##### 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, 2005
 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)
  
   
   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, 2005 and March 31, 2005
    
    
    2Consolidated Statements of Income for the Three and Nine Months Ended December 31, 2005 and 2004
    
    
    3Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2005 and 2004
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    7Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Results of Operations
    
    
    24Financial Condition
    
    
    30Asset Quality
    
    
    31Liquidity & Capital Resources
    
    
    34Guarantees
    
    
    36Asset/Liability Management
    
    
    37Consent Order
    
    
    37Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 4
    
    Controls and Procedures
    
    
    38Part II  Other InformationItem 1
    
    Legal Proceedings
    
    
    38Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 3
    
    Defaults upon Senior Securities
    
    
    39Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    39Item 5
    
    Other Information
    
    
    39Item 6
    
    Exhibits
    
    
    40Signatures
    
    
    41Certification of Chief Executive OfficerCertification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
  1




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Consolidated Balance Sheets


(Unaudited)December 31,
    
    
    March 31,2005
    
    
    2005(In Thousands, Except Share Data)AssetsCash
    
    $
    76,522
    
    
    $
    61,041Interest-bearing deposits
    
    
    67,534
    
    
    
    105,395Cash and cash equivalents
    
    
    144,056
    
    
    
    166,436Investment securities available for sale
    
    
    36,139
    
    
    
    52,055Mortgage-related securities available for sale
    
    
    256,358
    
    
    
    202,250Mortgage-related securities held to maturity (fair value of $1,061
and $1,537, respectively)
    
    
    1,047
    
    
    
    1,502Loans, less allowance for loan losses of $15,252 at December 31, 2005
and $26,444 at March 31, 2005:Held for sale
    
    
    5,847
    
    
    
    4,361Held for investment
    
    
    3,545,436
    
    
    
    3,414,608Foreclosed properties and repossessed assets, net
    
    
    2,606
    
    
    
    1,458Real estate held for development and sale
    
    
    51,051
    
    
    
    48,949Office properties and equipment
    
    
    29,356
    
    
    
    30,495Federal Home Loan Bank stockat cost
    
    
    45,348
    
    
    
    44,923Accrued interest on investments and loans and other assets
    
    
    63,034
    
    
    
    63,463Goodwill
    
    
    19,956
    
    
    
    19,956Total assets
    
    $
    4,200,234
    
    
    $
    4,050,456Liabilities and Stockholders EquityDepositsNon-interest bearing
    
    $
    237,180
    
    
    $
    230,045Interest bearing
    
    
    2,750,104
    
    
    
    2,643,488Total deposits
    
    
    2,987,284
    
    
    
    2,873,533Short-term borrowings
    
    
    356,458
    
    
    
    242,540Long-term borrowings
    
    
    458,183
    
    
    
    551,069Other liabilities
    
    
    79,013
    
    
    
    62,834Total liabilities
    
    
    3,880,938
    
    
    
    3,729,976Minority interest in real estate partnerships
    
    
    7,207
    
    
    
    9,802Commitments 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, 21,789,725 and 22,319,513 shares outstanding,
respectively
    
    
    2,536
    
    
    
    2,536Additional paid-in capital
    
    
    70,513
    
    
    
    68,627Retained earnings
    
    
    332,788
    
    
    
    315,077Accumulated other comprehensive loss
    
    
    (1,838
    )
    
    
    (708
    )Treasury stock (3,573,614 shares and 3,043,826 shares, respectively), at cost
    
    
    (84,155
    )
    
    
    (68,441
    )Unearned deferred compensation
    
    
    (7,755
    )
    
    
    (6,413
    )Total stockholders equity
    
    
    312,089
    
    
    
    310,678Total liabilities and stockholders equity
    
    $
    4,200,234
    
    
    $
    4,050,456




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Consolidated Statements of Income
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(As Restated)
    
    
    
    
    
    
    (As Restated)(In Thousands, Except Per Share Data)Interest income:Loans
    
    $
    56,443
    
    
    $
    47,347
    
    
    $
    161,192
    
    
    $
    135,588Mortgage-related securities
    
    
    2,962
    
    
    
    2,141
    
    
    
    8,639
    
    
    
    6,404Investment securities
    
    
    1,004
    
    
    
    1,305
    
    
    
    2,907
    
    
    
    3,984Interest-bearing deposits
    
    
    988
    
    
    
    565
    
    
    
    2,888
    
    
    
    1,207Total interest income
    
    
    61,397
    
    
    
    51,358
    
    
    
    175,626
    
    
    
    147,183Interest expense:Deposits
    
    
    20,257
    
    
    
    12,814
    
    
    
    54,845
    
    
    
    36,658Short-term borrowings
    
    
    2,958
    
    
    
    1,579
    
    
    
    7,725
    
    
    
    5,387Long-term borrowings
    
    
    4,345
    
    
    
    5,314
    
    
    
    13,646
    
    
    
    15,666Total interest expense
    
    
    27,560
    
    
    
    19,707
    
    
    
    76,216
    
    
    
    57,711Net interest income
    
    
    33,837
    
    
    
    31,651
    
    
    
    99,410
    
    
    
    89,472Provision for loan losses
    
    
    700
    
    
    
    664
    
    
    
    2,450
    
    
    
    1,414Net interest income after provision for loan losses
    
    
    33,137
    
    
    
    30,987
    
    
    
    96,960
    
    
    
    88,058Non-interest income:Real estate investment partnership revenue
    
    
    6,378
    
    
    
    16,104
    
    
    
    29,450
    
    
    
    54,983Loan servicing income
    
    
    1,280
    
    
    
    1,050
    
    
    
    3,681
    
    
    
    3,063Credit enhancement derivative income (includes interest
income of $68 and $61, respectively, for three-month period
and $198 and $174, respectively, for the nine-month period)
    
    
    414
    
    
    
    382
    
    
    
    1,216
    
    
    
    1,140Service charges on deposits
    
    
    2,355
    
    
    
    2,124
    
    
    
    7,084
    
    
    
    6,524Insurance commissions
    
    
    589
    
    
    
    519
    
    
    
    1,897
    
    
    
    1,764Net gain on sale of loans
    
    
    144
    
    
    
    1,001
    
    
    
    1,460
    
    
    
    880Net gain on sale of investments and mortgage-related securities
    
    
    120
    
    
    
    75
    
    
    
    394
    
    
    
    1,472Other revenue from real estate operations
    
    
    1,470
    
    
    
    725
    
    
    
    3,384
    
    
    
    2,744Other
    
    
    1,670
    
    
    
    883
    
    
    
    4,476
    
    
    
    2,581Total non-interest income
    
    
    14,420
    
    
    
    22,863
    
    
    
    53,042
    
    
    
    75,151
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Consolidated Statements of Income
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(As Restated)
    
    
    
    
    
    
    (As Restated)(In Thousands, Except Per Share Data)Non-interest expense:Compensation
    
    $
    11,862
    
    
    $
    10,028
    
    
    $
    34,032
    
    
    $
    30,765Real estate investment partnership cost of sales
    
    
    5,527
    
    
    
    13,131
    
    
    
    24,718
    
    
    
    43,909Occupancy
    
    
    1,820
    
    
    
    1,659
    
    
    
    5,144
    
    
    
    4,964Furniture and equipment
    
    
    1,423
    
    
    
    1,413
    
    
    
    4,609
    
    
    
    4,398Data processing
    
    
    1,425
    
    
    
    1,074
    
    
    
    4,074
    
    
    
    3,519Marketing
    
    
    1,108
    
    
    
    1,014
    
    
    
    3,294
    
    
    
    3,030Other expenses from real estate partnership operations
    
    
    2,467
    
    
    
    1,302
    
    
    
    6,721
    
    
    
    6,693Other
    
    
    3,133
    
    
    
    3,878
    
    
    
    9,531
    
    
    
    9,648Total non-interest expense
    
    
    28,765
    
    
    
    33,499
    
    
    
    92,123
    
    
    
    106,926Minority interest in income of real estate partnership operations
    
    
    304
    
    
    
    2,023
    
    
    
    1,694
    
    
    
    4,965Income before income taxes
    
    
    18,488
    
    
    
    18,328
    
    
    
    56,185
    
    
    
    51,318Income taxes
    
    
    7,595
    
    
    
    7,618
    
    
    
    22,954
    
    
    
    19,784Net income
    
    $
    10,893
    
    
    $
    10,710
    
    
    $
    33,231
    
    
    $
    31,534Earnings per share:Basic
    
    $
    0.51
    
    
    $
    0.47
    
    
    $
    1.53
    
    
    $
    1.39Diluted
    
    
    0.50
    
    
    
    0.46
    
    
    
    1.50
    
    
    
    1.37Dividends declared per share
    
    
    0.16
    
    
    
    0.13
    
    
    
    0.46
    
    
    
    0.36
  4




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Consolidated Statements of Cash Flows
  Nine Months Ended December 31,2005
    
    
    2004(As Restated)(In Thousands)Operating ActivitiesNet income
    
    $
    33,231
    
    
    $
    31,534Adjustments to reconcile net income to net
cash provided by operating activities:Provision for loan losses
    
    
    2,450
    
    
    
    1,414Provision for depreciation and amortization
    
    
    3,131
    
    
    
    2,958Cash paid due to origination of loans held for sale
    
    
    (567,011
    )
    
    
    (575,443
    )Cash received due to sale of loans held for sale
    
    
    565,525
    
    
    
    578,205Net gain loss on sales of loans
    
    
    (1,460
    )
    
    
    (880
    )Gain on sale of investments
    
    
    (394
    )
    
    
    (1,472
    )Tax benefit from stock related compensation
    
    
    1,886
    
    
    
    683Increase in accrued interest receivable
    
    
    (3,441
    )
    
    
    (1,603
    )Decrease (increase) in prepaid exp and other assets
    
    
    3,870
    
    
    
    (119
    )Increase in accrued interest payable
    
    
    2,161
    
    
    
    400Increase in accounts payable
    
    
    16,300
    
    
    
    11,011Other
    
    
    (4,647
    )
    
    
    6,982Net cash provided by operating activities
    
    
    51,601
    
    
    
    53,670Investing ActivitiesProceeds from sales of investment securities available for sale
    
    
    
    
    
    
    2,352Proceeds from maturities of investment securities
    
    
    144,080
    
    
    
    167,460Purchase of investment securities available for sale
    
    
    (127,888
    )
    
    
    (170,513
    )Proceeds from sale of mortgage-related securities held to maturity
    
    
    
    
    
    
    1,068Proceeds from sale of mortgage-related securities available for sale
    
    
    13,042
    
    
    
    17,970Purchase of mortgage-related securities available for sale
    
    
    (23,718
    )
    
    
    (58,468
    )Principal collected on mortgage-related securities
    
    
    49,954
    
    
    
    49,083(Increase) decrease in FHLB stock
    
    
    (425
    )
    
    
    42,397Net increase in loans held for investment
    
    
    (224,957
    )
    
    
    (225,527
    )Purchases of office properties and equipment
    
    
    (1,746
    )
    
    
    (2,590
    )Sales of office properties and equipment
    
    
    9
    
    
    
    236Sales of real estate
    
    
    425
    
    
    
    6,380Investment in real estate held for development and sale
    
    
    (2,682
    )
    
    
    10,539Net cash used in investing activities
    
    
    (173,906
    )
    
    
    (159,613
    )
 5




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Consolidated Statements of Cash Flows (Contd)
  Nine Months Ended December 31,2005
    
    
    2004(As Restated)(In Thousands)Financing ActivitiesIncrease in deposit accounts
    
    $
    117,680
    
    
    $
    101,617Decrease in advance payments by borrowers
for taxes and insurance
    
    
    (6,211
    )
    
    
    (5,808
    )Increase in short-term borrowings
    
    
    64,200
    
    
    
    48,912Proceeds from long-term borrowings
    
    
    110,680
    
    
    
    136,793Repayment of long-term borrowings
    
    
    (153,848
    )
    
    
    (190,336
    )Treasury stock purchased
    
    
    (23,283
    )
    
    
    (4,897
    )Exercise of stock options
    
    
    297
    
    
    
    1,373Cash received from employee stock purchase plan
    
    
    307
    
    
    
    273Payments of cash dividends to stockholders
    
    
    (9,897
    )
    
    
    (8,097
    )Net cash provided by financing activities
    
    
    99,925
    
    
    
    79,830Net decrease in cash and cash equivalents
    
    
    (22,380
    )
    
    
    (26,113
    )Cash and cash equivalents at beginning of period
    
    
    166,436
    
    
    
    198,993Cash and cash equivalents at end of period
    
    $
    144,056
    
    
    $
    172,880Supplementary cash flow information:Cash paid or credited to accounts:Interest on deposits and borrowings
    
    $
    74,055
    
    
    $
    57,311Income taxes
    
    
    21,221
    
    
    
    17,717Non-cash transactions:Transfer of mortgage loans held to maturity to held for sale
    
    
    94,129
    
    
    
    Securitization of mortgage loans held for sale to mortgage-backed
securities
    
    
    94,165
    
    
    
    
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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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Nine Months EndedDecember 31,2005
    
    2004(As Restated)(In Thousands, Except Per Share Data)Net IncomeAs reported
    
    $
    33,231
    
    
    $
    31,534Pro forma
    
    
    33,052
    
    
    
    31,210Earnings per share-BasicAs reported
    
    $
    1.53
    
    
    $
    1.39Pro forma
    
    
    1.52
    
    
    
    1.38Earnings per share-DilutedAs reported
    
    $
    1.50
    
    
    $
    1.37Pro forma
    
    
    1.49
    
    
    
    1.35
   8




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9




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Note 3  Restatement of Prior Periods Presented
      10




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Consolidated Statements of IncomeAs PreviouslyReported
    
    Adjustments
    
    As Restated(In Thousands, Except per Share Data)Three months ended December 31, 2004Loan servicing income
    
    $
    958
    
    
    $
    92
    
    
    $
    1,050Credit enhancement derivative income
    
    
    
    
    
    
    382
    
    
    
    382Net gain (loss) on sale of loans
    
    
    1,825
    
    
    
    (824
    )
    
    
    1,001Total non-interest income
    
    
    23,213
    
    
    
    (350
    )
    
    
    22,863Income before taxes
    
    
    18,678
    
    
    
    (350
    )
    
    
    18,328Income taxes
    
    
    7,758
    
    
    
    (140
    )
    
    
    7,618Net income
    
    
    10,920
    
    
    
    (210
    )
    
    
    10,710Earnings per share:Basic
    
    
    0.48
    
    
    
    (0.01
    )
    
    
    0.47Diluted
    
    
    0.47
    
    
    
    (0.01
    )
    
    
    0.46
 Consolidated Statements of IncomeAs PreviouslyReported
    
    
    Adjustments
    
    
    As Restated(In Thousands, Except per Share Data)Nine months ended December
31, 2004Loan servicing income
    
    $
    2,475
    
    
    $
    588
    
    
    $
    3,063Credit enhancement derivative income
    
    
    
    
    
    
    1,140
    
    
    
    1,140Net gain (loss) on sale of loans
    
    
    3,716
    
    
    
    (2,836
    )
    
    
    880Total non-interest income
    
    
    76,259
    
    
    
    (1,108
    )
    
    
    75,151Income before taxes
    
    
    52,426
    
    
    
    (1,108
    )
    
    
    51,318Income taxes
    
    
    20,227
    
    
    
    (443
    )
    
    
    19,784Net income
    
    
    32,199
    
    
    
    (665
    )
    
    
    31,534Earnings per share:Basic
    
    
    1.42
    
    
    
    (0.03
    )
    
    
    1.39Diluted
    
    
    1.39
    
    
    
    (0.02
    )
    
    
    1.37
 Note 4  Goodwill and Other Intangible Assets
  December 31,
    
    March 31,2005
    
    2005(In Thousands)Mortgage servicing rights at beginning of period
    
    $
    6,950
    
    
    $
    6,773Additions
    
    
    1,823
    
    
    
    2,949Amortization
    
    
    (1,801
    )
    
    
    (2,772
    )Mortgage servicing rights before valuation allowance at end of period
    
    
    6,972
    
    
    
    6,950Valuation allowance
    
    
    (524
    )
    
    
    (515
    )Net mortgage servicing rights at end of period
    
    $
    6,448
    
    
    $
    6,435
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MortgageServicingRights(In Thousands)Quarter ended December 31, 2005 (actual)
    
    
    
    
    
    $
    556Estimate for the year ended March 31,2006
    
    
    
    
    
    
    2,4012007
    
    
    
    
    
    
    2,4012008
    
    
    
    
    
    
    2,1702009
    
    
    
    
    
    
    $
    6,972
 Note 5  Stockholders Equity
   12




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Note 6  Earnings Per Share
  13




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Three Months Ended December 31,2005
    
    
    2004(As Restated)Numerator:Net income
    
    $
    10,893,097
    
    
    $
    10,710,127Numerator for basic and diluted earnings
per shareincome available to common
stockholders
    
    $
    10,893,097
    
    
    $
    10,710,127Denominator:Denominator
for basic earnings per shareweighted-average shares
    
    
    21,489,319
    
    
    
    22,564,047Effect of dilutive securities:Employee stock options
    
    
    385,011
    
    
    
    490,355Management Recognition Plans
    
    
    
    
    
    
    5,101Denominator
for diluted earnings per shareadjusted weighted-average shares
andassumed conversions
    
    
    21,874,330
    
    
    
    23,059,503Basic earnings per share
    
    $
    0.51
    
    
    $
    0.47Diluted earnings per share
    
    $
    0.50
    
    
    $
    0.46
 Nine Months Ended December 31,2005
    
    
    2004(As Restated)Numerator:Net income
    
    $
    33,231,176
    
    
    $
    31,533,984Numerator
for basic and diluted earnings per shareincome available to
common
stockholders
    
    $
    33,231,176
    
    
    $
    31,533,984Denominator:Denominator
for basic earnings per shareweighted-average shares
    
    
    21,706,059
    
    
    
    22,610,868Effect of dilutive securities:Employee stock options
    
    
    402,083
    
    
    
    470,876Management Recognition Plans
    
    
    1,690
    
    
    
    5,082Denominator
for diluted earnings per shareadjusted weighted-average shares
andassumed conversions
    
    
    22,109,832
    
    
    
    23,086,826Basic earnings per share
    
    $
    1.53
    
    
    $
    1.39Diluted earnings per share
    
    $
    1.50
    
    
    $
    1.37
 14




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Note 7  Segment Information
  Community Banking:
 Real Estate Investments:
  15




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##### Table of Contents



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
    
    $
    77,283
    
    
    $
    4,122,951
    
    
    $
    
    
    
    $
    4,200,234
 Three Months Ended December 31, 2004 (As Restated)(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    128
    
    
    $
    51,546
    
    
    $
    (316
    )
    
    $
    51,358Interest expense
    
    
    158
    
    
    
    19,865
    
    
    
    (316
    )
    
    
    19,707Net interest income (loss)
    
    
    (30
    )
    
    
    31,681
    
    
    
    
    
    
    
    31,651Provision for loan losses
    
    
    
    
    
    
    664
    
    
    
    
    
    
    
    664Net interest income (loss) after provision for loan losses
    
    
    (30
    )
    
    
    31,017
    
    
    
    
    
    
    
    30,987Real estate investment partnership revenue
    
    
    16,104
    
    
    
    
    
    
    
    
    
    
    
    16,104Other revenue from real estate operations
    
    
    725
    
    
    
    
    
    
    
    
    
    
    
    725Other income
    
    
    
    
    
    
    6,063
    
    
    
    (29
    )
    
    
    6,034Real estate investment partnership cost of sales
    
    
    (13,131
    )
    
    
    
    
    
    
    
    
    
    
    (13,131
    )Other expense from real estate partnership operations
    
    
    (1,331
    )
    
    
    
    
    
    
    29
    
    
    
    (1,302
    )Minority interest in income of real estate partnerships
    
    
    (2,023
    )
    
    
    
    
    
    
    
    
    
    
    (2,023
    )Other expense
    
    
    
    
    
    
    (19,066
    )
    
    
    
    
    
    
    (19,066
    )Income before income taxes
    
    
    314
    
    
    
    18,014
    
    
    
    
    
    
    
    18,328Income tax expense
    
    
    182
    
    
    
    7,436
    
    
    
    
    
    
    
    7,618Net income
    
    $
    132
    
    
    $
    10,578
    
    
    $
    
    
    
    $
    10,710Total Assets
    
    $
    76,621
    
    
    $
    3,853,260
    
    
    $
    
    
    
    $
    3,929,881
 16




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##### Table of Contents



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
    
    $
    77,283
    
    
    $
    4,122,951
    
    
    $
    
    
    
    $
    4,200,234
 Nine Months Ended December 31, 2004 (As Restated)(In Thousands)ConsolidatedReal Estate
    
    
    Community
    
    
    Intersegment
    
    
    FinancialInvestments
    
    
    Banking
    
    
    Eliminations
    
    
    StatementsInterest income
    
    $
    315
    
    
    $
    147,687
    
    
    $
    (819
    )
    
    $
    147,183Interest expense
    
    
    797
    
    
    
    57,733
    
    
    
    (819
    )
    
    
    57,711Net interest income (loss)
    
    
    (482
    )
    
    
    89,954
    
    
    
    
    
    
    
    89,472Provision for loan losses
    
    
    
    
    
    
    1,414
    
    
    
    
    
    
    
    1,414Net interest income (loss) after provision for loan losses
    
    
    (482
    )
    
    
    88,540
    
    
    
    
    
    
    
    88,058Real estate investment partnership revenue
    
    
    54,983
    
    
    
    
    
    
    
    
    
    
    
    54,983Other revenue from real estate operations
    
    
    2,744
    
    
    
    
    
    
    
    
    
    
    
    2,744Other income
    
    
    
    
    
    
    17,513
    
    
    
    (89
    )
    
    
    17,424Real estate investment partnership cost of sales
    
    
    (43,909
    )
    
    
    
    
    
    
    
    
    
    
    (43,909
    )Other expense from real estate partnership operations
    
    
    (6,782
    )
    
    
    
    
    
    
    89
    
    
    
    (6,693
    )Minority interest in income of real estate partnerships
    
    
    (4,965
    )
    
    
    
    
    
    
    
    
    
    
    (4,965
    )Other expense
    
    
    
    
    
    
    (56,324
    )
    
    
    
    
    
    
    (56,324
    )Income before income taxes
    
    
    1,589
    
    
    
    49,729
    
    
    
    
    
    
    
    51,318Income tax expense
    
    
    716
    
    
    
    19,068
    
    
    
    
    
    
    
    19,784Net income
    
    $
    873
    
    
    $
    30,661
    
    
    $
    
    
    
    $
    31,534Total Assets
    
    $
    76,621
    
    
    $
    3,853,260
    
    
    $
    
    
    
    $
    3,929,881
 17




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##### Table of Contents



Note 8  Commitments and Contingent Liabilities
   December 31,
    
    March 31,2005
    
    2005Commitments to extend credit:
    
    $
    71,915
    
    
    $
    132,607Unused lines of credit:Home equity
    
    
    93,546
    
    
    
    93,270Credit cards
    
    
    42,222
    
    
    
    36,621Commercial
    
    
    134,585
    
    
    
    129,861Letters of credit
    
    
    81,175
    
    
    
    51,485Loans sold with recourse
    
    
    
    
    
    
    257Credit enhancement under the Federal
Home Loan Bank of Chicago Mortgage
Partnership Finance Program
    
    
    17,336
    
    
    
    14,258Real estate investment segment borrowings
    
    
    19,203
    
    
    
    12,653
   18
    Table of Contents    Note 9  Regulatory Action
   Note 10  Subsequent Events
  19




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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 increased to $0.50 for the quarter ended December 31, 2005
compared to $0.46 per share for the quarter ended December 31, 2004;
    
    The net interest margin decreased to 3.39% for the quarter ended December 31, 2005
compared to 3.40% for the quarter ended December 31, 2004;
    
    Loans receivable increased $247.1 million or 7.48% since December 31, 2004 and increased
$132.3 million or 3.87% since March 31, 2005;
    
    Deposits grew $281.8 million or 10.42% since December 31, 2004 and $113.7 million or
3.96% since March 31, 2005; and
    
    Book value per share increased to $14.32 at December 31, 2005 compared to $13.77 at
December 31, 2004.
  20




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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. 21




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##### Table of Contents



Three Months Ended12/31/2004
    
    9/30/2004
    
    6/30/2004
    
    3/31/2004(Dollars in thousands - except per share amounts)
    
    (As Restated)
    
    (As Restated)
    
    (As Restated)
    
    (As Restated)Operations Data:Net interest income
    
    $
    31,651
    
    
    $
    29,615
    
    
    $
    28,206
    
    
    $
    26,823Provision for loan losses
    
    
    664
    
    
    
    300
    
    
    
    450
    
    
    
    600Net gain (loss) on sale of loans
    
    
    1,001
    
    
    
    1,043
    
    
    
    (1,164
    )
    
    
    1,569Real estate investment partnership revenue
    
    
    16,104
    
    
    
    15,143
    
    
    
    23,736
    
    
    
    35,852Other non-interest income
    
    
    5,758
    
    
    
    6,469
    
    
    
    7,061
    
    
    
    10,922Real estate investment partnership cost of sales
    
    
    13,131
    
    
    
    11,067
    
    
    
    19,711
    
    
    
    26,411Other non-interest expense
    
    
    20,368
    
    
    
    21,933
    
    
    
    20,717
    
    
    
    26,102Minority interest in income of
real estate partnership operations
    
    
    2,023
    
    
    
    1,359
    
    
    
    1,582
    
    
    
    2,585Income before income taxes
    
    
    18,328
    
    
    
    17,611
    
    
    
    15,379
    
    
    
    19,468Income taxes
    
    
    7,618
    
    
    
    7,006
    
    
    
    5,160
    
    
    
    7,446Net income
    
    
    10,710
    
    
    
    10,605
    
    
    
    10,219
    
    
    
    12,022Selected Financial Ratios(1):Yield on earning assets
    
    
    5.51
    %
    
    
    5.35
    %
    
    
    5.22
    %
    
    
    5.21
    %Cost of funds
    
    
    2.22
    
    
    
    2.22
    
    
    
    2.17
    
    
    
    2.26Interest rate spread
    
    
    3.29
    
    
    
    3.13
    
    
    
    3.05
    
    
    
    2.95Net interest margin
    
    
    3.40
    
    
    
    3.25
    
    
    
    3.13
    
    
    
    3.03Return on average assets
    
    
    1.09
    
    
    
    1.11
    
    
    
    1.07
    
    
    
    1.28Return on average equity
    
    
    13.64
    
    
    
    13.78
    
    
    
    13.60
    
    
    
    16.10Average equity to average assets
    
    
    8.01
    
    
    
    8.09
    
    
    
    7.86
    
    
    
    7.96Non-interest expense to average assets
    
    
    3.42
    
    
    
    3.47
    
    
    
    4.23
    
    
    
    5.60Per Share:Basic earnings per share
    
    $
    0.47
    
    
    $
    0.47
    
    
    $
    0.45
    
    
    $
    0.53Diluted earnings per share
    
    
    0.46
    
    
    
    0.46
    
    
    
    0.44
    
    
    
    0.52Dividends per share
    
    
    0.13
    
    
    
    0.13
    
    
    
    0.11
    
    
    
    0.11Book value per share
    
    
    13.77
    
    
    
    13.55
    
    
    
    13.20
    
    
    
    12.97Financial Condition:Total assets
    
    $
    3,929,881
    
    
    $
    3,909,961
    
    
    $
    3,835,434
    
    
    $
    3,806,545Loans receivable, netHeld for sale
    
    
    11,816
    
    
    
    7,057
    
    
    
    11,032
    
    
    
    14,578Held for investment
    
    
    3,292,339
    
    
    
    3,231,826
    
    
    
    3,162,136
    
    
    
    3,066,812Deposits
    
    
    2,705,495
    
    
    
    2,681,757
    
    
    
    2,663,376
    
    
    
    2,609,686Borrowings
    
    
    826,928
    
    
    
    846,139
    
    
    
    807,614
    
    
    
    831,559Stockholders equity
    
    
    316,243
    
    
    
    312,063
    
    
    
    303,496
    
    
    
    297,707Allowance for loan losses
    
    
    27,526
    
    
    
    28,213
    
    
    
    28,535
    
    
    
    28,607Non-performing assets
    
    
    21,029
    
    
    
    21,187
    
    
    
    19,009
    
    
    
    17,343
 
 (1)
    
    Annualized when appropriate. 22




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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.
  
    
    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.
  23




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##### Table of Contents



Restatement
      
 RESULTS OF OPERATIONS
 General. 24
    Table of Contents   Net Interest Income.
   Provision for Loan Losses. 25
    Table of Contents  Average Interest-Earning Assets, Average Interest-Bearing Liabilities and Interest Rate Spread.
 26
    Table of Contents  Three Months Ended December 31,2005
    
    
    2004Average
    
    

    Average
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Balance
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Cost(1)
    
    
    (As Restated)
    
    
    Interest
    
    
    Cost(1)(Dollars In Thousands)INTEREST-EARNING ASSETSMortgage loans
    
    $
    2,706,411
    
    
    $
    42,219
    
    
    
    6.24
    %
    
    $
    2,537,737
    
    
    $
    35,957
    
    
    
    5.67
    %Consumer loans
    
    
    625,701
    
    
    
    10,596
    
    
    
    6.77
    
    
    
    567,759
    
    
    
    8,521
    
    
    
    6.00Commercial business loans
    
    
    191,412
    
    
    
    3,628
    
    
    
    7.58
    
    
    
    174,531
    
    
    
    2,869
    
    
    
    6.58Total loans receivable (2) (3)
    
    
    3,523,524
    
    
    
    56,443
    
    
    
    6.41
    
    
    
    3,280,027
    
    
    
    47,347
    
    
    
    5.77Mortgage-related securities (4)
    
    
    266,581
    
    
    
    2,962
    
    
    
    4.44
    
    
    
    207,170
    
    
    
    2,141
    
    
    
    4.13Investment securities (4)
    
    
    57,773
    
    
    
    579
    
    
    
    4.01
    
    
    
    56,163
    
    
    
    332
    
    
    
    2.36Interest-bearing deposits
    
    
    103,313
    
    
    
    988
    
    
    
    3.83
    
    
    
    125,475
    
    
    
    565
    
    
    
    1.80Federal Home Loan Bank stock
    
    
    45,140
    
    
    
    425
    
    
    
    3.77
    
    
    
    56,228
    
    
    
    973
    
    
    
    6.92Total interest-earning assets
    
    
    3,996,331
    
    
    
    61,397
    
    
    
    6.15
    
    
    
    3,725,063
    
    
    
    51,358
    
    
    
    5.51Non-interest-earning assets
    
    
    206,983
    
    
    
    
    
    
    
    
    
    
    
    198,029Total assets
    
    $
    4,203,314
    
    
    
    
    
    
    
    
    
    
    $
    3,923,092INTEREST-BEARING LIABILITIESDemand deposits
    
    $
    797,137
    
    
    
    2,977
    
    
    
    1.49
    
    
    $
    760,859
    
    
    
    1,355
    
    
    
    0.71Regular passbook savings
    
    
    232,021
    
    
    
    262
    
    
    
    0.45
    
    
    
    255,223
    
    
    
    282
    
    
    
    0.44Certificates of deposit
    
    
    2,004,133
    
    
    
    17,018
    
    
    
    3.40
    
    
    
    1,711,957
    
    
    
    11,177
    
    
    
    2.61Total deposits
    
    
    3,033,291
    
    
    
    20,257
    
    
    
    2.67
    
    
    
    2,728,039
    
    
    
    12,814
    
    
    
    1.88Short-term borrowings
    
    
    301,068
    
    
    
    2,958
    
    
    
    3.93
    
    
    
    202,907
    
    
    
    1,579
    
    
    
    3.11Long-term borrowings
    
    
    497,940
    
    
    
    4,345
    
    
    
    3.49
    
    
    
    617,899
    
    
    
    5,314
    
    
    
    3.44Total interest-bearing liabilities
    
    
    3,832,299
    
    
    
    27,560
    
    
    
    2.88
    
    
    
    3,548,845
    
    
    
    19,707
    
    
    
    2.22Non-interest-bearing liabilities
    
    
    57,671
    
    
    
    
    
    
    
    
    
    
    
    60,094Total liabilities
    
    
    3,889,970
    
    
    
    
    
    
    
    
    
    
    
    3,608,939Stockholders equity
    
    
    313,344
    
    
    
    
    
    
    
    
    
    
    
    314,153Total liabilities and stockholders equity
    
    $
    4,203,314
    
    
    
    
    
    
    
    
    
    
    $
    3,923,092Net interest income/interest rate spread (5)
    
    
    
    
    
    $
    33,837
    
    
    
    3.27
    %
    
    
    
    
    
    $
    31,651
    
    
    
    3.29
    %Net interest-earning assets
    
    $
    164,032
    
    
    
    
    
    
    
    
    
    
    $
    176,218Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    3.39
    %
    
    
    
    
    
    
    
    
    
    
    3.40
    %Ratio of average interest-earning assets
to average interest-bearing liabilities
    
    
    1.04
    
    
    
    
    
    
    
    
    
    
    
    1.05
 
 (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 average yield on interest-earning assets and the
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. 27
    Table of Contents  Nine Months Ended December 31,2005
    
    
    2004Average
    
    

    Average
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    Yield/
    
    
    Balance
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Cost(1)
    
    
    (As Restated)
    
    
    Interest
    
    
    Cost(1)(Dollars In Thousands)INTEREST-EARNING ASSETSMortgage loans
    
    $
    2,657,952
    
    
    $
    120,931
    
    
    
    6.07
    %
    
    $
    2,475,210
    
    
    $
    103,268
    
    
    
    5.56
    %Consumer loans
    
    
    611,318
    
    
    
    29,951
    
    
    
    6.53
    
    
    
    557,819
    
    
    
    24,850
    
    
    
    5.94Commercial business loans
    
    
    191,852
    
    
    
    10,310
    
    
    
    7.17
    
    
    
    167,963
    
    
    
    7,470
    
    
    
    5.93Total loans receivable (2) (3)
    
    
    3,461,122
    
    
    
    161,192
    
    
    
    6.21
    
    
    
    3,200,992
    
    
    
    135,588
    
    
    
    5.65Mortgage-related securities (4)
    
    
    263,153
    
    
    
    8,639
    
    
    
    4.38
    
    
    
    211,010
    
    
    
    6,404
    
    
    
    4.05Investment securities (4)
    
    
    47,249
    
    
    
    1,313
    
    
    
    3.71
    
    
    
    56,608
    
    
    
    879
    
    
    
    2.07Interest-bearing deposits
    
    
    117,914
    
    
    
    2,888
    
    
    
    3.27
    
    
    
    121,082
    
    
    
    1,207
    
    
    
    1.33Federal Home Loan Bank stock
    
    
    44,996
    
    
    
    1,594
    
    
    
    4.72
    
    
    
    69,464
    
    
    
    3,105
    
    
    
    5.96Total interest-earning assets
    
    
    3,934,434
    
    
    
    175,626
    
    
    
    5.95
    
    
    
    3,659,156
    
    
    
    147,183
    
    
    
    5.36Non-interest-earning assets
    
    
    197,672
    
    
    
    
    
    
    
    
    
    
    
    190,895Total assets
    
    $
    4,132,106
    
    
    
    
    
    
    
    
    
    
    $
    3,850,051INTEREST-BEARING LIABILITIESDemand deposits
    
    $
    779,887
    
    
    
    7,732
    
    
    
    1.32
    
    
    $
    744,714
    
    
    
    3,057
    
    
    
    0.55Regular passbook savings
    
    
    237,916
    
    
    
    788
    
    
    
    0.44
    
    
    
    253,962
    
    
    
    829
    
    
    
    0.44Certificates of deposit
    
    
    1,955,969
    
    
    
    46,325
    
    
    
    3.16
    
    
    
    1,688,626
    
    
    
    32,772
    
    
    
    2.59Total deposits
    
    
    2,973,772
    
    
    
    54,845
    
    
    
    2.46
    
    
    
    2,687,302
    
    
    
    36,658
    
    
    
    1.82Short-term borrowings
    
    
    276,871
    
    
    
    7,725
    
    
    
    3.72
    
    
    
    203,715
    
    
    
    5,387
    
    
    
    3.53Long-term borrowings
    
    
    515,941
    
    
    
    13,646
    
    
    
    3.53
    
    
    
    600,056
    
    
    
    15,666
    
    
    
    3.48Total interest-bearing liabilities
    
    
    3,766,584
    
    
    
    76,216
    
    
    
    2.70
    
    
    
    3,491,073
    
    
    
    57,711
    
    
    
    2.20Non-interest-bearing liabilities
    
    
    50,849
    
    
    
    
    
    
    
    
    
    
    
    51,601Total liabilities
    
    
    3,817,433
    
    
    
    
    
    
    
    
    
    
    
    3,542,674Stockholders equity
    
    
    314,673
    
    
    
    
    
    
    
    
    
    
    
    307,377Total liabilities and stockholders equity
    
    $
    4,132,106
    
    
    
    
    
    
    
    
    
    
    $
    3,850,051Net interest income/interest rate spread (5)
    
    
    
    
    
    $
    99,410
    
    
    
    3.25
    %
    
    
    
    
    
    $
    89,472
    
    
    
    3.16
    %Net interest-earning assets
    
    $
    167,850
    
    
    
    
    
    
    
    
    
    
    $
    168,083Net interest margin (6)
    
    
    
    
    
    
    
    
    
    
    3.37
    %
    
    
    
    
    
    
    
    
    
    
    3.26
    %Ratio of average interest-earning assets
to average interest-bearing liabilities
    
    
    1.04
    
    
    
    
    
    
    
    
    
    
    
    1.05
 (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 average yield on interest-earning assets and the
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
    Table of Contents  Non-Interest Income.
 Non-Interest Expense.
 Income Taxes.
 29
    Table of Contents  FINANCIAL CONDITION
          30
    Table of Contents  ASSET QUALITY
   At December 31,
    
    
    At March 31,2005
    
    
    2005
    
    
    2004
    
    
    2003(Dollars In Thousands)Non-accrual loans:Single-family residential
    
    $
    2,489
    
    
    $
    2,406
    
    
    $
    3,247
    
    
    $
    4,510Multi-family residential
    
    
    3,956
    
    
    
    
    
    
    
    
    
    
    
    444Commercial real estate
    
    
    5,803
    
    
    
    4,894
    
    
    
    8,764
    
    
    
    1,776Construction and land
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    771
    
    
    
    453
    
    
    
    642
    
    
    
    661Commercial business
    
    
    1,640
    
    
    
    6,697
    
    
    
    2,268
    
    
    
    2,678Total non-accrual loans
    
    
    14,659
    
    
    
    14,450
    
    
    
    14,921
    
    
    
    10,069Real estate held for development and sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49Foreclosed properties and repossessed assets, net
    
    
    2,606
    
    
    
    1,458
    
    
    
    2,422
    
    
    
    1,535Total non-performing assets
    
    $
    17,265
    
    
    $
    15,908
    
    
    $
    17,343
    
    
    $
    11,653Performing troubled debt restructurings
    
    $
    73
    
    
    $
    
    
    
    $
    2,649
    
    
    $
    2,590Total non-accrual loans to total loans (1)
    
    
    0.38
    %
    
    
    0.40
    %
    
    
    0.45
    %
    
    
    0.34
    %Total non-performing assets to total assets
    
    
    0.41
    
    
    
    0.39
    
    
    
    0.46
    
    
    
    0.33Allowance for loan losses to total loans (1)
    
    
    0.40
    
    
    
    0.73
    
    
    
    0.87
    
    
    
    1.00Allowance for loan losses to total
non-accrual loans
    
    
    104.05
    
    
    
    183.00
    
    
    
    191.72
    
    
    
    294.74Allowance for loan and foreclosure losses
to total non-performing assets
    
    
    89.70
    
    
    
    167.39
    
    
    
    165.78
    
    
    
    257.87
 
 (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.     31
    Table of Contents  At December 31,
    
    
    At March 31,2005
    
    
    2005
    
    
    2004
    
    
    2003(In Thousands)Impaired loans with valuation
reserve required
    
    $
    6,030
    
    
    $
    10,827
    
    
    $
    17,126
    
    
    $
    8,483Less:Specific valuation allowance
    
    
    2,172
    
    
    
    7,126
    
    
    
    5,382
    
    
    
    3,717Total impaired loans
    
    $
    3,858
    
    
    $
    3,701
    
    
    $
    11,744
    
    
    $
    4,766Average impaired loans
    
    $
    6,074
    
    
    $
    11,535
    
    
    $
    6,389
    
    
    $
    6,288Interest income recognized
on impaired loans
    
    $
    114
    
    
    $
    249
    
    
    $
    710
    
    
    $
    613Interest income recognized on a cash basis
on impaired loans
    
    $
    114
    
    
    $
    249
    
    
    $
    710
    
    
    $
    613
 32
    Table of Contents  At December 31,
    
    
    At March 31,2005
    
    
    2005
    
    
    2004
    
    
    2003(In Thousands)30 to 59 days
    
    $
    7,904
    
    
    $
    5,853
    
    
    $
    4,887
    
    
    $
    10,08360 to 89 days
    
    
    1,477
    
    
    
    714
    
    
    
    10,941
    
    
    
    5,612Total
    
    $
    9,381
    
    
    $
    6,567
    
    
    $
    15,828
    
    
    $
    15,695
    Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars In Thousands)Allowance at beginning of period
    
    $
    22,582
    
    
    $
    28,213
    
    
    $
    26,444
    
    
    $
    28,607Charge-offs:Mortgage
    
    
    (900
    )
    
    
    (702
    )
    
    
    (1,044
    )
    
    
    (1,132
    )Consumer
    
    
    (181
    )
    
    
    (209
    )
    
    
    (469
    )
    
    
    (669
    )Commercial business
    
    
    (6,964
    )
    
    
    (595
    )
    
    
    (12,319
    )
    
    
    (993
    )Total charge-offs
    
    
    (8,045
    )
    
    
    (1,506
    )
    
    
    (13,832
    )
    
    
    (2,794
    )Recoveries:Mortgage
    
    
    1
    
    
    
    137
    
    
    
    82
    
    
    
    174Consumer
    
    
    8
    
    
    
    11
    
    
    
    51
    
    
    
    53Commercial business
    
    
    6
    
    
    
    7
    
    
    
    57
    
    
    
    72Total recoveries
    
    
    15
    
    
    
    155
    
    
    
    190
    
    
    
    299Net charge-offs
    
    
    (8,030
    )
    
    
    (1,351
    )
    
    
    (13,642
    )
    
    
    (2,495
    )Provision for loan losses
    
    
    700
    
    
    
    664
    
    
    
    2,450
    
    
    
    1,414Allowance at end of period
    
    $
    15,252
    
    
    $
    27,526
    
    
    $
    15,252
    
    
    $
    27,526Net charge-offs to average loans
    
    
    (0.91
    )%
    
    
    (0.16
    )%
    
    
    (0.53
    )%
    
    
    (0.10
    )%
  33
    Table of Contents  LIQUIDITY AND CAPITAL RESOURCES
     34
    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, 2005:Tier 1 capital(to adjusted tangible assets)
    
    $
    328,060
    
    
    
    8.04
    %
    
    $
    122,341
    
    
    
    3.00
    %
    
    $
    203,902
    
    
    
    5.00
    %Risk-based capital(to risk-based assets)
    
    
    341,140
    
    
    
    10.50
    
    
    
    259,999
    
    
    
    8.00
    
    
    
    324,999
    
    
    
    10.00Tangible capital(to tangible assets)
    
    
    328,060
    
    
    
    8.04
    
    
    
    61,171
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/AAs of March 31, 2005:Tier 1 capital(to adjusted tangible assets)
    
    $
    308,050
    
    
    
    7.77
    %
    
    $
    118,890
    
    
    
    3.00
    %
    
    $
    198,149
    
    
    
    5.00
    %Risk-based capital(to risk-based assets)
    
    
    327,368
    
    
    
    10.71
    
    
    
    244,553
    
    
    
    8.00
    
    
    
    305,691
    
    
    
    10.00Tangible capital(to tangible assets)
    
    
    308,050
    
    
    
    7.77
    
    
    
    59,445
    
    
    
    1.50
    
    
    
    N/A
    
    
    
    N/A
  December 31,
    
    
    March 31,2005
    
    
    2005(In Thousands)Stockholders equity of the Bank
    
    $
    346,088
    
    
    $
    327,341Less: Goodwill and intangible assets
    
    
    (19,956
    )
    
    
    (20,283
    )Accumulated other comprehensive income
    
    
    1,928
    
    
    
    992Tier 1 and tangible capital
    
    
    328,060
    
    
    
    308,050Plus: Allowable general valuation allowances
    
    
    13,080
    
    
    
    19,318Risk based capital
    
    $
    341,140
    
    
    $
    327,368
 35
    Table of Contents  GUARANTEES
   Amount
    
    
    AmountSubsidiary
    
    Partnership
    
    Amount
    
    
    Outstanding
    
    
    Outstandingof IDI
    
    Entity
    
    Guaranteed
    
    
    at 12/31/05
    
    
    at 3/31/05(Dollars in thousands)Oakmont
    
    Chandler Creek
    
    $
    14,150
    
    
    $
    14,150
    
    
    $
    4,355Davsha III
    
    Indian Palms 147, LLC
    
    
    4,655
    
    
    
    2,637
    
    
    
    1,174Davsha V
    
    Villa Santa Rosa, LLC
    
    
    11,000
    
    
    
    3,056
    
    
    
    8,738Davsha VII
    
    La Vista Grande 121, LLC
    
    
    14,619
    
    
    
    5,378
    
    
    
    5,114Total
    
    
    
    $
    44,424
    
    
    $
    25,221
    
    
    $
    19,381
     36
    Table of Contents  ASSET/LIABILITY MANAGEMENT
     
 CONSENT ORDER
   37
    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, 2005.
See the Corporations Annual Report on Form 10-K for the year ended March 31, 2005.
 
 Item 4
    
    Controls and ProceduresThe 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 effective.During the quarter ended December 31, 2005, the Corporation continued to take steps
to address the control deficiencies arising from the error described in Managements
Report on Internal Control Over Financial Reporting in the Companys Annual Report
on Form 10-K for the year ended March 31, 2005 (2005 Annual Report), including
adoption of the correct method of accounting for loans originated by the Corporation
through the Mortgage Partnership Finance (MPF) 100 Program of the Federal Home
Loan Bank of Chicago (FHLB) and restating the Corporations financial statements
for the affected periods. Management believes that these actions, as well as the
other corrective actions described in the Corporations 2005 Annual Report, taken as
whole, have addressed the control deficiencies arising from the error described in
the 2005 Annual Report.Other than the actions mentioned above, there has been no change in the
Corporations internal control over financial reporting (as defined in Exchange Act
Rule 13a-15(f)) that 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 Proceeding.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.On October 31, 2005, the Office of Thrift Supervision (OTS) terminated the cease
and desist order previously issued to AnchorBank fsb (the Bank) the wholly owned
banking subsidiary of the Company. The cease and desist order was issued by the OTS
in September 2004 in connection with alleged violations of the Bank Secrecy Act
(BSA) and related regulations. Under the order, the Banks board agreed, among
other things, to take a range of actions with respect to the review and conduct of
its BSA compliance activities. The OTS terminated the cease and desist order as a
result of the remedial actions taken by the Bank with respect to BSA compliance.
 38
    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, 2005
    
    
    169,800
    
    
    $
    29.24
    
    
    
    169,800
    
    
    
    568,860November 1 - November 30, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,668,860December 1 - December 31, 2005
    
    
    149,504
    
    
    
    31.21
    
    
    
    149,500
    
    
    
    1,519,360Total
    
    
    319,304
    (1)
    
    $
    30.16
    
    
    
    319,300
    
    
    
    1,519,360
 
 (1)
    
    Consists of 319,300 shares purchased pursuant to a publicly announced repurchase
program, as described in Note 2, and 4 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 7, 2005, the Board of Directors extended the current share repurchase
program and authorized an additional share repurchase program of 5% or approximately 1.10
million shares of its outstanding common stock in the open market. 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.
 39
    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.
 40
    Table of Contents  SIGNATURES
   Date:
    
    February 6, 2006
    
    By:
    
    /s/ Douglas J. TimmermanDouglas J. Timmerman, Chairman of theBoard, President and Chief Executive OfficerDate:
    
    February 6, 2006
    
    By:
    
    /s/ Michael W. HelserMichael W. Helser, Treasurer andChief Financial Officer
 41