partnership cost of sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other expense from real estate partnership operations
    
    
    (1,451
    )
    
    
    
    
    
    
    
    
    
    
    (1,451
    )Minority interest in loss of real estate partnerships
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    85Other expense
    
    
    
    
    
    
    (36,236
    )
    
    
    
    
    
    
    (36,236
    )Income (loss) before income taxes
    
    
    (566
    )
    
    
    (11,187
    )
    
    
    
    
    
    
    (11,753
    )Income tax (benefit) expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (566
    )
    
    $
    (11,187
    )
    
    $
    
    
    
    $
    (11,753
    )Total assets at end of period
    
    $
    24,543
    
    
    $
    5,268,126
    
    
    $
    
    
    
    $
    5,292,669Goodwill
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 28




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##### Table of Contents



Three Months Ended June 30, 2008(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    26
    
    
    $
    70,820
    
    
    $
    (338
    )
    
    $
    70,508Interest expense
    
    
    312
    
    
    
    37,113
    
    
    
    (338
    )
    
    
    37,087Net interest income (loss)
    
    
    (286
    )
    
    
    33,707
    
    
    
    
    
    
    
    33,421Provision for loan losses
    
    
    
    
    
    
    9,400
    
    
    
    
    
    
    
    9,400Net interest income (loss) after provision for loan
losses
    
    
    (286
    )
    
    
    24,307
    
    
    
    
    
    
    
    24,021Real estate investment partnership revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other revenue from real estate operations
    
    
    1,473
    
    
    
    
    
    
    
    
    
    
    
    1,473Other income
    
    
    
    
    
    
    10,366
    
    
    
    (30
    )
    
    
    10,336Real estate investment partnership cost of sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other expense from real estate partnership operations
    
    
    (2,221
    )
    
    
    
    
    
    
    30
    
    
    
    (2,191
    )Minority interest in loss of real estate partnerships
    
    
    39
    
    
    
    
    
    
    
    
    
    
    
    39Other expense
    
    
    
    
    
    
    (24,600
    )
    
    
    
    
    
    
    (24,600
    )Income (loss) before income taxes
    
    
    (995
    )
    
    
    10,073
    
    
    
    
    
    
    
    9,078Income tax (benefit) expense
    
    
    (363
    )
    
    
    3,929
    
    
    
    
    
    
    
    3,566Net income (loss)
    
    $
    (632
    )
    
    $
    6,144
    
    
    $
    
    
    
    $
    5,512Total assets at end of period
    
    $
    70,833
    
    
    $
    4,878,502
    
    
    $
    
    
    
    $
    4,949,335Goodwill
    
    $
    
    
    
    $
    72,375
    
    
    $
    
    
    
    $
    72,375
 Note 13  Commitments and Contingent Liabilities
   June 30,
    
    March 31,2009
    
    2009Commitments to extend credit:
    
    $
    25,019
    
    
    $
    52,427Unused lines of credit:Home equity
    
    
    144,969
    
    
    
    144,662Credit cards
    
    
    37,857
    
    
    
    37,602Commercial
    
    
    71,120
    
    
    
    89,300Letters of credit
    
    
    19,460
    
    
    
    20,694Credit enhancement under the FederalHome Loan Bank of Chicago MortgagePartnership Finance Program
    
    
    23,463
    
    
    
    23,527Real estate investment segment borrowing guarantees unfunded
    
    
    1,678
    
    
    
    1,936
 29




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##### Table of Contents



Note 14  Fair Value of Financial Instruments
   Cash and cash equivalents and accrued interest:
 Investment and mortgage-related securities:
 Loans receivable:
 30




---



##### Table of Contents



Federal Home Loan Bank stock:
 Deposits:
 Other Borrowed Funds:
 Off-balance-sheet instruments:
  June 30, 2009
    
    March 31, 2009Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueFinancial assets:Cash and cash equivalents
    
    $
    644,302
    
    
    $
    644,302
    
    
    $
    433,826
    
    
    $
    433,826Investment securities
    
    
    51,294
    
    
    
    51,294
    
    
    
    77,684
    
    
    
    77,684Mortgage-related securities
    
    
    493,360
    
    
    
    493,361
    
    
    
    407,351
    
    
    
    407,351Loans held for sale
    
    
    115,340
    
    
    
    115,340
    
    
    
    161,964
    
    
    
    161,964Loans receivable
    
    
    3,692,708
    
    
    
    3,725,512
    
    
    
    3,896,439
    
    
    
    3,981,442Federal Home Loan Bank stock
    
    
    54,829
    
    
    
    54,829
    
    
    
    54,829
    
    
    
    54,829Accrued interest receivable
    
    
    23,601
    
    
    
    23,601
    
    
    
    25,375
    
    
    
    25,375Financial liabilities:Deposits
    
    
    3,970,438
    
    
    
    3,969,607
    
    
    
    3,909,391
    
    
    
    3,921,802Other borrowed funds
    
    
    1,041,049
    
    
    
    1,033,973
    
    
    
    1,078,392
    
    
    
    1,079,556Accrued interest payableborrowings
    
    
    3,415
    
    
    
    3,415
    
    
    
    2,833
    
    
    
    2,833Accrued interest payabledeposits
    
    
    17,468
    
    
    
    17,468
    
    
    
    14,436
    
    
    
    14,436
  31




---



##### Table of Contents




    
    Level 1: Valuations for assets and liabilities traded in active exchange markets.
Valuations are obtained from readily available pricing sources for market transactions
involving identical assets or liabilities.
    
    Level 2: Valuations for assets and liabilities traded in less active dealer or broker
markets. Valuations are obtained from third party pricing services for identical or similar
assets or liabilities.
    
    Level 3: Valuations for assets and liabilities that are derived from other valuation
methodologies, including option pricing models, discounted cash flow models and similar
techniques, and not based on market exchange, dealer or broker traded transactions. Level 3
valuations incorporate certain assumptions and projections in determining the fair value
assigned to such assets.
   32




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##### Table of Contents



Fair Value on a Recurring Basis
  June 30, 2009
    
    Fair Value Measurements UsingQuoted Pricesin Active
    
    Significant Other
    
    SignificantMarkets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsTotal
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Financial AssetsInvestment securities available for sale
    
    $
    51,294
    
    
    $
    682
    
    
    $
    50,612
    
    
    $
    Mortgage-related securities available for sale
    
    
    493,313
    
    
    
    
    
    
    
    
    
    
    
    493,313
  33




---



##### Table of Contents



Mortgage-Related SecuritiesAvailable for SaleBalance at March 31, 2009
    
    $
    407,301Total gains (losses) (realized/unrealized)Included in earnings
    
    
    1,426Included in other comprehensive income
    
    
    2,219Included in earnings as other than temporary impairment
    
    
    (213
    )Purchases
    
    
    102,953Securitization of mortgage loans held for sale to mortgage-related securities
    
    
    48,878Principal repayments
    
    
    (28,929
    )Sales
    
    
    (40,322
    )Transfers in and/or out of level 3
    
    
    Balance at June 30, 2009
    
    $
    493,313
   Fair Value on a Nonrecurring Basis
  June 30, 2009
    
    Fair Value Measurements UsingQuoted Pricesin Active
    
    Significant Other
    
    SignificantMarkets for
    
    Observable
    
    UnobservableIdentical Assets
    
    Inputs
    
    InputsTotal
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Financial AssetsImpaired loans with specific valuation
allowance under SFAS 114
    
    $
    305,955
    
    
    $
    
    
    
    $
    
    
    
    $
    305,955Loans held for sale
    
    
    80,683
    
    
    
    
    
    
    
    80,683
    
    
    
    Non-Financial AssetsForeclosed properties and repossessed assets
    
    
    53,014
    
    
    
    
    
    
    
    
    
    
    
    53,014
 34




---



##### Table of Contents



Note 15  Income Taxes
    35




---



##### Table of Contents



Note 16  Credit Agreement
    Note 17  Regulatory Matters
     36




---



##### Table of Contents



Note 18  Subsequent Events
  
    
    The Corporation delivered all items required as of July 31, 2009 under the Order to
Cease and Desist to the Office of Thrift Supervision.
    
    On August 10, 2009, the Corporation filed a pre-effective amendment on Form S-3 with the
SEC, thereby amending its shelf registration statement on Form S-3 filed on October 3, 2008
which, if declared effective, would allow the Company and Anchor Capital Funding Trust I to
issue equity, debt, purchase contracts, warrants, hybrid securities and trust preferred
securities up to $200 million.
 37




---



##### Table of Contents



ANCHOR BANCORP WISCONSIN INC.
 
 ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
  Executive Overview
  
    
    Diluted earnings per share decreased to $(0.56) for the quarter ended June 30, 2009
compared to $0.26 per share for the quarter ended June 30, 2008, primarily due to a $10.0
million increase in the provision for loan losses;
    
    The interest rate spread decreased to 2.06% for the quarter ended June 30, 2009 compared
to 2.83% for the quarter ended June 30, 2008;
    
    Loans receivable decreased $250.4 million, or 6.17%, since March 31, 2009;
    
    Deposits and accrued interest increased $64.1 million, or 1.63%, since March 31, 2009;
    
    Book value per common share was $4.29 at June 30, 2009 compared to $4.81 at March 31,
2009 and $16.00 at June 30, 2008;
    
    Total non-performing assets (loans past due more than ninety days, non-performing real
estate held for development and sale, foreclosed properties and repossessed assets)
increased $17.0 million, or 8.53%, to $215.7 million at June 30, 2009 from $198.7 million
at March 31, 2009, and total non-performing loans increased $16.5 million, or 11.3% to
$162.7 million at June 30, 2009 from $146.2 million at March 31, 2009; and
    
    Net loss from the real estate investment segment was $566,000 and $632,000 for the three
months ended June 30, 2009 and 2008, respectively. These losses were 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.
 38




---



##### Table of Contents



Three Months Ended(Dollars in thousands  except per share amounts)
    
    6/30/2009
    
    3/31/2009
    
    12/31/2008
    
    9/30/2008Operations Data:Net interest income
    
    $
    25,689
    
    
    $
    28,708
    
    
    $
    32,707
    
    
    $
    29,954Provision for loan losses
    
    
    19,400
    
    
    
    56,385
    
    
    
    92,970
    
    
    
    46,964Net gain (loss) on sale of loans
    
    
    11,403
    
    
    
    7,858
    
    
    
    (228
    )
    
    
    808Real estate investment partnership revenue
    
    
    
    
    
    
    310
    
    
    
    1,836
    
    
    
    Other non-interest income
    
    
    8,157
    
    
    
    7,794
    
    
    
    7,905
    
    
    
    7,439Real estate investment partnership cost of sales
    
    
    
    
    
    
    545
    
    
    
    1,191
    
    
    
    Other non-interest expense
    
    
    37,687
    
    
    
    47,399
    
    
    
    117,066
    
    
    
    30,167Minority interest in income (loss) of
real estate partnership operations
    
    
    (85
    )
    
    
    (246
    )
    
    
    150
    
    
    
    (13
    )Loss before income taxes
    
    
    (11,753
    )
    
    
    (59,413
    )
    
    
    (169,157
    )
    
    
    (38,917
    )Income taxes
    
    
    
    
    
    
    (16,147
    )
    
    
    (1,899
    )
    
    
    (15,618
    )Net loss
    
    
    (11,753
    )
    
    
    (43,266
    )
    
    
    (167,258
    )
    
    
    (23,299
    )Selected Financial Ratios(1):Yield on earning assets
    
    
    4.83
    %
    
    
    5.22
    %
    
    
    5.69
    %
    
    
    5.59
    %Cost of funds
    
    
    2.77
    
    
    
    2.72
    
    
    
    2.81
    
    
    
    3.00Interest rate spread
    
    
    2.06
    
    
    
    2.50
    
    
    
    2.88
    
    
    
    2.59Net interest margin
    
    
    2.05
    
    
    
    2.45
    
    
    
    2.88
    
    
    
    2.62Return on average assets
    
    
    (0.89
    )
    
    
    (3.44
    )
    
    
    (13.72
    )
    
    
    (1.89
    )Return on average equity
    
    
    (22.13
    )
    
    
    (79.64
    )
    
    
    (242.66
    )
    
    
    (27.69
    )Average equity to average assets
    
    
    4.01
    
    
    
    4.32
    
    
    
    5.66
    
    
    
    6.84Non-interest expense to average assets
    
    
    2.84
    
    
    
    3.81
    
    
    
    9.70
    
    
    
    2.45Per Share:Basic earnings per share
    
    $
    (0.56
    )
    
    $
    (2.05
    )
    
    $
    (7.96
    )
    
    $
    (1.11
    )Diluted earnings per share
    
    
    (0.56
    )
    
    
    (2.05
    )
    
    
    (7.96
    )
    
    
    (1.11
    )Dividends per common share
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    0.10Book value per common share
    
    
    4.29
    
    
    
    4.81
    
    
    
    6.80
    
    
    
    14.76Financial Condition:Total assets
    
    $
    5,292,669
    
    
    $
    5,273,055
    
    
    $
    4,798,847
    
    
    $
    4,928,074Loans receivable, netHeld for sale
    
    
    115,340
    
    
    
    161,964
    
    
    
    32,139
    
    
    
    4,099Held for investment
    
    
    3,692,708
    
    
    
    3,896,439
    
    
    
    3,948,065
    
    
    
    4,069,369Deposits and accrued interest
    
    
    3,987,906
    
    
    
    3,923,827
    
    
    
    3,413,449
    
    
    
    3,349,335Other borrowed funds
    
    
    1,041,049
    
    
    
    1,078,392
    
    
    
    1,152,112
    
    
    
    1,210,562Stockholders equity
    
    
    202,573
    
    
    
    213,721
    
    
    
    146,662
    
    
    
    317,501Allowance for loan losses
    
    
    141,378
    
    
    
    137,165
    
    
    
    122,571
    
    
    
    64,614Non-performing assets(2)
    
    
    215,664
    
    
    
    198,714
    
    
    
    166,382
    
    
    
    169,062
 
 (1)
    
    Annualized when appropriate.(2)
    
    Non-performing assets consist of loans past due more than ninety days,
non-performing real estate held for
development and sale, foreclosed properties and repossessed assets. 39




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##### Table of Contents



Three Months Ended(Dollars in thousands  except per share amounts)
    
    6/30/2008
    
    3/31/2008
    
    12/31/2007
    
    9/30/2007Operations Data:Net interest income
    
    $
    33,421
    
    
    $
    35,066
    
    
    $
    31,338
    
    
    $
    31,584Provision for loan losses
    
    
    9,400
    
    
    
    10,393
    
    
    
    7,792
    
    
    
    2,095Net gain on sale of loans
    
    
    2,243
    
    
    
    2,984
    
    
    
    1,468
    
    
    
    814Real estate investment partnership revenue
    
    
    
    
    
    
    457
    
    
    
    1,012
    
    
    
    2,428Other non-interest income
    
    
    9,566
    
    
    
    10,121
    
    
    
    9,430
    
    
    
    7,696Real estate investment partnership cost of sales
    
    
    
    
    
    
    548
    
    
    
    932
    
    
    
    2,669Other non-interest expense
    
    
    26,791
    
    
    
    29,249
    
    
    
    24,180
    
    
    
    22,659Minority interest in loss of
real estate partnership operations
    
    
    (39
    )
    
    
    (43
    )
    
    
    (81
    )
    
    
    (203
    )Income before income taxes
    
    
    9,078
    
    
    
    8,481
    
    
    
    10,425
    
    
    
    15,302Income taxes
    
    
    3,566
    
    
    
    2,838
    
    
    
    4,096
    
    
    
    6,028Net income
    
    
    5,512
    
    
    
    5,643
    
    
    
    6,329
    
    
    
    9,274Selected Financial Ratios(1):Yield on earning assets
    
    
    6.05
    %
    
    
    6.10
    %
    
    
    6.68
    %
    
    
    6.90
    %Cost of funds
    
    
    3.22
    
    
    
    3.31
    
    
    
    4.01
    
    
    
    4.13Interest rate spread
    
    
    2.83
    
    
    
    2.79
    
    
    
    2.67
    
    
    
    2.77Net interest margin
    
    
    2.87
    
    
    
    2.84
    
    
    
    2.83
    
    
    
    2.92Return on average assets
    
    
    0.44
    
    
    
    0.43
    
    
    
    0.54
    
    
    
    0.82Return on average equity
    
    
    6.37
    
    
    
    6.56
    
    
    
    7.44
    
    
    
    11.07Average equity to average assets
    
    
    6.93
    
    
    
    6.55
    
    
    
    7.31
    
    
    
    7.37Non-interest expense to average assets
    
    
    2.15
    
    
    
    2.27
    
    
    
    2.16
    
    
    
    2.23Per Share:Basic earnings per share
    
    $
    0.26
    
    
    $
    0.27
    
    
    $
    0.30
    
    
    $
    0.44Diluted earnings per share
    
    
    0.26
    
    
    
    0.27
    
    
    
    0.30
    
    
    
    0.44Dividends per common share
    
    
    0.18
    
    
    
    0.18
    
    
    
    0.18
    
    
    
    0.18Book value per common share
    
    
    16.00
    
    
    
    16.17
    
    
    
    15.98
    
    
    
    15.88Financial Condition:Total assets
    
    $
    4,949,335
    
    
    $
    5,149,557
    
    
    $
    4,725,773
    
    
    $
    4,611,526Loans receivable, netHeld for sale
    
    
    6,619
    
    
    
    9,669
    
    
    
    6,170
    
    
    
    5,403Held for investment
    
    
    4,129,075
    
    
    
    4,202,833
    
    
    
    3,941,891
    
    
    
    3,944,980Deposits and accrued interest
    
    
    3,406,975
    
    
    
    3,539,994
    
    
    
    3,145,551
    
    
    
    3,178,588Other borrowed funds
    
    
    1,147,329
    
    
    
    1,206,761
    
    
    
    1,150,914
    
    
    
    1,039,540Stockholders equity
    
    
    343,599
    
    
    
    345,116
    
    
    
    341,084
    
    
    
    338,907Allowance for loan losses
    
    
    40,265
    
    
    
    38,285
    
    
    
    28,761
    
    
    
    22,002Non-performing assets(2)
    
    
    144,137
    
    
    
    109,488
    
    
    
    87,002
    
    
    
    63,078
 
 (1)
    
    Annualized when appropriate.(2)
    
    Non-performing assets consist of loans past due more than ninety days,
non-performing real estate held for
development and sale, foreclosed properties and repossessed assets. 40




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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 due to credit loss are reflected in
earnings as realized losses. In estimating other-than-temporary impairment losses on debt
securities, management considers many factors which include: (1) the length of time and the
extent to which the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer, and (3) the intent and ability of the Corporation to
retain its investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value. To determine if an other-than-temporary impairment
exists on a debt security, the Corporation first determines if (a) it intends to sell the
security or (b) it is more likely than not that it will be required to sell the security
before its anticipated recovery. If either of the conditions is met, the Corporation will
recognize an other-than-temporary impairment in earnings equal to the difference between
the fair value of the security and its adjusted cost. If neither of the conditions is met,
the Corporation determines (a) the amount of the impairment related to credit loss and (b)
the amount of the impairment due to all other factors. The difference between the present
values of the cash flows expected to be collected and the amortized cost basis is the
credit loss. The credit loss is the amount of the other-than-temporary impairment that is
recognized in earnings and is a reduction to the cost basis of the security. The amount of
total impairment related to all other factors is included in other comprehensive income
(loss). If a security is impaired, and the impairment is deemed other-than-temporary and
material, a write down will occur in that quarter. 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 of
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
 41




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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
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.
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 June 30, 2009 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 fair 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.
 42




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RESULTS OF OPERATIONS
 General.
 Net Interest Income.
    Provision for Loan Losses.
 43




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Average Interest-Earning Assets, Average Interest-Bearing Liabilities and Interest Rate
Spread.
 44




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##### Table of Contents



Three Months Ended June 30,2009
    
    
    2008Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Cost(1)
    
    
    Balance
    
    
    Interest
    
    
    Cost(1)(Dollars In Thousands)Interest-Earning AssetsMortgage loans
    
    $
    2,972,480
    
    
    $
    40,582
    
    
    
    5.46
    %
    
    $
    3,186,986
    
    
    $
    49,613
    
    
    
    6.23
    %Consumer loans
    
    
    802,808
    
    
    
    10,747
    
    
    
    5.35
    
    
    
    728,714
    
    
    
    12,149
    
    
    
    6.67Commercial business loans
    
    
    213,646
    
    
    
    2,944
    
    
    
    5.51
    
    
    
    266,278
    
    
    
    3,949
    
    
    
    5.93Total loans receivable (2) (3)
    
    
    3,988,934
    
    
    
    54,273
    
    
    
    5.44
    
    
    
    4,181,978
    
    
    
    65,711
    
    
    
    6.29Mortgage-related securities (4)
    
    
    418,587
    
    
    
    5,576
    
    
    
    5.33
    
    
    
    274,105
    
    
    
    3,669
    
    
    
    5.35Investment securities (4)
    
    
    66,951
    
    
    
    471
    
    
    
    2.81
    
    
    
    89,338
    
    
    
    800
    
    
    
    3.58Interest-bearing deposits
    
    
    483,263
    
    
    
    269
    
    
    
    0.22
    
    
    
    62,141
    
    
    
    328
    
    
    
    2.11Federal Home Loan Bank stock
    
    
    54,829
    
    
    
    
    
    
    
    0.00
    
    
    
    54,829
    
    
    
    
    
    
    
    0.00Total interest-earning assets
    
    
    5,012,564
    
    
    
    60,589
    
    
    
    4.83
    
    
    
    4,662,391
    
    
    
    70,508
    
    
    
    6.05Non-interest-earning assets
    
    
    289,249
    
    
    
    
    
    
    
    
    
    
    
    331,141Total assets
    
    $
    5,301,813
    
    
    
    
    
    
    
    
    
    
    $
    4,993,532Interest-Bearing LiabilitiesDemand deposits
    
    $
    944,120
    
    
    
    1,366
    
    
    
    0.58
    
    
    $
    1,096,070
    
    
    
    3,259
    
    
    
    1.19Regular passbook savings
    
    
    240,204
    
    
    
    165
    
    
    
    0.27
    
    
    
    228,126
    
    
    
    266
    
    
    
    0.47Certificates of deposit
    
    
    2,792,135
    
    
    
    22,602
    
    
    
    3.24
    
    
    
    2,139,524
    
    
    
    23,317
    
    
    
    4.36Total deposits
    
    
    3,976,459
    
    
    
    24,133
    
    
    
    2.43
    
    
    
    3,463,720
    
    
    
    26,842
    
    
    
    3.10Other borrowed funds
    
    
    1,061,545
    
    
    
    10,767
    
    
    
    4.06
    
    
    
    1,143,614
    
    
    
    10,245
    
    
    
    3.58Total interest-bearing liabilities
    
    
    5,038,004
    
    
    
    34,900
    
    
    
    2.77
    
    
    
    4,607,334
    
    
    
    37,087
    
    
    
    3.22Non-interest-bearing liabilities
    
    
    51,382
    
    
    
    
    
    
    
    
    
    
    
    40,308Total liabilities
    
    
    5,089,386
    
    
    
    
    
    
    
    
    
    
    
    4,647,642Stockholders equity
    
    
    212,427
    
    
    
    
    
    
    
    
    
    
    
    345,890Total liabilities and stockholders equity
    
    $
    5,301,813
    
    
    
    
    
    
    
    
    
    
    $
    4,993,532Net interest income/interest rate spread
(5)
    
    
    
    
    
    $
    25,689
    
    
    
    2.06
    %
    
    
    
    
    
    $
    33,421
    
    
    
    2.83
    %Net interest-earning assets
    
    $
    (25,440
    )
    
    
    
    
    
    
    
    
    
    $
    55,057Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    2.05
    %
    
    
    
    
    
    
    
    
    
    
    2.87
    %Ratio of average interest-earning assets
to average interest-bearing liabilities
    
    
    0.99
    
    
    
    
    
    
    
    
    
    
    
    1.01
 
 (1)
    
    Annualized(2)
    
    For the purpose of these computations, non-accrual loans are included in the daily
average loan amounts outstanding.(3)
    
    Interest earned on loans includes loan fees (which are not material in amount) and
interest income which has
been received from borrowers whose loans were removed from non-accrual status during the period
indicated.(4)
    
    Average balances of securities available-for-sale are based on amortized cost.(5)
    
    Interest rate spread represents the difference between the weighted-average yield on
interest-earning assets and the weighted-average cost of interest-bearing liabilities and is
represented on a fully tax equivalent basis.(6)
    
    Net interest margin represents net interest income as a percentage of average
interest-earning assets. 45




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Non-Interest Income.
 Non-Interest Expense.
 Income Taxes.
    46




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FINANCIAL CONDITION
         47




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48




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ASSET QUALITY
   June 30, 2009
    
    
    March 31, 2009Non-Performing
    
    
    
    
    
    
    Percent of
    
    
    Non-Performing
    
    
    
    
    
    
    Percent ofBalance
    
    
    %
    
    
    Total Loans
    
    
    Balance
    
    
    %
    
    
    Total Loans(Dollars in Thousands)Single-family residential
    
    $
    24,143
    
    
    
    14.8
    %
    
    
    0.62
    %
    
    $
    19,753
    
    
    
    13.5
    %
    
    
    0.48
    %Multi-family residential
    
    
    17,598
    
    
    
    10.8
    %
    
    
    0.45
    %
    
    
    17,796
    
    
    
    12.2
    %
    
    
    0.43
    %Commercial real estate
    
    
    52,781
    
    
    
    32.5
    %
    
    
    1.35
    %
    
    
    40,298
    
    
    
    27.6
    %
    
    
    0.98
    %Construction and land
    
    
    54,507
    
    
    
    33.5
    %
    
    
    1.40
    %
    
    
    54,492
    
    
    
    37.3
    %
    
    
    1.33
    %Consumer
    
    
    4,027
    
    
    
    2.5
    %
    
    
    0.10
    %
    
    
    3,336
    
    
    
    2.3
    %
    
    
    0.08
    %Commercial business
    
    
    9,594
    
    
    
    5.9
    %
    
    
    0.25
    %
    
    
    10,476
    
    
    
    7.2
    %
    
    
    0.25
    %Total Non-Performing
Loans
    
    $
    162,650
    
    
    
    100.0
    %
    
    
    4.17
    %
    
    $
    146,151
    
    
    
    100.0
    %
    
    
    3.56
    %
 At June 30,
    
    
    At March 31,2009
    
    
    2009(Dollars in thousands)Total non-performing loans
    
    $
    162,650
    
    
    $
    146,151Other real estate owned (OREO)
    
    
    53,014
    
    
    
    52,563Total non-performing assets
    
    $
    215,664
    
    
    $
    198,714Performing troubled debt restructurings
    
    $
    159,538
    
    
    $
    61,460Total nonaccrual loans to total loans (1)
    
    
    4.17
    %
    
    
    3.56
    %Total nonperforming assets to total assets
    
    
    4.07
    
    
    
    3.77Allowance for loan losses to total loans (1)
    
    
    3.63
    
    
    
    3.34Allowance for loan losses to total non-accrual loans
    
    
    86.92
    
    
    
    93.85Allowance for loan and foreclosure losses to total
non-performing assets
    
    
    69.28
    
    
    
    73.48
 
 (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.  49




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MostRecorded
    
    
    Date
    
    
    RecentBalance
    
    
    Placed in
    
    
    AppraisalDescription
    
    Location
    
    
    (in millions)
    
    
    OREO
    
    
    DateCondominium project
    
    Southern Wisconsin
    
    $
    3.1
    
    
    
    8/14/2007
    
    
    
    N/AConstruction company/equipment
    
    Southern Wisconsin
    
    
    4.0
    
    
    
    1/29/2009
    
    
    
    N/APartially constructed condominium and retail
complex
    
    Southern Wisconsin
    
    
    5.5
    
    
    
    12/31/2008
    
    
    
    11/1/2008Partially constructed condominium project
    
    Central Wisconsin
    
    
    12.8
    
    
    
    3/31/2009
    
    
    
    1/1/2006Apartment building
    
    Minnesota
    
    
    3.3
    
    
    
    6/18/2008
    
    
    
    4/28/2009Property secured by CBRF
    
    Northeast Wisconsin
    
    
    4.4
    
    
    
    12/31/2008
    
    
    
    3/1/2009Several single family properties
    
    Minnesota
    
    
    6.9
    
    
    
    9/16/2008
    
    
    
    6/1/2007Commercial/retail buildings
    
    Northeast Wisconsin
    
    
    1.6
    
    
    
    6/22/2009
    
    
    
    6/30/2005Commercial building
    
    Southern Wisconsin
    
    
    1.3
    
    
    
    4/27/2009
    
    
    
    7/11/2008Commercial/retail building
    
    Southern Wisconsin
    
    
    1.1
    
    
    
    4/29/2009
    
    
    
    6/27/2005Other properties individually less than $1 million
    
    
    
    
    
    
    17.0Valuation allowance on OREO
    
    
    
    
    
    
    (8.0
    )$
    53.0
     50




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##### Table of Contents



At June 30,
    
    
    At March 31,2009
    
    
    2009
    
    
    2008
    
    
    2007(In Thousands)Impaired loans with valuation
reserve required
    
    $
    343,236
    
    
    $
    294,736
    
    
    $
    52,866
    
    
    $
    2,130Impaired loans without a
specific reserve
    
    
    169,802
    
    
    
    193,637
    
    
    
    51,192
    
    
    
    45,718Total impaired loans
    
    
    513,038
    
    
    
    488,373
    
    
    
    104,058
    
    
    
    47,848Less:Specific valuation allowance
    
    
    (80,185
    )
    
    
    (73,255
    )
    
    
    (17,639
    )
    
    
    (517
    )$
    432,853
    
    
    $
    415,118
    
    
    $
    86,419
    
    
    $
    47,331Average impaired loans
    
    $
    328,830
    
    
    $
    247,034
    
    
    $
    67,138
    
    
    $
    26,458Interest income recognized
on impaired loans
    
    $
    4,123
    
    
    $
    21,637
    
    
    $
    107
    
    
    $
    44Loans on nonaccrual status
    
    $
    513,038
    
    
    $
    488,373
    
    
    $
    101,241
    
    
    $
    47,040Loans past due ninety days or more and
still accruing
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Performing troubled debt restructurings
    
    $
    159,538
    
    
    $
    61,460
    
    
    $
    400
    
    
    $
    400
  At June 30,
    
    
    At March 31,2009
    
    
    2009
    
    
    2008
    
    
    2007(In Thousands)30 to 59 days
    
    $
    48,620
    
    
    $
    64,862
    
    
    $
    66,617
    
    
    $
    12,77660 to 89 days
    
    
    36,345
    
    
    
    29,858
    
    
    
    12,928
    
    
    
    5,414Total
    
    $
    84,965
    
    
    $
    94,720
    
    
    $
    79,545
    
    
    $
    18,190
   51




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##### Table of Contents



Three Months EndedJune 30,2009
    
    
    2008(Dollars In Thousands)Allowance at beginning of period
    
    $
    137,165
    
    
    $
    38,285Charge-offs:Construction
    
    
    (1,323
    )Mortgage
    
    
    (8,623
    )
    
    
    (5,216
    )Consumer
    
    
    (676
    )
    
    
    (266
    )Commercial business
    
    
    (5,629
    )
    
    
    (1,944
    )Total charge-offs
    
    
    (16,251
    )
    
    
    (7,426
    )Recoveries:Mortgage
    
    
    226
    
    
    
    Consumer
    
    
    17
    
    
    
    6Commercial business
    
    
    821
    
    
    
    Total recoveries
    
    
    1,064
    
    
    
    6Net (charge-offs) recoveries
    
    
    (15,187
    )
    
    
    (7,420
    )Provision for loan losses
    
    
    19,400
    
    
    
    9,400Allowance at end of period
    
    $
    141,378
    
    
    $
    40,265Net charge-offs to average loans
    
    
    (1.52
    )%
    
    
    (0.71
    )%
  52




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LIQUIDITY AND CAPITAL RESOURCES
      Credit Agreement
  53




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##### Table of Contents



Minimum RequiredMinimum Required
    
    to be WellFor Capital
    
    Capitalized UnderActual
    
    Adequacy Purposes
    
    OTS RequirementsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars In Thousands)At June 30, 2009:Tier 1 capital(to adjusted tangible assets)
    
    $
    319,363
    
    
    
    6.05
    %
    
    $
    158,419
    
    
    
    3.00
    %
    
    $
    264,032
    
    
    
    5.00
    %Risk-based capital(to risk-based assets)
    
    
    363,736
    
    
    
    10.53
    
    
    
    276,226
    
    
    
    8.00
    
    
    
    345,283
    
    
    
    10.00Tangible capital(to tangible assets)
    
    
    319,363
    
    
    
    6.05
    
    
    
    79,210
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/AAt March 31, 2009:Tier 1 capital(to adjusted tangible assets)
    
    $
    324,130
    
    
    
    6.17
    %
    
    $
    157,527
    
    
    
    3.00
    %
    
    $
    262,545
    
    
    
    5.00
    %Risk-based capital(to risk-based assets)
    
    
    370,680
    
    
    
    10.20
    
    
    
    290,670
    
    
    
    8.00
    
    
    
    363,338
    
    
    
    10.00Tangible capital(to tangible assets)
    
    
    324,130
    
    
    
    6.17
    
    
    
    78,763
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/A
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June 30,
    
    
    March 31,2009
    
    
    2009(In Thousands)Stockholders equity of the Bank
    
    $
    319,561
    
    
    $
    322,505Less: Goodwill and intangible assets
    
    
    (4,567
    )
    
    
    (4,725
    )Accumulated other comprehensive income
    
    
    4,369
    
    
    
    6,350Tier 1 and tangible capital
    
    
    319,363
    
    
    
    324,130Plus: Allowable general valuation allowances
    
    
    44,373
    
    
    
    46,550Risk-based capital
    
    $
    363,736
    
    
    $
    370,680
 
 GUARANTEES
   Amount
    
    
    AmountSubsidiary
    
    Partnership
    
    
    Amount
    
    
    Outstanding
    
    
    Outstandingof IDI
    
    Entity
    
    
    Guaranteed
    
    
    at 6/30/09
    
    
    at 3/31/09(Dollars in thousands)Oakmont
    
    Chandler Creek
    
    $
    
    
    
    $
    
    
    
    $
    Davsha III
    
    Indian Palms 147, LLC
    
    
    1,000
    
    
    
    483
    
    
    
    476Davsha V
    
    Villa Santa Rosa, LLC
    
    
    500
    
    
    
    351
    
    
    
    346Davsha VII
    
    La Vista Grande 121, LLC
    
    
    15,000
    
    
    
    13,988
    
    
    
    13,742Total
    
    
    
    
    
    $
    16,500
    
    
    $
    14,822
    
    
    $
    14,564
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ASSET/LIABILITY MANAGEMENT
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REGULATORY DEVELOPMENTS
 Temporary Liquidity Guarantee Program
  Emergency Economic Stabilization Act of 2008
  
    
    Capital Purchase Program (CPP). Pursuant to this program, Treasury, on behalf of the US
government, will purchase preferred stock, along with warrants to purchase common stock, from
certain financial institutions, including bank holding companies, savings and loan holding
companies and banks or savings associations not controlled by a holding company. The
investment will have a dividend rate of 5% per year, until the fifth anniversary of Treasurys
investment and a dividend of 9% thereafter. During the time Treasury holds securities issued
pursuant to this program, participating financial institutions will be required to comply with
certain provisions regarding executive compensation and corporate governance. Participation
in this program also imposes certain restrictions upon an institutions dividends to common
shareholders and stock repurchase activities. We elected to participate in the CPP and
received $110 million pursuant to the program.
 
    
    Temporary Liquidity Guarantee Program. This program contained both (i) a debt guarantee
component, whereby the FDIC will guarantee until June 30, 2012, the senior unsecured debt
issued by eligible financial institutions between October 14, 2008 and June 30, 2009; and (ii)
an account transaction guarantee component, whereby the FDIC will insure 100% of non-interest
bearing deposit transaction accounts held at eligible financial institutions, such as payment
processing accounts, payroll accounts and working capital accounts through December 31, 2009.
The deadline for participation or opting out of this program was December 5, 2008. We elected
not to opt out of the program.
 
    
    Temporary increase in deposit insurance coverage. Pursuant to the EESA, the FDIC temporarily
raised the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per
depositor. The EESA provides that the basic deposit insurance limit will return to $100,000
after December 31, 2009.
 The American Recovery and Reinvestment Act of 2009
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
    
    the development of a public/private investment fund essentially structured as a
government sponsored enterprise with the mission to purchase troubled assets from banks
with an initial capitalization from government funds;
    
    the Capital Assistance Program under which the Treasury will purchase
additional preferred stock available only for banks that have undergone a new stress
test given by their regulator;
    
    an expansion of the Federal Reserves term asset-backed liquidity facility to
support the purchase of up to $1 trillion in AAA  rated asset backed securities
backed by consumer, student, and small business loans, and possible other types of
loans; and
    
    the establishment of a mortgage loan modification program with $50 billion in
federal funds further detailed in the HASP.
   OTS Order to Cease and Desist
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FORWARD-LOOKING STATEMENTS
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Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk.The Corporations market rate risk has not materially changed from March 31, 2009.
See Item 7A in the Corporations Annual Report on Form 10-K for the year ended March
31, 2009. See also Asset/Liability Management in Part I, Item 2 of this report.
 
 Item 4
    
    Controls and Procedures.Internal Control over Financial ReportingIn our 10K for the fiscal year ended March 31, 2009, the Corporation identified
material weaknesses in its internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act) related to the following:
 1.
    
    Our Internal Control over Financial Reporting related to the
allowance for loan losses and the completeness and accuracy of the provision
for loan losses contained multiple deficiencies that represent material
weaknesses. Specifically the Corporation failed to:
 
    
    Maintain policies and procedures to ensure that loan personnel performed
an analysis adequate to risk classify the loan portfolio.
    
    Effectively monitor the loan portfolio and identify problem loans in a
timely manner.
    
    Maintain policies and procedures to ensure that SFAS No. 114 Accounting
by Creditors for Impairment of a Loandocumentation is prepared timely,
accurately and subject to supervisory review.
    
    Receive current financial information on problem loans, in a timely
manner, to ensure that these loans were evaluated for impairment under SFAS
No. 114.
    
    Establish policies and procedures to ensure that an impairment
calculation is prepared for all loans identified as impaired and that the
impairment calculation is updated on a quarterly basis.
    
    Effectively monitor problem loans to ensure that recent appraisals are
used to support collateral valuation utilized in the impairment analysis.
    
    Maintain policies and procedures to ensure that the supporting
documentation for the allowance for loan loss calculation is reviewed and
tested by an individual independent of the allowance for loan loss process.
    
    Re-evaluate the qualitative factors used in the allowance calculation on
a quarterly basis to assess the continued decline in the local and national
economy; exacerbation of certain
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negative trends in real estate values; increasing regional unemployment levels; slowed demand for both new and
existing housing; and the resulting stress on the Banks real estate and
development portfolios.
 2.
    
    The Corporation did not maintain effective controls over
financial reporting over impairment charges, related to Other Real Estate Owned
(OREO). The existing policies and procedures did not provide for sufficient
supervisory controls around the valuation and recording of impairment charges
for other real estate owned to ensure impairment charges were properly
recognized and recorded.3.
    
    The Corporation did not maintain effective entity-level
controls to ensure that the financial statements were prepared in accordance
with generally accepted accounting principles. This material weakness was
identified by our auditors when they reviewed the financial statements and
identified disclosures that either required significant modification or were
missing altogether. The weakness relates primarily to disclosures required as
a result of changing economic conditions, adoption of new accounting standards,
and disclosure of unusual significant transactions. This material weakness was
evidenced by the ineffective preparation of the financial statements and
resulted from the lack of the necessary supervisory review to ensure accurate
presentation and disclosure in the financial statements.
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Changes in Internal Control Over Financial Reporting
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Part II  Other Information
 
 Item 1
    
    Legal Proceedings.The Corporation is involved in routine legal proceedings occurring in the ordinary
course of business which, in the aggregate, are believed by management of the
Corporation to be immaterial to the financial condition and results of operations of
the Corporation.
 
 Item 1A
    
    Risk Factors.In addition to the risk factors set forth below and the other information set forth
in this report, you should carefully consider the factors discussed in Part I, Item
1A. Risk Factors in our Annual Report filed on Form 10-K for the fiscal year ended
March 31, 2009, which could materially affect our business, financial condition or
future results.Risks Related to Our BusinessWe experienced a net loss in the first quarter of fiscal 2010 directly attributable
to a substantial deterioration in our residential construction and residential land
loan portfolio and the resulting increase in our provision for loan losses.We realized a net loss of $11.8 million in the first quarter of fiscal 2010. The net
loss is the direct result of an impairment charge of a $19.4 million provision to
our loan loss reserve. The loan loss reserve is the amount required to maintain the
allowance for loan losses at an adequate level to absorb probable loan losses. The
increase in the provision for loan losses is primarily attributable to our
residential construction and residential land loan portfolios, which continue to
experience deterioration in estimated collateral values and repayment abilities of
some of our customers. Other reasons for the increase in the provision for loan
losses are attributable to an overall increase in nonperforming assets and the
continuing general weakening economic conditions and decline in real estate values
in the markets served by the Corporation.At June 30, 2009, our non-performing loans (loans past due 90 days or more) were
$162.7 million compared to $146.2 million at March 31, 2009 and our loans classified
as substandard were $557.7 million compared to $504.5 million at March 31, 2009. For
the three months ended June 30, 2009, annualized net charge-offs as a percentage of
average loans were (1.52)% compared to (0.71)% for the corresponding period in 2008.
These increases are primarily due to our commercial, residential construction and
residential land loan portfolios.At June 30, 2009, approximately 74% of total gross loans were classified as first
mortgage loans, with approximately 6% of loans being classified as construction
loans and approximately 7% being classified as land loans.The deterioration in our construction and land loan portfolios has been caused
primarily by the weakening economy and the slow down in sales of the housing market.
The local unemployment rate was 9.2% as of June 30, 2009 compared to 9.4% at March
31, 2009. With many real estate projects requiring an extended time to market, some
of our borrowers have exhausted their liquidity which may require us to place their
loans into nonaccrual status.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.Our ability to make loans is directly related to our ability to secure funding.
Retail deposits and core deposits are our primary source of liquidity. We also use
brokered CDs, which are rate
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sensitive. We also rely on advances from the FHLB of Chicago as a funding source.
We have also been granted access to the Fed fund line with a correspondent bank as
well as the Federal Reserve Bank of Chicagos discount window, none of which had
been borrowed as of June 30, 2009. In addition as of June 30, 2009, the Corporation
had outstanding borrowings from the FHLB of $849.7 million, out of our maximum
borrowing capacity of $1.10 billion, from the FHLB at this time.Primary uses of funds include withdrawal of and interest payments on deposits,
originations of loans and payment of operating expenses. Core deposits represent a
significant source of low-cost funds. Alternative funding sources such as large
balance time deposits or borrowings are a comparatively higher-cost source of funds.
Liquidity risk arises from the inability to meet obligations when they come due or
to manage unplanned decreases or changes in funding sources. Although we believe we
can continue to pursue our core deposit funding strategy successfully, significant
fluctuations in core deposit balances may adversely affect our financial condition
and results of operations.Additional increases in our level of non-performing assets will have an adverse
effect on our financial condition and results of operations.Weakening conditions in the real estate sector have adversely affected, and may
continue to adversely affect, our loan portfolio. Non-performing assets increased by
$17.0 million to $215.7 million, or 4.1% of total assets, at June 30, 2009 from
$198.7 million, or 3.8% of total assets, at March 31, 2009. Comparatively,
non-performing assets increased by $89.2 million to $198.7 million, or 3.8% of total
assets, at March 31, 2009, from $109.5 million, or 2.1% of total assets, at March
31, 2008. If loans that are currently non-performing further deteriorate we would
need to increase our allowance to cover additional charge-offs. If loans that are
currently performing become non-performing, we may need to continue to increase our
allowance for loan losses if additional losses are anticipated, which would have an
adverse impact on our financial condition and results of operations. The increased
time and expense associated with the work out of non-performing assets and potential
non-performing assets also could adversely affect our operations.Future sales or other dilution of the Corporations equity may adversely affect the
market price of the Corporations common stock.In connection with our participation in the CPP the Corporation has, or under other
circumstances the Corporation may, issue additional common stock or preferred
securities, including securities convertible or exchangeable for, or that represent
the right to receive, common stock. Further, pursuant to the cease and desist order
with the OTS, the Bank must meet certain capital ratios which may require additional
equity capital, which would significantly dilute the current shareholders. The
market price of the Corporations common stock could decline as a result of sales of
a large number of shares of common stock, preferred stock or similar securities in
the market. The issuance of additional common stock would dilute the ownership
interest of the Corporations existing shareholders.Holders of our common stock have no preemptive rights and are subject to potential
dilution.Our certificate of incorporation does not provide any shareholder with a preemptive
right to subscribe for additional shares of common stock upon any increase thereof.
Thus, upon the issuance of any additional shares of common stock or other voting
securities of the Company or securities convertible into common stock or other
voting securities, shareholders may be unable to maintain their pro rata voting or
ownership interest in us.
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On June 26, 2009, the Corporation and the Bank each consented to the issuance of an
Order to Cease and Desist by the Office of Thrift Supervision. If we do not raise
additional capital, we may not be in compliance with the capital requirements of the
Banks Cease and Desist Order, which could have a material adverse effect upon us.The Cease and Desist Orders require that, no later than September 30, 2009, the Bank
meet and maintain both a core capital ratio equal to or greater than 7 percent and a
total risk-based capital ratio equal to or greater than 11 percent. Further, no
later than December 31, 2009, the Bank must meet and maintain both a core capital
ratio equal to or greater than 8 percent and a total risk-based capital ratio equal
to or greater than 12 percent. At June 30, 2009, the Bank, based upon presently
available unaudited financial information, had a core capital ratio of 6.05 percent
and a total risk-based capital ratio of 10.53 percent, each above the level needed
for an institution to be categorized as well-capitalized but below the required
capital ratios set forth above. The Company is working with its advisors to explore
possible alternatives to raise additional equity capital. If completed, any such
transaction would likely result in significant dilution for the current common
shareholders. No agreements have been reached with respect to any possible capital
infusion transaction.To date, in the current economic environment, the Bank has not been able to raise
sufficient additional capital to ensure compliance with the capital requirements of
the Cease and Desist Order. Without a waiver by OTS or amendment or modification of
the Cease and Desist Order, the Bank could be subject to further regulatory
enforcement action, including, without limitation, the issuance of additional cease
and desist orders (which may, among other things, further restrict the Bank s
business activities, or place the Bank in conservatorship or receivership). If the
Bank is placed in conservatorship or receivership, it is highly likely that such
action would lead to a complete loss of all value of the Companys ownership
interest in the Bank. In addition, further restrictions could be placed on the Bank
if it were determined that the Bank was undercapitalized, significantly
undercapitalized, or critically undercapitalized, with increasingly greater
restrictions being imposed as any level of undercapitalization increased.Although the Bank is considered well capitalized for regulatory purposes as of
June 30, 2009, we will incur increased premiums for deposit insurance, require FDIC
approval to gather brokered deposits, and will trigger acceleration of the maturity
of certain of our brokered deposits if we fall below the well capitalized
threshold.As of June 30, 2009, the Bank is considered well capitalized for regulatory
capital purposes. If we fall below well capitalized, the FDIC will assess higher
deposit insurance premiums on the Bank, which will impact our earnings. In addition,
we will be required to obtain FDIC approval to gather brokered deposits during such
times as we remain adequately capitalized for regulatory capital purposes.
Requiring us to obtain regulatory approval prior to accepting brokered deposits will
affect our ability to increase our liquidity position, in some cases, in a timely
manner.Our allowance for losses on loans and leases may not be adequate to cover probable
losses.Our level of non-performing loans increased significantly in the fiscal year ended
March 31, 2009 and for the three months ended June 30, 2009, relative to comparable
periods for the preceding year. Our provision for loan losses increased by $183.1
million to $205.7 million for the fiscal year ended March 31, 2009 from $22.6
million for the fiscal year ended March 31, 2008. Our provision for loan losses was
$19.4 million for the three months ended June 30, 2009 compared to $56.4 million
for the three months ended March 31, 2009. Our allowance for loan losses increased
by $4.2 million to $141.4 million, or 3.6% of total loans, at June 30, 2009 from
$137.2 million, or 3.3% of total loans at March 31, 2009. Our allowance for loan
losses also increased by $98.9 million to $137.2 million, or 3.3% of total loans, at
March 31, 2009, from $38.3 million, or 0.9% of total loans, at March 31, 2008. Our
allowance for loan and foreclosure
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losses was 69.3%
at June 30, 2009, 73.5% at March 31, 2009 and 35.0% at March 31, 2008, respectively,
of non-performing assets. There can be no assurance that any future declines in real
estate market conditions and values, general economic conditions or changes in
regulatory policies will not require us to increase our allowance for loan and lease
losses, which would adversely affect our results of operations.Our real estate operations have had and may continue to have an adverse effect on
our results of operations.We conduct real estate operations through Investment Directions, Inc, a wholly owned
subsidiary, which invests in various real estate subsidiaries and partnerships and
conducts real estate development and sales throughout California, Texas and
Minnesota. As a result of weakening conditions in the real estate market and reduced
sales of its properties, we have incurred losses from the operations of its real
estate subsidiaries in recent years, which are expected to continue unless the real
estate market improves. Losses from IDIs real estate operations were $566,000 for
the three months ended June 30, 2009 compared to $13.8 million for the three months
ended March 31, 2009. Losses from IDIs real estate operations increased by $16.1
million to $18.4 million for the fiscal year ended March 31, 2009 from $2.3 million
for the fiscal year March 31, 2008. The increased loss for the year ended March 31,
2009 was the result of management applying a $17.6 million valuation allowance for
the decline in the appraised value of real estate. We have no current plans to
engage in additional real estate investment activities through IDI and are exploring
opportunities to sell or otherwise divest IDIs current investments as soon as
practicable. Additional losses from our real estate operations would have an adverse
effect on our results of operations and capital.Future Federal Deposit Insurance Corporation assessments will hurt our earnings.In May 2009, the Federal Deposit Insurance Corporation adopted a final rule imposing
a special assessment on all insured institutions due to recent bank and savings
association failures. The emergency assessment amounts to 5 basis points of total
assets minus Tier 1 Capital as of June 30, 2009. We recorded an expense of $2.5
million during the quarter ended June 30, 2009, to reflect the special assessment.
The assessment will be collected on September 30, 2009 and recorded against earnings
for the quarter ended June 30, 2009. The special assessment will negatively impact
the Companys earnings and the Company expects that non-interest expenses will
increase approximately $2.5 million for the year ended March 31, 2010 as compared to
the year ended March 31, 2009 as a result of this special assessment. In addition,
the final rule allows the Federal Deposit Insurance Corporation to impose additional
emergency special assessments of up to 5 basis points per quarter for the third and
fourth quarters of 2009 if necessary to maintain public confidence in federal
deposit insurance or as a result of deterioration in the deposit insurance fund
reserve ratio due to institution failures. Any additional emergency special
assessment imposed by the FDIC will further hurt the Companys earnings.We are not paying dividends on our preferred stock or common stock and are deferring
distributions on our trust preferred securities, and we are restricted in otherwise
paying cash dividends on our common stock. The failure to resume paying dividends on
our preferred stock and trust preferred securities may adversely affect us.We historically paid cash dividends before we suspended dividend payments on our
common stock. The Federal Reserve, as a matter of policy, has indicated that bank
holding companies should not pay dividends using funds from the TARP CPP. There is
no assurance that we will resume paying cash dividends. Even if we resume paying
dividends, future payment of cash dividends on our common stock, if any, will be
subject to the prior payment of all unpaid dividends and deferred distributions on
our Series B Preferred Stock. Further, we need prior Treasury approval to increase
our quarterly cash dividends prior to January 30, 2012, or until the date we redeem
all shares of Series B Preferred Stock or the Treasury has transferred all shares of
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Series B Preferred Stock to third parties. All dividends are declared and paid at
the discretion of our board of directors and are dependent upon our liquidity,
financial condition, results of operations, capital requirements and such other
factors as our board of directors may deem relevant.Further, dividend payments on our Series B Preferred Stock are cumulative and
therefore unpaid dividends and distributions will accrue and compound on each
subsequent dividend payment date. In the event of any liquidation, dissolution or
winding up of the affairs of our company, holders of the Series B Preferred Stock
shall be entitled to receive for each share of Series B Preferred Stock the
liquidation amount plus the amount of any accrued and unpaid dividends. If we miss
six quarterly dividend payments, whether or not consecutive, the Treasury will have
the right to appoint two directors to our board of directors until all accrued but
unpaid dividends have been paid. We have deferred two dividend payments on the
Series B Preferred Stock held by Treasury.Risks Related to Our Credit AgreementWe are party to a credit agreement that requires us to observe certain covenants
that limit our flexibility in operating our business.We are party to a Credit Agreement, dated as of June 9, 2008, by and among the
Corporation, the financial institutions from time to time party to the agreement and
U.S. Bank National Association, as administrative agent for the lenders, as amended
by Amendment No. 4 to Amended and Restated Credit Agreement, dated as of May 29,
2009 (the Credit Agreement). The Credit Agreement requires us to comply with
affirmative and negative covenants customary for restricted indebtedness. These
covenants limit our ability to, among other things:
 
    
    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.
 The Credit Agreement includes operating covenants covering, among other things, our
capital ratios and non-performing asset levels. Additional operating covenants cover
the Banks dividend payments and set minimum net income requirements.A breach of any of these covenants could result in a default under the Credit
Agreement. Upon the occurrence of an event of default, all amounts outstanding under
the Credit Agreement could become immediately due and payable. The lenders are under
no obligation to make additional loans and amounts repaid by the Corporation may not
be reborrowed. If we are unable to repay those amounts, the lenders could proceed
against the collateral granted to them to secure that indebtedness. If the lenders
under the secured credit facilities accelerate the repayment of borrowings, we may
not have sufficient assets to make the payments when due.
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We must pay in full the outstanding balance under the Credit Agreement by the
earlier of May 31, 2010 or the receipt of net proceeds of a financing transaction
from the sale of equity securities.As of June 30, 2009, the total revolving loan commitment under the Credit Agreement
was $116.3 million and aggregate borrowings under the Credit Agreement were $116.3
million. We must pay in full the outstanding balance under the Credit Agreement by
the earlier of May 31, 2010 or the receipt of net proceeds of a financing
transaction from the sale of equity securities. If the net proceeds are received
from the U.S. Department of the Treasury and the terms of such investment prohibit
the use of the investment proceeds to repay senior debt, then no payment is required
from the Treasury investment. As of the date of this filing, we do not have
sufficient cash on hand to reduce our outstanding borrowings to zero. There can be
no assurance that we will be able to raise sufficient capital or have sufficient
cash on hand to reduce our outstanding borrowings to zero by May 31, 2010, which may
limit our ability to fund ongoing operations.Unless the maturity date is extended, our outstanding borrowings under our Credit
Agreement are due on May 31, 2010. The Credit Agreement does not include a
commitment to refinance the remaining outstanding balance of the loans when they
mature and there is no guarantee that our lenders will renew their loans at that
time. Refusal to provide us with renewals or refinancing opportunities would cause
our indebtedness to become immediately due and payable upon the contractual maturity
of such indebtedness, which could result in our insolvency if we are unable to repay
the debt.If we fail to meet our payment obligations under the Credit Agreement, such failure
will constitute an event of default. When an event of default occurs, the agent, on
behalf of the lenders may, among other remedies, seize the outstanding shares of the
Banks capital stock held by the Corporation or other securities or assets of the
Corporations subsidiaries which have been pledged as collateral for borrowings
under the Credit Agreement. If the Agent were to take one or more of these actions,
it could have a material adverse affect on our reputation, operations and ability to
continue as a going concern, and you could lose your investment in the securities.If we are unable to renew, replace or expand our sources of financing on acceptable
terms, it may have an adverse effect on our business and results of operations and
our ability to make distributions to shareholders. Upon liquidation, holders of our
debt securities and lenders with respect to other borrowings will receive, and any
holders of preferred stock that is currently outstanding and that we may issue in
the future may receive, a distribution of our available assets prior to holders of
our common stock. The decisions by investors and lenders to enter into equity and
financing transactions with us will depend upon a number of factors, including our
historical and projected financial performance, compliance with the terms of our
current credit arrangements, industry and market trends, the availability of capital
and our investors and lenders policies and rates applicable thereto, and the
relative attractiveness of alternative investment or lending opportunities.Risks Related to Recent Market, Legislative and Regulatory EventsThe TARP CPP and the ARRA impose certain executive compensation and corporate
governance requirements that may adversely affect us and our business, including our
ability to recruit and retain qualified employees.The purchase agreement we entered into in connection with our participation in the
TARP CPP required us to adopt the Treasurys standards for executive compensation
and corporate governance while the Treasury holds the equity issued pursuant to the
TARP CPP, including the common stock which may be issued pursuant to the warrant to
purchase 7,399,103 shares of common stock. These standards generally apply to our
chief executive officer, chief financial
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officer and the three next most highly compensated senior executive officers. The
standards include:
 
    
    ensuring that incentive compensation for senior executives does not
encourage unnecessary and excessive risks that threaten the value of the
financial institution;
    
    required clawback of any bonus or incentive compensation paid to a
senior executive based on statements of earnings, gains or other criteria
that are later proven to be materially inaccurate;
    
    prohibition on making golden parachute payments to senior executives;
and
    
    agreement not to deduct for tax purposes executive compensation in
excess of $500,000 for each senior executive.
 In particular, the change to the deductibility limit on executive compensation may
increase the overall cost of our compensation programs in future periods.The ARRA imposed further limitations on compensation during the TARP Assistance
Period including
 
    
    a prohibition on making any golden parachute payment to a senior
executive officer or any of our next five most highly compensated
employees;
    
    a prohibition on any compensation plan that would encourage manipulation
of the reported earnings to enhance the compensation of any of its
employees; and
    
    a prohibition of the five highest paid executives from receiving or
accruing any bonus, retention award, or incentive compensation, or bonus
except for long-term restricted stock with a value not greater than
one-third of the total amount of annual compensation of the employee
receiving the stock.
 The prohibition may expand to other employees based on increases in the aggregate
value of financial assistance that we receive in the future.The Treasury released an interim final rule on TARP standards for compensation and
corporate governance on June 10, 2009, which implemented and further expanded the
limitations and restrictions imposed on executive compensation and corporate
governance by the TARP CPP and ARRA. The new Treasury interim final rules, which
became effective on June 15, 2009, also prohibit any tax gross-up payments to senior
executive officers and the next 20 highest paid executives. The rule further
authorizes the Treasury to establish the Office of the Special Master for TARP
Executive Compensation with broad powers to review compensation plans and corporate
governance matters of TARP recipients.These provisions and any future rules issued by the Treasury could adversely affect
our ability to attract and retain management capable and motivated sufficiently to
manage and operate our business through difficult economic and market conditions. If
we are unable to attract and retain qualified employees to manage and operate our
business, we may not be able to successfully execute our business strategy.TARP lending goals may not be attainable.Congress and the bank regulators have encouraged recipients of TARP capital to use
such capital to make loans and it may not be possible to safely, soundly and
profitably make sufficient loans to
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creditworthy persons in the current economy to satisfy such goals. Congressional
demands for additional lending by TARP capital recipients, and regulatory demands
for demonstrating and reporting such lending are increasing. On November 12, 2008,
the bank regulatory agencies issued a statement encouraging banks to, among other
things, lend prudently and responsibly to creditworthy borrowers and to work with
borrowers to preserve homeownership and avoid preventable foreclosures. We continue
to lend and have expanded our mortgage loan originations, and to report our lending
to the Treasury. The future demands for additional lending are unclear and
uncertain, and we could be forced to make loans that involve risks or terms that we
would not otherwise find acceptable or in our shareholders best interest. Such
loans could adversely affect our results of operation and financial condition, and
may be in conflict with bank regulations and requirements as to liquidity and
capital. The profitability of funding such loans using deposits may be adversely
affected by increased FDIC insurance premiums.
 
 Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds.As of June 30, 2009, the Corporation does not have a stock repurchase plan in place.
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Item 3
    
    Defaults upon Senior Securities.Not applicable.
 
 Item 4
    
    Submission of Matters to a Vote of Security Holders.The Annual Meeting of Stockholders was held on July 28, 2009. There were
21,578,713 shares of common stock eligible to be voted, and 18,107,095 shares
present at the meeting by holders thereof in person or by proxy which constituted a
quorum. The following is a summary of the results of items voted upon.
 Number of VotesFor
    
    WithheldElection of Directors for three-year terms
expiring in 2012:Chris M. Bauer
    
    
    15,941,572
    
    
    
    2,165,523Holly Cremer Berkenstadt
    
    
    16,130,315
    
    
    
    1,976,780Donald D. Kropidlowski
    
    
    16,005,007
    
    
    
    2,102,088
 BrokerFor
    
    Against
    
    Abstained
    
    non-voteApproval of the issuance of common stock to
permit full exercise of the warrant issued to
the Department of Treasury
    
    
    11,292,708
    
    
    
    483,109
    
    
    
    642,313
    
    
    
    5,688,965
 For
    
    Against
    
    AbstainedNon-binding resolution on executive compensation
    
    
    15,279,380
    
    
    
    2,117,921
    
    
    
    709,794
 For
    
    Against
    
    AbstainedAppointment of McGladrey & Pullen LLP as independent
registered public accounting firm for the fiscal
year ending March 31, 2010
    
    
    16,023,545
    
    
    
    1,502,066
    
    
    
    581,484
 BrokerFor
    
    Against
    
    Abstained
    
    non-voteShareholder proposal for independent Chairman
    
    
    3,531,705
    
    
    
    8,126,854
    
    
    
    759,571
    
    
    
    5,688,965
 
 Item 5
    
    Other Information.Not applicable.
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Item 6
    
    Exhibits.The following exhibits are filed with this report:
 Exhibit 31.1
    
    Certification of Chief Executive Officer Pursuant to Rules 13a-14 and
15d-14 of the Securities Exchange Act of 1934 and Section 302 of the
Sarbanes-Oxley Act of 2002 is included herein as an exhibit to this Report.Exhibit 31.2
    
    Certification of Chief Financial Officer Pursuant to Rules 13a-14 and
15d-14 of the Securities Exchange Act of 1934 and Section 302 of the
Sarbanes-Oxley Act of 2002 is included as an exhibit to this Report.Exhibit 32.1
    
    Certification of the Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) is included herein as an
exhibit to this Report.Exhibit 32.2
    
    Certification of the Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) is included herein as an
exhibit to this Report.
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SIGNATURES
  ANCHOR BANCORP WISCONSIN INC.Date: August 7, 2009
    By:
    /s/ Chris BauerChris Bauer, President and Chief Executive OfficerDate: August 7, 2009
    By:
    /s/ Dale C. RinggenbergDale C. Ringgenberg, Treasurer andChief Financial Officer 73