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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended March 31, 2009
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File Number 0-20006

ANCHOR BANCORP WISCONSIN INC.

(Exact name of registrant as specified in its charter)


Wisconsin (State or other jurisdiction of incorporation or organization)		39-1726871 (IRS Employer Identification No.)

25 West Main Street

Madison, Wisconsin 53703

(Address of principal executive office)

Registrant’s telephone number, including area code (608) 252-8700

Securities registered pursuant to Section 12 (b) of the Act:


Common stock, par value $.10 per share	NASDAQ Global Market


(Title of Class)	(Name of each exchange on which registered)

Securities registered pursuant to Section 12 (g) of the Act:

Not Applicable

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 or Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

As of September 30, 2008, the aggregate market value of the 21,517,724 outstanding shares of the Registrant’s common stock deemed to be held by non-affiliates of the registrant was $138.0 million, based upon the closing price of $7.35 per share of common stock as reported by the Nasdaq Global Market on such date. Although directors and executive officers of the Registrant and certain of its employee benefit plans were assumed to be “affiliates” of the Registrant for purposes of this calculation, the classification is not to be interpreted as an admission of such status.

As of June 5, 2009, 21,578,713 shares of the Registrant’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on July 28, 2009 (Part III, Items 10 to 14).

FORWARD-LOOKING STATEMENTS

In the normal course of business, we, in an effort to help keep our shareholders and the public informed about our operations, may from time to time issue or make certain statements, either in writing or orally, that are or contain forward-looking statements, as that term is defined in the U.S. federal securities laws. Generally, these statements relate to business plans or strategies, projected or anticipated benefits from acquisitions made by or to be made by us, projections involving anticipated revenues, earnings, profitability or other aspects of operating results or other future developments in our affairs or the industry in which we conduct business. Forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology such as “anticipate,” “believe,” “expect,” “intend,” “plan,” “estimate” or similar expressions.

Although we believe that the anticipated results or other expectations reflected in our forward-looking statements are based on reasonable assumptions, we can give no assurance that those results or expectations will be attained. Forward-looking statements involve risks, uncertainties and assumptions (some of which are beyond our control), and as a result actual results may differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from forward-looking statements include, but are not limited to, the following, as well as those discussed elsewhere herein:


	•	our investments in our businesses and in related technology could require additional incremental spending, and might not produce expected deposit and loan growth and anticipated contributions to our earnings;

	•	general economic or industry conditions could be less favorable than expected, resulting in a deterioration in credit quality, a change in the allowance for loan and lease losses or a reduced demand for credit or fee-based products and services;

	•	changes in the domestic interest rate environment could reduce net interest income and could increase credit losses;

	•	the conditions of the securities markets could change, which could adversely affect, among other things, the value or credit quality of our assets, the availability and terms of funding necessary to meet our liquidity needs and our ability to originate loans;

	•	changes in the extensive laws, regulations and policies governing financial holding companies and their subsidiaries could alter our business environment or affect our operations;

	•	the potential need to adapt to industry changes in information technology systems, on which we are highly dependent, could present operational issues or require significant capital spending;

	•	competitive pressures could intensify and affect our profitability, including as a result of continued industry consolidation, the increased availability of financial services from non-banks, technological developments such as the Internet or bank regulatory reform;

	•	acquisitions may result in large one-time charges to income, may not produce revenue enhancements or cost savings at levels or within time frames originally anticipated and may result in unforeseen integration difficulties; and

	•	acts or threats of terrorism and actions taken by the United States or other governments as a result of such acts or threats, including possible military action, could further adversely affect business and economic conditions in the United States generally and in our principal markets, which could have an adverse effect on our financial performance and that of our borrowers and on the financial markets and the price of our common stock.

You should not put undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events except to the extent required by federal securities laws.

(ii)

PART I


Item 1.	*Business*

General

We, Anchor BanCorp Wisconsin Inc. (the “Corporation” or the “Company”) are a registered savings and loan holding company incorporated under the laws of the State of Wisconsin. We are engaged in the savings and loan business through our wholly-owned banking subsidiary, AnchorBank, fsb (the “Bank”).

The Bank was organized in 1919 as a Wisconsin-chartered savings institution and converted to a federally-chartered savings institution in July 2000. The Bank’s deposits are insured up to the maximum allowable amount by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Chicago, and is regulated by the Office of Thrift Supervision (“OTS”) and the FDIC. The Corporation is regulated by the OTS as a savings and loan holding company and is subject to the periodic reporting requirements of the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (“Exchange Act”). See “Regulation and Supervision.”

The Bank offers checking, savings, money market accounts, mortgages, home equity and other consumer loans, student loans, credit cards, annuities and related consumer financial services. The Bank also provides banking services to businesses, including checking accounts, lines of credit, secured loans and commercial real estate loans. The Bank also serves its customers through investment management products.

The Corporation has a non-banking subsidiary, Investment Directions, Inc. (“IDI”), a Wisconsin corporation which invests in real estate partnerships. IDI has two subsidiaries, Nevada Investment Directions, Inc. (“NIDI”) and California Investment Directions, Inc. (“CIDI”), both of which invest in real estate held for development and sale.

The Bank has two wholly-owned subsidiaries: ADPC Corporation (“ADPC”), a Wisconsin corporation, holds and develops certain of the Bank’s foreclosed properties. Anchor Investment Corporation (“AIC”), an operating subsidiary that is located in and formed under the laws of the State of Nevada, manages a portion of the Bank’s investment portfolio (primarily mortgage-related securities).

The Corporation maintains a web site at www.anchorbank.com. All the Corporation’s filings under the Exchange Act are available through that web site, free of charge, including copies of Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports, on the date that the Corporation files those materials with, or furnishes them to, the SEC.

Market Area

The Bank’s primary market area consists of the metropolitan area of Madison, Wisconsin, the suburban communities of Dane County, Wisconsin, south-central Wisconsin, the Fox Valley in east-central Wisconsin, the Milwaukee metropolitan area in southeastern Wisconsin and northwest Wisconsin, as well as contiguous counties in Iowa, Minnesota, and Illinois. At March 31, 2009, the Bank conducted business from its headquarters and main office in Madison, Wisconsin and from 73 other full-service offices and two loan origination offices.

Competition

The Bank encounters strong competition in attracting both loan and deposit customers. Such competition includes banks, savings institutions, mortgage banking companies, credit unions, finance companies, mutual funds, insurance companies and brokerage and investment banking firms. The Bank’s market area includes branches of several commercial banks that are substantially larger in terms of loans and deposits. Furthermore, tax exempt credit unions operate in most of the Bank’s market area and aggressively price their products and services to a large portion of the market. The Corporation’s profitability depends upon the Bank’s continued ability to successfully maintain and increase market share.

The origination of loans secured by real estate is the Bank’s primary business and principal source of profits. Customer demand for real estate loans has decreased and the Bank’s income has been affected because alternative investments, such as securities, typically earn less income than real estate secured loans. Customer demand for

loans secured by real estate has been reduced by a weak economy and an increase in unemployment, a decrease in real estate values.

The principal factors that are used to attract deposit accounts and that distinguish one financial institution from another include rates of return, quality of service to the depositors, types of accounts, service fees, convenience of office locations and hours, and other services. The primary factors in competing for loans are interest rates, loan fee charges, timeliness and quality of service to the borrower.

Lending Activities

General. At March 31, 2009, the Bank’s net loans held for investment totaled $3.90 billion, representing approximately 73.9% of its $5.27 billion of total assets at that date. Approximately $3.06 billion, or 74.5%, of the Bank’s total loans receivable at March 31, 2009 were secured by first liens on real estate.

The Bank originates single-family residential loans secured by properties located primarily in Wisconsin, with adjustable-rate loans generally being originated for inclusion in the Bank’s loan portfolio and fixed-rate loans generally being originated for sale into the secondary market. At this time, the Bank is not active in the origination of new commercial real estate, multi-family, construction, and commercial business loans. Consumer and education loans are still originated to our core retail banking customers.

Non-real estate loans originated by the Bank consist of a variety of consumer loans and commercial business loans. At March 31, 2009, the Bank’s total loans receivable included $809.8 million, or 19.7%, of consumer loans and $238.9 million, or 5.8%, of commercial business loans.

Loan Portfolio Composition. The following table presents information concerning the composition of the Bank’s consolidated loans held for investment at the dates indicated.


	March 31,
	2009						2008						2007
				Percent						Percent						Percent
	Amount			of Total			Amount			of Total			Amount			of Total
	(Dollars in thousands)

Mortgage loans:
Single-family residential	$	843,482			20.52	%	$	893,001			20.35	%	$	843,677			20.76	%
Multi-family residential		662,483			16.12			694,423			15.82			654,567			16.11
Commercial real estate		1,020,981			24.84			1,088,004			24.79			1,020,325			25.10
Construction		267,375			6.51			402,395			9.17			460,746			11.33
Land		266,756			6.49			306,363			6.98			214,703			5.28

Total mortgage loans		3,061,077			74.48			3,384,186			77.11			3,194,018			78.58

Consumer loans:
Second mortgage and home equity		394,708			9.61			356,009			8.11			351,739			8.65
Education		358,784			8.73			275,850			6.29			223,707			5.50
Other		56,302			1.37			95,149			2.17			60,413			1.49

Total consumer loans		809,794			19.71			727,008			16.57			635,859			15.64

Commercial business loans:
Loans		238,940			5.81			277,312			6.32			234,791			5.78
Lease receivables		—			0.00			—			0.00			1			0.00

Total commercial business loans		238,940			5.81			277,312			6.32			234,792			5.78

Total loans receivable		4,109,811			100.00	%		4,388,506			100.00	%		4,064,669			100.00	%

Contras to loans:
Undisbursed loan proceeds		(71,672	)					(141,219	)					(163,505	)
Allowance for loan losses		(137,165	)					(38,285	)					(20,517	)
Unearned net loan fees		(4,441	)					(6,075	)					(6,541	)
Net (discount) premium on loans purchased		(10	)					(11	)					(15	)
Unearned interest		(84	)					(83	)					(42	)

Total contras to loans		(213,372	)					(185,673	)					(190,620	)

Loans receivable, net	$	3,896,439					$	4,202,833					$	3,874,049


	March 31,
	2006						2005
				Percent						Percent
	Amount			of Total			Amount			of Total
	(Dollars in thousands)

Mortgage loans:
Single-family residential	$	785,444			20.51	%	$	816,204			22.59	%
Multi-family residential		626,029			16.35			594,311			16.45
Commercial real estate		974,123			25.43			923,587			25.57
Construction		457,493			11.94			375,753			10.40
Land		159,855			4.17			123,613			3.42

Total mortgage loans		3,002,944			78.40			2,833,468			78.43

Consumer loans:
Second mortgage and home equity		342,829			8.95			318,719			8.83
Education		213,628			5.58			208,588			5.77
Other		65,858			1.72			63,732			1.76

Total consumer loans		622,315			16.25			591,039			16.36

Commercial business loans:
Loans		205,019			5.35			188,236			5.21
Lease receivables		1			0.00			2			0.00

Total commercial business loans		205,020			5.35			188,238			5.21

Gross loans receivable		3,830,279			100.00	%		3,612,745			100.00	%

Contras to loans:
Undisbursed loan proceeds		(193,755	)					(167,317	)
Allowance for loan losses		(15,570	)					(26,444	)
Unearned net loan fees		(7,469	)					(6,422	)
Net premium on loans purchased		795						2,060
Unearned interest		(15	)					(14	)

Total contras to loans		(216,014	)					(198,137	)

Loans receivable, net	$	3,614,265					$	3,414,608

The following table shows, at March 31, 2009, the scheduled contractual maturities of the Bank’s consolidated gross loans held for investment, as well as the dollar amount of such loans which are scheduled to mature after one year which have fixed or adjustable interest rates.


			Multi-Family
			Residential and
			Commercial
			Real Estate,
	Single-Family		Construction				Commercial
	Residential		and Land		Consumer		Business
	Loans		Loans		Loans		Loans
	(In thousands)

Amounts due:
In one year or less	$	45,383	$	857,670	$	63,709	$	128,332
After one year through five years		73,543		984,605		247,129		91,937
After five years		724,556		375,320		498,956		18,671

	$	843,482	$	2,217,595	$	809,794	$	238,940

Interest rate terms on amounts due:
Fixed	$	259,742	$	1,259,496	$	498,000	$	131,812

Adjustable	$	583,740	$	958,099	$	311,794	$	107,128

Single-Family Residential Loans. At March 31, 2009, $843.5 million, or 20.5%, of the Bank’s total loans receivable consisted of single-family residential loans, substantially all of which are conventional loans, which are neither insured nor guaranteed by a federal or state agency. Although the Bank continues to originate single-family residential loans, they have declined as a percentage of the Bank’s total loans receivable from 22.6% at March 31, 2005 to 20.5% at March 31, 2009.

The adjustable-rate loans currently emphasized by the Bank have up to 30-year maturities and terms which permit the Bank to annually increase or decrease the rate on the loans, based on a designated index. This is generally subject to a limit of 2% per adjustment and an aggregate 6% adjustment over the life of the loan. The Bank makes a limited number of interest-only loans and does not make payment option loans, pursuant to which a consumer may select a payment option which can result in negative amortization on the loan.

Adjustable-rate loans decrease the risks associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. The Bank believes that these risks, which have not had a material adverse effect on the Bank to date, generally are less than the risks associated with holding fixed-rate loans in an increasing interest rate environment. At March 31, 2009, approximately $583.7 million, or 69.2%, of the Bank’s permanent single-family residential loans receivable consisted of loans with adjustable interest rates. Also, as interest rates decline, borrowers may refinance their mortgages into fixed-rate loans thereby prepaying the balance of the loan prior to maturity.

The Bank continues to originate long-term, fixed-rate conventional mortgage loans. The Bank generally sells current production of these loans with terms of 15 years or more to the Federal Home Loan Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and other institutional investors, while keeping some of the 10-year term loans in its portfolio. In order to provide a full range of products to its customers, the Bank also participates in the loan origination programs of Wisconsin Housing and Economic Development Authority (“WHEDA”), and Wisconsin Department of Veterans Affairs (“WDVA”). The Bank retains the right to service substantially all loans that it sells.

At March 31, 2009, approximately $259.7 million, or 30.8%, of the Bank’s permanent single-family residential loans receivable consisted of loans that provide for fixed rates of interest. Although these loans generally provide for repayments of principal over a fixed period of 10 to 30 years, it is the Bank’s experience that, because of prepayments and due-on-sale clauses, such loans generally remain outstanding for a substantially shorter period of time.

Multi-Family Residential and Commercial Real Estate. The Bank originates multi-family residential and commercial real estate loans that it typically holds in its loan portfolio. Such loans generally have adjustable rates and shorter terms than single-family residential loans, thus increasing the sensitivity of the loan portfolio to changes in interest rates, as well as providing higher fees and rates than single-family residential loans. At March 31, 2009, the Bank had $662.5 million of loans secured by multi-family residential real estate and $1.02 billion of loans secured by commercial real estate, which represented 16.1% and 24.8% of the Bank’s total loans receivable, respectively. The Bank generally limits the origination of such loans to its primary market area.

The Bank’s multi-family residential loans are primarily secured by apartment buildings and commercial real estate loans are primarily secured by office buildings, industrial buildings, warehouses, small retail shopping centers and various special purpose properties, including hotels, restaurants and nursing homes.

Although terms vary, multi-family residential and commercial real estate loans generally have maturities of 15 to 30 years, as well as balloon payments, and terms which provide that the interest rates thereon may be adjusted annually at the Bank’s discretion, based on a designated index, subject to an initial fixed-rate for a one to five year period and an annual limit generally of 1.5% per adjustment, with no limit on the amount of such adjustments over the life of the loan.

Construction and Land Loans. The Bank, in the past years, has been an originator of loans to construct residential and commercial properties (“construction loans”) and loans to acquire and develop real estate for the construction of such properties (“land loans”). At March 31, 2009, construction loans amounted to $267.4 million, or 6.5%, of the Bank’s total loans receivable. Land loans amounted to $266.8 million, or 6.5%, of the Bank’s total loans receivable at March 31, 2009.

The Bank’s construction loans generally have terms of six to 12 months, fixed interest rates and fees which are due at the time of origination and at maturity if the Bank does not originate the permanent financing on the constructed property. Loan proceeds are disbursed in increments as construction progresses and as inspections by the Bank’s in-house Construction Administrator and outside construction inspectors warrant. Typically, a component of the loan amount has been a reserve to cover interest payments during the construction phase. Land acquisition and development loans generally have the same terms as construction loans, but may have longer maturities than such loans. At this time, the Bank is not active and has currently suspended activity in this market segment.

Consumer Loans. The Bank offers consumer loans in order to provide a full range of financial services to its customers. At March 31, 2009, $809.8 million, or 19.7%, of the Bank’s consolidated total loans receivable consisted of consumer loans. Consumer loans generally have shorter terms and higher interest rates than mortgage loans but generally involve more risk than mortgage loans because of the type and nature of the collateral and, in certain cases, the absence of collateral.

The largest component of the Bank’s consumer loan portfolio is second mortgage and home equity loans, which amounted to $394.7 million, or 9.6%, of total loans receivable at March 31, 2009. The primary home equity loan product has an adjustable interest rate that is linked to the prime interest rate and is secured by a mortgage, either a primary or a junior lien, on the borrower’s residence. Advances do not exceed 100% of assessed or appraised value as of the loan origination date. A fixed-rate home equity product is also offered.

Approximately $358.8 million, or 8.7%, of the Bank’s total loans receivable at March 31, 2009 consisted of education loans. These are generally made for a maximum of $2,500 per year for undergraduate studies and $5,000 per year for graduate studies and are either due within six months of graduation or repaid on an installment basis after graduation. Education loans generally have interest rates that adjust annually in accordance with a designated index. Both the principal amount of an education loan and interest thereon generally are guaranteed by the Great Lakes Higher Education Corporation, which generally obtains reinsurance of its obligations from the U.S. Department of Education. Education loans may be sold to the U.S. Department of Education, Student Loan Marketing Association (“SLMA”) or to other investors. The Bank did not sell any of these education loans during fiscal 2009.

The remainder of the Bank’s consumer loan portfolio consists of vehicle loans and other secured and unsecured loans that have been made for a variety of consumer purposes. These include credit extended through credit cards issued by the Bank pursuant to an agency arrangement under which the Bank participates in outstanding balances,

currently within a range of 42% to 45%, with a third party, Elan. The Bank also shares 33% of annual fees paid to Elan and 30% of late payments paid to Elan.

At March 31, 2009, the Bank’s approved credit card lines amounted to $45.9 million. The total outstanding amount at March 31, 2009 is $8.3 million.

Commercial Business Loans and Leases. The Bank originates loans for commercial, corporate and business purposes, including issuing letters of credit. At March 31, 2009, commercial business loans amounted to $238.9 million, or 5.8%, of the Bank’s total loans receivable. The Bank’s commercial business loan portfolio is comprised of loans for a variety of purposes and generally is secured by equipment, machinery and other corporate assets. Commercial business loans generally have terms of five years or less and interest rates that float in accordance with a designated published index. Substantially all of such loans are secured and backed by the personal guarantees of the owners of the business.

Net Fee Income From Lending Activities. Loan origination and commitment fees and certain direct loan origination costs are being deferred and the net amounts are amortized as an adjustment to the related loan’s yield.

The Bank also receives other fees and charges relating to existing mortgage loans, which include prepayment penalties, late charges and fees collected in connection with a change in borrower or other loan modifications. Other types of loans also generate fee income for the Bank. These include annual fees assessed on credit card accounts, transactional fees relating to credit card usage and late charges on consumer loans.

Origination, Purchase and Sale of Loans. The Bank’s loan originations come from a number of sources. Residential mortgage loan originations are attributable primarily to depositors, walk-in customers, the Company’s website, referrals from real estate brokers, builders and direct solicitations. Commercial real estate loan originations are obtained by direct solicitations and referrals. Consumer loans are originated from walk-in customers, existing depositors and mortgagors and direct solicitation. Student loans are originated from direct marketing of current customers with college students and college lender lists.

Applications for all types of loans are obtained at the Bank’s seven regional lending offices, certain of its branch offices and two loan origination facilities. Loans may be approved by members of the Officers’ Loan Committee, within designated limits. Depending on the type and amount of the loans, one or more signatures of the members of the Senior Loan Committee also may be required. For loan requests of $1.5 million or less, loan approval authority is designated to an Officers’ Loan Committee and requires at least three of the members’ signatures. Senior Loan Committee members are authorized to approve loan requests between $1.5 million and $4.0 million and approval requires at least three of the members’ signatures. Loan requests in excess of $4.0 million must be approved by the Board of Directors.

The Bank’s general policy is to lend up to 80% of the appraised value or purchase price of the property, whichever is less, securing a single-family residential loan (referred to as the loan-to-value ratio). The Bank will lend more than 80% of the appraised value of the property, but will require that the borrower obtain when possible, private mortgage insurance in an amount intended to reduce the Bank’s exposure to 80% or less of the appraised value of the underlying property. At March 31, 2009, the Bank had approximately $125.2 million of loans that had loan-to-value ratios of greater than 80% and did not have private mortgage insurance for the portion of the loans above such amount.

Property appraisals on the real estate and improvements securing the Bank’s single-family residential loans are made by the Bank’s staff or independent appraisers approved by the Bank’s Board of Directors during the underwriting process. Appraisals are performed in accordance with federal regulations and policies.

The Bank’s underwriting criteria generally require that multi-family residential and commercial real estate loans have loan-to-value ratios which amount to 80% or less and debt coverage ratios of at least 110%. The Bank also generally obtains personal guarantees on its multi-family residential and commercial real estate loans from the principals of the borrowers, as well as appraisals of the security property from independent appraisal firms.

The portfolio of commercial real estate, multi-family residential and commercial business loans is reviewed on a continuing basis to identify any potential risks that exist in regard to the property management, financial criteria of the loan, operating performance, competitive marketplace and collateral valuation. The credit analysis function of

the Bank is responsible for identifying and reporting credit risk quantified through a loan rating system and making recommendations to mitigate credit risk in the portfolio. These and other underwriting standards are documented in written policy statements, which are periodically updated and approved by the Bank’s Board of Directors.

The Bank generally obtains title insurance policies on most first mortgage real estate loans it originates. If title insurance is not obtained or is unavailable, the Bank obtains an abstract of title and title opinion. Borrowers must obtain hazard insurance prior to closing and, when required by the United States Department of Housing and Urban Development, flood insurance. Borrowers may be required to advance funds, with each monthly payment of principal and interest, to a loan escrow account from which the Bank makes disbursements for items such as real estate taxes, hazard insurance premiums, flood insurance premiums, and mortgage insurance premiums as they become due.

The Bank encounters certain environmental risks in its lending activities. Under federal and state environmental laws, lenders may become liable for costs of cleaning up hazardous materials found on secured properties. Certain states may also impose liens with higher priorities than first mortgages on properties to recover funds used in such efforts. Although the foregoing environmental risks are more usually associated with industrial and commercial loans, environmental risks may be substantial for residential lenders, like the Bank, since environmental contamination may render the secured property unsuitable for residential use. In addition, the value of residential properties may become substantially diminished by contamination of nearby properties. In accordance with the guidelines of FNMA and FHLMC, appraisals for single-family homes on which the Bank lends include comments on environmental influences and conditions. The Bank attempts to control its exposure to environmental risks with respect to loans secured by larger properties by monitoring available information on hazardous waste disposal sites and requiring environmental inspections of such properties prior to closing the loan. No assurance can be given, however, that the value of properties securing loans in the Bank’s portfolio will not be adversely affected by the presence of hazardous materials or that future changes in federal or state laws will not increase the Bank’s exposure to liability for environmental cleanup.

The Bank has been actively involved in the secondary market since the mid-1980s and generally originates single-family residential loans under terms, conditions and documentation which permit sale to FHLMC, FNMA, and other investors in the secondary market. The Bank sells substantially all of the fixed-rate, single-family residential loans with terms over 15 years it originates in order to decrease the amount of such loans in its loan portfolio. The volume of loans originated and sold is reliant on a number of factors, but is most influenced by general interest rates. In periods of lower interest rates, demand for fixed-rate mortgages increases. In periods of higher interest rates, customer demand for fixed-rate mortgages declines. The Bank’s sales are usually made through forward sales commitments. The Bank attempts to limit any interest rate risk created by forward commitments by limiting the number of days between the commitment and closing, charging fees for commitments, and limiting the amounts of its uncovered commitments at any one time. Forward commitments to cover closed loans and loans with rate locks to customers range from 70% to 100% of committed amounts. The Bank also periodically has used its loans to securitize mortgage-backed securities.

The Bank generally services all originated loans that have been sold to other investors. This includes the collection of payments, the inspection of the secured property, and the disbursement of certain insurance and tax advances on behalf of borrowers. The Bank recognizes a servicing fee when the related loan payments are received. At March 31, 2009, the Bank was servicing $3.25 billion of loans for others.

The Bank is not an active purchaser of loans because of sufficient loan demand in its market area. Servicing of loans or loan participations purchased by the Bank is performed by the seller, with a portion of the interest being paid by the borrower retained by the seller to cover servicing costs. At March 31, 2009, approximately $20.4 million of mortgage loans were being serviced for the Bank by others.

The following table shows the Bank’s consolidated total loans originated, purchased, sold and repaid during the periods indicated.


	Year Ended March 31,
	2009			2008			2007
	(In thousands)

Gross loans receivable at beginning of year(1)	$	4,398,175		$	4,069,143		$	3,835,789
Loans originated for investment:
Single-family residential(2)		126,585			209,924			247,012
Multi-family residential		71,881			109,320			61,940
Commercial real estate		226,848			244,694			392,261
Construction and land		138,260			367,573			405,005
Consumer		172,628			156,983			158,002
Commercial business		43,775			103,260			177,158

Total originations		779,977			1,191,754			1,441,378

Repayments		(1,058,672	)		(867,917	)		(1,206,989	)
Transfers of loans to held for sale		—			—			—

Net activity in loans held for investment		(278,695	)		323,837			234,389

Loans originated for sale:
Single-family residential		1,005,355			530,260			283,719
Multi-family residential		20,296			23,537			38,495
Commercial		3,999			107,044			81,854
Transfers of loans from held for investment		—			—			—
Sales of loans		(877,355	)		(655,646	)		(405,103	)
Loans converted into mortgage-backed securities		—			—			—

Net activity in loans held for sale		152,295			5,195			(1,035	)

Gross loans receivable at end of period	$	4,271,775		$	4,398,175		$	4,069,143


(1)		Includes loans held for sale and loans held for investment.

(2)		Includes single-family residential loans originated on an agency basis through the Mortgage Partnership Finance 100 Program of the Federal Home Loan Bank of Chicago.

Delinquency Procedures. Delinquent and problem loans are a normal part of any lending business. When a borrower fails to make a required payment by the 15th day after which the payment is due, the loan is considered delinquent and internal collection procedures are instituted. The borrower is contacted to determine the reason for the delinquency and attempts are made to cure the loan. In most cases, deficiencies are cured promptly. The Bank regularly reviews the loan status, the condition of the property, and circumstances of the borrower. Based upon the results of its review, the Bank may negotiate and accept a repayment program with the borrower, accept a voluntary deed in lieu of foreclosure or initiate foreclosure proceedings.

A decision as to whether and when to initiate foreclosure proceedings is based upon such factors as the amount of the outstanding loan in relation to the original indebtedness, the extent of delinquency, the value of the collateral, and the borrower’s financial ability and willingness to cooperate in curing the deficiencies. If foreclosed on, the property is sold at a public sale and the Bank will generally bid an amount reasonably equivalent to the lower of the fair value of the foreclosed property or the amount of judgment due the Bank. A judgment of foreclosure for residential mortgage loans will normally provide for the recovery of all sums advanced by the mortgagee including, but not limited to, insurance, repairs, taxes, appraisals, post-judgment interest, attorneys’ fees, costs and disbursements.

Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as foreclosed property until it is sold. When property is acquired, it is recorded at the estimated fair value less cost to sell at the

date of acquisition, with charge-offs, if any, charged to the allowance for loan losses prior to transfer to foreclosed property. Upon acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of fair value. Remaining gain or loss on the ultimate disposal of the property is included in non-interest income.

For discussion of the Corporation’s asset quality, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Non-Performing Assets” in Item 7. See also Notes 1 and 6 to the Consolidated Financial Statements in Item 8.

Investment Securities

In addition to lending activities and investments in mortgage-related securities, the Corporation conducts other investment activities on an ongoing basis in order to diversify assets, limit interest rate risk and credit risk and meet regulatory liquidity requirements. Investment decisions are made by authorized officers in accordance with policies established by the board of directors.

Management determines the appropriate classification of securities at the time of purchase. Debt securities are classified as held-to-maturity when the Corporation has the intent and ability to hold the securities to maturity. Held-to-maturity securities are carried at amortized cost. Securities are classified as trading when the Corporation intends to actively buy and sell securities in order to make a profit. Trading securities are carried at fair value, with unrealized holding gains and losses included in earnings.

Securities not classified as held-to-maturity or trading are classified as available-for-sale. At March 31, 2009, all of the Corporation’s investment securities were so classified. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity. For the years ended March 31, 2009 and 2008, stockholders’ equity decreased $8.2 million (net of deferred income tax receivable) and increased $2.4 million (net of deferred income tax receivable), respectively, to reflect net unrealized gains and losses on holding securities classified as available-for-sale. There were no securities designated as trading during the three years ended March 31, 2009.

The Corporation’s policy does not permit investment in non-investment grade bonds and permits investment in various types of liquid assets permissible for the Bank under OTS regulations, which include U.S. Government obligations, municipal bonds, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, certain bankers’ acceptances, repurchase agreements and federal funds. Although the Corporation does not purchase non-investment grade securities, it does own a limited number of these as a result of ratings downgrades. Subject to limitations on investment grade securities, the Corporation also invests in corporate stock and debt securities from time to time.

The table below sets forth information regarding the amortized cost and fair values of the Corporation’s investment securities at the dates indicated.


	March 31,
	2009				2008				2007
	Amortized				Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
					(In thousands)

Available For Sale:
U.S. government and Federal Agency Obligations	$	48,471	$	48,919	$	38,086	$	38,589	$	59,676	$	59,660
Municipal Bonds		21,768		22,233		33,525		33,953		—		—
Mutual fund		1,797		1,797		1,722		1,722		7,061		7,004
Other		4,806		4,735		13,635		12,772		6,735		6,881

Total investment securities	$	76,842	$	77,684	$	86,968	$	87,036	$	73,472	$	73,545

For additional information regarding the Corporation’s investment securities, see the Corporation’s Consolidated Financial Statements, including Note 4 thereto included in Item 8.

Mortgage-Related Securities

The Corporation purchases mortgage-related securities to supplement loan production and to provide collateral for borrowings. The Corporation invests in mortgage-related securities which are insured or guaranteed by FHLMC, FNMA, or the Government National Mortgage Association (“GNMA”) backed by FHLMC, FNMA and GNMA mortgage-backed securities and also invests in non-agency collateralized mortgage obligations (“CMOs”).

At March 31, 2009, the amortized cost of the Corporation’s mortgage-related securities held to maturity amounted to $50,000, all of which are 30-year securities. There were no five- and seven-year balloon securities. All of the held to maturity mortgage-related securities are insured or guaranteed by FNMA and are adjustable-rate securities.

The fair value of the Corporation’s mortgage-related securities available for sale amounted to $407.3 million at March 31, 2009, of which $1.2 million are five- and seven-year balloon securities, $406.1 million are 10-, 15- and 30-year securities and of all of those securities, $52.8 million are adjustable-rate securities. Of the total available-for-sale mortgage-related securities, $144.2 million, $100.6 million and $55.0 million are insured or guaranteed by FNMA, FHLMC and GNMA, respectively. Of the total of available-for-sale mortgage-related securities, $107.5 million are corporate securities and therefore not insured by one of the three foregoing agencies. The adjustable-rate securities included in the above totals for March 31, 2009, are $18.8 million, $6.3 million, $22.9 million and $4.8 million for FNMA, FHLMC, GNMA and corporate, respectively.

Agency-backed mortgage-related securities increase the quality of the Corporation’s assets by virtue of the insurance or guarantees of federal agencies that back them, require less capital under risk-based regulatory capital requirements than non-insured or guaranteed mortgage loans, are more liquid than individual mortgage loans and may be used to collateralize borrowings or other obligations of the Corporation. At March 31, 2009, mortgage-related securities with a fair value of $381.7 million held by the Corporation are either AAA rated or are guaranteed by the government. At March 31, 2009, $325.4 million of the Corporation’s mortgage-related securities available-for-sale were pledged to secure various obligations of the Corporation. The Corporation had no mortgage-backed securities held-to-maturity that were pledged to secure obligations of the Corporation at March 31, 2009.

The table below sets forth information regarding the amortized cost and fair values of the Corporation’s mortgage-related securities at the dates indicated.


	March 31,
	2009				2008				2007
	Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value
	(In thousands)

Available For Sale:
Agency CMOs and Remic’s	$	142,692	$	143,995	$	46,648	$	47,607	$	32,362	$	31,916
Non-agency CMO’s		119,503		107,527		79,173		77,617		39,741		39,044
Residential mortgage-backed Securities		97,562		100,754		109,387		112,311		127,468		127,884
GNMA Securities		54,753		55,025		31,709		31,835		49,441		49,127

		414,510		407,301		266,917		269,370		249,012		247,971
Held To Maturity:
Residential mortgage-backed Securities		50		50		59		60		68		68

		50		50		59		60		68		68

Total Mortgage-Related Securities	$	414,560	$	407,351	$	266,976	$	269,430	$	249,080	$	248,039

The Corporation’s mortgage-derivative securities are made up of CMOs, including CMOs which qualify as Real Estate Mortgage Investment Conduits (“REMICs”) under the Internal Revenue Code of 1986, as amended

(“Code”). At March 31, 2009, the Corporation had no mortgage-derivative securities held to maturity. The fair value of the mortgage-derivative securities available for sale held by the Corporation amounted to $278.4 million at the same date.

The following table sets forth the maturity and weighted average yield characteristics of the Corporation’s mortgage-related securities at March 31, 2009, classified by term to maturity. The balance is at amortized cost for held-to-maturity securities and at fair value for available-for-sale securities.


	One to Five Years					Five to Ten Years					Over Ten Years
			Weighted					Weighted					Weighted
			Average					Average					Average
	Balance		Yield			Balance		Yield			Balance		Yield			Total
	(Dollars in thousands)

Available for Sale:
Agency CMO/REMICs	$	—		0.00	%	$	17,321		4.78	%	$	126,674		3.22	%	$	143,995
Non-agency CMOs		49		8.38			21,904		4.87			85,574		7.34			107,527
Residential mortgage-backed Securities		2,580		4.28			28,787		5.34			69,387		4.83			100,754
GNMA Securities		—		—			938		4.93			54,087		3.59			55,025

		2,629		4.36			68,950		5.04			335,722		4.75			407,301

Held to Maturity:
Residential mortgage-backed Securities		—		—			50		5.17			—		—			50

		—		—			50		5.17			—		—			50

Mortgage-related securities	$	2,629		4.36	%	$	69,000		5.04	%	$	335,722		4.75	%	$	407,351

Due to repayments of the underlying loans, the actual maturities of mortgage-related securities are expected to be substantially sooner than the scheduled maturities.

For additional information regarding the Corporation’s mortgage-related securities, see the Corporation’s Consolidated Financial Statements, including Note 5 thereto, included in Item 8.

Sources of Funds

General. Deposits are a major source of the Bank’s funds for lending and other investment activities. In addition to deposits, the Bank derives funds from principal repayments and prepayments on loan and mortgage-related securities, maturities of investment securities, sales of loans and securities, interest payments on loans and securities, advances from the FHLB and, from time to time, repurchase agreements and other borrowings. Loan repayments and interest payments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates, economic conditions and competition. Borrowings may be used on a short-term basis to compensate for reductions in the availability of funds from other sources. They also may be used on a longer term basis for general business purposes, including providing financing for lending and other investment activities and asset/liability management strategies.

Deposits. The Bank’s deposit products include passbook savings accounts, demand accounts, interest bearing checking accounts, money market deposit accounts and certificates of deposit ranging in terms of 42 days to seven years. Included among these deposit products are Individual Retirement Account certificates and Keogh retirement certificates, as well as negotiable-rate certificates of deposit with balances of $100,000 or more (“jumbo certificates”).

The Bank’s deposits are obtained primarily from residents of Wisconsin. The Bank has entered into agreements with certain brokers that provide funds for a specified fee. While brokered deposits are a good source of funds, they are interest rate driven and thus inherently have more liquidity and interest rate risk. To mitigate this risk, the Bank’s liquidity policy limits the amount of brokered deposits to 10% of assets and to the total amount of

borrowings. At March 31, 2009, the Bank had $457.3 million in brokered deposits, which accounted for 11.7% of its $3.9 billion of total deposits and accrued interest.

The Bank attracts deposits through a network of convenient office locations by utilizing a detailed customer sales and service plan and by offering a wide variety of accounts and services, competitive interest rates and convenient customer hours. Deposit terms offered by the Bank vary according to the minimum balance required, the time period the funds must remain on deposit and the interest rate, among other factors. In determining the characteristics of its deposit accounts, consideration is given to the profitability of the Bank, matching terms of the deposits with loan products, the attractiveness to customers and the rates offered by the Bank’s competitors.

The following table sets forth the amount and maturities of the Bank’s certificates of deposit at March 31, 2009.


			Over Six		Over		Over Two
			Months		One Year		Years		Over
	Six Months		Through		Through		Through		Three
Interest Rate	and Less		One Year		Two Years		Three Years		Years		Total
					(In thousands)

0.00% to 2.99%	$	423,954	$	212,594	$	120,776	$	1,413	$	10	$	758,747
3.00% to 4.99%		852,971		439,795		541,397		105,432		58,019		1,997,614
5.00% to 6.99%		5,363		1,759		1,063		2,843		437		11,465
S&C PVA(1)		25		15		14		5		—		59

	$	1,282,313	$	654,163	$	663,250	$	109,693	$	58,466	$	2,767,885


(1)		Stemming from the Bank’s acquisition of S&C Bank on January 2, 2008, a purchase value adjustment was made to the market values of certificates of deposit and core deposit accounts. The market value of certificate of deposit accounts was determined by discounting cash flows using current deposit rates for the remaining contractual maturity. The preliminary market value of the core deposit intangible in the amount of $5.5 million (checking, money market and passbook accounts) was determined using discounted cash flows with estimated decay rates and is not included in the above table.

At March 31, 2009, the Bank had $500.5 million of certificates greater than or equal to $100,000, of which $85.7 million are scheduled to mature in seven through twelve months and $135.6 million in over twelve months.

Borrowings. From time to time the Bank obtains advances from the FHLB, which generally are secured by capital stock of the FHLB that is required to be held by the Bank and by certain of the Bank’s mortgage loans. See “Regulation.” Such advances are made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. The FHLB may prescribe the acceptable uses for these advances, as well as limitations on the size of the advances and repayment provisions. The Bank has pledged a substantial portion of its loans receivable and all of its investment in FHLB stock as collateral for these advances. A portion of the Bank’s mortgage-related securities has also been pledged as collateral.

From time to time the Bank enters into repurchase agreements with nationally recognized primary securities dealers. Repurchase agreements are accounted for as borrowings by the Bank and are secured by mortgage-backed securities. The Bank did not utilize this source of funds during the year ended March 31, 2009, but may do so in the future.

The Corporation has a short-term line of credit used in part to fund IDI’s partnership interests and investments in real estate held for development and sale. This line of credit also funds other Corporation needs. The interest is at an 8.00% fixed rate, and is payable monthly. Each LIBOR note has a specified maturity. The final maturity of the line of credit is in May 2010. At March 31, 2009 and 2008, the Corporation had drawn $116.3 million and $118.5 million under this line of credit, respectively. See Note 10 to the Corporation’s Consolidated Financial Statements in Item 8 for more information on borrowings.

The following table sets forth the outstanding balances and weighted average interest rates for the Corporation’s borrowings at the dates indicated.


	March 31,
	2009					2008					2007
			Weighted					Weighted					Weighted
			Average					Average					Average
	Balance		Rate			Balance		Rate			Balance		Rate
	(Dollars in thousands)

FHLB advances	$	887,329		3.41	%	$	1,059,850		3.63	%	$	810,320		4.64	%
Other borrowed funds		191,063		6.03			146,887		4.37			90,157		6.85

The following table sets forth information relating to the Corporation’s short-term (original maturities of one year or less) borrowings at the dates and for the periods indicated.


	March 31,
	2009		2008		2007
	(In thousands)

Maximum month-end balance:
FHLB advances	$	210,500	$	665,300	$	408,800
Other borrowed funds		118,465		118,465		92,126
Average balance:
FHLB advances		100,217		434,446		239,204
Other borrowed funds		116,678		72,853		89,063

Subsidiaries

Investment Directions, Inc. IDI is a wholly-owned non-banking subsidiary of the Corporation that has invested in various limited partnerships (see Davsha and Oakmont partnerships below) and subsidiaries funded by borrowings from the Corporation. Because the Corporation has made substantially all of the initial capital investment in these partnerships and as a result bears substantially all the risks of ownership of these partnerships, such partnerships have been deemed variable interest entities (“VIE’s”) subject to the consolidation requirements of Financial Accounting Standards Board Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51” (“FIN 46”). The application of FIN 46 results in the consolidation of assets, liabilities, income and expense of the partnerships into the Corporation’s financial statements. The portion of ownership and income that belongs to the other partner is reflected as minority interest so there is no effect on net income or shareholders’ equity. See Note 1 — Variable Interest Entities to the Consolidated Financial Statements in Item 8 for a detailed discussion of the financial statement effects of FIN 46.

The following table sets forth certain selected parent-only financial data of IDI at and for the years ended March 31, 2009 and 2008.


	At or for the Year
	Ended March 31
	2009			2008
	(In thousands)

Cash and other assets	$	3,248		$	5,302
Loans receivable, net		2,132			3,587
Investments in consolidated partnerships and corporations:
California Investment Directions		(640	)		1,176
Nevada Investment Directions		(619	)		3,624
Indian Palms		5,739			11,510
Davsha		(3,776	)		7,001
Oakmont		—			2,920
Other assets		2,547			338
Total assets		8,631			35,458
Borrowings from the Corporation		20,442			28,873
Other liabilities		—			—
Shareholder’s equity		(11,811	)		6,585
Interest expense		(177	)		(338	)
Investment income (loss):
California Investment Directions		(1,756	)		(171	)
Nevada Investment Directions		875			28
Indian Palms		(6,143	)		(1,070	)
Davsha		(6,983	)		(922	)
Oakmont		74			(15	)
Impairment on investments		(5,500	)		—
Other income (loss)		458			(671	)
Operating expenses		(772	)		(782	)
Income tax benefit		1,488			1,627
Net loss		(18,436	)		(2,314	)

California Investment Directions, Inc. CIDI is a wholly owned non-banking subsidiary of IDI formed in April 2000 to purchase and hold the general partnership interest in S&D Indian Palms, Ltd. and a minority interest in Davsha, LLC. CIDI was organized in the state of California. Davsha and its subsidiaries invest in VIE’s which are subject to consolidation pursuant to FIN 46R. The loss at CIDI in 2009 was the result of decreased sale activity at Davsha and its subsidiaries. See “Davsha, LLC” below for a discussion of the effects of FIN 46R on the financial statements of Davsha and its subsidiaries as well as a discussion of VIE’s in Note 1 to the Consolidated Financial Statements in Item 8.

Nevada Investment Directions, Inc. NIDI is a wholly owned non-banking subsidiary of IDI formed in March 1997 that had invested in a limited partnership, Oakmont, as a 94.12% owner (IDI being the other 5.88% owner). NIDI was organized in the state of Nevada. Oakmont invested in a VIE, Chandler Creek Business Park of Round Rock, Texas, which is subject to consolidation pursuant to FIN 46R.

S&D Indian Palms, Ltd. Indian Palms is a wholly owned non-banking subsidiary of IDI organized in the state of California which owns a golf resort and land for residential lot development in California. Indian Palms sells land to Davsha, LLC, which in turn sells land to its subsidiaries and subsequently to its real estate partnerships for lot development. Gains are realized as fully developed lots are sold to unaffiliated parties. The loss at Indian Palms in 2009 was the result of an impairment charge as well as decreased lot sales.

Davsha, LLC. Davsha is a wholly owned non-banking subsidiary of IDI (80% owned) and CIDI (20% owned). Davsha was organized in the state of California, where it purchased land from Indian Palms and develops residential housing for sale. Davsha has three wholly owned non-banking subsidiaries, Davsha III, Davsha V and Davsha VII. Each of these subsidiaries formed partnerships with developers and purchased lots from Davsha. Since each of the three Davsha subsidiaries exercise significant influence over the operations of their respective partnerships, the assets, liabilities, income and expense are consolidated with the financial statements of each of the respective Davsha’s, pursuant to FIN 46R. The loss in 2009 was the result of an impairment charge as well as decreased sale activity at the Davsha subsidiaries.

Oakmont. Oakmont became a wholly owned non-banking subsidiary of NIDI and IDI in January 2000 with NIDI having a 94.12% partnership interest and IDI having a 5.88% partnership interest. Oakmont was organized in the state of Texas. Oakmont is a limited partner in Chandler Creek Business Park of Round Rock, Texas, a joint venture partnership formed to develop an industrial park located in Round Rock, Texas. The original project consisted of four office warehouse buildings totaling 163,000 square feet and vacant land of approximately 135 acres. Oakmont sold its interest in Chandler Creek in March 2009 to one of the other partners in the partnership. As a result of the sale, Oakmont recognized a gain on sale of $1.4 million.

Together, IDI, CIDI, Indian Palms and Davsha represent the real estate investment segment of the Corporation’s business. At March 31, 2009, the majority of this segment was classified as real estate held for development and sale on the Corporation’s consolidated financial statements. Minority interests of the partnerships are reported as a mezzanine item below liabilities and above stockholders’ equity. The components of income from operations of the real estate investment subsidiaries that are consolidated in accordance with FIN 46R are reported in real estate investment partnership revenue, real estate investment partnership cost of sales, other expenses from real estate partnership operations, and minority interest in net income of real estate partnership operations. For further discussion of the real estate held for development and sale segment, see Note 19 to the Corporation’s Consolidated Financial Statements in Item 8.

The balance of assets at IDI includes loans to finance the acquisition and development of property for various partnerships and subsidiaries. At March 31, 2009, IDI had extended $15.2 million to Indian Palms and $2.5 million to Davsha as compared to $14.5 million to Indian Palms, $2.5 million to Davsha and $2.9 million to Oakmont at March 31, 2008. These amounts are eliminated in consolidation.

At March 31, 2009, the Corporation had extended $20.4 million to IDI to fund various partnership and subsidiary investments. This represents a decrease of $8.5 million from borrowings of $28.9 million at March 31, 2008. These amounts are eliminated in consolidation.

ADPC Corporation. ADPC is a wholly owned subsidiary of the Bank that holds and develops certain of the Bank’s foreclosed properties. The Bank’s investment in ADPC at March 31, 2009 amounted to $3.7 million as compared to $511,000 at March 31, 2008. ADPC had a net loss of $747,000 for the year ended March 31, 2009 as compared to net income of $3,000 for the year ended March 31, 2008.

Anchor Investment Corporation. AIC is an operating subsidiary of the Bank that was incorporated in March 1993. Located in the state of Nevada, AIC was formed for the purpose of managing a portion of the Bank’s investment portfolio (primarily mortgage-backed securities). As an operating subsidiary, AIC’s results of operations are combined with the Bank’s for financial and regulatory purposes. The Bank’s investment in AIC amounted to $212.6 million at March 31, 2009 as compared to $216.4 million at March 31, 2008. AIC had net income of $5.3 million for the year ended March 31, 2009 as compared to $6.7 million for the year ended March 31, 2008.

Employees

The Corporation had 1,000 full-time employees and 169 part-time employees at March 31, 2009. The Corporation promotes equal employment opportunity and considers its relationship with its employees to be good. The employees are not represented by a collective bargaining unit.

Regulation and Supervision

The business of the Corporation and the Bank is subject to extensive regulation and supervision under federal banking laws and other federal and state laws and regulations. In general, these laws and regulations are intended for the protection of depositors, the deposit insurance funds administered by the FDIC and the banking system as a whole, and not for the protection of stockholders or creditors of insured institutions.

Set forth below are brief descriptions of selected laws and regulations applicable to the Corporation and the Bank. These descriptions are not intended to be a comprehensive description of all laws and regulations to which the Corporation and the Bank are subject or to be complete descriptions of the laws and regulations discussed. The descriptions of statutory and regulatory provisions are qualified in their entirety by reference to the particular statutes and regulations. Changes in applicable statutes, regulations or regulatory policy may have a material effect on us and our businesses.

The Corporation

General. The Corporation is registered as a savings and loan holding company under Section 10 of the Home Owners’ Loan Act (“HOLA”). As a result, the Corporation is subject to the regulation, examination, supervision and reporting requirements of the OTS. The Corporation must file quarterly and annual reports with the OTS that describes its financial condition.

Activities Restrictions. There are generally no restrictions on the activities of a savings and loan holding company, such as the Corporation, which controlled only one subsidiary savings association on or before May 4, 1999 (a “grandfathered holding company”). However, if the Director of the OTS determines that there is reasonable cause to believe that the continuation by a savings and loan holding company of an activity constitutes a serious risk to the financial safety, soundness or stability of its subsidiary savings association, the Director may impose such restrictions as it deems necessary to address such risk, including limiting (i) payment of dividends by the savings association; (ii) transactions between the savings association and its affiliates; and (iii) any activities of the savings association that might create a serious risk that the liabilities of the holding company and its affiliates may be imposed on the savings association. Notwithstanding the above rules as to permissible business activities of unitary savings and loan holding companies, if the savings association subsidiary of such a holding company fails to meet the qualified thrift lender (“QTL”) test, then such unitary holding company also shall become subject to the activities restrictions applicable to multiple savings and loan holding companies and, unless the savings association requalifies as a QTL within one year thereafter, shall register as, and become subject to the restrictions applicable to, a bank holding company. Regulation as a bank holding company could be adverse to the Corporation’s operations and impose additional and possibly more burdensome regulatory requirements on the Corporation. See “— The Bank — Qualified Thrift Lender Test” below.

If a savings and loan holding company acquires control of a second savings association and holds it as a separate institution, the holding company becomes a multiple savings and loan holding company. As a general rule, multiple savings and loan holding companies are subject to restrictions on their activities that are not imposed on a grandfathered holding company. They could not commence or continue any business activity other than: (i) those permitted for a bank holding company under section 4(c) of the Bank Holding Company Act (unless the Director of the OTS by regulation prohibits or limits such 4(c) activities); (ii) furnishing or performing management services for a subsidiary savings association; (iii) conducting an insurance agency or escrow business; (iv) holding, managing, or liquidating assets owned by or acquired from a subsidiary savings association; (v) holding or managing properties used or occupied by a subsidiary savings association; (vi) acting as trustee under deeds of trust; or (vii) those activities authorized by regulation as of March 5, 1987, to be engaged in by multiple savings and loan holding companies.

Restrictions on Acquisitions. Except under limited circumstances, savings and loan holding companies are prohibited from acquiring, without prior approval of the OTS:


	•	control of any other savings institution or savings and loan holding company or all or substantially all the assets thereof; or

	•	more than 5% of the voting shares of a savings institution or holding company of a savings institution which is not a subsidiary.

In evaluating an application by a holding company to acquire a savings association, the OTS must consider the financial and managerial resources and future prospects of the holding company and savings association involved, the risk of the acquisition to the insurance funds, the convenience and needs of the community and the effect of the acquisition on competition. Acquisitions which result in a savings and loan holding company controlling savings associations in more than one state are generally prohibited, except in supervisory transactions involving failing savings associations or based on specific state authorization of such acquisitions. Except with the prior approval of the OTS, no director or officer of a savings and loan holding company or person owning or controlling by proxy or otherwise more than 25% of such Corporation’s voting stock, may acquire control of any savings institution, other than a subsidiary savings institution, or of any other savings and loan holding company.

Change of Control. Federal law requires, with few exceptions, OTS approval (or, in some cases, notice and effective clearance) prior to any acquisition of control of the Corporation. Among other criteria, under OTS regulations, “control” is conclusively presumed to exist if a person or Corporation acquires, directly or indirectly, more than 25% of any class of voting stock of the savings association or holding company. Control is also presumed to exist, subject to rebuttal, if an acquiror acquires more than 10% of any class of voting stock (or more than 25% of any class of stock) and is subject to any of several “control factors,” including, among other matters, the relative ownership position of a person, the existence of control agreements and board composition.

Change in Management. If a savings and loan holding company is in a “troubled condition,” as defined in the OTS regulations, it is required to give 30 days’ prior written notice to the OTS before adding or replacing a director, employing any person as a senior executive officer or changing the responsibility of any senior executive officer so that such person would assume a different senior executive position. The OTS then has the opportunity to disapprove any such appointment.

Limitations on Dividends. The Corporation is a legal entity separate and distinct from the Bank and its other subsidiaries. The Corporation’s principal source of revenue consists of dividends from the Bank. The payment of dividends by the Bank is subject to various regulatory requirements, including a minimum of 30 days’ advance notice to the OTS of any proposed dividend to the Corporation.

Other limitations may apply depending on the size of the proposed dividend and the condition of the Bank. See “— The Bank — Restrictions on Capital Distributions” below.

The Bank

General. The Bank is a federal savings bank organized under the laws of the United States and subject to regulation and examination by the OTS. The OTS regulates all areas of the Bank’s banking operations, including investments, reserves, lending, mergers, payment of dividends, interest rates, transactions with affiliates (including the Corporation), establishment of branches and other aspects of the Bank’s operations. The Bank is subject to regular examinations by the OTS and is assessed amounts to cover the costs of such examinations.

Because the Bank’s deposits are insured by the FDIC to the maximum extent permitted by law, the Bank is also regulated by the FDIC. The major functions of the FDIC with respect to insured institutions include making assessments, if required, against insured institutions to fund the appropriate deposit insurance fund and preventing the continuance or development of unsound and unsafe banking practices.

Capital Requirements. OTS regulations require that federal savings banks maintain: (i) “tangible capital” in an amount of not less than 1.5% of adjusted total assets, (ii) “core (Tier 1) capital” in an amount not less than 3.0% of adjusted total assets and (iii) a level of risk-based capital equal to 8.0% of total risk-weighted assets. Most banks are required to maintain a “minimum leverage” ratio of core (Tier 1) capital of at least 4.0% to 5.0% of adjusted total assets.

“Core capital” includes common stockholders’ equity (including common stock, common stock surplus and retained earnings, but excluding any net unrealized gains or losses, net of related taxes, on certain securities available for sale), noncumulative perpetual preferred stock and any related surplus and minority interests in the equity accounts of full consolidated subsidiaries. Intangible assets generally must be deducted from core capital, other than certain servicing assets and purchased credit card relationships, subject to limitations. “Tangible capital” means core capital less any intangible assets (except for mortgage servicing assets includable in core capital) and

investments in subsidiaries engaged in activities not permissible for a national bank. “Total capital,” for purposes of the risk-based capital requirement, equals the sum of core capital plus supplementary (Tier 2) capital (which, as defined, includes the sum of, among other items, perpetual preferred stock not counted as core capital, limited life preferred stock, subordinated debt and general loan and lease loss allowances up to 1.25% of risk-weighted assets) less certain deductions. The amount of supplementary (Tier 2) capital that may be counted towards satisfaction of the total capital requirement may not exceed 100% of core capital, and OTS regulations require the maintenance of a minimum ratio of core capital to total risk-weighted assets of 4.0%. Risk-weighted assets are determined by multiplying certain categories of a savings association’s assets, including off-balance sheet equivalents, by an assigned risk weight of 0% to 100% based on the credit risk associated with those assets as specified in OTS regulations.

As of March 31, 2009, the Bank was in compliance with all minimum regulatory capital requirements, with tangible, core and risk-based capital ratios of 6.17%, 6.17% and 10.20%, respectively. Capital requirements higher than the generally applicable minimum requirement may be established for a particular savings association if the OTS determines that the institution’s capital was or may become inadequate in view of its particular circumstances. Subsequent to March 31, 2009, the Bank voluntarily entered into a cease and desist agreement with the OTS which requires, among other things, capital requirements in excess of the generally applicable minimum requirements. See Note 22 to the Consolidated Financial Statements included in Item 8.

Prompt Corrective Action. Under Section 38 of the Federal Deposit Insurance Act (“FDIA”), each federal banking agency is required to take prompt corrective action to deal with depository institutions subject to their jurisdiction that fail to meet their minimum capital requirements or are otherwise in a troubled condition. The prompt corrective action provisions require undercapitalized institutions to become subject to an increasingly stringent array of restrictions, requirements and prohibitions as their capital levels deteriorate and supervisory problems mount. Should these corrective measures prove unsuccessful in recapitalizing the institution and correcting its problems, the FDIA mandates that the institution be placed in receivership.

Pursuant to regulations promulgated under Section 38 of the FDIA, the corrective actions that the banking agencies either must or may take are tied primarily to an institution’s capital levels. In accordance with the framework set forth in the FDIA, the federal banking agencies have developed a classification system, pursuant to which all banks and savings associations are placed into one of five categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. The capital thresholds established for each of the categories are as follows:


		Tier 1	Total
	Tier 1	Risk-Based	Risk-Based
Capital Category	Leverage Ratio	Capital Ratio	Capital Ratio

Well Capitalized	5% or above	6% or above	10% or above
Adequately Capitalized	4% or above(1)	4% or above	8% or above
Undercapitalized	Less than 4%	Less than 4%	Less than 8%
Significantly Undercapitalized	Less than 3%	Less than 3%	Less than 6%
Critically Undercapitalized	Less than 2%	—	—


(1)		3% for banks with the highest supervisory rating.

The applicable federal banking agency also has authority, after providing an opportunity for a hearing, to downgrade an institution from “well capitalized” to “adequately capitalized” or to subject an “adequately capitalized” or “undercapitalized” institution to the supervisory actions applicable to the next lower category, for supervisory concerns.

Applicable laws and regulations also generally provide that no insured institution may make a capital distribution if it would cause the institution to become “undercapitalized.” Capital distributions include cash (but not stock) dividends, stock purchases, redemptions and other distributions of capital to the owners of an institution. Moreover, only a “well capitalized” depository institution may accept brokered deposits without prior regulatory approval.

“Undercapitalized” depository institutions are subject to growth limitations and other restrictions and are required to submit a capital restoration plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. In addition, for a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of (i) an amount equal to 5% of the depository institution’s total assets at the time it became “undercapitalized,” and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.”

“Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets and cessation of receipt of deposits from correspondent banks.

“Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator.

As of March 31, 2009, the Bank was “well capitalized.” See Note 22 to the Consolidated Financial Statements included in Item 8.

Restrictions on Capital Distributions. OTS regulations govern capital distributions by savings institutions, which include cash dividends, stock repurchases and other transactions charged to the capital account of a savings institution to make capital distributions. Under applicable regulations, a savings institution must file an application for OTS approval of the capital distribution if:


	•	the total capital distributions for the applicable calendar year exceed the sum of the institution’s net income for that year to date plus the institution’s retained net income for the preceding two years;

	•	the institution would not be at least adequately capitalized following the distribution;

	•	the distribution would violate any applicable statute, regulation, agreement or OTS-imposed condition; or

	•	the institution is not eligible for expedited treatment of its filings with the OTS.

If an application is not required to be filed, savings institutions such as the Bank which are a subsidiary of a holding company (as well as certain other institutions) must still file a notice with the OTS at least 30 days before the board of directors declares a dividend or approves a capital distribution.

An institution that either before or after a proposed capital distribution fails to meet its then applicable minimum capital requirement or that has been notified that it needs more than normal supervision may not make any capital distributions without the prior written approval of the OTS. In addition, the OTS may prohibit a proposed capital distribution, which would otherwise be permitted by OTS regulations, if the OTS determines that such distribution would constitute an unsafe or unsound practice.

The FDIC prohibits an insured depository institution from paying dividends on its capital stock or interest on its capital notes or debentures (if such interest is required to be paid only out of net profits) or distributing any of its capital assets while it remains in default in the payment of any assessment due the FDIC. The Bank is currently not in default in any assessment payment to the FDIC.

Qualified Thrift Lender Test. A savings association can comply with the qualified thrift lender, or QTI, test set forth in the HOLA and implementing regulations of the OTS by either meeting the QTI test set forth therein or qualifying as a domestic building and loan association as defined in Section 7701(a)(19) of the Internal Revenue Code of 1986. The QTI test set forth in the HOLA requires a savings association to maintain 65% of portfolio assets in qualified thrift investments, or QTIs. Portfolio assets are defined as total assets less intangibles, property used by a savings association in its business and liquidity investments in an amount not exceeding 20% of assets. Generally, QTIs are residential housing related assets. At March 31, 2009, the amount of the Bank’s assets which were invested in QTIs exceeded the percentage required to qualify the Bank under the QTI test.

Applicable laws and regulations provide that any savings association that fails to meet the definition of a QTL must either convert to a national bank charter or limit its future investments and activities (including branching and payments of dividends) to those permitted for both savings associations and national banks. Further, within one year of the loss of QTL status, a holding company of a savings association that does not convert to a bank charter must register as a bank holding company and be subject to all statutes applicable to bank holding companies. In order to exercise the powers granted to federally-chartered savings associations and maintain full access to FHLB advances, the Bank must continue to meet the definition of a QTL.

Safety and Soundness Standards. The OTS and the other federal bank regulatory agencies have established guidelines for safety and soundness, addressing operational and managerial standards, as well as compensation matters for insured financial institutions. Institutions failing to meet these standards are required to submit compliance plans to their appropriate federal regulators. The OTS and the other agencies have also established guidelines regarding asset quality and earnings standards for insured institutions. The Bank believes that it is in compliance with these guidelines and standards.

Community Investment and Consumer Protection Laws. In connection with the Bank’s lending activities, the Bank is subject to a variety of federal laws designed to protect borrowers and promote lending to various sectors of the economy and population. Included among these are the federal Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act, Truth-in-Lending Act, Truth-in-Savings Act, Fair Housing Act, Equal Credit Opportunity Act, Fair Credit Reporting Act, Bank Secrecy Act, Money Laundering Prosecution Improvements Act and Community Reinvestment Act.

The Community Reinvestment Act requires insured institutions to define the communities that they serve, identify the credit needs of those communities and adopt and implement a “Community Reinvestment Act Statement” pursuant to which they offer credit products and take other actions that respond to the credit needs of the community. The responsible federal banking regulator (the OTS in the case of the Bank) must conduct regular Community Reinvestment Act examinations of insured financial institutions and assign to them a Community Reinvestment Act rating of “outstanding,” “satisfactory,” “needs improvement” or “unsatisfactory.” The record of a depository institution under the Community Reinvestment Act will be taken into account when applying for the establishment of new branches or mergers with other institutions. The Bank’s current Community Reinvestment Act rating is “satisfactory.”

The Bank attempts in good faith to ensure compliance with the requirements of the consumer protection statutes to which it is subject, as well as the regulations that implement the statutory provisions. The requirements are complex, however, and even inadvertent non-compliance could result in civil and, in some cases, criminal liability.

Federal Deposit Insurance. The FDIC insures the deposits, up to prescribed statutory limits, of federally insured banks and savings institutions. Under the Federal Deposit Insurance Reform Act of 2005 (the “Reform Act”), which was signed into law on February 15, 2006: (i) the Bank Insurance Fund and the Savings Association Insurance Fund administered by the FDIC were merged into a new combined fund, called the Deposit Insurance Fund (“DIF”), effective March 31, 2006, (ii) the current $100,000 deposit insurance coverage will be indexed for inflation (with adjustments every five years, commencing January 1, 2011); and (iii) deposit insurance coverage for retirement accounts was increased to $250,000 per participant subject to adjustment for inflation. The FDIC also has been given greater latitude in setting the assessment rates for insured depository institutions which could be used to impose minimum assessments. On October 3, 2008, as part of the Emergency Economic Stabilization Act of 2008, the level of basic FDIC insurance of accounts was temporarily increased to $250,000. The basic level is scheduled to return to $100,000 on December 31, 2009.

In addition, on November 21, 2008, the Board of Directors of the FDIC adopted a final rule relating to its Temporary Liquidity Guarantee Program (“TLGP”). The TLGP was first announced by the FDIC on October 14, 2008, preceded by the determination of systemic risk by the Secretary of the Treasury (after consultation with the President), as an initiative to counter the system-wide crisis in the nation’s financial sector. Under the TLGP, the FDIC will (i) guarantee, through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions on or after October 14, 2008 and before June 30, 2009 and (ii) provide full FDIC deposit insurance coverage through December 31, 2009 for non-interest bearing transaction deposit accounts

paying less than 0.5% interest per annum and held at participating FDIC-insured institutions. Coverage under the TLGP was available for the first 30 days without charge. The Company and the Bank elected to continue to participate in the TLGP account insurance program, through payment of a fee assessment of 10 basis points per quarter on amounts in excess of $250,000 in covered accounts. At March 31, 2009, neither the Company nor the Bank had issued any senior unsecured debt under the TLGP.

The FDIC is authorized to set the reserve ratio for the DIF annually at between 1.15% and 1.5% of estimated insured deposits. If the DIF’s reserves exceed the designated reserve ratio, the FDIC is required to pay out all or, if the reserve ratio is less than 1.5%, a portion of the excess as a dividend to insured depository institutions based on the percentage of insured deposits held on December 31, 1996 adjusted for subsequently paid premiums. Insured depository institutions that were in existence on December 31, 1996 and paid assessments prior to that date (or their successors) are entitled to a one-time credit against future assessments based on their past contributions to the FDIC’s insurance funds.

Pursuant to the Reform Act, the FDIC has determined to maintain the designated reserve ratio at its current 1.25%. The FDIC also has adopted a new risk-based premium system that provides for quarterly assessments based on an insured institution’s ranking in one of four risk categories based on their examination ratings and capital ratios. Well-capitalized institutions with the CAMELS ratings of 1 or 2 are grouped in Risk Category I and are assessed for deposit insurance at an annual rate of between five and seven basis points, with the assessment rate for an individual institution to be determined according to a formula based on a weighted average of the institution’s individual CAMELS component ratings plus either five financial ratios or, in the case of an institution with assets of $10 billion or more, the average ratings of its long-term debt. Institutions in Risk Categories II, III and IV are assessed at annual rates of 10, 28 and 43 basis points, respectively.

In addition, all institutions with deposits insured by the FDIC are required to pay assessments to fund interest payments on bonds issued by the Financing Corporation, an agency of the Federal government established to recapitalize the predecessor to the Savings Association Insurance Fund. The assessment rate for the first quarter of 2009 was .0104% of insured deposits and it is adjusted quarterly. These assessments will continue until the Financing Corporation bonds mature in 2017.

Insurance of deposits may be terminated by the FDIC, after notice and hearing, upon a finding by the FDIC that the savings association has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, rule, regulation, order or condition imposed by, or written agreement with, the FDIC. Additionally, if insurance termination proceedings are initiated against a savings association, the FDIC may temporarily suspend insurance on new deposits received by an institution under certain circumstances.

Due to losses incurred by the Deposit Insurance Fund from failed institutions in 2008 and anticipated future losses, the FDIC adopted, pursuant to a Restoration Plan to replenish the fund, an across the board 7.0 basis point increase in the assessment range for the first quarter of 2009. The FDIC subsequently adopted further refinements to its risk-based assessment system, effective April 1, 2009, that effectively make the range 7.0 to 77.5 basis points. In May 2009, the FDIC adopted a final rule imposing a special assessment on all insured institutions due to recent bank and savings association failures. The emergency assessment amounts to 5 basis points of total assets minus Tier 1 Capital as of June 30, 2009. The assessment will be collected on September 30, 2009 and recorded against earnings for the quarter ended June 30, 2009.

Brokered Deposits. The FDIA restricts the use of brokered deposits by certain depository institutions. Under the FDIA and applicable regulations, (i) a “well capitalized insured depository institution” may solicit and accept, renew or roll over any brokered deposit without restriction, (ii) an “adequately capitalized insured depository institution” may not accept, renew or roll over any brokered deposit unless it has applied for and been granted a waiver of this prohibition by the OTS and (iii) an “undercapitalized insured depository institution” may not (x) accept, renew or roll over any brokered deposit or (y) solicit deposits by offering an effective yield that exceeds by more than 75 basis points the prevailing effective yields on insured deposits of comparable maturity in such institution’s normal market area or in the market area in which such deposits are being solicited. The term “undercapitalized insured depository institution” is defined to mean any insured depository institution that fails to meet the minimum regulatory capital requirement prescribed by its appropriate federal banking agency. The OTS may, on a case-by-case basis and upon application by an adequately capitalized insured depository institution,

waive the restriction on brokered deposits upon a finding that the acceptance of brokered deposits does not constitute an unsafe or unsound practice with respect to such institution. The Corporation had $457.3 million of outstanding brokered deposits at March 31, 2009. Subsequent to March 31, 2009, the Bank voluntarily entered into a cease and desist agreement with the OTS which will limit the Bank’s ability to accept, renew or roll over brokered deposits without prior approval of the OTS. See Note 22 to the Consolidated Financial Statements included in Item 8.

Federal Home Loan Bank System. The FHLB System consists of 12 regional FHLBs, each subject to supervision and regulation by the Federal Housing Finance Board, or FHFB. The FHLBs provide a central credit facility for member savings associations. Collateral is required. The Bank is a member of the FHLB of Chicago. The maximum amount that the FHLB of Chicago will advance fluctuates from time to time in accordance with changes in policies of the FHFB and the FHLB of Chicago, and the maximum amount generally is reduced by borrowings from any other source. In addition, the amount of FHLB advances that a savings association may obtain is restricted in the event the institution fails to maintain its status as a QTL.

Federal Reserve System. The Federal Reserve Board has adopted regulations that require savings associations to maintain non-earning reserves against their transaction accounts (primarily NOW and regular checking accounts). These reserves may be used to satisfy liquidity requirements imposed by the OTS. Because required reserves must be maintained in the form of cash or a non-interest-bearing account at a Federal Reserve Bank, the effect of this reserve requirement is to reduce the amount of the Bank’s interest-earning assets.

Transactions With Affiliates Restrictions. Transactions between savings associations and any affiliate are governed by Section 11 of the HOLA and Sections 23A and 23B of the Federal Reserve Act and regulations thereunder. An affiliate of a savings association generally is any company or entity which controls, is controlled by or is under common control with the savings association. In a holding company context, the parent holding company of a savings association (such as the Corporation) and any companies which are controlled by such parent holding company are affiliates of the savings association. Generally, Section 23A limits the extent to which the savings association or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such association’s capital stock and surplus, and contains an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus. Section 23B applies to “covered transactions” as well as certain other transactions and requires that all transactions be on terms substantially the same, or at least as favorable, to the savings association as those provided to a non-affiliate. The term “covered transaction” includes the making of loans to, purchase of assets from and issuance of a guarantee to an affiliate and similar transactions. Section 23B transactions also apply to the provision of services and the sale of assets by a savings association to an affiliate. In addition to the restrictions imposed by Sections 23A and 23B, Section 11 of the HOLA prohibits a savings association from (i) making a loan or other extension of credit to an affiliate, except for any affiliate which engages only in certain activities which are permissible for bank holding companies, or (ii) purchasing or investing in any stocks, bonds, debentures, notes or similar obligations of any affiliate, except for affiliates which are subsidiaries of the savings association.

In addition, Sections 22(g) and (h) of the Federal Reserve Act place restrictions on extensions of credit to executive officers, directors and principal stockholders. Under Section 22(h), loans to a director, an executive officer and to a greater than 10% stockholder of a savings association (“a principal stockholder”), and certain affiliated interests of either, may not exceed, together with all other outstanding loans to such person and affiliated interests, the savings association’s loans to one borrower limit (generally equal to 15% of the institution’s unimpaired capital and surplus). Section 22(h) also requires that loans to directors, executive officers and principal stockholders be made on terms substantially the same as offered in comparable transactions to other persons unless the loans are made pursuant to a benefit or compensation program that (i) is widely available to employees of the institution and (ii) does not give preference to any director, executive officer or principal stockholder, or certain affiliated interests of either, over other employees of the savings institution. Section 22(h) also requires prior board approval for certain loans. In addition, the aggregate amount of extensions of credit by a savings institution to all insiders cannot exceed the institution’s unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers. At March 31, 2009, the Bank was in compliance with the above restrictions.

The USA PATRIOT Act of 2001. The USA PATRIOT Act requires financial institutions such as the Bank to prohibit correspondent accounts with foreign shell banks, establish an anti-money laundering program that includes employee training and an independent audit, follow minimum standards for identifying customers and maintaining records of the identification information and make regular comparisons of customers against agency lists of suspected terrorists, their organizations and money launderers.

Privacy Regulation. The Corporation and the Bank are subject to numerous privacy-related laws and their implementing regulations, including but not limited to Title V of the Gramm-Leach-Bliley Act, the Fair Credit Reporting Act, the Electronic Funds Transfer Act, the Right to Financial Privacy Act, the Children’s Online Privacy Protection Act and other federal and state privacy and consumer protection laws. Those laws and the regulations promulgated under their authority can limit, under certain circumstances, the extent to which financial institutions may disclose nonpublic personal information that is specific to a particular individual to affiliated companies and nonaffiliated third parties. Moreover, the Bank is required to establish and maintain a comprehensive Information Security Program in accordance with the Interagency Guidelines Establishing Standards for Safeguarding Customer Information. The program must be designed to:


	•	ensure the security and confidentiality of customer information;

	•	protect against any anticipated threats or hazards to the security or integrity of such information; and

	•	protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.

In addition, the Federal Trade Commission has recently implemented a nationwide “do not call” registry that allows consumers to prevent unsolicited telemarketing calls. Millions of households already have placed their telephone numbers on this registry.

Regulatory Enforcement Authority. The enforcement powers available to federal banking agencies are substantial and include, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against insured institutions and institution-affiliated parties. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities.

Sarbanes-Oxley Act of 2002. On July 30, 2002, President George W. Bush signed into law the Sarbanes-Oxley Act of 2002, which generally establishes a comprehensive framework to modernize and reform the oversight of public company auditing, improve the quality and transparency of financial reporting by those companies and strengthen the independence of auditors. Among other things, the new legislation (i) created a public company accounting oversight board which is empowered to set auditing, quality control and ethics standards, to inspect registered public accounting firms, to conduct investigations and to take disciplinary actions, subject to SEC oversight and review; (ii) strengthened auditor independence from corporate management by, among other things, limiting the scope of consulting services that auditors can offer their public company audit clients; (iii) heightened the responsibility of public company directors and senior managers for the quality of the financial reporting and disclosure made by their companies; (iv) adopted a number of provisions to deter wrongdoing by corporate management; (v) imposed a number of new corporate disclosure requirements; (vi) adopted provisions which generally seek to limit and expose to public view possible conflicts of interest affecting securities analysts; and (vii) imposed a range of new criminal penalties for fraud and other wrongful acts, as well as extended the period during which certain types of lawsuits can be brought against a company or its insiders.

Legislative and Regulatory Proposals

Proposals to change the laws and regulations governing the operations and taxation of, and federal insurance premiums paid by, savings banks and other financial institutions and companies that control such institutions are frequently raised in the U.S. Congress, state legislatures and before the FDIC, the OTS and other bank regulatory authorities. The likelihood of any major changes in the future and the impact such changes might have on us or our subsidiaries are impossible to determine. Similarly, proposals to change the accounting treatment applicable to savings banks and other depository institutions are frequently raised by the SEC, the federal banking agencies, the

IRS and other appropriate authorities, including, among others, proposals relating to fair market value accounting for certain classes of assets and liabilities. The likelihood and impact of any additional future accounting rule changes and the impact such changes might have on us or our subsidiaries are impossible to determine at this time.

Emergency Economic Stabilization Act of 2008

On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008 (“EESA”), giving the United States Department of the Treasury (“Treasury”) authority to take certain actions to restore liquidity and stability to the U.S. banking markets. Based upon its authority in the EESA, a number of programs to implement EESA have been announced. Those programs include the following:


	•	Capital Purchase Program (“CPP”). Pursuant to this program, Treasury, on behalf of the US government, will purchase preferred stock, along with warrants to purchase common stock, from certain financial institutions, including bank holding companies, savings and loan holding companies and banks or savings associations not controlled by a holding company. The investment will have a dividend rate of 5% per year, until the fifth anniversary of Treasury’s investment and a dividend of 9% thereafter. During the time Treasury holds securities issued pursuant to this program, participating financial institutions will be required to comply with certain provisions regarding executive compensation and corporate governance. Participation in this program also imposes certain restrictions upon an institution’s dividends to common shareholders and stock repurchase activities. As described further herein, we elected to participate in the CPP and received $110 million pursuant to the program.

	•	Temporary Liquidity Guarantee Program. This program contained both (i) a debt guarantee component, whereby the FDIC will guarantee until June 30, 2012, the senior unsecured debt issued by eligible financial institutions between October 14, 2008 and June 30, 2009; and (ii) an account transaction guarantee component, whereby the FDIC will insure 100% of non-interest bearing deposit transaction accounts held at eligible financial institutions, such as payment processing accounts, payroll accounts and working capital accounts through December 31, 2009. The deadline for participation or opting out of this program was December 5, 2008. We elected not to opt out of the program.

	•	Temporary increase in deposit insurance coverage. Pursuant to the EESA, the FDIC temporarily raised the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor. The EESA provides that the basic deposit insurance limit will return to $100,000 after December 31, 2009.

The American Recovery and Reinvestment Act of 2009.

On February 17, 2009, President Obama signed The American Recovery and Reinvestment Act of 2009 (“ARRA”) into law. The ARRA is intended to revive the US economy by creating millions of new jobs and stemming home foreclosures. For financial institutions that have received or will receive financial assistance under TARP or related programs, the ARRA significantly rewrites the original executive compensation and corporate governance provisions of Section 111 of the EESA. Among the most important changes instituted by the ARRA are new limits on the ability of TARP recipients to pay incentive compensation to up to 20 of the next most highly-compensated employees in addition to the “senior executive officers,” a restriction on termination of employment payments to senior executive officers and the five next most highly-compensated employees and a requirement that TARP recipients implement “say on pay” shareholder votes. Further legislation is anticipated to be passed with respect to the economic recovery. However, the executive compensation limitations contained in the ARRA will not have any effect on the Company since it elected not to participate in the TARP CPP.

In February 2009, the Administration also announced its Financial Stability Plan and Homeowners Affordability and Stability Plan (“HASP”). The Financial Stability Plan is the second phase of TARP, to be administrated by the Treasury. Its four key elements include:


	•	the development of a public/private investment fund essentially structured as a government sponsored enterprise with the mission to purchase troubled assets from banks with an initial capitalization from government funds;


	•	the Capital Assistance Program under which the Treasury will purchase additional preferred stock available only for banks that have undergone a new stress test given by their regulator;

	•	an expansion of the Federal Reserve’s term asset-backed liquidity facility to support the purchase of up to $1 trillion in AAA — rated asset backed securities backed by consumer, student, and small business loans, and possible other types of loans; and

	•	the establishment of a mortgage loan modification program with $50 billion in federal funds further detailed in the HASP.

The HASP is a program aimed to help seven to nine million families restructure their mortgages to avoid foreclosure. The plan also develops guidance for loan modifications nationwide. HASP provides programs and funding for eligible refinancing of loans owned or guaranteed by Fannie Mae or Freddie Mac, along with incentives to lenders, mortgage servicers, and borrowers to modify mortgages of “responsible” homeowners who are at risk of defaulting on their mortgage. The goals of HASP are to assist in the prevention of home foreclosures and to help stabilize falling home prices.

Beyond the Company’s participation in certain programs, such as TARP, the Company will benefit from these programs if they help stabilize the national banking system and aid in the recovery of the housing market.

Taxation

Federal

The Corporation files a consolidated federal income tax return on behalf of itself, the Bank and its subsidiaries on a fiscal tax year basis.

The Small Business Job Protection Act of 1996 (the “Job Protection Act”) repealed the “reserve method” of accounting for bad debts by most thrift institutions effective for the taxable years beginning after 1995. Larger thrift institutions such as the Bank are now required to use the “specific charge-off method.” The Job Protection Act also granted partial relief from reserve recapture provisions, which are triggered by the change in method. This legislation did not have a material impact on the Bank’s financial condition or results of operations.

State

Under current law, the state of Wisconsin imposes a corporate franchise tax of 7.9% on the separate taxable incomes of the members of the Corporation’s consolidated income tax group, including, pursuant to an agreement between the Corporation and the Wisconsin Department of Revenue, AIC commencing in the fourth quarter of fiscal 2004.


Item 1A.	*Risk Factors*

In analyzing whether to make or to continue an investment in our securities, investors should consider, among other factors, the following risk factors.

Risks Related to the U.S. Financial Industry

Difficult market conditions have adversely affected our industry.

We are particularly exposed to downturns in the U.S. housing market. Dramatic declines in the housing market over the past year, with falling home prices and increasing foreclosures, unemployment and under-employment, have negatively impacted the credit performance of mortgage loans and resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities, major commercial and investment banks, and regional financial institutions such as our Company. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors have reduced or ceased providing funding to borrowers, including to other financial institutions. This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence,

increased market volatility and widespread reduction of business activity generally. The resulting economic pressures on consumers and lack of confidence in the financial markets have adversely affected our business, financial condition and results of operations. We do not expect that the difficult conditions in the financial markets are likely to improve in the near future. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial institutions industry. In particular, we may face the following risks in connection with these events:


	•	We potentially face increased regulation of our industry. Compliance with such regulation may increase our costs and limit our ability to pursue business opportunities.

	•	Our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage and underwrite our customers become less predictive of future behaviors.

	•	The process we use to estimate losses inherent in our loan and investment portfolios requires difficult, subjective and complex judgments, including forecasts of economic conditions and how these economic conditions might impair the ability of our borrowers and trust preferred securities issuers to repay their debts. The level of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates which may, in turn, impact the reliability of the process.

	•	Competition in our industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions.

	•	We may be required to pay significantly higher FDIC premiums because market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits.

Risks Related to Our Business

We experienced a net loss in fiscal 2009 directly attributable to a substantial deterioration in our residential construction and residential land loan portfolio and the resulting increase in our provision for loan losses and, an impairment charge representing a full write-down of our goodwill asset.

We realized a net loss of $228.3 million in fiscal 2009. The net loss is the direct result of an impairment charge of $72.2 million representing a full write-down of our goodwill asset and a $205.7 million provision to our loan loss reserve. The loan loss reserve is the amount required to maintain the allowance for loan losses at an adequate level to absorb probable loan losses. The increase in the provision for loan losses is primarily attributable to our residential construction and residential land loan portfolios, which continue to experience deterioration in estimated collateral values and repayment abilities of some of our customers. Other reasons for the increase in the provision for loan losses are attributable to an overall increase in nonperforming assets and the continuing general weakening economic conditions and decline in real estate values in the markets served by the Corporation. The $72.2 million impairment charge was the result of the Corporation completing an impairment valuation test of its goodwill asset during the fiscal year due to the continued deterioration of market conditions as well as continued deterioration in our credit quality.

At March 31, 2009, our non-performing loans (loans past due 90 days or more) were $146.2 million compared to $101.2 million at March 31, 2008 and our loans classified as substandard were $504.5 million compared to $143.9 million at March 31, 2008. For the year ended March 31, 2009, annualized net charge-offs as a percentage of average loans were 2.60% compared to 0.18% for the corresponding period in 2008. These increases are primarily due to our residential construction and residential land loan portfolio.

At March 31, 2009, approximately 74% of total gross loans were classified as first mortgage loans, with approximately 7% of loans being classified as construction loans and approximately 6% being classified as land loans.

The deterioration in our construction and land loan portfolios has been caused primarily by the weakening economy and the slow down in sales of the housing market. The local unemployment rate has risen to 9.4% as of March 31, 2009 compared to 5.6% at March 31, 2008. With many real estate projects requiring an extended time to market, some of our borrowers have exhausted their liquidity which may require us to place their loans into nonaccrual status.

Our results of operations are significantly dependent on economic conditions and related uncertainties.

Commercial banking is affected, directly and indirectly, by domestic and international economic and political conditions and by governmental monetary and fiscal policies. Conditions such as inflation, recession, unemployment, volatile interest rates, real estate values, government monetary policy, international conflicts, the actions of terrorists and other factors beyond our control may adversely affect our results of operations. Changes in interest rates, in particular, could adversely affect our net interest income and have a number of other adverse effects on our operations, as discussed in the immediately succeeding risk factor. Adverse economic conditions also could result in an increase in loan delinquencies, foreclosures and nonperforming assets and a decrease in the value of the property or other collateral which secures our loans, all of which could adversely affect our results of operations. We are particularly sensitive to changes in economic conditions and related uncertainties in Wisconsin and contiguous counties in Iowa, Minnesota and Illinois because we derive substantially all of our loans, deposits and other business from this area. Accordingly, we remain subject to the risks associated with prolonged declines in national or local economies.

Future dividend payments and common stock repurchases are restricted by the terms of the U.S. Treasury’s equity investment in us.

Under the terms of the agreement we executed with Treasury pursuant to the Capital Purchase Program (“CPP”), for so long as any preferred stock issued under the CPP remains outstanding, we are prohibited from increasing dividends on our common stock, and from making certain repurchases of equity securities, including our common stock, without Treasury’s consent until the third anniversary of Treasury’s investment or until Treasury has transferred all of the preferred stock it purchased under the CPP to third parties. Furthermore, as long as the preferred stock issued to Treasury is outstanding, dividend payments and repurchases or redemptions relating to certain equity securities, including our common stock, are prohibited until all accrued and unpaid dividends are paid on such preferred stock, subject to certain limited exceptions.

Future sales or other dilution of the Corporation’s equity may adversely affect the market price of the Corporation’s common stock.

In connection with our participation in the CPP the Corporation has, or under other circumstances the Corporation may, issue additional common stock or preferred securities, including securities convertible or exchangeable for, or that represent the right to receive, common stock. Further, pursuant to the cease and desist order with the OTS, the Bank must meet certain capital ratios which may require additional equity capital, which would significantly dilute the current shareholders. The market price of the Corporation’s common stock could decline as a result of sales of a large number of shares of common stock, preferred stock or similar securities in the market. The issuance of additional common stock would dilute the ownership interest of the Corporation’s existing shareholders.

On June 26, 2009, the Corporation and the Bank each consented to the issuance of an Order to Cease and Desist by the Office of Thrift Supervision. If we do not raise additional capital, we may not be in compliance with the capital requirements of the Bank’s Cease and Desist Order, which could have a material adverse effect upon us.

The Cease and Desist Orders require that, no later than September 30, 2009, the Bank meet and maintain both a core capital ratio equal to or greater than 7 percent and a total risk-based capital ratio equal to or greater than 11 percent. Further, no later than December 31, 2009, the Bank must meet and maintain both a core capital ratio equal to or greater than 8 percent and a total risk-based capital ratio equal to or greater than 12 percent. To date, in the current economic environment, the Bank has not been able to raise sufficient additional capital to ensure compliance with the capital requirements of the Cease and Desist Order. Without a waiver by OTS or amendment or modification of the Cease and Desist Order, the Bank could be subject to further regulatory enforcement action, including, without limitation, the issuance of additional cease and desist orders (which may, among other things, further restrict the Bank ’s business activities, or place the Bank in conservatorship or receivership). If the Bank is placed in conservatorship or receivership, it is highly likely that such action would lead to a complete loss of all value of the Company’s ownership interest in the Bank. In addition, further restrictions could be placed on the Bank

if it were determined that the Bank was undercapitalized, significantly undercapitalized, or critically undercapitalized, with increasingly greater restrictions being imposed as any level of undercapitalization increased. See “Recent Developments” in Management Discussion and Analysis.

Holders of our common stock have no preemptive rights and are subject to potential dilution.

Our certificate of incorporation does not provide any shareholder with a preemptive right to subscribe for additional shares of common stock upon any increase thereof. Thus, upon the issuance of any additional shares of common stock or other voting securities of the Company or securities convertible into common stock or other voting securities, shareholders may be unable to maintain their pro rata voting or ownership interest in us.

Although the Bank is considered “well capitalized” for regulatory purposes as of March 31, 2009, we will incur increased premiums for deposit insurance, require FDIC approval to gather brokered deposits, and will trigger acceleration of the maturity of certain of our brokered deposits if we fall below the “well capitalized” threshold.

As of March 31, 2009, the Bank is considered “well capitalized” for regulatory capital purposes. If we fall below “well capitalized,” the FDIC will assess higher deposit insurance premiums on the Bank, which will impact our earnings. In addition, we will be required to obtain FDIC approval to gather brokered deposits during such times as we remain “adequately capitalized” for regulatory capital purposes. Requiring us to obtain regulatory approval prior to accepting brokered deposits will affect our ability to increase our liquidity position, in some cases, in a timely manner. See Note 22 to the Consolidated Financial Statements included in Item 8.

Our business is subject to liquidity risk, and changes in our source of funds may adversely affect our performance and financial condition by increasing our cost of funds.

Our ability to make loans is directly related to our ability to secure funding. Retail deposits and core deposits are our primary source of liquidity. We also use brokered CDs, which are rate sensitive. We also rely on advances from the FHLB of Chicago as a funding source. We have also been granted access to the Fed fund line with a correspondent bank as well as the Federal Reserve Bank of Chicago’s discount window, none of which had been borrowed as of March 31, 2009. In addition as of March 31, 2009, the Corporation had outstanding borrowings from the FHLB of $887.3 million, out of our maximum borrowing capacity of $983.9 million, from the FHLB at this time.

Primary uses of funds include withdrawal of and interest payments on deposits, originations of loans and payment of operating expenses. Core deposits represent a significant source of low-cost funds. Alternative funding sources such as large balance time deposits or borrowings are a comparatively higher-cost source of funds. Liquidity risk arises from the inability to meet obligations when they come due or to manage unplanned decreases or changes in funding sources. Although we believe we can continue to pursue our core deposit funding strategy successfully, significant fluctuations in core deposit balances may adversely affect our financial condition and results of operations.

Additional increases in our level of non-performing assets will have an adverse effect on our financial condition and results of operations.

Weakening conditions in the real estate sector have adversely affected, and may continue to adversely affect, our loan portfolio. Non-performing assets increased by $89.2 million to $198.7 million, or 3.8% of total assets, at March 31, 2009 from $109.5 million, or 2.1% of total assets, at March 31, 2008. Comparatively, non-performing assets increased by $55.0 million to $109.5 million, or 2.1% of total assets, at March 31, 2008, from $54.5 million, or 1.2% of total assets, at March 31, 2007. If loans that are currently non-performing further deteriorate we would need to increase our allowance to cover additional charge-offs. If loans that are currently performing become non-performing, we may need to continue to increase our allowance for loan losses if additional losses are anticipated, which would have an adverse impact on our financial condition and results of operations. The increased time and expense associated with the work out of non-performing assets and potential non-performing assets also could adversely affect our operations.

Our allowance for losses on loans and leases may not be adequate to cover probable losses.

Our level of non-performing loans increased significantly in the fiscal year ended March 31, 2009, relative to comparable periods for the preceding year. Our provision for loan losses increased by $183.1 million to $205.7 million for the fiscal year ended March 31, 2009 from $22.6 million for the fiscal year ended March 31, 2008. Our allowance for loan losses increased by $98.9 million to $137.2 million, or 3.3% of total loans, at March 31, 2009, from $38.3 million, or 0.9% of total loans, at March 31, 2008. Our allowance for loan losses also increased by $17.8 million to $38.3 million, or 0.9% of total loans, at March 31, 2008 from $20.5 million, or 0.5% of total loans at March 31, 2007. Our allowance for loan and foreclosure losses was 73.5% at March 31, 2009, 35.0% at March 31, 2008 and 37.7% at March 31, 2007, respectively, of non-performing assets. There can be no assurance that any future declines in real estate market conditions and values, general economic conditions or changes in regulatory policies will not require us to increase our allowance for loan and lease losses, which would adversely affect our results of operations.

Our real estate operations have had and may continue to have an adverse effect on our results of operations.

We conduct real estate operations through Investment Directions, Inc, a wholly owned subsidiary, which invests in various real estate subsidiaries and partnerships and conducts real estate development and sales throughout California, Texas and Minnesota. As a result of weakening conditions in the real estate market and reduced sales of its properties, we have incurred losses from the operations of its real estate subsidiaries in recent years, which are expected to continue unless the real estate market improves. Losses from IDI’s real estate operations increased by $16.1 million to $18.4 million for the fiscal year ended March 31, 2009 from $2.3 million for the fiscal year March 31, 2008 compared to losses of $1.7 million for the fiscal year ended March 31, 2007. The increased loss was the result of management applying a $17.6 million valuation allowance for the decline in the appraised value of real estate. We have no current plans to engage in additional real estate investment activities through IDI and are exploring opportunities to sell or otherwise divest IDI’s current investments as soon as practicable. Additional losses from our real estate operations would have an adverse effect on our results of operations and capital.

There are increased risks involved with multi-family residential, commercial real estate, commercial business and consumer lending activities.

Our lending activities include loans secured by existing multi-family residential and commercial real estate. In addition, we originate loans for the construction of multi-family residential real estate and land acquisition and development loans. Multi-family residential, commercial real estate and construction lending generally is considered to involve a higher degree of risk than single-family residential lending due to a variety of factors, including generally larger loan balances, the dependency on successful completion or operation of the project for repayment, the difficulties in estimating construction costs and loan terms which often do not require full amortization of the loan over its term and, instead, provide for a balloon payment at stated maturity. Our lending activities also include commercial business loans and leases to small to medium businesses, which generally are secured by various equipment, machinery and other corporate assets, and a wide variety of consumer loans, including home improvement loans, home equity loans, education loans and loans secured by automobiles, boats, mobile homes, recreational vehicles and other personal property. Although commercial business loans and leases and consumer loans generally have shorter terms and higher interests rates than mortgage loans, they generally involve more risk than mortgage loans because of the nature of, or in certain cases the absence of, the collateral which secures such loans.

Future Federal Deposit Insurance Corporation assessments will hurt our earnings.

In May 2009, the Federal Deposit Insurance Corporation adopted a final rule imposing a special assessment on all insured institutions due to recent bank and savings association failures. The emergency assessment amounts to 5 basis points of total assets minus Tier 1 Capital as of June 30, 2009. The assessment will be collected on September 30, 2009 and recorded against earnings for the quarter ended June 30, 2009. The special assessment will negatively impact the Company’s earnings and the Company expects that non-interest expenses will increase

approximately $2.5 million for the year ended March 31, 2010 as compared to the year ended March 31, 2009 as a result of this special assessment. In addition, the final rule allows the Federal Deposit Insurance Corporation to impose additional emergency special assessments of up to 5 basis points per quarter for the third and fourth quarters of 2009 if necessary to maintain public confidence in federal deposit insurance or as a result of deterioration in the deposit insurance fund reserve ratio due to institution failures. Any additional emergency special assessment imposed by the FDIC will further hurt the Company’s earnings.

Current levels of market volatility are unprecedented.

The capital and credit markets have been experiencing volatility and disruption for more than a year, reaching unprecedented levels. In many cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers underlying financial strength. If current levels of market disruption and volatility continue or worsen, our ability to access capital may be adversely affected, which in turn could adversely affect our business, financial condition and results of operations.

Changes in interest rates could have a material adverse effect on our operations.

The operations of financial institutions such as us are dependent to a large extent on net interest income, which is the difference between the interest income earned on interest-earning assets such as loans and investment securities and the interest expense paid on interest-bearing liabilities such as deposits and borrowings. Changes in the general level of interest rates can affect our net interest income by affecting the difference between the weighted average yield earned on our interest-earning assets and the weighted average rate paid on our interest-bearing liabilities, or interest rate spread, and the average life of our interest-earning assets and interest-bearing liabilities. Changes in interest rates also can affect our ability to originate loans; the value of our interest-earning assets and our ability to realize gains from the sale of such assets; our ability to obtain and retain deposits in competition with other available investment alternatives; the ability of our borrowers to repay adjustable or variable rate loans; and the fair value of the derivatives carried on our balance sheet, derivative hedge effectiveness testing and the amount of ineffectiveness recognized in our earnings. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. Although we believe that the estimated maturities of our interest-earning assets currently are well balanced in relation to the estimated maturities of our interest-bearing liabilities (which involves various estimates as to how changes in the general level of interest rates will impact these assets and liabilities), there can be no assurance that our profitability would not be adversely affected during any period of changes in interest rates.

We are subject to extensive regulation which could adversely affect our business and operations.

We and the Bank are subject to extensive federal governmental supervision and regulation, which are intended primarily for the protection of depositors. In addition, we and our subsidiaries are subject to changes in laws, as well as changes in regulations, governmental policies and accounting principles. The effects of any such potential changes cannot be predicted but could adversely affect the business and operations of us and our subsidiaries in the future.

We face strong competition which may adversely affect our profitability.

We are subject to vigorous competition in all aspects and areas of our business from banks and other financial institutions, including savings and loan associations, savings banks, finance companies, credit unions and other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies and insurance companies. We also compete with non-financial institutions, including retail stores that maintain their own credit programs and governmental agencies that make available low cost or guaranteed loans to certain borrowers. Certain of our competitors are larger financial institutions with substantially greater resources, lending limits, larger branch systems and a wider array of commercial banking services. Competition from both bank and non-bank organizations will continue.

Our ability to successfully compete may be reduced if we are unable to make technological advances.

The banking industry is experiencing rapid changes in technology. In addition to improving customer services, effective use of technology increases efficiency and enables financial institutions to reduce costs. As a result, our future success will depend in part on our ability to address our customers’ needs by using technology. We cannot assure you that we will be able to effectively develop new technology-driven products and services or be successful in marketing these products to our customers. Many of our competitors have far greater resources than we have to invest in technology.

Risks Related to Our Credit Agreement

We are party to a credit agreement that requires us to observe certain covenants that limit our flexibility in operating our business.

We are party to a Credit Agreement, dated as of June 9, 2008, by and among the Corporation, the financial institutions from time to time party to the agreement and U.S. Bank National Association, as administrative agent for the lenders, as amended by Amendment No. 4 to Amended and Restated Credit Agreement, dated as of May 29, 2009 (the “Credit Agreement”). The Credit Agreement requires us to comply with affirmative and negative covenants customary for restricted indebtedness. These covenants limit our ability to, among other things:


	•	incur additional indebtedness or issue certain preferred shares;

	•	pay dividends on, repurchase or make distributions in respect of our capital stock or make other restricted payments;

	•	make certain investments;

	•	sell certain assets; and

	•	consolidate, merge, sell or otherwise dispose of all or substantially all of the Corporation’s assets.

The Credit Agreement includes operating covenants covering, among other things, our capital ratios and non-performing asset levels. Additional operating covenants cover the Bank’s dividend payments and set minimum net income requirements.

A breach of any of these covenants could result in a default under the Credit Agreement. Upon the occurrence of an event of default, all amounts outstanding under the Credit Agreement could become immediately due and payable. The lenders are under no obligation to make additional loans and amounts repaid by the Corporation may not be reborrowed. If we are unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure that indebtedness. If the lenders under the secured credit facilities accelerate the repayment of borrowings, we may not have sufficient assets to make the payments when due.

We must pay in full the outstanding balance under the Credit Agreement by the earlier of May 31, 2010 or the receipt of net proceeds of a financing transaction from the sale of equity securities.

As of March 31, 2009, the total revolving loan commitment under the Credit Agreement was $116.3 million and aggregate borrowings under the Credit Agreement were $116.3 million. We must pay in full the outstanding balance under the Credit Agreement by the earlier of May 31, 2010 or the receipt of net proceeds of a financing transaction from the sale of equity securities. If the net proceeds are received from the U.S. Department of the Treasury and the terms of such investment prohibit the use of the investment proceeds to repay senior debt, then no payment is required from the Treasury investment. As of the date of this filing, we do not have sufficient cash on hand to reduce our outstanding borrowings to zero. There can be no assurance that we will be able to raise sufficient capital or have sufficient cash on hand to reduce our outstanding borrowings to zero by May 31, 2010, which may limit our ability to fund ongoing operations.

Unless the maturity date is extended, our outstanding borrowings under our Credit Agreement are due on May 31, 2010. The Credit Agreement does not include a commitment to refinance the remaining outstanding balance of the loans when they mature and there is no guarantee that our lenders will renew their loans at that time. Refusal to provide us with renewals or refinancing opportunities would cause our indebtedness to become

immediately due and payable upon the contractual maturity of such indebtedness, which could result in our insolvency if we are unable to repay the debt.

If we fail to meet our payment obligations under the Credit Agreement, such failure will constitute an event of default. When an event of default occurs, the agent, on behalf of the lenders may, among other remedies, seize the outstanding shares of the Bank’s capital stock held by the Corporation or other securities or assets of the Corporation’s subsidiaries which have been pledged as collateral for borrowings under the Credit Agreement. If the Agent were to take one or more of these actions, it could have a material adverse affect on our reputation, operations and ability to continue as a going concern, and you could lose your investment in the securities.

If we are unable to renew, replace or expand our sources of financing on acceptable terms, it may have an adverse effect on our business and results of operations and our ability to make distributions to shareholders. Upon liquidation, holders of our debt securities and lenders with respect to other borrowings will receive, and any holders of preferred stock that is currently outstanding and that we may issue in the future may receive, a distribution of our available assets prior to holders of our common stock. The decisions by investors and lenders to enter into equity and financing transactions with us will depend upon a number of factors, including our historical and projected financial performance, compliance with the terms of our current credit arrangements, industry and market trends, the availability of capital and our investors’ and lenders’ policies and rates applicable thereto, and the relative attractiveness of alternative investment or lending opportunities.

Risks Related to Recent Market, Legislative and Regulatory Events

We cannot predict the impact on us or the Bank of recently enacted legislation, in particular the Emergency Economic Stabilization Act of 2008 and its implementing regulations, and actions by the FDIC.

The programs established or to be established under the Emergency Economic Stabilization Act of 2008 may have adverse effects upon us, including increased regulation of our industry. Compliance with such regulation may increase our costs and limit our ability to pursue business opportunities. Also, participation in specific programs may subject us to additional restrictions. For example, our participation in the CPP, among other things, limits (without the consent of the Department of Treasury) our ability to increase our dividend and to repurchase our common stock for so long as any securities issued under such program remain outstanding. It also subjects us to additional executive compensation restrictions.

Similarly, programs established by the FDIC under the systemic risk exception to the Federal Deposit Act, whether we participate or not, may have an adverse effect on us. For example, we estimate that participation in the FDIC Temporary Liquidity Guarantee Program likely will require the payment of an annual deposit premium of approximately $1.6 million to $2.3 million. In addition, we may be required to pay significantly higher FDIC premiums even if we do not participate in the FDIC Temporary Liquidity Guarantee Program because market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits. The affects of participating or not participating in any such programs, and the extent of our participation in such programs cannot reliably be determined at this time.


Item 1B.	*Unresolved Staff Comments.*

None


Item 2.	*Properties*

At March 31, 2009, the Bank conducted its business from its headquarters and main office at 25 West Main Street, Madison, Wisconsin and 73 other full-service offices and two loan origination offices. The Bank owns 47 of its full-service offices, leases the land on which four such offices are located, and leases the remaining 23 full-service offices. The Bank also owns a building at its headquarters which hosts its support center, two buildings that are vacant and for sale, two vacant lots for sale as well as three land sites for future development. In addition, the Bank leases its two loan-origination facilities. The leases expire between 2009 and 2029. The aggregate net book value at March 31, 2009 of the properties owned or leased, including headquarters, properties and leasehold improvements, was $35.3 million. See Note 8 to the Corporation’s Consolidated Financial Statements included in Item 8, for information regarding premises and equipment.


Item 3.	*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 4.	*Submission of Matters to a Vote of Security Holders*

During the fourth quarter of the fiscal year ended March 31, 2009, no matters were submitted to a vote of security holders through a solicitation of proxies or otherwise.

PART II


Item 5.	*Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities*

Common Stock

The Corporation’s Common Stock is traded on the Nasdaq Global Select Market under the symbol “ABCW”. At June 5, 2009, there were approximately 2,500 stockholders of record. That number does not include stockholders holding their stock in street name or nominee’s name.

Quarterly Stock Price and Dividend Information

The table below shows the reported high and low sale prices of Common Stock and cash dividends paid per share of Common Stock during the periods indicated in fiscal 2009 and 2008.


					Cash
Quarter Ended	High		Low		Dividend

March 31, 2009	$	2.770	$	0.380	$	—
December 31, 2008		7.730		1.810		0.010
September 30, 2008		9.450		5.860		0.100
June 30, 2008		19.920		7.010		0.180

March 31, 2008	$	25.580	$	16.740	$	0.180
December 31, 2007		28.360		21.580		0.180
September 30, 2007		29.100		21.210		0.180
June 30, 2007		29.000		26.160		0.170

For information regarding restrictions on the payments of dividends by the Bank to the Corporation, see “Item 1. Business — Regulation and Supervision — The Bank — Restrictions on Capital Distributions” in this report.

Repurchases of Common Stock

As of March 31, 2009, the Corporation does not have a stock repurchase plan in place.


Item 6.	*Selected Financial Data*

The following information at and for the years ended March 31, 2009, 2008, 2007, 2006 and 2005 has been derived from the Corporation’s historical audited consolidated financial statements for those years.


	At or For Year Ended March 31,
	2009			2008(4)			2007			2006			2005
				(Dollars in thousands, except per share data)

Operations Data:
Interest income	$	260,262		$	296,675		$	280,692		$	238,550		$	199,979
Interest expense		135,472			167,670			152,646			105,846			79,276
Net interest income		124,790			129,005			128,046			132,704			120,703
Provision for loan losses		205,719			22,551			11,255			3,900			1,579
Real estate investment partnership revenue		2,130			8,623			18,977			33,974			106,095
Other non-interest income		43,401			42,255			35,275			32,943			28,255
Real estate investment partnership cost of sales		1,736			8,489			17,607			28,509			74,875
Other non-interest expenses		221,423			98,463			90,119			89,879			87,186
Minority interest in income (loss) of real estate partnership operations		(148	)		(402	)		(241	)		1,723			13,546
Income taxes		(30,098	)		19,650			24,586			30,927			29,532
Net income		(228,311	)		31,132			38,972			44,683			48,335
Earnings per share:
Basic		(10.83	)		1.48			1.82			2.07			2.14
Diluted		(10.83	)		1.48			1.80			2.03			2.10
Balance Sheet Data:
Total assets	$	5,273,055		$	5,149,557		$	4,539,685		$	4,275,140		$	4,050,456
Investment securities		77,684			87,036			73,545			49,521			52,055
Mortgage-related securities		407,351			269,429			248,039			247,515			203,752
Loans receivable held for investment, net		3,896,439			4,202,833			3,874,049			3,614,265			3,414,608
Deposits		3,923,827			3,539,994			3,248,246			3,040,217			2,873,533
Other borrowed funds		1,078,392			1,206,761			900,477			861,861			793,609
Stockholders’ equity		213,721			345,116			336,866			321,025			310,678
Common shares outstanding		21,569,785			21,348,170			21,669,094			21,854,303			22,319,513
Other Financial Data:
Book value per common share at end of period	$	4.81		$	16.17		$	15.55		$	14.69		$	13.92
Dividends paid per share		0.29			0.71			0.67			0.62			0.49
Dividend payout ratio		(2.68	)%		47.97	%		36.81	%		29.95	%		22.90	%
Yield on earning assets		5.63			6.25			6.71			6.05			5.41
Cost of funds		2.94			3.65			3.80			2.80			2.25
Interest rate spread		2.69			2.60			2.91			3.25			3.16
Net interest margin(1)		2.70			2.72			3.06			3.36			3.27
Return on average assets(2)		(4.60	)		0.63			0.89			1.08			1.24
Return on average equity(3)		(76.22	)		9.17			11.75			14.16			15.69
Average equity to average assets		6.04			6.82			7.55			7.62			7.92


(1)		Net interest margin represents net interest income as a percentage of average interest-earning assets.

(2)		Return on average assets represents net income as a percentage of average total assets.

(3)		Return on average equity represents net income as a percentage of average total stockholders’ equity.

(4)		During the fourth quarter, the Corporation acquired S&C Bank, which consisted of total assets of $381.1 million, total deposits of $305.5 million and total loans of $280.8 million.


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

Set forth below is a discussion and analysis of the Corporation’s financial condition and results of operations, including information on the Corporation’s asset/liability management strategies, sources of liquidity and capital resources and significant accounting policies. Management is required to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Management believes the following policies are both important to the portrayal of our financial condition and results of operations and require subjective or complex judgments; therefore, management considers the following to be critical accounting policies. Management has reviewed the application of these polices with the Audit Committee of our board of directors. Management’s discussion and analysis should be read in conjunction with the consolidated financial statements and supplemental data contained elsewhere in this report.

Critical Accounting Policies

There are a number of accounting policies that require the use of judgment. Some of the more significant policies are as follows:


	•	Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary due to credit loss are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses on debt securities, management considers many factors which include: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. To determine if an other-than-temporary impairment exists on a debt security, the Corporation first determines if (a) it intends to sell the security or (b) it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of the conditions is met, the Corporation will recognize an other-than-temporary impairment in earnings equal to the difference between the fair value of the security and its adjusted cost. If neither of the conditions is met, the Corporation determines (a) the amount of the impairment related to credit loss and (b) the amount of the impairment due to all other factors. The difference between the present values of the cash flows expected to be collected and the amortized cost basis is the credit loss. The credit loss is the amount of the other-than-temporary impairment that is recognized in earnings and is a reduction to the cost basis of the security. The amount of total impairment related to all other factors is included in other comprehensive income (loss). If a security is impaired, and the impairment is deemed other-than-temporary and material, a write down will occur in that quarter. If a loss is deemed to be other-than-temporary, it is recognized as a realized loss in the consolidated statement of income with the security assigned a new cost basis. Management has applied EITF 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” based on the security attributes at the purchase date and then does not further evaluate. All securities were of high credit quality (i.e. rated AA or above) at the purchase date and therefore, do not fall within the scope of EITF 99-20.

	•	Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, requires that available-for-sale securities be carried at fair value. Management determines fair value based on quoted market prices, identical assets in active markets or by other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques. The Corporation uses a pricing service as a source for fair values for a many of its securities. The Corporation also utilizes an independent firm that utilizes a discounted cash flow model for determining fair value and the credit portion of other-than-temporary impairments that are recognized in earnings on certain corporate mortgage-related securities in accordance with FAS FSP 115-2 and 124-2. Adjustments to the available-for-


		sale securities fair value impact the consolidated financial statements by increasing or decreasing assets and stockholders’ equity, and possibly net income as discussed in the preceding paragraph.


	•	The allowance for loan losses is a valuation allowance for probable losses incurred in the loan portfolio. Our allowance for loan loss methodology incorporates a variety of risk considerations in establishing an allowance for loan losses that we believe is adequate to absorb probable losses in the existing portfolio. Such analysis addresses our historical loss experience, delinquency and charge-off trends, collateral values, changes in non-performing loans, economic conditions, peer group experience and other considerations. This information is then analyzed to determine “estimated loss factors” which, in turn, is assigned to each loan category. These factors also incorporate known information about individual loans, including the borrowers’ sensitivity to interest rate movements. Changes in the factors themselves are driven by perceived risk in pools of homogenous loans classified by collateral type, purpose and term. Management monitors local trends to anticipate future delinquency potential on a quarterly basis.

Our primary lending emphasis has been commercial real estate loans, construction loans and land acquisition and development loans for both residential and commercial projects. As the result of current economic conditions, the Bank has currently curtailed this lending emphasis. We have a concentration of loans secured by real property located in Wisconsin. Based on the composition of our loan portfolio and the growth in our loan portfolio, we believe the primary risks inherent in our portfolio are increases in interest rates, a decline in the economy, generally, and a decline in real estate market values. Any one or a combination of these events may adversely affect our loan portfolio resulting in increased delinquencies, loan losses and future levels of provisions. We consider it important to maintain the ratio of our allowance for loan losses to total loans at an acceptable level given current economic conditions, interest rates and the composition of our portfolio.

The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. Provisions for loan losses are made on both a specific and general basis. Specific allowances are provided on impaired credits pursuant to SFAS No. 114 “Accounting by Creditors for Impairment of a Loan.” The general component of the allowance for loan losses is based on historical loss experience and adjusted for qualitative and environmental factors pursuant to SFAS No. 5 “Accounting for Contingencies” and other related regulatory guidance. At least quarterly, we review the assumptions and formulas related to our general valuation allowances in an effort to update and to refine our allowance for loan losses in light of the various factors described above. During the year ended March 31, 2009, we decided to make further increases to the qualitative loss factors due to the weaknesses in the real estate markets in which we operate, declines in appraisal valuations, increases in nonperforming loans, increases in potential problem loans, and the general weakening of the local economies in the markets in which we operate. The factor for historical loss experience was reduced to a three-year average from a five-year average during the year ended March 31, 2009. In the event that our residential construction and land portfolio continues to experience deterioration in estimated collateral values, we may have to further adjust and discount the appraised values for the collateral underlying the loans in that portfolio, which could result in significant increases to our provision for loan losses.

We consider the ratio of the allowance for loan losses to total loans at March 31, 2009 to be at an acceptable level. Although we believe that we have established and maintained the allowance for loan losses at adequate levels, additions may be necessary if future economic and other conditions differ substantially from the current operating environment. Although management uses the best information available, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change.


	•	Valuation of mortgage servicing rights requires the use of judgment. Mortgage servicing rights are established on loans that are originated and subsequently sold. A portion of the loan’s book basis is allocated to mortgage servicing rights when a loan is sold. The fair value of mortgage servicing rights is the present value of estimated future net cash flows from the servicing relationship using current market assumptions for prepayments, servicing costs and other factors. As the loans are repaid and net servicing revenue is earned, mortgage servicing rights are amortized into expense. Net servicing revenues are expected


		to exceed this amortization expense. However, if actual prepayment experience exceeds what was originally anticipated, net servicing revenues may be less than expected and mortgage servicing rights may be impaired. Mortgage servicing rights are carried at the lower of cost or fair value. An impairment charge of $2.4 million was recorded during the year ended March 31, 2009.


	•	The Corporation accounts for federal income taxes in accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes.” Pursuant to the provisions of SFAS No. 109, a deferred tax liability or deferred tax asset is computed by applying the current statutory tax rates to net taxable or deductible differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements that will result in taxable or deductible amounts in future periods. Deferred tax assets are recorded only to the extent that the amount of net deductible temporary differences or carryforward attributes may be utilized against current period earnings, carried back against prior years’ earnings, offset against taxable temporary differences reversing in future periods, or utilized to the extent of management’s estimate of future taxable income. A valuation allowance is provided for deferred tax assets to the extent that the value of net deductible temporary differences and carryforward attributes exceeds management’s estimates of taxes payable on future taxable income. A valuation allowance of $46.3 million excluding the valuation on the deferred tax asset related to unrealized losses on available for sale securities was placed on deferred tax assets during the year ended March 31, 2009. Deferred tax liabilities are provided on the total amount of net temporary differences taxable in the future.

	•	Goodwill is presumed to have an indefinite useful life and is tested, at least annually, for impairment at the reporting unit level. Impairment exists when the carrying amount of goodwill exceeds its implied fair value. The Corporation annually reviews the goodwill for impairment in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. If the fair value of our reporting unit with goodwill exceeds its carrying amount, further evaluation is not necessary. However, if the fair value of our reporting unit with goodwill is less than its carrying amount, further evaluation is required to compare the implied fair value of the reporting unit’s goodwill to its carrying amount to determine if a write-down of goodwill is required.

During the quarter ended December 31, 2008, our stock price continued to deteriorate. In addition, there was continued deterioration in our credit quality. These market conditions and related credit concerns caused valuations for financial institutions to decrease significantly during the three months ended December 31, 2008. The market price of the Corporation’s stock declined from $7.34 on September 30, 2008 to $2.76 at December 31, 2008.

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

Recent Accounting Pronouncements. Refer to Note 1 of our consolidated financial statements for a description of recent accounting pronouncements including the respective dates of adoption and effects on results of operations and financial condition.

Segment Review

The Corporation’s primary reportable segment is community banking. Community banking consists of lending and deposit gathering (as well as other banking-related products and services) to businesses, governments and consumers and the support to deliver, fund and manage such banking services. The Corporation’s real estate segment invests in real estate developments.

The Corporation’s profitability is predominantly dependent on net interest income, non-interest income, the level of the provision for loan losses, non-interest expense and taxes of its community banking segment. The following table sets forth the results of operations of the Corporation’s segments for the periods indicated.


	Year Ended March 31, 2009
										Consolidated
	Real Estate			Community			Intersegment			Financial
	Investments			Banking			Eliminations			Statements
	(In thousands)

Interest income	$	102		$	261,373		$	(1,213	)	$	260,262
Interest expense		1,116			135,569			(1,213	)		135,472

Net interest income (loss)		(1,014	)		125,804			—			124,790
Provision for loan losses		—			205,719			—			205,719

Net interest income (loss) after provision for loan losses		(1,014	)		(79,915	)		—			(80,929	)
Real estate investment partnership revenue		2,130			—			—			2,130
Other revenue from real estate operations		8,194			—			—			8,194
Other income		—			35,297			(90	)		35,207
Real estate investment partnership cost of sales		(1,736	)		—			—			(1,736	)
Other expense from real estate partnership operations		(9,596	)		—			90			(9,506	)
Real estate partnership impairment		(17,631	)		—			—			(17,631	)
Minority interest in loss of real estate partnerships		148			—			—			148
Other expense		—			(194,286	)		—			(194,286	)

Income (loss) before income taxes		(19,505	)		(238,904	)		—			(258,409	)
Income tax expense (benefit)		(1,068	)		(29,030	)		—			(30,098	)

Net income (loss)	$	(18,437	)	$	(209,874	)	$	—		$	(228,311	)

Total assets at end of period	$	25,070		$	5,247,985		$	—		$	5,273,055
Goodwill	$	—		$	—		$	—		$	—


	Year Ended March 31, 2008
										Consolidated
	Real Estate			Community			Intersegment			Financial
	Investments			Banking			Eliminations			Statements
				(In thousands)

Interest income	$	141		$	298,515		$	(1,981	)	$	296,675
Interest expense		1,828			167,823			(1,981	)		167,670

Net interest income (loss)		(1,687	)		130,692			—			129,005
Provision for loan losses		—			22,551			—			22,551

Net interest income (loss) after provision for loan losses		(1,687	)		108,141			—			106,454
Real estate investment partnership revenue		8,623			—			—			8,623
Other revenue from real estate operations		7,440			—			—			7,440
Other income		—			35,643			(119	)		35,524
Real estate investment partnership cost of sales		(8,489	)		—			—			(8,489	)
Other expense from real estate partnership operations		(10,291	)		—			119			(10,172	)
Minority interest in loss of real estate partnerships		402			—			—			402
Other expense		—			(89,000	)		—			(89,000	)

Income (loss) before income taxes		(4,002	)		54,784			—			50,782
Income tax expense (benefit)		(1,682	)		21,332			—			19,650

Net income (loss)	$	(2,320	)	$	33,452		$	—		$	31,132

Total assets at end of period	$	72,028		$	5,077,529		$	—		$	5,149,557
Goodwill	$	—		$	72,375		$	—		$	72,375


	Year Ended March 31, 2007
										Consolidated
	Real Estate			Community			Intersegment			Financial
	Investments			Banking			Eliminations			Statements
				(In thousands)

Interest income	$	362		$	282,308		$	(1,978	)	$	280,692
Interest expense		1,906			152,718			(1,978	)		152,646

Net interest income (loss)		(1,544	)		129,590			—			128,046
Provision for loan losses		—			11,255			—			11,255

Net interest income (loss) after provision for loan losses		(1,544	)		118,335			—			116,791
Real estate investment partnership revenue		18,977			—			—			18,977
Other revenue from real estate operations		6,560			—			—			6,560
Other income		—			28,581			(119	)		28,462
Real estate investment partnership cost of sales		(17,607	)		—			—			(17,607	)
Other expense from real estate partnership operations		(8,950	)		—			119			(8,831	)
Minority interest in loss of real estate partnerships		241			—			—			241
Other expense		—			(81,035	)		—			(81,035	)

Income (loss) before income taxes		(2,323	)		65,881			—			63,558
Income tax expense (benefit)		(606	)		25,192			—			24,586

Net income (loss)	$	(1,717	)	$	40,689		$	—		$	38,972

Total assets at end of period	$	74,169		$	4,465,516		$	—		$	4,539,685
Goodwill	$	—		$	19,956		$	—		$	19,956

Results of Operations

Comparison of Years Ended March 31, 2009 and 2008

General. Net income decreased $259.4 million to a loss of $228.3 million in fiscal 2009 from net income of $31.1 million in fiscal 2008. The primary component of this decrease in earnings for fiscal 2009, as compared to fiscal 2008, was a $183.2 million increase in the provision for loan losses. The decrease in net income was also attributable to an increase in non-interest expense of $116.2 million, primarily due to a $72.2 million write down of goodwill due to impairment. In addition, non-interest income decreased $5.3 million and net interest income decreased $4.2 million. These decreases were partially offset by a decrease in income tax expense of $49.7 million. An allowance of $46.3 million was placed on the deferred tax asset during the year ended March 31, 2009. A valuation allowance was recognized because it is more-likely-than-not that a portion of the deferred tax asset will not be realized. The remaining deferred tax asset is realizable due to the ability to carry back losses to prior years, future reversals of existing temporary differences, and the expectation of future taxable income. The returns on average assets and average stockholders’ equity for fiscal 2009 were (4.60)% and (76.22)%, respectively, as compared to 0.63% and 9.17%, respectively, for fiscal 2008.

Net Interest Income. Net interest income decreased by $4.2 million during fiscal 2009 due to the decreased cost of interest bearing liabilities which was offset by the decline in yield on interest earning assets. Factors that contributed to the decline in net interest income were the fact that approximately $5.6 million of interest income on nonaccrual loans was reversed when the loans were placed on nonaccrual status. The average balances of interest-earning assets decreased to $4.62 billion and the average balance of interest-bearing liabilities increased to $4.61 billion in fiscal 2009, from $4.75 billion and $4.60 billion, respectively, in fiscal 2008. The ratio of average

interest-earning assets to average interest-bearing liabilities decreased to 1.00 in fiscal 2009 from 1.03 in fiscal 2008. The average yield on interest-earning assets (5.63% in fiscal 2009 versus 6.25% in fiscal 2008) decreased, as did the average cost on interest-bearing liabilities (2.94% in fiscal 2009 versus 3.65% in fiscal 2008). The net interest margin decreased to 2.70% in fiscal 2009 from 2.72% in fiscal 2008 and the interest rate spread increased to 2.69% from 2.60% in fiscal 2009 and 2008, respectively. The increase in interest rate spread was reflective of a decrease in the cost of funds, which was slightly offset by a smaller decrease in the yields on loans as interest rates decreased. These factors are reflected in the analysis of changes in net interest income arising from changes in the volume of interest-earning assets, interest-bearing liabilities and the rates earned and paid on such assets and liabilities as set forth under “Rate/Volume Analysis” below. The analysis indicates that the decrease of $4.2 million in net interest income stemmed from net rate/volume decreases in interest- earning assets of $36.4 million offset by the net rate/volume decreases of interest- bearing liabilities of $32.2 million.

Provision for Loan Losses. The provision for loan losses increased $183.2 million from $22.6 million in fiscal 2008 to $205.7 million in fiscal 2009 based on management’s ongoing evaluation of asset quality. This charge reflected an increase in provision to $205.7 million during the year allocated between specific reserves on impaired credits and an increase to the general reserve. The increase in provision and specific and general reserves was in response to the following trends identified in the portfolio: (i) an increase in net charge-offs of $99.3 million in fiscal 2009, primarily due to increased mortgage loan charge-offs. and (ii) increases in non-performing loans, in commercial real estate, construction and land and consumer loans, from $101.2 million at March 31, 2008 to $146.2 million at March 31, 2009. These increases resulted in the Corporation’s allowance for loan losses increasing $98.9 million from $38.3 million at March 31, 2008 to $137.2 million at March 31, 2009. The allowance for loan losses represented 3.34% of total loans at March 31, 2009, as compared to 0.87% of total loans at March 31, 2008. For further discussion of the allowance for loan losses, see “Financial Condition — Allowance for Loan and Foreclosure Losses.”

Future provisions for loan losses will continue to be based upon management’s assessment of the overall loan portfolio and the underlying collateral, trends in non-performing loans, current economic conditions and other relevant factors in order to maintain the allowance for loan losses at adequate levels to provide for probable and estimable future losses. The establishment of the amount of the loan loss allowance inherently involves judgments by management as to the adequacy of the allowance, which ultimately may or may not be correct. Higher rates of loan defaults than anticipated would likely result in a need to increase provisions in future years. Also, as multi-family and commercial loan portfolios increase, additional provisions would likely be added to the loan loss allowance as they carry a higher risk of loss.

Non-interest Income. Non-interest income decreased $5.4 million to $45.5 million for fiscal 2009 compared to $50.9 million for fiscal 2008 primarily due to the decrease of income from the Corporation’s real estate segment of $5.7 million for fiscal 2009. In addition, gain (loss) on investments and mortgage-related securities decreased $3.8 million, loan servicing income decreased $2.1 million and other than temporary impairment on securities of $805,000 was recorded. Partially offsetting these decreases were increases in other categories. Net gain on sale of loans increased $4.5 million and service charges on deposits increased $2.4 million.

Non-interest Expense. Non-interest expense increased $116.2 million to $223.2 million for fiscal 2009 compared to $107.0 million for fiscal 2008 primarily due to goodwill impairment of $72.2 million and a $17.6 million impairment of real estate. In addition, net expense of REO operations increased $11.9 million, compensation expense increased $9.2 million, other non-interest expense increased $6.1 million due to increased legal fees and loan fees, mortgage servicing rights impairment expense increased $3.1 million, furniture and equipment expense increased $1.8 million due to the fact that the current year includes a full year of operations at branches acquired in the prior year, occupancy expense increased $1.6 million due to a full year of operations in the current year of branches acquired in the prior year and data processing expense increased $1.1 million. These increases were offset by a decrease in real estate investment partnership cost of sales of $6.8 million and marketing expense decreased $1.0 million.

Real Estate Segment. Net income generated by the real estate segment decreased $16.1 million for fiscal 2009 to a net loss of $18.4 million from a net loss of $2.3 million in fiscal 2008. The primary reason for the decrease for fiscal 2009 was a $17.6 million impairment of real estate. In addition, partnership sales decreased $6.5 million,

income tax expense increased $614,000 and minority interest in income of real estate partnerships increased $254,000. These decreases in net income were offset in part by a $6.8 million decrease in real estate investment cost of sales and a $754,000 increase in other revenue from real estate operations. Future sales revenues are based on several factors, including the interest rate environment. Therefore, management cannot predict future activity.

Minority Interests. Minority interest in income (loss) of real estate partnership operations represents the share of income of development partners in the Corporation’s real estate investment partnerships. Such minority interest increased $254,000 from a loss of $402,000 in fiscal 2008 to a loss of $148,000 in fiscal 2009.

For more information on the effects to the consolidated operations of the Corporation, see “Real Estate Held for Development and Sale and Variable Interest Entities,” in Note 1 to the Consolidated Financial Statements included in Item 8.

Income Taxes. Income tax expense decreased $49.7 million for fiscal 2009 as compared to fiscal 2008. The effective tax rate for fiscal 2009 was (11.65)% as compared to 38.69% for fiscal 2008. The decline in the effective tax rate was primarily due to the valuation allowance of $46.3 million placed on the deferred tax asset during the year ended March 31, 2009. To the extent available, sources of taxable income, including those available from prior years’ under tax regulations, are deemed per GAAP to be insufficient to absorb tax losses, and a valuation allowance is therefore necessary. See Note 13 to the Consolidated Financial Statements included in Item 8.

Comparison of Years Ended March 31, 2008 and 2007

General. Net income decreased $7.9 million to $31.1 million in fiscal 2008 from $39.0 million in fiscal 2007. The primary component of this decrease in earnings for fiscal 2008, as compared to fiscal 2007, was an $11.3 million increase in the provision for loan losses. The decrease in net income was also attributable to a decrease in non-interest income of $2.4 million, primarily due to a $9.5 million decrease in income from the Corporation’s real estate segment. These decreases were partially offset by an increase in net interest income of $959,000 and a decrease in income tax expense of $4.9 million. The returns on average assets and average stockholders’ equity for fiscal 2008 were 0.63% and 9.17%, respectively, as compared to 0.89% and 11.75%, respectively, for fiscal 2007.

Net Interest Income. Net interest income increased by $959,000 during fiscal 2008 due to the decreased cost of interest bearing liabilities which was offset by the decline in yield on interest earning assets. Factors that contributed to the decline in net interest income were the fact that we no longer receive a dividend from the Federal Home Loan Bank and approximately $6.8 million of income on nonaccrual loans was reversed. The average balances of interest-earning assets and interest-bearing liabilities increased to $4.75 billion and $4.60 billion in fiscal 2008, respectively, from $4.19 billion and $4.02 billion, respectively, in fiscal 2007. The ratio of average interest-earning assets to average interest-bearing liabilities decreased to 1.03 in fiscal 2008 from 1.04 in fiscal 2007. The average yield on interest-earning assets (6.25% in fiscal 2008 versus 6.71% in fiscal 2007) decreased, as did the average cost on interest-bearing liabilities (3.65% in fiscal 2008 versus 3.80% in fiscal 2007). The net interest margin decreased to 2.72% in fiscal 2008 from 3.06% in fiscal 2007 and the interest rate spread decreased to 2.60% from 2.91% in fiscal 2008 and 2007, respectively. The decrease in interest rate spread was reflective of an increase in the cost of funds, which was slightly offset by a smaller increase in the yields on loans as interest rates increased. These factors are reflected in the analysis of changes in net interest income arising from changes in the volume of interest-earning assets, interest-bearing liabilities and the rates earned and paid on such assets and liabilities as set forth under “Rate/Volume Analysis” below. The analysis indicates that the increase of $959,000 in net interest income stemmed from net rate/volume increases in interest-bearing liabilities of $15.0 million offset by the net rate/volume increases of interest-earning assets of $16.0 million.

Provision for Loan Losses. The provision for loan losses increased $11.3 million from $11.3 million in fiscal 2007 to $22.6 million in fiscal 2008 based on management’s ongoing evaluation of asset quality. This charge reflected an increase in provision to $22.6 million during the year allocated between specific reserves on impaired credits and an increase to the general reserve. The increase in provision and specific and general reserves was in response to the following trends identified in the portfolio. An increase in net charge-offs of $1.3 million in fiscal 2008, primarily due to increased mortgage loan charge-offs. Increases in non-accrual loans, in single-family residential, commercial real estate, commercial business and construction and land loans, from $47.0 million at March 31, 2007 to $101.2 million at March 31, 2008. These increases resulted in the Corporation’s allowance for

loan losses increasing $17.8 million from $20.5 million at March 31, 2007 to $38.3 million at March 31, 2008. The allowance for loan losses represented 0.87% of total loans at March 31, 2008, as compared to 0.50% of total loans at March 31, 2007. For further discussion of the allowance for loan losses, see “Financial Condition — Allowance for Loan and Foreclosure Losses.”

Non-interest Income. Non-interest income decreased $2.4 million to $51.6 million for fiscal 2008 compared to $54.0 million for fiscal 2007 primarily due to the decrease of income from the Corporation’s real estate segment of $9.5 million for fiscal 2008. In addition, other non-interest income decreased $503,000. Partially offsetting these decreases were increases in other categories. Net gain on sale of loans increased $3.4 million, service charges on deposits increased $2.8 million, net gain on sale of investments and mortgage-related securities increased $797,000, investment and insurance commissions increased $341,000 and loan servicing income increased $184,000.

Non-interest Expense. Non-interest expense increased $188,000 to $107.7 million for fiscal 2008 compared to $107.5 million for fiscal 2007 primarily due to an increase in compensation expense of $3.3 million, an increase in other non-interest expense of $3.1 million and an increase in other expense from real estate partnership operations of $1.3 million. In addition, occupancy expense increased $756,000, furniture and equipment expense increased $711,000 and data processing expense increased $243,000. These increases were offset by a decrease in real estate investment partnership cost of sales of $9.1 million. In addition, marketing expense decreased $187,000.

Real Estate Segment. Net income generated by the real estate segment decreased $603,000 for fiscal 2008 to a net loss of $2.3 million from a net loss of $1.7 million in fiscal 2007. The primary reason for the decrease for fiscal 2008 was a decrease of $10.4 million in partnership sales, which was offset in part by a $9.1 million decrease in real estate investment cost of sales, a $161,000 decrease in minority interest in income of real estate partnerships and a $1.1 million decrease in income tax expense. Future sales revenues are based on several factors, including the interest rate environment. Therefore, management cannot predict future activity.

Minority Interests. Minority interest in income (loss) of real estate partnership operations represents the share of income of development partners in the Corporation’s real estate investment partnerships. Such minority interest decreased $161,000 from loss of $241,000 in fiscal 2007 to a loss of $402,000 in fiscal 2008. The decrease was primarily due to the decrease of partnership sales and cost of sales.

For more information on the effects of FIN 46R on the consolidated operations of the Corporation, see “Real Estate Held for Development and Sale and Variable Interest Entities,” in Note 1 to the Consolidated Financial Statements included in Item 8.

Income Taxes. Income tax expense decreased $4.9 million for fiscal 2008 as compared to fiscal 2007. The effective tax rate for fiscal 2008 was 38.69% as compared to 38.68% for fiscal 2007. See Note 13 to the Consolidated Financial Statements included in Item 8.

Fourth Quarter Results

Net loss for the quarter ending March 31, 2009 was $43.3 million, compared to net income of $5.6 million for the quarter ending March 31, 2008. The results for the quarter ending March 31, 2009 generated an annualized return on average assets of (3.44)% and an annualized return on average equity of (79.64)%, compared to 0.43% and 6.56%, respectively, for the same period in 2008.

Net interest income was $28.7 million for the three months ended March 31, 2009, a decrease of $6.4 million from $35.1 million for the comparable period in 2008. The net interest margin was 2.45% for the quarter ending March 31, 2009 and 2.84% for the quarter ending March 31, 2008.

Provision for loan losses was $56.4 million in the quarter ending March 31, 2009 compared to $10.4 million in the quarter ending March 31, 2008. Net charge-offs were $41.8 million in the quarter ended March 31, 2009 compared to $3.7 million in the quarter ended March 31, 2008. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Asset Quality” section below for further analysis of the allowance for loan losses.

Non-interest income was $16.0 million for the quarter ended March 31, 2009, an increase of $2.4 million compared to $13.6 million for the quarter ended March 31, 2008. The majority of the increase was attributable to a $4.9 million increase in income from net gain on sale of loans. In addition, revenue from the real estate segment increased $1.3 million. Partially offsetting these increases were a decrease in loan servicing income of $1.7 million.

Non-interest expense increased $18.1 million to $47.9 million for the quarter ended March 31, 2009 from $29.8 million for the quarter ended March 31, 2008 primarily due to a $12.7 million increase in expenses from the Corporation’s real estate segment, which includes $13.0 million of impairment of real estate. In addition, net expense — REO operations increased $2.4 million, compensation expense increased $1.4 million and other non-interest expense increased $1.4 million.

The Corporation had an income tax benefit of $16.1 million for the three months ended March 31, 2009 compared to income tax expense of $2.8 million for the three months ended March 31, 2008. The effective tax rate (benefit) was (27.2)% and 33.5% for the quarter ended March 31, 2009 and 2008, respectively. The change in the effective tax rate was mainly impacted by the adjustments described above.

Net Interest Income Information

Average Interest-Earning Assets, Average Interest-Bearing Liabilities and Interest Rate Spread and Margin. The following table shows the Corporation’s average balances, interest, average rates, the spread between the combined average rates earned on interest-earning assets and average cost of interest-bearing liabilities, net interest margin, which represents net interest income as a percentage of average interest-earning assets, and the ratio of average interest-earning assets to average interest-bearing liabilities for the years indicated. The average balances are derived from average daily balances.

Average Balance Sheets


	Year Ended March 31,
	2009							2008							2007
					Average							Average							Average
	Average				Yield/			Average				Yield/			Average				Yield/
	Balance		Interest		Cost			Balance		Interest		Cost			Balance		Interest		Cost
	(Dollars in thousands)

Interest-earning Assets
Mortgage loans	$	3,092,823	$	181,249		5.86	%	$	3,276,629	$	209,065		6.38	%	$	2,935,228	$	197,962		6.74	%
Consumer loans		766,902		45,566		5.94			721,860		48,627		6.74			628,786		45,770		7.28
Commercial business loans		249,502		14,298		5.73			253,794		19,014		7.49			214,239		17,923		8.37

Total loans receivable(1)(2)		4,109,227		241,113		5.87			4,252,283		276,706		6.51			3,778,253		261,655		6.93
Mortgage-related securities(3)		285,276		15,664		5.49			255,700		12,701		4.97			254,716		12,139		4.77
Investment securities(3)		96,792		2,951		3.05			147,087		3,994		2.72			67,362		3,240		4.81
Interest-bearing deposits		76,787		534		0.70			43,405		2,702		6.23			43,384		2,317		5.34
Federal Home Loan Bank stock		54,829		—		0.00			48,689		572		1.17			42,204		1,341		3.18

Total interest-earning assets		4,622,911		260,262		5.63			4,747,164		296,675		6.25			4,185,919		280,692		6.71
Non-interest-earning assets		337,975							228,314							207,698

Total assets	$	4,960,886						$	4,975,478						$	4,393,617

Interest-bearing Liabilities
Demand deposits	$	1,023,961		9,377		0.92		$	1,113,836		21,135		1.90		$	884,460		21,121		2.39
Regular passbook savings		228,978		883		0.39			221,219		916		0.41			202,908		910		0.45
Certificates of deposit		2,217,594		84,597		3.81			2,233,818		101,218		4.53			2,086,700		94,373		4.52

Total deposits		3,470,533		94,857		2.73			3,568,873		123,269		3.45			3,174,068		116,404		3.67
Short-term borrowings		216,206		8,479		3.92			520,852		25,577		4.91			282,652		15,537		5.50
Long-term borrowings		926,665		32,136		3.47			508,958		18,824		3.70			562,597		20,705		3.68

Total interest-bearing liabilities		4,613,404		135,472		2.94			4,598,683		167,670		3.65			4,019,317		152,646		3.80

Non-interest-bearing liabilities		47,946							37,391							42,679

Total liabilities		4,661,350							4,636,074							4,061,996
Stockholders’ equity		299,536							339,404							331,621

Total liabilities and stockholders’ equity	$	4,960,886						$	4,975,478						$	4,393,617

Net interest income/ interest rate spread(4)			$	124,790		2.69	%			$	129,005		2.60	%			$	128,046		2.91	%

Net interest-earning assets	$	9,507						$	148,481						$	166,602

Net interest margin(5)						2.70	%						2.72	%						3.06	%

Ratio of average interest-earning assets to average interest- bearing liabilities		1.00							1.03							1.04


(1)		For the purpose of these computations, non-accrual loans are included in the daily average loan amounts outstanding.
(2)		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.
(3)		Average balances of securities available-for-sale are based on amortized cost.

(4)		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.
(5)		Net interest margin represents net interest income as a percentage of average interest-earning assets.

Rate/Volume Analysis

The most significant impact on the Corporation’s net interest income between periods is derived from the interaction of changes in the volume of and rates earned or paid on interest-earning assets and interest-bearing liabilities. The volume of earning dollars in loans and investments, compared to the volume of interest-bearing liabilities represented by deposits and borrowings, combined with the spread, produces the changes in net interest income between periods. The following table shows the relative contribution of the changes in average volume and average interest rates on changes in net interest income for the periods indicated. Information is provided with respect to the effects on net interest income attributable to (i) changes in rate (changes in rate multiplied by prior volume), (ii) changes in volume (changes in volume multiplied by prior rate) and (iii) changes in rate/volume (changes in rate multiplied by changes in volume).


	Increase (Decrease) for the Year Ended March 31,
	2009 Compared To 2008												2008 Compared To 2007
							Rate/												Rate/
	Rate			Volume			Volume			Net			Rate			Volume			Volume			Net
	(In thousands)

Interest-earning Assets
Mortgage loans	$	(17,044	)	$	(11,728	)	$	956		$	(27,816	)	$	(10,680	)	$	23,025		$	(1,242	)	$	11,103
Consumer loans		(5,737	)		3,034			(358	)		(3,061	)		(3,413	)		6,775			(505	)		2,857
Commercial business loans		(4,470	)		(322	)		76			(4,716	)		(1,872	)		3,309			(346	)		1,091

Total loans receivable(1)(2)		(27,251	)		(9,016	)		674			(35,593	)		(15,965	)		33,109			(2,093	)		15,051
Mortgage-related securities(3)		1,339			1,469			155			2,963			513			47			2			562
Investment securities(3)		490			(1,365	)		(168	)		(1,043	)		(1,411	)		3,835			(1,670	)		754
Interest-bearing deposits		(2,400	)		2,078			(1,846	)		(2,168	)		384			1			—			385
Federal Home Loan Bank stock		(572	)		72			(72	)		(572	)		(845	)		206			(130	)		(769	)

Total net change in income on interest-earning assets		(28,394	)		(6,762	)		(1,257	)		(36,413	)		(17,324	)		37,198			(3,891	)		15,983
Interest-bearing Liabilities
Demand deposits		(10,935	)		(1,705	)		882			(11,758	)		(4,338	)		5,477			(1,125	)		14
Regular passbook savings		(63	)		32			(2	)		(33	)		(70	)		82			(6	)		6
Certificates of deposit		(16,002	)		(735	)		116			(16,621	)		179			6,653			13			6,845

Total deposits		(27,000	)		(2,408	)		996			(28,412	)		(4,229	)		12,212			(1,118	)		6,865
Short-term borrowings		(5,151	)		(14,960	)		3,013			(17,098	)		(1,657	)		13,093			(1,396	)		10,040
Long-term borrowings		(1,174	)		15,449			(963	)		13,312			103			(1,974	)		(10	)		(1,881	)

Total net change in expense on interest-bearing liabilities		(33,325	)		(1,919	)		3,046			(32,198	)		(5,783	)		23,331			(2,524	)		15,024

Net change in net interest income	$	4,931		$	(4,843	)	$	(4,303	)	$	(4,215	)	$	(11,541	)	$	13,867		$	(1,367	)	$	959


(1)		For the purpose of these computations, non-accrual loans are included in the daily average loan amounts outstanding.

(2)		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.

(3)		Average balances of securities available-for-sale are based on amortized cost.

Financial Condition

General. Total assets of the Corporation increased $123.5 million, or 2.5%, from $5.15 billion at March 31, 2008 to $5.27 billion at March 31, 2009. This increase was primarily attributable to an increase in mortgage-related securities as well as an increase in cash and cash equivalents. In January 2009, the Corporation received $110.0 million in TARP funds, which offset the reduction in loans due to charge-offs and loan repayments.

Mortgage-Related Securities. Mortgage-related securities (both available-for-sale and held-to-maturity) increased $137.9 million during the year due to purchases of $208.5 million partially offset by principal repayments and fair value adjustments of $69.8 million and other-than-temporary impairments of $805,000 due to credit losses that are recognized in earnings. Mortgage-related securities consisted of $128.9 million of mortgage-backed securities ($128.9 million were available for sale and $50,000 were held to maturity) and $278.4 million of mortgage-derivative securities (all of which were available for sale) at March 31, 2009. See Notes 1 and 5 to the Consolidated Financial Statements included in Item 8.

Mortgage-related securities are subject to inherent risks based upon the future performance of the underlying collateral (i.e., mortgage loans) for these securities. Among these risks are prepayment risk, interest rate risk and credit risk. Should general interest rate levels decline, the mortgage-related securities portfolio would be subject to (i) prepayments as borrowers typically would seek to obtain financing at lower rates, (ii) a decline in interest income received on adjustable-rate mortgage-related securities, and (iii) an increase in fair value of fixed-rate mortgage-related securities. Conversely, should general interest rate levels increase, the mortgage-related securities portfolio would be subject to (i) a longer term to maturity as borrowers would be less likely to prepay their loans, (ii) an increase in interest income received on adjustable-rate mortgage-related securities, (iii) a decline in fair value of fixed-rate mortgage-related securities, (iv) a decline in fair value of adjustable-rate mortgage-related securities to an extent dependent upon the level of interest rate increases, the time period to the next interest rate repricing date for the individual security and the applicable periodic (annual and/or lifetime) cap which could limit the degree to which the individual security could reprice within a given time period, and (v) should default rates and loss severities increase on the underlying collateral of mortgage-related securities, the Corporation may experience credit losses that need to be recognized in earnings as an other-than-temporary impairment.

Loans Receivable. Total net loans decreased $154.1 million during fiscal 2009 from $4.21 billion at March 31, 2008 to $4.06 billion at March 31, 2009. The activity included (i) originations of $1.81 billion, (ii) sales of $877.4 million and (iii) principal repayments and other reductions of $1.09 billion.

During 2009, the Corporation originated $780.0 million of loans for investment, as compared to $1.19 billion and $1.44 billion during fiscal 2008 and 2007, respectively. Of the $780.0 million of loans originated for investment in fiscal 2009, $126.6 million or 16.2% was comprised of single-family residential loans, $298.7 million or 38.3% was comprised of multi-family residential and commercial real estate loans, $138.3 million or 17.7% was comprised of construction and land loans, $172.6 million or 22.2% was comprised of consumer loans and $43.8 million or 5.6% was comprised of commercial business loans. Single-family residential loans held by the Corporation for investment amounted to $843.5 million and $893.0 million at March 31, 2009 and 2008, respectively, which represented approximately 20.5% and 20.4% of gross loans held for investment in 2009 and 2008, respectively. In the aggregate, gross multi-family residential and commercial real estate loans, construction and land loans, consumer loans and commercial business loans, each of which involves more risk than single-family residential loans because of the nature of, or in certain cases the absence of, loan collateral, decreased $229.2 million or 6.6% from March 31, 2008 to March 31, 2009 and represented approximately 79.5% and 79.6% of gross loans held for investment at March 31, 2009 and 2008, respectively.

Single-family residential loans originated for sale amounted to $1.01 billion in fiscal 2009, as compared to $530.3 million and $283.7 million in fiscal 2008 and fiscal 2007, respectively. This increase was primarily attributable to the decreasing interest rate environment in fiscal 2009. At March 31, 2009, loans held for sale, which consisted of single-family residential loans, multi-family residential loans and commercial real estate loans, amounted to $162.0 million, as compared to $9.7 million at March 31, 2008. Loans held for sale are recorded at the lower of cost or market.

Non-Performing Assets. Non-performing assets (consisting of loans past due more than 90 days, non-performing real estate held for development and sale, foreclosed properties and repossessed assets) increased to $198.7 million or 3.77% of total assets at March 31, 2009 from $109.5 million, or 2.13%, of total assets at March 31, 2008.

Non-performing assets are summarized as follows for the dates indicated:


	March 31, 2009								March 31, 2008
	Non-Performing					Percent of Total			Non-Performing					Percent of Total
	Balance		%			Loans			Balance		%			Loans
	(Dollars in thousands)

Single-family residential	$	19,753		13.5	%		0.48	%	$	21,200		20.9	%		0.48	%
Multi-family residential		17,796		12.2	%		0.43	%		18,393		18.2	%		0.42	%
Commercial real estate		40,298		27.6	%		0.98	%		29,204		28.8	%		0.67	%
Construction and land		54,492		37.3	%		1.33	%		14,888		14.7	%		0.34	%
Consumer		3,336		2.3	%		0.08	%		2,258		2.2	%		0.05	%
Commercial business		10,476		7.2	%		0.26	%		15,298		15.1	%		0.35	%

Total Non-Performing Loans	$	146,151		100.0	%		3.56	%	$	101,241		100.0	%		2.31	%


	At March 31,			At March 31,
	2009			2008
	(Dollars in thousands)

Total non-performing loans	$	146,151		$	101,241
Other real estate owned (OREO)		52,563			8,247

Total non-performing assets	$	198,714		$	109,488

Performing troubled debt restructurings	$	61,460		$	400

Total non-performing loans to total loans(1)		3.56	%		2.31	%
Total non-performing assets to total assets		3.77			2.13
Allowance for loan losses to total loans(1)		3.34			0.87
Allowance for loan losses to total non-performing loans		93.85			37.82
Allowance for loan and foreclosure losses to total non-performing assets		73.48			34.98


(1)		Total loans are gross loans receivable before the reduction for loans in process, unearned interest and loan fees and the allowance from loans losses.

Non-performing loans increased $45.0 million in fiscal 2009 to $146.2 million at March 31, 2009. This increase was largely attributable to an $11.1 million increase in non-performing commercial real estate loans, a $39.6 million increase in construction and land loans and a $1.1 million increase in consumer loans. These increases were offset by a $4.8 million decrease in commercial business loans, a $1.4 million decrease in non-performing single-family residential loans and a $597,000 decrease in non-performing multi-family residential loans. The increase in non-performing commercial real estate loans was largely attributable to the addition of four loans with a carrying value of $1.0 million or more ($9.2 million in the aggregate). The increase in non-performing construction and land loans was largely attributable to the addition of twelve loans with a carrying value of $1.0 million or more ($31.7 million in the aggregate). Non-performing loans consist of loans past due more than 90 days. Loans are placed on nonaccrual status when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is deducted from interest income. As a matter of policy, the Corporation does not accrue interest on loans past due more than 90 days. Additionally, loans past due less than 90 days may be placed on nonaccrual status when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is deducted from interest income. At March 31, 2009, the Corporation had $488.4 million of loans on nonaccrual status and had no loans past due 90 days or more and still accruing interest.

Other real estate owned (“OREO”) increased $44.3 million in during the year ended March 31, 2009. Properties included in OREO at March 31, 2009 with a recorded balance in excess of $1 million are listed below:

Most

Date

Recent

Recorded

Placed in

Appraisal

Description

Location

Balance

OREO

Date

(In millions)

Condominium project

Southern Wisconsin

3.1

8/14/2007

8/9/2004

Construction company/equipment

Southern Wisconsin

4.9

1/29/2009

N/A

Partially constructed condominium and retail complex

Southern Wisconsin

6.4

12/31/2008

11/1/2008

Sports complex

Southern Wisconsin

2.1

11/11/2008

6/2/2008

Condominium project

Southern Wisconsin

1.1

9/30/2008

11/5/2007

Condominium project

Central Wisconsin

12.8

3/31/2009

1/1/2006

Apartment building

Minnesota

3.3

6/18/2008

4/28/2009

Property secured by CBRF

Northeast Wisconsin

4.4

12/31/2008

3/1/2009

Several single family properties

Wisconsin/Minnesota

7.7

9/16/2008

6/1/2007

Other properties individually less than $1 million

15.7

Valuation allowance on OREO

(8.9

)

52.6

On a quarterly basis, the Corporation reviews its list prices of its OREO properties and makes appropriate adjustments based on market analysis by its brokers. A valuation allowance was placed on OREO during the year ended March 31, 2009 due to the age of appraisals and the slow housing market.

Loan Delinquencies. The following table sets forth information relating to delinquent loans of the Bank and their relation to the Bank’s total loans held for investment at the dates indicated.


	March 31,
	2009					2008					2007
			% of					% of					% of
			Total					Total					Total
Days Past Due	Balance		Loans			Balance		Loans			Balance		Loans

30 to 59 days	$	64,862		1.58	%	$	66,617		1.52	%	$	12,776		0.31	%
60 to 89 days		29,858		0.73			12,928		0.29			5,414		0.13
90 days and over		146,151		3.56			101,241		2.31			47,041		1.16

Total	$	240,871		5.86	%	$	180,786		4.12	%	$	65,231		1.60	%

The interest income that would have been recorded during fiscal 2009 if the Bank’s non-performing loans at the end of the period had been current in accordance with their terms during the period was $5.6 million. The amount of interest income attributable to these loans and included in interest income during fiscal 2009 was $3.3 million.

Potential Problem Loans. Management utilizes an internal asset classification system as a means of reporting problem and potential problem assets. At least quarterly, a list is presented to the Bank’s Board of Directors showing all loans listed as “Special Mention”, “Substandard”, “Doubtful” or “Loss.” A Special Mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan at some future date. An asset is classified Substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets classified as

Loss are those considered uncollectible and viewed as non-bankable assets, worthy of charge-off. Assets that do not currently expose us to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses that may or may not be within the control of the customer are deemed to be Watch loans. As of March 31, 2009, loans classified as Special Mention, Substandard, Doubtful and Loss totaled $504.5 million ($488.4 million of which is considered impaired) compared to $143.9 million ($104.1 million of which is considered impaired) as of March 31, 2008, an increase of $360.6 million. The $360.6 million increase in classified assets was attributable to the addition of 56 single- and multi-family residential loans with a carrying value greater of $1.0 million or more that totaled $245.6 million in the aggregate. The increase was also attributable to the addition of thirteen commercial real estate loans ($64.3 million in the aggregate).

Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review by the OTS, which can order the establishment of additional general or specific loss allowances. The OTS, in conjunction with the other federal banking agencies, has adopted an interagency policy statement on the allowance for loan losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that (i) institutions have effective systems and controls to identify, monitor and address asset quality problems; (ii) management has analyzed all significant factors that affect the collectibility of the portfolio in a reasonable manner; and (iii) management has established acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. We have established an adequate allowance for probable loan losses. We analyze the process regularly, with modifications made if needed, and report those results four times per year to the Bank’s Board of Directors. However, there can be no assurance that regulators, in reviewing our loan portfolio, will not request us to materially increase our allowance for loan losses at the time. Although management believes that adequate specific and general loan loss allowances have been established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may become necessary.

Allowances for Loan and Foreclosure Losses. Like all financial institutions, we must maintain an adequate allowance for loan losses. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when we believe that repayment of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. The allowance is an amount that we believe will be adequate to absorb probable losses on existing loans that may become uncollectible, based on evaluation of the collectability of loans and prior credit loss experience, together with the other factors noted earlier.

Our allowance for loan loss methodology incorporates several quantitative and qualitative risk factors used to establish the appropriate allowance for loan loss at each reporting date. Quantitative factors include our historical loss experience, peer group experience, delinquency and charge-off trends, collateral values, changes in non-performing loans, other factors, and information about individual loans including the borrower’s sensitivity to interest rate movements. Qualitative factors include the economic condition of our operating markets and the state of certain industries. Specific changes in the risk factors are based on perceived risk of similar groups of loans classified by collateral type, purpose and terms. Statistics on local trends, peers, and an internal three-year loss history are also incorporated into the allowance. Due to the credit concentration of our loan portfolio in real estate secured loans, the value of collateral is heavily dependent on real estate values in Wisconsin and surrounding states. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic or other conditions. In addition, the OTS, as an integral part of their examination processes, periodically review the Banks’ allowance for loan losses, and may require us to make additions to the allowance based on their judgment about information available to them at the time of their examinations. Management periodically reviews the assumptions and formulae used in determining the allowance and makes adjustments if required to reflect the current risk profile of the portfolio.

With the observed deterioration of the loan portfolio while recognizing the adverse effects of the economic conditions in the marketplace, management deemed it necessary to engage the assistance of outside experts in the evaluation of the credit quality of the loan portfolio and the overall adequacy of the allowance for loan losses. The

consultants were further charged with reviewing existing procedures and qualitative factors for evaluating loans and providing recommendations for improvement. Based on their findings, the following enhancements were made:


	•	Further stratification and segmentation of the loan portfolio with the identification and application of appropriate and specific risk factors

	•	Expansion of qualitative factors from 5 to 9 by isolating specific critical factors that had been previously comingled

	•	More focused application of the principles of FASB #114 to identify the potential impairment of loans

These enhanced procedures and risk factors were then applied to the loan portfolio to determine the adequacy of the allowance for loan losses and provision for loan losses.

The allowance consists of specific and general components. The specific allowance relates to impaired loans. For such loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan are lower than the carrying value of that loan, pursuant to Financial Accounting Standards Board, or FASB, Statement No. 114, Accounting by Creditors for Impairment of a Loan. The general allowance covers non-classified loans and is based on historical loss experience adjusted for the various qualitative and quantitative factors listed above, pursuant to FASB Statement No. 5, or FASB 5, Accounting for Contingencies. Loans graded substandard and below are individually examined closely to determine the appropriate loan loss reserve.

The following table summarizes the activity in our allowance for loan losses for the period indicated.


	Year Ended March 31,
	2009			2008			2007			2006			2005
				(Dollars in thousands)

Allowance at beginning of year	$	38,285		$	20,517		$	15,570		$	26,444		$	28,607
Purchase of S&C Bank		—			2,795			—			—			—
Charge-offs:
Construction		(18,974	)		—			—			—			—
Mortgage		(60,638	)		(4,921	)		(1,230	)		(1,216	)		(2,474	)
Consumer		(2,310	)		(862	)		(416	)		(584	)		(822	)
Commercial business		(27,002	)		(2,130	)		(5,571	)		(13,275	)		(1,174	)

Total charge-offs		(108,924	)		(7,913	)		(7,217	)		(15,075	)		(4,470	)

Recoveries:
Mortgage		1,206			93			43			155			426
Consumer		73			48			62			81			71
Commercial business		806			194			804			65			231

Total recoveries		2,085			335			909			301			728

Net charge-offs		(106,839	)		(7,578	)		(6,308	)		(14,774	)		(3,742	)

Provision		205,719			22,551			11,255			3,900			1,579

Allowance at end of year	$	137,165		$	38,285		$	20,517		$	15,570		$	26,444

Net charge-offs to average loans held for sale and for investment		(2.60	)%		(0.18	)%		(0.17	)%		(0.42	)%		(0.12	)%

Total loan charge-offs were $108.9 million and $7.9 million for the fiscal years ending March 31, 2009 and 2008, respectively. Total loan charge-offs for the years ended March 31, 2009 and 2008 increased $101.0 million and $696,000 respectively, from the prior fiscal years. The increase in charge-offs for fiscal 2009 was largely due to an increase of $55.7 million in mortgage charge-offs as well as a $24.9 million increase in commercial business loan charge-offs, a $19.0 million increase in construction loan charge-offs and a $1.4 million increase in consumer loan

charge-offs. The increase in charge-offs for fiscal 2008 was largely due to an increase of $3.7 million in mortgage loan charge-offs and a $446,000 increase in consumer loan charge-offs, which was offset in part by a $3.4 million decrease in commercial business charge-offs. Recoveries increased $1.8 million from $335,000 in fiscal 2008 to $2.1 million in fiscal 2009. Recoveries decreased $574,000 during the fiscal year ended March 31, 2008.

The provision for loan losses increased $183.2 million to $205.7 million for the fiscal year ending March 31, 2009 compared to $22.6 million for the year ended March 31, 2008. The increase in the provision for loan losses is the result of management’s ongoing evaluation of the loan portfolio. Management considered the increase in non-accrual loans to total loans to 3.56% at March 31, 2009 from 2.31% at March 31, 2008 as well as an increase in total non-performing assets to 3.77% at March 31, 2009 from 2.13% at March 31, 2008 to be factors that warranted an increase in the provision for loan losses.

The table below shows the Corporation’s allocation of the allowance for loan losses by loan loss reserve category at the dates indicated.


	As of March 31,
				% of						% of						% of						% of						% of
				Loan						Loan						Loan						Loan						Loan
				Type to						Type to						Type to						Type to						Type to
				Total						Total						Total						Total						Total
	2009			Loans			2008			Loans			2007			Loans			2006			Loans			2005			Loans
	(Dollars in thousands)

Allowance allocation:
Single-family residential	$	11,154			20.52	%	$	5,175			20.35	%	$	1,515			20.76	%	$	551			20.51	%	$	951			22.59	%
Multi-family residential		19,202			16.12			2,736			15.82			1,563			16.11			699			16.35			598			16.45
Commercial real estate		50,218			24.84			13,493			24.79			9,214			25.10			4,924			25.43			10,057			25.57
Construction and land		30,526			13.00			7,522			16.15			1,447			16.61			988			16.11			1,665			13.82
Consumer		3,703			19.71			1,468			16.57			1,429			15.64			1,410			16.25			2,925			16.36
Commercial business		22,362			5.81			7,891			6.32			5,349			5.78			6,998			5.35			10,248			5.21

Total allowance for loan losses	$	137,165			100.00	%	$	38,285			100.00	%	$	20,517			100.00	%	$	15,570			100.00	%	$	26,444			100.00	%

Allowance category as a percent of total allowance:
Single-family residential		8.13	%					13.52	%					7.38	%					3.54	%					3.60	%
Multi-family residential		14.00						7.15						7.62						4.49						2.26
Commercial real estate		36.61						35.24						44.91						31.62						38.03
Construction and land		22.25						19.65						7.05						6.35						6.30
Consumer		2.70						3.83						6.96						9.06						11.06
Commercial business		16.30						20.61						26.07						44.95						38.75

Total allowance for loan losses		100.00	%					100.00	%					100.00	%					100.00	%					100.00	%

Management increased the allowance for the single-family residential loan portfolio due to management analysis of individual spec builders which indicate potential losses due to the slow down of residential real estate transactions. Of the $11.2 million allocated to single-family residential, $2.3 million is due to specific credits. The allowance allocation for the commercial real estate and construction and land loan portfolios increased primarily due to the analysis of individual credits which required allocation of additional reserves for potential loss as well as the increase in non-performing loans. Approximately half of the allowance allocated to commercial real estate and construction and land categories are related to specific loans. Of the $22.4 million allocated to commercial business, $10.2 million is related to specific loans. Overall, of the Corporation’s $137.2 million allowance for loan losses, $73.3 million is related to specific loans.

Although management believes that the March 31, 2009 allowance for loan losses is adequate based upon the current evaluation of loan delinquencies, non-performing assets, charge-off trends, economic conditions and other factors, there can be no assurance that future adjustments to the allowance will not be necessary. Management also continues to pursue all practical and legal methods of collection, repossession and disposal, and adheres to high underwriting standards in the origination process in order to continue to maintain strong asset quality.

Accrued Interest and Other Assets. Accrued interest and other assets increased $31.2 million to $108.0 million at March 31, 2009 from $76.7 million at March 31, 2008. The increase was mainly due to an increase in income taxes receivable of $27.4 million.

Deposits. Deposits increased $383.8 million during fiscal 2009 to $3.92 billion, of which $556.4 million was due to increases in certificates of deposit and $11.6 million was due to increases in passbook accounts. These increases were partially offset by a decrease of $176.4 million in money market accounts and a $1.3 million decrease in checking accounts. The increases were due to promotions and related growth of deposit households as interest rates begin to edge upward in fiscal 2009. Deposits obtained from brokerage firms which solicit deposits from their customers for deposit with the Corporation amounted to $457.3 million at March 31, 2009, as compared to $220.3 million at March 31, 2008. The weighted average cost of deposits decreased to 2.73% in fiscal 2009 compared to 3.45% in fiscal 2008.

Borrowings. FHLB advances decreased $172.5 million during fiscal 2009. At March 31, 2009, advances totaled $887.3 million and had a weighted average interest rate of 3.41% compared to advances of $1.06 billion with a weighted average interest rate of 3.63% at March 31, 2008. Other loans payable increased $44.2 million from the prior fiscal year. Other loans payable consist of borrowings of the Corporation of $116.3 million, which was primarily for the purpose of the Corporation’s stock repurchase program, a decrease of $2.2 million over March 31, 2008. In addition, borrowings by the partnerships of IDI’s subsidiaries were $14.8 million at March 31, 2009, a decrease of $13.6 million over March 31, 2008 and borrowings for the Bank were $60.0 million at March 31, 2009, an increase of $60.0 million over March 31, 2008. Per FIN 46R, such borrowings are consolidated into the Corporation’s consolidated financial statements. For additional information, see Note 10 to the Consolidated Financial Statements included in Item 8.

Stockholders’ Equity. Stockholders’ equity at March 31, 2009 was $213.7 million, or 4.05% of total assets, compared to $345.1 million, or 6.70% of total assets at March 31, 2008. Stockholders’ equity decreased during the year as a result of (i) comprehensive loss of $236.5 million, which includes net loss of $228.3 million and a decrease in net unrealized gains on available-for-sale securities and non-credit OTTI charges included as a part of accumulated other comprehensive income of $8.2 million, (ii) the payment of cash dividends of $6.1 million, (iii) the dividend accrued on preferred stock of $925,000 and (iv) the tax benefit from certain stock options of $35,000. These decreases were partially offset by (i) the issuance of preferred stock and common stock warrants to the Treasury of $110.0 million, (ii) the exercise of stock options of $1.5 million and (iii) the purchase of stock by retirement plans of $693,000.

Liquidity and Capital Resources

On a parent-only basis at March 31, 2009, the Corporation’s commitments and debt service requirements consisted primarily of $116.3 million payable to U.S. Bank pursuant to a $116.3 million line of credit and $14.8 million of mortgage loans to subsidiaries of the Corporation secured by real estate held for development. The weighted average rate on the line of credit was 8.00% at March 31, 2009 and the line of credit matures in May 2010. Corporation loans to IDI and other non-bank subsidiaries amounted to $20.4 million at March 31, 2009.

The Corporation’s principal sources of funds for it to meet its parent-only obligations are dividends from the Bank, which are subject to regulatory limitations, and borrowings from public and private sources. During fiscal 2009, the Bank made dividend payments of $6.2 million to the Corporation, and at March 31, 2009 the Bank had nothing available for dividends that could be paid to the Corporation without application for approval by (but with prior notice to) the OTS.

On January 30, 2009, as part of the United States Department of the Treasury (the “UST”) Capital Purchase Program (the “CPP”), the Corporation entered into a Letter Agreement with the UST. Pursuant to the Securities Purchase Agreement — Standard Terms (the “Securities Purchase Agreement”) issued 110,000 shares of the Corporation’s Fixed Rate Cumulative Perpetual Preferred Stock, Series B (the “Preferred Stock”), having a liquidation amount per share of $1,000, for a total purchase price of $110,000,000. The Preferred Stock will pay cumulative compounding dividends at a rate of 5% per year for the first five years following issuance and 9% per year thereafter. The Corporation may not redeem the Preferred Stock during the first three years following issuance

except with the proceeds from one or more qualified equity offerings. After three years, the Corporation may redeem shares of the Preferred Stock for the per share liquidation amount of $1,000 plus any accrued and unpaid dividends.

As long as any Preferred Stock is outstanding, the Corporation may pay dividends on its Common Stock, $.10 par value per share (the “Common Stock”), and redeem or repurchase its Common Stock, provided that all accrued and unpaid dividends for all past dividend periods on the Preferred Stock are fully paid. Prior to the third anniversary of the UST’s purchase of the Preferred Stock, unless Preferred Stock has been redeemed or the UST has transferred all of the Preferred Stock to third parties, the consent of the UST will be required for the Corporation to increase its Common Stock dividend or repurchase its Common Stock or other equity or capital securities, other than in connection with benefit plans consistent with past practice and certain other circumstances specified in the Securities Purchase Agreement. The Preferred Stock will be non-voting except for class voting rights on matters that would adversely affect the rights of the holders of the Preferred Stock.

As a condition to participating in the CPP, the Corporation issued and sold to the UST a warrant (the “Warrant”) to purchase up to 7,399,103 shares (the “Warrant Shares”) of the Corporation’s Common Stock, at an initial per share exercise price of $2.23, for an aggregate purchase price of approximately $16,500,000. The term of the Warrant is ten years. Exercise of the Warrant is subject to the receipt by the Corporation of shareholder approval. The Warrant provides for the adjustment of the exercise price should the Corporation not receive shareholder approval, as well as customary anti-dilution provisions. Pursuant to the Securities Purchase Agreement, the UST has agreed not to exercise voting power with respect to any shares of Common Stock issued upon exercise of the Warrant.

The terms of the Treasury Department’s purchase of the preferred securities include certain restrictions on certain forms of executive compensation and limits on the tax deductibility of compensation we pay to executive management. The Corporation invested the proceeds of the sale of Preferred Stock and Warrants in the Bank as Tier 1 capital.

For the Bank, liquidity represents the ability to fund asset growth, accommodate deposit withdrawls, pay operating expenses and meet other contractual obligations and commitments. See “Contractual Obligations and Commitments” below.

The Bank’s primary sources of funds are principal and interest payments on loans receivable and mortgage-related securities, sales of mortgage loans originated for sale, FHLB advances, deposits and other borrowings. While maturities and scheduled amortization of loans and mortgage-related securities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

The Bank has entered into agreements with certain brokers that will provide deposits obtained from their customers at specified interest rates for an identified fee, or so called “brokered deposits.” At March 31, 2009, the Bank had $457.3 million of brokered deposits. Subsequent to March 31, 2009, the Bank voluntarily entered into a cease and desist agreement with the OTS which will limit the Bank’s ability to accept, renew or roll over brokered deposits without prior approval of the OTS. See Note 22 to the Consolidated Financial Statements included in Item 8.

In fiscal 2009, consolidated operating activities resulted in a net cash outflow of $105.6 million. Operating cash flows for fiscal 2009 included loss of $228.3 million and $141.6 million of net payments from the origination and sale of mortgage loans held for sale.

Consolidated investing activities in fiscal 2009 resulted in a net cash outflow of $86.2 million. Primary investing activities resulting in cash outflows were $302.9 million for the purchase of securities and $780.0 million for the origination of loans receivable. The most significant cash inflows from investing activities were principal repayments on loans of $982.3 million, proceeds of sales and maturities of investment securities of $79.3 million and $60.1 million of principal repayments received on mortgage-related securities.

Consolidated financing activities resulted in a net cash inflow of $367.9 million in fiscal 2009, including a net increase in deposits of $390.3 million and a net decrease in borrowings of $128.4 million.

Credit Agreement

Effective May 29, 2009 we entered into Amendment No. 4 , or the “Amendment,” to the Amended and Restated Credit Agreement, dated as of June 9, 2008, the “Credit Agreement,”, among Anchor BanCorp, the lenders from time to time a party thereto, and U.S. Bank National Association, as administrative agent for such lenders, or the “Agent.” The Amendment provides that the Corporation must pay in full the outstanding balance under the Credit Agreement on the earlier of (1) the Corporation’s receipt of net proceeds of a financing transaction from the sale of equity securities in an amount not less than $116,300,000 or (b) May 31, 2010. Amounts repaid by the Company may not be reborrowed and U.S. Bank National Association is under no obligation to make additional loans to the Corporation.

These borrowings are shown in the Company’s financial statements as “other borrowings.” For additional information about the Credit Agreement, see Part II, Item 1A — Risk Factors — Risks Related to Our Credit Agreement.

Contractual Obligations and Commitments

At March 31, 2009, on a consolidated basis the Corporation had outstanding commitments to originate $52.4 million of loans and commitments to extend funds to or on behalf of customers pursuant to lines and letters of credit of $292.3 million. See Note 15 to the Consolidated Financial Statements included in Item 8. Commitments to extend funds typically have a term of less than one year. Scheduled maturities of certificates of deposit for the Bank during the twelve months following March 31, 2009 amounted to $1.93 billion. Scheduled maturities of borrowings during the same period totaled $330.0 million for the Bank and $116.3 million for the Corporation. Management believes adequate capital and borrowings are available from various sources to fund all commitments to the extent required. VIE obligations consist of borrowings of IDI’s subsidiaries which are consolidated into the Corporation’s consolidated financial statements per FIN 46R.

The following table summarizes our contractual principal cash obligations and other commitments at March 31, 2009:


	Payment Due by Period
			Less than						More than
Contractual Obligations	Total		1 Year		1-3 Years		4-5 Years		5 Years
	(Dollars in thousands)

Long-term debt obligations	$	947,329	$	390,000	$	206,329	$	165,000	$	186,000
Operating lease obligations		25,207		2,345		4,216		3,760		14,886
VIE obligations		14,763		14,565		—		—		198

Total contractual obligations	$	987,299	$	406,910	$	210,545	$	168,760	$	201,084

At March 31, 2009, the Bank’s capital exceeded all capital requirements of the OTS as mandated by federal laws and regulations. See Note 11 to the Consolidated Financial Statements included in Item 8.

Recent Developments

On June 26, 2009, Anchor Bancorp Wisconsin Inc. (the “Company”) and its wholly-owned subsidiary, Anchor Bank (the “Bank”) each consented to the issuance of an Order to Cease and Desist (the “Company Order” and the “Bank Order,” respectively, and together, the “Orders”) by the Office of Thrift Supervision (the “OTS”).

The Company Order requires that the Company notify, and in certain cases receive the permission of, the OTS prior to: (i) declaring, making or paying any dividends or other capital distributions on its capital stock, including the repurchase or redemption of its capital stock; (ii) incurring, issuing, renewing or rolling over any debt, increasing any current lines of credit or guaranteeing the debt of any entity; (iiv) making certain changes to its directors or senior executive officers; (iv) entering into, renewing, extending or revising any contractual arrangement related to compensation or benefits with any of its directors or senior executive officers; and (v) making any golden parachute payments or prohibited indemnification payments. By July 31, 2009, the Company’s board is required to develop and submit to the OTS a three-year cash flow plan, which must be reviewed at least quarterly by the Company’s management and board for material deviations between the cash flow plan’s projections and actual results (the “Variance Analysis Report”). Within thirty days following the end of each quarter, the Company is required to provide the OTS its Variance Analysis Report for that quarter.

The Bank Order requires that the Bank notify, or in certain cases receive the permission of, the OTS prior to (i) increasing its total assets in any quarter in excess of an amount equal to net interest credited on deposit liabilities during the quarter; (ii) accepting, rolling over or renewing any brokered deposits; (iii) making certain changes to its directors or senior executive officers; (iv) entering into, renewing, extending or revising any contractual arrangement related to compensation or benefits with any of its directors or senior executive officers; (v) making any golden parachute or prohibited indemnification payments; (vi) paying dividends or making other capital distributions on its capital stock; (vii) entering into certain transactions with affiliates; and (viii) entering into third-party contracts outside the normal course of business.

The Orders also require that, no later than September 30, 2009, the Bank meet and maintain both a core capital ratio equal to or greater than 7 percent and a total risk-based capital ratio equal to or greater than 11 percent. Further, no later than December 31, 2009, the Bank must meet and maintain both a core capital ratio equal to or greater than 8 percent and a total risk-based capital ratio equal to or greater than 12 percent. The Bank must also submit to the OTS, within prescribed time periods, a written capital contingency plan, a problem asset plan, a revised business plan, and an implementation plan resulting from a review of commercial lending practices. The Orders also require the Bank to review its current liquidity management policy and the adequacy of its allowance for loan and lease losses.

At the effective date of the Orders, the Bank, based upon presently available unaudited financial information, had a core capital ratio of 6.17 percent and a total risk-based capital ratio of 10.20 percent, each above the level needed for an institution to be categorized as well-capitalized but below the required capital ratios set forth above. The Company is working with its advisors to explore possible alternatives to raise additional equity capital. If completed, any such transaction would likely result in significant dilution for the current common shareholders. No agreements have been reached with respect to any possible capital infusion transaction. If by September 30, 2009 or December 31, 2009, respectively, the Bank does not meet the required capital ratios set forth above, either through the completion of a successful capital raise or otherwise, the OTS may take additional significant regulatory action against the Bank and Company which could, among other things, materially adversely affect the Company’s shareholders.

All customer deposits remain fully insured to the highest limits set by the FDIC. The OTS may grant extensions to the timelines established by the Orders.

The description of each of the Orders and the corresponding Stipulation and Consent to Issuance of Order to Cease and Desist (the “Stipulations”) set forth in this section is qualified in its entirety by reference to the Orders and Stipulations, copies of which are attached as Exhibits 10.25, 10.26, 10.27, and 10.28 to this Annual Report on Form 10-K and are incorporated by reference herein in their entirety.


Item 7A.	*Quantitative and Qualitative Disclosures About Market Risk*

Asset and Liability Management. The primary objective of asset and liability management is to provide consistent net interest income growth and returns on equity while maintaining adequate liquidity over a range of interest rate environments. To that end, management focuses on asset and liability management strategies that help reduce interest rate risk and attain the corporate goals and objectives adopted by the Corporation’s board of directors.

The Corporation’s strategy for asset and liability management is to maintain an interest rate gap that attempts to minimize the negative impact of interest rate movements on the net interest margin. As part of this strategy, the Corporation sells substantially all new originations of long-term, fixed-rate, single-family residential mortgage loans in the secondary market, invests in adjustable-rate or medium-term, fixed-rate, single-family residential mortgage loans, invests in medium-term mortgage-related securities, and invests in consumer loans which generally have shorter terms to maturity and higher and/or adjustable interest rates. The Corporation occasionally sells adjustable-rate loans at origination to private investors.

The Corporation also originates multi-family residential and commercial real estate loans, which generally have adjustable or floating interest rates and/or shorter terms to maturity than conventional single-family residential loans. Long-term, fixed-rate, single-family mortgage loans originated for sale in the secondary market are generally committed for sale at the time the interest rate is locked with the borrower. As such, these loans involve little interest rate risk to the Corporation.

The Corporation’s cumulative net gap position at March 31, 2009 for one year or less was a positive 7.67% of total assets, which was within the Corporation’s policy. The calculation of a gap position requires management to make a number of assumptions as to when an asset or liability will reprice or mature. Management believes that its assumptions approximate actual experience and considers them reasonable, although the actual amortization and repayment of assets and liabilities may vary substantially. Competitive pressures for deposits have made time deposits sensitive to interest rates and may also affect transaction accounts, in particular, passbooks and money market accounts in the future.

The Corporation utilizes certain prepayment assumptions and decay rates from various sources such as the OTS and as determined by management. The following table summarizes the Corporation’s interest rate sensitivity gap position at March 31, 2009.


	Interest Rate Sensitivity for the Periods Ended
																						Fair Value
	03/31/10			03/31/11			03/31/12			03/31/13			03/31/14			Thereafter			Total(4)			03/31/09
	(Dollars in thousands)

Rate sensitive assets:
Mortgage loans — Fixed(1)(2)	$	502,351		$	178,789		$	133,136		$	104,666		$	85,474		$	443,577			1,323,476		$	1,375,552
Average interest rate		6.17	%		6.22	%		6.18	%		6.15	%		6.15	%		6.09	%		6.15	%
Mortgage loans — Variable(1)(2)		1,520,044			133,779			51,647			19,130			9,025			22,219			1,604,854			1,611,739
Average interest rate		5.40	%		6.06	%		6.10	%		6.17	%		6.14	%		6.04	%		5.49	%
Consumer loans(1)		292,129			89,891			56,876			40,434			32,425			298,835			740,885			766,014
Average interest rate		5.88	%		6.55	%		6.35	%		6.16	%		6.02	%		5.81	%		5.98	%
Commercial business loans(1)		185,479			31,697			15,473			7,361			3,510			5,082			227,224			228,137
Average interest rate		5.49	%		5.73	%		5.76	%		5.67	%		5.22	%		4.79	%		5.52	%
Mortgage-related Securities(3)		88,900			22,674			9,173			4,154			1,992			2,050			128,943			130,579
Average interest rate		4.75	%		4.75	%		4.75	%		4.75	%		4.75	%		4.75	%		4.75	%
Investment securities and other interest-earning assets(3)		653,181			64,496			28,365			14,159			7,522			10,359			778,082			782,949
Average interest rate		3.00	%		4.20	%		3.87	%		3.48	%		3.04	%		2.73	%		3.14	%
Total rate sensitive loans(4)		2,500,003			434,156			257,132			171,591			130,434			769,713			3,896,439			3,981,442
Total rate sensitive assets		3,242,084			521,326			294,670			189,904			139,948			782,122			4,803,464			4,894,970
Rate sensitive liabilities:
Interest-bearing transaction accounts(5)		381,324			199,618			129,756			86,725			59,329			156,705			1,013,457			1,008,677
Average interest rate		0.53	%		0.50	%		0.46	%		0.44	%		0.42	%		0.37	%		0.48	%
Time deposits(5)		1,926,237			662,330			110,789			31,095			27,382			6			2,757,839			2,780,148
Average interest rate		3.12	%		3.63	%		3.71	%		4.35	%		4.14	%		3.27	%		3.29	%
Borrowings		530,164			281,389			94,409			59,578			21,200			91,652			1,078,392			1,079,557
Average interest rate		4.53	%		3.44	%		2.94	%		3.02	%		3.13	%		3.12	%		3.88	%
Total rate sensitive liabilities		2,837,725			1,143,337			334,954			177,398			107,911			248,363			4,849,688			4,868,382
Interest sensitivity gap	$	404,359		$	(622,011	)	$	(40,284	)	$	12,506		$	32,037		$	533,759		$	(46,224	)

Cumulative interest sensitivity gap	$	404,359		$	(217,652	)	$	(257,936	)	$	(245,430	)	$	(213,393	)	$	320,366

Cumulative interest sensitivity gap as a percent of total assets		7.67	%		−4.13	%		−4.89	%		−4.65	%		−4.05	%		6.08	%


(1)		Loan Balances for the periods are shown before reductions for reserves of $137.2 million, loans held for sale of $162.0 million and deferred fees of $67.4 million.

(2)		Includes $162.0 million of loans held for sale spread throughout the periods.

(3)		Includes $485.0 million of securities available for sale spread throughout the periods.

(4)		Loan Total and Fair Value amounts are shown net of respective amounts of $366.6 million and $367.2 million in deferred fees and loss reserves.

(5)		Does not include $133.4 million of demand accounts because they are non-interest-bearing. Also excludes accrued interest payable of $14.4 million and other accrued items of $4.6 million. Projected decay rates for demand deposits and passbook savings are selected by management from various sources including the OTS.

Net Interest Income Sensitivity. Net interest income is a primary source of revenue. Net interest income sensitivity is used to assess the interest rate risk associated with this income in various interest rate environments. Management uses the net interest income sensitivity to provide a perspective on how interest rate pricing affects the Corporation’s interest rate risk profile. Simulations are processed quarterly and include scenarios where market rates are immediately “shocked” up and down along with current and anticipated interest rate pricing of interest sensitive assets and liabilities. The sensitivity measurement is calculated as the percentage variance of net interest income simulations to the base results.

The following table sets forth the estimated sensitivity of net interest income for 12 months following the dates indicated. The calculations are based on immediate changes of 100 and 200 points in interest rates up or down.


	200 Basis Point			100 Basis Point			100 Basis Point			200 Basis Point
	Rate Increase			Rate Increase			Rate Decrease			Rate Decrease

March 31, 2009		6.45	%		3.25	%		(4.71	)%		(10.32	)%
March 31, 2008		15.84	%		8.23	%		(8.95	)%		(17.66	)%

The methods we used in the previous table have some inherent shortcomings. This type of modeling requires that we make assumptions which may not reflect the manner in which actual yields and costs respond to changes in market interest rates. For example, we make assumptions regarding the acceleration rate of the prepayment speeds of higher yielding mortgage loans. Prepayments will accelerate in a falling rate environment and the reverse will occur in a rising rate environment. We also assume that decay rates on core deposits will accelerate in a rising rate environment and the reverse in a falling rate environment. The table assumes that we will take no action in response to the changes in interest rates, when in practice rate changes on certain products, such as savings deposits, may lag market changes. In addition, prepayment estimates and other assumptions within the model are subjective in nature, involve uncertainties, and therefore cannot be determined with precision. Accordingly, although the net interest income model may provide an estimate of our interest rate risk at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in interest rates on our interest income.

Anchor Bancorp Wisconsin Inc. and Subsidiaries

Consolidated Balance Sheets


	March 31,			March 31,
	2009			2008
	(In thousands,
	except share data)

ASSETS
Cash	$	59,654		$	102,622
Interest-bearing deposits		374,172			155,121

Cash and cash equivalents		433,826			257,743
Investment securities available for sale		77,684			87,036
Mortgage-related securities available for sale		407,301			269,370
Mortgage-related securities held to maturity (fair value of $50
and $60, respectively)		50			59
Loans, less allowance for loan losses of $137,165 at March 31, 2009 and $38,285 at March 31, 2008:
Held for sale		161,964			9,669
Held for investment		3,896,439			4,202,833
Foreclosed properties and repossessed assets, net		52,563			8,247
Real estate held for development and sale		16,120			59,002
Office properties and equipment		48,123			47,916
Federal Home Loan Bank stock — at cost		54,829			54,829
Deferred tax asset, net of valuation allowance		16,202			3,760
Accrued interest and other assets		107,954			76,718
Goodwill		—			72,375

Total assets	$	5,273,055		$	5,149,557


LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Non-interest bearing	$	274,392		$	280,897
Interest bearing deposits and accrued interest		3,649,435			3,259,097

Total deposits and accrued interest		3,923,827			3,539,994
Other borrowed funds		1,078,392			1,206,761
Other liabilities		56,704			51,605

Total liabilities		5,058,923			4,798,360

Commitments and contingent liabilities (Note 15)
Minority interest in real estate partnerships		411			6,081

Preferred stock, $.10 par value, 5,000,000 shares authorized, 110,000 shares issued, 4,890,000 outstanding		74,185			—
Common stock, $.10 par value, 100,000,000 shares authorized, 25,363,339 shares issued, 21,569,785 and 21,348,170 shares outstanding, respectively		2,536			2,536
Additional paid-in capital		109,327			72,300
Retained earnings		134,234			374,593
Accumulated other comprehensive income (loss) related to AFS securities		10			1,864
Accumulated other comprehensive income (loss) related to OTTI non credit issues		(6,347	)		—

Total accumulated other comprehensive income (loss)		(6,337	)		1,864
Treasury stock (3,793,554 and 4,015,169 shares, respectively), at cost		(94,744	)		(100,930	)
Deferred compensation obligation		(5,480	)		(5,247	)

Total stockholders’ equity		213,721			345,116

Total liabilities, minority interest and stockholders’ equity	$	5,273,055		$	5,149,557

See accompanying Notes to Consolidated Financial Statements.

Anchor Bancorp Wisconsin Inc. and Subsidiaries

Consolidated Statements of Income


	Year Ended March 31,
	2009			2008			2007
	(In thousands, except per share data)

Interest income:
Loans	$	241,113		$	276,706		$	261,655
Mortgage-related securities		15,664			12,701			12,139
Investment securities and Federal Home Loan Bank stock		2,951			4,566			4,581
Interest-bearing deposits		534			2,702			2,317

Total interest income		260,262			296,675			280,692
Interest expense:
Deposits		94,857			123,269			116,404
Other borrowed funds		40,615			44,401			36,242

Total interest expense		135,472			167,670			152,646

Net interest income		124,790			129,005			128,046
Provision for loan losses		205,719			22,551			11,255

Net interest income (loss) after provision for loan losses		(80,929	)		106,454			116,791
Non-interest income:
Real estate investment partnership revenue		2,130			8,399			18,977
Loan servicing income		2,957			5,031			4,847
Credit enhancement income		1,784			1,705			1,672
Service charges on deposits		15,487			13,039			10,223
Investment and insurance commissions		3,933			3,961			3,620
Net gain on sale of loans		10,681			6,144			3,712
Net gain (loss) on investments and mortgage-related securities		(3,298	)		514			(283	)
Total other than temporary losses		(7,152	)		—			—
Portion of loss recognized in other comprehensive income		6,347			—			—

Net impairment losses recognized in earnings		(805	)		—			—
Other revenue from real estate partnership operations		8,194			7,664			6,560
Other		4,468			4,421			4,924

Total non-interest income		45,531			50,878			54,252
Non-interest expense:
Compensation		56,056			46,850			43,537
Real estate investment partnership cost of sales		1,736			8,489			17,607
Occupancy		10,370			8,755			7,999
Furniture and equipment		8,431			6,629			5,918
Data processing		7,327			6,274			6,031
Marketing		3,026			4,047			4,234
Other expenses from real estate partnership operations		9,506			10,172			8,831
Real estate partnership impairment		17,631			—			—
Net expense — REO operations		13,515			1,588			267
Mortgage servicing rights impairment		2,407			(709	)		253
Goodwill impairment		72,181			—			—
Other		20,973			14,857			13,049

Total non-interest expense		223,159			106,952			107,726

Minority interest in loss of consolidated real estate partnerships		(148	)		(402	)		(241	)

Income (loss) before income taxes (benefit)		(258,409	)		50,782			63,558
Income taxes (benefit)		(30,098	)		19,650			24,586

Net income (loss)	$	(228,311	)	$	31,132		$	38,972
Preferred stock dividends and discount accretion		(2,172	)		—			—

Net income (loss) available to common equity	$	(230,483	)	$	31,132		$	38,972

Earnings per share:
Basic	$	(10.83	)	$	1.48		$	1.82
Diluted		(10.83	)		1.48			1.80
Dividends declared per common share		0.29			0.71			0.67

See accompanying Notes to Consolidated Financial Statements.

Anchor Bancorp Wisconsin Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity


																	Accumulated
																	Other
					Additional									Deferred			Comprehensive
	Preferred		Common		Paid-in			Retained			Treasury			Compensation			Income
	Stock		Stock		Capital			Earnings			Stock			Obligation			(Loss)			Total
	(Dollars in thousands except per share data)

Balance at April 1, 2006	$	—	$	2,536	$	70,517		$	340,364		$	(82,144	)	$	(7,690	)	$	(2,558	)	$	321,025
Comprehensive income:
Net income		—		—		—			38,972			—			—			—			38,972
Change in net unrealized gains (losses) on available-for-sale securities net of tax of $1.4 million		—		—		—			—			—			—			2,016			2,016

Comprehensive income																				$	40,988

Purchase of treasury stock		—		—		—			—			(15,689	)		—			—			(15,689	)
Exercise of stock options		—		—		—			(5,370	)		8,290			—			—			2,920
Issuance of treasury stock		—		—		—			(20	)		2,572			(2,159	)		—			393
Cash dividend ($0.67 per share)		—		—		—			(14,376	)		—			—			—			(14,376	)
Reclassification due to adoption of FAS 123R		—		—		—			—			(4,780	)		4,780			—			—
Tax benefit from stock related compensation		—		—		1,605			—			—			—			—			1,605

Balance at March 31, 2007	$	—	$	2,536	$	72,122		$	359,570		$	(91,751	)	$	(5,069	)	$	(542	)	$	336,866

Comprehensive income:
Net income		—		—		—			31,132			—			—			—			31,132
Change in net unrealized gains (losses) on available-for-sale securities net of tax of $1.6 million		—		—		—			—			—			—			2,406			2,406

Comprehensive income		—																		$	33,538

Purchase of treasury stock		—		—		—			—			(12,556	)		—			—			(12,556	)
Exercise of stock options		—		—		—			(906	)		1,744			—			—			838
Issuance of treasury stock		—		—		—			(303	)		1,633			(178	)		—			1,152
Cash dividend ($0.71 per share)		—		—		—			(14,900	)		—			—			—			(14,900	)
Tax benefit from stock related compensation		—		—		178			—			—			—			—			178

Balance at March 31, 2008	$	—	$	2,536	$	72,300		$	374,593		$	(100,930	)	$	(5,247	)	$	1,864		$	345,116

Comprehensive income:
Net income		—		—		—			(228,311	)		—			—			—			(228,311	)
Non-credit portion of other-than-temporary impairments:
Held-to-maturity securities, net of tax		—		—		—			—			—			—			—			—
Available-for-sale securities, net of tax of ($0.5) million		—		—		—			—			—			—			(5,856	)		(5,856	)
Change in net unrealized gains (losses) on available-for-sale securities net of tax of ($0.2) million		—		—		—			—			—			—			(2,345	)		(2,345	)

Comprehensive income																				$	(236,512	)

Issuance of preferred stock		72,938		—		—			—			—			—			—			72,938
Issuance of stock warrant		—		—		37,062			—			—			—			—			37,062
Dividend on preferred stock		—		—		—			(925	)		—			—			—			(925	)
Purchase of treasury stock		—		—		—			—			—			—			—			—
Exercise of stock options		—		—		—			(1,102	)		2,587			—			—			1,485
Issuance of treasury stock		—		—		—			(2,673	)		3,599			(233	)		—			693
Amortization of preferred stock discount		1,247		—		—			(1,247	)		—			—			—			—
Cash dividend ($0.29 per share)		—		—		—			(6,101	)		—			—			—			(6,101	)
Tax benefit from stock related compensation		—		—		(35	)		—			—			—			—			(35	)

Balance at March 31, 2009	$	74,185	$	2,536	$	109,327		$	134,234		$	(94,744	)	$	(5,480	)	$	(6,337	)	$	213,721

See accompanying Notes to Consolidated Financial Statements

Anchor Bancorp Wisconsin Inc. and Subsidiaries

Consolidated Statements of Cash Flows


	Year Ended March 31,
	2009			2008			2007
	(In thousands)

Operating Activities
Net (loss) income	$	(228,311	)	$	31,132		$	38,972
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Provision for loan losses		205,719			22,551			11,255
Provision for OREO losses		10,387			—
Provision for depreciation and amortization		5,400			4,333			4,163
Goodwill impairment		72,181			—			—
Real estate held for development and sale impairment		17,631			—			—
Mortgage servicing rights impairment		2,407			(709	)		253
Cash paid due to origination of loans held for sale		(1,029,650	)		(660,841	)		(404,068	)
Cash received due to sale of loans held for sale		888,036			661,790			408,815
Net gain on sales of loans		(10,681	)		(6,144	)		(3,712	)
Net loss (gain) on investments and mortgage related securities		3,298			(514	)		283
Net loss on impairment of securities available for sale		805			—			—
Deferred income taxes		(7,131	)		(5,598	)		(3,042	)
Stock-based compensation expense		693			1,152			393
Decrease (increase) in accrued interest receivable		4,546			(3,798	)		(2,844	)
(Increase) decrease in prepaid expense and other assets		(50,437	)		(10,514	)		462
(Decrease) increase in accrued interest payable		(9,433	)		6,458			2,978
Increase (decrease) in other payable		7,456			(917	)		821
Other		11,501			(21,115	)		(12,522	)

Net cash provided (used) by operating activities		(105,583	)		17,266			42,207
Investing Activities
Proceeds from sales of investment securities available for sale		22,170			24,076			65
Proceeds from maturities of investment securities available for sale		79,260			325,220			165,257
Purchase of investment securities available for sale		(94,395	)		(296,900	)		(188,007	)
Proceeds from sale of mortgage-related securities available for sale		—			16,034			—
Purchase of mortgage-related securities available for sale		(208,507	)		(90,804	)		(47,779	)
Principal collected on mortgage-related securities		60,122			57,151			50,553
FHLB stock redemption		—			—			5,134
FHLB stock purchase		—			(13,468	)		(1,147	)
Net decrease (increase) in loans held for investment		13,631			(54,125	)		(263,496	)
Purchases of office properties and equipment		(5,311	)		(4,145	)		(6,036	)
Sales of office properties and equipment		79			41			161
Sales of real estate		—			177			1,000
Proceeds from sale of foreclosed properties		21,836			6,661			—
Net cash paid to purchase S&C Bank		—			(91,182	)		—
Investment in real estate held for development and sale		24,892			803			(7,294	)

Net cash used by investing activities		(86,223	)		(120,461	)		(291,589	)
Financing Activities
Net (decrease) increase in deposit accounts		390,310			(17,934	)		205,463
Increase (decrease) in advance payments by borrowers for taxes and insurance		599			(376	)		337
Proceeds from borrowed funds		216,498			916,224			298,683
Repayment of borrowed funds		(344,867	)		(632,574	)		(260,067	)
Proceeds from issuance of preferred stock and common stock warrant		110,000			—			—
Treasury stock purchased		—			(12,556	)		(15,689	)
Exercise of stock options		1,485			838			2,920
Tax benefit from stock related compensation		(35	)		178			1,605
Payments of cash dividends to stockholders		(6,101	)		(14,900	)		(14,376	)

Net cash provided by financing activities		367,889			238,900			218,876

Net increase (decrease) in cash and cash equivalents		176,083			135,705			(30,506	)
Cash and cash equivalents at beginning of year		257,743			122,038			152,544

Cash and cash equivalents at end of year	$	433,826		$	257,743		$	122,038

Supplementary cash flow information:
Cash paid or credited to accounts:
Interest on deposits and borrowings	$	144,905		$	163,186		$	149,668
Income taxes		9,155			23,695			32,470
Non-cash transactions:
Transfer of loans to foreclosed properties		76,363			7,496			—

See accompanying Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the security. The portion of the total impairment that is related to all other factors is included in other comprehensive income (loss).

Loans Held for Sale. Loans held for sale generally consist of the current origination of certain fixed-rate mortgage loans and certain adjustable-rate mortgage loans and are carried at lower of cost or fair value, determined on an aggregate basis. Fees received from the borrower and direct costs to originate the loan are deferred and recorded as an adjustment of the sales price.

Mortgage Servicing Rights. Mortgage servicing rights are recorded as an asset when loans are sold to third parties with servicing rights retained. The cost allocated to the mortgage servicing rights retained has been recognized as a separate asset and is initially recorded at fair value pursuant to SFAS 156, Accounting for Servicing of Financial Assets, and is amortized in proportion to, and over the period of, estimated net servicing revenues. The carrying value of these assets is periodically reviewed for impairment using a lower of carrying value or fair value methodology. The fair value of the servicing rights is determined by estimating the present value of future net cash flows, taking into consideration market loan prepayment speeds, discount rates, servicing costs and other economic factors. For purposes of measuring impairment, the rights are stratified based on predominant risk characteristics of the underlying loans which include product type (i.e., fixed or adjustable) and interest rate bands. The amount of impairment recognized is the amount by which the capitalized mortgage servicing rights on a loan-by-loan basis exceed their fair value. Mortgage servicing rights are carried at the lower of cost or fair value.

Transfers of Financial Assets. Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Loans Held for Investment. Loans are stated at the amount of the unpaid principal, reduced by unearned net loan fees and an allowance for loan losses. Interest on loans is accrued on the unpaid principal balances as earned. Loans are placed on non-accrual status when, they become 90 days past due or in the judgment of management, the probability of collection of principal and interest is deemed to be insufficient to warrant further accrual. When a loan is placed on non-accrual status, previously accrued but unpaid interest is deducted from interest income. Payments received on non-accrual loans are applied to interest on a cash basis. Loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectibility of the total contractual principal and interest is no longer in doubt.

Loan Fees and Discounts. Loan origination and commitment fees and certain direct loan origination costs are deferred and amortized as an adjustment to the related loan’s yield. The Corporation is generally amortizing these amounts, as well as discounts on purchased loans, using the level yield method, adjusted for prepayments, over the life of the related loans.

Foreclosed Properties and Repossessed Assets. Real estate acquired by foreclosure or by deed in lieu of foreclosure and other repossessed assets is carried at the lower of cost or fair value, less estimated selling expenses. At the date of foreclosure any write down to fair value less estimated selling costs is charged to the allowance for loan losses. Costs relating to the development and improvement of the property are capitalized; holding period costs and subsequent changes to the valuation allowance are charged to expense.

Allowance for Loan Losses. 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 allowance 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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. In addition, regulatory agencies periodically review the allowance for loan losses. These agencies may require the Corporation to make additions to the allowance for loan losses based on their judgements of collectibility based on information available to them at the time of their examination.

Specific allowance allocations 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. Impaired loans include 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. Cash collections on impaired loans are credited to the loan receivable balance and no interest income is recognized on those loans until the principal balance is current.

Real Estate Held for Development and Sale. Real estate held for development and sale includes investments in land and partnerships that purchased land or other property. These investments are carried at the lower of cost plus capitalized development costs and interest, or estimated fair value. Income on the sale of land and lots between the entities is deferred until development and construction are complete and a third party purchases the property. Deferred income is then recognized as a component of non-interest income under real estate investment partnership revenue.

Real estate held for development and sale of $16.1 million consists of assets of the subsidiaries which invest in consolidated partnerships of $19.6 million (which includes construction in progress, land and improvements). Cash and other assets of the real estate investment subsidiaries of $1.9 million and $7.1 million, respectively, are reported as cash and accrued interest on investments and loans and other assets on the consolidated balance sheet. Liabilities total $36.5 million consisting of borrowings of the consolidated partnerships of $14.8 million, reported in Federal Home Loan Bank and other borrowings, other liabilities of the same entities of $21.7 million, reported in other liabilities and minority interest of $411,000, which represents the ownership interests of the other partners.

The assets and liabilities in real estate held for development and sale is summarized in the following table:


	March 31,
	2009			2008
	(In thousands)

Real estate held for development and sale	$	16,120		$	59,002
Cash and other assets of real estate investment subsidiaries		8,950			13,026

Total assets of real estate held for development and sale		25,070			72,028
Borrowings of subsidiaries		14,763			28,422
Other liabilities of subsidiaries		21,707			30,900

Total liabilities of real estate segment		36,470			59,322
Minority interest in consolidated real estate partnerships		411			6,081

Net assets of real estate held for development and sale	$	(11,811	)	$	6,625

Real estate investment partnership revenue is presented in non-interest income and represents revenue recognized upon the closing of sales of developed lots and homes to independent third parties. Real estate investment partnership cost of sales is included in non-interest expense and represents the costs of such closed sales. Other revenue (primarily rental income) and other expenses from real estate operations are also included in non-interest income and non-interest expense, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Minority interest in real estate partnerships represents the equity interests of development partners in the real estate investment partnerships. The development partners’ share of income is reflected as minority interest in income of real estate partnership operations in non-interest expense.

The results of operations of the real estate investment segment are summarized in the following table:


	Year Ended March 31,
	2009			2008			2007
	(In thousands)

Real estate investment partnership revenue	$	2,130		$	8,623		$	18,977
Real estate investment partnership cost of sales		(1,736	)		(8,489	)		(17,607	)
Other expenses from real estate partnership operations		(9,596	)		(10,291	)		(8,950	)
Real estate partnership impairment		(17,631	)		—			—
Net interest expense after provision for loan losses		(1,014	)		(1,687	)		(1,544	)
Minority interest in loss of real estate partnership operations		148			402			241

Net loss of real estate investment subsidiaries investing in variable interest entities, before tax		(27,699	)		(11,442	)		(8,883	)

Other revenue from real estate operations		8,194			7,440			6,560

Loss of real estate partnership investment subsidiaries, before tax	$	(19,505	)	$	(4,002	)	$	(2,323	)

Goodwill and Other Intangibles. Goodwill represents the excess of purchase price over the fair value of net assets acquired using the purchase method of accounting. Other intangible assets represent purchased assets that also lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset, or liability. The Company follows SFAS No. 142, “Goodwill and Other Intangible Assets.” Under the provisions of SFAS No. 142, goodwill is tested at least annually for impairment, or more often if events or circumstances indicate that there may be impairment. Identified intangible assets that have a finite useful life are amortized over that life in a manner that reflects the estimated decline in the economic value of the identified intangible asset. Identified intangible assets that have a finite useful life are periodically reviewed to determine whether there have been any events or circumstances to indicate that the recorded amount is not recoverable from projected undiscounted net operating cash flows. If the projected undiscounted net operating cash flows are less than the carrying amount, a loss is recognized to reduce the carrying amount to fair value, and, when appropriate, the amortization period is also reduced. Unamortized intangible assets associated with disposed assets are included in the determination of gain or loss on sale of the disposed assets. All of the Company’s other intangible assets have finite lives and are amortized over varying periods not exceeding 11 years and are included in other assets.

Office Properties and Equipment. Office properties and equipment are recorded at cost and include expenditures for new facilities and items that substantially increase the estimated useful lives (3 years to 39 years) of existing buildings and equipment. Expenditures for normal repairs and maintenance are charged to operations as incurred. When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and the resulting gain or loss is recorded in income.

Investment in Federal Home Loan Bank Stock. The Company is a member of the Federal Home Loan Bank (FHLB) system. As a result of membership in the FHLB system, the Company is required to maintain a minimum investment in FHLB stock. FHLB stock is capital stock that is bought from and sold to the FHLB at $100 par. The stock is not transferable and cannot be used as collateral. During the year ended March 31, 2008, the FHLB discontinued dividend payments.

The Corporation views its investment in the FHLB stock as a long-term investment. Accordingly, when evaluating for impairment, the value is determined based on the ultimate recovery of the par value rather than recognizing temporary declines in value. The determination of whether a decline affects the ultimate recovery is

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

influenced by criteria such as: 1) the significance of the decline in net assets of the FHLBs as compared to the capital stock amount and length of time a decline has persisted; 2) impact of legislative and regulatory changes on the FHLB and 3) the liquidity position of the FHLB.

The FHLB of Chicago filed an SEC Form 10-Q on May 19, 2009 announcing its financial results for the first-quarter ended March 31, 2009. The FHLB Chicago reported a net loss for the first quarter of 2009 of $39 million, compared to a net loss of $78 million for the first quarter of 2008. This reduced net loss was due to a $110 million increase in net interest income that was partially offset by an $86 million increase in other-than-temporary-impairment losses on the investment portfolio and a $10 million increase in losses on derivatives and hedging activities. The FHLB Chicago early adopted FSP FAS 115-2 as of January 1, 2009, which resulted in a one-time increase in retained earnings of $233 million. Retained earnings at March 31, 2009 were $734 million, up from $540 million at December 31, 2008. The FHLB Chicago reported that they are in compliance with all of their regulatory capital requirements as of the filing date of their 10-Q. The FHLB Chicago is under a cease and desist order that precludes any capital stock repurchases or redemptions without the approval of the OS Director. It did not pay any dividends in 2008. The Corporation has concluded that its investment in the FHLB Chicago is not impaired as of this date. However, this estimate could change in the near term by the following: 1) significant OTTI losses are incurred on the MBS causing a significant decline in their regulatory capital status; 2) the economic losses resulting from credit deterioration on the MBS increases significantly and 3) capital preservation strategies being utilized by the FHLB become ineffective.

Advertising Costs. All advertising costs incurred by the Corporation are expensed in the period in which they are incurred.

Depreciation and Amortization. The cost of office properties and equipment is being depreciated principally by the straight-line method over the estimated useful lives (3 years to 39 years) of the assets. The cost of capitalized leasehold improvements is amortized on the straight-line method over the lesser of the term of the respective lease or estimated economic life.

Income Taxes. The Corporation’s deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period adjusted for the change during the period in deferred tax assets and liabilities. The Corporation and its subsidiaries file a consolidated federal income tax return and separate state income tax returns. The intercompany settlement of taxes paid is based on tax sharing agreements which generally allocate taxes to each entity on a separate return basis.

In June 2006, the FASB, issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”). This interpretation prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in tax returns. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting for income taxes in interim periods, disclosure, and transition. The Corporation adopted this Statement during the year ended March 31, 2008.

Earnings Per Share. Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period. The basic EPS computation excludes the dilutive effect of all common stock equivalents. Diluted EPS is computed by dividing net income by the weighted average number of common shares outstanding plus all potential common shares which could be issued if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock. The Corporation’s potential common shares represent shares issuable under its long-term incentive compensation plans. Such common stock equivalents are computed based on the treasury stock method using the average market price for the period.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Comprehensive Income. Comprehensive income is the total of reported net income and all other revenues, expenses, gains and losses that under generally accepted accounting principles bypass reported net income. The Corporation includes unrealized gains or losses, net of tax, on securities available for sale in other comprehensive income.

Deferred Compensation Obligation. Deferred compensation obligation is the cost of the stock associated with selected employee benefit plans. See Note 12 for further discussion of the plans.

Repurchase Plan. For the year ended March 31, 2009, the Corporation did not repurchase any shares of common stock on the open market. All repurchased shares are held as treasury after settlement.

Stock-Based Compensation Plan. The Corporation grants stock-based compensation to employees and directors under various plans discussed in Note 12. Compensation is granted in the forms of restricted stock and stock options.

The Corporation adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment (“FAS 123(R)”), using the modified-prospective-transition method. Under that transition method, compensation cost recognized in 2007 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of April 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of FAS 123, and (b) compensation cost for all share-based payments granted subsequent to April 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of FAS 123(R). Results for the prior periods have not been restated. FAS 123(R) requires the cash flow resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. Volatility is measured at the time options are granted. Prior to April 1, 2006, the Corporation accounted for stock awards under the recognition and measurement provisions of APB No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation (“FAS 123”). No stock-based employee compensation cost was recognized in the Statements of Income for the years ended March 31, 2006 and 2005, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant.

The compensation expense recognized related to stock-based compensation was $693,000, $838,000 and $393,000 for the fiscal years ended March 31, 2009, 2008 and 2007, respectively.

New Accounting Pronouncements.

Fair Value Measurements. In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and enhances disclosures about fair value measurements required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. FAS 157 also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. Under FAS 157, fair value measurements are disclosed by level within that hierarchy. The requirements of FAS 157 was first effective for the Corporation’s fiscal year beginning April 1, 2008. However, in February 2008, the FASB decided that an entity need not apply this standard to non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis until the subsequent year. Accordingly, our adoption of this standard on April 1, 2008 was limited to financial assets and liabilities, and any nonfinancial assets and liabilities recognized or disclosed on a recurring basis.

In April 2009, the FASB issued Staff Position No. 157-4 (“FSP 157-4”), “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for an asset or liability have significantly decreased when compared with normal activity for an asset or liability. Reduced activity is an indication that transactions or quoted prices may not be determinative of fair value because in such market

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

conditions there may be increased instances of transactions that are not orderly. If the reporting entity concludes that the quoted prices are not determinative of fair value, further analysis of the transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value in accordance with Statement 157. This FSP is effective for interim and annual reporting periods ending after June 15, 2009. Early adoption is permitted for periods ending after March 15, 2009. The Corporation early adopted FASB FSP 157-4 as of January 1, 2009.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP amends SFAS 107, “Disclosures about Fair Value of Financial Instruments,” and Accounting Principles Board (APB) Opinion No. 28, “Interim Financial Reporting.” This FSP requires publicly-traded entities to disclose in the body or in the accompanying notes of its summarized financial information for interim reporting periods and in its financial statements for annual reporting periods, the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position, as required by SFAS 107. This FSP is effective for interim and annual reporting periods ending after June 15, 2009. Early adoption is permitted for periods ending after March 15, 2009. The Corporation has early adopted FSP FAS 107-1 and APB 28-1 for the period ending March 31, 2009.

Other-Than-Temporary Impairment. In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” This FSP changes the guidance for determining whether an impairment on available-for-sale and held-to-maturity debt securities is other than temporary. The reporting entity must first assess (a) whether it has the intent to sell the debt security or (b) is it more likely than not that it will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, the entity must recognize the impairment in earnings as an other-than-temporary impairment (OTTI). If neither of these conditions is met, the entity must determine (a) the amount of the impairment related to credit loss and (b) the amount of the impairment due to all other factors. The difference between the present values of the cash flows expected to be collected and the amortized cost basis is the credit loss. The amount of the credit loss is recognized in earnings. The amount of total impairment related to all other factors is included in other comprehensive income. This FSP is effective for interim and annual reporting periods ending after June 15, 2009. Early adoption is permitted for periods ending after March 15, 2009. The Corporation has early adopted FSP FAS 115-2 and FAS 124-2 as of January 1, 2009. The bank recognized in earnings $805,000 of credit related other-than-temporary impairments on its non-agency mortgage-related securities portfolio during the quarter ending March 31, 2009.

Fair Value Option. In February 2007, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115,” which provides all entities, including not-for-profit organizations, with an option to report selected financial assets and liabilities at fair value. The objective of the Statement is to improve financial reporting by providing entities with the opportunity to mitigate volatility in earnings caused by measuring related assets and liabilities differently without having to apply the complex provisions of hedge accounting. Certain specified items are eligible for the irrevocable fair value measurement option as established by Statement No. 159. Statement No. 159 was effective for the Corporation’s fiscal year beginning April 1, 2008. The Corporation has not elected the fair value option for any of its financial instruments at the adoption date or through March 31, 2009.

Business Combinations. On December 4, 2007, the FASB issued FASB Statement No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations. Under Statement 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R will change the accounting treatment for certain specific items, including:


	•	acquisition costs will generally be expensed as incurred;

	•	noncontrolling interests (formerly known as “minority interests”) will be valued at fair value at the acquisition date;

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	•	the acquirer shall not recognize a separate valuation allowance as of the acquisition date for assets acquired in a business that are measured at their acquisition-date fair value;

	•	restructuring costs associated with a business combination will be generally expensed subsequent to the acquisition date; and

	•	changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense.

SFAS 141R also includes a substantial number of new disclosure requirements. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited. Management is currently evaluating the provisions of SFAS 141R and its potential effect on its financial statements.

The FASB issued FSP SFAS 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” FSP SFAS 141R-1 amends the guidance in SFAS 141R to require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with SFAS 5, “Accounting for Contingencies,” and FASB Interpretation (FIN) No. 14, “Reasonable Estimation of the Amount of a Loss.” FSP SFAS 141R-1 removes subsequent accounting guidance for assets and liabilities arising from contingencies from SFAS 141R and requires entities to develop a systematic and rational basis for subsequently measuring and accounting for assets and liabilities arising from contingencies. FSP SFAS 141R-1 eliminates the requirement to disclose an estimate of the range of outcomes of recognized contingencies at the acquisition date. For unrecognized contingencies, entities are required to include only the disclosures required by SFAS 5. FSP SFAS 141R-1 also requires that contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination be treated as contingent consideration of the acquirer and should be initially and subsequently measured at fair value in accordance with SFAS 141R. FSP SFAS 141R-1 is effective for assets or liabilities arising from contingencies the Corporation acquires in business combinations occurring after January 1, 2009.

Noncontrolling Interests. On December 4, 2007, the FASB issued FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51(SFAS 160). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. Management is currently evaluating the provisions of SFAS 160 and its potential effect on its financial statements.

Reclassifications. Certain 2008 and 2007 accounts have been reclassified to conform to the 2009 presentations. The reclassifications had no impact on prior year’s net income or stockholders’ equity.


Note 2 —	Business Combination

The following business combination was accounted for under the purchase method of accounting. Accordingly, the results of operations of the acquired companies have been included in the Corporation’s results of operations since the date of acquisition. Under this method of accounting, the purchase price was allocated to the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

respective assets acquired and liabilities assumed based on their estimated fair values, net of applicable income tax effects. The excess cost over fair value of net assets acquired was recorded as goodwill.

Effective January 2, 2008, the Corporation acquired 100% of the outstanding common stock of S&C Bank (“S&C”), headquartered in New Richmond, Wisconsin. The definitive agreement (the “agreement”) was entered into on July 11, 2007 and, pursuant to that agreement, the Corporation purchased all of the outstanding shares of S&C. Under the terms of the agreement, 235,071 shares of S&C common stock were purchased by the Corporation and S&C shareholders received $450.93 in cash for each share of S&C common stock for a total purchase price of $106.0 million. Direct costs of the acquisition were $890,000. At the date of acquisition, S&C became a wholly-owned subsidiary of the Corporation and on February 8, 2008, S&C was merged into the Corporation. On February 15, 2008, the Corporation sold three branches of S&C that were located in Minnesota.

The acquisition closed on January 2, 2008, which caused S&C’s results to be excluded from the Corporation’s results of operations for the nine months ended December 31, 2007, but results from January 2, 2008 are included for the three months ended March 31, 2008. This transaction increased the Corporation’s presence in Wisconsin to include northwest Wisconsin.

The following table shows the condensed balance sheet amounts assigned to the assets and liabilities, including all purchase adjustments, of S&C as of January 2, 2008 (in thousands):


Cash and cash equivalents	$	15,708
Investment securities available for sale		64,689
Loans, less allowance for loan losses of $2,795		280,803
Office properties and equipment		15,726
Goodwill		52,419
Core deposit intangible		5,517
Accrued interest on investments, loans and other assets		4,174
Deposits		(305,450	)
Borrowings		(22,634	)
Other liabilities		(4,062	)

Net assets acquired	$	106,890

All of the goodwill was allocated to the community banking segment.

The following unaudited pro forma condensed combined financial information presents the Corporation’s results of operations for the years indicated had the merger taken place as of April 1, 2007 (in thousands):


	Years Ended March 31,
	2008			2007

Net interest income after provision for loan losses	$	119,261		$	135,242
Non-interest income		55,173			59,067
Non-interest expense		118,136			122,790
Minority interest in loss of real estate partnership operations		(402	)		(241	)

Income before taxes		56,700			71,760
Income taxes		21,676			27,325

Net income	$	35,024		$	44,435

Per common share information
Earnings		1.67			2.08
Diluted earnings		1.66			2.05
Average common shares issued and outstanding		20,975,803			21,405,888
Average diluted common shares outstanding		21,095,332			21,688,452

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

These unaudited proforma results have been prepared for comparative purposes only and include certain adjustments, such as additional amortization expense on revalued purchased assets and implied interest on additional borrowings to fund the acquisition and does not include the impact of expected cost savings. All adjustments were tax affected. They do not purport to be indicative of the results of operations that actually would have resulted had the combination occurred on April 1, 2007 or of future results of operations of the consolidated entities.


Note 3 —	Restrictions on Cash and Due From Bank Accounts

AnchorBank fsb (Bank) is required to maintain cash and reserve balances with the Federal Reserve Bank. The average amount of reserve balances for the years ended March 31, 2009 and 2008 was approximately $18.5 million and $16.2 million, respectively.

The nature of the Corporation’s business requires that it maintain amounts due from banks and federal funds sold which, at times, may exceed federally insured limits. Management monitors these correspondent relationships and the Corporation has not experienced any losses in such accounts.


Note 4 —	Investment Securities

The amortized cost and fair values of investment securities are as follows (in thousands):


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		(Losses)			Fair Value

At March 31, 2009:
Available for Sale:
U.S. Government and federal agency obligations	$	48,471	$	501	$	(53	)	$	48,919
Municipal Bonds		21,768		524		(59	)		22,233
Mutual funds		1,797		—		—			1,797
Corporate stock and other		4,806		33		(104	)		4,735

	$	76,842	$	1,058	$	(216	)	$	77,684

At March 31, 2008:
Available for Sale:
U.S. Government and federal agency obligations	$	38,086	$	503	$	—		$	38,589
Municipal Bonds		33,525		428		—			33,953
Mutual funds		1,722		—		—			1,722
Corporate stock and other		13,635		142		(1,005	)		12,772

	$	86,968	$	1,073	$	(1,005	)	$	87,036

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The table below shows the Corporation’s gross unrealized losses and fair value of investments, aggregated by investment category and length of time that individual investments have been in a continuous unrealized loss position at March 31, 2009 and 2008.


	At March 31, 2009
	Less than 12 months					12 months or more				Total
	Fair		Unrealized			Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss		Value		Loss
	(In thousands)

US government and Federal Agency Obligations	$	24,832	$	(53	)	$	—	$	—	$	24,832	$	(53	)
Municipal Bonds		1,455		(59	)		—		—		1,455		(59	)
Corporate stock and other		151		(104	)		—		—		151		(104	)

Total temporarily impaired securities	$	26,438	$	(216	)	$	—	$	—	$	26,438	$	(216	)


	At March 31, 2008
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
	(In thousands)

Corporate stock and other	$	1,938	$	(116	)	$	1,126	$	(889	)	$	3,064	$	(1,005	)

Total temporily impaired securities	$	1,938	$	(116	)	$	1,126	$	(889	)	$	3,064	$	(1,005	)

The table above represents ten investment securities at March 31, 2009 compared to four at March 31, 2008 that, due to the current interest rate environment and other factors, have declined in value but do not presently represent realized losses. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. In estimating other-than-temporary impairment losses on investment securities, management considers many factors which include: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. To determine if an other-than-temporary impairment exists on a debt security, the Corporation first determines if (a) it intends to sell the security or (b) it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of the conditions is met, the Corporation will recognize an other-than-temporary impairment in earnings equal to the difference between the security’s fair value and its adjusted cost basis. If neither of the conditions is met, the Corporation determines (a) the amount of the impairment related to credit loss and (b) the amount of the impairment due to all other factors. The difference between the present values of the cash flows expected to be collected and the amortized cost basis is the credit loss. The credit loss is the portion of the other-than-temporary impairment that is recognized in earnings and is a reduction to the cost basis of the security. The portion of total impairment related to all other factors is included in other comprehensive income (loss).

In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports.

Proceeds from sales of investment securities available for sale during the years ended March 31, 2009, 2008 and 2007 were $22.2 million, $24.1 million and $65,000, respectively. Gross gains of $320,000 were realized on sales in 2008. There were no gross gains realized on sales of investment securities for the years ended March 31, 2009 and 2007. Gross losses of $1.4 million, $87,000 and $283,000 were realized on sales for the years ended March 31, 2009, 2008 and 2007, respectively. In addition, the Corporation wrote down Freddie Mac and Fannie Mae stock by $1.9 million during the year ended March 31, 2009.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At March 31, 2009, 2008 and 2007, investment securities with a fair value of approximately $46.3 million, $36.1 million and $19.2 million were pledged to secure deposits, borrowings and for other purposes as permitted or required by law.

The fair value of investment securities by contractual maturity at March 31, 2009 are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties. Investment securities subject to six-month calls amount to $27.8 million at March 31, 2009. Investment securities subject to twelve-month calls at March 31, 2009 are $2.2 million.


									Non-Maturity
			After 1 Year		After 5 Years		Over		Equity
	Within 1 Year		through 5 Years		through 10 Years		Ten Years		Investments		Total
	(Dollars in thousands)

Available for Sale, at fair value:
U.S. government and Federal Agency Obligations	$	11,751	$	32,231	$	—	$	4,937	$	—	$	48,919
Municipal Bonds		5,457		10,309		3,664		2,803		—		22,233
Mutual fund		1,797		—		—		—		—		1,797
Corporate stock and other		3,594		25		—		1,059		57		4,735

Total Investment Securities	$	22,599	$	42,565	$	3,664	$	8,799	$	57	$	77,684


Note 5 —	Mortgage-Related Securities

Some of the Corporation’s mortgage-backed securities are backed by government sponsored agencies, which include the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. Government National Mortgage Association (“GNMA”) securities are backed by the full faith and credit of the United States Government. CMOs and REMICs are trusts which own securities backed by the government sponsored agencies noted above and GNMA. Mortgage-backed securities, CMOs and REMICs have estimated average lives of five years or less.

The amortized cost and fair values of mortgage-related securities are as follows (in thousands):


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		(Losses)			Fair Value

At March 31, 2009:
Available for Sale:
Agency CMOs and REMICs	$	142,692	$	1,732	$	(429	)	$	143,995
Non-agency CMOs		119,503		333		(12,309	)		107,527
Residential mortgage-backed securities		97,562		3,221		(29	)		100,754
GNMA Securities		54,753		417		(145	)		55,025

	$	414,510	$	5,703	$	(12,912	)	$	407,301

Held to Maturity:
Residential mortgage-backed securities	$	50	$	—	$	—		$	50

	$	50	$	—	$	—		$	50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		(Losses)			Fair Value

At March 31, 2008:
Available for Sale:
Agency CMOs and REMICs	$	46,648	$	989	$	(97	)	$	47,540
Non-agency CMOs		79,173		73		(1,562	)		77,684
Residential mortgage-backed securities		109,387		2,925		(1	)		112,311
GNMA Securities		31,709		171		(45	)		31,835

	$	266,917	$	4,158	$	(1,705	)	$	269,370

Held to Maturity:
Residential mortgage-backed securities	$	59	$	1	$	—		$	60

	$	59	$	1	$	—		$	60

The table below shows the Corporation’s mortgage-related securities’ gross unrealized losses and fair value, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2009 and 2008.


	At March 31, 2009
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
	(In thousands)

Agency CMO/REMICs	$	43,931	$	(429	)	$	—	$	—		$	43,931	$	(429	)
Non-agency CMOs		42,607		(5,155	)		45,476		(7,154	)		88,083		(12,309	)
Residential Mortgage-backed securities		3,892		(29	)		—		—			3,892		(29	)
GNMA Securities		24,049		(135	)		1,803		(10	)		25,852		(145	)

	$	114,479	$	(5,748	)	$	47,279	$	(7,164	)	$	161,758	$	(12,912	)


	At March 31, 2008
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of Securities	Value		Loss			Value		Loss			Value		Loss
	(In thousands)

Agency CMO/REMICs	$	1,068	$	(2	)	$	2,673	$	(95	)	$	3,741	$	(97	)
Non-agency CMOs		51,256		(1,254	)		9,452		(308	)		60,708		(1,562	)
Residential Mortgage-backed securities		107		—			5,375		(1	)		5,482		(1	)
GNMA Securities		12,420		(29	)		3,775		(16	)		16,195		(45	)

	$	64,851	$	(1,285	)	$	21,275	$	(420	)	$	86,126	$	(1,705	)

The table above represents 72 securities at March 31, 2009 compared to 47 at March 31, 2008 that, due to the current interest rate environment and other factors, have declined in value but do not presently represent realized losses. Management evaluates securities for other-than-temporary impairment losses at least on a quarterly basis. To determine if an other-than-temporary impairment exists on a debt security, the Corporation first determines if (a) it intends to sell the security or (b) it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of the conditions is met, the Corporation will recognize an other-than-temporary impairment in earnings equal to the difference between the security’s fair value and its adjusted cost basis. If neither

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of the conditions is met, the Corporation determines (a) the amount of the impairment related to credit loss and (b) the amount of the impairment due to all other factors. The difference between the present values of the cash flows expected to be collected and the amortized cost basis is the credit loss. The credit loss is the amount of the other-than-temporary impairment that is recognized in earnings and is a reduction to the cost basis of the security. The amount of total impairment related to all other factors is included in other comprehensive income.

The Corporation utilizes a discounted cash flow model in the determination of fair value that is used in the calculation of other-than-temporary impairments on non-agency CMOs. This model is also used to determine the portion of the other-than-temporary impairment that is due to credit losses, and the portion that is due to all other factors. On securities with other-than-temporary impairment, the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security is the credit loss.

The significant inputs used for calculating the credit loss portion of the OTTI includes prepayment assumptions, loss severities, original FICO scores, historical rates of delinquency, percentage of loans with limited underwriting, historical rates of default, original loan-to-value ratio, aggregate property location by metropolitan statistical area, original credit support, current credit support, and weighted-averaged maturity. The discount rate utilized to establish the net present value of projected cash flows ranged from 5.51% to 11.36%, depending upon the characteristics and estimated performance of each security. Default rates were based current, 30 to 59 days delinquent, 60 to 89 days delinquent, 90+ days delinquent, and foreclosure balances of the loans as of February 28, 2009. These balances were entered into a loss migration model to calculate projected default rates, which are benchmarked against results that have recently been experienced by other major servicers on non-agency CMOs with similar attributes. The projected default rates used in the model ranged from 0.3% to 12.3%. In establishing the fair value of the securities, a discount rate of 8% to 17% was utilized. There are no payments in kind allowed on these non-agency CMOs.

Based on the Corporation’s impairment testing as of March 31, 2009, nine non-agency CMOs with a fair value of $26.1 million and an adjusted cost of $32.5 million were other-than-temporarily impaired. The portion of the other-than-temporary impairment due to credit of $805,000 was included in earnings for the three-month period ending March 31, 2009. Total unrealized losses on these securities were $7.2 million. The difference between the total unrealized losses of $7.2 million and the credit loss of $805,000, or $6.3 million, was charged against other comprehensive income. All of the Corporation’s other-than-temporary impaired debt securities are non-agency CMOs.

The following table summarizes the fair value of nine other-than-temporarily impaired non-agency CMOs by year of vintage, credit rating, and collateral loan type. This table also includes a breakout of OTTI between impairment due to credit loss and impairment due to other factors.


											Total OTTI		Total OTTI
	Year of Vintage										Related to		Related to
	2005		2006		2007		Total		Total OTTI		Credit Loss		Other Factors
	(In thousands)

Total Non-Agency CMOs Rating:
AAA	$	2,947	$	4,663	$	—	$	7,610	$	626	$	192	$	434
AA		—		—		7,814		7,814		3,399		323		3,076
A		—		—		3,347		3,347		778		61		717
BBB		—		—		—		—		—		—		—
BB and below		1,492		2,871		2,980		7,343		2,349		229		2,120

Total Non- Agency CMO’s	$	4,439	$	7,534	$	14,141	$	26,114	$	7,152	$	805	$	6,347

Other-than-temporary impairments related to credit loss by year of vintage were $453,000 for 2007, $201,000 for 2006 and $151,000 for 2005.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table is a rollforward of the amount of other-than-temporary impairment related to credit losses that have been recognized in earnings for which a portion of an other-than-temporary impairment was recognized in other comprehensive income for the year ended March 31, 2009:



Beginning balance of the amount related to credit losses	$	—

The credit portion of other-than temporary impairment not previously recognized		805

Securities sold during the period (realized)		—

Reductions for securities previously recognized in OTTI, but for which the Corporation intends to sell or it is more likely than not the Corporation will be required to sell prior to recovery		—

Additional increases to the amount related to the credit loss for which an OTTI was previously recognized		—

Reductions for increases in cash flows expected to be collected		—


Ending balance of the amount related to credit losses	$	805

Proceeds from sales of mortgage-related securities available for sale during the year ended March 31, 2008 were $16.0 million. There were no sales of mortgage-related securities available for sale during the years ended March 31, 2009 and 2007. There were no sales of mortgage-related securities held-to-maturity for the years ended March 31, 2009, 2008 and 2007. Gross gains of $270,000 were realized on sales in for the year ended March 31, 2008. There were no gross gains realized on mortgage-related securities available for sale for the years ended March 31, 2009 and 2007. There were no gross gains realized on sales of mortgage-related securities held-to-maturity for the years ended March 31, 2009, 2008 and 2007. Gross losses of $1,000 were realized on sales 2008. There were no gross losses realized on sales of mortgage-related securities available for sale for the year ended March 31, 2009 and 2007. There were no gross losses realized on sales of mortgage-related securities held-to-maturity for the years ended March 31, 2009, 2008 and 2007.

At March 31, 2009, mortgage-related securities available for sale with a fair value of approximately $325.4 million were pledged to secure deposits, borrowings and for other purposes as permitted or required by law. See Note 9.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair value of mortgage-related securities at March 31, 2009, by contractual maturity, is shown below. Given certain interest rate environments, some or all of these securities may be called by their issuers prior to the scheduled maturities. Maturities may differ from contractual maturities because the mortgages underlying the securities may be called or repaid without penalties.


			After 1 Year		After 5 Years
	Within 1 Year		through 5 Years		through 10 Years		Over Ten Years		Total
	(Dollars in thousands)

Mortgage-related securities available for Sale, at fair value:
Agency CMOs and Remics	$	—	$	—	$	17,321	$	126,674	$	143,995
Corporate CMOs		—		49		21,904		85,574		107,527
Residential Mortgage-backed securities		—		2,580		28,787		69,387		100,754
GNMA Secrurities		—		—		938		54,087		55,025

Total	$	—	$	2,629	$	68,950	$	335,722	$	407,301

Held to Maturity, at fair value:
Residential Mortgage-backed securities	$	—	$	—	$	50	$	—	$	50

Total	$	—	$	—	$	50	$	—	$	50

Total Mortgage-related securities	$	—	$	2,629	$	69,000	$	335,722	$	407,351

Held to Maturity, at cost:
Residential Mortgage-backed securities	$	—	$	—	$	50	$	—	$	50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 6 —	Loans Receivable

Loans receivable held for investment consist of the following (in thousands):


	March 31,
	2009			2008

First mortgage loans:
Single-family residential	$	843,482		$	893,001
Multi-family residential		662,483			694,423
Commercial real estate		1,020,981			1,088,004
Construction		267,375			402,395
Land		266,756			306,363

		3,061,077			3,384,186
Second mortgage loans		394,708			356,009
Education loans		358,784			275,850
Commercial business loans and leases		238,940			277,312
Credit card and other consumer loans		56,302			95,149

		4,109,811			4,388,506
Contras to loans:
Undisbursed loan proceeds		(71,672	)		(141,219	)
Allowance for loan losses		(137,165	)		(38,285	)
Unearned loan fees		(4,441	)		(6,075	)
Net discount on loans purchased		(10	)		(11	)
Unearned interest		(84	)		(83	)

		(213,372	)		(185,673	)

	$	3,896,439		$	4,202,833

A summary of the activity in the allowance for loan losses follows:


	Year Ended March 31,
	2009			2008			2007
	(Dollars in thousands)

Allowance at beginning of year	$	38,285		$	20,517		$	15,570
Provision		205,719			22,551			11,255
Charge-offs		(108,924	)		(7,913	)		(7,217	)
Recoveries		2,085			335			909
Acquisition of S&C Bank		—			2,795			—

Allowance at end of year	$	137,165		$	38,285		$	20,517

As of March 31, 2009, the Corporation had loans totaling $160.6 million that are on interest reserve. For these loans, no payments are typically received from the borrower since accumulated interest is added to the principal of the loan through the interest reserve. If appraisal values relating to these real estate secured loans, which includes various assumptions, proves to be overstated and/or declines over the contractual term of the loan, the Corporation may have inadequate security for the repayment of the loan. As of March 31, 2009, $44.7 million of our impaired loans remain on interest reserve, all of which have been placed on non-accrual status.

At March 31, 2009, the Corporation has identified $415.1 million of loans as impaired, net of allowances and including performing troubled debt restructurings. A loan is identified as impaired when, according to FAS 114,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. A summary of the details regarding impaired loans follows:


	At March 31,
	2009			2008			2007
	(In thousands)

Impaired loans with valuation reserve required	$	294,736		$	52,866		$	2,130
Impaired loans without a specific reserve		193,637			51,192			45,718

Total impaired loans		488,373			104,058			47,848
Less:
Specific valuation allowance		(73,255	)		(17,639	)		(517	)

	$	415,118		$	86,419		$	47,331

Average impaired loans	$	247,034		$	67,138		$	26,458
Interest income recognized on impaired loans	$	21,637		$	107		$	44
Loans on nonaccrual status	$	488,373		$	101,241		$	47,040
Loans past due ninety days or more and still accruing	$	—		$	—		$	—
Performing troubled debt restructurings	$	61,460		$	400		$	400

Currently, all impaired loans are placed on nonaccrual status. Previously, a loan could be considered substandard and impaired while not being placed on nonaccrual status if contractually performing. Those loans past due more than 90 days are considered non-performing.

The Corporation is currently committed to lend approximately $17.0 million in additional funds on these impaired loans in accordance with the original terms of these loans; however, the Corporation is not legally obligated to, and will not, disburse additional funds on any loans while in nonaccrual status. Of the $17.0 million in committed funds on impaired loans, $3.0 million is applicable to non-performing loans. The Corporation will continue to monitor its portfolio on a regular basis and will lend additional funds as warranted on these impaired loans.

Approximately 32% of the impaired loans as of March 31, 2009 relates to residential construction and residential land loans. As of March 31, 2009, $193.6 million of impaired loans does not have any specific valuation allowance under SFAS 114. Pursuant to SFAS 114, a loan is impaired when both the contractual interest payments and the contractual principal payments of a loan are not expected to be collected as scheduled in the loan agreement. The $193.6 million of impaired loans without a specific valuation allowance as of March 31, 2009 are generally impaired due to delays or anticipated delays in receiving payments pursuant to the contractual terms of the loan agreements.

The Corporation has experienced declines in the current valuations for real estate collateral supporting portions of its loan portfolio, primarily residential construction and residential land loans, throughout fiscal year 2009, as reflected in recently received appraisals. Currently, $130.5 million or approximately 37.9% of impaired loans secured by real estate have recent appraisals (i.e. within one year), although the Corporation continues to receive appraisals. If real estate values continue to decline and as updated appraisals are received, the Corporation may have to increase its allowance for loan losses significantly.

Certain mortgage loans are pledged as collateral for FHLB borrowings. See Note 10.

A substantial portion of the Bank’s loans are collateralized by real estate in and around the State of Wisconsin. Accordingly, the ultimate collectibility of a substantial portion of the loan portfolio is susceptible to changes in market conditions in that area.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In the ordinary course of business, the Bank has granted loans to principal officers and directors and their affiliates amounting to $12,435,000 and $11,637,000 at March 31, 2009 and 2008, respectively. During the year ended March 31, 2009, total principal additions were $1,296,000 and total principal payments were $498,000.


Note 7 —	Goodwill, Other Intangibles and Mortgage Servicing Rights

The Corporation accounts for goodwill in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. All of the Corporation’s goodwill was assigned to the community banking segment, which is also the reporting unit. The Corporation tested its goodwill for impairment on its annual impairment testing date of December 31, 2008.

The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. The Corporation’s market capitalization was approximately $59.6 million at December 31, 2008. The Corporation concluded that since the community banking segment represents nearly all of the market value of the company, and since the carrying amount of the Corporation ($146.7 million) exceeded its market capitalization by a significant amount at December 31, 2008, the second step of the goodwill impairment test should be performed to measure the amount of impairment loss. The Corporation ultimately concluded that the loss was equal to $72.2 million, the entire balance of the recorded goodwill.

The Corporation has other intangible assets consisting of core deposit intangibles with a remaining weighted average amortization period of approximately 7.5 years. The core deposit premium had a carrying amount and a value net of accumulated amortization of $4.7 million and $5.4 million at March 31, 2009 and 2008, respectively. The Corporation evaluated core deposit intangibles and determined that as of March 31, 2009, it is not considered impaired.

The following table presents the changes in the carrying amount of core deposit intangibles, gross carrying amount, accumulated amortization and net book value as of March 31, 2009 and 2008.


	March 31,
	2009			2008
	(In thousands)

Balance at beginning of period	$	72,375		$	19,956
Goodwill from business combination(1)		—			52,419
Goodwill adjustment		(194	)		—
Goodwill impairment		(72,181	)		—

Balance at end of period	$	—		$	72,375


(1)		The Corporation’s acquisition of S & C Bank on January 2, 2008, generated approximately $52.4 million in goodwill.

The following table presents the changes in the carrying amount of core deposit intangibles, gross carrying amount, accumulated amortization and net book value as of March 31, 2009 and 2008.


	March 31,
	2009			2008
	(In thousands)

Balance at beginning of period	$	5,359		$	—
Other intangibles from business combination		—			5,517
Amortization expense		(634	)		(158	)

Balance at end of period	$	4,725		$	5,359

Gross carrying amount	$	5,517		$	5,517
Accumulated amortization		(792	)		(158	)

Net book value	$	4,725		$	5,359

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Corporation adopted FAS 156 — “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140” (“FAS 156”) as of April 1, 2006. FAS 156 changes the way the Corporation accounts for servicing assets and obligations associated with financial assets disposed of or acquired. Mortgage servicing rights (MSRs) are recorded when loans are sold to third-parties with servicing of those loans retained. In addition, MSRs are recorded when acquiring or assuming an obligation to service a financial (loan) asset that does not relate to a financial asset that is owned. The servicing asset is initially measured at fair value. The Corporation has defined two classes of MSRs to be accounted for under FAS 156 — residential (one to four family) and large multi-family/commercial real estate serviced for private investors.

The first class, residential MSRs, are servicing rights on one to four family mortgage loans sold to public agencies and servicing assets related to the FHLB MPF program. The Corporation obtained a servicing asset when we delivered loans “as an agent” to the FHLB of Chicago under its MPF program. Initial fair value of these residential mortgatge servicing rights is calculated by a discounted cash flow model based on market value assumptions at the time of origination. In addition, this class includes servicing rights purchased from other banks for residential loans at an agreed upon purchase price which becomes the initial fair value. The Corporation assesses this class for impairment using a discounted cash flow model based on current market value assumptions at each reporting period.

The other class of mortgage servicing rights is for large multi-family/commercial real estate loans partially sold to private investors. The initial fair value is calculated by a discounted cash flow model based on market value assumptions at the time of origination at each reporting period.

Critical assumptions used in the discounted cash flow model include mortgage prepayment speeds, discount rates, costs to service and ancillary income. Variations in the assumptions could materially affect the estimated fair values. Changes to the assumptions are made when current trends and market data indicate that new trends have developed. Current market value assumptions based on loan product types — fixed rate, adjustable rate and balloon loans - include discount rates in the range of 11 to 21 percent and national prepayment speeds. Many of these assumptions are subjective and require a high level of management judgment. MSR valuation assumptions are reviewed and approved by management on a quarterly basis.

Prepayment speeds may be affected by economic factors such as home price appreciation, market interest rates, the availability of other credit products to our borrowers and customer payment patterns. Prepayment speeds include the impact of all borrower prepayments, including full payoffs, additional principal payments and the impact of loans paid off due to foreclosure liquidations. As market interest rates decline, prepayment speeds will generally increase as customers refinance existing mortgages under more favorable interest rate terms. As prepayment speeds increase, anticipated cash flows will generally decline resulting in a potential reduction, or impairment, to the fair value of the capitalized MSRs. Alternatively, an increase in market interest rates may cause a decrease in prepayment speeds and therefore an increase in fair value of MSRs. Annually, external data is obtained to test the values and assumptions that are used in the initial valuations for the discounted cash flow model.

The Corporation has chosen to use the amortization method to measure each class of separately recognized servicing assets. Under the amortization method, the Corporation amortizes servicing assets in proportion to and over the period of net servicing income. Income generated as the result of new servicing assets is reported as net gain on sale of loans and the amortization of servicing assets is reported as a reduction to loan servicing income in the Corporation’s consolidated statements of income. Ancillary income is recorded in other non-interest income.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Information regarding the Corporation’s mortgage servicing rights follows:


	Residential			Other
	(In thousands)

Mortgage servicing rights as of March 31, 2007	$	6,364		$	1,047
Acquired servicing rights of S & C Bank at market value		1,632			—
Additions		5,822			629
Amortization		(1,985	)		(333	)
Reclassification		(135	)		135

Mortgage servicing rights before valuation allowance at end of period		11,698			1,478
Valuation allowance		—			—

Net mortgage servicing rights as of March 31, 2008	$	11,698		$	1,478

Fair market value at the end of the period	$	13,764		$	2,040
Key assumptions:
Weighted average discount		11.04	%		20.12	%
Weighted average prepayment speed assumption		16.82	%		13.15	%

Mortgage servicing rights as of March 31, 2008	$	11,698		$	1,478
Additions		10,087			142
Amortization		(4,623	)		(362	)

Mortgage servicing rights before valuation allowance at end of period		17,162			1,258
Valuation allowance		(2,407	)		—

Net mortgage servicing rights as of March 31, 2009	$	14,755		$	1,258

Fair market value at the end of the period	$	15,292		$	1,662
Key assumptions:
Weighted average discount		11.14	%		21.12	%
Weighted average prepayment speed assumption		17.99	%		24.39	%

The projections of amortization expense for mortgage servicing rights and the core deposit premium set forth below are based on asset balances and the interest rate environment as of March 31, 2009. Future amortization expense may be significantly different depending upon changes in the mortgage servicing portfolio, mortgage interest rates and market conditions.


	Residential		Other		Core
	Mortgage		Mortgage		Deposit
	Servicing Rights		Servicing Rights		Premium		Total
			(In thousands)

Year ended March 31, 2009 (actual)	$	4,623	$	362	$	634	$	5,619

Estimate for the year ended March 31,
2010	$	4,623	$	362	$	634	$	5,619
2011		4,623		362		634		5,619
2012		4,623		362		634		5,619
2013		886		172		634		1,692
Thereafter		—		—		2,189		2,189

	$	14,755	$	1,258	$	4,725	$	20,738

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Mortgage loans serviced for others are not included in the consolidated balance sheets. The unpaid principal balances of mortgage loans serviced for others were approximately $3.25 billion at March 31, 2009 and 2008.


Note 8 —	Office Properties and Equipment

Office properties and equipment are summarized as follows (in thousands):


	March 31,
	2009		2008

Land and land improvements	$	10,188	$	10,055
Office buildings		53,383		52,701
Furniture and equipment		52,434		49,186
Leasehold improvements		5,013		4,700

		121,018		116,642
Less allowance for depreciation and amortization		72,895		68,726

	$	48,123	$	47,916

During the years ending March 31, 2009, 2008 and 2007, building depreciation expense was $1,992,000, $1,622,000 and $1,417,000, respectively. The furniture and fixture depreciation expense during the years ended March 31, 2009, 2008, and 2007 was $3,049,000, $2,534,000 and $2,370,000, respectively.

The Bank leases various branch offices, office facilities and equipment under noncancelable operating leases which expire on various dates through 2029. Future minimum payments under noncancelable operating leases with initial or remaining terms of one year or more for the years indicated are as follows at March 31, 2009:


	Amount of Future
Year	Minimum Payments
	(Dollars in thousands)

2010	$	2,345
2011		2,160
2012		2,056
2013		1,913
2014		1,847
Thereafter		14,886

Total	$	25,207

For the years ended March 31, 2009, 2008 and 2007, rental expense was $2,826,000, $2,284,000 and $1,863,000, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 9 —	Deposits

Deposits are summarized as follows (in thousands):


	March 31,
			Weighted					Weighted
	2009		Average Rate			2008		Average Rate

Negotiable order of withdrawal (“NOW”) accounts:
Non-interest-bearing	$	274,392		0.00	%	$	280,897		0.00	%
Interest-bearing
Fixed rate		170,167		0.23	%		159,945		0.27	%
Variable rate		27,930		0.38	%		32,965		0.57	%

		472,489		0.11	%		473,807		0.13	%
Variable rate insured money market accounts		438,380		0.78	%		614,745		2.36	%
Passbook accounts		223,242		0.26	%		211,662		0.47	%
Advance payments by borrowers for taxes and insurance		7,395		0.25	%		6,796		0.41	%
Certificates of deposit:
0.00% to 2.99%		758,747		2.59	%		40,953		2.82	%
3.00% to 4.99%		1,997,614		3.54	%		1,131,268		4.20	%
5.00% to 6.99%		11,465		5.12	%		1,039,098		5.17	%
S&C purchase accounting adjustment		59					153

		2,767,885		3.29	%		2,211,472		4.63	%

		3,909,391		2.44	%		3,518,482		3.37	%
Accrued interest on deposits		14,436					21,512

	$	3,923,827				$	3,539,994

A summary of annual maturities of certificates of deposit outstanding at March 31, 2009 follows (in thousands):


Matures During Year Ended March 31,	Amount

2010	$	1,936,476
2011		663,250
2012		109,693
2013		31,065
Thereafter		27,401

	$	2,767,885

At March 31, 2009 and 2008, certificates of deposit with balances greater than or equal to $100,000 amounted to $500.5 million and $396.3 million, respectively.

The Bank has entered into agreements with certain brokers that will provide deposits obtained from their customers at specified interest rates for an identified fee, or so called “brokered deposits.” At March 31, 2009 and 2008, the Bank had $457.3 million and $220.3 million in brokered deposits. Subsequent to March 31, 2009, the Bank voluntarily entered into a cease and desist agreement with the OTS which will limit the Bank’s ability to accept, renew or roll over brokered deposits without prior approval of the OTS as discussed in Note 22.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 10 —	Other Borrowed Funds

Other borrowed funds consist of the following (dollars in thousands):


	Matures During		March 31, 2009					March 31, 2008
	Year Ended				Weighted					Weighted
	March 31,		Amount		Average Rate			Amount		Average Rate

FHLB advances:		2009	$	—		—		$	123,300		4.49
		2010		330,000		3.60			310,400		3.63
		2011		181,450		3.69			177,350		3.79
		2012		24,879		3.82			15,000		4.90
		2013		160,000		3.00			220,000		3.17
		2014		5,000		2.95			—		—
		2018		100,000		3.36			100,000		3.36
		2019		86,000		2.87			—		—

Total FHLB Advances				887,329					946,050
Other Borrowed Funds				191,063		8.00			260,687		3.66
S&C PVA(1)				—		—			24		—

			$	1,078,392		3.88	%	$	1,206,761		3.72	%


(1)		Stemming from the Bank’s purchase of S&C Bank on January 2, 2008, an adjustment was made to the market values of FHLB advances. The market value of FHLB advances was determined by discounting cash flows using current borrowing rates for the remaining contractual maturity.

The Bank selects loans that meet underwriting criteria established by the FHLB as collateral for outstanding advances. FHLB advances are limited to 60% of single-family loans, 60% of multi-family loans and to 25% of eligible home equity and home equity line of credit loans meeting such criteria. In addition, these notes are collateralized by FHLB stock of $54,829,000 at March 31, 2009 and 2008. The FHLB borrowings are also collateralized by mortgage-related securities with a fair value of $301.2 million and $119.4 million at March 31, 2009 and 2008, respectively and agency notes with a fair value of $5.0 million at March 31, 2009. There were no borrowings pledged by agency notes at March 31, 2008.

As of March 31, 2009 and 2008, the Corporation had drawn a total of $116.3 million at a weighted average interest rate of 8.00% and $118.5 million at a weighted average interest rate of 3.93%, respectively, on a short term line of credit at U.S. Bank. The total line of credit available is $116.3 million. The interest is fixed at 8.00% and is payable monthly. The remaining balance of $74.7 million of other borrowed funds represent mortgage loans on real estate held for development at a weighted average interest rate of 3.86% as well as borrowings of $60.0 million on an FDIC guaranteed senior note at a weighted average interest rate of 2.74%.

On May 29, 2009, Anchor BanCorp Wisconsin Inc. (the “Company”) entered into Amendment No. 4 (the “Amendment”) to the Amended and Restated Credit Agreement, dated as of June 9, 2008 (the “Credit Agreement”), among the Company, the lenders from time to time a party thereto (the “Lenders”), and U.S. Bank National Association, as administrative agent for such lenders (the “Agent”).

The Amendment provides the following:


	•	the Company must pay in full the outstanding balance under the Credit Agreement on the earlier of (a) the Company’s receipt of net proceeds of a financing transaction from the sale of equity securities in an amount not less than $116,300,000.00 or (b) May 31, 2010 (the “Maturity Date”).

	•	the outstanding balance under the Credit Agreement from time to time shall bear interest equal to a “Base Rate” of 8% per annum plus a “Deferred Interest Rate” initially set at 4%; provided however, that in the event (i) the outstanding balance under the Credit Agreement is repaid in full (a) by September 30, 2009, the Deferred Interest Rate shall be reduced to 0.0% or (b) by December 31, 2009, the Deferred Interest Rate shall

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


		be reduced to 1.0%, or in the alternative, (ii) the outstanding balance under the Credit Agreement is reduced by $58,000,000.00 (a) by September 30, 2009, the Deferred Interest Rate shall be reduced to 2.0% or (b) by December 31, 2009, the Deferred Interest Rate shall be reduced to 3.0%.


	•	interest accruing at the Base Rate is due on the last day of each month and on the Maturity Date; interest accruing at the Deferred Interest Rate is due on the earlier of (i) the date the outstanding balance under the Credit Agreement is repaid in full or (ii) the Maturity Date.

	•	the lenders have no obligation to make additional loans to the Company and amounts repaid by the Company may not be reborrowed.

	•	no later than one business day after the date that the Company receives net proceeds of a financing transaction from the sale of equity securities, the Company must prepay the then outstanding balance under the Credit Agreement by an amount not less than the net proceeds so received; provided however, that if such net proceeds are received from the United States Department of the Treasury and if the terms of such investment prohibit the use of the investment proceeds to repay senior debt, then no prepayment is required.

	•	the ratio of “Non-Performing Assets” (defined as the assets of the Company’s subsidiary, AnchorBank, fsb, that are reported as “non-performing” in its most recently filed FFIEC call report) to “Primary Capital” (defined as the sum of the “Tier 1 Capital” plus the loan loss reserve of AnchoBank, fsb) shall not exceed (i) 60.0% as of June 30, 2009 or (ii) 62% as of the last day of any fiscal quarter thereafter.

	•	the ratio of “Non-Performing Loans” (defined as the sum of all loans, leases and other assets of AnchoBank, fsb that are 90 days or more past due and that are classified as “non-accrual” in its most recent FFEIC call report) to “Gross Loans” (defined as the sum of all loans, leases and other assets of AnchoBank, fsb) shall not exceed (i) 5.25% as of May 31, 2009 and June 30, 2009 or (ii) 5.75% as of the last day of any month thereafter.

	•	within 15 days after the end of each calendar month, the Company shall submit to the Agent a certificate indicating whether the Company is in compliance with the above-described and other financial covenants.

	•	by December 15, 2009, the Company must take such action as is necessary in order so that the Company has sufficient funds to pay: (i) the aggregate interest that would accrue on the outstanding balance under the Credit Agreement during the period from January 1, 2010 through May 31, 2010 and deposit such amount in an escrow account; and (ii) the aggregate dividends required to be paid on the Company’s Fixed Rate Cumulative Preferred Stock, Series B during such period.

	•	the Company and each of its subsidiaries other than AnchorBank, fsb shall, at the request of the Lenders, grant to Agent on behalf of the Lenders a security interest in and lien on all of their respective properties.

	•	the Company shall provide the Agent and the Lenders notice any public or non-public enforcement action and comply with any directives issued by the regulatory authority bringing such action.

	•	The Company shall pay to the Agent an “Amendment Fee” of $3,489,000.00 payable on the earlier of (a) the date the outstanding balance under the Credit Agreement is repaid in full or (b) the Maturity Date; provided however, that if such amount is repaid (y) by September 30, 2009, the Amendment Fee shall be reduced to $1,163,000.00, and (z) by December 31, 2009, the Amendment Fee shall be reduced to $2,326,000.00.

The total outstanding balance under the Credit Agreement as of May 29, 2009 was $116.3 million. Under the Amendment, the Agent and the lenders agree to forbear from exercising their rights and remedies against the Company until the earliest to occur of the following: (i) the occurrence of any event of default other than a failure to make principal payments on the outstanding balance under the Credit Agreement; or (ii) May 31, 2010.

The Credit Agreement and the Amendment also contain customary representations, warranties, conditions, and events of default for agreements of such type.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 11 — Stockholders’ Equity

The Board of Directors of the Corporation is authorized to issue preferred stock in series and to establish the voting powers, other special rights of the shares of each such series and the qualifications and restrictions thereof. Preferred stock may rank prior to the common stock as to dividend rights, liquidation preferences or both, and may have full or limited voting rights. Under Wisconsin state law, preferred stockholders would be entitled to vote as a separate class or series in certain circumstances, including any amendment which would adversely change the specific terms of such series of stock or which would create or enlarge any class or series ranking prior thereto in rights and preferences.

Preferred Equity: The Corporation’s Articles of Incorporation, as amended, authorize the issuance of 5,000,000 shares of preferred stock at a par value of $0.10 per share. In January, 2009, under the Capital Purchase Program (“CPP”), the Corporation issued 110,000 shares of senior preferred stock (with a par value of $0.10 per share and a liquidation preference of $1,000 per share) and a 10-year warrant to purchase approximately 7.4 million shares of common stock (see section “Common Stock Warrants” below for additional information), for aggregate proceeds of $110 million. The proceeds received were allocated between the Senior Preferred Stock and the Common Stock Warrants based upon their relative fair values, which resulted in the recording of a discount on the Senior Preferred Stock upon issuance that reflects the value allocated to the Common Stock Warrants. The discount will be accreted using a level-yield basis over five years. The allocated carrying value of the Senior Preferred Stock and Common Stock Warrants on the date of issuance (based on their relative fair values) were $72.9 million and $37.1 million, respectively. Cumulative dividends on the Senior Preferred Stock are payable at 5% per annum for the first five years and at a rate of 9% per annum thereafter on the liquidation preference of $1,000 per share. The Corporation is prohibited from paying any dividend with respect to shares of common stock unless all accrued and unpaid dividends are paid in full on the Senior Preferred Stock for all past dividend periods. The Senior Preferred Stock is non-voting, other than class voting rights on matters that could adversely affect the Senior Preferred Stock. Three years after the original issue date the Corporation may redeem the Senior Preferred Stock at a redemption price equal to the sum of the liquidation preference of $1,000 per share and any accrued and unpaid dividends. Prior to the end of three years, the Senior Preferred Stock may be redeemed with the proceeds from one or more qualified equity offerings of any Tier 1 perpetual preferred or common stock of at least $110 million (each a “Qualified Equity Offering”). The UST may also transfer the Senior Preferred Stock to a third party at any time.

Common Stock Warrants: The Common Stock Warrants have a term of 10 years and are exercisable at any time, in whole or in part, at an exercise price of $2.23 per share (subject to certain anti-dilution adjustments). The UST may not exercise or transfer the Common Stock Warrants with respect to more than half of the initial shares of common stock underlying the common stock warrants prior to the earlier of (a) the date on which the Corporation receives aggregate gross proceeds of not less than $110 million from one or more Qualified Equity Offerings and (b) December 31, 2009. The number of shares of common stock to be delivered upon settlement of the Common Stock Warrants will be reduced by 50% if the Corporation receives aggregate gross proceeds of at least $110 million from one or more Qualified Equity Offerings prior to December 31, 2009.

Assumptions were used in estimating the fair value of Common Stock Warrants. The weighted average expected life of the Common Stock Warrants represents the period of time that common stock warrants are expected to be outstanding. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the historical volatility of the Corporation’s stock. The following assumptions were used in estimating the fair value for the Common Stock Warrants: a weighted average expected life of 10 years, a risk-free interest rate of 3.35%, an expected volatility of 50.12%, and a dividend yield of 1.55%. Based on these assumptions, the estimated fair value of the Common Stock Warrants was $7.8 million.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Qualitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of core, tangible, and risk-based capital. Management believes, as of March 31, 2009, that the Bank meets all capital adequacy requirements to which it is subject.

As of March 31, 2009, the most recent notification from the OTS categorizes the Bank as well capitalized under the framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum core, tangible and risk-based capital ratios. Subsequent to March 31, 2009, the Bank voluntarily entered into a cease and desist agreement with the OTS which requires, among other things, capital requirements in excess of the generally applicable minimum requirements as further described in Note 22.

The following table summarizes the Bank’s capital ratios and the ratios required by its federal regulators at March 31, 2009 and 2008:


											Minimum Required
						Minimum Required					to be Well
						For Capital					Capitalized Under
	Actual					Adequacy Purposes					OTS Requirements
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)

At March 31, 2009:
Tier 1 capital (to adjusted tangible assets)	$	324,130		6.17	%	$	157,527		3.00	%	$	262,545		5.00	%
Risk-based capital (to risk-based assets)		370,680		10.20			290,670		8.00			363,338		10.00
Tangible capital (to tangible assets)		324,130		6.17			78,763		1.50			N/A		N/A
At March 31, 2008:
Tier 1 capital (to adjusted tangible assets)	$	352,311		7.04	%	$	150,210		3.00	%	$	250,349		5.00	%
Risk-based capital (to risk-based assets)		390,596		10.14			308,273		8.00			385,341		10.00
Tangible capital (to tangible assets)		352,311		7.04			75,105		1.50			N/A		N/A

The following table reconciles stockholders’ equity to federal regulatory capital at March 31, 2009 and 2008:


	March 31,			March 31,
	2009			2008
	(In thousands)

Stockholders’ equity of the Bank	$	322,505		$	432,382
Less: Goodwill and intangible assets		(4,725	)		(77,734	)
Accumulated other comprehensive income		6,350			(2,337	)

Tier 1 and tangible capital		324,130			352,311
Plus: Allowable general valuation allowances		46,550			38,285

Risk-based capital	$	370,680		$	390,596

The Bank may not declare or pay a cash dividend if such declaration and payment would violate regulatory requirements. Subsequent to March 31, 2009, the Corporation voluntarily entered into a cease and desist agreement with the OTS which requires, among other things, the Corporation receive the permission of the OTS prior to declaring, making or paying any dividends or other capital distributions on its capital stock as further described in note 22.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 12 —	Employee Benefit Plans

The Corporation maintains a defined contribution plan in which all employees are eligible to participate. Employees become eligible on the first of the month following 60 days of employment. Participating employees may contribute up to 50% of their base compensation. The Corporation matches 100% of the amounts contributed by each participating employee up to 2% of the employee’s compensation, 50% of the employee’s contribution up to the next 2% of compensation, and 25% of each employee’s contributions up to the next 4% of compensation. The Corporation may also contribute additional amounts at its discretion. The Corporation’s contribution was $1.1 million, $963,000, and $887,000, for the years ended March 31, 2009, 2008, and 2007, respectively.

The Corporation sponsors an Employee Stock Ownership Plan (“ESOP”) which covers all employees with more than one year of employment, who are at least 21 years of age and who work more than 1,000 hours in a plan year. Any discretionary contributions to the ESOP have been allocated among participants on the basis of compensation. Forfeitures are reallocated among the remaining participating employees. The dividends on ESOP shares were used to purchase additional shares to be allocated under the plan. The number of shares allocated to participants is determined based on the annual contribution plus any shares purchased from dividends received during the year. There was no ESOP expense for fiscal years 2009, 2008 and 2007.

The activity in the ESOP shares of both plans is as follows:


	Year Ended March 31,
	2009			2008			2007

Balance at beginning of year		1,270,438			1,355,508			1,396,609
Additional shares purchased		—			—			—
Shares distributed for terminations		(53,628	)		(50,189	)		(5,108	)
Sale of shares for cash distributions		(20,979	)		(34,881	)		(35,993	)

Balance at end of year		1,195,831			1,270,438			1,355,508
Allocated shares included above		1,195,831			1,270,438			1,355,508

Unallocated shares		—			—			—

In the event a terminated ESOP participant desires to sell their shares of the Corporation’s stock, or for certain employees who elect to diversify their account balances, the Corporation may be required to purchase the shares from the participant at their fair market value. At March 31, 2009 and 2008, the ESOP held 1,195,831 shares and 1,270,438 shares, respectively, all of which have been allocated to ESOP participants. The fair market value of those shares totaled $1.6 million and $24.1 million as of March 31, 2009 and 2008, respectively. During the years ended March 31, 2009 and 2008, the fair market value of the stock purchased by the Company from ESOP participants totaled $363,000 and $979,000, respectively. The Corporation expects the amount it may be required to pay during 2010 for shares from ESOP participants will approximate the amount paid during 2009.

During 1992, the Corporation formed four Management Recognition Plans (“MRPs”) which acquired a total of 4% of the shares of the Corporation’s common stock. The Bank contributed $2,000,000 to the MRPs to enable the MRP trustee to acquire a total of 1,000,000 shares of the Corporation’s common stock. In 2001, the Corporation amended and restated the MRPs to extend their term. There were no shares granted during the years ended March 31, 2009, 2008 and 2007. The $2,000,000 contributed to the MRPs is being amortized to compensation expense as the Bank’s employees become vested in the awarded shares. There was no MRP amortized to compensation expense for the years ended March 31, 2009, 2008 and 2007. There were no shares vested during the years ended March 31, 2009, 2008 and 2007.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The activity in the MRP shares is as follows:


	Year Ended March 31,
	2009		2008		2007

Balance at beginning of year		418,185		405,965		396,734
Additional shares purchased		11,684		12,220		9,231
Shares vested		—		—		—

Balance at end of year		429,869		418,185		405,965
Allocated shares included above		—		—		—

Unallocated shares		429,869		418,185		405,965

The Corporation has stock compensation plans under which shares of common stock are reserved for the grant of incentive and non-incentive stock options and restricted stock or restricted stock units to directors, officers and employees. The date the options are first exercisable is determined by a committee of the Board of Directors of the Corporation. The options expire no later than ten years from the grant date.

A summary of stock options activity for all periods follows:


	Year Ended March 31,
	2009					2008					2007
				Weighted					Weighted					Weighted
				Average					Average					Average
	Options			Price		Options			Price		Options			Price

Outstanding at beginning of year		752,397		$	20.43		837,296		$	19.82		1,159,022		$	17.75
Granted		—			—		—			—		—			—
Exercised		(96,870	)		15.34		(72,427	)		14.53		(321,726	)		12.37
Forfeited		(139,857	)		19.66		(12,472	)		13.27		—			—

Outstanding at end of year		515,670		$	21.60		752,397		$	20.43		837,296		$	19.82

Options exercisable and vested at year-end		515,670		$	21.60		752,397		$	20.43		837,296		$	19.82

Intrinsic value of options exercised	$	51				$	875				$	5,307

The aggregate intrinsic value of options outstanding and exercisable at March 31, 2009 was zero.

In March 2006, the Board approved the accelerated vesting and exercisability of all unvested and unexercisable stock options to purchase common stock of the Corporation outstanding as of March 31, 2006. As a result, options to purchase 67,240 shares of common stock, which would have otherwise vested and become exercisable from time to time over the four years subsequent to March 31, 2006 (including options to purchase 30,168 shares of common stock that would have vested and become exercisable in June 2006), became vested and exercisable on March 31, 2006. The number of shares and exercise price of the options subject to acceleration are unchanged. The accelerated options have exercise prices between $23.77 and $31.945 per share, with a weighted average exercise price of $26.43 per share.

The Corporation estimates that accelerating the vesting and exercisability of these options eliminated approximately $0.5 million of non-cash compensation expense that would otherwise have been recorded in the Corporation’s income statements in future periods upon its adoption of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123R, Share- Based Payment, as of April 1, 2006.

At March 31, 2009, 872,571 shares were available for future grants.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table represents outstanding stock options and exercisable stock options at their respective ranges of exercise prices at March 31, 2009:


	Options Outstanding						Exercisable Options
			Weighted-
			Average
			Remaining		Weighted-				Weighted-
			Contractual		Average				Average
Range of Exercise Prices	Shares		Life (Years)		Exercise Price		Shares		Exercise Price

$15.06 – $22.07		281,330		2.52	$	18.11		281,330	$	18.11
$23.77 – $28.50		201,340		4.47		24.78		201,340		24.78
$31.95 – $31.95		33,000		6.32		31.95		33,000		31.95

		515,670		3.52	$	21.60		515,670	$	21.60

In 2004, the Corporation approved the 2004 Equity Incentive Plan. The purpose of the plan was to promote the interests of the Corporation and its stockholders by (i) attracting and retaining exceptional executive personnel and other key employees of the Corporation and its Affiliates; (ii) motivating such employees by means of performance-related incentives to achieve long-range performance goals; and (iii) enabling such employees to participate in the long-term growth and financial success of the Corporation. Under the plan, up to 921,990 shares of Common Stock were authorized and available for issuance. Of the 921,990 shares available, up to 300,000 shares may be awarded in the form of restricted stock or restricted stock units which are not subject to the achievement of a performance target or targets. The restricted stock grants generally vest over a period of three to five years and are included in outstanding shares at the time of vesting. There were 22,500, 32,700 and 55,000 shares granted at fair value under the plan during the year ended March 31, 2009, 2008 and 2007, respectively. The restricted stock grant plan expense was $599,000, $644,000 and $400,000 for the fiscal years ended March 31, 2009, 2008 and 2007, respectively.

The activity in the restricted stock grant shares is as follows:


	Year Ended March 31,
	2009					2008					2007
				Weighted					Weighted					Weighted
				Average					Average					Average
				Grant Date					Grant Date					Grant Date
	Options			Fair Value		Options			Fair Value		Options			Fair Value

Balance at beginning of year		78,800		$	26.32		66,600		$	29.62		20,700		$	31.95
Restricted stock granted		22,500			7.32		32,700			22.85		55,000			28.47
Restricted stock vested		(12,900	)		29.14		(19,500	)		30.09		(9,100	)		31.95
Restricted stock forfeited		(12,400	)		11.58		(1,000	)		22.85		—			—

Balance at end of year		76,000		$	22.62		78,800		$	26.32		66,600		$	29.62

The Corporation has two types of deferred compensation plans to benefit certain executives of the Corporation and the Bank. The first type of plan provides for contributions by both the participant and the Corporation equal to the amounts in excess of limitations imposed by the Internal Revenue Code amendment of 1986. The expense associated with this plan for fiscal 2009, 2008 and 2007 was $12,000, $67,000 and $102,000, respectively. The amount accrued at March 31, 2009, 2008 and 2007 was $12,000, $12,000 and $90,000, respectively. The second type of plan provides for contributions by the Corporation to supplement the participant’s retirement. The expense associated with this plan for fiscal 2009, 2008 and 2007 was $234,000, $249,000 and $163,000, respectively. When the benefits are to be paid to the participants, they are paid in a fixed number of shares of company stock. These two plans are reported in other liabilities with a related contra account reported as a deferred compensation obligation in the equity section of the consolidated balance sheets.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of March 31, 2009, there was approximately $1.3 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements (including share option and nonvested share awards) granted under the Plan. The fair value of stock that vested during the year ended March 31, 2009 was $48,000.


Note 13 —	Income Taxes

The Corporation and its subsidiaries file a consolidated federal income tax return and separate state income tax returns.

The provision for income taxes consists of the following (in thousands):


	Year Ended March 31,
	2009			2008			2007

Current:
Federal	$	(23,064	)	$	19,416		$	21,455
State		97			5,832			6,173

		(22,967	)		25,248			27,628
Deferred:
Federal		(8,558	)		(4,381	)		(2,428	)
State		1,427			(1,217	)		(614	)

		(7,131	)		(5,598	)		(3,042	)

Total Income Tax Expense (Benefit)	$	(30,098	)	$	19,650		$	24,586

For state income tax purposes, certain subsidiaries have net operating loss carryovers of $69,673,000 available to offset against future income. The carryovers expire in the years 2010 through 2024 if unused.

The provision for income taxes differs from that computed at the federal statutory corporate tax rate as follows (in thousands):


	Year Ended March 31,
	2009						2008						2007
				% of						% of						% of
				Pretax						Pretax						Pretax
	Amount			Income			Amount			Income			Amount			Income

Income (loss) before income taxes	$	(258,409	)		100.0	%	$	50,782			100.0	%	$	63,558			100.0	%

Income tax expense (benefit) at federal statutory rate of 35%	$	(90,443	)		35.0	%	$	17,774			35.0	%	$	22,245			35.0	%
State income taxes, net of federal income tax benefits		(8,852	)		3.4			2,913			5.7			3,429			5.3
Tax benefit from dividend to ESOP		(125	)		0.0			(319	)		(0.6	)		(1,171	)		(1.8	)
Reduction in tax exposure reserve		(977	)		0.4			(500	)		(1.0	)		—			—
Write-off of goodwill		24,348			(9.4	)		—			—			—			—
Increase in valuation allowance		46,310			(17.9	)		—			—			231			0.4
Other		(359	)		0.1			(218	)		(0.4	)		(148	)		(0.2	)

Income tax provision	$	(30,098	)		11.6	%	$	19,650			38.7	%	$	24,586			38.7	%

Deferred income tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The significant components of the Corporation’s deferred tax assets (liabilities) are as follows (in thousands):


	At March 31,
	2009			2008			2007

Deferred tax assets:
Allowances for loan losses	$	58,442		$	15,081		$	8,238
Other loss reserves		4,822			269			557
State NOL carryforwards		3,604			631			469
Unrealized gains/(losses)		2,695			(738	)		389
Other		11,773			9,045			8,103

Total deferred tax assets		81,336			24,288			17,756
Valuation allowance		(49,981	)		(997	)		(1,321	)

Adjusted deferred tax assets		31,355			23,291			16,435
Deferred tax liabilities:
FHLB stock dividends		(3,997	)		(4,022	)		(3,824	)
Mortgage servicing rights		(6,094	)		(4,888	)		(2,441	)
Purchase accounting		(3,348	)		(4,713	)		—
Other		(1,639	)		(1,513	)		(1,361	)

Total deferred tax liabilities		(15,078	)		(15,136	)		(7,626	)

Net deferred tax assets	$	16,277		$	8,155		$	8,809

We have maintained significant net deferred tax assets for deductible temporary differences, the largest of which relates to our allowance for loan losses. For income tax return purposes, only net charge-offs on uncollectible loan balances are deductible, not the provision for loan losses. Under generally accepted accounting principles, a valuation allowance is required to be recognized if it is “more likely than not” that a deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, the forecasts of future income, applicable tax planning strategies, and assessments of the current and future economic and business conditions. We consider both positive and negative evidence regarding the ultimate realizability of our deferred tax assets. Positive evidence includes the existence of taxes paid in available carryback years as well as the probability that taxable income will be generated in future periods while negative evidence includes significant losses in the current year or cumulative losses in the current and prior two years as well as general business and economic trends. At March 31, 2009, we determined that a valuation allowance relating to a portion of our deferred tax asset was necessary. This determination was based largely on the negative evidence represented by a loss in the most recent year caused by the significant loan loss provisions recorded during the year ended March 31, 2009 associated with our loan portfolio. In addition, general uncertainty surrounding future economic and business conditions have increased the potential volatility and uncertainty of our projected earnings. Therefore, a valuation allowance of $50.0 million excluding the valuation on the deferred tax asset related to unrealized losses on available for sale securities was recorded to offset net deferred tax assets that exceed the Corporation’s carryback potential.

Accounting for Uncertainty in Income Taxes: Effective April 1, 2007, the Corporation adopted FIN 48. This Interpretation provides guidance on financial statement recognition and measurement of tax positions taken, or expected to be taken, in tax returns. The initial adoption of this Interpretation had no material impact on the Corporation’s financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A reconciliation of the change in unrecognized tax benefits from April 1, 2008 to March 31, 2009 is as follows:


Balance at April 1, 2008	$	305
Reductions for tax positions of prior years		305

Balance at March 31, 2009	$	—

The whole amount of unrecognized tax benefits would affect the tax provision and the effective income tax rate if recognized in future periods.

The Corporation elects to treat interest and penalties recognized for the underpayment of income taxes as income tax expense, to the extent not included in unrecognized tax benefits.

The Corporation is subject to U.S. federal income tax as well as income tax of state jurisdictions. The tax years 2005-2007 remain open to examination by the Internal Revenue Service and certain state jurisdictions while the years 2004-2007 remain open to examination by certain other state jurisdictions.


Note 14 —	Guarantees

Financial Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others,” (FIN 45) requires certain guarantees to be recorded at fair value as a liability at inception and when a loss is probable and reasonably estimable, as those terms are defined in FASB Statement No. 5, “Accounting for Contingencies.” FIN 45 also requires a guarantor to make significant new disclosures (see below) even when the likelihood of making any payments under the guarantee is remote.

The Corporation’s real estate investment subsidiary, IDI, is required to guaranty the partnership loans of its consolidated subsidiaries, for the development of homes for sale. These subsidiaries are consolidated in these financial statements as VIE’s since IDI or its wholly owned subsidiaries is the primary beneficiary. These loans are secured by lots and homes being developed at a rate of 3.75%. As of March 31, 2009 the Corporation’s real estate investment subsidiary, IDI, had guaranteed $16.5 million for the following partnerships on behalf of the respective subsidiaries. As of that same date, $14.6 million is outstanding and reflected as a liability in these consolidated financial statements. The table below summarizes the individual consolidated subsidiaries and their respective guarantees and outstanding loan balances.


					Amount		Amount
			Amount		Outstanding		Outstanding
Subsidiary of IDI	Partnership Entity		Guaranteed		at 3/31/09		at 3/31/08
(Dollars in thousands)

Oakmont		Chandler Creek	$	—	$	—	$	15,000
Davsha III		Indian Palms 147, LLC		500		476		396
Davsha V		Villa Santa Rosa, LLC		1,000		346		722
Davsha VII		La Vista Grande 121, LLC		15,000		13,742		12,105

Total			$	16,500	$	14,564	$	28,223

IDI has real estate partnership investments within its consolidated subsidiaries for which it guarantees the above loans which are reflected as liabilities in these consolidated financial statements. These partnerships are also funded by financing with loans guaranteed by IDI and secured by the lots and homes being developed within each of the respective partnership entities.

As a limited partner, the Corporation still has the ability to exercise significant influence over operating and financial policies. This influence is evident in the terms of the respective partnership agreements and participation in policy-making processes. The Corporation has a 50% controlling interest in the respective limited partnerships and therefore has significant influence over the right to approve the sale or refinancing of assets of the respective partnerships in accordance with those partnership agreements.

100

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In acting as a partner with a controlling interest, the Corporation is committed to providing additional levels of funding to meet partnership operating deficits up to an aggregate amount of $16.5 million. At March 31, 2009, the Corporation’s maximum exposure to loss as a result of involvement with these limited partnerships was $(11.8) million as detailed in Note 1.

The partnership agreements generally contain buy-sell provisions whereby certain partners can require the purchase or sale of ownership interests by certain partners.


Note 15 —	Commitments and Contingent Liabilities

The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, loans sold with recourse against the Corporation and financial guarantees which involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of those instruments reflect the extent of involvement and exposure to credit loss the Corporation has in particular classes of financial instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Since many of the commitments are expected to expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements.

Financial instruments whose contract amounts represent credit risk are as follows (in thousands):


	March 31,
	2009		2008

Commitments to extend credit:
Fixed rate	$	51,797	$	94,290
Adjustable rate		630		24,934
Unused lines of credit:
Home equity		144,662		136,458
Credit cards		37,602		40,368
Commercial		89,300		128,505
Letters of credit		20,694		47,218
Credit enhancement under the Federal Home Loan Bank of Chicago Mortgage Partnership Finance Program		23,527		23,698
Real estate investment segment borrowing guarantees unfunded		1,936		3,277

Commitments to extend credit and unused lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Letters of credit commit the Corporation to make payments on behalf of customers when certain specified future events occur. Commitments and letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. As some such commitments expire without being drawn upon or funded by the Federal Home Loan Bank of Chicago (FHLB), the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. With the exception of credit card lines of credit, the Corporation generally extends credit only on a secured basis. Collateral obtained varies, but consists primarily of single-family residences and income-producing commercial properties. Fixed-rate loan commitments expose the Corporation to a certain amount of interest rate risk if market rates of interest substantially increase during the commitment period. Similar risks exist relative to loans classified as held for sale, which totaled $161,977,000 and $9,708,000 at March 31, 2009 and 2008, respectively. This exposure, however, is mitigated by the existence of firm commitments to sell the majority of the fixed-rate loans. Commitments to sell mortgage loans within 60 days at March 31, 2009 and 2008 amounted to $540,198,000 and $89,421,000, respectively.

101

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Corporation previously participated in the Mortgage Partnership Finance (MPF) Program of the Federal Home Loan Bank of Chicago (FHLB). The program was intended to provide member institutions with an alternative to holding fixed-rate mortgages in their loan portfolios or selling them in the secondary market. An institution participates in the MPF Program by either originating individual loans on a “flow” basis as agent for the FHLB pursuant to the “MPF 100 Program” or by selling, as principal, closed loans owned by an institution to the FHLB pursuant to one of the FHLB’s closed-loan programs. The program was discontinued in 2008 in its present format and the Corporation no longer funds loans through the MPF program. The Corporation does, however, continue to service the loans funded under the program and maintains the credit exposure and credit enhancement fees. Under the MPF Program, credit risk is shared by the participating institution and the FHLB by structuring the loss exposure in several layers, with the participating institution being liable for losses after application of an initial layer of losses (after any private mortgage insurance) is absorbed by the FHLB, subject to an agreed-upon maximum amount of such secondary credit enhancement which is intended to be in an amount equivalent to a “AA” credit risk rating by a rating agency. The participating institution may also be liable for certain first layer losses after a specified period of time. The participating institution receives credit enhancement fees from the FHLB for providing this credit enhancement and continuing to manage the credit risk of the MPF Program loans. Participating institutions are also paid specified servicing fees for servicing the loans.

Pursuant to the credit enhancement feature of that Program, the Corporation has retained secondary credit loss exposure in the amount of $23,527,000 at March 31, 2009 related to approximately $1,410,000,000 of residential mortgage loans that the Corporation has originated as agent for the FHLB. Under the credit enhancement, the FHLB is liable for losses on loans up to one percent of the original delivered loan balances in each pool. The Corporation is then liable for losses over and above the first position up to a contractually agreed-upon maximum amount in each pool that was delivered to the Program. The Corporation receives a monthly fee for this credit enhancement obligation based on the outstanding loan balances. Based on historical experience, the Corporation does not anticipate that any credit losses will be incurred under the credit enhancement obligation.

Loans sold to investors with recourse to the Corporation met the underwriting standards of the investor and the Corporation at the time of origination. In the event of default by the borrower, the investor may resell the loans to the Corporation at par value. As the Corporation expects relatively few such loans to become delinquent, the total amount of loans sold with recourse does not necessarily represent future cash requirements. Collateral obtained on such loans consists primarily of single-family residences.

Except for the above-noted commitments to originate and/or sell mortgage loans in the normal course of business, the Corporation and the Bank have not undertaken the use of off-balance-sheet derivative financial instruments for any purpose.

In the ordinary course of business, there are legal proceedings against the Corporation and its subsidiaries. Management considers that the aggregate liabilities, if any, resulting from such actions would not have a material, adverse effect on the financial position of the Corporation.


Note 16 —	Derivative Financial Instruments

The Corporation has recorded derivative contracts related to commitments to fund residential mortgages (“interest rate locks”) and commitments to deliver funded mortgages to investors (see Note 15). The fair values of these derivatives were immaterial at March 31, 2009 and 2008.


Note 17 —	Fair Value of Financial Instruments

Disclosure of fair value information about financial instruments, for which it is practicable to estimate that value, is required whether or not recognized in the consolidated balance sheets. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Certain financial

102

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

instruments with a fair value that is not practicable to estimate and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not necessarily represent the underlying value of the Corporation.

The Corporation, in estimating its fair value disclosures for financial instruments, used the following methods and assumptions:

Cash and cash equivalents and accrued interest: The carrying amounts reported in the balance sheets approximate those assets’ and liabilities’ fair values.

Investment and mortgage-related securities: Fair values for investment and mortgage-related securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans receivable: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for loans held for sale are based on outstanding sale commitments or quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The fair value of fixed-rate residential mortgage loans held for investment, commercial real estate loans, rental property mortgage loans and consumer and other loans and leases are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. For construction loans, fair values are based on carrying values due to the short-term nature of the loans.

Federal Home Loan Bank stock: The carrying amount of FHLB stock approximates its fair value as it can only be redeemed to the FHLB at its par value of $100.

Deposits: The fair values disclosed for NOW accounts, passbook accounts and variable rate insured money market accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies current incremental interest rates being offered on certificates of deposit to a schedule of aggregated expected monthly maturities of the outstanding certificates of deposit.

Borrowings: The fair value of the Corporation’s borrowings are estimated using discounted cash flow analysis, based on the Corporation’s current incremental borrowing rates for similar types of borrowing arrangements.

Off-balance-sheet instruments: Fair values of the Corporation’s off-balance-sheet instruments (lending commitments and unused lines of credit) are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the counterparties’ credit standing and discounted cash flow analyses. The fair value of these off-balance-sheet items approximates the recorded amounts of the related fees and is not material at March 31, 2009 and 2008.

103

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The carrying amounts and fair values of the Corporation’s financial instruments consist of the following (in thousands):


	March 31,
	2009				2008
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value

Financial assets:
Cash and cash equivalents	$	433,826	$	433,826	$	257,743	$	257,743
Investment securities		77,684		77,684		87,036		87,036
Mortgage-related securities		407,351		407,351		269,429		269,430
Loans held for sale		161,964		161,964		9,669		9,669
Loans receivable		3,896,439		3,981,442		4,202,833		4,288,621
Federal Home Loan Bank stock		54,829		54,829		54,829		54,829
Accrued interest receivable		25,375		25,375		29,921		29,921
Financial liabilities:
Deposits		3,909,391		3,921,802		3,518,482		3,491,093
Federal Home Loan Bank and other borrowings		1,078,392		1,079,556		1,206,761		1,205,177
Accrued interest payable — borrowings		2,833		2,833		3,827		3,827
Accrued interest payable — deposits		14,436		14,436		21,512		21,512

Effective April 1, 2008, the Corporation partially adopted SFAS 157, Fair Value Measurements, (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies only to fair value measurements already required or permitted by other accounting standards and does not impose requirements for additional fair value measures. SFAS 157 was issued to increase consistency and comparability in reporting fair values. In February 2008, the Financial Accounting Standards Board issued Staff Position No. FAS 157-2, or FSP 157-2, which delays the effective date of SFAS 157 for certain nonfinancial assets and nonfinancial liabilities, to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The delay is intended to allow additional time to consider the effect of various implementation issues that have arisen, or that may arise, from the application of SFAS 157. The Corporation has elected to apply the deferral provisions in FSP 157-2 and therefore has only partially applied the provisions of SFAS 157.

Effective January 1, 2009, the Corporation early adopted FASB FSP 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for an asset or liability have significantly decreased when compared with normal activity for an asset or liability. Reduced activity is an indication that transactions or quoted prices may not be determinative of fair value because in such market conditions there may be increased instances of transactions that are not orderly. If the reporting entity concludes that the quoted prices are not determinative of fair value, further analysis of the transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value in accordance with Statement 157.

As defined in SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value, the Corporation uses various valuation methods including market, income and cost approaches. Based on these approaches, the Corporation utilizes assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Corporation uses

104

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on observability of the inputs used in the valuation techniques, the Corporation is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:


	•	Level 1: Valuations for assets and liabilities traded in active exchange markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

	•	Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or similar assets or liabilities.

	•	Level 3: Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets.

The Corporation has not adopted the provisions of SFAS 157 with respect to certain nonfinancial assets, such as other real estate owned. The Corporation will fully adopt SFAS 157 with respect to such items effective April 1, 2009. The Corporation does not believe that such adoption will have a material impact on the consolidated financial statements, but will result in additional disclosures related to the fair value of nonfinancial assets.

The Corporation has identified available-for-sale securities, loans held for sale and impaired loans with allocated reserves under SFAS 114 as those items requiring disclosure under SFAS 157. Management has concluded that servicing rights are not material for further consideration in relation to SFAS 157 disclosures.

Fair Value on a Recurring Basis

The table below presents the balance of securities available-for-sale at March 31, 2009, which are measured at fair value on a recurring basis (in thousands):


	Fair Value Measurements Using
			Quoted Prices
			in Active		Significant Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)

Investment securities available for sale	$	77,684	$	616	$	77,068	$	—
Mortgage-related securities available for sale		407,301		—		—		407,301

Securities available-for-sale consist mainly of AAA rated US Government agency securities, with the majority having maturity dates of five years or less. The Corporation measures securities available-for-sale at fair value on a recurring basis; thus, there was no transition adjustment upon adoption of SFAS 157. The fair value of the Corporation’s securities available-for-sale are determined using observable inputs, which are derived from readily available pricing sources and third-party pricing services for identical or comparable instruments, respectively.

105

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following is a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (level 3) (in thousands):


	Mortgage-Related Securities
	Available for Sale

Balance at beginning of year	$	—
Total gains (losses) (realized/unrealized)
Included in earnings		731
Included in other comprehensive income		(3,350	)
Included in earnings as other than temporary impairment		(805	)
Purchases		184,340
Principal repayments		(43,657	)
Transfers in and/or out of level 3		270,042

Balance at end of year	$	407,301

The purchases of securities classified as level 3 during the year ended March 31, 2009 included CMO’s and U.S. agency REMICS.

A pricing service was used to value our investment securities and mortgage-related securities as of March 31, 2009. Mortgage-related securities were transferred to a level 3 during the quarter ended September 30, 2008 due to the fact that they were in an illiquid (i.e. inactive) market. The Corporation utilized fair value estimates obtained from an independent pricing service as of March 31, 2009 for all corporate mortgage-related securities that were rated below triple-A by at least one major rating service as of the measurement date. These estimates were determined using a discounted cash flow model in accordance with the guidance provided in FAS FSP 157-4. The significant inputs to the model include the estimated cash flows, prepayment speeds, default rates, loss severity and the discount rate.

Fair Value on a Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents such assets carried on the balance sheet by caption and by level within the SFAS 157 hierarchy as of March 31, 2009 (in thousands):


	Fair Value Measurements Using
			Quoted Prices
			in Active		Significant Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)

Impaired loans with specific valuation allowance under SFAS 114	$	262,319	$	—	$	—	$	262,319
Loans held for sale		5,845		—		5,845		—
Goodwill		—		—		—		—

The specific reserves for collateral dependent impaired loans are based on the fair value of the collateral less estimated costs to sell. The fair value of collateral was determined based on appraisals. In some cases, adjustments were made to the appraised values due to various factors including age of the appraisal, age of comparables included in the appraisal, and known changes in the market and in the collateral. When significant adjustments were based on unobservable inputs, the resulting fair value measurement has been categorized as a Level 3 measurement. As discussed in Note 6, only approximately 37.9% of impaired loans are based on appraisals received within one year. As a result, the Corporation has applied significant discounts to aged appraisals due to declines in current valuations for real estate collateral. Specific reserves were calculated for impaired loans with an aggregate carrying amount of

106

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$298.3 million during the fiscal year ended March 31, 2009. The collateral underlying these loans had a fair value of $262.3 million, less estimated costs to sell of $37.3 million, resulting in a specific reserve in the allowance for loan losses of $73.3 million.

Loans held for sale generally consist of the current origination of certain fixed-rate mortgage loans and certain adjustable-rate mortgage loans and are carried at lower of cost or fair value, determined on an aggregate basis. Fees received from the borrower and direct costs to originate the loan are deferred and recorded as an adjustment of the sales price.

In accordance with the provisions of Statement 142, goodwill with a carrying value of $72.2 million was written down to its implied fair value of zero, resulting in an impairment charge of $72.2 million, which was included in earnings for the fiscal year ended March 31, 2009.


Note 18 —	Condensed Parent Only Financial Information

The following represents the parent company only financial information of the Corporation:

Condensed Balance Sheets


	March 31,
	2009		2008
	(In thousands)

ASSETS
Cash and cash equivalents	$	7,357	$	4,811
Investment in subsidiaries		310,694		439,007
Securities available for sale		57		1,261
Loans receivable from non-bank subsidiaries		20,442		28,873
Other		3,222		532

Total assets	$	341,772	$	474,484


LIABILITIES
Loans payable	$	116,300	$	118,465
Other liabilities		11,751		10,903

Total liabilities		128,051		129,368

STOCKHOLDERS’ EQUITY
Total stockholders’ equity		213,721		345,116

Total liabilities and stockholders’ equity	$	341,772	$	474,484

107

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Statements of Income


	Year Ended March 31,
	2009			2008			2007
	(In thousands)

Interest income	$	1,208		$	2,033		$	2,049
Interest expense		6,216			3,936			3,954

Net interest income		(5,008	)		(1,903	)		(1,905	)
Equity in net income from subsidiaries		(223,287	)		32,264			40,382
Non-interest income		—			12			271

Income from Operations		(228,295	)		30,373			38,748
Non-interest expense		3,437			553			504

Income before income taxes		(231,732	)		29,820			38,244
Income taxes		(3,421	)		(1,312	)		(728	)

Net income	$	(228,311	)	$	31,132		$	38,972

Condensed Statements of Cash Flows


	Year Ended March 31,
	2009			2008			2007
	(In thousands)

Operating Activities
Net income (loss)	$	(228,311	)	$	31,132		$	38,972
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Equity in net loss (income) of subsidiaries		223,287			(32,264	)		(40,382	)
Other		(1,621	)		(610	)		2,607

Net cash provided (used) by operating activities		(6,645	)		(1,742	)		1,197
Investing Activities
Proceeds from maturities of investment securities		653			279			—
Purchase of investment securities available for sale		—			—			(2,016	)
Net (increase) decrease in loans receivable from non-bank subsidiaries		8,431			(1,383	)		(1,706	)
Capital contribution to Bank subsidiary		(110,000	)		(39,000	)		—
Dividends from Bank subsidiary		6,195			16,000			25,000

Net cash provided (used) by investing activities		(94,721	)		(24,104	)		21,278
Financing Activities
Increase (decrease) in loans payable		(2,165	)		54,865			(500	)
Issuance of preferred stock and common stock warrants		110,000			—			—
Purchase of treasury stock		—			(12,556	)		(15,689	)
Exercise of stock options		1,485			838			2,920
Purchase of stock by retirement plans		693			1,152			393
Cash dividend paid		(6,101	)		(14,900	)		(14,376	)

Net cash provided (used) by financing activities		103,912			29,399			(27,252	)
Increase (decrease) in cash and cash equivalents		2,546			3,553			(4,777	)
Cash and cash equivalents at beginning of year		4,811			1,258			6,035

Cash and cash equivalents at end of year	$	7,357		$	4,811		$	1,258

108

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 19 —	Segment Information

The Corporation provides a full range of banking services, as well as real estate investments through its two consolidated subsidiaries. The Corporation manages its business with a primary focus on each subsidiary. Thus, the Corporation has identified two operating segments. The Corporation has not aggregated any operating segments.

Community Banking: This segment is the main basis of operation for the Corporation and includes the branch network and other deposit support services; origination, sales and servicing of one-to-four family loans; origination of multifamily, commercial real estate and business loans; origination of a variety of consumer loans; and sales of alternative financial investments such as tax deferred annuities.

Real Estate Investments: The Corporation’s non-banking subsidiary, IDI, and its subsidiaries, NIDI and CIDI, invest in real estate developments. Such developments include recreational residential developments and industrial developments (such as office parks).

The Real Estate Investment segment borrows funds from the Corporation to meet its operating needs. Such intercompany borrowings are eliminated in consolidation. The interest income and interest expense associated with such borrowings are also eliminated in consolidation.

The following represents reconciliations of reportable segment revenues, profit or loss, and assets to the Corporation’s consolidated totals for the years ended March 31, 2009, 2008 and 2007, respectively.


	Year Ended March 31, 2009
										Consolidated
	Real Estate			Community			Intersegment			Financial
	Investments			Banking			Eliminations			Statements
	(In thousands)

Interest income	$	102		$	261,373		$	(1,213	)	$	260,262
Interest expense		1,116			135,569			(1,213	)		135,472

Net interest income (loss)		(1,014	)		125,804			—			124,790
Provision for loan losses		—			205,719			—			205,719

Net interest income (loss) after provision for loan losses		(1,014	)		(79,915	)		—			(80,929	)
Real estate investment partnership revenue		2,130			—			—			2,130
Other revenue from real estate operations		8,194			—			—			8,194
Other income		—			35,297			(90	)		35,207
Real estate investment partnership cost of sales		(1,736	)		—			—			(1,736	)
Other expense from real estate partnership operations		(9,596	)		—			90			(9,506	)
Real estate partnership impairment		(17,631	)		—			—			(17,631	)
Minority interest in loss of real estate partnerships		148			—			—			148
Other expense		—			(194,286	)		—			(194,286	)

Income (loss) before income taxes		(19,505	)		(238,904	)		—			(258,409	)
Income tax expense (benefit)		(1,068	)		(29,030	)		—			(30,098	)

Net income (loss)	$	(18,437	)	$	(209,874	)	$	—		$	(228,311	)

Total assets at end of period	$	25,070		$	5,247,985		$	—		$	5,273,055
Goodwill	$	—		$	—		$	—		$	—

109

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Year Ended March 31, 2008
										Consolidated
	Real Estate			Community			Intersegment			Financial
	Investments			Banking			Eliminations			Statements
	(In thousands)

Interest income	$	141		$	298,515		$	(1,981	)	$	296,675
Interest expense		1,828			167,823			(1,981	)		167,670

Net interest income (loss)		(1,687	)		130,692			—			129,005
Provision for loan losses		—			22,551			—			22,551

Net interest income (loss) after provision for loan losses		(1,687	)		108,141			—			106,454
Real estate investment partnership revenue		8,623			—			—			8,623
Other revenue from real estate operations		7,440			—			—			7,440
Other income		—			35,643			(119	)		35,524
Real estate investment partnership cost of sales		(8,489	)		—			—			(8,489	)
Other expense from real estate partnership operations		(10,291	)		—			119			(10,172	)
Minority interest in loss of real estate partnerships		402			—			—			402
Other expense		—			(89,000	)		—			(89,000	)

Income (loss) before income taxes		(4,002	)		54,784			—			50,782
Income tax expense (benefit)		(1,682	)		21,332			—			19,650

Net income (loss)	$	(2,320	)	$	33,452		$	—		$	31,132

Total assets at end of period	$	72,028		$	5,077,529		$	—		$	5,149,557
Goodwill	$	—		$	72,375		$	—		$	72,375

110

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	Year Ended March 31, 2007
										Consolidated
	Real Estate			Community			Intersegment			Financial
	Investments			Banking			Eliminations			Statements
	(In thousands)

Interest income	$	362		$	282,308		$	(1,978	)	$	280,692
Interest expense		1,906			152,718			(1,978	)		152,646

Net interest income (loss)		(1,544	)		129,590			—			128,046
Provision for loan losses		—			11,255			—			11,255

Net interest income (loss) after provision for loan losses		(1,544	)		118,335			—			116,791
Real estate investment partnership revenue		18,977			—			—			18,977
Other revenue from real estate operations		6,560			—			—			6,560
Other income		—			28,581			(119	)		28,462
Real estate investment partnership cost of sales		(17,607	)		—			—			(17,607	)
Other expense from real estate partnership operations		(8,950	)		—			119			(8,831	)
Minority interest in loss of real estate partnerships		241			—			—			241
Other expense		—			(81,035	)		—			(81,035	)

Income (loss) before income taxes		(2,323	)		65,881			—			63,558
Income tax expense (benefit)		(606	)		25,192			—			24,586

Net income (loss)	$	(1,717	)	$	40,689		$	—		$	38,972

Total assets at end of period	$	74,169		$	4,465,516		$	—		$	4,539,685
Goodwill	$	—		$	19,956		$	—		$	19,956

111

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 20 —	Earnings per Share

The computation of earnings per share for fiscal years 2009, 2008 and 2007 is as follows:


	Twelve Months Ended March 31,
	2009			2008		2007

Numerator:
Net income	$	(228,310,637	)	$	31,132,097	$	38,972,272

Numerator for basic and diluted earnings per share — income available to common stockholders	$	(228,310,637	)	$	31,132,097	$	38,972,272
Denominator:
Denominator for basic earnings per share — weighted-average common shares outstanding		21,075,897			20,975,803		21,405,888
Effect of dilutive securities:
Employee stock options		—			119,529		282,564

Denominator for diluted earnings per share — adjusted weighted-average common shares and assumed conversions		21,075,897			21,095,332		21,688,452

Basic earnings per share	$	(10.83	)	$	1.48	$	1.82

Diluted earnings per share	$	(10.83	)	$	1.48	$	1.80

At March 31, 2009, approximately 516,000 stock options were excluded from the calculation of diluted earnings per share because they were anti-dilutive. The warrant to purchase 7.4 million shares at an exercise price of $2.23 was not included in the computation of diluted earnings per share because the warrant’s exercise price was greater than the average market price of common stock and was, therefore, anti-dilutive. Because of their anti-dilutive effect, the shares that would be issued if the Senior Preferred Stock were converted are not included in the computation of diluted earnings per share for the years ended March 31, 2009, 2008 and 2007.

112

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 21 —	Selected Quarterly Financial Information (Unaudited)


	Mar 31,			Dec 31,			Sep 30,			Jun 30,			Mar 31,			Dec 31,			Sep 30,			Jun 30,
	2009			2008			2008			2008			2008			2007			2007			2007
	(In thousands, except per share data)

Interest income:
Loans	$	55,910		$	60,042		$	59,450		$	65,711		$	70,229		$	68,732		$	69,714		$	68,031
Securities and other		5,183			4,631			4,538			4,797			5,039			5,305			5,009			4,616

Total interest income		61,093			64,673			63,988			70,508			75,268			74,037			74,723			72,647
Interest expense:
Deposits		22,515			21,602			23,898			26,842			29,363			31,036			31,424			31,446
Borrowings and other		9,870			10,364			10,136			10,245			10,839			11,663			11,715			10,184

Total interest expense		32,385			31,966			34,034			37,087			40,202			42,699			43,139			41,630

Net interest income		28,708			32,707			29,954			33,421			35,066			31,338			31,584			31,017
Provision for loan losses		56,385			92,970			46,964			9,400			10,393			7,792			2,095			2,271

Net interest income (loss) after provision for loan losses		(27,677	)		(60,263	)		(17,010	)		24,021			24,673			23,546			29,489			28,746
Real estate investment partnership revenue		310			1,820			—			—			457			1,012			2,428			4,726
Service charges on deposits		3,528			3,966			4,134			3,859			3,609			3,191			3,148			3,091
Net gain (loss) on sale of loans		7,858			(228	)		808			2,243			2,984			1,468			814			878
Net gain (loss) on sale or impairment of investments and mortgage-related securities		(805	)		(1,396	)		(1,902	)		—			499			—			3			12
Other revenue from real estate operations		3,966			1,723			1,032			1,473			2,475			2,750			992			1,223
Other non-interest income		1,105			3,628			4,175			4,234			3,538			3,683			3,790			4,107

Total non-interest income		15,962			9,513			8,247			11,809			13,562			12,104			11,175			14,037
Compensation		14,329			13,755			14,665			13,307			12,921			11,358			11,301			11,270
Real estate partnership cost of sales		545			1,191			—			—			548			932			2,669			4,340
Other expenses from real estate partnership operations		16,052			7,170			1,724			2,191			3,396			2,894			1,797			2,085
Net expense-REO operations		3,336			8,038			1,952			189			887			272			227			202
Other non-interest expense		13,682			88,103			11,826			11,104			12,045			9,850			9,571			8,387

Total non-interest expense		47,944			118,257			30,167			26,791			29,797			25,306			25,565			26,284

Minority interest in income (loss) of real estate partnership operations		(246	)		150			(13	)		(39	)		(43	)		(81	)		(203	)		(75	)

Income (loss) before income taxes		(59,413	)		(169,157	)		(38,917	)		9,078			8,481			10,425			15,302			16,574
Income taxes		(16,147	)		(1,899	)		(15,618	)		3,566			2,838			4,096			6,028			6,688

Net income (loss)	$	(43,266	)	$	(167,258	)	$	(23,299	)	$	5,512		$	5,643		$	6,329		$	9,274		$	9,886

Earnings Per Share:
Basic	$	(2.05	)	$	(7.96	)	$	(1.11	)	$	0.26		$	0.27		$	0.30		$	0.44		$	0.47
Diluted		(2.05	)		(7.96	)		(1.11	)		0.26			0.27			0.30			0.44			0.46

113

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Note 22 —	Subsequent Events

All customer deposits remain fully insured to the highest limits set by the FDIC. The OTS may grant extensions to the timelines established by the Orders.

114

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Anchor BanCorp Wisconsin Inc.

Madison, Wisconsin

We have audited the consolidated balance sheets of Anchor BanCorp Wisconsin Inc. (the Corporation) as of March 31, 2009 and 2008, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended March 31, 2009. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of March 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2009, in conformity with U.S generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Corporation’s internal control over financial reporting as of March 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our report dated June 25, 2009 expressed an opinion that the Corporation had not maintained effective internal control over financial reporting as of March 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ McGladrey & Pullen, LLP

Madison, Wisconsin

June 25, 2009

McGladrey & Pullen, LLP is a member firm of RSM International, an affiliation of separate and independent legal entities.

116

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Anchor BanCorp Wisconsin Inc.

Madison, Wisconsin

We have audited Anchor BanCorp Wisconsin Inc. (the Corporation’s) internal control over financial reporting as of March 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A corporation’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the corporation; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the corporation are being made only in accordance with authorizations of management and directors of the corporation; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the corporation’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the corporation’s annual or interim financial statements will not be prevented or detected in a timely basis. The following material weaknesses have been identified and included in management’s assessment.

The Corporation did not maintain effective controls over financial reporting related to the allowance for loan losses caused by failure to:


	•	Maintain policies and procedures to ensure that loan personnel performed an analysis adequate to risk classify the loan portfolio.

	•	Effectively monitor the loan portfolio and identify problem loans in a timely manner.

117


	•	Maintain policies and procedures to ensure that SFAS No. 114 Accounting by Creditors for Impairment of a Loan analyses are prepared timely, accurately and subject to supervisory review.

	•	Receive current financial information on problem loans, in a timely manner, to ensure that these loans were evaluated for impairment under SFAS No. 114.

	•	Establish policies and procedures to ensure that an impairment calculation is prepared for all loans identified as impaired and that the impairment calculation is updated on a quarterly basis.

	•	Effectively monitor problem loans to ensure that recent appraisals are used to support the collateral valuation utilized in the impairment analyses.

	•	Maintain policies and procedures to ensure that the supporting documentation for the allowance for loan loss calculation is reviewed and tested by an individual independent of the allowance for loan loss process.

	•	Re-evaluate the qualitative factors used in the allowance calculation on a quarterly basis to assess the continued decline in the local and national economy; exacerbation of certain negative trends in real estate values; increasing regional unemployment levels; slowed demand for both new and existing housing; and the resulting stress on the Bank’s real estate and development portfolios.

Further, the Corporation did not maintain effective controls over financial reporting over impairment charges, related to other real estate owned. The existing policies and procedures did not provide for sufficient supervisory controls around the valuation and recording of impairment charges for other real estate owned to ensure impairment charges were properly recognized and recorded.

Additionally, the Corporation did not maintain effective entity-level controls to ensure that the financial statements were prepared in accordance with generally accepted accounting principles. This weakness relates primarily to disclosures required as a result of changing economic conditions, adoption of new accounting standards, and unusual significant transactions. This material weakness was evidenced by the ineffective preparation of the financial statements and resulted from the lack of the necessary supervisory review to ensure accurate presentation and disclosure in the financial statements.

These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the 2009 financial statements, and this report does not affect our report dated June 25, 2009 on those financial statements.

In our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, the Corporation has not maintained effective internal control over financial reporting as of March 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of for the year ended March 31, 2009 of Anchor BanCorp Wisconsin Inc. and our report dated June 25, 2009 expressed an unqualified opinion.

/s/ McGladrey & Pullen, LLP

Madison, Wisconsin

June 25, 2009

McGladrey & Pullen, LLP is a member firm of RSM International, an affiliation of separate and independent legal entities.

118

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.


Item 9A.	*Controls and Procedures*

Disclosure Controls and Procedures. The Corporation maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Corporation’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. The design of any system of disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any disclosure controls and procedures will succeed in achieving their stated goals under all potential future conditions.

Management’s Annual Report on Internal Control over Financial Reporting. Management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Under Section 404 of the Sarbanes-Oxley Act of 2002, management is required to assess the effectiveness of the Corporation’s internal control over financial reporting as of the end of each fiscal year and report, based on that assessment, whether the Corporation’s internal control over financial reporting is effective. The Corporation’s internal control system is designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation and may not prevent or detect all misstatements.

Management has assessed the effectiveness of the Corporation’s internal control over financial reporting as of March 31, 2009. In making its assessment of internal control over financial reporting, management used the criteria set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission in Internal Control — Integrated Framework. These criteria include the control environment, risk assessment, control activities, information and communication and monitoring of each of the above criteria. Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was not effective as of March 31, 2009. Management’s assessment of the effectiveness of our internal control over financial reporting as of March 31, 2009 has been audited by our independent registered public accounting firm, as stated in its report included in Item 8.

Internal Control over Financial Reporting

During the year ended March 31, 2009, the Corporation identified material weaknesses in its internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) related to determining the allowance for loan losses. The Corporation’s principal executive officer and principal financial officer concluded that the disclosure controls and procedures are not operating in an effective manner.

A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Corporation’s annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following material weaknesses as of March 31, 2009:

1. Our Internal Control over Financial Reporting related to the allowance for loan losses and the completeness and accuracy of the provision for loan losses contained multiple deficiencies that represent material weaknesses. Specifically the Corporation failed to:


	•	Maintain policies and procedures to ensure that loan personnel performed an analysis adequate to risk classify the loan portfolio.

	•	Effectively monitor the loan portfolio and identify problem loans in a timely manner.

119


	•	Maintain policies and procedures to ensure that SFAS No. 114 Accounting by Creditors for Impairment of a Loan documentation is prepared timely, accurately and subject to supervisory review.

	•	Receive current financial information on problem loans, in a timely manner, to ensure that these loans were evaluated for impairment under SFAS No. 114.

	•	Establish policies and procedures to ensure that an impairment calculation is prepared for all loans identified as impaired and that the impairment calculation is updated on a quarterly basis.

	•	Effectively monitor problem loans to ensure that recent appraisals are used to support collateral valuation utilized in the impairment analysis.

	•	Maintain policies and procedures to ensure that the supporting documentation for the allowance for loan loss calculation is reviewed and tested by an individual independent of the allowance for loan loss process.

	•	Re-evaluate the qualitative factors used in the allowance calculation on a quarterly basis to assess the continued decline in the local and national economy; exacerbation of certain negative trends in real estate values; increasing regional unemployment levels; slowed demand for both new and existing housing; and the resulting stress on the Bank’s real estate and development portfolios.

2. The Corporation did not maintain effective controls over financial reporting over impairment charges, related to Other Real Estate Owned (‘OREO’). The existing policies and procedures did not provide for sufficient supervisory controls around the valuation and recording of impairment charges for other real estate owned to ensure impairment charges were properly recognized and recorded.

3. The Corporation did not maintain effective entity-level controls to ensure that the financial statements were prepared in accordance with generally accepted accounting principles. This material weakness was identified by our auditors when they reviewed the financial statements and identified disclosures that either required significant modification or were missing altogether. The weakness relates primarily to disclosures required as a result of changing economic conditions, adoption of new accounting standards, and disclosure of unusual significant transactions. This material weakness was evidenced by the ineffective preparation of the financial statements and resulted from the lack of the necessary supervisory review to ensure accurate presentation and disclosure in the financial statements.

These material weaknesses led to a material error in the provision for loan losses and the allowance for loan losses in the Corporation’s preliminary financial statements and contributed to delays in the preparation of the Corporation’s financial statements and Form 10-K as of March 31, 2009.

In connection with its determination that material weaknesses exists, the Corporation (i) has implemented and is continuing to develop new procedures for the determination of the allowance for loan losses requiring that certain subjective factors, such as local and national economic trends and real estate valuations, be considered more fully and be discussed with senior management and the audit committee of the board of directors; and (ii) has taken additional steps to monitor more closely the adequacy of the allowance for loan losses and continues to develop and implement additional procedures. In addition, the Corporation has created the position of Lead Director, an independent director chosen by the full Board of Directors, to actively review management and operations of the Corporation, including reviewing management’s initiatives on the matters described above. While the Corporation believes that these actions will eventually remediate these material weaknesses, it has not yet confirmed the effectiveness of such controls.


/s/ Douglas J. Timmerman		/s/ Dale C. Ringgenberg

Douglas J. Timmerman		Dale C. Ringgenberg
Chairman of the Board, President and Chief Executive Officer		Senior Vice President, Treasurer and Chief Financial Officer

June 25, 2009		June 25, 2009

Change in Internal Control Over Financial Reporting. There were no changes in the Corporation’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Corporation’s fiscal quarter ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

120


Item 9B.	*Other Information*

Not applicable.

PART III


Item 10.	*Directors , Executive Officers and Corporate Governance*

The information related to Directors and Executive Officers is incorporated herein by reference to “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Corporation’s Proxy Statement for the Annual Meeting of Stockholders to be held on July 28, 2009.

The Corporation has adopted a code of business conduct and ethics for the CEO and CFO which is available on the Corporation’s website at www.anchorbank.com.


Item 11.	*Executive Compensation*

The information relating to executive compensation is incorporated herein by reference to “Compensation of Directors” and “Executive Compensation” in the Corporation’s Proxy Statement for the Annual Meeting of Stockholders to be held on July 28, 2009.


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.*

The information relating to security ownership of certain beneficial owners and management is incorporated herein by reference to “Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management” in the Corporation’s Proxy Statement for the Annual Meeting of Stockholders to be held on July 28, 2009.

Equity Compensation Plan Information


						Number of Securities
	Number of Securities					Remaining Available for
	to be Issued Upon			Weighted-Average		Future Issuance Under Equity
	Exercise of			Exercise Price of		Compensation Plans
	Outstanding Options,			Outstanding Options,		(Excluding Securities
Plan Category	Warrants and Rights			Warrants and Rights		Reflected in the First Column)

Equity Compensation Plans Approved By Security Holders		515,670	(1)	$	21.60		1,302,440	(2)(3)
Equity Compensation Plans Not Approved By Security Holders		—			—		—

Total		515,670		$	21.60		1,302,440


(1)		Excludes purchase rights accruing under our 1999 Employee Stock Purchase Plan (“ESPP”), which has a stockholder-approved reserve of 300,000 shares of Common Stock. Under the ESPP, each eligible employee may purchase shares of Common Stock at semi-annual intervals each year at a purchase price determined by the Compensation Committee, which shall not be less than 95% of the fair market value of a share of Common Stock on the last business day of such annual offering period. In no event may the amount of Common Stock purchased by a participant in the ESPP in a calendar year exceed $25,000, measured as of the time an option under the ESPP is granted.

(2)		Includes shares available for future issuance under the ESPP. As of March 31, 2009, no shares of Common Stock were available for issuance under this plan.

(3)		Includes 429,869 shares of Common Stock which may be awarded under the Company’s Amended and Restated Management Recognition Plan, which provides for the grant of restricted Common Stock to employees of the Company.

121


Item 13.	*Certain Relationships and Related Transactions, and Director Independence*

The information relating to certain relationships and related transactions is incorporated herein by reference to “Election of Directors” in the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held on July 28, 2009.


Item 14.	*Principal Accounting Fees and Services*

The information required by this item is incorporated herein by reference to “Relationship with Independent Registered Public Accounting Firm” in the Corporation’s Proxy Statement for the Annual Meeting of Stockholders to be held on July 28, 2009.

PART IV


Item 15.	*Exhibits and Financial Statement Schedules*

(a) (1) Financial Statements

The following consolidated financial statements of the Corporation and its subsidiaries, together with the related reports of McGladrey & Pullen, LLP, dated June 25, 2009, are incorporated herein by reference to Item 8 of this Annual Report on Form 10-K:

Consolidated Balance Sheets at March 31, 2009 and 2008.

Consolidated Statements of Income for each year in the three-year period ended March 31, 2009.

Consolidated Statements of Changes in Stockholders’ Equity for each year in the three-year period ended March 31, 2009.

Consolidated Statements of Cash Flows for each year in the three-year period ended March 31, 2009.

Notes to Consolidated Financial Statements.

Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements.

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting.

(a) (2) Financial Statement Schedules

All schedules are omitted because they are not required or are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

(a)(3) Exhibits

The following exhibits are either filed as part of this Annual Report on Form 10-K or are incorporated herein by reference:


Exhibit No. 3.			Certificate of Incorporation and Bylaws:

	3	.1	Articles of Incorporation of Anchor BanCorp Wisconsin Inc. as amended to date including Articles of Amendment with respect to series A Preferred Stock (incorporated by reference to Exhibit 3.1 from Registrant’s Form 10-K for the year ended March 31, 2001) and Articles of Amendment with respect to Fixed Rate Cumulative Perpetual Preferred Stock, Series B dated January 30, 2009 incorporated by reference to Exhibit 4.2 to the Corporation’s Current Report on Form 8-K filed February 3, 2009 (File No. 000-20006).
	3	.2	Amendment to Bylaws of Anchor BanCorp Wisconsin Inc.

122


Exhibit No. 4.			Instruments Defining the Rights of Security Holders:

	4	.1	Form of Common Stock Certificate (incorporated by reference to Exhibit 4 of Registrant’s Form S-1).
	4	.2	Warrant to Purchase Shares of Anchor BanCorp Wisconsin, Inc. Common Stock dated January 30, 2009 issued to the United States Department of the Treasury incorporated by reference to Exhibit 4.1 to the Corporation’s Current Report on Form 8-K filed February 3, 2009 (File No. 000-20006).


Exhibit No. 10.			Material Contracts:

	10	.1	Anchor BanCorp Wisconsin Inc. Retirement Plan (incorporated by reference to Exhibit 10.1 of Registrant’s Form S-1).
	10	.2	Anchor BanCorp Wisconsin Inc. 1992 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 of Registrant’s Form S-1).
	10	.3	Anchor BanCorp Wisconsin Inc. 1992 Director’s Stock Option Plan (incorporated by reference to Exhibit 10.3 of Registrant’s Form S-1).
	10	.4	Anchor BanCorp Wisconsin Inc. Amended and Restated Management Recognition Plan (incorporated by reference to the Registrant’s proxy statement filed on June 29, 2001).
	10	.5	Anchor BanCorp Wisconsin Inc. Employee Stock Ownership Plan (incorporated by reference to Exhibit 10.5 of Registrant’s Form S-1).
	10	.6	Employment Agreement among the Corporation, the Bank and Douglas J. Timmerman (incorporated by reference to Exhibit 10.6 of Registrant’s Annual Report or Form 10-K for the year ended March 31, 1995).
	10	.7	Deferred Compensation Agreement between the Corporation and Douglas J. Timmerman, as amended (incorporated by reference to Exhibit 10.7 of Registrant’s Form S-1) and form of related Deferred Compensation Trust Agreement, as amended (incorporated by reference to Exhibit 10.7 of Registrant’s Annual Report or Form 10-K for the year ended March 31, 1994).
	10	.8	1995 Stock Option Plan for Non-Employee Directors (incorporated by reference to the Registrant’s proxy statement filed on June 16, 1995).
	10	.9	1995 Stock Incentive Plan (incorporated by reference to the Registrant’s proxy statement filed on June 16, 1995).
	10	.10	Employment Agreement among the Corporation, the Bank and J. Anthony Cattelino (incorporated by reference to Exhibit 10.10 of Registrant’s Annual Report or Form 10-K for the year ended March 31, 1995).
	10	.11	Employment Agreement among the Corporation, the Bank and Michael W. Helser (incorporated by reference to Exhibit 10.11 of Registrant’s Annual Report or Form 10-K for the year ended March 31, 1995).
	10	.12	Severance Agreement among the Corporation, the Bank and Ronald R. Osterholz (incorporated by reference to Exhibit 10.12 of Registrant’s Annual Report or Form 10-K for the year ended March 31, 1995).
	10	.13	Severance Agreement among the Corporation, the Bank and David L. Weimert (incorporated by reference to Exhibit 10.13 of Registrant’s Annual Report or Form 10-K for the year ended March 31, 1995).
	10	.14	Severance Agreement among the Corporation, the Bank and Donald F. Bertucci (incorporated by reference to Exhibit 10.14 of Registrant’s Annual Report or Form 10-K for the year ended March 31, 1995).
	10	.15	Anchor BanCorp Wisconsin Inc. Directors’ Deferred Compensation Plan (incorporated by reference to Exhibit 10.9 of Registrant’s Form S-1).
	10	.16	Anchor BanCorp Wisconsin Inc. Annual Incentive Bonus Plan (incorporated by reference to Exhibit 10.10 of Registrant’s Form S-1).
	10	.17	AnchorBank, fsb Amended and Restated Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.17 of Registrant’s Annual Report on Form 10-K for the year ended March 31, 2005).

123


Exhibit No. 10.			Material Contracts:

	10	.18	AnchorBank, fsb Excess Benefit Plan (incorporated by reference to Exhibit 10.12 of Registrant’s Annual Report or Form 10-K for the year ended March 31, 1994).
	10	.19	2001 Stock Option Plan for Non-Employee Directors (incorporated herein by reference to the Registrant’s proxy statement filed on June 29, 2001).
	10	.20	2004 Equity Incentive Plan (incorporated herein by reference to the Registrant’s proxy statement filed June 11, 2004.)
	10	.21	Amendment number one to AnchorBank fsb. Amended and Restated Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.22 of Registrant’s Annual Report on Form 10-K for the year ended March 31, 2005).
	10	.22	Employment Agreement among the Corporation, the Bank and Mark D. Timmerman (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on August 22, 2005).
	10	.23	Amendment No. 1 to Amended and Restated Credit Agreement, dated as of September 30, 2008, among Anchor Bancorp Wisconsin, Inc., the financial institutions from time to time party to the agreement and U.S. Bank National Association, as administrative agent for the lenders incorporated by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed September 30, 2008 (File No. 000-20006).
	10	.24	Amendment No. 2 to Amended and Restated Credit Agreement, dated as of December 30, 2008, among Anchor Bancorp Wisconsin, Inc., the financial institutions from time to time party to the agreement and U.S. Bank National Association, as administrative agent for the lenders incorporated by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed December 31, 2008 (File No. 000-20006).
	10	.25	Letter Agreement including the Securities Purchase Agreement--Standard Terms incorporated therein, between Anchor BanCorp Wisconsin, Inc. and The United States Department of the Treasury, dated January 30, 2009 incorporated by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed February 3, 2009 (File No. 000-20006).
	10	.26	Amendment No. 3 to Amended and Restated Credit Agreement, dated as of March 2, 2009, among Anchor Bancorp Wisconsin, Inc., the financial institutions from time to time party to the agreement and U.S. Bank National Association, as administrative agent for the lenders incorporated by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed March 4, 2008 (File No. 000-20006).
	10	.27	Amendment No. 4 to Amended and Restated Credit Agreement, dated as of May 29, 2009, among Anchor Bancorp Wisconsin, Inc., the financial institutions from time to time party to the agreement and U.S. Bank National Association, as administrative agent for the lenders incorporated by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed June 2, 2009 (File No. 000-20006).
	10	.28	Order to Cease and Desist between Anchor BanCorp Wisconsin, Inc. and the Office of Thrift Supervision dated June 26, 2009.
	10	.29	Stipulation and Consent to Issuance of Order to Cease and Desist between Anchor BanCorp Wisconsin, Inc. and the Office of Thrift Supervision dated June 26, 2009.
	10	.30	Order to Cease and Desist between AnchorBank, fsb and the Office of Thrift Supervision dated June 26, 2009.
	10	.31	Stipulation and Consent to Issuance of Order to Cease and Desist between AnchorBank, fsb and the Office of Thrift Supervision dated June 26, 2009.

The Corporation’s management contracts or compensatory plans or arrangements consist of Exhibits 10.1-10.22 above.

124


Exhibit No. 11.				Computation of Earnings per Share:

Refer to Note 20 to the Consolidated Financial Statements in Item 8.


Exhibit No. 21.				Subsidiaries of the Registrant:

Subsidiary information is incorporated by reference to “Part I, Item 1, Business-General” and “Part I, Item 1, Business-Subsidiaries.”


Exhibit No. 23.1				Consent of McGladrey & Pullen, LLP:

The consent of McGladrey & Pullen, LLP is included herein as an exhibit to this Report.

Exhibit No. 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 No. 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 herein as an exhibit to this Report.

Exhibit No. 32.1

Certification of 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 No. 32.2

Certification of 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.

(b) Exhibits

Exhibits to the Form 10-K required by Item 601 of Regulation S-K are attached or incorporated herein by reference as stated in (a)(3) and the Index to Exhibits.

Not applicable

125

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ANCHOR BANCORP WISCONSIN INC.


	By:	/s/ Douglas J. Timmerman

Douglas J. Timmerman

Chairman of the Board, President and

Chief Executive Officer

Date: June 25, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.


By:	/s/ Douglas J. Timmerman	By:	/s/ Dale C. Ringgenberg

	Douglas J. Timmerman Chairman of the Board, President and Chief Executive Officer (principal executive officer)		Dale C. Ringgenberg Treasurer and Chief Financial Officer (principal financial and accounting officer)
	Date: June 25, 2009		Date: June 25, 2009

By:	/s/ Donald D. Kropidlowski	By:	/s/ Greg M. Larson

	Donald D. Kropidlowski Director		Greg M. Larson Director
	Date: June 25, 2009		Date: June 25, 2009

By:	/s/ Richard A. Bergstrom	By:	/s/ Pat Richter

	Richard A. Bergstrom Director		Pat Richter Director
	Date: June 25, 2009		Date: June 25, 2009

By:	/s/ James D. Smessaert	By:	/s/ Holly Cremer Berkenstadt

	James D. Smessaert Director		Holly Cremer Berkenstadt Director
	Date: June 25, 2009		Date: June 25, 2009

By:	/s/ Donald D. Parker	By:	/s/ David L. Omachinski

	Donald D. Parker Director		David L. Omachinski Director
	Date: June 25, 2009		Date: June 25, 2009

By:	/s/ Mark D. Timmerman

	Mark D. Timmerman Director
	Date: June 25, 2009

126


			Page

PART I
	Item 1.	BUSINESS		1
		General		1
		Market Area		1
		Competition		1
		Lending Activities		2
		Investment Securities		10
		Mortgage-Related Securities		11
		Sources of Funds		12
		Subsidiaries		14
		Regulation and Supervision		17
		Taxation		26
	Item 1A.	RISK FACTORS		26
	Item 1B.	UNRESOLVED STAFF COMMENTS		33
	Item 2.	PROPERTIES		33
	Item 3.	LEGAL PROCEEDINGS		34
	Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		34

PART II
	Item 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES		34
	Item 6.	SELECTED FINANCIAL DATA		36
	Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		37
	Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		58
	Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		62
	Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		119
	Item 9A.	CONTROLS AND PROCEDURES		119
	Item 9B.	OTHER INFORMATION		121

PART III
	Item 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		121
	Item 11.	EXECUTIVE COMPENSATION		121
	Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		121
	Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE		122
	Item 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES		122

PART IV
	Item 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		122
		SIGNATURES		126
EX-3.2
EX-10.28
EX-10.29
EX-10.30
EX-10.31
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2


Item 8.	*Financial Statements and Supplementary Data*


	Page

Consolidated Financial Statements
Consolidated Balance Sheets		63
Consolidated Statements of Income		64
Consolidated Statements of Changes in Stockholders’ Equity		65
Consolidated Statements of Cash Flows		67
Notes to Consolidated Financial Statements		68
Report of Independent Registered Public Accounting Firm		116


Note 1 —	Summary of Significant Accounting Policies


	ANCHOR BANCORP WISCONSIN, INC.
	By:	/s/ Mark D. Timmerman
		Mark D. Timmerman
		Executive Vice President, Secretary and General Counsel



	)
In the Matter of	)	Order No.:
	)
	)
ANCHOR BANCORP WISCONSIN INC.	)	Effective Date:
	)
Madison, Wisconsin	)
OTS Docket No. H1972	)
	)

	(i)		Incorporation of specific plans to reduce the risks to the Holding Company from its current debt levels and debt servicing requirements and provide specific time targets for improving the debt to capital ratio of the Holding Company;

	(ii)		Development and implementation of operating strategies to achieve net income levels that will result in profitability and adequate debt service throughout the term of the Cash Flow Plan; and

	(iii)		Mechanisms to ensure monthly Board review of all risks associated with the Holding Company’s activities, and where necessary, implementation of approved strategies to enhance the Holding Company’s income position to address such risks.


¹		The term “golden parachute payment” is defined at 12 CFR § 359.1(f).

²		The term “prohibited indemnification payment” is defined at 12 CFR § 359.1(I).

	(a)		To OTS:

			Regional Director Office of Thrift Supervision One South Wacker Drive, Suite 2000 Chicago, Illinois 60606 Facsimile: (312) 917-5002

	(b)		To Holding Company:

			Chairman of the Board Anchor BanCorp Wisconsin Inc. 25 West Main Street Madison, Wisconsin 53703 Facsimile: (608) 252-8783


		OFFICE OF THRIFT SUPERVISION

		By:
				Daniel T. McKee
				Regional Director, Central Region

		Date: See Effective Date on page 1


ANCHOR BANCORP WISCONSIN INC.		OFFICE OF THRIFT SUPERVISION
Madison, Wisconsin

By:		By:
	Douglas J. Timmerman, Chairman		Daniel T. McKee
			Regional Director, Central Region

		Date: See Effective Date on page 1

	Richard A. Bergstrom, Director


	Holly Cremer Berkenstadt, Director


	Donald D. Kropidlowski, Director


	Greg M. Larson, Director


	David L. Omachinski, Director


	Donald D. Parker, Director


	Pat Richter, Director


	James D. Smessaert, Director


	Mark D. Timmerman, Director



	)
In the Matter of	)	Order No.:
	)
	)
AnchorBank, fsb	)	Effective Date:
	)
Madison, Wisconsin	)
OTS Docket No. 04474	)
	)

	ii.		The extension of additional credit would improve the Association’s position, including an explanatory statement of how the Association’s position would improve;

	iii.		An appropriate workout plan has been developed and will be implemented in conjunction with the additional credit to be extended; and

	iv.		The signed certification shall be made a part of the minutes of the meeting of the Board or designated committee with a copy retained in the borrower’s credit file.

	i.		internal asset classification procedures required by 12 CFR § 560.160 to address the concerns raised in the ROE;

	ii.		loan monitoring procedures to address the concerns raised in the ROE, including the need for updated and accurate borrower financial information; and

	iii.		real estate owned (REO) appraisal procedures to address the requirements of 12 CFR § 560.172.

	i.		Defined strategies for capital enhancement commensurate with the capital maintenance requirement of paragraph 2 above; and

	ii.		Emphasis on reducing classified assets and maintaining an adequate ALLL.


³		A contract will be considered significant to the overall operation or financial condition of the Association where the annual contract amount equals or exceeds two percent (2%) of the Association’s total capital.

	a.		To OTS:

			Regional Director Office of Thrift Supervision One South Wacker Drive, Suite 2000 Chicago, Illinois 60606 Facsimile: (312) 917-5002

	b.		To the Association:

			Chairman of the Board AnchorBank, fsb 25 West Main Street Madison, Wisconsin 53703-3329 Facsimile: (608) 252-8783



	)
In the Matter of	)	Order No.:
	)
	)
AnchorBank, fsb	)	Effective Date:
	)
Madison, Wisconsin	)
OTS Docket No. 04474	)
	)

	a.		The Association is a “savings association” within the meaning of 12 USC § 1813(b) and 12 USC § 1462(4). Accordingly, the Association is “an insured depository institution” as that term is defined in 12 USC § 1813(c); and

	b.		Pursuant to 12 USC § 1813(q), the Director of OTS is the “appropriate Federal banking agency” with jurisdiction to maintain an administrative enforcement proceeding against a savings association. Therefore, the Association is subject to the authority of OTS to initiate and maintain an administrative cease and desist proceeding against it pursuant to 12 USC § 1818(b).

2.		OTS Findings of Fact

		Based on findings set forth in the OTS Report of Examination of the Association dated November 3, 2008 (ROE), OTS finds that the Association has engaged in unsafe and unsound banking practices, that resulted in the Association operating at a loss, with a large volume of adversely classified assets, and with an inadequate level of capital for the kind and quality of assets held.

3.		Consent

		The Association consents to the issuance by OTS of the accompanying Order to Cease and Desist (Order). The Association further agrees to comply with the terms of the Order upon the Effective Date of the Order and stipulates that the Order complies with all requirements of law.

4.		Finality

		The Order is issued by OTS under 12 USC § 1818(b) and upon the Effective Date it shall be a final order, effective and fully enforceable by OTS under the provisions of 12 USC § 1818(i).

	a.		The right to be served with a written notice of OTS’s charges against it as provided by 12 USC § 1818(b) and 12 CFR Part 509;

	b.		The right to an administrative hearing of OTS’s charges as provided by 12 USC § 1818(b) and 12 CFR Part 509;

	c.		The right to seek judicial review of the Order, including, without limitation, any such right provided by 12 USC § 1818(h), or otherwise to challenge the validity of the Order; and

	d.		Any and all claims against OTS, including its employees and agents, and any other governmental entity for the award of fees, costs, or expenses related to this OTS enforcement matter and/or the Order, whether arising under common law, federal statutes or otherwise.

6.		OTS Authority Not Affected

		Nothing in this Stipulation or accompanying Order shall inhibit, estop, bar or otherwise prevent OTS from taking any other action affecting the Association if at any time OTS deems it appropriate to do so to fulfill the responsibilities placed upon OTS by law.

7.		Other Governmental Actions Not Affected

		The Association acknowledges and agrees that its consent to the issuance of the Order is solely for the purpose of resolving the matters addressed herein, consistent with Paragraph 6 above, and does not otherwise release, discharge, compromise, settle, dismiss, resolve, or in any way affect any actions, charges against, or liability of the Association that arise pursuant to this action or otherwise, and that may be or have been brought by any governmental entity other than OTS.

	a.		The laws of the United States of America shall govern the construction and validity of this Stipulation and of the Order;

	b.		If any provision of this Stipulation and/or the Order is ruled to be invalid, illegal, or unenforceable by the decision of any Court of competent jurisdiction, the validity, legality, and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby, unless the Regional Director in his or her sole discretion determines otherwise;

	c.		All references to OTS in this Stipulation and the Order shall also mean any of the OTS’s predecessors, successors, and assigns;

	d.		The section and paragraph headings in this Stipulation and the Order are for convenience only and shall not affect the interpretation of this Stipulation or the Order;

	e.		The terms of this Stipulation and of the Order represent the final agreement of the parties with respect to the subject matters thereof, and constitute the sole agreement of the parties with respect to such subject matters; and

	f.		The Stipulation and Order shall remain in effect until terminated, modified, or suspended in writing by OTS, acting through its Regional Director or other authorized representative.


	Accepted by:

AnchorBank, fsb	Office of Thrift Supervision
Madison, Wisconsin

	By:

Douglas J. Timmerman, Chairman		Daniel T. McKee
		Regional Director, Central Region

	Date: See Effective Date on page 1

Richard A. Bergstrom, Director


Greg M. Larson, Director


David L. Omachinski, Director


Pat Richter, Director


Mark D. Timmerman, Director

	•		Registration Statement (Form S-8 No. 33-52666) pertaining to the 1992 Stock Incentive Plan;

	•		Registration Statement (Form S-8 No. 333-81959) pertaining to the 1999 Employee Stock Purchase Plan;

	•		Registration Statement (Form S-8 No. 333-81609) pertaining to the FCB Financial Corp. 1998 Incentive Plan, FCB Financial Corp. 1993 Stock Option and Incentive Plan, OSB Financial Corp. 1992 Stock Option and Incentive Plan;

	•		Registration Statement (Form S-8 No. 33-46536) pertaining to the AnchorBank, fsb Retirement Plan; and

	•		Registration Statement (Form S-8 No. 333-122970) pertaining to the 2004 Equity Incentive Plan.

1.		I have reviewed this annual report on Form 10-K of Anchor BanCorp Wisconsin Inc.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: June 25, 2009		/s/ Douglas J. Timmerman

		Douglas J. Timmerman Chairman, President and Chief Executive Officer