Anchor BanCorp Wisconsin (ABCW) 10-Q 2009 Q2 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2009

or

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

For the transition period from                    to                    

COMMISSION FILE NUMBER 0-20006

ANCHOR BANCORP WISCONSIN INC.

(Exact name of registrant as specified in its charter)

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

Yesþ Noo

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yeso Noo

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

Large accelerated filero Accelerated filerþ Non-accelerated filero
(Do not check if a smaller reporting company) Smaller reporting companyo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso Noþ

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, 2009: 21,578,713

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, 2009 and March 31, 2009		2
Consolidated Statements of Income for the Three Months Ended June 30, 2009 and 2008		3
Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended June 30, 2009 and 2008		5
Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2009 and 2008		6
Notes to Unaudited Consolidated Financial Statements		8
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		38
Results of Operations		43
Financial Condition		47
Asset Quality		49
Liquidity & Capital Resources		53
Guarantees		55
Asset/Liability Management		56
Item 3 Quantitative and Qualitative Disclosures About Market Risk		60
Item 4 Controls and Procedures		60
Part II — Other Information
Item 1 Legal Proceedings		63
Item 1A Risk Factors		63
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		70
Item 3 Defaults upon Senior Securities		71
Item 4 Submission of Matters to a Vote of Security Holders		71
Item 5 Other Information		71
Item 6 Exhibits		72
Signatures		73
EX-31.1
EX-31.2
EX-32.1
EX-32.2

1

ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Balance Sheets
(Unaudited)

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

See accompanying Notes to Unaudited Consolidated Financial Statements.

2

ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Statements of Income
(Unaudited)

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

(Continued)

3

ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
Consolidated Statements of Income (Con’t.)

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

See accompanying Notes to Unaudited Consolidated Financial Statements.

4

ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

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

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

6

ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows(Cont’d)
(Unaudited)

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

See accompanying Notes to Unaudited Consolidated Financial Statements.

7

ANCHOR BANCORP WISCONSIN INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Principles of Consolidation

The unaudited consolidated financial statements include the accounts and results of operations of Anchor BanCorp Wisconsin Inc. (the “Corporation”) and its wholly-owned subsidiaries, AnchorBank fsb (the “Bank”) and Investment Directions, Inc. (“IDI”). The Bank’s accounts and results of operations include its wholly-owned subsidiaries ADPC Corporation (“ADPC”) and Anchor Investment Corporation (“AIC”). Significant inter-company balances and transactions have been eliminated. The Corporation also consolidates certain variable interest entities (joint ventures and other 50% or less owned partnerships) to which the Corporation is the primary beneficiary pursuant to Financial Accounting Standards Board (FASB) Interpretation No. 46R, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51” (“FIN 46R”).

Note 2 — Basis of Presentation

The accompanying unaudited 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 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 unaudited consolidated 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 and deferred tax assets, and the fair value of financial instruments. The results of operations and other data for the three-month period ended June 30, 2009 are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2010. The 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 for the year ended March 31, 2009.

The Corporation’s investment in real estate held for investment and sale includes 50% owned real estate partnerships which are considered variable interest entities (“VIE’s”) and therefore subject to the requirements of FIN 46R. FIN 46R requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity.

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

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

Certain prior period accounts have been reclassified to conform to the current period presentations. The reclassifications had no impact on prior year’s net income or stockholders’ equity.

8

Note 3 — Investment Securities

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

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		(Losses)			Fair Value
At June 30, 2009:
Available for Sale:
U.S. Government and federal agency obligations	$	31,236	$	475	$	(81	)	$	31,630
Municipal Bonds		12,813		276		(51	)		13,038
Mutual funds		1,822		—		—			1,822
Other		4,808		44		(48	)		4,804
	$	50,679	$	795	$	(180	)	$	51,294

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		(Losses)			Fair Value
At March 31, 2009:
Available for Sale:
U.S. Government and federal agency obligations	$	48,471	$	501	$	(53	)	$	48,919
Municipal Bonds		21,768		524		(59	)		22,233
Mutual funds		1,797		—		—			1,797
Other		4,806		33		(104	)		4,735
	$	76,842	$	1,058	$	(216	)	$	77,684

The table below shows the Corporation’s gross unrealized losses and fair value of investments, aggregated by investment category and length of time that individual investments have been in a continuous unrealized loss position at June 30, 2009 and March 31, 2009.

	At June 30, 2009
	Less than 12 months					12 months or more					Total
			Unrealized					Unrealized					Unrealized
Description of Securities	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
						(In Thousands)
US government and Federal
Agency Obligations	$	4,900	$	(81	)	$	—	$	—		$	4,900	$	(81	)
Municipal Bonds		1,197		(25	)		309		(26	)		1,506		(51	)
Other		—		—			103		(48	)		103		(48	)
Total temporarily impaired securities	$	6,097	$	(106	)	$	412	$	(74	)	$	6,509	$	(180	)

9

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

The table above represents eleven investment securities at June 30, 2009 compared to ten at March 31, 2009 that, due to the current interest rate environment and other factors, have declined in value but do not presently represent realized losses. Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. In estimating other-than-temporary impairment losses on investment securities, management considers many factors which include: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. To determine if an other-than-temporary impairment exists on a debt security, the Corporation first determines if (a) it intends to sell the security or (b) it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of the conditions is met, the Corporation will recognize an other-than-temporary impairment in earnings equal to the difference between the security’s fair value and its adjusted cost basis. If neither of the conditions is met, the Corporation determines (a) the amount of the impairment related to credit loss and (b) the amount of the impairment due to all other factors. The difference between the present values of the cash flows expected to be collected and the amortized cost basis is the credit loss. The credit loss is the portion of the other-than-temporary impairment that is recognized in earnings and is a reduction to the cost basis of the security. The portion of total impairment related to all other factors is included in other comprehensive income (loss).

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

Proceeds from sales of investment securities available for sale during the quarter ended June 30, 2009 were $6.3 million. There were no sales of investment securities during the quarter ended June 30, 2008. Gross gains of $149,000 were realized on sales during the quarter ended June 30, 2009. There were no gross gains realized on sales of investment securities during the quarter ended June 30, 2008. Gross losses of $2,000 were realized on sales for the quarter ended June 30, 2009. There were no gross losses realized on sales of investment securities during the quarter ended June 30, 2008.

At June 30, 2009 and March 31, 2009, investment securities with a fair value of approximately $9.4 million and $46.3 million, respectively were pledged to secure deposits, borrowings and for other purposes as permitted or required by law.

The fair value of investment securities by contractual maturity at June 30, 2009 are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay obligations with or without

10

call or prepayment penalties. Investment securities subject to six-month calls amount to $7.2 million at June 30, 2009. Investment securities subject to twelve-month calls at June 30, 2009 are $1.0 million.

			After 1		After 5				Non-
			Year		Years				Maturity
	Within 1		through 5		through 10		Over Ten		Equity
	Year		Years		Years		Years		Investments		Total
	(Dollars in Thousands)
Available for Sale, at fair value:
U.S. government and Federal
Agency Obligations	$	15,530	$	11,200	$	—	$	4,900	$	—	$	31,630
Municipal Bonds		2,885		5,304		2,360		2,489		—		13,038
Mutual fund		1,822		—		—		—		—		1,822
Other		3,597		25		—		1,116		66		4,804
Total Investment Securities	$	23,834	$	16,529	$	2,360	$	8,505	$	66	$	51,294

Note 4 — Mortgage-Related Securities

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

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

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		(Losses)			Fair Value
At June 30, 2009:
Available for Sale:
Agency CMOs and REMICs	$	182,175	$	1,124	$	(700	)	$	182,599
Non-agency CMOs		110,841		278		(10,178	)		100,941
Residential mortgage-backed securities		139,990		4,394		(70	)		144,314
GNMA Securities		65,298		329		(168	)		65,459
	$	498,304	$	6,125	$	(11,116	)	$	493,313
Held to Maturity:
Residential mortgage-backed securities	$	47	$	1	$	—		$	48
	$	47	$	1	$	—		$	48

11

			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		(Losses)			Fair Value
At March 31, 2009:
Available for Sale:
Agency CMOs and REMICs	$	142,692	$	1,732	$	(429	)	$	143,995
Non-agency CMOs		119,503		333		(12,309	)		107,527
Residential mortgage-backed securities		97,562		3,221		(29	)		100,754
GNMA Securities		54,753		417		(145	)		55,025
	$	414,510	$	5,703	$	(12,912	)	$	407,301
Held to Maturity:
Residential mortgage-backed securities	$	50	$	—	$	—		$	50
	$	50	$	—	$	—		$	50

The table below shows the Corporation’s mortgage-related securities’ gross unrealized losses and fair value, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2009 and March 31, 2009.

	At June 30, 2009
	Less than 12 months					12 months or more					Total
			Unrealized					Unrealized					Unrealized
Description of Securities	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
						(In Thousands)
Agency CMO/REMICs	$	94,571	$	(700	)	$	—	$	—		$	94,571	$	(700	)
Non-Agency CMO’s		18,956		(1,374	)		40,317		(3,164	)		59,273		(4,538	)
Residential Mortgage-backed securities		6,574		(70	)		—		—			6,574		(70	)
GNMA Securities		25,283		(166	)		1,730		(2	)		27,013		(168	)
Total temporarily impaired securities	$	145,384	$	(2,310	)	$	42,047	$	(3,166	)	$	187,431	$	(5,476	)
Other than temporarily impaired securities	$	3,700	$	(160	)	$	20,711	$	(5,480	)		24,411		(5,640	)
Total temporary and other than temporarily impaired securities	$	149,084	$	(2,470	)	$	62,758	$	(8,646	)	$	211,842	$	(11,116	)

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

The table above represents 72 securities at June 30, 2009 and March 31, 2009 that, due to the current interest rate environment and other factors, have declined in value but do not presently represent realized losses. Management evaluates securities for other-than-temporary impairment losses at least on a quarterly basis. To determine if an other-than-temporary impairment exists on a debt security, the Corporation first determines if (a) it intends to sell the security or (b) it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of the conditions is met, the Corporation will recognize an other-than-temporary impairment in earnings equal to the difference between the security’s fair value and its adjusted cost basis. If neither of the conditions is met, the Corporation determines (a) the amount of the impairment related to credit loss and (b) the amount of the impairment due to all other factors. The difference between the present values of the cash flows expected to be collected and the amortized cost basis is the credit loss. The credit loss is the amount of the other-than-temporary impairment that is recognized in earnings and is a reduction to the cost basis of the security. The amount of total impairment related to all other factors is included in other comprehensive income.

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

The significant inputs used for calculating the credit loss portion of the OTTI includes prepayment assumptions, loss severities, original FICO scores, historical rates of delinquency, percentage of loans with limited underwriting, historical rates of default, original loan-to-value ratio, aggregate property location by metropolitan statistical area, original credit support, current credit support, and weighted-averaged maturity. The discount rate utilized to establish the net present value of projected cash flows ranged from 6% to 17%, depending upon the characteristics and estimated performance of each security. Default rates were based current, 30 to 59 days delinquent, 60 to 89 days delinquent, 90+ days delinquent, and foreclosure balances of the loans as of June 1, 2009. These balances were entered into a loss migration model to calculate projected default rates, which are benchmarked against results that have recently been experienced by other major servicers on non-agency CMOs with similar attributes. The projected default rates used in the model ranged from 0.2% to 10.6%. In establishing the fair value of the securities, a discount rate of 6% to 15% was utilized. There are no payments in kind allowed on these non-agency CMOs.

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Based on the Corporation’s impairment testing as of June 30, 2009, eleven non-agency CMOs with a fair value of $28.8 million and an adjusted cost of $34.4 million were other-than-temporarily impaired. The portion of the other-than-temporary impairment due to credit of $213,000 was included in earnings for the three-month period ending June 30, 2009.

On a cumulative basis, other-than-temporary impairments due to credit were $1.0 million. Total unrealized losses on these securities were $6.5 million. The difference between the total unrealized losses of $6.5 million and the credit loss of $1.0 million, or $5.5 million, was charged against other comprehensive income. All of the Corporation’s other-than-temporary impaired debt securities are non-agency CMOs.

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

											Total OTTI		Total OTTI
	Year of Vintage										Related to		Related to
	2005		2006		2007		Total		Total OTTI		Credit Loss		Other Factors
							(in thousands)
Total Non-Agency CMOs
Rating:
AAA	$	6,600	$	4,425	$	—	$	11,025	$	696	$	244	$	452
AA		—		—		—		—		—		—		—
A		—		—		5,153		5,153		2,249		257		1,992
BBB		—		—		—		—		—		—		—
BB and below		1,469		2,818		8,371		12,658		3,589		517		3,072
Total Non- Agency CMO’s	$	8,069	$	7,243	$	13,524	$	28,836	$	6,534	$	1,018	$	5,516

Cumulative other-than-temporary impairments related to credit loss by year of vintage were $534,000 for 2007, $330,000 for 2006 and $154,000 for 2005.

The following table is a rollforward of the amount of other-than-temporary impairment related to credit losses that have been recognized in earnings for the three months ended June 30, 2009:

Beginning balance of the amount related to credit losses	$	805
The credit portion of other-than temporary impairment not previously recognized		4
Securities sold during the period (realized)		—
Reductions for securities previously recognized in OTTI, but for which the Corporation intends to sell or it is more likely than not the Corporation will be required to sell prior to recovery		—
Additional increases to the amount related to the credit loss for which an OTTI was previously recognized		209
Reductions for increases in cash flows expected to be collected		—
Ending balance of the amount related to credit losses	$	1,018

Proceeds from sales of mortgage-related securities available for sale during the quarter ended June 30, 2009 were $40.3 million. There were no sales of mortgage-related securities available for sale during the quarter ended June

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30, 2008. There were no sales of mortgage-related securities held-to-maturity for the quarters ended June 30, 2009 and 2008. Gross gains of $1.4 million were realized on sales for the quarter ended June 30, 2009. There were no gross gains realized on mortgage-related securities available for sale for the quarter ended June 30, 2008. There were no gross gains realized on sales of mortgage-related securities held-to-maturity for the quarter ended June 30, 2009 and 2008. There were no gross losses realized on sales of mortgage-related securities available for sale for the quarter ended June 30, 2009 and 2008. There were no gross losses realized on sales of mortgage-related securities held-to-maturity for the quarter ended June 30, 2009 and 2008.

At June 30, 2009 and March 31, 2009, mortgage-related securities available for sale with a fair value of approximately $346.0 million and $325.4 million, respectively, were pledged to secure deposits, borrowings and for other purposes as permitted or required by law.

The fair value of mortgage-related securities at June 30, 2009, by contractual maturity, is shown below. Given certain interest rate environments, some or all of these securities may be called by their issuers prior to the scheduled maturities. Maturities may differ from contractual maturities because the mortgages underlying the securities may be called or repaid without penalties.

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

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Note 5 — Stock-Based Compensation

The Corporation has stock compensation plans under which shares of common stock are reserved for the grant of incentive and non-incentive stock options and restricted stock or restricted stock units to directors, officers and employees. The date the options are first exercisable is determined when granted by a committee of the Board of Directors of the Corporation. The options expire no later than ten years from the grant date.

At June 30, 2009, an aggregate of 865,800 shares were available for future grants, including up to 300,000 shares that may be awarded in the form of restricted stock or restricted stock units which are not subject to the achievement of a performance target or targets. A summary of stock option activity is provided in the following table:

	Three Months Ended June 30, 2009
				Weighted
				Average
	Options			Price
Outstanding at beginning of period		515,670		$	21.60
Granted		—			—
Exercised		—			—
Forfeited		(3,500	)		19.97
Outstanding at end of period		512,170		$	21.61
Options exercisable and vested at June 30, 2009		512,170		$	21.61
Intrinsic value of options exercised		—

The following table represents outstanding stock options and exercisable stock options at their respective ranges of exercise prices at June 30, 2009:

	Options Outstanding						Exercisable Options
			Weighted-
			Average
			Remaining		Weighted-				Weighted-
			Contractual		Average				Average
Range of Exercise Prices	Shares		Life (Years)		Exercise Price		Shares		Exercise Price
$15.06 – $22.07		279,330		2.28	$	18.12		279,330	$	18.12
$23.77 – $28.50		199,840		4.25		24.79		199,840		24.79
$31.95 – $31.95		33,000		6.07		31.95		33,000		31.95
		512,170		3.30		21.61		512,170		21.61

The aggregate intrinsic value of options outstanding and exercisable at June 30, 2009 was zero.

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A summary of restricted stock grants is provided in the following table:

	Three Months Ended June 30, 2009
			Weighted
			Average
	Options		Price
Balance at beginning of period		76,000	$	22.62
Restricted stock granted		—		—
Restricted stock vested		—		—
Restricted stock forfeited		—		—
Balance at end of period		76,000	$	22.62

The restricted stock granted during the period has a vesting period ranging from 12 to 36 months based on employment at the time of vesting.

Note 6 — Loans Receivable

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

	June 30,			March 31,
	2009			2009
First mortgage loans:
Single-family residential	$	770,994		$	843,482
Multi-family residential		644,789			662,483
Commercial real estate		982,261			1,020,981
Construction		241,719			267,375
Land		258,096			266,756
		2,897,859			3,061,077
Second mortgage loans		386,268			394,708
Education loans		336,503			358,784
Commercial business loans and leases		222,661			238,940
Credit card and other consumer loans		53,063			56,302
		3,896,354			4,109,811
Contras to loans:
Undisbursed loan proceeds*		(57,877	)		(71,672	)
Allowance for loan losses		(141,378	)		(137,165	)
Unearned loan fees		(4,318	)		(4,441	)
Net discount on loans purchased		(9	)		(10	)
Unearned interest		(64	)		(84	)
		(203,646	)		(213,372	)
	$	3,692,708		$	3,896,439

* Undisbursed loan proceeds are funds to be disbursed upon an authorized draw request.

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

	Three Months Ended June 30,
	2009			2008
	(Dollars In Thousands)
Allowance at beginning of period	$	137,165		$	38,285
Provision		19,400			9,400
Charge-offs		(16,251	)		(7,426	)
Recoveries		1,064			6
Allowance at end of period	$	141,378		$	40,265

As of June 30, 2009, the Corporation had loans totaling $124.2 million that are on interest reserve. For these loans, no payments are typically received from the borrower since accumulated interest is added to the principal of the loan through the interest reserve. If appraisal values relating to these real estate secured loans, which includes various assumptions, proves to be overstated and/or declines over the contractual term of the loan, the Corporation may have inadequate security for the repayment of the loan. As of June 30, 2009, $35.3 million of our impaired loans remain on interest reserve.

At June 30, 2009, the Corporation has identified $513.0 million of loans as impaired. A loan is identified as impaired when, according to FAS 114, based on current information and events, it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. A summary of the details regarding impaired loans follows:

	At June 30,			At March 31,
	2009			2009				2008			2007
							(In Thousands)
Impaired loans with valuation reserve required	$	343,236		$	294,736			$	52,866		$	2,130
Impaired loans without a specific reserve		169,802			193,637				51,192			45,718
Total impaired loans		513,038			488,373				104,058			47,848
Less:
Specific valuation allowance		(80,185	)		(73,255	)			(17,639	)		(517	)
	$	432,853		$	415,118			$	86,419		$	47,331
Average impaired loans	$	328,830		$	247,034			$	67,138		$	26,458
Interest income recognized on impaired loans	$	4,123		$	21,637			$	107		$	44
Loans on nonaccrual status	$	513,038		$	488,373			$	101,241		$	47,040
Loans past due ninety days or more and still accruing	$	—		$	—			$	—		$	—
Performing troubled debt restructurings	$	159,538		$	61,460			$	400		$	400

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The Corporation is currently committed to lend approximately $15.5 million in additional funds on these impaired loans in accordance with the original terms of these loans; however, the Corporation is not legally obligated to, and will not, disburse additional funds on any loans while in nonaccrual status. Of the $15.5 million in committed funds on impaired loans, $3.5 million is applicable to nonaccrual loans. The Corporation will continue to monitor its portfolio on a regular basis and will lend additional funds as warranted on these impaired loans.

Approximately 26% of the impaired loans as of June 30, 2009 relates to residential construction and residential land loans. As of June 30, 2009, $169.8 million of impaired loans does not have any specific valuation allowance under SFAS 114. Pursuant to SFAS 114, a loan is impaired when both the contractual interest payments and the contractual principal payments of a loan are not expected to be collected as scheduled in the loan agreement. The $169.8 million of impaired loans without a specific valuation allowance as of June 30, 2009 are generally impaired due to delays or anticipated delays in receiving payments pursuant to the contractual terms of the loan agreements.

The Corporation has experienced declines in the current valuations for real estate collateral supporting portions of its loan portfolio, primarily residential construction and residential land loans, throughout calendar year 2008 and 2009, as reflected in recently received appraisals. Currently, $371.0 million or approximately 50.4% of impaired loans have recent appraisals (i.e. within one year). If real estate values continue to decline and as updated appraisals are received, the Corporation may have to increase its allowance for loan losses significantly.

Note 7 — Other Intangible Assets

The Corporation has other intangible assets consisting of core deposit intangibles with a remaining weighted average amortization period of approximately 7 years. The core deposit premium had a carrying amount and a value net of accumulated amortization of $4.6 million and $4.7 million at June 30, 2009 and March 31, 2009, respectively.

The following table presents the changes in the carrying amount of core deposit intangibles, gross carrying amount, accumulated amortization and net book value as of June 30, 2009 and March 31, 2009.

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

The Corporation adopted FAS 156 — “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140” (“FAS 156”) as of April 1, 2006. FAS 156 changes the way the Corporation accounts for servicing assets and obligations associated with financial assets disposed of or acquired. Mortgage servicing rights (MSRs) are recorded when loans are sold to third-parties with servicing of those loans retained. In addition, MSRs are recorded when acquiring or assuming an obligation to service a financial (loan) asset that does not relate to a

19

financial asset that is owned. The servicing asset is initially measured at fair value. The Corporation has defined two classes of MSRs to be accounted for under FAS 156 — residential (one to four family) and large multi-family/commercial real estate serviced for private investors.

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

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

Critical assumptions used in the discounted cash flow model include mortgage prepayment speeds, discount rates, costs to service and ancillary income. Variations in the assumptions could materially affect the estimated fair values. Changes to the assumptions are made when current trends and market data indicate that new trends have developed. Current market value assumptions based on loan product types — fixed rate, adjustable rate and balloon loans — include discount rates in the range of 10 to 21 percent and national prepayment speeds. Many of these assumptions are subjective and require a high level of management judgment. MSR valuation assumptions are reviewed and approved by management on a quarterly basis.

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

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

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Information regarding the Corporation’s mortgage servicing rights follows:

	Residential			Other
	(In Thousands)
Mortgage servicing rights as of March 31, 2008	$	11,698		$	1,478
Additions		10,087			142
Amortization		(4,623	)		(362	)
Mortgage servicing rights before valuation allowance at end of period		17,162			1,258
Valuation allowance		(2,407	)		—
Net mortgage servicing rights as of March 31, 2009	$	14,755		$	1,258
Fair market value at the end of the period	$	15,292		$	1,662
Key assumptions:
Weighted average discount		11.14	%		21.12	%
Weighted average prepayment speed assumption		17.99	%		24.39	%
Mortgage servicing rights as of March 31, 2009	$	17,162		$	1,258
Additions		6,680			—
Amortization		(2,120	)		(72	)
Mortgage servicing rights before valuation allowance at end of period		21,722			1,186
Valuation allowance		(1,063	)		—
Net mortgage servicing rights as of June 30, 2009	$	20,659		$	1,186
Fair market value at the end of the period	$	19,795		$	1,797
Key assumptions:
Weighted average discount		10.86	%		21.12	%
Weighted average prepayment speed assumption		12.26	%		20.19	%

The projections of amortization expense for mortgage servicing rights and the core deposit premium set forth below are based on asset balances and the interest rate environment as of June 30, 2009. Future amortization expense may be significantly different depending upon changes in the mortgage servicing portfolio, mortgage interest rates and market conditions.

	Residential		Other		Core
	Mortgage		Mortgage		Deposit
	Servicing Rights		Servicing Rights		Premium		Total
			(In Thousands)
Quarter ended June 30, 2009 (actual)	$	2,120	$	72	$	158	$	2,350
Estimate for the year ended March 31,
2010	$	8,480	$	288	$	634	$	9,402
2011		8,480		288		634		9,402
2012		3,699		288		634		4,621
2013		—		288		634		922
Thereafter		—		34		2,031		2,065
	$	20,659	$	1,186	$	4,567	$	26,412

Note 8 — Federal Home Loan Bank Stock

The Corporation views its investment in the Federal Home Loan Bank (“FHLB”) stock as a long-term investment. Accordingly, when evaluating for impairment, the value is determined based on the ultimate recovery of the par

21

value rather than recognizing temporary declines in value. The determination of whether a decline affects the ultimate recovery is influenced by criteria such as: 1) the significance of the decline in net assets of the FHLBs as compared to the capital stock amount and length of time a decline has persisted; 2) impact of legislative and regulatory changes on the FHLB and 3) the liquidity position of the FHLB.

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

Note 9 — Recent Accounting Pronouncements

The FASB issued FASB Accounting Standards Update 2009-01, Topic 105-Generally Accepted Accounting Principles amendments based on Statement of Financial Accounting Standards No. 168-The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (SFAS 168). FASB Accounting Standards Update 2009-01 amends the Codification for the issuance of Statement 168. See discussion of SFAS 168 below.

The FASB issued FASB Accounting Standards Update 2009-02,Omnibus Update-Amendments to Various Topics for Technical Corrections.FASB Accounting Standards Update 2009-02 makes a number of technical corrections to various topics in the Codification.

The FASB has issued FASB Statement No. 168, The “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles (SFAS 168). SFAS 168 establishes theFASB Accounting Standards Codification(Codification) as the single source of authoritative U.S. generally accepted accounting principles (U.S. GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. SFAS 168 and the Codification are effective for financial statements issued for interim and annual periods ending after September 15, 2009.

When effective, the Codification will supersede all existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. Following SFAS 168, the FASB will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, the FASB will issue Accounting Standards Updates, which will serve only to: (a) update the Codification; (b) provide background information about the guidance; and (c) provide the bases for conclusions on the change(s) in the Codification. Management is currently evaluating the provisions of SFAS 168 and its potential effect on its financial statements.

The FASB issued the following two standards which change the way entities account for securitizations and special-purpose entities:

• FASB Statement No. 166,Accounting for Transfers of Financial Assets(SFAS 166);     

• FASB Statement No. 167,Amendments to FASB Interpretation No. 46(R)(SFAS 167).

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SFAS 166 is a revision to FASB Statement No. 140,Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,and will require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures.

SFAS 167 is a revision to FASB Interpretation No. 46 (Revised December 2003),Consolidation of Variable Interest Entities,and changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance.

The new standards will require a number of new disclosures. SFAS 167 will require a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. SFAS 166 enhances information reported to users of financial statements by providing greater transparency about transfers of financial assets and an entity’s continuing involvement in transferred financial assets.

SFAS 166 and SFAS 167 will be effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009, or January 1, 2010, for a calendar year-end entity. Early application is not permitted. Management is currently evaluating the provisions of SFAS 166 and SFAS 167 and their potential effect on its financial statements.

The FASB has issued FASB Statement No. 165,Subsequent Events(SFAS 165).SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, SFAS 165 provides:

• The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements;

• The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and

• The disclosures that an entity should make about events or transactions that occurred after the balance sheet date.

SFAS 165 became effective for the Corporation on June 30, 2009 and did not have a significant impact on the Corporation’s financial statements.

In April 2009, the FASB issued Staff Position No. 157-4 (“FSP 157-4”), “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for an asset or liability have significantly decreased when compared with normal activity for an asset or liability. Reduced activity is an indication that transactions or quoted prices may not be determinative of fair value because in such market conditions there may be increased instances of transactions that are not orderly. If the reporting entity concludes that the quoted prices are not determinative of fair value, further analysis of the transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value in accordance with Statement 157. This FSP is effective for interim and annual reporting periods ending after June 15,

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2009. Early adoption is permitted for periods ending after March 15, 2009. The Corporation early adopted FASB FSP 157-4 as of January 1, 2009.

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

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” This FSP changes the guidance for determining whether an impairment on available-for-sale and held-to-maturity debt securities is other than temporary. The reporting entity must first assess (a) whether it has the intent to sell the debt security or (b) is it more likely than not that it will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, the entity must recognize the impairment in earnings as an other-than-temporary impairment (OTTI). If neither of these conditions is met, the entity must determine (a) the amount of the impairment related to credit loss and (b) the amount of the impairment due to all other factors. The difference between the present values of the cash flows expected to be collected and the amortized cost basis is the credit loss. The amount of the credit loss is recognized in earnings. The amount of total impairment related to all other factors is included in other comprehensive income. This FSP is effective for interim and annual reporting periods ending after June 15, 2009. Early adoption is permitted for periods ending after March 15, 2009. The Corporation has early adopted FSP FAS 115-2 and FAS 124-2 as of January 1, 2009. The bank recognized in earnings $213,000 and $805,000 of credit related other-than-temporary impairments on its non-agency mortgage-related securities portfolio during the quarter ending June 30, 2009 and March 31, 2009, respectively.

On December 4, 2007, the FASB issued FASB Statement 141R,Business Combinations(“SFAS 141R”).SFAS 141R will significantly change the accounting for business combinations. Under Statement 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. SFAS 141R will change the accounting treatment for certain specific items, including:

• acquisition costs will be generally expensed as incurred;

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

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

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

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

SFAS 141R also includes a substantial number of new disclosure requirements. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Corporation adopted SFAS 141R on April 1, 2009 and did not have a significant impact on the Corporation’s financial statements.

The FASB issued FSP SFAS 141R-1,“Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.”FSP SFAS 141R-1 amends the guidance in SFAS 141R to require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably

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estimated, the asset or liability would generally be recognized in accordance with SFAS 5, “Accounting for Contingencies,” and FASB Interpretation (FIN) No. 14, “Reasonable Estimation of the Amount of a Loss.” FSP SFAS 141R-1 removes subsequent accounting guidance for assets and liabilities arising from contingencies from SFAS 141R and requires entities to develop a systematic and rational basis for subsequently measuring and accounting for assets and liabilities arising from contingencies. FSP SFAS 141R-1 eliminates the requirement to disclose an estimate of the range of outcomes of recognized contingencies at the acquisition date. For unrecognized contingencies, entities are required to include only the disclosures required by SFAS 5. FSP SFAS 141R-1 also requires that contingent consideration arrangements of an acquiree assumed by the acquirer in a business combination be treated as contingent consideration of the acquirer and should be initially and subsequently measured at fair value in accordance with SFAS 141R. FSP SFAS 141R-1 is effective for assets or liabilities arising from contingencies the Corporation acquires in business combinations occurring after January 1, 2009.

On December 4, 2007, the FASB issued FASB Statement No. 160,Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51(“SFAS 160”).SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Corporation adopted SFAS 160 on April 1, 2009 and the adoption did not have a significant impact on the Corporation’s financial statements.

In April 2008, the FASB issued Staff Position (FSP) No. FAS 142-3,Determination of the Useful Life of Intangible Assets(FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,Goodwill and Other Intangible Assets. It is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years and should be applied prospectively to intangible assets acquired after the effective date. Early adoption is not permitted. FSP FAS 142-3 also requires expanded disclosure related to the determination of intangible asset useful lives for intangible assets and should be applied to all intangible assets recognized as of, and subsequent to the effective date. The impact of FSP FAS 142-3 will depend on the size and nature of any acquisitions the Corporation completes on or after April 1, 2009.

In June 2008, the FASB issued Staff Position No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (FSP EITF 03-6-1). FSP EITF 03-6 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, on a retrospective basis and will be adopted by the Company in the first quarter of the fiscal year ended March 31, 2010. The Corporation has some grants of restricted stock that contain non-forfeitable rights to dividends and will be considered participating securities upon adoption of FSP EITF 03-6-1. As participating securities, the Corporation would be required to include these instruments in the calculation of earnings per share (EPS), and it will need to calculate EPS using the “two-class method.” The Corporation is currently evaluating the potential impact, if any, the adoption of FSP EITF 03-6-1 could have on its calculation of EPS.

In June 2008, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (EITF 07-5). EITF 07-5 mandates a two-step process for evaluating whether an equity-linked financial instrument or embedded feature is indexed to the entity’s own stock. It is effective for fiscal years beginning after December 15, 2008, and interim periods within

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those fiscal years, which is our fiscal year ending March 31, 2010. The Corporation adopted SFAS 141R on April 1, 2009 and did not have a significant impact on the Corporation’s financial statements.

Note 10 — Stockholders’ Equity

During the three months ended June 30, 2009, no options for shares of common stock were exercised. During the quarter ended June 30, 2009, the Corporation issued 8,928 shares of treasury stock to the Corporation’s retirement and benefit plans. The weighted-average cost of these shares was $27.70 per share or $248,000 in the aggregate. The $233,000 excess of the cost over the market price of the treasury shares was charged to retained earnings. During the quarter ended June 30, 2009, the Corporation did not acquire any shares of its common stock as a result of purchases in the open market. See Part II, Item 2. During the quarter ended June 30, 2009, the Corporation did not pay a cash dividend to its common shareholders.

Preferred Equity: The Corporation’s Articles of Incorporation, as amended, authorize the issuance of 5,000,000 shares of preferred stock at a par value of $0.10 per share. In January 2009, under the Capital Purchase Program (“CPP”), the Corporation issued 110,000 shares of senior preferred stock (with a par value of $0.10 per share and a liquidation preference of $1,000 per share) and a 10-year warrant to purchase approximately 7.4 million shares of common stock (see section “Common Stock Warrants” below for additional information), for aggregate proceeds of $110 million. The proceeds received were allocated between the Senior Preferred Stock and the Common Stock Warrants based upon their relative fair values, which resulted in the recording of a discount on the Senior Preferred Stock upon issuance that reflects the value allocated to the Common Stock Warrants. The discount will be accreted using a level-yield basis over five years. The allocated carrying value of the Senior Preferred Stock and Common Stock Warrants on the date of issuance (based on their relative fair values) were $72.9 million and $37.1 million, respectively. Cumulative dividends on the Senior Preferred Stock are payable at 5% per annum for the first five years and at a rate of 9% per annum thereafter on the liquidation preference of $1,000 per share. The Corporation is prohibited from paying any dividend with respect to shares of common stock unless all accrued and unpaid dividends are paid in full on the Senior Preferred Stock for all past dividend periods. The Senior Preferred Stock is non-voting, other than class voting rights on matters that could adversely affect the Senior Preferred Stock. Three years after the original issue date, the Corporation may redeem the Senior Preferred Stock at a redemption price equal to the sum of the liquidation preference of $1,000 per share and any accrued and unpaid dividends. Prior to the end of three years, the Senior Preferred Stock may be redeemed with the proceeds from one or more qualified equity offerings of any Tier 1 perpetual preferred or common stock of at least $110 million (each a “Qualified Equity Offering”). The UST may also transfer the Senior Preferred Stock to a third party at any time.

Common Stock Warrants: The Common Stock Warrants have a term of 10 years and are exercisable at any time, in whole or in part, at an exercise price of $2.23 per share (subject to certain anti-dilution adjustments). The UST may not exercise or transfer the Common Stock Warrants with respect to more than half of the initial shares of common stock underlying the common stock warrants prior to the earlier of (a) the date on which the Corporation receives aggregate gross proceeds of not less than $110 million from one or more Qualified Equity Offerings and (b) December 31, 2009. The number of shares of common stock to be delivered upon settlement of the Common Stock Warrants will be reduced by 50% if the Corporation receives aggregate gross proceeds of at least $110 million from one or more Qualified Equity Offerings prior to December 31, 2009.

Note 11 — Earnings Per Share

Basic earnings per share for the three months ended June 30, 2009 and 2008 have been determined by dividing net income for the respective periods by the weighted average number of shares of common stock outstanding. Diluted earnings per share is computed by dividing net income 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.

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

At June 30, 2009, approximately 512,000 stock options and restricted stock grants were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

Note 12 — Segment Information

The Corporation provides a full range of banking services, as well as real estate investments through its two consolidated subsidiaries. The Corporation manages its business with a primary focus on each subsidiary. Thus, the Corporation has identified two reportable operating segments. The Corporation has not aggregated any operating segments.

Community Banking:This segment is the main basis of operation for the Corporation and includes the branch network and other deposit support services; origination, sales and servicing of one-to-four family loans; origination of multifamily, commercial real estate and business loans; origination of a variety of consumer loans; and sales of alternative financial investments such as tax deferred annuities.

Real Estate Investments:The Corporation’s non-banking subsidiary, IDI, and its subsidiary, NIDI, invest in limited partnerships in real estate developments. Such developments include recreational residential developments and industrial developments (such as office parks).

Net loss from the real estate investment segment decreased $66,000 to a net loss of $566,000 for the three months ended June 30, 2009, as compared to a net loss of $632,000 for the same respective period in 2008. The decreased loss for the three-month period was due to a $770,000 decrease in other expense from real estate operations as well as a $175,000 decrease in net interest expense, which were offset by a decrease in other revenue from real estate

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operations of $562,000 as well as a decrease in the income tax benefit of $363,000 for the three months ended June 30, 2009 as compared to the same period in the prior year. The decrease in sales was due to the slowing of housing sales in the California market, which is reflective of the national trend. The partnerships currently have approximately 43 single family housing units and approximately 100 individual lots for sale. Management continues to evaluate options to mitigate the holding costs of the housing units and individual lots.

The following represents reconciliations of reportable segment revenues, profit or loss and assets to the Corporation’s consolidated totals for the three months ended June 30, 2009 and 2008, respectively.

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

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	Three Months Ended June 30, 2008
				(In Thousands)
										Consolidated
	Real Estate			Community			Intersegment			Financial
	Investments			Banking			Eliminations			Statements
Interest income	$	26		$	70,820		$	(338	)	$	70,508
Interest expense		312			37,113			(338	)		37,087
Net interest income (loss)		(286	)		33,707			—			33,421
Provision for loan losses		—			9,400			—			9,400
Net interest income (loss) after provision for loan losses		(286	)		24,307			—			24,021
Real estate investment partnership revenue		—			—			—			—
Other revenue from real estate operations		1,473			—			—			1,473
Other income		—			10,366			(30	)		10,336
Real estate investment partnership cost of sales		—			—			—			—
Other expense from real estate partnership operations		(2,221	)		—			30			(2,191	)
Minority interest in loss of real estate partnerships		39			—			—			39
Other expense		—			(24,600	)		—			(24,600	)
Income (loss) before income taxes		(995	)		10,073			—			9,078
Income tax (benefit) expense		(363	)		3,929			—			3,566
Net income (loss)	$	(632	)	$	6,144		$	—		$	5,512
Total assets at end of period	$	70,833		$	4,878,502		$	—		$	4,949,335
Goodwill	$	—		$	72,375		$	—		$	72,375

Note 13 — 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 Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Since many of the commitments are expected to expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements.

Financial instruments whose contract amounts represent credit risk are as follows (in thousands):

	June 30,		March 31,
	2009		2009
Commitments to extend credit:	$	25,019	$	52,427
Unused lines of credit:
Home equity		144,969		144,662
Credit cards		37,857		37,602
Commercial		71,120		89,300
Letters of credit		19,460		20,694
Credit enhancement under the Federal
Home Loan Bank of Chicago Mortgage
Partnership Finance Program		23,463		23,527
Real estate investment segment borrowing guarantees unfunded		1,678		1,936

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Commitments to extend credit and unused lines of credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Letters of credit commit the Corporation to make payments on behalf of customers when certain specified future events occur. Commitments and letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. As some such commitments expire without being drawn upon or funded by the Federal Home Loan Bank of Chicago (“FHLB”) under the Mortgage Partnership Finance Program, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. With the exception of credit card lines of credit, the Corporation generally extends credit only on a secured basis. Collateral obtained varies, but consists primarily of single-family residences and income-producing commercial properties. Fixed-rate loan commitments expose the Corporation to a certain amount of interest rate risk if market rates of interest substantially increase during the commitment period.

The Corporation intends to fund commitments through current liquidity.

The real estate investment segment borrowing guarantees unfunded represent the Corporation’s commitment through its IDI subsidiary to guarantee the borrowings of the related real estate investment partnerships up to a total of $16.5 million, which are included in the consolidated financial statements. For additional information, see “Guarantees” in Item 2- Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Except for the above-noted commitments to originate and/or sell mortgage loans in the normal course of business, the Corporation and the Bank have not undertaken the use of off-balance-sheet derivative financial instruments for any purpose.

In the ordinary course of business, there are legal proceedings against the Corporation and its subsidiaries. Management considers that the aggregate liabilities, if any, resulting from such actions would not have a material, adverse effect on the financial position of the Corporation.

Note 14 — Fair Value of Financial Instruments

Disclosure of fair value information about financial instruments, for which it is practicable to estimate that value, is required whether or not recognized in the consolidated balance sheets. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Certain financial instruments with a fair value that is not practicable to estimate and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not necessarily represent the underlying value of the Corporation.

The Corporation, in estimating its fair value disclosures for financial instruments, used the following methods and assumptions:

Cash and cash equivalents and accrued interest:The carrying amounts reported in the balance sheets approximate those assets’ and liabilities’ fair values.

Investment and mortgage-related securities:Fair values for investment and mortgage-related securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. If quoted market prices of comparable instruments are not available, fair values are derived from other valuation methodologies, including option pricing models, discounted cash flow models or similar techniques.

Loans receivable:For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for loans held for sale are based on outstanding sale commitments or quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The fair value of fixed-rate residential mortgage loans held for investment,

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commercial real estate loans, rental property mortgage loans and consumer and other loans and leases are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. For construction loans, fair values are based on carrying values due to the short-term nature of the loans.

Federal Home Loan Bank stock:The carrying amount of FHLB stock approximates its fair value as it can only be redeemed to the FHLB at its par value of $100.

Deposits:The fair values disclosed for NOW accounts, passbook accounts and variable rate insured money market accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies current incremental interest rates being offered on certificates of deposit to a schedule of aggregated expected monthly maturities of the outstanding certificates of deposit.

Other Borrowed Funds:The fair value of the Corporation’s borrowings are estimated using discounted cash flow analysis, based on the Corporation’s current incremental borrowing rates for similar types of borrowing arrangements.

Off-balance-sheet instruments:Fair values of the Corporation’s off-balance-sheet instruments (lending commitments and unused lines of credit) are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the counterparties’ credit standing and discounted cash flow analyses. The fair value of these off-balance-sheet items approximates the recorded amounts of the related fees and is not material at June 30, 2009 and March 31, 2009.

The carrying amounts and fair values of the Corporation’s financial instruments consist of the following (in thousands):

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

SFAS 157, Fair Value Measurements, (“SFAS 157”) defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies only to fair value measurements already required or permitted by other accounting standards and does not impose requirements for additional fair value measures. SFAS 157 was issued to increase consistency and comparability in reporting fair values. In February 2008, the Financial Accounting Standards Board issued Staff Position No. FAS 157-2, or FSP 157-2, which delayed the effective date of SFAS 157 for certain nonfinancial assets and nonfinancial liabilities, to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The delay was intended to

31

allow additional time to consider the effect of various implementation issues that have arisen, or that may arise, from the application of SFAS 157.

Effective January 1, 2009, the Corporation early adopted FASB FSP 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for an asset or liability have significantly decreased when compared with normal activity for an asset or liability. Reduced activity is an indication that transactions or quoted prices may not be determinative of fair value because in such market conditions there may be increased instances of transactions that are not orderly. If the reporting entity concludes that the quoted prices are not determinative of fair value, further analysis of the transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value in accordance with Statement 157.

As defined in SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining the fair value, the Corporation uses various valuation methods including market, income and cost approaches. Based on these approaches, the Corporation utilizes assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Corporation uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on observability of the inputs used in the valuation techniques, the Corporation is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

• Level 1: Valuations for assets and liabilities traded in active exchange markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

• Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or similar assets or liabilities.

• Level 3: Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets.

The Corporation adopted the provisions of SFAS 157 with respect to certain nonfinancial assets, such as other real estate owned effective April 1, 2009. The adoption did not have a material impact on the consolidated financial statements, but resulted in additional disclosures related to the fair value of nonfinancial assets.

The Corporation has identified available-for-sale securities, loans held for sale, foreclosed properties and repossessed assets and impaired loans with allocated reserves under SFAS 114 as those items requiring disclosure under SFAS 157. Management has concluded that servicing rights are not material for further consideration in relation to SFAS 157 disclosures.

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Fair Value on a Recurring Basis

The table below presents the balance of securities available-for-sale at June 30, 2009, which is measured at fair value on a recurring basis (in thousands):

	June 30, 2009		Fair Value Measurements Using
			Quoted Prices
			in Active		Significant Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Investment securities available for sale	$	51,294	$	682	$	50,612	$	—
Mortgage-related securities available for sale		493,313		—		—		493,313

Securities available-for-sale consist mainly of AAA rated US Government agency securities, with the majority having maturity dates of five years or less. The Corporation measures securities available-for-sale at fair value on a recurring basis; thus, there was no transition adjustment upon adoption of SFAS 157. The fair value of the Corporation’s securities available-for-sale are determined using Level 1 and Level 2 inputs, which are derived from readily available pricing sources and third-party pricing services for identical or comparable instruments, respectively.

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

	Mortgage-Related Securities
	Available for Sale
Balance at March 31, 2009	$	407,301
Total gains (losses) (realized/unrealized)
Included in earnings		1,426
Included in other comprehensive income		2,219
Included in earnings as other than temporary impairment		(213	)
Purchases		102,953
Securitization of mortgage loans held for sale to mortgage-related securities		48,878
Principal repayments		(28,929	)
Sales		(40,322	)
Transfers in and/or out of level 3		—
Balance at June 30, 2009	$	493,313

The purchases of securities classified as level 3 during the quarter ended June 30, 2009 included CMO’s and U.S. agency REMICS.

A pricing service was used to value our investment securities and mortgage-related securities as of June 30, 2009. Mortgage-related securities were considered a level 3 due to the fact that they were in an illiquid (i.e. inactive) market. The Corporation utilized fair value estimates obtained from an independent pricing service as of June 30, 2009 for all corporate mortgage-related securities that were rated below triple-A by at least one major rating service as of the measurement date. These estimates were determined using a discounted cash flow model in accordance with the guidance provided in FAS FSP 157-4. The significant inputs to the model include the estimated cash flows, prepayment speeds, default rates, loss severity and the discount rate.

Fair Value on a Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents such assets carried on the balance sheet by caption and by level within the SFAS 157 hierarchy as of June 30, 2009 (in thousands):

	June 30, 2009		Fair Value Measurements Using
			Quoted Prices
			in Active		Significant Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Financial Assets
Impaired loans with specific valuation allowance under SFAS 114	$	305,955	$	—	$	—	$	305,955
Loans held for sale		80,683		—		80,683		—
Non-Financial Assets
Foreclosed properties and repossessed assets		53,014		—		—		53,014

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The specific reserves for collateral dependent impaired loans are based on the fair value of the collateral less estimated costs to sell. The fair value of collateral was determined based on appraisals. In some cases, adjustments were made to the appraised values due to various factors including age of the appraisal, age of comparables included in the appraisal, and known changes in the market and in the collateral. When significant adjustments were based on unobservable inputs, the resulting fair value measurement has been categorized as a Level 3 measurement. As discussed in Note 6, only approximately 50.4% of impaired loans are based on appraisals received within one year. As a result, the Corporation has applied significant discounts to aged appraisals due to declines in current valuations for real estate collateral. Specific reserves were calculated for impaired loans with an aggregate carrying amount of $343.2 million during the quarter ended June 30, 2009. Collateral underlying these loans had a fair value of $306.0 million, less estimated costs to sell of $43.0 million, resulting in a specific reserve in the allowance for loan losses of $80.2 million.

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

Foreclosed properties and repossessed assets, upon initial recognition, are measured and reported at fair value through a charge-off to the allowance for loan losses based upon the fair value of the foreclosed asset. The fair value of foreclosed properties and repossessed assets, upon initial recognition, are estimated using Level 3 inputs based on customized discounting criteria. Foreclosed properties and repossessed assets are re-measured at fair value after initial recognition through the use of a valuation allowance on foreclosed assets.

Note 15 – Income Taxes

We have maintained significant net deferred tax assets for deductible temporary differences, the largest of which relates to our allowance for loan losses. For income tax return purposes, only net charge-offs on uncollectible loan balances are deductible, not the provision for loan losses. Under generally accepted accounting principles, a valuation allowance is required to be recognized if it is not “more likely than not” that a deferred tax asset will be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, the forecasts of future income, applicable tax planning strategies, and assessments of the current and future economic and business conditions. We consider both positive and negative evidence regarding the ultimate realizability of our deferred tax assets. Positive evidence includes the existence of taxes paid in available carryback years as well as the probability that taxable income will be generated in future periods while negative evidence includes significant losses in the current year or cumulative losses in the current and prior two years as well as general business and economic trends. At June 30, 2009 and March 31, 2009, we determined that a valuation allowance relating to a portion of our deferred tax asset was necessary. This determination was based largely on the negative evidence represented by the losses in the current and prior fiscal years caused by the significant loan loss provisions associated with our loan portfolio. In addition, general uncertainty surrounding future economic and business conditions have increased the potential volatility and uncertainty of our projected earnings. Therefore, a valuation allowance of $52.1 million at June 30, 2009 and $50.0 million at March 31, 2009 was recorded to offset net deferred tax assets that exceed the Corporation’s carryback potential.

The Corporation is subject to U.S. federal income tax as well as income tax of state jurisdictions. The tax years 2006-2008 remain open to examination by the Internal Revenue Service and certain state jurisdictions while the years 2005-2008 remain open to examination by certain other state jurisdictions.

Income tax expense decreased $3.6 million or 100.0%, during the three months ended June 30, 2009, as compared to the same period in 2008. This decrease was due to a decrease in income before income taxes, offset by the charge to taxes related to the valuation allowance against deferred tax assets. The effective tax rate was 0% for the three-month period ended June 30, 2009 due to a $4.8 million valuation allowance charge in the current quarter. This rate compared to 39.3% for the same period last year, which approximated a statutory tax rate.

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The Corporation recognizes interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2009 and March 31, 2009, the Corporation has not recognized any accrued interest and penalties related to uncertain tax positions.

Note 16 – Credit Agreement

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

The Amendment also provides that the outstanding balance under the Credit Agreement from time to time shall bear interest equal to a “Base Rate” of 8% per annum plus a “Deferred Interest Rate” initially set at 4%; provided however, that in the event (i) the outstanding balance under the Credit Agreement is repaid in full (a) by September 30, 2009, the Deferred Interest Rate shall be reduced to 0.0% or (b) by December 31, 2009, the Deferred Interest Rate shall be reduced to 1.0%, or in the alternative, (ii) the outstanding balance under the Credit Agreement is reduced by $58,000,000.00 (a) by September 30, 2009, the Deferred Interest Rate shall be reduced to 2.0% or (b) by December 31, 2009, the Deferred Interest Rate shall be reduced to 3.0%. Management is evaluating various equity raising alternatives to possibly reduces borrowings. These borrowings are shown in the Company’s financial statements as “other borrowed funds.”

The Credit Agreement is currently in for bearance until the earlier of the following: (i) the occurrence of any event of default (other than the principal reduction failure) or (ii) the maturity date.

Note 17 – Regulatory Matters

On June 26, 2009, Anchor Bancorp Wisconsin Inc. (the “Corporation”) and its wholly-owned subsidiary, Anchor Bank (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”) by the Office of Thrift Supervision (the “OTS”).

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

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

The Orders also require that, no later than September 30, 2009, the Bank meet and maintain both a core capital ratio equal to or greater than 7 percent and a total risk-based capital ratio equal to or greater than 11 percent. Further, no later than December 31, 2009, the Bank must meet and maintain both a core capital ratio equal to or greater than 8 percent and a total risk-based capital ratio equal to or greater than 12 percent. The Bank must also submit to the

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OTS, within prescribed time periods, a written capital contingency plan, a problem asset plan, a revised business plan, and an implementation plan resulting from a review of commercial lending practices. The Orders also require the Bank to review its current liquidity management policy and the adequacy of its allowance for loan and lease losses.

At June 30, 2009, the Bank, based upon presently available unaudited financial information, had a core capital ratio of 6.05 percent and a total risk-based capital ratio of 10.53 percent, each above the level needed for an institution to be categorized as well-capitalized, but below the required capital ratios set forth above. The Corporation is working with its advisors to explore possible alternatives to raise additional equity capital. If completed, any such transaction would likely result in significant dilution for the current common shareholders. No agreements have been reached with respect to any possible capital infusion transaction. If by September 30, 2009 or December 31, 2009, respectively, the Bank does not meet the required capital ratios set forth above, either through the completion of a successful capital raise or otherwise, the OTS may take additional significant regulatory action against the Bank and 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 OTS may grant extensions to the timelines established by the Orders.

The description of each of the Orders and the corresponding Stipulation and Consent to Issuance of Order to Cease and Desist (the “Stipulations”) set forth in this section is qualified in its entirety by reference to the Orders and Stipulations, copies of which are attached as Exhibits to the March 31, 2009 Annual Report on Form 10-K.

Note 18 – Subsequent Events

As of August 7, 2009, the date the financial statements are available to be issued, the following are considered significant subsequent events:

• The Corporation delivered all items required as of July 31, 2009 under the Order to Cease and Desist to the Office of Thrift Supervision.

• On August 10, 2009, the Corporation filed a pre-effective amendment on Form S-3 with the SEC, thereby amending its shelf registration statement on Form S-3 filed on October 3, 2008 which, if declared effective, would allow the Company and Anchor Capital Funding Trust I to issue equity, debt, purchase contracts, warrants, hybrid securities and trust preferred securities up to $200 million.

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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 financial condition and results of operations of Anchor Bancorp Wisconsin Inc. (the “Corporation”) and its wholly-owned subsidiaries, AnchorBank fsb (the “Bank”) and Investment Directions Inc. (“IDI”), for the three months ended June 30, 2009, which includes information on the Corporation’s 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 report.

Executive Overview

Highlights for the first quarter ended June 30, 2009 include:

• Diluted earnings per share decreased to $(0.56) for the quarter ended June 30, 2009 compared to $0.26 per share for the quarter ended June 30, 2008, primarily due to a $10.0 million increase in the provision for loan losses;

• The interest rate spread decreased to 2.06% for the quarter ended June 30, 2009 compared to 2.83% for the quarter ended June 30, 2008;

• Loans receivable decreased $250.4 million, or 6.17%, since March 31, 2009;

• Deposits and accrued interest increased $64.1 million, or 1.63%, since March 31, 2009;

• Book value per common share was $4.29 at June 30, 2009 compared to $4.81 at March 31, 2009 and $16.00 at June 30, 2008;

• Total non-performing assets (loans past due more than ninety days, non-performing real estate held for development and sale, foreclosed properties and repossessed assets) increased $17.0 million, or 8.53%, to $215.7 million at June 30, 2009 from $198.7 million at March 31, 2009, and total non-performing loans increased $16.5 million, or 11.3% to $162.7 million at June 30, 2009 from $146.2 million at March 31, 2009; and

• Net loss from the real estate investment segment was $566,000 and $632,000 for the three months ended June 30, 2009 and 2008, respectively. These losses were mainly due to the impairment of property at one of the real estate investment subsidiaries. The partnerships currently have approximately 43 single family housing units and approximately 100 individual lots for sale. Management anticipates continued lower sales activity for the remainder of the fiscal year.

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Selected quarterly data are set forth in the following tables.

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

(1)	Annualized when appropriate.
(2)	Non-performing assets consist of loans past due more than ninety days, non-performing real estate held for development and sale, foreclosed properties and repossessed assets.

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

(1)	Annualized when appropriate.
(2)	Non-performing assets consist of loans past due more than ninety days, non-performing real estate held for development and sale, foreclosed properties and repossessed assets.

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Significant Accounting Policies

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

•	Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary due to credit loss are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses on debt securities, management considers many factors which include: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. To determine if an other-than-temporary impairment exists on a debt security, the Corporation first determines if (a) it intends to sell the security or (b) it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of the conditions is met, the Corporation will recognize an other-than-temporary impairment in earnings equal to the difference between the fair value of the security and its adjusted cost. If neither of the conditions is met, the Corporation determines (a) the amount of the impairment related to credit loss and (b) the amount of the impairment due to all other factors. The difference between the present values of the cash flows expected to be collected and the amortized cost basis is the credit loss. The credit loss is the amount of the other-than-temporary impairment that is recognized in earnings and is a reduction to the cost basis of the security. The amount of total impairment related to all other factors is included in other comprehensive income (loss). If a security is impaired, and the impairment is deemed other-than-temporary and material, a write down will occur in that quarter. Management has applied EITF 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” based on the security attributes at the purchase date and then does not further evaluate. All securities were of high credit quality (i.e. rated AA or above) at the purchase date and therefore, do not fall within the scope of EITF 99-20.
•	Statement of Financial Accounting Standards (SFAS) No. 115,Accounting for Certain Investments in Debt and Equity Securities, requires that available-for-sale securities be carried at fair value. Management determines fair value based on quoted market prices of identical assets in active markets or by other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques. Adjustments to the available-for-sale securities fair value impact the consolidated financial statements by increasing or decreasing assets and stockholders’ equity, and possibly net income as discussed in the preceding paragraph.
•	The allowance for loan losses is a valuation allowance for probable losses incurred in the loan portfolio. Our allowance for loan loss methodology incorporates a variety of risk considerations in establishing an allowance for loan losses that we believe is adequate to absorb probable losses in the existing portfolio. Such analysis addresses our historical loss experience, delinquency and charge-off trends, collateral values, changes in non-performing loans, economic conditions, peer group experience and other considerations. This information is then analyzed to determine “estimated loss factors” which, in turn, is assigned to each loan category. These factors also incorporate known information about individual loans, including the borrowers’ sensitivity to interest rate movements. Changes in the factors themselves are driven by perceived risk in pools of homogenous loans classified by collateral type, purpose and term. Management monitors local trends to anticipate probable delinquency on a quarterly basis.
	Our primary lending emphasis is commercial real estate loans, construction loans and land acquisition and development loans for both residential and commercial projects. We also have a concentration of loans secured by real property located in Wisconsin. Based on the composition of our loan portfolio and the growth in our loan portfolio, we believe the primary risks inherent in our portfolio are increases in interest rates, a decline in the economy, generally, and a decline in real estate market values. Any one or a combination of these events may adversely affect our loan portfolio resulting in increased delinquencies, loan losses and future levels of provisions. We consider it important to maintain the ratio of our allowance

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	for loan losses to total loans at an acceptable level given current economic conditions, interest rates and the composition of our portfolio.
	The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. Provisions for loan losses are made on both a specific and general basis. Specific allowances are provided on impaired credits pursuant to SFAS No. 114 “Accounting by Creditors for Impairment of a Loan.” The general component of the allowance for loan losses is based on historical loss experience and adjusted for qualitative and environmental factors pursuant to SFAS No. 5 “Accounting for Contingencies” and other related regulatory guidance. At least quarterly, we review the assumptions and formulas related to our general valuation allowances in an effort to update and to refine our allowance for loan losses in light of the various factors described above. In the event that our residential construction and land portfolio continues to experience deterioration in estimated collateral values, we may have to further adjust and discount the appraised values for the collateral underlying the loans in that portfolio, which could result in significant increases to our provision for loan losses.
	We consider the ratio of the allowance for loan losses to total loans at June 30, 2009 to be at an acceptable level. Although we believe that we have established and maintained the allowance for loan losses at adequate levels, additions may be necessary if future economic and other conditions differ substantially from the current operating environment. Although management uses the best information available, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change.
•	Valuation of mortgage servicing rights. Mortgage servicing rights are established on loans that are originated and subsequently sold. A portion of the loan’s book basis is allocated to mortgage servicing rights when a loan is sold. The fair value of mortgage servicing rights is the present value of estimated future net cash flows from the servicing relationship using current market participant assumptions for prepayments, servicing costs and other factors. As the loans are repaid and net servicing revenue is earned, mortgage servicing rights are amortized into expense. Net servicing revenues are expected to exceed this amortization expense. However, if actual prepayment experience exceeds what was originally anticipated, net servicing revenues may be less than expected and mortgage servicing rights may be impaired. Mortgage servicing rights are carried at the lower of cost or fair value.
•	The Corporation accounts for federal income taxes in accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes.” Pursuant to the provisions of SFAS No. 109, a deferred tax liability or deferred tax asset is computed by applying the current statutory tax rates to net taxable or deductible differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements that will result in taxable or deductible amounts in future periods. Deferred tax assets are recorded only to the extent that the amount of net deductible temporary differences or carryforward attributes may be utilized against current period earnings, carried back against prior years’ earnings, offset against taxable temporary differences reversing in future periods, or utilized to the extent of management’s estimate of future taxable income. A valuation allowance is provided for deferred tax assets to the extent that the value of net deductible temporary differences and carryforward attributes exceeds management’s estimates of taxes payable on future taxable income. Deferred tax liabilities are provided on the total amount of net temporary differences taxable in the future.

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RESULTS OF OPERATIONS

General. Net income for the three months ended June 30, 2009 decreased $17.3 million or 313.2% to a net loss of $11.8 million from net income of $5.5 million as compared to the same respective period in the prior year. The decrease in net income for the three-month period compared to the same period last year was largely due to an increase in non-interest expense of $10.9 million, an increase in provision for loan losses of $10.0 million and a decrease in net interest income of $7.7 million, which were partially offset by an increase in non-interest income of $7.8 million and a decrease in income tax expense of $3.6 million. To the extent available, sources of taxable income, including those available from prior years’ under tax regulations, are deemed per GAAP to be insufficient to absorb tax losses, and a valuation allowance is therefore necessary.

Net Interest Income. Net interest income decreased $7.7 million or 23.1% for the three months ended June 30, 2009 as compared to the same respective period in the prior year. Interest income decreased $9.9 million or 14.1% for the three months ended June 30, 2009 as compared to the same period in the prior year. Interest expense decreased $2.2 million or 5.9% for the three months ended June 30, 2009 as compared to the same period in the prior year. The net interest margin decreased to 2.05% for the three-month period ended June 30, 2009 from 2.87% for the three-month period ended June 30, 2008. The change in the net interest margin reflects the decrease in yield on interest-earning assets from 6.05% to 4.83% during the three months ended June 30, 2009 and 2008, respectively. The decrease in the yield on interest-earning assets is primarily the result of the reversal of interest income on nonaccrual loans as well as the decline in interest rates. The interest rate spread decreased to 2.06% from 2.83% for the three-month period ended June 30, 2009 as compared to the same respective period in the prior year.

Interest income on loans decreased $11.4 million or 17.4%, for the three months ended June 30, 2009, as compared to the same respective period in the prior year. This decrease was primarily attributable to a decrease of 85 basis points in the average yield on loans to 5.44% from 6.29% for the three-month period. The decrease in the yield on loans was due to the level of loans on nonaccrual status as well as a modest decline in rates on loans. In addition, the average balance of loans decreased $193.0 million in the three months ended June 30, 2009, as compared to the same period in the prior year.

Interest income on mortgage-related securities increased $1.9 million or 52.0% for the three-month period ended June 30, 2009, as compared to the same respective period in the prior year, primarily due to an increase of $144.5 million in the three-month average balance of mortgage-related securities. The increase in the average balance of mortgage-related securities is due to the purchase of securities (all of which were rated AAA) at a significant discount. This increase was offset by a decrease of 2 basis points in the average yield on mortgage-related securities to 5.33% from 5.35% for the three-month period. Interest income on investment securities (including Federal Home Loan Bank stock) decreased $329,000 or 41.1%, for the three-month period ended June 30, 2009 as compared to the same respective periods in the prior year. The decrease for the three-month period was due to a decrease in the average balances. Interest income on interest-bearing deposits decreased $59,000, for the three months ended June 30, 2009 as compared to the same respective period in 2008, primarily due to decreases in the average yields for the three-month period offset by an increase in the average balance.

Interest expense on deposits decreased $2.7 million or 10.1% for the three months ended June 30, 2009, as compared to the same respective period in 2008. This decrease was primarily attributable to a decrease of 67 basis points in the weighted average cost of deposits to 2.43% from 3.10% for the three months ended June 30, 2009, as compared to the same respective period in the prior year, partially offset by an increase in the average balance of deposits of $512.7 million for the respective three-month period. The decrease in the cost of deposits was due to the fact that certificates are repricing at lower rates and interest rates on demand deposits have declined. Interest expense on borrowed funds increased $522,000 or 5.1% during the three months ended June 30, 2009, as compared to the same respective period in the prior year. For the three-month period ended June 30, 2009, the average balance of other borrowed funds decreased $82.1 million, as compared to the same respective period in 2008. The weighted average cost of other borrowed funds increased 48 basis points to 4.06% from 3.58% for the three-month period ended June 30, 2009, respectively, as compared to the same respective period last year.

Provision for Loan Losses. Provision for loan losses increased $10.0 million or 106.4% for the three-month period ended June 30, 2009, as compared to the same respective period last year. Management evaluates a variety of qualitative and quantitative factors when determining the adequacy of the allowance for losses. Management continues to evaluate and monitor the individual borrowers and underlying collateral as it relates to the current

43

economic conditions. Due to recent increased charge-offs, increases in delinquent loans, non-accrual loans (as discussed under “Asset Quality” below), impaired loans and an increase in loans moved to REO management determined that increased provisions for loan losses were appropriate to reflect the risks inherent in the various lending portfolios during the current period. The provisions were based on management’s ongoing evaluation of asset quality and pursuant to a policy to maintain an allowance for losses at a level which management believes is adequate to absorb probable losses on loans as of the balance sheet date.

Average Interest-Earning Assets, Average Interest-Bearing Liabilities and Interest Rate Spread. The table on the following page shows the Corporation’s average balances, interest, average rates, net interest margin and interest rate spread for the periods indicated. The average balances are derived from average daily balances.

44

	Three Months Ended June 30,
	2009								2008
						Average							Average
	Average					Yield/			Average				Yield/
	Balance			Interest		Cost(1)			Balance		Interest		Cost(1)
	(Dollars In Thousands)
Interest-Earning Assets
Mortgage loans	$	2,972,480		$	40,582		5.46	%	$	3,186,986	$	49,613		6.23	%
Consumer loans		802,808			10,747		5.35			728,714		12,149		6.67
Commercial business loans		213,646			2,944		5.51			266,278		3,949		5.93
Total loans receivable(2) (3)		3,988,934			54,273		5.44			4,181,978		65,711		6.29
Mortgage-related securities(4)		418,587			5,576		5.33			274,105		3,669		5.35
Investment securities(4)		66,951			471		2.81			89,338		800		3.58
Interest-bearing deposits		483,263			269		0.22			62,141		328		2.11
Federal Home Loan Bank stock		54,829			—		0.00			54,829		—		0.00
Total interest-earning assets		5,012,564			60,589		4.83			4,662,391		70,508		6.05
Non-interest-earning assets		289,249								331,141
Total assets	$	5,301,813							$	4,993,532
Interest-Bearing Liabilities
Demand deposits	$	944,120			1,366		0.58		$	1,096,070		3,259		1.19
Regular passbook savings		240,204			165		0.27			228,126		266		0.47
Certificates of deposit		2,792,135			22,602		3.24			2,139,524		23,317		4.36
Total deposits		3,976,459			24,133		2.43			3,463,720		26,842		3.10
Other borrowed funds		1,061,545			10,767		4.06			1,143,614		10,245		3.58
Total interest-bearing liabilities		5,038,004			34,900		2.77			4,607,334		37,087		3.22
Non-interest-bearing liabilities		51,382								40,308
Total liabilities		5,089,386								4,647,642
Stockholders’ equity		212,427								345,890
Total liabilities and stockholders’ equity	$	5,301,813							$	4,993,532
Net interest income/interest rate spread(5)				$	25,689		2.06	%			$	33,421		2.83	%
Net interest-earning assets	$	(25,440	)						$	55,057
Net interest margin(6)							2.05	%						2.87	%
Ratio of average interest-earning assets to average interest-bearing liabilities		0.99								1.01

(1)	Annualized
(2)	For the purpose of these computations, non-accrual loans are included in the daily average loan amounts outstanding.
(3)	Interest earned on loans includes loan fees (which are not material in amount) and interest income which has been received from borrowers whose loans were removed from non-accrual status during the period indicated.
(4)	Average balances of securities available-for-sale are based on amortized cost.
(5)	Interest rate spread represents the difference between the weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities and is represented on a fully tax equivalent basis.
(6)	Net interest margin represents net interest income as a percentage of average interest-earning assets.

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Non-Interest Income. Non-interest income increased $7.8 million or 65.6% to $19.6 million for the three months ended June 30, 2009, as compared to $11.8 million for the same respective period in 2008. The increase for the three-month period ended June 30, 2009 was primarily due to the increase in net gain on sale of loans of $9.2 million due to an increase in refinancing activity. In addition, net gain on investments and mortgage-related securities increased $1.5 million as a result of the gain on sale of agency securities. These increases were partially offset by a decrease in loan servicing income of $1.4 million due to increased amortization of mortgage servicing rights, a decrease in other revenue from real estate partnership operations of $562,000, a decrease in investment and insurance commissions of $377,000, a decrease in other non-interest income of $309,000 and an increase in net impairment losses recognized in earnings of $213,000 for the three-month period ended June 30, 2009, as compared to the same respective period in the prior year.

Non-Interest Expense. Non-interest expense increased $10.9 million or 40.7% to $37.7 million for the three months ended June 30, 2009, as compared to $26.8 million for the same respective period in 2008. The increase for the three-month period was primarily the result of the impairment of foreclosure cost advances in the amount of $3.7 million due to the fact that previously capitalized foreclosure cost advances were deemed unrecoverable. In addition, loan fees increased $3.5 million due to additional fees paid on the borrowings of the holding company, federal insurance premiums increased $3.3 million mainly due to a special assessment, compensation expense increased $983,000 mainly due to increased mortgage incentives, net expense from REO operations increased $877,000 due to additional write downs, other non-interest expense increased $791,000 and data processing expense increased $120,000. These increases were partially offset by a recovery of mortgage servicing rights impairment of $1.3 million due to the fact that prepayment speeds were reduced as the result of rising interest rates and less refinancing activity, a decrease in other expense from real estate partnership operations of $740,000 due to decreased activity at the partnership level and a decrease in marketing expense of $214,000 for the three months ended June 30, 2009 as compared to the same period in the prior year.

Income Taxes. The Corporation adopted the provisions of FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” on April 1, 2007. As a result of the implementation of FIN 48, there were no adjustments in the liability for unrecognized income tax benefits.

The Corporation recognizes interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2009, the Corporation has not recognized any accrued interest and penalties related to uncertain tax positions.

The Corporation is subject to U.S. federal income tax as well as income tax of state jurisdictions. The tax years 2005-2008 remain open to examination by the U.S. federal and state jurisdictions to which we are subject.

Income tax expense decreased $3.6 million or 100.0% during the three months ended June 30, 2009, as compared to the same respective period in 2008. This decrease was due to a decrease in income before income taxes, offset by the charge to taxes related to the valuation allowance against deferred tax assets. The effective tax rate was 0% for the three month period ended June 30, 2009 due to the $4.8 million valuation allowance charge. To the extent available, sources of taxable income, including those available from prior years’ under tax regulations, are deemed per GAAP to be insufficient to absorb tax losses, and a valuation allowance is therefore necessary. This rate compared to 39.3% for the same period last year, which approximated a statutory tax rate.

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FINANCIAL CONDITION

During the three months ended June 30, 2009, the Corporation’s assets increased by $19.6 million from $5.27 billion at March 31, 2009 to $5.29 billion at June 30, 2009. The majority of this increase was attributable to a $210.5 million increase in cash and cash equivalents and an $86.0 million increase in mortgage-related securities available for sale, which were partially offset by a decrease of $250.4 million loans receivable as well as a decrease of $26.4 million in investment securities available for sale.

Total loans (including loans held for sale) decreased $250.4 million during the three months ended June 30, 2009. Activity for the period consisted of (i) sales of one to four family loans to the Federal Home Loan Bank of $694.9 million, (ii) principal repayments and other adjustments (the majority of which are undisbursed loan proceeds) of $248.7 million, (iii) the securitization of mortgage loans held for sale to mortgage-backed securities of $48.9 million, (iv) transfer to foreclosed properties and repossessed assets of $9.0 million and (v) originations and purchases of $751.1 million.

Mortgage-related securities (both available for sale and held to maturity) increased $86.0 million during the three months ended June 30, 2009 as a result of purchases of $103.0 million, the securitization of mortgage loans held for sale to mortgage-backed securities of $48.9 million and market value adjustments of $2.0 million, which were partially offset by sales of $40.3 million and principal repayments of $28.9 million in this period. Mortgage-related securities consisted of $173.2 million of mortgage-backed securities and $320.1 million of corporate collateralized mortgage obligations (“CMOs”) and real estate mortgage investment conduits (“REMICs”) issued by government agencies at June 30, 2009.

The Corporation’s CMOs and REMICs have interest rate risk due to, among other things, actual prepayments being more or less than those predicted at the time of purchase. The majority of the Corporation’s CMO’s and REMICs are rated AA or above. The Corporation invests only in short-term tranches in order to limit the reinvestment risk associated with greater than anticipated prepayments, as well as changes in value resulting from changes in interest rates.

A collateralized debt obligation (“CDO’s”) is a type of asset-backed security and structured credit product which gains exposure to the credit of a portfolio of fixed-income assets and divides the credit risk among different tranches. The investment portfolio of the Corporation does not contain any CDO’s.

Investment securities decreased $26.4 million during the three months ended June 30, 2009 as a result of sales, maturities, amortization and market value adjustments of $39.9 million of U.S. Government and agency securities, which were partially offset by purchases of $13.5 million of such securities.

Federal Home Loan Bank (“FHLB”) stock remained constant during the three months ended June 30, 2009. The Corporation views its investment in the FHLB stock as a long-term investment. Accordingly, when evaluating for impairment, the value is determined based on the ultimate recovery of the par value rather than recognizing temporary declines in value. The determination of whether a decline affects the ultimate recovery is influenced by criteria such as: 1) the significance of the decline in net assets of the FHLBs as compared to the capital stock amount and length of time a decline has persisted; 2) impact of legislative and regulatory changes on the FHLB and 3) the liquidity position of the FHLB.

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

47

resulting from credit deterioration on the MBS increases significantly and 3) capital preservation strategies being utilized by the FHLB become ineffective.

Foreclosed properties and repossessed assets increased $451,000 to $53.0 million at June 30, 2009 from $52.6 million at March 31, 2009 due to the current state of the economy.

Deferred tax asset increased $48,000 to $16.3 million at June 30, 2009 from $16.2 million at March 31, 2009 due to the net loss and the increase in the allowance for loan losses. An allowance of $4.8 million was placed on the deferred tax asset during the quarter ended June 30, 2009. To the extent available, sources of taxable income, including those available from prior years’ under tax regulations, are deemed per GAAP to be insufficient to absorb tax losses, and a valuation allowance is therefore necessary. There is a potential recovery of the deferred asset valuation allowance if the Corporation has taxable income in future years. This recovery would decrease future tax expense.

Total liabilities increased $30.8 million during the three months ended June 30, 2009. This increase was largely due to a $64.1 million increase in deposits and accrued interest and a $4.1 million increase in other liabilities which were partially offset by a $37.3 million decrease in other borrowed funds. Brokered deposits have been used in the past and may be used in the future as the need for funds requires them. Brokered deposits totaled $389.8 million or approximately 9.8% of total deposits June 30, 2009 and $457.3 million at March 31, 2009, and generally mature within one to five years.

Stockholders’ equity decreased $11.1 million during the three months ended June 30, 2009 as a net result of (i) comprehensive loss of $9.8 million and (ii) accrual of dividends on preferred stock of $1.4 million. These decreases were partially offset by (i) the issuance of shares for management and benefit plans of $1,000.

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ASSET QUALITY

Non-performing assets (consisting of loans past due more than 90 days, non-performing real estate held for development and sale, foreclosed properties and repossessed assets) increased $17.0 million to $215.7 million at June 30, 2009 from $198.7 million at March 31, 2009 and increased as a percentage of total assets to 4.07% from 3.77% at such dates, respectively.

The composition of non-performing assts are summarized as follows for the dates indicated:

	June 30, 2009								March 31, 2009
	Non-Performing					Percent of			Non-Performing					Percent of
	Balance		%			Total Loans			Balance		%			Total Loans
						(Dollars in Thousands)
Single-family residential	$	24,143		14.8	%		0.62	%	$	19,753		13.5	%		0.48	%
Multi-family residential		17,598		10.8	%		0.45	%		17,796		12.2	%		0.43	%
Commercial real estate		52,781		32.5	%		1.35	%		40,298		27.6	%		0.98	%
Construction and land		54,507		33.5	%		1.40	%		54,492		37.3	%		1.33	%
Consumer		4,027		2.5	%		0.10	%		3,336		2.3	%		0.08	%
Commercial business		9,594		5.9	%		0.25	%		10,476		7.2	%		0.25	%
Total Non-Performing Loans	$	162,650		100.0	%		4.17	%	$	146,151		100.0	%		3.56	%

	At June 30,			At March 31,
	2009			2009
	(Dollars in thousands)
Total non-performing loans	$	162,650		$	146,151
Other real estate owned (OREO)		53,014			52,563
Total non-performing assets	$	215,664		$	198,714
Performing troubled debt restructurings	$	159,538		$	61,460
Total nonaccrual loans to total loans(1)		4.17	%		3.56	%
Total nonperforming assets to total assets		4.07			3.77
Allowance for loan losses to total loans(1)		3.63			3.34
Allowance for loan losses to total non-accrual loans		86.92			93.85
Allowance for loan and foreclosure losses to total non-performing assets		69.28			73.48

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

Non-performing loans consist of loans past due more than 90 days. Non-performing loans increased $16.5 million during the three months ended June 30, 2009. The increase in non-performing loans at June 30, 2009 was the result of an increase of $12.5 million in non-performing commercial real estate loans and an increase of $4.4 million in non-performing single-family residential loans. This increase reflects the slow-down of the overall economy, including the housing market. Loans are placed on non-accrual status when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual. When a loan is placed on non-accrual status, previously accrued but unpaid interest is reversed against interest income. As a matter of policy, the Corporation does not accrue interest on loans past due more than 90 days.

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Foreclosed properties and repossessed assets (also known as other real estate owned or OREO) increased $451,000 during the three months ended June 30, 2009. Properties included in OREO at June 30, 2009 with a recorded balance in excess of $1 million are listed below:

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

Some properties are in OREO under reorganization terms. Therefore, the appraisal received at the time the loan was made is no longer considered applicable. The property was transferred to OREO based upon a discounted cash flow of the property upon completion of the project.

On a quarterly basis, the Corporation reviews its list prices of its OREO properties and makes appropriate adjustments based on market analysis by its brokers. The valuation allowance on OREO is due to the age of appraisals and the slow housing market.

At June 30, 2009 assets that the Corporation had classified as substandard consisted of $557.7 million of loans and foreclosed properties. At the same date, specific reserves on these assets in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan” were $80.2 million and $513.0 million of such assets are considered impaired. At March 31, 2009, substandard assets amounted to $504.5 million ($488.4 million of which are considered impaired). An asset is classified as substandard when it is determined that it is inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any, and that the Corporation will sustain some loss if the deficiencies are not corrected.

At June 30, 2009, the Corporation had $513.0 million of impaired loans. At March 31, 2009, impaired loans were $488.4 million. A loan is defined as impaired when, according to FAS 114, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. A summary of the details regarding impaired loans follows:

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	At June 30,			At March 31,
	2009			2009			2008			2007
	(In Thousands)
Impaired loans with valuation reserve required	$	343,236		$	294,736		$	52,866		$	2,130
Impaired loans without a specific reserve		169,802			193,637			51,192			45,718
Total impaired loans		513,038			488,373			104,058			47,848
Less:
Specific valuation allowance		(80,185	)		(73,255	)		(17,639	)		(517	)
	$	432,853		$	415,118		$	86,419		$	47,331
Average impaired loans	$	328,830		$	247,034		$	67,138		$	26,458
Interest income recognized on impaired loans	$	4,123		$	21,637		$	107		$	44
Loans on nonaccrual status	$	513,038		$	488,373		$	101,241		$	47,040
Loans past due ninety days or more and still accruing	$	—		$	—		$	—		$	—
Performing troubled debt restructurings	$	159,538		$	61,460		$	400		$	400

The following table sets forth information relating to the Corporation’s loans that were less than 90 days delinquent at the dates indicated.

	At June 30,		At March 31,
	2009		2009		2008		2007
	(In Thousands)
30 to 59 days	$	48,620	$	64,862	$	66,617	$	12,776
60 to 89 days		36,345		29,858		12,928		5,414
Total	$	84,965	$	94,720	$	79,545	$	18,190

Management continues to evaluate and monitor the individual borrowers and underlying collateral as it relates to the current economic conditions.

The Corporation’s loan portfolio, foreclosed properties and repossessed assets are evaluated on a continuing basis to determine the necessity for additions and recaptures to the allowance for loan losses and the related adequacy of the balance in the allowance for loan losses account. These evaluations consider several factors, including, but not limited to, general economic conditions, loan portfolio composition, loan delinquencies, prior loss experience, collateral value, anticipated loss of interest and management’s estimation of future losses. The evaluation of the allowance for loan losses includes a review of known loan problems as well as inherent problems based upon historical trends and ratios. Foreclosed properties are recorded at the lower of carrying value or fair value with charge-offs, if any, charged to the allowance for loan losses prior to transfer to foreclosed property. The fair value is primarily based on appraisals, discounted cash flow analysis (the majority of which is based on current occupancy and lease rates) and pending offers.

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

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

Although management believes that the June 30, 2009 allowance for loan losses is adequate based upon the current evaluation of loan delinquencies, non-performing assets, charge-off trends, economic conditions and other factors, there can be no assurance that future adjustments to the allowance, through increased provision for loan losses, will not be necessary. Any such increases could adversely affect the Corporation’s results of operations. Management also continues to pursue all practical and legal methods of collection, repossession and disposal, and adheres to high underwriting standards in the origination process in order to continue to maintain strong asset quality.

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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. The Bank’s primary sources of funds are payments on loans and securities, deposits from retail and wholesale sources, FHLB advances and other borrowings. We use brokered CDs, which are rate sensitive. We also rely on advances from the FHLB of Chicago as a funding source. We have also been granted access to the Fed fund line with a correspondent bank as well as the Federal Reserve Bank of Chicago’s discount window, none of which had been borrowed as of June 30, 2009. In addition as of June 30, 2009, the Corporation had outstanding borrowings from the FHLB of $849.7 million, out of our maximum borrowing capacity of $1.10 billion, from the FHLB at this time.

At June 30, 2009, the Bank had outstanding commitments to originate loans of $25.0 million and commitments to extend funds to, or on behalf of, customers pursuant to lines and letters of credit of $273.4 million. Scheduled maturities of certificates of deposit for the Bank during the twelve months following June 30, 2009 amounted to $1.87 billion. Scheduled maturities of borrowings during the same period totaled $380.7 million for the Bank and $116.3 million for the Corporation. Management believes adequate resources are available to fund all commitments to the extent required.

The Corporation previously participated in the Mortgage Partnership Finance Program of the FHLB. Pursuant to the credit enhancement feature of that Program, the Corporation has retained a secondary credit loss exposure in the amount of $23.5 million at June 30, 2009 related to approximately $1.14 billion of residential mortgage loans that the Corporation has originated as agent for the FHLB. Under the credit enhancement, the FHLB is liable for losses on loans up to one percent of the original delivered loan balances in each pool. The Corporation is then liable for losses over and above the first position up to a contractually agreed-upon maximum amount in each pool that was delivered to the Program. The Corporation receives a monthly fee for this credit enhancement obligation based on the outstanding loan balances. Based on historical experience, the Corporation does not anticipate that any credit losses will be incurred under the credit enhancement obligation. The program was discontinued in 2008 in its present format and the Corporation no longer funds loans through the MPF program.

Under federal law and regulation, the Bank is required to meet certain tangible, core and risk-based capital requirements. Tangible capital generally consists of stockholders’ equity minus certain intangible assets. Core capital generally consists of tangible capital plus qualifying intangible assets. The risk-based capital requirements presently address credit risk related to both recorded and off-balance sheet commitments and obligations. The OTS requirement for the core capital ratio for the Bank is currently 3.00%. The requirement is 4.00% for all but the most highly-rated financial institutions.

Our ability to meet our short-term liquidity and capital resource requirements may be subject to our ability to obtain additional debt financing and equity capital. We may increase our 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. Through participation in the CPP, on January 30, 2009 we issued and sold preferred shares and warrants to the U.S. Department of the Treasury.

Credit Agreement

Effective May 29, 2009 we entered into Amendment No. 4, or the “Amendment,” to the Amended and Restated Credit Agreement, dated as of June 9, 2008, the “Credit Agreement,”, among Anchor BanCorp, the lenders from time to time a party thereto, and U.S. Bank National Association, as administrative agent for such lenders, or the “Agent.” The Amendment provides that the Corporation must pay in full the outstanding balance under the Credit Agreement on the earlier of the Corporation’s receipt of net proceeds of a financing transaction from the sale of equity securities in an amount not less than $116,300,000 or May 31, 2010. Management is evaluating various equity raising alternatives to possibly reduces borrowings.

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The Amendment also provides that the outstanding balance under the Credit Agreement from time to time shall bear interest equal to a “Base Rate” of 8% per annum plus a “Deferred Interest Rate” initially set at 4%; provided however, that in the event (i) the outstanding balance under the Credit Agreement is repaid in full (a) by September 30, 2009, the Deferred Interest Rate shall be reduced to 0.0% or (b) by December 31, 2009, the Deferred Interest Rate shall be reduced to 1.0%, or in the alternative, (ii) the outstanding balance under the Credit Agreement is reduced by $58,000,000.00 (a) by September 30, 2009, the Deferred Interest Rate shall be reduced to 2.0% or (b) by December 31, 2009, the Deferred Interest Rate shall be reduced to 3.0%. These borrowings are shown in the Corporation’s financial statements as “other borrowed funds.”

The following summarizes the Bank’s capital levels and ratios and the levels and ratios required by the OTS at June 30, 2009 and March 31, 2009:

											Minimum Required
						Minimum Required					to be Well
						For Capital					Capitalized Under
	Actual					Adequacy Purposes					OTS Requirements
	Amount		Ratio			Amount		Ratio			Amount		Ratio
						(Dollars In Thousands)
At June 30, 2009:
Tier 1 capital
(to adjusted tangible assets)	$	319,363		6.05	%	$	158,419		3.00	%	$	264,032		5.00	%
Risk-based capital
(to risk-based assets)		363,736		10.53			276,226		8.00			345,283		10.00
Tangible capital
(to tangible assets)		319,363		6.05			79,210		1.50			N/A		N/A
At March 31, 2009:
Tier 1 capital
(to adjusted tangible assets)	$	324,130		6.17	%	$	157,527		3.00	%	$	262,545		5.00	%
Risk-based capital
(to risk-based assets)		370,680		10.20			290,670		8.00			363,338		10.00
Tangible capital
(to tangible assets)		324,130		6.17			78,763		1.50			N/A		N/A

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The following table reconciles the Bank’s stockholders’ equity to regulatory capital at June 30, 2009 and March 31, 2009:

	June 30,			March 31,
	2009			2009
	(In Thousands)
Stockholders’ equity of the Bank	$	319,561		$	322,505
Less: Goodwill and intangible assets		(4,567	)		(4,725	)
Accumulated other comprehensive income		4,369			6,350
Tier 1 and tangible capital		319,363			324,130
Plus: Allowable general valuation allowances		44,373			46,550
Risk-based capital	$	363,736		$	370,680

GUARANTEES

Financial Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others” (“FIN 45”) requires certain guarantees to be recorded at fair value as a liability at inception and when a loss is probable and reasonably estimatable, as those terms are defined in FASB Statement No. 5 “Accounting for Contingencies.” The recording of the outstanding liability in accordance with FIN 46 has not significantly affected the Corporation’s financial condition.

The Corporation’s consolidated real estate investment subsidiary, IDI, is required to guarantee the partnership loans of its consolidated subsidiaries for the development of homes for sale. At June 30, 2009, IDI had guaranteed $16.5 million of loans to partnerships made by consolidated subsidiaries of IDI. At the same date, $14.8 million of such loans were outstanding. The table below summarizes the individual subsidiaries and their respective guarantees and outstanding loan balances.

				Amount		Amount
Subsidiary	Partnership	Amount		Outstanding		Outstanding
of IDI	Entity	Guaranteed		at 6/30/09		at 3/31/09
	(Dollars in thousands)
Oakmont	Chandler Creek	$	—	$	—	$	—
Davsha III	Indian Palms 147, LLC		1,000		483		476
Davsha V	Villa Santa Rosa, LLC		500		351		346
Davsha VII	La Vista Grande 121, LLC		15,000		13,988		13,742
Total		$	16,500	$	14,822	$	14,564

IDI has real estate partnership investments within its consolidated subsidiaries for which it guarantees the above loans. These partnerships are also funded by financing with loans guaranteed by IDI and secured by the lots and homes being developed within each of the respective partnership entities.

As a limited partner, the Corporation still has the ability to exercise significant influence over operating and financial policies. This influence is evident in the terms of the respective partnership agreements and participation

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in policy-making processes. The Corporation has a 50% controlling interest in the respective limited partnerships and therefore has significant influence over the right to approve the sale or refinancing of assets of the respective partnerships in accordance with those partnership agreements.

As a partner with a controlling interest, the Corporation is committed to providing additional levels of funding to meet partnership operating deficits up to an aggregate amount of $16.5 million. At June 30, 2009, the Corporation’s investment in these consolidated partnerships consisted of assets of $21.8 million which includes cash and other assets of $2.0 million. The liabilities of these partnerships consisted of other borrowings of $15.0 million (reported as a part of FHLB and other borrowings), other liabilities of $577,000 (reported as a part of other liabilities) and minority interest of $326,000. These amounts represent the Corporation’s maximum exposure to loss at June 30, 2009 as a result of its interest in these limited partnerships.

The partnership agreements generally contain buy-sell provisions whereby certain partners can require the purchase or sale of ownership interests by certain partners.

ASSET/LIABILITY MANAGEMENT

The primary function of asset and liability management is to provide liquidity and maintain an appropriate balance between interest-earning assets and interest-bearing liabilities within specified maturities and/or repricing dates. Interest rate risk is the imbalance between interest-earning assets and interest-bearing liabilities at a given maturity or repricing date, and is commonly referred to as the interest rate gap (the “gap”). A positive gap exists when there are more assets than liabilities maturing or repricing within the same time frame. A negative gap occurs when there are more liabilities than assets maturing or repricing within the same time frame. During a period of rising interest rates, a negative gap over a particular period would tend to adversely affect net interest income over such period, while a positive gap over a particular period would tend to result in an increase in net interest income over such period.

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

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

The calculation of a gap position requires management to make a number of assumptions as to when an asset or liability will reprice or mature. Management believes that its assumptions approximate actual experience and considers them reasonable, although the actual amortization and repayment of assets and liabilities may vary substantially. The Corporation’s cumulative net gap position at June 30, 2009 has not changed significantly since March 31, 2009. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Asset/Liability Management” in the Corporation’s Annual Report on Form 10-K for the year ended March 31, 2009.

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REGULATORY DEVELOPMENTS

Temporary Liquidity Guarantee Program

In October 2008, the Secretary of the United States Department of the Treasury invoked the systemic risk exception of the FDIC Improvement Act of 1991 and the FDIC announced the Temporary Liquidity Guarantee Program (the “TLGP”). The TLGP provides a guarantee, through the earlier of maturity or June 30, 2012, of certain senior unsecured debt issued by participating Eligible Entities (including the Corporation) between October 14, 2008 and June 30, 2009. The maximum amount of FDIC-guaranteed debt a participating Eligible Entity (including the Corporation) may have outstanding is 125% of the entity’s senior unsecured debt that was outstanding as of September 30, 2008 that was scheduled to mature on or before June 30, 2009. The ability of Eligible Entities (including the Corporation) to issue guaranteed debt under this program is scheduled to expire on June 30, 2009. As of June 30, 2009, the Corporation had no senior unsecured debt outstanding under the TLGP. The Corporation and the Bank signed a master agreement with the FDIC on December 5, 2008 for issuance of bonds under the program. The Corporation does not have any unsecured debt, thus must file for an exemption to be able to issue bonds under this program. The Bank is eligible to issue up to $88.0 million as of June 30, 2009. No bonds were issued as of June 30, 2009.

Emergency Economic Stabilization Act of 2008

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

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

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

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

The American Recovery and Reinvestment Act of 2009

On February 17, 2009, President Obama signed The American Recovery and Reinvestment Act of 2009 (“ARRA”) into law. The ARRA is intended to revive the US economy by creating millions of new jobs and stemming home foreclosures. For financial institutions that have received or will receive financial assistance under TARP or related programs, the ARRA significantly rewrites the original executive compensation and corporate governance provisions of Section 111 of the EESA. Among the most important changes instituted by the ARRA are new limits

57

on the ability of TARP recipients to pay incentive compensation to up to 20 of the next most highly-compensated employees in addition to the “senior executive officers,” a restriction on termination of employment payments to senior executive officers and the five next most highly-compensated employees and a requirement that TARP recipients implement “say on pay” shareholder votes. Further legislation is anticipated to be passed with respect to the economic recovery.

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

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

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

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

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

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

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

OTS Order to Cease and Desist

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”) by the Office of Thrift Supervision (the “OTS”).

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

The Bank Order requires that the Bank notify, or in certain cases receive the permission of, the OTS prior to (i) increasing its total assets in any quarter in excess of an amount equal to net interest credited on deposit liabilities during the quarter; (ii) accepting, rolling over or renewing any brokered deposits; (iii) making certain changes to its

58

directors or senior executive officers; (iv) entering into, renewing, extending or revising any contractual arrangement related to compensation or benefits with any of its directors or senior executive officers; (v) making any golden parachute or prohibited indemnification payments; (vi) paying dividends or making other capital distributions on its capital stock; (vii) entering into certain transactions with affiliates; and (viii) entering into third-party contracts outside the normal course of business.

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

At June 30, 2009, the Bank, based upon presently available unaudited financial information, had a core capital ratio of 6.05 percent and a total risk-based capital ratio of 10.53 percent, each above the level needed for an institution to be categorized as well-capitalized but below the required capital ratios set forth above. The Corporation is working with its advisors to explore possible alternatives to raise additional equity capital. If completed, any such transaction would likely result in significant dilution for the current common shareholders. No agreements have been reached with respect to any possible capital infusion transaction. If by September 30, 2009 or December 31, 2009, respectively, the Bank does not meet the required capital ratios set forth above, either through the completion of a successful capital raise or otherwise, the OTS may take additional significant regulatory action against the Bank and 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 OTS may grant extensions to the timelines established by the Orders.

The description of each of the Orders and the corresponding Stipulation and Consent to Issuance of Order to Cease and Desist (the “Stipulations”) set forth in this section is qualified in its entirety by reference to the Orders and Stipulations, copies of which are attached as Exhibits to the March 31, 2009 Annual Report on Form 10-K.

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. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” and similar words or phrases. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of several factors more fully described under the caption “Risk Factors” and elsewhere in this report as well as in our Annual Report on Form 10-K for the fiscal year ended March 31, 2009,. Factors that could affect actual results include but are not limited to; (i) general market rates; (ii) changes in market interest rates and the shape of the yield curve; (iii) general economic conditions; (iv) real estate markets; (v) legislative/regulatory changes; (vi) monetary and fiscal policies of the U.S. Department of the Treasury and the Federal Reserve Board; (vii) changes in the quality or composition of the Bank’s loan and investment portfolios; (viii) demand for loan products; (ix) level of loan and mortgage-backed securities repayments; (x) impact of the Emergency Economic Stabilization Act of 2008; (xi) changes in the U.S. Treasury’s Capital Purchase Program; (xii) unprecedented volatility in equity, fixed income and other market valuations; (xiii) higher-than-expected credit losses due to business losses, constraints on borrowers’ ability to repay outstanding loans or the diminishment of the value of collateral securing such loans, capital market disruptions, changes in commercial or residential real estate development and real estate prices or other economic factors; (xiv) substantial loss of customer deposit accounts; (xv) soundness of other financial institutions with which the Corporation and the Bank engage in transactions; (xvi) increases in Federal Deposit Insurance Corporation premiums due to market

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developments and regulatory changes; (xvii) competition; (xviii) demand for financial services in the Corporation’s market;, and (xx) changes in accounting principles, policies or guidelines.

In addition, to the extent that we engage in acquisition transactions, such transactions may result in large one-time charges to income, may not produce revenue enhancements or cost savings at levels or within time frames originally anticipated and may result in unforeseen integration difficulties. These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements. All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations, and, therefore, you are cautioned not to place undue reliance on such statements. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this report. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

The Corporation does not undertake and specifically disclaims any obligation to update any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Item 3	Quantitative and Qualitative Disclosures About Market Risk.
	The Corporation’s market rate risk has not materially changed from March 31, 2009. See Item 7A in the Corporation’s Annual Report on Form 10-K for the year ended March 31, 2009. See also “Asset/Liability Management” in Part I, Item 2 of this report.

Item 4	Controls and Procedures.
	Internal Control over Financial Reporting
	In our 10K for the fiscal year ended March 31, 2009, the Corporation identified material weaknesses in its internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) related to the following:

1. Our Internal Control over Financial Reporting related to the allowance for loan losses and the completeness and accuracy of the provision for loan losses contained multiple deficiencies that represent material weaknesses. Specifically the Corporation failed to:

• Maintain policies and procedures to ensure that loan personnel performed an analysis adequate to risk classify the loan portfolio.

• Effectively monitor the loan portfolio and identify problem loans in a timely manner.

• Maintain policies and procedures to ensure that SFAS No. 114Accounting by Creditors for Impairment of a Loandocumentation is prepared timely, accurately and subject to supervisory review.

• Receive current financial information on problem loans, in a timely manner, to ensure that these loans were evaluated for impairment under SFAS No. 114.

• Establish policies and procedures to ensure that an impairment calculation is prepared for all loans identified as impaired and that the impairment calculation is updated on a quarterly basis.

• Effectively monitor problem loans to ensure that recent appraisals are used to support collateral valuation utilized in the impairment analysis.

• Maintain policies and procedures to ensure that the supporting documentation for the allowance for loan loss calculation is reviewed and tested by an individual independent of the allowance for loan loss process.

• Re-evaluate the qualitative factors used in the allowance calculation on a quarterly basis to assess the continued decline in the local and national economy; exacerbation of certain

60

negative trends in real estate values; increasing regional unemployment levels; slowed demand for both new and existing housing; and the resulting stress on the Bank’s real estate and development portfolios.

2.

The Corporation did not maintain effective controls over financial reporting over impairment charges, related to Other Real Estate Owned (‘OREO’). The existing policies and procedures did not provide for sufficient supervisory controls around the valuation and recording of impairment charges for other real estate owned to ensure impairment charges were properly recognized and recorded.

3.

The Corporation did not maintain effective entity-level controls to ensure that the financial statements were prepared in accordance with generally accepted accounting principles. This material weakness was identified by our auditors when they reviewed the financial statements and identified disclosures that either required significant modification or were missing altogether. The weakness relates primarily to disclosures required as a result of changing economic conditions, adoption of new accounting standards, and disclosure of unusual significant transactions. This material weakness was evidenced by the ineffective preparation of the financial statements and resulted from the lack of the necessary supervisory review to ensure accurate presentation and disclosure in the financial statements.

The Corporation’s principal executive officer and principal financial officer concluded that the disclosure controls and procedures are not operating in an effective manner. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness identified by the Corporation resulted from the Corporation not having adjusted its calculation of the allowance for loan losses, particularly with respect to loans in connection with construction and land and development, to fully account for the following factors implicated during the three months ended June 30, 2009: the continued decline in the local and national economy; exacerbation of certain negative trends in real estate values; increasing regional unemployment levels; slowed demand for both new and existing housing; and the resulting stress on the Bank’s real estate and development portfolios. The Corporation’s internal control processes and procedures were also inadequate to ensure that information, such as appraisals, were available to calculate the specific reserves on impaired loans in a timely manner. Following its identification of the weakness, the Corporation determined that an additional adjustment to the allowance for loan losses was necessary.

In connection with its determination that a material weakness exists, during the quarter ended June 30, 2009 the Corporation (i) has implemented and is continuing to develop new procedures for the determination of the allowance for loan losses requiring that certain subjective factors, such as local and national economic trends and real estate valuations, be considered more fully and be discussed with senior management and the audit committee of the board of directors; (ii) has taken additional steps to monitor more closely the adequacy of the allowance for loan losses and continues to develop and implement additional procedures; and (iii) has created the position of Chief Risk Officer and has dedicated additional resources to its special assets group involved in the identification of troubled assets. In addition, the Corporation is in the process of re-evaluating the existing process related to financial reporting and disclosures as well as the sufficiency of existing resources. While the Corporation believes that these actions will remediate this material weakness, it has not yet confirmed the effectiveness of such controls.

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Changes in Internal Control Over Financial Reporting

Other than the actions mentioned above, 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.

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     Part II — Other Information

Item 1	Legal Proceedings.
	The Corporation is involved in routine legal proceedings occurring in the ordinary course of business which, in the aggregate, are believed by management of the Corporation to be immaterial to the financial condition and results of operations of the Corporation.

Item 1A	Risk Factors.
	In addition to the risk factors set forth below and the other information set forth in this report, you should carefully consider the factors discussed in “Part I, Item 1A. Risk Factors” in our Annual Report filed on Form 10-K for the fiscal year ended March 31, 2009, which could materially affect our business, financial condition or future results.
	Risks Related to Our Business
	We experienced a net loss in the first quarter of fiscal 2010 directly attributable to a substantial deterioration in our residential construction and residential land loan portfolio and the resulting increase in our provision for loan losses.
	We realized a net loss of $11.8 million in the first quarter of fiscal 2010. The net loss is the direct result of an impairment charge of a $19.4 million provision to our loan loss reserve. The loan loss reserve is the amount required to maintain the allowance for loan losses at an adequate level to absorb probable loan losses. The increase in the provision for loan losses is primarily attributable to our residential construction and residential land loan portfolios, which continue to experience deterioration in estimated collateral values and repayment abilities of some of our customers. Other reasons for the increase in the provision for loan losses are attributable to an overall increase in nonperforming assets and the continuing general weakening economic conditions and decline in real estate values in the markets served by the Corporation.
	At June 30, 2009, our non-performing loans (loans past due 90 days or more) were $162.7 million compared to $146.2 million at March 31, 2009 and our loans classified as substandard were $557.7 million compared to $504.5 million at March 31, 2009. For the three months ended June 30, 2009, annualized net charge-offs as a percentage of average loans were (1.52)% compared to (0.71)% for the corresponding period in 2008. These increases are primarily due to our commercial, residential construction and residential land loan portfolios.
	At June 30, 2009, approximately 74% of total gross loans were classified as first mortgage loans, with approximately 6% of loans being classified as construction loans and approximately 7% being classified as land loans.
	The deterioration in our construction and land loan portfolios has been caused primarily by the weakening economy and the slow down in sales of the housing market. The local unemployment rate was 9.2% as of June 30, 2009 compared to 9.4% at March 31, 2009. With many real estate projects requiring an extended time to market, some of our borrowers have exhausted their liquidity which may require us to place their loans into nonaccrual status.
	Our business is subject to liquidity risk, and changes in our source of funds may adversely affect our performance and financial condition by increasing our cost of funds.
	Our ability to make loans is directly related to our ability to secure funding. Retail deposits and core deposits are our primary source of liquidity. We also use brokered CDs, which are rate

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sensitive. We also rely on advances from the FHLB of Chicago as a funding source. We have also been granted access to the Fed fund line with a correspondent bank as well as the Federal Reserve Bank of Chicago’s discount window, none of which had been borrowed as of June 30, 2009. In addition as of June 30, 2009, the Corporation had outstanding borrowings from the FHLB of $849.7 million, out of our maximum borrowing capacity of $1.10 billion, from the FHLB at this time.

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

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

Weakening conditions in the real estate sector have adversely affected, and may continue to adversely affect, our loan portfolio. Non-performing assets increased by $17.0 million to $215.7 million, or 4.1% of total assets, at June 30, 2009 from $198.7 million, or 3.8% of total assets, at March 31, 2009. Comparatively, non-performing assets increased by $89.2 million to $198.7 million, or 3.8% of total assets, at March 31, 2009, from $109.5 million, or 2.1% of total assets, at March 31, 2008. If loans that are currently non-performing further deteriorate we would need to increase our allowance to cover additional charge-offs. If loans that are currently performing become non-performing, we may need to continue to increase our allowance for loan losses if additional losses are anticipated, which would have an adverse impact on our financial condition and results of operations. The increased time and expense associated with the work out of non-performing assets and potential non-performing assets also could adversely affect our operations.

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

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

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

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

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

The Cease and Desist Orders require that, no later than September 30, 2009, the Bank meet and maintain both a core capital ratio equal to or greater than 7 percent and a total risk-based capital ratio equal to or greater than 11 percent. Further, no later than December 31, 2009, the Bank must meet and maintain both a core capital ratio equal to or greater than 8 percent and a total risk-based capital ratio equal to or greater than 12 percent. At June 30, 2009, the Bank, based upon presently available unaudited financial information, had a core capital ratio of 6.05 percent and a total risk-based capital ratio of 10.53 percent, each above the level needed for an institution to be categorized as well-capitalized but below the required capital ratios set forth above. The Company is working with its advisors to explore possible alternatives to raise additional equity capital. If completed, any such transaction would likely result in significant dilution for the current common shareholders. No agreements have been reached with respect to any possible capital infusion transaction.

To date, in the current economic environment, the Bank has not been able to raise sufficient additional capital to ensure compliance with the capital requirements of the Cease and Desist Order. Without a waiver by OTS or amendment or modification of the Cease and Desist Order, the Bank could be subject to further regulatory enforcement action, including, without limitation, the issuance of additional cease and desist orders (which may, among other things, further restrict the Bank ’s business activities, or place the Bank in conservatorship or receivership). If the Bank is placed in conservatorship or receivership, it is highly likely that such action would lead to a complete loss of all value of the Company’s ownership interest in the Bank. In addition, further restrictions could be placed on the Bank if it were determined that the Bank was undercapitalized, significantly undercapitalized, or critically undercapitalized, with increasingly greater restrictions being imposed as any level of undercapitalization increased.

Although the Bank is considered “well capitalized” for regulatory purposes as of June 30, 2009, we will incur increased premiums for deposit insurance, require FDIC approval to gather brokered deposits, and will trigger acceleration of the maturity of certain of our brokered deposits if we fall below the “well capitalized” threshold.

As of June 30, 2009, the Bank is considered “well capitalized” for regulatory capital purposes. If we fall below “well capitalized,” the FDIC will assess higher deposit insurance premiums on the Bank, which will impact our earnings. In addition, we will be required to obtain FDIC approval to gather brokered deposits during such times as we remain “adequately capitalized” for regulatory capital purposes. Requiring us to obtain regulatory approval prior to accepting brokered deposits will affect our ability to increase our liquidity position, in some cases, in a timely manner.

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

Our level of non-performing loans increased significantly in the fiscal year ended March 31, 2009 and for the three months ended June 30, 2009, relative to comparable periods for the preceding year. Our provision for loan losses increased by $183.1 million to $205.7 million for the fiscal year ended March 31, 2009 from $22.6 million for the fiscal year ended March 31, 2008. Our provision for loan losses was $19.4 million for the three months ended June 30, 2009 compared to $56.4 million for the three months ended March 31, 2009. Our allowance for loan losses increased by $4.2 million to $141.4 million, or 3.6% of total loans, at June 30, 2009 from $137.2 million, or 3.3% of total loans at March 31, 2009. Our allowance for loan losses also increased by $98.9 million to $137.2 million, or 3.3% of total loans, at March 31, 2009, from $38.3 million, or 0.9% of total loans, at March 31, 2008. Our allowance for loan and foreclosure

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losses was 69.3% at June 30, 2009, 73.5% at March 31, 2009 and 35.0% at March 31, 2008, respectively, of non-performing assets. There can be no assurance that any future declines in real estate market conditions and values, general economic conditions or changes in regulatory policies will not require us to increase our allowance for loan and lease losses, which would adversely affect our results of operations.

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

We conduct real estate operations through Investment Directions, Inc, a wholly owned subsidiary, which invests in various real estate subsidiaries and partnerships and conducts real estate development and sales throughout California, Texas and Minnesota. As a result of weakening conditions in the real estate market and reduced sales of its properties, we have incurred losses from the operations of its real estate subsidiaries in recent years, which are expected to continue unless the real estate market improves. Losses from IDI’s real estate operations were $566,000 for the three months ended June 30, 2009 compared to $13.8 million for the three months ended March 31, 2009. Losses from IDI’s real estate operations increased by $16.1 million to $18.4 million for the fiscal year ended March 31, 2009 from $2.3 million for the fiscal year March 31, 2008. The increased loss for the year ended March 31, 2009 was the result of management applying a $17.6 million valuation allowance for the decline in the appraised value of real estate. We have no current plans to engage in additional real estate investment activities through IDI and are exploring opportunities to sell or otherwise divest IDI’s current investments as soon as practicable. Additional losses from our real estate operations would have an adverse effect on our results of operations and capital.

Future Federal Deposit Insurance Corporation assessments will hurt our earnings.

In May 2009, the Federal Deposit Insurance Corporation adopted a final rule imposing a special assessment on all insured institutions due to recent bank and savings association failures. The emergency assessment amounts to 5 basis points of total assets minus Tier 1 Capital as of June 30, 2009. We recorded an expense of $2.5 million during the quarter ended June 30, 2009, to reflect the special assessment. The assessment will be collected on September 30, 2009 and recorded against earnings for the quarter ended June 30, 2009. The special assessment will negatively impact the Company’s earnings and the Company expects that non-interest expenses will increase approximately $2.5 million for the year ended March 31, 2010 as compared to the year ended March 31, 2009 as a result of this special assessment. In addition, the final rule allows the Federal Deposit Insurance Corporation to impose additional emergency special assessments of up to 5 basis points per quarter for the third and fourth quarters of 2009 if necessary to maintain public confidence in federal deposit insurance or as a result of deterioration in the deposit insurance fund reserve ratio due to institution failures. Any additional emergency special assessment imposed by the FDIC will further hurt the Company’s earnings.

We are not paying dividends on our preferred stock or common stock and are deferring distributions on our trust preferred securities, and we are restricted in otherwise paying cash dividends on our common stock. The failure to resume paying dividends on our preferred stock and trust preferred securities may adversely affect us.

We historically paid cash dividends before we suspended dividend payments on our common stock. The Federal Reserve, as a matter of policy, has indicated that bank holding companies should not pay dividends using funds from the TARP CPP. There is no assurance that we will resume paying cash dividends. Even if we resume paying dividends, future payment of cash dividends on our common stock, if any, will be subject to the prior payment of all unpaid dividends and deferred distributions on our Series B Preferred Stock. Further, we need prior Treasury approval to increase our quarterly cash dividends prior to January 30, 2012, or until the date we redeem all shares of Series B Preferred Stock or the Treasury has transferred all shares of

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Series B Preferred Stock to third parties. All dividends are declared and paid at the discretion of our board of directors and are dependent upon our liquidity, financial condition, results of operations, capital requirements and such other factors as our board of directors may deem relevant.

Further, dividend payments on our Series B Preferred Stock are cumulative and therefore unpaid dividends and distributions will accrue and compound on each subsequent dividend payment date. In the event of any liquidation, dissolution or winding up of the affairs of our company, holders of the Series B Preferred Stock shall be entitled to receive for each share of Series B Preferred Stock the liquidation amount plus the amount of any accrued and unpaid dividends. If we miss six quarterly dividend payments, whether or not consecutive, the Treasury will have the right to appoint two directors to our board of directors until all accrued but unpaid dividends have been paid. We have deferred two dividend payments on the Series B Preferred Stock held by Treasury.

Risks Related to Our Credit Agreement

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

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

• incur additional indebtedness or issue certain preferred shares;

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

• make certain investments;

• sell certain assets; and

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

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

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

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

As of June 30, 2009, the total revolving loan commitment under the Credit Agreement was $116.3 million and aggregate borrowings under the Credit Agreement were $116.3 million. We must pay in full the outstanding balance under the Credit Agreement by the earlier of May 31, 2010 or the receipt of net proceeds of a financing transaction from the sale of equity securities. If the net proceeds are received from the U.S. Department of the Treasury and the terms of such investment prohibit the use of the investment proceeds to repay senior debt, then no payment is required from the Treasury investment. As of the date of this filing, we do not have sufficient cash on hand to reduce our outstanding borrowings to zero. There can be no assurance that we will be able to raise sufficient capital or have sufficient cash on hand to reduce our outstanding borrowings to zero by May 31, 2010, which may limit our ability to fund ongoing operations.

Unless the maturity date is extended, our outstanding borrowings under our Credit Agreement are due on May 31, 2010. The Credit Agreement does not include a commitment to refinance the remaining outstanding balance of the loans when they mature and there is no guarantee that our lenders will renew their loans at that time. Refusal to provide us with renewals or refinancing opportunities would cause our indebtedness to become immediately due and payable upon the contractual maturity of such indebtedness, which could result in our insolvency if we are unable to repay the debt.

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

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

Risks Related to Recent Market, Legislative and Regulatory Events

The TARP CPP and the ARRA impose certain executive compensation and corporate governance requirements that may adversely affect us and our business, including our ability to recruit and retain qualified employees.

The purchase agreement we entered into in connection with our participation in the TARP CPP required us to adopt the Treasury’s standards for executive compensation and corporate governance while the Treasury holds the equity issued pursuant to the TARP CPP, including the common stock which may be issued pursuant to the warrant to purchase 7,399,103 shares of common stock. These standards generally apply to our chief executive officer, chief financial

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officer and the three next most highly compensated senior executive officers. The standards include:

• ensuring that incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution;

• required clawback of any bonus or incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate;

• prohibition on making golden parachute payments to senior executives; and

• agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each senior executive.

In particular, the change to the deductibility limit on executive compensation may increase the overall cost of our compensation programs in future periods.

The ARRA imposed further limitations on compensation during the TARP Assistance Period including

• a prohibition on making any golden parachute payment to a senior executive officer or any of our next five most highly compensated employees;

• a prohibition on any compensation plan that would encourage manipulation of the reported earnings to enhance the compensation of any of its employees; and

• a prohibition of the five highest paid executives from receiving or accruing any bonus, retention award, or incentive compensation, or bonus except for long-term restricted stock with a value not greater than one-third of the total amount of annual compensation of the employee receiving the stock.

The prohibition may expand to other employees based on increases in the aggregate value of financial assistance that we receive in the future.

The Treasury released an interim final rule on TARP standards for compensation and corporate governance on June 10, 2009, which implemented and further expanded the limitations and restrictions imposed on executive compensation and corporate governance by the TARP CPP and ARRA. The new Treasury interim final rules, which became effective on June 15, 2009, also prohibit any tax gross-up payments to senior executive officers and the next 20 highest paid executives. The rule further authorizes the Treasury to establish the Office of the Special Master for TARP Executive Compensation with broad powers to review compensation plans and corporate governance matters of TARP recipients.

These provisions and any future rules issued by the Treasury could adversely affect our ability to attract and retain management capable and motivated sufficiently to manage and operate our business through difficult economic and market conditions. If we are unable to attract and retain qualified employees to manage and operate our business, we may not be able to successfully execute our business strategy.

TARP lending goals may not be attainable.

Congress and the bank regulators have encouraged recipients of TARP capital to use such capital to make loans and it may not be possible to safely, soundly and profitably make sufficient loans to

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creditworthy persons in the current economy to satisfy such goals. Congressional demands for additional lending by TARP capital recipients, and regulatory demands for demonstrating and reporting such lending are increasing. On November 12, 2008, the bank regulatory agencies issued a statement encouraging banks to, among other things, “lend prudently and responsibly to creditworthy borrowers” and to “work with borrowers to preserve homeownership and avoid preventable foreclosures.” We continue to lend and have expanded our mortgage loan originations, and to report our lending to the Treasury. The future demands for additional lending are unclear and uncertain, and we could be forced to make loans that involve risks or terms that we would not otherwise find acceptable or in our shareholders’ best interest. Such loans could adversely affect our results of operation and financial condition, and may be in conflict with bank regulations and requirements as to liquidity and capital. The profitability of funding such loans using deposits may be adversely affected by increased FDIC insurance premiums.

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds.
	As of June 30, 2009, the Corporation does not have a stock repurchase plan in place.

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Item 3	Defaults upon Senior Securities.
	Not applicable.

Item 4	Submission of Matters to a Vote of Security Holders.
	The Annual Meeting of Stockholders was held on July 28, 2009. There were 21,578,713 shares of common stock eligible to be voted, and 18,107,095 shares present at the meeting by holders thereof in person or by proxy which constituted a quorum. The following is a summary of the results of items voted upon.

	Number of Votes
	For		Withheld
Election of Directors for three-year terms expiring in 2012:
Chris M. Bauer		15,941,572		2,165,523
Holly Cremer Berkenstadt		16,130,315		1,976,780
Donald D. Kropidlowski		16,005,007		2,102,088

							Broker
	For		Against		Abstained		non-vote
Approval of the issuance of common stock to permit full exercise of the warrant issued to the Department of Treasury		11,292,708		483,109		642,313		5,688,965

	For		Against		Abstained
Non-binding resolution on executive compensation		15,279,380		2,117,921		709,794

	For		Against		Abstained
Appointment of McGladrey & Pullen LLP as independent registered public accounting firm for the fiscal year ending March 31, 2010		16,023,545		1,502,066		581,484

							Broker
	For		Against		Abstained		non-vote
Shareholder proposal for independent Chairman		3,531,705		8,126,854		759,571		5,688,965

Item 5	Other Information.
	Not applicable.

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Item 6	Exhibits.
	The following exhibits are filed with this report:

Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 is included herein as an exhibit to this Report.
Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 is included as an exhibit to this Report.
Exhibit 32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) is included herein as an exhibit to this Report.
Exhibit 32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) is included herein as an exhibit to this Report.

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SIGNATURES

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 7, 2009	By:	/s/ Chris Bauer
		Chris Bauer, President and Chief Executive Officer
Date: August 7, 2009	By:	/s/ Dale C. Ringgenberg
		Dale C. Ringgenberg, Treasurer and
		Chief Financial Officer

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