##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 COMMISSION FILE NUMBER 0-20006
 ANCHOR BANCORP WISCONSIN INC.
 (Exact name of registrant as specified in its charter)
 Wisconsin
    
    39-1726871(State or other jurisdiction of (IRS Employer Identification No.) 
incorporation or organization)
 25 West Main StreetMadison, Wisconsin
    
    53703(Address of principal executive office)
    
    (Zip Code)
 Registrants telephone number, including area code
 (Former name, former address, and former fiscal year, if changed since last report)
  þ o
  o þ 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 December 31, 2006 and March 31, 2006
    
    
    2Consolidated Statements of Income for the Three and Nine Months Ended December 31, 2006 and 2005
    
    
    3Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2006 and 2005
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Results of Operations
    
    
    26Financial Condition
    
    
    31Asset Quality
    
    
    32Liquidity & Capital Resources
    
    
    35Guarantees
    
    
    37Asset/Liability Management
    
    
    38Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 4
    
    Controls and Procedures
    
    
    39Part II  Other InformationItem 1
    
    Legal Proceedings
    
    
    39Item 1A
    
    Risk Factors
    
    
    39Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    40Item 3
    
    Defaults upon Senior Securities
    
    
    40Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    40Item 5
    
    Other Information
    
    
    40Item 6
    
    Exhibits
    
    
    41Signatures
    
    
    42Section 302 Certification of Chief Executive OfficerSection 302 Certification of Chief Financial OfficerSection 906 Certification of Chief Executive OfficerSection 906 Certification of Chief Financial Officer
  1




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Balance Sheets
 December 31,
    
    
    March 31,2006
    
    
    2006(Unaudited)(In Thousands, Except Share Data)AssetsCash
    
    $
    87,379
    
    
    $
    66,192Interest-bearing deposits
    
    
    63,725
    
    
    
    86,352Cash and cash equivalents
    
    
    151,104
    
    
    
    152,544Investment securities available for sale
    
    
    41,990
    
    
    
    49,521Mortgage-related securities available for sale
    
    
    258,685
    
    
    
    247,438Mortgage-related securities held to maturity (fair value of $70
and $77, respectively)
    
    
    70
    
    
    
    77Loans, less allowance for loan losses of $20,031 at December 31, 2006
and $15,570 at March 31, 2006:Held for sale
    
    
    4,470
    
    
    
    5,509Held for investment
    
    
    3,834,381
    
    
    
    3,614,265Foreclosed properties and repossessed assets, net
    
    
    4,499
    
    
    
    2,192Real estate held for development and sale
    
    
    61,624
    
    
    
    54,330Office properties and equipment
    
    
    30,684
    
    
    
    29,867Federal Home Loan Bank stockat cost
    
    
    40,214
    
    
    
    45,348Accrued interest on investments and loans and other assets
    
    
    58,219
    
    
    
    54,093Goodwill
    
    
    19,956
    
    
    
    19,956Total assets
    
    $
    4,505,896
    
    
    $
    4,275,140Liabilities and Stockholders EquityDepositsNon-interest bearing
    
    $
    254,454
    
    
    $
    242,924Interest bearing
    
    
    2,986,086
    
    
    
    2,797,293Total deposits
    
    
    3,240,540
    
    
    
    3,040,217Short-term borrowings
    
    
    334,400
    
    
    
    186,200Long-term borrowings
    
    
    506,819
    
    
    
    675,661Other liabilities
    
    
    79,902
    
    
    
    45,040Total liabilities
    
    
    4,161,661
    
    
    
    3,947,118Minority interest in real estate partnerships
    
    
    7,713
    
    
    
    6,997Commitments and contingent liabilities (Note 8)Preferred stock, $.10 par value, 5,000,000 shares
authorized, none outstanding
    
    
    
    
    
    
    Common stock, $.10 par value, 100,000,000 shares authorized,
25,363,339 shares issued, 21,782,729 and 21,854,303 shares outstanding,
respectively
    
    
    2,536
    
    
    
    2,536Additional paid-in capital
    
    
    71,283
    
    
    
    70,517Retained earnings
    
    
    357,616
    
    
    
    340,364Accumulated other comprehensive loss
    
    
    (1,152
    )
    
    
    (2,558
    )Treasury stock (3,580,610 shares and 3,509,036 shares, respectively), at cost
    
    
    (88,781
    )
    
    
    (82,144
    )Deferred compensation obligation
    
    
    (4,980
    )
    
    
    (7,690
    )Total stockholders equity
    
    
    336,522
    
    
    
    321,025Total liabilities and stockholders equity
    
    $
    4,505,896
    
    
    $
    4,275,140
  2




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Statements of Income
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(In Thousands, Except Per Share Data)Interest income:Loans
    
    $
    67,265
    
    
    $
    56,443
    
    
    $
    194,779
    
    
    $
    161,192Mortgage-related securities
    
    
    3,112
    
    
    
    2,962
    
    
    
    9,078
    
    
    
    8,639Investment securities
    
    
    1,386
    
    
    
    1,004
    
    
    
    3,583
    
    
    
    2,907Interest-bearing deposits
    
    
    814
    
    
    
    988
    
    
    
    1,884
    
    
    
    2,888Total interest income
    
    
    72,577
    
    
    
    61,397
    
    
    
    209,324
    
    
    
    175,626Interest expense:Deposits
    
    
    30,746
    
    
    
    20,257
    
    
    
    84,720
    
    
    
    54,845Short-term borrowings
    
    
    4,220
    
    
    
    2,958
    
    
    
    10,032
    
    
    
    7,725Long-term borrowings
    
    
    5,082
    
    
    
    4,345
    
    
    
    16,360
    
    
    
    13,646Total interest expense
    
    
    40,048
    
    
    
    27,560
    
    
    
    111,112
    
    
    
    76,216Net interest income
    
    
    32,529
    
    
    
    33,837
    
    
    
    98,212
    
    
    
    99,410Provision for loan losses
    
    
    3,375
    
    
    
    700
    
    
    
    7,205
    
    
    
    2,450Net interest income after provision for loan losses
    
    
    29,154
    
    
    
    33,137
    
    
    
    91,007
    
    
    
    96,960Non-interest income:Real estate investment partnership revenue
    
    
    8,009
    
    
    
    6,378
    
    
    
    16,126
    
    
    
    29,450Loan servicing income
    
    
    1,155
    
    
    
    1,280
    
    
    
    3,569
    
    
    
    3,681Credit enhancement income
    
    
    418
    
    
    
    414
    
    
    
    1,252
    
    
    
    1,216Service charges on deposits
    
    
    2,684
    
    
    
    2,355
    
    
    
    7,629
    
    
    
    7,084Insurance commissions
    
    
    1,002
    
    
    
    589
    
    
    
    2,800
    
    
    
    1,897Net gain on sale of loans
    
    
    776
    
    
    
    144
    
    
    
    2,995
    
    
    
    1,460Net gain (loss) on sale of investments and
mortgage-related securities
    
    
    
    
    
    
    120
    
    
    
    (283
    )
    
    
    394Other revenue from real estate operations
    
    
    863
    
    
    
    1,470
    
    
    
    4,585
    
    
    
    3,384Other
    
    
    1,209
    
    
    
    1,670
    
    
    
    3,806
    
    
    
    4,476Total non-interest income
    
    
    16,116
    
    
    
    14,420
    
    
    
    42,479
    
    
    
    53,042
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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
Consolidated Statements of Income
 Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(In Thousands, Except Per Share Data)Non-interest expense:Compensation
    
    $
    11,340
    
    
    $
    11,862
    
    
    $
    33,645
    
    
    $
    34,032Real estate investment partnership cost of sales
    
    
    7,115
    
    
    
    5,527
    
    
    
    14,454
    
    
    
    24,718Occupancy
    
    
    1,904
    
    
    
    1,820
    
    
    
    5,888
    
    
    
    5,144Furniture and equipment
    
    
    1,418
    
    
    
    1,423
    
    
    
    4,465
    
    
    
    4,609Data processing
    
    
    1,445
    
    
    
    1,425
    
    
    
    4,505
    
    
    
    4,074Marketing
    
    
    1,152
    
    
    
    1,108
    
    
    
    3,463
    
    
    
    3,294Other expenses from real estate partnership
operations
    
    
    1,878
    
    
    
    2,467
    
    
    
    6,635
    
    
    
    6,721Other
    
    
    3,306
    
    
    
    3,133
    
    
    
    9,856
    
    
    
    9,531Total non-interest expense
    
    
    29,558
    
    
    
    28,765
    
    
    
    82,911
    
    
    
    92,123Minority interest in income (loss) of real
estate partnership operations
    
    
    (31
    )
    
    
    304
    
    
    
    332
    
    
    
    1,694Income before income taxes
    
    
    15,743
    
    
    
    18,488
    
    
    
    50,243
    
    
    
    56,185Income taxes
    
    
    5,308
    
    
    
    7,595
    
    
    
    19,500
    
    
    
    22,954Net income
    
    $
    10,435
    
    
    $
    10,893
    
    
    $
    30,743
    
    
    $
    33,231Earnings per share:Basic
    
    $
    0.49
    
    
    $
    0.51
    
    
    $
    1.43
    
    
    $
    1.53Diluted
    
    
    0.48
    
    
    
    0.50
    
    
    
    1.42
    
    
    
    1.50Dividends declared per share
    
    
    0.17
    
    
    
    0.16
    
    
    
    0.50
    
    
    
    0.46
  4




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
  Nine Months Ended December 31,2006
    
    
    2005(In Thousands)Operating ActivitiesNet income
    
    $
    30,743
    
    
    $
    33,231Adjustments to reconcile net income to net
cash provided by operating activities:Provision for loan losses
    
    
    7,205
    
    
    
    2,450Provision for depreciation and amortization
    
    
    3,075
    
    
    
    3,131Cash paid due to origination of loans held for sale
    
    
    (303,102
    )
    
    
    (567,011
    )Cash received due to sale of loans held for sale
    
    
    307,136
    
    
    
    565,525Net gain on sales of loans
    
    
    (2,995
    )
    
    
    (1,460
    )Loss (gain) on sale of investments
    
    
    283
    
    
    
    (394
    )Increase in accrued interest receivable
    
    
    (3,641
    )
    
    
    (3,441
    )(Increase) decrease in prepaid exp and other assets
    
    
    (485
    )
    
    
    3,870Increase in accrued interest payable
    
    
    1,279
    
    
    
    2,161Increase in accounts payable
    
    
    34,915
    
    
    
    16,300Other
    
    
    (8,354
    )
    
    
    (4,647
    )Net cash provided by operating activities
    
    
    66,059
    
    
    
    49,715Investing ActivitiesProceeds from sales of investment securities available for sale
    
    
    65
    
    
    
    Proceeds from maturities of investment securities
    
    
    157,520
    
    
    
    144,080Purchase of investment securities available for sale
    
    
    (148,688
    )
    
    
    (127,888
    )Proceeds from sale of mortgage-related securities available for sale
    
    
    
    
    
    
    13,042Purchase of mortgage-related securities available for sale
    
    
    (47,779
    )
    
    
    (23,718
    )Principal collected on mortgage-related securities
    
    
    38,749
    
    
    
    49,954Decrease (Increase) in FHLB stock
    
    
    5,134
    
    
    
    (425
    )Net increase in loans held for investment
    
    
    (223,111
    )
    
    
    (224,957
    )Purchases of office properties and equipment
    
    
    (3,701
    )
    
    
    (1,746
    )Sales of office properties and equipment
    
    
    161
    
    
    
    9Sales of real estate
    
    
    
    
    
    
    425Investment in real estate held for development and sale
    
    
    (7,546
    )
    
    
    (2,682
    )Net cash used in investing activities
    
    
    (229,196
    )
    
    
    (173,906
    )
 5




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Contd)
 Nine Months Ended December 31,2006
    
    
    2005(In Thousands)Financing ActivitiesIncrease in deposit accounts
    
    $
    205,295
    
    
    $
    117,680Decrease in advance payments by borrowers
for taxes and insurance
    
    
    (6,304
    )
    
    
    (6,211
    )Increase in short-term borrowings
    
    
    148,200
    
    
    
    64,200Proceeds from long-term borrowings
    
    
    10,806
    
    
    
    110,680Repayment of long-term borrowings
    
    
    (179,648
    )
    
    
    (153,848
    )Treasury stock purchased
    
    
    (7,930
    )
    
    
    (23,283
    )Exercise of stock options
    
    
    1,056
    
    
    
    297Cash received from employee stock purchase plan
    
    
    182
    
    
    
    307Tax benefit from stock related compensation
    
    
    766
    
    
    
    1,886Payments of cash dividends to stockholders
    
    
    (10,726
    )
    
    
    (9,897
    )Net cash provided by financing activities
    
    
    161,697
    
    
    
    101,811Net decrease in cash and cash equivalents
    
    
    (1,440
    )
    
    
    (22,380
    )Cash and cash equivalents at beginning of period
    
    
    152,544
    
    
    
    166,436Cash and cash equivalents at end of period
    
    $
    151,104
    
    
    $
    144,056Supplementary cash flow information:Cash paid or credited to accounts:Interest on deposits and borrowings
    
    $
    109,833
    
    
    $
    74,055Income taxes
    
    
    26,690
    
    
    
    21,221Non-cash transactions:Transfer of mortgage loans held to maturity to held for sale
    
    
    
    
    
    
    94,129Securitization of mortgage loans held for sale to mortgage-backed
securities
    
    
    
    
    
    
    94,165
  6




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##### Table of Contents



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




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Note 3
 Stock-Based Compensation
   Nine Months Ended December 31, 2006WeightedAverageOptions
    
    
    PriceOutstanding at beginning of period
    
    
    1,159,022
    
    
    $
    17.75Granted
    
    
    
    
    
    
    Exercised
    
    
    (147,806
    )
    
    
    11.24Forfeited
    
    
    
    
    
    
    Outstanding at end of period
    
    
    1,011,216
    
    
    $
    18.70Options exercisable at December 31, 2006
    
    
    1,011,216
    
    
    $
    18.70
    Options Outstanding
    
    Exercisable OptionsWeighted-AverageRemaining
    
    Weighted-
    
    
    
    
    
    Weighted-Contractual
    
    Average
    
    
    
    
    
    AverageRange of Exercise Prices
    
    Shares
    
    Life (Years)
    
    Exercise Price
    
    Shares
    
    Exercise Price$10.78 - $12.99
    
    
    193,446
    
    
    
    0.49
    
    
    $
    11.66
    
    
    
    193,446
    
    
    $
    11.66$15.06 - $23.77
    
    
    741,680
    
    
    
    4.22
    
    
    
    19.38
    
    
    
    741,680
    
    
    
    19.38$28.50 - $31.95
    
    
    76,090
    
    
    
    8.19
    
    
    
    29.99
    
    
    
    76,090
    
    
    
    29.991,011,216
    
    
    
    3.81
    
    
    
    18.70
    
    
    
    1,011,216
    
    
    
    18.70
 8




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##### Table of Contents



Nine Months Ended December 31, 2006WeightedNumber of Shares
    
    
    Averageof Restricted Stock
    
    
    PriceBalance at beginning of period
    
    
    20,700
    
    
    $
    31.95Restricted stock granted
    
    
    55,000
    
    
    
    28.47Restricted stock vested
    
    
    (2,500
    )
    
    
    31.95Restricted stock forfeited
    
    
    
    
    
    
    Balance at end of period
    
    
    73,200
    
    
    $
    29.62
     9




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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded
    
    
    EndedDecember 31, 2005
    
    
    December 31, 2005(Dollars in thousands, except per share data)Net income, as reported
    
    $
    10,893
    
    
    $
    33,231Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects
    
    
    (47
    )
    
    
    (179
    )Pro forma net income
    
    $
    10,846
    
    
    $
    33,052Earnings per share:Basic:As reported
    
    $
    0.51
    
    
    $
    1.53Pro forma
    
    
    0.50
    
    
    
    1.52Diluted:As reported
    
    $
    0.50
    
    
    $
    1.50Pro forma
    
    
    0.49
    
    
    
    1.49
 Note 4
 Goodwill and Other Intangible Assets
      10




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##### Table of Contents



Residential
    
    
    Other(In Thousands)Mortgage servicing rights at beginning of period March 31, 2005
    
    $
    5,797
    
    
    $
    1,153Additions
    
    
    1,532
    
    
    
    808Amortization
    
    
    (1,594
    )
    
    
    (637
    )Mortgage servicing rights before valuation allowance at end of period
    
    
    5,735
    
    
    
    1,324Valuation allowance
    
    
    (456
    )
    
    
    Net mortgage servicing rights at end of period March 31, 2006
    
    $
    5,279
    
    
    $
    1,324Fair Market Value at the end of the period
    
    $
    12,431
    
    
    $
    1,678Key Assumptions:Weighted average discount
    
    
    11.05
    %
    
    
    16.99
    %Weighted average prepayment speed assumption
    
    
    11.18
    %
    
    
    22.35
    %Mortgage servicing rights at beginning of period March 31, 2006
    
    $
    5,735
    
    
    $
    1,324Additions
    
    
    1,865
    
    
    
    301Amortization
    
    
    (1,369
    )
    
    
    (559
    )Mortgage servicing rights before valuation allowance at end of period
    
    
    6,231
    
    
    
    1,066Valuation allowance
    
    
    (300
    )
    
    
    Net mortgage servicing rights at end of period December 31, 2006
    
    $
    5,931
    
    
    $
    1,066Fair Market Value at the end of the period
    
    $
    11,284
    
    
    $
    1,677Key Assumptions:Weighted average discount
    
    
    11.20
    %
    
    
    19.29
    %Weighted average prepayment speed assumption
    
    
    13.57
    %
    
    
    15.64
    %
 11




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##### Table of Contents



Residential
    
    
    Other(In Thousands)Quarter ended December 31, 2006 (actual)
    
    $
    479
    
    
    $
    114Estimate for the year ended March 31,2007
    
    $
    1,826
    
    
    $
    7462008
    
    
    1,826
    
    
    
    3202009
    
    
    1,826
    
    
    
    2010
    
    
    753
    
    
    
    $
    6,231
    
    
    $
    1,066
 12




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##### Table of Contents



Note 5
 Stockholders Equity
    13




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##### Table of Contents



Note 6
 Earnings Per Share
  14




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##### Table of Contents



Three Months Ended December 31,2006
    
    
    2005Numerator:Net income
    
    $
    10,435,100
    
    
    $
    10,893,097Numerator for basic and diluted earnings
per shareincome available to common
stockholders
    
    $
    10,435,100
    
    
    $
    10,893,097Denominator:Denominator for basic earnings per
shareweighted-average shares
    
    
    21,346,065
    
    
    
    21,489,319Effect of dilutive securities:Employee stock options
    
    
    268,287
    
    
    
    385,011Management Recognition Plans
    
    
    
    
    
    
    Denominator for diluted earnings per
shareadjusted weighted-average
shares and assumed conversions
    
    
    21,614,352
    
    
    
    21,874,330Basic earnings per share
    
    $
    0.49
    
    
    $
    0.51Diluted earnings per share
    
    $
    0.48
    
    
    $
    0.50
 Nine Months Ended December 31,2006
    
    
    2005Numerator:Net income
    
    $
    30,742,722
    
    
    $
    33,231,176Numerator for basic and diluted earnings
per shareincome available to common
stockholders
    
    $
    30,742,722
    
    
    $
    33,231,176Denominator:Denominator for basic earnings per
shareweighted-average shares
    
    
    21,429,886
    
    
    
    21,706,059Effect of dilutive securities:Employee stock options
    
    
    292,944
    
    
    
    402,083Management Recognition Plans
    
    
    
    
    
    
    1,690Denominator for diluted earnings per
shareadjusted weighted-average
shares and assumed conversions
    
    
    21,722,830
    
    
    
    22,109,832Basic earnings per share
    
    $
    1.43
    
    
    $
    1.53Diluted earnings per share
    
    $
    1.42
    
    
    $
    1.50
 15




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##### Table of Contents



Note 7
 Segment Information
  Community Banking:
 Real Estate Investments:
   16




---



##### Table of Contents



Three Months Ended December 31, 2006(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    88
    
    
    $
    73,005
    
    
    $
    (516
    )
    
    $
    72,577Interest expense
    
    
    508
    
    
    
    40,056
    
    
    
    (516
    )
    
    
    40,048Net interest income (loss)
    
    
    (420
    )
    
    
    32,949
    
    
    
    
    
    
    
    32,529Provision for loan losses
    
    
    
    
    
    
    3,375
    
    
    
    
    
    
    
    3,375Net interest income (loss) after provision for loan losses
    
    
    (420
    )
    
    
    29,574
    
    
    
    
    
    
    
    29,154Real estate investment partnership revenue
    
    
    8,009
    
    
    
    
    
    
    
    
    
    
    
    8,009Other revenue from real estate operations
    
    
    863
    
    
    
    
    
    
    
    
    
    
    
    863Other income
    
    
    
    
    
    
    7,274
    
    
    
    (30
    )
    
    
    7,244Real estate investment partnership cost of sales
    
    
    (7,115
    )
    
    
    
    
    
    
    
    
    
    
    (7,115
    )Other expense from real estate partnership operations
    
    
    (1,908
    )
    
    
    
    
    
    
    30
    
    
    
    (1,878
    )Minority interest in loss of real estate partnerships
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    31Other expense
    
    
    
    
    
    
    (20,565
    )
    
    
    
    
    
    
    (20,565
    )Income (loss) before income taxes
    
    
    (540
    )
    
    
    16,283
    
    
    
    
    
    
    
    15,743Income tax expense (benefit)
    
    
    (238
    )
    
    
    5,546
    
    
    
    
    
    
    
    5,308Net income (loss)
    
    $
    (302
    )
    
    $
    10,737
    
    
    $
    
    
    
    $
    10,435Total assets at end of period
    
    $
    75,561
    
    
    $
    4,430,335
    
    
    $
    
    
    
    $
    4,505,896
 Three Months Ended December 31, 2005(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    84
    
    
    $
    61,731
    
    
    $
    (418
    )
    
    $
    61,397Interest expense
    
    
    417
    
    
    
    27,561
    
    
    
    (418
    )
    
    
    27,560Net interest income (loss)
    
    
    (333
    )
    
    
    34,170
    
    
    
    
    
    
    
    33,837Provision for loan losses
    
    
    
    
    
    
    700
    
    
    
    
    
    
    
    700Net interest income (loss) after provision for loan losses
    
    
    (333
    )
    
    
    33,470
    
    
    
    
    
    
    
    33,137Real estate investment partnership revenue
    
    
    6,378
    
    
    
    
    
    
    
    
    
    
    
    6,378Other revenue from real estate operations
    
    
    1,470
    
    
    
    
    
    
    
    
    
    
    
    1,470Other income
    
    
    
    
    
    
    6,602
    
    
    
    (30
    )
    
    
    6,572Real estate investment partnership cost of sales
    
    
    (5,527
    )
    
    
    
    
    
    
    
    
    
    
    (5,527
    )Other expense from real estate partnership operations
    
    
    (2,497
    )
    
    
    
    
    
    
    30
    
    
    
    (2,467
    )Minority interest in income of real estate partnerships
    
    
    (304
    )
    
    
    
    
    
    
    
    
    
    
    (304
    )Other expense
    
    
    
    
    
    
    (20,771
    )
    
    
    
    
    
    
    (20,771
    )Income (loss) before income taxes
    
    
    (813
    )
    
    
    19,301
    
    
    
    
    
    
    
    18,488Income tax expense (benefit)
    
    
    (161
    )
    
    
    7,756
    
    
    
    
    
    
    
    7,595Net income (loss)
    
    $
    (652
    )
    
    $
    11,545
    
    
    $
    
    
    
    $
    10,893Total assets at end of period
    
    $
    77,283
    
    
    $
    4,122,951
    
    
    $
    
    
    
    $
    4,200,234
 17




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##### Table of Contents



Nine Months Ended December 31, 2006(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    279
    
    
    $
    210,523
    
    
    $
    (1,478
    )
    
    $
    209,324Interest expense
    
    
    1,439
    
    
    
    111,151
    
    
    
    (1,478
    )
    
    
    111,112Net interest income (loss)
    
    
    (1,160
    )
    
    
    99,372
    
    
    
    
    
    
    
    98,212Provision for loan losses
    
    
    
    
    
    
    7,205
    
    
    
    
    
    
    
    7,205Net interest income (loss) after provision for loan losses
    
    
    (1,160
    )
    
    
    92,167
    
    
    
    
    
    
    
    91,007Real estate investment partnership revenue
    
    
    16,126
    
    
    
    
    
    
    
    
    
    
    
    16,126Other revenue from real estate operations
    
    
    4,585
    
    
    
    
    
    
    
    
    
    
    
    4,585Other income
    
    
    
    
    
    
    21,857
    
    
    
    (89
    )
    
    
    21,768Real estate investment partnership cost of sales
    
    
    (14,454
    )
    
    
    
    
    
    
    
    
    
    
    (14,454
    )Other expense from real estate partnership operations
    
    
    (6,724
    )
    
    
    
    
    
    
    89
    
    
    
    (6,635
    )Minority interest in income of real estate partnerships
    
    
    (332
    )
    
    
    
    
    
    
    
    
    
    
    (332
    )Other expense
    
    
    
    
    
    
    (61,822
    )
    
    
    
    
    
    
    (61,822
    )Income (loss) before income taxes
    
    
    (1,959
    )
    
    
    52,202
    
    
    
    
    
    
    
    50,243Income tax
expense (benefit)
    
    
    (637
    )
    
    
    20,137
    
    
    
    
    
    
    
    19,500Net income (loss)
    
    $
    (1,322
    )
    
    $
    32,065
    
    
    $
    
    
    
    $
    30,743Total assets at end of period
    
    $
    75,561
    
    
    $
    4,430,335
    
    
    $
    
    
    
    $
    4,505,896
 Nine Months Ended December 31, 2005(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    247
    
    
    $
    176,561
    
    
    $
    (1,182
    )
    
    $
    175,626Interest expense
    
    
    1,178
    
    
    
    76,220
    
    
    
    (1,182
    )
    
    
    76,216Net interest income (loss)
    
    
    (931
    )
    
    
    100,341
    
    
    
    
    
    
    
    99,410Provision for loan losses
    
    
    
    
    
    
    2,450
    
    
    
    
    
    
    
    2,450Net interest income (loss) after provision for loan losses
    
    
    (931
    )
    
    
    97,891
    
    
    
    
    
    
    
    96,960Real estate investment partnership revenue
    
    
    29,450
    
    
    
    
    
    
    
    
    
    
    
    29,450Other revenue from real estate operations
    
    
    3,384
    
    
    
    
    
    
    
    
    
    
    
    3,384Other income
    
    
    
    
    
    
    20,297
    
    
    
    (89
    )
    
    
    20,208Real estate investment partnership cost of sales
    
    
    (24,718
    )
    
    
    
    
    
    
    
    
    
    
    (24,718
    )Other expense from real estate partnership operations
    
    
    (6,810
    )
    
    
    
    
    
    
    89
    
    
    
    (6,721
    )Minority interest in income of real estate partnerships
    
    
    (1,694
    )
    
    
    
    
    
    
    
    
    
    
    (1,694
    )Other expense
    
    
    
    
    
    
    (60,684
    )
    
    
    
    
    
    
    (60,684
    )Income (loss) before income taxes
    
    
    (1,319
    )
    
    
    57,504
    
    
    
    
    
    
    
    56,185Income tax expense (benefit)
    
    
    (129
    )
    
    
    23,083
    
    
    
    
    
    
    
    22,954Net income (loss)
    
    $
    (1,190
    )
    
    $
    34,421
    
    
    $
    
    
    
    $
    33,231Total assets at end of period
    
    $
    77,283
    
    
    $
    4,122,951
    
    
    $
    
    
    
    $
    4,200,234
 18




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##### Table of Contents



Note 8
 Commitments and Contingent Liabilities
   December 31,
    
    
    March 31,2006
    
    
    2006Commitments to extend credit:
    
    $
    75,792
    
    
    $
    95,209Unused lines of credit:Home equity
    
    
    91,675
    
    
    
    94,844Credit cards
    
    
    40,643
    
    
    
    43,255Commercial
    
    
    120,870
    
    
    
    138,751Letters of credit
    
    
    74,087
    
    
    
    68,282Credit enhancement under the Federal
Home Loan Bank of Chicago Mortgage
Partnership Finance Program
    
    
    20,257
    
    
    
    17,977Real estate investment segment borrowing guarantees unfunded
    
    
    18,656
    
    
    
    18,041Other financial guarantees
    
    
    900
    
    
    
    
     19




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##### Table of Contents



Note 9
 Subsequent Events
  20




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##### Table of Contents



ANCHOR BANCORP WISCONSIN INC.
 
 ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   Executive Overview
  
    
    Diluted earnings per share decreased to $0.48 for the quarter ended December 31, 2006
compared to $0.50 per share for the quarter ended December 31, 2005 primarily due to a $2.7
million increase in the loan loss provision and a $1.3 million decrease net interest
income, which were partially offset by a $2.3 million decrease in income tax expense;
    
    The net interest margin decreased to 3.05% for the quarter ended December 31, 2006
compared to 3.39% for the quarter ended December 31, 2005 because interest-bearing
liabilities repriced upward faster than interest-earning assets;
    
    Loans receivable increased $287.6 million or 8.10% since December 31, 2005 and increased
$219.1 million, or 6.05%, since March 31, 2006;
    
    Deposits grew $253.3 million or 8.48% since December 31, 2005 and $200.3 million, or
6.59%, since March 31, 2006;
    
    Book value per share increased to $15.45 at December 31, 2006 compared to $14.69 at
March 31, 2006 and $14.32 at December 31, 2005; and
    
    Non-performing assets increased $23.8 million to $39.5 million from March 31, 2006
primarily due to the addition of $21.5 million in non-accrual loans. Management believes
that changing economic conditions in the real estate market significantly attributed to the
increase in non-performing assets.
 21




---



##### Table of Contents




    
    Real estate investment partnership revenue increased $1.6 million from $6.4 million for
the three months ended December 31, 2005 to $8.0 million for the three months ended
December 31, 2006. Real estate investment partnership cost of sales increased $1.6 million
from $5.5 million at December 31, 2005 to $7.1 million. These increases were due to the
increase in the number of sales at the real estate partnership level. Net loss from the
real estate investment segment decreased from $652,000 to $302,000 for the three months
ended December 31, 2005 and 2006, respectively. Net loss from the real estate investment
segment increased from $1.2 million to $1.3 million for the nine months ended December 31,
2005 and 2006, respectively. The partnerships currently have approximately 47 single
family housing units and approximately 100 individual lots for sale. Management anticipates
continued lower sales activity for the remainder of the fiscal year.
    
    On November 2, 2006, the Federal Deposit Insurance Corporation (FDIC) adopted final
regulations to implement the Federal Deposit Insurance Reform Act of 2005 passed by
Congress earlier this year to create a stronger and more stable insurance system. The final
regulations include the annual assessment rates that became effective at the beginning of
2007. The new rates for nearly all banks will vary between five and seven cents for every
$100 of domestic deposits. Applied to the Banks assessment base of approximately $3.2
billion, this translates to an annual deposit premium of approximately $1.6 to $2.3
million. Most banks, including the Bank, have not been required to pay any deposit
insurance premiums since 1995. As part of the Reform Act, Congress provided credits to
institutions that paid high premiums in the past to bolster the FDICs insurance reserves.
As a result, the majority of banks will have assessment credits to initially offset all of
their premiums in 2007. The preliminary assessment credit for the Bank was calculated at
$2.7 million.
 22




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##### Table of Contents



Three Months Ended(Dollars in thousands - except per share amounts)12/31/2006
    
    9/30/2006
    
    6/30/2006
    
    3/31/2006Operations Data:Net interest income
    
    $
    32,529
    
    
    $
    32,838
    
    
    $
    32,845
    
    
    $
    33,294Provision for loan losses
    
    
    3,375
    
    
    
    2,625
    
    
    
    1,205
    
    
    
    1,450Net gain on sale of loans
    
    
    776
    
    
    
    1,349
    
    
    
    869
    
    
    
    1,348Real estate investment partnership revenue
    
    
    8,009
    
    
    
    3,631
    
    
    
    4,486
    
    
    
    4,524Other non-interest income
    
    
    7,331
    
    
    
    8,075
    
    
    
    7,952
    
    
    
    8,063Real estate investment partnership cost of sales
    
    
    7,115
    
    
    
    3,486
    
    
    
    3,853
    
    
    
    3,791Other non-interest expense
    
    
    22,443
    
    
    
    23,427
    
    
    
    22,586
    
    
    
    22,534Minority interest in income (loss) of
real estate partnership operations
    
    
    (31
    )
    
    
    (75
    )
    
    
    438
    
    
    
    29Income before income taxes
    
    
    15,743
    
    
    
    16,430
    
    
    
    18,070
    
    
    
    19,425Income taxes
    
    
    5,308
    
    
    
    6,769
    
    
    
    7,423
    
    
    
    7,973Net income
    
    
    10,435
    
    
    
    9,661
    
    
    
    10,647
    
    
    
    11,452Selected Financial Ratios(1):Yield on earning assets
    
    
    6.81
    %
    
    
    6.76
    %
    
    
    6.52
    %
    
    
    6.34
    %Cost of funds
    
    
    3.92
    
    
    
    3.75
    
    
    
    3.43
    
    
    
    3.11Interest rate spread
    
    
    2.89
    
    
    
    3.01
    
    
    
    3.09
    
    
    
    3.23Net interest margin
    
    
    3.05
    
    
    
    3.15
    
    
    
    3.23
    
    
    
    3.35Return on average assets
    
    
    0.93
    
    
    
    0.88
    
    
    
    1.00
    
    
    
    1.10Return on average equity
    
    
    12.51
    
    
    
    11.72
    
    
    
    13.14
    
    
    
    14.46Average equity to average assets
    
    
    7.45
    
    
    
    7.53
    
    
    
    7.60
    
    
    
    7.59Non-interest expense to average assets
    
    
    2.64
    
    
    
    2.46
    
    
    
    2.48
    
    
    
    2.52Per Share:Basic earnings per share
    
    $
    0.49
    
    
    $
    0.45
    
    
    $
    0.50
    
    
    $
    0.54Diluted earnings per share
    
    
    0.48
    
    
    
    0.44
    
    
    
    0.49
    
    
    
    0.53Dividends per share
    
    
    0.17
    
    
    
    0.17
    
    
    
    0.16
    
    
    
    0.16Book value per share
    
    
    15.45
    
    
    
    15.18
    
    
    
    14.91
    
    
    
    14.69Financial Condition:Total assets
    
    $
    4,505,896
    
    
    $
    4,481,586
    
    
    $
    4,356,921
    
    
    $
    4,275,140Loans receivable, netHeld for sale
    
    
    4,470
    
    
    
    5,393
    
    
    
    4,118
    
    
    
    5,509Held for investment
    
    
    3,834,381
    
    
    
    3,794,039
    
    
    
    3,709,745
    
    
    
    3,614,265Deposits
    
    
    3,240,540
    
    
    
    3,223,759
    
    
    
    3,177,220
    
    
    
    3,040,217Borrowings
    
    
    841,219
    
    
    
    875,014
    
    
    
    791,098
    
    
    
    861,861Stockholders equity
    
    
    336,522
    
    
    
    330,774
    
    
    
    326,495
    
    
    
    321,025Allowance for loan losses
    
    
    20,031
    
    
    
    18,393
    
    
    
    15,636
    
    
    
    15,570Non-performing assets
    
    
    39,484
    
    
    
    22,506
    
    
    
    18,836
    
    
    
    15,721
 
 (1)
    
    Annualized when appropriate. 23




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##### Table of Contents



Three Months Ended(Dollars in thousands - except per share amounts)12/31/2005
    
    9/30/2005
    
    6/30/2005
    
    3/31/2005Operations Data:Net interest income
    
    $
    33,837
    
    
    $
    33,428
    
    
    $
    32,145
    
    
    $
    31,231Provision for loan losses
    
    
    700
    
    
    
    1,485
    
    
    
    265
    
    
    
    165Net gain on sale of loans
    
    
    144
    
    
    
    1,193
    
    
    
    123
    
    
    
    763Real estate investment partnership revenue
    
    
    6,378
    
    
    
    11,559
    
    
    
    11,513
    
    
    
    51,112Other non-interest income
    
    
    7,898
    
    
    
    7,090
    
    
    
    7,143
    
    
    
    7,838Real estate investment partnership cost of sales
    
    
    5,527
    
    
    
    10,780
    
    
    
    8,411
    
    
    
    30,966Other non-interest expense
    
    
    23,238
    
    
    
    22,536
    
    
    
    21,630
    
    
    
    24,682Minority interest in income of
real estate partnership operations
    
    
    304
    
    
    
    102
    
    
    
    1,288
    
    
    
    8,582Income before income taxes
    
    
    18,488
    
    
    
    18,367
    
    
    
    19,330
    
    
    
    26,549Income taxes
    
    
    7,595
    
    
    
    7,589
    
    
    
    7,770
    
    
    
    9,748Net income
    
    
    10,893
    
    
    
    10,778
    
    
    
    11,560
    
    
    
    16,801Selected Financial Ratios(1):Yield on earning assets
    
    
    6.15
    %
    
    
    5.97
    %
    
    
    5.73
    %
    
    
    5.56
    %Cost of funds
    
    
    2.88
    
    
    
    2.68
    
    
    
    2.53
    
    
    
    2.37Interest rate spread
    
    
    3.27
    
    
    
    3.29
    
    
    
    3.20
    
    
    
    3.19Net interest margin
    
    
    3.39
    
    
    
    3.40
    
    
    
    3.32
    
    
    
    3.29Return on average assets
    
    
    1.04
    
    
    
    1.04
    
    
    
    1.14
    
    
    
    1.68Return on average equity
    
    
    13.91
    
    
    
    13.62
    
    
    
    14.70
    
    
    
    21.44Average equity to average assets
    
    
    7.45
    
    
    
    7.66
    
    
    
    7.75
    
    
    
    7.82Non-interest expense to average assets
    
    
    2.74
    
    
    
    3.22
    
    
    
    2.96
    
    
    
    5.56Per Share:Basic earnings per share
    
    $
    0.51
    
    
    $
    0.49
    
    
    $
    0.53
    
    
    $
    0.75Diluted earnings per share
    
    
    0.50
    
    
    
    0.48
    
    
    
    0.52
    
    
    
    0.74Dividends per share
    
    
    0.16
    
    
    
    0.16
    
    
    
    0.14
    
    
    
    0.13Book value per share
    
    
    14.32
    
    
    
    14.28
    
    
    
    14.22
    
    
    
    13.92Financial Condition:Total assets
    
    $
    4,200,234
    
    
    $
    4,204,470
    
    
    $
    4,136,822
    
    
    $
    4,050,456Loans receivable, netHeld for sale
    
    
    5,847
    
    
    
    6,957
    
    
    
    6,313
    
    
    
    4,361Held for investment
    
    
    3,545,436
    
    
    
    3,466,265
    
    
    
    3,383,250
    
    
    
    3,414,608Deposits
    
    
    2,987,284
    
    
    
    3,032,976
    
    
    
    2,960,468
    
    
    
    2,873,533Borrowings
    
    
    814,641
    
    
    
    794,044
    
    
    
    798,927
    
    
    
    793,609Stockholders equity
    
    
    312,089
    
    
    
    315,349
    
    
    
    315,416
    
    
    
    310,678Allowance for loan losses
    
    
    15,252
    
    
    
    22,582
    
    
    
    26,532
    
    
    
    26,444Non-performing assets
    
    
    17,265
    
    
    
    16,201
    
    
    
    17,030
    
    
    
    15,908
 
 (1)
    
    Annualized when appropriate. 24




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##### Table of Contents



Significant Accounting Policies
  
    
    The allowance for loan losses is maintained at a level believed adequate by management to
absorb probable and estimable losses inherent in the loan portfolio and is based on the size
and current risk characteristics of the loan portfolio; an assessment of individual problem
loans; actual and anticipated loss experience; and current economic events in specific
industries and geographical areas. These economic events include unemployment levels,
regulatory guidance, and general economic conditions. Determination of the reserve is
inherently subjective as it requires significant estimates, including the amounts and timing
of expected future cash flows on impaired loans, estimated losses on pools of homogeneous
loans based on historical loss experience, and consideration of current economic trends, all
of which may be susceptible to significant change. Loan losses are charged off against the
allowance, while recoveries of amounts previously charged off are credited to the allowance.
A provision for loan losses is charged to operating expense based on managements periodic
evaluation of the factors previously mentioned as well as other pertinent factors.Specific reserves are established for expected losses resulting from analysis developed through
specific credit allocations on individual loans and are based on a regular analysis of impaired
loans where the internal credit rating is at or below a predetermined classification. A loan is
considered impaired when it is probable that the Corporation will be unable to collect all
contractual principal and interest due according to the terms of the loan agreement. Loans
subject to impairment are defined as non-accrual and restructured loans exclusive of smaller
homogeneous loans such as home equity, installment, and 1-4 family residential loans. The fair
value of the loans is determined based on the present value of expected future cash flows
discounted at the loans effective interest rate, the market price of the loan, or the fair
value of the underlying collateral less costs to sell, if the loan is collateral dependent.
    
    Valuation of mortgage servicing rights requires the use of
judgment. Mortgage servicing rights are established on loans that
are originated and subsequently sold with servicing rights
retained. A portion of the loans book basis is allocated to
mortgage servicing rights when a loan is sold. The fair value of
mortgage servicing rights is the present value of estimated future
net cash flows from the servicing relationship using current
market assumptions for prepayments, servicing costs and other
factors. As the loans are repaid and net servicing revenue is
earned, mortgage servicing rights are amortized into expense. Net
servicing revenues are expected to exceed this amortization
expense. However, if actual prepayment experience exceeds what
was originally anticipated, net servicing revenues may be less
than expected and mortgage servicing rights may be impaired.
    
    Goodwill is reviewed at least annually for impairment, which
requires judgment. Goodwill has been recorded as a result of an
acquisition in which purchase price exceeded fair value of net
assets acquired. The price paid for the acquisition is analyzed
and compared to a number of current indices. If goodwill is
determined to be impaired, it would be expensed in the period in
which it became impaired.
  25




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##### Table of Contents



RESULTS OF OPERATIONS
 General.
 Net Interest Income.
   26




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##### Table of Contents



Provision for Loan Losses.
 Average Interest-Earning Assets, Average Interest-Bearing Liabilities and Interest Rate
Spread.
 27




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##### Table of Contents



Three Months Ended December 31,2006
    
    
    2005Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Cost(1)
    
    
    Balance
    
    
    Interest
    
    
    Cost(1)(Dollars In Thousands)Interest-Earning AssetsMortgage loans
    
    $
    2,967,524
    
    
    $
    50,906
    
    
    
    6.86
    %
    
    $
    2,706,411
    
    
    $
    42,219
    
    
    
    6.24
    %Consumer loans
    
    
    629,809
    
    
    
    11,810
    
    
    
    7.50
    
    
    
    625,701
    
    
    
    10,596
    
    
    
    6.77Commercial business loans
    
    
    218,092
    
    
    
    4,549
    
    
    
    8.34
    
    
    
    191,412
    
    
    
    3,628
    
    
    
    7.58Total loans receivable (2) (3)
    
    
    3,815,425
    
    
    
    67,265
    
    
    
    7.05
    
    
    
    3,523,524
    
    
    
    56,443
    
    
    
    6.41Mortgage-related securities (4)
    
    
    259,449
    
    
    
    3,112
    
    
    
    4.80
    
    
    
    266,581
    
    
    
    2,962
    
    
    
    4.44Investment securities (4)
    
    
    86,813
    
    
    
    1,061
    
    
    
    4.89
    
    
    
    57,773
    
    
    
    579
    
    
    
    4.01Interest-bearing deposits
    
    
    60,382
    
    
    
    814
    
    
    
    5.39
    
    
    
    103,313
    
    
    
    988
    
    
    
    3.83Federal Home Loan Bank stock
    
    
    41,327
    
    
    
    325
    
    
    
    3.15
    
    
    
    45,140
    
    
    
    425
    
    
    
    3.77Total interest-earning assets
    
    
    4,263,396
    
    
    
    72,577
    
    
    
    6.81
    
    
    
    3,996,331
    
    
    
    61,397
    
    
    
    6.15Non-interest-earning assets
    
    
    211,173
    
    
    
    
    
    
    
    
    
    
    
    206,983Total assets
    
    $
    4,474,569
    
    
    
    
    
    
    
    
    
    
    $
    4,203,314Interest-Bearing LiabilitiesDemand deposits
    
    $
    927,042
    
    
    
    5,664
    
    
    
    2.44
    
    
    $
    797,137
    
    
    
    2,977
    
    
    
    1.49Regular passbook savings
    
    
    204,235
    
    
    
    236
    
    
    
    0.46
    
    
    
    232,021
    
    
    
    262
    
    
    
    0.45Certificates of deposit
    
    
    2,114,254
    
    
    
    24,846
    
    
    
    4.70
    
    
    
    2,004,133
    
    
    
    17,018
    
    
    
    3.40Total deposits
    
    
    3,245,531
    
    
    
    30,746
    
    
    
    3.79
    
    
    
    3,033,291
    
    
    
    20,257
    
    
    
    2.67Short-term borrowings
    
    
    303,040
    
    
    
    4,220
    
    
    
    5.57
    
    
    
    301,068
    
    
    
    2,958
    
    
    
    3.93Long-term borrowings
    
    
    542,657
    
    
    
    5,082
    
    
    
    3.75
    
    
    
    497,940
    
    
    
    4,345
    
    
    
    3.49Total interest-bearing liabilities
    
    
    4,091,228
    
    
    
    40,048
    
    
    
    3.92
    
    
    
    3,832,299
    
    
    
    27,560
    
    
    
    2.88Non-interest-bearing liabilities
    
    
    49,770
    
    
    
    
    
    
    
    
    
    
    
    57,671Total liabilities
    
    
    4,140,998
    
    
    
    
    
    
    
    
    
    
    
    3,889,970Stockholders equity
    
    
    333,571
    
    
    
    
    
    
    
    
    
    
    
    313,344Total liabilities and stockholders equity
    
    $
    4,474,569
    
    
    
    
    
    
    
    
    
    
    $
    4,203,314Net interest income/interest rate spread (5)
    
    
    
    
    
    $
    32,529
    
    
    
    2.89
    %
    
    
    
    
    
    $
    33,837
    
    
    
    3.27
    %Net interest-earning assets
    
    $
    172,168
    
    
    
    
    
    
    
    
    
    
    $
    164,032Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    3.05
    %
    
    
    
    
    
    
    
    
    
    
    3.39
    %Ratio of average interest-earning assets
to average interest-bearing liabilities
    
    
    1.04
    
    
    
    
    
    
    
    
    
    
    
    1.04
 
 (1)
    
    Annualized(2)
    
    For the purpose of these computations, non-accrual loans are included in the daily average loan amounts outstanding.(3)
    
    Interest earned on loans includes loan fees (which are not material in amount) and interest income which has
been received from borrowers whose loans were removed from non-accrual status during the period indicated.(4)
    
    Average balances of securities available-for-sale are based on amortized cost.(5)
    
    Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the
weighted-average cost of interest-bearing liabilities and is represented on a fully tax equivalent basis.(6)
    
    Net interest margin represents net interest income as a percentage of average interest-earning assets. 28




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##### Table of Contents



Nine Months Ended December 31,2006
    
    
    2005Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Cost(1)
    
    
    Balance
    
    
    Interest
    
    
    Cost(1)(Dollars In Thousands)Interest-Earning AssetsMortgage loans
    
    $
    2,912,886
    
    
    $
    147,146
    
    
    
    6.74
    %
    
    $
    2,657,952
    
    
    $
    120,931
    
    
    
    6.07
    %Consumer loans
    
    
    626,945
    
    
    
    34,282
    
    
    
    7.29
    
    
    
    611,318
    
    
    
    29,951
    
    
    
    6.53Commercial business loans
    
    
    210,968
    
    
    
    13,351
    
    
    
    8.44
    
    
    
    191,852
    
    
    
    10,310
    
    
    
    7.17Total loans receivable (2) (3)
    
    
    3,750,799
    
    
    
    194,779
    
    
    
    6.92
    
    
    
    3,461,122
    
    
    
    161,192
    
    
    
    6.21Mortgage-related securities (4)
    
    
    254,837
    
    
    
    9,078
    
    
    
    4.75
    
    
    
    263,153
    
    
    
    8,639
    
    
    
    4.38Investment securities (4)
    
    
    71,811
    
    
    
    2,564
    
    
    
    4.76
    
    
    
    47,249
    
    
    
    1,313
    
    
    
    3.71Interest-bearing deposits
    
    
    47,721
    
    
    
    1,884
    
    
    
    5.26
    
    
    
    117,914
    
    
    
    2,888
    
    
    
    3.27Federal Home Loan Bank stock
    
    
    42,598
    
    
    
    1,019
    
    
    
    3.19
    
    
    
    44,996
    
    
    
    1,594
    
    
    
    4.72Total interest-earning assets
    
    
    4,167,766
    
    
    
    209,324
    
    
    
    6.70
    
    
    
    3,934,434
    
    
    
    175,626
    
    
    
    5.95Non-interest-earning assets
    
    
    206,512
    
    
    
    
    
    
    
    
    
    
    
    197,672Total assets
    
    $
    4,374,278
    
    
    
    
    
    
    
    
    
    
    $
    4,132,106Interest-Bearing LiabilitiesDemand deposits
    
    $
    880,228
    
    
    
    15,499
    
    
    
    2.35
    
    
    $
    779,887
    
    
    
    7,732
    
    
    
    1.32Regular passbook savings
    
    
    209,627
    
    
    
    721
    
    
    
    0.46
    
    
    
    237,916
    
    
    
    788
    
    
    
    0.44Certificates of deposit
    
    
    2,077,987
    
    
    
    68,500
    
    
    
    4.40
    
    
    
    1,955,969
    
    
    
    46,325
    
    
    
    3.16Total deposits
    
    
    3,167,842
    
    
    
    84,720
    
    
    
    3.57
    
    
    
    2,973,772
    
    
    
    54,845
    
    
    
    2.46Short-term borrowings
    
    
    241,040
    
    
    
    10,032
    
    
    
    5.55
    
    
    
    276,871
    
    
    
    7,725
    
    
    
    3.72Long-term borrowings
    
    
    593,186
    
    
    
    16,360
    
    
    
    3.68
    
    
    
    515,941
    
    
    
    13,646
    
    
    
    3.53Total interest-bearing liabilities
    
    
    4,002,068
    
    
    
    111,112
    
    
    
    3.70
    
    
    
    3,766,584
    
    
    
    76,216
    
    
    
    2.70Non-interest-bearing liabilities
    
    
    42,925
    
    
    
    
    
    
    
    
    
    
    
    50,849Total liabilities
    
    
    4,044,993
    
    
    
    
    
    
    
    
    
    
    
    3,817,433Stockholders equity
    
    
    329,285
    
    
    
    
    
    
    
    
    
    
    
    314,673Total liabilities and stockholders equity
    
    $
    4,374,278
    
    
    
    
    
    
    
    
    
    
    $
    4,132,106Net interest income/interest rate spread (5)
    
    
    
    
    
    $
    98,212
    
    
    
    3.00
    %
    
    
    
    
    
    $
    99,410
    
    
    
    3.25
    %Net interest-earning assets
    
    $
    165,698
    
    
    
    
    
    
    
    
    
    
    $
    167,850Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    3.14
    %
    
    
    
    
    
    
    
    
    
    
    3.37
    %Ratio of average interest-earning assets
to average interest-bearing liabilities
    
    
    1.04
    
    
    
    
    
    
    
    
    
    
    
    1.04
 
 (1)
    
    Annualized.(2)
    
    For the purpose of these computations, non-accrual loans are included in the daily average loan amounts
outstanding.(3)
    
    Interest earned on loans includes loan fees (which are not material in amount) and interest income which has
been received from borrowers whose loans were removed from non-accrual status during the period indicated.(4)
    
    Average balances of securities available-for-sale are based on amortized cost.(5)
    
    Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the
weighted-average cost of interest-bearing liabilities and is represented on a fully tax equivalent basis.(6)
    
    Net interest margin represents net interest income as a percentage of average interest-earning assets. 29




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##### Table of Contents



Non-Interest Income.
  Non-Interest Expense.
 Income Taxes.
 30




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##### Table of Contents



FINANCIAL CONDITION
          31




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##### Table of Contents



ASSET QUALITY
   At December 31,
    
    
    At March 31,2006
    
    
    2006
    
    
    2005
    
    
    2004(Dollars In Thousands)Non-accrual loans:Single-family residential
    
    $
    6,546
    
    
    $
    2,856
    
    
    $
    2,406
    
    
    $
    3,247Multi-family residential
    
    
    11,693
    
    
    
    4,214
    
    
    
    
    
    
    
    Commercial real estate
    
    
    11,782
    
    
    
    3,398
    
    
    
    4,894
    
    
    
    8,764Construction and land
    
    
    581
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    561
    
    
    
    548
    
    
    
    453
    
    
    
    642Commercial business
    
    
    3,822
    
    
    
    2,513
    
    
    
    6,697
    
    
    
    2,268Total non-accrual loans
    
    
    34,985
    
    
    
    13,529
    
    
    
    14,450
    
    
    
    14,921Foreclosed properties and repossessed assets, net
    
    
    4,499
    
    
    
    2,192
    
    
    
    1,458
    
    
    
    2,422Total non-performing assets
    
    $
    39,484
    
    
    $
    15,721
    
    
    $
    15,908
    
    
    $
    17,343Performing troubled debt restructurings
    
    $
    400
    
    
    $
    
    
    
    $
    
    
    
    $
    2,649Total non-accrual loans to total loans(1)
    
    
    0.87
    %
    
    
    0.35
    %
    
    
    0.40
    %
    
    
    0.45
    %Total non-performing assets to total assets
    
    
    0.88
    
    
    
    0.37
    
    
    
    0.39
    
    
    
    0.46Allowance for loan losses to total loans(1)
    
    
    0.50
    
    
    
    0.41
    
    
    
    0.73
    
    
    
    0.87Allowance for loan losses to total
non-accrual loans
    
    
    57.26
    
    
    
    115.09
    
    
    
    183.00
    
    
    
    191.72Allowance for loan and foreclosure losses
to total non-performing assets
    
    
    50.86
    
    
    
    100.48
    
    
    
    167.39
    
    
    
    165.78
 
 (1)
    
    Total loans are gross loans receivable before the reduction for loans in process, unearned interest and loan fees and the
allowance for loan losses.  32




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##### Table of Contents



At December 31,
    
    
    At March 31,2006
    
    
    2006
    
    
    2005
    
    
    2004(In Thousands)Impaired loans with valuation
reserve required
    
    $
    1,596
    
    
    $
    6,381
    
    
    $
    10,827
    
    
    $
    17,126Less:Specific valuation allowance
    
    
    642
    
    
    
    3,111
    
    
    
    7,126
    
    
    
    5,382Total impaired loans
    
    $
    954
    
    
    $
    3,270
    
    
    $
    3,701
    
    
    $
    11,744Average impaired loans
    
    $
    2,948
    
    
    $
    3,829
    
    
    $
    11,535
    
    
    $
    6,389Interest income recognizedon impaired loans
    
    $
    42
    
    
    $
    208
    
    
    $
    249
    
    
    $
    710Interest income recognized on a cash basison impaired loans
    
    $
    42
    
    
    $
    208
    
    
    $
    249
    
    
    $
    710
 33




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##### Table of Contents



At December 31,
    
    
    At March 31,2006
    
    
    2006
    
    
    2005
    
    
    2004(In Thousands)30 to 59 days
    
    $
    17,814
    
    
    $
    9,874
    
    
    $
    5,853
    
    
    $
    4,88760 to 89 days
    
    
    5,571
    
    
    
    733
    
    
    
    714
    
    
    
    10,941Total
    
    $
    23,385
    
    
    $
    10,607
    
    
    $
    6,567
    
    
    $
    15,828
    Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars In Thousands)Allowance at beginning of period
    
    $
    18,393
    
    
    $
    22,582
    
    
    $
    15,570
    
    
    $
    26,444Charge-offs:Mortgage
    
    
    (360
    )
    
    
    (900
    )
    
    
    (985
    )
    
    
    (1,044
    )Consumer
    
    
    (137
    )
    
    
    (181
    )
    
    
    (297
    )
    
    
    (469
    )Commercial business
    
    
    (1,380
    )
    
    
    (6,964
    )
    
    
    (2,226
    )
    
    
    (12,319
    )Total charge-offs
    
    
    (1,877
    )
    
    
    (8,045
    )
    
    
    (3,508
    )
    
    
    (13,832
    )Recoveries:Mortgage
    
    
    35
    
    
    
    1
    
    
    
    36
    
    
    
    82Consumer
    
    
    13
    
    
    
    8
    
    
    
    28
    
    
    
    51Commercial business
    
    
    92
    
    
    
    6
    
    
    
    700
    
    
    
    57Total recoveries
    
    
    140
    
    
    
    15
    
    
    
    764
    
    
    
    190Net (charge-offs) recoveries
    
    
    (1,737
    )
    
    
    (8,030
    )
    
    
    (2,744
    )
    
    
    (13,642
    )Provision for loan losses
    
    
    3,375
    
    
    
    700
    
    
    
    7,205
    
    
    
    2,450Allowance at end of period
    
    $
    20,031
    
    
    $
    15,252
    
    
    $
    20,031
    
    
    $
    15,252Net charge-offs to average loans
    
    
    (0.18
    )%
    
    
    (0.91
    )%
    
    
    (0.10
    )%
    
    
    (0.53
    )%
 34




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
     35




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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)As of December 31, 2006:Tier 1 capital(to adjusted tangible assets)
    
    $
    351,600
    
    
    
    8.04
    %
    
    $
    131,216
    
    
    
    3.00
    %
    
    $
    218,693
    
    
    
    5.00
    %Risk-based capital(to risk-based assets)
    
    
    370,989
    
    
    
    10.88
    
    
    
    272,796
    
    
    
    8.00
    
    
    
    340,996
    
    
    
    10.00Tangible capital(to tangible assets)
    
    
    351,600
    
    
    
    8.04
    
    
    
    65,608
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/AAs of March 31, 2006:Tier 1 capital(to adjusted tangible assets)
    
    $
    333,342
    
    
    
    7.96
    %
    
    $
    125,590
    
    
    
    3.00
    %
    
    $
    209,316
    
    
    
    5.00
    %Risk-based capital(to risk-based assets)
    
    
    345,801
    
    
    
    10.48
    
    
    
    263,914
    
    
    
    8.00
    
    
    
    329,893
    
    
    
    10.00Tangible capital(to tangible assets)
    
    
    333,342
    
    
    
    7.96
    
    
    
    62,795
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/A
  December 31,
    
    
    March 31,2006
    
    
    2006(In Thousands)Stockholders equity of the Bank
    
    $
    370,337
    
    
    $
    350,696Less: Goodwill and intangible assets
    
    
    (19,956
    )
    
    
    (19,956
    )Accumulated other comprehensive income
    
    
    1,219
    
    
    
    2,602Tier 1 and tangible capital
    
    
    351,600
    
    
    
    333,342Plus: Allowable general valuation allowances
    
    
    19,389
    
    
    
    12,459Risk based capital
    
    $
    370,989
    
    
    $
    345,801
 36




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##### Table of Contents



GUARANTEES
   Amount
    
    
    AmountSubsidiary
    
    Partnership
    
    Amount
    
    
    Outstanding
    
    
    Outstandingof IDI
    
    Entity
    
    Guaranteed
    
    
    at 12/31/06
    
    
    at 3/31/06(Dollars in thousands)Oakmont
    
    Chandler Creek
    
    $
    14,150
    
    
    $
    12,350
    
    
    $
    14,150Davsha III
    
    Indian Palms 147, LLC
    
    
    4,655
    
    
    
    1,215
    
    
    
    1,322Davsha V
    
    Villa Santa Rosa, LLC
    
    
    11,000
    
    
    
    1,569
    
    
    
    4,765Davsha VII
    
    La Vista Grande 121, LLC
    
    
    14,619
    
    
    
    10,634
    
    
    
    6,146Total
    
    
    
    $
    44,424
    
    
    $
    25,768
    
    
    $
    26,383
      37




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##### Table of Contents



ASSET/LIABILITY MANAGEMENT
     38




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##### Table of Contents



Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk.
 The Corporations market rate risk has not materially changed from March 31, 2006.
See the Corporations Annual Report on Form 10-K for the year ended March 31, 2006.
See Asset/Liability Management in Part I, Item 2 of this report.
 
 Item 4
    
    Controls and Procedures
 The Corporations management, with the participation of the Companys Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of the
Corporations disclosure controls and procedures (as defined in Exchange Act Rule
13a-15(e)) as of the end of the period covered by this report and, based on this
evaluation, the Corporations Chief Executive Officer and Chief Financial Officer
concluded that the Companys disclosure controls and procedures are operating in an
effective manner.No change in the Corporations internal control over financial reporting (as defined
in Exchange Act Rule 13a-15(f)) has occurred during the Corporations most recent
fiscal quarter that has materially affected, or is reasonably likely to materially
affect, the Corporations internal control over financial reporting.
 
 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.
 There have been no material changes to the factors disclosed in Part I, Item
1A, Risk Factors in our Annual Report on Form 10-K for the year ended March 31,
2006.
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##### Table of Contents



Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
 (a) - (b) Not applicable.(c) The following table sets forth information with respect to any purchase made by or on
behalf of
the Corporation or any affiliated purchaser, as defined in §240.10b-18(a)(3) under the
Exchange
Act, of shares of the Corporations Common Stock during the indicated periods.
 Total Number ofShares Purchased
    
    
    Maximum Number ofTotal Number
    
    
    Average
    
    
    as Part of Publicly
    
    
    Shares that May Yet Beof Shares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Purchased Under thePeriod
    
    Purchased
    
    
    per Share
    
    
    or Programs
    
    
    Plans or Programs(2)October 1 - October 31, 2006
    
    
    10,000
    
    
    $
    28.50
    
    
    
    10,000
    
    
    
    1,308,360November 1 - November 30, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,308,360December 1 - December 31, 2006
    
    
    69,576
    
    
    
    28.56
    
    
    
    66,800
    
    
    
    1,241,560Total
    
    
    79,576
    (1)
    
    $
    28.56
    
    
    
    76,800
    
    
    
    1,241,560
 
 (1)
    
    Consists of 76,800 shares purchased pursuant to a publicly announced repurchase program,
and 2,776 shares acquired from employees in payment for the exercise price of stock options
granted to them pursuant to the Corporations stock option program.(2)
    
    Effective November 3, 2006, the Board of Directors extended the current share repurchase
program of approximately 1.3 million shares of its outstanding common stock in the open market
for an additional year. The repurchases are authorized to be made from time to time in
open-market and/or negotiated transactions as, in the opinion of management, market conditions
may warrant. The repurchased shares will be held as treasury stock and will be available for
general corporate purposes. The Corporation utilizes various securities brokers as its agent
for the stock repurchase program. 
 Item 3
    
    Defaults upon Senior Securities.
 Not applicable.
 
 Item 4
    
    Submission of Matters to a Vote of Security Holders.
 Not applicable.
 
 Item 5
    
    Other Information.
 None.
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##### Table of Contents



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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##### Table of Contents



SIGNATURES
   Date:
    
    February 5, 2007
    
    By:
    
    /s/ Douglas J. TimmermanDouglas J. Timmerman, Chairman of theBoard, President and Chief Executive OfficerDate:
    
    February 5, 2007
    
    By:
    
    /s/ Michael W. HelserMichael W. Helser, Treasurer andChief Financial Officer
 42