SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

or

¨ 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 001-34955

ANCHOR BANCORP WISCONSIN INC.

(Exact name of registrant as specified in its charter)

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

25 West Main Street Madison, Wisconsin	53703
(Address of principal executive office)	(Zip Code)

(608) 252-8700

Registrant’s telephone number, including area code

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)

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  x    No  ¨

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  x    No  ¨

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class: Common stock — $.10 Par Value

Number of shares outstanding as of July 31, 2013: 21,247,225

ANCHOR BANCORP WISCONSIN INC.

INDEX - FORM 10-Q

		Page #
Part I - Financial Information
Item 1	Financial Statements
	Unaudited Consolidated Balance Sheets as of June 30, 2013 and Audited March 31, 2013		2
	Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended June 30, 2013 and 2012		3
	Unaudited Consolidated Statements of Changes in Stockholders’ Deficit for the Three Months Ended June 30, 2013 and Audited Year Ended March 31, 2013		5
	Unaudited Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2013 and 2012		6
	Notes to Unaudited Consolidated Financial Statements		8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Executive Overview		49
	Results of Operations		53
	Financial Condition		57
	Regulatory Developments		58
	Risk Management		59
	Credit Risk Management		60
	Liquidity Risk Management		67
	Market Risk Management		70
	Compliance, Strategic and/or Reputational Risk Management		72
	Critical Accounting Estimates and Judgments		73
	Forward Looking Statements		76
Item 3	Quantitative and Qualitative Disclosures About Market Risk		77
Item 4	Controls and Procedures		77
Part II - Other Information
Item 1	Legal Proceedings		77
Item 1A	Risk Factors		78
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		79
Item 3	Defaults Upon Senior Securities		79
Item 4	Mine Safety Disclosures		79
Item 5	Other Information		79
Item 6	Exhibits		80
Signatures			81

1

ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Balance Sheets

	(Unaudited)
	June 30,			March 31,
	2013			2013
	(In thousands, except share data)
Assets
Cash and due from banks	$	31,327		$	30,237
Interest-earning deposits		210,212			198,299
Cash and cash equivalents		241,539			228,536
Investment securities available for sale		288,965			266,787
Loans held for sale		19,705			18,058
Loans held for investment		1,703,115			1,750,358
Less: Allowance for loan losses		(75,872	)		(79,815	)
Loans held for investment, net		1,627,243			1,670,543
Other real estate owned, net		68,241			84,342
Premises and equipment, net		24,497			24,469
Federal Home Loan Bank stock—at cost		25,630			25,630
Mortgage servicing rights, net		22,718			21,824
Accrued interest receivable		9,063			9,563
Other assets		16,868			17,831
Total assets	$	2,344,469		$	2,367,583
Liabilities and Stockholders’ Deficit
Deposits
Non-interest bearing	$	266,076		$	267,732
Interest bearing		1,735,837			1,757,293
Total deposits		2,001,913			2,025,025
Other borrowed funds		318,749			317,225
Accrued interest and fees payable		65,948			61,290
Accrued taxes, insurance and employee related expenses		6,956			6,389
Other liabilities		22,292			17,518
Total liabilities		2,415,858			2,427,447
Commitments and contingent liabilities (Note 12)
Preferred stock, $0.10 par value, 5,000,000 shares authorized, 110,000 shares issued and outstanding; dividends in arrears of $27,046 at June 30, 2013 and $25,345 at March 31, 2013		105,696			103,833
Common stock, $0.10 par value, 100,000,000 shares authorized, 25,363,339 shares issued at June 30, 2013 and March 31, 2013		2,536			2,536
Additional paid-in capital		110,034			110,034
Retained deficit		(196,341	)		(189,097	)
Accumulated other comprehensive income (loss) related to AFS securities		(2,342	)		3,918
Accumulated other comprehensive loss related to OTTI securities - non credit factors		(223	)		(339	)
Total accumulated other comprehensive income (loss)		(2,565	)		3,579
Treasury stock (4,116,114 shares at June 30, 2013 and March 31, 2013), at cost		(89,848	)		(89,848	)
Deferred compensation obligation		(901	)		(901	)
Total stockholders’ deficit		(71,389	)		(59,864	)
Total liabilities and stockholders’ deficit	$	2,344,469		$	2,367,583

See accompanying Notes to Unaudited Consolidated Financial Statements

2

ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended June 30,
	2013		2012
	(In thousands, except per share data)
Interest income
Loans	$	19,766	$	25,288
Investment securities and Federal Home Loan Bank stock		1,279		1,549
Interest-earning deposits		131		154
Total interest income		21,176		26,991
Interest expense
Deposits		1,504		3,591
Other borrowed funds		6,255		7,001
Total interest expense		7,759		10,592
Net interest income		13,417		16,399
Provision for loan losses		275		(2,803	)
Net interest income after provision for loan losses		13,142		19,202
Non-interest income
Net impairment losses recognized in earnings		—		(64	)
Loan servicing income (loss), net of amortization		55		(406	)
Service charges on deposits		2,580		2,682
Investment and insurance commissions		1,063		1,032
Net gain on sale of loans		2,793		5,836
Net gain on sale and call of investment securities		—		62
Net gain on sale of OREO		925		3,172
Other income		1,436		1,184
Total non-interest income		8,852		13,498

(Continued)

3

ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended June 30,
	2013			2012
	(In thousands, except per share data)
Non-interest expense
Compensation and benefits	$	11,130		$	10,470
Occupancy		1,986			1,833
Furniture and equipment		850			1,512
Federal deposit insurance premiums		1,332			1,564
Data processing		1,420			1,385
Communications		536			445
Marketing		396			248
OREO expense, net		4,289			7,012
Investor loss reimbursement		371			226
Mortgage servicing rights impairment (recovery)		(1,258	)		1,257
Provision for unfunded loan commitments		1,734			1,087
Legal services		1,271			1,598
Other professional fees		495			643
Insurance		376			393
Other expense		2,447			2,972
Total non-interest expense		27,375			32,645
Income (loss) before income taxes		(5,381	)		55
Income tax expense (benefit)		—			—
Net income (loss)		(5,381	)		55
Preferred stock dividends in arrears		(1,701	)		(1,610	)
Preferred stock discount accretion		(1,863	)		(1,863	)
Net loss available to common equity	$	(8,945	)	$	(3,418	)
Net income (loss)	$	(5,381	)	$	55
Other comprehensive income (loss), net of tax:
Reclassification adjustment for realized net gains recognized in Statement of Operations - Net gain on sale and call of investment securities		—			(62	)
Reclassification adjustments recognized in Statement of Operations - Net impairment losses recognized in earnings:
Net change in unrealized credit related other-than-temporary impairment		(68	)		(70	)
Credit related other-than-temporary impairment previously recognized on securities paid-off during the period		—			(4	)
Realized credit losses		68			138
Change in net unrealized gains (losses) on available-for-sale securities		(6,144	)		985
Total other comprehensive income (loss)		(6,144	)		987
Comprehensive income (loss)	$	(11,525	)	$	1,042
Loss per common share:
Basic	$	(0.42	)	$	(0.16	)
Diluted		(0.42	)		(0.16	)
Dividends declared per common share		—			—

See accompanying Notes to Unaudited Consolidated Financial Statements

4

ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Deficit

(Unaudited)

	Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Deficit			Treasury Stock			Deferred Compensation Obligation			Accu- mulated Other Compre- hensive Income (Loss)			Total
	(In thousands)
Balance at March 31, 2012	$	96,421	$	2,536	$	110,402		$	(147,513	)	$	(90,259	)	$	(1,269	)	$	132		$	(29,550	)
Net loss		—		—		—			(34,172	)		—			—			—			(34,172	)
Reclassification adjustment for realized net losses recognized in income		—		—		—			—			—			—			247			247
Reclassification adjustment for net change in unrealized credit related other-than- temporary impairment recognized in income		—		—		—			—			—			—			(310	)		(310	)
Reclassification adjustment for credit related other-than-temporary impairment previously recognized on securities paid-off during the period		—		—		—			—			—			—			(4	)		(4	)
Reclassification adjustment for realized credit losses recognized in income		—		—		—			—			—			—			722			722
Change in net unrealized gains on available- for-sale securities		—		—		—			—			—			—			2,792			2,792
Vesting of restricted stock		—		—		—			—			411						—			411
Change in stock-based deferred compensation obligation		—		—		(368	)		—			—			368			—			—
Accretion of preferred stock discount		7,412		—		—			(7,412	)		—			—			—			—
Balance at March 31, 2013	$	103,833	$	2,536	$	110,034		$	(189,097	)	$	(89,848	)	$	(901	)	$	3,579		$	(59,864	)
Net loss		—		—		—			(5,381	)		—			—			—			(5,381	)
Reclassification adjustment for net change in unrealized credit related other-than- temporary impairment recognized in income		—		—		—			—			—			—			(68	)		(68	)
Reclassification adjustment for realized credit losses recognized in income		—		—		—			—			—			—			68			68
Change in net unrealized losses on available-for-sale securities		—		—		—			—			—			—			(6,144	)		(6,144	)
Accretion of preferred stock discount		1,863		—		—			(1,863	)		—			—			—			—
Balance at June 30, 2013	$	105,696	$	2,536	$	110,034		$	(196,341	)	$	(89,848	)	$	(901	)	$	(2,565	)	$	(71,389	)

See accompanying Notes to Unaudited Consolidated Financial Statements

5

ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended June 30,
	2013			2012
	(In thousands)
Operating Activities
Net income (loss)	$	(5,381	)	$	55
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Amortization and accretion of investment securities premium, net		396			206
Net gain on sale of investment securities		—			(62	)
Net impairment losses on investment securities		—			64
Origination of loans held for sale		(149,096	)		(242,340	)
Proceeds from sale of loans held for sale		150,242			259,557
Net gain on sale of loans		(2,793	)		(5,836	)
Provision for loan losses		275			(2,803	)
Provision for OREO losses		2,368			4,634
Provision for unfunded loan commitments		1,734			1,087
Gain on sale of OREO		(925	)		(3,172	)
Depreciation and amortization		645			1,004
Mortgage servicing rights impairment (recovery)		(1,258	)		1,257
Impairment of real estate held for development and sale		—			245
Decrease in accrued interest receivable		500			684
(Increase) decrease in other assets		1,327			(121	)
Increase in accrued interest and fees payable		4,658			4,632
Increase in accrued taxes, insurance and employee related expenses		567			117
Increase in other liabilities		3,040			324
Net cash provided by operating activities		6,299			19,532
Investing Activities
Proceeds from sale of investment securities		—			1,905
Purchase of investment securities		(43,140	)		—
Principal collected on investment securities		14,422			9,549
Decrease in loans held for investment		39,764			81,355
Purchases of premises and equipment		(673	)		(103	)
Proceeds from sale of OREO		17,971			19,372
Capitalized improvements of OREO		(52	)		—
FHLB stock redemption		—			5,270
Net cash provided by investing activities		28,292			117,348

(Continued)

6

ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended June 30,
	2013			2012
	(In thousands)
Financing Activities
Decrease in deposits	$	(42,649	)	$	(31,931	)
Increase in advance payments by borrowers for taxes and insurance		19,537			20,165
Proceeds from borrowed funds		31,769			19,700
Repayment of borrowed funds		(30,245	)		(19,425	)
Net cash used in financing activities		(21,588	)		(11,491	)
Net increase in cash and cash equivalents		13,003			125,389
Cash and cash equivalents at beginning of period		228,536			242,980
Cash and cash equivalents at end of period	$	241,539		$	368,369
Supplemental disclosures of cash flow information:
Cash paid or credited to accounts:
Interest on deposits and borrowings	$	3,474		$	5,975
Income tax payments		17			10
Non-cash transactions:
Transfer of loans to OREO		3,261			18,818
Transfer of OREO to premises and equipment		—			2,870

See accompanying Notes to Unaudited Consolidated Financial Statements

7

ANCHOR BANCORP WISCONSIN INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis of Presentation

The unaudited consolidated financial statements include the accounts and results of operations of Anchor BanCorp Wisconsin Inc. (the “Corporation” or the “Company”) and its wholly-owned subsidiaries, AnchorBank, fsb (the “Bank”) and Investment Directions, Inc. (“IDI”). The Bank has one subsidiary at June 30, 2013: ADPC Corporation. Significant inter-company balances and transactions have been eliminated.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the unaudited interim consolidated financial statements have been included.

In preparing the unaudited consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of foreclosed real estate, the net carrying value of mortgage servicing rights and deferred tax assets, and the fair value of investment securities, interest rate lock commitments, forward contracts to sell mortgage loans, and loans held for sale. The results of operations and other data for the three-month period ended June 30, 2013 are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2014. We have evaluated all subsequent events through the date of this filing. The interim unaudited consolidated financial statements presented herein should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013.

Certain prior period amounts have been reclassified to conform to the current period presentations with no impact on net income (loss) or total stockholders’ equity (deficit).

Note 2 – Subsequent Events, Significant Risks and Uncertainties

Subsequent Events

On August 12, 2013, the Company filed a voluntary petition for relief (the “Chapter 11 Case”) under the provisions of Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Western District of Wisconsin (the “Bankruptcy Court”) to implement a “pre-packaged” plan of reorganization (the “Plan of Reorganization”) in order to facilitate the restructuring of the Company and the recapitalization of the Bank. The Chapter 11 Case is being administered under the caption “In re Anchor BanCorp Wisconsin Inc.” Case No. 13-14003-rdm. As of the date of the filing of this Quarterly Report on Form 10-Q, the Company continues to operate its businesses under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. For more information on the Chapter 11 Case and the Plan or Reorganization, see the Company’s Current Report on Form 8-K, filed on or about August 13, 2013, which is incorporated herein by reference.

Regulatory Agreements

The Bank’s primary regulator is the Office of the Comptroller of the Currency (“OCC”). The Federal Reserve is the primary regulator of the Corporation. On June 26, 2009, the Corporation and the Bank each consented to the issuance of an Order to Cease and Desist (the “Corporation Order” and the “Bank Order,” respectively, and together, the “Orders”).

8

The Corporation Order requires the Corporation to notify, and in certain cases to obtain the permission of, the Federal Reserve 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; (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; and (v) making any golden parachute payments or prohibited indemnification payments. In July 2010, the Corporation developed and submitted to the Office of Thrift Supervision, the Corporation’s primary regulator at the time until it was disbanded in 2011 and the Federal Reserve assumed the role of primary regulator, a three-year cash flow plan, which must be reviewed at least quarterly by the Corporation’s management and board of directors for material deviations between cash flow plan projections and actual results (the “Variance Analysis Report”). Within 45 days following the end of each quarter, the Corporation is required to provide and has been providing the Federal Reserve its Variance Analysis Report for that quarter.

The Bank Order requires the Bank to notify, or in certain cases obtain the permission of, the OCC 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 Bank also developed and submitted within the prescribed time periods, a written capital restoration 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 regularly review its current liquidity management policy and the adequacy of its allowance for loan and lease losses.

The Bank is also subject to a capital restoration plan including a Prompt Corrective Action Directive (“PCA”). Under the PCA, the Bank must obtain prior written approval before entering into any contract or lease for the purchase or sale of real estate or of any interest therein, except for contracts entered into in the ordinary course of business for the purchase or sale of other real estate owned due to foreclosure (“OREO”) where the contract does not exceed $3.5 million and the sales price of the OREO does not fall below 85% of the net carrying value of the OREO.

The Orders also stipulated that, as of September 30, 2009, the Bank was required to meet and maintain both a core capital ratio equal to or greater than 7% and a total risk-based capital ratio equal to or greater than 11%. Further, as of December 31, 2009, the Orders required the Bank to meet and maintain both a core capital ratio equal to or greater than 8% and a total risk-based capital ratio equal to or greater than 12%.

At June 30, 2013, the Bank had a tier 1 leverage (core) ratio of 4.57% and a total risk-based capital ratio of 9.21%, each below the required capital ratios set forth above. Without a waiver, amendment or modification of the Orders, the Bank could be subject to further regulatory action, although neither the Bank nor the Corporation has received notice of any regulatory action to be taken by the OCC or the Federal Reserve with regards to the Orders. See Subsequent Events under this Note 2 regarding the Company’s efforts to meet these capital ratio requirements through the implementation of the Plan of Reorganization to facilitate the restructuring of the Company and the recapitalization of the Bank. All customer deposits remain fully insured to the limits established by the FDIC.

Going Concern

On August 12, 2013, the Company filed a voluntary petition for relief under the provisions of Chapter 11 of Title 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Western District of Wisconsin to implement the Plan of Reorganization in order to facilitate the restructuring of the Company and the recapitalization of the Bank. The Chapter 11 Case is being administered under the caption “In re Anchor BanCorp Wisconsin Inc.” Case No. 13-14003-rdm. As of the date of the filing of this Quarterly Report on Form 10-Q, the Company continues to operate its businesses under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code.

The Corporation and the Bank consult with the Federal Reserve, the OCC and FDIC on a regular basis concerning the Corporation’s and Bank’s proposals to obtain outside capital and to develop action plans that will be acceptable to federal regulatory authorities, but there can be no assurance that these actions will be successful, or even if one or more of the Corporation’s and Bank’s proposals are accepted by the Federal regulators, that these proposals will be successfully implemented. Significant operating losses in the past five fiscal years, significant levels of criticized assets at the Bank and negative equity of the Corporation raise substantial doubt as to the Corporation’s ability to continue as a going concern. If the Corporation and Bank are unable to achieve compliance with the requirements of the Orders, or implement an acceptable capital restoration plan, and if the Corporation and Bank cannot otherwise comply with such commitments and regulations, the OCC or FDIC could force a sale, liquidation or federal conservatorship or receivership of the Bank.

9

Further, the Corporation entered into an amendment dated November 30, 2012 (“Amendment No. 9”) to the Amended and Restated Credit Agreement (“Credit Agreement”) among the Corporation, the lenders from time to time a party thereto, and U.S. Bank National Association, as administrative agent for such lenders, or the “Agent” as described in Note 9, in which the existing interest rate remained the same, the financial covenants related to capital ratios and non-performing loans were moderately tightened and the maturity date was extended to June 30, 2013. The Company and the lenders were prepared to enter into a further extension of the maturity date and related amendments under the Credit Agreement as of June 30, 2013. However, under the Order to Cease and Desist between the Company and the Office of Thrift Supervision, dated June 26, 2009, the Company may not incur, issue, renew, or rollover any debt, increase any current lines of credit, or guarantee the debt of any entity, without prior written notice to and written approval from the Federal Reserve, which is the successor regulator to the Office of Thrift Supervision. On July 2, 2013, the Federal Reserve informed the Company that it is not, at the current time, prepared to approve the further extension of the maturity date and related amendments under the Credit Agreement proposed by the Company, and the Company remains in default of the Agreement as of the reporting date.

The Company does not currently have the ability to satisfy its payment obligations under the Credit Agreement and Amendment No. 9 which contains customary representations, warranties, conditions and events of default for agreements of such type. At June 30, 2013, the Corporation was in default of the Credit Agreement. Under the terms of the Credit Agreement, the Agent and the lenders have certain rights, including the right to accelerate the maturity of the borrowings if the Corporation is not in compliance with all covenants. The filing of the Chapter 11 Case constitutes an event of default under the Credit Agreement. The Company believes that any efforts to enforce the payment obligations under the Credit Agreement are stayed as a result of the filing of the Chapter 11 Case.

Credit Risks

Non-performing assets totaled $175.2 million at June 30, 2013, or 7.47% of total assets, which decreased the Corporation’s interest income. The Corporation’s results of operations will continue to be impacted by the level of non-performing assets, and the Corporation expects continued downward pressure on interest income in the future. As reported in the accompanying unaudited consolidated financial statements, the Corporation has a net loss of $5.4 million for the three months ended June 30, 2013 and net income of $55,000 for the three months ended June 30, 2012. Stockholders’ equity declined from a deficit of $59.9 million or (2.53)% of total assets at March 31, 2013 to a deficit of $71.4 million or (3.04)% of total assets at June 30, 2013.

Note 3 – Recent Accounting Pronouncements

ASU No. 2013-02, “Comprehensive Income (Topic 220) – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” ASU 2013-02 requires entities to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account instead of directly to income or expense in the same reporting period.

10

The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The Corporation adopted ASU 2013-02 as of March 31, 2013 and is presented in the Consolidated Statements of Comprehensive Income (Loss).

Note 4 - Investment Securities

The amortized cost and fair value of investment securities are as follows:

	Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value
	(In thousands)
June 30, 2013
Available for sale:
U.S. government sponsored and federal agency obligations	$	3,416	$	4	$	—		$	3,420
Corporate stock and bonds		152		219		—			371
Non-agency CMOs (1)		7,404		11		(234	)		7,181
Government sponsored agency mortgage-backed securities (1)		33,604		180		(250	)		33,534
GNMA mortgage-backed securities (1)		246,954		2,003		(4,498	)		244,459
	$	291,530	$	2,417	$	(4,982	)	$	288,965
March 31, 2013
Available for sale:
U.S. government sponsored and federal agency obligations	$	3,444	$	60	$	—		$	3,504
Corporate stock and bonds		152		112		—			264
Non-agency CMOs (1)		7,885		15		(351	)		7,549
Government sponsored agency mortgage-backed securities (1)		2,975		209		—			3,184
GNMA mortgage-backed securities (1)		248,752		3,907		(373	)		252,286
	$	263,208	$	4,303	$	(724	)	$	266,787

⁽¹⁾  Primarily collateralized by residential mortgages.

Independent pricing services are used to value all investment securities with one pricing service valuing all securities except the non-agency CMOs. A specialized pricing service is used for valuation of the non-agency CMO portfolio.

To estimate the fair value of non-agency CMOs, the pricing service valuation model discounted estimated expected cash flows after credit losses at rates ranging from 4% to 7%. The rates utilized are based on the risk-free rate equivalent to the remaining average life of the security, plus a spread for normal liquidity and a spread to reflect the uncertainty of the cash flow estimates. The pricing service benchmarks its fair value results to other pricing services and monitors the market for actual trades. The cash flow model includes these inputs in its derivation of the discount rates used to estimate fair value. There are no payments in kind allowed on these non-agency CMOs.

11

The table below presents the fair value and gross unrealized losses of all securities in a loss position, aggregated by investment category and length of time that individual investments have been in a continuous unrealized loss position at June 30, 2013 and March 31, 2013.

	Unrealized Loss Position
	Less than 12 months					12 months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(In thousands)
June 30, 2013
Non-agency CMOs	$	—	$	—		$	6,540	$	(234	)	$	6,540	$	(234	)
Government sponsored agency mortgage-backed securities		14,726		(250	)		—		—			14,726		(250	)
GNMA mortgage-backed securities		141,005		(4,498	)		—		—			141,005		(4,498	)
	$	155,731	$	(4,748	)	$	6,540	$	(234	)	$	162,271	$	(4,982	)
March 31, 2013
Non-agency CMOs	$	—	$	—		$	6,674	$	(351	)	$	6,674	$	(351	)
GNMA mortgage-backed securities		82,822		(373	)		—		—			82,822		(373	)
	$	82,822	$	(373	)	$	6,674	$	(351	)	$	89,496	$	(724	)

Other-Than-Temporary Impairment

The number of individual securities in the tables above total 25 at June 30, 2013 and 15 at March 31, 2013. Although these securities have declined in value, the unrealized losses are considered temporary. Management evaluates securities for other-than-temporary impairment 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 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 with an unrealized loss, 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, an other-than-temporary impairment loss is recognized in earnings equal to the difference between the security’s fair value and its amortized cost basis. If neither condition 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, discounted at the purchase yield or current accounting yield of the security, and the amortized cost basis is the credit loss. The credit loss is the portion of the impairment that is deemed other-than-temporary and recognized in earnings and is a reduction in the cost basis of the security. The portion of impairment related to all other factors is deemed temporary and included in other comprehensive income (loss).

An independent pricing service is utilized to run a discounted cash flow model in the calculation of other-than-temporary impairment losses on non-agency CMOs. This model determines the portion of the impairment that is other-than-temporary due to credit losses, and the portion that is temporary due to all other factors.

The significant inputs used for calculating the credit loss portion of securities with other-than-temporary impairment (“OTTI”) include 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-average maturity.

12

The discount rates used to establish the net present value of expected cash flows for purposes of determining OTTI ranged from 4% to 7%. These rates equate to the effective yield implicit in the security at the date of acquisition of the bonds for which OTTI has not been previously incurred. For bonds with previously recorded OTTI, the discount rate used equates to the accounting yield on the security as of the valuation date.

Default rates were calculated separately for each category of underlying borrower based on delinquency status (i.e. current, 30 to 59 days delinquent, 60 to 89 days delinquent, 90+ days delinquent, and foreclosure balances) of the underlying loans as of June 1, 2013. This data is 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 of non-agency CMOs with similar attributes. The month one to month 24 constant default rate in the model ranged from 3.52% to 11.07%.

At June 30, 2013, six non-agency CMOs with a fair value of $6.8 million and an adjusted cost basis of $7.0 million were other-than-temporarily impaired. At March 31, 2013, six non-agency CMOs with a fair value of $6.9 million and an adjusted cost basis of $7.3 million were other-than-temporarily impaired. Unrealized other-than-temporary impairment due to credit losses of zero and $64,000 was included in earnings for the three months ended June 30, 2013 and 2012, respectively. For the three months ended June 30, 2013 and 2012, realized losses of $71,000 and $138,000, respectively, related to credit issues (i.e. – principal reduced without a receipt of cash) were incurred that were previously recognized in earnings as unrealized other-than-temporary impairment.

Unrealized losses on U.S. government sponsored and federal agency obligations, corporate stocks and bonds and Ginnie Mae (“GNMA”) mortgage-backed securities as of June 30, 2013 and 2012 due to changes in interest rates and other non-credit related factors totaled $4.7 million and $26,000, respectively. The Corporation has analyzed these securities for evidence of other-than-temporary impairment and concluded that no OTTI exists and that the unrealized losses are properly classified in accumulated other comprehensive income.

The following table is a roll forward of the amount of other-than-temporary impairment related to credit losses that have been recognized in earnings for which a portion of impairment was deemed temporary and recognized in other comprehensive income for the three months ended June 30, 2013 and 2012:

	Three Months Ended June 30,
	2013			2012
	(In thousands)
Beginning balance of unrealized OTTI related to credit losses	$	1,002		$	2,391
Additional unrealized OTTI related to credit losses for which OTTI was previously recognized		—			68
Debit related OTTI previously recognized for OTTI recovery during the period		3			—
Credit related OTTI previously recognized for securities sold during the period		—			(160	)
Credit related OTTI previously recognized for securities paid-off during the period		—			(4	)
Decrease for realized amount of credit losses for which unrealized credit related OTTI was previously recognized		(71	)		(138	)
Ending balance of unrealized OTTI related to credit losses	$	934		$	2,157

13

All other-than-temporarily impaired debt securities are non-agency CMOs. On a cumulative basis, other-than-temporary impairment losses recognized in earnings by year of vintage were as follows:

	June 30,
Year of Vintage	2013
	(In thousands)
Prior to 2005	$	7
2005		304
2006		—
2007		623
	$	934

The cost of investment securities sold is determined using the specific identification method. Sales of investment securities available for sale are summarized below:

	Three Months Ended June 30,
	2013		2012
	(In thousands)
Proceeds from sales	$	—	$	1,905
Gross gains		—	$	62
Gross losses		—		—
Net gain/(loss) on sales	$	—	$	62

At June 30, 2013 and March 31, 2013, investment securities available-for-sale with a fair value of approximately $165.8 million and $187.2 million, respectively, were pledged to secure deposits, borrowings and for other purposes as permitted or required by law.

The fair value of investment securities available for sale by contractual maturity at June 30, 2013 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.

	Within 1 Year		After 1 Year through 5 Years		After 5 Years through 10 Years		Over Ten Years		Total
	(In thousands)
U.S. government sponsored and federal agency obligations	$	—	$	3,420	$	—	$	—	$	3,420
Corporate stock and bonds		—		—		—		371		371
Non-agency CMOs		—		—		—		7,181		7,181
Government sponsored agency mortgage-backed securities		—		217		5,287		28,030		33,534
GNMA mortgage-backed securities		—		323		—		244,136		244,459
Total	$	—	$	3,960	$	5,287	$	279,718	$	288,965

14

Note 5 – Loans Receivable

Loans receivable held for investment consist of the following:

	June 30,			March 31,
	2013			2013
	(In thousands)
Residential	$	547,480		$	547,720
Commercial and industrial		33,824			30,574
Commercial real estate:
Land and construction		102,904			111,953
Multi-family		271,283			287,447
Retail/office		190,197			198,686
Other commercial real estate		181,833			172,857
Consumer:
Education		148,160			166,429
Other consumer		246,333			247,530
Total unpaid principal balance		1,722,014			1,763,196
Undisbursed loan proceeds(1)		(17,169	)		(10,997	)
Unamortized loan fees, net		(1,727	)		(1,838	)
Unearned interest		(3	)		(3	)
Total loan contra balances		(18,899	)		(12,838	)
Loans held for investment		1,703,115			1,750,358
Allowance for loan losses		(75,872	)		(79,815	)
Loans held for investment, net	$	1,627,243		$	1,670,543

(1) Undisbursed loan proceeds are funds to be released upon a draw request approved by the Corporation.

Residential Loans

At June 30, 2013, $547.5 million, or 31.8%, of the total loans unpaid principal balance receivable consisted of residential loans, substantially all of which were 1 to 4 family dwellings. Residential loans consist of both adjustable and fixed-rate loans. The adjustable-rate loans currently in the portfolio have up to 30-year maturities and terms which permit the Corporation to annually increase or decrease the rate on the loans, based on a designated index. These rate changes are generally subject to a limit of 2% per adjustment and an aggregate 6% adjustment over the life of the loan. These loans are documented according to standard industry practices. The Corporation makes a limited number of interest-only loans which tend to have a shorter term to maturity and does not originate negative amortization and option payment adjustable rate mortgages.

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 Corporation believes that these risks, which have not had a material adverse effect to date, generally are less than the risks associated with holding fixed-rate loans in an increasing interest rate environment. Also, as interest rates decline, borrowers may refinance their mortgages into fixed-rate loans thereby prepaying the balance of the loan prior to maturity. At June 30, 2013, approximately $337.0 million, or 61.6%, of the held for investment residential loans unpaid principal balance consisted of loans with adjustable interest rates.

15

The Corporation continues to originate long-term, fixed-rate conventional mortgage loans. Current production of these loans with terms of 15 years or more are generally sold to Fannie Mae, Freddie Mac and other institutional investors, while a portion of loan production is retained in the held for investment portfolio. In order to provide a full range of products to its customers, the Corporation also participates in the loan origination programs of Wisconsin Housing and Economic Development Authority (“WHEDA”), Wisconsin Department of Veterans Affairs (“WDVA”) and the Federal Housing Administration (“FHA”). The Corporation retains the right to service substantially all loans that it sells.

At June 30, 2013, approximately $210.5 million, or 38.4%, of the held for investment residential loans unpaid principal balance consisted of loans with fixed rates of interest. Although these loans generally provide for repayments of principal over a fixed period of 10 to 30 years, because of prepayments and due-on-sale clauses, such loans generally remain outstanding for a substantially shorter period of time.

Commercial and Industrial Loans

The Corporation originates loans for commercial, corporate and business purposes, including issuing letters of credit. At June 30, 2013, the unpaid principal balance receivable of commercial and industrial loans amounted to $33.8 million, or 2.0%, of the total loans unpaid principal balance receivable. The commercial and industrial loan portfolio is comprised of loans for a variety of business purposes and the loans generally are secured by equipment, machinery and other corporate assets. These loans generally have terms of five years or less and interest rates that float in accordance with a designated published index. Substantially all such loans are secured and backed by the personal guarantees of the owners of the business.

Commercial Real Estate Loans

The Corporation originates commercial real estate loans which include land and construction, multi-family, retail/office and other commercial real estate. Such loans generally have adjustable rates and shorter terms than single-family residential loans, thus increasing the earnings sensitivity of the loan portfolio to changes in interest rates, as well as providing higher fees and rates than residential loans. At June 30, 2013, $746.2 million of loans unpaid principal balance receivable were secured by commercial real estate, which represented 43.3% of the total loans unpaid principal balance. The origination of such loans is generally limited to the Corporation’s primary market area.

Commercial real estate loans are primarily secured by apartment buildings, office and industrial buildings, land, warehouses, small retail shopping centers and various special purpose properties, including community-based residential facilities and senior housing. Although terms vary, commercial real estate loans generally have fixed interest rates, amortization periods of 15 to 25 years, as well as balloon payments of two to seven years, and terms which provide that the interest rates thereon may be adjusted annually based on a designated index.

Consumer Loans

The Corporation offers consumer loans in order to provide a wider range of financial services to its customers. At June 30, 2013, $394.5 million, or 22.9%, of the total loans unpaid principal balance receivable consisted of consumer loans. Consumer loans typically have 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 residential-other portfolio included in the other consumer loan category consists primarily of Express refinance first mortgage loans, second mortgage and home equity loans. Express refinance loans are available for owner occupied one- to two-family residential properties, with loan amounts up to $200,000, a fixed interest rate, up to 15 year amortization, low fees and rapid closing timeframes. The primary home equity loan product has an adjustable 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. New home equity lines do not exceed 90% of appraised value of the property at the loan origination date. A fixed-rate home equity second mortgage term product is also offered.

16

Approximately $148.2 million, or 8.6%, of the total loans unpaid principal balance receivable at June 30, 2013 consisted of education loans. These loans are generally made for a maximum of $3,500 per year for undergraduate studies and $8,500 per year for graduate studies and are placed in repayment status on an installment basis within nine months following 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 are generally guaranteed by the Great Lakes Higher Education Corporation up to 97% of the balance of the loan, which typically obtains reinsurance of its obligations from the U.S. Department of Education. The origination of student loans was discontinued beginning October 1, 2010 following the March 2010 law ending loan guarantees provided by the U. S. Department of Education. Although direct student loans, without a government guarantee, may be originated, risk-adjusted returns for these loans continue to be unattractive. Education loans may be sold to the U.S. Department of Education or to other investors. No education loans were sold during the three months ended June 30, 2013 and 2012.

The other consumer loan portfolio also includes vehicle loans and other secured and unsecured loans made for a variety of consumer purposes. These include credit extended through credit cards issued by a third party, ELAN Financial Services (ELAN), pursuant to an agency arrangement under which the Corporation participates in outstanding balances, currently at 25% to 28%. The Corporation also shares 33% to 37% of annual fees, and 30% of late payment, over limit and cash advance fees, as well as 25% to 30% of interchange income from the underlying portfolio.

Allowances for Loan Losses

The allowance for loan losses consists of general, substandard and specific components even though the entire allowance is available to cover losses on any loan. The specific allowance component relates to impaired loans (i.e. – non-accrual) and all loans reported as troubled debt restructurings. For such loans, an allowance is established when the discounted cash flows (or collateral value if repayment relies solely on the operation or sale of the collateral) of the impaired loan are lower than the carrying value of that loan. The substandard loan component is primarily associated with loans rated in this category but not in non-accrual status. The general allowance component covers pass, watch and special mention rated loans and is based on historical loss experience adjusted for various qualitative and quantitative factors. Loans graded substandard and below are individually examined to determine the appropriate loan loss reserve. In addition, a reserve for unfunded commitments, letters of credit and repurchase of sold loans is maintained and classified in other liabilities.

For the quarter ended June 30, 2013, the Bank modified its general allowance methodology to increase the historical loss period from a six to seven quarter historical look-back period, with the intent to build to an eight quarter look-back in quarters subsequent to June 2013. The modification was done to reflect a more stable economic environment and to capture additional loss statistics considered reflective of the current portfolio. In addition, as the Bank begins to increase its new loan originations, a new loan risk factor was added to capture the unique risk factor adjustments needed for loans originated after September 2012, reflecting a different risk level as compared to the existing legacy portfolio. The impact to the allowance for loan losses at June 30, 2013 after implementing the above modifications was a reduction of the required reserve of $1.4 million as compared to the previous methodology. See the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2013 for a full description of the allowance methodology.

17

The following table presents the allowance for loan losses by component:

	At June 30,		At March 31,
	2013		2013
	(In thousands)
General component	$	26,028	$	28,163
Substandard loan component		23,161		22,560
Specific component		26,683		29,092
Total allowance for loan losses	$	75,872	$	79,815

The following table presents the unpaid principal balance of loans by risk category:

	At June 30,		At March 31,
	2013		2013
	(In thousands)
Pass (1)	$	1,502,014	$	1,519,665
Special mention		27,414		33,363
Total pass and special mention rated loans		1,529,428		1,553,028
Substandard rated loans, excluding TDR accrual		47,315		49,813
Troubled debt restructurings - accrual		38,303		41,565
Non-accrual		106,968		118,790
Total impaired loans		145,271		160,355
Total unpaid principal balance	$	1,722,014	$	1,763,196

⁽¹⁾  Includes all accrual residential and consumer loans as these loans are generally not individually rated.

18

The following table presents activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2013 and 2012:

For the Quarter Ended:	Residential			Commercial and Industrial			Commercial Real Estate			Consumer			Total
	(In thousands)
June 30, 2013
Beginning balance	$	14,525		$	7,072		$	54,581		$	3,637		$	79,815
Provision		2,099			(974	)		(2,180	)		1,330			275
Charge-offs		(1,665	)		(411	)		(2,199	)		(907	)		(5,182	)
Recoveries		163			155			604			42			964
Ending balance	$	15,122		$	5,842		$	50,806		$	4,102		$	75,872
June 30, 2012
Beginning balance	$	13,027		$	10,568		$	85,153		$	2,467		$	111,215
Provision		1,673			(1,443	)		(3,760	)		727			(2,803	)
Charge-offs		(1,363	)		(1,651	)		(6,768	)		(791	)		(10,573	)
Recoveries		208			1,042			1,356			32			2,638
Ending balance	$	13,545		$	8,516		$	75,981		$	2,435		$	100,477

The following table presents the balance in the allowance for loan losses and the unpaid principal balance of loans by portfolio segment associated with impaired loans and all other loans as a group as of June 30, 2013 and March 31, 2013:

	Residential		Commercial and Industrial		Commercial Real Estate		Consumer		Total
	(In thousands)
June 30, 2013
Allowance for loan losses:
Associated with impaired loans	$	5,778	$	1,947	$	18,694	$	264	$	26,683
Associated with all other loans		9,344		3,895		32,112		3,838		49,189
Total	$	15,122	$	5,842	$	50,806	$	4,102	$	75,872
Loans:
Impaired loans individually evaluated	$	32,186	$	3,103	$	106,498	$	3,484	$	145,271
All other loans		515,294		30,721		639,719		391,009		1,576,743
Total	$	547,480	$	33,824	$	746,217	$	394,493	$	1,722,014
March 31, 2013
Allowance for loan losses:
Associated with impaired loans	$	7,038	$	2,508	$	19,182	$	364	$	29,092
Associated with all other loans		7,487		4,564		35,399		3,273		50,723
Total	$	14,525	$	7,072	$	54,581	$	3,637	$	79,815
Loans:
Impaired loans individually evaluated	$	37,378	$	3,760	$	114,540	$	4,677	$	160,355
All other loans		510,342		26,814		656,403		409,282		1,602,841
Total	$	547,720	$	30,574	$	770,943	$	413,959	$	1,763,196

The provisions for loan losses is recorded as a deduction from net interest income on the Consolidated Statements of Operations and was $275,000 for the three months ended June 30, 2013 compared to a recovery of $2.8 million for the same period in 2012.

A provision for unfunded loan commitments is recorded and includes provisions for unfunded commitments to lend, commercial letters of credit and repurchased loans from previously sold loans and is included in non-interest expense on the Consolidated Statements of Operations. The provision for unfunded commitments for the three months ended June 30, 2013 and 2012 was $1.7 million and $1.1 million, respectively.

19

At June 30, 2013, $145.3 million of unpaid principal balance of loans were identified as impaired which includes performing troubled debt restructurings. At March 31, 2013, impaired loans were $160.4 million. A loan is identified as impaired when, based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement may not be collected and thus are placed on non-accrual status. Interest income on certain impaired loans is recognized on a cash basis.

A substantial portion of loans are collateralized by real estate in Wisconsin and adjacent states. Accordingly, the ultimate collectability of the loan portfolio is susceptible to changes in real estate market conditions in that area.

20

The following tables present impaired loans segregated by loans with no specific allowance and loans with an allowance, by class of loans, as of June 30, 2013 and March 31, 2013:

	Unpaid Principal Balance		Associated Allowance		Carrying Amount		Average Carrying Amount (1)		Fiscal Year to Date Interest Income Recognized
	(In thousands)
June 30, 2013
With no specific allowance recorded:
Residential	$	11,410	$	—	$	11,410	$	12,259	$	108
Commercial and industrial		167		—		167		364		25
Land and construction		7,809		—		7,809		11,233		29
Multi-family		12,012		—		12,012		12,390		150
Retail/office		6,084		—		6,084		6,952		(51	)
Other commercial real estate		12,842		—		12,842		14,706		158
Education		—		—		—		—		—
Other consumer		596		—		596		1,123		30
Subtotal		50,920		—		50,920		59,027		449
With an allowance recorded (2):
Residential		20,776		5,778		14,998		14,384		142
Commercial and industrial		2,936		1,947		989		679		22
Land and construction		22,306		6,304		16,002		15,587		99
Multi-family		14,334		4,297		10,037		9,907		155
Retail/office		13,005		3,339		9,666		9,823		64
Other commercial real estate		18,106		4,754		13,352		14,482		163
Education (3)		380		1		379		538		—
Other consumer		2,508		263		2,245		2,162		43
Subtotal		94,351		26,683		67,668		67,562		688
Total
Residential		32,186		5,778		26,408		26,643		250
Commercial and industrial		3,103		1,947		1,156		1,043		47
Land and construction		30,115		6,304		23,811		26,820		128
Multi-family		26,346		4,297		22,049		22,297		305
Retail/office		19,089		3,339		15,750		16,775		13
Other commercial real estate		30,948		4,754		26,194		29,188		321
Education (3)		380		1		379		538		—
Other consumer		3,104		263		2,841		3,285		73
	$	145,271	$	26,683	$	118,588	$	126,589	$	1,137

21

	Unpaid Principal Balance		Associated Allowance		Carrying Amount		Average Carrying Amount (1)		Fiscal Year to Date Interest Income Recognized
	(In thousands)
March 31, 2013
With no specific allowance recorded:
Residential	$	11,545	$	—	$	11,545	$	12,655	$	448
Commercial and industrial		280		—		280		1,020		75
Land and construction		9,982		—		9,982		21,678		189
Multi-family		12,217		—		12,217		14,826		400
Retail/office		6,913		—		6,913		15,810		350
Other commercial real estate		13,365		—		13,365		19,378		691
Education		—		—		—		—		—
Other consumer		531		—		531		665		62
Subtotal		54,833		—		54,833		86,032		2,215
With an allowance recorded (2):
Residential		25,833		7,038		18,795		23,509		611
Commercial and industrial		3,480		2,508		972		1,556		78
Land and construction		23,492		6,552		16,940		19,024		659
Multi-family		15,448		4,261		11,187		13,918		722
Retail/office		14,505		3,312		11,193		19,553		519
Other commercial real estate		18,618		5,057		13,561		19,545		632
Education (3)		424		1		423		615		—
Other consumer		3,722		363		3,359		6,167		293
Subtotal		105,522		29,092		76,430		103,887		3,514
Total
Residential		37,378		7,038		30,340		36,164		1,059
Commercial and industrial		3,760		2,508		1,252		2,576		153
Land and construction		33,474		6,552		26,922		40,702		848
Multi-family		27,665		4,261		23,404		28,744		1,122
Retail/office		21,418		3,312		18,106		35,363		869
Other commercial real estate		31,983		5,057		26,926		38,923		1,323
Education (3)		424		1		423		615		—
Other consumer		4,253		363		3,890		6,832		355
	$	160,355	$	29,092	$	131,263	$	189,919	$	5,729

⁽¹⁾  The average carrying amount of loans in each category is calculated on a trailing four quarter basis.

⁽²⁾  Includes ratio-based allowance for loan losses of $3.2 million and $5.7 million associated with loans totaling $17.3 million and $35.9 million at June 30, 2013 and March 31, 2013, respectively, for which individual reviews have not been completed but an allowance established based on the ratio of allowance for loan losses to unpaid principal balance for the loans individually reviewed, by class of loan.

⁽³⁾  Excludes the guaranteed portion of education loans 90+ days past due with unpaid principal balance of $12,280 and $13,697 and average carrying amounts totaling $18,634 and $21,249 at June 30, 2013 and March 31, 2013, respectively, that are not considered impaired based on a guarantee provided by government agencies.

The carrying amounts in the tables above include the unpaid principal balance less the associated allowance. The average carrying amount is calculated based on ending quarterly balances. The interest income recognized is the fiscal year to date interest income recognized on a cash basis.

22

The following is additional information regarding impaired loans:

	June 30,			March 31,
	2013			2013
	(In thousands)
Unpaid principal balance of impaired loans:
With specific reserve required	$	94,351		$	105,522
Without a specific reserve		50,920			54,833
Total impaired loans		145,271			160,355
Less:
Specific valuation allowance for impaired loans		(26,683	)		(29,092	)
Carrying amount of impaired loans	$	118,588		$	131,263
Average carrying amount of impaired loans	$	126,589		$	189,919
Loans and troubled debt restructurings on non-accrual status		106,968			118,790
Troubled debt restructurings - accrual		38,303			41,565
Troubled debt restructurings - non-accrual (1)		24,562			26,287
Loans past due ninety days or more and still accruing (2)		12,280			13,697

⁽¹⁾  Troubled debt restructurings - non-accrual are included in the loans and troubled debt restructurings on non-accrual status line item above.

⁽²⁾  Includes the guaranteed portion of education loans of $12,280 and $13,697 at June 30, 2013 and March 31, 2013, respectively, that were 90+ days past due which continue to accrue interest due to a guarantee provided by government agencies covering approximately 97% of the outstanding balance.

The following table presents interest income recognized on impaired loans on a cash basis:

	For the Three Months Ended
	June 30,
	2013		2012
	(In thousands)
Interest income recognized on impaired loans on a cash basis	$	1,137	$	1,903

Although the Corporation is currently not committed to lend any additional funds on impaired loans in accordance with the original terms of these loans, it is not legally obligated to, and will not, disburse additional funds on any loans while in nonaccrual status or if the borrower is in default.

The Corporation continues to experience declines in the valuations for real estate collateral supporting portions of its loan portfolio, as reflected in recently received appraisals. Currently, $186.8 million or approximately 86% of the unpaid principal balance of classified loans (i.e. loans risk rated as substandard or loss) have recent appraisals (i.e. within one year) or have been determined to not need an appraisal. Loans that do not require an appraisal under corporate policy include situations in which the loan (i) is fully reserved; (ii) has a small balance (less than $250,000) and rather than being individually evaluated for impairment, is included in a homogenous pool of loans; (iii) uses a net present value of future cash flows to measure impairment; or (iv) is not secured by real estate. Appraised values greater than one year old are discounted by an additional 10% for improved land or commercial real estate and 20% for unimproved land, in determination of the allowance for loan losses.

While corporate policy may not require updated appraisals for these loans, new appraisals may still be obtained. For example, 46% of the loans which do not require an updated appraisal do have either an appraisal within the last year or an appraisal on order. If real estate values decline, the Corporation may have to increase its allowance for loan losses as updated appraisals or other indications of a decrease in the value of collateral are received.

23

The following table presents the aging of the recorded investment in past due loans as of June 30, 2013 and March 31, 2013 by class of loans:

	Days Past Due
	30-59		60-89		90 or More		Total
	(In thousands)
June 30, 2013
Residential	$	3,040	$	492	$	22,343	$	25,875
Commercial and industrial		358		—		1,719		2,077
Land and construction		737		—		11,492		12,229
Multi-family		2,071		—		17,648		19,719
Retail/office		2,888		47		12,699		15,634
Other commercial real estate		52		302		5,219		5,573
Education		5,251		3,305		12,660		21,216
Other consumer		1,464		399		2,652		4,515
	$	15,861	$	4,545	$	86,432	$	106,838
March 31, 2013
Residential	$	2,028	$	3,390	$	24,645	$	30,063
Commercial and industrial		1,004		115		2,212		3,331
Land and construction		841		456		11,777		13,074
Multi-family		2,170		856		17,619		20,645
Retail/office		2,160		653		12,263		15,076
Other commercial real estate		10		55		5,873		5,938
Education		4,414		3,853		14,121		22,388
Other consumer		1,667		731		3,699		6,097
	$	14,294	$	10,109	$	92,209	$	116,612

Total delinquencies (loans past due 30 days or more) at June 30, 2013 were $106.8 million. The Corporation has experienced a reduction in delinquencies at each quarter-end since December 31, 2010 due to improving credit conditions and loans moving to OREO. Education loans past due 90 days or more totaling $12.7 million are still accruing interest due to the approximate 97% guarantee provided by governmental agencies. Loans less than 90 days delinquent may be placed on non-accrual status when the probability of collection of principal and interest is deemed to be insufficient to warrant further accrual.

Credit Quality Indicators:

The Corporation groups commercial and industrial loans and commercial real estate loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. This analysis is updated on a monthly basis. The following definitions are used for risk ratings:

Pass. Loans classified as pass represent assets that are evaluated and are performing under the stated terms. Pass rated assets are analyzed by the pay capacity of the obligor, current net worth of the obligor and/or by the value of the loan collateral. A subcategory of loans classified as pass are watch loans.

Watch. Loans classified as watch possess potential weaknesses that require management attention, but do not yet warrant adverse classification. While the status of an asset put on this list does not technically trigger their classification as substandard or non-accrual, it is considered a proactive way to identify potential issues and address them before the situation deteriorates further and results in a loss.

Special Mention. Loans classified as special mention exhibit material negative financial trends due to company specific or industry conditions which, if not corrected or mitigated, threaten their capacity to meet current or continuing debt obligations. These borrowers still demonstrate the financial flexibility to address and cure the root cause of these adverse financial trends without significant deviations from their current

24

business plan. Their potential weakness deserves close attention and warrant enhanced monitoring. The expectation is these borrowers will return to a pass rating given reasonable time; or will be further downgraded.

Substandard. Loans classified as substandard are inadequately protected by the current net worth, paying capacity of the obligor, or by the collateral pledged. Substandard assets must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Corporation will sustain a loss if the deficiencies are not corrected.

Non-Accrual. Loans classified as non-accrual have the weaknesses of those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Loans that fall into this category are deemed collateral dependent and an individual impairment evaluation is performed for all relationships greater than $500,000. Loans in this category are allocated a specific reserve if the collateral does not support the outstanding loan balance or charged off if deemed uncollectible.

As of June 30, 2013 and March 31, 2013, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	Pass			Special Mention			Substandard			Non-Accrual			Total  Unpaid Principal Balance
	(In thousands)
June 30, 2013
Commercial and industrial	$	26,684		$	—		$	4,860		$	2,280		$	33,824
Commercial real estate:
Land and construction		61,292			—			12,187			29,425			102,904
Multi-family		232,653			3,139			16,097			19,394			271,283
Retail/office		151,979			2,463			18,994			16,761			190,197
Other		119,259			21,812			33,480			7,282			181,833
	$	591,867		$	27,414		$	85,618		$	75,142		$	780,041
Percent of total unpaid principal balance		75.9	%		3.5	%		11.0	%		9.6	%		100.0	%
March 31, 2013
Commercial and industrial	$	21,141		$	878		$	5,640		$	2,915		$	30,574
Commercial real estate:
Land and construction		64,229			787			15,150			31,787			111,953
Multi-family		245,980			3,660			17,155			20,652			287,447
Retail/office		156,919			5,144			19,100			17,523			198,686
Other		107,465			22,894			34,333			8,165			172,857
	$	595,734		$	33,363		$	91,378		$	81,042		$	801,517
Percent of total unpaid principal balance		74.3	%		4.2	%		11.4	%		10.1	%		100.0	%

Residential and consumer loans are managed on a pool basis due to their homogeneous nature. Loans that are delinquent 90 days or more are considered non-accrual. The following table presents the unpaid principal balance of residential and consumer loans based on accrual status as of June 30, 2013 and March 31, 2013:

25

	June 30, 2013						March 31, 2013
	Accrual		Non-Accrual		Total Unpaid Principal Balance		Accrual		Non-Accrual		Total Unpaid Principal Balance
	(In thousands)
Residential	$	519,105	$	28,375	$	547,480	$	514,613	$	33,107	$	547,720
Consumer:
Education (1)		147,780		380		148,160		166,005		424		166,429
Other consumer		243,262		3,071		246,333		243,313		4,217		247,530
	$	910,147	$	31,826	$	941,973	$	923,931	$	37,748	$	961,679

(1) Non-accrual education loans represent the portion of these loans 90+ days past due that are not covered by a guarantee provided by government agencies that is limited to approximately 97% of the outstanding balance.

Troubled Debt Restructurings

Modification of loan terms in a troubled debt restructuring (“TDR”) is generally in the form of an extension of payment terms or lowering of the interest rate, although occasionally the Corporation has reduced the outstanding principal balance.

Loans modified in a troubled debt restructuring that are currently on non-accrual status will remain on non-accrual status for a period of at least six months. If after six months, or a longer period sufficient to demonstrate the willingness and ability of the borrower to perform under the modified terms, the borrower has made payments in accordance with the modified terms, the loan is returned to accrual status but retains its designation as a troubled debt restructuring. The designation as a troubled debt restructuring is removed in years after the restructuring if both of the following conditions exist: (a) the restructuring agreement specifies an interest rate equal to or greater than the rate that the creditor was willing to accept at the time of restructuring for a new loan with comparable risk and (b) the loan is not impaired based on the terms specified by the restructuring agreement.

26

The following table presents information related to loans modified in a troubled debt restructuring, by portfolio segment, during the three months ended June 30, 2013 and 2012:

	Three Months Ended June 30, 2013								Three Months Ended June 30, 2012
			Unpaid Principal		Balance in the ALLL (3)						Unpaid Principal		Balance in the ALLL (3)
Troubled Debt Restructurings (1)	Number of Modifications		Balance (2) (at period end)		Prior to Modification		At Period End		Number of Modifications		Balance (2) (at period end)		Prior to Modification		At Period End
	(Dollars in thousands)
Residential		—	$	—	$	—	$	—		—	$	—	$	—	$	—
Commercial and industrial		—		—		—		—		2		163		206		156
Land and construction		—		—		—		—		2		962		96		—
Multi-family		—		—		—		—		—		—		—		—
Retail/office		1		47		47		—		3		1,719		596		631
Other commercial real estate		1		98		98		—		—		—		—		—
Education		—		—		—		—		—		—		—		—
Other consumer		—		—		—		—		2		37		—		—
		2	$	145	$	145	$	—		9	$	2,881	$	898	$	787

(1) Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported in this table.

(2) The unpaid principal balance is inclusive of all partial paydowns and charge-offs since the modification date.

(3) The balance in the ALLL represents any specific component of the allowance for loan losses associated with these loans.

27

The following tables present the unpaid principal balance of loans modified in a troubled debt restructuring during the three months ended June 30, 2013 and 2012, by portfolio segment and by type of modification:

	Three Months Ended June 30, 2013
	Principal
	and Interest		Interest Rate Reduction				Below
Troubled Debt Restructurings (1)(2)	to Interest Only		To Below Market Rate		To Interest Only (3)		Market Rate (4)		Other (5)		Total
	(In thousands)
Residential	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		—		—		—		—		—		—
Land and construction		—		—		—		—		—		—
Multi-family		—		—		—		—		—		—
Retail/office		—		47		—		—		—		47
Other commercial real estate		—		98		—		—		—		98
Education		—		—		—		—		—		—
Other consumer		—		—		—		—		—		—
	$	—	$	145	$	—	$	—	$	—	$	145
	Three Months Ended June 30, 2012
	Principal
	and Interest		Interest Rate Reduction				Below
Troubled Debt Restructurings (1)(2)	to Interest Only		To Below Market Rate		To Interest Only (3)		Market Rate (4)		Other (5)		Total
	(In thousands)
Residential	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		—		—		—		—		163		163
Land and construction		—		—		—		210		752		962
Multi-family		—		—		—		—		—		—
Retail/office		—		161		—		546		1,012		1,719
Other commercial real estate		—		—		—		—		—		—
Education		—		—		—		—		—		—
Other consumer		—		—		18		—		19		37
	$	—	$	161	$	18	$	756	$	1,946	$	2,881

(1) Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported in this table.

(2) The unpaid principal balance is inclusive of all partial paydowns and charge-offs since the modification date.

(3) Includes modifications of loan repayment terms from principal and interest to interest only, along with a reduction in the contractual interest rate.

(4) Includes loans modified at below market rates for borrowers with similar risk profiles and having comparable loan terms and conditions. Market rates are determined by reference to internal new loan pricing grids that specify credit spreads based on loan risk rating and term to maturity.

(5) Other modifications primarily include providing for the deferral of interest currently due to the new maturity date of the loan.

28

The following table presents loans modified in a troubled debt restructuring during the twelve months prior to the dates indicated, by portfolio segment, that subsequently defaulted (i.e.: 90 days or more past due following a modification) during the three months ended June 30, 2013 and June 30, 2012:

	Three Months Ended June 30,
	2013				2012
Troubled Debt Restructurings (1)	Number of Modified Loans		Unpaid Principal Balance (2) (at period end)		Number of Modified Loans		Unpaid Principal Balance (2) (at period end)
	(Dollars in thousands)
Residential		—	$	—		—	$	—
Commercial and industrial		2		34		2		523
Land and construction		2		369		—		—
Multi-family		—		—		—		—
Retail/office		2		261		1		161
Other commercial real estate		5		1,029		—		—
Education		—		—		—		—
Other consumer		1		13		—		—
		12	$	1,706		3	$	684

(1) Loans modified in a TDR that were fully paid down, charged-off or foreclosed upon by period end are not reported in this table.

(2) The unpaid principal balance is inclusive of all partial paydowns and charge-offs since the modification date.

Pledged Loans

At June 30, 2013 and March 31, 2013, residential, multi-family, education and other consumer loans receivable with unpaid principal of approximately $778.9 million and $823.7 million were pledged to secure borrowings and for other purposes as permitted or required by law. Certain real-estate related loans are pledged as collateral for FHLB borrowings. See Note 9.

Note 6 – Other Real Estate Owned

Real estate acquired by foreclosure or by deed in lieu of foreclosure as well as other repossessed assets (OREO) are held for sale and are initially recorded at fair value less a discount for estimated selling costs at the date of foreclosure. Any write down to fair value less estimated selling costs is charged to the allowance for loan losses. If the discounted fair value exceeds the net carrying value of the loans, recoveries to the allowance for loan losses are recorded to the extent of previous charge-offs, with any excess, which is infrequent, recognized as a gain in non-interest income. Subsequent to foreclosure, valuations are periodically performed and a valuation allowance is established if the carrying value exceeds the fair value less estimated selling costs. Costs relating to the development and improvement of the property may be capitalized. Holding period costs and subsequent changes to the valuation allowance are charged to OREO expense, net included in non-interest expense. Incremental valuation adjustments may be recognized in the Statements of Operations if, in the opinion of management, such additional losses are deemed probable.

29

A summary of the activity in other real estate owned is as follows:

	For the Three Months Ended June 30,
	2013			2012
	(In thousands)
Balance at beginning of period	$	84,342		$	88,841
Additions (1)		3,261			18,818
Capitalized improvements		52			—
Valuations/write-offs/reserve for probable losses (2)		(2,368	)		(4,634	)
Transfer to premises and equipment		—			(2,870	)
Sales		(17,046	)		(16,200	)
Balance at end of period	$	68,241		$	83,955

(1) Includes a transfer from premises and equipment of a closed retail branch facility no longer used for banking purposes totaling $558,000 during the quarter ended June 30, 2012.

(2) Includes adjustments to the OREO reserve for probable losses.

The balances at end of period above are net of a valuation allowance of $35.4 million and $24.5 million at June 30, 2013 and 2012, respectively, recognized during the holding period for declines in fair value subsequent to foreclosure or acceptance of deed in lieu of foreclosure. A summary of activity in the OREO valuation allowance is as follows:

	For the Three Months Ended June 30,
	2013			2012
	(In thousands)
Balance at beginning of period	$	36,009		$	22,521
Provision		2,368			4,634
Sales		(2,929	)		(2,623	)
Balance at end of period	$	35,448		$	24,532

Net OREO expense consisted of the following components for the three months ended June 30, 2013 and 2012:

	For the Three Months Ended June 30,
	2013		2012
	(In thousands)
Valuation adjustments	$	2,368	$	4,634
Foreclosure cost expense		557		412
Expenses from operations, net		1,364		1,966
OREO expense, net	$	4,289	$	7,012

Note 7 - Mortgage Servicing Rights

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 an asset that is owned. Servicing assets are initially measured at fair value determined using a discounted cash flow model based on market assumptions at the time of origination. Subsequently, the MSR asset is carried at the lower of amortized cost or fair value. MSRs are assessed for impairment using a discounted cash flow model provided by a third party that is based on current market assumptions at the end of each reporting

30

period. For purposes of measuring impairment, the servicing rights are stratified into relatively homogeneous pools based on characteristics such as product type and interest rate bands. Impairment is recognized, if necessary, at the pool level rather than for each individual servicing right asset.

Accounting for MSRs is based on the amortization method. Under this method, servicing assets are amortized in proportion to and over the period of net servicing income. Income generated as the result of the capitalization 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 consolidated statements of operations. Ancillary income is recorded in other non-interest income.

Information regarding mortgage servicing rights for the three months ended June 30, 2013 and 2012 is as follows:

	Three Months Ended June 30,
	2013			2012
	(In thousands)
Balance at beginning of period	$	24,235		$	24,970
Additions		1,383			2,027
Amortization		(1,747	)		(2,336	)
Balance at end of period - before valuation allowance		23,871			24,661
Valuation allowance		(1,153	)		(4,071	)
Balance at end of period	$	22,718		$	20,590
Fair value at the end of the period	$	23,372		$	21,101
Key assumptions:
Weighted average discount rate		12.17	%		10.97	%
Weighted average prepayment speed		9.08	%		15.95	%

The projections of amortization expense for mortgage servicing rights set forth below are based on asset balances as of June 30, 2013 and an assumed amortization rate of 20% per year. Future amortization expense may be significantly different depending upon changes in the mortgage servicing portfolio, mortgage interest rates and market conditions.

	MSR Amortization
	(In thousands)
Three months ended June 30, 2013	$	1,747
Estimate for the year ended March 31,
2014 (nine months remaining)	$	3,581
2015		4,058
2016		3,246
2017		2,597
2018		2,078
Thereafter		8,311
Total	$	23,871

Mortgage loans serviced for others are not included on the consolidated balance sheets. The unpaid principal balance of mortgage loans serviced for others was approximately $2.84 billion and $2.91 billion at June 30, 2013 and March 31, 2013, respectively.

31

Loans intended to be sold are originated in accordance with specific criteria established by the investor agencies – these are known as “conforming loans”. During the sale of these loans, certain representations and warranties are made that the loans conform to these previously established underwriting standards. In the event that any of these representations and warranties or standards are found to be out of compliance, the Corporation is responsible for repurchasing the loan at the unpaid principal balance or indemnifying the buyer against loss related to that loan. The expense recorded to indemnify investors for such losses totaled $0.4 million and $0.2 million for the quarters ending June 30, 2013 and 2012, respectively.

Note 8 – Deposits

Deposits are summarized as follows:

	June 30, 2013					March 31, 2013
	Carrying Amount		Weighted Average Rate			Carrying Amount		Weighted Average Rate
	(Dollars in thousands)
Non-interest-bearing checking	$	266,076		—	%	$	267,732		—	%
Interest-bearing checking		286,909		0.06			295,478		0.08
Total checking accounts		552,985		0.03			563,210		0.04
Money market accounts		485,357		0.19			491,330		0.19
Regular savings		301,654		0.10			290,705		0.10
Advance payments by borrowers for taxes and insurance		40,341		0.10			20,804		0.10
Certificates of deposit:
0.00% to 0.99%		500,283		0.36			519,909		0.39
1.00% to 1.99%		78,936		1.24			92,164		1.23
2.00% to 2.99%		17,127		2.37			17,628		2.37
3.00% to 3.99%		8,428		3.62			12,433		3.58
4.00% and above		16,802		4.38			16,842		4.38
Total certificates of deposit		621,576		0.68			658,976		0.72
Total deposits	$	2,001,913		0.28	%	$	2,025,025		0.31	%

32

Maturities of certificates of deposit outstanding at June 30, 2013 are summarized as follows:

	Amount
	(In thousands)
Matures During Year Ending March 31,
2014 (nine remaining months)	$	370,687
2015		159,696
2016		28,545
2017		34,392
2018		24,592
2019		3,664
Total	$	621,576

At June 30, 2013 and March 31, 2013, certificates of deposit with balances greater than or equal to $100,000 totaled $101.5 million and $109.5 million, respectively.

The Bank has entered into agreements with certain brokers that provided deposits obtained from their customers at specified interest rates for an identified fee, or so called “brokered deposits.” At both June 30, 2013 and March 31, 2013, the Bank had $100,000 in brokered deposits. Due to existing capital levels, the Bank is currently prohibited from obtaining or renewing any brokered deposits. There were no out-of-network certificates of deposit at June 30, 2013. These deposits, which are not considered brokered deposits, are opened via internet listing services and are kept within FDIC insured balance limits.

Note 9 – Other Borrowed Funds

Other borrowed funds consist of the following:

		June 30, 2013					March 31, 2013
	Matures During Year Ending March 31,	Amount		Weighted Average Rate			Amount		Weighted Average Rate
		(Dollars in thousands)
FHLB advances:	2014 (nine remaining months)	$	11,500		1.93	%	$	11,500		1.93	%
	2018		100,000		3.36			100,000		3.36
	2019		86,000		2.87			86,000		2.87
Total FHLB advances			197,500					197,500
Credit agreement			116,300		15.00			116,300		15.00
Repurchase agreements			4,949		0.12			3,425		0.14
		$	318,749		7.30	%	$	317,225		7.41	%

FHLB Advances

The Bank pledges certain loans that meet underwriting criteria established by the FHLB as collateral for outstanding advances. The unpaid principal balance of loans pledged to secure FHLB borrowings totaled $685.7 million and $717.0 million at June 30, 2013 and March 31, 2013, respectively. The FHLB borrowings are also collateralized by mortgage-related securities with a fair value of $139.3 million and $152.1 million at June 30, 2013 and March 31, 2013, respectively. FHLB borrowings of $181.0 million have call features that may be exercised quarterly by the FHLB.

33

Credit Agreement

As of both June 30, 2013 and March 31, 2013, the Corporation had drawn a total of $116.3 million pursuant to the Amended and Restated Credit Agreement, dated as of June 9, 2008 (as amended from time to time, the “Credit Agreement”) at a weighted average interest rate of 15.00%, on a short term line of credit to various lenders led by U.S. Bank (the “Agent”). The total line of credit is fully drawn at $116.3 million. At June 30, 2013, the Corporation had accrued interest and amendment fees payable related to the Credit Agreement of $57.6 million and $7.3 million, respectively. The Credit Agreement contains customary representations, warranties, conditions and events of default for agreements of such type. The Company is currently in payment default of the Credit Agreement at June 30, 2013 and the unpaid principal balance under the Credit Agreement as a result of such payment default shall bear an additional 2.00% annual interest rate in addition to the base interest rate under the Credit Agreement (the “Default Rate”). This Default Rate is currently 17.00% per annum.

On August 12, 2013, the Corporation filed a voluntary petition for relief (the “Chapter 11 Case”) under the provisions of Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Western District of Wisconsin (the “Bankruptcy Court”) to implement a “pre-packaged” plan of reorganization in order to facilitate the restructuring of the Corporation and the recapitalization of the Bank. The Chapter 11 Case is being administered under the caption “In re Anchor BanCorp Wisconsin Inc.” Case No. 13-14003-rdm. As of the date of the filing of this Quarterly Report on Form 10-Q, the Corporation continues to operate its businesses under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code.

The Corporation does not currently have the ability to satisfy its payment obligations under the Credit Agreement and Amendment No. 9 which contains customary representations, warranties, conditions and events of default for agreements of such type. At June 30, 2013, the Corporation was in default of the Credit Agreement. Under the terms of the Credit Agreement, the Agent and the lenders have certain rights, including the right to accelerate the maturity of the borrowings if the Corporation is not in compliance with all covenants. The filing of the Chapter 11 Case constitutes an event of default under the Credit Agreement. The Corporation believes that any efforts to enforce the payment obligations under the Credit Agreement are stayed as a result of the filing of the Chapter 11 Case.

Note 10 – Capital Purchase Program

In January 2009, the Corporation elected to participate in the Capital Purchase Program (“CPP”) and received proceeds of $110 million. Pursuant to the Corporation’s election to participate, the Department of the Treasury (“Treasury”) purchased the Corporation’s preferred stock, along with warrants to purchase approximately 7,399,103 shares of common stock at an exercise price of $2.23 per share. The preferred stock has a dividend rate of 5% per year, until the fifth anniversary of Treasury’s investment and a rate of 9% thereafter. During the time Treasury holds securities issued pursuant to this program, the Corporation is required to comply with certain provisions regarding executive compensation and corporate governance. Participation in the CPP also imposes certain restrictions upon the payment of dividends to common shareholders and stock repurchase activities.

The Corporation has deferred 17 dividend payments on the Series B Preferred Stock held by the Treasury. On December 31, 2011, the Treasury exercised its right to appoint two directors to the Board of Directors of the Corporation as a result of the nonpayment of dividends. At June 30, 2013 and March 31, 2013, the cumulative amount of dividends in arrears not declared, including additional amounts attributable to compounding, was $27.0 million and $25.3 million, respectively.

34

The proceeds received were allocated between the preferred stock and the warrants based upon relative fair value, which resulted in the recording of a discount on the preferred stock upon issuance that reflects the value allocated to the warrants. The discount is accreted as an adjustment to retained earnings on a straight line basis over five years. The allocated carrying value of the preferred stock and warrants on the date of issuance (based on their relative fair values) were $72.9 million and $37.1 million, respectively. 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 preferred stock for all past dividend periods. The preferred stock is non-voting, other than class voting rights on matters that could adversely affect the holders of the preferred stock. The Corporation may redeem the 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. The Treasury may also transfer the preferred stock to a third party at any time.

The Plan of Reorganization contemplates that the shares of Series B Preferred Stock and the related warrant held by the Treasury in connection with the Capital Purchase Program would be exchanged for shares of the Company’s Common Stock (collectively, the “TARP Exchange”), which, if the Plan of Reorganization is confirmed by the Bankruptcy Court and the TARP Exchange is completed, would affect the Company’s obligations under the Capital Purchase Program. For more information on the proposed TARP Exchange, see the Company’s Current Report on Form 8-K, filed on or about August 13, 2013, which is incorporated herein by reference.

Note 11 – Regulatory Capital

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 bank 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-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. As of June 30, 2013, the Bank was adequately capitalized under standard regulatory guidelines. Under these OCC requirements, a bank must have a total risk-based capital ratio of 8% or greater to be considered “adequately capitalized.” The Bank continues to work toward the requirements of the previously issued Cease and Desist Order which requires a total risk-based capital ratio of 12%, which exceeds traditional capital requirements for a bank. The Bank does not currently meet these elevated capital levels. See Note 2.

35

The following table summarizes the Bank’s capital ratios and the ratios required by its federal regulators to be considered adequately or well capitalized under standard regulatory guidelines and as required by the Cease and Desist Order at June 30, 2013 and March 31, 2013:

						Minimum Required
	Actual					To be Adequately Capitalized					To be Well Capitalized					Under Order to Cease and Desist
	Capital		Ratio			Capital		Ratio			Capital		Ratio			Capital		Ratio
	(Dollars in thousands)
June 30, 2013
Tier 1 leverage (1)	$	107,070		4.57	%	$	93,616		4.00	%	$	117,020		5.00	%	$	187,232		8.00	%
Tier 1 risk-based capital (2)		107,070		7.90			54,190		4.00			81,285		6.00			N/A		N/A
Total risk-based capital (3)		124,778		9.21			108,380		8.00			135,476		10.00			162,571		12.00
March 31, 2013
Tier 1 leverage (1)	$	107,272		4.53	%	$	94,775		4.00	%	$	118,469		5.00	%	$	189,551		8.00	%
Tier 1 risk-based capital (2)		107,272		7.71			55,655		4.00			83,483		6.00			N/A		N/A
Total risk-based capital (3)		125,459		9.02			111,311		8.00			139,139		10.00		$	166,966		12.00

(1) Tier 1 capital divided by adjusted total assets.

(2) Tier 1 capital divided by total risk-weighted assets.

(3) Total risk-based capital divided by total risk-weighted assets.

The following table presents the Bank’s federal regulatory capital at June 30, 2013 and March 31, 2013:

	June 30, 2013			March 31, 2013
	(In thousands)
Stockholders’ equity of the Bank	$	106,188		$	112,796
Less: Disallowed servicing assets		(1,683	)		(1,945	)
Accumulated other comprehensive income (loss)		2,565			(3,579	)
Tier 1 capital		107,070			107,272
Plus: Allowable allowance for loan losses		17,708			18,187
Total risk-based capital	$	124,778		$	125,459

Note 12 – 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 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 same credit policies are used in making commitments and conditional obligations as 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.

36

Financial instruments whose contract amounts represent credit risk are as follows:

	June 30, 2013		March 31, 2013
	(In thousands)
Commitments to extend credit	$	63,015	$	34,697
Unused commitments		6,071		—
Unused lines of credit:
Home equity		108,372		108,628
Credit cards		28,566		28,541
Commercial		19,975		15,666
Letters of credit		14,913		15,546
Credit enhancement under the Federal Home Loan Bank of Chicago Mortgage Partnership Finance Program		15,877		15,877

Commitments to extend credit are in the form of a loan in the near future. Unused commitments include closed residential mortgage loans in the recission period. 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 and may be drawn upon at the borrowers’ discretion. Letters of credit commit the Corporation to make payments on behalf of customers when certain specified future events occur. Commitments and letters of credit primarily have fixed expiration dates or other termination clauses and may require payment of a fee. As some such commitments expire without being drawn upon, 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 primarily extends credit on a secured basis. Collateral obtained consists primarily of single-family residences and income-producing commercial properties.

At June 30, 2013, the Corporation has $6.3 million of reserves on unfunded loan commitments, unused lines of credit, letters of credit and repurchase of sold loans classified in other liabilities. The Corporation intends to fund commitments through current liquidity.

The Bank 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 Bank no longer funds loans through the MPF program. The Bank 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 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 a credit enhancement feature of the MPF program, the Corporation has retained secondary credit loss exposure in the amount of $15.9 million at June 30, 2013 related to approximately $250.2 million of residential mortgage loans that the Bank 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 Bank 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. The Corporation has recorded net credit enhancement fee income from this program totaling $4,000 for both of the three month periods ending June 30, 2013 and 2012. Based on historical experience, the Corporation does not anticipate that any credit losses will be incurred under the credit enhancement obligation.

37

Other 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. The unpaid principal balance of loans repurchased from investors totaled $228,000 and $694,000 for the quarters ending June 30, 2013 and 2012, respectively. Alternatively, investors make requests to be made whole on a loan whereby the property has been disposed of at a loss. The related expense was $371,000 and $226,000 for the quarters ending June 30, 2013 and 2012, respectively.

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 consolidated financial position of the Corporation.

One pending lawsuit against the Corporation currently in the discovery stage involves a Bank-issued letter of credit in support of a residential real estate development. A specific reserve for loss on unfunded loan commitments has been established at June 30, 2013 in the amount of $2.4 million due to a shortfall in the value of the residential real estate development supporting the letter of credit, $1.7 million of which was recorded during the quarter.

Note 13 – Derivative Financial Instruments

The Corporation enters into contracts that meet the definition of derivative financial instruments in accordance with ASC 815 - Derivative and Hedging. Derivatives are used as part of a risk management strategy to address exposure to changes in interest rates inherent in the Corporation’s origination and sale of certain residential mortgages into the secondary market. These derivative contracts used for risk management purposes include: (1) interest rate lock commitments provided to customers to fund mortgage loans intended to be sold; and (2) forward sale contracts for the future delivery of funded residential mortgages.

Forward sale contracts are entered into when interest rate lock commitments are granted to customers in an effort to economically hedge the effect of future changes in interest rates on the commitments to fund mortgage loans intended to be sold (the “pipeline”), as well as on the portfolio of funded mortgages not yet sold (the “warehouse”). For accounting purposes, these derivatives are not designated as being in a hedging relationship. The contracts are carried at fair value on the consolidated balance sheets, with changes in fair value recorded in the consolidated statements of operations.

During the year ending March 31, 2013, the Corporation’s board of directors approved a recommendation by the Asset Liability Committee to increase the approved limit for un-hedged exposure in the Bank’s pipeline and warehouse. Subject to certain constraints, the maximum un-hedged exposure limit was increased to $115.0 million.

38

Derivative financial instruments are summarized as follows:

		June 30, 2013				March 31, 2013
	Balance Sheet Location	Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value
		(In thousands)
Derivative assets:
Interest rate lock commitments (1)	Other assets	$	12,021	$	163	$	53,169	$	689
Unused commitments (2)	Other assets		361		3		—		—
Forward contracts to sell mortgage loans (3)	Other assets		40,000		1,342		10,000		1
Derivative liabilities:
Interest rate lock commitments (1)	Other liabilities		27,345		600		559		3
Unused commitments (2)	Other liabilities		5,710		229		—		—
Forward contracts to sell mortgage loans (3)	Other assets		15,000		169		50,000		313

⁽¹⁾  Interest rate lock commitments include $24.9 million and $35.8 million of commitments not yet approved in the credit underwriting process at June 30, 2013 and March 31, 2013, respectively, yet represent potential interest rate risk exposure to the extent of those mortgage loan applications eventually approved for funding.

⁽²⁾  The Corporation recognizes fair value of unused commitments held for trading which consists of closed residential real estate loans still in recission at period end.

⁽³⁾  The Corporation has elected to offset the fair value of individual forward sale contracts and present a net amount on the Consolidated Balance Sheets in accordance with ASC 815-45, Derivatives and Hedging.

Net gains (losses) included in the consolidated statements of operations related to derivative financial instruments, recognized in net gain on sale of loans, are summarized as follows:

	Three Months Ended June 30,
	2013			2012
	(In thousands)
Interest rate lock commitments	$	(1,349	)	$	2,279
Forward contracts to sell mortgage loans		2,529			(3,816	)
Total	$	1,180		$	(1,537	)

Note 14 - Fair Value of Financial Instruments

ASC Topic 820 establishes a framework for measuring fair value and disclosures about fair value measurements. Fair value is defined as 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 fair value, various valuation methods are used including market, income and cost approaches. Assumptions that market participants would use in pricing the asset or liability are utilized in these valuation methods, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs may be readily observable, market corroborated or generally unobservable inputs. Valuation methodologies are employed that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on observability of the inputs used in the valuation methodologies, financial assets and liabilities measured at fair value on a recurring and nonrecurring basis are categorized 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 that are adjusted to fair value are classified in one of the following three categories:

• Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

39

• Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

• Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Fair Value on a Recurring Basis

The table below presents the financial instruments carried at fair value as of June 30, 2013 and March 31, 2013, by the valuation hierarchy (as described above):

	Level 1		Level 2		Level 3		Total
	(In Thousands)
June 30, 2013
Financial assets
Investment securities available for sale:
U.S. government sponsored and federal agency obligations	$	—	$	3,420	$	—	$	3,420
Corporate stock and bonds		371		—		—		371
Non-agency CMOs		—		—		7,181		7,181
Government sponsored agency mortgage-backed securities		—		33,534		—		33,534
GNMA mortgage-backed securities		—		244,459		—		244,459
Loans held for sale (1)		—		19,705		—		19,705
Other assets:
Interest rate lock commitments		—		163		—		163
Unused commitments		—		3		—		3
Forward contracts to sell mortgage loans		—		1,342		—		1,342
Total	$	371	$	302,626	$	7,181	$	310,178
Financial liabilities
Other liabilities:
Interest rate lock commitments	$	—	$	600	$	—	$	600
Unused commitments		—		229		—		229
Forward contracts to sell mortgage loans		—		169		—		169
Total	$	—	$	998	$	—	$	998

(1) Beginning April 1, 2013, pursuant to ASC 825-10-25 Fair Value Option, loans held for sale are recorded at fair value.

40

	Level 1		Level 2		Level 3		Total
	(In thousands)
March 31, 2013
Financial assets
Investment securities available for sale:
U.S. government sponsored and federal agency obligations	$	—	$	3,504	$	—	$	3,504
Corporate stock and bonds		264		—		—		264
Non-agency CMOs		—		—		7,549		7,549
Government sponsored agency mortgage-backed securities		—		3,184		—		3,184
GNMA mortgage-backed securities		—		252,286		—		252,286
Other assets:
Interest rate lock commitments		—		689		—		689
Forward contracts to sell mortgage loans		—		—		—		1
Total	$	264	$	259,663	$	7,549	$	267,477
Financial liabilities
Other liabilities:
Interest rate lock commitments	$	—	$	3	$	—	$	3
Forward contracts to sell mortgage loans		—		312		—		313
Total	$	—	$	315	$	—	$	316

An independent service is used to price available-for-sale U.S. government sponsored and federal agency obligations, government sponsored agency mortgage-backed securities, and GNMA mortgage-backed securities using a market data model under Level 2. The significant inputs used at June 30, 2013 and March 31, 2013 to price GNMA mortgage-backed securities are as follows:

	June 30, 2013						Weighted Average			March 31, 2013						Weighted Average
	From			To						From			To
Coupon rate		1.6	%		4.6	%		2.4	%		1.6	%		4.6	%		2.4	%
Duration (in years)		1.2			5.7			3.8			1.2			5.1			3.6
PSA prepayment speed		178			430			274			283			453			332

The Corporation had 99.2% of its non-agency CMOs valued by an independent pricing service that used a discounted cash flow model that incorporates the below inputs considered Level 3 by the accounting guidance.

41

	June 30, 2013						Weighted Average			March 31, 2013						Weighted Average
	From			To						From			To
Observable inputs:
30 to 59 day delinquency rate		1.6	%		3.9	%		3.0	%		2.0	%		4.6	%		3.8	%
60 to 89 day delinquency rate		0.6			2.4			1.5			0.7			3.1			1.8
90 plus day delinquency rate		1.7			8.4			5.8			2.4			6.2			5.6
Loss severity		39.5			73.0			56.8			39.9			71.2			58.3
Coupon rate		5.0			6.0			5.5			5.0			6.0			5.5
Current credit support		—			72.2			1.0			—			58.4			1.4
Unobservable inputs:
Month 1 to month 24 constant default rate		3.5			11.1			7.6			4.5			11.5			8.1
Discount rate		4.0			7.0			6.4			4.0			7.0			6.3

Loans held for sale consist primarily of the current origination of certain fixed- and adjustable-rate residential mortgage loans and effective April 1, 2013 are carried at fair value with no deferral of fees or costs, determined on a loan by loan basis.

Prior to April 1, 2013, these loans were carried at the lower cost or fair value. These loans were valued individually based upon quoted market prices for similar loans and the amount of any gross loss was recorded as a valuation allowance in loans held for sale. Fees received from the borrower and direct costs to originate the loan were deferred and recorded as an adjustment to the loan carrying value. Valuation adjustments were included in the statement of operations in net gain on sale of loans.

Loans held for sale are summarized as follows:

	June 30, 2013			March 31, 2013
	(In thousands)
Unpaid principal balance	$	20,560		$	18,064
Valuation adjustments:
To fair value		(855	)		N/A
To the lower of cost or fair value		N/A			(6	)
Carrying value	$	19,705		$	18,058

Other assets and other liabilities include interest rate lock commitments provided to customers to fund mortgage loans intended to be sold and forward sale contracts for future delivery of funded residential mortgages to investors. The Corporation relies on an internal valuation model to estimate the fair value of its interest rate lock commitments, which includes applying an estimated pull-through rate (the percentage of commitments expected to result in a closed loan) based on historical experience; multiplied by quoted investor prices on closed loans for future delivery determined to be reasonably applicable to the loan commitment based on interest rate, terms and rate lock expiration.

The Corporation also relies on an internal valuation model to estimate the fair value of its forward contracts to sell residential mortgage loans (i.e., an estimate of what the Corporation would receive or pay to terminate the forward delivery contract) based on market prices for similar financial instruments, which includes matching specific terms and maturities of the forward commitments against applicable investor pricing available.

42

The following is a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (level 3):

	Three Months Ended June 30,
	2013			2012
	(In Thousands)
Non-agency CMOs
Beginning balance	$	7,549		$	21,592
Total realized/unrealized gains (losses):
Included in earnings		1			129
Included in other comprehensive income		114			168
Included in earnings as unrealized other-than-temporary impairment		—			(68	)
Included in earnings upon payoff of securities for which other-than-temporary impairment was previously recognized		—			4
Included in earnings as realized other-than-temporary impairment		68			138
Principal repayments		(551	)		(1,582	)
Sales		—			(1,905	)
Ending balance	$	7,181		$	18,476

There were no transfers in or out of Levels 1, 2 or 3 during the quarter ended June 30, 2013 and fiscal year ended March 31, 2013. The Corporation’s policy for determining transfers between levels occurs at the end of the reporting period when circumstances in the underlying valuation criteria changes and result in transfers between levels.

43

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). Loans held for sale and mortgage servicing rights includes only those items that were adjusted to fair value as of the dates indicated. The following table presents such assets carried on the consolidated balance sheet by caption and by level within the fair value hierarchy as of June 30, 2013 and March 31, 2013:

	Level 1		Level 2		Level 3		Total
	(In thousands)
June 30, 2013
Impaired loans, with an allowance recorded, net	$	—	$	—	$	67,668	$	67,668
Mortgage servicing rights		—		—		9,254		9,254
Other real estate owned		—		—		68,241		68,241
Total assets at fair value	$	—	$	—	$	145,163	$	145,163
March 31, 2013
Impaired loans, with an allowance recorded, net	$	—	$	—	$	76,430	$	76,430
Loans held for sale (1)		—		643		—		643
Mortgage servicing rights		—		—		20,889		20,889
Other real estate owned		—		—		84,342		84,342
Total assets at fair value	$	—	$	643	$	181,661	$	182,304

(1) Effective April 1, 2013, loans held for sale are recorded at fair value and therefore are reflected in the table of financial instruments carried at fair value for the period ended June 30, 2013.

The Corporation does not adjust loans held for investment to fair value on a recurring basis. However, some loans are considered impaired and an allowance for loan losses is established. The specific reserves for collateral dependent impaired loans are based on the fair value of the underlying collateral less estimated costs to sell. The fair value of collateral is usually determined based on appraisals. In some cases, adjustments are made to 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. Since adjustments to appraised values are based on unobservable inputs, the resulting fair value measurement is categorized as a Level 3 measurement.

Mortgage servicing rights are recorded as an asset when loans are sold to third parties with servicing rights retained. Mortgage servicing rights are initially recorded at fair value and subsequently amortized in proportion to, and over the period of, estimated net servicing revenues. The carrying value of these assets is reviewed for impairment on a monthly basis using a lower of carrying value or fair value methodology. The fair value of servicing rights is determined by estimating the present value of future net cash flows using a discounted cash flow model, 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, adjustable or balloon) and interest rate bands. If the aggregate carrying value of the capitalized mortgage servicing rights for a stratum exceeds its fair value, the difference is recognized in non-interest expense as an impairment loss.

Critical assumptions used in the MSR discounted cash flow model include mortgage prepayment speeds, discount rates, costs to service, ancillary and late fee income. Variations in the assumptions could materially affect the estimated fair values. Changes to the assumptions are made when market data indicate that new trends have developed. Current market participant assumptions based on loan product types – fixed rate, adjustable rate and balloon loans - include discount rates in the range of 10.0% to 23.5% as well as total portfolio lifetime weighted average prepayment speeds of 7.5% to 37.6% annual CPR. Many of these assumptions are subjective and involve a high degree 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 changes in home prices, market interest rates, the availability of other credit products to 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 to more favorable interest rate terms. As prepayment speeds increase, anticipated cash flows will generally decline resulting in a potential reduction, or impairment, of the fair value of the

44

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 for the initial valuations in the discounted cash flow model.

Real estate acquired by foreclosure, real estate acquired by deed in lieu of foreclosure and other repossessed assets (OREO) are held for sale and are initially recorded at fair value less estimated selling expenses at the date of foreclosure. OREO is re-measured at the lower of cost or fair value after initial recognition and reported using a valuation allowance on foreclosed assets. Fair value is generally based on third party appraisals and is therefore considered a Level 3 measurement.

Fair Value Summary

ASC Topic 825 requires disclosure of fair value information about financial instruments, for which it is practicable to estimate that value, whether or not recognized in the consolidated balance sheets, including those financial assets and liabilities that are not measured and reported at fair value on a recurring or nonrecurring basis. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Results from these 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, may not be realized in immediate settlement of the instruments. Certain financial 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 in the table below do not necessarily represent the underlying value of the Corporation.

The following methods and assumptions were used in estimating the fair value of financial instruments that were not previously disclosed:

Cash and cash equivalents and accrued interest: The carrying amounts reported in the balance sheets approximate the fair values for those assets and liabilities. In accordance with ASC Topic 820, cash and cash equivalents and accrued interest have been categorized as a Level 2 fair value measurement.

Loans receivable: The fair value of residential mortgage loans held for investment, commercial real estate loans, commercial and industrial loans, and consumer and other loans held for investment are estimated using observable inputs including estimated cash flows, and discount rates based on interest rates currently being offered for loans with similar terms, to borrowers of similar credit quality. In accordance with ASC Topic 820, loans held for investment that are not included with impaired loans in the preceding section titled Fair Value on a Nonrecurring Basis have been categorized as a Level 2 fair value measurement.

Federal Home Loan Bank stock: The carrying amount of FHLB stock approximates its fair value as it can only be redeemed with the FHLB at par value. In accordance with ASC Topic 820, Federal Home Loan Bank stock has been categorized as a Level 2 fair value measurement.

Deposits: The fair value for deposit accounts with no defined maturities, such as demand deposits, savings, and money market accounts, is equal to their carrying amounts, which represents the amount payable on demand. Fair value for certificates of deposit, with stated maturities, is estimated using a discounted cash flow calculation based on contractual cash flows. The discount rate is estimated using incremental borrowing rates for similar terms. In accordance with ASC Topic 820, deposits have been categorized as a Level 2 fair value measurement.

Other borrowed funds: The fair value of FHLB advances is obtained from the Federal Home Loan Bank, which uses a discounted cash flow analysis based on current market rates for borrowings with similar terms. Repurchase agreements are estimated using discounted cash flow analysis, based on the Corporation’s current incremental borrowing rates for similar types of borrowing arrangements. In the absence of a reasonably precise methodology to determine the fair value of the credit agreement, carrying value has been used to represent fair value. In accordance with ASC Topic 820, other borrowed funds have been categorized as a Level 2 fair value measurement.

45

Off-balance-sheet instruments: The fair value of off-balance-sheet instruments (held for investment 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 June 30, 2013 and March 31, 2013.

The carrying amount and fair value of the Corporation’s financial instruments consist of the following:

	June 30, 2013				March 31, 2013
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In thousands)
Financial assets:
Cash and cash equivalents	$	241,539	$	241,539	$	228,536	$	228,536
Investment securities available for sale		288,965		288,965		266,787		266,787
Loans held for sale		19,705		19,705		18,058		18,356
Loans held for investment		1,627,243		1,585,720		1,670,543		1,643,968
Mortgage servicing rights		22,718		23,372		21,824		22,088
Federal Home Loan Bank stock		25,630		25,630		25,630		25,630
Accrued interest receivable		9,063		9,063		9,563		9,563
Interest rate lock commitments		163		163		689		689
Unused commitments		3		3		—		—
Forward contracts to sell mortgage loans (1)		1,342		1,342		1		1
Financial liabilities:
Non-maturity deposits		1,380,337		1,380,337		1,366,049		1,366,049
Deposits with stated maturities		621,576		621,450		658,976		660,536
Other borrowed funds		318,749		335,321		317,225		341,903
Accrued interest payable—borrowings		58,121		58,121		53,788		53,788
Accrued interest payable—deposits		559		559		607		607
Interest rate lock commitments		600		600		3		3
Unused commitments		229		229		—		—
Forward contracts to sell mortgage loans (1)		169		169		313		313

⁽¹⁾  The Corporation has elected to offset the fair value of individual forward sale contracts and present a net amount on the Consolidated Balance Sheets in accordance with ASC 815-45, Derivatives and Hedging.

Note 15 – Income Taxes

The Corporation accounts for income taxes based on the asset and liability method. Deferred tax assets and liabilities are recorded based on the difference between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes, computed using enacted tax rates. Significant net deferred tax assets have been created for net operating loss (NOL) carryforwards and deductible temporary differences, the largest of which relates to our allowance for loan losses. For income tax purposes, only net charge-offs on uncollectible loans 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 management’s evaluation and judgment of both positive and negative evidence, the forecasts of future income, applicable tax planning strategies, and assessments of the current

46

and future economic and business conditions. The Corporation considers both positive and negative evidence regarding the ultimate realizability of deferred tax assets. Positive evidence includes the existence of taxes paid in available carry back 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 past several years as well as general business and economic trends.

At June 30, 2013 and March 31, 2013, the Corporation determined that a valuation allowance relating to the deferred tax asset was necessary. This determination was based largely on the negative evidence represented by the losses in the current and prior fiscal years caused by the significant loss provisions associated with the loan portfolio. In addition, general uncertainty surrounding future economic and business conditions increase the potential volatility and uncertainty of projected earnings. Therefore, a valuation allowance of $166.7 million and $162.1 million at June 30, 2013 and March 31, 2013, respectively, was recorded to offset net deferred tax assets.

The significant components of the Corporation’s deferred tax assets (liabilities) are as follows:

	June 30, 2013			March 31, 2013
	(In thousands)
Deferred tax assets:
Allowance for loan losses	$	30,432		$	32,275
OREO valuation allowance and other loss reserves		17,439			17,101
Federal NOL carryforwards		105,268			101,629
State NOL carryforwards		21,464			20,929
Unrealized securities losses		1,029			—
Other		3,362			3,629
Total deferred tax assets		178,994			175,563
Valuation allowance		(166,652	)		(162,077	)
Adjusted deferred tax assets		12,342			13,486
Deferred tax liabilities:
FHLB stock dividends		(1,928	)		(1,928	)
Mortgage servicing rights		(9,112	)		(8,754	)
Unrealized securities gains		—			(1,435	)
Other		(1,302	)		(1,369	)
Total deferred tax liabilities		(12,342	)		(13,486	)
Net deferred tax assets	$	—		$	—

The Corporation is subject to U.S. federal income tax as well as income tax of state jurisdictions. The tax years 2010-2013 remain open to examination by the Internal Revenue Service and certain state jurisdictions while the years 2009-2013 remain open to examination by certain other state jurisdictions.

The Corporation recognizes interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2013 and March 31, 2013, the Corporation has not recognized any accrued interest and penalties related to uncertain tax positions.

Note 16 – Earnings Per Share

Basic earnings per share for the three months ended June 30, 2013 and 2012 has been determined by dividing net loss available to common equity for the respective periods by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net loss available to common equity by the weighted average number of common shares outstanding plus the effect of dilutive securities. The effects of dilutive securities are computed using the treasury stock method.

47

The computation of earnings per share for the quarter ended June 30, 2013 and 2012 is as follows:

	Three Months Ended June 30,
	2013			2012
	(In thousands, except share and per share data)
Numerator:
Numerator for basic and diluted earnings per share - loss available to common stockholders		(8,945	)	$	(3,418	)
Denominator:
Denominator for basic earnings per share - weighted average shares		21,247			21,248
Effect of dilutive securities:
Employee stock options		—			—
Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions		21,247			21,248
Basic loss per common share	$	(0.42	)	$	(0.16	)
Diluted loss per common share	$	(0.42	)	$	(0.16	)

At June 30, 2013, approximately 38,000 stock options were excluded from the calculation of diluted earnings per share because they were anti-dilutive, representing all stock options currently outstanding. Treasury’s warrants (see Note 10) to purchase up to 7,399,103 shares at an exercise price of $2.23 were also not included in the computation of diluted earnings per share because the warrants’ exercise price was greater than the average market price of common stock and, therefore, anti-dilutive.

48

ANCHOR BANCORP WISCONSIN INC.

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Set forth below is management’s discussion and analysis of the consolidated results of operations and financial condition of Anchor BanCorp Wisconsin Inc. (the “Corporation” or the “Company”) and its wholly-owned subsidiaries, AnchorBank fsb (the “Bank”) and Investment Directions Inc. (“IDI”), which includes information regarding significant regulatory developments and the Corporation’s risk management activities, including asset/liability management strategies, sources of liquidity and capital resources. This discussion should be read in conjunction with the unaudited consolidated financial statements and supplemental data contained elsewhere in this quarterly report filed on Form 10-Q.

EXECUTIVE OVERVIEW

On August 12, 2013, the Company filed a voluntary petition for relief (the “Chapter 11 Case”) under the provisions of Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Western District of Wisconsin (the “Bankruptcy Court”) to implement a “pre-packaged” plan of reorganization (the “Plan of Reorganization”) in order to facilitate the restructuring of the Company and the recapitalization of the Bank. The Chapter 11 Case is being administered under the caption “In re [Anchor BanCorp]” Case No. 13-14003-rdm. As of the date of the filing of this Quarterly Report on Form 10-Q, the Company continues to operate its businesses under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. For more information on the Chapter 11 Case and the Plan or Reorganization, see the Company’s Current Report on Form 8-K, filed on or about August 13, 2013, which is incorporated by reference herein.

Financial Results

• Basic and diluted (loss) available to common equity decreased to $(0.42) for the quarter ended June 30, 2013 compared to $(0.16) for the quarter ended June 30, 2012;

• The net interest margin decreased 18 basis points to 2.38% for the quarter ended June 30, 2013 from 2.56% for the quarter ended June 30, 2012 as yields on interest-earning assets declined proportionally more than the cost to fund those assets;

• Loans held for sale increased $1.6 million, or 9.1% primarily due to lower origination volume at the end of March 31, 2013 due to the Easter holiday as well as the decision to temporarily delay the sale of certain loans at June quarter end due to unfavorable pricing levels.

• Loans held for investment (net of the allowance for loan losses) decreased $43.3 million, or 2.6%, since March 31, 2013 primarily due to scheduled pay-offs, amortization and the transfer of $3.3 million to other real estate owned;

• Deposits decreased $23.1 million, or 1.1%, since March 31, 2013 primarily due to runoff of time deposits;

• Total risk-based capital ratio for the Bank was 9.21% as of June 30, 2013, compared to 9.02% at March 31, 2013. Under regulatory requirements, a bank must have a total risk-based capital ratio of 8% or greater to be considered adequately capitalized, however, the Bank’s total risk based capital ratio remains below the 12% level required under the terms of the Cease and Desist Order.

• Total non-performing loans decreased $11.8 million, or 10.0% to $107.0 million at June 30, 2013 from $118.8 million at March 31, 2013;

49

• Total non-performing assets (total non-performing loans and other real estate owned) decreased $27.9 million, or 13.7%, to $175.2 million at June 30, 2013 from $203.1 million at March 31, 2013; as the Bank continues its efforts to reduce problem asset levels.

• The provision for loan losses of $275,000 for the three months ended June 30, 2013 was an increase of $3.1 million compared to a recovery of $2.8 million recorded for the three months ended June 30, 2012; and

• Delinquencies (loans past due 30 days or more) decreased $9.8 million or 8.4%, to $106.8 million at June 30, 2013 from $116.6 million at March 31, 2013.

Credit Highlights

The Corporation has continued to see improvement in early stage and overall delinquencies during the past year. This, coupled with the Bank’s ongoing efforts to aggressively work out of troubled credits, has led to a decline in the level of non-performing loans. At June 30, 2013, non-performing loans (consisting of loans past due more than 90 days, loans less than 90 days delinquent but placed on non-accrual status due to anticipated probable loss and non-accrual troubled debt restructurings) were $107.0 million, $11.8 million below the $118.8 million in this category at March 31, 2013. In addition, the Bank experienced a significant decrease in the level of foreclosed properties on the consolidated balance sheet. At June 30, 2013, foreclosed properties and repossessed assets were $68.2 million, compared to $84.3 million at March 31, 2013, a 19.1 percent decrease. Non-performing assets have had and will continue to have a negative impact on net interest income and expenses related to managing the troubled loan portfolio and foreclosed properties.

The allowance for loan losses (“ALLL”) declined to $75.9 million at June 30, 2013 from $79.8 million at March 31, 2013, a 4.9 percent decrease. Net charge-offs during the quarter ended June 30, 2013 were $4.2 million compared to $7.9 million during the quarter ended June 30, 2012. The provision for credit losses was $275,000 for the quarter ended June 30, 2013, compared to a recovery of $2.8 million for the quarter ended June 30, 2012. While the balance in the allowance for loan losses declined 4.9 percent during the quarter ended June 30, 2013, the allowance compared to total non-performing loans of 70.9 percent at June 30, 2013 actually increased during the quarter, up from 67.2 percent at March 31, 2013 as a result of a larger decrease in non-performing loans.

Recent Market and Industry Developments

The economic turmoil that began in the middle of 2007 and continued through 2012 appears to have settled into a slow economic recovery. At this time the recovery has somewhat uncertain prospects. This has been accompanied by dramatic changes in the competitive landscape of the financial services industry and a wholesale reformation of the legislative and regulatory landscape with the passage of Dodd-Frank.

Dodd-Frank is extensive, complex and comprehensive legislation that impacts many aspects of banking organizations. Dodd-Frank is likely to negatively impact the Corporation’s revenue and increase both the direct and indirect costs of doing business, as it includes provisions that could increase regulatory fees and deposit insurance assessments and impose heightened capital standards, while at the same time impacting the nature and costs of the Corporation’s businesses.

Until such time as the regulatory agencies issue proposed and final regulations implementing the numerous provisions of Dodd-Frank, a process that may last several years, management will not be able to fully assess the impact the legislation will have on its business.

50

Selected quarterly data are set forth in the following tables.

	Three Months Ended
	6/30/2013			3/31/2013			12/31/2012			9/30/2012
	(Dollars in thousands - except per share amounts)
Operations Data:
Net interest income	$	13,417		$	14,820		$	15,205		$	16,059
Provision for loan losses		275			675			4,832			5,029
Non-interest income		8,852			7,503			11,844			13,056
Non-interest expense		27,375			35,668			33,849			32,842
Income (loss) before income tax expense (benefit)		(5,381	)		(14,020	)		(11,632	)		(8,756	)
Income tax expense (benefit)		—			—			10			(191	)
Net income (loss)		(5,381	)		(14,020	)		(11,642	)		(8,565	)
Preferred stock dividends in arrears(1)		(1,701	)		(1,662	)		(1,654	)		(1,634	)
Preferred stock discount accretion		(1,863	)		(1,843	)		(1,853	)		(1,853	)
Net loss available to common equity		(8,945	)		(17,525	)		(15,149	)		(12,052	)
Selected Financial Ratios (2):
Yield on interest-earning assets		3.75	%		4.02	%		3.84	%		3.96	%
Cost of funds		1.34			1.35			1.39			1.49
Interest rate spread		2.41			2.67			2.45			2.47
Net interest margin		2.38			2.62			2.42			2.44
Return on average assets		(0.91	)		(2.37	)		(1.78	)		(1.26	)
Average equity to average assets		(2.64	)		(2.03	)		(1.34	)		(1.05	)
Non-interest expense to average assets		4.65			6.02			5.16			4.81
Per Share:
Basic loss per common share	$	(0.42	)	$	(0.82	)	$	(0.71	)	$	(0.57	)
Diluted loss per common share		(0.42	)		(0.82	)		(0.71	)		(0.57	)
Dividends per common share		—			—			—			—
Book value per common share		(8.33	)		(7.70	)		(7.37	)		(6.87	)
Financial Condition:
Total assets	$	2,344,469		$	2,367,583		$	2,412,379		$	2,665,455
Loans receivable
Held for sale		19,705			18,058			31,483			34,274
Held for investment, net		1,627,243			1,670,543			1,738,242			1,859,473
Deposits		2,001,913			2,025,025			2,055,049			2,144,410
Other borrowed funds		318,749			317,225			317,102			467,293
Stockholders’ deficit		(71,389	)		(59,864	)		(46,622	)		(36,039	)
Allowance for loan losses		75,872			79,815			83,761			90,678
Non-performing assets(3)		175,209			203,132			236,355			251,461

⁽¹⁾  Including compounding.

⁽²⁾  Annualized when appropriate.

⁽³⁾ Non-performing assets consist of loans past due ninety days or more and on non-accrual status, loans past due less than ninety days but placed on non-accrual status due to anticipated probable loss, non-accrual troubled debt restructurings and OREO.

51

	Three Months Ended
	6/30/2012			3/31/2012			12/31/2011			9/30/2011
	(Dollars in thousands - except per share amounts)
Operations Data:
Net interest income	$	16,399		$	15,890		$	16,014		$	18,500
Provision for loan losses		(2,803	)		4,625			8,426			17,215
Non-interest income		13,498			12,977			10,768			16,436
Non-interest expense		32,645			28,195			30,225			33,882
Income (loss) before income tax expense (benefit)		55			(3,953	)		(11,869	)		(16,161	)
Income tax expense (benefit)		—			—			—			—
Net income (loss)		55			(3,953	)		(11,869	)		(16,161	)
Preferred stock dividends in arrears(1)		(1,610	)		(1,591	)		(1,572	)		(1,579	)
Preferred stock discount accretion		(1,863	)		(1,844	)		(1,853	)		(1,853	)
Net loss available to common equity		(3,418	)		(7,388	)		(15,294	)		(19,593	)
Selected Financial Ratios (2):
Yield on interest-earning assets		4.21	%		4.17	%		4.08	%		4.41
Cost of funds		1.56			1.72			1.81			1.84
Interest rate spread		2.65			2.45			2.27			2.57
Net interest margin		2.56			2.35			2.18			2.47
Return on average assets		0.01			(0.54	)		(1.51	)		(2.02	)
Average equity to average assets		(1.03	)		(0.94	)		(0.53	)		(0.20	)
Non-interest expense to average assets		4.72			3.88			3.68			4.23
Per Share:
Basic loss per common share	$	(0.16	)	$	(0.35	)	$	(0.72	)	$	(0.92	)
Diluted loss per common share		(0.16	)		(0.35	)		(0.72	)		(0.92	)
Dividends per common share		—			—			—			—
Book value per common share		(6.52	)		(6.57	)		(6.37	)		(5.81	)
Financial Condition:
Total assets	$	2,784,076		$	2,789,452		$	3,061,573		$	3,197,441
Loans receivable
Held for sale		27,938			39,332			36,962			45,199
Held for investment, net		1,959,348			2,057,744			2,165,955			2,257,467
Deposits		2,253,135			2,264,901			2,472,681			2,593,621
Other borrowed funds		476,378			476,103			538,091			537,194
Stockholders’ deficit		(28,508	)		(29,550	)		(25,327	)		(13,391	)
Allowance for loan losses		100,477			111,215			130,926			138,347
Non-performing assets(3)		272,942			313,765			348,077			349,472

⁽¹⁾  Including compounding.

⁽²⁾  Annualized when appropriate.

⁽³⁾ Non-performing assets consist of loans past due ninety days or more and on non-accrual status, loans past due less than ninety days but placed on non-accrual status due to anticipated probable loss, non-accrual troubled debt restructurings and OREO.

52

RESULTS OF OPERATIONS

Overview – Three Months Ended June 30, 2013

Net results from operations for the three months ended June 30, 2013 decreased $5.5 million to a net loss of $5.4 million from net income of $0.1 million in the prior year period. The net loss reported in the current quarter compared to the income in the three-month period last year was due to declines in non-interest income of $4.6 million, net interest income of $3.0 million and an increase in provision for loan losses of $3.0 million. These unfavorable variances were partially offset by a decrease in non-interest expense of $5.3 million. The discussion that follows provides additional details regarding these results for the quarter.

53

Net Interest Income

The following table shows the Corporation’s average balances, interest, average rates, net interest margin and interest rate spread for the periods indicated. Average balances are derived from daily closing balances.

	Three Months Ended June 30,
	2013								2012
	Average Balance			Interest		Average Yield/ Cost(1)			Average Balance			Interest		Average Yield/ Cost(1)
	(Dollars in thousands)
Interest-Earning Assets
Mortgage loans	$	1,553,911		$	17,326		4.46	%	$	1,773,507		$	22,096		4.98	%
Consumer loans		168,558			2,031		4.82			246,723			2,764		4.48
Commercial business loans		25,594			409		6.39			19,727			428		8.68
Total loans receivable (2) (3)		1,748,063			19,766		4.52			2,039,957			25,288		4.96
Investment securities (4)		269,194			1,260		1.87			238,427			1,521		2.55
Interest-earning deposits		212,980			131		0.25			249,939			154		0.25
Federal Home Loan Bank stock		25,630			19		0.30			33,128			28		0.34
Total interest-earning assets		2,255,867			21,176		3.75			2,561,451			26,991		4.21
Non-interest-earning assets		96,925								204,352
Total assets	$	2,352,792							$	2,765,803
Interest-Bearing Liabilities
Demand deposits	$	1,037,506			319		0.12		$	1,011,400			549		0.22
Regular savings		329,354			90		0.11			275,380			84		0.12
Certificates of deposit		638,212			1,095		0.69			950,943			2,958		1.24
Total deposits		2,005,072			1,504		0.30			2,237,723			3,591		0.64
Other borrowed funds		319,530			6,255		7.83			477,866			7,001		5.86
Total interest-bearing liabilities		2,324,602			7,759		1.34			2,715,589			10,592		1.56
Non-interest-bearing liabilities		90,289								78,830
Total liabilities		2,414,891								2,794,419
Stockholders’ deficit		(62,099	)							(28,616	)
Total liabilities and stockholders’ deficit	$	2,352,792							$	2,765,803
Net interest income/interest rate spread (5)				$	13,417		2.41	%				$	16,399		2.65	%
Net interest-earning assets	$	(68,735	)						$	(154,138	)
Net interest margin (6)							2.38	%							2.56	%
Ratio of average interest-earning assets to average interest-bearing liabilities		0.97								0.94

⁽¹⁾  Annualized

⁽²⁾  For the purpose of these computations, non-accrual loans are included in the average loan amounts outstanding.

⁽³⁾  Interest earned on loans includes loan fees and interest income which has been received from borrowers whose loans were removed from non-accrual status during the period indicated.

⁽⁴⁾  Average balances of securities available-for-sale are based on fair value.

⁽⁵⁾  Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted- average cost of interest-bearing liabilities and is represented on a fully tax equivalent basis if applicable.

⁽⁶⁾  Net interest margin represents net interest income as a percentage of average interest-earning assets.

54

Net interest income decreased $3.0 million or 18.2% for the three months ended June 30, 2013, as compared to the same period in the prior year. Interest income decreased $5.8 million or 21.5% for the quarter ended June 30, 2013, compared to the same period in the prior year, primarily due to a decline in average balances and yields in the loan portfolios. Interest expense decreased $2.8 million or 26.7% for the three months ended June 30, 2013, as compared to the same period in the prior year due to a reduction in certificate of deposit (“CD”) average balances and the rate paid on these accounts and lower borrowed funds balances. The net interest margin decreased to 2.38% for the three-month period ended June 30, 2013 from 2.56% for the respective period in the prior year.

Loan portfolio average balances declined $291.9 million in the quarter ending June 30, 2013 compared to the same period a year ago largely due to scheduled principal payments, prepayments of principal and charge-offs. New loan origination has been limited as part of the Corporation’s capital improvement strategy to reduce risk-weighted assets by shrinking the overall size of the balance sheet. However, the Corporation has recently developed and is implementing strategies to increase profitability by slowing asset runoff to improve net interest margin. Investment security average balances increased $30.8 million primarily due to the purchase of securities totaling $113.6 million since June 30, 2012, partially offset by sales, calls, maturities and principal collections in the past year. The average balance of interest-earning deposits decreased $37.0 million as the flow of funds from the loan and investment securities portfolios were used to reinvest in higher yielding investment securities and fund deposit run off.

The average balance of CDs decreased $312.7 million for the three months ended June 30, 2013 compared to the respective period a year ago. Likewise, the average rate paid on CDs fell by 55 basis points quarter over quarter. The decline in CD average balance and interest rate was largely the result of lower rates offered in the market due to reduced funding needs and improved deposit pricing disciplines.

Provision for Loan Losses

Provision for loan losses of $275,000 for the quarter ended June 30, 2013 was an increase of $3.1 million over the prior year period compared to a recovery of $2.8 million recorded in the quarter ended June 30, 2012. Non-performing loans totaled $107.0 million at June 30, 2013, down from $189.0 million at June 30, 2012.

Future provisions for credit 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 change. Higher rates of loan defaults than anticipated would likely result in a need to increase provisions in future periods. Conversely, the provision for loan losses may decline should credit metrics such as net-charge offs and the amount of non-performing loans improve in the future.

55

Non-Interest Income

The following table presents non-interest income by major category for the periods indicated:

	Three Months Ended June 30,					Increase (Decrease)
	2013		2012			Amount			Percent
	(Dollars in thousands)
Net impairment losses recognized in earnings	$	—	$	(64	)	$	64			100.0	%
Loan servicing income (loss), net of amortization		55		(406	)		461			(113.5	)
Service charges on deposits		2,580		2,682			(102	)		(3.8	)
Investment and insurance commissions		1,063		1,032			31			3.0
Net gain on sale of loans		2,793		5,836			(3,043	)		(52.1	)
Net gain on sale and call of investment securities		—		62			(62	)		(100.0	)
Net gain on sale of OREO		925		3,172			(2,247	)		(70.8	)
Other income		1,436		1,184			252			21.3
Total non-interest income	$	8,852	$	13,498		$	(4,646	)		(34.4	)%

Non-interest income decreased $4.6 million or 34.4% to $8.9 million for the three months ended June 30, 2013, compared to $13.5 million for the respective period in 2012. The decrease was primarily due to a decline in the net gain realized on loan sales and lower net gain on sale of OREO.

The decrease in net gain on sale of loans of $3.0 million was primarily attributable to a lower volume of sales in the current year period of $149.1 million compared to $242.3 million in the same quarter a year ago. Loan servicing income improvement of $461,000 in the current quarter compared to the respective period a year ago was primarily due to lower amortization charges related to the mortgage servicing right asset.

Non-Interest Expense

The following table presents non-interest expense by major category for the periods indicated:

	Three Months Ended June 30,					Increase (Decrease)
	2013			2012		Amount			Percent
	(Dollars in thousands)
Compensation and benefits	$	11,130		$	10,470	$	660			6.3	%
Occupancy		1,986			1,833		153			8.3
Furniture and equipment		850			1,512		(662	)		(43.8	)
Federal deposit insurance premiums		1,332			1,564		(232	)		(14.8	)
Data processing		1,420			1,385		35			2.5
Communications		536			445		91			20.4
Marketing		396			248		148			59.7
OREO expense, net		4,289			7,012		(2,723	)		(38.8	)
Investor loss reimbursement		371			226		145			64.2
Mortgage servicing rights impairment (recovery)		(1,258	)		1,257		(2,515	)		(200.1	)
Provision for unfunded loan commitments		1,734			1,087		647			59.5
Legal services		1,271			1,598		(327	)		(20.5	)
Other professional fees		495			643		(148	)		(23.0	)
Insurance		376			393		(17	)		(4.3	)
Other expense		2,447			2,972		(525	)		(17.7	)
Total non-interest expense	$	27,375		$	32,645	$	(5,270	)		(16.1	)%

Non-interest expense decreased $5.3 million or 16.1% to $27.4 million for the three months ended June 30, 2013, as compared to $32.6 million for the respective period in 2012. The favorable variance was primarily due to lower mortgage servicing rights impairment of $2.5 million and lower OREO expenses primarily due to a decrease in provisions for losses on repossessed property. These favorable variances were partially offset by higher compensation and benefits and provision for unfunded loan commitments. The mortgage servicing rights impairment improved reflecting a slight increase in market interest rates during the current quarter ending June 30, 2013 as the 10-year Treasury rate rose 65 basis points during that three month period causing a reduction in mortgage refinance activity.

56

Income Taxes

There was no income tax expense for the three month periods ended June 30, 2013 and 2012. A full valuation allowance has been recorded on the net deferred tax asset due to the uncertainty of the Corporation’s ability to create sufficient taxable income to utilize it.

FINANCIAL CONDITION

During the three months ended June 30, 2013, total assets decreased by $23.1 million from $2.37 billion at March 31, 2013 to $2.34 billion at June 30, 2013. The decrease was attributable to lower balances in loans held for investment of $43.3 million and OREO of $16.1 million, partially offset by increases in investment securities of $22.2 million and cash and cash equivalents of $13.0 million.

Interest-earning deposits totaled $210.2 million at June 30, 2013, up $11.9 million from $198.3 million at March 31, 2013. The increase in interest-earning deposits was primarily due to increased cash levels from loan repayment and OREO sale proceeds. Purchases of investment securities available-for-sale totaled $43.1 million in the quarter ending June 30, 2013.

Investment securities available for sale increased by $22.2 million during the three months ended June 30, 2013, as a result of purchases of $43.1 million, principal collections of $14.4 million, a net decrease in fair value of $6.1 million, premium amortization net of discount accretion of $396,000 and net realized and unrealized impairment losses of $68,000 in the period.

Net loans held for investment decreased $43.3 million, or 2.6% during the three months ended June 30, 2013. Activity for the period consisted of principal repayments of $129.7 million and transfers to other real estate owned of $3.3 million; partially offset by originations and refinances of $88.5 million, decrease in allowance for loan losses of $3.9 million and other miscellaneous activity of $2.7 million.

Other real estate owned decreased $16.1 million to $68.2 million at June 30, 2013 from $84.3 million at March 31, 2013. The decrease in OREO was primarily due to sales of $18.0 million, partially offset by transfers in from the loan portfolio of $3.3 million, and valuation adjustment net write downs of $2.4 million.

Net deferred tax asset was zero at June 30, 2013 and March 31, 2013 due to a valuation allowance on the entire balance. The valuation allowance is necessary since the recovery of the net deferred asset is not considered to be more likely than not as it is uncertain if the Corporation can generate sufficient taxable income in the near future.

Total liabilities decreased $11.6 million during the three months ended June 30, 2013 due to a $23.1 million decrease in deposits, partially offset by increases in other liabilities and accrued interest and fees payable of $4.8 million and $4.7 million, respectively. The decrease in deposits was due a decline in CD balances of $37.4 million attributable to more disciplined pricing of these products to reduce excess liquidity, partially offset by an increase in checking, savings and money market deposit product balances totaling $14.3 million.

Stockholders’ deficit grew $11.5 million during the three months ended June 30, 2013 due the net loss in the period of $5.4 million and a decrease in fair value of the available for sale investment securities portfolio of $6.3 million attributable to generally rising market interest rates during the past three months.

57

REGULATORY DEVELOPMENTS

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. Adopted programs still in effect include the following:

• Capital Purchase Program (“CPP”). Pursuant to this program, Treasury, on behalf of the U.S. government, purchased 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. 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 imposed certain restrictions upon a participating 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.

• Permanent 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. Dodd-Frank permanently raised the limit to $250,000.

The American Recovery and Reinvestment Act of 2009

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law. Included among the many provisions in ARRA are restrictions affecting financial institutions who are participants in TARP, which are set forth in the form of amendments to EESA. These amendments provide that during the period in which any obligation under TARP remains outstanding (other than obligations relating to outstanding warrants), TARP recipients are subject to appropriate standards for executive compensation and corporate governance which were set forth in an interim final rule regarding TARP standards for Compensation and Corporate Governance, issued by Treasury and effective on June 15, 2009 (the “Interim Final Rule”). Among the executive compensation and corporate governance provisions included in ARRA and the Interim Final Rule are the following:

• an incentive compensation “clawback” provision to cover “senior executive officers” (defined in this instance and below to mean the “named executive officers” for whom compensation disclosure is provided in the company’s proxy statement) and the next 20 most highly compensated employees;

• a prohibition on certain golden parachute payments to cover any payment related to a departure for any reason (with limited exceptions) made to any senior executive officer (as defined above) and the next five most highly compensated employees;

• a limitation on incentive compensation paid or accrued to the five most highly compensated employees of the financial institution, subject to limited exceptions for pre–existing arrangements set forth in written employment contracts executed on or prior to February 11, 2009, and certain awards of restricted stock which may not exceed 1/3 of annual compensation, are subject to a two year holding period and cannot be transferred until Treasury’s preferred stock is redeemed in full;

• a requirement that the Company’s chief executive officer and chief financial officer provide in annual securities filings, a written certification of compliance with the executive compensation and corporate governance provisions of the Interim Final Rule;

• an obligation for the compensation committee of the board of directors to evaluate with the company’s chief risk officer certain compensation plans to ensure that such plans do not encourage unnecessary or excessive risks or the manipulation of reported earnings;

• a requirement that companies adopt a company–wide policy regarding excessive or luxury expenditures; and

• a requirement that companies permit a separate, non–binding shareholder vote to approve the compensation of executives.

58

The Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”) was established pursuant to Section 121 of EESA and has the duty, among other things, to conduct, supervise, and coordinate audits and investigations of the purchase, management and sale of assets by the Treasury under TARP and the CPP, including the shares of non-voting preferred shares purchased from the Corporation. Thus, the Corporation is now also subject to supervision, regulation and investigation by SIGTARP by virtue of its participation in the TARP CPP.

In addition, companies who have issued preferred stock to Treasury under TARP are now permitted to redeem such investments at any time, subject to consultation with banking regulators. Upon such redemption, the warrants may be immediately liquidated by Treasury.

Dodd-Frank Act

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which significantly changes the regulation of financial institutions and the financial services industry. The Dodd-Frank Act includes provisions affecting both large and small financial institutions, including several provisions that will affect how community banks, thrifts, and smaller bank and thrift holding companies, such as the Corporation, will be regulated in the future. Among other things, these provisions abolish the OTS and transfer its functions to the other federal banking agencies, relax rules regarding interstate branching, allow financial institutions to pay interest on business checking accounts, change the scope of federal deposit insurance coverage, and impose new capital requirements on bank and thrift holding companies. The Dodd-Frank Act also establishes the Bureau of Consumer Financial Protection as an independent entity within the Federal Reserve, which will be given the authority to promulgate consumer protection regulations applicable to all entities offering consumer financial services or products, including banks. Additionally, the Dodd-Frank Act includes a series of provisions covering mortgage loan origination standards affecting, among other things, originator compensation, minimum repayment standards, appraisals and pre-payments. The Dodd-Frank Act contains numerous other provisions affecting financial institutions of all types, many of which may have an impact on the operating environment of the Corporation in substantial and unpredictable ways. Consequently, the Dodd-Frank Act is likely to affect our cost of doing business, may limit or expand our permissible activities, and may affect the competitive balance within the financial services industry and market areas. The nature and extent of future legislative and regulatory changes affecting financial institutions, including as a result of the Dodd-Frank Act, continues to be unpredictable at this time with portions of the implementing regulations remaining unwritten. The Corporation’s management continues to monitor the provisions of the Dodd-Frank Act, many of which continue to be phased-in, and assess the probable impact on the business, financial condition and results of operations of the Corporation. However, the ultimate effect of the Dodd-Frank Act on the financial services industry in general, and the Corporation in particular, is uncertain at this time.

Orders to Cease and Desist

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”). As of July 21, 2011, the Cease and Desist Order is now administered by the OCC with respect to the Bank and the Federal Reserve with respect to the Corporation.

The Corporation Order requires that the Corporation notify, and in certain cases receive the permission of, the OCC 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; (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; and (v) making any golden parachute payments or prohibited indemnification payments. Further, the Corporation’s board was 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 projections and actual results (the “Variance Analysis Report”). Within thirty days following the end of each quarter, the Corporation is required to provide the OCC its Variance Analysis Report for that quarter. The Corporation has complied with each of these requirements as of June 30, 2013.

58

The Bank Order requires that the Bank notify, or in certain cases receive the permission of, the OCC 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 required that no later than December 31, 2009, the Bank was to meet and maintain both a core capital ratio equal to or greater than eight percent and a total risk-based capital ratio equal to or greater than twelve percent. The Bank also submitted, to the OTS, within the 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.

On August 31, 2010, the OTS approved the Capital Restoration Plan submitted by the Bank, although the approval included a Prompt Corrective Action Directive (“PCA”). The only new requirement of the PCA is that the Bank shall obtain prior written approval from the Regional Director before entering into any contract or lease for the purchase or sale of real estate or of any interest therein, except for contracts entered into in the ordinary course of business for the purchase or sale of other real estate owned due to foreclosure (“OREO”) where the contract does not exceed $3.5 million and the sales price of the OREO does not fall below 85% of the net carrying value of the OREO.

At June 30, 2013 and March 31, 2013, the Bank had a tier 1 leverage (core) capital ratio of 4.57% and 4.53% and a total risk-based capital ratio of 9.21% and 9.02%, respectively, each below the required capital ratios set forth above. Without a waiver by the OCC or amendment or modification of the Orders, the Bank could be subject to further regulatory action. All customer deposits remain fully insured to the highest limits set by the FDIC.

On August 12, 2013, the Company filed a voluntary petition for relief (the “Chapter 11 Case”) under the provisions of Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Western District of Wisconsin (the “Bankruptcy Court”) to implement a “pre-packaged” plan of reorganization in order to facilitate the restructuring of the Company and the recapitalization of the Bank. The Chapter 11 Case is being administered under the caption “In re Anchor BanCorp Wisconsin Inc.” Case No. 13-14003-rdm. As of the date of the filing of this Quarterly Report on Form 10-Q, the Company continues to operate its businesses under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code.

RISK MANAGEMENT

The Bank encounters risk in the normal course of business and designs risk management processes to help manage these risks. This Risk Management section describes the Bank’s risk management philosophy, principles, governance and various aspects of its risk management program.

The Bank’s risk management philosophy is to manage to an acceptable level of overall risk while still allowing it to capture opportunities and optimize shareholder value. However, due to the general state of the economy and the elevated risk in the loan portfolio, the Bank’s risk profile does not currently meet our desired risk level. The Bank is working toward reducing the overall risk level to a more desired risk profile. The Bank views risk management as not about eliminating risks, but about identifying and accepting risks and then working to effectively manage them so as to optimize shareholder value.

Risk management includes, but is not limited to the following:

• Taking only risks consistent with the Bank’s strategy and within its capability to manage,

• Ensuring strong underwriting and credit risk management practices,

• Practicing disciplined capital and liquidity management,

• Helping ensure that risks and earnings volatility are appropriately understood and measured,

• Avoiding excessive concentrations, and

• Helping support external stakeholder confidence.

59

Although the Board as a whole is primarily responsible for oversight of risk management, committees of the Board may provide oversight to specific areas of risk with respect to the level of risk and risk management structure. The Bank uses management level risk committees to help ensure that business decisions are executed within our desired risk profile. Management provides oversight for the establishment and implementation of new risk management initiatives, review of risk profiles and discussion of key risk issues. The Bank has a Chief Risk Officer in charge of overseeing risk management. Our internal audit department performs an independent assessment of the internal control environment and plays a critical role in risk management, testing the operation of the internal control system and reporting findings to management and to the Audit Committee of the Board.

CREDIT RISK MANAGEMENT

Credit risk represents the possibility that a customer, counterparty or issuer may not perform in accordance with contractual terms. Credit risk is inherent in the financial services business and results from extending credit to customers, purchasing investment securities and entering into certain guarantee contracts. Credit risk is one of the most significant risks facing the Bank.

In addition to credit policies and procedures and setting portfolio objectives for the level of credit risk, the Bank has established guidelines for problem loans, acceptable levels of total borrower exposure and other credit measures. Beginning fiscal 2011 through the current period, management has continued to focus on loss mitigation and maximization of recoveries in the Bank’s non-performing asset portfolios. The Bank is slowly returning to management of portfolio returns through discrete investments within approved risk tolerances.

The Bank seeks to achieve credit portfolio objectives by maintaining a customer base that is diverse in borrower exposure and industry types. Corporate credit personnel are responsible for loan underwriting and approval processes to help ensure that newly approved loans meet policy and portfolio objectives.

The Risk Management group is responsible for monitoring credit risk, while Internal Audit provides an independent assessment of the effectiveness of the credit risk management process. An external credit risk management group also provides loan review services. Credit risk is managed taking into account all regulatory guidance.

60

Non-Performing Loans

The composition of non-performing loans is summarized as follows:

	June 30, 2013								March 31, 2013
	Non- Performing Loans		Percent of Non- Performing Loans			Percent of Total Gross Loans(1)			Non- Performing Loans		Percent of Non- Performing Loans			Percent of Total Gross Loans(1)
	(Dollars in thousands)
Residential	$	28,375		26.5	%		1.65	%	$	33,107		27.9	%		1.88	%
Commercial and industrial		2,281		2.1			0.13			2,915		2.5			0.17
Land and construction		29,425		27.5			1.71			31,787		26.8			1.80
Multi-family		19,394		18.1			1.13			20,652		17.4			1.17
Retail/office		16,761		15.7			0.98			17,523		14.8			0.99
Other commercial real estate		7,281		6.8			0.42			8,165		6.9			0.46
Education (2)		380		0.4			0.02			424		0.4			0.02
Other consumer		3,071		2.9			0.18			4,217		3.5			0.24
Total	$	106,968		100.0	%		6.22	%	$	118,790		100.0	%		6.74	%

(1) Gross loans are the unpaid principal balance before the reduction for loans in process, unearned interest and loan fees and the allowance for loans losses.

(2) Excludes the guaranteed portion of education loans 90+ days past due with an unpaid principal balance totaling $12,280 and $13,697 at June 30, 2013 and March 31, 2013, respectively, that are not considered impaired based on a guarantee provided by government agencies.

The following is a summary of non-performing loan activity for the three months ended June 30, 2013:

	Non- Performing Loans March 31, 2013		Additions		Transfer to Accrual Status			Transfer to OREO			Paid Down			Charged Off			Non- Performing Loans June 30, 2013		Remaining Balance of Loans		Associated ALLL
	(In thousands)
Residential	$	33,107	$	1,461	$	(1,571	)	$	(2,304	)	$	(816	)	$	(1,502	)	$	28,375	$	519,105	$	15,122
Commercial and industrial		2,915		321		(43	)		—			(582	)		(330	)		2,281		31,543		5,842
Land and construction		31,787		1,596		—			(162	)		(2,715	)		(1,081	)		29,425		73,479		13,948
Multi-family		20,652		351		—			(378	)		(1,134	)		(97	)		19,394		251,889		11,777
Retail/office		17,523		28		(173	)		—			(610	)		(7	)		16,761		173,436		13,027
Other commercial real estate		8,165		339		—			(208	)		(803	)		(212	)		7,281		174,552		12,054
Education		424		19		—			—			(63	)		—			380		147,780		268
Other consumer		4,217		617		(715	)		(96	)		(204	)		(748	)		3,071		243,262		3,834
Total	$	118,790	$	4,732	$	(2,502	)	$	(3,148	)	$	(6,927	)	$	(3,977	)	$	106,968	$	1,615,046	$	75,872

Non-performing loans decreased $11.8 million during the three months ended June 30, 2013. The loan categories with the largest decline in non-performing loans during the three months ended June 30, 2013 were residential (decrease of $4.7 million) and land and construction loans (decrease of $2.4 million). Multi-family and other consumer each declined by more than $1 million.

The interest income that would have been recorded during the three months ended June 30, 2013 and 2012 if non-performing loans at the end of the period had been current in accordance with their terms during the period was $1.1 million and $1.9 million, respectively.

61

Non-Performing Assets

The composition of non-performing assets is summarized as follows:

	June 30, 2013			March 31, 2013
	(Dollars in thousands)
Non-accrual loans - excluding troubled debt restructurings	$	82,406		$	92,503
Troubled debt restructurings - non-accrual (1)		24,562			26,287
Other real estate owned (OREO)		68,241			84,342
Total non-performing assets	$	175,209		$	203,132
Non-performing loans to gross loans (2)		6.21	%		6.74	%
Non-performing assets to total assets		7.47			8.58
Allowance for loan losses to gross loans (2)		4.41			4.53
Allowance for loan losses to non-performing loans		70.93			67.19
Allowance for loan losses plus OREO valuation allowance to non-performing assets		63.54			57.02

(1) Troubled debt restructurings – non-accrual represent non-accrual loans that were modified in a troubled debt restructuring less than six months prior to the period end date or have not performed in accordance with the modified terms for at least six months.

(2) Gross loans are the unpaid principal balance before the reduction for loans in process, unearned interest and loan fees and the allowance for loans losses.

Loans modified in a troubled debt restructuring due to rate or term concessions that are currently on non-accrual status will remain on non-accrual status for a period of at least six months. If after six months, or a longer period sufficient to demonstrate the willingness and ability of the borrower to perform under the modified terms, the borrower has made payments in accordance with the modified terms, the loan is returned to accrual status but retains its status as a troubled debt restructuring. The designation as a troubled debt restructuring is removed in years after the restructuring if both of the following conditions are met: (a) the restructuring agreement specifies an interest rate equal to or greater than the rate that the creditor was willing to accept at the time of restructuring for a new loan with comparable risk and (b) the loan is not impaired based on the terms specified by the restructuring agreement.

62

The following is a summary of non-performing asset activity for the three months ended June 30, 2013:

	Non-Performing Loans (1)			Other Real Estate Owned (OREO)			Total Non- Performing Assets
	(In thousands)
Balance at March 31, 2013	$	118,790		$	84,342		$	203,132
Additions		4,732			—			4,732
Transfers:
Loans to OREO		(3,148	)		3,261			113
Returned to accrual status		(2,502	)		—			(2,502	)
Sales		—			(17,046	)		(17,046	)
Loan charge-offs/OREO net additional write-downs		(3,977	)		(2,368	)		(6,345	)
Capitalized improvements		—			52			52
Payments		(6,927	)		—			(6,927	)
Balance at June 30, 2013	$	106,968		$	68,241		$	175,209

(1) Total non-performing loans exclude the guaranteed portion of education loans of $12,280 and $13,697 that are 90 days or more past due but still accruing interest at June 30, 2013 and March 31, 2013, respectively.

Loan Delinquencies 30 Days and Over

The following table sets forth information relating to the Corporation’s past due loans that were delinquent 30 days and over at the dates indicated.

	June 30, 2013					March 31, 2013
Days Past Due	Balance		% of Total Gross Loans			Balance		% of Total Gross Loans
	(Dollars in thousands)
30 to 59 days	$	15,861		0.92	%	$	14,294		0.81	%
60 to 89 days		4,545		0.26			10,109		0.57
90 days and over		86,432		5.02			92,209		5.23
Total	$	106,838		6.20	%	$	116,612		6.61	%

Loans past due 90 days and over decreased $5.8 million to $86.4 million at June 30, 2013 from $92.2 million at March 31, 2013 primarily due to the slow but steady economic recovery and the limited amount of new loan production in the past several years.

Impaired Loans

At June 30, 2013, the Corporation has identified $145.3 million of loans as impaired which includes non-accrual loans plus performing troubled debt restructurings. At March 31, 2013, impaired loans were $160.4 million. A loan is identified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement and thus are placed on non-accrual status.

Allowance for Loan Losses

Like all financial institutions, we must maintain an adequate allowance for loan losses (ALLL). The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged-off against the ALLL when we believe that repayment of principal is unlikely. Subsequent recoveries, if any, are credited to the ALLL. The balance in the ALLL 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 discussed in the Critical Accounting Estimates and Judgments section that appears later in this Item 2.

63

The ALLL consists of general, substandard loan and specific components even though the entire allowance is available to cover losses on any loan. The specific allowance component relates to impaired loans (i.e. – non-accrual) and loans reported as troubled debt restructurings. For such loans, an ALLL is established when the discounted cash flows (or collateral value if repayment relies solely on the operation or sale of the collateral) of the impaired loan are lower than the carrying value of that loan. The substandard loan component is primarily associated with loans rated in this category but not in non-accrual status. The general allowance component covers pass and special mention rated loans and is based on historical net loss experience for the past seven quarters, adjusted for various qualitative and quantitative factors. Loans graded substandard and below are individually examined to determine the appropriate ALLL. A reserve for unfunded commitments, letters of credit and repurchase of sold loans is also maintained which is classified in other liabilities.

The general component of the allowance for loan loss methodology incorporates the following quantitative and qualitative risk factors to establish the appropriate general allowance for loan loss at each reporting date.

Quantitative factors include:

• loan volume and terms

• delinquency and charge-off trends

• collateral values

• credit concentrations

• external factors such as competition and legal and regulatory requirements

• portfolio size

Qualitative factors include:

• lending policies, procedures and practices

• national and local economic conditions

• experience, ability and depth of lending management and other relevant staff

• loan review system

Any 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 seven quarter net loss history are also incorporated into the allowance methodology. Due to the credit concentration of our loan portfolio in real estate secured loans, the quantitative factor related to 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 ALLL may be necessary if there are significant changes in economic or other conditions. In addition, the OCC, as an integral part of their examination processes, periodically reviews the Banks’ allowance for loan losses, and may recommend adjustments based on their assessment of the adequacy of the ALLL. Management periodically reviews the assumptions and formula used in determining the ALLL and makes adjustments if required to reflect the current risk profile of the portfolio.

For the quarter ended June 30, 2013, the Bank modified its general allowance methodology to increase the historical loss period from a six to seven quarter historical look-back period, with the intent to build to an eight quarter look-back in quarters subsequent to June 2013. The modification was done to reflect a more stable economic environment and to capture additional loss statistics considered reflective of the current portfolio. In addition, as the Bank begins to increase its new loan originations, a new loan risk factor was added to capture the unique risk factor adjustments needed for loans originated after September 2012, reflecting a different risk level as compared to the existing legacy portfolio. The impact to the allowance for loan losses at June 30, 2013 after implementing the above modifications was a reduction of $1.4 million in the required reserve as compared to the previous methodology. See the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2013 for a full description of the allowance methodology.

64

The following table presents the allowance for loan losses by component:

	At June 30, 2013		At March 31, 2013
	(In thousands)
General component	$	26,028	$	28,163
Substandard loan component		23,161		22,560
Specific component		26,683		29,092
Total allowance for loan losses	$	75,872	$	79,815

The following table presents the unpaid principal balance of loans by risk category:

	At June 30, 2013		At March 31, 2013
	(In thousands)
Pass (1)	$	1,502,014	$	1,519,665
Special mention		27,414		33,363
Total pass and special mention rated loans		1,529,428		1,553,028
Substandard rated loans, excluding TDR accrual		47,315		49,813
Troubled debt restructurings - accrual		38,303		41,565
Non-accrual		106,968		118,790
Total impaired loans		145,271		160,355
Total unpaid principal balance	$	1,722,014	$	1,763,196

⁽¹⁾  Includes all accrual residential and consumer loans as these loans are generally not individually rated.

The following table presents credit risk metrics related to the allowance for loan losses:

	June 30,			March 31,
	2013			2013
	(Dollars in thousands)
General ALLL / pass and special mention loans		1.7	%		1.8	%
Substandard ALLL / substandard loans (excluding TDR accrual)		49.0	%		45.3	%
Specific ALLL / impaired loans		18.4	%		18.1	%
Loans 30 to 89 days past due	$	20,406		$	24,403

65

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

	Three Months Ended
	June 30,
	2013			2012
	(Dollars in thousands)
Allowance at beginning of period	$	79,815		$	111,215
Charge-offs:
Residential		(1,665	)		(1,363	)
Multi-family		(170	)		(752	)
Commercial real estate		(374	)		(3,904	)
Land and construction		(1,655	)		(2,112	)
Consumer		(907	)		(791	)
Commercial and industrial		(411	)		(1,651	)
Total charge-offs		(5,182	)		(10,573	)
Recoveries:
Residential		163			208
Multi-family		74			51
Commercial real estate		177			1,059
Land and construction		353			246
Consumer		42			32
Commercial and industrial		155			1,042
Total recoveries		964			2,638
Net charge-offs		(4,218	)		(7,935	)
Provision for loan losses		275			(2,803	)
Allowance at end of period	$	75,872		$	100,477
Net charge-offs to average loans held for sale and for investment		(0.97	)%		(1.56	)%

Net charge-offs decreased $3.7 million to $4.2 million for the three months ending June 30, 2013. The improvement in net charge-offs reflects the impact of the slow but steady economic recovery and the limited amount of new loan production in the past several years. All practical and legal methods of collection, repossession and disposal are pursued, and high underwriting standards are adhered to in the origination process in order to continue to improve asset quality.

66

Other Real Estate Owned

Other real estate owned (“OREO”) decreased $16.1 million to $68.2 million during the three months ended June 30, 2013. Individual properties included in OREO at June 30, 2013 with a recorded balance in excess of $1 million are listed below:

Description	Location	Carrying Value
		(in thousands)
Raw Land	Northeast Wisconsin	$	2,588
Raw Land	Northeast Wisconsin		1,285
Commercial Building	Northwest Wisconsin		1,375
Raw Land	South Central Wisconsin		2,195
Commercial Building	South Central Wisconsin		1,750
Raw Land	South Central Wisconsin		1,433
Raw Land	South Central Wisconsin		1,121
Raw Land	South Central Wisconsin		1,098
Commercial Building	Southeast Wisconsin		3,824
Raw Land	Southeast Wisconsin		3,191
Commercial Building	Southeast Wisconsin		1,773
Commercial Building	Southeast Wisconsin		1,368
Multi-Family	Eastern Minnesota		1,343
Other properties individually less than $1 million			43,897
		$	68,241

Foreclosed properties are recorded at fair value less cost to sell upon transfer to OREO with shortfalls, if any, charged to the allowance for loan losses. Subsequent decreases in the valuation of OREO are recorded in a valuation account for the foreclosed property with a corresponding charge to OREO expense, net. The fair value is primarily based on appraisals. On a quarterly basis, the carrying values of OREO properties are reviewed and appropriate adjustments made based upon updated appraisals or market analysis including recent sales or broker opinion. For appraisals received over one year ago, management considers broker and market analysis to update the estimated fair value. Incremental valuation adjustments may be recognized in the Statement of Operations if, in the opinion of management, additional losses are deemed probable.

LIQUIDITY RISK MANAGEMENT

Liquidity risk is the risk of potential loss if the Corporation were unable to meet its funding requirements at a reasonable cost. Liquidity risk is managed at both the bank and holding company to help ensure that cost-effective funding can be obtained to meet current and future obligations.

The largest source of liquidity on a consolidated basis is the deposit base that originates from retail and corporate banking businesses. Other borrowed funds are available from a diverse mix of short and long-term funding sources. Liquid assets and unused borrowing capacity from a number of sources are also available to maintain an adequate liquidity position.

Liquidity and Capital Resources

On an unconsolidated basis, the Corporation’s sources of funds include dividends from its subsidiaries, including the Bank, interest on its investments and returns on its real estate held for sale. As a condition of the Cease and Desist Order with the OTS (now administered by the OCC), the Bank is currently prohibited from paying dividends to the Corporation. A lack of liquidity resulted in a failure to make a principal payment on March 2, 2009, and the Corporation has continued to be unable to meet its obligations under the credit agreement.

67

The Bank’s primary sources of funds are payments on loans and securities, deposits from retail and wholesale sources, FHLB advances and other borrowings. The Bank is currently prohibited from obtaining new brokered deposits due to its current capital levels. As of June 30, 2013, the Corporation had outstanding borrowings from the FHLB of $197.5 million. The total maximum borrowing capacity at the FHLB based on the existing stock holding as of June 30, 2013 was $512.6 million, subject to collateral availability. Total borrowing capacity based on the value of the existing collateral pledged was $505.7 million.

Investment Securities

Investment 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 may reprice within a given time period, and (v) should default rates and loss severities increase on the underlying collateral of mortgage-related securities, credit losses may be experienced, which are recognized in earnings as net impairment losses.

Capital Purchase Program

On January 30, 2009, as part of Treasury’s CPP, the Corporation entered into a Letter Agreement with Treasury. Pursuant to the Securities Purchase Agreement — Standard Terms (the “Securities Purchase Agreement”) the Corporation issued the UST 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 million. 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 Securities Purchase Agreement provides for redemption of shares of the Preferred Stock for the per share liquidation amount of $1,000 plus any accrued and unpaid dividends. The Corporation has deferred the payment of dividends during each of the 17 quarters ended June 30, 2013 due to a lack of liquidity. As a result of such deferrals, on September 30, 2011, the Treasury exercised its right to appoint two directors to the Board of Directors of the Corporation.

As long as any Preferred Stock is outstanding, the Corporation may not pay dividends on its common stock and redeem or repurchase its common stock, unless all accrued and unpaid dividends for all past dividend periods on the Preferred Stock are fully paid. The Preferred Stock is 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 Treasury a warrant (the “Warrant”) to purchase up to 7,399,103 shares of the Corporation’s common stock, at an initial per share exercise price of $2.23, for an aggregate purchase price of approximately $16.5 million. The term of the Warrant is ten years. Issuance of the Warrant was subject to the receipt by the Corporation of shareholder approval which was received at the 2009 annual meeting of shareholders. The Warrant provides for the adjustment of the exercise price should the Corporation not have received shareholder approval, as well as customary anti-dilution provisions. Pursuant to the Securities Purchase Agreement, the Treasury 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’s purchase of the preferred securities include 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 Warrant in the Bank as Tier 1 capital.

The Plan of Reorganization contemplates that the shares of Series B Preferred Stock and the related warrant held by the Treasury in connection with the Capital Purchase Program would be exchanged for shares of the Company’s Common Stock (collectively, the “TARP Exchange”), which, if the Plan of Reorganization is confirmed by the Bankruptcy Court and the TARP Exchange is completed, would affect the Company’s obligations under the Capital Purchase Program. For more information on the proposed TARP Exchange, see the Company’s Current Report on Form 8-K, filed on or about August 13, 2013, which is incorporated herein by reference.

68

Loan Commitments

At June 30, 2013, the Bank had outstanding commitments to originate loans of $63.0 million and commitments to extend funds to, or on behalf of, customers pursuant to lines and letters of credit of $171.8 million. Scheduled maturities of certificates of deposit for the Bank during the twelve months following June 30, 2013 amounted to $370.7 million. Scheduled maturities of borrowings during the same period totaled $16.4 million for the Bank and $116.3 million for the Corporation. In addition to the principal of $116.3 million due is interest and fees totaling $64.9 million. Management believes adequate resources are available to fund all Bank commitments to the extent required. For more information regarding the Corporation’s borrowings, see “Credit Agreement” section below.

Other

The Corporation previously participated in the Mortgage Partnership Finance Program of the FHLB of Chicago (“MPF Program”). Pursuant to the credit enhancement feature of the MPF Program, the Corporation has retained a secondary credit loss exposure in the amount of $15.9 million at June 30, 2013 related to approximately $250.2 million 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. The monthly fee received is net of losses under the MPF Program. The MPF Program was discontinued in 2008 in its present format and the Corporation no longer funds loans through the MPF Program.

The Bank has entered into agreements with certain brokers that provided deposits obtained from their customers at specified interest rates for an identified fee, or so called “brokered deposits.” At June 30, 2013, the Bank had $100,000 of brokered deposits. The Cease and Desist Order of the Bank limits the Bank’s ability to accept, renew or roll over brokered deposits without prior approval of the OCC.

Under federal law and regulation, the Bank is required to meet tier 1 leverage, tier 1 risk-based and total risk-based capital requirements. Tier 1 capital primarily consists of stockholders’ equity minus certain intangible assets and unrealized gains/losses on available-for-sale securities. Total risk-based capital primarily consists of tier 1 capital plus a qualifying portion of the allowance for loan losses. The risk-based capital requirements presently address credit risk related to both recorded and off-balance sheet commitments and obligations.

The Cease and Desist Orders also required that by no later than December 31, 2009, the Bank meet and maintain both a tier 1 leverage (core) ratio equal to or greater than 8% and a total risk-based capital ratio equal to or greater than 12%. The Bank was required to submit to the OTS, and has submitted, 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.

At June 30, 2013, the Bank had a tier 1 leverage ratio of 4.57% and a total risk-based capital ratio of 9.21%, each below the required capital ratios in the Cease and Desist Orders. As a result, the OCC may take additional significant regulatory action against the Bank and Corporation which could, among other things, materially adversely affect the Corporation’s shareholders. All customer deposits remain fully insured to the highest limits set by the FDIC. The OCC may grant extensions to the timelines established by the Orders.

Our ability to meet short-term liquidity and capital resource requirements may be subject to our ability to obtain additional debt financing and equity capital. We may increase capital resources through offerings of equity securities (possibly including common shares and one or more classes of preferred shares), commercial paper, medium-term notes, securitization transactions structured as secured financings, and senior or subordinated notes.

Credit Agreement

As of both June 30, 2013 and March 31, 2013, the Corporation had drawn a total of $116.3 million pursuant to the Amended and Restated Credit Agreement, dated as of June 9, 2008 (as amended from time to time, the “Credit Agreement”) at a weighted average interest rate of 15.00%, on a short term line of credit to various lenders led by

69

U.S. Bank (the “Agent”). The total line of credit is fully drawn at $116.3 million. At June 30, 2013, the Corporation had accrued interest and amendment fees payable related to the Credit Agreement of $57.6 million and $7.3 million, respectively. The Credit Agreement contains customary representations, warranties, conditions and events of default for agreements of such type. The Company is currently in payment default of the Credit Agreement at June 30, 2013 and the unpaid principal balance under the Credit Agreement as a result of such payment default shall bear an additional 2.00% annual interest rate in addition to the base interest rate under the Credit Agreement (the “Default Rate”). This Default Rate is currently 17.00% per annum.

On August 12, 2013, the Corporation filed a voluntary petition for relief (the “Chapter 11 Case”) under the provisions of Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Western District of Wisconsin (the “Bankruptcy Court”) to implement a “pre-packaged” plan of reorganization in order to facilitate the restructuring of the Corporation and the recapitalization of the Bank. The Chapter 11 Case is being administered under the caption “In re Anchor BanCorp Wisconsin Inc.” Case No. 13-14003-rdm. As of the date of the filing of this Quarterly Report on Form 10-Q, the Corporation continues to operate its businesses under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code.

The Corporation does not currently have the ability to satisfy its payment obligations under the Credit Agreement and Amendment No. 9 which contains customary representations, warranties, conditions and events of default for agreements of such type. At June 30, 2013, the Corporation was in default of the Credit Agreement. Under the terms of the Credit Agreement, the Agent and the lenders have certain rights, including the right to accelerate the maturity of the borrowings if the Corporation is not in compliance with all covenants. The filing of the Chapter 11 Case constitutes an event of default under the Credit Agreement. The Corporation believes that any efforts to enforce the payment obligations under the Credit Agreement are stayed as a result of the filing of the Chapter 11 Case.

MARKET RISK MANAGEMENT

Market risk is the risk of a loss in earnings or economic value due to adverse movements in market factors such as interest rates, credit spreads, foreign exchange rates, and equity prices. We are exposed to market risk primarily by our involvement in, among others, traditional banking activities of taking deposits and extending loans.

Asset/Liability Management

The business of the Corporation and the composition of its consolidated balance sheet consist of investments in interest-earning assets (primarily loans, mortgage-backed securities, and other securities) that are largely funded by interest-bearing liabilities (deposits and borrowings). All of the financial instruments of the Corporation as of June 30, 2013 were held for other-than-trading purposes. Such financial instruments have varying levels of sensitivity to changes in market rates of interest. The Corporation’s net interest income is dependent on the amounts of and yields on its interest-earning assets as compared to the amounts of and rates on its interest-bearing liabilities. Net interest income is therefore sensitive to changes in market rates of interest.

The Corporation’s asset/liability management strategy is to maximize net interest income while limiting exposure to risks associated with changes in interest rates. This strategy is implemented by the Corporation’s ongoing analysis and management of its interest rate risk. A principal function of asset/liability management is to coordinate the levels of interest-sensitive assets and liabilities to manage net interest income changes within limits in times of fluctuating market interest rates.

70

Interest rate risk results when the maturity or repricing intervals and interest rate indices of the interest-earning assets, interest-bearing liabilities, and off-balance-sheet financial instruments are different, thus creating a risk that will result in disproportionate changes in the value of and the net earnings generated from these instruments. The Corporation’s exposure to interest rate risk is managed primarily through the strategy of selecting the types and terms of interest-earning assets and interest-bearing liabilities that generate favorable earnings while limiting the potential negative effects of changes in market interest rates. Because the primary source of interest-bearing liabilities is customer deposits, the Corporation’s ability to manage the types and terms of such deposits may be somewhat limited by customer maturity preferences in the market areas in which the Corporation operates. Deposit pricing is competitive with promotional rates frequently offered by competitors. Borrowings, which include FHLB advances, short-term borrowings, and long-term borrowings, are generally structured with specific terms which, in management’s judgment, when aggregated with the terms for outstanding deposits and matched with interest-earning assets, reduce the Corporation’s exposure to interest rate risk. The rates, terms, and interest rate indices of the interest-earning assets result primarily from the Corporation’s strategy of investing in securities and loans (a portion of which have adjustable rates). This permits the Corporation to limit its exposure to interest rate risk, together with credit risk, while at the same time achieving a positive interest rate spread from the difference between the income earned on interest-earning assets and the cost of interest-bearing liabilities.

Management uses a simulation model for internal asset/liability management. The model uses maturity and repricing information for securities, loans, deposits, and borrowings plus repricing assumptions on products without specific repricing dates (e.g., savings and interest-bearing demand deposits), to calculate the cash flows, income, and expense of assets and liabilities. In addition, the model computes a theoretical market value of equity by estimating the market values of its assets and liabilities using present value methodology. The model also projects the effect on earnings and theoretical value under various interest rate change scenarios. The Corporation’s exposure to interest rates is reviewed on a monthly basis by senior management and Board of Directors.

Net Interest Income Sensitivity Analysis

The Corporation performs a net interest income sensitivity analysis as part of its asset/liability management processes. Net interest income sensitivity analysis measures the change in net interest income in the event of hypothetical changes in interest rates. This analysis assesses the risk of change in net interest income in the event of sudden and sustained 100 and 200 basis point increases in market interest rates. The table below presents the projected changes in twelve-month cumulative net interest income for the various rate shock levels at June 30, 2013 and March 31, 2013, respectively.

	200 Basis Point Rate  Increase			100 Basis Point Rate  Increase
June 30, 2013		8.9	%		4.2	%
March 31, 2013		12.0	%		5.7	%

As a result of current market conditions, 100 and 200 basis point decreases in market interest rates are not applicable for 2013 as those decreases would result in some deposit interest rate assumptions falling below zero. Nonetheless, the Corporation’s net interest income may decline in declining rate environments as yields on earning assets could continue to adjust downward.

As shown above, at June 30, 2013, the effect of an immediate 200 basis point increase in interest rates would increase the Corporation’s net interest income by 8.9%. The net interest income sensitivity for March 31, 2013 has been restated to reflect a change in methodology that has been implemented to segregate nonaccrual loans in the model. The reduced interest rate sensitivity quarter over quarter is largely attributed to changes in interest rates and a steepening yield curve, which leads to slower prepayment speeds and fewer assets repricing. Overall net interest income sensitivity remains within the Corporation’s and recommended regulatory guidelines.

71

The changes in the Corporation’s net interest income reflected above were due, in large part, to the optionality on both sides of the balance sheet. The changes in net interest income over the one year horizon for June 30, 2013 under the 1.0% and 2.0% increases in market interest rates scenarios are reflective of this optionality. In general, in a rising rate environment, yields on loans and investment securities are expected to re-price upwards more quickly than the cost of funds.

Mortgage-backed securities, including adjustable rate mortgage pools, are modeled in the above analysis based on their estimated repricing or principal paydowns obtained from outside analytical sources. Loans are modeled in the above analysis based on contractual maturity or contractual repricing dates, coupled with principal prepayment assumptions. Deposits are based on management’s analysis of industry trends and customer behavior.

The Corporation also uses these assumptions to estimate the market value of equity and the market risk to this value due to changes in interest rates. This focus helps model risks embedded in the balance sheet over a longer time horizon than the net interest income simulation. The calculation is based on the present value of projected future cash flows. As of June 30, 2013, the projected changes for the market value of equity were within the Corporation’s policy limits.

Computations of the prospective effects of hypothetical interest rate changes are dependent on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay rates. These computations should not be relied upon as indicative of actual results. Actual values may differ from those projections set forth above, should market conditions vary from assumptions used in preparing the analyses. Further, the computations do not contemplate any actions the Company may undertake in response to changes in interest rates. Because such assumptions can be no more than estimates, certain assets and liabilities modeled as maturing or otherwise repricing within a stated period may, in fact, mature or reprice at different times and at different volumes than those estimated. Also, the renewal or repricing of certain assets and liabilities can be discretionary and subject to competitive and other pressures. Therefore, the rate sensitivity results included above do not and cannot necessarily indicate the actual future impact of general interest rate movements on the Company’s net interest income.

COMPLIANCE, STRATEGIC AND/OR REPUTATIONAL RISK MANAGEMENT

Compliance risk represents the risk of regulatory sanctions, reputational impact or financial loss resulting from the Corporation’s failure to comply with regulations and standards of good banking practice. Activities which may expose the Corporation to compliance risk include, but are not limited to, those dealing with the prevention of money laundering, privacy and data protection, community reinvestment initiatives, fair lending challenges and employment and tax matters. The Corporation has a separate department with individuals having specialized training and experience tasked with ensuring compliance with state and federal public interest, consumer, and civil rights oriented banking laws and regulations.

Strategic and/or reputation risk represents the risk of loss due to damage to reputation, failure to fully develop and execute business plans, failure to assess current and new opportunities in business, markets and products and any other event not identified in the defined risk types mentioned previously. Mitigation of the various risk elements that represent strategic and/or reputation risk is achieved through initiatives to help the Corporation better understand, monitor and report on the various risks.

72

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The consolidated financial statements are prepared by applying certain accounting policies. Certain of these policies require management to make estimates and strategic or economic assumptions that may prove inaccurate or are subject to variations that may significantly affect the reported results and financial position for the period or in future periods. Some of the more significant policies are as follows:

Fair Value Measurements

Management must use estimates, assumptions, and judgments when assets and liabilities are required to be recorded at, or adjusted to reflect, fair value under GAAP. This includes the initial measurement at fair value of the assets acquired and liabilities assumed in acquisitions qualifying as business combinations, foreclosed properties and repossessed assets and the capitalization of mortgage servicing rights. The valuation of both financial and nonfinancial assets and liabilities in these transactions requires numerous assumptions and estimates and the use of third-party sources including appraisers and valuation specialists.

Assets and liabilities carried at fair value inherently result in a higher degree of financial statement volatility. Assets and liabilities measured at fair value on a recurring basis include available for sale securities, loans held for sale, interest rate lock commitments and forward contracts to sell mortgage loans. Assets and liabilities measured at fair value on a non-recurring basis may include mortgage servicing rights, certain impaired loans and OREO. Fair values and the information used to record valuation adjustments for certain assets and liabilities are based on either quoted market prices or are provided by other independent third-party sources, when available. When such third-party information is not available, fair value is estimated primarily by using cash flow and other financial modeling techniques. Changes in underlying factors, assumptions, or estimates in any of these areas could materially impact future financial condition and results of operations.

Available-for-Sale Securities

Declines in the fair value of available-for-sale securities below their amortized cost that are deemed to be other-than-temporary are reflected in earnings as unrealized 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 ownership in a security for a period of time sufficient to allow for any anticipated recovery in fair value. To determine if 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 loss in earnings equal to the difference between the fair value of the security and its amortized 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, discounted at the purchase yield or current accounting yield of the security, and the amortized cost basis is the credit loss. The credit loss is the amount of impairment deemed other-than-temporary and recognized in earnings and is a reduction to the cost basis of the security. The amount of impairment related to all other factors (i.e. non-credit) is deemed temporary and included in accumulated other comprehensive income (loss).

Allowance for Loan Losses

The allowance for loan losses is a valuation account for probable and inherent losses incurred in the loan portfolio. Management maintains an allowance for loan losses - and separately a reserve for unfunded loan commitments, letters of credit and repurchase of sold loans in other liabilities - at levels that we believe to be adequate to absorb estimated probable credit losses incurred in the loan portfolio. The adequacy of the ALLL is determined based on periodic evaluations of the loan portfolios and other relevant factors. The ALLL is comprised of general, substandard loan and specific components. Even though the entire allowance is available to cover losses on any loan, specific allowances are provided on impaired loans pursuant to accounting standards. The general allowance is based on historical loss experience, adjusted for quantitative and qualitative factors. At least quarterly, management reviews the assumptions and methodology related to the general allowance in an effort to update and refine the estimate.

In determining the general allowance, the loan portfolio is segregated by purpose and collateral type. By doing so, trends in borrower behavior and loss severity are more easily identified. For each class of loan, a historical loss factor is computed. In determining the appropriate period of activity to use in computing the historical loss factor we look at trends in quarterly net charge-off rates. It is management’s intention to utilize a period of activity that is

73

most reflective of current experience. Changes in the historical period are made when there is a distinct change in the trend of net charge-off experience or other factors. Given the changes in the credit market that have occurred since 2008, management reviews each class’ historical losses by quarter for any trends that would indicate a different look back period would be more representative of current experience.

Historical loss rates used to calculate the general allowance are adjusted by values assigned to six quantitative factors and four qualitative factors which are listed in the preceding section titled Allowance for Loan Losses within Credit Risk Management. In determining the appropriate value to assign to a particular factor, if any, management compares the current underlying facts and circumstances with respect to that factor with those in the historical periods. Values assigned to factors are modified when changes in the environment relative to that quantitative or qualitative factor are deemed to be significant. Management will continue to analyze the factors on a quarterly basis, adjusting the historical loss rates as necessary, to a rate believed to be appropriate for the probable and inherent risk of loss in the portfolio.

For the quarter ended June 30, 2013, the Bank modified its general allowance methodology to increase the historical loss period from a six to seven quarter historical look-back period, with the intent to build to an eight quarter look-back in quarters subsequent to June 2013. The modification was done to reflect a more stable economic environment and to capture additional loss statistics considered reflective of the current portfolio. In addition, as the Bank begins to increase its new loan originations, a new loan risk factor was added to capture the unique risk factor adjustments needed for loans originated after September 2012, reflecting a different risk level as compared to the existing legacy portfolio. The impact to the allowance for loan losses at June 30, 2013 after implementing the above modifications was a reduction of the required reserve of $1.4 million as compared to the previous methodology. See the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2013 for a full description of the allowance methodology.

Specific allowances are determined as a result of an impairment review process. When a loan is identified as impaired it is evaluated for loss using either the fair value of collateral method or the present value of expected cash flows method. If the present value of expected cash flows or the fair value of collateral exceeds the Bank’s carrying value of a loan no loss is anticipated and no specific reserve is established. However, if the carrying value of a loan is greater than the present value of expected cash flows or fair value of collateral a specific reserve is established. In either situation, loans identified as impaired are excluded from the calculation of the general allowance.

The process that determines the substandard loan ALLL component produces results consistent with the specific ALLL process, however is applicable to substandard rated loans that are not considered impaired.

The Corporation regularly obtains updated appraisals for real estate collateral dependent loans for which it calculates impairment based on the fair value of collateral. Loans having an unpaid principal balance of $250,000 or less in a homogenous pool of assets do not require an impairment analysis and, therefore, updated appraisals may not be obtained until the foreclosure or sheriff sale occurs. Due to certain limitations, including, but not limited to, the availability of qualified appraisers, the time necessary to complete acceptable appraisals, the availability of comparable market data and information, and other considerations, in certain instances current appraisals are not readily available.

The determination of value on an individually reviewed loan is estimated using an appraisal discounted by 15%, 25% or 35% depending on whether the appraisal is a) current, b) improved land or commercial real estate (CRE) greater than a year old, or c) unimproved land greater than a year old, respectively. The 15% discount represents an estimate of selling costs and potential taxes and other expenses the Bank may need to incur to dispose of a property. The additional discounts on appraisals greater than a year old of 10% and 20% on improved land/CRE and unimproved land, respectively, reflect the decrease in collateral values during fiscal years 2011, 2012 and 2013. These percentages are supported by the Bank’s analysis of appraisal activity over the past 12 months.

Loans are considered to be non-performing at such time that they become ninety days past due or earlier if a loss is deemed probable. At the time a loan is determined to be non-performing it is downgraded per the Corporation’s loan rating system, it is placed on non-accrual, and an allowance consistent with the Corporation’s historical experience for similar “substandard” loans is established. Within ninety days of this determination a comprehensive analysis of the loans is completed, including ordering new appraisals, where necessary, and an adjustment to the estimated allowance is recognized to reflect the impaired value of the loan based on the underlying collateral or the discounted cash flows. Until such date at which an updated appraisal is obtained, when deemed necessary, the Corporation applies discounts to the existing appraisals in estimating the fair value of collateral as described above.

74

Management considers the ALLL at June 30, 2013 to be at an acceptable level, although changes may be necessary if future economic and other conditions differ substantially from the current environment. Although the best information available is used, the level of the ALLL remains an estimate that is subject to significant judgment and short-term change. To the extent actual outcomes differ from our estimates, additional provision for loan losses may be required that would reduce future earnings.

Foreclosure

Real estate acquired by foreclosure or by deed in lieu of foreclosure and other repossessed assets are held for sale and are initially recorded at fair value less estimated selling costs at the date of foreclosure, establishing a new cost basis. Any write down to fair value less estimated selling costs is charged to the allowance for loan losses. If the fair value exceeds the net carrying value of the loans, recoveries to the allowance for loan losses are recorded to the extent of previous charge-offs, with any excess, which is infrequent, recognized as a gain in non-interest income. Subsequent to foreclosure, updated appraisals are generally obtained on an annual basis and the assets are adjusted to the lower of cost or fair value, less estimated selling expenses. Costs relating to the development and improvement of the property may be capitalized. Holding period costs and subsequent changes to the valuation allowance are charged to OREO expense, net included in non-interest expense. Incremental valuation adjustments may be recognized in the Statement of Operations if, in the opinion of management, additional losses are deemed probable.

Mortgage Servicing Rights

Mortgage servicing rights (MSR) are initially recorded as an asset, measured at fair value, when loans are sold to third parties with servicing rights retained. MSR assets are 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 amortized cost 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 underlying loans are stratified into relatively homogeneous pools based on predominant risk characteristics which include product type (i.e., fixed, adjustable or balloon) and interest rate bands. If the aggregate carrying value of the capitalized mortgage servicing rights for a stratum exceeds its fair value, MSR impairment is recognized in earnings for the difference. As the loans are repaid and net servicing revenue is earned, the MSR asset is amortized as an offset in loan servicing income. Servicing revenues are expected to exceed this amortization expense. However, if actual prepayment experience or defaults exceed what was originally anticipated, net servicing revenues may be less than expected and mortgage servicing rights may be impaired.

Income Taxes

The Corporation’s provision for federal income taxes results in the recognition of a deferred tax liability or deferred tax asset 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 produce taxable income or deductible expenses in future periods. The Corporation regularly reviews the carrying amount of its net deferred tax assets (net of deferred tax liabilities) to determine if the establishment of a valuation allowance is necessary. If based on the available evidence, it is more likely than not that all or a portion of the Corporation’s net deferred tax assets will not be realized in future periods, a deferred tax valuation allowance would be established. Consideration is given to various positive and negative factors that could affect the realization of the net deferred tax assets.

In evaluating this available evidence, management considers, among other things, historical financial performance, expectation of future earnings, the ability to carry back losses to recoup taxes previously paid, length of statutory carry forward periods, experience with operating loss and tax credit carry forwards not expiring unused, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences. The Corporation’s evaluation is based on current tax laws as well as management’s expectations of future performance.

As a result this evaluation, a full valuation allowance has been established against the net deferred tax asset.

75

FORWARD-LOOKING STATEMENTS

This report contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” and Section 27A of the Securities Act. 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 or dispositions made by or to be made by us, projections involving anticipated revenues, earnings, liquidity, 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,” “project,” “continue,” “ongoing,” “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 due to several factors more fully described in Item 1A, “Risk Factors,” as well as elsewhere in the Annual Report on Form 10-K for the fiscal year ended March 31, 2013. 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:

• soundness of other financial institutions with which the Company and the Bank engage in transactions;

• 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 or bank regulatory reform;

• deterioration in commercial real estate, land and construction loan portfolios resulting in increased loan losses;

• uncertainties regarding our ability to continue as a going concern;

• our ability to address our own liquidity issues;

• demand for financial services, loss of customer confidence, and customer deposit account withdrawals;

• our ability to pay dividends;

• changes in the quality or composition of the Bank’s loan and investment portfolios and allowance for loan losses;

• dilution of existing shareholders as a result of possible future transaction;

• uncertainties about the Company and the Bank’s Cease and Desist Orders;

• uncertainties about our ability to raise sufficient new capital in a timely manner in order to increase the Bank’s regulatory capital ratios;

• changes in the conditions of the securities markets, 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 accounting principles, policies or guidelines;

• uncertainties about market interest rates;

• security breaches of our information systems;

• environmental liability for properties to which we take title;

• expiration of our Amended and Restated Credit Agreement;

• the effects of any changes to the servicing compensation structure for mortgage servicers pursuant to the programs of government sponsored–entities;

• uncertainties relating to the Emergency Economic Stabilization Act of 2008, the American Recovery and Reinvestment Act of 2009, the Dodd-Frank Act, the implementation by the U.S. Department of the

76

Treasury and federal banking regulators of a number of programs to address capital and liquidity issues in the banking system and additional programs that will apply to us in the future, all of which may have significant effects on us and the financial services industry; and

• challenges relating to recruiting and retaining key employees.

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.

Item 3 Quantitative and Qualitative Disclosures About Market Risk.

The Corporation’s market risk has not materially changed from March 31, 2013. See Item 7A in the Corporation’s Annual Report on Form 10-K for the year ended March 31, 2013. See also “Asset/Liability Management” in Part I, Item 2 of this report.

Item 4 Controls and Procedures.

The Corporation’s management, with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report and, based on this evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures are operating in an effective manner.

Changes in Internal Control Over Financial Reporting

There has been no change in the Corporation’s internal control over financial reporting ((as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the Corporation’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Part II - Other Information

Item 1 Legal Proceedings.

As previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2013, on February 21, 2013, the Company received a “Wells Notice” (“Notice”) from the staff (“Staff”) of the Securities and Exchange Commission (“Commission”) indicating its intent to recommend to the Commission that it bring a civil injunctive action against the Company alleging that it violated Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(2)(B) of the Securities Act of 1934 and Rules 10b-5 and 13a-13 thereunder.

On August 14, 2013, the Commission filed a complaint alleging the Company and the Company’s former Chief Financial Officer, Dale Ringgenberg, made material misstatements in the Company’s quarterly report on Form 10 Q for the period ending June 30, 2009.

Without admitting or denying the allegations in the Commission’s complaint, the Company agreed to settle the action against it by consenting to the entry of a final judgment permanently enjoining it from violating Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(2)(B) of the Securities Act of 1934 and Rules 10b-5 and 13a-13 thereunder.

There was no monetary fine or penalty to the Company for the settlement of this action.

On August 12, 2013, Anchor BanCorp Wisconsin Inc. filed a voluntary petition for relief (the “Chapter 11 Case”) under the provisions of Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Western District of Wisconsin (the “Bankruptcy Court”) to implement a “pre-packaged” plan of reorganization (the “Plan of Reorganization”) in order to facilitate the restructuring of the Company and the recapitalization of AnchorBank, fsb (the “Bank”). The Chapter 11 Case is being administered under the caption “In re Anchor BanCorp Wisconsin Inc.” Case No. 13-14003-rdm. As of the date of the filing of this Quarterly Report on Form 10-Q, the Company continues to operate its businesses under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. . For more information on the Chapter 11 Case and the Plan of Reorganization, see the Company’s Current Report on Form 8-K, filed on or about August 13, 2013, which is incorporated by reference herein.

77

The Corporation is also 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 unless otherwise disclosed.

Item 1A Risk Factors.

In addition to the risk factors included below and other information discussed elsewhere in this Quarterly Report on Form 10-Q, you should carefully consider the factors described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2013, filed with the Securities and Exchange Commission (“SEC”) on or about May 28, 2013. Those risks and uncertainties could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in our Annual Report on Form 10–K, this Quarterly Report on Form 10-Q and in other documents we file with the SEC. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition, results of operations or prospects could be materially and adversely affected by any of these risks. The trading price of, and market for, shares of our common stock declined significantly when the voluntary petition for relief was announced. The trading price and market could decline further due to any of these risks. This report, including the documents incorporated by reference herein, also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks described below and in the documents incorporated by reference herein.

We have filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code that may have an adverse effect on our business, financial condition, results of operations or prospects.

On August 12, 2013, we filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Western District of Wisconsin in order to facilitate the restructuring of the Company and the recapitalization of the Bank. For the duration of the Chapter 11 Case, our business, financial condition, results of operations and prospects will be subject to various risks, including but not limited to, the following:

• The Company’s bankruptcy filing may cause the Company’s and the Bank’s existing and potential depositors, customers, vendors, suppliers and others with whom we have commercial relationships to lose confidence in us and may make it more difficult for us to obtain and maintain such commercial relationships on competitive terms or at all;

• It may be more difficult to retain and motivate our key employees through the process of reorganization, and we may have difficulty attracting new employees;

• Our senior management will be required to spend significant time and effort dealing with the bankruptcy and restructuring activities rather than focusing exclusively on business operations;

• The Company has incurred and will incur substantial costs for professional fees and other expenses associated with the Chapter 11 Case; and

• The Company’s bankruptcy filing may create adverse publicity, which may result in adverse impacts to our deposit and loan relationships.

Although we have obtained the creditor consents necessary for approval of the Plan of Reorganization, we will also be subject to risks and uncertainties with respect to the actions and decisions of creditors and other third parties who have interests in the Chapter 11 Case that may be inconsistent with our plans. These risks and uncertainties could affect our business, financial condition, results of operations and prospects in various ways and may increase the longer the

78

Company has to operate under Chapter 11 bankruptcy protection. Because the risks and uncertainties associated with the Chapter 11 Case, we cannot predict or quantify the ultimate impact that events occurring during the Chapter 11 Case will have on our business, financial condition, results of operations and prospects.

The Plan of Reorganization is subject to numerous conditions which may not be satisfied and our restructuring efforts may not be successful.

The Plan of Reorganization is designed to improve the Company’s and the Bank’s consolidated balance sheet and capital structure by eliminating the Company’s outstanding senior secured debt and preferred stock in conjunction with raising significant new equity capital and unsecured debt. However, the effectiveness of the Plan of Reorganization is subject to numerous conditions which may not be satisfied. As a result our restructuring efforts may not be successful. Accordingly, we cannot assure you that we will be able to achieve our objectives with respect to the restructuring and recapitalization contemplated by the Plan of Reorganization, regardless of whether the Plan of Reorganization is confirmed.

If the Plan of Reorganization is not confirmed, we could be forced to operate in bankruptcy for an extended period of time while we attempt to develop a reorganization plan that could be confirmed.

If we are not able to confirm and implement the Plan of Reorganization, we may be forced to liquidate under Chapter 7 of the Bankruptcy Code.

If the Plan of Reorganization is confirmed and implemented, the Company’s existing common stock will no longer have any value.

If the Plan of Reorganization is confirmed and implemented, then the outstanding common stock will be canceled and of no further value and holders of the Company’s outstanding common stock will have no stake in the reorganized Company.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds.

There were no unregistered sales of equity securities or repurchases of equity securities by the registrant for the three months ended June 30, 2013.

Item 3 Defaults Upon Senior Securities.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q for a discussion of the Credit Agreement and the Corporation’s Preferred Stock issued under the CPP.

Item 4 Mine Safety Disclosures.

Not applicable.

Item 5 Other Information.

None.

79

Item 6 Exhibits.

The following exhibits are filed with this report:

Exhibit 31.1	Certification of Principal Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 is included herein as an exhibit to this Report.
Exhibit 31.2	Certification of Principal 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 32.1	Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) is included herein as an exhibit to this Report.
Exhibit 32.2	Certification of the Principal 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.
Exhibit No. 101	The following financial statements from the Anchor Bancorp Wisconsin, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, formatted in Extensive Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Consolidated Statements of Changes in Stockholders’ Deficit, (iv) Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements are included herein as an exhibit to this report.

80

SIGNATURES

Pursuant to the requirements 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.

Date:	August 14, 2013	By:	/s/ Chris Bauer
			Chris Bauer, President and Chief Executive Officer
Date:	August 14, 2013	By:	/s/ Thomas G. Dolan
			Thomas G. Dolan, Executive Vice President, Treasurer and Chief Financial Officer

81