Anchor BanCorp Wisconsin (ABCW) 10-Q 2005 Q4 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 December 31, 2005

or

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

For the transition period from                    to                    

COMMISSION FILE NUMBER 0-20006

ANCHOR BANCORP WISCONSIN INC.

(Exact name of registrant as specified in its charter)

Wisconsin	39-1726871
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
25 West Main 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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero                     Accelerated filerþ                     Non-accelerated filero

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 January 31, 2006: 21,819,532

ANCHOR BANCORP WISCONSIN INC.
INDEX — FORM 10-Q

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

1

Consolidated Balance Sheets

	(Unaudited)
	December 31,			March 31,
	2005			2005
	(In Thousands, Except Share Data)
Assets
Cash	$	76,522		$	61,041
Interest-bearing deposits		67,534			105,395
Cash and cash equivalents		144,056			166,436
Investment securities available for sale		36,139			52,055
Mortgage-related securities available for sale		256,358			202,250
Mortgage-related securities held to maturity (fair value of $1,061 and $1,537, respectively)		1,047			1,502
Loans, less allowance for loan losses of $15,252 at December 31, 2005 and $26,444 at March 31, 2005:
Held for sale		5,847			4,361
Held for investment		3,545,436			3,414,608
Foreclosed properties and repossessed assets, net		2,606			1,458
Real estate held for development and sale		51,051			48,949
Office properties and equipment		29,356			30,495
Federal Home Loan Bank stock—at cost		45,348			44,923
Accrued interest on investments and loans and other assets		63,034			63,463
Goodwill		19,956			19,956
Total assets	$	4,200,234		$	4,050,456
Liabilities and Stockholders’ Equity
Deposits
Non-interest bearing	$	237,180		$	230,045
Interest bearing		2,750,104			2,643,488
Total deposits		2,987,284			2,873,533
Short-term borrowings		356,458			242,540
Long-term borrowings		458,183			551,069
Other liabilities		79,013			62,834
Total liabilities		3,880,938			3,729,976
Minority interest in real estate partnerships		7,207			9,802
Commitments and contingent liabilities (Note 8)
Preferred stock, $.10 par value, 5,000,000 shares authorized, none outstanding		—			—
Common stock, $.10 par value, 100,000,000 shares authorized, 25,363,339 shares issued, 21,789,725 and 22,319,513 shares outstanding, respectively		2,536			2,536
Additional paid-in capital		70,513			68,627
Retained earnings		332,788			315,077
Accumulated other comprehensive loss		(1,838	)		(708	)
Treasury stock (3,573,614 shares and 3,043,826 shares, respectively), at cost		(84,155	)		(68,441	)
Unearned deferred compensation		(7,755	)		(6,413	)
Total stockholders’ equity		312,089			310,678
Total liabilities and stockholders’ equity	$	4,200,234		$	4,050,456

See accompanying Notes to Unaudited Consolidated Financial Statements.

2

Consolidated Statements of Income

(Unaudited)

	Three Months Ended					Nine Months Ended
	December 31,					December 31,
	2005			2004		2005		2004
				(As Restated)				(As Restated)
			(In Thousands, Except Per Share Data)
Interest income:
Loans	$	56,443		$	47,347	$	161,192	$	135,588
Mortgage-related securities		2,962			2,141		8,639		6,404
Investment securities		1,004			1,305		2,907		3,984
Interest-bearing deposits		988			565		2,888		1,207
Total interest income		61,397			51,358		175,626		147,183
Interest expense:
Deposits		20,257			12,814		54,845		36,658
Short-term borrowings		2,958			1,579		7,725		5,387
Long-term borrowings		4,345			5,314		13,646		15,666
Total interest expense		27,560			19,707		76,216		57,711
Net interest income		33,837			31,651		99,410		89,472
Provision for loan losses		700			664		2,450		1,414
Net interest income after provision for loan losses		33,137			30,987		96,960		88,058
Non-interest income:
Real estate investment partnership revenue		6,378			16,104		29,450		54,983
Loan servicing income		1,280			1,050		3,681		3,063
Credit enhancement derivative income (includes interest income of $68 and $61, respectively, for three-month period and $198 and $174, respectively, for the nine-month period)		414			382		1,216		1,140
Service charges on deposits		2,355			2,124		7,084		6,524
Insurance commissions		589			519		1,897		1,764
Net gain on sale of loans		144			1,001		1,460		880
Net gain on sale of investments and mortgage-related securities		120			75		394		1,472
Other revenue from real estate operations		1,470			725		3,384		2,744
Other		1,670			883		4,476		2,581
Total non-interest income		14,420			22,863		53,042		75,151

3

Consolidated Statements of Income(Cont’d)

(Unaudited)

	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2005		2004		2005		2004
			(As Restated)				(As Restated)
	(In Thousands, Except Per Share Data)
Non-interest expense:
Compensation	$	11,862	$	10,028	$	34,032	$	30,765
Real estate investment partnership cost of sales		5,527		13,131		24,718		43,909
Occupancy		1,820		1,659		5,144		4,964
Furniture and equipment		1,423		1,413		4,609		4,398
Data processing		1,425		1,074		4,074		3,519
Marketing		1,108		1,014		3,294		3,030
Other expenses from real estate partnership operations		2,467		1,302		6,721		6,693
Other		3,133		3,878		9,531		9,648
Total non-interest expense		28,765		33,499		92,123		106,926
Minority interest in income of real estate partnership operations		304		2,023		1,694		4,965
Income before income taxes		18,488		18,328		56,185		51,318
Income taxes		7,595		7,618		22,954		19,784
Net income	$	10,893	$	10,710	$	33,231	$	31,534
Earnings per share:
Basic	$	0.51	$	0.47	$	1.53	$	1.39
Diluted		0.50		0.46		1.50		1.37
Dividends declared per share		0.16		0.13		0.46		0.36

See accompanying Notes to Unaudited Consolidated Financial Statements.

4

Consolidated Statements of Cash Flows

(Unaudited)

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

5

Consolidated Statements of Cash Flows(Cont’d)

(Unaudited)

	Nine Months Ended December 31,
	2005			2004
				(As Restated)
	(In Thousands)
Financing Activities
Increase in deposit accounts	$	117,680		$	101,617
Decrease in advance payments by borrowers for taxes and insurance		(6,211	)		(5,808	)
Increase in short-term borrowings		64,200			48,912
Proceeds from long-term borrowings		110,680			136,793
Repayment of long-term borrowings		(153,848	)		(190,336	)
Treasury stock purchased		(23,283	)		(4,897	)
Exercise of stock options		297			1,373
Cash received from employee stock purchase plan		307			273
Payments of cash dividends to stockholders		(9,897	)		(8,097	)
Net cash provided by financing activities		99,925			79,830
Net decrease in cash and cash equivalents		(22,380	)		(26,113	)
Cash and cash equivalents at beginning of period		166,436			198,993
Cash and cash equivalents at end of period	$	144,056		$	172,880
Supplementary cash flow information:
Cash paid or credited to accounts:
Interest on deposits and borrowings	$	74,055		$	57,311
Income taxes		21,221			17,717
Non-cash transactions:
Transfer of mortgage loans held to maturity to held for sale		94,129			—
Securitization of mortgage loans held for sale to mortgage-backed securities		94,165			—

See accompanying Notes to Unaudited Consolidated Financial Statements

6

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, Anchor Investment Services, Inc. (“AIS”), ADPC Corporation (“ADPC”) and Anchor Investment Corporation (“AIC”). Significant inter-company balances and transactions have been eliminated. Investments in 50% owned partnerships are treated as variable interest entities and are consolidated into the Corporation’s balance sheet and income statement.

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. The unaudited consolidated financial statements for the three and nine months ended December 31, 2004 have been restated. All information in the notes to the consolidated financial statements affected by the restatement give effect to the restatement. See Note 3 to the unaudited consolidated financial statements, “Restatement of Prior Periods Presented.” 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. The results of operations and other data for the three-month and nine-month periods ended December 31, 2005 are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2006. 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, 2005.

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 Financial Accounting Standards Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51 (“FIN 46”). FIN 46 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.

7

The Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” in December, 2002. SFAS No. 148 amended SFAS No. 123, “Accounting for Stock-Based Compensation” to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amended the disclosure provisions of SFAS No. 123 to require disclosure in the summary of significant accounting policies of the effect of the Company’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS No. 148’s amendment of the transition and annual disclosure provisions of SFAS No. 123 are effective for fiscal years ending after December 15, 2002. The Corporation will continue to account for stock-based compensation in accordance with APB Opinion 25 as allowed under FASB No. 123.

The Corporation applies APB Opinion No. 25 and related interpretations in accounting for stock options. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation cost for the Corporation’s stock option plans been determined based on the fair value at the date of grant for awards under the stock option plans consistent with the method of SFAS No. 123, the Corporation’s net income and earnings per share would have been reduced to the pro forma amounts indicated:

	Nine Months Ended
	December 31,
	2005		2004
			(As Restated)
	(In Thousands, Except Per Share Data)
Net Income
As reported	$	33,231	$	31,534
Pro forma		33,052		31,210
Earnings per share-Basic
As reported	$	1.53	$	1.39
Pro forma		1.52		1.38
Earnings per share-Diluted
As reported	$	1.50	$	1.37
Pro forma		1.49		1.35

The pro forma amounts indicated above may not be representative of the effects on reported net income for future years. The fair values of stock options granted in the nine months ended December 31, 2005 and December 31, 2004 were estimated on the date of grant using the Black-Scholes option-pricing model.

In December 2004, the FASB issued Statement No. 123, “Share-Based Payment” (‘SFAS No. 123(R)”). SFAS No. 123(R) is a revision of SFAS No. 123, “Accounting for Stock Based Compensation” and supersedes APB 25. SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity (i) exchanges its equity instruments for goods or services, or (ii) incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of the equity instruments. SFAS No. 123(R) eliminates the ability to account for stock-based compensation using APB 25 and requires that such transactions be recognized as compensation cost in the income statement based on their fair values on the date of the grant. The effective date of SFAS No. 123(R) is the beginning of the first fiscal year beginning after June 15, 2005, although early adoption is allowed. SFAS No. 123(R) permits companies to adopt the recognition requirements using either a “modified prospective” method or a “modified retrospective” method. Under the “modified prospective” method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS No. 123(R) for all share-based payments granted after that date, and based on the requirements of SFAS No. 123 for all unvested awards granted prior to the effective date of SFAS No. 123(R). Under the “modified retrospective” method, the requirements are the same as under the “modified prospective” method, but also permits entities to restate financial statements of previous periods based on pro forma disclosures made in accordance with SFAS No. 123.

8

SFAS No. 123(R) also requires that the benefits associated with the tax deductions in excess of recognized compensation cost be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after the effective date. These future amounts cannot be estimated, because they depend on, among other things, when stock options are exercised.

The Company currently expects to adopt SFAS No. 123(R) effective April 1, 2006, however, the Company has not yet determined which of the aforementioned recognition methods it will use. The Company currently uses the intrinsic value method as permitted by APB 25 to account for its share-based payments to employees, and as such, generally recognizes no compensation expense for employee stock options. Accordingly, the adoption of SFAS No. 123(R) will result in the Company recording compensation cost for employee stock options. Future levels of compensation cost recognized related to share-based compensation awards (including the aforementioned expected costs during the period of adoption) may be impacted by new awards and/or modifications, repurchases and cancellations of existing awards before and after the adoption of this standard.

Certain 2004 accounts have been reclassified to conform to the 2005 presentations.

9

Note 3 — Restatement of Prior Periods Presented

In June 2005, the Corporation determined to restate its consolidated financial statements for the years ended March 31, 2001 to March 31, 2004 and each of the quarters of the year ended March 31, 2004 and the first three quarters of the year ended March 31, 2005. The determination was made to restate these financial statements in connection with the Corporation’s accounting for loans originated by the Corporation through the Mortgage Partnership Finance (“MPF”) Program of the Federal Home Loan Bank of Chicago (“FHLB”).

Historically, the Corporation has been an active participant in the MPF program developed by the FHLB of Chicago and implemented by eight other FHLBs. The program is intended to provide member institutions with an alternative to holding fixed-rate mortgages in their loan portfolios or selling them in the secondary market. An institution participates in the MPF Program by either originating individual loans on a “flow” basis as an agent for the FHLB pursuant to the “MPF 100 Program” or by selling, as principal, closed loans owned by an institution to the FHLB pursuant to one of the FHLB’s closed-loan programs. Under the MPF Program, credit risk is shared by the participating institution and the FHLB by structuring the loss exposure in several layers, with the participating institution being liable for losses after application of an initial layer of losses (after any private mortgage insurance) is absorbed by the FHLB, subject to an agreed-upon maximum amount of such secondary credit enhancement which is intended to be in an amount equivalent to a “AA” credit risk rating by a rating agency. The participating institution receives credit enhancement fees from the FHLB for providing this secondary credit enhancement and continuing to manage the credit risk of the MPF Program loans. Participating institutions are also paid specified servicing fees for servicing the loans.

Transfers involving sales with the Corporation acting as principal are accounted for in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” (“SFAS 140”) with the recognition of gains or losses on sale and related mortgage servicing rights. Originations under the MPF 100 Program are not accounted for as loan sales, nor are mortgage servicing rights recognized. Rather, servicing fees are reported in income on a monthly basis as servicing activities are performed.

The Corporation has participated in the MPF program by originating loans on an agency basis through the MPF 100 Program, but has determined that it incorrectly accounted for these transactions as sales of loans under SFAS 140. The correction of this accounting required the Corporation to reverse gains on agency loan sales related to the MPF program and to remove from its consolidated balance sheet related mortgage servicing rights previously included in “Accrued interest on investments and loans and other assets.” The Corporation’s operating results were also adjusted to remove from loan servicing income the amortization expense and impairment charges associated with the de-recognized mortgage servicing rights and to reflect the tax consequences of the adjusted pre-tax income. Finally, the Corporation has reported as a separate line item in its consolidated statements of income credit enhancement derivative income. Previously, this income was included in loan servicing income.

Below is a summary of the effects of these changes on the Corporation’s consolidated statements of income for the three and nine months ended December 31, 2004.

10

	Consolidated Statements of Income
	As Previously
	Reported		Adjustments			As Restated
	(In Thousands, Except per Share Data)
Three months ended December 31, 2004
Loan servicing income	$	958	$	92		$	1,050
Credit enhancement derivative income		—		382			382
Net gain (loss) on sale of loans		1,825		(824	)		1,001
Total non-interest income		23,213		(350	)		22,863
Income before taxes		18,678		(350	)		18,328
Income taxes		7,758		(140	)		7,618
Net income		10,920		(210	)		10,710
Earnings per share:
Basic		0.48		(0.01	)		0.47
Diluted		0.47		(0.01	)		0.46

	Consolidated Statements of Income
	As Previously
	Reported		Adjustments			As Restated
	(In Thousands, Except per Share Data)
Nine months ended December 31, 2004
Loan servicing income	$	2,475	$	588		$	3,063
Credit enhancement derivative income		—		1,140			1,140
Net gain (loss) on sale of loans		3,716		(2,836	)		880
Total non-interest income		76,259		(1,108	)		75,151
Income before taxes		52,426		(1,108	)		51,318
Income taxes		20,227		(443	)		19,784
Net income		32,199		(665	)		31,534
Earnings per share:
Basic		1.42		(0.03	)		1.39
Diluted		1.39		(0.02	)		1.37

Note 4 — Goodwill and Other Intangible Assets

The Corporation’s carrying value of goodwill was $20.0 million at December 31, 2005 and at March 31, 2005. Information regarding the Company’s other intangible assets follows:

	December 31,			March 31,
	2005			2005
	(In Thousands)
Mortgage servicing rights at beginning of period	$	6,950		$	6,773
Additions		1,823			2,949
Amortization		(1,801	)		(2,772	)
Mortgage servicing rights before valuation allowance at end of period		6,972			6,950
Valuation allowance		(524	)		(515	)
Net mortgage servicing rights at end of period	$	6,448		$	6,435

11

The projections of amortization expense for mortgage servicing rights and core deposit premium set forth below are based on asset balances and the interest rate environment as of December 31, 2005. Future amortization expense may be significantly different depending upon changes in the mortgage servicing portfolio, mortgage interest rates and market conditions.

The following table shows the current period and estimated future amortization expense for amortized intangible assets:

		Mortgage
		Servicing
		Rights
		(In Thousands)
Quarter ended December 31, 2005 (actual)		$	556
Estimate for the year ended March 31,
	2006		2,401
	2007		2,401
	2008		2,170
	2009		—
		$	6,972

Note 5 — Stockholders’ Equity

During the quarter ended December 31, 2005, options for 23,556 shares of common stock were exercised at a weighted-average price of $13.33 per share. Treasury shares were issued in exchange for the options using the last-in-first-out method. The cost of the treasury shares issued in excess of the option price paid of $405,000 was charged to retained earnings. During the quarter ended December 31, 2005, the Corporation issued 4,979 shares of treasury stock to the Corporation’s retirement plans. The weighted-average cost of these shares was $29.32 per share or $146,000 in the aggregate. The $7,000 excess of the cost over the market price of the treasury shares was credited to retained earnings. During the quarter ended December 31, 2005, the Corporation purchased $9.6 million of treasury stock. On November 15, 2005, the Corporation paid a cash dividend of $.16 per share, amounting to $3.4 million, in the aggregate.

Unrealized gains or losses on the Corporation’s available-for-sale securities are included in other comprehensive income. During the quarter ended December 31, 2005 and 2004, total comprehensive income amounted to $9.5 million and $9.8 million, respectively. For the nine months ended December 31, 2005 and 2004, comprehensive income was $32.1 million and $29.2 million, respectively.

12

Note 6 — Earnings Per Share

Basic earnings per share for the three and nine months ended December 31, 2005 and 2004 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.

13

	Three Months Ended December 31,
	2005		2004
			(As Restated)
Numerator:
Net income	$	10,893,097	$	10,710,127
Numerator for basic and diluted earnings per share—income available to common stockholders	$	10,893,097	$	10,710,127
Denominator:
Denominator for basic earnings per share—weighted-average shares		21,489,319		22,564,047
Effect of dilutive securities:
Employee stock options		385,011		490,355
Management Recognition Plans		—		5,101
Denominator for diluted earnings per share—adjusted weighted-average shares and assumed conversions		21,874,330		23,059,503
Basic earnings per share	$	0.51	$	0.47
Diluted earnings per share	$	0.50	$	0.46

	Nine Months Ended December 31,
	2005		2004
			(As Restated)
Numerator:
Net income	$	33,231,176	$	31,533,984
Numerator for basic and diluted earnings per share—income available to common stockholders	$	33,231,176	$	31,533,984
Denominator:
Denominator for basic earnings per share—weighted-average shares		21,706,059		22,610,868
Effect of dilutive securities:
Employee stock options		402,083		470,876
Management Recognition Plans		1,690		5,082
Denominator for diluted earnings per share—adjusted weighted-average shares and assumed conversions		22,109,832		23,086,826
Basic earnings per share	$	1.53	$	1.39
Diluted earnings per share	$	1.50	$	1.37

14

Note 7 — Segment Information

According to the materiality thresholds of SFAS No. 131, the Corporation is required to report each operating segment based on materiality thresholds of ten percent or more of certain amounts, such as revenue. Additionally, the Corporation is required to report separate operating segments until the revenue attributable to such segments is at least 75 percent of total consolidated revenue. SFAS No. 131 allows the Corporation to combine operating segments, even though they may be individually material, if the segments have similar basic characteristics in the nature of the products, production processes, and type or class of customer for products or services. Based on the above criteria, the Corporation has two reportable 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).

The following represents reconciliations of reportable segment revenues, profit or loss, and assets to the Corporation’s consolidated totals for the three and nine months ended December 31, 2005 and 2004, respectively.

15

	Three Months Ended December 31, 2005
				(In Thousands)
										Consolidated
	Real Estate			Community			Intersegment			Financial
	Investments			Banking			Eliminations			Statements
Interest income	$	84		$	61,731		$	(418	)	$	61,397
Interest expense		417			27,561			(418	)		27,560
Net interest income (loss)		(333	)		34,170			—			33,837
Provision for loan losses		—			700			—			700
Net interest income (loss) after provision for loan losses		(333	)		33,470			—			33,137
Real estate investment partnership revenue		6,378			—			—			6,378
Other revenue from real estate operations		1,470			—			—			1,470
Other income		—			6,602			(30	)		6,572
Real estate investment partnership cost of sales		(5,527	)		—			—			(5,527	)
Other expense from real estate partnership operations		(2,497	)		—			30			(2,467	)
Minority interest in income of real estate partnerships		(304	)		—			—			(304	)
Other expense		—			(20,771	)		—			(20,771	)
Income (loss) before income taxes		(813	)		19,301			—			18,488
Income tax expense (benefit)		(161	)		7,756			—			7,595
Net income (loss)	$	(652	)	$	11,545		$	—		$	10,893
Total Assets	$	77,283		$	4,122,951		$	—		$	4,200,234

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

16

	Nine Months Ended December 31, 2005
				(In Thousands)
										Consolidated
	Real Estate			Community			Intersegment			Financial
	Investments			Banking			Eliminations			Statements
Interest income	$	247		$	176,561		$	(1,182	)	$	175,626
Interest expense		1,178			76,220			(1,182	)		76,216
Net interest income (loss)		(931	)		100,341			—			99,410
Provision for loan losses		—			2,450			—			2,450
Net interest income (loss) after provision for loan losses		(931	)		97,891			—			96,960
Real estate investment partnership revenue		29,450			—			—			29,450
Other revenue from real estate operations		3,384			—			—			3,384
Other income		—			20,297			(89	)		20,208
Real estate investment partnership cost of sales		(24,718	)		—			—			(24,718	)
Other expense from real estate partnership operations		(6,810	)		—			89			(6,721	)
Minority interest in income of real estate partnerships		(1,694	)		—			—			(1,694	)
Other expense		—			(60,684	)		—			(60,684	)
Income (loss) before income taxes		(1,319	)		57,504			—			56,185
Income tax expense (benefit)		(129	)		23,083			—			22,954
Net income (loss)	$	(1,190	)	$	34,421		$	—		$	33,231
Total Assets	$	77,283		$	4,122,951		$	—		$	4,200,234

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

17

Note 8 — Commitments and Contingent Liabilities

The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, loans sold with recourse against the Corporation and financial guarantees which involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of those instruments reflect the extent of involvement and exposure to credit loss the Corporation has in particular classes of financial instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Since many of the commitments are expected to expire without being drawn upon, the total committed amounts do not necessarily represent future cash requirements.

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

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

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.

Loans sold to investors with recourse to the Corporation met the underwriting standards of the investor and the Corporation at the time of origination. In the event of default by the borrower, the investor may resell the loans to the Corporation at par value. As the Corporation expects relatively few such loans to become delinquent, the total amount of loans sold with recourse does not necessarily represent future cash requirements. Collateral obtained on such loans consists primarily of single-family residences.

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

18

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 9 — Regulatory Action

In September 2004, the Board of Directors of the Bank entered into a Stipulation and Consent to the Issuance of an Order to Cease and Desist for Affirmative Relief with the Office of Thrift Supervision (“OTS”) and the OTS issued a Consent Order to Cease and Desist for Affirmative Relief (“Consent Order”). Under the Consent Order, the Bank’s board of directors has agreed, among other things, to take a range of actions with respect to the review and conduct of its Bank Secrecy Act (“BSA”) compliance activities.

On October 31, 2005, the OTS terminated the Order previously issued to the Bank as a result of the remedial actions taken with respect to BSA compliance by the Bank.

Note 10 — Subsequent Events

On January 20, 2006, the Corporation declared a $0.16 per share cash dividend on its common stock, amounting to $3.5 million in the aggregate, to be paid on February 15, 2006 to stockholders of record on January 31, 2006.

19

ANCHOR BANCORP WISCONSIN INC.

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

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. These forward-looking statements describe future plans or strategies and include the Corporation’s expectations of future financial results. The Corporation’s ability to predict results or the effect of future plans or strategies is inherently uncertain and the Corporation can give no assurance that those results or expectations will be attained. 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. Treasury and the Federal Reserve Board, vii) changes in the quality or composition of the Corporation’s loan and investment portfolios, viii) demand for loan products, ix) the level of loan and MBS repayments, x) deposit flows, xi) competition, xii) demand for financial services in the Corporation’s markets, and xiii) changes in accounting principles, policies or guidelines. In addition, acquisitions may result in large one-time charges to income, may not produce revenue enhancements or cost savings at levels or within time frames originally anticipated and may result in unforeseen integration difficulties. These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements.

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.

Executive Overview

Highlights for the third quarter ended December 31, 2005 include:

• Diluted earnings per share increased to $0.50 for the quarter ended December 31, 2005 compared to $0.46 per share for the quarter ended December 31, 2004;

• The net interest margin decreased to 3.39% for the quarter ended December 31, 2005 compared to 3.40% for the quarter ended December 31, 2004;

• Loans receivable increased $247.1 million or 7.48% since December 31, 2004 and increased $132.3 million or 3.87% since March 31, 2005;

• Deposits grew $281.8 million or 10.42% since December 31, 2004 and $113.7 million or 3.96% since March 31, 2005; and

• Book value per share increased to $14.32 at December 31, 2005 compared to $13.77 at December 31, 2004.

Selected quarterly data are set forth in the following tables.

20

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

⁽¹⁾ Annualized when appropriate.

21

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

⁽¹⁾ Annualized when appropriate.

22

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:

• The allowance for loan losses is maintained at a level believed adequate by management to absorb probable and estimable losses inherent in the loan portfolio and is based on the size and current risk characteristics of the loan portfolio; an assessment of individual problem loans; actual and anticipated loss experience; and current economic events in specific industries and geographical areas. These economic events include unemployment levels, regulatory guidance, and general economic conditions. Determination of the reserve is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends, all of which may be susceptible to significant change. Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for loan losses is charged to operating expense based on management’s periodic evaluation of the factors previously mentioned as well as other pertinent factors.

Specific reserves are established for expected losses resulting from analysis developed through specific credit allocations on individual loans and are based on a regular analysis of impaired loans where the internal credit rating is at or below a predetermined classification. A loan is considered impaired when it is probable that the Corporation will be unable to collect all contractual principal and interest due according to the terms of the loan agreement. Loans subject to impairment are defined as non-accrual and restructured loans exclusive of smaller homogeneous loans such as home equity, installment, and 1-4 family residential loans. The fair value of the loans is determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the market price of the loan, or the fair value of the underlying collateral less costs to sell, if the loan is collateral dependent.

• Valuation of mortgage servicing rights requires the use of judgment. Mortgage servicing rights are established on loans that are originated and subsequently sold with servicing rights retained. A portion of the loan’s book basis is allocated to mortgage servicing rights when a loan is sold. The fair value of mortgage servicing rights is the present value of estimated future net cash flows from the servicing relationship using current market assumptions for prepayments, servicing costs and other factors. As the loans are repaid and net servicing revenue is earned, mortgage servicing rights are amortized into expense. Net servicing revenues are expected to exceed this amortization expense. However, if actual prepayment experience exceeds what was originally anticipated, net servicing revenues may be less than expected and mortgage servicing rights may be impaired.

• Goodwill is reviewed at least annually for impairment, which requires judgment. Goodwill has been recorded as a result of an acquisition in which purchase price exceeded fair value of net assets acquired. The price paid for the acquisition is analyzed and compared to a number of current indices. If goodwill is determined to be impaired, it would be expensed in the period in which it became impaired.

Set forth below is management’s discussion and analysis of the Corporation’s financial condition and results of operations for the three and nine months ended December 31, 2005, 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.

23

Restatement

In June 2005, the Corporation determined to restate its consolidated financial statements for the years ended March 31, 2001 to March 31, 2004 and each of the quarters of the year ended March 31, 2004 and the first three quarters of the year ended March 31, 2005. The determination was made to restate these financial statements in connection with the Corporation’s accounting for loans originated by the Corporation through the Mortgage Partnership Finance (“MPF”) Program of the Federal Home Loan Bank of Chicago (“FHLB”).

Historically, the Corporation has been an active participant in the MPF program developed by the FHLB of Chicago and implemented by eight other FHLBs. The program is intended to provide member institutions with an alternative to holding fixed-rate mortgages in their loan portfolios or selling them in the secondary market. An institution participates in the MPF Program by either originating individual loans on a “flow” basis as an agent for the FHLB pursuant to the “MPF 100 Program” or by selling, as principal, closed loans owned by an institution to the FHLB pursuant to one of the FHLB’s closed-loan programs. Under the MPF Program, credit risk is shared by the participating institution and the FHLB by structuring the loss exposure in several layers, with the participating institution being liable for losses after application of an initial layer of losses (after any private mortgage insurance) is absorbed by the FHLB, subject to an agreed-upon maximum amount of such secondary credit enhancement which is intended to be in an amount equivalent to a “AA” credit risk rating by a rating agency. The participating institution receives credit enhancement fees from the FHLB for providing this secondary credit enhancement and continuing to manage the credit risk of the MPF Program loans. Participating institutions are also paid specified servicing fees for servicing the loans.

Transfers involving sales with the Corporation acting as principal are accounted for in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” (“SFAS 140”) with the recognition of gains or losses on sale and related mortgage servicing rights. Originations under the MPF 100 Program are not accounted for as loan sales, nor are mortgage servicing rights recognized. Rather, servicing fees are reported in income on a monthly basis as servicing activities are performed.

The Corporation has participated in the MPF program by originating loans on an agency basis through the MPF 100 Program, but has determined that it incorrectly accounted for these transactions as sales of loans under SFAS 140. The correction of this accounting required the Corporation to reverse gains on agency loan sales related to the MPF program and to remove from its consolidated balance sheet related mortgage servicing rights previously included in “Accrued interest on investments and loans and other assets.” The Corporation’s operating results were also adjusted to remove from loan servicing income the amortization expense and impairment charges associated with the de-recognized mortgage servicing rights and to reflect the tax consequences of the adjusted pre-tax income. Finally, the Corporation has reported as a separate line item in its consolidated statements of income credit enhancement derivative income. Previously, this income was included in loan servicing income.

See Note 3 to the Consolidated Financial Statements for a summary of the effects of these changes on the Corporation’s consolidated statements of income for the three and nine months ending December 31, 2004. The accompanying Management’s Discussion and Analysis gives effect to these corrections.

RESULTS OF OPERATIONS

General. Net income for the three and nine months ended December 31, 2005 increased $183,000 or 1.7% to $10.9 million from $10.7 million and increased $1.7 million or 5.4% to $33.2 million from $31.5 million, respectively, as compared to the same respective periods in the prior year. The increase in net income for the three-month period compared to the same period last year was largely due to a decrease in non-interest expense of $4.7 million, an increase in net interest income after provision for loan losses of $2.2 million and a decrease in minority interest income of real estate partnership operations of $1.7 million, which were partially offset by a decrease in non-interest income of $8.4 million. The increase in net income for the nine-months ended December 31, 2005 compared to the same period last year was largely due to a decrease in non-interest expense of $14.8 million, an increase in net interest income after provision for loan losses of $8.9 million and a decrease in minority interest income of real estate partnership operations of $3.3 million, which were partially offset by a decrease in non-interest income of $22.1 million and an increase in income tax expense of $3.2 million.

24

Net Interest Income. Net interest income increased $2.2 million or 6.9% and $9.9 million or 11.1% for the three and nine months ended December 31, 2005, respectively, as compared to the same respective periods in the prior year. Interest income increased $10.0 million or 19.5% and $28.4 million or 19.3%, respectively, for the three and nine months ended December 31, 2005 as compared to the same periods in the prior year. Interest expense increased $7.9 million or 39.8% and $18.5 million or 32.1% for the three and nine months ended December 31, 2005 as compared to the same periods in the prior year. The net interest margin decreased to 3.39% for the three-month period ended December 31, 2005 from 3.40% in the same period in the prior year, and increased to 3.37% for the nine-month period ended December 31, 2005 from 3.26% in the same period in the prior year. The change in the net interest margin reflects the increase in yields on interest earning assets. The interest rate spread decreased to 3.27% from 3.29% for the three-month period and increased to 3.25% from 3.16% for the nine-month period ended December 31, 2005 as compared to the same respective periods in the prior year.

Interest income on loans increased $9.1 million or 19.2% and $25.6 million or 18.9%, respectively, for the three and nine months ended December 31, 2005, as compared to the same periods in the prior year. These increases were primarily attributable to an increase in the average balance of loans, which increased $243.5 million and $260.1 million in the three and nine months ended December 31, 2005, respectively, as compared to the same respective periods in the prior year. There was also an increase of 64 basis points in the average yield on loans to 6.41% from 5.77% for the three-month period and an increase of 56 basis points to 6.21% from 5.65% for the respective nine-month period. Interest income on mortgage-related securities increased $821,000 or 38.3% and $2.2 million or 34.9% for the three- and nine-month periods ended December 31, 2005, as compared to the same respective periods in the prior year, primarily due to an increase of $59.4 million and $52.1 million, respectively, in the three-month and nine-month average balances of mortgage-related securities. This increase was also due to an increase of 31 basis points in the average yield on mortgage-related securities to 4.44% from 4.13% for the three-month period and an increase of 33 basis points to 4.38% from 4.05% for the nine-month period. In addition, interest income on investment securities (including Federal Home Loan Bank stock) decreased $301,000 or 23.1% and $1.1 million or 27.0%, respectively, for the three- and nine-month periods ended December 31, 2005, as compared to the same respective periods in the prior year. This was primarily a result of a decrease of $9.5 million and $33.8 million, respectively, in the average balance of investment securities for the three- and nine-month periods ended December 31, 2005, as compared to the same respective periods in 2004, and a decrease of 74 basis points and 1 basis point in the average yield on investment securities for the three- and nine-month periods, respectively. The majority of the decrease was related to the return of excess holdings of Federal Home Loan Bank stock. Interest income on interest-bearing deposits increased $423,000 and $1.7 million, respectively, for the three and nine months ended December 31, 2005, as compared to the same respective periods in 2004, primarily due to increases in average balances and average yields.

Interest expense on deposits increased $7.4 million or 58.1% and $18.2 million or 49.6% for the three and nine months ended December 31, 2005, respectively, as compared to the same periods in 2004. These increases were primarily attributable to an increase in the average balance of deposits, which increased $305.3 million and $286.5 million, respectively, and an increase of 79 basis points in the weighted average cost of deposits to 2.67% from 1.88% for the respective three-month period and an increase of 64 basis points in the weighted average cost of deposits to 2.46% from 1.82% for the respective nine-month period. Interest expense on notes payable and other borrowings increased $410,000 or 5.9% and $318,000 or 1.5%during the three and nine months ended December 31, 2005, as compared to the same respective periods in the prior year. For the three-month period ended December 31, 2005, the average balance of notes payable decreased $21.8 million as compared to the same respective period in 2004. This decrease did not affect interest expense due to the timing of the decrease in debt. The increase in interest expense for the nine-month period ended December 31, 2005 was due primarily to a decrease of $11.0 million in the average balance of notes payable and other borrowings as compared to the same respective period in 2004. The weighted average cost of notes payable and other borrowings increased 30 basis points to 3.66% from 3.36% for the three-month period and increased 10 basis points to 3.59% from 3.49% for the nine-month period.

Provision for Loan Losses. Provision for loan losses increased $36,000 or 5.4% and $1.0 million or 73.3% for the three- and nine-month periods ended December 31, 2005, as compared to the same respective periods for the prior year. 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 future charge-offs of loans deemed uncollectible.

25

Average Interest-Earning Assets, Average Interest-Bearing Liabilities and Interest Rate Spread. The tables on the following pages show the Corporation’s average balances, interest, average rates, net interest margin and the spread between the combined average rates earned on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated. The average balances are derived from average daily balances.

26

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

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

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	Nine Months Ended December 31,
	2005							2004
					Average			Average				Average
	Average				Yield/			Balance				Yield/
	Balance		Interest		Cost(1)			(As Restated)		Interest		Cost(1)
	(Dollars In Thousands)
INTEREST-EARNING ASSETS
Mortgage loans	$	2,657,952	$	120,931		6.07	%	$	2,475,210	$	103,268		5.56	%
Consumer loans		611,318		29,951		6.53			557,819		24,850		5.94
Commercial business loans		191,852		10,310		7.17			167,963		7,470		5.93
Total loans receivable(2) (3)		3,461,122		161,192		6.21			3,200,992		135,588		5.65
Mortgage-related securities(4)		263,153		8,639		4.38			211,010		6,404		4.05
Investment securities(4)		47,249		1,313		3.71			56,608		879		2.07
Interest-bearing deposits		117,914		2,888		3.27			121,082		1,207		1.33
Federal Home Loan Bank stock		44,996		1,594		4.72			69,464		3,105		5.96
Total interest-earning assets		3,934,434		175,626		5.95			3,659,156		147,183		5.36
Non-interest-earning assets		197,672							190,895
Total assets	$	4,132,106						$	3,850,051
INTEREST-BEARING LIABILITIES
Demand deposits	$	779,887		7,732		1.32		$	744,714		3,057		0.55
Regular passbook savings		237,916		788		0.44			253,962		829		0.44
Certificates of deposit		1,955,969		46,325		3.16			1,688,626		32,772		2.59
Total deposits		2,973,772		54,845		2.46			2,687,302		36,658		1.82
Short-term borrowings		276,871		7,725		3.72			203,715		5,387		3.53
Long-term borrowings		515,941		13,646		3.53			600,056		15,666		3.48
Total interest-bearing liabilities		3,766,584		76,216		2.70			3,491,073		57,711		2.20
Non-interest-bearing liabilities		50,849							51,601
Total liabilities		3,817,433							3,542,674
Stockholders’ equity		314,673							307,377
Total liabilities and stockholders’ equity	$	4,132,106						$	3,850,051
Net interest income/interest rate spread(5)			$	99,410		3.25	%			$	89,472		3.16	%
Net interest-earning assets	$	167,850						$	168,083
Net interest margin(6)						3.37	%						3.26	%
Ratio of average interest-earning assets to average interest-bearing liabilities		1.04							1.05

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

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Non-Interest Income. Non-interest income decreased $8.4 million or 36.9% to $14.4 million and decreased $22.1 million or 29.4%to $53.0 million for the three and nine months ended December 31, 2005, respectively, as compared to $22.9 million and $75.1 million for the same periods in 2004. The decrease was primarily due to the decrease of real estate investment partnership revenue of $9.7 million due to the decrease in the number of sales at the partnership level for the three-month period ended December 31, 2005. In addition, net gain on sale of loans decreased $857,000. These decreases were partially offset by an increase in other non-interest income of $787,000, an increase in other revenue from real estate operations of $745,000, an increase in service charges on deposits of $231,000 and an increase in loan servicing income of $230,000 for the three-month period ended December 31, 2005, as compared to the same period in the prior year. The decrease in non-interest income for the nine-month period ended December 31, 2005 was primarily due to the decrease of real estate investment partnership revenue of $25.5 million due to a decrease in sales at the partnership level. The decrease in sales at the partnership level is due to the fact that the inventory of lots has been substantially reduced. In addition, net gain on sale of investments and mortgage-related securities decreased $1.1 million. These decreases were partially offset by an increase in other non-interest income of $1.9 million, an increase in other revenue from real estate operations of $640,000 and an increase in loan servicing income of $618,000. In addition, the net gain on sale of loans increased $580,000, service charges on deposits increased $560,000 and insurance commissions increased $133,000 for the nine-month period ended December 31, 2005, as compared to the same period in the prior year.

Non-Interest Expense. Non-interest expense decreased $4.7 million or 14.1% to $28.8 million and decreased $14.8 million or 13.8% to $92.1 million for the three and nine months ended December 31, 2005, respectively, as compared to $33.5 million and $106.9 million for the same periods in 2004. The decrease for the three-month period was primarily due to the decrease of real estate investment partnership cost of sales of $7.6 million and other non-interest expense of $745,000 for the three months ended December 31, 2005 as compared to the same respective period in the prior year. These decreases were partially offset by an increase in compensation expense of $1.8 million and other expenses from real estate operations of $1.2 million. In addition, data processing expense increased $351,000 and occupancy increased $161,000 for the three months ended December 31, 2005 as compared to the same period in the prior year. The decrease for the nine-month period was primarily due to the decrease of real estate investment partnership cost of sales of $19.2 million due to a decrease in sales at the partnership level for the nine-month period ended December 31, 2005 as compared to the same period in the prior year, as well as the decrease in other expenses non-interest expense of $117,000. These decreases were partially offset by an increase in compensation expense of $3.3 million. In addition, data processing expense increased $555,000, marketing expense increased $264,000, furniture and fixture expense increased $211,000 and occupancy expense increased $180,000 for the nine months ended December 31, 2005 as compared to the same period in the prior year.

Income Taxes. Income tax expense decreased $23,000 or 0.3% and increased $3.2 million or 16.0%, respectively, during the three and nine months ended December 31, 2005, as compared to the same respective periods in 2004. The increase for the nine-month period was the result of an increase in income before income tax of $4.9 million to $56.2 million for the nine months ended December 31, 2005, as compared to $51.3 million for the same period in the prior year. The effective tax rate was 41.1% and 40.9% for the three- and nine-month periods ended December 31, 2005, respectively, as compared to 41.6% and 38.6% for the same respective periods last year.

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FINANCIAL CONDITION

During the nine months ended December 31, 2005, the Corporation’s assets increased by $149.8 million from $4.05 billion at March 31, 2005 to $4.20 billion. The majority of this increase was attributable to an increase in mortgage-related securities and loans receivable, which was partially offset by decreases in other categories such as investments and office properties and equipment.

Total loans (including loans held for sale) increased $132.3 million during the nine months ended December 31, 2005. Activity for the period consisted of (i) originations and purchases of $1.91 billion, (ii) sales of $565.5 million, (iii) transfer of loans for securitization of mortgage-backed securities of $94.1 million and (iv) principal repayments and other adjustments of $1.11 billion.

Mortgage-related securities (both available for sale and held to maturity) increased $53.7 million during the nine months ended December 31, 2005 as a result of purchases of $23.7 million and the securitization of mortgage loans held for sale to mortgage-backed securities of $94.2 million of mortgage-related securities. These increases were partially offset by principal repayments and market value adjustments of $51.5 million and sales of $12.7 million in this nine-month period. Mortgage-related securities consisted of $170.3 million of mortgage-backed securities and $87.1 million of collateralized mortgage obligations (“CMO’s”) and real estate mortgage investment conduits (“REMIC’s”) at December 31, 2005.

The Corporation invests in corporate CMOs and agency-issued REMICs. These investments are deemed to have limited credit risk. The investments do have interest rate risk due to, among other things, actual prepayments being more or less than those predicted at the time of purchase. 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.

Investment securities decreased $15.9 million during the nine months ended December 31, 2005 as a result of sales and maturities of $143.8 million of U.S. Government and agency securities, which were partially offset by purchases of $127.9 million of such securities.

Federal Home Loan Bank (“FHLB”) stock increased $425,000 during the nine months ended December 31, 2005.

Real estate held for development and sale increased $2.1 million to $51.0 million as of December 31, 2005 from $48.9 million as of March 31, 2005. This net increase was the result of additional development of a commercial project in Texas offset by continued home and land lot sales.

Total liabilities increased $151.0 million during the nine months ended December 31, 2005. This increase was largely due to a $113.8 million increase in deposits, a $21.0 million increase in borrowings and a $16.2 million increase in other liabilities during the nine-month period. 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 $357.5 million at December 31, 2005 and $357.3 million at March 31, 2005, and generally mature within one to five years.

Stockholders’ equity increased $1.4 million during the nine months ended December 31, 2005 as a net result of (i) comprehensive income of $32.1 million, (ii) stock options exercised of $5.9 million (with the excess of the cost of treasury shares over the option price ($5.6 million) charged to retained earnings), (iii) the issuance of shares for management and benefit plans of $307,000, and (iv) benefit plan shares earned and related tax adjustments totaling $1.9 million. These increases were partially offset by (i) cash dividends of $9.9 million and (ii) purchases of treasury stock of $23.3 million.

30

ASSET QUALITY

Non-performing assets increased $1.4 million to $17.3 million at December 31, 2005 from $15.9 million at March 31, 2005 and increased as a percentage of total assets to .41% from .39% at such dates, respectively.

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

	At December 31,			At March 31,
	2005			2005			2004			2003
				(Dollars In Thousands)
Non-accrual loans:
Single-family residential	$	2,489		$	2,406		$	3,247		$	4,510
Multi-family residential		3,956			—			—			444
Commercial real estate		5,803			4,894			8,764			1,776
Construction and land		—			—			—			—
Consumer		771			453			642			661
Commercial business		1,640			6,697			2,268			2,678
Total non-accrual loans		14,659			14,450			14,921			10,069
Real estate held for development and sale		—			—			—			49
Foreclosed properties and repossessed assets, net		2,606			1,458			2,422			1,535
Total non-performing assets	$	17,265		$	15,908		$	17,343		$	11,653
Performing troubled debt restructurings	$	73		$	—		$	2,649		$	2,590
Total non-accrual loans to total loans(1)		0.38	%		0.40	%		0.45	%		0.34	%
Total non-performing assets to total assets		0.41			0.39			0.46			0.33
Allowance for loan losses to total loans(1)		0.40			0.73			0.87			1.00
Allowance for loan losses to total non-accrual loans		104.05			183.00			191.72			294.74
Allowance for loan and foreclosure losses to total non-performing assets		89.70			167.39			165.78			257.87

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

Non-accrual loans increased $209,000 during the nine months ended December 31, 2005. The increase was not attributable to any one specific loan. At December 31, 2005, there were three non-accrual loans with loan balances greater than $1.0 million. One was a $3.5 million multi-family residential loan secured by three multi-family properties located in Wisconsin. The second was a $1.5 million commercial real estate loan secured by commercial development property located in southern Wisconsin. The third was a $1.5 million commercial real estate loan secured by a manufacturing facility located in southern Wisconsin. 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.

Foreclosed properties and repossessed assets increased $1.1 million for the nine months ended December 31, 2005. The increase was largely attributable to a $412,000 commercial real estate loan and a $494,000 commercial real estate loan that went to foreclosure in the nine-month period.

Performing troubled debt restructurings increased $73,000 during the nine months ended December 31, 2005.

At December 31, 2005, assets that the Corporation had classified as substandard, net of reserve, consisted of $17.1 million of loans and foreclosed properties. As of March 31, 2005, substandard assets amounted to $16.4 million. An

31

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. The increase of $681,000 in the substandard balance for the nine months ended December 31, 2005 was attributable to the addition of a $3.5 million multi-family residential loan secured by the assets of three multi-family properties located in Wisconsin and the addition of $2.3 million of commercial business loans secured by the assets of a business located in southern Wisconsin. These increases were offset by the charge off of $5.2 million of substandard commercial loans.

The category of substandard assets contains three loans with a carrying value of greater than $1.0 million. One loan, with a carrying value of $3.5 million, is secured by the assets of three multi-family properties located in Wisconsin. A second loan, with a carrying value of $1.2 million, is secured by a commercial property located in southern Wisconsin. A third loan, with a carrying value of $1.2 million is secured by commercial development property located in southern Wisconsin.

At December 31, 2005, the Corporation had identified assets of $3.9 million as impaired, net of reserves. As of March 31, 2005, impaired loans were $3.7 million. The increase since March 31, 2005 was not attributable to one loan. The increase in impaired loans is not considered to be a trend in the overall loan portfolio at this time. 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:

	At December 31,		At March 31,
	2005		2005		2004		2003
	(In Thousands)
Impaired loans with valuation reserve required	$	6,030	$	10,827	$	17,126	$	8,483
Less:
Specific valuation allowance		2,172		7,126		5,382		3,717
Total impaired loans	$	3,858	$	3,701	$	11,744	$	4,766
Average impaired loans	$	6,074	$	11,535	$	6,389	$	6,288
Interest income recognized on impaired loans	$	114	$	249	$	710	$	613
Interest income recognized on a cash basis on impaired loans	$	114	$	249	$	710	$	613

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

	At December 31,		At March 31,
	2005		2005		2004		2003
	(In Thousands)
30 to 59 days	$	7,904	$	5,853	$	4,887	$	10,083
60 to 89 days		1,477		714		10,941		5,612
Total	$	9,381	$	6,567	$	15,828	$	15,695

The majority of the increase in loans 60 to 89 days delinquent since March 31, 2005 was substantially due to one large credit which has also been placed in the impaired loan category with a specific loan loss allowance applied to it.

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 are based on current occupancy and lease rates) and pending offers.

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

	Three Months Ended						Nine Months Ended
	December 31,						December 31,
	2005			2004			2005			2004
				(Dollars In Thousands)
Allowance at beginning of period	$	22,582		$	28,213		$	26,444		$	28,607
Charge-offs:
Mortgage		(900	)		(702	)		(1,044	)		(1,132	)
Consumer		(181	)		(209	)		(469	)		(669	)
Commercial business		(6,964	)		(595	)		(12,319	)		(993	)
Total charge-offs		(8,045	)		(1,506	)		(13,832	)		(2,794	)
Recoveries:
Mortgage		1			137			82			174
Consumer		8			11			51			53
Commercial business		6			7			57			72
Total recoveries		15			155			190			299
Net charge-offs		(8,030	)		(1,351	)		(13,642	)		(2,495	)
Provision for loan losses		700			664			2,450			1,414
Allowance at end of period	$	15,252		$	27,526		$	15,252		$	27,526
Net charge-offs to average loans		(0.91	)%		(0.16	)%		(0.53	)%		(0.10	)%

During the nine months ended December 31, 2005, management decided to charge off two large commercial credits totaling $11.6 million. Of the $11.6 million charged off, approximately $5.3 million was reserved for in prior years. The remaining amount charged off was established and charged off in the three months ended December 31, 2005.

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Although management believes that the December 31, 2005 allowance for loan losses is adequate based upon the current evaluation of loan delinquencies, non-performing assets, charge-off trends, economic conditions and other factors, there can be no assurance that future adjustments to the allowance will not be necessary. Management also continues to pursue all practical and legal methods of collection, repossession and disposal, and adheres to high underwriting standards in the origination process in order to continue to maintain strong asset quality.

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.

At December 31, 2005, the Corporation had outstanding commitments to originate loans of $71.9 million and commitments to extend funds to, or on behalf of, customers pursuant to lines and letters of credit of $351.5 million. The Corporation had sold loans with recourse in the amount of $17.3 million through the FHLB Mortgage Partnership Finance Program at December 31, 2005. Scheduled maturities of certificates of deposit during the twelve months following December 31, 2005 amounted to $1.50 billion and scheduled maturities of FHLB advances during the same period totaled $289.6 million. At December 31, 2005, the Corporation had no reverse repurchase agreements. Management believes adequate resources are available to fund all commitments to the extent required.

The Corporation participates in the Mortgage Partnership Finance Program of the Federal Home Loan Bank of Chicago (“FHLB”). Pursuant to the credit enhancement feature of that Program, the Corporation has retained secondary credit loss exposure to approximately $1.51 billion of residential mortgage loans that the Corporation has originated as agent for the FHLB. Under the credit enhancement, the Corporation is liable for losses on loans delivered to the Program after application of any mortgage insurance and a contractually agreed-upon credit enhancement provided by the Program subject to an agree-upon maximum. The Corporation received a fee for this credit enhancement. The Corporation does not anticipate that any credit losses will be incurred in excess of anticipated credit enhancement obligation.

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.

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The following summarizes the Bank’s capital levels and ratios and the levels and ratios required by the OTS at December 31, 2005 and March 31, 2005:

											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)
As of December 31, 2005:
Tier 1 capital
(to adjusted tangible assets)	$	328,060		8.04	%	$	122,341		3.00	%	$	203,902		5.00	%
Risk-based capital
(to risk-based assets)		341,140		10.50			259,999		8.00			324,999		10.00
Tangible capital
(to tangible assets)		328,060		8.04			61,171		1.50			N/A		N/A
As of March 31, 2005:
Tier 1 capital
(to adjusted tangible assets)	$	308,050		7.77	%	$	118,890		3.00	%	$	198,149		5.00	%
Risk-based capital
(to risk-based assets)		327,368		10.71			244,553		8.00			305,691		10.00
Tangible capital
(to tangible assets)		308,050		7.77			59,445		1.50			N/A		N/A

The following table reconciles the Corporation’s stockholders’ equity to regulatory capital at December 31, 2005 and March 31, 2005:

	December 31,			March 31,
	2005			2005
	(In Thousands)
Stockholders’ equity of the Bank	$	346,088		$	327,341
Less: Goodwill and intangible assets		(19,956	)		(20,283	)
Accumulated other comprehensive income		1,928			992
Tier 1 and tangible capital		328,060			308,050
Plus: Allowable general valuation allowances		13,080			19,318
Risk based capital	$	341,140		$	327,368

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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 real estate investment segment, IDI, is required to guarantee the partnership loans of its subsidiaries, for the development of homes for sale. As of December 31, 2005, IDI had guaranteed $44.4 million for the following partnerships on behalf of the respective subsidiaries. As of the same date, $25.2 million was 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 12/31/05		at 3/31/05
		(Dollars in thousands)
Oakmont	Chandler Creek	$	14,150	$	14,150	$	4,355
Davsha III	Indian Palms 147, LLC		4,655		2,637		1,174
Davsha V	Villa Santa Rosa, LLC		11,000		3,056		8,738
Davsha VII	La Vista Grande 121, LLC		14,619		5,378		5,114
Total		$	44,424	$	25,221	$	19,381

IDI has real estate partnership investments within its 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 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.

In acting as a partner with a controlling interest, the Corporation is committed to providing additional levels of funding to meet partnership operating deficits up to an aggregate amount of $44.4 million. At December 31, 2005, the Corporation’s investment in these partnerships consisted of assets of $51.6 million and cash and other assets of $13.8 million. The liabilities of these partnerships consisted of other borrowings of $26.0 million (reported as a part of FHLB and other borrowings), other liabilities of $3.0 million (reported as a part of other liabilities) and minority interest of $7.2 million. These amounts represent the Corporation’s maximum exposure to loss at December 31, 2005 as a result of involvement with 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.

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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 December 31, 2005 has not changed materially since March 31, 2005.

CONSENT ORDER

In September 2004, the Board of Directors of the Bank entered into a Stipulation and Consent to the Issuance of an Order to Cease and Desist for Affirmative Relief with the Office of Thrift Supervision (“OTS”) and the OTS issued a Consent Order to Cease and Desist for Affirmative Relief (“Consent Order”). Under the Consent Order, the Bank’s board of directors has agreed, among other things, to take a range of actions with respect to the review and conduct of its Bank Secrecy Act (“BSA”) compliance activities.

On October 31, 2005, the OTS terminated the Order previously issued to the Bank as a result of the remedial actions taken with respect to BSA compliance by the Bank.

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Item 3	Quantitative and Qualitative Disclosures About Market Risk.
	The Corporation’s market rate risk has not materially changed from March 31, 2005. See the Corporation’s Annual Report on Form 10-K for the year ended March 31, 2005.

Item 4	Controls and Procedures
	The Corporation’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report and, based on this evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.
	During the quarter ended December 31, 2005, the Corporation continued to take steps to address the control deficiencies arising from the error described in Management’s Report on Internal Control Over Financial Reporting in the Company’s Annual Report on Form 10-K for the year ended March 31, 2005 (“2005 Annual Report”), including adoption of the correct method of accounting for loans originated by the Corporation through the Mortgage Partnership Finance (“MPF”) 100 Program of the Federal Home Loan Bank of Chicago (“FHLB”) and restating the Corporation’s financial statements for the affected periods. Management believes that these actions, as well as the other corrective actions described in the Corporation’s 2005 Annual Report, taken as whole, have addressed the control deficiencies arising from the error described in the 2005 Annual Report.
	Other than the actions mentioned above, there has been no change in the Corporation’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that occurred during the Corporation’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Part II — Other Information

Item 1	Legal Proceeding.
	The Corporation is involved in routine legal proceedings occurring in the ordinary course of business which, in the aggregate, are believed by management of the Corporation to be immaterial to the financial condition and results of operations of the Corporation.
	On October 31, 2005, the Office of Thrift Supervision (“OTS”) terminated the cease and desist order previously issued to AnchorBank fsb (the “Bank”) the wholly owned banking subsidiary of the Company. The cease and desist order was issued by the OTS in September 2004 in connection with alleged violations of the Bank Secrecy Act (“BSA”) and related regulations. Under the order, the Bank’s board agreed, among other things, to take a range of actions with respect to the review and conduct of its BSA compliance activities. The OTS terminated the cease and desist order as a result of the remedial actions taken by the Bank with respect to BSA compliance.

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Item 2	Unregistered Sales of Equity Securities and Use of Proceeds.
	(a) - (b) Not applicable.
	(c) The following table sets forth information with respect to any purchase made by or on behalf of the Corporation or any “affiliated purchaser,” as defined in §240.10b-18(a)(3) under the Exchange Act, of shares of the Corporation’s Common Stock during the indicated periods.

						Total Number of
						Shares Purchased		Maximum Number of
	Total Number			Average		as Part of Publicly		Shares that May Yet Be
	of Shares			Price Paid		Announced Plans		Purchased Under the
Period	Purchased			per Share		or Programs		Plans or Programs(2)
October 1 - October 31, 2005		169,800		$	29.24		169,800		568,860
November 1 - November 30, 2005		—			—		—		1,668,860
December 1 - December 31, 2005		149,504			31.21		149,500		1,519,360
Total		319,304	(1)	$	30.16		319,300		1,519,360

(1) Consists of 319,300 shares purchased pursuant to a publicly announced repurchase program, as described in Note 2, and 4 shares acquired from employees in payment for the exercise price of stock options granted to them pursuant to the Corporation’s stock option program.

(2) Effective November 7, 2005, the Board of Directors extended the current share repurchase program and authorized an additional share repurchase program of 5% or approximately 1.10 million shares of its outstanding common stock in the open market. The repurchases are authorized to be made from time to time in open-market and/or negotiated transactions as, in the opinion of management, market conditions may warrant. The repurchased shares will be held as treasury stock and will be available for general corporate purposes. The Corporation utilizes various securities brokers as its agent for the stock repurchase program.

Item 3	Defaults upon Senior Securities.
	Not applicable.

Item 4	Submission of Matters to a Vote of Security Holders.
	Not applicable.

Item 5	Other Information.
	None.

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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:	February 6, 2006	By:	/s/ Douglas J. Timmerman
			Douglas J. Timmerman, Chairman of the
			Board, President and Chief Executive Officer
Date:	February 6, 2006	By:	/s/ Michael W. Helser
			Michael W. Helser, Treasurer and
			Chief Financial Officer

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