Anchor BanCorp Wisconsin (ABCW) 10-Q 2008 Q2 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2008

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

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

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

Yeso Noþ

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

Class: Common stock — $.10 Par Value

Number of shares outstanding as of July 31, 2008: 21,480,959

ANCHOR BANCORP WISCONSIN INC.
INDEX — FORM 10-Q

	Page #
Part I — Financial Information
Item 1 Financial Statements (Unaudited)
Consolidated Balance Sheets as of June 30, 2008 and March 31, 2008		2
Consolidated Statements of Income for the Three Months Ended June 30, 2008 and 2007		3
Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2008 and 2007		4
Notes to Unaudited Consolidated Financial Statements		6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Results of Operations		26
Financial Condition		30
Asset Quality		31
Liquidity & Capital Resources		35
Guarantees		37
Asset/Liability Management		38
Item 3 Quantitative and Qualitative Disclosures About Market Risk		39
Item 4 Controls and Procedures		39
Part II — Other Information
Item 1 Legal Proceedings		40
Item 1A Risk Factors		40
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		42
Item 3 Defaults upon Senior Securities		42
Item 4 Submission of Matters to a Vote of Security Holders		42
Item 5 Other Information		43
Item 6 Exhibits		44
Signatures		45
Exhibit 10.1
Exhibit 10.2
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

	June 30,			March 31,
	2008			2008
	(In Thousands, Except Share Data)
Assets
Cash	$	85,101		$	102,622
Interest-bearing deposits		17,683			155,121
Cash and cash equivalents		102,784			257,743
Investment securities available for sale		97,707			87,036
Mortgage-related securities available for sale		270,042			269,370
Mortgage-related securities held to maturity (fair value of $57 and $60, respectively)		57			59
Loans, less allowance for loan losses of $40,265 at June 30, 2008 and $38,285 at March 31, 2008:
Held for sale		6,619			9,669
Held for investment		4,129,075			4,202,833
Foreclosed properties and repossessed assets, net		24,006			8,247
Real estate held for development and sale		59,808			59,002
Office properties and equipment		47,937			47,916
Federal Home Loan Bank stock—at cost		54,829			54,829
Accrued interest on investments, loans and other assets		84,096			80,478
Goodwill		72,375			72,375
Total assets	$	4,949,335		$	5,149,557
Liabilities and Stockholders’ Equity
Deposits
Non-interest bearing	$	302,011		$	280,897
Interest bearing		3,104,964			3,259,097
Total deposits		3,406,975			3,539,994
Short-term borrowings		273,015			232,289
Long-term borrowings		874,314			974,472
Other liabilities		45,391			51,605
Total liabilities		4,599,695			4,798,360
Commitments and contingent liabilities (Note 11)
Minority interest in real estate partnerships		6,041			6,081
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, 21,480,959 and 21,348,170 shares outstanding, respectively		2,536			2,536
Additional paid-in capital		72,313			72,300
Retained earnings		374,578			374,593
Accumulated other comprehensive income (loss)		(3,035	)		1,864
Treasury stock (3,882,380 and 4,015,169 shares, respectively), at cost		(97,441	)		(100,930	)
Deferred compensation obligation		(5,352	)		(5,247	)
Total stockholders’ equity		343,599			345,116
Total liabilities, minority interest and stockholders’ equity	$	4,949,335		$	5,149,557

See accompanying Notes to Unaudited Consolidated Financial Statements.

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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

	Three Months Ended June 30,
	2008			2007
	(In Thousands, Except Per Share Data)
Interest income:
Loans	$	65,711		$	68,031
Mortgage-related securities		3,669			3,006
Investment securities and Federal Home Loan Bank stock		800			1,215
Interest-bearing deposits		328			395
Total interest income		70,508			72,647
Interest expense:
Deposits		26,842			31,446
Short-term borrowings		1,743			6,658
Long-term borrowings		8,502			3,526
Total interest expense		37,087			41,630
Net interest income		33,421			31,017
Provision for loan losses		9,400			2,271
Net interest income after provision for loan losses		24,021			28,746
Non-interest income:
Real estate investment partnership revenue		—			4,726
Loan servicing income		1,201			1,480
Credit enhancement income		417			421
Service charges on deposits		3,859			3,091
Investment and insurance commissions		1,181			982
Net gain on sale of loans		2,243			1,587
Net gain on sale of investments and mortgage-related securities		—			12
Other revenue from real estate partnership operations		1,473			1,223
Other		1,435			1,118
Total non-interest income		11,809			14,640
Non-interest expense:
Compensation		13,307			11,270
Real estate investment partnership cost of sales		—			4,340
Occupancy		2,417			1,937
Furniture and equipment		2,126			1,481
Data processing		1,812			1,487
Marketing		587			1,084
Other expenses from real estate partnership operations		2,191			2,085
Other		4,351			3,203
Total non-interest expense		26,791			26,887
Minority interest in loss of consolidated real estate partnerships		(39	)		(75	)
Income before income taxes		9,078			16,574
Income taxes		3,566			6,688
Net income	$	5,512		$	9,886
Earnings per share:
Basic	$	0.26		$	0.47
Diluted		0.26			0.46
Dividends declared per share		0.18			0.17

See accompanying Notes to Unaudited Consolidated Financial Statements.

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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended June 30,
	2008			2007
	(In Thousands)
Operating Activities
Net income	$	5,512		$	9,886
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		9,400			2,271
Provision for depreciation and amortization		1,255			1,016
Cash paid due to origination of loans held for sale		(176,203	)		(127,562	)
Cash received due to sale of loans held for sale		181,496			124,561
Net gain on sales of loans		(2,243	)		(1,587	)
Loss on sale of investments		—			(12	)
Decrease (increase) in accrued interest receivable		396			(583	)
Increase in prepaid expense and other assets		(4,014	)		(404	)
Decrease in accrued interest payable		(5,526	)		(197	)
Increase (decrease) in other payable		(4,092	)		7,388
Other		(4,624	)		(714	)
Net cash provided by operating activities		1,357			14,063
Investing Activities
Proceeds from maturities of investment securities		7,690			25,112
Purchase of investment securities available for sale		(19,790	)		(26,648	)
Purchase of mortgage-related securities available for sale		(24,168	)		(10,684	)
Principal collected on mortgage-related securities		17,189			15,224
Net decrease (increase) in loans held for investment		55,293			(17,591	)
Net purchase of office properties and equipment		(1,234	)		(1,222	)
Proceeds from sale of foreclosed properties		762			3,735
Investment in real estate held for development and sale		(890	)		1,357
Net cash provided by (used in) investing activities		34,852			(10,717	)

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

	Three Months Ended June 30,
	2008			2007
	(In Thousands)
Financing Activities
Decrease in deposit accounts	$	(135,276	)	$	(4,593	)
Increase in advance payments by borrowers for taxes and insurance		5,661			5,714
Increase in short-term borrowings		40,735			72,665
Proceeds from long-term borrowings		20,842			8,183
Repayment of long-term borrowings		(121,000	)		(90,309	)
Treasury stock purchased		—			(10,375	)
Exercise of stock options		1,485			533
Cash received from employee stock purchase plan		157			178
Tax benefit from stock related compensation		13			3
Payments of cash dividends to stockholders		(3,785	)		(3,606	)
Net cash used in financing activities		(191,168	)		(21,607	)
Net decrease in cash and cash equivalents		(154,959	)		(18,261	)
Cash and cash equivalents at beginning of period		257,743			122,038
Cash and cash equivalents at end of period	$	102,784		$	103,777
Supplementary cash flow information:
Cash paid or credited to accounts:
Interest on deposits and borrowings	$	42,613		$	41,433
Income taxes		3,155			1,993
Non-cash transactions:
Transfer of loans to foreclosed properties		16,222			—

See accompanying Notes to Unaudited Consolidated Financial Statements

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ANCHOR BANCORP WISCONSIN INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Principles of Consolidation

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

Note 2 — Basis of Presentation

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

In preparing the unaudited consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of foreclosed real estate and deferred tax assets, and the fair value of financial instruments. The results of operations and other data for the three-month period ended June 30, 2008 are not necessarily indicative of results that may be expected for the fiscal year ending March 31, 2009. 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, 2008.

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

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

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

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

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Note 3 — Business Combination

On January 2, 2008, the Corporation acquired 100% of the outstanding common stock of S&C Bank (“S&C”), headquartered in New Richmond, Wisconsin for $106.0 million cash. The transaction generated approximately $52.4 million in goodwill and $5.5 million in intangible assets subject to amortization. At the date of acquisition, S&C became a wholly-owned subsidiary of the Corporation and on February 8, 2008, S&C was merged into the Corporation. On February 15, 2008, the Corporation sold three branches of S&C that were located in Minnesota.

The business combination was accounted for under the purchase method of accounting. Accordingly, the results of operations of the acquired company have been included in the Corporation’s results of operations since the date of acquisition. Under this method of accounting, the purchase price is allocated to the respective assets acquired and liabilities assumed based on their estimated fair values, net of applicable income tax effects. The excess cost over fair value of net assets acquired is recorded as goodwill.

Unaudited Pro Forma Condensed Combined Financial Information

The following unaudited pro forma condensed combined financial information presents the results of operations of the Corporation had the merger been completed as of the beginning of the period indicated (in thousands, except share and per share data).

	Three Months
	Ended June 30,
	2007
Net interest income after provision for loan losses	$	33,105
Non-interest income		15,945
Non-interest expense		30,712
Minority interest in loss of real estate partnership operations		(75	)
Income before taxes		18,413
Income taxes		7,278
Net income	$	11,135
Per common share information
Earnings		0.53
Diluted earnings		0.52
Average common shares issued and outstanding		21,124,164
Average diluted common shares outstanding		21,320,307

Note 4 — Stock-Based Compensation

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

At June 30, 2008, an aggregate of 879,926 shares were available for future grants, including up to 300,000 shares that may be awarded in the form of restricted stock or restricted stock units which are not subject to the achievement of a performance target or targets. A summary of stock option activity is provided in the following table:

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	Three Months Ended June 30, 2008
				Weighted
				Average
	Options			Price
Outstanding at beginning of period		752,397		$	20.43
Granted		—			—
Exercised		(96,870	)		15.34
Forfeited		(2,562	)		17.75
Outstanding at end of period		652,965		$	21.20
Options exercisable at June 30, 2008		652,965		$	21.20

The following table represents outstanding stock options and exercisable stock options at their respective ranges of exercise prices at June 30, 2008:

	Options Outstanding						Exercisable Options
			Weighted-
			Average
			Remaining		Weighted-				Weighted-
			Contractual		Average				Average
Range of Exercise Prices	Shares		Life (Years)		Exercise Price		Shares		Exercise Price
$15.06 — $19.94		299,625		1.59	$	17.26		299,625	$	17.26
$21.81 — $23.77		277,250		4.48		23.04		277,250		23.04
$28.50 — $31.95		76,090		6.69		29.99		76,090		29.99
		652,965		3.41		21.20		652,965		21.20

The aggregate intrinsic value of options outstanding and exercisable at June 30, 2008 was zero.

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

	Three Months Ended June 30, 2008
			Weighted
			Average
	Options		Price
Balance at beginning of period		78,800	$	26.32
Restricted stock granted		—		—
Restricted stock vested		—		—
Restricted stock forfeited		—		—
Balance at end of period		78,800	$	26.32

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Note 5 — Loans Receivable

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

	June 30,			March 31,
	2008			2008
First mortgage loans:
Single-family residential	$	884,433		$	893,001
Multi-family residential		684,326			694,423
Commercial real estate		1,050,345			1,088,004
Construction		364,003			402,395
Land		296,476			306,363
		3,279,583			3,384,186
Second mortgage loans		393,741			356,009
Education loans		289,875			275,850
Commercial business loans and leases		270,756			277,312
Credit card and other consumer loans		55,286			95,149
		4,289,241			4,388,506
Contras to loans:
Undisbursed loan proceeds		(114,140	)		(141,219	)
Allowance for loan losses		(40,264	)		(38,285	)
Unearned loan fees		(5,676	)		(6,075	)
Net discount on loans purchased		(11	)		(11	)
Unearned interest		(75	)		(83	)
		(160,166	)		(185,673	)
	$	4,129,075		$	4,202,833

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

	Three Months Ended June 30,
	2008			2007
	(Dollars In Thousands)
Allowance at beginning of year	$	38,285		$	20,517
Provision		9,400			2,271
Charge-offs		(7,426	)		(659	)
Recoveries		6			91
Allowance at end of year	$	40,265		$	22,220

At June 30, 2008, the Corporation has identified $103.7 million of loans as impaired, net of allowances. A loan is identified as impaired when, according to FAS 114, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. A summary of the details regarding impaired loans follows:

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	At June 30,			At March 31,
	2008			2008			2007			2006
				(In Thousands)
Impaired loans with valuation reserve required	$	54,619		$	52,866		$	2,130		$	6,381
Impaired loans without a specific reserve		68,411			51,192			45,718			9,107
Less:
Specific valuation allowance		(19,286	)		(17,639	)		(517	)		(3,111	)
	$	103,744		$	86,419		$	47,331		$	12,377
Average impaired loans	$	73,213		$	61,931		$	24,620		$	9,010
Interest income recognized on impaired loans	$	43		$	107		$	44		$	208
Interest income recognized on a cash basis on impaired loans	$	43		$	107		$	44		$	208
Loans on nonaccrual status	$	120,131		$	101,241		$	47,040		$	13,529
Loans past due ninety days or more and still accruing	$	—		$	—		$	—		$	—

Note 6 — Goodwill and Other Intangible Assets

The Corporation’s carrying value of goodwill was $72.4 million at June 30, 2008 and at March 31, 2008. The goodwill was assigned to the community banking segment. The total goodwill amount is not deductible for tax purposes.

The Corporation has other intangible assets consisting of core deposit intangibles with a remaining weighted average amortization period of approximately nine years. The core deposit premium had a carrying amount and a value net of accumulated amortization of $5.2 million and $5.4 million at June 30, 2008 and March 31, 2008, respectively.

The following table presents the changes in the carrying amount of core deposit intangibles, gross carrying amount, accumulated amortization and net book value as of June 30, 2008 and March 31, 2008.

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	June 30,			March 31,
	2008			2008
	(In Thousands)
Balance at beginning of period	$	5,359		$	—
Other intangibles from business combination		—			5,517
Amortization expense		(159	)		(158	)
Balance at end of period	$	5,200		$	5,359
Gross carrying amount	$	5,517		$	5,517
Accumulated amortization		(317	)		(158	)
Net book value	$	5,200		$	5,359

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

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

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

Critical assumptions used in our discounted cash flow model include mortgage prepayment speeds, discount rates, costs to service and ancillary income. Variations in our assumptions could materially affect the estimated fair values. Changes to our assumptions are made when current trends and market data indicate that new trends have developed. Current market value assumptions based on loan product types — fixed rate, adjustable rate and balloon loans — include discount rates in the range of 11 to 20 percent and national prepayment speeds. Many of these assumptions are subjective and require a high level of management judgment. MSR valuation assumptions are reviewed and approved by management on a quarterly basis.

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

The Corporation has chosen to use the amortization method to measure each class of separately recognized servicing assets. Under the amortization method, the Corporation amortizes servicing assets in proportion to and over the period of net servicing income. Income generated as the result of new servicing assets is reported as net

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gain on sale of loans and the amortization of servicing assets is reported as a reduction to loan servicing income in the Corporation’s consolidated statements of income. Ancillary income is recorded in other non-interest income.

Information regarding the Corporation’s mortgage servicing rights follows:

	Residential			Other
	(In Thousands)
Mortgage servicing rights as of March 31, 2007	$	6,364		$	1,047
Acquired servicing rights of S & C Bank at market value		1,632			—
Additions		5,822			629
Amortization		(1,985	)		(333	)
Reclassification		(135	)		135
Mortgage servicing rights before valuation allowance at end of period		11,698			1,478
Valuation allowance		—			—
Net mortgage servicing rights as of March 31, 2008	$	11,698		$	1,478
Fair market value at the end of the period	$	13,764		$	2,040
Key assumptions:
Weighted average discount		11.04	%		20.12	%
Weighted average prepayment speed assumption		16.82	%		13.15	%
Mortgage servicing rights as of March 31, 2008	$	11,698		$	1,478
Additions		2,080			44
Amortization		(682	)		(102	)
Mortgage servicing rights before valuation allowance at end of period		13,096			1,420
Valuation allowance		—			—
Net mortgage servicing rights as of June 30, 2008	$	13,096		$	1,420
Fair market value at the end of the period	$	16,858		$	1,978
Key assumptions:
Weighted average discount		11.02	%		18.36	%
Weighted average prepayment speed assumption		11.21	%		12.09	%

The projections of amortization expense for mortgage servicing rights and the core deposit premium set forth below are based on asset balances and the interest rate environment as of June 30, 2008. Future amortization expense may be significantly different depending upon changes in the mortgage servicing portfolio, mortgage interest rates and market conditions.

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	Residential		Other		Core
	Mortgage		Mortgage		Deposit
	Servicing Rights		Servicing Rights		Premium		Total
	(In Thousands)
Quarter ended June 30, 2008 (actual)	$	682	$	102	$	159	$	943
Estimate for the year ended March 31, 2009	$	2,728	$	408	$	636	$	3,772
2010		2,728		408		636		3,772
2011		2,728		408		636		3,772
2012		2,728		196		636		3,560
Thereafter		2,184		—		2,656		4,840
	$	13,096	$	1,420	$	5,200	$	19,716

Note 7 — Recent Accounting Pronouncements

On March 19, 2008, the FASB issued FASB Statement No. 161,Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement 133(“SFAS 161”).SFAS 161 enhances required disclosures regarding derivatives and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and related hedged items are accounted for under FASB Statement No. 133,Accounting for Derivative Instruments and Hedging Activities;and (c) derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Specifically, SFAS 161 requires:

• Disclosure of the objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation;

• Disclosure of the fair values of derivative instruments and their gains and losses in a tabular format;

• Disclosure of information about credit-risk-related contingent features; and

• Cross-reference from the derivative footnote to other footnotes in which derivative-related information is disclosed.

Statement No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. Management is currently evaluating the provisions of SFAS 161 and its potential effect on its financial statements.

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

• acquisition costs will be generally expensed as incurred;

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

• acquired contingent liabilities will be recorded at fair value at the acquisition date and subsequently measured at either the higher of such amount or the amount determined under existing guidance for non-acquired contingencies;

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

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

13

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

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

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

Effective April 1, 2008, we adopted the provisions of SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits the Corporation to choose to measure eligible items at fair value at specified election dates. Unrealized gains and losses on items for which the fair value measurement option has been elected are reported in earnings at each subsequent reporting date. The fair value option (i) may be applied instrument by instrument, with certain exceptions, thus the Corporation may record identical financial assets and liabilities at fair value or by another measurement basis permitted under generally accepted accounting principals, (ii) is irrevocable (unless a new election date occurs) and (iii) is applied only to entire instruments and not to portions of instruments. The Corporation has not elected the fair value option for any financial assets or liabilities. Adoption of SFAS 159 on April 1, 2008 did not have a significant impact on the Corporation’s financial statements.

Note 8 — Stockholders’ Equity

During the quarter ended June 30, 2008, options for 96,870 shares of common stock were exercised at a weighted-average price of $15.34 per share for a total of $1.5 million for the three-month period. 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 $1.1 million was charged to retained earnings. During the quarter ended June 30, 2008, the Corporation issued 35,919 shares of treasury stock to the Corporation’s retirement and benefit plans. The weighted-average cost of these shares was $9.40 per share or $338,000 in the aggregate. The $639,000 excess of the cost over the market price of the treasury shares was charged to retained earnings. During the quarter ended June 30, 2008, the Corporation did not acquire any shares of its common stock as a result of purchases in the open market. See Part II, Item 2. On May 15, 2008, the Corporation paid a cash dividend of $.18 per share, amounting to $3.8 million, in the aggregate.

Unrealized gains or losses on the Corporation’s available-for-sale securities are included in other comprehensive income. During the quarters ended June 30, 2008 and 2007, total comprehensive income amounted to $613,000 and $8.0 million, respectively.

Upon adoption of Financial Accounting Standard 123(R) on April 1, 2007, the accounting for restricted stock was changed to prospectively recognize the unearned deferred compensation. The unearned portion was previously shown as a reduction of equity.

14

Note 9 — Earnings Per Share

Basic earnings per share for the three months ended June 30, 2008 and 2007 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.

	Three Months Ended June 30,
	2008		2007
Numerator:
Net income	$	5,511,513	$	9,885,633
Numerator for basic and diluted earnings per share—income available to common stockholders	$	5,511,513	$	9,885,633
Denominator:
Denominator for basic earnings per share—weighted-average common shares outstanding		20,928,151		21,124,164
Effect of dilutive securities:
Employee stock options		—		196,143
Denominator for diluted earnings per share—adjusted weighted-average common shares and assumed conversions		20,928,151		21,320,307
Basic earnings per share	$	0.26	$	0.47
Diluted earnings per share	$	0.26	$	0.46

At June 30, 2008, approximately 677,000 stock options were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

15

Note 10 — Segment Information

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

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

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

Net loss from the real estate investment segment increased $71,000 to a net loss of $632,000 for the three months ended June 30, 2008, as compared to a net loss of $561,000 for the same respective period in 2007. The increased loss for the three-month period was due to a $4.7 million decrease in partnership revenue as well as a $106,000 increase in other expense from real estate partnership operations which were offset in part by a $4.3 million decrease in real estate investment partnership cost of sales as well as a $250,000 increase in partnership other revenue from real estate operations, for the three months ended June 30, 2008 as compared to the same respective period in the prior year. The decrease in sales was due to the slowing of housing sales in the California market, which is reflective of the national trend. The partnerships currently have approximately 43 single family housing units and approximately 100 individual lots for sale. Management continues to evaluate options to mitigate the holding costs of the housing units and individual lots.

The following represents reconciliations of reportable segment revenues, profit or loss and assets to the Corporation’s consolidated totals for the three months ended June 30, 2008 and 2007, respectively.

16

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

	Three Months Ended June 30, 2007
	(In Thousands)
										Consolidated
	Real Estate			Community			Intersegment			Financial
	Investments			Banking			Eliminations			Statements
Interest income	$	85		$	73,058		$	(496	)	$	72,647
Interest expense		448			41,678			(496	)		41,630
Net interest income (loss)		(363	)		31,380			—			31,017
Provision for loan losses		—			2,271			—			2,271
Net interest income (loss) after provision for loan losses		(363	)		29,109			—			28,746
Real estate investment partnership revenue		4,726			—			—			4,726
Other revenue from real estate operations		1,223			—			—			1,223
Other income		—			8,721			(30	)		8,691
Real estate investment partnership cost of sales		(4,340	)		—			—			(4,340	)
Other expense from real estate partnership operations		(2,115	)		—			30			(2,085	)
Minority interest in loss of real estate partnerships		75			—			—			75
Other expense		—			(20,462	)		—			(20,462	)
Income (loss) before income taxes		(794	)		17,368			—			16,574
Income tax (benefit) expense		(233	)		6,921			—			6,688
Net income (loss)	$	(561	)	$	10,447		$	—		$	9,886
Total assets at end of period	$	72,066		$	4,460,692		$	—		$	4,532,758
Goodwill	$	—		$	19,956		$	—		$	19,956

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Note 11 — Commitments and Contingent Liabilities

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

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

	June 30,		March 31,
	2008		2008
Commitments to extend credit:	$	84,083	$	119,224
Unused lines of credit:
Home equity		144,841		136,458
Credit cards		40,082		40,368
Commercial		128,703		128,505
Letters of credit		41,943		47,218
Credit enhancement under the Federal
Home Loan Bank of Chicago Mortgage
Partnership Finance Program		23,843		23,698
Real estate investment segment borrowing guarantees unfunded		2,735		3,277

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

The real estate investment segment borrowing guarantees unfunded represent the Corporation’s commitment through its IDI subsidiary to guarantee the borrowings of the related real estate investment partnerships up to a total of $31.5 million. For additional information, see “Guarantees” in Item 2- Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

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

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Note 12 — Fair Value of Financial Instruments

Effective April 1, 2008, the Corporation partially adopted SFAS 157, Fair Value Measurements, (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies only to fair value measurements already required or permitted by other accounting standards and does not impose requirements for additional fair value measures. SFAS 157 was issued to increase consistency and comparability in reporting fair values. In February 2008, the Financial Accounting Standards Board issued Staff Position No. FAS 157-2, or FSP 157-2, which delays the effective date of SFAS 157 for certain nonfinancial assets and nonfinancial liabilities, to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The delay is intended to allow additional time to consider the effect of various implementation issues that have arisen, or that may arise, from the application of SFAS 157. The Corporation has elected to apply the deferral provisions in FSP 157-2 and therefore has only partially applied the provisions of SFAS 157. The Corporation’s adoption of SFAS 157 did not have a material impact on the Corporation’s financial condition or results of operations.

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

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

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

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

The Corporation has not adopted the provisions of SFAS 157 with respect to certain nonfinancial assets, such as other real estate owned. The Corporation will fully adopt SFAS 157 with respect to such items effective April 1, 2009. The Corporation does not believe that such adoption will have a material impact on the consolidated financial statements, but will result in additional disclosures related to the fair value of nonfinancial assets.

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

Fair Value on a Recurring Basis

The table below presents the balance of securities available-for-sale at June 30, 2008, which are measured at fair value on a recurring basis (in thousands):

19

	Fair Value Measurements Using
			Quoted Prices
			in Active		Significant Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Investment securities available for sale	$	97,707	$	3,468	$	94,239	$	—
Mortgage-related securities available for sale		270,042		—		270,042		—

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

Fair Value on a Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents such assets carried on the balance sheet by caption and by level within the SFAS 157 hierarchy as of June 30, 2008 (in thousands):

	Fair Value Measurements Using
			Quoted Prices
			in Active		Significant Other		Significant
			Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Impaired loans with specific valuation allowance under SFAS 114	$	42,160	$	—	$	—	$	42,160
Loans held for sale		2,496		—		2,496		—

The specific reserves for collateral dependent impaired loans are based on the fair value of the collateral less estimated costs to sell. The fair value of collateral was determined based on appraisals. In some cases, adjustments were made to the appraised values due to various factors including age of the appraisal, age of comparables included in the appraisal, and known changes in the market and in the collateral. When significant adjustments were based on unobservable inputs, the resulting fair value measurement has been categorized as a Level 3 measurement. Specific reserves were calculated for impaired loans with an aggregate carrying amount of $54.6 million during the quarter ended June 30, 2008. The collateral underlying these loans had a fair value of $42.1 million, less estimated costs to sell of $6.8 million, resulting in a specific reserve in the allowance for loan losses of $19.3 million.

Note 13 — Subsequent Events

On July 22, 2008, the Corporation declared a $0.10 per share cash dividend on its common stock, amounting to $2.1 million in the aggregate, to be paid on August 15, 2008 to stockholders of record on August 1, 2008.

20

ANCHOR BANCORP WISCONSIN INC.

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

Set forth below is management’s discussion and analysis of the consolidated financial condition and results of operations of Anchor Bancorp Wisconsin Inc. (the “Corporation”) and its wholly-owned subsidiaries, AnchorBank fsb (the “Bank”) and Investment Directions Inc. (“IDI”), for the three months ended June 30, 2008, which includes information on the Corporation’s asset/liability management strategies, sources of liquidity and capital resources. This discussion should be read in conjunction with the unaudited consolidated financial statements and supplemental data contained elsewhere in this report.

Executive Overview

Highlights for the first quarter ended June 30, 2008 include:

• Diluted earnings per share decreased to $0.26 for the quarter ended June 30, 2008 compared to $0.46 per share for the quarter ended June 30, 2007, primarily due to a $7.1 million increase in the provision for loan losses as well as a $2.8 million decrease in non-interest income;

• The interest rate spread increased to 2.83% for the quarter ended June 30, 2008 compared to 2.75% for the quarter ended June 30, 2007;

• Loans receivable decreased $76.8 million, or 1.82%, since March 31, 2008;

• Deposits declined $133.0 million, or 3.76%, since March 31, 2008;

• Book value per share was $16.00 at June 30, 2008 compared to $16.17 at March 31, 2008 and $15.54 at June 30, 2007;

• Total non-performing assets increased $34.6 million, or 31.6%, to $144.1 million at June 30, 2008 from $109.5 million at March 31, 2008 and total non-accrual loans increased $18.9 million, or 18.7%, to $120.1 million at June 30, 2008 from $101.2 million at March 31, 2008; and

• Real estate investment partnership revenue declined $4.7 million from $4.7 million for the three months ended June 30, 2007 to $0 for the three months ended June 30, 2008. Real estate investment partnership cost of sales declined $4.3 million from $4.3 million to $0 during the same respective periods. These decreases were due to the decline in the number of sales at the real estate partnership level. Net loss from the real estate investment segment increased from $561,000 to $632,000 for the three months ended June 30, 2007 and 2008, respectively. The partnerships currently have approximately 43 single family housing units and approximately 100 individual lots for sale. There were no sales of partnership properties during the three months ended June 30, 2008. Management anticipates continued lower sales activity for the remainder of the fiscal year.

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Selected quarterly data are set forth in the following tables.

	Three Months Ended
(Dollars in thousands - except per share amounts)	6/30/2008			3/31/2008			12/31/2007			9/30/2007
Operations Data:
Net interest income	$	33,421		$	35,066		$	31,338		$	31,584
Provision for loan losses		9,400			10,393			7,792			2,095
Net gain on sale of loans		2,243			2,984			1,468			814
Real estate investment partnership revenue		—			457			1,012			2,428
Other non-interest income		9,566			10,121			9,430			7,696
Real estate investment partnership cost of sales		—			548			932			2,669
Other non-interest expense		26,791			29,249			24,180			22,659
Minority interest in loss of real estate partnership operations		(39	)		(43	)		(81	)		(203	)
Income before income taxes		9,078			8,481			10,425			15,302
Income taxes		3,566			2,838			4,096			6,028
Net income		5,512			5,643			6,329			9,274
Selected Financial Ratios(1):
Yield on earning assets		6.05	%		6.10	%		6.68	%		6.90	%
Cost of funds		3.22			3.31			4.01			4.13
Interest rate spread		2.83			2.79			2.67			2.77
Net interest margin		2.87			2.84			2.83			2.92
Return on average assets		0.44			0.43			0.54			0.82
Return on average equity		6.37			6.56			7.44			11.07
Average equity to average assets		6.93			6.55			7.31			7.37
Non-interest expense to average assets		2.15			2.27			2.16			2.23
Per Share:
Basic earnings per share	$	0.26		$	0.27		$	0.30		$	0.44
Diluted earnings per share		0.26			0.27			0.30			0.44
Dividends per share		0.18			0.18			0.18			0.18
Book value per share		16.00			16.17			15.98			15.88
Financial Condition:
Total assets	$	4,949,335		$	5,149,557		$	4,725,773		$	4,611,526
Loans receivable, net
Held for sale		6,619			9,669			6,170			5,403
Held for investment		4,129,075			4,202,833			3,941,891			3,944,980
Deposits		3,406,975			3,539,994			3,145,551			3,178,588
Borrowings		1,147,329			1,206,761			1,150,914			1,039,540
Stockholders’ equity		343,599			345,116			341,084			338,907
Allowance for loan losses		40,265			38,285			28,761			22,002
Non-performing assets		144,137			109,979			87,002			63,078

⁽¹⁾ Annualized when appropriate.

22

	Three Months Ended
(Dollars in thousands - except per share amounts)	6/30/2007			3/31/2007			12/31/2006			9/30/2006
Operations Data:
Net interest income	$	31,017		$	29,834		$	32,529		$	32,838
Provision for loan losses		2,271			4,050			3,375			2,625
Net gain on sale of loans		1,587			465			776			1,349
Real estate investment partnership revenue		4,726			2,851			8,009			3,631
Other non-interest income		8,327			8,205			7,331			8,075
Real estate investment partnership cost of sales		4,340			3,153			7,115			3,486
Other non-interest expense		22,547			21,410			22,443			23,427
Minority interest in loss of real estate partnership operations		(75	)		(573	)		(31	)		(75	)
Income before income taxes		16,574			13,315			15,743			16,430
Income taxes		6,688			5,086			5,308			6,769
Net income		9,886			8,229			10,435			9,661
Selected Financial Ratios(1):
Yield on earning assets		6.80	%		6.73	%		6.81	%		6.76	%
Cost of funds		4.05			4.08			3.92			3.75
Interest rate spread		2.75			2.65			2.89			3.01
Net interest margin		2.90			2.81			3.05			3.15
Return on average assets		0.88			0.74			0.93			0.88
Return on average equity		11.77			9.72			12.51			11.72
Average equity to average assets		7.49			7.61			7.45			7.53
Non-interest expense to average assets		2.40			2.21			2.64			2.46
Per Share:
Basic earnings per share	$	0.47		$	0.39		$	0.49		$	0.45
Diluted earnings per share		0.46			0.38			0.48			0.44
Dividends per share		0.17			0.17			0.17			0.17
Book value per share		15.54			15.55			15.45			15.18
Financial Condition:
Total assets	$	4,532,758		$	4,539,685		$	4,505,896		$	4,481,586
Loans receivable, net
Held for sale		9,062			4,474			4,470			5,393
Held for investment		3,890,053			3,874,049			3,834,381			3,794,039
Deposits		3,248,964			3,248,246			3,240,540			3,223,759
Borrowings		891,016			900,477			841,219			875,014
Stockholders’ equity		331,593			336,866			336,522			330,774
Allowance for loan losses		22,220			20,517			20,031			18,393
Non-performing assets		53,180			54,452			39,484			22,506

⁽¹⁾ Annualized when appropriate.

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Significant Accounting Policies

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

•	Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers many factors which include: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. If a security has been impaired, and the impairment is deemed other-than-temporary and material, a write down will occur in that quarter. If a loss is deemed to be other-than-temporary, it is recognized as a realized loss in the consolidated statement of income with the security assigned a new cost basis.
•	Statement of Financial Accounting Standards (SFAS) No. 115,Accounting for Certain Investments in Debt and Equity Securities, requires that available-for-sale securities be carried at fair value. Management utilizes the services of a third party vendor to assist with the determination of estimated fair values. Adjustments to the available-for-sale securities fair value impact the consolidated financial statements by increasing or decreasing assets and stockholders’ equity, and possibly net income as discussed in the preceding paragraph.
•	The allowance for loan losses is a valuation allowance for probable losses incurred in the loan portfolio. Our allowance for loan loss methodology incorporates a variety of risk considerations in establishing an allowance for loan losses that we believe is adequate to absorb probable losses in the existing portfolio. Such analysis addresses our historical loss experience, delinquency and charge-off trends, collateral values, changes in non-performing loans, economic conditions, peer group experience and other considerations. This information is then analyzed to determine “estimated loss factors” which, in turn, is assigned to each loan category. These factors also incorporate known information about individual loans, including the borrowers’ sensitivity to interest rate movements. Changes in the factors themselves are driven by perceived risk in pools of homogenous loans classified by collateral type, purpose and term. Management monitors local trends to anticipate future delinquency potential on a quarterly basis.
	The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. Provisions for loan losses are provided on both a specific and general basis. Specific allowances are provided for watch, criticized, and impaired credits for which the expected/anticipated loss may be measurable. General valuation allowances are based on a portfolio segmentation based on collateral type, purpose and risk grading, with a further evaluation of various factors noted above.
	We incorporate our internal loss history to establish potential risk based on collateral type securing each loan. As an additional comparison, we examine peer group banks to determine the nature and scope of their losses. Finally, we closely examine each credit graded substandard to individually assess the appropriate specific loan loss reserve for such credit.
	At least quarterly, we review the assumptions and formulas by which additions are made to the specific and general valuation allowances for loan losses in an effort to refine such allowance in light of the current status of the factors described above. The total loan portfolio is thoroughly reviewed at least quarterly for satisfactory levels of general and specific reserves together with impaired loans to determine if write downs are necessary.
	Although we believe the levels of the allowance as of June 30, 2008 are adequate to absorb probable losses in the loan portfolio, a continued decline in local economic conditions,a continued increase in our non-performing assets or other similar factors could result in increasing losses that cannot be reasonably estimated at this time.

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

• The Corporation evaluates goodwill for impairment on at least an annual basis pursuant to SFAS 142, Goodwill and Other Intangible Assets. The first step of the impairment evaluation involves the determination of the fair value of each reporting unit to which goodwill has been assigned. Goodwill is not impaired if the fair value of the reporting unit exceeds its carrying value. The Corporation determined that none of its goodwill was impaired as of December 31, 2007, which is the annual review date.

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RESULTS OF OPERATIONS

General. Net income for the three months ended June 30, 2008 decreased $4.4 million or 44.2% to $5.5 million from $9.9 million as compared to the same period in the prior year. The decrease in net income for the three-month period compared to the same period last year was largely due to an increase in provision for loan losses of $7.1 million and a decrease in non-interest income of $2.8 million, which were partially offset by an increase in net interest income of $2.4 million, a decrease in non-interest expense of $96,000 and a decrease in income tax expense of $3.1 million.

Net Interest Income. Net interest income increased $2.4 million or 7.8% for the three months ended June 30, 2008 as compared to the same period in the prior year. Interest income decreased $2.1 million or 2.9% for the three months ended June 30, 2008 as compared to the same period in the prior year. Interest expense decreased $4.5 million or 10.9% for the three months ended June 30, 2008 as compared to the same period in the prior year. The net interest margin decreased to 2.87% for the three-month period ended June 30, 2008 from 2.90% for the same period in the prior year. The change in the net interest margin reflects the decrease in yield on interest-earning assets from 6.80% to 6.05% during the three months ended June 30, 2007 and 2008, respectively. The decrease in the yield on interest-earning assets is the result of the reversal of interest income on nonaccrual loans as well as the indefinite suspension of dividends on the Federal Home Loan Bank stock. The interest rate spread increased to 2.83% from 2.75% for the three-month period ended June 30, 2008 as compared to the same period in the prior year.

Interest income on loans decreased $2.3 million or 3.4% for the three months ended June 30, 2008, as compared to the same period in the prior year. This decrease was primarily attributable to a decrease of 71 basis points in the average yield on loans to 6.29% from 7.00% for the three-month period. This decrease was offset by an increase in the average balance of loans, which increased $294.7 million in the three months ended June 30, 2008, as compared to the same period in the prior year. The decrease for the three-month period was the result of the reversal of interest income on nonaccrual loans. Interest income on mortgage-related securities increased $663,000 or 22.1% for the three-month period ended June 30, 2008, as compared to the same period in the prior year, primarily due to an increase of 44 basis points in the average yield on mortgage-related securities to 5.35% from 4.91% for the three-month period. There also was an increase of $29.3 million in the three-month average balance of mortgage-related securities. Interest income on investment securities (including Federal Home Loan Bank stock) decreased $415,000 or 34.2% for the three-month period ended June 30, 2008 as compared to the same period in the prior year. The decrease for the three-month period was due to the indefinite suspension of dividends on the Federal Home Loan Bank stock in the fourth quarter of 2007. Interest income on interest-bearing deposits decreased $67,000 for the three months ended June 30, 2008 as compared to the same period in 2007, primarily due to decreases in the average yields for the three-month period.

Interest expense on deposits decreased $4.6 million or 14.6% for the three months ended June 30, 2008, as compared to the same period in 2007. This decrease was primarily attributable to a decrease of 78 basis points in the weighted average cost of deposits to 3.10% from 3.88% for the three months ended June 30, 2008 as compared to the same period in the prior year, partially offset by an increase in the average balance of deposits of $220.1 million for the respective three-month periods. Interest expense on notes payable and other borrowings increased $61,000 or 0.6% during the three months ended June 30, 2008, as compared to the same respective period in the prior year. For the three-month period ended June 30, 2008, the average balance of notes payable increased $274.0 million as compared to the same period in 2007. The weighted average cost of notes payable and other borrowings decreased 110 basis points to 3.58% from 4.68% for the three-month period ended June 30, 2008 as compared to the same period last year.

Provision for Loan Losses. Provision for loan losses increased $7.1 million or 313.9% for the three-month period ended June 30, 2008, as compared to the same period last year. Management evaluates a variety of qualitative and quantitative factors when determining the adequacy of the allowance for losses. Management continues to evaluate and monitor the individual borrowers and underlying collateral as it relates to the current economic conditions. Due to the current economic climate and recent increases in delinquent loans and non-accrual loans (as discussed under “Asset Quality” below), management determined that increased provisions for loan losses were appropriate to reflect the risks inherent in the various lending portfolios during the current period. The provisions were based on

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management’s ongoing evaluation of asset quality and pursuant to a policy to maintain an allowance for losses at a level which management believes is adequate to absorb probable losses on loans as of the balance sheet date.

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

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	Three Months Ended June 30,
	2008							2007
					Average							Average
	Average				Yield/			Average				Yield/
	Balance		Interest		Cost(1)			Balance		Interest		Cost(1)
	(Dollars In Thousands)
Interest-Earning Assets
Mortgage loans	$	3,186,986	$	49,613		6.23	%	$	3,016,235	$	51,474		6.83	%
Consumer loans		728,714		12,149		6.67			639,242		11,787		7.38
Commercial business loans		266,278		3,949		5.93			231,799		4,770		8.23
Total loans receivable(2) (3)		4,181,978		65,711		6.29			3,887,276		68,031		7.00
Mortgage-related securities(4)		274,105		3,669		5.35			244,773		3,006		4.91
Investment securities(4)		89,338		800		3.58			76,425		932		4.88
Interest-bearing deposits		62,141		328		2.11			26,660		395		5.93
Federal Home Loan Bank stock		54,829		—		0.00			41,361		283		2.74
Total interest-earning assets		4,662,391		70,508		6.05			4,276,495		72,647		6.80
Non-interest-earning assets		331,141							211,500
Total assets	$	4,993,532						$	4,487,995
Interest-Bearing Liabilities
Demand deposits	$	1,096,070		3,259		1.19		$	940,345		5,703		2.43
Regular passbook savings		228,126		266		0.47			193,630		212		0.44
Certificates of deposit		2,139,524		23,317		4.36			2,109,636		25,531		4.84
Total deposits		3,463,720		26,842		3.10			3,243,611		31,446		3.88
Short-term borrowings		194,397		1,743		3.59			494,281		6,658		5.39
Long-term borrowings		949,217		8,502		3.58			375,317		3,526		3.76
Total interest-bearing liabilities		4,607,334		37,087		3.22			4,113,209		41,630		4.05
Non-interest-bearing liabilities		40,308							38,694
Total liabilities		4,647,642							4,151,903
Stockholders’ equity		345,890							336,092
Total liabilities and stockholders’ equity	$	4,993,532						$	4,487,995
Net interest income/interest rate spread(5)			$	33,421		2.83	%			$	31,017		2.75	%
Net interest-earning assets	$	55,057						$	163,286
Net interest margin(6)						2.87	%						2.90	%
Ratio of average interest-earning assets to average interest-bearing liabilities		1.01							1.04

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

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Non-Interest Income. Non-interest income decreased $2.8 million or 19.3% to $11.8 million for the three months ended June 30, 2008, as compared to $14.6 million for the same period in 2007. The decrease for the three-month period ended June 30, 2008 was primarily due to the decrease in real estate partnership revenue of $4.7 million as a result of no sales. In addition, loan servicing income decreased $279,000. These decreases were partially offset by an increase in service charges on deposits of $768,000, an increase in net gain on sale of loans of $656,000, an increase in other non-interest expense of $317,000, an increase in other revenue from real estate operations of $250,000 and an increase in investment and insurance commissions of $199,000 for the three-month period ended June 30, 2008, as compared to the same period in the prior year.

Non-Interest Expense. Non-interest expense decreased $96,000 or 0.4% to $26.8 million for the three months ended June 30, 2008, as compared to $26.9 million for the same period in 2007. The decrease for the three-month period was primarily due to the decrease of real estate investment partnership cost of sales of $4.3 million as a result of no sales and a decrease in marketing expense of $497,000. These decreases were partially offset by an increase in compensation expense of $2.0 million due to the merger of S&C in January 2008, an increase in other non-interest expense of $1.1 million primarily due to increases in postage expense and loan operating expenses, an increase in furniture and equipment expense of $645,000, an increase in occupancy expense of $480,000 due to the merger of S&C, an increase in data processing expense of $325,000 and an increase in other expense from real estate operations of $106,000 for the three months ended June 30, 2008 as compared to the same period in the prior year.

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

The Corporation recognizes interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2008, the Corporation has not recognized any accrued interest and penalties related to uncertain tax positions.

The Corporation is subject to U.S. federal income tax as well as income tax of state jurisdictions. The tax years 2004-2007 remain open to examination by the U.S. federal and state jurisdictions to which we are subject.

Income tax expense decreased $3.1 million or 46.7% during the three months ended June 30, 2008, as compared to the same period in 2007. This decrease was due to a decrease in income before income taxes. The effective tax rate was 39.3% for the three-month period ended June 30, 2008, as compared to 40.4% for the same period last year.

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FINANCIAL CONDITION

During the three months ended June 30, 2008, the Corporation’s assets decreased by $200.2 million from $5.15 billion at March 31, 2008 to $4.95 billion at June 30, 2008. The majority of this decrease was attributable to a $155.0 million decrease in cash and cash equivalents, a $76.8 million decrease in loans receivable, which were partially offset by an increase of $15.8 million in foreclosed properties and repossessed assets as well as an increase of $10.7 million in investment securities.

Total loans (including loans held for sale) decreased $76.8 million during the three months ended June 30, 2008. Activity for the period consisted of (i) originations and purchases of $416.9 million, (ii) sales of $179.3 million and (iii) principal repayments and other adjustments (the majority of which are undisbursed loan proceeds) of $314.5 million.

Mortgage-related securities (both available for sale and held to maturity) increased $670,000 during the three months ended June 30, 2008 as a result of purchases of $24.2 million, which were partially offset by principal repayments and market value adjustments of $23.5 million in this period. Mortgage-related securities consisted of $139.0 million of mortgage-backed securities and $131.1 million of corporate collateralized mortgage obligations (“CMOs”) and real estate mortgage investment conduits (“REMICs”) issued by government agencies at June 30, 2008.

Management believes that the Corporation’s CMOs and REMICs 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.

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

Investment securities increased $10.7 million during the three months ended June 30, 2008 as a result of purchases of $19.8 million of such securities, which were partially offset by sales and maturities of $9.1 million of U.S. Government and agency securities.

Federal Home Loan Bank (“FHLB”) stock remained constant during the three months ended June 30, 2008.

Real estate held for development and sale increased $806,000 to $59.8 million at June 30, 2008 from $59.0 million at March 31, 2008.

Total liabilities decreased $198.7 million during the three months ended June 30, 2008. This decrease was largely due to a $133.0 million decrease in deposits, a $59.4 million decrease in borrowings and a $6.2 million decrease in other liabilities. 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 $169.0 million at June 30, 2008 and $220.3 million at March 31, 2008, and generally mature within one to five years.

Stockholders’ equity decreased $1.5 million during the three months ended June 30, 2008 as a net result of payment of cash dividends of $3.8 million. This decrease was partially offset by (i) comprehensive income of $613,000, (ii) stock options exercised of $1.5 million (with the excess of the cost of treasury shares over the option price ($1.1 million) charged to retained earnings), (iii) benefit plan shares earned and related tax adjustments totaling $13,000 and (iv) the issuance of shares for management and benefit plans of $157,000.

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ASSET QUALITY

Non-performing assets increased $34.6 million to $144.1 million at June 30, 2008 from $109.5 million at March 31, 2008 and increased as a percentage of total assets to 2.91% from 2.13% at such dates, respectively.

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

	At June 30,			At March 31,
	2008			2008			2007			2006
	(Dollars In Thousands)
Non-accrual loans:
Single-family residential	$	19,393		$	21,200		$	13,038		$	2,856
Multi-family residential		18,173			18,393			17,289			4,214
Commercial real estate		26,398			29,204			12,030			3,398
Construction and land		34,899			14,888			1,696			—
Consumer		2,955			2,258			705			548
Commercial business		18,313			15,298			2,283			2,513
Total non-accrual loans		120,131			101,241			47,041			13,529
Foreclosed properties and repossessed assets, net		24,006			8,247			7,411			2,192
Total non-performing assets	$	144,137		$	109,488		$	54,452		$	15,721
Performing troubled debt restructurings	$	400		$	400		$	400		$	—
Total non-accrual loans to total loans(1)		2.80	%		2.31	%		1.16	%		0.35	%
Total non-performing assets to total assets		2.91			2.13			1.20			0.37
Allowance for loan losses to total loans(1)		0.94			0.87			0.50			0.41
Allowance for loan losses to total non-accrual loans		33.52			37.82			43.62			115.09
Allowance for loan and foreclosure losses to total non-performing assets		27.95			34.98			37.71			100.48

⁽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 $18.9 million during the three months ended June 30, 2008. The increase in non-accrual loans at June 30, 2008 was the result of an increase of $20.0 million in non-accrual construction and land loans and an increase of $3.0 million in non-accrual commercial business loans and reflects the slow-down of the overall economy, including the housing market. Loans are placed on non-accrual status when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual. When a loan is placed on non-accrual status, previously accrued but unpaid interest is reversed against interest income. As a matter of policy, the Corporation does not accrue interest on loans past due more than 90 days. At June 30, 2008, the following non-accrual loans had loan balances greater than $1.0 million and have been added since March 31, 2008:

• $3.7 million multi-family residential loan secured by a golf course and condominium project located in central Wisconsin

• $2.3 million commercial real estate loan secured by a golf course and condominium project located in central Wisconsin

• $9.6 million construction and land loan secured by a condominium and retail complex in southern Wisconsin

• $6.1 million construction and land loan secured by a condominium project located in central Wisconsin

• $1.4 million construction and land loan secured by vacant land near a golf course located in central Wisconsin

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At June 30, 2008, the following non-accrual loans had loan balances greater than $1.0 million and were non-accrual at March 31, 2008:

• $1.3 million multi-family residential loan secured by duplexes and lots located in southern Wisconsin

• $2.7 million multi-family residential loan secured by two multi-family properties in central Wisconsin

• $1.1 million commercial real estate loan secured by a warehouse in northeast Wisconsin

• $3.0 million commercial real estate loan secured by a sports complex in southeast Wisconsin

• $1.3 million commercial real estate loan secured by a computer software company located in Oregon

• $1.4 million construction and land development loan secured by a property in northeast Wisconsin

• $1.2 million construction and land development loan secured by condominiums in southeast Wisconsin

• $1.9 million construction and land development loan secured by a retail development in northeast Wisconsin

• $2.6 million construction and land development loan secured by condominiums in southeast Wisconsin

• $2.0 million construction and land development loan secured by a retail center in southeast Wisconsin

• $1.2 million commercial business loan secured by a manufacturing plant in northern Wisconsin

• $1.6 million commercial business loan secured by a retail business located in southeast Wisconsin

Foreclosed properties and repossessed assets increased $15.8 million during the three months ended June 30, 2008. At June 30, 2008, the following foreclosed properties and repossessed assets had loan balances greater than $1.0 million and have been added since March 31, 2008:

• $4.0 million property secured by an apartment building located in Minnesota

• $1.0 million property secured by commercial and retail buildings in northeast Wisconsin

• $1.5 million property secured by commercial and retail buildings in northeast Wisconsin

At June 30, 2008, the following foreclosed property and repossessed asset had a balance greater than $1.0 million and was foreclosed properties and repossessed assets at March 31, 2008:

• $2.9 million property secured by a condominium projected in southern Wisconsin

At June 30, 2008, assets that the Corporation had classified as substandard consisted of $169.3 million of loans and foreclosed properties. At the same date, reserves on these assets in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan” were $19.3 million and $123.0 million of such assets are considered impaired. At March 31, 2008, substandard assets amounted to $143.9 million ($104.1 million of which are considered impaired). An asset is classified as substandard when it is determined that it is inadequately protected by the current net worth and paying capacity of the obligor or by the collateral pledged, if any, and that the Corporation will sustain some loss if the deficiencies are not corrected. At June 30, 2008, substandard assets included twenty-eight loans with a carrying value of greater than $1.0 million, each of which is noted above except the following:

• Four multi-family loans to one borrower totaling $11.9 million secured by a golf course located in central Wisconsin

• $1.4 million loan secured by a commercial lot located in southeast Wisconsin

• $1.3 million loan secured by an office building located southern Wisconsin

• $1.1 million commercial loan secured by a commercial business in northeast Wisconsin

At June 30, 2008, the Corporation had $103.7 million of impaired loans, net of a specific valuation allowances. At March 31, 2008, impaired loans were $86.4 million, net. A loan is defined as impaired when, according to FAS 114, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. A summary of the details regarding impaired loans follows:

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	At June 30,			At March 31,
	2008			2008			2007			2006
				(In Thousands)
Impaired loans with valuation reserve required	$	54,619		$	52,866		$	2,130		$	6,381
Impaired loans without a specific reserve		68,411			51,192			45,718			9,107
Less:
Specific valuation allowance		(19,286	)		(17,639	)		(517	)		(3,111	)
	$	103,744		$	86,419		$	47,331		$	12,377
Average impaired loans	$	73,213		$	61,931		$	24,620		$	9,010
Interest income recognized on impaired loans	$	43		$	107		$	44		$	208
Interest income recognized on a cash basis on impaired loans	$	43		$	107		$	44		$	208
Loans on nonaccrual status	$	120,131		$	101,241		$	47,040		$	13,529
Loans past due ninety days or more and still accruing	$	—		$	—		$	—		$	—

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

	At June 30,		At March 31,
	2008		2008		2007		2006
	(In Thousands)
30 to 59 days	$	52,655	$	66,617	$	12,776	$	9,874
60 to 89 days		25,278		12,928		5,414		733
Total	$	77,933	$	79,545	$	18,190	$	10,607

The increase in loans 60-89 days delinquent since March 31, 2008 was in part due to two borrowers with loans totaling approximately $15.7 million secured by commercial and multi-family residential properties. Management continues to evaluate and monitor the individual borrowers and underlying collateral as it relates to the current economic conditions.

The Corporation’s loan portfolio, foreclosed properties and repossessed assets are evaluated on a continuing basis to determine the necessity for additions and recaptures to the allowance for loan losses and the related adequacy of the balance in the allowance for loan losses account. These evaluations consider several factors, including, but not limited to, general economic conditions, loan portfolio composition, loan delinquencies, prior loss experience, collateral value, anticipated loss of interest and management’s estimation of future losses. During the quarter ended June 30, 2008, management increased the qualitative factors to reflect the slow down in the economy. 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

33

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
	June 30,
	2008			2007
	(Dollars In Thousands)
Allowance at beginning of period	$	38,285		$	20,517
Charge-offs:
Mortgage		(5,216	)		(450	)
Consumer		(266	)		(206	)
Commercial business		(1,944	)		(3	)
Total charge-offs		(7,426	)		(659	)
Recoveries:
Mortgage		—			7
Consumer		6			14
Commercial business		—			70
Total recoveries		6			91
Net charge-offs		(7,420	)		(568	)
Provision		9,400			2,271
Allowance at end of period	$	40,265		$	22,220
Net charge-offs to average loans		(0.71	)%		(0.06	)%

Although management believes that the June 30, 2008 allowance for loan losses is adequate based upon the current evaluation of loan delinquencies, non-performing assets, charge-off trends, economic conditions and other factors, there can be no assurance that future adjustments to the allowance, through increased provision for loan losses, will not be necessary, which could adversely affect the Corporation’s results of operations. Management also continues to pursue all practical and legal methods of collection, repossession and disposal, and adheres to high underwriting standards in the origination process in order to continue to maintain strong asset quality.

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LIQUIDITY AND CAPITAL RESOURCES

On an unconsolidated basis, the Corporation’s sources of funds include dividends from its subsidiaries, including the Bank, interest on its investments and returns on its real estate held for sale. The Bank’s primary sources of funds are payments on loans and securities, deposits from retail and wholesale sources, FHLB advances and other borrowings.

At June 30, 2008, the Bank had outstanding commitments to originate loans of $84.1 million and commitments to extend funds to, or on behalf of, customers pursuant to lines and letters of credit of $355.6 million. Scheduled maturities of certificates of deposit for the Bank during the twelve months following June 30, 2008 amounted to $1.77 billion. Scheduled maturities of borrowings during the same period totaled $279.9 million for the Bank and $118.0 million for the Corporation. 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 a secondary credit loss exposure in the amount of $23.8 million at June 30, 2008 related to approximately $1.73 billion of residential mortgage loans that the Corporation has originated as agent for the FHLB. Under the credit enhancement, the FHLB is liable for losses on loans up to one percent of the original delivered loan balances in each pool. The Corporation is then liable for losses over and above the first position up to a contractually agreed-upon maximum amount in each pool that was delivered to the Program. The Corporation receives a monthly fee for this credit enhancement obligation based on the outstanding loan balances. Based on historical experience, the Corporation does not anticipate that any credit losses will be incurred under the credit enhancement obligation.

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

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

Credit Agreement

On June 9, 2008, we entered into an amended and restated credit agreement with U.S. Bank National Association, as agent for the lenders, and the several lenders from time to time parties thereto (the “Credit Agreement”). The Credit Agreement provides for a revolving credit facility in an aggregate principal amount of $120.0 million. See “Other” for a summary of the material terms of the Credit Agreement. The revolving credit facility matures on September 30, 2008. As of June 30, 2008, we owed an aggregate of $118.0 million to the lenders under the Credit Agreement, which is due payable on September 30, 2008. These borrowings are shown in the Company’s financial statements as “short-term borrowings.” For additional information about the Credit Agreement, see Part II, Item 5 — Other Information.

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The following summarizes the Bank’s capital levels and ratios and the levels and ratios required by the OTS at June 30, 2008 and March 31, 2008:

											Minimum Required
						Minimum Required					to be Well
						For Capital					Capitalized Under
	Actual					Adequacy Purposes					OTS Requirements
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars In Thousands)
At June 30, 2008:
Tier 1 capital
(to adjusted tangible assets)	$	359,333		7.46	%	$	144,524		3.00	%	$	240,874		5.00	%
Risk-based capital
(to risk-based assets)		399,598		10.61			301,299		8.00			376,623		10.00
Tangible capital
(to tangible assets)		359,333		7.46			72,262		1.50			N/A		N/A
At March 31, 2008:
Tier 1 capital
(to adjusted tangible assets)	$	352,311		7.04	%	$	150,210		3.00	%	$	250,349		5.00	%
Risk-based capital
(to risk-based assets)		390,596		10.14			308,273		8.00			385,341		10.00
Tangible capital
(to tangible assets)		352,311		7.04			75,105		1.50			N/A		N/A

The following table reconciles the Bank’s stockholders’ equity to regulatory capital at June 30, 2008 and March 31, 2008:

	June 30,			March 31,
	2008			2008
	(In Thousands)
Stockholders’ equity of the Bank	$	434,566		$	432,382
Less: Goodwill and intangible assets		(77,576	)		(77,734	)
Accumulated other comprehensive income		2,343			(2,337	)
Tier 1 and tangible capital		359,333			352,311
Plus: Allowable general valuation allowances		40,265			38,285
Risk-based capital	$	399,598		$	390,596

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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 principal real estate investment subsidiary, IDI, is required to guarantee the partnership loans of its subsidiaries for the development of homes for sale. At June 30, 2008, IDI had guaranteed $31.5 million of loans to partnerships made by subsidiaries of IDI. At the same date, $28.8 million of such loans were outstanding. The table below summarizes the individual subsidiaries and their respective guarantees and outstanding loan balances.

				Amount		Amount
Subsidiary	Partnership	Amount		Outstanding		Outstanding
of IDI	Entity	Guaranteed		at 6/30/08		at 3/31/08
(Dollars in thousands)
Oakmont	Chandler Creek	$	15,000	$	15,000	$	15,000
Davsha III	Indian Palms 147, LLC		500		431		396
Davsha V	Villa Santa Rosa, LLC		1,000		796		722
Davsha VII	La Vista Grande 121, LLC		15,000		12,538		12,105
Total		$	31,500	$	28,765	$	28,223

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 $31.5 million. At June 30, 2008, the Corporation’s investment in these partnerships consisted of assets of $49.1 million and cash and other assets of $3.1 million. The liabilities of these partnerships consisted of other borrowings of $29.0 million (reported as a part of FHLB and other borrowings), other liabilities of $1.4 million (reported as a part of other liabilities) and minority interest of $6.0 million. These amounts represent the Corporation’s maximum exposure to loss at June 30, 2008 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 June 30, 2008 has not changed materially since March 31, 2008. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Asset/Liability Management” in the Corporation’s Annual Report on Form 10-K for the year ended March 31, 2008.

REGULATORY DEVELOPMENTS

On November 2, 2006, the Federal Deposit Insurance Corporation (“FDIC”) adopted final regulations to implement the Federal Deposit Insurance Reform Act of 2005 passed by Congress to create a stronger and more stable insurance system. The final regulations include the annual assessment rates that became effective at the beginning of 2007. The new rates for nearly all banks vary between five and seven cents for every $100 of domestic deposits. Applied to the Bank’s assessment base of approximately $3.2 billion, this translates to an annual deposit premium of approximately $1.6 million to $2.3 million. Most banks, including the Bank, have not been required to pay any deposit insurance premiums since 1995. As part of the Reform Act, Congress provided credits to institutions that paid high premiums in the past to bolster the FDIC’s insurance reserves. As a result, the majority of banks will have assessment credits to initially offset all of their premiums in 2007. The preliminary assessment credit for the Bank was calculated at $2.7 million.

FORWARD-LOOKING STATEMENTS

This report contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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

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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 mortgage-backed securities 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.

Item 3 Quantitative and Qualitative Disclosures About Market Risk.

The Corporation’s market rate risk has not materially changed from March 31, 2008. See Item 7A in the Corporation’s Annual Report on Form 10-K for the year ended March 31, 2008. See also “Asset/Liability Management” in Part I, Item 2 of this report.

Item 4 Controls and Procedures.

The Corporation’s management, with the participation of the 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 principal executive officer and principal financial officer concluded that the disclosure controls and procedures are operating in an effective manner with the following exception: the Company neglected to timely disclose and file the Credit Agreement and Pledge Agreement described in the section captioned “Item 5 - Other Information” of this form 10Q. As a result, management has initiated additional procedures to regularly identify and consider all contracts entered into by the Corporation which could be material contracts in order to determine on a timely basis the disclosure and filing requirements with respect to such agreements.

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

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Part II — Other Information

Item 1 Legal Proceedings.

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

Item 1A Risk Factors.

In addition to the risk factors set forth below and the other information set forth in this report, you should carefully consider the factors discussed in “Part I, Item 1A. Risk Factors” in our Annual Report filed on Form 10-K for the fiscal year ended March 31, 2008, which could materially affect our business, financial condition or future results.

Our Credit Agreement requires us to observe certain covenants that limit our flexibility in operating our business.

Our Credit Agreement requires us to comply with affirmative and negative covenants customary for restricted indebtedness. See “Management’s Discussion and Analysis — Credit Facility.” These covenants limit our ability to, among other things:

• incur additional indebtedness or issue certain preferred shares;

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

• make certain investments;

• sell certain assets; and

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

A breach of any of these covenants could result in a default under the Credit Agreement. Upon the occurrence of an event of default, all amounts outstanding under Credit Agreement could become immediately due and payable and our lenders could terminate all commitments to extend further credit. If we are unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure that indebtedness. If the lenders under the secured credit facilities accelerate the repayment of borrowings, we may not have sufficient assets to make the payments when due.

If our lenders fail to renew our loans for additional terms or provide us with refinancing opportunities, we may be unable to meet our debt obligations, which would have a material adverse affect on our operations and the value of our common stock.

Our unpaid principal balances owed to our lenders under the Credit Agreement generally mature on September 30, 2008. The facilities do not include a commitment to refinance the remaining outstanding balance of the loans when they mature and there is no guarantee that our lenders will renew their loans at that time. Refusal to provide us with renewals or refinancing opportunities would cause our indebtedness to become immediately due and payable upon the contractual maturity of such indebtedness, which could result in our insolvency if we are unable to repay the debt.

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

The decline in fair value of our stock could adversely affect our ability to raise capital, dilute current shareholders’ ownership or make it more expensive to raise capital, as well as increase the risk of incurring impairment to our recorded goodwill.

The decline in the market prices of financial stocks in general, and our stock in particular, could make it more expensive for us to raise capital in the public or private markets. Any issuance of capital stock at current trading prices would significantly dilute the ownership of our current shareholders because we would have to issue more shares than if we had raised the same amount of capital when our share price was higher. A decline in our performance could adversely impact our stock price and the level of interest in an equity offering making it more difficult or expensive to attract investors’ interest. In the case of a debt offering, it could also result in a higher cost of funds, which could negatively impact our future earnings.

Loans made to us under the Credit Agreement mature on September 30, 2008 and failure by us to meet our payment obligations to the lenders by such date could have a material adverse affect on our business operations.

Unless extended, the borrowings under our Credit Agreement are due on September 30, 2008. As of June 30, 2008, we did not have sufficient cash to meet our payment obligations under the Credit Agreement when due. We have requested that the Agent extend the maturity date to December 31, 2008, to give the Corporation time to explore capital raising alternatives and secure additional capital. There can be no assurance that an extension will be granted or that, if granted, we will be able to raise additional capital to pay the balance within such period.

If we fail to meet our payment obligations under the Credit Agreement, such failure will constitute an event of default under the Credit Agreement. When an event of default occurs, the Agent, on behalf of the Lenders, may among other remedies, (1) cease permitting the Corporation to borrow further under the line of credit, (2) terminate any outstanding commitment and (3) seize assets of the Corporation pledged as collateral for borrowings. If the Agent were to take one or more of these actions, it could have a material adverse affect on our reputation and operations.

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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(1)
April 1 -April 30, 2008		—	$	—		—		1,572,160
May 1 - May 31, 2008		—		—		—		1,572,160
June 1 - June 30, 2008		—		—		—		1,572,160
Total		—	$	—		—		1,572,160

(1) Effective November 3, 2006, the Board of Directors extended the current share repurchase program of approximately 1.3 million shares of its outstanding common stock in the open market for an additional year. In July 2007, the Board of Directors approved the repurchase of an additional 5% of the Corporation’s common stock, representing approximately 1,068,000 of outstanding shares and extended all previous share repurchase authorizations for a year. 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.

The Annual Meeting of Stockholders was held on July 22, 2008. There were 21,457,268 shares of common stock eligible to be voted, and 19,109,253 shares present at the meeting by holders thereof in person or by proxy which constituted a quorum. The following is a summary of the results of items voted upon.

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	Number of Votes
	For		Withheld
Election of Directors for three-year terms expiring in 2011:
Richard A. Bergstrom		18,460,081		649,172
Donald D. Parker		18,432,910		676,343
James D. Smessaert		18,434,142		675,111

	For		Against		Abstained
Appointment of McGladrey & Pullen LLP as independent registered public accounting firm for the fiscal year ending March 31, 2009		18,672,169		354,229		82,855

There were no “broker non-votes” at the Annual Meeting.

Item 5 Other Information.

On June 9, 2008, the Corporation entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) among the Corporation; the lenders from time to time a party thereto (the “Lenders”); and U.S. Bank National Association, as administrative agent for such lenders (the “Agent”). The Credit Agreement supersedes the Corporation’s previous Revolving Credit Agreement, dated as of October 30, 2000, as amended. The Pledge Agreement is attached hereto as Exhibit 10.1.

Under the terms of Credit Agreement, the Corporation may borrow up to $120 million on a revolving credit facility (“Revolving Notes”) with interest payable quarterly either at (i) 2.00% plus the one-month LIBOR; or, (ii) 1.75% plus the one-, two- and three-month LIBOR. We currently have an aggregate $118.0 million principal amount outstanding under the Credit Agreement. Each Revolving Note is payable to the lender on September 30, 2008.

The Credit Agreement requires payment of a non-usage fee equal to 0.25% per year on the daily average unused amount, if any, by which the daily average outstanding revolving loans were less than $70 million during the preceding calendar quarter or other applicable period.

The Credit Agreement provides that the total revolving credit commitment must be automatically reduced to an amount not less than $70,000,000 no later than September 30,2008 from the proceeds of the issuance by the Corporation of additional shares of common or preferred stock. The Corporation may, on any interest payment date commencing June 30, 2008, and upon five days’ prior written notice to the Agent, permanently reduce without premium, penalty, or interest differential payment, the amount of the total revolving loan commitment; provided that no such reduction shall reduce the amount of the total revolving loan commitment to an amount less than the aggregate unpaid principal balances of the Revolving Notes on the date of such reduction. In addition, all outstanding principal and interest may become immediately due in the event of default by the Corporation.

The Credit Agreement also contains various covenants that, among other things, establish minimum capital and financial performance ratios; and, place certain restrictions on indebtedness, nonperforming assets, the allowance for loan losses, the redemption and issuance of common stock and the amounts of dividends payable to shareholders. Significant covenants include the following:

• The Bank must maintain all capital ratios required for the Bank to be considered “well capitalized” under the applicable regulations and guidelines issued by the Office of Thrift Supervision and all other Regulatory Agencies.

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• The Corporation must have adjusted net income of not less than (i) $5.5 million for the fiscal quarter ending on June 30, 2008 and (ii) $5.5 million for the fiscal quarter ending on September 30, 2008.

• Nonperforming loans may not exceed 3.50% of total loans at any time.

• The Corporation may not pay cash dividends on its common stock if, after taking a proposed cash dividend into account, the aggregate cash dividends paid to the Corporation by the Bank during a fiscal year would be less than 150% of the aggregate cash dividends paid by the Corporation on its common stock during such fiscal year.

In addition, the Corporation agreed to evaluate alternatives for raising additional capital, a portion of which would be raised by the Corporation and used to repay a portion of the Revolving Notes then outstanding and a portion of which may be raised by either the Corporation or the Bank and used to increase the Bank’s risk-based capital. Under the Credit Agreement the Corporation agreed to diligently pursue raising the additional capital no later than September 30, 2008.

The Credit Agreement contains customary representations, warranties, conditions, and events of default for agreements of such type. A copy of the Credit Agreement is attached hereto as Exhibit 10.1 The description of the Credit Agreement set forth above is not necessarily complete and is qualified in its entirety by reference to the full text of the Credit Agreement.

In connection with the Credit Agreement, the Corporation entered into a pledge agreement, dated as of June 9, 2008 (the “Pledge Agreement”), granting the Agent, for the benefit of the Lenders, a first priority security interest in all of the issued and outstanding stock of the Bank to secure the Registrant’s obligations under the Credit Agreement. The Pledge Agreement contains customary representations, remedies, and other provisions for agreements of such type. A copy of the Pledge Agreement is attached hereto as Exhibit 10.2. The description of the Pledge Agreement set forth above is not necessarily complete and is qualified in its entirety by reference to the full text of the Pledge Agreement.

Item 6 Exhibits.

The following exhibits are filed with this report:

Exhibit 10.1	Amended and Restated Credit Agreement, dated as of June 9, 2008, among Anchor Bancorp Wisconsin, Inc., the financial institutions from time to time party to the agreement and U.S. Bank National Association, as administrative agent for the lenders.
Exhibit 10.2	Pledge Agreement, dated as of June 9, 2008, between the Corporation and U.S. Bank National Association, as administrative agent for the lenders.
Exhibit 31.1	Certification of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 is included herein as an exhibit to this Report.
Exhibit 31.2	Certification of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 is included as an exhibit to this Report.
Exhibit 32.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) is included herein as an exhibit to this Report.
Exhibit 32.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) is included herein as an exhibit to this Report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ANCHOR BANCORP WISCONSIN INC.

Date: August 8, 2008	By:	/s/ Douglas J. Timmerman
		Douglas J. Timmerman, Chairman of the
		Board, President and Chief Executive Officer
Date: August 8, 2008	By:	/s/ Dale C. Ringgenberg
		Dale C. Ringgenberg, Treasurer and
		Chief Financial Officer

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